ESSILORLUXOTTICA Contents
1.9Main characteristics of the risk management and internal control systems implemented by the Company for the preparation and processing of accounting and financial informationAFR
2.2 Special procedures for shareholder participation in Shareholders' Meetings AFR
2.3 Compensation of corporate officers
2.4 Appendix: Summary table of recommendations of the AFEP-MEDEF Code that have not been applied
2.5 Appendix: List of offices and responsibilities
2.6 Statutory Auditors' report on related-party agreements
statements
3 Financial
3.1 Comments on the Group's earnings
79101 105
143 146 162
165
and financial position AFR 167
3.2 Trend information AFR 175
3.3 Consolidated Financial Statements AFR 177
3.4 Statutory Auditors' report on the consolidated
financial statements AFR 240
3.5 Fees paid to the Statutory Auditors
and the members of their network AFR 244
3.6 Financial statements of EssilorLuxottica AFR 245
3.7 Other information related to the financial
statement of EssilorLuxottica 264
3.8 Statutory Auditors' report on the financial
statements AFR 266
information AFR
4 Social, environmental and societal
4.1 EssilorLuxottica Mission
4.2 EssilorLuxottica's approach to Sustainable Development
4.3 Management of Sustainable Development
4.4 Fundamental sustainability pillars to support EssilorLuxottica's Mission
4.5 Next steps for EssilorLuxottica's sustainability program
4.6 Methodology note and correspondence table
4.7 Report by one of the Statutory Auditor, appointed as an independent third party, on the consolidated non-financial statement included in the management report
share capital and stock ownership
5 Information about the Company, its
5.1 The Company
5.2 Share capital AFR
5.3
Shareholding
5.4 Employee shareholding AFR
5.5 Dividend distribution policy
5.6 Key stock market data
5.7 Historical data
Document
271
272 276 280 283 302 303
307
311
313
316
320
323
329
330
332
Additional information 6 on the Universal Registration
343
6.1 Persons responsible AFR 345
6.2 Statutory Auditors 346
6.3 Publicly available documents 346
6.4 Cross-reference tables 347
The Registration Documents and releases cited as well as this Universal Registration Document are available at: @ Investors / Pubblications and Downloadswww.essilorluxottica.com
* Includes the Report on the compensation policy of Executive Corporate Officers subject to the approval of shareholders at the Shareholders' Meeting on May 21, 2021.
The information from the Annual Financial Report is clearly identified in the table of contents by the symbol AFR
Document d'enregistrement universel 2020
Incluant le Rapport financier annuel
2020
Universal Registration Document
Including the Annual Financial Report
This document is a non-certified translation into English of the Universal Registration Document issued in French and filed on March 26, 2021 with the Autorité des Marchés Financiers (AMF), as competent authority under Regulation (EU) 2017/1129, without prior approval pursuant to article 9 of said Regulation.
The Universal Registration Document may be used for the purposes of an offer to the public of securities or the admission of securities to trading on a regulated market if completed by a securities note and, if applicable, a summary and any amendments to the Universal Registration Document. The whole is approved by the AMF in accordance with Regulation (EU) 2017/1129.
Message from the Chairman and Vice-Chairman
LEONARDO DEL VECCHIO
HUBERT SAGNIÈRES
Dear Shareholders,
When we wrote to you last March, the world looked very different for all of us. What makes our 2020 report so meaningful is that it highlights EssilorLuxottica's leadership in an environment that none of us had ever seen before. Fresh off the heels of our combination, we led the industry through a pandemic and did so while staying true to our strategic vision and protecting our people.
Today, we celebrate our success as a combined business, but also as a champion for all global business. It was our distinct dream to create a company deeply rooted in excellence and without geographic boundaries.
We are proud to say that we completed a critical stage of our combination during the interim period of the past three years. While it was not without challenges, we successfully laid the foundation for a new company, bringing us all closer together with a common vision. As we enter into the next stage of integration, our management team will use its strength, experience and determination to bring this vision into reality.
This past year, EssilorLuxottica created value for all stakeholders through its open business model. We achieved our goal to combine lenses and frames, leveraging a powerful supply chain and delivering a complete pair to consumers who want the best of vision and style. We reached great milestones while remaining consistent with our mission to help people "see more, be more and live life to its fullest". Perhaps our proudest achievement has been expanding our Employee Share Ownership in Essilor and Luxottica to reach more than 60,000 employees around the world.
For helping to guide us steadily through these unchartered waters, we offer our most sincere gratitude to the outgoing Board of Directors. Our incoming Board, which includes candidates who stand out for their vast experience, extensive business acumen and established reputations, is ready to continue to serve the Company's mission while leading EssilorLuxottica into an exciting new phase. In order to ensure continuity and steadfast leadership in EssilorLuxottica's amazing journey, we intend to propose to the new Board to confirm Francesco Milleri and Paul du Saillant as CEO and Deputy CEO respectively.
Looking ahead, we have strong ambitions for 2021 and beyond. We are precisely in the right position to lead the reinvention of an entire industry in the age of wearables, artificial intelligence, rapidly changing consumer and patient behaviors, sustainability and other forces of science and nature. Our wonderfully entrepreneurial and people-driven company has all that we need to propel eyewear and eyecare into an exciting new universe.
Celebrating 60 years of business for Luxottica and over a century and a half for Essilor, we will continue to be the company that our people, partners, investors and consumers are proud to work with. With our incredible managers at the helm, the next chapter of EssilorLuxottica's story will be led with great passion and purpose.
2
2020 Universal Registration DocumentEssilorLuxottica
Message from the Chief Executive Officer and Deputy Chief Executive Officer
Dear Shareholders,
We are extremely proud to be delivering this report to you, outlining EssilorLuxottica's achievements in 2020. During a difficult year for all our stakeholders, our newly combined Company lived up to its promise as an industry leader by taking care of our 140,000 employees around the world, supporting our customers through hardship and meeting the changing needs of consumers, all while continuing to invest in the future of vision care.
In 2020, we focused on leveraging the assets of both Essilor and Luxottica while preserving cash to not only allow the Company and the industry to push through the pandemic, but to blaze a trail for decades to come. By combining the most advanced lens technology with the most iconic frames and by weaving together a robust supply chain with strong roots in every region, we are just beginning to show the world what EssilorLuxottica can do.
Product innovation and digital transformation remained at the heart of our strategy and of our Mission of helping people "see more, be more and live life to its fullest". We launched new technologies like the Stellest lens, designed to lead the fight against myopia, and announced a partnership with Facebook that will define the next generation of smart glasses. EssilorLuxottica's brands further strengthened their position in the market. Loyalty to our brands is higher than ever and partnerships with cultural icons, star athletes and millennial influencers reinforced this. The relationships we are building with consumers are the kind that will last a lifetime. As part of our digital acceleration, we also continued to enhance the consumer journey online, in-store and in the exam lane with telehealth options.
With future growth in mind, we enhanced our e-commerce platforms and got closer to customers and consumers during the pandemic. Our online business reached a record high in 2020, totaling €1.2 billion in revenues and growing by approximately 40% year over year.
We also made great strides on the integration front, activating many workstreams across the business that are already showing results. Our progress, which gives us confidence that we will meet the synergy targets we promised to the market, has also brought the two teams closer together professionally and culturally. Our employees are more invested in the future of the Company than ever - with the expansion of our employee shareholding, almost one out of every two employees now hold a financial stake in EssilorLuxottica.
In a challenging year, we maintained our philanthropic work in underserved regions around the world through our support of Vision For Life, Essilor Vision Foundation and OneSight. Since 2013, we have created sustainable access to vision care for over 420 million people in developing communities and we have corrected and protected the vision of nearly 40 million people to date.
We continued our efforts to reduce the
Group's environmental impact across the value chain, investing in renewable energy and gradually introducing sustainable development criteria for new products.
We are now setting long-term, measurable sustainability goals and look forward to sharing those with you.
At all levels of the Company, there is a palpable sense of confidence in where we are today and the direction we are heading, thanks to our highly engaged workforce and a clear roadmap to achieving our goals in 2021.
Thank you for being on this exciting journey with us.
FRANCESCO MILLERI
PAUL DU SAILLANT
2020 Universal Registration DocumentEssilorLuxottica
3
CHAPTER
1
PRESENTATION OF ESSILORLUXOTTICA
1.1 A GLOBAL LEADER IN THE EYECARE
1.1.2 Vision care and eyewear brands 8
1.6 SIMPLIFIED ORGANIZATIONAL CHART 37
1.7.1 Significant events and COVID-19 38
1.7.2 Fourth quarter and full year 2020 revenue 40
1.7.3 Acquisitions and partnerships 46
1.7.4 Investments made in 2020 and planned for
1.9 MAIN CHARACTERISTICS OF THE RISK
1.9.1 The Company risk management process 72
1.9.2 The Company's internal control objectives 72
1.9.3 Organization of internal controls 72
1.9.4 Internal Audit department 74
IN BRIEF
EssilorLuxottica is a global leader in the design, manufacture and distribution of ophthalmic lenses, frames and sunglasses. Formed in 2018, its mission is to help people around the world to see more, be more and live life to its fullest by addressing their evolving vision needs and personal style aspirations.
The Company brings together the complementary expertise of two industry pioneers, one in advanced lens technology and the other in the craftsmanship of iconic eyewear, to set new industry standards for vision care and eyewear as well as the consumer experience around it.
Influential eyewear brands including Ray-Ban and Oakley, lens technology brands including Varilux and Transitions, and world-class retail brands including Sunglass Hut and LensCrafters are part of the EssilorLuxottica portfolio.
In 2020, EssilorLuxottica had more than 140,000 employees and consolidated revenue of €14.4 billion.
The EssilorLuxottica share trades on the Euronext Paris market and is included in the Euro Stoxx 50 and CAC 40 indices. Codes and symbols: ISIN: FR0000121667; Reuters: ESLX.PA; Bloomberg: EL:FP.
1.1
A global leader in the eyecare and eyewear industry
1.1.1
Overview of the Group
EssilorLuxottica is a global leader in the design, manufacture and distribution of ophthalmic lenses, frames and sunglasses. The Company brings together the complementary expertise of two industry pioneers, one in advanced lens technologies and the other in the craftsmanship of iconic eyewear, to create a vertically-integrated business that is uniquely positioned to address the world's evolving vision needs and the global demand of a growing eyecare and eyewear industry.
A growing eyecare and eyewear industry
Across the world, 7.7 billion people are in need of sunglasses, among which 6.2 billion are not equipped yet (1) and 4.7 billion people are in need of vision correction (1), among which 2.7 billion suffer from uncorrected poor vision (1).
The global eyecare and eyewear industry represents a value estimated at over €100 billion (2) in retail price terms, with a long-term growth trend of around 3% per year (2). The industry is comprised of five segments: spectacle lenses, contact lenses, spectacle frames, sunglasses and readers. The growth patterns of each segment are relatively homogeneous, with the exception of the contact lenses category which is projected to grow faster than the rest.
BREAKDOWN OF THE GLOBAL EYECARE AND EYEWEAR INDUSTRY IN 2020 (in percentage terms) (2)
3
Readers
16
A unique global footprint
With a worldwide presence across all stages of the value chain, EssilorLuxottica has more than 140,000 employees committed to providing vision care and eyewear products that meet the individual needs and style aspirations of each consumer. The unique business model and relentless pursuit of operational excellence ensures that consumers everywhere have access to products that have been rigorously tested to meet internationally recognized standards, from the simplest pair of glasses to the most sophisticated custom-made lenses and branded eyewear.
A deeply rooted commitment to innovative vision care and eyewear solutions
By investing heavily in R&D for cutting edge lens and frame technology, as well as reimagining the design, form and function of eyewear, EssilorLuxottica constantly sets new industry standards for vision care and eyewear and the consumer experience around it. Beyond the products we make, our Company and our people are deeply committed to elevating the importance of vision as both a basic human right and a key lever for global development.
Contact Lenses
(1) Source: EssilorLuxottica, Vision Impact Institute, Eyelliance: Eyeglasses for Global Development: Bridging the Visual Divide.
(2) Source: EssilorLuxottica, Euromonitor.
1.1.2
Vision care and eyewear brands
EssilorLuxottica is home to some of the most loved and widely recognized vision care and eyewear brands in the world. With a portfolio of proprietary and licensed brands that cover a wide variety of market segments, the Company taps into the needs and desires of consumers, innovates on everything from design to service, and ultimately delivers products and experiences that stand out in the industry.
Lens technologies
EssilorLuxottica's innovation in lens technology has led to the creation of lens brands that rank among the highest in terms of consumer satisfaction.
Today, it has an unparalleled portfolio of proprietary brands, including Varilux, Transitions, Crizal, Ray-Ban, Oakley, Eyezen, Xperio and Barberini. The Company has also successfully partnered with leading companies such as Nikon to distribute specific technologies that enable each consumer's needs to be fully addressed. These brands make an important contribution to educating consumers about the importance of eyecare.
EssilorLuxottica also has a long history of designing equipment and solutions used by opticians, optometrists and ophthalmologists around the world. This includes lens surfacing and coating equipment and instruments for refraction, diagnostic and imaging, measurement, edging and mounting tools as well as sales support services.
Eyewear brands
The vision and inventiveness of EssilorLuxottica has helped eyewear become a category of its own over the past few decades, evolving from a necessary device that improves vision to a desirable fashion accessory which enables self-expression and enhances self-confidence. A relentless pursuit of excellence down to the smallest detail, along with ongoing investment in R&D, new technologies, equipment, materials and processes, has earned us a reputation as a product and branding trailblazer.
The Company has an outstanding portfolio of proprietary eyewear brands, including Ray-Ban, Oakley, Costa, Vogue Eyewear, Persol, Oliver Peoples, Alain Mikli, Arnette, and Bolon and prestigious licensed brands including Giorgio Armani, Burberry, Bulgari, Chanel, Coach, Dolce&Gabbana, Ferrari, Michael Kors, Miu Miu, Prada, Ralph Lauren, Starck Eyes, Tiffany & Co., Tory Burch, Valentino and Versace.
Direct to consumer
EssilorLuxottica's retail network counts approximately 11,000 stores that offer high quality vision care and shopping experiences to patients and consumers, from highly digital eye exam technology to the latest eyewear trends curated for every type of consumer. A true omnichannel approach to distribution has enabled the magic of the Company's stores to be replicated in the digital space, enabling visitors to enjoy everything from customization to an endless aisle of frames. This approach enhances the consumer experience by offering a connected experience across all customer touch-points. Developing online activities enables EssilorLuxottica to reach a greater number of consumers while ensuring the distribution ofquality optical products and improving the quality of information available for consumers to understand the importance of vision and the solutions available.
The Company has a widespread brick-and-mortar retail network, under banners like LensCrafters, Pearle Vision, Target Optical, Salmoiraghi & Viganò, David Clulow Opticians, OPSM, Óticas Carol, GMO, Ópticas Place Vendôme, Ópticas Visión, Sunglass Hut, Ray-Ban and Oakley, complemented by best-in-class e-commerce platforms like Ray-Ban.com, Oakley.com, SunglassHut.com, EyeBuyDirect.com, FramesDirect.com, Clearly.ca and Vision Direct (in Europe).
As of December 31, 2020 EssilorLuxottica operated 10,739 stores as follows:
North America
Asia,Oceania,Europe
Africa
Sunglass Hut 1,728 479 442 395 3,044
LensCrafters 1,000 92
Óticas Carol 24
Pearle Vision 106
Target Optical 536
GMO 447
Salmoiraghi & Viganò 360
Oakley retail locations 190 10 66 15
OPSM 340
Ray-Ban 20 40 159 29
David Clulow Opticians 122
Luxury House Brands 33 9 7
All Others Luxottica 4 82
LUXOTTICA
3,617
TOTAL
Mujosh 120
Aojo 69
1,020
Optical House 196
Ópticas Visión 156
Bolon 38
Ópticas Place Vendôme 69
All Others Essilor ESSILOR
Optical Center 62
MJS 9
3,621
4 64 154 196 300
1,216
1,488
1,188 910 6,735
2,204 | 8,939 | ||
302 | 802 | 998 | 1,800 |
1,212 | 7,537 | 3,202 | 10,739 |
Latam
Total Corporate | Total Stores | |
3,044 1,092 24 106 536 447 360 281 340 248 122 49 86 6,735 | 195 2 1,378 442 29 103 36 1 8 10 2,204 | 3,239 1,094 1,402 548 536 447 389 384 376 248 123 57 96 8,939 |
120 69 196 156 38 69 62 9 83 802 | 500 327 116 34 21 998 | 620 396 196 156 154 69 62 43 104 1,800 |
7,537 | 3,202 | 10,739 |
1.1.3 Key figures
The table below highlights EssilorLuxottica's performance in 2020 and 2019. The year-on-year comparability of these results is no longer affected by the accounting of the combination between Essilor and Luxottica ("EL Combination"), occurred on October 1, 2018. However, 2020 results are strongly affected by the COVID-19 pandemic.
€ millions
2020
Change at current Change at constant
2019
exchange ratesexchange rates (1)
Revenue Gross profit
Adjusted (2) gross profit % of revenue
Operating profit
Adjusted (2) operating profit % of revenue
Net profit
Adjusted (2) net profit % of revenue
14,429 8,476 8,493 58.9% 452 1,374 9.5% 149 868 6.0%
17,390 10,817 10,887 62.6% 1,678 2,812 16.2% 1,185 2,054 11.8%
-17.0% -14.6%
-21.6% -19.3%
-22.0% -19.6%
-
-
-73.1% -69.4%
-51.1% -48.5%
-
-
-87.5% -84.0%
-57.7% -55.4%
-
-
(1) Figures at constant exchange rates have been calculated using the average exchange rates in effect for the corresponding period in the previous year.
(2) Adjusted from income and expenses related to the combination between Essilor and Luxottica and other transactions that are unusual, infrequent or unrelated to the normal course of business as the impact of these events might affect the understanding of the Group's performance. Such adjusted measures are reconciled to their most comparable measures reported in the consolidated statements of profit or loss for the years ended December 31, 2020 and 2019. The reconciliation tables as well as the list of adjusting items are presented in Section 3.1.1 of this Universal Registration Document.
1.2
Company History
2019
•
Acquisition of Brille24 (online)
•
Acquisition of Barberini
2018
• Acquisition of Fukui Megane
2017
• Acquisition of Óticas Carol
Combining more than 200 years of excellence
Essilor's EventsLuxottica' Events
2016
• Acquisition of Vision Direct UK, MyOptique (online)
and Photosynthesis Group (Sunglasses)
• Acquisition of Salmoiraghi & Viganò
2015
• Acquisition of Vision Source, PERC/IVA
•
Creation of Vision for Life, the largest strategic fund in visual health, to combat poor vision
2014
• Acquisition of Transitions Optical and coastal.com
2013
• Acquisition of Costa and Bolon
•
Acquisition of Alain Mikli
2012
•
Acquisition of Tecnol
2010
• Acquisition of Shamir Optical, Signet Armorlite and FGX
2008
• Acquisition of Satisloh (Equipment)
2007
• Acquisition of Oakley
2004
• Acquisition of Cole National
2003
• Acquisition of OPSM
2001
• Acquisition of Sunglass Hut
2000
• Essilor and Nikon decided to combine their R&D capabilities in creating a joint-venture
• Listed on Milan
Stock Exchange
1999
•
Acquisition of Ray-Ban
1998
• Acquisition of EyeMed
1995
• Acquisition of Gentex Optics (polycarbonate plastic lenses)
• Acquisition of Persol
• Acquisition of LensCrafters
1991
•
Joint-venture with PPG to launch the first organic photochromic lens
1990
• Acquisition of Vogue Eyewear
• Listing on NYSE
1988
• First license agreement with Giorgio Armani
1975
• Essilor listed on the stock market (Paris)
1972
• Essilor, a merger of two leading names (ESSEL and SILOR)
1961
• Luxottica founded by Leonardo del Vecchio
1959
• Launch of Varilux, the first Essilor's progressive lens
1954
• Launch of the first plastic lens, Orma
1849
• Creation of the Société des Lunetiers, known as SL then ESSEL
EssilorLuxottica has a combined two centuries of innovation and human endeavor behind it. Created in 2018, it is a culmination of two very complementary and inspiring business stories, equally rich in their successes, which have revolutionized an entire industry more than once, changing the very nature of eyewear and how we care for our eyes.
Founded in 1849, Essilor's long history is bound to its mission of improving lives by improving sight. This mission has borne major technological advances such as the invention of the organic lens and the progressive lens. The company has built a strong culture of employee shareholding combined with a unique governance model that associates employees with the company's decision-making process. This model is at the heart of Essilor's ambition to eradicate poor vision worldwide within one generation.
Starting its journey in 1961, Luxottica transformed eyeglasses from a necessary device into a desirable fashion accessory and vehicle for self-expression by building a unique vertically integrated business model that covers the entire value chain from design to final consumers and makes it possible to verify the quality of both products and processes. This revolution has created a growing appetite and demand for premium branded frames with a positive impact on the eyewear industry globally.
Where the stories overlap is in vision and values, including an entrepreneurial spirit and a shared desire to create the very best products for all consumers around the world and to do so responsibly. Yesterday Essilor and Luxottica were two companies using their individual strengths to unlock the potential of eyecare and eyewear around the world; today EssilorLuxottica looks forward to combining those strengths as one Group.
1.2.1
History of Essilor
At Essilor's roots lie two innovative companies
Essilor was formed in 1972 from the merger of two technological and marketing pioneers, ESSEL and SILOR, which at the time dominated the French ophthalmic optics industry.
The first can trace its origins to the Association Fraternelle des Ouvriers Lunetiers (renamed Société des Lunetiers and then ESSEL), an eyewear makers' cooperative founded in 1849 in Paris. The company quickly became a key player in vision correction and started to grow internationally as early as 1868. In 1953, it filed a patent for its first-ever progressive lens, launched under the Varilux name in 1959. ESSEL's original operating structure, which was inspired by workers' cooperatives and involved employees in corporate governance, is the source of the strong employee shareholding culture that is still present in Essilor today.
The second company dates back to the 1930s and was founded by Georges Lissac. The Industrial Division of the Lissac group, SILOR, was formed in 1969 from the merger of frame-maker SIL (Société Industrielle de Lunetterie) and lens-maker LOR (Lentilles Ophtalmiques Rationnelle), which had launched the first plastic lens, Orma, in 1954.
The 1970s to 1990s: International expansion
In the early 1970s, Essilor was mainly an exporting group, with its international business accounting for 45% of its revenue. After its successful IPO in 1975, it continued its drive for innovation with the launch of the first-ever progressive plastic lens: Varilux Orma, a powerful symbol of the synergy between the two founding companies. In 1979, the construction of a large plastic lens manufacturing plant in the Philippines was a turning point in Essilor's transformation into a true international group.
In the 1980s, to grow its competitiveness, Essilor set up other mass production sites in Brazil and Thailand. The group also set up and expanded its local distribution networks by buying up distributors in Europe and strengthening its presence in Asia. In 1986, the American subsidiaries were consolidated under Essilor of America. By the end of the 1980s, Essilor had become the world's leading manufacturer of ophthalmic optics.
Essilor, the world's leading manufacturer of ophthalmic optics
In the early 1990s, Essilor consolidated its world-leading position through a global strategy based on three key vectors, the first of which was industrial specialisation in corrective lenses as well as in instruments for opticians. The second was innovation in lens coatings and their combinations. Launched in 1992, the Crizal lens with antireflective, antismudge and antiscratch properties, and the Transitions photochromic lenses launched one year earlier on the back of a new joint venture with PPG, became a major growth segment with high added value. At the same time, Essilor strengthened its positioning in very light and unbreakable lenses with the takeover of Gentex Optics in 1995, which brought it the polycarbonate lens. Last but not least, Essilor, which until the mid-1990s had earned most of its revenue in Europe, began to create a global network. The group put down roots in China and India and also acquired more independent prescription laboratories, mainly in the United States and Europe, to ensure that its network reached local customers. Production was also set up in China with the opening of a plant near Shanghai in 1998.
The 2000s: Genuine globalization of high technology and strategic alliances
Technological innovation accelerated at the turn of the 21st century with a growing number of innovations beneficial to opticians and consumers. New products targeted both optical quality and wearer comfort thanks to: new and increasingly effective designs such as the Varilux X series lenses; UV protection, even in clear lenses, with the launch of the E-SPF index; lenses selectively protecting against harmful blue light, such as the Crizal Prevencia lenses; products intended for new consumer behaviors and habits, such as the new Eyezen lens line for all users of digital devices.
The group continues to grow through acquisitions and strategic partnerships that allow Essilor to assert its leading position in fast-growing countries such as India, China and Brazil.
The 2000-2010 decade was also marked by major strategic partnerships with: Nikon through the joint venture Nikon Essilor Co., Ltd (1999); Samyung Trading Ltd through the joint venture Essilor Korea Ltd (2002); GKB Rx in India (2006); Wanxin Optical in China (2010); Signet Armorlite, which has the worldwide production and distribution license for the Kodak trademark in the United States (2010); and Shamir Optical in Israel (2011). Over the period, Essilor developed its positions in many new countries, particularly in Latin America, Asia and Africa, aided by around twenty new acquisitions and partnerships each year.
Essilor broadened its scope of activities in the optics world with the creations of two new divisions. The Equipment Division was created in 2008 following the acquisition of Satisloh, the world leader in prescription laboratory equipment. In 2010, Essilor took over FGX International, the North American leader in non-prescription reading glasses (readers). This acquisition led to the creation of the Sunglasses & Readers Division.
A bigger playing field
In 2013, the group stepped up the development of its sunglasses offer with the acquisition of new companies specializing in mid-range products and high-tech sunglasses, such as Polycore, Xiamen Yarui Optical (owner of the Bolon, Molsion and Prosun trademarks), Suntech Optics (which distributes Ryders Eyewear) and Costa.
1.2.2 History of Luxottica
Incorporation
Luxottica was founded by Leonardo Del Vecchio in 1961. The company started out as a small workshop and operated until the end of the 1960s as a contract producer of dyes, metal components and semi-finished goods for the optical industry.
It gradually widened the range of processes offered until it had an integrated manufacturing structure capable of producing a finished pair of glasses. In 1971, Luxottica's first collection of prescription eyewear was presented at Milan's MIDO (an international optics trade fair), marking Luxottica's definitive transition from contract manufacturer to independent producer.
Expansion in wholesale distribution
In the early 1970s, the company sold its frames exclusively through independent distributors. In 1974, after five years of sustained development of its manufacturing capacity, it started to pursue a strategy of vertical integration, with the goal of distributing frames directly to retailers. The first step was the acquisition of Scarrone S.p.A., which had marketed the company's products since 1971, bringing with it a vital knowledge of the Italian eyewear market. Luxottica's international expansion began in the 1980s with the acquisition of independent distributors and the formation of subsidiaries and joint ventures in key markets.
Luxottica's wholesale distribution expansion focuses on customer differentiation, customized service and new sales channels, such as large department stores, travel retail and e-commerce, as well as continuous penetration into new markets.
In 2014, Essilor deepened its presence in the photochromic lenses segment by completing the acquisition of the PPG group's 51% stake in Transitions Optical and in the online business, with the acquisition of Coastal, a major online retailer of optical products.
In 2015, the group strengthened its ties with independent eye care professionals in the United States with the acquisition of Vision Source, a network providing services to independent optometrists, and PERC/IVA, a group purchasing organization.
In 2016, the group accelerated the development of its online sales, especially through two major acquisitions in Europe (Vision Direct and MyOptique Group) and expanded in China by taking 50% stake in Photosynthesis Group, which markets sunglasses and corrective lenses under a range of banners including MJS.
Eyewear, a new frontier of fashion
The 1981 acquisition of La Meccanoptica Leonardo, owner of the Sferoflex brand and developer of an important flexible hinge patent, enabled the company to enhance the design and quality of its products and increase its market share. From the late 1980s, eyeglasses, previously perceived as mere sight-correcting instruments, began to evolve into eyewear.
An aesthetic focus on everyday objects and designers' interest in the emerging accessories market led Luxottica to embark on its first collaboration with the fashion industry in 1988 by entering into a licensing agreement with Giorgio Armani. The company followed that initial collaboration with numerous others and, with the acquisition of new brands, gradually began building its current world-class brand portfolio.
Over the years Luxottica has launched collections from names like Bulgari (1997), Chanel (1999), Prada (2003), Versace (2003), Dolce&Gabbana (2006), Burberry (2006), Ralph Lauren (2007), Tiffany & Co. (2008), Tory Burch (2009), Coach (2012), Starck Eyes (2013), Giorgio Armani (2013), Michael Kors (2015) and Valentino (2017). Moreover, in 1999 Luxottica acquired Ray-Ban, one of the world's best-known sunglasses brands, along with its crystal sun lens technology.
In 2007, Luxottica acquired California-based Oakley, a leading sport and performance brand, which owned the Oliver Peoples brand. At the time of the acquisition, Oakley had its own retail network of over 160 stores.
In 2013, Luxottica acquired Alain Mikli International, a French luxury and contemporary eyewear company, which owned the Alain Mikli brand and the Starck Eyes license. As a result of the acquisition, Luxottica strengthened both its luxury brand portfolio and prescription offerings.
Expansion in retail distribution
In 1995, Luxottica acquired The United States Shoe Corporation, which owned LensCrafters, one of North America's largest optical retail chains. Luxottica became the world's first significant eyewear manufacturer to enter the retail market, maximizing synergies with its production and wholesale distribution and increasing penetration of its products through LensCrafters stores.
Since 2000, Luxottica has strengthened its retail business by acquiring a number of chains, including Sunglass Hut (2001), a leading retailer of premium sunglasses, OPSM Group (2003), a leading optical retailer in Australia and New Zealand, and Cole National (2004), which brought with it another important optical retail chain in North America, Pearle Vision, and an extensive retail licensed brands store business (Target Optical and Sears Optical). In 2005, the company began its retail expansion into China, where LensCrafters has become a leading brand in the country's high-end market. In the same year, the group also started to expand Sunglass Hut globally in high-potential markets like the Middle East, South Africa, India, Southeast Asia, Mexico, Brazil, Europe and China. In 2011, Luxottica started its optical retail expansion in Latin America by completing the acquisition of GMO, a leading retailer in Chile, Peru, Ecuador and Colombia. In 2016, Luxottica completed the acquisition of Salmoiraghi & Viganò, one of the leading optical retail chains in Italy, in which Luxottica has held a minority stake since 2012. In 2017 the group extended its presence in Brazil through the acquisition of Óticas Carol, one of the largest franchising optical retailers in the country. Eventually, in 2018 the group extended its retail footprint in Southeast Asia acquiring the Spectacle Hut brand.
A step further in the lens business
Luxottica is already a global leader in lens manufacturing. Ray-Ban, Oakley and Persol brands all carried a distinctive know-how in sun lenses when Luxottica acquired them and the acquisition of LensCrafters in 1995 brought an expertise in ophthalmic lenses. Since 2016, the company has taken further steps into the lens business developing new state-of-the-art production facilities in Italy, the United States and China to increase its production capacity for both sun and ophthalmic lenses. In August 2019, Luxottica completed the acquisition of Barberini S.p.A., the world's leading optical glass sun lens manufacturer.
The eyecare and eyewear industry
1.3
The eyecare and eyewear industry
Solid growth for an industry worth more than €100 billion
The global industry is estimated to be worth over €100 billion (1) (price to the consumer) with a long-term growth trend estimated at 3% (1) a year. The industry comprises five segments: ophthalmic lenses, contact lenses, spectacle frames, sunglasses and readers. The growth patterns of each segment are relatively homogeneous, with the exception of the contact lenses category which is projected to grow faster than the rest.
BREAKDOWN OF THE GLOBAL EYECARE AND EYEWEAR INDUSTRY IN 2020 (in percentage terms) (1)
Ophthalmic lenses
3
Readers
16
The mission of players in the ophthalmic optics industry is to correct and protect vision. Consumers purchase glasses about every three years to correct defects such as myopia, hyperopia, presbyopia and astigmatism.
According to Group estimates, in 2020 the world ophthalmic optics market represents around 1.3 billion lenses a year (2) or approximately 650 million consumers a year (2). Corrective lenses make up approximately 75% of vision correction solutions worldwide (2).
The value chain in the ophthalmic lens industry includes four phases: production of raw materials, manufacturing of lenses, finishing of lenses in prescription laboratories and edgingmounting facilities, and distribution to consumers.
Manufacturers make lenses using raw materials developed and produced by glass manufacturers for mineral lenses or by chemical companies for the polymerizable thermoset resins and injectable thermoplastic resins used in plastic lenses.
Their plants produce finished lenses for simple eyesight corrections and semi-finished lenses for more complex prescriptions. The plants
(1) Source: EssilorLuxottica, Euromonitor.
(2) 2020 estimates; Source: Essilor.
Contact Lenses
also apply all types of coatings (tinting, anti-UV, anti-blue light, antiscratch, antireflective, antismudge, antistatic, antifog, etc.) on single-vision lenses that do not require surfacing and polishing in the laboratories.
EssilorLuxottica makes both single-vision finished lenses and semi-finished lenses.
The prescription laboratories transform the semi-finished lenses, only the front surface of which is finished at the plants, into finished lenses meeting the exact specifications of opticians' or optometrists' orders. This customization enables them to deliver the broadest possible array of correction combinations, especially for presbyopia. In the process, the labs also surface and polish lenses and apply the different coatings. EssilorLuxottica operates a wide network of prescription laboratories and edging facilities around the world.
The Company also designs a range of optical instruments for opticians and eyecare professionals as well as equipment (primarily machines for surfacing and antireflective coatings) and sells consumables to prescription laboratories.
The eyecare and eyewear industry
Contact lenses
Contact lenses are the main alternative to corrective lenses for treating visual acuity problems, particularly myopia. They make up approximately 10% of vision correction solutions worldwide (2). Contact lenses are plastic discs made primarily of hydrogel or silicone hydrogel and worn directly on the cornea. They can be disposed of daily or replaced frequently (every two weeks, once a month).
Readers
Readers are non-prescription reading glasses sold by specialty retailers, notably pharmacies and mass retailers, and by optical retailers. This type of eyewear facilitates close-up viewing, particularly when presbyopia starts to develop, and covers about 10% of vision correction needs (1).
Spectacle frames
Spectacle frames are the device which ophthalmic lenses are typically set in (mounted into the frames or rimless mount). In 2020, the global market of spectacle frames is estimated slightly below 600 million units (1).
Frames are typically made of metals or plastic (injected or acetate), which offer a wide variety of design solutions. This is for both spectacle and sunglass frames.
Metal frame production begins with the production of basic components such as rims, temples and bridges using a molding process, then these components are welded together to form frames over numerous stages of detailed assembly work. Once assembled, the metal frames are treated with various coatings to improve their resistance and finished.
Sunglasses
Sunglasses are typically made of a frame with sun plano lenses (but they can be equipped also with prescription sun lenses, currently representing just a small portion of the market). Plano lenses can be made of plastic, polycarbonate or glass. In 2020, the global market of sunglasses is estimated slightly above 350 million units (2).
Retailers and optical chains
Products are marketed through a number of channels, including independent eyecare professionals/optometrists, cooperatives, central purchasing agencies, retail optical chains, specialty stores, duty free (travel retail) chains and online channels.
(1) 2020 estimates; Source: Essilor.
(2) Source: EssilorLuxottica, Euromonitor.
EssilorLuxottica distributes contact lenses through its retail businesses (physical stores and e-commerce) and is a wholesale distributor in some countries, notably the United States.
EssilorLuxottica sells readers through major retailers under a wide range of proprietary and licensed brands and has a significant presence in the United States.
Plastic frames are manufactured using either a milling or an injection molding process. In the milling process, a computer-controlled machine carves frames from colored acetate slabs. This process produces rims, temples and bridges that are then assembled and finished. In the injection molding process, plastic resins are liquefied and injected into molds. The plastic parts are then assembled, coated and finished.
EssilorLuxottica manufactures and distributes a huge number of different models of frames, made of all the described materials, under a number of very well-known brands (house frame brands and third party's licensed brands). In the prescription category, those frames need to be complemented by ophthalmic lenses, by the vast majority internally produced by the group's laboratories.
EssilorLuxottica manufactures and distributes a great number of different models and brands of sunglasses and is uniquely positioned as a global producer of branded sun prescription lenses.
EssilorLuxottica has a significant presence in physical stores in the United States, Latin America and some Asian and European countries including China, Australia and Italy. The company also has an outstanding e-commerce presence (sunglasses, prescription glasses and contact lenses). Lastly, EssilorLuxottica is a major supplier to third-party distributors operating in all distribution channels and across all geographic markets.
Mission
1.4
Mission
Mission
EssilorLuxottica's mission is to help people around the world see more, be more and live life to its fullest.
The Company's ground-breaking products correct, protect and frame the beauty of the most precious sensory organ - the eyes. By combining proven expertise in lens technology and eyewear manufacturing, a portfolio of brands that consumers love and global distribution capabilities, EssilorLuxottica enables people everywhere to learn, to work, to express themselves and to fulfill their potential.
Lack of awareness and access has led to a global vision crisis with severe social and economic consequences for billions of people. EssilorLuxottica exists to give vision a voice and to respond to the world's growing vision needs by meeting the evolving needs and changing lifestyles of the 2 billion people (1) who are wearing glasses today and inventing new ways to reach the 2.7 billion people (1) who suffer from uncorrected poor vision and the 6.2 billion people (1) who do not protect their eyes from harmful rays.
Powering sight
80% of what people learn is processed through the eyes. But one out of three people around the world still do not have the vision care they need, and billions more are at risk of deteriorating vision. Beyond essential vision correction, EssilorLuxottica will seek to respond to the vast need for vision protection from sunlight and harmful blue light.
Thanks to its portfolio of lens technologies combined with some of the world's most loved eyewear brands, EssilorLuxottica is uniquely positioned to make wearing eyeglasses and sunglasses both a desirable and life-improving experience.
Powering style
Combining the best in advanced lens technology with beautifully crafted and branded frames turns a necessary device that improves vision into an accessory that not only fits comfortably in form and function, but also serves as a true expression of personal style. Eyewear is one of the most visible of all fashion accessories and has become part of our cultural fabric. From the moment frame meetsWith the COVID-19 pandemic, 2020 saw seismic changes affecting the lives and livelihoods of everyone around the world. These changes impacted the vision industry too, disrupting the business of vision care providers and the delivery of vision care philanthropic programs. These changes also gave rise to new vision needs like blue light protection due to more time spent on screens and anti-fog lenses due to mask-wearing.
