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LVMH RA 2006•GB 8/02/07 16:19 Page 2 P ASSIONATE ABOUT CREATIVITY ANNUAL REPORT 2006 LVMH RA 2006•GB 9/02/07 12:00 Page 3 L V M H L V M H L V M H V M H L V M H L V M H L M H L V M H L V M H L V 02. Chairman’s Message 06. Financial Highlights 08. Interview with Antonio Belloni: Managing luxury brands H 10.L CorporateV GovernanceM H L V M H L V M 12. The LVMH Share L 14V . reviewM ofH operationsL V M H L V M H V MTHE HGROUP’S LACTIVITIESV: FINANCIALM HIGHLIGHTSH L V M H L 18. WINES & SPIRITS 26. FASHION & LEATHER GOODS 34. PERFUMES & COSMETICS M 42.HWATCHESL& JEWELRYV M H L V M H L V 48. SELECTIVE RETAILING H 54L . SUSTAINABLEV M DEVELOPMENTH L V M H L V M 56. A human resources policy L Vthat promotesM the Group’sH values L V M H L V M H 62. A patronage to support culture, youth and humanitarian action V M63. PreservingH the environmentL V M H L V M H L 67. Consolidated Financial Statements M H L V M H L V M H L V H L V M H L V M H L V M L V M H L V M H L V M H V M H L V M H L V M H L Cover photo Damier Azur from Louis Vuitton or the art of highlight the absolute modernity of eternal values. First created in 1888, the Damier fabric was reworked in 1996. Ten years later, it is adorned with a new color, a complement to the existing ebony. M The DamierH Azur lineL was photographedV by PatrickM Demarchelier.H L V M H L V H L V M H L V M H L V M LVMH RA 2006•GB 8/02/07 16:19 Page 4 PASSIONATE ABOUT CREATIVITY LVMH 2006 01 LVMH RA 2006•GB 8/02/07 16:19 Page 5 L V M H L V M H L V BERNARD ARNAULT V MSTRENGTHEN,H L VDEVELOP,M ANTICIPATEH L V M M H L V M H L V M H H L V M H L V M H L L V M H L V M H L V V M H L V M H L V M M H L V M H L V M H H L V M H L V M H L L V M H L V M H WeL sell V products from the best traditional V M H L V M H L craftsV with M growing success on every continent. M H L V M H L V OurM brands H are the leading ambassadors of this H L V M H L V M excellenceH L with customers from very diverse origins L V M H L V M H andL cultures.V V M H L V M H L V M M H L V M H L V M H 02 LVMH 2006 CHAIRMAN’S MESSAGE H L V M H L V M H L LVMH RA 2006•GB 13/02/07 12:32 Page 7 Strengthen, 2006 has been an excellent year for LVMH gress in Europe is also notable, proving the with record sales across all its business lines solidity of our heritage and the loyalty of our develop, and geographic regions, strong growth in pro- clients in the regions where our crafts and the anticipate fits, and further debt reduction. Our Group culture of luxury first originated. LVMH’s has gained market share in all of its activities home continent has also, of course, its own and has reinforced its position as the leader in new markets in the Central European coun- We approach its market. In an unfavourable currency envi- tries, and in particular Russia, where there is the coming months ronment whose impact was mostly felt in the strong potential. Europe also profits from an second half of the year, we have gained one increasing influx of tourists, fuelled in parti- with confidence point of operational margin for the second cular by China and Russia. and determination, year running and the Group share of net pro- buoyed by fit has increased by 30 per cent. Strengthened foundations Another point I would like to draw attention Once again, our teams have performed remar- excellent results to is LVMH’s capacity to well manage the kably this year. Our Wines and Spirits houses in 2006, the strengthening of its leadership both in its tra- have well managed the increased product qua- ditional trades - those of champagne, cognac, strengthening lity and range and strong growth in volumes. leather goods and perfumes - and the develop- Our Fashion and Leather Goods businesses of our foundations ment, with a momentum of profitable growth, have performed exceptionally in Europe, Asia of some of its more recent activities, such as and the and the United States. The Perfume and Cos- selective retailing, watch-making and jewelry. metics brands have once again gained market opportunities Another example is that of Moët Hennessy’s share from their competitors. The Watches and success in developing a range of exceptional offered by our Jewelry business group