Deployment of 2016-2020 Plan
Strategic transformation to position the industry to face future challenges
- Base effect following the strong performance in H1 2016
- Integration of new technologies as part of ESI’s PPL approach
- Amplification of the sales and marketing transformation phase
- Strategic strengthening of our ecosystem
PARIS — (BUSINESS WIRE) — September 19, 2017 — Regulatory News:
Commenting on the half-year results, Alain de Rouvray, Chairman and
Chief Executive Officer of ESI Group (Paris:
ESI), said: “In the wake
of 2016, which featured fine performances across all indicators and the
consolidation of a number of new acquisitions, we have ramped up our
five-year strategic transformation plan – “Objective 2020” – designed to
keep pace with the economic and industrial trends of the new “Outcome
Economy”. Within this context of deep transformation, our ongoing drive
to adapt our operational resources in H1 2017 took its toll on results
for the period, which also suffered from a prior-period comparable
basis. Priority was given to investments initiated in the first quarter
of the year to provide support for the launch of our disruptive ‘PPL’
(Product Performance LifecycleTM) approach. The
Group’s new solutions are based on the shift of Virtual Prototyping
towards a connected Hybrid TwinTM; making
it possible, for example, to provide virtual support for predictive
maintenance, as well as for production control and assisted or
autonomous driving. Our solutions are tackling the key challenges of the
Industry of the Future by providing businesses with complete control
over a product's entire lifecycle, from design to ultimate withdrawal,
through manufacturing of the new product and operational maintenance of
the used product that factors in the consequences of wear and tear,
including repair of the damages sustained while in service.
This
in-depth transformation in our offering is expected to last for several
quarters. But thanks to the compelling investments, the deployment of
Hybrid Twin™ solutions should enable the Group to reap the benefits of
the exceptional innovation and growth potential inherent in this new –
technologically and economically – "disruptive" positioning.
Consolidated half-year results
Half year closed on July 31
| In € millions | H1-FY 17 | H1-FY 16 |
Δ at current
|
|||
| Total sales | 53.7 | 56.0 | -4.0% | |||
| Licenses | 39.0 | 40.2 | -2.8% | |||
| Services | 14.7 | 15.8 | -6.9% | |||
| Gross margin | 36.2 | 39.1 | -2,9 (-7.4%) | |||
| % of sales | 67.3% | 69.8% | ||||
| EBITDA* | -3.9 | -0.3 | -3.5 | |||
| % of sales | -7.3% | -0.6% | ||||
| Current operating profit (loss) | -5.5 | -1.8 | -3.6 | |||
| % of sales | -10.1% | -3.3% | ||||
| EBIT | -6.0 | -2.8 | -3.2 | |||
| % of sales | -11.3% | -5.1% | ||||
| Attributable net profit (loss) | -5.9 | -3.5 | -2.4 | |||
| % of sales | -11.0% | -6.2% | ||||
| Available cash flow | 14.8 | 19.3 | -4.5 |
These figures were approved by the Board of Directors’ meeting held on Monday, September 18, 2017.
(*) EBITDA excludes non-recurring items and includes the impacts of capitalized R&D expenditure and provisions/reversals for impairment of trade receivables.
Acquisition during the period: “Scilab Enterprises” was consolidated from February 28, 2017.
NB: because of strong seasonal variations, ESI Group's Licenses business recognizes a big part of its annual revenue in the 4th quarter of the year. The Group’s financial year ends on January 31.
First-half 2017 sales
First-half 2017 sales came in at €53.7
million, down 4.0%. Sales driven by the change of perimeter amounted to
€0.3 million, and correspond to the acquisition of Scilab Enterprises in
February 2017. There was a mild positive currency effect of €0.2 million
for the period, the favorable effect from the US dollar and Korean won
partially offset by the negative impact of movements in sterling and the
Japanese yen.
This decrease reflects both the base effect following the exceptional performance in H1 2016, and the impact of the transformation phase on both existing and new business.
The product mix remained stable year-on-year, Licenses contributed 73% of total sales, compared with 72% in the prior period.
Licenses revenue declined by 2.8% year-on-year to €39.0 million. Most of this decline concerned the sale of perpetual licenses (PUL) in H1 2016 and does not reflect a recurring issue in the install base.
Services revenue was down by 6.9% to €14.7 million. It should be recalled that Services grew by 15.4% in H1 2016 due to a cyclical and exceptional performance of Japan.
ESI’s geographic sales mix reflects a relative performance of global activity on the semester, better in Europe (up 2.8%) than in the Americas (down 2.4%) and Asia (down 10.3%).
Gross margin
Gross margin came in at 67.3%, compared to
69.8% in H1 2016. This lower figure was mainly due to an unfavorable
product mix within the Services activity.
Continued strategic investment in R&D
In accordance with
the Group’s strategy of investing in cutting-edge technology, R&D
investment has been pursued at a high level. R&D expenditure rose 9.0%
to €16.9 million (excluding the French Research Tax Credit ‘CIR’),
reflecting ESI’s constant focus on the emerging technologies that
underpin its disruptive PPL approach. These investments represent 43.4%
of Licensing revenue (amplified by the strong seasonality effect).
