EssilorLuxottica SA

PAR:EL

Earnings Call Transcript 2018-Q1

[Laurent Vacherot, President, COO & Director]

Good morning, and welcome, everyone. It's very sunny in Paris today, which is a good sign for the sun season coming in. I am with Paul and Hilary, and obviously, all the investor relations team and we are here to comment the activity for the first quarter of this year 2018. So you have seen this morning, we reported sales of EUR 1,825 million, up 3.8%, excluding currency effect. We show a 9.6% negative effect on currency, 2/3 of it coming from the U.S. dollar versus euro. We expect this currency effect to reduce in the second part of the year and based on the exchange rates at the end of March, the effect should be reduced to about -5% for the full year 2018. On like-for-like basis, we deliver 3.2% growth, totally in line with our expectation and plan, and we confirm our objective of around 4% like-for-like growth revenue for the full year. In Q1, the team have continued to execute our growth strategy in order to achieve our goal of eradicating poor vision around the globe in one generation. The fundamentals of the business are solid and the underlying momentum is good. There has been many positive development that I will discuss with you in a moment. On product launch, on e-commerce, on Sun, Readers, and in most of the fast-growing markets. Those positive developments were partly offset by 2 factors, first, adverse weather condition in some part of Europe and in U.S. during the course of the quarter; and second, Easter with a slight impact in number of the days for the quarter globally and a bigger impact in regions like Latin America, where a lot of businesses were closed during the entire Easter week. Finally, as expected, the scope effect was limited. And as you know, we are currently resuming our bolt-on strategy, and we should see the first positive effect in the second part of the year. Now let's discuss the dynamic region per region and division per division. First, for the Lens & Optical Instruments (sic) [ Lenses & Optical Instruments ] division, this division delivered 3.6% growth, excluding the currency effect, and 2.9% like-for-like. As I said, this is the division, especially in metro country, which has been affected by poor adverse weather conditions in Northern of the United States as well in major country in Europe, so that's Spain, U.K., Italy and Eastern country. If we go specifically to the U.S., the growth was 3.6% in line with our mid-term ambition for the U.S. It's a good number. It's, as we know, much lower than it was in Q4, but we knew Q4 was an exceptional quarter. We saw continued success of our new product, namely Varilux X series and Crizal Sapphire that we launched in the second part of 2017. We see continued success of the intimate package that combined [indiscernible] Varilux X, Crizal Sapphire, and Transitions; and for younger population, Eyezen, Crizal Sapphire and Transitions. We also see very good results from the growing network of Essilor Experts, [ Zoza ICAP ] official that decided to be closer to us and benefit for all our new products, solutions for them, education and traffic generation for them. They are developing months after months. We sign up -- we enroll, in a sense, 1,000 of them in the first quarter, which is very promising for the next -- the rest of the year, and we have now close to 3,500 Essilor Experts and results are amazing. In average, our growth with Essilor Experts is double-digit and their rules, which is most important, they're growing faster than the market, they are growing mid-single digits in the market, as we know, is still flattish. So this positive trends for the Essilor Experts and a very well-received program, it's a very good indication on how we can accelerate the key categories and our innovation in the second part of the year. If we go to Europe, early growth came from Eastern countries, including Russia where some of those countries are growing very fast. We have also the growth in France despite the market sluggishness. This was achieved, thanks to our efficient multi-network strategy and well-received innovation for harmful blue-ray protection. In Europe generally, we continue to benefit from the growth momentum of Varilux X series progressive lenses, and we are launching at the moment the new Crizal Sapphire everywhere in Europe. We also see acceleration of the Nikon lens brand and overall, in those 2 main regions, the growth in these listed by the good performance of online activities, which posted double-digit growth, again, this quarter. And within this performance, we are identifying now kind of winning business model, which are delivering value and that we implement everywhere. Delivering value means fast growth and quality margin. This is practically the case for EyeBuyDirect in the U.S. and Vision Direct and Glasses Direct in Europe. All our platform are now implementing buy-one-give-one program, where each time a consumer buy a pair of eyeglasses, one pair will be given through our foundation, Vision for Life, to someone in need. And we see great feedback from consumer on social network. It seems it's very important for younger population, especially. And also developed market, Japan had a strong quarter, up mid-single digit. Thanks to our new product and also business with retail chain and this is offsetting a still challenging situation in Australia. Let's go now to fast-growing market and first, Latin America, probably the biggest -- and the biggest satisfaction of the first quarter is what we are seeing in Brazil. I was with Paul 3 weeks ago in Brazil, and we have seen a very dynamic team with a lot of energy, and we believe in Brazil we've turned the corner and we see -- we will see Brazil accelerating months after months. Thanks to innovation and new products, obviously. We just started to -- they just started to launch Varilux X at the fair -- the Brazilian fair, which is Abioptica at the end of March, and it's up to a very good start in this country. In other country in Latin America, Colombia and Argentina are quite bullish and in Q2, this region should benefit from the calendar tailwind as we will compare to a much easier base due to among others the Semana Santa, an acquisition in April last year and we -- that we suffered from in March this year. So in Latin America, we are quite positive about what we will see in the next coming quarters. Let's go to Asia now. In China, let's stop by China. We were -- 2 weeks ago, all the management team in China and here again, we saw a fantastic team with a lot of energy and a