COMBINED ORDINARY AND EXTRAORDINARY SHAREHOLDERS’ … · like over the full year (on a constant exchange rate basis). Louis Vuitton enjoyed some outstanding performances in the

C O M B I N E D O R D I N A R Y A N D E X T R A O R D I N A R YS H A R E H O L D E R S ’ M E E T I N G

O F M A Y 1 2 , 2 0 0 5

Chairman’s Message 4

Managing and Auditing Bodies 6

Simplified Organization Chart 7

Financial Highlights 8

Management Report of the Board of Directors 11

Report from the Chairman of the Board to the Shareholders’ Meeting 58

Consolidated Financial Statements 63

• Consolidated Highlights 65

• Balance Sheet 66

• Statement of Income 68

• Statement of Cash Flows 69

• Notes to the Consolidated Financial Statements 70

• Statutory Auditors’ Reports 134

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CHAIRMAN’S MESSAGE

Christian Dior Couture has tripled its revenues since 1998. We have won our bet to givenew momentum to the Dior brand. However, we had to face an extremely difficultenvironment – the events of September 11, 2001 in the United States, the SARS epidemic inAsia, the war in Iraq, the sharp decline of the dollar and the yen against the euro. All theseevents, which could have destabilized us, instead validated the merits of the policyimplemented.

This policy was not always unanimously supported. Some predicted the death of HauteCouture; but, in fact, it was the Brands that developed a culture of excellence that are themost dynamic today. Why should we cut our roots or refuse to take advantage of theextraordinary laboratory of ideas formed by Haute Couture? Creation and experimentationare the keys to our success. With three highly talented designers, Christian Dior is clearlysignaling the priority it gives to innovation. This human wealth is an exception in the luxurymarket, but it is the foundation of our success.

Christian Dior’s international fame dates back to 1947, the year of the mythic “New Look”collection. During that period, however, the group was primarily based in France and waspresent abroad only through its licensees. Since that era, we have rethought our presence inthe world’s major markets and have developed our own international network of stores. Ournetwork has grown from 66 boutiques in 1998 to 184 at the end of 2004 – the proof of thedynamic performance of our teams! We are present in all regions of the world, particularlyin high-potential zones. We have rebalanced our historical presence from Europe to NorthAmerica and Asia: -in only 18 months, we will have opened three “flagship” stores in Japan,and we are now turning toward China, where we already have 6 boutiques. At the end of2005, our network will be close to 200 boutiques.

This steady growth in the network confirms the solid growth of the brand and theremarkable appeal of its creativity and expertise for luxury consumers. The success of thecollections and new products in 2004 testifies to this appeal. The women’s ready-to-wear,including the new “Veste Dior”, and the leather goods and shoe lines designed by JohnGalliano were highly successful. Dior Homme, under the influence of Hedi Slimane,

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recorded very strong growth and made a remarkable entrance in new product territories,driven by the successful launch of the “Chiffre Rouge” watch. Finally, the jewelry business,under the artistic direction of Victoire de Castellane, also performed very well, expanding itslines of extremely creative and highly prized new product lines, including “Gourmette”.

In 2004, LVMH again strengthened its leadership position and demonstrated its ability togenerate profitable growth, much greater than global economic growth, in a difficultmonetary context.

Over the last three years, LVMH has posted the best performances in the luxury sector andsubstantially strengthened its financial structure: between 2002 and 2004, its net incomegrew more than 80%, its operating margin improved from 16 to 19%, it reduced its debtsignificantly as a result of the strong improvement in its cash flow.

LVMH is in an excellent position to continue its growth while actively managing its brandportfolio. This year will be very dynamic: sales growth will be driven by an acceleratedinnovation rate, the expansion of the store network and major investments. Louis Vuitton islaunching two new leather lines that have already been exceptionally successful; ParfumsChristian Dior will roll out two perfumes this year; TAG Heuer continues to innovate withan automatic chronograph that measures one-hundredth of a second; a new women’s linethat incarnates the timeless values of the Fashion House will enhance the watch collectionsof Montres Dior; Sephora will intensify its policy for exclusivity and innovative services …

Backed by the dynamic performance of its two subsidiaries Christian Dior Couture andLVMH, the Christian Dior Group intends to improve its performance and increase itsleading edge. Our confidence is based on the talent of our teams, managers, artisans anddesigners, on the mobility and responsiveness of our organization, on our ability to stimulatehigh-potential brands, and on the power of our retail networks. It is also based on the loyaltyof our shareholders who support the strategy of the world’s leading luxury group, ourshareholders to whom I extend my heartfelt thanks.

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M A N A G I N G A N D A U D I T I N G B O D I E S

BOARD OF DIRECTORS PERFORMANCEAUDIT COMMITTEE

Bernard ARNAULT

Chairman Eric GUERLAIN

Chairman

Eric GUERLAIN

Vice-Chairman Pierre GODÉ

Christian de LABRIFFE

Antoine BERNHEIM

Denis DALIBOT NOMINATING ANDPierre GODÉ COMPENSATION COMMITTEEChristian de LABRIFFE

Raymond WIBAUX Antoine BERNHEIM

Board Members Chairman

Pierre GODÉ

Eric GUERLAIN

Raymond WIBAUX

EXECUTIVE MANAGEMENT STATUTORY AUDITORS

Sidney TOLEDANO ERNST & YOUNG AUDIT

Chief Executive Officer Represented by Christian MOUILLON

MAZARS & GUERARD

Represented by Denis GRISON

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S I M P L I F I E D O R G A N I Z A T I O N A L C H A R TA S A T D E C E M B E R 3 1 , 2 0 0 4

* Listed company

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F I N A N C I A L H I G H L I G H T S

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F I N A N C I A L H I G H L I G H T S

2000 2001 2002 2003 2004millions of euros

Net sales per business group

Christian Dior Couture 296 350 492 523 595

Wines and Spirits 2,336 2,232 2,266 2,116 2,280

Fashion and Leather Goods 3,202 3,612 4,207 4,149 4,362

Perfumes and Cosmetics 2,072 2,231 2,336 2,181 2,153

Watches and Jewelry 614 548 552 502 496

Selective retailing 3,294 3,493 3,337 3,039 3,378

Other activities 53 101 (22) (44) (63)

Total 11,867 12,567 13,168 12,466 13,201

Percentage earned outside France 85% 83% 83% 82% 83%

Income from operations (1) 1,967 1,548 2,034 2,213 2,461

Net income before taxes – Group share

Before amortization

of goodwill 320 75 287 428 582

Net income, Group share 251 (95) 178 303 464

euros

Net income before taxes per share

Before amortization

of goodwill (2) 1.77 0.41 1.58 2.36 3.20

Total dividend per share (2) 0.78 0.78 0.82 0.87 0.97

millions of euros

Balance sheet total 28,435 29,228 26,802 25,802 25,873

Average workforce 48,524 54,463 55,314 56,815 58,679

(1) Adjusted retroactively to reflect reclassifications.

(2) Adjusted to reflect the 4 for 1 stock split in July 2000.

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M A N A G E M E N T R E P O R TO F T H E B O A R D O F D I R E C T O R S

Ladies and Gentlemen,

This report summarizes the significant events affecting the life of the Christian Dior Groupin 2004.

We shall review in order the consolidated results, the business picture by segments and yourCompany’s performance.

I. CONSOLIDATED RESULTS

The activity of the year 2004 benefited from a favorable economic environment in all thelarge geographical areas, primarily in Asia and the United States; only Europe has shownless dynamism. In this context, despite unfavorable trends for the dollar and yen, ChristianDior Group posted a significant increase in sales and a rapid rise in profitability.

Net sales revenues totaled 13,201 million euros, up by 6%; at constant exchange ratesrevenues were up 10%.

The Group’s operating income was 2,461 million euros, up 11% over 2003. This growth,much higher than growth in sales, was due to the increase in absolute value of the grossmargin and control of operating costs. The ratio of operating income to sales was 19%, upone point over 2003.

Consolidated net income from continuing operations before tax was 1,520 million euros,compared to 1,127 million euros in 2003, with Group share at 582 and 428 million eurosrespectively. In addition to the growth in operating income already mentioned, this veryfavorable improvement primarily reflects the decline in financial expense due to the impactof a reduction in the Group’s debt.

Amortization of goodwill totaled 118 million euros (Group share), which was less than theprevious year (125 million) due to exceptional amortization in 2003.

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Net income was 1,246 million euros compared to 837 million in 2003, with the Group shareat 464 and 303 million respectively.

millions of euros 2004 2003

Net sales 13,201 12,466

Operating income 2,461 2,213

Income from operations before tax 1,520 1,127

Group share 582 428

Net income 1,246 837

Group share 464 303

In order to measure the performance of the Christian Dior Group in its current structure,pro forma accounts were prepared by moving the effective date of all modifications toJanuary 1, 2003.

The principal results were as follows:

millions of euros2004

pro forma2003

pro forma

Net sales 13,201 12,466

Income from operations before tax 1,513 1,258

Group share 579 484

Apart from consolidation changes, each of the business groups recorded a positive growth.

• Christian Dior Couture recorded net sales growth of 14% and internal growth of 18%,one of the strongest in its sector. This excellent performance was based on the creativity andsuccess of the collections of John Galliano, Hedi Slimane and Victoire de Castellane. Allproducts have contributed to this outstanding dynamic growth.

• The Wines and Spirits group, which recorded internal growth of 11% like-for-like (on aconstant structural and exchange rate basis), generated an excellent performancethroughout 2004 thanks to price and volume increases and to improvements in its productmix.

• The Fashion and Leather Goods business group recorded internal growth of 10% like-for-like over the full year (on a constant exchange rate basis). Louis Vuitton enjoyed someoutstanding performances in the United States and Asia, and the end of the year wasbooming for the brand which posted a record week’s sales during the Christmas week.

• The Perfumes and Cosmetics business group recorded growth of 4% like-for-like in 2004.This improvement demonstrates the success of the launches of Dior’s Pure Poison andGuerlain’s Instant for Men.

• With internal growth of 18%, LVMH Watches and Jewelry brands have seen theirmarket share grow in all markets.

• Sales for Selective Retailing grew 17% on a constant currency basis. Sales for DFS wereup substantially, driven by growth in the tourism sector, particularly from China.

Sephora recorded a further year of growth both in France and abroad. In the United-States,growth of sales on a same-store basis was a double-digit figure for the fourth consecutiveyear.

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Net sales Operating incomemillions of euros 2004 2003 2004 2003

Christian Dior Couture 595 523 50 40

Wines and Spirits 2,280 2,116 806 796

Fashion and Leather Goods 4,362 4,149 1,329 1,311

Perfumes and Cosmetics 2,153 2,181 181 178

Watches and Jewelry 496 502 13 (48)

Selective retailing 3,378 3,039 244 106

Other activities, eliminations andrestatements (63) (44) (162) (170)

Total 13,201 12,466 2,461 2,213

On first consolidation of LVMH in 1989, all the brands then owned by LVMH wererevalued in the accounts of the Christian Dior Group.

In Christian Dior Group’s consolidated financial statements, LVMH’s accounts are restatedto take into account differences in appraisal of brands recorded prior to 1990 in theconsolidated accounts of each of these companies.

Consequently, the net results of LVMH are consolidated for 1,207 million euros comparedto 1,212 million euros before restatement, and are included in the net income – Group share– of Christian Dior for 428 million euros compared to 429 million euros before restatement.It should also be noted that, since the assets sold by LVMH have a consolidation value thatis greater in Christian Dior’s books than the value recorded at LVMH, the consolidatedresults following their sale are written off by this difference.

Capital investment

Net capital investment totaled 1,029 million euros and includes, firstly, the operationalinvestments made for continuing operations of 614 million euros and, secondly, the non-recurring capital expenditures related to restructuring operations and acquisitions, includingthe purchase of minority interests in Donna Karan (€35m) and Millennium (€82m) as wellas the increase in the stake in Fendi (€112m). Offsetting this is the sale of Ebel (€33m).

Research and Development

Research and development costs recorded during the accounting period were 38 millioneuros in 2004 (same amount in 2003). These amounts cover costs incurred in scientificresearch and new product development.

Research and development costs, plus packaging and design expenses, represented a cost of41 million euros for 2004 (same amount in 2003).

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Debt

At December 31, 2004, net consolidated debt was 6,201 million euros compared toshareholder’s equity of 12,919 million. The net debt ratio decreased from 51% in 2003 to48% in 2004, which is lower than the target ratio of 50%.

The improved financial structure explains, on the one hand, the increase in shareholders’equity from 12,474 to 12,919 million euros and, on the other hand, the net debt decreasefrom 6,320 to 6,201 million euros.

The increase of 445 million euros in shareholders’ equity after appropriation (includingminority interests) mainly results from the net profit of the financial year of 1,246 millioneuros less dividends paid of 510 million euros, currency translation of 156 million euros andminority interests purchased for 127 million euros.

