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LVM H
PASSIONATE ABOUT CREATIVITY
Annual report
2007

Table of contents

  • Page 1
    PASSIONATE ABOUT CREATIVITY LVMH Annual report 2007

  • Page 2
    ... 02 . Chairman's Message 06. Financial Highlights 08. Interview with Antonio Belloni: Many talents - a single success 10. Corporate Governance 12. The LVMH Share 14 . Review of operations 16. 24. 32. 40. 46. Wines & Spirits Fashion & Leather Goods Perfumes & Cosmetics Watches & Jewelry Selective...

  • Page 3
    2007 LVMH about creativity 2007 52 . Sustainable development 54. Human resources Strengthening talents - Committing values 62. Corporate sponsorship to support culture, youth and humanitarian action 63. Protecting the environment 67 . Consolidated Financial Statements 01

  • Page 4
    Chairman's Message Bernard Arnault 02 Continue The main strength of our Group, demonstrated by the consistency of the financial results, is without doubt LVMH's unique portfolio of exceptional, globally recognised brands which are emblematic of the history and the world of luxury. an

  • Page 5
    ... the development of our product range and the strength of our distribution network will be the drivers of growth. Our brands are engaged in particularly ambitious new product launch programmes. This is particularly true of Louis Vuitton, Fendi, and all of our Perfumes and Cosmetics brands. Our watch...

  • Page 6
    ... global product launches and the delivery of our collections to our stores in record time; with the careful and uncompromising control over each detail of our businesses...All of these skills form a value chain, from the conception of our products to their distribution, orchestrated by managers...

  • Page 7
    ... invited guests. As the models walked, the Fendi double-F signature appeared in lights on the surrounding towers. A great première and a strong symbol of the dazzling rebirth of the Roman brand which joined the Group in 2000, the event provided global visibility to the brand that has become one of...

  • Page 8
    ... 2007 Number of stores 2,048 1,859 1,723 2005 2006 2007 Revenue by business group EUR million 2005 Total equity(1) Net financial debt to equity ratio (1) Includes minority interests. 2006 11,594 29 % 2007 12,528 25 % Wines and Spirits Fashion and Leather Goods Perfumes and Cosmetics Watches...

  • Page 9
    ...2007 Store network at décembre 31, 2007 France Rest of Europe North America Japan Rest of Asia Other markets 306 523 463 253 409 94 (2) Acquisitions of tangible and intangible fixed assets. Revenue by geographic region of delivery in % 14% 23% 25% 11% 19% 8% France Rest of Europe United States...

  • Page 10
    ...country and the customers. The successful articulation of these two components effectively implies that we train multi-cultural teams, that men and women of diverse origins from all over the world learn to work together, and that we offer our managers international career paths so that they are open...

  • Page 11
    success 2007 LVMH 09

  • Page 12
    ...to the members of its Board of Directors. Compensation Policy Part of the compensation paid to members of the Executive Committee and key operations personnel is based on the generation of cash, operating profit, and the return on capital employed for the business groups and companies headed by the...

  • Page 13
    ... Rohatyn Hubert Védrine (1) Executive Committee Bernard Arnault Chairman & Chief Executive Officer Antonio Belloni Group Managing Director Nicolas Bazire Development & Acquisitions Ed Brennan Travel retail Yves Carcelle Fashion & Leather Goods Chantal Gaemperle Human Resources Pierre Godé Advisor...

  • Page 14
    ... 2007 0 Changes in LVMH share price After a positive first half, the stock markets were heavily impacted in the summer by the financial crisis that started in the United States. Higher interest rates and declining housing values in this country generated a progression of payment defaults on high...

  • Page 15
    ... Group, its businesses and its brands. The magazine "Apartés," published in French for Club members, lets them order products to be delivered to addresses in France, subscribe to Investir, Connaissance des Arts and Le Monde de la Musique at special rates, be special guests on certain sites adapted...

  • Page 16
    LVMH Rev o opera Wines and Spirits page 16 Perfumes and Cosmetics page 32

  • Page 17
    2007 LVMH 2007 iew f tions Fashion and Leather Goods page 24 Watches and Jewelry page 40 Selective Retailing page 46

  • Page 18
    16

  • Page 19
    ... a high-growth trend in consumption. These brands make our Group the world leader in prestigious wines and spirits. Highlights ||| The Wines and Spirits business group recorded organic revenue growth of 13%, driven by the increase in volumes, improved product mix, and the implementation of a policy...

  • Page 20
    ... won new customers. 2005 2006 2007 2005 2006 2007 2005 2006 2007 Revenue by geographic region of delivery in % 08% France 29% Rest of Europe 29% United States 08% Japan 16% Rest of Asia 10% Other markets The LVMH Wines and Spirits business group focuses its growth on the high-end segments of...

