Last Friday, Essilor reported a 16.4 percent increase in net profit to €300.6 million for the first half ended June 30. Sales rose by 22.8 percent to €2,530.5 million, driven by new higher-margin products, rising demand in emerging markets, the weaker euro and the usual spate of acquisitions.

The operating margin declined to 17.9 percent of sales from 18.0 percent, but rose by 0.3 percentage points excluding the results of newly acquired companies such as Stylemark, which was not generating any profits.

A strong 6.6 percent growth rate was achieved on an organic basis, the best performance since the first half of 2007. The growth slowed down to 4.8 percent in the second quarter, due to a lower number of working days in Europe, shrinking sales of costly ophthalmic instruments, and difficult market conditions in Italy, Portugal and Spain.

Hubert Sagnières, chairman and chief executive of the group, predicted that Essilor should reach organic growth of at least 5 percent for the full year, or between 12 and 15 percent including the effect of acquisitions. Including bolt-on acquisitions of local laboratories, sales should go up by between 6 and 9 percent. The management continues to target an operating margin of around 18 percent for the year.

The contribution of 11.7 percentage points obtained from acquisitions during the first six months of this year breaks down as follows: 2.8 percent from bolt-on acquisitions, 6.4 percent from the strategic acquisition of Shamir and Stylemark, and 2.5 percent from the impact of the change in the method of consolidation for the Nikon-Essilor and Essilor Korea joint venture, both of which are now fully consolidated.

In the second quarter, acquisitions boosted the overall growth rate of 22.1 percent by 10.9 percentage points, leading the group to post a consolidated turnover of €1,032.5 million for the period, down from the very high turnover of €1,260.6 million reached in the first quarter. Currency changes had positive effect of 4.5 percentage points for the six months and 6.4 percentage points for the second quarter.

The lenses and optical instruments division, the company's core business, recorded significant sales growth in all geographical regions during the first half of 2012, with overall consolidated revenues rising by 20.6 percent to €2,249.2 million, or by 7.1 percent on a comparable basis from the year-ago period.

Company managers estimated that the delivery problems at Hoya (see the next article) boosted Essilor's revenues by around €30 million – some €20 million in Europe and most of the balance in Japan. Essilor's sales forces are fighting hard to keep at least some of the opticians who migrated over to the company from Hoya, they said.

In Europe, revenues from the segment were up by 8.8 percent, or 3.6 percent on a comparable basis, to €797.7 million. The multi-network strategy in France continued to produce good results. Demand rose sharply in the U.K. thanks to the impact of the contract with the Boots Opticians chain and increased sales to independent opticians. Germany returned to satisfactory growth, but the Benelux countries and Eastern Europe were flat and markets in southern Europe – Spain, Italy and Portugal – remained challenging.

In the second quarter, sales of these products in Europe grew by only 2.0 percent on a comparable basis, but according to the management, this was mainly due to the lower number of working days.

Essilor Revenues

(Million Euros, Quarter ended June 30)

 

2012

2011

% Change (reported)

Like-for-like Growth (%)

Acquisitions (%)

Optical Lenses and Instruments

1,110.3

920.80

20.6

5.6

9.0

North America

442.0

363.2

21.7

4.8

4.4

Europe

392.1

367.8

6.6 

2.0

3.7

Asia-Pacific & Africa

202.7

127.7

58.7

  13.6

36.2

Latin America

73.6

62.0

18.7

15.0

11.3

Equipment

49.8

49.0

1.6

-9.2

1.0

Readers

100.5

62.7

60.3

4.1

45.6

TOTAL

1,260.6

1,032.5

22.1

4.8

10.9

In North America, revenues from lenses and optical instruments went up by 18.5 percent to €897.7 million in the six months, or 6.4 percent on a comparable basis, with all the distribution channels contributing to the improvement. Essilor's new deal with Lenscrafters was a major factor, and in fact, the growth in the second quarter declined to 4.8 percent on a comparable basis.

In the Asia-Pacific/Middle East/Africa region, sales of lenses and optical instruments rose by 58.4 percent to €408.3 million, or by 15.9 percent in comparable terms including a rise of 13.6 percent in the second quarter. The change in consolidation method that was applied to Nikon-Essilor and Essilor Korea contributed €50.4 million to first-half revenues. Growth was sustained in Japan and Australia, as well as in fast-growing emerging markets.

