2010ANNUAL REPORT
INTERVIEW WITH THE CHIEF EXECUTIVE OFFICER A Promising Global Market
SPECIAL REPORT Brazil: Successes and Opportunities
BUSINESS PERFORMANCE Advancing in All Our Markets contents
CHAIRMAN’S MESSAGE 01 Highly Confi dent in the Future Xavier Fontanet, Chairman of the Board of Directors.
INTERVIEW 02 A Promising Global Market 10 16 Chief Executive Offi cer Hubert Sagnières reviews Essilor’s performance in 2010 and presents the outlook for the years ahead.
CORPORATE GOVERNANCE 10 Strategic Insight Presentation of the Board of Directors and the Committees of the Board.
BUSINESS PERFORMANCE 16 Advancing in All Our Markets Overview of Essilor’s businesses and regions.
NEW PRODUCTS 26 On the Cutting Edge of Innovation 32 Research and development is part of Essilor’s DNA. A look at some new products.
SPECIAL REPORT 38 32 Brazil: Successes and Opportunities 26 Essilor’s strategy in Brazil is producing results and creating promising opportunities for the future.
SUSTAINABLE DEVELOPMENT 38 Shared Commitments Essilor has always been committed to corporate social responsibility. Looking back on a decade of responsible commitments.
FINANCIAL RESULTS 42 A Year of Dynamic Growth The Company turned in a solid fi nancial performance in 2010, recording its steepest revenue growth in the past 15 years. Highly Confi dent in the Future
Essilor is successfully pursuing its development. There are several reasons for the Company’s sound fundamentals. First, the benefi ts of ophthalmic lenses are increasingly evident. As the most aff ordable and accurate method of visual correction currently available, they satisfy a basic need. Developing countries are discovering this fact every day, even if they do suff er from a serious lack of eyecare professionals, while in developed countries, the need for visual acuity solutions for people of all ages is constantly on the rise. Clearly, ophthalmic lenses provide an invaluable service. What’s more, having emerged from the crisis debt free, our Company was able to step up the pace of growth considerably through acquisitions at a time when organic growth had slowed. That’s why Essilor has continued to expand despite the crisis. Thanks to our team members’ sustained eff orts and our strong competitive positions, we maintained our margins during this period, confi rming what we’ve always said about the resilience of our business model. Within the organization, Hubert Sagnières took over as Chief Executive Offi cer. He knows the Company very well, having held various management positions for more than 20 years. Essilor is looking ahead to the next 15 years with confi dence in its growth capacity, global positions and solid markets. Hubert and I would like to extend our warmest thanks to our customers, suppliers, partners and employees, and to the Board of Directors for its energy, enthusiasm and enduring trust.
Xavier Fontanet, Chairman of the Board of Directors
ESSILOR 2010 1 INTERVIEW WITH HUBERT SAGNIÈRES, CHIEF EXECUTIVE OFFICER OF ESSILOR A PROMISING GLOBAL MARKET
How would you characterize 2010 What do these results tell us? for Essilor? They confi rm the validity and solidity of our Hubert Sagnières: In an environment shaped by strategic commitment to profitable growth the gradual recovery of the global economy, we based on innovation, penetration of the mid- turned in a solid operational performance and range segment, geographic expansion through produced good fi nancial results. Consolidated bolt-on acquisitions and, wherever possible, revenue rose by 19.1%, or 13.4% excluding the initiatives to stimulate demand with the goal currency eff ect, our biggest increase in 15 years. of expanding our markets. Given the magnitude No. 1 We also maintained our contribution margin of people’s needs around the world, our devel- worldwide in at 18.1%, which was higher than our target. opment has only just begun. At the same time, attributable profit rose by ophthalmic 18.2%. Given this performance, the Board of How great are those needs? optics Directors will ask shareholders at the Annual The worldwide optics market is potentially Meeting to approve a dividend of €0.83 per enormous. Of the 4 billion people with faulty share, compared with €0.70 for 2009. vision, only 1.6 billion wear glasses or contact lenses. The remaining 2.4 billion do not wear any How did the year play out? sort of corrective eyewear. These fi gures give a 28% Except for a few countries where the economic good indication of our development potential global situation remained very difficult, our sales and, above all, strengthen the corporate mission market share increased worldwide, although the pace of we have been pursuing since 1849, which is to growth varied widely from one region to allow people around the world to enjoy a “Better another. In developed countries, which account Life through Better Sight.” So even as we pursue for more than 80% of our business, 2010 was our initiatives in developed countries, which the year in which we gradually emerged from generate most of our sales revenue, we’re step- the crisis, generating growth seen as still too ping up investments in fast-growing countries, weak. In fast-expanding countries, however, which account for two-thirds of global demand sales increased sharply, sometimes by more but only 12% of our sales revenue. With an than 20%. At constant scope of consolidation, approximately 28% share of the corrective lens organic growth came to 3%, a clear improve- market worldwide, our goal now is to achieve at ment over 2009. least our natural market share in these countries.
2 ESSILOR 2010 INTERVIEW
How are you entering these new markets? « Given the magnitude of people’s In many countries, we operate in highly needs around the world, our fragmented markets with many local players and excellent opportunities for consolidation development has only just begun. » across the entire chain, from design and production to distribution. Our goal is always to provide eyecare professionals and consumers with the best products. To increase our market share and strengthen our networks around the world, we’re pursuing our strategy of bolt-on acquisitions and partnerships with prescription
ESSILOR 2010 3 INTERVIEW
« With FGX International, the North American leader in non-prescription reading glasses, we’ve established a foothold in a fast-growing market that fi ts well with the prescription lens business. »
laboratories and distributors. In these trans- In all, these acquisitions and partnerships added actions, we nearly always keep the current 3.1% to growth in 2010. management team in charge of operations. Two strategic acquisitions accounted for 7.3% Far upstream from our manufacturing of our revenue growth. With FGX International, operations, we conduct vision screening and the North American leader in non-prescription equipment supply programs — in India for reading glasses, we’ve established a foothold example — in villages where access to eyecare Employees in a fast-growing market that fits well with is diffi cult. At the same time, we make strategic the prescription lens business since it targets acquisitions designed to expand the scope 3,305 young presbyopes. With Signet Armorlite, Acquisitions and of our operations. partnerships which holds a worldwide license for the produc- 2,057 12,167 tion and exclusive distribution of Kodak brand Latin Specifi cally, what were your main America North America acquisitions in 2010? lenses, we’ve strengthened our positions in the mid-range segment. We entered into 27 acquisitions and partner- ships to strengthen our multi-network strategy 14,493 Do you have the resources you need to grow Asia and extend our geographical coverage in through acquisitions? Oceania North and South America, Europe, Asia, Africa 10,682 Australia and the United Arab Emirates. We To successfully carry out these projects Europe 42,704 employees worldwide also made our fi rst acquisitions in China, taking and ensure our long-term growth, we have a majority stake in Danyang ILT and creating one key strength, which is our solid balance a partnership with Wanxin Optical, which sheet. Our business generates substantial cash manufactures 35 million lenses a year, flow and in 2010, despite our assertive both for the domestic market and for export. acquisition strategy and ambitious share
4 ESSILOR 2010 INTERVIEW
3.9 a number of features generally found billion in premium products. Already, our mid- euros range products are enjoying strong growth. The segment accounts for one-third of our in revenue sales volume but is growing two to three times faster than the market as a whole. Mainly driven by improving middle-class standards of living in fast-growing countries, this develop- ment is indicative of a change in scale. To deliver 462 profi table, competitive products and services million in this new segment, we are redeploying some euros in of our production, logistics and marketing capacity to fi ve major laboratories in Mexico, attributable Thailand, China and India. This strategy is profi t based on a greater focus on innovation (up 18.2%) and acquisitions. The development of the Brasilor range of lenses in Brazil and the acquisition of Signet Armorlite, the exclusive
