lvmhAR11.pdf - TRANSLATION OF THE FRENCH DOCUMENT DE R\u00c9F\u00c9RENCE FISCAL YEAR ENDED CONTENTS HISTORY FINANCIAL HIGHLIGHTS EXECUTIVE AND SUPERVISORY

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Unformatted text preview: TRANSLATION OF THE FRENCH DOCUMENT DE RÉFÉRENCE FISCAL YEAR ENDED DECEMBER 31, 2011 CONTENTS HISTORY FINANCIAL HIGHLIGHTS EXECUTIVE AND SUPERVISORY BODIES; STATUTORY AUDITORS AS OF DECEMBER 31, 2011 SIMPLIFIED ORGANIZATIONAL CHART OF THE GROUP AS OF JANUARY 31, 2012 1 2 5 6 BUSINESS DESCRIPTION 9 WINES AND SPIRITS FASHION AND LEATHER GOODS PERFUMES AND COSMETICS WATCHES AND JEWELRY SELECTIVE RETAILING OTHER ACTIVITIES 10 15 17 20 21 22 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS 23 LVMH GROUP PARENT COMPANY: LVMH MOËT HENNESSY-LOUIS VUITTON HUMAN RESOURCES LVMH AND THE ENVIRONMENT 23 49 67 83 REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS 95 FINANCIAL STATEMENTS 109 CONSOLIDATED FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS: LVMH MOËT HENNESSY-LOUIS VUITTON 109 175 OTHER INFORMATION 205 GOVERNANCE GENERAL INFORMATION REGARDING THE PARENT COMPANY; STOCK MARKET INFORMATION 205 233 RESOLUTIONS FOR THE APPROVAL OF THE COMBINED SHAREHOLDERS’ MEETING OF APRIL 5, 2012 241 RESPONSIBLE COMPANY OFFICER; FINANCIAL INFORMATION 251 TABLES OF CONCORDANCE 255 This document is a free translation into English of the original French “Document de référence”, hereafter referred to as the “Reference Document”. It is not a binding document. In the event of a conflict in interpretation, reference should be made to the French version, which is the authentic text. HISTORY Although the history of the LVMH group began in 1987 with the merger of Moët Hennessy and Louis Vuitton, the roots of the Group actually stretch back much further, to eighteenth-century Champagne, when a man named Claude Moët decided to build on the work of Dom Pérignon, a contemporary of Louis XIV; and to nineteenth-century Paris, famous for its imperial celebrations, where Louis Vuitton, a craftsman trunk-maker, invented modern luggage. Today, the LVMH group is the world’s leading luxury goods company, the result of successive alliances among companies that, from generation to generation, have successfully combined traditions of excellence and creative passion with a cosmopolitan flair and a spirit of conquest. These companies now form a powerful, global group in which the historic companies share their expertise with the newer brands, and continue to cultivate the art of growing while transcending time, without losing their soul or their image of distinction. From the 16th century to the present 16th century 1593 Château d’Yquem 18th century 1729 1743 1765 1772 1780 Ruinart Moët & Chandon Hennessy Veuve Clicquot Chaumet 1815 1828 1832 1843 Ardbeg Guerlain Château Cheval Blanc Krug Glenmorangie Loewe Royal Van Lent Le Bon Marché Louis Vuitton Mercier TAG Heuer Zenith La Samaritaine Bulgari Berluti 19th century 1846 1849 1852 1854 1858 1860 1865 1870 1884 1895 20th century 1908 1916 1925 1936 1942 1945 1947 1951 1952 1957 1960 1963 1969 1970 1974 1976 1977 1980 1982 1984 1985 1988 1991 1993 1998 1999 21st century 2001 2005 Les Echos Acqua Di Parma Fendi Dom Pérignon Fred Rossimoda Céline Parfums Christian Dior Emilio Pucci Wen Jun Givenchy Connaissance des Arts Parfums Givenchy DFS Domaine Chandon Miami Cruiseline Sephora Kenzo Investir-Le Journal des Finances Benefit Cosmetics Newton Cape Mentelle Hublot Radio Classique Thomas Pink Marc Jacobs Donna Karan Make Up For Ever Cloudy Bay Kenzo Parfums Fresh Belvedere Numanthia Termes Terrazas de los Andes Cheval des Andes De Beers Diamond Jewellers 10 Cane 2011 Reference Document 1 FINANCIAL HIGHLIGHTS Key consolidated data (EUR millions and percentage) Revenue Profit from recurring operations Net profit Net profit, Group share Cash from operations before changes in working capital (a) Operating investments Free cash flow (b) Total equity (c) Net financial debt (d) Net financial debt/Total equity ratio (a) (b) (c) (d) 2011 2010 2009 