The decrease in net financial debt by 119 million euros primarily reflects an operating cashflow of 1,972 million euros, less net capital investment during the year of 1,029 million, theGroup share buyback of 155 million and dividends paid of 510 million euros.

Besides the decrease in net debt, one should note that its restructuring has paid off: the long-term debt has been extended, new confirmed lines of credit set up and the amount ofapproved lines not drawn has increased.

Due to its financial structure and the geographic spread of its activities, the Group is subject,in particular, to the risk of interest rate increases and the fall of certain currencies in relationto the euro. These risks are actively managed, on the one hand, by the establishment ofinterest rate swaps and the purchase of caps to hedge the risk of interest rate hikes and, onthe other hand, by futures and options to hedge currency risks.

In line with the general practice for syndicated loans, the Group has signed covenants tomeet established financial ratios. Historically based on the net financial debt-to-equity ratio,as indicated in the financing agreements, these commitments now involve the coverage of netfinancial debt by the financial cash flows for the year. Taking into account the current levelof hedging, the Group has a large financial flexibility with respect to its commitments.

Consolidated Statement of Cash Flows

The cash flows from the Group’s operating activities in 2004 increased to 2,162 million eurosversus 1,961 million for the previous year, an increase of 10%.

The working capital requirement increased by 190 million euros. Namely because of thechange in inventories generated cash requirements of 260 million euros, primarily as a resultof the restocking at Louis Vuitton, Hennessy, and Sephora US. Customer receivables wererigorously managed and contributed 32 million euros to the change in cash flows.

In total, the cash flows resulting from operating activities was largely positive, at1,972 million euros.

The net balance of investment operations – acquisitions and operating investments – and thedisposal of assets resulted in a cash outflow of 1,029 million euros.

The Group’s operating investments resulted in a decrease in cash flows of 614 million euros.This amount illustrates the outlook for the Group’s growth, in a spirit of selectivity and focus

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on the development of the Group’s retail networks, notably the Louis Vuitton and ChristianDior Couture networks, as well as the opening of the DFS Gallery in Okinawa.

The financial investments (acquisitions of securities and changes in other financial assets)represented, over the year, an amount of 146 million euros, and the balance of theconsolidation changes an amount of 244 million euros. In particular, the impact on theGroup’s cash flows associated with the securities purchase by LVMH of some minorityinterests totaled 268 million euros. By contrast, the Group received the proceeds from theEbel sale.

The disposal of fixed assets (non-financial assets and unconsolidated equity interests) had apositive impact on cash flow of 160 million euros. This amount mainly results from thedisposal of Bouygues’ shares and property assets.

The Group’s acquisition of LVMH and Christian Dior shares, net of disposals, represented acash outflow of 155 million euros over the year.

The dividends paid by Christian Dior S.A., for 162 million euros, of which 105 million euroswere distributed in May as the final dividend for 2003 and 57 million paid in December asthe interim dividend for the financial year 2004. In addition, the minority shareholders of theconsolidated entities have received dividends totaling 348 million euros.

Some borrowings and financial debts are amortized for an amount of 1,679 million euros,greater than new borrowings and financial debts.

Issues and subscriptions to borrowings and financial debts enabled 1,558 million euros to beraised. Most notably, in July, LVMH raised a nominal amount of 600 million euros througha 7-year public bond issue, and Christian Dior subscribed to a 5-year syndicated loan for anominal amount of 500 million euros.

The cash flow balance at the end of the financial year 2004 was 623 million euros.

Workforce

The Group’s workforce increased by 3.3%, mainly due to the inclusion of newly acquiredcompanies, but also due to organic growth in the most buoyant business sectors.

The buoyancy of all the economic segments enabled the Group to create more jobs than itlost through the disposal of entities.

The average workforce of the Christian Dior Group was as follows:

2004 2003

Christian Dior Couture 2,170 1,855

Wines and Spirits 4,919 4,908

Fashion and Leather Goods 17,652 16,709

Perfumes and Cosmetics 13,188 13,010

Watches and Jewelry 1,937 2,309

Selective retailing 17,929 17,123

Other Activities 884 901

Total 58,679 56,815

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II. RESULTS BY BUSINESS

The results by business groups shown below are those published by Christian Dior Coutureand LVMH; therefore, they are not restated.

1. Christian Dior Couture

A – Highlights

Financial year 2004 was marked by the following factors:

• Strong sales growthChristian Dior Couture’s sales grew by 14% to 595 million euros, at current exchange rates.At constant currency rates, this represents 18% growth.

This percentage is one of the highest recorded in the business, all the more remarkablebecause it follows already strong growth in 2003, a year which saw internal growth of 15%.

• Growth in profitability is greater than growth in sales.Operating income improved by 25% and represented 8% of sales; net income grew by 33%.

• Confirmation of successful new product linesFinancial year 2004 further confirmed the success of the product ranges launched inprevious years.

The scheduling of the strategic plan put in place several years ago and which predicts anaccelerated growth in several business segments – Women’s Shoes, Men’s Ready-to-Wear,and Jewelry – is progressing in line with the original objectives.

The new permanent lines of Leather goods (Rasta, Dior Charms, Gambler) as well as theseasonal themes of Ready-to-Wear also brought a strong contribution to growth. The launchof the “Dior Jacket” was a real success.

• Continued expansion of the proprietary boutique networks.The network had 184 points of sale at December 31, 2004, up from 159 in 2003, an increaseof 25 points of sale.

➤ Japan was once again the top priority for expansion: 4 new points of sale opened,including a second flagship store in the Ginza district in Tokyo last October and aHomme boutique in Kobe.

➤ In the United States, the network was expanded with the opening of 5 new pointsof sale, including, 3 proprietary boutiques in Waikiki, Houston and Orlando.

➤ In South Asia, China is continuing to expand with 6 new openings, in particular inMainland China, in Beijing and Shanghai.

➤ In Paris, a new 3-storey, 500 m² flagship store opened on Rue Royale.

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➤ The Dior brand also expanded its network to new countries: Prague, Dubai andMarrakech.

B – Consolidated Results of the Couture Business

Sales from the Couture business, at 595 million euros, grew by 14% compared to 2003. At aconstant exchange rate, sales would be 614.5 million euros, or an 18% increase bycomparison with the previous year.

The operating income of 50,1 million euros, up 25% over the previous year, was helped bygrowth in net sales and rigorous cost controls. Very favorable currency hedges (whichgenerated an income of 12.5 million euros) and increases in retail prices offset the impact onthe consolidated income statement of declines in the US and Hong Kong dollars, and, to alesser extent, in the yen.

Financial result was a charge of 6.3 million euros, up 11% compared to the 2003 figure of5.7 million euros. The increase in debt related to financing the network expansioncontributed to the increase in interest charges.

Tax expense was 15 million euros versus 8.8 million euros in 2003. This increase is the resultof the significant improvement in the operating income of certain subsidiaries.

All the above factors contributed to net income – Group share – of 24 million euros, upfrom 18.3 million euros in 2003. The share attributable to third parties was 2.8 million euros.

C – Analysis of the development by business sector

(millions of euros) 2004 2003 %% constant

rate

License royalties 21.4 18.6 15 16

Wholesale sales 116.1 106.6 9 11

Retail sales and others 457.7 397.3 15 20

Total 595.2 522.5 14 18

LICENSES

Royalties from licenses by geographic region were as follows:


rate

Europe 19.2 16.0 20 20

North America 1.9 2.4 -20 -12

Others 0.3 0.2 26 39

Total 21.4 18.6 15 16

The licenses of Christian Dior Couture recorded highly satisfactory growth of 15% that wascomparable to the growth in activities managed directly by the brand.

In watches, especially, new launches were an immediate success, widely hailed by thespecialized press, such as the “Chiffre Rouge” watch by Dior Homme.

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WHOLESALE SALES

Wholesale sales grew by 9%, a rate comparable to the general growth of the brand.

RETAIL SALES


rate

Europe 201.4 185.5 9 9

North America 81.3 64.4 26 39

Asia Pacific 172.2 144.7 19 25

Others 2.8 2.7 4 10

Total 457.7 397.3 15 20

In the retail network, all products contributed to the growth.

The newly developed lines within the framework of the strategic plan made a particularlystrong contribution.

The Shoe segment remained very successful, both in the brand’s own stores and thededicated shoe corners in department stores.

Dior Homme, after a successful launch in the multi-brand network in 2002 and 2003,continued its significant growth in the new boutiques added to the network, in New Yorkfor example, and also in the dedicated Homme sales spaces in department stores (Harrodsand Selfridges in London). The offer has been extended to the “Chiffre Rouge” watch andthe Dior Homme colognes were a real success.

Dior Jewelry, after the opening of boutiques at avenue Montaigne and place Vendôme inParis, continued to expand in 2004 within the brand’s network of existing boutiques,benefiting from the accessibility and profile of Dior products, in prestigious locations.

The other product lines, such as women’s Ready-to-Wear, Bags and Small Leather goodsequally sustained strong growth with the very successful launch of permanent and seasonalcoordinated lines: Rasta, Dior Charms, Gambler.

The timeless lines of Lady Dior and Saddle continue to constitute the pillars of the brand.

In the retail network, all geographic regions contributed to growth, in particular, the UnitedStates and Asia.

The major investments were made in Japan and the United States especially with theopening of major boutiques.

D – Outlook

In 2005, growth in net sales is expected to continue at a steady rate.

Profitability should also improve substantially, thanks to better productivity in the salesnetwork. In addition, the risks of currency depreciation against the euro have beenadvantageously hedged for 2005.

The licensing of fantasy jewelry has been terminated, and this activity has been tradingwithout an intermediary. This resulted in a commitment to purchase assets valued at7 million euros. A production plant in Pforzheim, Germany, is due to be integrated into theChristian Dior Couture Group in May 2005.

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The network should continue to expand, especially in Japan, where a new flagship store willopen its doors in Osaka during the first half of the year. In Asia, the development of thenetwork in Mainland China should continue after the opening of boutiques in citiesconsidered strategic.

2. Wines and Spirits

Internal growth for the Wines and Spirits group was 11%. The increase in volumes was 6%for champagne (on a constant consolidation basis), as it was for cognac. Thanks to thestrong demand for its brands and price increases implemented at the beginning of the year,the business group recorded net sales growth of 8% to 2,280 million euros and consolidatedits market share in volume and value in its key markets. Operating income was slightly updespite the unfavorable monetary conditions and came to 806 million euros.

The star brands, Hennessy, Moët & Chandon, Dom Pérignon and Veuve Clicquot,benefited from important advertising investments that supported their growth. The risingstars like Ruinart, Krug and Belvédère also reported excellent increases.

The reinforcement of the Moët Hennessy distribution network continued with therestructuring of the USA network, notably through the regrouping of the sale forces of thedifferent brands within Moët Hennessy USA. 2004 saw the creation of the subsidiary MHAustria and development of Moët Hennessy Wine Estates, which includes the “New World”upmarket wines.

Moët Hennessy increased its holding to 70% of the capital of Millennium, producer ofBelvédère vodka, and at the beginning of 2005, acquired Glenmorangie Plc. which –besides its famous malt – owns two other distilleries in Scotland – Glen Moray and Ardbeg.

Outlook for 2005

In 2005, the Wines and Spirits group will continue its value strategy and will try to limit theimpact of monetary fluctuations with a policy of sustained prices and strict management ofstructural costs. The quality of its teams, products, distribution network and a stronginnovative dynamic will enable Moët Hennessy to continue to win new market share.

3. Fashion and Leather Goods

The Fashion and Leather Goods group reported internal growth of 10% and again increasedits positions thanks to the strong performance of Louis Vuitton and development of severalbrands such as Céline, Marc Jacobs, Berluti and Pucci.

The group reported a sales increase of 5% to 4,362 million euros and recorded operatingincome of 1,329 million euros.

Louis Vuitton recorded double-digit internal growth, continued to post excellentperformances in North America and confirmed its growth in Asia, especially in MainlandChina. Its sales growth continues to yield exceptional profitability resulting from the qualityof its products and the organization’s reactivity.

Donna Karan is starting to benefit from the work undertaken to improve its collections andreinforce the selectivity of its distribution. At its own points of sale, the brand recordeddouble-digit sales growth on a same-store basis.

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Fendi continued its commercial repositioning and the improvement of its distributionnetwork. The recent openings show a significant lift in the productivity and profitability ofthe stores.

Outlook for 2005

In 2005, the Fashion and Leather Goods brands will continue to expand their distributionnetwork. This fall, the reopening of the Louis Vuitton store on the Champs Elysées will beone of the highlights of the year. Marc Jacobs will open its first boutique in France, Berlutiwill open in China. Fendi will reopen its landmark store in Rome for its 80th birthday.

The accent will be on innovation. Louis Vuitton will launch some very promising new lines,Monogram Cerise, designed by Marc Jacobs with Takashi Murakami, and Denim, and will developits advertising with the actress Uma Thurman. Fendi will launch two new leather goods linesand a complete collection of Shoes.

4. Perfumes and Cosmetics

The group reported a sales increase of 4% to 2,153 million euros and recorded operatingincome of 181 million euros.