lot of initiative to drive growth. We are seeing a strong momentum in China double-digit growth in domestic plans business for both Essilor and all our partners in Danone, in Xiamen, in Shenzhen. On top of the ongoing success of blue filter -- blue light filtering lenses, the development of our myopia strategy started to pay off, this is something we started mid-last year where we have a small division, which is just dedicated to build and deliver services and products to help consumer to slow down evolution of myopia. Online also grew very fast, also it's a small base but grew 50% across all our brand and platforms. On the retail side, MJS and Aojo increase their presence in tier 2 to tier 4 cities and are starting to offer consumer upgrade in lenses. It's a very powerful difference and faster for this chain and the results are amazing. The lens business is growing at 20% in those chains. So thanks to all the effort done in the last 2 years at Bolon. They have now a state-of-the-art supply chain. They can track sell-through SKU at store level and obviously online. They manage selling sell-throughs at wholesale level and they manage inventory at wholesale level and the new factory in Xiamen is up and running. As a result, the selling -- revenue, which was quite soft in Q1, will be much better in Q2 and following and actually, we see a very strong April months for Bolon at the moment. And those are fast-growing markets in the region, we stick to our fundamentals, new product launch driven by Varilux X and category development focused on progressive lenses. We are methodically deploying this program in Korea, in Southeast Asia and in Turkey and the results are out there. India grew mid-single digit. And in India, we are already creating the market of tomorrow. We have deployed 4,000 Eye Mitra, Vision Entrepreneur and process should continue to date. And we are very proud to say that we have the largest global optical franchise network in the world. Also, we have a great news. The state of Telangana, which biggest city is Hyderabad, committed to screen its $35 million citizens and they selected Essilor's inclusive business 2.5 and Next Vision Generation, which means we will send to them 4 million pair of eyeglasses. I think it's a fantastic success from the Indian team and the Next Vision Generation team. As you can see, totally aligned with our mission, we are building the consumer base and the access to good vision for the future. Let's go to the Sun & Readers division now. We posted a very solid good quarter with 6.6% like-for-like growth. In the U.S., Foster Grant, FGX, delivered a good performance on the back of new contract and solid consumer demand. As an example, the point-of-sale sales that we can track in 80% of the business with big customer. For the quarter grew at almost 6% for reading glasses and between -- and at 4 -- 3.4%, so very high demand for those products in the first quarter. The expansion of Bolon and Costa brands in the optical frame segment reflects also the quality of both brands, equity and represent another source of growth this quarter and going forward. And as I said earlier, this performance was achieved while Bolon sunwear business was keynote at full speed, because of some shipment plan for Q2, so which is off to a very good start. So what's next? I think that's a question you all have. You all want to understand. Why do we believe momentum will accelerate for the rest of the year. First, Easter is behind us. There is no Easter in April and going further. So in Q2 and that's important. In Q2 and beyond, we'll benefit from the full deployment of new product in all region now. This is starting in Europe only Q2 with the launch of Crizal Sapphire in most of the countries. This is finalizing the introduction of Varilux X series in Latin America, in Asia. And in the U.S., we will introduce Transitions type colors which bring 4 additional colors to the brand and give a much younger image to the brand. In the Sun & Readers division, we will see the full benefit of the Bolon acceleration. We will also see the benefit from Brazil back to growth with solid backlog in the Equipment division and acceleration in equipments. And overall, I think we could say that April is off to a very good start. So we believe that our momentum is good, not fully captured in the numbers of the first quarter and that the underlying trends we are experiencing are consistent with our ambition to grow sales around 4% like-for-like for the full year. So before entering the Q&A session, I want to come back on 2 great news which happened to us in the last weeks. Two weeks ago, we announced a break-through photochromic innovation that will expand access to Transitions Light Intelligent Technology to contact wearers. After many years of joined development between Transitions Optical, Essilor and Johnson & Johnson, they are about, Johnson & Johnson, to launch the first photochromic contact lenses in first part of 2019. It's a really game-changing innovation that will allow additional number of the population to benefit from the protection and the comfort of the Transitions Light Intelligent Technology. It will accelerate the development of the photochromic category, especially for younger population and also increase awareness of the Transitions brand. The second news I want to comment with you is also 2 weeks ago, Essilor committed to be an active partners with the Vision Catalyst Fund, it's a $1 billion initiative, $1 billion initiative, which is quite a big initiative led by the Queen Elizabeth Jubilee Trust (sic) [ Queen Elizabeth Diamond Jubilee Trust ], developing access to care, to vision care in the Commonwealth and beyond. Under this partnership and based on our proven expertise in vision capability building, we will provide over the next 10, 15 years, 200 million people living below poverty with ophthalmic lenses and doing so participate to the eradication of provision within one generation. This is a very powerful way to help people to see better and to live better, but also to unlock consumer of tomorrow in a world of good vision. Finally, I want to share with you where we stand regarding the preparation of the combination with Luxottica. Since March 1, which was the last time we talked with you, we got final approval with no restriction in Brazil and in Singapore. We continue to work to obtain clearance in China and Turkey, so we plan for the combination to be finalized for the first part of 2018. So that's what I wanted to share with you as an introduction to this call, and I think now we can start the Q&A session.

