Essilor - First-Half 2010 Results

By Essilor, PRNE
Thursday, August 26, 2010

CHARENTON-LE-PONT, France, August 27, 2010 -

    - A Very Good First Half

    - Sharp Increase in Revenue: up 15.8%
    - High Contribution Margin Maintained, at 18.0% of Revenue
    - Adjusted Earnings per Share: up 17.6%
    - Strong Increase in Free Cash Flow: up 72%

The 2010 interim financial statements were approved by the
Board of Directors of Essilor International on August 26, 2010. These
financial statements have been audited and the Statutory Auditors have issued
an unqualified opinion thereon.

    EUR millions                   First-half 2010 First-half 2009  % Change

    Revenue                           1,926.8         1,663.4        +15.8%
    Contribution margin(1)              347.5           301.8(4)     +15.2%

    % of revenue                         18.0%           18.1%           -
    Profit attributable to equity       197.5           200.1         -1.3%
    holders of Essilor
    Adjusted attributable               238.8           200.1        +19.3%
    Earnings per share (in EUR)          0.94            0.97         -2.7%
    Adjusted earnings per share          1.14            0.97        +17.6%
    (in EUR)(2)
    Free cash flow(3)                     165              96          +72%

(1) Operating profit before compensation costs of share-based
payments, restructuring costs, other income and expense, and goodwill

(2) Adjusted for the EUR41.3 million net of tax provision set
aside for the fine imposed by the BKA, the German antitrust authority, which
the Company has appealed.

(3) Net cash from operating activities less purchases of
property, plant and equipment and intangible assets, according to the IFRS
consolidated cash flow statement.

(4) Adjusted for EUR0.9 million in non-capitalized costs
related to bolt-on acquisitions (application of revised IFRS 3).

In an ophthalmic optics market that is slowly but steadily
improving, Essilor continued to increase its global market share by
leveraging its innovative products and accelerating the deployment of its
targeted acquisitions strategy. For the period, the Company posted revenue
growth of 5.9% excluding the currency effect and strategic acquisitions, in
line with its full-year objective. Essilor also enhanced its competitiveness
through ongoing programs to optimize the production base and develop new
services for eyecare professionals.

First-half highlights

    - Integration of FGXI, the world leader in non-prescription
      reading glasses, and Signet Armorlite, the exclusive manufacturer and
      distributor of Kodak-brand lenses. Overall, these acquisitions were
      accretive to first-half consolidated earnings.
    - Successful new product launches, of which the Varilux Physio(R)
      2.0 lens in Europe and the United States, the Xperio(TM) polarized lens
      in Europe, and lenses produced using Eyecode(TM) technology around the
    - An increase in unit sales, reflecting the ramp-up of the
      Company's strategy of developing the mid-range product segment and
      rapid growth in emerging markets.
    - Accelerated deployment of the acquisitions strategy with 13 new
      partnerships that extend Essilor's geographical coverage.
    - High operating margin remained (contribution margin 18% of
      revenue) thanks to ongoing gains in operating efficiency.
    - Sharp increase in adjusted earnings per share.
    - A strong increase in net cash flow and a solid balance sheet.


The very good first-half results support Essilor's major
strategic choices. During the second half, in a still fragile business
recovery, Essilor will continue to implement its growth strategy, based on
new products, geographic expansion, bolt-on acquisitions and the mid-segment.
For 2010, the Company confirms its objectives of revenue growth of 5% to 7%
excluding the currency effect and strategic acquisitions, and a stable
contribution margin excluding strategic acquisitions and changes in IFRS.

Moreover, following the sale of its stake in Sperian
Protection, the Company will recognize an estimated EUR27-million
consolidated capital gain in the second half.


An analysts meeting will be held today, August 27, at 9:30 a.m. Paris

The meeting will be available live and recorded for later listening at:

The presentation will be webcast at:

Regulatory Information

The interim financial report is available at or by
clicking on:


Future event:

Third-quarter revenue will be released on Friday, October 22, 2010.


