Conference Call Third-Quarter 2015 Report October 22, 2015

Transcription

1 Conference Call Third-Quarter 2015 Report October 22, 2015 Good morning everyone. This morning, I am with Laurent Vacherot and all the Investor Relations team to cover the highlights of ESSILOR s performance in the third quarter. Therefore, around me there are a lot of smiles and we are all quite happy this morning. To start with, consolidated revenue for the first nine months, as you have seen for the year, was up nearly 20% to EUR5 billion plus, which is actually EUR833 million more than the first nine months of Growth, excluding currency effect, stands at 8.5%, while organic growth comes to 4.4%, on our way to the yearly objective of at least 4.5%. Let us therefore deep-dive a little bit into the third quarter. Third-quarter total revenue is up 14.5% and if we analyze the performance what we can say is that firstly, as you know, we announced at the beginning of the year organic growth at 4.5% for the whole year, which is a momentum of 4.8% in Q3, 4.4% in Q2 and 4% in Q1. This is clearly the result of a strategy that is effectively being implemented in every region, in particular with media plans designed to raise awareness of our biggest brands. In most regions, growth in sales volumes for CRIZAL, VARILUX and TRANSITIONS all our premium lenses have outpaced the market. However, we can also say that local demand for better vision continued to increase at all price points. The market for eyeglasses is in a real growth mode. Next, we can also see that our revenue stream is in fact perfectly balanced across both our geographic footprint and our business portfolio. Among the regions, operations in Europe and North America have delivered an excellent performance so far this year, led by the positive impact of the advertising campaigns on our product mix. On the other hand, growth in fast-growing markets continues at a solid pace and we are seeing an acceleration in some of them, which partially offset the slight cooling in China and Brazil. For the business base, the Sunglasses & Readers division is posting faster growth quarter after quarter, with as you have all noticed a sharp improvement at FGX INTERNATIONAL in the United States and the forward momentum generated by our COSTA and BOLON brands. In the third quarter, the organic growth of the Sunglasses & Readers division reached almost 10%, which is the highest level since the business was created five years ago. Finally, our online sales operations are now picking up speed with about 18% like-for-like growth in all our sites combined for the first nine months. Finally, as you know, the key lever of our growth is also acquisitions and you will have noticed that the contribution from bolt-on acquisitions was a little soft this quarter. This is only timing and our pipeline is Page 1/18

2 very strong. We are working on many opportunities and you will see this number picking up at year end and throughout Therefore, a lot of smiles and a good quarter, fully in line with expectations, which shows once more the power of our model in a growing market. I think that I will now hand over to Laurent, who will discuss the figures in more detail with us all. Thank you, Hubert, and good morning, everyone. As mentioned, in the third quarter revenue grew by 14.5%, with 8% coming from currency effects, mainly due to the increase in the US dollar against the euro. Other exchange rate movements had little impact, with the appreciation of the yuan, sterling and other currencies offsetting the sharp decline in Brazilian reais. Excluding the currency effect, growth stood at 6.5% for the quarter, thanks to a further acceleration in our organic growth at 4.8%. How, then, do we see this acceleration? Firstly, in the lens business, this performance has been led by a robust lens business division growing at 4.8% over the quarter. It is important to mention that for the last six quarters the growth in the Lens division has been steadily trending towards our medium-term objective for the business which is to be at 5%. Within the division, revenue grew by about 4% in our two major markets of North America and Europe, led by each region s market dynamics. In the US, our largest market, independent eye care professionals are continuing to develop new value-added solutions based on our VARILUX, CRIZAL and TRANSITIONS brands, which are now supported by ongoing consumer marketing initiatives. Our performance in the US was also lifted by the solid stream of business with key accounts in the quarter, as well as a positive contribution from our online sales channels Frames Direct, EyeBuyDirect and Coastal.com. In Europe, demand has been boosted by media campaigns to consumer as well. Revenue increased in many countries: United Kingdom, France, the Eastern European countries and Russia where we are gaining market share thanks to an active consumer advertising drive on CRIZAL. This quarter, with high single digit growth, Germany is clearly the best example of the successful execution of the strategy in Europe. In addition to the sales to independent eyecare professionals supported by the media campaigns, business with the optical chains is also expanding in Europe, Boots in the UK and General Optica in Spain. In fast-growing markets, overall growth remains firm, between 9% and 10%, with a slight improvement in Q3, as the negative impact of worsening economic conditions, mainly in China and in Brazil, is being offset by better momentum in other countries. In Asia, the slight slowdown in domestic sales of mid-range products in China is being offset by solid growth in our brands VARILUX and CRIZAL and by a significant rebound in export business. Elsewhere in the region, revenue growth remained very strong, with as an example in India, where it came at nearly 20%. In Latin America, the downturn in the Brazilian economy slowed our growth to low single digit for this quarter. It is important to mention as well that this quarter, Brazil suffered from high comparison of the Page 2/18

