Friday 23 February 2018

Lucrative markets as celebs provide specs appeal

Dr John Lynch

HAPPILY, Dorothy Parker's idea that 'men never make passes at girls who wear glasses' is now a dated concept.

Ms Parker's remarks came well ahead of the arrival of the lovely Nana Mouskouri, who made glasses sexy, but it's impossible these days to take up a celeb magazine without seeing a host of Hollywood stars with their looks and their eyesight enhanced by specs.

We all know rock stars that would be unrecognisable minus their shades. So someone must be making a pile out of this surge in fashionable glasses. The news is that it's a French outfit called Essilor.

Essilor is the world's largest maker of eyeglass lenses and one of France's top firms. It is involved at the utilitarian end of the business. It makes eyeglass lenses and also produces coatings and tints, but is not involved in frame production, which has become the preserve of the fashion houses. So many of the big names such as Dior now have their own ranges of spectacle frames. Essilor is at the scientific end and is also involved in the supply of laboratory and ophthalmic equipment.

The French giant is the result of a merger of two ophthalmic companies, Essel and Silor, which dominated the French market in the early part of the 20th Century but which merged in 1972 with the idea of taking on the export markets.

In the 1980s and 1990s, Essilor decided to move away from exporting, preferring a global strategy that resulted in the setting up of operations around the world. Today it has a presence in 56 countries and has built up an intriguing growth strategy around short-sighted Chinese as well as ageing Europeans and Americans.

The company had sales of €5bn last year and employs some 50,000 worldwide. Asia and the Middle East accounts for almost half the employees, but only 16pc of total revenue.

North America and Europe have almost half the number of Asia's employees, but each has sales of almost double that of Asia.

Latin America accounts for the remaining sales, having 4,000 employees.

Further analysis of sales figures shows that the European market is mixed. British sales are sluggish; Germany is picking up; Holland is flying, but Eastern Europe is slow. However, China is booming and India ain't bad. The South American markets, particularly Mexico, are doing okay but North America is still Essilor's biggest market, with €1.5bn in sales and growing.

Essilor sees the world though its tinted specs. It reckons 2.5 billion of the seven billion people in the world have incorrect vision. It believes the Chinese are generally myopic and there will be a lot of glasses needed in that part of the world. Meanwhile, the population of Western Europe and North America is getting older, and 'oldies' need help with their eyes. Moreover, emerging markets will soon be catching up with the more mature markets.

Essilor has built a competitive advantage on the strength of its brands and its focus on research and development. It spends a significant €150m on R&D, with centres in France, the US and Asia. 'Forbes' magazine rates Essilor the fourth most innovative company in Europe. In tandem with its emphases on R&D, it has developed a range of well-known brands.

Its Varilux eyeglass lens was the world's first lens to allow clear vision for near, long and intermediate vision. Two years ago it launched its Crizal UV lens, giving eye protection against ultraviolet rays. Last year, it launched the world's first anti-fog eyeglass lens under the brand Optifog. It also markets the Foster Grant range of sunglasses and reading glasses.

Revenues have increased in the last five years from €3bn to €5bn. The bulk of the group revenue (91pc) is from the sales of eyeglass lenses. The remaining 9pc is derived from sales of laboratory and optical equipment.

Net profits in the same period have risen from €380m to €580m. Essilor's market cap is €16bn. Its P/E is a high 27 and it has a skimpy 1.1pc yield on dividends. The French stock market rose 25pc in 2013 and Essilor has ridden this wave. The shares currently trade at around €76.

Given its growth strategy, the stock is worth a look, but may be a touch frothy for my taste just now.

Dr John Lynch is a former honourary chairman of CIE. Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned.

Irish Independent

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