Luxottica Q4 Earnings Call Transcript

123jump.com Staff
09 Mar, 2011
New York City

The eyewear maker quarterly net sales rose 18.2% to

Luxottica Group S.p.A. ((LUX))
Q4 2010 Earnings Call Transcript
March 1, 2011 1:00 p.m. ET

Executives

Andrea Guerra – Chief Executive Officer
Enrico Cavatorta – Chief Financial Officer

Presentation

Andrea Guerra

So, good morning to you all, and good morning to the people who could not attend and are connected through webcast. So the first thing I want to say is, its true that we are connecting our doctors, our employees, our vendors, our friends in our mission, so anyone who wishes from your side to participate, you are very welcome.

Its 2022 mission a year around the world and its one week or two weeks and it’s really a special one. All of us had at least one experience working, so not just giving money or attention but working in one of these missions. And I would suggest that it really changes a little bit of your life. So welcome again and really the special one for us this year.

It’s 50 years. 50 years means a lot to us. 50 years means a person, one single entrepreneurial generation, starting from nothing and being the leaders of the world in an industry. With the family, with the person that was the founder of a very small part manufacturing and becoming a vertical in a total integrated business serving the full world in many different needs.

I think that on the left hand side of this slide you see who we are, who we try to be every day and what is representing us. And I will briefly going through this parts. The first is, it’s an obvious one, it’s our entrepreneurship. It’s ability to go forward, never to stop, always wishing to grow, always wishing to go and discover new parts of the world that we didn’t know the day before or gaining or getting some opportunities that we thought were untapped until the day before.

Mr. Del Vecchio founded the Luxottica in 1961, and he is our Chairman today. And I do not think that many corporations around the world can say the same thing. Everything in one single entrepreneurial generation and with the family behind us always focused on eyewear, not moving to other businesses, to other sectors, but always focused on eyewear, thinking from day number one that the world was the playground and thinking that excellence, quality, innovation and people were the right recipes, the right ingredients for the recipes.

We have signaled here a number of milestones. And there is one which is not listed here, which I think is even as important as the one listed and we are talking about the last couple of years. The world has gone through a restructuring and world has gone through a reshuffle and we have come out from this as strong as ever. And I think that we are ready for long-term growth and I think more sustainable than what it was a number of years ago.

And I think this is one of the great things we’ve been able to do in the last two, three years. We have worked hard. We have gone back to our roots. We have gone back to our organization, to our businesses, to our brands, to our portfolio, really understanding where to go deeper, where to invest more, where to be patient and where to accelerate. And I think this is proving to be correct. And when I look to 2011, and we will discuss thoroughly around 2011, really we think can be a good continuation of what 2010 has been.

Looking to what we are and what we represent, it’s obvious that everyone knows us more for our brands and for our Luxottica name. We had a home and house of many different things. We are able to engage people with many different kind of experiences, cultures and since ever, we’ve been able to work and to be able to manage competing brands in our portfolio.

So really it’s a big portfolio made of our own brands; Ray-Ban and Oakley being the number one and two optical brands in the world. We are the best retail brands in some regions and in the world with LensCrafters in the States and Sunglass Hut globally.

And with a wonderful license portfolio made of many different things, and we will talk forward again about this because after couple of years of slowdown of some brands, we’ve seen June in 2010, an acceleration of our best brands in the luxury and premium in the last five months really booming to the old regimens.

During the last 50 years, we have build a very unique business model. I don’t think there is no text book that could suggest such a business model. This was build by an entrepreneur in the last 50 years step-by-step without any crazy action, brave yes but not crazy and build something that allows us today to say that we are totally vertical integrated.

We are still manufacturing a lot of our parts. We are still manufacturing a great percentage of the molds we used to manufacture our frames. And on the other side, we own and manage around 7000 retail stores across the world.

Being in there integrated allow us to be very fast during the last couple of years, very adaptive, very flexible, and I think there is one major of all of this and has been our free cash flow on one side and the metrics around working capital on the other side.

We have grown significantly during 2010. We have reduced working capital by 14 days during 2010. And even if we have grown double digits, we have the positive effect on the cash flow from the management of the working capital. I think this is a very clear message.

