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Edited Transcript of GVNV.AS earnings conference call or presentation 31-Jul-19 7:00am GMT

Half Year 2019 Grandvision NV Earnings and to Discuss Transaction with EssilorLuxottica SA Call

Charenton-le-Pont Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Grandvision NV earnings conference call or presentation Wednesday, July 31, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Stephan Borchert

GrandVision N.V. - CEO & Member of Management Board

* Willem Eelman

GrandVision N.V. - CFO & Member of Management Board

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Conference Call Participants

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* Elena Mariani

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

* Graham Ian Renwick

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Laurent Marc Georges Saglio

Zadig Asset Management LLP - CEO, Partner, and Portfolio Manager

* Li Dunlop

JPMorgan Chase & Co. - Analyst

* Paul Rossington

HSBC, Research Division - Analyst

* Robert Jan Vos

ABN AMRO Bank N.V., Research Division - Analyst

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Presentation

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Operator [1]

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Thank you, Dino. Good morning, ladies and gentlemen. I am Stephan Borchert, CEO of GrandVision, and I would like to welcome you for the special analyst call to discuss the agreement between HAL and EssilorLuxottica to sell HAL’s 76.72% stake in GrandVision to EssilorLuxottica. Furthermore, we will take you through our half year full year 2019 results, which were published this morning, one day earlier than planned. In terms of the agenda for this call, I will focus on the announced combination with EssilorLuxottica, and then Will Eelman, our CFO, will walk you through the half year and second quarter results before we open for Q&A.

Throughout this call, we will refer to the investor presentation, which can be downloaded on our website. Firstly, the transaction highlights. This morning, we announced that HAL has reached an agreement with EssilorLuxottica for the sale of HAL’s 76.72% stake in GrandVision, which we refer to as the transaction. The purchase price of EUR 28 per share will increase by 1.5% to EUR 28.42 per share if the transaction is not closed within 1 year after the announcement of the agreement. The management board and Supervisory Board of GrandVision are in full support of this agreement.

The transaction is subject to various closing conditions, including regulatory approvals in a number of jurisdictions and expect that closing of the transaction will take 12 to 24 months. EssilorLuxottica intends to become 100% owner of GrandVision. And to that end, will launch a mandatory public offer after closing of the transaction. In the meantime, GrandVision has permitted to pay dividends up to EUR 0.35 for fiscal year 2019 and EUR 0.37 for fiscal year '20 per share, or in this case, 40% of net result if that results in a lower amount. The transaction may not be terminated as a result of a superior third-party offer for the shares in GrandVision. In the event, the agreement between HAL and EssilorLuxottica is terminated, EssilorLuxottica will, under certain conditions, pay a termination compensation of EUR 400 million. This will be payable to HAL, and HAL and GrandVision have agreed that's the after-tax amount of the termination compensation shall be paid to GrandVision.

Now taking a closer look at the price. The price of EUR 28 per share is at a premium of 33.1% to GrandVision's closing price on July 16 of EUR 21.04, a premium of 37.6% versus 1 month volume weighted average price of EUR 20.35 after 16th of July 2019, and a premium of 41.7% of GrandVision's average volume weighted price for the 3 months period, up to and including July 16 of EUR 19.77. At a price of EUR 28 per share, the total consideration that EssilorLuxottica is paying to HAL for its interesting GrandVision is approximately EUR 5.5 billion. This corresponds to a value of EUR 7.1 billion for GrandVision's entire share capital. As indicated earlier, if closing of the transaction takes place after 12 months from today, the price per share will increase by 1.5% to EUR 28.42 per share. I'd now like to spend a few minutes to explain the rationale behind the transaction.

