2017 Results March 1st, 2018 - Essilor International

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2017 Results March 1st, 2018 - Essilor International
2017 Results
   March 1st, 2018
2017 Results March 1st, 2018 - Essilor International
1. Introduction
 Hubert Sagnières – Chairman and Chief Executive Officer

                                2017 Results                2
2017 Results March 1st, 2018 - Essilor International
2. 2017 Results
 Laurent Vacherot – President and Chief Operating Officer

                                 2017 Results                3
2017 Results March 1st, 2018 - Essilor International
2017 Key Highlights

 Good sales performance despite challenging optical market conditions
                  Solid growth in the Lens & Equipment businesses
                  Strong online sales
                  Acceleration in the US in H2
 Investments in China and e-commerce

 Full benefit of the French tax refund reinvested in fueling our Mission initiatives

 Record Free Cash Flow generation supported de-leveraging
                                                            (1)

 Key steps toward the proposed combination with Luxottica

(1) Free Cash Flow = Net cash from operating activities less change in WCR and capital expenditure. See slide 15.

                                                                                           2017 Results             2. 2017 Results   4
2017 Results March 1st, 2018 - Essilor International
2017 Key Figures
                                                                                                2016                                    Growth                               2017
                                                                                                                                  +5.3%
   Revenue                                                                               €7,115m                                                                            €7,490m
                                                                                                                                  +3.5%
   Adjusted Contribution from operations(1)(2)                                           €1,321m                                                                            €1,367m
  As a percentage of revenue                                                                   18.6%                                                                                      18.3%
                                                                                                                                  +1.6%
   Adjusted Earnings per share                           (2)
                                                                                               €3.79                                                                                 €3.85
                                                                                                                                  +4.0%
   Adjusted Free Cash Flow(3)                                                               €963m                                                                           €1,002m
   Dividend per share(4)                                                                       €1.50                                                                                 €1.53
(1) Contribution from operations corresponds to revenue less cost of sales and operating expenses (research and development costs, selling and distribution costs and other operating expenses).
(2) The 2017 accounts are adjusted for non-recurring items related, on one hand, to expenses associated with the proposed combination with Luxottica and, on the other hand, to the positive effects of tax
    changes in the United States and France. 2016 results are not adjusted.
(3) Net cash from operating activities less change in WCR and capital expenditure. Adjusted for non-recurring items related to the German competition authority (BKA) in 2016 and to 2017 items including
    costs linked to the proposed transaction with Luxottica along with the settlement of litigation..
(4) To be submitted for shareholder approval at the April 24, 2018 Annual General Meeting.

                                                                                             2017 Results                                                                          2. 2017 Results      5
2017 Results March 1st, 2018 - Essilor International
2017 Revenue Up 6.7%
Excluding the Currency Effect
      € millions
                                                                                                  (103)
                                                                                254
                                                                                                  -1.4%

                                                                               +3.6%
                                                              224

                                                             +3.1%                                                 7,490

                                                                                                                  +5.3%
                                                                      +6.7%
                                               7,115

                                            2016 Revenue   Like-for-like      Bolt-on         Currency effect   2017 Revenue
                                                              growth       acquisitions (1)
(1)   Local acquisitions or partnerships.

                                                                             2017 Results                                      2. 2017 Results   6
2017 Results March 1st, 2018 - Essilor International
2017 Revenue by Division

                                                                                            Change
 Reported revenue in € millions
                                                                                                                                    Lenses: solid momentum driven
                                             2017            2016                           At constant
                                                                         Like-for-like
                                                                                         exchange rates
                                                                                                                 Reported                by new products and e-
                                                                                                                                         commerce
 Lenses & Optical Instruments                6,498          6,218            +3.4%               +5.8%            +4.5%

 Sunglasses & Readers                          766             685           +0.1%             +15.0%            +12.0%             Continued build-up in
 Equipment                                     226             212           +5.8%               +7.8%            +6.4%                  Sunglasses & Readers
 TOTAL                                       7,490          7,115           +3.1%               +6.7%             +5.3%
                                                                                                                                    Equipment and Instruments
                                                                                                                                         performed well
 Fast-Growing Countries(1)                   1,825          1,641            +4.2%             +12.0%            +11.2%

 Developed Countries                         5,665          5,474            +2.8%               +5.1%            +3.5%             Fast-Growing Markets(1):
                                                                                                                                         24% of total sales

(1) Fast-growing countries include China, India, ASEAN, South Korea, Hong Kong, Taiwan, Africa, the Middle East, Russia and Latin America. All divisions combined.