Christian Dior Perfumes enjoyed excellent performance, especially notable in Europe, as wellas Japan and Asia, a region of the world where its growth is the strongest amongst the westernbrands. In addition the brand has consolidated its leadership in France. Poison and Dior Addict,two exceptional perfumes, have seen double-digit growth. J’Adore perfume confirmed its statusas a great classic.

Guerlain recorded sustained growth in sales, boosted by all its categories of products, andstrongly improved its operating income. Growth was steady in Europe and Asia (China, Korea,Taiwan), and particularly pleasing in the rest of the world. The good performance of theFlowerbyKenzo and Kenzoki lines support the Kenzo Perfumes growth.

In the United States, our French brands have undergone a strategic repositioning whichmainly translates in a refocus on the highest quality points of sale, and on the reduction ofpromotional activities in favor of a greater number of innovations and a higher level ofcustomer service. This more selective policy has momentarily impacted sales: excluding theFrench brands, in the United States, the internal growth of Perfumes and Cosmetics wouldbe up 6% in 2004. This repositioning will enable future growth of the American market to betargeted on a more sound and solid basis.

BeneFit, Fresh, Parfums Loewe and Acqua di Parma enjoyed some excellentperformances which confirm their potential.

Outlook for 2005

In 2005, the Group’s brands will accentuate their innovation policy. New concepts, togetherwith the expansion of the existing ranges, will boost all categories of products. ChristianDior Perfumes will launch two new perfumes.

Christian Dior Perfumes, Guerlain and Givenchy Perfumes will continue theimplementation of their new sale formats. Currently in the process of restoration, the historicGuerlain store on the Champs Elysées in Paris, will reopen its doors. The revamping of thisemblematic site will enable the brand to better express its status of great perfumer and itsexpertise in the beauty care field.

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5. Watches and Jewelry

The Watches and Jewelry group reported internal growth of 18%. Net sales totaled 496million euros and operating income was up at 13 million euros. All LVMH brands recordeddouble-digit growth at constant currency and reinforced their positions in a recoveringmarket. This improvement resulted from strong commercial growth in all markets, thesuccess of the collections launched in 2003 and 2004, and the efficiency of marketinginvestments. The re-centering of the brand portfolio, productivity improvements, and theoptimization of a very entrepreneurial organization will improve the figures still further.

TAG Heuer enjoyed some particularly noteworthy performances, especially in the UnitedStates and Asia. The star brand of this business sector increased its market sharessignificantly and improved its profitability. Zenith recorded strong growth in sales within aselective retailer network, as did Chaumet with its boutiques.

Outlook for 2005

In 2005, the Watches and Jewelry brands are continuing their ambitious target for internalgrowth and improved profitability. The year will see numerous innovations. TAG Heuer,Zenith and Dior will reveal their new collections at the Basel trade fair. Chaumet will launcha jewelry line inspired by the Frisson jewelry collection and will open a new flagship store inOsaka. De Beers LV will set up business in the United States.

6. Selective retailing

After the challenges of the Iraq war and the SARS epidemic in 2003, growth picked up in2004. Net sales were up 11% at constant currency, increasing to 3,378 million euros (17% ininternal growth) and net income more than doubled to 244 million euros.

DFS reported an encouraging year and saw an increase in its market share. The recovery oftourism in all its markets, the attractiveness of its stores, a higher-end offer and the quality ofcustomer service enabled DFS to return to a level of sales near that of the year 2000 and toreinforce its leadership.

Miami Cruiseline increased its sales and improved its profitability thanks to a move up-market for its range and tight management of its running costs.

Sephora continued with excellent performance. In Europe as in the United States, the brandrecorded strong growth in sales and profitability and generated positive cash flow, enablingit to continue to finance its expansion. At December 31, 2004, Sephora had 426 stores inEurope and 95 in North America. The Sephora.com site continued to see an increase insales and confirm its profitability.

Le Bon Marché enjoyed a very good year, demonstrating the solidity of its fundamentals ofpositioning and brand management.

La Samaritaine’s restructuring plan was completed in September 2004 with the opening ofan area dedicated to men’s fashion.

21

Outlook for 2005

In 2005, DFS’s prospects for growth are notably strengthened by the full-year’s activity ofthe Galleria in Okinawa and by a boom in Asian customers.

Sephora will continue to see an improvement in its profitability despite pursuing growthfocused on higher potential markets. In spring, the first store opening in China (inShanghai) will be the opportunity to test an extremely promising market.

2005 will see the completion of the renovation of Bon Marché’s fashion area. After threeyears of intensive change, La Samaritaine will start a year which will enable its potential tobe assessed.

III. RESULTS OF CHRISTIAN DIOR S.A.

Christian Dior S.A.’s earnings consist primarily of dividend income related to its stake inLVMH less the borrowing costs incurred to finance this investment.

Net financial income totaled 130 million euros compared to 123 million euros in 2003.

It consists of 166 million euros in dividends received from subsidiaries, 30 million euros innet interest expense, and 6 million euros for a provision on its securities.

The tax savings recorded under the fiscal consolidation program totaled 13 million euros.

Net income was 138 million euros compared to 127 million euros in 2003.

In addition, in accordance with Article 39 of the 2004 Amended Finance Law, concerningreform of the Special Reserve for long-term capital gains, the proposal put to you is:

- to transfer the amounts recorded in the account “special long-term capital gainsreserve” for an amount of 82,741,928.90 euros, to an ordinary reserve account.

- to withdraw by priority from this ordinary reserve the required exceptional tax of2,112,124 euros, instituted by the 2004 Amended Finance Law, to credit the account“carried forward” debited for the same amount at December 31, 2004, taking it to116,726,307.17 euros.

Appropriation of earnings: Euros

• Net income: 138,231,394.32

Plus

• The amount carried forward required pursuant to the 2004 AmendedFinance Law: 116,726,307.17

Total income available for distribution: 254,957,701.49

We are proposing to appropriate it as follows:

• a dividend of 0,97 euro per share 176,275,236.56

• The balance to be carried forward 78,682,464.93

Total 254,957,701.49

22

If this appropriation is approved, the net dividend will be 0,97 euro per share.

As an interim dividend of 0,32 euro per share, with a tax credit of 0,16 euro per share (*)was paid on December 2, 2004, the balance is 0.65 euro.

For individuals, 50% of this balance will be withheld on the income tax basis. It will be paidon May 18, 2005.

Since the shares held by the company when this dividend is paid are not entitled todividends, the amount corresponding to this unpaid dividend will be posted to retainedearnings.

Distribution of dividends

We remind you that the amount of the dividends paid for the previous three years and theamount of the corresponding tax credit were as follows (*):

(in euros) Net Dividend Tax Credit Gross Dividend

2003 0.87 0.435 1.305

2002 0.82 0.41 1.23

2001 0.78 0.39 1.17

(*) for individuals

IV. SHAREHOLDERS OF THE COMPANY

In accordance with Article L.233-13 of the Commercial Code and the information receivedpursuant to Articles L.233-7 and L.233-12 of said Code, the following table identifiesshareholders who, to the company’s knowledge, hold over 5% of the company’s capital orvoting rights:

At December 31, 2004 At December 31, 2003

SHAREHOLDERSNumberof shares

% ofcapital

% of votingrights

Numberof shares

% ofcapital

% of votingrights

Groupe Arnault SAS*41, avenue Montaigne75008 Paris

124,967,210 68.77 71.88 124,645,910 68.59 70.99

(*) Directly or indirectly

As of December 31, 2004, the company had capital stock of 363,454,096 euros, representedby 181,727,048 shares with a par value of 2 euros per share. 17,077,129 shares had doublevoting rights.

In accordance with Articles L.255-208 and L.255-209, paragraph 1, of the CommercialCode, we are also reporting that:

• during the past year, the company bought back 521,312 of its own shares at an averageprice of 52.32 euros.

These share purchases were made in order to allot them to employees who would beexercising stock options granted by the company.

Moreover, 5,688 shares initially acquired for the purpose of equalizing the stock price werealso allocated to these options.

23

At year-end, the number of shares held and allocated to stock option plans, was 3,574,600for a net value of 126,125,171.11 euros. The par value is 2 euros. These shares represent1.97% of the capital stock.

• At year-end, the company held 512,532 of its own shares for a net value of 19,212,076.06euros.

These shares were bought back to equalize the stock price.

The par value is 2 euros. These shares represent 0,28% of the capital stock.

By law, these shares do not carry voting rights.

V. BOARD OF DIRECTORS

Directors:

We are asking the Annual General Meeting (AGM) to renew the term of office as directorof Mr. Bernard Arnault and Mr. Pierre Godé for a period of three years, and to appointMr. Sidney Toledano as director, for the same term.

VI. FINANCIAL AUTHORITIES GRANTED TO THE BOARD OFDIRECTORS BY THE ANNUAL GENERAL MEETING

Authorization to intervene on the Stock Market

The Combined Ordinary and Extraordinary General Meetings of May 13, 2004 authorizedthe Board of Directors to acquire the Company’s stock up to a maximum of 0.5% of itscapital stock, with a maximum purchase price of 90 euros per share.

At this year’s Annual General Meeting, you are being asked to renew this authority for aperiod of eighteen months. The stock purchases may only be made to stimulate the marketwithin the framework of a liquidity contract concluded with a brokerage firm.

The total number of shares bought back by the Company would be limited to 0.5% ofcapital. The maximum unit purchase price would be 90 euros per share.

Authorization to reduce the capital

In accordance with the provisions of Article L.255-209 of the Commercial Code, theCombined Ordinary and Extraordinary General Meetings of May 13, 2004 authorized theBoard of Directors, if it considers that it is in the shareholders interest, to reduce the capitalof the Company by the cancellation of shares acquired under the share buy-back program.

We are asking the AGM to renew this authorization for a period of eighteen months.

Authorization to increase the capital

1- To allow the Company to raise capital by granting free shares, but also, when necessary,to raise money on the market, in France or overseas, in order to ensure its financing needsfor the development of the Group, we are asking the AGM to give full powers to the Boardof Directors for a period of twenty-six months, to increase the capital, including by theissuance of any securities giving immediate or future access to the capital or giving a right toa debt security.

As is required for public fund-raising operations, we are asking the AGM to authorize theBoard of Directors to conduct securities issues, either with a preferential right ofsubscription of shareholders, or with the waiver of this right but possibly by granting apriority right to shareholders if the issues take place on the French market.

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In the case of issuance without a preferential right of subscription to shareholders, the shareissue price must be at least equal to the minimum price set by the legal provisions andregulations in force at the time of the issue.

If the subscription is oversubscribed, the number of securities to be issued could beincreased by the Board of Directors in accordance with the regulations.

2- We are also asking the AGM to delegate to the Board of Directors for a period of twenty-six months, authority to increase the capital by means of share issues for the payment ofeither securities contributed following a takeover bid or, but not exceeding in total 10% ofthe capital, assets constituting capital securities or listed marketable securities giving accessto the capital.

Employee share participation plan1- As required by Article L.225-129-6, we are asking the AGM to delegate to the Board ofDirectors the power to increase the capital for the benefit of Group employees who aremembers of the Employee Savings Plan and, accordingly, to waive your pre-emptive right infavor of those employees.

The share issue price will be determined in accordance with the provisions of Article L.443-5paragraph 3 of the Employment Code.

This delegation for a period of twenty-six months will enable the Board of Directors toincrease the capital in one or several steps, but not exceeding 3% of the capital in total.

2- We are also asking the AGM to authorize the Board of Directors to allocate existingshares, or shares to be issued, as a bonus for the Group’s employees and executives.

This delegation for a period of thirty-eight months will enable the Board of Directors toallocate bonus shares in one or several steps, but not exceeding 3% of the capital in total.

The allocations will only become final after a minimum period of two years starting from thedate of the Board of Directors’ decision, after which the beneficiaries will have to keep themfor a minimum period of two years.

The Board of Directors will inform the AGM every year of the operations conducted usingthis authorization.

The maximum nominal amount of capital increases specified in the points “Authorization toincrease the capital” and “Employee shareholders” may not exceed a total sum of 40 millioneuros.

VII. DIRECTORS’ FEESWe are asking the AGM to set the annual amount of directors’ fees allocated to the Board ofDirectors at 85,752.54 euros until further notice.

VIII. AMENDMENT TO THE BYLAWS SPECIFICALLY TO COMPLYWITH THE REGULATIONS

We are recommending that you amend the bylaws of the Company in order to comply withthe new regulations. The changes made deal with:

• The powers of the AGM with respect to bond issues (Article 19): the Board of Directorswill henceforth be fully empowered to decide or authorize the issuance of bonds.

• One of the modalities for convening a General Meeting (Article 18): a notice ofconvocation to a General Meeting can be issued by a representative, appointed by a courtorder, at the request of, either any interested person in case of emergency, or one or severalshareholders totaling at least 5% of the capital, or a grouping of shareholders.

