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Edited Transcript of EI.PA earnings conference call or presentation 31-Jul-19 8:30am GMT

Half Year 2019 EssilorLuxottica SA Earnings Call

Charenton-le-Pont Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of EssilorLuxottica SA earnings conference call or presentation Wednesday, July 31, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hilary Halper

EssilorLuxottica Société anonyme - Co-CFO

* Laurent Vacherot

EssilorLuxottica Société anonyme - Deputy CEO of Essilor

* Paul du Saillant

EssilorLuxottica Société anonyme - Deputy CEO

* Pierluigi Longo

EssilorLuxottica Société anonyme - Chief Integration Officer & Head of M&A

* Stefano Grassi

EssilorLuxottica Société anonyme - Co-CFO

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Conference Call Participants

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* Antoine Belge

HSBC, Research Division - Global of Consumer and Retail Research

* Delphine Le Louet

Societe Generale Cross Asset Research - Equity Analyst

* Domenico Ghilotti

Equita SIM S.p.A., Research Division - Co-Head of Research

* Edward Nicholas Ridley-Day

Redburn (Europe) Limited, Research Division - Research Analyst

* Elena Mariani

Morgan Stanley, Research Division - Executive Director of Luxury Goods and Brands

* Francesca Di Pasquantonio

Deutsche Bank AG, Research Division - Research Analyst

* Julien Dormois

Exane BNP Paribas, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to EssilorLuxottica 2019 First Half Results presentation. Today, I'm pleased to present Mr. Laurent Vacherot, Mr. Stefano Grassi, Ms. Hilary Halper and Mr. Pierluigi Longo. (Operator Instructions)

I'll now turn the call over to your host, Mr. Vacherot. Please go ahead, sir.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [2]

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Thank you. Good morning, everyone. So as you understood, I'm in Paris here with Hilary, Stefano and Pierluigi. And Hilary and Stefano will comment a little bit later on the result of the first half and with Pierluigi, we will walk you through this fantastic news about the -- and the announcement about the transaction with -- about the GrandVision. I will do some opening comments.

So during the first half, we have continued very actively to build EssilorLuxottica in all its dimension. Obviously, the strategic vision with the acquisition of GrandVision, obviously the acceleration of the integration and also the bolt-on acquisition, all of it driven by our mission to help people to see more, be more, and live life to its fullest.

But first, give me -- let me give you a little bit of a comment and colors of the results you have seen. We have just completed a solid H1, with revenue growth at 7.3% and net profit growing in line with this revenue and a very good cash flow at about EUR 750 million. Most of the important area of our business consumed double-digit growth, including fast-growing market and online.

In Q2, sales growth accelerated for the full group at 4.1% at constant exchange rate. This confirms the strength of our underlying business despite a few headwinds like mix season in the Sun, difficulties at Sears that you know, and anticipated destocking of Transition, preparing the launch of the Gen 8 of this fantastic product.

At the same time, we managed to post robust growth in the Lens division led by China, Brazil and Europe. We saw a sharp rebound in sunglass and readers driven by Polo, and we accelerated in wholesale. We grew nicely in retail with 14% growth in e-commerce.

Operating margin at 17.2% is solid and fully in line with the budget. It reflects the performance of the activities, but also a deliberate increase in sales and marketing to launch many new leading-edge lenses like the Blue UV Capture and Eyezen Start, a new generation of instrument for optometrists. I think we already spoke about it, but it's happening now.

A new in-store measurement device like Visioffice X, and also a major effort to prepare the launch of the new generation of Transitions 8 that happened in the U.S. early July and will continue in North America and South America during the fall. It reflects also the coming back of a media campaign for sunglasses with Gigi Hadid as an ambassador and digital consumer experience, which we have presented to the recent [Luxottica Group].

Also decision to invest for growth in several strategic project around digitalization of our business and solution to address myopia pandemia. We also resume our bolt-on acquisition strategy with several key transactions like Brille24 in Germany, a leader in omnichannel retail; and also the acquisition of the laboratory of the important chain in Mexico, Devlyn. And finally, the decision to build EssilorLuxottica faster by accelerating our integration. I will come back on that in the conclusion.

As you have read also in today's press release regarding a few very important event for the company, we have renewed the exclusive license agreement with Bulgari, one of the key brands from the LVMH Group. And we have also got the approval of Barberini, the leading sunglass manufacturer in [mineral] which is a very important one for the next quarters.

So as you can see, the business is doing well, and we enter in the second half full of confidence.

And with this now, I will hand over to Hilary and Stefano for more detail on our results.

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [3]

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Thank you, Laurent, and good morning, everybody. Let's start commencing our first semester top line results, first of all, by different business units, and then we'll get into more details throughout the different geographies.

Our overall top line, you see on the bottom right of the page, was up for the first semester 2019 for EssilorLuxottica 7.3% on a current FX basis. Our results on a constant FX was up 3.9%. We do see a material acceleration in our top line performance. As you may remember, the first quarter on a constant FX basis, EssilorLuxottica posted a plus 3.7% growth rate. In the second quarter, our results was up 4.1%.

The tailwinds that you see from constant to current FX results is very much due to the strong revaluation of the U.S. dollar, that during the course of the first semester 2019 was around 7% versus euro. We do expect, if the dollar remains at current level, to see those tailwinds to continue during the third and the fourth quarter of this year.

But now let's start looking at the different division beginning from the biggest one, Lens & Optical instruments. The first semester saw top line on a constant FX basis growing mid-single digits, 4.9%. We had solid growth in our fast-growing markets, namely China, Southeast Asia, Latin America, but also in some of our more mature geography like Europe and Australia. We continue to experience a strong online business for lens that is actually growing double digit.

The only countries on which we have mixed results, and Laurent anticipated that, is U.S.A. That was very much largely expected as we're fanning out from the previous generation of Transition lenses, and we're now all excited about the launch of Transition Gen 8 in the United States that is happening as we speak during the third quarter.

Sunglasses & Reader, 8.4% for the first semester on a constant FX basis. Second quarter strong acceleration plus 14%, thanks to a strong performance of Costa, FGX business as well as Bolon in China.

If we now move to our Wholesale division, plus 1.7%, strong rebound on the second quarter compared to the first quarter trend, very much driven by North America, Latin America as well as Asia, Oceania and we'll get into more detail in the following page. The growth driver for our Wholesale division is very much volume. And that, obviously, is something that is very pleasant.

If we now move to Retail, plus 3.6% for the first semester on a constant FX basis. Comps were flattish for the first semester. Once we look at the different regions, the leading one was really Europe with top line growing in excess of double digit, and we'll get into more detail later on.

I would just close it out with a comment on our e-commerce business that is actually posting the growth rate for the first semester close to double digits with the second quarter in acceleration very much concentrated in North America, very much thanks to a strong delivery of our ray-ban.com business website.

If we now go to the next page, just a quick summary on how we perform on the overall basis throughout the different geographies. And again, I won't spend too much time on this page because we'll get into more details in the following ones. But I just want to convey a couple of message here.

First of all, all the geographies posted solid growth during the first semester on both constant as well as current FX basis. The second thing that you have seen is that there are certain geographies where the vast majority of our fast-growing markets are concentrated that are actually growing faster than our more developed markets like Europe and North America. So we overall have a very balanced growth in absolute terms, but we'll now dig into that -- into the different geographies and let's start from the biggest one, North America.

So I hand it over to Hilary.

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Hilary Halper, EssilorLuxottica Société anonyme - Co-CFO [4]

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Perfect. Thank you, Stefano, and good morning, everybody. So now I'll comment on North America, which as Stefano said for the combined group, was up 1.9% at constant exchange rates. And if I focus a little bit more on the Essilor performance in North America, growth improved sequentially in Q2 with our U.S. lens business, e-commerce and Sun & Readers all performing well.