                                                                                           2017 Results                                                              2. 2017 Results   7
2017 Results March 1st, 2018 - Essilor International
H2 2017 Like-for-like Revenue Growth: +3.8%

Lik e-for-lik e revenue growth             2017   H1 2017         H2 2017

Lenses & Optical Instruments              +3.4%    +2.7%            +4.1%      Sharp acceleration in the US
                      North America       +4.1%     +2.7%            +5.5%
                                                                               Robust performance in China
                                 Europe   +2.4%     +2.1%            +2.7%
   Asia/Pacific/Middle East/Africa        +5.1%     +5.0%            +5.2%
                                                                               Strong online sales

                       Latin America      -0.9%     -1.5%             -0.4%    FGX, Costa and MJS driving
Sunglasses & Readers                      +0.1%     -1.5%           +1.9%       improvement in Sunglasses &
                                                                                Readers
Equipment                                 +5.8%   +11.7%            +1.2%
TOTAL                                     +3.1%    +2.5%            +3.8%

                                                            2017 Results                              2. 2017 Results   8
2017 Results March 1st, 2018 - Essilor International
9 Acquisitions Representing ~€87m in Full-Year Revenue

                                                                                      North America
    Europe                                                                                  2
      2
                                                    Topcon Visioncare
                            Optitrade
                                                         Japan
                         Logistics Center                                                    Partners In Vision
                                                                         Vision Associates
         CFE Optique
                                                                                                    Latin America
                                                                         Opticas                           2
                                            Mangalsons                  Exclusivas
                        Sun Optical
                       Technologies                                                                     Visolab

                                                Asia/Pacific/
   2 new countries:                           Middle East/Africa
 Ethiopia, Guatemala                                  3

                                                         2017 Results                                             2. 2017 Results   9
2017 Results March 1st, 2018 - Essilor International
Reconciliation of Adjusted to Reported Accounts
                                                                                            2017                                             2017                   2016
                    € millions                                                                           Items adjusted
                                                                                        Adjusted                                          Reported               Reported
                    Revenue                                                                  7,490                                             7,490                   7,115
                    Contribution from operations (1)                                         1,367                        (6)                  1,361                   1,321
                    Other income (expense)                                                   (119)                    (168)                     (287)                    (91)
                    Operating profit                                                         1,248                    (174)                    1,074                   1,230
                    Income tax                                                               (262)                       131                    (132)                  (285)
                    Net profit                                                                 922                      (44)                      878                    880
                    Net profit attributable to equity holders
                                                                                               833                      (44)                      789                    813
                    of Essilor International
                    Earnings per share                                                         3.85                                              3.64                   3.79
                     There are two main types of adjustment items. First, expenses associated with the proposed combination with Luxottica, and,
                     second, the positive effects of tax changes in the United States and France. These non-recurring adjustments include:
                     •  Transaction costs related to the proposed combination with Luxottica for €109 million;
                     •  An additional cost of €45 million principally linked to the lifting of performance conditions on two employee shareholding plans
                     •  A one-time contribution for €19 million to mission-related activities focused on eradicating poor vision worldwide;
                     •  An exceptional gain from the refund of the 3% dividend tax in France, net of the additional tax, for €19 million;
                     •  A one-time gain linked to tax reform passed in the United States in December 2017 for €73 million.
(1) Contribution from operations corresponds to revenue less cost of sales and operating expenses (research and development costs, selling and distribution costs, other operating expenses).

