Essilor Luxottica

Good morning and good afternoon, everybody. This is Giorgio Ionella from the IR team. Thank you for joining SRO Luxottica full year 2024 results management call. The group's chairman and CEO, Francesco Milleri, the deputy CEO, Paul Dusayan, and the CFO, Stefano Grassi, will walk you through the business and financial highlights of last year. After their presentations, there will be a 30-minute Q&A session. If you want to make a question, please press star followed by five. We kindly ask you to limit your questions to a maximum of two. With that, I hand it over to Francesco.

Welcome, everybody. I'm happy to reconnect with you to present the sound financial performance of 2024 and give you an update on our strategic initiatives in smart glasses and hearing aids. Essilor Luxottica's revenue broadly maintained the sound pace of the past years, with the four-quarter at 9% and the full year at 6%. This came on the back of the sound organic growth of our business, supported by the solid trajectory of the eye care, eyewear activities, and boosted by the new category of wearables. M&A gave a little extra contribution in the fourth quarter. I'd like to say a few words on Supreme, which continued to successfully execute its strategy after the consolidation in the Silo Luxottica perimeter, delivering sale growth in line with the group pace. We are at work now on the next steps, expanding the brand footprint both through e-commerce and new stores as well as improving the eyewear category. We are also happy with the Heidelberg edition as it is opening new opportunities in medical applications that are becoming a strategic priority for us. Diagnostic and eye treatment as a part of broader strategic focus on eye care is the natural evolution in MedTech space for our group. Talking about revenue, I'd also like to highlight the amazing performance of Stellest, growing 60% in the full year in China and gain traction in Europe. This once again proves how urgent it is to address the myopia issue in China, Asia and worldwide, including the U.S. market that we look forward to start serving between this year and the beginning of the next. Looking at the group profitability, in 2024 we substantially expanded our margins, with adjusted operating margin advancing by 50 basis points, offsetting the labor-driven inflectionary pressure on our cost base. We also achieved double-digit net margin and sound free cash flow generation. resulting in the dividend distribution proposed in line with the last year at 3.95 euro per share, also confirming the script dividend option. I'd rather like to focus now on the two disruptive technological innovations that Essilor Luxottica has been promoting in the market. to make it evolve towards a future where a pair of eyeglasses will be the main digital computing platform addressing our daily needs related to medical service as well as information and social entertainment. Let's start with the Ray-Ban Metaglasses. a new category of products that we introduced in cooperation with Meta more than three years ago and is now proving to be a great success for its digital future that ramp up sales and utilization rates. Since its launch in September 2023, Essilor Luxottica has sold more than 2 million units of Ray-Ban Meta. The rate of activation and the time of utilization have been constantly increasing since the first launch, showing that this product is becoming part of our daily life. The category of wearable is at an early stage, but we have great confidence in its potential and we are planning for the long term with Meta. We are thinking about new releases with new future and new brands, all supported by AI, key application in smart glasses and wearable. We expect important progress soon, as the most advanced multimodal AI, which is currently available in the US, Canada and Australia, will expand across other markets worldwide. Consistently with our open model, we look at this product like a share platform. ready to embark on third-party brands and new functions also in the form of subscription services. In the light of such evolution and in line with our ambitious plan, we are currently expanding our production capacity for Ray-Ban Meta, set to reach 10 million annual units by the end of next year. Passing to hearing aid glasses, we have launched Nuance Audio both in the US market and in main European countries. In the US, we have just got the full clearance from FDA and we are selling Nuance glasses in the OTC segment. In terms of the trade channel strategy, we confirm we'll go through wholesale, physical retail and e-commerce, including both our and third-party banners and E-ring A specialists. Selling and training tools are ready. The whole powerful platform of Selor Luxottica is ready to push. We are also currently speaking with insurance groups to include the hearing aid part of the product in the new managed hearing care schemes, like we do in Vision Correction. In Europe, we have obtained the CE label as well as the ISO quality certification and we are getting ready to start selling once in Italy, in France, Germany and the UK. In line with the U.S. market, the trade channel mix will encompass both wholesale and retail, including hearing aid retailers and our own optical banners in each country. We strongly believe in our product and its ability to address a currently unserved need for more than 1 billion people worldwide affected by mild to moderate uncorrected hearing impairment. The disruptive comfort of a pair of good-looking and well-fitting glasses, equipped with a groundbreaking open-air hearing solution, available at an affordable price, will overcome the adoption barriers of stigma, discomfort and high ticket that have so far prevented the category from rising in penetration. The journey is just the beginning. as we are already at work on the next product releases to offer to our customers higher quality and new functionality already later this year. Thanks to our audio team for their strong effort so far. Let's make it work now all together. With that, I hand over to Paul.

