Contribution appraiser s report on the consideration for contributions

Transcription

1 JEAN-CHARLES DE LASTEYRIE 2 avenue Hoche Paris Essilor International Société anonyme with share capital of 39,331, rue de Paris Charenton-le-Pont Créteil Corporate and Trade Register: Delfin S.à r.l. Société à responsabilité limitée with share capital of 682,960,000 7 rue de la Chapelle 1325 Luxembourg Luxembourg Corporate and Trade Register: B Contribution of Luxottica Group S.p.A shares held by Delfin S.à r.l. to Essilor International Contribution appraiser s report on the consideration for contributions

2 Contribution of Luxottica Group S.p.A shares held by Delfin S.à r.l. to Essilor International Contribution appraiser s report on the consideration for the contributions Dear Sir or Madam, In carrying out the assignment given to us by the President of the Créteil Commercial Court on February 1, 2017 regarding the contribution of Luxottica Group S.p.A (hereafter Luxottica ) shares held by Delfin, S.à r.l. (hereafter Delfin ) to Essilor International (Compagnie Générale d Optique) (hereafter Essilor ), we prepared this report on the consideration for contributions pursuant to article L of the French Commercial Code, it being noted that our opinion on the value of the contributions is covered in a separate report. The consideration for the contributions was determined in the draft agreement on the partial asset contribution signed by the representatives of the respective companies on March 22, It is our duty to offer an opinion on the fairness of the consideration proposed for the contribution. In that respect, we carried out our analysis in accordance with the professional standards of the French institute of statutory auditors (Compagnie nationale des commissaires aux comptes CNCC), applicable to this assignment; these standards require the implementation of analytical measures intended to verify that the relative values attributed to shares making up the contribution and the shares of the beneficiary company are relevant, and to analyze the positioning of the proposed consideration in comparison with relative values deemed relevant. Since our assignment ends with the filing of the report, it is not out duty to update the report in order to take into account facts and circumstances that occur after the signature date. At no time did we find ourselves in a situation of incompatibility, prohibition or disqualification as referenced by law. We ask that you take note of our findings and conclusion presented below, based on the following outline: 1. Presentation of the transaction 2. Verification of the relevance of the relative values assigned to the shares involved in the contribution and the shares of the beneficiary company 3. Opinion on the fairness of the proposed consideration 4. Conclusion 7 April /17

3 1. Presentation of the transaction The transaction subject to your approval consists of the contribution by Delfin of its entire equity interest in Luxottica to Essilor. 1.1 Background of the transaction The French company Essilor designs, manufactures and sells prescription lenses and ophthalmic optical equipment. As the world s largest company for ophthalmic optics and a major player in the visual health field, the Group generated 2016 sales of 7.1 billion in more than 100 countries. The Italian company Luxottica specializes in the design, manufacture and distribution of eyewear frames, especially in the fashion, luxury and sportswear segments. As the worldwide leader, the Luxottica distributes its brands in nearly 150 countries and generated sales of 9.1 billion in Delfin S.à.r.l owned approximately 62.5% of its share capital on the date the partial asset contribution agreement was signed. On January 16, 2017, Essilor and Delfin announced that on the previous day they had signed a Combination Agreement, with the goal of creating an integrated and global optics company through the combination of Essilor and Luxottica, which would benefit from the strengths and complementarities of the two companies. The combination of the two companies will be achieved through several concurrent transactions: - the contribution by Delfin of its entire equity interest in Luxottica to Essilor, in exchange for new shares to be issued by Essilor for Delfin (the transaction covered in this report). This contribution is subject to the apport-scission regime. This transaction will be followed by Essilor s launch of a mandatory public exchange offer, in accordance with the provisions of Italian law, aimed at all outstanding Luxottica shares under the same terms as this transaction; - the contribution by Essilor of its operating activities and its equity investments to a wholly owned subsidiary, Delamare Sovra (which will be renamed Essilor International), following which Essilor will become a holding company and will be renamed EssilorLuxottica. This contribution is subject to the apport-scission regime. That transaction, for which we have also been appointed as the contribution appraiser, is covered in separate reports. 1.2 Presentation of companies and interests at stake Contributing company: Delfin S.à r.l. Delfin S.à r.l., the contributing company, is a Luxembourg-registered société à responsabilité limitée with share capital of 682,960,000, divided into: - 26,269,568 ordinary shares, each with a par value of 25 and fully paidup; and - 1,048,832 class A preferred shares with a par value of April /17

