CIMdata PLM Industry Summary Online Archive
26 May 2004
Financial News
ESI Group 2003 Full-Year Results
ESI Group ( http://www.esi-group.com ) global solution provider in virtual prototyping and manufacturing processes, announced its consolidated results for the full-year ended 31 January 2004.
• Sharply higher sales: up 15% (22% at constant exchange rates)
• EBITDA: € 1.1m
• Operating loss: € (-1.2m)
• Continuation of acquisition strategy in 2003
• Implementation of acquisition synergies in 2004
Consolidation structure in FY2003/04:
• Full-year consolidation: Companies: VASci, Calcom; Software: ProCast
• 5-month consolidation: Software: EASi Software
Sales generated by the software of CFDRC, whose acquisition was announced at the end of January 2004, are consolidated by ESI Group starting 1 February 2004, i.e. for FY2004/05 (the current financial year).
As announced on 10 March 2004, ESI Group consolidated turnover for FY2003 came to € 49m, up 15% in real terms and 22% at constant exchange rates.
In a still difficult economic environment, the group nevertheless managed to resume organic growth (up 3%, versus a 4% decline in 2002), helped by strong growth at major OEMs and Tier 1 suppliers.
By contrast, the overall activity was affected by slowing growth at the services arm, particularly in the United States and France, where research projects turned out to be less significant than expected. In turn, this affected R&D costs as innovation efforts were maintained.
Moreover, continuous pressure on foreign currencies (the yen and the dollar) seriously dented both sales and operating income.
The operating loss amounted to € (1.2m), reflecting the impact of software acquisition costs write-offs. EBITDA, defined as operating profit before acquisition costs—excluding amortisation of codes and other intellectual property rights—offers a better grasp of the group's "real" operating performance and showed a profit of € 1.1m (despite a currency loss estimated at € 1m), versus € 1.5m the year before.
After exceptionals and taxes, the consolidated net loss came to € (0.8m). After amortisation of goodwill connected with the many recent acquisitions, the net attributable loss was € (2.6m).
Cost structure
Tight cost control ensured flat charges within the historic consolidation structure and limited the increase in operating charges to +19%, reflecting integration of the teams employed by the acquired businesses (almost 40 people) and amortisation of the intellectual property rights attached to the acquired software (€ 0.9m, up from € 0.1m in 2002).
As announced previously, acquisitions were this year’s key objective as the economic environment revealed attractive acquisition opportunities. This strategy did put extra requirements on human resources, making it necessary to postpone implementation of the synergies expected from these acquisitions.
Consequently, R&D and S&M costs remained stable within the historic consolidation structure but were boosted +18% and +19%, respectively, by the acquisitions (amortisation of software and integration of teams). This performance reflects a nearly stable workforce (up 1%) excluding acquisitions at the end of the period under review.
A sound financial structure
On 31 January 2004, the cash position was € 19.3m. During the 2002 fiscal year, ESI Group spent around € 12m in cash on acquiring CAE software from CFDRC and EASi. A syndicated loan of € 11.1m was agreed at the end of January 2004. The financial structure therefore remains very sound with equity of € 43.8m and a gearing of 23.4%.
Alain de Rouvray, Chairman & CEO of ESI Group, commented: "After a particularly active and promising period of acquisitions, our Group is now working to implement the expected synergies and to combine strict management of profit margins compatible with the best investment opportunities on the market. In addition to synergies between acquisitions and integration of the newly acquired teams, the cost control policy will be reflected in the organization of newly created and self-financed ‘Centres of Excellence’ staffed by innovation-driven teams. Customers will jointly finance the project studies conducted by these Centres of Excellence. This measure will be complemented by selective R&D geared to the maturity of each product category and offshoring possibilities, particularly in India. Access to EASi's technology and integration of its advanced development platform EASi-Vista / EASi-Process will help ESI Group to make a decisive strategic leap forward in reengineering for simulation-based design processes, for which there is strong demand to expedite the changeover to Simulation Based Design.
Recent highlights
• Integration of CFDRC's Product division
The strategic partnership signed with the US-based CFD Research Corporation (CFDRC) involves acquisition of solutions in fluid dynamics and multiphysics, such as the software suites CFD-ACE+, CFD-FASTRAN, CFD-VISCART and CFD-CADalyzer, geared to the needs of different industrial sectors, such as micro-electronics, semiconductors, biotechnology, fuel cells, micromechanisms and MEMS (Micro-Electro-Mechanical Systems), plasmas, chemical reactive flows, combustion and propulsion. This essential partnership allows ESI Group to diversify its activities beyond the transportation sector, which currently dominates its business, and to break into new strong growth markets.
• Creation of subsidiaries in India and China
The creation of a subsidiary for the Software Publishing division in India and another for the Distribution and Services division in China reflects the Group's growing international stature and leadership on strategic markets for the future. The creation of ESI Software India Pvt Ltd, in Bangalore, India, gives ESI Group complementary expertise in remote development, acknowledged by such leading American car makers as GM and Ford, and to meet the growing need for support on the part of existing customers. The take-over of ESTI Engineering Simulation Technology Inc., based in Canton, allows ESI Group to market its software in Chinese capacity and to extend existing partnerships with such key customers as Shanghai Volkswagen, First Auto Works, Dong Feng Motors and Harbin Hafei Motors and with leading universities in this area.
Outlook for 2004 – 2005
Alain de Rouvray concluded: "These acquisitions have significantly enriched our product portfolio and strengthened our presence on a wide variety of buoyant international markets. The creation of subsidiaries in India and China reflects ESI Group's commitment to adjust its business organization to follow as closely as possible major changes in the international environment, as well as our concern to improve our cost structure. We are expecting sales to return to double-digit growth (excluding the impact of currency fluctuations) on the back of renewed economic growth and a high proportion of recurrent income from licenses. Moreover, helped by the temporary absence of further acquisitions (except in the case of an exceptional opportunity), the measures taken to implement the synergies generated by the acquisitions should allow us to return this year to operating profit. Our strategy to redirect R&D, underpinned by focus on the most profitable products in the medium term and on offshoring in India, can be expected to raise profitability starting 2005. Fast-improving visibility at leading OEMs and Tier 1 suppliers combined with our positioning in new sectors, such as biotechnologies and MEMS (Micro-Electro-Mechanical Systems), should speed up recognition of our multi-faceted know-how by manufacturers for whom the design of innovative products supported by particularly expensive and delicate real prototyping is becoming increasingly critical and strategic."
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