[Operator]

[Operator Instructions] Our first question today is coming from Antoine Belge calling from HSBC.

[Antoine Belge, Global of Consumer and Retail Research]

Antoine Belge, HSBC. Three questions, if I may, First of all, sorry to talk about weather. I know it's a bit of a tedious subject, but is it possible maybe to one -- you've tried to quantify the calendar impact on the like-for-like and I understand -- on whether -- I understand why it's affecting the Sun division, but in the past it was not really the case that you would blame the bad weather conditions. So in terms of the lens business, how is it -- how did the bad weather impact your business and also in terms of consumer behavior, I mean do you expect to -- those resources would be purely lost? Or is this some kind of catch-up effect which should be expected maybe in Q2? Second question, I mean you just mentioned this new venture in terms of photochromic contact lenses. I know it's hard to put a figure, but if there is some kind of data that you could share with us in terms of the potential market or sales that you could be achieving? And finally, on the combination with Luxottica, I think alongside the AGM, Luxottica mentioned that they were expecting some kind of small issues in China or concession that should be made -- or actually they said that it would more come from the Essilor part. So is that something that you could maybe tell us on that topic?

[Laurent Vacherot, President, COO & Director]

Thank you. Thank you, Antoine. So I will take the question 2 and 3. And maybe, Paul, you could comment on the weather, what we can say. Obviously, it's difficult to measure. We know it has been extremely poor condition in Northern part of the U.S. and some major countries in Europe. So Paul.

[Paul du Saillant, Chief Operating Officer]

Yes. This is Paul. On the weather, it's true that we'd rather not comment the weather on the lens. But actually, that was in -- both in the U.S. and in Europe, in February some pretty drastic weather condition. On the North American sales, we estimate that this cost us 50 basis point on the growth of the U.S. in the first quarter, very -- more precisely in Europe, as you ask for some more granular information. When I look at the weather conditions in Europe, which I estimate cost us around 1% of growth on the first quarter. We lost full 2 days of traffic in the stores, in the U.K. and Ireland where the stores closed, we actually had to close our factory in Bristol. We also have some lost days in Spain, Italy, Ireland. So it was pretty tough. Now to your question, do we recover those consumer? We will see with the months to come, but for sure on the February month it disrupted the operation and the traffic, and actually, we saw pretty low traffic in the U.K. retail. So that would be what I could share more specifically.

[Laurent Vacherot, President, COO & Director]

So thank you, Paul. So we don't speak many time of the weather. So if we speak today about the weather, it's really that it is, in fact, difficult to quantify, significant and this is may be one of the reasons why we are very confident for the Q2. In the Sun, the impact on Sun -- on the Sun division has been not so strong, because as you know in the U.S., Costa is really more in the South Florida, south part of the U.S. and West Coast and not that much in the Northeast of the country. In China, the sun season really started mid-March, and we saw -- started mid-March week-after-week improvement and great sales. So this is a reason why it hasn't been so affecting the Sun activity. So your question on the photochromic contact lenses, which is obviously a huge breakthrough in the industry. So no, I cannot deliver figures. I can tell you that there's 2 parts Essilor will benefit of it. Obviously, some license for technology and brand and also some sales of dyes that will help Johnson & Johnson to produce those contact lenses. But maybe the biggest part of the growth for us will come from our distribution of contact lenses network. You know that, obviously, e-commerce -- our e-commerce sites are selling a lot of contact lenses and also the wholesale in the U.S. and some country in Europe are selling contact lenses. Actually, we are one of the biggest customer today and more importantly, in the future as well of contact lenses manufacturer. And finally, I really believe that what I said about how it will accelerate the development of the category, make this category well-known for younger population and improve and accelerate the brand image and the brand awareness on Transitions will have an effect on the food category. So obviously, all of that will come progressively into '19, but it's really something we are very happy about. It has been a long journey, more than 10 years of development, which means it's quite unique. It's an Essilor and Johnson & Johnson proprietary product. So we really expect to benefit in those many dimensions from that innovation. Antoine, your last question was on China. So as you know, the 2 remaining authorization we are working for and working to obtain are China and Turkey. In those 2 countries, at the moment, we don't have really yet the written, what we call [theory of arm] from the authorities. So it's difficult to say how we can cope with that situation. I think we are in those 2 countries, with those 2 countries and those 2 administrations in China and Turkey at a point we were with almost all the other 18 countries where we get approval without any condition, which is a final part where they should give us some information about really what -- really believe about what we are doing, and then we'll see what we can do and what we have to do. So a good chance that they will still say that we don't have any [indiscernible] with any remedies. So that's what I can share with you from my knowledge on this topic.