As a powerful advocate for the vision cause, a passionate campaigner for greater awareness, and a pioneering eyewear innovator with solutions and styles that bring ever greater improvements, EssilorLuxottica is finding new ways in COVID-19's new normal to give vision a voice as well as unlock the potential of eyecare and eyewear to bring good vision to everyone, everywhere in the world.
Driven by its mission and its global ambition of eliminating uncorrected poor vision from the world by 2050, EssilorLuxottica remains focused on:
The Company will act on many levels to elevate awareness on the importance of vision correction and vision protection, educating policy makers and consumers with dedicated campaigns but also supporting expert-to-expert knowledge sharing on vision science and patient needs. EssilorLuxottica already supports the Vision Impact Institute, whose mission is to make good vision a global priority, and several other non-profit organisations such as OneSight and Essilor Vision Foundation whose focus is on providing free eye exams and eyeglasses to the people most in need.
face, there is a sense of authenticity, creativity and confidence that consumers have come to love. Because of the power they wield, each pair of frames is considered as a little work of art, from its first sketches to the final handcrafted details. Every frame illustrates the passion, skill and commitment of EssilorLuxottica's people who will be committed to making the best eyewear possible.
(1) Source: Essilor International, Eliminating Uncorrected Poor Vision in a Generation. Essilor International. 2019; 15.https://www.essilorseechange.com/wp-content/uploads/2020/02/Eliminating-Poor-Vision-in-a-Generation-Report.pdf
1.5
Activities
Leveraging over 150 years of innovation, operational excellence, entrepreneurial spirit and international mindset, EssilorLuxottica develops groundbreaking eyecare and eyewear solutions to meet the changing lifestyles of existing consumers, while inventing new ways to reach the 2.7 billion people (1) who suffer from uncorrected poor vision and the 6.2 billion people (1) who do not protect their eyes from harmful rays. Its vertically integrated business draws on the complementary expertise of two industry pioneers, one in advanced lens technologies and the other in the craftsmanship of iconic eyewear, to offer an unprecedented set of comprehensive solutions to consumers and eyecare professionals. EssilorLuxottica's operates an open, non-exclusive business model, that benefits all stakeholders, including customers, employees, shareholders, business partners, suppliers and communities in which they reside. This business model respects the characteristics of the various activities of the Company, by providing centralization when required (for global frame brands and retail banners) and more decentralization when appropriate (for prescription lenses, which cater for multiple individual eye defects at local level). It is built around six unique pillars, which contribute to the Company's strength and support its determination to play the role of an accelerator of the industry growth in the coming years.
Global footprint. Operating across more than 150 different countries, the locations of EssilorLuxottica's manufacturing capabilities, distribution network and human capital are geographically balanced and well diversified shielding it from volatility in single economic areas.
World-famous brands. EssilorLuxottica showcases a portfolio of more than 100 renowned brands spanning across various categories, i.e. frames, lenses, instruments, distribution, and positioning, i.e. entry level to premium segment. Among them feature the most recognized brands in the industry, whose equity is protected by strong investments to fight counterfeit products and the parallel market. The unique assembly of brands allows EssilorLuxottica to address all customer needs at every price point.
1.5.1
Essilor activities
1.5.1.1
Strategy
Essilor International ("Essilor") is the world's leading ophthalmic optics company. Essilor designs, manufactures and markets a wide range of lenses to improve and protect eyesight. Its mission is to improve lives by improving sight. To support this mission, EssilorComprehensive go to market. EssilorLuxottica has implemented a comprehensive go to market strategy, comprising retail, wholesale, e-commerce and last-mile inclusive models. Through its direct-to-consumer platforms, the Company gains valuable insight into the behavior and preferences of the end-consumer. Retail and e-commerce play together in synchronization combining a physical "touch and feel", particularly important in the eyecare and eyewear industry, with an immersive digital experience. Wholesale networks complement the distribution footprint in a still fragmented market. Through EyeMed and its US managed vision care business, EssilorLuxottica completes its holistic go to market approach. Finally, innovative inclusive business models make last-mile distribution a reality in emerging markets.
Superior innovation capabilities. A drive for excellence coupled with an innovative spirit stand at the forefront of EssilorLuxottica's aspirations. The Company has built a powerful global R&D network supported by leading scientific, industrial and academic communities and centered around four main initiatives: enhancing vision, powering style, revolutionizing eye exams, making eyewear smart. It owns more than 11,000 patents and produces over 2,000 new products every year.
Powerful supply chain. EssilorLuxottica operates a vertically integrated business model exercising full control over every single step of the value creation process, from product development and manufacturing to the sale to the end consumer. Balancing speed, efficiency and proximity, the Company manages a global supply chain based on centralization for frames and on a capillary network for lens production and prescription laboratories.
Talented people. At the very core of EssilorLuxottica are its people, who bring these assets to life. A team of more than 140,000 skilled and committed employees work together relentlessly to make the Company better every day. Diversity is a key priority with 57% of total employees represented by women and approximately 47% below the age of 35 years. The Company strives to attract the best talent engaging employees with extensive training and development programs, personal wellbeing initiatives, subsidized employee shareholding schemes and the continuous promotion of health and safety in the workplace.
By putting these distinctive assets to play, EssilorLuxottica's is uniquely positioned to drive the evolution and elevation of the entire industry for the benefit of all stakeholders.
allocates more than €200 million to research and innovation every year, in a commitment to continuously bring new, more effective products to market. It also develops and markets equipment, instruments and services for eyecare professionals and operates in the readers and sunglasses market segments. Its flagship brands are Varilux, Crizal, Transitions, Eyezen, Xperio, Foster Grant and Bolon.
(1) Source : Essilor International, Eliminating Uncorrected Poor Vision in a Generation. Essilor International. 2019; 15.https://www.essilorseechange.com/wp-content/uploads/2020/02/Eliminating-Poor-Vision-in-a-Generation-Report.pdf
Across its operating activities, the strategy of Essilor rests on four main pillars:
• innovating in products, services and technology, thereby enabling the introduction every year of products delivering improved performance and new wearer benefits to address unresolved vision problems;
• developing solutions tailored to every segment and every geography in order to meet the diverse needs of eyecare professionals and consumers;
• acquiring new companies and forming partnerships with industry stakeholders, to deepen our local presence or enhance our asset portfolio;
• stimulating demand by deploying vision awareness programs, screening campaigns and initiatives to make visual correction more widely accessible.
These four pillars are supported by sustainable manufacturing and operational efficiency along with a deep commitment to corporate social responsibility.
BREAKDOWN OF ESSILOR REVENUE BY OPERATING SEGMENT
Revenue
€ millions | 2020 | % |
Lenses and Optical Instruments (a) | 5,960 | 88.8% |
Sunglasses & Readers (b) | 595 | 8.9% |
Equipment (c) | 158 | 2.3% |
TOTAL | 6,714 | 100% |
(a) Corrective lenses as well as lens preparation and optometry instruments for eyecare professionals and other institutions. | ||
(b) Reading glasses and non-prescription sunglasses. | ||
(c) Lens manufacturing and prescription laboratory equipment, mainly supplied by Satisloh. |
Good vision is a basic human right. Seeing well improves everything in life, from an individual's health, education and work opportunities to the sustainable development of local communities and economies.
1.5.1.2
Essilor Social Impact
At Essilor, good vision is considered to be a basic human right and every day its 74,000 employees work to bring good vision to everyone, everywhere, driven by its mission to improve lives by improving sight. While 2 billion (1) people around the world enjoy vision correction, 2.7 billion (1) or one third of the population suffer from uncorrected poor vision due to the barriers of awareness and access, with 90% living in developing economies at the base of the pyramid. Uncorrected poor vision has become the world's largest unaddressed disability and a public health crisis today. That is why the Company has a global ambition to eliminate uncorrected poor vision from the world by 2050 by breaking down the barriers through four areas of action:
1) Raising awareness of the importance of good vision Creating awareness of the importance of good vision is an important first step to help those suffering from uncorrected poor vision realize they are facing a health challenge but one that can be easily treated. This will then drive conversations around the topic, increase demand for action and encourage more people to access eye health services. Building awareness is also about consistently making the case for governments and health organizations to prioritize vision care and drive resources towards it.
As a long-term advocate for the cause of vision, Essilor supports the Vision Impact Institute, whose goal is to make good vision a global priority, through research and data driven advocacy. In addition, the Company leads many programs to drive awareness on a local, regional and global level. It collaborated with The Fred Hollows Foundation and other partners to expand the See Now campaign in India in 2020, following a successful pilot in 2019. Headlined by celebrity ambassador Mr. Amitabh Bachchan, the campaignencourages residents of Uttar Pradesh to get their eyes checked. The campaign reached nearly 50 million people with crucial eye health messaging and screened nearly 88,000 people for free before the COVID-19 pandemic halted it. Every year on World Sight Day, the Company launches programs across the world to give vision a louder voice. This year was no different - it deployed numerous initiatives around the world, accelerating its efforts to draw attention to the importance of good vision.
2) Creating sustainable access points through inclusive businesses
Lack of access to vision care and a lack of universal eye health systems impact many countries. Expanding sustainable access must continue to be a priority, particularly since vision correction is a recurring need. The Company's inclusive business 2.5 New Vision Generation (2.5 NVG) continues to find new and sustainable ways to provide vision care to underserved populations without access to conventional distribution channels. Through 2.5 NVG's inclusive business programs like Eye Mitra in India, Eye Mitro in Bangladesh, Mitra Mata in Indonesia and readers access points in Cambodia, it is training unemployed and underemployed people at the base of the pyramid to become primary vision care entrepreneurs for their communities, bringing vision care where it was unavailable before. During the COVID-19 pandemic, the Company's social impact fund, Vision For Life, provided financial aid to those whose livelihoods were at risk, enabling them to continue providing their communities with sustainable access to vision care.
2.5 NVG developed a third pillar of access creation: creating access in small towns by structuring unorganized and informal optical channels, including some without any physical shops, through skills training, marketing support as well as access to the Company's products and supply chain. This strategy has created powerful impact in China with its Eye Partner program and in Indonesia with its Mitra Mata program. The third pillar complements the Company's existing two pillars of access creation: greenfield outlets (like the Eye Mitra program) and philanthropic programs via charitable clinics.
(1) Source: Essilor International, Eliminating Uncorrected Poor Vision in a Generation. Essilor International. 2019; 15.https://www.essilorseechange.com/wp-content/uploads/2020/02/Eliminating-Poor-Vision-in-a-Generation-Report.pdf
3) Delivering philanthropic programs to help those most in need
There is a segment of the population, the most vulnerable, who will always need help, be it through subsidized or free vision care services. For this segment, philanthropy will always play a role on a local and global level. Essilor Vision Foundation organizes philanthropic programs around the world to provide free glasses to those most in need. Vision For Life, the Company's €49 million social impact fund, support all programs that address the needs of those with uncorrected poor vision and bring about socio-economic benefits for them and their communities.
Amidst the COVID-19 pandemic, the Company continued to deliver philanthropy to beneficiaries around the world, albeit in a safe and hygienic manner. It launched a vision care program for 300,000 migrant workers living in dormitories in Singapore while establishing a mobile visual health unit in France, enabling it to bring vision care to underserved areas throughout the country. The Company also pledged to support Special Olympics International (SOI) for another three years starting 2021 to continue supplying lenses to SOI's Opening Eyes program for its athletes.
Driving innovation to create affordable products, screening tools and service delivery models, Essilor recognizes the need for innovation across the entire vision care delivery chain from screening tools to products to service delivery models as a major lever to fast-track access to vision care at the base of the pyramid (BoP). To facilitate this, its BoP Innovation Lab works hand in hand with 2.5 New Vision Generation to incubate new inclusive business models and technology solutions to test and scale innovative ways that reach populations with no access to vision care, in partnership with other corporates, local startups, NGOs, foundations or development funds.
To enable the primary vision care entrepreneurs to offer enhanced vision care services to their communities, the BoP Innovation Lab pioneered an on-demand teleconsultation platform for them to connect with optometrists in urban areas to remotely oversee the refraction process in real time. Responding to the COVID-19, the Lab piloted a home delivery model in India where customers can make appointments for at home vision screenings, facilitated by teleconsultation. To provide vision screening at a low cost, the BoP Innovation Lab developed the ClickCheck™, an award-winning screening device which enables primary vision care providers and NGOs to conduct vision screening anytime, anywhere at a fraction of the cost.
4) Eliminating uncorrected poor vision around the world Since 2013, the Company has created sustainable access to vision care for over 380 million people with over 17,300 inclusive businesses or primary vision care entrepreneurs around the world. It has also corrected and protected the vision of over 39 million people at the base of the pyramid through its inclusive business and philanthropic actions.
In 2020 alone, despite the COVID-19 pandemic impacting lives and livelihoods around the world, the Company continued to drive progress towards its ambition of eliminating uncorrected poor vision - it created sustainable access to vision for over 82 million people in developing communities at the base of the pyramid by establishing nearly 2,000 inclusive businesses or primary vision care entrepreneurs. It also corrected and protected the vision of over 6 million people through both inclusive business and philanthropy.
1.5.1.3
Lenses and Optical Instruments
1.5.1.3.1
Overview
The Lenses and Optical Instruments division accounted for 88.8% of Essilor consolidated revenue in 2020, or close to €6.0 billion. Essilor designs, manufactures and customizes corrective lenses to meet each person's unique vision requirements.
Its extensive lens range corrects myopia, hyperopia, astigmatism and presbyopia to enable people to regain better vision, preserve and protect their eyesight and improve their lens wearing experience. Essilor serves every segment of the ophthalmic lens market with globally recognized brands, the most renowned being:
• Varilux and its progressive lens range, including the Varilux X Series launched in 2017;
• Crizal and its range of antireflective, antismudge and antistatic lenses, including Crizal Sapphire 360°, introduced in 2017;
• Transitions and its photochromic lenses (that darken on exposure to UV light), including the new Transitions Style Colors and Transitions Style Mirrors lines launched in 2018 as well as Transitions Signature GEN 8 in 2019;
• Eyezen, a line of lenses for users of computers, tablets, smartphones and other connected devices, including the latest innovation, Eyezen Start lenses, launched early in 2019;
• Xperio polarized sun lenses;
• The Nikon and Kodak corrective lens brands used under licensing agreements with Nikon Corporation and Eastman Kodak, respectively.
Within this division, Essilor also designs, develops, markets and maintains a range of optical instruments in two main specialty segments: (i) lens edging and mounting instruments for opticians and prescription laboratories, and (ii) optometry instruments for eyecare professionals, schools, occupational medicine centers, the military and other institutions. This business unit continued to roll out two major new instruments in 2020: Visioffice X, a tool for personalizing lenses in optical stores, and the Vision-R 800 phoropter. A world first, the latter radically changes the eye exam process and customer experience, allowing measurement up to 0.01 Diopter versus 0.25 Diopter with other machines on the market. In addition to revolutionizing optometry, the Vision-R 800 paves the way for ophthalmic lenses with much greater accuracy.
In addition, Essilor has been working for several years to develop solutions for online sales of optical products including contact lenses, prescription eyewear and sunglasses to better serve the fast-growing online retail channel. This effort is supported by a number of local websites currently covering countries such as:
• Australia (clearly.com.au);
• Brazil (e-lens.com.br and eotica.com.br);
• Canada (clearly.ca);
• The United States (eyebuydirect.com, framesdirect.com, and coastal.com);
• Europe (LensWay websites and Vision Direct, MyOptique Group, 4Care and Brille24);
• India (coolwinks.com);
• New Zealand (clearly.co.nz).
Essilor's customers are:
• opticians/optometrists for ophthalmic lenses and edging and mounting instruments directly or indirectly through distributors;
• prescription laboratories for lenses and edging and mounting instruments;
• end consumers via the company's websites and retail stores that sell optical products.
The ophthalmic optics industry is highly fragmented and served primarily by local competitors. Essilor's main global competitors are Hoya (Japan) and Carl Zeiss Vision (Germany).
1.5.1.3.2 Production and supply chain Steps in the lens manufacturing process
Essilor's production plants produce lenses that are finished or semi-finished (only the front surface is finished). In general, the finished lenses produced are for simple eyesight correction such as myopia, hyperopia and some astigmatisms. Semi-finished lenses are intended for more complex corrections including presbyopia.
The company's prescription laboratories manufacture the semi-finished lenses to the specifications of opticians/optometrists. They handle surfacing, polishing, coatings (multilayer and antireflective) and edging-mounting. This "customization" helps address the very large number of correction combinations possible, particularly for presbyopia. In the latter case, the labs surface multiple correction areas into the lenses for vision at different distances.
Finished and semi-finished lenses manufactured in the production plants are sent to the distribution centers. The latter ship the lenses either to company-owned businesses (distribution subsidiaries, prescription laboratories and edging-mounting facilities) or to third parties (certain distributors when the company does not have its own subsidiaries, prescription labs, retailers and optical chains).
OPTICIANS
EYE CARE PROFESSIONALS
Manufacturing and supply chain
Essilor oversees every aspect of its lens businesses, from manufacturing through delivery to stores. It has a network ofproduction plants, prescription laboratories, edging-mounting facilities and distribution centers that serve eyecare professionals across the globe (independent opticians/optometrists, cooperatives, central purchasing agencies and retail optical chains).
A UNIQUE GLOBAL NETWORK
26 plants specialized in prescription lens production3 Transitions Optical plants
3 plants specialized in sun lens production490 local prescription laboratories and edging facilities
8 Export prescription laboratories14 Distribution centers
(photochromic lenses)
As of December 31, 2020, Essilor and its partners operated 32 production facilities worldwide. This total takes into account the acquisition of a plant in Danyang, China in 2019. Of these 32 plants, 26 produce prescription lenses, three make photochromic lenses and three specialize in non-prescription sun lenses.
The company has a network of 490 prescription laboratories and edging-mounting facilities around the world, including eight large export laboratories that make lenses primarily for the Asian, European and North American markets.
In addition, Essilor has five integrated lens and frame platforms in Bangkok (Thailand), Dallas (United States), Shanghai (China) and Warsaw (Poland) as well as in Danyang (China) with a dedicated e-tailing unit. These platforms were developed to support theintegrated services offered to key accounts, which include lens production, frame management on behalf of clients and, in some cases, the edging-mounting of lenses in frames.
Lastly, Essilor has 14 distribution centers.
Essilor's supply chain covers all product and lens flows across the globe, from production plants to central logistics hubs and prescription labs through to retail eyecare outlets. It offers unrivalled ability to simultaneously manage flows both of stock lenses (finished lenses completed in the production plants) and custom prescription lenses (semi-finished lenses produced in plants and then sent to prescription laboratories for surfacing and coating). All in all, Essilor's supply chain handles more than 5,000 lens routes per day and more than 2.5 million SKUs.
Asia/Pacific/
Middle East/
North America Europe Africa Latin America
32 production plants
490 prescription laboratories and edging-mounting facilities (1)
• of which 221 prescription laboratories
• of which 269 edging-mounting facilities
5 integrated lens and frame platforms
14 distribution centers
3
7 20 2
118
50 196 126
56
28 96 41
62
22 100 85
1
1 3
2
4 7 1
(1) This number has been restated in 2020 to include all edging and mounting facilities globally.
GEOGRAPHICAL DISTRIBUTION OF THE 32 PLANTS OWNED BY THE ESSILOR AND ITS PARTNERS AT DECEMBER 31, 2020
North America: 3
Latin America: 2
Europe: 7
Asia/Middle East: 20
14 Essilor plants
• United States:
- Dudley, Massachusetts (1995)
- Salt Lake City, Utah (2003)
• Mexico: - Chihuahua (1985)
• Brazil: - Manaus (1989)
• France:
- Ligny-en-Barrois, Les Battants (1959)
- Dijon (1972)
- Sézanne (1974)
- Bellegarde-sur-Valserine (2003)*
• Ireland: - Ennis (1991)
• China: - Shanghai (1997)
• Laos: - Savannakhet (2013)
• Philippines: - Mariveles (1980) - Laguna (1999)
• Thailand: - Bangkok (1990)
3 Transitions Optical plants
• Ireland: - Tuam (2014)
• Philippines: - Laguna (2014)
• Thailand: - Amphoe Phan Thong (2014)
15 plants operated in partnership or recently acquired by the company
• Brazil: - Segment Produtos Oftalmicos, São Paulo (2015)
• United Kingdom: - Crossbows Optical (2010)
• China:
- Essilor Korea via its subsidiary Chemilens, JiaXing (2006)
- Wanxin Optical, Danyang (2010)
- Youli Optics, Danyang (2011)
- Seeworld Optical,
Danyang (2012)
- Jiangsu Creasky Optical, Danyang (2017)
- Future Vision, Danyang (2019)
• India: - GKB Vision, Bardez, Goa (2015)
• Indonesia: - Polycore, Karawang (2013)*
• Israel: - Shamir Optical, Kibbutz Shamir (2011)
• Japan: - Nikon-Essilor, Nasu (2000)
• Malaysia: - Polycore, Johor Baru (2013)*
• South Korea: - Essilor Korea via its subsidiary Chemiglas, Yangsan (2002)
• Vietnam: - Essilor Korea via its subsidiary Chemiglas, Dai An (2013)
*Plant specialized in sun lens production.
KEY FIGURES
At December 31, 2019
At December 31, 2020
Output from Essilor plants and partner facilities (a)
Lenses coated and surfaced in the prescription laboratories Inventory days (c)
• c. 562 million prescription lenses
• c. 13 million non-prescription sun lenses
• c. 152 million lenses (b)
• c. 474 million prescription lenses
• c. 8 million non-prescription sun lenses
• c. 135 million lenses (b)
• 5.1 months
• 4.9 months
(a) Includes photochromic lenses made by Transitions Optical and sold to other lens manufacturers.
(b) Excludes acquisitions and partnerships finalized during the year.
(c) Number of days of consumption current inventory levels can sustain at constant perimeter.
In 2020, the teams in charge of Operations and Supply Chain were affected by the COVID-19 pandemic from the start of the health crisis in China. The teams reacted swiftly to support the Chinese management in managing this crisis and, as the virus spread, shared the best practices applied in China to all the countries affected by the COVID-19 pandemic. A crisis management operations committee was quickly created. Essilor fully benefited from its experience acquired in particular during recent crises linked to climatic events (such as the floods in Thailand in 2011 or the eruption of the Icelandic volcano Eyjafjallajökull in 2010) and was able to take advantage of the benefits of having implemented BCP's (business continuity plans) to deal with them. To manage the COVID-19 health crisis, Essilor relied on multiple country BCP's to find solutions on a global scale. The effectiveness of Supply Chain teams around the world in handling this crisis while it was working from home has been remarkable. They were fully mobilized to put in place significant resources to allow the group's own activities to continue and customers to restart their activity as quickly as possible.
Highlights of the year
Crisis Management due to the COVID-19 pandemic
New products
Teams from Operations and Global Engineering mobilized to support new product launches in 2020. For instance, all photochromic lens production lines had to be adapted to prepare for the launch of the new Transitions Signature Gen 8 photochromic lens. In particular, the new polyurethane-based material to fix the photochromic pigments used specifically with this innovation needed to be tested on all materials and substrates before mass production and marketing could begin in the United States and then in Latin America, with a full rollout to the rest of the world in 2020. Global Engineering also laid the groundwork for the launch of Crizal Rock, the new Crizal brand lens launched in 2020, working specifically on the production parameters associated with the stacking of layers this innovation involves. The team also worked on the launch of the new Varilux brand lens, the Varilux Comfort Max. It has also successfully contributed to the launch of the new UV rays and harmful blue-violet light protective product, Blue UV Capture. This new technology was deployed across a wide range of materials (notably for polycarbonate lenses as well as lenses made from CR-39 material) as well as on a wide spectrum of lenses ranging from low index (1.5) lenses to UHI (ultra high index) lenses. Finally, the operations and global engineering teams launched Stellest, a lens to curb myopia, first in the Chinese market before embarking on a broader deployment.
Local prescription laboratories network optimisation
In 2020, Operations and Supply Chain teams continued their efforts to continue optimizing Essilor's global network of factories,prescription laboratories, edging-mounting facilities and distribution centers. Consolidation of volumes in industrial laboratories continued to ensure better use of production lines. Some local laboratories were transformed and dedicated to edging and mounting in order to provide a better local service. Essilor also opened a new industrial and integrated laboratory in Columbus, Ohio. The number of prescription laboratories decreased from 248 at the end of 2019 to 221 at the end of 2020. The number of edging and mounting facilities decreased slightly from 273 at the end of 2019 to 269 at the end of 2020.
The Essilor and Luxottica operations teams have also carried out several industrial synergy projects and have started a process of building a unique network of laboratories. This includes the overhaul of demand management and capacity management processes, the introduction of new products, the establishment of a common IT platform in the laboratories as well as the sharing of best practices of operational excellence.
Capital expenditure and integration of new technologies
Capital spending in 2020 notably focused on expanding capacity at certain facilities, in particular:
• increase in production capacity for high-index lenses (1.6 and 1.67) in Vietnam;
• increase in production capacity for semi-finished and polycarbonate lenses in Laos.
Despite the COVID-19 pandemic, the group continued its investment program, prioritizing the deployment of new technologies in high-volume prescription laboratories as well as developing laboratories integrating lenses and frames.
In addition, Essilor's manufacturing technologies were deployed in Luxottica's three main laboratories in the United States, Europe and China.
Minimizing the environmental footprint of the production plants and laboratories
In 2020, the Essilor production plants pursued efforts to reduce their water and energy consumption, in keeping with the company's 2020 objectives of achieving a 20% reduction in water use per lens produced and a 15% cut in energy intensity per lens produced relative to the 2015 levels. During the year, the company notably introduced solutions to reduce water consumption and reuse water in coating machines at its main production facilities, and put into place new energy consumption standards at several production plants, notably for its polymerization ovens and vacuum film deposition equipment. A new program was also launched during the year to develop semi-finished lenses that are smaller in diameter and thickness to reduce organic material waste. In addition, surface chip compression equipment was tested and deployed on certain sites in order to recover the residual water present in this waste and to drastically reduce its volume and weight.
1.5.1.3.3 Research and Development Innovation a cornerstone of the company's strategy
From its origins, which saw the invention of Orma organic lenses and Varilux progressive lenses, innovation has been a strategic focus and decisive competitive advantage for Essilor.
The company allocates a meaningful portion of its revenue to Research and Innovation every year. In 2020, this investment amounted to €229 million, before the deduction of research tax credits.
Essilor improves upon its products each year, either through internal innovation or by leveraging technologies from other industries through research partnerships.
A consumer-focused approach to innovation
Essilor's R&D focuses on understanding consumers' needs in the three areas of vision care: vision correction, eye protection and the prevention of eye diseases.
The R&D teams develop innovative technical solutions, products, processes and services to meet individual vision needs around the world. Changes in consumer lifestyles, including new visual demands (digital device use, etc.), as well as longer life expectancy, are creating major R&D challenges and opportunities for the vision care sector. As a result, new needs are emerging linked to pathologies such as cataracts and age-related macular degeneration.
The company's R&D activities are organized into five segments: myopia, presbyopia, light management, digital solutions and smart eyewear.
In each of these segments, the new products introduced to the market result from a process of gradually selecting ideas and concepts (Stage Gate Process) involving a large number of cross-company stakeholders within Essilor (marketing, operations, subsidiaries, intellectual property, etc.).
Moreover, the company has developed new methodologies for testing its products with consumers. One example is HouseLab, which makes it possible to observe wearers in real-life situations and learn from their experiences.
A global network built around five R&D centers
Essilor has about 450 researchers working at its five R&D facilities: one R&D Center in Ireland dedicated to photochromic lenses and four Innovation and Technologies Centers in Europe (Créteil, France), the United States (Dallas) and Asia (Singapore and Shanghai). These facilities develop new products and work to identify and forge the best possible research partnerships.
The Innovation and Technologies Center in Shanghai, China focuses on myopia, new technologies for improving the customer experience in China, and the development of products tailored to the needs of Chinese consumers. Essilor also has a development and testing center in Danyang, China, which assesses, compares and improves the performance of products made by its Chinese partners.
A GLOBAL R&D ORGANIZATION CONNECTED TO RENOWNED
INDUSTRIAL AND ACADEMIC EXPERTS
Universities, joint R&D laboratories
1. CI&T : Essilor Innovation and Technologies Centers.
2. AMERA : Asia, Middle East, Russia, Africa.
• a laboratory run jointly with Wenzhou University in China to study myopia in children;
R&D partnerships focusing on innovation
To develop its products, Essilor works alongside many universities, public and private research centers and R&D teams from other industrial sectors.
It has forged several partnerships in recent years, including:
• a research chair dedicated to non-pathological vision aging, in partnership with the Vision Institute and Sorbonne Université in Paris, France;
• a multisector research chair for coatings and surface engineering with Polytechnique Montréal and three other industrial partners. The chair's work focuses on developing the next generations of innovative surface coatings. These coatings will notably allow Essilor to add new optical and/or mechanical functions to its lens surfaces;
• a research laboratory run jointly with CNRS-LAAS in France, "OPERA", focusing on lenses and eyeglasses with active and connected functions.
New products launched in 2020
The main launches involved, firstly, the rolling out of recent innovations at a global scale and, secondly, the introduction of new products to markets.
After celebrating the 60th anniversary of the Varilux brand in 2019, Essilor continued to innovate and reaffirmed its leadership in the field of progressive lenses in 2020 with the launch of a new generation of Varilux® lenses: Varilux® Comfort Max. The newest member in the Varilux family aims to convert new and younger customers to progressive lenses.
During the course of 2020, Varilux Comfort Max was successfully launched in 15 key markets globally including the United States, Canada, South Korea and several European countries. Building on the ongoing popularity of the iconic Varilux Comfort brand, the Varilux Comfort Max lens ensures long-lasting visual comfort by making it possible to maintain different natural postures throughout the day. The roll out of Varilux Comfort Max will continue throughout 2021.
In the Varilux progressive lens range, the company also stepped up the global rollout of the Varilux X Series lens with the introduction of a new customer claim as well as a new 360° brand campaign, designed to build on every step of the customer journey, which will be fully leveraged in 2021.
The highlight of the year for the Crizal antireflective lens range was the launch of the Crizal Rock lens. This product offers the best combination against scratches and smudges with better technical qualities than ever before in a Crizal product. They include an improvement in the product's thermal resistance, scratch resistance (Crizal Rock is three times more resistant than previous generations of Crizal coatings) and smudging capabilities. After a successful launch in Canada in 2020, this innovative new antireflective coating will be rolled out in other markets across the globe in 2021.
The range of lenses offering protection from UV and harmful blue-violet light was also expanded during 2020 with the continued roll out of Blue UV Capture. In addition to protecting the eyes from UV rays and harmful blue-violet light, this lens also ensures optimal clarity thanks to specific molecules and, in some cases, nanotechnologies integrated directly into the material. As it becomes more important to protect eyes from harmful blue light, Essilor is working to deliver a response that benefits as many people as possible. The Blue UV Capture lenses have continued to increase in the overall mix of Essilor's blue cut product portfolio. This confirmed the success of this new solution and, more generally, of the work Essilor teams have done in this area in recent years. It is also worth flagging the success of Essilor's Eye Protect System, which is a more premium solution against harmful light with improved scratch resistance capabilities.
In 2020, Essilor continued to reap the benefits of the new technology embedded in the 8th generation of Transitions photochromic lens range. After a successful launch in 2019, 2020 was the year during which a large number of new customers fully appreciated the benefits of Transitions Signature GEN 8 on a global scale. The new generation of this product was successfully rolled out in Europe, Latin America and Asia in 2020, after its launch in North America in 2019. Consumers were particularly appreciative of its new technological features. The lenses are now darker outdoors, return to clear up to 3 minutes (1) faster and are fully clear indoors. They block 100% of UVA and UVB rays as well as at least 20% of harmful blue light indoors and more than 87% of harmful blue light outdoors (2). As a result, consumers better manage changes in light than with prior generations of the product.
In the context of a significant increase in demand for anti-fatigue products as people all over the world are spending more and more time in front of digital devices, Essilor continued to grow its Eyezen range of single-vision lenses for connected life. The Eyezen Start lens, dedicated to all single vision lens wearers above the age of 18, which relaxes the eye and protects against blue violet light, experienced a fast development in 2020 thanks to a solid momentum in North America and Europe as well as successful launches in Asia including in China. In 2021, Essilor will focus on expanding the success of Eyezen Start across the globe.
A recent survey of optical retailers and ECP's in the United States conducted by Vision Monday and 20/20 Magazine recently identified Essilor as the best company for spectacle lenses and its key products Varilux, Crizal and Transitions were chosen as the favorite products in their respective categories.
Finally, in the context of the COVID-19 pandemic, Essilor also globally and successfully relaunched its major anti-fog product Optifog in 2020, which prevents lens fogging while wearing face masks.
In July 2020, Essilor launched the Stellest lens in China as a new generation of spectacle lens solutions to fight against the progression of myopia for children. Stellest was rolled out across hundreds of eye hospitals in China in 2020 and this successful launch will be followed by a gradual and broader rollout in the future.
(1) CR607 products fade back to clear 2 minutes faster. Claim is based on tests across materials on grey lenses, being the most popular color, fading back to 70% transmission @ 23°C.
(2) Transitions Signature lenses style colors block over 75% outdoors. "Harmful blue light" is calculated between 380nm and 460nm.
In 2020, Essilor Instruments advanced in the field of refraction with two new innovations: the Vision-R 800, an innovative phoropter with continuous power changes that allow refraction to be made with a resolution of 0.01 diopter (versus 0.25 diopter accuracy previously); and the new Vision-R 700 device, which is faster and more accurate. These phoropters make eye exams more precise, more reliable (less risk of human error), more comfortable for patients, and easier for practitioners to perform.
Essilor continued to roll out these new instruments, which combined with the new AVA lenses also providing a new refraction accuracy standard with a resolution of 0.01 diopter, are a central component of the new AVA protocol designed to significantly improve the customer experience. Finally, Essilor also deployed its 1000th Visioffice X in Europe, and began the launch of this innovation worldwide. Due to sanitary restrictions, the in-store consumer experience had to be adapted. Respecting social distancing rules by using digital dispensing tools (column or tablet solution) like Visioffice X, a tool for personalizing lenses in optical stores, has been important to allow ECPs to take measurements safely.
1.5.1.4
Equipment
1.5.1.4.1
Overview
The Equipment Division accounted for 2.3% of Essilor consolidated revenue in 2020, or €158 million.
It consists primarily of Satisloh, which manufactures and markets equipment, spares and consumables used by prescription laboratories. With globally recognized expertise, Satisloh is one of the world's leading manufacturers of surfacing machines and hard-coating and antireflective coating units. The combination of machines and consumables and the ability to offer automation enables Satisloh to provide end-to-end solutions for prescription laboratories.
Satisloh customers are mainly prescription laboratories, integrated optical chains and lens manufacturers.
Its main competitors are OptoTech (Germany) and Schneider (Germany) in surfacing machines, Bühler (Germany) in antireflective coating machines, and Optimal (United Kingdom) in hard-coating surfacing machines.
1.5.1.4.2
Organization and facilities
Satisloh, which is headquartered in Baar, Switzerland, together with its subsidiaries, own production units in China (Zhongshan), France (Archamps and Mantes-la-Jolie), Germany (Wetzlar), Italy (Milan) and the United States (Charlottesville, Concord and Dallas), and have representative offices in many other countries.
1.5.1.5
Sunglasses & Readers
1.5.1.5.1
Overview
The Sunglasses & Readers Division accounted for 8.9% of Essilor consolidated revenue in 2020, or €595 million.
It markets non-prescription sunglasses and reading glasses.
The division comprises several companies, each having a portfolio of well-known brands:
• FGX International, its subsidiaries and managed affiliates, which market readers and sunglasses under proprietary brands such as Foster Grant, Gargoyles, Magnivision, Corinne McCormack, Monkey Monkey, Ryders Eyewear, and SolarShield and licensed brands including Reebok, Steve Madden, Betsey Johnson, Nine West, Dockers, French Connection, Ironman, Rawlings, Bodyglove, Panama Jack, and a variety of Disney and Marvel trademarks;
• Xiamen Yarui Optical, which designs, manufactures and markets mid-tier sunglasses and optical frames in China under the Bolon, Molsion, Prosun and Qina brands;
• Photosynthesis Group, an optical retailer which markets sunglasses and corrective glasses in China and Southeast Asia under two banners Mujosh and Aojo;
Among the companies in the Sunglasses & Readers Division, FGX International is a key player in reading glasses globally and its main competitors are small local producers. Xiamen Yarui Optical is a leading Chinese manufacturer of mid-tier sunglasses and optical frames.
The Sunglasses & Readers Division sells its products to mass retailers, pharmacies and specialty retailers (including travel retail chains) as well as to eyecare professionals and department stores.
1.5.1.5.2
Organization and facilities
The Sunglasses & Readers Division has subsidiaries and represen-tative offices in Canada, China, Singapore, Great Britain, Italy, Mexico and the United States.
The registered office of:
MAIN COUNTRIES WHERE PRODUCTS ARE DISTRIBUTED
1.5.1.6 Intellectual property
Patents, trademarks and domain names
At the end of 2020, the Essilor group, including all of its subsidiaries, held:
• 2,010 patent families each representing an invention protected in several countries around the world (9,930 patents pending or granted);
• 2,505 trademark families each representing a trademark protected in several countries around the world (11,330 trademarks pending or registered);
• 4,715 domain names;
• 778 designs.
1.5.2
Luxottica activities
1.5.2.1
Overview
Luxottica group is a leader in the design, manufacture and distribution of fashion, luxury, sports and performance eyewear. Founded in 1961 by Leonardo Del Vecchio, Luxottica is a vertically integrated organization whose manufacturing of sun and prescription eyewear is backed by a wide-reaching wholesale organization and a retail network located primarily in North America, Latin America, Asia-Pacific and Western Europe.
Product design, development and manufacturing for frames take place in Luxottica's seven production sites in Italy, one factory
• FGX International is in Smithfield, Rhode Island, United States;
• Photosynthesis Group is in Hong-Kong;
• Xiamen Yarui Optical is in Xiamen, southeastern China.
Xiamen Yarui Optical (the owner of the Bolon, Molsion and Prosun trademarks) has a production plant in Xiamen.
During the year 2020, Essilor applied for 173 new patents, 142 new trademarks and 62 new domain names.
Essilor's approach to innovation is supported and strengthened by a proactive intellectual property policy, both upstream, to drive innovation, and downstream, to enhance protections of patents, trademarks, designs and copyrights.