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IX. INFORMATION ON COMPENSATION AND BENEFITS PAID TOCOMPANY OFFICERS

Pursuant to the provisions of Article L.225-102-1 of the Commercial Code, we are reportingto you the total compensation (1) and benefits of any kind (2) paid by the Company and itssubsidiaries.

The following payments were received during the past financial year:

Mr. Bernard ARNAULT, Chairman and Chief Executive Officer• Compensation: 1,847,765 euros• Directors’ fees: 113,502 euros• Benefits in kind: none

Mr. Eric GUERLAIN, Vice Chairman and Director• Compensation: none• Directors’ fees: 9,528 euros• Benefits in kind: none

Mr. Antoine BERNHEIM, Director• Compensation: none• Directors’ fees: 167,028 euros• Benefits in kind: none

Mr. Denis DALIBOT, Director• Compensation: 360,934 euros• Directors’ fees: 40,596 euros• Benefits in kind: car

Mr. Christian de LABRIFFE, Director• Compensation: none• Directors’ fees: 9,528 euros• Benefits in kind: none

Mr. Pierre GODÉ, Director• Compensation: 2,504,707 euros• Directors’ fees: 92,788 euros• Benefits in kind: car

Mr. Raymond WIBAUX, Director• Compensation: none• Directors’ fees: 9,528 euros• Benefits in kind: none

Mr. Sidney TOLEDANO, General Manager, non-director• Compensation: 513,026 euros• Directors’ fees: none• Benefits in kind: car

(1) Amount received after deduction of payroll taxes, the CSG and the CRDS taxes at the flat rate of 5% andincome tax at the French marginal rate of 48.09%. Gross compensation represented approximately twice theamounts mentioned.(2) Details of the capital securities allocated to the members of the Board of Directors during the year is indicated insection XI. of this report.

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X. LIST OF POSITIONS OR OFFICES HELD IN ALL COMPANIES BYTHE CORPORATE OFFICERS AND DIRECTORS

Pursuant to Article L.225-102-1 of the Commercial Code, below is a report on all positionsand offices held in any company by each of the Company’s directors during the pastfinancial year as well as for the directors whose terms expire at the close of this GeneralMeeting, and the list of offices and positions they have held over the five past years.

CHAIRMAN OF THE BOARD OF DIRECTORS

M. Bernard ARNAULT – Date of birth: March 5, 1949

Date of first election: March 20, 1985

Term expires: Annual General Meeting called to approve the financial statements for fiscal2004

CURRENT DUTIES AND POSITIONSChairman and Chief Executive Officer of LVMH Moët Hennessy Louis Vuitton, SA,France

Chairman of the Board of Directors of Christian Dior, SA, France

Chairman of Groupe Arnault, SAS, France

Chairman of the Board of Directors of Société Civile du Cheval Blanc, France

Director of:

• Christian Dior Couture, SA, France

• LVMH Moët Hennessy – Louis Vuitton (Japan) KK., Japan.

Member of the Supervisory Board of Métropole Télévision “M6”, SA, France

Member of the Supervisory Board of Lagardère, SCA, France

Member of the Supervisory Board of Financière Jean Goujon, SAS, France

PREVIOUS DUTIES AND POSITIONS

Chairman and Chief Executive Officer of Montaigne Participations et Gestion, SA, France

Director of:

• Financière Jean Goujon, SA, France

• Vivendi Universal, SA, France

• LVMH Moët Hennessy Louis Vuitton Inc., United States

• Moët Hennessy Inc., United States

Chief Executive Officer of Christian Dior, SA, France

Legal representative of Christian Dior, Chairman of Montaigne Développement, SAS,France

Permanent representative of Montaigne Participations et Gestion, Director of FinancièreAgache, SA, France

Legal representative of Montaigne Participations et Gestion, Chairman of GasaDéveloppement, SAS, France, and of Société Financière Saint Nivard, SAS, France

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CHIEF EXECUTIVE OFFICER (non-director)M. Sidney TOLEDANO – Date of birth: July 21, 1951

Date of first election: September 11, 2002

CURRENT DUTIES AND POSITIONSChairman and Chief Executive Officer of:• Christian Dior Couture, SA, France• John Galliano, SA, France

Chairman of the Board of Directors of Fendi International, SA, France

Chairman of:• Fendi France, SAS, France• Christian Dior Italia, Srl, Italy• Bopel, Srl, Italy• Mardi, Spa, Italy• Lucilla, Srl, Italy• Christian Dior Saipan, Ltd, Saipan• Christian Dior Guam, Ltd, Guam• Les Jardins d’Avron, LLC, USA• Christian Dior Inc., USA

Chairman and Chief Executive Director of:• Fendi International, BV, Netherlands

Sole Director of Christian Dior Puerto Banus, Spain

Director of:• Christian Dior UK, Ltd• Christian Dior Far East Ltd• Christian Dior Australia• Christian Dior (Fashion) Malaysia Sdn• Christian Dior Guam Ltd• Christian Dior Hong Kong Ltd• Christian Dior New Zealand Ltd• Christian Dior Singapore• Christian Dior Taiwan• Christian Dior Saipan Ltd, Saipan• Christian Dior Macau Ltd, Macau• Christian Dior Couture CZ, Czech Republic• Christian Dior KK, Japan• Christian Dior Couture Korea• Fendi Adele, Srl, Italy• Fendi Immobili Industriali, Srl, Italy• Fendi Italia, Srl, Italy• Fendi Srl, Italy• Fendi Asian Pacific Limited, Hong Kong• Fendi North America Inc, United States• Fendi, SA, Luxembourg

28

Representative director of:• Christian Dior KK, Japan

Permanent representative of:• Christian Dior Couture, Chairman of Jardins d’Avron SAS, France

• Christian Dior Couture, Director of Christian Dior Belgium

Manager of:• Christian Dior GmbH, Germany

• Christian Dior Espanola, Spain• Christian Dior Couture Maroc, Morocco


Chairman and Chief Executive Officer of EVF

Director of:• Christian Dior (Malaysia), Ltd

• Christian Dior KK

• Fendi Japan KK

• Looksor Ltd

• Diorasia Ltd

VICE CHAIRMAN AND DIRECTOR

Mr. Eric GUERLAIN – Date of birth: May 2, 1940

Date of first election: June 29, 1994


Chairman of the Board of Directors of Hydroélectrique d’Energie, France

Permanent representative of LVMH Fashion Group, Director of Guerlain, SA, France

DIRECTOR

M. Denis DALIBOT – Date of birth: November 15, 1945

Date of first election: May 17, 2000


Director – Chief Operating Officer of Financière Agache, France

Chairman – Chief Executive Officer of:

• Agache Développement, France

• Europatweb, France

Chairman of:

• FA Investissements, France

• Montaigne Finance, SAS, France

• Sifanor, France

29

Director of Christian Dior Couture, France

Chief Financial Officer of Christian Dior, France

Permanent representative of:

• Christian Dior Couture, Director of Atelier AS, France

• Financière Agache, Director of Raspail Investissements, France

• Financière Agache, Director of Le Bon Marché – Maison Aristide Boucicaut, France

• Le Bon Marché, Maison Aristide Boucicaut, Director of Franck & Fils, France

• Louis Vuitton Malletier, Director of Belle Jardinière, France

• Ufipar, Director of Le Jardin d’Acclimatation, France

Manager of:

• Kléber Participations, France

• Montaigne Investissements, France

• Montaigne Services, France

• Groupement Foncier Agricole Dalibot, France

Member of the Executive Committee of Groupe Arnault, SAS, France

Member of the Supervisory Committee of:

• Financière Jean Goujon, France

• Publications Professionnelles, SAS, France

DIRECTOR

Mr. Christian de LABRIFFE – Date of birth: March 13, 1947



Chairman of Transaction R, France

Managing Partner of Rothschild & Cie Banque, France

Managing Partner of Rothschild Gestion, France

Managing Partner of Rothschild & Cie, France

Member of the Audit Committee of:

• Financière Rabelais, France

• Beneteau Group, France

Director of:


• Holding Financier Jean Goujon, France

• Montaigne Rabelais, France

• Paris Orléans, France

• Rothschild Conseil International, France

• Nexity, France

30

DIRECTOR

Mr. Raymond WIBAUX – Date of birth: July 17, 1938

Date of first election: June 11, 1993


Chairman of the Board of Directors of Financière Joire Pajot Martin, France

Director of Participex, France


• Financière Joire Pajot Martin, Director of E.T.O., France

• Stratefi Belgique, Director of Compagnie Textile et Financière, France

DIRECTOR

M. Antoine BERNHEIM – Date of birth: September 4, 1924



Partner of Lazard, LLC, United States

Chairman of the Board of Directors of Generali, Italy

Vice-Chairman of:

• Bolloré Investissement, SA, France

• Alleanza Assicurazioni, Italy

Vice-Chairman and Director of:

• LVMH Moët Hennessy Louis Vuitton, France

Director of:

• LVMH Moët Hennessy Louis Vuitton, France

• Bolloré, SA, France


• Ciments Français, SA, France

• Generali France, SA, France

• Generali España Holding, SA, Spain

• AMB Generali Holding AG, Germany

• BSI, Switzerland

• Generali Holding Vienna AG, Austria

• Intesa S.p.a., Italy

• Mediobanca, Italy

Member of the Supervisory Board of Eurazeo, France

31

DIRECTOR

M. Pierre GODÉ – Date of birth: December 4, 1944



CURRENT DUTIES AND POSITIONS

Chairman and Chief Executive Officer of:

• Financière Agache, SA, France

• Raspail Investissements, SA, France

Chief Executive Officer of Groupe Arnault, SAS, France

Chairman of Financière Jean Goujon, SAS, France

Director of:

• LVMH Moët Hennessy – Louis Vuitton, SA France


• SA du Château d’Yquem, France

• Société Civile du Cheval Blanc, France

• LVMH Moët Hennessy – Louis Vuitton Inc., United States

• LVMH Moët Hennessy – Louis Vuitton (Japan) KK., Japan.

Manager of Redeg, SARL, France

Legal representative of:

• Financière Agache, SA, Manager of Sevrilux, SNC, France


Chairman and Chief Executive Officer of Financière Truffaut, SA, France

Chairman of Sèvres Investissements, SAS, France

Member of the Supervisory Board of Montaigne Finance, SAS, France

Member of the Board of Directors, Chief Executive Officer of LVMH Fashion Group,SA, France

Director – Acting Managing Director of Le Bon Marché-Maison Aristide Boucicaut,France

Director of:

• Belle Jardinière, SA, France

• Bon Marché International, SA, France

• Louis Vuitton Malletier, SA, France

• Montaigne Participations & Gestion, SA, France

• Sanderson International, SA, Luxembourg

• Christian Dior Inc., United States

• Fendi, SA, Luxembourg

• LVMH Services Limited, United Kingdom

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Member of the Board of Directors of LVMH Services, GIE, France

Director of LVP Holding, BV, The Netherlands

Member of the Executive Committee of Sofidiv, SAS, France

Member of the Supervisory Board of Métropole 1850, France

Chairman of LVMH Inc., United States


• Financière Agache, Director of Parfums Christian Dior, SA, France

• Le Bon Marché-Maison Aristide Boucicaut, Director of Franck & Fils, SA, France

• Louis Vuitton Malletier, Director of Belle Jardinière, SA, France

• LVMH Moët Hennessy Louis Vuitton, Director of DI Group, SA, France

Legal representative of:

• Financière Agache, SA, France, Chairman of Aristide Boucicaut, SAS, France

• Financière Agache, SA, France, Manager of Lamourelle, SNC, France

33

XI. STOCK OPTION PLANS

OPTION PLANS FOR SHARE PURCHASE

• Options granted by the Christian Dior parent company

Nine stock option plans were in effect at December 31, 2004. These plans have a term of ten years; under theplans, the options may be exercised after a period of three or five years from the start date of the plans. Insome circumstances, notably upon retirement from the company, this time requirement will be waived.

Each of these plans stipulates that each option gives the right to buy one share.

STOCK OPTION PURCHASE PLANS:

MeetingAuthorization

Start dateof plan

Number ofoptions

granted ➀

No. ofbeneficiaries

Of whichDirectors

Of whichTop 10

employees

Exerciseprice

(EUR) ➁ ➂

Number ofoptions

exercisedin 2004 ➂

Number of optionsnot expired ➂

31.12.2004 31.01.2005

30.05.1996 14.10.1996 94,600 21 40,000 50,500 25.95 10,000 255,200 255,200

30.05.1996 29.05.1997 97,900 22 50,000 43,000 32.01 70,000 302,400 299,400

30.05.1996 03.11.1998 98,400 23 65,000 28,200 18.29 2,400 292,700 292,700

30.05.1996 26.01.1999 89,500 14 50,000 38,000 25.36 30,000 328,000 328,000

17.05.2000 15.02.2000 100,200 20 65,000 31,000 56.70 – 400,800 400,800

14.05.2001 21.02.2001 437,500 17 308,000 121,000 45.95 – 437,500 437,500

14.05.2001 18.02.2002 504,000 24 310,000 153,000 33.53 – 504,000 504,000

14.05.2001 18.02.2003 527,000 25 350,000 143,000 29.04 – 527,000 527,000

14.05.2001 17.02.2004 527,000 26 355,000 – 49.79 – 527,000 527,000

➀ Number of options at the plan start date, not restated for adjustment related to the one-for-four stock split of July 2000.