3 last third quarter, post world cup. That said, as we indicated in July, our increased presence in the mid-tier market and entry level segment of the market, plus our ability to produce locally helped us to strengthen our positions in this market. Other than Brazil, all our geographic markets are growing very fast and accelerating Chile, Mexico, Argentina and just to mention Colombia, where revenue soared by more than 20% thanks to the growth of VARILUX and the launch of CRIZAL. In addition, we formed in Latin America a new partnership with a company named ROZIN, which is a wholesaler selling frames, lenses and equipment mainly to independent lab, retail chains and some eyecare professionals in Central America. This will therefore help after the GRUPO VISION acquisition to expand our presence in this area where we were not nine months ago. To sum up, the quarterly performance of the Lens division benefitted from its geographically balanced business base, with mature markets accounting for almost 60% of the growth and fast-growing markets accounting for 40%. Let s now review the two other business lines. The equipment business, as you know and as we now mention quarter after quarter, is continuously penalized by the smaller addressable out of the group market linked to the execution of our lab acquisition strategy. More specifically, activity has been difficult this quarter in Asia and Latin America. On the other hand, sales were resilient in mature economies and the backlog is improving. As Hubert mentioned, we have seen very strong acceleration in Q3 in the Sunglasses & Readers division thanks to FGX s significant turnaround in the United States, with new contracts and new products, and the positive shift of our sunglasses business brand portfolio with a strong contribution from COSTA and BOLON. The division reached almost 10% growth during the period, which is the highest since the business got underway in 2010, and this is where it helped to accelerate the total growth of the Group. In summary, we see in Q3, the strength of our business portfolio: the well-balanced growth between developed and fast-growing geographies, the acceleration of our sun and e-commerce division and, as mentioned, the strong pipeline of bolt-on acquisitions that we may close in the next quarters. That is therefore what I wanted to share with you this morning and I will now pass the microphone to Hubert. Thank you, Laurent. For this third part of our call and before the Q&A, how do we expect to end the year and, moreover, how do we expect to go into 2016? We are actually very confident for several reasons. Firstly, all around the world we can say and confirm that demand for vision is strong and sustainable. This is for a simple reason: our mission is to correct and protect the vision of all 7.2 billion people in the world. This is very exciting because only a small fraction of them takes care of their vision today and the market is highly under-penetrated, which guarantees a solid growth potential for ESSILOR, not only in Q4 but also in the years to come. I should say that we are now seeing tangible results in Page 3/18

4 volume of our 2.5 New Vision Generation programs within the Corporate Mission Department and we will talk much more about this at the conference in Paris in February. In the next few quarters, and more specifically in Q4, we will continue to conduct the marketing campaigns all over the world, which help to steadily improve the positions of our flagship products, VARILUX, CRIZAL and TRANSITIONS, as well as our online activities. In terms of products, in Q4 and beyond we will see the continued ramp-up of EYEZEN, our new lens for connected life, which is a truly global product as it is available in all our channels ECPs, Internet and key retail accounts. EYEZEN can also be used by people without correction needs and will therefore be sold by FGX. This is truly a product for 7.2 billion people. The sun lens division gets underway in the fourth quarter and will drive stronger sales at COSTA and BOLON. As you know, at FGX new contracts are already ramping up. Therefore, moreover, there is a very strong momentum of success within the ESSILOR teams and success drives success, as you know. We have very powerful teams that are motivated by our corporate mission and aligned on the execution of our strategy in our extended playing field. We therefore confirm our full-year target: revenue growth, excluding the currency effect, of between 8% and 11% and in excess of 4.5% on an organic basis and as we said a contribution from operations of at least 18.8% of revenue. As a conclusion, let me repeat. We are excited by our mission to correct and protect vision. This guarantees a sustainable growth potential for the Group in both fast-growing and developed markets, and we intend to capture more of this potential quarter after quarter. I think that that is the end of the short introduction by Laurent and I and we will now open the floor for any questions. Mr. Michael JUNGLING Morgan Stanley Thank you and a very good morning to all of you. I have three questions. Firstly, on the constant currency sales growth guidance for the year, with acquisitions being softer in the third quarter, is it fair to say that you will be coming out towards the lower end of your constant currency growth range of 8-11%? Question number two is, when it comes to your RX supply agreements, can we expect ESSILOR to sign some larger deals in the next one to two quarters, very similar to what you have done in 2015 year to date? Thirdly, when it comes to acquisition multiples, can you comment on the valuation trends on the deal that you are doing, especially in light of private equity becoming much more interested in investing in the optical space as well? That is all. Thank you. Thank you, Michael. The line was not very good but I think we got your questions. I will cover the RX supply agreements and maybe Laurent can cover the multiples and the currency effect on all this. Page 4/18