4 Its registered office is located at 7 rue de la Chapelle 1325 Luxembourg. The company is registered in the Luxembourg Corporate and Trade Register under number B This company s business purpose is to acquire and manage investment stakes in companies in Luxembourg and abroad Beneficiary company: Essilor International Essilor International, the beneficiary company, is a French-registered société anonyme with share capital of 39,331, as of the date of the draft agreement on the partial asset contribution, divided into 218,507,701 ordinary shares, each with a par value of 0.18, fully paid up. The shares issued by the company, which are all of the same class, are admitted for trading on the regulated Euronext Paris market (compartment A). Essilor is part of the CAC 40 index. As of the signature date of the draft agreement on the partial asset contribution, Essilor s by-laws confer double voting rights on all fully paid-up shares for which it can be demonstrated that they have been registered for at least two years in the name of the same shareholder. As of December 31, 2016, Essilor s share capital is owned as follows: approximately 8.4% by current employees, former employees and retirees of the company; 0.9% treasury shares; the remainder, approximately 90.7%, is held by the public. Its registered office is located at 147 rue de Paris Charenton-le-Pont. The company is registered in the Créteil Corporate and Trade Registry under number In all countries, this company s business purpose is the design, manufacture and sale of prescription lenses and ophthalmic optical equipment Company whose shares are contributed: Luxottica Group S.p.A Luxottica Group S.p.A, the company whose shares are being contributed, is an Italian-registered company with share capital of 29,056,414.98, divided into 484,273,583 shares, each with a par value of Its registered office is located at Piazzale L. Cadorna Milan - Italy. The company is registered in the Milan company registry under number Luxottica shares are listed on the Borsa Italiana in Milan and the New York Stock Exchange through the American Depositary Receipts program. Luxottica is included in the Milan benchmark index (FTSE MIB). The company s main business purpose is: (i) acquiring equity investments and managing these investments in the share capital of one or more companies or entities in Italy and abroad; (ii) the financial coordination and management of companies and entities in which it owns equity interests; (iii) lending to subsidiaries; and (iv) the sale of prescription eyewear and sunglasses frames as well as optical products in Italy and abroad. 7 April /17

5 1.2.4 Links between the respective companies As of the signing date of the draft agreement on the partial asset contribution, Delfin holds 32,205 Essilor shares representing approximately 0.016% of this company s share capital and 302,846,957 shares of Luxottica, representing 62.54% of the share capital. Meanwhile, Leonardo Del Vecchio, the Chairman of Delfin, is also the Executive Chairman of Luxottica. 1.3 Description of the transaction Essential characteristics of the contribution The characteristics of the contribution are described in the draft contribution agreement under the apport-scission regime (hereafter the agreement on the partial asset contribution ) signed by the parties on March 22, The beneficiary company Essilor will own the shares contributed by Delfin effective on the definitive transaction closing date, subject to the conditions precedent described below. For accounting and tax purposes, the parties agree that the contribution of shares will take effect on the transaction closing date. That will correspond to the date of the last of the shareholders meetings responsible for approving the contribution, subject to the fulfillment of all of the other conditions precedent mentioned below. From a legal standpoint, the contribution is subject to the apport-scission regime covered by the provisions of articles L to L and L to L of the French Commercial Code, with no joint and several liability. It is also subject, in accordance with the provisions of articles 308bis-2 and 308bis-4 of the Luxembourg law of August 10, 1915 on commercial companies (as amended), to articles 285 to 308 (except article 303) of this same law. From a tax standpoint, with respect to registration fees, the transaction is subject to article 810- I of the French general tax code, which specifies a fixed fee of 500. As for the VAT, the transaction will not be subject to Luxembourg VAT pursuant to the provision of the Luxembourg VAT law of February 12, 1979 as subsequently amended. The transaction should be exempt from the Italian tax on financial transactions, specified in article 1, para , of the Law no. 228/2012, in accordance with article 15 (1) (h) of the Finance Ministry s application order of February 21, 2013 (as amended) Conditions precedent The contribution of Luxottica shares is subject to the fulfillment of the following conditions precedent: - approval by the Essilor shareholders meeting of the resolutions pertaining to this contribution, the resulting capital increase, the amendment of the bylaws, the appointment of new members of the Board of Directors and the 7 April /17

