In an interesting new diversification, Essilor has acquired a 25 percent stake in Ayudas para la Vision Subnormal (AVS), a Spanish vision rehabilitation center for people suffering from age-related macular degeneration, with an option on a higher share. Company executives indicate that this investment is a way of testing the waters to determine the role that the company could take in the future in the development of this kind of service.

Otherwise, the big French group continues to pursue an active acquisition policy in the USA and in emerging markets, particularly in India, which offers a big potential for progressive lenses. It has signed a joint venture deal with GKB Rx Private Ltd., described as a pioneer in the Indian ophthalmic lens industry, with annual revenues of $10 million. GKB's network of eight prescription labs will complement Essilor's own seven labs, doubling in effect its revenues in the country. The French giant, which already claims the leadership of the fast-growing progressive and organic lens market in the country, has an option to increase its 50 percent stake in the Indian joint venture at a later stage.

In Taiwan, Essilor has signed another joint venture deal with Polylite, described as the second-largest company in the ophthalmic lens market, getting a 51 percent controlling stake in a new joint company, Polylite Asia Pacific. Polylite has annual sales of about $10 million. The agreement gives Essilor access to a new market in Taiwan, where it was working through a distributor, and strengthens its position on the Chinese mainland, where the Taiwanese company has two labs, one in Hong Kong and the other one in Shanghai. Polylite also has a manufacturing facility in which Essilor is taking a 12.1 percent shareholding.

In the USA, Essilor acquired two more prescription labs at the end of 2005. They are ACO Lab of Commerce, Califonia, and Focus Optical Labs of Chicago. Respectively, they had revenues of $3.8 million and $3.5 million in 2005. It followed up in early 2006 with the acquisition of Eye Care Express Lab of Houston, Texas, and Accu Rx of Johnston, Rhode Island. These other two labs had sales of $3.9 million and $5.8 million in the latest year, respectively.

Essilor acquired a total of 18 companies with annualized sales of €92 million in 2005. Acquisitions boosted Essilor's total sales by 3.3 percentage points in 2005, and positive currency exchange effects added another 1.5 percentage points. Overall the company recorded a 10.0 percent increase in consolidated sales to €2,423.5 million for the year, with growth of 5.2 percent on an organic basis, and the management indicates that operating earnings grew at a faster rate, reaching a level of around 17 percent.

In terms of volume, Essilor's deliveries grew by 3 percent, but the price mix continued to increase, especially in the USA where sales of progressive lenses with anti-reflective coatins were particularly strong. Worldwide, Essilor's sales of CR39 lenses dropped slightly, but polycarbonate lenses went up by 10-12 percent. Photocromics rose by 12 percent in volume and high-index lenses grew by more than 20 percent.

Organic growth accelerated for Essilor to an annual rate of 5.7 percent in the 2nd half of the year from 4.7 percent in the first one. In the 4th quarter, consolidated sales grew organically by 5.1 percent, but in absolute terms they jumped by 15.5 percent to €620.4 million, with 3.5 percentage points accounted for by acquisitions.

In geographic terms, sales grew organically last year by 2.3 percent in Europe, by 6.5 percent in North America, by 12.2 percent in the Asia-Pacific region and by 18.1 percent in Latin America. Market shares gains were recorded in North America, thanks in part to a deal with Luxottica and to the company's growing network of labs, and in Japan through the Nikon-Essilor joint venture, whose sales grew by 5 percent to the equivalent of €80 million, giving the profitable joint venture a market share of 22-23 percent.

The European market remained generally weak. Sales in France rose by only 2.4 percent. They rose by 8 percent in Germany, but the fell 9-10 percent short of the 2002. They fell by 16 percent in Austria where the government has eliminated state subsidies for consumer purchases of ophthalmic lenses, following the German model with a delay. Essilor's sales rose slightly in the UK, in spite of the loss of a contract by its BBGR subsidiary with Dollond & Aitchison. They declined in Norway for similar reasons and they dropped in Sweden, but they increased in Italy, Spain and Portugal.

Sales were strong in Brazil and flat in Australia. They grew organically by 29 percent in China and by 45 percent in India. They were up by 22 percent in a group of Asian countries represented by Korea, Indonesia and Malaysia.