Another priority is to prevent infringement, notably by providing each employee with a best practice guide and infringement reporting tools. The Intellectual Property Department offers IP awareness training courses to many employees to encourage the creation, protection and defense of Essilor's intellectual property across the globe.
in Germany, three factories in China, one in Brazil, one facility in the United States devoted to sports and performance eyewear and two plants in Japan and India, the latter serving the local market. In 2020, Luxottica's worldwide production reached approximately 72 million units.
Luxottica also has produced sun and ophthalmic lenses for more than 20 years. The company has increased its manufacturing capacity since the end of 2016 with the addition of three new central laboratories in Europe, North America and Asia-Pacific which are completely integrated with its logistics hubs.
The design and quality of Luxottica's products and strong well-balanced brand portfolio are recognized throughout the world. Proprietary brands include Ray-Ban, one of the world's best-known eyewear brands, Oakley, one of the leading product design and sport performance brands globally, Costa, Vogue Eyewear, Persol, Oliver Peoples, Alain Mikli, Arnette and Native. Licensed brands include Giorgio Armani, Burberry, Bulgari, Chanel, Coach, Dolce&Gabbana, Ferrari, Michael Kors, Miu Miu, Prada, Ralph Lauren, Starck Eyes, Tiffany & Co., Tory Burch, Valentino and Versace.
Luxottica's wholesale distribution network covers more than 150 countries across five continents and has approximately 50 commercial subsidiaries providing direct operations in key markets. Direct wholesale operations are complemented by an extensive retail network comprised of approximately 9,000 stores worldwide, including franchising, as of December 31, 2020.
Luxottica is a leader in the optical retail business in North America with its LensCrafters and Pearle Vision brands, in Australia and New Zealand with the OPSM and Laubman & Pank brands, in China with the LensCrafters brand, in Singapore with Spectacle Hut, in Europe with the Salmoiraghi & Viganò and David Clulow brands and in Latin America with the GMO and Óticas Carol brands. Luxottica also operates its licensed optical retail brand Target Optical in North America and one of the fastest growing managed vision care networks in the United States through EyeMed.
Luxottica is home to Sunglass Hut, the largest retailer of premium sunglasses in North America, Latin America, Europe, Asia-Pacific, South Africa and the Middle East. Additionally, Luxottica has developed the Ray-Ban retail concept in China and worldwide, offering an interactive space created for consumers to embrace the unique Ray-Ban experience and culture. The Oakley brand provides a powerful wholesale and retail presence in both the performance optics and sport channels with its "O" stores, offering Oakley-branded eyewear as well as apparel, footwear, backpacks and accessories designed for athletic lifestyles. Finally, retail brands including Oliver Peoples, Alain Mikli and Persol, give Luxottica a foothold in the luxury space.
Luxottica's distribution channels are complemented by its e-commerce platforms, including Ray-Ban.com, Oakley.com, OliverPeoples.com, Persol.com, Vogue-Eyewear.com and SunglassHut.com.
NET SALES BY OPERATING SEGMENT
1.5.2.2
Strategy
As a global leader in the design, manufacture and distribution of sun and prescription eyewear with high technical and design standards, Luxottica's mission is multi-fold: to improve the well-being and satisfaction of its customers while simultaneously creating value for its employees and the communities in which it operates.
1.5.2.2.1
Vertical integration
Luxottica delivers on its mission through a vertically integrated business model with manufacturing excellence, focus on service and a geographically diversified footprint. This has led to greater efficiency, flexibility and speed in product design, engineering, manufacturing, supply chain and logistics, and uncompromising quality.
Luxottica's present structure, covering the entire value chain, is the result of a visionary choice made by the company's founder and current Executive Chairman, Leonardo Del Vecchio, who understood the potential of a vertical integration strategy when he decided to make entire frames rather than just components. Vertical integration of manufacturing was gradually accompanied by the expansion of distribution, first with wholesale, then in 1995 with retail and later with e-commerce, and by the creation of a key presence in the high value-added businesses of lens processing. Direct oversight of the entire production platform makes it possible to verify the quality of both products and processes, introduce innovations, identify synergies and new operating methods and optimize service, quality and costs.
Direct distribution enables Luxottica to offer its products in major developed and emerging markets and achieve a unique understanding of consumer needs and tastes both globally and locally. This capability is viewed as a strength by fashion houses that come to Luxottica to produce their eyewear collections and access Luxottica's global and widespread distribution network.
The future of eyewear with all its untapped opportunities is a source of inspiration that drives Luxottica to create, experiment, refine and implement new ideas, from the research of new materials and product development to manufacturing, distribution and digital platforms.
1.5.2.2.2
Innovation
Innovative thinking provided the foundation for Luxottica in its early years, when the founder had a far-sighted vision to boost the growth of the company by vertically integrating the entire value chain. Moreover, the R&D team has brought to life some of the biggest innovations in frames and sun lenses by experimenting with new technologies, techniques and new materials - some of which had never been used in the optical industry before. Luxottica currently maintains over 1,200 utility, technology and design patents across the world.
Design and technological innovation. Every collection and every frame are the result of an ongoing R&D process that anticipates and interprets the needs, desires and aspirations of consumers all over the world. This process has become more valuable as sun and prescription eyewear are increasingly perceived as a desirable and expressive accessory to complete one's personal look. Therefore,
Luxottica's designs both reflect and influence emerging fashion trends.
While wearable technology is in its early stages, Luxottica has taken a leading role in exploring and developing smart eyewear through partnerships with leading technology innovators.
Digital transformation. Luxottica invested heavily to digitize the company from the ground up and today utilizes millions of data points to make decisions in real time and plan and execute its strategies. Today, technology is the backbone of every corporate function: production, distribution and sales in all markets and in all channels - wholesale, retail and online. Luxottica has changed the way it speaks with millions of consumers around the world, being today one of the largest private digital broadcasters globally, with over 18,000 digital windows installed in its stores and customers' shops.
Automation and robotics. In order to improve speed, flexibility, quality and productivity, Luxottica has incorporated robotics, automation, computing and big data into its manufacturing processes. Luxottica is tirelessly committed to operational excellence, tapping into new technologies and digital tools to achieve a higher level of factory digitalization and to improve work and personal safety, allowing teams to solve problems faster and more proactively than ever before.
Columbus
(color enhancement)
R&D Center
Agordo
Lauriano
Trend, Design & Creative Lab
Agordo
Milan
Innovation Center
Agordo (3D printing & automation) Milano (digitalization)
Pescara (mineral glass) Sedico (materials)
International scientific collaborationsStanford University
Georgia Tech
Università degli Studi di Padova
Istituto Italiano di TecnologiaPolitecnico di Milano
1.5.2.3
Operations
Luxottica's vertically integrated business model and geographically diversified manufacturing footprint have led to greater efficiency and speed in product design, engineering, manufacturing and logistics, while maintaining uncompromising quality.
1.5.2.3.1
Design
Emphasis on product design and the continuous development of new styles are key to Luxottica's success. During 2020, Luxottica added approximately 1,600 new styles to its eyewear collections. Each style is typically produced in two sizes and five colors.
The design of Luxottica's products is the focal point where vision, technology and creativity converge. Each frame expresses Luxottica's core precepts: innovation in style, materials, technologies and processes, and unparalleled craftsmanship. The design process begins with Luxottica's in-house designers who work in an environment that promotes inventiveness, originality and a creative process where eyewear is interpreted as art, as an object to put on display. They draw inspiration from both market trends and their own imagination. In addition, the design team works directly with the marketing and sales departments, which monitor the demand for current models, as well as general style trends in eyewear.
1.5.2.3.2
Product development
Product development is the next stage of execution. The research and development efforts of Luxottica's engineering staff play a crucial role in the development process.
Engineers are continuously looking for new materials, concepts and technology innovations to apply to products and processes in an effort to differentiate them in the eyewear market. During the initial phase of the development process, the prototype makers transform designs into one-off pieces, crafted by hand with meticulous precision. These frame prototypes are then shared with the product department, which analyzes the necessary steps to bring the prototype to mass production.
In the first phase of the cycle, the product department uses visual rendering and 3D software to design new models and the necessary equipment. The mold workshop then assembles the equipment needed to make the components for the new model. The very first samples are assembled and undergo a series of rigorous tests required by internal quality control procedures.
After the quality certification, the sales samples are produced and subjected to a new intensive series of tests to verify the quality of the engineering and production. Finally, Luxottica determines which of its plants is best suited to manufacture the product and large-scale production begins.
By using a launch calendar that focuses on customer and geographic demand, Luxottica has been able to shrink product development timelines in recent years.
1.5.2.3.3 Manufacturing
In 2020, Luxottica's manufacturing facilities located in Italy, Germany, China, the United States, Brazil, Japan and India, produced a combined total of approximately 72 million prescription frames and sunglasses.
Luxottica's manufacturing footprint includes seven sites located in Italy, the center of Luxottica's luxury eyewear production, all of which combine the tradition of Italian craftsmanship with the speed and efficiency of modern automation. Five facilities are located in Northeastern Italy, where most of the country's eyewear industry isbased, one near Turin and one in Pescara, in Central Italy - where the recently acquired Barberini has its main manufacturing site. These factories, together with the addition of Barberini's lens manufacturing site in Germany, represent 42% of Luxottica's global production output.
Three manufacturing facilities in China and two plants in India and Japan collectively represent another 41% of total production output. From 1997 to 2001, Luxottica operated the Dongguan plant in China's Guangdong province through a 50%-owned joint venture with a Japanese partner. In 2001 the company acquired the remaining 50% interest and, in 2006, it further increased manufacturing capacity in China through the construction of an entirely new facility. In 2010, Luxottica began producing plastic sun lenses to be paired with frames that are manufactured in the same location. Soon after, the company integrated a new state-of-the-art plant, primarily dedicated to frame details and decorations.
The Foothill Ranch facility in California represents approximately 13% of total production output and manufactures high-performance sunglasses, prescription frames and lenses and assembles most of Oakley's eyewear products. Oakley apparel, footwear and certain goggles are produced by third-party manufacturers.
In Brazil, the manufacturing facility in Campinas produces both plastic and metal frames for the local market. Shortly after Luxottica acquired the facility in 2012, they launched the first locally designed and produced Vogue Eyewear collection for Brazilians, followed by select Ray-Ban, Arnette, Oakley and A|X Armani Exchange collections and a few smaller local brands. In 2020, the Campinas plant produced the remaining 4% of total production output and approximately 71% of the eyewear sold by Luxottica in the Brazilian market.
4%
1.5.2.3.4
Products and materials
Frames. Over the years Luxottica has progressively diversified its technology mix from the traditional metal, plastic injection and acetate slabs to include aluminum, wood, die casting and fabric inserts. Consumer needs are continuously changing, which requires quick technological adaptations.
Luxottica's manufacturing process for metal frames has approximately 70 different phases, beginning with the production of basic components such as rims, temples and bridges using a molding process. These components are then welded together to form frames over numerous stages of detailed assembly work. Once assembled, the metal frames are treated with various coatings to improve their resistance and finish, and then prepared for lens fitting and packaging.
Plastic frames are manufactured using either a milling or an injection molding process. In the milling process, a computer-controlled machine carves frames from colored acetate slabs. This process produces rims, temples and bridges that are then assembled, finished and packaged. In the injection molding process, plastic resins are liquefied and injected into molds. The plastic parts are then assembled, coated, finished and packaged.
2019
2020
Metal 35%Metal 35%Injected 41%Acetate 24%Injected 42%Acetate 23%
Lenses. Luxottica has gradually developed an expertise in producing its own lenses in-house, covering the entire range of solutions, from plano to prescription, in clear and sun. Investments in breakthrough technology and processes, rigorous testing and increasing synergies within the company have improved the quality of Luxottica's lenses for sunglasses and eyeglasses over time.
0
20
40
60
80
100
The Lauriano plant in Italy is a benchmark for the world of Luxottica sun lenses with its multiple roles: production plant, research and experimental lab dedicated to the latest innovations, and logistics center delivering sun lenses to the rest of Luxottica. The Foothill Ranch facility also performs a key role in Luxottica's sun lens operations, manufacturing high-performance sunglasses, prescription frames and lenses and assembling most of Oakley's eyewear products.
Between 2016 and 2017, Luxottica expanded the existing ophthalmic lens manufacturing network by investing in three main laboratories co-located with its logistics hubs in Italy (Sedico), the United States (Atlanta) and China (Dongguan), making Luxottica a key player in the high-end ophthalmic lens business. Luxottica also operates two other central labs in North America (Columbus and Dallas), two in Latin America (Lima and São Paulo) and one in Japan (Kawasaki).
In August 2019, Luxottica completed the acquisition of Barberini, the world's leading optical glass lens manufacturer. Barberini features a cutting-edge industrial site in Italy, a plant in Germany for glass melting, and advanced technologies for the production of polarizing films for sun lenses.
1.5.2.3.5
Logistics
The primary distribution centers are in strategic locations serving Luxottica's major markets: Sedico (Italy), Atlanta (United States), Dongguan (China) and Jundiaí (Brazil).
The Sedico hub was opened in 2001 and is one of the most technically advanced in the industry. In 2020, it managed approximately 27,000 orders per day, including eyeglasses and spare parts. The Sedico facility ships an average of approximately 230,000 units daily to customers in Europe, the Middle East, Africa, Mexico, Turkey, select United States markets and Luxottica's distribution centers in the rest of the world, where they are then delivered to local customers. In addition, it manages customized services, such as Ray-Ban Remix, providing direct global deliveries.
The Dongguan hub was opened in 2006 and manages an average of 190,000 units per day. The growth in the Asia-Pacific region has made this hub a strategic part of Luxottica's distribution network. The Atlanta facility, opened in 1996, has consolidated several North America-based facilities into a single state-of-the-art distribution center located close to one of the major airport hubs of the United States. It serves both Luxottica's retail and wholesale businesses in the North American market. This facility manages an average of 170,000 units per day.
The Jundiaí facility, opened in 2013 in Brazil, offers targeted distribution services to customers and serves the local market. This facility manages an average of 23,000 units per day.
The Sedico, Atlanta and Dongguan service centers include laboratories for the production of ophthalmic lenses to serve the European, North American and Asia-Pacific markets, creating integrated logistics and production hubs for ophthalmic lenses and frames.
Luxottica's brand portfolio is one of the largest in the industry with leading brands both at a regional level and in particular segments and niche markets.
1.5.2.4
Brand portfolio
The portfolio is well-balanced between proprietary and licensed brands and it continues to evolve. The presence of Ray-Ban, one of the world's leading lifestyle eyewear brands, and Oakley, a leader in the sport and performance category, gives the proprietary brand portfolio a strong base, complemented by Persol, Oliver Peoples and Alain Mikli in the high-end of the market, Costa and Native in the sport market, Arnette in the Street-style market, and Vogue Eyewear in the fashion market. Alongside the proprietary brands, the portfolio has over 20 licensed brands, including some of the most well-known and prestigious names in the global fashion and luxury industries.
With its manufacturing and distribution know-how, its experience in international markets and direct retail operations supported by marketing investment, Luxottica is the ideal partner for fashion houses and stylists seeking to translate their style and values into successful premium eyewear collections. Luxottica differentiates each designer's offering to produce a broad range of models that appeal to a diverse group of consumers lifestyles and geographies. Proprietary brands. In 2020, proprietary brands accounted for approximately 69% of total sales of frames. Ray-Ban and Oakley eyewear, the two largest brands in Luxottica's portfolio, accounted for approximately 25% and 13%, respectively, of Luxottica's 2020 net sales. Ray-Ban. Timeless style, authenticity and freedom of expression are the core values of Ray-Ban, a leader in sun and prescription eyewear for generations. Since the introduction of the iconic Aviator model created for the aviators of the United States Army, Ray-Ban has been at the forefront of cultural change, becoming a symbol of self-expression, worn by celebrities and public figures all around the world.
This year, self-expression, spontaneity, and authenticity are celebrated through the introduction of the new communication platform "You're On", that gives to Ray-Ban's sunglasses and eyeglasses a central role as enablers of this "on-ness": the extra kick of confidence that people need to embrace and express their most authentic selves. The lifestyle brand joined the Luxottica group in 1999 after which Ray-Ban accelerated its growth and redefined its distribution. Oakley. Established in 1975 and acquired in 2007, Oakley is one of the leading product design and sport performance brands in the world, chosen by world-class athletes to compete at the highest level possible. The holder of more than 850 patents, Oakley is also known for its innovative lens technologies, including PRIZM. Oakley extended its position as a sports eyewear brand into apparel and accessories, offering men's and women's product lines that appeal to sport performance, active and lifestyle consumers.
Persol. The iconic made in Italy eyewear brand, Persol, made its debut in 1917 and was acquired by Luxottica in 1995. With its evocative name, meaning "for sun", it is the proud heir to a culture of excellence and craftsmanship, a perfect alchemy of aesthetics and technology. The irresistible appeal of timeless design and art-like quality makes the brand a favorite in the world of cinema. Oliver Peoples. Acquired by Luxottica in 2007, Oliver Peoples was born in the heart of West Hollywood, California on iconic Sunset Boulevard in 1987. The unique culture of Los Angeles, with elements of fashion, film, art and music, continues to inspire the product and vibe of the brand. From the beginning, Oliver Peoples had a passion
for superior craftsmanship, a distinctive culture rooted in California, and a chic approach to luxury. Through an authentic and consistent voice, Oliver Peoples has never relied on a logo but instead on fostering relationships with like-minded consumers.
Vogue Eyewear. Launched in 1973 under the same name as the famous fashion magazine, Vogue Eyewear was acquired by Luxottica in 1990. It's now recognized as a truly international and contemporary fashion brand geared for young and dynamic consumers who want to stay up-to-speed with the latest trends. With its inclusive approach and playful personality, Vogue Eyewear is an open door to the world of fashion and welcomes everyone to express and celebrate their individuality. To achieve its mission - become the fast-fashion reference in the eyewear category - Vogue Eyewear partners with international ambassadors shaping the industry.
Arnette. Born in California in 1992 and acquired by Luxottica in 1999, Arnette is an easy-going eyewear brand that talks to young consumers. Moving away from the original surf & skate positioning, the mission of Arnette today is to become a sustainable, streetstyle brand for young Millennials and Gen Zs, looking for an individual style at an affordable price, with a low-impact on the environment. With authenticity and inclusivity as core values, Arnette aims to become the voice of youth culture, collaborating with young creators all over the world.
Alain Mikli. Acquired by Luxottica in 2013, Alain Mikli has always targeted an audience of tastemakers and creative people around the world. Since 1978, the brand has been synonymous with distinctiveness and provocation, thanks to its unique design and exclusive color combinations. A union between a piece of art and a consumer product, frames to see as well as to be seen.
Costa. Over 35 years ago, a group of anglers created Costa Sunglasses to stand up to the harsh light, unforgiving salt and rough conditions of a day at sea. The gear they made was up to the task, and it's been on the water ever since. Today, Costa combines superior 580 lens technology with unparalleled fit and durability to make the highest quality premium sunglasses and prescription sunglasses (Rx) for adventures wherever there's water. While Costa was exploring the watery world, they discovered an ever growing need to protect it. They are dedicated to sustainability and conservation, working hard to protect the waters they call home. From the use of sustainable materials to their Kick Plastic initiative, OneCoast Foundation and strong partnership with shark research organization OCEARCH, Costa inspires its community to help protect the Earth's waterways and #SeeWhatsOutThere.
Native. The Native Eyewear story began in 1998 with a small group of outdoor athletes and an essential challenge: "How do you make technical, durable eyewear cost less?" More than 20 years later, that foundation is still rooted in all that the brand does. Native is a feature-packed Outdoor brand that brings approachable, premium polarized sunglasses to outdoorsmen (and women) during the most active years of their lives.
Licensed brands. Designer lines are produced and distributed through license agreements with major fashion houses. These agreements are exclusive and global contracts which typically have terms of between four and ten years and may contain options for renewal. Under these license agreements, Luxottica is required to pay a royalty ranging from 5% to 13% and a mandatory marketing contribution of between approximately 5% and 12% of net sales of the related collection. Prada is the most significant license in Luxottica's portfolio as measured by total sales. In 2020, sales realized through the Prada, Prada Linea Rossa and Miu Miu brand names together represented approximately 2.5% of Luxottica's sales.
Luxottica's global distribution network, including retail chains and a wholesale network of third-party stores, is one of its core strengths. It extends to both developed and emerging markets, where Luxottica has made substantial investments over the last few years. Luxottica's efficient distribution network makes it possible to maintain close contact with customers while maximizing the visibility of its brand portfolio. In addition, Luxottica's expertise in the retail business has given it a unique understanding of consumer needs and tastes in key countries. All of this helps the company achieve strategic optimization of brand diffusion, for both proprietary and licensed brands. Luxottica continues to invest in new channels of distribution, with a current emphasis on e-commerce.
1.5.2.5
Distribution
1.5.2.5.1
Wholesale
The wholesale distribution network covers more than 150 countries, with approximately 50 commercial subsidiaries in major markets and approximately 50 independent distributors in other less developed markets. Wholesale customers are mostly retailers of mid to premium-priced eyewear, such as independent opticians, optical retail chains, specialty sun retailers, department stores, duty-free shops and online players. Certain brands, including Oakley, are also distributed to sporting goods stores and specialty sports locations.
In addition to giving wholesale customers access to some of the most popular brands and models, Luxottica provides them with pre-and post-sale services to enhance their business and maintains close contact with distributors in order to monitor sales and the quality of the points of sale.
In 2002, Luxottica introduced the STARS program within its Wholesale division, a true service innovation that leverages Luxottica's knowledge of local markets and brands to deliver fresh, high-turnover products to customers and maintain optimal inventory levels at each point of sale. By strengthening the partnership between Luxottica and its customers, this program directly manages product selection activities, assortment planning and automatic replenishment of Luxottica's products in the store, utilizing ad hoc systems, tools and state-of-the-art planning techniques. At the end of 2020, STARS served approximately 17,450 stores in the major European markets, the United States, the Middle East and emerging markets.
1.5.2.5.2
Retail
With a strong portfolio of retail brands, Luxottica is well positioned to serve the most sophisticated consumers with the latest designer and high-performance frames, advanced lens options, advanced eyecare, everyday value and high-quality vision care health benefits. As of December 31, 2020, Luxottica's retail business consisted of 6,735 stores and 2,204 franchised locations.
Luxottica's retail stores sell not only prescription frames and sunglasses that it manufactures but also a range of frames, lenses and ophthalmic products manufactured by other companies.
In 2020, Luxottica's proprietary and licensed brands represented approximately 91% of the total net sales of frames by the Retail division.
Short descriptions of Luxottica's main retail brands follow. LensCrafters (North America, Greater China). Founded in 1983, LensCrafters pioneered a revolutionary concept to combine eyecare, eyewear and onsite labs to craft glasses in about an hour. Today, LensCrafters is one of the largest optical retail brands in North America in terms of sales.
Most LensCrafters stores are located in high-traffic commercial malls and shopping centers. A wide selection of premium and luxuryoptical frames, sunglasses and high-quality lenses and optical products made by Luxottica and other suppliers are available in most locations. Each location has an experienced doctor, either an independent or employed Doctor of Optometry, who is focused on building patient relationships. All of the stores have access to the company's state-of-the-art lens processing network with the ability to craft, surface, finish and fit lenses.
As part of its underlying commitment to customer satisfaction and industry innovation, LensCrafters has made significant investments in technology and continued its digital transformation with associate iPads to enhance the customer's omnichannel experience, and a digital eye exam experience, ClarifyeSM, in a growing number of locations.
In 2006, Luxottica began to expand the LensCrafters brand in China by acquiring and then rebranding local retail chains in Beijing, Shanghai, Guangzhou and Hong Kong.
Pearle Vision (North America). Acquired by Luxottica in 2004, Pearle Vision is one of the largest franchised optical retailers in North America. Built around the neighborhood doctor, Pearle Vision allows local business operators to provide trusted eyecare to their patients with the support and resources of the Pearle Vision brand. Target Optical (North America). With the acquisition of Cole National in 2004, Target Optical, a licensed brand operating within its host stores, became part of the Luxottica retail network. The brand offers consumers the convenience of taking care of their optical needs while shopping at their preferred retailers.
OPSM (Australia and New Zealand). OPSM is a leading eyecare and eyewear retailer in Australia and New Zealand with more than 85 years of history. Through its world-class technology and exceptional service, OPSM's goal is to set a new standard of eye health and eyecare. In addition to its eyecare services, OPSM is renowned for its exclusive range of optical frames and sunglasses from international brands.
GMO (Latin America). GMO is an optical market leader in Latin America, became a part of Luxottica in 2011, following the acquisition of Multiópticas Internacional. Since its beginning in the late 1990s, GMO has developed a reputation for optical retail excellence among consumers in Chile, Peru, Ecuador and Colombia with its strong Ópticas GMO and Econópticas retail brands.
Óticas Carol (Brazil). Óticas Carol, which was founded in 1997 with the goal to satisfy the needs of the Brazilian consumer in the eyewear sector, is one of Brazil's leading optical retail brands. Óticas Carol's mission is to provide the best platform for the sustainable growth of its franchisees, delighting its customers with excellent optical services and products.
David Clulow Opticians (United Kingdom and Ireland). Established in 1962, David Clulow has built a strong reputation for providing the highest standard of optical care and services, including sight tests, contact lens fittings, glasses, sunglasses and prescription sunglasses. In addition to optical stores, David Clulow operates inside some of the most luxurious department stores as a sunglasses concession. These include Harrods, Selfridges & Brown Thomas.
Salmoiraghi & Viganò (Italy). Founded in 1974 by the merger of two brands that were started respectively by Angelo Salmoiraghi and Angelo Viganò in the mid-nineteenth century, Salmoiraghi & Viganò is an Italian premium optical retail brand. The key principles on which the company was founded are relevant today and include innovation, customer experience, service and quality products. Its retail stores operate under the Salmoiraghi & Viganò and VistaSì brands, and stock a wide assortment of optical and sun eyewear by the premier brands available on the international scene. Spectacle Hut (Singapore). Spectacle Hut, acquired by Luxottica in 2018, has grown to become one of Singapore's largest optical retail chains. Its mission is to become the retailer of choice for the growing group of fashion savvy consumers who have come to expect quality, exceptional service and value.
Sunglass Hut. Founded in 1971 as a small kiosk in a Miami mall, Sunglass Hut has grown into one of the world's leading destinations for the most sought-after high quality and performance sunglass brands. Stores can be found in fashionable shopping districts across the globe, from the Americas, Europe and the Middle East to Australia, South Africa, China and Southeast Asia and beyond, providing consumers with a fun, highly engaging shopping experience. Sunglass Hut offers a consistent and connected experience across all customer touchpoints including online, in-store, social and mobile, and utilizes in-store digital tools to access to an "endless aisle" assortment in every store location. As part of this strategy, the brand is investing in the digitalization of the in-store shopping experience, particularly in North America, Brazil, the United Kingdom and Australia.
In 2018, Sunglass Hut signed an agreement with Bass Pro to open Sunglass Hut shop-in-shops within Bass Pro and Cabela's 170 locations across North America.
Ray-Ban. In 2020, Ray-Ban reached a worldwide store count of over 240 bringing the unique brand DNA and experience to new consumers in top cities and locations.
Building on an already consolidated global presence, ranging from flagship stores of Milan's San Babila and New York's Soho to the famous shopping street of Huaihai Road in Shanghai, the brand has further expanded is presence with new premium openings including top doors of Firenze, Venezia, Toronto, Dublin, Glasgow. Each store offers a premium, engaging layout, including digital screens, interactive tables and customization tools. The customer offering includes exclusive product, pre-releases and consumer activations that create a totally immersive Ray-Ban experience.
Oakley "O" Stores. Oakley "O" stores worldwide offer a full range of Oakley products including sunglasses, optical, goggles, apparel, footwear and accessories. These stores are designed and merchandised to immerse consumers in the Oakley brand through innovative use of product presentation, athletes' celebration and original audio and visual elements. In the United States, Oakley "O" stores are in major cities and shopping centers. Oakley's retail operations are also located in Latin America, Europe and the Asia-Pacific region.
Oliver Peoples. Luxottica operates luxury retail stores under the Oliver Peoples name, which exclusively sell Oliver Peoples branded products.
EyeMed (North America). EyeMed Vision Care is the second largest vision benefits company in the United States, serving approximately 60 million members in large, medium and small-sized companies, as well as government entities. EyeMed members are enrolled through employer-sponsored benefits sold directly by EyeMed or bundled with benefits offered in partnership with many of the largest and most-respected healthcare organizations in the United States. EyeMed offers the largest network of eyecare providers in the United States, including a diverse range of independent practitioners and retail locations that include Luxottica optical retail locations.
1.5.2.5.3
E-commerce
Luxottica offers consumers around the globe a premium online shopping experience that lives up to the same high standards found at its brick and mortar locations.
Ray-Ban, Oakley, Sunglass Hut, Oliver Peoples, and recently added Persol and Vogue Eyewear e-commerce websites serve as important sales channels that complement Luxottica's retail operations and wholesale distribution. The websites drive brand awareness and allow consumers to purchase products efficiently, extending superior customer service into the digital space.
Ray-Ban.com was launched in the United States in 2009 and is home to the most extensive assortment of premium Ray-Ban, exclusive offerings and a consumer experience that is unique to the brand. Currently, Ray-Ban.com operates in 27 countries. Ray-Ban Remix, the online customization platform first launched in Europe in 2013, is a key driver of the brand's e-commerce expansion and its growing connection with millennials. Its success in allowing customers to personalize the style, material, lens color, engraving and other aspects of their Ray-Ban frames led to Remix launches in the United States, Canada and China in 2014, in Australia, Brazil, Japan and Hong Kong in 2015 and in Mexico in 2016. Recently, Ray-Ban.com introduced in the United States a search-by-image capability, which allows fans to upload a picture of any pair of Ray-Ban frames and then search for them on the extensive Ray-Ban.com catalogue.
Oakley.com is a digital window to the Oakley brand, presenting the most comprehensive assortment of Oakley products globally and an e-commerce channel across multiple markets including the United States, Canada, Australia, Japan, Brazil and 26 countries in Europe. Its unique online custom eyewear experience gives Oakley fans the ability to customize their favorite models from Jawbreaker to Frogskins, selecting frame color, lens tint, personalized etching and other features seamlessly. Moreover, it is a destination for exclusive online offers and collaborations.
Launched in 2008, SunglassHut.com has become the digital destination for consumers looking to find the latest trends and hottest premium sunglasses. Over the years, the United Kingdom, Brazil, New Zealand and Mexico, China, Spain, France and Germany joined the United States, Canada and Australia in offering online shopping on their local Sunglass Hut websites. Additionally, Sunglass Hut is developing its mobile and desktop sites across all countries to enhance customer experiences, storytelling and business performance. Specific focus has been given to the implementation of omni-channel experiences that allow the company to seamlessly engage consumers across more than 3,000 Sunglass Hut stores and the website. Sunglass Hut is also appealing to new customers through shop-in-shops and marketplaces online, partnering with many key players in the e-commerce arena.
Luxottica introduced the new Persol and Vogue Eyewear e-commerce platforms at the end of 2017 in Italy, the United Kingdom, France, Germany and Spain, followed by the United States and Canada in 2018. Oliver Peoples is also operating in these same countries.
Luxottica plans to bring its e-commerce strategy to additional markets as the business matures.
Luxottica is also investing in increasing its optical e-commerce footprint, with a wide portfolio of brands and solutions that cover vision correction needs, including clear and sun prescription frames and contact lenses such as Glasses.com, LensCrafters.com, ContactsDirect.com.
Simplified organizational chart
1.6
Simplified organizational chart
SIMPLIFIED ORGANIZATIONAL CHART OF THE ESSILORLUXOTTICA GROUP AS OF MARCH 11, 2021
Holding Company (listed company):
French simplified joint-stock company (S.A.S.) - Registered with the Trade and Companies Registry
Essilor International (2)
(Registre du Commerce et des Sociétés)
of Créteil under number 439 769 654
Essilor Operating Company
(set up as from November 1st, 2017)
• Chairman and Chief Executive Officer: Paul DU SAILLANT
• Director and Co-Chief Operating Officer: Norbert GORNY
• Director and Co-Chief Operating Officer: Éric THOREUX
• Director: Juliette FAVRE
• Executive Chairman of the Board of Directors of Luxottica: Leonardo DEL VECCHIO
• Deputy Chairman and CEO: Francesco MILLERI
• Director: Leonardo Maria DEL VECCHIO
• Director: Stefano GRASSI
• Director: Giorgio STRIANO
• Director, until May 15, 2020, then Honorary Chairman (not a Board member): Luigi FRANCAVILLA
(1) On March 5, 2020, David Wielemans was appointed co-CFO of EssilorLuxottica in replacement of Hilary Halper.
• Chairman - (Executive Chairman until December 17, 2020): Leonardo DEL VECCHIO
• Vice-Chairman - (Executive Vice-Chairman until December 17, 2020): Hubert SAGNIÈRES
• Chief Executive Officer
(from December 17, 2020): Francesco MILLERI
• Deputy Chief Executive Officer
(from December 17, 2020): Paul DU SAILLANT
• Co-CFO: Stefano Grassi and David Wielmans (1)
(2) All the entities owned by Essilor International (Compagnie Générale d'Optique), renamed EssilorLuxottica on October 1st, 2018, were transferred to Essilor International as part of the Hive Down completed on November 1st, 2017, except for the following entities remaining directly owned by EssilorLuxottica: Essilor India Private Limited (EIPL), Essilor Manufacturing India Private Limited (EMIL), Essilor Korea Co, Ltd., Onbitt Co., Ltd.
EssilorLuxottica S.A.
EssilorLuxottica S.A. functions primarily as a holding company that directly or indirectly owns the companies comprising the Group. EssilorLuxottica is a French société anonyme (joint-stock company) whose registered office is located at 147, rue de Paris, 94220 Charenton-le-Pont, France, and which is listed in the Créteil Trade and Companies Register under number 712 049 618. The Company is listed on the Euronext Paris market and is included in the Euro Stoxx 50 and CAC 40 indices.
Essilor International S.A.S.
Essilor International S.A.S. is a French société par actions simplifiée (simplified joint-stock company) whose registered office is located at 147, rue de Paris, 94220 Charenton-le-Pont, France, and which is listed in the Créteil Trade and Companies Register under number 439 769 654.
Luxottica Group S.p.A.
Luxottica Group S.p.A. is an Italian società per azioni (joint-stock company) whose registered office is located at 3, Piazzale Cadorna, 20123,
Milan, Italy, and which is registered with the Milan Companies Register under number 00891030272.
Consolidated subsidiaries
The list of the main Group companies is shown in Appendix 2 of the Notes to the consolidated financial statements, in Section 3.3 of this Universal Registration Document.
1.7
The Company in 2020
1.7.1
Significant events and COVID-19
COVID-19
While the COVID-19 pandemic weighed on the business environment throughout 2020, it enabled EssilorLuxottica to display in its reaction several key characteristics of its business model and culture:
• Unwavering commitment to employees and society at large. The Company's first priority was to invest in the welfare of its people and communities. This included the commitment of a COVID-19 fund of approximately €160 million to protect the Group's human capital with measures such as emergency pay schemes for its most vulnerable employees. In parallel, EssilorLuxottica donated more than two million pieces of personal protective equipment to hospitals, public institutions, employees and partners.
• Swift adaptability to the business environment. The Company relied on its diverse and flexible manufacturing, supply chain, optical laboratories and retail footprint to provide business continuity despite closures required by governments. It showed agility at both the global and local levels to adapt to the stop-and-go environments imposed by local lockdowns. It learned to operate its retail stores with new health protocols and reduced opening hours, which resulted in lower traffic but higher conversions. At the end of December, most of its stores around the world had reopened.
• Customer intimacy. EssilorLuxottica got even closer to Eye Care Professionals (ECPs) by helping them to restart their business post lockdowns, implement new sales protocols, reorganize their stores and have access to more digital tools. New technology solutions around store locator and appointment booking systems helped steer the consumer journey to Group partners. The Company's social impact fund Vision for Life also supported many primary vision care entrepreneurs financially in the face of COVID-19.
• Facilitation of new consumer habits. The pandemic triggered consumer behaviors for which EssilorLuxottica is uniquely suited: enhanced awareness about the need to take care of their eyes, particularly due to increased screen time during COVID-19 pandemic; higher demand for myopia solutions due to screen usage, underpinning the Company's successful move into myopia management with Stellest; growing appetite for value-added eyecare and eyewear solutions; and a new level of comfort around buying eyecare and eyewear solutions online.
• Strict financial discipline. Costs were quickly controlled through reductions or deferrals of executive compensation, prioritization of marketing expenses and negotiations with suppliers and landlords. Cash was preserved via the cessation of share buybacks, the deferral of dividend payments and the temporary suspension of all non-essential investments. New acquisitions and partnerships were put on hold.
Overall, the Company leveraged the situation of the COVID-19 pandemic to proactively foster its integration, digitalize its business processes, enhance its e-commerce platforms, get closer to ECPs, and further enrich its innovation pipeline.
Licenses renewal
On March 18, 2020 Luxottica Group and Dolce&Gabbana announced the early renewal of an exclusive license agreement for the development, production and worldwide distribution of sunglasses and prescription frames under the Dolce&Gabbana brand.
On April 10, 2020 Luxottica Group and Versace announced the early renewal of an exclusive license agreement for the development, production and worldwide distribution of sunglasses and prescription frames under the Versace brand.
Share Buyback
On March 17, 2020, the Company announced the launch of a share buyback program. In light of the COVID-19 pandemic EssilorLuxottica decided to stop the execution of its share buyback program on March 27, 2020. In ten days, 1.55 million shares for an average price of €102.54 were repurchased.
Launch of Ray-Ban Authentic
The Company enriched its innovation pipeline including Ray-Ban Authentic, the prescription integrated product fitting for the first time the most loved eyewear brand with Essilor's advanced lens technologies.
EssilorLuxottica's new bond issuances
On May 28, 2020, EssilorLuxottica successfully launched a bond issuance for a total amount of €3 billion with tenors of 3.6 and 5.6 and 8 years, carrying respectively a coupon of 0.25%, 0.375% and 0.5% with an average yield of 0.46%. The order book peaked close to €11 billion, attracting quality institutional investors, demonstrating high confidence in EssilorLuxottica's business model and credit profile.
