2006 ANNUAL R EPORT 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 conflict in interpretation, reference should be made to the French version, which is the authentic text. C OMBINED O RDINARY AND E XTRAORDINARY S HAREHOLDERS’MEETING O N M AY 10, 2007

Message from the Chairman 2

Board of Directors and General Management 6

Simplified organizational chart 7

Financial highlights 8

Management report of the Board of Directors 10

Report from the Chairman of the Board of Directors on internal control 66

Consolidated financial statements 73 • Balance sheet 74 • Income statement 75 • Statement of changes in equity 76 • Cash flow statement 77 • Notes to the financial statements 78 • Statutory auditors’ report 154

Parent company financial statements 157 • Balance sheet 158 • Income statement 160 • Cash flow statement 161 • Notes to the annual financial statements 162 • Subsidiaries and investments 172 • Investment portfolio 174 • Company results over the last five fiscal years 175 • Statutory auditors’ reports 176

Resolutions 180 • Text of the resolutions 180 • Statutory auditors’ reports 189

General information 193 • History of the Group 194 • General information regarding the parent company and its share capital 196 • Stock market information 202 • Main locations and properties 206 • Supply sources and subcontracting 209 • Statutory auditors 212

1 MESSAGE FROM THE CHAIRMAN

After a year of already strong growth in 2005, 2006 was an excellent year for the Christian Group, with record sales across all its business lines and a significant increase in its net profit. This performance confirms the validity of our Group’s strategy, built around the development of exceptional brands and the implementation of growth drivers, as well as the strengthening of our global leadership in luxury goods. In 2006, Christian Dior clearly reconfirmed its position as a major fashion and luxury brand worldwide. The Group’s values of elegance and innovation, which have guided its development since it was founded in 1947, are becoming increasingly important in a world on the lookout for extreme quality and creativity. In line with Christian Dior’s ambition to export its fashion on all five continents, the Group is now setting out to meet new clients in order to offer them exceptional products within a refined and prestigious setting. Russia is not the only region in which Christian Dior strengthened its network over 2006. The Group has also focused strongly on the Middle East, with openings notably in Kuwait and Abu Dhabi. In India, a first boutique has also been opened in New Delhi. This boutique opening program will continue over 2007. This focus on detail, perfection and elegance for innovation is behind the many successes of products thought up by our designers and produced by design studios with unparalleled expertise. The women’s Ready-to-Wear business has continued to develop, driven by John Galliano, who celebrated 10 years at Dior at the start of 2007. The leather goods activity has seen a number of remarkable successes, with the Gaucho, Cannage or even My Dior lines. Footwear also developed at a very strong rate. The Baby Dior activity, covering one of the brand’s latest licenses, has been brought back under direct control, opening up interesting opportunities in a highly dynamic sector in which Christian Dior has a highly legitimate position. The men’s ready-to-wear has also continued to develop, ramping up both its offerings and its distribution, notably with exclusive boutiques in Beverly Hills and Hong Kong. The Jewelry lines have continued to benefit from a very strong image, thanks to the designs of Victoire de Castellane, notably with the success of the Diorette ring, combined with strong commercial development.

2 LVMH achieved a record level of sales over 2006, while further improving its profitability, strengthening its leadership and increasing its market shares across all of its business lines. Once again, our teams have performed remarkably this year. Our Wines and Spirits houses have well managed the increased product quality and range and strong growth in volumes. Our Fashion and Leather Goods businesses have performed exceptionally in Europe and Asia. The Perfume & Cosmetics brands have once again gained market share from their competitors. The Watches and Jewelry business group has undeniably continued the successful recovery which has mobilized its teams in recent years. The Selective Retailing companies have become more competitive and this business group has further improved its profitability. The international expansion of our activities is particularly notable. We sell products from the best traditional crafts with growing success on every continent. Our brands are the leading ambassadors of this excellence with customers from very diverse origins and cultures. In the United States, the leading luxury goods market where demand is very strong, LVMH has almost quintupled its sales over ten years. In Asia, our progress year on year demonstrates our success with the increasing numbers of consumers in the region who are accessing the luxury goods market and recognizing quality. Today in China, for example, we lead in several areas thanks to the investments the Group had the foresight to make in a market with rapidly increasing influence. Our progress in Europe is also notable, proving the solidity of our heritage and the loyalty of our clients in the regions where our crafts and the culture of luxury first originated. LVMH’s home continent has also, of course, its own new markets in the Central European countries, and in particular Russia, where there is strong potential. Europe also profits from an increasing influx of tourists, fuelled in particular by China and Russia. LVMH will be 20 years old in 2007. Throughout the last two decades, the Group has developed and deployed a consistently successful and unique long-term growth strategy. It has remained close to this strategy while at the same time continuing to respond to and anticipate an ever-evolving world. From its inherited values, the Group has created an even more vibrant cultural heritage on which to base its future. The strength of the LVMH’s leading brands: , Christian Dior, , TAG Heuer, , …, give the Group a competitive advantage which it intends to strengthen as time goes on. In each of its activities, rising stars are confirming their potential as growth drivers. The future of our Group is full of exciting challenges and new opportunities in a market that has strong potential and a positive outlook. The rigorous pursuit of the Group’s growth strategy, the creativity and quality of its products, the talent of its craftsmen and designers, the efficiency of its marketing teams will enable LVMH to increase the lead over its competitors in the luxury marketplace. The Group’s sustainable development strategy is imbedded in our long-term value and future. The Group adheres to the United Nations’ Global Compact whose objectives form an integral part of its development strategy. The Group is dedicated to being a business of the community, one that respects the well-being of its contemporaries and that of future generations. We will continue to take the social and environmental implications of our activities very seriously.

3 We are looking ahead to 2007, which began in a still difficult monetary context, with greater energy and confidence. Our business will be driven by a highly dynamic approach to innovation across all of our business lines, by the development of new product categories and by our continued investments in distribution and communication on high-growth markets. These developments expected in the following months enable us to fix a new Group objective of a significant increase in its 2007 results.

4 5 B OARD OF D IRECTORS AND G ENERAL M ANAGEMENT

BOARD OF DIRECTORS PERFORMANCE AUDIT COMMITTEE Eric Chairman of the Board of Directors Chairman

Eric GUERLAIN (1) Pierre GODE Vice Chairman Christian de LABRIFFE Sidney TOLEDANO Chief Executive Officer

Antoine BERNHEIM (1) NOMINATING AND COMPENSATION Denis DALIBOT COMMITTEE Pierre GODE Antoine BERNHEIM Christian de LABRIFFE Chairman Jaime de MARICHALAR y SÁENZ de

TEJADA Pierre GODE Alessandro VALLARINO GANCIA Eric GUERLAIN (1) (2) Raymond WIBAUX Raymond WIBAUX Directors

EXECUTIVE MANAGEMENT STATUTORY AUDITORS

ERNST & YOUNG AUDIT Sidney TOLEDANO represented by Christian Mouillon Chief Executive Officer

MAZARS & GUERARD represented by Denis Grison

(1) Independent director. (2) Renewal proposed at the Shareholders’ Meeting of May 10, 2007.

6 S IMPLIFIED O RGANIZATIONAL C HART OF T HE G ROUP AS OF D ECEMBER 31, 2006

Christian Dior*

100%

Christian Dior Couture

100% Financière Jean Goujon

42,5%

LVMH*

* Listed company

7 F INANCIAL H IGHLIGHTS

Consolidated revenue by business group (EUR million)

5% 5% Christian Dior Couture 731

Wines and Spirits 18% 18% 2,994

Fashion and Leather Goods 5,222

33% 33% Consolidated revenue by geographic region of delivery

Perfumes and Cosmetics (EUR million) 2,519 15% 16% 2,295 Watches and Jewelry 16% 15% 737 4% 4% Selective Retailing Europe (excluding France) 3,891 3,531 25% 24% 20% 22%

Other activities United States and eliminations 4,141 2005 2006 (78)

26% 26% Consolidated revenue by currency Japan (EUR million) 2,086 14% 13% Euro 4,927 Asia (excluding Japan) 2,798 17% 17% 30% 31%

Other markets 7% 7% 1,165

US Dollar 2005 2006 4,801

31% 30%

Ye n 13% 2,088 15%

5% Pound Sterling 5% 3% 729 3% Hong Kong Dollar 18% 586 16% Other currencies 2,885 2005 2006

8 F INANCIAL H IGHLIGHTS

Key consolidated data (EUR million) 2006 2005 2004(1) Revenue 16,016 14,556 13,060 Profit from recurring operations 3,209 2,791 2,413 Net profit 2,133 1,654 1,443 Group share of net profit 797 618 549 Cash from operations before changes in working capital 3,593 3,185 2,789 Operating investments 784 727 661 Total equity 12,974 11,868 10,065 Net financial debt/Total equity ratio 37% 48% 66%

Data per share (EUR) Earnings per share Basic Group share of net profit 4.49 3.48 3.09 Diluted Group share of net profit 4.45 3.45 3.07

Dividend per share Interim 0.38 0.32 0.32 Final 1.03 0.84 0.65 Net dividend (2) 1.41 1.16 0.97

(1) Data published previously under French accounting standards has been restated under IFRS. (2) For fiscal year 2006, amount proposed to the Combined Shareholders’ Meeting of May 10, 2007

Information by business group (EUR million) 2006 2005 2004(1) Revenue by business group Christian Dior Couture 731 663 595 Wines and Spirits 2,994 2,644 2,259 Fashion and Leather Goods 5,222 4,812 4,366 Perfumes and Cosmetics 2,519 2,285 2,128 Watches and Jewelry 737 585 500 Selective Retailing 3,891 3,648 3,276 Other activities and eliminations (78) (81) (64) Total 16,016 14,556 13,060 Profit from recurring operations by business group Christian Dior Couture 56 53 51 Wines and Spirits 962 869 813 Fashion and Leather Goods 1,633 1,467 1,309 Perfumes and Cosmetics 222 173 150 Watches and Jewelry 80 21 (10) Selective retailing 400 347 238 Other activities and eliminations (144) (139) (138) Total 3,209 2,791 2,413

(1) Data published previously under French accounting standards has been restated under IFRS.

9 M ANAGEMENT R EPORT OF THE B OARD OF D IRECTORS

This report highlights significant events affecting the Christian Dior Group in 2006. We will review, in turn, your Company’s consolidated results, the activity by business group, and your Company’s performance.

I. CONSOLIDATED RESULTS The Christian Dior Group has had an excellent year in 2006, with record revenues in all of its business groups, and strong growth in net profit.

Revenue rose to 16,016 million euros, up 10% from the previous year. At constant structure and exchange rates, organic growth was 12%.

The Group’s profit from recurring operations was 3,209 million euros, up 15% from 2005, despite the negative impact of exchange rates. This growth, much higher than that of revenue, resulted from an increase in gross margin and from control of operating expenses. The ratio of profit from recurring operations to revenue reached 20%, one point higher than 2005.

Operating profit, after other operating income and expenses (down 99 million euros from 2005), was 3,082 million euros, up 20%.

Consolidated net profit totaled 2,133 million euros, compared to 1,654 million euros in 2005, with Group share at 797 and 618 million euros, respectively. This very positive trend reflects the growth of the above mentioned operating profit and the improvement in the net financial expense, partially offset by an increase in the tax expenses.

The main financial items were as follows:

(EUR million) 2006 2005 2004

Revenue 16,016 14,556 13,060 Profit from recurring operations 3,209 2,791 2,413 Operating profit 3,082 2,565 2,210 Net profit 2,133 1,654 1,443 of which, Group share 797 618 549

10 Each of these business groups recorded positive growth. • Revenue from Christian Dior Couture totaled 731 million euros, up 10% at current exchange rate and 11% at constant exchange rates. This performance reflects positive growth vectors, particularly Dior Homme, Footwear and Jewelry. • Revenue from Wines and Spirits totaled 2,994 million euros, a 13% increase based on published figures, with organic growth of 14%. Champagne and Cognac volumes grew by 8% and 10%, respectively. The strongest growth in revenue came from Japan for Champagne, and from China for Cognac. The Glenmorangie brands enjoyed excellent growth in 2006. • Revenue from Fashion and Leather Goods totaled 5,222 million euros, up 9% based on published figures, with organic growth of 11%. Louis Vuitton recorded double-digit organic revenue growth. The year was also marked by a very strong growth in revenue of Fendi, and a further increase in its profitability. • Revenue from Perfumes and Cosmetics totaled 2,519 million euros, up 10% based on published figures, with organic growth of 11%. All the Group’s brands and segments contributed to growth in this business group. The perfumes J’Adore, Addict and Miss Dior Chérie performed extremely well. The new Rouge Dior was highly successful and the skincare segment saw significant progress with the Capture line. • Revenue from Watches and Jewelry totaled 737 million euros, up 26% based on published figures, with organic growth of 28%. TAG Heuer also increased its market shares and achieved excellent global performance. accelerated its progress in the United States, Europe, and Asia. Montres Dior continued its growth, driven by the success of its Christal line. • Revenue from Selective Retailing totaled 3,891 million euros, up 7% based on published figures, with organic growth of 9%. DFS benefited from higher purchasing power among Asian customers in a market affected by weakness in the yen. Sephora continued its expansion in Europe, the United States, and China. Profit Revenue from recurring operations (EUR million) 2006 2005 2004 2006 2005 2004 Christian Dior Couture 731 663 595 56 53 51 Wines and Spirits 2,994 2,644 2,259 962 869 813 Fashion and Leather 5,222 4,812 4,366 1,633 1,467 1,309 Goods Perfumes and Cosmetics 2,519 2,285 2,128 222 173 150 Watches and Jewelry 737 585 500 80 21 (10) Selective Retailing 3,891 3,648 3,276 400 347 238 Other activities and (78) (81) (64) (144) (139) (138) eliminations Total 16,016 14,556 13,060 3,209 2,791 2,413

On first consolidation of LVMH in 1988, all brands then owned by LVMH were revalued in the accounts of the Christian Dior Group. In the Christian Dior consolidated financial statements, LVMH’s accounts are restated to account for valuations differences in appraisal of brands recorded prior to 1988 in the consolidated accounts of each of these companies.

11 Consequently, LVMH’s net profit was consolidated at 2,158 million euros, compared to 2,160 million euros before restatement, and is included in the net profit-group share of Christian Dior for 825 million euros (827 million euros before restatement). It should also be noted that, since the assets sold by LVMH have a higher consolidation value in Christian Dior’s books than posted at LVMH, the consolidated profit from disposals is reduced by the same amount.

Investments The net balance from investing activities (purchases and sales) yielded disbursements of 768 million euros. This includes, on the one hand, net operating investments totaling 784 million euros, and on the other hand, net financial divestments totaling 16 million euros.

Research and development Research and development expenses posted during the year totaled 43 million euros in 2006 (compared to 38 million in 2005). These amounts cover scientific research and development costs of skincare and makeup products in the Perfumes and Cosmetics business group.

Debt As of December 31, 2006, net consolidated debt totaled 4,763 million euros, compared to shareholders’ equity of 12,974 million euros. The ratio of net debt to shareholders’ equity dropped from 48% in 2005 to 37% in 2006. The improved financial structure resulted, on the one hand, from an increase in shareholders’ equity from 11,868 to 12,974 million euros and, on the other hand, from a reduction in net debt from 5,706 to 4,763 million euros. The increase in shareholders’ equity (including minority interests) of 1,106 million euros resulted essentially from net profit during the year of 2,133 million euros, less a total of 655 million euros in dividends paid, and 500 million euros in cumulative translation adjustments. The reduction in net financial debt of 943 million euros primarily reflects operating cash flow of 2,332 million euros, less net investments realized during the year totaling 768 million euros, and dividends paid totaling 655 million euros. As a result of its financial structure and the geographic distribution of its activities, the Group is particularly subject to the risks of interest rate increases and of a decline in certain currencies against euro. These risks are actively managed, on the one hand, through the application of rate swaps and purchases of caps to hedge the risk of increased interest rates, and on the other hand, by forward contracts and options products to hedge foreign exchange risk. The Group is committed to meeting certain financial ratios. For certain agreements, these involve covering debt through the assets portfolio, and for other agreements, covering debt through the year’s financial flows. However, the Group is more and more exempted from committing to meet specific financial ratios.

Consolidated cash flow statement The consolidated cash flow statement, as presented in the Group’s consolidated financial statements, details the main cash flows for fiscal year 2006.

12 In 2006, cash from operations before changes in working capital rose 13% to 3,593 million euros from 3,185 million euros in 2005. Net cash from operations before changes in working capital (i.e. after interest and income tax) rose 12% to 2,580 million euros from 2,297 million euros in 2005. Interest paid decreased significantly from 268 million euros in 2005 to 225 million euros in 2006, mainly as a result of the reduction in net financial debt. Income tax paid in 2006 amounted to 788 million euros against 620 million euros in 2005, in line with the increase in profit before tax. The working capital requirement increased by 248 million euros, i.e., less than in 2005, when it increased by 287 million euros. Specifically, the change in inventories generated cash requirements totaling 362 million euros, a result of growth in business and the replenishment of distilled alcohol inventories for Cognac and wines for Champagne. The year-on-year increase in trade accounts receivable generated a cash requirement of 157 million euros, mainly at the Champagne Houses and Hennessy, while the decrease in trade accounts payable provided extra cash of 234 million euros, notably at the Champagne Houses and Sephora. Overall, net cash from operating activities posted a surplus of 2,332 million euros. Net cash used in investing activities both financial and operating amounted to 768 million euros. Group operating investments, net of proceeds from disposals, resulted in a net cash outflows of 784 million euros. Their increase reflects the Group’s dynamic growth policy and that of its star brands, such as Louis Vuitton, Sephora, and DFS. Non-current available for sale financial assets represented a net inflow of 84 million euros over the year, mainly as a result of the disposal of shares and various investments. The remaining impact of the purchase and sale of consolidated investments represented a cash outflow of 68 million euros. Transactions relating to equity generated a 721 million euros outflow. Acquisitions of Dior and LVMH treasury shares and related derivatives by the Group, net of disposals, generated a cash outflow of 72 million euros. In particular, LVMH call options were acquired to hedge purchase options granted to employees. Dividends paid in 2006 by Christian Dior, excluding treasury shares, totaled 216 million euros, 149 million of which were distributed in May as the balance of the 2005 dividend, and 67 million in December as an interim dividend for 2006. Furthermore, the minority shareholders of consolidated subsidiaries received 439 million euros in dividends. These mainly consist of dividends paid to Diageo related to its 34% equity interest in Moët Hennessy and minority interests in DFS. After all operating, investing and equity-related activities (including dividend payments), excess cash flows totaled 843 million euros. As a result of these inflows, borrowings and financial debt were amortized in 2006 for an amount of 2,136 million euros, which is significantly higher than the amount of new borrowings. Bond issues and new borrowings provided a cash inflow of 1,286 million euros. The Group continued to finance its business in Japan through private investments issued under its Euro Medium Term Notes program and increased its recourse to the French commercial paper program in 2006.

13 At the year-end 2006, cash and cash equivalents net of bank overdrafts amounted to 799 million euros.

Workforce The Group’s workforce as of December 31, 2006 had increased by 5%, specifically as a result of the consolidation of newly acquired companies, but also because of internal growth in the most profitable business groups. The dynamism of all business groups allowed the group to create more jobs than it lost in sales of companies. The Christian Dior Group’s workforce was broken down as follows:

2006 2005 2004 Christian Dior Couture 2,650 2,595 2,304 Wines and Spirits 5,521 5,134 4,697 Fashion and Leather Goods 17,951 18,071 18,326 Perfumes and Cosmetics 14,747 13,628 13,488 Watches and Jewelry 1,882 1,844 1,777 Selective Retailing 23,275 21,544 20,045 Other 877 867 877

Total 66,903 63,683 61,514

II. RESULTS BY BUSINESS GROUP

Profits by business group as shown below are those of Christian Dior Couture and those published by LVMH, which have therefore not been adjusted.

1. Christian Dior Couture A – Highlights 2006 was marked by the following events: • Ongoing growth in revenue, with a sharp acceleration in the second half of the year Christian Dior Couture’s revenue increased to 731 million euros, up 10% at current exchange rates and 11% at constant exchange rates. Revenue growth, which totaled 8% in the first half at constant rates, accelerated sharply in the second half (+12% at constant exchange rates). This increased growth was particularly noticeable in the fourth quarter, where it was up 18% at constant exchange rates. • Results marked by continuing investment Operating profit, at 56 million euros, increased by 4% and reached 7.6% of revenue. This increase was achieved despite the need for significant investment and less favorable exchange rate hedging than in 2005. • Strong growth in new activities The Ready-to-Wear for men, Footwear, and Jewelry continued to develop strongly.

14 The direct takeover of the Baby Dior segment, which had operated under license until June 2006, allowed the Group to apply synergies at both development and distribution levels, which bore fruit at the end of 2006. Leather Goods saw considerable success with the Gaucho line, as well as with the Cannage line launched at the end of 2006, which also appears very promising. • Strengthening the network while giving priority to developing new markets. The network had 215 points of sale as of December 31, 2006, compared to 194 in 2005, yielding a net increase of 21 points of sale. ➤ Russia experienced major development in June 2006, with the takeover of the activities of the Christian Dior agent in Moscow, and the opening of a point of sale at the Gum department store in Red Square. ➤ In the Middle East, after an opening in Dubai in 2004, two new boutiques were opened within the framework of a local partnership, one in Kuwait, the other in Abu Dhabi. ➤ In India, Christian Dior Couture created a subsidiary to operate its New Delhi boutique. ➤ In China, two new points of sale were opened (Dalian and Cheng Du), bringing to eight the number of boutiques operating under the brand. A second boutique was opened in Macao. ➤ In North America, where the number of points of sale already totaled 46 by year-end 2005, a single major opening took place, the Los Angeles Homme boutique at Beverly Hills.

B – Consolidated results of Christian Dior Couture group Revenue from Christian Dior Couture business, at 731 million euros, grew by 10% compared with 2005. At a constant exchange rates, revenue would be 737 million euros, or an 11% increase compared with the previous year. Operating profit reached 56 million euros, compared to 53 million euros previous year. Operating profit, which benefited from growth in sales volume, nevertheless suffered the effect of reduced foreign exchange gains from the hedges applied to the major currencies, as well as additional expenses related to the expansion of the boutique network. Net financial income resulted in an expense of 14 million euros, compared to 9 million euros in 2005. This additional expense is essentially due to the financing cost of the investments made to enlarge the network and to the higher interest rates. The tax expense totaled 23 million euros, compared to 19 million in 2005. All the above items yielded a Group share of net profit of 16 million euros, compared to 23 million euros in 2005. The share attributable to third parties amounted 3 million euros.

15 C – Analysis of growth by business group % year-on- % constant (EUR million) 2006 2005 year rates rates

License Royalties 27 25(*) 66 Wholesale revenue 147 127 16 17 Retail revenue and other 557 511(*) 910

Total 731 663 10 11

(*) Takeover of franchises in the royalty line.

LICENSES Royalties from licenses by geographic region were as follows: % year-on- % constant (EUR million) 2006 2005 year rates rates

Europe 23 2222 Americas 4 32021

Total 27 25 6 6

Christian Dior Couture licenses saw growth of 6% despite the termination of license concessions for Baby Dior activities since June 2006, and Bijoux Fantaisie since May 2005, which were taken over for direct operation. Spectacles, which grew 20%, continued to represent a major growth area, testifying to the successful development of new products. In 2006 the “watches” license grew significantly, mainly thanks to the highly successful Christal watch.

WHOLESALE ACTIVITIES Wholesale activities increased by 16% at current rates in 2006. Two factors contributed to this growth: on the one hand, the commercial synergies developed by the Brand after the takeover of the Baby Dior and Bijoux Fantaisie lines, and on the other hand, sustained growth in the wholesale activities of the Dior Homme segment.

RETAIL SALES % year-on- % constant (EUR million) 2006 2005 year rates rates

Europe and the Middle East 235 208 13 13 Americas 106 96 10 10 Asia Pacific 216 20747

Total 557 511 9 10

16 Dior Homme experienced sustained growth across its entire product line (city, sportswear, and accessories). Two points of sale were opened in Beverly Hills and Hong Kong, bringing to 16 the number of points of sale dedicated exclusively to Dior Homme. The integration of the Bijoux Fantaisie distribution network since the takeover of the Christian Dior Couture license in May 2005, and the implementation of a new development strategy yielded significant growth in consolidated sales. Joaillerie Dior continued to confirm its development in 2006 within the brand’s existing network of boutiques, thereby benefiting from the proximity of Dior products in prestigious locations. The launch of the Diorette ring was highly successful and contributed to the very strong growth of this product line. Handbag sales increased in 2006 with the Gaucho line. The Cannage line, which was introduced in the fourth quarter of 2006, had already experienced significant success and should contribute significantly to revenues in 2007. In the retail network, Europe, the Eastern bloc countries, Asia, and the United States experienced significant growth. Only Japan lagged behind. The largest investments were in Europe and Asia, specifically with the opening of boutiques in Russia (2 boutiques in Moscow), and the Middle East (Abu Dhabi and Kuwait), and ongoing investments in China (Continental China, Hong Kong, and Macao).

D – Outlook In 2007, the company’s objective is to maintain its steady growth. The policy of increasing the sales network’s productivity will be continued through controlled expansion of the network and rigorous margin and cost management. In the Middle East, after the successful performance of the boutiques in Dubai, Kuwait, Abu Dhabi, two new boutiques will be opened in Saudi Arabia (Riyadh and Jeddah) and one in Qatar. The growth of the network in continental China should continue in the major cities. In Europe, a boutique will be opened in Athens.

2. Wines and Spirits In 2006, the Wines and Spirits group posted sales of 2,994 million euros, representing organic growth of 14%. The vigor of the brands is illustrated both by their growth in the key countries and by rapid advances supported by investments targeting new markets. Profit from recurring operations, at 962 million euros, is up 11%. The Champagne and Cognac volumes grew by 8% and 10%, respectively, in a context of price increases and new improvement in the product mix in favor of premium qualities and vintages. Moët & Chandon strengthened its global leadership in 2006 by achieving solid performance in its traditional markets, but also double-digit growth in promising markets such as Central Europe and China. A particularly remarkable activity in Japan results from steady investments made to promote the brand in this high-potential market. The growth posted by its pink champagnes – Rosé Impérial and Nectar Rosé in the United States – confirms the unassailable position of Moët & Chandon in this very bullish segment. continued to advance in all its key geographic zones and set new revenue records in 2006. Veuve Clicquot’s buoyancy was fostered by the gain in the famous orange label Brut, the strong growth in its prestigious La Grande Dame vintage and the success of

17 the international launch of Veuve Clicquot Rosé, first in , then in all the large capitals. The brand reinforced its premium position through price increases and confirmed the success of its value creation strategy. Estates & Wines, which regroups the sparkling and still wines of Moët Hennessy since 2004, posted a sharp increase in its financial results for the third consecutive year. Hennessy, the world’s uncontested leader in cognac, increased its growth in volume in 2006. That vigor was seen in all its products and its superior qualities posted excellent gains. The brand performed strongly in its strategic markets, the United States and China especially, two markets where Hennessy is benefiting from significant advertising investments. In the United States, the company’s leading market, Hennessy strengthened its position as leader in terms of volume and value in the cognac category. The brand relied on several growth vectors. It intensified the promotion operations at the selective points of sale and the innovative programs based on the creation of a tasting ritual in high-end establishments. In Asia, 2006 saw strong growth, especially in China, the world’s largest market for all high quality products: V.S.O.P,X.O and the Prestige line. In Japan, where the market for brown spirits is still depressed, Hennessy maintains its value strategy centered around the X.O and the Prestige line, which are experiencing double digit growth in volume. Confirming its potential, Russia is positioned as the third pillar of growth for Hennessy after the United States and China. Hennessy V.S. cognac is maintaining its exceptional market share in Ireland. In 2006, the Glenmorangie Plc brands, which the Moët Hennessy network continued to promote, experienced excellent growth in volume and value. Glenmorangie strengthened its position in North America and Europe and expanded its presence in the Asia-Pacific.

Outlook In 2007, the brands of the Wines and Spirits business group will continue their value strategy and their policy of innovation. Moët Hennessy will continue to expand its global distribution network and will strengthen its international presence, especially in Russia, China and Vietnam. Supported by ambitious, experienced staff, armed with prestigious and growing brands, the business group has the best assets to continue profitable growth and to strengthen its leadership in the market of prestigious wines and spirits.

3. Fashion and Leather Goods In 2006, the Fashion and Leather Goods group posted sales of 5,222 million euros, representing organic growth of 11%. Profit from recurring operations of 1,633 million euros was up 11%. Louis Vuitton continued to post double-digit organic revenue growth. In all regions of the world – Europe, Asia and America – the brand’s success was driven by strong demand from local customers. Particularly strong performance was achieved in Western and Central Europe and in Asian countries like China and South Korea. In a difficult monetary context that decreased the purchasing power of Japanese travelers (a weak yen all year), the changes in tourism-based revenue reflected the growing customer base from Mainland China, Eastern Europe and the Middle East.

18 Louis Vuitton expanded its retail network significantly, completing several exceptional renovation projects and ended the year with a net 23 new stores, raising its number of stores throughout the world to 368 as of December 31, 2006. The inauguration of the Maison Louis Vuitton in Taipei and the Macau Wynn store, as well as the first stores opened in Ukraine (Kiev), Hungary (Budapest) and Norway (Oslo) were highlights of 2006. With strong revenue growth and a further rise in profitability, Fendi posted in an historic year, continuing the excellent performance that characterized 2005. The successes achieved by the Italian brand, which were remarkable in Europe and Asia, were particularly outstanding in the United States. Fendi significantly expanded its retail network, opening 21 new stores worldwide over the year, including 10 boutiques within the prestigious American department stores Saks and Bloomingdale’s. It inaugurated its expansion in Kuwait, Germany, Macao and India. A large number of stores benefited from a remodeling inspired by the interior architecture created initially for the Roman “Palazzo”, Fendi’s flagship store in Europe. Donna Karan, a symbolic brand in the United States, continued to implement its strategy based on an expansion of its designs and the implementation of a new concept of exclusive boutiques. The women’s ready-to-wear collections (the luxury Collection line and the more active DKNY line) recorded solid growth. The brand benefited from the very promising launch of the Gold Donna Karan fragrance and the success of the clothing and accessories it inspired. In 2006, Donna Karan again improved its profitability.

Outlook 2007 will be a year full of creative developments for Louis Vuitton. This vitality will be reflected both in the expansion of its permanent lines, particularly Monogram, Damier, Monogram Multico, Denim and Epi and in the launch of new products from the fashion runway shows. In order to support production of these new products, Louis Vuitton will continue its efforts to boost productivity and improve logistics. The brand will continue to expand and renovate its network of stores with about twenty new stores opened in all regions of the world and it will extend its presence to several new countries. Fendi, which has now established a trend of profitable growth, will enhance all its product categories, launch a new high-potential line of leather goods and embark into new territories, particularly with the launch of a perfume. The other brands of the Fashion and Leather Goods business group will intensify the efforts already initiated to adapt their growth model, reaffirm their progress by capitalizing on their own identities, and boost their economic contribution to overall results.

4. Perfumes and Cosmetics In 2006 the Perfumes and Cosmetics group saw sales of 2,519 million euros, representing organic growth of 11% and demonstrating an exceptionally dynamic performance in its competitive sphere. Profit from recurring operations, at 222 million euros, rose 28%. In 2006, the Perfumes and Cosmetics business group significantly exceeded its performance compared to 2005, which was already a year of strong growth. All the brands contributed to the growth in revenue. The increase in profit from recurring operations exceeded objectives even in a context of higher promotional investments.

19 Backed by their image of excellence, the major French brands continued to gain market share, through innovation as well as through the perennial success of their flagship products and lines. The newer brands in the business group’s portfolio continued to grow steadily. Parfums Christian Dior continued its rapid and profitable growth with steady expansion in all product categories and solid performances in all geographic regions. The flagship brand of the business group maintained its status as growth leader within its competitive segment. This success was driven by a differentiation strategy resolutely aimed at the high-end of the selective retailing segment and the synergies developed with fashion. Parfums Christian Dior gained market share in the major consumer countries – in Europe and the United States, it recorded double-digit revenue growth – and increased its position in the emerging markets of China, Russia and the Middle East, where it made solid advances. Without a major product launch in 2006, Parfums Christian Dior based the growth in its perfumes on the quality and vitality of its great classics: J’Adore, which is promoted by Charlize Theron, continued its exceptional performance; Miss Dior Chérie, created in 2005, solidified its success. Among other events, the high-growth makeup segment benefited from the highly successful launch of the new Rouge Dior, embodied by Monica Bellucci, the development of the foundation Diorskin and the strong demand for the Collection and Backstage lines, which originated from the trends in the Dior Couture fashion shows. The strong growth of the beauty care segment was generated particularly by the performances of the core Capture line and the remarkable success of Capture Totale, an exceptional product represented by Sharon Stone. Capture Totale allowed Dior to significantly confirm its expertise and strengthen its position in the high-growth anti-ageing segment. Guerlain confirmed its dynamic performance and the relevance of its strategy to highlight its status as a major perfume maker by achieving growth rates that outpaced the market. Its 2006 performance was excellent in all its priority markets, generating new and strong improvement in Guerlain’s profitability. The company recorded double-digit revenue growth, driven by a vigorous policy of innovation, in its perfume, makeup and skin care segments. Parfums confirmed its new momentum in 2006 with double-digit revenue growth and an improved profit from recurring operations that exceeded initial objectives for the year. Parfums recorded strong growth in 2006, with a particularly strong performance in Europe and America, and a solid performance in Russia.

Outlook The business group has strong prospects for new gains in market share and continued improvement in its operating margin in 2007. Parfums Christian Dior plans to continue its high-quality and profitable growth, by reinforcing all of the foundations for its development. While continuing to support its flagship perfumes, the company will launch a major new perfume for women in September 2007. Growth for Guerlain will be driven by an innovation plan to strengthen the flagship lines of Insolence, L’Instant, Orchidée Impériale, KissKiss and Terracotta, and will include the launch of a new foundation product and the initiation of a project to gradually replace the brand’s skin care line.

20 projects a new year of revenue growth and improved profitability. 2007 is off to a good start for Parfums Kenzo, with a creative dynamic that will strengthen the brand’s positioning.

5. Watches and Jewelry In 2006, the Watches and Jewelry group posted sales of 737 million euros, representing organic growth of 28%. Its profit from recurring operations of 80 million euros grew sharply. In 2006, for the third consecutive year, the organic revenue growth from LVMH Watches and Jewelry brands has been much higher than that of its competitors. That growth is balanced among Europe, the Americas, Asia and Japan, and every watch and jewelry brand has improved its performance. The development of new markets is being actively pursued: the strengthening of distribution agreements, with the acquisition of an equity stake in Xinju Hengdeli in China, has enabled TAG Heuer, then Montres Dior and Zenith to gain a visible presence; the presence of TAG Heuer in India is today significant; the Middle East and Eastern Europe are also seeing openings and receiving targeted investments, both in jewelry and in watches. The financial recovery of the business group has continued and has translated into a 281% increase in profit from recurring operations. TAG Heuer continues to experience remarkable growth in volume and in value and is strengthening its star brand status within the LVMH portfolio and Swiss watchmaking. 2006 was marked by increased revenue in all markets, continued upmarket positioning and recognized technological innovation. TAG Heuer increased its leadership in the market segment of watches priced between 1,000 and 4,000 euros. Continuing its targeted expansion, strengthened its presence in high-priority markets, located primarily in Europe and Asia While making those investments, the brand continued to improve the productivity of its stores. After the 2005 opening in Taiwan, Chaumet opened a major store in Hong Kong in September, the bridgehead of its expansion in China. The brand has considerably increased its recognition and its positions in Japan where it is experiencing steady growth and has opened new boutiques inside Harrods in London, and under franchise in Saint Petersburg and in Almaty (Kazakhstan). The De Beers brand had an excellent year. While continuing its steady growth in Japan, it had a promising performance in the United States, a market that it entered in late 2005 in New York and Los Angeles.

Outlook Innovation, steady organic growth and continued improvement in profit from recurring operations are the goals that have been set for each brand and in each market in 2007. TAG Heuer, Zenith and Montres Dior have planned many innovations in their iconic lines and will continue their policy of upmarket positioning. TAG Heuer will update the architecture of its stores. Chaumet will increase its wristwatch offerings and its emblematic line Liens and will open a store in London on Bond Street while continuing to strengthen its presence in Asia, the Middle East and Eastern Europe. De Beers will introduce its first wristwatch collection and will increase its presence in the United States (in Las Vegas in January), the Middle East, Japan, Hong Kong and Korea.

21 The Watches and Jewelry business group will make its largest investments in Japan, the United States and China, without neglecting the specific resources allocated to the growth of emerging markets, the Middle East, India and Russia.

6. Selective Retailing In 2006, the Selective Retailing group revenue amounted to 3,891 million euros, representing organic growth of 9%. Its profit from recurring operations of 400 million euros was up 15%. In a climate of reduced spending by Japanese tourists, whose purchasing power declined in 2006 due to the weakness of the yen, DFS took advantage of the growing number of Chinese travelers. Because this phenomenon was anticipated and placed at the center of the DFS strategy for the past few years, the stores servicing destinations frequented by these new customers have experienced solid revenue growth. Continuing to capitalize on this market segment with high growth potential, DFS signed an agreement to open a galleria in Macao in early 2008, at the site of the Four Seasons Hotel. Miami Cruiseline, which holds strong positions in the cruise market, continued to raise its revenue and profitability significantly thanks to the increase in average purchasing per passenger. In 2006, with revenue growth, gains in market shares, new and strong improvement in profitability, Sephora exceeded its goals on both sides of the Atlantic. It expanded its presence in China and is preparing its foothold in the Middle East. The expansion into these new territories is financed by the cash flow generated in Europe and America. As of December 31, Sephora’s global network consisted of 621 stores. Sephora’s continued expansion in Europe translated into 31 net store openings and a large number of renovations. Every year, Le Bon Marché increasingly asserts itself as the benchmark store for luxury and prestige in the heart of Paris. Its recent developments in the world of women’s fashion contributed to a sharp increase in its revenue and profit from recurring operations in 2006. More high-end foreign customers are choosing Le Bon Marché as their preferred store when they are in Paris.

Outlook In 2007, DFS will amplify the efforts involved in its strategy of upmarket positioning to strengthen its standing as the leader among Japanese and Asian customers. The continued increase in international travel in zones where it has locations is an important source of long- term growth. Sephora’s goal is to intensify its profitable growth and, in order to do that, it will continue to strengthen its policy of innovation and exclusivity, while expanding its offerings in new profitable segments. The modernization of its network will continue, and the rate of store openings will be accelerated, particularly in France, the United States and China, not to mention the development of new markets (Middle East, Central Europe), which constitute growth drivers for the next few years. Continuing to cultivate its assets, Le Bon Marché starts 2007 with confidence.

22 III. RESULTS OF CHRISTIAN DIOR, SA The results of Christian Dior consist primarily of dividend revenue related to its indirect interest in LVMH, less financial expenses corresponding to the financing of this interest. Financial income totaled 172 million euros, compared to 154 million euros in 2005. This consists, on the one hand, of dividends received from subsidiaries and investments totaling 217 million euros and, on the other hand, of net interest expenses totaling 40 million euros. Tax savings recognized under the tax consolidation totaled 17 million euros. Net profit totaled 184 million euros, compared to 166 million euros in 2005.

Amount available for distribution (EUR)

• Net profit: 184,249,668.52 plus • retained earnings before appropriation: 43,227,088.83 amount available for distribution: 227,476,757.35

Proposed appropriation Distribution of a dividend of 1.41 euro per share: 256,235,137.68 Taken from: • distributable earnings totaling: 227,476,757.35 • ordinary reserves totaling: 28,758,380.33 for a total of: 256,235,137.68

Should this appropriation be approved, the net dividend would be 1.41 euro per share. As an interim dividend of 0.38 euro per share was paid on December 1, 2006, the balance of 1.03 euro will be paid out on May 15, 2007. With respect to this dividend distribution, individuals whose tax residence is in France will be entitled to the 40% deduction provided under Article 158 of the French Tax Code. Since shares held by the Company at the time of this payment are not entitled to a dividend, the amount corresponding to the dividend not paid on these shares will be allocated to retained earnings.

Distribution of dividends Total dividends allocated for distribution over the past three fiscal years, and the corresponding tax allowance, are as follows:

Tax (EUR) Net dividend Tax credit (*) allowance (*)

2005 1.16 – 0.496 2004 0.97 0.160 0.325 2003 0.87 0.435 –

(*) For individuals with tax residence in France.

23 IV. COMPANY SHAREHOLDERS Pursuant to Article L.233-13 of the Commercial Code, based on information received pursuant to Articles L.223-7 and L.233-12 of that Code, the following is a list of shareholders holding over 5% of the share capital or voting rights, to the best of the Company’s knowledge:

December 31, 2006 December 31, 2005 %of %of %of %of share voting share voting SHAREHOLDERS Number capital rights Number capital rights

Groupe Arnault, SAS (*) 125,630,157 69.13 82.29 125,616,157 69.12 81.92 41 avenue Montaigne 75008 Paris

(*) Directly or indirectly. Share capital, as of December 31, 2006, was 363,454,096 euros, divided among 181,727,048 shares with a par value of 2 euros; 126,581,274 shares benefited from a double voting right. As of December 31, the total number of voting rights, based on all shares entitled to voting rights and not including shares without voting rights, totaled 304,126,693. Pursuant to Articles L.255-208 and L.255-209, paragraph 1 of the Commercial Code, it is specifically stated that the Company: • over the past fiscal year, purchased 444,582 of its own shares, at an average price of 76.27 euros. These shares were purchased for allocation to employees exercising the stock options the Company had awarded them. At the close of the fiscal year, the number of shares thus held, allocated to stock option plans, totaled 4,162,097, with a net value of 173,746,273.01 euros. Their par value was 2 euros. These shares represented 2.29% of the share capital. • at the close of the fiscal year, also held 19,532 treasury shares, with a net value of 1,133,197.81 euros. These shares had been purchased with a view to stabilizing the stock price. These shares have a par value of 2 euros and represent 0.01% of the share capital. In accordance with legal requirements, these shares are stripped of their voting rights

24 Summary of transactions in Christian Dior securities during the year by directors and related persons as defined in Article R 621-43-1 of the Code monétaire et financier

Average Type of Number of price Person transaction shares (EUR)

Bernard Arnault Purchase (1) 160,000 25.95 Company(ies) related to the family of B. Arnault Purchase 14,000 70.08 Denis Dalibot Sale 1,500 74.80 Pierre Godé Purchase (1) 28,313 25.36 Eric Guerlain Sale 100,000 76.05 Sidney Toledano Purchase (1) 19,800 25.95 Individual(s) related to Mr. Toledano Sale 19,800 80.00

(1)Exercise of share option or subscription option.

V. BOARD OF DIRECTORS

Terms of office It is proposed that the Shareholders’ Meeting renews the term of office as director of Mr. Raymond Wibaux, for the statutory period of three years.

VI. FINANCIAL AUTHORIZATIONS

Authorization to engage in stock market transactions The Combined Shareholders’ Meeting of May 11, 2006 authorized the Board of Directors to acquire shares of the Company and set at 0.5% of the share capital the maximum number of shares that may be acquired and at 110 euros per share the maximum unit purchase price. The Board proposes to this Meeting that this authorization be renewed for a term of eighteen months, it being understood that such shares are acquired, exclusively for the purpose of setting up a liquidity line under the terms of a liquidity contract concluded with a brokerage firm. The total number of shares that may be acquired by the company would be limited to 0.5% of the share capital. The maximum purchase price per share would be 130 euros.

Authorization to reduce the share capital Pursuant to Article L.225-209 of the French Commercial Code, the Combined Shareholders’ Meeting of May 11, 2006 authorized the Board of Directors, should it consider that such an action serves the shareholders’ interests, to reduce the company’s share capital through cancellation of shares acquired in connection with the share buy-back programs.

The Board proposes that this authorization be renewed for a period of eighteen months.

25 Authorisations to increase share capital In order to enable the Company to proceed with capital increases not only by granting bonus share, but also, if necessary, to turn to the market, in France or abroad. To cover its Group development-related financing needs, it is proposed that you authorize the Board of Directors, for a period of 26 months, to: 1. increase the share capital, one or more times, up to an overall maximum amount of €40 million, including by issuing any type of securities giving immediate or future access to the share capital or giving the access to a debt securities. According to custom, in order to enable the execution of transactions through public offerings, you are asked to authorize the Board of Directors to issue shares without preferential subscription rights. Nevertheless, even so, if the issues take place on the French market, a grant of a priority right may be granted to shareholders. In the event of an issue without preferential subscription rights, the share issuance price shall be at least equal to the minimum price set forth by the statutory and regulatory provisions in force at the time of the issuance. In the event of any excess subscriptions in connection with a capital increase, the number of shares to be issued may be increased by the Board of Directors in accordance with applicable law. 2. increase the share capital to remunerate either for securities contributed in connection with a tender offer or within the limit of 10% of the share capital, for contributions in kind consisting in capital securities or investment securities giving access to capital. Details on authorities delegated to the Board of Directors on the subject of capital increases appear in the section, “Information on the Company and its share capital,” of the Annual Report.

VII. AMENDMENT OF THE BYLAWS, TO ENSURE COMPLIANCE WITH NEW LEGISLATION We propose that the company’s Bylaws be amended to reflect new legal provisions relating to the participation of shareholders in Shareholders’ Meetings.

VIII. INFORMATION ON COMPENSATION AND BENEFITS IN KIND TO COMPANY OFFICERS Pursuant to Article L.225-102-1 of the Commercial Code, the following is a breakdown of the gross compensation and Benefits in kind (1) paid or assumed by the Company and its controlled companies.

