2008 ANNUAL REPORT TRANSLATION OF THE FRENCH “RAPPORT ANNUEL” 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.
Chairman’s message 2 Consolidated financial statements 91 Executive and Supervisory Bodies - 1. Consolidated income statement 92 Statutory Auditors 4 2. Consolidated balance sheet 93 Simplified Organizational Chart of the Group 5 3. Consolidated statement of changes in equity 94 Financial Highlights 6 4. Consolidated cash flow statement 95 5. Notes to the consolidated financial statements 97 Management Report of the Board of 6. Statutory Auditors’ report 157 Directors 9 1. Consolidated income statement 10 Parent company financial statements 159 2. Results by business group 12 1. Balance sheet 160 3. Operational risk factors and insurance policy 19 2. Income statement 162 4. Financial policy 23 Cash fow statement 163 .3 5. Results of Christian Dior SA 27 4. Notes to the parent company financial statements 164 6. Company shareholders 28 5. Subsidiaries and investments as of 7. Administrative matters 30 December 31, 2008 173 8. Financial authorizations 31 6. Investment portfolio, other investment 9. Information on compensation and benefits in securities and short term investments 173 kind of company officers 34 7. Company results over the last five fiscal years 174 10. List of offices or positions exercised in all 8. Statutory Auditors’ reports 175 companies by company officers 37 11. Stock option and bonus share plans 44 12. Information that could have a bearing on a Resolutions 179 takeover bid or exchange offer 51 Text of the resolutions 180 13. Employee information 52 Statutory Auditors’ reports 187 14. Effects of operations on the environment 66 15. Litigation and exceptional events 76 General information 191 16. Subsequent events 77 1. History of the Group 192 17. Recent developments and prospects 77 2. General information regarding the parent company and its share capital 194 Report of the Chairman of the Board 3. Corporate governance 198 of Directors on internal control 4. Stock market information 211 procedures 79 5. Main locations and properties 215 1. Corporate governance 80 6. Supply sources and subcontracting 218 2. Implementation of internal control procedures 7. Statutory Auditors 221 and risk management 84 8. Statement of the Company Officer responsible 3. Statutory Auditors’ report 88 for the annual financial report 222 2008 Annual Report
This English version of the “Rapport Annuel” is provisional and may be subject to modification prior to publication in June 2009.
2008 Annual Report 1 Chairman’s message
The Christian Dior Group achieved another year of growth in 2008, a performance underscoring the strengths of our brands and the outstanding appeal of our products. Our solid financial results, generated against the backdrop of the current economic and financial crisis, once again reaffirm the relevance of our development strategy and our core values: creativity, refinement, elegance and excellence. In 2008, Christian Dior Couture continued to build on its success, concentrating its efforts on its strongest, most time-honored lines. Its ongoing strategy favoring the development of iconic, resolutely upscale products, combined with investments in its network of boutiques and in the modernization of its organization, gives further impetus to the House of Dior amid an uncertain economic environment. All of Dior’s product categories were once again resoundingly successful, with the glowing reception for its two haute couture collections paying tribute to the brand’s know-how and singular sense of style. Dior’s ready-to-wear also made significant advances thanks to its ever more refined and elegant collections. Leather Goods scaled new heights in 2008, driven in particular by the Lady Dior handbag, which is increasingly acquiring the status of a brand icon, while at the same time proving to be an unqualified commercial success. Dior Joaillerie’s collections continued to draw enthusiastic interest and the Milly Carnivora luxury jewelry line was no exception. Backed by its exceptional range of products, Christian Dior Couture resolutely made further investments in its network of boutiques, this year pursuing a strategy of targeted openings in its highest potential markets: China, Russia and the Middle East. In these markets, the opening of a Dior boutique is always a landmark event, with an eye-catching facade and a decor that recreates the contemporary, refined ambiance of the Avenue Montaigne boutique, establishing the best profile for the House of Dior right from the outset. In the same vein, the major exhibition Christian Dior and Chinese Artists helped to firmly position the brand at the highest echelon of prestige in this strategic market.
2 2008 Annual Report Chairman’s message
At LVMH, there have been many other successes this year. I will start with those that we owe to our leading brands. Louis Vuitton, which enjoyed another record year, celebrated its timeless values through the iconic personalities that featured in its corporate campaign. Parfums Christian Dior, demonstrating its exceptional image and its roots in the world of couture, once again outperformed its competitors. Hennessy secured its leading position in China and Sephora gained further market share. From our rising stars, we have continued to make excellent progress. Some examples are Ruinart’s remarkable achievements, further progress at Donna Karan which has built on the performance of recent years, the strengthening position of Ardbeg whisky, and the accelerated growth of Marc Jacobs, BeneFit and Make Up For Ever. In all our business groups, 2008 has been an extremely innovative year. We have released new cuvees and designed high value-added packaging for our cognacs, champagnes and whiskies. Louis Vuitton demonstrated its close involvement with the art world through the launch of two Marc Jacobs collections conceived in collaboration with the artists Richard Prince and Takashi Murakami. Another highlight was the launch of Damier Graphite, a new signature range for our male clientele. This line was remarkably successful in the second half of the year and we have great ambitions for it and its numerous incarnations. We launched new perfumes: Dior Homme Sport, Escale à Portofino by Christian Dior, Guerlain Homme, Play by Givenchy and KenzoPower. Our watch and jewelry brands have extended their iconic ranges. In Geneva, TAG Heuer won its fifth Grand Prix in six years for the Grand Carrera chronograph which was featured at Baselworld 2008. Chaumet launched a new collection of high-end jewelry and Sephora continued to affirm its status as the most innovative brand in the global beauty and perfume sector. 2009 has started in a climate of considerable uncertainty for all businesses. It would be unwise to predict the length of the global economic crisis at this stage. However, whatever happens, we have prepared ourselves for a difficult environment throughout the year. We have strengthened our rigorous management by rapidly taking strict actions where necessary. I am also aware that we must be even more selective in the decisions that concern the allocation of our resources: over the coming months, these decisions will be focused exclusively on our key profitability drivers, the most important projects, the most lucrative markets and only genuinely strategic opportunities. Beyond short-term initiatives imposed by the current climate, the Christian Dior Group – and this, in my mind, is key – will continue to implement its organic growth strategy, which is founded on innovation and geographic expansion. To achieve this, our Group can count on a number of assets. In these turbulent economic and financial markets, one of the Group’s most important attributes is the strength of its balance sheet. Our debt levels are modest. Having constantly focused on cash generation, we have the ability to finance our own growth and therefore can calmly anticipate with, and I repeat, great vigilance, the moment of economic recovery. I would like to highlight one other point: in troubled times, consumers have a need, more than ever, for reference points. In this regard, I believe I can say that our brands have strong, timeless values, which carry a true message of quality and a real promise of excellence. We will continue to support these brands so that they can once again assert their authenticity through powerful and qualitative innovation as well as creative marketing. We will also support them as they expand geographically. In recent years, we have conquered new territories. Thanks to an early presence in the emerging countries, some of these markets are already important pillars of our growth. China, for example, has become the biggest market for Hennessy cognac and is the second largest customer base for Louis Vuitton worldwide. The Group’s more recent moves are also very promising. Glenmorangie and BeneFit have been hugely successful in Asia, Sephora in Eastern Europe, Marc Jacobs in Europe, Hennessy in Vietnam, etc. In short, we will be on the front foot in all markets where we see strong growth potential. During the various crises that the Christian Dior Group has encountered throughout its history, our Group has always known how to concentrate on its priorities and to take advantage of the strength of its brands to reinforce its leadership of the worldwide luxury goods market. Our decentralized organization fosters a spirit of enterprise and also, therefore, reactivity - an essential quality in periods of uncertainty. I know I can count on the men and women in the Christian Dior Group to meet the numerous challenges ahead and to prepare our Group to continue its growth.
Bernard ARNAULT
2008 Annual Report 3 Executive and Supervisory Bodies Statutory Auditors
Board of Directors Performance audit committee
Bernard ARNAULT Eric GUERLAIN (1) Chairman Chairman
Eric GUERLAIN (1) (2) Renaud DONNEDIEU de VABRES (1) Vice Chairman Christian de LABRIFFE Sidney TOLEDANO Chief Executive Officer
Antoine BERNHEIM (1) (2) Nominating and compensation committee Denis DALIBOT (2) Antoine BERNHEIM (1) Renaud DONNEDIEU de VABRES (1) (3) Chairman Pierre GODÉ Pierre GODÉ Christian de LABRIFFE (2) Eric GUERLAIN (1) Jaime de MARICHALAR y SÁENZ de TEJADA (1) (2)
Alessandro VALLARINO GANCIA (2)
Executive management Statutory Auditors
Sidney TOLEDANO ERNST & YOUNG AUDIT Chief Executive Officer represented by Jeanne Boillet MAZARS represented by Denis Grison
(1) Independent director. (2) Renewal proposed at the Shareholders’ Meeting of May 14, 2009. (3) Ratification of the co-optation proposed at the Shareholders’ Meeting of May 14, 2009.
4 2008 Annual Report Simplified Organizational Chart of the Group as of December 31, 2008
*
100%
Christian Dior Couture
100%
Financière Jean Goujon
42.4%
LVMH *
* Listed company.
2008 Annual Report 5 Financial Highlights
Consolidated revenue Consolidated revenue by business group by geographic region of delivery (EUR millions) (EUR millions)
Consolidated revenue by currency (EUR millions) (en millions d’euros)
6 2008 Annual Report Financial Highlights Key consolidated data (EUR millions and percentage) 2008 2007 2006 Revenue 17,933 17,245 16,016 Profit from recurring operations 3,621 3,610 3,209 Net profit 2,224 2,328 2,133 Group share of net profit 796 880 797 Cash from operations before changes in working capital (1) 4,141 4,145 3,593 Operating investments (2) 980 988 784 Equity 15,265 13,940 12,974 Net financial debt (3) 5,370 4,479 4,763 Net financial debt/Total equity ratio 35% 32% 37%
Data per share (EUR) 2008 2007 2006 Earnings per share Basic Group share of net profit 4.46 4.94 4.49 Diluted Group share of net profit 4.43 4.86 4.41
Dividend per share Interim 0.44 0.44 0.38 Final 1.17 1.17 1.03 Gross amount paid in respect of the fiscal year (4)(5) 1.61 1.61 1.41
Information by business group (EUR millions) 2008 2007 (6) 2006 (6) Revenue by business group Christian Dior Couture 765 787 731 Wines and Spirits 3,126 3,226 2,994 Fashion and Leather Goods 6,010 5,628 5,222 Perfumes and Cosmetics 2,868 2,731 2,519 Watches and Jewelry 879 833 737 Selective Retailing 4,376 4,164 3,877 Other activities and eliminations (91) (124) (64) Total 17,933 17,245 16,016 Profit from recurring operations by business group Christian Dior Couture 9 74 56 Wines and Spirits 1,060 1,058 962 Fashion and Leather Goods 1,927 1,829 1,633 Perfumes and Cosmetics 290 256 222 Watches and Jewelry 118 141 80 Selective Retailing 388 426 387 Other activities and eliminations (171) (174) (131) Total 3,621 3,610 3,209 (1) Before tax and interest paid. (2) Amounts presented in the consolidated cash flow statement. (3) Net financial debt does not take into consideration purchase commitments for minority interests included in Other non-current liabilities. See Note 17.1 to the consolidated financial statements for the definition of net financial debt. (4) Excludes the impact of tax regulations applicable to the beneficiaries. (5) For fiscal year 2008, amount proposed at the Combined Shareholders’ Meeting of May 14, 2009. (6) Restated after reclassifying la Samaritaine from Selective Retailing to Other activities. 2008 Annual Report 7 8 2008 Annual Report Management Report of the Board of Directors
1. Consolidated income statement 10 10. List of offices or positions exercised in all companies by company officers 37 2. Results by business group 12 10.1 Current offices of directors 37 2.1 Christian Dior Couture 12 10.2 Offices of directors to be ratified 40 2.2 Wines and Spirits 14 10.3 Offices of current directors to be renewed 40 2.3 Fashion and Leather Goods 15 2.4 Perfumes and Cosmetics 16 11. Stock option and bonus share plans 44 2.5 Watches and Jewelry 17 11.1 Options granted by the parent company, 2.6 Selective Retailing 18 Christian Dior 44 11.2 Options granted by its subsidiary, LVMH 46 3. Operational risk factors and insurance policy 19 11.3 Options granted to and exercised by 3.1 Operational risk factors 19 the group’s officers and the Group’s 3.2 Industrial and environmental risks 21 first ten employees during the year 48 3.3 Risk coverage and insurance policies 22 11.4 Bonus shares granted by the subsidiary, LVMH 50 4. Financial policy 23 4.1 Market risks 24 12. Information that could have a bearing 4.2 Consolidated cash flow 25 on a takeover bid or exchange offer 51 4.3 Financial structure 26 13. Employee information 52 5. Results of Christian Dior 27 13.1 Analysis and development of the workforce 52 13.2 Work time 57 6. Company shareholders 28 13.3 Compensation 58 6.1 Main shareholders 28 13.4 Equality and diversity 59 6.2 Shares held by members of 13.5 Training 61 the management and supervisory bodies 28 13.6 Health and safety 62 6.3 Information on purchases and 13.7 Employee relations 63 sales of shares 28 13.8 Relations with third parties 64 6.4 Summary of transactions in Christian Dior 13.9 Compliance with international conventions 65 securities during the year by directors and related persons as defined in Article R. 621-43-1 14. Effects of operations on the environment 66 of the Code Monétaire et Financier 29 14.1 Water, raw material and energy consumption 66 7. Administrative matters 30 14.2 Soil use conditions, emissions into 7.1 Composition of the Board of Directors 30 the air, water and soil 70 7.2 List of offices and positions of Directors 30 14.3 Measures taken to limit damage to the biological equilibrium, natural habitats, 7.3 Statutory Auditors 30 animal and plant species 73 7.4 Modification of the Bylaws 30 14.4 Organization of environmental protection 8. Financial authorizations 31 methods within the Group 73 8.1 Status of current delegations and authorizations 31 15. Litigation and exceptional events 76 8.2 Authorizations to be renewed 32 16. Subsequent events 77 9. Information on compensation and benefits in kind of company officers 34 17. Recent developments and prospects 77
2008 Annual Report 9 Management Report of the Board of Directors Consolidated income statement
1. Consolidated income statement
In 2008, revenue for the Christian Dior Group amounted to luxury products, was consolidated in the accounts of Christian 17,933 million euros, up 4% from the previous year at actual rates. Dior Couture. These changes in the scope of consolidation contributed 1 point to revenue growth for the year. Since January 1, 2007, the following changes were made in the Group’s scope of consolidation: in Wines and Spirits, the stake At constant structure and exchange rates, organic revenue in the Chinese distiller Wen Jun Spirits, acquired in May 2007, growth was 7%. was consolidated for the first time in the second half of 2007; The Group’s profit from recurring operations was 3,621 million in Watches and Jewelry, the Swiss watchmaker Hublot was euros, up 0.3% from 2007. The current operating margin as a consolidated for the first time in the second half of 2008 and the percentage of revenue was 20.2%. Italian penmaker Omas was sold and deconsolidated in the second half of 2007; in Other activities, the media group Les Echos Operating profit, after other operating income and expenses was consolidated for the first time in the first half of 2008, the (-153 million euros in 2008 compared to -117 million euros in business of the financial daily La Tribune, which was sold in 2007) was 3,468 million euros, down 0.7%. early 2008, was deconsolidated, and the Dutch yacht builder Consolidated net profit amounted to 2,224 million euros, Royal Van Lent was consolidated for the first time in the fourth compared to 2,328 million euros in 2007. The Group share quarter of 2008. In 2008, John Galliano, a company specializing of consolidated net profit was 796 million euros compared to in the creation and concession under license of fashion items and 880 million euros in 2007. The main financial items were as follows:
(EUR millions) 2008 2007 2006 Revenue 17,933 17,245 16,016 Profit from recurring operations 3,621 3,610 3,209 Operating profit 3,468 3,493 3,082 Net profit 2,224 2,328 2,133 Of which Group share 796 880 797
Revenue growth in 2008 by business group was as follows: published figures. Louis Vuitton turned in a remarkable performance for the year, again recording double-digit organic • Revenue from Christian Dior Couture remained stable at revenue growth. Fendi, Donna Karan and Marc Jacobs also constant exchange rates and totaled 765 million euros. Revenue confirmed their potential, with strong increases in revenue. growth at actual exchange rates was -3%. • Revenue from Perfumes and Cosmetics was 2,868 million euros, • Revenue from Wines and Spirits totaled 3,126 million euros, reflecting organic growth of 8%, and 5% based on published down 3% based on published figures. With the adverse impact figures. This performance was spurred by both innovation of exchange rate fluctuations decreasing revenue by 4 points, and the enrichment of existing lines. All three categories of organic growth was 1%. Although the start of the year was products – perfume, make-up and skincare – enjoyed positive affected by a reduction in the levels of wholesale inventories, growth. Virtually all of the brands in the portfolio contributed mainly in the United States and Japan, sales held up well to this performance, from flagship brands such as Parfums despite the difficult economic climate. In value terms, organic Christian Dior or Guerlain to alternative and niche brands growth was primarily generated by higher prices, although such as BeneFit Cosmetics and Make Up For Ever. champagne and cognac sales volumes were down by 7% and 6%, respectively. • Revenue from Watches and Jewelry was 879 million euros, reflecting negative organic revenue growth, declining by 2%, • Revenue from Fashion and Leather Goods was 6,010 million and a rise of 6% based on published figures (negative impact euros, reflecting organic growth of 10%, and 7% based on
10 2008 Annual Report Management Report of the Board of Directors Consolidated income statement
of exchange rate fluctuations decreasing revenue by 2 points, • Revenue from Selective Retailing was 4,376 million euros. combined with a positive impact due to changes in the scope Organic revenue growth was 9%, and 5% based on published of consolidation of 10 points). The positive impact related figures. This growth was driven by Sephora, whose sales to the integration of Hublot was 10 points. The year saw a strongly increased, not only on a same-store basis, but also gloomy consumer market in the US and lower demand in due to the expansion of its retail network in Europe, North Japan. All this business group’s brands boosted their sales America, China and the Middle East. in Europe and Asia. They posted significant growth in the Middle East and in Russia.
Revenue Profit from recurring operations (EUR millions) 2008 2007 (1) 2006 (1) 2008 2007 (1) 2006 (1) Christian Dior Couture 765 787 731 9 74 56 Wines and Spirits 3,126 3,226 2,994 1,060 1,058 962 Fashion and Leather Goods 6,010 5,628 5,222 1,927 1,829 1,633 Perfumes and Cosmetics 2,868 2,731 2,519 290 256 222 Watches and Jewelry 879 833 737 118 141 80 Selective Retailing 4,376 4,164 3,877 388 426 387 Other activities and eliminations (91) (124) (64) (171) (174) (131) Total 17,933 17,245 16,016 3,621 3,610 3,209
(1) After the reclassification of la Samaritaine from Selective Retailing to Other activities.
By business group, the breakdown of Group revenue remained Investments nearly stable. The contribution of Wines and Spirits fell by 2 points to 17%, that of Christian Dior Couture fell by 1 point The net balance from investing activities (purchases and sales) to 4%, while that of Fashion and Leather Goods rose by 1 point was a disbursement of 1,618 million euros. This includes, on to 34%. The contribution of all other business groups remained the one hand, net operating investments totaling 980 million unchanged, with Perfumes and Cosmetics at 16%, Selective euros, and on the other hand, net financial investments totaling Retailing at 24%, and Watches and Jewelry at 5%. In Other 638 million euros. activities and eliminations, the increase in revenue for the Media division resulting from the acquisition of the Les Echos Research and development media group was partially offset by an increase in consolidation Research and development expenses posted during the year eliminations arising from the strong revenue performance totaled 43 million euros in 2008 (compared to 46 million in 2007 achieved by the brands of the Perfumes and Cosmetics business and 43 million in 2006). These amounts cover scientific research group via the Sephora retail network. and development costs of skincare and make-up products in the On first consolidation of LVMH in 1988, all brands then Perfumes and Cosmetics business group. 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 valuation differences in brands and other intangible assets recorded prior to 1988 in the consolidated accounts of each of these companies. Consequently, LVMH’s net profit was consolidated in the amount of 2,317 million euros, compared to 2,318 million euros before restatement and intra-group eliminations, and is included in the Group share of net profit of Christian Dior for 890 million euros.
2008 Annual Report 11 Management Report of the Board of Directors Results by business group
2. Results by business group
Profits by business group as shown below are those published by Christian Dior Couture and LVMH, which have therefore not been restated for eliminations and consolidation adjustments.
2.1 Christian Dior Couture
2.1.1 Highlights Ongoing strategy targeting the highest end of the market 2008 was marked by the following: Revenue growth in the very upscale portion of the Group’s Ready-to-Wear, Leather Goods and Jewelry collections further confirmed the legitimacy of its strategy, concentrating Stability of annual revenue performance in on exceptional products befitting the excellent reputation of a challenging economic environment the Dior brand. In 2008, this strategy was pursued through Christian Dior Couture’s annual revenue, which amounted to prestigious events, particularly in China. The creation of a joint 765 million euros, remained stable at constant exchange rates. venture with LVMH for Montres Dior is also in keeping with Revenue growth at actual rates was -3%. this strategy, as it allows the brand to combine the production and marketing of exceptional products in a priority market. Revenue growth slowed considerably in the United States and Japan as these markets have been particularly affected by the current economic environment. However, revenue growth 2.1.2 Results of Christian Dior Couture was robust in the rest of the world, particularly in Europe, the Revenue for Christian Dior Couture declined by 3% at actual Middle East, and China. exchange rates compared with 2007, to 765 million euros. At constant exchange rates, revenue would be 787 million euros, Decline in operating profit remaining stable compared with the previous year. Profit from recurring operations was 9 million euros. It Profit from recurring operationsamounted to 9 million euros. reflects mainly the business volume recorded by the Group This decline is attributable mainly to lower business volumes, in 2008, the impact of supply chain enhancements and retail the recognition of provisions for impairment of inventory, network expansion. and the 4% increase in operating expenses related in part to network expansion. Supply Chain project Operating profit amounted to 2 million euros following the recognition of other operating income and expenses totaling This worldwide project aims to optimize the Group’s response 7 million euros, mainly incurred in connection with internal times and flexibility in the management of its production and restructuring efforts. inventory. Net financial expense was 18 million euros, which reflects Investments focused on high-growth markets the increase in debt related to investments and increases in inventory during the year. Dior’s retail network comprised 237 points of sale as of The tax expense totaled 11 million euros. It was generated by December 31, 2008, up from 221 as of December 31, 2007. the beneficiary subsidiaries, together with the non-recognition The Group continued to expand in the Middle East with two of tax credits by loss-making subsidiaries. openings in Saudi Arabia (both in Riyadh) as well as two new boutiques in Qatar and in Bahrain. Dior’s presence in China The Group share of net profit was a negative result of 29 million was reinforced with the opening of five new boutiques (one in euros, with profit attributable to minority interests amounting Dalian, two in Tianjin, and two in Shenyang). to 2 million euros.
12 2008 Annual Report Management Report of the Board of Directors Results by business group
2.1.3 Analysis of growth by business group
(EUR millions) 2008 2007 Change at actual exchange rates Change at constant exchange rates License royalties 36 33 +10% +12% Wholesale revenue 164 162 +1% +2% Retail revenue and other 565 592 -5% -1% Total 765 787 -3% 0%
License concessions Wholesale activities Christian Dior Couture licenses saw growth of 12% at constant Wholesale activities increased by 2% at constant rates in 2008. exchange rates, due in particular to the new concession for a The products that particularly contributed to this growth were mobile telephony business. women’s Ready-to-Wear and Montres Dior, which was the focus of a joint venture with LVMH entering into effect in April 2008. Retail sales and other
(EUR millions) 2008 2007 Change at actual rates Change at constant rates Europe and Middle East 292 277 +6% +9% Americas 74 97 -23% -18% Asia Pacific 199 218 -9% -7% Total 565 592 -5% -1%
• Within the retail network, Europe and the Middle East • Women’s Ready-to-Wear continued to show growth, seeking continued to deliver robust growth. In Europe, the new inspiration in the history of the brand. John Galliano’s Ready-to-Wear collections met with considerable success. In collections for 2008 exemplified the know-how, refinement a challenging economic environment, business volumes in the and luxury that have built the brand’s stellar reputation and United States and Japan declined considerably, especially were greeted with an enthusiastic reception, reaffirming the during the last quarter. In the Asia-Pacific region, China stylistic continuity of Dior. sustained growth at a steady pace over the course of the year, • The excellent performance of the Dior Soft and Jazz driven in particular during the month of December by a major products highlighted the strong revenue growth generated exhibition in Beijing: this event provided an opportunity by the resolutely upscale products of the Leather Goods for renowned Chinese artists to express their personal collection. visions of the Christian Dior brand, thus enhancing its image throughout Asia.
2.1.4 Outlook for 2009 Christian Dior Couture’s aim in 2009, against the backdrop Advertising campaigns will focus on the Group’s product lines of an uncertain economic climate worldwide, is to enhance its that make the greatest contribution to strengthening the brand’s operational flexibility and promote the growth of its iconic, very image of timeless elegance and longevity. high-end products. Supported by the brand’s global reach and the excellence of Network investments will be concentrated in Russia (Saint its products, Christian Dior Couture will pursue a strategy Petersburg, Yekaterinburg) and China. Plans for the closing targeting growth and profitability. of a number of boutiques, whose growth and profitability prospects are not in line with the Group’s objectives, are already under way.
2008 Annual Report 13 Management Report of the Board of Directors Results by business group
2.2 Wines and Spirits
2.2.1 Highlights The brand consolidated its positions in the luxury champagne segment. In 2008, Wines and Spirits revenue amounted to 3,126 million euros, representing organic growth of 1%. Estates & Wines, the entity that holds the sparkling and still wines of Moët Hennessy, generated continued organic growth This business group’s performance varied by market. Demand in all regions of the world, with the exception of the United was less robust in United States and Japan due to the economic States and Japan. environment, contrasting with a generally positive trend in Europe, while expectations were exceeded in China, and in Château d’Yquem achieved another record year, marked by some other asian markets such as Vietnam, as well as in Russia the success of its latest vintage, the 2007. and the Middle East. In 2008, China became the second largest market for the Wines and Spirits business group. Cognac and Spirits Profit from recurring operations was 1,060 million euros, Hennessy, the undisputed world leader in cognac, continued remaining stable compared to 2007. to grow and consolidated its market share in 2008. The decline in sales volumes was offset by the maintenance For the first time in the history of the brand, China ranked first of a pricing policy consistent with the high-end positioning of among its markets. Hennessy is strengthening its leadership in this business group’s brands. These price increases, together the world of premium spirits with the dynamic performance of with tight cost control, offset the adverse impact of exchange its V.S.O.P and X.O categories. rate fluctuations, expenses relating to the reinforcement of the distribution network, and advertising and promotional Hennessy recorded very strong performances in the other expenditure focused on strategic markets. Operating margin Asian markets. as a percentage of revenue for this business group increased In the United States, its second market, Hennessy, still the by 1.1 point to 33.9%. category leader, continued its value creation strategy, backed by the advertising campaign “Flaunt Your Taste.” 2.2.2 Principal developments Russia confirmed its position as the third pillar of Hennessy growth. In the European countries, Hennessy maintained its Champagnes and wines exceptional market share in Ireland. The brand is also growing rapidly in Central and Eastern Europe and in certain countries In the difficult economic conditions of 2008,Moët & Chandon of Africa and the Middle East. demonstrated the strength of its brand, resisting the sluggishness Glenmorangie strengthened its strategy designed to make it the of its historic markets and achieving high growth rates in the world leader in single malt whiskies based on the Glenmorangie emerging markets, particularly in Central Europe, Africa, the and Ardbeg brands. This strategy led the company to sell the Middle East and China. Glen Moray distillery along with other non-strategic assets. A The brand continued its strategy of moving upscale. The Rosé key highlight of 2008 was the very successful introduction of champagnes, a category that offers strong growth potential, the new line and the new visual identity for the Glenmorangie recorded the most dynamic performances. brand. Dom Pérignon continued its value creation strategy in its traditional markets and strengthened its volume growth in its 2.2.3 Outlook for 2009 new markets – Middle East, Central Europe and China. The strength of the brands of the Wines and Spirits business Ruinart recorded a new record year in 2008. This growth was group, the excellence of their products and the powerful the result of the strategy of developing value, giving priority to distribution network of Moët Hennessy will be major assets in the premium qualities, Ruinart Blanc de Blancs, Ruinart Rosé and 2009, in a difficult context, marked by a softness in demand and the prestigious Dom Ruinart vintage. by the wish of distributors to reduce their stocks. The strategy implemented by Veuve Clicquot Ponsardin, an While it intensifies its management efforts and adapts sales expression of continuing creativity with an emphasis on its strategies market by market, the Wines and Spirits business group oenological excellence, intensified brand loyalty, enabling the will continue to invest in its best drivers of growth, profitability company to withstand better than some of its direct competitors and gains in market share. Innovation will continue to be our the difficult economic environment of 2008 in the major priority. This dynamic strategy aimed at stimulating sales in the champagne markets. Veuve Clicquot recorded solid growth in short term will be a strong accelerator for the activities when China, Latin America and in the Persian Gulf. the economic situation improves. In 2008, Krug continued to implement its value strategy and its targeted investments in its key markets, as well as its policy of growth in areas with strong potential (Hong Kong, Spain).
14 2008 Annual Report Management Report of the Board of Directors Results by business group
2.3 Fashion and Leather Goods
2.3.1 Highlights Other brands In 2008, the Fashion and Leather Goods group posted sales of Demonstrating the effectiveness of the growth model defined by 6,010 million euros, representing organic growth of 10%. Profit its new management team, Donna Karan achieved a record year from recurring operations of 1,927 million euros was up 5%. despite a year-end impacted by the economic conditions. Despite the unfavorable impact of exchange rate fluctuations, In line with its strategic plan, Loewe spent 2008 establishing Louis Vuitton once again performed remarkably well. Both solid bases for future years by conducting major work on its Fendi and Marc Jacobs continued to show profitable growth. brand identity, renewing products and renovating its boutique Other brands that are currently the focus of development or concept. The Loewe retail network consisted of 133 stores as revitalization strategies posted mixed results, which led to a slight of December 31, 2008. decline of 0.4 point in the operating margin as a percentage of Marc Jacobs continued to record solid revenue growth. The revenue for this business group, to 32.1%. improvement of its profitability confirmed the remarkable vitality of the brand. 2.3.2 Principal developments For Celine, 2008 was a year of transition, marked by the arrival at year-end of a new management team and the appointment Louis Vuitton as Artistic Director of Phoebe Philo, one of the most talented stylists in the fashion world. In an unfavorable economic and monetary context, Louis Kenzo continued the improvement in its profitability. The Vuitton recorded a good year, marked by strong momentum company steadily continued the global deployment of its new in the Asian markets (China, Hong Kong, Macao, Korea and store concept. others), in the countries of Eastern Europe and in the Middle East. A phenomenon reflecting the enthusiasm generated by the Givenchy confirmed the pertinence of its repositioning and its brand in the Chinese markets, China became the brand’s second commercial success. Women’s ready-to-wear recorded strong largest customer base in 2008. The year was also characterized growth in Europe and the United States. The brand also expanded by an excellent performance in Western Europe and steady its presence in the Chinese market. growth in North America. Louis Vuitton based its progress both on the growth achieved with its local customers and on the development of new tourist customers, primarily from China, 2.3.3 Outlook for 2009 Russia and the Middle East. In 2009, Louis Vuitton will implement a dynamic program to The brand actively continued to expand its retail network, develop and introduce new products. which totaled 425 stores as of December 31, 2008. New stores The many creative developments will be supported by an were opened in all regions of the world, and at a very steady ambitious communications policy. rate in China and Korea based on the brand’s rapid success in those countries. The brand will continue to expand its retail network to strengthen its presence in the most promising markets. A number of new Fendi stores are planned in all regions, with particular emphasis on China and Korea. A high-potential store will open in Dubai. In 2008, Fendi continued to record strong and profitable organic Fendi will continue to capitalize on its heritage in leather goods revenue growth. by launching a new line that should be extremely successful. The Fendi continued to expand its retail network. The opening of brand will enhance its offer in accessories and continue to expand a flagship store on Avenue Montaigne in Paris and sites in two its store network selectively to meet its profit objectives. new countries, Qatar and Mexico, were the principal highlights All the fashion brands, based on the objectives and various of this growth. As of December 31, 2008, the Fendi network stages in their individual strategic plans, will continue more than had 180 stores around the world. The growth in business was ever to focus on improving fundamentals. Pucci and Celine will particularly strong in Europe, China and the Middle East. introduce the first collections from their new designers. Steady growth was also initiated in the countries of Eastern Europe via a network of independent customers.
2008 Annual Report 15 Management Report of the Board of Directors Results by business group
2.4 Perfumes and Cosmetics
2.4.1 Highlights China. Relying on a strategy that has been implemented for several years and is founded on high-end innovation, it generated The Perfume and Cosmetics business group recorded revenue revenue growth in all product categories. The new men’s fragrance for 2008 of 2,868 million euros, representing organic revenue Guerlain Homme was favorably received, while the House’s great growth of 8%. This vitality was driven both by innovations classic Shalimar achieved excellent performance. and by the expansion of existing lines. Profit from recurring operations, at 290 million euros, rose 13%. Other brands Despite a higher level of advertising and promotional expenditure, and costs related to a fresh foray into the world of perfume by Parfums Givenchy recorded a substantial revenue growth and Fendi and Pucci, tight control over product costs and other a sharp increase in its profit from recurring operations. These operating expenses once again improved profitability. Operating very positive results were driven by brand growth in almost all margin as a percentage of revenue for this business group thus regions of the world, with particularly satisfactory performances increased by 0.7 point to 10.1%. in France, the Middle East, and China. All product lines grew significantly. The women’s perfumes making the strongest contributions were Very Irresistible Givenchy 2.4.2 Principal developments and Ange ou Démon. The men’s portfolio recorded exceptional growth in the second half thanks to the very strong startup of Parfums Christian Dior the new Play line which was launched in only ten countries, and the variant ∏ Neo launched in the rest of the world. With significant revenue growth and new improvement in its profitability in 2008 for the fifth consecutive year, Parfums In 2008, Parfums Kenzo celebrated its 20th anniversary, marked Christian Dior again illustrated its exceptional image, the by the creation of limited editions in its iconic lines. Its iconic soundness of its strategy, and the quality of the resulting growth. perfume FlowerbyKenzo, launched in 2000, continued its strong The brand’s growth, again greater than the market average, performance and is now established as a great perfume classic. The was well distributed among its different geographic regions. KenzoKi skincare line continued to grow with the introduction of The leader in Europe, its first market, Parfums Christian Dior Belle de Jour, a total care produce for the face that was launched expanded its position there with advances into Russia. The successfully in France and Russia. brand also achieved solid growth in Asia and recorded the best BeneFit continued its rapid development in all its markets, growth among its competitors in the United States. China and maintaining high profitability. One of the make-up leaders the Middle East also confirmed their potential. in the United States and the United Kingdom, it confirmed Dior’s growth, another balancing factor, is driven by all product its success in the countries it has entered more recently, with categories and, within each category, by the brand pillars, the considerable success in China for its first full year of operations strategic lines developed over time and supported by a large in the market. number of initiatives. The dynamic performance of the perfume Make Up For Ever generated exceptional performance in 2008, segment was driven by the exceptional vitality of the great classic with very strong organic revenue growth in all its territories, J’adore, and by new variations of Miss Dior and the success of two particularly in France and the United States, two markets new products launched during the year, Dior Homme Sport and developed in partnership with Sephora. The revenue growth Escale à Portofino, which inaugurated a new fragrance collection. went along with a new improvement in profit from recurring The make-up segment, up sharply, was primarily carried by the operations. Dior Addict, Rouge Dior, and Diorshow product lines. The Capture product line and the more recent L’Or de Vie premium skincare products recorded excellent performances. 2.4.3 Outlook for 2009 Throughout 2009, the brands of the Perfumes and Cosmetics Guerlain business group will give priority to the development of the The company, born in 1828, recorded double-digit organic flagship lines that make a major contribution to their results revenue growth for the third consecutive year, along with a and will focus on their most profitable markets. In order to new and solid improvement in its profitability. prepare for future successes, the business group will continue to roll out high potential products with memorable initiatives The brand confirmed its momentum in all geographic zones, throughout the coming months. particularly in its priority markets – France, Russia, Japan and
16 2008 Annual Report Management Report of the Board of Directors Results by business group
Parfums Christian Dior will strengthen the pillars of its perfume Parfums Givenchy will benefit from the launch of Play segment J’adore, Poison, Miss Dior, Eau Sauvage, will deploy a throughout its international distribution network and from a number of creative innovations in make-up, particularly with new major initiative in the women’s perfume segment. the introduction of a new foundation Diorskin Nude, and will New products will be launched by Parfums Kenzo to enhance continue to enhance its Capture skincare line. its major FlowerbyKenzo, KenzoAmour and Les Eaux par Kenzo Guerlain will reinforce its strategic Shalimar, Guerlain Homme, lines. Terracotta and Orchidée Impériale lines, coupled with two major new product launches in make-up and perfume.
2.5 Watches and Jewelry
2.5.1 Highlights TAG Heuer also earned the Silmo d’Or in Paris for its collection of C-Flex eyewear developed in partnership with Logo. This In 2008, Watches and Jewelry revenue amounted to 879 million diversification into eyewear and sun glasses has expanded euros, representing negative organic growth of 2%, and a rise strongly in the last three years. of 6% based on published figures (negative impact of exchange rate fluctuations decreasing revenue by 2 points, combined with a positive impact due to changes in the scope of consolidation Hublot of 10 points). The acquisition of the watchmaker Hublot, announced in Following four years of strong growth and a remarkable April 2008, gives LVMH a new high-end brand with strong turnaround in its profitability, in 2008 the Watches and Jewelry growth potential. business group recorded a decline in profit from recurring Since its acquisition by the Group, Hublot has maintained strong operations to 118 million euros, down from 141 million euros in momentum and continued its industrial integration plan with 2007. Against the backdrop of a slowdown in sales, operational the construction of its manufacturing plant in Nyon. The brand profitability fell to 13.4%. opened its first boutiques as part of a highly selective strategy The year was characterized by a sluggish American market and in Geneva, Shanghai and Kuala Lumpur. by a decline in demand in Japan. All the brands increased their Its revenue and profitability have increased in line with projections, revenue in Europe and Asia and recorded significant growth despite the deterioration in economic conditions. in the Middle East and Russia, despite a clear slowdown in the last quarter. The business group maintained its overall market The Hublot operations were consolidated in the Group’s results share. By taking appropriate measures in the second half of the as of May 1, 2008. year, it has made effective preparations for 2009, which will be marked by difficult economic conditions and retail overstocking Chaumet by a number of competing brands. In 2008, Chaumet expanded its presence in several of its key markets – Hong Kong, China and the Middle East – and 2.5.2 Principal developments streamlined its operations in Korea. The brand recorded steady growth in France and gained market share in Japan. TAG Heuer Other brands After the highly targeted 2007 launch, 2008 was for TAG Heuer the year when the Grand Carrera collections were rolled out De Beers continued to expand its international presence in the worldwide. Affected by the US economy, the brand continued United States, Asia and the Middle East. to grow in many markets. Montres Dior continued to move more high-end to streamline 2008 was also the year of the highly reported launch of Meridiist, their global retail business. the first line of cell phones directly inspired by the leading- In order to promote synergies with Dior Couture and Joaillerie, edge materials and technologies controlled by TAG Heuer and the activity of Montres Dior is now managed in the form of a designed in collaboration with Modelabs. joint venture between the Watches and Jewelry business group In 2008, TAG Heuer won its fifth Geneva Watchmaking Grand and the Christian Dior Couture business group. Prix. This high honor was awarded to the Grand Carrera Calibre Fred recorded steady growth in France with its Force 10 jewelry 36 RS Caliper chronograph, the flagship model of the Grand collection, which was successfully relaunched at the end of Carrera line. 2007. The flagship store on Place Vendôme was renovated and generated steady growth.
2008 Annual Report 17 Management Report of the Board of Directors Results by business group
2.5.3 Outlook for 2009 At the end of 2008, all the companies and sales subsidiaries committed to cost-cutting plans in order to improve the In a watch and jewelry market that will be difficult in 2009 productivity of the entire business group. because of the economic environment, the objective of the Watches and Jewelry business group is to continue to gain Investments will be very focused on strategic developments, market share while consolidating the profitability which has particularly the continued industrial integration of the improved significantly in the last five years. TAG Heuer and Hublot brands.
2.6 Selective Retailing
2.6.1 Highlights Sephora In 2008, Selective Retailing revenue amounted to 4,376 million Following on from the strong performance achieved in the last euros, representing organic growth of 9%. Its profit from recurring four years, Sephora continued to grow at a steady pace in 2008; operations of 388 million euros was down 9%. it achieved revenue growth and market share gains in all regions and maintained its good level of profitability. Revenue growth Sephora continued to improve its operating margin, despite was driven by growth on a same-store basis and by a number expenses resulting from its rapid expansion in Europe, the of new stores. In this context of steady investments in order to United States, China, and the Middle East, thus confirming expand its network, Sephora’s profit from recurring operations its highly profitable growth momentum. Operating margin as rose in line with revenue. a percentage of revenue for the Selective Retailing business group as a whole amounted to 8.9%. More than 140 new stores were opened in 2008 in all regions where Sephora is present (Europe, North America, Asia and the Middle East). This number reflects the global success of 2.6.2 Principal developments its concept and its ability to finance its growth from its own resources. Sephora expanded within its key markets and entered DFS four new countries: the Netherlands, Kuwait, Hong Kong and Singapore. Despite the impact of the economic difficulties in the second As of December 31, 2008, Sephora’s global network represented half of 2008, DFS recorded solid revenue performance. The 898 stores in 23 countries. slowdown in the markets related to Japanese tourism was offset by the dynamic trends in destinations visited by other Asian In October 2008, in order to expand its presence in the high- customers, particularly from China. Because it anticipated potential Russian market, Sephora acquired an interest in the early the rapid growth in these new customers and designed a second largest local operation in perfume and cosmetics retail, very attractive offer, DFS is now in a strong position to benefit which holds nearly 100 stores under the Ile de Beauté brand from their development, even if the investments weigh on the name. This stake is consolidated using the equity method. profitability. Revenue from the shopping websites sephora.com (United The year 2008 was marked by the opening of the Macao Galleria, States and Canada), sephora.fr (France) and sephora.cn (China) a high-potential business and resort destination. continued to grow significantly. These sites are among the leaders in their reference market. During the year, DFS also began operating in the Middle East at the Abu Dhabi international airport. This location is the first step in the expansion planned by DFS in this region of the world. Le Bon Marché The opening of a new concession in Terminal 3 of the Singapore 2008 was a transition year for Le Bon Marché, characterized airport as well as the start of operations at the Mumbai (Bombay) by the continued renovation work that is preparing for future airport in India were other highlights of the year. trends and will open new growth possibilities. Miami Cruiseline In a difficult commercial context at year-end, the store recorded slightly slower activity and maintained solid profitability. The The business of Miami Cruiseline, with a customer base that second-half launch of the new website treeslbm.com was well is primarily American, was impacted by the slowdown in the received. cruise market and the softness in travellers’ spending. To meet this situation, the company took a number of cost-cutting measures.
18 2008 Annual Report Management Report of the Board of Directors Operational risk factors and insurance policy
2.6.3 Outlook for 2009 Sephora will continue to gain market share by maintaining the major vectors of its strategy. In particular, the brand will In the very uncertain environment of 2009, the Abu Dhabi rely on the introduction of a new wave of exclusive products, business over a full year and the opening of a new site in Macao on the innovations in its own brand products, and on growth will be positive elements for the activity of DFS. In the short in its loyalty programs. Particular attention will be paid to the term, the “travel retail” leader should also benefit from a series efficiency of its organization in order to continue the trend of of adjustments made to its organization in the fourth quarter profitable growth. New stores will be concentrated in markets of 2008 in order to simplify it, boost its efficiency and improve offering the greatest profitability in order to ensure a rapid return the productivity of its stores. In the medium and long term, on investment and in new high-potential territories like China. DFS will remain focused on the growth opportunities related to high-potential Asian customers and the expansion of its Le Bon Marché has initiated very rigorous management measures, presence in the Middle East. while maintaining its investments in sales productivity.
3. Operational risk factors and insurance policy
3.1 Operational risk factors
3.1.1 Counterfeit and parallel retail In particular, an action plan has been specifically drawn up to address the counterfeiting of Louis Vuitton products. This networks involves close cooperation with governmental authorities, The Group’s brands, expertise and production methods can be customs officials and lawyers specializing in these matters in counterfeited or copied. Products may be distributed in parallel the countries concerned. The Group also plays a key role in all retail networks without the Group’s consent. of the trade bodies representing the major names in the luxury goods industry, in order to promote cooperation and a consistent Around the world, the Group is known for its brands, unrivaled global message against counterfeiting, all of which are essential expertise and production methods unique to its products. in successfully combating the problem. Brands are the cornerstone of the Group’s business strategy. As In addition, the Group takes various measures to fight the sale a result, the legal protection of its trademarks and brands is an of its products through parallel retail networks, in particular absolute necessity. Thus, brands, product names, trademarks, etc. by developing product traceability, prohibiting direct sales to are always filed or registered to guarantee legal protection those networks, and taking specific initiatives aimed at better both in France and in other countries. In general, the Group controlling retail channels. In 2008, the cost of these initiatives takes all measures at the international level to ensure such legal was 16 million euros. protection is complete. The Group’s products, particularly leather goods, are subject to 3.1.2 Competition counterfeiting, especially in Europe and South East Asia. The Group faces intense competition from an increasing number Moreover, the Group’s perfumes and cosmetics may be found, of market participants and product offerings. Within this without the Group’s control, in points of sale that are inappropriate environment, the positioning of products depends upon the image for the image or nature of these products (known as parallel or of its brands and the exemplary quality and innovative content “gray market” trade). of its products. Other factors influencing this positioning include product design and style, brand image and reputation. Counterfeiting and parallel distribution have an immediate adverse effect on revenue and profit and may damage the brand Competition in the markets in which the Group operates is also image of the relevant products over time. The Group takes all being driven by the concentration of retail networks and the possible measures to protect itself against these risks. emergence of new players. This is true for Wines and Spirits
2008 Annual Report 19 Management Report of the Board of Directors Operational risk factors and insurance policy
as well as Perfumes and Cosmetics which are currently facing It is important to note that Group’s activity is equally spread pressure on margins, a plethora of rival product launches and between three geographical and monetary regions: Asia, the encroachment by retail chains. Competition is also intensifying euro zone and the United States. This geographic balance helps in Fashion and Leather Goods, where the development and to offset the risk of exposure to any one area. constant improvement of products constitute the Group’s Finally, the Group operates to a very limited degree in countries primary strengths. which impose restrictions on repatriation of profits or access to foreign exchange. 3.1.3 Regulations In France, the European Union and all other countries in 3.1.6 Other risk factors which the Group operates, many of its products are subject to specific regulations. Regulations apply to production and Customer risk manufacturing conditions, as well as to sales, consumer safety, product labeling and composition. Because of the nature of its activities, the majority of the Group’s sales are not affected by customer risk. Sales are made directly to customers through Christian Dior Couture, our Selective 3.1.4 Seasonality Retailing network, the Fashion and Leather Goods stores Nearly all of the Group’s activities are subject to seasonal and, to a lesser extent, the Perfumes and Cosmetics stores. variations in demand. Historically, a significant proportion of Together, these sales accounted for approximately 80% and the Group’s sales – approximately 30% of the annual total – has 54% of total revenue for Christian Dior Couture and LVMH been generated during the peak holiday season in the fourth respectively in 2008. quarter of the year. Unexpected events in the final months of Furthermore, for revenue not included in this figure, the Group the year may adversely affect the Group’s business volume may be exposed to customer risk, particularly in connection and earnings. with license commissions or wholesale activities. The Group’s businesses are not dependent on a limited number of customers whose default would have a significant impact on Group activity 3.1.5 Worldwide operations level or earnings. At LVMH, the receivable auxiliary balance The Group conducts business internationally and as a result is as of December 31, 2008 is covered by credit insurance up to subject to various types of risks and uncertainties. These include 83% of its gross value. currency fluctuations which can affect transactions, customer purchasing power, and the value of operating assets located Country risk abroad, economic changes that are not necessarily simultaneous from one country to another, and customs regulations or import In general, the Group has little or no presence in politically restrictions imposed by some countries that may, under certain instable regions. circumstances, penalize the Group. Please see the “Financial The other risk factors, not directly related to business activities policy” section below, for further information concerning the but to financing and investment transactions, are described in currency hedges used to mitigate foreign exchange risks. the “Financial policy” section below.
20 2008 Annual Report Management Report of the Board of Directors Operational risk factors and insurance policy
3.2 Industrial and environmental risks
To identify, analyze and provide protection against industrial A legal intelligence team has also been set up in order to better and environmental risks, the Group relies on a combination manage the heightened risk of liability litigation, notably that of independent experts and qualified professionals from to which the Group’s brands are particularly exposed. various Group companies, and in particular safety, quality and environmental managers. 3.2.3 Risks incurred by all Group activities 3.2.1 Mitigating industrial risks The business of the Group’s companies is such that particular attention is paid to exposures arising from the storage and The Group consistently applies the highest safety standards as transportation of raw materials and finished goods. part of its policy on industrial risk prevention. Working with Due to the geographical locations of its operations, the Group’s its insurers, LVMH applies HPR (Highly Protected Risks) businesses may be exposed to natural catastrophes. standards, the objective of which is to significantly reduce fire risk, and has established an incentive program for risk prevention investments which is taken into account by insurance companies 3.2.4 Loss experience in their risk assessment process. In 2008, the Group’s businesses did not suffer the impact of This approach is combined with an industrial and environmental any significant disasters. All losses were fully covered by the risk monitoring program. In 2008, engineering consultants Group’s insurance policies. devoted about 275 audit days to the program. In addition, prevention and protection schemes include contingency planning to ensure business continuity. 3.2.5 Verification of the proper application of risk management policies 3.2.2 Preventing product-related risks – The Group conducts regular site visits and uses reporting procedures to monitor the implementation and operation of risk Incident management management actions at Group entities. This enables the Group In addition to industrial safety, LVMH companies also work to review and assess the pertinence of its risk management policy to ensure greater product safety and traceability. The HACCP on an ongoing basis. method (Hazard Analysis Critical Control Point) is used by At LVMH, the Risk Management department works together companies in the Wines and Spirits and Perfumes and Cosmetics with the Group’s Internal Audit team on the development of business groups. This approach aims notably to reinforce the tools and methodologies for the identification and evaluation of Group’s anticipation and responsiveness in the event of a risks. These tools allow Group companies to take preemptive product recall. action and implement corrective measures to reduce both the likelihood of occurrence and severity of identified risks.
2008 Annual Report 21 Management Report of the Board of Directors Operational risk factors and insurance policy
3.3 Risk coverage and insurance policies
The Group has a dynamic global risk management policy based reflect gross margin exposures of the Group companies for a primarily on the following: period of indemnity extending from 12 to 24 months based on actual risk exposures. The upper limit of this program is • systematic identification and documentation of risks; 1.1 billion euros, an amount determined on the basis of the • procedures for risk prevention, occupational safety and Group’s maximum possible loss. protection of persons and industrial assets; Coverage for “natural events” provided under the Group’s • implementation of international incident management systems international damage insurance program is limited to: 75 million and contingency plans; euros per claim and 150 million euros per year for LVMH and 200 million euros per claim in France (10 million euros outside • a comprehensive insurance program to reduce the financial of France) for Christian Dior Couture. These limits are in line consequences of major events on the Group’s financial with the Group companies’ risk exposures. position; • worldwide coordination of master” and centralized insurance programs. 3.3.2 Transport insurance The Group’s global approach is primarily based on transferring its All Group operating entities are covered by an “Inventory and risks to the insurance markets under reasonable financial terms, Transit” transportation insurance contract. within the limits of the conditions available in those markets both in terms of scope of coverage and limits. The extent of insurance coverage is directly related to the constraints of the 3.3.3 Third party liability insurance market. The Group has implemented a third-party liability and worldwide product recall insurance program for all its subsidiaries Compared with the Group’s financial capacity, its level of self- throughout the world. This program is designed to provide the insurance does not seem significant. The deductibles payable most comprehensive coverage for the Group’s known risks, given by Group companies in the event of a claim reflect an optimal the insurance capacity and coverage available internationally. balance between coverage and the total cost of risk. Insurance costs paid by Group companies are less than 0.30% of consolidated Coverage levels are in line with those of companies with revenue. comparable business operations. The financial ratings of the Group’s main insurance partners Both environmental losses arising from gradual as well as sudden, are reviewed on a regular basis. accidental pollution and environmental liability (Directive 2004/35/EC) are covered under this program. The main insurance programs coordinated by the Group are designed to cover property damage and business interruption, Specific insurance policies have been implemented for countries transportation, third party liability and product recall. where work-related accidents are not covered by state insurance schemes, such as the United States. Coverage levels are in line with the various legal requirements imposed by the 3.3.1 Property and business interruption different states. insurance Most of the Group’s manufacturing operations are covered under 3.3.4 Coverage for special risks a consolidated international insurance program for property Insurance coverage for political risks, directors’ and officers’ damage and associated operating losses. Other business operations liability, fraud and malicious intent, natural catastrophe, are covered under programs coordinated at corporate level. acts of terrorism, data corruption or data loss, credit risk or Property damage insurance limits are provided in line with the environmental risks, is obtained through specific worldwide values of assets insured. Business interruption insurance limits or local policies.
22 2008 Annual Report Management Report of the Board of Directors Financial policy
4. Financial policy
During the year, the Group’s financial policy focused on: Apart from its cash and cash equivalents, the Group applies a diversified short and long term investment policy. The Group’s • Improving the Group’s financial structure, as evidenced by private equity investments continued to perform well in 2008 the key indicators listed below: as in recent years, whereas its other short and long term -- substantial growth in equity; investments, in contrast to their performance in recent years, suffered from the impact of the market downturn in 2008. -- reinforcement of the financial structure thanks to the increase in the long term portion of net financial debt; • A controlled increase in borrowing costs, with a cost of net financial debt amounting to 322 million euros in 2008, -- a determined, moderate reduction in the amount of cash and compared to 272 million euros in 2007. This change is the cash equivalents, in response to the context of the financial result of widening credit and lending margins, increases in markets; short term interest rates in the euro zone and the rise in the -- the Group’s financial flexibility, based on a significant reserve average net financial debt. Despite these developments, the of confirmed credit lines. Group was able to limit the impact in 2008 of the upturn in euro, Swiss franc and US dollar interest rates thanks to Equity before appropriation of profit increased by 9.5% to the significant proportion of fixed-rate borrowings at the 15,265 million euros as of December 31, 2008, compared beginning of the year. to 13,940 million euros a year earlier. This improvement is attributable both to net profit growth in 2008 and the positive Financial income and expenses were favorably impacted once impact of currency translation due to the change in value of the again by dividends received and by the net financial gains US dollar and the Japanese yen against the euro between the relating to available for sale financial assets and other financial end of 2007 and 2008, partially offset by dividend payments instruments, including in particular the gains recorded on the totaling 905 million euros. sale of the minority stake in the French video game retailer Micromania. However, the recognition of changes in the fair • Maintaining a prudent foreign exchange and interest rate value of the ineffective portion of foreign currency hedges risk management policy designed primarily to hedge the risks had an adverse impact on financial income and expenses, but generated directly and indirectly by the Group’s operations to a lesser extent than in the previous year. and investments. • Pursuing a dynamic dividend payout policy to shareholders, With regard to foreign exchange risks, the Group continued to enable them to benefit from the company’s excellent to hedge the risks of exporting companies using call options performances over the year: or ranges to limit the negative impact of currency depreciation while retaining most of the gains in the event of currency -- an interim dividend for 2008 of 0.44 euro was paid in appreciation. This strategy enabled the Group to obtain December 2008; hedging rates for the US dollar and the Japanese yen, its two -- proposal of a total gross dividend of 1.61 euro per share for main invoicing currencies, comparable with those obtained the period; as a result, total dividend payments to shareholders in 2007 and better than their respective average annual by Christian Dior SA in respect of 2008 would amount to exchange rates. 293 million euros, before the impact of treasury shares. • The current financial market situation, and in particular the high cost of liquidity and the rise in counterparty risk, has prompted the Group to limit its cash and cash equivalents.
2008 Annual Report 23 Management Report of the Board of Directors Financial policy
4.1 Market risks
4.1.1 Exposure to foreign exchange rate risk or even directly within non-current or current available for sale financial assets. A substantial portion of the Group’s sales is denominated in currencies other than the euro, particularly the US dollar and The Group may use derivatives in order to reduce its exposure the Japanese yen, while most of its manufacturing expenses to risk. Derivatives may serve as a hedge against fluctuations in are euro-denominated. share prices. For instance, equity swaps in LVMH shares allow cash-settled compensation plans index-linked to the change in Exchange rate fluctuations between the euro and the main LVMH share to be covered. Derivatives may also be used to currencies in which the Group’s sales are denominated can build a synthetic long position. therefore significantly impact its revenue and earnings reported in euros, and complicate comparisons of its year-on-year performance. 4.1.4 Exposure to liquidity risk The Group actively manages its exposure to foreign exchange The Group’s local liquidity risks are generally not significant. risk in order to reduce its sensitivity to unfavorable currency Its overall exposure to liquidity risk can be assessed with regard fluctuations by implementing hedges such as forward sales to the amount of the short term portion of its net financial debt and options. before hedging (1.4 billion euros) and outstanding amounts in Owning substantial assets denominated in currencies other respect of its commercial paper program (0.7 billion euros). than euros (primarily the US dollar and Swiss franc) is also a Should any of these borrowing facilities not be renewed, the source of foreign exchange risk with respect to the Group’s net Group has access to undrawn confirmed credit lines totaling assets. This risk is managed via total or partial funding of these 3.6 billion euros. assets with borrowings denominated in the same currency as Therefore, the Group’s liquidity is based on the large amount the corresponding asset. of its investments and long term borrowings, the diversity of its investor base (bonds and commercial paper), and the quality of its banking relationships, whether evidenced or not 4.1.2 Exposure to interest rate risk by confirmed credit lines. The Group’s exposure to interest rate risk may be assessed with respect to the amount of its consolidated net financial debt, which totaled approximately 5.4 billion euros as of December 31, 2008. 4.1.5 Organization of foreign exchange, At this date, 55% of gross debt was subject to a fixed rate of interest rate and equity market risk interest and 45% was subject to a floating interest rate. management Since the Group’s debt is denominated in various different The Group applies an exchange rate and interest rate management currencies, the Group’s exposure to fluctuations in interest rates strategy designed primarily to reduce any negative impacts of underlying the main currency-denominated borrowings (euro, foreign currency or interest rate fluctuations on its business US dollar, Swiss franc and Japanese yen) varies accordingly. and investments. This risk is managed using interest rate swaps and purchases The Group has implemented a stringent policy, as well as strict of interest rate caps (protections against an increase in interest management guidelines to measure, manage and monitor these rate) designed to limit the adverse impact of unfavorable interest market risks. rate fluctuations. These activities are organized based on a strict segregation of duties between risk measurement, hedging (front office), 4.1.3 Exposure to equity market risk administration (back office) and financial control. The Group’s exposure to equity market risk relates mainly The backbone of this organization is an integrated information to Christian Dior and LVMH treasury shares which are held system which allows hedging transactions to be monitored in primarily for stock option plans and bonus share plans. The real time. Group also now holds LVMH share-settled calls to cover these Hedging decisions are made according to a clearly established commitments to employees. Christian Dior treasury shares, as process that includes regular presentations to the Group’s various well as call options on Christian Dior shares, are considered as executive bodies and detailed supporting documentation. equity instruments under IFRS, and as such have no impact on the consolidated income statement. Potential counterparties are selected based on a minimum rating level and in accordance with the Group’s risk Shares other than Christian Dior and LVMH treasury shares may diversification strategy. be held by some of the funds in which the Group has invested,
24 2008 Annual Report Management Report of the Board of Directors Financial policy
4.2 Consolidated cash flow
The consolidated cash flow statement, which is shown in the Transactions relating to equity generated an outflow of consolidated financial statements, details the main cash flows 1,040 million euros over the year. for the 2008 fiscal year. Acquisitions of Christian Dior and LVMH shares and related Cash from operations before changes in working capital was derivatives by the Group, net of disposals, generated an outflow 4,141 million euros, compared to 4,145 million euros a year of 146 million euros. In particular, a total of 820,000 LVMH earlier. shares were acquired in order to be cancelled. As in previous years, LVMH call options were acquired to cover commitments Net cash from operations before changes in working capital for purchase options granted to employees. (i.e. after interest and income tax) amounted to 2,993 million euros compared to the 2,968 million euros recorded in 2007. In the year ended December 31, 2008, Christian Dior paid 287 million euros in dividends, excluding the amount attributable Interest paid in 2008 amounted to 271 million euros, up from to treasury shares, of which 209 million euros were distributed in 252 million euros in 2007, an increase due mainly to higher May in respect of the final dividend on 2007 profit and 78 million euro interest rates on average over the year, combined with euros in December in respect of the interim dividend for the the increase in corporate spreads and the rise in the average 2008 fiscal year. Furthermore, the minority shareholders of amounts outstanding on financial debt. consolidated subsidiaries received 618 million euros in dividends, Income tax paid in 2008 amounted to 877 million euros, as mainly corresponding to dividends paid to minority interests in against 925 million euros in 2007. LVMH SA and to Diageo with respect to its 34% stake in Moët Hennessy and to minority interests in DFS. Working capital requirements increased by 737 million euros. Changes in inventories increased cash requirements by 829 million After all operating, investing and equity-related activities, the euros, due in particular to the replenishment of distilled alcohol total cash requirement amounted to 402 million euros. inventories for cognac and those of base wines for champagne. Borrowings and financial debt were amortized in 2008 for an The year-on-year increase in trade accounts receivable was held amount of 2,549 million euros, and 47 million euros were invested in check, generating a cash requirement of 19 million euros, in current available for sale financial assets. mainly at Parfums Christian Dior and at Hennessy, while the increase in trade accounts payable provided additional cash Conversely, bond issues and new borrowings provided an inflow in the amount of 122 million euros, notably at Christian Dior of 2,555 million euros. In April 2008, LVMH reopened its 2005- Couture, Sephora, Hennessy and Louis Vuitton. 2012 bond issue in the nominal amount of 160 million euros and in June it carried out a public bond issue denominated in Swiss Overall, net cash from operating activities posted a surplus of francs, consisting of two tranches of 3, 5 and 7 years, each in 2,256 million euros. a nominal amount of 200 million Swiss francs. In addition, the Net cash used in financial and operating investment activities Group made use of its Euro Medium Term Notes program to amounted to 1,618 million euros. diversify its investor base and seize opportunities for private placements. Furthermore, in December 2008, Christian Dior Group operating investments for the year, net of disposals, proceeded with a 50 million euro 3 year bond issue. Overall, resulted in net cash outflows of 980 million euros. This amount the Group made greater use of long-term financial resources, reflects the Group’s growth strategy and that of its flagship brands thus decreasing its reliance on its French commercial paper such as Louis Vuitton, Sephora and Parfums Christian Dior. program by 369 million euros. Disposals of non-current available for sale financial assets, net of As of December 31, 2008, cash and cash equivalents net of bank purchases, represented a net inflow of 30 million euros. Notable overdrafts amounted to 653 million euros. events of 2008 included the acquisition of a 45% stake in the Russian perfume retail chain Ile de Beauté and the disposal of a stake in the French video game retailer Micromania. The net impact of the purchase and sale of investments in consolidated entities resulted in an outflow of 668 million euros, relating mainly to the acquisitions of the Swiss watchmaker Hublot and the Dutch luxury yacht builder Royal Van Lent.
2008 Annual Report 25 Management Report of the Board of Directors Financial policy
4.3 Financial structure
Christian Dior Group’s consolidated balance sheet, which is Cash and cash equivalents decreased from 1.6 billion euros as shown in the consolidated financial statements, totaled 35.6 billion of December 31, 2007 to 1.1 billion euros. euros as of December 31, 2008, representing a year-on-year The Group share of equity before appropriation of profit increased increase of 3.7%. to 5.9 billion euros from 5.4 billion euros at year-end 2007. Non-current assets amounted to 24.7 billion euros, compared to Minority interests increased by 0.8 billion euros in 2008 to 23.8 billion at year-end 2007, thus corresponding to 70% of total 9.3 billion euros. assets, a proportion equivalent to that recorded a year earlier. Total equity thus amounted to 15.3 billion euros, compared Tangible and intangible fixed assets (including goodwill) increased to 13.9 billion euros as of December 31, 2007, representing slightly to 22.6 billion euros from 21.7 billion euros at year- 43% of the balance sheet total versus 41% a year earlier. The end 2007. Brands and other intangible assets amounted to increase in equity (including minority interests) of 1.4 billion 11.2 billion euros, from 10.7 billion euros as of December 31, euros resulted essentially from the net profit of the fiscal year, 2007. This change is primarily attributable to the acquisition which amounted to 2.2 billion euros, less 0.9 billion euros in of the Swiss watchmaker Hublot, the initial consolidation as of dividends paid. January 1, 2008 of the media group Les Echos, acquired at the very end of 2007, and the effects of exchange rate fluctuations Non-current liabilities amounted to 12.9 billion euros as of on brands and other intangible assets recognized in US dollars, December 31, 2008, including 4.6 billion euros in long-term such as the DFS trade name, or in Swiss francs, such as the borrowings. This compares to 12.3 billion euros at year-end TAG Heuer brand. 2007, including 3.4 billion euros in long-term borrowings. This increase was primarily due to the increase in long-term Goodwill decreased to 5.0 billion euros, from 5.4 billion euros a borrowings, partially offset by the decrease in share purchase year earlier. The positive impact of the goodwill recognized on commitments, which comprise the bulk of other non-current the initial consolidation of Les Echos, Hublot, the Dutch yacht liabilities. The proportion of non-current liabilities in the balance builder Royal Van Lent and John Galliano did not fully offset sheet total was 36%, remaining stable compared to 2007. the decline in goodwill recognized in relation to commitments to buy back minority interests. Equity and non-current liabilities thus amounted to 28.1 billion euros, and exceeded total non-current assets. Property, plant and equipment amounted to 6.4 billion euros, up from 5.7 billion euros at year-end 2007. This growth is chiefly Current liabilities amounted to 7.5 billion euros as of attributable to the levels of operating investments made by Louis December 31, 2008, compared to 8.1 billion euros a year earlier, Vuitton, Sephora, DFS and Christian Dior Couture in their due to the repayment of a significant portion of short-term retail networks and those of Hennessy and Moët & Chandon borrowings, this despite the acquisitions made and the rise in in their production equipment as well as the impact of exchange trade accounts payable resulting from the increase in purchases of rate fluctuations, which together exceeded depreciation charges distilled alcohol for cognac. Their relative weight in the balance during the year. sheet total decreased to 21%. Investments in associates, non-current available-for-sale financial Long-term and short-term borrowings, including the market value assets, other non-current assets and deferred tax amounted to of interest rate derivatives, and net of cash, cash equivalents and 2.1 billion euros and are thus stable compared to 2007. This current available-for-sale financial assets, amounted to 5.4 billion stability results principally from the acquisition of a 45% stake euros as of December 31, 2008, compared to 4.5 billion euros a in the Russian perfume retail chain Ile de Beauté, and the year earlier, representing a gearing of 35%, compared to 32% increase in deferred tax assets, offset by the consolidation of the at year-end 2007. investment in Les Echos and the disposal of a minority stake in As of December 31, 2008, confirmed credit facilities amounted the company Micromania. to more than 5.1 billion euros, of which only 1.5 billion euros Inventories and work in progress amounted to 6.0 billion euros, were drawn, which means that the undrawn amount available compared to 5.0 billion euros at year-end 2007, reflecting was 3.6 billion euros. The Group’s undrawn confirmed credit business growth, the continued replenishment of distilled alcohol lines substantially exceeded the outstanding portion of its inventories for cognac, acquisitions made in 2008, and the impact commercial paper program, which amounted to 0.7 billion euros of exchange rate fluctuations. as of December 31, 2008. Trade accounts receivable remained stable at 1.7 billion euros.