5 You put your finger on a very good point. A portion of our business goes through long-term agreements. As you have seen, we have ongoing and very successful agreements long-term with BOOTS, with LUXOTTICA, with EYEMED, with CVS, and many others throughout the world. There will of course be other key contracts in the next few quarters which are actually under negotiation but I cannot say anything before they have been signed. We are living in a very highly competitive environment and can only comment on and announce those contracts when they are fully in place and cleared legally. There are therefore indeed a few of them and the good news will be conveyed in the next few quarters, but, again, it is impossible to mention them one by one. Perhaps Laurent wants to take currency and multiples. Yes, absolutely. I think that the question was on the guidance on total growth including acquisitions without currency effect of between 8% and 11%. What do we expect? We expect faster organic growth in Q4. We also expect a rebound on the bolt-on acquisitions in Q4 and as a result we are still shooting for overall growth better than 8%. I will take advantage of this question to say that the forecast of the currency effect should be in high single digits should the currency effect remain the same as it was at the end of September. Therefore, somewhere between 8%, 9% and 10% should be a reasonable number of the currency impact for the full year. On the valuation, as you know, we have an acquisitions policy everywhere in the world and we face many different situations depending on geographies and businesses, from e-commerce to traditional labs going through the Sun. We therefore have to look at each acquisition case by case and if may say numbers for traditional labs in mature markets, it is between four, five, six or seven times EBITDA and in fast-growing markets it would be much higher, especially when we enter new countries. Mr. Michael JUNGLING Morgan Stanley Great. That was very helpful. Thank you. Thank you. Mr. Cédric LECASBLE Raymond James Good morning, Hubert, Laurent and team. I have three questions, if I may. The first one is on France. Laurent, I think that you said in your remarks that France grew in the quarter and in the press release there is a mention of stable sales. Is it stable globally and growing in lenses? Could you perhaps be more specific on this issue? The second question is on consumer behavior in the emerging markets where the macro is under pressure. The marketing campaigns are more straightforward in developed markets because the consumers already know the products better. Is there a trade-down risk on mix in emerging markets? That is the second question. Page 5/18

6 The last question is a follow-up on the previous question. What would be the average contribution from scope that we should model for the next few years? Thank you. Thank you, Cédric. I will let Laurent answer on the French business and the scope and perhaps I will take your second question on consumer spending and how we see the consumer reacting in fast-growing markets. Let us take, for example, India, where we have now accelerated our campaigns on VARILUX and CRIZAL. India is growing by about 20% and this is being pushed hard by consumer advertising. On premium brands, we are really seeing an activity and a good result and momentum on our key campaigns. It is new in China, where we have started this year. In the area where we are localizing our campaign on CRIZAL, TRANSITIONS and VARILUX, we are seeing the same kinds of results. We are not spending enough money in China yet to be able to offset slightly the slowdown in the overall economy of greater China, but in the regions where we are investing our marketing money, yes, we are seeing good results. Again, therefore, even in slowing economies, people who have a little bit of money and are in the GDP per capita level of the household where they can spend money on our premium brands, yes, they are spending and we are seeing growth. I will give Laurent the microphone for France and scope. Absolutely. In fact, what we see in France is slight growth, which is the result of a very good execution of the strategy there, where we see all the channels with this multi-network strategy targeting different segments of the market. We are still seeing a very good reply from the market in terms of both eye care professionals and consumers on innovative products, where a very efficient supply chain is helping us to make the whole industry more efficient and where, as you perhaps mentioned for those of you living in France, the French team took an initiative at the beginning of the year to go after the multi-equipment of quality and so an offer named Qualissime - which means that when you buy VARILUX you will get a good offer on sunglasses or TRANSITIONS. Overall, therefore, there has been a very good execution of the strategy and a solid, small growth in France. As far as your third question, which was on what we could expect as regards acquisitions in the near future, I think that we should just refer to what we said in June We are still shooting for an overall target by 2018 of growth of about 10% on average, with more than 5% coming from organic growth, rising to 6% by 2018, and then 5% or 4% coming from acquisitions and 2% or 3% from bolt-on acquisitions and the remaining part from bigger acquisitions. Mr. Cédric LECASBLE Raymond James Thank you. Page 6/18