In the U.S., we continue to expand our Essilor Experts program to around 4,800 ECPs, and I think it's important to note here that we've added roughly 20% to the Essilor Experts program since the end of 2018. So this is very strong progress.

As a reminder, Essilor Experts is a program which we provide an enhanced level of support to our ECP customers with a focus on innovative lens categories and proprietary systems and processes to support growth at a practice level. So it's quite an important program for them and for us.

E-commerce grew in the mid-teens, again, mainly driven by eyebuydirect.com. And on the Sun side, Costa was supported by the ongoing rollout of the optical frame collection, which is quite strong.

And looking forward into H2, we remain quite confident with the Transitions Gen 8 launch, which we're all excited about that kicked off in July; and the continued execution of our go-to-market strategy, including the Essilor Experts, which I just talked about a little bit, alliances and the onboarding of new key account business.

So with that, I'll hand it back to Stefano to go through the Luxottica for North America.

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [5]

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Thank you, Hilary. Let's look at our Luxottica North America performance, which was very much in line with the overall EssilorLuxottica trend.

Let's start from our Wholesale. First of all, we're happy to see a strong acceleration in the second quarter compared to the first quarter trend. Very happy to see that growth coming from independent channels, which, as you know, represents about 50% of our revenue base from wholesale in North America. Very happy to see price/mix driving that growth in North America. You might remember during the first quarter, price/mix was a bit of a challenge on wholesale in North America. We were expecting that improvement to happen during the course of the second quarter, here you go. So we got what we were thinking, and we do expect that price/mix improvement to carry forward during the second half of the year.

If we now look at our Retail. LensCrafters was flattish in comp and sales for the first semester. As you know, LensCrafters is very much playing in an arena that is a very competitive, low-growth rate market that is the optical retail one in North America. A lot of large retail organized chain are out on the market with a very aggressive price point with very strong promotion.

That's not what LensCrafters is doing. LensCrafters is very much focused on the quality of the product, quality of the lenses, the quality of the frames and the overall service levels that we want to give to our consumer. So we have strategically taken the decision to position LensCrafters in a different space and obviously, an arena that is very competitive as the optical retail market.

The underlying performance of LensCrafters is extremely positive. We do see price/mix improving. That is very much due on the lens side. We continue to see improvement on penetration of our Transition lenses. We continue to see penetration of the Blue IQ lens, we continue to see improvement in the penetration of Oakley and Ray-Ban authentic lenses. So all the underlying KPIs for LensCrafters are moving towards the right direction.

Sunglass Hut. As Laurent mentioned, we are back on TV after 3 years with a very strong campaign with very important testimony like Gigi Hadid. Unfortunately, at the same time we were on air with a new campaign, we were hit by bad weather, and that was very much true for North America as well as for Europe between the month of May and June. So it wasn't really a warm and welcoming to the summer season in a way. But we are confident that the impact of this campaign, we will be seeing throughout the second half of this year.

Last, but not least, talking about North America, EyeMed. That continue to grow very strong pace. We hit 55 million lives insured in North America. So pretty remarkable results for our insurance business in North America. We do continue to see double-digit growth rate in Target Optical. And in Sears on the negative side, we do have a material dilution of our North American growth rate for retail very much driven by a lower store base in Sears Optical, and obviously, a challenged environment for our host.

But now let's start looking at our second most important geography, Europe. And well, I will start with Luxottica number. The overall top line for the first semester in EssilorLuxottica was up 4.7% on a constant FX rate. Once we look at Luxottica, we had our Wholesale division growing on a low single-digit territory, a pretty consistent pattern between first quarter and second quarter.

But what we noticed, in particular during the second quarter, is a different velocity between our prescription business that was up double digit and our Sun business from Wholesale that was actually on the low single-digit growth rate. And we believe that the vast majority of that is due to the weather condition that we had in Europe.

The STARS program, and this is on the positive side, is actually accelerating. During the second quarter, we posted an 18% growth rate and now STARS program represents over 20% of the overall business Wholesale in Europe. So a very successful program that we want to continue to grow even going forward.

But the leading shining stars of Retail in Europe, it's very much Sunglass Hut and Salmoiraghi & Viganò. Both chain posted solid growth.

The overall retail in Europe was up in excess of double digits, a fairly balanced growth rate between comp sales and new space due to store opening. So we continue to see very strong rate. As a matter of fact, we were double digits in Spain, double-digit in Turkey, in Germany as well as in Portugal. So we have a remarkable performance of our retail operation in Europe.

With that, let me hand it over back to Hilary.

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Hilary Halper, EssilorLuxottica Société anonyme - Co-CFO [6]

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So to continue on Europe from the Essilor side, we had mid-single-digit growth in Europe, which was really led on the Essilor side by France and Eastern Europe. And this is really a function of our overall go-to-market approach that includes everything from the lens brands that you're most familiar with -- the Crizal, the Varilux, the Transitions -- to our instruments offering, which includes Visioffice X for personalized lenses and the new Vision-R 800 phoropter.

The VR 800 is really reinventing refraction with greater accuracy and precision through the easier procedure for both the practitioner, and it's a more comfortable experience also for the patient. So great on both sides.

And we're also rolling out the new business model in Germany following the acquisition of Brille24 and its innovative drive to store model. So with that, we'll close out on Europe, and we'll move to Asia, Oceania and Africa, which, on a combined company basis, was up at 5.8% at constant exchange rates.

On the Essilor side, in the Asia Pac region, China shows really solid momentum throughout H1 with double-digit Q2 growth, supported by all business lines from lenses to e-commerce to optical frames. And Southeast Asian countries delivered outstanding growth with Thailand, Malaysia and the Philippines as really standout performers.

South Korea also delivered strong H1 with an acceleration in Q2, and Australia showed marked improvement over the second half of last year, with robust growth in the ECP segments.

Stefano, over to you.

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [7]

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Thank you, Hilary. It was a good growth story for Luxottica as well in this part of the world. We continue to see solid growth in our key geographies in Asia, Oceania and Africa. We were very strong in Japan, Korea, Southeast Asia and Middle East.

And last, but not least, in China or -- and particularly on the Wholesale side, we're very happy of our strategic reposition that we had undertook a couple of years ago. We're now rebuilding on a Wholesale business in China that is stronger than before. We have a tighter partnership with our clients in China, and we are really better positioned -- better than ever, I would say, positioned in this part of the world for future growth.

We continue our expansion of our retail footprint in Asia. In particular, we opened about 25 stores, Ray-Ban stores, very much concentrated in China because we believe that, that format is a very successful one in China. And we continue to see positive growth quarter after quarter in our optical retail Australia business. And now we are on 12th consecutive quarter of solid growth in that part of the world. And you remember, the not too -- few years back, Australia was one of the areas which we have quite a few challenge, I would say. And so I'm very pleased to report a continuous growth pattern of growth in this part of the world from a retail perspective.

But now, let's start with the last geography, Latin America. You do see top line performance, 12.3% overall on a constant FX basis. A very remarkable performance. And I'll give you a couple of readings about Luxottica. When I think about Latin America, I really think about our biggest geography there, and that geography is Brazil. And when I think about Brazil, there are really 2 assets that we have over there that we continue to leverage more and more every quarter.

The first asset is Óticas Carol. It's an acquisition that we made back to few years ago and is a very successful one. It's instrumental to our growth in that part of the world. We have added in the recent time more than 70 new doors in the Óticas Carol network, and we are very strong that we have a lot of partners that every day wants to cooperate and work more with EssilorLuxottica for the frames and for our lenses.

The other important assets that we have in that part of the world, it's really the STARS program. The STARS program now today accounts for more than 1,000 doors, more than 40% increase on STARS door compared to the same period of last year. And we know that every time that we do have STARS program in place, that is always a successful story. So happy to see that.