We are working on, on two other items related to the vertical integration and the first being connecting, even more connecting the different parts of the business. We have been telling you in the last couple of years of our IT transformation program. We are well above halfway there, big investments but big returns immediately. And I think the results we’re looking on working capital also part of this project, but we have not yet seen how fast we can be. And I think this will be more and more clear even during this presentation being fast to the market for the first time, being fast to the market with replenishments and we have gone faster this year.

The level of inventory we need to serve more and more volumes is reducing day after day and we will see during 2011 again. And I think this is again a big effect of how closer and closer we’re taking the different business. I think that connect different business, connecting customers and connecting consumers have really built the new boundaries of our challenges.

When we talk about Luxottica, an innovation, we have not frequently discussed about how deep and how thorough our innovation level is throughout our business scope. Outside for the people who are here in London can really value and evaluate themselves what kind of things we are bringing and taking to the market.

Innovations in many different things, it’s business model first, it’s the way we develop our stores, it’s the way we develop our connection with customers and consumers and here we’re giving a number of examples. The first being and we talked a year ago about the Ray-Ban pack, carbon fiber became 5% of our mix in Ray-Ban, much beyond our expectation and with an average revenue which is around 20% more our Ray-Ban.

We are launching in these days a new metal, a titanium alloy, nickel free, derived from the aerospace industry and it’s the lightest flame for Ray-Ban ever. Its prescription frame and its launched in the next couple of weeks and it’s really for us a substantial breakthrough and outside you can have a good feeling of what we’re talking about, in terms of lightness, in terms of how solid and how esthetically beautiful they are. So Ray-Ban moving from lenses to material and we would talk about how Ray-Ban has been innovative in our industry in connecting consumers.

The second obvious one, I mean, this is obvious is around Oakley and I think the amount of news, articles, information about the Oakley 3D has been immense. Why is that? Many others came out in the market with 3D glasses but people trust Oakley, people trust Oakley patterns, people trust that when Oakley says this is good for your eyes watching 3D, the science is there, innovation is there, studies are there, research is there and I think that we do not know exactly -- no one knows what exactly the 3D market will be in the future, but we’re ready, we’re there.

In a couple of, let me say 100 stores, we sold more than 15,000 Oakley 3D in United States in the last month and half, couple of months and Colin can give you some more details later. We really do not know what it is but we’re there, ready to go, ready to ramp-up volumes, marketing, PR, et cetera, et cetera.

Innovation means also how you connect to customers. We have been discussing during the last two, three years around our stars program and how to connect customers in our network, in our boundaries, managing inventories together, managing marketing campaigns together, managing displays together. And it is growing, growing fast, has grown more than 40% during 2010 and we are giving you an objective by 2013 being 10% of our wholesale business and we’re right on track.

The last being the way we connect consumers. And I think again I want to go back to that integration, to the way we are able to connect people, to allow people to participate. I think more and more our business is to allows people in our doors, is to allow people to understand what we’re doing and participating in what we’re doing. I think Ray-Ban has been from day number one innovative from this point of view.

The number of people in our social medium with Ray-Ban, our people and our consumers connected, participating, working, allowing, suggesting has been really spectacular. We are out in 15, 20 days with the new advertising campaign of Ray-Ban and I just want to show you a brief video of what it is about.

We always say that we love being simple and fast and when we are able to manage being simple and fast we are always able to execute and I think that 2009 and 2010 are there to demonstrate it. In which kind of industry, is this a nature industry, not at all, not at all and especially when you go in the sun industry, we’re talking about an industry which is very young, very young in United States, yet today 85% of sunglasses sold are not premium, frequently do not have the proper lenses.

In Europe, it’s well beyond being a young industry. I would say it’s one of the mature part of the industry and Eastern Europe is very, very young. It’s a very small business today. It’s a very small industry today, growing and growing significantly. And I would say that if we look to the closest Asia to Japan, we can expect something around a double-digit growth in the next five to 10 years without doubt. Then you can have some years up and down, but there is structural growth rate in this market. There is so much road, there is so many opportunities in the sun business in Asia, Latin America and North America.

When we look to the prescription frame, here it’s again a very different story. While we could say that U.S. and Europe are well-penetrated but it’s a growing business, it’s a naturally growing business. So many people are now starting to wear eyewear much before than what it was in the past.

Many people are starting to wear eye -- prescription frames to do sports. This is a novelty. This is something completely new. This is something that the new lens technology has given a total breakthrough to the industry and when we go to U.S. and Europe, what we are expecting is a kind of people generation evolution and people wearing more glasses before. Is it unfortunately? Yes, computers, lifestyles and other things.