buyback program, we kept debt at a very moderate level. This performance can be attributed to our teams’ fi rm focus on produc- « Far upstream from our tivity gains in all markets, our optimized capital spending projects and disciplined manufacturing operations, we conduct management practices, and our capacity vision screening and equipment supply for technological and marketing innovation to better serve our customers. programs – in India for example – Will penetrating high-growth markets in villages where access require you to make changes in your product off ering? to eyecare is diffi cult. » In all markets around the world, including developed countries, we’re strengthening our mid-range off ering and gradually introducing
ESSILOR 2010 5 INTERVIEW
« Even as we pursue our initiatives in developed countries, which generate most of our sales revenue, we’re stepping up investments in fast-growing countries, which account for two-thirds of global demand but only 12% of our sales revenue. »
of distributor of Kodak, the world’s biggest How important is innovation? mid-range lens brand, are good examples of Innovation continues to drive our strategy how we are pursuing this strategy. and to underpin our relations with customers. Overall, 50% of our revenue is generated by 29 What does this mean for the premium products that are under three years old and acquisitions segment? in 2010 we introduced 240 new products that and Essilor is and will remain the world’s leading combine diff erent materials, surfaces and coat- premium brand. We’re consolidating our ings. We’re working to further customize our partnerships positions in this high value-added segment lens off erings with, for example, Essilor Azio in 2010 in developed countries with Varilux, Crizal, and Varilux India, both of which were devel- Transitions and Airwear. In 2010, we expanded oped for the specifi c needs of Asian and Indian this line-up with the Xperio range of polarized wearers, and with therapeutic lenses capable lenses. We’re continuing to invest in research of reducing visual disorders. We’ve launched and developing innovative products even as a progressive lens that can slow the develop- 240 we expand our off ering to include, for example, ment of myopia in Chinese children. There are new lens mounting services or the supply of fully still many inventions waiting to happen, such products mounted lenses. We also need to persuade as fog-resistant lenses. Solutions must still be eyecare professionals, laboratories and wearers found for 80% of vision-related needs and in 2010 of the benefi ts delivered by our value-added problems. products, such as anti-refl ective, progressive, polarized and smudge-resistant lenses. Lenses What are your growth paths for 2011? that provide real protection and improve visual We’ll pursue our profi table growth strategy by comfort are still not used as widely as they consolidating our leadership in the premium could be worldwide. segment, stepping up the pace of development
6 ESSILOR 2010 INTERVIEW
Strong potential for value-added products
1 billion
Lenses that provide real protection and improve visual comfort are still not used as widely as they could be worldwide. in the mid-range segment and stimulating demand to increase our market share. We’re also going to bolster our presence in fast-growing countries. We’ve expanded the Executive Committee so that it more fully reflects the
Company’s global scope, with the addition of lenses sold worldwide Number of the Executive Vice President, South Asia, Middle East, South and East Africa, and ASEAN. In addition, we’ve named three new members to the Executive Committee to strengthen North America’s representation. I’ve also appointed two Chief Operating Officers with extensive TOTAL 2010 responsibilities in international markets. I know ective lenses Anti-UV lenses Computer and Polarized lenses that I can count on all of our teams to seize Easy-clean coatingProgressive lensesAnti-static coating Anti-refl Photochromic lenses anti-fatigue lenses growth opportunities wherever they occur.
ESSILOR 2010 7 CORPORATE GOVERNANCE EXECUTIVE COMMITTEE
In 2010, the Essilor Executive Committee expanded and took on new members in order to more fully refl ect the Company’s global scope.
1. Hubert Sagnières 13. Éric Léonard Chief Executive Offi cer President, Europe Region
2. Paul du Saillant 14. Patrick Poncin Chief Operating Offi cer Corporate Senior Vice President, 3. Laurent Vacherot Global Engineering Chief Operating Offi cer 15. Thierry Robin 4. Thomas Bayer Senior Vice President, President, Latin Central Europe Region America Region 16. Bertrand Roy 19 15 5. Jayanth Bhuvaraghan Corporate Senior Executive Vice President, Vice President, South Asia, Middle East, Strategic Partnerships South and East Africa and ASEAN 17. Kevin Rupp 6. Carl Bracy Chief Financial Offi cer and Executive Vice President Executive Vice President 14 Marketing and Business Finance & Administration Development Essilor Essilor Of America Of America 18. Jean-Luc Schuppiser 7. Claude Brignon Corporate Senior Vice Corporate Senior Vice President, Research President, Worldwide and Development Operations 19. Beat Siegrist 8. Jean Carrier-Guillomet Chief Executive Offi cer, 1 President, Essilor of America Satisloh 9. Patrick Cherrier 20. Éric Thoreux President, Asia Region Corporate Senior Vice President, 10. Bernard Duverneuil Strategic Marketing Chief Information Offi cer 21. Henri Vidal 11. Marc François-Brazier Corporate Senior Corporate Senior Vice Vice President, Equipment President, Human Resources and Instruments 12. Réal Goulet 22. Carol Xueref President, Essilor Corporate Senior Vice Laboratories of America President, Legal Aff airs and Development 21 5 13
8 ESSILOR 2010 11 9 7 22
18 18 20 2 3 10
6 8 17 12 4 16
ESSILOR 2010 9 CORPORATE GOVERNANCE STRATEGIC INSIGHT
ssilor is focused on helping its Board of their experience and the success they have had, E Directors to move forward and providing each in his or her own business. Th at’s why we are it with the resources it needs to carry out so demanding in our choice of board members. its role as part of a Company that will continue We can also affi rm that the representatives of our to develop its geographical footprint, technical employee shareholders provide the Board with expertise and human capital. invaluable insight for a Company whose business relies enormously on the quality of its people. As Chairman of the Board of Directors, my responsibility is to ensure that members have the In addition, we make sure that directors have skills and means to fulfi ll their mission, which is access to all the information they need and that to clarify Essilor’s corporate vision and oversee its their work is well organized. In 2010, we created management and operations. Th is is a diffi cult, a new committee – the Appointments Committee – demanding task given the highly technical to support the Board, alongside the Strategy, nature of the business and Essilor’s far-reaching Audit and Remunerations Committees. geographical presence. Th e goal of all our eff orts is to provide the Board We believe that our directors must represent with a good working environment, which is a wide range of capabilities. Th eir necessary one of those intangibles that can make all the independence is rooted in their personal qualities, diff erence.
Xavier Fontanet Chairman of the Board of Directors
10 ESSILOR 2010 Xavier Fontanet Top : Xavier Fontanet, Yves Chevillotte, Philippe Alfroid, Olivier Pécoux, Paul du Saillant
Members of the Board of Directors at December 31, 2010
Xavier Fontanet Benoît Bazin Yi He Chairman of the Board of Directors Senior Vice President, Compagnie de President, Essilor China of Essilor Saint-Gobain Bernard Hours Hubert Sagnières Antoine Bernard de Saint-Aff rique Chief Operating Offi cer, Danone Chief Executive Offi cer of Essilor Executive Vice President, Unilever Maurice Marchand-Tonel Philippe Alfroid Yves Chevillotte Independent consultant Former Chief Operating Offi cer Former Executive Vice President, Aïcha Mokdahi of Essilor Crédit Agricole Director, Supply Chain Europe, Essilor Alain Aspect Mireille Faugère Olivier Pécoux Research Director at France’s National Chief Executive Offi cer, Assistance Managing Partner, Rothschild et Cie Scientifi c Research Center (CNRS) Publique-Hôpitaux de Paris (AP-HP) Michel Rose and Institut d’Optique in Orsay, and Yves Gillet Former Co-Chief Operating Offi cer, professor at the École Polytechnique Chief Executive Offi cer, Essilor Spain Lafarge engineering school
ESSILOR 2010 11 CORPORATE GOVERNANCE
Alain Aspect, Benoît Bazin Hubert Sagnières, Yves Gillet, Aïcha Mokdahi
The Essilor Board of Directors is comprised of fi fteen members 95% of whom nine are independent attendance directors and three are employee rate for directors shareholder representatives. In 1997, Essilor set up three BOARD OF DIRECTORS Committees of the Board in In 2010, the Board of Directors met six times, as accordance with corporate scheduled, and held one additional unplanned 3 meeting. The average attendance rate at Board employee governance rules. In 2010, a fourth meetings was more than 95%. The Board’s role committee – the Appointments is to stay informed of and approve Essilor’s shareholder major strategic decisions, and to review and representatives Committee – was also created. approve the financial statements. This year, The following section reviews the Board ruled on the sale of the Company’s the Committees’ organization stake in Sperian Protection as well as on various projects and acquisitions, and the creation of and operations in 2010. the Appointments Committee.