➁ Exercise prices prior to 1999 result from the conversion into euros of data originally denominated in francs.

➂ Adjusted because of the operations described in ➀.

• Options granted by its subsidiaries

STOCK OPTION PLAN FOR EXISTING SHARES GRANTED BY LVMH:


Start dateof plan

Number ofoptionsgranted

No. ofbeneficiaries

Of whichDirectors

Of whichTop 10

employees

Exerciseprice

(EUR)

Number ofoptions

exercisedin 2004

Number of optionsnot expired ➁

31.12.2004 31.01.2005

15.05.2003 21.01.2004 2,747,475 906 930,000 470,000 55.70 ➀ – 2,747,475 2,747,475

➀ The exercise price for Italian residents is €58.90.

➁ Adjusted because of the operations described in ➀.

34

STOCK OPTION PLANS FOR EXISTING SHARES GRANTED BY LVMH:


Start dateof plan

Number ofoptions

granted ➀

No. ofbeneficiaries

Of whichDirectors

Of whichTop 10

employees

Exerciseprice

(EUR) ➁

Number ofoptions

exercisedin 2004 ➁

Number of optionsNot expired ➁

31.12.2004 31.01.2005

25.05.1992 22.03.1995 256,903 395 96,000 57,500 20.89 16,817 400,703 397,733

08.06.1995 30.05.1996 233,199 297 105,000 46,500 34.15 80,995 633,940 626,915

08.06.1995 29.05.1997 233,040 319 97,500 46,000 37.50 228,130 800,610 799,400

08.06.1995 29.01.1998 269,130 346 97,500 65,500 25.92 163,205 851,110 850,300

08.06.1995 16.03.1998 15,800 4 – 15,800 31.25 – 70,400 70,400

08.06.1995 20.01.1999 320,059 364 97,000 99,000 32.10 82,770 1,574,165 1,515,065

08.06.1995 16.09.1999 44,000 9 5,000 39,000 54.65 10,000 210,000 210,000

08.06.1995 19.01.2000 376,110 552 122,500 81,000 80.10 – 1,872,800 1,879,550

17.05.2000 23.01.2001 2,649,075 786 987,500 445,000 65.12 – 2,586,975 2,606,075

17.05.2000 06.03.2001 40,000 1 – 40,000 63.53 – 40,000 40,000

17.05.2000 14.05.2001 1,105,877 44,669 – ➂ 66.00 – 1,105,877 1,105,877

17.05.2000 14.05.2001 552,500 4 450,000 102,500 61.77 – 552,500 552,500

17.05.2000 12.09.2001 50,000 1 – 50,000 52.48 – 50,000 50,000

17.05.2000 22.01.2002 3,284,100 993 1,215,000 505,000 43.30 ➃➄ 13,000 3,227,650 3,262,250

17.05.2000 15.05.2002 8,560 2 – 8,560 54.83 – 8,560 8,560

17.05.2000 22.01.2003 3,213,725 979 1,220,000 495,000 37.00 ➃ 11,700 3,163,325 3,202,025

➀ Number of options at the start date of the plan, not restated for adjustment related to the bonus allocation of June 1999 and tothe one-for-five stock split of July 2000.

➁ Adjusted because of the operations described in ➀.

➂ 25 options were granted to each beneficiary.

➃ The exercise price for Italian residents for the plans started on January 22, 2002 and January 22, 2003 were €45.70 and €38.73respectively.

➄The exercise price for American residents of the plan starting January 22, 2002 plan is €43.86

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• Options granted to each director by the Company and any Group company during theyear:

BeneficiariesCompany issuingthe options

Date ofplan

Number ofoptions

Exerciseprice

(euros)Expiry date

of plan

B. Arnault Christian Dior 17.02.2004 220,000 49.79 16.02.2014

LVMH 21.01.2004 450,000 55.70 20.01.2014

D. Dalibot Christian Dior 17.02.2004 25,000 49.79 16.02.2014

P. Godé Christian Dior 17.02.2004 65,000 49.79 17.02.2014

LVMH 21.01.2004 150,000 55.70 20.01.2014

S. Toledano Christian Dior 17.02.2004 45,000 49.79 16.02.2014

• Options exercised by each director during the year:

BeneficiariesCompany issuingthe options Number of shares

Exercise price(euros)

B. Arnault LVMH 1,525,000 17.84

D. Dalibot Christian Dior 14,000 18.29

P. Godé Christian Dior 60,000 32.01

P. Godé LVMH 110,000 37.50

P. Godé LVMH 63,000 25.92

• Options granted by the Company and any Group company during the financial year to theten non-director employees holding the largest number of options:

Company issuing the options Date of plan

Totalnumber of

options

Weighted averageexercise price

(euros)

Christian Dior 17.02.2004 134,000 49.79

LVMH 21.01.2004 457,500 55.70

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• Options exercised during the financial year by the ten non-director employees holding thelargest number of options:

Company issuing the options Date of plan Total number of optionsWeighted average

exercise price (euros)

LVMH 22.03.1995 1,375 20.89

LVMH 30.05.1996 41,875 34.15

LVMH 29.05.1997 82,335 37.50

LVMH 29.01.1998 49,435 25.92

LVMH 20.01.1999 16,610 32.10

LVMH 16.09.1999 10,000 54.65

Christian Dior 14.10.1996 10,000 25.95

Christian Dior 29.05.1997 10,000 32.01

Christian Dior 03.11.1998 2,400 18.29

Christian Dior 26.01.1999 16,000 25.36

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XII. CONSEQUENCES OF THE ACTIVITY ON THE ENVIRONMENT

1. Scope of reporting of environmental indicators in 2004

The reporting of environmental indicators implemented by some companies in 1999 coversthe following areas in 2004:

• the production sites and warehouses owned and/or run by companies in which the Grouphas a holding of more than 50% or in which it exerts management control;

• the French stores of Sephora, La Samaritaine, Le Bon Marché, Louis Vuitton and themain DFS and Fendi stores;

• the principal administrative sites located in France;

• the vehicle fleets owned by the Group in France and used for employee travel.

In 2004, the reporting covers 383 sites (367 sites in 2003); 24 of the Group’s sites are stillexcluded; however, their impact on the environment is insignificant in relation to theGroup’s size.

The changes by comparison with 2003 come from:

• non-inclusion of the production and administrative sites of companies sold or in theprocess of sale at December 31,2004, or activities that have been moved;

• the integration of 36 new sites: 4 warehouses (Louis Vuitton, DFS, Kami) and 32 stores(DFS, Louis Vuitton, Fendi).

The 2004 reporting does not include:

• the impact on the environment (water, energy, etc.) of the administrative buildings andstores run directly or franchised by the Perfumes and Cosmetics and Fashion and LeatherGoods activities not mentioned previously;

• the vehicle fleets owned by the Group in countries other than France, used for employeetravel;

• energy consumption related to the transportation of merchandise exclusively carried outby outside service providers;

• the companies where the Group has a holding of less than 50% or in which it does notexert management control.

In relation to the consolidation for financial reporting, the environment scope for 2004covers:

• 92% in number of the Group production sites, warehouses and administrative sites;

• 40% in area of the total of the Group sale areas.

The eventual objective is to cover the entire consolidation scope.

Pursuant to Decree 2002-221 of February 20, 2002, the “New Economic Regulations Act –NRE”, the following sections indicate only the nature and magnitude of the relevantsignificant impacts of the business activities.

38

2. Consumption of water resources, raw materials and energy

2.1 Water consumption:

Water consumption is analyzed for the following uses:

• “Process” needs: the use of water for cleaning operations (vats, products, machinery,floors), air conditioning, employees, etc. The water used for these purposes generates wastewater.

• Agricultural needs: use of water for vineyard irrigation in countries outside France asirrigation is not used in France; in this context, water used in irrigation is taken directly fromthe natural environment. Water use from one year to another strictly depends on climatechanges

(in cubic meters) 2004 2003 % change

Process needs

Agricultural needs1,691,8607,445,085

1,721,904(a)6,329,847(a)

(2)

87(b)

(a) 2003 figures restated.

(b) after inclusion in 2003 of the water consumption for the irrigation of Bodegas Chandon (Argentina).

Water consumption used for the process needs of the Group’s subsidiaries decreased by 2%in absolute value between 2003 and 2004, despite the consolidation increase for reporting. Ittotals approximately 1.7 million cubic meters. By comparison, for the sector of the industryin France, the water consumption represents around 3.7 billion m3 (IFEN data, 1999).

At Moët & Chandon, thanks to the new pressure center inaugurated during the 2004 grapeharvests, we only use 0.2 liter of water per kilogram of pressed grapes; in particular, thisresult has been achieved by the installation of automatic cleaning of presses, bins and floors.

At Givenchy Perfumes, the installation of a cooling circuit on the cosmetics manufacturingtanks instead of waste water cooling reduced the site’s water bill by 40%.

At Veuve Clicquot, the water consumption for all sites has decreased by more than 50% in 6years, despite an increase in the level of activity. This decrease corresponds to animprovement in performance, especially from 2003, the year when environment awarenessprograms started.

At Christian Dior Couture, savings of 30% have been made in water consumption in 2004.

(in m3) Process needs % change

Christian Dior Couture 7,923 (45)

Wines & Spirits 569,036 (17)

Perfumes & Cosmetics 482,957 9

Fashion and Leather Goods 122,807 (8)

Watches & Jewelry 14,367(*) (72)

Selective retailing 474,723 10

Holding 20,047 (11)

Total 1,691,860 (2)

(*) The decrease in the process needs of Watches and Jewelry resulted form the consolidation changes.

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The use of water for vineyard irrigation is absolutely necessary for the life of the vines inCalifornia, Argentina, Australia and New Zealand. Irrigation is strictly ruled by the localauthorities who issue authorizations and the Group has also adopted measures to limit itswater use:

• Rainwater recovery at Domaine Chandon California, Domaine Chandon Australia,Bodegas Chandon Argentina; re-use of treated waste water at Domaine ChandonCarneros, California; recovery of run-off through the creation of artificial lakes in Newton;

• Implementation of protocols to measure and specify water needs: analyses of soil and leafhumidity, visual inspections of the vines, supply customization based on the needs of eachsite (Domaine Chandon Australia);

• Widespread use of drip irrigation systems: between 73 and 100% of the vineyard areas arenow covered by this practice;

• Weather forecasting to ensure optimal use of irrigation (weather stations at DomaineChandon California);

• Periodic checks of the irrigation systems to avoid leaks;

• Use of “low-flow irrigation” which both limits water use and improves the quality of thegrapes, since the size of the vine concentrates aromas and color.

2.2 Energy consumption:

Energy consumption refers to the total energy sources used internally (i.e. for whichcombustion takes place at the Group’s sites: fuel for generators, butane, propane, naturalgas) and externally (for which combustion takes place off-site: electricity, steam).

The subsidiaries included in the 2004 reporting scope used 392,917 MWh distributed amongthe following energy sources: 63% in electricity, 27% in natural gas, 4% in fuel, and 6% inother sources (steam, butane or propane). This consumption comes from (by decreasingorder) the activities of Selective Retailing (30%), Wines and Spirits (28%), Perfumes andCosmetics (22%), Fashion and Leather Goods (16%). The remaining 4% are generated byWatches and Jewelry and the holding company’s administrative activity.

By comparison, for the sector of the industry in France, electricity and natural gasconsumption represents around 129,000,000 MWh (MINEFI data, 2001).

Energy consumption in MWh 2004 2003 % change

Christian Dior Couture 3,243 2,946 18

Wines & Spirits 109,836 101,110 8

Perfumes & Cosmetics 87,185 104,707 (20)

Fashion & Leather goods 62,334 54,120 11

Watches & Jewelry 7,430 8,771 (18)

Selective retailing 115,936 87,519 25

Holding 6,953 5,185 25

Total 392,917 364,358 7

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For 2004, the breakdown of energy resources was as follows:

in MWh Electricity Natural gasFuel

oil Other

Christian Dior Couture 2,488 – – 755

Wines & Spirits 49,420 40,965 13,826 5,625

Perfumes & Cosmetics 43,419 43,162 604 0

Fashion & Leather goods 34,874 19,369 1,257 6,834

Watches & Jewelry 3,241 2,780 1,409 0

Selective retailing 106,791 68 5 9,071

Holding 5,818 0 34 1,101

Total 246,051 106,344 17,135 23,386

2.3 Consumption of raw materials:

The main relevant criteria used for the analysis of raw materials consumption is the quantity,in tons, of the primary and secondary packaging released on the market for consumers:

• Christian Dior Couture: boutique bags, pouches, boxes, etc.

• Wines and Spirits: bottles, cardboard boxes, capsules, etc.

