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ANNUAL REPORT 2006
PASSIONATE ABOUT CREATIVITY

Table of contents

  • Page 1
    PASSIONATE ABOUT CREATIVITY ANNUAL REPORT 2006

  • Page 2
    ...Managing luxury brands Corporate Governance The LVMH Share THE GROUPÂ'S ACTIVITIES: FINANCIAL HIGHLIGHTS 18. 26. 34. 42. 48. WINES & SPIRITS FASHION & LEATHER GOODS PERFUMES & COSMETICS WATCHES & JEWELRY SELECTIVE RETAILING SUSTAINABLE DEVELOPMENT A human resources policy that promotes the Group...

  • Page 3
    PASSIONATE ABOUT CREATIVITY LVMH 2006 01

  • Page 4
    ...M H L V M H L V H L V M H L V M We sell products from the best traditional crafts with growing success on every continent. Our brands are the leading ambassadors of this excellence with customers from very diverse origins and cultures. V M H L V M H L V M H L V M H 02 LVMH 2006 CHAIRMAN'S MESSAGE

  • Page 5
    ...increased product quality and range and strong growth in volumes. Our Fashion and Leather Goods businesses have performed exceptionally in Europe, Asia and the United States. The Perfume and Cosmetics brands have once again gained market share from their competitors. The Watches and Jewelry business...

  • Page 6
    ... and new opportunities in a market that has strong potential and a positive outlook. The rigorous pursuit of LVMHÂ's growth strategy, the creativity and quality of its products, the talent of its craftsmen and designers, the efficiency of its marketing teams will enable the Group to increase the...

  • Page 7
    ... the world of Art and I am enthusiastic about designing a magnificent vessel in Paris that will symbolize France's devotion to culture." Frank Gehry The birth of the Louis Vuitton Foundation for Creation is the natural culmination of LVMH's sixteen-year commitment to promote culture, heritage and...

  • Page 8
    ...2005 2006 8,675 61% 55% 10,484 41% 41% 11,594 29% 29% Net financial debt to equity ratio Net financial debt to adjusted equity (1) Includes minority interests. Revenue by business group EUR million Wines and Spirits Fashion and Leather Goods Perfumes and Cosmetics Watches and Jewelry Selective...

  • Page 9
    ...Hong Kong Dollar Other currencies L V M H L V M H L V M H L V M % Store network at December 31, 2006 France Rest of Europe North America South America Japan Rest of Asia Pacific Region Africa and Middle East Number of stores 1,693 Revenue by currency V M H L V M H L V M H L V M H 1,723 2004...

  • Page 10
    ... its positioning as a luxury brand. The famous Baguette bag from Fendi is only ten years old and it is a cultural icon that is increasingly coveted. The recently designed Spy and B Fendi models have been highly successful and are becoming new icons. They are also perfect illustrations of the style...

  • Page 11
    ...M H L V M V M H L V M H L V M H L V M H 1995 1996 2006 M H L V M H L V M H L V M H L H L V M H L V M H L V M H L V L V M H L V M H L V M H L V M 2006 2000 2006 V M H L V M H L V M H L V M H M H L V M H L V M H L V M H L H L V M H L V M H L V M H L V MANAGING LUXURY BRANDS LVMH 2006 09

  • Page 12
    ... development of the value of the company, to adopt the major strategies that guide its management, to verify the fair and accurate presentation of information about the company, and to protect its corporate assets. As part of its mission, the Board of Directors supports the priority objective...

  • Page 13
    ... Arnault Chairman & Chief Executive Officer Concetta Lanciaux Advisor to the Chairman, Synergies, Human Resources ADVISORY BOARD MEMBER Kilian Hennessy * Patrick Ouart Advisor to the Chairman Philippe Pascal Watches & Jewelry Daniel Piette Investment funds PERFORMANCE AUDIT COMMITTEE Antoine...

  • Page 14
    ... among the French companies recognized by the main socially responsible investment indexes in France and Europe. 2007 AGENDA Wednesday, February 14, 2007 April 2007 Thursday, May 10, 2007 Tuesday, May 15, 2007 July 2007 October 2007 Publication of 2006 revenue and annual results Publication of 2007...

  • Page 15
    ...Matter, Color, Incarnation] at the Pompidou Center in 2006). Individuals 7.1% Foreign institutional investors 24.9% including: United States United Kingdom Germany Switzerland 5.8% 4.5% 4.0% 3.2% Groupe Arnault 47.5% French institutional investors 16.9% Treasury stock 3.6% MARKET CAPITALIZATION...