Mr. Bernard ARNAULT, Chairman of the Board of Directors (2): • Fixed compensation: 1,739,221 euros • Variable compensation: 2,200,000 euros • Directors’ fees: 119,056 euros • Benefit in kind: none

26 Mr. Eric GUERLAIN, Vice Chairman and Director: • Compensation: none • Directors’ fees: 9,528 euros • Benefit in kind: none Mr. Antoine BERNHEIM, Director: • Compensation: none • Directors’ fees: 309,528 euros • Benefit in kind: none Mr. Denis DALIBOT, Director (2): • Fixed compensation: 364,905 euros • Variable compensation: 472,500 euros • Directors’ fees: 53,251 euros • Benefit in kind: car Mr. Pierre GODE, Director (2): • Fixed compensation: 159,261 euros • Variable compensation: none • Directors’ fees: 133,312 euros • Benefit in kind: none Mr. Christian de LABRIFFE, Director: • Compensation: none • Directors’ fees: 9,528 euros • Benefit in kind: none Mr. Jaime de MARICHALAR y SÁENZ de TEJADA, Director: • Compensation: none • Directors’ fees: 13,333 euros • Benefit in kind: none Mr. Sidney TOLEDANO, Chief Executive Officer and Director (2): • Fixed compensation: 728,768 euros • Variable compensation: 550,000 euros • Directors’ fees: 36,528 euros • Benefit in kind: car Mr. Alessandro VALLARINO GANCIA, Director: • Compensation: none • Directors’ fees: none • Benefit in kind: none Mr. Raymond WIBAUX, Director: • Compensation: none • Directors’ fees: 9,528 euros • Benefit in kind: none (1) Benefit in kind: company car. (2) The details of the capital securities awarded to members of the Board of Directors during the fiscal year are provided in § XI.

27 Upon their retirement, under their employment contract, Group managers may receive a supplemental retirement benefit provided that they assert at the same time their entitlement to their basic retirement benefits under compulsory pension schemes. This supplemental payment corresponds to a specific percentage of the beneficiary’s salary, to which a ceiling is applied on the basis of the reference salary determined by the French social security scheme. Provisions recognized in 2006 for those supplemental retirement benefits are included in the amount shown for post-employment benefits under Note 30.3 of the consolidated financial statements.

IX. LIST OF OFFICES OR POSITIONS EXERCISED IN ALL COMPANIES BY COMPANY OFFICERS Pursuant to Article L.225-102-1 of the French Commercial Code, the following are all offices and positions exercised in all companies by each Company officer last year lapsed; for Directors whose term of office expires at the close of this Shareholders’ Meeting, the list includes positions and offices they have exercised over the past five fiscal years. 1. OFFICES OF CURRENT DIRECTORS Mr. Bernard ARNAULT, Chairman of the Board of Directors Date of birth: March 5, 1949. French. Date of first appointment: March 20, 1985. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for the 2007 fiscal year. Mr. Bernard Arnault began his career as an engineer with Ferret Savinel, where he became Senior Vice President for Construction in 1974, Chief Executive Officer in 1977 and finally Chairman and Chief Executive Officer in 1978. He remained with this company until 1984, when he became Chairman and Chief Executive Officer of Financière Agache SA and of Christian Dior SA. Shortly thereafter he spearheaded a reorganization of Financière Agache following a development strategy focusing on luxury brands. Christian Dior was to become the cornerstone of this new structure. In 1989, he became the leading shareholder of LVMH Moët Hennessy-Louis Vuitton, and thus created the world’s leading luxury products group. He assumed the position of Chairman and Chief Executive Officer in January 1989.

Current positions and offices Chairman and Chief Executive Officer of LVMH Moët Hennessy – Louis Vuitton, SA, France. Chairman of the Board of Directors: • Christian Dior, SA, France; • Louis Vuitton pour la Création, Fondation d’Entreprise, France; • Société Civile du Cheval Blanc, France. Chairman of Groupe Arnault, SAS, France. Director: • Christian Dior Couture S.A., France; • Raspail Investissements, SA, France; • LVMH Moët Hennessy-Louis Vuitton (Japan) KK, Japan.

28 Member of the Supervisory Board: • Lagardère SCA, France; • Métropole Télévision “M6”, SA, France.

Mr. Sidney TOLEDANO, Chief Executive Officer Date of birth: July 25, 1951. French. Date of first appointment: September 11, 2002. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for the 2007 fiscal year. Mr. Sidney Toledano began his career in 1977 as a marketing consultant with Nielsen International. He then served as Company Secretary of Kickers before joining the Executive Management of Lancel in 1984. In 1994, he joined Christian Dior Couture as Deputy Chief Executive Officer. He has been its Chairman since 1998.

Current positions and offices Chairman and Chief Executive Officer of: • Christian Dior Couture S.A., France; • John Galliano, SA, France; Chief Executive Officer and Director of Christian Dior, SA, France Chairman: • Fendi France, SAS, France; • Christian Dior Italia, Srl, Italy; • Bopel, Srl, Italy; • Mardi, Spa, Italy; • Lucilla, Srl, Italy; • Les Jardins d’Avron, LLC, USA; • Christian Dior S. de RL de CV, Mexico; • Christian Dior Commercial Shanghai Co, Ltd, China; • Christian Dior UK, Ltd, Great Britain. Chairman of the Board of Directors: • Fendi International, SA, France; • CDCH, SA, Luxembourg. Chairman and Director A of Fendi International BV, Netherlands. Director: • Fendi Adele, Srl, Italy; • Fendi Immobili Industriali, Srl, Italy; • Fendi Italia, Srl, Italy; • Fendi, Srl, Italy; • Fendi Asia Pacific, Limited, Hong Kong; • Fendi North America, Inc., USA; • Fendi, SA, Luxembourg;

29 • Christian Dior, Inc., USA; • Christian Dior UK, Ltd, Great Britain; • Christian Dior Far East, Ltd, Hong Kong; • Christian Dior Australia, Pty Ltd, Australia; • Christian Dior (Fashion) Malaysia Sdn, Malaysia; • Christian Dior Hong Kong, Ltd, Hong Kong; • Christian Dior New Zealand, Ltd, New Zealand; • Christian Dior Singapore, Pte Ltd, Singapore; • Christian Dior Couture Korea, Ltd, Korea; • Christian Dior Taiwan, Ltd, Taiwan; • Christian Dior Saipan, Ltd, Saipan; • Christian Dior Guam, Ltd, Guam; • Christian Dior Macau, Ltd, Macau; • Christian Dior Couture, CZ, Czech Republic. Representative Director of Christian Dior KK, Japan. Permanent Representative: • Christian Dior Couture S.A., Chairman of Les Jardins d’Avron SAS, France; • Christian Dior Couture, S.A., Director of Christian Dior Belgique, Belgium and Christian Dior do Brasil Ltd, Brazil. Manager: • Christian Dior GmbH, Germany; • Christian Dior Espanola, Spain; • Christian Dior Puerto Banus, Spain; • Christian Dior Couture Maroc, Morocco; • Calto, Srl, Italy. General Director: • Christian Dior Couture RUS, Russia; • Christian Dior Couture Stoleshnikov, Russia.

Mr. Eric GUERLAIN, Vice Chairman Date of birth: May 2, 1940. French. Date of first appointment: June 29, 1994. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for the 2008 fiscal year. Mr. Eric Guerlain began his career as a financial analyst and served in various roles with the Morgan Stanley Group between 1968 and 1974, in New York and Paris. In 1974, he joined J.P. Morgan as director of the international financial affairs department. In 1979, the bank assigned him to co-lead J.P. Morgan Ltd. Investment Bank in London as Vice Chairman. He then worked at Lazard Brothers Ltd as a consultant until 1989. At the same time, since 1970 he has been a Director of Société Guerlain, S.A. and, in 1990, assumed the chairmanship of the Supervisory Board of the controlling holding company of the Guerlain Group. He served in that position until 1994.

30 Current positions and offices Chairman of the Board of Directors of Société Hydroélectrique d’Energie, SA, France. Vice-Chairman and Director of Christian Dior, SA, France. Permanent Representative of LVMH Fashion Group, Director of Guerlain, SA, France.

Mr. Antoine BERNHEIM Date of birth: September 4, 1924. French. Date of first appointment: May 14, 2001. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for the 2008 fiscal year. Mr. Antoine Bernheim was Managing Partner of Lazard Frères & Cie from 1967 to 2000 and Partner of Lazard LLC from 2000 to 2005. He served as Chairman and Chief Executive Officer of La France SA from 1974 to 1997 and of Euromarché from 1981 to 1991. Chairman of Generali SpA between 1995 and 1999, he was reappointed to this position in 2002.

Current positions and offices Chairman of Assicurazioni Generali Spa, Italy. Chief Executive Officer of Société Française Générale Immobilière, SA, France. Vice-Chairman and Director: • LVMH Fashion Group, SA, France; • LVMH Finance, SA, France; • LVMH Moët Hennessy-Louis Vuitton, SA, France; • Alleanza Assicurazioni, Italy; • Intesa Sanpaolo, Italy. Director: • Bolloré, SA, France; • Christian Dior, SA, France; • Christian Dior Couture S.A. France; • Ciments Français, SA, France; • Generali France, SA, France; • Generali España Holding, SA, Spain; • AMB Generali Holding, AG, Germany; • BSI: Banca della Svizzera Italiana, Switzerland; • Generali Holding Vienna, AG, Austria; • Graafschap Holland, Netherlands; • Mediobanca, Italy. Member of the Supervisory Board of Eurazeo, SA, France. Vice-Chairman and Member of the Supervisory Committee of Financière Jean Goujon, SAS, France.

31 Mr. Denis DALIBOT Date of birth: November 15, 1945. French. Date of first appointment: May 17, 2000. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for the 2008 fiscal year. Mr. Denis Dalibot began his career with the ITT Group. From 1984 to 1987 he served as Deputy Administration and Finance Director for Sagem. He joined Groupe Arnault in 1987 as Group Finance Director.

Current positions and offices Director – Group Managing Director of Financière Agache, SA, France. Director and Finance Director of Christian Dior, SA, France. Chairman and Chief Executive Officer of: • Agache Développement, SA, France; • Europatweb, SA, France. Chairman: • Montaigne Finance, SAS, France; • Aurea Finance, Luxembourg. Legal Representative of Financière Agache, manager of Sevrilux, SNC, France. Director: • Christian Dior Couture S.A. France; • Financière Agache Investissement, SA, France. Permanent Representative: • Europatweb, Director of GA Placements, SA, France; • Financière Agache, Director of Raspail Investissements, SA, France; • Le Bon Marché – Maison Aristide Boucicaut, Director of Franck & Fils, SA, France; • Louis Vuitton Malletier, Director of Belle Jardinière, SA, France; • Ufipar, Director of Le Jardin d’Acclimatation, SA, France. Manager: • Kléber Participations, SARL, France; • Montaigne Investissements, SCI, France; • Montaigne Services, SNC, France; • Groupement Foncier Agricole Dalibot, France. Member of the Management Committee of Groupe Arnault, SAS, France. Member of the Supervisory Board: • Financière Jean Goujon, SAS, France; • Sémyrhamis, SAS, France.

32 Mr. Pierre GODE Date of birth: December 4, 1944. French. Date of first appointment: May 14, 2001. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for the 2007 fiscal year. Mr. Pierre Godé began his career as a lawyer admitted to the Lille bar (avocat au barreau de Lille) and has taught at the Lille law university and the Nice law university. He has served as Advisor to the Chairman of Groupe Arnault since 1986.

Current positions and offices Chairman and Chief Executive Officer of: • Financière Agache, SA, France; • Raspail Investissements, SA, France. Chairman of Financière Jean Goujon, SAS, France. Managing Director of Groupe Arnault SAS, France. Director: • Christian Dior, SA, France; • Christian Dior Couture, S.A., France; • LVMH Moët Hennessy-Louis Vuitton, SA, France; • SA du Château d’Yquem, France; • Société Civile du Cheval Blanc, France; • LVMH Moët Hennessy-Louis Vuitton, Inc., United States; • Sofidiv UK, Limited, Great Britain.

Manager of PMG, SARL, France. Legal Representative of Financière Agache, Manager of Sevrilux, SNC, France. Legal Representative of Groupe Arnault, SAS, Chairman of Ficonor, SAS, France Member of the Management Committee of Sofidiv, SAS, France. Member of the Supervisory Board of Sémyrhamis, SAS, France.

Mr. Christian de LABRIFFE Date of birth: March 13, 1947. French. Date of first appointment: May 14, 1986. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for the 2008 fiscal year. Mr. Christian de Labriffe began his career with Lazard Frères & Cie, where he was Managing Partner from 1987 to 1994. Since 1994, he has been Managing Partner of Rothschild & Cie Banque. Current positions and offices Managing Partner of Rothschild & Cie Banque SCS, France. Chairman of Transaction R, SAS, France. Managing Partner of Rothschild & Cie, France.

33 Member of the Supervisory Board: • Financière Rabelais, SCA, France; • Bénéteau, SA, France; • Paris Orléans, SA, France. Director: • Christian Dior, SA, France; • Christian Dior Couture S.A., France; • Nexity, SA, France.

Mr. Jaime de MARICHALAR y SÁENZ de TEJADA (Duke of Lugo) Date of birth: April 7, 1963. Spanish. Date of first appointment: May 11, 2006. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for the 2008 fiscal year. Mr. Jaime de Marichalar y Sáenz de Tejada began his career in 1986 in Paris where he worked for Banque Indosuez on the MATIF Futures Market. He then joined Crédit Suisse and worked for the Investment Bank and Private Banking. In January 1998, he was appointed Chief Executive Officer of Crédit Suisse in Madrid. He is also Chairman of the Winterthur Foundation.

Current positions and offices Chief Executive Officer and Advisor to Crédit Suisse, Spain. Advisor to the Chairman of the LVMH Group for Spain. Director: • Christian Dior, SA, France; • , SA, Spain; • Sociedad General Immobiliaria de España, SA, Spain; • Portland Valderrivas, Spain; • Winterthur Vida, Spain. Member of the Supervisory Board of Art+Auction Editorial, United States and Great Britain.

Mr. Alessandro VALLARINO GANCIA Date of birth: October 15, 1967. Swiss. Date of first appointment: May 11, 2006. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for 2008 fiscal year. After an first experience as consultant with Roland Berger & Partners in Munich, Mr. Alessandro Vallarino Gancia joined the investment bank Alex. Brown & Sons Inc. in the United States, for whom he worked as a financial consultant from 1993 to 1996. From 1996 to 2001, he worked as an investment banker for institutional clients at Donaldson Lufkin & Jenrette International Inc. (in New York and Geneva), then at Crédit Suisse First Boston (in Geneva).

34 He is director and founder of AAP SA, a company specializing in alternative funds and asset management since 2001.

Current positions and offices Chief Executive Officer of AAP, SA. Director of Christian Dior, SA, France.

2. DIRECTOR TO BE REAPPOINTED Mr. Raymond WIBAUX Date of birth: July 17, 1938. French. Date of first appointment: June 11, 1993. Expiration of term: Annual Shareholders’ Meeting convened to approve the financial statements for the 2006 fiscal year. Mr. Raymond Wibaux began his career at Blanche Porte in Tourcoing where he served as Company Secretary, then Chief Executive Officer and, finally, Chairman and Chief Executive Officer from 1975 to 1986. He was Chairman and Chief Executive Officer of Banque Joire Pajot Martin from 1987 to 1992. He has been Chairman of Financière Joire Pajot Martin since 1992.

Current positions and offices Chairman of the Board of Directors of Financière Joire Pajot Martin, SA, France. Director: • Christian Dior, SA, France; • Participex, SA, France. Permanent Representative: • Financière Joire Pajot Martin, Director of E.T.O., France; • Stratefi, Director of Compagnie Textile et Financière, SA, France.

Former Positions and offices Member of the Supervisory Board of S.C.A. Foncière Massena, France.

X. INFORMATION ON AUTHORIZATIONS GIVEN TO THE BOARD OF DIRECTORS TO INCREASE OR REDUCE SHARE CAPITAL This information appears in the “General information on share capital” section.

XI. STOCK OPTION AND BONUS SHARE PLANS

1. Options granted by the parent company, Christian Dior Eleven share purchase option plans were in force as of December 31, 2006. Each plan has a term of ten years. Share purchase options may be exercised after the end of a period of three or five years from the plan’s commencement date. Under certain circumstances, specifically in the case of retirement, this period does not apply.

35 For all plans, one option gives the right to one share.

Number of options granted Number of Authorization Of which, Exercise Number of options not of the Plan Number Of which, the first price options exercised Shareholders’ commencement of benefi- Company ten (EUR) exercised as of Meeting date ciaries Total (1) officers employees (2) (3) in 2006 (3) 12. 31. 2006 (3)

May 30, 1996 Oct. 14, 1996 (4) 21 94,600 40,000 50,500 25.95 207,000 – May 30, 1996 May 29, 1997 22 97,900 50,000 43,000 32.01 4,200 275,200 May 30, 1996 Nov. 3, 1998 23 98,400 65,000 28,200 18.29 5,200 276,000 May 30, 1996 Jan. 26, 1999 14 89,500 50,000 38,000 25.36 28,313 266,000 May 30, 1996 Feb. 15, 2000 20 100,200 65,000 31,000 56.70 10,000 382,000 May 14, 2001 Feb. 21, 2001 17 437,500 308,000 121,000 45.95 13,000 404,500 May 14, 2001 Feb. 18, 2002 24 504,000 310,000 153,000 33.53 60,000 429,000 May 14, 2001 Feb. 18, 2003 25 527,000 350,000 143,000 29.04 8,000 504,000 May 14, 2001 Feb. 17, 2004 26 527,000 355,000 128,000 49.79 – 495,000 May 14, 2001 May 12, 2005 27 493,000 315,000 124,000 52.21 – 490,000 May 14, 2001 Feb. 15, 2006 24 475,000 305,000 144,000 72.85(5) – 475,000 May 11, 2006 Sep. 6, 2006 1 20,000 – 20,000 74.93 – 20,000

(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. (2) Figures for periods prior to 1999 result from the translation into euros of data originally presented in French francs. (3) Adjusted for the transaction referred to under (1). (4) Plan expired on November 30, 2006. (5) Exercise price for Italian residents: 77.16 euros.

2. Options granted by its subsidiary, LVMH

Share purchase option plans

Number of options granted Number of Authorization Exercise Number of options of the Plan Number Of which, Of which, price options not exercised Shareholders’ commencement of benefi- Company the first ten (EUR) exercised as of Meeting date ciaries Total (1) officers employees (2) in 2006 (2) 12. 31. 2006 (2)

June 8, 1995 May 30, 1996 (3) 297 233,199 105,000 46,500 34.15 535,990 – June 8, 1995 May 29, 1997 319 233,040 97,500 46,000 37.50 93,400 531,835 June 8, 1995 Jan. 29, 1998 346 269,130 97,500 65,500 25.92 137,585 438,225 June 8, 1995 Mar. 16, 1998 4 15,800 – 15,800 31.25 15,400 55,000 June 8, 1995 Jan. 20, 1999 364 320,059 97,000 99,000 32.10 274,050 958,995 June 8, 1995 Sep. 16, 1999 9 44,000 5,000 39,000 54.65 – 210,000 June 8, 1995 Jan. 19, 2000 552 376,110 122,500 81,000 80.10 1,750 1,794,900 May 17, 2000 Jan. 23, 2001 786 2,649,075 987,500 445,000 65.12 183,525 2,294,150 May 17, 2000 Mar. 6, 2001 1 40,000 – 40,000 63.53 5,000 35,000 May 17, 2000 May 14, 2001 44,669 1,105,877 (4) – – 66.00 24,225 529,694 May 17, 2000 May 14, 2001 4 552,500 450,000 102,500 61.77 – 552,500 May 17, 2000 Sep. 12, 2001 1 50,000 – 50,000 52.48 – 50,000 May 17, 2000 Jan. 22, 2002 993 3,284,100 1,215,000 505,000 43.30 (5) 730,308 2,298,367 May 17, 2000 May 15, 2002 2 8,560 – 8,560 54.83 3,000 5,560 May 17, 2000 Jan. 22, 2003 979 3,213,725 1,220,000 495,000 37.00 (6) 238,725 2,881,700

(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 five-for-one stock split. (2) Adjusted for the transactions referred to under (1). (3) Plan expired on May 29, 2006. (4) 25 options were granted to each beneficiary. (5) Exercise prices for Italian and US residents were 45.70 euros and 43.86 euros, respectively. (6) The exercise price for Italian residents is 38.73 euros.

36 Share subscription option plans

Number of options granted Number of Authorization Number of options of the Plan Number Of which, Of which, Exercise options not exercised Shareholders’ commencement of benefi- Company the first ten price exercised as of Meeting date ciaries Total officers employees (EUR) in 2006 12. 31. 2006

May 15, 2003 Jan. 21, 2004 906 2,747,475 972,500 457,500 55.70 (1) – 2,715,225 May 15, 2003 May 12, 2005 495 1,924,400 862,500 342,375 52.82 (1) – 1,921,950 May 11, 2006 May 11, 2006 520 1,789,359 852,500 339,875 78.84 (1) – 1,789,359

(1) Exercise prices for Italian residents for plans commencing on January 21, 2004 and May 12, 2005 and May 11, 2006 are 58.90 euros, 55.83 euros, and 82.41 euros, respectively.

3. Options granted to and exercised by the Group’s officers and the Group’s first ten employees • Options granted during the year to each company officer

Exercise Company Number price Plan expiration Beneficiary granting the options Plan date of options (EUR) date Option type

B. Arnault Christian Dior Feb. 15, 2006 220,000 72.85 Feb. 14, 2016 Purchase

LVMH May 11, 2006 450,000 78.84 May 10, 2016 Subscription

D. Dalibot Christian Dior Feb. 15, 2006 35,000 72.85 Feb. 14, 2016 Purchase

P. Godé LVMH May 11, 2006 30,000 78.84 May 10, 2016 Subscription

S. Toledano Christian Dior Feb. 15, 2006 50,000 72.85 Feb. 14, 2016 Purchase

• Options exercised during the year by each company officer Company Number of Exercise price Beneficiaries granting options Plan date options (EUR)

B. Arnault Christian Dior Oct. 14, 1996 160,000 25.95

LVMH May 30, 1996 440,000 34.15

D. Dalibot Christian Dior Feb. 18, 2002 1,500 33.53

P. Godé Christian Dior Jan. 26, 1999 28,313 25.36

S. Toledano Christian Dior Oct. 14, 1996 19,800 25.95

37 • Options granted during the fiscal year to the ten employees of the Group, other than company officers, holding the largest number of options

Company Number of Exercise price granting options Plan date options (EUR) Option type

Christian Dior Feb. 15, 2006 134,000 72.85 Purchase

Feb. 15, 2006 10,000 77.16 Purchase

Sep. 6, 2006 20,000 74.93 Purchase

LVMH May 11, 2006 309,875 78.84 Subscription

May 11, 2006 30,000 82.41 Subscription

• Options exercised during the fiscal year to the ten employees of the Group, other than company officers, having exercised the largest number of options Company Number of Exercise price granting options Plan date options (EUR) Christian Dior Oct. 14, 1996 24,000 25.95 Feb. 15, 2000 10,000 56.70 Feb. 21, 2001 13,000 45.95 Feb. 18, 2002 45,500 33.53 Feb. 18, 2003 6,000 29.04 LVMH May 30, 1996 800 34.15 May 29, 1997 25,300 37.50 Jan. 29, 1998 54,700 25.92 Mar. 16, 1998 11,000 31.25 Jan. 20, 1999 121,000 32.10 Jan. 23, 2001 18,500 65.12 Jan. 22, 2002 39,000 43.30 Jan. 22, 2002 13,900 43.86 Jan. 22, 2003 42,000 37.00

38 4. Bonus shares granted by the subsidiary, LVMH

Number of bonus shares granted Authorization of Plan Number Total at Of which, Of which, Balance the Shareholders’ commencement of the date Company first ten as of Meeting date beneficiaries of grant officers employees 12.31.2006

May 12, 2005 May 12, 2005 333 97,817 – 23,325 97,142 May 12, 2005 May 11, 2006 347 164,306 – 30,575 164,306

5. Activity concerning the share purchase option plans

Number of options 2006 2005 2004

Options outstanding as of January 1 3,993,213 3,574,600 3,160,000 Options granted 495,000 493,000 527,000 Options exercised (335,713) (74,387) (112,400) Expired options (135,800) –– Options outstanding as of December 31 4,016,700 3,993,213 3,574,600

XII. CAPITAL STRUCTURE AND OTHER 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 Commercial Code, the capital structure and other information that could have a bearing on a takeover bid or exchange offer are presented below: • Capital structure of the Company: the Company is controlled by Groupe Arnault SAS, which held, directly or indirectly, 69.13% of the capital and 82.29% of the voting rights as of December 31, 2006; • Share issuance and buybacks: under various resolutions, the Shareholders’ Meeting has delegated to the Board of Directors full powers to: – increase the share capital, with or without shareholders’ pre-emption rights, in a total nominal amount not to exceed 40 million euros, or 11% of the Company’s current share capital; and – grant share subscription options, within the limit of 3% of the share capital. The law provides for the suspension during the period of a takeover bid or exchange offer of any delegation whose application would be likely to cause the operation to fail.

39 XIII. EFFECTS OF OPERATIONS ON THE ENVIRONMENT The reporting scope of environmental indicators in 2006 includes the following: • the production facilities and warehouses owned and/or operated by companies in which the Group controls more than 50% of the share capital or over which it exercises operational control; • the French stores of Sephora and Louis Vuitton, Le Bon Marché and the main stores of DFS and Fendi; • the main administrative sites located in France; • the fleets of vehicles owned by the Group in France, used to transport Group personnel. In 2006, the reporting scope was extended to 414 sites (405 sites in 2005). Only 22 sites are still excluded, as their impact on the environment is not significant in comparison to the impacts at Group level. Change in the reporting scope since 2005 comprise the integration of Glenmorangie, certain DFS and Louis Vuitton stores and the fashion and leather goods activities of Givenchy and Kenzo. The activity of Glenmorangie had a significant effect on certain indicators. The 2006 reporting scope does not include: • the environmental impacts of the administrative buildings not mentioned above and of stores owned directly or franchised by Perfumes and Cosmetics, and Fashion and Leather Goods not mentioned above; • the impacts of the fleets of vehicles owned by the Group outside France used for employee travel; • energy consumption arising from the shipment of merchandise exclusively by external transport companies; • the companies in which the Group controls less than 50% of the share capital or over which it does not exercise operational control. With respect to the financial reporting scope, in 2006 the environmental data reporting system covers: • 96% (in numerical terms) of the Group’s production facilities, warehouses, and administrative sites; • 45% of the Group’s total sales surface. Pursuant to Decree No. 2002-221 of February 20, 2002, known as the “NRE decree”, (nouvelles régulations économiques), the following sections provide information concerning the nature and importance of the elements that have a relevant and significant impact on operations. Since fiscal year 2002, the Group’s annual environmental data reporting has been verified each year, based on data from LVMH, by the Environment and Sustainable Development department of Ernst & Young, the Group’s statutory auditor; the verified indicators are identified with the Í symbol.

40 13.1 Water, energy and raw material consumption 13.1.1 Water consumption Water consumption is analyzed based on the following: • process requirements: use of water for cleaning purposes (tanks, products, equipment, floors), air conditioning, employees… such water consumption generates waste water; • agricultural requirements: water consumption for vine irrigation outside France, as irrigation is not practiced in France. As such, water is taken directly from its natural environment for irrigation purposes. Its consumption varies each year according to changes in weather conditions.

Change (in m3) 2006 2005 (in %)

“Process” requirements 2,474,126(1) 1,446,772 71 Agricultural requirements 6,870,975 6,648,138 3 (vine irrigation) Í

(1) Increase due to the change in reporting scope (integration of Glenmorangie and certain DFS stores). Process water consumption rose by 71% between 2005 and 2006 in absolute terms reaching about 2.47 million cubic meters. By way of comparison, for the manufacturing sector in France, water consumption amounts to about 3.8 billion cubic meters (IFEN, 2005). This increase is mainly the result of the integration of Glenmorangie and the DFS stores. The manufacture of whisky requires large quantities of water during malting, brewing and distillation. At Louis Vuitton’s workshop in Issoudun, water consumption was reduced by 50% following the modification of the water supply for the waste water treatment plant. At Parfums Christian Dior, the ongoing action plan has begun to show results, with water consumption dropping by more than 10% in 2006, representing more than 40,000 cubic meters of water.

Water consumption by business group Change (“Process” requirements in m3) 2006 2005 (in %)

Christian Dior Couture 9,951 7,888 26 Wines and Spirits 1,428,090 (1) 618,458 131 Fashion and Leather Goods 231,986 (2) 131,897 76 Perfumes and Cosmetics 348,996 447,465 (22) Watches and Jewelry 15,700 13,389 17 Selective Retailing 423,631 (3) 209,586 102 Holding Company 15,772 18,089 (13)

Total 2,474,126 1,446,772 71

(1) Increase due to the change in reporting scope (integration of Glenmorangie). (2) Increase due to the change in reporting scope (integration of certain DFS stores). (3) Increase due to the change in reporting scope (integration of certain Louis Vuitton stores).

41 Water consumption for vineyard irrigation purposes is essential for the preservation of vines in California, Argentina, Australia and New Zealand due to the climate in these areas. This practice is closely supervised by the local authorities that deliver authorizations and the Group has also taken measures to limit consumption: • recovery of rain water by Domaine Chandon California, Domaine Chandon Australia, Bodegas Chandon Argentina; reuse of treated waste water by Domaine Chandon Carneros, California; recovery of water run-off by the creation of artificial lakes by Newton, California and Cape Mentelle; • drafting of agreements on measures and specifications 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); • standardized drip method of irrigation: between 73% and 100% of wine-producing regions have now adopted this method; • weather forecasts for optimized irrigation (weather stations at Domaine Chandon California); • periodical inspections of irrigation systems to avoid the risk of leakage; • adoption of the “reduced loss irrigation” technique, which reduces water consumption and actually improves the quality of the grapes, the size of the vine, yielding an enhanced concentration of aroma and color.

13.1.2 Energy consumption Energy consumption corresponds to the combined internal (combustion on a Group site, such as fuel oil for electricity generators, butane, propane and natural gas) and external (combustion does not occur on site) energy sources. In 2006, the subsidiaries included in the reporting scope consumed 496,000 MWh provided by the following sources: 52% in electricity, 26% in natural gas, 11% in fuel oil, 5% in vapor, 3% in fuel, and 3% in butane-propane. This consumption corresponds, in decreasing order of use to Wines and Spirits (42%), Selective Retailing (25%), Perfumes and Cosmetics (16%), and Fashion and Leather Goods (13%). The remaining 4% is generated by Watches and Jewelry, Christian Dior Couture and the administrative activities of the holding structure. By way of comparison, for the manufacturing sector in France, electricity and natural gas consumption amount to 126,000,000 MWh and 184,000,000 MWh, respectively (French Ministry of Finance, 2005). Energy consumption by business group Change (in MWh) 2006 2005 (in %) Christian Dior Couture 3,295 3,000 10 Wines and Spirits Í 208,478 (1) 110,762 88 Fashion and Leather Goods Í 66,731 66,049 1 Perfumes and Cosmetics Í 80,819 81,635 (1) Watches and Jewelry Í 7,771 7,829 (1) Selective Retailing Í 122,969 (2) 91,826 34 Holding Company Í 5,937 6,905 (14) Total 496,000 368,006 35

(1) Increase due to the change in reporting scope (integration of Glenmorangie). (2) Increase due to the change in reporting scope (integration of certain DFS stores).

42 Consumption by energy source in 2006 Natural Heavy Butane (in MWh) Electricity gas fuel Vapor Fuel oil Propane

Christian Dior Couture 2,470 – – 825 – – Wines and Spirits 61,776 54,389 57,021 15,188 10,972 9,132 Fashion and Leather Goods 38,148 22,256 – 235 1,140 4,952 Perfumes and Cosmetics 39,883 37,854 5 1,087 1,990 – Watches and Jewelry 3,058 4,128 – – 585 – Selective Retailing 106,354 11,387 – 4,728 500 – Holding 4,928 420 – 551 38 –

Total 256,617 130,434 57,026 22,614 15,225 14,084

13.1.3 Raw material consumption Given the variety of the Group’s operations, the only significant and relevant factor considered for the analysis of raw material consumption is the quantity, expressed in metric tons of packaging (both primary receptacles and secondary packaging), used for consumer goods placed on the market: • Christian Dior Couture: boutique bags, pochettes, cases... • Wines and Spirits: bottles, boxes, caps... • Perfumes and Cosmetics: bottles, cases... • Fashion and Leather Goods: boutique bags, pochettes, cases... • Watches and Jewelry: cases and boxes... • Selective Retailing: boutique bags, pochettes, cases... For Sephora, figures include all Sephora branded product packaging worldwide.

The packaging used for transport is excluded from this analysis.

Packaging placed on the market Change (in metric tons) 2006 2005 (in %)

Christian Dior Couture 135 162 (17) Wines and Spirits Í 148,121 (1) 117,735 26 Fashion and Leather Goods Í 2,298 2,269 1 Perfumes and Cosmetics Í 19,042 16,678 14 Watches and Jewelry Í 493 (2) 213 131 Selective Retailing Í 1,676 1,502 12

Total 171,765 138,559 24

(1) Increase due to the change in reporting scope (integration of Glenmorangie). (2) Increase due to the increase in business volumes.

43 Breakdown of the total weight of packaging consumed, by type of material, in 2006 Other Paper- packaging (in metric tons) Glass cardboard Plastic Metal material

Christian Dior Couture – 116 17 – 2 Wines and Spirits 130,317 14,553 726 1,169 1,356 Fashion and Leather Goods – 1,822 – – 476 Perfumes and Cosmetics 10,269 3,946 4,117 453 257 Watches and Jewelry 1 461 10 13 8 Selective Retailing 39 1,383 253 1 –

Total 140,626 22,281 5,123 1,636 2,099

13.2 Soil use conditions, emissions into the air, water and soil 13.2.1 Soil use Soil pollution from old manufacturing facilities (cognac and champagne production; trunk production) is insignificant. The more recent production facilities are generally located on former farmland with no history of pollution. Finally, the Group’s manufacturing operations require very little soil use, except for wine production. Integrated grape growing (viticulture raisonnée) is an advanced method that combines cutting- edge technology with traditional methods, covering all stages of the wine producing process. This method, used for several years by Wines and Spirits, was developed further this year. Veuve Clicquot and Moët & Chandon use the integrated grape growing reference guide devised by the Comité Interprofessionnel des Vins de Champagne. Accordingly, at Moët & Chandon, efforts to limit the use of herbicides and in favor of cover planting are ongoing. Among the specific action in 2006 were: the introduction of new precision weed control equipment, cover planting of 100% of the headland (corresponding to 80 hectares surrounding the vines), large-scale experimentation with cover planting through the sowing of winter cereals (18 hectares),... Similarly, 55% of the Veuve Clicquot vineyard surface is given over to “natural” cover planting Veuve Clicquot continues its efforts to enlist the support of its grape suppliers in these endeavors: all its suppliers are able to obtain any necessary technical assistance from an agronomist, employed full-time to serve as a liaison between them and the Champagne region’s agricultural extension office. In this manner, more than 80% of grape-growing areas have adopted the integrated approach. Integrated grape-growing practices have also been implemented by the Moët Hennessy Estates & Wines in Australia, New Zealand and California: cover planting, use of alternatives to certain insecticides, verification of soil erosion...

13.2.2 Greenhouse gas emissions Given the nature of the Group’s operations, the only emissions that have a significant impact on the environment are greenhouse gas emissions.

Estimated greenhouse gas emissions in tons of CO2 (carbon dioxide) equivalent correspond to the site energy consumption emissions, as defined in section 13.1.2. These include direct emissions (on-site combustion) and indirect emissions (from the generation of electricity and vapor used by the sites).

44 Breakdown of emissions by business group in 2006

CO2 Change Direct CO2 Indirect CO2 emissions (in %) emissions emissions

Christian Dior Couture 292 25 – 292 Wines and Spirits Í 47,592(1) 122 32,001 15,591 Fashion and Leather Goods Í 13,658 9 5,919 7,739 Perfumes and Cosmetics Í 11,330 1 8,171 3,159 Watches and Jewelry Í 1,203 (2) 989 214 Selective Retailing Í 31,977(2) 43 2,431 29,546 Holding Company Í 564 (16) 95 469

Total 106,616 53 49,606 57,010

(1) Increase due to the change in reporting scope (integration of Glenmorangie: impact of distillation on emissions). (2) Increase due to the change in reporting scope (integration of certain DFS stores given their geographic location: for a given electricity consumption, CO2 emissions are proportionally higher in Australia, China and New Zealand than in France, where all of the other sites included in the reporting scope are concentrated). Hennessy continued to favor the transport of its goods by boat over air transport, since maritime transport produces 85 times less greenhouse gas emissions: 91% in metric tons-kilometer of Hennessy products were thus shipped by boat, 8% by road and 1% by rail. Energy audits were conducted with the assistance of ADEME (the French environment and energy agency) at the La Richonne administrative site and the La Vignerie industrial site, which together account for 62% of Hennessy’s energy consumption. They commended Hennessy on its performance in this area. In Champagne, a single logistics platform for all the houses now provides transportation optimization, offering the most systematic approach possible to the use of maritime transport services. For instance, air freight is now used by Veuve Clicquot only in emergencies, amounting to less than 0.3% of shipments.

Following the Bilan Carbone® assessment performed by Louis Vuitton, which had demonstrated the major impact of air transport on greenhouse gas emissions generated by its business, the company continues to implement its plan to develop the use of maritime transport. This action plan has met all of its targets: in 2006, maritime transport was used for more than 60% of leather goods shipments to supply the 368 stores in Louis Vuitton’s retail network. Also in 2006, for the first time, river transport was used for 70% of goods shipped between Gennevilliers, a port located very near Louis Vuitton’s central logistics facility, and Le Havre. Efforts to streamline employee travel, which represents 12% of Louis Vuitton’s energy consumption, are ongoing: better organization of Europe-Asia-United States travel, and greater use of videoconferencing, among other measures. All of these actions were taken to reduce energy consumption and the related greenhouse gas emissions. Finally, the new metallic iodide lighting system was successfully installed in all new stores, which has enabled a 40% reduction in energy consumption by the stores. Kenzo Parfums now also uses maritime transport to ship more than 50% of its production for Asia.

45 13.2.3 Discharges to water The relevant emissions are the discharge into water by the Wines and Spirits and Perfumes and Cosmetics business sectors of substances causing eutrophization. The Group’s other business groups have a very limited impact on water quality. Eutrophization is the excessive build-up of algae and aquatic plants caused by excess nutrients in the water (particularly phosphorus), which reduces water oxygenation and adversely impacts the environment. The parameter used is the chemical oxygen demand (COD) calculated after treatment of the discharges in the Group’s own plants or external plants with which the Group has partnership agreements The following operations are considered as treatment: city and county waste water collection and treatment, independent collection and treatment (aeration basin) and land application.

COD after treatment Change (metric tons/year) 2006 2005 (in %)

Wines and Spirits 2,697(1) 143 1,782 Perfumes and Cosmetics 9 642

Total Í 2,706 149 1,710

(1) Increase due to the change in reporting scope (integration of Glenmorangie). The whisky manufacturing process generates significant quantities of organic matter found in waste byproducts of malting, fermentation and distillation. No transfer coefficient was applied to waste by-products discharged into the sea (as is the case at both distilleries), a practice currently authorized by laws governing the entire Scottish whisky producing region.

13.2.4 Waste Group companies continued their efforts with respect to the sorting and recovery of waste. On average, 94% of the waste was recovered compared to 86% in 2005. Recovered waste is waste for which the final use corresponds to one of the following channels: • reuse, i.e., the waste is used for the same purpose for which the product was initially designed; • recycling, i.e., the direct reintroduction of waste into its original manufacturing cycle resulting in the total or partial replacement of an unused raw material, controlled composting or land treatment of organic waste to be used as fertilizer; • incineration for energy production, i.e. the recovery of the energy in the form of electricity or heat by burning the waste.

46 Waste produced in 2006

Hazardous Change or special Waste Waste in waste waste in produced produced produced (in metric tons) 2006 (1) in 2006 in 2005 (%)

Christian Dior Couture – 324 413 (22) Wines and Spirits 136 72,946(3) 26,148 179 Fashion and Leather Goods 56 4,686 19,275 (76) Perfumes and Cosmetics 479 (2) 6,937 7,824 (11) Watches and Jewelry 8 184 173 6 Selective Retailing 41 3,653(4) 1,783 105 Holding Company – 208 206 1

Total 720 88,938 55,822 59

(1) Waste to be sorted and treated separately from other «common» waste (boxes, plastic, wood, paper...). (2) Some products that are removed from the manufacturing cycle are treated in the same way as hazardous waste to prevent counterfeiting attempts. (3) Increase due to the change in reporting scope (integration of Glenmorangie). The whisky manufacturing process generates significant quantities of organic waste during malting, fermentation. (4) Increase due to the change in reporting scope (integration of certain DFS stores).

Waste recovery in 2006

Material Energy Total (in %) Re-used recovery recovery recovery

Christian Dior Couture 67 26 7 100 Wines and Spirits 39 58 1 98 Fashion and Leather Goods 3 41 17 61 Perfumes and Cosmetics 10 48 30 88 Watches and Jewelry 11 39 33 83 Selective Retailing – 35 51 86 Holding Company – 52 47 99

Total 33 55 6 94

In 2003, in association with ADEME (the French environment and energy agency), Moët & Chandon launched a two-year pilot program with the aim of reducing 10% of waste at the source. By the end of 2006, this target has been attained: a nearly 100 metric ton reduction in waste (particularly for timber, paper and cartons), virtually total recycling (nearly 100% in 2006 compared to 93% in 2003), a significant improvement in pre-sorting (20% reduction in unsorted waste). The main practices adopted were: reuse of transport packaging, reduction in packaging mass, increase of the recycled portion. In addition to the ADEME project, other energy saving efforts are continuing: coordination with suppliers to cut back on packaging used in our purchased materials, studies on bottles made of lightweight glass (industrial validation planned for first half 2007 and implementation for end-2007), prospective study on the recovery of energy from the thinning of vine trunks and introduction of eco-design strategies (pilot projects for Moët & Chandon’s merchandising materials).

47 13.3 Measures taken to limit damage to the biological equilibrium, natural habitats, animal and plant species Fashion and Leather Goods, and Watches and Jewelry implemented procedures to improve compliance with the convention on international trade in endangered species (CITES). Through a system of import-export permits, this convention was set up to prevent certain species of endangered fauna and flora against over-exploitation in the course of international trade. Perfumes and Cosmetics’ laboratories request that their partners provide information on the bio-diversity and bio-availability of every new plant studied. Companies in this business group have undertaken not to use any protected, rare or endangered plants in their operations. They favor plants that are commonly used or grown specifically to meet their activity’s requirements. Following the example of Parfums Christian Dior, which publicly announced its decision to refrain from testing the safety of its cosmetic products on animals in 1989, all other companies in the Perfumes and Cosmetics business group have also discontinued this practice. Furthermore, for the last several years, LVMH has collaborated with teams of university researchers to establish programs for the development of new alternative methods, especially for allergy testing. The Group’s toxicologists have also participated in the official validation processes for alternative methods in several areas, including phototoxicity, eye irritation, and skin absorption.

13.4 Organization of environmental protection methods within the Group 13.4.1 Organization The Group has an environment management team. In 2001, the Group established an Environment Charter signed by the Chairman of the Group. This Charter requires that each Group company undertakes to set up an effective environment management system, create think-tanks to assess the environmental impacts of the Group’s products, manage risks and adopt the best environmental practices. In 2003, Bernard Arnault joined the United Nations’ Global Compact program. The Group undertakes to adopt the following environmental measures: • apply precaution to all issues impacting the environment; • undertake initiatives to promote greater environmental responsibility; • favor the development and distribution of environmentally-friendly technologies. The Group’s environment management team was set up with the following objectives: • implement the environmental policies of the Group companies, based on the Group Charter; • monitor regulatory and technical issues; • create management tools; • help companies anticipate risks; • train employees and increase environmental awareness at all management levels; • define and consolidate environmental indicators; • work alongside the various key players (associations, rating agencies, government authorities...).

48 The Group companies’ environmental correspondents meet as part of the “LVMH Environment Commission”, coordinated by the Group’s Environmental Management Team. They exchange information through quarterly meetings and a Group Environmental Intranet, which is accessible to all employees. Almost all of the Group’s companies stepped up their employee training and awareness programs this year. In 2006, these programs resulted in 8,680 training hours (Í). New executives employed by the Group are briefed in the Group’s environmental policy, the available tools and its environmental safety network as part of their orientation seminar. At Louis Vuitton Malletier, more than 1,100 hours of training and awareness seminars were provided to 1,650 individuals as part of the ISO 14001 certification process, the energy saving program, and the inauguration of the new HQE (High Environmental Quality)- certified logistics center. A web-based training module that may be accessed by all staff via the environment page of the Group’s Intranet has been developed, particularly for the use of the new environmental representatives. Over and above these initiatives, the Group’s companies also disseminate written information concerning the environment: • the in-house publication LVMH Magazine includes a regular column entitled “LVMH: A responsible corporate citizen”, which systematically includes information concerning measures to protect the environment at Group companies; • Veuve Clicquot has distributed an environmental protection leaflet to all of its sales personnel; • the environment department has published a newsletter addressed to all Group chairmen called Attitude, which is also distributed to the members of the executive committees of all the group’s companies; • Parfums Givenchy and Moët & Chandon have included environmental awareness modules in their orientation booklets and in their training programs for new hires; • Hennessy continues to include an educational column dealing with the environment in its in-house newsletters; • Veuve Clicquot and Krug have decided to broadcast e-mail messages to their office personnel every two weeks as part of an awareness campaign to inform them of the kind of small actions which, when performed on a daily basis, help protect the environment. In the area of risk prevention, many initiatives were implemented in 2006. At Hennessy, summary safety data sheets have been prepared for each chemical product used. Small in size, they provide clear and concise information and are suitable to be posted at the workstation or held in the user’s breast pocket. Hennessy has also produced a guide to best practices for the environment, food safety and workplace safety. The aim is to offer a practical tool to the various companies intervening on Hennessy’s sites. A collection of best practices, the guide encourages companies, for example, to ensure that their staff have had the appropriate training and possess the skills required. It also shows them how to ensure better pre-sorting of waste generated during their activities on Hennessy’s sites.