  • Page 21
    ... and spectacular growth in promising markets such as Russia, Central Europe, China and India. Its remarkable performance in Japan should also be noted, the result of the work to build the brand in this market that still offers great potential. Growth was achieved by the entire line of products, but...

  • Page 22
    ... in France and Europe, and strengthened its position as a global leader in luxury champagnes. Pursuing its strategy to create value, the brand accelerated its development in the high-end segment with the international launch of Dom Pérignon Oenothèque 1993, which followed the success of...

  • Page 23
    2007 LVMH 21

  • Page 24
    In an original six-liter format, Hennessy X.O Methuselah is a prestigious limited edition of 300 bottles. The bottle is presented in a luxurious travel case along with a "fusil", an article used by the Hennessy cellar masters. Reinterpreted in a contemporary version by designer Marie-Virginia ...

  • Page 25
    ...in value. The brand focused its growth on a strategy to create value. It intensified its promotional operations in selective points of sale and with innovative programs in high-end establishments. It continued to expand its consumer base through more advertising-promotional resources. An advertising...

  • Page 26
    ... the world's leading luxury brand. Highlights ||| In 2007, the Fashion and Leather Goods group recorded organic revenue growth of 14% and improved its profit from recurring operations by 12%. ||| Louis Vuitton achieved a remarkable performance with another year of double-digit organic revenue growth...

  • Page 27
    ... ds ||| Fendi continued to maintain its profitable growth trend and earned exceptional media coverage when it presented its spring-summer 2008 collection on the Great Wall of China. ||| The business group's distribution network expanded by 35 stores to total 989 stores at December 31, 2007. 28 25

  • Page 28
    26

  • Page 29
    ... Yves Carcelle Chief Executive Officer of the Fashion and Leather Goods Group 989 891 954 281 319 246 2005 2006 2007 2005 2006 2007 Revenue by geographic region of delivery in % 9% 20% 20% 22% 23% 6% France Rest of Europe United States Japan Rest of Asia Other markets Louis Vuitton, Fendi...

  • Page 30
    ...the boom in world tourism. Revenue rose substantially thanks to new travel customers from Asia, Russia and the Middle East. As of December 31, 2007, the Louis Vuitton global retail network consisted of 390 stores. The brand opened a net 22 stores during the year, including three in new countries and...

  • Page 31
    2007 LVMH 32 29

  • Page 32
    ... continued its rapid growth, reaffirmed its success in the United States, and rapidly expanded its international development. New major stores were opened in 2007 in Europe, China and the Middle East. The ready-to-wear Marc by Marc Jacobs lines generated high demand, and shoes and leather goods, the...

  • Page 33
    ...the highlights of 2007. Outlook Louis Vuitton again intends to strengthen its lead in 2008 and, for this purpose, will deploy an ambitious program to develop new products while it continues to extend its global distribution network. The brand will open new stores in China, Asia, Europe...It is also...

  • Page 34
    32

  • Page 35
    ...Dior furthered its leadership by combining creativity and high-end positioning. At its side, the other perfume and cosmetic brands demonstrated an exceptional momentum in their competitive universe. Highlights ||| The Perfumes and Cosmetics business group recorded organic revenue growth of 12%. This...

  • Page 36
    ... young, highly innovative and rapidly growing American companies, the prestigious Italian brand Acqua di Parma, Parfums Loewe and Make Up For Ever, a French brand specializing in professional make-up products, which has successfully begun to expand its customer base to the public. The year 2007 also...

  • Page 37
    .... In the make-up segment, the new Rouge Dior, the foundation Diorskin and the Backstage line recorded formidable performances. Supporting the various new products launched and the initiatives conducted over the year were special promotional efforts which contributed to dynamic sales and enhanced the...

  • Page 38
    ...anniversary in 2007, took a new step in its development by achieving better than market revenue growth rates, while beating its initial objectives for the year for profit from recurring operations. The brand posted steady growth in its priority markets. It opened its first location in China over the...

  • Page 39
    ... year, marked by steady growth. This dynamic trend was driven by the solid performance of the brand's three foundation perfumes, FlowerbyKenzo, KenzoAmour and Eaux by Kenzo, and by the launch of TokyobyKenzo for men, which won a younger customer segment. Parfums Kenzo continued to expand in Europe...

  • Page 40
    ... Gal were extremely successful. make-up, the brand is attracting a demanding customer base. It generated very substantial revenue growth, driven not only by the expansion of its retail network, but also by steady organic growth. In the United States it is definitely establishing a position as the...

  • Page 41
    ... Totale line, Dior launched the Serum - Eclat High Definition foundation. Sharon Stone, the icon of the skincare line, embodies this innovation. Outlook The Perfumes and Cosmetics business group, based on the continuous growth achieved in recent years, offers strong potential for gaining market...

