CIMdata PLM Industry Summary Online Archive
24 November 2004
Financial News
ESI Group H1-2004 Results-Improvement of EBITDA-Stable Operating Margin
ESI Group announced its consolidated results for the first half of the current fiscal year (ended 31 July 2004).
H1 results:
€m |
H1-FY 2004/05 (to 31 July 2004) |
H1-FY2003/04 (to 31 July 2003) |
% change |
Consolidated sales o.w. software sales |
25.1 19.1 |
21.2 14.6 |
+ 19% +31% |
Operating costs excluding amortization |
(25.9)
|
(22.4)
|
+16% |
EBITDA % of sales |
(0.7) (3%) |
(1.2) (6%) |
|
Amortization Including IP amortization |
(1.9) (1.3) |
(0.8) (0.2) |
|
Operating profit (loss) % of sales |
(2.6) (10%) |
(2.0) (10%) |
|
Net profit (loss) % of sales |
(3.2) (13%) |
(2.1) (10%) |
|
Fiscal year to 31 January
Fiscal year to 31 January EBITDA: operating income including amortization and depreciation of fixed assets
Acquisitions integrated during FY2004/05 :
• EASI SW: software business integrated since September 2003
• CFDRC SW: software business integrated since February 2004
As announced on 9 September 2004, ESI Group's consolidated sales for the first half of FY2004/05 grew by 19% (21% at constant exchange rates) to EUR 25.1 million. Organic growth was 3% (5% in volume and at constant exchange rates). The significant volume growth and the return to organic growth were due to the good license sales performance (up 31%, 11% in volume and at constant exchange rates). With a license renewal rate of 83% and the adoption of the yearly rental software license business model for all activities acquired by the Group, the installed base grew by 38% during the period. Cost control helped keep the growth of operating costs (excluding amortization of intellectual property rights related to the integration of newly acquired activities in the consolidation structure) to +16%, below sales growth. EBITDA, though still negative, rose by EUR 0.5 million to EUR (-0.7 million), improving from -6% of sales to -3%.The company amortized intellectual property rights on all acquired software activities (included as total operating costs under the R&D item) and goodwill on all acquired companies. The H1 amortization charge for intellectual property rights amounted to EUR 1.3 million vs. EUR 0.2 million in H1-FY03. Goodwill amortization remained stable at EUR 0.9 million.
After amortization of intellectual property rights, the operating loss was EUR (-2.6 million), stable as a percent of sales compared with the same period the previous year. By contrast, the net loss after extraordinary items and financial items, taxes and goodwill amortization dropped by 3% to EUR (-3.2 million).
Given a strong seasonal skew of sales and a high fixed-cost structure, first-half results do not reflect the results expected for the whole fiscal year.
Financial data
Cost structure and financial situation
In the wake of the active acquisition strategy conducted during the previous two fiscal years, management focus in FY2004 is on integrating new activities and implementing industrial and marketing synergies. As a result, S&M and G&A costs (up 9%) rose less than sales. By contrast, integration of development teams at the newly acquired units boosted R&D costs excluding amortization by 32% (stable versus H2-2003 at constant consolidation perimeter).
The Group's financial situation remained sound with a cash position of EUR 18.2 million on 31 July 2004.
Improvement in profitability
Management focus on improvement of profitability led to:
• The organization of centers of excellence to boost external financing of product R&D and to market the resulting products.
• The relocation in India of re-engineering for simulation-based design processes of mature and emerging products.
• The organization of Business Development units to market emerging products, reinforcing the focus of local subsidiaries on the sale of mature products.
Alain de Rouvray, ESI Group's Chairman and CEO, commented: "The first half highlights the first results generated by management focus on synergies and higher profitability, reflected in improved EBITDA. What makes these results especially significant is the fact that cost control measures did not impair growth momentum or the integration of the acquired units and the initialization of development synergies with our new team located in India."
H1 highlights
Steady growth
H1 sales growth was mainly driven by the steadily rising sales of mature products and the penetration of new markets. New regulations, growing security simulation needs and the permanent search for optimum industrial stamping of parts were strong boosts for the adoption of PAM-CRASH/SAFE 2G and the launch of PAM-STAMP 2G solutions. The deployment of new products made it possible to break into new sectors, such as the defense, electro-nuclear or microelectronic industries, and to strengthen partnership relations with strategic customers.
Renault partnership
The implementation of this partnership boosted deployment of PAM-CRASH 2G to replace a competing solution in H1. Installed this summer at Renault, the COMPOSER module for the body with trim significantly shortens the time needed to reassemble and validate the physical digital mock-up. This solution reduces the length of the complete simulation calculation cycle by almost 60%. The next stage is to extend this gain to other disciplines. This initial success should help speed up deployment of this type of solution to OEMs and Tier 1 suppliers.
Outlook
Alain de Rouvray concluded: "H1 highlights confirm the relevance of continuing the Group's strategy to supply a virtual prototyping solution (Open 'VTOS'). In a sector marked by strong consolidation initiatives where digital simulation of "products-processes" is becoming a strategic priority for all players (12% growth in 2004 according to the Daratech institute) and provides an important new growth path in the area of CAD-CAE, ESI Group has become a key player and a driving force behind the growth of PLM. In view of the measures taken to return to a positive operating margin and significant reinforcement of our position in new sectors, our medium-term objectives are sales of EUR 100 million and an operating margin of 15% in 3 to 5 years."
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