COMBINED ORDINARY AND EXTRAORDINARY SHAREHOLDERS' MEETING OF MAY 13, 2004 Chairman’s Message 4 Managing and Auditing Bodies 6 Simplified Organizational Chart 7 Financial Highlights 8 Management Report from the Board of Directors 11 Report of the Chairman of the Board of Directors to the Shareholders’ Meeting 53 Consolidated Financial Statements 57 • Consolidated Highlights 59 • Consolidated Balance Sheet 60 • Consolidated Statement of Income 62 • Statement of Consolidated Cash Flow 63 • Notes to the Consolidated Financial Statements 64 • Report of the Statutory Auditors 126 3 CHAIRMAN’S MESSAGE After the bursting of the Internet bubble in 2000 and the recession that followed in 2001 and 2002, 2003 was also marked by a rare combination of unfavorable factors: the war in Iraq, the SARS epidemic in Southeast Asia, the sharp decline in the currencies of our leading economic partners, very weak economic growth in Europe. Despite this environment, the Christian Dior Group turned in a very strong performance: • Operating income was up 9%, reaching an historic high of 2,213 million euros; • Net income from continuing operations up 49% and net earnings up 70%. Remember that, as early as 2000, we took the measures that would enable us not only to weather the crisis, but to develop and gain market share despite difficult economic conditions. For this reason, our priority was the growth of our master brands and, with the cash flow they generate, the improvement of our financial position. Christian Dior Couture again recorded one of the strongest performances in its sector. Sales revenues grew 6% and, excluding the impact of the 20% decline in the dollar and the 10% decline in the yen, growth would have been 15%. The policy we have successfully implemented for several years will be continued. In 2004, Christian Dior Couture again expects to post significant growth, both in revenues and in earnings. For example, we will continue to strengthen our presence in Japan, the country at the core of our growth strategy. The network of boutiques acquired in 1997 has been restructured and expanded, and now totals 26 stores. Our first Dior building opened in Tokyo in the Omotesando district in December 2003 has been immensely successful with Japanese customers. Based on the success of this concept, we will open two new Dior boutiques in 2004, one in Tokyo in the Ginza district and the other in Osaka. 4 The success of John Galliano's creations has generated waiting lists for his designs throughout the world. Since the arrival of Hedi Slimane in 2000, we have strengthened our design teams in men's wear, and the Dior Homme concept we developed with him has achieved growing success worldwide. At the same time, we are focusing on the development of new women's shoes and jewelry and are quickly gaining market share. Finally, we will continue the rapid expansion of our network of boutiques. The network doubled in four years to total 159 boutiques at year-end 2003, and we are planning for 200 stores by early 2006. Our subsidiary LVMH also posted the best performance in the luxury product sector, while several of its competitors faced serious difficulties. The successes we achieved include the substantial increase in the operating margin of Wines and Spirits, which continued to increase the value of its portfolio of brands and the strength of its distribution networks; the exceptional performance of Louis Vuitton which broke its sales records worldwide and posted growth of 38% in dollars in the United States; the greater-than-sector growth of Perfumes and Cosmetics; Sephora's success in reaching its profitability target in the United States; the gains in productivity achieved by DFS generated profit; the growth in the young very promising brands like Marc Jacobs, Pucci, and BeneFit, which recorded extraordinary growth. Taking into account the special situation of the Watches and Jewelry business group, which is now in a phase of investment for the future and repositioning of its brands, all the businesses contributed to the strong growth in LVMH's operating margin from 16% to 18%. At a time when the global economic context is improving—the American economy is growing rapidly and Europe shows signs of recovery—LVMH began 2004 in an excellent position to take advantage of the economic recovery. We are continuing the strategy that has proven its effectiveness year after year: priority on the development of our major brands and the brands offering high potential, rigorous financial discipline, a focus on generating cash, continued disposal of non-strategic assets, and an emphasis on the quality and creativity of our products. These prospects and developments that we have already initiated mean that we face the coming months with confidence, backed by the desire for excellence that exists among the employees of our Group. Once again, we have set a target of significant growth in operating income in 2004. 