49 13.4.2 Evaluation and certification programs In accordance with the Group Environment Charter, every company is responsible for designing and implementing its own environment management system, and, in particular, for defining its own environment policy and objectives. Each company has access to a Group self-assessment guide and can, if it wishes, apply for ISO 14001 or EMAS certification for its system. In 1998, Hennessy was the first company in the world to receive certification in the Wines and Spirits industry, a distinction that was renewed on all of its sites in 2001 and 2004. Its second environmental policy was drafted in 2004 (the first dates back to 1997). Honoring its commitments, Hennessy has further extended the scope of its ISO 14001 coverage with the certification in 2006 of SODEPA, its vine-growing and wine-producing subsidiary, responsible for the maintenance of its garden and park areas. All Krug and Veuve Clicquot sites are certified ISO 14001. In connection with this certification, 13 internal audits were performed over the course of 2006 at Veuve Clicquot. The certification process for Moët & Chandon’s sites is underway. Certification is expected to be obtained in the second quarter of 2007. At that time, the entirety of Group’s Cognac and Champagne businesses will be certified. Louis Vuitton is also pursuing ISO 14001 certification: following the successful certification of the Barbera production facility in 2004, the logistics center in Cergy, France and the head office (at Pont-Neuf) began the communication of normative requirements with the goal of attaining certification by the end of 2007. In 2004, a team of environmental auditors was established for the Group’s subsidiaries consisting of staff members occupying technical (corporate services, quality, industrialization, maintenance, environmental), legal, or financial functions. Today, eleven of the members of this team are able to rapidly perform an environmental audit of a site at the request of a company. These Group auditors completed a three-day course in environmental audit techniques, followed by one day of practical audit training in the field. Three companies employed the services of this team to audit their sites in 2006. Since the 2002 fiscal year, the Group’s annual environmental data reporting has been audited each year by the Environment and Sustainable Development department of Ernst & Young, the Group’s statutory auditors.

13.4.3 Measures to ensure compliance with applicable laws and regulations Group companies are audited on a regular basis, either by third parties, insurers or internal auditors, which enables them to keep their compliance monitoring plan up-to-date. In 2006, 25 external environment audits and 25 internal environment audits (Í) were performed on-site. These audits correspond to an inspection of one or more sites of the same company based on all relevant environmental issues – waste, water, energy, and environmental management – and are documented in a written report including recommendations. This figure does not include the numerous compliance controls that may be performed on a specific environmental regulation topic, i.e., a waste sorting inspection, performed periodically 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 inspection during their fire safety visits to Group company sites; 30 of these visits were performed in 2006. The main environmental legal and regulatory measures implemented in 2006 concerned Watches and Jewelry and Selective Retailing companies. The requirements related to EU

50 Directive 2002/96/EC on the prevention, re-use and recycling of Waste Electrical and Electronic Equipment (WEEE) and its transposition into French law were incorporated within the practices of the companies concerned. Parfums Christian Dior and Parfums Givenchy have drafted their solvent management plans pursuant to the requirements of the Ministerial Order of May 29, 2000. Parfums Christian Dior’s Saint Jean de Braye site also began updating its operating authorization application file.

13.4.4 Expenses incurred to anticipate the effects of operations on the environment Amounts were recognized under the relevant environmental expense headings in accordance with the recommendations of the CNC (French National Accounting Council). Operating expenses and capital expenditure were recognized for each of the following headings: • air and climate protection; • waste water management; • waste management; • protection and purification of the ground, underground water and surface water; • noise and vibration reduction; • biodiversity and landscape protection; • radiation protection; • research and development; • other environmental protection measures. Environmental protection expenses in 2006 break down as follows: • operating expenses: 5.9 million euros; • capital expenditure: 3.3 million euros.

13.4.5 Provisions and guarantees given for environmental risks, and compensation paid during the year pursuant to a court decision No provision was established for environmental risks in fiscal year 2006.

13.4.6 Objectives assigned by the Group to its subsidiaries abroad The Group requests that each subsidiary, regardless of its geographic location, applies the Group’s environmental policy as set forth in the Charter, which stipulates that each subsidiary defines its own environmental objectives.

13.4.7 Consumer safety The Group aims to protect human health by carefully selecting the ingredients used in manufacturing products, prior to any production processes, and by determining alternative production methods where required. Cosmetics manufactured or sold in Europe are regulated by Council Directive 76/768/EEC. Considered by experts as one of the most stringent texts among those regulating cosmetics

51 throughout the world, this directive governs all substances used by the cosmetics industry and requires that a risk assessment be performed before any product may be marketed taking into consideration their conditions of use. Furthermore, the European Commission’s Scientific Committee on Consumer Products (SCCP) evaluates the safety of substances used in cosmetic products on an ongoing basis. The Group is particularly vigilant in enforcing compliance with regulations, and also monitors the opinions of scientific committees and the recommendations of professional associations. Apart from their attention to these texts, the Group’s toxicologists, who assume responsibility for product safety, determine the necessary guidelines for Group suppliers and the development teams. The Group’s experts participate regularly in the workgroups of national and European authorities and are very active in professional organizations. In the area of environmental protection, developments in scientific knowledge and/or regulations may sometimes lead the Group to replace certain ingredients. For example, the Group decided that triclosan would no longer be used in its products due to its potential risk to the environment, although this ingredient received a favorable assessment from European scientific authorities (Scientific Steering Committee and SCCP) in 2002 with respect to consumer safety. Substitutions have therefore been made as product lines are revamped.

XIV. EMPLOYEE INFORMATION 14.1 Analysis and development of the workforce 14.1.1 Breakdown of the workforce The Group’s total workforce as of December 31, 2006 amounted to 66,903 employees. Of this total, 58,435 employees worked under permanent contracts (CDI) and 8,468 worked under fixed-term contracts (CDD). Part-time employees represented 14% of the total workforce, or 9,577 individuals. The portion of staff outside France now stands at 70% of the workforce worldwide. The Group’s average Full Time Equivalent (FTE) workforce in 2006 comprised 59,761 employees, a rise of 3.4% on 2005. The main changes are due to organic growth and the opening of new stores, essentially in North America and Asia. The tables below show, for the Group as a whole, the breakdown of the workforce, by business group, geographic region and professional category. For joint ventures, only the Group share of the workforce is retained.

52 Breakdown by business group Total headcount as of December 31 2006 % 2005 % 2004 % Christian Dior Couture 2,650 4 2,595 4 2,304 4 Wines and Spirits 5,521 8 5,134 8 4,697 7 Fashion and Leather Goods 17,951 27 18,071 28 18,326 30 Perfumes and Cosmetics 14,747 22 13,628 22 13,488 22 Watches and Jewelry 1,882 3 1,844 3 1,777 3 Selective Retailing 23,275 35 21,544 34 20,045 33 Other 877 1 867 1 877 1 Total 66,903 100 63,683 100 61,514 100

Average headcount during the period (1) Christian Dior Couture 2,556 4 2,422 4 2,129 4 Wines and Spirits 5,462 9 5,144 9 4,807 9 Fashion and Leather Goods 16,904 28 17,182 30 17,026 31 Perfumes and Cosmetics 13,453 23 12,771 22 12,561 23 Watches and Jewelry 1,836 3 1,767 3 1,890 3 Selective Retailing 18,612 31 17,540 30 15,749 28 Other 938 2 952 2 959 2 Total 59,761 100 57,778 100 55,121 100

(1) Full time equivalent; permanent and temporary.

Breakdown by geographic region Total headcount as of December 31 2006 % 2005 % 2004 % France 19,880 30 19 818 31 20 264 33 Europe (excluding France) 13,615 21 13 172 21 12 050 20 United States 14,543 22 13 479 21 12 699 20 Japan 4,956 7 4,961 8 5,160 8 Asia (excluding Japan) 11,670 17 10,578 16 9,673 16 Other 2,239 3 1,675 3 1,668 3 Total 66,903 100 63,683 100 61,514 100

Average headcount during the period(1) France 19,329 32 19,324 33 19,566 36 Europe (excluding France) 11,591 20 11,347 20 10,526 19 United States 11,357 19 10,858 19 9,885 18 Japan 4,926 8 4,898 8 4,653 8 Asia (excluding Japan) 10,536 18 9,673 17 8,836 16 Other 2,022 3 1,678 3 1,655 3 Total 59,761 100 57,778 100 55,121 100

(1) Full time equivalent; permanent and temporary.

53 Breakdown by professional category

Total headcount as of December 31 2006 % 2005 % 2004 %

Managers 10,937 16 10,117 16 9,555 16 Technicians – Team leaders 6,493 10 6,230 10 5,905 10 Office and sales personnel 40,787 61 38,157 60 37,022 60 Labor and production workers 8,686 13 9,179 14 9,032 14

Total 66,903 100 63,683 100 61,514 100

Average headcount (1)

Managers 10,626 18 9,932 17 9,448 17 Technicians – Team leaders 6,288 11 5,999 10 5,878 11 Office and sales personnel 34,237 57 32,689 57 30,732 56 Labor and production workers 8,610 14 9,158 16 9,063 16

Total 59,761 100 57,778 100 55,121 100

(1) Full time equivalent; permanent and temporary.

Breakdown by age (%) Global workforce

Age: Less than 25 years 11.6 age 25 – 29 19.6 age 30 – 34 19.2 age 35 – 39 15.4 age 40 – 44 12.1 age 45 – 49 9.0 age 50 – 54 6.9 age 55 – 59 4.4 age 60 years and over 1.8

Average age 36

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-Pacific region, Europe and the United States.

54 Breakdown by length of service

(as %) Global workforce

Length of service: less than 5 years 54.7 5 – 9 years 21.8 10 – 14 years 8.6 15 – 19 years 7.0 20 – 24 years 3.2 25 – 29 years 2.4 30 years and over 2.4

Average length of service 7

The average length of service within the Group is 11 years in France and about 6 years in the other geographic regions. This difference is mainly due to the predominance in these other regions of retail activities characterized by a high turnover rate. It is also the result of recent expansion by Group companies into emerging markets, where there is a greater fluidity of employment.

14.1.2 Joiners, leavers and internal mobility Identifying and attracting talent are key strategic objectives of the Group’s recruitment policy. In 2006, Group companies attended a large number of events and meetings organized, both in France and abroad, on the campuses of engineering, business and design schools as well as those specializing in the specific trade skills utilized in their business lines. The development of these meetings with young people has increased their levels of awarenes of the Group and its companies, providing a showcase for the appeal of its businesses and its career opportunities offered. A survey conducted by the market research company Universum in 2006 involving 7,700 students from 62 prestigious French universities revealed that the Group was the number one preferred company for business school graduates. Accessible on the Internet since June 2006, the new “Join LVMH” pages of the Group Web site allow visitors to browse job opportunities and submit their candidacies online. All Group companies worldwide publish their job offers on the site, but also their available internships, VIEs (international volunteer opportunities in companies) and apprenticeships. Each day, more than 4,000 visitors perform searches or the website, browse offers, and sign up for automatic job opening notifications, while 250 candidates submit their applications online in response to one or more offers. Worldwide in 2006, nearly 14,300 individuals were hired under permanent contracts. In France, nearly 2,100 new staff were hired under permanent contracts and 4,350 under fixed-term contracts, the latter mainly to fill the additional seasonal requirements related to the wine harvest period and sales during the year-end holidays. Departures from Group companies in 2006 (all causes combined) affected a total of 12,372 employees working under permanent contracts, almost 44% of whom were employed within the Selective Retailing business group, which traditionally experiences a high turnover rate. The leading causes for departure were resignations (72% of total departures) and individual layoffs (15% of total departures).

55 Breakdown of movements of employees working under permanent contracts by business group and geographic region

Joiners Leavers (Number) 2006 2005 2004 2006 2005 2004

By business group Christian Dior Couture 598 676 666 586 573 408 Wines and Spirits 923 794 550 580 619 684 Fashion and Leather Goods 3,611 3,631 4,006 3,356 3,354 3,138 Perfumes and Cosmetics 2,254 2,649 2,626 2,070 2,102 2,126 Watches and Jewelry 318 309 344 302 242 327 Selective Retailing 6,502 6,217 8,325 5,395 4,483 5,562 Other 83 43 63 83 32 46

Total 14,289 14,319 16,580 12,372 11,405 12,291

By geographic region France 2,075 1,773 2,180 1,820 1,879 2,053 Europe (excluding France) 2,682 2,868 2,627 2,466 2,271 2,049 Unite States 5,018 4,865 7,201 4,222 3,780 5,003 Japan 642 492 646 559 703 591 Asia (excluding Japan) 3,314 4,105 3,788 2,961 2,579 2,443 Other 558 216 138 344 193 152

Total 14,289 14,319 16,580 12,372 11,405 12,291

The Group encourages mobility among its staff, from one geographic region to another, or from one Group company to another. The wide range of companies making up the Group, their unique corporate identities as well as their expertise in a variety of business segments, lend favor to these two forms of mobility. Today more than half of all managerial postitions are filled by means of internal mobility and in 2006 nearly 660 of these movements were from one Group company to another. The Group also fosters mobility between professional categories by encouraging its employees to acquire new skills, especially by pursuing qualifying training or degree programs. Nearly 3,200 staff members were promoted in 2006, representing about 5% of the total workforce.

56 14.2 Work time 14.2.1 Work time organization Worldwide, 19% of employees benefit from variable or adjusted working hours and 18% work as a team or alternate their working hours. Breakdown by geographic region

Global United Other Employees affected (%) workforce France Europe (1)States Japan Asia (2)countries

Employees with variable/ scheduled hours 19 40 14 6 11 7 2 Part-time 17 12 22 32 – 9 14 Teamwork, alternating hours or night shifts 18 5 7 19 39 44 7

(1)Excluding France. (2)Excluding Japan.

14.2.2 Overtime The cost of the volume of overtime/additional time is nearly 29 million euros, or an average of 1.5% of the worldwide payroll. This cost varies between 0.7% and 2.3% of the payroll depending on the geographic region.

14.2.3 Absenteeism The worldwide absentee rate of the Group for employees working under permanent and fixed-term contracts remains stable (it was 4.1% in 2006, compared to 4.3% in 2005). Absences for illness (2.0%) and maternity leave (1.2%) are the two main causes and account for nearly 80% of the worldwide absentee rate.

14.3 Compensation 14.3.1 Average salary The table below shows the gross average monthly compensation paid in 2006 to Group employees in France under permanent contracts who were employed throughout the year:

Employees concerned (%) (Salary in euros) 2006 2005 2004

Less than 1,500 euros 19.8 23.7 25.4 1,501 to 2,250 euros 30.5 30.9 30.9 2,251 to 3,000 euros 19.7 19.2 19.6 Over 3,000 euros 30.0 26.2 24.1

Total 100.0 100.0 100.0

57 14.3.2 Personnel costs Worldwide personnel costs breakdown as follows:

(EUR million) 2006 2005 2004

Gross payroll – Permanent or fixed-term 1,953.1 1,922.8 1,763.7 Employers’ social security contributions 505.1 491.1 459.3 Temporary staffing costs 99.2 97.5 81.5

Total personnel costs 2,557.4 2,511.4 2,304.5

Temporary staffing costs remained stable and accounted for 4.0% of total payroll worldwide.

14.3.3 Incentive schemes, profit sharing and company savings plans All companies in France with at least 50 employees have an incentive scheme, profit sharing or company savings plan. These plans accounted for a total expense of 87.2 million euros in 2006, a rise of 12% against 2005.

(EUR million) 2006 2005 2004

Profit sharing 47.9 43.6 43.4 Incentive 34.4 29.9 23.7 Employer’s contribution to company savings plans 4.9 4.2 4.3

Total French Companies 87.2 77.7 71.4

In 2001, the Group set up a worldwide LVMH share purchase option plan under which 25 options were allocated to all Group employees with a strike price of 66 euros. Since May 2005 the beneficiaries of this plan have been able to exercise their options at any time until May 2009.

14.4 Equality and Diversity As a signatory of the United Nations Global Compact and, in France, of the Charte de la Diversité and the Charte d’Engagement des Entreprises au Service de l’Egalité des Chances dans l’Education, in 2006 the Group organized an awareness seminar and drafted a corporate social responsibility agreement for Human Resources staff of Group companies. A worldwide reporting system for corporate social responsibility was introduced and workgroups were formed with a view to fostering initiatives beginning in 2007 in the various companies of the Group.

14.4.1 Equality of opportunity for men and women Women accounted for nearly 76% of new hires in 2006. This resulted in significant rise in the proportion of women within the Group workforce, which now stands at 72%.

58 Proportion of female employees under permanent contracts of new joiners and of the active workforce

Joiners Employees % women 2006 2005 2004 2006 2005 2004

Breakdown by Business Group Christian Dior Couture 76 78 72 74 75 75 Wines and Spirits 40 38 40 33 32 32 Fashion and Leather Goods 71 71 68 74 74 73 Perfumes and Cosmetics 86 84 82 81 80 80 Watches and Jewelry 56 58 59 56 55 55 Selective Retailing 81 80 77 79 77 76 Other 57 45 53 53 53 55

Breakdown by professional category Managers 60 58 56 57 57 56 Technicians – Team leaders 70 71 66 70 69 68 Office and sales personnel 81 82 81 81 80 80 Labor and production workers 65 46 52 62 62 61

Breakdown by geographic region France 69 69 69 67 67 67 Europe (excluding France) 79 78 77 75 75 75 United States 76 73 72 73 71 69 Japan 82 79 79 77 76 77 Asia (excluding Japan) 78 80 77 77 77 77 Other 61 67 66 62 61 60

Total 76 76 73 72 71 71

14.4.2 Employment and integration of disabled workers The Group has set itself the goal of improving the integration of disabled workers. Numerous and varied measures have been introduced in Group companies, which have all made efforts to be equipped so as to welcome this population under the best possible conditions. Several companies have developed partnerships with Centres d’Aide par le Travail (employment centers for the handicapped) in order to promote the occupational integration of handicapped persons. Parfums Christian Dior has installed a special workshop to be staffed by manufacturing employees with serious handicaps. This company has also hired ten hearing-impaired employees on its Saint-Jean de Braye site. The teams integrating these employees have all been trained in sign language. Louis Vuitton has also hired 95 hearing-impaired employees at its Asnières workshop, as has Kami in the Tours distribution warehouse. Parfums Givenchy offers distance working arrangements for temporarily disabled workers. Le Bon Marché and Moët Hennessy Diageo actively seek to recruit disabled workers through contacts with specialized agencies. Parfums Christian Dior, Kami, Hennessy, Louis Vuitton

59 and Le Bon Marché have concluded sub-contracting agreements with protected workshops. Moët & Chandon has created ERIM (Espace Reclassement Interne Mobilité) to assist employees who have had work-related illnesses to return to employment. A refurbishment program focusing on disabled access and workplace health issues for premises and workstations is underway. In France, disabled workers accounted for 1.8% of the total workforce. Services outsourced in France to employment centers for handicapped persons represented a total of 2.4 million euros in 2006.

14.5 Training Group companies offer a broad range of training programs to allow staff to develop their professional skills and their specific business line expertise as artisans and creators as well as to share a common vision. Training workshops are chosen on the basis of the needs and specific features of the business lines of each brand and are organized by the training centers of each business group. These training programs are facilitated by outside trainers as well as by Group managers considered as experts in their particular areas of expertise. The second annual “Universe” days (perfumes, jewelry, champagne, leather goods, ...) were held in 2006, following the success of the first edition in 2005. This event exposes employees to a different professional universe, allowing them to broaden their sources of inspiration and innovation. A substantial portion of training takes place on the job on a daily basis and is not factored into the indicators presented below.

Global workforce 2006 2005 2004

Training investment ( in EUR million) 54.4 46.6 48.6 Portion of total payroll (as %) 2.8 2.4 2.8 Number of days training per employee 4.9 3.4 2.9 Average cost of training per employee (in EUR) 806 740 777 Employees trained during the year (as %) 70.5 71.5 70.1

In 2006, training expenses incurred by the Group’s companies throughout the world rose 17% on 2005 to a total of 54.4 million euros, or 2.8% of total payroll. In 2006, the average training expense per full-time equivalent employee was 806 euros. A total of 329,691 training days were provided. A total of 70.5% of employees received at least one day of training during the year and the average number of days training came to 4.9 days per employee. These training programs are distributed uniformly across all professional categories and geographic regions.

60 Breakdown of training investment by geographic region and professional category United Other France Europe (1) States Japan Asia (2) markets Training investment (in 21.9 9.1 12.7 4.1 5.5 1.1 EUR million) Portion of total payroll (as %) 3.3 2.2 2.9 2.4 2.5 2.5 Employees trained during the year 68 62 71 81 82 65 (as %) o/w: Managers 67 68 69 68 77 65 Technicians – Team leaders 66 67 49 75 71 59 Office and sales personnel 71 70 78 84 84 75 Labor and production workers 65 37 36 n/a 77 27

(1) Excluding France. (2) Excluding Japan. In addition, LVMH organizes integration and awareness seminars for new hires focusing on the culture of the Group, its brand, its values as well as its key management principles. More than 15,400 employees attended seminars of this type in 2006.

14.6 Health and safety In 2006, a total of 1,203 work accidents or work-related travel accidents resulting in leave of absence represented 25,011 lost working days. Lost time accidents by business group and by geographic region break down as follows: Number of Frequency Severity accidents rate (1) rate (2)

Breakdown by business group Christian Dior Couture 28 5.86 0.13 Wines and Spirits 216 28.40 0.71 Fashion and Leather Goods 238 8.31 0.21 Perfumes and Cosmetics 238 11.03 0.27 Watches and Jewelry 15 4.76 0.18 Selective Retailing 461 15.12 0.22 Other 7 5.04 0.52

Breakdown by geographic region France 563 19.16 0.46 Europe (excluding France) 226 11.24 0.24 United States 177 9.93 0.15 Japan 10 0.65 0.03 Asia (excluding Japan) 128 7.15 0.14 Other 99 30.22 0.47 Total 1,203 12.48 0.27

(1) The Frequency rate is equal to the number of accidents of lost time, multiplied by 1,000,000 and divided by the total number of hours worked. (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.

61 The Group invested almost 14.2 million euros in health and safety in 2006. This includes expenses for occupational medical services, small protective equipment as well as programs for improving personal safety and health, such as compliance, the posting of warnings, replacement of protective devices, fire prevention training, noise reduction ... The total amount of expenditure and investments promoting health and safety in the workplace and improvements in working conditions amounted to 38 million euros in 2006, representing 1.9% of the Group’s gross payroll worldwide. Over 12,900 Group company employees received safety training worldwide.

14.7 Employee relations 14.7.1 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 2006, employee representatives attended nearly 1,370 meetings:

Nature of the meetings Number

Works Council 573 Employee representatives 409 Health and Safety Committee 187 Other 193

Total 1,362

As a result of these meetings, 115 company-wide agreements were signed (such as annual negotiations on wages and work schedules, incentive and profit sharing agreements, company savings plans, and professional classifications).

14.7.2 Social and cultural activities In 2006, in France, the Group allocated a budget of over 13.0 million euros, or 1.9% of total payroll expenses, to social and cultural activities in France via contributions to works councils. Total catering costs for all the Group employees represent a budget of 11.1 million euros.

14.8 Relations with third parties 14.8.1 Relations with suppliers A large proportion of the Group’s manufacturing facilities are located in France, Italy and Spain. Most of the Group’s subcontractors are located in Europe, making it easier for the Group to ensure compliance with the fundamental standards of the International Labor Organization.

62 Several Group companies have developed supplier charters and codes of conduct. For example, Moët & Chandon establishes a specifications document presented for signature to its subcontractors that addresses respect for the environment and fundamental labor law compliance, among other issues. Audits are also carried out on suppliers. In its supplier specifications documents, Sephora includes clauses dealing with the individual rights of employees, child labor prevention, equality of opportunity and treatment, working time policy, and the protection of the environment. Louis Vuitton has put in place an ethical system of preliminary audits founded on compliance with local regulations as well as the SA 8000 social accountability standard, which is based on international workplace norms included in the ILO conventions: no child labor, no forced labor, providing a safe and healthy work environment, freedom of association and the right to collective bargaining, no discrimination, disciplinary practices, compliance with working hour and wage regulations. To ensure that they will be able to perform preliminary audits independently, Louis Vuitton’s buyers receive theoretical training covering the approach and criteria as well as practical training in the field in the company of an SA 8000 auditor. As of year-end 2006, 53 SA 8000 audits were performed in this manner, resulting in the certification of 27 suppliers. Donna Karan International has developed a Vendor Code of Conduct designed to ensure respect for fundamental principles of industrial relations and labor law and for the highest ethical standards. It has also developed a Vendor Profile Questionnaire, a document signed by the subcontractor when the pre-approval request is submitted. The company has also introduced a Vendor Compliance Agreement, which calls for independent audits of suppliers to ensure that commitments have been observed. Similarly, TAG Heuer requires that all new foreign suppliers submit a written pledge indicating their compliance with the SA 8000 standard. The same is true for Parfums Christian Dior, Parfums Givenchy, and Guerlain, who have introduced specifications documents including compliance with the SA 8000 standard among their provisions. Finally, and in order to facilitate exchanges and the development of best practices within all Group companies, the Group has put in place a network of representatives to focus on relations with suppliers.

14.8.2 Impact of the business on local communities in terms of employment and regional development The Group follows a policy of maintaining and developing employment. Thanks to the strong and consistent growth achieved by our brands, many sales positions are created in all countries where we are present, particularly as a result of the expansion of our brands’ retail networks. In France, the Samaritaine department store, which was compelled to close its doors to perform renovation work designed to bring the premises into compliance with safety standards, has established a special support program to assist employees in finding new positions that caters to their individual needs. This outplacement plan was formalized in a company agreement signed by the majority of trade unions on February 6, 2006. There were no major mass layoff actions in France in 2006. Many large Group companies have been established for many years in specific regions of France and play a major role in creating jobs in their respective regions: Parfums Christian Dior in Saint-Jean de Braye (near Orleans), Veuve Clicquot Ponsardin and Moët &

63 Chandon in the Champagne region, and Hennessy in the Cognac region have developed long-standing relationships with local authorities, covering cultural and educational aspects as well as employment. Sephora, which has stores throughout France (two thirds of its workforce works outside the Paris region), regularly carries out a range of measures encouraging the development of job opportunities at the local level.

14.8.3 Relations with educational institutions and apprenticeship associations Throughout the world, Group companies have developed a number of partnerships with management schools and engineering schools, but also with fashion design schools and schools specializing in areas specific to our businesses. Key companies give presentations on the campuses of these schools several times a year. A number of the classes taught feature lectures by the Group’s senior executives. Group companies maintain an ongoing commitment to hiring individuals lacking qualifications whom they train over periods lasting several months in the processes and techniques used to manufacture their products. For most of our businesses, especially those related to leather work, fashion design, vineyards and wine production, and watchmaking, the acquisition and mastery of artisans’ skills and knowledge require years of apprenticeship. To meet this need, sponsorship operations are regularly pursued with high schools, vocational schools, and apprentice training centers so as to assist in shaping the professionals of tomorrow. Each company develops its own initiatives. Louis Vuitton has developed a post-baccalaureat program in association with the high school in Issoudun (a town with a population of about 14,000 located between Châteauroux and Bourges in France) for the training of future leather workers for its prototype, repair, and special order workshops. This one-year program consists of four month-long courses and four month-long internships in production, finishing, and methods. Hennessy has developed a partnership with Lycée Louis Delage, a vocational high school in Cognac, France, with the aim of training adjuster-machinists, and also regularly welcomes apprentice coopers. TAG Heuer has hired a highly qualified master watchmaker and trainer and has thus been able to identify and recruit suitable staff members lacking watchmaking qualifications so as to train them in the various trades required in this industry. In France, which has signed the Apprenticeship Charter, the Group is committed to promoting the training and qualification of young people, notably by enhancing the perception of apprenticeships and increasing the number of apprenticeships offered. At the end of 2006, 185 young people were employed under apprenticeship contracts and nearly 240 professional qualification and apprenticeship contracts were signed during the year. In addition, the Group’s recruitment policy includes initiatives in favor of handicapped individuals. Louis Vuitton has signed agreements to support the employment of persons with long term illnesses at its workshops.

14.9 Compliance with international conventions Taking each individual, his or her freedom and dignity, personal growth and health into consideration in each decision is the foundation of a doctrine of responsibility to which all Group companies adhere. Accordingly, all Group companies have policies for equal opportunity and treatment irrespective of gender, race, religion and political opinion, etc. as defined in the standards of the International Labor Organization. This culture and these practices also generate respect for freedom of association, respect for the individual, and the prohibition of child and forced labor.

64 XV. LITIGATION AND EXCEPTIONAL EVENTS As part of its day-to-day management, the Group is party to various legal proceedings concerning trademark rights, the protection of intellectual property rights, the protection of selective retailing networks, licensing agreements, employee relations, tax audits, and any other matters inherent to its business. The Group believes that the provisions recorded in the balance sheet in respect of these risks, litigation proceedings and disputes that are in progress and any others of which it is aware at the year-end, are sufficient to avoid its consolidated financial net worth being materially impacted in the event of an unfavourable outcome. A claim has recently been filed against the Group with regard to its intangible rights to a license. As of the date of the preparation of this Annual Report, the outcome of this claim is deemed uncertain, although the Group remains confident that it will be able to assert its rights. In February 2007, LVMH and Morgan Stanley decided, by mutual agreement, to bring an end to their dispute involving certain analyses and publications concerning LVMH distributed by this bank and which had resulted in a judgment by the Paris Court of Appeal dated June 30, 2006. In response to the decision delivered in March 2006 by the Conseil de la Concurrence (the French antitrust authority) relating to the luxury perfume sector in France, the Group companies concerned have filed an application with the Paris court of Appeal requesting that this decision be set aside. The hearing is due to be held on April 24, 2007.

XVI. SUBSEQUENT EVENTS There were no significant subsequent events as of the date on which the Board of Directors approved the financial statements for publications and as of the date of the preparation of this Annual Report.

XVII. RECENT DEVELOPMENTS AND PROSPECTS After turning an excellent performance in 2006, the Christian Dior Group is well placed to build on these results in 2007. The Group will maintain its strategy focusing on internal growth and the development of its leading brands. The Christian Dior Group aims to achieve significant growth in its results in 2007. The geographic balance of its portfolio of global brands, their individual strengths and complementarity, combined with its exceptionally talented teams will enable the Group to gain market shares and further solidify its leadership position in the worldwide luxury goods market.

65 R EPORT FROM THE C HAIRMAN OF THE B OARD OF D IRECTORS ON INTERNAL CONTROL

This report, which has been drawn up in accordance with the provisions of Article L.225-37 of the French Commercial Code, is designed to give an account of the preparation and organization of the tasks of the Company’s Board of Directors, and the internal control procedures it has to set up.

I. PREPARATION AND ORGANIZATION OF THE WORK OF THE BOARD OF DIRECTORS

The Board of Directors has adopted a Charter that spells out the composition, tasks, functions and responsibilities of the Board of Directors. The Board of Directors has appointed two committees, amongst its members, the composition, role and tasks of which are set up in internal rules and regulations. The Charter of the Board of Directors and the committees’ internal rules and regulations are sent to any candidate for appointment as Director and to any permanent representative of an entity, before they assume their duties.

Board of Directors The Board of Directors is a strategic body of the Company which is primarily responsible for enhancing the Company’s value, ensuring that its underlying strategy is adopted and overseeing its implementation, verifying the truth and fairness of information concerning it and protecting its assets. The Board of Directors of Christian Dior acts as guarantor of the rights of each of its shareholders and ensures that shareholders fulfill all their duties. It consists of ten members, three of whom are independent directors who hold no interests in the Company. No director exercising management duties within the Company can hold a position in a company if one of its management member is a member of the Christian Dior Board of Directors. The Board of Directors met three times during the 2006 fiscal year at the written invitation of its Chairman sent to each of the directors at least a week before the date of the meeting. The average attendance level of directors at these meetings was 76%. The Board of Directors is specifically called upon to rule on the preparation of annual and half-yearly financial statements, documents requiring shareholders’ approval at the annual Shareholders’ Meeting, the issuance of bonds, and the implementation of stock option plans. The documents and information needed to perform their duties were communicated to the directors at each meeting. The Board of Directors decided not to assign the roles of Chairman and Chief Executive Officer to the same person. It did not place any limits on the powers vested in the Chief Executive Officer.

66 Performance Audit Committee The main tasks of the Performance Audit Committee are to ensure that the accounting policies and principles followed by the Company are in compliance with generally accepted accounting principles and to review the parent company and consolidated financial statements before they are submitted to the Board of Directors. Its members and Chairman are appointed by the Board of Directors. The Performance Audit Committee met twice in 2006, with at least two of its members present. All meetings were held in the presence of the Company’s Statutory Auditors, the Director of Finance, and the Accounting Director, as well as the Accounting Director of the main subsidiary, LVMH. The Committee’s work specifically involved examining the corporate and consolidated financial statements, and risk monitoring and hedging.

Nominations and Compensation Committee The main responsibilities of the Nominations and Compensation Committee are to issue: • proposals on the allocation of directors’ fees paid by the Company, as well as on compensation, benefits in kind and subscription or purchase options for the Chairman of the Board of Directors and the Chief Executive Officer • opinions on candidates for the positions of Director, Advisory Board member or member of the executive management of the Company’s main subsidiaries, on compensation and benefits in kind granted to the Directors and Advisors by the Company or its subsidiaries, and on the systems of fixed or variable, immediate or deferred compensation and incentives for the Management of the Group. Its members and its Chairman are appointed by the Board of Directors. The Committee met twice during the 2006 fiscal year, with all members in attendance. It issued proposals on compensation and on the allocation of share options to senior executives and gave its opinion on compensation granted to some Directors by the Company and its subsidiaries.

Advisory Board The Shareholders’ Meeting may, upon proposal of the Board of Directors, appoint Advisors which number cannot exceed three. The Advisors are appointed for a term of three years ending at the close of the Ordinary Shareholders’ Meeting convened to approve the accounts of the previous fiscal year and held in the year during which their term of office comes to an end. The Advisors are invited to the meetings of the Board of Directors and take part to the deliberations with a consultative vote. Their absence cannot however affect the validity of such deliberations. No advisory board member was serving as of December 31, 2006.

67 Compensation policy for company officers • Directors’ fees paid to members of the Board of Directors. The Annual Shareholders’ Meeting shall set the total amount of directors’ fees to be paid to the members of the Board of Directors. This amount shall be distributed among all members of the Board of Directors and the advisors, if any, on the recommendation of the Nominations and Compensation Committee. The Nominations and Compensation Committee can recommend that all or part of the directors’ fees be allocated based on the attendance rate of the members at the meetings of the Board of Directors. Directors’ fees paid in 2006 totaled 104,830 euros. These fees were distributed among the directors in accordance with allocation rules defined by the Board of Directors that take into account the duties performed on the Board. • Other compensation Exceptional compensation may be paid to some directors for special assignments and on the basis of the guidance or leadership role they assume on the various committees of the Board of Directors. The amount shall be determined by the Board of Directors and reported to the company’s statutory auditors. Part of the compensation paid to the key operations managers is based on the generation of cash, operating profit, and the return on capital employed for the business groups and companies headed by the respective executives, as well as on their individual performance. The variable portion generally represents between one-third and one-half of their compensation. Upon their retirement, Group managers may receive, within their employment contract, a supplemental retirement benefits provided that they simultaneously exercise their retirement rights under the legal retirement system. This supplemental payment corresponds to a specific percentage of the beneficiary’s salary, to which a ceiling is applied based on the reference salary determined by the French social security scheme.

II. INTERNAL CONTROL PROCEDURES The purpose of the internal control procedures at Christian Dior is as follows: • on the one hand, to ensure that management and operational measures, as well as personnel conduct, are consistent with the definitions contained in the guidelines applying to the company’s activities by the management bodies, applicable laws and regulations, and the company’s internal values, rules, and regulations; • on the other hand, to ensure that the accounting, financial, and management information communicated to the Company’s corporate bodies honestly reflect the Company’s activity and situation. One of the objectives of the internal control system is to prevent and control risks resulting from the Company’s activity and the risk of error or fraud, particularly in the areas of accounting and finance. As with any control system, however, it cannot absolutely guarantee that these risks are completely eliminated. Christian Dior’s internal control takes into consideration the Group’s specific structure. Christian Dior is a holding company that controls two main assets: a 42.5% equity stake in

68 LVMH, and a 100% equity stake in Christian Dior Couture. LVMH is a listed company, whose Chairman is also Chairman of Christian Dior, with several directors common to both companies. Christian Dior Couture has a Board of Directors whose composition is similar to that of Christian Dior. The sections below dedicated to internal control discuss, in turn, procedures relative to Christian Dior Couture and the holding company Christian Dior, SA. Those corresponding to LVMH are described in the report filed by that company, which may be consulted as a supplement to this report.

Christian Dior Couture Christian Dior Couture performs a creative, production, and international distribution role for all the brand’s products. It also engages in retail activities in the various markets, through its subsidiaries (totaling 47 in number). In this dual role, internal control is applied directly to Christian Dior Couture S.A., and in an oversight capacity to all the subsidiaries. The purpose of the internal control measures that have been implemented is to prevent the risks of error and fraud. They specifically provide for the following: • limited, accurate, structured delegation of powers, regarding both expenses and payments commitments and known by contributors; • prior legal control: - upon the signing of any significant agreement negotiated by headquarters or subsidiaries, exercised by the Legal Department and, as applicable, by advisers on local law, - regarding the prior existence of third-party models and trademarks; • a segregation of the expense and payment procedures; • procedural rules known to potential users; • internal controls (internal audits performed by headquarters in the headquarters’ departments, as well as in Group subsidiaries) and external controls (particularly Statutory Auditors); • very rigorous monitoring of management information which makes it easier to step in the process of defining objectives and controlling performance through 3-year strategic plans, the annual budget, and monthly reports; • the regular presence of managers in the subsidiaries and in the management bodies of the subsidiaries, particularly their boards of directors. In retail activities , these measures are strengthened through: • information given, to the points of sale managers, on all applicable procedures consolidated into a specific operating manual for the boutiques, which is regularly updated; • integrated point-of-sale management software (in the process of implementation) that standardizes the rules for auditing boutiques and allows Headquarters to obtain detailed information on the sales of each boutique in the Network; • “boutique committees” aiming at giving formal authority to sign commercial leases and to invest in the retail network.

69 Finally, these measures are controlled by internal audits that cover the points of sale, country headquarters, and accounting back offices. These assignments form the basis for reports on recommendations presented to the Chairman and sent to each subsidiary. Implementation of the recommendations is regularly monitored. Regarding the preparation of financial information, a chart of accounts defines the unique accounting rules applicable to all companies in the Christian Dior Couture Group for closing out the consolidated financial statements. Consolidated financial statements are prepared quarterly. At that time, exhaustive controls are carried out by the headquarters’ consolidation department, particularly on intra-group entries and the application of consolidation standards, to ensure the integrity of the information.

Christian Dior, SA 1. The internal control environment As noted above, Christian Dior is a holding company whose assets are essentially limited to two lines of equity holdings, Christian Dior Couture and LVMH. The business of Christian Dior, SA is therefore essentially dedicated to: • protecting the legal title of these two lines of holdings; • exercising the rights and authority corresponding to a majority shareholder, namely: – representation at the subsidiaries’ board meetings and at shareholders’ meetings, – collection of dividends paid by the subsidiaries, – controlling the subsidiaries’ economic performance; • providing accurate financial information, in line with applicable laws, given Christian Dior’s status as a listed company. Given the limited number of tasks described above, and its membership in a Group with the necessary administrative skills, Christian Dior uses the Group’s specialized services in the areas inherent to a holding company, specifically legal, financial, and accounting. Specifically, an assistance agreement has been entered into with the Groupe Arnault company. Regarding the Group’s external services, the Shareholders’ Meeting of Christian Dior appointed two first-tier accounting firms as Statutory Auditors, one of which also serves in the same role at Christian Dior Couture and LVMH.

2. Risk control Key elements in internal control procedures Given the Company’s activity, the specific objective of the internal control systems is to prevent risks of error and fraud in accounting and finance. The following principles guide our organization: • very limited, very accurate, and transparent delegation of counterparty authority; sub-delegations reduced to a minimum; • upstream legal control before signing agreements; • separation of the expense and payment functions; • secured payments; • procedural rules known by potential users;

70 • integrated data bases (single entry for all users); • frequent audits (internal and external).

Legal and operational control exercised by the parent company over the subsidiaries ➤ Asset control Securities held in the subsidiaries are subject to a quarterly reconciliation between the Company’s Accounting Department and the Securities departments of said companies. ➤ Operational control Christian Dior exercises operating control over its subsidiaries through the following: • legal bodies, Boards of Directors, and Shareholders’ Meetings, in which the Company is systematically represented; • management information to allow the managers of Christian Dior SA to intervene in the process of defining the objectives and monitoring their fulfillment: – 3-year and annual budget plans; – monthly reports on results compared to budget, and analysis of variance; – quarterly meetings to analyze performance with subsidiary management.

3. Internal controls relative to preparing the parent company’s financial and accounting information The corporate and consolidated financial statements are laid out in a detailed set of instructions and have a specially adapted data submission system designed to facilitate complete and accurate data processing within suitable timeframes. The exhaustive controls performed at the sub-consolidation levels (LVMH and Christian Dior Couture) guarantee the integrity of the information. Financial information intended for the financial markets (financial analysts, investors, individual shareholders, market authorities) is provided under the control of the Finance Department. This information is strictly defined by current market rules, specifically the principle of equal treatment of investors.

4. French Financial Security Law In addition to the existing internal control mechanism, in 2006, in response to the French Financial Security Law (LSF), the Christian Dior Group continued to pursue in 2006 the formalization and assessment of its internal control environment. This initiative is also pursued at both LVMH and Christian Dior Couture.

71 STATUTORY AUDITORS’ REPORT PREPARED PURSUANT TO ARTICLE L.225-235 OF THE COMMERCIAL CODE, ON THE REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS OF CHRISTIAN DIOR CONCERNING INTERNAL PROCEDURES RELATIVE TO THE PREPARATION AND PROCESSING OF ACCOUNTING AND FINANCIAL INFORMATION FISCAL YEAR ENDING DECEMBER 31, 2006 MAZARS & GUERARD ERNST & YOUNG AUDIT Tour Exaltis Faubourg de l’Arche 61, rue Henri Regnault 11, allée de l’Arche 92400 Courbevoie 92037 Paris-La Défense Cedex, SA au capital of 8,320,000 euros S.A.S. à capital variable

Statutory auditors Statutory auditors Membre de la compagnie Membre de la compagnie régionale de Versailles régionale de Versailles To the Shareholders, As Statutory Auditors of Christian Dior 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, 2006. In his Report, the Chairman reports, in particular, on the conditions for the preparation and organization of the Board of Directors’ work and on the internal control procedures implemented by the Company. It is our responsibility to report to you our observations on the information set out in the Chairman’s Report on the internal control procedures relating to the preparation and treatment of financial and accounting information. We have performed our work in accordance with the professional guidelines applicable in France. These guidelines require that we plan and perform procedures to assess the fairness of the information set out in the Chairman’s report on the internal control procedures relating to the preparation and treatment of the financial and accounting information. These procedures notably consisted of: - obtaining an understanding of the objectives and general organization of internal control, as well as the internal control procedures relating to the preparation and treatment of financial and accounting information, as set out in the Chairman’s Report; - obtaining an understanding of the work underlying the information set out in the report. On the basis of the procedures we have performed, we have nothing to report with regard to the information concerning the internal control procedures of the Company relating to the preparation and treatment of the financial and accounting information, as included in the Report of the Chairman of the Board of Directors, prepared in accordance with the Article L.225-37 of the French Commercial Code. Courbevoie and Paris-La Défense, April 6, 2007 The Statutory Auditors MAZARS & GUERARD ERNST & YOUNG AUDIT

Denis Grison Christian Mouillon

72 CONSOLIDATED FINANCIAL STATEMENTS

73 C ONSOLIDATED B ALANCE S HEET

ASSETS (EUR million) Notes 2006 2005 2004(1) Brands and other intangible assets – net 3 10,885 11,186 10,495 Goodwill – net 4 5,120 5,058 4,634 Property, plant, and equipment – net 6 5,432 5,258 4,798 Investments in associates 7 128 131 117 Non-current available for sale financial assets 8 505 451 718 Other non-current assets 693 701 666 Deferred tax 26 451 361 278 Non-current assets 23,214 23,146 21,706 Inventories and work in progress 9 4,524 4,270 3,723 Trade accounts receivable 10 1,539 1,437 1,419 Income taxes 514 317 115 Other current assets 11 1,635 1,279 1,336 Cash and cash equivalents 13 1,359 1,510 1,066 Current assets 9,571 8,813 7,659 Total assets 32,785 31,959 29,365

LIABILITIES AND EQUITY (EUR million) Notes 2006 2005 2004(1) Share capital 363 363 363 Share premium account 2,205 2,205 2,205 Treasury shares and related derivatives (229) (157) (155) Revaluation reserves 418 292 245 Other reserves 1,447 1,021 626 Cumulative translation adjustment (53) 126 (89) Group share of net profit 797 618 549 Equity – Group share 14 4,948 4,468 3,744 Minority interests 16 8,026 7,400 6,321 Total equity 12,974 11,868 10,065 Long-term borrowings 17 4,188 4,443 5,092 Provisions 18 991 952 886 Deferred tax 26 3,786 3,846 3,389 Other non-current liabilities 19 3,758 3,370 3,246 Non-current liabilities 12,723 12,611 12,613 Short-term borrowings 17 2,661 3,376 2,984 Trade accounts payable 1,967 1,772 1,629 Income taxes 695 377 203 Provisions 18 263 312 265 Other current liabilities 20 1,502 1,643 1,606 Current liabilities 7,088 7,480 6,687 Total liabilities and equity 32,785 31,959 29,365

(1) Data published previously under French accounting standards has been restated under IFRS.

74 C ONSOLIDATED I NCOME S TATEMENT

(EUR million, except for earnings per share) Notes 2006 2005 2004(1)

Revenue 22-23 16,016 14,556 13,060 Cost of sales (5,745) (5,228) (4,533)

Gross margin 10,271 9,328 8,527

Marketing and selling expenses (5,707) (5,201) (4,832) General and administrative expenses (1,355) (1,336) (1,282)

Profit from recurring operations 22-23 3,209 2,791 2,413

Other operating income and expenses 22-24 (127) (226) (203)

Operating profit 3,082 2,565 2,210

Cost of net financial debt (230) (234) (265) Other financial income and expenses 123 43 1

Net financial income(expense) 25 (107) (191) (264)

Income taxes 26 (850) (728) (488) Income (loss) from investments in 7 8 8 (15) associates

Net profit 2,133 1,654 1,443 of which: minority interests 1,336 1,036 894 Group share 797 618 549

Basic Group share of net earnings 27 4.49 3.48 3.09 per share (in euros) Number of shares on which the 177,522,442 177,655,990 177,774,420 calculation is based

Diluted Group share of net 27 4.45 3.45 3.07 earnings per share (in euros) Number of shares on which the 179,242,114 179,002,963 178,737,153 calculation is based

(1) Data published previously under French accounting standards has been restated under IFRS.

