2007 Results
1 ¾ Introduction Xavier Fontanet
¾ 2007 Results Philippe Alfroid
¾ Essilor in Asia Patrick Cherrier
¾ Strategy and Outlook Xavier Fontanet
2 2007 Results Philippe Alfroid
3 Essilor in 2007
¾ Strong growth in unit sales
¾ Excellent profitability
¾ Faster acquisitions-led growth
4 Financial Highlights
€ millions 2007 2006* % Change
Revenue 2,908.1 2,690.0 +8.1% +8.0% l-f-l
Contribution from operations** 527.4 482.6 +9.3% % of revenue 18.1% 17.9%
Operating profit 504.6 460.5 +9.6%
Attributable net profit 366.7 328.7 +11.6% % of revenue 12.6% 12.2%
EPS (in €) 1.78 1.61 +10.8%
*2006 and 2005 figures have been adjusted for the option of recognizing actuarial gains and losses on pensions and other post-retirement benefits directly in equity. This had the effect of reducing operating expense by €0.6 million. **Operating profit before share-based payments, restructuring costs and other non-recurring items, and 5 goodwill impairment. 2007 Revenue Up 12% at Constant Exchange Rates
€ millions 106.5 (103,0)
214.6 +4.0% -3.8%
+8.0% 2,908.1
+12% +8.1% 2,690.0
2006 2007 2007 2007 2007 Organic Scope of Currency growth consolidation effect
6 2007 Organic Growth Up 8 %
In % 10
8.1% 8.0% 8 7.0% 6.5% 6.0% 6
5.6% 5.8% 5.2% 4 4.2% 4.3%
2
0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
7 Sales in Europe In €m - Like-for-Like Growth: 6.2%
¾ Sustained robust +6.2% growth +6.6% +2.4%
¾ Strong sales of 1,317 progressives 1,208 1,120
¾ Good performance in Germany, Southern Europe and Eastern Europe 2005 2006 2007
8 Sales in North America In €m - Like-for-Like Growth: 8.1%
¾ US prescription +8.1% laboratories reported +9.4% very strong growth +6.5% ¾ Major price-mix effect 1,214 ¾ Definity® 1,157 ¾ Anti-reflective coatings 1,025 ¾ Variable-tint lenses
¾ Good performance in Canada 2005 2006 2007
9 Sales in Asia In €m - Like-for-Like Growth: 13.4%
+13.4% ¾ China, India and ASEAN countries all +8.7%
enjoyed very strong +12.2% growth 267 233 ¾ New market share 202 gains in Japan
2005 2006 2007
10 Sales in Latin America In €m - Like-for-Like Growth: 15.6%
¾ Very good year in Brazil ¾ New anti-reflective +15.6% coating facility ¾ First prescription +10.4% laboratory acquisition +18.1% 110 ¾ Firm growth in Argentina 92 77 ¾ Sustained recovery in Mexico
2005 2006 2007
11 2007 Highlights
Products ¾ Unit sales up 5%; price-mix added 3% ¾ Fast growth in progressive lenses (Varilux Physio®, Anateo® and Definity®) ¾ Strong growth in MHI materials, anti- reflective lenses and variable-tint lenses
12 Contribution Margin Up 0.2 pts (1/2)
€ millions In % 2,908 3000 22% 2,690 2,424 20% 2,260 2,070 2,138 2,116 1,978 18% 2000 17.9% 1,662 18.1% 17.2% 17.9% 1,563 17.3% 16% 15.9% 16.2% 14.4% 15.0% 14% 1000 13.8% 13.9% 12%
10%
0 8% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Revenue Operating margin IFRS contribution margin
13 Contribution Margin Up 0.2 pts (2/2)
€ millions 2007 2006*
Revenue 2,908.1 2,690.0
Gross margin 1,674.1 1,566.9 % of revenue 57.6% 58.2%
Operating expense 1,146.7 1,084.3 % of revenue 39.4% 40.3%
Contribution from operations (1) 527.4 482.6 % of revenue 18.1% 17.9%
