EssilorLuxottica - Seeing into the future
November 2023
EssilorLuxottica (EL), a French company founded in 1961, is a vertically integrated retailer of glasses, frames and vision related products. It has been owned by Dundas Global Investors since 2016.
EL was purchased following a sift into the global vision market which highlighted a large and growing market of $140bn which is resilient to economic cycles given its medical and non-discretionary nature. Ageing populations, rising wealth in emerging markets combined with many people suffering from uncorrected vision, new product development and a consistent replacement cycle were identified as long-term growth drivers.
In addition to these organic growth drivers, EL has engaged in significant M&A completing 250 deals in the last 20 years. The largest and most important was the merger between Essilor (lenses) and Luxottica (frames and sunglasses) in 2019 and the recently completed acquisition of GrandVision (global retail stores). The result is a vertically integrated global goliath with a 20% market share of the total vision market.
The chart above highlights another long-term growth driver namely, the increasing prevalence of myopia, or short-sightedness, among the global population. The chart, based on data from the Brian Holden Institute, shows that 2.6bn people have myopia today which represents 34% of the world’s population. The data predicts that by 2050, 50% of the world’s population will have myopia, which will equate to a staggering 4.7bn people who will require corrective vision treatment. Prolonged exposure to screens such as phones and tablets is also cited as a long-term growth driver as this will mean decades of growth for companies such as EL.
EL has increased its dividend by 16% per annum over the past five years to 2023 (with an average pay-out ratio of around 50%) which leaves 50% of the annual profits to predominantly be reinvested in R&D and CapEx to drive future growth.
Drivers for future growth:
• Rising prevalence of short and long-sightedness – vision problems linked to rising screen time usage amongst all ages of the population.
• Demographics – ageing populations particularly in developed markets.
• Emerging markets – rising wealth and large pool of people with uncorrected visual impairments.
• New product development – R&D is increasingly productive, for example the recently launched “Transition lenses” use sensors to auto-dim in different lighting environments.
• Replacement cycle – glass wearers have consistently replaced their glasses every two to two and a half years.
FOR PROFESSIONAL INVESTORS ONLY
Dundas Partners LLP is authorised and regulated by the UK Financial Conduct Authority, registered as an Investment Adviser with the US Securities and Exchange Commission and holds a Foreign Financial Service Providers License with The Australian Securities and Investment Commission. It operates as Dundas Global Investors.
You should be aware of the risks associated with investments in interests of any investment product. Past performance is not necessarily a guide to future performance. The information contained herein is distributed without warranty of any kind, either expressed or implied, and should not be interpreted as investment or financial advice. This document and its contents are for information purposes only and are not an offer to sell or solicitation to buy interests in any investment product. This article has been produced for professional investors only. If you are unsure about any of the information contained within this document, please contact Dundas Partners.
This article may not be reproduced, distributed or published in whole or in part without the prior approval of Dundas Partners LLP. The contents are based on sources of information believed to be reliable; however, no guarantee, warranty or representation is given as to its accuracy or completeness. If it prompts an interest in Dundas Global Investors, please contact us for information on our funds. This article is not a substitute for a fund’s prospectus or disclosure document. The commentary expressed addresses general investment matters only, not Dundas’ specific strategies.