• Perfumes and Cosmetics: flasks, cartons, etc.

• Fashion and Leather Goods: boutique bags, pouches, boxes, etc.

• Watches and Jewelry: boxes and cases, etc.

• Selective Retailing: boutique bags, envelopes, boxes, etc. For Sephora, the figures includeall packaging of Sephora brand products all over the world.

Packaging used for shipping has been excluded from this analysis.

The table below presents changes in packaging (by weight) placed on the market in 2003and 2004:

Packaging placed on the market(in tons) 2004 2003 % change

Christian Dior Couture

Wines and Spirits

Perfumes and Cosmetics

Fashion and Leather Goods

Watches and Jewelry

Selective retailing

182113,607

19,6732,576

2281,451

202

106,113

18,988

2,533

214

576

(11)

7

3

2

6

57

Total 137,717 128,626 7

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In 2004, the total packaging consumed by weights and type of material, is as follows:

(in tons) GlassPaper andcardboard Plastics Metal

Otherpackagingmaterials

Christian Dior CoutureWines and SpiritsPerfumes and CosmeticsFashion and Leather GoodsWatches and JewelrySelective retailing

–101,358

8,47501

30

18010,1195,3082,457

1901,223

2413

4,9373

16197

–8858318091

–83212235140

Total 109,864 19,477 5,568 1,806 1,003

3. Conditions of land use: air, water and ground emissions

3.1 Land use:

Soil pollution related to older industrial facilities (production of Cognac and Champagne,manufacturing of trunks) is not significant. The most recent production sites are generallyestablished on former agricultural land with no historical pollution. Apart from grapegrowing, the production activities of the Group’s subsidiaries make little use of the soil.

The practice of integrated viticulture, a method that combines technological advances withtraditional methods, covers all stages in the life of a vineyard. In use for several years by theWines & Spirits business group, it was expanded this year. In addition to its own vineyards,which are all integrated, Veuve Clicquot continued to partner its grape suppliers in thisprocess: for the last five years, all suppliers can call on the necessary technical support froman agricultural engineer, hired full-time to act as a relay between the technical bodiesmaking champagne and the vineyards working with Veuve Clicquot. As was the case lastyear, this covered 80% of the vineyards.

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3.2 Greenhouse gas emissions:

Given the Group’s operations, the only significant environmental emissions are greenhousegas emissions.

Estimated greenhouse gas emissions in tons of equivalent CO2 (carbon dioxide) correspondto the emissions from energy consumption at the sites, as defined in section 2 above. Theyinclude direct emissions (combustion on site) and indirect emissions (from the production ofelectricity used by the sites). Their breakdown by sector of activity is as follows:

CO2 emissionsin 2004

% change from2003

Direct CO2emissions

Indirect CO2emissions

Christian Dior Couture 303 (7) – 303

Wines & Spirits 18,869 (3) 13,228 5,640

Perfumes & Cosmetics 12,084 (30) 8,871 3,213

Fashion & Leather goods 11,420 4 5,795 5,625

Watches & Jewelry 1,171 (53)(*) 936 235

Selective retailing 29,594(*) 70(*) 15 29,579

Holding 650 30 9 641

Total 74,091 22 28,855 45,236

(*) The decrease of Watches & Jewelry emissions and the increase of Selective Retailing emissions result from theconsolidation changes. The DFS sites were the major contributor to the greenhouse gas emission figure because oftheir geographical location: at equal electricity consumption, the CO2 emissions are proportionally higher inAustralia, China and New Zealand than in France, where all the other sites of the sector included in the 2004consolidation are located; at constant consolidation, the CO2 emissions of the Selective Retailing sector decreasedby 19% between 2003 and 2004.

Hennessy continued to prioritize the shipping of its products by boat and rail, atransportation mode which emits 85 times less greenhouse gas than plane: 90.1% in tons perkilometer of Hennessy products are shipped by this transportation mode, 7% by road, 2.4%by rail and 0.3% by plane.

Following the lead of Christian Dior Perfumes, Hennessy and Veuve Clicquot, LouisVuitton carried out a carbon assessment, with the help of a software program developed byADEME (Agence De l’Environnement et de la Maîtrise de l’Energie – Agency for the Environmentand Energy Control), the first software for the measurement of all CO2 and othergreenhouse gas emissions which directly or indirectly result from business operations. Thiscarbon assessment showed that the principal source of greenhouse gas emissions for LouisVuitton resulted from transportation by plane; an action plan was drawn up in order todevelop transportation by ship. The Leather Goods business ship transportation increasedfrom 20% in 2003 to 40% in 2004, and a target of 50% has been set for 2005. In order toreduce the transported volumes, innovative solutions have been researched to reduce spaceand excess packaging. A good practice directive was sent to workshops and a campaign toraise awareness was carried out, enabling gains of around 5% of the transported volume.The logistics routes were reviewed, in particular for packaging and commercialdocumentation, in order to achieve direct deliveries by boat from the supplier to the regionalwarehouse, without going through an intermediary central depot. Truck-rail transportationhas increased between the Barbera workshop in Spain and the Cergy logistics centre.

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Various ecological solutions have been assessed for Louis Vuitton trucks. Investment in euroV standard trucks (the applicable standard from 2009), to replace euroII standard trucks,has been approved (July 2005 delivery) and this will reduce noxious emissions to one-thirdand particle emissions to one-seventh.

Sephora sends its deliveries to the US by boat. In 2004, a system was set up to reach 90% offinished products shipped by this method at the end of 2005, versus 10% in 2003.

An indicator of the emissions produced by staff transportation was put in place in 2004: itcurrently covers the greenhouse gas emissions released by the petrol consumption of carshired or bought by the Group’s companies, in France, for their staff (36,000 personsinvolved, i.e. 36% of the Group’s total workforce). Over the year, 2.5 million liters of petrolwere consumed by those vehicles generating 6,689 tons of CO2 equivalent.

3.3 Water emissions:

The Group’s operations have little impact on water quality. The only emissions to beconsidered are the wastes of the Wines and Spirits and Perfumes and Cosmetics activities ofsubstances contributing to eutrophication. Eutrophication is the excessive proliferation ofalgae and aquatic plants due to an overload of nutritive elements into the water (particularlyphosphorus), resulting in reduced oxygenation of the water, which is harmful to theenvironment. The parameter used is the chemical oxygen demand (COD), calculated aftertreatment of the effluents at company-owned stations or at outside stations with which thesites have agreements. The following operations are considered as treatment: commoneffluent disposal, private effluent disposal (aeration tank), and land application.

(tons / year) COD after treatment

Wines and Spirits 74.0

Perfumes and Cosmetics 19.5

Total 93.5

3.4 Waste:

The Group companies continued their efforts to sort and recover waste: on average, 85% ofwaste was recycled, up from 82% in 2003.

Recycled waste is waste for which the final destination is one of the following:

• re-use, i.e. use of a waste for the same usage as that for which the product was initiallyconceived;

• material recovery, i.e. recycling (direct reintroduction of waste to the production cyclefrom which it comes, in total or partial replacement of a new raw material), composting orcontrolled land spreading of waste composed of organic matter for ground fertilization;

• recovering energy value from incineration, i.e. energy recuperation in the form ofelectricity or heat through combustion of waste.

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(in tons, for 2004) % change Special waste(*) Product waste

Christian Dior Couture 62 – 404

Wines & Spirits 48 150 26,909

Perfumes & Cosmetics (8) 683(**) 7,970

Fashion & Leather Goods 25 33 4,911

Watches & Jewelry 9 12 176

Selective retailing 9 22 4,906

Holding 99 1 204

Total 32 901 45,480

(*) Wastes that require separate sorting and treatment from so-called “household” waste (cardboard, plastics, wood,paper, etc.)

(**) Some products disposed of from the production cycle are treated as “special waste” in order to avoidcounterfeiting.

The 32% increase in the volume of waste is largely due to the extension of reporting in 2004to other types of waste (pressings, landscape maintenance…).

(as a %) Reuse RecyclingEnergy

recoveryTotal

recycled

Christian Dior Couture – 100 – 100

Wines & Spirits 4 92 – 93

Perfumes & Cosmetics 4 42 31 78

Fashion & Leather Goods – 27 24 56

Watches & Jewelry 2 23 51 74

Selective Retailing – 44 39 85

Holding – 100 – 100

Total (as a %) 2 70 13 85

At Givenchy Perfumes, the waste flow has been remodeled to enable the extension ofselective sorting to new materials. Thus, the bulk-manufacture workshops, perfumes,cosmetics and the laboratory went from two to six types of possible sorting: cardboard,recyclable plastics, clean glass, dirty waste, other.

At Bon Marché, a waste treatment study has been carried out. Its goal for 2005 is thedistribution of biodegradable plastic bags to customers and selective sorting which willenable more than 1 ton of cardboard to be recycled per day. Wood and plastic waste willalso be recycled.

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4. Measures taken to limit damage to the ecological balance, the naturalenvironment, and protected animal and plant species

The Fashion & Leather Goods activities have established procedures to reinforce compliancewith the CITES international convention. Through a system of import and export permits,this convention fights overexploitation resulting from international trade in certainendangered animal and plant species.

In the Perfumes & Cosmetics branch, the laboratories question their partners about thebiodiversity and bioavailability of each new plant studied. In their operations, thesubsidiaries in the business group are committed to not using plants that are protected, rareor endangered, but primarily plants that are commonly used or cultivated specifically fortheir needs.

Since 1989, the Perfumes and Cosmetics brands have had a non-animal testing policy forany product released on the market; the Group uses and develops alternative methods in itslaboratories and supplies financial and technical support to the SCAAT program developedby the European cosmetics industry. LVMH laboratories are the leaders in allergy research.

5. Availability of environmental services, employee training and information,means dedicated to environment risk reduction; prevention of pollutionaccidents

In 1992, the Christian Dior Group founded its environmental management department andconfirmed this commitment in 2001 by establishing an “environmental Charter” signed bythe Chairman of the Group. This Charter asks each Brand of the Group to implement aneffective environmental management system, reflect collectively on the environmentalchallenges related to its products, manage risks, and use best environmental practices. In2003, LVMH signed the United Nations Global Compact.

The Group’s environmental management, headed by the CFO, was established for:

• managing the environmental policy of the Group’s companies, within the framework of theGroup Charter;

• ensuring the legal and technical supervision;

• creating management tools;

• helping the companies to prevent risks;

• training and raising employee awareness at every hierarchical level;

• defining and consolidating the environmental indicators;

• working with the various parties involved (associations, rating agencies, public authorities,etc.).

The environmental agents of the companies of the Group meet within the “LVMHEnvironmental Committee” led by the Group’s Environment Department. They havequarterly meetings and communicate by a Group Environmental Intranet accessible toeveryone.

This year, the companies in almost all the business groups expanded their programs to trainemployees and raise awareness. These programs increased by 17% in number of hours,totaling 9,772 hours in 2004.

46

The new Group executives receive information on the Group environmental policy, availabletools and the environment network during a new executives’ integration seminar.

At Veuve Clicquot, more than one thousand staff were made aware of the environmentalpolicy during the 2004 grape harvest (grape-pickers and seasonal staff). As a result, 2.6 tonsof glass and 0.65 tons of cardboard and paper were collected and recycled during those 15days of intensive activity.

Givenchy Perfumes led an awareness-raising campaign for all its employees at its productionsites.

Over and above these initiatives, the Group companies also circulated written informationabout the environment:

• the in-house LVMH Magazine contains a column on LVMH as a corporate citizen whichgives detailed information on the environment within the Group;

• following on from Hennessy, Moët & Chandon and Veuve Clicquot, Louis Vuitton handedout a guide to green actions to all employees at its headquarters in Paris;

• Givenchy Perfumes distributed a booklet about sustainable development to all itsemployees;

• in each issue of its in-house magazine, Hennessy includes an educational column dedicatedto the environment;

• Veuve Clicquot and Krug have decided to email a fortnightly information and awareness-raising campaign to office staff emphasizing that little things, done daily can help reduce theimpact on the environment.

Regarding risk prevention, numerous actions were conducted in 2004.

At Christian Dior Perfumes, the alcohol decanting area did not have a protection deviceagainst an accidental spillage so a decanting area with a retention device was created.

In 2004, Guerlain continued the implementation of its environment protection policy at itsindustrial sites by expenditure to enable better treatment of sewage. A sewage treatmentplant was built and has been operational since the beginning of January 2004. It is made of ahomogenization and biological treatment tank followed by a methanisation process, enablinga Chemical Oxygen Demands purification rate (COD) greater than 9%.

A third retention tank, after those of Bagnolet and Haut Bagnolet, was created by Hennessyfor the wine and spirit storage at the site of La Touche, in Jarnac. These tanks are designedto store any accidental spills, sewage and water used to extinguish fires. Their operatingprinciple is based on two tanks in succession: the first one is a suppressor with a capacity of125 m3 and always remains filled; the second has a capacity of 1,500 m3 and is waterproofedwith a geo-membrane.