[Operator]

We'll now go to Mr. Cedric Lecasble calling in from Raymond James.

[Cedric Lecasble, Financial Analyst]

Cedric Lecasble, Raymond James. I have -- some 3 questions, if I may. So first one, maybe a follow-up on your recent comment from China and Turkey antitrust. Turkey is not conditional to the merger, China is. So assuming that China is faster than Turkey, do you really need to wait for Turkey? And if it takes months, what can you do to go faster, that's the first question. The second one is on the facing of the impact of new product launch, in the AGM, you gave a very precise slide with a different regions and the different launches. Can you help us a little bit to understand how supporters will face in terms of potential positive impact from these launches [ state in the rest ] of 2018? And the last question is related to fast-growing markets, India seems to be a little better. China you're more positive. What kind of growth can we expect maybe not tomorrow, but mid-term, you used to have 15%, 20% growth in past years so quite some time ago. Can we come back to at least 10%, 15%, what's your view on these markets?

[Laurent Vacherot, President, COO & Director]

Okay. So I will answer your first question about the combination and then Paul will take maybe the more precise quarter-after-quarter product launch and we'll go back to India and China at the end. So yes, you're right, the approval from Chinese authorities are the last condition precedent, so when it will happen, we'll be able to conclude the transaction. So contractually the combination agreement, but legally it will be different. In a situation you propose where we got China and we still are waiting for Turkey, we will have to discuss together what do we do in Turkey, I think those countries -- these countries being very important for the future of value creation of the Essilor-Luxottica combination. I think that will be of value to spend a few -- to extend a few days, a few months to wait for finding the right way to solve that issue.

[Cedric Lecasble, Financial Analyst]

If I may, could you maybe help us understand the weight of Turkey for -- maybe for the combined company?

[Laurent Vacherot, President, COO & Director]

For the combined company, I don't know. I don't have access to Luxottica figures. For us, it's around EUR 60 million, EUR 70 million sales, but the potential it's 90 million habitant country, growing fast. So potential for the future, it's quite amazing. Paul, would you like to comment on the second question.

[Paul du Saillant, Chief Operating Officer]

Yes. Sure. So we have -- as we told you almost a year ago, we were entering into new product launching momentum. We started, I remind you last year, with the Eye Protection System (sic) [ Eye Protect System ] in the first half then middle of the year, second quarter, we launched in Europe Varilux X then later on in the year in the U.S. Varilux X. Now we are deploying in the rest of the geography since the beginning of the year Varilux X. We added to that the Crizal Sapphire very promising new coating launched in the U.S. in September as part of the ultimate lens package, very well received in the U.S. that we are now launching in Europe since this month of April, starting in France and in some of the other market. And on top of that, we have the Style color's product offering, the enlarged color offering in Transitions that is also started in Europe mid-last year and now is being rolled out in the U.S. And to complete, we have the Harmful Blue offering with 2 offer, one which is called EPS, Eye Protection System, and a more mature offering which is called is blue capture going to the market as we talk. So we have a progressive penetration of all those new product into our geographies since the middle of last year, and it's building up. The big driver are clearly having Varilux X at work in all of the geographies and gaining momentum through being deployed in more countries and more stores and the product is extremely well received by the consumer and the customer and always when we start to roll out the new Crizal, we have also momentum on that brand, on that category. We saw it in the U.S. like we were referring to in the first quarter. It's continuing to drive in the first quarter. And I think as we launch it in Europe, it should have a clear impact on the dynamic of our sales. So as you see, it's -- the portfolio of new product is wide and address all of our key brands. And I didn't even mention Eyezen, where we have extremely good momentum in China, in the domestic markets with an offer, which is called Eyezen Light, which is also going very fast in China. So that's, I think, what -- I hope this gives you a bit more granularity on all of the pipeline and products being rolled out.