                                                                                           2017 Results                                                                          2. 2017 Results 10
Adjusted Contribution from Operations                                                                                                (1) (2)
                                                                                                                                               up 3.5%

                                                                   2017                       2016
€ millions                                                                                                                  Change
                                                              Adjusted(2)                  Reported
Revenue                                                                7,490                     7,115                         +5.3%
                                                                       4,346                                                                               E-commerce
Gross profit                                                                                     4,181                         +3.9%             A
                                                             A                                                                                             Transitions sales
% of revenue                                                         58.0%                     58.8%
                                                                                                                                                            to other lens casters
Operating expenses                                                  (2,979)                   (2,860)                          +4.2%
% of revenue                                                 B       39.8%                     40.2%                                             B         Opex management
Contribution from operations (1)                                       1,367                     1,321                         +3.5%
% of revenue                                                         18.3%                     18.6%

 (1) Contribution from operations corresponds to revenue less cost of sales and operating expenses (research and development costs, selling and distribution costs, other operating expenses).
 (2) The 2017 accounts are adjusted for non-recurring items related, on one hand, to expenses associated with the proposed combination with Luxottica and, on the other hand, to the positive effects of
     tax changes in the United States and France.

                                                                                             2017 Results                                                                          2. 2017 Results 11
Adjusted Contribution from Operations                                                                                                (1) (2)

  at 18.3% of Revenue
Contribution from operations as a percentage of revenue

                                                           +0.3%
                                                                                      -0.4%

                                                                                                                                          -0.2%
                                                      Operational
                                                                                  Transitions sales
                                                       efficiencies
                                                                                   to other lens
                                                      New products:
                                                                                   casters
                                                       Varilux® X
                                                                                  Brazil and India
                                18.6%                  series™,
                                                                                  Strengthening the
                                                       Eyezen™                                                 18.5%
                                                                                   organization in
                                                      E-commerce                                                                                                  18.3%
                                                                                   China and
                                                       improvement in
                                                                                   e-commerce
                                                       developed
                                                                                   activities
                                                       countries

                             2016 Reported          Operating Leverage                 Other             2017 Adjusted (2)             Acquisitions           2017 Adjusted (2)
                                                                                                        before acquisitions
   (1) Contribution from operations corresponds to revenue less cost of sales and operating expenses (research and development costs, selling and distribution costs, other operating expenses).
   (2) The 2017 accounts are adjusted for non-recurring items related, on one hand, to expenses associated with the planned combination with Luxottica and, on the other hand, to the positive effects of tax
       changes in the United States and France. The reported accounts and a reconciliation of the reported accounts to the adjusted accounts are provided in appendices.

                                                                                               2017 Results                                                                           2. 2017 Results 12
Adjusted Net Profit Up 4.8%                                     (2)

                                                                           2017                  2016
     € millions                                                                                                       Change
                                                                      Adjusted(2)             Reported

     Revenue                                                                 7,490                 7,115                 +5.3%

     Contribution from operations (1)                                        1,367                 1,321                 +3.5%                           Share based payments
     Other income (expenses), net                                     A       (119)                   (91)                       -            A          Litigations’ provisions
                                                                                                                                                         Transformation costs
     Operating profit                                                        1,248                 1,230                 +1.5%

     Financial income (expense), net                                           (64)                   (66)                       -

     Income tax                                                               (262)                 (285)                        -

     Effective tax rate                                               B      22.1%                 24.5%                        -             B          Advanced Pricing Agreement
     Net profit                                                                 922                   880                +4.8%
     Minority interests                                               C        (89)                   (67)                       -                      Photosynthesis Group
                                                                                                                                              C
     Profit attributable to equity holders                                      833                   813                +2.5%                          Partners’ performances
     Earnings per share (in €)                                                 3.85                  3.79                +1.6%
(1) Contribution from operations corresponds to revenue less cost of sales and operating expenses (research and development costs, selling and distribution costs, other operating expenses).
(2) The 2017 accounts are adjusted for non-recurring items related, on one hand, to expenses associated with the proposed combination with Luxottica and, on the other hand, to the positive effects of
    tax changes in the United States and France.

                                                                                            2017 Results                                                                          2. 2017 Results 13
Capital Expenditure: Deploying Advanced Technologies
to Support Long-term Growth
 7%

 6%
                                      285

                       232                                     321
 5%      192                        5.6%

                      4.7%
                                                      227
                                                              4.8%
                                                                                                       New photochromic lens
        4.6%                                                                    273      282
 4%                                                                                                       manufacturing lines
                                                      4.0%
                                                                              3.8%         3.8%        Modernization of regional
 3%
                                                                                                          laboratories

 2%
         2011          2012           2013          2014       2015           2016        2017

  XX = Capital expenditure in € million (net of disposals)   Capital expenditure as a percentage of revenue