The Group is committed to:

• applying a precautionary approach to deal with problems affecting the environment;

• undertaking initiatives to promote greater environmental responsibility;

• encouraging the development and distribution of environmentally friendly technologies.

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6. Evaluation or certification approaches

Each subsidiary is locally responsible and must, pursuant to the LVMH EnvironmentalCharter, develop and implement its environmental management system, notably by definingits own environmental policy and by setting environmental objectives. Each company hasthe LVMH self-evaluation guide available and can, if it wishes, have its system ISO 14001or EMAS certified. From 1998, Hennessy was the first company in the world to be awardedthis distinction in the Wines and Spirits sector, renewed and validated for all its sites in 2001and 2004. This company wrote its second environmental policy in 2004 (the first one was in1997) and, for the first year, its subsidiary the distillery of La Groie has also been certifiedISO 14001.

All Krug and Veuve Clicquot sites received ISO 14001 certification in February 2004.

Louis Vuitton is also aiming for ISO 14000 certification: it successfully passed the firstfollow-up audit at the Barbera (Spain) manufacturing site, certified at the end of 2004;development of a charter; implementation of an action plan and raising awareness ofemployees at the logistics center; and sustainability of the environmental indicators, nowexpanded to all the company’s activities.

In 2004, a team of 15 environmental auditors was created within the Group’s subsidiaries,composed of employees having a legal, financial or technical function (general services,quality, industrialization, maintenance, environment, etc). At a company’s request, they areable to make a rapid assessment of the environmental state of a site. They followed a 3-daytraining course in environmental auditing, followed by a one-day, on site audit within theGroup. Five companies had their site checked in 2004, and nearly double that number isexpected in 2005 (see section 7 below).

Since fiscal year 2002, the annual environmental report has been audited by theEnvironmental and Sustainable Development Department of Ernst & Young, the Groupauditor.

7. Measures taken to ensure compliance of operations with legislative andregulatory provisions

To ensure continuing compliance, the Group’s companies are regularly audited, whether byoutside third parties, insurers, or internal auditors, which allows them to monitor theircompliance. In 2004, 12 external environmental audits and 53 internal environmental auditswere carried out on site (of which 5 were carried out by the team of internal environmentalauditors). An audit corresponds to a control performed on one or more sites of the samecompany on all environmental issues that may be present on the site: waste, water, energyand environmental management. A written report is produced.

This figure does not include the many compliance audits that may deal with a specificregulatory or environmental issue – waste sorting for example – conducted periodically bythe Group companies on their sites. Since 2003, these audits have been supplemented by areview of environmental regulatory compliance by the insurance companies, which includedan environmental element during fire engineering inspections on the sites of Groupcompanies; about 30 inspections were conducted in 2004.

48

The principal measures to achieve compliance with environmental legislation and regulationsin 2004 were:

• At Veuve Clicquot, installation of a pH neutralization system for effluents and reductionof the noise emissions of a cold production facility;

• At Christian Dior Perfumes, creation of an alcohol decanting area with a retention system.

8. Expenditures made to prevent environmental damage by the business

Environmental expenditure items were recognized in accordance with the recommendationsof the opinion of the National Accounting Board (CNC). Operating expenses andinvestments were reported for each of the following items:

• protection of the air and climate;

• management of waste water;

• waste management;

• protection and cleanup of the soil, water tables and surface water;

• combat noise and vibrations;

• protection of biodiversity and landscape;

• protection against radiation;

• research and development;

• other environmental protection activities.

In 2004, the expenditures related to environmental protection were broken down as follows:

• Operating expenses: 6.1 million euros;

• Capital expenditures: 2.7 million euros.

9. Amount of the provisions and guarantees for risks and indemnities paidduring the year pursuant to a court judgment

No provision for environmental risks has been recorded for the 2004 financial year.

10. Objectives assigned by the Group to its international subsidiaries

The Christian Dior Group requires each subsidiary, whatever its geographic location, toabide by the Group’s environmental policy as defined by the Charter, which requires theestablishment of environmental targets at every company.

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XIII. EMPLOYEE INFORMATION

Workforce

The average number of employees for the Christian Dior Group in 2004 was 58,679 menand women, 65% of them work outside France.

Breakdown by business group

Christian Dior Couture 2,170 3.7%

Wines and Spirits 4,919 8.4%

Fashion and Leather Goods 17,652 30.1%

Perfumes and Cosmetics 13,188 22.5%

Watches and Jewelry 1,937 3.3%

Selective retailing 17,929 30.5%

Other 884 1.5%

Total 58,679 100%

Distribution by geographic region

France 20,298 34.6%

Europe 11,434 19.5%

North America 11,236 19.2%

South America 1,669 2.8%

Asia-Pacific 9,367 15.9%

Japan 4,675 8.0%

Total 58,679 100%

Breakdown of employees in France by socio-professional category

Managers 20.5%

Technicians and Supervisors 14.5%

Employees 38.4%

Workers 26.6%

Total 100%

Hiring policyThe hiring policy of the Group’s companies is based on professional qualifications anddepends on the positions to be filled, prior experience and knowledge of foreign languages.

In France, in 2004, LVMH hired 2,185 employees under permanent contracts and4,817 employees under fixed term contracts. Two important reasons for using fixed termcontracts are the seasonal sales peak at Christmas and the grape harvest season.

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Breakdown of recruitment by business group

Christian Dior Couture 3.7%

Wines and Spirits 21.4%

Fashion and Leather Goods 10.7%

Perfumes and Cosmetics 12.7%

Watches and Jewelry 1.0%

Selective retailing 49.7%

Other 0.8%

Total 100%

These recruitments are to some extent matched by departures. In 2004, excluding SelectiveRetailing which is traditionally characterized by a high turnover rate, 1,369 employees underpermanent contracts left, 36% of which were resignations.

Overtime

The annual volume of overtime per employee does not exceed fifty hours.

Work week

In France, all companies signed agreements at the end of 1999 or early 2000 pertaining tothe application of the 35-hour work-week law. These provisions were implemented within avery short period of time and with no particular social unrest.

In 2004, 77.2% of the workforce in France, which is about 15,690 employees, was affectedby work schedule adjustments. They included:

Employees with variable hours/flex-time 49.9%

Employees who received “comp” time 16.8%

Part-time employees: less than 20 hours 4.6%

Part-time employees: 20 to 30 hours 9.3%

Part-time employees: over 30 hours 1.8%

Employees on 2 x 8 shifts over the entire year 4.8%

Employees on 2 x 8 over a brief period 8.4%

Employees working at night 0.4%

Beneficiaries of End of Career leave 0.4%

Beneficiaries of Parental leave 3.5%

Other 0.1%

Total 100%

Employee absenteeism (permanent and fixed-term contracts) and reasons

The absentee rate, for fixed and permanent contracts was 6.8% in France.

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Compensation and changes

The average monthly gross compensation of employees in France working under permanentemployment contracts, working over the entire year in 2004, was as follows:

Average monthly gross compensation in 2004(in euros)

Employees concerned%

Fewer than 1,5001,500 to 2,250From 2,250 to 3,000More than 3,000

26311924

Total 100

Costs of outside labor in France

The total proportion of the costs for personnel provided by service or temporary workproviders was relatively low because it represented 10.6% of the payroll.

Incentives, profit-sharing and employee savings plans

All French companies have an Incentive, Profit-sharing or Employee Savings Plan. Theseplans represented a total of 71.4 million euros:

millions of euros

Profit-sharing 43.4

Bonuses 23.7

Employer’s contribution to savings plans 4.3

Total 71.4

In 2001, the Group implemented a world-wide stock option plan. Under the plan, 25 optionswere granted to 44,669 Group employees.

Professional equality

The companies of the Christian Dior Group have a significant percentage of femaleemployees. On average and for France, women represent two-thirds of Group employeesunder permanent contracts.

Percentage of women working under permanent employment contracts in France based on socio-professional categories

Executives and management 54.6%

Technicians and Supervisors 67.2%

Office and Clerical 74.9%

Labor and production 64.9%

Total 67.0%

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This breakdown between men and women is also evident in recruitment. Thus, in France,69% of the 2,463 employees recruited in 2004 are women. The breakdown based on socio-professional categories is as follows:

Managers 53%

Technicians and Supervisors 68%

Employees 76%

Workers 68%

Total 69%

Professional relations and collective agreements

In France, the Group’s companies have Works Committees, Employee Delegates andHealth and Safety Committees. The Group Committee was established in 1985.

In 2004, employee representatives attended more than 1,370 meetings.

Works Committee 570

Employee Delegate 392

Health and Safety Committee 218

Other 195

Total 1,375

These meetings resulted in the signing of 82 Enterprise Agreements (agreements within theframework of annual negotiations on wages and working hours, incentives and profitsharing, etc.).

Health and safety conditions

In 2004, there were 571 work-related or commuting accidents in France with loss of work,which translates into 14,486 work days lost.

Breakdown of accidents with work loss, by business group:

Nombre d’accidents

Christian Dior Couture 18

Wines and Spirits 128

Fashion and Leather Goods 61

Perfumes and Cosmetics 138

Watches and Jewelry 2

Selective retailing 221

Other 3

Total 571

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10.5 million euros were invested in health and safety in France. These sums includedexpenses for occupational medicine, personal protective equipment (gloves, goggles, etc.),programs for improving personal safety and health: compliance, signage, protection, etc.

The total amount of these expenses and investments represented 1.7% of the gross payroll.

More than 4,697 employees were trained in security in the Group’s companies in France.

Training

Jobs in the luxury products industry are characterized by the acquisition and developmentof specific expertise that requires years of training. Managers must devote a large portion oftheir time to training mid-level management in the management techniques specific to ourjobs. A major portion of the training is conducted in the workplace every day and is notincluded in the indicators presented below.

The training investment made in 2004 by the companies of the LVMH Group in Francerepresented an amount of 26.3 million euros, or 4% of the total payroll. The average traininginvestment per full-time equivalent person was 1,304 euros.

This amount resulted in the completion of 49,939 days of training. Two-thirds of theemployees benefited from at least one day of training during the year. The average numberof training days per person is 2.5 days.

Moreover, nearly 1,651 employees participated in an orientation or integration session.

Hiring and employment of workers with a disability

In France, personnel with a disability represent 1.9% of the total workforce. Servicessubcontracted in France to Work Aid Centers represented a total of 2.6 million euros.

Social activities

In 2004 in France, the various companies of the Dior Group allotted a budget of 10 millioneuros to social and cultural activities: contributions to Works Committees for theorganization of trips, setting up photography and painting clubs, libraries of books andDVDs, sports groups and health programs, etc.

Additional services, catering costs and subsidies to the Works Committee represented a totalof 81 million euros. In this context, the following payments were made:

(in millions of euros)

Death, disability 8

Pensions 45

Insurance 8

Employee restaurant costs 9

Subsidy to Works Committees 11

Total 81

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Subcontracting

Most of the products sold by Christian Dior are “made in France” and most of its productionoperations are in France: Christian Dior Couture, Louis Vuitton, Moët & Chandon, ParfumsChristian Dior, etc. The majority of the Group’s subcontractors are located in France andItaly, which facilitates Christian Dior’s compliance with the provisions of the basicconventions of the International Labor Organization.

Several Group companies have established supplier charters and conduct codes. Forexample, Moët & Chandon sign specifications with suppliers that deal with, among otheritems, respect for the environment, compliance with labor laws, and compliance with thelegal working age. Audits of suppliers are conducted. Sephora includes respect for the rightsof employees, a ban on child labor, non-discrimination, respect for work weeks and theenvironment in its supplier specifications. Louis Vuitton has established an employmentaudit procedure based on compliance with local laws and international labor regulations asdefined by the ILO. Donna Karan International has designed a “Vendor ComplianceProgram”, which defines standards for ethics and employee rights. The Company conductsaudits and, in 2004, created a training program in this area. TAG Heuer asks for a writtencommitment from all its new international suppliers to comply with standard SA 8000 whichis based on ILO conventions: no child labor, non-discrimination, freedom of association,work, health and safety conditions. Parfums Christian Dior, Parfums Givenchy andGuerlain have established specifications ensuring compliance with standard SA 8000.

(See also: The Businesses of the Group).

Territorial impact of the businesses on jobs and regional development

Dior practices a policy of maintaining and developing jobs. There were no significant masslayoffs in 2004.

The major companies of the Group – Christian Dior Couture, Hennessy, Moët & Chandon,Veuve Clicquot, Louis Vuitton, Parfums Christian Dior, etc. are regionally located in Franceand are vital players in the growth of jobs in their respective regions: for example, LouisVuitton recently established workshops in Sainte-Florence and Ducey. Wherever ourcompanies are located – for example in Saint Jean de Braye near Orléans, in Champagneand in Cognac, where several of our companies have been established for a long time – theymaintain close relationships and communication with local authorities, particularly in theareas of education, culture and employment.

In France, Christian Dior Couture received about 250 students for internships, mainly formarketing, human resources and sales training.