*2006 and 2005 figures have been adjusted for the option of recognizing actuarial gains and losses on pensions and other post-retirement benefits directly in equity. This had the effect of reducing operating expense by €0.6 million. **Operating profit before share-based payments, restructuring costs and other non-recurring items, and 14 goodwill impairment. Analysis of gross margin and contribution margin
+ 0.1% -0.7%
Gross margin 58.2% 57.6%
+ 0.6% -0.4%
Contribution 17.9% 18.1% margin
2006 Core business Acquisitions 2007
15 Attributable Net Profit Up 11.6%
€ millions 2007 2006* % Change
Contribution from operations** 527.4 482.6 +9.3%
Other income and expense (22.8) (22.1)
Operating profit 504.6 460.5 +9.6%
Finance costs, net (6.5) (19.9) Income tax expense (155.9) (137.5) Effective tax rate 31.3% 31.2%
Share of profits from associates 28.7 28.5
Profit attributable to equity holders 366.7 328.7 +11.6% As a % of revenue 12.6% 12.2%
*2006 and 2005 figures have been adjusted for the option of recognizing actuarial gains and losses on pensions and other post-retirement benefits directly in equity. This had the effect of reducing operating expense by €0.6 million. **Operating profit before share-based payments, restructuring costs and other non-recurring items, and 16 goodwill impairment. Other Income and Expenses
€ millions 2007 2006
Restructuring/reorganization costs (1.0) (2.7)
Compensation costs on share-based payments* (16.2) (11.2) ESOP share discounts (4.0) (4.9)
Goodwill impairment losses (2.3) (2.9) Other 0.7 (0.4)
TOTAL (22.8) (22.1) * Stock options and performance shares 17 Finance Costs and Other Financial Income and Expense
€ millions 2007 2006 Finance costs (30.0) (26.1) Financial income 32.9 20.1 Amortization of OCEANE issue premium (IFRS) (5.7) (4.4) Finance costs, net (2.8) (10.4) Impairment of securities (1.9) (2.4) Exchange gains and losses and impairment of financial instruments (2.9) (5.7) Dividends and other 1.0 (1.4) TOTAL (6.5) (19.9)
18 Share of Profits of Associates
€ millions 2007 2006
VisionWeb 0 0
Sperian 8.8 6.3
Transitions 19.9 22.2
TOTAL 28.7 28.5
19 Currency Impact on Key Figures
2007 2007 Actual € rate 2006 € rate
Revenue 2,908.1 +8.1% 3,011.1 +11.9% Contribution From Operations 527.4 +9.3% 547.3 +13.4% As a % of revenue 18.1% 18.2%
Profit attributable to equity holders 366.7 +11.6% 380.0 +15.6% As a % of revenue 12.6% 12.6%
20 Consolidated Inventory Up 5.4% Like-for-Like
€ millions In %
394 400 8.00 365 371 345 351 350 326 325 319 311 306 7.50 300 284 7.40 7.00 7.25 250 7.08 7.20 200 6.80 6.50 6.64 6.58 150 6.00 100 5.51 5.90 5.10 5.50 50 5.74
0 5.00 1998 1999 2000 2001 2002 2003 2004 04 IFRS 2005 2006 2007
Inventory Turnover
21 Net Capital Expenditure
€ millions 250 10, 0% 224
9, 0% 200 192 9.1% 158 174 8.5% 7.7% 152 155 8, 0% 150 140 140 133 8% 120 7, 0% 7.2% 7.1% 100 5.8% 6.9% 6.6% 6.5% 6, 0%
50 5, 0%
0 4, 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Capex % of revenue 22 A large number of acquisitions
4 Acquisitions 9 Acquisitions €80.5m €53.8m
2 Acquisitions €12.1m
1 Acquisition €0.3m
TOTAL = €146.7m Full-year revenue contribution = around €160m
23 16 transactions in 2007 (1/5) An active year in the United States…
Prescription laboratories: Distribution:
• Beitler McKee (January) •OOGP (May) • Personal Eyes (March) • KBco (October) • Sutherlin (June) • Dispensers (June) • Premier / Gold (November) • GK Optical (December)