26 2008 Annual Report Management Report of the Board of Directors Results of Christian Dior
5. Results of Christian Dior
The results of Christian Dior consist primarily of dividend Net profit totaled 310 million euros, compared to 338 million revenue paid by Christian Dior Couture and indirectly by euros in 2007. LVMH, less financial expenses corresponding to the financing In addition, pursuant to CRC Regulation 2008-15 of of these investments. December 4, 2008, modifying CRC Regulation 99-03 of Financial income totaled 312 million euros, compared to April 29, 1999 relating to the general chart of accounts, 327 million euros in 2007. the Company has applied, with retroactive effect as of December 31, 2007, the new rules concerning the accounting This consists, on the one hand, of dividends received from treatment of share purchase or share subscription option plans subsidiaries, investments and other property totaling 436 million and bonus share plans granted to employees. These new rules euros and, on the other hand, of net interest expenses totaling require that the provisions recognized in relation to exercisable 54 million euros and net additions to provisions on treasury plans be apportioned over their entire vesting periods. The shares for 70 million euros. retroactive application of this new regulation entailed a decrease Tax savings recognized under the tax consolidation agreement in the related provisions recognized as of December 31, 2007 totaled 4 million euros, compared to 18 million euros in 2007. in the amount of 560,709.00 euros, offset by a credit taken to retained earnings, which thus increased from 27,622,628.41 euros to 28,183,337.41 euros.
The proposal to allocate the distributable profit for the fiscal year ended December 31, 2008 is as follows:
Amount available for distribution (EUR) • net profit: 309,976,093.49 plus • retained earnings before appropriation: 28,183,337.41 Amount available for distribution: 338,159,430.90 Proposed appropriation • distribution of a gross dividend of 1.61 euros per share: 292,580,547.28 • allocation to retained earnings: 45,578,883.62 Total 338,159,430.90
Should this appropriation be approved, the dividend would be With respect to this dividend distribution, individuals whose 1.61 euros per share. tax residence is in France will be entitled to the 40% deduction provided under Article 158 of the French Tax Code. As an interim dividend of 0.44 euros per share was paid on December 2, 2008, the balance of 1.17 euros will be paid out Finally, should the Company hold any treasury shares at the on May 25, 2009. time of the payment of this balance, the amount corresponding to the dividend not paid on these shares will be allocated to retained earnings.
Distribution of dividends As required by law, we remind you of the dividends per share allocated for distribution over the past three fiscal years, and the corresponding tax allowance:
(EUR) Gross dividend (1) Tax allowance (2) 2007 1.61 0.644 2006 1.41 0.564 2005 1.16 0.496
(1) Excludes the impact of tax regulations applicable to the beneficiaries. (2) For individuals with tax residence in France.
2008 Annual Report 27 Management Report of the Board of Directors Company shareholders
6. Company shareholders
6.1 Main shareholders
Pursuant to Article L. 233-13 of the French Commercial Code, holding over 5% of the share capital or voting rights, to the best based on information received pursuant to Articles L. 233-7 and of the Company’s knowledge: L. 233-12 of that Code, the following is a list of shareholders
December 31, 2008 December 31, 2007 % of share % of voting % of share % of voting Shareholders Number capital rights (1) Number capital rights (1) Groupe Arnault (2) 126,174,170 69.43 81.37 126,023,237 69.35 81.32
(1) Theoretical voting rights. (2) Groupe Arnault SAS, which is controlled by the family of Mr. Bernard Arnault, is the ultimate holding company of Christian Dior.
6.2 Shares held by members of the management and supervisory bodies
As of December 31, 2008, the members of the Board of Directors held directly, in a personal capacity and in the form of registered shares, less than 0.2% of the share capital.
6.3 Information on purchases and sales of shares
Pursuant to Article L. 225-211 of the French Commercial Code, They were purchased at an average price of 59.40 euros. it is specifically stated that the Company: Their par value was 2 euros. These shares represented 1.85% of the share capital. • over the past fiscal year, purchased 76,132 of its treasury shares, at an average price of 82.82 euros. Total trading • at fiscal year-end, also held 19,532 treasury shares, with a net expenses amounted to 9,457.90 euros. value of 749,198.69 euros. These shares were purchased pursuant to Article L. 225- These shares had been purchased with a view to stabilizing 208 of the French Commercial Code for allocation to share the share price at an average price of 58.02 euros. These purchase option plans. shares have a par value of 2 euros and represent 0.01% of the share capital. At the close of the fiscal year, the number of shares thus held, allocated to current or future share purchase option plans, In accordance with legal requirements, these shares are stripped totaled 3,346,848, with a net value of 125,739,921.70 euros. of their voting rights.
28 2008 Annual Report Management Report of the Board of Directors Company shareholders
6.4 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
Person Type of transaction Number of shares Average price (EUR) Purchase 154,058 52.16 Company(ies) related to the family of B. Arnault Purchase of calls 1,000,000 Purchase (1) 28,000 25.00 Sidney Toledano Sale 8,000 37.35 Sale 20,000 74.50 Individual(s) related to S. Toledano Purchase 20,000 74.50
(1) Exercise of share purchase options.
2008 Annual Report 29 Management Report of the Board of Directors Administrative matters
7. Administrative matters
7.1 Composition of the Board of Directors
It is proposed that: • the Shareholders’ Meeting ratify the provisional appointment • the Shareholders’ Meeting renew the term of office asD irector by co-optation of Mr. Renaud Donnedieu de Vabres, made of Messrs. Éric Guerlain, Antoine Bernheim, Denis Dalibot, by the Board of Directors on February 5, 2009, to replace Christian de Labriffe, Jaime de Marichalar y Sáenz de Tejada, Mr. Raymond Wibaux, deceased, so that he may continue to and Alessandro Vallarino Gancia for the statutory period of serve as Director for the remaining term of office of the latter; three years.
7.2 List of offices and positions of Directors
The list of all positions and offices held by each Director during the last five years is provided in §10 below.
7.3 Statutory Auditors
As the terms of office of the Statutory Auditors are due to expire, • appoint Auditex and reappoint Mr. Guillaume Potel as alternate the Shareholders’ Meeting is asked to: Statutory Auditors; • appoint Ernst & Young et Autres and to reappoint Mazars, for a six-year term that shall expire at the end of the Ordinary both as principal Statutory Auditors; Shareholders’ Meeting convened in 2015 to approve the financial statements for the previous fiscal year.
7.4 Modification of the Bylaws
You are invited to modify the Bylaws of the Company to take into timeframe within which a newly appointed Director must have consideration the new requirements enacted by the Law on the purchased shares of the Company, and on maintaining double voting Modernization of the Economy (LME) of August 4, 2008 on the rights in the event of a merger or spinoff of a shareholder company.
30 2008 Annual Report Management Report of the Board of Directors Financial authorizations
8. Financial authorizations
8.1 Status of current delegations and authorizations
8.1.1 Share repurchase program
Type Authorization date Expiry/Duration Amount authorized Use Share repurchase program May 15, 2008 November 14, 2009 10% of share capital None Maximum purchase price per share: 130 euros (9th resolution) (18 months) (1) 18,172,704 shares Reduction of capital through May 15, 2008 November 14, 2009 10% of share capital None the retirement of shares purchased (10th resolution) (18 months) (1) per 24-month period under the repurchase program 18,172,704 shares
(1) A resolution renewing this authorization will be presented to the Shareholders’ Meeting of May 14, 2009. See §8.2 below.
8.1.2 Authorizations to increase share capital
Authorization Issue price date/ Expiry/ determination Type Resolution Duration Amount authorized method Use Capital increase with preferential subscription May 10, 2007 July 9, 2009 40 million euros Free None rights (ordinary shares, investment securities (8th resolution) (26 months) (1) 20,000,000 shares (2) (3) giving access to the share capital, and incorporation of reserves) Capital increase without preferential May 10, 2007 July 9, 2009 40 million euros Based on None subscription rights (ordinary shares (9th resolution) (26 months) (1) 20,000,000 shares (2) (3) regulations in force and investment securities giving access to the share capital) Capital increase in connection May 10, 2007 July 9, 2009 with complex transactions: (10th resolution) (26 months) (1) • public exchange offer 40 million euros Free None 20,000,000 shares (2)(3) • contribution in kind 10% of share capital Free None 18,172,704 shares (2)
(1) A resolution renewing this authorization will be presented to the Shareholders’ Meeting of May 14, 2009. See §8.2 below. (2) Maximum nominal amount. The nominal amount of any capital increase decided in application of other delegations of authority or issues reserved for employees mentioned below would be offset against this amount. (3) Amount may be increased subject to the limit of 15% of the initial issue in the event that the issue is oversubscribed (Shareholders’ Meeting of May 10, 2007, 11th resolution).
2008 Annual Report 31 Management Report of the Board of Directors Financial authorizations
8.1.3 Employee share ownership
Expiry/ Amount authorized/ Exercise price Use as of Type Authorization date Duration Number of shares determination method December 31, 2008 Share subscription or May 11, 2006 July 10, 2009 3% of share capital Average share price • granted: purchase options (14th resolution) (38 months) (1) 5,451,811 shares over the 20 trading days 984,000 preceding the grant • available to be granted: date (3) 4,467,811 Allocation of bonus shares May 15, 2008 July 14, 2011 1% of share capital N/A None (11th resolution) (38 months) 1,817,270 shares (2) Capital increase reserved for May 15, 2008 July 14, 2010 3% of share capital Average share price None employees who are members (12th resolution) (26 months) 5,451,811 shares (2) over the 20 trading days of a Corporate Savings Plan preceding the grant date Maximum discount: 30%
(1) A resolution renewing this authorization will be presented to the Shareholders’ Meeting of May 14, 2009. See §8.2 below. (2) These issues would be offset against the maximum nominal amount of the capital increases decided in application of the above delegations of authority. (3) Maximum authorized discount: 20%. Moreover, with regard to share purchase options, the price shall not be lower than 80% of the average price of shares to be remitted by the Company when such options are exercised.
8.2 AutHoriZations to be renewed
8.2.1 Authorization to engage in stock The Board proposes that this authorization be renewed for a market transactions period of eighteen months. The Combined Shareholders’ Meeting of May 15, 2008 authorized the Board of Directors to implement a program to repurchase 8.2.3 Authorizations to increase the Company’s shares. This authorization was not implemented the share capital in 2008. The Combined Shareholders’ Meeting of May 10, 2007 The Board proposes to this Meeting that this authorization be delegated the Board of Directors the authority to increase the renewed for a term of eighteen months, it being understood that share capital, including through the issue of any investment such shares may be acquired, in particular, to provide market securities giving either immediate or future access to the liquidity services (purchases/sales) under a liquidity contract, share capital or conferring entitlement to debt securities. to cover stock option plans, employee stock ownership plans or any other form of share allocation or share-based payment, The Board proposes that this authorization be renewed for a to cover securities giving access to the Company’s shares, to period of twenty-six months. be retired, or to be held so as to be exchanged or presented as In keeping with common practice, you are invited to authorize consideration at a later date for external growth operations. the Board of Directors to issue, either in application of the The total number of shares that may be acquired by the Company preferential right of shareholders to subscribe to such securities, would be limited to 10% of the share capital. The maximum or with this right being excluded, with the understanding that purchase price per share would be 130 euros. a priority right may be granted to shareholders if the issues are performed on the French market. In the event of an issue for which the preferential right of 8.2.2 Authorization to reduce the share capital shareholders is excluded, the issue price of shares shall be at Pursuant to Article L. 225-209 of the French Commercial Code, least equal to the minimum price set forth in legislative and the Combined Shareholders’ Meeting of May 15, 2008 authorized regulatory provisions in force at the time of the issuance. the Board of Directors, should it consider that such an action In the event of any excess subscriptions in connection with serves the shareholders’ interests, to reduce the Company’s share a capital increase, the number of shares to be issued may capital through cancellation of shares acquired in connection be increased by the Board of Directors in accordance with with the share buy-back programs. applicable laws.
32 2008 Annual Report Management Report of the Board of Directors Financial authorizations
You are also invited to renew for a period of twenty-six months In the event that subscription options are allocated, your the delegation of authority granted to the Board of Directors authorization comprises an express waiver by shareholders of by the Combined Shareholders’ Meeting of May 10, 2007 to their preferential right to subscribe to the shares that will be increase the share capital by issuing shares as consideration issued as the options are exercised. either for shares contributed to a public exchange offer or, in The subscription or purchase price of shares shall fall within an amount not to exceed 10% of the Company’s share capital, limits authorized by the provisions in force as of the option for contributions in kind consisting of shares or investment grant date and in any event this price may not be lower than securities giving access to the Company’s share capital. the average share price during the twenty trading days prior The overall ceiling for all of these capital increases is increased to the commencement date of such a plan. from 40 million to 80 million euros. Moreover, with regard to share purchase options, the purchase price shall not be lower than the average price of shares to be 8.2.4 Employee share ownership remitted by the Company when such options are exercised. The Combined Shareholders’ Meeting of May 11, 2006 The exercise period for options shall be determined in accordance authorized subscription or purchase options for the Company’s with provisions in force on the grant date and shall last a shares to be awarded, on one or more occasions, in favor of maximum of ten years. the Group’s directors or employees. In accordance with legal The Board of Directors shall have the power to determine, provisions, every year you receive a report on the use that is within the limits set by the law and the Meeting, the terms of made of this authorization. the option plan or plans. You are invited to renew this authorization for a period of At subsequent Ordinary Shareholders’ Meetings, the Board thirty-eight months. of Directors will keep you informed of the number, price and Your authorization will enable the Board of Directors to grant beneficiaries of the options granted, together with the number new share subscription or purchase options, with the total of shares subscribed or purchased. number of new options granting access to a number of shares representing no more than 3% of the Company’s share capital.
2008 Annual Report 33 Management Report of the Board of Directors Information on compensation and benefits in kind of company officers
9. Information on compensation and benefits in kind of company officers
• Summary of the remuneration, options and bonus shares granted to senior executive officers
Remuneration due in Valuation of options granted Valuation of bonus shares respect of the fiscal year (1) during the fiscal year (2) granted during the fiscal year Senior executive officers (EUR) 2008 2007 2008 2007 2008 2007 Bernard Arnault 3,879,396 4,002,011 12,516,000 13,799,525 N/A N/A Sidney Toledano 1,431,810 1,451,645 1,085,000 1,065,500 N/A N/A
(1) Gross remuneration and benefits in kind paid or borne by the Company and the companies controlled, subject to the provisions of Article L. 225-102-1 of the French Commercial Code, excluding directors’ fees. No remuneration is paid to senior executive officers by Christian Dior. Remuneration is paid, for Bernard Arnault, by the LVMH Group and, for Sidney Toledano, by Christian Dior Couture. (2) The breakdown of equity securities or securities giving access to the share capital granted to members of the Board of Directors during the fiscal year is presented in §11.3.
• Summary of the remuneration of each senior executive officer (Gross remuneration and benefits in kind paid or borne by the Company and the companies controlled, subject to the provisions of Article L. 225-102-1 of the French Commercial Code.)
Bernard Arnault
Amounts due for the fiscal year Amounts paid in the fiscal year Compensation (EUR) 2008 2007 2008 2007 Fixed compensation (1) 1,679,396 1,702,011 1,679,396 1,702,011 Variable compensation (1) 2,200,000 2,300,000 2,300,000 (2) 2,300,000 (2) Exceptional compensation N/A N/A N/A N/A Directors’ fees 119,060 119,060 119,060 119,060 Benefits in kind Company car N/A Company car N/A Total 3,998,456 4,121,071 4,098,456 4,121,071
(1) Remuneration paid by the LVMH Group (no remuneration is paid by Christian Dior). (2) Amounts paid in respect of the prior fiscal year.
Sidney Toledano
Amounts due for the fiscal year Amounts paid in the fiscal year Compensation (EUR) 2008 2007 2008 2007 Fixed compensation (1) 881,810 801,645 881,810 801,645 Variable compensation (1) 550,000 650,000 650,000 (2) 600,000 (2) Exceptional compensation - - - - Directors’ fees 36,530 36,530 36,530 36,530 Benefits in kind Company car Company car Company car Company car Total 1,468,340 1,488,175 1,568,340 1,438,175
(1) Remuneration paid by Christian Dior Couture (no remuneration is paid by Christian Dior). (2) Amounts paid in respect of the prior fiscal year.
34 2008 Annual Report Management Report of the Board of Directors Information on compensation and benefits in kind of company officers
• Work contract, specific pension, leaving indemnities and non-competition clause in favor of senior executive officers
Indemnities or benefits due or Indemnities Supplementary likely to become due on the relating to a non- Senior executive officers Work contract pension cessation or change of functions competition clause Yes No Yes No Yes No Yes No Bernard Arnault - X X (1) - - X - X Chairman of the Board of Directors Sidney Toledano X (2) - - X - X X - Chief Executive Officer
(1) This supplementary pension, instituted by LVMH, is only acquired if the beneficiary simultaneously asserts his rights to his standard legal pension entitlement. 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. Amount of the commitment by LVMH as of December 31, 2008 for Bernard Arnault: 15,093,225 euros. (2) The work contract of Mr. Sidney Toledano has been suspended for the duration of his term of office as Chairman and Chief Executive Officer of Christian Dior Couture.
• Summary of compensation, benefits in kind and commitments given to other company officers (1)
Fixed compensation paid in Variable compensation paid in Members of the Board of Directors (EUR) 2008 2007 2008 2007 Antoine Bernheim - - - - Denis Dalibot (2) (3) (4) 515,262 383,150 521,000 496,271 Pierre Godé (2) 1,155,000 710,878 200,000 - Eric Guerlain - - - - Christian de Labriffe - - - - Jaime de Marichalar y Sáenz de Tejada - - - - Alessandro Vallarino Gancia - - - - Raymond Wibaux - - - -
(1) Gross remuneration and/or fees and benefits in kind paid or borne by the Company and the companies controlled, subject to the provisions of Article L. 225-102-1 of the French Commercial Code and received by the company officer or a company controlled by the latter. (2) The breakdown of equity securities or securities giving access to the share capital granted to members of the Board of Directors during the fiscal year is presented in §11.3. (3) Benefits in kind: company car. (4) Excluding retirement indemnity paid in 2008: 1,567,359 euros.
2008 Annual Report 35 Management Report of the Board of Directors Information on compensation and benefits in kind of company officers
• Breakdown of equity shares or securities giving access to the share capital granted to members of the Board of Directors during the fiscal year This breakdown is presented in §11.3 below.
• Directors’ fees paid to senior executive officers and other company officers (1)
Members of the Board of Directors Directors’ fees paid in (EUR) 2008 2007 Bernard Arnault 119,060 119,060 Antoine Bernheim 279,530 500,030 Denis Dalibot 29,632 30,050 Pierre Godé 127,144 131,463 Eric Guerlain 9,530 9,530 Christian de Labriffe 9,530 9,530 Jaime de Marichalar y Sáenz de Tejada 24,915 24,915 Sidney Toledano 36,530 36,530 Alessandro Vallarino Gancia 9,530 9,530 Raymond Wibaux 9,530 9,530
(1) Directors’ fees paid by the Company and the companies controlled, subject to the provisions of Article L. 225-102-1 of the French Commercial Code.
36 2008 Annual Report Management Report of the Board of Directors List of offices or positions exercised in all companies by company officers
10. 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 as well as the positions and offices they have exercised since January 1, 2004.
10.1 Current offices of directors
Mr. Bernard ARNAULT -- LVMH Moët Hennessy - Louis Vuitton SA: Chairman and Chairman of the Board of Directors Chief Executive Officer; -- Raspail Investissements SA: Director; Date of birth: March 5, 1949. French. -- Société Civile du Cheval Blanc: Director; Business address: LVMH – 22, avenue Montaigne – 75008 Paris (France). -- Fondation Louis Vuitton pour la Création, Fondation d’Entreprise: Chairman of the Board of Directors. Date of first appointment: March 20, 1985. • International: Expiration of term: Annual Meeting convened to approve the financial statements for the 2010 fiscal year. -- LVMH Moët Hennessy - Louis Vuitton Japan KK (Japan): Director. Number of Christian Dior shares held in a personal capacity: 39,697 shares. Other Mr. Bernard Arnault began his career as an engineer with Ferret- Savinel, where he became Senior Vice President for Construction • France: in 1974, Chief Executive Officer in 1977 and finally Chairman -- Carrefour SA: Director; and Chief Executive Officer in 1978. -- Lagardère SCA: Member of the Supervisory Board; He remained with this company until 1984, when he became Chairman and Chief Executive Officer of Financière Agache -- Métropole Télévision “M6” SA: Member of the Supervisory and of Christian Dior. Shortly thereafter he spearheaded a Board. reorganization of Financière Agache following a development strategy focusing on luxury brands. Christian Dior was to become the cornerstone of this new structure. Positions and offices that have terminated since January 1, 2004 In 1989, he became the leading shareholder of LVMH Moët Hennessy - Louis Vuitton, and thus created the world’s leading • France: luxury products group. He assumed the position of Chairman -- Financière Agache SA: Permanent Representative of Montaigne and Chief Executive Officer in January 1989. Participations et Gestion SA, Director; -- Gasa Développement SAS and Société Financière Saint- Current positions and offices Nivard SAS: Legal Representative of Montaigne Participations et Gestion SA, Chairman; Christian Dior Group/Groupe Arnault -- Montaigne Participations et Gestion SA: Chairman and Chief • France: Executive Officer. -- Christian Dior SA: Chairman of the Board of Directors; • International: -- Christian Dior Couture SA: Director; -- Moët Hennessy Inc. (United States): Director. -- Groupe Arnault SAS: Chairman;
2008 Annual Report 37 Management Report of the Board of Directors List of offices or positions exercised in all companies by company officers
Mr. Sidney TOLEDANO -- Christian Dior Couture Maroc (Morocco): Manager; Chief Executive Officer -- Christian Dior Couture CZ (Czech Republic): Director;
Date of birth: July 25, 1951. French. -- Christian Dior Far East Ltd (Hong Kong): Director; Business address: Christian Dior Couture – 11, rue François 1er -- Christian Dior GmbH (Germany): Manager; – 75008 Paris (France). -- Christian Dior Guam Ltd (Guam): Director; Date of first appointment: September 11, 2002. -- Christian Dior Hong Kong Ltd (Hong Kong): Director; Expiration of term: Annual Meeting convened to approve the -- Christian Dior Italia Srl (Italy): Chairman; financial statements for the 2010 fiscal year. -- Christian Dior KK (Japan): Representative Director; Number of Christian Dior shares held in a personal capacity: -- Christian Dior Macau Ltd (Macau): Director; 20,200 shares. -- Christian Dior New Zealand Ltd (New Zealand): Mr. Sidney Toledano began his career in 1977 as a marketing Director; consultant with Nielsen International. He then served as Company Secretary of Kickers before joining the Executive -- Christian Dior S. de RL de CV (Mexico): Chairman and Management of Lancel in 1984. In 1994, he joined Christian Director; Dior Couture as Deputy Chief Executive Officer. He has been -- Christian Dior Saipan Ltd (Saipan): Director; its Chairman since 1998. -- Christian Dior Singapore Pte Ltd (Singapore): Director; Current positions and offices -- Christian Dior Taiwan Ltd (Taiwan): Director (Director A); -- Christian Dior UK Ltd (United Kingdom): Chairman and Christian Dior Group/Groupe Arnault Director; -- Christian Dior Inc. (United States): Chairman and Director; • France: -- Fendi Adele Srl (Italy): Director; -- Christian Dior SA: Chief Executive Officer and Director; -- Fendi Asia Pacific Limited (Hong Kong): Director; -- Christian Dior Couture SA: Chairman and Chief Executive Officer; -- Fendi International BV (Netherlands): Chairman and Director A; -- Fendi France SAS: Chairman; -- Fendi Italia Srl (Italy): Director; -- Fendi International SA: Chairman of the Board of -- Fendi North America Inc. (United States): Director; Directors; -- Fendi SA (Luxembourg): Director; -- John Galliano SA: Chairman of the Board of Directors; -- Fendi Srl (Italy): Director; -- Les Jardins d’Avron SAS: Permanent Representative of -- Les Ateliers Horlogers Dior SA (Switzerland): Director; Christian Dior Couture SA, Chairman. -- Les Jardins d’Avron LLC (United States): Chairman; • International: -- Lucilla Srl (Italy): Chairman; -- Bopel Srl (Italy): Chairman; -- Mardi SpA (Italy): Chairman and Managing Director. -- Calto Srl (Italy): Chairman of the Board of Directors; -- CDCH SA (Luxembourg): Chairman of the Board of Positions and offices that have terminated Directors; since January 1, 2004 -- Christian Dior (Fashion) Malaysia Sdn (Malaysia): Director; • France: -- Christian Dior Australia Pty Ltd (Australia): Director; -- John Galliano SA: Chief Executive Officer. -- Christian Dior Belgique SA (Belgium): Permanent • International: Representative of Christian Dior Couture SA: Managing -- Calto Srl. (Italy): Manager; Director; -- Christian Dior Couture Rus LLC (Russia): General -- Christian Dior Commercial Shanghai Co Ltd (China): Director; Chairman; -- Christian Dior Couture S. de RL de CV (Mexico): General -- Christian Dior Couture Korea Ltd. (Korea): Director; Director;
38 2008 Annual Report Management Report of the Board of Directors List of offices or positions exercised in all companies by company officers
-- Christian Dior Couture Stoleshnikov LLC (Russia): General -- Sevrilux SNC: Legal Representative of Financière Agache, Director; Manager; -- Christian Dior Espanola SL (Spain): Manager; -- Sofidiv SAS: Member of the Management Committee; -- Christian Dior Guam Ltd (Guam): Chairman; -- Société Civile du Cheval Blanc: Director; -- Christian Dior Puerto Banus SL (Spain): Manager; -- Association du Musée Louis Vuitton: Permanent Representative of LVMH Fashion Group: Director. -- Christian Dior Saipan Ltd (Saipan): Chairman; • International: -- Fendi Immobili Industriali Srl (Italy): Director. -- LVMH Moët Hennessy - Louis Vuitton Inc. (United States): Director; Mr. Pierre GODÉ -- Sofidiv UK Limited (United Kingdom): Director. Advisor to the Chairman Other Date of birth: December 4, 1944. French. • France: Business address: LVMH – 22, avenue Montaigne – 75008 Paris -- Havas SA: Director; (France). -- Redeg SARL: Manager. Date of first appointment: May 14, 2001. Expiration of term: Annual Meeting convened to approve the financial statements for the 2010 fiscal year. Positions and offices that have terminated Number of Christian Dior shares held in a personal capacity: since January 1, 2004 200 shares. • France: Mr. Pierre Godé began his career as a lawyer admitted to the -- DI Group SA: Permanent Representative of LVMH Moët Lille bar and has taught at the Lille and Nice university law Hennessy - Louis Vuitton: Director; faculties. He has been Advisor to the Chairman of Groupe Arnault since 1986. -- Le Bon Marché International SA: Director; -- Le Bon Marché, Maison Aristide Boucicaut SA: Director, Current positions and offices Managing Director; -- LVMH Fashion Group SA: Member of the Executive Board and Chief Executive Officer; Christian Dior Group/Groupe Arnault -- Montaigne Finance SAS: Member of the Supervisory • France: Committee; -- Christian Dior SA: Director; -- Montaigne Participations et Gestion SA: Director; -- Christian Dior Couture SA: Director; -- Parfums Christian Dior SA: Permanent Representative of -- Financière Agache SA: Chairman and Chief Executive Financière Agache SA, Director; Officer; -- PMG SARL: Manager; -- Financière Jean Goujon SAS: Chairman; -- Sifanor SAS: Member of the Supervisory Committee; -- Groupe Arnault SAS: Chief Executive Officer; -- GIE LVMH Services: Member of the College of Directors. -- Les Echos SAS: Member of the Supervisory Board; • International: -- LVMH Moët Hennessy - Louis Vuitton SA: Director; -- Christian Dior Inc. (United States): Director; -- Raspail Investissements SA: Chairman and Chief Executive -- Fendi SA (Luxembourg): Director; Officer; -- LVMH Moët Hennessy Louis - Vuitton Japan KK (Japan): -- SA du Château d’Yquem: Director; Director; -- Semyrhamis SAS: Member of the Supervisory Committee; -- LVMH Services Limited (United Kingdom): Director.
2008 Annual Report 39 Management Report of the Board of Directors List of offices or positions exercised in all companies by company officers
10.2 Office of director to be ratified
Mr. Renaud DONNEDIEU DE VABRES Current positions and offices
Date of birth: March 13, 1954. French. Christian Dior Group/Groupe Arnault Business address: Allard Palaces – 54-56 avenue Hoche – 75008 Paris (France). • France: Date of first appointment: February 5, 2009. -- Christian Dior SA: Director; Expiration of term: Annual Meeting convened to approve the -- Fondation Louis Vuitton pour la Création, Fondation financial statements for the 2009 fiscal year. d’Entreprise: Director. Number of Christian Dior shares held in a personal capacity: 200 shares. Other After serving in the prefectoral administration as a sub-prefect, -- Allard Palaces SAS: Advisor for Strategy and Development Mr. Renaud Donnedieu de Vabres was appointed as a member to Mr. Alexandre Allard. of France’s highest administrative body, the Council of State, and embarked on a political career in 1986, notably serving as Positions and office that have terminated an aide to the Minister of Defense. He was elected as a deputy to the National Assembly representing the Indre-et-Loire since January 1, 2004 département in 1997 and remained in this post until 2007. In 2002, he was appointed as Minister Delegate for European Other Affairs and then as Minister of Culture and Communication, from 2004 to 2007. In 2008, he was named the Ambassador for • France: Culture during the French presidency of the European Union. -- Minister of Culture and Communication; Since early 2009, he has served as Advisor for Strategy and Development to Mr. Alexandre Allard, Chief Executive Officer -- Ambassador for Culture during the French presidency of the of Allard Palaces. European Union.
10.3 Offices of current directors to be renewed
Mr. Éric GUERLAIN Current positions and offices
Date of birth: May 2, 1940. French. Christian Dior Group/Groupe Arnault Correspondence address: Chez Christian Dior – 30 avenue Montaigne – 75008 Paris (France). • France: Date of first appointment: June 29, 1994. -- Christian Dior SA: Vice-Chairman and Director; Number of Christian Dior shares held in a personal capacity: -- Guerlain SA, Permanent Representative of LVMH Fashion 97,836 shares. Group: Director. Mr. Eric Guerlain began his career as a financial analyst and served in various roles with the Morgan Stanley Group between Other 1968 and 1974, in New York and Paris. • France: In 1974, he joined J.P. Morgan as director of the international -- Société Hydroélectrique d’Énergie SA: Chairman of the financial affairs department. In 1979, the bank assigned him Board of Directors; 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. Positions and offices that have terminated At the same time, since 1970 he has been a Director of Guerlain SA since January 1, 2004 and, in 1990, assumed the chairmanship of the Supervisory Board • None of the controlling holding company of the Guerlain Group. He served in that position until 1994.
40 2008 Annual Report Management Report of the Board of Directors List of offices or positions exercised in all companies by company officers
Mr. Antoine BERNHEIM Other • France: Date of birth: September 4, 1924. French. -- Bolloré SA: Vice-Chairman and Director; Business address: Assicurazioni Generali SpA c/o Generali France – 7 Boulevard Haussmann – 75009 Paris (France). -- Ciments Français SA: Director; Date of first appointment: May 14, 2001. -- Eurazeo SA: Member of the Supervisory Board; Number of Christian Dior shares held in a personal capacity: -- Havas: Director; 36,248 shares. -- Société Française Générale Immobilière SA: Chief Executive Mr. Antoine Bernheim was Managing Partner of Lazard Officer; Frères & Cie from 1967 to 2000 and Partner of Lazard LLC • International: from 2000 to 2005. He served as Chairman and Chief Executive Officer of La France SA from 1974 to 1997 and of Euromarché -- BSI: Banca della Svizzera Italiana (Switzerland): Director; from 1981 to 1991. Chairman of Generali SpA between 1995 and 1999, he was reappointed to this position in 2002. -- Mediobanca (Italy): Director.
Current positions and offices Positions and offices that have terminated since January 1, 2004 Generali Group • France: • France: -- Bolloré Investissement SA: Vice-Chairman and Director; -- Generali France SA: Director. -- Partena: Managing Partner; • International: -- Rue Impériale: Director. -- Alleanza Assicurazioni (Italy): Vice-Chairman and • International: Director; -- Banca Intesa SpA (Italy): Director; -- AMB Generali Holding AG (Germany): Director; -- Lazard LLC (United States): Partner. -- Assicurazioni Generali SpA (Italy): Chairman; -- Generali España Holding SA (Spain): Director; -- Generali Holding Vienna AG (Austria): Director; Mr. Denis DALIBOT
-- Graafschap Holland (Netherlands): Director; Date of birth: November 15, 1945. French. -- Intesa Sanpaolo (Italy): Vice-Chairman of the Supervisory Business address: Financière Agache – 11, rue François 1er – Board. 75008 Paris (France). Date of first appointment: May 17, 2000. Christian Dior Group/Groupe Arnault Number of Christian Dior shares held in a personal capacity: • France: 200 shares. -- Christian Dior SA: Director; Mr. Denis Dalibot began his career with the ITT Group. From -- Christian Dior Couture SA: Director; 1984 to 1987 he served as Deputy Administration and Finance Director for Sagem. He joined Groupe Arnault in 1987 as Group -- Financière Jean Goujon SAS: Vice-Chairman and Member Finance Director, a position he held until 2007. He is currently of the Supervisory Committee; the Managing Director of Financière Agache. -- LVMH Fashion Group SA: Vice-Chairman and Director; -- LVMH Finance SA: Vice-Chairman and Director; Current positions and offices -- LVMH Moët Hennessy - Louis Vuitton SA: Vice-Chairman and Director. Christian Dior Group/Groupe Arnault • International: • France: -- LVMH Moët Hennessy - Louis Vuitton Inc. (United States): -- Christian Dior SA: Director; Director. -- Agache Développement SA: Chairman and Chief Executive Officer;
2008 Annual Report 41 Management Report of the Board of Directors List of offices or positions exercised in all companies by company officers
-- Ateliers AS SA: Permanent representative of Christian Dior -- FA Investissement SAS: Chairman; Couture SA, Director; -- Sifanor SAS: Chairman; -- Belle Jardinière SA: Director; -- Société d’Exploitation de l’Hôtel Cheval Blanc SAS: Member -- Christian Dior Couture SA: Director; of the Supervisory Committee. -- Europatweb SA: Chairman and Chief Executive Officer; • International: -- Europatweb Placements SAS: Legal Representative of -- Publications Professionnelles Holding SAS (Luxembourg): Europatweb; Director. -- Financière Agache SA: Director – Managing Director; -- Financière Agache Private Equity SA: Director; Mr. Christian de LABRIFFE -- Financière Jean Goujon SAS: Member of the Supervisory Committee; Date of birth: March 13, 1947. French. -- Franck & Fils SA: Permanent Representative Le Bon Business address – Rothschild et Compagnie Banque, 29 avenue Marché – Maison Aristide Boucicaut: Director; de Messine, 75008 Paris (France). -- GA Placements SA, Permanent Representative of Europatweb: Date of first appointment: May 14, 1986. Director; Number of Christian Dior shares held in a personal capacity: -- Groupe Arnault SAS: Member of the Management 204 shares. Committee; Mr. Christian de Labriffe began his career with Lazard Frères & -- Kléber Participations SARL: Manager; Cie, where he was Managing Partner from 1987 to 1994. -- Le Jardin d’Acclimatation SA, Permanent Representative Since 1994, he has been Managing Partner of Rothschild & of Ufipar: Director; Cie Banque. -- Lyparis SAS: Member of the Supervisory Committee; -- Montaigne Finance SAS: Chairman; Current positions and offices -- Montaigne Investissements SCI: Manager; Rothschild Group -- Montaigne Services SNC: Manager; • France: -- Raspail Investissements SA: Permanent Representative of Financière Agache, Director; -- Financière Rabelais SAS: Chairman; -- Semyrhamis SAS: Member of the Supervisory Committee; -- Montaigne Rabelais SA: Chairman of the Board of Directors; -- Sevrilux SNC: Legal Representative of Financière Agache, Manager. -- Rothschild & Cie SCS: Managing Partner; • International: -- Rothschild & Cie Banque SCS: Managing Partner; -- Aurea Finance (Luxembourg): Chairman. -- Transaction R SAS: Chairman.
Other Christian Dior Group/Groupe Arnault • France: • France: -- Groupement Foncier Agricole Dalibot: Manager. -- Christian Dior SA: Director; -- Christian Dior Couture SA: Director. Positions and offices that have terminated Other since January 1, 2004 • France: • France: -- Bénéteau SA: Member of the Supervisory Board; -- Agache Développement SAS: Chairman; -- Paris Orléans SA: Member of the Supervisory Board. -- Bon Marché International SA: Director;
42 2008 Annual Report Management Report of the Board of Directors List of offices or positions exercised in all companies by company officers
Positions and offices that have terminated -- Axa Mediterranean Holding SA, Axa Aurora Ibérica SA de Seguros y Reaseguros, y Axa Aurora Vida SA de Seguros y since January 1, 2004 Reaseguros (Spain): Director; • France: -- Portland Valderrivas (Spain): Director; -- Holding Financier Jean Goujon: Director; -- Sociedad General Immobiliaria de España SA (Spain): -- Nexity France: Director; Director. -- Rothschild Conseil International: Director. • International: Positions and offices that have terminated -- Investec Asset Management Inc. (United Kingdom): since January 1, 2004 Director. • France: -- Credit Suisse Hottinguer: Member of the Supervisory Board.
Mr. Jaime de MARICHALAR y SÁENZ de TEJADA (Duke of Lugo) Mr. Alessandro VALLARINO GANCIA Date of birth: April 7, 1963. Spanish. Date of birth: October 15, 1967. Swiss. Business address: Crédit Suisse – Ayala, 42 – 28001 Madrid Business address: AAP SA, 15, rue du Jeu de l’Arc – 1211 Geneva (Spain). (Switzerland). Date of first appointment: May 11, 2006. Date of first appointment: May 11, 2006. Number of Christian Dior shares held in a personal capacity: Number of Christian Dior shares held in a personal capacity: 200 200 shares. shares. Mr. Jaime de Marichalar y Sáenz de Tejada began his career From 1992 to 1993, Mr. Alessandro Vallarino Garcia worked in 1986 in Paris where he worked for Banque Indosuez on as a junior management consultant in the Consumer Goods the MATIF Futures Market. He then joined Crédit Suisse department of Roland Berger & Partners in Munich. He and worked for the Investment Bank and in Private Banking. joined the investment bank Alex. Brown & Sons Inc. in the In January 1998, he was appointed Chief Executive Officer United States, for whom he worked as a financial consultant of Crédit Suisse in Madrid. He is also Chairman of the from 1993 to 1996. Axa Foundation. From 1996 to 2001, he worked as an investment banker for institutional clients at Donaldson Lufkin & Jenrette International Current positions and offices Inc. (DLJ) in New York and Geneva. Following the acquisition of DLJ by Crédit Suisse First Boston he became founder- Crédit Suisse director of AAP SA, a company specializing in alternative funds and asset management, since 2001. • International: -- Crédit Suisse (Spain): Chief Executive Officer and Current positions and offices Advisor. Christian Dior Group/Groupe Arnault Christian Dior Group/Groupe Arnault • France: • France: -- Christian Dior SA: Director. -- Christian Dior SA: Director. • International: Other -- Groupe LVMH: Advisor to the Chairman for Spain; • International: -- Loewe SA (Spain): Director. -- AAP SA (Switzerland): Chief Executive Officer.
Other Positions and offices that have terminated • International: since January 1, 2004 -- Art+Auction Editorial (United States and United Kingdom): Member of the Supervisory Board; • None
2008 Annual Report 43 Management Report of the Board of Directors Stock option and bonus share plans
11. Stock option and bonus share plans
11.1 Options granted by the parent company, Christian Dior
Eleven share purchase option plans set up by Christian Dior with applicable laws. Each plan has a term of ten years. Share were in force as of December 31, 2008. The beneficiaries of these purchase options may be exercised after the end of a period of option plans are selected in accordance with the following criteria: three to five years from the plan’s commencement date. performance, development potential, and contribution to a key For all plans, one option gives the right to one share. position. The exercise price of options is calculated in accordance
11.1.1 Share purchase option plans
Under the authorization granted by the Meeting held on May 30, 1996
(1) Number of options granted Number Number of of which Of which Exercise of options options not Plan commencement Number of company first ten price (2) (3) exercised exercised as of date beneficiaries Total officers employees (EUR) in 2008 (3) 12/31/2008 (3) November 3, 1998 (4) 23 98,400 65,000 28,200 18.29 27,000 - January 26, 1999 14 89,500 50,000 38,000 25.36 38,500 25,500 February 15, 2000 20 100,200 65,000 31,000 56.70 2,000 352,000 February 21, 2001 17 437,500 308,000 121,000 45.95 - 362,500 Total 725,600 488,000 218,200 - 67,500 740,000
(1) Number of options as of the plan’s commencement date, without any restatement for the adjustments related to the July 2000 four-for-one stock split. Options granted to active company officers/employees as of the plan’s commencement date. (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 3, 2008.
Number of options granted to company officers(1) Plan commencement date Bernard Arnault Sidney Toledano Pierre Godé Denis Dalibot November 3, 1998 (2) 50,000 7,000 15,000 3,500 January 26, 1999 50,000 7,000 15,000 3,500 February 15, 2000 50,000 7,000 15,000 3,500 February 21, 2001 220,000 30,000 65,000 15,000 Total 370,000 51,000 110,000 25,500
(1) Number of options as of the plan’s commencement date, without any restatement for the adjustments related to the July 2000 four-for-one stock split, granted to company officers as of December 31, 2008. (2) Plan expired on November 3, 2008.
44 2008 Annual Report Management Report of the Board of Directors Stock option and bonus share plans
Under the authorization granted by the Meeting held on May 14, 2001
(1) Number of options granted Number Number of of which Exercise of options options not Plan commencement Number of company of which first price exercised exercised as of date beneficiaries Total officers ten employees (EUR) in 2008 12/31/2008 February 18, 2002 24 504,000 310,000 153,000 33.53 - 92,502 February 18, 2003 25 527,000 350,000 143,000 29.04 8,000 121,002 February 17, 2004 26 527,000 355,000 128,000 49.79 35,000 436,000 May 12, 2005 27 493,000 315,000 124,000 52.21 10,000 438,000 February 15, 2006 24 475,000 305,000 144,000 72.85 (2) - 443,000 Total 2,526,000 1,635,000 692,000 53,000 1,530,504
(1) Options granted to active company officers/employees as of the plan’s commencement date. (2) The exercise price for Italian residents is: 77.16 euros.
Number of options granted to company officers(1) Plan commencement date Bernard Arnault Sidney Toledano Pierre Godé Denis Dalibot February 18, 2002 220,000 35,000 65,000 20,000 February 18, 2003 220,000 40,000 65,000 25,000 February 17, 2004 220,000 45,000 65,000 25,000 May 12, 2005 220,000 50,000 20,000 25,000 February 15, 2006 220,000 50,000 - 35,000 Total 1,100,000 220,000 215,000 130,000
(1) Options granted to active company officers/employees as of December 31, 2008.
Under the authorization granted by the Meeting held on May 11, 2006
(1) Number of options granted Number Number of of which Of which Exercise of options options not Plan commencement Number of company ten first price exercised in exercised as of date beneficiaries Total officers employees (EUR) 2008 12/31/2008 September 6, 2006 1 20,000 - 20,000 74.93 - 20,000 January 31, 2007 28 480,000 285,000 133,000 85.00 - 455,000 May 15, 2008 25 484,000 320,000 147,000 73.24 (2) - 484,000 Total 984,000 605,000 300,000 959,000
(1) Options granted to active company officers/employees as of the plan’s commencement date. (2) The exercise price for Italian residents is: 73.47 euros.
Number of options granted to company officers(1) Plan commencement date Bernard Arnault Sidney Toledano Pierre Godé Denis Dalibot September 6, 2006 - - - - January 31, 2007 200,000 50,000 - 35,000 May 15, 2008 200,000 50,000 - 70,000 Total 400,000 100,000 - 105,000
(1) Options granted to active company officers/employees as of December 31, 2008.
Exercise of existing share purchase options does not entail any dilution for shareholders.
2008 Annual Report 45 Management Report of the Board of Directors Stock option and bonus share plans
11.1.2 Share subscription option plans 11.1.3 Bonus shares None None
11.1.4 Movements during the fiscal year
Share purchase option plans
Number of options 2008 2007 2006 Options outstanding as of January 1 2,926,004 4,016,700 3,993,213 Options granted 484,000 480,000 495,000 Options exercised (120,500) (1,535,696) (335,713) Expired options (60,000) (35,000) (135,800) Options outstanding as of December 31 3,229,504 2,926,004 4,016,700
11.2 Options granted by its subsidiary, LVMH
11.2.1 Share purchase option plans
Under the authorization granted by the Meeting held on June 8, 1995
Number of options granted (1) Number Number of of which Exercise of options options not Plan commencement Number of company of which first price (2) exercised exercised (2) date beneficiaries Total officers ten employees (EUR) in 2008 (2) as of 12/31/2008 January 29, 1998 (3) 346 269,130 97,500 65,500 25.92 40,280 - March 16, 1998 (3) 4 15,800 - 15,800 31.25 - - January 20, 1999 364 320,059 97,000 99,000 32.10 110,140 91,450 September 16, 1999 9 44,000 5,000 39,000 54.65 - 150,000 January 19, 2000 552 376,110 122,500 81,000 80.10 - 1,586,800 Total 1,025,099 322,000 300,300 150,420 1,828,250
(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. Options granted to active company officers/employees as of the plan’s commencement date. (2) Adjusted for the transactions referred to under (1). (3) Plans expired respectively on January 28 and March 15, 2008.
46 2008 Annual Report Management Report of the Board of Directors Stock option and bonus share plans
Under the authorization granted by the Meeting held on May 17, 2000
Number of options granted (1) Number Number of of which Exercise of options options not Plan commencement Number of company of which first price exercised in exercised as of date beneficiaries Total officers ten employees (EUR) 2008 12/31/2008 January 23, 2001 786 2,649,075 987,500 445,000 65.12 6,250 1,822,665 March 6, 2001 1 40,000 - 40,000 63.53 - 30,000 May 14, 2001 44,669 1,105,877 (2) - - 66.00 2,775 478,319 May 14, 2001 4 552,500 450,000 102,500 61.77 - 552,500 September 12, 2001 1 50,000 - 50,000 52.48 - 50,000 January 22, 2002 993 3,284,100 1,215,000 505,000 43.30 (3) 36,018 1,882,944 May 15, 2002 2 8,560 - 8,560 54.83 - 5,560 January 22, 2003 979 3,213,725 1,220,000 495,000 37.00 (4) 82,763 1,212,010 Total 10,903,837 3,872,500 1,646,060 127,806 6,033,998
(1) Options granted to active company officers/employees as of the plan’s commencement date. (2) 25 options were granted to each beneficiary. (3) The exercise price is 45.70 euros for Italian residents and 43.86 euros for US residents. (4) The exercise price for Italian residents is 38.73 euros.
Exercise of existing share purchase options does not entail any dilution for shareholders.
11.2.2 Share subscription options
Under the authorization granted by the Meeting held on May 15, 2003
(1) Number of options granted Number Number of of which Exercise of options options not Plan commencement Number of company of which first price exercised in exercised as of date beneficiaries Total officers ten employees (EUR) 2008 12/31/2008 January 21, 2004 906 2,747,475 972,500 457,500 55.70 (2) 92,600 2,561,925 May 12, 2005 495 1,924,400 862,500 342,375 52.82 (2) - 1,878,875 Total 4,671,875 1,835,000 799,875 92,600 4,440,800
(1) Options granted to active company officers/employees as of the plan’s commencement date. (2) Exercise prices for Italian residents for plans commencing on January 21, 2004 and May 12, 2005 are 58.90 euros and 55.83 euros respectively.
2008 Annual Report 47 Management Report of the Board of Directors Stock option and bonus share plans
Under the authorization granted by the Meeting held on May 11, 2006
(1) Number of options granted Number Number of of which Exercise of options options not Plan commencement Number of company of which first price exercised in exercised as of date beneficiaries Total officers ten employees (EUR) 2008 12/31/2008 May 11, 2006 520 1,789,359 852,500 339,875 78.84 (2) - 1,765,609 May 10, 2007 524 1,679,988 805,875 311,544 86.12 - 1,669,731 May 15, 2008 545 1,698,320 766,000 316,138 72.50 (2) - 1,693,520 Total 5,167,667 2,424,375 967,557 - 5,128,860
(1) Options granted to active company officers/employees as of the plan’s commencement date. (2) Exercise prices for Italian residents for plans commencing on May 11, 2006 and May 15, 2008 are 82.41euros and 72.40 euros respectively.
11.3 Options granted to and exercised by the group’s officers and the group’s first ten employees during the year
11.3.1 Options granted during the year to senior executive officers of the Company
Valuation of Exercise Company granting options Number of price Exercise Beneficiary the options Plan date Option type (EUR) options (EUR) period May 15, 2012 – Bernard Arnault Christian Dior May 15, 2008 Purchase 4,340,000 200,000 73.24 May 14, 2018 May 15, 2012 – LVMH May 15, 2008 Subscription 8,176,000 400,000 72.50 May 14, 2018 May 15, 2012 – Sidney Toledano Christian Dior May 15, 2008 Purchase 1,085,000 50,000 73.24 May 14, 2018
Pursuant to the decision of the Board of Directors of May 15, determined based on the exercise date and the corresponding 2008, when exercising their options, the Chairman of the Board percentage of their total gross compensation. of Directors and the Chief Executive Office, shall be obliged to keep until they cease their functions a number of shares
11.3.2 Options granted to other company officers of the Company during the year
Company granting Number of Exercise price Exercise Beneficiary the options Plan date options (EUR) period May 15, 2012 – Denis Dalibot Christian Dior May 15, 2008 70,000 73.24 May 14, 2018 May 15, 2012 – Pierre Godé LVMH May 15, 2008 40,000 72.50 May 14, 2018
48 2008 Annual Report Management Report of the Board of Directors Stock option and bonus share plans
11.3.3 Options exercised during the year by each senior executive officer of the Company
Company granting Number of Exercise price Beneficiary the options Plan date Option type options exercised (EUR) Sidney Toledano Christian Dior January 26, 1999 Purchase 28,000 25.36
11.3.4 Options exercised during the fiscal year by other company officers None of the other officers of the Company exercised any options during the fiscal year.
11.3.5 Options granted during the fiscal year by the Company and any Group company to the ten employees, other than company officers, holding the largest number of options
Number of Exercise price Company granting options Plan date options (EUR) Christian Dior May 15, 2008 147,000 73.24 May 15, 2008 296,138 72.50 LVMH May 15, 2008 30,000 72.70
11.3.6 Options exercised during the fiscal year by the ten employees of the Group, other than company officers, having exercised the largest number of options
Number of Exercise price Company granting options Plan date options (EUR) Christian Dior November 3, 1998 26,000 18.29 Christian Dior January 26, 1999 2,000 25.36 Christian Dior February 18, 2003 8,000 29.04 Christian Dior February 17, 2004 35,000 49.79 Christian Dior May 12, 2005 10,000 52.21 LVMH January 29, 1998 5,500 25.92 LVMH January 20, 1999 55,620 32.10 LVMH January 22, 2002 1,500 43.30 LVMH January 22, 2003 51,208 37.00 LVMH January 21, 2004 26,000 55.70
2008 Annual Report 49 Management Report of the Board of Directors Stock option and bonus share plans
11.4 bonus shares granted by the subsidiary, LVMH
11.4.1 Shares granted to employees Beneficiaries of bonus shares are selected among the active employees of the Group’s French subsidiaries on the basis of their level of responsibility and their individual performance. The allocation of bonus shares to their beneficiaries shall only be definitive after a vesting period of two years. In addition, the shares shall be subject to a compulsory two-year holding period as from the end of the vesting period.
Number of shares granted of which Number of Initial company of which first Balance as of Plan commencement date beneficiaries allocation officers ten employees Shares vested 12/31/2008 Under the authorization granted by the Meeting held on May 12, 2005 May 12, 2005 333 97,817 - 23,325 93,059 - May 11, 2006 347 164,306 - 30,575 154,090 - May 10, 2007 348 152,076 - 34,805 - 148,487 Under the authorization granted by the Meeting held on May 15, 2008 May 15, 2008 347 162,972 - 32,415 - 162,972
11.4.2 Shares granted during the fiscal year to senior executive officers and other company officers Senior executive officers and other company officers do not benefit from any bonus share allocations.
11.4.3 Shares vested during the fiscal year to the Group’s ten employees, other than company officers, having received the largest number of shares
Company granting bonus shares Initial grant date Number of shares LVMH May 11, 2006 28,550
50 2008 Annual Report Management Report of the Board of Directors Information that could have a bearing on a takeover bid or exchange offer
12. Information that could have a bearing on a takeover bid or exchange offer
Pursuant to the provisions of Article L. 225-100-3 of the French -- increase the share capital, with or without shareholders’ Commercial Code, the capital structure and other information pre-emption rights, in a total nominal amount not to exceed that could have a bearing on a takeover bid or exchange offer 40 million euros, or 11% of the Company’s current share are presented below: capital; • capital structure of the Company: the Company is controlled -- grant share subscription options, within the limit of 3% of by Groupe Arnault, which controlled 69.43% of the the share capital; capital and 81.37% of the theoretical voting rights as of -- allocate bonus shares, within the limit of 1% of the share December 31, 2008; capital. • share issuance and buybacks: under various resolutions, The law provides for the suspension during the period of a the Shareholders’ Meeting has delegated to the Board of takeover bid or exchange offer of any delegation whose application Directors the power to: would be likely to cause the operation to fail.
2008 Annual Report 51 Management Report of the Board of Directors Employee information
13. Employee information
Note on methodology also developed to enhance the reliability and consistency of information entered. In 2008, the Human Resources Department continued its efforts aimed at reinforcing the quality and reliability of employee- Workforce information provided below relates to all consolidated related reporting within the Group. In particular, the alignment companies, including the Group’s share in joint ventures. of organizational and legal entities involved a formal assessment Human resources indicators were calculated for a scope of of the consistency of the Group’s social and financial reporting. 534 organizational entities covering more than 99% of the The scope of financial reporting now covers all staff employed worldwide workforce and encompass all staff employed during by Group companies consolidated on a full or proportional basis, the year, including those employed by joint ventures. but does not include equity-accounted associates. Since fiscal year 2007, the Group’s annualreporting of employee The definition of the indicators used by human resources information has been audited each year, based on data from personnel has also been improved. In order to minimize the impact of recurring differences between countries, a descriptive sheet LVMH, by the Environment and Sustainable Development has been produced for each indicator specifying its relevance, department of Deloitte & Associés, the LVMH Group’s statutory the elements of information tracked, the procedure to be applied auditor; the verified indicators are identified with the symbol. to gather information, and the various controls to be performed In 2008, Deloitte & Associés issued a report based on a limited when entering data. New information system controls were review of this work.
13.1 Analysis and development of the workforce
13.1.1 Breakdown of the workforce The Group’s total workforce as of December 31, 2008 The main changes are due to organic growth and the opening amounted to 80,343 employees. Of this total, 72,912 employees of new stores, essentially in Europe, Asia and the United States worked under permanent contracts (CDI) and 7,431 worked and changes in scope of consolidation. The workforce of Fashion under fixed-term contracts (CDD). Part-time employees and Leather Goods, Selective Retailing and Christian Dior represented 16% of the total workforce, or 12,522 individuals. Couture increased by an average of more than 10%. Among The portion of staff outside France now remains at 74% of the changes in the scope of consolidation in 2008, we should the workforce worldwide. note the acquisition of the Swiss watchmaker Hublot, Royal Van Lent yachts, and the Les Echos media group. The Group’s average Full Time Equivalent (FTE) workforce in 2008 comprised 72,619 employees, a rise of 9.6% on 2007.
52 2008 Annual Report Management Report of the Board of Directors Employee information
The tables below show the breakdown of the workforce, by business group, geographic region and professional category.
Breakdown by business group
Total headcount as of December 31 (1) 2008 % 2007 % 2006 % Christian Dior Couture 3,256 4 2,949 4 2,650 4 Wines and Spirits 6,438 8 6,313 8 5,521 8 Perfumes and Cosmetics 22,467 28 20,803 28 17,951 27 Fashion and Leather Goods 17,163 21 15,719 21 14,747 22 Watches and Jewelry 2,261 3 2,014 3 1,882 3 Selective Retailing 27,347 34 26,323 35 23,275 35 Other 1,411 2 713 1 877 1 Total 80,343 100 74,834 100 66,903 100 Average headcount during the period (2) % Christian Dior Couture 3,140 4 2,777 4 2,556 4 Wines and Spirits 6,470 9 6,780 10 5,462 9 Perfumes and Cosmetics 20,793 29 19,028 29 16,904 28 Fashion and Leather Goods 15,908 22 14,275 22 13,453 23 Watches and Jewelry 2,161 3 1,994 3 1,836 3 Selective Retailing 22,945 31 20,494 31 18,612 31 Other 1,202 2 893 1 938 2 Total 72,619 100 66,241 100 59,761 100
(1) Total permanent and fixed-term headcount. (2) Average permanent and fixed-term headcount on a full-time equivalent basis.
Breakdown by geographic region
Total headcount as of December 31 (1) 2008 % 2007 % 2006 % France 20,818 26 20,063 27 19,880 30 Europe (excluding France) 17,749 22 16,777 23 13,615 21 United States 17,020 21 16,469 22 14,543 22 Japan 5,301 7 5,302 7 4,956 7 Asia (excluding Japan) 15,713 19 13,751 18 11,670 17 Other 3,742 5 2,472 3 2,239 3 Total 80,343 100 74,834 100 66,903 100 Average headcount during the period (2) France 20,031 28 19,530 29 19,329 32 Europe (excluding France) 15,551 22 14,250 22 11,591 20 United States 13,966 19 12,512 19 11,357 19 Japan 5,319 7 5,383 8 4,926 8 Asia (excluding Japan) 14,546 20 12,371 19 10,536 18 Other 3,206 4 2,195 3 2,022 3 Total 72,619 100 66,241 100 59,761 100
(1) Total permanent and fixed-term headcount. (2) Average permanent and fixed-term headcount on a full-time equivalent basis.
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Breakdown by professional category
Total headcount as of December 31 (1) 2008 % 2007 % 2006 % Managers 13,593 17 11,920 16 10,937 16 Technicians – Team leaders 8,306 10 7,293 10 6,493 10 Office and sales personnel 46,498 58 45,515 61 40,787 61 Labor and production workers 11,946 15 10,106 13 8,686 13 Total 80,343 100 74,834 100 66,903 100 Average headcount during the period (2) Managers 12,987 18 11,909 18 10,626 18 Technicians – Team leaders 7,935 11 8,399 13 6,288 11 Office and sales personnel 40,424 56 36,090 54 34,237 57 Labor and production workers 11,273 15 9,843 15 8,610 14 Total 72,619 100 66,241 100 59,761 100
(1) Total permanent and fixed-term headcount. (2) Average permanent and fixed-term headcount on a full-time equivalent basis.
Average age and breakdown by age The average age of staff employed under permanent contracts worldwide is 36 years and the median age is 34 years. The youngest age ranges are found among sales personnel, mainly in the Asia-Pacific region and the United States.
Global United Other (%) workforce France Europe (1) States Japan Asia (2) countries Age: Less than 25 years 13.0 7.2 11.9 18.9 6.8 17.8 13.2 age 25 – 29 21.0 15.2 18.7 22.2 25.2 28.0 24.2 age 30 – 34 18.5 16.6 20.5 15.3 30.1 18.3 20.4 age 35 – 39 14.9 15.7 17.4 11.8 17.6 13.4 15.2 age 40 – 44 11.5 14.5 12.5 9.3 9.8 9.6 10.8 age 45 – 49 8.8 12.5 8.5 7.8 5.9 6.4 6.9 age 50 – 54 6.3 10.0 5.4 6.1 2.9 3.9 5.2 age 55 – 59 4.1 6.9 3.4 4.5 1.6 1.7 3.1 age 60 and over 1.9 1.4 1.7 4.1 0.1 0.9 1.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Average age 36 39 36 36 34 33 35
(1) Excluding France. (2) Excluding Japan.
Average length of service and breakdown by length of service The average length of service within the Group is 10 years in France and about four to six 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.
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Global United Other (%) workforce France Europe (1) States Japan Asia (2) countries Age: less than 5 years 60.6 38.0 62.7 76.2 55.4 72.2 69.7 5 – 9 years 19.8 24.3 21.8 14.6 29.3 14.6 16.2 10 – 14 years 7.5 10.9 7.5 4.1 7.9 6.6 7.1 15 – 19 years 4.9 9.0 4.1 2.3 4.5 3.6 2.8 20 – 24 years 3.2 7.0 1.8 1.6 2.0 1.9 2.1 25 – 29 years 2.0 5.2 0.9 0.7 0.6 0.7 1.0 30 years and over 2.0 5.6 1.2 0.5 0.3 0.4 1.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Average length of service 6 10 5 4 6 5 5
(1) Excluding France. (2) Excluding Japan.
13.1.2 Joiners, leavers and internal mobility with ESSEC in the creation of an endowed chair in luxury brand marketing and management in France and through Identifying and attracting talent are key strategic objectives of LVMH scholarships awarded to students in Asia. the Group companies’ recruitment policy. The Group’s image coupled with the wide range of positions offered attracts these In line with the high growth rates recorded over the last several talents, as demonstrated by the success of the “Join LVMH” years, the Group develops targeted programs for the identification pages on the Group’s Web site: in a twelve-month period, more and accelerated training of its future executives. Among the than 140,000 applications were submitted in response to more initiatives launched in this vein, “FuturA” seeks to recruit and than 2,800 job openings. nurture talented individuals who, following a first substantial and successful career experience, will be able to tap into and The size of the Group, as well as the broad spectrum of sustain their entrepreneurial spirit within the Group. In 2008, professions represented, and its opportunities for career growth through its FuturA program, the Group attracted and selected are widely recognized. The 2008 Universum French Graduate 80 special individuals from among thousands of highly qualified Survey involving 13,600 students from 105 leading French applicants. These men and women add their numbers to the institutions ranked LVMH at the top of the list of companies existing group of high-potential internal resources, who are preferred by young business school graduates, for the third the focus of special attention with targeted efforts to increase year running. professional exposure (quick career advancement, a variety of The Group reaffirms its ambition to remain the employer of challenges to test their mettle, international perspective, etc.) and choice in its field through a number of specific positioning and personal development (individual development plans regularly promotional efforts focusing on LVMH’s employer brand. In this reviewed at the Group level, meetings with senior executives, spirit, the human resources teams are developing a new marketing training, etc.). drive to reinforce the Group’s attractiveness in increasingly tight Worldwide in 2008, nearly 23,833 individuals were hired under labor markets, particularly outside those where the Group has permanent contracts, including 3,001 in France. A total of traditionally attracted talent. The goal is to enhance the Group’s 5,787 people were recruited in France under fixed-term contracts. reputation worldwide and fuel the desire to join LVMH, whose The seasonal sales peaks, at the end of year holiday season and work culture, with its innovative style, both multi-faceted and the harvest season, are the two main reasons for using fixed- unique, embodies a certain “art of living together”. term contracts. In order to present the career opportunities offered by the Departures from Group companies in 2008 (all causes combined) Group, the Group’s teams took part in about a hundred events affected a total of 18,495 employees working under permanent during the year, on the campuses of leading and prestigious contracts, of which almost half were employed within the Selective institutions of higher learning in France and abroad. Special Retailing business group, which traditionally experiences a attention was given to programs delivering internationally high turnover rate. The leading causes for departure were renowned MBAs, in Europe (IMD, London Business School, resignations (73% of total departures) and individual layoffs INSEAD and HEC, to name a few), in the United States (13% of total departures). (Harvard, Columbia, Wharton and Stanford, among others) and increasingly in Asia (Tsinghua, Fudan, NUS, Hong Kong The overall turnover rate increased by about 10% compared to University, Waseda, Keiko, Tokyo University, etc.). Apart from previous years and continues to show marked differences across the events at these institutions, the Group also demonstrated its geographic regions: the highest rates are recorded in North strong commitment to attracting the best talent by partnering America and Asia, where labor markets are more fluid.
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Turnover by geographic region
United Other (%) 2008 France Europe (4) States Japan Asia (5) countries 2007 2006 Total turnover (1) 25.1 11.8 19.2 47.7 12.9 31.2 17.1 22.5 20.5 Of which Voluntary turnover (2) 18.6 6.5 14.4 37.5 11.9 23.2 12.2 17.4 14.8 Involuntary turnover (3) 5.9 4.0 4.2 9.9 0.8 7.8 4.7 4.4 5.0
(1) All reasons. (2) Resignations. (3) Redundancies/end of trial period. (4) Excluding France. (5) Excluding Japan.
