While sanctioning Transitions Optical, which is jointly owned by Essilor and PPG Industries, the U.S. Federal Trade Commission gave earlier this week its long-awaited approval to Essilor's acquisition of Signet Armorlite, a U.S. company that brings with it some important patents and an annual volume of about 10 million lenses.
In presenting today the company's rather decent results for 2009, executives of Essilor declined to comment on the impact of FTC's anti-trust action against Transitions or on the price being paid for Signet Armorlite, but said the deal should be concluded before the end of March. Well-informed sources have indicated to us that the price had to be renegotiated since the original purchase agreement in view of Signet's most recent results.
The price has not been revealed, but it is understood to be a cash-only transaction. Signet is said to be generating annual sales of more than $120 million, about half of that in Europe, with a very strong position in the U.K. Based in the U.S., which is its main market, the company also has a lab in Colombia and a distributor in India.
With an operating margin of 12 percent, Signet Armorlite will dilute the overall level of profitability of Essilor, which reached last year 18.2 percent or 18.7 percent excluding its previous acquisition of Satisloh. However, executives of Essilor said the acquisition of Signet and its licensed Kodak brand of lenses will reinforce its position in medium-priced lenses, which are estimated to represent between 30 and 40 percent of the total ophthalmic lens market. Other acquisitions are planned in this increasingly important segment.
At the same time, its acquisition of FGX, will boost its presence in the low-priced segment, which represents about 40 percent of the 500,000 estimated annual purchases of new lenses worldwide. Shareholders of FGX approved the takeover a few days ago.
Excluding the impact of the acquisition of Signet, FGX and Satisloh, the revenues Essilor's core operations are projected to grow by between 5 and 7 percent this year, according to the management, in tune with a slight recovery of the market. This compares with currency-neutral growth of just 0.1 percent in 2009 excluding acquisitions, which contributed 4.9 percentage points to the group's reported growth of 6.3 percent for the year. Satisloh alone made a contribution of 2.3 percentage points to the growth in the group's sales, which reached a total of €3,268.0 million.
Lens revenues were stable, while instruments grew by 2.3 percent. Revenues from laboratory equipment nearly tripled, though, rising by 186.9 percent to €103.6 million, though this was a 7.0 percent drop in constant currencies. Satisloh's sales were off by 9 percent for the year, but they have been stabilizing since the beginning of 2010.
The annual gross margin dropped by 0.8 percentage points to 56.1 percent due to the dilutive impact from Satisloh and other acquisitions. The margin would have been unchanged excluding these factors. The operating profit rose by 7.9 percent to €555.2 million, while net profit attributable rose by 3.4 percent to €401.9 million.
European turnover declined by 1.8 percent to €1,331.7 million, or by 2.7 percent on a currency-neutral basis. Russia and Finland performed the best, with strong numbers in France, Germany and Italy as well. Sales declined in Eastern Europe. The British and Spanish markets showed signs of recovery.
The company's best performance came in the Asia-Pacific region, where sales grew by 14.2 percent to €344.7 million. This was a 12.3 percent increase on a currency-neutral basis. Japan was the only place without growth. India was up by 30 percent, and China and South Korea rose by double-digits. And the company's Varilux and Crizal lines boosted sales in Australia. South Africa also had sustained growth.
Increases were also seen in Latin America, up by 5.3 percent to €134.0 million (+7.0 percent in constant currencies), with a sharp increase in anti-reflective lens sales in Brazil and Mexico; and North America, up by 8.1 percent to €1,354.0 million (a drop of 0.4 percent in constant currencies).
Overall revenues for the fourth quarter ticked up by 0.4 percent to €799.4 million in reported terms, a 1.5 percent increase in constant currencies. The contribution from acquisitions was a factor of 2.3 percent. During the three months, business in Europe stabilized, demand increased in North America and Latin America, and growth remained strong in Asia.
For the fourth quarter, turnover jumped by 33.0 percent in Latin America to €38.1 million (+15.1 percent); rose by 12.3 percent in Asia-Pacific to €85.0 million (+11.2 percent); and climbed moderately by 1.0 percent in Europe to €342.3 million (negative 0.7 percent). North America saw a drop of 5.3 percent to €302.4 million (+1.1 percent). Laboratory equipment fell by 7.1 percent to €31.6 million.
The net profit for the year increased by 3.1 percent to €394.0 million. It was positively impacted by a major drop in new industrial investments, down to 3.5 percent of sales, but the company took negative provisions of €26 for tax risks and €9.2 million for the potential impact of an anti-trust investigation in Germany, which concerns other producers as well.