EssilorLuxottica reports 2019 profit growth, predicts sales lift in 2020

EssilorLuxottica expects continued profit growth this year after stronger 2019 results, saying on Friday the outbreak of coronavirus had not hit output at its Italian factories and its production in China was getting back to normal.

The owner of eyewear brands such as Ray-Ban and Oliver Peoples, said the coronavirus had, however, hurt its Chinese business, which represents about 5% of its total revenue.

Shares in EssilorLuxottica were down 3.24% in early trading, reflecting fears of disruptions to business from the coronavirus could lead to a prolonged global economic slowdown.

“In terms of production, EssilorLuxottica plants in China are currently operating at slightly reduced capacity, which is quickly normalizing, while the plants in Italy and all other locations are currently running at full capacity,” it said.

Formed in 2018 from the merger of French lens maker Essilor and Italian eyewear group Luxottica, the company said adjusted net profit, which strips out acquisitions and other costs, rose 4.8% at constant exchange rates to 1.94 billion euros ($2.18 billion) last year, enabling it to exceed targets.

EssilorLuxottica, which expects the coronavirus epidemic to fade, forecast its sales would rise 3%-5% in 2020 and adjusted net profit growth to reach up to 1.2 times its revenue growth.

A series of challenges nonetheless faces it this year with governance at the top of the list.

Its merger was plagued from the start by rows over who should run the business. These culminated last year when Luxottica’s founder and largest shareholder of the new entity, Leonardo Del Vecchio, began an arbitration process.

This was soon abandoned, with the parties pledging to find a new chief executive by the end of 2020 at the latest.

This week the group said co-chief financial officer, Hilary Halper, was stepping down. It gave no reasons for her departure. She was replaced on Friday by David Wielemans, formerly a CFO with Essilor’s Sun & Readers unit.

Governance issue led some investors to express concerns over the company’s ability to deliver on the merger and the promised cost cuts of up to 600 million euros a year from 2022.

Third Point, a U.S. hedge fund known to have pushed for changes at companies ranging from Nestle to Campbell Soup, has recently pressed EssilorLuxottica to boost earnings and urged it to “accelerate leadership transitions”.

EssilorLuxottica will also need to convince regulators its proposed acquisition of Dutch opticians group GrandVision  for up to 7.2 billion euros in cash will not push up prices or reduce choice for consumers.

EU antitrust regulators are investigating the case. Their decision is expected in July.