We believe the future integration with EssilorLuxottica brings new opportunities to our business, well-established retail banners, our stores, our employees and all our stakeholders. GrandVision and EssilorLuxottica have the ambition to create a global eyewear and eye care group that provides consumers around the world with the high-quality optical omnichannel customer experience. The activities of both companies are highly complementary. GrandVision operates roughly 7,200 optical stores and online in over 40 different countries, with a strong presence in Europe and Latin America. EssilorLuxottica currently operate over 10 stores and several proprietary owner platforms with a strong presence in the Americas. GrandVision will benefit from EssilorLuxottica's state-of-the-art product design, manufacturing and distribution capabilities as well as expertise to foster a closer and increasingly omnichannel relationship with GrandVision's more than 150 million consumers around the world. The future setup will allow GrandVision to accelerate the execution of its current strategy and will enhance the long-term sustainable business success and value potential of GrandVision to the benefit of the company and its stakeholders. It will create a multibrand optical omnichannel retailers that is ideally positioned to capture changing consumer needs and behaviors while creating the potential to cross-fertilize the experience and expertise that is already present in both groups.

In the planned combined company, the GrandVision organization will operate EssilorLuxottica's optical retail activities in Europe, Middle East and Africa, while the current EssilorLuxottica organization will operate the retail networks in Latin America and North America.

Now just to give everyone a view on the process to date. We, at GrandVision, were informed about the discussions between EssilorLuxottica and HAL early July 2019. Following that, a special committee was formed consisting of our Chairman and Management Board members. There were constructive discussions with EssilorLuxottica and HAL leading to today's announcement. The Boards have carefully assessed to the transaction and in line with their fiduciary duties, the strategic options and all stakeholders. The Boards reviewed the strategic, social, financial, legal and operational consequences of the transaction for GrandVision and its various stakeholders. The Boards have concluded that providing support to the transaction supports the ongoing sustainable success of the business and is in the interest of GrandVision and all its stakeholders. Furthermore, ING has issued a fairness opinion for the transaction as agreed between HAL and EssilorLuxottica. On the basis of our assessment and the fairness opinion, the Supervisory Board and Management Board fully support the transaction.

Now some information on what's the period between today and the moment that EssilorLuxottica will have full ownership of GrandVision will look like. The Management Board is committed to continue executing GrandVision's strategy as communicated at our Capital Markets Day in September 2018.

EssilorLuxottica fully supports our mission and strategy. EssilorLuxottica and GrandVision have separately entered into a support agreement, in which both companies have set up the terms and conditions for working towards closing of the transaction and their plans for combining both businesses in case of a successful mandatory public offer for all remaining GrandVision shares. Under this, with the Board agreement, GrandVision has considerable flexibility to run the business in its ordinary course. We will fully cooperate with EssilorLuxottica on how to enable successful completion of the transaction, including obtaining necessary regulatory approval. As for governance, during the period between closing of the transaction and until EssilorLuxottica acquires full ownership of GrandVision, our Supervisory Board will be composed of 4 members to be identified by EssilorLuxottica and 2 current members of GrandVision Supervisory Board, including the Chairman role, currently envisaged to be Kees van der Graaf and Rianne Meijerman.

Any related party transactions that are not in the ordinary course or at arms length terms require the affirmative Board of at least one of the 2 independent members.

Then, finally, the time line as of today, the 31st of July, the day of the announcement of the transaction. We expect that it will take between 12 and 24 months to gain the necessary regulatory approvals and other various pre-closing activities. Again, we reiterate that the private transaction is to increase by 1.5% to EUR 28.42 if the transaction does not close within 12 months from the announcement date. And GrandVision is permitted to pay dividends as explained earlier. The mandatory public offer period is expected to take approximately 6 months. As said before, EssilorLuxottica will launch a mandatory cash public offer, what's called the mandatory public offer, for all outstanding shares in the company in accordance with the applicable Dutch public offer rules. Further details will be released within 30 days after closing of the transaction. After closing of the transaction and the mandatory public offer, EssilorLuxottica intends to acquire 100% of the shares of GrandVision pursuant to statutory buyer proceedings or to obtain full ownership of GrandVision's business through other customary second-step transactions. Following that, GrandVision will be integrated into EssilorLuxottica.

Dear, ladies and gentlemen, that is all for the transaction which was announced today. I will now hand over to Willem Eelman to discuss the H1 2019 results. There will be room for questions following the presentation on the H1 2019 results. Willem, the stage is yours.

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Willem Eelman, GrandVision N.V. - CFO & Member of Management Board [2]

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Thank you very much, Stephan. My name is Willem Eelman, CFO of GrandVision N.V. as Stephan already introduced earlier in the call. This call is today early for obvious reasons as we had to come out with the news and the announcement that Stephan has just taken you through.