                                                                      2017 Results                                         2. 2017 Results 14
Adjusted Free Cash Flow >€1bn    (3)

                                                                                 58            Change in WCR
   € millions                                                                                                                                                Fast De-leveraging

                                                                                                                                          Net debt in € millions
                                                                                 308           Capital expenditure
                                                                                                                                                                2,089            2,062

                                                                                 364           Dividends                                        1,793
          Operating cash flow
                                                                                                                                                                                                 1,661
                                            1,291
         (excl. change in WCR)

                                                             +925
                                                                                 317           Net financial investments

                                                                                 400           Reported change in net debt
                Capital increase               34
Foreign exchange and others(2)                122                                                                                                2014            2015            2016             2017

     (1) Free cash flow = Net cash from operating activities less change in WCR and capital expenditure / (2) Including €96m of foreign exchange impact. / (3) Adjusted for non-recurring items related to
     the German competition authority (BKA) in 2016 and to 2017 items including costs linked to the proposed combination with Luxottica along with the settlement of litigation.

                                                                                               2017 Results                                                                           2. 2017 Results 15
Proposed Dividend(a) per Share
                                                                                                                                  1.50   1.53

                                                                                                                     1.11
                                                                                                      1.02
                                                                                       0.94
                                                         0.85           0.88
                                          0.83
                                                                                                                                   323   333

                                                                                                                     237
                                                                                       198            216
                                          172            177            185

                                         2010           2011           2012           2013            2014           2015         2016   2017
                                                                      Payout (in € million)                 Dividend per share (in €)
(a) To be submitted for shareholder approval at the April 24, 2018 Annual General Meeting.

                                                                                             2017 Results                                       2. 2017 Results 16
3. Essilor in 2018
 Paul du Saillant – Chief Operating Officer
 Laurent Vacherot – President and Chief Operating Officer

                                 2017 Results                17
Successful New Product Launches in 2017…
  Innovation                  USA   FGM                  Online               China             Myopia

         North America                                   Europe
                         H2
                                                                      H1

                         H2                                    Style
                                                              Colours H1
                                                             collection
                  0      H2

                                                                     Asia/Pacific
               Latin America
                                                                                    H1
                               H1

                                          2017 Results                                   3. Essilor in 2018 18
…Delivering Promising Results
    Innovation          USA                   FGM                  Online          China                 Myopia

  Above sales target          Already 20% of Crizal®        Eyezen™ volume       Eye Protect System™, the
  ~70% of Varilux®             volumes in the USA             doubled in 2017       fastest growth in the blue
   series volumes              Clear brand growth            Broadened product     filter lens category
  Trade up                     driver                         range                Volume tripled in 2017

                                                    2017 Results                                  3. Essilor in 2018 19
Ongoing Benefits of Innovations in 2018
      Innovation                  USA   FGM                     Online          China             Myopia

     North America
                                                     Europe
 NEW IN 2018
                                              NEW IN 2018
                 Style
                Colours
               collection

ONGOING BENEFIT
                                              ONGOING BENEFIT

                                                                            Asia Pacific
                      Latin America                                      NEW IN 2018

                    NEW IN 2018

                                              2017 Results                                 3. Essilor in 2018 20
The “Ultimate Lens Package” Driving Strong Momentum
  in the US
            Innovation                    USA            FGM                  Online                    China                    Myopia

                                                               The Best in Vision, Clarity, and
                                                                Protection in a Single Lens

                    Single Vision Lens Wearers                                         Progressive Lens Wearers
                      [c.100 million people in the US]                                  [c.52 million people in the US]

                              +                     +                                           +                         +
                   Varilux®, Crizal® and Transitions® growing high single digit in Q4 2017
Source: Essilor - 2017 estimates

                                                               2017 Results                                               3. Essilor in 2018 21
Continuing Strong Key Account Partnerships
  Innovation   USA    FGM                  Online       China               Myopia

                                        Category development

                                        Supply chain offering

                                        New partnerships formed

                                        Faster growing retail groups

                                        Interest from new players

                            2017 Results                             3. Essilor in 2018 22
Fast-Growing Markets Will Continue to Drive Growth                   (1)

       Innovation                           USA                              FGM                             Online                            China                          Myopia

          Africa-Middle East                                                      Asia-Pacific                                                    Latin America