However, once the Research Tax Credit and capitalized R&D expenditure
are taken into account, total R&D costs recorded in the P&L amounted to
€13.5 million, an increase of 3.4%.
Profitability indicators impacted by investment
EBITDA was a
negative €3.9 million, compared to a negative €0.3 million in H1 2016.
This decline reflects a continuation of the R&D investments and a 3.1%
increase in Sales & Marketing (S&M) costs which represent on the
semester 36.3% of total sales. General and Administrative (G&A) costs
dropped by 3.5% year-on-year and represented 16.1% of total sales.
As a result of the decline in EBITDA, the Group reported a current operating loss of €5.5 million and negative EBIT of €6.0 million, down by €3.6 million and €3.2 million, respectively, on H1 2016. The Financial Result remained stable year-on-year at negative €1.6 million and the Group’s attributable let loss for the period was €5.9 million, compared to a loss of €3.5 million for prior period.
It should be recalled that these financial results reflect traditionally the strong seasonality of Licensing revenue, lower on the first semester.
A robust financial structure
The Group had a cash balance of
€14.8 million at the reporting date showing a cash generation of €8.7
million. Net debt stood at €28.6 million at July 31, 2017. The gearing
(debt-to-equity) ratio was 30.4%.
Strategic transformation to deliver solutions for the Industry of the Future
Integration of new technologies as part of ESI’s PPL approach
By
harnessing the PPL approach, ESI takes a giant step along the road to
becoming a pioneer in helping businesses transition to the Smart Factory
and Industry of the Future. The new solutions aim to provide businesses
with complete control over an “as new” product's entire lifecycle –
beyond the virtual development and pre-certification phase which is well
covered by Virtual Prototyping. They also aim to take into account the
product’s lifecycle “as used” and its potential damage, in a
representative “in service” ecosystem. This disruptive approach makes it
possible to develop a Hybrid TwinTM of the Cloud connected
product (IoT), that will anticipate, follow and pilot its operational
performance, and plan its maintenance – from product commissioning to
operational withdrawal – a crucial element in the transition to the
Industry of the Future.
Strengthening our ecosystem
In order to promote this strong
leading-edge strategy, ESI has adapted its scientific resources and
strengthened its Scientific Committee – made up of internationally
renowned internal and external experts – and its scientific executive
management. This continuous strengthening has provided the Group with
access to European and global special new projects, in co-creation with
industrial strategic partners, who act as pioneers and validate the
technologies that the Group has acquired. It also provides opportunity
to strengthen the ties and synergies with the academic world.
ESI Group has also stepped up its involvement in major tech events such as CES (Consumer Electronics Show) in Las Vegas, Salon du Bourget in Paris and the Simulation and High-Performance Computing Forum at Teratec (Exascale computing), the international meeting for Simulation, Big Data and Machine Learning. We have been able to use these key industry events to pave the way for new partnerships using the PPL approach and to successfully showcase the innovative solutions developed by the Group.
Acceleration of sales transformation phase
In order to bring
its sales force into line with the demands of the PPL approach and those
businesses wishing to transition to the technologies of the Factory and
Industry of the Future, in 2017 ESI initiated a major overhaul of its
sales force, especially in the US. This transformation will have a
short-term influence on sales performance and aims to bring the sales
force into line with the operational support needs of industrial clients
through a regional coordination structure based around customer account
managers who engage in value selling, and sales engineers in support of
strong technological and methodological changes.
The Group has also set up latest generation demo centers to showcase ESI’s Immersive Virtual Engineering (IVE) solution (IC.IDO) and it has strengthened its support and marketing teams and learning centers. These are internationally available to all users of the Group’s solutions. For example, the new Silicon Valley (San José, CA) office hosts a development team specialized in new technologies such as Machine Learning, Artificial Intelligence, Internet of Things (IoT) and the Cloud, together with a local and regional marketing, sales and support team.
Next events:
|
SFAF meeting
September 20, 2017 |
Q3-2017 revenues
November 21, 2017 |
About ESI Group
ESI Group is a leading innovator in Virtual Prototyping software and services. Specialist in material physics, ESI has developed a unique proficiency in helping industrial manufacturers replace physical prototypes by virtual prototypes, allowing them to virtually manufacture, assemble, test and pre-certify their future products. Coupled with the latest technologies, Virtual Prototyping is now anchored in the wider concept of the Product Performance Lifecycle, which addresses the operational performance of a product during its entire lifecycle, from launch to disposal. The creation of Hybrid Twins, leveraging simulation, physics and data analysis, enables manufacturers to deliver smarter and connected products, to predict product performance and to anticipate maintenance needs.
ESI is a French company listed in compartment B of Euronext Paris. Present in more than 40 countries, and addressing every major industrial sector, ESI Group employs about 1200 high-level specialists around the world and reported annual sales of €141 million in 2016.
For further information, go to www.esi-group.com.
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Investor Relations
ESI Group – Europe/Asia
Corinne
Romefort-Régnier
Justine Brosset
+33 1 53 65 14 41
or
ESI
Group – Americas
Corinne Romefort-Régnier, +1 415 994 3570
or
NewCap
Emmanuel
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Louis-Victor Delouvrier
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