In terms of the agenda for this call, I will begin as usual with some highlights for this quarter and the key performance drivers of the group. I will then walk you through some commentary around the individual divisions and balance sheet items before we open the call to take any questions that you may have. Let me please remind you of the key definitions that we will be using throughout the call.

Firstly, the revenue and EBITDA growth figures mentioned in our press release and in all comments and in today's call are at constant foreign exchange rates. This means excluding foreign exchange rate movements and our pre-IFRS 16. We define organic growth as the growth of revenue excluding acquisitions and at constant exchange rates. Comparable growth is the sales growth of those stores that were opened also for the entire previous year, in this case, 2018. Finally, all comments regarding EBITDA are on an adjusted basis, which means excluding nonrecurring items.

Slide 2. Comparable growth in the first half. To begin with, let's go over some of our key financials and operating highlights of the first half of the year. We're happy to report comparable growth of 2.5% for quarter 2, 2019, which comes following a very strong quarter 1 this year at -- of 5%. You will have heard Stephan and my predecessor, Paulo de Castro, say many times over, quarterly volatility is inherent to our business. But over longer periods, these even out as demonstrated by our first half comparable growth of 3.8%, slightly ahead of our medium-term objective and ahead of first half last year as well as full year 2018.

All our 3 segments contributed to the growth. Our total revenue growth at constant foreign exchange rate was 7.3%, which includes a 2.5% uplift from acquisitions made. In terms of profitability, our adjusted EBITDA growth was 2.4% for the first half, resulting in a decline of our EBITDA margin of 76 basis points to 14.9%. Later in this presentation, I will go into the drivers of this decline. Based on our performance so far for the year, we reiterate our 2019 outlook to be broadly in line with our medium-term objectives for revenue and EBITDA growth.

Turning to the key operational developments. We completed the acquisition of Charlie Temple and Optica2000 in February. The integration of these businesses is progressing well, and they have produced encouraging results thus far. Optica2000, for example, has supported 4% comparable growth since the acquisition and improved profitability, albeit below group margin levels for now. We're excited to have these 2 entities as part of the GrandVision family as they strengthen our position in their respective markets in very different but important ways. Additionally, we've made substantial progress on our omni and e-commerce strategy this quarter, and our investments are coming to fruition. I will go over some of the examples in a bit.

Slide #3. Strong top line growth continues. Moving to the next slide. As you can see, we have strong top line growth of 6.5%. Our optical and contact lens categories have delivered strong results in the first half of the year, while sunglass underperformed this quarter, especially in Southern Europe. During the second quarter, the timing of school holidays in certain markets led to lower sales in Other Europe. Also, the extreme heat in Europe, resulting in lower retail traffic and an exceptionally strong first quarter '19, had some impact on the top line in the second quarter. Our store network continued its uplift trajectory ending the quarter with 7,265 stores as we continue to optimize the store network, which resulted in several openings and closing customary with a retail business.

Now I move to EBITDA. Our adjusted EBITDA growth was 2.4% in constant ForEx, which led our margin lower by 76 basis points to 14.9% for the first half. There were several factors that have contributed to this performance, with the previously disclosed central investments behind e-commerce and omnichannel and the supply chain being one of the key factors. We've stepped up our spending at headquarter to enhance our digital and supply chain capabilities, augmented with local execution in the markets as outlined at our Capital Market Day in 2018. These will continue in the midterm and largely annualize at the back end of 2019. Additionally, while Other Europe experience dip in margins, it was on the strongest comparable base of 2018. The weak retail environment in U.K. has continued to impact profitability in this market, and the impact from the POS system implementation at the beginning of the year also had a negative impact on margins. On the flip side, we have started to see improvements in the Benelux, following the recent management changes. Substantial progress has been made on the digital strategy, and I would like to take a few minutes to walk you through some of the progress that we've made in the digital front, thanks to our increased investments. As you recall, our digital strategy has 2 distinct avenues: omnichannel, which is linked to our retail banners in countries; and e-commerce, which is pure-play online businesses. On the omnichannel front, we have further rolled out a global scalable platform to Sweden and Denmark. That makes a total of 4 banners this year, and we plan to extend this to 2 banners in our retail format in the country by the end of the year. As a result, this has allowed for an increase by 40% of eye test appointment bookings and increased retail traffic in those countries. On the e-commerce side, we've extended Lenstore's reach to Italy as well as launched Zonnebrillen site platform, which originates in the Netherlands into France and Germany under local brand names. Additionally, we've launched a brand-new contact lens online business in the Benelux called Sightful. The Benelux region is one of the more digital-savvy markets in Europe, and we've highlighted previously. So we felt we needed a newer, more modern look to succeed in this market. These launches have resulted in e-commerce sales jumping by 60% in the period, as we continue to work taking our fair share of the market.

