Essilor International improved its operating margin (EBIT) to 17.9 percent in 2006 from 17.3 percent in the previous year, thanks to a variety of factors including the previously reported 11.0 percent increase in consolidated sales to €2,690 million for the year (details in EWI # 8-1 of Jan. 25). Deducting special operating charges related to stock options, the shutdown of an Irish mineral lens plant and other such expenses, the operating margin remained high at 16.2 percent.

Net income for the year grew by 14.3 percent to €328.3 million, or 12.2 percent of sales. The final results benefited from a 26.7 percent increase to €28.5 million in the profit contribution of three companies in which Essilor has a minority stake. In particular, Essilor's 49 percent stake in Transitions contributed a profit of €22.2 million, up from €17.7 million in 2005, but the company declines to specify its turnover under an agreement with its partner in this fast-growing operation, PPG Industries.


Essilor's gross margin increased by 0.9 percentage points to 58.2 percent, reflecting better productivity and a further shift in the product mix to items with a higher added value. The group kept its R&D expenses at 4.9 percent of sales, but spent more on marketing to accompany the launch of Varilux Physio, the new progressive lens based on wave-front technology, contributing to an increase of 0.3 percentage points in operating expenses. Acquisitions boosted the operating margin by 1.0 percentage point.

At €191.6 million, industrial investments absorbed 7.1 percent of the turnover, compared with 7.2 percent in 2006, and 60 percent of them went to outfit its prescription laboratories, mainly with new free-form surfacing machinery and new anti-reflection coating equipment.

That doesn't include the €54.4 million spent by the group on 22 acquisitions in the course of the year. Besides the takeover of 12 more laboratories in the USA and one in Canada for a total of €37.4 million, the group made acquisitions also in India and New Zealand for €14.9 million. Its only investment in Europe was the acquisition of its distributor in Romania, Varirom, for €2.1 million.

Cash flow increased by 7.5 percent to €456 million. The debt/equity ratio remains quite healthy at 11 percent. Many other acquisitions are in the pipeline, but nothing major seems to brewing for the moment. Xavier Fontanet, chairman and chief executive of the group, indicates that Essilor will continue to give money back to its shareholders through dividends and share buy-backs, unless a good acquisition opportunity shapes up. The annual dividend has doubled since 2002 and it is set to grow by 17 percent for 2006.