Updates on GrandVision
The proposed acquisition of GrandVision N.V. ("GrandVision") by EssilorLuxottica (the "Proposed Acquisition"), announced on July 31, 2019, has been unconditionally cleared so far by antitrust authorities in the United States, Russia, Colombia, Mexico and Brazil, and it is currently under review in Chile and Turkey as well as in Europe.
On February 6, 2020, the European Commission has initiated a Phase II review of the Proposed Acquisition. On June 5, 2020, the European Commission issued to EssilorLuxottica a statement of objection which the Company has challenged. The review process is still ongoing. Further information regarding recent developments can be found in Section 3.2.2 of this Universal Registration Document.
On July 18, 2020, EssilorLuxottica initiated legal proceedings before a District Court in Rotterdam, the Netherlands, to obtain information from GrandVision. This is to assess the way GrandVision has managed the course of its business during the COVID-19 crisis, as well as the extent to which GrandVision has breached its obligations under the Support Agreement.
On July 30, 2020, GrandVision and Hal Optical Investments B.V. ("HAL"), its majority shareholder, have initiated an arbitration process against EssilorLuxottica, which the Company regards as an obvious attempt by HAL and GrandVision to detract from GrandVision's breaches of its contractual commitments and its failure to provide EssilorLuxottica with required information. EssilorLuxottica's demands for disclosure of information from both HAL and GrandVision was dismissed by the Dutch District Court. On September 4, 2020 EssilorLuxottica filed an appeal against the judgment dismissing the Company's demands for disclosure of information from GrandVision. Appeal decision is expected on April 6, 2021, and the arbitration proceedings are on-going.
EssilorLuxottica 360
On August 17, 2020, the Company announced EssilorLuxottica 360, a new joint program that will drive growth for independent eyecare professionals across the US. Created at a time when independent ECPs are in need of greater support from the industry, EssilorLuxottica 360 will help increase their traffic, visibility and capture rate, deliver added support around an enhanced patient experience and improve practice profitability.
Partnership with Facebook
On September 16, 2020 EssilorLuxottica and Facebook announced a multiyear collaboration to develop the next generation of smart glasses.
The partnership will combine Facebook apps and technologies, Luxottica's category leadership and iconic brands, and Essilor's advanced lens technology to help people stay better connected to their friends and family. The first product will be branded Ray-Ban and is scheduled to launch in 2021.
Organizational changes
On December 17, 2020, the Board of Directors of EssilorLuxottica decided to adjust EssilorLuxottica's governance in full respect of the equal powers principle of the business combination agreement, in order to accommodate its Executive Vice-Chairman's desire to retire. Hubert Sagnières left all his executive responsibilities at EssilorLuxottica and its subsidiaries and remains as non-executive Vice-Chairman of the Company. In order to preserve the equal powers principle of the business combination agreement currently in place, Leonardo Del Vecchio decided to voluntarily step back from his executive responsibilities at EssilorLuxottica and remains non-executive Chairman of the Company. The Board granted executive powers to Francesco Milleri and Paul du Saillant, who were appointed as Chief Executive Officer (CEO) and Deputy Chief Executive Officer (Deputy CEO) of EssilorLuxottica, respectively, until the appointment of the new Board of Directors by the 2021 Annual General Meeting of Shareholders.
Other organizational changes during the year include the cooptation of Paul du Saillant as a new Director of the Company on March 30, 2020 in place of Laurent Vacherot, former CEO of Essilor International, who elected to retire, and the appointment of David Wielemans as co-CFO of EssilorLuxottica alongside Stefano Grassi, in replacement of Hilary Halper.
Interim dividend
On December 17, 2020, the Board of Directors decided to pay an interim dividend for the 2020 financial year of €1.15 per share. This decision was supported by the efficacy of the measures taken to rein in costs and preserve cash and by the sound business recovery observed in the second half of the year.
Update on recovery of funds in Thailand
On December 30, 2019, the Company announced that it had discovered fraudulent financial activities at an Essilor plant in Thailand and recorded in its 2019 accounts an overall financial impact for the Company of €185 million.
As of March 11, 2021, the Company had recovered approximately €79 million. Additional funds are currently being traced and expected to be recovered in the coming quarters.
1.7.2 Fourth quarter and full year 2020 revenue
Notes
1. Constant exchange rates: figures at constant exchange rates have been calculated using the average exchange rates in effect for the corresponding period in the previous year.
2. Fast-growing/emerging/developing countries/economies/markets: China, India, South Asia, South Korea, Hong Kong, Taiwan, Africa, the Middle East, Russia, Eastern Europe and Latin America.
3. Adjusted comparable store sales: reflect, for comparison purposes, the change in sales from one period to another by taking into account in the more recent period only those stores already open during the comparable prior period. Stores that are or were temporarily closed due to the COVID-19 crisis are excluded from the calculation for the duration of the store closure. For each geographic area, the calculation applies the average exchange rate of the prior period to both periods.
4. Comparable store sales or comps: reflect, for comparison purposes, the change in sales from one period to another by taking into account in the more recent period only those stores already open during the comparable prior period. For each geographic area, the calculation applies the average exchange rate of the prior period to both periods.
EssilorLuxottica reported revenue of €14,429 million, down 17.0% at current exchange rates and down 14.6% at constant exchange rates(1), compared to 2019 revenue.
Revenue by operating segment
Change at constant | Currency | Change at current | |||
€ millions | 2020 | 2019* | exchange rates (1) | effect | exchange rates |
Lenses & Optical Instruments | 5,960 | 6,791 | -9.5% | -2.7% | -12.2% |
Sunglasses & Readers | 595 | 740 | -18.0% | -1.6% | -19.6% |
Equipment | 158 | 221 | -26.9% | -1.6% | -28.5% |
Essilor revenue | 6,714 | 7,752 | -10.8% | -2.6% | -13.4% |
Wholesale | 2,471 | 3,383 | -24.3% | -2.7% | -27.0% |
Retail | 5,244 | 6,255 | -14.1% | -2.1% | -16.2% |
Luxottica revenue | 7,715 | 9,638 | -17.7% | -2.3% | -19.9% |
TOTAL | 14,429 | 17,390 | -14.6% | -2.4% | -17.0% |
* The breakdown of 2019 revenue has been restated following the integration of Costa into Luxottica's brand portfolio.
Change at
Change at
constant
current
H2
exchange
exchange
€ millions
2019*
rates (1)
rates
Lenses & Optical Instruments
2,592
3,377
-23.1%
-23.2%
3,368
3,414
4.0%
-1.3%
Sunglasses & Readers
268
374
-28.9%
-28.4%
327
366
-6.8%
-10.5%
Equipment
63
99
-36.8%
-36.0%
95
122
-18.9%
-22.3%
Essilor revenue
2,923
3,850
-24.0%
-24.1%
3,790
3,902
2.3%
-2.9%
Wholesale
1,040
1,829
-42.8%
-43.1%
1,431
1,554
-2.6%
-7.9%
Retail
2,266
3,097
-27.6%
-26.8%
2,978
3,158
-0.8%
-5.7%
Luxottica revenue
3,307
4,926
-33.2%
-32.9%
4,408
4,712
-1.4%
-6.4%
TOTAL
6,230
8,776
-29.2%
-29.0%
8,199
8,614
0.3%
-4.8%
H1 2020
H2 2020
2,592 268 63 2,923
3,377 374 99
-23.1% -23.2% -28.9% -28.4% -36.8% -36.0%
3,850 -24.0% -24.1%
3,368 327 95 3,790
1,040 2,266 3,307
1,829 3,097 4,926
-42.8% -43.1% -27.6% -26.8% -33.2% -32.9%
1,431 2,978 4,408
6,230
8,776
-29.2%
-29.0%
8,199
* The breakdown of 2019 revenue has been restated following the integration of Costa into Luxottica's brand portfolio.
Change at constant | Currency | Change at current | |||
€ millions | 4Q 2020 | 4Q 2019* | exchange rates (1) | effect | exchange rates |
Lenses & Optical Instruments | 1,685 | 1,701 | 5.3% | -6.2% | -0.9% |
Sunglasses & Readers | 188 | 214 | -8.8% | -3.6% | -12.3% |
Equipment | 50 | 70 | -24.3% | -3.7% | -27.9% |
Essilor revenue | 1,923 | 1,985 | 2.7% | -5.8% | -3.1% |
Wholesale | 692 | 774 | -3.9% | -6.7% | -10.6% |
Retail | 1,498 | 1,545 | 3.2% | -6.2% | -3.0% |
Luxottica revenue | 2,190 | 2,319 | 0.8% | -6.4% | -5.6% |
TOTAL | 4,113 | 4,304 | 1.7% | -6.1% | -4.4% |
The breakdown of 2019 revenue has been restated following the integration of Costa into Luxottica's brand portfolio.
*
Lenses & Optical Instruments
Lenses & Optical Instruments revenue was down by only 0.9% year-on-year in the fourth quarter (up 5.3% at constant exchange rates(1)). The solid performance at constant exchange rates(1) confirmed the resilience of vision needs and the higher awareness about eyecare resulting from the increased screen time brought about by the COVID-19 pandemic. By products, consumers showed a growing appetite for higher value-added branded solutions, notably around blue-cut and anti-fatigue. The new products launched in the past twelve months continued their successful ramp up, especially the latest myopia management lens Stellest, the new photochromic lens Transitions Signature GEN 8, the new progressive lens Varilux Comfort Max, the Advanced Vision Accuracy lens or the VR-800 measuring instrument.
As a result of this continued sequential recovery, revenue in the second half of the year were up by 4.0% year-on-year at constant exchange rates(1). By channels, Eye Care Professionals (ECPs) and e-commerce fared better than shopping malls. As ECPs were considered essential needs, they continued to operate during most lockdowns, albeit by appointment or with reduced opening hours. Although foothold suffered as a result, sale conversions surged. EyeBuyDirect.com, Clearly.ca and VisionDirect.co.uk continued to drive online sales. By countries, developed markets outperformed developing economies(2), which often struggled to contain the COVID-19 pandemic with a few notable exceptions such as Greater China.
For the full-year, divisional revenue was down 12.2% (-9.5% at constant exchange rates(1)). This reflected a steep decline in sales in the second quarter, which was followed by a gradual V-shaped recovery driven by the outperformance of the Group's prescription business.
Sunglasses & Readers
The Sunglasses & Readers division posted revenue down 12.3% in the fourth quarter (-8.8% at constant exchange rates(1)). This performance masked two opposite trends. First, a sequential improvement in underlying growth compared to the previous quarter, driven by the optical business. This was due both to Readers at FGX and to prescription frames at Xiamen Yarui Optical (Bolon). Bolon became the leading optical brand in China. The sunglass business, for its part, stayed under pressure.
By channels, online around the world and dollar stores in North America drove the momentum while travel retail, department stores and mass merchandisers remained difficult. Second, the division's activities were streamlined with a view to improve efficiency; FGX simplified its go-to-market and merchandising organizations and stopped its hats/apparel business while MJS downsized its network of franchises in China.
As a result, the magnitude of year-on-year revenue decline shrank materially in the second half of the year compared to the first. This was driven by strong momentum in optical frames, the success of new collections and solid e-commerce sales.
For the year as a whole, revenue was down 19.6% (-18% at constant exchange rates(1)). The above trends partially offset the earlier impact of COVID-19 related lockdowns in China, Europe and the United States as well as the resulting pressures on department stores and travel retail.
Equipment
The Equipment division saw its fourth quarter revenue decline by 27.9% (-24.3% at constant exchange rates(1)). Consumables proved resilient while sales of machines, spare parts and services continued to suffer from the COVID-19 pandemic, due to the limited access to client facilities. In the meantime, customer interest remained high and translated into a significant increase in the order backlog.
For the year, revenue was down 28.5% (-26.9% at constant exchange rates(1)). Customers reduced their investments early in the year as the COVID-19 pandemic weighed on visibility. Sales of new machines remained subdued from March onwards, despite occasional blips supporting second half revenue. Sales of consumables showed resilience throughout the year.
Wholesale
In the fourth quarter, the Wholesale division posted revenue down 10.6% (-3.9% at constant exchange rates(1)) and continued to benefit from the resilience of the optical category, that was positive in the period. In terms of geographies, North America continued to grow driving the overall division, while Latin America significantly improved compared to previous quarters. Conversely, most of the markets and channels in Europe and Asia, Oceania and Africa suffered renewed impact of COVID-19. In particular, the European business decelerated in the last two months of the year because of new restrictions. Among brands, Oakley stood out again as one of the best performers, thanks to growing prescription eyewear and apparel winter collections.
Over the entire second semester, revenue declined by 7.9% (-2.6% at constant exchange rates(1)), experiencing a sharp improvement compared with the first half performance (-42.8% at constant exchange rates(1)). From a geographical perspective, it is worth underlining that in the North American market Wholesale emerged as the fastest growing business in the second half of the year. Performance in the region was boosted by the resilience of the independents channel, fueling the optical category, as well as by the buoyant growth of third-party e-commerce platforms. The European market kept its revenue substantially stable in the semester at constant exchange rates(1), thanks to the restocking activity of independents and key accounts, whilst business with customers exposed to touristic flows remained subdued. The Wholesale performance lingered into negative territory in both Asia, Oceania and Africa and Latin America, notwithstanding revenue going back to positive growth at constant exchange rates(1) in Mainland China in the semester and the strong recovery seen in Brazil in the last quarter of the year.
In the full year, the divisional revenue decreased by 27% (-24.3% at constant exchange rates(1)), following a trajectory that mirrored the COVID-19 outbreak throughout the year. STARS closed the year nearing 17,500 doors (after almost 900 net additions), posting positive revenue growth at constant exchange rates(1) over the entire second semester and ending the full year at 16% of the Wholesale's total turnover.
Retail
The Retail division was heavily affected by the unprecedented business conditions of last year, with total trading hours in the brick-and-mortar activity materially lower than the year before due to lockdowns and restrictions imposed worldwide, with a different phasing depending on the virus outbreak across the regions. Conversely, the e-commerce business was boosted by consumer confinements, gaining a new audience, and posted a spectacular growth in branded eyewear platforms. Since the second quarter, the division posted sequentially improving revenue as the physical business restarted under strict safety protocols. The number of stores open hit a low in mid-April, with approximately three fourths of the corporate fleet closed, then progressively recovered throughout May and June, since when closed locations remained below 10% of the total network. During the course of the fourth quarter, further restrictions were introduced in Europe in November and December and affected SunglassHut, with one third of the network closed, and Salmoiraghi & Viganò, mainly during weekends.
The entire division finished the year on a sound tone, with revenue up 3.2% at constant exchange rates(1) in the fourth quarter (down 3.0% at current exchange rates, mostly due to the US dollar impact), supported by an overall improvement of in-store execution. Comparable store sales(4) were still overall negative in the period, with optical positive and sun negative due to the different impact of restrictions on the two businesses, since optical locations were allowed to remain open (with limitations) as a necessary service even in those areas and periods where sun stores were shut down, as well as the structurally higher resilience of optical. North American and Australian optical banners were the main drivers, with LensCrafters, Target Optical and OPSM all contributing, plus the addition of GMO in Latam. Sun performance was more troubled than optical in brick-and-mortar, with SunglassHut negative worldwide, dragged by store closures and lack of tourism, harder in Europe than North America. The whole division registered different trends in revenue in the two semesters of the year, down by almost one third in the first and flattish in the second half at constant exchange rates(1).
Direct e-commerce kept a strong pace throughout the entire year, with a marked acceleration started in March. Revenue were up 56% year-on-year at constant exchange rates(1) in the fourth quarter and 74% in the full year, boosted by the top-four house brands' online platforms, Ray-Ban, Oakley, SunglassHut and Costa del Mar, which all together generated €576 million revenue.
In the full year the division recorded a drop in revenue of 16% and 14% at current and constant exchange rates(1). Business-to-consumer activities, including brick-and-mortar and online revenue of the entire Group, represented in the full year slightly more than 40% of the total turnover.
Revenue by geographical area
Change at constant | |||||
€ millions | 2020 | 2019* | exchange rates(1) | Currency effect | exchange rates |
North America | 7,901 | 9,146 | -11.8% | -1.8% | -13.6% |
Europe | 3,450 | 4,239 | -17.5% | -1.1% | -18.6% |
Asia, Oceania and Africa | 2,362 | 2,891 | -16.4% | -1.9% | -18.3% |
Latin America | 715 | 1,114 | -21.9% | -13.8% | -35.8% |
TOTAL | 14,429 | 17,390 | -14.6% | -2.4% | -17.0% |
Change at current
* The geographical breakdown of 2019 revenue has been revised to reflect a reclassification of certain geographic markets, which the Group considers immaterial.
Change at
Change at
H2
constant
current
€ millions
2019*
exchange rates(1)
exchange rates
North America
3,426
4,580
-26.9%
-25.2%
4,475
4,566
3.3%
-2.0%
Europe
1,506
2,232
-32.1%
-32.5%
1,944
2,007
-1.2%
-3.1%
Asia, Oceania and Africa
1,016
1,435
-28.5%
-29.2%
1,346
1,457
-4.5%
-7.6%
Latin America
282
530
-38.5%
-46.8%
433
584
-6.9%
-25.8%
TOTAL
6,230
8,776
-29.2%
-29.0%
8,199
8,614
0.3%
-4.8%
H1 2020
H2 2020
3,426 1,506 1,016 282
4,580 2,232 1,435 530
-26.9% -25.2%
-32.1% -32.5%
-28.5% -29.2%
-38.5% -46.8%
4,475 1,944 1,346 433
6,230
8,776
-29.2%
-29.0%
8,199
* The geographical breakdown of 2019 revenue has been revised to reflect a reclassification of certain geographic markets, which the Group considers immaterial.
€ millions
4Q 2020
4Q 2019*Change at constant exchange rates(1)Currency effectChange at current exchange rates
North America Europe
Asia, Oceania and Africa Latin America
2,213 911 727 263 4,113
2,270 971 757 305 4,304
4.2% -3.7% -1.0% 7.1% 1.7%
-6.6% -2.5%
-2.5% -6.3%
-3.0% -4.0%
-21.1% -14.0%
TOTAL
-6.1% -4.4%
*The geographical breakdown of 2019 revenue has been revised to reflect a reclassification of certain geographic markets, which the Group considers immaterial.
In Lenses and Optical instruments, the business continued its rebound throughout the fourth quarter. This solid recovery was driven by independent ECPs, with an outperformance of the alliances supported by the Group, as well as retail chains, which improved materially after relative weakness in the third quarter. The business with independent ECPs was boosted by the success of the Essilor Experts program, which reached 7,800 doors by the end of 2020, and yielded stronger traffic, better mix of Essilor branded products as well as capture and patient retention rates above market average. The EssilorLuxottica 360 program was deployed to approximately 1,000 doors in the second half of 2020, driving overall value for lenses and complete pairs. Both independent ECPs and retail chains benefitted from a positive product mix driven by Crizal in anti-reflective lenses, Transitions GEN 8 in photochromic lenses and Varilux in progressive lenses. Instrument sales were up double digits as optometrists sought to continue to improve the eye exam experience and the overall level of service. Online sales were
In the fourth quarter, Group revenue in North America decreased by 2.5% but were up 4.2% at constant exchange rates(1). For the full year 2020, revenue decreased by 13.6% (and by 11.8% at constant exchange rates(1)) thanks to a strong rebound during the second half of the year after a significant decline in revenue in the second quarter.
North America
again up double digits in the fourth quarter, reflecting growing demand and premiumization. In the second half, divisional revenue was flat in the region and up mid-single digits at constant exchange rates(1). This was driven by the United States as well as Canada, which performed well despite a stricter lockdown environment than in the neighboring country. Overall, on a full year basis, divisional revenue in the region were down less than 10% at constant exchange rates(1). Independent ECPs were instrumental in offsetting the negative effect of the first-half lockdowns. They were first to implement new safety protocols to leverage patient interactions, improve conversion rates and support the product mix. Sales were also boosted by the strong e-commerce performance throughout the year, especially at EyeBuyDirect.com in the US and Clearly.ca in Canada.
In Sunglasses & Readers, regional sales were down double digits in the fourth quarter. This was mainly due to a decline of sunglass shipments in December, as customers remained cautious about the upcoming sun season in a persistent COVID-19 environment. Sales of readers were back to year-on-year growth. In the second half of the year, the magnitude of revenue decline more than halved compared to the first half of the year, thanks to the performance of the online channel and dollar stores, which offset weakness in other channels. For the full year, revenue was down double-digits in the region.
Equipment sales in North America were still down double-digits in the fourth quarter as new machine sales continued to suffer from a customer focus on cash preservation. Although revenue fared better in the second half than in the first, it was still significantly down for the year as a whole.
The Wholesale division finished the year on a sound tone, with positive revenue in constant exchange rates(1) in the fourth quarter (then posting 10% growth in the second half at constant exchange rates(1)), as a consequence of the strong rebound of independents and booming third-party e-commerce (+85% in the fourth quarter), while department stores and boutiques were confirmed exceptions. Oakley was the top performer among house brands, up in the high-teens in eyewear in the fourth quarter at constant exchange rates(1), and with growth in both eyewear and AFA businesses still fueled by the successful NFL partnership. In the full year, the entire Wholesale division registered a 15% drop in sales at constant exchange rates(1), dragged by the higher-than-one-third drop in the first half.
The Retail division showed stronger acceleration in the fourth quarter, with revenue up mid-single digit at constant exchange rates(1), leading the second half to positive performance at constant exchange rates(1) following a drop of one fourth in the first. Optical banners drove the recovery, with LensCrafters, Target Optical and Pearle Vision recording positive revenue in the second half and fourth quarter at constant exchange rates(1). They all regained their sound pre-COVID-19 pace, with LensCrafters in the low-to-mid single digit, and both Target Optical and Pearle Vision in double-digit areas. The Company's optical retail business model proved to be working well, supported by digitalization as well as more focused assortment. Conversely SunglassHut was negative in the fourth quarter and the second half, heavily impacted by dropping in-store domestic traffic as well as dried up tourism flows, which hit hard on locations more depending on travelers' demand. E-commerce on proprietary mono-brand platforms generated sales of half a billion euros in the region on a full year basis, up 76% year-on-year at constant exchange rates(1). All in all, in the full year, the entire Retail division recorded a 12% decline at constant exchange rates(1).
Europe
In the fourth quarter, revenue in Europe decreased by 6.3% (-3.7% at constant exchange rates(1)). For the full year 2020, revenue in the region declined by 18.6% (-17.5% at constant exchange rates(1)).
In Lenses and Optical instruments, the business confirmed its rebound in the fourth quarter, delivering year-on-year growth at constant exchange rates(1). This was particularly the case in France, thanks to the success of the multi-network distribution strategy, the restart of marketing campaigns and the desire of consumers to trade up. The Nordics and the UK also fared well. Spain, Portugal and Poland delivered a weaker performance as they were penalized by a challenging COVID-19 business environment. In terms of products, blue-cut lenses continued to benefit from intense screen usage in the new COVID-19 environment. Varilux in progressives, Crizal in anti-reflectives, Transitions GEN 8 in photochromics, Eyezen in anti-fatigue and the VR-800 precision instrument all fared well during the quarter. In the second half of the year, the Lenses and Optical instruments division displayed material year-on-year growth at constant exchange rates(1). ECPs across the region showed a very strong ability to leverage the new business environment in order to generate better conversion rates as well as an improvement in product sales mix. In addition, e-commerce continued to drive divisional revenue, especially thanks to double-digit growth in sales of eyeglasses. As a result of these trends, for the year as a whole, the division delivered the most resilient performance of the group in Europe, although revenue was still down year-on-year.
The Sunglasses & Readers division experienced double-digit sales declines in the region in the fourth quarter, as its customers were reluctant to update their displays or prepare the upcoming sun season. Despite a sequential recovery in the second half of the year
compared to the first, its revenue ended the year materially down, mainly due to the impact of the lockdowns in the UK and Italy.
The Equipment division experienced double-digit revenue declines in the region, both in the fourth quarter and the full year, as its customers were reluctant to buy new machines.
In the fourth quarter, the Wholesale division was once again impacted by COVID-19 in most European countries, with softness persisting in Spain and the UK and partially resurfacing in France, Germany and Italy, while STARS gave some relief to the overall performance of the area on the back of the optical business. Revenue for the division remained roughly stable at constant exchange rates(1) in the second half of the year, benefiting from the restocking activity of independents and key accounts started in July and August, while channels more exposed to tourism continued to be troubled. On a full year basis, the division registered a decline in revenue by approximately one fourth at constant exchange rates(1), dragged by the business drop of the first semester.
In Retail, Europe was the only region remaining into negative territory at constant exchange rates(1) in the fourth quarter, after three negative quarters, due to new waves of virus outbreak and consequent new restrictions. Sunglass Hut had to shut down stores in various important countries, like France, the UK, Germany and the Netherlands. In addition, the locations heavily dependent on travelers' demand were severely hit and had a material adverse impact on the overall banner's performance. After a nice start to the fourth quarter, in November and December Salmoiraghi & Viganò was impacted by new restrictions. Over the entire year, Retail registered a decline in revenue of approximately one third at constant exchange rates(1).
Asia, Oceania and Africa
Revenue in Asia, Oceania, Africa declined by 4% in the fourth quarter (-1.0% at constant exchange rates(1)). For the full year, the revenue decline was 18.3% (-16.4% at constant exchange rates(1)). The Lenses & Optical Instruments division returned to revenue growth at constant exchange rates(1) in the fourth quarter and was driven by continued momentum in Greater China, Japan and Australia. In Mainland China, sales accelerated further with a good product mix around flagship brands and a good channel mix as high-end distribution networks outperformed mid-tier ones, while e-commerce remained solid. Transitions Signature GEN 8 was launched during the quarter. Stellest continued its successful ramp-up in myopia management and was deployed in both hospitals and traditional networks. In Japan, the division improved its positions thanks to strong innovation and a good level of activity with optical chains. Sales in Australia were driven by branded lenses at both optical chains and independent ECPs. Revenue in the rest of the region remained slow as the countries struggled to contain the COVID-19 pandemic. This was especially the case in India, Indonesia and Malaysia. These trends confirmed the sequential recovery gathering momentum since April and allowed second-half revenue to be flat year-on-year at constant exchange rates(1). As a result, the division ended the year with a revenue decline in the region of less than 10% at constant exchange rates(1).
The Sunglasses & Readers division enjoyed another quarter of revenue growth in the region, thanks to a very strong performance of the optical business at Xiamen Yarui Optical (Bolon), both in wholesale and own retail, partly driven by new store openings. Online revenue growth remained strong, especially at MJS, which also saw a return to sales growth of its own stores. These trends more than offset the persistent headwinds in the sunglass business (travel and vacation restrictions, homeworking) and the closure of underperforming franchise stores at MJS. As a result, for the second half of the year, the division posted year-on-year revenue growth in the region at constant exchange rates(1). Although this represented a significant swing compared to the revenue decline of the first half caused by country lockdowns, the division still ended the year with a revenue decline of slightly more than 10% at constant exchange rates(1).
In the fourth quarter the Wholesale division remained under pressure, with most of the countries still impacted by COVID-19. Mainland China was the bright spot, further consolidating the revenue rebound started in the third quarter. At the opposite, Hong Kong and South-East Asia remained into double-digit negative trend in revenue at constant exchange rates(1). Japan suffered mostly from lower tourism flows, but improved its Oakley apparel, footwear and accessories business. Revenue performance overall lingered into negative territory in the entire second half of the year, despite positive trends in Mainland China and Australia. On a full year basis, the division registered a decline in revenue by more than one third at constant exchange rates(1).
The Retail division turned positive in revenue at constant exchange rates(1) in the fourth quarter. The business pace accelerated further in optical retail in Australia, despite few localized lockdowns as a consequence of COVID-19 new outbreaks. Excellent in-store execution and lens upselling translated into double-digit comparable store sales(4) at OPSM. Retail business progressively improved in Mainland China, with optical and sun including e-commerce moving into positive territory at constant exchange rates(1), while Hong Kong was impacted by a new wave of COVID-19 cases at the end of the year. After a decrease in revenue by almost one third at constant exchange rates(1) in the first half of the year, the second semester was only slightly negative, sustained by the top-performing Australian optical business, leading the division to mid-teen decline in the full year.
Latin America
In the fourth quarter, Group revenue in Latin America decreased by 14.0% but were actually up 7.1% at constant exchange rates(1). For the full year 2020, revenue in Latin America decreased by 35.8% (-21.9% at constant exchange rates(1)).
The Lenses & Optical instruments division recorded high single-digit revenue growth at constant exchange rates(1) in the fourth quarter. This solid performance was driven by strong momentum in Brazil, Mexico, Chile and Argentina, which all benefitted from the limited level of store closures for most of the quarter. Revenue in Brazil was supported by positive sales momentum of blue-cut products and Kodak lenses in the mid-tier as well as Transitions GEN 8 photochromic lenses and Varilux progressive lenses in the high end. Mexico experienced a good dynamic with key accounts and progressive lenses. Argentina also benefited from a good product mix. Instruments also delivered a strong rebound in the fourthquarter as opticians were eager to invest more into an improved customer experience and the division expanded its business with ophthalmologists in Brazil. In the second half, revenue was down only slightly at constant exchange rates(1) in the region, a very material improvement compared to the first half. This was driven by strong consumer demand for established retailers and innovative brands.
The Sunglasses & Readers division continued to be penalized in the fourth quarter by the caution of its customers about the upcoming sun season in a challenging and uncertain health environment. In 2020, its overall negative performance was significantly impacted by store closures during the second quarter of the year.
Sales in the Equipment division rebounded strongly during the fourth quarter in the region, after reaching a low point in the second quarter. As a result, second half and full year revenue was up year-on-year at constant exchange rates(1).
The Wholesale business rapidly normalized in the fourth quarter, registering slightly negative sales at constant exchange rates(1) on the back of the reopening and restocking of independent retailers and bigger chains. The key market of Brazil bounced back nicely in the period, up high single digit in revenue at constant exchange rates(1), with optical and sun frames both contributing. Óticas Carol stores restarted supporting the business from the lowest level of activity due to restrictions at the end of the third quarter, reflecting the seasonal phasing of the virus outbreak in the country and the region. Mexico was a laggard, still negative in sales in the last quarter of the year.
The Retail activity evolved according to a shifted timeframe compared to other areas, with the store open count at one fifth of the regional fleet at the end of March, slightly above half of the total at the end of June and above 90% during the second half of the year, with the footfall recovery more visible in the last months of the year. Divisional sales were up 20% at constant exchange rates(1) in the fourth quarter, with adjusted comparable store sales(3) at +10%. Both the optical and sun businesses contributed, with GMO up double digit led by Chile (easy comparison base), outpacing Sunglass Hut (stable in Brazil).
In the full year, the Wholesale and Retail divisions posted a decline in revenue of one third and one fifth respectively, at constant exchange rates(1). Price increases were selectively adopted throughout the year as a result of the sharp devaluation of key markets' currencies, impacting especially the performance of the second semester.
1.7.3
Acquisitions and partnerships
EssilorLuxottica completed six transactions in 2020, representing full-year revenue of around €95 million. The major transactions are indicated in the table below.
Company
CountryBusiness
Full-year revenue
% heldConsolidated from
Optical House Limted
Ukraine
Optical retailer and wholesaler
€69 million
51% 75%
January 2020
Miraflex SAS
Colombia
Designer and manufacturer of ophthalmic frames for children
€4 million
March 2020
Premier Ophthalmic Services LLC
United StatesDistribution of ophthalmic instruments
€23 million
80%
March 2020
1.7.4
Investments made in 2020 and planned for 2021
2020
€ millions
Property, plant and equipment and intangible assets (gross of disposals)
Depreciation and amortization
Financial investments net of cash acquired Purchase of treasury shares
2019 | 2018 | ||
EssilorLuxottica | EssilorLuxottica | Essilor | Luxottica |
650 | 903 | 334 | 593 |
2,136 | 2,121 | 361 | 515 |
133 | 370 | 270 | 19 |
159 | 0 | 0 | 0 |
In 2020, EssilorLuxottica cash-out related to capital expenditures amounted to €650 million (4.5% on revenue) and decreased by approximately €250 million compared to 2019, due to the actions implemented after the COVID-19 spread in the first quarter of 2020. Capital expenditures restarted during the last quarter of 2020, driven by operations and IT investments.
Capital expenditure
Year-on-year, investments in retail decreased by approximately €120 million, while investments in operations and IT decreased by approximately €70 million.
Financial investments
Financial investments net of cash acquired amounted to €133 million in 2020 compared to €370 million in 2019. These amounts represent the net cash-out related to business combinations completed during the year and, to a less extent, price supplements and/or deferred payments on acquisitions completed in prior years. In 2020, the amount included the net cash-out related to the acquisition of Optical House, the leader in the optical market inUkraine, Premier Ophthalmic Services LLC in US and Miraflex SAS in Colombia, while in 2019 it included the effects of the acquisition of Barberini S.p.A., the world's leading optical glass sun lens manufacturer, as well as the acquisitions of Brille 24 in the online business, Devlyn in Mexico, Future in Sweden, and Optimed in the instrument division.
In 2020, the Company acquired 1.55 million EssilorLuxottica shares in the context of the share buyback program announced on March 17, 2020 (see Section 1.7.1) for an average price per share of €102.54 and a total cash-out amounting to €159 million. The shares acquired are intended to be awarded or transferred to employees and corporate directors of EssilorLuxottica and its subsidiaries, especially in the context of profit-sharing plans, bonus and performance share awards, stock option plans, and employee share ownership plan.
Main future investments
In 2021, the Group will re-start investing strongly in the evolution of its retail network and manufacturing capacities, IT and Technology platforms to facilitate the integration, as well as in M&A and partnership projects.
1.8
Risk factors
1.8.1
Introduction
As of the date of this Universal Registration Document, the significant risks to which EssilorLuxottica is exposed are those described below. In this section only the main risks that may affect EssilorLuxottica in its course of business and that may have a material impact on the Group financial or operational result, reputation and/or prospects are reported.
The risk identification and assessment process used is described in Section 1.9.1. The Company risk management process.
Within each category, risk factors are presented in decreasing order of severity as determined by the relative weight of impact and likelihood of occurrence on the date of this Universal Registration Document, taking into account the mitigation measures ("net impact").
In order to allow a better appropriation of the risks presented in this document, the velocity (i.e. the speed at which the impact will be felt if the risk crystallizes) of each of the outlined risks has been estimated.
1.8.2
Risk factors summary
Risk CategoryRisk Factor PandemicSeverityImpactLikelihoodVelocity
1.1
External risks
1.2
2.1
Political & social environment Industry and market
2.2
2.3
2.4
Governance & organizational framework People management
Business model
Strategic risk
2.5
2.6
2.7
Strategic innovation and product development M&A and joint ventures
2.8
Intellectual property Licensing
3.1
3.2
3.3
3.4
Financial risk
Currency risk Financial market Credit
4.1
4.2
4.3
Operational risk
Liquidity Cyber Security Business interruption
5.1
IT system and data management Antitrust
5.2
Data privacy
5.3
Compliance & Litigation risk
Corporate compliance & reporting
5.4
5.5
Material claims and litigation, proceedings arbitration Taxation
Legend:
Severity
High
Impact
Likelihood
Velocity
Medium
High Medium
Low
Low
High Medium
Low
High Medium
Low
The heatmap below reflects the exposure of EssilorLuxottica, after taking into account the mitigation measures implemented to limit the likelihood and impact of each described risk.
External risks
Pandemic
Risk Factors
LIKELIHOOD
UnlikelyProbable
Possible
1.1 | ||
3.1 | 5.2
2.2 2.3 2.4 | 4.1 2.1 |
3.2 2.7 2.8 3.3 3.4 5.4 5.5 | 5.3 2.6 | 4.2 |
Low
Velocity
HighMedium
Medium
High
Low
IMPACT
Risk Details
Mitigation measures
Pandemic Severity:
Impact:
Likelihood:
In December 2019, the outbreak of a new coronavirus, COVID-19, emerged in China. Despite significant containment efforts, it spread globally beyond China's borders and continues to hit many geographies. EssilorLuxottica, with its global lenses and frames manufacturing footprint and worldwide distribution and retail networks, may be negatively affected by this pandemic outbreak which is currently impacting its production and distribution worldwide.
Velocity:
More specifically, following health and governmental authorities' obligations and guidance as well as travel restrictions, EssilorLuxottica production and distribution had to be temporarily suspended in several locations.
Prolonged restrictive measures and shop closures due to the various COVID-19 waves have on-going severe consequences:
• Reduction of sales in retail, sun and travel sectors (see Section 1.7.2 of this Universal Registration Document for a more detailed overview);
• Reduction in the purchasing power of customer, who may be less inclined to spend significant amounts on eyewear;
• Decrease in stakeholders budgets (including CAPEX), resulting in reduced sales of equipment;
• Shift of the market to a more price sensitive one;
EssilorLuxottica has been monitoring the outbreak of COVID-19 since the very beginning with utmost care and putting the health and safety of its employees, partners and customers as a first priority.
In line with the historical values of Essilor and Luxottica, the Board of Directors approved the launch of a Euro 100 million COVID-19 fund, which was expanded to Euro 160 million at printing date, to protect the Group's human capital, including:
• Relief fund for individual measures to help employees facing great hardships (housing, food, medical, etc.);
• Global support to the employees and their families (masks, swab testing);
• Securing working coverage during lockdown;
• Salary support.
From an operational perspective, EssilorLuxottica has organized its response around geographically and centrally structured crisis teams, in charge of maintaining coordination, communication and implementing contingency plans to keep business activities running while respecting individual national responses to the crisis.
Risk Factors
Risk Details
Mitigation measures
• Increase in shipping delays and costs due to over-reliance on certain carriers (example UPS in the United States) and rise of air fares operated by the different airline companies
Many contracts also had to be renegotiated according to the regulations applied in response to restrictive measures implemented by each country (e.g. rental contracts to be reviewed due to department store closure; sponsorship agreements to be renegotiated because of the event cancellation, etc.). The new terms enforced in these contracts could be less favourable for EssilorLuxottica.
The COVID-19 pandemic may also have an impact on the ability of staff and new talent to engage (especially due to forced remote work).