Let me now take you through our segmental review and the results. Turning to the G4. We reported a strong comparable growth of 3.2% for the first half of the year and all regions contributed to this performance. France and Germany have continued to add growth trajectory. And based on the latest market data, we've expanded our market share through the strong market positions of our banners. While the underlying U.K. business continues to be weak on the back of dampened consumer sentiment, our Lenstore business and improvements at the Tesco Opticians stores more than compensated for its underperformance mainly in the second quarter. Finally, we're pleased to see the first signs of recovery in the Benelux, where we are the #1 player and had some temporary management disruptions in prior year. The Benelux improved from a top line perspective and expanded margins. EBITDA growth at constant ForEx was in line with revenue at 3.7% in the first half, resulting in a slight decline of 23 basis points in EBITDA margin versus the prior year at 18.9%. In addition to the Benelux, operational improvements at Tesco Opticians also resulted in higher margins. Furthermore, operating leverage benefits in France helped offset some weakness in Germany. On the whole, we are very pleased with the results of our largest regional division, particularly in the second quarter.

Now moving to Other Europe, where we had a comparable growth ahead of last year at 2.8%, while total revenues were up 9.3%, largely due to Optica2000 acquisition. We are very pleased in the year-to-date performance despite the volatility between the quarters and a difficult comparables, mainly due to Visilab's strong performance last year. Eastern Europe, on the other hand, saw a strong consistent performance so far this year. With regards to profitability, EBITDA margins saw a decline of 22 basis points due to a weaker performance in North Europe and Switzerland, particularly in the second quarter, as mentioned. Italy has continued to see positive momentum also in the second quarter, and we're encouraged to see sustained performance. We've always believed in our potential in this market and continue to adjust our commercial proposition to enjoy further success.

Now let me move to Americas and Asia. We saw a quarter of solid performance reporting 8.7% comp growth for the first half of the year. Mexico, Russia and Turkey have continued their robust growth, while the U.S. has seen improved top line performance in the second quarter. The negative impact of currency translation was 6% for the half year, again, largely from the depreciation of the Turkish lira. On EBITDA level, profitability decreased to EUR 14 million in the first half. EBITDA margin in the segment of 5.4% showed the positive effect from good performances in the second quarter, thanks to operational leverage in some Latin American markets and Russia. Therefore, we're pleased with the EBITDA performance in the second quarter, which saw an improvement of almost 38% at constant exchange rates and a margin expansion of 49 basis points.

Finally, we continue to explore different avenues of growth for our United States business. While we've made some progress, our operational performance remains below the business plan set out at the time of the acquisition. This has led us to book an additional onetime goodwill impairment charge of EUR 51 million during the second quarter. We are confident that we have the right building blocks to succeed in the market and that we will be able to further fine-tune our approach to reduce the losses going forward.

Now moving to the next slide. As you can see, our geography mix is constantly evolving, and our lower-margin segments increased their share of EBITDA and turnover, and therefore, we see a slight decline in overall margins due to mix. Over time, we will bring each of these countries to critical scale, allowing them to reach group margins at which point you should see the margin tick back up again. Also, increased central level investments have had a considerable impact on margins in the first half of this year. This is shown in Slide 10.