Thank you, Francesco. And to all of you for being here today. As you have just heard, our company is in great shape. In the past years, we have never stood still. Instead, we have optimized each and every ingredient of our powerful organization, delivering a high pace of innovation, strengthening our supply chain, adding high-profile brands to our portfolio. thanks to the engagement and commitment of our 200,000 colleagues who stand at the core of our strong execution. All this while accelerating the building of new categories. Let me give you an update on some key product and strategic initiatives. First, let's talk about children. Our myopia management initiative is evolving fast. Our first-generation stepless lens has experienced rapid growth and we have equipped almost 3 million kids around the globe in 2024. Based on clinical evidence, we have recently amplified its medical scope targeting pre-myopic children with the aim to delay the onset or possibly even prevent myopia altogether. The Stellest Plano version started to be prescribed at the end of last year. Building on its success, we are now looking at the Stellest brand more broadly, creating a full suite of products and solutions. Two upcoming launches. The Steles glasses, which feature a frame specifically designed to take into account the facial parameters of children for the best fit and maximized treatment. And the Steles Lortoke contact lenses, which represent the debut of the brand in the US. In the meantime, in China, the Nikon and Kodak Dot lenses with the sight-glass vision technology have also had a stellar year, successfully supporting our myopia management portfolio strategy. A word on transitions. A success story. In recent years, the brand managed to effectively rejuvenate its image and is now chosen by millions of consumers of all age groups as a cool feature to colorfully express their individuality while also protecting their eyes. The growing trend was recently also fueled by the launch of Gen S, which is completing its worldwide rollout with Brazil and across Asia. Now, take Reban Meta that Francesco talked earlier about. Already, 40% of the pairs sold in our direct-to-consumer channel are equipped with Transition. It is the enabler to all-day use of the product. And we are taking the brand a step further with new applications. In 2024, we launched the first-of-a-kind Reban Change, featuring the transition technology directly on the frame. The result is a fully dynamic pair of glasses with changing colors on the lens and the frame. Our brands, a strategic asset. They are critical in conveying our innovation and product benefits to the consumer. Lately, we have enriched our portfolio with new licenses. The newest addition are Montclair, which presented its first stunning lunette collection at the spectacular event in Grand Montana mid-January. These are whose bold, daring style are destined to create buzz among Gen Z trendsetters. While the Prada license has just been renewed for the next 10 years, A lot more is to come this year also for our proprietary brands, Ray-Ban, and in particular, Oakley, which will be celebrating its 50th anniversary this summer. Stay tuned. As you have heard from Francesco, the medtech dimension is a strategic priority for us. On that front, we have recently made decisive moves. Our aim is to serve our customers and patients from a more holistic standpoint, covering all aspects of eye care, including eye disease diagnostics, surgical guidance, and management of chronic conditions. In a world with a growing and aging population, the number of people affected by eye pathologies is increasing significantly. At the same time, healthcare systems across the globe are under pressure and the shortage of doctors is growing. To unburden the system, eye care practices can play an enhanced role in screening and monitoring eye health under the shared care approach. Leveraging our relations with all actors of the industry, we are well positioned to contribute to this challenge. With the highly advanced OCT devices from Heidelberg Engineering and the retinal imaging solution of Cellview, we have added powerful capabilities in the posterior and anterior eye segment for addressing diseases such as macular degeneration, glaucoma, cataract and retinal detachment. while non-invasive devices of espansione powered by light therapy will be a game-changer in the effective treatment of chronic conditions such as dry eye. Before concluding, I always like to share with you the remarkable progress we make with our inclusive one-site Essilor Luxottica Foundation and its programs. Since 2013, we have provided access to vision care for almost 1 billion people and equipped close to 90 million individuals with eyeglasses they urgently needed. Regarding our sustainability journey, we are happy to share the validation of our targets for scope 1, 2, 3. by the SBTI, and the inclusion of Essilon Luxottica in the Dow Jones Best-in-Class Europe Index. And now, let me hand it over to Stefano, who will run you through how our rich offering has been effectively delivered to our customers through our global multi-channel go-to-market organization.

