Earnings Transcript for ESLOF - Q3 Fiscal Year 2017

Executives: Paul du Saillant - COO Laurent Vacherot - President, COO & Director Géraldine Picaud - CFO

Analysts: Chris Cooper - Jeffries Cedric Lecasble - Raymond James Antoine Belge - HSBC Veronika Dubajova - Goldman Sachs Julien Dormois - Exane David Cerdan - Kepler Cheuvreux Delphine Le Louet - Societe Generale

Laurent Vacherot: Good morning, everyone, and welcome to our Q3 conference call, which I am hosting from Paris with Paul du Saillant and the full Investor Relation team. Along with Paul, I will give you an update on the business since we last spoke end of July. And toward the end of this call, I will also share our view on the progress made towards the combination of Essilor and Luxottica. You have seen the figures. For the first nine months, the revenue are up 6.7%, in line with our annual guidance and is breakdown in 2.5% like-for-like growth and 4.1% scope effect and almost neutral currency effect. If we look at the third quarter alone, total revenue group amount to 1,752,000,000, up 1.7% versus Q3 last year on a reported basis. And as the appreciation of the euro against almost all other currency of the group drove a negative ForEx impact of 4.2%. Growth at constant exchange rates was 5.9%, so it's combined growth, organic and bolt-on acquisition, including at least 0.5% negative effect of natural disasters. So, if you look at the PCGS of the quarter again combined growth of lens is quite solid at 5.2%. In San Andreas thanks to the acquisition of MGS we are growing combined growth at 18% and overhaul in terms of going market we are roughly at 15% increase the growth in all businesses. So that's how the figure. Now let's focused on the main highlight of the business. Actually, as we plan in during the summer we have seen better momentum in our businesses and since 2017 of August when Hurricane Harvey hit South Texas area, followed by Irma in the Caribbean island in Florida. Two earthquakes in Mexico and then Maria in Puerto Rico. It mainly affected our lens business and our sun and legal business in North and Central America. On the top of those natural disaster Q3 continues to be affected negatively by the GST implementation in India. We estimate that all together this is reduced two series sales growth by more than 50 basis points at the group level. So, we really believe underlying combined growths settlement in this quarter actually it is in the one-off with that being the both 6% with organic growth higher than 3% and the strong acceleration in lens and instruments organic growth close to 4% including a solid performance in the U.S. If we look happily at the sun and reader sales growth slightly positive for the quarter before the natural disaster impact in Florida mainly, Sun and Reader were showing a decent trends turnaround the summer, actually the sun season was quite good in the U.S. If we look more in detail cost of sales were up mid-single digit despite the hurricane and this is in line with expectation and we have a promising Q4 outlook based on current backlog and pipeline and more along we continue to adjust the market condition growing fast with own stores and ecommerce and the turnaround is underway. We believe that once it will be completed this plan will alone to resume sustain growth into '18. MJS and Aojo, the newcomer, they're growing double-digits with store expansion and new lens offering it should also accelerate the growth in the next quarter. A few of the unequipments, you have seen negative performance nobody should be worried about. They are the first half very stronger half. They have some shipment postponed in Q3 and they have a strong backlog and they should deliver for the full year for mid-high single digit. I would like now to invite Paul to share with you the market dynamics in the a few key countries.