  • Page 16
    L V M H V V M M H H L L M H L V H L V M L V M H L L V M H M

  • Page 17
    THE GROUP'S ACTIVITIES FINANCIAL HIGHLIGHTS V M H L V H M H L V H L V M V M H L M H L V H L V M L V M H L V M H L V M H

  • Page 18
    ... / 2005 / 2006 97 2004 / 2005 / 2006 Profit from recurring operations EUR million Investments EUR million 55.2 59.9 46.5 50.5 55.3 2004 / 2005 / 2006 Cognac France 8% Rest of Europe 28% United States 31% Japan 9% Rest of Asia 15% Other markets 9% Revenue by geographic region of delivery...

  • Page 19
    .../ 2005 / 2006 2004 / 2005 / 2006 2004 / 2005 / 2006 Revenue EUR million Profit from recurring operations EUR million Investments EUR million 896 891 954 France 9% Rest of Europe 19% United States 21% Japan 26% Rest of Asia 20% Other markets 5% 2004 / 2005 / 2006 Number of stores Revenue by...

  • Page 20
    ...L V 2,285 2,519 150 173 222 115 85 98 2004 / 2005 / 2006 2004 / 2005 / 2006 France Rest of Europe United States Japan Rest of Asia Other markets Profit from recurring operations EUR million Investments EUR million Revenue by geographic region of delivery in % 585 737 80 21 (10) 2004 / 2005...

  • Page 21
    ... Profit from recurring operations EUR million Investments EUR million H L V M H L V M H L V M H L V 175 690 2004 / 2005 / 2006 Number of stores L V M H L V M H L V M H L V M 714 770 V M H L V M H L V M H L V M H France Rest of Europe United States Japan Rest of Asia Other markets Revenue...

  • Page 22
    ... for Customers Global ambassadors of luxury, the wine and spirits brands within LVMH market exceptional products sought after by customers who love quality. These brands make our Group the world leader in prestige wines and spirits. Products Wines & Spirits who Love Quality 18 LVMH 2006 WINES...

  • Page 23
    WINES & SPIRITS LVMH 2006 19

  • Page 24
    ... Highlights The Wines and Spirits business group recorded organic revenue growth of 14%. The vigor of the brands is illustrated both by their growth in the key countries and by rapid advances supported by investments targeting new markets. The profit from recurring operations rose by 11%. The...

  • Page 25
    ... Liberty September 28, 2006, one of the most fabulous nights of the year! To mark the 120th anniversary of Bartholdi's famous statue, which was France's gift to the United States, Moët & Chandon gave her a suit of lights. A resounding event in the legendary tradition of the brand. Moët & Chandon...

  • Page 26
    ... Rosé, first in Paris, then in all the large capitals. The brand reinforced its premium position through price increases and confirmed the success of its value creation strategy. CHAMPAGNE AND WINES MOËT & CHANDON strengthened its global leadership in 2006 by achieving solid performance in its...

  • Page 27
    ... architecture and design, imagined for Veuve Clicquot's prestigious vintage, the latest expression of the company's style, a precious box decorated with her famous checkerboard pattern. Divided into matte and glossy squares on the outside, it is lined with mirrors and makes a sublime champagne...

  • Page 28
    ... between the oenologists of the Hennessy company and cocktail experts, The Art of Mixing offers different ways to mix Hennessy cognacs around the world. It is a way to remind people that the brand is present on all continents and plays a part in very diverse cultures. 24 LVMH 2006 WINES & SPIRITS

  • Page 29
    ... continue to expand its global distribution network and will strengthen its international presence, especially in Russia, China and Vietnam. Supported by ambitious, experienced staff, armed with prestigious and growing brands, the business group has the best assets to continue profitable growth and...

  • Page 30
    26 LVMH 2006 FASHION & LEATHER GOODS

  • Page 31
    ... fashion and leather goods brands invested strongly in their global expansion. The business group's global retail network represented 954 stores at December 31, 2006. Louis Vuitton continued to enhance its leadership position with remarkable performance in all regions. Backed by the success of its...

  • Page 32
    28 LVMH 2006 FASHION & LEATHER GOODS

  • Page 33
    ...-based revenue reflected the growing customer base from Mainland China, Eastern Europe and the Middle East. Louis Vuitton expanded its retail network significantly, completing several exceptional renovation projects and ended the year with a net 23 new stores, raising its number of stores throughout...