Last but not least, outside Brazil, a double-digit growth story, Mexico, a very strong geography that has a strong rebound during the second quarter.

But now let's listen more about another successful story, the Essilor one on Latin America.

Hilary?

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Hilary Halper, EssilorLuxottica Société anonyme - Co-CFO [8]

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Thank you. So yes, Latin America on our side was a star performer as well. It posted double-digit growth with consistently strong performance across the region in both the first and second quarters. So consistent performance. And Brazil was really led by Varilux and the regional chains that we have there. And then outside of Brazil, we saw a strong performance in Argentina, Colombia and Mexico.

So with that, we'll wrap up the commentary on the top line performance from a geographical perspective, and we'll really continue now to take you through the EssilorLuxottica adjusted income statement and dive into more of the numbers here.

So in terms of the P&L, where are we? For the first half, we reported revenues of EUR 8.766 billion on a pro forma adjusted basis, as we said before, growing 7.3% over the prior year in constant -- reported in currency terms and 3.9% at constant exchange rates.

On gross profit, we had gross profit of EUR 5.549 billion, which grew at 6.8% at current exchange rates and 3.1% at constant rates, slower than our top line growth on a 30 basis point decline in our gross margin. And this was really driven by a variety of different factors, including margin leverage from the frame business, which is offset by portfolio mix effects in the lens business; mainly faster growth in lower gross margin businesses, including Sun & Readers and online sales of contact lenses; as well as slower sales in Transitions ahead of what we anticipated in terms of the Gen 8 launch.

If we move on to adjusted operating profit, we had adjusted operating profit of EUR 1.512 billion, which grew at 4.3% at current rates and declined slightly at minus 0.4% at constant rates.

I'd really like to highlight here that these figures have been adjusted for IFRS 16, which leads to a rebasing of the figures reported in previous years.

In these terms, our margin was 50 basis points lower than prior year. And this is really due to a combination of factors. We have the additional holding company costs at the EssilorLuxottica level, and we have continued investments in growth initiatives. These investments are primarily on the lens business side, and they include investments in e-commerce, Sun & Readers, the Transitions Gen 8 launch, as well as activities to develop the myopia segment.

We also increased the support for the key frame brands and retail with Sunglass Hut TV media that restarted, as Stefano commented, and this was offset to some degree by strong cost management on the Luxottica side. These OpEx items were offset to a large degree by a reduction in our financing costs, which we were really able to take advantage of more favorable rates as a combined company and this is despite some exceptional cash flow items that increased our overall debt level. So very strong performance on the financial expenses side of things.

And as you'll recall, along with our annual H1 dividend payment, we had the MTO outlay. So very strong performance here. And then we also benefited on the tax side as our effective tax rate was reduced to 23.8%, and this is really mostly driven by more favorable geographic mix.

So finally, if we look at our net income, our net income was EUR 1.099 billion in adjusted terms, up 6.8% in reported currency terms and 1.6% (sic - see slide 11, "1.9%") at constant currency.

If I move now to the free cash flow statements. Our group free cash flow amounted to EUR 748 million for the first half, and this is when normalized for the IFRS 16 effects. And this was comprised of EUR 1.925 billion in operating cash flow, then we make the adjustments for less -- so we less our working capital increase of EUR 436 million. Then we have the cash payments of the lease liabilities of EUR 303 million and CapEx of EUR 438 million. And the CapEx really equates to about 5% of group revenue.

If I move on to the net debt, our net debt -- on the financial net debt, let me comment that because we have the IFRS 16 adjustments -- amounted to EUR 2.773 million as of the end of June. And this was an increase of EUR 886 million and influenced by a EUR 925 million payment for the annual dividend and as we mentioned before, our EUR 643 million for the cash portion of the mandatory tender offer.

And all of this puts us with a net financial debt-to-EBITDA well below 1 turn of EBITDA. And this really leaves us in a very strong position to move ahead with our acquisition of GrandVision on attractive terms from a financing perspective. So we're really in good stead from a leverage perspective.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [9]

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Thank you, Hilary and Stefano. So I think now we need to -- we will move to the GrandVision announcement this morning. So I don't think it's a surprise as there have been some rumors and leakage in the press, and we confirm those discussion 2 weeks ago. Also for you that are following EssilorLuxottica for a long time, you really know how it's a quite natural move.

And what is more remarkable is that we have been able to execute this move very fast, and we have been very fast to align all the parties. Obviously, the owner of GrandVision, GrandVision and internally inside EssilorLuxottica, all the management and the Board that are fully supporting this move, that is very important and very important for the industry. And I think this is a great achievement that we have been able all together to achieve in a very limited time.

It was part of the plan when we did this combination with EssilorLuxottica and [here it is]. And in a few months from now, we will have the opportunity to welcome all the GrandVision associates, and I want to tell them how thrilled we are to welcome them and so they can become part of this journey.

So with this announcement, we will continue our journey to be the global leader in eye care industry, that we'll be able to transform the industry with only one objective: to provide alongside with all industry player to every consumer in the world for better experience with high-quality eyewear and high-quality branded frames.

So what does that mean exactly? We want to develop this industry. In order to develop this industry, we need to speak to the consumer in many different ways. And we want to have, what we call, a multichannel strategy, country per country, where we want to ensure that every consumer will find directly with us or through our ECP customers in-store or digitally or both the best superior eye care and eyewear experience that they choose and deserve.

Obviously, it's a very natural fit, the combination between EssilorLuxottica and GrandVision. Over the last decade, GrandVision has built a state-of-the-art retailer network and highly respected management team. It is also a very strong footprint in EMEA region, in Europe basically where EssilorLuxottica retail is less developed. So this is, for us, an excellent fit geographically perspective and in Europe and complement our emerging market retail presence.

Once it's done -- I'm still on the previous slide. Once it's done, the EssilorLuxottica plus GrandVision will be much more balanced in terms of geography, and we will be more or less 50%, 50% -- 50-50 between North America and Europe in terms of sales and store footprint in retail. And will be also more balanced in terms of Wholesale activity, which will remain very important; and retail activity.

And finally, Pierluigi will cover the deal structure in more detail, but the acquisition of GrandVision is very financially attractive. It's a company which is running well. That with the combination with EssilorLuxottica will benefit all the service and products that we can provide to them. And it will improve and grow and accelerate growth by this combination.

On the next slide, you have a little bit high-level description -- go back one slide -- high-level description of GrandVision. So as you have seen, it's a growing company. In the last 5 years, they grew by EUR 1 billion. They cover in 40 countries, 37,000 employees, 7,000 stores in -- across 30 successful leading banner locally. And they have 700,000 visits per day in their store and e-commerce capability, which is quite impressive and a consumer base -- a customer base of 150 million consumers. So it gives you a sense of the size of this very successful company.

On the next slide, you see how we are complementary in terms of balance of banner and region. And you can see also the e-commerce capability that will be added to the company. And we know that the management team of GrandVision add recently, in the last 2 years, accelerate digitalization and omnichannel strategy in their organization.

So what we'll be -- how we look at EssilorLuxottica once the acquisition will be completed? So you see we'll be a EUR 20 billion company, almost EUR 20 billion company. We'll be half in the U.S., half in Europe. We will have 18,000 stores. And the weight of Europe will increase up to 35% in number of stores. Also, at that moment, I would say, EssilorLuxottica will be only 15% or 20% of these activities in emerging country, which will be the next step of growth for EssilorLuxottica, which is increased retail footprint in those geography, which are fast growing.

With that, I think we will pass the mic to Pierluigi that will explain more in detail the structure of the deal.