has undeniably conti- wines at Estates & Wines. Such successes numerous growth nued the successful recovery which has mobi- enable us, year after year, to reinforce the drivers.The future lized its teams in recent years. The Selective Group’s foundations. Retailing companies have become more com- of LVMH is being petitive and this business group has further A richer and more vibrant heritage built upon solid improved its profitability. than before, together with an enlightened ability to anticipate foundations and A growing success in order to build the future exceptional brands. with customers reflecting the world’s diversity We are approaching 2007 with confidence and Its long-term with renewed energy despite a currency envi- vision, its ability The international expansion of our activities is ronment which remains difficult. Our business particularly notable. We sell products from the will be carried forward by strong innovation in to anticipate and best traditional crafts with growing success on all of our business groups, development of new the talent of its every continent. Our brands are the leading product categories and continued investment in ambassadors of this excellence with customers distribution in markets with strong potential. teams will enable from very diverse origins and cultures. In the These developments expected in the following our Group United States, the leading luxury goods mar- months enable us to fix a new Group objective ket where demand is very strong, LVMH has of a significant increase in its 2007 results. to reinforce its almost quintupled its sales over ten years. In position as the Asia, our progress year on year demonstrates LVMH will be 20 years old in 2007. Throu- global leader in our success with the increasing numbers of ghout the last two decades, the Group has consumers in the region who are accessing developed and deployed a consistently success- luxury goods. the luxury goods market and recognising ful and unique long-term growth strategy. It quality. Today in China, for example, we lead has remained close to this strategy while at in several areas thanks to the investments the the same time continuing to respond to and Group had the foresight to make in a market anticipate an ever-evolving world. From its with rapidly increasing influence. Our pro- inherited values, the Group has created an even CHAIRMAN’S MESSAGE LVMH 2006 03 LVMH RA 2006•GB 9/02/07 12:03 Page 7 "Our vision of creation is rooted in heritage: L V M H the presence of memory, without which the future cannot unfold." BERNARD ARNAULT Bernard Arnault VSTRENGTHEN,M DEVELOP,H ANTICIPATE L V more vibrant cultural heritage on which to base its future. The strength of the LVMH’s leading brands: Louis Vuitton, Christian Dior, Hennessy, TAG Heuer, Fendi, Moët & MChandon,H Dom PérignonL and Sephora,V give M 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 for LVMH. HThe futureL of our GroupV is full of excitingM chal- H lenges and new opportunities in a market that has strong potential and a positive outlook. The rigorous pursuit of LVMH’s growth strate- gy, the creativity and quality of its products, L the talentV of its craftsmenM and designers,H the efficiency of its marketing teams will enable the Group to increase the lead over its compe- Vtitors Min the luxury marketplace.H L V LVMH’s sustainable development strategy is imbedded in the Group’s long-term value and future. The Group adheres to the United Nations’ Global Compact whose objectives Mform anH integral part ofL its developmentV stra- M tegy. LVMH is dedicated to being a business of the community, one that respects the well- being of its contemporaries and that of futu- re generations. We will continue to take the Hsocial andL environmentalV implicationsM of our H activities very seriously. Furthermore, over the last fifteen years, we have developed our patronage program to focus on creative pro- jects that bring cultures and civilisations L together.V We wishedM to make thisH commit- ment more permanent and give it an appro- priate framework. The birth of the Louis Vuitton Foundation for Creation, announced Vin OctoberM 2006, is aH project of whichL we are V as proud as we are of our results.