  • Page 34
    ...The successes achieved by the Italian brand, which were remarkable in Europe and Asia, were particularly outstanding in the United States. Fendi significantly expanded its retail network, opening 21 new stores worldwide over the year, including 10 boutiques within the prestigious American department...

  • Page 35
    ... strategy generated the launch of the new Bittersweet line of very high quality leather products. The success of the ready-to-wear collections designed by Ivana Omazic, Artistic Director since 2005, was highly encouraging. The brand invested in its retail network in Japan, Asia and Europe. In 2006...

  • Page 36
    ... new ready-to-wear collections continued to be commercially successful and the leather goods lines achieved solid performance. The reopening of the historic store in Place des Victoires in Paris in July 2006 was immediately successful, generating MARC JACOBS continued to record very strong growth...

  • Page 37
    ...develop its two leather goods lines. Two footwear collections that complete the direct offering from Marc Jacobs have been successful since the first seasons. Marc Jacobs continued to expand its retail network. The opening of the Palais Royal boutique in Paris, the first site in Europe, and the Marc...

  • Page 38
    ... of a culture of excellence, outstanding creativity, and an ability to develop their bestsellers into great classics, our brands are demonstrating an unparalleled dynamic within the selective worlds of perfumes and beauty products. FOR STRONG AND PROFITABLE GROWTH & PERFUMES COSMETICS 34 LVMH 2006...

  • Page 39
    ... increase in revenue in the United States PERFUMES and Europe and turned in exceptional performance in Asia, which is a major growth driver. The cosmetics brands, which entered the business group more recently, continued to gain position in their respective market niches and expanded to new...

  • Page 40
    ... strategy resolutely aimed at the high end of the selective retailing segment and the synergies developed with fashion. Parfums Christian Dior gained market share in the major consumer countries - in Europe and the United States, it recorded double-digit revenue growth - and increased its position...

  • Page 41
    A brand that surrounds itself with beauty The faces that promote Parfums Christian Dior convey an image of prestige and luxury: Charlize Theron for J'Adore, Sharon Stone for Capture Totale and Monica Bellucci for Rouge Dior. . PERFUMES & COSMETICS PARFUMS ET COSMÉTIQUES LVMH 2006 37

  • Page 42
    ... of sales counters in department stores generated higher than projected success. TRENDS FOR THE BUSINESS GROUP'S OTHER BRANDS PARFUMS GIVENCHY confirmed its new momentum in 2006 with double-digit revenue growth and an improved profit from recurring operations that exceeded initial objectives for...

  • Page 43
    ...time Oscar winner, is the muse for Insolence by Guerlain. Demanding in everything she does, the star had previously refused all collaborations requested by other brands... wore it every day, and the history and aura surrounding the brand were, in her own words, the deciding factor. "The scent of the ...

  • Page 44
    ... positioning and achieved good increases in revenue and profitability. PARFUMS CHRISTIAN DIOR plans to continue its high-quality and profitable growth, by reinforcing all of the foundations for its development. While continuing to support its flagship perfumes, the company will launch a major new...

  • Page 45

  • Page 46
    ... iconic lines and a strategy that combines innovation with upmarket positioning within its brands, the Watches and Jewelry business group recorded double digit revenue growth and strongly improved its profitability from recurring operations, which went from 4% to 11% of revenue from 2005 to 2006...

  • Page 47
    ... business group recorded organic revenue growth of 28%, gained market share and strongly increased its profit from recurring operations. TAG Heuer showed excellent commercial and financial performance worldwide through its remarkable capacity for innovation, the development of its iconic product...

  • Page 48
    ... means supporting our aggressive sales efforts with the best after-sale service and effective targeting of our marketing investments. President of the Watches and Jewelry Business Group "A strategy that focuses on value growth levers." In 2006, for the third consecutive year, the organic revenue...

  • Page 49
    ...de Genève. That fourth prize won by TAG Heuer in just six years ("Design" in 2002 and 2004, "Montre Dame" in 2005) recognizes an ability to innovate that is unique in the watch industry and confirms TAG Heuer's position among the most recognized luxury watch brands. WATCHES & JEWELRY LVMH 2006 45

  • Page 50
    .... CHAUMET STRENGTHENED ITS POSITIONS IN EUROPE AND ASIA Continuing its targeted expansion, CHAUMET strengthened its presence in high-priority markets, located primarily in Europe and Asia. While making those investments, the brand continued to improve the productivity of its stores. After the 2005...

