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December 31, 2019 Management Report of the Board of Directors Version As of March 27, 2020 Contents

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December 31, 2019 Management Report of the Board of Directors Version As of March 27, 2020 Contents DECEMBER 31, 2019 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS VERSION AS OF MARCH 27, 2020 CONTENTS MANAGEMENT REPORT OF THE BOARD OF DIRECTORS: THE GROUP 1 THE LVMH BUSINESS MODEL 1 BUSINESS OVERVIEW, HIGHLIGHTS AND OUTLOOK 5 BUSINESS AND FINANCIAL REVIEW 27 ETHICS AND RESPONSIBILITY 39 ENVIRONMENT AND SUSTAINABILITY 63 ATTRACTING AND RETAINING TALENT 79 OUTREACH AND GIVING BACK 91 FINANCIAL AND OPERATIONAL RISK MANAGEMENT AND INTERNAL CONTROL 97 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS: LVMH PARENT COMPANY 113 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS: THE GROUP The LVMH business model 1. BUSINESS OVERVIEW 2 2. GROUP VALUES 4 3. OPERATING MODEL 4 1 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS: THE GROUP The LVMH business model The LVMH group was formed from the merger of Moët Hennessy momentum from a spirit of innovation and openness to the and Louis Vuitton in 1987. Bernard Arnault became the leading world. shareholder and Chairman and Chief Executive Officer in 1989, The Group helps its Maisons grow over the long term, based on with the ambition of making LVMH the world leader in luxury. respect for their specific strengths and individuality, underpinned Today, the LVMH group has built its leading position through by common values and a shared business model. Accordingly, a unique portfolio of 75 exceptional Maisons, operating in six it provides them with all of the resources they need to grow in business groups. Each of them creates products that combine terms of designing, manufacturing and selectively retailing their high - level expertise with a strong heritage, drawing their products and services. 1. BUSINESS OVERVIEW LVMH is the only group that operates simultaneously, through a differentiating factor for their followers in a highly competitive its Maisons, in all the following luxury sectors: global market. At the same time, they are all driven by the same values: the pursuit of excellence, creativity, innovation and Wines and Spirits: Based in Champagne, Bordeaux and other complete control of their brand image. renowned wine - growing regions, the LVMH group’s Maisons – some of which are hundreds of years old – all have their own Watches and Jewelry: The Maisons in Watches and Jewelry unique character, backed by a shared culture of excellence. – LVMH’s youngest business group – operate in the high- end The activities of LVMH in Wines and Spirits are divided between watchmaking, jewelry and high jewelry sectors. It features some the Champagne and Wines segment and the Cognac and Spirits of the most dynamic brands on the market, positioned to segment. This business group focuses on growth in high -end market complement each other’s strengths. These Maisons rely on their segments through a powerful, agile international distribution outstanding expertise, creativity and innovation to surprise their network. LVMH is the world leader in cognac, with Hennessy, customers all over the world and respond to their aspirations. and in champagne, with an outstanding portfolio of brands and Selective Retailing: The Group’s Selective Retailing brands all complementary product ranges. It also produces high- end still pursue a single objective: transforming shopping into a unique and sparkling wines from around the world. experience. From elegant interior design to a specialist selection Fashion and Leather Goods: LVMH includes established of high - end products and services, combined with personalized Maisons with their own unique heritage and more recent brands relationships, customers are the focus of their attention on a daily with strong potential. Whether they are part of Haute Couture basis. Operating all over the world, the Maisons are active in two or luxury fashion, LVMH’s Maisons have based their success on spheres: selective retail and travel retail (selling luxury goods to the quality, authenticity and originality of their designs, created international travelers). by talented, renowned designers. All the Group’s Maisons are Other activities: The Maisons in this business group are all focused on the creativity of their collections, building on their ambassadors for culture and a certain art de vivre that is emblematic iconic, timeless lines, achieving excellence in their retail networks of LVMH. This approach is taken by Maisons including the Les and strengthening their online presence, while maintaining Echos group, which – in addition to Les Echos, the leading daily their identity. financial newspaper in France – owns several business and arts Perfumes and Cosmetics: LVMH is a key player in the perfume, titles; the Royal Van Lent shipyard, which builds and markets makeup and skincare sector, with a portfolio of world - famous custom - designed yachts under the prestigious Feadship name; established names as well as younger brands with a promising Belmond, which has a large portfolio of hotels, trains, cruise lines future. Its Perfumes and Cosmetics business group boasts