Now turning on to the next slide. Our capital expenditure for the first half in 2019 was just a bit below our guided range of 4% to 6% of sales. This was largely due to, as I mentioned on the previous slide, lower store CapEx, following the completion of the Tesco rebranding last year. Our nonstore CapEx, on the other hand, is significantly up from last year as we are investing heavily in our omnichannel and e-commerce platform. These investments are generating solid returns and will help us capture our fair share of the online optical markets. Going forward, for the remainder of the year, our capital guidance is unchanged, and we should expect to see our capital expenditure in the range of 4% to 6% of sales.

Finally, we've shown you the adjusted EPS progression on the next slide. This has been impacted quite significantly by the U.S. goodwill impairment charge of EUR 51 million in the second quarter, which is a noncash charge. Adjusted EPS for the first half was EUR 0.29, including a EUR 0.20 impact from the impairment. Given this item is a onetime charge, I would -- it would be more relevant to look at the EPS, excluding the goodwill impairments, which gives an adjusted EPS of EUR 0.49 for the half year, up 9.8% from the prior year, which is in line with business growth. I will now hand back to Stephan to provide closing remarks before we answer our questions.

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [3]

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Thank you very much, Willem. Yes, we basically, indeed, open now to Q&A session. And as you are used to the moderator, will take your question, then we'll try to answer them in the best possible way. Question -- Q&A is open.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question comes from the line of Elena Mariani 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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Welcome, Willem, all the best for your new role. I have 3 questions on the transaction with EssilorLuxottica. The first one is, you haven't provided any potential synergies outlook. I understand it might be a little bit early, but could you perhaps walk us through the precise benefits that you think you might see from operating within the EssilorLuxottica group. It could be better sourcing more penetration from Luxottica and Essilor's products into your network. If you could be a little bit more detailed around this, it would be very appreciated. Second question on the transaction is, how do you see the different price positioning of the 2 companies? When you've commented on EssilorLuxottica in the past, you have always stated very clearly that the positioning was very different. You're a value player. EssilorLuxottica is a more premium player. So how do you see this in the context of the deal? And could you also remind us what's the current percentage contribution to your total land sourcing from Essilor? I think it's minimal. And also, could you help us understand what's the percentage contribution from Luxottica in your total offering on frames? I know it's your largest customer, but could you help us understand how big it is now and how maybe big it could be later on? And final question is on the antitrust process. Do you see potentially any difficulties in any specific countries where you have a particularly large market share? It might be Benelux or Italy. It seems to me that it should be relatively straightforward across many of the countries, but maybe in 1 or 2, there could be further scrutiny. Could you give us your opinion on this, please?

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [3]

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Thank you, Elena. Thank you very much. Yes, let me try to go question-by-question. On the synergies, yes, the synergies, I really have to say, please ask EssilorLuxottica there. This is, as you stated, purely about growth, not about cost synergies due to both companies being so complementary as you also stated before. At the current time of (inaudible) of time, it will be inappropriate to comment on synergies. We have not addressed this, and we have had truly constructive discussions with both sides on growth potential going forward, but synergies, we haven't. I cannot state on that at the moment. Price positioning, yes, we have indeed discussed price positioning before. We, as I said before, feel that we have a -- the combination going forward would be very complementary, not only in our assortments but also regarding the positioning of our stores in the different regions. Please understand that we cannot comment and disclose our contribution of Essilor lenses and Luxottica brands right now. I think you mentioned it well. We are a very strong and big customer already of the Luxottica side. On the Essilor side, our lenses conversion right now is due to our tender, but the law won't let me not further comment on this.

Antitrust process. Please, also -- it would be quite inappropriate now to go deeper into that. Just want to let you know, basically, we had expressed our full support to the transaction because we feel after having made a very thorough assessment of whether or not to transactions in the interest of GrandVision and its stakeholders. We've also done our assessment on the antitrust side, of course, but it would be inappropriate to go deeper into that. Let me say, we are confident the transaction will close.

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Elena Mariani, Morgan Stanley, Research Division - Executive Director of Luxury Goods and Brands [4]

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And maybe just one small follow-up. Just very objectively, could you remind us which ones are the countries where you have the largest market share? Maybe that could be helpful. And on the price positioning, so you talk about being very complementary. So you would envision the current price positioning of your chain and banners to remain unchanged. And so it would be EssilorLuxottica embracing a lower price point positioning across your retail network. Would that be a fair way to see it?