[Laurent Vacherot, President, COO & Director]

Thank you, Paul. So I will go to the third question which was about the fast-growing market and what our ambition. If I understand well the question, Cedric, it's mid-term. I think we have in -- there is a lot of differences, country per country. But overall, I think the high single digits, double-digit growth, plus acquisition in those countries is still the target we should reach for. I think we have built in some of those countries new capability to accelerate the growth from what we have seen in the last few quarters. For example, in China, in India and in Brazil we have now e-commerce capability that will accelerate the growth. And as you know, part of the growth in those countries is linked to the access to eye exam and access to screening. And with our Instrument division, we provide now quite a good equipment to facilitate, measure of the eyes in those countries, and we have also like we started in China this specific initiative and specific organization to cope with the myopia situation. As you know, myopia, especially in China and in Asia is one of the biggest vision problem that we will have to face as an industry. And focusing teams on that, they will find solution to accelerate growth there. In China, as well as you have seen, we have now not only the strong lens division to develop the industry, but on the top of it, we have also strong brand for frames, sunglass and optical frames like Bolon and MJS, but also stores that we can push categories, offer lenses and promote better vision. So 10% should be a minimum, plus acquisitions and all those acceleration that we could see in those few countries will help to grow above that.

[Operator]

We'll now go to Michael Jungling calling us from Morgan Stanley.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

I have 3 questions. Firstly, you've mentioned organic sales growth in Q1 was in line with your expectations, does this also apply to your contribution margin given, I guess, the sales mix in the first quarter with lenses growing slower, not being helpful. Secondly, when it comes to the Luxottica merger, have you been able to do work on the cost and revenue synergies in the countries where you've had regulatory approval, meaning U.S. and Europe in particular. And if so, what are the high-level findings with respect to synergies and question three is on China and U.S. tariffs. Can you comment at a high level under what conditions this would become a challenge for Essilor?

[Laurent Vacherot, President, COO & Director]

Michael, could you repeat the third question?

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

Yes, the third question is on the China and U.S. tariff war or conflict. Can you comment at a high level under what conditions this would become an issue for Essilor?

[Laurent Vacherot, President, COO & Director]

Okay. So on Q1 and margin, I think, yes, other division grew faster than the lens business, but there's a few things that you need to know that, yes, we are still on plan. We are also on plan for gross -- from the margin, the net margin, the contribution. Number one, in lenses, the mix of product is much better, thanks to new products, which contribute to higher margin, higher gross margin for those products. Second, the e-commerce division is less diluted than it was 2 years ago. And third, the Sun division will, as addition to a decent margin. And also when you see a country like Brazil recovering, it will help to deliver the proper margin. So we are confident on that aspect as well as we are for the growth of sales. On the Luxottica and the EssilorLuxottica combination, no, we don't have anything new to discuss with you on those. Obviously, on each part of the house, each of us, we have thought about what are the certain things to do after the day 1, if I may say so. We are #1 -- preparing day 1 very precisely with a lot of work to be done. We have our own ideas on what we could do to generate sales growth and synergies that probably as a whole, but we have nothing to comment at that moment. China and U.S. conflict you want to elaborate on it. Paul, you're brave enough. You're brave enough.

[Paul du Saillant, Chief Operating Officer]

Brave. On the conflict of the U.S. and China, I will not comment on the tariff. Just take note, high-level what I can just share with you is that our industrial supply chain system, as you know, is made of many plans. Some sitting in Asia, but also some sitting in the U.S. in Mexico, in Brazil, in Europe, so we have an overall manufacturing system that we can swing around very easily and on -- then most of the added value is done locally through the lab, the prescription labs, that are in the U.S. and most of the added value is created locally. So even if there is tariff put in place, we, A, can swing the production flows easily; and, B, anyhow, the added value is created in local labs. Okay.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

Okay. And may I quickly follow up on the Luxottica merger, though. Have you been able to do more discussion in U.S. and Europe with Luxottica because you have regulatory approval? Has that allowed you to now share more data?

[Paul du Saillant, Chief Operating Officer]

No. I think -- this is Paul talking. I think as Laurent said very clearly, we are running the 2 companies independently. We have many touch points on a regular business relation, which is nothing new that has always been the case, so the teams work on the normal basis on the supply, on products that are being leveraged by Luxottica, from Essilor in LensCrafters, like you saw in the Blue IQ or Transitions to develop the categories, but this normal business relation, and we also have -- on some of our online platform, some of the Luxottica brand. As far as what we will do first combination, no. Like Laurent said, each of us are developing our thoughts on each side and when time is due, we will get working, first closing on those topics together.