Thank you, Paul, and good evening, everyone. Happy to be with all of you for our 2024 earnings release. We close another year of outstanding growth in our top line across all the region and all the segments that deliver positive growth at constant exchange rate. Latin America and Asia Pacific were just below 10%. The EMEA region was approximately 8% growth. And North America posted a 3% growth for the full year 2024. When we look at the fourth quarter, I would say that we close at our best. posting the higher quarter of the year with revenues up 9.2% at constant currency. And even excluding the impact of the newly acquired Supreme and Heidelberg that are part of the full consolidation in AstroLuxottica since October 1st, we will be looking at the best quarter for 2024 with revenue up 5.6%. So we're clearly very pleased with the way we performed, delivered and executed in 2024. Equipped action currencies, we are finally seeing our current exchange results broadly in line with the constant one, and we saw revenue up 9.2% at constant exchange rate, while our current exchange rate results posted revenue 8.5%. In the month of November and December, we're also seeing that current exchange results actually were better than the constant one, and that's obviously very promising as we enter into 2025. But now, if we move across the four different regions, as usual, we begin with North America. They posted a Q4 up 7.8% in acceleration from the third quarter that was 1.6%. This was a remarkable quarter for North America, actually the best one. And for sure, the impact of Supreme played a role. But even excluding the impact of the acquisition, we will be looking at the best quarter of the year for professional solution, the best quarter of the year for the direct-to-consumer in North America. In our B2B division, the frame part of the business outperformed the lens in Q4. And we had a strong delivery of Ray-Ban in Ray-Ban meta and in Ray-Ban prescription. But we also had a good performance in our premium fashion portfolio with Emporio Armani and Swarovski and in a luxury portfolio, in particular with Miu Miu and Chanel. Moving to the lens part of our business, we were positive on both single vision lenses and progressive lenses. We got a great traction, I would say, from the Shamir progressive lenses. And from a price mix standpoint, we continue to see a strong price mix, and that is true in both lenses and frames. And when we look at our distribution channel in North America, I would say that our growth was very much driven by our key accounts, while on the independent side, we continue to see an outstanding performance of the VisionSource Alliance. But now, let me move to the other channel, the Dorothy Consumer. As I mentioned to you before, we had the best quarter in 2024 in Q4. We had a strong rebound in Sunglass Sat North America. And if you remember, during Q3, we were already observing a stat change in Sunglass Sat during the month of September. Now, that stat change is confirmed. Now, we are reporting a fourth quarter in Sunglass Sat with comp sales that are in the high single-digit territory. Both international and non-international sunglass out location posted a strong comp and the delivery was very much balanced between price mix and volume. A quick touch on the optical banners. They deliver a low single-digit comp during a course of a fourth quarter. We had a good quarter in LensCrafter with positive traffic and a successful introduction during the second half of 2024 of the new LensCrafter adaptive progressive lens designed by Shamir. But now let's move to the other critical region, Europe. 9.6% at constant currency. acceleration compared to the 5.6% that we reported in Q3. This is the 15th consecutive quarter of revenue growth in the EMEA region. And out of those 15 quarters of revenue growth, 13 were delivered at either high single-digit or double-digit pace. Let me say that this is a track record that it's probably closer to a fast-growing market, a fast-growing region, than a mature one like EMEA is supposed to be. Big credit for this outstanding result to the execution that we had across all the distribution channels, across the product category and individual markets. When we look at our two distribution channels, both professional solution and direct-to-consumer delivered an outstanding quarter. We were double-digit on direct-to-consumer and high single-digit in our professional solution channel. When we look at the countries across the EMEA region, we saw widespread positive trends. In Italy, in Germany, in Scandinavia, in Turkey, in Eastern Europe, we delivered double-digit growth. In the Middle East and Spain, we were in the mid-single-digit, and in France, we delivered low single-digit growth. When we look at our professional solution channel, our independents, our key accounts, our e-commerce partners were the three main drivers for the growth. While when we look at the product categories, I would say Frames posted a high single-digit quarter with strong delivery on both sun and prescription, with Oakley and the luxury portfolio, they were all in healthy shape during the last quarter of the year. When we look at our lance business, Aizen was double-digit, Stellast was double-digit, Nikon delivered a double-digit, while Transition and Varlox delivered a mid-single-digit pay. So, the message I want to convey is that we had a very strong widespread growth in EMEA region on the B2B side. Moving to direct-to-consumer, high single-digit comps in both optical and sun. Let me start with the Optical Retail that continues the journey of elevation of the consumer experience. And you remember, we talked about that during the Capital Market Day. And every now and then, I love to share with you where are we with that journey. And I will share with you a few examples that give you a good flavor of the work that the team has done recently. The Astrolux Optical Lens Penetration today in Grand Vision is around 70% of the total assortment. When we look at the frames, the penetration is around 85% in the fourth quarter. Another important asset is represented by the subscription business model. 20% of the optical retail business in Q4 is underneath the subscription model. Teleoptometry, another important initiative. 