But when we go to emerging markets, we are seeing everyday new people coming in our industry, people coming into our market, small businesses around the world, yet today small, yet today the biggest provider or frames in Chinese hospitals but things are changing. Things are slowly changing and we are set and ready to go in all these places.

We will discuss about Asia. We will discuss about Latin America and I think that if we continue and if we’re able to keep on the way we have executed with our people in the last fifty years, I think we really have whatever kind of growth level and frames we wish for our next 50 years. This is who we are and it’s an easy equation. It’s a very easy equation to understand.

We are one group and we are always and always more connected between the different geographies, the different brands and the different businesses. I think this is something you will hear us more and more talking about, how to connect the insurance, the frames, the prescription, the sun, the labs, the lenses, the marketing, the brands, I think that that is another wild engine of our growth for the future.

I think this is very simple. And let me say when at the end, we are talking about OneSight and we always talk about OneSight, over 7 million people around the world helped in the last 15 years. I think this is something we trust, this is something that really describes who we are and it would be fun now to go through a little bit 2010, 2011 and the great engines on our growth.

Thank you. Enrico it’s your turn.

Enrico Cavatorta

So before we -- before Andrea leads us into 2011 and to see what is, which are our plan for 2011, let’s close the analysis of 2010. So let’s see the results, let’s see the highlights of this year in order to understand which have been the driver of the business and the driver of our results and profitability.

Always having in mind not just the P&L but also the cash flow because these has been one of the lesser learnt during the financial turmoil that cash flow is at least as important as P&L. And this is something that we will never forget for the future.

So first of all, in 2010, we have scored our all time high sales in the history in absolute level, up 7% constant exchange rate versus ‘09, 14% on a current currency. You might have seen that the dollar was as likely stronger in 2010 than it has been in 2009, 5% but even more other currencies had helped us, namely the Australian Dollar that has been more than 20% stronger in ‘10 versus previous year and also what resulted to be our third currency in terms of sales that is the Brazilian currency that was 18% stronger in ‘10 versus 2009.

Both division has scored important sales results, wholesale was up 9% again a constant currency helped not just by volume increase but also by favorable price mix, approximately two percentage point, thanks to a better mix and thanks to the recovery -- partial recovery of the luxury collection.

Ray-Ban again an exceptional year, close to 20% growth versus previous year and Oakley, we will see later more detail and even stronger performance than Ray-Ban. And also from a geographic point of view, we continued expansion in the emerging market, up 13% again constant currencies and now emerging market represents close to 15% of our wholesale business.

Retail was positive overall. Comp sales up 4.4% and even better in North America that is our core business for retail represent 60% of our total sales, 80% of our retail sales. North America had an exceptional performance with comps up 6.7%.

We had double-digit growth in China finally, close to 11% and as you know and as you have seen, comps have been (inaudible) the only challenging area has been Australia. We had double-digit negative comp in the first part of the year but luckily the trend is improving.

So from 12.3% negative in first half, we were at 6% negative in the last quarter of the year and we are now back to positive at the beginning of 2011. So hopefully, the worst is behind our shoulder.

If I look at the operating leverage, how these sales result translated into profitability. Clearly, we have been able to have a disproportionate increase in profit as compared to sales, thanks to a positive operating leverage. And even more important, finally during 2010, we have been back, we are investing into the business in many different instances.

First of all, we have reinvested back in marketing effort, up 19% marketing investment versus ‘09. We have invested into IT and 2010 has been our third year of the so-called IT transformation program and we are now more than 50% through the transformation product.

We have invested also in order to streamline our organization and during the year mainly for severance, we had 20 million, approximately 20 million of restructuring cost in order to streamline the organization. And our CapEx after the freeze in 2009 went back to -- in 2010 and increased 15% versus pervious year. All of these also has generated and even better results in terms of cash flow.

We had a very strong deleverage during the year. In 12 months, our net debt-to-EBITDA ratio went down from 2.7 to two times. And again, we had a very solid year in terms of free cash flow generation, more than 600 million that went well beyond our expectation that were at the beginning of the year lower than 500 million, if you recall.

So as Andrea mentioned, in two years in 2009, 2010 we have generated more than 1.3 billion of free cash flow. And this -- part of this has been of course, thanks to the contribution of the continuous effort in capital -- in working capital improvement after the reduction of 11 days in 2009, we were able to add another reduction of 14 days.