  • Page 51
    ... the Roses collections, fine jewelry and engagement rings contributed to substantial growth in revenue per store. To increase its recognition and image, a new advertising campaign was launched in 2006 for De Beers. FRED is continuing its targeted expansion in Japan and France. The brand celebrated...

  • Page 52
    ... Retailing Excellence in selection and service The Selective Retailing businesses being developed by LVMH are present on three continents and seek to promote a commercial environment and service quality that match the image of creativity and excellence embodied by luxury brands. 48 LVMH 2006...

  • Page 53
    SELECTIVE RETAILING LVMH 2006 49

  • Page 54
    ... Retailing companies of LVMH operate in Europe, North America and Asia. They operate in two areas: distribution designed for international traveler customers ("travel retail"), which is the business of DFS and Miami Cruiseline, the leaders in their market segments; selective retailing concepts...

  • Page 55
    Strategy and Objectives W i t h i n t h e i r re s p e c t i v e m a r k e t segments, our teams have closely related ambitions: to be the best partners of the luxury brands that they distribute throughout the world and to offer preferred locations for customers who are sometimes from different ...

  • Page 56
    ..." service that should satisfy men who are busy but still care about looking their best. 23 net openings in 2006 on the American continent, which brings the number of large stores in its network to 142 (including four in Canada). Of note are openings at very high-quality locations, particularly...

  • Page 57
    ... its policy of innovation and exclusivity, while expanding its offerings in new profitable segments. The modernization of its network will continue, and the rate of store openings will be accelerated, particularly in France, the United States and China, not to mention the development of new markets...

  • Page 58
    54 LVMH 2006 SUSTAINABLE DEVELOPMENT

  • Page 59
    ...goals for our teams. Leadership-Be the best Because we owe it to our shareholders. Sustainable development our commitments Social Policy To encourage all our employees to reach their full career potential and achieve their aspirations, develop the diversity and the wealth of human resources in our...

  • Page 60
    ... and Leather Goods, Perfumes and Cosmetics, Watches and Jewelry, and Selective Retailing. Through its policy of selling products that carry the Â"made in FranceÂ" label, a sign of quality and excellence, LVMH maintains industrial jobs in France. In addition, given the continued growth of its brands...

  • Page 61
    ... new "Join LVMH" pages on the LVMH website have been online since June 2006, and enable applicants to consult the ads and apply on line. All the companies of the Group worldwide publish their job offers on the site, along with opportunities for internships, international business volunteer programs...

  • Page 62
    .... CUSTOMIZED TRAINING A rich Variety of Professions A number of professions co-exist within the different companies. Technicians, financial professionals, attorneys, and marketing and communication teams give the Group its power and modernity. The network of sales associates, who are the brand...

  • Page 63
    ... many years, each brand works to recruit and develop the best international talents in order to appreciate cultural sensitivities and make this a competitive advantage. This search for the mutual enrichment generated by different cultures, origins and skills is the foundation of the diversity policy...

  • Page 64
    ... can work. The company also recruited ten hearing-impaired workers at the SaintJean-de-Braye site. The teams working with the new employees were trained in sign language. Louis Vuitton also hired 95 hearing-impaired employees in its shop in Asnières, as did Kami at the distribution center in...

  • Page 65
    ... Fashion & Perfumes & Spirits Leather Goods & Cosmetics Watches & Jewelry Selective Retailing Other activities 0 France Rest United States of Europe Japan Rest of Asia Other markets â,¬52 million invested in training 2.8% of payroll costs â- Training investment totaled 52.1 million euros...

  • Page 66
    ... on October 2, 2006, the birth of the Louis Vuitton Foundation for Creation is the natural culmination of sixteen years of commitment by LVMH to promote culture, heritage and contemporary creation. This project, which marks a major step in the Group's patronage program, adds a new dimension and...

  • Page 67
    ...of LVMH hierarchy. At Parfums Givenchy, all employees can track the brandÂ's environmental performance every day through a computer tool that records, in real time, all environmental data at the companyÂ's two sites. At Louis Vuitton, the environmental policy has been very widely disseminated at the...

  • Page 68
    ...the new stores. More than 60% of leather goods are now shipped by boat to supply about 360 Louis Vuitton stores. An innovation in 2006: 70% of products are also shipped on river boats between Gennevilliers and Le Havre, France. BUILDINGS GO GREEN Eole, the new logistics platform of Louis Vuitton in...