In addition, any epidemic that takes place among the workforce, including in production plants, logistics, retail network and support staff, can result in delays or business disruptions
These multi-specialty teams gather internal experts from Manufacturing, Supply, IT, Finance, HR and Distribution to ensure that holistic actions at the local and global levels are put in place such as:
• deploying stringent safety measures and rightsizing global capacity to meet current demand levels (e.g. remote work, partial stoppage of activities);
• managing national lockdowns efficiently;
• establishing cost and cash control measures, including, but not limited to, putting on hold non-crucial investment initiatives;
• defining alternative supply roads and leveraging its network of production sites (having production sites / laboratories located all over the world has been a natural hedge against business disruptions, allowing the Group to show agility in its efforts to adapt to this extraordinary situation);
• strengthening the Group's e-commerce activities and networks;
• increasing the inventory of critical components in order to anticipate new potential lockdowns.
On top of all these global initiatives, the Group was also able to minimize the impact by taking the right measures to limit the labs' closure:
• Production keeps running with the necessary security measures;
• Redirection of flows;
• Rotations of teams - up to triple shifts.
In light of the COVID-19 pandemic situation, in 2020 EssilorLuxottica performed an assessment to ensure that:
• Group's procedures were well-cascaded, received, known and applied;
• Appropriate mitigation measures (in accordance with Group's guidelines and requirements) were implemented in order to limit the virus impact and to protect the health of its/our employees and its/ our retail customers.
This analysis highlighted that the actions/measures locally implemented adequately manage this risk and that global communication and information related to COVID-19 management were widely received and deemed appropriate across the organization.
Political and Social Environment
Risk Factors
Risk Details
Mitigation measures
Political and Social Environment Severity:
EssilorLuxottica business may be adversely affected by political, governmental or social instabilities in countries where:
• it has invested or plans to invest;
Impact:
• it carries on a substantial share of revenues;
• it has signed agreements with local counterparties.
Likelihood:
Velocity:
EssilorLuxottica currently operates worldwide, including fast growing countries in Latin America, Middle East, Asia and Africa. Therefore, the Group is subject to various risks inherent in conducting business internationally. They may result in loss of market share, loss of sales or increased costs of doing business. Below are some examples of risks related to the social and political environment:
• EssilorLuxottica activities may be impacted by events such as the COVID-19 (see Pandemic risk), that could intensify social and economic instabilities already existing and create new inequalities.
• Commercial relations between China and the US remain unstable and complex (mainly concerning custom fees);
• As two of EssilorLuxottica largest labs are located in Thailand, the Group could face severe consequences in case of civil unrest in Thailand. A political and social crisis in this country could jeopardize the significant investments made for the labs.
• Socio-political events are currently impacting certain geographies (e.g. LATAM)
• After Brexit EU and UK signed a new Trade and Cooperation Agreement which became effective as of January 1, 2021, impacting all companies having business relationships with the UK.
EssilorLuxottica may be impacted by the new agreement requirements on different levels:
- Goods trade: a free trade area has been established between the EU and the UK. Nonetheless, distribution of products may be subject to extended delays and higher operational costs due the increase of administrative burden and custom controls. Moreover, in order to benefit of such free trade area, the group will have to be compliant to the EU "Rules of Origin" requirements.
- Human resources: restrictions on free movement will be put in place with, for example, the need for each European citizen employed in the UK to have a work permit. This responsibility will likely be borne by the employer, which could increase its operational costs;
- Taxation: VAT and withholding tax compliance increase
- Some countries where the Group operates (e.g. US, Indonesia, Thailand, Malaysia - 2020 total revenues: Euro 7.5 billion) are applying protectionist laws, with relevant impact on imports and exports.
EssilorLuxottica's international presence (more than 80 countries) represents a "natural hedge" to risks related to the political and social environment.
The Group, when entering new countries, conducts in-depth due diligences (including risk analysis and legal analysis) in order to consider beforehand any peculiarities relating to the local context that may impact the conduct of the business. This approach allows EssilorLuxottica to decide whether to remain in or leave high-risk areas, as well as to identify development opportunities in countries whose socio-economic stability has improved.
The Group has defined a methodology to prioritize monitoring activities in the regions where the Group operates based on the exposure in terms of political and economic risks.
Operations and business activities in fragile countries are closely monitored, and mitigation actions can lead to outright withdrawal from certain countries. Revenues generated in "at risk countries" (based on Group's internal definition, such as Mexico, Chile, Colombia and Brazil) represent only 3,90% of global sales. EssilorLuxottica's higher share of revenues derive from stable geographies such as North America and Europe (€7,901 million and €3,450 million respectively). EssilorLuxottica implements and periodically revises its planning strategy to ensure efficiency of its operations and logistics, especially towards countries where custom procedures can be more complex, in order to avoid delays that may lead to loss of business opportunities. Sensitivity analyses are also performed at the local level to better support decision-making processes. Analyses are performed in order to anticipate consequences resulting from any crisis related event (e.g. Brexit, pandemic outbreaks…) and thus assess and mitigate potential risks.
Strategic Risks
Industry & Market
Risk Factors
Risk Details
Mitigation measures
Industry and Market Severity:
Impact:
EssilorLuxottica is subject to possible changes in the market and industry, which may adversely affect demand for products and margins. The market is evolving at a sustained pace that EssilorLuxottica must face to maintain its competitive advantage.
Likelihood:
Change in customer preferences and market commoditization
EssilorLuxottica monitors customers' preferences in order to anticipate trends and to develop new competitive products.
EssilorLuxottica is proactive and tries to develop partnerships or identify targets in order to develop product innovation (e.g. the current partnership with Facebook).
Velocity:
Customer preferences are continuously changing, with different trends all over the world (e.g. request for product personalization in Asian market), and progressive shifting towards less premium lenses (in US and China), which could represent a risk in the medium term. Inability to timely detect and anticipate such trends may lead to loss of market share or margins reduction. Such risk is exacerbated by technological innovations in lenses becoming more and more frequent (e.g. polarized lenses), requiring greater flexibility within the Group's production capabilities.
The current partnership with Facebook responds, among other things, to this willingness to anticipate new trends. Associating one of the most emblematic brands of the Group (Ray-Ban) to a disruptive project is however not trivial. This unprecedented partnership with a big tech company can indeed redefine new frontiers: distribution, data management, fee management, etc. This could also lead to a serious reputational issue.
Competitors
New competitors characterized by strong products differentiation, strong e-commerce business and retail customer experience may enter the market with both front-line products and innovative products. In addition, these new competitors could be better positioned to take advantage of the market shift to a low-cost market due to the decline in the purchasing power of consumers following the COVID-19 pandemic.
Online channel
The online channel registered a further increase due to the COVID-19 pandemic which may expose EL's aftersales management. EssilorLuxottica may fail to adopt a mature and structured process for handling such negative events leading to erosion of its brand and reputation.
The Group may not be able to compete successfully with online players that focus their business on competitive pricing strategies (8% of the Group turnover is generated by the online channel).
Market consolidation
Major private equity players are increasingly present in eye care business, particularly in the United States. The resulting consolidation could change partnerships in the industry or even disrupt the market (Some players started aggressively marketing healthcare in the US in 2020).
EssilorLuxottica is continuously strengthening relations and agreements with insurance companies in order to broaden its customer base. In the US, EssilorLuxottica is competing in the managed vision care area with its subsidiary (EyeMed). EyeMed is committed in building, maintaining and strengthening long term business relations with key clients, including those subjects to acquisition from other parties.
EssilorLuxottica develops and implements continuous professional training programs to its in-store personnel to ensure a best in class customer experience and promote better quality products helping to preserve the Group's profitability. EssilorLuxottica continues to develop its e-commerce channel where it is making significant progress (the crisis having been a driving force for the development of e-commerce) and is progressively expanding its portfolio through new entry price products. This expansion allows EssilorLuxottica to meet online customer expectations, hence growing its customer base. The Group is also developing an omnichannel business model, allowing customers to have a combined online and in store sales experience. Globally, EssilorLuxottica tries to strategically anticipate the future of the market by allocating adequate resources, by being agile and by investing in major technological transformation in the medium to long term in order to stay competitive.
Links have been strengthened during the crisis with customers and partners (mutual support in terms of communication, equipment and budget), enabling EssilorLuxottica to maintain its significant market share.
Risk Factors
Risk Details
Mitigation measures
Managed Vision Care
US optical retail and managed vision care markets are experiencing increased competition with the mergers or acquisitions of several players. This may lead EssilorLuxottica to suffer from a decrease in customer or product demand.
Health Care Reimbursement Policies
In some regions where EssilorLuxottica operates, the cost of certain products is reimbursed by health insurance funds, insurance companies or government schemes (e.g. the US and some European countries including Italy and France).
Adverse changes in the health care reimbursement (such as reduced reimbursements) may lead consumers to other vision care players, hence reducing demand for products supported by third party insurance carriers.
For more information, see Chapter 1.
Governance & Organisational Framework
Risk Factors
Risk Details
Mitigation measures
Governance & Organisational Framework Severity:
Impact:
EssilorLuxottica is the result of the combination of two groups with different cultural and organizational operating models. This accounts for the complex governance system that the Group currently has, which includes several co-heads at key corporate functions at parent company level and different organizational structures at its two main operating subsidiaries.
Likelihood:
Velocity:
Pursuant to the combination agreement entered into between Delfin and Essilor, the Chairman and the Vice-Chairman of EssilorLuxottica have equal powers and neither of them will have a casting vote. The equal power structure is also reflected at Board of Directors level, where Directors will have been designated in equal numbers by Delfin and by Essilor. Additionally, following the separation of executive and non-executive functions on December 17, 2020, the CEO and Deputy CEO of EssilorLuxottica also have equal powers. This complex structure is expected to be simplified at both central and local level following the Annual General Meeting planned for May 2021.
In order to successfully complete this integration phase, many large-scale internal projects are (or will be) deployed. They expose the Group to the following inherent risks: budget overruns, delivery delays, non-compliance with initial specifications.
The complexity of the EssilorLuxottica governance and the possible disagreements between co-heads may cause inefficiencies and delays in the decision-making process and, therefore, in achieving the expected synergies.
Several potential situations may negatively affect the Group's business, operating results, financial position and prospects:
• The new governance put in place by general management could have an impact on the managerial culture, due to the different models currently embodied respectively by Essilor and Luxottica;
• The Group is now positioned in retail (including e-commerce) and in wholesale. Their relative growth could pose several risks including e.g. cannibalization from other channels and retaliation from third parties;
• A more centralized organization could create tensions with local joint venture partners;
• The uncertainty that can be associated with any organizational overhaul may have a significant impact on employees' retention and people engagement (which has been exacerbated by the COVID-19 pandemic).
Since the combination implementation in October 2018, EssilorLuxottica has shown its willingness to enforce a clear and simple governance model with limited or no duplication of key positions and a clear definition of roles and responsibilities. The Group has appointed an Integration Committee in order to facilitate the post-merger integration process and manage possible deadlocks.
Thanks to this organization, all the blocking points identified within significant business decisions have been managed without creating delays or dead ends. Currently, the two companies still carry on 28 integration workstreams, including their joint projects (i.e. the Ray-Ban Authentic).
Several collaborations are underway on different subjects such as:
• Unified HR processes;
• Retail strategy;
• Launch of managed care in China;
• Relocation of offices in Beijing;
• Insourcing of certain lenses;
• Joint discussion on the laboratory network, technology and automation.
The Group will make an ongoing effort to adjust the organization to the business needs.
To date, strategic decisions have been managed in a timely manner by reaching the necessary consensus and the Group's share price and overall profitability do not appear to have been negatively impacted by the current governance structure For more information, see Chapter 2 of this Universal Registration Document.
People management
Risk Factors
Risk Details
Mitigation measures
People management Severity:
Impact:
Like many large international companies, EssilorLuxottica is exposed to human capital risk. Large caps have indeed suffered for several years from a potential interest deficit in favour of other less traditional players.
Likelihood:
Velocity:
This risk was first exacerbated by the announcement of the merger between Essilor and Luxottica. The COVID-19 pandemic that occurred in 2020 also had a considerable impact on the Group's exposure to this type of risk.
As a consequence, EssilorLuxottica may be exposed to high turnover and difficulties to attract new employees. Some key roles such as salesforce and top managers (both at corporate and regional level), may experience higher turnover than others. In addition, labour markets in several regions (e.g. US and China) are experiencing a shortage of optometrists.
The topics below could have an aggravating influence on the level of risk:
• worsening of the COVID-19 pandemic (both in terms of impact and duration) which could undermine the engagement of personnel and new talent;
• high expectations regarding the May 2021 Annual General Meeting where potential announcements concerning organizational changes could be made;
• perceived insufficient stress on diversity and inclusion.
For more information, see Section 4.2.4 of this Universal Registration Document.
The Group has always built its growth around very strong societal values, today represented by the "See More - Be More and live life to its fullest" claim and by the publication of its first Code of Ethics in 2019. These actions are aimed at promoting the ethical commitment of all employees, which contributes to the strengthening of retention rates. During the combination, to meet employees' expectations, the Group developed and implemented effective actions to foster loyalty and improve retention in Key talents such as an ambitious employee shares program, reinforced by competitive welfare, flexible benefits favouring the work-life balance. EssilorLuxottica has also defined a communication plan which is being rolled out to facilitate the internal change management process and also identified a succession plan for the Group key positions. EssilorLuxottica thrives on a strong local management and a high level of trust within the teams.
EssilorLuxottica has put in place and developed through the years strong training policies and talent development and retention programs. For example, for the post May 2021 period, a specific program has been put in place, including positioning of individuals, internal mobility, recognition actions, etc. to ensure Group capabilities to attract, retain and develop talents. A common high-flying employee value proposition will also be communicated jointly by Essilor and Luxottica in the coming years, in particular to large universities.
The Group is starting to develop training centres in key areas (e.g. China). Attraction and retention strategies are country specific and customized. As an example, in countries where there is shortage of optometrists, the Group is developing specific strategies such as collaboration with universities or Teleoptometry.
For more information on COVID-19 related mitigating measures, please see "Pandemic" risk in this section.
Business model
Risk Factors
Risk Details
Mitigation measures
Business model Severity:
Impact:
Likelihood:
EssilorLuxottica may undertake strategic initiatives that may lead to changes in its business model, affecting current key success factors and its ability to deliver on its Mission (for more information, see Section 4.1 of this Universal Registration Document). Inability to evaluate and anticipate consequences of these initiatives may lead to the loss of existing competitive advantage.
The Group is carefully managing relations with both wholesalers and retailers in order to ensure maintenance of successful long-term partnership with wholesalers and avoiding intra-channel competition (channel cannibalization).
Velocity:
A lasting continuation of the COVID-19 pandemic could have severe consequences on the Group's business model:
• Sales optimization: the Group is now present in three main sales channels: retail, wholesale and e-commerce. Optimizing sales requires a fine balance between these three channels, which could be undermined by the instability and uncertainty generated by the COVID-19 pandemic. This risk is exacerbated by the Group's current large footprint and may be impacted by the future Group's retail footprint that will increase after the possible acquisition of GrandVision.
• Activities digitization: online sales activity has grown strongly for two reasons: sharp reduction of physical shopping due to the COVID-19 pandemic and strong development of tech giants (GAFA(1), BATX(2), etc.) in this segment. Should the Group be unable to efficiently digitize its business model (e.g. digitize stores and service as online prescription), it could lose significant market share.
The current business model of EssilorLuxottica has integrated omni-channel and digital into the consumer experience (new means of payment, virtual try-on, microscopic data processing).
Thanks to a fully integrated business model (powerful brands, vision care model, retail footprint, proximity to services), EssilorLuxottica is able to capture all market trends and weak signals, allowing it to adjust accordingly and thus be able to perfectly meet the clients' expectations. This capacity is reinforced by the open culture characteristic of the Group, which allows some of its competitors to benefit from its technology thus creating a fertile ground for innovation.
(1) This acronym refers to the four main US companies in the Internet sector (Google, Amazon, Facebook, Apple).
(2) This acronym designates the four main Chinese Internet companies (Baidu, Alibaba, Tencent, Xiaomi).
Strategic innovation and product development
Risk Factors
Risk Details
Mitigation measures
Strategic innovation and product development Severity:
Impact:
Likelihood:
EssilorLuxottica operates in a rapidly evolving industry affected by product innovation, new developments in vision correction therapies and changing consumer preferences, including changes in fashion and retail product trends. Failure to adapt to such changes and to continually improve product offering to meet societal trends could limit Group's growth and negatively affect its competitive advantage, sales and profitability.
Velocity:
If EssilorLuxottica is unable to successfully introduce innovative and sustainable products (for more information, see Section 4.1.3 of this Universal Registration Document), future sales could decline, inventory levels could rise, and production capacity could be underutilized.
Technological innovation, vision correction alternatives and trends
The demand for prescription glasses and lenses (growth of 13.4% in 5 years in the Lenses and Optical Instruments segment) could be negatively affected by:
• the availability and acceptance of vision correction alternatives, such as refractive optical surgery;
• the increased usage of contact lenses due to changing consumer preferences or improvements in contact lens technology.
The development of new and innovative products, alone or in partnership, can go hand in hand with the appearance of new types of risks:
• for wearable devices: data confidentiality, intellectual property infringement, malfunctioning products, replacement/obsolescence and disposal;
• dependency situation towards "big tech" partners owning all or part of the know how
Litigation relating to data confidentiality breach and intellectual property infringement.
Competitors
Current competitors may have greater resources than EssilorLuxottica and may be able to devote significant funds to research and development efforts. Actors of change as tech giants (GAFA(1), BATX(2)), small innovative companies and investment companies (private equity funds) are now present in optics (through augmented reality for instance). Their investment & innovation capacities being incomparable with those of traditional actors therefore their actions could unbalance EssilorLuxottica's footprint. Companies operating in other industries (such as e-commerce and online services) may become competitors of EssilorLuxottica by leveraging on innovation capabilities.
EssilorLuxottica invests significant funds in R&D (€287 million, for more information see Sections 1.5.1.3.3 and 1.5.2.2.2, as well as Section 3.3.1 Consolidated statement of profit or loss) and develops valuable partnerships with top innovation players (Universities and research institutions, industrial companies, tech giants) to detect technological/ digital opportunities and threats, anticipate product innovation and their potential issues and monitor new trends (e.g. smart wearables) or customer consumption patterns (for more information, see Section 4.1.3 of this Universal Registration Document, paragraph Improving lives by improving sight).
It has also put in place an internal Digital Acceleration team (DITAC), dedicated to the development of new and innovative products and services.
EssilorLuxottica is recognized as a primary counterpart in innovation initiatives by players operating in other businesses.
Furthermore, the EssilorLuxottica combination, acquisition and partnership strategy of new or existing players (e.g. Johnson and Johnson Vision Care Inc.' Spectacle Lens Group, Transitions Optical) may create new significant synergies in R&D projects (e.g. contact lens using photochromic technology).
(1) This acronym refers to the four main US companies in the Internet sector (Google, Amazon, Facebook, Apple).
(2) This acronym designates the four main Chinese Internet companies (Baidu, Alibaba, Tencent, Xiaomi).
M&A and joint ventures
Risk Factors
Risk Details
Mitigation measures
M&A and joint ventures Severity:
Impact:
Likelihood:
Velocity:
EssilorLuxottica external growth strategy, in addition to organic growth, is based both on performing acquisitions and on developing strategic Joint Ventures with local partners, leveraging on their expertise and knowledge of the local market (6 transactions in 2020). Group failure to successfully identify M&A targets or partners in JVs, together with inappropriate management of alliances (e.g. failure in operating JVs or in performing post-merger integrations) may adversely impact the Group's growth and its ability to compete in the market.
Failure to maximize potential synergies could impact employee retention and business capabilities.
Carrying out M&A transactions (full acquisitions and JVs), involves the following possible risks, inter alia, for the Group:
• inadequate due diligence (financial, IT, legal, tax, labour, environmental, intellectual property, compliance, data privacy, etc.) on the targets;
• low contractual protections;
• purchase price adjustments.
Concerning JVs, a risk may result, inter alia, from possible:
• inadequate monitoring and control of partners;
• deadlock situations;
• inadequate growth of the relevant local markets.
Furthermore, different partners have a high degree of autonomy and their behaviour can negatively affect EssilorLuxottica. Third parties (including but not limited to JVs and partners) may not be able to satisfy CSR requirements impacting the Group's credibility towards its counterparties.
As a result of the combination of Essilor and Luxottica and its potential impact on the JV management structure, there is a risk that EssilorLuxottica JV partners may sell their financial interest in the Joint Ventures. This could determine change management issues in the JVs, adversely affecting their operational performance and financial results, ultimately having a negative impact on the cash flow of the combined Group.
EssilorLuxottica has achieved a significant size after the combination. Its visibility in the market has increased, leading to a potential amplification of compliance and reputational risks with a higher scrutiny from different stakeholders, including regulators and competitors, which may negatively affect the possibility to successfully complete a new acquisitions' strategy.
EssilorLuxottica has established a strict M&A process to evaluate possible targets based on internal guidelines and the execution of due diligences (including but not limited to financial, tax, compliance). The process ensures an adequate assessment of the targets and therefore minimizes the risk of a suboptimal acquisition.
This risk can be minimized by the implementation of specific contractual conditions (such as warranties, indemnifications…).
The evaluation of a potential acquisition is usually supported by external advisors through due diligence processes.
In order to reinforce worldwide business relationships between EssilorLuxottica and its partners, the Group has:
• designated representatives in the boards of its partners;
• implemented corporate internal controls;
• performed internal audit activities.
Due to the complex economic conditions prevailing today, the Group closely monitors the market and carefully analyses each potential opportunity.
Intellectual property
Risk Factors
Risk Details
Mitigation measures
Intellectual property Severity:
Impact:
Likelihood:
EssilorLuxottica relies on trade secret, competition, trade dress, trademark, patent, design and copyright laws to protect its assets, including non-exhaustively product designs, services, brand names, know-how, proprietary manufacturing processes and technologies, product research, innovation and goodwill. In this area, EssilorLuxottica could face different types of exposure:
Velocity:
• Trademarks and patents may not always be successfully granted during the official examinations, or registered trademarks and patents may be
invalidated in the event of third-parties action;
• EssilorLuxottica's proprietary and confidential information could become known to competitors, and be used in a misappropriate way and the Group may not be able to efficiently protect its know how;
• The emergence of new players (such as tech giants), characterized by very strong innovative capacities and their ability to file many patents potentially more rapidly than EssilorLuxottica, could prevent EssilorLuxottica from adequately protecting and/or exploiting its assets;
• The actions EssilorLuxottica takes to protect its intellectual property may be insufficient to prevent counterfeiting of its products and services, especially in countries where IP litigations are not a current practice (especially in certain Asian countries and the Middle East).
Additionally, EssilorLuxottica operates and sells products in countries where counterfeiting market is pervasive. Widespread of counterfeit products on the market may be a barrier to sales growth in these countries and ultimately may lead to changes in customer habits. It also hurts the value of EssilorLuxottica brands;
• Third parties may independently develop alternative products or services that do not infringe the Group's intellectual property rights;
• Third parties may assert intellectual property rights against EssilorLuxottica, leading to litigations and other legal processes with potential negative outcomes for the Group.
For more information, see Chapter 1.
A global framework has been put in place to protect intellectual property. It includes awareness, trainings and strategic monitoring. Dedicated resources are devoted to the enforcement of patents and trademarks, to the protection of trade secrets or other intellectual property rights, to the determination of the appropriate scope of protection of EssilorLuxottica assets, to the assessment of the intellectual proprietary rights of others that might be relevant in EssilorLuxottica's domain and the implementation of mitigation actions. EssilorLuxottica actively collaborates with Governmental Agencies around the world aiming at enhancing intellectual property protection.
EssilorLuxottica is continuing to implement a structured and strong worldwide program to guarantee reliability of Group products' genuineness at worldwide level. Through this program, the Group local entities cooperate with central corporate functions in assessing local risk related to IP protection (counterfeiting and parallel market), performing and supporting both in-store and online audits to timely identify possible infringements, define and implement related operational and legal countermeasures.
EssilorLuxottica aims to mitigate the risk also through contractual protection, ensuring contracts (e.g. with franchisee) can be terminated in case of unauthorized use of Group intellectual property rights or sale of counterfeited products within stores where EssilorLuxottica products are sold.
Licensing
Risk Factors
Risk Details
Mitigation measures
Licensing Severity:
Impact:
Likelihood:
Velocity:
EssilorLuxottica through its subsidiaries has entered into trademarks license agreements related to manufacturing and distribution of prescription frames, lenses and sunglasses under designer brands, including Chanel, Prada, Armani, Versace, Valentino, etc. These license agreements typically have terms of between four and ten years and may contain options for renewal for additional periods and require the Group to make guaranteed and contingent royalty payments to the licensor.
When these licenses expire, it is essential for the Group to maintain and negotiate favourable new agreements with leading designers in the fashion and luxury goods industries. The loss of licensing contracts or our inability to negotiate new agreements at favourable terms may have a major material impact on growth prospects and financial results due to consequences such as reduction in sales or an increase in advertising costs and royalty payments to licensors. EssilorLuxottica is also facing an increasing trend related to the internalization of manufacturing and distribution of prescription frames and sunglasses by some large luxury groups. EssilorLuxottica license partners regularly carry out sustainability audits to ensure that the Group meets their CSR requirements. For more information, see Sections 4.1.3 and 4.3.3.2 of this Universal Registration Document.
EssilorLuxottica manages licensed brands with several licensors and partners, creating a long-term relation with them and avoiding concentration on few licenses. The Group attractiveness may allow it to expand its clients' portfolio to pursue continuous growth and to compensate possible loss of licensors/license agreements. The impacts of the risk deriving from the internalization trend is limited by virtue of the differentiation in the licensed brands portfolio: as of December 2020, no single license agreement represented more than 5% of total sales. EssilorLuxottica has a strict policy of managing CSR topics (for more information, see Sections 4.1.3 and 4.3.3.2 of this Universal Registration Document) and has various means to enforce these rules: Code of Ethics, internal code of conducts, internal audits, specific programs for the responsible management of the supply chain, etc.
Financial Risks
Currency Risk
Risk Factors
Risk Details
Mitigation measures
Currency Risk Severity:
As EssilorLuxottica operates all over the world, conducting business in several currencies, the Group results may be materially affected by foreign exchange fluctuations.
Impact:
Likelihood:
• The primary exchange rate to which the Group is exposed is the EUR/USD parity, as 50% of sales are in USD and 70% of the EBITDA is USD dependent.
Velocity:
• Around 80% of EssilorLuxottica sales are performed in foreign currencies (mostly USD, AUD, BRL, GBP, CNY, etc.), impacting significantly the volatility of sales of the Group.
2020 has been characterized by strong currency volatility in the markets in which the Group operates, such as Latin America (Argentina, Colombia, Brazil, Mexico, etc.), Turkey and Russia. The Group has been subsequently exposed to variations in its earnings.
For more information, see Note 28 to the Consolidated Financial Statements, in Section 3.3 of this Universal Registration Document.
EssilorLuxottica seeks to limit currency risk exposure with natural hedges and will only use financial derivatives to offset its residual transactional exposure. These financial derivatives are entered into solely to hedge currency risks arising on business and financing operations translating into balance sheet exposure. For more information, see Note 28 to the Consolidated Financial Statements, in Section 3.3 of this Universal Registration Document
Financial Markets
Risk Factors
Risk Details
Mitigation measures
Financial Markets Severity:
Impact:
Fluctuations in market interest rates, inflation rates and long-term overall economy growth rates in countries where the Group operates, may negatively impact EssilorLuxottica operational capabilities and market value.
Likelihood:
Velocity:
The future execution of external growth strategy through M&A operations, including ongoing acquisitions, may require borrowings which would increase EssilorLuxottica exposure to interest rate fluctuation.
In the particular context of GrandVision acquisition pre-financing, the Group is currently exposed to the risk of fluctuation in interest rates on cash and cash equivalent (net exposure amounts to €7,689 million, merely in EUR and USD) which may impact its net financial expenses.
For more information, see Note 28 to the Consolidated Financial Statements, in Section 3.3 of this Universal Registration Document.
The impact of interest rate fluctuations is limited due to the high percentage of gross indebtedness at a fixed rate (88%).
To hedge interest rate risk on gross debt or optimize its cost of funding, EssilorLuxottica may use interest rate swaps from time to time. In this case, financial income and expenses relating to interest rate derivatives are recognized in the income statement in the same period as the hedged item.
The short-term investment maintained by the Group to ensure its liquidity are floating rate denominated. For more information, see Note 28 to the Consolidated Financial Statements, in Section 3.3 of this Universal Registration Document.
Credit
Risk Factors
Risk Details
Mitigation measures
Credit Severity:
Financial counterparties:
Impact:
The Group is exposed to financial counterpart risk, i.e., the risk that a bank defaults on its contractual obligations (short term investment, hedge or credit facility), which would result in a financial loss for the Group.
Likelihood:
Velocity:
Default by a counterpart may result in loss in value (the case of non-payment of a financial asset) or liquidity (the case of inability to draw on an unused line of credit).
Commercial counterparties:
The Group is exposed to late payments or even default from some of its clients. Exposure to credit risk is greater in some regions where the Group operates, such as India, META (Middle-East, Turkey & Africa) or LATAM.
In order to support some of its customers, EssilorLuxottica has implemented specific solutions during the COVID-19 pandemic. Certain payment terms have thus been extended while short-term loans have been granted.
The Group does not have a significant concentration of credit risk. As of December 31, 2020, non-provisioned past due trade receivables amount to €395 million.
For more information, see Note 28 to the Consolidated Financial Statements, in Section 3.3 of this Universal Registration Document.
Financial counterparties:
In order to limit the risk, the Group mainly deals with top-tier banks, while pursuing diversification. Available cash is mainly invested with the purpose of meeting the criteria of Cash and Cash Equivalent classification as per the strategy of the Group.
To mitigate this risk, EssilorLuxottica diversifies its banking counterparties, in order to limit individual exposure depending on the rating of the counterparty. In addition, 90% or more of excess cash must be invested in products complying with the cash-cash equivalent definition under IFRS.
The Group enters into derivatives transactions under various master agreements, which contain clauses for the offsetting of amounts payable and receivable only on the occurrence of future events such as a default or other credit event by one of the contracting parties. Since the Group does not have any currently legally enforceable right to offset recognized amounts, the mentioned agreements do not meet the criteria of offsetting in the statements of financial position.
Commercial counterparties:
The credit risk is managed locally and monitored centrally by the Group. There are proper procedures in place to ensure that the sales of products and services are made to reliable customers based on their financial position as well as past experience. Credit limits are defined according to thresholds that take into consideration internal and external evaluation of the customer's reliability. The utilization of credit limits is regularly monitored through automated controls. The Group's exposure to non-provisioned trade receivables is naturally limited by the high number of countries in which it operates (hence mitigating the consequences of a national economy collapsing) and the number of customers served (hence avoiding any significant stand-alone exposures to individual customers). Concerning loans allocated to private customers, these operations are carried out in a documented framework. In addition, EssilorLuxottica never intervenes alone in this type of arrangement and systematically requires the presence of the client in the financial arrangement.
The economic circumstances this year have been complex, along with an increased risk of non-payment from customers (as the cash collection has sometimes been delayed). Provisions for default have therefore been increased accordingly.
For more information, see Note 28 to the Consolidated Financial Statements, in Section 3.3 of this Universal Registration Document.
Liquidity
Risk Factors
Risk Details
Mitigation measures
Liquidity Severity:
Impact:
The Group may be exposed to the risk that its liquidity sources may be insufficient to cover its financing needs to support its growth target (e.g. external growth related to acquisition). However, the risk is limited given the high cash flow generation level and the solid credit ratings of the Group.
Likelihood:
Velocity:
In the event of a significant prolongation of the COVID-19 pandemic, the consequences in terms of cash flow generation could be significant. EssilorLuxottica's activities are based on the ability of customers to access stores, which remained heavily closed during the COVID-19 health crisis in 2020.
For more information, see Note 28 to the Consolidated Financial Statements, in Section 3.3 of this Universal Registration Document.
EssilorLuxottica operates to have continuous high liquidity to ensure its independence and growth. The funding policy is based on the diversification of funding sources, the use of medium- and long-term financing, the distribution of debt maturities over time and the establishment of committed credit facilities.
To ensure consistent management and success in obtaining optimal conditions on the market from the most robust financial institutions, the funding for the whole Group is ensured by the central Treasury department, which subsequently takes on the responsibility of the various entities refinancing.
In specific situations, due to local regulations, some entities may be required to realize their own refinancing. As of December 2020, the Group has €5,128 million of committed credit facilities with leading banks.
For more information, see Note 28 to the Consolidated Financial Statements, in Section 3.3 of this Universal Registration Document.
Operational Risks
Cyber Security
Risk Factors
Risk Details
Mitigation measures
Cyber Security Severity:
The concomitance of the causes below explains the increased exposure of the Group to cyber risk in 2020:
Impact:
• the surge in use of portable devices and increased access to home-office (hence remote connections) due to the COVID-19 pandemic;
Likelihood:
• the development of the Group's online activities (due to the pandemic and the digitization of many services, e.g. online prescription);
Velocity:
• the current complexity of the Group's IT organization.
The Group has been negatively affected by multiple attacks in 2020.
These can have significant and multiple effects: leak, loss, theft of personal or strategic data, systems failures; incapacity to perform daily operations as well as claims and litigations from third parties and financial impacts.
The risk of non-compliance with security standards applicable to health data (e.g. HITRUST certification in the United States) could be amplified by the fact that the implementation of a global IT security approach is still on-going.
In the event of this risk occurring, the Group's image and reputation could be impacted.
Following the 2020 cyber-attacks, the Group accelerated a comprehensive roadmap to improve resilience capacities. Complementary action plans have thus been put in place and the dedicated teams have seen their staff increased to ensure the security of the systems.
• The CISO team (within which a cybersecurity entity has been housed) has been thoroughly redesigned, with the arrival of new profiles.
• The Security Operations Centre (SOC) has been reinforced with a reallocation of staff and new hires.
• Many new tools and solutions have been reinforced or deployed in all the Group's entities: antivirus, firewalls, ERD, SEM.
• An external firm was tasked with diagnosing the security functions and remedies are being rolled out.
• Communications are regularly sent out to raise employees' awareness, in particular about phishing.
Business Interruption
Risk Factors
Risk Details
Mitigation measures
Business Interruption Severity:
Impact:
Likelihood:
Velocity:
EssilorLuxottica relies on a complex production and logistics network (spread across Northern America, Latin America, Europe, Africa, and Asia) designed to manufacture and handle flows between mass production plants (c. 40), suppliers (c. 40,000), laboratories (c. 450), transporters, distribution centres (c. 20), retail stores (c. 10,000) and an extremely large number of possible product combinations. EssilorLuxottica's business model is progressively changing to enhance vertical integration and interconnection.
While insourcing and increasing interconnectivity makes material flow management more efficient, it also implies a wider scope to be taken in consideration within the Business Continuity Plans (BCPs). As the level of the production has been relatively stable for a long time, any fluctuation may require reviewing and adapting current BCPs.
Delays or interruptions could occur due to both internal and external factors, including but not limited to:
• Pandemic risk: due to the strong disruptions caused by the COVID-19 pandemic and the Group's international footprint, EssilorLuxottica's production and distribution capacities could be significantly impacted;
EssilorLuxottica flexible supply chain is crucial to mitigate business continuity risks. The Group is progressively improving its Business Continuity Plans, by implementing:
• Specific pandemic related measures (deployment of safety measures, adaptation of cost base and working capital requirements, definition of alternative supply roads, leveraging of the network of production sites, strengthening of its ecommerce activities and networks);
• An assessment of risks and resilience to possible natural disaster the most relevant production sites are exposed to;
• Projections and continuous monitoring earthquake-resistance of facilities located in regions at risk of earthquake (e.g. Japan, Thailand, Philippines and New Zealand);
• Local loss prevention plans at its facilities (including monitoring of fire extinguishing systems and back-up power generators);
• External audits performed by insurance companies;
• Periodic simulations of IT systems failure to test efficiency and effectiveness of Disaster Recovery Plan;
Risk Factors
Risk Details
Mitigation measures
• Political/geopolitical risks in some exposed areas. EssilorLuxottica operates in countries where political, governmental or social instabilities may affect its business. As mentioned in the "political &social environment" risk: instabilities in countries such as Brazil or Chile may disrupt the normal business flow;
• Extreme weather events. EssilorLuxottica has to face and quickly adapt to physical risks or radical systemic changes linked to climate change (for more information, see Section 4.3.2.2 of this Universal Registration Document). EssilorLuxottica operates in countries that are exposed to adverse natural events (e.g. factories in the Philippines are in an area affected by typhoons every year, which can force the factories to stop operating for a few days);
• Water scarcity: EssilorLuxottica might not have enough access to good quality & quantity of water and thus could be vulnerable to production decrease, interruptions and price increase (for more information, see Section 4.4.2.4 of this Universal Registration Document);
• Facility incidents/issues. EssilorLuxottica may be affected by events (e.g. such as fire, explosions, pandemic outbreaks…) affecting, among others, its facilities;
• Single-sourced suppliers. EssilorLuxottica relies, for few specific products and material, on single-sourced suppliers. Possible issues experienced by such counterparties, also related to COVID-19 crisis, may lead to business interruption;
• IT systems failure. EssilorLuxottica is exposed to the risk of IT system failure due to relevant complexity of the Group's IT framework. Refer to "IT system and data management" risk as well as "cyber security" risk for further details.
The failure to maintain an efficient distribution and production network or a significant interruption in company business may adversely affect the Group business, operating results and financial condition.
• An increased availability of back up warehouses;
• Shifts of production from one site to another through the standardization of production processes.
EssilorLuxottica is continuously working to reduce dependency on critical single sources and strengthening business partnerships and control over critical suppliers.
IT System & Data Management
Risk Factors
Risk Details
Mitigation measures
IT System & Data Management Severity:
Impact:
Likelihood:
EssilorLuxottica's IT framework organization is composed of multiple systems as a result of the complexity of the governance and the organization. The vulnerability and obsolescence of IT systems (hardware and software) could have significant consequences for the Group in terms of business continuity and efforts to ensure compliance with constantly evolving security and privacy law requirements, especially in times when cyber security threats are high.
Velocity:
The multiplicity and partial integration of IT systems within the combined Group could increase the complexity of business processes (e.g. possible difficulties in accessing, collecting and managing available data) and related internal controls in the subsidiaries (e.g. thereby increasing the Group's exposure to various risks, including internal and external fraud).
The transition phase towards a more united and centralized IT system will require the implementation of a structured and complex process, which could lead to additional risks in terms of data security, availability and integrity.
• EssilorLuxottica is developing a multiyear IT system rationalization and integration plan aimed at integrating all IT systems across the Group. Investments are thus regularly made (implementation of a new CRM for instance), allowing the Group to benefit from the latest innovations. A pilot project for migration on a single IT platform is in progress in certain geographies.