12 ESSILOR 2010 CORPORATE GOVERNANCE
« We believe that our directors must represent a wide range of capabilities. Th eir necessary independence is rooted in their personal qualities. »
Mireille Faugère
Two new directors join the Board in 2010
Mireille Faugère has served independent director of EDF as Managing Director of Group, where she chairs the Assistance Publique-Hôpitaux Board’s Ethics Committee. de Paris (AP-HP), the French THE COMMITTEES public hospital system, since Yi He represents Valoptec Chaired by Yves Chevillotte, the Audit September 2010. A graduate Association on the Board of of the HEC business school in Directors. After receiving a Committee is comprised of six members, Paris, she joined SNCF in the doctorate in Management two-thirds of whom are independent direc- early 1980s where she held a and Strategy from the HEC tors. Its role is to ensure that senior manage- number of operating positions. business school in Paris, he ment has the resources needed to identify She was later chosen to head joined Danone in 1991 and was the TGV Méditerranée network, named Managing Director of and manage economic, financial and legal one of SNCF’s fl agship projects. the subsidiary in Shanghai. In risks. The Committee is tasked with overseeing In 1996, she took over the Sales 1996, he joined Essilor as Chief processes for the preparation of financial and Marketing Department Executive Offi cer of Shanghai information, procedures for internal control and in 2000 created the Essilor Optical Company in and risk management, the audit of the parent voyages-sncf.com website. China. Since September 2010, In 2003, Ms. Faugère was he has been President of Essilor company and consolidated fi nancial statements named Chief Executive Offi cer in China. by the Statutory Auditors, and the Statutory of SNCF Voyages. She is also an Auditors’ independence.
ESSILOR 2010 13 CORPORATE GOVERNANCE
Essilor receives the 2010 Fondation Olivier Lecerf Award
In June, the 2010 Fondation Olivier Lecerf Award was presented to Xavier Fontanet, Chairman of the Essilor Board of Directors. Created in 2007, the Foundation recognizes work, publications and achievements that refl ect a humanist approach to corporate management. “Essilor is the descendant of a workers’ cooperative,” said the Foundation’s President. “Its community spirit and culture of respect, trust and innovation have endured thanks to a senior management team committed to preserving these core strengths.”
Yi He
The Remunerations Committee is made up and marketing strategies. The annual program of three members, all of them independent is drawn up by the Committee Chairman after directors. Chaired by Michel Rose, its role is to discussions with senior management and the make recommendations concerning the choice Board of Directors. of senior managers, their compensation and The Board’s fourth committee is the Appoint- stock-option grants and performance share ments Committee. Chaired by Xavier grants awarded to these managers. It is also Fontanet, it is comprised of four members. consulted on compensation policies applied The Appointments Committee recommends within the Company and assists the Chairman candidates for election to the Board and and the Board in preparing executive succes- reviews the Board’s membership and future sion plans. developments. The Strategy Committee is chaired by Xavier In addition, the Committee supervises the Fontanet and comprises all the members of Board’s self-assessment process, identifies the Essilor Board of Directors. The role of independent directors, manages changes to the Strategy Committee, as described in the the Board’s membership, oversees the directors’ Board’s internal rules, is to regularly review performance process and recommends improve- the Company’s product, technology, geographic ments in Board procedures.
14 ESSILOR 2010 Snapshots
UNITED STATES
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the Essilor Vision Foundation is Created in late 2007, committed to screening, examining and providing a large number of children with glasses. Through its Adopt-A-School and Kids Vision for Life school programs, the Foundation has enabled more than 30,000 children to have their eyes examined in the past three years. Over 6,500 of them have been provided orded. with free glasses, which they could not otherwise have aff
ESSILOR 2010 15 BUSINESS PERFORMANCE ADVANCING IN ALL OUR MARKETS
Lifted by a recovery in lens sales as well as sustained growth in the Instruments and Equipment Divisions, Essilor turned in a solid operating performance in 2010, as revenue increased by 13.4% excluding the currency effect. The year also saw an impressive number of new partnerships and acquisitions, most notably FGX International and Signet Armorlite.
16 ESSILOR 2010 BUSINESS PERFORMANCE
Lenses and optical instruments
Advertising campaign for the Xperio lens in the United States NORTHNO AMERICA: A RESURGENT US MARKET SalesSale in North America rose 1.4% like-for-like, despitedes problems in the Canadian market. In thet United States, where the recovery graduallygrad took hold during the year, Essilor’s performanceper was buoyed by an improved productpro mix in coatings and designs as well as iin materials, with a sharp increase in sales ofof polycarbonatep lenses. NineNiin new partnerships helped to strengthen the Company’s market coverage and prescription laboratory network. Essilor Laboratories Of America leveraged its franchise agreements with independent optometrists to develop its fl agship brands – Crizal, with the highly promising launch of the Crizal Sapphire antirefl ective lens, and in particular Varilux, with the new Physio 2.0 and Comfort New Edition progressive lenses. Sales to independent laboratories were on a par with the previous year. Demand was strong from integrated retailers but less so from major optical chains, despite In Canada, the Company expanded its solid results with a number of new accounts. distribution network and forged two new Led by a sharp rise in the Xperio range of partnerships with laboratories. However, polarized lenses, Kbco reported strong sales its performance was adversely aff ected growth, while contact lens distributor OOGP by service problems related to laboratory saw sustained demand for its products. information system upgrades.
ESSILOR 2010 17 BUSINESS PERFORMANCE
Advertising campaign for the Eyecode lens. Advertising campaign for the Anateo Mio lens in Europe. EUROPE: A STRONG PERFORMANCE IN FRANCE In Europe, where the economic recovery was sluggish and varied from one country to another, sales were stable, rising by 0.4%. Successful launches of new-generation Physio 2.0 and Comfort New Edition progressive lenses provided renewed sales momentum In the United Kingdom, where the economic for the Varilux range. The Eyecode range of environment was more diffi cult, Essilor sales lenses for eyecare professionals equipped were stable, thanks in particular to WLC’s with the Visioffi ce personalized measuring good performance. Sales were also stable system proved very popular. in Germany, Belgium and Switzerland. 14 France turned in a very strong overall In Southern Europe, Essilor notched market production performance thanks to the effi ciency share gains in Portugal, although business of its multi-network organization and to plants conditions remained very challenging new partnerships with two prescription worldwide in Spain. laboratories. BBGR benefi ted in particular from very strong sales of its new Anateo Mio In Eastern Europe, where performance progressive lens. In the Netherlands, where varied greatly depending on the country, business was brisk, Essilor successfully the Company returned to growth overall, deployed its new development model recording strong sales in Poland and solid with independent eyecare processionals. increases in Russia.