  • Page 42
    WATCHES & 43 40

  • Page 43
    ...a new and strong improvement in profitability. Highlights ||| The Watches and Jewelry business group recorded organic revenue growth of 19% and a 76% increase in profit from recurring operations, even more remarkable since it nearly quadrupled in 2006. ||| TAG Heuer developed its icon product lines...

  • Page 44
    ... 2006 2007 Revenue by geographic region of delivery in % Philippe Pascal Chief Executive Officer of the Watches and Jewelry Group 27% France 24% Rest of Europe 25% United States 13% Japan 15% Rest of Asia 16% Other markets Strategy and objectives Our dynamic performance was again sustained by...

  • Page 45
    ..., in 2007, ambitious objectives were achieved in China, India, the Middle East and Russia, while market share was gained in Europe, the United States and Japan. In a context of unfavorable currency conditions, special attention was given to price increases and the global harmonization of prices, to...

  • Page 46
    ... positioning in luxur y watches. The brand achieved the greatest progress in Europe, China, the United States, Russia and the Middle East and significantly improved its profit from recurring operations. The year 2007 was dominated by the enhancement of the brand's emblematic lines, such as the Class...

  • Page 47
    ... watch production capacities and to open stores in the center of metropolitan areas and strategic locations. TAG Heuer will continue to integrate its watchmaking operations at La Chaux-deFonds and expand its network of boutiques. As it continues its positioning in the high end watchmaking segment...

  • Page 48
    46

  • Page 49
    ... a global leadership position and growing their market share. Highlights ||| The Selective Retailing business group posted organic revenue growth of 12% and improved its profit from recurring operations by 20%. ||| DFS expanded its geographic coverage to new territories: Vietnam, a market opened in...

  • Page 50
    ... 2007 Revenue by geographic region of delivery in % 24% 10% 39% 3% 20% 4% France Rest of Europe United States Japan Rest of Asia Other markets The Selective Retailing companies of LVMH operate in Europe, North America and Asia. They operate in two areas: distribution designed for international...

  • Page 51
    ... its operating margin. Present on three continents, Sephora had an excellent year, both in Europe and in North America, and continued to advance in new high-potential regions (China, Central Europe and the Middle East). Sephora's global network consisted of 756 stores at the end of 2007. Revenue for...

  • Page 52
    ...optimize its growth model in the United States. The performance of the Canadian stores was also extremely dynamic. The commercial success achieved in China was also on target. Sephora is working to identify carefully the expectations of Chinese customers, to expand its offers in terms of brands, and...

  • Page 53
    ... at a steady pace. The Paris-Tokyo exhibit, organized in the fall, was extremely successful. Outlook In 2008, DFS will continue to focus its efforts on implementing its up market positioning and winning Asian customers. Vietnam's contribution over a full year and the new store openings in Macao and...

  • Page 54
    ...preserve the resources of the planet, to design and develop products that respect the environment, to report on our policies and projects and the progress achieved in meeting our objectives. To contribute to environmental protection above and beyond the factors directly related to our operations, by...

  • Page 55
    2007 LVMH e l b a n i a t s Su opment l e v e d 53

  • Page 56
    ... asset and because each message must be worthy of the brand. Entrepreneurship Because our leadership position naturally requires that we have a long term vision and set the most ambitious goals for our teams. Leadership-Be the best human resources 54 Sustainable development Because...

  • Page 57
    ...,885 employees worldwide, men and women with many talents, to design the products, manufacture and sell them in the various businesses of the Group: wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewelry, selective retailing. HUMAN RESOURCES POLICY, LVMH WORKS TO...

  • Page 58
    ... the China Europe International Business School of Shanghai (CEIBS). Three new Chinese winners were awarded study scholarships in 2007 to complete a six-week program in France with Louis Vuitton, Parfums Christian Dior and Moët Hennessy. This year, the 14th annual LVMH Prize for young designers was...

  • Page 59
    ... world-recognized professors, as well as Group managers considered to be experts in their area of expertise. These training programs are organized by the business group training center or the regional training centers in Asia, Japan, the United States, France, the United Kingdom, Spain and Italy...

  • Page 60
    ... & Cosmetics business groups. In 2007, 74% of the new employees recruited were women. The policy of parity between men and women is also reflected in a deliberate policy for professional development in all positions and at all levels of the organization. Overall in the Group, one out of two managers...

  • Page 61
    ... the City of Paris. Employment for disabled workers The creation in 2007 of the "LVMH Handicap Mission" is emblematic of the Group's commitment to the employment of disabled workers. This association provides the companies' Human Resource teams with operational support in order to facilitate the...

  • Page 62
    ...codes of good conduct established by a number of Group companies (Moët & Chandon, Louis Vuitton, Fendi, Glenmorrangie, Parfums Christian Dior, Sephora, TAG Heuer among others), a common approach was initiated in 2007. Under the direction of Management, the principal purchasing managers in the Group...