  • Page 69
    ... the companies with the best practices in terms of social and environmental responsibility. Materials from Renewable Resources Louis Vuitton eyeglasses are manufactured from cellulose acetate, a natural, high-quality material from a renewable resource: wood. SUSTAINABLE DEVELOPMENT LVMH 2006 65

  • Page 70
    .... The French National Council of Packaging studies ways to improve package design and disposal. The Council for Responsible Practices in Jewelry Making (CRJP), an international association, ensures that responsible attitudes are adopted throughout the jewelry industry. The Group also works hand in...

  • Page 71
    2 0 0 6 C O N S O L I D AT E D F I N A N C I A L STAT E M E N TS T H E C O N S O L I DAT E D FINANCIAL STATEMENTS PRESENTED IN THE FOLLOWING PAGES ARE ABREVIATED. CONSOLIDATED FINANCIAL STATEMENTS LVMH 2006 67

  • Page 72
    ... - net Investments in associates Non-current available for sale financial assets Other non-current assets Deferred tax NON-CURRENT ASSETS 2006 8,227 4,537 5,173 126 504 658 395 19,620 2005 8,530 4,479 4,983 128 451 660 306 19,537 2004 7,838 4,048 4,541 115 718 628 217 18,105 Inventories and work...

  • Page 73
    LIABILITIES AND EQUITY EUR millions Share capital Share premium account LVMH treasury shares Revaluation reserves Other reserves Cumulative translation adjustment Group share of net profit Equity - Group share Minority interests TOTAL EQUITY 2006 147 1,736 (1,019) 917 7,062 (119) 1,879 10,603 991 ...

  • Page 74
    ... investments - notably at Louis Vuitton - which exceeded the depreciation expense in 2006. Investments in associates, non-current available for sale financial assets, other non-current assets and deferred tax increased slightly from 1.5 billion euros at year-end 2005 to 1.7 billion euros at year-end...

  • Page 75
    CONSOLIDATED INCOME STATEMENT EUR millions except for earnings per share REVENUE 2006 15,306 2005 13,910 2004 12,481 Cost of sales GROSS MARGIN (5,481) 9,825 (5,001) 8,909 (4,373) 8,108 Marketing and selling expenses General and administrative expenses PROFIT FROM RECURRING OPERATIONS (5,...

  • Page 76
    ... the United States (from 27% to 26%), mainly as a result of exchange rate fluctuations. France, Asia (excluding Japan) and other markets remained stable at 15%, 17% and 7% respectively, while Europe (excluding France) increased by 2 points to 22%. The breakdown of revenue by business group changed...

  • Page 77
    ... impact on profit of exchange rate fluctuations and the necessary increases in advertising and promotional expenditure for strategic market development. Although this business group's operating margin declined slightly by 1 point, it remains high at 32%. Fashion and Leather Goods posted profit from...

  • Page 78
    ... assets Impact of purchase and sale of consolidated investments Other financial investments FINANCIAL INVESTMENTS NET CASH FROM (USED IN) INVESTING ACTIVITIES (87) 172 (48) 37 (712) (69) 469 (604) 65 (139) (818) (57) 95 (401) (363) (951) III. TRANSACTIONS RELATING TO EQUITY Capital increases...

  • Page 79
    ... business in Japan through private placements issued under its Euro Medium Term Notes program and increased its recourse to the French commercial paper program in 2006. At the year-end, cash and cash equivalents net of bank overdrafts amounted to 765 million euros. CONSOLIDATED FINANCIAL STATEMENTS...

  • Page 80
    ... recognized directly in equity Net profit TOTAL RECOGNIZED INCOME AND EXPENSES - (411) 259 1,879 259 (411) 1,879 (411) 259 1,879 1,727 (90) 29 281 220 (501) 288 2,160 1,947 Stock option plan expenses (Acquisition)/disposal of LVMH treasury shares Capital increase in subsidiaries Interim and...

  • Page 81
    ...Cover photo: Patrick Demarchelier Tyen, Didier Ghislain /2006 d'après le projet de Frank Gehry, Studio Pons/Philippe Stroppa, Philippe Schlienger, LB Production, © Louis Vuitton/Installations lumineuses: Thierry Dreyfus/Photo: Thomas Lagrange/Production des installations: Eyesight, Eric Zéziola...

  • Page 82