 NEW                                                                                                                                                     NEW
              Ethiopia                                         Indonesia                                           Vietnam                                            Guatemala
   >100m inhabitants                                 260m inhabitants                                  100m inhabitants
                                                                                                                                                           Acquisition of an integrated
   Partnership with market leader                    Expansion to 35 cities                            New prescription laboratory
                                                                                                                                                            prescription laboratory with
   Joint approach by business                        Mid-tier acceleration                             >100 accounts trained in 2017
                                                                                                                                                            ~50 optical stores
    and mission                                       1,500 Mitra Mata by end 2018                      88 Vision Ambassadors

          2017 revenue growth > 15% (like-for-like and bolt-on acquisitions combined, including Lenses and Optical Instruments, Equipment and Sunglasses & Readers)
          2017 revenue growth < 15% (like-for-like and bolt-on acquisitions combined, including Lenses and Optical Instruments, Equipment and Sunglasses & Readers)
(1) Fast-growing markets include China, India, ASEAN, South Korea, Hong Kong, Taiwan, Africa, the Middle East, Russia and Latin America

                                                                                      2017 Results                                                                     3. Essilor in 2018 23
E-Commerce Ready to Sustain High Growth
          Innovation                            USA                      FGM                     Online               China                 Myopia

               En Route to €500m Revenue                                                        Stronger Foundation for Future Growth

                                                                                               Key 2017 achievements:
                                                    €440m(1)
                                                                                                  
                                                                  (2)
                                               +39% vs. prior year                                    Global organization fully established
                                             +15% like-for-like growth
                                                                                                     Strong growth from mature markets
               €325m(1)         (2)                                                                  Increased our presence in FGM
         +47% vs. prior year

                                       RoW                                                           Strategic giving programs

                                       North
                                      America                                                  Key areas of focus for 2018 onwards
                                                                                                     Accelerate in the eyeglass segment
                                      Europe
                                                                                                     Develop platforms for key Sun brands
                 2016                                   2017
                                                                                                     Increased focus on proprietary contact lens
                                                                                                      brands
(1)   Including Sunglasses & Readers online sales                                                    Leveraging digital properties
(2)   At constant exchange rates

                                                                               2017 Results                                          3. Essilor in 2018 24
Delivering 30% Revenue Growth in China in 2017
     Innovation                 USA   FGM                  Online         China               Myopia

 Retail and Online
    Double digit growth
                                                                    Lens Business
                                                                       Double digit growth
    MJS/Aojo deployment
                                                                       Eyezen™
    Growing presence on leading
                                                                       Kodak®/Partners
       platforms
                                                                       Creasky
    New retail
                                                                       Quality Wholesalers
    Over 1,200 stores                2018 Revenue
                                         >€500m
Sunwear
   Bolon™ streamlined supply
    chain, strong brand equity
   International deployment
   Mujosh brand

 2017 China Revenue Breakdown

                                            2017 Results                              3. Essilor in 2018 25
A New Consumer-Driven Organization
  Innovation             USA               FGM                  Online                 China                Myopia

                                               AFFORDABLE                                      INCLUSIVE
                               LENSES                               MYOPIA SOLUTIONS
                                            SUNWEAR & FASHION                                  SOLUTIONS
   KEY ACCOUNT
   ORGANIZATION
                                                                    Myopia
                                                                     Management             2.5 New Vision
      ONLINE
   ORGANIZATION                                                     Kids & Teens
                                                                                            €5.8bn
                                                                                             Generation
                                                                                            Essilor Vision
                                                                                             Foundation
                                                                    Distribution of
   MONOBRAND                                                         specialized            Last mile
     RETAIL                                                          products                distribution

    WHOLESALE

              800 million consumers in need of vision care; 4 people out of 10 are myopic
                               Unique leadership and management team

                                                 2017 Results                                        3. Essilor in 2018 26
Innovate in the Myopia Segment: A 5 Bn Wearer Opportunity
  Innovation                            USA                             FGM                              Online                            China                           Myopia

                        A Growing Pandemic                                                          Key Consumer Challenges

        2017                CAGR     2030       CAGR           2050                                         Poor aesthetics and physical comfort
        Billion people(1)
                                                                5.0                                         Growing prevalence of myopia in children(2)
                                              3.1%
                                     2.7                                                                    Risk of eye disease in high myopes(3)
                            3.2%