So P&L results again, first of all you have seen in the press release last night, we had two non-recurring items in 2010 of opposite direction. We had the positive one, so-called discontinued operation. We were able to release a tax accrual of $27 million that was related to the sale of things remembered back four years ago and now we have been able to release it to profit as discontinued operation.

On a negative side, we had to do a small impairment in Australia due to the trend of the business there. So we had 29 million Australian dollar equivalent to €20 million actually of impairment in Australia.

I mentioned this too because since they are both non-recurring, then all the analysis that we have performed and that we are seeing here are on an adjusted basis, so excluding both the positive and the negative non-recurring guidance. So fourth quarter first and then total year.

In the fourth quarter, we had exceptional results particularly in terms of profitability and you have seen that our sales results have been in line with the rest of the year with 6% to 7% up constant ForEx, that means 14%, 15%, 16% depending on the division of current ForEx, but the results on EBITDA, operating income and net income has been largely more than proportional.

Our EBITDA was up 33%, 180 basis point. Our operating income has been up 57% and our net income almost doubled. And these should not come to surprise, you might recall that the fourth quarter of 2009 has been the worst of that year and also you might recall the sort of rule of thumb that we gave a year ago. And so to a certain extent, we were expecting that the fourth quarter performance would have been better than the rest of the year.

If I look at the total year, these numbers should be known at this point in time and as I mentioned the impacts of our sales growth on the profitability has been broadly in line with our expectation. So, our net income doubled -- sorry our operating income doubled with the performance of sales, we were up 28%, 140 basis points, particularly strong as being the performance of our wholesale business but also we have been pleased with our net income growing almost three times than our sales result.

So this is the slide that we published one year ago. You might recall. We call it a sort order 2010 rule of thumb and we were projecting that against the sales growth in the region of the mid single digit, we could have expected an operating income leverage growth twice as fast than sales and net income three times fast than sales. Well, I’m pleased to report that basically we confirmed that rule of thumb. Even if the number that you see are the current ForEx, while the rule of thumb was set that constant ForEx we are broadening in line with that.

Our operating income was then in line with the rule. Net income was slightly shorter than that and you see why the thick on the net income has been a little bit lighter than the other three, because I acknowledged that 35% did not exactly three times and 14%. But on a constant ForEx basis that is how the rule was set, the ratio has been much more in line with our guidance.

I was even more than P&L -- I was more pleased on the cash flow result as I said. We were targeting to approach two times. I didn’t meant this means that the time to be being in line with 2.0 but actually this is what we achieved because as I said our cash flow generation is being slightly in excess of our expectations.

Let’s talk P&L with Oakley. As I mentioned before, we had an outstanding performance of Ray-Ban but Oakley was even better than that. And Oakley has an outstanding performance since -- now it’s the fourth consecutive year since Luxottica took over the brand. And our compounded annual growth rate since the acquisition in terms of sales has been 12% and in terms of operating income has been double than that.

These numbers are calculated on a so-called theoretical standalone basis that means if Oakley would have remained an independent company, so including the sale to rest of Luxottica organization, so our retail sales including of course debt sales into the Oakley division and the profitability that Oakley was able to generate on a standalone basis. So of course, now that Oakley is full integrated within the Group is more difficult to track the full profitability, because Oakley is driving the profitability all around the Group worldwide. So we will try to recalculate this number on a theoretical standalone basis and this is the results that is indeed assumption.

Turning to cash flow. As I mentioned, the last two years have been outstanding in terms of cash flow generation and this has helped us to return back to our leverage to our desired level and I’ve taken a picture of the last 11 years of debt will be deleverage, because this is the living weakness of the way the company is trying to manage its own balance sheet.

On these 11 years, you see all the five major acquisition that Luxottica has done and major acquisition means in excess of €100 billion, Oakley alone has been €1.5 billion. All those acquisition have been financed with that, not through equity and you see that immediately after the spike in the ratio, we had always been able to deleverage the balance sheet very rapidly.

The only exception being after Oakley not because there was something wrong with that, but simply because soon after the acquisition the financial turmoil hurts our companies. We had a fall in EBITDA during 2009 of approximately 15% that was previous year. So that’s why, it took a little bit longer, I would say a couple of years longer to return back to the desirable level.

