Essilor International has advised shareholders and analysts that its consolidated sales will only grow this year by around 3.5 percent on a comparable basis, down from a previous projection of 4.5 percent growth, and that they should generate a contribution margin of around 18.5 percent.
The announcement sent its stock market price down by more than 7 percent, leading to a decline of around €4 billion to €20.7 billion in Essilor's stock market capitalization since the beginning of this year. In 2015, the group's revenues grew organically by 4.5 percent and the contribution margin - or the operating margin before non-recurring items related to major acquisitions – improved by 0.2 percentage points to 18.8 percent.
The company had already sounded a warning in July, when it predicted a sales increase of 4.5 percent instead of 5 percent for the year. As it did when it released its sales results for the third quarter, the management continued to blame a temporary slowdown in the U.S. ophthalmic lens market and other major geographies. The challenging environment persisted in October, Essilor indicated.
Shortly after the new profit warning, Essilor announced the promotion of Laurent Vacherot, a 25-year veteran of the group, as president and chief operating officer. John Carrier and Paul du Saillant, two executives of the group, will remain in their positions of joint chief operating officers. All the operational executives who are responsible for specific regions and segments – corrective lenses, sunwear and online activities - will report to Vacherot in the future.
Hubert Sagnières, who has been with Essilor since 1989 and became its chief executive in 2010, adding the chairmanship in 2012, will oversee finance, human resources, corporate missions, communications and strategy. He will also continue to pursue a strategic mission of helping 2.5 billion people around the world who need vision correction. Vacherot, who was previously in charge of finance, will continue to handle investor relations. Sagnières was already in charge of strategy before, but human resources were handled by du Saillant.
In a way, the new set-up recreates the dual leadership that presided at Essilor before Sagnières' nomination, with Xavier Fontanet and Philippe Alfroid holding similar functions for about ten years until their retirement.
Essilor will ask shareholders at its annual meeting next May to elect Vacherot to the board of directors. The 59-year-old executive has been with the group since 1991, starting off as vice president of finance after working for Andersen Consulting. He then served as president of Essilor in Canada and then in the U.S. He became chief financial officer in 2008.
In 2010, Vacherot was appointed as one of the company's two chief operating officers along with de Saillant, who was placed in charge of research & development and other functions. A year later, de Saillant added responsibility for global operations. Carrier, president and CEO of Essilor of America, became joint chief operating officer in 2014, taking over responsibility for R&D, strategic marketing, e-commerce and other issues. These functions have been transferred from one executive to the other in recent years.
Explaining the latest management reshuffle, Essilor said it had decided to realign its organization to meet the growing operational needs resulting from its expansion, responding to the related strategic and managerial challenges. Notably, the group has been expanding strongly in emerging markets as well as in sunwear and online sales.
Meanwhile, Essilor is going for wider expansion in China with the conclusion of two partnerships that will broaden its presence in sunwear and the medium segment of the lens market in the country. It has taken a 50 percent stake in Photosynthesis Group, a Hong Kong-based company that markets sunglasses and corrective lenses and operates through a network of franchised shops trading in Chinese shopping malls as MJS and under other banners.
Separately, Essilor has agreed to acquire a 55 percent equity interest in Jiangsu Creasky Optical, subject to regulatory approval. This is a manufacturer and distributor of ophthalmic lenses based in Danyang, China, which primarily serves the domestic market. The two acquisitions will add about four percentage points to the scope of consolidation for Essilor's revenues on an annual basis.