In 2002, Essilor posted a 27.9 percent jump in net profit to e182.4 million, boosting its operating margin from 15.0 to 15.9 percent in spite of challenging market conditions and a growth in sales of just 3.3 percent to e2,138.3 million. Pre-tax income rose by 19 percent to e277.7 million.
These audited results were slightly better than the preliminary figures reported a few weeks ago, and while sales growth slowed down during the 4th quarter and early this year in all the major markets except France, the uncertain outlook doesn't prevent management from forecasting again an operating margin level of about 16 percent for this year, thanks in part to the consolidation and reorganization of its lower-margin activities in the USA.
Product innovation is playing a strong role in the latest margin improvements. About 50 percent of current sales are derived from products introduced over the last 5 years and 30 percent from those launched in the last three years. The positive sales mix once again offset last year declining prices in low-tech, older product lines, and Essilor will continue to build up its presence in the quickly growing high-tech area of the market.
The bottom line was positively affected in 2002 by the company's major debt reduction program. Non-recurring items worsened only slightly last year to a negative e20.1 million, as compared to e21 million last year, principally due to US and European restructuring costs and a further e5.1 million writeoff for Essilor's abortive retail internet venture. Inventories declined.
Essilor's performance varied last year depending on the region. On a comparable basis, sales rose by 7.5 percent in Europe, by 5.6 percent in North America and by 11.6 percent in the rest of the world. The high-tech Japanese ophthalmic lens market shrank in value by an estimated 5-6 percent in 2002, due in part to heavy discounting, but Essilor's joint venture with Nikon booked a sales decline of only 3 percent there. Its profitability increased slightly.
While South American sales remain under pressure because of the recent big foreign exchange movements, in terms of local currency Brazil achieved strong growth last year and operations in Argentina, although hard-hit, broke even at the operating level.
In Europe, Essilor is in ?open-ended talks? with some major optical retail chains, which are in a consolidation process. These major players are asking for discounts, but the huge volumes and the lower distribution costs that these retailers can command can make special partnerships desirable.
The European market, whose total annual volume is estimated at some 150 million lenses, is increasing by only 1-2 percent annually, but Essilor's market penetration varies from one country to the other, offering opportunities for growth, possibly through acquisitions like the takeover of Rupp + Hubrach in Germany. For example, Essilor's progressive lenses have a market share of about 27 percent in France but the share is only 8 percent in Italy.
Essilor dominates the overall European ophthalmic lens market, with a share that remains more than two and a half times higher than the combined shares of its two next largest competitors, Hoya and Sola. Its hold on the market is reinforced by the combination of its own laboratories, the high-tech image of Novisia and BBGR's more local presence and attractive price/quality ratios.
In North America, Essilor raised operating margins by one percentage point in 2002 through closer collaboration with the chains in the growing market for progressive lenses and by continuing to shift production from the USA to low-cost areas such as Mexico, Costa Rica and Asia. Sales in the region rose by 5.6 percent, driven by a strong increase in anti-reflective products to around 18 percent of total volumes. Essilor sees opportunities for further substantial gains in A-R coatings there as these products account for 35 percent of sales in France. The represent almost 10 percent of sold lenses in Japan. Essilor achieved sales growth of 11.5 percent in Australasia last year and saw strong and profitable growth in China and India, although from a small base.
Internationally, Essilor continues to gain market shares in polycarbonate. In photochromics, a strong boost came last year from the launch of 4th generation Transitions lenses. Medium and high-index lenses are performing very well in Europe and Asia and Essilor expects strong benefits from the launch of 1:67 index lenses in the USA this year.
Among other affiliates, Vision Web made an operating loss in 2002,which is expected to be repeated this year, but Essilor has lowered its stake in the US venture to 49 percent and will reduce it further to the benefit of a new US partner, Optometric. Essilor will pay a dividend for 2002 of 0.50 euros, up from last year's 41 cents, but the payout will be stable at e51 million.