ESI Group: 2014 Annual Sales: Growth of 2.5% at Constant Currency

PARIS

Regulatory News:

ESI Group (Paris:ESI):

• Solid Licensing activity
• Finalization of the strategic refocusing of Services activity
• Dynamic activity in Europe, difficult context in China and Russia
• Success of our disruptive solutions of immersive virtual reality and environmental challenge response

Alain de Rouvray, ESI Group’s Chairman and CEO, comments: “The final quarter of 2014 reveals a positive sales dynamic partially overshadowed by transition effects affecting both Licenses and Services over the first three quarters. This performance confirms the anticipated intensification of the seasonal effect. The year was also marked by a negative currency effect and a difficult political and economic context in BRIC countries. Nevertheless, the deployment of our solutions among both business sector leaders and their suppliers continues to highlight the essential strategic importance of our technological solutions in the generation of productivity gains in industry and the continual quest for innovation. In particular, the success of our immersive virtual reality offering and the interest in our solutions enabling a response to environmental challenges such as air quality and renewable energy illustrate the solidity of our strategy and its diversification potential. Driven by the positive commercial indicators observed at the start of 2015, ESI Group remains confident in its growth and profitability improvement prospects initiated in 2014.”

4^th quarter and annual sales
The Company’s financial year runs to January 31 (unaudited data)

* cc: constant currency

Breakdown in sales by quarter

4^th quarter sales: significant growth and intensification of the seasonal effect
Sales totaled €49.0 million over the final quarter of 2014, giving dynamic growth of +7.8% in actual terms (+7.3% at constant currency) compared with the 4^th quarter of 2013. Over the quarter, currency changes – most specifically the American dollar’s fluctuation against the euro – had a positive and reverse effect compared with the first three quarters.
Licenses sales totaled €40.8 million, an increase of +7.3% in actual terms, and included renewal of contracts repositioned to the final quarter of the year.
Services activity, which now excludes non-strategic business, reached €8.3 million, reflecting solid growth of 10.7%.
The 4^th quarter accounted for 44.1% of total annual sales (compared with 41.6% in 2013), confirming the anticipated intensification of the seasonal effect.

2014 annual sales
2014 annual sales came to €111.0 million, up +1.6% on the previous year in actual terms. There was a negative currency effect of -€1.0 million over the period, mainly due to the negative evolution of the Japanese Yen. At constant currency the annual revenue would have totaled €112.0 million, up +2.5%.
The product mix continued to shift towards Licenses activity, which has higher margins and now accounts for 75.0% of total sales compared with 73.7% the previous year.

Licenses: solid activity
Licenses activity recorded annual sales of €83.3 million in 2014, giving growth of +4.4% at constant currency compared with the previous year. This solid growth was driven by the buoyant sales momentum in Europe, notably France, and the solid sales growth recorded in the Americas. Licenses saw the rate of repeat business remain at a high level of 85.7% at constant currency (vs. 86.7% in 2013). New Business (i.e. excluding Add on) totaled €17.0 million, down €0.5 million, and accounted for 20.1% of total Licenses sales. This reduction can be explained by the current difficult political and economic context in BRIC countries, and in particular in Russia and China.

Services: completion of the strategic refocusing of this activity
Services activity recorded sales of €27.8 million in 2014, down -3.3%. This negative figure was a result of the reduction over the first three quarters of the year due to refocusing on projects with higher value added ; an action completed before the last quarter, when a jump of +10.7% was recorded.

Geographical mix: dynamism of European activity, difficult context in BRIC countries
In 2014, the geographical split in sales shifted towards Europe, driven by increased Licenses activity, most particularly in France and Germany. Europe accounted for 48.2% of total sales, compared with 45.2% the previous year. The reduction of share in the Asia zone’s (34.7% vs. 35.8%) was mainly a result of a negative currency effect and the difficult business context in China. The decrease in the Americas share to 17.2% of sales in 2014 compared with 19.0% in 2013 was a result of the refocusing of the Services activity. Although the impact decreased through the year, the abandoning of certain non-strategic and lower margin services was not compensated by the increase in Licenses activity over the year.
Over the year as a whole, the weight of activity in BRIC countries decreased compared with 2013, accounting for 12.7% of total sales over the period compared with 15.3% the previous year. This decrease reflected falls recorded in China and Russia and was not offset by upward trends in Brazil and India.

2014 highlights
Adoption strengthened among strategic partners
The adoption of virtual prototyping is continuing among our strategic partners and demonstrates the innovation-accelerator nature of our solutions. That illustrates the crucial need for the technologic disruption in the manufacturing sector.

Success of the immersive virtual reality solution
Deployment of the IC.IDO immersive virtual reality solution has accelerated among clients in the Transportation sector. In particular, ESI Group won a tender launched by Bombardier Inc.’s railway equipment division. ESI Group’s solution delivers high quality operational results and enables industry to reduce development costs thanks to a significant reduction of engineering change requests.
Extension of the Group’s collaboration with the Fiat Chrysler Automobile Group also demonstrates the quality of ESI Group’s immersive virtual reality solution. After equipping its Italian centers the Italian manufacturer chose to do the same for its Brazilian development center. This move is illustrative of the strategic measures aggressively deployed by the world’s major car manufacturers as they seek to reduce the development and production cycles of their products.

Intensification of ESI Group’s contribution to environmental constraints
The buoyant increase in 2014 sales reflects the need for production process flexibility among manufacturers, who are being impacted by increasingly restrictive environmental standards that require them to better control their carbon footprints. In the field of Transportation, ESI Group’s virtual engineering solution is establishing itself as representing major leverage in terms of reducing development costs and speeding up the finalization of future products ; most notably by enabling companies to address, from the design phase, restrictive constraints, such as making vehicles and airplanes lighter .
In the field of Energy, ESI Group has signed a 5-year strategic partnership with EDF Energies Nouvelles (EDF EN). The objective is to develop innovative products for the renewable energies market by making the most of virtual prototyping solutions. EDF EN intends to optimize, using virtual prototypes, its day-to-day operations and test the performance of its future solar and wind power plants in standard, disrupted or accidental operating conditions.

For all ESI news, go to www.esi-group.com/press

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About ESI

ESI is a world-leading provider of Virtual Prototyping software and services with a strong foundation in the physics of materials and Virtual Manufacturing.
Founded over 40 years ago, ESI has developed a unique proficiency in helping industrial manufacturers replace physical prototypes by virtually replicating the fabrication, assembly and testing of products in different environments. Virtual Prototyping enables ESI’s clients to evaluate the performance of their product and the consequences of its manufacturing history, under normal or accidental conditions. By benefiting from this information early in the process, enterprises know whether a product can be built, and whether it will meet its performance and certification objectives, before any physical prototype is built. To enable customer innovation, ESI’s solutions integrate the latest technologies in high performance computing and immersive Virtual Reality, allowing companies to bring products to life before they even exist.
Today, ESI’s customer base spans nearly every industry sector. The company employs about 1,000 high-level specialists worldwide to address the needs of customers in more than 40 countries.

ESI is listed in compartment C of NYSE Euronext Paris and is granted “Entreprise Innovante” (Innovative Company) certification since 2000 by Bpifrance. ESI is eligible for inclusion in FCPI (venture capital trusts dedicated to innovation) and PEA PME.

2014 awards: winner of the 2014 ASMEP-ETI/Bpifrance award in the Innovation and industrial strategy category and of the Grand Prix des Entreprises de Croissance, in the Software and IT Services category and winner of the “Ambitions d’Entrepreneurs” trophy in the International category.

For further information, go to www.esi-group.com.

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