75 C ONSOLIDATED S TATEMENT OF C HANGES IN E QUITY

Net Treasury profit Total Equity Share shares and Cumulative and Number of Share premium Related Revaluation translation other Group Minority shares capital account derivatives reserves adjustment reserves share interests Total (EUR million) Notes 14.1 14.2 14.4 14.5 16

As of January 1, 2004 (1) 181,727,048 363 2,205 (130) 219 – 761 3,418 6,031 9,449

Translation adjustment (89) (89) (176) (265) Income and expenses recognized directly in equity 26 26 48 74 Net profit 549 549 893 1,442 Total recognized income and expenses – – – 26 (89) 549 486 765 1,251 Stock option plan expenses 27 27 28 55 (Acquisition)/disposal of treasury (25) (9) (34) (75) (109) shares and related derivatives Interim and final dividends paid (162) (162) (340) (502) Changes in scope consolidation – 9 9 (19) (10) Effects of purchase commitments for minority interests – (69) (69)

As of December 31, 2004 (1) 181,727,048 363 2,205 (155) 245 (89) 1,175 3,744 6,321 10,065

Translation adjustments 215 215 381 596 Income and expenses recognized directly in equity 47 47 64 111 Net profit 618 618 1,036 1,654 Total recognized income and expenses – – – 47 215 618 880 1,481 2,361 Stock option plan expenses 17 17 15 32 (Acquisition)/disposal of treasury (2) 1 (1) 27 26 shares and related derivatives Interim and final dividends paid (172) (172) (371) (543) Changes in scope consolidation – (74) (74) Effects of purchase commitments for minority interests –11

As of December 31, 2005 181,727,048 363 2,205 (157) 292 126 1,639 4,468 7,400 11,868

Translation adjustments (179) (179) (321) (500) Income and expenses recognized directly in equity 126 126 174 300 Net profit 797 797 1,336 2,133

Total recognized income and expenses – – – 126 (179) 797 744 1,189 1,933 Stock option plan expenses 23 23 21 44 Change in treasury shares and related derivatives (72) 1 (71) (8) (79) Capital increase of subsidiaries 66 Interim and final dividends paid (216) (216) (439) (655) Changes in scope consolidation – (6) (6) Effects of purchase commitments for minority interests – (137) (137)

As of December 31, 2006 181,727,048 363 2,205 (229) 418 (53) 2,244 4,948 8,026 12,974

(1) Data published previously under French accounting standards has been restated under IFRS.

76 C ONSOLIDATED C ASH F LOW S TATEMENT

(EUR million) Notes 2006 2005 2004 (1) I - OPERATING ACTIVITIES Operating profit 3,082 2,565 2,210 Net increase in depreciation, amortization and provisions, excluding tax and 515 671 562 financial items Other unrealized gains and losses, excluding financial items (17) (92) (21) Dividends received 33 52 26 Other adjustments (20) (11) 12 Cash from operations before changes in working capital 3,593 3,185 2,789 Cost of net financial debt: interest paid (225) (268) (266) Income taxes paid (788) (620) (401) Net cash from operations before changes in working capital 2,580 2,297 2,122 Change in inventories and work in progress (362) (281) (276) Change in trade accounts receivable (157) (77) 21 Change in trade accounts payable 234 18 (88) Change in other receivables and payables 37 53 110 Total change in working capital (248) (287) (233) Net cash from operating activities 2,332 2,010 1,889 II - INVESTING ACTIVITIES Purchase of tangible and intangible fixed assets (807) (755) (711) Proceeds from sale of tangible and intangible fixed assets 11 21 63 Guarantee deposits paid and other operating investments 12 7 (13) Operating investments (784) (727) (661) Purchase of non-current available for sale financial assets (88) (69) (57) Proceeds from sale of non-current available for sale financial assets 8 172 469 95 Impact of purchase and sale of consolidated investments (68) (604) (401) Other financial investments – 64 – Financial investments 16 (140) (363) Net cash from (used in) investing activities (768) (867) (1 024) III - TRANSACTIONS RELATING TO EQUITY Capital increases subscribed by minority interests 6 3 1 Purchase and proceeds from sale of treasury shares and related derivatives (72) 30 (156) Interim and final dividends paid by Christian Dior (216) (172) (162) Interim and final dividends paid to minority interests in consolidated (439) (371) (340) subsidiaries Net cash from (used in) transactions relating to equity (721) (510) (657) IV - FINANCING ACTIVITIES Proceeds from borrowings 1,286 1,267 1,662 Repayment of borrowings (2,136) (1,621) (1,717) Purchase and proceeds of current available for sale financial assets (181) (40) 11 Net cash from (used in) financing activities (1,031) (394) (44) V - EFFECT OF EXCHANGE RATE CHANGES (1) 34 2 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (I+II+III+IV+V) (189) 273 166

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13 988 715 549 CASH AND CASH EQUIVALENTS AT END OF PERIOD 13 799 988 715

Transactions generating no change in cash: – acquisition of assets by means of finance lease 8 9 56

(1) Data published previously under French accounting standards has been restated under IFRS.

77 N OTES TO THE C ONSOLIDATED F INANCIAL S TATEMENTS

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1 ACCOUNTING POLICIES 79 2 CHANGES IN THE SCOPE OF CONSOLIDATION 89 3 BRANDS, TRADE NAMES, AND OTHER INTANGIBLE ASSETS 92 4 GOODWILL 94 5 IMPAIRMENT TESTING OF INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES 95 6 PROPERTY, PLANT AND EQUIPMENT 96 7 INVESTMENTS IN ASSOCIATES 97 8 NON-CURRENT AVAILABLE FOR SALE FINANCIAL ASSETS 98 9 INVENTORIES AND WORK IN PROGRESS 99 10 TRADE ACCOUNTS RECEIVABLE 100 11 OTHER CURRENT ASSETS 100 12 CURRENT AVAILABLE FOR SALE FINANCIAL ASSETS 101 13 CASH AND CASH EQUIVALENTS 101 14 EQUITY 102 15 STOCK OPTION AND SIMILAR PLANS 104 16 MINORITY INTERESTS 110 17 BORROWINGS 111 18 PROVISIONS 115 19 OTHER NON-CURRENT LIABILITIES 116 20 OTHER CURRENT LIABILITIES 116 21 DERIVATIVES 116 22 SEGMENT INFORMATION 120 23 REVENUE AND EXPENSES BY NATURE 123 24 OTHER OPERATING INCOME AND EXPENSES 124 25 NET FINANCIAL INCOME/EXPENSE 125 26 INCOME TAXES 125 27 EARNINGS PER SHARE 129 28 PROVISIONS FOR PENSIONS, MEDICAL COSTS AND SIMILAR COMMITMENTS 129 29 OFF BALANCE SHEET COMMITMENTS 132 30 RELATED PARTY TRANSACTIONS 134 31 SUBSEQUENT EVENTS 136

78 N OTES TO THE C ONSOLIDATED F INANCIAL S TATEMENTS

NOTE 1 - ACCOUNTING POLICIES

1.1 General framework As required by Regulation (EC) No. 1606/2002 of July 19, 2002, the consolidated financial statements for the year ended December 31, 2006 were established in accordance with international accounting standards (IAS/IFRS) adopted by the European Union and applicable on February 14, 2007, the date on which these financial statements were approved for publication by the Board of Directors. These standards have been applied consistently to the fiscal years presented. The Group has applied IAS 32 and IAS 39 with effect from January 1, 2004, including the amendments to IAS 39 pertaining to the cash flow hedge accounting of forecast intragroup transactions and the fair value option.

1.2 Changes in the accounting framework in 2006 • Standards, amendments and interpretations for which application is mandatory in 2006 The following standards, amendments and interpretations, which are applicable to the Group and were implemented as of January 1, 2006, do not have a significant impact on the consolidated financial statements presented: – amendments to IAS 39 and IFRS 4 pertaining to financial guarantees ; – IFRIC Interpretation 4, which includes the criteria used to determine whether an arrangement contains an implicit lease ; – amendment to IAS 21 pertaining to the recognition of the net investment in a foreign consolidated entity ; – limited amendment to IAS 19 pertaining to the recognition and disclosure of actuarial gains and losses arising from the calculation of employee benefit commitments. • Standards, amendments and interpretations for which application is optional in 2006 The following standards, amendments and interpretations will only be applied in the consolidated financial statements from 2007 onwards : – IFRS 7 Financial instruments – Disclosures ; – amendment to IAS 1, which introduces additional disclosure requirements relating to capital ; – IFRIC 8 Scope of IFRS 2, the standard dealing with share-based payments ; – IFRIC 9 Reassessment of embedded derivatives ; – IFRIC 10 Interim financial reporting and impairment. The impacts of these texts on the consolidated financial statements are in the process of being quantified.

79 1.3 First-time adoption of IFRS The first accounts prepared by the Group in accordance with IFRS were the financial statements for the year ended December 31, 2005, with a transition date of January 1, 2004. IFRS 1 allowed for exceptions to the retrospective application of IFRS at the transition date. The procedures implemented by the Group with respect to these exceptions are listed below: • business combinations : the exemption from retrospective application was not applied. The Christian Dior Group has retrospectively restated acquisitions made since 1988, the date of the initial consolidation of LVMH. IAS 36 Impairment of Assets and IAS 38 Intangible Assets were applied retrospectively as of this date; • measurement of property, plant and equipment and intangible assets : the option to measure these assets at fair value at the date of transition was not applied, with the exception of the entire real estate holdings of Christian Dior Couture; • employee benefits : actuarial gains and losses previously deferred under French GAAP at the date of transition were recognized; • foreign currency translation of the financial statements of foreign subsidiaries: translation reserves relating to the consolidation of subsidiaries that prepare their accounts in foreign currency were reset to zero as of January 1, 2004 and offset against “Other reserves”; • share-based payment : IFRS 2 Share-Based Payment was applied to all share subscription and share purchase option plans that were open at the date of transition, including those created before November 7, 2002, the date before which application is not mandatory.

1.4 Use of estimates For the purpose of preparing the consolidated financial statements, measurement of certain balance sheet and income statement items requires the use of hypotheses, estimates or other forms of judgment. This is particularly true of the valuation of intangible assets, purchase commitments for minority interests and of the determination of the amount of provisions for contingencies and losses or for impairment of inventories and, if applicable, deferred tax assets. Such hypotheses, estimates or other forms of judgment which are undertaken on the basis of the information available, or situations prevalent at the date of preparation of the accounts, may prove different from the subsequent actual events.

1.5 Methods of consolidation The subsidiaries in which the Group holds a direct or indirect de facto or de jure controlling interest are fully consolidated. Jointly controlled companies are consolidated on a proportionate basis. For distribution subsidiaries operating in accordance with the contractual distribution arrangements with the Diageo Group, only the portion of assets and liabilities and results of operations relating to Group activities is included in the consolidated financial statements (see Note 1.23).

Companies where the Group has significant influence but no controlling interest are accounted for using the equity method.

80 1.6 Foreign currency translation of the financial statements of foreign subsidiaries The consolidated financial statements are stated in euros; the financial statements of subsidiaries stated in a different functional currency are translated into euros: • at the period-end exchange rates for balance sheet items; • at the average rates for the period for income statement items. Translation adjustments arising from the application of these rates are recorded in equity under “Cumulative translation adjustment”.

1.7 Foreign currency transactions and hedging of exchange rate risks Foreign currency transactions of consolidated companies are translated to their functional currencies at the exchange rates prevailing at the transaction dates. Accounts receivable, accounts payable and debts denominated in foreign currencies are translated at the applicable exchange rates at the balance sheet date. Unrealized gains and losses resulting from this translation are recognized: • within gross margin in the case of commercial transactions; • within net financial income/expense in the case of purely financial transactions. Foreign exchange gains and losses arising from the translation of inter-company transactions or receivables and payables denominated in foreign currencies, or from their elimination, are recorded in the income statement unless they relate to long term inter-company financing transactions which can be considered as transactions relating to equity. In the latter case, translation adjustments are recorded in equity under “Cumulative translation adjustment”. Derivatives which are designated as hedges of commercial foreign currency transactions are recognized in the balance sheet at their market value at the balance sheet date and any change in the market value of such derivatives is recognized: • within gross margin for the effective portion of hedges of receivables and payables recognized in the balance sheet at the end of the period; • within equity (as a revaluation reserve) for the effective portion of hedges of future cash flows (this part is transferred to gross margin at the time of recognition of the hedged assets and liabilities); • within net financial income/expense for the ineffective portion of hedges; changes in the value of discount and premium associated with forward contracts, as well as the time value component of options, are systematically considered as ineffective portions. When derivatives are designated as hedges of subsidiaries’ equity in foreign currency (net investment hedge), any change in market value of the derivatives is recognized within equity under “Cumulative translation adjustment” for the effective portion and within net financial income/expense for the ineffective portion.

1.8 Brands, trade names and other intangible assets Only acquired brands and trade names that are well known and individually identifiable are recorded as assets at their values calculated on their dates of acquisition. Costs incurred in creating a new brand or developing an existing brand are expensed.

81 Only brands, trade names and other intangible assets with finite useful lives are amortized over their useful lives. The classification of a brand or trade name as an asset of definite or indefinite useful life is generally based on the following criteria: • the brand or trade name’s positioning in its market expressed in terms of volume of activity, international presence and notoriety; • its expected long term profitability; • its degree of exposure to changes in the economic environment; • any major events within its business segment liable to compromise its future development; • its age. Amortizable lives of brands and trade names, depending on their estimated longevity, range from 5 to 40 years. Amortization and any impairment expense of brands and trade names are recognized within “Other operating income and expenses”. Impairment tests are carried out for brands, trade names and other intangible assets using the methodology described in Note 1.12. Research expenditure is not capitalized. New product development expenditure is not capitalized unless the final decision to launch the product has been taken. Intangible assets other than brands and trade names are amortized over the following periods:

• leasehold rights: based on market conditions, generally between 100% and 200% of the lease period • development expenditure: 3 years at most • software: 1 to 5 years

1.9 Goodwill When the Group takes de jure or de facto exclusive control of an enterprise, its assets, liabilities and contingent liabilities are estimated at their fair value and the difference between the cost of taking exclusive control and the Group’s share of the fair value of those assets, liabilities and contingent liabilities is recognized as goodwill. The cost of taking exclusive control is the price paid by the Group in the context of an acquisition, or an estimate of this price if the transaction is carried out without any payment of cash. Pending specific guidance from current standards, the difference between the cost and carrying amount of minority interests purchased after control is acquired is recognized as goodwill. Goodwill is accounted for in the functional currency of the acquired entity. Goodwill is not amortized but is subject to annual impairment testing. Any impairment expense recognized is included within “Other operating income and expenses”.

1.10 Purchase commitments for minority interests The Group has granted put options to minority shareholders of certain fully consolidated subsidiaries.

82 Pending guidance from IFRS on this subject, the Group recognizes these commitments as follows at each period-end: – the contractual value of the commitment at this date appears in “Other non-current liabilities”; – the corresponding minority interests are reclassified and included in the above amount; – the difference between the amount of the commitment and the reclassified minority interests is recorded as goodwill. This accounting policy has no effect on the presentation of minority interests within the income statement. The accounting treatment described above nevertheless elicits the following observation: certain interpretations of these texts lead to the recognition of the entire amount of goodwill as a deduction from equity; under other interpretations, goodwill is maintained under assets but in an amount frozen at the acquisition date, with subsequent changes being taken directly to the income statement.

1.11 Property, plant and equipment With the exception of vineyard land and the entire real estate holdings of Christian Dior Couture, the gross value of property, plant and equipment is stated at acquisition cost. Any borrowing costs incurred prior to use of assets are expensed. Vineyard land is recognized at the market value at the balance sheet date. This valuation is based on official published data for recent transactions in the same region, or on independent appraisals. Any difference compared to historical cost is recognized within equity in “Revaluation reserves”. If market value falls below acquisition cost the resulting impairment is charged to the income statement. Vines for champagnes, cognacs and other wines produced by the Group, are considered as biological assets as defined in IAS 41 Agriculture. As their valuation at market value differs little from that recognized at historical cost, no revaluation is undertaken for these assets. Investment property is measured at cost. Assets acquired under finance leases are capitalized on the basis of the lower of their market value and the present value of future lease payments. Property, plant and equipment is depreciated on a straight-line basis over its estimated useful life:

• buildings including investment property: 20 to 50 years • machinery and equipment: 3 to 25 years • store improvements: 3 to 10 years • producing vineyards: 18 to 25 years The depreciable amount of property, plant and equipment comprises its acquisition cost less any estimated residual value. Expenses for maintenance and repairs are charged to the income statement as incurred.

1.12 Impairment testing of fixed assets Intangible and tangible fixed assets are subject to impairment testing whenever there is any indication that an asset may be impaired, and in any event at least annually in the case of

83 intangible assets with indefinite useful lives (mainly brands, trade names and goodwill). When the carrying amount of such assets is greater than the higher of their value in use or net selling price, the resulting impairment loss is recognized within “Other operating income and expenses”, allocated in priority to any existing goodwill. Value in use is based on the present value of the cash flows expected to be generated by these assets. Net selling price is estimated by comparison with recent similar transactions or on the basis of valuations performed by independent experts. Cash flows are forecast for each business segment defined as one or several brands or trade names under the responsibility of a specific management team. Smaller scale cash generating units, e.g. a group of stores, may be distinguished within a particular business segment. Brands and goodwill are chiefly valued on the basis of the present value of forecast cash flows, or of comparable transactions (i.e. using the revenue and net profit coefficients employed for recent transactions involving similar brands), or of stock market multiples observed for related businesses. Other complementary methods may also be employed: the royalty method, involving equating a brand’s value with the present value of the royalties required to be paid for its use; the margin differential method, only applicable when a measurable difference can be identified between the amount of revenue generated by a branded product in comparison with an unbranded product; finally the equivalent brand reconstitution method involving, in particular, estimation of the amount of advertising required to generate a similar brand. The forecast data required for the cash flow methods is based on budgets and business plans prepared by management of the related business segments. Detailed forecasts cover a five- year period with the exception of certain brands undergoing strategic repositioning for which a longer period is retained. Moreover, a final value is also estimated, which corresponds to the capitalization in perpetuity of cash flows most often arising from the last year of the plan. When several forecast scenarios are developed, the probability of occurrence of each scenario is assessed. Forecast cash flows are discounted on the basis of the rate of return to be expected by an investor in the applicable business and include assessment of the risk factor associated with each business.

1.13 Available for sale financial assets Available for sale financial assets are classified as current or non current based on their nature and the estimated period for which they will be held. Non-current available for sale financial assets mainly include strategic and non-strategic participating investments. Current available for sale financial assets include temporary investments in shares, shares of “SICAV” and “FCP” funds, excluding investments made as part of the daily cash management, accounted for as cash and cash equivalents (see Note 1.16). Available for sale financial assets are measured at their listed value at balance sheet date in the case of quoted investments, and at their net realizable value in the case of unquoted investments. Positive or negative changes in value are taken to equity within “Revaluation reserves”. If an impairment loss is judged to be definitive, a provision for impairment is recognized and charged to net financial income/expense; in the case of investments in shares, impairment is only reversed through the income statement at the time of sale.

84 1.14 Inventories and work in progress Inventories other than wine produced by the Group are recorded at the lower of cost (excluding interest expense) and net realizable value; cost comprises manufacturing cost (finished goods) or purchase price, plus incidental costs (raw materials, merchandise). Wine produced by the Group, especially champagne, is measured at the applicable harvest market value, as if the harvested grapes 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. Inventories are valued using the weighted average cost or FIFO methods. Due to the length of the aging process required for champagne and cognac, the holding period for these inventories generally exceeds one year. However, in accordance with industry practices, these inventories are nevertheless classified as current assets. Provisions for impairment of inventories are chiefly recognized for businesses other than Wines and Spirits. They are generally required because of product obsolescence (date of expiry, end of season or collection...) or lack of sales prospects.

1.15 Trade accounts receivable Trade accounts receivable generally represent less than two months’ sales and are recorded at their face value. A provision for impairment is recorded if their net realizable value, based on the probability of their collection, is less than their carrying amount.

1.16 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits as well as highly liquid monetary investments subject to an insignificant risk of changes in value. Monetary investments are measured at their market value and at the exchange rate prevailing at the balance sheet date, with any changes in value recognized as part of net financial income/expense.

1.17 Provisions A provision is recognized whenever an obligation exists towards a third party resulting in a probable disbursement for the Group, the amount of which may be reliably estimated. When execution of its obligation is expected to be deferred by more than one year, the provision amount is discounted, the effects of which are generally recognized in net financial income/expense.

1.18 Borrowings Borrowings are measured at nominal value net of premium and issue expenses, which are charged progressively to net financial income/expense using the effective interest method. In the case of hedging against fluctuations in the capital amount of borrowings resulting from interest rate risk, both the hedged amount of borrowings and the related hedges are measured at their market value at the balance sheet date, with any changes in those values recognized within net financial income/expense for the period.

85 In the case of hedging of 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. Changes in value of non-hedge derivatives, and of the ineffective portions of hedges, are recognized within net financial income/ expense. Financial debt bearing embedded derivatives is measured at market value as allowed by the fair value option under IAS 39. Net financial debt comprises short and long term borrowings, the market value at the balance sheet date of interest rate derivatives, less the value of current available for sale and other financial assets and cash and cash equivalents at that date.

1.19 Derivatives The Group enters into derivative transactions as part of its strategy for hedging foreign exchange and interest rate risks. IAS 39 subordinates the use of hedge accounting to demonstration and documentation of the effectiveness of hedging relationships when hedges are implemented and subsequently throughout their existence. A hedge is considered to be effective if the ratio of changes in the value of the derivative to changes in the value of the hedged underlying remains within a range of 80 to 125%. Derivatives are recognized in the balance sheet at their market value at the balance sheet date. Changes in their value are accounted for as described in Note 1.7 in the case of foreign exchange hedges, and as described in Note 1.18 in the case of interest rate hedges. Market value is based on market data and on commonly used valuation models, and may be confirmed in the case of complex instruments by reference to values quoted by independent financial institutions. Derivatives with maturities in excess of twelve months are disclosed as non-current assets and liabilities.

1.20 Christian Dior and LVMH treasury shares and related derivatives • Christian Dior treasury shares Christian Dior shares that are held by the Group are measured at their acquisition cost and recognized as a deduction from consolidated equity, irrespective of the purpose for which they are held. The cost of disposals of shares is determined by allocation category (see Note 14.2) using the FIFO method with the exception of shares held under stock option plans for which the calculation is performed for each plan using the weighted average cost method. Gains and losses on disposal, net of income taxes, are taken directly to equity.

• LVMH treasury shares Purchases and sales by LVMH of its own shares, resulting in changes in percentage holdings of Christian Dior Group in LVMH, are treated in the consolidated accounts of Christian Dior Group as acquisitions and disposals of minority interests. Options to purchase LVMH shares that are held by the Group in order to cover stock option plans are measured at their acquisition cost and recognized as a deduction from consolidated equity.

86 1.21 Pensions, medical costs and other employee or retired employee commitments When payments are made by the Group in respect of retirement benefits, pensions, medical costs and other commitments to third party organizations which are liable for the payment of benefits or medical expense reimbursements, these contributions are expensed in the period in which they fall due with no liability recorded on the balance sheet. When retirement benefits, pensions, medical costs and other commitments are undertaken directly by the Group, a provision is recorded in the balance sheet in the amount of the corresponding actuarial commitment, and any changes in this commitment are expensed within profit from recurring operations over the period, including effects of discounting. When this commitment is either partially or wholly funded by payments made by the Group to external financial organizations, these payments are deducted from the actuarial commitment recorded in the balance sheet. The actuarial commitment is calculated based on individual country and company assessments. In particular, these assessments include assumptions regarding salary increases, inflation, life expectancy, staff turnover and the return on plan assets. Cumulative actuarial gains or losses are amortized if, at the year-end, they exceed 10% of the higher of the total commitment or the market value of the funded plan assets. These gains or losses are amortized in the period following their recognition over the average residual active life of the relevant employees.

1.22 Current and deferred tax Deferred tax is recognized in respect of temporary differences arising between the amounts of assets and liabilities for purposes of consolidation and the amounts resulting from application of tax regulations. Deferred tax is measured on the basis of the income tax rates enacted at the balance sheet date; the effect of changes in rates is recognized during the periods in which changes are enacted. Future tax savings from tax losses carried forward are recorded as deferred tax assets on the balance sheet and impaired where appropriate; only amounts for which future use is deemed probable are recognized. Deferred tax assets and liabilities are not discounted. Taxes payable in respect of the distribution of retained earnings of subsidiaries are provided for if distribution is deemed probable.

1.23 Revenue recognition • Revenue Revenue mainly comprises direct sales to customers and sales through distributors. Sales made in stores owned by third parties are treated as revenue if the risks and rewards of ownership of the inventories are not transferred to those third parties. Direct sales to customers are made through retail outlets for Fashion and Leather Goods, certain Perfumes and Cosmetics, certain Watches and Jewelry brands and Selective Retailing. These sales are recognized at the time of purchase by retail customers.

87 Wholesale sales through distributors are made for Wines and Spirits, certain Perfumes and Cosmetics and certain Watches and Jewelry brands. The Group recognizes revenue when title transfers to third party customers, i.e. generally on shipment of products from Group facilities. Revenue includes shipment and transportation costs re-billed to customers only when these costs are included in products’ selling prices as a lump sum. Revenue is presented net of all forms of discount. In particular, payments made in order to have products referenced or, in accordance with agreements, to participate in advertising campaigns with the distributors, are deducted from revenue and the corresponding trade accounts receivable. • Provisions for product returns Perfumes and Cosmetics and, to a lesser extent, Fashion and Leather Goods and Watches and Jewelry companies may accept the return of unsold or outdated products from their customers and distributors. Where this practice is applied, revenue and the corresponding trade receivables are reduced by the estimated amount of such returns, and a corresponding entry is made to inventories. The estimated rate of returns is based on statistics of historical returns. • Businesses undertaken in partnership with Diageo A significant proportion of revenue for the Group’s Wines and Spirits businesses is achieved within the framework of distribution agreements with Diageo, generally taking the form of shared entities which sell and deliver both groups’ brands to customers. Because the distribution agreements provide specific rules for allocating these entities’ net profit and assets and liabilities between LVMH and Diageo, LVMH only recognizes the portion of their revenue and expenses attributable to its own brands.

1.24 Advertising and promotion expenses 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 activities designed to promote the Group’s brands and products. Advertising and promotion expenses are recognized as expenses for the period in which they are incurred; the cost of media campaigns in particular is time-apportioned over the duration of these campaigns and the cost of samples and catalogs is recognized when they are made available to customers.

1.25 Stock option and similar plans Share purchase and subscription option plans give rise to recognition of an expense based on the expected gain for plan beneficiaries calculated, using the Black & Scholes method, at the date of the Board Meeting at which the decision to initiate the plans is made. This expense is apportioned on a straight-line basis over the option vesting period with a corresponding adjustment increasing the amount of consolidated reserves. For bonus share plans, the expected gain is calculated on the basis of the closing share price on the day before the Board Meeting at which the decision to initiate the plan is made, and dividends expected to accrue during the vesting period.

88 With respect to LVMH share-based incentives, which are settled in cash and not in shares, the corresponding annual expense is recorded as a liability on the balance sheet in an equivalent amount.

1.26 Profit from recurring operations and other operating income and expenses The Group’s main business is the management and development of its brands and trade names. Profit from recurring operations is derived from these activities, whether they are recurring or nonrecurring, core or incidental transactions. Other operating income and expenses comprises income statement items which, due to their nature, amount or frequency, may not be considered as inherent to the Group’s recurring operations. This caption reflects in particular the impact of changes in the scope of consolidation and the impairment of brands and goodwill, as well as any significant amount of gains or losses arising on the disposal of fixed assets, restructuring costs, costs in respect of disputes, or any other non-recurring income or expense which may otherwise distort the comparability of profit from recurring operations from one period to the next.

1.27 Earnings per share Earnings per share are calculated based on the weighted average number of shares outstanding during the period, excluding treasury shares. Diluted earnings per share are calculated based on the weighted average number of shares before dilution and adding the weighted average number of shares that would result from the exercise of all existing subscription options during the period or any other diluting instrument. It is assumed for the purposes of this calculation that the funds received from the exercise of options (see Note 1.25) would be employed to re-purchase Christian Dior shares at a price corresponding to their average trading price over the period.

NOTE 2 - CHANGES IN THE SCOPE OF CONSOLIDATION No changes in the scope of consolidation occurred in fiscal years 2005 or 2006 that could affect the comparability of the consolidated financial statements for these two periods. However, although it does not represent a change in the scope of consolidation, the impacts of the business suspension of the Samaritaine department store in Paris in June 2005 should be taken into account for the purposes of analyzing the income statements presented (see Note 22 Segment information and Note 24 Other operating income and expenses).

2.1 Fiscal year 2006 In 2006 changes in the scope of consolidation concerned the acquisition of minority interests, mainly in Fresh and Donna Karan, in addition to certain distribution subsidiaries in Asia.

2.2 Fiscal year 2005 • Wines and Spirits: Following a friendly takeover bid finalized at the end of December 2004, in January 2005, the Group acquired 99% of the share capital of Glenmorangie plc, a UK company listed in London, followed by the remaining 1% in February and March 2005 as the result of a delisting procedure.

89 The cost of this acquisition was 459 million euros (316 million pounds sterling), including 8 million euros in acquisition costs. In accordance with the bid terms, 51 million pounds sterling of this total price were paid in the form of Loan Notes, bearing interest at GBP Libor less 0.80%. The Loan Notes are repayable at par value on demand of their holders, at the earliest on December 15, 2005 and at the latest on December 15, 2012, on the biannual interest payment dates of June 15 and December 15. Glenmorangie was fully consolidated with effect from January 1, 2005. The table below summarizes the purchase price allocation, on the basis of Glenmorangie’s balance sheet as of December 31, 2004:

Value retained Carrying (EUR million) by the Group amount

Intangible assets 290 1 Property, plant and equipment 54 58 Inventories 130 123 Other current assets and liabilities, net (22) (10) Cash and cash equivalents 21 21 Borrowings (66) (66) Employee commitments (12) – Deferred tax and provisions (95) (7) Goodwill 159 –

Total cost of acquisition 459 –

The Glenmorangie, Ardberg, and Glen Moray brands are recognized in intangible assets for a total of 289 million euros, of which 234 million euros represents the Glenmorangie brand. Goodwill is generated by the synergies to be created due to the integration of Glenmorangie in the Moët Hennessy distribution network. In April 2005, the Group acquired for consideration of 120 million US dollars the 30% interest in Millennium that was owned by the latter’s minority shareholder, thus increasing its total holding to 100%. This investment represents an increase in the Group’s share of the distribution license held by Millennium of 79 million euros. The Group’s interest in MountAdam was sold in July 2005. • Fashion and Leather Goods: Christian Lacroix was sold in January 2005. • Other activities: The 49.9% interest in Bonhams Brooks PS&N Ltd, accounted for by the equity method, was sold in July 2005.

2.3 Fiscal year 2004 • Wines and Spirits : In March 2004, the Group increased its interest in Millennium Import LLC, acquired in July 2002, from 40% to 70%. The corresponding investment of 103 million US dollars was fully consolidated as of that date.

90 • Fashion and Leather Goods: In March 2004, the Group increased its interest in Donna Karan from 89% to 98%, at a cost of 44 million US dollars, and in May 2004, the Group’s interest in Fendi was increased from 84% to 94%, at a cost of 112 million euros. • Perfumes and Cosmetics: In July 2004, the Group acquired 10% of for 26 million US dollars, increasing the Group’s stake to 80% following this transaction. • Watches and Jewelry: The sale of Ebel to the American group Movado, based on a memorandum of understanding dated December 2003, became effective in February 2004; Ebel was removed from the scope of consolidation as of this date.

2.4 Impact of changes in the scope of consolidation on cash and cash equivalents (EUR million) 2006 2005 2004

Purchase of consolidated investments (71) (623) (455) Positive cash balance / (net overdraft) of companies acquired – (6) 5 Proceeds from sale of consolidated investments 3 34 49 (Positive cash balance) / net overdraft of companies sold – (9) –

Impact of changes in the scope of consolidation on cash and cash equivalents (68) (604) (401)

In 2006, the impact on the Group’s cash and cash equivalents of changes in the scope of consolidation was mainly the result of the staggered payment for minority interests in Fendi in the amount of 25 million euros, the acquisition of minority interests in Donna Karan for 8 million euros and 15% of Fresh for 4 million euros. In 2005, the overall impact on the Group’s cash and cash equivalents of changes in the scope of consolidation was a decrease of 604 million euros. This amount was chiefly attributable to the acquisition of Glenmorangie, accounting for 438 million euros, and to the acquisition of minority interests in Millennium, accounting for 92 million euros. In 2004, the impact on the Group’s cash and cash equivalents of changes in the scope of consolidation was mainly the result of the acquisition of, and staggered payments for, minority interests in Fendi in the amount of 197 million euros, the acquisition of a 30% stake in Millennium for 82 million euros, the acquisition of an additional 9% stake in Donna Karan and an additional 10% stake in BeneFit Cosmetics for 56 million euros.

91 NOTE 3 - BRANDS, TRADE NAMES AND OTHER INTANGIBLE ASSETS 2006 2005 2004 Accumulated amortization and (EUR million) Gross impairment Net Net Net Brands 8,765 (343) 8,422 8,499 8,146 Trade names 3,383 (1,380) 2,003 2,204 1,983 License rights 224 (21) 203 226 122 Leasehold rights 278 (166) 112 120 136 Software 262 (190) 72 59 44 Other 183 (110) 73 78 64 Total 13,095 (2,210) 10,885 11,186 10,495

Of which: assets held under finance leases 14 (13) 1 1 1

3.1 Movements in the year Movements during the year ended December 31, 2006 in the net amounts of brands, trade names and other intangible assets were as follows: Other intangible Gross value (EUR million) Brands Trade names assets Total As of December 31, 2005 8,843 3,740 919 13,502 Acquisitions – – 91 91 Disposals – – (16) (16) Translation adjustment (78) (357) (41) (476) Other – (6) (6) As of December 31, 2006 8,765 3,383 947 13,095

Accumulated amortization and impairment Other intangible (EUR million) Brands Trade names assets Total As of December 31, 2005 (344) (1,536) (436) (2,316) Amortization expense (6) (81) (87) Disposals – – 14 14 Translation adjustment 6 156 12 174 Other 1 – 4 5 As of December 31, 2006 (343) (1,380) (487) (2,210)

Net carrying amount as of December 31, 2006 8,422 2,003 460 10,885

The translation adjustment mainly reflects the effects of changes in euro/US dollar exchange rates in the period on the valuation of intangible assets denominated in US dollars, especially the Donna Karan New York brand and the DFS trade name.

92 3.2 Movements in prior years Other Trade intangible Net carrying amount (EUR million) Brands names assets Total

As of January 1, 2004 8,197 2,116 268 10,581 Acquisitions – – 57 57 Disposals – – (5) (5) Changes in the scope of consolidation (7) – 130 123 Amortization expense (7) (2) (64) (73) Impairment expense (13) – (3) (16) Translation adjustment (24) (132) (12) (168) Other – 1 (5) (4)

As of December 31, 2004 8,146 1,983 366 10,495 Acquisitions 3 – 70 73 Disposals – – (5) (5) Changes in the scope of consolidation 289 – 78 367 Amortization expense (6) (1) (71) (78) Impairment expense – (24) – (24) Translation adjustment 66 260 34 360 Other 1 (14) 11 (2)

As of December 31, 2005 8,499 2,204 483 11,186

The effects of changes in the scope of consolidation in 2004 are mainly attributable to the first consolidation, using the full consolidation method, of the investment in Millennium; those in 2005 relate to the acquisition of Glenmorangie in the amount of 290 million euros and the final recognition of the acquisition of the distribution license held by Millennium for 62 million euros on a gross basis.

3.3. Brands and trade names The breakdown of brands and trade names by business group is as follows:

2006 2005 2004 Amortization (EUR million) Gross and impairment Net Net Net

Christian Dior Couture 25 – 25 25 25 Wines and Spirits 2,623 (8) 2,615 2,612 2,310 Fashion and Leather Goods 3,911 (303) 3,608 3,654 3,603 Perfumes and Cosmetics 1,287 (20) 1,267 1,274 1,267 Watches and Jewelry 871 (12) 859 887 894 Selective Retailing 3,383 (1,380) 2,003 2,204 1,983 Other Activities 48 – 48 47 47

Brands and trade names 12,148 (1,723) 10,425 10,703 10,129

93 The brands and trade names recognized in the table above are those that the Group has acquired. The principal acquired brands and trade names are : • Wines and Spirits: Hennessy, Moët, Veuve Clicquot, Krug, Château d’Yquem, Newton Vineyards and Glenmorangie; • Fashion and Leather Goods: Louis Vuitton, Fendi, Céline, Loewe, Donna Karan New York, Givenchy, Kenzo, , and Pucci; • Perfumes and Cosmetics: Parfums Christian Dior, Guerlain, Parfums Givenchy, Kenzo, , BeneFit Cosmetics, Fresh and ; • Watches and Jewelry: Tag Heuer, Zenith, Fred, Chaumet and Omas pens; • Selective Retailing: DFS, Sephora, Le Bon Marché; • Other Activities: and Investir print media publications. These brands and trade names are shown in the balance sheet at their value determined as of the date of their acquisition by the Group, which may be much less than their value in use or their net selling price as of the closing date for the consolidated financial statements. This is notably the case for the Louis Vuitton and Christian Dior Couture brands and the Sephora trade name, although this list cannot be considered exhaustive. Brands developed by the Group, notably Dom Pérignon, as well as the De Beers-LV trade name developed as a joint-venture with the De Beers Group, are not capitalized in the balance sheet.

3.4 License rights License rights notably include distribution rights for Belvedere and Chopin vodkas held by Millennium. Please refer also to Note 5 for the impairment testing of brands, trade names and other intangible assets with indefinite useful lives.

NOTE 4 - GOODWILL 2006 2005 2004 (EUR million) Accumulated Gross Impairment Net Net Net

Goodwill arising on consolidated investments 4,171 (1,093) 3,078 3,216 2,886 Goodwill arising on treasury shares (1) 259 – 259 273 280 Goodwill arising on purchase commitments 1,802 (19) 1,783 1,569 1,468 for minority interests (2)

Total 6,232 (1,112) 5,120 5,058 4,634

(1) Please refer to Note 1.20 and 14.2. (2) Please refer to Note 19 for goodwill arising on purchase commitments for minority interests.

94 Changes in goodwill break down as follows: 2006 2005 2004 Accumulated (EUR million) Gross impairment Net Net Net

As of January 1 6,224 (1,166) 5,058 4,634 4,441 Changes in the scope of consolidation 29 – 29 158 175 Changes in purchase commitments for 220 – 220 127 65 minority interests Changes in impairment – (15) (15) (24) (48) Changes in goodwill on treasury shares (14) – (14) (7) 47 Translation adjustment (227) 69 (158) 170 (46)

As of December 31 6,232 (1,112) 5,120 5,058 4,634

The effects of changes in the scope of consolidation in fiscal year 2005 were mainly attributable to the acquisition of Glenmorangie in the amount of 159 million euros; the corresponding effects in fiscal year 2004 were mainly attributable to the increase in the Group’s investment in Fendi and Millennium. The translation adjustment mainly reflects the effects of changes in euro/US dollar exchange rates in the period on the valuation of goodwill denominated in US dollars, especially Millennium, Miami Cruiseline and Donna Karan.

NOTE 5 - IMPAIRMENT TESTING OF INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES Brands, trade names, and other intangible assets with indefinite useful lives as well as the goodwill arising on acquisition have been subject to annual impairment testing. No significant impairment expense has been recognized in respect of these items during the course of fiscal year 2006. As described in Note 1.12, these assets are generally valued on the basis of the present value of forecast cash flows determined in the context of multi-year business plans. The main assumptions retained in 2006, similar to those used in 2005, for the determination of these forecast cash flows are as follows:

Period covered Pre-tax discount Growth rate for the Business Group by the plan rate period after the plan Wines and Spirits 5 years 8.5 to 9.5% 2% Fashion and Leather Goods 5 years 11 to 12% 2% Perfumes and Cosmetics 5 years 10.5 to 11.5% 2 to 2.5% Watches and Jewelry 5 years(*) 11 to 13% 2% Selective Retailing 5 years 9 to 10% 2% Other 5 years 9.5 to 10.5% 2%

(*) Five-year plans may be prolonged up to eight years for brands undergoing strategic repositioning. Growth rates applied for the period not covered by the plans are based on market estimates for the business groups concerned.

95 A one point change in the pre-tax discount rate or the growth rate for the period after the plan applied to the global cash flow forecast for each business group would not give rise to any impairment expense of related intangible assets, i.e. brands, trade names and goodwill.

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

2006 2005 2004 Depreciation (EUR million) Gross and impairment Net Net Net

Land 784 – 784 730 707 Vineyard land and producing vineyards 1,417 (69) 1,348 1,217 1,162 Buildings 1,744 (670) 1,074 1,146 1,081 Investment property 344 (46) 298 312 289 Machinery and equipment 3,572 (2,197) 1,375 1,363 1,076 Other tangible fixed assets (including assets in progress) 1,016 (463) 553 490 483

Total 8,877 (3,445) 5,432 5,258 4,798

Of which: assets held under finance leases 329 (144) 185 214 213 historical cost of vineyard land 531 (69) 462 459 453 and producing vineyards

Movements in property, plant and equipment during the fiscal years presented break down as follows:

Other tangible Vineyard fixed assets land and (including Gross value producing Land and Investment Machinery and assets in (EUR million) vineyards buildings property equipment progress) Total

As of December 31, 2005 1,280 2,520 354 3,420 938 8,512 Acquisitions 7 110 1 298 310 726 Change in the market value of 133 – – – – 133 vineyard land Disposals and retirements 1 (25) – (131) (36) (191) Translation adjustment (8) (94) (11) (136) (46) (295) Other 4 17 – 121 (150) (8)

As of December 31, 2006 1,417 2,528 344 3,572 1,016 8,877

Other tangible Vineyard fixed assets Accumulated depreciation land and (including and impairment producing Land and Investment Machinery and assets in (EUR million) vineyards buildings property equipment progress) Total

As of December 31, 2005 (63) (644) (42) (2,057) (448) (3,254) Depreciation expense (6) (65) (5) (331) (76) (483) Impairment expense – – – (8) (1) (9) Disposals and retirements (1) 23 – 126 35 183 Translation adjustment 1 16 – 73 27 117 Other – – 1 – – 1

As of December 31, 2006 (69) (670) (46) (2,197) (463) (3,445)

Net carrying amount as of December 31, 2006 1,348 1,858 298 1,375 553 5,432

96 Other tangible Vineyard fixed assets land and Land Machinery (including Net carrying amount producing and Investment and assets in (EUR million) vineyards buildings property equipment progress) Total

As of January 1, 2004 1,087 1,764 302 1,047 399 4,599 Acquisitions 7 124 11 250 280 672 Disposals and retirements (1) (32) – (5) (11) (49) Depreciation expense (5) (64) (3) (274) (69) (415) Impairment expense – – – (3) (22) (25) Change in the market value of 75 – – – – 75 vineyard land Changes in the scope of – 24 5 (1) (4) 24 consolidation Translation adjustment (4) (39) (5) (24) (17) (89) Other 3 11 (21) 86 (73) 6

As of December 31, 2004 1,162 1,788 289 1,076 483 4,798 Acquisitions 7 50 3 360 270 690 Disposals and retirements – (15) (3) (13) – (31) Depreciation expense (5) (55) (5) (304) (73) (441) Impairment expense – (2) – (22) – (24) Change in the market value of 43 – – – – 43 vineyard land Changes in the scope of (1) 18 – 23 1 41 consolidation Translation adjustment 10 65 10 50 31 165 Other 1 27 18 193 (222) 17

As of December 31, 2005 1,217 1,876 312 1,363 490 5,258

Property, plant and equipment acquisitions in the three fiscal years consisted mainly of investments by Louis Vuitton, DFS and Sephora in their retail networks.

NOTE 7 - INVESTMENTS IN ASSOCIATES

2006 2005 2004 (EUR million) Gross Impairment Net Net Net

Share of net assets of associates as of January 1 135 (5) 130 117 105 Share of net profit (loss) for the period 8 – 8 8 (15) Dividends paid (7) – (7) (3) (4) Changes in the scope of consolidation (7) 5 (2) 10 32 Translation adjustment (1) – (1) (1) (1)

Share of net assets of associates as of December 31 128 – 128 131 117

97 In 2006, investments in associates consisted primarily of: • a 40% equity stake in Mongoual SA, a real estate company which owns a property held for rental in Paris (France) which is also the head office of LVMH Moët Hennessy Louis Vuitton SA; • a 23.1% equity stake in Micromania, the leading distributor of video games and consoles in the French market. Total rents invoiced by Mongoual SA to the Group amounted to 14 million euros in 2006 (14 million euros in 2005 and 2004).

NOTE 8 - NON-CURRENT AVAILABLE FOR SALE FINANCIAL ASSETS

2006 2005 2004 (EUR million) Gross Impairment Net Net Net

Total 537 (32) 505 451 718

As of December 31, 2004, non-current available for sale financial assets included an investment in Bouygues SA amounting to 401 million euros (see also Note 12 – Current available for sale financial assets). Non-current available for sale financial assets changed as follows in the periods presented: (EUR million) 2006 2005 2004

As of January 1 451 718 811 Acquisitions 86 107 13 Disposals at realized value (162) (469) (166) Impact of changes in market value 132 229 78 Reclassifications as investments in associates – (144) – current available for sale financial assets Net impairment expense 5 – (13) Translation adjustment (7) 10 (5)

As of December 31 505 451 718

In 2004 and 2005, the main disposals concerned the investment in Bouygues S.A.; as of December 31, 2005, the reminder of the group’s investment in Bouygues S.A. was classified under current available for sale financial assets. The main disposals in 2006 come from various equity interests held by FCPR L Capital. The net gain/loss on disposal is analyzed in Note 25 Net financial income/expense.

98 Non-current available for sale financial assets held by the Group include the following : Percentage Net Dividends (EUR million) interest value Received Equity (3) Net profit (3)

L Capital FCPR (France) (2) 46.1% 68 – 333 – L Capital 2 FCPR (France) (2) 18.5% 61 – – – Tod’s Spa (Italy) (1) 3.5% 65 1 462 39 Xinyu Hengdeli Holdings Ltd (1) 7.2% 56 – 77 13 Other investments NA 255 25 – –

505 26

(1) Market value of securities as of the close of trading on December 31, 2006. (2) Estimated realizable value of securities. (3) Figures provided reflect company information prior to December 31, 2006, as year-end accounting data was not available at the date of preparation of the consolidated financial statements. L Capital FCPR is an investment fund for which the by laws and the management schemes do not allow the Group to exercise exclusive or joint control, or significant influence, on shareholdings held.