7 Thank you, Cédric. The next question, please. Mr. Alexander KLEBAN Barclays Thanks for taking the questions. I have three. The first one is that in Europe we have another quarter above what I would say is the mid-term target for the region and I was just wondering at what point you would start to think of that 3-5% growth level as being the new normal. What would get us there and what would take us away from there? My second question is on valuations as well, but it is really specifically for China, Brazil and perhaps some of the other Latin American markets. Given the asset market situation, by how much, with the valuations that you are talking about, will the targets now come down and what does that mean for next year and the year after in terms of being able to deploy capital? My last question is on the equipment business and I appreciate that this is difficult to answer. However, if we were to take out the effect of the inner-company sales and just look at a like-for-like external customer growth rate, what would that number be? Is it low single digit or is it still negative, if we excluded the internal portion? Thank you, Alexander. I will take the question on Europe and Laurent can take the valuation target in emerging markets and equipment. As you know, we have teams on ground that are extremely powerful in Europe. We have consumers in Europe who are asking for better vision more and more. In the past few years, some of them have postponed their purchases, so they are now back in the market with eye glasses. We have consumers in Europe who are asking for high-quality sunglasses. We also have consumers in Europe who are accelerating their purchases online. All this is therefore good for ESSILOR because we have now implemented the strategy focusing on innovation and extended playing field. However, we all know that the fundamentals of the European economy are not even from one country to the other, so we are extremely prudent in our approach and forecasts. We are indeed enjoying a wonderful momentum but we will see about the future. What is more important behind your question is what the contribution of Europe, fast-growing markets and America will be to the objective of 5% organic growth rising to 6% in I think that what is important is what we have been explaining with Laurent, which is the equilibrium of the growth - the potential for growth in mature countries and fast-growing markets. That is where we are deploying our strategy and getting momentum. This equilibrium is key because it is giving us a high level of serenity. Therefore, Europe had indeed a great quarter and there have also been fantastic results in the US, which will continue. However, overall, if and I stress if one part of all this is weak for economic reasons, the rest is so strong that it will give us the momentum to reach our 6% target. I think that that is how we need to look at Europe within the overall ESSILOR strategy. Could you talk about valuation and equipment, Laurent? Page 7/18

8 Sure. On equipment, I think that what the team is looking for when we include out-of-group business and intra-group business is slight growth overall, in the understanding that they are building a more and more efficient machine and that means that they can produce more and more at a very competitive price. This is therefore a very good performance when they reach that kind of level of activity. I think that on the valuation your question was with the potential slowdown of the economy in Brazil and China will we be seeing a smaller valuation for targeted acquisitions? We would love to, but in fact because we target very successful and agile companies, those companies can adjust for a few quarters and postpone acquisitions to maintain the valuation of the company. The team is obviously looking for better valuations but we should not dream when we want to partner with successful companies with a good track record, a strong Management Team and strong shareholders. They obviously know how to deal with the situation for a few quarters. That is therefore what we can say on the topic. Mr. Alexander KLEBAN Barclays Thanks a lot. Thank you, Alex. Mr. Julien DORMOIS Exane BNP Paribas Good morning, everyone, and thanks for taking my questions. Most of them have already been answered but I will just be looking for some housekeeping questions. Two of them would relate to emerging markets. Is it possible for you to give us the like-for-like growth rate that you have experienced in emerging markets in Q3 and year to date? That would be helpful. Another question would be on China. I think that you have mentioned that you still had growth in China but I was just looking for a ballpark estimate of what that was. Was it similar to the low single-digit growth that you mentioned for Brazil, for instance? The last question would be an update on the TRANSITIONS sales to third parties. There was no mention of that in the press release. Have these stabilized or are they still declining? Can you repeat the third question, Julien? It was not clear. Mr. Julien DORMOIS Exane BNP Paribas Yes. Sorry. It was about the TRANSITIONS business with third parties. Page 8/18