Paul du Saillant: Thank you, Laurent and good morning, to all of you. I would like to add some additional color on the optical market dynamics by digging into the regional deferments. Behind our numbers, you will see that more than ever both consumers and ECP are in need of innovation, brand, service, and expanded awareness and access to [indiscernible]. Let’s take North America first which delivered 2.3 like-for-like growth with momentum picking up in the U.S. In the market that has not yet resumed midterm gross spectrum, our growth in the U.S. was driven by the continued development of programs from our doctor alliance covering thousands of ECP. One program called Frame Dream, a thousand customers managed friends and lands at the same time. It aims to generate simpler exchange efficiency gain for ECP and a better consumer experience through reduced delivery times. Another key program called Essilor Expert 2500 ECP includes the trainee and marketing support with ECP and is designed to accelerate category development. This program shows that when ECPs are well equipped and trained, their customers get innovative products and great service and the ECP growth much faster than the rest of the market. Q3 was very achieving in terms of new products. We started to deploy valid accessories in the U.S. alongside [indiscernible]. We are selling these two features plus transition signature on the average package under the name maintenance. For longer wearers, we expanded Eyezen with Eyes Engineer. Eyes engineer in a new product for kids and teenager who are exposed to connected device just to show them, I have four headphones in Eyezen sharper vision in the close and intermediary distance as well as eye protection. Our U.S. colleagues had a big launch event at Vision Expo mid-September in Las Vegas very promising. In the Econest channel, we recorded our best quarter of the year supported by continued success by direct and return to growth of them. As a result of this new dynamic and excluding the hurricane effects, our daily sales trended better in Q3 than in H1 and this momentum is increasing further so far in the beginning of October. New hubs, growth accelerated to delivering a solid 3% like-for-like. We are very pleased with the eyes accessories takeoff, which is now available in all countries. The super lens of our enhanced visual laxity and arm length and is therefore very well designed for the press jobs leading an intense digital life. The lens was very well received by the trade and the consumers. Sales had been between our expectation for the last five months. Looking at another angle in Europe. A few years ago, we issued a need for better consumer expand for consumer segments, namely the YangMi [indiscernible] Our Q3 growth reflected success of our ecommerce strategy to ship out these consumers with the online platform we have built over the last few years including Lensway, Vision Direct, and [indiscernible] Group. In developed markets, our lens for connected lifestyle like Eyezen, and eye protect system enjoys strong growth. Overall as you can see we are pleased with the trajectory, we see in the developed markets and the momentum built by our core brand. Now a comment on fast growing market, despite the disruption caused by the earthquake in Mexico in September, and the negative short-term impact of the rationalization of the goods sales tax in India, fast growing market trended better in Q3. We started to see normalization in Brazil and an improvement in China, Russia and Africa. As a matter of fact, excluding Mexico and India, like-for-like growth in FGM more than doubled in Q3 versus H1, and was close to 9%. In China, we had another good quarter. The trend towards increasing adoption of blue cat lenses continuous to gather momentum, either you’re going fast into high end, and our Chinese partners continue to build strong momentum in this lese category making our sales to grow double-digit. More and more people are using eye glasses to do more than correcting their vision. They protect their vision as well. The blue cat lens category was only 1% size of the group and represent around 10% of the market today across all region, a major new category. Another trend that is noticeable worldwide and that we see in China as well is new forms of optical retail, that offer a different consumer experience through a simplified sales category. This format target [indiscernible] as well as with computer lens either with or without optical feature. We participate now in this adventure [indiscernible] the retail vendor that was part of the photosynthesis group acquisition done in China late last year. In India the situation is more challenging as Laurent explained, we're constantly look for ways to better support our trade partners and develop the market. As an example, we have introduced eye partner, a version of the visual fit of measuring device for store, specific retailer to meet high-end Indian retailer needs, leveraging the knowhow on in-store measurement from our French partner AVS, which is having a very good year linked to the value express launch. With those devices Indian ECP start to push more individualized vision solution and trade up the consumer needs. Taking a step back, this example and many, many others remind us that the core of our business is solid with multiple initiatives at work. But we also have a mission to address the unmet vision needs of 2.5 billion people to our implicit business, advocacy [indiscernible] profit initiative. Let me share with you a few words on this topic. First of all, I would like to remind you that poor vision is a disability that effects one third of worldwide population and that we as Essilor consider it possible to in eradicate poor vision in one generation and bring in rich dividends to everyone, consumer, societies and us. In a few years thanks to our actions targeted at the 2.5 billion people in need of better vision we have impacted the lives so far of over 10 million people with eye glasses and are now second in 44 additional countries through our products and actions. Although the long run these initiatives adverse so that fees of our enabled gross. Since the beginning two key issues have had to be addressed, the awareness and access. We are created of the 5,600 primary vision care providers so far out of which 34 are highly present in India just as the entire range of products after two months of training and we are 1900 vision ambassadors mainly in China, India, Kenya and Ivory coast and this [Indiscernible]. We have entered several new countries through our mission. Let me mention three of them in example. Liberia where we have partners in the unique correlation that has no final agreement with the government of Liberia to provide equitable access to visual in the country over the next four years. Likewise, we also as part of the industry in two districts of Bangladesh. In Indonesia, third largest country in Asia in terms of population where the need for better vision is huge. We have started to put teams in place and to look at this is very interesting new business for that. Now let's look at the second major initiative which is to improve awareness. A few weeks ago, we signed a senior partnership with the SI8 [Indiscernible] to include check visions first in the golden rules of road safety and improve awareness about vision driving, a key safety issue. The second initiative is good visions first campaign launched on October 12th which was World Sight Day. With the support of world [Indiscernible] and our Children Vision Association. As you can see our market is very dynamic with many initiatives at work to improve vision care everywhere. Thank you very much I now hand over the mic back to Laurent.

