Essilor International will split the roles of chairman and chief executive as of next Jan. 1, a decision made at its board's meeting on Aug. 26. The role of CEO will go to Hubert Sagnières, who has been acting as the company's chief operating officer for the past year, while Xavier Fontanet, the long-time chairman and CEO, will continue as chairman.
Sagnières has been rising through the ranks of the group since he first joined the company in 1989 as vice president for international lens marketing, a new position at that time. From 1998 to August 2006 he served as president of Essilor of America, where he contributed very much to the company's development in the U.S. and Canada, especially through the acquisition of local laboratories. He then took charge of North America as well as Europe, in connection with the retirement of Bertrand de Limé. In August 2008 he was made COO of the group, replacing the retiring Philippe Alfroid. Sagnières has been a director of the company since May 2008, and he was a founder of the Essilor Vision Foundation.
After the board's decision on the change of management, Fontanet and Sagnières were all smiles at a special meeting with financial analysts while commenting on the results for the six months ended last June 30. They proved the company's ability to continue to progress in today's difficult international economic environment, which began to affect the group in the summer of 2008.
Stringent cost controls allowed Essilor International to post an operating margin (Ebit) before extraordinary items of 18.2 percent for the first half of this year, repeating its all-time high from the same period of 2008 and offsetting the dilutive effect from the lower profit margin of Satisloh. Acquisitions caused the gross margin to fall by 1.0 percentage point to 56.0 percent. Net earnings went up by 2.1 percent to €202.4 million.
As we reported in the last issue, group revenues grew by 9.4 percent to €1,663.4 million, thanks largely to acquisitions. On a comparable basis and excluding a positive currency effect, they declined by 0.7 percent during the six-month period, with a 4.4 percent drop in Europe alone, and the management expects them to be flat for the second half of the year.
In the first half, the group's operating expenses increased by 6.3 percent to €628.1 million, but dropped as a percentage of sales, falling to 37.8 percent from 38.9 percent last year. Expenses for research and development and engineering, €74.9 million, made up 4.5 percent of sales, down by 0.2 percentage points. Selling and distribution costs were €353.4 million, or 21.2 percent of revenues, down from 21.7 percent in 2008. Other operating expenses came to €199.8 million, making up 12.0 percent of revenues, compared with 12.5 percent last year.
The ordinary operating profit went up by 9.5 percent to €302.6 million, but extraordinary charges reduced it to €281.9 million, resulting in a more limited rise of 7.7 percent. «Other» income and expenses related to operations plus gains and losses on asset disposals came to net expenses of €20.7 million, up from €14.6 million in the first six months of 2008. Compensation costs on stock options, performance share grants and employee stock ownership plans fell by 21.1 percent to €9.7 million, while restructuring costs related to the closing of several production facilities jumped to €6.5 million against €0.2 million last year.
Total finance costs and other financial income and expenses came to a net expense of €5.3 million, compared with net income of €2.9 million last year. Finance costs increased, but this was mostly due to the acquisition of Satisloh at the end of 2008 and to a share buyback program, which has continued in the second half. Between June 30 and Aug. 21, the company purchased 576,547 of its own shares on the open market for a total of €21.9 million. Since the start of 2009, 1,256,245 shares have been bought for a total of €42.1 million.
In spite of these investments, cash flow grew by12.5 percent, and the balance sheet remained solid. Earnings from Essilor's associate Transitions inched up by 2.1 percent to €9.8 million, while Sperian Protection's earnings plunged by 82.4 percent to €0.9 million.
We have already reported the long list of 11 acquisitions closed in the first half of 2009. More are in the pipeline. So far in the second half of 2009, Essilor has announced its purchase of Wholesale Lens Corporation, a U.K. wholesaler that had sales of £8.4 million in 2008. It will be consolidated as from August.
Company officials are confident that they have the right strategy in place, also on the product side, particularly to cater to the needs of the growing middle class that is asking for better vision correction in big countries such as Brazil, India and China.
Notably, the acquisition of Satisloh should make it easier for Essilor to put out many new products based on a new «micro-segmentation» of the market. One example of that is the current launch in Germany, the land of Zeiss and Rodenstock, of a new highly customizable Varilux progressive lens that takes into account the rotation of the center of the eye.
Restructuring measures were taken during the first half in Norway, the Netherlands, Japan and the U.S.. In the U.S., Luxottica's decision to taken the production of certain lenses in-house let Essilor to shut down a laboratory with a staff of 150 people.
The reorganization process is going on. In the U.K., BBGR will be shutting down its manufacturing facility in Manchester, moving its production of prescription lenses to its sites overseas. As many as 70 jobs could be lost, though about 30 employees will be offered positions at a smaller glazing facility nearby at Salford. The glazing business in Birmingham will be unaffected. Discussions with employees in Salford should be concluded by the end of this month.