10% of the store base in optical retail Europe is leveraging teleoptometry. In 2024, we performed approximately 140,000 eye examinations leveraging teleoptometry. Where can we go from there? Well, we have an ambitious goal by 2027 to equip approximately 3,000 stores and perform in a single year 1 million of eye examination leveraging teleptometry. The last important chapter of this journey is represented by the renovation efforts that we're undertaking. We're marching at full speed with over 250 stores that were patched, renewed in 2024. And also some key flagship locations that maybe some of you have seen walking by the European streets, like for example the Grand Optical in Champs-Élysées, The vision expressed in Oxford Street in London or the Apollo in Frankfurt, they are now performing extremely well after the recent renovation. On the Sun Retail banner, I would say good delivery for the locations that are more exposed to touristy traffic, but also the other ones in EMEA were actually delivering good comp sales. In particular, Turkey and Spain that deliver a double-digit pace, France that was on a high single-digit comps, and Italy that delivered mid-single-digit comp sales during the course of Q4. But now let's switch gear, let's move east, and let's touch Asia-Pacific. 14% top-line growth at constant currency. The best quarter of the year in Asia-Pacific. Clearly, in this quarter, there is an impact on the acquisition of Supreme. And excluding that impact of M&A, we will be looking at the fourth quarter in a mid-single-digit speed, substantially aligned with the trajectory that we reported during the course of Q3. Now, let me share a couple of highlights for the region. All the key countries, like China, like Southeast Asia, like Japan and Korea, recorded solid growth during the course of Q4. India was probably the only one just slightly negative due to a soft sell-out that we experienced on the frame part of the business in Q4. In China, Myopia controls product categories' continuous journey with a double-digit growth on both cell lists and the Nikon and Kodak lenses that leverage the DOT technology. Just to give you an idea, the overall category of Myopia solution grew in Q4 in excess of 50% and represents now 25% of the revenue base in the country. Outstanding. Excluding the myopia solution category in China, we continue to experience a soft demand, as we observed during the course of a third quarter, and we've seen that in particular in the Balan brand. A last touch on direct-to-consumer. Optical comps are a low single-digit with positive in Australia, where our Sunglass Sat banner, Oakley and Raven stores, in the region, they all deliver mid-single-digit comp. I would say in particular thanks to a strong double-digit comp in the Japan country. Now, let's move to the last country, last region in our journey here, and that is Latin America, 8.7% at constant currency. In Latin America, this is clearly another strong quarter. For the region, represent the 16th consecutive quarter of positive growth at constant currency. When we look at our B2B side, the professional solution, we deliver low single digit on top of the strongest quarter last year, where I remind you, we grew 17% versus 2022. So a very, I would say, tough comparison base for professional solution. On the other side, our direct-to-consumer was up 15%, delivering the strongest quarter of the year. On the B2B side, we had the Brazil part of a business that was negative, but very much driven by that tough comparison base that I touched upon before. And it was particularly true on the land side of a business, while the frame business was actually strong in Q4, in particular on the luxury segment. Now, we are a few days into 2025, and I can already anticipate that as we enter in Q1, we do have an expectation of a step change in our Brazilian performance in Q1. For the rest of Latin America, we delivered double-digit quarter, helped by inflationary impact of Argentina, but also by a strong double-digit pace in Colombia, where we experienced a successful launch of Transition Gen S. Now, we're finishing with professional solution. Let's move to the direct-to-consumer side. In Q4, like in Q3, we had another double-digit quarter for our direct-to-consumer distribution channel. Our optical retail banner were on fire. GV banners in Mexico, the one in Andes, optical center in Guatemala, the Ochica Carole directly operated stores all delivered double-digit quarter. And last touch on our sun banners that on the largest sunglass footprint in the region, that is the Mexican one, deliver a double-digit com. So very compelling picture on both optical and sun for the Latin region. And let's now move to the profits and loss. I would say we are very pleased by the way we closed 2024. In particular, during the second half of the year, where the currency headwinds were materially reduced compared to the one that we faced in 2023 and in the first part of 2024. As usual, consistently with our narrative in the past, I will comment and focus more on constant currency results. I won't touch top line, as we already covered that before, and I will start with our gross margin. Our gross margin in 2024 expanded 30 basis points at constant currency with an expansion that is slightly lower in H2 compared to H1. And that was very much due to a strong performance of Ray-Ban Meta during the latter part of 2024. And as you know, Ray-Ban Meta is dilutive. And that dilution, though, was largely offset by the favorable impact of price mix at group level. When we look at our operating expenses, they decreased approximately 20 basis points, still a constant currency, and here you can appreciate our effort to continue to balance, on one side, a strong control on our cost base, and on the other side, continue to fuel the pipeline of our strategic investment. For example, ribbon matter, the evolution and the expansion of the wearable family, the investment to launch Nuance, and the major strategic initiative of artificial intelligence and diagnostic. All in all, our operating profit expanded 50 basis points on a full-year basis, which represents the promised margin accretion compared to the one that we posed for the full year 2023. When we look at our result at current exchange rate, you're looking at 20 basis points margin expansion at the operating profit level with an H2 margin expansion that was 40 basis points. Now, if we go down for a second to the group net profit, our margin were 40 basis points accretive at constant currency, with a tax rate that was broadly in line with 2023, and an increase in our financial costs that was mainly related to the application of the IFRS 16 lease accounting principle, and a slightly higher insurance expense on our financial debt. All in all, our group net profit expanded 20 basis points at current exchange at 11.8%. And now the last chapter of this journey, free cash flow and net debt. Our free cash flow generation was once again extremely strong, $2.4 billion for the full year 2024. Slightly higher than the one that we recorded in 2023 with the capital expenditures that are substantially flat year over year. Our net debt to EBITDA ratio is below 2 at 1.7 and clearly includes the impact of the recently acquired Heidelberg Engineering and Supreme. But now let me hand it over to the operator for the usual Q&A session.