    The world leader in ophthalmic optical products, Essilor International
    researches, develops, manufactures and markets around the world a wide
    range of lenses to improve and protect eyesight. Its flagship brands are
    Varilux(R), Crizal(R), Essilor(R), Definity(R) and Xperio(TM).

    Based in France, the company reported consolidated revenue of more than
    EUR3.2 billion in 2009, with 34,700 employees and operations in 100

    For more information, please visit

    The Essilor share trades on the NYSE Euronext Paris market and is
    included in the CAC 40 index.

    Codes and symbols: ISIN: FR0000121667; Reuters: ESSI.PA;
    Bloomberg: EI:FP.


The 2009 financial statements have been adjusted following the
expensing of acquisition-related costs in accordance with revised IFRS 3.


    Revenue by division and by region

    (in EUR millions) H1 2010  H1 2009   % Change  Like-for-like Contribution
                                        (reported)    growth         from
    Lenses and       1,786.9  1,613.6    +10.7%        +2.5%         +4.1%
    Europe             707.6    665.1     +6.4%        +1.4%         +4.1%
    North America      776.4    718.1     +8.1%        +1.0%         +3.9%
    Asia-Pacific &     214.3    170.1    +26.0%        +8.0%         +4.8%
    Latin America       88.6     60.3    +47.1%       +16.6%         +5.0%
    Equipment           60.2     49.8    +20.8%        +8.8%        +12.1%
    Readers             79.7      -        N/M           N/M          N/M
    TOTAL            1,926.8  1,663.4    +15.8%        +2.7%         +9.1%

* Revenue from Signet Armorlite has been allocated by region.

Revenue rose 15.8% to EUR1,926.8 million in first-half 2010.
Excluding FGXI and Signet, revenue growth stood at 10%.

    - Like-for-like growth in first-half revenue came to 2.7%, which
      included increases of 2.5% in the first quarter and 2.9% in the second.
      This reflected growth of 2.5% in the Optical Lenses business and 8.8%
      in the Equipment business.

    - The 9.1% contribution from acquisitions corresponds to the
      bolt-on acquisitions carried out in 2009 and first-half 2010, for 3.2%,
      and the contribution of FGXI and Signet Armorlite, consolidated from
      March 12 and April 1, 2010 respectively.

    - The positive currency effect of 4% reflects the euro's decline against
      all the other currencies and particularly the Brazilian real,
      the Canadian dollar and the US dollar.

                             Performance by division

    Lenses and Optical Instruments

    Revenue growth was driven by an increase in sales volumes in all regions.

    - In Europe, where performances still vary considerably from
      one country to another, sales progressed overall by 1.4% like-for-like.
      France maintained strong momentum thanks to its multi-network strategy
      and business picked up in the Netherlands, but remained disappointing
      in Germany and Austria. Benefiting from Russia's rapid development,
      the Eastern European countries returned to growth.
    - Growth leveled off in North America (up 1.0% like-for-like). In
      the United States, all distribution channels contributed to growth in
      volumes, with a significant increase reported in sales of Xperio
      polarized lenses. Operating problems affected performance in Canada,
      in an already challenging environment.

    - In Asia, like-for-like growth of 8.0% was led by emerging
      markets. Essilor continued its rapid expansion in India, where it
      gained market share during the period, as well as in the ASEAN
      countries, particularly Thailand and Indonesia. Business in China was
      stimulated by improvements in the product mix, while sales contracted
      in Australia and New Zealand in a difficult market environment.

    - Countries in Latin America recorded significant growth in
      the first half, with revenue for the region up 16.6% like-for-like. In
      Brazil, the mid-range segment benefited from an increase in volumes and
      higher demand for anti-reflective lenses, and Mexico and Argentina both
      reported very strong growth.


    - The Equipment division began to recover sharply in the first
      half of 2010, with revenue up 8.8% like-for-like excluding intragroup
      sales. Satisloh sales were particularly robust in the area of
      consumables and digital surfacing machines. Business is developing
      rapidly in Asia, particularly in China where Satisloh now has a
      dedicated product offering.