6 partial asset contribution transaction that must be authorized by Essilor International for its subsidiary Delamare Sovra (the Hive-Down); - approval of the cancelation of double voting rights by the special shareholders meeting for Essilor shareholders who have double voting rights; - exemption decision by the French Financial Markets Authority (confirming that Delfin, when it exceeds the 30% threshold of share capital and voting rights in Essilor thanks to the asset contribution, will not be obligated to launch a mandatory takeover bid for Essilor shares). This decision must not have been contested during the appeal period allowed under article R of the French Monetary and Financial Code, or, if the decision is appealed, the appeal must have been rejected through a final, non-appealable decision by the Paris Court of Appeal; - completion of the Hive-Down; - admission for trading on Euronext Paris of new Essilor shares to be issued as consideration for the contribution; - receipt of regulatory authorizations (notably given the expiration of the applicable deadline), in particular from the competition authorities of the European Union, United States, China, Brazil and Canada; and - approval of the contribution by the Delfin shareholders meeting, it being noted that the date of this meeting is not yet known. It will be held after all other conditions precedent have been fulfilled or lifted. It is also noted in the draft of Document E that Leonardo Del Vecchio entered into a voting commitment under which he has pledged to retain full ownership and usufruct of rights related to all of Delfin s share capital until the Delfin shareholders meeting that will approve this contribution. Leonardo Del Vecchio also agreed, for each share held, to vote in favor of the contribution at this shareholders meeting. If any of these conditions precedent were not completed by June 30, 2018 at the latest, the provisions of the partial asset contribution agreement will be considered null and void, with no compensation for either party, with the exception of rights to potential compensation for either party in the event of a breach by the other party of its obligations under the partial asset contribution agreement. However, the parties may agree to extend this deadline by mutual consent Description of the contributions by the parties As part of the proposed contribution transaction, Delfin will transfer full ownership of 302,846,957 Luxottica shares to Essilor, representing, as of the signature date of the contribution agreement, all Luxottica shares held by Delfin, or 62.54% of Luxottica s share capital. Under the terms of the draft agreement, the contribution is made on the basis of the actual value of the Luxottica shares contributed, in accordance with the provisions of the June 5, 2014 Regulation No relating to the general chart of accounts of the French accounting standards authority, as updated on January 1, 2016 and complemented by Regulation No of November 4, 2016 (since the contribution involves a majority interest equivalent to an entire 7 April /17

7 business segment and constitutes a non-reverse merger transaction, and the parties are separately controlled) and the Luxembourg standard chart of accounts in accordance with the Grand Ducal regulation of June 10, The actual value of the shares contributed was contractually set by the parties at 43.5 per share, representing a total contribution amount of 13,173,842, For the purposes of recognizing the contributed Luxottica shares in the Essilor financial statements, the draft agreement on the partial asset contribution includes an adjustment mechanism to reflect a potential drop in the value of the contributions between the date of the Essilor shareholders meeting and the transaction closing date, which corresponds to the date of Delfin shareholders meeting, which is not yet known. Therefore, under the terms of the draft agreement on the partial asset contribution, for accounting purposes with regard to the Contribution, the value of the Contributed Shares is based on their fair value, in accordance with Regulation no of June 5, 2014, concerning the accounting standards of the French Accounting Standards Authority (plan comptable général de l Autorité des normes comptables française), as updated on January 1, 2016 and completed by regulation n of November 4, 2016 (as the Contribution is a non-reverse transaction and the Parties are under a distinct control) and the Luxembourg accounting standards, in accordance with the Grand-Ducal Regulation of June 10, The total contribution amount and contribution premium (mentioned below) will be adjusted accordingly Consideration for the contribution As consideration for the contribution of 302,846,957 ordinary Luxottica shares with a par value of 0.06 per share and valued on the basis of 43.5 per share, Delfin will be attributed 139,612,447 new ordinary shares issued by Essilor, with a par value of 0.18 per share, based on an exchange ratio of new Essilor share for 1 Luxottica share contributed. As of the definitive closing date of the capital increase intended to provide consideration for the contribution, the new shares will be identical in all respects to all other shares; they will have the same rights and be subject to all by-laws provisions. The difference between the value of the contribution, i.e. 13,173,842,629.5, and the amount of the capital increase, i.e. 25,130,240.46, will represent a contribution premium of 13,148,712,389.04, which will be recognized in a contribution premium account, to which old and new shareholders will have rights, subject to the possible valuation adjustment of the contribution mentioned in section above. The draft agreement on the partial asset contribution also includes the possibility adjusting the consideration for the contributions in the event that either Luxottica or Essilor pays out a dividend that exceeds the annual dividend amount set by the parties. Consequently, in the event where the shareholders or the Board of Directors of Luxottica or Essilor should decide to pay out any interim dividend or any other 7 April /17