24 16 transactions in 2007 (2/5) … and in the rest of the world
Canada: Cristal Optique (July)
25 16 transactions in 2007 (3/5) … and in the rest of the world
Europe:
• Novacel (January) • SentralSlip (September) • United (December) • Sinclair (December)
26 16 transactions in 2007 (4/5) … and in the rest of the world
Asia:
• ILT (May) • Nikon Beijing (May)
27 16 transactions in 2007 (5/5) … and in the rest of the world
Brazil: • Unilab (December)
28 Sustained Acquisitions Momentum in 2008
Already 6 transactions and €30 millions in acquired revenue
Target Consolidated Target Consolidated
North America Europe Interstate Optical (US) January Optymal (Bulgaria) February Rainbow (Porto Rico) February O’Max (Nederlands) March Westlab (Canada) February India 20/20 Rx Lens March
29 2007 Consolidated Cash Flow
€ millions
Capital expenditure 224
Cash flow
521 35 Increase in WCR
113 Dividends 262 151 Acquisitions Share issues 40 Currency and Scope 9 66 Share purchases OCEANE conversions 69 50 Increase in net cash position
30 Balance Sheet Structure at Dec. 31, 2007 Net cash/equity: 5.3% 3.2% 11% 12% € millions
2400
2000 2,168 1,892 1600 1,676 1,157 1,048 1200 938 1,339 1,392 1,209 1,214 1,210 800 321 400 143 164 164 97 466 -34 -54 -74 -210 -260 0 1998 1999 2000 2001 2002 2003 2004 2004 2005* 2006* 2007 -400 IFRS Net debt Equity
31 * 2005 and 2006 adjusted following the change in accounting method Shares outstanding
¾ New shares created ¾ On investment in the ESOP + 578,917 ¾ On exercise of stock options in 2007 + 931,122 ¾ On conversion of OCEANEs + 2,772,404 + 4,282,443 ¾ To offset the dilution ¾ Shares cancelled in November 2007 - 700,000 ¾ OCEANEs (share equivalents) redeemed - 800,000 - 1,500,000
¾ Treasury stock + 2,659,810
¾ Shares outstanding at December 31, 2007: 211,279,315
32 ROA: EBIT/Non-Current Assets and WCR ROA vs. total net assets € millions In %
30 2 000 24.8 28 26.8 26.9 25 21.2 25.7 24.1 1 500 18.3 14.7 16.9 20 15.7 15 1 000 1,783 2,007 10 1,105 1 340 1 529 1 545 1 417 1 352 1,355 1,376 1,710 500 5
0 0
2 S 007 1998 1999 2000 2001 200 2003 2004 FR 2005 2006 2 004I 2 Net assets ROA 33 Recommended Dividend Up 13%
€ millions In € 129
120 113 0,6 96 0.62 90 77 0.55 0,45 0.47 57 60 51 0,3 41 0.38 36 39 33 0.28 30 0.25 0.19 0.21 0,15 0.16 0.17 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Payout Dividend per share
34 * Adjusted for the 10-for-1 stock split in 2001 and the 2-for-1 split in 2007 2008 Outlook
¾ Introduction of Gen VI Transitions®
¾ Sustained acquisitions
¾ Emerging markets
35 Every year Essilor is becoming a little more Asian Patrick Cherrier
36 50% of the world’s population and 1/3 of the world’s lenses
KOREA Population: 48m JAPAN CHINA Population: 126m Population: 1,300m INDIA TAIWAN PopulatiPopulation:onon: :1.000m 1,000m1,000 m Population: 22m HONG KONG THAILAND Population: 7m Pop.: 62.8m PHILIPPINES MALAYSIA Population: 82m Pop.: 25m SINGAPORE Population: 4m INDONESIA Population: 225m
AUSTRALIA Population: 2,900 million Population: 20m Lenses: 310 million Wearers: 490 million – 17 % of total pop. NEW ZEALAND Replacement rate = every three years Population: 4m 37 A single region, five worlds…