    - Recently created following the acquisition of FGX International, the
      Readers division[1] performed very well. The second
      quarter saw particularly strong sales of sunglasses, which dominate
      demand at that time of year.
                  Second quarter: continued recovery in growth

    Revenue             Q2 2010  Q2 2009  % Change Like-for-like Contribution
                                                      growth         from
    (in EUR millions)                        as                 acquisitions*
    Lenses and Optical   923.0    797.7    +15.7%      +2.3%         +5.2%
    Europe               362.3    335.1     +8.1%      +2.1%         +5.0%
    North America        400.7    345.7    +15.9%      -0.2%         +5.2%
    Asia-Pacific &       111.2     84.5    +31.6%      +7.5%         +4.3%
    Latin America         48.8     32.5    +50.1%     +17.6%         +6.2%
    Equipment             36.6     25.4    +44.2%     +20.5%        +23.7%
    Readers               61.3        -      N/M        N/M           N/M
    TOTAL              1,020.9    823.1    +24.0%      +2.9%        +13.2%

* Revenue from Signet Armorlite has been allocated by region

Consolidated revenue for the second quarter alone stood at
EUR1,020.9 million, up 24% year-on-year as reported and 2.9% like-for-like.
The integration of FGXI and Signet, as well as new partnerships, brought the
contribution from acquisitions to a high 13.2%. All currencies contributed to
the significant 7.9% positive currency effect.

The trends observed during the quarter varied between regions, with:

    - A slight improvement in Europe.
    - Stable demand in the United States and operating problems in Canada.
    - Continued sharp growth in Asia, except for Australia and Japan.
    - Very strong demand in Latin America.
    - A sharp recovery in the Equipment business.

13 new partnerships and 2 strategic acquisitions in first-half 2010

During the first half of 2010, Essilor acquired or increased
its holding in 13 companies, representing additional revenue of around EUR80
. Transactions were carried out in all regions:

    - In the United States, Essilor of America acquired a stake in
      two prescription laboratories- Hawkins in Kansas ($4.5 million in
      revenue) and Epic Labs in Minnesota ($3 million). EOA also acquired the
      assets of Custom Optical (Georgia, $2.5 million). Nikon-Essilor
      increased its stake in the Encore prescription laboratory (Connecticut,
      $4 million) through its US subsidiary.

    - In Canada, Essilor acquired a majority stake in Cascade, a
      prescription laboratory in the province of British Columbia (C$6
      million), and in Econo-Optic, a laboratory based in New Brunswick
      (C$0.7 million).

    - In Brazil, the Company acquired an interest in Ceditop, a
      prescription laboratory and distributor in the state of Rio Grande do
      Sul, with annual revenue of around EUR3.5 million (BRL8 million).

    - In China, a majority stake was acquired in ILT Danyang,
      which produces lenses for both the domestic market and for export.

    - In Singapore, the Company acquired Visitech, a distributor
      that generates around EUR0.7 million in annual revenue.

    - In Taiwan, a majority stake was acquired in SMJ, a
      prescription laboratory and distributor with EUR1.6 million in revenue.

    - In the United Arab Emirates, Essilor become the majority
      shareholder of Ghanada Opticals, a prescription laboratory based in Abu
      Dhabi, which serves the United Arab Emirates and the other Gulf states
      and generates EUR2 million in revenue.

    - In Australia, Essilor became a 70% partner in a joint venture with
      Luxottica, which owns the Eyebiz laboratory.

    - In the Equipment division, the Company acquired a 60% interest in DAC
      Vision, one of the world's leading manufacturers of
      consumable supplies for surfacing, coating and mounting lenses, which
      generates around EUR30 million in revenue, mainly in France and the
      United States.

Since the beginning of the year, Essilor has also made two
strategic acquisitions: FGX International, the North American leader in
non-prescription reading glasses with $259 million in 2009 revenue, and
California-based Signet Armorlite, one of the largest independent
manufacturers of ophthalmic lenses and the exclusive producer of Kodak-brand
lenses, with 2009 revenue of $115 million.