Ladies and gentlemen, we will now start the Q&A session. Our first question comes from Oriana Cardani in Deza, Sao Paulo. Please go ahead, Oriana.

Good evening. Thank you for taking my questions. The first one starts with U.S. tariffs. Based on what the Trump administration has read so far, And my second question is regarding the growth profile expected in 2025. Without considering the effect of the launch of Nuance Audio, what is the size of the price mix effect expected for VCR?

Thank you.

Good evening, Rhianna. I'll take the first question and then eventually we can make a comment on the second one. So the first question with respect to the duties. As you know and appreciate, the picture, the framework is continuously evolving at this stage. We see pretty much every other day news on duties. But from what it looks today, there are probably two major headwinds that we see. One is China. The other one is Mexico at this stage. Let me say that if I step back and look at our supply chain, I look at manufacturing infrastructure. Today, we are in much better shape than we were probably four to five years ago. We recently invested to diversify manufacturing plants for both frames and lenses. And that gives us a higher degree of flexibility. and a higher capacity to mitigate those headwinds. So that is one important aspect that needs to be taken into consideration. The other thing that I haven't mentioned is clearly the commercial action that eventually we could take, if needed, from a pricing standpoint to mitigate that. So if I consider those two things that I just mentioned to you, our expectation is those headwinds will be largely mitigated by the action that I just described to you. With respect to growth in 2025 and the profile, without considering the launch of nuance, we still expect the revenue to grow through price mix. I think At this stage, mix would be probably more important than pricing. But the real step change that we expect to see in 2025 is going to be through volume effect, which I think is something that we are starting already as we enter into 2025.

The next question comes from Louise Singlehurst, Goldman Sachs. Please go ahead.

Hi, good evening to you all. Hi, Francesca. Thank you for my question. Great to see the progress into the end of the year. Just in terms of questions, first of all, great to see the customer perception and the outlook of our volumes. Francesca, you mentioned third parties in your opening remarks. I wondered if you could talk about that, the different partners, and help us understand more broadly the ecosystem you see evolving, whether that be product and distribution. Also on the third part is I know in the past, during 2024, there were discussions about potential partners taking a stake in your business. I wondered if there was any update to that effect. And then my second question, just again on smart glasses, on the lenses, can you talk about the lens mix accompanying the frames and what you're seeing customers buying and And if there's any interest in multiple pair purchases, thank you.

Good evening. I'll try to give an answer to the first, the wearable question. and third-party brands. This is our usual approach. We started to set a platform on wearables that is evolving month after month with new functions and capability and duration of our battery and so on. When the platform will be solid and complete, as usually we are open first to bring this wearable platform on the other brands of our portfolio, but at the same time, we are open also to really accept requests for third parties brands that won't really compete on this arena. We never take this capability, unique capability that we built as a barrier to a normal competition. And I believe to provide the platform, the electronic part, and in the future also to provide services will be a business that will be bigger than just sales, the sale, the product. Prada or the first brand that will arrive we don't disclose but I believe that in a few years almost any brands in the market it will have at least one model with some digital services on it on capabilities and in the long term maybe any glasses will be on this position.

Maybe a word on the lens mix. I think the way to look at it is the following. When we started with Ray-Ban Stories, we started with a sunglass And it was obviously not the right experience for the consumer. What we see in the Reban Meta, which is the first very notable change, is that now the choice is moving towards photochromic lens, towards transition lens. And as I said earlier, 40% in our stores of the Reban Meta are equipped with transition, and it is growing. And this is what really makes the user experience much better because it is moving this category into a daily use, a continuous use. So then you move to Nuance Audio and Nuance Audio is clearly whether we are on the smart glasses, Ray-Ban, whether we are on the Nuance Audio, they are all RX compatible. And the idea is to fit them progressively with the prescription lens. So the consumer, as they are embracing this category, are clearly going to move progressively to have their own prescription. The first step being the success of the photochromic, which is a very, very good sign. And of course, the full supply chain is being enabled to do prescription full job for the consumer, whether it is in the professional solution channel or the direct-to-consumer or online.