Laurent Vacherot: Thank you, Paul. We did increase the access and wellness and we continue as you know resolute to better serve 7.4 billion on the planet so distributor the project they have hired and the leased base. I think there are two takeaways from the third presentation is number one you see that traditional recipe of growth and developing business of Essilor with innovation and relationship now fully at work in almost every country. And second, now it's including part of our business to develop those new business model so we enter a new country or we complimentary given country existing country with those including this business model. So, I think you understand now that in fact our quarter is better than it looks and that we have numerous initiatives to build a better momentum in the next quarters. If we summarize, what do we see at the moment; one, we have a solid business in most of the countries and regions Europe, China even Brazil slightly improving. We have a strong momentum in U.S. in the market which has not yet shown its full potential. We have acceleration in e-business and we have continuous slowly but slowly improvement in standard vision division and finally a very healthy backlog in the equipment division. This is why we are confident to maintain our objective for 2017 which are constant currency growth between 6% and 7% including our like-for-like around 3% and the net interest contribution from operation close to 18.5. So that’s a little bit Paul and I wanted to share with you about the state of the business Q3 and moving forward. And now I would like before the Q&A session to share how we ae building step by step the Essilor mutual combination. First, let's remind us why we work on this combination and why we work so hard on this combination. As Paul said, poor vision is biggest worldwide handicap. 2.5 billion suffer from that handicap, as we know solution doing this and they are simple. We want to better sell needs for better vision and protection of 7.4 billion people in the world today and 10 billion tomorrow and we want to eradicate poor vision in one generation. To achieve this, we need a strong industry leader to give vision a voice and this is what we are building at the moment altogether. So where are we today in building the strong leader, since the shareholder meeting at the end of May where shareholder approved the combination every day, we make progress. A huge amount of forecast has been achieved by teams and the teams are very active. Let me give you a little bit of example. First on the anti-trust topic. We have signed 20 countries, 9 are finalized with no condition so far. Yes, we are interested in some of them in U.S. but why should it be different, considering what we are building, considering it’s a new industry actually this is no more than it takes a little bit of time. Yes, you have to receive the time to do a quality job. We announced I think it was 12 of October in our press release that we are preparing the old entries in Paris that next will be done by the end of the year. It will be ready to welcome mix compared share from building and then share for minority shareholders following the mandatory offer and that’s a place the program ends of the future [indiscernible] so it's in progress. Luxottica with digits seen from U.S. circuit change and finally we have a lot of things walking together to prepare the one. We are obviously a clear legal framework so joint team are walking on redefined walk stream including many diverse topics. I want to give you some flavor of it. On the environment and safety front. The teams met two times, one in Italy and one in China and they review best practice safety programs, water consumption and so on. Positives, they met to discuss compliance and company principles. Human resource teams, they prepare internal commutation, joint training and trying to expand employee shareholder program. I recall you that we have a plan in Essilor to reach 50% of employee as shareholder and we will act accordingly to do the same for Luxottica employee. Finance, the team prepares to prepare the NDO, to offer to define the future of reporting and so and so on. Communication, outside communication, the teams are building the website. You need a website when you build a new company, and you know what, we have almost a logo. I cannot show it to you because we are in the call, but we have almost a logo that will project the image and the ambition of Essilor Luxottica. And maybe as important you know Paul, Géraldine and myself we travel a lot, and we meet teams. And we see everyone in the world, in Brazil, three weeks ago, in China two weeks ago, and in the U.S. everywhere, in France, the teams are ready, they want to do it and we are working very actively to make it happen. So, as you can see step by step, we are preparing and progressing with confidence throughout the proposed combination to build this regular and the teams are doing an amazing job. Thank you very much and we are ready now for Q&A.

Operator: Thank you, Mr. Vacherot. So, ladies and gentlemen, the question-and-answer session will be conducted electronically. [Operator Instructions]. Our first question will come from Mr. Chris Cooper from Jeffries. Please go ahead. Your line is open.

Chris Cooper: Hi, good morning. I have three, please. Firstly, just on the one-offs in the quarter. Can you just split how much of that 50 bps was hurricanes compared to Mexico and India and also to that extent we should consider those deferrals since the fourth quarter?

Laurent Vacherot: Okay. So, all those things are quite consolidated to analytically split between the region. The most of it was hurricane. And this I believe that as we see in October now, the good momentum in Costa, in Florida and better momentum in U.S. lens business, I think its start to be largely over now. GST, it’s quite more complex to understand exactly. It’s a big change in the way the Indian market is consumption, and it’s a big transformation so probably we need a little bit more time to see the - o see that effect decrease.

Chris Cooper: Got it. I mean the reason I asked that the implied guidance of fourth quarter and there are things that are required to be set up which looks to be a little bit of a stretch compared to where market fundamentals are running, we now in many of the regions, this is predominately an estimation around the deferral of hurricane related impact in the U.S. coming into the fourth quarter or the fact that we are lapping a slightly comparison at the end of the year?

Laurent Vacherot: It’s also mainly the numerous initiative that we drive everywhere that Paul described earlier precisely. It’s a strong backlog in the equipment division it's a good recovery in sun business it's a good China business so it's large and yes, the company is I know that sign and yes, we believe the hurricane which is the biggest part of the impact would be over or since then since now.

Chris Cooper: And then just a subset of that question I guess just specifically on the adverse reactions to feel that you called out in the second quarter and the numbers would suggest that played out probably to a less significant expense in the third quarter is gone. Is there anything you could point to see there if you back that discussion out?

Laurent Vacherot: Yes, sure. Actually I would say a situation which is normalizing and as we said in July now that our sales force the adverse one of the full of new product and you saw that it can also offer eye care professional I would say we are back to for some of them to the normal relationship which is I provide the best product and provide unique innovation to you my dear customer my dear eye care professional and it’s your choice to take it and I think we have start to balance the negative effect we that are normalize and normalizing at the moment with positive effect of those innovation in the market maybe Paul you want to add to it.

Paul du Saillant: Just to add that just to show you very concrete things going on in the surround this whole idea that as a lot going on with the new products launching we talked about back in July in the U.S. just in U.S. they had the 150 customers even gathering 10 to 20 at which time. In Europe they are 75 launching events road shows in each of the key cities in Europe so it has been an in the [Indiscernible] market it is the same so there is a lot of occasion that we have been having into Q3 to be with our customer to talk about the categories the new product the brand back to Laurent has just pointed to.