KOREA CHINA JAPAN
TAIWAN INDIA HONG KONG
THAILAND PHILIPPINES MALAYSIA SINGAPORE INDONESIA
AUSTRALIA
NEW ZEALAND
38 Two markets
¾ Myopes
¾ Hyperopes
39 Myopes represent 2/3 of the market
KOREA JAPAN CHINA
INDIA TAIWAN HONG KONG PHILIPPINES THAILAND MALAYSIA SINGAPORE
INDONESIA
Myopes AUSTRALIA Hyperopes
NEW ZEALAND
40 Vision is generally tested in stores
KOREA CHINA JAPAN
TAIWAN INDIA HONG KONG THAILAND PHILIPPINES
MALAYSIA SINGAPORE
INDONESIA Store AUSTRALIA Optometrist
NEW ZEALAND
41 Asia represents ….
¾ Total lenses 33% ¾ Single Vision 41% ¾ BTF 31% ¾ PAL 17% ¾ MHI 60% ¾ Antireflective 56%
.…of lenses sold worldwide
42 A mixture of branded and low-cost products
- Volume: 310 million lenses - Branded: 21% Unbranded: 79% - 2/3 of units are sold in China and India
90% 90% 5% Branded Unbranded 90% 95% 95%
10% 10% 80% 75% 95% 90% 80% 10% 10% 75% 90% 70% 20% 10% 5% 25% 20% 25% 10% 30% 90%
China India Korea Japan Malaysia Indon Australia Thailand Taiwan Hong Kong Philippines Singapore NZ
43 Increasing the number of sales outlets 180 000 is the key to driving market growth
160 000 A potential for 300,000 new outlets,
140 000 as many as are currently operating
120 000
100 000 139,513
80 000 130,725
60 000
40 000 34,385 2,898 20 000
0 China India Asean + HK Japan Korea Australia / NZ
44 Current no. of sales outlets Potential no. of sales outlets Source: Info Marché 2006 In 20 years, 50% of global volumes will be sold in Asia
0.700
HK Singap 0.600 China 2025 China 2015 USA 0.500
capita Korea UK Aus Ger 0.400 Can Esp Swe Isr Ita Neth Jap Swi Slova Por Fin 0.300 Greece Fra Irl Aut Czech Dan Rep.. Nor Mal Arg Bel Ukr Pol 0.200 Russ Esto Bra Turk Lett Croa Aze Chile 0.7547
Lens purchased per Lens purchased Col y = 0.0002x 0.100 Bie S. Africa CHINA 2 Iran India 2025 R = 0.8207 INDIA Jor Per 0.000 Indo 0 5,000 10,000 15,000 20,000 25,000 30,000 India 2015 GDP per capita
45 Essilor covers the entire region…
JV KOREA Chemi CHINA Chemi JV JAPAN
JV TAIWAN INDIA HONG KONG THAILAND PHILIPPINES
MALAYSIA SINGAPORE
INDONESIA 16 subsidiaries
1 headquarters AUSTRALIA 51 labs
NEW ZEALAND
46 6,000 people distribute Essilor lenses
7000 5,806 5,497 6000 4,906 5000
4000 3,243
3000
2000
1000
0 2005 2006 2007 2008
47 Strategic building blocks
Branded products
Low-cost products
48 We want to be leader in both volumes and value
Nikon Essilor $$$
Chemi / OSA / ILT
49 Essilor operates in every channel
Lenscasters Labs and wholesalers MANUFACTURERS Essilor / OSA / Chemi / ILT
Essilor Nikon SURFACING LABS / Independent ILT / PPL WHOLESALERS labs/wholesalers
Integrated chains Independent RETAILERS retailers
50 Acquisitions and JVs in GKB India both channels TEC Aust
Vijay 2007 India 2006 ILT Nikon- Sing India Essilor 2005
Perkins 2004 Australia 2003 Polylite Hoya JV Taiwan terminated 2000 China Essilor Korea HKG Korea sold 1999 Taiwan closed 1998 Chemi Delta India Plant in City Optical 1996-97 OHL Thailand Australia 1991-93 New Zealand Indonesia 1987- 90 VisionLine China AG Thompson Australia 1985- 86 Singapore Direct Optical Hoya JV Thailand Australia 1979 Taiwan 2nd channel OSA 1967 Hong Kong Malaysia Plant in the South Korea Philippines Philippines 51 Australia A multi-channel strategy, illustrated with four business cases
¾ Singapore
¾ India
¾ China
¾ Korea
52 A multi-channel strategy, illustrated with four business cases
¾ Singapore
¾ India
¾ China
¾ Korea
53 2 channels
ESSILOR NIKON
PLASTIC PLUS
ILT
54 Strong positions in both channels
100
75 Marque
Sans Marque
37
24 17 12
Essilor Essilor group A B C D
55 A multi-channel strategy, illustrated with four business cases
¾ Singapore
¾ India
¾ China
¾ Korea
56 The Indian market
CAGR (%) 2004-07 CAGR = 4% (04-07) 83 90 79 73 76 80 +24% 14 17 70 9 11 ) n 60
illio 50 m n i 40 l (
o 64 65 65 65 +0.5%
v 30 20 10 0 2004 2005 2006 2007
Total Glass Total Plastic
57 A six-level approach
Essilor brands Vision Rx (Premium) Value Delta Lens
Beauty Glass Vision Rx Volume OSD Rural Marketing
58 Essilor in India
Total plastic labs: 81 Essilor labs: 31
Essilor plant Essilor lab Essilor distributor
59 Essilor in India – 10 year summary
61 Profitable from the first year 55
Volume x 55
Value X 61
1 1
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Volume Value 60 A multi-channel strategy, illustrated with four business cases