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Pierluigi Longo, EssilorLuxottica Société anonyme - Chief Integration Officer & Head of M&A [10]

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Thank you, Laurent. Good morning to everybody. First of all, let me say, as I'm extremely happy to be here to comment on the key terms of the transaction, which represent a new milestone in the history of EssilorLuxottica which is also the first significant acquisition since the creation of our new group.

So as you read in the press release we issue today, the agreement we reached with HAL is to acquire the entire participation that they have in GrandVision. EssilorLuxottica upon closing will pay a purchase price of 28% -- EUR 28 per share in cash, which represent a valuation of approximately EUR 5.5 billion for the HAL participation. The price might be increased by 1.5%, up to EUR 28.42 in case the transaction will not close within 12 months from today. This purchase price represent a premium of 33% to the effective share price of GrandVision on July 16 before that information was leaked to the market.

Upon completion, we are going to launch a mandatory cash public offer to all the minority shareholders with the objective of delisting GrandVision. The transaction is going to be valued at EUR 7.1 billion for the 100% of the equity for a total transaction value of a little bit in excess of EUR 8 billion, including the debt of the company as of today.

In the context of this transaction, we have also obtained bridge financing from primary financial institution for approximately EUR 8 billion, and we plan to refinance it in due course through debt and equity -- on equity-like instruments up to EUR 2 billion.

We have discussed the transaction with our Board. We had full support of our Board of Directors from our management team. We discussed also with the Supervisory Board and the management team of GrandVision, and we got full support from them. And in the context of the transaction, HAL enter into an irrevocable commitment to sell their stake to us even in case of a superior offer from third parties.

We are confident to close the transaction in 12, 24 months once we have obtained all the antitrust approval, and we're going to satisfy all the customary closing conditions.

In the context of the deal, we have also set a long stop date which will occur on the 30th of July '21. So in 2 years' time.

With this, I hand it over back to Laurent.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [11]

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Yes. Some final word before the Q&A session. Thank you, Pierluigi, and congratulations because you have been very instrumental and leading this beautiful transaction. So thank you, and congratulations.

And -- so as you know, Francesco Milleri and I, we have been tasked by the Chairman and his Chairman to accelerate the integration and the simplification of the group, and it was back in May, if you remember, so 2, 3 months ago. And this is exactly what we have started to do together. The chemistry between both of us is good. And it already has translated in some key decision.

As you know, all this integration process is organized around the integration committee that meets every 2 weeks and provide us a solid process to make sure everything is on track. We have, at the moment, 22 workstream, which are up and running. We have to review every 2 weeks and it's working pretty well. As you know as well, in March, we confirm the range of synergy from EUR 420 million to EUR 60 million net impact on adjusted operating profit within the next 3 to 5 years.

So we expect the first tangible results in the next months. And the bulk of the impact will start from 2020 and will accelerate after.

Obviously, as you know, we have set up Capital Market Day on the 25th of September in London. So 25th of September in London, and this will be the moment where we will in a position to provide you more information on the nature of the synergy and the saving in the next coming years.

So now, how do we see H2, the second half of this year? What we should see is an acceleration of growth and an acceleration of profitability on the top of the good H1 momentum we have described with Stefano and Hilary. Here is what we will see.

In the lens division, as you understand, there is a lot of new product coming in and accelerating growth. The biggest impact we expect is coming from the new generation of Transition. And again, from you that follow us for a long, long period of time, this is the #8 generation. And you know that each new generation, there is a big lift for the category and for the Transition brand. There's also other product that are ramping up at the moment.

We also [went high] on the number of Essilor Expert outlet that we have in the North America. That increased 30%. And as Stefano mentioned, the number of STARS customer that provide more proximity and intimacy and efficiency to deliver new products and new collection.

We will also take advantage of the accelerated development of [exporting] lenses, brand is Nikon and manufactured in Japan. That is a big push for growth and profitability. Our digital acceleration investment both in Luxottica and Essilor will increase the return customer surfing on website for information to active omnichannel buyers. And we will also benefit for easier comparison base on sales and margin in country like India and Brazil.

As has been mentioned, Sunglass Hut North America should benefit from the positive effect of the advertising campaign that started in Q2 as well as cluster activity will be supported by back-to-school TV campaign, which started actually at the moment, I think.

And also, Target and EyeMed should continue to be very strong. And we expect the online business -- the total online business to continue to accelerate and grow double-digit in the H2.

So finally, we should also benefit from the restructuring and the lab optimization that happened, especially in North America and Europe inside Essilor. That job has been done in H1, and we should benefit of it in H2. We will see also the first positive impact on sales and cost even if they are small from the synergy and the integration process I mentioned just earlier.

The second half also will be held. The acceleration will be held by the few acquisitions we have made at the end of H1 or beginning of H2. I mentioned already the Barberini acquisition. That should be closed any days from now, in the next coming days. And the positive impact of the -- providing lenses to this retail chain in Mexico that we signed late in June. So we -- basically, all of that, we have enough confidence to confirm our financial objective for 2019.

And it's time now to move to the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Today's first question is coming from Ms. Elena Mariani calling in from Morgan Stanley.

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Elena Mariani, Morgan Stanley, Research Division - Executive Director of Luxury Goods and Brands [2]

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Congratulations on your deal announcement this morning. May I ask -- may I start asking a few questions on this transaction? First of all, on the synergies, GrandVision said earlier today in their conference call that they expect synergies to be more on the revenue side rather than on the cost side. Could you confirm this? And perhaps give us a little bit more details on the potential value you think you could extract from this asset.

I'm particularly interested in understanding how much further lenses and frames penetration you could achieve in their retail network, given how different the price positioning is versus your product base. And also, whether you think you could manage the assets in a better way? As you know, GrandVision is a pretty complex organization. And they've been struggling recently to deliver earnings growth, margin expansion. How do you think you could change this trajectory within your group structure?

Second question, how do you expect your Wholesale customers to react in Europe? I guess there might be a scenario where you could see some disruption over the next 12 months in your wholesale business before you close the transaction and you start to get any benefits from the deal?

And finally, I think the timing has surprised several investors. Why are you pursuing this deal now, given that you are probably the only potential buyer out there? You have a lot on your plate. So could you explain to us how you plan to prioritize all the different work streams? And why investors should feel comfortable with the execution?

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Pierluigi Longo, EssilorLuxottica Société anonyme - Chief Integration Officer & Head of M&A [3]

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Thank you, Elena. It's Pierluigi. I'm going to try to answer your questions. Thank you very much for them. On the synergy side, it's premature to comment on what we can do. We learned that the analysis of the synergy potential is very hard work. We are working together with the team to extract value and synergies out of the combination of EssilorLuxottica. And right now, we are focused on those activities.

We see opportunities. There are a lot of opportunities coming from the integration of GrandVision and EssilorLuxottica. But that will take a bit of time to get it done. So in the meantime, we're going to focus on the process and on the satisfaction of all the condition presidents.

With respect to the lens and frames, I mean it's important to stress that GrandVision is already one of our key customers on -- especially on the Luxottica side and is already a customer of Essilor on lenses. So there is already a number of products, which are sold through the GrandVision network throughout the world.

We have a significant expertise in retail. We have learned to integrate retail networks over the years. All the retail banners and networks we have, have been the results of M&A activities. The last one is Salmoiraghi & Viganò. And already, Stefano commented on the great performance that we are achieving after the completion of the acquisition of Salmoiraghi & Viganò.

We are confident that we're going to achieve a similar result in -- after the integration of GrandVision, which is properly managed. We have a lot of confidence and respect for the work that's been done by the current management team. And we believe that combining strength and expertise, we're going to be able to do more.