18 ESSILOR 2010 BUSINESS PERFORMANCE
ASIA, PACIFIC, AFRICA AND THE MIDDLE EAST: How many pairs of eye GROWTH LED BY INDIA glasses do you AND THE ASEAN COUNTRIES own? In 2010, revenue from the Asia-Pacifi c-Africa Advertising region, which also includes the Middle East, campaign displayed rose by 8.4% like-for-like, with increases of by eyecare more than 20% in fast-growing countries. professionals in Singapore. In India, Essilor’s performance was lifted by a sharp rise in unit sales, an improvement in the mix led by the success of the Varilux India lens, and the distribution networks’ ability to drive steep increases in all market segments, including the mid-range. All the In South Korea, brand-name products enjoyed ASEAN countries reported double-digit sales sustained sales growth. growth. Essilor registered market share gains In Japan, in a still depressed business in Thailand, thanks to the eff ectiveness of environment, Nikon-Essilor made the multi-network strategy. In Taiwan, sales considerable advances in the progressive of Nikon and Essilor lenses resulted in a solid lens segment, with strong increases by the improvement in the product mix. Varilux brand in upmarket optical chains. In China, the Company maintained its In Australia – and especially in New Zealand powerful momentum in the premium where consumer spending was signifi cantly segment, as demonstrated by strong demand lower – 2010 was a very challenging year. for Essilor Azio lenses. Underpinned by new partnerships with leading local companies, In the Middle East and South Africa, Essilor the business also saw rapid gains in the continued to build its multi-network mid-range segment. organization and made solid gains.
ESSILOR 2010 19 BUSINESS PERFORMANCE
LATIN AMERICA: New Crizali SALES OF ANTIREFLECTIVE LENSES RISING AT A FASTER PACE advertisingi campaigni The Latin America region, which includes Four laboratories joined the Essilor network, In 2010, a new Central America and Mexico, reported very strengthening the Company’s geographical global advertising strong growth, with sales rising 16.5% coverage of this enormous country and campaign was launched for the like-for-like. increasing local market share. Crizal lens range. Featuring several In Brazil, growth was driven by higher sales The region’s strongest growth was in diff erent visuals, in all market segments and an improvement Argentina, where Essilor made signifi cant the campaign in the product mix. In response to faster market share gains, led by a substantial presents the fi ve sales of antireflective lenses – especially the improvement in service quality and sustained enemies of clear vision that the Crizal range thanks to initial strong demand demand for antirefl ective lenses. Growth Crizal multi-coated for Crizal Forte – Essilor increased its lens was also supported by strong instrument system combats coating capacity in São Paulo. Sales of sales to eyecare professionals. and provides progressive lenses, including Varilux brand a glimpse of “the In Mexico, sales were also higher due to lenses, were also higher. The year was also Crizal diff erence”. strong demand for antirefl ective lenses shaped by new partnerships. and Varilux brand products and to expanded operations with a major optical chain. Essilor saw double-digit growth in the other countries where it does not have distribution subsidiaries. Sales were especially robust in Colombia and Chile.
332 prescription lens laboratories around the world
20 ESSILOR 2010 Snapshots
CHINA
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China has 600 million potential eyeglass wearers, most of whom have little understanding of eye health or ophthalmic lenses and live in cities. That’s why Essilor has created mobile screening centers that conduct eye examinations and organize product demonstrations. These centers have been installed in more than 40 cities, including Shanghai and Beijing.
ESSILOR 2010 21 BUSINESS PERFORMANCE
Optical instruments Equipment
Strong demand for Mr. Blue and Visioffi ce Sales were up a solid 9.8% in the Optical Instruments Division, which markets edgers and measurement devices as well as organizational solutions for eyecare professionals. Introduced in Europe in 2009, the Mr. Blue premium edger was successfully rolled out in the rest of the world, including in fast-growing countries like Brazil and China. M’eye Touch software, which allows eyecare professionals to personalize lens shapes, was also launched in 2010. Another of the year’s new products was Kappa Ultimate Edition, a more ergonomic version of the prior-generation edger introduced to strengthen
Essilor’s positions in the mid-range segment. Satisloh automated production line. The successful, pan-European launch of Visioffi ce also contributed to the division’s strong performance. Visioffi ce enables eyecare professionals to take the additional Digital surfacing machines boost sales measurements needed for lenses that integrate Sales of prescription laboratory equipment increased at a faster Eyecode technology. pace in 2010, rising 21.3% like-for-like. The increase was driven by strong demand for digital surfacing machines from both independent laboratories and optical chains. The technology’s increasing success boosted Satisloh’s production of consumables, helping to move these products upmarket. Especially dynamic, Asia benefi ted from a sharp increase in demand in its domestic markets, which are supplied by the Satisloh production unit in Zhongshan, China, and from the development of large-capacity prescription laboratories that serve developed regions. With the acquisition of DAC Vision, a world leader in consumables, Essilor expanded its product portfolio with the goal of more eff ectively satisfying diff ering customer needs.
22 ESSILOR 2010 BUSINESS PERFORMANCE
Readers
LightSpecs glasses.
Successful integration of FGXI In first-quarter 2010, Essilor acquired FGX International, the North American leader Foster Grant glasses display unit (FGXI) in non-prescription reading glasses and a distributor of sunglasses. FGXI generates 90% of its revenue in the United States and is developing its business in Canada, Mexico FGXI sales by distribution channel and the United Kingdom. Its main customers are mass retailers, drugstores and grocery chains.
19.4% In the non-prescription reading glasses Others segment, which accounts for half of its sales, 39.2% Drug Stores business was lifted by the successful launch 4.7% of Microvision and LightSpecs. Both products Variety Stores are top-selling items at major chains like 6.3% Barnes & Noble, Walgreens, CVS and Rite Aid. Chain Grocery Outside the United States, business was particularly strong in the United Kingdom, 30.4% Mass Merchant where FGXI enjoyed strong sales in airport and train station shops.
ESSILOR 2010 23 BUSINESS PERFORMANCE
Canada United Kingdom Cascade Leicester Optical Econo-Optic United States FGX International China Signet Armorlite Danyang ILT Optics Custom Optical Wanxin Optical Encore (Nikon-Essilor) Epic labs Taiwan SMJ Gulf States Hawkins Singapore NEA Optical France Visitech Pasch (Nikon-Essilor) DAC Vision India Reliable Optics Essor GKB Optics Technologies Winchester Optical Prakash Australia Eyebiz Brazil Ceditop United Arab Embrapol Sul South Africa Emirates Farol Easy Vision Ghanada Optical Tecnolens Partnerships and acquisitions The year saw a large number A partnership culture of partnerships and acquisitions, In 2010, Essilor reaffi rmed its ability with 29 transactions representing to develop the business through €432 million in full-year revenue. partnerships. With Italy’s Luxottica, Two strategic acquisitions in partic- for example, a joint venture was ular stand out: FGX International, created to manage Eyebiz, Luxot- the North American leader in non- tica’s optical lens fi nishing laboratory prescription reading glasses (thereby that serves more than 600 optical enabling Essilor to penetrate a new Signet Armorlite: an important stores in Australia and New Zealand. segment of the vision correction bridgehead for conquering In China, Essilor joined forces with market), and Signet Armorlite. the mid-range segment Wanxin Optical, a local leader, to The 27 other transactions – mainly speed development of its mid-range In April 2010, Essilor acquired all outstanding shares in partnerships with prescription segment products, both in China and Signet Armorlite, one of the world’s leading manufacturers laboratories and distributors – repre- around the world. Partnerships also of ophthalmic lenses with operations mainly in the sent additional full year revenue of provided an opportunity to launch United States, the United Kingdom, Germany and Spain. approximately €155 million. operations in a new country – Abu Essilor intends to capitalize on the company’s exclusive Dhabi – where an agreement was distribution license for Kodak lenses to develop Signet signed with Ghanada Optical. Armorlite around the world and especially in the mid-range segment in which Kodak is extremely well positioned.