Breakdown of movements (1) of employees working under permanent contracts by business group and geographic region
Joiners Leavers (number) 2008 2007 2006 2008 2007 2006 By business group Christian Dior Couture 1,038 733 598 812 606 586 Wines and Spirits 868 983 923 750 742 580 Fashion and Leather Goods 5,427 4,811 3,611 3,693 3,512 3,356 Perfumes and Cosmetics 4,283 3,064 2,254 2,812 2,635 2,070 Watches and Jewelry 459 440 318 339 295 302 Selective Retailing 11,607 9,420 6,502 9,713 7,071 5,395 Other 151 106 83 376 79 83 Total 23,833 19,557 14,289 18,495 14,940 12,372 By geographic region France 3,001 2,872 2,075 2,554 2,158 1,820 Europe (excluding France) 4,282 3,760 2,682 2,973 2,834 2,466 United States 8,535 6,266 5,018 7,243 5,201 4,222 Japan 831 680 642 582 629 559 Asia (excluding Japan) 6,323 5,223 3,314 4,643 3,689 2,961 Other countries 861 756 558 500 429 344 Total 23,833 19,557 14,289 18,495 14,940 12,372
(1) Under permanent contracts, including conversions of fixed-term contracts to permanent contracts and excluding internal mobility within the Group.
The Group encourages mobility among its staff, from one The Group also fosters mobility between professional categories geographic region to another, or from one Group company to by encouraging its employees to acquire new skills, especially another. The wide range of companies making up the Group, by pursuing qualifying training or degree programs. More than their unique corporate identities as well as their expertise in a 4,150 staff members were promoted in 2008, representing 5.7% variety of business segments, lend favor to these two forms of of the total workforce. mobility. Today about 40% of all managerial positions are filled by means of internal mobility and in 2008 more than 930 of these movements were from one Group company to another.
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13.2 Work time
13.2.1 Work time organization Worldwide, 16% of employees benefit from variable or adjusted working hours and 34% work as a team or alternate their working hours.
Global workforce affected by various forms of working hours’ adjustment: breakdown by geographic region
Global United Other Workforce concerned (1) (%) workforce France Europe (2) States Japan Asia (3) countries Variable adjusted schedules 16 39 13 4 17 2 - Part-time 16 11 20 31 1 8 13 Teamwork, alternating hours or night shifts 34 7 9 60 85 57 26
(1) In percentage of number of employees under permanent contracts, except for part-time workers, in percentage of total number of employees. (2) Excluding France. (3) Excluding Japan.
Global workforce in France affected by various forms of working hours’ adjustment: breakdown by professional category
Technicians Office Labor and and team and sales production Workforce concerned (%) Workforce France Managers leaders personnel workers Variable/adjusted schedules 39 33 59 58 4 Part-time 11 3 6 22 7 Teamwork, alternating hours or night shifts 7 - 5 2 22 Employees benefiting from time off in lieu 15 - 17 14 31
13.2.2 Overtime The cost of the volume of overtime is 39 million euros, or an average of 1.7% of the worldwide payroll. This cost varies between 1% and 2% of the payroll depending on the geographic region.
Percentage of overtime by geographic region
Global United Other (%) workforce France Europe (1) States Japan Asia (2) countries Overtime 1.7 1.5 2.0 1.7 1.8 1.5 0.9
(1) Excluding France. (2) Excluding Japan.
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13.2.3 Absenteeism The worldwide absentee rate of the Group for employees working causes of absence – illness (2.1%) and maternity leave (1.4%). under permanent and fixed-term contracts is 4.5%. It increased The overall absentee rate of the European entities is twice as slightly compared with previous years (4.6% in 2007 and 4.1% in high as that recorded in other geographic regions. 2006). This adverse development is attributable to the two main
Absentee rate(1) by geographic region and by reason
Global United Other (%) workforce France Europe (2) States Japan Asia (3) countries Illness 2.1 3.5 2.9 1.2 0.3 1.1 1.1 Work/work-travel accidents 0.2 0.4 0.1 0.2 - 0.1 0.2 Maternity 1.4 1.5 2.0 0.6 2.5 0.9 0.7 Paid absences (family events) 0.4 0.4 0.7 0.2 0.3 0.6 0.1 Unpaid absences 0.4 0.3 0.3 0.3 0.5 0.4 0.2 Overall absentee rate 4.5 6.1 6.0 2.5 3.6 3.1 2.3
(1) Number of days absent divided by the theoretical number of days worked. (2) Excluding France. (3) Excluding Japan.
13.3 Compensation
13.3.1 Average salary The table below shows the gross average monthly compensation paid to Group employees in France under permanent contracts who were employed throughout the year:
Employees concerned (%) 2008 2007 2006 Less than 1,500 euros 10.4 12.5 19.8 1,501 to 2,250 euros 28.9 37.8 30.5 2,251 to 3,000 euros 24.1 18.7 19.7 Over 3,000 euros 36.6 31.0 30.0 Total 100.0 100.0 100.0
58 2008 Annual Report Management Report of the Board of Directors Employee information
13.3.2 Personnel costs Worldwide personnel costs break down as follows:
(EUR millions) 2008 2007 2006 Gross payroll – fixed term or permanent 2,331.5 2,186.7 2,064.0 Employers’ social security contributions 609.6 582.4 533.4 Temporary staffing costs 135.2 109.0 99.2 Total personnel costs 3,076.3 2,878.1 2,696.6
Outsourcing and temporary staffing costs remain stable, accounting for 7.4% of the total payroll worldwide, including employer’s social security contributions.
13.3.3 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 107.7 million euros in 2008, a rise of 16% against 2007.
(EUR millions) 2008 2007 2006 Profit sharing 62.9 51.3 47.9 Incentive 39.2 36.2 34.4 Employers’ contribution to company savings plan 5.6 5.4 4.9 Total personnel costs 107.7 92.9 87.2
In 2001, the Group set up a worldwide 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.
13.4 Equality and Diversity
LVMH is a signatory of the United Nations Global Compact and, 13.4.1 Equality of opportunity for men and in France, of the Charte de la Diversité and the Charte d’Engagement des Entreprises au service de l’Égalité des chances dans l’Éducation. women The proportion of women within the Group workforce has These commitments were concretely expressed by human remained broadly unchanged for several years and now amounts resources teams across the Group’s houses through a systematic to about 73%. This proportion is also reflected in new hires, review of hiring practices so as to reinforce their objectivity. 72% of whom were women in 2008. The significant percentage As a complement to the efforts of human resources personnel, of female employees is explained in part by the nature and special training sessions were organized in order to raise the attractiveness of the Group’s business segments. Women are awareness of executive-level staff in relation to these issues, particularly prominent in Perfumes and Cosmetics (82%), at the very outset of the process, when specifying recruitment retail sales of luxury products (80%) and Fashion and Leather needs and defining job positions. Goods (73%). Conversely, the majority of staff in Wines and In 2008, the Group launched a procedure for the self-assessment Spirits are men, representing 65% of the workforce in this of hiring practices, encompassing all its houses in France and business group. Switzerland. The services of two independent firms were enlisted in order to test the responses of individuals with hiring responsibility to applicants whose specific characteristics might lead to discrimination, especially in relation to ethnic origins. This operation, in compliance with internationally recognized codes of conduct, was monitored by an internal committee responsible for ensuring the confidentiality of information handled and the respect for ethical principles.
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Proportion of female employees in new joiners (1) and in the Group’s active workforce
Joiners Group employees (% Women) 2008 2007 2006 2008 2007 2006 Breakdown by business group Christian Dior Couture 77 71 76 75 75 74 Wines and Spirits 44 45 40 35 34 33 Fashion and Leather Goods 70 71 71 73 74 74 Perfumes and Cosmetics 83 83 86 82 81 81 Watches and Jewelry 57 57 56 55 56 56 Selective Retailing 70 77 81 80 79 79 Other 60 54 57 57 53 53 Breakdown by professional category Managers 57 59 60 59 58 57 Technicians and team leaders 68 67 70 69 70 70 Office and sales personnel 76 79 81 81 80 81 Labor and production workers 61 58 65 64 62 62 Breakdown by geographic region France 70 71 69 68 68 67 Europe (excluding France) 79 76 79 76 76 75 United States 66 72 76 74 73 73 Japan 79 79 82 77 77 77 Asia (excluding Japan) 74 76 78 76 76 77 Other countries 73 69 61 62 61 62 Total 72 74 76 73 72 72
(1) Under permanent contracts, including internal mobility and transfers from fixed-term to permanent contracts.
An increasing number of management positions are also being 13.4.3 Employment and integration of filled by women, who make up 59% of managers, as they did last disabled workers year. Equality of opportunity also prevails in career advancement. Accordingly, 71% of staff promoted in 2008 were women. Mission Handicap, a joint initiative by 24 Houses of the Group, has provided added impetus for the promotion of policies In addition, 30% of executive committee members are women facilitating the employment of disabled persons. Human resources and seven Group companies are chaired by women: Veuve personnel have been trained in the recruitment and management Clicquot Ponsardin, Krug, Fred, Montres Dior, Kenzo Parfums, of disabled employees. Special training sessions are organized on e-Luxury and Acqua di Parma. a regular basis, to facilitate the utilization of these staff members in all areas of activity. By way of example, Hennessy has trained 13.4.2 Management of older staff its executive-level staff in the integration of disabled employees and DFS Group has developed a program intended to guarantee Access to employment by older staff and their retention are areas equality of opportunity. All employees of the Guerlain Spa on of constant concern for the Group, consistent with its diversity the Champs-Elysées in Paris have been trained to address the policy as well as its twin goals of preserving skills and expertise special needs of disabled customers. and promoting the transfer of know-how. Among the many In the area of recruitment, 15 Houses took part this year in examples of the Group’s ability to motivate and engage older operations targeting disabled applicants: speed recruitment employees may be noted the mentoring programs established events, events organized by ADAPT (Association pour l’insertion by all Group companies and the recent initiative by Parfums sociale et professionnelle des personnes handicappées), HandiChat, Givenchy, which has signed a company agreement with trade use of video CVs, etc. Several partnerships with specialized unions to organize and promote the career perspectives of institutions have been developed with a view to facilitating older staff. access for disabled applicants to the Group’s professions. For Worldwide, 12.2% of the Group’s active workforce are over example, TAG Heuer (Switzerland) supports professional the age of 50. In France, this population accounts for 18.3% retraining centers for watchmaking skills and both Louis Vuitton of employees. and Parfums Givenchy collaborate on a regular basis with the
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Cap Emploi disabled employment agencies in France. An The Group is particularly attentive to the need to ensure accessibility audit was commissioned for the Group’s Web that employees who become disabled are able to continue site so as to ensure equal access to job offers, regardless of the working, as illustrated by the specially designed facilities at means used to browse through the site. Moët & Chandon and Parfums Christian Dior, which allow staff members with medical limitations to continue to work in In anticipation of recruitment needs, the Group conducted their jobs under appropriate conditions. several actions designed to enhance the qualifications of disabled persons: the creation of two professionalization Disabled staff represent 0.8% of the Group’s global workforce. programs tailored for these job seekers targeting skills used In 2008, this rate was 2.0% for France, with a total of 4.5 million in sales and office positions, and the creation of ARPEJEH euros in services sub-contracted to ESATs (assisted employment (Accompagner la Réalisation des Projets d’Études de Jeunes Élèves et centers) or disabled-friendly companies, an increase of 58% Étudiants Handicapés), founded in part by LVMH, whose aim compared to the previous year. The Group thus helps provide is to offer advice and guidance to disabled junior and senior support to disabled people who wish to be oriented to these high school students. institutions thanks to its involvement in the Delta Insertion project.
13.5 Training
Group companies offer a broad range of training programs Lastly, the LVMH House, founded in London in 1999, a center to allow staff to develop their professional skills and their specifically dedicated to the professional development of Group specific business line expertise as artisans and creators as well executives, experienced a new surge in attendance in 2008, with as to share a common vision. Consistent with the Group’s the record-setting participation of 360 people in 16 forums. A organizational philosophy, each company is given complete venue for sharing and exchange, this center attracts LVMH latitude to develop its own initiatives in this area, specifically managers from around the world to its forums addressing tailored to its professions. issues of strategic importance, such as leadership, luxury brand building, knowing luxury customers, and innovation as a driver In addition to its orientation seminars, the Group offers a wide of excellence. range of training programs in human resource management, sales techniques, marketing, project management, foreign A substantial portion of training also takes place on the job on languages, etc. The training programs are organized either within a daily basis and is not factored into the indicators presented companies or at external institutions, involving as trainers both below. highly respected educators and Group managers considered as experts in their particular areas of expertise.
Global workforce 2008 (1) 2007 2006 Training investment (EUR millions) 60.1 57.1 54.4 Portion of total payroll (%) 2.6 2.7 2.8 Number of days training per employee 2.7 3.7 4.9 Average cost of training per employee (EUR) 748 762 806 Employees trained during the year (%) 63.4 69.6 70.5
(1) In 2008, a new more restrictive definition of training initiatives was applied for global social reporting purposes.
In 2008, training expenses incurred by the Group’s companies Other indicators, such as the training penetration date and throughout the world represented a total of 60.1 million euros, the average number of days training per employee were also or 2.6% of total payroll. impacted. Thus a total of 63.4% of employees received at least one day of training during the year and the average number The average training investment per full-time equivalent person of days training came to 2.7 days per employee. The training remained stable at over 750 euros. In 2008, the total number investment is spread across all professional categories and of training days amounted to 216,620 days, representing an geographic regions in accordance with the table below. equivalent of around 980 people receiving full-time training for the entire year. This volume of training days was 24% lower than 2007 following the implementation of a new more restrictive definition of training initiatives, which was applied in 2008 for social reporting purposes.
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Breakdown of training investment by geographic region and professional category
France Europe (1) United States Japan Asia (2) Other markets Training investment (EUR millions) 27.7 10.1 8.7 5.2 6.9 1.5 Portion of total payroll (%) 3.5 2.0 1.7 2.9 2.5 2.4 Employees trained during the year (%) 67.0 59.3 54.1 81.6 65.5 70.2 of which: Executives and Managers 69.0 65.0 60.0 71.0 67.0 61.0 Technicians and Team leaders 69.0 59.0 26.0 79.0 69.0 75.0 Sales 60.0 59.0 60.0 84.0 65.0 70.0 Labor and production workers 74.0 57.0 9.0 82.0 69.0 80.0
(1) Excluding France. (2) Excluding Japan.
Moreover, the Group organizes integration and awareness seminars for new hires focusing on its culture, its brands, its values as well as its key management principles. More than 19,700 employees attended seminars of this type in 2008.
13.6 Health and Safety
In 2008, there were a total of 1,023 work accidents resulting in leave of absence which resulted in 19,903 lost working days. A total of 251 work-travel related accidents were also noted, leading to 6,223 lost working days. Lost time accidents by business group and geographic region break down as follows:
Number of accidents Frequency rate (1) Severity rate (2) Breakdown by business group Christian Dior Couture 52 8.19 0.04 Wines and Spirits 184 13.41 0.38 Fashion and Leather Goods 210 4.91 0.10 Perfumes and Cosmetics 176 5.33 0.08 Watches and Jewelry 6 1.38 0.01 Selective Retailing 391 8.23 0.16 Other 4 1.65 0.01 Breakdown by geographic region France 458 14.43 0.37 Europe (excluding France) 146 4.43 0.07 United States 164 5.59 0.09 Japan 13 1.20 0.01 Asia (excluding Japan) 160 5.19 0.07 Other markets 82 13.43 0.17 2008 1,023 6.81 0.13 Group 2007 (4) 1,026 9.13 0.22
(1) The Frequency rate is equal to the number of accidents resulting in leave of absence, multiplied by 1,000,000 and divided by the total number of hours worked (3). (2) The Severity rate is equal to the number of workdays lost, multiplied by 1,000 and divided by the total number of hours worked (3). (3) For companies located outside France, the total number of hours worked per employee is estimated at 2,000 on a full-time equivalent basis. (4) 2007 data combines workplace accidents and work-travel accidents without distinction.
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The Group invested over 14.2 million euros in Health and workgroups benefited considerably from the contributions Safety in 2008. This includes expenses for occupational medical of invited experts: psychologists, victimologists, and other services, small protective equipment as well as programs for specialized medical practitioners. By way of example, in improving personal safety and health, such as compliance, the collaboration with IFAS (Institut Français d’Action sur le Stress) posting of warnings, replacement of protective devices, fire and OMSAD (Observatoire Médical du Stress de l’Anxiété et de prevention training, noise reduction. la Dépression), Hennessy introduced a procedure that aims The total amount of expenditure and investments promoting to measure the overall level of excess stress in the company health and safety in the workplace and improvements in working and to involve the entire workforce in the identification of conditions amounted to 49.4 million euros in 2008, representing sectors and populations most prone to stress so as to implement 2.1% of the Group’s gross payroll worldwide. preventive actions. Almost 16,800 Group company employees received safety Additionally, training modules relating to the prevention of training worldwide. harassment in the workplace are offered to human resources Workgroups bringing together human resources managers staff and to operational managers at Group companies. Some from all Group companies have built and implemented training fifty staff members have already taken part in these training modules addressing the causes of workplace stress. These programs.
13.7 Employee relations
13.7.1 Status of collective agreements In France, Group companies have works councils, employee representatives, as well as health and safety committees. The Group Committee was formed in 1985. In 2008, employee representatives attended 1,517 meetings:
Nature of the meetings Number Works council 560 Employee representatives 464 Health and Safety Committee 119 Other 374 Total 1,517
As a result of these meetings, 100 company-wide agreements 13.7.2 Social and cultural activities were signed (such as annual negotiations on wages and work schedules, incentive and profit sharing agreements and company In 2008, in France, the various companies of the Group savings plans). Specific agreements related to the employment allocated a budget of over 15.3 million euros, or 1.9% of total of disabled persons, professional equality between women and payroll expenses, to social and cultural activities in France via men, anticipatory management of jobs and skills, and labor- contributions to works councils. management dialogue have been signed at Group companies. Total catering costs for all LVMH employees represent a budget of 13.1 million euros.
2008 Annual Report 63 Management Report of the Board of Directors Employee information
13.8 Relations with third parties
13.8.1 Relations with suppliers has developed a Vendor Code of Conduct designed to ensure respect for fundamental principles of industrial relations and labor A large proportion of the Group’s manufacturing facilities law and for the highest ethical standards. It has also developed are located in France, Italy and Spain. Similarly, most of the a Vendor Profile Questionnaire, a document signed by the Group’s sub-contractors are located in Europe, thus facilitating subcontractor when the pre-approval request is submitted. The the observance by these partners of social responsibility and company has also introduced a Vendor Compliance Agreement, sustainable development values in accordance with European which calls for independent audits of suppliers to ensure that and national laws. commitments have been observed. Similarly, TAG Heuer requires Apart from the many initiatives and commitments undertaken that all new foreign suppliers submit a written pledge indicating by Group companies, a Group-wide project was launched in their compliance with the SA 8000 standard. The same is true for 2007. At the behest of Executive Management, the Group’s key Parfums Christian Dior, Parfums Givenchy, and Guerlain, who purchasing managers, along with legal and human resources have introduced specifications documents including compliance experts, were brought together in order to document the Group’s with the SA 8000 standard among their provisions. Moreover, strong convictions and high standards in this area in the form of the regular coordination of procurement managers ensures the a Supplier Code of Conduct. This Code officially establishes the consistency of audit practices with respect to vendors in order to full set of requirements forming a shared frame of reference to be ensure the appropriate application of ethical principles defined used throughout the Group in all relationships with suppliers. in the code of conduct. In 2008, this Supplier Code of Conduct was deployed and implemented. In adopting this Code, each company tailored 13.8.2 Impact of the business on local the contents to its specific business activities, amending the communities in terms of employment document to include additional requirements, where applicable, to respond to specific challenges faced in its business. and regional development Applied by all Group companies, compliance with the Supplier The Group follows a policy of maintaining and developing Code of Conduct is now a necessary prerequisite for all partners. employment. Thanks to the strong and consistent growth achieved It lays down precise ethical guidelines in the areas of social by our brands, many sales positions are created in all countries responsibility (forced labor, discrimination, harassment, child where we are present, particularly as a result of the expansion labor, compensation, hours of work, freedom of association and of our brands’ retail networks. collective bargaining, health and safety, etc.), the environment Layoffs for non-disciplinary reasons account for 4% of total (impact reduction, use of green technologies, waste reduction, departures. compliance with regulations and standards), and the fight against corruption. This Code of Conduct also sets forth the principle A number of the Group’s larger companies have been established and procedures for the control and audit of compliance with for many years in specific regions of France and play a major role these guidelines. in creating jobs in their respective regions: Parfums Christian Dior in Saint-Jean-de-Braye (near Orleans), Veuve Clicquot Among many initiatives by Group companies illustrating Ponsardin and Moët & Chandon in the Champagne region, this commitment, Moët & Chandon, for example, establishes and Hennessy in the Cognac region have developed long- a specifications document presented for signature to its standing relationships with local authorities, covering cultural subcontractors that addresses respect for the environment and and educational aspects as well as employment. Sephora, which fundamental labor law compliance, among other issues. Audits has stores throughout France (two-thirds of its workforce is are also carried out on suppliers. In its supplier specifications employed outside the Paris region), regularly carries out a range documents, Sephora includes clauses dealing with the individual of measures encouraging the development of job opportunities rights of employees, child labor prevention, equality of opportunity at the local level. 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 13.8.3 Relations with educational as well as the SA 8000 social accountability standard, which is institutions and apprenticeship based on international workplace norms included in the ILO conventions: no child labor, no forced labor, providing a safe and associations healthy work environment, freedom of association and the right Throughout the world, Group companies have developed to collective bargaining, no discrimination, disciplinary practices, a number of partnerships with management schools and compliance with working hour and wage regulations. To ensure engineering schools, but also with fashion design schools and that they will be able to perform preliminary audits independently, schools specializing in areas specific to our businesses. Key Louis Vuitton’s buyers receive theoretical training covering the companies give presentations on the campuses of these schools approach and criteria as well as practical training in the field in several times a year. A number of the classes taught feature the company of an SA 8000 auditor. Donna Karan International lectures by the Group’s senior executives.
64 2008 Annual Report Management Report of the Board of Directors Employee information
Many initiatives to promote the occupational integration of Contacts and partnerships with training institutions as well young people are undertaken to allow all employees to participate as local actions in secondary schools have been developed actively in the Group’s commitment to society. further, particular with middle schools singled out for the “Ambition Réussite” priority education program (Celine) and A signatory of the Apprenticeship Charter, the Group considerably other companies are also spearheading the creation of curricula developed apprenticeship, which facilitate young people’s in the regions where they maintain operations. access to qualifications. It increased 16% from last year with 524 apprentices working in France as of December 31, 2008 This year, in partnership with “Nos quartiers ont des talents”, at Group companies. Among the various events scheduled Guerlain, Parfums Givenchy and La Grande Épicerie de Paris, throughout the year, “open door” days or orientation programs are together with other Group companies, launched an operation often offered to young apprentices by Group companies (notably to assist young graduates from disadvantaged backgrounds in Christian Dior Couture, Hennessy, Parfums Givenchy, Louis finding their first jobs. Experienced senior-level staff or senior Vuitton, Le Bon Marché and TAG Heuer) so as to introduce executives at these companies participating as sponsors in this them to their professions and products. Mentors are also prized program provide individualized assistance to job seekers and by companies such as Givenchy Couture and Le Bon Marché help them crystallize their career plans. for their involvement in the transfer of know-how. Similar Finally, in order to promote the integration of young people initiatives are undertaken abroad, particularly in Brazil, where through education regardless of their background or origin, young people from disadvantaged backgrounds are recruited LVMH funds ten scholarships offered by the association through the “Menor Aprendiz” program. “Promotion des Talents”.
13.9 Compliance with international conventions
Taking each individual, his or her freedom and dignity, personal and political opinion, etc. as defined in the standards of the growth and health into consideration in each decision is the International Labor Organization. This culture and these practices foundation of a doctrine of responsibility to which all Group also generate respect for freedom of association, respect for the companies adhere. individual, and the prohibition of child and forced labor. Accordingly, all Group companies have policies for equal opportunity and treatment irrespective of gender, race, religion
2008 Annual Report 65 Management Report of the Board of Directors Effects of operations on the environment
14. Effects of operations on the environment
The reporting scope of environmental indicators in 2008 includes • the impacts of the fleets of vehicles owned by the Group the following: outside France used for employee travel; • the production facilities and warehouses owned and/or operated • energy consumption arising from the shipment of merchandise by companies in which the Group controls more than 50% exclusively by external transport companies; of the share capital or over which it exercises operational • the companies in which the Group controls less than 50% of control; the share capital or over which it does not exercise operational • the French stores of Sephora, Celine, Guerlain, Christian Dior control; Couture and Louis Vuitton, Le Bon Marché, DFS stores and • a certain number of boutiques, representing 63% of the sales the main stores of Fendi; area; • the main administrative sites located in France. • a certain number of the Group’s sites, generally not related In 2008, the reporting scope was extended to 443 sites (417 sites to production (BeneFit, Berluti, Donna Karan, Emilio Pucci, in 2007). Changes in the reporting scope since 2007 comprise the Fresh, Hublot, Marc Jacobs, StefanoBi, Thomas Pink, Wen integration of Make Up For Ever, the stores and administrative Jun Distillery). sites of Louis Vuitton, new Moët-Hennessy administrative sites, Pursuant to Decree No. 2002-221 of February 20, 2002, known new DFS stores, Christian Dior Couture stores in France and as the “NRE decree” (nouvelles régulations économiques), the the disposal of Glen Moray (Glen Moray was only consolidated following sections provide information concerning the nature and for a period of six months). importance of the elements that have a relevant and significant The 2008 reporting scope does not include: impact on operations. The indicators retained were selected by the Group’s environmental department and validated by • the environmental impacts of the administrative buildings the Statutory Auditors. Since fiscal year 2002, the Group’s and of stores owned directly or franchised by Perfumes and annual environmental data reporting has been verified each Cosmetics, and Fashion and Leather Goods, except for brands year, on the basis of data from LVMH, by the Environment and identified above; Sustainable Development department of Ernst & Young, the • waste production for stores (with the exception of Le Bon Group’s statutory auditors: the verified indicators are marked Marché and DFS stores); with the symbol .
14.1 Water, raw material and energy consumption
14.1.1 Water consumption Water consumption analyzed based on the following: • agricultural requirements: water consumption for vine irrigation outside France, as irrigation is not practiced in France. As • process requirements: use of water for cleaning purposes (tanks, such, water is taken directly from its natural environment products, equipment, floors), air conditioning, employees, for irrigation purposes. Its consumption varies each year product manufacturing, etc; such water consumption generates according to changes in weather conditions. Please note that waste water; water consumption for agricultural purposes is measured by the sites, producing less precise estimates than for process water consumption.
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(in m3) 2008 2007 Change (%) Process requirements 2,373,628 2,409,340 - 1 Agricultural requirements (vine irrigation) 6,813,268 6,875,388 - 1
Water consumption used for the process requirements of the meters. By way of comparison, for the manufacturing sector in Group’s companies decreased 1% in absolute terms between France, water consumption amounts to about 2.9 billion cubic 2007 and 2008 and amounted to approximately 2.37 million cubic meters (IFEN, 2006).
Water consumption by business group process requirements (in m3) 2008 2007 Change (%) Christian Dior Couture 15,361 (1) 9,207 + 67 Wines and Spirits 1,384,662 1,418,267 - 2 Perfumes and Cosmetics 364,483 369,952 - 2 Fashion and Leather Goods 192,282 172,206 + 12 Watches and Jewelry 12,895 17,585 (2) - 27 Selective Retailing 386,080 404,529 - 5 Holding Company 17,865 17,594 + 2 Total 2,373,628 2,409,340 - 1
(1) Change due to the integration of new stores. (2) One-off increase in consumption in 2007 following an on-site malfunction.
Water consumption for vineyard irrigation purposes is 14.1.2 Energy consumption essential for the preservation of vines in California, Argentina, Australia and New Zealand due to the climate in these areas. Energy consumption corresponds to the combined internal This practice is closely supervised by the local authorities that (combustion on a Group site, such as fuel oil for electricity deliver authorizations. The Group has also taken measures to generators, butane, propane and natural gas) and external limit consumption: (combustion does not occur on site) energy sources. • recovery of rain water by Domaine Chandon California, In 2008, the subsidiaries included in the reporting scope consumed Domaine Chandon Australia, Bodegas Chandon Argentina; 509,190 MWh provided by the following sources: 56% electricity, reuse of treated waste water by Domaine Chandon Carneros, 23% natural gas, 10% heavy fuel oil, 5% steam, 5% fuel oil California; recovery of water run-off by the creation of artificial and 1% butane-propane. This represents an increase of 4% lakes by Newton and Cape Mentelle; compared to 2007. • drafting of agreements on measures and specifications with This consumption corresponds, in decreasing order of use to respect to water requirements: analyses of ground humidity, Wines and Spirits (38%), Selective Retailing (28%), Fashion leaves, visual vine inspections, adaptation of supplies according and Leather Goods (15%) and Perfumes and Cosmetics (15%). to the requirements of each land plot (Domaine Chandon The remaining 4% is generated by Watches and Jewelry, Australia); Christian Dior Couture and the administrative activities of the holding structure. • standardized drip method of irrigation: between 73% and 100% of wine-producing regions have now adopted this method; By way of comparison, for the manufacturing sector in France, electricity and natural gas consumption amount to • weather forecasts for optimized irrigation (weather stations 123,000,000 MWh and 154,000,000 MWh, respectively (French at Domaine Chandon California); Ministry of Finance, 2007). • 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.
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Energy consumption by business group
Change (in MWh) 2008 2007 (%) Christian Dior Couture 6,394 4,438 +44 (1) Wines and Spirits 193,318 211,311 -9 (2) Perfumes and Cosmetics 74,177 74,357 - Fashion and Leather Goods 77,473 63,765 +22 (3) Watches and Jewelry 7,661 11,143 -31 (4) Selective Retailing 144,432 117,969 +22 (5) Holding Company 5,735 5,607 +2 Total 509,190 488,590 +4
(1) Change due to the integration of new stores. (2) Change due to the temporary closure for work on a site and the change in reporting scope. (3) Change due to the increase in business volumes and the integration of new sites. (4) Change due to the implementation of new more energy-saving processes. (5) Change due to the integration of new DFS stores.
Consumption by energy source
Heavy Butane (in MWh) Electricity Natural gas fuel oil Fuel oil Vapor Propane Christian Dior Couture 4,752 1,029 - - 613 - Wines and Spirits 63,357 50,896 49,278 10,130 14,556 5,101 Perfumes and Cosmetics 37,840 34,078 20 98 2,141 - Fashion and Leather Goods 56,850 16,371 - 920 356 2,976 Watches and Jewelry 4,129 2,503 - 1,029 - - Selective Retailing 115,399 10,343 24 13,592 5,074 - Holding Company 4,576 433 - 34 692 - Total 286,903 115,653 49,322 25,803 23,432 8,077
14.1.3 Raw material consumption Given the variety of the Group’s operations and the resulting • Perfumes and Cosmetics: bottles, cases, etc. multiplicity of the raw materials used, the only significant, • Fashion and Leather Goods: boutique bags, pouches, relevant criterion used by all of the Group’s brands retained cases, etc. for the analysis of raw material consumption is the quantity, measured in metric tons, of primary and secondary packaging • Watches and Jewelry: cases and boxes, etc. used for consumer goods placed on the market: • Selective Retailing: boutique bags, pochettes, cases, etc. • Christian Dior Couture: boutique bags, pouches, cases, etc. The packaging used for transport is excluded from this • Wines and spirits: bottles, boxes, caps, etc. analysis.
68 2008 Annual Report Management Report of the Board of Directors Effects of operations on the environment
Packaging placed on the market
Change (in MWh) 2008 2007 (%) Christian Dior Couture 90 129 -30 (1) Wines and Spirits 147,728 152,089 -3 Perfumes and Cosmetics 23,887 21,261 +12 (2) Fashion and Leather Goods 5,266 5,136 +3 Watches and Jewelry 421 512 -18 Selective Retailing 1,538 1,373 +12 Total 178,930 180,500 -1
(1) Change due to reductions in purchases and lower packaging weights for certain products. (2) Change due to the increase in business volumes and the integration of Make Up For Ever.
Breakdown of the total weight of packaging consumed, by type of material, in 2008
Other packaging (in metric tons) Glass Paper-cardboard Plastic Metal material Christian Dior Couture - 83 6 - 1 Wines and Spirits 126,294 17,362 1,379 1,204 1,489 Perfumes and Cosmetics 11,014 5,085 6,096 812 880 Fashion and Leather Goods - 4,523 2 14 727 Watches and Jewelry - 413 - - 8 Selective Retailing 235 260 957 50 36 Total 137,543 27,726 8,440 2,080 3,141
The introduction of environmental strategies within our product of its products, Loewe has managed to significantly increase the design processes is gaining ground. Building on achievements utilization rates of raw hides or skins used in manufacturing such as Ecopublicité in 2007 and Moët & Chandon’s eco-design handbags; this waste has now been increased to nearly 70% tool, other procedures have been implemented across the Group whereas it was 50% in some cases in the past. Louis Vuitton to measure the impact on the environment of design decisions. continues to expand its replacement of solvent-based products Following the lead of Parfums Christian Dior, Guerlain, Parfums with water-based products, including in the processes used to Kenzo and Parfums Givenchy have collaborated in the creation produce patent leather and the glues used in the manufacture of a tool for evaluating the environmental performance of their of all leather goods. Energy audits and an analysis of the retail packaging. A number of issues are considered from the product store concept life cycle were also conducted. These enabled development phase itself: separability of materials, volume, the identification of areas where improvements may be made, weight, use of refills, and the selection of environmentally in relation to lighting, air conditioning or the design of fixtures friendly materials. While in no way detracting from the quality and fittings.
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14.2 Soil use conditions, emissions into the air, water and soil
14.2.1 Soil use of its vineyards will be covered and the development of under- the-row tillage will be launched. Pheromone confusion (an Soil pollution from old manufacturing facilities (cognac and alternative to the use of insecticides) has also been implemented champagne production; trunk production) is insignificant. for 70% of the total surface. The Group continues to promote The more recent production facilities are generally located sustainable grape- growing practices among its grape suppliers, on former farmland with no history of pollution. Finally, the which now account for 90% of grape supplies. Group’s manufacturing operations require very little soil use, except for wine production. Integrated grape-growing practices have also been implemented by the Estates & Wines companies in Australia, New Zealand Integrated grape growing (viticulture raisonnée) is an advanced and California: cover planting, use of alternatives to certain method that combines cutting-edge technology with traditional insecticides, verification of soil erosion, etc. Cape Mentelle methods, covering all stages of the wine producing process. has converted a portion of its vineyards to be farmed This method, used for several years by Wines and Spirits, was organically. developed further this year. Thanks to equipment allowing for highly localized application, Moët & Chandon continues to reduce the use of plant protection products, achieving 34% less 14.2.2 Greenhouse gas emissions herbicide use in 2008 compared with 2005. Cover planting and experiments with the sowing of winter grains are also contributing Given the nature of the Group’s operations, the only emissions to reductions in the use of plant protection products. Cloudy that have a significant impact on the environment are greenhouse Bay, which has reduced its wastewater discharge per metric ton gas emissions. of grapes pressed by 30%, pursues its commitment to farming its Estimated greenhouse gas emissions in tons of CO (carbon vineyards organically through the planting of eucalyptus trees, 2 dioxide) equivalent correspond to the site energy consumption which help to make better use of wine-making by-products and emissions, as defined in section 14.1.2. These include direct increase carbon capture. At its Omaka Valley site, Cloudy Bay emissions (on-site combustion) and indirect emissions (from has installed artificial nests for falcons, the natural predators of the generation of electricity and vapor used by the sites). the most destructive insect pests feeding on ripe grapes. CO2 emission factors are updated every year for each energy For Veuve Clicquot in 2008, partial or controlled cover planting source, notably for electricity. This update may lead to is being used for 70% of its total vineyard surface. In 2009, 80% significant changes.
Breakdown of emissions by business group in 2008
Of which
CO2 emissions Direct CO2 Indirect CO2 CO2 emissions Changes
(in metric tons CO2 equivalent) in 2008 emissions emissions in 2007 (%) Christian Dior Couture 787 212 575 411 +91 (1) Wines and Spirits 49,087 28,315 20,772 51,217 -4 Perfumes and Cosmetics 12,023 7,052 4,971 10,914 +10 Fashion and Leather Goods 17,463 4,315 13,148 13,661 +28 (2) Watches and Jewelry 879 757 122 1,760 -50 (3) Selective Retailing 45,992 5,821 40,171 32,083 +43 (4) Holding Company 676 98 578 606 +12 Total 126,907 46,570 80,337 110,652 +15
(1) Change due to the integration of new stores. (2) Change due to the integration of new sites. (3) Change due to the implementation of new more energy-saving processes. (4) Change due to the integration of new sites.
70 2008 Annual Report Management Report of the Board of Directors Effects of operations on the environment
Sales areas not included in the reporting scope (62% of the all its buildings in Epernay, in collaboration with municipal Group’s total sales area) generate estimated greenhouse gas authorities. emissions of 112,378 metric tons of CO equivalent. 2 With respect to transportation, one of the Group’s fundamental The Group continues its efforts to reduce and optimize its energy drivers for environmental improvements, Louis Vuitton, consumption. As a first essential step in fighting climate change, Veuve Clicquot and Moët & Chandon have decided to favor the Bilan Carbone® evaluates the extent of direct or indirect inland waterway transport as an alternative to road transport to greenhouse gas emissions generated by the Group’s operations carry goods intended for export from Gennevilliers to Le Havre. so that priority action plans for emission reduction and energy For the Group’s champagnes, the potential reduction has already efficiency improvement may then be implemented. A forerunner been estimated at 500 metric tons of CO2 equivalent. Employee in this area, the LVMH Group has been using this method for commuting is also the focus of improvements. Accordingly, the a number of years: Hennessy, Parfums Christian Dior, Louis launch of a green commuting plan by Parfums Christian Dior Vuitton, Moët & Chandon and Veuve Clicquot were the first was very positively received: more than 70% of employees Group companies to implement this method. In 2008, Parfums responded to a questionnaire designed to encourage the search Kenzo, Guerlain and Domaine Chandon Australia conducted for alternatives to single occupancy vehicle commuting. Hennessy ® their first Bilan Carbone assessments. Others are currently continues to favor the shipment of its products by boat, a method under way at Parfums Givenchy and Le Bon Marché. In addition, generating 85 times less greenhouse gas emissions than air several Group companies have set emission reduction targets. transport: in terms of metric tons-kilometers, 88% of Hennessy’s For example, Guerlain set itself the ambitious goal of reducing products were shipped using this means of transport, 9% by its emissions by 12% between 2007 and 2010. road, and 2% by rail. The Bilan Carbone® also serves as a powerful vehicle for communication across the Group and as an aid to decision- making processes, as do the energy audits often associated 14.2.3 Discharges to water with this method. For instance, Guerlain conducted an energy The significant, relevant emissions retained are the discharges audit of all of its sites, which has allowed it to anticipate the of substances causing eutrophization by Wines and Spirits level of investment required over the coming years: lighting and Perfumes and Cosmetics operations. The Group’s other improvements in its stores, renewable energy studies, etc. business groups have a very limited impact on water quality. Similarly, Le Bon Marché and Parfums Christian Dior drew up Eutrophization is the excessive build-up of algae and aquatic plans for improvements in their fixtures based on the findings of plants caused by excess nutrients in the water (particularly their audits. The perfume maker had notably set itself ambitious phosphorus), which reduces water oxygenation and adversely reduction targets for its energy consumption in 2007: an 11% impacts the environment. The parameter used is the chemical decrease in electricity use, through the optimization of lighting oxygen demand (COD) calculated after treatment of the and air conditioning for its premises, and a 30% decrease in gas discharges in the Group’s own plants or external plants with use, particularly by recovering waste heat from its manufacturing which the Group has partnership agreements. The following processes to produce hot water for washing and bathing. operations are considered as treatment: city and county waste For its part, Moët & Chandon mapped its energy consumption water collection and treatment, independent collection and and identified potential savings at the Ruinart site in Reims. It treatment (aeration basin) and land application. In 2008, COD also carried out an infrared thermal analysis via helicopter of discharges dropped by 33%.
COD after treatment (metric tons) 2008 2007 Change (%) Wines and Spirits 1,396 1,997 -30 (1) Perfumes and Cosmetics 16 102 -84 (2) Total 1,412 2,099 -33
(1) Change due to the temporary closure for work on a site and the change in reporting scope. (2) Change due to improvements in the monitoring of rejects.
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14.2.4 Waste replacementsols of an unused raw material, controlled composting or land treatment of organic waste to be used Group companies continued their efforts with respect to the as fertilizer; sorting and recovery of waste. On average, 88% of the waste was recovered in 2008 compared to 94% in 2007. This reduction was • incineration for energy production, i.e. the recovery of the attributable to the disposal of a site which produced a significant energy in the form of electricity or heat by burning the amount of recyclable waste. In parallel, waste production fell waste. 10% in 2008. In 2008, Domaine Chandon Australia built a composting facility Recovered waste is waste for which the final use corresponds for its green waste, which is now 100% recycled. Moët & Chandon to one of the following channels: continued its experiments in the recovery and recycling of shoots thinned from vine trunks. Based on two recycling techniques, the • reuse, i.e. the waste is used for the same purpose for which composting of wood and the recovery of energy, this project is the product was initially designed; being developed in partnership with a service provider and may • recycling, i.e. the direct reintroduction of waste into its in future be extended throughout the region. Using this approach, original manufacturing cycle resulting in the total or partial 800 metric tons were recovered and recycled in 2008.
Waste produced in 2008
Hazardous Waste Waste Change in waste or special waste produced produced produced (in metric tons) in 2008 (1) in 2008 in 2007 (%) Christian Dior Couture 17 236 380 -38 Wines and Spirits 192 57,446 69,262 -17 (3) Perfumes and Cosmetics 738 (2) 7,143 6,735 +6 Fashion and Leather Goods 64 6,304 5,129 +23 (4) Watches and Jewelry 27 222 223 - Selective Retailing 12 4,266 3,143 +36 (4) Holding Company 1 706 480 +47 (4) Total 1,051 76,323 85,352 -11
(1) Waste to be sorted and treated separately from other “common” waste (boxes, plastic, wood, paper, etc.). (2) Some products that are removed from the manufacturing cycle are treated in the same way as hazardous waste to prevent counterfeiting attempts. (3) Change due to the temporary closure for work on a site and the change in reporting scope. (4) Change related to the integration of new Louis Vuitton, DFS and Moët Hennessy sites.
Waste recovery in 2008
Material Energy Total (in %) Re-used recovery recovery recovery Christian Dior Couture 44 31 25 100 Wines and Spirits 29 59 3 91 Perfumes and Cosmetics 7 56 30 93 Fashion and Leather Goods 2 42 16 60 Watches and Jewelry - 41 35 76 Selective Retailing - 50 32 82 Holding Company - 34 32 66 Total 23 56 9 88
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14.3 Measures taken to limit damage to the biological equilibrium, natural habitats, animal and plant species
Fashion and Leather Goods, and Watches and Jewelry Following the example of Parfums Christian Dior, which publicly implemented procedures to improve compliance with the announced its decision to refrain from testing the safety of its convention on international trade in endangered species (CITES). cosmetic products on animals in 1989, all other companies in the Through a system of import-export permits, this convention was Perfumes and Cosmetics business group have also discontinued set up to prevent certain species of endangered fauna and flora this practice. Furthermore, for the last several years, the Group against over-exploitation in the course of international trade. has collaborated with teams of university researchers to establish programs for the development of alternative methods, especially Perfumes and Cosmetics’ laboratories request that their partners for allergy testing. The Group’s toxicologists have also participated provide information on the bio-diversity and bio-availability of in the official validation processes for alternative methods in every new plant studied. Companies in this business group have several areas, including phototoxicity, eye irritation, and skin undertaken not to use any protected, rare or endangered plants absorption. in their operations. They favor plants that are commonly used or grown specifically to meet their activity’s requirements.
14.4 Organization of environmental protection methods within the group
14.4.1 Organization • define and consolidate the environmental indicators; The LVMH Group has had an environment management team • work alongside the various key players (associations, rating since 1992. In 2001 it established an “Environment Charter” signed agencies, government authorities, etc.). by the Chairman of the Group, which requires that each company LVMH’s Environmental Charter requires that all Group undertakes to set up an effective environment management companies adapt this document for their internal purposes so system, create think-tanks to assess the environmental impacts as to reflect the nature of their own operations. Not only have of the Group’s products, manage risks and adopt the best all the companies begun implementing their own environmental environmental practices. In 2003, Bernard Arnault joined the management systems, but an ever increasing number of them have United Nations’ Global Compact program. In 2007, he also established their own environmental committees to supervise the endorsed Gordon Brown’s Millennium Development Goals. deployment of this approach across their organizations. In 2008, this was the case for Domaine Chandon California, which created The Group undertakes to: its “Green Team” in January to communicate the Group’s policies • apply precaution to all issues impacting the environment; and objectives to all employees and pull together all information on the company’s efforts in this area. Celine also created its own • undertake initiatives to promote greater environmental environmental committee, “CIEL”, which steers and monitors responsibility; progress on action plans applied by the company at its two • favor the development and distribution of environmentally- headquarters and at its production facility in Florence. In June, friendly technologies. Le Bon Marché founded an environmental committee (Cosmos), including as members no less than fourteen representatives of The Group’s environment management team was set up with the store’s various departments, which has drafted an action plan the following objectives: for 2009. The store had previously conducted an energy audit whose findings resulted in the determination of a 20% reduction • implement the environmental policies of the Group companies, target for its energy consumption. In addition, Guerlain, through based on the Group’s Charter; its new sustainable development committee, is focusing on four • conduct environmental audits to assess Group companies’ priorities: eco-design, relations with suppliers, eco-citizenship, environmental performance; and movements of goods and personnel. Targets and tools for monitoring actions have already been put in place to address • monitor regulatory and technical issues; each of these areas. • create management tools; The Group companies’ environment correspondents meet as • help companies anticipate risks; part of the LVMH Environment Commission coordinated by the Group’s environment management team once every three months • train employees and increase environmental awareness at all and post their conclusions on the Group’s Environment Extranet management levels; page, LVMHMind, which is accessible to all employees.
2008 Annual Report 73 Management Report of the Board of Directors Effects of operations on the environment
Almost all of the companies, in all of the Group’s business groups, The Group requires all companies to put in place environmental stepped up their employee training and awareness programs this management systems. Following the certifications obtained, year. In 2008, these programs resulted in 18,489 training hours, and successfully renewed, by Hennessy, Veuve Clicquot, a 4% increase compared to 2007 (16,726 hours). Moët & Chandon, as well as those obtained by Belvedere and by Louis Vuitton for its logistics facility and its production facility in New executives are briefed in the Group’s environmental policy, Barbera, this initiative is well established within the Group and the available tools and its environmental safety network as part other companies have set in motion similar processes. Continuing of their orientation seminar. its efforts, Louis Vuitton has obtained ISO 14001 certification for Over and above these initiatives, the Group’s companies also its Paris headquarters (at the Pont Neuf) and is in the process disseminate written information concerning the environment: of obtaining the same certification for its central warehouse and the remainder of its production facilities. Other companies, • following the introduction of its Environmental Charter to including Parfums Christian Dior, Guerlain and Glenmorangie, all of its employees at its annual convention in 2007, Parfums have begun the process of obtaining certification. Christian Dior held an awareness event – Environment Week – in September 2008. On this occasion, all 1,400 staff members In 2008, Veuve Clicquot and Moët & Chandon obtained were able to take part in a discovery activity, hear presentations, ISO 22000 certification, the specific standard for food safety and participate in discussion forums dealing with the impact of management. Covering all operations in the food chain, ISO 22000 respect for the environment in the company’s businesses, and seeks to harmonize food safety management practices so as to also had the opportunity to engage in fun activities designed guarantee maximum safety. See also section 3.2, Industrial and to build awareness of biodiversity, natural raw materials, the Environmental Risks, for details on risk prevention. sorting of waste, and eco-driving. Each quarter, achievements Since the 2002 fiscal year, the LVMH Group’s annual of ongoing and new projects are celebrated in the company’s environmental data reporting has been audited each year, based in-house newsletter My Dior; on data from LVMH, by the Environment and Sustainable • on April 22, 2008 (Earth Day), DFS launched a major climate Development department of Ernst & Young, the Group’s statutory change awareness campaign. In each of its stores, an island auditors. display presented more than a hundred green practices worth adopting to reduce one’s carbon footprint. All employees and customers had the option to add their own suggestions, as 14.4.3 Measures to ensure compliance with personal green commitments, using an interface designed for applicable laws and regulations this purpose. These suggestions were then added to those displayed on the island to bring attention to the need for Group companies are audited on a regular basis, either by collective action; third parties, insurers or internal auditors, which enables them to keep their compliance monitoring plan up-to-date. In 2008, • Louis Vuitton coordinated its internal communications efforts 52 external environment audits ( ) and 46 internal environment in connection with national or international events. For audits ( ) were performed on-site, a 17% increase from 2007. instance, a topical exhibition and a card game in the form of These audits correspond to an inspection of one or more sites of a quiz were organized in honor of Sustainable Development the same company based on all relevant environmental issues – Week. Posters on sustainable transportation and the company’s waste, water, energy, and environmental management – and are best practices were designed in honor of European Mobility documented in a written report including recommendations. Week, which also provided the occasion to launch a call for employees to select two remarkable actions to be promoted This figure does not include the numerous compliance controls in production facilities or stores; that may be performed on a specific environmental regulation topic, i.e., a waste sorting inspection, performed periodically • the holding company also participated, as it does every by the Group companies on their sites. Since 2003, a review of year, in Sustainable Development Week, taking cotton – environmental regulatory compliance is also performed by the and specifically organic cotton – as the theme of its 2008 insurance companies, which now includes an environmental contribution, with the wide distribution of Erik Orsenna’s inspection during their fire safety visits to Group company sites. film “Sur les routes du coton” and by inviting experts to take A total of 30 visits were performed in 2008. part in discussion forums. The main environmental legal and regulatory measures introduced by the Group during 2008 include the implementation of the 14.4.2 Evaluation and certification programs European Union’s new REACH Regulation for all of the Group’s businesses as well as the establishment of financial contributions In accordance with the Group’s Environment Charter, every to authorized bodies for the funding of recovery systems for company is responsible for designing and implementing its own textile products placed on the French market and for unsolicited environment management system, and, in particular, for defining advertising materials in France. its own environment policy and objectives. Each company has access to a Group self-assessment guide and can, if it wishes, Parfums Christian Dior’s Saint-Jean de Braye site continued apply for ISO 14001 or EMAS certification for its system. the updating of its operating authorization application file.
74 2008 Annual Report Management Report of the Board of Directors Effects of operations on the environment
14.4.4 Expenses incurred to anticipate Cosmetics manufactured or sold in Europe are regulated by Council Directive 76/768/EEC. Considered by experts as one the effects of operations on the of the most stringent texts among those regulating cosmetics environment throughout the world, this directive governs all substances used Amounts were recognized under the relevant environmental by the cosmetics industry and requires that a risk assessment expense headings in accordance with the recommendations of be performed before any product may be marketed taking the CNC (French National Accounting Council). Operating into consideration their conditions of use. Furthermore, the expenses and capital expenditure were recognized for each of European Commission’s Scientific Committee on Consumer the following headings: Products (SCCP) evaluates the safety of substances used in cosmetic products on an ongoing basis. • air and climate protection; The Group is particularly vigilant in enforcing compliance with • waste water management; regulations, and also monitors the opinions of scientific committees and the recommendations of professional associations. Apart • waste management; from their attention to these texts, the Group’s toxicologists, who • protection and purification of the ground, underground water assume responsibility for product safety, determine the necessary and surface water; guidelines for Group suppliers and the development teams. • noise and vibration reduction; The Group’s experts participate regularly in the workgroups of national and European authorities and are very active in • biodiversity and landscape protection; professional organizations. • radiation protection; In the area of environmental protection, developments in scientific • research and development; knowledge and/or regulations may sometimes lead the Group to replace certain ingredients. For example, the Group’s Perfumes • other environmental protection measures. and Cosmetics companies do not develop products containing Environmental protection expenses in 2008 break down as triclosan, phthalates or formaldehyde-releasing preservatives. follows: Moreover, following the example of Parfums Christian Dior, which publicly announced its decision in 1989, LVMH Group’s • operating expenses: 7.2 million euros; various Perfumes and Cosmetics brands no longer conduct tests • capital expenditure: 5.2 million euros. on animals for the purpose of assessing the safety of cosmetics products and are making dynamic investments together in alternative test research, particularly in the area of allergies 14.4.5 Provisions and guarantees given for with fundamental research partners, and in the area of systemic environmental risks toxicity under the auspices of Colipa, the European federation of cosmetic product manufacturers. No provision was established for environmental risks in fiscal year 2008. With respect to its activities in the area of wines and spirits, the Group promotes the responsible consumption of alcohol: drink less but better. As a founding member of “Entreprise et 14.4.6 Objectives assigned by the Group to Prévention”, an association created some fifteen years ago, the Group works closely with government authorities to encourage its subsidiaries abroad responsible consumption of alcohol. Also an active member The Group requests that each subsidiary, regardless of its of the European Alcohol and Health Forum created by the geographic location, applies the Group’s environmental policy European Commission, Moët Hennessy contributes to the as set forth in the Charter, which stipulates that each subsidiary definition of the alcohol policies to be implemented within defines its own environmental objectives and communicates the member states. All of the wine and spirit brands apply responsible annual indicators included in this section. marketing policies consistent with the guidelines developed by Moët Hennessy. With a firm belief in the effectiveness of targeted efforts, Moët Hennessy continues to develop many initiatives 14.4.7 Consumer safety aimed at raising awareness among its employees and even among visitors to the Group’s distilleries, vineyards, and wineries. Protecting human health by carefully selecting the ingredients Lastly, the adoption of a Responsible Alcohol Consumption used in manufacturing products, prior to any production Charter has enabled the Group to voice its strong convictions processes, and by determining alternative production methods in this area and thus invite all of its partners to follow its lead where required is a priority for the Group. in this vision of the future.
2008 Annual Report 75 Management Report of the Board of Directors Litigation and exceptional events
15. Litigation and exceptional events
As part of its day-to-day management, the Group is party to group filed lawsuits against eBay in the Paris Commercial Court. various legal proceedings concerning trademark rights, the Louis Vuitton Malletier and Christian Dior Couture demanded protection of intellectual property rights, the protection of compensation for losses caused by eBay’s participation in the Selective Retailing networks, licensing agreements, employee commercialization of counterfeit products and its refusal to relations, tax audits, and any other matters inherent to its implement appropriate procedures to prevent the sale of such business. The Group believes that the provisions recorded in goods on its site. The Perfumes and Cosmetics brands sued eBay the balance sheet in respect of these risks, litigation proceedings for undermining their selective retailing networks. In a decision and disputes that are in progress and any others of which it is delivered on June 30, 2008, the Paris Commercial Court validated aware at the year-end are sufficient to avoid its consolidated the claims submitted, ordering eBay to pay 19.3 millions euros financial net worth being materially impacted in the event of to Louis Vuitton Malletier, 16.4 million euros to Christian Dior an unfavorable outcome. Couture, and 3.2 million euros to the Group’s Perfumes and Following the decision delivered in March 2006 by the Conseil Cosmetics brands. The court also barred eBay from running de la Concurrence (the French antitrust authority) regarding the advertisements for perfumes and cosmetics under the Dior, luxury perfume sector in France, and the judgment rendered on Guerlain, Givenchy and Kenzo brands, failing which it would incur June 26, 2007 by the Paris Court of Appeal, the Group companies a fine of 50,000 euros per day. In response, eBay filed a petition concerned took their case to the Cour de Cassation, the highest with the Paris Court of Appeal. On July 11, 2008, the President court in France. In July 2008, the Cour de Cassation overturned of the Paris Court of Appeal denied eBay’s petition to stay the the decision of the Paris Court of Appeal and referred the case provisional execution order delivered by the Paris Commercial to the same, differently composed jurisdiction. The decision of Court. The case is pending before the Paris Court of Appeal. the Paris Court of Appeal is expected to be rendered by the A judgment rendered in the United States in February 2009 end of 2009. dismissed the claims of service providers who had filed legal In 2006, Louis Vuitton Malletier, Christian Dior Couture, and proceedings against the Group’s US subsidiaries with the aim of the French companies of the Perfumes and Cosmetics business obtaining certain benefits related to the status of employee.
76 2008 Annual Report Management Report of the Board of Directors Recent developments and prospects
16. Subsequent events
There were no significant subsequent events as of February 5, 2009, the date on which the financial statements were approved for publication by the Board of Directors, or as of the publication date of this document.
17. Recent developments and prospects
As long term visibility remains poor and given the extent of the Bolstered by the flexibility of its organization and the good balance worldwide economic and financial crisis, the Christian Dior between its different businesses and geographical presence, the Group continues to apply a highly rigorous management approach Christian Dior Group’s objective in 2009 is to continue to increase to all of its businesses. The Group plans to mobilize its resources its leadership of the worldwide luxury goods market. to serve its most profitable business activities and markets, pursuing its internal growth strategy by leveraging the worldwide leadership positions of its brands.
2008 Annual Report 77 78 2008 Annual Report Report of the Chairman of the Board of Directors on internal control procedures
This report, which has been drawn up in accordance with the provisions of Article L. 225-37 of the French Commercial Code, was approved by the Board of Directors at its meeting on February 5, 2009. Its purpose is to give an account of the membership of the Board of Directors of Christian Dior SA, the preparation and organization of its work, as well as the compensation policy applied and the internal control procedures established by the Board.
2008 Annual Report 79 Report of the Chairman of the Board of Directors on internal control procedures Corporate governance
1. Corporate governance
1.1 Board of Directors
The Board of Directors is the strategic body of the Company Two committees, the Performance Audit Committee and the which is primarily responsible for enhancing the Company’s Nominations and Compensation Committee, whose membership, value and for defending the corporate interests. Its main missions roles and missions are defined by internal rules, have been involve ensuring that the underlying strategy of the Company established by the Board. and the Group is adopted and overseeing its implementation, verifying the truth and fairness of information concerning the Any candidate for appointment as Director as well as any Company and the Group and protecting its assets. permanent representative of a legal entity shall receive a copy of the Board of Directors’ Charter and of the internal rules governing The Board of Directors of Christian Dior acts as guarantor of its the Committees prior to assuming his or her duties. rights of each of the shareholders and ensures that shareholders fulfill all their duties. Pursuant to the provisions of the Board of Directors’ Charter, Directors must bring to the attention of their Chairman any In its meeting of December 16, 2008, the Board of Directors instance, even potential, of a conflict of interest between their adhered to the recommendations of AFEP/MEDEF issued duties and responsibilities to the Company and their private on October 8, 2008 relating to the compensation of company interests and/or other duties and responsibilities. They must also officers of listed entities and decided that the AFEP/MEDEF provide him with details of any conviction in relation to fraudulent Code of Corporate Governance for Listed Companies would offenses, any official public incrimination and/or sanctions, any be applied by the Company. This document may be viewed on disqualifications from acting as a member of an administrative the MEDEF Web site (www.medef.fr). or management body imposed by a court as well as of any The Board of Directors has adopted a Charter that sets forth, bankruptcy, receivership or liquidation proceedings to which in particular, rules governing its membership, its missions, its they have been a party. No information has been communicated procedures, and its responsibilities. to the Chairman with respect to this obligation.
1.2 Membership and missions
• The Board of Directors consists of ten members: Messrs. (ii) Mr. Éric Guerlain is to be considered, given his personal Bernard Arnault, Antoine Bernheim, Denis Dalibot, situation, as an independent Director, despite having served Renaud Donnedieu de Vabres, Pierre Godé, Éric Guerlain, as a member of the Company’s Board of Directors for more Christian de Labriffe, Jaime de Marichalar y Sáenz de than twelve years and of the boards of directors of a subsidiary Tejada, Sidney Toledano, Alessandro Vallarino Gancia. of the LVMH Group; Four of whom: Messrs. Antoine Bernheim, Éric Guerlain, (iii) Mr. Jaime de Marichalar y Sáenz de Tejada is to be Jaime de Marichalar y Sáenz de Tejada and Renaud Donnedieu considered, given his personal situation, as an independent de Vabres, are considered as an independent and hold no Director, despite having served as a member of the Board interests in the Company. of Directors of a subsidiary of the LVMH Group and his During its meeting of February 5, 2009, the Board of Directors capacity of Advisor to the Chairman of the LVMH Group reviewed the status of each Director currently in office, in for Spain; particular with respect to the independence criteria set forth in (iv) Mr. Renaud Donnedieu de Vabres doit is to be considered the AFEP/MEDEF Code of Governance of Listed Companies, as an independent Director, despite having served as a member and made the following determinations: of the board of directors of La Fondation Louis Vuitton pour la (i) Mr. Antoine Bernheim is to be considered, given his Création, since this function does not compromise the free personal situation, as an independent Director, despite having exercise of his judgment. served as a member of the Company’s Board of Directors Moreover, during its meeting of February 5, 2009, the for more than twelve years and of the boards of directors of Board of Directors, examined the position of Mr. Sidney other companies that are subsidiaries of Groupe Arnault and Toledano with regard to his employment contract with the LVMH Group;
80 2008 Annual Report Report of the Chairman of the Board of Directors on internal control procedures Corporate governance
Christian Dior Couture SA. It was noted that this contract, relating to company officer compensation, and its adoption which was suspended when he was appointed Chairman of the Code of Governance for Listed Companies issued by and CEO of Christian Dior Couture, was dated a significant these organizations. amount of time prior to this appointment. In addition, the In its meeting of February 5, 2009, the Board of Directors principal functions of Mr. Sidney Toledano remain the reviewed its membership, organization and procedures. executive management of Christian Dior Couture. Under these conditions, the Board of Directors considered that, The Board came to the conclusion that its membership may notwithstanding the AFEP/MEDEF recommendation, there be considered as balanced, with regard to its percentage of is no basis to request Mr. Sidney Toledano to relinquish his external Directors, the breakdown of share capital, and with employment contract with Christian Dior Couture given his respect to the diversity and the complementarity of the skills mandate as Chief Executive Officer of Christian Dior SA. and experiences of its members. The Company’s bylaws require that each Director hold, The Board noted that it had received the information required directly and personally, at least 200 shares. for the fulfillment of its missions in timely fashion and that each Director had been able, in addition to any discussions during • Over the course of the 2008 fiscal year, the Board of Directors Board meetings, to ask questions of executive management met four times as convened by its Chairman, by written notice and obtain the requested details and explanations. sent to each of the Directors at least one week in advance of the meeting. The average attendance rate of directors at The Group’s financial position was presented in a clear and these meetings was 79%. detailed manner when the annual and half-yearly financial statements were submitted for the Board’s approval. The Board approved the annual and half-yearly financial statements and notably issued its opinion on the issuance The ways in which the Group may respond to changes in the of bonds, the establishment of a share subscription plan, economic and financial environment gave rise to exchanges various agreements with affiliated companies, as well as the between Directors and Executive Management. Company’s adhesion to the AFEP/MEDEF recommendations
1.3 Executive Management
The Board of Directors decided to assign the roles of Chairman and Chief Executive Officer to different persons. It made no change in the powers vested in the Chief Executive Officer.
1.4 Performance Audit Committee
The main tasks of the Performance Audit Committee are to ensure of the members of the Committee was unable to participate. that the Company and the Group’s accounting policies comply These meetings were also attended by a member of the Board with generally accepted accounting principles, to review the of Directors, by the Statutory Auditors, Chief Financial Officer, individual company and consolidated financial statements before the Company Accounting Director and the Accounting Director they are submitted to the Board of Directors, and to ensure the of LVMH. The Internal Audit Director of the LVMH Group, effective implementation of the Group’s internal controls. Management Control Director and Internal Audit Director of Christian Dior Couture also attended the meeting of the Audit It currently consists of three members, two of whom are Committee in which the internal controls at the LVMH Group independent, appointed by the Board of Directors. The and Christian Dior Couture were reviewed. current members of the Performance Audit Committee are Messrs. Éric Guerlain (Chairman), Renaud Donnedieu de In addition to reviewing the annual and half-yearly parent Vabres, and Christian de Labriffe. company and consolidated financial statements, the Committee’s work focused on examining the exercise of internal controls within The Performance Audit Committee met three times in 2008. the Group, the accounting options applied by the Company, All of these meetings were attended by all of the members of the Group’s exposure to foreign exchange risks and the fiscal the Committee, with the exception of one meeting where one position of the Company.
2008 Annual Report 81 Report of the Chairman of the Board of Directors on internal control procedures Corporate governance
1.5 Nominations and Compensation Committee
The main responsibilities of the Nominations and Compensation Officer and the compensation and benefits in kind of the Chief Committee are to issue: Executive Officer in respect of his functions at Christian Dior Couture, as well as the allocation of directors’ fees. It also • proposals on compensation, benefits in kind and subscription or examined the recommendations made by the Nominations and purchase options for the Chairman of the Board of Directors, the Chief Executive Officer and the Group Managing Compensation Committee of LVMH in favor of the directors of Director(s) of the Company, as well as on the allocation of LVMH that are company officers at Christian Dior SA. Finally, directors’ fees paid by the Company; it issued an opinion on the renewal of directors’ terms in office due to expire in 2008. • opinions on candidates for the positions of Director, Advisory Board member, Group Executive Committee member or Furthermore, in advance of the Board of Directors’ meeting of member of Executive Management of the Company’s main February 5, 2009, the Committee examined all of the appointments subsidiaries. due to expire at the annual shareholders’ meeting called to approve the financial statements for the year ended December 31, 2008 It currently consists of three members, two of whom are as well as the position of Mr. Sidney Toledano, in light of his independent, appointed by the Board of Directors. The current employment contract with Christian Dior Couture SA. It issued members of the Nominations and Compensation Committee recommendations on the variable compensation for 2008 of are Messrs. Antoine Bernheim (Chairman), Pierre Godé and Mr. Sidney Toledano, which was paid by Christian Dior Couture, Éric Guerlain. in addition to his compensation and benefits in kind for 2009, The Nominations and Compensation Committee met twice and declared itself in favor of implementing a profit sharing during the 2008 fiscal year, with all members in attendance: It mechanism based on the medium-term performance of Christian issued proposals on the allocation of share subscription options Dior Couture SA. It also approved the proposed appointment to the Chairman of the Board of Directors and Chief Executive of Mr. Renaud Donnedieu de Vabres as Director.
1.6 Advisory Board
Advisory Board members are invited to meetings of the Board They are appointed by the Shareholders’ Meeting on the proposal of Directors and are consulted for decision-making purposes, of the Board of Directors. although their absence cannot undermine the validity of the The Company does not have any Advisory Board members. Board of Directors’ deliberations.
1.7 Participation in Shareholders’ Meetings
The terms and conditions of participation by shareholders in defined in Articles 17 to 23 of the bylaws (see the “General Shareholders’ Meetings, and in particular the conditions for information – General information regarding the Company the attribution of double voting rights to registered shares, are and its share capital”).
1.8 Information that might have an impact on a takeover bid or exchange offer
Information that might have an impact on a takeover bid or Commercial Code, is published in the “Report of the Board of exchange offer, as required by Article L. 225-100-3 of the French Directors to the Shareholders’ Meeting”.
