March 8, 2019 / 7:48 AM / 4 months ago

Ray-Ban owner suffers from lack of clarity on strategy

PARIS (Reuters) - Shares in EssilorLuxottica fell on Friday after the maker of Varilux lenses and Ray-Ban glasses pushed back the date to reveal its long-awaited post-merger plans amid speculation of an internal power struggle.

FILE PHOTO: Sunglasses from Ray Ban, a Luxottica owned brand, are on display at an optician shop in Hanau, Germany, March 18, 2016. REUTERS/Kai Pfaffenbach/File Photo

The company was formed by a 46 billion euros (39.4 billion pounds) merger of France’s Essilor and Italy’s Luxottica two years ago and was reporting combined results for the first time.

It pledged to deliver on cost savings and forecast stronger revenues this year, but its shares fell on concerns over governance and the postponement of a long-awaited investor day to set out its strategy. The date was pushed back to September 18 after initially being expected this spring. No reason was given.

Nevertheless, EssilorLuxottica predicted sales growth of 3.5-5.0 percent this year at constant exchange rates and stuck to its aim of achieving annual savings of up to 600 million euros within five years by improving products, logistics and cutting costs.

The Paris-listed shares of EssilorLuxottica were down 4.8 percent to 103.45 euros by 0905 GMT.

Investment bank Citigroup described the update as uneventful and kept a sell rating on the stock.

“While we see the low end of the top-line range feasible, we still see risk of disappointment ahead in the year as integrating the two companies might be more complicated than it is on paper,” wrote Citigroup.

EssilorLuxottica said that its management teams were working on strategic and business integration, along with governance issues.

While the merger was praised by many investors as a smart strategic move, given expectations of strong demand in future for their products, some minority shareholders have publicly voiced their concerns over governance issues.

Under the terms of the merger, Leonardo Del Vecchio, founder and executive chairman of Luxottica, and Essilor CEO Hubert Sagnieres are sharing powers for the first three years.

The company has said it would look for a new CEO to be appointed by the end of 2020 but investors are speculating about a power struggle behind the scenes.

Revenues of EssilorLuxottica were up 3.2 percent last year at 16.16 billion euros at constant exchange rates while net profit came in at 1.9 billion euros, down 1.7 percent on what the company said was an “adjusted basis.”

With a currency effect of 4.4 percent, due to the group’s exposure to the U.S. dollar, reported revenue was down 1.2 percent. Adjusted operating profit margin stood at 15.9 percent down from 16.5 percent in 2017.

Analysts were on average expecting net profits of 1.6 billion euros and revenue of 15 billion according to Refinitiv data.

Reporting by Matthias Blamont; Editing by Sudip Kar-Gupta and Elaine Hardcastle

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