[Laurent Vacherot, President, COO & Director]

And maybe we could add, Paul, at the moment, there is a joint team which are really working hard to put up what they want. And then it's already a huge start to be ready for that day one, and we will be.

[Operator]

We will now be going to Ms. Veronika Dubajova calling in from Goldman Sachs.

[Veronika Dubajova, Equity Analyst]

I have 3, please. The first one is on the growth in lenses in North America and Europe, I'm just trying to reconcile some of the optimism that you had about the business when we last spoke in early March when you reported full year and the performance that you've delivered. What, I know you flagged weather, but even if I add some of the impacts that you've discussed, it does seem that the business has decelerated a little bit. So I'm trying to understand what happened, was there something else in March? Was there something else in the full quarter that surprised you? And what degree of confidence do you have that you can see the growth accelerate more to the normalized levels that you expect in those 2 regions? That would be my first question. My second question is on Latin America -- or Laurent you flagged a significant Easter effect, maybe just put that into some context for us from a numbers perspective. And my final question is an update on third-party transitions revenues, if you can tell what happened in Q1 that would be helpful.

[Hubert Sagnières, Chairman & CEO]

Okay, Veronika. So maybe, Paul, you will speak about Europe and answer the question. I will take the U.S. and Latin America.

[Paul du Saillant, Chief Operating Officer]

Okay. Yes. So in Europe, like we already touched on -- I see Europe in the first quarter as being impacted by the weather, I told already. Also, the way the end of March Easter was positioned has been more weighing on the first quarter. And the U.K. as far as traffic was concerned was not a good quarter. So these are the three things. The underlying activity in Europe is a good quality, leveraging the new product. We have good performance in France like it was pointed, leveraging our multi-network positioning and we have -- we are doing quite well in France. And I see the overall business with the new product strengthening as it is going into the second quarter. The normal level of performance from Europe that you have seen in the quarter and the year before should be more around the 2%, and that is what your teams are purely targeting to achieve. I will point also on the lens division, we didn't talk too much about it, but there was a very positive swing of our market activity in Brazil, which is the result of an extremely well-executed new product activity in the first quarter and this is going to build up momentum, I think it's going to continue build up momentum around Varilux, around Transitions, around Kodak. It's also the result of a very good performance of our partner labs in Brazil, and that is swinging the mix, the margin and clearly, the organic growth of LatAm. So that's also a key factor that is, I think, as we go into the year, is going to build up.

[Laurent Vacherot, President, COO & Director]

Thank you, Paul. Veronika, maybe overall and I will go back specifically to U.S. and LatAm. I said at the beginning of the conversation together that we were on plan and it is despite those aggressive weather conditions. So which means there has been a positive and better-than-planned area. Brazil is one. Honestly, when we were, Paul, early March in Brazil, we saw the team very hands-on, very practically implementing plans. We were not sure at that moment that they will deliver such a good March and moving forward. So that's part of the good news we had. So in the U.S. specifically first really we mentioned it. Q4 last year was an exception. And you know 3%, 4% growth in the U.S. on a consistent way quarter after quarter, it's a good performance. It's as planned. So it has been achieved with a solid, like we said, business with EyeCap professional, especially Dr. Olayan, especially Essilor Experts, a steady, consistent business with big retailers, Luxottica, Costco and Walmart and it has been also accelerated by a very strong growth. It's double digit, more than double digit, if I may say so. High double digit for the e-commerce division that, as I said, in my introductory discussion. I think we have found now the winning formula to generate growth and increase value. And I think that's why we are so positive about the next quarter. In Latin America, the holy week in Mexico, in Brazil, in some other countries, the business are closed for the whole week before Easter. So last year, it was in April and this year it has been in March, so really it's impact a lot when you have such a suite of closing of holidays days between 1 quarter and the others. Last question was about Transitions of the group.

[Paul du Saillant, Chief Operating Officer]

Transitions of the group.

[Laurent Vacherot, President, COO & Director]

Slightly better than it was last year. Still slightly negative. Much better, in fact. I cannot comment each customer specifically, but as you know there is one that continued to support Transitions and is slightly growing. There is 2 others. One is in much better -- we're in a much better relationship with them. So it is a positive factor for the first half -- first quarter and moving forward. Paul, you want to add on that.

[Paul du Saillant, Chief Operating Officer]

Not on the other group but altogether on Transitions, I think it's worth mentioning that there is a very good job done by [indiscernible], who is now leading the Transitions division at rejuvenating the brand with a very new way of positioning the brand to our younger generation, you will see that coming to the media, including the digital media and the Style color offering is also very well received by the consumer. So I would not be surprised that this is going to create a good activity around the brand in this part of the year, which is very key for Transitions for the photochromic category. Second quarter, first quarter, it is very key. But I just wanted to point out because the new media is very, very interesting in its positioning.