9 Okay. Yes. Thank you. Perhaps Laurent could take the question on fast-growing markets and TRANSITIONS and I will say a few words on China. As you know, we have a very diversified business in China, which is sunglasses with BOLON, the premium business with our key brands and the more entry-level products with our partners as well as the export business. All that is our activity and when we aggregate it all we are in high single digit in China. However, we also have a sun business that is extremely dependent on the quarter and we all know that the highest growth for the fourth quarter will come from sun, namely BOLON in China. The premium business is healthy and our exports are better but they are not at the level that we have had previously. It is therefore a mixed bag of things and there might be a little more volatility in China than what we had in the past just due to the structure of our Chinese business. Would Laurent like to comment on TRANSITIONS and the fast-growing countries? Yes, absolutely. What we can say is that for the out-of-group business the third-party customer of TRANSITIONS in Q3 we have seen a very slight growth, which is therefore a little bit of a change in trend compared with what we saw in the first half year. This is very encouraging and it is probably related to innovation and the strength of the TRANSITIONS brand. What we have also seen is the ESSILOR Group entity selling more and more and accelerating the sales of TRANSITIONS products at a faster pace. I think that there was a question on emerging markets, so I can share a few figures with you. In Q3, with the combination of organic growth and bolt-on acquisitions, the growth in those countries has been almost 14% in Q3 and 12% for the first nine months. Therefore with the combination of acquisitions and organic growth, we see a slight acceleration in Q3. As far as pure organic growth, when we look at the domestic market, it is close to 9%, with 9/10% growth as far as organic. Mr. Julien DORMOIS Exane BNP Paribas Is that for year to date or Q3? I think that it accelerated slightly in Q3 but 9% or 10% is a good Mr. Julien DORMOIS Exane BNP Paribas It is a good proxy. - figure for Q3. Page 9/18

10 Mr. Julien DORMOIS Exane BNP Paribas Okay. Thank you very much. Thank you. Mr. Antoine BELGE HSBC Hi. It is Antoine BELGE from HSBC. I have three questions, if I may. First of all, with regards to your marketing campaign, is it possible to have a bit of flavor on which regions and activities will see a rollout in Q4 or perhaps next year? Also, in terms of the total budget for this marketing campaign, can you update us on the 2015 numbers or perhaps say what the likely evolution is for 2016? My second question is on the US optical market, more at the retail level. We saw GRANDVISION doing a deal there, so what is your view on that in terms of possible concentration there and what does it mean for your business? I think that there must be some opportunities but there could also be some challenges. Finally, since we are on the US, how do you see the US from a qualitative standpoint in the next 18 months? Thank you. Thank you, Antoine. Perhaps we could split up the questions. I will take the US and Laurent will take the marketing, which will be interesting. On the US, as you know, the US market is half of the world optical market and it is basically also at the same time half of our revenues. The US market is characterized by a fair equilibrium between private optometry and key retailers. In my basically 25 years of US experience in retail, we have not seen that much of a swing between private optometry and retailers. Within the retailers, we have seen a lot of activity. In some years, retailers have been purchased by competitors, while in other years retailers have been sold. They have therefore eaten themselves in the retail pie but they have not really eaten private optometry that much. We then see an acceleration of online sales, which is definitely taking a portion of the key retailers pie because the pricing of online retail is at the same level of the mass merchandiser and the leading mid-tier retailers. There has indeed been GRANDVISION acquiring a chain. That is wonderful. However, it does not change the landscape of the US retail market one cent. What is more important is the type of product that the consumer can really find within retailers compared with private optometry and you know that our strategy has always been and is now more and more to split key services and products, with some specifically for private optometry and some for the key retailers. We do business with basically all of them. Therefore when we are doing campaigns on CRIZAL and VARILUX those two brands are pushing all the activity towards private optometry. Page 10/18