                           CONTRIBUTION MARGIN: 18.0%

    Contribution from operations up 15.2% to EUR347.5 million, or 18% of

    (in EUR millions)             First-half 2010   First-half   First-half
                                                       2010         2009

                                                    excl. FGXI
                                                    and Signet
    Gross margin                      1,068.8        1,015.8       930.7

    As a % of revenue                    55.5%          55.5%       56.0%
    Operating expenses                  721.2          684.7       628.9
    Contribution from operations        347.5          331.0       301.8
                                         18.0%          18.1%       18.1%
    As a % of revenue

(1) Operating profit before compensation costs of share-based payments,
restructuring costs, other income and expense, and goodwill impairment.

Gross margin up 14.8% to EUR1,068.8 million (up 9.1% excluding
FGXI and Signet Armorlite)

In first-half 2010, gross margin (revenue less cost of sales,
expressed as a percentage of revenue) stood at 55.5%, compared with 56.0% in
first-half 2009. The decrease is mainly due to the dilutive effect of bolt-on
acquisitions and the ramp-up of mid-range networks.

Operating expenses up 14.7% to EUR721.2 million (up 8.9%
excluding FGXI and Signet Armorlite)

Operating expenses in the first half accounted for 37.4% of
consolidated revenue, versus 37.8% in the prior-year period, when they
amounted to EUR628.9 million.

Operating expenses comprised:

    - R&D and engineering costs of EUR78.4 million, up 4.7% over first-half

    - Selling and distribution costs of EUR421.7 million, versus EUR353.4
      million in the prior-year period, representing an increase of 19.3%
      (12.9% excluding FGXI and Signet Armorlite) and coming to 21.9% of
      revenue compared with 21.2% in first-half 2009.

    - Other operating expenses of EUR221.2 million, representing
      an increase of 10.3% (3.5% excluding FGXI and Signet Armorlite) and
      11.5% of consolidated revenue versus 13.2% in first-half 2009.

Excluding FGXI and Signet Armorlite, the contribution margin rose 9.7% to
EUR331 million and represented 18.1% of revenue, as in first-half 2009.

This performance reflects the Company's ability to integrate
acquisitions, drive further productivity gains and diligently manage its
operating expenses.


Operating profit up 1.0% to EUR281.2 million (up 15.9% excluding BKA

"Other income and expenses from operations" and "Gains and losses on
asset disposals" together represented a net expense of EUR66.3 million
(compared with EUR23.4 million in first-half 2009). The increase reflects:

    - Virtually unchanged compensation costs on stock options,
      performance share grants and employee stock ownership plans of EUR10.1
      million, versus EUR9.7 million in first-half 2009.

    - Restructuring costs of EUR12.5 million, versus EUR6.5 million in the
      prior-year period.

    - A EUR41.5 million provision set aside for the fine imposed by Germany's
      competition authorities, the Bundeskartellamt (BKA). Essilor has
      lodged two appeals against the BKA's decision, which suspend payment of
      the fine (see Note 10 of the financial statements).

Operating profit represented 14.6% of consolidated revenue, compared with
16.7% in first-half 2009.

Finance costs and other financial income and expenses, net: net expense
of EUR6.2 million

Finance costs and other financial income and expenses represented a net
expense of EUR6.2 million compared with EUR5.3 million in first-half 2009,
reflecting an increase in average debt partially offset by a decrease in
finance costs.

Profit attributable to equity holders of Essilor International down 1.3%
to EUR197.5 million (up 19.3% excluding BKA provision)

Net profit totaled EUR202.9 million, versus EUR204.8 million in
first-half 2009. It comprised:

    - Income tax expense of EUR88.8 million. The 32.3% effective
      tax rate (28.1% excluding BKA provision) compared with a 28.9% rate for
      first-half 2009.

    - The share of profit from associates - VisionWeb, Sperian
      Protection and Transitions - which amounted to EUR16.7 million, versus
      EUR10.7 million in the prior-year period. Earnings were up for both
      Transitions (EUR14.2 million versus EUR9.8 million in first-half 2009)
      and Sperian Protection (EUR2.5 million versus EUR0.9 million).