Chris Cooper: Thanks, and do you have any sort of quantitative base and maybe you are on the promote the score something at that?

Laurent Vacherot: No, I don’t think so it is too early and we are not so sophisticated industry as you know.

Chris Cooper: And just very quickly just lastly, I'm going to touch okay thanks very much for the update at the end of the prepared remarks. And could you just please provide your latest expectations regarding the timing of approvals to each of the major regions from here?

Laurent Vacherot: I just cannot deliver ask the anti-truck authorities we need to still to clear 11 of them. Then one is done we need to decide when we close because we may ask bank to organize it so no it's impossible to change what we said which is around the end of the year.

Operator: Thank you. And now we will take our next person from the queue is Cedric Lecasble with Raymond James. Please go ahead. Your line is open.

Cedric Lecasble : I would have three questions if I may and thank you for taking them. The first one on added value acceptance especially in North America we had a call yesterday with Luxottica, they against crossed us they had the package deal with the lot of added value features in it and actually than to acquire during back-to-school it help them to work as a preposition added value preposition. Could you maybe comment on to general acceptance maybe beyond to doctors and the change from your new products and your new values in particularly and maybe your datas on transition acceptance? The second question is on the fund business, which was quite resilient given the impact of hurricane. Could our help us understand the different dynamics as a component of this vision between FGX, Costa and China, if you could help us a little bit? And the last one, I know it’s a little tricky for you, but is the SGT decision one of the first decision to an outside you placed two in July 19 open days world leaders to somewhere in November is it a wrong calculation? Thank you.

Laurent Vacherot: Okay. So, I look at my console around, I think that the right calculation but please give us time. Don’t push anyone, any of the keys or any of us. We are building a fantastic combination and we want to do properly with all the beds and refill all the authorizations. So, don’t try to push it and rush in the confusion. On the same business actually, yes you are right considering what happened they are quite resilient not yet at the level expected and we know it will be difficult to reach here, but we are committing for next year the high single digit organic growth. First and front as you know at the difficult comp start first quarter and slowly quarter on quarter recovering and the coming first strong Q4. So, we accept that. As you know in China, there is two different situations. There is Bolong, the fantastic brand that goes through a transformation of its consumer base reducing the exposure to do wholesale channel and increasing exposure to on store and franchise store branded so and through e-commerce and when we look at the dynamic which is the double digit in e-commerce and own staff. It can be the second brand and the great value and great awareness and the product repeating for consumer. Then we have Norway and Turkey, we speak a lot about it. So, they are doing very well and I accept that the Turkey’s government put in import tax on product imported from China so it slows down a little bit to growth at the moment. And then Costa you see the suffering from the Hurricane maybe bigger than all the others. At one point of time, there are probably one third of their customer stores growth most of them for one or two weeks and most of them are reopened now except a few of them. But despite that, they are going to see a high single digit and its very promising brand as you know and they walk a lot on the digitalization of the marketing working on community and it seems it quite interesting. And then in China we have MGF we so got the newcomer, which is not part of the organic growth so far, but growing double digit expanding number of stores both in sunglass with the NGS brand and outdoor which is in position proposing a simple offer to younger in open China. So that’s a little bit for the sun business and then maybe asset value, you would like to comment a little bit?

Paul du Saillant: Yeah. On the added value I think the full work we shared with you in this call earlier. You can see that we have many kicked consumer benefits that we are bringing to the market. We talked about the value expense which is lens for press job, which has been designed with old connected life problematic as a target. And so, we see very good traction for that new lens, because it is addressing our key consumer concern. Eye strain, light - blue light exposure, tie on this with the connected device, stimulating the foundation to photochromic category we have - as you remember maybe launched the style color, which is the in-large color choice for transition which is making to emerge - much more bit more fashion, bit more stylish and we’re targeting single vision [indiscernible] segment for photochromic where there is a lot of opportunity and we are getting good traction with style color both in the U.S. and in Europe. If I take the blue which I talked about. I think you might have heard last evening, Luxottica the blue IQ [indiscernible] has had in the last 5 months great success, why because it is a clear consumer benefit and the minute you start to talk about kicking the store, the consumer embarks, and they accept to add those value, link to this new offering, which is addressing all [indiscernible]. So, yes, as I guide your acceptance is there [indiscernible] you can link in the store to the clear consumer benefit. And I think moving from [indiscernible] the eye is bringing a new very accessible message.

Laurent Vacherot: And thank you, Paul. Fedrick, I cannot resist to elaborate a little bit on what said and what our friend from Luxottica said yesterday. When you look on - at long history of lens cluster in the U.S. and North America, in many occasions, they were the first one to launch innovation. 20 years ago, it was a product [indiscernible] the best anti-scratch product that you can demonstrate to the consumer and when you buy that add-on then the lens last longer. 10 years ago, if you remember for those that followed us at that moment, we created brand [indiscernible] at the momentum at that time. So, we knew that each time lens cluster like any of other customer, they adapt a strong innovation, it's a success, because as a consumer they have need to see the better, to protect their eyes, is very important. And I think it's a key take away that we work with all of our customer independent small regional change [indiscernible] in order to push and develop those categories and when we reach such an alignment, it’s working very well.