The next question comes from Chiara Battistini, JP Morgan. Please go ahead.

Hello, good evening. Thank you very much for taking my questions. My first one would be on nuance. Great to see the approval last week. I was just wondering if you could share with us a bit of the timing of the first launches in the U.S., when we should be expecting the products on the market, and also how you're thinking at this stage about the ramp-up of the volumes available in the market, and also any investment marketing plans. selling costs that we should be thinking about as you launch in Q1 and ramp up in Q2. And the second question, you mentioned, sorry, on both Ray and Meta, you mentioned, I think, that there is a plan to extend the capacity to up to 10 million units by end of next year. I was wondering whether that is all in China or in other regions as well, and if that includes Nuance as And if I can make just a very, very small one follow-up on the impact, the organic growth in Q4. I think, Stefano, you mentioned 5.6% organic, so 3.6% consolidation impact.

Thank you. Really, we have a great expectation that is not just based on our dream or desire. It's really based on how the customers are responding. We already tested in thousands of consumers, and really the feedback has been amazing, much better than we expected. Now the ramp-up is really... In the hot period, we are sending product and trade material, and we expect to have a great success with this product. First, because it's something completely new. Maybe people have waited for that kind of solution for many years. So we believe to see a peak in the first part of the launch. Then, honestly, we want to really better understand the evolution of the product, how we can improve some features that now are very basic. We have two directions. One is really more sophisticated with AI. You know that we acquired Pulse that is really delivering an incredible system to manage sound, to suppress noise and so on. This is for a part of consumer. Then we also are thinking that a product that will be simpler than the one that we launch now, that will be totally independent from the mobile phone and from the app. It will be really just can be used with just the small device to increase volume or set the volume. type of selection that we need. We are preparing investment in marketing and communication is much more involving more than direct directly the consumers is a word we're working very well opinion leaders that are really represent reference for consumer that have this kind of problem to fix. And we really, we are start to understand an incredible world behind this audiological market. Leave the others to Paul.

So on the capacity that Francesco commented, that we would ramp up capacity to 2 million units for wearables, that covers the Revan Meta, will cover also Nuance Audio by the end of 2026, it was said, and that capacity will be in China, but also in some of the footprint we have in Southeast Asia. 10 million, I said, 10 million capacity.

And I take the last question that you had just as an exception to the two-user question, right? So we got the third one, but it's just a confirmation. You're correct. 5.6% is our growth, excluding the impact of the acquisition of Heidelberg Engineering and Supreme.

The next question comes from Susi Tabadi, UBS. Please go ahead.

Good evening. Thank you for taking my question. The first one is on the smart glasses. I understand you cannot say too much on the agreements that you have with Meta, but is it the right way of thinking that Meta is the key driver behind the tech development side while you are more driving the design and the commercialization? The reason I'm asking is that, of course, Mark Zuckerberg has been very, very vocal when it comes to the scale of the investments they're making into AI and the related technologies. So I wanted to know if you are at all investing also in some of these technologies or thinking about investing or you're leaving this side to the tech world, which right now is with Meta, but could be also with others in the future. Or another way to ask the question, if we look ahead 5, 10, 15 years, do you see yourself as focusing more on the hardware distribution brand lenses with a tech partner or do you also have eventually plans to do something a bit more on the tech side to have some sort of more independency. And my second question is on the margins. You are confirming today your guidance for 2026. This implies quite a big step up, bigger than what you delivered this year. So can you talk about the key drivers? You had some headwinds with inflation, et cetera. So how are these evolving? Are they fading? And given all the innovations and investments, it just seems quite a big step up. So it would be nice to get a bit more clarity on the drivers, especially given that the dilutive effect of the rebound meta, unless once it reaches this 10 million, you think that it can be more aligned with the profitability of the group and therefore not have such a dilutive effect. Thank you.

on smart glasses, meta, and the role that we play. So it is not one against another or competition. We are really in a full collaboration. About technology, Nuance technology is completely in our hands. We start from scratch. We built the hardware infrastructure and platform. We developed the code. Now we are adding AI and so on. So I believe that in the future, the role of our company will be much more than just providing good brands or iconic brands or beautiful design or really let all our 20,000 stores support the sales. We are not thinking in terms of independency. We are more thinking in the terms of collaboration. And that is both companies are growing very well. Meta is starting to better understand that the smart glasses are first of all glasses, and then they bring new functionality. This is, I believe, is a great contribution that comes from our understanding of the market. So that is our position. We are investing in the new technology. We are investing and hiring people on the audio and the video part. And so we will be capable to design our own platform. That is not... Because we have this capability that we are going to really build that kind of platform, we much more believe in contribute to the meta platform to really enrich the experience, the business model, and the capability to better serve all our customers. Margin is yours.