But finally, thanks to this year, we have been able to achieve the results that we had in mind at the time of the acquisition of Oakley for 2008. How we have been able to achieve these results and this I think this charts speaks for itself and tells you what is the strategy going forward.

Clearly, by increasing the free cash flow generation, if you look at the last two years, 2009 and 2010, and you compare with the previous two and 2007 has been a record year for Luxottica in terms of profitability but in 2007, we had generated one-third of the free cash flow as we have been able to generate in 2009 and 2010.

So it tells you how different has been the performance in terms of cash flow as compared to P&L. And you see consistently quarter-after-quarter that the last two year has been very much in line with themselves and there was a strong improvement versus the average of the previous two years and the only reason why in 2010, we had free cash flow generation that was 17 million lower than 2009 is simply because in 2009 we have benefit from a non-recurring tax effect in the second quarter of approximately 90 million.

As Andrea mentioned, part of it has been due to the reduction in CapEx but I would say a significant contribution has been the net working capital effect. And if you look at the net working capital effect in terms of absolute level, in 2009, in 2010 we have been able to generate positive cash flow while historically before the financial turmoil working capital was at best neutral for us and in certain instances like in 2008 was a cash drainer and clearly you see the number, this has been due to the fact that all the three element of working capital has contributed.

We had 25 days reduction in two years, five days came from receivable, eight days came from inventory and 12 days came from payable, despite the growth that we have experienced. Thanks to these, you have seen that our net debt was reduced in terms of leverage from 2.7 to 2.0, in terms of absolute level from €2.3 billion to €2.1 million -- sorry €2.1 billion.

The free cash flow generation of 600 million was made of more than 1.1 billion cash flow from operation that we have reinvested into the business for 230 million. And then of course, we paid dividend and we spent during 2010 for minor acquisition that are below the 100 million mark each in total and aggregate of 127 million. And then of course there is a slight transition adjustment, otherwise our net debt would have been bend flat to 2 billion.

So this is our net debt. How we enter into 2011? The last important point that I want to mention is our liquidity. Thanks to -- you might have seen that at the end of 2010, we have issued for the first time a public unrated bond for €0.5 billion.

During the year, we also extended some credit lines. So if you compare what was our liquidity position and average maturity of the debt at the end of 2009, on the lower part and at the end of 2010 on the upper part of the slide, you might see -- you might get a sense that our average maturity is now much longer than a year ago and even more important, if you focus on the yellow, orange chart that is the unused committed line, you see that we now have a much bigger availability of committed line.

And these lines tells you the absolute number, we have at the moment committed not used credit lines for close to €1 billion. And if just for a terrific exercise [ph], I had the cash on hands and our uncommitted lines, we exceed €2 billion of available facility. This is it for 2010. I think now Andrea will lead us in 2011.

Andrea Guerra

When we look to 2011, we called it a natural evolution from 2010. When we look to the first two months of the year, they really look as a natural evolution of the last three-four months of 2010 where we had accelerated and speeded up. The first two months of 2011 have been solid, all around our geographies, brands and businesses.

I think one of the most important thing is apart and against all odds, against earthquakes, floods, cyclones and bush fires in Australia and New Zealand, we were back to positive. So I think that really against all odds and we have seen it and we have been telling you this quite frequently, we were seeing a progressive coming back of our performance in Australia and finally February was a 28 days of positive comps in the optical business, stronger and just above positive in our Sun business. So that is Australia.

U.S. had a weak, a very severe weather during January. That always happens during the winter months. We had it in January. Even if that happened, we are now moving in the region of the 6%, 6.5% comps with Sunglass Hut over performing this number quite extensively.

On the other side, wholesale -- wholesale really had a fire-start above the 15% in the first couple of months. These are months which are for the selling-in season, very important. January, February, March and April are the months where you are collecting most of the orders for the summer season and we are very pleased. We are very pleased in what have been usual geographies for 2010 that is emerging markets.

But, we are very pleased to see the success of our re-organizations in North America, on the Luxottica brands and the Oakley brand and we are seeing good numbers coming from Europe as well. Scattered, that is, we are positive all across Europe, again very positive in Eastern Europe, very positive in continental and northern Europe, very positive in Italy; Spain, Portugal and Greece being slightly positive as the some of the three, Greece yet being negative, with a good balance between our brands and an excellent balance between sun and frames.