23,659 5,263 3,465 3,065 6,137 1,730 2,177 23,512 4,660 20% 20,320 4,321 3,319 3,032 4,848 976 3,073 18,204 2,678 15% 17,053 3,352 1,973 1,755 3,928 729 2,205 14,785 2,994 20% Before interest and tax paid. Net cash from (used in) operating activities and operating investments. Including minority interests. Excluding purchase commitments for minority interests included in Other non-current liabilities. See Note 17.1 of notes to the consolidated financial statements. Data per share 2011 2010 2009 Earnings per share Basic Group share of earnings per share Diluted Group share of earnings per share 6.27 6.23 6.36 6.32 3.71 3.70 Dividend per share Interim Final 0.80 1.80 0.70 1.40 0.35 1.30 Gross amount paid for fiscal year (e) (f) 2.60 2.10 1.65 (EUR) (e) Excludes the impact of tax regulations applicable to the beneficiary. (f) For fiscal year 2011, amount proposed at the Shareholders’ Meeting of April 5, 2012. 2 2011 Reference Document Information by business group (EUR millions) 2011 2010 2009 Revenue by business group Wines and Spirits Fashion and Leather Goods Perfumes and Cosmetics Watches and Jewelry Selective Retailing Other activities and eliminations 3,524 8,712 3,195 1,949 6,436 (157) 3,261 7,581 3,076 985 5,378 39 2,740 6,302 2,741 764 4,533 (27) 23,659 20,320 17,053 Profit from recurring operations by business group Wines and Spirits Fashion and Leather Goods Perfumes and Cosmetics Watches and Jewelry Selective Retailing Other activities and eliminations 1,101 3,075 348 265 716 (242) 930 2,555 332 128 536 (160) 760 1,986 291 63 388 (136) Total 5,263 4,321 3,352 2011 2010 2009 12 21 22 8 27 10 13 21 23 9 25 9 14 21 23 10 23 9 100 100 100 26 27 8 6 33 28 27 9 6 30 30 27 10 5 28 Total 100 100 100 Number of stores France Europe (excluding France) United States Japan Asia (excluding Japan) Other markets 390 883 621 360 621 165 364 646 570 303 518 144 353 620 531 307 470 142 3,040 (g) 2,545 2,423 Total Information by geographic region Revenue by geographic region of delivery (%) France Europe (excluding France) United States Japan Asia (excluding Japan) Other markets Total Revenue by invoicing currency (%) Euro US dollar Japanese Yen Hong Kong dollar Other currencies Total (g) Of which 170 additional stores as a result of the integration of Bulgari and 125 as a result of the integration of Ile de Beauté (Russia). 2011 Reference Document 3 4 2011 Reference Document EXECUTIVE AND SUPERVISORY BODIES; STATUTORY AUDITORS AS OF DECEMBER 31, 2011 Board of Directors Executive Committee Performance Audit Committee Bernard Arnault Chairman and Chief Executive Officer Bernard Arnault Chairman and Chief Executive Officer Antoine Bernheim (a) Chairman Antoine Bernheim (a) Vice-Chairman Antonio Belloni Group Managing Director Nicholas Clive Worms (a) Pierre Godé Vice-Chairman Pierre Godé Vice-Chairman Antonio Belloni Group Managing Director Nicolas Bazire Development and Acquisitions Antoine Arnault Ed Brennan Travel retail Delphine Arnault Nicolas Bazire Bernadette Chirac (a) Nicholas Clive Worms (a) Charles de Croisset (a) Diego Della Valle (a) Albert Frère (a) Gilles Hennessy Marie-Josée Kravis (a) Lord Powell of Bayswater Yves-Thibault de Silguy (a) Francesco Trapani (b) Hubert Védrine (a) Advisory Board members Paolo Bulgari Patrick Houël Felix G. Rohatyn (b) Yves Carcelle Fashion and Leather Goods Chantal Gaemperle Human Resources, Synergies Jean-Jacques Guiony Finance Christopher de Lapuente Sephora Christophe Navarre Wines and Spirits Patrick Ouart Advisor to the Chairman Daniel Piette Investment Funds Gilles Hennessy Nominations and Compensation Committee Antoine Bernheim (a) Chairman Charles de Croisset (a) Albert Frère (a) Statutory Auditors DELOITTE & ASSOCIÉS represented by Thierry Benoit ERNST & YOUNG et Autres represented by Olivier Breillot and Gilles Cohen Pierre-Yves Roussel Fashion Francesco Trapani Watches and Jewelry Mark Weber Donna Karan, LVMH Inc. General secretary Marc-Antoine Jamet (a) Independent Director. (b) Ratification proposed at the Shareholders’ Meeting of April 5, 2012. 