Thank you, Francesco. The question on our long-term outlook. Susie, good evening. We're confirming our long-term guidance. When we look at 2024, we are happy with the growth that we achieved last year. We're happy with the promised margin expansion that we committed and delivered in the course of 2024. We now have a year, 2024, where if you look at, we still experience quite strong headwinds from inflationary trends. If you look at our slide, we commented about 170 basis points headwinds from inflation. We continue to invest in the strategic initiative. And with all of that, we were capable to expand quite materially our margin. When we look at our future, we have a revenue stream that are going to come from wearable device. There are revenue streams that are going to come from audiology, nuance, first generation, and evolution of nuance in itself. We have revenue streams that will come from diagnostic and surgery. We have a set of initiatives that in a matter of few years will materialize in a matter of billions, and clearly there will be profitable ones. So, more than ever, we are confirming today the guidance from the Long-Term Outlook 2126. And probably just one clarification, because I suspect there was a misunderstanding before. The 10 million capacity setup that we had was very much related to RABAN meta, just as a matter of clarification.

The next question comes from Luca Solka, Bernstein. Please go ahead, Luca.

Good evening, Luca Solka from Bernstein. Thank you very much indeed for taking my questions. You were alluding before and you were explaining, in fact, Stefano, that Ray-Ban Meta has a dilutive effect. I wonder if you could help us understand a bit more the economics of Ray-Ban Meta Is it more that it is dilutive because of the investments that you've carried out and, therefore, the depreciation that you have so that this could potentially be solved by increased volumes, but you will have to commit more capital, I suspect, as you are increasing capacity so much? Is it also that this product carries a significantly higher cost a royalty attached to it, I presume, then the typical licenses that you would have with Chanel or with Dolce & Gabbana, for example, and that would typically work at 8 plus 8 in terms of cost for you, I wonder. If you could tell us a bit more about the economics, why it is dilutive and how we need to model this, especially as we're looking at a significant growth prospect, that would be super helpful. Then going back to what Francesca was explaining, that this wearable product is indeed in its infancy and is going to evolve very fast and is possibly going to impact in the long term all kinds of eyewear products. I wonder what you think is the technology at the moment? How far is an augmented reality solution? We saw, for example, that Meta has Orion, and that seems to be an augmented reality pair of glasses. Will you be working on those? Do you expect that this is going to be the next step? How do you foresee this technological development? What could be the milestones of it, if I may ask?

Thank you very much indeed.

Before Stefano will comment on the Reba margin, I want to just remind that we are really building a new category. When you build a new category in an all-market, you have really to deal with two pieces of the puzzle. One is the margin that usually the reseller have and the type of product that you are inventing. So in this case, the problem is that we are bringing and because it is the right way to to approach the wearable is going through the optical channel. We believe that is the right way to approach it, to become a normal pair of eyewear that you wear every day. Sometimes it's the only one that you use. Everybody knows the margin on electronics are smaller than margin on optical. We try in this first phase to really try to balance the two. We lose some margin. Also, if we have to consider the part on lenses, that we can gain through Ray-Ban meta increase in numbers that are not in the margin of Ray-Ban meta. But this is really that you have to understand that we are building something completely new, merging two categories, electronics device in an old-fashioned optical business. In the future, the margin will increase, first because the new future will increase the price, And also because many functions will be sold in a different way, and so it will add margin to the product. And the product will be not the only things that we sell. Now, maybe Stefano would comment on the specific number.

Yeah, I can just expand, even though, Francesco, you pretty much said it all in a very comprehensive manner. But, Luca, good evening. Just three takeaways from when you look at Ray Van Metten and the economics. Without... you know going into a large amount of details here but but number one uh reba meta is diluted and is mainly diluted because of the electronic component secondly When I look at my glass, half full here, I can tell you that Ray-Ban meta is materially less dilutive than Ray-Ban story used to be. And actually, when I look at the progression of Ray-Ban meta due to the scale effect, it continues to be less dilutive month after month. then what I believe can bring the wearable to the next level, well, the expansion of the product category in itself. Today, we are looking at a handful of models and a single brand. In the future, you're looking at a variety of products in a variety of different brands at a variety of price points with a variety of functionalities, which, by the way, will probably encompass the hardware component on top of services that can be eventually activated and will represent, on top of that, an additional revenue stream. And last but not least, obviously, let's not forget, as Francesco said, that we always have an addition of lances on top of the base freight. And that's obviously a material lift in terms of revenues, but also profitability when we look at our Ray-Ban Meta platform.