NOTE 9 - INVENTORIES AND WORKS IN PROGRESS (EUR million) 2006 2005 2004

Wines and distilled alcohol in the process of aging 2,406 2,161 1,883 Other raw materials and work in progress 435 396 376

2,841 2,557 2,259 Goods purchased for resale 600 625 499 Finished products 1,629 1,689 1,535

2,229 2,314 2,034 Gross amount 5,070 4,871 4,293 Provision for impairment (546) (601) (570)

Net amount 4,524 4,270 3,723

The net change in inventories for the periods presented breaks down as follows: 2006 2005 2004

(EUR million) Gross Impairment Net Net Net

As of January 1 4,871 (601) 4,270 3,723 3,575 Change in gross inventories 357 – 357 281 263 Fair value adjustment for the harvest of the period 23 – 23 19 25 Change in provision for impairment – 21 21 (41) (39) Changes in the scope of consolidation 6 (3) 3 125 (27) Translation adjustment (187) 37 (150) 163 (74)

As of December 31 5,070 (546) 4,524 4,270 3,723

99 The effects on cost of sales of marking to market harvests are as follows:

(EUR million) 2006 2005 2004

Fair value adjustment for the harvest of the period 41 34 46 Adjustment for inventory consumed (18) (15) (21)

Net effect on cost of sales of the period 23 19 25

NOTE 10 - TRADE ACCOUNTS RECEIVABLE

(EUR million) 2006 2005 2004

Trade accounts receivable – nominal amount 1,734 1,650 1,621 Provision for impairment (60) (72) (83) Provision for product returns (135) (141) (119)

Net amount 1,539 1,437 1,419

Of which: receivables factored in accordance – – 268 with the French Dailly law

There is no difference between the market value of trade accounts receivable and their carrying amount.

NOTE 11 - OTHER CURRENT ASSETS

(EUR million) 2006 2005 2004

Current available for sale financial assets 607 422 201 Derivatives 252 151 396 Tax accounts receivable, excluding income taxes 239 194 214 Advances and payments on account to vendors 104 86 57 Prepaid expenses 237 219 205 Other receivables, net 196 207 263

Total 1,635 1,279 1,336

Prepaid expenses include samples and advertising materials, particularly for Perfumes and Cosmetics, in the amount of 88 million euros as of December 31, 2006 (72 million euros as of December 31, 2005, 74 million euros as of December 31, 2004). Please also refer to Note 12 Current available for sale financial assets and Note 21 Derivatives.

100 NOTE 12 - CURRENT AVAILABLE FOR SALE FINANCIAL ASSETS

(EUR million) 2006 2005 2004

Unlisted securities, shares in non money market SICAV 462 281 191 and FCP mutual funds Listed securities 145 141 10

Total 607 422 201

Of which: historic cost of current available for sale financial assets 506 318 190

Current available for sale financial assets changed as follows in the periods presented:

(EUR million) 2006 2005 2004

As of January 1 422 201 202 Acquisitions 336 51 31 Disposals at net realized value (156) (11) (30) Changes in market value 42 49 11 Reclassification of non-current available for sale financial assets (1) 126 – Translation difference (36) 6 (13)

As of December 31 607 422 201

As of December 31, 2005, quoted investments included 3,060 thousand Bouygues shares for an amount of 126 million euros (see Note 8 – Non-current available for sale financial assets). The results on disposal are analyzed in Note 25 Net financial income/expense.

NOTE 13 - CASH AND CASH EQUIVALENTS

(EUR million) 2006 2005 2004

Fixed term deposits (less than 3 months) 126 94 89 SICAV and FCP money market funds 148 34 19 Ordinary bank accounts 1,085 1,382 958

Cash and cash equivalents 1,359 1,510 1,066

The reconciliation between cash and cash equivalents as shown in the balance sheet and net cash and cash equivalents appearing in the cash flow statement is as follows:

(EUR million) 2006 2005 2004

Cash and cash equivalents 1,359 1,510 1,066 Bank overdrafts (560) (522) (351)

Net cash and cash equivalents 799 988 715

101 NOTE 14 - EQUITY

14.1 Share capital As of December 31, 2006, issued and fully paid-up shares totaled 181,727,048 (181,727,048 shares as of December 31, 2005 and 2004), with a par value of 2 euros per share, including 126,581,274 shares with double voting rights. Double voting rights are granted to registered shares held for at least three years (120,948,264 as of December 31, 2005, 17,077,129 as of December 31, 2004).

14.2 Christian Dior and LVMH treasury shares and derivatives settled in LVMH shares The impact on the net situation of the Group of the Christian Dior shares and LVMH calls held within the framework of the stock option plans breaks down as follows:

(EUR million) 2006 2005 2004

Christian Dior treasury shares 181 157 155 Christian Dior portion in LVMH share-based calls (1) 48 ––

Treasury shares and related derivatives 229 157 155

(1) When the calls are exercised and securities are provided at a nearby date, the settlement of these transactions has no impact on the accounts. Until fiscal year 2006, LVMH shares to be delivered under share purchase option plans were held by LVMH and allocated to these plans as from the launch date of the plans. In the first half of 2006, this method of hedging was replaced for certain existing plans by the purchase of LVMH share purchase options (LVMH share-based calls). The LVMH shares that were replaced by the LVMH share-based calls were reallocated to cover plans other than share purchase option plans. The portfolio of Christian Dior shares is allocated as follows:

2006 2005 2004 (EUR million) Number Value Value Value

Share purchase option plans 4,162,097 180 156 136 Other 19,532 1 119

Total 4,181,629 181 157 155

102 The portfolio movements relating to Christian Dior’s treasury shares in 2006 were as follows: Number (EUR million) of shares Value

As of December 31, 2005 4,072,760 157 Purchases 444,582 34 Options exercised (335,713) (10) Proceeds from disposals – – Gross capital gain (loss) on disposal – –

As of December 31, 2006 4,181,629 181

As of December 31, 2006, the market value of other Christian Dior shares held was 1.6 million euros.

14.3 Dividends paid by the parent company Christian Dior SA In accordance with French regulations, dividends are deducted from the profit for the year and reserves available for distribution of the parent company, after deducting the value of treasury shares. As of December 31, 2006, the amount available for distribution was 2,513 million euros; after taking into account the proposed dividend distribution in respect of the 2006 fiscal year and excluding the effect of treasury shares, the amount available for distribution is 2,256 million euros.

(EUR million) 2006 2005 2004

Interim dividend for the current year (0.38 euro for 2006; 69 58 58 0.32 euro for 2005 and 2004) Impact of treasury shares (2) (1) (1)

67 57 57 Final dividend for the previous year (0.84 euro for 2005; 153 118 107 0.65 euro for 2004 and 2003) Impact of treasury shares (4) (3) (2)

149 115 105 Total disbursement for the period 216 172 162

The final dividend for 2006, as proposed to the Shareholders’ Meeting of May 10, 2007 is 1.03 euro per share, representing a total disbursement of 187 million euros excluding the effects of treasury shares.

14.4 Revaluation reserves Revaluation reserves record the unrealized gains and losses in respect of current and non-current available for sale financial assets, hedges of future foreign currency cash flows and vineyard land, primarily in Champagne.

103 These reserves changed as follows during the fiscal years presented: Hedges of Available future foreign Total for sale currency cash Vineyard Group (EUR million) financial assets flows land share As of January 1, 2004 (7) 71 155 219 Change in value 29 72 27 128 Transfer to profit for the year 3 (88) – (85) Tax impact (15) 5 (7) (17) Gains and losses recognized in equity 17 (11) 20 26

As of December 31, 2004 10 60 175 245 Change in value 167 (63) 17 121 Transfer to profit for the year (57) (31) – (88) Tax impact (11) 31 (6) 14 Gains and losses recognized in equity 99 (63) 11 47

As of December 31, 2005 109 (3) 186 292 Change in value 125 89 46 260 Transfer to profit for the year (69) (25) (94) Tax impact (1) (23) (16) (40) Gains and losses recognized in equity 55 41 30 126 As of December 31, 2006 164 38 216 418

14.5 Cumulative translation adjustment The change in the translation adjustment recognized under equity at December 31, 2006, net of hedging effects of net assets denominated in foreign currency, breaks down as follows by currency: (EUR million) 2006 Change 2005 2004 US dollar (68) (153) 85 (89) Hong Kong dollar (5) (14) 9 (7) Pound sterling 13 671 Other currencies (1) (23) 22 1 Hedges of foreign currency net assets 8 535 Total (53) (179) 126 (89)

NOTE 15 - STOCK OPTION AND SIMILAR PLANS • Options granted by Christian Dior SA The Shareholders’ Meeting of May 11, 2006 authorized the Board of Directors, for a period of thirty-eight months expiring in July 2009, to grant share subscription or purchase options to Group company employees or directors, on one or more occasions, in an amount not to exceed 3% of the company’s share capital.

104 As of December 31, 2006, no subscription plan had been allocated by Christian Dior SA. Each plan is valid for 10 years and the options may be exercised after a three or five years period. In certain circumstances, in particular in the event of retirement, the period of three or five years before options may be exercised is not applicable. For all plans, one option entitles the holder to purchase one Christian Dior share.

• LVMH SA share subscription or purchase options The Shareholders’ Meeting of May 11, 2006 authorized the Board of Directors, for a period of thirty-eight months expiring in July 2009, to grant share subscription or purchase options to Group company employees or directors, on one or more occasions, in an amount not to exceed 3% of the company’s share capital. Each plan is valid for ten years. The options may be exercised after a three or four-year period, depending on whether the plans were issued before or after 2004, with the exception of the share purchase option plan dated May 14, 2001 initially concerning 1,105,877 options, which is valid for eight years and for which the options may be exercised after a period of four years. In certain circumstances, in particular in the event of retirement, the period of three or four years before options may be exercised is not applicable. For all plans, one option entitles the holder to purchase one LVMH share.

• LVMH bonus share plans The Shareholders’ Meeting of May 12, 2005 authorized the Board of Directors, for a period of thirty-eight months expiring in July 2008, to grant bonus shares to Group company employees or directors, on one or more occasions, in an amount not to exceed 1% of the company’s share capital on the date of this authorization. The allocation of shares to their beneficiaries becomes definitive after a two-year vesting period and the shares will need to be held by the beneficiaries for an additional two years.

• LVMH share subscription option plans Number of Number options Number of Exercise Vesting of options unexercised options price period of exercised as of Dec. Grant Date granted (EUR) rights in 2006 31, 2006

January 21, 2004 2,720,425 55.70 4 years – 2,689,175 “ 27,050 58.90 “ – 26,050 May 12, 2005 1,852,150 52.82 “ – 1,849,700 “ 72,250 55.83 “ – 72,250 May 11, 2006 1,674,709 78.84 “ – 1,674,709 “ 114,650 82.41 “ – 114,650

– 6,426,534

105 2006 2005 2004 Weighted Weighted Weighted average average average exercise exercise exercise price price price Number (EUR) Number (EUR) Number (EUR)

Options outstanding as of 4,637,175 54.57 2,747,475 55.73 – – January 1 Options granted during the 1,789,359 79.07 1,924,400 52.93 2,747,475 55.73 period Expired options ––(34,700) 55.59 – – Options exercised during the –––– –– period

Options outstanding as of 6,426,534 61.39 4,637,175 54.57 2,747,475 55.73 December 31

Options granted relate to the share subscription option plan set up on May 11, 2006 with an average unit exercise price of 79.07 euros. The vesting period is four years.

106 • Share purchase option plans Number of options Number of unexercised Number of Vesting options as options Exercise price period of exercised in of Grant date granted (1) (EUR) (2) (3) rights 2006 (3) 12. 31, 2006 (3)

LVMH May 30, 1996 233,199 34.15 3 years 535,990 – May 29, 1997 233,040 37.50 “ 93,400 531,835 January 29, 1998 269,130 25.92 “ 137,585 438,225 March 16, 1998 15,800 31.25 “ 15,400 55,000 January 20, 1999 320,059 32.10 “ 274,050 958,995 September 16, 1999 44,000 54.65 “ – 210,000 January 19, 2000 376,110 80.10 “ 1,750 1,794,900 January 23, 2001 2,649,075 65.12 “ 183,525 2,294,150 March 6, 2001 40,000 63.53 “ 5,000 35,000 May 14, 2001 1,105,877 66.00 4 years 24,225 529,694 May 14, 2001 552,500 61.77 3 years – 552,500 September 12, 2001 50,000 52.48 “ – 50,000 January 22, 2002 3,256,700 43.30 “ 713,108 2,292,617 January 22, 2002 27,400 45.70 “ 17,200 5,750 May 15, 2002 8,560 54.83 “ 3,000 5,560 January 22, 2003 3,155,225 37.00 “ 225,775 2,836,650 January 22, 2003 58,500 38.73 “ 12,950 45,050

Total LVMH 2,242,958 12,635,926

Christian Dior October 14, 1996 94,600(4) 25.95 3 years 207,000 – May 29, 1997 97,900 32.01 5 years 4,200 275,200 November 3, 1998 98,400 18.29 5 years 5,200 276,000 January 26, 1999 89,500 25.36 5 years 28,313 266,000 February 15, 2000 100,200 56.70 5 years 10,000 382,000 February 21, 2001 437,500 45.95 3 years 13,000 404,500 February 18, 2002 504,000 33.53 3 years 60,000 429,000 February 18, 2003 527,000 29.04 3 years 8,000 504,000 February 17, 2004 527,000 49.79 3 years – 495,000 May 12, 2005 493,000 52.21 3 years – 490,000 February 15, 2006 475,000 72.85(5) 3 years – 475,000 September 6, 2006 20,000 74.93 3 years – 20,000 Subtotal 335,713 4,016,700 Plans to come 145,397 – – – 145,397

Total Christian Dior 335,713 4,162,097

(1)Number of options on the plan commencement date not restated for adjustments relating to the one-for- ten bonus share allocations of June 1999 and for the five-for-one stocks split in July 2000 at LVMH, and not restated for adjustments linked to the division of the nominal amount by four in July 2000 at Dior. (2) Figures for periods prior to 1999 result from the translation into euros of data originally presented in French francs. (3) Restated following the operations referred to in (1) above. (4)Plan expired November 30, 2006. (5)Exercise price for residents of Italy: 77.16 euros

107 2006 2005 2004 Weighted Weighted Weighted average average average exercise exercise exercise price price price (EUR million) Number (EUR) Number (EUR) Number (EUR) LVMH Options outstanding 14,927,777 49.48 17,148,615 48.66 19,433,292 45.67 as of January 1 Options granted – – – – – – Expired options (48,893) 63.59 (956,498) 61.61 (106,425) 46.01 Options exercised (2,242,958) 39.83 (1,264,340) 29.21 (2,178,252) 22.10 during the period Options outstanding 12,635,926 51.36 14,927,777 49.48 17,148,615 48.66 as of December 31 Christian Dior Options outstanding 3,993,213 38.78 3,574,600 36.72 3,160,000 34.28 as of January 1 Options granted 495,000 73.02 493,000 52.21 527,000 49.79 Expired options (135,800) 36.96 – – – – Options exercised (335,713) 28.98 (74,387) 28.78 (112,400) 29.40 during the period Options outstanding 4,016,700 43.88 3,993,213 38.78 3,574,600 36.72 as of December 31

• LVMH bonus share plans

Number of Number shares of Vesting granted as of shares period Dec. 31, Date of Shareholders’ Meeting Grant date granted of rights 2006

May 12, 2005 May 12, 2005 97,817 2 years 97,142 May 12, 2005 May 11, 2006 164,306 ” 164,306

261,448

• LVMH share-based incentives LVMH share-based incentives that are settled in cash for amounts based on changes in the LVMH share price were set up on January 21, 2004 and May 12, 2005; they related initially to 206,750 and 187,300 shares respectively. Moreover, two plans equivalent to the award of 39,300 and 12,000 bonus shares were set up on May 11, 2006 and August 1, 2006, respectively. These plans vest over a period of four years.

108 • 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:

At LVMH:

2006 Plans 2005 Plans 2004 Plans

LVMH share price on the grant date (EUR) 84.05 57.05 62.75 Average exercise price (EUR) 79.07 52.82 55.70 Volatility of LVMH shares (in %) 24.5 21.7 25.0 Dividend distribution rate (in %) 1.4 1.65 1.35 Risk-free investment rate (in %) 4.1 3.06 3.78 Vesting period 4 years 4 years 4 years

The volatility of LVMH’s shares is determined on the basis of their implicit volatility. The unit values of share subscription options and bonus shares allocated in 2006 are 25.06 euros and 81.70 euros, respectively. The expense for the period resulting from these valuations is presented below; in 2004, 2005 and 2006, all plans which had not yet vested as of January 1, 2004, the date of transition to IFRS, are taken into account.

(EUR million) 2006 2005 2004

Share subscription and purchase option plans, 34 25 50 bonus share plans LVMH-share based compensation plans 1 51

Expense for the year 35 30 51

At Christian Dior:

September February 2006 plan 2006 plan 2005 Plans 2004 Plans

Christian Dior share price on the grant 81.05 77.40 56.85 52.70 date (EUR) Average exercise price (EUR) 74.93 72.85 52.21 49.79 Volatility of Christian Dior shares (%) 24.50 24.50 21.70 25.00 Dividend distribution rate (%) 1.40 1.40 1.65 1.35 Risk-free investment rate (%) 4.10 4.10 3.06 3.78 Vesting period 3 years 3 years 3 years 3 years

The volatility of Christian Dior’s shares is determined on the basis of their implicit volatility.

109 The average Christian Dior share price in 2006 is 79.53 euros. • Share purchase option plans Based on the above assumptions and parameters, the unit values of the options allocated on February 15, 2006 and September 6, 2006, respectively, were 23.09 euros and 28.70 euros (from 15.83 euros for options allocated in 2005 and 18.89 euros for options allocated in 2004). The expense for the period recognized for the plans in 2006 was 9 million euros (7 million euros in 2005 and 5 million euros in 2004).

NOTE 16 - MINORITY INTERESTS

(EUR million) 2006 2005 2004 As of January 1 7,400 6,321 6,031 Minority interests’ share of net profit 1,336 1,036 893 Dividends paid to minority interests (439) (371) (340) Changes in the scope of consolidation: impact of LVMH treasury shares (8) 27 (75) consolidation of Millennium – –82 acquisition of minority interests in Millennium – (76) – acquisition of minority interests in Fendi (2) – (43) acquisition of minority interests in Donna Karan (4) – (23) other changes in the scope of consolidation – 2 (35) Total changes in the scope of consolidation (14) (47) (94) Minority interests’ share in the following changes: capital increase subscribed by minority interests 6 –– revaluation reserves 174 64 48 translation adjustment (321) 381 (176) stock option plan expenses 21 15 28 Effects of purchase commitments for minority interests (137) 1 (69)

As of December 31 8,026 7,400 6,321

110 NOTE 17 - BORROWINGS

17.1 Net financial debt

(EUR million) 2006 2005 2004

Long term borrowings 4,188 4,443 5,092 Short term borrowings 2,661 3,376 2,984

Gross amount of borrowings 6,849 7,819 8,076 Interest rate risk derivatives (83) (151) (121)

Borrowings net of interest rate risk derivatives 6,766 7,668 7,955 Current available for sale financial assets (607) (422) (201) Other financial assets (37) (30) (42) Cash and cash equivalents (1,359) (1,510) (1,066)

Net financial debt 4,763 5,706 6,646

Net financial 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 by nature

(EUR million) 2006 2005 2004

Perpetual bonds – 32 49 Bonds and EMTNs 3,039 3,133 3,496 Finance and other long term leases 132 157 151 Bank borrowings 1,017 1,121 1,396

Long term borrowings 4,188 4,443 5,092

Bonds and EMTNs 220 1,195 968 Finance and other long term leases 22 22 21 Bank borrowings 571 625 369 Commercial paper 516 323 513 Other borrowings and credit facilities 676 589 626 Perpetual bonds 12 –20 Bank overdrafts 560 522 351 Accrued interest 84 100 116

Short term borrowings 2,661 3,376 2,984

Total borrowings 6,849 7,819 8,076

Fair value of gross borrowings 6,865 7,885 8,162

111 17.3 Perpetual bonds (EUR million) Nominal interest rate 2006 2005 2004 FRF 5,000,000,000; 1990 6-month Euribor + 0.45% – –20 FRF 1,505,000,000; 1992 9.70% 12 32 49 Total 12 32 69

The above mentioned securities, issued as subordinated perpetual bonds were converted into perpetual bonds in 1996 following an amendment to the original 1990 issue agreement. Since that date, and given that these are ordinary unsecured receivables, perpetual bonds can only be repaid in the event of LVMH’s liquidation or voluntary dissolution, except for that resulting from a merger or spin-off. Although there are no fixed repayment terms, the perpetual bonds are recorded in the consolidated balance sheet for an amount that will be progressively reduced to zero after fifteen years, due to agreements entered into with third parties. Pursuant to these agreements and in return for a final lump sum payment by LVMH upon issuance, the third-party companies have undertaken to hold or purchase the securities from subscribers after fifteen years, and have agreed to relinquish all or almost all rights to interest on these securities after that time. Pursuant to these provisions: • the perpetual bonds were recorded in the balance sheet at their par value upon issuance net of the lump sum payments, and are amortized each year according to the income generated by the investment of these payments by the third party companies; • the interest paid on the par value, as well as the aforementioned amortization, are deducted from the consolidated net profit.

17.4 Bonds and EMTNs Initial effective interest rate (1) (EUR million) Maturity (%) 2006 2005 2004 EUR 600,000,000; 2005 2012 3.43 598 598 – EUR 600,000,000; 2004 2011 4.74 606 625 623 EUR 150,000,000; 2006 2011 4.37 150 –– EUR 750,000,000; 2003 2010 5.05 746 773 777 EUR 500,000,000; 2001 2008 6.27 508 525 536 EUR 800,000,000; 1999 2006 – – 808 824 EUR 600,000,000; 2000 2005 – – – 588 FRF 1,300,000,761; 1998 2005 – – –42 indexed Public bond issues 2,608 3,329 3,390 – in euros 593 641 632 – in foreign currencies 58 358 442 Private placements (EMTN) 651 999 1,074 Total Bonds and EMTNs 3,259 4,328 4,464

(1) Before impact of interest rate hedges set up at the time of, or subsequent to, each issuance.

112 The change in the amount of bond and EMTN issues in 2006 is mainly attributable to: • the repayment for an amount of 808 million euros, of the bond issue of a nominal amount of 800 million euros made in 1999, • the issue of a bond in November 2006 in the nominal amount of 150 million with a term of five years; issued at 101.29% of the nominal amount and reimbursable at par, the fixed coupon rate of 4.25% is payable annually.

17.5 Analysis of gross borrowings by payment date (EUR million) 2006

Maturity 2007 2,660 2008 1,144 2009 306 2010 777 2011 1,256 Thereafter 706

Total 6,849

On November 21, 2005, Christian Dior SA proceeded to restructure a syndicated loan of 500 million euros. The maturity date, initially fixed at November 15, 2009, was postponed to November 21, 2010. Christian Dior SA exercised its postponement option (in the amount of 490 million euros) until November 21, 2011.

17.6 Analysis of gross borrowings by currency after hedging (EUR million) 2006 2005 2004

Euro 4,557 5,378 5,885 US dollar 554 476 380 Swiss franc 814 881 881 Yen 358 512 588 Other currencies 483 421 221

Total 6,766 7,668 7,955

In general, the purpose of foreign currency borrowings is to hedge net foreign currency- denominated assets acquired following the purchase of companies outside of the euro zone.

17.7 Analysis of gross borrowings by interest rate type after hedging (EUR million) 2006 2005 2004

Floating rate 2,601 1,514 1,847 Capped floating rate 1,475 2,606 3,178 Fixed rate 2,690 3,548 2,930

Total 6,766 7,668 7,955

113 17.8 Sensitivity Considering the Group’s different borrowings denominated in foreign currencies as of December 31, 2006, an immediate 1% increase in the exchange rates of the Group’s borrowing currencies would have a 29 million euros negative impact on its net financial income/expense for the period. An immediate 1% decrease in these rates would have a 70 million euros impact on the fair value of gross borrowings after hedging.

17.9 Liquidity risk In addition to local liquidity risks, which are generally immaterial, the Group’s exposure to liquidity risk can be assessed through its total net short term borrowings (0.7 billion euros) before hedging, or through the outstanding amount of its commercial paper program (0.5 billion euros). Should any of these liquidity facilities not be renewed, the Group has access to undrawn confirmed credit lines totaling 4.3 billion euros. The Group’s liquidity is based on the amount of its investments and long term borrowings, the diversity of its investor base (bonds and short term paper), and the quality of its banking relationships, whether evidenced or not by confirmed lines of credit.

17.10 Covenants As is normal practice for syndicated loans, Christian Dior Group has signed commitments to maintain a percentage interest and voting rights for certain of its subsidiaries, and to maintain a normal financing ratio in this regard. The Group has undertaken to comply with a certain financial covenant based on the ratio of net financial debt over cash flows for the year for certain long term credit lines. The current level of this ratio is very far from this critical level, which means that the Group has a high degree of financial flexibility with regard to these commitments.

17.11 Undrawn confirmed credit lines As of December 31, 2006, unused confirmed credit lines totaled 4.3 billion euros.

17.12 Guaranties and collateral As of December 31, 2006, borrowings hedged by collateral were less than 100 million euros.

114 NOTE 18 - PROVISIONS (EUR million) 2006 2005 2004

Provisions for pensions, medical costs and similar commitments 263 267 261 Provisions for contingencies and losses 690 631 581 Provisions for reorganization 38 54 44

Non-current provisions 991 952 886 Provisions for pensions, medical costs and similar commitments 4 54 Provisions for contingencies and losses 149 159 194 Provisions for reorganization 110 148 67

Current provisions 263 312 265

Total 1,254 1,264 1,151

In 2006, the changes in provisions were as follows: Other items Changes in (including December, 31 Amounts Amounts scope of translation December, 31 (EUR million) 2005 Increases used released consolidation adjustment) 2006

Provisions for pensions, 272 42 (34) – – (13) 267 medical costs and similar commitments Provisions for 790 206 (136) (25) – 4 839 contingencies and losses Provisions for 202 31 (71) (3) – (11) 148 reorganization

Total 1,264 279 (241) (28) – (20) 1,254

Of which : profit from 141 (89) (23) recurring operations net financial ––– income (expense) other 138 (152) (5)

Provisions for pensions, medical costs and similar commitments are examined in Note 28. Provisions for contingencies and losses correspond to the estimate of the impact on assets and liabilities of risks, disputes, or actual or probable litigation arising from the Group’s activities; such activities are carried out worldwide, within what is often an imprecise regulatory framework that is different for each country, changes over time, and applies to areas ranging from product composition to the tax computation. Regarding provisions for reorganization, please refer also to Note 24 “Other operating income and expenses” concerning the business suspension of The Samaritaine department store in Paris.

115 NOTE 19 - OTHER NON-CURRENT LIABILITIES (EUR million) 2006 2005 2004

Purchase commitments for minority interests 3,490 3,151 3,013 Fair value of derivatives 18 28 34 Employee profit-sharing (1) 100 63 55 Other liabilities 150 128 144

Total 3,758 3,370 3,246

(1) French companies only, pursuant to legal provisions. As of December 31, 2004, 2005 and 2006 purchase commitments for minority interests mainly include the put option granted to Diageo plc for its 34% share in Moët Hennessy SNC, with six-month’s advance notice and for 80% of its market value at that date. With regard to this commitment valuation, the market value was determined by applying the share price multiples of comparable firms to Moët Hennessy’s operating results. Purchase commitments for minority interests also include commitments relating to minority shareholders in Fendi (6%) and BeneFit (20%), calculated using various formulae which may include a minimum value.

NOTE 20 - OTHER CURRENT LIABILITIES (EUR million) 2006 2005 2004

Fair value of derivatives 44 132 188 Employees and social institutions 517 508 468 Employee profit-sharing 29 44 13 Taxes other than income taxes 245 217 210 Advances and payments on account 71 107 95 Deferred payment for tangible and financial non-current assets 170 192 200 Deferred income 47 46 59 Other 379 397 373

Total 1,502 1,643 1,606

Derivatives are analyzed in Note 21.

NOTE 21 - DERIVATIVES Financial instruments are used by the Group to hedge risks arising from Group activity and protect its assets. These instruments, most often traded on organized markets, are mainly centralized. Counterparties are chosen according to their international rating as well as for diversification purposes.

116 21.1 Summary of derivatives Derivatives are recorded in the balance sheet for the amounts and in the captions detailed as follows: (EUR million) Notes 2006 2005 2004

Interest rate risk Assets: non current 40 96 154 current 89 121 180 Liabilities: non current (16) (17) (34) current (30) (49) (179)

21.2 83 151 121 Foreign exchange risk Assets: non current 4 36 62 current 163 30 216 Liabilities: non current (2) (11) – current (14) (83) (9)

21.3 151 (28) 269

Total Assets: non current 44 132 216 current 11 252 151 396 Liabilities: non current 19 (18) (28) (34) current 20 (44) (132) (188)

234 123 390

21.2 Derivatives used to manage interest rate risk The Group manages its interest rate exposure on the basis of total net financial debt. The objective of its management policy is to protect net profit against a sharp rise in interest rates. As such, the Group uses interest rate swaps and options (caps and floors).

117 Derivatives used to manage interest rate risk outstanding as of December 31, 2006 break down as follows:

Maturity (1) Market value (2) 2008 Fair value Unallocated (EUR million) 2007 to 2011 Total hedges amounts Total

Interest rate swaps in euros – fixed rate payer 475 1,320 1,795 16 10 26 – floating rate payer 698 2,463 3,161 54 (10) 44 – floating / floating 350 1,200 1,550 3 3 Other operations in euros – caps purchased 1,400 – 1,400 – 6 6 – collars 75 – 75 – – – Cross-currency swaps – 39 39 – 4 4

Total 70 13 83

(1) Nominal amounts (2) Gain/(loss)

21.3 Derivatives used to manage foreign exchange risk A significant part of both Group companies’ sales to customers and their own retail subsidiaries and purchases are denominated in foreign currencies: the majority of these foreign-currency denominated cash flows are inter-company cash flows. Hedging instruments are used to reduce the risks arising from foreign currency fluctuations against the various companies’ own currencies and are allocated to either accounts receivable or accounts payable for the period, or, under certain conditions, to anticipated future transactions. Future foreign–currency denominated cash flows are broken down as part of the budget preparation process and are hedged progressively over a period not exceeding one year unless a longer period is justified by probable commitments. As such, and according to market trends, identified foreign exchange risks are hedged progressively using forward contracts or options. The Group may also use appropriate financial instruments to hedge the net worth of foreign subsidiaries, in order to limit the impact of foreign currency fluctuations against the euro on consolidated equity.

118 Derivatives used to manage foreign exchange risk outstanding as of December 31, 2006 break down as follows:

Allocated to fiscal year (1) Market value (2) Future Fair Net 2007 and cash flow value asset Not (EUR million) 2006 thereafter Total hedges hedges hedges allocated Total

Options purchased Put USD 45 1,293 1,338 78 – – 4 82 Put JPY 76 90 166 8 – – 5 13 Other 5 5 121 1,388 1,509 86 – – 9 95 Collars Written USD – 12 12 – – – – – Written JPY – 225 225 13 – – – 13 Other 9 – 9 – – – 1 1 9 237 246 13 – – 1 14 Forward exchange contracts (3) USD 154 66 220 (1) 2 – 4 5 JPY 169 74 243 14 11 1 5 31 GBP 91 56 147 – – – – – Other 57 (5) 52 1 – – – 1 471 191 662 14 13 1 9 37 Foreign exchange swaps (3) CHF 784 – 784 – – – 11 11 USD 361 (84) 277 – – – (2) (2) GBP (26) – (26) – – – (1) (1) JPY (190) – (190) – – 2 (5) (3) Other 76 – 76 – – – – – 1,005 (84) 921 – – 2 3 5 Total 113 13 3 22 151

(1) Nominal amounts (2) Gain/(loss) (3) Sale/(purchase)

21.4 Derivatives used to manage equity risk As the Group’s investment policy is long term, the portfolio of available for sale financial assets is not hedged.

119 NOTE 22 - SEGMENT INFORMATION

22.1 Information by business group Since De Beers-LV was reclassified in 2006 from Other activities and Holding companies to Watches and Jewelry, data for 2004 and 2005 was restated to facilitate comparability with 2006 data.

Year ended December 31, 2006

Fashion Christian Wines and Perfumes Watches Other and Dior and Leather and and Selective holding Eliminations (EUR million) Couture Spirits Goods Cosmetics Jewelry Retailing (6) companies (1)(4)(5) 2006

Sales outside the 720 2,989 5,190 2,379 724 3,879 135 – 16,016 Group Sales between 11 5 32 140 13 12 16 (229) – business groups

Total revenue 731 2,994 5,222 2,519 737 3,891 151 (229) 16,016 Profit from 56 962 1,633 222 80 400 (137) (7) 3,209 recurring operations Other operating – (12) (44) (30) (9) (27) (5) – (127) income and expenses Operating 55 107 308 99 25 186 50 – 830 investments (2) Depreciation and 38 61 208 98 21 117 16 – 559 amortization Impairment – – 5 – – 7 10 – 22

Brands, trade 42 4,956 5,048 1,639 1,009 2,643 411 – 15,748 names, licenses and goodwill (3) Inventories 142 2,730 603 244 235 558 50 (38) 4,524 Other operating 580 2,220 1,752 648 229 1,575 1,180 4,329 12,513 assets

Total assets 764 9,906 7,403 2,531 1,473 4,776 1,641 4,291 32,785

Equity – – – – – – – 12,974 12,974 Operating 163 1,025 935 736 156 1,010 272 15,514 19,811 liabilities

Total liabilities 163 1,025 935 736 156 1,010 272 28,488 32,785 and equity

120 Year ended December 31, 2005

Fashion Christian Wines and Perfumes Watches Other and Dior and Leather and and Selective holding Eliminations (EUR million) Couture Spirits Goods Cosmetics Jewelry Retailing (6) companies (1) (4) (5) 2005

Sales outside the 663 2,639 4,781 2,161 575 3,637 100 – 14,556 Group Sales between 5 31 124 10 11 23 (204) – business groups

Total revenue 663 2,644 4,812 2,285 585 3,648 123 (204) 14,556 Profit from 53 869 1,467 173 21 347 (142) 3 2,791 recurring operations Other operating – (3) (25) (10) – (183) (5) – (226) income and expenses Operating 48 100 302 115 26 135 36 – 762 investments (2) Depreciation and 36 59 187 91 19 112 29 – 533 amortization Impairment – – – – – 72 11 – 83

Brands, trade 25 4,847 5,101 1,657 1,041 2,861 455 – 15,987 names, licenses and goodwill (3) Inventories 136 2,479 661 227 219 534 64 (50) 4,270 Other operating 440 1,933 1,672 669 220 1,542 848 4,378 11,702 assets

Total assets 601 9,259 7,434 2,553 1,480 4,937 1,367 4,328 31,959

Equity – – – – – – 11,868 11,868 Operating 130 932 960 666 145 1,043 203 16,012 20,091 liabilities

Total liabilities 130 932 960 666 145 1,043 203 27,880 31,959 and equity

121 Year ended December 31, 2004 Fashion Christian Wines and Perfumes Watches Other and Dior and Leather and and Selective holding Eliminations (EUR million) Couture Spirits Goods Cosmetics Jewelry Retailing (6) companies (1)(4)(5) 2004

Sales outside the 595 2,255 4,339 2,017 490 3,266 98 – 13,060 Group Sales between – 4 27 111 10 10 21 (183) – business groups

Total revenue 595 2,259 4,366 2,128 500 3,276 119 (183) 13,060 Profit from 51 813 1,309 150 (10) 238 (146) 8 2,413 recurring operations Other operating – (19) (51) (36) (34) (37) (26) – (203) income and expenses Operating 69 69 253 86 20 181 63 – 741 investments (2) Depreciation 31 48 173 89 18 109 27 – 495 and amortization Impairment – 3 12 20 24 25 17 – 101

Brands, trade 25 4,083 4,993 1,643 1,049 2,618 474 – 14,885 names, licenses and goodwill (3) Inventories 125 2,141 555 230 180 477 58 (43) 3,723 Other operating 407 1,687 1,633 622 203 1,440 970 3,795 10,757 assets

Total assets 557 7,911 7,181 2,495 1,432 4,535 1,502 3,752 29,365

Equity – – – – – – – 10,065 10,065 Operating 137 767 894 606 112 882 706 15,196 19,300 liabilities

Total liabilities 137 767 894 606 112 882 706 25,261 29,365 and equity

(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 fiscal year rather than payments made during the fiscal 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 financial assets, other financial assets, and income tax receivables. (5) Liabilities not allocated include borrowings and both current and deferred tax liabilities. (6) Of which revenue for the Samaritaine department store: 14, 51 and 101 million euros respectively, as of December 31, 2006, 2005 and 2004.

122 22.2 Information by geographic region Revenue by geographic region of delivery breaks down as follows: (EUR million) 2006 2005 2004

France 2,295 2,282 2,108 Europe (excluding France) 3,531 2,954 2,678 United States 4,141 3,805 3,438 Japan 2,086 2,111 1,928 Asia (excluding Japan) 2,798 2,412 2,038 Other 1,165 992 870

Revenue 16,016 14,556 13,060

Operating investments by geographic region breakdown as follows: (EUR million) 2006 2005 2004

France 327 323 257 Europe (excluding France) 128 135 96 United States 142 138 108 Japan 92 29 112 Asia (excluding Japan) 87 81 40 Other 54 56 128

Operating investments 830 762 741

Operating investments correspond to the amounts capitalized during the fiscal year rather than payments made during the fiscal year with respect to these investments.

NOTE 23 - REVENUE AND EXPENSES BY NATURE 23.1 Revenue Revenue consists of the following: (EUR million) 2006 2005 2004

Revenue generated by brands and trade names 15,657 14,339 12,900 Royalties and license revenue 132 126 123 Income from investment property 34 33 23 Other 193 58 14

Total revenue 16,016 14,556 13,060

23.2 Expenses by nature Profit from recurring operations includes the following expenses: (EUR million) 2006 2005 2004

Advertising and promotion expenses 1,850 1,463 1,332 Commercial lease expenses 1,026 946 800 Personnel costs 2,570 2,574 2,361

123 Advertising and promotion expenses mainly consist of the cost of media campaigns and point-of-sale advertising, and also include personnel costs dedicated to this function. As of December 31, 2006, a total of 2,074 stores were operated by the Group worldwide (1,917 in 2005 and 1,877 in 2004), particularly by Fashion and Leather Goods and Selective Retailing.

In certain countries, leases for stores are contingent on the payment of a minimum amount 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 million) 2006 2005 2004

Fixed or minimum lease payments 424 342 324 Variable portion of indexed leases 173 185 178 Airport concession fees – fixed portion or minimum amount 232 248 220 Airport concession fees – variable portion 197 171 158

Commercial lease expenses for the period 1,026 946 880

• Personnel costs consist of the following elements:

(EUR million) 2006 2005 2004

Salaries and social charges 2,463 2,508 2,231 Pensions, medical costs and similar expenses in respect of defined benefit 63 29 74 plans Stock option plan and related expenses 44 37 56

Total 2,570 2,574 2,361

NOTE 24 - OTHER OPERATING INCOME AND EXPENSES (EUR million) 2006 2005 2004

Amortization of brands (6) (7) (9) Impairment of brands and goodwill (15) (49) (54) Impairment of tangible assets (7) (34) (47) Net gains (losses) on disposal of fixed assets – – (14) Restructuring costs (63) (132) (27) Net impact on foreign exchange gains and losses – (3) (36) of the transition to IFRS Other (36) (1) (16)

Other operating income and expenses (127) (226) (203)

In 2006, restructuring costs, which were of a commercial or industrial nature, mainly relate to the Fashion and Leather Goods and the Perfumes and Cosmetics business groups. In 2005, other operating income and expenses included an exceptional expense of 179 million euros following the closure of the Samaritaine department store in Paris, which was required in order to carry out major renovation work to bring the premises into compliance with safety regulations and other standards.

124 In 2004, other operating income and expenses consisted of impairment on non-strategic brands of relatively little unitary value; the impairment of real estate assets with insufficient profitability; proceeds from disposals, relating in particular to Christian Lacroix, in addition to reorganization costs after closing certain markets or discontinuing secondary and unprofitable activities.

NOTE 25 - NET FINANCIAL INCOME/EXPENSE (EUR million) 2006 2005 2004

Borrowing costs, excluding perpetual bonds (254) (245) (262) Interest and income from current available for sale financial 26 15 26 assets Fair value adjustment of borrowings and hedges, excluding – 1 (13) perpetual bonds Net cost of perpetual bonds (2) (5) (16)

Cost of net financial debt (230) (234) (265) Dividends received from non-current available for sale financial 26 49 16 assets Ineffective portion of foreign currency hedges (45) (105) (10) Net gain (loss) on the sale of available for sale financial assets 163 128 – Other items – net (21) (29) (5)

Other financial income and expenses 123 43 1

Net financial income/(expenses) (107) (191) (264)

The disposals of available for sale financial assets made in 2006 generated capital gains of 164 million euros. These are essentially attributable to the disposal of Bouygues shares and of various investments held by L Capital FCPR.

In 2005, the net gain on the sale of available for sale financial assets included 99 million euros in respect of gains on the sale of Bouygues shares.

NOTE 26 - INCOME TAXES 26.1 Analysis of the income tax expense (EUR million) 2006 2005 2004

Current income taxes for the period (990) (599) (530) Current income taxes for prior periods 4 10 42

Current income taxes (986) (589) (488) Change in deferred income taxes 136 (135) (67) Effect of changes in tax rate on deferred income taxes – (4) 67

Deferred income taxes 136 (139) –

Total tax expense (850) (728) (488)

Tax on items recognized in equity (80) 23 (42)

125 The effective tax rate is as follows: (EUR million) 2006 2005 2004

Profit before tax 2,975 2,374 1,946 Total income tax expense (850) (728) (488) Effective tax rate 28.6% 30.7% 25.1%

26.2 Sources of deferred taxes

In the income statement:

(EUR million) 2006 2005 2004

Fair value adjustment of brands (45) (19) 73 Fair value adjustment of vineyard land – 11 Other revaluation adjustments (3) –11 Gains and losses on available for sale financial assets (3) (86) (23) Gains and losses on hedges of future foreign currency cash (8) 810 flows Provisions for contingencies and losses (1) 22 (2) 1 Intercompany margin included in inventories 26 15 24 Other consolidation adjustments (1) 105 (51) (51) Losses carried forward 42 (5) (46)

Total 136 (139) –

(1) Mainly tax-driven provisions, accelerated tax depreciation and finance leases.

In equity:

(EUR million) 2006 2005 2004

Fair value adjustment of vineyard land (36) (13) (16) Gains and losses on available for sale financial assets (2) (26) (35) Gains and losses on hedges of future foreign currency cash (42) 62 9 flows

Total (80) 23 (42)

126 In the balance sheet:

(EUR million) 2006 2005 2004

Fair value adjustment of brands (3,115) (3,201) (3,004) Fair value adjustment of vineyard land (412) (350) (248) Other revaluation adjustments (316) (315) (314) Gains and losses on available for sale financial assets (36) (27) 76 Gains and losses on hedges of future foreign currency cash flows (25) 23 (52) Provisions for contingencies and losses (1) 94 45 38 Intercompany margin included in inventories 212 174 161 Other consolidation adjustments (1) 89 (6) 68 Losses carried forward 174 172 164

Total (3,335) (3,485) (3,111)

(1) Mainly tax-driven provisions, accelerated tax depreciation and finance leases.

Net deferred taxes on the balance sheet include the following assets and liabilities: (EUR million) 2006 2005 2004

Deferred tax assets 451 361 278 Deferred tax liabilities (3,786) (3,846) (3,389)

Net deferred tax asset (liability) (3,335) (3,485) (3,111)

26.3 Analysis of the difference between the theoretical and effective income tax rates The theoretical tax rate, defined 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 financial statements:

(as % of income before taxes) 2006 2005 2004

French statutory tax rate 34.4 34.9 35.4 – changes in tax rates 0.1 0.2 (3.4) – differences in tax rates for foreign companies (3.1) (2.7) (3.7) – tax losses and tax loss carry forwards (5.1) (3.0) (6.3) – difference between consolidated and taxable income, income 1.9 0.5 taxable at reduced rates 2.6 – withholding taxes 0.4 0.8 0.5

Effective tax rate of the Group 28.6 30.7 25.1

Since 2000, French companies have been subject to additional income tax, at a rate of 6.3% for 2004. The rate for this supplementary income tax was reduced to 4.8% for 2005 and 3.3% for 2006, bringing the theoretical tax rate to 34.4% in 2006, 34.9% in 2005 and 35.4% in 2004.

127 The effective tax rate for fiscal year 2006 takes into consideration the following non-recurring items: • capitalization or utilization of prior period losses carried forward: impact of (3.3)%; • capital gains on the disposal of non-current available for sale financial assets taxable at a reduced rate or zero: impact of (1.4)%.

26.4 Tax loss carry forwards As of December 31, 2006, for LVMH SA tax savings from unused tax loss carry forwards, for which no deferred tax assets were recognized, amounted to 529 million euros (763 million euros in 2005, 844 million euros in 2004). As of December 31, 2006, for Christian Dior SA, ordinary tax loss carry forwards amounted to 83 million euros (87 million euros in 2005, 107 million euros in 2004). As it is considered likely that they will be recovered, they accounted for a deferred tax asset in the amount of 28 million euros (29 million euros in 2005, 37 million euros in 2004).

26.5 Tax consolidation • Tax consolidation agreements in France allow certain French companies of the Group to combine their taxable profits to calculate the overall tax expense for which only the parent company is liable. This tax consolidation agreement generated a tax saving of 63 million euros in 2006 for the Group, of which 46 million euros were for LVMH and 17 million euros for Christian Dior SA (150 million euros in 2005, 290 million euros in 2004 for the Group). • The application of other tax consolidation agreements in certain foreign countries, notably in the United States and Italy, generated additional tax savings of 113 million euros in 2006 (74 million euros in 2005, 40 million euros in 2004).

