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 Services.
Increased investments
The operational optimization associated with the Group’s transformation has differing impacts on two main expense items. In 2018, the Group increased:
- 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 initiatives.
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 focus
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.