Operator: Thank you, sir. Now we’ll take our next question from the queue Antoine Belge from HSBC. Please go ahead.

Antoine Belge : Three questions first of all with regard to the sun division has been a consistent disappointment this year and how are you confident that we can come back to what you had targeted in terms of sales growth and what is in your view the set of a million-ton sales growth that the division should be able to register. And second question was regard to 2018 I know it's a bit early but I think there are two things you were mentioning I think you still have this target of the term stage reaching 6% pure organic growth so maybe could you mention a bit around the timing of that and how we could get from the less than 3% to the 6%. And I think you've mentioned so in terms of deals of component of growth are your bolt on acquisition that to the fact that you are combining your sales with Luxottica that could actually mean a less bolt-on for a little and also an update on this 50 years welcome. And finally, in your prepared remarks you mentioned a lot of HR initiatives and I'd like to know a bit more about the departure of [Indiscernible] so you are still early Harper will have the same reporting line and there is so and responsibilities and since we are talking about CSO are you planning at some stage during 2018 to create a function of groups here for the new entity? Thank you.

Laurent Vacherot: Right, so those are the questions and as usual and let's start with the JLD, you know JLD work with us and constitute ability to the success of [Indiscernible] six or seven years almost. And then she well obviously we are in correct of that season but she got I guess the focus of that [Indiscernible] issues in a country that she feels very well and like very well. And now as any company we have the clear succession plan planned and the chance for [indiscernible] to take that position it's the same position reporting to the Chairman with the same and full responsibility and actually we wish [Indiscernible] a lot of success and a lot of fun. Bolt-on acquisition yes, we said that because of a lot of work to be done and because we don’t want to put too much of pressure on the antitrust authorities we slow down a little bit the acquisition the bolt-on acquisition this year which means as you know most of those bolt-on usually they are in stock going market so it could slow down a little bit the target for next year it could be additional growth of those that we have not done this year will be a little bit of. Now we need to 6% next year and when next year it's a different landscape. We are already projected our self in a different than escape where it's obviously too early to say at which place the combined company will grow. So just to remind you the framework go to the 6% we have the few levels we needed to having in major market 1%, 2%, 3% growth on a regular basis depending a few ways value and then we needed to send the retail division high single-digit, and we're not yet there, we believe we'll be somewhere into '18. We needed ecommerce division growing at 15%, 14%, 15%, and we're there and slightly above. And we needed [indiscernible] market growing at 15% and today we're not, because yes, we know how to grow at 15% in some countries but every year, only one country there is an issue this for the last two years or last 18 months, Brazil, Saudi Arabia and so on, and now it's India. So, this is a little bit the landscape where we're. And that's what we feel. Yes, we believe while with dynamic Costa with MGX dynamic, with Bolon changing its model and that will be done by the mid of next year, yes, we believe it can go back next year to mid high single-digit. I do realize I missed one part of your question which was about this the CFO and I believe we've a process to identify who will be this year CFO, and we'll tell you it will be done and when needed.

Antoine Belge : I fully appreciate about the organic growth, actually I was just trying my luck but on -- I guess bolt on acquisition a bit easier to predict, so do you think that’s even achieving 3% growth from bolt on next year would be a stretch and this year will be closer to 2%, I think bolt on you probably have a better view on the pipeline?

Laurent Vacherot: Well yes and no. We know the bolt on that we have not done this year. So, when it will be done, we'll restart discussion with those companies. How long it will take and so on, we don't know, so it's difficult to plan at the moment exactly, the right figures, but what we are sure off, yes, we'll continue to start from innovation throughout the bolt on acquisition strategy so we continue to expand in key countries, we'll continue to enter new countries and as you've seen in the last few years.

Antoine Belge : So, is it more a question of actually you being -- the management team being tied up in the combination or is it more a factor since you've already sort of occupied the antitrust authorities with the big operation, you sort of don't want to add something in the pipeline just maybe I'd like to understand what is the sort of the main driver for actually doing a bit less in '18?

Laurent Vacherot: It is more the second part which is we're building fantastic combination with the two leaders of the industry and we're focused on this one, and like I mentioned I gave you a few information about what we're doing, it's massive and we don't want to take any risk not to be successful on this one, because postponing the [indiscernible] authorization on this one because we enter with a smaller bolt on somewhere, and then the antitrust are asking more time. So, the main focus at the moment is as we explained, regain the organic on one side and build this combination because really this is what everyone wants to do.

Operator: Thank you. Now we’ll take our next question from the queue Veronika Dubajova from Goldman Sachs. Please go ahead.

Veronika Dubajova: Good morning, gentlemen and thank you for taking my questions. Can I start please with the outlook for the fourth quarter? As I look at the guidance, it does imply acceleration to about 4% organic growth I believe for you to get to the 3% for the full year. Can you help us understand, I think, Paul you touched up on some of these, but what do you think are the biggest levers for you to get there? What’s the single most important thing that has to go right in the fourth quarter for you to hit that 3% for the full year? Maybe let’s start there.