2011 Reference Document 5 SIMPLIFIED ORGANIZATIONAL CHART OF THE GROUP AS OF JANUARY 31, 2012 LVMH SA Diageo 34% 66% 99.9% LVMH FASHION GROUP SA Moët Hennessy Moët & Chandon Dom Pérignon Mercier 99% 100% Ruinart Hennessy Louis Vuitton Belvedere Berluti 100% 100% Guerlain 100% Kenzo Parfums Chaumet Fred 100% 100% 100% Parfums Christian Dior Bulgari 100% 100% Krug 100% Veuve Clicquot 100% Glenmorangie Ardbeg Céline Wen Jun Spirits Kenzo 100% Parfums Givenchy 100% Make Up For Ever Sephora 100% La Samaritaine 100% 99% Le Bon Marché 100% Franck & Fils Cloudy Bay 100% 100% Newton Vineyards 90% 100% Cape Mentelle 100% 100% 6 100% 2011 Reference Document Numanthia Termes 10 Cane Domaine Chandon Terrazas de los Andes Givenchy 100% 100% 100% 100% SOFIDIV SAS 100% 96% 100% Fendi Pucci 100% 91% Other holding companies 100% 100% LVMH BV LVMH Inc. Loewe Benefit Cosmetics Royal Van Lent Fresh 80% 100% Miami Cruiseline 80% 61% DFS USA 100% Sephora USA Acqua Di Parma Donna Karan 100% Zenith Marc Jacobs 96% 100% Les Echos 100% Investir 100% Le Journal des Finances Radio Classique 100% SID Editions 100% Thomas Pink 100% Château d'Yquem 65% De Beers Diamond Jewellers 50% 50% Château Cheval Blanc Ole Henriksen 100% Connaissance 100% des Arts TAG Heuer 100% Cheval des Andes 100% 61% Hublot The Group also holds a 22.4% investment in Hermès International SCA (Paris, France). DFS Asia The objective of this chart is to present the direct and/or indirect control structure of brands and trade names by the Group’s main holding companies. It does not provide a complete presentation of all Group shareholdings. ■ Holding companies ■ Brands and trade names 2011 Reference Document 7 8 2011 Reference Document BUSINESS DESCRIPTION 1. 1.1. 1.2. 1.3. WINES AND SPIRITS Champagne and Wines Cognac and Spirits Wines and Spirits distribution 10 10 12 14 2. 2.1. 2.2. 2.3. FASHION AND LEATHER GOODS The brands of the Fashion and Leather Goods business group Design Distribution 15 15 16 16 2.4. Supply sources and subcontracting 16 3. 3.1. 3.2. 3.3. PERFUMES AND COSMETICS The brands of the Perfumes and Cosmetics business group Research in Perfumes and Cosmetics in 2011 Supply sources and subcontracting 17 17 18 19 4. 4.1. 4.2. 4.3. WATCHES AND JEWELRY The brands of the Watches and Jewelry business group Distribution Supply sources and subcontracting 20 20 21 21 5. 5.1. 5.2. SELECTIVE RETAILING Travel retail Selective retail 21 21 22 6. OTHER ACTIVITIES 22 2011 Reference Document 9 BUSINESS DESCRIPTION Wines and Spirits 1. WINES AND SPIRITS The activities of LVMH in the Wines and Spirits sector are divided between two branches: the Champagne and Wines branch and the Cognac and Spirits branch. The Group’s strategy is focused on the high-end segments of the global wine and spirits market. 1.1. In 2011, revenue for the Wines and Spirits business group amounted to 3,524 million euros, or 15% of the LVMH group’s total revenue. Champagne and Wines In 2011, revenue for the Champagne and Wines activities was 1,782 million euros (82% of which was attributable to champagne), representing 51% of the total revenue of the Group’s Wines and Spirits business group. 1.1.1. The Champagne and Wine brands Château d’Yquem, which joined LVMH in 1999, is the most prestigious of the Sauternes. It owes its excellent international reputation to its 110 hectare vineyard located on a mosaic of exceptional soils and to the extreme care taken in its preparation throughout the year. LVMH produces and sells a very broad range of high quality champagne wines. In addition to the Champagne region, the Group develops and distributes a range of high-end still and sparkling wines from well-known wine regions: France, Spain, California, Argentina, Brazil, Australia and New Zealand. In 2008, LVMH acquired the Spanish wine company Numanthia Termes, founded in 1998 and located at the heart of the Toro region. LVMH represents the leading portfolio of champagne brands, which hold complementary market positions. Dom Pérignon is a prestigious vintage produced by Moët & Chandon