8 type of distribution, in any form, to shareholders of Luxottica or Essilor before the closing date, other than an annual cash dividend of up to (i) for Essilor, a payout ratio of 40% of net income based on the Essilor annual report for the corresponding fiscal year (not including the 3% tax on dividends) and (ii) for Luxottica, a pay-out ratio of 50% of adjusted net income based on the Luxottica annual report for the corresponding fiscal year, the exchange ratio of Essilor shares for 1 Luxottica share contributed used as consideration for the contribution would be adjusted using a formula specified in the draft agreement on the partial asset contribution. 2. Verification of the relevance of the relative values assigned to the shares involved in the contribution and the shares of the beneficiary company 2.1 Analysis performed by the contribution appraiser Our assignment is consistent with other duties defined by law and falling within the conceptual framework of the professional standards of the French Institute of Statutory Auditors (Compagnie nationale des commissaires aux comptes CNCC). It is intended to inform the shareholders of Essilor and Delfin on the relative values used for the consideration of the contribution as well as its fairness. As a result, it does not constitute an audit or a limited review. Nor does it suggest a validation of the tax treatment applicable to the transactions. It is not the equivalent of due diligence performed for a lender or buyer nor does it entail all of the work required for such a task. Our report cannot therefore be used in that context. Our opinion is expressed on the date of this report, which constitutes the end of our assignment. It is not our duty to monitor subsequent events that may occur between the date of the report and the date of the shareholders meeting that will approve the share contribution transaction. We performed the analysis that we deemed necessary, based on the professional standards of the French Institute of Statutory Auditors applicable to this assignment for the purpose of: - on the one hand, assessing the relevance of the relative values and analyzing the positioning of the exchange ratio used to determine the consideration for the contributions in connection with the relative values deemed relevant; - on the other, assessing the fairness of the consideration for the contributions. In this context, we performed the following tasks in particular: - took into consideration the context and objectives of this contribution; - met with the Essilor and Delfin managers responsible for executing the transaction and their legal and tax advisors, both to assess its context and to understand the surrounding economic, accounting, legal and tax considerations; - met with the managers of Luxottica and Essilor, who confirmed to us that all relevant information for our assignment is public; - analyzed the legal factors underlying the transaction (notably the Combination Agreement and notification/consultation procedure for Essilor 7 April /17