24 ESSILOR 2010 Snapshots
UNITED STATES
¸7KHHYHQWLQ1HZ in the United States It’s estimated that 61 million adults are at risk of serious vision loss and that only half of them have seen an eye doctor in the past 12 months. In 2007, Essilor, Luxottica and VSP Global joined forces to create the Think About Your Eyes coalition. Its purpose is to develop consumer-awareness initiatives and make eye health a priority concern. orts of Think About Your Eyes, In 2010, thanks to the eff New York Mayor Michael R. Bloomberg proclaimed the week of May 24-30 as Think About Your Eyes Week. Among the events scheduled for the occasion were a surprise appearance in Times Square by 90 dancers withrated 10 with oversize dancing eyeballs and a special tour bus deco the campaign’s graphics. ESSILOR 2010 25 NEW PRODUCTS ON THE CUTTING EDGE OF INNOVATION For Essilor, innovation is the key to providing eyecare professionals and eyeglass wearers with increasingly high-performance products and services. Focused on optics, physical chemistry and breakthrough technologies, the R&D Department ensures the Company’s global leadership in technologies as well as in products. 26 ESSILOR 2010 NEW PRODUCTS A GGLOBALLOBA R&D ORGANIZATION PartnershipsPartners for innovation With the exceptionex of progressive lenses – its core business – Essilor works with other manufacturers on product development and shares innovations through partnerships that conduct research on materials, coatings and digital technologies. Since its 2008 start-up in Japan, the Research Center operated jointly with Nikon Corporation has focused on developing breakthrough technologies. In France, through its participation in Institut de la Vision, Essilor works closely with Stronger synergies the medical community to improve To strengthen its capacity for innovation its understanding of the visual system. and develop strategic synergies among 50% its businesses, Essilor has created three of revenue Innovation and Technology Centers – in France, the United States and Asia – that in the long is generated run will house most of the Company’s R&D and by products engineering technological resources. These stronger synergies, thanks to research centers less than on three continents, will not only improve 3 years old product quality and performance but also shorten development deadlines and optimize worldwide product launches by taking into account local needs and constraints. One stage in the lens manufacturing process. ESSILOR 2010 27 NEW PRODUCTS 550 researchers 580,000 product references Varilux Comfort New Edition: Renewing a legend Varilux Comfort, the industry’s benchmark progressive lens, was given a makeover in 2010. Launched in 1993, Varilux Comfort revolutionized the progressive lens market and has gone on to become the world’s best seller in this category. Although its success has never wavered, with more than 100 million pairs sold in 17 years, the regular use of mobile phones, digital cameras and GPS devices has modifi ed wearers’ visual behavior. In addition, optical R&D programs have made enormous advances and new production techniques like digital surfacing have emerged. Available worldwide, the new Varilux Comfort New Edition off ers a wider fi eld of vision and a smoother transition between vision zones for immediate visual comfort in all situations. VARILUX PHYSIO 2.0: A BOUQUET OF TECHNOLOGIES Off ering a wider fi eld of vision, heightened the WAVE 2.0 system for calculating lens contrast and crisper details, Varilux Physio optics developed from astronomy, which has since 2006 provided wearers with incorporates pupil size modeling to minimize High Resolution Vision, which was further the amount of distortion caused by light enhanced in 2010 with Varilux Physio 2.0. entering the eye. The result is sharper vision This latest-generation progressive lens off ers regardless of lighting conditions. Introduced the advantages of advanced digital surfacing, worldwide in January 2010, Varilux Physio 2.0 which extends the complexity of the optical also exists in a version adapted to small surface to both sides of the lens, as well as frames. 28 ESSILOREESSSSSILOLLOORR2 220100100011010 NEW PRODUCTS Anateo Mio: Th e highest level of customization After the success of its Anateo progressive lens, Essilor subsidiary BBGR has continued to break new ground with Anateo Mio, which off ers an even higher level of customization thanks to two patented innovations. For the fi rst time, the lens takes into account the wearer’s morphology by integrating his or her natural reading distance. In addition, this distance is measured in just a few second with the EyeTab® measuring device and its ultrasonic transmitter-receiver. Anateo Mio has been available in Europe since late 2010. Varilux Kan : A customized lens for Korea Crizal Forte Following the success of the Essilor accounts for Azio 360° range in Asia and the Varilux India lens in India, Essilor launched Varilux Kan for Korean 40% eyeglass wearers in 2010. Based of Crizal sales on behavioral and physiognomic studies conducted in Asia by worldwide the Singapore R&D Center and which demonstrated the specifi c visual characteristics of Koreans compared to other Asians, fi ve fi tting parameters were taken into account: the angle of curvature of the frame, the lens inclination, the lens-eye distance, the distance between the eyes, and reading distance, which is far greater than the distance chosen for the Essilor Azio 360° range. Kan versions of the new Varilux Comfort New Edition and Physio 2.0 lenses were introduced in February 2011. ESSILOR 2010 29 NEW PRODUCTS BBGR: A GOLDEN YEAR Two new BBGR products Max premium antirefl ective category. The award was received awards in 2010. coating, which off ers enhanced presented by French magazine The Anateo Mio customized scratch resistances thanks to a Inform’Optique based on a progressive lens won a gold mineral composite nano-layer selection process that involved medal – the Silmo d’Or – in the between the varnish and the a panel of 800 opticians. Since Vision category at the SILMO multi-layered antirefl ective its launch in October 2009, international optics show in stack, received the Pont more than one million Neva Paris. In addition, BBGR’s Neva d’Or award in the Coatings Max coatings have been sold. Crizal : Th e most transparent lens on the market Because they impact vision, glare, scratch, smudge, dust and water are the principal enemies of even the highest quality ophthalmic lenses. To address these issues, Essilor developed the Crizal coating in 1993, which off ers perfectly clear vision. After Crizal Forte in 2009, Essilor launched Crizal Sapphire in the US premium segment in 2010 and also renewed its mid-range line-up in the market with Crizal Alizé+ and Crizal Easy. Myopilux : Slowing the development of myopia Myopia is a widespread vision problem in Asia, especially among children. In China, for example, 90 million children are estimated to be myopic. In response to this situation, Essilor has designed a range of preventive lenses that slow the development of myopia in children. To choose the right lens, eyecare professionals fi rst determine the features of the child’s visual system using Myopilux, an instrument developed by the Company. They can then prescribe either Myopilux Pro, a progressive lens available in Asia since 2008, or the Myopilux Max bifocal lens, which was launched in 2010. The upper part of the Myopilux Max lens corrects the child’s vision in accordance with the prescription while the lower part includes a prism that acts on the eye’s development. Myopilux Max can slow the advance of myopia by 60%. 