Yeah, they cancelled the second, but we have still Orion, yeah. I believe that The evolution of wearable will be very, very fast because really the progression that we see on technology is amazing. If you compare the first Ray-Ban story with the second release or Ray-Ban Meta, you really understand that are two completely different products And the second is so much better than the first. And it's just one year later the first. And now we are also working on the new feature. We are working on some app that can run on the wearable and will be sold by subscription. So there are very many streaming that will accelerate the expansion of wearable category. And also because we are really receiving requests almost from all brands to have at least one SKU with some electronics. capability inside. I believe also it is not far maybe that also the luxury brand, they will offer this kind of feature in their top SKU. How far is the augmented reality solution? I believe that the technology is not completely mature. Orion is a spectacular product. It's working very well. We experienced the product. There are some key killer applications like instant translation that will push on that kind of display solution. At the same time, it's quite a bit too complex, the interaction between the product and the human being. Now I believe the limit or the next limit will be the capability of our body to evolve and to be capable to, at the same time, to manage so much information in the same moment. look at the image, receive maybe the advice through the AI and maybe monitoring the healthcare, listen music, answer to the call. That is the real challenge of the future, how to simplify. that kind of interaction. When we will find out with something very easy to manage, I believe that the new technology will replace the old wearable now based mostly on the vocal way to activate the AI. But AI is behind this pattern to the simplification. Then we will see what happens when our wearable with all this feature will take in a certain way the control of our life. When you're wearable, he will control your car, your domotic, in the house, he will suggest not only what you asked, but he will suggest what he understood that may be. you will need, because all the sensors that will control your health care, your health status, it will really suggest maybe to have a drink, to drink more water, or to relax, or whatever. That is really the new challenge of the future, and this future is not so far as we believe. Thank you.

Our last question comes from Grace Smalley, Morgan Stanley. Please go ahead.

Thank you for taking my questions. Thank you for all the information you've given on Ray-Ban Meta so far. I just had a few follow-ups. Could you just help us by specifying what percentage of sales Ray-Ban Meta actually represented of your reported sales in 2024? And If you do hit that 10 million units that you outlined in terms of production capacity in 2026, given you are changing, it sounds like, somewhat the product mix and there's an opportunity to expand to different price points, what would you expect that to represent as a proportion of sales in 2026? And do you think about that 10 million of units as potentially, like, purely incremental, or would you expect there to be some element of cannibalization there versus traditional glasses? Yeah. And then my second question would just be on pricing of Ray-Ban Meta, please. How have you thought about the pricing of the product, like initial feedback you've got from the consumer on how it's priced, and therefore as you roll out the technology to new brands, to new products, how you're thinking about the opportunity to stretch the price point higher? Thank you very much.

Good evening, Grace. I'll take your question. I mean, when we look at – what we probably have to kind of look at holistic here is that we have the current business, and we see that current business nicely progressive at a fast speed. Then we have all the new sets of initiatives that – in a way are in the startup phase. I mean, Ray-Ban Meta is a great success. It's in everybody's mouth. It's a highly desirable product, but it's just two years, not even two years in the market. And we know that the ramp-up curve is going to come and is going to be quite material from a volume ramp-up standpoint. That's why we're getting ready for that, setting up the new capacity. But it's not the only initiative. Clearly, we have a great expectation from Nuance. We see the desire of people to try Nuance, to have access to this product in Europe as well as in the United States. That's why we are largely celebrating the FDA approval for this product. It's very important. And let's not underestimate the importance of the surgery, the diagnostic components that will become an important revenue stream in the near future. What I can tell you, Grace, is that if I add just those three initiatives, In a few years from now, you are looking at something that is in a material way impacting our results. And when I say in a material way, I'm looking at billions of revenue that will come up out of those initiatives. I don't know whether there is a cannibalization, to be honest with you. There's definitely no cannibalization for Nuance because it's building up a brand new product category. I can tell you that looking at the consumer behavior today with Ray-Ban Meta, and I believe in the future for our wearable device, there is a genuine need, desire from the consumer that steps into our store to exactly purchase this product. We saw it in many different instances, consumers stepping in and saying, hey, I want to buy a Reba Meta, which tells us that it's a family of products that is highly desirable. So I don't think there is, in a way, a material cannibalization deriving from that. i believe at the same time that the expansion of that product category will help us a lot and obviously the the pricing assessment that we're going to make in the future is going to be also related to the functionalities that the new product and the brand will have in relationship with the wearable device. So it's an all-new journey, which we just started now, and believe me, in a few years from now, it's going to be a material part of our revenue stream.

So after this last question, we thank all of you to be with us anytime and with this really good question, and we take some indication from your words. Thanks a lot. See you next time. Thank you. Good night.