5 MANAGING AND AUDITING BODIES BOARD OF DIRECTORS PERFORMANCE AUDIT COMMITTEE Bernard ARNAULT Eric GUERLAIN Chairman Chairman Eric GUERLAIN Pierre GODE Vice Chairman Christian de LABRIFFE Antoine BERNHEIM NOMINATING Denis DALIBOT AND COMPENSATION COMMITTEE Pierre GODE Christian de LABRIFFE Antoine BERNHEIM Raymond WIBAUX Chairman Directors Pierre GODE Eric GUERLAIN Raymond WIBAUX MANAGEMENT AUDITORS ERNST & YOUNG AUDIT Sidney TOLEDANO represented by Christian MOUILLON Chief Executive Officer MAZARS & GUERARD represented by Denis GRISON 6 S IMPLIFIED O RGANIZATIONAL CHART AT D ECEMBER 31, 2003 Christian Dior* 100% Christian Dior Couture 100% Financière Jean Goujon 42.5% LVMH* * Publicly traded company 7 F INANCIAL HIGHLIGHTS Consolidated sales by business group (millions of euros) Christian Dior Couture 3 % 4 % 4 % 523 18 % 17 % 17 % Wines and Spirits 2,116 Fashion and Leather Goods 4,149 29 % 32 % 33 % Perfumes Consolidated sales by geographic 18 % and Cosmetics 18 % 18 % 2,181 destination Watches and Jewelry (millions of euros) 4 % 502 4 % 4 % France Selective Retailing 2,185 3,039 17 % 17 % 18 % 27 % 25 % 24 % Other activities Europe (excluding France) and eliminations 2,323 1 % - 44 19 % 17 % 18 % 2001 2002 2003 United States 3,163 26 % 27 % 25 % Japan Consolidated sales by currency 1,958 (millions of euros) 15 % 15 % 16 % Asie (excluding Japan) Euro 1,711 4,157 15 % 14 % 16 % Other Markets 31 % 32 % 33 % 1,126 7 % 9 % 9 % 2001 2002 2003 US dollar 3,747 32 % 32 % 30 % Yen 2,007 16 % 16 % 16 % Pound sterling 4 % 4 % 4 % 537 5 % 4 % 4 % Hong Kong dollar 452 12 % 12 % 13 % Other currencies 1,566 2001 2002 2003 8 F INANCIAL HIGHLIGHTS 1999 2000 2001 2002 2003 millions of euros Net sales by business group Christian Dior Couture 220 296 350 492 523 Wines and Spirits 2,240 2,336 2,232 2,266 2,116 Fashion and Leather Goods 2,295 3,202 3,612 4,207 4,149 Perfumes and Cosmetics 1,703 2,072 2,231 2,336 2,181 Watches and Jewelry 135 614 548 552 502 Selective Retailing 2,162 3,294 3,493 3,337 3,039 Other activities 3 53 101 (22) (44) Total 8,758 11,867 12,567 13,168 12,466 Percentage earned outside France 80% 85% 83% 83% 82% Income from operations (1) 1,551 1,967 1,548 2,034 2,213 Net income from continuing operation – Group share before amortization of goodwill 295 320 75 287 428 Net income – Group share 264 251 (95) 178 303 euros Net income from continuing operation per share before amortization of goodwill (2) 1.63 1.77 0.41 1.58 2.36 Total dividend per share (2) 1.05 1.17 1.17 1.23 1.31 millions of euros Balance sheet total 26,330 28,435 29,228 26,802 25,802 Average workforce 39,259 48,524 54,463 55,314 56,815 (1) Adjusted retroactively to reflect reclassifications. (2) Adjusted to reflect the 4 for 1 stock split in July 2000. 9 M ANAGEMENT R EPORT FROM THE BOARD OF D IRECTORS Ladies and Gentlemen, This report summarizes the significant events affecting the life of the Christian Dior Group in 2003. We shall review in order the consolidated results, the business picture by segment and your company’s performance. I. CONSOLIDATED RESULTS The year 2003 was marked by a rare combination of unfavorable factors: war in Iraq, SARS, the decline in the dollar and the yen against the euro, and the absence of an economic recovery in Europe. In this context, the Christian Dior Group demonstrated excellent economic resistance. Net sales revenues totaled 12,466 million euros, down 5%; at constant exchange rates revenues were up 4.4%. The group's operating income was 2,213 million euros, an increase of 9% over 2002. This growth, much higher than growth in sales, reflects our control of all costs, which declined 8%. The ratio of operating income to sales was 18%, up 3 points over 2002. Consolidated net income from continuing operations before tax was 1,127 million euros, compared to 890 million euros in 2002, with group share at 428 and 287 million euros respectively. In addition to the growth in operating income already mentioned, this improvement primarily reflects the decline in financial expense due to the twofold impact of a reduction in the Group's debt and lower interest rates. Amortization of goodwill totaled 125 million euros (group share), up from 109 million in 2002; this change is the result of the exceptional amortization of the goodwill on the Laflachère group. 11 The net income was 837 million euros compared to 637 million in 2002, with the Group's share at 303 and 178 million respectively. millions of euros 2003 2002 Net sales 12,466 13,168 Operating income 2,213 2,034 Income from continuing operations before tax 1,127 890 Group share 428 287 Net income 837 637 Group share 303 178 In order to measure the performance of the Christian Dior Group in its current structure, pro forma accounts were prepared by moving up the effective date of all modifications to January 1, 2002.