128 NOTE 27 - EARNINGS PER SHARE 2006 2005 2004

Group share of net profit (EUR million) 797 618 549 Average number of shares in circulation during 181,727,048 181,727,048 181,727,048 the period Average number of treasury shares owned (4,204,606) (4,071,058) (3,952,628) during the period

Average number of shares on which the 177,522,442 177,655,990 177,774,420 calculation before dilution is based Basic Group share of earnings per share 4.49 3.48 3.09 (EUR)

Average number of shares on which the above 177,522,442 177,655,990 177,774,420 calculation is based Dilution effect of stock option plans 1,719,672 1,346,973 962,733

Average number of shares in circulation after 179,242,114 179,002,963 178,737,153 dilution

Diluted Group share of earnings per share 4.45 3.45 3.07 (EUR)

NOTE 28 - PROVISIONS FOR PENSIONS, MEDICAL COSTS AND SIMILAR COMMITMENTS 28.1 Expense for the year (EUR million) 2006 2005 2004

Current service cost 48 40 38 Impact of discounting 22 20 21 Expected return on plan assets (14) (13) (9) Amortization of actuarial gains and losses 1 – Past service cost 2 2 Changes in regime 4 (20) 24

Total expense for the period for defined benefit plans 63 29 74

Effective yield/(cost) of related plan assets 25 22 14

129 28.2 Net recognized commitment

(EUR million) 2006 2005 2004

Benefits covered by plan assets 510 470 398 Benefits not covered by plan assets 135 140 159

Projected benefit obligation 645 610 557 Fair value of plan assets (385) (343) (287) Actuarial differences not recognized in the balance sheet 10 86 Past service cost not yet recognized (10) (12) (14)

Unrecognized items – (4) (8) Net recognized commitment 260 263 262

Of which: Non-current provisions 264 267 261 Current provisions 4 53 Plan assets (8) (9) (2)

Total 260 263 262

28.3 Breakdown of the change in commitment

Projected benefit Fair value of Unrecognized Net recognized (EUR million) obligation plan assets items commitment

As of December 31, 2005 610 (343) (4) 263 Net expense for the period 71 (14) 7 64 Payments to beneficiaries (30) 17 – (13) Contributions to plan assets – (42) – (42) Translation adjustment (20) 11 (3) (12) Changes in regime 8 (3) (5) – Actuarial differences: 9 (11) 2 – experience impacts Actuarial differences: change (3) – 3 – in assumptions

As of December 31, 2006 645 (385) – 260

130 The actuarial assumptions applied to estimate commitments as of December 31, 2006 in the main countries where such commitments have been undertaken, are as follows: 2006 2005 2004 United United United (%) France Japan States France Japan States France Japan States

Discount rate 4.50 2 5.75 4 2 5.75 4.75 2 5.75 Expected yield of 4.50 4 8 4 4 8 4.75 4 8 investments Future rate of 2 2 2 2 2 2 2 2 2 increase of salaries to 4 to 4 to 4.5 to 4.5 to 4.5 to 4.5 to 4 to 4 to 4

Moreover, for all the periods presented, the rate of increase of medical costs retained in the United States reduces from 9% to 5% over the first five years, and 5% thereafter. The impact of a 1% increase or decrease in the discount rate on the current service cost and the impact of discounting for 2006, in addition to the projected benefit obligation as of December 31, 2006 are as follows: Hypotheses (EUR million) -1% retained +1%

Impact on past service cost and discounting effect 75 71 68 Impact on projected benefit obligation 680 645 568

28.4 Analysis of benefits The breakdown of the projected benefit obligation by type of benefit plan is as follows: (EUR million) 2006 2005 2004

Retirement and other indemnities 89 88 78 Medical costs of retirees 49 53 57 Jubilee awards 11 12 10 Pensions 467 430 362 Early retirement indemnities 13 17 41 Other 16 10 9

Projected benefit obligation 645 610 557

Geographic breakdown of projected benefit obligation is as follows: (EUR million) 2006 2005 2004

France 281 264 284 Europe (excluding France) 191 169 108 United States 112 115 98 Japan 52 54 60 Asia (excluding Japan) 9 87

Projected benefit obligation 645 610 557

131 The main components of the Group’s net commitment for retirement and other benefit obligations as of December 31, 2006 are as follows: • in France, these commitments mainly include long service awards and post-employment benefits, the payment of which is determined by French law and collective bargaining agreements, respectively after a certain number of years of service or upon retirement; they also include the commitment to members of the executive committee, who are covered by an additional pension plan after a certain number of years’ service, the amount of which is linked to their last year’s remuneration; • in Europe (excluding France), the main commitments concern schemes for the reimbursement of the medical expenses of retirees, set up in the United Kingdom by certain Group companies, as well as the TFR (Trattamento di Fine Rapporto) in Italy, a legally required end-of-service allowance, paid whatever the reason for the employee’s departure from the company; • in the United States, the commitment relates to defined benefit plans or schemes for the reimbursement of medical expenses 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) 2006 2005 2004

Shares 48 46 37 Bonds: – private issues 32 25 29 – public issues 15 22 24 Real estate, cash and other assets 5 710

Fair value of related plan assets 100 100 100

The above amounts do not include any real estate assets operated by the Group or any LVMH shares.

NOTE 29 - OFF BALANCE SHEET COMMITMENTS

29.1 Purchase commitments (EUR million) 2006 2005 2004

Grapes, wines and distilled alcohol 1,547 997 775 Industrial and commercial fixed assets 151 58 77 Investments in joint venture shares and non-current available for 84 59 76 sale financial assets

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, based on the contractual terms or known year-end prices and estimated production yields. Their increase in 2006 results from the signing of long term supply contracts.

132 As of December 31, 2006, the maturity dates of these commitments break down as follows: Less than One to More than (EUR million) one year five years five years Total

Grapes, wines and distilled alcohol 461 700 386 1,547 Industrial and commercial fixed assets 97 54 – 151 Investments in joint venture shares and non-current 53 31 – 84 available for sale financial assets

29.2 Lease and similar commitments In addition to leasing its stores, the Group also finances some of its equipment through long term operating leases. Some fixed assets and equipment were also purchased or refinanced under finance leases.

• Operating leases and concession fees The fixed 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, 2006: (EUR million) 2006 2005 2004

Less than one year 643 583 570 One to five years 1,460 1,606 1,474 More than five years 833 895 932

Commitments given for operating leases and concession fees 2,936 3,084 2,976

Less than one year 20 18 20 One to five years 46 44 47 More than five years 2 815

Commitments received for sub-leases 68 70 82

• Finance leases The amount of the Group’s irrevocable commitments under finance lease agreements as of December 31, 2006 breaks down as follows:

2006 2005 2004 Minimum Present Minimum Present Minimum Present future value of future value of future value of (EUR million) payments payments payments payments payments payments

Less than one year 27 27 32 29 16 14 One to five years 76 50 85 67 78 65 More than five years 395 76 464 81 424 78

Total future minimum payments 498 581 518 Of which: financial interest (345) (404) (361)

Present value of minimum 153 153 177 177 157 157 future payments

133 29.3 Contingent liabilities and outstanding litigation As part of its day-to-day management, the Group is party to various legal proceedings concerning brand rights, the protection of intellectual property rights, the set-up of selective retailing networks, licensing agreements, employee relations, tax audits and other areas relating to its business. The Group believes that the provisions recorded in the balance sheet in respect of these risks, litigation or disputes, known or outstanding at year-end, are sufficient to avoid its consolidated financial net worth being materially impacted in the event of an unfavorable outcome.

29.4 Collateral and other guarantees At December 31, 2006, these commitments break down as follows:

(EUR million) 2006 2005 2004

Securities and deposits 56 37 29 Other guarantees 56 54 48

Guarantees given 112 91 77

Guarantees received 63 35 8

Maturity dates of these commitments are as follows: Less than One to More than (EUR million) one year five years five years Total

Securities and deposits 7 45 4 56 Other guarantees 21 31 4 56

Guarantees given 28 76 8 112

Guarantees received 43 19 1 63

29.5 Other commitments The Group is not aware of any significant off balance sheet commitments other than those described above.

NOTE 30 - RELATED PARTY TRANSACTIONS 30.1 Relations of Christian Dior Group with Groupe Arnault and Groupe Financière Agache. The parent company of Christian Dior Group is Financière Agache SA, which is controlled by Groupe Arnault SAS. • Relations of Christian Dior Group with Groupe Arnault Groupe Arnault SAS provides assistance to Christian Dior Group in the areas of development, engineering, corporate law and real estate. In addition, Groupe Arnault leases office premises to LVMH. Christian Dior Group leases office space from these companies and also provides them various forms of administrative assistance.

134 Transactions between Christian Dior Group and Groupe Arnault may be summarized as follows: (EUR million) 2006 2005 2004

• Amounts billed by Groupe Arnault SAS to Christian Dior Group (9) (9) (10) Trade accounts payable as of December 31 (2) (2) (3) • Amounts billed by Christian Dior Group to Groupe Arnault SAS 2 22 Trade accounts receivable as of December 31 1 ––

• Relations of Christian Dior Group with Groupe Financière Agache Through its subsidiary John Galliano SA, Groupe Financière Agache provides artistic direction services to Christian Dior Couture. In order to optimize cash management, some Christian Dior Group companies are part of the cash pooling system of Financière Agache. As such, Financière Agache borrows funds from affiliates with excess cash and lends funds to affiliates which have borrowing needs. Transactions between Christian Dior Group and Groupe Financière Agache may be summarized as follows:

(EUR million) 2006 2005 2004

• Amounts billed by Groupe Financière Agache to Christian Dior (9) (8) 8 Group Trade accounts payable as of December 31 (2) (3) (5) • Amounts billed for financial interest to Christian Dior Group (4) (4) (3) Balance of current account liabilities as of December 31 (46) (108) (92) • Amounts billed by Christian Dior Group to Groupe Financière 1 –– Agache Trade accounts receivable as of December 31 1 –– • Amounts billed for financial interest to Groupe Financière Agache 1 –– Balance of current account assets as of December 31 – ––

30.2 Relations of Christian Dior Group with Diageo Moët Hennessy is the holding company for LVMH’s Wines and Spirits businesses, with the exception of Château d’Yquem and certain champagne houses. Since 1994, Diageo has held a 34% stake in Moët Hennessy. At this time an agreement has been concluded between Diageo and Moët Hennessy for the apportionment of holding company expenses between Moët Hennessy and the other holding companies of the LVMH Group. Under this agreement, Moët Hennessy assumed 24% of shared expenses in 2006 (23% in 2005, 24% in 2004). After taking into consideration the effects of the agreement, Moët Hennessy’s total administrative expenses amounted to 27 million euros in 2006 (25 million euros in 2005, 15 million euros in 2004); the total administrative expenses borne by the Wines and Spirits business group amounted to 48 million euros in 2006 (44 million in 2005, 34 million euros in 2004).

135 30.3 Executive bodies The total compensation paid to the members of the Board of Directors, comprising 10 individuals, in respect of their functions within the Group, breaks down as follows:

(EUR million) 2006 2005 2004

Gross salaries and benefits in kind 7 10 11 Post-employment benefits 1 11 Stock option and similar plans 13 12 14

Total 21 23 26

The net commitment recognized as of December 31, 2006 for post-employment benefits is 1 million euros (1 million euros as of December 31, 2005 and 5 million euros as of December 31, 2004).

NOTE 31 - SUBSEQUENT EVENTS There were no significant subsequent events as of the date on which the accounts were approved for publication.

136 CONSOLIDATED COMPANIES IN 2006

COMPANIES REGISTERED OFFICE PERCENTAGE OF Control Interest

Christian Dior SA Paris, France Parent company Financière J. Goujon Paris, France 100% 100% Sadifa Paris, France 100% 100% Lakenbleker Amsterdam, Netherlands 100% 100%

CHRISTIAN DIOR COUTURE Christian Dior Couture S.A. Paris, France 100% 100% Christian Dior Fourrure M.C. Monaco 100% 100% S.A.M Christian Dior GmbH Munich, Germany 100% 100% Christian Dior Inc New York, U.S.A. 100% 100% Christian Dior UK Ltd London, United Kingdom 100% 100% Christian Dior Switzerland S.A. Geneva, Switzerland 100% 100% Les Jardins d’Avron S.A.S Paris, France 100% 100% Mardi SpA Badia e Settimo, Italy 50% 50% Ateliers AS Pierre Bénite, France (2) 25% 25% Christian Dior Far East Ltd Hong Kong 100% 100% Christian Dior Fashion Malaysia Kuala Lumpur, Malaysia 100% 100% Sdn.Bhd. Christian Dior Hong Kong Ltd Hong Kong 100% 100% Christian Dior Taiwan Limited Taipei, Taiwan 90% 90% Christian Dior Singapore PTE Ltd Singapore 100% 100% Christian Dior Saipan Ltd Saipan, NMI 100% 100% Christian Dior Australia PTY Ltd Sydney, Australia 100% 100% Christian Dior New Zealand Ltd Auckland, New Zealand 100% 100% Christian Dior (Thailand) Co. Ltd Bangkok, Thailand 49% 49% Christian Dior K.K. (Kabushiki Tokyo, Japan 100% 100% Kaisha) Christian Dior Couture Korea Ltd Seoul, South Korea 100% 100% Christian Dior Guam Ltd Agana, Guam 100% 100% Christian Dior Espanola S.L. Madrid, Spain 100% 100% Christian Dior do Brasil Ltda Sao Paulo, Brazil 100% 100% Christian Dior Italia Srl Milan, Italy 100% 100% Christian Dior Belgique S.A. Brussels, Belgium 100% 100% Bopel Srl Lugagnano Val d’Arda, Italy 70% 70% P.T. Christian Dior Indonesia Jakarta, Indonesia 80% 80% Christian Dior Puerto Banus S.L. Puerto Banus, Spain 75% 75% Les Jardins d’Avron LLC New York, U.S.A. 100% 100%

137 Lucilla Srl Sieci, Italy 51% 51% Christian Dior Couture CZ Prague, Czech Republic 100% 100% Christian Dior Couture Maroc Marrakech, Morocco 100% 100% Christian Dior Couture FZE Dubai, United Arab Emirates 100% 100% Christian Dior Macau Company Macau, Macau 96% 96% Ltd Les Ateliers Bijoux Germany 100% 100% Christian Dior S. de R.L. de C.V. Lomas, Mexico 100% 100% Christian Dior Commercial Shanghai, China 100% 100% Shanghai Co. Ltd Ateliers Modèles S.A.S. Paris, France 100% 100% Ateliers Modèles Spain Barcelona, Spain 100% 100% Baby Siam Couture Company Ltd Nothaburi, Thailand 100% 100% CDC Abu-Dhabi LLC Abu Dhabi, United Arab 49% 49% Emirates CDCH SA Luxembourg 75% 75% Dior Greece S.A. Athens, Greece 51% 51% Christian Dior Couture RUS LLC Moscow, Russia 100% 100% Christian Dior Couture Moscow, Russia 100% 100% Stoleshnikov

WINES AND SPIRITS Champagne Moët & Chandon Epernay, France 60% 29% SCS Moët Hennessy UK Ltd London, United Kingdom 60% 29% Moët Hennessy España SA Barcelona, Spain 60% 29% Moët Hennessy (Switzerland) SA Geneva, Switzerland 60% 29% Champagne Des Moutiers SA Epernay, France 60% 29% Schieffelin Partner Inc New York, U.S.A. 60% 29% Moët Hennessy de Mexico, SA de Mexico, Mexico 60% 29% C.V. Chamfipar SA Ay, France 60% 29% Société Viticole de Reims SA Ay, France 60% 29% Cie Française du Champagne et Ay, France 60% 29% du Luxe SA Moët Hennessy Belux SA Brussels, Belgium 60% 29% Champagne de Mansin SAS Gye sur Seine, France 60% 29% Moët Hennessy Osterreich Vienna, Austria 54% 26% GmbH Schieffelin & Somerset New York, U.S.A. 60% 29% Moët Hennessy (Nederland) BV Naarden, Netherlands 60% 29% Moët Hennessy USA New York, U.S.A. 60% 29% MHD Moët Hennessy Diageo Courbevoie, France (3) 60% 29% SAS

138 Opera Vineyards SA Buenos Aires, Argentina (1) 30% 15% France Champagne SA Epernay, France 60% 29% Domaine Chandon, Inc Yountville (California), U.S.A. 60% 29% Ltd Margaret River, Australia 60% 29% Veuve Clicquot Properties, Pty Sydney, Australia 60% 29% Ltd Moët Hennessy do Brasil— Sao Paulo, Brazil 60% 29% Vinhos E Destilados Ltda Ltd Blenheim, New Zealand 60% 29% Bodegas Chandon Argentina SA Buenos Aires, Argentina 60% 29% Domaine Chandon Australia Pty Coldstream Victoria, Australia 60% 29% Ltd Newton Vineyards LLC St Helena (California), U.S.A. 48% 23% Veuve Clicquot Ponsardin SCS Reims, France 60% 29% Société Civile des Crus de Reims, France 60% 29% Champagne SA Neggma SA Reims, France 30% 15% Veuve Clicquot U.K. Ltd London, United Kingdom 60% 29% Clicquot, Inc New York, U.S.A. (*) 60% 29% Veuve Clicquot Japan KK Tokyo, Japan 60% 29% Moët Hennessy Suomi OY Helsinki, Finland 60% 29% Moët Hennessy Sverige AB Stockholm, Sweden 60% 29% Moët Hennessy Norge AS Hoevik, Norway 60% 29% Moët Hennessy Danmark A/S Copenhagen, Denmark 60% 29% Moët Hennessy Deutschland Munich, Germany 60% 29% GmbH Moët Hennessy Italia S.p.a. Milan, Italy 60% 29% Krug SA Reims, France 60% 29% Champagne SA Reims, France 60% 29% Ruinart UK Ltd London, United Kingdom 60% 29% Ruinart Japan KK Tokyo, Japan 60% 29% Ruinart España S.L. Madrid, Spain 60% 29% Château d’Yquem SA Sauternes, France 38% 17% Château d’Yquem SC Sauternes, France 38% 17% Jas Hennessy & Co SCS Cognac, France 59% 29% Diageo Moët Hennessy BV LLC Amsterdam, Netherlands (3) 60% 29% Hennessy Dublin Ltd Dublin, Ireland 60% 29% Edward Dillon & Co Ltd Dublin, Ireland (2) 24% 11% Hennessy Far East Ltd Hong Kong, China 60% 29% Riche Monde Orient Ltd Hong Kong, China 60% 29% Riche Monde Ltd Hong Kong, China (3) 60% 29% Riche Monde (China) Ltd Shanghai, China (3) 60% 29% M.H.—U.D.G. (Far East) Ltd Hong Kong, China 60% 29%

139 Riche Monde Pte Ltd Singapore (3) 60% 29% Riche Monde Malaysia Inc Petaling Jaya, Malaysia (3) 30% 15% Riche Monde Taipei Taipei, Taiwan 60% 29% Riche Monde Bangkok Ltd Bangkok, Thailand (3) 60% 29% Moët Hennessy Korea Ltd Seoul, South Korea 60% 29% Moët Hennessy Shanghai Ltd Shanghai, China 60% 29% Moët Hennessy India Pvt. Ltd New Delhi, India 60% 29% Moët Hennessy Taiwan Ltd Taipei, Taiwan 60% 29% RMLDF Greater China Shanakai, China (3) 60% 29% MHD China Co Ltd Shanghai, China 60% 29% MHWH Limited Limassol, Cyprus 30% 15% Moët Hennessy Whitehall Rus SA Moscow, Russia 60% 15% Moët Hennessy Diageo KK Tokyo, Japan (3) 60% 29% Moët Hennessy Asia Pte Ltd Singapore 60% 29% Moët Hennessy Australia Ltd Rosebury, Australia 60% 29% Millennium Import LLC Minneapolis, MN, USA 60% 29% Millennium Brands Ltd Dublin, Ireland 60% 29% Polmos Zyrardow Zyrardow, Poland 59% 29% Moët Hennessy VR Ltd London, United Kingdom 60% 29% The Glenmorangie Company Ltd Edinburgh, United Kingdom 60% 29% Macdonald & Muir Ltd Edinburgh, United Kingdom 60% 29% Glenaird Ltd Edinburgh, United Kingdom 30% 15% The Scotch Malt Whisky Society Edinburgh, United Kingdom 60% 29% Ltd FASHION AND LEATHER GOODS Louis Vuitton Malletier SA Paris, France 60% 44% Manufacture de souliers Louis Fiesso d’Artico, Italy 60% 44% Vuitton S.r.l. Louis Vuitton Saint Barthélémy Saint Bartholomew, French SNC Antilles 60% 44% Société des Ateliers Louis Vuitton Paris, France 60% 44% SNC Société Louis Vuitton Services Paris, France 60% 44% SNC Société des Magasins Louis Paris, France 60% 44% Vuitton France SNC Belle Jardinière SA Paris, France 60% 44% Belle Jardinière Immo SAS Paris, France 60% 44% Sedivem SNC Paris, France 60% 44% Les Ateliers Horlogers Louis La Chaux-de-Fonds, Vuitton SA Switzerland 60% 44% Louis Vuitton Monaco SA Monte Carlo, Monaco 60% 44%

140 ELV SARL Paris, France 60% 44% LVMH Fashion Group UK Ltd London, United Kingdom 60% 44% Louis Vuitton Deutschland Düsseldorf, Germany 60% 44% GmbH Louis Vuitton Ukraine LLC Kiev, Ukraine 60% 44% Sociedad Catalana Talleres Barcelona, Spain 60% 44% Artesanos Louis Vuitton SA Louis Vuitton BV Amsterdam, Netherlands 60% 44% LVMH Fashion Group Belgium Brussels, Belgium 60% 44% Louis Vuitton Hellas SA Athens, Greece 60% 44% Louis Vuitton Portugal Maleiro, Lisbon, Portugal 60% 44% Ltda. Louis Vuitton Ltd Tel Aviv, Israel 60% 44% Louis Vuitton Danmark A/S Copenhagen, Denmark 60% 44% Louis Vuitton Aktiebolag SA Stockholm, Sweden 60% 44% LVMH Fashion Group Geneva, Switzerland 60% 44% Switzerland SA Louis Vuitton Ceska s.r.o. Prague, Czech Republic 60% 44% Louis Vuitton Osterreich G.m.b.H Vienna, Austria 60% 44% Louis Vuitton Cantacilik Ticaret Istanbul, Turkey 59% 44% Anonim Sirketi LV US Manufacturing, Inc New York, U.S.A. 60% 44% Somarest SARL Sibiu, Romania 60% 44% LVMH Fashion Group Hawaii Honolulu (Hawaii), U.S.A. 60% 44% Inc Atlantic Luggage Company Ltd Hamilton, Bermuda 60% 18% Louis Vuitton Guam, Inc Guam 60% 44% Louis Vuitton Saipan, Inc Saipan 60% 44% Louis Vuitton Norge Oslo, Norway 60% 44% San Dimas Luggage Company New York, U.S.A. 60% 44% LVMH FG Brasil Ltda Sao Paulo, Brazil 60% 44% Louis Vuitton Mexico S de RL de Mexico, Mexico 60% 44% CV Blinfar SA Montevideo, Uruguay 60% 44% Louis Vuitton Chile Ltda Santiago de Chile, Chile 60% 44% LVMH Fashion Group Pacific Hong Kong, China 60% 44% Ltd Milbrook Limited Hong Kong, China 60% 44% Louis Vuitton Hong Kong Ltd Hong Kong, China 60% 44% Louis Vuitton (Philippines), Inc Makati, Hong Kong, China 60% 44% LVMH Fashion (Singapore) Pte Singapore 60% 44% Ltd PT Louis Vuitton Indonesia Jakarta, Indonesia 59% 43% Louis Vuitton (Malaysia) SDN Kuala Lumpur, Malaysia 60% 44% BHD

141 Louis Vuitton (Thailand) SA Bangkok, Thailand 60% 44% Louis Vuitton Taiwan, Ltd Taipei, Taiwan 59% 43% Louis Vuitton Australia, PTY Ltd Sydney, Australia 60% 44% Louis Vuitton (China) Co LTD Shanghai, China 60% 44% LV New Zealand Limited Auckland, New Zealand 60% 44% Louis Vuitton Kuweit CSP Safat, Kuwait 36% 26% Louis Vuitton UAE LLC Dubai, United Arab Emirates 39% 29% LV Saudi Arabia LLC Jeddah, Saudi Arabia 39% 29% Louis Vuitton Korea Ltd Seoul, South Korea 60% 44% LVMH Fashion Group Trading Seoul, South Korea 60% 44% Korea Ltd Louis Vuitton Hungaria Sarl Budapest, Hungary 60% 44% Louis Vuitton Argentina SA Buenos Aires, Argentina 60% 44% Louis Vuitton Vostock LLC Moscow, Russia 60% 44% LV Colombia SA Santafe de Bogota, Colombia 60% 44% Louis Vuitton Morocco Sarl Casablanca, Morocco 60% 44% Louis Vuitton Venezuela SA Caracas, Venezuela 60% 44% Louis Vuitton South Africa Ltd Johannesburg, South Africa 60% 44% Louis Vuitton Macau Company Macao, China 60% 44% Ltd LVMH Fashion Group Shanghai, China 60% 44% (Shanghai) Trading Co Ltd LV Cup España S.L Valencia, Spain 60% 44% LVJ Group KK Tokyo, Japan 59% 44% LVMH Fashion Group Americas New York, U.S.A. (*) 60% 44% Inc Louis Vuitton Canada, Inc Toronto, Canada 60% 44% International, LLC New York, U.S.A. (*) 58% 42% Marc Jacobs Trademark, LLC New York, U.S.A. (*) 20% 15% Marc Jacobs International Japan Tokyo, Japan 60% 44% Co., Ltd Loewe SA Madrid, Spain 60% 44% Loewe Hermanos SA Madrid, Spain 60% 44% Loewe Textil SA Madrid, Spain 60% 44% Manufacturas Loewe S.L. Madrid, Spain 60% 44% LVMH Fashion Group France Paris, France 60% 44% SNC Loewe Hermanos UK Ltd London, United Kingdom 60% 44% Loewe Saïpan, Inc Saipan, Mariana Islands 60% 44% Loewe Guam, Inc Guam 60% 44% Loewe Hong Kong Ltd Quarry Bay, Hong Kong 60% 44% Loewe Commercial & Trading Co, Shanghai, China 60% 44% LTD Loewe Fashion Pte Ltd Singapore 60% 44%

142 Loewe Fashion (M) SDN BHD Kuala Lumpur, Malaysia 60% 44% Loewe Taiwan Ltd Taipei, Taiwan 60% 43% Loewe Australia Pte Ltd Sydney, Australia 60% 44% Berluti SA Paris, France 60% 44% Société Distribution Robert Paris, France 60% 44% Estienne SNC Manifattura Ferrarese S.r.l. Milan, Italy 60% 44% Caltunificio Rossi Moda SpA Vigonza, Italy 58% 43% Rossi Moda USA Ltd New York, U.S.A. 60% 43% Rossimoda France SARL Paris, France 60% 43% Brenta Suole S.r.l. Vigonza, Italy 39% 28% LVMH Fashion Group Services Paris, France 60% 44% SAS Montaigne KK Tokyo, Japan 60% 44% Modulo Italia S.r.l. Milan, Italy 60% 44% SA Paris, France 60% 44% Avenue M International SCA Paris, France 60% 44% Enilec Gestion SARL Paris, France 60% 44% Celine Montaigne SA Paris, France 60% 44% Celine Monte Carlo SA Monte Carlo, Monaco 60% 44% Celine Production S.r.l. Florence, Italy 60% 44% Celine Switzerland SA Geneva, Switzerland 60% 44% Celine UK Ltd London, United Kingdom 60% 44% Céline Inc New York, U.S.A. (*) 60% 44% Celine Hong Kong Ltd Hong Kong, China 59% 44% Celine Commercial & Trading Shanghai, China 60% 44% (Shanghai) Co Ltd Celine (Singapore) Pte Ltd Singapore 60% 44% Celine Guam Inc Tumon, Guam 60% 44% Celine Korea Ltd Seoul, South Korea 60% 44% Céline Taiwan Ltd Taipei, Taiwan 60% 44% CPC International Ltd Hong Kong, China 60% 44% Kami SA Montbazon, France 60% 44% Kenzo SA Paris, France 60% 44% Kenzo Belgique SA Brussels, Belgium 60% 44% Kenzo UK Ltd London, United Kingdom 60% 44% Kenzo Homme UK Ltd London, United Kingdom 60% 44% Kenzo Japan KK Tokyo, Japan 60% 44% Givenchy SA Paris, France 60% 44% Givenchy Corporation New York, U.S.A. 60% 44% Givenchy Co Ltd Tokyo, Japan 60% 44% Gentleman Givenchy Far East Ltd Hong Kong, China 60% 44% Givenchy China Co Ltd Hong Kong, China 60% 44% Gabrielle Studio, Inc New York, U.S.A. 60% 44%

143 Donna Karan International Inc New York, U.S.A.(*) 60% 44% The Donna Karan Company LLC New York, U.S.A. 60% 44% Donna Karan Service Company Oldenzaal, Netherlands 60% 44% BV Donna Karan Studio LLC New York, U.S.A 60% 44% The Donna Karan Company Store New York, U.S.A 60% 44% LLC Donna Karan Company Store UK London, United Kingdom 60% 44% Holdings Ltd Donna Karan Management London, United Kingdom 60% 44% Company UK Ltd Donna Karan Company Stores London, United Kingdom 60% 44% UK Retail Ltd Donna Karan Company Store London, United Kingdom 60% 44% (UK) Ltd Donna Karan H. K. Ltd Hong Kong, China 60% 44% Donna Karan (Italy) S.r.l. Milan, Italy 60% 44% Donna Karan (Italy) Production Milan, Italy 60% 44% Services S.r.l. Fendi International BV Amsterdam, Netherlands 60% 44% Fun Fashion Emirates LLC Dubai, UAE 36% 26% Fendi SA Luxembourg 56% 41% Fendi S.r.l. Rome, Italy 60% 41% Fendi Adele S.r.l. Rome, Italy 60% 41% Fendi Immobili Industriali S.r.l. Florence, Italy 60% 41% Fendi Italia S.r.l. Rome, Italy 60% 44% Fendi UK Ltd London, United Kingdom 60% 44% Fendi France SAS Paris, France 60% 44% Fendi North America Inc New York, U.S.A. (*) 60% 44% Fendi Australia Pty Ltd Sydney, Australia 60% 44% Fendi Guam Inc Tumon, Guam 60% 44% Fendi (Thailand) Co. Ltd Bangkok, Thailand 60% 44% Fendi Asia Pacific Ltd Hong Kong, China 60% 44% Fendi Korea Ltd Seoul, South Korea 60% 44% Fendi Taiwan Ltd Taipei, Taiwan 60% 44% Fendi Hong Kong Ltd Hong Kong, China 60% 44% Fendi China Boutiques Ltd Hong Kong, China 60% 44% Fendi (Singapore) Pte Ltd Singapore 60% 44% Fendi Fashion (Malaysia) Snd. Kuala Lumpur, Malaysia 60% 44% Bhd. Fendi Switzerland SA Geneva, Switzerland 60% 44% Fun Fashion FZCO LLC Dubai, UAE 36% 26% Fendi Marianas Inc Tumon, Guam 60% 44% Fun Fashion Kuwait WLL Kuwait City 48% 35% Fun Fashion Germany GmbH KG Stuttgart, Germany 31% 22%

144 Fendi Macau Ltd Macao, China 60% 44% Fendi Germany GmbH Stuttgart, Germany 60% 44% Fun Fashion Napoli Srl Naples, Italy 31% 22% Fendi Shanghai Co Ltd Shanghai, China 60% 31% Fendi Jeddah Jeddah, Saudi Arabia 36% 26% Fendi Riyadh Riyadh, Saudi Arabia 36% 26% Fun Fashion Spain SL Marbella, Spain 42% 31% Fun Fashion India Pte Ltd Mumbai, India 42% 31% S.r.l. Florence, Italy 60% 44% Emilio Pucci International BV Naarden, Netherlands 40% 29% Emilio Pucci, Ltd New York, U.S.A 60% 44% Thomas Pink Holdings Ltd London, United Kingdom 60% 44% Thomas Pink Ltd London, United Kingdom 60% 44% Thomas Pink BV Rotterdam, Netherlands 60% 44% Thomas Pink Inc New York, U.S.A. (*) 60% 44% Thomas Pink Ireland Ltd Dublin, Ireland 60% 44% Thomas Pink Belgium SA Brussels, Belgium 60% 44% Thomas Pink France SAS Paris, France 60% 44% e-Luxury.com Inc San Francisco (California), 60% 44% U.S.A.

PERFUMES AND COSMETICS Parfums Christian Dior SA Paris, France 60% 44% LVMH P&C Thailand Co Ltd Bangkok, Thailand 29% 22% LVMH Parfums & Cosmétiques Sao Paulo, Brazil 60% 44% do Brasil Ltda France Argentine Cosmetics SA Buenos Aires, Argentina 60% 44% LVMH P&C Shanghai Co Ltd Shanghai, China 60% 44% Parfums Christian Dior Finland Helsinki, Finland 60% 44% Dy LVMH P&C Inc New York, U.S.A. 60% 44% SNC du 33 avenue Hoche Paris, France 60% 44% Beauté SA Athens, Greece 60% 44% LVMH Fragrances & Cosmetics Singapore 60% 44% (Singapore) Pte Ltd Parfums Christian Dior Orient Co Dubai, United Arab Emirates 36% 26% Parfums Christian Dior Emirates Dubai, United Arab Emirates 31% 14% Parfums Christian Dior (UK) Ltd London, United Kingdom 60% 44% Parfums Christian Dior BV Rotterdam, Netherlands 60% 44% Iparkos BV Rotterdam, Netherlands 60% 44% Parfums Christian Dior S.A.B. Brussels, Belgium 60% 44% Parfums Christian Dior (Ireland) Dublin, Ireland 60% 44% Ltd Parfums Christian Dior Hellas Athens, Greece 60% 44% S.A.

145 Parfums Christian Dior A.G. Zurich, Switzerland 60% 44% Christian Dior Perfumes LLC New York, U.S.A. 60% 44% Parfums Christian Dior Canada Montreal, Canada 60% 44% Inc LVMH P&C de Mexico SA de Mexico, Mexico 60% 44% CV Parfums Christian Dior Japan Tokyo, Japan 60% 44% K.K. Parfums Christian Dior Singapore 60% 44% (Singapore) Pte Ltd Inalux SA Luxembourg 60% 44% LVMH P&C Asia Pacific Ltd Hong Kong, China 60% 44% Fa Hua Fragrance & Cosmetic Co Kowloon, Hong Kong, China 60% 44% Ltd LVMH P&C Shanghai Co, Ltd Shanghai, China 60% 44% LVMH P&C Korea Ltd Seoul, South Korea 60% 44% Parfums Christian Dior Hong Hong Kong, China 60% 44% Kong Ltd LVMH P&C Malaysia Sdn Kuala Lumpur, Malaysia 60% 44% berhad Inc Fa Hua Hong Kong Co, Ltd Hong Kong, China 60% 44% Pardior SA de CV Mexico, Mexico 60% 44% Parfums Christian Dior A/S Ltd Copenhagen, Denmark 60% 44% LVMH Perfums & Cosmetics Sydney, Australia 60% 44% Group Pty Ltd Parfums Christian Dior AS Ltd Hoevik, Norway 60% 44% Parfums Christian Dior AB Stockholm, Sweden 60% 44% Parfums Christian Dior (New Auckland, New Zealand 60% 44% Zealand) Ltd Parfums Christian Dior GmbH Vienna, Austria 60% 44% Austria Cosmetic of France Inc Miami (Florida), U.S.A. 60% 44% GIE LVMH P&C Recherche Paris, France 60% 44% GIE Parfums et Cosmétiques Levallois Perret, France 60% 44% Information Services – PCIS Perfumes Loewe SA Madrid, Spain 60% 44% Acqua Di Parma S.r.l. Milan, Italy 60% 44% Acqua Di Parma LLC New York, U.S.A. 60% 44% Guerlain SA Paris, France 60% 44% LVMH Parfums & Kosmetik Wiesbaden, Germany 60% 44% Deutschland GmbH Guerlain GesmbH Vienna, Austria 60% 44% Cofra GesmbH Vienna, Austria 60% 44% Guerlain SA (Belgium) Fleurus, Belgium 60% 44% Oy Guerlain AB Helsinki, Finland 60% 44%

146 Guerlain Ltd London, United Kingdom 60% 44% LVMH Perfumeria e Cosmetica Lisbon, Portugal 60% 44% Lda Guerlain SA (Switzerland) Geneva, Switzerland 60% 44% Guerlain Inc New York, U.S.A. 60% 44% Guerlain Canada Ltd Montreal, Canada 60% 44% Guerlain De Mexico SA Mexico, Mexico 60% 44% Guerlain Puerto Rico, Inc San Juan, Puerto Rico 60% 44% Guerlain Asia Pacific Ltd (Hong Hong Kong, China 60% 44% Kong) Guerlain KK Tokyo, Japan 60% 44% Guerlain Oceania Australia Pty Melbourne, Australia 60% 44% Ltd Make Up For Ever SA Paris, France 60% 44% Make Up For Ever UK Ltd London, United Kingdom 60% 44% Make Up For Ever LLC New York, U.S.A. (*) 60% 44% Make Up For Ever Italy S.r.l. Milan, Italy 60% 44% Parfums Givenchy SA Levallois Perret, France 60% 44% Parfums Givenchy Ltd London, United Kingdom 60% 44% Parfums Givenchy GmbH Düsseldorf, Germany 60% 44% Parfums Givenchy LLC New York, U.S.A. (*) 60% 44% Parfums Givenchy Canada Ltd Toronto, Canada 60% 44% Parfums Givenchy KK Tokyo, Japan 60% 44% Parfums Givenchy WHD, Inc New York, U.S.A. (*) 60% 44% Kenzo Parfums France SA Paris, France 60% 44% Kenzo Parfums NA LLC New York, U.S.A. (*) 60% 44% La Brosse et Dupont SAS Villepinte, France 60% 44% La Brosse et Dupont Portugal SA S. Domingos de Rana, Portugal 60% 44% Mitsie SAS Tarare, France 60% 44% LBD Iberica SA Barcelona, Spain 60% 44% LBD Ménage SAS Beauvais, France 60% 44% LBD Belux SA Brussels, Belgium 60% 44% SCI Masurel Tourcoing, France 60% 44% SCI Sageda Orange, France 60% 44% LBD Italia S.r.l. Stezzano, Italy 60% 44% Etablissements Mancret Père & Grenoble, France 60% 44% Fils SA Inter-Vion Spolka Akeyjna SA Warsaw, Poland 31% 22% Europa Distribution SAS Saint Etienne, France 60% 44% LBD Hong Kong Hong Kong, China 60% 44% LBD Antilles SAS Ducos, Martinique, France 60% 44% BeneFit Cosmetics LLC San Francisco (California), 48% 35% U.S.A.

147 BeneFit Cosmetics UK Ltd London, United Kingdom 60% 35% BeneFit Cosmetics Korea Seoul, South Korea 60% 35% BeneFit Cosmetics SAS Boulogne Billancourt, France 60% 35% BeneFit Cosmetics Hong Kong Hong Kong, China 60% 35% Fresh Inc Boston (Massachusetts), U.S.A. 48% 35% LVMH Cosmetics Services KK Tokyo, Japan 60% 44% Parfums Luxe International SAS Boulogne Billancourt, France 60% 44%

WATCHES AND JEWELRY TAG Heuer International SA Luxembourg, Luxembourg 60% 44% TAG Heuer SA La Chaux-de-Fonds, 60% 44% Switzerland LVMH Relojeria & Joyeria Madrid, Spain 60% 44% España SA LVMH Montres & Joaillerie Paris, France 60% 44% France SA LVMH Watch & Jewelry Italy Milan, Italy 60% 44% Holding SpA LVMH Watch & Jewelry Central Bad Homburg, Germany 60% 44% Europe GmbH Timecrown Ltd Manchester, United Kingdom 60% 44% LVMH Watch & Jewelry UK Ltd Manchester, United Kingdom 60% 44% Tag Heuer Ltd Manchester, United Kingdom 60% 44% LVMH Watch & Jewelry USA Springfield (New Jersey), 60% 44% (Inc) U.S.A. LVMH Watch & Jewelry Canada Toronto, Canada 60% 44% Ltd LVMH Watch & Jewelry Far Hong Kong, China 59% 44% East Ltd LVMH Watch & Jewelry Singapore 60% 44% Singapore Pte Ltd LVMH Watch & Jewelry Kuala Lumpur, Malaysia 60% 44% Malaysia Sdn Bhd LVMH Watch & Jewelry Japan Tokyo, Japan 60% 44% K.K. LVMH Watch & Jewelry Melbourne, Australia 60% 44% Australia Pty Ltd LVMH Watch & Jewelry Hong Hong Kong, China 60% 44% Kong Ltd LVMH Watch & Jewelry Taiwan Taipei, Taiwan 60% 44% Ltd Cortech SA Cornol, Switzerland 60% 44% LVMH Watch et Jewelry Coral Gables (Florida), U.S.A. 60% 44% Carribean & Latin America Inc

148 ArteLink S.r.l. Fratte di S. Giustina in Colle, 60% 44% Italy LVMH Watch & Jewelry India New Delhi, India 60% 44% Pvt Ltd LVMH Watch & Jewelry China Shanghai, China 60% 44% Chaumet International SA Paris, France 60% 44% Chaumet London Ltd London, United Kingdom 60% 44% Chaumet Horlogerie SA Bienne, Switzerland 60% 44% Chaumet Monte Carlo SAM Monte Carlo, Monaco 60% 44% Chaumet Korea Chusik Hoesa Seoul, South Korea 31% 22% Zenith International SA Le Locle, Switzerland 60% 44% Zenith Time Co Ltd Manchester, United Kingdom 60% 44% LVMH Watch et Jewelry Italy Milan, Italy 60% 44% SpA De Beers LV Ltd London, United Kingdom 30% 22% Omas S.r.l. Bologna, Italy 60% 44% Delano SA La Chaux-de-Fonds, 60% 44% Switzerland Les Ateliers Horlogers LVMH SA La Chaux-de-Fonds, 60% 44% Switzerland Fred Paris SA Paris, France 60% 44% Joaillerie de Monaco SA Monte Carlo, Monaco 60% 44% Fred Inc Beverly Hills (California), 60% 44% U.S.A. (*) Fred London Ltd London, United Kingdom 60% 44% Benedom SARL Paris, France 60% 44%

SELECTIVE RETAILING Sephora SA Boulogne Billancourt, France 60% 44% Sephora Luxembourg SARL Luxembourg, Luxembourg 60% 44% LVMH Iberia SL Madrid, Spain 60% 44% LVMH Italia SpA Milan, Italy 60% 44% Sephora Portugal Perfumeria Lda Lisbon, Portugal 60% 44% Sephora Poland Spzoo Warsaw, Poland 46% 33% Sephora Deutschland GmbH Bad Homburg, Germany 60% 44% Clab S.r.l. Milan, Italy 60% 44% Sephora Marinopoulos SA Alimos, Greece (1) 30% 22% Beauty Shop Romania SA Bucarest, Romania (1) 30% 22% Spring Time Cosmetics SA Athens, Greece (1) 30% 22% Sephora Tchéquie SRO Prague, Czech Republic 60% 44% Sephora Monaco SAM Monaco 59% 44% Sephora Patras Alimos, Greece (1) 31% 11% Sephora Cosmeticos España Madrid, Spain (1) 30% 22% S+ Boulogne Billancourt, France 60% 44%

149 Sephora Marinopoulos Cyprus Cyprus (1) 30% 22% Sephora Moyen Orient Fribourg, Switzerland 60% 24% Sephora Middle East FZE JAFZ, Dubai, UAE 60% 24% Sephora Emirates Dubai, UAE 60% 24% Sephora Bahrain Manama, Bahrain 60% 24% Sephora China Shanghai, China 49% 36% Sephora Holding Asia Shanghai, China 60% 44% Sephora Beijing Cosmetics Co. Beijing, China 49% 36% Ltd Sephora USA, Inc San Francisco (California), 60% 44% U.S.A. (*) Sephora Beauty Canada, Inc San Francisco (California), 60% 44% U.S.A. Magasins de SA Paris, France 33% 25% Le Bon Marché SA Paris, France 60% 44% SEGEP SNC Paris, France 59% 44% Franck & Fils SA Paris, France 60% 44% Balthazar SNC Paris, France 60% 44% DFS Holdings Ltd Hamilton, Bermuda 37% 27% DFS Australia Pty Ltd Sydney, Australia 60% 27% Travel Retail Shops Pte Ltd Sydney, Australia (2) 27% 12% DFS European Logistics Ltd Hamilton, Bermuda 60% 27% DFS Credit Systems Limited Hamilton, Bermuda 60% 27% DFS Group Ltd Delaware, USA 60% 27% DFS China Partners Ltd Kowloon, Hong Kong, China 60% 27% DFS Macau Ltd Hong Kong, China 60% 27% Duty Free Shoppers Hong Kong Hong Kong, China 60% 27% Ltd Hong Kong International Hong Kong, China 30% 14% Boutique Partners TRS Duty Free Shoppers Hong Hong Kong, China (2) 27% 12% Kong Ltd Preferred Products Limited Hong Kong, China 60% 27% DFS Okinawa K.K. Okinawa, Japan 60% 27% TRS Okinawa Okinawa, Japan (2) 27% 12% JAL/DFS Co., Ltd Chiba, Japan (2) 24% 11% DFS Korea Ltd Seoul, South Korea 60% 27% DFS Seoul Ltd Seoul, South Korea 60% 27% DFS Cotai Limitada Macao, China 60% 27% DFS Sdn. Bhd. Kuala Lumpur, Malaysia 60% 27% Gateshire Marketing Sdn Bhd. Kuala Lumpur, Malaysia 60% 27% DFS Merchandising Ltd Netherlands Antilles 60% 27% DFS New Caledonia Sarl Noumea, New Caledonia 60% 27% DFS New Zealand Ltd Auckland, New Zealand 60% 27%

150 TRS New Zealand Ltd Auckland, New Zealand (2) 27% 12% Commonwealth Investment Saipan, Mariana Islands 58% 26% Company, Inc DFS Saipan Ltd Saipan, Mariana Islands 60% 27% Kinkaï Saipan L.P. Saipan, Mariana Islands 60% 27% Saipan International Boutique Saipan, Mariana Islands 30% 14% Partners DFS Palau Ltd Koror, Palau 60% 27% Difusi Information Technology & China 60% 27% Development Co. Ltd DFS Information Technology China 60% 27% (Shanghai) Company Limited Hainan DFS Retail Company China 60% 27% Limited DFS Galleria Taiwan Ltd Taipei, Taiwan 60% 27% DFS Taiwan Ltd Taipei, Taiwan 60% 27% Tou You Duty Free Shop Co. Ltd Taipei, Taiwan 60% 27% DFS Singapore (Pte) Ltd Singapore 60% 27% DFS Trading Singapore (Pte) Ltd Singapore 60% 27% DFS Venture Singapore (Pte) Ltd Singapore 60% 27% TRS Singapore Pte Ltd Singapore (2) 27% 12% Singapore International Boutique Singapore 30% 14% Partners DFS Group L.P. Delaware, U.S.A 37% 27% LAX Duty Free Joint Venture Los Angeles (California), U.S.A 46% 21% 2000 Royal Hawaiian Insurance Hawaii, U.S.A. 60% 27% Company Ltd Hawaii International Boutique Honolulu (Hawaii) U.S.A. 30% 14% Partners JFK Terminal 4 Joint Venture New York, U.S.A. 48% 22% 2001 DFS Guam L.P. Tamuning, Guam 37% 27% Guam International Boutique Tamuning, Guam 30% 14% Partners DFS Liquor Retailing Ltd Delaware, U.S.A. 37% 27% Twenty –Seven–Twenty Eight Delaware, U.S.A. 37% 27% Corp. TRS Hawaii LLC Honolulu (Hawaii), U.S.A. (2) 27% 12% TRS Saipan Saipan, Iles Mariannes (2) 27% 12% TRS Guam Tumon, Guam (2) 27% 12% Tumon Entertainment LLC Tamuning, Guam 60% 44% Comete Guam Inc Tamuning, Guam 60% 44% Tumon Games LLC Tamuning, Guam 60% 44%

151 Tumon Aquarium LLC Tamuning, Guam 60% 44% Comete Saipan Inc Saipan NMI 60% 44% Cruise Line Holdings Co Delaware, U.S.A. 60% 44% On-Board Media, Inc Delaware, U.S.A. 60% 44% Starboard Cruise Services, Inc Delaware, U.S.A. 60% 44% Starboard Holdings Ltd Delaware, U.S.A. 60% 44% International Cruise Shops, Ltd Cayman Islands 60% 44% South Florida Custom Brokers Miami (Florida), U.S.A. 40% 29% Miami Airport Duty-Free Joint Miami (Florida), U.S.A. 40% 29% Venture Fort Lauderdale Partnership Ft Lauderdale (Florida), U.S.A. 45% 33%

OTHER ACTIVITIES DI Group SA Paris, France 60% 44% DI Services SAS Paris, France 60% 44% Imprimerie Desfossés SARL Paris, France 60% 44% Tribune Desfossés SAS Paris, France 60% 44% Radio Classique SAS Paris, France 60% 44% Les Editions Classique Affaires Paris, France 60% 44% SARL DI Régie SAS Paris, France 60% 44% SFPA SARL Paris, France 60% 44% D2I SAS Paris, France 60% 44% Investir Publications SAS Paris, France 60% 44% Investir Formation SARL Paris, France 60% 44% Compo Finance SARL Paris, France 60% 44% SID Presse SARL Paris, France 60% 44% SID Développement SAS Paris, France 60% 44% SID Editions SAS Paris, France 60% 44% SID Magazine SA Paris, France 60% 44% SOFPA SA Lausanne, Switzerland 60% 44% Ufipar SAS Boulogne Billancourt, France 60% 44% L Capital Management SAS Paris, France 60% 44% Sofidiv SAS Boulogne Billancourt, France 60% 44% GIE LVMH Services Boulogne Billancourt, France 60% 37% Moët Hennessy SNC Boulogne Billancourt, France 40% 29% LVMH Services Ltd London, United Kingdom 60% 44% Moët Hennessy Investissements Boulogne Billancourt, France 60% 29% LVMH Fashion Group SA Paris, France 60% 44% Moët Hennessy International SA Boulogne Billancourt, France 40% 29% Creare SA Luxembourg, Luxembourg 60% 38% Creare Pte Ltd Singapore 60% 38% Société Montaigne Jean Goujon Paris, France 60% 44% SAS

152 Delphine SAS Boulogne Billancourt, France 60% 44% LVMH Finance SA Boulogne Billancourt, France 60% 44% Primae SA Boulogne Billancourt, France 60% 44% Eutrope SAS Boulogne Billancourt, France 60% 44% Flavius Investissements SA Paris, France 60% 44% LBD HOLDING SA Boulogne Billancourt, France 60% 44% LV Capital SA Paris, France 60% 44% Micromania SAS Nice, France 60% 44% Fondation Louis Vuitton pour la Boulogne Billancourt, France 60% 44% Création Moët Hennessy Inc New York, U.S.A. (*) 60% 29% One East 57th Street LLC New York, U.S.A. (*) 60% 44% LVMH Moët Hennessy Louis New York, U.S.A. (*) 60% 44% Vuitton Inc 598 Madison Leasing Corp New York, U.S.A. (*) 60% 44% 1896 Corp New York, U.S.A. (*) 60% 44% LVMH Participations BV Baarn, Netherlands 60% 44% LVMH Moët Hennessy Louis Baarn, Netherlands 60% 44% Vuitton BV Louis Vuitton Prada Holding BV Amsterdam, Netherlands 60% 44% Sofidiv UK Ltd London, United Kingdom 60% 44% LVMH Moët Hennessy Louis Tokyo, Japan 60% 44% Vuitton KK Osaka Fudosan Company Ltd Tokyo, Japan 60% 44% LVMH Asia Pacific Ltd Hong Kong, China 60% 44% LVMH Moët Hennessy Louis Paris, France 60% 44% Vuitton SA (*) The address given corresponds to the companies’ administrative registered office, as the corporate registered office is located in the state of Delaware. (1) Consolidated on a proportional basis. (2) Accounted for using the equity method. (3) Joint venture companies with Diageo: only the Moët Hennessy activity is consolidated.