Laurent Vacherot: Veronika, thank you for your question. I will start to answer, and Paul you may add if you want. I think it’s - we have a lot of expectation on the U.S. market, both e-commerce, both lenses, both the sun and readers, Costa [indiscernible]. If there is one, this is dynamic that we believe we have regained. As we said, is the not so - not yet fully recovered the market for full potential market. So, I think this is the one we - which is one of the most important, including equipment as well because part of the minus whatever 6%, 7%, 9% of the third quarter, most of it was in the U.S. So really, if there’s only one and if we didn’t say for all the others, but there’s only one this is the dynamic in the U.S.

Veronika Dubajova: Okay. My second question is on Luxottica-Essilor merger. And I think, Laurent you’ve said, you would prefer to close the merger right as opposed to accelerating the timeline. How are you thinking about any concessions? You’ve told closing the merger, time is less of an importance than closing it right. What about concessions? Are there things you’d be willing to give up to get the deal closed?

Laurent Vacherot: Well, honestly, first we focused a bit of discussion at the moment. We don’t know what the authorities in this world will tell us. So, we’ll start to see when we look. And as a reminder, nine of them, they cleared the deal with no remedies at all. So, let’s push back that discussion when the time will be ready and when we get the information from the antitrust, if any because we don’t know at the moment.

Veronika Dubajova: Okay. Okay. I appreciate that. And then in terms of the management structure, I guess you gave us some very brief outlines of how the new company would work when you announce the merger. Can you talk a little bit more now that you’re further in the process of exactly what the management structure will be of the new entity, not just at the highest level, but I’m thinking kind of the operational management team that would be very helpful?

Laurent Vacherot: On the operational management team, as you understand, both companies will remain the same day one. So, I will continue to manage Essilor, and Mr. Del Vecchio and Massimo will continue to manage Luxottica. And then, yes, there will be a staffing at the - what we called the origin company, still to be defined. And on the top of it, as you know, there will be this integration committee that will decide some of the few projects we want to drive together in order to create value and its synergy and those will be staffed accordingly to each project with teams from both companies and that's where the way we see the first steps of this combination.

Veronika Dubajova: Okay, and when would you expect to tell us what the management committee or who the management committee is composed of for the holding group?

Laurent Vacherot: No, at the moment we have a Board where we know the Board member that that's been approved by the shareholder meetings in the middle of May we have a Chairman and a Vice Chairman that you know and for the moment that's what we can say.

Veronika Dubajova: Okay, understood and then my last question is just on housekeeping I didn’t catch you talk about the U.S. transition sales to third parties. Can you just give us an update on what happened in this third quarter and how we should be thinking about it and looking forward? Thank you very much.

Laurent Vacherot: Well, I think while the Paul is looking at the figure I think we saw a slight improvement but it is still negative one of the customer transition, there were three major customers outside customer or yet license vision and younger. So, it seems the dynamic is a little better with [indiscernible] at moment and the teams are more working together and as you know at the same moment we are developing a lot of energy and we change a little bit the organization inside this below who have been each key country the transition leader that is developing plans so we push and accelerate growth of transitions through Essilor entities in those 12 or 14 countries.

Operator: Thank you. Next question comes from Julien Dormois from Exane.

Julien Dormois: Three questions if I may. The first one relates to the U.S. markets just trying to get a bit more of an understanding because as you highlighted you would expect Q4 to be a bit stronger on your side and that should help you get to your full-year guidance. But at the same time in the release you mentioned that the market is quite attractive at the moment so it is mostly your function of the hurricanes and of one-off effects and do you see $1 million improvements in U.S. market or does the situation remains very much of the same and it has been in 2016 and if so what is the rationale behind this because it is now nearly two years that the market has been a bit weak so how would you explain that. The second question relates to Bolon, let's say that you mentioned just the return to a sustainable growth from '18 onwards. What would you say the sustainable growth at this company is it in the double-digits or are we talking about mid-to-high-single digit. And the last question is a housekeeping one till on transition but this time on the internal sales if you just could tell us what the growth has been at transition in-house both volume and reported growth piece.

Laurent Vacherot: Okay, so what maybe I will start with the U.S. market. What we believe is number one, without delivery can we are growing almost 4% organically in easy ways based on full initiative as we described plus the market which is as I said not get fully recovered at its full potential. As you mentioned yes, it's two years that we see this market a little bit sluggish so we strongly believe it will reaccelerate at one point of time, but really, we're going at 4% at the moment and October is off to a good start. Bolon, what would be the non-material growth? I think it should be maybe not into '18, but it should be high single-digit, low double-digit, after year, so I'm sure the Bolon team are listening and that we'll have a lot of call after that but that's what we're looking for like we said, two or three years ago when we made this acquisition. And then the short question, Transition, maybe Paul you can elaborate in terms of Transition.

Paul du Saillant: Yes, so the sales of Transition by Essilor the trend in Q3 has been in the same trend as H1, so we've in the mid-single digit speed and we continue to build around what we said, so refocus organization into Essilor the media program has been connected very well with the campaign on [indiscernible] I gave you an example in the U.S. which is very promising, and also the innovation pipeline is being strengthened.

Julien Dormois: Just precise on that mid-single-digit growth at Transition, that's both volume and price, well I mean reported and volume, there's no price effect?

Paul du Saillant: I was talking volume.