82 2008 Annual Report Report of the Chairman of the Board of Directors on internal control procedures Corporate governance
1.9 Compensation policy for company officers
Directors fees paid to the members of the Board of A portion of the compensation paid to executive management Directors of the Company and the executive management of the principal subsidiaries and operating units is based on the attainment of The Shareholders’ Meeting sets the total amount of directors’ both financial and qualitative targets. The financial criteria are fees to be paid to the members of the Board of Directors. growth in revenue, operating profit and cash flow, with each of This amount is divided among the members of the Board of these items representing one-third of the total determination. Directors, in accordance with the rule defined by the Board of The variable portion is capped at 120% of the fixed portion for Directors, based on the proposal of the Directors’ Nominations the Chief Executive Officer. and Compensation Committee, namely: In the event of the departure of an executive officer of the (i) two units for each Director; Company, he or she is not entitled to receive any specific compensation or benefit by virtue of any special arrangement (ii) one additional unit for serving as a Committee member; constituting an exception to the rules of stock option plans governing the exercise of these options. (iii) two additional units for serving as both a Committee member and a Committee Chairman; A non-competition indemnity, authorized by the Board of Directors on February 8, 2008, pursuant to Article L. 225-42-1 (iv) two additional units for serving as Chairman of the of the French Code of Commerce, is stipulated in favor of the Company’s Board of Directors; Chief Executive Officer, Mr. Sidney Toledano, in respect of his with the understanding that the amount corresponding to one employment contract with Christian Dior Couture, and under the unit is obtained by dividing the overall amount allocated to terms of which, in the event of his departure, he would receive be paid as directors’ fees by the total number of units to be an indemnity for twenty-four equal to the gross average monthly distributed. salary received over the previous twelve months. The Nominations and Compensation Committee can recommend Upon their retirement, Group directors and where applicable that all or part of the directors’ fees be allocated based on the company officers may receive a supplemental retirement benefit attendance rate of the members at the meetings of the Board provided that they assert at the same time their entitlement of Directors. to their basic retirement benefits under compulsory pension schemes. This supplemental payment corresponds to a specific In respect of the 2008 fiscal year, Christian Dior paid a total percentage of the beneficiary’s salary, to which a ceiling is of 147,715 euros in directors’ fees to the members of its Board applied on the basis of the reference salary determined by the of Directors. French social security scheme. Provisions recognized in 2008 for these supplemental retirement benefits are included in the Other compensation amount shown for post-employment benefits under Note 30.3 of the consolidated financial statements. Compensation and benefits awarded to company officers are mainly determined on the basis of the degree of responsibility An exceptional bonus may be awarded to certain Directors ascribed to their missions, their individual performance, as well with respect to any specific mission with which they have been as the Group’s performance and the attainment of targets. This entrusted. The amount of this bonus shall be determined by the determination also takes into account compensation paid by Board of Directors and reported to the Company’s Statutory similar companies with respect to their size, industry segment Auditors. and extent of international operations.
2008 Annual Report 83 Report of the Chairman of the Board of Directors on internal control procedures Implementation of internal control procedures and risk management
2. Implementation of internal control procedures and risk management
The Christian Dior Group uses an internal reference guide which One of the objectives of the internal control system is to is consistent with COSO principles (Committee of Sponsoring prevent and control risks resulting from the Company’s Organizations of the Treadway Commission) and which the activity and the risk of error or fraud, particularly in the Autorité des Marchés Financiers (French market regulator – AMF) areas of accounting and finance. As with any control system, has taken as the basis for its Reference Framework. however, it cannot provide an absolute guarantee that these risks are completely eliminated. Under the impetus of the Board of Directors, the Performance Audit Committee and Executive Management, the purpose Christian Dior’s internal control takes into consideration the of the internal control procedures that are applied within the Group’s specific structure. Christian Dior is a holding company Group is to provide reasonable assurance that the following that controls two main assets: a 42.4% equity stake in LVMH, objectives will be achieved: and a 100% equity stake in Christian Dior Couture. LVMH is a listed company, whose Chairman is also Chairman of Christian • to ensure that management and operations-related measures, Dior, with several directors serving at both companies. Christian as well as the conduct of personnel, are consistent with Dior Couture has a Board of Directors whose composition is the definitions contained in the guidelines applying to the similar to that of Christian Dior. Company’s activities by its management bodies, applicable laws and regulations, and the Company’s internal values, The sections below on internal control deal with procedures rules, and regulations; relating to Christian Dior Couture, followed by those relating to the holding company, Christian Dior SA. Procedures • to ensure that the accounting, financial, and management relating to LVMH are described in the report filed by information communicated to the management bodies of that company, which may be consulted as a supplement Group companies reflect a fair view of these companies’ to this report. activity and financial position.
2.1 Christian Dior Couture
Christian Dior Couture SA (hereafter the Company) creates, are consistent with the definitions contained in the guidelines produces and distributes all of the brand’s products internationally. applying to the company’s activities by its management bodies, It also engages in retail activities in the various markets through applicable laws and regulations, and the company’s internal its 57 subsidiaries. values, rules, and regulations. Given this dual role, internal control is applied directly to It also involves ensuring that the accounting, financial, and Christian Dior Couture SA, and in an oversight capacity to management information communicated to the company’s all subsidiaries. management bodies reflect a fair view of the company’s activity and financial position. 2.1.1 Definition Moreover, the company has defined as an additional objective the protection of assets (with a particular emphasis on the The purpose of the internal control procedures that are applied, brand). in line with the COSO framework, is to provide reasonable assurance that the following objectives will be achieved: 2.1.2 Limits of internal control • the control of activities and processes, the efficiency of operations and the efficient utilization of resources; No matter how well designed and applied, the internal control mechanism cannot provide an absolute guarantee that the • the reliability of financial and accounting information; company’s objectives will be achieved. All internal control • compliance with applicable laws and regulations. systems have their limits due notably to the uncertainties of the outside world, individual judgment or malfunctions resulting This involves, therefore, ensuring that management and from human or other errors. operations-related measures, as well as the conduct of personnel,
84 2008 Annual Report Report of the Chairman of the Board of Directors on internal control procedures Implementation of internal control procedures and risk management
2.1.3 Internal control components -- the annual budget; The internal control system is based on the definition and -- monthly reports on actual data compared with budget with identification of the following components: in-depth and formalized analyses of any discrepancies. • a general control environment; • Executive Management and the Finance Department are also responsible for training all financial personnel worldwide • a risk assessment system; (internal or external administrative departments) in order to • appropriate controls; ensure the strict application of IAS and Group rules. • an information and communications system that enables • Senior executives maintain a regular presence at subsidiaries responsibilities to be exercised efficiently and effectively. and on their management bodies, in particular at board level. The risk management system identifies and assesses the main risks • Store Committees have been set up to formally authorize likely to affect the achievement of the operational and financial the signature of commercial leases and investments in the objectives, as well as the objectives relating to compliance with distribution network. They are made up of the Chairman, the the laws and regulations in force. Vice-President in charge of the network, the Chief Financial Officer, the Director of Management Audit, the Chief Legal Risks are classified by category (strategic, operational, financial, Officer and the architects. legal and intangible) and key process. • Lastly, internal audit covers the following main areas: Risks are mapped according to their frequency and intensity -- points of sale: review of the main processes of store management and controls devised for identified risks are put in place in (sales, pricing, cash flow, inventories, administration and order to limit the impact of such risks, although their absolute security, personnel, external purchases, supplies); elimination cannot be guaranteed. -- country head quarters: review of main cycles (purchases Controls rely on the following resources: of goods, external purchases and expense claims, human • a consolidation standards manual fully updated to take account resources, inventories and logistics, information systems, of the new tools for reporting consolidated financial data investments, accounting and finance); and the transition to presentation formats by type of income -- the accounts departments of countries responsible for producing statement; subsidiaries’ financial reports: audit of financial reports • communication of all the operational procedures applicable prepared by back offices and monitoring of the application of to head office and point-of-sale operations combined in a the Christian Dior Couture Group’s accounting principles. specific, regularly updated manual; On completion of audit assignments, reports containing • integrated point-of-sale management software (deployed recommendations are presented to the Chairman and sent to across the whole distribution network) which standardizes each subsidiary. Implementation of the recommendations made store control rules and provides head office with detailed sales is closely monitored. information on each store in the network; • delegations of powers that are limited, precise, managed and 2.1.5 Internal controls related to financial known to the actors involved in terms of both expenditure and accounting information commitments and rules;
• a separation of the scheduling of expenditures and Organization payments. Internal controls of accounting and financial information are organized based on the cooperation and control of the following 2.1.4 Departments involved in internal departments: Accounting and Consolidation, Management control Control, Information Systems. • The Legal Department conducts upstream checks: • Accounting and Consolidation is responsible for updating and distributing group-wide accounting standards and procedures. -- prior to the signing of any substantial agreement negotiated It oversees their application and establishes appropriate by the head office or subsidiaries; training programs. It is in charge of producing consolidated -- on the length of time third-party designs and brands have and individual company financial statements on a quarterly, been in existence. half-yearly and annual basis. • Management Control is responsible for coordinating the • Executive Management and the Finance Department closely budget process and its revisions during the year as well as for monitors management information so that it can intervene in the three-year strategic plan. It produces the monthly operating the process of defining objectives then oversee their realization report and all reviews required by Executive Management; through: it also tracks capital expenditures and cash flow, as well as -- three-year strategic plans; producing statistics and specific operational indicators.
2008 Annual Report 85 Report of the Chairman of the Board of Directors on internal control procedures Implementation of internal control procedures and risk management
• Information Systems disseminates the Group’s technical 2.1.6 Outlook for 2009 standards, which are indispensable given the decentralized structure of the Group’s equipment, applications, networks, etc., • Strengthening of the structure of internal audit to enable: and identifies any potential synergies. It develops and maintains -- the production of a manual of all Group administrative and a telecommunications system shared by the Group. Finally, it operational procedures at both head office and subsidiary coordinates policy for system and data security and preparation level; of emergency contingency plans. -- the completion of more frequent audits of all Group subsidiaries (in particular, continuation of the auditing of Accounting and management policies production plants). Subsidiaries adopt the accounting and management policies • Implementation of integrated point-of-sale management considered by the Group as appropriate for the individual software in Brazil, the only country where this has so far company and consolidated financial statements. A consistent not been done. set of accounting standards is applied throughout, together with consistent formats and tools to submit data to be • Extension to the other product divisions of the new production consolidated. and invoicing management system (Movex) implemented for Men’s Ready-To-Wear in 2006 and Women’s Ready- To-Wear in 2008, with a view to replacing the wholesale Management reporting divisions’ production and invoicing system (Synergie) at Each year, all of the Group’s consolidated entities produce a headquarters. three-year plan, a complete budget and annual forecasts. Detailed • Plan to outsource the IT equipment room. instructions are sent to the companies for each process. • Supervision, by an environment manager, of the application of These key steps represent opportunities to perform detailed the European REACH regulations, introduction of a Supplier analyses of actual data compared with budget, and to foster Charter and Code of Conduct and collaboration with French ongoing communication between companies and the Group – an ecology organizations in the area of recycling. essential feature of the financial internal control mechanism. A team of controllers at the parent company, specialized by geographic region and product category, is in permanent contact with the subsidiaries, thus ensuring better knowledge of performance and management decisions as well as appropriate control.
2.2 Christian Dior
2.2.1 Control environment • providing accurate financial information, in line with applicable laws, given its status as a listed company. As noted above, Christian Dior is a holding company whose assets are essentially limited to two equity holdings: Christian Dior Given the limited number of tasks described above, and its Couture and LVMH. membership of a Group with the necessary administrative skills, Christian Dior uses the Group’s specialized services in the The business of Christian Dior SA is therefore essentially areas specific to a holding company, namely legal, financial and dedicated to: accounting matters. An assistance agreement has been entered • protecting the legal title of these two equity holdings; into with Groupe Arnault SAS. • exercising the rights and authority of a majority shareholder, Regarding the Group’s external services, the Shareholders’ notably by its: Meeting of Christian Dior appointed two first-tier accounting firms as Statutory Auditors, one of which also serves in the same -- presence on the boards and at the meetings of the role at Christian Dior Couture and LVMH. subsidiaries, -- monitoring of dividends paid by the subsidiaries, -- control of the subsidiaries’ financial performance;
86 2008 Annual Report Report of the Chairman of the Board of Directors on internal control procedures Implementation of internal control procedures and risk management
2.2.2 Risk control 2.2.4 Information and communication Risk control is based first and foremost on a regular review systems of the risks incurred by the Company so that internal control The strategic plans in terms of information and communication procedures can be adapted. systems of the parent company Christian Dior are coordinated by the Group Finance Department. 2.2.3 Control activities Aspects of internal control such as the segregation of duties and access rights are integrated at the time of implementation of new information systems. Key elements of internal control procedures Given the nature of the Company’s activity, the primary objective of internal control systems is to mitigate risks of error and fraud 2.2.5 Internal controls relating to the in accounting and finance. The following principles form the preparation of the parent company’s basis of our organization: financial and accounting information • very limited, very precise delegation of powers, which are The individual company and consolidated financial statements known by the counterparties involved, with sub-delegations are subject to a detailed set of instructions and a specially adapted reduced to a minimum; data submission system designed to facilitate complete and • upstream legal control before signing agreements; accurate data processing within suitable timeframes. • separation of the expense and payment functions; The exhaustive controls performed at the sub-consolidation levels (LVMH and Christian Dior Couture) guarantee the • secured payments; integrity of the information. • procedural rules known by potential users; Financial information intended for the financial markets (financial • integrated databases (single entry for all users); analysts, investors, individual shareholders, market authorities) is provided under the supervision of the Finance Department. • frequent audits (internal and external). This information is strictly defined by current market rules, specifically the principle of equal treatment of investors. Legal and operational control exercised by the This report on internal control, based on the contribution of parent company over the subsidiaries the abovementioned internal control and risk management stakeholders, was conveyed in its draft form to the Performance Asset control Audit Committee for its opinion and approved by the Board of Directors at its meeting of February 5, 2009. Securities held by the subsidiaries are subject to a quarterly reconciliation between the Company’s Accounting Department and the Securities departments of the companies concerned. Conclusion Operational control Over and above its existing internal control mechanism, in 2008 the Christian Dior Group reinforced continuing efforts Christian Dior SA exercises operational control over its to improve its internal control. subsidiaries through the following: • legal bodies, Boards of Directors and shareholders’ meetings, at which the Company is systematically represented; • management information used by managers of Christian Dior SA in the process of defining objectives and monitoring their fulfillment: -- three-year and annual budget plans, -- monthly reporting presenting results compared to budget and variance analysis, -- quarterly meetings to analyze performance.
2008 Annual Report 87 Report of the Chairman of the Board of Directors on internal control procedures Statutory Auditors’ report
3. Statutory Auditors’ report
Statutory Auditors’ report, prepared in accordance with article L. 225-235 of the French Commercial Code (Code de commerce), on the report prepared by the chairman of the Board of Directors of Christian Dior
MAZARS ERNST & YOUNG Audit Tour Exaltis Faubourg de l’Arche 61, rue Henri-Regnault 11, allée de l’Arche 92400 Courbevoie 92037 Paris-La Défense Cedex SA with share capital of 8,320,000 euros SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, In our capacity as Statutory Auditors of Christian Dior SA and in accordance with article L. 225-235 of the French Commercial Code (Code de commerce), we hereby report to you on the report prepared by the Chairman of your Company in accordance with Article L. 225-37 of the French Commercial Code for the year ended December 31, 2008. It is the Chairman’s responsibility to prepare and to submit for the Board of Directors’ approval a report on internal control and risk management procedures implemented by the Company and to provide the other information required by Article L. 225-37 of the French Commercial Code relating to matters such as corporate governance. Our role is to: • report on the information contained in the Chairman’s report in respect of the internal control procedures relating to the preparation and processing of the accounting and financial information; • confirm that the report also includes the other information required by Article L. 225-37 of the French Commercial Code. It should be noted that our role is not to verify the fairness of this other information. We conducted our work in accordance with professional standards applicable in France.
88 2008 Annual Report Report of the Chairman of the Board of Directors on internal control procedures Statutory Auditors’ report
Information on the internal control procedures relating to the preparation and processing of accounting and financial information The professional standards require that we perform the necessary procedures to assess the fairness of the information provided in the Chairman’s report in respect of the internal control procedures relating to the preparation and processing of the accounting and financial information. These procedures consist mainly in: • obtaining an understanding of the internal control procedures relating to the preparation and processing of the accounting and financial information on which the information presented in the Chairman’s report is based and of the existing documentation; • obtaining an understanding of the work involved in the preparation of this information and of the existing documentation; • determining if any material weaknesses in the internal control procedures relating to the preparation and processing of the accounting and financial information that we would have noted in the course of our work are properly disclosed in the Chairman’s report. On the basis of our work, we have nothing to report on the information in respect of the Company’s internal control procedures relating to the preparation and processing of the accounting and financial information contained in the report prepared by the Chairman of the Board of Directors in accordance with article L. 225-37 of the French Commercial Code.
Other information We confirm that the report prepared by the Chairman of the Board of Directors also contains the other information required by article L. 225-37 of the French Commercial Code.
Courbevoie and Paris-La Défense, March 24, 2009 The Statutory Auditors
MAZARS ERNST & YOUNG Audit Denis Grison Jeanne Boillet
This is a free translation of the original French text for information purposes only.
2008 Annual Report 89 90 2008 Annual Report Consolidated financial statements
1. Consolidated income statement 92
2. Consolidated balance sheet 93
3. Consolidated statement of changes in equity 94
4. Consolidated cash flow statement 95
5. Notes to the consolidated financial statements 97
6. Statutory Auditors’ report 157
2008 Annual Report 91 Consolidated financial statements Consolidated income statement
1. Consolidated income statement
(EUR millions, except for earnings per share) Notes 2008 2007 2006
Revenue 22-23 17,933 17,245 16,016
Cost of sales (6,305) (6,060) (5,745)
Gross margin 11,628 11,185 10,271
Marketing and selling expenses (6,490) (6,118) (5,707)
General and administrative expenses (1,517) (1,457) (1,355)
Profit from recurring operations 22-23 3,621 3,610 3,209
Other operating income and expenses 24 (153) (117) (127)
Operating profit 3,468 3,493 3,082
Cost of net financial debt (322) (272) (230)
Other financial income and expenses (26) (45) 123
Net financial income (expenses) 25 (348) (317) (107)
Income taxes 26 (904) (855) (850)
Income (loss) from investments in associates 7 8 7 8
Net profit before minority interests 2,224 2,328 2,133
Minority interests 1,428 1,448 1,336
Net profit – Group share 796 880 797
Basic Group share of net earnings per share (EUR) 27 4.46 4.94 4.49
Number of shares on which the calculation is based 178,304,484 178,147,605 177,522,442
Diluted Group share of net earnings per share (EUR) 27 4.43 4.86 4.41
Number of shares on which the calculation is based 178,932,178 179,109,815 179,242,114
92 2008 Annual Report Consolidated financial statements Consolidated balance sheet
2. Consolidated balance sheet
Assets (EUR millions) Notes 2008 2007 2006 Brands and other intangible assets - net 3 11,212 10,654 10,885 Goodwill net 4 5,048 5,398 5,120 Property, plant and equipment - net 6 6,352 5,671 5,432 Investments in associates 7 219 132 128 Non-current available for sale financial assets 8 375 823 505 Other non-current assets 858 614 693 Deferred tax 26 674 556 451 Non-current assets 24,738 23,848 23,214 Inventories and work in progress 9 5,966 5,003 4,524 Trade accounts receivable 10 1,721 1,675 1,539 Income taxes (1) 235 156 100 Other current assets 11 1,851 2,037 1,635 Cash and cash equivalents 13 1,077 1,615 1,359 Current assets 10,850 10,486 9,157 Total assets 35,588 34,334 32,371
Liabilities and equity (EUR millions) Notes 2008 2007 2006 Share capital 363 363 363 Share premium account 2,205 2,205 2,205 Treasury shares and related derivatives (256) (240) (229) Revaluation reserves 354 433 418 Other reserves 2,636 1,999 1,447 Cumulative translation adjustment (167) (263) (53) Group share of net profit 796 880 797 Equity – Group share 14 5,931 5,377 4,948 Minority interests 16 9,334 8,563 8,026 Total equity 15,265 13,940 12,974 Long term borrowings 17 4,615 3,387 4,188 Provisions 18 977 981 991 Deferred tax 26 4,016 3,761 3,786 Other non-current liabilities 19 3,254 4,147 3,758 Non-current liabilities 12,862 12,276 12,723 Short term borrowings 17 2,522 3,678 2,661 Trade accounts payable 2,348 2,167 1,967 Income taxes (1) 308 339 281 Provisions 18 326 298 263 Other current liabilities 20 1,957 1,636 1,502 Current liabilities 7,461 8,118 6,674 Total liabilities and equity 35,588 34,334 32,371
(1) As of December 31, 2008, the Group’s income tax liability with respect to the French tax consolidation structure is presented after offsetting advance tax payments. The balance sheets for the years ended December 31, 2007 and December 31, 2006 were restated for comparability purposes. 2008 Annual Report 93 Consolidated financial statements Consolidated statement of changes in equity
3. Consolidated statement of changes in equity
Treasury Total equity Share shares and Cumulative Net profit Number of Share premium related Revaluation translation and other Group Minority (EUR millions) shares capital account derivatives reserves adjustment reserves share interests Total
Notes 14.1 14.2 14.4 14.5 16 As of December 31, 2005 181,727,048 363 2,205 (157) 292 126 1,639 4,468 7,400 11,868 Translation adjustment (179) (179) (321) (500) Income and expenses recognized 126 126 175 301 directly in equity Net profit 797 797 1,336 2,133 Total recognized income and expenses - - - 126 (179) 797 744 1,190 1,934 Stock option plan and similar expenses 23 23 21 44 (Acquisition)/disposal of treasury (72) 1 (71) (9) (80) shares and related derivatives Capital increase in subsidiaries - 6 6 Interim and final dividends paid (216) (216) (439) (655) Changes in consolidation scope - (6) (6) Effects of purchase commitments - (137) (137) for minority interests Other - - - As of December 31, 2006 181,727,048 363 2,205 (229) 418 (53) 2,244 4,948 8,026 12,974 Translation adjustment (210) (210) (360) (570) Income and expenses recognized 15 15 54 69 directly in equity Net profit 880 880 1,448 2,328 Total recognized income and expenses - - - 15 (210) 880 685 1,142 1,827 Stock option plan and similar expenses 27 27 26 53 (Acquisition)/disposal of treasury (11) (11) (22) 53 31 shares and related derivatives Capital increase in subsidiaries - 1 1 Interim and final dividends paid (261) (261) (544) (805) Changes in consolidation scope - (15) (15) Effects of purchase commitments - (126) (126) for minority interests Other - - - As of December 31, 2007 181,727,048 363 2,205 (240) 433 (263) 2,879 5,377 8,563 13,940 Translation adjustment 96 96 179 275 Income and expenses recognized (79) (79) (75) (154) directly in equity Net profit 796 796 1,428 2,224 Total recognized income and expenses - - - (79) 96 796 813 1,532 2,345 Stock option plan and similar expenses 27 27 27 54 (Acquisition)/disposal of treasury (16) 25 9 (64) (55) shares and related derivatives Capital increase in subsidiaries - 5 5 Interim and final dividends paid (287) (287) (618) (905) Changes in consolidation scope - 20 20 Effects of purchase commitments - (139) (139) for minority interests Other (8) (8) 8 - As of December 31, 2008 181,727,048 363 2,205 (256) 354 (167) 3,432 5,931 9,334 15,265
94 2008 Annual Report Consolidated financial statements Consolidated cash flow statement
4. Consolidated cash flow statement
(EUR millions) Notes 2008 2007 2006 I - Operating activities Operating profit 3,468 3,493 3,082 Net increase in depreciation, amortization and provisions, excluding tax and financial items 749 680 515 Other unrealized gains and losses, excluding financial items (34) (39) (17) Dividends received 17 33 33 Other adjustments (59) (22) (20) Cash from operations before changes in working capital 4,141 4,145 3,593 Cost of net financial debt: interest paid (271) (252) (225) Income taxes paid (877) (925) (788) Net cash from operations before changes in working capital 2,993 2,968 2,580 Change in inventories and work in progress (829) (626) (362) Change in trade accounts receivable (19) (203) (157) Change in trade accounts payable 122 223 234 Change in other receivables and payables (11) 82 37 Total change in working capital (737) (524) (248) Net cash from operating activities 2,256 2,444 2,332 II - Investing activities Purchase of tangible and intangible fixed assets (1,071) (1,025) (807) Proceeds from sale of tangible and intangible fixed assets 100 58 11 Guarantee deposits paid and other operating investments (9) (21) 12 Operating investments (980) (988) (784) Purchase of non-current available for sale financial assets 8 (155) (45) (88) Proceeds from sale of non-current available for sale financial assets 8 185 33 172 Impact of purchase and sale of consolidated investments 2.4 (668) (329) (68) Financial investments (638) (341) 16 Net cash from (used in) investing activities (1,618) (1,329) (768) III - Transactions relating to equity Capital increases subscribed by minority interests 16 11 1 6 Purchase and proceeds from sale of treasury shares and related derivatives by the Group (146) (3) (72) Interim and final dividends paid by Christian Dior SA 14.3 (287) (261) (216) Interim and final dividends paid to minority interests in consolidated subsidiaries 16 (618) (544) (439) Net cash from (used in) transactions relating to equity (1,040) (807) (721) IV - Financing activities Proceeds from borrowings 2,555 2,209 1,286 Repayment of borrowings (2,549) (1,956) (2,136) Purchase and proceeds from sale of current available for sale financial assets 12 (47) (278) (181) Net cash from (used in) financing activities (41) (25) (1,031) V – Effect of exchange rate changes 59 (45) (1) Net increase (decrease) in cash and cash equivalents (I+II+III+IV+V) (384) 238 (189) Cash and cash equivalents at beginning of period 13 1,037 799 988 Cash and cash equivalents at end of period 13 653 1,037 799 Transactions generating no change in cash: - Acquisitions of assets by means of finance leases 11 6 8
2008 Annual Report 95 96 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Notes to the consolidated financial statements
Note 1 Accounting policies 98 Note 2 Changes in the scope of consolidation 105 Note 3 Brands, trade names and other intangible assets 108 Note 4 Goodwill 110 Note 5 Impairment testing of intangible assets with indefinite useful lives 111 Note 6 Property, plant and equipment 112 Note 7 Investments in associates 114 Note 8 Non-current available for sale financial assets 114 Note 9 Inventories and work in progress 115 Note 10 Trade accounts receivable 116 Note 11 Other current assets 117 Note 12 Current available for sale assets 118 Note 13 Cash and cash equivalents 118 Note 14 Equity 119 Note 15 Share purchase option plans 122 Note 16 Minority interests 124 Note 17 Borrowings 125 Note 18 Provisions 127 Note 19 Other non-current liabilities 128 Note 20 Other current liabilities 129 Note 21 Financial instruments and market risk management 129 Note 22 Segment information 135 Note 23 Revenue and expenses by nature 139 Note 24 Other operating income and expenses 140 Note 25 Net financial income/expense 140 Note 26 Income taxes 141 Note 27 Earnings per share 144 Note 28 Provisions for pensions, medical costs and similar commitments 144 Note 29 Off balance sheet commitments 147 Note 30 Related party transactions 149 Note 31 Subsequent events 150
2008 Annual Report 97 Consolidated financial statements Notes to the consolidated financial statements
5. Notes to the consolidated financial statements
Note 1 - Accounting policies
1.1 General framework and environment • amendments to IAS 23 Borrowing costs; The consolidated financial statements for the year ended • amendments to IFRS 2 Share-based payment vesting conditions December 31, 2008 were established in accordance with and cancellations; international accounting standards and interpretations (IAS/ • IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, IFRS) adopted by the European Union and applicable on Minimum Funding Requirements and their Interaction. December 31, 2008. These standards and interpretations have been applied consistently to the fiscal years presented. The The application of these standards, amendments and interpretations financial statements were approved for publication by the Board in 2009 is not expected to have a material impact on the Group’s of Directors on February 5, 2009. consolidated financial statements. In particular, the application of IFRS 8 will alter neither the structure of published figures nor The depth and duration of the current economic and financial the amount of goodwill allocated to each business segment. crisis, which left its mark on fiscal year 2008, are difficult to predict with accuracy. The Group’s consolidated financial statements for In addition, the Group has opted for early application, as of the the year ended December 31, 2008 were prepared taking into 2009 fiscal year, of the amendment to IAS 38 Intangible assets, consideration this immediate context, particularly with respect to relating to the recognition of advertising and promotion expenses. the valuation of current and non-current available for sale financial See Note 11 for a discussion of the impact of this amendment. assets and financial instruments, the expected level of inventory turnover and the recoverability of trade receivables. Assets whose value is assessed with reference to longer term prospects, 1.3 First-time adoption of IFRS especially intangible or real estate assets, have been valued using The first accounts prepared by the Group in accordance assumptions taking into account an economic and financial crisis with IFRS were the financial statements for the year ended whose duration would be limited in time, particularly with respect December 31, 2005, with a transition date of January 1, 2004. to its impact on future cash flows from operating activities, with IFRS 1 allowed for exceptions to the retrospective application the financial indicators used in these valuations nevertheless being of IFRS at the transition date. The procedures implemented by those prevailing at the balance sheet date. the Group with respect to these exceptions are listed below: • business combinations: the exemption from retrospective 1.2 Changes in the accounting framework application was not applied. The Christian Dior Group in 2008 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 Standards, amendments and interpretations for applied retrospectively as of this date; which application is mandatory in 2008 • measurement of property, plant and equipment and intangible The standards, amendments and interpretations applicable to assets: the option to measure these assets at fair value at the the Group have been implemented since January 1, 2007 and date of transition was not applied with the exception of the do not have a significant impact on the consolidated financial entire real estate holdings of Christian Dior Couture; statements presented; they relate to: • employee benefits: actuarial gains and losses previously deferred • IFRIC 13 Customer loyalty programmes, which was applied under French GAAP at the date of transition were recognized; early as of the 2007 consolidated financial statements. • foreign currency translation of the financial statements of foreign subsidiaries: translation reserves relating to the Standards, amendments and interpretations for consolidation of subsidiaries that prepare their accounts in which application is optional in 2008 foreign currency were reset to zero as of January 1, 2004 and offset against “Other reserves”; The following standards, amendments and interpretations applicable to the Group, whose mandatory application date is • share-based payment: IFRS 2 Share-Based Payment was January 1, 2009, were not applied early in 2008; they relate to: applied to all share subscription and share purchase option plans that were open at the date of transition, including those • IFRS 8 Segment reporting; created before November 7, 2002, the date before which • amendments to IAS 1 Presentation of financial statements; application is not mandatory.
98 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
1.4 Use of estimates Foreign exchange gains and losses arising from the translation of inter-company transactions or receivables and payables For the purpose of preparing the consolidated financial statements, denominated in foreign currencies, or from their elimination, measurement of certain balance sheet and income statement are recorded in the income statement unless they relate to items requires the use of hypotheses, estimates or other forms of long term inter-company financing transactions which can be judgment. This is particularly true of the valuation of intangible considered as transactions relating to equity. In the latter case, assets, purchase commitments for minority interests and of the translation adjustments are recorded in equity under “Cumulative determination of the amount of provisions for contingencies translation adjustment”. and losses or for impairment of inventories and, if applicable, deferred tax assets. Such hypotheses, estimates or other forms of Derivatives which are designated as hedges of commercial foreign judgment which are undertaken on the basis of the information currency transactions are recognized in the balance sheet at available, or situations prevalent at the date of preparation of the their market value at the balance sheet date and any change in accounts, may prove different from the subsequent actual events. the market value of such derivatives is recognized: • within cost of sales for the effective portion of hedges of receivables and payables recognized in the balance sheet at 1.5 Methods of consolidation the end of the period; The subsidiaries in which the Group holds a direct or indirect • within equity (as a revaluation reserve) for the effective portion de facto or de jure controlling interest are fully consolidated. of hedges of future cash flows (this part is transferred to cost of Jointly controlled companies are consolidated on a proportionate sales at the time of recognition of the hedged assets and liabilities); basis. • within net financial income/expense for the ineffective portion For distribution subsidiaries operating in accordance with the of hedges; changes in the value of discount and premium contractual distribution arrangements with the Diageo Group, associated with forward contracts, as well as the time value only the portion of assets and liabilities and results of operations component of options, are systematically considered as relating to Christian Dior Group activities is included in the ineffective portions. consolidated financial statements (see Note 1.23). When derivatives are designated as hedges of subsidiaries’ Companies where the Group has significant influence but no equity in foreign currency (net investment hedge), any change in controlling interest are accounted for using the equity method. 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. 1.6 Foreign currency translation of Market value changes of derivatives not designated as hedges the financial statements of foreign are recorded within net financial income/expense. subsidiaries The consolidated financial statements are stated in euros; the 1.8 Brands, trade names and other financial statements of subsidiaries stated in a different functional intangible assets currency are translated into euros: Only acquired brands and trade names that are well known and • at the period-end exchange rates for balance sheet items; individually identifiable are recorded as assets at their values • at the average rates for the period for income statement items. calculated on their dates of acquisition. Translation adjustments arising from the application of these rates Costs incurred in creating a new brand or developing an existing are recorded in equity under “Cumulative translation adjustment”. brand are expensed. Brands, trade names and other intangible assets with finite useful lives are amortized over their useful lives. The classification of a 1.7 Foreign currency transactions and brand or trade name as an asset of definite or indefinite useful hedging of exchange rate risks life is generally based on the following criteria: Foreign currency transactions of consolidated companies are • the brand or trade name’s positioning in its market expressed in translated to their functional currencies at the exchange rates terms of volume of activity; international presence and notoriety; prevailing at the transaction dates. • its expected long term profitability; Accounts receivable, accounts payable and debts denominated • its degree of exposure to changes in the economic environment; in foreign currencies are translated at the applicable exchange rates at the balance sheet date. Unrealized gains and losses • any major event within its business segment liable to its future resulting from this translation are recognized: development; • within cost of sales in the case of commercial transactions; • its age. • within net financial income/expense in the case of financial Amortizable lives of brands and trade names, depending on transactions. their estimated longevity, range from 5 to 40 years.
2008 Annual Report 99 Consolidated financial statements Notes to the consolidated financial statements
Amortization and any impairment expense of brands and trade • the difference between the amount of the commitment and the names are recognized within “Other operating income and reclassified minority interests is recorded as goodwill. expenses”. This accounting policy has no effect on the presentation of Impairment tests are carried out for brands, trade names and minority interests within the income statement. other intangible assets using the methodology described in The accounting treatment described above nevertheless elicits Note 1.12. the following observation: certain interpretations of these texts Research expenditure is not capitalized. New product development lead to the recognition of the entire amount of goodwill as a expenditure is not capitalized unless the final decision to launch deduction from equity; under other interpretations, goodwill the product has been taken. is maintained under assets but in an amount frozen at the acquisition date, with subsequent changes being taken directly Intangible assets other than brands and trade names are amortized to the income statement. over the following periods: • leasehold rights, key money: based on market conditions generally between 100% and 200% of the lease period; 1.11 Property, plant and equipment • development expenditure: 3 years at most; With the exception of vineyard land and the entire real estate holding of Christian Dior Couture, the gross value of property, • software: 1 to 5 years. plant and equipment is stated at acquisition cost. Any borrowing costs incurred prior to use of assets are expensed. 1.9 Goodwill Vineyard land is recognized at the market value at the balance sheet date. This valuation is based on official published data When the Group takes de jure or de facto control of an enterprise, for recent transactions in the same region, or on independent its assets, liabilities and contingent liabilities are estimated at appraisals. Any difference compared to historical cost is their fair value and the difference between the cost of taking recognized within equity in “Revaluation reserves”. If market exclusive control and the Group’s share of the fair value of value falls below acquisition cost the resulting impairment is those assets, liabilities and contingent liabilities is recognized charged to the income statement. as goodwill. Vines for champagnes, cognacs and other wines produced by The cost of taking control is the price paid by the Group in the Group, are considered as biological assets as defined in the context of an acquisition, or an estimate of this price if the IAS 41 Agriculture. As their valuation at market value differs transaction is carried out without any payment of cash. little from that recognized at historical cost, no revaluation is Pending specific guidance from current standards, the difference undertaken for these assets. between the cost and carrying amount of minority interests Investment property is measured at cost. purchased after control is acquired is recognized as goodwill. Assets acquired under finance leases are capitalized on the Goodwill is accounted for in the functional currency of the basis of the lower of their market value and the present value acquired entity. of future lease payments. Goodwill is not amortized but is subject to annual impairment Property, plant and equipment is depreciated on a straight-line testing using the methodology described in Note 1.12. Any basis over its estimated useful life: impairment expense recognized is included within “Other operating income and expenses”. • buildings including investment property 20 to 50 years; • machinery and equipment 3 to 25 years; 1.10 Purchase commitments for minority • store improvements 3 to 10 years; interests • producing vineyards 18 to 25 years. The Group has granted put options to minority shareholders The depreciable amount of property, plant and equipment of certain fully consolidated subsidiaries. comprises its acquisition cost less any estimated residual Pending guidance from IFRS on this subject, the Group value. recognizes these commitments as follows at each period-end: Expenses for maintenance and repairs are charged to the income • the contractual value of the commitment at this date appears statement as incurred. in “Other non-current liabilities”; • the corresponding minority interests are reclassified and included in the above amount;
100 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
1.12 Impairment testing of fixed assets Current available for sale financial assets include temporary investments in shares, shares of Sicav, FCP and other mutual Intangible and tangible fixed assets are subject to impairment funds, excluding investments made as part of the daily cash testing whenever there is any indication that an asset may management, accounted for as cash and cash equivalents (see be impaired, and in any event at least annually in the case of Note 1.16). intangible assets with indefinite useful lives (mainly brands, trade names and goodwill). When the carrying amount of such Available for sale financial assets are measured at their listed assets is greater than the higher of their value in use or net value at balance sheet date in the case of quoted investments, selling price, the resulting impairment loss is recognized within and at their net realizable value at that date in the case of “Other operating income and expenses”, allocated in priority unquoted investments. to any existing goodwill. Positive or negative changes in value are taken to equity within Value in use is based on the present value of the cash flows “Revaluation reserves”. If an impairment loss is judged to expected to be generated by these assets. Net selling price is be definitive, a provision for impairment is recognized and estimated by comparison with recent similar transactions or on charged to net financial income/expense; the impairment is only the basis of valuations performed by independent experts. reversed through the income statement at the time of sale of the corresponding available for sale financial assets. 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 1.14 Inventories and work in progress units, e.g. a group of stores, may be distinguished within a particular business segment. Inventories other than wine produced by the Group are recorded at the lower of cost (excluding interest expense) and Brands and goodwill are chiefly valued on the basis of the present net realizable value; cost comprises manufacturing cost (finished value of forecast cash flows, or of comparable transactions goods) or purchase price, plus incidental costs (raw materials, (i.e. using the revenue and net profit coefficients employed for merchandise). recent transactions involving similar brands), or of stock market multiples observed for related businesses. Other complementary Wine produced by the Group, especially champagne, is measured methods may also be employed: the royalty method, involving at the applicable harvest market value, as if the harvested grapes equating a brand’s value with the present value of the royalties had been purchased from third parties. Until the date of the required to be paid for its use; the margin differential method, harvest, the value of grapes is calculated pro rata temporis on applicable when a measurable difference can be identified the basis of the estimated yield and market value. between the amount of revenue generated by a branded product Inventories are valued using the weighted average cost or in comparison with an unbranded product; and finally the FIFO methods. equivalent brand reconstitution method involving, in particular, estimation of the amount of advertising required to generate a Due to the length of the aging process required for champagne similar brand. and cognac, the holding period for these inventories generally exceeds one year. However, in accordance with industry practices, The forecast data required for the cash flow methods is based these inventories are nevertheless classified as current assets. on budgets and business plans prepared by management of the related business segments. Detailed forecasts cover a five-year Provisions for impairment of inventories are chiefly recognized period, a period which may be extended in the case of certain for businesses other than Wines and Spirits. They are generally brands undergoing strategic repositioning, or which have a required because of product obsolescence (date of expiry, end production cycle exceeding five years. Moreover, a final value of season or collection, etc.) or lack of sales prospects. 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 1.15 Trade accounts receivable probability of occurrence of each scenario is assessed. Forecast Trade accounts receivable are recorded at their face value. cash flows are discounted on the basis of the rate of return to be A provision for impairment is recorded if their net realizable expected by an investor in the applicable business and include value, based on the probability of their collection, is less than assessment of the risk factor associated with each business. their carrying amount.
1.13 Available for sale financial assets 1.16 Cash and cash equivalents Available for sale financial assets are classified as current or Cash and cash equivalents comprise cash on hand and highly non- current based on their nature and the estimated period liquid monetary investments subject to an insignificant risk of for which they will be held. changes in value. Non-current available for sale financial assets mainly include Monetary investments are measured at their market value participating investments (strategic and non-strategic). and at the exchange rate prevailing at the balance sheet date, with any changes in value recognized as part of net financial income/expense.
2008 Annual Report 101 Consolidated financial statements Notes to the consolidated financial statements
1.17 Provisions exchange hedges, and as described in Note 1.18 in the case of interest rate hedges. A provision is recognized whenever an obligation exists towards a third party resulting in a probable disbursement for the Group, Market value is based on market data and on commonly used the amount of which may be reliably estimated. valuation models, and may be confirmed in the case of complex instruments by reference to values quoted by independent When execution of its obligation is expected to be deferred financial institutions. by more than one year, the provision amount is discounted, the effects of which are generally recognized in net financial Derivatives with maturities in excess of twelve months are income/expense. disclosed as non-current assets and liabilities.
1.18 Borrowings 1.20 Christian Dior and LVMH treasury Borrowings are measured at amortized cost, i.e. nominal value net shares and related derivatives of premium and issue expenses, which are charged progressively to net financial income/expense using the effective interest Christian Dior treasury shares method. Christian Dior shares that are held by the Group are measured In the case of hedging against fluctuations in the capital amount at their acquisition cost and recognized as a deduction from of borrowings resulting from interest rate risk, both the hedged consolidated equity, irrespective of the purpose for which they amount of borrowings and the related hedges are measured at are held. their market value at the balance sheet date, with any changes in those values recognized within net financial income/expense The cost of disposals of shares is determined by allocation category for the period. Market value of hedged borrowings is determined (see Note 14.2) using the FIFO method. Gains and losses on using similar methods as those described hereafter in Note 1.19 disposal, net of income taxes, are taken directly to equity. Derivatives. In the case of hedging of future interest payments, the related LVMH treasury shares and related derivatives borrowings remain measured at their amortized cost whilst any changes in value of the effective hedge portions are taken to Purchases and sales by LVMH of its own shares, resulting in equity as part of revaluation reserves. changes in percentage holdings of Christian Dior Group in LVMH, are treated in the consolidated accounts of Christian Dior Changes in value of non-hedge derivatives, and of the ineffective Group as acquisitions and disposals of minority interests. portions of hedges, are recognized within net financial income/ expense. For the sake of simplicity of presentation, the treatment of these minority interests was modified in 2007 and they are now Financial debt bearing embedded derivatives is measured at recognized as a group over the period. The impact of this change market value; changes in market value are recognized within was not significant for the 2006 fiscal year. net financial income/expense. Options to purchase LVMH shares that are held by the Group Net financial debt comprises short and long term borrowings, are measured at their acquisition cost and recognized as a the market value at the balance sheet date of interest rate deduction from consolidated equity. derivatives, less the value of current available for sale financial assets, other financial assets, in addition to the market value at the balance sheet date of related foreign exchange derivatives, 1.21 Pensions, medical costs and other and cash and cash equivalents at that date. employee or retired employee commitments 1.19 Derivatives When payments are made by the Group in respect of retirement The Group enters into derivative transactions as part of its benefits, pensions, medical costs and other commitments to strategy for hedging foreign exchange and interest rate risks. third party organizations which assume the payment of benefits IAS 39 subordinates the use of hedge accounting to demonstration or medical expense reimbursements, these contributions are and documentation of the effectiveness of hedging relationships expensed in the period in which they fall due with no liability when hedges are implemented and subsequently throughout their recorded on the balance sheet. existence. A hedge is considered to be effective if the ratio of When retirement benefits, pensions, medical costs and other changes in the value of the derivative to changes in the value of commitments are to be borne by the Group, a provision is the hedged underlying remains within a range of 80 to 125%. recorded in the balance sheet in the amount of the corresponding Derivatives are recognized in the balance sheet at their market actuarial commitment, and any changes in this commitment value at the balance sheet date. Changes in their value are are expensed within profit from recurring operations over the accounted for as described in Note 1.7 in the case of foreign period, including effects of discounting.
102 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
When this commitment is either partially or wholly funded by Revenue is presented net of all forms of discount. In particular, payments made by the Group to external financial organizations, payments made in order to have products referenced or, in these payments are deducted from the actuarial commitment accordance with agreements, to participate in advertising recorded in the balance sheet. campaigns with the distributors, are deducted from revenue and the corresponding trade accounts receivable. The actuarial commitment is calculated based on assessments that are specifically designed for the country and the Group company concerned. In particular, these assessments include Provisions for product returns assumptions regarding salary increases, inflation, life expectancy, staff turnover and the return on plan assets. Perfumes and Cosmetics and, to a lesser extent, Fashion and Leather Goods and Watches and Jewelry companies may accept Cumulative actuarial gains or losses are amortized if, at the year- the return of unsold or outdated products from their customers end, they exceed 10% of the higher of the total commitment or and distributors. the market value of the funded plan assets. These gains or losses are amortized in the period following their recognition over the Where this practice is applied, revenue and the corresponding average residual active life of the relevant employees. 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 1.22 Current and deferred tax returns. Deferred tax is recognized in respect of temporary differences arising between the amounts of assets and liabilities for purposes Businesses undertaken in partnership with Diageo of consolidation and the amounts resulting from application of A significant proportion of revenue for the Group’s Wines tax regulations. and Spirits businesses are achieved within the framework of Deferred tax is measured on the basis of the income tax rates distribution agreements with Diageo generally taking the form enacted at the balance sheet date; the effect of changes in rates is of shared entities which sell and deliver both groups’ brands to recognized during the periods in which changes are enacted. customers. On the basis of the distribution agreements, which provide specific rules for allocating these entities’ net profit Future tax savings from tax losses carried forward are recorded as deferred tax assets on the balance sheet and impaired where and assets and liabilities between the Group and Diageo, the appropriate; only amounts for which future use is deemed Group only recognizes the portion of their revenue and expenses probable are recognized. attributable to its own brands. Deferred tax assets and liabilities are not discounted. 1.24 Advertising and promotion expenses Taxes payable in respect of the distribution of retained earnings of subsidiaries are provided for if distribution is deemed Advertising and promotion expenses include the costs of producing probable. 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 1.23 Revenue recognition products. Advertising and promotion expenses are recognized as expenses Revenue for the period in which they are incurred; the cost of media Revenue mainly comprises direct sales to customers and sales campaigns in particular is time-apportioned over the duration through distributors. Sales made in stores owned by third parties of these campaigns and the cost of samples and catalogs is are treated as retail transactions if the risks and rewards of recognized when they are made available to customers. ownership of the inventories are retained by the Group. Beginning with the 2009 fiscal year, in application of IAS 38 as Direct sales to customers are made through retail stores for amended, advertising and promotion expenses will be recorded Fashion and Leather Goods, certain Perfumes and Cosmetics, upon receipt or production of goods or upon completion of certain Watches and Jewelry brands and Selective Retailing. services rendered. These sales are recognized at the time of purchase by retail customers. 1.25 Stock option and similar plans Wholesale sales through distributors are made for Wines and Spirits, and certain Perfumes and Cosmetics and Watches and Share purchase and subscription option plans give rise to Jewelry brands. The Group recognizes revenue when title recognition of an expense based on the expected benefit granted transfers to third party customers. to beneficiaries calculated, using the Black & Scholes method, at the date of the Board Meeting that granted the options. Revenue includes shipment and transportation costs re-billed to customers only when these costs are included in products’ For bonus share plans, the expected benefit is calculated on selling prices as a lump sum. the basis of the closing share price on the day before the Board
2008 Annual Report 103 Consolidated financial statements Notes to the consolidated financial statements
Meeting at which the decision to initiate the plan is made, and 1.27 Earnings per share dividends expected to accrue during the vesting period. Earnings per share are calculated based on the weighted average For cash-settled compensation plans index-linked to the change in number of shares outstanding during the period, excluding LVMH share price, the gain over the vesting period is estimated treasury shares. based on the type of plan as described above. Diluted earnings per share are calculated based on the weighted For all plans, the expense is apportioned on a straight-line basis average number of shares before dilution and adding the weighted over the vesting period, with a corresponding: average number of shares that would result from the exercise • impact on reserves for share purchase and subscription of all existing subscription options during the period or any option plans; other diluting instrument. It is assumed for the purposes of this calculation that the funds received from the exercise of • balance sheet impact for cash-settled plans. options, supplemented by the expense to be recognized for stock After the vesting period has expired, only cash-settled plans option and similar plans (see Note 1.25), would be employed to have an impact on the income statement, in the amount of the re-purchase Christian Dior shares at a price corresponding to their change in the LVMH share price. average trading price over the period. Diluting instruments issued by subsidiaries are also taken into account in the determination of the Group share of net profit. 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 non-recurring, 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.
104 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Note 2 - Changes in the scope of consolidation
2.1 Fiscal year 2008
Wines and Spirits Watches and Jewelry • In February 2008, the Group acquired the whole share capital In April 2008, the Group acquired the entire share capital of the of the Spanish winery Bodega Numanthia Termes, a producer Swiss watchmaker Hublot for total consideration of 306 million of wines from the Toro region, for total consideration of euros (486 million Swiss francs), including 2 million euros in 27 million euros. This acquisition was consolidated with effect acquisition costs. This acquisition price was paid in July 2008, from March 2008. upon fulfillment of contractual conditions precedent. Hublot was fully consolidated with effect from May 2008. The table • In December 2008, the Group acquired the whole share capital below summarizes the provisional purchase price allocation, on of the Montaudon champagne house, owner of its eponymous the basis of Hublot’s balance sheet as of May 1, 2008: brand, for total consideration of 29 million euros (including acquisition costs in the amount of 1.2 million euros), excluding any contractual earnout payments. This acquisition will be consolidated with effect from January 1, 2009.
(EUR millions) Allocation of purchase price Carrying amount Brand 219 - Property, plant and equipment 7 7 Other non-current assets 2 2 Inventories 40 43 Working capital, excluding inventories (5) (5) Net financial debt (3) (3) Deferred taxes (57) (6) Provisions (6) - Net assets acquired 197 38 Goodwill 109 Total cost of acquisition 306
The goodwill mainly represents the company’s expertise in Other activities designing and manufacturing timepieces, and the synergies arising from the brand’s integration into the distribution network • The equity stake in the Les Echos media group, acquired in of the Watches and Jewelry business group. December 2007 and recognized under non-current available for sale financial assets as of December 31, 2007, was fully consolidated with effect from January 1, 2008. The total consideration paid in 2007 for 100 per cent of the share capital was 244 million euros, including 4 million euros in acquisition costs and excluding the assumption by the Group of Pearson’s financial debt with respect to the Les Echos group, which amounted to 107 million euros.
2008 Annual Report 105 Consolidated financial statements Notes to the consolidated financial statements
The table below summarizes the purchase price allocation, on the basis of the balance sheet for the Les Echos group as of January 1, 2008:
(EUR millions) Allocation of purchase price Carrying amount Brands and other intangible assets 147 5 Property, plant and equipment 4 4 Other non-current assets 2 2 Working capital (29) (26) Receivable vis-à-vis Pearson, assigned to the Group 107 107 Cash and cash equivalents 21 21 Deferred taxes (48) (1) Provisions (14) (8) Net assets acquired 190 104 Goodwill 161 Total cost of acquisition 351
Brands and other intangible assets essentially comprise the • In October 2008, the Group acquired a 90% equity stake in financial daily Les Echos and subscriber databases. These Royal Van Lent, the Dutch designer and builder of yachts intangible assets are amortized over periods of no more than sold under the Feadship brand, with the remaining 10% stake fifteen years. The amount recognized for goodwill mainly of the share capital being subject to a purchase commitment. represents the human capital formed by the editorial teams of the Royal Van Lent was fully consolidated with effect from Les Echos group, which cannot be isolated on the balance sheet. October 2008. The table below summarizes the provisional allocation of the purchase price of 362 million euros, including • The business of the financial daily La Tribune, sold in acquisition costs in the amount of 3 million euros, on the basis February 2008, was deconsolidated with effect from this date. of Royal Van Lent’s balance sheet as of October 1, 2008; as of the balance sheet date, the acquired company’s tangible and intangible fixed assets are in the process of being measured.
Provisional allocation (EUR millions) of purchase price Non-current assets (1) 5 Work in-process 47 Other current assets 18 Non-current liabilities (9) Current liabilities (16) Minority interests (14) Net assets acquired 31 Provisional goodwill, including brand (1) 331 Total cost of acquisition 362
(1) Valuation pending.
Christian Dior Couture In January 2008, Christian Dior Couture acquired 87% of the capital of John Galliano SA, a company specializing in the creation and concession under license of fashion items and luxury products, for total consideration of 17 million euros.
106 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
2.2 Fiscal year 2007 Watches and Jewelry Omas was divested in October 2007. Wines and Spirits In May 2007, the Group acquired for 25 million euros 55% of Selective Retailing the share capital of Wen Jun Spirits and Wen Jun Spirits Sales, In September 2007, the Group acquired a distribution license in which produce and distribute white liquor in China. Wen Jun Vietnam for local duty free operators on a joint-venture basis; group was fully consolidated as of the second half of the year. the acquisition price, 52 million US dollars, represents the value Also in May 2007, the Group increased its investment in Newton of the distribution rights and inventories. Vineyards from 80% to 90%, for a total amount of 5 million US dollars. 2.3 Fiscal year 2006 Fashion and Leather Goods In 2006 changes in the scope of consolidation concerned the acquisition of minority interests, mainly in the United States In May 2007, the Group increased its investment in Fendi from (Fresh and Donna Karan), in addition to certain distribution 94% to 100%, for an amount of 66 million euros. subsidiaries in Asia.
2.4 Impact of changes in the scope of consolidation on cash and cash equivalents
(EUR millions) 2008 2007 2006 Purchase price of consolidated investments (778) (352) (71) Positive cash balance/(net overdraft) of companies acquired 153 16 - Proceeds from sale of consolidated investments - 9 3 (Positive cash balance)/net overdraft of companies sold (43) (2) - Impact of changes in the scope of consolidation on cash and cash equivalents (668) (329) (68)
• In 2008, the main impacts of acquisitions of consolidated • In 2007, the impact on the Group’s cash and cash equivalents investments on the Group’s cash and cash equivalents break of acquisitions of consolidated investments was related to: down as: -- the acquisition of Les Echos group for 240 million euros, not -- 303 million euros for the acquisition of Hublot group; consolidated as of this date; -- 236 million euros for the acquisition of Royal Van Lent; -- the acquisition of minority interests in Fendi for 66 million euros; -- 29 million euros for the acquisition of Montaudon; -- 20 million euros paid during the year for the acquisition in -- 27 million euros for the acquisition of Bodega Numanthia Vietnam of a local duty-free operator’s distribution license; Termes; -- and finally to the acquisition of 55% of the Wen Jun group -- cash and cash equivalents of the Les Echos group in the amount for 8 million euros. of 21 million euros; • In 2006, the impact on the Group’s cash and cash equivalents -- and finally 17 million euros for the acquisition of John of acquisitions of consolidated investments was mainly the Galliano SA. result of the staggered payment for minority interests in Amounts in respect of the sale of consolidated investments mainly Fendi in the amount of 25 million euros, the acquisition of correspond to impacts of the disposal of La Tribune. minority interests in Donna Karan for 8 million euros and 15% of Fresh for 4 million euros.
2008 Annual Report 107 Consolidated financial statements Notes to the consolidated financial statements
2.5 Impact of acquisitions on period net profit and pro forma information Acquisitions had no material impact on net income for the year. If the acquisitions of the 2008 fiscal year had been carried out as of January 1, the impact on the consolidated income statement would have been as follows:
2008 – Published 2008 – Pro forma consolidated income Pro forma consolidated (EUR millions) statement restatements income statement Revenue 17,933 100 18,033 Profit from recurring operations 3,621 9 3,630 Net profit – Group share 796 4 800
Note 3 - Brands, trade names and other intangible assets
2008 2007 2006 Amortization and (EUR millions) Gross impairment Net Net Net Brands 9,275 (355) 8,920 8,519 8,422 Trade names 3,218 (1,309) 1,909 1,819 2,003 License rights 41 (26) 15 15 203 Leasehold rights 326 (205) 121 123 112 Software 368 (258) 110 85 72 Other 277 (140) 137 93 73 Total 13,505 (2,293) 11,212 10,654 10,885 o/w: assets held under finance leases 14 (14) - - 1
3.1 Movements in the year Movements during the year ended December 31, 2008 in the net amounts of brands, trade names and other intangible assets were as follows:
Gross value Other (EUR millions) Brands Trade names intangible assets Total As of December 31, 2007 8,855 3,060 844 12,759 Acquisitions - - 119 119 Disposals (3) - (21) (24) Changes in the scope of consolidation 360 - 41 401 Translation adjustment 63 158 19 240 Other movements - - 10 10 As of December 31, 2008 9,275 3,218 1,012 13,505
108 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Accumulated amortization and impairment Other (EUR millions) Brands Trade names intangible assets Total As of December 31, 2007 (336) (1,241) (528) (2,105) Amortization expense (21) - (102) (123) Impairment expense - - - - Disposals - - 18 18 Changes in the scope of consolidation - - (6) (6) Translation adjustment 1 (68) (10) (77) Other movements 1 - (1) - As of December 31, 2008 (355) (1,309) (629) (2,293) Net carrying amount as of December 31, 2008 8,920 1,909 383 11,212
Changes in the scope of consolidation for the year ended change in the exchange rate of these currencies with respect to December 31, 2008 are mainly attributable to the acquisition of the euro during the fiscal year. The DFS trade name and the Hublot in the amount of 219 million euros and the acquisition of TAG Heuer brand were particularly affected. the Les Echos media group for 147 million euros. See also Note 2. The gross value of amortized brands is 540 million euros as of The translation adjustment is mainly attributable to intangible December 31, 2008. assets recognized in US dollars and Swiss francs, following the
3.2 Movements in prior years
Net carrying amount Other (EUR millions) Brands Trade names intangible assets Total As of December 31, 2005 8,499 2,204 483 11,186 Acquisitions - - 91 91 Disposals - - (2) (2) Changes in the scope of consolidation - - - - Amortization expense (6) - (81) (87) Impairment expense - - - - Translation adjustment (72) (201) (29) (302) Other 1 - (2) (1) As of December 31, 2006 8,422 2,003 460 10,885 Acquisitions 60 - 109 169 Disposals - - (6) (6) Changes in the scope of consolidation (18) - 15 (3) Amortization expense (6) - (85) (91) Impairment expense (10) - (1) (11) Translation adjustment (103) (184) (14) (301) Other 174 - (162) 12 As of December 31, 2007 8,519 1,819 316 10,654
In June 2007, the Group acquired ownership of the Belvedere to the license, amounting to 244 million US dollars, which were brand in the United States for 83 million US dollars; until that recognized under “Other intangible assets”, were reclassified date, the Group owned the brand in the rest of the world but under “Brands”. held it under license in the United States. The rights attached
2008 Annual Report 109 Consolidated financial statements Notes to the consolidated financial statements
3.3 Brands and trade names The breakdown of brands and trade names by business group is as follows:
2008 2007 2006 Amortization and (EUR millions) Gross impairment Net Net Net Christian Dior Couture 47 - 47 25 25 Wines and Spirits 2,764 (9) 2,755 2,813 2,615 Fashion and Leather Goods 3,876 (311) 3,565 3,563 3,608 Perfumes and Cosmetics 1,284 (20) 1,264 1,263 1,267 Watches and Jewelry 1,172 (6) 1,166 835 859 Selective Retailing 3,171 (1,262) 1,909 1,820 2,003 Other activities 179 (56) 123 19 48 Brands and trade names 12,493 (1,664) 10,829 10,338 10,425
The brands and trade names recognized in the table above are • Other activities: the publications of the media group those that the Group has acquired. The principal acquired brands Les Echos-Investir and the Feadship brand, whose value is in and trade names as of December 31, 2008 are: the process of being measured as of December 31, 2008. • Wines and Spirits: Hennessy, Moët & Chandon, Veuve These brands and trade names are recognized in the balance sheet Clicquot, Krug, Château d’Yquem, Belvedere, Glenmorangie, at their value determined as of the date of their acquisition by the Newton Vineyards and Numanthia Termes; 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 • Fashion and Leather Goods: Louis Vuitton, Fendi, Donna Karan statements. This is notably the case for the brands Louis Vuitton, New York, Celine, Loewe, Givenchy, Kenzo, Thomas Pink, Christian Dior Couture, Veuve Clicquot, and Parfums Christian Berluti, and Pucci; Dior, or the trade name Sephora, with the understanding that • Perfumes and Cosmetics: Parfums Christian Dior, Guerlain, this list must not be considered as exhaustive. Parfums Givenchy, Make Up for Ever, BeneFit Cosmetics, Brands developed by the Group, notably Dom Pérignon as well Fresh and Acqua di Parma; as the De Beers trade name developed as a joint-venture with • Watches and Jewelry: TAG Heuer, Zenith, Chaumet, the De Beers Group, are not capitalized in the balance sheet. Hublot and Fred; Please refer also to Note 5 for the impairment testing of • Selective Retailing: DFS Galleria, Sephora and Le Bon Marché; brands, trade names and other intangible assets with indefinite useful lives.
Note 4 - Goodwill
2008 2007 2006 (EUR millions) Gross Impairment Net Net Net Goodwill arising on consolidated investments 5,054 (1,086) 3,968 3,322 3,337 Goodwill arising on purchase commitments for 1,083 (3) 1,080 2,076 1,783 minority interests Total 6,137 (1,089) 5,048 5,398 5,120
Please refer also to Note 19 for goodwill arising on purchase commitments for minority interests.
110 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Changes in net goodwill during the fiscal years presented break down as follows:
2008 2007 2006 (EUR millions) Gross Impairment Net Net Net As of January 1 6,425 (1,027) 5,398 5,120 5,058 Changes in the scope of consolidation 686 1 687 66 15 Changes in purchase commitments for minority (1,060) - (1,060) 272 220 interests Changes in impairment - (31) (31) - (15) Translation adjustment 86 (32) 54 (60) (158) As of December 31 6,137 (1,089) 5,048 5,398 5,120
Changes in the scope of consolidation for the year ended Changes in the scope of consolidation for 2007 included December 31, 2008 are attributable to the impact of the 39 million euros for the increase in the Group’s investment in consolidation of the Les Echos media group for 161 million Fendi and 14 million euros for the impact of the consolidation euros, the Royal Van Lent acquisition in the amount of 331 million of Wen Jun. euros, and the Hublot acquisition for 109 million euros. See also Note 2.
Note 5 - Impairment testing of intangible assets with indefinite useful lives
Brands, trade names, and other intangible assets with indefinite As described in Note 1.12, these assets are generally valued on useful lives as well as the goodwill arising on acquisition have been the basis of the present value of forecast cash flows determined subject to annual impairment testing. No significant impairment in the context of multi-year business plans drawn up over the expense has been recognized in respect of these items during course of each fiscal year. The main assumptions retained in the course of fiscal year 2008. 2008, for the determination of these forecast cash flows are as follows:
Period covered Pre-tax Growth rate for Business group by the plan discount rate the period after the plan Wines and Spirits 5 years (1) 10.5 to 17% 2% Fashion and Leather Goods 5 years (1) 13 to 19% 2% Perfumes and Cosmetics 5 years 13 to 17% 2% Watches and Jewelry 5 years (1) 16 to 17% 2% Selective Retailing 5 years 12 to 13% 2% Other 5 years 10 to 12% 2%
(1) Five-year plans may be prolonged up to ten years for brands undergoing strategic repositioning, or for which production cycle exceeds five years.
See also Note 1.1 for details concerning the adjustments made in Growth rates applied for the period not covered by the plans are valuation assumptions for intangible assets to take into account based on market estimates for the business groups concerned. the current economic crisis. A one point change in the pre-tax discount rate, applied to the Discount rates used as of December 31, 2008 remain comparable overall cash flow forecast for each business group, or a 0.5% to those used as of December 31, 2007 due to contrasting market reduction in the growth rate for the period not covered by the trends, which saw an increase in risk premiums and a decline plans would give rise to an impairment expense for related in interest rates. intangible assets of two business segments, in an amount not to exceed 50 million euros.
2008 Annual Report 111 Consolidated financial statements Notes to the consolidated financial statements
Note 6 - Property, plant and equipment
2008 2007 2006 Depreciation (EUR millions) Gross and impairment Net Net Net Land 806 - 806 767 784 Vineyard land and producing vineyards 1,690 (77) 1,613 1,426 1,348 Buildings 1,847 (740) 1,107 1,080 1,074 Investment property 345 (52) 293 286 298 Machinery and equipment 4,190 (2,542) 1,648 1,440 1,375 Other tangible fixed assets (including assets in progress) 1,410 (525) 885 672 553 Total 10,288 (3,936) 6,352 5,671 5,432 o/w: assets held under finance leases 265 (115) 150 163 185 historical cost of vineyard land and producing vineyards 557 (77) 480 464 462
6.1 Movements in the year Movements in property, plant and equipment during 2008 break down as follows:
Other tangible Vineyard land fixed assets Gross value and producing Land and Investment Machinery (including assets (EUR millions) vineyards buildings property and equipment in progress) Total As of December 31, 2007 1,499 2,547 334 3,754 1,145 9,279 Acquisitions 24 50 - 429 487 990 Change in the market value of vineyard land 173 - - - - 173 Disposals and retirements (5) (59) (1) (239) (51) (355) Changes in the scope of consolidation 1 13 - 18 1 33 Translation adjustment (6) 90 7 71 19 181 Other movements, including transfers 4 12 5 157 (191) (13) As of December 31, 2008 1,690 2,653 345 4,190 1,410 10,288
Other tangible Accumulated depreciation Vineyard land fixed assets and impairment and producing Land and Investment Machinery (including assets (EUR millions) vineyards buildings property and equipment in progress) Total As of December 31, 2007 (73) (700) (48) (2,314) (473) (3,608) Depreciation expense (6) (58) (5) (393) (88) (550) Impairment expense ------Disposals and retirements 2 27 1 222 36 288 Changes in the scope of consolidation - - - (11) - (11) Translation adjustment - (8) - (40) (5) (53) Other movements, including transfers - (1) - (6) 5 (2) As of December 31, 2008 (77) (740) (52) (2,542) (525) (3,936) Net carrying amount as of December 31, 2008 1,613 1,913 293 1,648 885 6,352
Property, plant and equipment acquisitions consisted mainly of investments by Louis Vuitton, Sephora and DFS in their retail networks in addition to investments by Hennessy and Moët & Chandon in their production equipment.