153 STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEAR ENDED DECEMBER 31, 2006

MAZARS & GUERARD ERNST & YOUNG AUDIT Tour Exaltis Faubourg de l’Arche 61, rue Henri Regnault 11, allée de l’Arche 92400 Courbevoie 92037 Paris-La Défense Cedex S.A. au capital de €8,320,000 S.A.S à capital variable 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 have audited the accompanying consolidated financial statements of Christian Dior for the year ended December 31, 2006. The consolidated financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial statements based on our audit.

I. OPINION ON THE CONSOLIDATED FINANCIAL 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and results of the consolidated group in accordance with IFRS as adopted by the European Union.

II. JUSTIFICATION OF OUR ASSESSMENTS In accordance with the requirements of Article L.823-9 of French Commercial Code (Code de Commerce) relating to the justification of our assessments, we bring to your attention the following matters: • we have verified that Note 1.10 to the consolidated financial statements provides appropriate disclosure on the accounting treatment of commitments to purchase minority interest securities as such treatment is not provided for by the IFRS framework as adopted by the European Union; • the brand and goodwill valuation has been tested under the method described in Note 1.12 to the consolidated financial statements. 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. These assessments were made in the context of the performance of our audit of the consolidated financial statements taken as a whole, and therefore contributed to the opinion we formed which is expressed in the first part of this Report.

154 III. SPECIFIC PROCEDURE In accordance with professional standards applicable in France, we have also verified the information given in the group management report. We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements.

Courbevoie and Paris-La Défense, April 6, 2007 The Statutory Auditors

MAZARS & GUERARD ERNST & YOUNG AUDIT

Denis Grison Christian Mouillon

155 156 PARENT COMPANY FINANCIAL STATEMENTS

157 B ALANCE S HEET AS OF D ECEMBER 31

(EUR thousand) 2006 2005 2004 Amortization ASSETS Notes Gross and provisions Net Net Net

Intangible assets 2.1/2.2 57 57 – –– Property, plant and equipment 2.1/2.2 368 337 31 60 88 Investments 3,841,839 – 3,841,839 3,456,838 3,456,838 Other investment securities 23,484 12,758 10,726 15,191 19,465 Loans 5 – 5 55 Other non- current financial assets – – – ––

Non-current financial assets 2.1/2.2/2.8 3,865,328 12,758 3,852,570 3,472,034 3,476,308

Non-current assets 3,865,753 13,152 3,852,601 3,472,094 3,476,396

Trade accounts receivable 14 – 14 14 – Other receivables 4,343 – 4,343 5,125 3,353 Short term investments 181,429 6,550 174,879 151,873 145,337 Cash and cash equivalents 71 – 71 3,156 184

Current assets 2.3/2.7/2.8 185,857 6,550 179,307 160,168 148,874

Prepaid expenses 2.3 2,295 – 2,295 33 549 Bond redemption premiums 487 – 487 ––

TOTAL ASSETS 4,054,392 19,702 4,034,690 3,632,295 3,625,819

158 B ALANCE S HEET AS OF D ECEMBER 31

(EUR thousand) 2006 2005 2004 Prior to Prior to Prior to LIABILITIES AND EQUITY Notes appropriation appropriation appropriation

Share capital 363,454 363,454 363,454 Share premium account 2,204,623 2,204,623 2,204,623 Revaluation adjustments 16 16 16 Legal reserve 36,345 36,345 36,345 Regulated reserves ––82,742 Optional reserve 80,630 80,630 – Retained earnings 43,227 82,632 114,614 Profit for the year 184,250 166,439 138,231 Interim dividends 1.6 (69,056) (58,152) (58,152)

Equity 2.4 2,843,489 2,875,987 2,881,873

Provisions for contingencies and losses 2.5 570 570 570

Other bonds 274,918 123,863 123,904 Bank loans and borrowings 907,768 624,538 612,942 Miscellaneous loans and borrowings 1,172 953 118

Borrowings 1,183,858 749,354 736,964 Trade accounts payable 565 260 238 Tax and social security liabilities 1,129 2,143 2,139 Other operating liabilities 1,605 1,310 1,327

Operating liabilities 3,299 3,713 3,704 Other liabilities 3,475 2,671 2,637

Liabilities 2.6/2.7/2.8 1,190,632 755,738 743,305 Prepaid income 2.6 ––71

TOTAL LIABILITIES AND EQUITY 4,034,690 3,632,295 3,625,819

159 I NCOME S TATEMENT

(EUR thousand) Notes 2006 2005 2004

Services provided, other revenues 14 14 –

NET REVENUE 14 14 –

Operating income 14 14 – Other purchases and external expenses 4,939 5,393 5,171 Taxes, duties and similar levies 51 719 Wages and salaries – –17 Social security expenses 6 65 Amortization and depreciation 29 29 29 Other expenses 105 86 76

Operating expenses 5,130 5,521 5,317

OPERATING PROFIT/(LOSS) (5,116) (5,507) (5,317)

NET FINANCIAL PROFIT/(LOSS) 2.9 171,907 153,984 130,369

PROFIT FROM RECURRING OPERATIONS 166,791 148,477 125,052

EXCEPTIONAL INCOME (LOSS) 2.10 103 19 406

Income tax 2.11/ 2.12 17,356 17,943 12,773

NET PROFIT 184,250 166,439 138,231

160 C ASH F LOW S TATEMENT

(EUR million) 2006 2005 2004 I – OPERATING ACTIVITIES Net profit 184 166 138 Depreciation and amortization of assets 4 44 Gain (loss) on sale of fixed assets – ––

Cash from operations 189 170 142 Change in current assets (2) (1) (1) Change in current liabilities – –2

Change in working capital (2) (1) 1

Net cash from operating activities ➀ 187 169 143

II – INVESTING ACTIVITIES Purchase of tangible and intangible fixed assets – –– Purchase of equity investments (385) –– Purchase of other non-current investments – –– Proceeds from sale of financial non-current assets – ––

Net cash from (used in) investing activities ➁ (385) ––

III – FINANCING ACTIVITIES Capital increase – –– Increases in other equity – –(2) Proceeds from financial debt 438 12 44 Repayment in respect of financial debt (3) –– Change in inter-company current accounts – ––

Net cash from (used in) financing activities ➂ 435 12 42

IV - DIVIDENDS PAID DURING THE YEAR ➃ (217) (172) (162)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ➀ + ➁ + ➂ + ➃ 20 923

Cash and cash equivalents at beginning of year 155 146 123 Cash and cash equivalents at end of year 175 155 146

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20 9 23

The net increase in cash and cash equivalents analyzes the changes in liquid funds from one year to the next (after deducting bank overdrafts) as well as quasi-liquid funds comprised of short-term investments, net of provisions for impairment.

161 N OTES TO THE A NNUAL F INANCIAL S TATEMENTS

Amounts are expressed in thousands unless otherwise indicated. The balance sheet total as of December 31, 2006 was 4,034,690 thousands euros. These annual financial statements were drawn up by the Board of Directors.

1. ACCOUNTING POLICIES AND METHODS The annual financial statements have been prepared in accordance with Regulation 99-03 dated April 29, 1999 of the Comité de la Réglementation Comptable [Accounting Regulations Committee]. General accounting conventions have been applied observing the principle of prudence in conformity with the following basic assumptions: going concerns, consistency of accounting methods, and non-overlap of financial periods, and in conformity with the general rules for preparation and presentation of annual financial statements. The accounting items recorded have been evaluated using the historical cost method.

1.1 Intangible assets Software is depreciated using the straight-line method over one year.

1.2 Property, plant and equipment Property, plant and equipment are depreciated on a straight-line basis over the following estimated useful lives: • miscellaneous general installations : 5 years; • office and computing equipment : 3 years; • furniture : 10 years.

1.3 Non-current financial assets Equity investments as well as other non-current financial assets are recorded at the lowest of their acquisition cost or their use value. Impairment is recorded if their use value is lower than their acquisition cost. The use value of the equity investments is based on criteria such as the share value in the adjusted net assets of the companies involved, taking into account the stock market value of the listed securities that they hold. In the event of partial investment sale, any gains or losses are recognized within net financial income/ expense and calculated according to the weighted average cost method.

1.4 Accounts receivable and liabilities Accounts receivable and liabilities are recorded at their face value. An impairment provision is recorded if their net realizable value, based on profitability of their collection, is lower than their carrying amount.

162 1.5 Short term investments Short term investments are valued at their acquisition cost. An impairment provision is recorded if their acquisition value is greater than their market value determined as follows: • listed securities: average listed share price during the last month of the year; • other securities: estimated realizable value or liquidation value. If the average price of treasury shares allocated to share purchase option plans exceeds the expected exercise price of any plan, an impairment is recorded in the amount of the difference. Furthermore, an impairment provision is recognized according to French generally accepted accounting principles when the market value is less than the allocation price. Gains or losses on the sale of treasury shares are recorded within exceptional income/ losses.

1.6 Equity In conformity with the recommendations of the Compagnie Nationale des Commissaires aux Comptes [National Board of Auditors], interim dividends are recorded as a deduction from equity.

1.7 Provisions for contingencies and losses The Company establishes a provision for definite and likely contingencies and losses at the end of each financial period observing the conservation principle of prudence.

1.8 Foreign currency transactions During the period, foreign currency transactions are recorded at the rates of exchange prevailing on the date of transactions. Liabilities, accounts receivable and liquid funds in foreign currencies are revalued on balance sheet at year-end exchange rates. The difference resulting from the revaluation of liabilities and accounts receivable in foreign currencies at the latter rate is recorded in “Translation adjustment”; it is recorded under “Foreign exchange gains and losses” when it originates from the revaluation of liquid funds, except in the case of bank accounts in a symmetrical position with a loan in the same currency. In the latter case, the revaluation follows the same procedure as for accounts receivable and liabilities. Provisions are recorded for unrealized losses unless hedged.

1.9 Net financial income (expense) Net gains and losses on sales of short term investments include expenses and income associated with sales.

163 2. ADDITIONAL INFORMATION RELATING TO THE BALANCE SHEET AND INCOME STATEMENT

2.1 Non-Current assets Increases Decreases Gross Acquisitions, Gross value as of creations, value as of January 1, contributions, December 31, (EUR thousand) 2006 transfer Disposals 2006

Concessions, patents, and similar 57 – – 57 rights (software) Advances and payments on account ––– – for software

Intangible assets 57 57

Property, plant and equipment: • miscellaneous general installations 59 – – 59 • transport equipment – – – – • office and computing equipment 24 – – 24 • furniture 285 285 • advances and payments on account – – – –

Property, plant and equipment 368 368

Investments 3,456,838 385,001(1) – 3,841,839 Other investment securities 23,484 – – 23,484 Loans 5 – – 5 Other non-current financial assets – – – –

Non-current financial assets 3,480,327 385,001 3,865,328

TOTAL 3,480,752 385,001 3,865,753

(1) Christian Dior SA subscribed to the capital increase of Financière Jean Goujon during the 2006 fiscal year.

164 2.2 Amortizations and provisions on non-current financial assets POSITIONS AND CHANGES IN THE PERIOD Amortization Amortization expense expense as of JAN. 01, Appropriation as of DEC. 31, (EUR thousand) 2006 increases Decreases 2006

Concessions, patents, and similar 57 – – 57 rights (software)

Intangible assets 57 – – 57

Other tangible fixed assets: • miscellaneous general installations 59 – – 59 • transport equipment – – – – • office and computing equipment 24 – – 24 • furniture 225 29 – 254

Property, plant and equipment 308 29 – 337

Other investments securities 8,293 4,465 – 12,758 • Valmyfin partnership shares

Non-current financial assets 8,293 4,465 – 12,758

TOTAL 8,658 4,494 – 13,152

2.3 Analysis of accounts receivables by payment date

(EUR thousand) Gross amount Up to 1 year More than 1 year

Current assets Trade accounts receivables 14 14 – Financial accounts receivable – – – State and other public authorities: • income taxes 109 109 – • value-added tax – – – • other – – – Social liabilities – – – Other accounts receivable 4,234 4,234 – Prepaid expenses 2,295 894 1,401 Bond redemption premium (1) 487 101 386 Translation adjustment – – –

TOTAL 7,139 5,352 1,787

(1) Bond redemption premiums are amortized on a straight-line basis over the life of the bonds.

165 2.4 Equity

A. Share capital The share capital comprises 181,727,048 fully paid-up shares, each with a par of 2 euros. 126,581,274 shares carry double voting rights.

B. Changes in equity

(EUR thousand)

EQUITY AS OF DECEMBER 31, 2005 2,8.75,987 (prior to appropriation of net profit) Net profit for 2006 184,250 Dividends paid (balance for fiscal year 2005) (147,691) Interim dividends for fiscal year 2006 (69,056)

EQUITY AS OF DECEMBER 31, 2006 2,843,489 (prior to appropriation of net profit)

Acquisition of treasury shares: Year 2006 2005 2004 2003

Purchased 444,582 60,015 521,312 514,800 Exercised (335,713) (74,387) (112,400) (130,900)

166 Balance of purchase options granted by the Board of Directors to the managers of the Company, its subsidiaries and second-level subsidiaries: Number of Number of options granted options not Of which, Number exercised Authorization from Plan Of which, the first Exercise of options as of Shareholders’ Commencement Number of company ten price exercised DEC 31, Meeting Date beneficiaries Total (1) officers employees (EUR) (2) (3) in 2006 (3) 2006 (3)

May 30, 1996 October 14, 1996 21 94,600(4) 40,000 50,500 25.95 207,000 – May 30, 1996 May 29, 1997 22 97,900 50,000 43,000 32.01 4,200 275,200 May 30, 1996 November 3, 1998 23 98,400 65,000 28,200 18.29 5,200 276,000 May 30, 1996 January 26, 1999 14 89,500 50,000 38,000 25.36 28,313 266,000 May 30, 1996 February 15, 2000 20 100,200 65,000 31,000 56.70 10,000 382,000 May 14, 2001 February 21, 2001 17 437,500 308,000 121,000 45.95 13,000 404,500 May 14, 2001 February 18, 2002 24 504,000 310,000 153,000 33.53 60,000 429,000 May 14, 2001 February 18, 2003 25 527,000 350,000 143,000 29.04 8,000 504,000 May 14, 2001 February 17, 2004 26 527,000 355,000 128,000 49.79 – 495,000 May 14, 2001 May 12, 2005 27 493,000 315,000 124,000 52.21 – 490,000 May 14, 2001 February 15, 2006 24 475,000 305,000 154,000 72.85(5) – 475,000 May 11, 2006 September 6, 2006 1 20,000 – 20,000 74.93 – 20,000

(1)Number of options as of the plan commencement date not restated for adjustments relating to the four- for-one stock split in July 2000. (2)Exercise prices prior to fiscal year 1999 result from the translation into euros of data originally established in francs. (3)Adjusted for the transactions referred to under(1) (4)Plan expired on November 30, 2006. (5)The exercise price for Italian residents is 77.16 euros 2.5 Provisions for contingencies and losses Reversals Amount as of Amount as of Provisions of the December 31, (EUR thousand) January 1, 2006 of period period 2006

Specific 570 – – 570

TOTAL 570 570

2.6 Breakdown of other liabilities From More Less than 1to5 than (EUR thousand) Total 1 year years 5 years

Other bonds 274,918 1,434 273,484 – Bank loans and borrowings 907,768 223,768 684,000 – Miscellaneous loans and borrowings 1,172 1,172 – – Trade payables 565 565 – – Tax and social liabilities 1,129 1,129 – – Other operating liabilities 1,605 1,605 – – Other liabilities 3,475 3,475 – – Deferred income – – – –

TOTAL 1,190,632 233,148 957,484 –

167 On December 5, 2003, Christian Dior SA issued a bond for a total nominal amount of 123.5 million euros with a maturity date of December 5, 2008. On November 03, 2006, Christian Dior SA issued a bond for a total nominal amount of 150 million euros with a maturity date of November 3, 2011. On November 21, 2005, Christian Dior SA restructured a syndicated loan of 500 million euros. The maturity date, initially fixed at November 15, 2009, was postponed to November 21, 2010. In 2006, Christian Dior SA exercised its postponement option (in the amount of 490 million euros) until November 21, 2011. Christian Dior SA, as customary clause for syndicated loans, signed commitments to maintain a percentage of interest and voting rights for some subsidiaries, and to maintain a customary financing ratio.

2.7 Accruals (EUR thousand) Accrual payable Accrual receivable

Accounts receivable Trade accounts receivable 14 Other accounts receivable 932 Liabilities Other bonds 1,434 Bank loans and borrowings 2,578 Trade accounts payable 295 Tax and social liabilities 1,129 Other liabilities 3,427

2.8 Items involving related companies ITEMS INVOLVING THE Balance sheet items COMPANIES connected to equity (EUR thousand) related (1) investments (2) Fixed assets Investments 3,841,839 Current assets Trade accounts receivable 14 Other accounts receivable 3,302 Liabilities Miscellaneous loans and borrowings 1,172 Trade accounts payable 161 Other liabilities 49

(1) Companies that can be fully consolidated into one consolidated unit (example: parent company, subsidiary, affiliate in consolidated group). (2) Percentage control between 10 and 50%.

168 Income statement items Expenses and income involving related companies, or companies which the Company has an equity connection with, are broken down as follows: (EUR thousand) Gains Losses Dividends received 212,368 nil Interest and similar expenses 6 861

2.9 Financial expenses and income

(EUR thousand) 2006 2005

Income from subsidiaries 212,368 175,292 Income from other securities and non current investments 5,123 5,123 Other interest and similar income 7,147 6,794 Reversals and expenses transferred 239 4,201

FINANCIAL INCOME 224,878 191,410

Allowances to amortization and provisions 6,058 4,329 Interest and similar expenses 46,913 33,097 Net expenses on sales of short term investments – –

FINANCIAL EXPENSES 52,972 37,426

NET FINANCIAL INCOME/EXPENSE 171,907 153,984

2.10 Exceptional expenses and income

(EUR thousand) 2006 2005 Exceptional income on operating transactions 1 2

Other non-recurring income on capital transactions 236 122

Income on capital transactions 236 122

EXCEPTIONAL INCOME 237 124

Exceptional expenses on operating transactions – –

Net carrying amount of securities sold – – Other non-recurring expenses on capital transactions 134 105

Expenses on capital transactions 134 105

EXCEPTIONAL EXPENSES 134 105

EXCEPTIONAL INCOME (LOSS) 103 19

169 2.11 Income tax 2006 2005 Before After Before After (EUR thousand) tax Tax tax tax Tax tax

Profit from recurring operations 166,791 – 166,791 148,477 – 148,477 Exceptional income/(loss) 103 17,356(*) 17,459 19 17,943 17,962

TOTAL 166,894 17,356 184,250 148,496 17,943 166,439

(*) of which, income for subsidiaries in tax consolidation agreement: 17,416 thousand euros.

2.12 Tax position Christian Dior is the parent company of a tax group comprising certain of its French subsidiaries: Christian Dior SA, Christian Dior Couture, Jardins d’Avron, Financière Jean Goujon, Sadifa and CD Investissements. The scope of the consolidation group did not change from 2005 to 2006. The tax position of these subsidiaries with respect to Christian Dior, insofar as their remain part of the consolidated tax group, remains identical to that which would have been reported if the subsidiaries had been taxed individually. Any additional tax savings or tax expense, i.e. any difference between the tax recorded by each consolidated company and the tax resulting from the calculation of taxable income for tax group, is recorded by Christian Dior SA. The tax savings made in 2006 amounted to 17,416 thousand euros; the amount of the savings in 2005 came to 18,004 thousand euros. As of December 31, 2006, the ordinary deficit of the Group amounted to 82,432 thousand euros, and can be carried forward indefinitely.

170 3. OTHER INFORMATION 3.1 Tax litigation A provision of 570,000 euros has been kept in order to cover the litigation risks following the tax audit for the years 1993 and 1994. A bank security, amounting to 570,000 euros, was set up in 1999.

3.2 Financial commitments

Interest rate instruments Christian Dior SA uses various interest-rate hedge instruments on its own behalf that comply with its management policy. The aim of this policy is to hedge against the interest rate risks on debts, while ensuring that speculative positions are not taken. The types of instruments outstanding as of December 31, 2006 and the underlying amounts (excluding short term amounts) are broken down as follows:

Fair Maturity value

(EUR thousand) 2007 2008 2009 2010 2011 12.31.06

Fixed-rate payer swaps 75,000 – – 360,000 – 8,700 Floating-rate payer swaps – 113,000–––(473) Collars 75,000 –––– –

Subsidiaries and sub-subsidiaries Christian Dior SA stood security for the renewal of a credit line granted to Christian Dior Hong Kong amounted to 7 million euros.

3.3 Lease commitments The Company has not made any commitments in the area of leasing transactions.

3.4 Board practices The total amount of director’s fees paid to members of the Board of Directors for the 2006 fiscal year was 84,000 euros.

3.5 Identity of the consolidating parent companies

COMPANY NAME REGISTERED OFFICE

Financière Agache 11, rue François 1er 75008 PARIS Groupe Arnault 41, avenue Montaigne 75008 PARIS

171 Subsidiaries and investments as of December 31, 2006

Equity other than share capital % share (EUR thousand) Share Capital and excluding net profit capital held

A. Details involving the subsidiaries and investments below Subsidiaries Financière Jean Goujon 1,005,294 2,110,710 100.00% Sadifa 81 1,459 99.66% Christian Dior Couture 126,653 337,423 99.99% CD Investissements 38 (16) 100.00%

B. General information involving the other subsidiaries or investments Other investment 0.283%

172 Net profit Carrying amount Deposits (loss) of shares held Loans and and Revenue from the Dividends advances sureties excluding previous received Gross Net provided granted taxes year in 2006

3,478,680 3,478,680 – – – 249,272 212,368 836 836 – – 55 (11) –

362,285 362,285 – – 445,659 16,609 – 38 38 – – – (4) –

23,484 10,726 – – – – 5,123

173 Investment portfolio, other investment securities and short term investments As of December 31, 2006 Number of Net book (EUR thousand) securities value

French investments Financière Jean Goujon shares 62,830,900 3,478,680 Christian Dior Couture shares 7,915,802 362,285 Sadifa shares 5,019 836 CD Investissements shares 3,820 38 Aotep partnership shares – – OGIF partnership shares 480 –

EQUITY INVESTMENTS 3,841,839 (shares and partnership shares)

As of December 31, 2006 Number of Net book (EUR thousand) securities value

Other investment securities in France Valmyfin partnership shares 10,000 10,726

OTHER INVESTMENT SECURITIES 10,726 (shares and partnership shares)

As of December 31, 2006 Number of Net book (EUR thousand) securities value

Treasury shares 4,181,629 174,879

SHORT TERM INVESTMENTS 4,181,629 174,879

TOTAL INVESTMENTS, OTHER 4,027,444 INVESTMENT SECURITIES AND SHORT TERM INVESTMENTS

At beginning At end Number of treasury shares of period Increase Decrease of period

4,072,760 444,582 335,713 4,181,629

TOTAL 4,072,760 444,582 335,713 4,181,629

174 Company results over the last five fiscal years (EUR thousand) 2002 2003 2004 2005 2006

SHARE CAPITAL AT YEAR-END Share capital 363,454 363,454 363,454 363,454 363,454 Number of ordinary shares 181,727,048 181,727,048 181,727,048 181,727,048 181,727,048 outstanding Maximum number of future shares to be created: • through exercise of equity warrant • through exercise of share subscription options –––– –

OPERATIONS AND PROFIT FOR THE YEAR Revenue – – – 14 14 Profit before taxes, employee profit- 130,059 105,392 131,082 148,653 172,742 sharing, depreciation, amortization and movements in provisions Income taxes 35 (9,320) (12,773) (17,943) (17,356) Employee profit-sharing to be paid for the period Profit after taxes, employee profit- 113,524 127,407 138,231 166,439 184,250 sharing, depreciation, amortization and movements in provisions Profit distributed as dividends (1) 149,016 158,103 176,275 210,803 256,235

EARNINGS PER SHARE (euros) Earnings per share after taxes and 0.72 0.63 0.79 0.92 1.05 employee profit-sharing but before depreciation, amortization and provisions Earnings per share after taxes, 0.62 0.70 0.76 0.92 1.01 employee profit-sharing, depreciation amortization and movements in provisions Net dividend distributed per share (1) 0.82 0.87 0.97 1.16 1.41

EMPLOYEES Average number of employees 111– – Total payroll (EUR thousand) 15 15 17 – – Amount paid in respect of social 5556 6 security

(1) For fiscal year 2006, amount proposed to the combined shareholders’ meeting of May 10, 2007.

175 STATUTORY AUDITORS’ REPORT ON THE PARENT COMPANY FINANCIAL STATEMENTS FISCAL YEAR ENDED DECEMBER 31, 2006

MAZARS & GUERARD ERNST & YOUNG AUDIT Tour Exaltis Faubourg de l’Arche 61, rue Henri Regnault 11, allée de l’Arche 92400 Courbevoie 92037 Paris-La Défense Cedex, S.A. au capital de €8,320,000 S.A.S. à capital variable 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, 2006 on: • the audit of the accompanying financial statements of Christian Dior; • the justification of our assessments; • the specific procedures and disclosures required by law: These financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial statements based on our audit.

I. OPINION ON THE FINANCIAL 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the financial position and the assets and liabilities of the Company as of December 31, 2006 and of the results of its operations for the year then ended, in accordance with French accounting regulations.

II. JUSTIFICATION OF OUR ASSESSMENTS In accordance with Article L.823-9 of the French Commercial Code (Code de commerce) governing the justification of our assessments, we hereby report on Note 1.3. “Accounting policies and methods” to the financial statements sets out the accounting principles and methods applicable to non-current financial assets. In the context of our assessment of the accounting principles used by your company, we have verified the appropriateness of the above-mentioned accounting methods and that of the disclosures in the notes to the financial statements, and have ascertained that they were properly applied.

176 These assessments on these matters were performed in the context of our audit approach for the financial statements taken as a whole, and therefore contributed to the expression of the unqualified opinion in the first part of this Report.

III. SPECIFIC PROCEDURES AND DISCLOSURES We have also performed the other procedures required by law in accordance with professional standards applicable in France. We have no matters to report as to: • the fair presentation and consistency with the financial statements of the information given in the Board of Directors’ Report and in the documents addressed to shareholders with respect to the financial position and the financial statements; • the fair presentation of the information given in the Board of Directors’ Report on the compensation and benefits paid to relevant Corporate Officers as well as commitments granted in their favor when they assumed, changed or terminated duties or subsequent thereto. Furthermore, we report that, as indicated in the Board of Directors’ report, this information relates to compensation and benefits paid or incurred by your Company and the companies which it controls. Pursuant to the law, we have verified that the Board of Directors’ Report contains the appropriate disclosures as to the owners of shares and voting rights.

Courbevoie and Paris-La Défense, April 6, 2007

The Statutory Auditors

MAZARS & GUERARD ERNST & YOUNG AUDIT

Denis Grison Christian Mouillon

177 THE STATUTORY AUDITORS’ SPECIAL REPORT ON RELATED PARTY AGREEMENTS AND COMMITMENTS FISCAL YEAR ENDED DECEMBER 31, 2006

MAZARS & GUERARD ERNST & YOUNG AUDIT Tour Exaltis Faubourg de l’Arche 61, rue Henri Regnault 11, allée de l’Arche 92400 Courbevoie 92037 Paris-La Défense Cedex, S.A. au capital de €8,320,000 S.A.S. à capital variable

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, we hereby present our special report on related party agreements and commitments. The terms of our engagement do not require us to identify such other agreements and commitments, if any, but to communicate to you, based on information provided to us, the principal terms and conditions of those agreements and commitments brought to our attention, without expressing an opinion on their usefulness and appropriateness. It is your responsibility, pursuant to Article R. 225-31 of the French Commercial Code, to assess the significance attached to these agreements and commitments and to their related approval. We were not informed of any agreements or commitments entered into over the past fiscal year and subject to the provisions of Article L.225-38 of the French Commercial Code. Furthermore, in accordance with the French Commercial Code, we were informed that the following agreements and commitments, approved during previous fiscal years, continued over the past year.

1.With Mr. Eric Guerlain Nature and subject matter Over the counter shares buy back in your company. Conditions At the Board meeting on September 7, 2005, your directors authorized over the counter shares buy back of 100,000 shares of your company, owned by Mr. Eric Guerlain, with a buyback price to be calculated based on the closing share price of the day of the transaction. This acquisition took place on January 3, 2006 for a price of 7,605,000 euros.

2.With LVMH Nature and subject matter Service agreement

178 Conditions This service agreement entered into with LVMH for the provision of legal services, particularly for corporate law issues and management of the Christian Dior’s Securities Department for an annual fixed fee of 45,750 euros, exclusive of tax, has had continuing effect during the year 2006.

Nature and subject matters Financing via subscription to bond issues

Conditions In 2003, your Board of Directors authorized a financing operation to be put in place for your company, backed by a first-rate banking institution, through a general partnership (société en nom collectif, SNC), with your company and LVMH as partners. In connection with this operation, this SNC subscribed for two bond issues carried out by your company, totaling 123 million euros and by LVMH, with each one of the partners committed to ensuring the conclusion of the operation at term based on a pro rata of their respective stakes in the SNC.

The amount of interest paid by your company totaled 5,123,347 euros in 2006.

3.With Groupe Arnault S.A.S. Nature and subject matter Service agreement.

Conditions A service agreement concerning financial services, the management of cash requirements and surpluses, accounting methods, tax, financial engineering, and human resources and personnel management assistance had been concluded between your company and Montaigne Participation et Gestion. In 2004, the latter merged with Groupe Arnault S.A.S., with which this agreement has continued to apply. In this respect, your company paid a total of 2,800,931 euros net of tax to Groupe Arnault S.A.S. We conducted our procedures in accordance with professional standards applicable in France; those standards require that we agree the information provided to us with relevant source documents. Courbevoie and Paris-La Défense, April 6, 2007 The Statutory Auditors

MAZARS & GUERARD ERNST & YOUNG AUDIT

Denis Grison Christian Mouillon

179 T EXTOFTHER ESOLUTIONS

ORDINARY RESOLUTIONS

FIRST RESOLUTION (Approval of the consolidated financial statements) The Shareholders’ Meeting, after examining the report presented by the Board of Directors and the reports of the Statutory Auditors, hereby approves the consolidated financial statements for the fiscal year ended December 31, 2006, including the balance sheet, income statement and notes, as presented to the Meeting, as well as the transactions reflected in these statements and summarized in these reports.

SECOND RESOLUTION (Approval of the financial statements of the parent company) The Shareholders’ Meeting, after examining the report presented by the Board of Directors, the report presented by the Chairman of the Board and the reports of the Statutory Auditors, hereby approves the financial statements of the parent company for the fiscal year ended December 31, 2006, including the balance sheet, income statement and notes, as presented to the Meeting, as well as the transactions reflected in these statements and summarized in these reports. Consequently, it discharges the members of the Board of Directors for the performance of their duties for said year.

THIRD RESOLUTION (Approval of related party agreements) The Shareholders’ Meeting, after examining the special report of 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.

FOURTH RESOLUTION (Allocation of net profit - Determination of dividend) The Shareholders’ Meeting, on the recommendation of the Board of Directors, decides to allocate as a dividend the amount of 256,235,137,l68 euros, corresponding to a dividend of 1.41 euros per share taken from: (euros) - income for the period: 184,249,668.52 - retained earnings after appropriation: 43,227,088.83 - ordinary reserves: 28,758,380.33 For a total of 256,235,137.68 As an interim dividend of 0.38 euro per share was paid on December 1, 2006, the balance of the dividends due per share is equal to 1.03 euro. This balance will be paid out on May 15, 2007.

180 With respect to this dividend distribution, individuals whose tax residence is in France will be entitled to the 40% deduction provided under Article 158 of the French Tax Code. Should the Company hold, at the time of payment of this balance, any treasury shares under prior authorizations, the corresponding amount of unpaid dividends will be allocated to retained earnings. The Shareholders’ Meeting observes that the dividends per share paid out in respect of the past three fiscal years were as follows:

Net Tax (EUR) dividend credit (*) Allowance (*)

2005 1.16 – 0.496 2004 0.97 0.160 0.325 2003 0.87 0.435 –

(*) For natural persons with their tax residence in France.

FIFTH RESOLUTION (Renewal of the term of office of Director of Mr. Raymond Wibaux) The Shareholders’ Meeting, noting that the term of office of Mr. Raymond Wibaux expires on this date, hereby re-appoints him to the office of Director for a three-year term that shall expire at the end of the Shareholders’ Meeting convened in 2010 to approve the financial statements for the previous fiscal year.

SIXTH RESOLUTION (Share repurchase program) The Shareholders’ Meeting, having examined the Report of the Board of Directors, authorizes the latter to acquire company shares, pursuant to the provisions of Articles L.225-209 et seq. of the Commercial Code. The shares may be acquired for the purpose of setting up a liquidity line under the terms of liquidity contract concluded with a brokerage firm. The maximum number of shares that may be purchased shall not exceed 0.5% of the share capital as of January 1st, 2007, i.e. 908,635 shares. The purchase price per share may not exceed 130 euros, for a maximum theoretical investment of about 118 million euros. The shares may be acquired by any appropriate method, including the purchase or sale of options, as well as through block purchases or as part of an exchange. In the event of a capital increase through the capitalization of reserves and the granting of bonus shares as well as in cases of either a stock split or a reverse stock split, the purchase price indicated above will be adjusted by a multiplying coefficient equal to the ratio of the number of shares making up the Company’s share capital before and after the operation. All powers are granted to the Board of Directors to implement this authorization. The Board may delegate such powers in order to place any and all buy and sell orders, enter into any and all agreements, sign any document, file all declarations, carry out all formalities and generally take any and all other actions required in the implementation of this authorization. This authorization, which replaces the authorization granted by the Combined Shareholders’ Meeting of May 11, 2006, is hereby granted for a term of eighteen months as of this date.

181 EXTRAORDINARY RESOLUTIONS

SEVENTH RESOLUTION (Authorization to reduce the share capital) The Shareholders’ Meeting, having examined the report prepared by the Board of Directors and the special report prepared by the Statutory Auditors, authorizes the Board of Directors to reduce the share capital of the Company, on one or more occasions, by cancelling the shares acquired pursuant to the provisions of Article L.225-209 of the Commercial Code. The Shareholders’ Meeting 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; The Shareholders’ Meeting grants all powers to the Board of Directors to perform and record the capital reduction transactions, carry out all required acts and formalities, amend the Bylaws accordingly and generally take any and all other actions required in the implementation of this authorization; This authorization shall replace that granted by the Combined Shareholders’ Meeting of May 11, 2006, and is granted for a period of eighteen months as of the date of this Meeting.

EIGHTH RESOLUTION (Increase in the share capital with application of the pre-emption right – grant of authority) The Shareholders’ Meeting, having examined the report prepared by the Board of Directors and the special report prepared by the Statutory Auditors and acting in accordance with the provisions of the French Commercial Code and in particular Articles L.225-129, L.225-129-2 and L.228-92, 1/ grants the Board of Directors the right to issue, on one or more occasions, in such proportions and at such times as it shall see fit: a) either, on the French market and/or international market, through public offerings of investment securities, whether in euro or in any other currency or accounting unit created by way of reference to one or more currencies, with application of the pre-emption right, ordinary shares and/or any other investment securities, including any subscription or acquisition warrants issued on a stand-alone basis, giving access to the capital, whether immediately or over time, at any time or at a fixed date, or giving a right to a debt security, whether by subscription in cash or by way of receivables’ set-off, conversion, exchange, repayment, tendering of a coupon or in any other manner. Such debt securities may be issued with or without a guarantee, in such forms, at such rates and under such terms as the Board of Directors shall see fit; or b) the amalgation into the capital of all or part of such profits, reserves or premiums as may be integrated into the share capital under applicable provisions of law and the Bylaws and by way of allotment of bonus ordinary shares or increase in the par value of the existing shares, it being understood that the issuance of preference shares is excluded from the scope of this authority.

182 2/ grants this delegation of authority for a period of twenty-six months as of the date of this Meeting; 3/ decides that in the event of the exercise of this delegation of authority by the Board of Directors: (i) the maximum nominal amount of capital increases that may be effected, whether immediately or over time, on the basis of the issuance of the shares or investment securities addressed under item 1-a) above shall be equal to forty (40) million euros, with the understanding that against such amount there shall be applied the nominal amount of any capital increase resulting or likely to result over time from issuances decided under the 9tht or 10th resolutions submitted for the approval of shareholders at this Meeting, and the 15th and 16th resolutions approved by the Combined Shareholders’ Meeting of May 12, 2005; To the above ceiling, there shall be added, where applicable, the nominal amount of the shares to be issued, if any, in the event of further financial transactions, in order to protect, in accordance with provisions of law, the rights of holders of investment securities giving access to the share capital; (ii) the maximum nominal amount of capital increases referred to under 1-b) and likely to be effected shall not exceed forty (40) million euros, it being indicated that the amount of such capital increases shall be added to the amount of the ceiling referred to under (i) above. 4/ decides that in the event of the exercise of this delegation of authority if the subscriptions made, on a pro rata basis and where applicable up to the number of securities requested, have failed to absorb the full number of securities issued, the Board of Directors may use, subject to the terms set forth by law and in such order as the Board may determine, any of the rights set forth under Article L.225-134 of the Commercial Code and in particular offer to the public, in whole or in part, any unsubscribed shares and/or investment securities; 5/ takes note that in the event of the exercise of this delegation of authority, the decision to issue investment securities giving access to the company’s share capital shall entail, in favor of the holders of the issued securities, the express waiver by shareholders of their preemptive right to subscribe to capital securities to which the investment securities so issued shall give access; 6/ takes note that this delegation of authority entails the granting to the Board of Directors of all necessary powers, including the option to delegate such powers to the Chief Executive Officer, in order to implement this delegation of authority, in accordance with the terms set forth by law, and in particular in order to: – In the event of amalgamation of profits, reserves or premiums into the capital: • determine the amount and nature of the reserves to be amalgamated into the capital, determine the number of new shares to be issued and/or the amount in which the existing nominal value of the shares comprising the share capital shall be increased, set the date, even with retroactive effect, starting from which the new shares shall have dividend rights or the date starting from which the increase in the par value shall be effective,

183 • decide that fractional rights may not be traded, that the corresponding shares shall be sold and that the proceeds of the sale shall be allotted to the holders of the rights, – In the event of issuance of shares and/or other investment securities giving access to the capital or giving a right to a debt security: • decide upon the amount to be issued, the issue price, as well as the amount of the premium that may, where applicable, be charged upon issuance, • determine the dates and terms of the issuance, the nature, form and features of the securities to be issued, which may be subordinated or unsubordinated, perpetual or redeemable, bear interest at a fixed and/or floating rate, or produce capitalized interest and may be repaid with or without a premium or be amortized, • determine the mode of payment of the shares and/or securities issued or to be issued, • determine, where applicable, the terms of exercise of the rights attaching to the securities issued or to be issued and, in particular, determine the date, even with retroactive effect, as of which the new shares shall have dividend rights, as well as any and all other terms and conditions of completion of the issuance, • determine the terms under which the company may, where applicable, have the right to acquire or exchange on the stock market, at any time or during specific periods, the securities issued or to be issued, whether or not these securities are to be retired, in accordance with applicable laws; • provide for the option to suspend, where applicable, the exercise of the rights attaching to such securities for a period not to exceed three months; • at its sole discretion, apply the expenses of the share capital increases against the amount of the corresponding premiums and deduct from that amount any sums necessary in order to increase the statutory reserve to one-tenth of the new capital following each increase; • make all adjustments required in accordance with applicable laws and regulations and determine the terms ensuring, where applicable, the protection of the rights of holders of investment securities giving future access to the company’s capital; • record the completion of each capital increase and amend the Bylaws accordingly; – execute any agreement, take any action and complete any and all formalities required for the issuance and financial service of any securities issued under this delegation of authority and for the exercise of any rights attaching thereto; 7/ decides that this authorization shall replace that granted by the Combined Shareholders’ Meeting of May 12, 2005.