30 ESSILOR 2010 ESSILOR 2010 31 SPECIAL REPORT 32 ESSILOR 2010 BRAZIL BRAZIL: SUCCESSES AND OPPORTUNITIES ESSILOR 2010 33 SPECIAL REPORT BRAZIL:BRAZIL SUCCESSESUCCESSESS AND OPPORTUNITIES In 30 years, Essilor has become the Brazilian market leader. In 2010, Essilor increased its revenue in Brazil by 15.8% at constant scope of consolidation and strengthened its positions with equity investments in four major laboratories. The Company’s strategy in Brazil – the world’s eighth largest economic power* – is generating results and creating opportunities for future growth. Brazil or decades, Essilor has been raising Award, which every year recognizes those awareness among ophthalmologists, eyecare professionals who conduct the best 52 Flaboratories and eyecare professionals clinical studies. Winners win a trip to Paris and million lenses of the benefi ts of not only progressive lenses a visit to the Essilor laboratory in Antony. sold per year but also other lenses designed to provide protec- In 1976, Sudop opened a fi nishing laboratory tion and visual comfort. for imported lenses in Manaus, which proved highly successful. A true success story In 1986, Essilor acquired Sudop and launched The story begins in 1966 when Dr. Carlos construction of the Essilor Da Amazonia (EDAM) 2nd Bessa, a noted Rio de Janeiro ophthalmologist, production facility in Manaus. largest market signed an agreement with Essel to import and In 1989, the EDAM plant produced its fi rst Orma for progressive distribute Varilux lenses in Brazil and created 1000 lenses. lenses, behind Sudop. With the support of Varilux consult- the United States ants, Dr. Bessa began to organize seminars Progressive lenses: for ophthalmologists and opticians. The goal was to raise their awareness of the benefi ts of a proven success progressive lenses and teach correct practices This awareness-building approach, which for carrying out eye refraction examinations included training in best practices, produced and choosing and adjusting frames. results. Today, progressive lenses account for 24% In 1970, to stimulate ophthalmological research, 22% of the 52 million lenses sold in the country, of lenses sold Dr. Bessa created the Varilux Ophthalmology and 82% of Brazilians over the age of 40 are are antirefl ective familiar with the Varilux brand. The brand * IMF ranking in 2010. portfolio is being continually expanded with 34 ESSILOR 2010 premium products, like the Varilux Physio New Edition and Varilux Comfort New Edition, which were launched in summer 2010 during a road- show that brought together 20,000 opticians and ophthalmologists in 40 cities throughout Essilor in Brazil the country. Production: Essilor Da Amazonia plant in Manaus Antirefl ective and polarized Distribution of fi nished and semi-fi nished lenses: lenses: new growth drivers • 1 subsidiary in Rio de Janeiro Building on its success in the progressive lens • Group Brazil Optical (GPO) in São Paulo since 2009 market, Essilor has now shifted a substantial 5 antirefl ective coating centers portion of its marketing resources to high value 6 partner laboratories: added products with strong growth potential, • Unilab (northeastern Brazil) since 2008 such as antireflective lenses, which have a market penetration rate of 24%, and polarized • Technopark (São Paulo) since 2009 lenses. In the premium segment, the antirefl ec- • Ceditop (Rio Grande do Sul) since 2010 tive lens portfolio is built around three products: • Embrapol Sul (Paraná) since 2010 Crizal Easy, Crizal Alizé+ and, more recently, • Tecnolens (Bahia) since 2010 Crizal Forte, which was successfully introduced • Farol (Rio Grande do Sul) since 2010 in 2009. The fi rst polarized lens – Xperio – was introduced in spring 2011. ESSILOR 2010 35 SPECIAL REPORT BRAZIL:BRAZIL SUCCESSESUCCESSESS AND OPPORTUNITIES 82% OF BRAZILIANS OVER THE AGE OF 40 RECOGNIZE THE VARILUX BRAND Brasilor, for a rapidly growing 193 middle class million To support the rapid growth of the middle class, which already accounts for more than people Brazil is one of the most half of the Brazilian population, Essilor has for the past ten years or so been developing promising optical markets. a mid-range product line with advanced Essilor has been present for more than 30 years. functions called Brasilor. For this segment, a 53% line of popular-priced progressive lenses has of Brazilians been launched: Espace Plus, Espace Digital and Espace Short. Constantly renewed in response are middle to changing consumer patterns, the line was opticians, while expanding its distribution class expanded in 2010 with the Optikôt Easy Clean network and improving its logistics coverage in antireflective lens and today accounts for 65% a country that covers 8.5 million square kilom- of Essilor’s unit sales in the country. eters. In return, they help partner laboratories to improve their performance and provide them with access to the market’s most advanced Faster development technologies. Six partnerships with leading of partnershpartnershipsi laboratories have been created since 2008, of The acquisitionacquisition of majority interests in which four in 2010 alone: with Ceditop and iindependentndependen laboratories has been a Farol in the Rio Grande do Sul region, Embrapol keykey componentcom of the Company’s Sul in the Paraná region and Tecnolens in strategystrate in Brazil since 2008. Bahia. Essilor also acquired a majority stake TheseThes transactions provide in GBO, an important distributor of finished EssilorEssi with a means of accel- and semi-finished lenses based in São Paulo. eratingera the deployment of Together, these developments have added itsits products and services to some 600 people to the workforce. 366 ESSILORESSSILOR 20201010 A great place to work In 2010, Essilor was named a Great Place to Work, an annual award presented to the 25 most outstanding employers in Rio de Janeiro. Essilor was one of ten companies to have received the award three or more years in a row. In Brazil, Essilor is backed by the energy and enthusiasm of its 1,991 employees. A commitment to helping the poverty stricken 110 In this fast-growing country, a large portion of million the population lives in sub-standard conditions. Close support for customers and partners In lines with its core value of respect for people people suff er operation, providing and its corporate mission of enabling people to from faulty advice and technical enjoy a better life through better sight, Essilor vision of assistance to customers created Instituto Varilux de Visao. In addition via a toll-free hotline. which Customer warranties to training initiatives, the Institute works were introduced in with local partners (municipal authorities, 1997. Essilor has also ophthalmologists and opticians) to develop developed the Varilux programs mainly targeting children. The 77 Especialista program, which brings together programs involve screening, eye examina- million 2,500 of the country’s tions and the provision of corrective eyewear have been leading independent if necessary. A specially equipped van also Essilor created its opticians, and Clube fi tted with fi rst customer service de Prêmios, a loyalty travels to the most underprivileged parts of enter in 1990. In 2010, program for opticians the country. These initiatives involve a large corrective eight centers were in and sellers. number of Essilor volunteers, who also take eyewear part in nationwide programs organized by the Special Olympics and Helen Keller Worldwide. ESSILOR 2010 37 SUSTAINABLE DEVELOPMENT SHARED COMMITMENTS SEEING THE WORLD BETTER: OUR CONTRIBUTION Five Social Responsibility Indexes TO SUSTAINABLE The Company is DEVELOPMENT included in fi ve social responsibility Good eyesight supports the indexes: development of individuals – ASPI Eurozone®, and society, providing access – ECPI® Ethical Index EURO®, not only to education, culture – FTSE4Good, and jobs but also to beauty – Dow Jones and well-being. Sustainability Indexes Essilor’s mission of enabling people around – Ethibel the world to see better by providing them Excellence. with lenses adapted to their needs is perfectly aligned with its sense of responsibility with regard to sustainable development. Today, there are 2.4 billion people whose vision problems BEFORE 2000 remain uncorrected because they have little Created from the merger of Essel and Silor in 1972, Essilor inherited or no access to eyecare professionals. the entrepreneurial culture of its founding companies. An integral part of its genetic code, this commitment to meeting business, Since its creation, Essilor has resolutely economic and human needs is instilled in each company that joins pursued sustainable growth by designing the Essilor organization, in particular through employee shareholder products adapted to each market, forging schemes that create a sense of ownership rather than just a sense local partnerships, integrating team members of belonging. while respecting their cultural diversity, With the invention in 1959 of the ORMA® plastic lens, which has gradually and preserving the environment through replaced the glass lens, Essilor has provided wearers with greater safety the sensible use of resources and energy. This and comfort. This mini-revolution has also reduced its consumption of chapter reviews the past ten years of our natural resources and energy – and therefore the environmental footprint responsible commitments. left by the Company’s manufacturing operations. 