  • Page 63
    ... 2007. I Training per employee averaged 3.8 days. I In 2007, LVMH offered a total of 275,717 days of training, the equivalent of 1,250 persons in full-time training over the year. Training investment (million euros) % of payroll France Rest of Europe United States Japan Rest of Asia Other markets...

  • Page 64
    ... major works and artists from the history of art. The year 2007 was particularly productive in this area. After supporting the exhibition devoted to Richard Serra at the New York Museum of Modern Art and the presentation of Anselm Kiefer at the Grand Palais in Paris, LVMH supported the exceptional...

  • Page 65
    ... for integrating an environmental dimension in all the businesses. In 2007, this tool was translated into English and is addressed to all Group employees. Different highlights marked the year. At the end of June, during sustainable development week, Louis Vuitton sent an email every day to its 13...

  • Page 66
    ...country and another program, the LVMH research center, in cooperation with professors in the country, is participating in the development of the Cat-Tien natural reserve via the Vietnam-Pacific Development Institute (IDVP). first international warehouse of Louis Vuitton, were both certified in 2007...

  • Page 67
    ...impact in the design of new products. Involved suppliers Guided by a concern for high quality and transparency, LVMH wants to select the best partners. An LVMH code of conduct has been developed, which specifies that suppliers undertake to comply with local and international environmental standards...

  • Page 68
    ... keeping the urban area clean by offering the equipment necessary for cleaning and treatment. Louis Vuitton successfully developed an innovative operation designed to provide its support to the major associations fighting to protect the planet. The leather goods company asked stars Catherine Deneuve...

  • Page 69
    Consolidated financial statements 2007 THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED IN THE FOLLOWING PAGES ARE ABBREVIATED

  • Page 70
    ... available for sale financial assets Other non-current assets Deferred tax NON-CURRENT ASSETS 2007 7,999 4,818 5,419 129 823 586 492 20,266 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 Inventories and work in progress Trade accounts receivable Income...

  • Page 71
    ... reserves Cumulative translation adjustment Group share of net profit Equity - Group share Minority interests TOTAL EQUITY Long term borrowings Provisions Deferred tax Other non-current liabilities NON-CURRENT LIABILITIES Short term borrowings Trade accounts payable Income taxes Provisions Other...

  • Page 72
    ... resulting from business growth and distilled alcohol purchases. Their relative weight in the balance sheet total increased to 25%. Net financial debt, including the market value of interest rate derivatives, and net of cash, cash equivalents and current available for sale financial assets, amounted...

  • Page 73
    ... income statement EUR millions except for earnings per share REVENUE Cost of sales GROSS MARGIN Marketing and selling expenses General and administrative expenses PROFIT FROM RECURRING OPERATIONS Other operating income and expenses OPERATING PROFIT Cost of net financial debt Other financial income...

  • Page 74
    ... selling prices and continuing product mix improvements. Strong sales volume growth was achieved by the champagne segment in Japan as well as in promising markets such as Spain and Russia. This segment has also been highly successful in moving its positioning upmarket, especially in Europe. Revenue...

  • Page 75
    ...rate fluctuations, expenses relating to the reinforcement of the distribution network and advertising and promotional expenditure focused on strategic markets. Operating margin as a percentage of revenue for this business group increased by 0.7 point to 32.8%. Fashion and Leather Goods posted profit...

  • Page 76
    ... Repayment of borrowings Purchase and proceeds from sale of current available for sale financial assets NET CASH FROM (USED IN) FINANCING ACTIVITIES 2,006 (1,700) (278) 28 785 (1,757) (181) (1,153) 1,192 (1,559) (40) (407) V. EFFECT OF EXCHANGE RATE CHANGES NET INCREASE (DECREASE) IN CASH AND...

  • Page 77
    ... increase in their gross amount reflects the Group's dynamic growth policy and that of its flagship brands such as Louis Vuitton, Sephora and Parfums Christian Dior, as well as the acquisition of the Belvedere brand in the United States. Purchases of non-current available for sale financial assets...

  • Page 78
    ... directly in equity Net profit TOTAL RECOGNIZED INCOME AND EXPENSES 147 1,736 (1,019) 917 (119) (489) 8,941 10,603 (489) 59 2,025 1,595 991 11,594 (86) (575) 19 306 239 59 2,025 59 (489) 2,025 78 2,331 1,834 Stock option plan expenses (Acquisition)/disposal of LVMH treasury shares Capital...

  • Page 79
    ...le projet de Frank Gehry, Louis Vuitton / Jean-Philippe Caulliez, Veuve Clicquot / Michel Jolyot, Alain Hatat, Annie Leibovitz, DR, photo archives LVMH and Group companies. Design and production Phénix Communication/Yin Partners 52, avenue des Champs-Elysées - 75008 Paris Telephone 33 1 45 62 62...

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