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [5]

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First of all, please, please understand, we have also in the past not commented on our market share for countries selectively. And on your question around the price positioning, look, we have both stated in the press release that EssilorLuxottica fully supports the mission and strategy of GrandVision, and I think that should give you the right indications.

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Operator [6]

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(Operator Instructions) Our next question comes from the line of Li Dunlop from JPMorgan.

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Li Dunlop, JPMorgan Chase & Co. - Analyst [7]

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Just in regards to your arrangements for lenses and frames and the retail lenses and frames. Have you made an agreement with EssilorLuxottica to ultimately be just exclusive sellers of EssilorLuxottica? Are you keeping your current business arrangements for the foreseeable future? If you could describe any arrangements, that would be helpful. And just in regards to where Luxottica does have retail outlets, I think, Italy, U.K. and Brazil, would those markets continue to be relatively fragmented post this transaction? And finally, how did this EUR 933 million (sic) [EUR 993 million] net debt condition -- how was that determined? And do you see that as a rather extreme event? Or maybe you can just discuss that, that particular condition to the deal?

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [8]

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Yes. Thank you very much, Li. Look, first of all, again, it's very inappropriate for us right now to comment on any exclusivity or so. What I want to tell you basically is that, particularly for the period, from today until closing, we run the business as usual in ordinary course. And this really means, we continue our strategy, we continue on our existing supply and we respect them, nothing will change there. With regards to the question to your retail fragmentation, look, we have always stated that the global optical retail market is very fragmented, and we remain with the statement, but we do not want to comment on any situation after the integration. And on the EUR 993 million, look, based on our historical and future cash flow projections, we believe that the EUR 993 million net debt number will provide us with ample flexibility to run the business in an ordinary course. We run a very stable and cash-generating business right now. And as it's stated, the deduction is conditional upon GrandVision's net debt at closing being EUR 993 million or less. Where HAL is made to contribute equity to GrandVision to ensure that the net debt of Grandvision is EUR 993 million that's all at the closing. So I -- we believe that's official information and should give you the certainty on that one.

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Operator [9]

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(Operator Instructions) Our next question comes from the line of Graham Renwick from Berenberg.

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Graham Ian Renwick, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [10]

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I just have 3 questions, please. Firstly, on the deal. What your current suppliers say about the proposed deal, for example, Hoya, which is currently your biggest supplier of lenses. Do they have any oppositions to the deal? Could they try and lock it with antitrust? Could they try and be disruptive for the business if they know there's a risk, they are ultimately going to be dropped as a supplier? I just wanted to get your view there. Secondly, I was just wondering why now? Who proposed the deal first? Was it HAL looking for sale? Or was it EssilorLuxottica approaching HAL? I mean, given the GrandVision's shares were trading around the IPO price, it looked quite depressed following a couple of quarters of short-term disruption. Off the thought, there would have been an expectation that shares could recover in the next 12, 24 months on good execution of your strategy. So in that scenario, the premium may not look as attractive. And also EssilorLuxottica have only just merged, and they are yet to integrate their own companies. It seems like there's a lot of execution risk from all 3 sides. So the timing did come as a bit of a surprise. And then lastly, just on the U.S. goodwill impairments, and obviously that was a second impairment that you've made since acquiring the business. Is this a sign that the U.S. is proving to be a lot more difficult than you initially anticipated to deliver that initial strategy? And given EssilorLuxottica is the market leader in the U.S., do you believe they are actually the key for you to deliver that strategy and accelerate expansion across the U.S.?

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [11]

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Graham, thank you very much for your questions. Look, again, on the supplier reactions, please allow me to not comment on that. But what I again want to really stress is, for the inter-period, we run business as usual in ordinary course. This means we respect existing supplier agreements. We continue to operate in our strategy. And this obviously means also to work with our existing suppliers for this period of time. So why now? Honestly, I think I would have to refer you back to how large is EssilorLuxottica. As I've stated, we were, as GrandVision, informed at the beginning of July, and we were then very much involved in the whole support agreement structure, but I can't comment on this. On the U.S. goodwill, I would hand quickly over to Willem to give you a bit of an insight there.