With respect to the wholesale customers, it's difficult to comment. I mean as I said, we have a significant expertise in buying retailers. And if we look at all the countries where we have a retail network operating such as the States, such as Italy, we didn't suffer as a significant pushback from wholesale customers. We are relying and leveraging on an open platform model. All our products are going to be available to all our customers. All our innovations and services are going to be made available to them. And our Retail business is going to showcase of what can be done in whatever store or whatever eye care and eyewear store in the world.

With respect of the timing, I mean when good opportunities arise, you need to catch them and make sure that you leverage on that window. This is something that we have been looking at for years on the Luxottica side, on the EssilorLuxottica side. And we believe that this is the right time and to do it, and we have the proper management team, the expertise and resources in terms of capital -- human capital and expertise in order to integrate this as soon as we're going to get to the closing date.

I don't know, Laurent, if you want to comment?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [4]

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Yes. Maybe just -- thank you for the answer. Just a little bit of complement timing. It was part of the plan when we decided to have the combination between Essilor and Luxottica. And this is probably one of the initiative that we started right away after October 1. So it's happening, and we found some interest in GrandVision and HAL, the owner of GrandVision. So as you said, this is now understanding that the reality of the acquisition will happen in 1 year, we hope, and maybe a little bit more. So as Pierluigi said, we have a lot of time to pursue the integration of Essilor and Luxottica, and then to welcome GrandVision.

On the potential of retaliation or reaction from customer, obviously, too early to say anything on this one. Not obvious it will happen or not. Obviously, it will happen on a big scale. It could. We have a plan to mitigate if it's happening. We have a plan to be close to our customer at the moment. And for the -- and one will be back-to-school. There is a plan to support our customer in what they want to do, all the customer. And they know -- they know as well that EssilorLuxottica now, we are the one providing the industry with innovation, new solution, frame, lenses, frame and lenses together. They know that and they respect that.

And if it's happening, it's a new short-term situation like we have seen 1 year ago or 2 years ago when we announced the EssilorLuxottica combination. So we are confident that we can mitigate and go over that situation quite simply.

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Elena Mariani, Morgan Stanley, Research Division - Executive Director of Luxury Goods and Brands [5]

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Okay. Maybe just 2 small follow-ups. So I know that you already have a good relationship with GrandVision and you're already offering, particularly on the frame side, a good portion of products. Maybe a little bit less on the lenses side.

I just wanted to better understand how you plan to further increase the penetration, given that your price positioning is very different. I mean GrandVision is a value player. You've always very proudly been more premium. So are you planning to embrace lower price points to slightly premiumize the chains? How should we expect you to manage these assets?

And secondly, going back to the performance of GrandVision. They've been struggling with margins, delivering earnings growth. How do you think you can make it better? Do you think that you can improve the performance of the overall asset within your group structure? And why are you confident on this?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [6]

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So, Pierluigi, I take the question and you may complement if needed. Number one, we were provided -- we, Essilor, at that time, we have provided office for GrandVision for a long, long period of time until the last 2 years. So we have the knowledge and together with GrandVision how to develop category, how to integrate supply chain for lenses and frame, and we will do even better when we are EssilorLuxottica now with frame and lenses together. So today, we are delivering a very small number of lenses to GrandVision. So it's a great opportunity, frame and lenses, to grow with them.

As far as the positioning of GrandVision, we know when you want to develop a market, you need a channel at every price point. And in every price point, we can improve customer satisfaction, service, quality of product. And I think that what we will aim once we know a little bit on GrandVision when they will be on board, how we can cover the market with a multichannel strategy with different positioning.

I guess in every country, there will be a Ray-Ban store, there will be Oakley store, there will be GrandVision store, there will be at every level store that we provide better solution moving forward to consumer. So I think that's what we have to do in the next coming years as soon as GrandVision is part of the family.

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Operator [7]

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Today's next question is coming from Mr. Antoine Belge calling in from HSBC.

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Antoine Belge, HSBC, Research Division - Global of Consumer and Retail Research [8]

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It's Antoine Belge, HSBC. 3 questions. First of all, regarding the financing issue, you mentioned it would be mostly through debt. What sort of interest rate should we be using on the EUR 8 billion to try to estimate the cost of the financing the acquisition?

Second question. I think everyone takes on board the fact that GrandVision is quite complementary, especially from a geographic perspective, but I think you -- in your prepared comments, you admitted that in the U.S., for instance, the optical retail market is very competitive and there are new distribution model rising. So is that a stack? I mean how is Europe different? And if I want to be a -- play a little bit devil's advocate, it's been difficult for you to turn around LensCrafters, so how confident are you that you can improve the performance of GrandVision and create value on the price that you paid?

And finally, regarding the Capital Market Day in London on the 25th. This would be a Capital Market Day without a new CEO. So -- and obviously, synergies that you will disclose or confirm or raise will have a significant impact on margins. But how can -- will you be also giving an indication of the amount of reinvestment that needed to be done? Again, it's a bit of around the discussion about -- around growth synergies. This is net synergies once you've maybe reallocated some of the gains to finance future growth.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [9]

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Well, Antoine, thank you for your question. So the -- on the financing, obviously, it's too early to say. We have a secured financing. We believe we would like to -- because we want to keep a great rating that we have, we will finance it partly debt and equity. And -- but the rate and so on, it's too early. We'll know more in a few weeks from now -- few months from now.

Hilary, do you want to complement?

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Hilary Halper, EssilorLuxottica Société anonyme - Co-CFO [10]

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But I think, obviously, we plan to take advantage of the favorable finance rates that are out there, and you can make the assumption that in terms of the cost of debt, it will be in line with our current cost of financing.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [11]

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Now your question on Retail and evolution of Retail. And as every business, there is many evolution every -- at every moment. And we want to be part of the driving this retail improvement and proposing more and better solution to consumer at every price point.

I think, Antoine, we need retail, and we need access to consumer and for a long time to propose consumer, educate consumer, provide consumer with the best solution to see well and protect their eyes. And that was especially for [both] company in Europe, [a miss or a gap] we had so far. So when GrandVision will be present, will be part of the family, this gap will be filled.

And we will do our job, which is to improve solution and presentation of the solution. Eye exam, frame, lenses, frame and lenses together, consumer experience, in store, online and omnichannel. And we expect to be the one driving the evolution of retail for the good of the consumer and for the good of our other customer, what we call the wholesale customer that would like to take up the advantage of the innovative solutions we'll put on the market and we'll create in the market.

Honestly, the question on the CMD, I don't know exactly what's behind. Yes, no, the new CEO won't be there. At the moment, we have 4 CEOs, and it's working very well. Mr. Del Vecchio is active, Hubert is there, Francesco is there, I am there. And we are making decisions. As you can see, the proof in the pudding, if I may say so.

So we'll have a great CMD, no question. Synergy and integration will be accelerating. So let us work and build this fantastic combination and be prepared to welcome GrandVision in 1 year or more from now.

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Antoine Belge, HSBC, Research Division - Global of Consumer and Retail Research [12]

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And just a follow-up. So I think Hilary said to use the current cost of financing. So -- and the financial results, I mean this is some time polluted by various elements. So is it possible to have the sort of best guess for the full year '19 cost of financing as a percentage?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [13]

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The cost of financing for '19.

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Hilary Halper, EssilorLuxottica Société anonyme - Co-CFO [14]

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For the assumption purposes, I mean it's around 2.5%.

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Operator [15]

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Our next question is coming from Julien Dormois calling in from Exane BNP Paribas.

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Julien Dormois, Exane BNP Paribas, Research Division - Research Analyst [16]

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I have 3. First one relates to the GrandVision deal. We know that the antitrust review for EssilorLuxottica was quite lengthy. So what would be your best guess on that side?

And secondly, you had called it right in the first place that the antitrust authorities would ask for very limited remedies for giving the green light. Would you expect the same kind of outcome for GrandVision?