• IT Disaster Recovery Plans are in place. The Group has defined and is progressively implementing a minimum-security baseline for all IT systems.
Compliance & Litigation Risks
Antitrust
Risk Factors
Risk Details
Mitigation measures
Antitrust Severity:
EssilorLuxottica can be exposed to potential antitrust issues.
Impact:
Likelihood:
Velocity:
The Group is currently exposed to ongoing assessment regarding compliance with the remedies imposed by China in connection with the approval of the combination between Essilor and Luxottica. EssilorLuxottica's market position exposes the Group to greater scrutiny by relevant stakeholders and antitrust authorities, limiting possible commercial initiatives and M&A transactions. For instance, the Group announced in July 2019 the acquisition of the Dutch company GrandVision: this transaction is facing an antitrust review in eight jurisdictions, among which three are still pending including the European Union. The deadline for obtaining these regulatory green lights has been set for July 30, 2021.
Should EssilorLuxottica not succeed or decides not going further with the acquisition, it will have to repay €400 million to HAL Investments as compensation. Any sanctions, fines or restrictions for violations of antitrust regulations or non-compliance with applicable remedies, whether actual or alleged, may materially adversely affect EssilorLuxottica's business, reputation, operating results, financial conditions and cash flow.
In accordance with antitrust or competition laws and regulations, EssilorLuxottica promotes integrity and fair competition among all parties, including competitors. EssilorLuxottica has defined (and is progressively updating in different regions, including EU and US) a global antitrust policy stating principles for conducting business in compliance with antitrust regulations.
In order to ensure that M&A operations are compliant with antitrust laws and regulations, EssilorLuxottica performs preventive antitrust related investigations with the support of multiple specialized international advisors.
Data Privacy
Risk Factors
Risk Details
Mitigation measures
Data Privacy Severity:
Impact:
Likelihood:
Velocity:
Relying on a complex information technology systems framework, EssilorLuxottica operates in countries with various and continuously evolving regulations on data protection. The risk of exposure is enhanced by the variety and complexity of the personal data managed by EssilorLuxottica and the data sharing process within the Group. As the Group's value chain is very internationalized, customer, optician and HR data therefore moves very quickly from one country to another, sometimes within the same process, creating a high exposure to data risk.
Unintentional disclosure or unauthorized use of customer personal data may be caused by:
• IT system failures;
• Network disruptions;
• Sophisticated cyber attacks;
• Inadequate storage and management of personal data and related authorization of use (e.g. as a consequence of extra system collection of authorizations for personal data processing provided by customers in some regions such as Latin America and South-East Asia);
• Insufficient security and organizational measures protecting health data;
• International Data Exchanges that might sometime include Personal Data (e.g. employees, customers).
During the COVID-19 pandemic circumstances causing emergency laws, EssilorLuxottica devoted resources to protect people safety that implies personal data processing that shall always be compliant with those laws.
Despite the Group's effort be compliant with the different data privacy regulations (including but not limited to GDPR), it is not precluded that the Group may be subject to complaints from data subjects and/ or inspections by the competent authorities, possibly leading to penalties and interruption of activities violating data privacy requirements. In addition, the complexity and difference in data protection regulations in a significant number of countries where the Group operates creates a compliance and reputational risk, in particular when a new solution (e.g. wearable devices) is launched on a global scale or processes personal sensitive data.
The Group regularly devotes resources to the protection of its clients and employee's data privacy to ensure it complies with all the applicable Data Protection and Privacy acts and regulations around the world (Europe, US, China, Brazil, etc.)
EssilorLuxottica is working on a Data Protection organization at each operating company level with central monitoring of the evolving data protection regulations to integrate the compliance by design approach.
The Group is constantly implementing global privacy and security data programs, including (depending on the activities of the affiliates):
• definition of policies, standards and procedures;
• definition of intercompany data sharing agreements;
• application of data masking and encryption;
• application of data pseudonymization and anonymization;
• data mapping and privacy risk assessments;
• third parties' management (through definition of data protection contractual clauses, appointment of data processors and definition of agreements between the Group and foreign affiliates);
• security and response measures;
• training programs.
Corporate compliance & Reporting (including sustainability)
Risk Factors
Risk Details
Mitigation measures
Corporate compliance & reporting (including sustainability)
Severity:
EssilorLuxottica is subject to a significant number of local, national and international laws and regulations, at a time when the global regulatory environment is becoming increasingly complex.
Impact:
Likelihood:
Velocity:
These laws and regulations, including but not limited to labor laws, anti-corruption laws, sourcing restrictions on materials, and health, safety and environmental regulations may vary from country to country and are continuously evolving. This risk is exacerbated by the small size of some of the Group's structures in countries whose regulations change regularly, without adequate resources to adapt and without a dedicated compliance team in all regions.
Due to the Group's complex governance system and international footprint, EssilorLuxottica may encounter several difficulties, such as the day-to-day monitoring of local laws and regulations or the organization of relevant training for its staff.
The changing regulatory scenarios that may have an impact on the Group business include: trade compliance, anti-corruption (Sapin 2 Act on transparency, fight against corruption and modernization of economic life), duty of vigilance, human rights regulations (e.g. Duty of Care, UK Modern Slavery Act), environmental regulations (e.g. hazardous waste management regulation in China), and healthcare regulations (US Patient Protection and Affordable Care Act). Failure to comply with such laws and regulations could result in criminal and/or civil liabilities being imposed on responsible individuals and, in certain cases, on the Group. The scope of applicable laws and regulations is also evolving, implying an increasing responsibility of EssilorLuxottica over its value chain and third parties including joint venture partners, suppliers and distributors.
Additionally, violations of such laws and regulations by some of the Group's suppliers or distributors may expose EssilorLuxottica to relevant reputational damages.
The international footprint of the combined Group, its complex governance system, evolving regulations and its reliance on partners and JVs may render it increasingly difficult to manage, update and monitor a strong and effective internal control system, thereby increasing the Group's exposure to various risks, including e.g. internal and external fraud, process inefficiencies, IT security risks and data breaches.
For more information on corruption, human rights, health and safety and environmental subjects, see Section 4.3.3.3 of this Universal Registration Document.
EssilorLuxottica has implemented a framework designed to facilitate compliance with applicable laws and regulations. The framework includes, among other features:
• Regulatory monitoring central and local level;
• Compliance awareness and training programs (GDPR, corruption, ethics, human rights);
• Policies and procedures (e.g. the publication of bribery and compliance guidelines containing the standard requirements);
• Regular controls and audits.
EssilorLuxottica is committed to continuously develop and strengthen its internal control system worldwide (for instance by continuously improving its anti-corruption internal controls, reviewing its operational and approval workflows, and identifying high-risk processes to prioritize action plans).
Additionally, EssilorLuxottica has established an Ethics Committee at Board of Directors level and implemented a whistleblowing system.
In order to comply with international standards and local employment laws, EssilorLuxottica requires its suppliers to operate in compliance with the principles defined in its Code of Ethics.
Besides, the Group relies on the standards that each Essilor and Luxottica has defined and requests suppliers to adhere in the areas of ethics, labor, health, safety and the environment. In each Company, supplier's compliance with these ethical principles and environmental and social responsibilities is audited by a qualified third party. There are training initiatives at different levels to ensure there is alignment among suppliers on the standards.
For more information, see Section 4.3.3.3 of this Universal Registration Document.
Material claims and litigation, proceedings, arbitration
Risk Factors
Risk Details
Mitigation measures
Material claims and litigation, proceedings, arbitration
Severity:
Impact:
In the ordinary course of its business, the Group is regularly a party to legal proceedings, claims, lawsuits, arbitrations, investigations and governmental and administrative proceedings and litigation, some of which are or may be material. Any current or future material litigation may have significantly negative consequences on the financial situation and reputation of the Group.
Likelihood:
HAL/GrandVision
Velocity:
EssilorLuxottica is currently involved in legal disputes with HAL and GrandVision. On the one hand, EssilorLuxottica is requesting in summary proceedings disclosure on GrandVision conduct of business during the COVID-19 crisis. Since this request was denied by the Court, the Group has decided on September 4, 2020 to appeal against this judgment. On the other hand, HAL and GrandVision each initiated on July 30, 2020 an arbitral proceeding against EssilorLuxottica, asking the Tribunal to determine that they have not breached their contractual obligations and to order EssilorLuxottica to implement its obligations. EssilorLuxottica is of the opinion that it does implement its obligations, and vigorously defends its contractual rights.
Fraud
• Civil and criminal actions are pending in many jurisdictions following the fraud that took place in 2019 at Essilor Manufacturing Thailand Co. (EMTC). As of March 11, 2021, the Company had recovered approximately €79 million. Additional funds are currently being traced and expected to be recovered in the coming quarters.
• Although many fraud attempts were thwarted, the economic recession caused by the COVID-19 pandemic creates risk of additional frauds.
Alleged anti-competitive practices
In July 2014, the French Competition Authority's investigation department made unannounced visits to selected Essilor entities in France and other actors in the ophthalmic lens industry involved in the online sale of ophthalmic lenses. The proceedings are ongoing, with the Authority having notified its statement of objections on January 5, 2021 alleging certain anti-competitive practices, and EssilorLuxottica defending its rights. At this stage, there is no basis to develop an estimate of the potential exposure, if any.
In 2015, the French Competition Authority's investigation department issued a statement of objections ("First SoO") against Luxottica, its subsidiary Alain Mikli, other major competitors and other market players alleging certain anti-competitive practices. In 2017, the French Competition Authority determined that preliminary investigation was insufficient and sent the case back to the investigative department. On April 19, 2019, Luxottica and certain subsidiaries received a new statement of objection ("Second SoO") as a supplement to the First SoO. On March 2, 2020, a Rapport has been served taking position on the observations submitted by Luxottica in response to the SoOs. Written response to the Rapport has been filed on June 29, 2020, where Luxottica has challenged the conclusions of the
EssilorLuxottica addresses all claims, arbitrations and litigation proceedings through specialized resources (internal and external).
EssilorLuxottica evaluates risks related to actual lawsuits, arbitrations, investigations and governmental and administrative proceedings and litigation and books provisions in accordance with applicable accounting standards.
Such provisions amounted for EssilorLuxottica to €158 million as of December 31, 2020, compared to €172 million as of December 31, 2019.
For more information, see Note 29 to the Consolidated Financial Statements, in Section 3.3 of this Universal Registration Document.
Risk Factors
Risk Details
Mitigation measures
Rapport. The final oral hearing took place on January 13, 2021. Luxottica is waiting for the decision. As of the date of this document, management determined the risk of a negative outcome as not probable, with no basis to develop an estimate of the potential exposure.
The evaluation of the risk profile for the Group may be updated, as necessary, based on the decision that the French Competition Authority may issue in the next few months and the availability of further appeal proceedings, if applicable.
Investigations
In 2016, the US Department of Justice and the Insurance Commission of the State of California questioned Essilor of America regarding certain promotional activities. Essilor of America continues to work with the authorities in connection with this ongoing investigation.
Class actions
Certain US and Canadian subsidiaries of EssilorLuxottica are defendants in class actions and putative class actions brought before Federal, State and Provincial courts alleging suppression of competition, false and misleading advertising, misleading representations, warranty claims and unlawful control of optometrists and data security breaches. The relevant subsidiaries dispute the merits of all these actions.
Patent
The Group is one of the largest medical device companies in the world and is therefore regularly subject to patent trolls and lawsuits by its competitors.
Taxation
Risk Factors
Risk Details
Mitigation measures
Taxation Severity:
Impact:
Likelihood:
Due to its international footprint, EssilorLuxottica is exposed to various local tax regulations. Its future effective tax rate could be affected by changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation.
Velocity:
Any of these changes and/or failure to observe applicable regulations may result in need for tax adjustments, fines and penalties, with possible material adverse effect on the Group profitability. Relevant tax authorities in countries where EssilorLuxottica operates are regularly reviewing its income tax returns (with Europe and United States being the most relevant jurisdictions in terms of revenues). There can be no assurance that possible future examinations will not materially adversely affect the Group business, results of operations, financial condition and prospects.
Due to COVID-19 crisis, EssilorLuxottica was exposed to various new tax regulations regarding the requirements to obtain certain potential tax benefits like tax payments postponements, tax credits and others.
The EssilorLuxottica Group Tax Teams oversees compliance with applicable tax laws and regulations. Group Tax Department is also in charge of:
• advising subsidiaries on tax matters;
• providing guidance on the transfer pricing approach;
• maintaining Group tax policies.
EssilorLuxottica is continuously improving its internal control system, including financial controls on tax management processes. Routine assessment of the likelihood of adverse outcomes are also performed to determine the adequacy of EssilorLuxottica's provision for tax risks.
Finally, Luxottica Group Spa has been admitted to the Cooperative Compliance program with the Italian Revenue Agency. For the next fiscal year, EssilorLuxottica could join a similar program with the French Revenue Agency.
1.9
Main characteristics of the risk management and internal control systems implemented by the Company for the preparation and processing of accounting and financial information
EssilorLuxottica relies on the combination of the existing internal control systems of Essilor and Luxottica which are consistent with international best practices such as the COSO (Committee Of Sponsoring Organizations of the Treadway Commission) Internal Control - Integrated Framework and in line with the requirementsimposed on companies listed on the French Stock exchange. The integration of the internal control systems is currently ongoing, considering the specific nature of risks of the combined Group (see information on the risk factors in Section 1.8).
1.9.1
The Company risk management process
EssilorLuxottica has developed and adopted a revised Risk Model. The Model, which clusters risks into five categories (external, strategic, operational, financial and compliance/litigation), defines an assessment methodology based on the impact the likelihood and the velocity of each risk and includes the assessment of risks related to sustainability performance (so called "CSR risks") discussed in Chapter 4 of this Universal Registration Document.
In 2020, EssilorLuxottica has performed a risk assessment, based on the revised Risk Model:
• identification and analysis of risks through interviews and questionnaires;
• assessment of impact, likelihood and velocity, on a residual basis, considering all mitigating measures adopted by EssilorLuxottica;
• prioritization aimed at identifying risks and implementing action plans to minimize those risks.
The risk assessment has been performed globally, incorporating all geographical areas, legal entities and activities of the Group. EssilorLuxottica identified 22 relevant risk factors to which the Company may be exposed. For each risk factor, the overall severity has been calculated considering the likelihood and the potential impact (operational, financial and reputational) as well as velocity of occurrence. Risks presented are clustered by risk categories.
1.9.2
The Company's internal control objectives
The risk management of EssilorLuxottica and the internal control frameworks implemented in Essilor and Luxottica are designed to:
• ensure that management actions, execution of transactions, and staff behavior fall within the scope defined by the guidelines applicable to activities undertaken by the relevant corporate bodies. This includes compliance with applicable laws and regulations, as well as values, standards and internal rules of the Group;
• verify the quality and accuracy of all accounting, financial, legal and management information reported to the relevant corporate bodies, regulatory or supervisory authorities, shareholders or the public;
• cover all the policies and procedures implemented by the Group that provide reasonable assurance that business is managed efficiently and effectively;
• limit the risk of error or fraud, particularly of an economic, financial or legal nature, to which the Group may be exposed. However, no control system can provide an absolute guarantee that all such risks have been completely avoided, eliminated.
1.9.3
Organization of internal controls
The internal control system of EssilorLuxottica, leveraging the ones implemented at Essilor and Luxottica levels, is based on:
• clear definitions of responsibilities, backed by the necessary resources and skills, appropriate information systems, procedures and processes, tools and practices;
• internal communication of all the information needed for each individual to fulfill his or her responsibilities;
• systems that aim to identify and analyze the main identifiable risks and to ensure the implementation of procedures to manage these risks;
• control procedures that are proportionate to the risks associated with each process and are designed to provide assurance thatmeasures are taken to limit and, to the extent possible, manage the risks that could prevent them from fulfilling their respective objectives;
• supervision of the internal control and risk management systems and regular reviews of their operations.
Following the fraud that took place at an Essilor plant in Thailand in December 2019, several initiatives have been implemented in 2020 such as: reinforcement of the second line of defense as defined below, enhancement of the governance of the internal control framework at the region and group level, continuous monitoring of the key controls related to payment and cash management processes to further strengthen the internal control system at Essilor and Luxottica levels.
1.9.3.1
Main finance control activities and players
Various internal control activities help to ensure that the application of Finance standards and procedures defined at the corporate level are consistent with Senior Management's guidelines.
The risk management and control framework in place at EssilorLuxottica can be described as follows:
• First line of defense: the operational people responsible for transactions at the entity level;
• Second line of defense: the functional departments in charge of specific areas of activities (such as Internal Control, Treasury, Accounting and Consolidation, Forecasting, Tax…); and
• Third line of defense: the Internal Audit department, which independently checks the effectiveness of controls and reports on them to the relevant functions and bodies.
Essilor and Luxottica periodically conduct self-assessment campaigns of the risk management and internal control system, also aimed at the continuous improvement of the systems themselves. Specifically:
- Essilor's internal control department, has the responsibility over the self-assessment process of Essilor internal control (iCare). The self-assessment performed by Essilor entities relies on the "Minimum Control Standards" (MCS) guide which documents the main controls that all Essilor entities must have in place. In 2020, Group Internal Control has initiated a global review and updates, as necessary, of the Group rules and MCS starting with Procure to Payment process, which has been subject to self-testing by management in 2020. These actions will continue in 2021. In addition, as part of the Year End closing process, the Internal Control Department is responsible for the Internal Representation Letter process, which discloses the compliance of all the Essilor consolidated entities with the accounting principles of Essilor group in the context of preparation and production of financial statements.
- Luxottica has defined the objectives of its internal control system over financial reporting consistently with the obligations set forth in the laws and regulations of the financial markets where Luxottica has been listed in the past years. With respect to Luxottica and its main subsidiaries, controls were designed and their effectiveness was assessed through both specific "risk and control matrices" and specific audit projects on controls/ processes with direct impact on financial reporting. In addition, all Luxottica subsidiaries must compile a Director's Attestation over the preparation of the reporting package in accordance with the International Financial Reporting Standards and the Luxottica Group Accounting policies.
A set of corporate policies and procedures have been implemented at EssilorLuxottica level. Other policies and procedures are also implemented at Essilor and Luxottica levels for various business areas and processes, including purchasing, communication, finance, tax reporting, legal affairs, operations, R&D and human resources. The following departments are under the responsibility of the Co-Chief Financial Officers of EssilorLuxottica:
Group Internal Control
Essilor's Internal Control department has been set up 4 years ago to focus on controls on the finance area. These finance internal control activities were present in Luxottica under the responsibilities of different finance functions and during the secondhalf of 2020 have been reorganized in Luxottica under the responsibility of a dedicated function to strengthen the cooperation between Essilor and Luxottica departments to share methodologies and best practices. These Internal Control departments are increasingly focusing on strengthening controls and suggesting remedies in the finance area in order to prevent and detect potential fraud and also to contribute to the continuous enhancement of the quality of the financial information reported.
Group Accounting and Consolidation
A consolidation team has been put in place for the preparation of the consolidated financial statements of EssilorLuxottica (the "Group consolidation team"). Additionally, both Essilor and Luxottica Finance Departments have their own consolidation teams responsible for the consolidation of the results of the entities pertaining to their respective perimeters (the "Sub consolidation teams") and to support regional Finance Departments. The Group consolidation team issues instructions to the Sub consolidation teams in order to ensure a consistent and reliable consolidation process; in addition there is an open communication line among the consolidation teams and the local Finance Departments which allows the understanding and analysis of the financial data and enables consistency in the accounting approaches with respect to complex transactions and/or implementation of new accounting standards.
Subsidiaries adopt the accounting and management policies communicated by the Group consolidation team and submit their financial information through a consolidation software that, in turn, enables the consolidation process at the sub - consolidation level and at the Group level.
EssilorLuxottica consolidated financial statements are prepared in accordance with IFRS as adopted by the European Union, based on reporting packages of each subsidiary in the two sub groups (Essilor and Luxottica). The statutory financial statements of EssilorLuxottica are prepared by a dedicated team in accordance with the French accounting standards.
The yearly consolidated and statutory financial statements are audited by the Statutory Auditors who apply the standards of the profession.
Group Treasury
Group Treasury department handles at parent company level the strategic funding and liquidity management, including asset management. Short, medium and long-term financing is achieved through bonds, private placements, medium-term credit facilities and commercial paper. Cash Surpluses are invested in short-term instruments (such as bank deposits and money market funds), mainly concentrated at EssilorLuxottica.
The interest rate risk management is centralized and aims at balancing the cost of financing and protecting the Group against adverse changes in interest rates.
Treasury Departments of both Essilor and Luxottica oversee the funding, risk hedging and local asset management of the affiliates, also providing general advice and assistance services to Group subsidiaries for these duties and cash management. Whenever possible, the financing needs of subsidiaries are funded intercompany. Exposures to currency risk are routinely hedged by the Treasury Departments through customary market instruments. Invoicing in local currency of importing or exporting companies allows the bulk of foreign exchange risk to be concentrated on a small number of entities.
Group Forecasting
The Group Forecasting function (i) defines and monitors the indicators for checking that the Group is operating in accordance with its targets, (ii) measures the contribution of the Group's various operating divisions, (iii) performs consistency tests on management reporting data to check the overall reliability of the applicable information, working in cooperation with the business analysis units embedded in each operating division. The Group Forecasting function identifies differences compared with targets set, risks and opportunities, provides decision-making guidance, coordinates projection phases (forecasts and budget). The Group Forecasting function is supported by business analysis departments at both Essilor and Luxottica levels.
Group Tax
The EssilorLuxottica Group Tax Department is in charge of monitoring and ensuring compliance with applicable tax laws and regulations, consistently with the values of honesty and fairness of EssilorLuxottica's Code of Ethics. It commits local subsidiaries to endorse a transparent, accurate and proactive policy of direct and constant interaction with tax authorities of the countries in which they operate. It also guides subsidiaries on tax matters, provides guidance on the transfer pricing approach, defines Group tax policies and suggests adequate tax solutions to the Group's business requirements.
1.9.3.2
Internal control procedures relating to the production and processing of accounting and financial information
The production of the accounting and financial information is ensured at the EssilorLuxottica Group level by the following processes:
(i) quarterly accounting closing processes performed at Group level, based on the closing processes implemented at each sub group level in accordance with the instructions and timelines communicated by the Group consolidation team;
(ii) the implementation of general Group procedures to guarantee compliance with the applicable rules (e.g. IFRS and AMF guidelines);
(iii) the existence of specific guidelines and procedures followed at Group level;
(iv) the presentation of financial information, at each period-end preceding the publication, to the Audit and Risk Committee.
Data related to the income statement, the balance sheet and the cash-flow statement are prepared quarterly. The Group consolidation team quarterly checks the figures entered by the Sub consolidation teams and ensures that they comply with applicable policies.
Even though they are not an integral part of the internal control procedures, the Statutory Auditors take into consideration the accounting and internal control systems to plan their audits and design their audit strategies. The financial statements of the vast majority of Group subsidiaries are audited by local Auditors who are members of the networks of Statutory Auditors that audit the Group's consolidated financial statements.
1.9.4
Internal Audit department
The goal of the Internal Audit department in EssilorLuxottica is to provide independent, risk-based and objective assurance and consulting services designed to add value to Group's operations and improve the effectiveness of its governance, risk management, and control processes, with a geographical organization counting a total combined staff of 55 people at December 31, 2020.
The Head of Internal Audit regularly reports to the Audit and Risk Committee on the status of the audits, the most significant issues and the implementation of the related action plans. Additionally, the Audit and Risk Committee reviewed and subsequently the Board of Directors approved the 2021 Internal Audit Plan for EssilorLuxottica. The Internal Audit department is not responsible for any operational area and has full, free, and unrestricted access to all functions, records, property, and personnel pertinent to carrying out any engagement. If the Head of Internal Audit determines that independence or objectivity of the Internal Audit department may be impaired, the details of impairment will be disclosed to appropriate parties.
The Internal Audit department has a specific budget, assigned in accordance with the activities it is required to perform in order to achieve the objectives defined in the approved Internal Audit Plan.
Internal Audit activities are carried out according to the approved plan and applying common methodologies in all geographies. For each audit, a report is prepared and distributed to the relevant stakeholders.
COVID-19 has significantly impacted the execution of the Audit Plan during 2020. Consequently, the plan has been reviewed and updated accordingly, considering the different risks scenarios, the new priorities from Management and also the resource availability in order to ensure an adequate and balanced coverage. The adjustments to the 2020 initial audit plan have been reviewed by the Audit and Risk Committee and subsequently approved by the Board of Directors in July 2020.
The results of the Internal Audit activities are periodically reported to the Audit and Risk Committee and to senior management, allowing the companies to identify areas for improvement of the internal control system for which specific action plans are agreed to further strengthen the foundation of the system itself. The implementation of the recommendations formulated by the Internal Audit activities is the responsibility of the entity being audited and it is periodically monitored to ensure that the action plans agreed upon are carried out within the specified time frame.
1
CHAPTER
2
REPORT ON CORPORATE GOVERNANCE
2.3 COMPENSATION OF CORPORATE
2.1.1 Composition of the Board of Directors 79
2.1.3 Organization of the powers of management and control of the Company and powers
of the Chief Executive Officer 100
2.2 SPECIAL PROCEDURES FOR SHAREHOLDER PARTICIPATION
IN SHAREHOLDERS'MEETINGS 101
2.2.1 Ordinary Shareholders'Meetings (Article 24) 101
2.2.2 Extraordinary Shareholders'Meetings
(Article 25) 101
2.2.3 Delegations and authorizations granted by the Shareholders'Meeting to the Board
of Directors 102
2.2.4 Factors that may have an impact
in the event of a public offering 103
OFFICERS 105
2.3.1 Compensation policy for corporate officers 105
2.3.2 2020 compensation of corporate officers 118
2.3.3 AFEP-MEDEF compensation and
benefits tables 127
2.3.4 Compensation paid in 2020 or awarded in respect of 2020 to corporate officers
("Say on Pay" or "Ex post" vote) 134
2.3.5 2021 compensation policy for corporate officers
("Say on Pay" or "Ex-ante" vote) 140
2.3.6 Summary statement of transactions in
Company securities carried out by corporate officers (or persons closely related to them)
in 2020 142
2.4 APPENDIX: SUMMARY TABLE
OF RECOMMENDATIONS OF THE AFEP-MEDEF CODE
THAT HAVE NOT BEEN APPLIED 143
2.5 APPENDIX: LIST OF OFFICES AND
RESPONSIBILITIES 146
IN BRIEF
COMPOSITION OF THE BOARD OF DIRECTORS
January 1, 2020 to March 11, 2021
Leonardo DEL VECCHIO, Chairman (Executive Chairman until December 17, 2020), Non-Independent Director Hubert SAGNIÈRES, Vice-Chairman (Executive Vice-Chairman until December 17, 2020), Non-Independent Director Francesco MILLERI, Chief Executive Officer (from December 17, 2020), Non-Independent Director
Paul DU SAILLANT, Deputy Chief Executive Officer (from December 17, 2020), Non-independent Director (from March 30, 2020) Romolo BARDIN, Non-Independent Director
Juliette FAVRE, Director representative of Valoptec(1), association of shareholders employees and former employees, Non-Independent Director
Giovanni GIALLOMBARDO, Non-Independent Director Annette MESSEMER*, Independent Director
Lucia MORSELLI*, Independent Director Gianni MION*, Independent Director
Léonel PEREIRA ASCENCAO, Director representing employees
Olivier PÉCOUX, Non-Independent Director (within the meaning of the Combination Agreement - see table on Section 2.4) Sabrina PUCCI*, Independent Director
Cristina SCOCCHIA*, Independent Director
Laurent VACHEROT, Non-Independent Director (until March 30, 2020) Jeanette WONG*, Independent Director
Delphine ZABLOCKI, Director representing employees
*For a summary table detailing each Director's compliance or non-compliance with the independence criteria of the AFEP- MEDEF Code for the fiscal year 2020 refer to Section 2.1.1.3.
(1) Valoptec is not an employees' representative body within the meaning of article L. 225-23 of the French Commercial Code.
Pursuant to the Combination Agreement, EssilorLuxottica's governance structure was established once the Contribution was completed, namely October 1, 2018, based on the principles described in Section 2.1.1. This governance structure will apply until the date of the annual Shareholders'Meeting called in 2021 to approve the EssilorLuxottica's financial statements for the 2020 fiscal year (the "Initial term").
The EssilorLuxottica bylaws approved by the Shareholders'Meeting of May 11, 2017 entered into force on October 1, 2018, along with the
SPECIAL COMMITTEES
Audit and Risk CommitteeNominations and Compensation Committee
Corporate Social Responsibility (CSR) Committee
Strategy Committee
Chairman: Lucia Morselli
Board of Directors' Internal Rules as amended from time to time, a full version of which is available on the Company's website under Governance.
The parties to the Combination Agreement have confirmed that the employee shareholding culture will remain a core feature of EssilorLuxottica group. Recognizing its long-term commitment towards promoting employee shareholding, EssilorLuxottica has been awarded with the "Grand Prix FAS 2020" by the French Federation of Employee Shareholder Associations (FAS).
Members: Romolo Bardin, Annette Messemer, Olivier Pécoux
Chairman: Olivier Pécoux
Members: Romolo Bardin, Annette Messemer, Gianni Mion
Chairman: Jeanette Wong
Members: Giovanni Giallombardo,
Hubert Sagnières (until December 17, 2020), Juliette Favre (from January 28, 2021), Cristina Scocchia
Chairman: Francesco Milleri Members: Juliette Favre,
Gianni Mion (until January 28, 2021), Hubert Sagnières (until December 17, 2020), Cristina Scocchia,
Laurent Vacherot (until March 30, 2020), Paul du Saillant (from March 30, 2020)The Report on Corporate Governance reported in the following sections has been reviewed by the Board of Directors of EssilorLuxottica on March 11, 2021.
2.1
Information on Corporate Governance
In accordance with the provisions of Article L.225-37 and L.22-10-11 of the French Commercial Code, this report includes notably the following information:
• the composition of the Board of Directors and the description of the diversity policy applied to the members of the Board of Directors, as well as a description of the aims of this policy, its implementation and the results obtained during the financial year;
• the agreements signed between Directors or significant share-holders and a subsidiary;
• the conditions governing the preparation and organization of the work of the Board of Directors during the fiscal year ended December 31, 2020;
• the AFEP-MEDEF Code (1) recommendations to which the Company has referred since 2009 and the application that have been disregarded (Section 2.4);
• the restrictions on the powers of the Chief Executive Officer decided by the Board of Directors (Section 2.1.3);
• the specific procedures for shareholder participation in Shareholders'Meetings (Section 2.2);
• the summary table of current authorizations granted by the Shareholders'Meeting in respect of increases in share capital, andthe use made of these authorizations during the financial year (Section 2.2.3);
• the information that may have an impact in the event of a public offering (Section 2.2.4);
• the compensation for Corporate Officers and specifically the compensation policy applicable to the Chairman, the Vice-Chairman and the Executive Corporate Officers (Chief Executive Officer and Deputy Chief Executive Officer) and the corresponding resolution submitted for approval by the Shareholders'Meeting convened in 2021 to approve the financial statements for the fiscal year ending December 31, 2020 (Section 2.3).
This report was presented to the Nominations and Compensation Committee at its meeting of March 8, 2021 before being submitted to the Board of Directors for approval on March 11, 2021.
This report reflects the governance principles as described in the Combination Agreement. These principles apply up to the date of the annual Shareholders'Meeting called in 2021 to approve EssilorLuxottica's financial statements for the 2020 fiscal year (the "Initial Term"). On March 11, 2021 the Board of Directors decided to submit to the Shareholder's Meeting to be held in 2021 the appointment of new directors (see Section 3.2.2 of this Universal Registration Document).
2.1.1
Composition of the Board of Directors
Principles relating to the composition of the Board of Directors of EssilorLuxottica
The Board of Directors of EssilorLuxottica is composed as follows: (i) Since December 17, 2020, Leonardo Del Vecchio is Chairman of the Board of Directors (the "EssilorLuxottica Chairman"). He is also Executive Chairman of the Board of Directors of Luxottica. He was appointed Executive Chairman (Président-Directeur Général) of EssilorLuxottica on October 1, 2018 pursuant to the Combination Agreement. On December 17, 2020, following the resignation of Mr. Hubert Sagnières from his executive responsibilities in EssilorLuxottica, Leonardo Del Vecchio decided to voluntarily step back from his executive responsibilities in EssilorLuxottica in order to preserve the equal powers principle;
(ii) Since December 17, 2020, Hubert Sagnières is Vice-Chairman (the "EssilorLuxottica Vice-Chairman"). He was appointed Executive Vice-Chairman (Vice-Président-Directeur Général Délégué) of EssilorLuxottica on October 1, 2018 pursuant to the Combination Agreement. On December 17, 2020, Hubert Sagnières decided to resign from his executive responsibilities in EssilorLuxottica;
(iii) On December 17, 2020 the Board of Directors approved the separation of the functions of Chairman and Chief Executive Officer on the one hand and of Vice-Chairman and Deputy Chief Executive Officer on the other hand. The same day Francesco Milleri was appointed Chief Executive Officer and Paul du Saillant was appointed Deputy Chief Executive Officer;
(iv) the EssilorLuxottica Board of Directors is composed of sixteen members;
(v) eight members nominated by Essilor, comprising the EssilorLuxottica Vice-Chairman and the Deputy Chief Executive Officer of EssilorLuxottica, two employee representatives, one representative of Valoptec Association, three independent members from Essilor International (Compagnie Générale d'Optique)' s Board of Directors before October 1, 2018 and one non-independent member from Essilor International (SAS)
(1) This Code can be viewed online athttp://www.medef.com.
(vi)
Board of Directors (for more information on the independent qualification for the purpose of the Combination Agreement, please refer to the table included in the Section "Compliance with AFEP-MEDEF Code"); and eight members nominated by Delfin, comprising the EssilorLuxottica Chairman, the Chief Executive Officer, three representatives of Delfin and four independent members designated by Delfin after consultation with Essilor (unless these Directors are chosen from among the current members of Luxottica Board of Directors, in which case no consultation is required).
Executive and non-Executive Corporate Officers with the same powers
The EssilorLuxottica Chairman has the same powers as the EssilorLuxottica Vice-Chairman.
The EssilorLuxottica Chief Executive Officer has the same powers as the EssilorLuxottica Deputy Chief Executive Officer.
Impediments of executives or Directors during the Initial Term
If the EssilorLuxottica Chairman and/or the EssilorLuxottica Vice-Chairman is impeded or incapacitated, the Vice-Chairman of Luxottica shall act as the replacement of the Chairman and the CEO of Essilor International (SAS) shall act as the replacement of the Vice-Chairman of EssilorLuxottica
Should the Chief Executive Officer cease to or be prevented from holding office, the Deputy Chief Executive Officer(s) shall retain his position and functions until a new Chief Executive Officer is appointed, unless otherwise decided by the Board of Directors (Article 19 of the EssilorLuxottica's bylaws).
If any Director of EssilorLuxottica is impeded or incapacitated, a meeting of the EssilorLuxottica Board of Directors shall be held as promptly as possible in order to appoint a successor (decided by the majority of the Directors appointed by Delfin or by Essilor, as the case may be, depending on the party to the Combination Agreement that had originally appointed the incapacitated
Director). If the replacement is not possible without an EssilorLuxottica Shareholders'Meeting, the EssilorLuxottica Board of Directors so convened will decide on the rules to apply in order to appoint the replacement as swiftly as possible in accordance with the provisions set forth in the Combination Agreement, in order to comply with the balanced governance framework specified in the Combination Agreement.
The composition of the EssilorLuxottica Board of Directors and Committees shall comply with applicable laws and regulations and the AFEP-MEDEF Code (subject to limited exceptions). As at the date of this document, the deviations from the AFEP-MEDEF Code are described in Section 2.4
2.1.1.1
Composition at December 31, 2020
Article 11 of EssilorLuxottica's bylaws stipulates that "the Company shall be governed by a Board of Directors, the minimum and maximum number of members of which is defined by the legal provisions in force, currently a minimum of three (3) members and no more than eighteen (18) members", it being specified that the Directors representing employees shall not be taken into account when determining the minimum and maximum number of members stipulated in paragraph 1 of this article.
As at December 31, 2020, EssilorLuxottica's Board of Directors had 16 members, including one member representing Valoptec(1) and two members representing employees. (2)
As required by law, the complete list of the positions of Directors in office is provided in Section 2.5.
The principles relating to the composition of the EssilorLuxottica Board of Directors reflect the governance principles set forth in the aforementioned Combination Agreement. This governance structure of EssilorLuxottica, implemented as from October 1, 2018, i.e. the Contribution Completion Date, will apply during the Initial Term, which is until the 2021 Shareholders'Meeting convened to approve the financial statements for the fiscal year ending December 31, 2020.
At the end of the Initial Term, (i) EssilorLuxottica Board of Directors' members will have a three-year term of office; and (ii) any new member of the EssilorLuxottica Board of Directors will be nominated for election at EssilorLuxottica's Shareholders'Meeting by the EssilorLuxottica Board of Directors based on the recommendation of the EssilorLuxottica Nominations and Compensation Committee or any EssilorLuxottica shareholder in accordance with applicable law, without any regard to the provenance of the nominees from Luxottica or Essilor.
(1) Valoptec is not an employees' representative body within the meaning of article L. 225-23 of the French Commercial Code.
(2) Effective composition since the Closing Date of the Contribution, i.e. October 1, 2018.
COMPOSITION OF THE BOARD OF DIRECTORS AT DECEMBER 31, 2020
16 Directors | 6 2 1 7 7 Independent Directors Directors representing employee Director representing employee shareholders Female Directors Nationalities |
Leonardo Del Vecchio
Hubert Sagnières
Chairman of EssilorLuxottica (Executive Chairman until December 17, 2020)
Non-Independent
Director
Vice-Chairman of EssilorLuxottica (Executive Vice-Chairman until December 17, 2020) Non-Independent Director
Romolo Bardin
Non-Independent
DirectorDirector representative of Valoptec(2), association of shareholders employees and former employees Non-Independent
Director
(1) Qualified as Independant Director by the parties to the Combination Agreement notwithstanding the criteria defined by the AFEP MEDEF Code, see Section 2.4.
(2) Valoptec is not an employees' representative body within the meaning of article L. 225-23 of the French Commercial Code.