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Willem Eelman, GrandVision N.V. - CFO & Member of Management Board [12]

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As you will recall, we entered the U.S. 3 years -- more than 3 years ago, and we had a business plan against which we were starting to execute. The market is proving to be more difficult than we had envisaged, that's a fact. We have now a strong team in place. We recently appointed a very successful manager of GrandVision, who actually has led the expansion of MasVision in Mexico and who is now taken over the lead in the U.S. business and also with an experienced GrandVision Finance Director, to support him together with a local team of experienced people. We have a business plan that we are executing. We do expect that this business will continue to improve. It's going more slower than we had envisaged, and as a result of that, we had to take an impairment charge in this quarter. But we stand behind our plan with our very successfully proven positioning as elsewhere in the world.

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Graham Ian Renwick, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [13]

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Okay. Just a follow-up. I mean do you think the EssilorLuxottica being the market leader there, do you think that will give you a significant advantage into -- and potentially help you accelerate your plans if that deal was complete?

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [14]

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Graham, this is Stephan taking that. Look, again, as stated, we will have an interim period until first regulatory authority approval. This will take us 12 to 24 months. Within this time, we will really continue

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support our U.S. business as is. We have a lot of -- I think goods now leads and attempts to operate the business also in stand-alone. We will then talk about integrations and possible synergies in the market only after full completion of the deal and integration into EssilorLuxottica. I hope that suffices in terms of...

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Operator [15]

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Our next question comes from the line of Paul Rossington from HSBC.

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Paul Rossington, HSBC, Research Division - Analyst [16]

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Just a very simple one. A couple of my questions have already been answered. But I was just wondering if you could give a little bit color on the moving parts, just rerun the moving parts between the G4 and the Other Europe EBITDA margin performance? Only that -- I kind of -- if I understood the call correctly, you had kind of lower sunglass sales, which are lower margin should have been beneficial for margins. So I'm just trying to understand what are the moving parts rather in the EBITDA margin in those 2 divisions?

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [17]

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I will hand this over to Willem.

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Willem Eelman, GrandVision N.V. - CFO & Member of Management Board [18]

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Yes. And as always, you have movements in the quarter and in the half year between categories. And so sunglass was slightly disappointing in Other Europe. But I think we alluded already in the text that we had a big impact from our Swiss business, which had an extremely strong second quarter last year, and we had untypical high EBITDA margin in Other Europe in last year. And that is the lens through which you need to look at this year's quarter 2 and half 1 margin performance in Other Europe. Other Europe is improving margins consistently over time, and that is part of our strategy, and we remain with that strategy. So compare it. We compare to an extremely high-peak quarter last year, and that's the answer. And that was particularly driven by the Swiss market, which was very strong last year compared to this year.

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Paul Rossington, HSBC, Research Division - Analyst [19]

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Got it. And my supplementary question is, when you talk about operating in the normal course of business for the foreseeable future until the deal is concluded with El, does that mean that you remain committed to the accelerated kind of larger M&A that you discussed at the CMD as well?

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [20]

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Paul, thank you. We remain committed to the strategy we have presented at the Capital Markets Day. As part of the support agreement, we have accepted certain restrictions on larger M&A deals. So -- but really, this is to be seen in the light of the antitrust clearance process, which we don't want to jeopardize.

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Operator [21]

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(Operator Instructions) Our next question comes from the line of Laurent Saglio from Zadig.

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Laurent Marc Georges Saglio, Zadig Asset Management LLP - CEO, Partner, and Portfolio Manager [22]

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Congratulation for this deal. Can I ask you few questions? I want to come back to one of the previous question of the debt because I cannot see this close of EUR 993 million. And I just wanted to also ask you, does it -- is it IFRS 16, this EUR 993 million? Or is it pre-IFRS? That's my first question. I have a quick other question is -- obviously, I understand you need clearance. You're in 44 countries. I do not know exactly how many countries EssilorLuxottica is in, but I think much less. Out of the 44, I presume, the highest risk is in Europe. Could you -- as you are going to run Europe, could you tell me which countries you will be above 25% market share combined, as you're going to run it, please and finally, why HAL went for cash and not for shares in the new entity if you can answer these?