and safari lodges that combine heritage, expertise, authenticity exceptional momentum, driven by growing and securing the and impeccable service; and the exceptional Cheval Blanc hotels, long - term future of its flagship lines as well as boldly developing which operate worldwide. new products. The Maisons cultivate their individuality, 2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS: THE GROUP The LVMH business model Key figures (as of December 31, 2019) Maisons over countries 75 Maisons 25 100 years old 70 worldwide employees stores 163,309 worldwide 41,287 joiners (1) 4,915 worldwide Geographic presence (as of December 31, 2019) 1,177 stores 40,453 employees 535 stores Europe (2) 1,453 stores 33,701 employees France 38,109 employees Asia (3) 829 stores 31,483 employees United States 427 stores 7,391 employees Japan 494 stores 12,172 employees Other markets (1) Under permanent contracts. (2) Excluding France. (3) Excluding Japan. 3 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS: THE GROUP The LVMH business model 2. GROUP VALUES In its quest for excellence, there are three fundamental values Delivering excellence: Within the Group, quality can never be that drive the Group’s performance and ensure its long - term compromised. Because the Maisons embody everything that is future. These are shared by everyone involved at LVMH, and most noble and accomplished in the world of fine craftsmanship, inspire and guide their actions. They are one of its Maisons’ keys they pay extremely close attention to detail and strive for to success, anchoring them in the modern world and the society perfection: from products to services, it is in this quest for in which they operate. excellence that the Group differentiates itself. Being creative and innovative: Creativity and innovation are part Cultivating an entrepreneurial spirit: The Group’s agile, of LVMH’s DNA; throughout the years, they have been the keys decentralized structure fosters efficiency and responsiveness. to the Maisons’ success and the basis of their solid reputations. It encourages individuals to take initiative by giving everyone These fundamental values of creativity and innovation are a significant level of responsibility. The entrepreneurial spirit pursued in tandem by the Group’s Maisons as they focus on promoted by the Group makes risk - taking easier and encourages achieving the ideal balance between continually renewing their perseverance. It requires a pragmatic approach and the ability offer while resolutely looking to the future, always respecting to mobilize staff towards achieving ambitious goals. their unique heritage. Our Group and Maisons put heart and soul into everything they do. Each of our initiatives is meaningful and reflects our commitment to the environment, the community and diversity. 3. OPERATING MODEL LVMH has implemented a unique operating model based on Vertical integration: Designed to cultivate excellence both up- and six pillars, which contributes to the Group’s long- term success by downstream, vertical integration ensures control of every stage combining profitable growth, sustainability and a commitment of the value chain, from sourcing to production facilities and to excellence. selective retailing. It also guarantees strict control of Maisons’ brand image. Decentralized organization: The structure and operating principles adopted by LVMH ensure that Maisons are both autonomous and Creating synergies: Resources are pooled at Group level to create responsive. As a result, they are able to build close relationships intelligent synergies while respecting each Maison’s independence with their customers, make fast, effective and appropriate and autonomy. LVMH’s shared strength as a Group is used to decisions, and motivate Group employees for the long term by benefit each Maison individually. encouraging them to take an entrepreneurial approach. Securing expertise for the long term: The Maisons that make up Internal growth: The LVMH group prioritizes internal growth the Group cultivate a long - term vision. To protect their identity and is committed to developing its Maisons, and encouraging and excellence, LVMH and its Maisons have implemented and protecting their creativity. Staff play a critical role in a model numerous tools to pass on expertise and promote artisanal and of this kind, so supporting them in their career and encouraging creative skills in the next generation. them to exceed their own expectations is essential. A complementary mix of activities and geographic locations: The LVMH group has equipped itself to grow steadily by balancing its activities and their geographical spread, helping to secure its position in the face of economic fluctuations. 4 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS: THE GROUP Business overview, highlights and outlook 1. WINES AND SPIRITS 6 1.1 Champagne and Wines 6 1.2 Cognac and Spirits 8 1.3 Wines and Spirits distribution 9 1.4 Highlights of 2019 and outlook for 2020 10 2. FASHION AND LEATHER GOODS 11 2.1 The brands of the Fashion and Leather Goods business group 11 2.2 Competitive position 12 2.3 Design 12 2.4 Distribution 13 2.5 Supply sources and subcontracting 13 2.6 Highlights of 2019 and outlook for 2020 14 3.
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