9 employee representative bodies) as well as the legal documentation pertaining to Essilor, Luxottica and Delfin; - took due note of the draft of Document E to be submitted to the AMF; - examined the draft agreement on the partial asset contribution and its appendices; - took due note of the financial statements for the years ended December 31, 2015 and December 31, 2016 for Luxottica and of Essilor, and verified that they had received an unqualified certification by the statutory auditors; - took note of events that have occurred since January 1, 2017 and assessed their financial impact on the relative value of the companies involved and the consideration for the contributions; - analyzed publicly available information on the two companies as well as their stock prices over different periods; - examined the research reports of financial analysts who follow Luxottica and Essilor published since the presentation of quarterly results on September 30, 2016 (research reports provided by the company or obtained from our own databases); - took note of Luxottica and Essilor consensus forecasts derived from financial analysts and used by the parties, and performed a critical assessment of these forecasts; - analyzed the work performed by the advisory banks. In that regard, we performed the following tasks in particular: assessed the valuation methodology applied as well as its relevance and consistency with the business activity; reviewed the proper implementation of the methods used and verified the resulting valuation calculations; - took note of the work performed by the independent appraiser appointed by Essilor s Board of Directors in connection with the proposed combination of the two companies; - implemented our own valuation work based on public information in order to assess the value of the shares contributed and the shares of the beneficiary company used by the parties; - implemented sensitivity analyses in order to measure the positioning of the exchange ratio agreed to by the parties against the parities based on relative values. We received a management representation letter from the managers of Essilor, Luxottica and Delfin, who confirmed the significant information used in connection with our assignment, in particular the forecast assumptions based on the analysts consensus for their respective companies. 2.2 Limits of our work We would like to emphasize, as noted in the draft of Document E, that The negotiations between Essilor and Luxottica were conducted on the basis of the information that was publicly available to each party and on voluntary disclosure by each party to the other, and none of Essilor, Delfin nor Luxottica conducted extensive due diligence on the other before entering into the Combination Agreement. As a result, after the closing of the Contribution, unknown liabilities 7 April /17

10 of Essilor or of Luxottica may arise and may have a negative impact on the profitability, results of operations, financial position, market value and share price of EssilorLuxottica, which Essilor, Delfin or Luxottica, as the case may be, might otherwise have discovered if it had conducted a complete due diligence review. In that regard, we did not have access to the 2017 budgets as approved by the Boards of Directors of the two companies nor the medium-term business plans prepared by the management of either company. We have been given access to the certification reports for the 2016 consolidated financial statements by the statutory auditors of Luxottica and Essilor, but we did not have access to the management representation letters requested of the companies or to the documents that they presented to the management of each of the companies at their respective summary meetings on the consolidated financial statements closed on December 31, Our analyses therefore relied exclusively on the publicly available financial and accounting information for Essilor and Luxottica. With respect in particular to the projected figures based on the consensus forecasts of analysts who follow the respective stocks, we were only able to discuss them in very general terms with the management of each company. The combination of the two companies, which has been widely discussed in recent years, was officially and jointly announced on January 16, The amount of the expected medium-term synergies between the two companies (in terms of both revenues and costs) was also disclosed as of this date. As is typical for this type of transaction, we premised our review on a standalone approach and sought market data that does not take into account the consequences of the combination. Nevertheless, we cannot be certain that the consensus forecasts used for each of the two companies does not include any synergies, since even though some analysts clearly indicate the amount of the synergies and their treatment in the analyses, other analysts are not as precise in terms of the information presented. 2.3 Valuation approach used by the parties To determine the consideration of the contributions, the parties used the actual value of the shares involved in the contribution and of the beneficiary company s shares. Given the characteristics of both Essilor and Luxottica, the valuation method retained by the parties is based on a multi-criteria approach using the following valuation methods and references: - Reference to historic share prices; - Discounting of projected cash flows based on analysts consensus; - Reference to analysts share price targets. It should be noted that the valuation approaches used to value the shares of the beneficiary company are similar to those used for the shares of the company whose securities are being contributed. 7 April /17