112 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
6.2 Movements in prior years
Other tangible Vineyard land fixed assets Net carrying amount and producing Land and Investment Machinery (including assets (EUR millions) vineyards buildings property and equipment in progress) TOTAL As of December 31, 2005 1,217 1,876 312 1,363 490 5,258 Acquisitions 7 110 1 298 310 726 Disposals and retirements - (2) - (5) (1) (8) Depreciation expense (6) (65) (5) (331) (76) (483) Impairment expense - - - (8) (1) (9) Change in the market value 133 - - - - 133 of vineyard land Translation adjustment (7) (78) (11) (63) (19) (178) Other, including transfers 4 17 1 121 (150) (7) As of December 31, 2006 1,348 1,858 298 1,375 553 5,432 Acquisitions 15 98 1 343 413 870 Disposals and retirements (8) (4) - (40) - (52) Depreciation expense (5) (66) (5) (350) (80) (506) Impairment expense ------Change in the market value 81 - - - - 81 of vineyard land Translation adjustment (6) (62) (8) (48) (31) (155) Other, including transfers 1 23 - 160 (183) 1 As of December 31, 2007 1,426 1,847 286 1,440 672 5,671
Property, plant and equipment acquisitions in 2006 and 2007 consisted mainly of investments by Louis Vuitton, Sephora and DFS in their retail networks.
2008 Annual Report 113 Consolidated financial statements Notes to the consolidated financial statements
Note 7 - Investments in associates
2008 2007 2006 (EUR millions) Gross Impairment Net Net Net Share of net assets of associates as of January 1 132 - 132 128 131 Share of net profit (loss) for the period 8 - 8 7 8 Dividends paid (7) - (7) (4) (7) Changes in the scope of consolidation 84 - 84 1 (3) Translation adjustment 2 - 2 - (1) Share of net assets of associates 219 - 219 132 128 as of December 31
As of December 31, 2008, investments in associates consisted Total rents invoiced by Mongoual SA to the Group amounted to primarily of: 15 million euros in 2008 (15 million euros in 2007 and 14 million euros in 2006). • a 40% equity stake in Mongoual SA, a real estate company which owns a property held for rental in Paris (France), Sales by the Perfumes and Cosmetics business group to Ile which is the head office of LVMH Moët Hennessy - Louis de Beauté from October to December 2008 amounted to Vuitton SA; 11 million euros. • a 45% equity stake in the group owning Ile de Beauté stores, The 23.1% equity stake in Micromania was sold in 2008. one of the leading perfume and cosmetics retail chains in Russia, acquired in October 2008.
Note 8 - Non-current available for sale financial assets
2008 2007 2006 (EUR millions) Gross Impairment Net Net Net
Total 433 (58) 375 823 505
Non-current available for sale financial assets changed as follows during the fiscal years presented:
(EUR millions) 2008 2007 2006 As of January 1 823 505 451 Acquisitions 62 374 86 Disposals at net realized value (114) (33) (162) Changes in market value (14) (8) 132 Reclassifications as consolidated investments (352) (1) - Changes in impairment (34) - 5 Changes in the scope of consolidation - - - Translation adjustment 4 (14) (7) As of December 31 375 823 505
114 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Acquisitions in 2008 include the Montaudon champagne house Disposals in 2008 include in particular the Group’s share in the in the amount of 29 million euros; this acquisition will be transactions carried out by the investment fund L Capital, notably consolidated in fiscal year 2009. The change in cash flow relating the sale of its stake in the French video game retailer Micromania. to this acquisition is classified in the consolidated cash flow The main disposals in 2006 concerned various investments statement under the heading “Impact of purchase and sale of held by L Capital FCPR. consolidated investments”. See Note 2 Changes in the scope of consolidation. The net gain/loss on disposal is analyzed in Note 25 Net financial income/expense. Acquisitions in fiscal year 2007 mainly comprised Les Echos group in the amount of 350 million euros; this acquisition has Impairment is determined on the basis of the accounting policies been be consolidated in fiscal year 2008. described in Note 1.13.
Non-current available for sale financial assets held by the Group as of December 31, 2008 include the following:
Percentage Revaluation Dividends (EUR millions) interest Net value reserve received Equity (3) Net profit (3) L Capital FCPR (France) (2) 45.8% 8 (32) - 107 (2) L Capital 2 FCPR (France) (2) 18.5% 56 14 - 206 (6) Tod’s Spa (Italy) (1) 3.5% 32 (15) 1 567 77 Xinyu Hengdeli Holdings Ltd (China) (1) 7.5% 21 - 1 209 41 Other investments 229 41 8 Sub-total 346 8 10 Montaudon 100% 29 Total 375 8 10
(1) Market value of securities as of the close of trading on December 31, 2008. (2) Valuation at estimated net realized value. (3) Figures provided reflect company information prior to December 31, 2008, 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 bylaws and the management schemes do not allow the Group to exercise exclusive control, joint control or significant influence on shareholdings held.
Note 9 - Inventories and work in progress
(EUR millions) 2008 2007 2006 Wines and distilled alcohol in the process of aging 2,928 2,683 2,406 Other raw materials and work in progress 730 476 435 3,658 3,159 2,841 Goods purchased for resale 591 486 600 Finished products 2,326 1,926 1,629 2,917 2,412 2,229 Gross amount 6,575 5,571 5,070 Impairment (609) (568) (546) Net amount 5,966 5,003 4,524
2008 Annual Report 115 Consolidated financial statements Notes to the consolidated financial statements
The net change in inventories for the periods presented breaks down as follows:
2008 2007 2006 (EUR millions) Gross Impairment Net Net Net As of January 1 5,571 (568) 5,003 4,524 4,270 Change in gross inventories 832 - 832 625 357 Fair value adjustment for the harvest of the period 24 - 24 35 23 Changes in impairment - (70) (70) (47) 21 Changes in the scope of consolidation 92 (4) 88 25 3 Translation adjustment 124 (29) 95 (159) (150) Reclassifications (68) 62 (6) - - As of December 31 6,575 (609) 5,966 5,003 4,524
The effects on Wines and Spirits’ cost of sales of marking harvests to market are as follows:
(EUR millions) 2008 2007 2006 Fair value adjustment for the harvest of the period 53 50 41 Adjustment for inventory consumed (29) (15) (18) Net effect on cost of sales of the period 24 35 23
Note 10 - Trade accounts receivable
(EUR millions) 2008 2007 2006 Trade accounts receivable - nominal amount 1,919 1,865 1,734 Provision for impairment (62) (58) (60) Provision for product returns (136) (132) (135) Net amount 1,721 1,675 1,539
There is no difference between the market value of trade accounts Approximately 54% of the Group’s sales is generated through receivable and their carrying amount. its own stores. The receivable auxiliary balance is comprised primarily of work-in-progress inventories for wholesalers or The amount of the impairment expense in 2008 is 12 million agents, who are limited in number and with whom the Group euros (compared to 9 million euros in 2007 and 8 million euros maintains ongoing relationships for the most part. Credit insurance in 2006). is taken out whenever the likelihood that receivables may not be recoverable is justified on reasonable grounds.
116 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
As of December 31, 2008, the breakdown of the nominal amount of trade receivables and of provisions for impairment by age was as follows:
Nominal amount Provision for Net amount of (EUR millions) of receivables impairment receivables Not due less than 3 months 1,572 (5) 1,567 more than 3 months 59 (1) 58 1,631 (6) 1,625 Overdue less than 3 months 196 (15) 181 more than 3 months 92 (41) 51 288 (56) 232 Total 1,919 (62) 1,857
Note 11 - Other current assets
(EUR millions) 2008 2007 2006 Current available for sale financial assets 590 879 607 Fair value of derivatives 265 314 252 Tax accounts receivable, excluding income taxes 296 260 239 Advances and payments on account to vendors 146 113 104 Prepaid expenses 315 243 237 Other receivables, net 239 228 196 Total 1,851 2,037 1,635
Prepaid expenses include samples and advertising materials, As of January 1, 2009, in application of IAS 38 as amended, particularly for Perfumes and Cosmetics, in the amount an amount of 116 million euros will be reclassified in equity of 125 million euros as of December 31, 2008 (94 million (140 million euros after taking into account items appearing euros as of December 31, 2007, 88 million euros as of in inventory or under non-current assets). See 1.2 Changes December 31, 2006). in the accounting framework in 2008.
Please also refer to Note 12 Current available for sale financial assets and Note 21 Financial instruments and market risk management.
2008 Annual Report 117 Consolidated financial statements Notes to the consolidated financial statements
Note 12 - Current available for sale assets
(EUR millions) 2008 2007 2006 Unlisted securities, shares in non money market, SICAV and mutual funds 471 601 462 Listed securities 119 278 145 Total 590 879 607 Of which: historical cost of current available for sale financial assets 679 741 506
Net value of current available for sale financial assets changed as follows during the fiscal years presented:
(EUR millions) 2008 2007 2006 As of January 1 879 607 422 Acquisitions 107 370 336 Disposals at net realized value (115) (92) (156) Changes in market value (233) 58 42 Reclassification of non-current available for sale financial assets - - (1) Changes in impairment (92) - - Changes in scope of consolidation 1 - - Translation adjustment 43 (64) (36) As of December 31 590 879 607
The results on disposal are analyzed in Note 25 Net financial income/expense. See also Note 1.13 for the method used to determine impairment losses on current available for sale financial assets.
Note 13 - Cash and cash equivalents
(EUR millions) 2008 2007 2006 Fixed term deposits (less than 3 months) 68 430 126 SICAV and FCP money market funds 75 99 148 Ordinary bank accounts 934 1,086 1,085 Cash and cash equivalents per balance sheet 1,077 1,615 1,359
As of December 31, 2007, cash and cash equivalents included an amount of 28 million euros, which guaranteed borrowings of same amount (50 million euros as of December 31, 2006). 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 millions) 2008 2007 2006 Cash and cash equivalents 1,077 1,615 1,359 Bank overdrafts (424) (578) (560) Net cash and cash equivalents per cash flow statement 653 1,037 799
118 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Note 14 - Equity
14.1 Share capital As of December 31, 2008, issued and fully paid-up shares totaled 181,727,048 (181,727,048 shares as of December 31, 2007 and 2006), with a par value of 2 euros per share, including 126,483,627 shares with double voting rights. Double voting rights are granted to registered shares held for at least three years (126,482,210 as of December 31, 2007, 126,581,274 as of December 31, 2006).
14.2 Treasury shares and related derivatives The impact on the net assets of the Group of the Christian Dior shares and LVMH share purchase options held within the framework of the share purchase option plans breaks down as follows:
(EUR millions) 2008 2007 2006 Christian Dior treasury shares 200 198 181 Christian Dior portion in LVMH share-based calls (1) 56 42 48 Treasury shares and related derivatives 256 240 229
(1) When the calls are exercised and securities are provided in close succession, the settlement of these transactions has no impact on the percentage interest.
Until fiscal year 2006, LVMH shares to be delivered under share plans by the purchase of LVMH share purchase options (LVMH purchase option plans were held by LVMH and allocated to these share-based calls). The LVMH shares that were replaced by plans as from the launch date of the plans. In the first half of the LVMH share-based calls were reallocated to cover plans 2006, this method of hedging was replaced for certain existing other than share purchase option plans.
The portfolio of Christian Dior shares is allocated as follows:
2008 2007 2006 (EUR millions) Number Value Value Value Share purchase option plans (including expired options) 3,346,848 199 197 180 Other 19,532 1 1 1 Christian Dior treasury shares 3,366,380 200 198 181
The portfolio movements relating to Christian Dior’s treasury shares in 2008 were as follows:
(EUR millions) Number of shares Value As of December 31, 2007 3,410,748 198 Purchases 76,132 6 Options exercised (120,500) (4) Proceeds from disposals - - Gross capital gain (loss) on disposal - - As of December 31, 2008 3,366,380 200
As of December 31, 2008, the market value of other Christian Dior shares held was 0.8 million euros.
2008 Annual Report 119 Consolidated financial statements Notes to the consolidated financial statements
14.3 Dividends paid by the parent company Christian Dior SA In accordance with French regulations, dividends are deducted the amount available for distribution was 2,623 million euros; from the profit for the year and reserves available for distribution after taking into account the proposed dividend distribution of the parent company, after deducting applicable withholding in respect of the 2008 fiscal year, the amount available for tax and the value of treasury shares. As of December 31, 2008, distribution is 2,331 million euros.
(EUR millions, except for data per share in EUR) 2008 2007 2006 Interim dividend for the current year (2008: 0.44 euro; 2007: 0.44 euro and 2006: 0.38 euro) 80 80 69 Impact of treasury shares (2) (2) (2) 78 78 67 Final dividend for the previous year (2007: 1.17; 2006: 1.03 euro; 2005: 0.84 euro) 213 187 153 Impact of treasury shares (4) (4) (4) 209 183 149 Total gross amount (1) disbursed during the period 287 261 216
(1) Excludes the impact of tax regulations applicable to the beneficiaries.
The final dividend for 2008, as proposed to the Shareholders’ Meeting of May 14, 2009 is 1.17 euro per share, representing a total disbursement of 213 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. These reserves changed as follows during the fiscal years presented:
Equity – Group share
Hedges of Available for sale future foreign Vineyard Total (EUR millions) financial assets currency cash flows land Group share 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 Change in value 4 91 28 123 Transfer to profit for the year (13) (70) - (83) Tax impact 8 (23) (10) (25) Gains and losses recognized in equity (1) (2) 18 15 As of December 31, 2007 163 36 234 433 Change in value (82) 44 62 24 Transfer to profit for the year (29) (84) - (113) Tax impact 9 22 (21) 10 Gains and losses recognized in equity (102) (18) 41 (79) As of December 31, 2008 61 18 275 354
120 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Minority interests
Hedges of Available for sale future foreign Vineyard Total share of (EUR millions) financial assets currency cash flows land minority interests As of December 31, 2005 137 (7) 308 438 Change in value 159 108 88 355 Transfer to profit for the year (88) (37) - (125) Tax impact (1) (24) (30) (55) Gains and losses recognized in equity 70 47 58 175 As of December 31, 2006 207 40 366 613 Change in value 4 143 54 201 Transfer to profit for the year (16) (103) - (119) Tax impact 10 (20) (18) (28) Gains and losses recognized in equity (2) 20 36 54 As of December 31, 2007 205 60 402 667 Change in value (104) 84 111 91 Transfer to profit for the year (37) (127) - (164) Tax impact 12 25 (39) (2) Gains and losses recognized in equity (129) (18) 72 (75) As of December 31, 2008 76 42 474 592
14.5 Cumulative translation adjustment The change in the translation adjustment recognized under equity (Group share) and the closing balance, net of hedging effects of net assets denominated in foreign currency, break down as follows by currency:
(EUR millions) 2008 Change 2007 2006 US dollar (150) 84 (234) (68) Japanese yen 26 26 - - Hong Kong dollar 4 31 (27) (5) Pound sterling (50) (47) (3) 13 Other currencies 17 34 (17) (1) Hedges of foreign currency net assets (1) (14) (32) 18 8 TOTAL (167) 96 (263) (53)
(1) See Note 17.5 Analysis of gross borrowings by currency after hedging.
14.6 Strategy relating to the Group’s To this end, the Group monitors a certain number of financial financial structure ratios and aggregate measures of financial risk, including: • net financial debt (see Note 17) to equity; The Group firmly believes that the management of its financial structure contributes, together with the development of the • net financial debt to cash from operations before changes in companies it owns and the management of its brand portfolio, working capital; to its objective of driving value creation for its shareholders. • long term resources to fixed assets; Furthermore, maintaining a strong credit rating and providing adequate security to the Group’s bondholders and bank creditors • net cash from operating activities; are regarded as objectives in their own right. • cash flow before financing activities; The Group manages its financial structure so as to ensure • proportion of long term debt in net financial debt. real financial flexibility, allowing it both to seize opportunities and enjoy significant access to markets offering favorable conditions.
2008 Annual Report 121 Consolidated financial statements Notes to the consolidated financial statements
Long-term resources are understood to correspond to the sum The Group also promotes financial flexibility by maintaining of equity and non-current liabilities. numerous and varied banking relationships, through the frequent Where applicable, these indicators are adjusted to reflect the recourse to several negotiable debt markets (both short and long Group’s off-balance sheet financial commitments. term), by holding a large amount of cash and cash equivalents, and through the existence of sizable amounts in undrawn With respect to these indicators, the Group seeks to maintain levels allowing for considerable financial flexibility. confirmed credit lines. Christian Dior SA observes a steady dividend distribution policy, In particular, the Group’s undrawn confirmed credit lines often intended to ensure stable returns for shareholders, while making largely exceed the outstanding portion of its commercial paper them partners in the growth of the Group. program.
Note 15 - Share purchase option plans
The Shareholders’ Meeting of May 11, 2006 authorized the Each plan is valid for 10 years and the options may be exercised Board of Directors, for a period of thirty-eight months expiring after a three or five year period. in July 2009, to grant share subscription or purchase options In certain circumstances, in particular in the event of retirement, to Group company employees or Directors, on one or more the period of three or five years before options may be exercised occasions, in an amount not to exceed 3% of the Company’s is not applicable. share capital. For all plans, one option entitles the holder to purchase one As of December 31, 2008, no subscription plan had been allocated share. by Christian Dior SA.
Share purchase option plans The main characteristics of share purchase option plans and changes having occurred during the year are as follows:
Number Exercise Vesting Number of Number of Number of options of options price (EUR) period of options exercised options expired to be exercised as Plan commencement date granted (1) (2) (3) rights in 2008 (3) in 2008 (3) of 12/31/2008 (3) Christian Dior November 3, 1998 (4) 98,400 18.29 5 years 27,000 - - January 26, 1999 89,500 25.36 5 years 38,500 - 25,500 February 15, 2000 100,200 56.70 5 years 2,000 - 352,000 February 21, 2001 437,500 45.95 3 years - - 362,500 February 18, 2002 504,000 33.53 3 years - - 92,502 February 18, 2003 527,000 29.04 3 years 8,000 - 121,002 February 17, 2004 527,000 49.79 3 years 35,000 - 436,000 May 12, 2005 493,000 52.21 3 years 10,000 20,000 438,000 February 15, 2006 475,000 72.85 (5) 3 years - 20,000 443,000 September 6, 2006 20,000 74.93 3 years - - 20,000 January 31, 2007 480,000 85.00 4 years - 20,000 455,000 May 15, 2008 484,000 73.24 (6) 4 years - - 484,000 Total Christian Dior 120,500 60,000 3,229,504
(1) Number of options at the commencement of the plan, without any restatement for the adjustments linked to the four-for-one stock split in July 2000 at Christian Dior. (2) 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 3, 2008. (5) Exercise price for residents of Italy: 77.16 euros. (6) Exercise price for residents of Italy: 73.47 euros.
122 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Movements during the year
2008 2007 2006 Weighted average Weighted average Weighted average exercise price exercise price exercise price (EUR millions) Number (EUR) Number (EUR) Number (EUR) Share purchase options outstanding as of January 1 2,926,004 57.83 4,016,700 43.88 3,993,213 38.78 Options granted during the period 484,000 73.24 480,000 85.00 495,000 73.02 Expired options (60,000) 70.02 (35,000) 49.58 (135,800) 36.96 Options exercised during the period (120,500) 33.86 (1,535,696) 30.01 (335,713) 28.98 Share purchase options outstanding as of December 31 3,229,504 60.81 2,926,004 57.83 4,016,700 43.88
Expense for the period The unit value of each option plan is determined on the basis of the Black & Scholes method, as described in Note 1.25. The assumptions and criteria retained for this calculation are as follows:
LVMH
2008 Plans 2007 Plans 2006 Plans LVMH share price on the grant date (EUR) 75.01 86.67 84.05 Average exercise price (EUR) 72.51 86.12 79.07 Volatility of LVMH shares (%) 27.5 24.0 24.5 Dividend distribution rate (%) 2.4 2.0 1.4 Risk-free investment rate (%) 4.1 4.4 4.1 Vesting period 4 years 4 years 4 years
The volatility of LVMH’s shares is determined on the basis of their implicit volatility. The average unit values of share subscription options and bonus shares allocated in 2008 are 20.44 euros and 71.66 euros, respectively.
Christian Dior
May January September February 2008 Plan 2007 Plan 2007 Plan 2006 Plan Christian Dior share price on the grant date (EUR) 76.15 84.40 81.05 77.40 Average exercise price (EUR) 73.24 85.00 74.93 72.85 Volatility of Christian Dior shares (%) 25.00 24.00 24.50 24.50 Dividend distribution rate (%) 2.10 2.00 1.40 1.40 Risk-free investment rate (%) 4.20 4.40 4.10 4.10 Vesting period 4 years 4 years 3 years 3 years
The volatility of Christian Dior’s shares is determined on the The expense for the period recognized for the Christian Dior basis of their implicit volatility. share purchase plans in 2008 was 9 million euros (10 million euros in 2007 and 9 million euros in 2006). Based on the above assumptions and parameters, the average unit values of the share purchase options allocated on May 15, 2008 was 21.70 euros for the French plan and 21.61 euros for the Italian plan.
2008 Annual Report 123 Consolidated financial statements Notes to the consolidated financial statements
Consolidated stock option expense The total expense recognized in fiscal year 2008 is presented below; all plans which had not yet vested as of January 1, 2004, the date of transition to IFRS, are taken into account.
(EUR millions) 2008 2007 2006 Christian Dior share purchase option plans 9 10 9 LVMH share subscription and purchase option plans, bonus share plans 44 43 34 Cash-settled LVMH-share based incentive plans (6) 3 1 Expense for the year 47 56 44
Note 16 - Minority interests
(EUR millions) 2008 2007 2006 As of January 1 8,563 8,026 7,400 Minority interests’ share of net profit 1,428 1,448 1,336 Dividends paid to minority interests (618) (544) (439) Changes in scope of consolidation: impact of LVMH treasury shares (64) 53 (9) acquisition of minority interests in Fendi - (27) (2) acquisition of minority interests in Donna Karan - - (4) consolidation of Wen Jun - 9 - consolidation of Royal Van Lent 14 - - other changes in the scope of consolidation 6 3 - Total changes in the scope of consolidation (44) 38 (15) Capital increases subscribed by minority interests 5 1 6 Minority interests’ share in the following changes: revaluation reserves (75) 54 175 translation adjustment 179 (360) (321) stock option plan expenses 27 26 21 Effects of purchase commitments for minority interests (139) (126) (137) Other 8 - - As of December 31 9,334 8,563 8,026
See also Note 14.4 concerning the analysis of minority interests’ share in revaluation reserves.
124 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Note 17 - Borrowings
17.1 Net financial debt
(EUR millions) 2008 2007 2006 Long term borrowings 4,615 3,387 4,188 Short term borrowings 2,522 3,678 2,661 Gross amount of borrowings 7,137 7,065 6,849 Interest rate risk derivatives (66) (60) (83) Other derivatives (4) - - Borrowings net of derivatives 7,067 7,005 6,766 Current available for sale financial assets (590) (879) (607) Other financial assets (30) (32) (37) Cash and cash equivalents (1,077) (1,615) (1,359) Net financial debt 5,370 4,479 4,763
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 of gross borrowings by nature
(EUR millions) 2008 2007 2006 Bonds and EMTNs 2,934 2,318 3,039 Finance and other long term leases 129 118 132 Bank borrowings 1,552 951 1,017 Long term borrowings 4,615 3,387 4,188 Bonds and EMTNs 127 907 220 Finance and other long term leases 23 18 22 Bank borrowings 436 207 571 Commercial paper 717 1,086 516 Other borrowings and credit facilities 714 806 676 Perpetual bonds - - 12 Bank overdrafts 424 578 560 Accrued interest 81 76 84 Short term borrowings 2,522 3,678 2,661 Total gross borrowings 7,137 7,065 6,849 Fair value of gross borrowings 7,239 7,052 6,865
The portion of financial debt recognized in accordance with the fair value option described in Note 1.18 amounted to 407 million euros as of December 31, 2007 and 404 million euros as of December 31, 2006; its nominal value was 658 million euros as of December 31, 2007 and 1,420 million euros as of December 31, 2006.
2008 Annual Report 125 Consolidated financial statements Notes to the consolidated financial statements
17.3 Bonds and EMTNs
Initial effective (EUR millions) Maturity interest rate (1) (%) 2008 2007 2006 CHF 200,000,000; 2008 2015 4.04 135 - - CHF 200,000,000; 2008 2011 3.69 135 - - EUR 50,000,000; 2008 2011 6.12 50 - - EUR 760,000,000; 2005 and 2008 (2) 2012 3.76 749 598 598 CHF 300,000,000; 2007 2013 3.46 206 185 - EUR 150,000,000; 2006 2011 4.37 149 149 150 EUR 600,000,000; 2004 2011 4.74 609 604 606 EUR 750,000,000; 2003 2010 5.05 742 742 746 EUR 500,000,000; 2001 2008 6.27 - 502 508 Public bond issues 2,775 2,780 2,608 - in euros - 405 593 - in foreign currencies 286 40 58 Private placements (EMTNs) 286 445 651 Total bonds and EMTNs 3,061 3,225 3,259
(1) Before impact of interest rate hedges set up at the time of, or subsequent to, each issuance. (2) Accumulated amounts and weighted average initial effective interest rate for a 600 million euro bond issued in 2005 at an initial effective interest rate of 3.43%, which was supplemented in 2008 by an amount of 160 million euros issued at an effective rate of 4.99%.
17.4 Analysis of gross borrowings by payment date before hedging
(EUR millions) 2008 (EUR millions) Maturing in 2009 Payment date 2009 2,522 Payment date First quarter 1,871 2010 1,286 Second quarter 175 2011 1,214 Third quarter 119 2012 1,293 Fourth quarter 357 2013 486 Thereafter 336 Total 7,137 Total 2,522
17.5 Analysis of gross borrowings by currency after hedging
(EUR millions) 2008 2007 2006 Euro 5,160 5,248 4,557 US dollar 274 332 554 Swiss franc 820 668 814 Yen 503 395 358 Other currencies 310 362 483 Total 7,067 7,005 6,766
In general, the purpose of foreign currency borrowings is to hedge net foreign currency-denominated assets of consolidated companies located outside of the euro zone.
126 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
17.6 Analysis of gross borrowing by interest rate type after hedging
(EUR millions) 2008 2007 2006 Floating rate 3,207 3,895 2,601 Capped floating rate - - 1,475 Fixed rate 3,860 3,110 2,690 Total 7,067 7,005 6,766
17.7 Sensitivity 17.8 Covenants On the basis of net debt as of December 31, 2008: As is normal practice for syndicated loans, Christian Dior Group has signed commitments to maintain a percentage interest and • an instantaneous increase of 1 point in the yield curves of the voting rights for certain of its subsidiaries. Group’s debt currencies would raise the cost of net financial debt by 32 million euros after hedging; Under the terms of certain credit agreements, the Group has undertaken to comply with certain financial ratios (net financial • an instantaneous decline of 1 point in these same yield curves debt to equity, net financial debt to EBITDA or cash flow; would lower the cost of net financial debt by 32 million euros coverage of financial debt by assets). The current level of these after hedging, and would raise the fair value of gross fixed-rate ratios ensures that the Group has a real financial flexibility with borrowings by 57 million euros after hedging. regard to these commitments.
17.9 Undrawn confirmed credit lines 17.10 Guarantees and collateral As of December 31, 2008, unused irrevocable confirmed credit As of December 31, 2008, borrowings hedged by collateral were lines totaled 3.6 billion euros. less than 100 million euros.
Note 18 - Provisions
(EUR millions) 2008 2007 2006 Provisions for pensions, medical costs and similar commitments 235 242 263 Provisions for contingencies and losses 708 712 690 Provisions for reorganization 34 27 38 Non-current provisions 977 981 991 Provisions for pensions, medical costs and similar commitments 7 5 4 Provisions for contingencies and losses 247 230 149 Provisions for reorganization 72 63 110 Current provisions 326 298 263 Total 1,303 1,279 1,254
2008 Annual Report 127 Consolidated financial statements Notes to the consolidated financial statements
In 2008, the changes in provisions were as follows:
Other items Changes (including December 31, Amounts Amounts in scope of translation December 31, (EUR millions) 2007 Increases used released consolidation adjustment) 2008 Provisions for pensions, medical costs and similar commitments 247 39 (41) (7) 2 2 242 Provisions for contingencies and losses 942 184 (119) (62) 14 (4) 955 Provisions for reorganization 90 46 (39) (4) 12 1 106 Total 1,279 269 (199) (73) 28 (1) 1,303 o/w: profit from recurring operations 124 (125) (54) net financial income (expense) - - - other 145 (74) (19)
Provisions for pensions, medical costs and similar commitments or probable litigation arising from the Group’s activities; such are examined in Note 28. activities are carried out worldwide, within what is often an imprecise regulatory framework that is different for each country, Provisions for contingencies and losses correspond to the estimate changes over time, and applies to areas ranging from product of the impact on assets and liabilities of risks, disputes, or actual composition to the tax computation.
Note 19 - Other non-current liabilities
(EUR millions) 2008 2007 2006 Purchase commitments for minority interests 2,965 3,862 3,490 Market value of derivatives 31 20 18 Employee profit sharing (1) 89 109 100 Other liabilities 169 156 150 Total 3,254 4,147 3,758
(1) French companies only, pursuant to legal provisions.
As of December 31, 2006, 2007 and 2008 purchase commitments With regard to this commitment valuation, the market value was for minority interests mainly include the put option granted determined by applying the share price multiples of comparable to Diageo plc for its 34% share in Moët Hennessy SNC, with firms to Moët Hennessy’s consolidated operating results. six-month’s advance notice and for 80% of its market value at Purchase commitments for minority interests also include the exercise date of the commitment. commitments relating to minority shareholders in BeneFit (20%) and in Sephora in various countries.
128 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Note 20 - Other current liabilities
(EUR millions) 2008 2007 2006 Market value of derivatives 166 31 44 Employees and social institutions 589 543 517 Employee profit sharing (1) 67 39 29 Taxes other than income taxes 250 240 245 Advances and payments on account from customers 208 81 71 Deferred payment for tangible and financial non-current assets 174 273 170 Deferred income 69 49 47 Other 434 380 379 Total 1,957 1,636 1,502
(1) French companies only, pursuant to legal provisions.
Derivatives are analyzed in Note 21.
Note 21 - Financial instruments and market risk management
Financial instruments are mainly used by the Group to hedge 21.2 Presentation of financial instruments risks arising from Group activity and protect its assets. in the balance sheet
21.1 Foreign exchange, interest rate and Breakdown of financial assets and liabilities equity market risk management according to the measurement categories defined by The management of these market risks and of transactions IAS 39 involving financial instruments is centralized. In addition to the accounting policies applied described in The Group has implemented a stringent policy, as well as rigorous Notes 1.13, 1.16, 1.18 and 1.19, the following explanations management guidelines to measure, manage and monitor these apply specifically to these tables: market risks. • fair value may be considered as nearly equivalent to market These activities are organized based on a strict segregation value, the latter being defined as the price that an informed of duties between risk measurement, hedging (front office), third party acting freely would be willing to pay or receive administration (back office) and financial control. for the asset or liability in question; The backbone of this organization is an information system which • the category “Other and non-financial” includes prepaid allows hedging transactions to be monitored quickly. expenses and deferred income, trade accounts payable, purchase commitments for minority interests (see Notes 1.10 Hedging decisions are made according to an established process and 19) as well as other liabilities except derivatives. that includes regular presentations to the Group’s executive bodies and detailed documentation. Potential counterparties are selected based on a minimum rating level and in accordance with the Group’s risk diversification strategy.
2008 Annual Report 129 Consolidated financial statements Notes to the consolidated financial statements
Fiscal year 2008
Balance Available Change in Debt at Other December 31, 2008 sheet Fair Loans and for sale value through amortized and non- (EUR millions) Notes value value receivables assets Derivatives income cost financial Non-current available for sale financial assets 8 375 375 - 375 - - - - Other non-current assets 858 858 665 - 193 - - - Trade accounts receivable 10 1,721 1,721 1,721 - - - - - Other current assets 11 1,851 1,851 681 590 265 - - 315 Cash and cash equivalents 13 1,077 1,077 - - - 1,077 - - Assets 5,882 5,882 3,067 965 458 1,077 - 315 Long term borrowings 17 4,615 4,715 - - - - 4,615 - Other non-current liabilities 19 3,254 3,254 - - 31 - - 3,223 Short term borrowings 17 2,522 2,524 - - - - 2,522 - Trade accounts payable 2,348 2,348 - - - - - 2,348 Other current liabilities 20 1,957 1,957 - - 166 - - 1,791 Liabilities 14,696 14,798 - - 197 - 7,137 7,362
Fiscal year 2007
Balance Available Change in Debt at Other December 31, 2007 sheet Fair Loans and for sale value through amortized and non- (EUR millions) Notes value value receivables assets Derivatives income cost financial Non-current available for sale financial assets 8 823 823 - 823 - - - - Other non-current assets 614 614 580 - 34 - - - Trade accounts receivable 10 1,675 1,675 1,675 - - - - - Other current assets 11 2,037 2,037 601 879 314 - - 243 Cash and cash equivalents 13 1,615 1,615 - - - 1,615 - - Assets 6,764 6,764 2,856 1,702 348 1,615 - 243 Long term borrowings 17 3,387 3,374 - - - - 3,387 - Other non-current liabilities 19 4,147 4,147 - - 20 - - 4,127 Short term borrowings 17 3,678 3,678 - - - 407 3,271 - Trade accounts payable 2,167 2,167 - - - - - 2,167 Other current liabilities 20 1,636 1,636 - - 31 - - 1,605 Liabilities 15,015 15,002 - - 51 407 6,658 7,899
130 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Fiscal year 2006
Balance Available Change in Debt at Other December 31, 2006 sheet Fair Loans and for sale value through amortized and non- (EUR millions) Notes value value receivables assets Derivatives income cost financial Non-current available for sale financial assets 8 505 505 - 505 - - - - Other non-current assets 693 693 649 - 44 - - - Trade accounts receivable 10 1,539 1,539 1,539 - - - - - Other current assets 11 1,635 1,635 545 607 252 - - 231 Cash and cash equivalents 13 1,359 1,359 - - - 1,359 - - Assets 5,731 5,731 2,733 1,112 296 1,359 - 231 Long term borrowings 17 4,188 4,204 - - - 392 3,796 - Other non-current liabilities 19 3,758 3,758 - - 18 - - 3,740 Short term borrowings 17 2,661 2,661 - - - 12 2,649 - Trade accounts payable 1,967 1,967 - - - - - 1,967 Other current liabilities 20 1,502 1,502 - - 44 - - 1,458 Liabilities 14,076 14,092 - - 62 404 6,445 7,165
Breakdown of financial assets and liabilities measured at fair value by measurement method
2008 2007 2006 Change Change Change Available in value Available in value Available in value for sale through for sale through for sale through (EUR millions) assets Derivatives income assets Derivatives income assets Derivatives income Published price quotations 302 1,077 517 1,615 405 1,359 Valuation technique: based on observable market data 471 458 601 348 462 296 not based on observable market data 163 234 245 Other (1) 29 350 Assets 965 458 1,077 1,702 348 1,615 1,112 296 1,359 Published price quotations 407 404 Valuation technique: based on observable market data 197 51 62 not based on observable market data Liabilities 197 - 51 407 62 404
(1) This corresponds to the acquisition price of Montaudon as of December 31, 2008 and to the acquisition price of the Les Echos group as of December 31, 2007.
2008 Annual Report 131 Consolidated financial statements Notes to the consolidated financial statements
21.3 Summary of derivatives Derivatives are recorded in the balance sheet for the amounts and in the captions detailed as follows:
(EUR millions) Notes 2008 2007 2006 Interest rate risk Assets: non-current 36 28 40 current 80 73 89 Liabilities: non-current (29) (20) (16) current (21) (21) (30) 21.4 66 60 83 Foreign exchange risk Assets: non-current 17 6 4 current 185 241 163 Liabilities: non-current (2) - (2) current (70) (10) (14) 21.5 130 237 151 Other risks Assets: non-current 140 - - current - - - Liabilities: non-current - - - current (75) - - 65 - -
Total Assets: non-current 193 34 44 current 11 265 314 252 Liabilities: non-current 19 (31) (20) (18) current 20 (166) (31) (44) 261 297 234
21.4 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). Derivatives used to manage interest rate risk outstanding as of December 31, 2008 break down as follows:
Nominal amounts by maturity Market value (1) 2010 Fair value Unallocated (EUR millions) 2009 to 2014 Total hedges amounts TOTAL Interest rate swaps in euros: - fixed rate payer 200 1,333 1,533 (10) (6) (16) - floating rate payer 818 1,502 2,320 50 - 50 Foreign currency swaps 103 148 251 - 32 32 Total 40 26 66
(1) Gain/(Loss).
132 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
21.5 Derivatives used to manage foreign exchange risk
A significant part of both Group companies’ sales to customers Future foreign currency-denominated cash flows are broken and their own retail subsidiaries and certain purchases are down as part of the budget preparation process and are hedged denominated in currencies other than their functional currency; progressively over a period not exceeding one year unless a the majority of these foreign currency-denominated cash flows longer period is justified by probable commitments. As such, and are inter-company cash flows. Hedging instruments are used according to market trends, identified foreign exchange risks are to reduce the risks arising from foreign currency fluctuations hedged progressively using forward contracts or options. against the various companies’ functional currencies and are The Group may also use appropriate financial instruments to allocated to either accounts receivable or accounts payable hedge the net worth of foreign subsidiaries, in order to limit for the fiscal year, or, under certain conditions, to transactions the impact of foreign currency fluctuations against the euro on anticipated for future periods. consolidated equity.
Derivatives used to manage foreign exchange risk outstanding as of December 31, 2008 break down as follows:
Nominal amounts by fiscal year of allocation Fair value (1) Foreign Future cash Fair value currency net Not (EUR millions) 2008 2009 Thereafter Total flow hedges hedges asset hedges allocated Total Options purchased Put USD 9 659 - 668 26 - - 2 28 Put JPY 30 380 - 410 1 - - 2 3 Other 2 108 - 110 26 - - 1 27 41 1,147 - 1,188 53 - - 5 58 Ranges Written USD (72) 569 - 497 15 (1) - 1 15 Written JPY 32 383 99 514 (25) - - (3) (28) Other ------(40) 952 99 1,011 (10) (1) - (2) (13) Forward exchange contracts (2) USD 486 830 (1) 1,315 66 18 13 7 104 JPY 49 311 - 360 5 1 - (12) (6) GBP 23 (15) - 8 (2) - - 2 - Other 49 14 - 63 6 - - 1 7 607 1,140 (1) 1,746 75 19 13 (2) 105 Foreign exchange swaps (2) CHF 237 - - 237 - - - (7) (7) USD 445 - - 445 - - 15 (36) (21) GBP 52 - - 52 - - - (1) (1) JPY 59 - - 59 - - (1) 3 2 Other 50 - - 50 - - - 7 7 843 - - 843 - - 14 (34) (20) Total 118 18 27 (33) 130
(1) Gain/(Loss). (2) Sale/(Purchase).
The impact on income statement of gains and losses on hedges of future cash flows as well as the future cash flows hedged, using these instruments, will be recognized in 2009.
2008 Annual Report 133 Consolidated financial statements Notes to the consolidated financial statements
The impacts of a positive or negative change in the value of the US dollar and the Japanese yen on the net profit for the year, equity (excluding net profit), and the market value of derivatives, after tax effect, as of December 31, 2008 would be as follows:
US dollar Japanese yen (EUR millions) +10% -10% +10% -10% Impact on net profit 47 (83) 2 7 Impact on equity, excluding net profit 442 (458) 4 (14) Impact on market value of derivatives (267) 190 (84) 83
The changes above include the impact on fair value of derivatives of exchange rate fluctuations as well as currency translation adjustments resulting from consolidation of foreign-currency denominated subsidiaries.
21.6 Financial instruments used to manage as of December 31, 2008 would impact net profit for an amount equity risk of 9 million euros. The Group’s investment policy is designed to take advantage of a Derivatives used to manage equity risk outstanding as of long term investment horizon. Occasionally, the Group may invest December 31, 2008 had a positive fair value of 65 million euros. in equity-based financial instruments with the aim of enhancing Most of these instruments mature in 2010 and 2011. the dynamic management of its investment portfolio. The Group is exposed to risks of share price changes either 21.7 Liquidity risk directly, as a result of its holding of equity investments and current available for sale financial assets, or indirectly, as a In addition to local liquidity risks, which are generally immaterial, result of its holding of funds which are themselves partially the Group’s exposure to liquidity risk can be assessed in relation invested in shares. to the amount of its short-term borrowings net of cash and cash The Group may also use equity-based derivatives to create equivalents (1.4 billion euros), or through the outstanding amount synthetically an economic exposure to certain assets, or to of its commercial paper program (0.7 billion euros). hedge cash-settled compensation plans index-linked to the Should any of these instruments not be renewed, the Group LVMH share price. The carrying amount of these unlisted has access to undrawn confirmed credit lines totaling financial instruments corresponds to the estimate of the amount, 3.6 billion euros. provided by the counterparty, of the valuation at the balance sheet date. The valuation of financial instruments thus takes The Group’s liquidity is based on the amount of its investments into consideration market parameters such as interest rates, and long-term borrowings, the diversity of its investor base share prices and volatility. (bonds and short-term paper), and the quality of its banking For those derivatives, with a nominal value of 1.1 billion euros, relationships, whether evidenced or not by confirmed lines a uniform variation of 1% in their underlying assets’ share prices of credit.
The following table present the contractual schedule of disbursements for financial liabilities recognized as of December 31, 2008, at nominal value and with interest, excluding discounting effects:
Over (EUR millions) 2009 2010 2011 2012 2013 5 years Total Bonds and EMTNs 244 842 1,040 795 337 137 3,395 Bank borrowings 441 557 261 559 165 184 2,167 Other borrowings and credit facilities 500 - - - - - 500 Finance and other long term leases 40 30 18 17 15 364 484 Commercial paper 717 - - - - - 717 Bank overdrafts 424 - - - - - 424 Gross financial debt 2,366 1,429 1,319 1,371 517 685 7,687 Derivatives 28 5 27 - (4) 10 66 Other financial liabilities 1,722 26 21 23 25 163 1,980 Trade accounts payable 2,348 - - - - - 2,348 Other financial liabilities 4,098 31 48 23 21 173 4,394 Total financial liabilities 6,464 1,460 1,367 1,394 538 858 12,081
134 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Note 22 - Segment information
22.1 Information by business group
Fiscal year 2008
Christian Wines Fashion Perfumes Watches Other and Not allocated Dior and and Leather and and Selective holding and eliminations (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies (1) (4) (5) 2008 Sales outside the Group 749 3,117 5,975 2,664 856 4,361 211 - 17,933 Sales between business groups 16 9 35 204 23 15 17 (319) - Total revenue 765 3,126 6,010 2,868 879 4,376 228 (319) 17,933 Profit from recurring operations 9 1,060 1,927 290 118 388 (150) (21) 3,621 Other operating income and expenses (7) 13 (61) (28) (1) (28) (38) (3) (153) Operating investments (2) 41 157 338 146 39 228 160 - 1,109 Depreciation and amortization 46 73 236 111 23 148 36 - 673 Impairment - - 20 - - - 11 - 31 Brands, trade names, licenses and goodwill (3) 87 4,087 4,722 1,649 1,434 2,630 1,283 - 15,892 Inventories 209 3,408 850 293 400 776 109 (79) 5,966 Other operating assets (6) 444 2,578 1,947 805 318 1,390 2,256 3,992 13,730 Total assets 740 10,073 7,519 2,747 2,152 4,796 3,648 3,913 35,588 Equity ------15,265 15,265 Operating liabilities (6) 182 1,069 1,141 883 189 1,111 551 15,197 20,323 Total liabilities and equity 182 1,069 1,141 883 189 1,111 551 30,462 35,588
Since the Samaritaine department store was reclassified in 2008 from Selective Retailing to Other activities and holding companies, 2007 and 2006 data was restated in order to facilitate comparison with 2008 data.
2008 Annual Report 135 Consolidated financial statements Notes to the consolidated financial statements
Fiscal year 2007
Christian Wines Fashion Perfumes Watches Other and Not allocated Dior and and Leather and and Selective holding and eliminations (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies (1) (4) (5) 2007 Sales outside the Group 776 3,220 5,591 2,561 808 4,152 137 17,245 Sales between business groups 11 6 37 170 25 12 6 (267) - Total revenue 787 3,226 5,628 2,731 833 4,164 143 (267) 17,245 Profit from recurring operations 74 1,058 1,829 256 141 426 (141) (33) 3,610 Other operating income and expenses - (4) (18) (17) (3) (12) (72) 9 (117) Operating investments (2) 38 199 241 116 28 242 174 - 1,038 Depreciation and amortization 43 69 210 103 21 122 27 - 595 Impairment - - - - 1 - 10 - 11 Brands, trade names, licenses and goodwill (3) 42 5,207 4,956 1,645 979 2,525 398 - 15,752 Inventories 191 3,036 622 263 268 626 45 (48) 5,003 Other operating assets (6) 426 2,429 1,739 709 266 1,329 1,906 4,775 13,579 Total assets 659 10,672 7,317 2,617 1,513 4,480 2,349 4,727 34,334 Equity ------13,940 13,940 Operating liabilities (6) 171 1,064 977 833 155 1,010 379 15,805 20,394 Total liabilities and equity 171 1,064 977 833 155 1,010 379 29,745 34,334
136 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Fiscal year 2006
Christian Wines Fashion Perfumes Watches Other and Not allocated Dior and and Leather and and Selective holding and eliminations (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies (1) (4) (5) 2006 Sales outside the Group 720 2,989 5,190 2,379 724 3,865 149 - 16,016 Sales between business groups 11 5 32 140 13 12 16 (229) - Total revenue 731 2,994 5,222 2,519 737 3,877 165 (229) 16,016 Profit from recurring operations 56 962 1,633 222 80 387 (124) (7) 3,209 Other operating income and expenses - (12) (44) (30) (9) (16) (16) - (127) Operating investments (2) 55 107 308 99 25 185 51 - 830 Depreciation and amortization 38 61 208 98 21 117 16 - 559 Impairment - - 5 - - 3 14 - 22 Brands, trade names, licenses and goodwill (3) 42 4,956 5,048 1,639 1,009 2,643 411 - 15,748 Inventories 142 2,730 603 244 235 558 50 (38) 4,524 Other operating assets (6) 580 2,220 1,752 648 229 1,153 1,602 3,915 12,099 Total assets 764 9,906 7,403 2,531 1,473 4,354 2,063 3,877 32,371 Equity ------12,974 12,974 Operating liabilities (6) 163 1,025 935 736 156 932 350 15,100 19,397 Total liabilities and equity 163 1,025 935 736 156 932 350 28,074 32,371
(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) As of December 31, 2008, the figure shown for the Group’s income tax liability with respect to the French tax consolidation structure was offset by advance payments made. Other operating assets and liabilities as of December 31, 2007 and December 31, 2006 were restated to facilitate comparison with 2008 information.
22.2. Information by geographic region Revenue by geographic region of delivery breaks down as follows:
(EUR millions) 2008 2007 2006 France 2,747 2,457 2,295 Europe (excluding France) 4,256 4,064 3,531 United States 4,018 4,244 4,141 Japan 1,855 1,949 2,086 Asia (excluding Japan) 3,519 3,199 2,798 Other 1,538 1,332 1,165 Revenue 17,933 17,245 16,016
2008 Annual Report 137 Consolidated financial statements Notes to the consolidated financial statements
Operating investments by geographic region are as follows:
(EUR millions) 2008 2007 2006 France 509 415 327 Europe (excluding France) 195 241 128 United States 169 203 142 Japan 19 37 92 Asia (excluding Japan) 158 97 87 Other 59 45 54 Operating investments 1,109 1,038 830
Operating investments correspond to the amounts capitalized during the fiscal year rather than payments made during the fiscal year. No geographic breakdown of segment assets is provided since a significant portion of these assets consists of brands and goodwill, which must be analyzed on the basis of the revenue generated by these assets in each region, and not in relation to the region of their legal ownership.
22.3 Quarterly information Quarterly sales by business group break down as follows:
Fiscal year 2008
Christian Fashion Watches Other and Dior Wines and and Leather Perfumes and and Selective holding (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies Eliminations Total First quarter 184 640 1,445 717 211 1,011 56 (84) 4,180 Second quarter 182 652 1,323 645 206 979 54 (69) 3,972 Third quarter 197 746 1,471 719 239 1,015 43 (78) 4,352 Fourth quarter 202 1,088 1,771 787 223 1,371 75 (88) 5,429 Total revenue 765 3,126 6,010 2,868 879 4,376 228 (319) 17,933
Fiscal year 2007
Christian Fashion Perfumes Watches Other and Dior Wines and and Leather and and Selective holding (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies Eliminations Total First quarter 184 689 1,347 663 189 937 41 (66) 3,984 Second quarter 184 625 1,254 601 201 947 35 (63) 3,784 Third quarter 202 759 1,420 697 199 987 30 (67) 4,227 Fourth quarter 217 1,153 1,607 770 244 1,293 37 (71) 5,250 Total revenue 787 3,226 5,628 2,731 833 4,164 143 (267) 17,245
Fiscal year 2006
Christian Fashion Perfumes Watches Other and Dior Wines and and Leather and and Selective holding (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies Eliminations Total First quarter 165 632 1,296 597 157 891 39 (60) 3,717 Second quarter 164 588 1,170 572 176 900 51 (49) 3,572 Third quarter 193 674 1,263 638 176 920 43 (63) 3,844 Fourth quarter 209 1,100 1,493 712 228 1,166 32 (57) 4,883 Total revenue 731 2,994 5,222 2,519 737 3,877 165 (229) 16,016
138 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Note 23 - Revenue and expenses by nature
23.1 Revenue Revenue consists of the following:
(EUR millions) 2008 2007 2006 Revenue generated by brands and trade names 17,519 16,886 15,657 Royalties and license revenue 165 140 132 Income from investment property 78 39 34 Other 171 180 193 Total 17,933 17,245 16,016
23.2 Expenses by nature Profit from recurring operations includes the following expenses:
(EUR millions) 2008 2007 2006 Advertising and promotion expenses 2,125 2,038 1,850 Commercial lease expenses 1,051 1,064 1,016 Personnel costs 3,043 2,830 2,710 Research and development expenses 43 46 43
Advertising and promotion expenses mainly consist of the cost As of December 31, 2008, a total of 2,551 stores were operated of media campaigns and point-of-sale advertising, and also by the Group worldwide (2,269 in 2007 and 2,074 in 2006), include personnel costs dedicated to this function. particularly by Fashion and Leather Goods and Selective Retailing.
In certain countries, leases for stores are contingent on the payment of minimum amounts in addition to a variable amount, especially for stores with lease payments indexed to revenue. The total lease expense for the Group’s stores breaks down as follows:
(EUR millions) 2008 2007 2006 Fixed or minimum lease payments 492 488 440 Variable portion of indexed leases 175 176 173 Airport concession fees - fixed portion or minimum amount 221 204 209 Airport concession fees - variable portion 163 196 194 Commercial lease expenses for the period 1,051 1,064 1,016
Personnel costs consist of the following elements:
(EUR millions) 2008 2007 2006 Salaries and social charges 2,965 2,732 2,603 Pensions, medical costs and similar expenses in respect of defined benefit plans 31 42 63 Stock option plan and related expenses 47 56 44 Total 3,043 2,830 2,710
2008 Annual Report 139 Consolidated financial statements Notes to the consolidated financial statements
Note 24 - Other operating income and expenses
(EUR millions) 2008 2007 2006 Net gains (losses) on disposals of fixed assets 11 (72) - Restructuring costs (90) (25) (63) Amortization or impairment of brands, trade names, goodwill and other property (57) (16) (28) Other, net (17) (4) (36) Other operating income and expenses (153) (117) (127)
In 2008, other operating income and expenses comprised capital assets, notably the industrial facility in Broxburn (United gains realized on the sale of various assets in the amount of Kingdom) as well as the Glen Moray brand and distillery. 11 million euros and costs for the restructuring of industrial and In 2007, other operating income and expenses mainly comprised commercial processes in the amount of 90 million euros. These the net loss on the sale of La Tribune group, the logistics company amounts related to the discontinuation of certain product lines, Kami (Fashion and Leather Goods), Omas writing instruments the closure of retail stores considered as insufficiently profitable and disposals of minority interests mentioned in Note 1.20. and the reorganization of the operations of Glenmorangie. The In 2006, restructuring costs, which were of a commercial or latter notably included the gradual withdrawal from activities industrial nature, mainly related to the Fashion and Leather performed on behalf of third parties and the disposal of certain Goods and the Perfumes and Cosmetics business groups.
Note 25 - Net financial income/expense
(EUR millions) 2008 2007 2006 Borrowing costs, excluding perpetual bonds (316) (308) (254) Interest and income from current available for sale financial assets 18 32 26 Fair value adjustment of borrowings and hedges, excluding perpetual bonds (24) 2 - Net cost of perpetual bonds - 2 (2) Cost of net financial debt (322) (272) (230) Dividends received from non-current available for sale financial assets 11 29 26 Ineffective portion of foreign currency hedges (64) (97) (45) Net gain/(loss) related to available for sale financial assets and other financial instruments 53 44 163 Other items - net (26) (21) (21) Other financial income and expenses (26) (45) 123 Net financial income/(expense) (348) (317) (107)
In 2007 and 2006, proceeds relating to available for sale financial gains arising on the sale of the French video game retailer assets and other financial instruments included capital gains in the Micromania as well as various impairment losses on available amounts of 44 million euros and 163 million euros, respectively. for sale financial assets. In 2008, this item notably included LVMH’s share in the capital
140 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Income from cash, cash equivalents and current available for sale financial assets comprises the following items:
(EUR millions) 2008 2007 2006 Income from cash and cash equivalents 6 21 18 Interest from financial receivables 12 11 8 Interest and income from current available for sale financial assets 18 32 26
The revaluation effects of financial debt and interest rate derivatives, excluding perpetual bonds, are attributable to the following items:
(EUR millions) 2008 2007 2006 Hedged financial debt, excluding perpetual bonds (12) 16 75 Hedging instruments 11 (15) (77) Unallocated derivatives (15) (2) (4) Debt recognized in accordance with the fair value option (8) 3 6 Effects of revaluation of financial debt and rate instruments, (24) 2 - excluding perpetual bonds
The ineffective portion of exchange rate derivatives breaks down as follows:
(EUR millions) 2008 2007 2006 Financial cost of commercial foreign exchange hedges (71) (97) (47) Financial cost of foreign-currency denominated net asset hedges 11 (1) (7) Change in the fair value of unallocated derivatives (4) 1 9 Ineffective portion of foreign exchange derivatives (64) (97) (45)
Note 26 - Income taxes
26.1 Analysis of the income tax expense
(EUR millions) 2008 2007 2006 Current income taxes for the period (917) (991) (990) Current income taxes relating to previous periods 5 6 4 Current income taxes (912) (985) (986) Change in deferred income taxes 8 83 136 Impact of changes in tax rates on deferred taxes - 47 - Deferred income taxes 8 130 136 Total tax expense per income statement (904) (855) (850) Tax on items recognized in equity 8 (53) (95)
The effective tax rate is as follows:
(EUR millions) 2008 2007 2006 Profit before tax 3,120 3,176 2,975 Total income tax expense (904) (855) (850) Effective tax rate 29.0% 26.9% 28.6%
2008 Annual Report 141 Consolidated financial statements Notes to the consolidated financial statements
26.2 Analysis of the difference between the theoretical and effective income tax rates The theoretical income 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 tax) 2008 2007 2006 French statutory tax rate 34.4 34.4 34.4 - changes in tax rates - (1.5) 0.1 - differences in tax rates for foreign companies (6.1) (4.4) (3.1) - tax losses and tax loss carry forwards (0.2) (3.6) (5.1) - difference between consolidated and taxable income, income taxable at reduced rates 0.6 1.6 1.9 - withholding taxes 0.3 0.4 0.4 Effective tax rate of the Group 29.0 26.9 28.6
Since 2000, French companies have been subject to additional income tax, at a rate of 3.3% for 2006, 2007 and 2008, bringing the theoretical tax rate to 34.4% in each fiscal year.
26.3 Sources of deferred taxes
In the income statement:
(EUR millions) 2008 2007 2006 Valuation of brands (38) 16 (45) Fair value adjustment of vineyard land - 2 - Other revaluation adjustments 3 - (3) Gains and losses on available for sale financial assets - 10 (3) Gains and losses on hedges of future foreign currency cash flows (3) 8 (8) Provisions for contingencies and losses (1) (12) 28 22 Intercompany margin included in inventories 80 11 26 Other consolidation adjustments (1) 11 63 105 Losses carried forward (33) (8) 42 TOTAL 8 130 136
In equity:
(EUR millions) 2008 2007 2006 Fair value adjustment of vineyard land (59) (26) (46) Gains and losses on available for sale financial assets (7) 18 (2) Gains and losses on hedges of future foreign currency cash flows 23 (33) (43) TOTAL (43) (41) (91)
142 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
In the balance sheet:
(EUR millions) 2008 2007 2006 Valuation of brands (3,213) (3,015) (3,115) Fair value adjustment of vineyard land (503) (443) (412) Other revaluation adjustments (305) (318) (316) Gains and losses on available for sale financial assets (23) (7) (36) Gains and losses on hedges of future foreign currency cash flows (14) (27) (25) Provisions for contingencies and losses (1) 143 78 94 Intercompany margin included in inventories 301 223 212 Other consolidation adjustments (1) 148 160 89 Losses carried forward 124 144 174 TOTAL (3,342) (3,205) (3,335)
(1) Mainly tax-driven provisions, accelerated tax depreciation and finance lease.
Net deferred taxes on the balance sheet include the following assets and liabilities:
(EUR millions) 2008 2007 2006 Deferred tax assets 674 556 451 Deferred tax liabilities (4,016) (3,761) (3,786) Net deferred tax asset (liabilities) (3,342) (3,205) (3,335)
26.4 Tax loss carry forwards 26.5 Tax consolidation As of December 31, 2008, for LVMH SA unused tax loss carry • Tax consolidation agreements in France allow certain French forwards and tax credits, for which no deferred tax assets were companies of the Group to combine their taxable profits to recognized, had a potential impact on the future tax expense calculate the overall tax expense for which only the parent of 307 million euros (360 million euros in 2007, 529 million company is liable. euros in 2006). This tax consolidation agreement generated for the Group As of December 31, 2008, for Christian Dior, ordinary tax a decrease in the current tax expense of 121 million euros loss carry forwards amounted to 199 million euros (87 million in 2008, of which 117 million euros were for LVMH and euros in 2007, 83 million euros in 2006). On the basis of the 4 million euros for Christian Dior (103 million euros in 2007, prospects for the use of these tax loss carry forwards, deferred 63 million euros in 2006 for the Group). tax assets were recognized in the amount of 30 million euros • The application of other tax consolidation agreements in as of December 31, 2008, the same amount recognized a year certain foreign countries, notably in the United States and earlier (compared to 28 million euros as of December 31, 2006). Italy, generated current tax savings of 96 million euros in 2008 Unused tax loss carry forwards for which no deferred tax assets (119 million euros in 2007, 113 million euros in 2006). were recognized had a potential impact on the future tax expense of 39 million euros.
2008 Annual Report 143 Consolidated financial statements Notes to the consolidated financial statements
Note 27 - Earnings per share
2008 2007 2006 Group share of net earnings (EUR millions) 796 880 797 Impact of diluting instruments on subsidiaries (4) (10) (6) Group share of net earnings, diluted 792 870 791 Average number of shares in circulation during the period 181,727,048 181,727,048 181,727,048 Average number of Christian Dior treasury shares owned during the period (3,422,564) (3,579,443) (4,204,606) Average number of shares on which the calculation before dilution is based 178,304,484 178,147,605 177,522,442 Basic Group share of net earnings per share (EUR) 4.46 4.94 4.49 Average number of shares on which the above calculation is based 178,304,484 178,147,605 177,522,442 Dilution effect of stock option plans 627,694 962,210 1,719,672 Average number of shares in circulation after dilution 178,932,178 179,109,815 179,242,114 Diluted Group share of net earnings per share (EUR) 4.43 4.86 4.41
Note 28 - Provisions for pensions, medical costs and similar commitments
28.1 Expense for the year
(EUR millions) 2008 2007 2006 Current service cost 37 38 48 Impact of discounting 23 22 22 Expected return on plan assets (18) (18) (14) Amortization of actuarial gains and losses (11) (2) 1 Past service cost 2 2 2 Changes in regime (2) - 4 Total expense for the period for defined benefit plans 31 42 63 Effective return on/(cost of) plan assets (77) 17 25
144 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
28.2 Net recognized commitment
(EUR millions) 2008 2007 2006 Benefits covered by plan assets 549 503 510 Benefits not covered by plan assets 118 116 135 Defined benefit obligation 667 619 645 Fair value of plan assets (351) (403) (385) Actuarial differences not recognized in the balance sheet (79) 27 10 Past service cost not yet recognized (17) (8) (10) Unrecognized items (96) 19 - Net recognized commitment 220 235 260 Of which: Non-current provisions 235 242 263 Current provisions 7 5 4 Other assets (22) (12) (7) TOTAL 220 235 260
28.3 Breakdown of the change in net recognized commitment
Defined benefit Fair value Unrecognized Net recognized (EUR millions) obligation of plan assets amounts commitment As of December 31, 2007 619 (403) 19 235 Net expense for the period 60 (18) (11) 31 Payments to beneficiaries (47) 31 - (16) Contributions to plan assets - (39) - (39) Contributions of employees 2 (2) - - Translation adjustment 11 (9) (1) 1 Changes in scope and reclassifications 14 (7) 1 8 Changes in regime (2) - 2 - Actuarial differences: experience impacts (2) 96 (94) - Actuarial differences: change in assumptions 12 - (12) - As of December 31, 2008 667 (351) (96) 220
The actuarial assumptions applied to estimate commitments as of December 31, 2008 in the main countries where such commitments have been undertaken, were as follows:
2008 2007 2006 United United United (percentage) France Japan States France Japan States France Japan States Discount rate 5.5 2.25 6.0 5 2.25 6 4.5 2 5.75 Expected return on investments 4.5 4.0 7.75 4.75 4 7.75 4.5 4 8 Future rate of increase in salaries 3.5 2.5 4.5 3.25 2.5 4.5 2 to 4 2 to 4 2 to 4.5
The expected rate of return on investments is an overall rate reflecting the structure of the financial assets mentioned in Note 28.5. The assumed rate of increase of medical expenses in the United States is between 8% and 5% over the next four years, and 5% thereafter.
2008 Annual Report 145 Consolidated financial statements Notes to the consolidated financial statements
28.4 Analysis of benefits The breakdown of the defined benefit obligation by type of benefit plan is as follows:
(EUR millions) 2008 2007 2006 Retirement and other indemnities 116 95 89 Medical costs of retirees 42 36 49 Jubilee awards 11 11 11 Pensions 478 453 467 Early retirement indemnities 9 12 13 Other 11 12 16 Defined benefit obligation 667 619 645
Geographic breakdown of defined benefit obligation is as follows:
(EUR millions) 2008 2007 2006 France 299 279 281 Europe (excluding France) 159 178 191 United States 126 100 112 Japan 74 53 52 Asia (excluding Japan) 9 9 9 Defined benefit obligation 667 619 645
The main components of the Group’s net commitment for • in Europe (excluding France), the main commitments concern retirement and other benefit obligations as of December 31, pension schemes and schemes for the reimbursement of the 2008 are as follows: medical expenses of retirees, set up in the United Kingdom by certain Group companies, as well as the TFR (Trattamento • in France, these commitments mainly include jubilee di Fine Rapporto) in Italy, a legally required end-of-service awards and retirement indemnities, the payment of which allowance, paid regardless of the reason for the employee’s is determined by French law and collective bargaining departure from the Company, and in Switzerland, participation agreements, respectively after a certain number of years of by Group companies in the mandatory Swiss occupational service or upon retirement; they also include the commitment pension scheme, the LPP (Loi pour la Prévoyance Professionnelle); to members of the Group’s executive bodies, who are covered by an additional pension plan after a certain number of • in the United States, the commitment relates to defined benefit years’ service, the amount of which is linked to their last plans or schemes for the reimbursement of medical expenses year’s remuneration; of retirees set up by certain Group companies.
28.5 Analysis of related plan assets Market value of the underlying investments in plan assets is as follows:
(percentage) 2008 2007 2006 Shares 43 51 48 Bonds - Private issues 36 33 32 - Public issues 13 11 15 Real estate, cash and other assets 8 5 5 Fair value of related plan assets 100 100 100
Plan assets do not include any real estate assets operated by the Group or any LVMH or Christian Dior shares for significant amounts. The sums that will be paid to the funds in 2009 are estimated at 45 million euros.
146 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Note 29 - Off balance sheet commitments
29.1 Purchase commitments
(EUR millions) 2008 2007 2006 Grapes, wines and distilled alcohol 1,671 1,690 1,547 Other purchase commitments for raw materials 64 24 41 Industrial and commercial fixed assets 180 105 151 Investments in joint venture shares and non-current available for sale financial assets 63 55 84
Some Wines and Spirits companies have contractual purchase are valued, depending on the nature of the purchases, on the arrangements with various local producers for the future supply basis of the contractual terms or known year-end prices and of grapes, still wines and distilled alcohol. These commitments estimated production yields.
As of December 31, 2008, the maturity dates of these commitments break down as follows:
Less than One to More than (EUR millions) one year five years five years Total Grapes, wines and distilled alcohol 489 643 539 1,671 Other purchase commitments for raw materials 40 24 - 64 Industrial and commercial fixed assets 90 90 - 180 Investments in joint venture shares and non-current available for sale financial assets 23 28 12 63
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, 2008:
(EUR millions) 2008 2007 2006 Less than one year 824 722 643 One to five years 2,077 1,928 1,460 More than five years 1,025 979 833 Commitments given for operating leases and concession fees 3,926 3,629 2,936 Less than one year 24 21 20 One to five years 50 42 46 More than five years 8 4 2 Commitments received for sub-leases 82 67 68
2008 Annual Report 147 Consolidated financial statements Notes to the consolidated financial statements
Finance leases The amount of the Group’s irrevocable commitments under finance lease agreements as of December 31, 2008 breaks down as follows:
2008 2007 2006 Minimum Present Minimum Present Minimum Present future value of future value of future value of (EUR millions) payments payments payments payments payments payments Less than one year 40 41 22 21 27 27 One to five years 81 61 69 45 76 50 More than five years 364 66 344 70 395 76 Total future minimum payments 485 435 498 Of which: financial interest (317) (299) (345) Present value of minimum 168 168 136 136 153 153 future payments
29.3 Contingent liabilities and outstanding litigation
As part of its day-to-day management, the Group is party to the provisions recorded in the balance sheet in respect of these various legal proceedings concerning brand rights, the protection risks, litigation or disputes, known or outstanding at year-end, of intellectual property rights, the set-up of selective retailing are sufficient to avoid its consolidated financial net worth being networks, licensing agreements, employee relations, tax audits materially impacted in the event of an unfavorable outcome. and other areas relating to its business. The Group believes that
29.4 Collateral and other guarantees As of December 31, 2008, these commitments break down as follows:
(EUR millions) 2008 2007 2006 Securities and deposits 59 61 56 Other guarantees 48 28 56 Guarantees given 107 89 112 Guarantees received 25 32 63
Maturity dates of these commitments are as follows:
Less than one One to five More than five (EUR millions) year years years TOTAL Securities and deposits 17 19 23 59 Other guarantees 24 24 - 48 Guarantees given 41 43 23 107 Guarantees received 8 14 3 25
29.5 Other commitments The Group is not aware of any significant off balance sheet commitments other than those described above.