[Veronika Dubajova, Equity Analyst]

Can I just quickly clarify a comment, Laurent, you made earlier about the antitrust approval, China and Turkey. My understanding was that once China was closed, you would proceed to go ahead with the merger. It sounds like you might be entertaining, waiting for the Turkish clearance to come through before you go ahead, or have I misunderstood what you were saying?

[Laurent Vacherot, President, COO & Director]

It's not really waiting, it's -- you're right. From the contract we have with Luxottica, the combinational agreement, once the China is approved we can close, but then we need to decide at which date we close. And from a legal perspective, we cannot close if we don't have the approval for Turkey. So if the scenario is China got approved then we need to discuss how we manage Turkey and when we close depending on where we are with Turkey. We have no rush you know, there is no rush, we -- those two countries are very important. We don't need to rush to -- we need to wait and do the same job we have done in all the 18 other countries where we obtain without any remedies the clearance.

[Operator]

We'll now be moving to Julien Dormois calling in from Exane.

[Julien Dormois, Research Analyst]

I'm left with 3 questions, please. The first relates to the bolt-on acquisition activity. In the press release, you mentioned that you have resumed that activity as part of your overall growth strategy. So I was just wondering where you stand on that front and whether we could see the effect of that already fueling growth in H2 of this year. And how long you think it could -- how much time it could take to return to the kind of 3% to 4% contribution that you may have had historically? The second question relates to an update on the customer pushback. It's been a key topic, obviously, in 2017. So I'm just curious to hear what you would say on that front. So it obviously seems that Brazil seems to be turning the corner, but how about the other countries? And the last question is a question on Sun & Readers. You mentioned that FGX had a very good Q1. Thanks to new contract that have been won. I was just curious whether there is a stocking element into those good results or whether this is purely driven by good demand?

[Paul du Saillant, Chief Operating Officer]

Okay. Thank you, Julien, very good question. So on the bolt-on acquisition, you remember the 4%, 5% growth coming from bolt-on acquisition was -- when we are much smaller, right. You see that at the moment, I think, the normal base, the base we can target is 2%, 3%. I don't think we will achieve that in the second part of the year. It only takes time to make those acquisitions properly and to make it on the right way. When we say we are active, it means the teams are actively entering discussions with new potential target of some that we are waiting for us to clear the antitrust from the combination. So yes, I think we could see some effect late in this year or to '18 and probably mostly into '19. From the reaction of customers since now we're almost more than 1 year. I think it's been stabilized like we said in the second part of the year. We have no information of the new negative situation. I think as we said, with all the new products we can offer to those customers. I think progressively we will regain part of it. Maybe one situation where it may be still difficult and complex is Australia, but other than that, I think we are more in a more normalized -- more normalized situation. Sun & Readers, what was the question on Sun & Readers?

[Julien Dormois, Research Analyst]

It's about the potential stocking effects that you would have had from the new contracts from FGX?

[Laurent Vacherot, President, COO & Director]

No, I don't think so. For most of it, it's extension in existing customer and what really happened is the out-of-store business is quite strong. So no stocking effect. They've only showed me is some figure that some customer I cannot mention, but there is some with point of sales, out of sales, out of point of sales, plus 9 or plus 52, so really it has been a great quarter for FGX.

[Operator]

We will be going to Francesca Di Pasquantonio calling in from Deutsche Bank.

[Francesca Di Pasquantonio, Research Analyst]

I have a couple of remaining questions, please. The first is on LatAm, where you are calling out the strength of Brazil, but still the overall like for like hasn't been so strong, so I was wondering whether you can comment on whether there are any major markets which are holding back your performance in Latin America and whether you see it come back in the coming quarters. Secondly, you are calling out Australia and Canada as a particularly weak market. How long do you think the situation -- how long it will take in Australia do you think to normalize the situations from a lens market point of view, competitive framework point of view and can you maybe elaborate a little bit on Canada? And thirdly, going back to the merger, I have a couple of clarification to ask, please. One is whether there is a deadline after which you have or you are forced to reconsider the merger, i.e. if you don't receive the approval from the Chinese antitrust authorities by a certain date. And secondly, I really would like to understand what is holding back China -- or what do you think is holding back China and Turkey in releasing the approvals, given that you obtained unconditional approvals from much bigger and much more relevant markets?