11 You had a third question regarding consumers and spending in the US. We will push EYEZEN, CRIZAL and TRANSITIONS aggressively in the fourth quarter and all this will accelerate greatly the demand for those key products. However, again, as regards the change in ownership of the retail chains, I do not want to say that it is a non-event, but it is in a way. What has been really strong for us has been the acquisition of VISION SOURCE, which has positioned us more strongly in private optometry, the strongest and a growing portion of the business. On the other hand, the long-term relationship and deals that we have with the leading retailers guarantee a flow of volume and an accelerated demand for mid-tier products. I will now give Laurent some time for the marketing question. Thank you, Antoine, for your question. The overall resource that we will allocate to media to consumers in 2015 will be about EUR200 million, give or take for currency exchange and so on. For 2016, it is a little too early to say because we are constructing the budget at the moment, although we expect to do at least the same amount. The principle for using these resources widely is, firstly, that it is split across our three businesses, with the biggest part going to the lens business, and most of it will be for the 10 or 11 biggest markets with the focus for each market on one or two brands, with VARILUX, CRIZAL and TRANSITIONS, except for the US where they will advertise the three brands plus XPERIO in the sun season. It is also split between fast-growing markets and mature markets. For example, in Brazil, they advertise CRIZAL and TRANSITIONS a lot and they are starting to launch the KODAK nationwide with advertising, which is perfect timing for increasing the offer and the value of the offer in the mid-tier market in Brazil at a moment when consumers need better vision. We are also investing these resources in the sun business, especially with the BOLON brand in China and other Asian countries and it is also obviously helping us attract new consumers in the E-commerce division to grow the consumer database and business of our e-business companies. Mr. Antoine BELGE HSBC Okay. Thank you. Just in terms of a confirmation, you stated that towards the end of 2015 most regions and products would already have been supported, so 2016 will be more about continuing the effort or slightly increasing the amount spent. There is no region that still has to be rolled out, for instance? I think that we will continue mainly on the same principle, although perhaps being more efficient as the company learns from what we have done over the last two years now. We will probably also be allocating a larger part of the resources to digital media. Page 11/18

12 Mr. Antoine BELGE HSBC Okay. Perhaps I still have a follow-up to that answer. My understanding was that the majority of these budgets were funded by synergies stemming from the TRANSITIONS acquisition, so would you say that by 2016 most of these synergies will have been extracted or do you think that there are still efficiencies and potential revenue synergies to be extracted, although they may perhaps fall through the bottom line? By the end of 2015, most of the synergies will have been extracted and what we have started to see in 2015, which will continue into 2016, is synergy by growing the photochromic category and accelerating the growth of the TRANSITIONS -branded products. This is where the biggest value will come from the TRANSITIONS integration. Mr. Antoine BELGE HSBC Thanks. Mr. David CERDAN Kepler Cheuvreux Good morning to all of you. I have a few questions. The first one is on Brazil. I would like to have your input and to understand what the trend was in Q3 versus what happened in the first part of the year. Do you expect this market to continue to grow in the coming quarters? My second question is related to VISION SOURCE. Can we have data on this acquisition in terms of revenues, date of consolidation and so on? It is not very clear to me. My third and last question is on the US market. What is the contribution of the online business to the strong organic growth in Q3? Thank you. Thank you, David. Perhaps Laurent can answer on Brazil and I will talk about VISION SOURCE and the US. We do not actually communicate that kind of information on VISION SOURCE. This is a strategic topic on a highly competitive environment. Some of you have underlined the strategic importance of this acquisition within the landscape of the US, so we will continue to be quite confidential about how we operate. However, what I can tell you is that it operates a network of 3,000-4,000 private optometrists, who are the most qualified in the US and are spread all over the country. Their business model is growing at high single digit/double digits as far as market coverage and they are definitely a key network, as it were, for maximizing the efficiency of all our advertising on key products. We will perhaps say a little more in February, but I cannot say any more today. Page 12/18