148 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Note 30 - Related party transactions
30.1 Relations of the Christian Dior Group with the Groupe Arnault and Financière Agache Groups The parent company of Christian Dior Group is Financière Agache SA, which is controlled by Groupe Arnault SAS.
Relations of the Christian Dior Group with the Groupe Arnault Group Groupe Arnault SAS provides assistance to the Christian Dior Group in the areas of development, engineering, corporate and real estate law. In addition, Groupe Arnault SAS leases office premises to LVMH. The Christian Dior Group leases office space tothe Groupe Arnault Group and also provides it with various forms of administrative assistance. Transactions between the Christian Dior Group and the Groupe Arnault Group may be summarized as follows:
(EUR millions) 2008 2007 2006 • Amounts billed by the Groupe Arnault Group to the Christian Dior Group (10) (10) (9) Trade accounts payable as of December 31 (1) (1) (2) • Amounts billed by the Group Christian Dior to the Groupe Arnault Group 3 3 2 Trade accounts receivable as of December 31 2 1 1
In September 2008, a Christian Dior Group company sold a property located in New York to an affiliate of Groupe Arnault for a price of 17 million US dollars.
Relations of the Christian Dior Group with the Financière Agache Group In January 2008, Christian Dior Couture acquired John Galliano, a company that operates licenses and provides creative direction services to Christian Dior Couture, from a subsidiary of Financière Agache for total consideration of 17 million euros. Transactions between the Christian Dior Group and the Financière Agache Group may be summarized as follows:
(EUR millions) 2008 2007 2006 • Amounts billed by the Financière Agache Group to the Christian Dior Group - (10) (9) Trade accounts payable as of December 31 - (2) (2) • Amounts billed for financial interest to Christian Dior Group (1) (3) (4) Balance of current account liabilities as of December 31 - (28) (46) • Amounts billed by the Christian Dior Group to the Financière Agache Group - 1 1 Trade accounts receivable as of December 31 - - 1 • Amounts billed for financial interest to Groupe Financière Agache - 1 1 Balance of current account assets as of December 31 - - -
Lastly, in February 2008, a Christian Dior Group company acquired a work of art valued at 15.9 million euros from an affiliate of Financière Agache.
2008 Annual Report 149 Consolidated financial statements Notes to the consolidated financial statements
30.2 Relations of the Christian Dior Group with Diageo
Moët Hennessy is the holding company for the LVMH Group’s consideration the effects of the agreement, Moët Hennessy’s Wines and Spirits businesses, with the exception of Château total administrative expenses amounted to 32 million euros in d’Yquem and certain champagne vineyards. Since 1994, 2008 (33 million euros in 2007, 27 million euros in 2006); the Diageo has held a 34% stake in Moët Hennessy. At this time total administrative expenses borne by the Wines and Spirits an agreement has been concluded between Diageo and Moët business group amounted to 74 million euros in 2008 (55 million Hennessy for the apportionment of holding company expenses euros in 2007, 48 million euros in 2006). between Moët Hennessy and the other holding companies of Lastly, in September 2008, as part of the gradual withdrawal by the LVMH Group. Glenmorangie from bottling activities on behalf of third parties, Under this agreement, Moët Hennessy assumed 23% of shared LVMH sold the Broxburn plant (United Kingdom) to Diageo expenses in 2008 (24% in 2007 and 2006). After taking into for 15.5 million pounds sterling.
30.3 Executive bodies The total compensation paid to the members of the Board of Directors, in respect of their functions within the Group, breaks down as follows:
(EUR millions) 2008 2007 2006 Gross compensation, employers’ charges and benefits in kind 13 10 9 Post-employment benefits 1 1 1 Other long term benefits - - - End of contract indemnities - - - Stock option and similar plans 14 15 13 TOTAL 28 26 23
The net commitment recognized as of December 31, 2008 for post-employment benefits is 1 million euros (1 million euros as of December 31, 2007 and as of December 31, 2006).
Note 31 - Subsequent events
There were no significant subsequent events as of February 5, 2009, the date on which the accounts were approved for publication by the Board of Directors.
150 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Consolidated companies
Companies Registered office Percentage Companies Registered office Percentage Consolidation Interest Consolidation Interest method method Christian Dior SA Paris, France Les Ateliers Horlogers Dior SA La Chaux-de-Fonds, Switzerland (3) FC 72% Financière Jean Goujon Paris, France FC 100% Dior Montres SARL Paris, France (3) FC 72% Sadifa Paris, France FC 100% Christian Dior Couture Qatar LLC Doha, Qatar (2) (2) Lakenbleker Amsterdam, Netherlands FC 100% Le Gosse SA Geneva, Switzerland FC 100% Vanity Srl Vigonovo (Venice), Italy FC 100% CHRISTIAN DIOR COUTURE Christian Dior Couture SA Paris, France FC 100% WINES AND SPIRITS Christian Dior Fourrure M.C. S.A.M Monaco, Principality of Monaco FC 100% Champagne Moët & Chandon SCS Epernay, France FC 29% Christian Dior GmbH Dusseldorf, Germany FC 100% Moët Hennessy UK Ltd London, United Kingdom FC 29% Christian Dior Inc New York, USA FC 100% Moët Hennessy España SA Barcelona, Spain FC 29% Christian Dior UK Ltd London, United Kingdom FC 100% Moët Hennessy (Switzerland) SA Geneva, Switzerland FC 29% Christian Dior Suisse SA Geneva, Switzerland FC 100% Champagne Des Moutiers SA Epernay, France FC 29% Les Jardins d’Avron SAS Paris, France FC 100% Schieffelin Partner Inc New York, USA FC 29% Mardi Spa Badia a Settimo-Scandicci, Italy FC 75% Moët Hennessy de Mexico, SA de CV Mexico, Mexico FC 29% Ateliers AS Pierre Bénite, France ME 25% Chamfipar SA Ay, France FC 29% Christian Dior Far East Ltd Hong Kong, China FC 100% Société Viticole de Reims SA Ay, France FC 29% Christian Dior Fashion Kuala-Lumpur, Malaysia FC 100% Cie Française du Champagne et Ay, France FC 29% (Malaysia) Sdn.Bhd. du Luxe SA Christian Dior Hong Kong Ltd Hong Kong, China FC 100% Moët Hennessy Belux SA Brussels, Belgium FC 29% Christian Dior Taiwan Limited Hong Kong, China FC 90% Champagne de Mansin SAS Gye sur Seine, France FC 29% Christian Dior Singapore Pte Ltd Singapore, Republic of Singapore FC 100% Moët Hennessy Osterreich GmbH Vienna, Austria FC 26% Christian Dior Saipan Ltd Saipan, Saipan FC 100% Moët Hennessy Polska SP Z.O.O. Warsaw, Poland FC 29% Christian Dior Australia PTY Ltd Sydney, Australia FC 100% Moët Hennessy Czech Republic Sro Prague, Czech Republic FC 29% Christian Dior New Zealand Ltd Auckland, New Zealand FC 100% Schieffelin & Somerset New York, USA FC 29% Christian Dior (Thailand) Co. Ltd Bangkok, Thailand FC 100% Moët Hennessy (Nederland) BV Baarn, Netherlands FC 29% Christian Dior K.K. (Kabushiki Kaisha) Tokyo, Japan FC 100% Moët Hennessy USA, Inc New York, USA FC 29% Christian Dior Couture Korea Ltd Seoul, South Korea FC 100% MHD Moët Hennessy Diageo SAS Courbevoie, France (1) FC 29% Christian Dior Guam Ltd Tumon Bay Guam, Guam FC 100% Opera Vineyards SA Buenos Aires, Argentina PC 14% Christian Dior Espanola SL Madrid, Spain FC 100% France Champagne SA Epernay, France FC 29% Christian Dior do Brasil Ltda Sao Paulo, Brazil FC 100% Domaine Chandon, Inc Yountville (California), USA FC 29% Christian Dior Italia Srl Milan, Italy FC 100% Cape Mentelle Vineyards Ltd Margaret River, Australia FC 29% Christian Dior Belgique SA Brussels, Belgium FC 100% Veuve Clicquot Properties, Pty Ltd Sydney, Australia FC 29% Bopel Srl Lugagnano Val d’Arda, Italy FC 70% Moët Hennessy do Brasil - Vinhos Sao Paulo, Brazil FC 29% Christian Dior Puerto Banus SL Marbella-Puerto Banus, Spain FC 75% E Destilados Ltda Les Jardins d’Avron LLC New York, USA FC 100% Cloudy Bay Vineyards Ltd Blenheim, New Zealand FC 29% Lucilla Srl Sieci-Pontassieve, Italy FC 51% Bodegas Chandon Argentina SA Buenos Aires, Argentina FC 29% Christian Dior Couture CZ s.r.o. Prague, Czech Republic FC 100% Domaine Chandon Australia Pty Ltd Coldstream Victoria, Australia FC 29% Christian Dior Couture Maroc Casablanca, Morocco FC 100% Newton Vineyards LLC St Helena (California), USA FC 26% Christian Dior Couture FZE Dubai, United Arab Emirates FC 100% Veuve Clicquot Ponsardin SCS Reims, France FC 29% Christian Dior Macau Company Ltd Macao, Macao FC 100% Société Civile des Crus de Reims, France FC 29% Les Ateliers Bijoux GmbH Pforzheim, Germany FC 100% Champagne SA Christian Dior S. de R.L. de CV Lomas, Mexico FC 100% Veuve Clicquot UK Ltd London, United Kingdom FC 29% ( ) Christian Dior Commercial Shanghai, China FC 100% Clicquot, Inc New York, USA * FC 29% (Shanghai) Co. Ltd Veuve Clicquot Japan KK Tokyo, Japan FC 29% Ateliers Modèles SAS Paris, France FC 100% Moët Hennessy Suomi OY Helsinki, Finland FC 29% Ateliers Modèles UK London, United Kingdom FC 100% Moët Hennessy Sverige AB Stockholm, Sweden FC 29% Baby Siam Couture Company Ltd Bangkok, Thailand FC 100% Moët Hennessy Norge AS Hoevik, Norway FC 29% CDC Abu-Dhabi LLC Abu Dhabi, United Arab Emirates (2) (2) Moët Hennessy Danmark A/S Copenhagen, Denmark FC 29% CDCH SA Luxembourg, Luxembourg FC 75% Moët Hennessy Deutschland GmbH Munich, Germany FC 29% Dior Grèce SA Athens, Greece FC 51% Moët Hennessy Italia S.p.a. Milan, Italy FC 29% Christian Dior Couture RUS LLC Moscow, Russia FC 100% Krug SA Reims, France FC 29% Christian Dior Couture Moscow, Russia FC 100% Champagne Ruinart SA Reims, France FC 29% Stoleshnikov LLC Ruinart UK Ltd London, United Kingdom FC 29% Calto Srl Milan, Italy FC 100% Ruinart España SL Madrid, Spain FC 29% CDC General Trading LLC Dubai, United Arab Emirates (2) (2) Château d’Yquem SA Sauternes, France FC 29% Christian Dior Istanbul Château d’Yquem SC Sauternes, France FC 28% Maslak-Istanbul, Turkey FC 51% Magazacilik Anonim Sirketi Jas Hennessy & Co SCS Cognac, France FC 29% Christian Dior Trading India Private Ltd Mumbai, India FC 51% Diageo Moët Hennessy BV LLC Amsterdam, Netherlands (1) FC 29% Manifatturauno Srl Fosso (Venice), Italy FC 80% Hennessy Dublin Ltd Dublin, Ireland FC 29% John Galliano SA Paris, France FC 91% Edward Dillon & Co Ltd Dublin, Ireland PC 11%
2008 Annual Report 151 Consolidated financial statements Notes to the consolidated financial statements
Companies Registered office Percentage Companies Registered office Percentage Consolidation Interest Consolidation Interest method method Hennessy Far East Ltd Hong Kong, China FC 29% Louis Vuitton Portugal Maleiro, Ltda. Lisbon, Portugal FC 44% Moët Hennessy Diageo Hong Kong Ltd Hong Kong, China (1) FC 29% Louis Vuitton Ltd Tel Aviv, Israel FC 44% Riche Monde (China) Ltd Shanghai, China (1) FC 29% Louis Vuitton Danmark A/S Copenhagen, Denmark FC 44% Moët Hennessy Diageo Singapore Singapore (1) FC 29% Louis Vuitton Aktiebolag SA Stockholm, Sweden FC 44% PTE Ltd Louis Vuitton Suisse SA Geneva, Switzerland FC 44% Riche Monde Malaisie Inc Petaling Jaya, Malaysia (1) FC 14% Louis Vuitton Ceska s.r.o. Prague, Czech Republic FC 44% Riche Monde Taipei Ltd Taipei, Taiwan (1) FC 29% Louis Vuitton Osterreich GmbH Vienna, Austria FC 44% Diageo Moët Hennessy Thailand Ltd Bangkok, Thailand (1) FC 29% LV US Manufacturing, Inc New York, USA FC 44% Moët Hennessy Korea Ltd Seoul, South Korea FC 29% Somarest SARL Sibiu, Romania FC 44% Moët Hennessy Shanghai Ltd Shanghai, China FC 29% Louis Vuitton Hawaii, Inc Honolulu (Hawaii), USA FC 44% Moët Hennessy India Pvt. Ltd New Delhi, India FC 29% Atlantic Luggage Company Ltd Hamilton, Bermuda FC 18% Moët Hennessy Taiwan Ltd Taipei, Taiwan FC 29% Louis Vuitton Guam, Inc Guam FC 44% MHD Chine Co Ltd Shanghai, China (1) FC 29% Louis Vuitton Saipan, Inc Saipan, Mariana Islands FC 44% MHWH Limited Limassol, Cyprus FC 14% Louis Vuitton Norge AS Oslo, Norway FC 44% Moët Hennessy Whitehall Russia SA Moscow, Russia FC 14% San Dimas Luggage Company New York, USA FC 44% Moët Hennessy Vietnam Ho Chi Minh City, Vietnam FC 29% Louis Vuitton Vietnam Company Ltd Hanoi, Vietnam FC 44% Importation Co. Ltd Louis Vuitton Suomy Oy Helsinki, Finland FC 44% Moët Hennessy Vietnam Distribution Ho Chi Minh City, Vietnam FC 29% Louis Vuitton Romania Srl Bucharest, Romania FC 44% (1) Moët Hennessy Diageo KK Tokyo, Japan FC 29% LVMH FG Brasil Ltda Sao Paulo, Brazil FC 44% Moët Hennessy Asia Pacific PTE Ltd Singapore FC 29% Louis Vuitton Panama Panama City, Panama FC 44% Moët Hennessy Australia Ltd Rosebury, Australia FC 29% Louis Vuitton Mexico S de RL de CV Mexico, Mexico FC 44% Millennium Import LLC Minneapolis, Minnesota, USA FC 29% Louis Vuitton Uruguay SA Montevideo, Uruguay FC 44% Millennium Brands Ltd Dublin, Ireland FC 29% Louis Vuitton Chile Ltda Santiago de Chile, Chile FC 44% Polmos Zyrardow Zyrardow, Poland FC 29% Louis Vuitton (Aruba) NV Oranjestad, Aruba FC 44% Moët Hennessy VR Ltd London, United Kingdom FC 29% LVMH Fashion Group Pacific Ltd Hong Kong, China FC 44% The Glenmorangie Company Ltd Edinburgh, United Kingdom FC 29% LV Trading Hong Kong Ltd Hong Kong, China FC 44% Macdonald & Muir Ltd Edinburgh, United Kingdom FC 29% Louis Vuitton Hong Kong Ltd Hong Kong, China FC 44% Glenaird Ltd Edinburgh, United Kingdom FC 14% Louis Vuitton (Philippines), Inc Makati, Philippines FC 44% The Scotch Malt Whisky Society Ltd Edinburgh, United Kingdom FC 29% LVMH Fashion (Singapore) Pte Ltd Singapore FC 44% Wen Jun Spirits Company Ltd Chengdu, China FC 16% PT Louis Vuitton Indonesia Jakarta, Indonesia FC 43% Wen Jun Spirits Sales Company Ltd Chengdu, China FC 16% Louis Vuitton (Malaysia) SDN BHD Kuala-Lumpur, Malaysia FC 44% Louis Vuitton (Thailand) SA Bangkok, Thailand FC 44% FASHION AND LEATHER GOODS Louis Vuitton Taïwan, Ltd Taipei, Taiwan FC 43% Louis Vuitton Malletier SA Paris, France FC 44% Louis Vuitton Australia, PTY Ltd Sydney, Australia FC 44% Manufacture de souliers Fiesso d’Artico, Italy FC 44% Louis Vuitton (China) Co. Ltd Shanghai, China FC 44% Louis Vuitton S.r.l. LV New Zealand Limited Auckland, New Zealand FC 44% Louis Vuitton Saint Barthélémy SNC Saint Bartholomew, French Antilles FC 44% Louis Vuitton Trading India Private Ltd New Delhi, India FC 22% Louis Vuitton Cantacilik Ticaret AS Istanbul, Turkey FC 43% Louis Vuitton EAU LLC Dubai, United Arab Emirates (2) (2) Les Ateliers de Pondichery Private Ltd Pondichéry, India FC 44% Louis Vuitton FZCO Dubai, United Arab Emirates FC 29% Louis Vuitton International SNC Paris, France FC 44% Louis Vuitton Korea Ltd Seoul, South Korea FC 44% Louis Vuitton India Holding Private Ltd Bangalore, India FC 44% LVMH Fashion Group Trading Seoul, South Korea FC 44% Société des Ateliers Louis Vuitton SNC Paris, France FC 44% Korea Ltd (2) (2) Louis Vuitton Bahrein Manama, Bahrain Louis Vuitton Hungaria Sarl Budapest, Hungary FC 44% Société Louis Vuitton Services SNC Paris, France FC 44% Louis Vuitton Argentina SA Buenos Aires, Argentina FC 44% (2) (2) Louis Vuitton Qatar LLC Doha, Qatar Louis Vuitton Vostock LLC Moscow, Russia FC 44% Société des Magasins Louis Paris, France FC 44% LV Colombia SA Santafe de Bogota, Colombia FC 44% Vuitton France SNC Louis Vuitton Maroc Sarl Casablanca, Morocco FC 44% Belle Jardinière SA Paris, France FC 44% Louis Vuitton Venezuela SA Caracas, Venezuela FC 44% Belle Jardinière Immo SAS Paris, France FC 44% Louis Vuitton South Africa Ltd Johannesbourg, South Africa FC 44% Sedivem SNC Paris, France FC 44% Louis Vuitton Macau Company Ltd Macao, China FC 44% Les Ateliers Horlogers Louis Vuitton SA La Chaux-de-Fonds, Switzerland FC 44% LVMH Fashion Group (Shanghai) Shanghai, China FC 44% Louis Vuitton Monaco SA Monte Carlo, Monaco FC 44% Trading Co. Ltd ELV SNC Paris, France FC 44% LVJ Group KK Tokyo, Japan FC 43% LVMH Fashion Group UK Ltd London, United Kingdom FC 44% LVMH Fashion Group Americas Inc New York, USA (*) FC 44% Louis Vuitton Deutschland GmbH Düsseldorf, Germany FC 44% Louis Vuitton Canada, Inc Toronto, Canada FC 44% Louis Vuitton Ukraine LLC Kiev, Ukraine FC 44% Marc Jacobs International, LLC New York, USA (*) FC 42% LV Cup España SL Valencia, Spain FC 44% Marc Jacobs International (UK) Ltd London, United Kingdom FC 44% Sociedad Catalana Talleres Barcelona, Spain FC 44% Marc Jacobs Trademark, LLC New York, USA (*) FC 14% Artesanos Louis Vuitton SA Marc Jacobs Japon KK Tokyo, Japan FC 21% Louis Vuitton BV Amsterdam, Netherlands FC 44% Marc Jacobs International Japan Tokyo, Japan FC 43% Louis Vuitton Belgium SA Brussels, Belgium FC 44% Co Ltd Louis Vuitton Hellas SA Athens, Greece FC 44% Loewe SA Madrid, Spain FC 44% Louis Vuitton Cyprus Limited Nicosia, Cyprus FC 44% Loewe Hermanos SA Madrid, Spain FC 44%
152 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Companies Registered office Percentage Companies Registered office Percentage Consolidation Interest Consolidation Interest method method Manufacturas Loewe SL Madrid, Spain FC 44% Donna Karan Company Store London, United Kingdom FC 44% LVMH Fashion Group France Paris, France FC 44% (UK) Ltd SNC Donna Karan H. K. Ltd Hong Kong, China FC 44% Loewe Hermanos UK Ltd London, United Kingdom FC 44% Donna Karan (Italy) S.r.l. Milan, Italy FC 44% Loewe Saïpan, Inc Saipan, Mariana Islands FC 44% Donna Karan (Italy) Production Milan, Italy FC 44% Loewe Guam, Inc Guam FC 44% Services S.r.l. Loewe Hong Kong Ltd Hong Kong, China FC 44% Fendi International BV Amsterdam, Netherlands FC 44% Loewe Commercial & Trading Co, Ltd Shanghai, China FC 44% Fun Fashion Qatar WLL Doha, Qatar (2) (2) Loewe Fashion Pte Ltd Singapore FC 44% Fendi International SA Paris, France FC 44% Loewe Fashion (M) SDN BHD Kuala Lumpur, Malaysia FC 44% Fun Fashion Emirates LLC Dubai, United Arab Emirates (2) (2) Loewe Taiwan Ltd Taipei, Taiwan FC 43% Fendi SA Luxembourg, Luxembourg FC 44% Loewe Korea Ltd Seoul, South Korea FC 44% Fun Fashion Bahrain WLL Manama, Bahrain (2) (2) Berluti SA Paris, France FC 44% Fendi S.r.l. Rome, Italy FC 44% Société de Distribution Robert Paris, France FC 44% Fendi Dis Ticaret LS Istanbul, Turkey FC 44% Estienne SNC Fendi Adele S.r.l. Rome, Italy FC 44% Manifattura Ferrarese S.r.l. Ferrara, Italy FC 44% Fendi Immobili Industriali S.r.l. Rome, Italy FC 44% Berluti LLC New York, USA FC 44% Fendi Italia S.r.l. Rome, Italy FC 44% Rossimoda SpA Vigonza, Italy FC 43% Fendi UK Ltd London, United Kingdom FC 44% Rossimoda USA Ltd New York, USA FC 43% Fendi France SAS Paris, France FC 44% Rossimoda France SARL Paris, France FC 43% Fendi North America Inc New York, USA (*) FC 44% Brenta Suole S.r.l. Vigonza, Italy FC 28% Fendi Australia Pty Ltd Sydney, Australia FC 44% LVMH Fashion Group Services SAS Paris, France FC 44% Fendi Guam Inc Tumon, Guam FC 44% Montaigne KK Tokyo, Japan FC 43% Fendi (Thailand) Company Ltd Bangkok, Thailand FC 44% Modulo Italia S.r.l. Milan, Italy FC 44% Fendi Asia Pacific Ltd Hong Kong, China FC 44% Celine SA Paris, France FC 44% Fendi Korea Ltd Seoul, South Korea FC 44% Avenue M International SCA Paris, France FC 44% Fendi Taiwan Ltd Taipei, Taiwan FC 44% Enilec Gestion SARL Paris, France FC 44% Fendi Hong Kong Ltd Hong Kong, China FC 44% Celine Montaigne SA Paris, France FC 44% Fendi China Boutiques Ltd Hong Kong, China FC 44% Celine Monte-Carlo SA Monte Carlo, Monaco FC 44% Fendi (Singapore) Pte Ltd Singapore FC 44% Celine Production S.r.l. Florence, Italy FC 44% Fendi Fashion (Malaysia) Snd. Bhd. Kuala Lumpur, Malaysia FC 44% Celine Suisse SA Geneva, Switzerland FC 44% Fun Fashion Genève SA Geneva, Switzerland FC 44% Celine UK Ltd London, United Kingdom FC 44% Fun Fashion FZCO LLC Dubai, United Arab Emirates FC 26% Celine Inc New York, USA (*) FC 44% Fendi Marianas, Inc Tumon, Guam FC 44% Celine Hong Kong Ltd Hong Kong, China FC 43% Fun Fashion Kuwait Co. W.L.L. Kuwait City, Kuwait (2) (2) Celine Commercial & Trading Shanghai, China FC 43% Fun Fashion Germany Stuttgart, Germany FC 22% (Shanghai) Co Ltd GmbH & Co. KG Celine (Singapour) Pte Ltd Singapore FC 44% Fendi Macau Company Ltd Macao, China FC 44% Celine Guam Inc Tumon, Guam FC 44% Fendi Germany GmbH Stuttgart, Germany FC 44% Celine Korea Ltd Seoul, South Korea FC 44% Fun Fashion Napoli Srl Rome, Italy FC 22% Celine Taïwan Ltd Taipei, Taiwan FC 43% Fendi (Shanghai) Co Ltd Shanghai, China FC 44% CPC International Ltd Hong Kong, China FC 44% Outshine Corporation, SL Marbella, Spain FC 31% Kenzo SA Paris, France FC 44% Fun Fashion India Pte Ltd Mumbai, India (2) (2) Kenzo Belgique SA Brussels, Belgium FC 44% Interservices & Trading SA Lugano, Switzerland FC 44% Kenzo Homme UK Ltd London, United Kingdom FC 44% Fendi Silk SA Lugano, Switzerland FC 22% Kenzo Japan KK Tokyo, Japan FC 44% Outshine Mexico, S. de RL de CV Mexico City, Mexico FC 44% Givenchy SA Paris, France FC 44% Maxelle SA Neuchâtel, Switzerland FC 22% Givenchy Corporation New York, USA FC 44% Taramax Inc New Jersey, USA FC 22% Givenchy Co. Ltd Tokyo, Japan FC 44% Primetime Inc New Jersey, USA FC 22% Givenchy China Co. Ltd Hong Kong, China FC 44% Taramax SA Neuchâtel, Switzerland FC 22% Givenchy Shanghai Commercial Shanghai, China FC 44% Taramax Japan KK Tokyo, Japan FC 22% and Trading Co., Ltd Support Retail Mexico, S. de RL de CV Mexico City, Mexico FC 44% GCCL Macau Co. Ltd Macao, China FC 44% Emilio Pucci S.r.l. Florence, Italy FC 44% Gabrielle Studio, Inc New York, USA FC 44% Emilio Pucci International BV Baarn, Netherlands FC 29% Donna Karan International Inc New York, USA (*) FC 44% Emilio Pucci, Ltd New York, USA FC 44% The Donna Karan Company LLC New York, USA FC 44% Emilio Pucci Hong Kong Co. Ltd Hong Kong, China FC 44% Donna Karan Service Company BV Oldenzaal, Netherlands FC 44% Thomas Pink Holdings Ltd London, United Kingdom FC 44% Donna Karan Studio LLC New York, USA FC 44% Thomas Pink Ltd London, United Kingdom FC 44% The Donna Karan Company Store LLC New York, USA FC 44% Thomas Pink BV Rotterdam, Netherlands FC 44% Donna Karan Company Store UK London, United Kingdom FC 44% Thomas Pink Inc New York, USA (*) FC 44% Holdings Ltd Thomas Pink Ireland Ltd Dublin, Ireland FC 44% Donna Karan Management London, United Kingdom FC 44% Thomas Pink Belgium SA Brussels, Belgium FC 44% Company UK Ltd Thomas Pink France SAS Paris, France FC 44% Donna Karan Company Stores London, United Kingdom FC 44% UK Retail Ltd e-Luxury.com Inc San Francisco (California), USA FC 44%
2008 Annual Report 153 Consolidated financial statements Notes to the consolidated financial statements
Companies Registered office Percentage Companies Registered office Percentage Consolidation Interest Consolidation Interest method method Guerlain SA (Suisse) Geneva, Switzerland FC 44% PERFUMES AND COSMETICS Guerlain Inc New York, USA FC 44% Parfums Christian Dior SA Paris, France FC 44% Guerlain Canada Ltd Montreal, Canada FC 44% LVMH P&C Thailand Co. Ltd Bangkok, Thailand FC 22% Guerlain De Mexico SA Mexico, Mexico FC 44% LVMH Parfums & Cosmétiques Sao Paulo, Brazil FC 44% Guerlain Asia Pacific Ltd (Hong Kong) Hong Kong, China FC 44% do Brasil Ltda Guerlain KK Tokyo, Japan FC 44% France Argentine Cosmetics SA Buenos Aires, Argentina FC 44% Guerlain Oceania Australia Pty Ltd Melbourne, Australia FC 44% LVMH P&C Shanghai Co. Ltd Shanghai, China FC 44% Make Up For Ever SA Paris, France FC 44% Parfums Christian Dior Finland Oy Helsinki, Finland FC 44% Make Up For Ever UK Ltd London, United Kingdom FC 44% LVMH P&C Inc New York, USA FC 44% Make Up For Ever LLC New York, USA (*) FC 44% SNC du 33 avenue Hoche Paris, France FC 44% Parfums Givenchy SA Levallois Perret, France FC 44% LVMH Fragrances & Cosmetics Singapore FC 44% Parfums Givenchy Ltd London, United Kingdom FC 44% (Sinpagore) Pte Ltd Parfums Givenchy GmbH Düsseldorf, Germany FC 44% Parfums Christian Dior Orient Co. Dubai, United Arab Emirates FC 26% Parfums Givenchy LLC New York, USA (*) FC 44% Parfums Christian Dior Emirates Dubai, United Arab Emirates FC 14% Parfums Givenchy Canada Ltd Toronto, Canada FC 44% Parfums Christian Dior Pologne Warsaw, Poland EM 9% Parfums Givenchy KK Tokyo, Japan FC 44% Parfums Christian Dior (UK) Ltd London, United Kingdom FC 44% Parfums Givenchy WHD, Inc New York, USA (*) FC 44% Parfums Christian Dior BV Rotterdam, Netherlands FC 44% Kenzo Parfums France SA Paris, France FC 44% Iparkos BV Rotterdam, Netherlands FC 44% Kenzo Parfums NA LLC New York, USA (*) FC 44% Parfums Christian Dior S.A.B. Brussels, Belgium FC 44% Kenzo Parfums Singapore Singapore FC 44% Parfums Christian Dior (Ireland) Ltd Dublin, Ireland FC 44% La Brosse et Dupont SAS Villepinte, France FC 44% Parfums Christian Dior Hellas SA Athens, Greece FC 44% La Brosse et Dupont Portugal SA S. Domingos de Rana, Portugal FC 44% Parfums Christian Dior A.G. Zurich, Switzerland FC 44% Mitsie SAS Tarare, France FC 44% Christian Dior Perfumes LLC New York, USA FC 44% LBD Iberica SA Barcelona, Spain FC 44% Parfums Christian Dior Canada Inc Montreal, Canada FC 44% LBD Ménage SAS Beauvais, France FC 44% LVMH P&C de Mexico SA de CV Mexico, Mexico FC 44% LBD Belux SA Brussels, Belgium FC 44% Parfums Christian Dior Japon KK Tokyo, Japan FC 44% SCI Masurel Tourcoing, France FC 44% Parfums Christian Dior Singapore FC 44% SCI Sageda Orange, France FC 44% (Singapore) Pte Ltd LBD Italia S.r.l. Stezzano, Italy FC 44% Inalux SA Luxembourg, Luxembourg FC 44% Inter-Vion Spolka Akeyjna SA Warsaw, Poland FC 22% LVMH P&C Asia Pacific Ltd Hong Kong, China FC 44% Europa Distribution SAS Saint Étienne, France FC 44% Fa Hua Fragrance & Cosmetic Co. Ltd Hong Kong, China FC 44% LBD Hong Kong Hong Kong, China FC 44% LVMH P&C Korea Ltd Seoul, South Korea FC 44% LBD Antilles SAS Ducos, Martinique, France FC 44% Parfums Christian Dior Hong Kong, China FC 44% LBD Canada Inc St Augustin de Desmaures, Quebec FC 22% Hong Kong Ltd BeneFit Cosmetics LLC San Francisco (California), USA FC 35% LVMH P&C Malaysia Sdn berhad Inc Kuala Lumpur, Malaysia FC 44% BeneFit Cosmetics UK Ltd London, United Kingdom FC 35% Fa Hua Hong Kong Co, Ltd Hong Kong, China FC 44% BeneFit Cosmetics Korea Seoul, South Korea FC 35% Pardior SA de CV Mexico, Mexico FC 44% BeneFit Cosmetics SAS Boulogne Billancourt, France FC 35% Parfums Christian Dior A/S Ltd Copenhagen, Denmark FC 44% BeneFit Cosmetics Hong Kong Hong Kong, China FC 35% LVMH Perfumes & Cosmetics Sydney, Australia FC 44% Group Pty Ltd BeneFit Cosmetics Ireland Ltd Dublin, Ireland FC 35% Parfums Christian Dior AS Ltd Hoevik, Norway FC 44% Fresh Inc Boston (Massachusetts), USA FC 35% Parfums Christian Dior AB Stockholm, Sweden FC 44% LVMH Cosmetics Services KK Tokyo, Japan FC 44% Parfums Christian Dior (New Auckland, New Zealand FC 44% Parfums Luxe International SA Boulogne Billancourt, France FC 44% Zealand) Ltd Parfums Christian Dior GmbH Vienna, Austria FC 44% WATCHES AND JEWELRY Austria TAG Heuer International SA Luxembourg, Luxembourg FC 44% Cosmetic of France Inc Miami (Florida), USA FC 44% TAG Heuer SA La Chaux-de-Fonds, Switzerland FC 44% GIE LVMH P&C Recherche Paris, France FC 44% LVMH Relojeria & Joyeria España SA Madrid, Spain FC 44% GIE Parfums et Cosmétiques Levallois Perret, France FC 44% LVMH Montres & Joaillerie France SA Paris, France FC 44% Information Services - PCIS LVMH Watch & Jewelry Italy Milan, Italy FC 44% Perfumes Loewe SA Madrid, Spain FC 44% Holding SpA Acqua Di Parma S.r.l. Milan, Italy FC 44% LVMH Watch & Jewelry Central Bad Homburg, Germany FC 44% Acqua Di Parma LLC New York, USA FC 44% Europe GmbH Guerlain SA Paris, France FC 44% Timecrown Ltd Manchester, United Kingdom FC 44% LVMH Parfums & Kosmetik Wiesbaden, Germany FC 44% LVMH Watch & Jewelry UK Ltd Manchester, United Kingdom FC 44% Deutschland GmbH Tag Heuer Ltd Manchester, United Kingdom FC 44% Guerlain GesmbH Vienna, Austria FC 44% LVMH Watch & Jewelry USA (Inc) Springfield (New Jersey), USA FC 44% Cofra GesmbH Vienna, Austria FC 44% LVMH Watch & Jewelry Canada Ltd Toronto, Canada FC 44% Guerlain SA (Belgique) Fleurus, Belgium FC 44% LVMH Watch & Jewelry Far East Ltd Hong Kong, China FC 43% Oy Guerlain AB Helsinki, Finland FC 44% LVMH Watch & Jewelry Singapore FC 44% Guerlain Ltd London, United Kingdom FC 44% Singapore Pte Ltd LVMH Perfumes e Cosmetica Lda Lisbon, Portugal FC 44% LVMH Watch & Jewelry Kuala Lumpur, Malaysia FC 44% Malaysia Sdn Bhd
154 2008 Annual Report Consolidated financial statements Notes to the consolidated financial statements
Companies Registered office Percentage Companies Registered office Percentage Consolidation Interest Consolidation Interest method method LVMH Watch & Jewelry Capital Singapore FC 44% DFS Holdings Ltd Hamilton, Bermuda FC 27% Pte Ltd DFS Australia Pty Ltd Sydney, Australia FC 27% LVMH Watch & Jewelry Japan KK Tokyo, Japan FC 44% Travel Retail Shops Pte Ltd Sydney, Australia EM 28% LVMH Watch & Jewelry Melbourne, Australia FC 44% DFS European Logistics Ltd Hamilton, Bermuda FC 27% Australia Pty Ltd DFS Group Ltd Delaware, USA FC 27% LVMH Watch & Jewelry Hong Kong, China FC 44% DFS China Partners Ltd Hong Kong, China FC 27% Hong Kong Ltd DFS Hong Kong Ltd Hong Kong, China FC 27% LVMH Watch & Jewelry Taiwan Ltd Taipei, Taiwan FC 44% Hong Kong International Hong Kong, China EM 14% LVMH Watch & Jewelry New Delhi, India FC 44% Boutique Partners India Pvt Ltd TRS Hong Kong Ltd Hong Kong, China EM 12% LVMH Watch & Jewelry Shanghai, China FC 44% (Shanghai) Commercial Co. Ltd Preferred Products Limited Hong Kong, China FC 27% Chaumet International SA Paris, France FC 44% DFS Okinawa KK Okinawa, Japan FC 27% Chaumet London Ltd London, United Kingdom FC 44% TRS Okinawa Okinawa, Japan EM 12% Chaumet Horlogerie SA Bienne, Switzerland FC 44% JAL/DFS Co., Ltd Chiba, Japan EM 11% Chaumet Monte-Carlo SAM Monte Carlo, Monaco FC 44% DFS Korea Ltd Seoul, South Korea FC 27% Chaumet Korea Chusik Hoesa Seoul, South Korea FC 44% DFS Seoul Ltd Seoul, South Korea FC 27% Zenith International SA Le Locle, Switzerland FC 44% DFS Cotai Limitada Macao, China FC 27% Zenith Time Co. Ltd Manchester, United Kingdom FC 44% DFS Sdn. Bhd. Kuala Lumpur, Malaysia FC 27% LVMH Watch & Jewelry Italy SpA Milan, Italy FC 44% Gateshire Marketing Sdn Bhd. Kuala Lumpur, Malaysia FC 27% Delano SA La Chaux-de-Fonds, Switzerland FC 44% DFS Merchandising Ltd Delaware, USA FC 27% Les Ateliers Horlogers LVMH SA La Chaux-de-Fonds, Switzerland FC 44% DFS New Caledonia Sarl Nouméa, Nouvelle Calédonie FC 27% LVMH W&J Services (Suisse) SA La Chaux-de-Fonds, Switzerland FC 44% DFS New Zealand Ltd Auckland, New Zealand FC 27% Fred Paris SA Paris, France FC 44% TRS New Zealand Ltd Auckland, New Zealand EM 12% Joaillerie de Monaco SA Monte Carlo, Monaco FC 44% Commonwealth Investment Saipan, Mariana Islands FC 26% Company, Inc Fred Inc Beverly Hills (California), USA (*) FC 44% DFS Saipan Ltd Saipan, Mariana Islands FC 27% Fred London Ltd London, United Kingdom FC 44% Kinkaï Saipan L.P. Saipan, Mariana Islands FC 27% Hublot SA Nyon, Switzerland FC 44% Saipan International Boutique Partners Saipan, Mariana Islands EM 14% Bentim International SA Luxembourg, Luxembourg FC 44% DFS Palau Ltd Koror, Palau FC 27% De Beers LV Ltd London, United Kingdom PC 22% Difusi Information Technology & Shanghai, China FC 27% Development Co. Ltd SELECTIVE RETAILING DFS Information Technology Shanghai, China FC 27% Sephora SA Boulogne Billancourt, France FC 44% (Shanghai) Company Limited Sephora Luxembourg SARL Luxembourg, Luxembourg FC 44% Hainan DFS Retail Company Limited Hainan, China FC 27% LVMH Iberia SL Madrid, Spain FC 44% DFS Galleria Taiwan Ltd Taipei, Taiwan FC 27% LVMH Italia SpA Milan, Italy FC 44% DFS Taiwan Ltd Taipei, Taiwan FC 27% Sephora Portugal Perfumaria Lda Lisbon, Portugal FC 44% Tou You Duty Free Shop Co. Ltd Taipei, Taiwan FC 27% Sephora Pologne Spzoo Warsaw, Poland FC 33% DFS Singapore (Pte) Ltd Singapore FC 27% Sephora Marinopoulos SA Alimos, Grèce FC 22% DFS Trading Singapore (Pte) Ltd Singapore FC 27% Sephora Marinopulos Romania SA Bucharest, Romania FC 22% DFS Venture Singapore (Pte) Ltd Singapore FC 27% Sephora S.R.O. Prague, Czech Republic FC 44% TRS Singapore Pte Ltd Singapore EM 12% Sephora Monaco SAM Monaco FC 43% Singapore International Boutique Singapore EM 14% Sephora Patras Alimos, Grèce FC 14% Partners Sephora Cosmeticos España Madrid, Spain PC 22% DFS India Private Ltd Mumbai, India FC 27% S+ Boulogne Billancourt, France FC 44% DFS Vietnam (S) Pte Ltd Singapore FC 19% Sephora Marinopoulos Cyprus Ltd Nicosia, Cyprus FC 22% New Asia Wave International (S) Singapore FC 19% Sephora Unitim Kozmetik AS Istanbul, Turkey FC 26% Pte Ltd Sephora Marinopoulos D.O.O. Zagreb, Croatia FC 22% IPP Group (S) Pte Ltd Singapore FC 19% Sephora Marinopoulos Cosmetics Belgrade, Serbia FC 22% L Development & Management Ltd Hong Kong, China EM 26% D.O.O. DFS Group L.P. Delaware, USA FC 27% Sephora Nederland BV Amsterdam, Netherlands FC 44% LAX Duty Free Joint Venture 2000 Los Angeles (California), USA FC 21% Sephora Moyen Orient SA Fribourg, Switzerland FC 26% Royal Hawaiian Insurance Hawaii, USA FC 27% Sephora Middle East FZE Dubai, United Arab Emirates FC 60% Company Ltd Sephora Holding Asia Shanghai, China FC 44% Hawaii International Honolulu (Hawaii), USA EM 14% Boutique Partners Sephora (Shanghai) Cosmetics Co. Ltd Shanghai, China FC 36% JFK Terminal 4 Joint Venture 2001 New York, USA FC 22% Sephora (Beijing) Cosmetics Co. Ltd Beijing, China FC 36% DFS Guam L.P. Tamuning, Guam FC 27% Sephora Hong Kong Hong Kong, China FC 44% Guam International Boutique Partners Tamuning, Guam EM 14% Sephora Singapore Pte Ltd Singapore FC 26% DFS Liquor Retailing Ltd Delaware, USA FC 27% Sephora USA, Inc San Francisco (California), USA (*) FC 44% Twenty-Seven - Twenty Eight Corp. Delaware, USA FC 27% Sephora Beauty Canada, Inc San Francisco (California), USA FC 44% TRS Hawaii LLC Honolulu (Hawaii), USA EM 12% Le Bon Marché SA Paris, France FC 44% TRS Saipan Saipan, Mariana Islands EM 12% SEGEP SNC Paris, France FC 43% TRS Guam Tumon, Guam EM 12% Franck & Fils SA Paris, France FC 44%
2008 Annual Report 155 Consolidated financial statements Notes to the consolidated financial statements
Companies Registered office Percentage Companies Registered office Percentage Consolidation Interest Consolidation Interest method method Tumon Entertainment LLC Tamuning, Guam FC 44% LVMH Fashion Group SA Paris, France FC 44% Comete Guam Inc Tamuning, Guam FC 44% Moët Hennessy International SA Boulogne Billancourt, France FC 29% Tumon Aquarium LLC Tamuning, Guam FC 43% Creare SA Luxembourg, Luxembourg FC 38% Comete Saipan Inc Saipan, Mariana Islands FC 44% Creare Pte Ltd Singapore FC 38% Tumon Games LLC Tamuning, Guam FC 44% Société Montaigne Jean Goujon SAS Paris, France FC 44% Cruise Line Holdings Co Delaware, USA FC 44% Delphine SAS Boulogne Billancourt, France FC 44% On Board Media, Inc Delaware, USA FC 44% LVMH Finance SA Boulogne Billancourt, France FC 44% Starboard Cruise Services, Inc Delaware, USA FC 44% Primae SA Boulogne Billancourt, France FC 44% Starboard Holdings Ltd Delaware, USA FC 44% Eutrope SAS Boulogne Billancourt, France FC 44% International Cruise Shops, Ltd Cayman Islands FC 44% Flavius Investissements SA Paris, France FC 44% Vacation Media Ltd Kingston, Jamaica FC 44% LBD HOLDING SA Boulogne Billancourt, France FC 44% STB S.r.l Florence, Italy FC 44% LV Capital SA Paris, France FC 44% Parazul LLC Delaware, USA FC 44% Moët Hennessy Inc New York, USA (*) FC 29% One East 57th Street LLC New York, USA (*) FC 44% OTHER LVMH Moët Hennessy - Louis New York, USA (*) FC 44% DI Group SA Paris, France FC 44% Vuitton Inc ( ) DI Services SAS Paris, France FC 44% 598 Madison Leasing Corp New York, USA * FC 44% ( ) Radio Classique SAS Paris, France FC 44% 1896 Corp New York, USA * FC 44% Les Editions Classique Affaires SARL Paris, France FC 44% LVMH Participations BV Baarn, Netherlands FC 44% DI Régie SAS Paris, France FC 44% LVMH Moët Hennessy - Louis Baarn, Netherlands FC 44% Vuitton BV SFPA SARL Paris, France FC 44% Louis Vuitton Prada Holding BV Amsterdam, Netherlands FC 44% La Fugue SAS Paris, France FC 33% LVMH Finance Belgique Brussels, Belgium FC 44% Les Echos SAS Paris, France FC 44% Sofidiv UK Ltd London, United Kingdom FC 44% Les Echos Formation SAS Paris, France FC 44% LVMH Moët Hennessy - Louis Tokyo, Japan FC 44% Hera SAS Paris, France FC 44% Vuitton KK Les Echos Médias SNC Paris, France FC 44% Osaka Fudosan Company Ltd Tokyo, Japan FC 44% Percier Publications SNC Paris, France FC 44% LVMH Asia Pacific Ltd Hong Kong, China FC 44% EUROSTAF - Europe Stratégie Paris, France FC 44% LVMH Shanghai Management Shanghai, China FC 44% Analyse Financière SAS and Consultancy Co, Ltd Investir Publications SAS Paris, France FC 44% LVMH South & South East Asia Singapore FC 44% Investir Formation SARL Paris, France FC 44% Pte Ltd Compo Finance SARL Paris, France FC 44% LVMH Moët Hennessy - Louis Paris, France FC 44% SID Développement SAS Paris, France FC 44% Vuitton SA SID Éditions SAS Paris, France FC 44% Magasins de la Samaritaine SA Paris, France FC 25% (*) The address given corresponds to the company’s administrative headquarters; Royal Van Lent Shipyard BV Kaag, Netherlands FC 40% the corporate registered office is located in the state of Delaware. RVL Holding BV Baarn, Netherlands FC 40% (1) Joint venture companies with Diageo: only the Moët Hennessy activity is Ufipar SAS Boulogne Billancourt, France FC 44% consolidated. L Capital Management SAS Paris, France FC 44% (2) The Group’s percentages of control and/or interest, (if and where applicable), are not disclosed, the results of these companies being consolidated on the Sofidiv SAS Boulogne Billancourt, France FC 44% basis of the Group’s contractual share of their business. GIE LVMH Services Boulogne Billancourt, France FC 37% (3) Joint venture companies with LVMH. Moët Hennessy SNC Boulogne Billancourt, France FC 29% FC: Full Consolidation. LVMH Services Ltd London, United Kingdom FC 44% PC: Proportional Consolidation. Moët Hennessy Investissements Boulogne Billancourt, France FC 29% EM: Equity Method.
156 2008 Annual Report Consolidated financial statements Statutory Auditors’ report
6. Statutory Auditors’ report
Statutory Auditors’ report on the consolidated financial statements
MAZARS 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 with share capital of 8,320,000 euros SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting, we hereby report to you, for the year ended December 31, 2008, on: • the audit of the accompanying consolidated financial statements of Christian Dior; • the justification of our assessments; • the specific verification required by French law. 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.
1. 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 verifying, by audit sampling and other selective testing procedures, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used, the significant estimates made by the management, and the overall financial statements presentation. We believe that the evidence we have gathered in order to form our opinion is adequate and relevant. In our opinion, the consolidated 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.
2008 Annual Report 157 Consolidated financial statements Statutory Auditors’ report
2. Justification of 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: • the valuation of brands, trade names and goodwill has been tested under the method described in Note 1.12 and in the general context described in Note 1.1 of section 1 “Accounting policies of the Notes” to the consolidated financial statements. Based on the afore mentioned, we have assessed the appropriateness of the methodology applied based on all estimates and reviewed the data and assumptions used by the Group to perform these valuations; • we have 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. These assessments were made in the context of the performance of our audit of the consolidated financial statements taken as a whole, and, therefore, served in forming our audit opinion expressed in the first part of this report.
3. Specific verification
We have also verified the information given in the Group management report as required by French law. We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements.
Courbevoie and Paris-La Défense, March 24, 2009 The Statutory Auditors
MAZARS ERNST & YOUNG Audit Denis Grison Jeanne Boillet
This is a free translation of the original French text for information purposes only.
158 2008 Annual Report Parent company financial statements
1. Balance sheet 160 6. Investment portfolio, other investment securities and short term investments 173 2. Income statement 162 7. Company results over Cash fow statement 163 the last five fiscal years 174 .3
4. Notes to the parent company 8. Statutory Auditors’ reports 175 financial statements 164 Statutory Auditors’ report on the parent company financial statements 175 5. Subsidiaries and investments 173 Statutory Auditors’ special report on related party agreements and commitments 177
2008 Annual Report 159 Parent company financial statements Balance sheet
1. Balance sheet
Assets
2008 2007 2006 Depreciation, amortization and (EUR thousands) Notes Gross impairment Net Net Net
Intangible assets 2.1/2.2 57 57 - - -
Property, plant and equipment 2.1/2.2 368 368 - 6 31
Investments 2.8 3,981,750 3,981,750 3,841,876 3,841,839
Other investment securities 6,066 10,726
Loans 5 - 5 5 5
Other non-current financial assets - - - - -
Non-current financial assets 2.1/2.2/2.8 3,981,755 3,981,755 3,847,947 3,852,570
Non-current assets 3,982,180 425 3,981,755 3,847,953 3,852,601
Trade accounts receivable 5 - 5 14 14
Financial accounts receivable 8,172 - 8,172 - -
Other receivables 613 - 613 4,703 4,343
Short term investments 199,924 73,050 126,874 193,301 174,879
Cash and cash equivalents 159 - 159 396 71
Current assets 2.3/2.7/2.8 208,873 73,050 135,823 198,414 179,307
Prepaid expenses 2.3 1,066 - 1,066 1,659 2,295
Bond redemption premiums 2.3 305 - 305 386 487
Total assets 4,192,424 73,475 4,118,949 4,048,412 4,034,690
160 2008 Annual Report Parent company financial statements Balance sheet
Liabilities and equity
2008 2007 2006 Prior to Prior to Prior to (EUR thousands) Notes appropriation appropriation appropriation Share capital (fully paid up) 363,454 363,454 363,454 Share premium account 2,204,623 2,204,623 2,204,623 Revaluation adjustment 16 16 16 Legal reserve 36,345 36,345 36,345 Regulated reserves - - - Optional reserves 80,630 51,872 80,630 Retained earnings (1) 28,183 5,785 43,227 Profit for the year 309,976 337,626 184,250 Interim dividends 1.6 (79,960) (79,960) (69,056) Equity 2.4 2,943,267 2,919,761 2,843,489 Provisions for contingencies and losses 2.5 611 227 570 Other bonds 201,176 274,908 274,918 Bank loans and borrowings 960,871 848,644 907,768 Miscellaneous loans and borrowings 1,570 1,172 Borrowings 1,162,047 1,125,122 1,183,858 Trade accounts payable 1,216 707 565 Tax and social security liabilities 57 43 1,129 Other operating liabilities (1) 1,534 1,523 1,605 Operating liabilities 2,807 2,273 3,299 Other liabilities 10,217 1,029 3,475 Liabilities 2.6/2.7/2.8 1,175,071 1,128,424 1,190,632 Prepaid income 2.6 - - -
Total liabilities and equity 4,118,949 4,048,412 4,034,690
(1) Dividends attributable to treasury shares were reclassified under retained earnings in 2006, 2007 and 2008.
2008 Annual Report 161 Parent company financial statements Income statement
2. Income statement
(EUR thousands) Notes 2008 2007 2006
Services provided, other revenue 5 14 14
Net revenue 5 14 14
Other income and expense transfers 384 - -
Operating income 389 14 14
Other purchases and external expenses 5,760 6,972 4,939
Taxes, duties and similar levies 35 57 51
Wages and salaries 384 - -
Social security expenses 387 6 6
Depreciation and amortization 5 25 29
Other expenses 148 105 105
Operating expenses 6,719 7,165 5,130
Operating profit (loss) (6,330) (7,151) (5,116)
Net financial income (expense) 2.9 312,151 327,429 171,907
Profit from recurring operations 305,821 320,278 166,791
Exceptional income (expense) 2.10 (91) (827) 103
Income taxes 2.11/2.12 4,246 18,175 17,356
Net profit 309,976 337,626 184,250
162 2008 Annual Report Parent company financial statements Cash fow statement
Cash fow statement .3
(EUR millions) 2008 2007 2006
I - OPERATING ACTIVITIES Net profit 310 337 184 Depreciation and amortization of fixed assets (17) 5 4 Gain (loss) on sale of fixed assets 22 - - Cash from operations before changes in working capital 315 342 189 Change in current assets (3) - (2) Changes in current liabilities 10 (4) - Changes in working capital 7 (4) (2) Net cash from operating activities 322 338 187
II - INVESTING ACTIVITIES I Purchase of tangible and intangible fixed assets - - - Purchase of equity investments (140) - (385) Purchase of other non-current investments - - - Proceeds from sale of non-current financial assets 1 - - Net cash from (used in) investing activities II (139) - (385)
III - FINANCING ACTIVITIES Capital increase - - - Changes in other equity 1 - - Proceeds from financial debt 160 - 438 Repayments in respect of financial debt (123) (59) (3) Change in inter-company current accounts - - - Net cash from (used in) financing activities III 38 (59) 435
IV - DIVIDENDS PAID DURING THE YEAR IV (287) (261) (217) Net increase (decrease) in cash and cash equivalents I + II + III + IV (66) 18 20 Cash and cash equivalents at beginning of year 193 175 155 Cash and cash equivalents at end of year 127 193 175 Net increase (decrease) in cash and cash equivalents (66) 18 20
The net increase in cash and cash equivalents analyzes the changes in cash from one year to the next (after deducting bank overdrafts) as well as cash equivalents comprised of short term investments, net of provisions for impairment.
2008 Annual Report 163 Parent company financial statements Notes to the parent company financial statements
4. Notes to the parent company financial statements
Amounts are expressed in thousands of euros unless otherwise indicated. The balance sheet total as of December 31, 2008 was 4,118,949 thousand euros. These parent company financial statements were approved for publication on February 5, 2009 by the Board of Directors.
Note 1 - Accounting policies and methods
The parent company financial statements have been prepared in 1.3 Non-current financial assets accordance with Regulation 99-03 dated April 29, 1999 of the Comité de la Réglementation Comptable (Accounting Regulations Committee). Equity investments as well as other non-current financial assets are recorded at the lower of their acquisition cost or their value General accounting conventions have been applied observing in use. Impairment is recorded if their value in use is lower than the principle of prudence in conformity with the following their acquisition cost. basic assumptions: going concern, consistency of accounting methods, non-overlap of financial periods, and in conformity The value in use of the equity investments is based on criteria with the general rules for preparation and presentation of parent such as the value of the portion of the in the net asset value of company financial statements. the companies involved, taking into account the stock market value of the listed securities that they hold. The accounting items recorded have been evaluated using the historical cost method. In the event of partial investment sale, any gains or losses are recognized within net financial income/expense and calculated Pursuant to CRC Regulation 2008-15 of December 4, 2008, according to the weighted average cost method. modifying CRC Regulation 99-03 of April 29, 1999 relating to the general chart of accounts, the Company has applied, with retroactive effect as of December 31, 2007, the new rules 1.4 Accounts receivable and liabilities concerning the accounting treatment of share purchase or share subscription option plans and bonus share plans granted Accounts receivable and liabilities are recorded at their face to employees. These new rules require that the provisions value. An impairment provision is recorded if their net realizable recognized in relation to exercisable plans be apportioned over value, based on probability of their collection, is lower than their entire vesting periods. The retrospective application of this their carrying amount. new regulation resulted in a reduction in the provisions recognized as of December 31, 2007, in the amount of 560 thousand euros, offset by retained earnings. As the impact of this change in 1.5 Short term investments accounting policy was not material, no pro forma information Short term investments are valued at their acquisition cost. An will be presented. impairment provision is recorded if their acquisition value is greater than their market value determined as follows: 1.1 Intangible assets • listed securities: average listed share price during the last month of the year; Software is amortized using the straight-line method over one year. • other securities: estimated realizable value or liquidation value. A provision for losses is recorded for treasury shares under 1.2 Property, plant and equipment balance sheet liabilities, to the extent that they are allocated to Property, plant and equipment are depreciated on a straight-line exercisable option plans, apportioned where applicable over the basis over the following estimated useful lives: vesting period of the options, whenever the expected exercise price is lower than the purchase price of the shares. • miscellaneous general installations: 5 years; Gains or losses on the sale of treasury shares are recorded within • office and computer equipment: 3 years; exceptional income/losses. • furniture: 10 years.
164 2008 Annual Report Parent company financial statements Notes to the parent company financial statements
1.6 Equity Liabilities, accounts receivable and liquid funds in foreign currencies are revalued on balance sheet at year-end exchange In conformity with the recommendations of the Compagnie Nationale rates. The difference resulting from the revaluation of liabilities des Commissaires aux Comptes (National Board of Auditors), and accounts receivable in foreign currencies at the latter rate is interim dividends are recorded as a deduction from equity. recorded in the “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 1.7 Provisions for contingencies and losses matched with a loan in the same currency. In the latter case, The Company establishes a provision for definite and likely the revaluation follows the same procedure as for accounts contingencies and losses at the end of each financial period, receivable and liabilities. observing the principle of prudence. Provisions are recorded for unrealized losses unless hedged.
1.8 Foreign currency transactions 1.9 Net financial income (expense) During the period, foreign currency transactions are recorded at Net gains and losses on sales of short term investments comprise the rates of exchange prevailing on the date of transactions. expenses and income associated with sales.
Note 2 - Additional information relating to the balance sheet and income statement
2.1 Non-current assets
Increases Decreases Gross value Acquisitions, creations, Gross value (EUR thousands) as of 01/01/2008 contributions, transfers Disposals as of 12/31/2008 Concessions, patents, and similar rights (software) 57 - - 57 Advances and downpayments 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 3,841,876 139,874 (1) 3,981,750 Other investment securities 23,484 - 23,484 (2) - Loans 5 - - 5 Other non-current financial assets - - - - Non-current financial assets 3,865,365 139,874 23,484 3,981,755 TOTAL 3,865,790 139,874 23,484 3,982,180
(1) Christian Dior SA subscribed to a capital increase of Christian Dior Couture during the 2008 fiscal year. (2) Christian Dior SA disposed of the interest it held in SNC Valmyfin during the 2008 fiscal year.
2008 Annual Report 165 Parent company financial statements Notes to the parent company financial statements
2.2 Amortizations and provisions on fixed assets and non-current financial assets
Positions and changes in the period Amortization Amortization expense as of Appropriation expense as of (EUR thousands) 01/01/2008 increases Decreases 12/31/2008 Concessions, patents, and similar rights (software) 57 - - 57 Intangible assets 57 - - 57 Property, plant and equipment: • miscellaneous general installations 59 - - 59 • transport equipment - - - - • office and computing equipment 24 - - 24 • furniture 279 6 - 285 Property, plant and equipment 362 6 - 368 Other investment securities • Valmyfin partnership shares 17,418 4,863 22,281 - Non-current financial assets 17,418 4,863 22,281 - TOTAL 17,837 4,869 22,281 425
2.3 Analysis of accounts receivables by payment date
(EUR thousands) Gross amount Up to 1 year More than 1 year Current assets Trade accounts receivable 5 5 - Financial accounts receivable 8,172 8,172 - State and other public authorities: • income taxes 125 125 - • value-added tax - - - • other - - - Social liabilities - - - Other accounts receivable 488 488 - Prepaid expenses 1,066 946 120 Bond redemption premium (1) 305 107 198 Translation adjustment - - - TOTAL 10,161 9,843 318
(1) Bond redemption premiums are amortized on a straight-line basis over the life of the bonds.
166 2008 Annual Report Parent company financial statements Notes to the parent company financial statements
2.4 Equity
A. Share capital The share capital comprises 181,727,048 fully paid-up shares, each with a par value of 2 euros. 126,483,627 shares carry double voting rights.
B. Changes in equity
(EUR thousands) Equity as of December 31, 2007 (prior to appropriation of net profit) 2,919,761 Net profit for 2008 309,976 Dividends paid (balance for fiscal year 2007) (207,071) Interim dividends for fiscal year 2008 (79,960) Impact of the change in accounting policy (1) 561 Equity as of December 31, 2008 (prior to appropriation of net profit) 2,943,267
(1) The impact of the change in accounting policy entailed by the application of CRC Regulation 2008-15 of December 4, 2008 was recognized under retained earnings as of January 1, 2008. See Note 1.
Acquisition of treasury shares:
Year 2008 2007 2006 2005 Number of shares purchased 76,132 764,815 444,582 60,015 Number of shares sold (120,500) (1,535,696) (335,713) (74,387)
Purchase options granted by the Board of Directors to managers of the Company and its direct and indirect subsidiaries:
Authorization Number of options granted Number Number of from Plan Of which Of which, Exercise of options options not Shareholders’ commencement Number of company the first ten price exercised exercised as of Meeting date beneficiaries Total (1) officers employees (EUR) (2) (3) 2008 (3) 12/31/2008 (3) 5/30/1996 11/03/1998 (4) 23 98,400 65,000 28,200 18.29 27,000 - 5/30/1996 01/26/1999 14 89,500 50,000 38,000 25.36 38,500 25,500 5/30/1996 02/15/2000 20 100,200 65,000 31,000 56.70 2,000 352,000 5/30/1996 02/21/2001 17 437,500 308,000 121,000 45.95 - 362,500 5/14/2001 02/18/2002 24 504,000 310,000 153,000 33.53 - 92,502 5/14/2001 02/18/2003 25 527,000 350,000 143,000 29.04 8,000 121,002 5/14/2001 02/17/2004 26 527,000 355,000 128,000 49.79 35,000 436,000 5/14/2001 05/12/2005 27 493,000 315,000 124,000 52.21 10,000 438,000 5/14/2001 02/15/2006 24 475,000 305,000 144,000 72.85 (5) - 443,000 5/11/2006 09/06/2006 1 20,000 - 20,000 74.93 - 20,000 5/11/2006 01/31/2007 28 480,000 285,000 133,000 85.00 - 455,000 5/11/2006 05/15/2008 (7) 25 484,000 320,000 147,000 73.24 (6) - 484,000
(1) Number of options at the plan commencement date, not restated for adjustments relating to the 4-to-1 stock split in July 2000. (2) Exercise prices prior to 1999 result from the conversion into euros of data originally established in French francs. (3) Adjusted to reflect the transaction mentioned in (1) above. (4) Plan expired on November 3, 2007. (5) Exercise price for Italian residents: €77.16. (6) Exercise price for Italian residents: €73.47. (7) The value serving as the basis for the calculation of the mandatory 10% social security contribution, for the plan commencing on May 15, 2008, was €19.025 per share, equivalent to 25% of the opening price of the Christian Dior share on May 15, 2008, the grant date for the options (€76.10).
2008 Annual Report 167 Parent company financial statements Notes to the parent company financial statements
Each plan has a term of ten years. Share purchase options may be the options are exercised. Under certain circumstances, specifically exercised, depending on the plan, after the end of a period of three in the case of retirement, this period does not apply. to five years from the plan’s commencement date, and provided For all plans, one option gives the right to one share. that the beneficiary is actively employed by the Company when Breakdown of treasury shares
As of December 31, 2008 Number of Gross carrying (EUR thousands) securities amount Impairment Net book value 502-1 Shares available to be granted to employees and allocated to specific plans 239,004 7,646,149 - 7,646,149 502-2 Shares available to be granted to employees 3,127,376 192,277,388 73,050,046 119,227,342 Total Treasury shares 3,366,380 199,923,537 73,050,046 126,873,491
2.5 Provisions for contingencies and losses
Amount as of Provisions of Reversals of Amount as of (EUR thousands) 01/01/2008 period period 12/31/2008 Provision for specific contingencies 227 - - 227 Provision for losses (1) - 384 - 384 TOTAL 227 384 - 611
(1) Provision for losses with respect to share purchase option plans exercisable as of December 31, 2008, corresponding to the amount of the difference between the purchase price of shares and the exercise price of options for the beneficiaries (see Note 1.5 “Accounting policies”).
2.6 Breakdown of other liabilities
(EUR thousands) Total Less than 1 year From 1 to 5 years More than 5 years Other bonds 201,176 1,176 200,000 - Bank loans and borrowings 960,871 245,871 715,000 - Miscellaneous loans and borrowings - - - - Trade payables 1,216 1,216 - - Tax and social liabilities 57 57 - - Other operating liabilities 1,534 1,534 - - Other liabilities 10,217 10,217 - - Deferred income - - - - TOTAL 1,175,071 260,071 915,000 -
Christian Dior SA carried out the following transactions: • on December 12, 2008, a bond issue with a total nominal amount of 50 million euros, maturing on December 12, 2011. • on November 3, 2006, a bond issue with a total nominal amount of 150 million euros, maturing on November 3, 2011; As customary clause for syndicated loans, the Company signed commitments to maintain a percentage of interest and voting rights • on July 25, 2007, signature of a syndicated loan of 535 million for some subsidiaries, and to maintain a customary financing ratio. euros, maturing on July 25, 2012; • on December 5, 2008, the redemption of a bond with a total nominal amount of 123.5 million euros;
168 2008 Annual Report Parent company financial statements Notes to the parent company financial statements
2.7 Accrued expenses and deferred income
(EUR thousands) Accrued expenses Deferred income Accounts receivable Trade accounts receivable - 5 Financial accounts receivable - 195 Other accounts receivable - 478 Liabilities - - Other bonds 1,176 - Bank loans and borrowings 12,170 - Trade accounts payable 1,094 - Tax and social liabilities 57 - Other liabilities 582 -
2.8 Items involving related companies
Balance sheet items
Items involving the companies connected to equity (EUR thousands) related (1) investments (2) Fixed assets Investments 3,981,750 - Current assets Trade accounts receivable 5 - Financial accounts receivable 8,172 - Other accounts receivable 10 - Liabilities Miscellaneous loans and borrowings - - Trade accounts payable 966 - Other liabilities 9,635 -
(1) Companies that can be fully consolidated into one consolidated unit (eg: parent company, subsidiary, affiliate in consolidated group). (2) Percentage control between 10 and 50%.