11 2.4 Valuation approaches rejected The following valuation approaches were rejected by the parties because they were deemed inappropriate for each of the two companies: - Net assets and adjusted net assets; - Comparable transactions; - Market multiples. Contribution appraiser s assessment of the rejected methods As for the net assets and adjusted net assets methods, they were properly rejected because the respective values of Luxottica and Essilor are primarily a function of their operations. These values are better determined using the discounted cash flow method, as was done by the parties. With respect to the methods based on comparables, we have no observation to make on the fact that they were rejected, indeed we do not believe they are relevant given the lack of sufficiently comparable references for Luxottica and Essilor in light of their specificities. The dividend yield method was also rejected by the parties, which we believe is justified, since the reference to the share prices making it possible to determine the dividend policies differs slightly for the two companies. 2.5 Assessment of relative values Using a multi-criteria approach to determine the relative value of shares of companies participating in the transaction is typical in the case of operating companies. The implementation of this approach calls for the following comments on our part: Reference to the historic market stock price This method makes it possible to assess the company s value from a financial market standpoint. The stock price constitutes an essential reference for stock market transactions involving two listed companies whose shares are liquid and are followed by financial analysts. The criteria generally recognized to assess the relevance of the stock price are the free float and liquidity of the shares, as well as, to a lesser extent, the number of financial analysts who follow the stock. Luxottica s shares are admitted for trading on the Borsa Italiana and the New York Stock Exchange, and the stock is included in the FTSE MIB index of the Milan Stock Exchange, which comprises the 40 largest stocks. Essilor s shares are admitted for trading on Euronext Paris, and the stock is included in the CAC 40 index, which includes the largest stocks by market capitalization. 7 April /17

12 The free float for Luxottica shares was approximately 31.3% as of March 10, 2017, and for Essilor shares it was 90.7% as of December 31, The shares trade regularly. Average daily turnover is approximately 700,000 shares in the case of Luxottica, and 500,000 shares for Essilor, over one month as of January 13, 2017 (i.e. the last market trading day before the announcement of the combination). Luxottica s stock is followed by 24 analysts while Essilor shares are followed by 21 analysts, who regularly issue reports. As of January 13, 2017, Luxottica s stock price was 49.6 and Essilor s was It should be noted that since the release by each company of their respective 2016 results occurred after the reference date used for the analysis, i.e. January 13, 2017, the stock prices at that date do not take into account the information published for The parties carried out an analysis of stock prices and calculated volumeweighted averages covering short periods from one to three months and longer periods of up to 12 months as of January 13, 2017, the last market trading day before the announcement of the combination. in Essilor Luxottica Implied exchange ratio As of 13 January 2017 Spot price 102,1 49,6 0,485x 1-month volume-weighted average 104,8 49,8 0,475x 3-month volume-weighted average 102,5 47,9 0,467x 6-month volume-weighted average 107,6 45,7 0,425x 9-month volume-weighted average 110,0 46,1 0,419x 12-month volume-weighted average 109,8 47,6 0,434x The value per share derived from these averages therefore ranges between 45.7 and 49.8 for Luxottica and between and for Essilor. We reviewed the work of the parties and performed our own calculations on the average volume-weighted share prices over 1- to 12-month periods using our own databases. We ensured that the share price trend following the reference date used for the analysis did not undermine our analysis. The valuation of Luxottica and Essilor shares based on the stock price does not undermine the relative values used by the parties. Given the market capitalization of the two entities, the liquidity of their shares and the number of analysts following their stocks, the stock prices constitute an essential reference that in our view represents the principal reference. Valuation using the discounted cash flow method Under this method, the value of a company is equal to the discounted value of future cash flows that it may generate through operations, less investments needed for its activity and its net debt as of the valuation date. The cash flows are discounted at a rate that reflects the rate of return required by the market toward the company and taking into account a terminal value at the end of the projected cash flow period. This terminal value is obtained by discounting to 7 April /17