Question number two is that, I'm just curious if you could provide us with the adjusted pro forma margins for the full year '18 because you've obviously restated your accounts for the implementation of IFRS 16. So if you could provide us that number as a percent of sales for full year '18. The question -- the underlying question, obviously, being should we -- what would be the basis to come up with the full year '19 margin? And also whether H2 should be stronger than H1 from a margin perspective?

And the last question is a housekeeping one, which relates to the contribution of Barberini. Could you give us a ballpark estimate of how much it should contribute to sales? Because my understanding is that it should nicely contribute to the acceleration in sales that you expect in H2. So a number here would be particularly helpful.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [17]

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So thank you, Julien. I will take the first one about antitrust and I think Stefano will take the #2 about the margin '18 and H2. And Barberini, Pierluigi or Stefano will provide the information.

So well, on antitrust, we hope 1 year will be a good timing based on the fact that, number one, the EU where we need to [file]. This is a very in-depth understanding and knowledge and discovery of the industry when we presented the EssilorLuxottica combination. So I think they start from a better understanding of the industry. And as we are -- our presence at the moment in retail in Europe is very limited. We think it's more simple work for them.

Remedies, we don't expect a lot of them. The combination -- the deal has been such a way. And -- but now, antitrust is -- they're the only one to decide and we'll see. And that's what we can say, and we are confident -- not confident. We already expect to do -- to be in 1 year, 1 year and a few months, up and running.

Stefano?

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [18]

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Yes. So on the profitability for 2018 on a pro forma basis adjusted, you're looking at about 16% profitability after the restatement as per IFRS 16. So you remember that we will expose year-over-year on a full retrospective basis. So we're restating 2018 as per IFRS 16 impact. So you're looking at about 16% operating profit. And on a net income basis, on a full year, you're looking at about 11.5% net income.

Now the other question was regarding the Barberini contribution. We disclosed that the overall revenues of Barberini on a full year basis is about EUR 85 million of that. Of that number, I would say half of that is captive. So you can do the math depending on the exact time of closing. And probably the last remark on this is that's a business that is margin accretive to the overall EssilorLuxottica profitability.

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Julien Dormois, Exane BNP Paribas, Research Division - Research Analyst [19]

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Yes. Sorry. If I may just have a follow-up here because there's something that is not clear to me. So if -- for full year '18, the adjusted pro forma margin was 16%, how come you're reporting 17.7% for H1? So that would mean a very low number in H2. Or am I getting something wrong here?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [20]

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Maybe we can take this off-line if you agree, Julien.

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Julien Dormois, Exane BNP Paribas, Research Division - Research Analyst [21]

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Okay. Okay. Yes. Would be happy to.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [22]

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That's very -- a lot of thing change from [what I view also] so it's not an indication to let's take maybe offline or let's give some time to the team to provide the right answer.

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [23]

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Julien, just to add on that, there is a material seasonality between the first half and the second half of the year in terms of profitability is structural to the group. Remember that the second quarter has as a material ramp-up in terms of profitability, also in consideration of the sun season. So it is structural that the marginality at the operating profit level for EssilorLuxottica in 2018 as well as in 2019 is expected to be lower in H2 compared to H1. This is structural. It's the way the business model works.

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Operator [24]

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Our next question is coming from Ms. Francesca Di Pasquantonio calling in from Deutsche Bank.

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Francesca Di Pasquantonio, Deutsche Bank AG, Research Division - Research Analyst [25]

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I have a couple of follow-up questions. The first on GrandVision. I know it's very early to say. But just in terms of your rationale, the way you are thinking about GrandVision integration, how are you thinking about the banners and the opportunity to rationalize? How are you thinking about the offering and the penetration of Luxottica product as a total of the offering for GrandVision?

Second question is on synergies. Sorry to go back to Antoine's question, but I find maybe useful to understand what the cost of growth are going to be out of the EUR 420 million to EUR 600 million EBIT. And whether this is a number which is already net from this cost of growth. Or whether some of this EUR 420 million to EUR 600 million will be used to fuel further improvements.

Thirdly, can you maybe give us some key highlights of some of the major projects within the 22 that you are mentioning being now under action? And the 2 finance quick ones, can you give some visibility of comps in the second quarter for LensCrafters and Sunglass Hut, some granularity? And finally, what would be your full year tax rate guidance?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [26]

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Well, a lot of question. And maybe I can take the first one on GrandVision banners, and then maybe more clarity on the third one, which is about the major project. And maybe on LensCrafters and synergy, maybe you could answer, Stefano. You okay with that?

So on GrandVision, as you have seen, GrandVision has been built by -- mainly by acquisition over the last decades. And each banner has its own personality and reputation in every -- in each country. So again, I think it's too early to say exactly what we will do with those banners. Some of them maybe they will go to premiumization; some of them maybe go more with vision care, health care; you mentioned, some of them will be more access and fast fashion. That's what we see in the market happening at the segmentation of the retail. But honestly, starting today, we are focused on this antitrust initiative that we need to drive, make it faster and more successful possible. And we'll come back to that dimension on the hows to search a different channel and different banner later.

On the key project for the future that we are implementing at the moment and they are more on the vision care part for what I mentioned earlier. As you know, myopia is a pandemia. As you know, half of the population will be myope in 10, 20 years from now. As you know, not only myopia prevents you to see well, but part of the myopic people have high risk to become blind. So this is a huge opportunity for EssilorLuxottica to invest solution. So all those myopic people in 20 years from now will be see well, protected and will be presented to become myope. It include, obviously, lenses technology. It includes frame and lenses that our R&D in EssilorLuxottica are working on. And it includes also some fashion aspect because [eye] myope, as you know, they have a white ring on their lens when they are in the dark frame and I see someone in front of me. And that's the thing we could launch pretty soon in the market.

The other big dimension we are investing in both company heavily at the moment is digitalization. The whole idea is we have hundreds of millions of consumers, which are looking for solution on vision and protection every year. It's a few hundred million of them. And the whole idea is to drive them progressively to the proper solution in one of our EssilorLuxottica asset with one of our customer that are part of the network, and to transform them from active searcher on the net to active consumer benefiting from solution frame and lenses provided by the group in our stores or partner stores. Synergy?

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [27]

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Yes, Synergy. Thank you, Laurent, and good morning, Francesca. So with respect to synergy, we do expect to be more explicit on the synergy numbers and the cost for growth in the Capital Market Day. That is with a purpose -- a part of the purpose of our coming Capital Market Day. What I can tell you is that for this year, the synergies there are being executed do not carry one-off costs by any sense of materiality.

So the other question was with respect to the tax rate. The tax rate on a full year basis is expected to be at 23%. And we have -- we do expect that tax rate to be about 1 percentage point lower than the 2018 tax rate for EssilorLuxottica.

The other question you had was with respect to Sunglass Hut and LensCrafters comps during the second quarter. Both of them are slightly negative, in particular in North America, I was referring to for Sunglass Hut.

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Operator [28]

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We'll now go to Mr. Domenico Ghilotti calling in from Equita.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [29]

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2 question still on the GrandVision transaction. I'm curious about the timing, so when you started to negotiate about this transaction with HAL. And second, on the equity financing. If I understood properly, you're expecting to confirm the current rate [thanks] to this part of equity funded transaction. And 2 question on the current business, the current perimeter. I'm wondering -- so given the very -- so the weak spot of the result was Retail North America and you were mentioning negative comps. I'm trying to understand how confident you are in being able to recover. Or if you are confident to recover positive store comps in the second half, how do you see the market evolving comps in the second half? How do you see the market evolving in Q3? And what are the reasons behind -- is there a structural reason behind the weakness in Q2 apart from the bad weather?