Relations with employment associations and educational institutions

The Group has developed a number of partnerships with management schools, particularlyengineering schools, but also with design schools and schools specializing in the tradesspecific to our businesses (leather, textiles, etc.). The Group’s principal companiesparticipate several times a year in presentations on the campuses of these schools. Seniorexecutives of the Group are involved in teaching several programs.

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The Group’s hiring policy includes initiatives to support young people with no qualificationsas well as economically disadvantaged people. Thus, Veuve Clicquot Ponsardin haspartnerships with ANPE for receiving young people for job-training programs. LouisVuitton has agreements for employing people with long-term illness at its workshops. Morethan 200 qualification, apprenticeship or work-and-training contracts were signed last year.

Compliance with international agreements

Taking into consideration, in each decision, the person, his or her freedom and dignity,professional development and health, are the pillars of a doctrine of responsibility to whichall of the Group’s companies subscribe.

Likewise, all of the companies in the Group have policies and practices concerning respectfor equal opportunity and treatment (sex, race, religion, political opinion, etc.) as defined inthe conventions of the International Labor Organization. This culture and these practicesalso lead to respect for freedom of association, respect for individuals, and the prohibition ofchild labor and forced labor.

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XIV. EXCEPTIONAL EVENTS AND DISPUTES

In the course of its current business, the Group is a party to various proceedings involvingtrademarks, protection of intellectual property rights, protection of the selective retailingnetworks, licensing agreements, employee relations, tax audits and other matters inherent inits business. The Group believes that the provisions recognized on the balance sheet forthese risks, litigation and disputes known or in-process at the closing date are sufficient tocover any unfavorable outcome, so that the consolidated financial position would not besignificantly affected in the event of an unfavorable outcome.

In a summons dated October 30, 2002, LVMH filed suit against Morgan Stanley in theParis Commercial Court, to obtain reparations for the injury caused by false declarationsand biased analyses and publications distributed by this bank against LVMH.

In a judgment handed down on January 12, 2004, the Paris Commercial Court found thatthese actions constituted gross negligence, ordered Morgan Stanley to pay LVMH30 million euros in damages and appointed Mr. Didier Kling as expert to identify andcalculate all elements related to certain items of the damages. Morgan Stanley has filed anappeal against the lower court ruling; however, this ruling included provisional executionand did not suspend the orders issued or interrupt the expertise process.

The expert appraisal is currently in progress and LVMH has presented to the expert avaluation of the portion of the financial damages subject to his assessment equal to182.9 million euros. At the same time, the appeals proceeding continues. LVMH has askedthe Court to uphold the judgment of the Paris Commercial Court, to order Morgan Stanleyto pay 30 million euros as non-financial damages and 19.15 million in financial damages notsubject to the expert’s appraisal. LVMH’s claims total 232 million euros. The Paris Court ofAppeals has set the trial date for October 21, 2005.

In a summons dated July 30, 2004, Kenzo Takada filed an action against LVMH FashionGroup and KENZO SA in the Paris Regional Court (Tribunal de Grande Instance) asking thecourt to order LVMH Fashion Group to pay 12,600,000 euros in reparation for the loss heclaims to have suffered because of the non-execution of a memorandum of understandingand asking the court to order KENZO SA to pay him the provisional amount of 6,400,000euros for the incorrect use it had of a Kenzo Takada brand. The two companies havesubmitted their arguments against this claim to the Court, and the Court is now deliberating.

XV. IMPLEMENTATION OF IFRS (International Financial ReportingStandards)

The opening balance sheet for 2004, the balance sheet at December 31, 2004 and thestatement of income for 2004, are presented in a detailed document appended to the annualreport “Financial Statements for 2004 – IFRS”.

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REPORT FROM THE CHAIRMANOF THE BOARD OF DIRECTORS

TO THE ANNUAL GENERAL MEETING MAY 12, 2005

This report, prepared in accordance with the provisions of Article L.225-37 of theCommercial Code, is intended to describe the conditions for the preparation andorganization of the work of the Board of Directors of the Company and the internal controlprocedures established by the Company.

1. PREPARATION AND ORGANIZATION OF THE WORK OF THEBOARD OF DIRECTORS

The Board of Directors has developed a Charter that specifies the membership, missions,operation and responsibilities of the Board.

The Board of Directors has two committees, whose members, role and mission are definedby internal rules.

Board of Directors:

As the strategic body of the Company, the priority objectives of the Board are to increase thevalue of the company, adopt the major strategic directions and monitor theirimplementation, verify the reliability and fair presentation of the information about theCompany, and protect the corporate assets.

The Christian Dior Board of Directors guarantees respect for their rights to eachshareholder of the Company and ensures that they fulfill all their duties.

The Board is composed of 7 members, 4 of whom are independent and free of any interestwith respect to the Company. No director holding a management position within theCompany holds an office in a company which has an executive who is a member of theBoard of Directors of Christian Dior.

In financial year 2004, the Board of Directors met 4 times on a written notice from theChairman sent to each of the directors at least one week before the date of the meeting. Theattendance rate of the directors at meetings was an average of 79%.

The Board of Directors closed the accounts for the financial year, and decided on thedocuments submitted for the approval of the Annual General Meeting, as well as theadoption of a stock option plan. The documents and information required by the Board toperform its mission were provided to the directors for each meeting.

The Board of Directors has not placed any limitation on the powers of the Chief ExecutiveOfficer allowed by law.

Performance Audit Committee:

The primary missions of the Audit Committee are to ensure compliance of the accountingprinciples applied by the Company with generally accepted principles and to review thecorporate and consolidated accounts before they are submitted to the Board of Directors.

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The Committee is composed of three directors, two of whom are independent. The membersand Chairman of the Committee are appointed by the Board of Directors.

The Audit Committee met twice during 2004, with at least two members present. Allmeetings were held in the presence of the Statutory Auditors, the Chief Financial Officerand the Vice-President of Accounting and the Vice-President of Accounting of the principalsubsidiary, LVMH.

The work of the Committee has focused primarily on reviewing the consolidated andcompany statements and monitoring the macro-economic risks and their hedges (currencyand interest rates).

Nominating and Compensation Committee:

The primary duties of the Nominating and Compensation Committee are to issue:

• recommendations for the distribution of the directors’ fees paid by the company and forthe compensation, benefits in-kind and stock options of the Chairman of the Board ofDirectors and the Chief Executive Officer of the Company;

• opinions on candidates for directors, advisors and management positions in its principalsubsidiaries, and on the compensation and benefits in-kind allocated to the directors andadvisors of the Company or its subsidiaries, and on the compensation and incentivepackages, both fixed and variable, immediate and deferred, for Group executives.

The Committee is composed of four members, three of whom are independent. The membersand the Committee Chairman are appointed by the Board of Directors.

The Committee met twice during 2004 with all members present. It issued recommendationsconcerning compensation and the granting of stock options to the Chairman of the Boardand the Chief Executive Officer and issued opinions on the compensation awarded to certaindirectors by the Company or its subsidiaries.

2. INTERNAL CONTROL PROCEDURES

The purpose of the internal control procedures in force at Christian Dior is:

• first, to ensure that management actions, operations completed, and the behavior of theemployees fall within the framework defined by the strategies adopted for the activities ofthe Company by the corporate governing bodies, applicable laws and regulations, and by thevalues, standards and internal rules of the Company;

• second, to verify that the accounting, financial and management information transmitted tothe corporate governing bodies of the Company fairly present the business and position ofthe Company.

One of the objectives of the internal control system is to prevent and control risks resultingfrom the Company’s activity and the risks of errors or fraud, particularly in the accountingand financial areas. Like any system of control, it cannot, however, absolutely guarantee thecomplete elimination of these risks.

Internal control at Christian Dior takes into account the specific structure of the Group.Christian Dior is a holding company that holds two principal assets: a 42.4% interest inLVMH and a 100% stake in Christian Dior Couture. LVMH is a publicly traded company,

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whose Chairman is also the Chairman of Christian Dior, and several Directors are membersof the Board of both companies. Christian Dior Couture has a Board of Directors with astructure similar to the Board of Christian Dior.

The section devoted to internal control will discuss the procedures for Christian DiorCouture and the holding company, Christian Dior. The procedures for LVMH are describedin the report filed by LVMH; it should be consulted in addition to this report.

Christian Dior Couture

Christian Dior Couture carries out a business for the design, production and internationaldistribution for all products of the brand. It also operates a distribution business in variousmarkets through its 29 subsidiaries.

In this double role, internal control is exercised directly over Christian Dior Couture SA,and in a supervisory capacity over all the subsidiaries.

Internal procedures exist in each legal entity. These procedures govern, in particular,signature powers, asset monitoring, expenditure commitments, cost vouchers, the opening ofcustomer accounts, rates, management of press collections, etc.

Contractual commitments are subject to preliminary review and authorization by the LegalDepartment.

All the procedures related to the points of sale were reviewed and combined in a specialmanual for store operations, implemented in 2004, when new software to manage points ofsale was deployed.

The company implemented a self-evaluation system for the efficacy of the internal affairs ofthe subsidiaries.

Two questionnaires were sent to the subsidiaries:

➤ one on the adherence of procedures to be applied by the subsidiaries in all keycycles (Purchasing, Inventory and Logistics, Investments, Information Systems,Human Resources, Accounting and Finance);

➤ another on the key procedures of retail business (sales, cash management, etc.).

An analysis of the responses, completed for the first questionnaire and in process for thesecond, is followed by the implementation of recommendations for improvement starting in2005.

Christian Dior S.A.

1. The internal control environment

As indicated previously, Christian Dior S.A. is a holding company whose assets areessentially limited to two lines of equity interests in Christian Dior Couture and LVMH.

This activity within Christian Dior is primarily dedicated to:

• protecting legal ownership of these two lines of equity interests;

• exercising the rights and powers enjoyed by a majority shareholder, i.e.

- representation on the boards and at the shareholders’ meetings of the subsidiaries,

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- collection of the dividends paid by the subsidiaries,

- control of the economic performance of the subsidiaries,

• given the status of Christian Dior as a public traded company, providing full financialinformation in compliance with the laws and regulations in force.

Given the limited number of tasks as described above and its consolidation within a Groupthat has the expertise necessary for its Administration, Christian Dior uses the specializedservices of the Group in the areas inherent in a holding activity, which are the legal, financialand accounting areas. An assistance agreement has been established with the Arnault Group.

With respect to services outside the Group, the Shareholders’ Meeting of Christian Dior hasappointed two leading firms as Auditors; one of these firms also performs the same functionsat Christian Dior Couture and LVMH.

2. Control of risks

Key elements of the internal control procedures

Given the company’s activity, the internal control systems are primarily designed to preventrisks of error and fraud in the accounting and financial areas. The following principles guideour organization:

• very limited and very specific delegations of powers known to counterparties; sub-delegations reduced to a minimum;

• legal verification before the signing of contracts;

• separation of the organization of expenditures and payment;

• secure payments;

• procedural rules known to potential users;

• integrated databases (a single entry for all users);

• frequent controls (both internal and external).

Legal and operational control over the subsidiaries exercised by the parent company

➤ The control of holdings

The securities held in subsidiaries are the subject of a quarterly check between theAccounting Department of the Company and the securities departments of the relevantcompanies.

➤ Operational control

Christian Dior’s operational control over its subsidiaries is exercised through:

• legal bodies, Boards of Directors and Shareholders’ Meetings at which the Company issystematically represented;

• management information that allows the executives of the Christian Dior company tointervene in the process to define objectives and monitor implementation:

- three-year plans and annual budgets,

- monthly reporting and reconciliation of actuals to budgets and an analysis of the variances,

- quarterly meetings to analyze performance with the subsidiary’s management.

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3. Internal control for the preparation of the parent company’s financial and accountinginformation

The corporate and consolidated financial statements are covered by specific instruments andan information feedback system to process full information within the appropriate deadlines.

The exhaustive controls performed at sub-consolidation levels (LVMH and Dior Couture)guarantee the integrity of the information.

The financial information intended for the financial markets (financial analysts, investors,individual shareholders, market authorities) is provided under the control of the FinanceDivision. This information is in strict compliance with the market rules in force, particularlythe principle of equal treatment of investors.

4. Implementation of the IFRS framework

Under the authority of the Finance Division, a pilot committee was established in October2002. Its mission was, among others, to assess accounting options and to validate the choicesof the Company, and to direct the progress toward making IFRS financial statements for2004 available to the Board of Directors in March 2005.

In parallel, under the authority of the Vice-President of Accounting, a project committeeensured the implementation of the project including the creation of a training plan for allrelevant employees, the creation of a new accounting plan, a study of the new informationflow, and monitoring the changes to the software applications.

The 2004 opening balance sheet, the balance sheet at December 31, 2004 and the 2004income statement were prepared in accordance with the planned timetable.

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Documents

COMBINED ORDINARY AND EXTRAORDINARY SHAREHOLDERS’ … · like over the full year (on a constant exchange rate basis). Louis Vuitton enjoyed some outstanding performances in the