13 Mr. David CERDAN Kepler Cheuvreux Just to be clear on this, is it just a partnership or is it a capital deal? We have acquired a high stake of a company that is managing annual contract relationship with 3,500 stores. We do not therefore own those stores; the business that we have acquired owns the business relationship of the stores. Mr. David CERDAN Kepler Cheuvreux Okay. Perhaps Laurent could talk about Brazil. Yes. Actually, I was there two weeks ago and spent a week with the team there. I saw a team that was very focused, energetic and confident. Q3 has certainly been affected by a very poor September, with a lot of bad news, particularly in terms of the macro-economy with the devaluation of the real and a political nightmare going on and so on. This happened just in September. Looking forward, it is based on a strategy that is about continuing to invest in our key brands, especially CRIZAL and KODAK, on top of VARILUX and TRANSITIONS, and being more present in the mid-tier. I do not know if you remember, but in the last 18 months we invested in our Manaus facility in Brazil and we have also invested technologically in our partner lab in Brazil. They are in a position to gain market share in the mid-tier segment and accelerate our presence at the entry level thanks to our Chinese partner. They have a full set of offers to cover the whole market, in which they believe that: first of all, they will gain market share, based on our local production, and they are shooting in the next few quarters at, let s say, mid single-digit growth in Brazil. At the same time, they will continue to look for acquisitions because, as you know, we started this partner lab expansion a few years ago and there is still part of Brazil that is not yet covered by our partnership strategy. We therefore still have active deals which we might close in the next few quarters. Thank you. Mr. David CERDAN Kepler Cheuvreux I am sorry. I just have a question on online in the US. Page 13/18

14 Can you rephrase your question? Mr. David CERDAN Kepler Cheuvreux What was the contribution in Q3 of the online business to your organic growth? If you prefer, what is your organic growth in the online business? The contribution as far as margin and everything is in line with the overall Group. The overall online business is actually growing at high double digits. We cannot give you any more details on this either as again it is highly competitive and sensitive. However, our actions and developments in online definitely have a positive contribution to the overall business today, which you know is a key part of our overall extended playing field plan strategy on which we will continue to grow through acquisitions and organically country by country. Mr. David CERDAN Kepler Cheuvreux Okay. Thank you very much. Thanks, David. Mr. Michael JUNGLING Morgan Stanley Thank you. I have only got two more questions. Firstly, on US market growth, if you look at the recent industry data, it suggests that the independents are growing faster than the chains in the US. Why do you think that is and what impact does it have on your business, which appears to be also focused on doing deals with let us call them large chains? Secondly, on Coastal.com, can you talk a little bit about the underlying profit trends throughout this year and what you expect in 2016 for COASTAL? Thank you. Okay. I think that your second question was on COASTAL. Perhaps Laurent could answer that and I will cover the US. If we look at a 10-year period, basically we have not seen a big change between retail and ECPs. This has been true over the past two years private ECPs are gaining momentum, and it is also true that, as we speak, quarter by quarter we are seeing a higher level of activity coming from private ECPs. I think that we analyze the situation this way. Firstly, the product offering that the private ECPs have is at an extremely high quality level and I think that the US consumer is more and more about a high quality level. The ability to promote high-quality progressive lenses, UV blockers on the back, for Page 14/18

15 example, is much higher and perhaps much more professional than some of the retailers that have, as we all know, the highest level of turnaround in dispensing staff on the floor. The Americans therefore find a much better quality product today within eye care doctors. Perhaps also for some key retailers, their policy of purchasing and trying to squeeze cost to an ever-lower cost has dragged down the offer. This is true for some key leading chains in the US. On the other hand, there is definitely an effect on online activity and, as I was saying, the price positioning for online is definitely targeting the retailers and not the private doctors. This might therefore also explain why one part of the US business is more affected as far as performance. What does this mean for us? It means that the focus of our key brands VARILUX, CRIZAL and EYEZEN - on private doctors has been very successful. However, at the same time, when you are advertising on progressive lenses and CRIZAL, it also drives the consumption of second-hand or lower-quality brands, but brands which have a good performance at the lower prices, at all the retailers. The whole market is therefore basically benefiting from these activities. The second thing for the key retailers is the importance of the supply chain and the relationship with a reliable supplier that can deal with acceleration when there is promotion on the ground in a chain or the slowing down of activity. All those things that are linked to service are key for key retailers. You all know that this is our area of expertise thanks to our network of labs and coating centers within and outside the US, as well as being one of the key points of the strategy which makes us by far the largest entity in the world in the management of frames and consumer-purchased frames and lenses. When you combine all that, it definitely makes us strong as a business partner to all the key chains. That is what is actually going on in the US market. I am sorry to give you such a long answer but I think you gave me an opportunity to clarify our whole strategy in the US which drives the results there as we speak. Perhaps Laurent can reply on COASTAL. Yes. I think that the question was on the contribution of COASTAL as far as the results and how it is going and whether it is improving or not. This is obviously very sensitive information as well, but what we can say is that since the acquisition of Coastal.com they have had a lot of initiatives and activities. They have built up a team to recover growth and have changed their marketing policy drastically, especially for the lens part of the business. Additionally, because of the strength of the overall group, we have asked them to invest heavily in marketing so that they can accelerate growth and continue to build a consumer database. The underlying, without all those additional initiatives, is therefore improving, but we have decided that they will do more marketing and build an even stronger team, which is happening at the moment, and they will be aggressive in their marketing in the countries. Mr. Michael JUNGLING Morgan Stanley That is very useful. I have a follow-up question on your sales mix in the US. What percentage of your lens business is now with independents and how much is with chains? A rough split would be useful. Page 15/18