And lastly, on the free cash flow. Could you give us an indication -- a ballpark indication for the full year because there are some elements that are maybe a bit seasonal like working capital?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [30]

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Okay, Domenico. So I think on the timing, we won't disclose how exactly it happened. As I said, it has been part of the plan for both companies stand-alone for a long time. And when we came together, it became a view that if we can achieve it, it was whether the first move we should do.

The equity financing maybe, Hilary, you could take this question. And then the North American maybe Stefano. And free cash flow, I don't know. Free cash flow, okay, Hilary. So Hilary, equity and free cash flow.

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Hilary Halper, EssilorLuxottica Société anonyme - Co-CFO [31]

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So in terms of the rating, yes, we are able to reiterate our current rating with respect to how we're going to be financing this deal. It's still too early to say on the equity component.

And with respect to the free cash flow, obviously, we expect there is a seasonality impact to our business. We always have more of a weighting in terms of the free cash flow in terms of the second half of the year. So we see acceleration is expected for the second half of the year. With respect to our cash flow, there's a rebalancing aspect that takes place.

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [32]

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And with respect to our retail performance, I mean -- capital ratings, I mean. One is definitely the North America retail optical market, Domenico, that it is very competitive. I mean you do see complete payer packages, the very low price points in the market, very heavily discounted promotion. The quality that we're offering with LensCrafters, the investment that we're doing to enhance and improve and make it better every day the service level for our consumer, the velocity in which we can dispense our lenses. And the quality of the lenses in itself is something that really make uncomparable LensCrafters with vast majority of the largest retail organized chain in North America.

So I think the strategy, the one that we're pursuing even stronger now with the partnership of Essilor in ensuring that we have a bigger and stronger penetration of premium lenses into our store is there. And we're not going to divert that, as I mentioned. Clearly, there is a market out there but it's tougher than probably it used to be. There is much more consolidation in the market. We do see a little bit of deceleration in some of the insured customers. They are shopping in LensCrafters that is out of network and that has also an impact.

The other thing is that comp base in LensCrafters second quarter compared to the first quarter is materially different. Last year, comp sales, you may remember, Domenico, was in the range of 5% for the first quarter. In the second quarter, we were negative 1%. So we have also a tougher comparable base for LensCrafters.

Then when we talk about Retail North America, I think Sunglass Hut will improve throughout the second half of the year. The Gigi Hadid campaign, it is an important one, it is a visible one. The early readings of that campaign are increased brand awareness of Sunglass Hut, are increased intention to purchase from our consumer. And I do have confidence that we will see an improvement in our Sunglass Hut North America performance throughout the second half of the year.

Still speaking to Retail North America, let me just mention one more thing, probably important to mention is Sears. I mean Sears Optical has a material impact on our Retail North American number. We have about 170 store less than what we used to have in the second quarter of 2018. Now your probable next question will be, okay, but when do you expect that to anniversary? So let's say that things do not change from where are we today, we do expect to anniversary that store count base on a really comparable base year-over-year during the first quarter of 2020. Because really Sears had a massive closure plan that was undertaken during the second half of 2018 and the first quarter of 2019. So now that we're stabilized, we do expect to anniversary that closing period in the first quarter of 2020.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [33]

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Maybe what we can say as well is Target is doing very well.

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [34]

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Absolutely.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [35]

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And also maybe part of what the -- is in the integration process, part of the work stream in the integration process will support by 2020 the strategy of LensCrafters to provide higher-end experience to consumer, both in eye exam and product and combined frame and lenses, all of that is coming for the next year as part of the integration work we are doing together and led by Pierluigi and Eric Leonard. And we don't see that yet as a benefit for LensCrafters today. So I think there is a positive for the future in Retail North America.

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Operator [36]

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The next question, sir, will be coming from Delphine Le Louet calling in from Société Générale.

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Delphine Le Louet, Societe Generale Cross Asset Research - Equity Analyst [37]

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Just one comment, Stefano, post the Julien question regarding the EBIT margin. We had a lot of cost taken into consideration in H1 '18 due to the merger. So very much of interest to get this figure. Two, whatever the seasonality might be between H1 and H2. Back to the question, I have 4 actually. Laurent, you mentioned during the call that you had done a lot of restructuring between the labs regarding Essilor network. Can you be more specific on what sort of a restructuring closure reorganization you've been putting in place?

Second question regards the debt. Can we get any idea about the sizing of the deleveraging? And what would the ideal net debt to EBIT or EBITDA target in the future?

Third question regarding GrandVision deal, what is according to you and from an antitrust perspective what is within the G4 country of GrandVision the most at risk?

And finally, when I look back the divergence of performance between Essilor and Luxottica now since a very long time, we are talking about 200 basis points in terms of growth to 300 according to the quarters. Is this deal GrandVision effectively necessary to have in the future, whatever the time frame might be, but a more consistent growth at the retail space for the 2 division?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [38]

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So the first question was about how we will improve efficiency of the lab in North America. So -- and Europe, maybe Paul, which is in the room, maybe can give you exactly the right discussion on what's happening.

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Paul du Saillant, EssilorLuxottica Société anonyme - Deputy CEO [39]

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Okay. Yes, Laurent. Well, in the lab, we have an ongoing program of deploying the latest technology of Satisloh in terms of surfacing, polishing, aging, coating. So this is an ongoing program. So we have a very homogeneous platform in our labs in the U.S., also in Europe, Asia and Latin America. In parallel to that, we have an optimization work being carried in the U.S. on the lab footprint, which is a job we already carried in some other geographies, namely Europe. And that is providing, as we do to the investment, optimization of the cost, improvement of the quality, the service and making our supply chain infrastructure very robust and able to support the growth. So this is something that is being accelerated in the U.S. by the team, and that should provide some improvement of the cost base in the second half.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [40]

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Thank you, Paul. So, Hilary, on net debt, the question on the net debt.

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Hilary Halper, EssilorLuxottica Société anonyme - Co-CFO [41]

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Sure. I think we commented earlier that our net financial debt-to-EBITDA is well below 1x at the moment. In terms of -- I'm not sure I fully understood your question, if it was in terms of where we expect to be in kind of the context of the GrandVision transaction. Obviously, it's too early to say there. It will depend on the timing of when we close the deal. Obviously, from now until when we close the deal, we'll continue to generate cash flow. So it has a little bit of a timing aspect there.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [42]

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Okay. And there was a question, Pierluigi, on the G4 countries for GrandVision and do we see a specific issue or do we foresee a specific issue for the antitrust perspective in those countries.

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Pierluigi Longo, EssilorLuxottica Société anonyme - Chief Integration Officer & Head of M&A [43]

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Yes, Delphine. I mean we do not see specific risk in the G4 countries considering the limited exposure we have to the optical business. We have just a few shops, few optical stores in U.K., which is a highly fragmented market. But besides that, there is nothing to be worried about.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [44]

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So on your more strategic question, Delphine, on the growth, was it necessary? Is it necessary? I think the short answer is, as you know, there is a huge gap between what the industry is delivering to consumer and the real need of the consumer for many different reasons and including in Europe. And I always said that the huge frustration for, at least on the Essilor side, was that we develop so many innovation and so many innovation that makes sense from the consumer. And in the old world before EssilorLuxottica, we had [so hard] time to go to the consumer and convince them one by one that was the right thing to do. So by developing the appropriate share of retail in each and every country, we will provide EssilorLuxottica as an efficient channel to talk to consumer combined physically and digital. And by doing so, accelerate the development in the industry and consumer better protected and seeing better. So it's really a strategic move that should accelerate the development of the industry and close that huge gap between the industry and its customer today and the needs of the consumer. And obviously, when in a given market like we -- it has been said, we have a driving force like Luxottica Retail or EssilorLuxottica Retail, then, obviously, the other provider to consumer, they will follow and take advantage of those innovation.

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Operator [45]

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We'll now go to Ed Ridley-Day of Redburn.