[Laurent Vacherot, President, COO & Director]

Thank you, Francesca. So maybe I will start to the last question and maybe, Paul, you could take the LatAm. Okay. As I said, no, there is no certain date where the deal is closed and there is -- as well as the deal did not happen. There is a condition precedent, which is China, then it has to happen and then there is all the question of the discussion on what is the best date to close depending on what those 2 authorities will tell us, because, again, at the moment none of the 2 authorities really told us what they find. It's not -- what they find is not -- this deal will prevent consumer to have a better product and more product and how this deal, this combination will restrain choice for the consumer. At the opposite, we believe that for example in China and in Turkey the combination will be a great news for the industry and for the consumer because we'll create more new product and there we'll be offering more new products. So again, we really need to wait for those 2 authorities to really tell us what they think about the deal, and it's not yet done from their side. Maybe on the LatAm front.

[Paul du Saillant, Chief Operating Officer]

Yes. So I think to understand the dynamic in LatAm, you will have to look at it with 3 blocks. The recovery in Brazil that we already commented, which should accelerate as we go into the Q2 and a clear recovery. Then Mexico where we are still in the aftermath of the earthquake that took place in the second half of last year and that really created very difficult market dynamic, consumer behavior, operational situation. So that's Mexico and then you have the rest of all of the Spanish-speaking countries in LatAm where the underlying organic growth is good, but like it was said, you are -- the weak end of March, which is Semana Santa, where most of those countries are closed for not just the Holy Friday, but for a week. So we should see the swing in these Spanish-speaking geographies, countries, in the second quarter, so that is really what is behind the 1% growth. So meaning, the underlying organic growth is actually north of this 1%.

[Laurent Vacherot, President, COO & Director]

So Francesca, you had the question on Australia and Canada. So what can we said on Australia? We are about to -- we have launched very recently the new Varilux X, so that will be a great opportunity to reenter and continue discussion with the independent eye care professional, Varilux, the new Varilux and the new Crizal, which is happening at the moment, so probably, like we have seen in those other countries, it will help a lot to re-energize the relationship with those independent ECPs that will finally understand that we are the one bringing innovation in all those markets and eventually they will be happy to continue to do business with us or more business with us. In Canada, when you look at the total Canada, we are growing. When you combine the e-commerce capability what we do and the more traditional business, we are growing. The situation in Canada is now kind of a new landscape where there is consolidation happening in the retail chain and there is e-commerce developing very fast and there is this situation where, again, with the new Varilux, with the new Crizal, with the new Transitions, with the group protection product that we reengage or continue to engage, ECPs and independent ECPs to -- for them to benefit of the new product. So it will take some time, but we are still very hopeful that the Canada will grow again in the next quarters. I think -- do we have more questions? Yes, one more question.

[Operator]

We have a follow-up question coming in today from Mr. Michael Jungling, again, from Morgan Stanley

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

I have two more. Firstly on the Transitions contract or for contact lenses, can you comment on whether this technology will be leveraged beyond Johnson & Johnson and did I understand correctly that the actual Transitions sales in terms of a licensing fee or royalties are not material for 2019 and 2020? And question number two, and apologies if I have to follow up again, is can I just confirm my understanding that despite getting merger approval in the United States and in Europe, there has been no material progress in merging those 2 organizations together?

[Laurent Vacherot, President, COO & Director]

Your last question, yes, you're right, we are still 2 independent companies and it will be extremely detrimental if we start to really combine operations of the 2 companies. That we have to wait for the full approval underway and the closing of the deal which is not yet done, should happen as soon as we can, but it's not yet done. Then will it be material or not, the Transitions photochromic lenses. Yes, it's actually here with J&J. As I said, it has been long process to create this break-through innovation, more than 10 years. So yes, it is Crizal for J&J as far as manufacturing then we will sell those lenses, those contact lenses in our own network and stores eventually and it -- will it be material or not? It depends on the success of the launch, right. And what I can tell you, it will improve slightly the net margin.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

Okay, and one last question on the Luxottica merger. Was it illegal or is it illegal for you to commence integration work in the U.S. and Europe or not until the deal is closed? I'm trying to understand whether you couldn't make any progress because you illegally restricted until the overall deal closes or whether it was your sole choice not to do it because you just didn't want to?

[Laurent Vacherot, President, COO & Director]

I think, yes, we can -- first, the combination has not been closed, so we are still 2 separate companies. And I think we cannot grow -- we cannot do any operational combination before the deal is closed. I think it's quite simple answer. Any other question, George?

[Operator]

It appears, sir, we do not have any further question. So I'd like to turn the call back over to you for the conclusion, sir.

[Laurent Vacherot, President, COO & Director]

Okay. Thank you very much. So thank you for your time spent on Essilor and obviously, the future combination of EssilorLuxottica. I hope we have convinced you that we are totally in line with all what we do and the successes we have described, Paul and I, in many, many different regions and business units that we are really up to deliver great year 2018, and we will be on track -- we are on track to deliver what we -- the objective, the guidance we gave you at the beginning of the year. And I thank you very much for your attention and your time. Thank you.