Essilor Revenues

(Million Euros, Six Months ended June 30)

 

2012

2011

% Change (reported)

Like-for-like Growth (%)

Acquisitions (%)

Optical Lenses and Instruments

2,249.2

1,864.50

20.6

7.1

9.3

North America

897.7

757.8

18.5

6.4

3.8

Europe

797.7

733.1

8.8

3.6

4.7

Asia-Pacific & Africa

408.3

257.7

58.4

15.9

35.3

Latin America

145.5

115.8

25.6

14.0

16.3

Equipment

95.6

89.4

6.9

0.3

0.8

Readers

185.7

106.2

74.9

4.6

62.6

TOTAL

2,530.5

2,060.1

22.8

6.6

11.7

Sales of lenses and optical instruments  in Latin America grew by 25.6 percent to €145.5 million, with a 14.0 percent increase on a comparable basis, lifted by demand for value-added products, in particular for Varilux lenses in Brazil. The comparable growth rate increased to 15.0 percent in the second quarter.

Overall, the group's sales in emerging markets went up by 27 percent to more than €400 million during the six-month period, supporting the management's goal of reaching an annual turnover of €1.5 billion in these markets by 2015. Sales grew by 47 percent in China and by 43 percent in India. They also grew strongly in Russia and South Korea.

By region, the contribution from acquisitions for the lenses and optical instruments division was 3.8 percentage points in North America, 4.7 points in Europe, 35.3 points in Asia-Pacific/Middle East/Africa, and 16.3 points in Latin America.

In the equipment segment, sales were virtually flat compared with the year-ago period, rising by 0.3 percent on an organic basis. Overall, they went up by 6.9 percent to €95.6 million with the exclusion of sales to the company's growing stable of laboratories around the world. Globally, orders have reached more reasonable proportions after the big jump that they began to experience in 2010, but the demand for digital surfacing machines and sales of consumables remained strong, particularly in Asia.

As for the readers and sunglass division, revenues were up by 74.9 percent to €185.7 million, but they showed growth of only 4.6 percent on a comparable basis. The biggest contribution came from Stylemark, which is being integrated into FGX as planned, forming an operating unit that should reach total sales of $450 million this year. The challenge is to internationalize it further.

During the first half of 2012, Essilor acquired stakes in 14 different companies, representing additional annualized revenue of around €63 million. Ten of these transactions were carried out in Latin America, the Middle East, the Mediterranean basin, Africa and Asia.

The group is making big strides in Mexico, where it acquired a majority interest in Cristal y Plastico, an important player in the local market with two prescription laboratories and two distribution and lens edging facilities, generating revenues of nearly €9 million. Working with that company's management, Essilor opened a new lab in the country.

It also made an important step in Turkey with the acquisition of two laboratories, Ipek Optik and Opak, which are based in Istanbul and Izmir and positioned in different segments of the market. They will complement the local subsidiary of Shamir, whose integration into Essilor's global operations is proceeding smoothly.

Essilor Int'l. Consolidated Income Statement(Euros' 000, Six Months ended June 30)

 

2012

2011

% Change

REVENUES

2,530,496

2,060,057

22.8

Cost of Sales

1,123,685

915,303

22.8

Research & Development

82,212

75,344

9.1

Selling& Distribution

575,252

465,449

23.6

Other OperatingExpenses

295,453

232,350

27.2

Other Expenses, Net

38,773

27,150

42.8

Gains (Loss) on Disposals, Net

15,532

(753)

-

Finance Costs

11,436

5,535

106.6

Other Income from Cash Equivalents

7,957

4,685

69.8

Foreign Exchange Gains (Losses)

(3,676)

1,807

-303.4

Other Financial Expenses

1,995

4,888

-59.2

Profit of Associates

13,551

15,442

-12.2

Pre-Tax

435,053

355,219

22.5

Tax

112,292

91,407

22.8

Minority Interest

22,153

5,570

297.7

NET

322,761

263,812

22.3

Euro/Share (Diluted)

1.42

1.23

15.4

In Brazil, Essilor acquired a majority stake in Centralab, a prescription laboratory with annual revenues of approximately €2 million. The other deals included Magrabi Optical in Saudi Arabia, generating revenues of around €4.5 million; SIVO and its marketing subsidiary SICOM in Tunisia; Optic Kenya, a prescription laboratory in Nairobi; the lens manufacturer Jiangsu Seeworld Optical in China, representing nearly €7 million in annual revenues; an 80 percent stake in Incheon Optics in South Korea, with annual revenues of approximately €3 million; a 50 percent interest in Optics India; a majority holding in Blue Optical, in the U.S., which has annual revenues of around $3.5 million, and Central Optical in Ohio, generating about $6.7 million in revenues; and a majority interest in Imperial Eyewear of Canada, with roughly 1 million Canadian dollars in yearly revenues. Also, Essilor raised from 33 percent to 66 percent its stake in Wallace Everett Lens Technology, an Australian prescription laboratory with annual revenues around €3.2 million.