16 Again, I will give you a rough figure but I do not have it off the top of my head. However, let us say that if we talk about volume, we basically have a 50/50 situation between private ECPs and retailers. However, if we talk about value, it is definitely much more in the leading channel of the private ECPs today. Mr. Michael JUNGLING Morgan Stanley Thank you. That is helpful. As you have perceived from our strategy, this will be reinforced starting in 2016, or even in Q4, with the acquisition of VISION SOURCE. Mr. Michael JUNGLING Morgan Stanley Thank you. Thanks Michael. Mr. Alexander KLEBAN Barclays Thanks. I just have perhaps a couple of quick follow-up questions. One is on COASTAL and online in general. Which countries ex-us do you have exposure to at the moment? I know there were some already in COASTAL but I do not know if that has expanded significantly since then. The second one was EYEZEN. You mentioned non-prescription. It is just to understand how big a price difference there is between what you would sell in prescription versus non-prescription on that product. Then maybe just more generally how have crossover products, such as anti-scratch, worked in the past when you brought them from the prescription side over to the FGX side? Thank you, Alex. Perhaps Laurent could answer on EYEZEN price positioning and the benefits of EYEZEN for prescription and non-prescription and I will take the answer on the online businesses. Under COASTAL, as you know, we operate COASTAL, CLEARLY, FRAMES DIRECT and EYEBUYDIRECT, so I will perhaps answer more on the overall presence online rather than just COASTAL. We are definitely active in Canada and the US with all of our brands and we are very strong in the northern countries and have some presence in the UK and in Australia and New Zealand. As we speak, those are the main countries where we are active. We also started strong activity in China very recently. Page 16/18

17 On top of that, we have strong activities on Sun online and here I am talking more about our sunglasses online. The first country that we are going extremely quickly in is China, with the second key country being the US for sunglasses online. Perhaps Laurent can comment on EYEZEN. Absolutely. Just for the sake of simplification, the main benefit of the EYEZEN brand for people who can see fine or for those who need some correction is twofold. Firstly, it is to relax your eyes and diminish eye strain and fatigue in your eyes when you use computers, smartphones and tablets for a number of hours per day and it protects your eyes against the bad blue. What we know from marketing surveys that we have done in some countries so it is not exhaustive is that consumers are ready to pay, let us say, USD 50 more for those two benefits. That is a consumer price. This could be on top of their existing RX glasses that they would buy anyway or on top of nothing when they can see fine and go to the drug store or go online and buy the full equipment to help them protect and relax their eyes for that amount of money. Just as a reminder, the range of prices for reading glasses or entry-level sunglasses is between USD 15 and USD 25 and some high-end may be more in the range of USD 30. It is therefore a category where the consumer understands the benefit and the need and is ready to pay a premium on top of the products that they usually buy. Mr. Alexander KLEBAN Barclays That makes sense. Just going back to online, you listed a lot of countries but it sounds as if and I do not know if this is fair you are less than half of the way there in terms of today versus five or 10 years from in terms of getting into all the markets where you could have a robust online platform. When we talk about online, it is still day one. It is day one everywhere. We are not halfway or one-third of the way but day one on eye glasses and eyewear online everywhere. Mr. Alexander KLEBAN Barclays Okay. Very good, then. Thank you. Sorry to run over time. Any other questions? Conference coordinator There are no further questions. Page 17/18

18 Okay. In that case, thank you very much. At ESSILOR, we are all going back to finalizing this great quarter that we have in front of us and preparing for 2016 and we will have great news for you in February. Thank you very much and have a great day, or a great evening, all of you. Page 18/18