Profit attributable to equity holders of the parent amounted to EUR197.5
, down 1.3%, and earnings per share stood at EUR0.94, down 2.7%.

Excluding the BKA provision, attributable profit rose 19.3% to EUR238.8
and earnings per share climbed 17.6% to EUR1.14.


The Company' high profitability and robust performance enabled
it to pursue an ambitious program of industrial and financial investment
(acquisitions and share buybacks) and to increase dividends.


Capital expenditure net of divestments totaled EUR54 million
or 2.8% of consolidated revenue.

Financial investments net of disposals amounted to EUR563
, which included EUR485 million related to acquisitions, mainly FGXI
and Signet Armorlite.

Transactions involving Essilor shares amounted to EUR182
. These included the buyback of 4.1 million shares, as well as
employee share grants and the conversion of OCEANE bonds.

Working capital requirement

The change in working capital requirement amounted to EUR106 million,
relatively unchanged from first-half 2009, despite the seasonal impact of
annual discount payments to customers, which are generally concentrated in
the first half.

Inventories amounted to EUR626 million at June 30, 2010, compared with
EUR486 million at year-end 2009, an increase of 28.8%. At comparable scope of
consolidation and exchange rates, the increase was 6.8%.

Free cash flow and change in net debt

At EUR165 million, free cash flow[2] was up 72% compared with
first-half 2009.

At June 30, 2010, net debt was up EUR731 million to EUR638
, compared with net cash of EUR93 million at December 31, 2009, for
gearing of 21.6%.

Cash Flow Statement

    (in EUR millions)
    Net cash from operations      329  Purchases of property,         58
    (before WCR)                       plant and equipment
    Proceeds from employee share   40  Change in WCR                 106
    Reported change in net debt   731  Dividends                     147
                                       Financial investments net     563
                                       of disposals*
                                       Treasury stock                182
                                       Other                          44

* Of which EUR107 million in acquired financial debt



Since July 1, two new partnerships have been created in the
United States

    - Essilor of America acquired a majority stake in Gulf States,
      a prescription laboratory based in Louisiana that generates $3
      million in revenue.
    - Nikon Optical US, a Nikon-Essilor subsidiary, acquired a majority
      interest in Colorado-based Pasch, which generates $3.9 million in

Divestment of Sperian Protection shares

Essilor sold its long-standing 15% stake in Sperian Protection
to Honeywell on August 9, 2010. The asset's net realizable value is estimated
at nearly EUR132 million. The consolidated capital gain from the sale
(estimated at approximately EUR27 million) will be recognized in the
Company's second-half 2010 accounts.

Redemption of OCEANE convertible bonds

On July 2, Essilor redeemed at maturity all the 2003 OCEANE
bonds that had not yet been converted. These bonds were previously traded on
the NYSE-Euronext Paris exchange under ISIN code FR0000189276.

Ongoing share buybacks

Since June 30, Essilor has pursued its share buyback program.
More than 700,000 shares with a total value of EUR33.7 million have been
bought back on the market.

Related party transactions / Risks and contingencies

In first-half 2010, the nature of transactions with companies
consolidated by the proportionate or equity method was not significantly
different from the description in the 2009 Registration Document.

Similarly, risks and contingencies to which the Company is
exposed in the months ahead are generally in line with the analysis presented
in Chapter 4 of the Registration Document.


[1] The Readers business encompasses the production, distribution and
sale of non-prescription glasses. The division's end customers are retailers,
who sell the products on to consumers.

[2]Net cash from operating activities less purchases of
property, plant and equipment and intangible assets, according to the IFRS
consolidated cash flow statement.

                 Investor Relations and Financial Communications
                       Veronique Gillet - Sebastien Leroy
                            Phone: +33-1-49-77-42-16


Investor Relations and Financial Communications, Veronique Gillet - Sebastien Leroy, Phone: +33-1-49-77-42-16

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