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18 LVMH ANNUAL

REPORT 2003

WHAT ARE THE FACTORS

THAT HELPED ACCOUNT FOR THE

SHARP INCREASE I N WINES

AND SPIRITS OPERATING

INCOME I N 2003?

CHRISTOPHE NAVARRE :

These are all factors

which, for the past seve-

ral years, have contribu-

ted to our strategy to

create value. In the first

place, we are focusing

our efforts primarily on

the image and distribu-

tion of our leading

brands in key markets.

At the same time, within

each individual company,

we are improving the

product mix, i.e., the

percentage of sales made

for high-end products

with high margins. This

approach reflects a

strong trend in the mar-

ket, the growth of pre-

mium and super-

premium segments. In

the United States nota-

bly, these are remarkably

fast-growing segments.

WHY SELL THE HI NE

AND CANARD-DUCHÊNE

BRANDS ON THE ONE HAND, AND

THEN MAKE AN ACQUISI TION

IN THE VODKA BUSINESS?

C.N. : These disposals are

all part of the business

of managing our brand

portfolio. We want to

concentrate on our leading

brands, those brands that

create value today, while

we prepare for the future

with high-potential brands.

Our portfolio is now balan-

ced and refocused on

strategic assets. Our

investment in the vodka

segment corresponds

to our strategy of growth

and gains in market share

in super premium spirits.

In the United States,

Belvedere has created

the prestige vodka segment,

with a price at around

30 dollars. This market is

extremely promising.

HAS THE RESTRUCTURI NG

OF THE DI STRIBUTION NETWORK

BEEN COMPLETED?

C.N. : This is a project

we are going to continue.

In 2003, we created new

distribution subsidiaries

in Belgium and Australia.

Last year, we also worked

to prepare for the merger

of the distriibution

networks in Great Britain

and Italy. With regard

to Italy, this merger has

been in effect since

January 1, 2004. For

Great Britain, the merger

will be completed during

the second quarter of

2004.

In the United States,

in partnership with

Diageo, we consolidated

the Moët Hennessy brands

distributed by our subsi-

diary Schieffelin &

Somerset and the Diageo

brands with a single

distributor in over thirty

key states. We now have

a sales force of 2000

dedicated specifically

to our portfolio. This

makes it the most power-

ful distribution network

in the US market, which

should help us accelerate

the growth of our brands.

STRATEGY AND OBJECTIVES

I nterview with Christophe Navarre,

President of the Wines

and Spirits business group

HIGHLIGHTS

■In 2003, the Wines

and Spirits group pos-

ted organic growth of

5% and recorded a

strong increase in its

operating margin.

■Sales of champagne

brands were parti-

cularly strong in the

United Kingdom as

well as Japan. In the

United States, Veuve

Clicquot and Krug

performed remarkably

well.

■Hennessy continued

its strong growth

in the United States

and performed extre-

mely well in China

and Taiwan.

■Moët Hennessy

established two distri-

bution subsidiaries

in Belgium and

Australia.

■Wines developed

in wine-producing

regions outside France

are now being handled

by a new company,

Moët Hennessy Wine

Estates.

■In line with the

Group’s strategy of

focusing on its leading

brands, the Hine

cognac brand and

the Canard-Duchêne

champagne business

were sold.

EUR million 2001 2002 2003

Net sales 2,232 2,266 2,116

I ncome from operations 676 750 796

INES

pirits