So, this is why I am saying we had a solid start because it was not just a performance of a region or a business or a brand, it was a good coral performance throughout. What is good is that we were surprised a little bit by this very good start of the first two months in the wholesale business and so we had to catch up with our operations, with our manufacturing, given the proper capacity and I can tell you that today we have the less out-of-stock base we ever had in our history of the last four, five years even going back to our transformation progress, program and vertical integration.

So really a good path, a good signal, January and February are lovely year but physiologically you know when how much of it counts to start the year properly. So when we look to our different geographies, I think we are telling you again what I just given you in terms of qualitative comments.

In Europe 5% to 7% increase in our wholesale business. Again, as I said we are much more confident in the new Europe and North and Continental Europe. We need to watch out and continues to monitor and being very close to consumers in the Mediterranean part.

We are very optimistic about North America. We are very pleased, confident, looking how we are behaving, how we worked in the last couple of years and we will hear more about LensCrafters and Sunglass Hut in Oakley very soon. So we are giving you a 4% to 7% in our comps, retail and really we can -- we can do another very good performing year in North America.

Emerging markets, very easy to say, it’s plus 20%. Obviously, no one knows exactly what happens tomorrow. No one would have planned what happened in Northern Africa, which is obviously not impacting in any way our business today. Having said that, really thinking about our Chinese retail business being over the 20% and on the other side -- and when I say it’s 20% meaning, it kind of comps indicator, while kind of because leases are very short. So comps are always very difficult to be measured and emerging markets again another great year over the 20%.

And Australia, it’s the first year of the coming back and it’s very easy to see how on one side macroeconomics yet today is not the best. But on the other side, if we look how we’re managing our two top brands, how we’re managing our products, how we’re managing service, how we’re managing lenses. I think that really there is a huge progress and we are very happy to have worked hard especially in the first six, eight months of 2010 to come back on Australia.

When we look to our brands, we are always very conservative on labor. We’re always trying to say, look, let’s plan Ray-Ban to be between mid to high-single digits, with the growth especially coming from emerging markets, with the growth especially coming from the RX business, but with everything we’re doing, with the collections we’re doing, with a connection to consumers we’re allowing, really we can, we could, we are committed to another double-digit growth rate here.

With Oakley is again (inaudible); is again another year which has started very solid across the world. Europe is really a new playground for Oakley. We have worked hard. We have seen the results already. I think going to the Mountain Resorts and Sea resorts across Europe it’s visible. We have been out with huge advertising campaigns in the last year and we will be back soon with others and new champions. And Colin will talk about that and getting ready for London 2012.

Luxury and premium, back to normal. Happy, things are moving and if I have to list the number of projects, the number of activities, the number of collections, the number of capital collections, the number of exclusivities, I think it’s immense, is amazing. The amount of opportunities, we have gained through customers and consumers, telling stories, telling brand stories, I think that we really have changed gears in the last couple of years on this team.

And again, for the people present here it’s going out from this room in 20 square meters, you really see what kind of different array, different opportunities you have in our luxury and premium collection and thinking that we have agreed not to continue our relationship with Ferragamo and on the other side as you will know in summer, just after summer, no I am sorry it’s not just after summer, when is Coach starting -- deliveries in January 01, 2012. So, getting ready for that start and we have been really loving Coach for a number of years and we are really finally happy to get the gears ready and let it go.

It’s United States, it’s emerging market, it’s China, it’s Japan, so really working a lot behind the Coach plan. And, everything then it’s with the Vogue and the Bridge brands we think that mid single-digit could be a good performance. As you all know, Vogue is probably the third or the fourth pillar of Luxottica as in owned brands. It’s a wonderful brand, easy, around the world, emerging markets first and very profitable.

LensCrafters, I always go back to history because I always think that history tells you exactly what can happen in the future. We worked hard in 2008. Two years ago, we really had sudden months when we said let’s stop, let’s go back to the roots, let’s understand what we want to offer, let’s understand the risks we have and we had understood that somehow some parts of our proposal and offer could become in sometime a kind of commodity.

So, we worked hard on technology. We worked hard to give value to the one-hour service. We worked hard to give the best coatings, the best lenses, the best technology to the one-hour and we are seeing immediately the results.