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Edward Nicholas Ridley-Day, Redburn (Europe) Limited, Research Division - Research Analyst [46]

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Laurent, firstly on revenue synergies. Clearly, we all remember what happened with GrandVision and Hoya given the business loss there. Would that be a potential indication of potential revenue synergies, if I could ask it that way? That would be my first question. Secondly, just on equity to confirm, obviously, you've highlighted your capital structure, potentially reason for using equity. But was there any -- was that a condition of the deal in terms of the HAL investors that they wanted equity in the deal?

And thirdly, regarding the U.S., you've talked about it quite a bit. But regarding Sears and also potentially Pearle Vision, could we potentially see an acceleration to exit some of these businesses?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [47]

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Okay. So, Ed, we didn't understood exactly your second question about conditions for HAL and so on, so could you repeat it?

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Edward Nicholas Ridley-Day, Redburn (Europe) Limited, Research Division - Research Analyst [48]

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Yes. I was just really asking if the reasons behind using equity given the strength of your balance sheet. And I was wondering if they had requested that.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [49]

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It's not on the table. There are no discussion on the table of that kind. On GrandVision and Hoya, for sure, maybe GrandVision and Essilor, it was a long story as I said, of a collaboration with ups and downs, and we won't come back on that. So for sure, we will find ways and products and services to serve GrandVision as soon as antitrust would be cleared. And if GrandVision as a company find that the offer from Essilor and EssilorLuxottica, lenses, and frames and lenses, and optometric equipment and omnichannel solution fit their strategy to grow, for sure, we'll take advantage of that.

And then your question on U.S. again on Sears and Pearle.

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [50]

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Yes. No, there's no plan to change our retail footprint. In terms of disposition, I think we continue to manage both Sears. And I would say, Pearle, it is an instrumental part of our business, especially for the franchising business model development. So even in light of the acquisition of GrandVision, we do see strengths in our franchising business in North America, in Europe, in South America with Óticas Carol. So it is a business model that we are pursuing even in Asia. So it is a business model that we're pursuing. And I think it is a successful one. So no plans for disposition.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [51]

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Yes. And if I may complement, in the U.S., we also have a buying group, as you know, Vision Source. We have (inaudible), we have the STARS wholesale customers. So this is the way to build this network of -- that we provide more efficiency to the industry. So the consumer will -- are different positioning and different price positioning find the solution they need and request.

Next question. Julien again?

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Operator [52]

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Yes, sir. We do have a follow-up question coming here from Julien Dormois of Exane BNP Paribas.

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Julien Dormois, Exane BNP Paribas, Research Division - Research Analyst [53]

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So back again. Sorry for that, but there's 2 left on my side. The first one relates to the ups and downs that you mentioned in your relationships with GrandVision from an Essilor perspective. I was just wondering whether you could indicate what is the share of wallet of GrandVision procurement that is currently being served by Essilor? Is it fair to assume that it's close to 0?

And the second question relates to the bolt-on deals because we saw during the EssilorLuxottica merger that the amount of bolt-on deals was significantly reduced because the M&A teams are obviously focused on the antitrust process and the integration. So should we expect more or less the same kind of phenomenon to happen over the next 12, 18 months once -- until you close the GrandVision deal?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [54]

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Okay. So there is a lot of room for GrandVision and EssilorLuxottica to work in order to integrate better solution, lens and frame and frame and lenses. So at the moment, what we provide to GrandVision is minimal. And on the bolt-on, I think we'll -- I will ask Hilary to provide an answer.

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Hilary Halper, EssilorLuxottica Société anonyme - Co-CFO [55]

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Sure. I mean, yes, we do see a slowdown in the bolt-on M&A over the course of the antitrust period that we went through at EssilorLuxottica, but I don't think you'll see anywhere near that magnitude with respect to this transaction. The world is big. We still have a lot of opportunities in our pipeline, and we will continue to pursue those.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [56]

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And I think it will be the last one. So Francesca.

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Francesca Di Pasquantonio, Deutsche Bank AG, Research Division - Research Analyst [57]

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Yes. Can you hear me?

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [58]

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Yes.

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [59]

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Yes.

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Francesca Di Pasquantonio, Deutsche Bank AG, Research Division - Research Analyst [60]

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So 2 follow-ups. The first one is regarding the Retail footprint in the U.S. and especially Sunglass Hut. Do you think you still have room to further rationalize the number of stores, especially as the online is developing so well? That's the first question.

And the second question is, again, a clarification. It was asked twice. Just to confirm you said EBIT margin full year '18 adjusted 16%. So that means that, according to your guidance, the full year '19 margin should come at around this 16%. Can you confirm? Sorry. It's a dull question, but just to avoid any misunderstanding.

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Stefano Grassi, EssilorLuxottica Société anonyme - Co-CFO [61]

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Yes. So with respect to the profitability, yes, I can confirm that is the expectation. And that is very much the target that we have. On the other side, back to Retail footprint question in North America with respect to Sunglass Hut, there are a couple of things. First of all, Sunglass Hut, it's a profitable, accretive business to EssilorLuxottica Retail. So it is a profitable business. It is a business that has a very low number of unprofitable stores. So out of a network, that widespread in North America, I would say the vast majority of our stores are profitable. So from a profitability standpoint, there's no really rationale for evaluating. Every quarter, we're going through a reassessment of our portfolio in Sunglass Hut. Every quarter, we look at it, our channels, our different distribution channel for Sunglass Hut, the presence between platinum, gold, silver stores. And every time that we see stores that do not make sense because of the density, because of proximity, we close them down. But again, highly profitable retail chain.

Two, we really have a handful of stores that are unprofitable. And obviously, where it makes sense from an economic standpoint, we won't be reluctant in closing that. Then clearly, back to your question, do you see that shift in digital? We do see that shift in digital happening. I think it's something that we continue to see. As a matter of fact, the growth rate of our sunglasshut.com is materially higher than our Sunglass Hut brick-and-mortar. It is something that we continue to see and is something that, obviously, we don't mind because it's our retail online -- let's say, our online business, it's a very profitable one. And we want to continue to do. Let me just mention one more thing that is important. Now that we have anniversaried the investment in Bass Pro, Cabela's in North America, Francesca, I can tell you that this is an extremely fast-growing, profitable channel for Sunglass Hut. So we're proving that every time we enter a new space, and we have access to a new consumer base as Sunglass Hut is a successful business model. So again, we believe that the work we're doing over there is definitely the right one. We are vigilant on what happened in the overall market. The dynamic and the shift from physical to digital is there. We welcome that shift because we have a very and highly profitable online business, but we also enriching the content -- the digital content that we do see in our Sunglass Hut location during the course of recent months. Today, if you step into any of our Sunglass Hut locations of the 800-plus core Sunglass Hut location, we do have digital smart shopper through either [iPad or sales world] that very much complement the physical assortment that you have in our Sunglass Hut location. So we like to see in that penetration of digital sales happening within a physical brick-and-mortar environment are increasing time after time. So again, the digital challenge is there. We notice that, but the way we're doing it is enriching the content of our digital in store and also create a stronger omnichannel relationship between online and off-line.

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Laurent Vacherot, EssilorLuxottica Société anonyme - Deputy CEO of Essilor [62]

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Thank you, Stefano. And again, I guess as part of the integration, innovation that will come, obviously, Sunglass Hut also will benefit from a product that don't exist today and will take a little bit of time to put that on the -- in motion, but we want stores, and we need stores and we won't give up on that one.

So I think there is no more question. So it's time now to wish you, I hope, a little bit of vacation. On our side, the team will take a few weeks of vacation as well after this first half, which has been quite exciting and exceptional in many, many different ways. So as you see, the company is up and running. And I wish we will see you face-to-face, September 25, in London for the Capital Market Day. So thank you very much.