38 ESSILOR 2010 SUSTAINABLE DEVELOPMENT 2002 2005 Based on product life cycle analyses, the fi rst eco-design Essilor publishes its fi rst social Th e fi rst in-house Lens Awards are held. and eco-effi ciency training and environmental responsibility programs are organized. report in compliance with France’s Th e prize recognizes best sustainable Hundreds of researchers will Corporate Governance Act (NRE). development practices promoted take part in these programs. by the Company’s employees in four areas – economic, societal, social and All of the Company’s upstream environmental. Th e winners are chosen production plants are certifi ed by a panel of judges, most of them from to ISO 14001 environmental 2003 outside the organization. standards. Essilor is one of the fi rst French companies to pledge its support for the ten 2006 principles of the United Nations In India, the partnership with Global Compact. Aravind Eye Care System and Sankara Nethralaya is pursued. Mobile units equipped with vision A Project Health and Safety guide screening equipment and lens and charter are published for use edging and mounting instruments within the Company, thereby travel the country conducting formalizing Essilor’s commitment to eye examinations and providing the environmental, health and safety corrective eyewear. To date, tens aspects of project management. of thousands of people have benefi ted from this program. A system for gathering non- The Company’s fi rst medium- fi nancial data is introduced and the Van loaded with vision screening equipment term Environment, Health scope of reporting is expanded. travelling the countryside in India. and Safety plan is launched. 2004 2007 Essilor publishes Seeing the World Th rough its Adopt a School and Kids Vision for Life programs, the Essilor Better 2003: Our Contribution to Sustainable Development, its fi rst Vision Foundation works with local professionals to organize vision report of non-fi nancial data prepared screening initiatives and provide corrective eyewear for underprivileged in accordance with Global Reporting US schoolchildren. Initiative guidelines that take into account a company’s economic, All of the Company’s upstream production plants are certifi ed to OHSAS 18001 environmental, social and societal workplace health and safety standards. performance. Essilor publishes its fi rst rating prepared in accordance with the Global Initiatives are launched with a number Value® model, which combines fi nancial and non-fi nancial performance of concerned stakeholders, including indicators. The rating concludes that Essilor’s corporate governance system the World Health Organization and and environmental and social commitments create considerable value UNESCO. for the Company. ESSILOR 2010 39 SUSTAINABLE DEVELOPMENT 2008 2009 Essilor is invited to take part in the Enterprise Th rough actions to optimize consumption, reduce waste and Poverty Chair project launched by and train employees, the Change Accelerating Program the HEC business school and Danone. The purpose of the project is to support reduced the amount of water and electricity needed for lens initiatives, along with other companies, that production by more than 10% between 2006 and 2008. provide easier access to goods and services for certain demographic groups. Optical schools are opened in Africa as part of the UNESCO/Essilor International Vision and Development Forums. Held on World The Essilor Vision Foundation receives an Award Sight Day in 2004 (Paris), 2005 (Dakar) and 2006 (New Delhi), of Excellence from the Center for Nonprofi t the Forums are organized for education and eyecare professionals Management in Dallas, Texas, in recognition who are committed to primary education for everyone, the of its eff orts on behalf of tens of thousands second of the United Nations’ Millennium Development Goals. of needy American children. 2010 Essilor extends its partnership with Lions Club International (LCI). For several years, the Company has provided corrective lenses to disabled athletes through the Special Olympics program. Essilor signs a new agreement with LCI to set up optical equipment dispensaries in Lions Club hospitals around the world, beginning with six African countries: Ethiopia, Tanzania, Uganda, Kenya, Mali and Cameroon. The agreement is signed in Paris by Xavier Fontanet, Chairman of Essilor, and Al Brandel, Chairman of Lions Club International. 40 ESSILOR 2010 Snapshots MADAGASCAR ¸:KDWFRXOGEHPRUH ZRQGHUIXOWKDQWKHVPLOH RIDFKLOGZKRVHHPVWR EHGLVFRYHULQJWKHZRUOG UVW DURXQGKHUIRUWKHß WLPH"¶ Pierre, Optician As partner to the Lions First Sight Madagascar association, Essilor helped to set up an eyeglass dispensary at the Antananarivo Hospital cataract to carry surgery center in 2005. Essilor trains local staff out eye examinations and make glasses, while Lions Club International selects dispensary patients based on their fi nancial resources. Public schoolchildren from Antananarivo and its surroundings also come to the dispensary after preliminary screening by their teachers. Nearly 10,000 pairs of glasses have been distributed each year since the program was launched. ESSILOR 2010 41 FINANCIAL RESULTS A YEAR OF DYNAMIC GROWTH In 2010, Essilor returned to dynamic growth led by new product launches and assertive expansion into new territories. Here are the year’s highlights and key figures. 42 ESSILOR 2010 FINANCIAL RESULTS Revenue by business 91.5% Lenses and optical instruments n 2010, the ophthalmic optics industry maintained its momentum in fast-growing €3,892m Ieconomies and began to recover in developed markets. In this environment, Essilor leveraged its capacity for innovation and highly effi cient manufacturing base and distribution networks 4.8% 3.7% to strengthen its positions in the premium Readers Equipment segment and accelerate the deployment of mid-range products. The Company also took Optical lenses and instruments are Essilor’s core business. In 2010, advantage of a strong balance sheet to step up the Readers Division was created to integrate FGX International, its acquisitions strategy, enabling it to penetrate which produces non-prescription glasses. The Laboratory Equipment new segments and expand its coverage of fast- Division is comprised mainly of Satisloh, which designs and markets surfacing machines and antirefl ective coating units. growing markets. The year’s highlights included: – a 19.1% increase in revenue; – a signifi cant rise in unit sales; – the launch of 240 products across all market segments; – the successful rollout of the new Varilux fast-growing markets) that represent full-year Physio 2.0 and Comfort New Edition progres- revenue of €432 million; sive lenses; – the Company’s continuing geographic expan- – a solid performance by the Laboratory Equip- sion, particularly in Latin America, China and ment and Instrument Divisions; India; – the integration of FGX International, the world – an 18.9% increase in operating margin to leader in non-prescription reading glasses, and €705 million and a contribution margin that Signet Armorlite, the exclusive manufacturer was maintained at a high 18.1% of revenue; and distributor of Kodak-brand lenses; – a 16.6% increase in earnings per share; – the ongoing acquisition program with – an 18.6% rise in the dividend to €0.83 per 29 transactions during the year (12 in share. ESSILOR 2010 43 FINANCIAL RESULTS Revenue: Essilor generates Lenses and optical instruments its strongest growth in the past 15 years revenue by region 3,892 +19.1% €1,402m €1,516m 36% 38.9% 3,268 3,074 Sales rose by 3% like-for-like. Changes in the scope of consol- idation accounted for 10.4% of €450m reported growth, of which 7.3% 11.6% for the consolidation of FGX Inter- national and Signet Armorlite, and 3.1% provided by partnerships €194m and bolt-on acquisitions signed 5% in 2009 and 2010. The 5.7% posi- tive currency effect was due to an increase against the euro of the Company’s billing currencies. 2008 2009 2010 in € millions and as a % of consolidated total in € millions Change in revenue, 2009-2010 Contribution from operations (1) 3,892 18.1% 18.1% +19.1% 17.9% +5.7% +7.3% 705 +18.9% 593 551 +3.1% 3,268 +3.0% In 2010, thanks to its strong operating performance, Essilor maintained its contribution margin(1) at a high 18.1% despite the dilutive impact of small acquisitions. 2008 2009 2010 in € millions and as a % of revenue 2009 Like-for-like Bolt-on Strategic Currency 2010 revenue change acquisitions acquisitions eff ect revenue in € millions and as a % of growth (1) Operating profit before compensation costs of share-based payments, restructuring costs, other income and expense, and goodwill impairment. 