Income statement items
(EUR thousands) Income Expenses Dividends received 430,546 - Interest and similar expenses 394 696
2008 Annual Report 169 Parent company financial statements Notes to the parent company financial statements
2.9 Financial income and expenses
(EUR thousands) 2008 2007 Income from subsidiaries 430,546 376,867 Income from other securities and non-current investments 5,123 5,123 Other interest and similar income 9,429 8,048 Reversals and expenses transferred 3,928 2,062 Net gains on sales of short term investments 5 - Financial income 449,031 392,100 Allowances to amortization and provisions 78,398 4,761 Interest and similar expenses 58,482 59,910 Net expenses on sales of short term investments - - Financial expenses 136,880 64,671 Net financial income (expense) 312,151 327,429
2.10 Exceptional income and expenses
(EUR thousands) 2008 2007 Income from management transactions - - Other exceptional capital transactions 1,371 1,107 Income from capital transactions 1,371 1,107 Reversals and expenses transferred 22,281 343 Exceptional income 23,652 1,450 Exceptional expenses from management transactions 4 - Expenses from management transactions 4 - Net carrying amount of securities sold 23,484 - Other non-recurring expenses on capital transactions 255 2,277 Expenses from capital transactions 23,739 2,277 Exceptional expenses 23,743 2,277 Exceptional income (loss) (91) (827)
2.11 Income tax
2008 2007 (EUR thousands) Before tax Tax After tax Before tax Tax After tax Profit from recurring operations 305,821 - 305,821 320,278 - 320,278 Exceptional income/(loss) (91) 4,246 (*) 4,155 (827) 18,175 17,348 TOTAL 305,730 4,246 309,976 319,451 18,175 337,626
(*) Of which, income from subsidiaries under the tax consolidation agreement: 4,246 thousand euros.
170 2008 Annual Report Parent company financial statements Notes to the parent company financial statements
2.12 Tax position Christian Dior SA is the parent company of a tax group The additional tax saving or expense, in the amount of the comprising certain of its French subsidiaries. difference between the tax recognized by each of the companies and the tax resulting from the determination of the taxable profit For 2008, the tax consolidation group included Christian Dior, of the group, is recognized by Christian Dior SA. Christian Dior Couture, Jardins d’Avron, Financière Jean Goujon, Sadifa, CD Investissements and Ateliers Modèles. The The tax savings made in 2008 amounted to 4,246 thousand euros; tax consolidation group was not modified from the prior year. the amount of the savings in 2007 came to 17,958 thousand euros. The tax position of these subsidiaries with respect to Christian As of December 31, 2008, the ordinary loss of the Group Dior, insofar as their remain part of the consolidation tax group, amounted to 199,360 thousand euros, and can be carried forward remains identical to that which would have been reported if the indefinitely. subsidiaries had been taxed individually.
Note 3 - Other information
3.1 Tax litigation 3.2 Financial commitments A provision of 570 thousand euros has been kept in order to cover the litigation risks following the tax audit for the years Hedging instruments 1993 and 1994. Christian Dior SA uses various interest-rate hedge instruments A bank guarantee, amounting to 570 thousand euros, was set on its own behalf that comply with its management policy. The up in 1999. aim of this policy is to hedge against the interest rate risks on This provision was partially reversed in 2007 by the amount of existing debt, while ensuring that speculative positions are the tax relief granted, i.e. 343 thousand euros. not taken.
The types of instruments outstanding as of December 31, 2008, the underlying amounts (excluding short term amounts) and market values are broken down as follows:
Amount of underlyings Maturity Fair value (EUR thousands) 2009 2010 2011 2012 2013 12/31/2008 Fixed rate payer swaps - 360,000 - - - (3,734)
Direct and indirect subsidiaries 3.4 Compensation of management bodies In 2008, Christian Dior SA withdrew from the guaranty that it The gross amount of compensation of management bodies paid had provided for the renewal of a credit line that was instituted to members of the management bodies for the 2008 fiscal year in favor of Christian Dior Hong amounting to 7 million euros. was 105 thousand euros. As of December 31, 2008, Christian Dior no longer provided security in respect of any loans or credit facilities entered into by its subsidiaries.
3.3 Lease commitments The Company has not made any commitments in the area of leasing transactions.
2008 Annual Report 171 Parent company financial statements Notes to the parent company financial statements
3.5 Statutory Auditors’ fees
2008 2007 Ernst & Young Mazars Ernst & Young Mazars (EUR thousands) Audit Audit Statutory audit 98 141 95 141 Other services relating directly to the statutory audit assignment 4 4 - - TOTAL 102 145 95 141
3.6 Identity of the companies consolidating the accounts of Christian Dior
Company name Registered office Financière Agache 11, rue François 1er 75008 PARIS Groupe Arnault (Parent company of Financière Agache) 41, avenue Montaigne 75008 PARIS
172 2008 Annual Report Parent company financial statements Investment portfolio, other investment securities and short term investments
5. Subsidiaries and investments as of December 31, 2008
Equity other than Deposits Dividends Carrying amount share capital and % share Loans and and Revenue Net received of share held Share excluding net capital advances sureties excluding profit during the (EUR thousands) capital profit held Gross Net provided granted taxes (loss) year A. Details involving the subsidiaries and investments below 1. Subsidiaries Financière Jean Goujon 1,005,294 1,978,262 100.00% 3,478,680 3,478,680 7,977 - - 330,765 330,491 Sadifa 81 1,424 99.66% 836 836 - - 60 (8) - Christian Dior Couture 160,056 370,715 99.99% 502,159 502,159 - - 488,965 (23,134) 100,056 CD Investissements 50 - 100.00% 75 75 - - - (4) - B. General information involving the other subsi diaries and investments None
6. Investment portfolio, other investment securities and short term investments
As of December 31, 2008 Number of Net book (EUR thousands) securities value French investments Financière Jean Goujon shares 62,830,900 3,478,680 Christian Dior Couture shares 10,003,482 502,159 Sadifa shares 5,019 836 CD Investissements shares 5,000 75 Equity investments (shares and partnership shares) 3,981,750
As of December 31, 2008 Number of Net book (EUR thousands) securities value Treasury shares 3,366,380 126,873 Short term investments 3,366,380 126,873 Total investments and short term investments 4,108,623
At beginning At end Number of treasury shares of period Increase Decrease of period 3,410,748 76,132 120,500 3,366,380 TOTAL 3,410,748 76,132 120,500 3,366,380
2008 Annual Report 173 Parent company financial statements Company results over the last five fiscal years
7. Company results over the last five fiscal years
(EUR thousands) 2004 2005 2006 2007 2008 Share capital Share capital 363,454 363,454 363,454 363,454 363,454 Number of ordinary shares outstanding 181,727,048 181,727,048 181,727,048 181,727,048 181,727,048 Maximum number of future shares to be created: • through exercise of equity warrants - - - - - • through exercise of share subscription options - - - - - Operations and profit for the year Revenue - 14 14 14 5 Profit before taxes, employee profit-sharing, depreciation, amortization and movements in provisions 131,082 148,653 172,742 321,833 357,925 Income taxes (12,773) (17,943) (17,356) (18,175) (4,246) Employee profit-sharing to be paid for the period - - - - - Profit after taxes, employee profit- sharing, depreciation, amortization and movements in provisions 138,231 166,439 184,250 337,626 309,976 Profit distributed as dividends (1) 176,275 210,803 256,235 292,581 292,581 Earnings per share (EUR) Earnings per share after taxes and employee profit-sharing but before depreciation, amortization and provisions 0.79 0.92 1.05 1.87 1.99 Earnings per share after taxes and employee profit-sharing, depreciation amortization, and movements in provisions 0.76 0.92 1.01 1.86 1.71 Gross dividend distributed per share (1) (2) 0.97 1.16 1.41 1.61 1.61 Employees Average number of employees 1 - - - - Total payroll (EUR thousands) 17 - - - - Amount paid in respect of social security (EUR thousands) 5 6 6 6 771
(1) Amount of the distribution resulting from the resolution of the Shareholders’ Meeting, before the effect of Dior treasury shares as of the date of distribution. Board of Directors’ proposal for 2008. (2) Before the effect of tax regulations applicable to beneficiaries and net, for the 2004 interim dividend, of the amount of the tax credit.
174 2008 Annual Report Parent company financial statements Statutory Auditors’ reports
8. Statutory Auditors’ reports
Statutory Auditors’ report on the parent company financial statements
MAZARS ERNST & YOUNG Audit Tour Exaltis Faubourg de l’Arche 61, rue Henri-Regnault 11, allée de l’Arche 92400 Courbevoie 92037 Paris-La Défense Cedex SA with share capital of 8,320,000 euros SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, In accordance with our appointment as Statutory Auditors by your Annual General Meeting, we hereby report to you for the year ended December 31, 2008 on: • the audit of the accompanying financial statements of Christian Dior SA; • 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.
1. Opinion on the financial statements We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis or by other sampling methods, evidence supporting the amounts and disclosures in the 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 the data we have collected is sufficient and appropriate to be used as a 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, 2008 and of the results of its operations for the year then ended, in accordance with French accounting regulations. Without qualifying the above opinion, we would draw attention to the following matter disclosed in Note 1 to the financial statements relating to a change in accounting method arising from the application of regulation 2008-15 of the French Accounting Regulations Board (Comité de la Réglementation Comptable) issued on December 30, 2008 with respect to the accounting treatment of share purchase and subscription option plans and bonus share grants to employees.
2008 Annual Report 175 Parent company financial statements Statutory Auditors’ reports
2. Justification of 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 which 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. The 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 opinion expressed in the first part of this report.
3. Specific procedures and disclosures We have also performed the procedures required by law. We have no matters to report regarding: • 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 Company 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 identity of and percentage interests and votes held by shareholders.
Courbevoie and Paris-La Défense, March 24, 2009 The Statutory Auditors
MAZARS ERNST & YOUNG Audit Denis Grison Jeanne Boillet
This is a free translation of the original French text for information purposes only.
176 2008 Annual Report Parent company financial statements Statutory Auditors’ reports
Statutory Auditors’ special report on related party agreements and commitments
MAZARS 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 with share capital of 8,320,000 euros SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, In our capacity as Statutory Auditors of your Company, we hereby report on certain related party agreements and commitments.
Authorized agreements and commitments concluded in the year In accordance with Article L. 225-40 of the French Commercial Code (Code de Commerce), we have been advised of certain related party agreements and commitments which were authorised by your Board of Directors. We are not required to ascertain the existence of any other agreements and commitments but to inform you, on the basis of the information provided to us, of the terms and conditions of those agreements and commitments indicated to us. We are not required to comment as to whether they are beneficial or appropriate. It is your responsibility, in accordance with Article R. 225-31 of the French Commercial Code, to evaluate the benefits resulting from these agreements and commitments prior to their approval. We performed those procedures which we considered necessary to comply with professional guidance issued by the French Institute of Statutory Auditors (Compagnie nationale des Commissaires aux Comptes) relating to this type of engagement. These procedures consisted in verifying that the information provided to us is consistent with the documentation from which it has been extracted.
Agreement entered into with Groupe Arnault SAS
Directors involved Messrs. Bernard Arnault, Pierre Godé and Denis Dalibot.
Nature and subject matter Sub-lease agreement for a work of art.
Conditions This agreement, authorized on May 15, 2008 by your Company’s Board of Directors, covers the lease of a work of art for an annual lease payment of 540,000 euros exclusive of taxes, adjustable annually in line with movements in the 1-month EURIBOR rate, with effect from January 1, 2008. The lease payment made by your Company for 2008, including insurance costs, amounted to 701,236.45 euros, including all taxes.
Agreements and commitments authorized in prior years and which remain current during the year In accordance with the French Commercial Code, we have been advised that the following agreements and commitments which were approved in prior years remained current during the year.
2008 Annual Report 177 Parent company financial statements Statutory Auditors’ reports
1. Agreements entered into with LVMH
Nature and subject matter Service agreement.
Conditions This service agreement entered into with LVMH for the provision of legal services, particularly for corporate law issues and the management of Christian Dior’s Securities Department, was maintained in 2008. Under this agreement, the compensation paid by your Company in 2008 was 54,717 euros including taxes.
Nature and subject matter Financing operation.
Conditions In 2003, your Board of Directors authorized the implementation of a financing operation 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 on maturity based on a pro rata of their respective stakes in the SNC. This agreement was terminated in 2008, as both bonds had been redeemed. With respect to the 2008 fiscal year, your Company paid interest in the amount of 5,692,607 euros and received a surplus payment upon the liquidation of the general partnership in the amount of 1,202,810 euros.
2. Agreement entered into with Groupe Arnault SAS
Nature and subject matter Assistance 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 has been concluded between your Company and Groupe Arnault SAS. In this respect, your Company paid a total of 3,523,055.16 euros net of tax to Groupe Arnault SAS for the fiscal year ended December 31, 2008.
3. Agreement entered into with Mr. Sidney Toledano
Nature, subject matter and conditions Agreement specifying the consideration to be awarded to Mr. Sidney Toledano conditioned upon his observance of the non-compete clause contained within his employment contract. In the event of his departure, he would receive, for a period of twenty-four months, a payment equivalent to the monthly average of the gross salary he earned over the twelve months preceding his departure.
Courbevoie and Paris-La Défense, March 24, 2009 The Statutory Auditors
MAZARS ERNST & YOUNG Audit Denis Grison Jeanne Boillet
This is a free translation of the original French text for information purposes only.
178 2008 Annual Report Resolutions for the approval of the Combined Shareholders’ Meeting of May 14, 2009
• Ordinary resolutions 180 • Extraordinary resolutions 182 • Statutory Auditors’ report on the proposed decrease in share capital by the cancellation of shares purchased 187 • Statutory Auditors’ report on the issue of shares and securities with the retention or cancellation of preferential subscription rights 188 • Statutory Auditors’ special report on the granting of share subscription or purchase options to employees or executive officers of the Group 190
2008 Annual Report 179 Resolutions Text of the resolutions
Resolutions for the approval of the Combined Shareholders’ Meeting of May 14, 2009
Ordinary resolutions
First resolution sheet, income statement and notes, as presented to the Meeting, as well as the transactions reflected in these statements and (Approval of the financial statements of the parent company) summarized in these reports. The Shareholders’ Meeting, after examining the report of the Board of Directors, the report of the Chairman of the Board and the report of the Statutory Auditors, hereby approves the Third resolution financial statements of the parent company for the fiscal year (Approval of related party agreements) ended December 31, 2008, including the balance sheet, income statement and notes, as presented to the Meeting, as well as The Shareholders’ Meeting, after examining the special report of the transactions reflected in these statements and summarized the Statutory Auditors on the related party agreements described in these reports. in Article L. 225-38 of the French Commercial Code, hereby declares that it approves said agreements. Second resolution Fourth resolution (Approval of the consolidated financial statements) (Allocation of net profit – Determination of dividend) The Shareholders’ Meeting, after examining the report of the Board of Directors and the report of the Statutory Auditors, The Shareholders’ Meeting, on the recommendation of the Board hereby approves the consolidated financial statements for the of Directors, decides to allocate and appropriate the distributable fiscal year ended December 31, 2008, including the balance profit for the fiscal year ended December 31, 2008 as follows:
Amount available for distribution (EUR) • Net profit: 309,976,093.49 plus • Retained earnings before appropriation: 28,183,337.41 Amount available for distribution: 338,159,430.90 Proposed appropriation • Gross dividend distribution of 1.61 euros per share: 292,580,547.28 • Retained earnings: 45,578,883.62 Total 338,159,430.90
The total gross dividend amounts to 1.61 euro per share. Taking Finally, should the Company hold any treasury shares at the into account the interim dividend of 0.44 euro per share paid time of payment of this balance, the corresponding amount of on December 2, 2008, the balance of 1.17 euro will be paid out unpaid dividends shall be allocated to retained earnings. on May 25, 2009. As required by law, the Shareholders’ Meeting observes that the With respect to this dividend distribution, individuals whose gross dividends per share paid out in respect of the past three tax residence is in France will be entitled to the 40% deduction fiscal years were as follows: provided under Article 158 of the French Tax Code.
(EUR) Gross dividend (1) Allowance (2) 2007 1.61 0.644 2006 1.41 0.564 2005 1.16 0.496
(1) Excludes the impact of tax regulations applicable to the beneficiaries. (2) For individuals with tax residence in France. 180 2008 Annual Report Resolutions Text of the resolutions
Fifth resolution Tenth resolution (Ratification of the co-optation of Mr. Renaud Donnedieu (Renewal of the term of office of Mr. Jaime de Marichalar de Vabres as Director) y Sáenz de Tejada as Director) The Shareholders’ Meeting hereby decides to ratify the co-optation The Shareholders’ Meeting, noting that Mr. Jaime de Marichalar of Mr. Renaud Donnedieu de Vabres as Director, to replace y Sáenz de Tejada’s term of office expires on this date, hereby Mr. Raymond Wibaux, deceased. Mr. Renaud Donnedieu de reappoints him as a Director for a three-year term that shall Vabres shall serve as Director for the remaining term of office of expire at the end of the Ordinary Shareholders’ Meeting convened his predecessor, thus until the end of the Ordinary Shareholders’ in 2012 to approve the financial statements for the previous Meeting convened in 2010 to approve the financial statements fiscal year. for the previous fiscal year. Eleventh resolution Sixth resolution (Renewal of the term of office of Mr. Alessandro Vallarino (Renewal of the term of office of Mr. Éric Guerlain as Gancia as Director) Director) The Shareholders’ Meeting, noting that Mr. Alessandro Vallarino The Shareholders’ Meeting, noting that Mr. Éric Guerlain’s Gancia’s term of office expires on this date, hereby reappoints term of office expires on this date, hereby reappoints him as a him as a Director for a three-year term that shall expire at the Director for a three-year term that shall expire at the end of the end of the Ordinary Shareholders’ Meeting convened in 2012 to Ordinary Shareholders’ Meeting convened in 2012 to approve approve the financial statements for the previous fiscal year. the financial statements for the previous fiscal year. Twelfth resolution Seventh resolution (Appointment of a principal Statutory Auditor) (Renewal of the term of office of Mr. Antoine Bernheim as The Shareholders’ Meeting, noting that the term of office of Director) Ernst & Young Audit as a principal Statutory Auditor expires The Shareholders’ Meeting, noting that Mr. Antoine Bernheim’s at the end of this Shareholders’ Meeting, hereby decides to term of office expires on this date, hereby reappoints him as a appoint Ernst & Young et Autres as a principal Statutory Director for a three-year term that shall expire at the end of the auditor, for a six-year term that shall expire at the end of the Ordinary Shareholders’ Meeting convened in 2012 to approve Ordinary Shareholders’ Meeting convened in 2015 to approve the financial statements for the previous fiscal year. the financial statements for the previous fiscal year.
Eighth resolution Thirteenth resolution (Renewal of the term of office of Mr. Denis Dalibot as (Appointment of an alternate Statutory Auditor) Director) The Shareholders’ Meeting, noting that the term of office of The Shareholders’ Meeting, noting that Mr. Denis Dalibot’s Mr. Dominique Thouvenin as an alternate Statutory Auditor term of office expires on this date, hereby reappoints him as a expires at the end of this Shareholders’ Meeting, hereby decides to Director for a three-year term that shall expire at the end of the appoint Auditex as an alternate Statutory Auditor, for a six-year Ordinary Shareholders’ Meeting convened in 2012 to approve term that shall expire at the end of the Ordinary Shareholders’ the financial statements for the previous fiscal year. Meeting convened in 2015 to approve the financial statements for the previous fiscal year. Ninth resolution Fourteenth resolution (Renewal of the term of office of Mr. Christian de Labriffe as Director) (Reappointment of a principal Statutory Auditor) The Shareholders’ Meeting, noting that Mr. Christian de Labriffe’s The Shareholders’ Meeting, noting that the term of office of term of office expires on this date, hereby reappoints him as a Mazars as a principal Statutory Auditor expires at the end Director for a three-year term that shall expire at the end of the of this Shareholders’ Meeting, hereby decides to renew this Ordinary Shareholders’ Meeting convened in 2012 to approve appointment, for a six-year term that shall expire at the end of the financial statements for the previous fiscal year. the Ordinary Shareholders’ Meeting convened in 2015 to approve the financial statements for the previous fiscal year.
2008 Annual Report 181 Resolutions Text of the resolutions
Fifteenth resolution The purchase price per share may not exceed 130 euros. In the event of a capital increase through the capitalization of reserves (Reappointment of an alternate Statutory Auditor) and the granting of bonus shares as well as in cases of either a The Shareholders’ Meeting, noting that the term of office of stock split or a reverse stock split, the purchase price indicated Mr. Guillaume Potel as an alternate Statutory Auditor expires at above shall be adjusted by a multiplying coefficient equal to the the end of this Shareholders’ Meeting, hereby decides to renew ratio of the number of shares making up the Company’s share this appointment, for a six-year term that shall expire at the end capital before and after the operation. of the Ordinary Shareholders’ Meeting convened in 2015 to The maximum number of securities that may be issued shall not approve the financial statements for the previous fiscal year. exceed 10% of the share capital, with the understanding that this limit shall apply to the amount of the share capital that shall be adjusted, where applicable, in order to take into account any Sixteenth resolution transactions having an impact on the share capital subsequent (Share repurchase) to the date of this Meeting. As of December 31, 2008, this limit corresponds to 18,172,704 shares. The maximum total amount The Shareholders’ Meeting, having examined the report of the dedicated to these purchases may not exceed 2.4 billion euros. Board of Directors, authorizes the latter to acquire Company The shares may be acquired by any appropriate method on the shares, pursuant to the provisions of Articles L. 225-209 et market or over the counter, including the use of derivatives, seq. of the French Commercial Code. It thus authorizes the as well as through block purchases or as part of an exchange. implementation of a share repurchase program. Pursuant to the provisions of Articles L. 225-209 et seq. of the In particular, the shares may be acquired in order (i) to provide French Commercial Code, the shares thus acquired may be resold market liquidity services (purchases/sales) under a liquidity by the Company by any means, including block sales. contract set up by the Company; (ii) to cover stock option All powers are granted to the Board of Directors to implement plans, the granting of bonus shares or any other form of share this authorization. The Board may delegate such powers in allocation or share-based payment, in favor of employees or order to place any and all buy and sell orders, enter into any and officers either of the Company or of an affiliated undertaking all agreements, sign any document, file all declarations, carry as defined under Article L. 225-180 of the French Commercial out all formalities and generally take any and all other actions Code; (iii) to cover securities giving access to the Company’s required in the implementation of this authorization. shares, notably by way of conversion, tendering of a coupon, reimbursement or exchange or (iv) to be retired or (v) held so This authorization, which replaces the authorization granted by as to be exchanged or presented as consideration at a later date the Combined Shareholders’ Meeting of May 15, 2008, is hereby for external growth operations. granted for a term of eighteen months as of this date.
Extraordinary resolutions
Seventeenth resolution 5. decides that this authorization shall replace that granted by the Combined Shareholders’ Meeting of May 15, 2008. (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 Eighteenth resolution the Statutory Auditors, (Delegation of authority to increase the share capital with 1. authorizes the Board of Directors to reduce the share capital preferential subscription rights) of the Company, on one or more occasions, by cancelling the The Shareholders’ Meeting, having examined the report shares acquired pursuant to the provisions of Article L. 225- presented by the Board of Directors and the special report of 209 of the French Commercial Code; the Statutory Auditors and pursuant to the provisions of the 2. sets the maximum amount of the capital reduction that may French Commercial Code, in particular Articles L. 225-129, be performed under this authorization over a twenty-four L. 225-129-2 and L. 228-92, hereby, month period to 10% of the Company’s current capital; 1. delegates to the Board of Directors the authority to increase 3. grants all powers to the Board of Directors to perform the Company’s share capital, on one or more occasions, in and record the capital reduction transactions, carry out all such amounts and at such times as it may deem fit: required acts and formalities, amend the Bylaws accordingly, a) either by way of a public offering, on the French and/or and generally take any and all other actions required in the international market, whether denominated in euros or in implementation of this authorization; any other currency or accounting unit based on a basket of 4. grants this authorization for a period of eighteen months as currencies, with preferential subscription rights for existing of the date of this Meeting; shareholders, of ordinary shares and/or any other investment
182 2008 Annual Report Resolutions Text of the resolutions
securities, including subscription or acquisition warrants issued of the holders of the issued securities, the express waiver by on a standalone basis, giving either immediate or future access, shareholders of their preferential right to subscribe to the shares at any time or on a predetermined date, to the Company’s to which the investment securities so issued shall give access; share capital or conferring entitlement to debt securities, by 6. takes note that this delegation of authority entails the granting subscription, whether in cash or by offsetting receivables, through conversion, exchange, repayment, tendering of a to the Board of Directors of all necessary powers, including the coupon or in any other manner, with the understanding that option to delegate such powers to the Chief Executive Officer, debt securities may be issued with or without guarantees, in in order to implement this delegation of authority, in accordance forms, at such rates and under such terms and conditions as with the terms set forth by law, and in particular in order to: the Board of Directors shall deem appropriate, • in the event of the incorporation into share capital of unappropriated b) or through the incorporation into share capital of all or a retained earnings, reserves, or additional paid-in capital: portion of unappropriated retained earnings, reserves, or -- determine the amount and nature of the reserves to be additional paid-in capital, whose capitalization is permitted incorporated into the capital, determine the number of new by law and by the Company’s Bylaws, and through the shares to be issued and/or the amount in which the existing allotment of ordinary bonus shares or through an increase par value of the shares comprising the share capital shall be in the par value of existing shares, increased, set the date, even with retroactive effect, from with the understanding that the issuance of preference shares which the new shares shall have dividend rights or the date is excluded from the scope of this delegation; on which the increase in the par value shall take effect, 2. grants this delegation of authority for a period of twenty-six -- decide that fractional rights may not be traded, that the months as of the date of this Meeting; corresponding shares shall be sold and that the proceeds of the sale shall be allotted to the holders of the rights; 3. decides, should the Board of Directors make use of this delegation of authority, that: • in the event of issuance of shares and/or other investment securities giving access to the capital or conferring entitlement a) the maximum nominal amount of capital increases that may to debt securities: be effected, whether immediately or over time, on the basis of the issuance of the shares or investment securities described -- decide upon the amount to be issued, the issue price, as well under item 1.a) above shall be equal to eighty (80) million as the amount of the premium that may, where applicable, euros, with the understanding that against such amount there be charged upon issuance, shall be applied the nominal amount of any capital increase -- determine the dates and terms of the issuance, the nature, form and resulting or likely to result over time from issues decided features of the securities to be issued, which may be subordinated under the 19th, 21st and/or 22nd resolutions submitted for or unsubordinated, perpetual or redeemable, bear interest at a the approval of shareholders at this Meeting, fixed and/or variable rate, or produce capitalized interest and with the understanding that the abovementioned ceiling may be repaid with or without a premium, or be amortized, shall be supplemented, where applicable, by the nominal amount of shares that may be issued in the event of further -- determine the mode of payment of the shares and/or securities financial transactions, in order to protect the rights of holders issued or to be issued, of investment securities giving access to the Company’s -- determine, where applicable, the terms of exercise of the share capital, as provided by law, rights attaching to the securities issued or to be issued and, in b) the maximum nominal amount of capital increases referred particular, determine the date, even with retroactive effect, from to under item 1.) above that may be effected shall not exceed which the new shares shall have dividend rights, as well as any eighty (80) million euros, it being indicated that the amount and all other terms and conditions of completion of the issuance, of such capital increases shall be added to the amount of -- determine the terms under which the Company may, where the ceiling referred to under item 3.a) above; applicable, have the right to acquire or exchange on the stock 4. decides, should the Board of Directors make use of this market, at any time or during specific periods, the securities delegation of authority, that if subscriptions in respect of issued or to be issued, whether or not these securities are to pro rata entitlements and, where applicable, subscriptions in be retired, in accordance with applicable laws, respect of applications by qualifying shareholders that may be -- provide for the option to suspend, where applicable, the reduced by decision of the Board, do not absorb the entirety exercise of the rights attaching to such securities for a period of an issue of securities, the Board of Directors may have not to exceed three months, recourse, subject to the terms set forth by law and in the order it shall determine, to any of the options provided pursuant -- at its sole discretion, apply the expenses of the share capital to Article L. 225-134 of the French Commercial Code, and increases against the amount of the corresponding premiums in particular may offer to the general public all or a portion and deduct from that amount any sums necessary in order of the unsubscribed shares and/or investment securities; to increase the legal reserve to one-tenth of the new capital following each increase, 5. takes note that in the event of the exercise of this delegation of authority, the decision to issue investment securities giving -- make all adjustments required in accordance with applicable access to the Company’s share capital shall entail, in favor laws and regulations and determine the terms ensuring, where
2008 Annual Report 183 Resolutions Text of the resolutions
applicable, the protection of the rights of holders of investment event of further financial transactions, in order to protect, in securities giving future access to the Company’s share capital, accordance with provisions of law, the rights of holders of investment securities giving access to the share capital, -- record the completion of each capital increase and amend the Bylaws accordingly; c) furthermore, in the event of an offering provided for under item II of Article L. 411-2 of the Monetary and Financial • execute any agreement, take any action, and complete any and Code, the number of securities that may be issued per year all formalities required for the issuance and financial service shall not exceed 20% of the Company’s share capital; of any securities issued under this delegation of authority and for the exercise of any rights attaching thereto; 4. decides to exclude the preferential right of shareholders to subscribe to any shares or other investment securities that 7. decides that this authorization shall replace that granted by may be issued under this resolution, while leaving the Board the Combined Shareholders’ Meeting of May 10, 2007. of Directors free to grant to shareholders, for such period and under such terms as it shall determine in accordance with the Nineteenth resolution provisions of Article L. 225-135 of the French Commercial Code and for all or part of any issuance made, a non-negotiable (Delegation of authority to increase the share capital without priority subscription right that shall be exercised in proportion preferential subscription rights) to the number of shares held by each shareholder, and that may be supplemented by subscriptions in respect of applications The Shareholders’ Meeting, having examined the report presented by qualifying shareholders that may be reduced by decision by the Board of Directors as well as the special report of the of the Board, with the understanding that, at the end of the Statutory Auditors and pursuant to the provisions of the French priority period, any unsubscribed securities shall be offered Commercial Code, in particular Articles L. 225-129-2, L. 225- for subscription by the general public; 135 et seq. and L. 228-92, hereby, 5. takes note that in the event of the exercise of this delegation of 1. delegates to the Board of Directors the authority to issue, authority, the decision to issue investment securities giving access on one or more occasions, in such amounts and at such to the Company’s share capital shall entail, in favor of the holders times as it may deem fit, by way of a public offering or an of the issued securities, the express waiver by shareholders offering provided for under item II of Article L. 411-2 of the of their preferential right to subscribe to capital securities to Monetary and Financial Code, on the French market and/or which the investment securities so issued shall give access; international market, of ordinary shares and/or investment securities, whether denominated in euros or in any other 6. decides that the amount of the consideration, accruing and/or currency or accounting unit based on a basket of currencies, to accrue at a later date to the Company, for each of the shares including any subscription or acquisition warrants issued on a issued or to be issued under this delegation of authority, taking standalone basis, giving access to the Company’s share capital, into account, in the event of the issue of standalone share whether immediately or over time, at any time or at a fixed subscription warrants, the issue price of such warrants, shall date, or conferring entitlement to debt securities, whether be at least equal to the minimum price set forth in legislative by subscription in cash or by offsetting receivables, through and regulatory provisions in force at the time of the issuance; conversion, exchange, repayment, tendering of a coupon or in any other manner, with the understanding that debt securities 7. takes note that this delegation of authority entails the grant may be issued with or without guarantees, in forms, at rates, to the Board of Directors of the powers attributed under item th and under terms and conditions that the Board of Directors 6 of the 18 resolution with the right to delegate the same to shall deem appropriate, and that the issuance of preference the Chief Executive Officer; shares is excluded from the scope of this delegation; 8. decides that this authorization shall replace that granted by 2. grants this delegation of authority for a period of twenty-six the Combined Shareholders’ Meeting of May 10, 2007. months as of the date of this Meeting; 3. decides that in the event of the exercise of this delegation of Twentieth resolution authority by the Board of Directors: (Delegation of authority to increase the amount of an issue where a) the maximum nominal amount of capital increases that demand for securities is in excess of the original amount offered) may be effected, directly or indirectly, on the basis of the The Shareholders’ Meeting, having examined the report presented issuance of the shares or investment securities addressed by the Board of Directors and the special report prepared by the under item 1. above shall be equal to eighty (80) million Statutory Auditors, hereby decides that in the event of an issue euros, with the understanding that against such amount there approved under the delegation granted to the Board of Directors by shall be applied the nominal amount of any capital increase virtue of the 18th and 19th resolutions presented above, the number resulting or likely to result over time from issues decided of shares to be issued may, if demand for securities is in excess of under the 18th, 21st and/or 22nd resolutions submitted for the original amount offered, be increased under the conditions the approval of shareholders at this Meeting, and within the limits provided under Articles L. 225-135-1 and b) to the above ceiling, there shall be added, where applicable, R. 225-118 of the French Commercial Code, in accordance the nominal amount of the shares to be issued, if any, in the with the ceilings indicated in the abovementioned resolutions.
184 2008 Annual Report Resolutions Text of the resolutions
Twenty-first resolution Twenty-second resolution (Delegation of authority to increase the share capital in (Delegation of authority to increase the share capital in connection with a public exchange offer) connection with contributions in kind) The Shareholders’ Meeting, having examined the report presented The Shareholders’ Meeting, having examined the report presented by the Board of Directors as well as the special report of the by the Board of Directors as well as the special report of the Statutory Auditors and pursuant to the provisions of the French Statutory Auditors and pursuant to the provisions of the French Commercial Code, in particular Articles L. 225-129, L. 225-148 Commercial Code, in particular Articles L. 225-129, L. 225-147 and L. 228-92, hereby, and L. 228-92, hereby, 1. delegates to the Board of Directors the authority to increase 1. delegates to the Board of Directors such powers as are the Company’s share capital, on one or several occasions, at necessary in order to increase the share capital, on one or such times as it may deem fit, through the issue of shares or of more occasions, at such times as it may deem fit, through the any investment securities giving access to the share capital or issue of shares or investment securities giving access to the conferring entitlement to debt securities provided the underlying Company’s share capital or conferring entitlement to debt securities are shares, as consideration for shares contributed securities provided that the underlying securities are shares, to a public exchange offer for the shares of another company as consideration for contributions in kind granted to the that are admitted to trading on a regulated market, as defined Company and consisting of shares or investment securities under Article L. 225-148 of the French Commercial Code; giving access to the Company’s share capital, in cases where the provisions of Article L. 225-148 of the French Commercial 2. grants this delegation of authority for a period of twenty-six Code do not apply; months as of the date of this Meeting; 2. grants this delegation of authority for a period of twenty-six 3. decides that the maximum nominal amount of capital increases months as of the date of this Meeting; that may be decided under this resolution shall be equal to eighty (80) million euros, with the understanding that against 3. decides that the total number of shares that may be issued in such ceiling there shall be applied the nominal amount of any connection with capital increases decided under this resolution capital increase resulting, or likely to result over time, from shall not exceed 10% of the Company’s share capital, with issues decided under the 18th, 19th and/or 22nd resolutions the understanding that the ceiling for the nominal amount submitted for the approval of shareholders at this Meeting, of any capital increase decided under this resolution shall and that to this ceiling shall be added, where applicable, the be set such that the cumulative total of the nominal amount nominal amount of the shares to be issued in the event of of this capital increase together with those of any capital further financial transactions, in order to protect the rights of increases already decided under this resolution as well as holders of investment securities giving access to the Company’s under the 18th, 19th and/or 21st resolutions submitted for the share capital, as provided by law; approval of shareholders at this Meeting, shall not exceed eighty (80) million euros, and that this ceiling of eighty 4. decides, should the Board of Directors make use of this (80) million euros shall not include the nominal amount of delegation of authority, including the option to sub-delegate the shares to be issued, if any, in the event of further financial this authority within the limits set forth by law, that the Board transactions, in order to protect the rights of holders of or its sub-delegatee shall have full powers to carry out all investment securities giving access to the Company’s share necessary measures, particularly in order to: capital, as provided by law; • approve the list of securities tendered in the exchange, approve 4. decides, should the Board of Directors make use of this the terms of the issuance, the exchange ratio and where applicable delegation of authority, including the option to sub-delegate the amount of the residual cash balance to be paid as well as to this authority within the limits set forth by law, that the Board determine the terms and conditions of the issuance, whether in or its sub-delegatee shall have full powers to carry out all connection with a public exchange offer, an alternative takeover necessary measures, particularly in order to: bid or tender offer, a public offering covering the acquisition or exchange of the relevant securities against settlement in • approve the Contribution Auditor’s report and the valuation securities and cash, or a principal takeover bid (OPA) or of the contribution, exchange offer (OPE) combined with a subsidiary OPE or OPA, • determine the date from which the new shares shall carry • determine the date from which the new shares shall carry dividend rights, dividend rights, • apply where applicable any expenses arising in connection • apply where applicable any expenses arising in connection with capital increases against the amount of the contribution with capital increases against the amount of the contribution premiums and deduct from such amount the sum required premiums and deduct from such amount the sum required in order to bring the legal reserve to one-tenth of the new in order to bring the legal reserve to one-tenth of the new capital after each increase, capital after each increase, • amend the Bylaws accordingly; • amend the Bylaws accordingly; 5. decides that this authorization shall replace that granted by 5. decides that this authorization shall replace that granted by the Combined Shareholders’ Meeting of May 10, 2007. the Combined Shareholders’ Meeting of May 10, 2007.
2008 Annual Report 185 Resolutions Text of the resolutions
Twenty-third resolution 6. takes note that the Board of Directors shall inform the Ordinary Shareholders’ Meeting of any operations carried out under (Authorization to grant options to purchase or subscribe to this resolution, indicating the number and price of options shares to executive officers and employees of the Group) granted and their beneficiaries, as well as the number of shares The Shareholders’ Meeting, having examined the report presented subscribed or purchased; by the Board of Directors as well as the special report of the 7. grants this authorization for a period of thirty-eight months Statutory Auditors, hereby, as of the date of this Meeting; 1. authorizes the Board of Directors, pursuant to the provisions 8. decides that this authorization shall replace that granted by of Articles L. 225-177 et seq. of the French Commercial Code, the Combined Shareholders’ Meeting of May 11, 2006. to grant, in one or more operations, to employees or executive officers of the Company and of any affiliated undertakings, as defined under Article L. 225-180 of the French Commercial Code, Twenty-fourth resolution options conferring the right either to subscribe to new shares in the Company, to be issued as part of a capital increase, or to purchase (Amendment of Bylaws) existing shares repurchased by the Company, in particular with The Shareholders’ Meeting, having examined the report the aim of stabilizing the share price, it being understood that presented by the Board of Directors, hereby decides to amend the total amount of options granted under this authorization the Company’s Bylaws to ensure compliance with the new may not confer entitlement to a number of shares representing requirements enacted by Law 2008-776 on the Modernization more than 3% of the Company’s share capital as of this date; of the Economy (LME) of August 4, 2008, specifically by 2. takes note that this authorization comprises an express waiver amending Articles 10 and 17 to read as follows: by shareholders, in favor of the beneficiaries of options, of their “Article 10 preferential right to subscribe to the shares that shall be issued as the options are exercised and that it will be implemented under the … terms and conditions laid down by applicable laws and regulations Second subparagraph: in force on the commencement of the granting of options; If, at the time of its appointment, a member of the Board of 3. decides that the subscription or purchase price of shares shall Directors does not own the required number of shares or if, be determined by the Board of Directors on the date when the during its term of office, it ceases to be the owner thereof, it shall option is granted within limits authorized by the provisions dispose of a period of six months to purchase such a number in force on such date and that, in any event, this price may of shares, in default of which it shall be automatically deemed not be lower than the average share price during the twenty to have resigned.” trading days prior to this date, with the understanding that, “Article 17 in the case of options to purchase shares, this price may not be lower that the average purchase price of the shares to be … granted upon the exercise of these options. Shareholder participation The subscription or purchase price of shares under option may not Subparagraphs 1 through 12 remain unchanged be modified except under the circumstances set forth by law, on the Subparagraph 13: occasion of securities transactions or other financial operations, in which case the Board of Directors shall apply an adjustment, Shareholders have as many votes as they hold shares. However, pursuant to regulations, to the number and price of shares under a voting right equal to twice the voting right attached to other option in order to take into account the impact of these operations; shares with respect to the portion of the share capital that they represent, is granted to: 4. decides that the exercise period of options shall be determined in accordance with provisions in force on the grant date and • all fully paid-up registered shares for which evidence of shall last a maximum of ten years; registration under the name of the same shareholder, over a period of least three years, may be demonstrated, 5. grants full powers to the Board of Directors under the limits set forth above in order to: • registered shares allocated to a shareholder in the event of a capital increase through the capitalization of reserves, • determine the terms of the plan(s) and the conditions under unappropriated retained earnings, or issue premiums, by which options shall be granted, conditions which may include virtue of this shareholder’s entitlement to benefit from this clauses prohibiting the immediate resale of all or a portion of right in respect of existing shares. the shares, although the compulsory holding period may not exceed three years from the exercise of an option, This double voting right shall automatically lapse in the case of registered shares being converted into bearer shares or conveyed • decide upon the grant date or dates, in property. However, any transfer by right of inheritance, by way of liquidation of community property between spouses • draw up the list of beneficiaries of options, or deed of gift inter vivos to the benefit of a spouse or an heir • complete, either directly or through an intermediary, all acts shall neither cause the acquired right to be lost nor interrupt the and formalities serving to finalize the capital increase or abovementioned three-year qualifying period. This is also the increases that may be carried out under the authorization case for any transfer due to a merger or spin-off of a shareholding that may be decided under this resolution, company.” • amend the Bylaws accordingly and generally take any and all Last subparagraph: unchanged necessary steps in the implementation of this authorization;
186 2008 Annual Report Resolutions Statutory Auditors’ reports
Statutory Auditors’ reports
Statutory Auditors’ report on the proposed decrease in share capital by the cancellation of shares purchased (seventeenth resolution)
MAZARS 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 with share capital of 8,320,000 euros SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, As Statutory Auditors of Christian Dior SA and pursuant to Article L. 225-209, paragraph 7 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 terms and conditions of the proposed decrease in share capital. We performed the procedures that we deemed necessary in accordance with the professional guidelines of the French Institute of Statutory Auditors (Compagnie nationale des Commissaires aux Comptes) relating to this type of engagement. These procedures consisted in reviewing the fairness of the reasons for and conditions of the proposed decrease in share capital. This transaction is part of the purchase by your Company of its own shares, within a limit of 10% of its share capital, in accordance with Article L. 225-209 of the French Commercial Code. Furthermore, this purchase authorization is proposed for approval at your Shareholders’ Meeting and would be effective for a period of eighteen months. Your Board of Directors requests the delegation of all powers, for a period of eighteen months, to cancel all shares purchased following the granting of authority by your Company for the purchase of its own shares, within the limit of 10% of its share capital, and during a period of 24 months starting from the date of this Shareholders’ Meeting. We have no comment to make as to the terms and conditions of the proposed share capital decrease, it being indicated that prior approval, by your Shareholders’ Meeting, for the purchase by your Company of its own shares, is required as proposed in the sixteenth resolution.
Courbevoie and Paris-La Défense, March 24, 2009 The Statutory Auditors
MAZARS ERNST & YOUNG Audit Denis Grison Jeanne Boillet
This is a free translation of the original French text for information purposes only.
2008 Annual Report 187 Resolutions Statutory Auditors’ reports
Statutory Auditors’ report on the issue of shares and securities with the retention or cancellation of preferential subscription rights (eighteenth, nineteenth, twentieth, twenty-first and twenty- second resolutions)
MAZARS 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 with share capital of 8,320,000 euros SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, As Statutory Auditors of your Company and pursuant to the engagement set forth in the French Commercial Code (Code de commerce) and notably Articles L. 225-129-2, 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, with the option of sub-delegating such authorization, for a period of 26 months, the power to decide 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 authority to issue, on one or more occasions, through a public offering, ordinary shares and any and all securities, including stock subscription or purchase options issued separately, conferring immediate or future access, at any time or on a fixed date, to the Company’s share capital or conferring entitlement to the grant of debt instruments with retention of preferential subscription rights (eighteenth resolution), -- the authority to issue, on one or more occasions, through a public offering or through an offering within the meaning of paragraph II of Article L. 411-2 of the French Monetary and Financial Code (Code monétaire et financier) ordinary shares and/or any and all securities, including stock subscription or purchase options issued independently, conferring immediate or future access, at any time or on a fixed date, to the Company’s share capital or conferring entitlement to the grant of debt instruments with cancellation of preferential subscription rights (nineteenth resolution); • that shareholders delegate to it, with the option of sub-delegating such authorization, for a period of 26 months, the authority to decide the terms and conditions of an issue of shares or securities conferring access to the Company’s share capital or conferring entitlement to the grant of debt instruments subject to the primary security being a share in consideration for the securities transferred to the Company as part of a share exchange bid with another company listed on a regulated market within the meaning of Article L. 225-148 of the French Commercial Code (twenty-first resolution); • that shareholders delegate to it, for a period of 26 months, the authority to decide the terms and conditions of an issue of shares or securities conferring access to the Company’s share capital or conferring entitlement to the grant of debt instruments subject to the primary security being a share in consideration for contributions in kind granted to the Company and comprised of equity securities or securities conferring access to the Company’s share capital up to a maximum of 10% (twenty-second resolution).
188 2008 Annual Report Resolutions Statutory Auditors’ reports
The total par value amount of potential share capital increases likely to be performed, immediately or in the future, and resulting from the issue of shares or securities may not exceed 80 million euros, it being specified that the overall ceiling applies to capital increases resulting from issues decided pursuant to eighteenth, nineteenth, twenty-first and/or twenty-second resolutions submitted to your approval in the current Meeting. The number of securities to be created as part of the implementation of the delegations of power referred to in the eighteenth and nineteenth resolutions may be increased in accordance with the conditions set forth in Articles L. 225-135-1 of the French Commercial Code within the above-mentioned overall maximum ceiling, if you approve the twentieth resolution. Pursuant to Articles R. 225-113, R. 225-114 and R. 225-117 of the French Commercial Code, the Board of Directors will issue a report in which it will express its 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 performed the procedures that we deemed necessary in accordance with the professional guidelines of the French Institute of Statutory Auditors (Compagnie nationale des Commissaires aux Comptes) relating to this type of engagement. These procedures consisted in verifying the content of the Board of Directors’ report on these transactions and the conditions governing the issue price of shares to be issued. Subject to a subsequent review of the terms and conditions of proposed issues, we have no comments on the terms and conditions governing the determination of the issue price of equity securities to be issued presented in the Board of Directors’ report in connection with the nineteenth resolution. Furthermore, as the report does not include information on the terms and conditions governing the determination of the issue price of securities to be issued pursuant to the eighteenth, twenty-first and twenty-second resolutions, we cannot express an opinion on the issue price calculation inputs. As the issue price of equity securities to be issued has not yet been set, we do not express an opinion on the final conditions under which the issues will be performed and, as such, on the proposed cancellation of preferential subscription rights submitted for your approval in the nineteenth resolution. In accordance with Article R. 225-116 of the French Commercial Code, we will issue an additional report on the performance by your Board of Directors of any issues with cancellation of preferential subscription rights or of any issues of securities conferring access to the Company’s share capital and/or entitlement to the grant of debt instruments.
Courbevoie and Paris-La Défense, March 24, 2009 The Statutory Auditors
MAZARS ERNST & YOUNG Audit Denis Grison Jeanne Boillet
This is a free translation of the original French text for information purposes only.
2008 Annual Report 189 Resolutions Statutory Auditors’ reports
Statutory Auditors’ special report on the granting of share subscription or purchase options to employees or executive officers of the Group (twenty-third resolution)
MAZARS 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 with share capital of 8,320,000 euros SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, As Statutory Auditors of your Company and pursuant to the engagement set forth in Articles L. 225-177 and R. 225-144 of French Commercial Code (Code de Commerce), we hereby report to you on the proposed granting of share subscription or purchase options to employees or executive officers of the Company and of related companies as defined in Article L. 225-180 of the French Commercial Code. It is the responsibility of the Board of Directors to prepare a report on the reasons for granting stock subscription or purchase options and the proposed terms and conditions governing the determination of the subscription or purchase price. Our role is to express an opinion on the proposed terms and conditions governing the determination of the subscription or purchase price. We performed the procedures that we deemed necessary in accordance with the professional guidelines of the French Institute of Statutory Auditors (Compagnie nationale des Commissaires aux Comptes) relating to this type of engagement. These procedures consisted in verifying that the proposed terms and conditions governing the determination of the subscription or purchase price are presented in the Board of Directors’ report, comply with the legal provisions, provide shareholders with explanations and do not appear obviously inappropriate. We have no comments on the proposed terms and conditions.
Courbevoie and Paris-La Défense, March 24, 2009 The Statutory Auditors
MAZARS ERNST & YOUNG Audit Denis Grison Jeanne Boillet
This is a free translation of the original French text for information purposes only.
190 2008 Annual Report General information
1. History of the Group 192 5. Main locations and properties 215 5.1 Production 215 2. General information regarding 5.2. Distribution 216 the parent company and its share capital 194 5.3 Administrative sites and 2.1 General information regarding investment property 217 the parent company 194 2.2 Information regarding the capital 195 6. Supply sources and subcontracting 218 2.3 Analysis of share capital and voting rights 196 6.1 Champagne and wines 218 6.2 Cognac and spirits 218 3. Corporate governance 198 6.3 Fashion and leather goods 219 3.1 Charter of the Board of Directors 198 6.4 Perfumes and cosmetics 219 3.2 Internal rules of the Performance 6.5 Watches and jewelry 220 Audit Committee 199 6.6 Christian Dior Couture 220 3.3 Internal rules of the Nominations and Compensation Committee 201 7. Statutory Auditors 221 3.4. Bylaws (draft version) 202 7.1 Name and term 221 7.2 Fees paid in 2008 221 4. Stock market information 211 4.1 Share capital 211 8. Statement of the Company Officer 4.2 Dior share price 211 responsible for the annual financial report 222 4.3 Bonds issued by Christian Dior 211 4.4 Price trend of the Christian Dior share and volume of stock traded in Paris 212 4.5 Five-year review of dividends 212 4.6 Payment of dividend 213 4.7 Stock market capitalization 213 4.8 Change in share capital 213 4.9 Per share performance 213 4.10 Market for issuer’s shares 214 4.11 Dividends paid per share in fiscal years 2004, 2005, 2006, 2007 and 2008 214
2008 Annual Report 191 General information History of the Group
1. History of the Group
1905 Birth of Christian Dior in Granville (Normandy, France), on January 21. 1946 Backed by Marcel Boussac, Christian Dior founds his own couture house, in a private house at 30, avenue Montaigne in Paris. 1947 On February 12, Christian Dior presents the 90 models of his first collection on six mannequins. The Corolle“ ” and “Huit” lines are very quickly rechristened “New Look”. Parfums Christian Dior is founded, headed by Serge Heftler Louiche. Dior names the 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 1er. Launch of Dior lipstick. A line of beauty products will follow. 1957 Christian Dior succumbs to a heart attack while convalescing at Montecatini on October 24. Yves Saint Laurent is named to provide artistic direction for the brand. 1960 Called up for National Service, Yves Saint Laurent leaves Dior after completing six collections. Marc Bohan succeeds him. He is 34 years old. 1961 Marc Bohan presents his 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”. 1980 Launch of the men’s fragrance “Jules”. 1981 The Willot group declares bankruptcy.
192 2008 Annual Report General information History of the Group
1984 A group of investors, led by Bernard Arnault, takes control of the former Willot Group. 1985 Bernard Arnault becomes Chairman and Chief Executive Officer of Christian Dior. Launch of the perfume “Poison”. 1987 The Paris Fashion Museum dedicates an exhibition to Christian Dior, on the fortieth anniversary of his first collection. 1988 Through its subsidiary Jacques Rober, held jointly with the Guinness group, Christian Dior takes a 32% equity stake in the share capital of LVMH. The share capital of Christian Dior is offered to French and foreign institutional investors who subscribe to a capital increase of 3.3 billion francs in a private placement. 1989 Gianfranco Ferré joins Christian Dior as creator of the Haute Couture, Fashion Furs, and Women’s ready-to-wear collections. His first Haute Couture collection is awarded the Dé d’Or. Opening of a boutique in Hawaii. Jacques Rober’s stake in LVMH is increased to 44%. 1990 Opening of boutiques in Los Angeles and New York. LVMH’s stake is increased to 46%. 1991 Listing of Christian Dior on the spot market, and then the monthly settlement market of the Paris stock exchange. Launch of the perfume “Dune”. 1992 Patrick Lavoix is named 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 supervision 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. 2007 Celebration of the 60th anniversary of the creation of Maison Dior (1947). Kris Van Assche, the new creator of the menswear line, presents his first collections. 2008 Major exhibition organized in Beijing, in association with Chinese artists, to celebrate the brand’s entrance into the Chinese marketplace.
2008 Annual Report 193 General information General information regarding the parent company and its share capital
2. General information regarding the parent company and its share capital
2.1 General information regarding the parent company
2.1.1 Role of the parent company of shares, corporate interests, bonds, or other securities or within the Group investment rights. Fiscal year (Article 24 of the Bylaws): from January 1 until Christian Dior SA is a holding company whose assets consist December 31. primarily of investments in Christian Dior Couture (wholly and directly owned) and in LVMH (42.4% ownership interest) Statutory distribution of profits (Article 26 of the Bylaws): the via Financière Jean Goujon SAS, a wholly owned subsidiary Shareholders’ Meeting then has the authority to deduct such of Christian Dior. 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 2.1.2 General information determine. Any remaining balance is to be distributed among all shareholders in the form of a dividend, prorated in accordance The complete text of the Bylaws is presented in §3 “Corporate with the share capital represented by each share. Governance” below. Shareholders’ Meetings (articles 17 to 23 of the Bylaws): Corporate name (article 3 of the Bylaws): Christian Dior Shareholders’ Meetings are convened and held under the Registered office(article 4 of the Bylaws): 30, avenue Montaigne conditions provided by the laws and decrees in effect. 75008 Paris. Telephone: +33 1 44 13 22 22 Rights, preferences and restrictions attached to shares Legal form (Article 1 of the Bylaws): Société anonyme (limited (Articles 6, 8, 17 and 30 of the Bylaws): all shares belong to the liability company) same category, whether issued in registered or bearer form. Jurisdiction (Article 1 of the Bylaws): the Company is governed Each share gives the right to a proportional stake in the ownership by French law. of the Company’s assets, as well as in the sharing of profits and of any liquidation surplus. Register of Commerce and Companies: the Company is registered in the Paris Register of Commerce and Companies under A voting right equal to twice the voting right attached to the number 582 110 987. APE code (company activity code): 7010Z. other shares is granted to registered shares for which evidence of registration under the name of the same shareholder for a Date of incorporation - Term (Article 5 of the Bylaws): Christian continuous period of three years may be demonstrated. This Dior was incorporated on October 8, 1946 for a term of 99 years, right was granted by the Extraordinary Shareholders’ Meeting which expires on October 7, 2045, unless the Company is of June 14, 1991 and may be removed by a decision of the dissolved early or extended by a resolution of the Extraordinary Extraordinary Shareholders’ Meeting, after ratification by a Shareholders’ Meeting. Special Meeting of beneficiaries of this right. Location where documents concerning the Company may Declaration of thresholds (Article 8 of the Bylaws): independently be consulted: the Bylaws, financial statements and reports, and of legal obligations, the Bylaws stipulate that any individual or the minutes of Shareholders’ Meetings may be consulted at the legal entity that becomes the owner of a fraction of capital registered office at the address indicated above. greater than or equal to 1% shall notify the total number of shares held to the Company. This obligation applies each time the portion of capital owned increases by at least 1%. It ceases 2.1.3 Additional information to apply when the shareholder in question reaches the threshold of 60% of the share capital. The complete text of the Bylaws is presented in §3 “Corporate Governance” below. Shares required to modify the rights of shareholders: the Bylaws do not contain any stricter provision governing changes Corporate purpose (Article 2 of the Bylaws): the taking and in shareholders’ rights than those required by the law. management of interests in any company or entity, whether commercial, industrial, or financial, whose direct or indirect Provisions governing changes in the share capital: the Bylaws activity involves the manufacture and/or dissemination of prestige do not contain any stricter provision governing changes in the products, through the acquisition, in any form whatsoever, share capital than those required by the law.
194 2008 Annual Report General information General information regarding the parent company and its share capital
2.2 Information regarding the capital
2.2.1 Share capital - Classes of shares Among these 181,727,048 shares, 126,483,627 conferred double voting rights as of December 31, 2008. As of December 31, 2008, 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. 2.2.2 Authorized share capital The shares issued by the Company are all of the same class. As of December 31, 2008, the Company had 206,194,859 shares of authorized share capital with a par value of 2.00 euros each.
2.2.3 Status of delegations and authorizations granted to the Board of Directors
General delegations of authority
Issue price Authorization Expiry/ determination Type date Duration Amount authorized method Use Capital increase with preferential subscription May 10, 2007 July 9, 2009 40 million euros Free None rights (ordinary shares, investment securities (8th resolution) (26 months) (1) 20,000,000 shares (2) (3) giving access to the share capital, and incorporation reserves) Capital increase without preferential May 10, 2007 July 9, 2009 40 million euros Based on None subscription rights (ordinary shares, (9th resolution) (26 months) (1) 20,000,000 shares (2) (3) regulations in force investment securities giving access to the share capital) Capital increase in connection May 10, 2007 July 9, 2009 with complex transactions: (10th resolution) (26 months) (1) • public exchange offer 40 million euros Free None 20,000,000 shares (2) (3) • contribution in kind 10% du capital Free None 18,172,704 shares (2)
(1) A resolution renewing this authorization will be presented to the Shareholders’ Meeting of May 14, 2009. See §8.2 of the management report of the Board of Directors. (2) Maximum nominal amount. The nominal amount of any capital increase decided in application of other delegations of authority or issues reserved for employees mentioned below would be offset against this amount. (3) Amount may be increased subject to the limit of 15% of the initial issue in the event that the issue is oversubscribed (Shareholders’ Meetings of May 10, 2007, 11th resolution).
Employee share ownership
Expiry/ Amount authorized/ Exercise price Use as of Type Authorization date Duration Number of shares determination method December 31, 2008 Share subscription or May 11, 2006 July 10, 2009 3% of share capital Average share price • granted: purchase options (14th resolution) (38 months) (1) 5,451,811 shares over the 20 trading days 984,000 preceding the grant • available to be granted: date (3) 4,467,811 Allocation of bonus shares May 15, 2008 July 14, 2011 1% of share capital N/A None (11th resolution) (38 months) 1,817,270 shares (2) Capital increase reserved for May 15, 2008 July 14, 2010 3% of share capital Average share price None employees who are members (12th resolution) (26 months) 5,451,811 shares (2) over the 20 trading days of a Corporate Savings Plan preceding the grant date Maximum discount: 30%
(1) A resolution renewing this authorization will be presented to the Shareholders’ Meeting of May 14, 2009. See §8.2 of the management report of the Board of Directors. (2) These issues would be offset against the maximum nominal amount of the capital increases decided in application of the above delegations of authority. (3) Maximum authorized discount: 20%. Moreover, with regard to share purchase options, the price shall not be lower than 80% of the average price of shares to be remitted by the Company when such options are exercised.
2008 Annual Report 195 General information General information regarding the parent company and its share capital
Share repurchase program
Type Authorization date Expiry/Duration Amount authorized Use Share repurchase program May 15, 2008 November 14, 2009 10% of share capital None Maximum purchase price per share: 130 euros (9th resolution) (18 months) (1) 18,172,704 shares Reduction of capital through May 15, 2008 November 14, 2009 10% of capital by None the retirement of shares purchased (10th resolution) (18 months) (1) 24 month period under the repurchase program 18,172,704 shares
(1) A resolution renewing this authorization will be presented to the Shareholders’ Meeting of May 14, 2009. See §8.2 of the management report of the Board of Directors.
2.2.4 Shareholder identification Article 8 of the Bylaws authorizes the Company to set up a shareholder identification procedure.
2.2.5 Non-capital securities The Company has not issued any non-capital securities.
2.2.6 Securities giving access to the Company’s capital No securities giving access to the Company’s capital are outstanding as of December 31, 2008.
2.2.7 Three-year summary of changes in the Company’s share capital
Issuance Successive amounts Par value Par value issued premium of share capital Cumulative number per share Type of transaction (EUR thousands) (EUR thousands) (EUR) of company shares (EUR) 2006 No shares created - - 363,454,096 181,727,048 2.00 2007 No shares created - - 363,454,096 181,727,048 2.00 2008 No shares created - - 363,454,096 181,727,048 2.00
2.3 Analysis of share capital and voting rights
2.3.1 Share ownership as of As of that date, 97,464,752 shares were in pure registered form December 31, 2008 (of which 3,366,380 were treasury shares). 32,495,513 shares were in administered registered form. As of December 31, 2008, the Company’s share capital comprised 181,727,048 shares. Of this total, taking into account shares held as 51,766,783 shares were bearer shares. treasury shares, voting rights were attached to 178,360,668 shares, As of December 31, 2008, 198 registered shareholders held at including 126,483,627 with double voting rights. least 100 shares.
196 2008 Annual Report General information General information regarding the parent company and its share capital
Number of Number of % of % of Shareholders shares voting rights (1) capital voting rights Groupe Arnault (2) 126,174,170 250,799,880 69.43 81.37 Other 55,552,878 57,410,795 30.57 18.63 Total 181,727,048 308,210,675 100.00 100.00
(1) Theoretical total number of voting rights. As of December 31, 2008, the total number of voting rights net of shares without voting rights was 304,844,295. As of December 31, 2008, there were 3,366,380 treasury shares without voting rights. (2) Groupe Arnault SAS, which is controlled by the family of Mr Bernard Arnault, is the ultimate holding company of Christian Dior.
To the Company’s knowledge: As of December 31, 2008, members of the Executive Committee and of the Board of Directors held directly, personally and in • no other shareholder held 5% or more of the Company’s share capital or voting rights, either directly, indirectly, or the form of registered shares less than 0.2% of the Company’s acting in concert; share capital and voting rights. • no shareholders’ agreement or any other agreement constituting During the fiscal year ended December 31, 2008 and as of an action in concert existed involving at least 0.5% of the February 20, 2009, no public tender or exchange offer nor price Company’s share capital or voting rights. guarantee was made by a third party involving the Company’s shares.
2.3.2 Changes in share ownership during the last three fiscal years
December 31, 2008 December 31,2007 December 31, 2006 Number of % of % voting Number of % of % voting Number of % of % voting Shareholders shares capital rights (1) shares capital rights (1) shares capital rights (1) Groupe Arnault 126,174,170 69.43 81.37 126,023,237 69.35 81.32 125,630,157 69.13 81.17 Of which: - Semyrhamis 107,982,000 59.42 70.07 107,982,000 59.42 70.07 107,982,000 59.42 70.05 - Financière Agache and related companies 18,192,170 10.01 11.30 18,041,237 9.93 11.25 17,648,157 9.71 11.12 Treasury shares 3,366,380 1.85 1.09 3,410,748 1.88 1.11 4,181,629 2.30 1.36 Free float – registered shares 1,968,175 1.08 1.25 1,902,040 1.04 1.22 1,991,546 1.10 1.28 Free float – bearer shares 50,218,323 27.64 16.29 50,391,023 27.73 16.35 49,923,716 27.47 16.19 TOTAL 181,727,048 100.00 100.00 181,727,048 100.00 100.00 181,727,048 100.00 100.00 (1) Theorectical voting rights.
2.3.3 Pledges of pure registered shares by 2.3.4 Natural persons or legal entities main shareholders that may exercise control over The Company is not aware of any pledge of pure registered the Company shares by the main shareholders. As of December 31, 2008, Groupe Arnault controlled 69.43% of share capital and 81.37% of voting rights. Groupe Arnault SAS, which is controlled by the family of Mr Bernard Arnault, is the ultimate holding company of Christian Dior. Mr. Bernard Arnault is Chairman of the Board of Directors of Christian Dior.
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3. Corporate governance
3.1 Charter of the Board of Directors
The Board of Directors is the strategy body of the Company • approve the Company’s annual and half-yearly financial Christian Dior. The competence, integrity and responsibility statements; of its members, clear and fair decisions reached collectively, • verify the quality, reliability and accuracy of the and effective and secure controls are the ethical principles that information about the Company and the Group provided govern the Board. to shareholders; The key priorities pursued by Christian Dior’s Board of Directors • disseminate the collective values that guide the Company and are enterprise value creation and the defense of the Company’s its employees and that govern relationships with consumers interests. and with partners and suppliers of the Company and the Christian Dior’s Board of Directors acts as guarantor of the Group; rights of each of its shareholders and ensures that shareholders • promote a policy of economic development consistent fulfill all of their duties. with a social and citizenship policy based on concepts that The Company adheres to the Code of Corporate Governance include respect for human beings and the preservation of the for Listed Companies published by AFEP and MEDEF. environment in which it operates. Each of these elements contributes to preserving the level of enterprise performance and transparency required to retain the 3.1.3 Operations of the Board of Directors confidence of shareholders and partners in the Group. The Board of Directors shall hold at least three meetings a year. 3.1.1 Structure of the Board of Directors Any individual who accepts the position of Director or permanent representative of a legal entity appointed as Director The Board of Directors shall have a maximum of 12 members, a of the Company shall agree to attend Board of Directors’ and third of whom are appointed from among prominent independent Shareholders’ Meetings regularly. persons with no interests in the Company. On the recommendation of the Board’s Nominations and In determining whether a Director may be considered as Compensation Committee, repeated unjustified absenteeism independent, the Board of Directors refers to the criteria set by a Director may cause the Board of Directors to reconsider forth in the AFEP/MEDEF Code of Corporate Governance his appointment. for Listed Companies. So that members can fully perform their duties, the Chairman The number of Directors or permanent representatives of legal of the Board of Directors, the Directors holding the positions entities from outside companies, in which the Chairman of the of Chief Executive Officer or Managing Director, and the Board of Directors or any Director serving as Chief Executive other Directors must report to the Board of Directors any and Officer or Managing Director holds an office, shall be limited all significant information they need to perform their duties as to two. members of the Board. Decisions by the Board of Directors shall be made by simple 3.1.2 Mission of the Board of Directors majority vote and are adopted as a board. The principal missions of the Board of Directors are to: If they deem appropriate, the independent Directors may meet without the other members of the Board of Directors. • ensure that the Company’s interests and assets are protected; For special or important issues, the Board of Directors may appoint several Directors to form one or more committees. • define the broad strategic orientations of the Company and the Group and ensure that their implementation is monitored; Each member of the Board of Directors shall act in the interests and on behalf of all shareholders. • select the Company’s management structure; Once each year, the Board of Directors evaluates its procedures • appoint the Chairman of the Board of Directors, Chief and informs shareholders as to its conclusions in a report presented Executive Officer and Managing Directors; to the Shareholders’ Meeting. In addition, at least once every three years, a fully documented review of the work of the Board, • control the Company’s management; its organization and its procedures is conducted.
