Press release

ESI Group: Financial Results 2018

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ESI Group, Paris, France, (ISIN Code: FR0004110310, Symbol: ESI)
(Paris:ESI), is announcing annual results for the year ending January
31, 2019, approved by the Board of Directors on April 12, 2019.

(€m)       1/31/2019       1/31/2018       Change   Change


Revenues       139.4       135.3       +3.1%   +3.9%
Licenses 109.8 105.7 +3.9% +4.6%
Services 29.6 29.5 +0.2% +0.8%
Gross Margin 101.5 97.8 +3.8% +4.6%
% Revenue 72.8% 72.3%    
EBITDA 11.2 12.1 -7.8% -13.8%
% Revenue 8.0% 9.0%    
Operating Income 7.0 8.1 -13.2% -22.7%
% Revenue 5.0% 6.0%    
Net Income 3.3 2.4 +40.4% +19.9%
% Revenue 2.4% 1.8%    

Results confirming the trust of industrial global leaders

Sales came to €139.4 million (+3.1%; +3.9% at constant exchange rate
(cer)), bolstered by renewed momentum in the Licensing business (79% of
revenues to €109.8 million, up +3.9%; +4.6% cer). Services (Consulting)
remained stable at €29.6 million (+0.2%; +0,8% cer), for a 21% share of
total revenue.

The progress in sales confirms the concrete results of a business
development focused on key accounts and the launching of
strategic initiatives such as in light weight engineering and immersive
human centric engineering. Building on a strongly established and
growing solid installed base, this promises a significant growth
potential for the Group.

Notably, the twenty largest global customers account for 45% of total
order intake. This roster includes some of our strategic partners and
the world’s industrial leaders (particularly in the Automotive,
Aeronautics and Energy sectors), which are well along in the digital
transformation of their business models. ESI’s business average growth
with these customers is double-digit growth rates and as much as twice
the PLM market average. These leaders of the Industry 4.0 and Smart
Factory have enthusiastically welcomed ESI Group’s physics based Virtual
Prototyping solutions and their further development perspective of
performance in-service.

Strengthening financial structure

In the context of the moderate average growth over the period, the
current transformation and increased long-term investments weigh, as
anticipated, on the Group’s results and profitability for the 2018 year.
Individually, the Group’s core business shows a good level of
profitability, while the innovation activity, that contributes to
positioning the Group for the future, carries by construction lower
profitability in the early years.

Improvement of the gross margin

ESI Group’s gross margin increased by +3.8% to €101.5 million,
representing 72.8% of revenues (vs. 72.3% in 2017). This progression is
due to an improved gross profit margin for Licensing of 85.2% (vs.
84.7%) and a greater increase in the Licensing business compared to the

Increased investments

The operational optimization associated with the Group’s transformation
has differing impacts on two main expense items. In 2018, the Group

  • R&D investments, which came to €36.8 million (33.5% of licensing
    revenue), up €1.9 million, in consequence of integrating technologies
    and adapting the offer. Taking into account ESI Group’s Research Tax
    Credit and capitalization of development costs, R&D expenditures
    recorded in the Profit & Loss Statement were lower, at €31.7 million,
    an +8.2% growth;
  • Sales and Marketing (S&M) expenses, which came to €43.0 million (30.9%
    of revenues), up €1.1 million as part of a sales structuring focused
    on developing a key account strategy and targeting strategic

Slight decrease in operating profitability

EBITDA amounted to €11.2 million (vs. €12.1m in FY’17), for a margin of
8.0% of total revenues (vs. 9.0%), before considering the depreciation
and amortization associated with major amortization of investments,
which bring the Group’s operating income to €7.0 million (5.0% of
revenues) compared to €8.1 million in FY’17 (6.0% of revenues).

Cash situation

The Group’s cash position was €18.1 million (vs. FY’17 €15.8 million).

Financial debt amounts to €45.1 million at January 31, 2019 (vs. €47.6
million at January 31, 2018). The Group’s net debt stood at €27.0
million (vs. €31.8m in January 2018, and €37.3m in January 2017).

Gearing (net debt to equity) improved and is now 25.5% (vs. 31.4% in
2017 and 37.6% in 2016).

As part of its financing policy, the Group secured a €40 million
syndicated credit line from a consortium of leading European banks,
replacing the 2015 agreement.

As at January 31, 2019, ESI Group held 6.5% of its share capital in
treasury shares.

Implementing a plan to achieve operational excellence and strategic

The unique opportunity offered by the new Industrial Transformation

By launching at the right time its own in depth technological and
organizational transformation, ESI Group has kept pace with the
evolution of its industrial lead customers (Industry 4.0 and Smart
Factory) and anticipated their future needs. By systematically
integrating cutting-edge technologies (Internet of Things, Big Data,
Artificial Intelligence, additive manufacturing etc.) into solutions
that draw on its unique expertise in physics of materials, ESI Group has
articulated a new global approach centered on industrial productivity
and the performance of products beyond their initial development to
their entire lifecycle (Product Performance Lifecycle™). The Group’s
vision of: “zero real tests, zero real prototypes, and zero unscheduled
production shutdowns”, fully addresses the short- and medium-term
objectives of global industrial leaders.

This approach is gaining traction with the Group’s strategic customers
and is already bearing fruit in the form of tangible commercial
successes. For example:

  • Elimination of the physical prototyping stage in the tender for supply
    of equipment for a major European car manufacturer;
  • Achievement of ‘zero real prototype’ prior to the 5 stars official
    certification stage at a major European car manufacturer;
  • Use of immersive virtual reality to accelerate and secure the
    manufacturing of a new helicopter for a US aeronautic OEM.

Detailed operational plan

Aware of the potential offered, but also of the initiatives to be
implemented to achieve its objectives, the Group is launching an
ambitious short- and medium-term action plan based on two fundamental

1. Operational excellence to:

  • optimize operational performance by clarifying the Group’s
  • measure, drive and control performance;
  • improve internal and external transparency with the implementation of
    best-in-class management tools.

2. Focus on increasing commercial efficiency and maximizing
the ROI on innovation to:

  • enhance and streamline acquired technologies (M&A), and complete their
    integration into the Group’s solutions;
  • align S&M and R&D resources with a multichannel marketing approach
    (Engineering, Manufacturing, In-Service) and industry sector;
  • focus business development initiatives on our key accounts, such as in
    the Transportation, Aeronautics and Energy sectors which constitute
    75% of booking in 2018.

Cristel de Rouvray, Chief Executive Officer of ESI Group, concludes: “The
year 2018 was marked by a return to growth in consolidated revenues
and a confirmation of the strength and dynamism of our installed base.
This performance must be understood in terms of the differentiated
advancement of enterprises with regard to the digital transformation of
their business model and tools. The latest sales success stories among
several of our key accounts reinforce our belief in our vision and its
proper execution. By maximizing our operational performance and focusing
better on our business strategy, we are confident that we will be able
to improve our overall rate of growth and level of profitability. The
full commitment shown by our teams to making this plan a success gives
us all great confidence that we will achieve our goals.”

Upcoming events

Q1 2019 Results

May 28, 2019

  Combined General Meeting

July 18, 2019

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 a Hybrid
Twin™, leveraging simulation, physics and data analytics, 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 NYSE 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 €139 million in 2018.

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