A further sequential sales increase in the fourth quarter of 2014, up by 4.7 percent on a comparable basis from the year-ago period, led Essilor International to post a 3.7 percent increase for the full financial year. In reported terms, including the effect of exchange rates and acquisitions, sales rose by 17.8 percent to €1,474.9 million for the quarter and by 12.0 percent to €5,670.3 million for the year. For the year, 6.2 percentage points of the growth came from the acquisition of Transitions and Coastal.com, and 3.9 percentage points from the appreciation of the dollar and other changes in foreign currencies.

Sales of lenses and optical instruments went up by 4.7 percent on a comparable basis in the latest quarter, with increases of 4.7 percent in North America, 1.0 percent in Europe, 8.0 percent in Asia-Pacific, the Middle East and Africa, and by 13.7 percent in Latin America. Sales of equipment rose by 7.2 percent in the quarter, while sunglasses and readers posted a 6.7 percent increase, but both segments were still negative for the full year, as shown in the table in this issue.

The rebound in the equipment division was attributed to the introduction by Satisloh of its unique “green” lens blocking system, offsetting the decline in the demand for digital surfacing machines in Europe and North America. The turnaround in sunglasses and readers was led by Bolon, the Chinese brand of sunglasses. Managers of Essilor said they are planning to boost Bolon's sales in its home market with a dedicated TV marketing campaign featuring the French actress Sophie Marceau as brand ambassador, starting on March 5.

Bolon is selling its sunglasses in China in physical stores and through its own website. Capitalizing on the know-how of Coastal.com, the Canadian-based e-commerce operation that it recently acquired, Essilor set up a dedicated development team for e-commerce last year in China, where the internet is heavily used for B2C transactions. It may also be used to sell prescription sunglasses. Essilor's sales over the internet doubled in China last year, representing 10 percent of its total turnover in the country.

A few weeks ago, Essilor enlarged its portfolio of sunwear products in China with the acquisition of Prosun, described as the third-largest brand of sunglasses in the country, with a brand awareness ratio of 60 percent. It's the only brand in the country that offers children's sunglasses.

Essilor Int'l Consolidated Revenues

(Million Euros, Year ended Dec. 31)

 

2014

% Change
reported

% Change
(like for like)

% Change in
the scope of
consolidation

% Currency
effect

Lenses & Optical Instruments

4,970

10.3

4.3

7.6

-1.6

North America

2,038

15.1

5

10.9

-0.8

Europe

1,653

5.2

10

510

10

Asia/Pacific/Middle East/Africa

898

10.6

8.2

5.7

-3.4

Latin America

381

8.6

10.8

6.7

-8.9

Equipment

197

-3.7

-1.8

-1.5

-0.4

Sunglasses & Readers

503

41.7

-1

42.9

-0.2

TOTAL

5,670

12

3.7

9.7

-1.4

Also in the sunwear sector, which has been singled out as a strategic development priority, Essilor is planning to expand sales of some of its brands to the travel retail sector, including airport boutiques, notably with Bolon and Foster Grant, one of the brands of FGX International. It wants to expand the international presence of Costa, the recently acquired American brand of sports eyewear, which is coming out with new lenses and new styles.

Sales of complete sunglasses are growing more strongly than sun lenses within the group. They have come to represent 55 percent of the business.

The company's overall like-for-like growth of 4.3 percent last year in lenses and optical instruments outpaced the 1.8 percent increase recorded in this segment in 2013, when Essilor suffered the loss of a big contract with GrandVision. The situation turned around gradually last year in France. Sales increased in Eastern Europe, particularly in Poland and the Czech Republic. They remained robust even in Russia, Essilor said, thanks to an effective multi-network distribution policy.

In the Asia/Pacific/Middle East/Africa region, where sales went up by 8.2 percent on a comparable basis for the year, South Korea was singled out as the only major market where Essilor suffered a slowdown, due to a lengthening of the renewal rate for eyeglasses.

Essilor Int'l. Consolidated Income Statement
(Million Euros, Year ended Dec. 31)

 

2014

2013

%
Change

Lenses and Optical Instruments

4,970

4,505

10.3

Equipment

197

205

-3.9

Readers

503

355

41.7

REVENUES

5,670

5,065

11.9

Cost of Sales

2,355

2,227

5.7

Research & Development

188

164

14.6

Selling & Distribution

1,367

1,145

19.4

Other Operating Expenses

717

612

17.2

Other income

546

5

-

Other Expenses,Net

367

79

364.6

Cost of Net Debt

31

8

287.5

Other Financial Charges

15

12

25.0

Profit of Associates

3

22

-86.4

Pre-Tax

1,179

845

39.5

Tax

193

199

-3.0

Minority Interest

57

53

7.5

NET

986

646

52.6

Euro/Share (Diluted)

4.32

2.78

55.4

Double-digit growth was again recorded in China, where Essilor initiated a good relationship with the leading optical retail chain in the country. Sales grew by more than 20 percent in India. In both countries, the group's performance was aided by the introduction of the lower-priced Kodak brand. Essilor mentioned strong growth in South Africa. Sales were stable in Japan, in spite of a decline in the market, which was attributed to higher sales taxes and the economic environment.

The introduction of Kodak in Brazil and Nikon lenses in Colombia helped to boost the group's sales in Latin America, which accelerated to an increase of 10.8 percent in 2014. Business was brisk also in Chile. It was held back in Mexico by an unfavorable economic and political environment.

Sales of instruments were boosted by the market launch in Europe of a second-generation premium edger, Mr. Blue 2.0, and the opening of new stores in fast-growing markets such as China. They grew especially in Italy, Spain, Japan and Turkey.

Besides the roll-out of new products, the progress in the lenses and optical instruments division was also attributed to the deployment of major consumer advertising campaigns, particularly in North America.

The group spent a total of €150 million on marketing in 2014, and the budget has been raised to €200 million for 2015. An important new product introduction later this year will be Eyezen, a patented new solution that allows users to switch easily from the “ultra-near distant vision” required for viewing smartphones or tablets to the more distant vision needed for computers and other objects. It applies to both single-vision and progressive lenses. Eyezen is already being tested in Switzerland and other markets. It will be launched in France in May, and later on in the rest of the world.

Essilor indicates that it has been making headways lately with optical retail chains and independent opticians alike. It has extended its partnership with Boots Opticians in the U.K., and it has many other deals with key accounts in the pipeline.

The group managed to raise its gross margin to 58.7 percent in 2014 from 56.1 percent in the previous year, due in part to the consolidation of Transitions. The Ebitda margin went up to 24.1 percent from 23.2 percent. The operating margin before extraordinary items increased to 18.6 percent from 18.2 percent. Free cash flow improved by 46.5 percent to €800 million, and the group ended up with a 6.3 percent increase in adjusted net profit to €642 million for the year.

Hubert Sagnières, chairman and chief executive of Essilor, said the group was on target with its strategic program, outlined last June, to reach a turnover of €8 billion by 2018 through enlarging its “playing field” to sunglasses and internet sales. He said it is increasingly capitalizing on the interconnections between all its activities and moving closer to the final consumer in marketing its brands and solutions.

Supported by a more favorable currency environment, the group expects to record another year of strong growth in sales and profits. It is aiming for an overall sales increase of between 8 and 11 percent in constant currencies. Organic growth is budgeted at a minimum of 4.5 percent. The operating margin should be the same as last year or better.