2.1.1.2
Changes in the composition of the Company's Board of Directors from January 1, 2020
In line with the governance principles set forth in the Combination Agreement referred to in Section 2.1.1 above, the composition of the EssilorLuxottica Board of Directors is as follows:
1. Leonardo Del Vecchio, EssilorLuxottica Chairman (1);
2. Hubert Sagnières, EssilorLuxottica Vice-Chairman (2);
3. Francesco Milleri, qualified as non-independent Director, Chief Executive Officer (3);
4. Paul du Saillant, qualified as non-independent Director (4), Deputy Chief Executive Officer (5);
5. Romolo Bardin, qualified as non-independent Director;
6. Juliette Favre, representative of Valoptec(6), association of shareholders employees and former employees, qualified as non-independent Director;
7. Giovanni Giallombardo, qualified as non-independent Director;
8. Annette Messemer, qualified as independent Director;
9. Gianni Mion, qualified as independent Director;
10. Lucia Morselli, qualified as independent Director;
11. Olivier Pécoux, qualified as independent Director by the parties to the Combination Agreement, notwithstanding the criteria defined by the AFEP-MEDEF Code (see table regarding the deviations from the AFEP-MEDEF Code in Section 2.4);
12. Léonel Pereira Ascencao, employee representative (7), qualified as non-independent Director;
13. Sabrina Pucci, qualified as independent Director;
14. Cristina Scocchia, qualified as independent Director;
15. Jeanette Wong, qualified as independent Director;
16. Delphine Zablocki, employee representative (8), qualified as non-independent Director;
17. Laurent Vacherot, qualified as non-independent Director (9).
(1) Executive Chairman until December 17, 2020.
(2) Executive Vice-Chairman until December 17, 2020.
(3) Since December 17, 2020.
(4) Since March 30, 2020.
(5) Since December 17, 2020.
The composition of the EssilorLuxottica Board of Directors is six Directors qualified as independent (46% of the members of the EssilorLuxottica Board of Directors (10)) and seven women (six women not taking into account the Directors representing employees, which is more than 40% of the members of the EssilorLuxottica Board of Directors) in compliance with applicable laws and regulations and the recommendations of the AFEP-MEDEF Code.
For a summary table detailing each EssilorLuxottica Director's compliance or non-compliance with the independence criteria of the AFEP-MEDEF Code, please refer to Section 2.1.1.3.
2.1.1.3
Diversity policy
a) Applied to the members of the EssilorLuxottica
Board of Directors
Under the Combination Agreement, Essilor and Delfin agreed on the composition of the EssilorLuxottica Board of Directors in compliance with prevailing laws and regulations and the recommendations of the AFEP-MEDEF Code. As such, the Board of Directors comprises:
• six independent Directors within the meaning of the AFEP-MEDEF Code;
• seven women; more than 40% of the EssilorLuxottica Board of Directors, as required under Articles L.225-18-1 and L.22-10-3 of the French Commercial Code are women (the female Director representing employees was not taken into account when calculating the aforementioned 40% minimum requirement);
• seven nationalities (French, Italian, Canadian, Luxembourgish, German, Singaporean and Portuguese).
In accordance with Article L.22-10-10 of the French Commercial Code, the two summary tables below detailing the main criteria (gender, age, nationality, qualifications and professional experience) illustrate the Company's efforts to promote diversity.
(6) Valoptec is not an employees' representative body within the meaning of article L. 225-23 of the French Commercial Code.
(7) Appointed prior to the Closing Date of the Contribution for a four-year term.
(8) Appointed prior to the Closing Date of the Contribution for a four-year term.
(9)Until March 30, 2020.
(10)In accordance with the AFEP-MEDEF Code, Directors representing employees and the Director representing Valoptec are not taken into account for the calculation of this percentage. Valoptec is the association of shareholders employees and former employees; it is not an employees' representative body within the meaning of article L. 225-23 of the French Commercial Code. If the Director representing Valoptec were taken into account, 42% of the Directors would be qualified as independent.
COMPOSITION OF THE BOARD OF DIRECTORS AT DECEMBER 31, 2020
Director
GenderAge 85
Nationality
Major positionsTerm of officeStart dateEnd date (a)
Leonardo DEL VECCHIO, Non-independent Director Chairman of EssilorLuxottica (1)
M
Italian
Chairman of EssilorLuxottica Executive
Chairman of Luxottica
10/01/2018 2021
Hubert SAGNIÈRES, Non-independent Director Vice-Chairman of EssilorLuxottica (2)M
65
French and
CanadianVice-Chairman of EssilorLuxottica
10/01/2018 2021
Francesco MILLERI, Non-independent Director, Chief Executive Officer (3)
M
61
Italian
Vice-Chairman and CEO of Luxottica Group S.p.A. (Italy)
10/01/2018 2021
Paul DU SAILLANT, Non-independent Director, Deputy Chief Executive Officer (3)M
62
French
Deputy Chief Executive Officer 30/03/2020(d) 2021 of EssilorLuxottica
Executive Chairman of Essilor
International (SAS)
Romolo BARDIN, Non-independent DirectorM
42
ItalianCEO of Delfin SARL (Luxembourg)
10/01/2018 2021
Juliette FAVRE, Non-Independent Director Representative of Valoptec(4), association of shareholders employees and former employees.
F
48
FrenchStrategic Projects Executive, Global
Operations Support, Essilor
International (SAS)
Representative of Valoptec Association
10/01/2018 2021
Giovanni GIALLOMBARDO, Non-independent DirectorM
65
Italian and LuxembourguishVice-President-Managing Director of the Luxembourg branch of Unicredit Bank AG
10/01/2018 2021
Annette MESSEMER*, Independent DirectorF
56
GermanFormer Divisional Director, Corporate
Clients, Commerzbank AG
10/01/2018 2021
Lucia MORSELLI*, Independent DirectorF
64
Italian
Board member, Telecom Italia
10/01/2018 2021
Gianni MION*, Independent DirectorM
77
ItalianF.I.L.A. Fabbrica Italiana Lapis ed Affina
10/01/2018 2021
S.p.A. (Italy)
Léonel PEREIRA ASCENCAO, Director representing employeesM
48
French and PortugueseWorkshop Manager, Surfacing and Lenses, Essilor International (SAS)
10/01/2018
2021 (b)
Olivier PÉCOUX, Non-independent Director (c)M
61
FrenchChief Executive Officer - Managing Partner at Rothschild & Co and Rothschild et Cie Banque
10/01/2018 2021
Sabrina PUCCI*, Independent DirectorF
53
ItalianProfessor of accounting and financial reporting at Roma Tre University and member of the EFFRAG (European
Financial Reporting Advisory Group) Insurance Accounting Working Group.
10/01/2018 2021
Cristina SCOCCHIA*, Independent DirectorF
47
ItalianChief Executive Officer, Kiko S.p.A. (Italy)
10/01/2018 2021
Jeanette WONG*, Independent DirectorF
60
Singaporean
Director
10/01/2018 2021
Delphine ZABLOCKI,
Director representing employees
F
44
French
Qualified manufacturing agent,
Essilor International (SAS)
10/01/2018
2021 (b)
* Independent Director.
(1) Executive Chairman until December 17, 2020.
(2) Executive Vice-Chairman until December 17, 2020.
(3) Since December 17, 2020.
(4) Valoptec is not an employees' representative body within the meaning of article L. 225-23 of the French Commercial Code.
(a) Date of Shareholders'annual Meeting.
(b) Appointed by the Central Works Council on September 20, 2017, for a four-year term.
(c) Qualified as Independant by the parties to the Combinaison Agreement for the purpose of this agreement which is a deviation to the AFEP-MEDEF Code.
(d) On March 30, 2020, the Board of Directors of EssilorLuxottica co-opted Paul du Saillant as new Director of the Company in place of Laurent Vacherot, former CEO of Essilor International, who retired.
EssilorLuxottica ensures that it complies with the principle of balanced gender representation on its Board of Directors. Seven of the Board of Directors'16 members are women, six excluding Directors representing employees, which is over 40% of its membership.
Gender balance
Expertise and skills
Director
Two of its four special Committees are chaired by women, the Audit and Risk Committee, chaired by Lucia Morselli, and the Corporate Social Responsibility Committee, chaired by Jeanette Wong.
Average age of Directors
As at December 31, 2020, the Board of Directors had 16 Directors with an average age of 58,6 years.
Contribution to the Board of Directors'work
Leonardo DEL VECCHIO, Chairman of EssilorLuxottica (1) Non-Independent Director
A visionary business approach and experience as a lifelong entrepreneur and innovator.
Hubert SAGNIÈRES Vice-Chairman of EssilorLuxottica (2) Non-Independent DirectorExperience as head of a leading global group and ophthalmic industry expertise acquired over the past 30 years.
Francesco MILLERI, Chief Executive Officer (3) Non-Independent DirectorSolid experience in strategic consulting for global corporations and knowledge of digital technology and infrastructure.
Paul DU SAILLANT,
Deputy Chief Executive Officer (3) Non-Independent Director
35 years of international experience in world-class groups with successful long-term strategy, values and global/local presence. He contributes detailed knowledge of the optical business, markets and human strength.
Romolo BARDIN, Non-independent Director
High level of expertise in strategy, management and finance.
Juliette FAVRE, Non-Independent Director representative of Valoptec(4), association of shareholders employees and former employees
In-depth knowledge of Essilor through its manufacturing and sales operations.
Nominated by Valoptec Association. Her membership is a strong indication of the importance EssilorLuxottica attaches to employee share ownership.
Giovanni GIALLOMBARDO, Non-independent DirectorHigh level of expertise in finance gained through his positions in international financial institutions.
Annette MESSEMER*, Independent Director
Extensive experience in strategy, finance, accounting and risk management having worked for over 20 years with leading multinational corporations and financial institutions, including regulators.
Gianni MION*, Independent Director
Business leadership experience and involvement in the development of successful international organizations.
Lucia MORSELLI*, Independent Director
Solid experience in business management and turnaround.
Olivier PÉCOUX, Non-independent Director (a)
Experience in finance and banking, in-depth knowledge of the optics sector and familiarity with Essilor, having worked with the group since 2001.
Léonel PEREIRA ASCENCAO, Director representing employees
Knowledge of the optics industry and Essilor.
Sabrina PUCCI*,
Independent Director
Accounting and financial expertise.
Cristina SCOCCHIA*, Independent DirectorExtensive experience in strategy and management.
Jeanette WONG*, Independent DirectorFinancial expertise and in-depth knowledge of corporate social responsibility, global markets, and especially the Asian markets.
Delphine ZABLOCKI,
Director representing employees
Knowledge of the optics industry and Essilor.
* Independent Director.
(a) Qualified as independent by the Parties to the
Combination Agreement for the purpose of this agreement which is a deviation to the AFEP-MEDEF Code.
(1) Executive Chairman until December 17, 2020.
(2) Executive Vice-Chairman until December 17, 2020.
(3) Since December 17, 2020.
(4)Valoptec is not an employees' representative body within the meaning of article L. 225-23 of the French
Commercial Code
Pursuant to Article 11 of the bylaws, "directors shall serve for a three-year term. On an exceptional basis, the term of office of the Directors representing employees appointed between May 11, 2017 and June 30, 2018 shall be four years. The role of a Director representing employees shall automatically end on the anniversary of the appointment date, without any need to issue specific information. The Company shall take all necessary action to arrange a new appointment no later than one (1) month after the term of office has expired."
Directors'terms of office
Consequently:
• the terms of office of the current Directors appointed by the various Shareholders'Meetings shall expire at the end of the Initial Term, namely the date of the Shareholders'Meeting convened in 2021 to approve the financial statements for the fiscal year ending December 31, 2020;
• pursuant to Article 11 of the bylaws, the term of office of the two Directors representing employees appointed on September 20, 2017 shall be four (4) years so that their terms of office cover the terms of office of the other EssilorLuxottica Directors.
Notwithstanding Recommendation 13.2 of the AFEP-MEDEF Code, the terms of office of EssilorLuxottica Directors shall not be staggered during the Initial Term. This is in order to ensure a smooth transition and seamless integration of the two companies in the context of the Combination (see Section 2.4 Summary table of recommendations of the AFEP-MEDEF Code that have not been applied).
Obligation of Directors appointed by Shareholders'Meeting to hold shares
In accordance with Article 12 of the prevailing bylaws, each Director appointed by a Shareholders'Meeting must own at least 1,000 shares of the Company. Notwithstanding the foregoing, the Director representing employees is not required to hold shares, pursuant to Article L.225-25 of the French Commercial Code.
The records relating to each Director state the number of shares held by each of them (see Section 2.5).
Independence of the members of the Board of Directors
The criteria for determining Board of Directors' members'indepen-dence are set out in the Company's Internal Rules as adopted by the Board of Directors on October 1, 2018 as updated on May 12, 2019 and January 28, 2021. These criteria, which comply with the AFEP-MEDEF Corporate Governance Code, are as follows:
"A Board of Directors' member is independent when they have no relationship of any kind whatsoever with the Company, the Group or the management thereof which may color their judgment. The criteria for a member to qualify as independent are as follows:
1. not to be and not to have been during the course of the previous five years: - an employee or Executive Officer (1) of the Company, - an employee, Executive Officer or Director of a company belonging to the Group (other than a Director of the Company, Essilor International (SAS) or Luxottica Group S.p.A.);
2. not to be an Executive Officer of a company in which the Company holds a directorship, directly or indirectly, or in which an employee or an Executive Officer of the Company (currently in office or having held such office during the last five years) is a Director;
3. not to be a customer, supplier, commercial banker or investment banker (or be linked directly or indirectly to these persons):
- that is material to the Company or its Group,
- or for a significant part of whose business the Company or its Group accounts;
4. not to be related by close family ties to a Company's officer;
5. not to have been an auditor of the Company within the previous five years;
6. not to have been a Director of the Company for more than 12 years. Loss of the status of independent Director occurs on the date at which this period of 12 years is reached.
Given the EssilorLuxottica group's structure, the fact that a Company Director has a seat on the Board of Directors of one of its two operating subsidiaries, Essilor International (SAS) or Luxottica Group S.p.A., does not affect his or her independence.
Board of Directors' members representing shareholders who do not have a controlling interest in the Company are considered independent Directors.
However, if a Board of Directors' member represents a shareholder holding more than 10% of the share capital or voting rights, the Board of Directors determines whether that Board of Directors' member is an "independent Director," based on the written opinion of the Nominations and Compensation Committee. This opinion takes into account:
• the composition of the Company's share capital;
• whether there exists a potential conflict of interest."
Each year, the Board of Directors reviews the situation of each Director with regard to the independence criteria set out in the AFEP-MEDEF Code in force.
As at March 11, 2021, six Directors could be considered independent under the independence criteria of the AFEP-MEDEF Code, namely Annette Messemer, Lucia Morselli, Gianni Mion, Sabrina Pucci, Cristina Scocchia and Jeanette Wong.
On that date, the Board of Directors'independence ratio was 46%, pursuant to the recommendations of the AFEP-MEDEF Code (i.e., not including the Director representing employee shareholders and the two Directors representing employees).
The Board of Directors is of the opinion that none of these Directors who qualified as independent had any material business relationships with the Company and its Group.
Of note, Olivier Pécoux, non-independent directors as per the AFEP-MEDEF Code, was qualified as independent by the parties to the Combination Agreement, Essilor and Delfin, notwithstanding the recommendations of the AFEP-MEDEF Code (see Section 2.4 Summary table of recommendations of the AFEP-MEDEF Code that have not been applied).
However, the following Directors did not qualify as independent according to the AFEP-MEDEF Code:
• Leonardo Del Vecchio, Chairman of EssilorLuxottica (Executive Chairman until December 17, 2020 );
• Hubert Sagnières, Vice-Chairman of EssilorLuxottica (Executive Vice-Chairman until December 17, 2020);
• Directors nominated by Delfin: Romolo Bardin, Giovanni Giallombardo, Francesco Milleri (Chief Executive Officer since December 17, 2020);
• Directors nominated by Essilor: Paul du Saillant (Deputy Chief Executive Officer since December 17, 2020 Olivier Pécoux (qualified as independent by the Parties to the Combination Agreement notwithstanding the AFEP-MEDEF Code criteria), Juliette Favre (Director representative of Valoptec(2), association of shareholders employees and former employees), Delphine Zablocki and Léonel Pereira Ascencao (the two Directors representing employees appointed for a four-year term by the Central Works Council following deliberation on September 20, 2017).
(1) In these Internal Rules, "Executive Officer" refers to any CEO and Deputy CEO of the Company; "Non-Executive Officer" designates any Non-Executive Chairman and Vice-Chairman of the Board of Directors (if any); "company officers" includes both the Executive Officers and Non-Executive Officers.
(2) Valoptec is not an employees' representative body within the meaning of article L. 225-23 of the French Commercial Code.
SUMMARY TABLE DETAILING THE COMPLIANCE OR NON-COMPLIANCE OF EACH DIRECTOR IN OFFICE AT DECEMBER 31, 2020 WITH THE INDEPENDENCE CRITERIA OF THE AFEP-MEDEF CODE
In the table below, √ indicates an independence criterion has been satisfied, X indicates that it has not.
AFEP-MEDEF independence criteria
Is a client, | ||||||||
supplier, | ||||||||
investment | ||||||||
banker or | Has a | Has been a | ||||||
financing | close | statutory | Has been | |||||
banker | family tie | auditor | a Director | |||||
(significant | with a | within | for more | Has been | ||||
Of the | Group | Cross- | business | corporate | the past | than | a major | |
Director | Company | company | directorships | relationships) | officer | five years | 12 years | shareholder |
Leonardo | X | X | √ | √ | √ | √ | √ | X (2) |
DEL VECCHIO | ||||||||
Hubert SAGNIÈRES | X | X | √ | √ | √ | √ | √ | √ |
Francesco MILLERI | X | X | √ | √ | √ | √ | √ | X (2) |
Paul DU SAILLANT | X | X | √ | √ | √ | √ | √ | √ |
Romolo BARDIN | √ | √ | X | √ | √ | √ | √ | X (2) |
Juliette FAVRE | X | X | √ | √ | √ | √ | √ | √ |
Giovanni | √ | √ | √ | √ | √ | √ | √ | X (2) |
GIALLOMBARDO | ||||||||
Annette MESSEMER (1) | √ | √ | √ | √ | √ | √ | √ | √ |
Gianni MION (1) | √ | √ | √ | √ | √ | √ | √ | √ |
Lucia MORSELLI (1) | √ | √ | √ | √ | √ | √ | √ | √ |
Olivier PÉCOUX | √ | √ | √ | √ | √ | √ | X | √ |
Léonel PEREIRA | √ | X | √ | √ | √ | √ | √ | √ |
ASCENCAO | ||||||||
Sabrina PUCCI (1) | √ | √ | √ | √ | √ | √ | √ | √ |
Cristina SCOCCHIA (1) | √ | √ | √ | √ | √ | √ | √ | √ |
Jeanette WONG (1) | √ | √ | √ | √ | √ | √ | √ | √ |
Delphine ZABLOCKI | √ | X | √ | √ | √ | √ | √ | √ |
within the past five years
Employee | Employee, |
or | Executive |
Executive | Director or |
Director | Director |
Of the Company or a
(1) Independent Director within the meaning of the AFEP-MEDEF Code. (Given the EssilorLuxottica group's structure, the fact that a Company Director has, or has had, a seat on the Board of Directors of one of its two operating subsidiaries, Essilor International or Luxottica, does not affect his or her independence).
(2) Director representing Delfin within the meaning of the Combination Agreement.
b) Applied to the members of any given committee set up, as appropriate, by senior management to assist it on a regular basis in the performance of its general duties and in connection with the results in terms of gender balance in the 10% of positions with the most responsibility. If the Company does not apply such a policy, the report must include an explanation of the reasons for this
Out of the 50 top executives of the EssilorLuxottica group 16% are women (8/50). As at the date of this Universal Registration Document, EssilorLuxottica had not set up any Executive Committee or collective body to assist Leonardo Del Vecchio and Hubert Sagnières as Executive Officers until December 17, 2020 or Francesco Milleri and Paul du Saillant starting from December 17, 2020 within the meaning of the regulation.
The organisation of EssilorLuxottica is the following:
• Non-executive corporate officers having the same powers: Chairman: Leonardo Del Vecchio
Vice-Chairman: Hubert Sagnières
• Executive Corporate officers having the same powers: Chief Executive Officer: Francesco Milleri
Deputy Chief Executive Officer: Paul du Saillant
• Integration Committee: Co-chaired by the Chief Executive Officer and the Deputy Chief Executive Officer
• In charge of the integration: Éric Léonard et Pierluigi Longo
c) Applied to the members of the Board of Directors of the operating companies, Essilor International (SAS)
and Luxottica Group S.p.A.
Management of Luxottica and Essilor International (SAS)
The EssilorLuxottica CEO will act as CEO of Luxottica for as long as he is the EssilorLuxottica CEO and may designate any other person to act as CEO of Luxottica, provided that, for as long as the
EssilorLuxottica Chairman remains Executive Chairman of Luxottica, the EssilorLuxottica Chairman is entitled to make such designation. The EssilorLuxottica Deputy CEO will act as CEO of Essilor Inter-national for as long as he is the EssilorLuxottica Deputy CEO and may designate any other person to act as CEO of Essilor International.
COMPOSITION OF THE ESSILOR INTERNATIONAL (SAS) AND LUXOTTICA GROUP S.P.A. BOARDS OF DIRECTORS AS AT DECEMBER 31, 2020
Essilor International (SAS) (unlisted operating company)
Luxottica Group S.p.A.
Paul DU SAILLANT, Chairman and Chief Executive Officer Norbert GORNY, Director and Co-Chief Operating Officer Éric THOREUX, Director and Co-Chief Operating Officer Juliette FAVRE, Director
Leonardo DEL VECCHIO, Executive Chairman of the Board of Directors
Francesco MILLERI, Deputy Chairman and CEO
Leonardo Maria DEL VECCHIO, Non-independent Director Stefano GRASSI, Director
Giorgio STRIANO, Director
Directors serving on the EssilorLuxottica Board of Directors (for more information, Directors serving on the EssilorLuxottica Board of Directors (for more information, please visit the Essilor International website athttps://www.essilor.com/en/the-group/ please visit the Luxottica website at https://www.luxottica.com/en/governance/board-governance/board-of-directors/).
directors/).
Mr. Luigi Francavilla, former Director, has been appointed as Honorary Chairman on May 15, 2020 (not a Board member).
This governance structure means that the Company has the full benefit of the expertise and experience of the Directors of Essilor International (SAS) and Luxottica Group S.p.A., particularly:
• their knowledge and practical experience of both operating companies;
• their expertise in specific business segments of Essilor International (SAS) and Luxottica Group S.p.A.;
• several years'experience in managing international companies, so providing management expertise and/or experience to the Company;
• expertise in finance, logistics, marketing, and e-commerce, among others.
2.1.1.4
Directors'ethical awareness and conflicts of interest management
No potential conflicts of interest
In accordance with the Board of Directors' Internal Rules and with the Directors'Charter (see Section 1.3 of this Universal Registration Document), Directors have an obligation to inform the Board of Directors of any conflict of interest, even potential, as provided for in the rules defined by the Board of Directors' Internal Rules, an extract from which is provided in the box below and pursuant to the criteria of the AFEP MEDEF Code to which the Company refers (throughout the different versions and henceforth in the latest version as of January 2020).
Participation of the Director in a transaction in which the Company, or any other Group company, is directly involved is brought to the attention of the Board of Directors prior to the completion of that transaction.
As part of an annual declaration, the Director informs the Board of Directors of the terms of office and positions he or she holds in other companies and must request the opinion of the Nominations and Compensation Committee prior to accepting any new Directorship.
The Director must, more specifically, make an annual declaration of any conflicts of interest, even potential, he or she has detected. On the basis of these declarations, the Board of Directors has not identified any conflict of interest. The information referred to in Appendix 1 of European Commission Regulation (EU) 2019/980 below contains additional information.
Based on the information above, to the best of the Company's knowledge:
• there are no potential conflicts of interest between the duties, with regard to the issuer, and the private interests and/or other duties with regard to third parties, of any of the members of the Company's Board of Directors, except as disclosed below. To this end, the Directors'Charter stipulates that Directors have an obligation to inform the Board of Directors of any conflict of interest, even potential, and must refrain from participating in the deliberations related thereto;
• none of the Executive or non-Executive Directors has a service contract with EssilorLuxottica or any of its subsidiaries providing for the award of benefits at the end of such contract;
• none of the Executive or non-Executive Directors has been convicted of a fraudulent offense in the past five years;
• none of the Executive or non-Executive Directors has been associated with bankruptcy, receivership or liquidation as a member of an administrative, management or supervisory body or as Chief Executive Officer within the past five years, with the exception of Gianni Mion, who has been Independent Chairman of the Italian bank Banca Popolare di Vicenza since July 13, 2016, when it was the subject of a special liquidation procedure under Italian law pronounced by a statutory order of June 25, 2017;
• none of the Executive or non-Executive Directors has been publicly charged and/or sanctioned by statutory or regulatory bodies (including designated professional bodies);
• there are no family ties between the members of the Board of Directors.
Extract from Board of Directors' Internal Rules on the management of conflicts of interest (as modified on January 28, 2021 to take into account the change in governance)
"1.3 Conflicts of Interest
Any Director (whether he/ she is an individual Director or a permanent representative of a legal entity holding directorship) of the Company shall consider himself or herself as being bound by the provisions of Article 19 of the AFEP/ MEDEF Code, the Director's Charter included as Annex 1 to these Board Rules of Procedure and the rules set forth in the following paragraphs.
1.3.1 Situations giving rise to Conflict of Interest
Any Director who is directly or indirectly exposed to an actual or potential conflict between his/ her interests (or those of the legal entity holding directorship he/ she represents) and those of the Company (or any company of the Group) because of the positions that he/ she holds, and/ or any interests that he/ she has elsewhere (a "Conflict of Interest"), shall inform the Chairman and the Vice-Chairman, as well as the Chairperson of the relevant Committees as the case may be. When a Director takes office and by January 31 of each year, he/ she shall prepare (and update when needed) and submit to the Chairman, the Vice-Chairman and the Nomination and Compensation Committee, a statement indicating any actual or potential Conflict of Interest he/ she may have with any Group's companies.
A Director may be requested by the Chairman and/ or the Vice-Chairman, at any time, to confirm in writing that he or she is not in a Conflict of Interest situation. Pursuant to Section 4.4 below, Directors and any other persons who attend Board meetings shall be required to treat all information provided during these meetings as strictly confidential.
1.3.2 Guidelines for dealing with Conflicts of Interest
Procedure to prevent situations of Conflict of Interest
In the event of a Conflict of Interests, the concerned Director shall (i) prior to the concerned meeting, inform in due time the Chairman and the Vice-Chairman, with a copy to secretariat of the Board, and (ii) shall not attend the Board (or Committee) meeting during the discussions and debates on the concerned items of the agenda and shall not vote on the concerned deliberations.
It is specified that if the concerned Director is the Chairperson of a Committee and the concerned meeting is one of such Committee, then such Director shall notify his/ her Conflict of Interest situation to the other Committee's members and shall not attend the meeting during the discussions and debates on the concerned items of the agenda and shall not vote on the concerned deliberations.
Organization of the meeting
At the beginning of any Board (or Committee) meeting, the Chairman or the Vice-Chairman (or the Chairperson of the relevant Committee, in case of Committee's meeting) will disclose all the Conflicts of Interest notifications he or she has received prior to such meeting.
If necessary due to the agenda of a given Board (or Committee) meeting, the Chairman or the Vice-Chairman (or the Chairperson of the relevant Committee) may decide to organize the meeting in two parts, with the first part attended by the concerned Director(s) and dealing with the agenda items not giving rise to any Conflict of Interest, and the second held without the concerned Director(s) being present.
If the concerned Director is the Chairperson of the Board or of the relevant Committee, the other members shall appoint a temporary Chairperson for the time of his/ her absence (it being understood that if the concerned Director is the Chairman, the chair of the Board shall be conferred to the Vice-Chairman solely and vice-versa).
Decisions by the Board of Directors concerning a Conflict of Interest shall be recorded in the minutes of the relevant Board meeting.
Issues
Any issues concerning the implementation of this Section "Conflicts of interest" shall be submitted to the Chairman and the Vice-Chairman, and for Committee meeting, the Chairperson of the relevant Committee. If an issue relating to any concerned Director cannot be resolved following discussions between them, then, the Board (or the Committee) shall make a decision.
1.3.3 Sensitive information as defined in competition law
In the event of a Conflict of Interest relating to a position or interest in an entity whose interests compete with those of the Group, no sensitive information, as defined in competition law, may be disclosed or discussed in the presence of the concerned Director.
The definition of sensitive information in competition law covers all information not in the public domain that could enable the concerned Director to understand or influence the Company's commercial and other strategies in markets served by the entity whose interests compete with those of the Company and with which the concerned Director has ties, including, without limitations, recent, current or future pricing strategies and prices (including discounts or rebates), detailed information concerning technology and R&D projects, recent current or future profit margins on, or profitability targets for, specific products or services, and current or future strategic plans, business development projects, particularly planned potential mergers and acquisitions, market shares, market analyses, covering inter alia forecast changes in offer and/ or demand and prices.
The risk of an exchange of sensitive information as defined in competition law is equivalent in all respects to a conflict of interest within the meaning of this Section "Conflicts of interest".
Agreements between one of the Executive Corporate Officers or shareholders with more than 10% of voting rights with a subsidiary of EssilorLuxottica group (with the exception of agreements concerning day-to-day operations entered into under normal conditions)
Agreement between M. Hubert Sagnières (Executive Vice-Chairman until December 17, 2020) and Essilor International (SAS)
Note that the hive down of Essilor's businesses led to the automatic transfer of Hubert Sagnières'suspended employment contract to the subsidiary Essilor International (SAS) effective November 1, 2017. The mechanism set up for the termination of his employment contract prior to the date of the combination with Luxottica was maintained. An addendum was signed in 2018 to bring the basis for calculating the package into line with the compensation policy applicable to Executive Corporate Officers. That policy was approved by the Company's Shareholders'Meeting on November 29, 2018 and tailored to fit the context of the new EssilorLuxottica group. The addendum was authorized by the Essilor International (SAS) Board of Directors in 2018. The employment contract, currently suspended and as amended by the addendum dated July 26, 2018, provides that the package is capped at two years'monetary compensation (corresponding to the average fixed and variable annual compensation paid in the last three years preceding departure) (see Section 2.3). In accordance with the procedure regarding related-party agreements and commitments, this benefit obligation was authorized by the Board of Directors on March 4, 2009, reiterated on March 3, 2010 and ratified at the Shareholders'Meeting of May 5, 2011 (4th resolution) and was submitted to the vote at the Shareholders'Meeting of May 16, 2019 (10th resolution) due to his appointment as the Company's Executive Vice-Chairman by the Board of Directors on October 1, 2018.
This contract was terminated due to his retirement on December 17, 2020.
Agreements between a subsidiary of EssilorLuxottica group and a company in which an Executive Corporate Officer has a direct or indirect interest (with the exception of agreements concerning day-to-day operations entered into under normal conditions)
Agreement between the entities controlled by M. Francesco Milleri and Luxottica
On January 30, 2019, Luxottica Group S.p.A.'s Board of Directors authorized the entering into a two-year master service agreement with MEA S.r.l., now Abstract S.r.l. ("MEA" or "Abstract") for IT services for an aggregate cost estimated to be €46 million (the "Agreement"). Francesco Milleri ceased to be a quotaholder of Abstract as of August 6, 2020.
Agreement between Luxottica and Brooks Brothers, in which Delfin S.a.r.l. holds a minority interest
Messrs. Del Vecchio and Bardin are respectively controlling shareholder and CEO of Delfin S.a.r.l.
Brooks Brothers, a renowned clothing retailer in the U.S., had for years an agreement with Luxottica to produce and distribute sunglasses and optical frames.
On November 28, 2019, the Board of Directors of EssilorLuxottica approved the renewal of this 10-year agreement with Luxottica, pursuant to Section 4.2(o) of the Company's Internal Rules, whereby the acquisition or the granting by any entity of the EssilorLuxottica group of any license with respect to the right to use a trademark or patent for a value exceeding €3 million requires the approval of the Board of Directors.
The new agreement also had a term of 10 years, starting from January 1, 2020.
In 2020 pursuant to the new agreement, Luxottica paid royalties equal to a percentage of net sales, with a minimum royalty per year, an advertising contribution and a trade marketing investment equal to a percentage of net sales.
In July 2020, Brooks Brothers Group, Inc. ("BBGI") filed for Chapter 11 restructuring proceedings in the U.S. Bankruptcy Court for the District of Delaware. As a result of these proceedings, effective as of August 31, 2020, a party that is not related to EssilorLuxottica purchased the intellectual property assets related to the Brooks Brothers brand, including the above-mentioned license agreement between Luxottica and BBGI.
As a result, Luxottica no longer has any agreement in place with Brooks Brothers as the license agreement is now between Luxottica and the unrelated purchaser of the intellectual property assets.
Procedure set up to regularly evaluate if the agreements relating to ordinary transactions concluded under normal terms still fulfil those conditions
Pursuant to article L.22-10-12 of the Commercial Code, the Charter regarding related-party agreements includes a procedure set up to regularly evaluate if the agreements relating to ordinary transactions concluded under normal terms still fulfil those conditions. The person directly or indirectly involved in the agreement does not take part to the evaluation.
Insider dealing
On October 1, 2018, the Board of Directors approved the EssilorLuxottica Directors'Charter, which includes the stipulation that any holder of inside information shall refrain from engaging in any transaction involving the Company's securities or from causing or allowing others to engage in such transactions based on such information for as long as such information has not yet been made public (Articles 8, 10 and 14 of European Regulation No. 596/2014 of April 16, 2014 on market abuse - the Market Abuse Regulation [MAR]). The Charter states that Directors must, in addition to the period preceding the publication of any inside information of which they are aware, refrain from engaging in any transaction in the Company's securities during the blackout periods set in accordance with Article 19.11 of the MAR and the AMF guide to ongoing disclosure and management of inside information of October 26, 2016.
Lastly, Directors must inform the AMF, on an annual basis, of any transactions involving EssilorLuxottica securities performed by themselves or by individuals with whom they are closely associated. These individual reporting obligations regarding securities transactions are covered in the Directors'Charter, the full version of which is available on the Company's website.
The summary statement of transactions involving EssilorLuxottica securities carried out in 2020 by the corporate officers is included in Section 2.3.6.
2.1.2
Preparation and organization of the work of the Board of Directors
The operating procedures of the Board of Directors and special Committees are governed by Board of Directors' Internal Rules adopted by the Board of Directors at its meeting of October 1, 2018, and as updated on May 12, 2019 and on January 28, 2021 and by a Directors'Charter. These documents are periodically reviewed by the Board of Directors. The documents reflect the main principles regarding the decision-making process in the EssilorLuxottica group. The key points of both documents are reproduced or summarized below. The full version of these documents, along with the bylaws, is available on the Company's website.
2.1.2.1
Board of Directors' Internal Rules and the Directors'Charter
The Board of Directors'Internal Rules and the Directors'Charter, both of which were approved by the Board of Directors of May 12, 2019, the Board of Directors Internal Rules being amended on January 28, 2021, reflect the basic principles regarding the decision-making process in the EssilorLuxottica group. These principles are outlined below.
Powers of the EssilorLuxottica Chief Executive Officer and Deputy Chief Executive Officer
Both the EssilorLuxottica Chief Executive Officer and Deputy Chief Executive Officer are vested with full and equal powers to act in all circumstances in the name of EssilorLuxottica. They shall exercise those powers within the limits of the corporate purpose and subject to the powers expressly granted to the EssilorLuxottica Shareholders'Meeting and to the EssilorLuxottica Board of Directors by law as well as to the limitations set forth by the bylaws of EssilorLuxottica and by the Board of Directors' Internal Rules. Decisions relating to the management of EssilorLuxottica shall be made jointly by, or with the approval of, the EssilorLuxottica Chief Executive Officer and Deputy Chief Executive Officer, failing which, by the EssilorLuxottica Board of Directors, except for certain decisions or specific matters: (a) which are listed in Annex 2 of the Directors'Charter - except as otherwise jointly decided by the EssilorLuxottica Chief Executive Officer and Deputy Chief Executive Officer - can be made either by the EssilorLuxottica Chief Executive Officer and Deputy Chief Executive Officer acting individually, or by the person to whom such power or authority is delegated; (b) for which the EssilorLuxottica Chief Executive Officer and Deputy Chief Executive Officer subsequently (i) agree in writing that they can act individually or (ii) jointly delegate powers or authority to a manager of EssilorLuxottica or to another person; or (c) which fall within the scope of the powers, or require the approval, of the EssilorLuxottica Board of Directors pursuant to the Board of Directors' Internal Rules.
Powers of the Board of Directors of EssilorLuxottica The Board of Directors of EssilorLuxottica directs EssilorLuxottica's business and oversees its implementation. Subject to the powers expressly granted to the Shareholders'Meeting, the limitations set forth by the bylaws of EssilorLuxottica and within the limits of the corporate purpose, the Board of Directors deals with all matters concerning the proper running of EssilorLuxottica and the EssilorLuxottica group, in accordance with the Board of Directors' Internal Rules.
A set of material decisions relating to EssilorLuxottica and/or the EssilorLuxottica group are subject to prior approval by the EssilorLuxottica Board of Directors (see Section 2.1.2.2).
The Board of Directors' Internal Rules are supplemented by a Directors'Charter which stipulates a certain number of rights andobligations, including the commitment to regularly attend meetings of the Board of Directors and Shareholders'Meetings, to inform the Board of Directors of any potential or actual conflict of interest, and to refrain from participating in the corresponding proceedings, including the work of special Committees. Board of Directors' members must also keep the Board of Directors informed of directorships held in other French and foreign companies and, in the case of Executive Board Directors, seek the approval of the Board of Directors before accepting a new corporate office in a company (other than a consolidated company by the Company). Directors must consider themselves subject to an obligation of professional secrecy as regards information which is not public and which they have come to know in the course of their duties; this goes further than the obligation of discretion provided for in article L.225-37 paragraph 4 of the French Commercial Code.