The second aspect being Sun. As I said before, probably two years ago, three years ago not even half of our sunglasses could have amounted good prescription lenses. Today, I would say, we are in the region of the 90% because of the lens technology, because of the great research we did and because our labs, the long way we have gone with our labs allow us today to think about the LensCrafters as a real destination point for Sun as well, and we are really reaping the benefits of that.

Again, I want to go back to 2008 and earlier for Sunglass Hut since the acquisition we started the journey with Sunglass Hut. Moving away from its original position, but not cutting the roots. Yes, it is lifestyle, yes, it is sports, but we wanted to attract more women, more girls, more younger people in our network has been five, six years of intense activity, where we have seen double-digit comp growth in 2003, 2004, 2005, 2006 and 2007.

We had 2008 yet positive, 2009 negative and we are back to double-digits. We’re back to growth. But it is normal again and Fabio will give you details of what we have been doing and what we are doing today. Sunglass Hut is a global business, is not anymore a North American business.

We’ve entered a number of markets during 2010 and Fabio will tell you in brief, which are the other markets and as you’ve read that Mexico has been the first we’re entering during 2011. OPSM, we talked mid-single digit, we will do it.

China, sometimes people ask me why I don’t talk too much about China. And I think that I always thought I talked extensively about China and I’ve been even quite honest on how we were doing there. We came in China, I think, as first, 2007. As soon as the WTO allowed we were in China by ourselves and we stated and we said, why are we here by ourselves with 250 stores because we want to make experience.

We want to do all the mistakes of the world. We want to understand how to do business in China because in 10 years this would be one of the biggest markets and we accomplished the fact that we made a lot of mistakes. So sometimes you are happy, you accomplish your plans, sometimes you’re not but we did and the basic two things we did not understand was how to adapt really our business model, but more and more it was around our real estate strategy. How you have to be faster, how you have to be more adaptive, flexible and I think we made it. It’s now 15 months that we have solid performance.

We had first round of management team and we changed brilliant. And we have grown extensively during 2010, even closing the 40, 50 stores that we really didn’t need. All our store network is profitable including advertising, not yet G&A, selling three frames a day in each store.

So really it means that the opportunities are huge. We plus them. We’re here and the commitment is we’ll grow, we’ll grow 20%, 25% a year 2011 onwards, 2010 if we exclude from January 1st, the 40, 45 stores we closed, we were above the 20% growth. So, amazing and great opportunities around our retail -- sorry, next, yes, not, next, sorry, I made a mistake.

Wholesale businesses. Wholesale has been a story of going being close to the market, could be a simple story to be told, could be something that has no value, that this has changed the profile of Luxottica in front of our customers. This is how we changed in the last four, five, six years. We are much closer. We manage their stores. We manage their displays, we manage the windows, we tell stories, we go away from prices and tell good pub stories, good material stories, good brand and private stories.

We are selling collections. We are not selling products anymore. And our brands are getting stronger and stronger. And the same thing in emerging market and we have been talking here for the last couple of years about our prescription focus. And when I am telling that we are growing 50:50, this is a great success.

This has been a new great success and really the opportunities are big. And again, let’s forget 2009, if we go back 2003, ‘04, ‘05, ‘06, ‘07, ‘08, we have grown double-digit. So really the opportunities are there.

In terms of retail, we talked about it we are increasing the number of stores of Sunglass Hut. You remember the lenses project which is really over delivery. And we are completing it with this year with another 220, 230 stores; 270 is total apart acquisitions.

In terms of operations and this is what I always stress our people on and Massimo will tell you how we are performing is around innovation on one side and being quick, being adaptive, being flexible. And I think this has been a very easy story to be told and we will continue to tell this story and giving you the metrics in order to check where we are.

So, we are quite confident for 2011 and, again we are coming back with our rule of thumb. I steal the job to Enrico. I do not know if I am able to do a similar job as he does, but really we think that we like the way to give you a little bit of eyes how to look to our performance in 2011.

We are really targeting the opportunity to be, again, with a solid growth and what we are telling you is if a high single-digit growth in sales is there, imagine that our profitability at different levels can grow, let’s say in average with the double of the velocity. And again another great year of cash flow, another great year of working capital, monitoring and managing and therefore approaching 1.6, 1.7 in net debt to EBITDA. So, obviously the most important months are as usual from May to July, August, but a good start is a good start.

With this, I finished the first part of the morning. We have a small coffee break. So even the people connected can have a small coffee break and we will be back in 15 minutes. Thank you and see you later.