        1.8
                                                           A Dedicated Organization

                               Integrated approach including science, awareness, solutions and distribution

                                                          Global team reporting to COO

                                                        Dedicated business unit in China
  (1)    Source: Essilor estimates, Brien Holden Vision Institute
  (2)    Morgan IG1, Ohno-Matsui K, Saw SM. Myopia. Lancet. 5 May 2012
  (3)    Verkicharla, Ohno-Matsui, Saw. Current and predicted demographics of high myopia and an update of its associated pathological changes, Ophtalmologic & Physiological Optics. 2015

                                                                                  2017 Results                                                                     3. Essilor in 2018 27
Further Progress towards our Core Ambition: Eradicating
Poor Vision Within One Generation
      in billions of people
 12
                                                # Uncorrected
                                                in billion of people
 10                                                                                                  3.8

 8                                        3.3
                                                                                                                                       $5
                                                                       3.3                                                      to improve the sight
                                                                                                                                   of one person*
 6             2.5
                                          2.6      2.5

 4             2.0

 2
               2.9
                                          3.8
                                                             Collective impact                                                $500M               / yr
                                                     0                                                                       to eradicate poor vision
 0                                                                                                                                 in 30+ years
              2017                       2050            2017           2050                      2100
                No need for vision correction
                Corrected                                If we do nothing          Impact with $500M/yr
                Uncorrected

                                                          (*) Low-income populations and people living below the international poverty line

                                                          2017 Results                                                                        3. Essilor in 2018 28
Accelerating in 2018
     Awareness               Inclusive Business                    Strategic Giving

                           More than 5,700 primary          Essilor Social Impact Fund
                            vision care providers trained
                            in ten countries at the end of
                            2017                                More than 3,000 Essilor
                           New countries: Bangladesh,           employees volunteered
                            Liberia, Indonesia                   globally
                           Private Public Partnerships
                           Product Innovation

                       €19 million new contribution
                                   2017 Results                                3. Essilor in 2018 29
Essilor in 2018 at a Glance

                     Deployment of robust innovation pipeline
  Lenses business    Strong potential in the US and China
                     Improvement in Brazil and India

                     Sustained momentum in developed countries
    E-commerce
                     Continue to invest in fast-growing markets

    Sunglasses       Xiamen Yarui Optical (Bolon™) expected to be back to growth
    & Readers        Expansion of MJS and Aojo footprint

                     Targeting acceleration from acquisitions & partnerships in H2
    Group-wide       Tax rate similar to 2017 level
                     Continued deleveraging

                                     2017 Results                                     3. Essilor in 2018 30
Outlook for 2018

 Like-for-like Revenue Growth                                                                                              Around 4%

 Contribution from operations(1)
    as a percentage of revenue                                                                                              ≥ 18.3%(2)

 Finalization of the Essilor and Luxottica proposed combination planned for the first
     part of 2018

(1) Contribution from operations = Revenue less cost of sales and operating expenses (research and development costs, selling and distribution costs, other operating expenses).
(2) Excluding any new strategic acquisition(s).

                                                                                           2017 Results                                                                       3. Essilor in 2018 31
Questions & Answers
4. Appendices

                2017 Results   33
Reported P&L Statement

                               € millions                                                                  2017                      2016                  Change

                               Revenue                                                                    7,490                      7,115                   +5.3%
                               Gross profit                                                               4,346                      4,181                   +3.9%
                               % of revenue                                                              58.0%                     58.8%

                               Contribution from operations (1)                                           1,361                      1,321                   +3.0%
                               % of revenue                                                              18.2%                     18.6%

                               Operating profit                                                           1,074                      1,230                  -12.7%
                               Net profit                                                                    878                       880                    -0.1%
                               Net profit attributable to equity holders
                                                                                                             789                       813                    -3.0%
                               of Essilor International
                               % of revenue                                                              10.5%                     11.4%

                               Earnings per share (in €)                                                    3.64                      3.79                    -4.0%

(1) Contribution from operations corresponds to revenue less cost of sales and operating expenses (research and development costs, selling and distribution costs, other operating expenses).

                                                                                           2017 Results                                                                           4. Appendices 34
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