Operator: Thank you. Next question comes from Alex [indiscernible], Morgan Stanley, please go ahead.

Unidentified Analyst: Thanks for taking my questions, I only have one remaining and it's on your ecommerce business, it's good to see that online business is continuing to spread on the team's level, are we starting to see the investments that you've made in H1 start to materialize for this business, should we expect to see some of the initiatives produce results quicker than you had anticipated, given level of organic growth in the business?

Laurent Vacherot: So, you know what we've done in the last 12 months, first we've structured the organization with [indiscernible] with Roy and so we've a much more robust and top-class organization now than one year ago. Then we think found the way to [indiscernible] that was kind of a problem for too many quarters, on track, by repositioning the offers especially in the lens business, in eyeglasses business, at a price, quality that is the one where ecommerce is very successful. Third as this more recent acquisition of Vision Direct UK, which is expanding base in London, specializing in contact lenses which is recovering in Europe, good brand, offer trust for consumer to get contact lenses and replenishment of contact lenses, it's very easy and they've a great system, a great CRM, and they progressively replace the one we had in each and every country so we're building a really a strong brand of commerce for contact lenses. I think those are the main initiatives, we still have a very fast growing EyeBuyDirect, this company is big in China delivering eyeglasses to North America and I think that’s the main success that the team achieved in the last 12 months and it’s starting to pay. You see the organic growth going very fast and you see as well, and we see some improvement in profitability that we are confident to reinvest to accelerate the growth. On top of it, there is the brand e-commerce type of sunglass, Costa, Bolon, FGX, which are growing very fast, double-digits, starting by 2 or 3. So which means that mono-brand e-commerce is doing very well as well.

Unidentified Analyst: Okay. Thank you. And if I could squeeze in one more. On the hurricanes that you have the impact of 0.5 percentage points organic growth in Q3, how much of that do you anticipate coming back in Q4? Can you quantify any of it? Thanks.

Laurent Vacherot: No, we believe situation is almost back to normal now, but difficult to assess.

Unidentified Analyst: Okay. So, you're not anticipating a kind of rebound of some of the lost sales?

Laurent Vacherot: Well, we expect. We expect that consumer that didn’t get and buy the eyeglasses in the end of August in Houston or start of beginning of September in Florida, they’ll come back and they get an eye examine and go back to our eyeglasses in the next coming weeks. But you know, I cannot plan for that.

Operator: Next question is coming from David Cerdan from Kepler Cheuvreux. Please go ahead.

David Cerdan: Yeah, good morning. I have just two questions. First one is on e-commerce. What are the revenues you expect for the full year? And second question is regarding your confidence in getting an approval before the end of the year, while the European watchdog says that these investigations should continue up to the end of February. So, do you really think that you will get the approval before the end of the year or is it better to say that this could happen in Q1 2018? Thank you.

Laurent Vacherot: David, very simple question. Actually, I don’t’ know. If we speak about the European Commission, they ask us 10 more days, will they use it or not, I don’t know. And so, let’s be - I don’t know if t’s confident, but let's take it with serenity and wait for that organization and those organizations to tell us what they think at one point of time. Let them make their homework and their job again a quality job and we'll see. So that’s all I can say at the moment. And then, e-commerce for the full year, I think it’s around maybe 5%, 6% of sales of the total group. So, €500 million, if you need a number.

David Cerdan: And in this number, you include the sales of Costa, Bolon, FGX?

Laurent Vacherot: Yeah, yeah. The full business e-commerce, brand lenses, compact lenses, sun glass, optical glass and so on. Absolutely.

Operator: Thank you. [Operator Instructions] We will take our next question Delphine Le Louet from Societe Generale. Please go ahead.

Delphine Le Louet : Further question regarding sunglasses and readers it's very hard to understand exactly what's going on into those segments and into the underlying markets especially with the growth that we've seen as Luxottica yesterday night, so could you tell us exactly SGX contribution of the growth which was 0.2% that you are seeing over the quarter. Second one question will deal with the U.S. situation and especially in front of the one that we are seeing in Europe where you had a quarter in advance in term of innovation launches and so can you tell us in the U.S. how much new products contribute to the 2.3 organic growth that you are seeing. Thirdly on the internet decision and growth is there any possibility to get a breakdown between U.S. growth let's say or U.S. and Canada growth and European growth and just to get a better feeling and also forecasting for the next quarter so just as where we land into that division. Finally, can we get a comment on the flexibility and the sort of a huge viability that we see on the equipment side Q2 versus Q3. Did we had a postponement in Q3 was it on an exceptional situation in Q2 how should we look at the organic growth in Q2 if we say well Q2 was exceptional on the equipment side. And finally, can you elaborate because I'm not sure I clearly understand what do you mean by when the European Commission asks you to get 10 more days is that 10 more days out of the February 12 days or is it as of now, how does that work exactly? Thank you very much.

Laurent Vacherot: So maybe Paul would you start with the equipment division and then I will go through the other one.