13 infinity a cash flow considered normative at the end of the projection period and taking into account a perpetual growth rate determined on the basis of inflation forecasts. In order to determine the value of the shareholders equity, the enterprise value obtained in this manner is adjusted for the net financial debt of the company being valued and assets and liabilities not taken into account in the operating cash flows. Given the absence of discussions by the parties regarding their business plans, the valuation work of the parties using this method was based on forecasts derived from a consensus of financial analysts. Given the small number of analysts publishing forecasts extending more than three years, the parties used the analysts consensus for the period, and then extrapolated the business plan over two additional years, i.e and 2021, on the same bases as the 2019 flows with respect to sales growth, operating profitability, the level of working capital requirements and investments expressed as a percentage of sales. The consensus of the analysts forecasts was constructed on a standalone basis, using only the reports issued as of the publication date of annual results for each of the two companies, not taking into account the expected synergies as part of the business combination (see section 2.2 Limits). The work of the parties revealed: - a value per Luxottica share ranging between 43.3 and 53.5; - and a value per Essilor share ranging between 95.9 and We analyzed the work of the parties using the discounted cash flow method. In that regard, we performed the following analysis in particular: - Regarding the business plans of the respective companies, we verified that they had been constructed on the basis of the analysts forecasts published after each company s 2016 results disclosures, excluding forecasts taking into account synergies (based on research reports disclosed by the company as well as reports generated by our own databases). Since these figures are projections, however, they are by definition uncertain in nature, and actual results may vary given the uncertainties inherent in any forward-looking analysis. - We measured the sensitivity of the value to changes in valuation parameters adapted to the business sector and specificities of Luxottica and Essilor (discount rate and perpetual growth rate) by recalculating these financial parameters using our own methodology and using our databases; - We obtained assurance as to the relevance of the items used to reconcile enterprise value and the value of the shareholders equity retained by the parties by reconciling the amounts used in the most recent balance sheet available (December 31, 2016) and adjusting or enhancing them using our own analyses; - We assessed the number of diluted shares used by making our own calculations (excluding treasury shares and including the dilutive impact of performance shares and in-the-money stock options as of the date of our work). 7 April /17

14 We identified several discrepancies that do not undermine the relative values used by the parties. However, since this method is based on analysts forecasts and not those of the companies themselves, we believe this method should only be used in a secondary capacity. Analysts stock price targets As indicated previously, the two companies are followed regularly by the research departments of financial institutions. This reference takes into account future stock price trends in the months ahead and makes it possible to indicate the expected valuations by financial analysts based on their assessment of the respective companies. In our view, this reference constitutes a secondary approach that can be considered if the shares are liquid and followed by many financial analysts. We verified the work of the parties by examining the financial analyst reports of 17 financial institutions in the case of Essilor and 19 for Luxottica, subsequent to the Essilor profit warning on November 22, 2016 and up until January 13, 2017, which were used by the parties. The analysts target stock prices range between 40.5 and 59.5 for Luxottica and between 93.0 and for Essilor. The parties did not use the reports that were published after January 13, 2017, since most analysts took into account expected synergies in their share price target estimates and the conditions of the business combination transaction. The reports selected in this manner nevertheless do not take into account the changes in analysts expectations following the publication of 2016 results and 2017 budget information that subsequently became available for each of the two companies. We ensured that the reports published after the disclosure of annual results that specifically present a standalone valuation did not undermine the price targets used by the parties. Our analyses do not undermine the relative values used by the parties. We have no other comments to make with respect to this reference. 3. Opinion on the fairness of the proposed consideration 3.1 Consideration used by the parties As consideration for the contribution of 302,846,957 ordinary Luxottica shares, each with a par value of 0.06, Delfin will receive 139,612,447 new ordinary shares issued by Essilor, each with a par value of The consideration for the contributions was determined on the basis of an exchange ratio of new Essilor share for one Luxottica share contributed, as negotiated by the parties. This ratio may be adjusted using a formula included in the draft agreement on the partial asset contribution in the event that Essilor or Luxottica should pay an 7 April /17

