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 3. Cash flow statement 163 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