Paul du Saillant: Yes, the equipment division will have seen a good year. In an equipment activity you have flow of order some of the drugs to be there on can be larger overall several quarters so the invoicing is progressively done. So, I think you have to be careful to take quarter-by-quarter the number. Clearly, we had a good first half we will have a very decent second half and altogether the year will be good, it would be a nice organic growth. So, you add in between the Q3 and the Q4 you add some of the shipment that we have not done in September that we have done in October and that would-be part of the Q4 but altogether the equipment division is working well, they are all taking energy profits at extremely well positioned, they are used of placing equipment extremely productive, they have very good positioning equipment. The whole demand for coaching is strong, you heard about the blue offering, the [Indiscernible] so all of that is creating demand for effective tools in the last in the plans. So, the division is well positioned very competitive.

Laurent Vacherot: Yes, thank you Paul technologies is the art of producing good quality and high-quality lenses and as the demand everywhere in the world is becoming bigger, consumer and eye care professional for better lens then [indiscernible] to invest in equipment. So, lot of questions, so I'm going back to sunglass, you asked the question on Foster Grant in the Q3 it was still slightly negative and we expect the Q4 because of new contract and new shipment at almost double-digit, so that's the situation for Foster Grant. New product contribution in Q3 in the U.S. actually, I don't have the hard figure but actually the real norms full nationwide was mid-September at Vision Expo West in Last Vegas, I don't have the exact date. So, it's optimistic, thank you. So, the best is to come and Q4 will be the first quarter with the full launch of Varilux X plus the new Crizal plus the Package with Transition plus the new Eyezen, so the best is to come in my opinion and this is why in the previous answer I also said that if there is one thing that we need to happen on the top of among all other things it's U.S. doing well. Then ecommerce, in Europe it's that close and tracking between Europe and U.S., Canada around 15% growth organically, a little bit on Europe at the moment, a little bit slower in Canada and U.S. for that quarter. So, quite a strong dynamic.

Delphine Le Louet : Regarding the 10 days asking from the EC?

Laurent Vacherot: A lot of people they're looking at that in detail, actually we -- the European Commission want to know all the detail, number one they ask us not to file during the summer, second, they ask us more time because they need more time to do a quality job and we said yes obviously, you take the time you need, and that's it. And maybe they will come back in a few weeks saying final year it's clear, there's nothing anything, maybe they will end -- they will wait for the 25th of February and we look at that with serenity and confidence.

Operator: The next question is coming from [indiscernible] from RBC Capital Markets. Please go ahead.

Unidentified Analyst: Could you just help us understand the performance of your North American optical business in relation to independents versus retail chains, it looks like the independent side of the business is doing very well and if I compare that to Luxottica's lens crafted business last night, I just get the impression as maybe as structural headwind for the larger change, if you could just give us any indication of how you're seeing the business performance based on the retail format? Number one. And then number two, just in terms of the pricing environment in North America. I think you mentioned that in the fourth quarter you have the full product offer for your optical product, could you just help us understand how the market is set up with respect to pricing and how -- what the appetite is from end consumers and also your customers, in terms of full price fall-through versus markdown risk? Thank you.

Laurent Vacherot: Okay. So, your first question is about the dynamic of the different channel, independent versus retail, organized -- more organized retail. On a long history and long period of time, actually we have seen quite stability with a little bit of gain of market share for independent. Thanks to the doctor reliance that they did prefer at the time. So now if you look at each player and first our business is quite well balanced between as far as growth between those two segments. If you look at LensCrafters, specifically, which is long, long term history of a customer as you know, I think they were very open to that, they are going through a very courageous transformation of their model. They have been very successful in pushing brand of France for the many, many years. From time-to-time, they have put innovation for lenses and this is what’s happening at the moment. And in order to do all of that, they need to change their one-hour model and to switch to a more traditional model and this is what they are doing at the moment. So, its complex, as any customer going through that kind of transformation, we help when they ask and we’re esteemed to be able to help them to do so. And that’s what happening at the moment that creates, maybe, some perturbation in their business that Massimo mentioned yesterday. Now there is other customers of big retailer doing very well at this moment. So, you can name [indiscernible] you can name Walmart, you can name Costco. And as you know we are working with all those customers about innovation, efficiency, technology and more recently when we acquired that doctor reliance that's showing [indiscernible] 9,000 of the top optometrists in the U.S. that we're building like Paul explained, a lot of systems that integrate their organization and ours and will help to push faster innovation in new product that we just launched in the U.S. So, this is why it takes so much time, if I may say, so. It's not just because of the product. It's because the integration, the logistic integration and physical integration between those doctor reliance members and us have to be built. So, they’re launching very efficient. [Piral], are you still there?

Unidentified Analyst: Yes, and that’s great. Thank you very much and just in terms of the pricing environment?

Laurent Vacherot: Well, you know each time we introduced new product, we create a little bit of more value, because it provides better, more comfort and more performance and better performance to the consumer, and it’s what we call kind of mechanism that is the one that works for forever. I think in the last 25 years I have been with Essilor. So, we are in that mechanism to gain a few more dollar every year, for every new launch and every innovation.

Laurent Vacherot: So, I think this is the end of the question-and-answer session. Thank you very much for your time and your interest in Essilor, and I think the next meet - the next gathering together will be 1st of March, 2018 in order to report the full-year results of Essilor and meet all of you at that movement. So, thank you very much have a great day.

Operator: Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen. You may now disconnect.