since 1936. Moët & Chandon (founded in 1743), the leading wine grower and exporter of Champagne, and Veuve Clicquot Ponsardin (founded in 1772), which ranks second in the industry, are two quality internationally-known brands. Mercier (founded in 1858) is a brand designed for the French market. Ruinart (the oldest of the Champagne Houses, founded in 1729) has a development strategy that is carefully targeted on a number of priority markets, which are currently mainly in Europe. Krug (founded in 1843 and acquired by LVMH in January 1999) is a world famous brand, specializing exclusively in high-end vintages. The Montaudon brand, purchased at the end of 2008, was sold in December 2010. In 2009, LVMH proceeded with the acquisition of a 50% stake in the prestigious winery Château Cheval Blanc, Premier Grand Cru classé “A” Saint-Emilion. Château Cheval Blanc owns a 37 hectare domain within the Saint-Emilion appellation. The strictest respect for the purest traditions of winemaking characterizing the Bordeaux grand crus, a terroir of superior quality, and an atypical blend of grape varietals give its wines their exceptional balance and unique personality. This acquisition was consolidated for the first time on a proportional basis with effect from August 2009. 1.1.2. Competitive position In 2011, shipments of LVMH champagne brands increased in volume by 6% while shipments from the Champagne region were up 1%. Thus, the market share of the LVMH brands was 18.3% of the total shipments from the region, compared to 17.5% in 2010 (16.7% excluding Montaudon) (source: CIVC). The Chandon brand (created in 1960 in Argentina) includes the Moët Hennessy wines developed in California, Argentina, Brazil and Australia by Chandon Estates. The Group also owns a number of prestigious wines from the New World: Cape Mentelle and Green Point in Australia, Cloudy Bay in New Zealand, and Newton in California. The breakdown of Champagne shipments by region is as follows: 2011 (in millions of bottles and percentage) Volumes Market share Region LVMH (%) France Export 181.6 141.4 10.6 48.4 Total 323.0 59.0 (Source: Comité Interprofessionnel des Vins de Champagne – CIVC). 10 2011 Reference Document 2010 Volumes Market share Region LVMH (%) 5.8 34.2 185.0 134.5 12.6 43.2 18.3 319.5 55.8 2009 Volumes Market share Region LVMH (%) 6.8 32.1 180.8 112.6 11.1 35.4 6.1 31.4 17.5 293.3 46.5 15.8 BUSINESS DESCRIPTION Wines and Spirits The geographic breakdown of LVMH champagne sales in 2011 is as follows (as a percentage of total sales expressed in number of bottles): 2011 2010 2009 Germany United Kingdom United States Italy Switzerland Japan Other export 5 10 19 5 2 6 35 5 10 18 5 2 6 32 5 11 17 6 2 6 30 Total export France 82 18 78 22 77 23 100 100 100 (in percentage) Total The decline in the contribution of France is principally due to the disposal of Montaudon at the end of 2010. In 2010, sales volumes in France excluding Montaudon accounted for 19% of worldwide volumes for all champagne brands, as against 22% including Montaudon. 1.1.3. The champagne production method The name Champagne covers a defined area classified A.O.C. (Appellation d’Origine Contrôlée), which covers the 34,000 hectares that can be legally used for production. Only three types of grape varietals are authorized for the production of champagne: chardonnay, pinot noir and pinot meunier. The preparation method used for wines produced outside the Champagne region, but using the winemaking techniques used for champagne, is called the “champenoise method.” In addition to its effervescence, the primary characteristic of champagne is that it is the result of blending wines from different years and/or different varieties and land plots. The best brands are distinguished by their masterful blend and constant quality which is achieved thanks to the talent of their wine experts. Weather conditions significantly influence the grape harvest from one year to the next. The production of champagne also requires aging in cellars for two years or more for the “premium” vintages, which are the vintages sold at more than 110% of the average sale price. To protect themselves against crop variations and manage fluctuations in demand, but also to ensure constant quality over the years, the LVMH Champagne Houses constantly adjust the quantities available for sale and keep reserve wines in stock. Since a lower harvest can impact sales for two or three years, or more, LVMH constantly maintains significant champagne inventories in its cellars. As of December 31, 2011 these inventories represented approximately 266 million bottles, the equivalent of 4.3 years of sales; in addition, there are also 13 million equivalent bottles of quality reserve held from sale. 1.1.4. Grape supply sources and subcontracting The Group owns 1,697 hectares of champagne under production, which provide a little more than one-fourth of its annual needs. In addition, the Group companies purchase grapes and wines from wine growers and cooperatives on the basis of multi-year agreements; the largest supplier of grapes and wines represents less than 15% of total supplies for the Group’s brands. Until 1996, a theoretical price was published by the industry; to this were added specific premiums negotiated individually between wine growers and merchants. Following the signing of an initial four-year agreement in 1996, another industry agreement had been signed in the spring of 2000 covering the four harvests from 2000 to 2003, which had confirmed the aim of limiting upward or downward fluctuations in grape prices. A new industry agreement was then concluded in the spring of 2004 between the Champagne producers and the region’s grape suppliers covering the five harvests from 2004 to 2009. This agreement was renewed in 2009 before its expiry date, setting the framework for negotiations relating to harvests from 2009 to 2013. Each individual agreement must now include an indexation clause for grape prices. The recommended benchmark is the average sales price of a bottle of champagne, which ensures better value distribution for the market participants and more control over grape price speculation. For about ten years, wine growers and merchants have established a qualitative reserve that will allow them to cope with variable harvests. The surplus inventories stockpiled this way can be sold in years with a poor harvest. These wines stockpiled in the qualitative reserve provide a certain security for future years with smaller harvests. For the 2011 harvest, the Institut National des Appellations d’Origine (INAO, the French organization responsible for regulating controlled place names) set the maximum yield for the Champagne appellation at 10,500 kg/ha. This maximum yield represents the maximum harvest level that can be made into wine and sold under the Champagne appellation. In 2006, the INAO redefined the legal framework for the abovementioned stockpiled reserves. It is now possible to harvest grapes beyond the marketable yield within the limits of a ceiling called “plafond limite de classement (PLC)”, the highest permitted yield-per-hectare. This ceiling is determined every year within the limits of the maximum total yield now set at 13,600 kg/ha for the 2011 harvest. Grapes harvested over and above the marketable yield are stockpiled in reserve, kept in vats and used to complement poorer harvests. The maximum level of this stockpiled reserve is set at 10,000 kg/ha. The price paid for each kilogram of grapes in the 2011 harvest ranged between 5.00 euros and 5.90 euros depending on the vineyard, a 4% increase compared to 2010. Dry materials (bottles, corks, etc.) and all other elements representing containers or packaging are purchased from nonGroup suppliers. The Champagne Houses used subcontractors primarily for bottle handling and storing operations; these operations represented approximately 16 million euros. 2011 Reference Document 11 BUSINESS DESCRIPTION Wines and Spirits 1.2. Cognac and Spirits In 2011, revenue for the Cognac and Spirit...
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