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3.1.4 Responsibilities disqualifications from acting as a member of an administrative, management or supervisory body imposed by a court as well The members of the Board of Directors shall be required to as of any bankruptcy, receivership or liquidation proceedings familiarize themselves with the general and specific obligations to which they have been a party. of their office, and with all applicable laws and regulations. The Chairman of the Board of Directors shall apprize the Audit The members of the Board of Directors shall be required to and Performance Committee upon receiving any information respect the confidentiality of any information of which they of this type. may become aware in the course of their duties concerning the Company or the Group, until such information is made public by the Company. 3.1.5 Compensation The members of the Board of Directors agree not to trade in The Shareholders’ Meeting shall set the total amount of Directors’ the Company’s shares, either directly or indirectly, for their own fees to be paid to the members of the Board of Directors. account or on behalf of any third parties, based on information This amount shall be distributed among all members of the Board disclosed to them in the course of their duties that is not known of Directors and the advisors, if any, on the recommendation of to the public. Moreover, members of the Board of Directors who the members of the Directors’ Nominations and Compensation are beneficiaries of share option plans instituted by the Company, Committee, taking into account their specific responsibilities on undertake not to exercise all or a portion of their options during the Board (e.g. chairman participation on committees created the ten stock market trading days prior to the publication of the within the Board). annual or half-yearly consolidated financial statements. The Directors’ Nominations and Compensation Committee also The Directors agree to: have the capacity to recommend that all or part of the Directors’ • warn the Chairman of the Board of Directors of any fees be allocated based on the attendance rate of the members instance even potential, of a conflict of interest between at the meetings of the Board of Directors. their duties and responsibilities to the Company and their Exceptional compensation may be paid to some Directors for private interests and/or other duties and responsibilities; any special assignments and on the basis of the leadership role • abstain from voting on any issue that concerns them directly they assume. The amount shall be determined by the Board of or indirectly; Directors and reported to the Company’s Statutory Auditors. • inform the Chairman of the Board of Directors of any operation or agreement entered into with any Christian Dior Group 3.1.6 Scope of application company to which they are a party; This Charter shall apply to all members of the Board of Directors • provide details to the Chairman of the Board of Directors of and the Advisory Board. It must be given to each candidate for any formal investigation, conviction in relation to fraudulent the position of Director and to each permanent representative offenses, any official public incrimination and/or sanctions, any of a legal entity before they take office.
3.2 Internal rules of the Performance Audit Committee
A specialized committee responsible for auditing performance The Board of Directors shall appoint a Chairman of the Committee operates within the Board of Directors, acting under the exclusive, from among its members. The maximum term of the Chairman collective responsibility of the Board of Directors. of the Committee is five years. Neither the Chairman of the Board of Directors nor any 3.2.1 Structure of the Committee Director performing the duties of Chief Executive Officer or Managing Director of Christian Dior may be a member of the The Performance Audit Committee shall be made up of at Committee. least three Directors, two thirds of whom shall be independent Directors. Its members shall be appointed by the Board of A Director may not be appointed as a member of the Committee Directors. if he or she comes from a company for which an Christian Dior Director serves as a member of a committee comparable in function.
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3.2.2 Role of the Committee The Committee shall meet at least twice a year, without the Chairman of the Board of Directors or any Directors serving The principal missions of the Committee are to: as Chief Executive Officer or Managing Director, before the • review the parent company and consolidated financial Board of Directors’ meetings in which the agenda includes statements, before they are submitted to the Board of Directors; a review of the annual and half-yearly parent company and consolidated financial statements. • verify the relevance and permanence of the accounting policies and principles adopted by the Company and the transparent If necessary, the Committee may be required to hold special application of such policies and principles; meetings, when an event occurs that may have a significant effect on the parent company or consolidated financial statements. • verify the existence, pertinence, application, efficiency and effectiveness of internal procedures in this area; Any document submitted to the Committee in connection with its responsibilities shall be considered confidential as long as it • analyze the risks incurred by the Company and the Group and has not been made public by the Company. significant off-balance sheet commitments of the Company and the Group; The proceedings of the Committee are confidential and shall not be discussed outside the Board of Directors. • analyze changes in consolidation scope, debt, and foreign exchange or interest rate hedging; Decisions of the Committee shall be made by simple majority vote and shall be deemed to have been reached as a board. • review the findings and recommendations of the Statutory Auditors; The proceedings of each Committee meeting shall be recorded in minutes of the meeting. • be aware of major agreements entered into by any Group companies and any agreements involving one or more Group companies with one or more third-party companies in which 3.2.4 Prerogatives of the Committee a Director of the Christian Dior parent company is also a senior executive or principal shareholder; The Committee shall report on its work to the Board of Directors. It shall submit to the Board its findings, recommendations and • assess any instances of conflict of interest that may affect a suggestions. Director and recommend suitable measures to prevent or correct them; The Committee may request any and all accounting, legal or financial documents it deems necessary to carry out its • monitor the process for preparing financial information and responsibilities. verify the quality of this information. At its request, and without the Chairman of the Board, the Chief The Committee oversees the procedure for the selection of the Executive Officer or any Managing Director of Christian Dior Company’s Statutory Auditors and submits its recommendations being present, the Committee may interview the executives to the Board of Directors. and managers in the Company responsible for preparing the The Committee issues an opinion on the fees paid to Statutory financial statements and for conducting the internal audit, as Auditors, as well as those paid to the network to which they well as the Statutory Auditors. belong, by the Company and the companies it controls or is controlled by, whether in relation to their statutory audit mission or other related assignments. It examines the risks to 3.2.5 Compensation of Committee the independence of Statutory Auditors. members The Committee may also make recommendations to the The Committee members and its Chairman may receive a special management on general priorities and guidelines for Internal director’s fee, the amount of which shall be determined by the Audit. Board of Directors and charged to the total financial package allocated by the Shareholders’ Meeting. 3.2.3 Operating procedures of the Committee A Director’s agreement to serve on the Committee shall imply that he will devote the necessary time and attention to his duties on the Committee.
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3.3 Internal rules of the Nominations and Compensation Committee
A specialized committee responsible for the nomination and The Committee shall issue an opinion on the compensation compensation of Directors operates within the Board of Directors, and benefits in kind granted to the Company’s Directors and acting under the exclusive, collective authority of the Board advisors by the Group or its subsidiaries, and on the fixed or of Directors. variable, immediate or deferred compensation and incentive plans for the Group’s senior executives. It expresses its opinion on the general policy for the allocation of options and bonus 3.3.1 Structure of the Committee shares within the Group. The Board’s Nominations and Compensation Committee shall The Committee shall prepare a statement summarizing the be made up of at least three Directors and/or Advisors. The Directors’ fees actually paid to each Director. majority of its members shall be independent. Its members shall be appointed by the Board of Directors. The Committee shall prepare a draft report every year for the Shareholders’ Meeting, which it shall submit to the Board of The Board of Directors shall appoint a Chairman of the Committee Directors, on the compensation of senior executive officers, any from among its members. bonus shares granted to them in the previous year as well as any stock options granted or exercised by said officers in the Neither the Chairman of the Board of Directors, nor any Director same period. The report shall also list the ten employees of the serving as Chief Executive Officer or Managing Director of Company that received and exercised the most options. Christian Dior, or who are compensated by any Christian Dior subsidiary, may be a member of the Committee. A Director may not be appointed as a member of the Committee 3.3.3 Operating procedures of the if he or she comes from a company for which an Christian Dior Committee Director serves as a member of a committee comparable in function. A Director’s agreement to serve on the Committee implies that he will devote the necessary time and energy to his duties on 3.3.2 Role of the Committee the Committee. After undertaking its own review, the Committee is responsible for The Committee shall meet whenever necessary, either at the issuing opinions on applications and renewals for the positions of initiative of the Chairman of the Board of Directors, or the Director and Advisor, making certain that the Company’s Board Director serving as Chief Executive Officer, or of two Committee of Directors includes prominent independent persons outside members. the Company. In particular, it discusses the independence of The proceedings of the Committee are confidential and shall Board members with respect to applicable criteria. not be discussed outside the Board of Directors. The Committee’s opinion may also be sought by the Chairman Decisions by the Committee shall be made by simple majority of the Board of Directors or by any Directors serving as Chief vote and shall be deemed to have been reached as a board. Executive Officer or Managing Director, on potential members of the Group’s Executive Committee or candidates for senior management positions at the Company or Christian Dior Couture. 3.3.4 Prerogatives of the Committee It is the consultative body responsible for defining the measures to be taken in the event that such an office falls prematurely vacant. The Committee shall report on its work to the Board of Directors. It shall submit to the Board its findings, recommendations and After review, the Committee shall make recommendations on suggestions. the distribution of Directors’ fees paid by the Company. Members of the Committee may request any and all available The Committee shall make recommendations on the compensation, information that they deem necessary for the purposes of carrying benefits in kind, bonus shares and share purchase and subscription out their responsibilities. options granted to the Company’s Chairman of the Board of Directors, Chief Executive Officer and Managing Director(s). In Any unfavorable opinion issued by the Committee on any this capacity, it issues recommendations regarding the qualitative proposal must be substantiated. and quantitative criteria on the basis of which the variable portion of compensation for executive officers shall be determined as well as the performance conditions applicable to the exercise of 3.3.5 Compensation of Committee options and the definitive allocation of bonus shares. members It adopts positions on any supplemental pension schemes The members and Chairman of the Committee may receive a established by the Company in favor of its senior executives special director’s fee, the amount of which shall be determined and issues recommendations on any retirement benefits that by the Board of Directors and charged to the total financial might be paid to a particular executive officer upon leaving package allocated by the Shareholders’ Meeting. the Company.
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3.4. Bylaws (draft version)
The Bylaws presented hereafter incorporate the changes proposed It may be transferred to any other place within the same to the Shareholders’ Meeting of May 14, 2009. French administrative district (département) or any neighboring administrative district pursuant to a decision of the Board of Directors subject to the ratification of said decision by the next Part I Ordinary Shareholders’ Meeting, and to any other place pursuant to a resolution of the Extraordinary Shareholders’ Meeting. Legal form, Corporate name, Corporate purpose, Agencies, branch offices, warehouses and retail outlets may be Registered office and Duration established in any place and in any country, by simple resolution of the Board of Directors, which may later relocate or close Article 1 - Legal form these entities at its discretion.
Christian Dior SA, first established in the form of a limited liability Article 5 - Duration partnership under the terms of a private agreement concluded on October 8, 1946 in Paris, filed on October 18, 1946 with the The duration of the Company is ninety-nine years, starting from clerk of the Paris commercial court and published in the Journal its date of incorporation, on the eighth day of October, in the Spécial des Sociétés Françaises par Actions of October 18, 1946, was year one thousand nine hundred and forty-six. transformed into a joint-stock corporation (société anonyme) without creating a new legal entity, following a decision of the Extraordinary Meeting of Partners held on December 21, 1979. Part II It is governed by all applicable laws as well as the regulations established hereinafter and it shall also be governed by any laws Share capital and company shares and regulations that may enter into effect in future. Article 6 - Share capital Article 2 - Corporate purpose The share capital of the Company is 363,454,096 euros, consisting The Company’s purpose, in France and in any other country, of 181,727,048 fully paid-up shares with a par value of 2 euros is the taking and management of interests in any company or each, all of which belong to the same category. entity, whether commercial, industrial, or financial, whose direct or indirect activity involves the manufacture and/or The Company issued 4,351,808 shares further to the contribution by dissemination of prestige products, through the acquisition, in the various shareholders of Djedi Holding SA of 5,159,349 shares any form whatsoever, of shares, corporate interests, bonds, or held in absolute ownership and 206,374 shares held in bare ownership other securities or investment rights. in the said company, valued at 1,958,313,600 French francs. It may also pursue direct or indirect equity investment in any Article 7 - Changes in the share capital industrial or commercial operations by creating new companies, contributions, subscriptions, or purchases of shares or corporate The share capital may be increased or decreased by a resolution interests, merger, takeover, joint venture, or other method. of the Extraordinary Shareholders’ Meeting, as provided by law. More generally, it may also engage in any commercial, financial, The Shareholders’ Meeting may delegate the authority or powers and industrial activities and those involving real and moveable necessary to effect such a change to the Board of Directors. assets, in such a way as to facilitate, favor, or develop the Company’s activity. Article 8 - Company shares
Article 3 - Corporate name Payment for the shares Shares subscribed in cash must be paid up, upon subscription, in The name of the Company is: an amount equivalent to at least one-quarter of their par value, Christian Dior plus, where applicable, the entirety of the issue premium. The remainder shall be called by the Board of Directors within a In all legal instruments or documents issued by the Company and maximum period of five years. addressed to third parties, this name must always be immediately preceded or followed by the words “société anonyme” or the Payment for shares may be made by offsetting against liquid initials “SA”, which should appear legibly, and by the disclosure and demandable receivables due from the Company. of the amount of the share capital. Shareholders shall be informed of calls for funds at least fifteen days in advance, either by a notice inserted in a legal Article 4 - Registered office gazette published where the registered office is located or by The address of the Company’s registered office is: 22, avenue registered letter with acknowledgment of receipt sent to each Montaigne, F-75008 Paris, FRANCE. shareholder.
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Shares allocated in the form of a contribution in kind or by distribution or redemption, such that all taxes or tax exemptions way of the capitalization of unappropriated retained earnings, relating to said distribution or redemption shall be consolidated, reserves or issue premiums as well as shares the amount of which without distinction between the shares. results, in part, from an incorporation of reserves, unappropriated The liability of shareholders is limited to the amount of their retained earnings or issue premiums and in part, from a cash contribution to the Company’s share capital. payment, must be fully paid up upon issue. Under no circumstances may a shareholder’s heirs, Any late payment for shares incurs, automatically and without representatives or creditors apply for seals to be placed on prior formal notice, an interest charge due to the Company, or initiate proceedings against the Company’s property and calculated at the legal rate in commercial matters as of the assets, request the division or public sale by auction of the same, payment date, plus three percentage points. nor interfere in any way with the actions of the Company’s management. These individuals must refer to the Company’s Form of the shares schedules of assets and liabilities and must respect the decisions Fully paid-up shares may be in registered or bearer form, at the of Shareholders’ Meetings. discretion of the shareholder. When the owner of the shares is not a French resident, as defined Crossing of shareholding threshold in Article 102 of the French Civil Code, any intermediary may Any legal entity or natural person who comes to possess a be registered on behalf of such owner. Such registration may number of shares representing more than 1% of the Company’s be made in the form of a joint account or several individual share capital shall notify the Company no later than eight days accounts, each corresponding to one owner. after the crossing of this threshold and each time that a further threshold of 1% is crossed. However, this obligation shall cease At the time such account is opened through either the issuing to be applicable when the portion of capital held is equal to or company or the financial intermediary authorized as account greater than 60% of the Company’s share capital. holder, the registered intermediary shall be required to declare, under the terms and conditions laid down by decree, its capacity In the event of a failure to comply with this disclosure as intermediary holding shares on behalf of another party. obligation, the shares in excess of the percentage that should have been declared shall be deprived of their voting rights at Transfer of the shares any Shareholders’ Meeting to be held within a period of three months following the date on which proper notification is made, Shares are freely negotiable, unless as prohibited by applicable provided that a request to this effect has been recorded in the laws or regulations, in particular as regards shares with payments minutes of the Shareholders’ Meeting by one or more shareholders in arrears and contributing shares. holding at least 5% of the Company’s share capital. Registered shares are transferred via inter-account transfer based on the instructions of the account holder or his or her Identifiable bearer shares legal representative. In order to identify the holders of securities, the Company is entitled to request, at any time, at its own expense, that the Indivisibility central custodian of financial instruments provide the name, or Shares are indivisible as far as the Company is concerned. Joint in the case of a legal entity, the Company name, the nationality, holders of shares shall be required to be represented vis-à-vis the year of birth or incorporation, and the address of the the Company by only one of the joint holders or by a mutually holders of shares conferring the right to vote, immediately or agreed permanent representative. at some point in the future, at its own Shareholders’ Meetings, as well as the number of shares held by such natural persons Rights attached to the shares or legal entities and the restrictions, if any, which may exist Ownership of a share automatically implies acceptance of upon the shares. these Bylaws and of all resolutions passed by Shareholders’ In light of the list sent by the aforementioned body, the Company Meetings. shall be entitled to request information concerning the owners Each share entails the right to take part, as provided by law of the shares listed above, either through the intervention of and these Bylaws, in Shareholders’ Meetings and in votes on that body, or directly, under the same terms and conditions resolutions. and subject to the penalties stipulated in Article L. 228-3-2 of the French Commercial Code, of the persons appearing on that Each share entitles the holder to a share of corporate profits list and who might be, in the Company’s opinion, registered on and assets proportional to the number of outstanding shares, behalf of third parties. in consideration of the par value of the shares. When they act as intermediaries, such persons shall be required to All shares currently comprising, or that shall comprise in future, disclose the identity of the owners of such shares. This information the Company’s share capital are equivalent for tax purposes. shall be provided directly to the authorized financial intermediary Accordingly, each share shall entitle the holder, as much during holding the account, who shall, in turn, be responsible for the active existence of the Company as in the event of liquidation, communicating it to the issuing company or the aforementioned to the payment of the same net amount at the time of any body, as applicable.
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Part III A Director appointed to replace another Director shall serve as Director only for the remainder of the predecessor’s term of office. Chapter I: Corporate governance Article 10 - Shares held by Directors Article 9 - Composition of the Board of Directors Each member of the Board of Directors must own at least two Subject to the exceptions provided by law, the Company is hundred (200) shares of the Company for the entire duration administered by a Board of Directors composed of at least of his, her or its term of office. three and no more than twelve members, appointed by the Shareholders’ Meeting for a term of office lasting three years. If, when appointed, a member of the Board of Directors does not own the required number of shares, or if the member ceases A legal entity may be appointed as a Director but is required, at to own this required number at any point in his, her or its term the time of its appointment, to designate an individual who shall of office, the member shall be allowed a period of six months to serve as its permanent representative on the Board of Directors. purchase a sufficient number of shares, failing which he, she or The term of office of a permanent representative is the same as it shall be automatically considered to have resigned. that of the legal entity director he or she represents and must be reconfirmed at each renewal of the latter’s term of office. Article 11 - Organization of the Board of Directors When the legal entity dismisses its permanent representative, it The Board of Directors shall elect a Chairman, who must be an must at the same time provide for its replacement, and must send individual, from among its members. It shall determine his term notification to the Company, by registered letter, of this dismissal of office, which cannot exceed that of his office as Director. as well as the identity of the new permanent representative. The same provision applies in case of death or resignation of The Chairman of the Board of Directors cannot be more than the permanent representative. seventy-five years old. Should the Chairman reach this age limit during his term of office, his appointment shall be deemed to A Director’s appointment shall terminate at the close of the have expired at the close of the Ordinary Shareholders’ Meeting Ordinary Shareholders’ Meeting convened to approve the convened to approve the financial statements of the fiscal year accounts of the preceding fiscal year and held in the year during during which the limit was reached. Subject to this provision, which the term of office of said Director comes to an end. the Chairman of the Board may always be re-elected. However, in order to allow a renewal of the terms which is as In case of temporary disability or death of the Chairman, the egalitarian as possible and in any case complete for each period Board may temporarily delegate a Director to perform the duties of three years, the Board of Directors will have the option to of the Chairman. In case of temporary disability this delegation determine the order of retirement of the Directors by the impartial is granted for a limited duration and is renewable. In case of selection in a Board Meeting of one-third of the Directors each death it is granted until the election of the new Chairman. year. Once the rotation has been established, renewals will take place according to seniority. The Board of Directors may also appoint a secretary, who may or may not be chosen from among the members of the Board. Nobody being more than eighty-five years old shall be appointed Director if, as a result of his or her appointment, the number of Directors who are more than eighty-five years old would Article 12 - Operation of the Board of Directors exceed one-third of the members of the Board. The number of 1. The Board meets as often as required by the interests of members of the Board of Directors who are more than eighty-five the Company and is convened by its Chairman on his own years old may not exceed one-third, rounded to the next higher initiative, or if he is not also the Chief Executive Officer, at number if this total is not a whole number, of the Directors in the request of the Chief Executive Officer or the Director office. Whenever this limit is exceeded, the term in office of the temporarily delegated to perform the duties of Chairman. oldest appointed member shall be deemed to have expired at the close of the Ordinary Shareholders’ Meeting convened to If the Board of Directors has not met for more than two months, approve the financial statements of the fiscal year during which a meeting may also be convened by any group of Directors, the limit was exceeded. representing at least one-third of the members of the Board, who shall indicate the agenda of the meeting. Directors may be re-elected indefinitely. They may be revoked at any time by decision of the Ordinary Shareholders’ Meeting. Meetings are held at the registered office or at any other location specified in the convening notice. Meetings of the In case of death or resignation of one or more Advisors, the Board are chaired by the Chairman of the Board of Directors, Board of Directors may, between two Shareholders’ Meetings, or by the Director temporarily designated to perform the make provisional appointments, subject to their ratification by duties of Chairman or, if unavailable, by another Director the next Ordinary Shareholders’ Meeting. selected by the Board of Directors. When the number of members of the Board of Directors falls Notice is served in the form of a letter sent to each Director, below the statutory minimum, the remaining Directors must at least eight days prior to the meeting; it shall mention the immediately convene an Ordinary Shareholders’ Meeting in order agenda of the meeting as set by the person(s) convening the to supplement the membership of the Board of Directors. meeting. However, the Board may meet without notice upon
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verbal notice and the agenda may be set at the opening of the In its relations with third parties, the Company is bound even meeting if all Directors in office are present or represented or by acts of the Board of Directors falling outside the scope of the when it is convened by the Chairman during a Shareholders’ corporate purpose, unless it demonstrates that the third party Meeting. knew that the act exceeded such purpose or that it could not have ignored it given the circumstances, it being specified that Any Director may give a proxy to another Director, even mere publication of the Bylaws is not sufficient proof thereof. by letter or cable, to represent him and vote on his behalf on resolutions of the Board of Directors, for a specific meeting. The Board of Directors performs such monitoring and verifications However, each Director may only dispose of one proxy as it deems appropriate. Each Director receives all necessary during the meeting. information for completing his assignment and may request any documents he deems useful. An attendance register shall be kept and signed by all the Directors attending each meeting. The Board of Directors distributes among its members the total amount of attendance fees voted by the Shareholders’ Meeting. 2. The Board may validly act only if at least one-half of its members are present. The decisions of the Board of Directors shall be carried out either by the Chief Executive Officer or by any person specifically Directors who participate in Board meetings by means of appointed by the Board for that purpose. videoconferencing or other telecommunication methods under the conditions defined by the internal rules and regulations of Furthermore, the Board may grant one of its members or any the Board of Directors shall be deemed to be present for the third parties, whether shareholders or not, any special offices purposes of calculating the quorum and majority. However, for one or more specific purposes, with or without the option, actual presence or representation shall be necessary for any for the persons so appointed, to themselves delegate, whether Board resolutions relating to the preparation of the parent in full or in part, the performance of these duties. company financial statements and consolidated financial It may also resolve to create committees responsible for studying statements, and to the drafting of the management report such issues as it may submit thereto for examination. and the report on the Group’s management. Decisions are made by a majority of the votes of members Article 14 - Remuneration of the Directors present or represented. In the event of a tie vote, the Chairman’s vote is the deciding vote. The Shareholders’ Meeting may allocate to the Directors in remuneration for their services a fixed sum as attendance fees, 3. Proceedings of the Board of Directors shall be officially the amount of which is to be included in the overhead expenses recorded in the form of minutes in a special numbered and of the Company. initialed minute book kept at the registered office, or on separate sheets, consecutively numbered and initialed. The Board shall divide the amount of these attendance fees among its members as it deems fit. In particular, it may decide These minutes shall be signed by the Chairman of the meeting to allow Directors who serve on committees a greater portion and by a Director. If the Chairman of the meeting is unavailable, of these fees. they may be signed by two Directors. It may also allow exceptional remuneration for specific duties The production of abstracts or copies of the minutes to a or offices assigned to Directors. meeting shall serve as sufficient justification of the number These payments shall be subject to the legal provisions applicable of Directors in office and their presence or representation by to agreements requiring the prior authorization of the Board proxy at the meeting. of Directors. To be valid, copies or abstracts of the minutes of the meeting shall be certified by the Chairman of the Board of Directors, Article 14 b - Advisors the Chief Executive Officer, the Secretary, the Director temporarily delegated to perform the duties of Chairman, or Between one and three Advisors may be appointed, each for by a representative duly authorized to that effect. a term of no longer than three years, although they may be re-elected. Their appointment or dismissal is subject to the In the event of the liquidation of the Company, these copies same rules as those applying to Directors. However, Advisors or abstracts shall be validly certified by a single liquidator. need not be shareholders and as such are not subject to rules relating to the holding of multiple appointments as Directors Article 13 - Powers of the Board of Directors or to similar positions. The Board of Directors sets guidelines for the Company’s Advisors are convened to the meetings of the Board of Directors, activities and shall ensure their implementation. Subject to the in which they have a consultative vote. The remuneration powers expressly granted to the Shareholders’ Meetings and paid to Advisors is determined each year by the Board of within the limits of the corporate purpose, it addresses any Directors and is set off from the total attendance fees allocated issue relating to the Company’s proper operation and settles by the Shareholders’ Meeting to the members of the Board of the affairs concerning it through its resolutions. Directors.
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Chapter II: Management of the Company The provisions of the Bylaws or decisions of the Board of Directors limiting the powers of the Chief Executive Officer Article 15 - Chairman of the Board of Directors and are not binding on third parties. General Management 3 - Managing Directors Upon the proposal of the Chief Executive Officer, the Board of I - Chairman of the Board of Directors Directors may appoint one or more individuals responsible for The Chairman of the Board of Directors chairs the meetings assisting the Chief Executive Officer, with the title of Managing of the Board, and organizes and directs its work, for which he Director, for whom it shall set the compensation. reports to the Shareholders’ Meeting. He ensures the proper operation of the corporate bodies and verifies, in particular, that The number of Managing Directors may not exceed five. the Directors are capable of fulfilling their assignments. Managing Directors may be dismissed at any time by the Board The Board shall determine the compensation to be paid to the of Directors, upon the proposal of the Chief Executive Officer. Chairman. If the dismissal is decided without just cause, it may give rise to damages. II - General Management When the Chief Executive Officer ceases to exercise his duties 1 - Choice between the two methods or is prevented from doing so, the Managing Directors remain of General Management in office with the same powers until the appointment of the The Company’s General Management is performed, under his new Chief Executive Officer, unless resolved otherwise by responsibility, either by the Chairman of the Board of Directors, the Board. or by another individual appointed by the Board of Directors In agreement with the Chief Executive Officer, the Board of and bearing the title of Chief Executive Officer, depending upon Directors sets the scope and duration of the powers granted to the decision of the Board of Directors choosing between the Managing Directors. With regard to third parties, they shall two methods of exercising the General Management function. have the same powers as the Chief Executive Officer. It shall inform the shareholders thereof in accordance with the regulatory conditions. The age limit for eligibility to perform the duties of Managing Director is sixty-five years. Should a Managing Director reach When the Company’s General Management is assumed by the this age limit during his term of office, his appointment shall be Chairman of the Board of Directors, the following provisions deemed to have expired at the close of the Ordinary Shareholders’ relating to the Chief Executive Officer shall apply to him. Meeting convened to approve the financial statements of the 2 - Chief Executive Officer fiscal year during which the limit was reached. The Chief Executive Officer may or may not be chosen from among the Directors. The Board sets his term of office as well as Chapter III: Company audit his compensation. The age limit for serving as Chief Executive Officer is sixty-five years. Should the Chief Executive Officer Article 16 - Statutory Auditors reach this age limit, his term of office shall be deemed to have The Company shall be audited by one or more Statutory Auditors expired at the close of the Ordinary Shareholders’ Meeting appointed by the Ordinary Shareholders’ Meeting. convened to approve the financial statements of the fiscal year during which the limit was reached. One or more alternate Statutory Auditors shall also be appointed. The Chief Executive Officer may be dismissed at any time by the Board of Directors. If the dismissal is decided without just cause, The term of office for a Statutory Auditor is six years, expiring it may give rise to damages, unless the Chief Executive Officer following the Ordinary Shareholders’ Meeting convened to assumes the duties of Chairman of the Board of Directors. approve the financial statements for the sixth fiscal year. The Chief Executive Officer is vested with the most extensive Statutory Auditors may be removed from office by the powers to act under any circumstances on behalf of the Company. Shareholders’ Meeting in the event of negligence or inability. He exercises such powers within the limits of the corporate They are required to attend meetings of the Board of Directors purpose, and subject to the powers expressly granted by law to convened to approve the annual or interim financial statements the Shareholders’ Meeting and to the Board of Directors. of the preceding fiscal year as well as all Shareholders’ He shall represent the Company in its relations with third parties. Meetings. The Company is bound even by acts of the Chief Executive The remuneration paid to Statutory Auditors is determined in Officer falling outside the scope of the corporate purpose, accordance with applicable regulatory procedures. unless it demonstrates that the third party knew that the act exceeded such purpose or could not have ignored it given the A Statutory Auditor appointed to replace another shall remain circumstances, it being specified that mere publication of the in office only until the expiration of the term of office of his or Bylaws is not sufficient to establish such proof. her predecessor.
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Part IV behalf as of the fourth 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 Shareholders’ Meetings 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 Chapter I: General provisions as account holder. Article 17 Holders of shares shall not be admitted to Shareholders’ Meetings with respect to the shares not paid up within a period of thirty Impact of decisions calendar days from the notice issued by the Company. These shares shall be subtracted when calculating the quorum. Shareholders’ Meetings deemed to be duly convened and held represent all shareholders. Decisions taken during Shareholders’ A shareholder can always be represented by another shareholder Meetings, in accordance with the law and the provisions of these who is not deprived of voting rights or by his or her spouse; Bylaws, shall be binding for all shareholders, even those who for this purpose, the proxy must demonstrate his or her are absent, indisposed or dissenting. authorization.
Convening notices Shareholders may address their proxy form and/or their voting form for any Meeting, in accordance with applicable laws Shareholders meet each year, within six months of the account and regulations, either by mail or, if decided by the Board of closing, in an Ordinary Shareholders’ Meeting. Directors, by electronic transmission. Pursuant to the provisions Other Shareholders’ Meetings, either Ordinary Shareholders’ of Article 1316-4, paragraph 2 of the French Civil Code, in Meetings held on an extraordinary basis or Extraordinary the event of the use of an electronically submitted form, the Shareholders’ Meetings, may be convened at any time during shareholder’s signature shall make use of a reliable identification the year. process that ensures the link with the document to which it is attached. Convening notices are sent to shareholders at least fifteen days prior to the planned date of the Shareholders’ Meeting. This A shareholder having voted by mail or by electronic transmission, period is reduced to six days for Shareholders’ Meetings convened sent a proxy or requested an admittance card or certificate on second notice and for postponed meetings. stating the ownership of shares may not select another means of taking part in the Meeting. Meetings are convened by way of a notice inserted in a newspaper authorized to publish legal announcements in the administrative Any shareholder not deprived of voting rights may be appointed district where the registered office is located and, in addition, as a proxy by another shareholder in order to be represented if the Company’s shares are publicly traded, in the Bulletin at a Meeting. d’Annonces Légales Obligatoires. Shareholders who have held Any intermediary who meets the requirements set forth in registered shares for at least one month on the date a convening paragraphs seven and eight of Article L. 228-1 of the French notice is published shall be invited to attend the Shareholders’ Commercial Code may, pursuant to a general securities Meeting by letter. management agreement, transmit to a Shareholders’ Meeting If all shares are held in registered form, the publication of a the vote or proxy of a shareholder, as defined in paragraph convening notice may be replaced by an invitation, sent at the seven of that same article. Company’s expense, in the form of a simple letter addressed to Before transmitting any proxies or votes to a Shareholders’ each shareholder. Meeting, the intermediary registered pursuant to Article L. 228-1 Procedures followed for convening notices are independent of of the French Commercial Code shall be required, at the request any preliminary notices sent to shareholders, in the form and of the issuing company or its agent, to provide a list of the within the deadlines laid down by law, relating to any requests non-resident owners of the shares to which such voting rights they may have filed for the inclusion of proposed resolutions are attached. Such list shall be supplied as provided by either in the agenda of a Shareholders’ Meeting. Article L. 228-2 or Article L. 228-3 of the French Commercial Code, whichever is appropriate. Attendance at Shareholders’ Meetings A vote or proxy issued by an intermediary who either is The Shareholders’ Meeting is made up of all shareholders, not declared as such, or does not disclose the identity of the irrespective of the number of shares they own. shareholders, may not be counted. The right to attend and vote at Shareholders’ Meetings is Legal representatives of legally incapacitated shareholders, and subject to the registration of the shareholder in the Company’s natural persons representing shareholders that are legal entities, share register. shall take part in Meetings regardless of whether or not they personally are shareholders. A shareholder is entitled to attend and vote at any Meeting provided that the shares held are registered in the name of the Shareholders have as many votes as they hold shares. However, shareholder or intermediary authorized to act on his or her a voting right equal to twice the voting right attached to other
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shares with respect to the portion of the share capital that they An attendance sheet is drawn up and initialed by the shareholders represent, is granted: present, and certified as accurate by the Officers of the Meeting. • to all fully paid-up registered shares for which evidence of registration under the name of the same shareholder, over a Proceedings of the Shareholders’ Meeting shall be officially period of least three years, may be demonstrated; recorded in the form of minutes in a special numbered and initialed minute book kept at the registered office, or on separate • to registered shares allocated to a shareholder in event of sheets, consecutively numbered and initialed. increase of the capital through the capitalization of reserves, or unappropriated retained earnings, or issue premiums, by These minutes shall be signed by the Officers of the Meeting. virtue of this shareholder’s entitlement to benefit from this Copies or abstracts of the minutes shall be validly certified by the right in respect of existing shares. Chairman of the Board of Directors, by a Director temporarily delegated to perform the duties of the Chief Executive Officer, This double voting right shall automatically lapse in the case of or by the Secretary of the Meeting. registered shares being converted into bearer shares or conveyed in property. However, any transfer by right of inheritance, by way of liquidation of community property between spouses Chapter II: Ordinary Shareholders’ Meetings or deed of gift inter vivos to the benefit of a spouse or an heir shall neither cause the acquired right to be lost nor interrupt the Article 19 - Powers abovementioned three-year qualifying period. This is also the case for any transfer due to a merger or spin-off of a shareholding The Ordinary Shareholders’ Meeting shall hear the reports company. prepared by the Board of Directors, its Chairman, and the Statutory Auditors. It also reviews the financial statements When a Works Council exists within the Company, two of its prepared by the Company. members, appointed by the Council, may attend Shareholders’ Meetings. At their request, their opinions must be heard on The Meeting discusses, approves, amends or rejects the financial the occasion of any vote requiring the unanimous approval of statements submitted. It decides upon the distribution and shareholders. appropriation of profits. It decides upon any amounts to be allocated to reserve funds. Article 18 - Convening and conduct of Shareholders’ It also determines the amounts to be withdrawn from reserves Meetings and decides upon their distribution. Shareholders’ Meetings shall be convened as provided by It determines the total amount of attendance fees to be allocated law. to the members of the Board of Directors. Meetings are held at the registered office or at any other place It appoints, replaces, re-elects or dismisses Directors. mentioned in the convening notice. It ratifies any appointments of Directors made on a provisional In accordance with the conditions set by applicable legal and basis by the Board of Directors. regulatory provisions, and pursuant to a decision of the Board of Directors, Shareholders’ Meetings may also be held by means of It appoints the Statutory Auditors and examines their special videoconference or through the use of any telecommunications report. media allowing the identification of shareholders. It hears all proposals that do not fall within the exclusive remit A Shareholders’ Meeting is chaired by the Chairman of the of the Extraordinary Shareholders’ Meeting. Board of Directors or, in his absence, by the Vice Chairman of the Board of Directors or, in the absence of both of these Article 20 - Quorum and majority individuals, by a member of the Board of Directors appointed In order to pass valid resolutions, the Ordinary Shareholders’ by the Board for that purpose. If no such person has been Meeting, convened upon first notice, must consist of shareholders, appointed, the Meeting elects its Chairman. present or represented, holding at least one-fifth of total voting The agenda of the Meeting shall be set, in the usual course of shares. events, by the person(s) convening the Meeting. When convened upon second notice, the deliberations of an The two Members of the Meeting present, having the greatest Ordinary Shareholders’ Meeting shall be valid regardless of number of votes, and accepting that role, are appointed as the number of shares represented. Scrutineers. The resolutions of the Ordinary Shareholders’ Meeting are The Officers of the Meeting appoint a Secretary, who may but approved by a majority of the votes held by the shareholders need not be a shareholder. present or represented.
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Chapter III: Extraordinary Shareholders’ Meetings Part V
Article 21 - Powers Parent company financial statements The Extraordinary Shareholders’ Meeting may amend the Bylaws in any of its provisions and it may also decide upon the Article 24 - Fiscal year transformation of the Company into a company having any other legal form. Each fiscal year has a duration of twelve months beginning on January 1 and ending on December 31. However, in no event, unless by unanimous decision of the shareholders, may it increase the duties of the latter, nor may Article 25 - Company accounts it violate the principle of equal treatment of all shareholders, except in the case of transactions resulting from a duly completed Regular accounts shall be kept of the Company’s operations in regrouping of shares. conformity with the law and normal commercial practice. At the end of each fiscal year, the Board of Directors shall draw Article 22 - Quorum and majority up the schedule of the assets and liabilities existing as of the 1. In order to pass valid resolutions, the Extraordinary balance sheet date as well as the annual accounts. The amount Shareholders’ Meeting, convened upon first notice, must of commitments in the form of sureties, guarantees or collateral consist of shareholders, present or represented, holding at shall be mentioned in the balance sheet. least one-fourth of total voting shares. The deliberations of The Board of Directors shall also draw up a management an Extraordinary Shareholders’ Meeting convened upon report. second notice or held as a result of the postponement of the meeting convened upon second notice shall be valid provided All of these documents shall be made available to the Statutory it consists of shareholders holding at least one-fifth of total Auditors in accordance with applicable laws and regulations. voting shares. Article 26 - Distributable earnings The resolutions of the Extraordinary Shareholders’ Meeting shall be adopted by a two-thirds majority of the votes of the 1. The net proceeds of each fiscal year, minus general expenses shareholders present or represented. and other expenses incurred by the Company, including all amortization, depreciation and provisions, represents the net 2. When deciding upon or authorizing the Board of Directors profit or loss of the fiscal year. to effect a capital increase through the incorporation of reserves, unappropriated retained earnings, or issue premiums, 2. From the net profit for each fiscal year, minus prior losses, resolutions are passed subject to the quorum and majority if any, an amount equal to at least one-twentieth must be conditions of Ordinary Shareholders’ Meetings. deducted and allocated to the formation of a “legal reserve” fund. This deduction is no longer required when the amount 3. A capital increase effected by way of an increase in the of the legal reserve has reached one-tenth of the share capital par value of shares to be paid up in cash, or through the of the Company. It is resumed when, for any reason, the legal offsetting of receivables, requires the unanimous approval reserve falls below this fraction. of shareholders, representing the entirety of shares making up the share capital. 3. Distributable earnings consist of the remaining balance, plus any profits carried forward. Chapter IV: Constitutive Shareholders’ Meetings From these distributable earnings: The Shareholders’ Meeting may deduct the necessary amounts Article 23 - Quorum and majority for allocation to the special reserve for long-term capital gains, Constitutive Shareholders’ Meetings, which are those convened as provided for by current tax provisions, if other legal or to approve contributions in kind or benefits in kind, shall pass optional reserves do not allow such contribution at the time valid resolutions subject to the quorum and majority conditions the allocation is taxable in order to defer payment at the full of Extraordinary Shareholders’ Meetings. corporate income tax rate applicable to long-term capital gains realized during the year. At these Meetings, neither the contributor nor the beneficiary may vote, on his or her own behalf or as a proxy. His or her The Shareholders’ Meeting may then deduct from the balance shares shall not be taken into account when calculating the such sums as it deems appropriate, either to be carried forward quorum and majority. to the following fiscal year, or to be applied to one or more general or special reserve funds, whose allocation or use it shall freely determine.
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Any remaining balance shall be distributed among all shareholders Article 29 - Premature dissolution and extension in the form of a dividend, prorated in accordance with the share capital represented by each share. An Extraordinary Shareholders’ Meeting may at any time declare the premature dissolution of the Company or, at the expiration The Shareholders’ Meeting convened to approve the year’s of the Company’s term of existence, its extension. financial statements may grant each shareholder, upon the proposal of the Board of Directors, in relation to all or part At least one year prior to the expiration of the Company’s term of of the dividend distributed, a choice between payment of the existence, the Board of Directors shall convene an Extraordinary dividend in cash or in shares. The Board of Directors has the Shareholders’ Meeting, in order to decide whether the Company’s same authority for the distribution of interim dividends. term ought to be extended. 4. Except in the case of a capital reduction, no distribution Article 30 - Liquidation may be made to shareholders when net assets are or would subsequently become less than the total share capital. Upon the expiration of the Company’s term of existence or in the event of its premature dissolution, the Shareholders’ Meeting shall decide the methods of liquidation and appoint one or several Part VI liquidators whose powers it shall determine. The appointment of the liquidator(s) terminates the office of Transformation, Dissolution, Extension, the Directors and that of the Statutory Auditors. Liquidation and Litigation During the period of the liquidation, the Shareholders’ Meeting shall retain the same powers as those it exercised during the Article 27 - Transformation existence of the Company. The Company may be transformed into a company having a The net proceeds of the liquidation, after payment of liabilities, different legal form provided that, at the time of the transformation, shall be used first for the repayment of the amount paid up on it has been in existence for at least two years and the balance shares that has not already been repaid to shareholders by the sheets of its first two years of existence have been approved by Company, with the balance divided among all the shares. the shareholders. The shareholders are convened at the end of the liquidation in Any transformation of the Company must be decided upon and order to decide on the final accounts, to discharge the liquidators published as provided by law. from liability for their acts of management and the performance of their office, and to formally acknowledge the termination of Article 28 - Net assets amounting to less than one-half the liquidation process. The conclusion of the liquidation shall of the share capital be published as provided by law.
If, as a consequence of losses showed by the Company’s accounts, Article 31 - Litigation and election of domicile the net assets (“capitaux propres”) of the Company are reduced to below one-half of the share capital of the Company, the Any litigation that may arise, during the term of existence of Board of Directors shall, within four months from the approval the Company or its liquidation, either between the shareholders of the accounts showing such loss, convene an Extraordinary and the Company, or among the shareholders themselves, with Shareholders’ Meeting in order to decide whether the Company respect to company activities, shall be heard by the competent ought to be dissolved before its statutory term. courts with jurisdiction over the location of the Company’s registered office. If the dissolution is not resolved, the Company must, no later than the end of the second fiscal year following the fiscal year To this end, all shareholders must elect domicile within the same during which the losses were established, reduce its share capital area of jurisdiction as the registered office and all summons or by an amount at least equal to the losses which could not be notices shall be validly served at this domicile. charged to reserves if, by the conclusion of the aforementioned Where no such domicile is elected, summons and notices period, the net assets have not been replenished to an amount shall be validly served before the Procureur de la République at least equal to one-half of the share capital. (French public prosecutor) at the Tribunal de Grande Instance In either case, the resolution adopted by the Shareholders’ (French civil court) that has jurisdiction over the location of Meeting shall be published, in accordance with the law. the registered office.
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4. Stock market information
4.1 Share capital
As of December 31, 2008, Dior’s share capital amounted to 363,454,096 euros, consisting of 181,727,048 shares with a par value of 2 euros. The number of shares remained unchanged during 2008.
4.2 Dior share price
The financial crisis that began at the end of the first half of 2007 In this difficult environment, the Christian Dior share price, after continued to spread and deepen in 2008. Initially impacting having risen by 11% in 2007, declined by 55% as of December 31, mainly the credit markets and banking institutions, the troubled 2008. In comparison, over the same period, the European climate underwent a change in shape and magnitude following indexes DJ Euro Stoxx and Euronext 100 fell by 46% and the demise of Lehman Brothers in September 2008. This major 45%, respectively, while the Dow Jones industrial average lost failure exacerbated an already difficult economic situation 34% of its value. around the world, leading to a general loss of confidence and Christian Dior’s closing share price on December 31, 2008 paralysis in the financial markets, forcing some categories of was 40.25 euros. As of the same date, Christian Dior’s market investors to sell off their assets. There were serious repercussions capitalization was 7.3 billion euros. Christian Dior is a component for share prices, consumer behavior and corporate strategies. of the Euronext 100 and DJ Euro Stoxx stock exchange Economic conditions worsened considerably in the United States, indexes. Christian Dior’s shares are listed on Compartment A Europe and Japan as well as in emerging markets. Against this of Euronext Paris (Reuters: DIOR.PA, Bloomberg: CD i-FP, backdrop, equity markets, following several consecutive years ISIN: FR0000130403). of growth – five in Europe – experienced one of the steepest In addition, negotiable options based on the Christian Dior declines ever recorded. share are traded on Euronext-Liffe.
4.3 Bonds issued by Christian Dior
Bonds issued by Christian Dior that were outstanding on December 31, 2008 are listed for trading as shown below:
Bonds listed in Brussels
Amount outstanding Year of Year of Interest rate Currency (in currency) issue maturity (in %) EUR 150,000,000 2006 2011 4.25 EUR 50,000,000 2008 2011 5.875
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4.4 Price trend of the christian dior share and volume of stock traded in Paris
90
80
70
60
50
40 1,000,000 30
20 500,000 10
0 0
4.5 Five-year review of dividends
(*) Proposed to the Shareholders’ Meeting of May 14, 2009.
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4.6 Payment of dividend
The dividend of 1.61 euros (before impact of the tax regulation applicable to beneficiaries)will be paid at the Company’s corporate headquarters on May 25, 2009, less the interim dividend of 0.44 euros distributed on December 2, 2008.
4.7 Stock market capitalization
As of December 31 (EUR millions) • 2006 14,674 • 2007 16,337 • 2008 7,315
4.8 Change in share capital
Number of shares as of December 31, 2007 181,727,048 Shares created - Number of shares as of December 31, 2008 181,727,048
4.9 Per share performance
(EUR) 2008 2007 2006 Diluted Group share of net earnings 4.43 4.86 4.41 Dividend 1.61 1.61 1.41 Change compared to previous year - +14% +22% Highest share price (during market trading) 88.99 97.97 87.15 Lowest share price (during market trading) 30.18 79.10 69.00 Share price as of December 31 (closing share price) 40.25 89.90 80.75 Change compared to previous year -55% +11% +8%
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4.10 Market for issuer’s shares
The Company’s shares are listed on Eurolist (Compartment A) of Euronext Paris.
Trading volumes and amounts on the Paris bourse, and price trend over the last 18 months
Opening price Closing price Highest* share Lowest* share Trading Value of share 1st day (EUR) last day (EUR) price (EUR) price (EUR) volume capital traded (EUR) September 2007 89.97 89.74 90.14 83.73 3,347,264 290,918,818 October 2007 88.22 93.95 94.48 88.22 4,286,184 394,446,604 November 2007 94.00 89.37 94.50 82.68 6,052,418 530,557,770 December 2007 91.15 89.90 91.15 85.50 4,580,923 402,627,716 January 2008 89.75 73.81 89.99 64.54 7,618,302 578,953,535 February 2008 74.12 72.31 77.60 71.40 4,254,933 314,833,426 March 2008 71.60 70.11 72.55 64.63 3,611,247 248,130,407 April 2008 69.98 73.82 74.33 64.75 5,325,309 370,719,259 May 2008 74.19 77.71 79.50 73.56 4,616,482 353,765,475 June 2008 77.50 65.50 77.87 65.14 3,967,217 284,444,195 July 2008 65.28 69.40 70.40 59.00 4,152,865 271,573,896 August 2008 69.80 72.80 74.15 67.60 3,238,918 230,137,612 September 2008 72.37 53.07 75.46 51.48 5,198,337 336,367,607 October 2008 54.02 47.23 54.14 37.78 11,090,893 504,258,718 November 2008 48.20 36.10 51.50 30.18 7,851,626 296,588,719 December 2008 36.22 40.25 41.85 33.63 6,025,671 231,339,881 January 2009 40.50 39.06 44.28 34.60 5,383,332 208,969,836 February 2009 39.08 39.785 45.06 37.31 4,433,542 183,015,515
(*) Share price during market trading.
4.11 D ividends paid per share in fiscal years 2004, 2005, 2006, 2007 and 2008 (EUR)
Year Dividend Tax credit (1) Tax allowance (1) 2008 (3) 1.61 - 0.644 2007 1.61 - 0.644 2006 1.41 - 0.564 2005 1.16 - 0.496 2004 0.97 0.16 (2) 0.325
(1) For individuals with tax residence in France. (2) 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. (3) Proposed to the Shareholders’ Meeting of May 14, 2009. Dividend before impact of the tax regulation applicable to beneficiaries.
Pursuant to current laws in France, dividends and interim dividends uncollected within five years become void and are paid to the French state.
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5. Main locations and properties
5.1 Production
5.1.1 Wines and Spirits The vineyards in France and abroad owned by the Group are as follows:
2008 2007 Of which under Of which under (in hectares) Total production Total production France: Champagne name 1,805 1,684 1,788 1,671 Cognac name 246 179 220 185 Yquem 190 98 190 98 Other countries: California (United States) 473 364 464 320 Argentina 1,369 903 1,369 820 Australia, New Zealand 594 475 543 400 Brazil 232 59 232 62 Spain 51 41 - -
In the table above, the number of hectares owned is determined Fendi owns its own manufacturing facility near Florence in exclusive of surfaces not used for viticulture. The difference Italy. between the total number of hectares owned and the number Celine also owns manufacturing and logistics facilities near of hectares under production represents areas that are planted, Florence in Italy. but not yet productive, and areas that are not yet planted. Berluti’s shoe production factory in Ferrare in Italy is owned The Group also owns industrial and office buildings, wineries, by the Group. cellars, warehouses, and visitor and customer centers for each of its main Champagne brands or production operations Rossimoda owns its office premises and its production facility in France, California, Argentina, Australia, Spain, Brazil in Stra and Vigonza in Italy. and New Zealand, as well as distilleries and warehouses in The other facilities utilized by this business group are either leased Cognac, the United Kingdom and Poland. The total surface or included within manufacturing subcontracting agreements. area is approximately 755,000 square meters in France and 230,000 square meters abroad. Please note the disposal of the whisky warehouses and production 5.1.3 Perfumes and Cosmetics units in Scotland in 2008. Buildings located near Orleans in France housing the Research and Development operations of Perfumes and Cosmetics as well 5.1.2 Fashion and Leather Goods as the manufacturing and distribution of Parfums Christian Dior are owned by Parfums Christian Dior and occupy a surface area Louis Vuitton owns eighteen leather goods production facilities of 122,000 square meters. located primarily in France, although some significant workshops Guerlain owns its two manufacturing centers in Chartres and are also located near Barcelona in Spain, in San Dimas, California Orphin (France), for a total surface area of approximately and in Romania (the latter facility only makes components for 27,000 square meters. shoes and leather goods). The Company owns its warehouses and logistics centers in France but leases warehouse space abroad. Parfums Givenchy owns its two plants in France, one in Beauvais The total surface area of production facilities and warehouses and the other in Vervins, which also handles the production of owned is approximately 190,000 square meters: please note that Givenchy and Kenzo product lines, corresponding to a total part of a logistics center in the Paris area was sold in 2008.
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surface area of 19,000 square meters. The Company also owns Hublot owns its production facilities and its office premises. distribution facilities in Hersham, England. The facilities operated by this business group’s remaining brands La Brosse et Dupont owns production facilities, warehouses, – Chaumet, Fred, De Beers and Montres Dior – are leased. and office space in France and Poland, for a total surface area of about 50,000 square meters. 5.1.5 Christian Dior Couture In association with its Italian partners, Christian Dior Couture 5.1.4 Watches and Jewelry operates five production units for leather goods and footwear TAG Heuer leases all of its manufacturing facilities in La Chaux- in Florence, Milan, and Padua. de-Fonds and the Jura region of Switzerland. For Bijoux Fantaisie, Christian Dior Couture has a state-of-the- art production workshop at Pforzheim, Germany. Zenith owns the Manufacture, which houses its movement and watch manufacturing facilities in Le Locle, Switzerland. All of Baby Dior, reacquired by the Group in 2006, operates production its European warehouses are leased. facilities at Redon (Ille-et-Vilaine) and in Thailand.
5.2. distribution
Retail distribution of the Group’s products is most often carried Except avenue Montaigne, Madrid, Saint-Tropez, Tokyo out through exclusive boutiques. Most of the stores in the Group’s (Omotesando district), the stores wholly operated by Christian retail network are leased and only in exceptional cases does the Dior Couture and located in prime areas in most of the world’s Group own the buildings that house its stores. major cities are leased from independent owners. Christian Dior owns a logistics center in Blois. Louis Vuitton owns certain buildings that house its stores in Tokyo, Guam, Hawaii, Seoul, Taipei, Sydney, Rome, Genoa, In the Selective Retailing business group: Cannes and Saint-Tropez, for a total surface area of approximately • Le Bon Marché and Franck et Fils own the buildings in Paris 10,000 square meters. that house their department stores, corresponding to a total Celine and Loewe also own the buildings housing some of their sales area of about 70,000 square meters; stores in Paris and Spain. • DFS owns its stores in Waikiki (Hawaii), Tumon Bay (Guam) and Saipan.
As of December 31, 2008, the Group’s store network breaks down as follows:
(in number of stores) 2008 2007 2006 France 355 329 312 Europe (excluding France) 650 565 495 United States 576 502 434 Japan 296 292 316 Asia (excluding Japan) 555 471 424 Other 119 110 93 TOTAL 2,551 2,269 2,074
216 2008 Annual Report General information Main locations and properties
(in number of stores) 2008 2007 2006 Christian Dior Couture 237 221 215 Fashion and Leather Goods: Louis Vuitton 425 390 368 Other brands 665 599 586 Sub-total Fashion and Leather Goods 1,090 989 954 Perfumes and Cosmetics 62 55 48 Watches and Jewelry 104 90 82 Selective Retailing: Sephora 898 756 621 Other 155 153 149 Sub-total Selective Retailing 1,053 909 770 Other 5 5 5 TOTAL 2,551 2,269 2,074
5.3 Administrative sites and investment property
The Group owns its headquarters located at 11-17, rue Lastly, the Group owns investment property, for the most part François 1er, and 28-30, avenue Montaigne. The headquarters located in Paris and mainly in the vicinity of the Samaritaine of the main Christian Dior Couture subsidiaries outside France and Le Bon Marché department stores, for a total surface area are leased. of approximately 50,000 square meters. Most of the Group’s administrative buildings are leased, with A redevelopment project encompassing the group of properties the exception of the headquarters of certain brands, particularly previously used for the business operations of the Samaritaine those of Louis Vuitton, Parfums Christian Dior and Zenith. department store has been submitted for the approval of the Paris mayor’s office. The Group holds a 40% stake in the Company owning the building housing the headquarters of LVMH on avenue Montaigne in Paris. The Group also owns three buildings in New York (total surface area of about 19,000 square meters) and a building in Osaka (about 5,000 square meters) that house the offices of subsidiaries.
2008 Annual Report 217 General information Supply sources and subcontracting
6. Supply sources and subcontracting
6.1 Champagne and wines
The Group owns 1,684 hectares of champagne under production, place names) set the maximum yield for the Champagne which provide a little more than one-fourth of its annual needs. appellation at 12,400 kg/ha. This maximum yield represents In addition, the Group companies purchase grapes and wines the maximum harvest level that can be made into wine and from wine growers and cooperatives on the basis of multi-year sold under the Champagne appellation. In 2006, the INAO agreements; the largest supplier of grapes and wines represents redefined the legal framework for the “stockpiled” reserves less than 15% of total supplies for the Group’s brands. Until previously mentioned. It is now possible to harvest grapes 1996, a theoretical price was published by the industry; to this beyond the marketable yield within the limits of a ceiling called were added specific premiums negotiated individually between “plafond limite de classement (PLC)”, the highest permitted yield- the wine growers and the merchants. After the first four-year per-hectare. This ceiling is determined every year within the agreement signed in 1996, another industry agreement was signed limits of the maximum total yield now set at 15,500 kg/ha. This between the Companies and the wine growers of Champagne in additional harvest is stockpiled in reserve, kept in vats and used the spring of 2000 covering the four harvests from 2000 through to complement poorer harvests. The maximum level of this 2003, which confirmed the desire to limit upward or downward stockpiled reserve is set at 8,000 kg/ha. fluctuations in grape prices. A new industry agreement was The 2008 harvest reached the marketable ceiling of 12,400 kg/ signed in the spring of 2004 by the Companies and the wine ha, with grapes harvested beyond this limit supplementing the growers of Champagne covering the five harvests from 2004 to stockpiled reserve quota, without exceeding the maximum yield, 2008. This agreement sets new rules in order to ensure greater up to the level of about 14,000 kg/ha. A release of 1,200 kg/ha security for the payment to the wine growers and to achieve from this stockpiled reserve was carried out in 2008. The price better control of price speculations. paid for each kilogram of grapes in the 2008 harvest ranged For about ten years, the wine growers and the merchants have between 4.90 euros and 5.80 euros depending on the vineyard, established a qualitative reserve that will allow them to cope a 5% increase compared to 2007. with variable harvests. The surplus inventories “stockpiled” Dry materials (bottles, corks, etc.) and all other elements this way can be sold in years with a poor harvest. These wines representing containers or packaging are purchased from non- “stockpiled” in the qualitative reserve provide a certain security Group suppliers. for future years with smaller harvests. The Champagne Houses used subcontractors primarily for bottle For the 2008 harvest, the Institut National des Appellations d’Origine handling and storing operations; these operations represented (INAO – French organization charged with regulating controlled approximately 35 million euros.
6.2 Cognac and spirits
Hennessy owns 179 hectares. The Group’s vineyard has remained With an optimal inventory of eaux-de-vie, the Group can manage virtually stable since 2000, after 60 hectares of vines were cleared the impact of price changes by adjusting its purchases from in 1999 as part of the industry plan implemented in 1998. The year to year. objective of the plan was to reduce the production area through Hennessy continued to control its purchase commitments for premiums offered for clearing and assistance given to wine the year’s harvest, and diversify its partnerships to prepare its growers to encourage them to produce wines other than those future growth in various qualities. used in the preparation of cognac. Like the Champagne and Wine businesses, Hennessy obtains Most of the wines and eaux-de-vie that Hennessy needs for its its dry materials (bottles, corks and other packaging) from non- production are purchased from a network of approximately Group suppliers. The barrels and casks used to age the cognac 2,500 independent producers, with whom the Company ensures are also obtained from non-Group suppliers. the preservation of exceptional quality. Purchase prices for wine and eaux-de-vie are established between the Company and each Hennessy makes only very limited use of subcontractors for producer based on supply and demand. In 2008, the price of its core business. wines from the harvest remained stable for the Fins Bois, after a 7% increase in 2007.
218 2008 Annual Report General information Supply sources and subcontracting
6.3 Fashion and leather goods
In Fashion and Leather Goods, manufacturing capacities Louis Vuitton Malletier depends on outside suppliers for and the use of subcontracting vary significantly, depending most of the leather and raw materials used in manufacturing on the brand. its products. Even though a significant percentage of the raw materials is purchased from a fairly small number of The fifteen leather goods manufacturing shops of Louis Vuitton suppliers, Louis Vuitton believes that these supplies could be Malletier, eleven in France, three in Spain and one in the United obtained from other sources, if necessary. In 2004, recourse States, provide most of the brand’s production. All development to a balanced portfolio of suppliers also limited dependence and production processes for Louis Vuitton’s entire footwear on specific suppliers. After a diversification program launched line are handled at its site in Fiesso d’Artico, Italy. Louis Vuitton in 1998 to Norway and Spain, the portfolio of suppliers was uses third parties only to supplement its manufacturing and expanded to include Italy in 2000. For Louis Vuitton, the achieve production flexibility. leading supplier of hides and leathers represents about 20% Fendi and Loewe also have leather workshops in their country of its total supplies of these products. of origin and in Italy for Celine, which cover only a portion Fendi is in a similar situation, except for some exotic leathers of their production needs. Generally, the subcontracting used for which suppliers are rare. by the business group is diversified in terms of the number of subcontractors and is located primarily in the country of origin Finally, for the various companies, the fabric suppliers are of the brand: France, Italy and Spain. often Italian, but on a non-exclusive basis. Overall, the use of subcontractors for Fashion and Leather The designers and style departments of each company ensure Goods operations represented about 35% of the cost of sales that manufacturing does not generally depend on patents or in 2008. exclusive expertise owned by third parties.
6.4 Perfumes and cosmetics
The five French production centers of Guerlain, Givenchy and Dry materials, such as bottles, stoppers and any other items that Christian Dior provide almost all the production for the four form the containers or packaging, are acquired from suppliers major French brands, including Kenzo, both in fragrances, and outside the Group, as are the raw materials used in the finished in make-up and beauty products. Make Up For Ever also has products. In certain cases, these materials are available only from sufficient manufacturing capacities in France to cover its own a limited number of French or foreign suppliers. needs. Only the newer American companies, Loewe perfumes The product formulas are developed primarily in the Saint- and Acqua di Parma subcontract most of the manufacturing Jean de Braye laboratories, but the Group can also acquire or of their products. develop formulas from specialized companies, particularly for In 2008, manufacturing subcontracting represented overall perfume essences. about 9% of the cost of sales for this activity, plus approximately 8 million euros for logistical subcontracting.
2008 Annual Report 219 General information Supply sources and subcontracting
6.5 Watches and jewelry
With its five Swiss workshops or manufactures, located in Le Because of the very high quality requirements, the components Locle and in La Chaux de Fonds, the Group provides almost assembled are obtained from a limited number of suppliers, the entire assembly of the watches and chronographs sold under primarily Swiss, with the exception of the leather for the watch the TAG Heuer, Zenith, Montres Dior, Chaumet, Fred and bands. In 2008, the industrial subsidiary Cortech in Switzerland Hublot brands. In its watchmaking shop, Zenith also designs manufactured a significant portion of the cases meeting the and manufactures the mechanical movements El Primero and production needs of TAG Heuer and Zenith. Elite that made this brand famous. Even though the Group can, in certain cases, use third parties In this business, subcontracting represented overall only 7% of to design its models, they are most often designed in its own the cost of sales in 2008. studios.
6.6 Christian Dior Couture
Production capacities and the use of subcontracting vary Overall for this business, subcontracting represented about significantly, depending on the products involved. 48% of the cost of sales. In Leather Goods, Christian Dior Couture may enlist the services In the ready-to-wear and fine jewelry sectors, the Company is of companies outside the Group to increase its production capacity supplied solely through outside companies. and ensure greater flexibility in its manufacturing processes.
220 2008 Annual Report General information Statutory Auditors
7. Statutory Auditors
7.1 Name and term
Current terms of office Start date of Date End Statutory Auditors first term appointed of term ERNST & YOUNG AUDIT Tour Ernst & Young Faubourg de l’Arche May 29, 1997 May 15, 2003 fiscal year 2008 92037 Paris La Défense Cedex represented by Mrs. Jeanne Boillet MAZARS Tour Exaltis 61, rue Henri Regnault May 15, 2003 May 15, 2003 fiscal year 2008 92400 - Courbevoie represented by Mr. Denis Grison Mr. Dominique Thouvenin (alternate) Tour Ernst & Young May 29, 1997 May 15, 2003 fiscal year 2008 Faubourg de l’Arche 92037 Paris La Défense Cedex Mr. Guillaume Potel (alternate) Tour Exaltis May 15, 2003 May 15, 2003 fiscal year 2008 61, rue Henri Regnault 92400 - Courbevoie
7.2 Fees paid in 2008
(EUR thousands) Ernst & Young Audit Mazars 2008 2007 2008 2007 Amount % Amount % Amount % Amount % Audit Statutory audit, certification, audit of the individual company and consolidated financial statements: • Christian Dior 98 1 95 1 141 15 141 13 • Fully-consolidated subsidiaries 10,732 82 10,527 84 776 85 908 87 Other services relating directly to the statutory audit assignment: • Christian Dior 4 - - - 4 - - - • Fully-consolidated subsidiaries 873 7 497 4 - - - - Subtotal 11,707 90 11,119 89 921 100 1,049 100 Other services provided by the firms to fully-consolidated subsidiaries • Legal, tax, employee-related 1,159 9 1,255 10 - - - - • Other 207 1 93 1 - - - - Subtotal 1,366 10 1,348 11 - - - - TOTAL 13,073 100 12,467 100 921 100 1,049 100
2008 Annual Report 221 General information Statement of the Company Officer Responsible for the annual financial report
8. Statement of the Company Officer Responsible for the annual financial report
We declare that, to the best of our knowledge, the financial statements have been prepared in accordance with applicable accounting standards and provide a true and fair view of the assets, liabilities, financial position and profit or loss of the parent company and of all consolidated companies, and that the management report presented on page 9 gives a true and fair picture of the business performance, profit or loss and financial position of the parent company and of all consolidated companies as well as a description of the main risks and uncertainties faced by all of these entities. In their report on the parent company financial statements for the year ended December 31, 2008, the Statutory Auditors highlighted a change in accounting policy, pursuant to CRC (Comité de la Réglementation Comptable) Regulation 2008-15 published on December 30, 2008 (as disclosed in the introduction to Note 1 of the notes to the parent company financial statements). This change relates to the accounting treatment of share purchase or share subscription option plans and bonus share plans.
Paris, April 17, 2009
Under delegation from the Chief Executive Officer Florian OLLIVIER Chief Financial Officer
For further information: Tel.: +33 1 44 13 24 98 Fax: +33 1 44 13 27 86 Website: www.dior-finance.com
222 2008 Annual Report 2008 Annual Report 223 224 2008 Annual Report Design and production: Copyright: Karl LAGERFELD 30, avenue Montaigne – Paris 8e