2.1.2.2
Roles and responsibilities of the Board of Directors
The EssilorLuxottica group's internal governance rules stipulate that the Board of Directors must grant its prior approval, under the conditions of quorum and majority set forth in Section 4.5.2 below, for any issue, event, act or decision concerning the Company and any entity of its Group, related to:
a) review and approval of the statutory financial statements and consolidated financial statements of the Company as well as the statutory financial statements and consolidated financial statements of Luxottica Group S.p.A. or Essilor International (SAS), as the case may be;
b) approval and modification of the Group's annual budget (including the annual investments budget) upon the presentation of the forecast of the financing needs of the Group for the year made by the CFOs;
c) approval and modification of the Group's three-year strategic plan;
d) any transaction outside the scope of the Group's stated strategy or above €150 million individually, upon recommendation of the Strategy Committee;
e) distribution of dividends, interim dividends, premium, reserves and/or any other distributions by the Company, Luxottica Group S.p.A. or Essilor International (SAS), which will be set consistently with the Company's financial prospects and business strategies, it being specified that unless the Board of Directors decides otherwise the pay-out ratio on consolidated net income adjusted by the relevant purchase price allocation (PPA) items and, if any, other items to be decided by the Board of Directors shall not exceed 50%;
f) any amendment, or any decision that will entail such amendment, to the articles of association of the Company, Luxottica Group S.p.A. or Essilor International (SAS) (including for the avoidance of doubt any increase in the share capital (except if it results from the exercise of securities or rights giving access to the share capital or issuance of other securities or rights giving immediate or future access to the share capital or voting rights));
g) any decision relating to the admission to trading on any regulated stock exchange of securities in any Group company;
h) any change in accounting methods or principles, or of the tax practices applied within the Group (save for mandatory changes resulting from regulatory changes);
i) appointment and renewal of the statutory auditors of any Group's company, based on the recommendation of the Audit and Risk Committee;
j) on the recommendation of the Strategy Committee, decisions on material capital expenditures, acquisitions, purchases, leases or divestments with a value exceeding €150 million pursuant to the relevant provisions in Sections 2.3.1 and 2.3.2 of the Board of Directors' Internal Rules, as applicable;
k) any transaction resulting in the expansion of the geographical footprint of the Group to a new country where the Group has no operations, including through any distribution network, whether wholesale or retail, directly or indirectly (through any acquisition, lease, commercial relationships or any agreement of any nature whatsoever) for which the value is above of €10 million or for which such expansion could present a significant risk in terms of compliance with applicable regulations (e.g., sanctions, fraud, anti-corruption or money laundering regulations) or in terms of security, on the recommendation of the Strategy Committee;
l) without prejudice to the financing policy as set forth in Section 2.3.2 of the Board of Directors' Internal Rules or unless decided otherwise by the Board of Directors, (x) any decision (and any delegations of powers or authority thereto) pertaining to the entering into of any bank loan or financing facility for a par value or a notional amount exceeding €1 billion, (y) any other decision (and any delegations of powers or authority thereto) pertaining to the financing of the Company (including, for example, the issuance of bonds, notes, debt instruments and/or hedging instruments) for a par value or a notional amount exceeding €300 million individually and €1 billion in the aggregate on a calendar year within the annual authorization for any banking financing and (z) any decision (and any delegations of powers or authority thereto) for any capital market transaction (either in equity or debt) whatever the amount of such transaction;
m) any liquidation, merger, spin-off, contribution or other similar corporate restructuring (save for intra-Group transactions that trigger no change in the direct or indirect holding by the Company in the share capital of the concerned company or companies) involving any Group company;
n) authorization, determination of the terms and conditions and modification of any mandatory or voluntary profit-sharing plan, stock option plan, free share plan or other similar collective incentive schemes in favor of the management and/or employees of the Group (on the recommendation of the Nominations and Compensation Committee when it concerns corporate officers);
o) except for intra-Group transactions, the purchase, transfer or disposal of trademarks or patents and/or the acquisition or the granting of any license with respect to the right to use a trademark or patent or any other transaction entailing, directly or indirectly or as an ancillary consequence thereof (including, for example, the acquisition of a business), the purchase, transfer, disposal or granting of any such trademarks, patents or licenses, for a value exceeding €3 million and, in the case of franchise, any franchise agreement with fees in excess of €10 million.
2.1.2.3
Self-assessment of the Board of Directors' operating procedures
A self-assessment of the Board of Directors was launched in 2019, based on a quantitative and qualitative approach.
Two independent directors conducted the self-assessment exercise based on questionnaires and interviews of all the Directors. The issues covered included 1) composition of the Board of Directors and Committees, 2) Board of Directors process, 3) Board of Directors information and accountability, 4) Board of Directors and strategy, 5) Communication with shareholders and the markets and 6) the standards of conduct.
The initial results of this exercise were presented to the Board of Directors on November 28, 2019 and a follow-up was presented to the Board of Directors on March 5, 2020. A follow-up self-assessment of the Board of Directors was done in 2020 and the results were presented to the Board of Directors on March 11, 2021. In the context of the Combination with Luxottica, effective as from October 1, 2018, and given the complete overhaul of the governance structure and composition of the Board of Directors, it was not considered opportune for the Company's Board of Directors to conduct a self-assessment of its operating procedures in 2018. However, a formal assessment of the operation of the Board of Directors was performed on an annual basis from 2004 to 2017.
2.1.2.4
Information and training for the Board of Directors
Information
Any documentation required to ensure that the Directors are informed about the agenda and any items to be discussed by the Board of Directors will either be enclosed with the notice of meeting or sent or delivered at the latest five days before the meeting.
Any such documentation shall be drafted in English, and a French and Italian courtesy translations can also be provided at the request of any Director. In case of discrepancy between the English version and one of its translations, the English version shall prevail, except for those documents whose official language is French pursuant to applicable law.
To be prepared for decisions to be made, Directors must check that the information they deem necessary for the proper flow of the Board of Directors' or special Committee's work has been made available to them. If any information has not been made available or has not properly been made available in a Director's opinion, that Director must request it. Such requests should be addressed to the Chairman and the Vice-Chairman who must satisfy themselves that the Directors are in a position to fulfil their duties.
In addition, Directors will receive between meetings any useful or critical information on significant events or operations relating to the Company or the Group, in particular press communications released, or financial reports made by the Company.
Any Director may avail himself or herself of supplementary training on the specific concerns of the Company, its industry or business sectors, if he or she deems it necessary. From the time of their appointment, members of the Audit and Risk Committee receive information on the Company's accounting, financial and operational affairs. The Chair of the EssilorLuxottica Audit and Risk Committee and the Chair of the Essilor International (SAS) Audit and Risk Committee attended information sessions arranged by legal teams as well as exchange forums on best governance practices. In November 2020, most of the Directors attended a technical training session organized by the External Auditors Mazars and PricewaterhouseCoopers on the following generic topics: General update on IFRS technical matters, Update on compliance matters, Cyber risk.
Training
Directors representing employees or Director(s) representing employee shareholders should be provided with suitable training enabling them to perform their duties, in accordance with regulations. In 2020, the two Directors representing employees attended an external course on communication techniques ("Techniques de Communication"). The two Directors representing the employees and the Director representing the employee shareholders also attended an external course on dialectic techniques ("Techniques de dialectique").
2.1.2.5
Meetings of the Board of Directors in 2020
The Board of Directors is convened by its Chairman and/or Vice-Chairman, in accordance with the terms and conditions set forth in Sections 4.1 and 4.3 of the Board of Directors' Internal Rules. The author of the convening notice sets the agenda of the meeting. The Chairman or the Vice-Chairman, as applicable, have the opportunity to review the convening notice and add new items on the agenda before the convening notice is sent to the Directors.
The Board of Directors shall meet as often as necessary in the interests of the Company, but at least five times per year.
The Board of Directors' Meeting dates and places for the following year shall be set at the latest by March 1 of each year, with the exception of extraordinary meetings.
The meetings of the Board of Directors are chaired by the Chairman, together with the Vice-Chairman, or, in the absence of the Chairman, by the Vice-Chairman solely, or in the absence of the Vice-Chairman, the Chairman solely. At any meeting of the Board ofDirectors, both the Chairman and the Vice-Chairman are free to make any statements, raise questions or address matters to be discussed by the Board of Directors.
Directors may choose to be represented by another Director at meetings of the Board of Directors. Each Director may represent no more than one other Director at any Board of Directors' Meeting. The quorum for any decision taken by the Board of Directors shall be at least half of the Directors present (in person or, as the case may be, by videoconference or telecommunication means). Decisions shall be taken by a simple majority of the members present or represented, provided, however, that whenever not all of the Directors in office are present at the meeting such majority shall include at least one of the Directors designated by Delfin and one of the Directors designated by the former Essilor pursuant to the Combination Agreement (or of their successors thereof).
In 2020, the Board of Directors of EssilorLuxottica met 11 times.
Attendance of the members of the Board of Directors
As allowed by the Company's bylaws, the Board of Directors' Internal Rules state that Directors may participate in exceptional circumstances by using videoconferencing or other forms of telecommunications, with the exception of those cases explicitly stipulated, such as the approval of the financial statements and preparation of the Management Report. The Board of Directors' Internal Rules state that Directors who participate in this way are considered to be present when calculating the quorum and voting majority for the meeting.
Pursuant to the Board of Directors' Internal Rules, Directors using videoconferencing or telecommunication during one of their meetings do not receive Directors'fees, unless decided otherwise by a joint decision of the Chairman and the Vice-Chairman.
In the context of the COVID-19 pandemic and in accordance with government's measures, the Shareholders'Meeting of EssilorLuxottica of June 25, 2020 was held behind closed doors and was presided by Mrs. Juliette Favre.
The table below shows the number of Board of Directors and Committee meetings held during fiscal year 2020, as well as their members as at December 31, 2020 and the individual attendance at each of those meetings. The average attendance of the Directors at Board of Directors' Meetings was close to 94% for all meetings of the Board of Directors and the Committees.
Audit and Risk
CommitteeBoard of DirectorsNominations and
Compensation
MeetingStrategy
Committee
Committee CSR Committee
NUMBER OF MEETINGS IN 2020
11
19
8
1 3
PARTICIPATION (in %)
Leonardo DEL VECCHIO 100%
Hubert SAGNIÈRES 91% 100% 100%
Francesco MILLERI 100% 100%
Paul DU SAILLANT (a) 100% 100%
Romolo BARDIN 100% 100% 100%
Giovanni GIALLOMBARDO 100% 100%
Juliette FAVRE 100% 100%
Annette MESSEMER 91% 95% 100%
Lucia MORSELLI 100% 100%
Gianni MION 91% 100% 100%
Olivier PÉCOUX 100% 89% 100%
Léonel PEREIRA ASCENCAO 91%
Sabrina PUCCI 100%
Cristina SCOCCHIA 100% 100% 100%
Jeanette WONG 91% 100%
Delphine ZABLOCKI 100%
(a) Director whose term of office started on March 30, 2020.
Major accomplishments of the Board of Directors in 2020
For the period from January 1, 2020 through December 31, 2020, the EssilorLuxottica Board of Directors was informed about, reviewed, or discussed matters that included the following:
• Corporate Governance:
- co-optation of Mr. Paul du Saillant as Director on March 30, 2020, following the resignation of Mr. Laurent Vacherot,
- self-assessment of the Board of Directors on its functioning,
- appointment of key executives of EssilorLuxottica, including a Co-CFO following the resignation of Ms. Hilary Halper,
- acknowledgment of the retirement of Mr. Hubert Sagnières and his consequential resignation as Deputy Chief Executive Officer of the Company and from other executive positions within the Group and from membership in the CSR and Strategy Committees,
- acknowledgment of the subsequent voluntary resignation of Mr. Leonardo Del Vecchio as Chief Executive Officer of the Company,
- separation of the functions of Chairman and Chief Executive Officer and of the functions of Vice-Chairman and Deputy Chief Executive Officer (the "Dissociations"),
- modification of the Combination Agreement following the Dissociations,
- appointment of Mr. Francesco Milleri as Chief Executive Officer,
- appointment of Mr. Paul du Saillant as Deputy Chief Executive Officer;
• 2020 Budget: the 2020 budget was reviewed during the Board of Directors' Meeting at the beginning of the fiscal year;
• Financial statements: the Board of Directors reviewed and/or approved the annual and consolidated financial statements for fiscal year 2019, the interim financial statements, and the provisional financial statements after hearing the reports and summaries relating to the work of the Audit and Risk Committee and the Statutory Auditors. The financial position and cash flow situation of the Company were also reviewed by the Board of Directors;
• Shareholders'Meeting of June 25, 2020: the Board of directors organised a shareholder's meeting behind closed doors in accordance with the temporary legislation related to the organisation of shareholder's meetings in the context of the COVID-19 crisis.
• Interim dividend: On December 17, the Board of Directors approved the distribution of an interim dividend in the amount of €1.15 per ordinary share constituting the Company's capital and carrying dividend rights;
• Business performance: at each meeting that is scheduled as part of the annual calendar (excluding exceptional meetings called to deliberate on the governance of the Company or a strategic transaction), the Executive Corporate Officers presented the general position of the Company during the preceding period, changes in key financial indicators, key events in the commercial and technical fields, the competitive environment, etc.;
• Major commercial agreements: renewal and/or signing of license agreements, co-branding, sponsorship and franchise agreements;
• Acquisition of GrandVision: monitoring of the judicial proceedings and of the antitrust process;
• COVID-19: during several meetings the Board of directors monitored the consequences of the COVID-19 pandemic for the employees and the business of the Group and took several actions to help them. The Board resolved to set up a fund aimed at mitigating the impact of COVID-19 on the Company employees and their families. This fund had an initial allocation of €100 million, subsequently increased to approximately €160 million, and is directed by the Co-Heads of Human Resources, acting jointly, to establish rules, terms and conditions for the formation, functioning and operations of such fund. Different measures put in place to fight the COVID-19 pandemic were reported to and discussed by the Board of Directors, including the development of specific materials and physical tests to sanitize the materials for the frames, the creation of a cleaning solution and the production of face masks;
• Financial authorizations:
- in order to ensure the operational financing of the Company and of its Group and, in particular, the financing of its acquisitions, decision to renew for a period of one year (from May 26, 2020 to May 25, 2021) its authorization to issue notes and/or bonds under the EMTN programme and/or outside the EMTN programme:
a) up to a nominal amount equal to four (4) billion euro or its equivalent in any other currencies for the purpose of (i) the financing of the potential acquisition of GrandVision, (ii) the full or partial refinancing of any of GrandVision group's company's debt(s) in the context of the transaction, and (iii) the financing of any related fees, costs and expenses,
b) up to a nominal amount equal to four (4) billion euro or its equivalent in any other currencies for general corporate purposes, including but not limited to the potential refinancing of any of the group's companies'existing and/or maturing indebtedness,
- renewal for a period of one (1) year, from May 26, 2020 to May 25, 2021 included, its authorization to renew and update the EMTN programme insofar as necessary from time to time,
- delegation of powers, with the power of subdelegation, to Mr. Leonardo Del Vecchio, in his capacity as Executive Chairman, and to Mr. Hubert Sagnières, in his capacity as Executive Vice-Chairman, acting jointly, for a period of one (1) year (from May 26, 2020 to May 25, 2021) to:
1. renew, update and implement the EMTN programme,
2. make one or more issuances, under the EMTN programme and/or outside the EMTN programme, subject to the limits defined in this authorization,
3. set the terms and conditions of the Issuances.
Following the decision of the Board of Directors dated December 17, 2020, these powers are now delegated to Mrs Milleri and du Saillant in their capacity as Chief Executive Officer and Deputy Chief Executive Officer, respectively;
• Employee shareholding:
- awarding a total of 2,138,851 performance shares, of which 20,000 performance shares to the Company's Executive Chairman and 20,000 performance shares to the Executive Vice-Chairman (see below),
- adoption of the 2020 performance share award plan,
- awarding of a total number of 113,536 performance-based options to purchase existing shares, subject to the terms and conditions of the stock option plan regulations,
- adoption of the stock option plan;
• Compensation of Corporate Officers:
- the Board of Directors reviewed the performance of the Executive Corporate Officers with regard to fiscal year 2019 and determined the variable portion of the compensation due to them for fiscal year 2019, the payment of which was submitted to the Shareholders'Meeting of June 25, 2020 for approval,
- upon recommendation of the Nominations and Compensation Committee, the Board of Directors adopted the following changes in the compensation policy for executive corporate officers in order to take into account the expectations expressed by investors and proxy advisors:
• regarding the variable compensation, introduction of a clawback clause and of a performance clause linked to the group's CSR objectives,
• regarding the long-term incentive compensation (performance shares), elimination of retesting on the performance condition linked to the annualized growth of the share price,
• obligation to hold 400% of the fixed compensation in the form of shares,
• removal of the possibility to pay an exceptional bonus to an executive corporate officer,
- the Board of Directors granted 20,000 performance shares to each of the Executive Chairman and the Executive Vice-Chairman, subject to the ceilings defined in the compensation policy; These performance shares will be awarded at the end of a vesting period starting on October 1, 2020 and expiring on the third anniversary date,
- on December 17, 2020, the Board of Directors decided that Messrs. Leonardo Del Vecchio, Hubert Sagnières, Francesco Milleri and Paul du Saillant would not receive any remuneration for their respective duties as Chairman of the Board of Directors, Vice-Chairman of the Board of Directors, Chief Executive Officer and Deputy Chief Executive Officer for the period from December 17, 2020 until December 31, 2020.
• Financial fraud in Thailand: the Board of Directors reviewed the situation arising from the financial fraud that occurred at a Group entity in Thailand in 2019 and the measures taken to recover the misappropriated funds and to strengthen existing security measures;
• Briefing on cyber-attacks: update on cyber-attacks recently suffered by Company subsidiaries;
• Committee Reports: in preparation for its discussions, the Board of Directors heard reports from the Audit and Risk, Nominations and Compensation, and Strategy and Corporate Social Responsibility Committees on their respective areas.
Minutes
During the 2020 fiscal year, the draft minutes of each Board of Directors' Meeting were sent to all Directors no later than the date of notice of the next meeting.
2.1.2.6
Committees of the Board of Directors
On the recommendation of the Nominations and Remuneration Committee, the Board of Directors may create special Committees and set the rules governing their duties and composition. The Company has four permanent Directors Committees:
• Audit and Risk Committee;
• Nominations and Compensation Committee;
• Strategy Committee; and
• Corporate Social Responsibility (CSR) Committee.
These Committees act on the authority delegated to them by the Board of Directors and make recommendations and proposals to the Board of Directors. The Committees do not act in the place of the Board of Directors, but rather as an extension of the Board of Directors, facilitating its work.
In accordance with the specific governance rules that have been set up, each Committee shall comprise an equal number of Directors between those designated by Delfin and Board of Directors' members of the former Essilor (prior to the implementation of the combination between Essilor and Luxottica (hereafter the "Former Essilor")). Committee members may choose to be represented by another member at meetings of the Committee. Each member may represent no more than one other member at any Committee meeting. The deliberations of the Committees shall be valid only if at least half of their members attend the meeting in person (provided further that at least one Director designated by Delfin and one Director designated by the by the Former Essilor, or his or her successor Directors, shall be present or represented).
Decisions shall be made based upon a majority vote of the members attending. If vote is tied, then the Chairperson of the meeting shall not have any casting vote.
Audit and Risk Committee Composition
The Board of Directors'Internal Rules stipulate that the Audit and Risk Committee shall consist of four members appointed by the Board of Directors from among its members. At least two third of its members must be independent directors.
The Committee shall not include any executive Directors.
The members of the Audit and Risk Committee must have special competency in financial, risk management or accounting matters. The Chair of the Audit and Risk Committee will be held by an independent Director among the Directors designated by Delfin. The Audit and Risk Committee is chaired by Lucia Morselli. The other members are Romolo Bardin, Annette Messemer and Olivier Pécoux.
Role
Under the Board of Directors'Internal Rules and in accordance with Article L.823-19 of the French Commercial Code, the Audit and Risk Committee, acting under the responsibility of the Board of Directors, follows up on issues related to the preparation and audit of the financial statements and financial information.
For any issues relating to the compliance and the efficiency of the internal audit and major risk management systems, the Audit and Risk Committee must work closely with the Corporate Social Responsibility Committee to establish a comprehensive picture of any financial or non-financial issues.
Without prejudice to the powers of the Board of Directors, this Committee monitors the specific procedures to ensure:
• the integrity of the financial statements, in particular, the corporate and consolidated accounts, the scope of the consolidated accounts and the off-balance sheet commitments;
• when preparing the financial information, that the accounting methods employed are relevant and applied consistently, in particular when dealing with major transactions;
• when reviewing the accounts, a focus on major transactions which could have given rise to conflicts of interest;
• the efficiency of the internal control and risk management systems;
• when monitoring the effectiveness of the internal control and risk management systems and, where applicable, the internal audit of the procedures relating to the preparation and processing of the accounting and financial information, that it hears the persons responsible for the internal audit and risk control and that it is informed of the internal audit schedule and internal audit reports or a periodical summary of these reports;
• compliance with legal requirements and regulations;
• the review of major risks and off-balance-sheet commitments, assessing the significance of any deficiencies or weaknesses of which it has been informed, and it informs the Board of Directors, as the case may be;
• the performance, qualification, independence and control of incompatibilities of the auditors;
• the performance of internal audit.
It issues a recommendation to the Board of Directors on the auditors of the Company which have been proposed to be appointed by the Shareholders'General Meeting.
The responsibilities incumbent on the Audit and Risk Committee are set out in Article 5.1.3 of the Board of Directors'Internal Rules, available on the Company's website.
The Chairperson of the Audit and Risk Committee organizes the Committees'work every year based on his or her assessment of the importance of certain types of risk, in consultation with the management and the Board of Directors, as well as the Chairperson of the CSR Committee.
The Chairperson of the Audit and Risk Committee must regularly coordinate with the Chairperson of the other Committees, and in particular with the Chairperson of the CSR Committee which is in charge of identifying and monitoring the non-financial risks.
The Chairperson of the Committee or the Board of Directors may convene a meeting at any time, whenever it deems it necessary. The Chairman and the Vice-Chairman may jointly request the Chairperson of the Committee to arrange a meeting whenever they deem it useful.
The Committee shall meet at least three times per year.
The meeting agenda is determined by the Chairperson of the Committee or agreed with the Board of Directors, the Chairman or the Vice-Chairman, if the Board of Directors, the Chairman or the Vice-Chairman has initiated the meeting. The agenda is sent to the Committee members before the meeting together with any information that is useful for the discussions.
Sufficient time must be available for the Accounts to be provided and for their review. In order to perform its duties properly, the Audit and Risk Committee must be given a delay of at least five days for considering in advance the documents on which discussions will be based and, in particular, for examining the accounts before their publication.
During the meetings, the Committee hears the statutory auditors and may receive presentations from the Company's corporate officers and EssilorLuxottica's Key Executives (and such other persons as it deems appropriate) who are responsible for the accounts, the risk management system (including compliance) and internal auditing. Management (assisted by a person of its choice) will make a presentation to the Committee on the Group's exposure to risks and significant off-balance sheet commitments.
The Committee may also gather information directly from persons who are able to assist it with fulfilling its duties, in particular certain business and financial managers and those responsible for handling data, whilst keeping management informed. In addition, the Committee may consult external experts, if it deems this necessary, at the Company's expenses, within the limits of the budget approved by the Board of Directors for the Audit and Risk Committee.
Major accomplishments in 2020
The work of this Committee is based on the recommendations made in the AMF working group report on audit committees of July 22, 2010.
The Audit and Risk Committee met nineteen times with an attendance rate of 96% for the year, and heard mainly the Co-Chief Financial Officers, the Chief Compliance Officer, the Chief of Internal Audit, the Legal Director, the Co-Secretaries of the Board of Directors and the Statutory Auditors.
Between January 1 and December 31, 2020, the Audit and Risk Committee reviewed the following:
• Financial statements: review of the consolidated and statutory 2019 financial statements; review of part of the management report in respect mainly of the risks factors and the internal control procedure; review of the consolidated and statutory 2020 first-half financial statements, of the forecast management documents and the 2020 forecast;
• Statutory Auditors: presentation of the reports of the Statutory Auditors for the 2019 financial year; review of the Statutory Auditors'2020 external audit plan and of the key audit matters to be disclosed in the Statutory Auditors'report; review of the 2020 first half draft report of the Statutory Auditors;
• Extra-financial performance declaration; presentation of the non-financial reporting; preparation of the 2020 extra-financial performance declaration (Chapter 4 of the Universal Registration Document);
• Internal audit: presentation of the 2020 internal audit plan and its geographical distribution, the Committee recommended the approval by the Board of Directors of such plan; Management report for 2019, including notably the main characteristics of internal control systems; review of the 2020 internal audit plan following notably the COVID-19 crisis; the Committee approved the proposed methodology supporting risk assessment for the preparation of the 2021 internal audit plan; review of the proposed Group Internal Audit organization and initiatives;
• Finance: review of the financing structure of the Company and of liquidity levels; review of the goodwill; review and approval of the invoices'payment procedure; review of EssilorLuxottica, Essilor International and Luxottica 2020 Budgets;
• Governance: review of the key executive positions to be filled; follow up of the delegations of authority/signature put in place after October 1, 2018 with dual signature principles;
• Acquisition of GrandVision: follow-up of the acquisition and the anti-trust process;
• Compliance and risk management: Management report for 2019, including notably: the main characteristics of the risk management systems; Compliance Group structure and initiatives; assessment on risk factors; Review of the related parties transactions (including the contract with MEA now named Abstract);
• Fraud at the manufacturing Thailand Group company: investigation about the fraud, its discovery, monitoring the investigation, recovery measures and responsibilities; instructions and review of reports from internal and external resources allocated to this task, review of the report of the internal audit department; review of the recovery plan and the remediation actions put in place following the investigation;
• Cyberattacks: presentation on the cyberattacks that occurred in 2020 on Luxottica, Essilor International, Essilor US and EyeMed; review of the proposed improvement of the group's cyber security;
• Litigation: presentation of the report on litigations;
• Synergies resulting from the Combination: review of the financial results from integration efforts; regular updates on synergies;
• Non-executive sessions attended by all members of the Audit and Risk Committee (but not the management teams) took place in February 2020 and in March 2020;
• COVID-19: impact of COVID-19 on business and on the employees working conditions.
Nominations and Compensation Committee Composition
The Board of Directors'Internal Rules as amended by the Board of Directors on May 12, 2019 and January 28, 2021 stipulate that the Nominations and Compensation Committee shall comprise four members, the majority of whom shall be appointed from among the Board of Directors'independent Directors (as defined by the AFEP-MEDEF Code or, if applicable, the governance principles agreed by Essilor and Delfin in the Combination Agreement).
The Committee shall be chaired by an independent Director (as defined by the AFEP-MEDEF Code or, if applicable, the governance principles agreed by Essilor and Delfin in the Combination Agreement) appointed among the Directors designated by the Former Essilor or their successors.
As from March 18, 2019 the Nominations and Compensation Committee is chaired by Olivier Pécoux, qualified in the Combination Agreement as an independent Director (please note that he is not an Independent Director pursuant to the criteria of the AFEP MEDEF Code, see Section 2.4). The other Committee members were Romolo Bardin, Gianni Mion, and Annette Messemer (appointed by the Board of Directors as member of the Nominations and Compensation Committee in replacement of Mr Bernard Hours as from May 12, 2019).
Role
As described in the Board of Directors' Internal Rules, the main duties of the Nominations and Compensation Committee within the work of the Board of Directors are as follows:
Nominations:
• it recommends the appointment of Directors and of the Committees'members, as well as the Chairperson of each special Committee, in accordance with the provisions of the Combination Agreement and of the Agreement entered into on May 12, 2019 by and between Former Essilor and Delfin (hereinafter the "May 12, 2019 Agreement") and the governance principles agreed upon between Former Essilor and Delfin in the Combination Agreement and in the May 12, 2019 Agreement. The Nomination and Compensation Committee shall strive to ensure that at least (i) one-half of the Directors, (ii) two-thirds of the members of the Audit and Risk Committee and (iii) a majority of the members of the Nomination and Compensation Committee are independent Directors, determined as specified in the AFEP/MEDEF Code (and/ or, in the case of the Nomination and Compensation Committee, pursuant to the governance principles agreed upon between Essilor and Delfin in the Combination Agreement);
• it expresses its own prior recommendation to the Board of Directors in respect of any joint proposal regarding the designation of EssilorLuxottica's Key Executives, which the Chief Executive Officer and Deputy Chief Executive Officer intend to present to the Board of Directors;
• it issues recommendations to the Board of Directors for the selection of the Company's Executive Corporate Officers (Chief Executive Officer and Deputy Chief Executive Officer) in line with the governance principles agreed by Former Essilor and Delfin in the Combination Agreement, as amended and supplemented;
• it is responsible to develop a succession plan for the corporate officers in line with the governance principles agreed upon between Essilor and Delfin in the Combination Agreement;
• it is responsible to study any major developments in the organization.
Assessment:
• it assists the Board of Directors in its periodic assessments;
• it prepares the Board of Directors' annual assessment of its membership, organization and operation (which involves a corresponding review of the Board of Directors'Committees), and leads the self-assessment of the Board of Directors in compliance with the provisions of the AFEP/MEDEF Code and Section 7 of the Board of Directors' Internal Rules;
• it is responsible for the assessment of the possible candidates to fill any vacancy within the Board of Directors of the Company, in particular for unforeseen vacancies or in the case of appointment of additional Board of Directors'members;
• it puts forward proposals to improve the functioning of the Board of Directors (i.e., organization of meetings, evaluation of the performance of each Director and managing the evolution process of the Board of Directors); in particular, it proposes to the Board of Directors improvements to these Board of Directors' Internal Rules, if the procedures for disclosing, dealing with, and monitoring of, conflicts of interest situations turn out to be inappropriate or insufficient;
• it puts forward proposals for creation of Committees and assignment for each of them;
• it monitors changes in the Company's shareholdings structure and Company's awareness of such changes with a view to monitor the representation of shareholders (including employee shareholders) in the governance;
• it gives its prior approval before any corporate officer or Director accepts a new directorship or a management position in another Third Party Company, before any corporate officer or Director accepts a consulting agreement with a Competitor or with a company operating in a sector with reputation issues, and before any corporate officer or any EssilorLuxottica Key Executive or any Director takes a direct or indirect significant interest giving them control or a significant influence over a Competitor of the Group (it being specified that such prior approval cannot be refused, conditioned or delayed without reasonable legitimate reason relating to a potential conflict of interest, an overboarding situation, or reputation issues); if no prior approval can be given as a result of a confidential process undertaken by a Director, such Director shall immediately upon his/her appointment inform the Nominations and Compensation Committee so that it may determine whether the new directorship, management position in, or consulting engagement with such other Third Party Company is compatible with the role of such independent Director with the Company. "Third Party Company" shall be defined as any company other than companies consolidated by the Company and "Competitor" shall refer to any Third PartyCompany having an activity in the ophthalmic or optics business or the design, manufacture and distribution of eyewear, which represents a significant part of its business or which is significant on the market;
• it conducts yearly a case-by-case assessment of each Director with regard to the independence criteria set forth in the AFEP/ MEDEF Code and these Board of Directors' Internal Rules;
• it is informed by the Chairman and/or the Vice-Chairman or the Chairperson of the concerned Committee, each time a Director cannot attend nor vote as the result of a Conflict of Interest situation; it also reviews the Directors'periodic statements relating to their respective Conflict of Interest situations (if any), it prepares a list of the issues likely to give rise to Conflicts of Interest, and reports to the Board of Directors accordingly;
• it provides every year the Board of Directors with a report assessing the roles of the Chairman, the Vice-Chairman, and of the Directors, as well as the actions of the Chief Executive Officer, the Deputy Chief Executive Officer, and EssilorLuxottica's Key Executives, notably with a view to determine their compensation. Each year, EssilorLuxottica's Key Executives shall meet with the Committee.
Compensation:
• putting forward proposals on the compensation policy and the compensation of the corporate officers of the Company, (including all components of their compensation and its structure) and, if applicable, of the EssilorLuxottica's Key Executives;
• ensuring compliance of the compensation policy, its structure and components with legal requirements and the AFEP/MEDEF Code;
• considering termination provisions and financial conditions of departure for any corporate officers of the Company and EssilorLuxottica's Key Executives;
• putting forward proposals to the Board of Directors on the general policy and terms and conditions for granting stock-options and/or free performance shares, the allocation of free shares and the setting-up of employee share ownership plans, profit-sharing measures as well as any other incentive schemes for the Company's or Group's employees;
• putting forward proposals on the allocation of stock options and/ or free performance shares for corporate officers of the Company, EssilorLuxottica's Key Executives (and such other persons as it deems appropriate, including the main managers of Luxottica and Essilor International, after considering the recommendations of the Boards of Directors of those two companies) as well as the number of shares resulting from the exercise of stock options or performance shares that they will be required to retain until the termination of their office;
• putting forward proposal on Directors'fees amount and their allocation taking into account Directors'attendance rate;
• reviewing the terms and conditions of any service agreement to be entered into with any member of the Board of Directors or any corporate officers of the Company or EssilorLuxottica's Key Executives prior to their entering into;
• informing itself on general compensation policies in the Company or the Group;
• submit annually to the Board of Directors the draft report on compensation policy and on awarded compensation and give an opinion on the related draft resolutions on which the Share-holders'General Meeting is called upon to decide in accordance with French regulations.
Governance:
• putting forward recommendation on best corporate governance practices;
• assessing whether corporate governance practices within the Group comply with the AFEP/MEDEF Code and recommendations of the AMF and proxy agencies and monitoring of their compliance thereto;
• pointing out deviations from the AFEP-MEDEF Code and preparing explanations for reasons for doing so.
The Nomination and Compensation Committee shall be associated in the preparation of any report (including the annual report) for the sections pertaining to its areas of expertise and duties.
It may consult external advisors, consultants, counsels or experts at the Company's expenses if necessary for the completion of its duties (including to identify directorship's candidates or to assess the membership and functioning of the Board of Directors), within the limits of the budget approved by the Board of Directors for the Nomination and Compensation Committee.
Major accomplishments in 2020 achieved by the Nomination and Compensation Committee
Between January 1 and December 31, 2020, the Committee met seven times (with an attendance rate of 100% for the year).
It reviewed the following matters:
• Nomination: - update on CEO search;
• Compensation:
- determination of the achievement rate and of the variable compensation component of Mr. Leonardo del Vecchio and Mr. Hubert Sagnières for the 2019 fiscal year,
- for each of the executive corporate officers: determination of their respective fixed compensation and of the structure and targets for their variable compensation components for the 2020 fiscal year,
- review of the executive corporate officers'draft compensation policy for 2020,
- review of the resolutions regarding executive corporate officers compensation submitted to the Shareholders' Meeting for approval at the general meeting held on June 25, 2020 and of the approval rate of these resolutions after the Shareholders' Meeting,
- discussion on the harmonization of compensation practices between the two operating companies (Essilor and Luxottica),
- discussion on the 2021 compensation policy;
• Solidarity measures related to the COVID-19 crisis:
- discussion on the launch of a Euro 100 million COVID-19 fund (then brought to approximately €160 million) to protect the Group's human capital and the adoption of an emergency pay plan to help the most vulnerable employees and their families,
- discussion on the reduction or deferral of the compensation of the Group's managers;
• Employee share ownership: the Committee approved the main following measures to be submitted to the Board of Directors: renewal of the Company Savings Plan for the employees of the Company and of Essilor's French subsidiaries; extension of the international Employee Shareholding Plan to almost all Group countries including Italy, Greater China and India for Luxottica; granting performance shares and stock options for the benefit of Group's employees after review of the proposals made by Essilor and Luxottica management;
• Key executives' compensation: review of the 2020 fixed compensation, and 2019 and 2020 variable compensation;
• Organization of the Committee: setting of a schedule for the next Committee's Meetings during the first semester of 2021.
Strategy Committee Composition
The Board of Directors'Internal Rules, as amended on May 12, 2019 and on January 28, 2021, stipulate that the Strategy Committee shall be composed of four members appointed by the Board of Directors from among its members. Unless otherwise determined by a joint decision of the Chairman and the Vice-Chairman, the chairman of the Strategy Committee must invite all members of the Board of Directors to attend (but not to vote at) the meetings of the Strategy Committee, except for meetings convened to discuss sensitive and significant acquisition projects.
The Strategy Committee meets four times per year, unless otherwise jointly decided by the Chairman and the Vice-Chairman. The chair of the Committee will be held by a Director chosen among the Directors designated by Delfin.
Francesco Milleri (Non Independent Director) chaired the Strategy Committee. The other Committee members were Hubert Sagnières (until December 17, 2020), Gianni Mion (until January 28, 2021), Paul du Saillant (from March 30, 2020), Juliette Favre (from May 15, 2019) and Cristina Scocchia (from May 15, 2019).
Role
As described in the Board of Directors' Internal Rules, the main duty of the Strategy Committee within the work of the Board of Directors consists of regularly reviewing the Group's overall strategy, including, but not limited to, acquisition, divestment and M&A matters, products and technology, growth and financial strategy as well as geographical and marketing strategies, including the decisions set forth in paragraphs d) and j) to n) of Article 4.2 of these Board of Directors' Internal Rules, and making recommendations to the Board of Directors in this respect.
The Chief Executive Officer and the Deputy Chief Executive Officer, assisted as needed by members of their choice, are responsible for making presentations on these matters on a regular basis. The Chief Executive Officer and the Deputy Chief Executive Officer personally give a presentation on the Group's strategy to the Strategy Committee annually.
This Committee submits proposals to the Board of Directors, which approves any major strategic decisions.
The activities of this Committee should be coordinated with those of the Corporate Social Responsibility Committee, which is in charge of monitoring the sustainable development and corporate social responsibility of the Company, which are fully integrated in its strategy.
Major accomplishments in 2020
The Strategy Committee met once in 2020 (with an attendance rate of 100%).
The Committee discussed the protection and reaction strategy adopted by the Company in respect of the COVID-19 pandemic and received an update on the GrandVision acquisition.
Corporate Social Responsibility (CSR) Committee Composition
The Board of Directors' Internal Rules stipulate that the CSR Committee shall comprise four members, two of whom must be Independent Directors.
The CSR Committee is chaired by an Independent Director, appointed from among the Directors of the Former Essilor or their successors directors.
Jeanette Wong (Independent Director) chaired the CSR Committee. The other Committee members were Giovanni Giallombardo, Hubert Sagnières (until December 17, 2020) and Cristina Scocchia. On January 28, 2021, Hubert Sagnières was replaced by Juliette Favre.
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EssilorLuxottica SA published this content on 26 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 March 2021 13:40:03 UTC.