184 NINTH RESOLUTION (Increase in the share capital with exclusion of the pre-emption right – grant of authority) The Shareholders’ Meeting, having examined the report prepared by the Board of Directors and the special report prepared by the Statutory Auditors and acting in accordance with the provisions of the Commercial Code and in particular Articles L.225-129-2, L.225-135 et seq. and L.228-92, 1/ grants the Board of Directors the right to issue, on one or more occasions, in such proportions and at such times as it shall see fit, on the French market and/or international market, through public offerings of investment securities, whether in euro or in any other currency or accounting unit created by way of reference to one or more currencies, ordinary shares and/or any other investment securities, including any subscription or acquisition warrants issued on a stand-alone basis, giving access to the capital, whether immediately or over time, at any time or at a fixed date, or giving a right to a debt security, whether by subscription in cash or by way of receivables’ set-off, conversion, exchange, repayment, tendering of a coupon or in any other manner. Such debt securities may be issued with or without a guarantee, in such forms, at such rates and under such terms as the Board of Directors shall see fit, it being understood that the issuance of preference shares is excluded from the scope of this authority; 2/ grants this delegation of authority for a period of twenty-six months as of the date of this Meeting; 3/ decides that in the event of the exercise of this delegation of authority by the Board of Directors: a) the maximum nominal amount of capital increases that may be effected, directly or indirectly, on the basis of the issuance of the shares or investment securities addressed under item 1 above shall be equal to 40 million euros, with the understanding that against such amount there shall be applied the nominal amount of any capital increase resulting or likely to result over time from issuances decided under the 8th or 10th resolutions submitted for the approval of shareholders at this Meeting, and the 15th and 16th resolutions approved by the Combined Shareholders’ Meeting of May 12, 2005, b) to the above ceiling, there shall be added, where applicable, the nominal amount of the shares to be issued, if any, in the event of further financial transactions, in order to protect, in accordance with provisions of law, the rights of holders of investment securities giving access to the share capital. 4/ decides to remove the preemptive right of shareholders with respect to any shares or other investment securities that may be issued under this resolution, while leaving however the Board of Directors free to grant to shareholders, for such period and under such terms as it shall determine in accordance with the provisions of Article L.225-135 of the Commercial Code and for all or part of any issuance made, a non-negotiable priority subscription right that shall be exercised in proportion to the number of shares held by each shareholder, and where applicable supplemented by a subscription right limited to the number of shares requested, it being indicated that, at the end of the priority period, any unsubscribed securities shall be offered for subscription by the public.

185 5/ takes note that in the event of the exercise of this delegation of authority, the decision to issue investment securities giving access to the company’s share capital shall entail, in favor of the holders of the issued securities, the express waiver by shareholders of their preemptive right to subscribe to capital securities to which the investment securities so issued shall give access; 6/ decides that the amount of the consideration, accruing and/or to accrue at a later date to the company, for each of the shares issued or to be issued under this delegation of authority, taking into account, in the event of the issue of stand-alone warrants, the issue price of such warrants, shall be at least equal to the minimum price set forth in legislative and regulatory provisions in force at the time of the issuance. 7/ takes note that this delegation of authority entails granting to the Board of Directors of the powers attributed under item 6 of the 8th resolution, with the right to delegate the same to the Managing Director. 8/ decides that this authorization shall replace that granted by the Combined Shareholders’ Meeting of May 12, 2005.

TENTH RESOLUTION (Increase in the share capital in connection with complex transactions – grant of authority) The Shareholders’ Meeting, having examined the report prepared by the Board of Directors and the special statutory auditors’ report: 1/ grants to the Board of Directors the power to effect, on one or more occasions, at such times as it shall see fit, the issuance of shares or any other investment securities, including standalone warrants, giving access, whether immediately or over time, at any time or at a fixed date, to the company’s capital or giving a right to a debt security: (i) either, in accordance with Article L.225-148 of the Commercial Code, as a consideration for securities contributed in connection with a tender offer, or (ii) in accordance with Article L.225-147, paragraph 6 of the Commercial Code, as a consideration paid, within the limit of 10% of the capital, for contributions in kind made to the company and consisting in capital securities or investment securities giving access to the capital, in cases where the provisions of Article L.225-148 of the Commercial Code are not applicable; 2/ grants this delegation of authority for a period of twenty-six months as of the date of this Meeting; 3/ decides that the nominal amount of the capital increases made in pursuance of this resolution shall be applied against the nominal amount of any capital increase resulting or likely to result over time from issuances decided under the 8th or 9th resolutions presented to this Shareholders’ Meeting for approval and under the 15th and 16th resolutions approved by the Combined Shareholders’ Meeting of May 12, 2005. 4/ decides that in the event of exercise of this authority, the Board of Directors shall have the right to delegate the above powers within the limits set forth by law and shall have all necessary powers, in particular in order to: – in the case of transactions referred to under 1(i) above: • approve the list of securities tendered in the exchange, approve the terms of the issuance, the exchange ratio and where applicable the amount of the

186 residual cash balance to be paid and determine the terms and conditions of the issuance, whether in connection with a tender offer, an alternative takeover bid or tender offer or a public offering covering the acquisition or exchange of the relevant securities against settlement in securities and cash or a principal takeover bid (OPA) or tender offer (OPE) combined with a subsidiary OPE or OPA, – in the case of transactions referred to under 1(ii) above: • approve the Contribution Auditor’s report and the valuation of the contribution – in all cases: • approve the date starting from which the new shares shall carry dividend rights, • apply where applicable any expenses arising in connection with capital increases against the amount of the contribution premiums and deduct from such amount the sum required in order to bring the statutory reserve to one-tenth of the new capital after each increase, • amend the Bylaws accordingly; 5/ decides that this authorization shall replace that granted by the Combined Shareholders’ Meeting of May 12, 2005.

ELEVENTH RESOLUTION (Increase in the amount of an issue in the event of the exercise of an over- allotment option – Grant of authority).

The Shareholders’ Meeting, having examined the report presented by the Board of Directors and the special report prepared by the Statutory Auditors, hereby decides that in the event of an issue approved under the delegation granted to the Board of Directors by virtue of the 8th and 9th resolutions presented above, the number of shares to be issued may, if demand for securities is in excess of the original amount offered, be increased under the conditions and within the limits provided under Article L.225-135-1 of the French Commercial Code and its implementing decree, in accordance with the ceilings indicated in the above mentioned resolutions.

TWELFTH RESOLUTION (Amendment of the Bylaws to ensure compliance with new legal provisions)

The Shareholders’ Meeting, having examined the report presented by the Board of Directors, decides to bring the Bylaws into compliance with new legal provisions and accordingly amends Article 17 as follows: «Participation The Shareholders’ Meeting is made up of all shareholders, irrespective of the number of shares they own. The right to attend and vote at Shareholders’ Meetings is subject to the registration of the shareholder in the Company’s share register. A shareholder is entitled to attend and vote at any Meeting provided that the shares held are registered in the name of the shareholder or intermediary authorized to act on his or her

187 behalf as of the third business day preceding the Meeting at midnight, Paris time, either in the accounts of registered shares maintained by the company or in the accounts of bearer shares maintained by the officially authorized financial intermediary. The recording or registration of bearer shares is certified by a statement delivered by the financial intermediary authorized as account holder. Holders of shares shall not be admitted to Meetings with respect to the shares not paid up within a period of thirty calendar days from the notice issued by the Company. These shares shall be subtracted when calculating the quorum. A shareholder can always be represented by another shareholder who is not deprived of voting rights or by his or her spouse; for this purpose, the proxy must demonstrate his or her authorization. Shareholders may address their proxy form and/or their voting form for any Meeting, in accordance with applicable laws and regulations, either by mail or, if decided by the Board of Directors, by electronic transmission. Pursuant to the provisions of Article 1316-4, paragraph 2 of the French Civil Code, in the event of the use of an electronically submitted form, the shareholder’s signature shall make use of a reliable identification process that ensures the link with the document to which it is attached. A shareholder having voted either by mail or by electronic transmission, having sent a proxy or having requested an admittance card or certificate stating the ownership of shares may not select another means of taking part in the Meeting. Any shareholder not deprived of voting rights may receive powers granted by other shareholders in order to represent them at a Meeting. Any intermediary who meets the requirements set forth in paragraphs seven and eight of Article L.228-1 of the French Commercial Code may, pursuant to a general securities management agreement, transmit to a Shareholders’ Meeting the vote or proxy of a shareholder, as defined in paragraph seven of that same article. Before transmitting any proxies or votes to a Shareholders’ Meeting, the intermediary shall be required, at the request of the issuing corporation or its agent, to provide a list of the non-resident owners of the shares to which such voting rights are attached. Such list shall be supplied as provided by applicable regulations, depending on the case, by Articles L.228-2 or L.228-3 of the Commercial Code. A vote or proxy issued by an intermediary who either is not declared as such, or does not disclose the identity of the shareholders, may not be counted. Legal representatives of legally incapacitated shareholders, and natural persons representing shareholders that are legal persons, shall take part in Meetings regardless of whether or not they personally are shareholders. The number of votes of a shareholder shall be equal to the number of shares he or she owns. However, a double voting right is granted to registered shares recorded in the name of the same shareholder for a continuous period of three years. When a Works Council exists within the Company, two of its members, appointed by the Committee, may attend Shareholders’ Meetings. At their request, their opinions must be heard on the occasion of any vote requiring the unanimous approval of shareholders.”

188 STATUTORY AUDITORS’ REPORT ON THE ISSUE OF SHARES AND SECURITIES WITH THE RETENTION AND/OR CANCELLATION OF PREFERENTIAL SUBSCRIPTION RIGHTS

COMBINED SHAREHOLDERS’ MEETING ON MAY 10, 2007

MAZARS & GUERARD ERNST & YOUNG AUDIT Tour Exaltis Faubourg de l’Arche 61, rue Henri Regnault 11, allée de l’Arche 92400 Courbevoie 92037 Paris-La Défense Cedex, S.A. au capital of 8,320,000 euros S.A.S. à capital variable

Statutory auditors Statutory auditors Member of the Versailles Member of the Versailles regional organization regional organization

To the Shareholders, As Statutory Auditors of your Company and pursuant to the engagement set forth in the French Commercial Code (Code de commerce) and notably Articles L. 225-135, L. 225-136, L. 225-138 and L. 228-92, we hereby report to you on the proposed delegation of powers to the Board of Directors to perform various issues of shares and securities, which are subject to adoption by the shareholders. Your Board of Directors proposes, based on its report: • that shareholders delegate to it, for a period of 26 months, the power to decide on the following transactions and set the final terms and conditions of these issues and, when necessary, asks that you waive your preferential subscription rights: • the issue of ordinary shares and/or securities conferring access to the share capital or conferring entitlement to the grant of debt instruments, with retention of preferential subscription rights (8th Resolution), • the issue of ordinary shares and/or securities conferring access to the share capital or conferring entitlement to the grant of debt instruments, with cancellation of preferential subscription rights (9th Resolution), • the issue of ordinary shares or securities conferring access to the share capital or conferring entitlement to the grant of debt instruments, to remunerate: – securities transferred to the Company as part of a share exchange bid, or – up to the limit of 10% of the share capital, contributions in kind granted to the Company and comprised of equity equivalents or securities conferring access to the share capital (10th Resolution); The total amount of potential share capital increases, immediately or in the future, may not exceed 40 million euros, it being specified that this global ceiling applies to share capital increases resulting from issues decided pursuant to the 8th,9th,10th and 15th Resolutions approved by the Combined Shareholders’ Meeting of May 12, 2005.

189 The number of shares to be created as part of the implementation of the delegations of powers referred to in the Eighth and Ninth resolutions may be increased in accordance with the conditions set forth in Article L.225-135-1 of the French Commercial Code (Eleventh Resolution). It is the responsibility of the Board of Directors to prepare a report in accordance with Articles R. 225-13 and R. 225-114 of the French Commercial Code. Our role is to express an opinion on the fair presentation of the quantified information extracted from the accounts, on the proposed cancellation of preferential subscription rights and on certain other information concerning these transactions, contained in this report. We conducted our procedures in accordance with professional standards applicable in France. Those standards require that we plan and perform procedures to verify the contents of the Board’s report in respect of these transactions and the terms and conditions governing the determination of the issue price of securities to be issued. Subject to a later review of the terms and conditions of proposed issues, we have no comment on the issue price determination terms and conditions presented in the Board’s Report in respect of the 9th Resolution. Furthermore, we cannot express an opinion on the issue price determination terms and conditions and amounts for share capital issues performed pursuant to the 8th and 10th resolutions, which are not presented in the Board’s Report. As the issue price of securities to be issued has not been fixed yet, we do not express an opinion on the final terms and conditions under which the issues will be performed and, as such, on the proposed cancellation of preferential subscription rights in the 9th Resolution. In accordance with Article R. 225-116 of the French Commercial Code, we shall issue a further Report on the performance by your Board of any issues with cancellation of preferential subscription rights or of any issues of securities conferring access to the share capital and/or entitlement to the grant of debt instruments.

Courbevoie and Paris-La Défense, April 6, 2007

The Statutory Auditors

MAZARS & GUERARD ERNST & YOUNG AUDIT

Denis Grison Christian Mouillon

190 STATUTORY AUDITORS’ REPORT ON THE PROPOSED DECREASE IN SHARE CAPITAL BY THE CANCELLATION OF SHARES PURCHASED

COMBINED SHAREHOLDERS’ MEETING ON MAY 10, 2007

MAZARS & GUERARD ERNST & YOUNG AUDIT Tour Exaltis Faubourg de l’Arche 61, rue Henri Regnault 11, allée de l’Arche 92400 Courbevoie 92037 Paris-La Défense Cedex, S.A. au capital de €8,320,000 S.A.S. à capital variable

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 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 and conditions of the proposed decrease in share capital. We performed our procedures in accordance with professional standards applicable in France. Those standards require that we perform procedures to review the fairness of the reasons and conditions of the proposed decrease in capital decrease. 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 and would be effective for a period of eighteen months. Your Board of Directors requests the delegation of all power, for a period of 18 months, to cancel the shares purchased following the granting authority by your Company for the purchase of own shares, within a limit of 10% of its share capital, and during a period of 24-month starting from the day of this Shareholders’ Meeting. We have no matters to report regarding the reasons and conditions of the proposed decrease in share capital, it being indicated that prior approval, by the Shareholders’ Meeting, of the purchase by the Company of its own shares, is required.

Courbevoie and Paris-La Défense, April 6, 2007

The Statutory Auditors

MAZARS & GUERARD ERNST & YOUNG AUDIT

Denis Grison Christian Mouillon

191 192 GENERAL INFORMATION

193 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. 1947 On February 12, Christian Dior presents the 90 models of his first collection on 6 mannequins. The “Corolle” and “Huit” lines are very quickly rechristened “New Look”. The company Parfums Christian Dior is founded, headed by Serge Heftler Louiche. Dior names the first perfume “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 first 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 first and only assistant. Opening of the Grande Boutique at the corner of avenue Montaigne and rue François Ier. 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 first 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 first 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”.

194 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. 1985 Bernard Arnault becomes Chairman/ Chief Executive Officer of Christian Dior. Launch of the perfume “Poison”. 1987 The Fashion Museum dedicates an exhibition to Christian Dior, on the fortieth anniversary of his first collection. 1988 Through its subsidiary Jacques Rober, held jointly with the Guinness group, the Christian Dior company 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 first Haute Couture collection is awarded 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. Launch of the perfume “Dune”. 1992 Patrick Lavoix is named artistic director of “Christian Dior Monsieur”. Relaunch of “Miss Dior”. 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 becomes creator 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 “Homme” line, presents his first 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 direction of Victoire de Castellane. 2002 Launch of the perfume “Addict”. 2003 Opening of a flagship boutique in the Omotesando district (Tokyo). 2004 Opening of a flagship 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.

195 G ENERAL I NFORMATION R EGARDING THE P ARENT C OMPANY AND ITS S HARE C APITAL

GENERAL INFORMATION REGARDING THE PARENT COMPANY Corporate name – Registered office Corporate name: Christian Dior Registered office: 30, avenue Montaigne 75008 Paris.

Legal form Société Anonyme (limited liability corporation).

Jurisdiction The Company is governed by French law.

Date of incorporation – Term Christian Dior was incorporated on October 8, 1946 for a term of 99 years which expires on October 7, 2045, unless the Company is dissolved early or extended by a resolution of the Extraordinary Shareholders’ Meeting.

Corporate purpose (Article 2 of the Bylaws) The Company’s purpose, in France and in any other country, is the taking and management of interests in any company or entity, whether commercial, industrial, or financial, whose direct or indirect activity involves the manufacture and/or dissemination of prestige products, through the acquisition, in any form whatsoever, of shares, corporate interests, obligations, or other securities or investment rights.

Direct or indirect equity investment in any industrial or commercial operations by creating new companies, contributions, subscriptions, or purchases of shares or corporate interests, merger, takeover, joint venture, or other method.

And more generally, engaging in any commercial, financial, and industrial activities and those involving real and moveable assets, in such a way as to facilitate, favor, or develop the Company’s activity.

Register of Commerce and Companies The company is registered in the Paris Register of Commerce and Companies under number 582,110,987. APE code (company activity code): 182 C.

Location where documents concerning the Company may be consulted The bylaws, financial statements, reports, and minutes of the Shareholders’ Meetings may be consulted at the registered office.

196 Fiscal year From January 1 to December 31.

Distribution of profits (Article 26 of the Bylaws) 1—The net profit of each fiscal year, minus general expenses and other expenses incurred by the Company, including all amortization, depreciation and provisions, represents the net profit or loss of the fiscal year. 2—A deduction of at least one-twentieth is made from the net profits of each year less any prior losses, for allocation to the creation of a reserve fund known as a “Legal Reserve”. This deduction is no longer required when the Legal Reserve has reached a total equal to one-tenth of the share capital. It will be resumed when, for any reason, the Legal Reserve falls below this fraction. 3—The balance, plus any profits carried forward, constitute distributable profits. From this distributable profit: The Shareholders’ Meeting has the authority to deduct the necessary amounts for allocation to the special reserve for long-term capital gains, 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 corporate income tax rate applicable to long- term capital gains realized during the year. The Shareholders’ Meeting then has the authority to deduct from the balance such sums as it deems appropriate, either to be carried forward to the following fiscal 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 shareholders in the form of a dividend, prorated in accordance with the share capital represented by each share. The Shareholders’ Meeting convened to approve the year’s financial statements has the authority, at the proposal of the Board of Directors, to grant each shareholder, for all or part of the dividend distributed, a choice between payment of the dividend in cash or in shares. The Board of Directors has the same authority for the distribution of interim dividends. 4—Except in the case of a capital reduction, no distribution may be made to shareholders when equity is or would subsequently become less than the total share capital.

Shareholders’ Meetings (Articles 17 to 23 of the Bylaws)

Notice of Meetings Shareholders’ Meetings shall be convened and held under the conditions provided by the law and decrees in effect. The Meetings are held at the registered office or at any other location specified in the convening notice.

Conditions for admission A shareholder is entitled to attend and vote at any Meeting provided that the shares held are registered in the name of the shareholder or intermediary authorized to act on his or her behalf as of the third business day preceding the Meeting at midnight, Paris time, either in the accounts of registered shares maintained by the Company or in the accounts of bearer shares maintained by the officially authorized financial intermediary. The recording or

197 registration of bearer shares is certified by a statement (“attestation de participation”) delivered by the financial intermediary authorized as account holder. A shareholder having voted by mail or by electronic transmission, sent a proxy or requested an admittance card or certificate stating the ownership of shares may not select another means of taking part in the Meeting.

Conditions for exercising voting rights – double voting right (Article 17 of the Bylaws) Shareholders have as many votes as they hold shares. A double voting right is granted to shares registered continuously in the name of the same holders after three years (Extraordinary Shareholders’ Meeting, June 14, 1991).

Declaration of thresholds (Article 8 of the Bylaws) 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 one percent shall notify the total number of shares held to the Company. Such notice should be given within eight days from the date at which this percentage is reached. This obligation applies each time the portion of capital owned increases by at least one per cent. However, it shall cease to be applicable when the portion of capital held is equal to or greater than 60% of the Company’s share capital. In case of non-compliance with the above provision and upon the request of one or several shareholders holding at least 5% of the capital and recorded in the minutes of the Shareholders’ Meeting, the shares in excess of the percentage to be declared shall be deprived of their voting right at any Shareholders’ Meeting held until the expiration of a period of three months from the date at which proper notification is made.

GENERAL INFORMATION CONCERNING SHARE CAPITAL Changes in the share capital under the Bylaws The share capital may be increased by a resolution of the Extraordinary Shareholders’ Meeting. However, when a capital increase is completed by capitalizing reserves, profits or share premiums, the Shareholders’ Meeting approving such increase shall vote under the quorum and majority conditions for Ordinary Shareholders’ Meetings.

Share capital – Classes of shares As of December 31, 2006, the company’s share capital was 363,454,096 euros, consisting of 181,727,048 fully paid-up shares with a par value of 2 euros each. The shares issued by the Company are all of the same class. Among these 181,727,048 shares, 126,581,274 conferred double voting rights as of December 31, 2006.

Authorized share capital As of December 31, 2006, the Company’s authorized share capital totaled 414,317,718 euros.

198 Authorizations to increase the company’s share capital The Combined Shareholders’ Meeting of May 12, 2005 authorized the Company’s Board of Directors to: 1—Increase the share capital on one or more occasions, up to an overall maximum of 40 million euros per issuance of shares or any type of securities giving immediate or future access to the Company’s share capital. These issues may be carried out with or without preemptive subscription rights. This authorization, granted for twenty-six months, expires on July 12, 2007, and has not been used to date. A proposal will be made to the Shareholders’ Meeting of May 10, 2007 to renew it for a period of twenty-six months. 2—Increase the Company’s share capital through an issue reserved for Group employees, on one or more occasions, up to a maximum of 3% of the Company’s share capital, on the date of the Board of Director’s decision. The share issuance price shall be determined in accordance with the provisions of Article L.443-5, paragraph 3 of the French Labor Code. This authorization expires on May 11, 2008 and has not been used to date. 3—Increase the Company’s share capital as consideration either for shares contributed to a public exchange offer or, up to a maximum of 10% of the share capital, for contributions in-kind consisting of Company shares or securities giving access to share capital. This authorization, granted for a period of twenty-six months, expires on July 12, 2007 and has not been used to date. A resolution will be presented to the Shareholders’ Meeting of May 10, 2007 renewing this authorization for a period of twenty-six months. 4—Make bonus allocations of existing shares or shares to be issued in favor of Group employees and management. This authorization allows the Board of Directors to make one or more bonus allocations, up to a global maximum of 3% of the Company’s share capital. This authorization, granted for a period of thirty-eight months, expires on July 12, 2008 and has not been used to date.

Authorization to grant options to purchase or subscribe to shares The Combined Shareholders’ Meeting of May 11, 2006 authorized the Board of Directors to grant options to purchase or subscribe to shares in an amount not to exceed 3% of the Company’s share capital, a portion equivalent to 5,451,811 shares as of December 31, 2006. This authorization, granted for a period of thirty-eight months, expires on July 10, 2009. As of December 31, 2006, 5,431,811 attributable options remained.

Authorization to reduce the Company’s share capital Pursuant to Article L.225-209 of the French Commercial Code, the Combined Shareholders’ Meeting of May 11, 2006 authorized the Board of Directors, should it consider that such an action serves the shareholders’ interests, to reduce the Company’s share capital through the retirement of shares bought back under share buy-back programs. This authorization was granted for a period of 18 months and expires on November 10, 2007.

199 A proposal will be made to the Shareholders’ Meeting of May 10, 2007 to renew this authorization under the same conditions.

Authorization to engage in stock market transactions The Combined Shareholders’ Meeting of May 11, 2006 authorized the Board of Directors to acquire Company shares. This authorization was given for a period of eighteen months and expires on November 10, 2007. This authorization included the following limitations: • the number of shares to be bought back under this authorization may not exceed 0.5% of the total number of shares representing the Company’s share capital thus 908,635 shares; • The purchase price per share must not exceed 110 euros. In the event of a capital increase through the capitalization of reserves and the granting of bonus shares as well as in cases of either a stock split or a reverse stock split, the purchase price indicated above will be adjusted by a multiplying coefficient equal to the ratio of the number of shares making up the Company’s share capital before and after the operation. The Board of Directors will present a resolution to the Shareholders’ Meeting of May 10, 2007 renewing this authorization for a period of eighteen months, under the following conditions: • The number of shares to be acquired must not exceed 0.5% of the shares representing the equity capital, i.e. 908,635 shares; • The purchase price per share must not exceed 130 euros; • Acquisitions of shares may be made solely for the purpose of setting up a liquidity line under the terms of a liquidity contract concluded with a brokerage firm.

Shareholder identification Article 8 of the Bylaws authorizes the Company to set up a shareholder identification procedure.

Non-capital securities The Company has not issued any non-capital securities.

Securities giving access to the Company’s capital The Company has issued no securities giving access to the Company’s capital.

Three-year summary of changes in the parent Company’s share capital Par value Issuance Successive Cumulative issued in premium (in amounts of number of thousands thousands share capital Company Par value per Type of transactions of euros of euros) (EUR) shares share (EUR)

2004 No shares created – – 363,454,096 181,727,048 2 2005 No shares created – – 363,454,096 181,727,048 2 2006 No shares created – – 363,454,096 181,727,048 2

200 ANALYSIS OF SHARE CAPITAL AND VOTING RIGHTS Share ownership as of December 31, 2006 As of December 31, 2006, the Company’s share capital comprised 181,727,048 shares. Of this total, taking into account shares held as treasury shares, voting rights were attached to 177,545,419 shares, including 126,581,274 with double voting rights. As of that date, 100,679,366 shares were in pure registered form (of which 4,181,629 were treasury shares) 30,105,419 shares were in administered registered form, and 49,923,716 shares were bearer shares. As of December 31, 2006, 220 registered shareholders held at least 100 shares. Number of Number of %of % of voting Shareholders shares voting rights capital rights

Groupe Arnault SAS (*) 125,630,157 250,255,867 69.13 82.29 Treasury shares 4,181,629 – 2.30 – Other 51,915,262 53,870,826 28.57 17.71

(*) Directly and indirectly. To the Company’s knowledge, no other shareholder held over 5% of the Company’s share capital as of December 31, 2006, and no shareholders’ agreement applied to at least 0.5% of the Company’s share capital or voting rights.

Changes in share ownership during the last three fiscal years December 31, 2004 December 31, 2005 December 31, 2006 %of %of %of Shareholders Number capital Number capital Number capital

Groupe Arnault SAS directly and indirectly 124,967,210 68.77 125,616,157 69.12 125,630,157 69.13

Pledges of pure registered shares by main shareholders As of December 31, 2006, Christian Dior shares held by major shareholders in pure registered form were free of all pledges.

Natural persons or legal entities that may exercise control over the Company As of December 31, 2006, Groupe Arnault SAS directly and indirectly held 125,630,157 Company shares representing 69.13% of share capital and 82.29% of voting rights. Mr. Bernard Arnault is Chairman of the Christian Dior Board of Directors.

201 S TOCK M ARKET I NFORMATION

SHARE CAPITAL As of December 31, 2006, Dior’s share capital was 363,454,096 euros, consisting of 181,727,048 shares with a par value of 2 euros. The number of shares remained unchanged during 2006.

DIOR SHARE PRICE In 2006, European and US stock markets performed well, as reflected in the growth seen on the CAC 40 (+17.5%), Eurostoxx 50 (+15.1%) and Dow Jones Industrial (+16.3%) indexes. The Christian Dior share, which increased by 49% over 2005, has not fully benefited from this favorable context, despite its still very sound fundamentals. In this way, the share price climbed from 76.15 euros on January 2, 2006 to 80.75 euros on December 29, 2006, up 6%. At the end of December 2006, Dior’s market capitalization represented 14.7 billion euros. Dior is part of the main French and European indexes used by fund managers: DJ Eurostoxx and Euronext 100. Dior is listed on the Eurolist of Euronext Paris (Reuters: DIOR.PA, Bloomberg: CDi-FP, ISIN: FR0000130403). In addition, negotiable options based on the Dior share are traded on the Monep in Paris. On March 16, 2007, the Christian Dior share was valued at 89.94 euros.

202 PRICE TREND OF THE CHRISTIAN DIOR SHARE AND VOLUME OF STOCK TRADED IN PARIS

90 4,500,000

80 4,000,000

70 3,500,000

60 3,000,000

50 2,500,000

40 2,000,000

30 1,500,000

20 1,000,000

10 500,000

0 0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

Closing price Volume

FIVE-YEAR REVIEW OF DIVIDENDS

1.6 1.41 1.4

1.2 1.16 0.97 1.0 0.87 0.82 0.8

0.6

0.4

0.2

0.0 2002 2003 2004 2005 2006*

Net dividend per share (EUR)

*Proposed to the Shareholder’s Meeting of May 10, 2007.

203 PAYMENT OF DIVIDEND The dividend of 1.41 euros will be paid at the Company’s corporate headquarters on May 15, 2007, less the interim dividend of 0.38 euros distributed on December 1, 2006.

STOCK MARKET CAPITALIZATION As of December 31, in millions of euros ‰ 2004 9,095 ‰ 2005 13,648 ‰ 2006 14,674

CHANGE IN SHARE CAPITAL

Number of shares as of December 31, 2005 181,727,048 Shares created – Number of shares as of December 31, 2006 181,727,048

PERFORMANCE PER SHARE (EUR) 2004 2005 2006

Diluted Group share of net profit 3.07 3.45 4.45 Dividend 0.97 1.16 1.41 Change compared to previous year (%) 11% 20% 22% Highest share price 56.00 79.70 87.15 Lowest share price 44.52 47.90 69.00 Share price as of December 31, 50.05 75.10 80.75 Change compared to previous year (%) 4% 50% 8%

204 MARKET FOR ISSUER’S SHARES The Company’s shares are listed on the Premier Marché of Euronext Paris. Trading volumes and amounts on the Paris bourse, and price trend over the last 18 months.

Opening Closing Highest Lowest Value of price 1st price share share Trading share capital day last day price price volume traded

September 2005 65.25 68.65 68.75 63.05 2,863,710 190,829,160 October 2005 68.55 66.95 69.90 65.05 3,017,157 203,116,660 November 2005 67.00 72.10 73.40 64.65 5,719,777 404,219,780 December 2005 72.95 75.10 76.80 72.40 5,186,096 383,294,110 January 2006 75.90 76.55 79.70 73.35 3,568,059 273,321,620 February 2006 76.50 77.80 79.70 76.10 2,784,613 216,752,590 March 2006 77.85 82.35 83.90 77.85 2,770,541 227,682,505 April 2006 82.35 84.05 86.75 78.55 2,524,309 208,722,237 May 2006 83.95 77.40 87.15 72.20 6,415,737 519,723,457 June 2006 77.85 76.65 79.90 69.00 3,506,851 259,102,985 July 2006 77.30 78.05 78.70 70.30 2,022,626 152,018,952 August 2006 78.85 81.15 82.45 75.05 2,202,102 172,440,882 September 2006 81.15 82.10 82.90 77.95 2,456,613 197,925,379 October 2006 82.35 83.70 85.80 80.50 2,837,128 235,890,454 November 2006 84.05 79.35 85.60 78.90 5,540,241 456,118,623 December 2006 79.35 80.75 81.85 77.00 4,407,160 351,612,921 January 2007 82.05 83.65 84.75 79.10 4,844,562 395,292,036 February 2007 84.85 89.46 94.98 83.30 5,118,413 458,141,982

DIVIDENDS PAID PER SHARE IN FISCAL YEARS 2002, 2003, 2004, 2005 and 2006 (EUR)

Year Net dividend Tax credit (1) Tax Allowance (1)

2006** 1.41 0.564 2005 1.16 – 0.496 2004 0.97 0.16 (*) 0.325 2003 0.87 0.44 – 2002 0.82 0.41 –

(1) For individuals with tax residence in France. (*) Attached to the interim dividend of 0.32 per share paid on December 2, 2004. For individuals, half the amount of the dividend balance of 0.65 euros will be used in the income tax assessment. ** Proposed to the Shareholders’ Meeting of May 10, 2007. Pursuant to current laws in France, dividends and interim dividends uncollected within five years become void and are paid to the French state.

205 MAIN LOCATIONS AND PROPERTIES 1. Production Wines and Spirits

The vineyards in France and abroad, owned by the Group are as follows: Of which, Of which, (Hectares) 2006 in production 2005 in production

France: Champagne 1,770 1,678 1,764 1,658 Cognac 246 189 250 177 Yquem 188 98 188 100 Other countries: California (US) 466 336 465 318 Argentina 1,369 765 1 369 765 Australia, New Zealand 558 331 559 317 Brazil 232 63 232 63

In the above table, the total number of hectares owned is determined exclusive of surface not used for viticulture. The difference between the total number of hectares owned and the number of hectares under production represents areas that have been planted but are not yet productive and fallow land. The Group also owns various industrial buildings, wineries, cellars, warehouses, offices, visitor and reception centers linked to each one of its main Champagne brands or its production operations in France, California, Argentina, Australia, Brazil and New Zealand, as well as distilleries and warehouses in Cognac, the UK and Poland. The total surface area is approximately 700,000 sq.m in France and 300,000 sq.m abroad.

Fashion and Leather Goods Louis Vuitton owns fourteen leather goods production facilities located primarily in France, although it also owns large facilities near Barcelona, Spain, and leases a facility in San Dimas, California. The company owns its warehouses in France but leases warehouse space abroad. The total surface area of production facilities and warehouses owned is approximately 150,000 square meters. The facilities in Barcelona, Villaverde and Getafe in Spain responsible for manufacturing Loewe’s products as well as accessories for other Group brands are leased. Fendi owns its own manufacturing facility near Florence, Italy. Celine also owns manufacturing and logistics facilities near Florence, Italy. Berluti’s shoe production factory in Ferrara, Italy is owned by the Group. Kenzo owns its distribution facilities near Tours in France, which are used by Kenzo, Celine and Givenchy. Rossimoda owns its office premises and its production facility in Stra and Vigonza in Italy. The other facilities utilized by this business group are either leased or included within manufacturing subcontracting agreements.

206 Perfumes and Cosmetics Buildings located near Orleans in France housing the Research and Development operations of Perfumes and Cosmetics as well as the manufacturing, distribution and office facilities of Parfums Christian Dior are owned by Parfums Christian Dior and occupy a surface area of 58,000 square meters. Guerlain owns its two manufacturing centers in Chartres and Orphin in France, for a total surface area of approximately 27,000 square meters. Parfums Givenchy owns two plants in France, one in Beauvais and the other in Vervins, corresponding to a total surface area of 19,000 square meters. The Vervins facility produces both Givenchy and Kenzo products. The company also owns distribution facilities in Hersham, England. La Brosse et Dupont owns production facilities, warehouses, and office space in France and Poland, for a total surface area of about 50,000 square meters.

Watches and Jewelry TAG Heuer leases all of its manufacturing facilities in La Chaux-de-Fonds and the Jura region of Switzerland. Zenith owns La Manufacture, which houses its movement and watch manufacturing facilities in Le Locle, Switzerland. All of its European warehouses are leased. Omas owns its office premises and its production facility in Bologna, Italy. The facilities operated by this business group’s remaining brands – Chaumet, Fred, De Beers and Dior Montres – are leased.

Christian Dior Couture In May 2005, Christian Dior Couture acquired a Pforzheim factory in Germany in connection with operations to take back control over activities from its fantasy jewelry license holder.

2. Distribution Retail distribution of the Group’s products is most often carried out through exclusive boutiques. Most of the stores in the Group’s retail network are leased and only in exceptional cases does the Group own the buildings that house its stores. Louis Vuitton owns certain buildings that house its stores in Tokyo, Guam, Hawaii, Seoul, Taipei, Sydney, Copenhagen, Stockholm, Rome, Genoa, Cannes and Saint-Tropez, for a total surface area of approximately 10,000 square meters. Celine and Loewe also own the buildings housing some of their stores, in Paris and in Spain. In the Selective Retailing business group: • Le Bon Marché, Franck et Fils and La Samaritaine own the buildings in Paris that house their department stores, corresponding to a total sales area of about 150,000 square meters; • DFS owns its stores in Waikiki (Hawaii), Tumon Bay (Guam) and Saipan.

207 At December 31, 2006, this network of stores was distributed as follows:

(in number of stores) 2006 2005 2004

France 288 278 278 Europe (excluding France) 456 422 413 United States 394 365 345 Japan 278 262 252 Asia (excluding Japan) 363 329 338 Other 80 67 67

Total 1,859 1,723 1,693

(in number of stores) 2006 2005 2004

Fashion and Leather Goods: Louis Vuitton 368 345 340 Other brands 586 546 556

954 891 896 Perfumes and Cosmetics 48 43 43 Watches and Jewelry 82 70 59 Selective Retailing: Sephora 621 558 521 Other 149 156 169

770 714 690 Other 5 55

Total 1,859 1,723 1,693

Since January 20, 1998, the Company has also acquired ownership of its logistics center at Blois, to make the international distribution of its products easier.

Except avenue Montaigne, Madrid, Saint-Tropez, Tokyo (Omotesando district), the stores wholly operated by Christian Dior Couture and located in prime areas in most of the world’s major cities are leased from independent owners.

3. Administrative sites and investment property Most of the Group’s administrative buildings are leased, with the exception of the headquarters of certain brands, particularly those of Louis Vuitton, Parfums Christian Dior and Zenith.

The Group holds a 40% stake in the company owning the building housing its headquarters on avenue Montaigne in Paris. The Group also owns two buildings in New York (total surface area of about 17,000 square meters) and a building in Osaka (about 5,000 square meters) that house the offices of subsidiaries.

208 The Group owns various rental properties, primarily in Paris and concentrated around la Samaritaine and Bon Marché, representing approximately 50,000 sq.m.

The Christian Dior Couture Group owns its headquarters located at 11 to 17, rue François 1er, and 28 to 30, avenue Montaigne.

Lastly, the headquarters of the main Christian Dior Couture subsidiaries outside of France are also leased.

SUPPLY SOURCES AND SUBCONTRACTING Champagne and Wines The Group owns 1,678 hectares of champagne under production, which provide a little more than one-fourth of its annual needs. In addition, the Group companies purchase grapes and wines from wine growers and cooperatives on the basis of multi-year agreements; the largest supplier of grapes and wines represents less than 15% of total supplies for the Group’s brands. Until 1996, a theoretical price was published by the industry; to this were added specific premiums negotiated individually between the wine growers and the merchants. After the first four-year agreement signed in 1996, another industry agreement was signed between the Companies and the wine growers of Champagne in the spring of 2000 covering the four harvests from 2000 through 2003, which confirmed the desire to limit upward or downward fluctuations in grape prices. A new industry agreement was signed in the spring of 2004 by the Companies and the wine growers of Champagne covering the five harvests from 2004 to 2008. This agreement sets new rules in order to ensure greater security for the payment to the wine growers and to achieve better control of price speculations. For ten years, the wine growers and the merchants have established a qualitative reserve that will allow them to cope with variable harvests. The surplus inventories “stockpiled” this way can be sold in years with a poor harvest. These wines “stockpiled” in the qualitative reserve provide a certain security for future years with smaller harvests. For the 2006 harvest, the Institut National des Appellations d’Origine (INAO - French organization charged with regulating controlled place names) set the maximum yield for the Champagne appellation at 13,000 kg/ha. This maximum yield represents the maximum harvest level that can be made into wine and sold under the Champagne appellation. Moreover, the INAO has redefined the legal framework for the “stockpiled’ reserves previously mentioned. It will now be possible to harvest grapes beyond the marketable yield within the limits of a ceiling called “plafond limite de classement’ (PLC), the highest permitted yield-per-acre. This ceiling will be determined every year within the limits of the maximum total yield now set at 15,500kg/ha. This additional harvest will be stockpiled in reserve, kept in vats and used to complement poorer harvests. The maximum level of this stockpiled reserve is set at 8,000 kg/ha. The 2006 harvest has been very good both in terms of quality and quantity. It made it possible to reach the marketable ceiling of 13,000kg/ha and to complete the stockpiled reserves within the limits of the PLC set at 14,500kg/ha for this harvest. The price paid for each kilogram of grapes in the 2006 harvest ranged between 4.20euros and 5.05 euros depending on the vineyard, but was stable compared to 2005. Dry materials (bottles, corks, etc.) and all other elements representing containers or packaging are purchased from non-Group suppliers. The Champagne Houses used subcontractors primarily for bottle handling and storing operations; these operations represented approximately 40 million euros.

209 Cognac and Spirits Hennessy owns 189 hectares. The Group’s vineyard has remained stable since 2000, after 60 hectares of vines were cleared in 1999 as part of the industry plan implemented in 1998. The objective of the plan was to reduce the production area through premiums offered for clearing and assistance given to wine growers to encourage them to produce wines other than those used in the preparation of cognac. Most of the wines and eaux-de-vie that Hennessy needs for its production are purchased from a network of approximately 2,500 independent producers, with whom the company ensures the preservation of exceptional quality. Purchase prices for wine and eau-de-vie are established between the company and each producer based on supply and demand. In 2006, the price of wines from the harvest rose 2% for the Fins Bois, after a 1.6% increase in 2005, following three stable years. The price of the other vintages remained stable. With an optimal inventory of eaux-de-vie, the Group can manage the impact of price changes by adjusting its purchases from year to year. Hennessy continued to control its purchase commitments for the year’s harvest, and diversify its partnerships to prepare its future growth in various qualities. Like the champagne and wine businesses, Hennessy obtains its dry materials (bottles, corks and other packaging) from non-Group suppliers. The barrels and casks used to age the cognac are also obtained from non-Group suppliers. Hennessy does not use subcontractors for its core business.

Fashion and Leather Goods In Fashion and Leather Goods, manufacturing capacities and the use of subcontracting vary significantly, depending on the brand. The fifteen leather goods manufacturing shops of Louis Vuitton Malletier, eleven in France, three in Spain and one in the United States, provide most of the brand’s production. Louis Vuitton uses third parties only to supplement its manufacturing and achieve production flexibility. Fendi and Loewe also have leather workshops in their country of origin and in Italy for Celine, which cover only a portion of their production needs. Generally, the subcontracting used by the business group is diversified in terms of the number of subcontractors and is located primarily in the country of origin of the brand: France, Italy and Spain. Overall, the use of subcontractors for Fashion and Leather Goods operations represented a quarter of the cost of sales in 2006. Louis Vuitton Malletier depends on outside suppliers for most of the leather and raw materials used in manufacturing its products. Even though a significant percentage of the raw materials are purchased from a fairly small number of suppliers, Louis Vuitton believes that these supplies could be obtained from other sources, if necessary. In 2004, recourse to a balanced portfolio of suppliers also limited dependence on specific suppliers. After a diversification program launched in 1998 to Norway and Spain, the portfolio of suppliers was expanded to include Italy in 2000. For Louis Vuitton, the leading supplier of hides and leathers represents about 23% of its total supplies of these products. Fendi is in a similar situation, except for some exotic leathers for which suppliers are rare. Finally, for the various companies, the fabric suppliers are often Italian, but on a non- exclusive basis.

210 The designers and style departments of each company ensure that manufacturing does not generally depend on patents or exclusive expertise owned by third parties.

Perfumes and Cosmetics The five French production centers of Guerlain, Givenchy and Dior provide almost all the production for the four major French brands, including Kenzo, both in fragrances, and in make-up and beauty products. Make Up For Ever also has sufficient manufacturing capacities in France to cover its own needs. Only the newer American companies and Loewe perfumes and Acqua di Parma subcontract most of the manufacturing of their products. In 2006, manufacturing subcontracting represented overall about 8% of the cost of sales for this activity, plus approximately 13 million euros for logistical subcontracting. Dry materials, such as bottles, stoppers and any other items that form the containers or packaging, are acquired from suppliers outside the Group, as are the raw materials used in the finished products. In certain cases, these materials are available only from a limited number of French or foreign suppliers. The product formulas are developed primarily in the Saint-Jean de Braye laboratories, but the Group can also acquire or develop formulas from specialized companies, particularly for perfume essences.

Watches and Jewelry With its four Swiss workshops or manufactures, located in Le Locle and in La Chaux de Fonds, the Group provides almost the entire assembly of the watches and chronographs sold under the TAG Heuer, Zenith, Christian Dior, Chaumet and Fred brands. In its watchmaking shop, Zenith also designs and manufactures the mechanical movements El Primero and Elite that made this brand famous. In this business, subcontracting represented overall only 9% of the cost of sales in 2006. Because of the very high quality requirements, the components assembled are obtained from a limited number of suppliers, primarily Swiss, with the exception of the leather for the watch bands. In 2006, TAG Heuer manufactured nearly one-fifth of the cases needed for its production in its own industrial subsidiary Cortech, in Switzerland. Even though the Group can, in certain cases, use third parties to design its models, they are most often designed in its own studios.

211 Christian Dior Couture The Christian Dior Group has 5 production workshops and uses independent contractors depending upon the nature of the products. In association with Italian partners, Christian Dior Couture operates four production units for leather goods and footwear in Florence, Milan, and Padua, Italy. To guarantee manufacture and obtain greater production flexibility, it also uses outside leather goods businesses. In the ready-to-wear and fine jewelry sectors, the company is supplied solely through outside firms. For Bijoux Fantaisie, Christian Dior Couture has a state-of-the-art production workshop at Pforzheim, Germany.

STATUTORY AUDITORS Statutory auditors Current terms of office Start date of Date End of first term appointed term

ERNST & YOUNG AUDIT Tour Ernst & Young Faubourg de l’Arche 92037 Paris La Défense Cedex represented by Christian Mouillon May 29, 1997 May 15, 2003 fiscal year 2008

MAZARS & GUERARD Tour Exaltis 61, rue Henri Regnault 92400 - Courbevoie represented by Denis Grison May 15, 2003 May 15, 2003 fiscal year 2008

Dominique Thouvenin (alternate) Tour Ernst & Young Faubourg de l’Arche 92037 Paris La Défense Cedex May 29, 1997 May 15, 2003 fiscal year 2008

Guillaume Potel (alternate) Tour Exaltis 61, rue Henri Regnault 92400 - Courbevoie May 15, 2003 May 15, 2003 fiscal year 2008

212 FEES PAID IN 2006

(in thousands of euros, excluding VAT) Ernst & Young Audit Mazars & Guérard 2006 2005 2006 2005

Amount % Amount % Amount % Amount %

Audit Statutory audit, certification, audit of the individual company and consolidated financial statements: • Christian Dior 96 1 89 1 135 12 133 10 • Fully-consolidated 9,787 84 10,181 81 968 88 1,088 84 subsidiaries

Other services relating directly to the statutory audit assignment: • Christian Dior 15 – 43 – –– 30 2 • Fully-consolidated 673 6 953 8 –– –– subsidiaries

Subtotal 10,571 90 11,266 90 1,103 100 1,251 96 Other services provided by the firms to fully- consolidated subsidiaries • Legal, tax, employee- related 1,077 9 1,293 10 –– 46 4 • Other 62 1 2– –– –

Subtotal 1,139 10 1,295 10 –– 46 4

Total 11,710 100 12,561 100 1,103 100 1,297 100

INFORMATION POLICY Director of information: Denis DALIBOT, Chief Financial Officer. Tel: +33 1 44 13 24 98 Fax: +33 1 44 13 27 86 Website: www.dior.com

213

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