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [23]

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Yes. Thank you for your questions. Let me maybe take 2 questions, and then I hand over to Willem for the debt question. Why cash versus shares, please, again, I can't comment on this. I think that's something that needs to be asked to HAL. On the clearance, as I've said before, it would be really inappropriate to speculate about any antitrust elements of the approval process, also including market share situations in that particular countries. I want to reiterate that we have made a very thorough preliminary assessment of possible antitrust clearances, and we are confident at this time, at this stage that the transaction will close based on this. And on the debt, I would quickly hand over to Willem on the EssilorLuxottica question.

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Willem Eelman, GrandVision N.V. - CFO & Member of Management Board [24]

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Yes. The debt, we disclosed our net debt, by the way, on Page 9 of our extended press release. So you can see there that our net debt closed at first half at EUR 867 million, which is not impacted by. It's debt, so it's not impacted by IFRS 16 in the sense that we do not include our lease liabilities for obvious reasons. And we will continue to use this metric also in the successfully completed revolving credit facility that we completed on the 23rd of July, with the consortium of banks, which secured our debt fund which is up to EUR 1.2 billion for another 5 years, plus 2x 1-year renewable, just for the record. The EUR 993 million is a number that we jointly derived taking into consideration known exceptional outflows in the coming few months relating to events that we'll be disclosing shortly, so not today. But EUR 993 million is a number that we have committed to as the maximum ceiling. We are going to, as Stephan already alluded in his remarks, we are a cash-generative business. And it will give a sufficient ability to operate in the ordinary course of business as we now see fit. And IFRS 16 -- the number is pre-IFRS 16.

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Laurent Marc Georges Saglio, Zadig Asset Management LLP - CEO, Partner, and Portfolio Manager [25]

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So the EUR 993 million compare with EUR 867 million to make absolutely sure.

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Willem Eelman, GrandVision N.V. - CFO & Member of Management Board [26]

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Correct. That's it.

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Operator [27]

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(Operator Instructions) Next question comes from the line of Robert Vos from ABN.

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Robert Jan Vos, ABN AMRO Bank N.V., Research Division - Analyst [28]

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You say in the -- I have 2 questions on the transaction. It stated that the block trade agreement and the support agreement may not be terminated as a result of superior third-party of -- for the shares. So my question would be what happens if there is a superior third-party offer. That's my first question. And the second one, the transaction price is raised by 1.5% if closing does not occur before the 31st of July next year, 2020. But at the same time, you seem to exclude that the transaction is closed before that date by reiterating the 12 to 2014 -- 12 to 24 months. So isn't the transaction price then the exact fee increase by 1.5%? Can you provide some color here? Those were my questions.

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [29]

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Yes. To your first question, frankly, it's very clearly stated that there will be no possibility for a superior offer, but again, that is a contract agreement between HAL and EssilorLuxottica, and I don't want to further state on this because we can't really comment on what happened is just what happened. We know what we are at current situation, a support, and that is basically an agreement that is stated as such in the press release. On the price, I think, it is pretty straightforward. We have to go through merger clearance. If merger clearance takes more than 12 months, closing will occur after 12 months, the price will be increased by 1.5%. If for whatever reason, merger clearance would be done within 12 months or before and closing would appear before 12 months, the price is at current merger at EUR 28. So there is nothing in between.

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Robert Jan Vos, ABN AMRO Bank N.V., Research Division - Analyst [30]

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Okay. But to make clear, you do not expect it to close within 12 months, right?

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [31]

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I can't really comment on this. That would be completely inappropriate because we have no influence on the merger clearance process. We are committed to work together in support, but I can't state on that.

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Operator [32]

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(Operator Instructions) No further question at this time. Please continue.

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Stephan Borchert, GrandVision N.V. - CEO & Member of Management Board [33]

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Thank you very much, Dino. So ladies and gentlemen, we thank you for your very valid questions. I look forward to meeting some of you over the coming months, and we will come back to you again on October 30, when we publish our third quarter results. In the meantime, we'll keep you updated, of course, on key developments regarding the combination with EssilorLuxottica. Thank you very much for your participation, and have a great day. Goodbye.