¾ Singapore
¾ India
¾ China
¾ Korea
61 The Chinese market
= 4% CAGR CAGR (%) 2004-07 121 (04-07) 115 109 109 0.4 +18% 120 7 0.3 +24% 0.3 0.3 6 45 100 ) n 42 80
illio 58 79 71 +24% m n
i 0.2
( 60 s
e 21
m 0.5
lu 40 1.2 19 1.8 +111% Vo 18 17 20 41 -6% 26 18 16 -27% 0 2004 2005 2006 2007
62 Glass CR39 PC 1,56 1.6, 1.67, 1.74 Photo Essilor multi-channel/ multi-brands in China
Polylite
Volume 63 Essilor is far ahead of the competition. No. 1 in each segment with a solid share of the market by value
100
MARQUE
SANS MARQUE
47
39 34 34 28 26 22 17
Essilor Essilor ABCDEFG Group Group 64 Growth in revenue and unit sales
Profitable from the first year
12
Volume x 12
Value x 8.5 8
1 1
1999 2000 2001 2002 2003 2004 2005 2006 2007
Value Volume 65 A multi-channel strategy, illustrated with four business cases
¾ Singapore
¾ India
¾ China
¾ Korea
66 Market potential in Korea
Portugal Korea
GDP per capita ($) 18,000 17,700
Population (m) 10.4 48.5
- Lenses per person per year 0.44 0.72 X 1.60
- € per person per year 18.40 4.90 / 3.7
Essilor knows how to work in very competitive environments
67 2 approaches
NIKON VARILUX
CHEMI (Topex)
68 Essilor is already market leader
1.6 + 13%
1.0 Growth in revenue
Others C B A Essilor Group
2003 2004 2005 2006 2007 100%
50%
Market share (% of unit sales) % .1% 7.9% 8.1 10 0% Unbranded Branded 69 Nikon-Essilor in Japan
70 Essilor is well positioned everywhere
KOREA CHINA JAPAN
TAIWAN INDIA HONG KONG THAILAND PHILIPPINES
MALAYSIA SINGAPORE
INDONESIA
AUSTRALIA No. 1 No. 2 No. 3 NEW ZEALAND
71 8 year summary with subsidiaries and JVs considered held at 100%
- Consolidated sales: €264m €358m - Average growth rate: 14%
- Average growth excl. Japan: 22%
2000 2001 2002 2003 2004 2005 2006 2007
Asia-Pacific Japan 72 Thank you
73 Strategy and Outlook Xavier Fontanet
74 ¾ Products
¾ Geographies
¾ Channels
¾ Acquisitions
¾ Human Capital
75 Products (1/5)
¾ Over the very long term, growth seems to be increasing
76 Lens Market Trends since 1977
900
750
600 s ece 450 o pi i M 300
150 TOTA L Glass 0 1,5 1977 MH I + P C 1987 1997 2007
77 Products (2/5)
¾ Over the very long term, growth seems to be increasing
¾ The product mix is having a powerful impact
78 Lens Market Trends Since 1977
50%
40%
30%
20%
10% % HMC
0% % Progressive
1977 % Photochromic 1987 1997 2007
79 Products (3/5)
¾ Over the very long term, growth seems to be increasing ¾ The product mix is having a powerful impact ¾ The product plan will be driven by technology and scientific advances
80 Products (4/5)
¾ Over the very long term, growth seems to be increasing. ¾ The product mix is having a powerful impact ¾ The product plan will be driven by technology and scientific advances ¾ Contact lenses/surgery
81 Products (5/5)
¾ Over the very long term, growth seems to be increasing ¾ The product mix is having a powerful impact ¾ The product plan will be driven by technology and scientific advances ¾ Contact lenses/surgery ¾ Organic growth will continue
82 Geographies
¾ Business is strong in every country ¾ Essilor is the local market leader everywhere, except Japan ¾ In 2007, Essilor grew faster than its two trailing competitors ¾ In developed markets, Essilor is going to focus on value and volume (5-6% growth) ¾ In emerging markets, Essilor is going to focus on volume and value (at least 15% growth) ¾ The growth model is going to last longer than you think
83 Channels
¾ Essilor’s distribution is much more multi-tiered than you think ¾ There is still a good balance between chains and independents ¾ The chains are tending to consolidate ¾ European chains have closed their labs, while the US chains are keeping theirs ¾ Essilor is adapting to the features of each customer, large and small… ¾ … from the fashionable streets of Tokyo to the Indian countryside
84 Acquisitions
¾ Acquisitions are now global in scope: ¾ 1995 – 2000: USA ¾ 2000 – 2005: USA + Asia-Pacific ¾ 2005 – 2010: Americas + Asia-Pacific + Europe
¾ Ophthalmic lenses
¾ 4% per year (excluding opportunities) seems sustainable.
85 Grow our human capital
¾ Train, share best practices, hire, assimilate
¾ Ensure the harmonious development of our corporate culture
¾ Confidently prepare successions with teams around the world
86 87