15 interim dividend, make any other type of distribution to their respective shareholders or pay out an annual dividend greater than the pay-out ratios defined in the draft agreement on the partial asset contribution (see section above). 3.2 Analysis performed by the contribution appraiser We performed the analysis we felt was necessary in accordance with the professional standards of the French institute of statutory auditors (Compagnie nationale des commissaires aux comptes CNCC) relating to this assignment in order to assess the fairness of the consideration for the contributions. In particular, we relied on the work described above that we performed in order to verify the relevance of the relative values assigned to the Luxottica and Essilor shares. We assessed the fairness of the consideration based on the relative values determined. 3.3 Assessment of the consideration for the contributions Consideration for the contribution made by Delfin corresponds to the grant of 139,612,447 Essilor shares to Delfin. We ensured that the proposed consideration was properly determined, given the relative values assigned to the shares contributed by Delfin and the shares of the beneficiary company receiving the share contribution. The consideration for the contributions was determined on the basis of the ratio agreed to by the parties of Essilor share issued for 1 Luxottica share contributed. This ratio of 0.461x is circumscribed by the parities derived from the various relative values determined by the parties, which range between 0.419x and 0.485x (ratios obtained from average volume-weighted prices over a nine-month period and the price as of January 13, 2017, respectively). In order to assess the fairness of this ratio we performed the following analyses: - We ensured that this ratio corresponded to a long-term trend (the average ratio over five years for Essilor and Luxottica share prices was 0.475x, while that observed over six years was 0.467x); - We performed sensitivity calculations for the ratio based on our analyses of the relative values presented above. Regarding the ratio adjustment provided for in the event of certain distributions to Essilor and/or Luxottica shareholders, we ensured that the dividend to be distributed in connection with the 2016 results, as announced by the parties, was less than or equal to the payout ratio that would trigger the implementation of the adjustment mechanism. This analysis was performed on the basis of information available at the time of our report, based on company disclosures at the time they published their results. 7 April /17

16 We verified the methods for determining the capital increase of the beneficiary company and the calculation of the contribution premium amount mentioned in the draft agreement on the partial asset contribution. It should be recalled that the amount of this premium may be adjusted if, as of the contribution closing date (i.e. the date of the Delfin shareholders meeting that will approve the transaction, which is not yet known), the Luxottica average volume-weighted share price over a three-month period is less than The parties have nevertheless agreed that in such a scenario, the exchange ratio would remain unchanged, as the values of the two companies are correlated over a long period. The amount of the capital increase would also remain unchanged, as the adjustment would affect the contribution premium. Based on the ratio selected and after taking into account the impact of dilutive instruments, Delfin s investment, after the contribution and before the launch of the public exchange offer, would represent 38.2% of Essilor s share capital, based on the draft of Document E. Given the amendment of the by-laws proposed to Essilor shareholders regarding the limitation of voting rights for all shareholders to 31%, Delfin s voting rights will be capped at this amount. Our analyses did not lead us to question the ratio agreed to by the parties. 4. Conclusion key points Essilor and Luxottica are key participants in the ancillary and correlated markets of prescription lenses and eyewear frames. Following preliminary discussions that have taken place in recent years, the managers again began negotiations in July They reached an agreement on January 15, 2017 based on a principle of equal value for each of the two companies and on balanced governance calling for an initial transition period that would make it possible to arrive at the definitive organization and achievement of the expected synergies over the medium term. In that context: - Essilor shareholders are asked to amend the company s by-laws to reflect the new operating rules for the EssilorLuxottica Group; - since the transaction represents a combination of equals, no premium is called for in either direction; - the ratio is set definitively even if the Luxottica valuation adjustment mechanism takes effect due to changes in share prices between the date of the Essilor shareholders meeting and the contribution closing date, given the balance sought by the parties. The first step of this combination is the contribution transaction proposed to you. It should be noted that: - as mentioned in the draft of Document E, the signature of the Combination Agreement occurred without the performance of in-depth and reciprocal due diligence (see section 2.2 above). 7 April /17

17 - we were not informed of either the 2017 budget or the medium-term business plans of these two companies. Our work, like that of the parties and their advisors, was based solely on publicly available information. It is for that reason that we obtained confirmation that the business plans established on the basis of a consensus of financial analysts for each of the two companies reasonably reflected the Essilor and Luxottica forecasts. In order to assess the relative values of the Luxottica shares contributed and the Essilor shares, we reviewed the stock price trends of both companies over various periods and noted that the presumption of equilibrium chosen by the parties was relevant. As an added measure of reassurance and despite the fact that we considered these approaches less meaningful, we ensured that the valuation obtained from a discounted cash flow method based on analysts consensus and reference to their share price targets did not undermine this equilibrium. Our analyses were carried out without taking into account expected synergies from the combination of these two companies. 5. Conclusion Based on our analyses and as of the date of this report, we believe that the proposed consideration for the contribution, which results in the issuance of 139,612,447 Essilor shares, agreed to by the parties, is fair. Paris, 7 April 2017 The contribution appraiser Jean-Charles De Lasteyrie 7 April /17