44 ESSILOR 2010 FINANCIAL RESULTS Sharp increase in attributable profi t Earnings per share 12.4% 11.9% 11.9% 2.20 +16.6% 1.85 1.89 462 +18.2% 391 382 Earnings per share rose slightly less than attributable profit because of the increase in the average number of shares during the year. 2008 2009 2010 2008 2009 2010 in € millions and as a % of revenue in euros Financial investments A solid balance sheet to fi nance growth 3,044 2,735 Shareholders’ 539 equity 2,366 457 296 Net debt (cash) Financial investments net of cash 112 acquired rose considerably, due 153 in particular to the acquisitions 0 of FGX International and Signet Armorlite, which accounted Essilor has very little debt, for €418 million out of a total (93) with a net-debt-to-equity rate of €539.2 million. of just 10%. 2008 2009 2010 2008 2009 2010 in € millions in € millions 124 480 7.6 million euros million euros million shares Capital expenditure increased by 7% Free cash fl ow (net cash were bought back in 2010. These buybacks off set for the year. Of the total, 45% was allocated from operating activities the dilutive impact of employee stock option plans to prescription laboratories for the purpose less net capital expenditure and the issue of shares on conversion of OCEANE of increasing digital surfacing and multilayer cash) increased by 23% bonds, which reached maturity in July 2010. coating capacity. in 2010. Overall, the number of shares net of treasury stock declined by 1%. ESSILOR 2010 45 FINANCIAL RESULTS A GROWTH SHARE With the increase in the share price, Essilor’s market capitalization rose to more than €10 billion, making it the 22nd largest company in the CAC 40 index in terms of free fl oat. Essilor also organized an Investor Day to present its growth strategy in detail and hosted a tour of one of its production facilities. €0.83 In line with 2010’s solid A majority of non-French results, the resident investors dividend will The growing percentage of non-French be raised by resident investors represented the year’s 18.6% to €0.83 most important change in the Company’s per share shareholder structure. Backed by an assertive policy, employees also increased their holding in Essilor’s capital. Held on December 10 in Paris, Investor Day provided an opportunity for fi nancial analysts and investors to meet Shareholder structure Institutional investors by region with members of the Essilor Executive Committee. by type of investor December 31, 2010 December 31, 2010 26.7% French-resident 4.4% 1.3% institutional investors Rest of the world Meeting with investors Treasury stock 33.6% 8.2% 24.9% France In 2010, Essilor reinforced its fi nancial commu- Essilor employees North nication. In addition to fi ling regulatory docu- America ments as required and holding meetings with 10.3% analysts to discuss the Company’s results, Retail investors 8.1% senior management also met with investors at 53.5% Rest of roadshows and dedicated conferences. Non-French resident Europe 29.0% institutional investors United Kingdom 46 ESSILOR 2010 FINANCIAL RESULTS Essilor and CAC 40 index performance Share information The Essilor share is included in seven leading stock market indexes: 120 The Essilor share consistently Essilor share CAC 40 CAC 40 / Euronext 100 / outperforms the CAC 40 index Euronext FAS IAS® / ASPI (Vigeo rating agency) / FTSE4Good / DJSI / Low Carbon 100 Europe® 100 The shares are eligible for the SRD deferred settlement system and for PEA equity savings plans. Main codes and 80 symbols: ISIN: FR0000121667, Reuters: ESSI.PA, Bloomberg: EI.FP. 60 +20% +2% +19% Shareholders and investor 40 contacts 2008 2009 2010 2011 Véronique Gillet, Share price: base 100 at January 1, 2008 Senior Vice President, Investor Relations In 2010, the Essilor share rose by 15.4 %, Sébastien Leroy, Financial Communications outperforming the NYSE-Euronext Paris bench- 15% Manager mark index for the fi fth time in six years. The average annual outperformance was 70% for the period and Phone: shareholder return +33 (0) 1 49 77 42 16 42.6% between 2008 and end-2010. for the past 25 years. Mail adress: [email protected] Financial in € 2010 2009 2008 2007 2006 information High 51.17 42.00 44.39 47.50 42.67 www.essilor.com “Shareholders” and Low 40.84 26.08 26.87 40.10 33.32 “Publications” sections Closing on December 31 48.17 41.75 33.57 43.65 40.72 Market capitalization at December 31 (in € millions) 10,196 8,997 7,084 9,066 8,430 Dividend 0.83 0.70 0.66 0.62 0.55 Number of shares at December 31 211,655,342 215,509,972 211,019,922 211,279,315 207,696,872 ESSILOR 2010 47 FINANCIAL RESULTS 2006–2010 Key Figures In € millions 2010 2009 (1) 2008 2007 2006 Income statement Revenue 3,892 3,268 3,074 2,908 2,690 Gross margin (2) as a % of revenue 55.5 56.1 56.9 57.6 58.2 Operating expense as a % of revenue 37.4 37.9 39.0 39.4 40.3 Contribution from operations (3) 705 593 551 527 483 Contribution from operations as a % of revenue 18.1 18.1 17.9 18.1 17.9 Operating profi t 618 550 515 505 461 Net profi t attributable to equity holders of Essilor International 462 391 382 367 329 Net margin 11.9 11.9 12.4 12.6 12.2 Cash fl ows Net cash from operating activities 619 510 497 492 451 Purchases of property, plant and equipment and intangible assets 140 125 184 228 205 Acquisitions of fi nancial investments (4) 888 229 570 188 37 Dividends paid (5) 146 136 129 113 96 Balance sheet Equity attributable to equity holders of Essilor International 3,001 2,713 2,351 2,156 1,881 Intangible assets and property, plant and equipment, net (excluding (1) Adjusted for acquisition- non-current fi nancial assets) 2,900 2,085 1,974 1,453 1,264 related costs in accordance Borrowings 688 365 650 468 450 with IFRS 3. Net debt 296 (93) 112 (260) (210) (2) Revenue less cost of sales. (3) Operating profit before Ratios (as a %) compensation costs of share- Return on assets (ROA) 18.2(6) 20.3 20.8 26.9 27.9 based payments, restructuring costs, other income and Return on equity (ROE) 15.5 14.6 16.4 17.1 17.5 expense, and goodwill impairment. Net debt (cash) to equity (9.9) 3.4 (4.7) 12.0 11.1 (4) Including buyback of Per share data (in €) treasury stock and OCEANE convertible bonds. Net assets (7) 14.58 12.97 11.43 10.39 9.21 (5) Dividends paid out of Basic earnings per share 2.20 1.89 1.85 1.78 1.61 prior-year profit by Essilor International. Diluted earnings per share 2.18 1.88 1.81 1.74 1.55 (6) Including FGXI and Signet Net dividend 0.83 0.70 0.66 0.62 0.55 Armorlite acquired in 2010. Other (7) Equity including minority interests / Number of shares Employees 42,704 34,759 34,320 31,534 29,288 net of treasury stock. (8) Number of shares at December 31 211,655,342 215,509,972 211,019,922 211,279,315 207,696,872 (8) Including treasury stock. 48 ESSILOR 2010 For more information Web site: www.essilor.com 2010 Registration document available on request from Essilor headquarters and can be downloaded from www.essilor.com Crizal®, Crizal® Alizé®, Crizal Easy™, Crizal Forte®, Crizal® Sapphire™, Essilor®, Essilor® Azio® 360°, Eyecode™, Kappa Ultimate Edition™, M’Eye Touch™, Mr Blue®, Varilux®, Varilux Comfort®, Varilux Comfort® New Edition, Varilux® India 360°™, Varilux Physio®, Varilux Physio 2.0®, Varilux Physio® Enhanced, Varilux® Kan, Vision Haute Résolution™, Visioffi ce®, W.A.V.E. Technology™, Xperio® are trademarks fi led or registered in the name of Essilor International. Anateo®, Anateo® Mio, Neva® Max are trademarks registered in the name of BBGR. Transitions® is a trademark registered in the name of Transitions Optical Inc. Global Value® is an analysis model registered by BMJ Ratings. Kodak is a brand fi led by Kodak, used under license agreement by Signet Armorlite, Inc. Microvision and LightSpecs™ are trademarks owned by FGX International. Photo credits: Essilor International / Satisloh / FGX International / Signet Armorlite photo library – © Paulowilliams, Créafi lm / © Chad Ehlers – Getty / © Kaos03 – Sime – Photononstop / © Frans Lanting – Corbis / © Pascal Aimar – Tendance fl oue / © Hydris Mokdahi The Essilor International 2010 Annual Report was designed and produced by the Investor Relations and Financial Communication Department and by Essilor International 147, rue de Paris I 94220 Charenton-le-Pont I France Phone: +33 (0)1 49 77 42 24 I www.essilor.com 6HHLQJWKHZRUOGEHWWHU &UpGLWSKRWR &RUELV*HWW\LPDJHV 6HHEHWWHUWRSHUIRUPEHWWHU 7RGD\¶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