Reporting a strong 18.2 percent increase in sales to €1,228.6 million for the third quarter and an even stronger 21.3 percent increase to €3,759.1 million for the first nine months of this year, Hubert Sagnières, chairman and chief executive of Essilor International, predicted that the company would be able to break the €5 billion sales barrier in 2012.

Excluding currency effects, sales grew by 15.9 percent in the first nine months, exceeding the 12 to 15 percent growth target set at the beginning of this year. Excluding also the effect of acquisitions, the company registered a sales increase of 5.8 percent in the first nine months and 4.0 percent in the third quarter.

Confirming his earlier projections for sales and earnings, Sagnières told financial analysts that he was still counting on organic growth of more than 5 percent for the full year, thanks in particular to the successful rollout of Essilor's new series of Varilux S progressive lenses. More than 7,000 eye care professionals have already been trained on the new technology, and customers have responded very well to its introduction in France, the U.K., Switzerland and the U.S. over the last few weeks.

More than 1,000 opticians in Germany and Austria attended a presentation a few days ago. As with Optifog and Crizal UV, the new Varilux series will be gradually rolled out worldwide in the next months and in the next year, and this will be good for Essilor's image, sales and margins, Sagnières points out.

He indicated that the new product introductions planned for next year will concern areas such as corrective sun lenses as well as no-fog lenses. The market for sun lenses is growing two to three times faster than the market for clear lenses, he noted, while the market for anti-reflective coatings is growing by a high single digit annually on a global scale, and more so in the U.S. and in emerging markets.

Company officials indicated that the new product initiatives and others in the area of service should help to compensate for the likely sales losses stemming from Hoya's regained ability to deliver its products from its Thai superlab, which had to be closed down one year ago due to flooding. The natural disaster boosted Essilor's sales in the fourth quarter of 2011 and in the first half of the year, as reported. Essilor has estimated that it raised its sales by about €30 million in the first half and that it would still have a positive impact of around €20 million in the second half, but company officials were unable to estimate the actual effect over the latest period.

Essilor International Revenues

(Million Euros, Third Quarter ended Sept. 30)

 

2012

2011

% Change

Like-for-like Growth (%)

Acquisitions (%)

Optical lenses and instruments

1,105.1

952.0

16.1

3.8

5.6

North America

446.2

382.3

16.7

1.0

2.7

Europe

370.9

356.1

4.2

2.3

0.5

Asia-Pacific & Africa

210.7

143.7

46.6

11.5

25.0

Latin America

77.3

69.9

10.6

10.6

7.6

Equipment

48.0

42.4

13.2

3.4

0.4

Readers

75.5

44.9

68.2

8.5

46.3

TOTAL

1,228.6

1,039.3

18.2

4.0

7.1

They said they were “fighting” to retain clients who had migrated from Hoya to Essilor in Europe and Japan – store by store – and responding to discount offers by Hoya on a case-by-case basis. However, they argued that product quality and service levels are proving more important for most opticians than price, as in the past.

The third quarter of Essilor's financial year was positively impacted by the effect of acquisitions and the depreciation of the euro against other currencies. Each of these two factors added 7.1 percentage points to the top line, including gains of 2.0 percentage points from new partnerships (or bolt-on acquisitions of laboratories) and 2.5 percentage points from the consolidation of Stylemark.

On the other hand, a drop in the number of working days affected the sales results by about 1.6 percentage points in North America and by 0.5 percentage points in the rest of the world. Excluding this and other extraordinary factors, the organic growth in the quarter was comparable to that of the second quarter, the management said.

Sales of lenses and optical instruments in North America rose by 16.7 percent to €446.2 million, thanks in particular to the stronger dollar. Organic sales improved by only 1.0 percent in the region, driven by sales to independent laboratories and by Crizal UV, but the growth rate would have reached 3 to 4 percent based on the same number of days and continued deliveries of AR coating equipment to Lenscrafters stores, which instead took a pause in the quarter. Deliveries resumed earlier this month with a tentative goal of doubling the number of equipped stores to 400 doors by the middle of 2013.

In Europe, sales of the same products increased by 4.2 percent to €370.9 million in the quarter. While southern European markets such as Italy and Portugal remained problematic, sales increased in France, the U.K., Germany and northern Europe. Instruments were down from a year ago, when they had grown markedly following the introduction of new edgers.

An overall sales increase of about 30 percent was reported in emerging markets, whose share in the total turnover grew to nearly 18 percent in the quarter. Aided in part by acquisitions and new partnerships, Essilor's sales jumped by more than 60 percent in China, by more than 40 percent in India and by more than 20 percent in Brazil.

Overall, revenues from lenses and optical instruments went up by 46.6 percent to €210.7 million in Asia-Pacific and Africa, with 25.0 percentage points of the growth coming from acquisitions. In the more mature markets of the region, higher sales to independents in Australia offset declines with the optical chains, and the company recorded “firm” growth in Japan in spite of new competition from Hoya. Essilor's sales rose by 10.6 percent to €77.3 million in Latin America, where Mexico performed very well and Argentina not so well.

With a balanced split between them, sales of equipment and consumables to third parties rebounded in the quarter, growing by 13.1 percent to €48.0 million from the very high levels attained a year ago, or up by 3.4 percent on a comparable basis. Orders are up considerably, the management said, indicating that this segment of Essilor's business should continue to grow by between 5 and 10 percent a year including internal sales.

At 68.3 percent year-on-year, the readers division experienced the biggest growth, rising to €75.5 million. Excluding the integration of Stylemark into FGX from the beginning of this year, sales were up by 8.5 percent. One big factor was FGX' new contract with Dollar General for its 8,000 stores in the U.S. Another one was a fast pace of growth in sunglasses in Latin America and other international markets.

As usual for this time of the year, no indications were given for the bottom line in the quarter. However, the company mentioned a strong cash flow, which led Essilor to reduce its net debt by nearly €200 million to €414 million in the quarter.