ANALYST CONFERENCE Paris, October 30, 2015 André Harari, Chairman of the Board of Directors Daniel Harari, Chief Executive Officer
Jérôme Viala, Chief Financial Officer
Analyst Conference – Paris, October 30, 2015
Financial Results for Q3 2015 Financial Results for 9M 2015 2015 Outlook
Unless stated otherwise, comparisons are at actual exchange rates. When mentioned, “like-for-like” comparisons between 2015 and 2014 correspond to 2015 figures restated at 2014 exchange rates.
Analyst Conference – Paris, October 30, 2015
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Q3 2015: Orders Down 3% at Actual Exchange Rates and 9% Like-for-Like Orders for New Systems (in millions of euros)
23.7
22.9
□ New software licenses: €5.4 million (-5%) □ CAD/CAM equipment: €13.5 million (-8%)
-3%
Q3 2014
Orders for new systems only totaled €22.9 million A decrease of €0.8 million compared with Q3 2014 □ Training and consulting: €3.4 million (+28%)
Q3 2015
Strong performance in Fashion and apparel as well as Furniture – Strong decline in China and Automotive Fashion and apparel: +10% (+3% like-for-like) Furniture: +58% (+42% like-for-like) China: -44% (-53% like-for-like) □ Weight in total orders: 9% (vs. 15% in Q3 2014)
Automotive: -29% (-33% like-for-like) □ Weight in total orders: 28% (vs. 39% in Q3 2014)
Analyst Conference – Paris, October 30, 2015
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Q3 2015: A More Difficult than Expected Macroeconomic Context The macroeconomic context has continued to deteriorate, mainly due to the Chinese economy’s confirmed slowdown The continued decline of euro against the yuan since the summer of 2014 significantly contributed to the Chinese
economy’s slowdown Chinese companies’ production costs are increasingly less attractive, especially for euro zone companies that had outsourced their production or made their purchases in China In order to partially compensate for Chinese exporting companies’ loss of competitiveness, the Chinese government depreciated its currency by 3% against the dollar in August, lowering the dollar/yuan parity to end of 2011 levels Following a rapid rise in stock prices, the Chinese stock market crashed by 30% ("Black Monday"), causing panic in China and general concern worldwide This slowdown has had repercussions on all Asian countries, which are very dependent upon China, as well as on raw material-exporting countries
Other emerging markets have seen their exchange rates fall and their economies strongly impacted against the backdrop of local geopolitical turbulence Brazil: political crisis, a 3% decrease in GDP predicted for 2015 (IMF), the real declining 45% against the dollar and
36% against the euro, since January 1 Turkey: political crisis, the Turkish pound falling 24% against the dollar and 16% against the euro Conflicts in the Middle East
Customers within Lectra’s market sectors have consequently decreased their investment levels due to a lack of visibility and increasing concerns Analyst Conference – Paris, October 30, 2015
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Q3 2015: Revenues and Income from Operations Up Sharply In millions of euros Revenues
Q3 2015
Q3 2015
Q3 2014
Actual
At 2014 exchange rates
Actual
Change at actual exchange rates €M
Change like-for-like €M
%
%
59.3
55.8
53.8
+5.5
+10%
+2.1
+4%
New systems
24.7
23.2
23.3
+1.4
+6%
stable
stable
Recurring revenues
34.6
32.6
30.5
+4.1
+14%
+2.2
+7%
41.5 74.4%
39.9 74.2%
+4.7
+12% +1.1 points
+1.6
in % of revenues
44.6 75.3%
+4% +0.2 points
Income from operations in % of revenues
9.8 16.5%
8.0 14.4%
7.4 13.7%
+2.4
+33% +2.8 points
+0.6
+8% +0.7 points
7.0
na
5.2
+1.8
+35%
na
na
Free cash flow
10.8
na
2.7
+8.1
+299%
na
na
$/€ exchange rate
1.11
1.33
1.33
Gross profit
Net income
Income from operations rose 33% despite the €2.3 million increase in fixed overhead costs related primarily to the transformation plan □ Q3 income from operations is boosted each year by the natural drop in overhead costs over the summer vacation months
Free cash flow includes the receipt of €4.8 million relating to the 2011 non-deducted French research tax credit Analyst Conference – Paris, October 30, 2015
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Analyst Conference – Paris, October 30, 2015
Financial Results for Q3 2015 Financial Results for 9M 2015 2015 Outlook
Unless stated otherwise, comparisons are at actual exchange rates. When mentioned, “like-for-like” comparisons between 2015 and 2014 correspond to 2015 figures restated at 2014 exchange rates.
Analyst Conference – Paris, October 30, 2015
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9M 2015: Orders Increased by 4% at Actual Exchange Rates but Fell by 4% Like-for-Like Orders (in millions of euros) Total
9M 2015
9M 2014
9M 2013
Actual
Actual
Actual
Change 9M 2015 / 9M 2014
Change 9M 2015 / 9M 2014
At actual exchange rates
Like-for-like
70.3
67.5
63.4
+4%
-4%
New software licenses
17.1
16.3
14.7
+5%
-2%
CAD/CAM equipment
42.5
40.2
40.6
+6%
-4%
Training and consulting
9.2
9.5
6.7
-4%
-9%
Of which
30 25 20 15
10 5 0 Q1
Q2 2013
Q3 2014
Q4
2015
In millions of euros – Figures at actual exchange rates.
Analyst Conference – Paris, October 30, 2015
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Strong Rebound in North America, Drop in Asia-Pacific Change 9M 2015 vs. 9M 2014 at actual exchange rates.
Highly contrasted situation1 Europe (38% of total orders): -3% Asia-Pacific (28%): -6%
42%
□ Of which China (13%): -8%
58%
Americas (27%): +33%
51%
49%
□ North America (21%): + 44%
□ South America (6%): +5%
Other countries (7%): +5% An increase in orders, driven by Fashion and apparel, and Furniture Fashion and apparel (53% of total vs. 52%): +5% □ Europe: -11% □ North America: +60%; South America: +32%
9M 2015 Emerging countries
9M 2014 Developed countries
The share of emerging countries increased Emerging countries: +19%2 Developed countries: -11%
□ Asia-Pacific: +9%
Automotive (30% vs. 36%): -13% □ Europe: +3% □ North America: +1%; South America: -77% □ Asia-Pacific: -24%
Furniture (12% vs. 4%): +210% Other industries (5%): -33% Analyst Conference – Paris, October 30, 2015
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Like-for-like: Asia-Pacific -21%; North America +22%; South America stable. 2
Like-for-like: China -23%; Brazil -28%; Mexico +109%; Eastern Europe +33%... Orders for new software licenses, CAD/CAM equipment, and training and consulting.
8
9M 2015: Very Strong Earnings Growth In millions of euros Revenues
9M 2015
9M 2015
9M 2014
Actual
At 2014 exchange rates
Actual
Change at actual exchange rates €M
%
Change like-for-like €M
%
175.7
162.6
153.9
+21.8
+14%
+8,6
+6%
73.3
67.3
64.0
+9.3
+15%
+3,2
+5%
102.4
95.3
89.9
+12.5
+14%
+5,4
+6%
120.9 74.4%
113.3 73.6%
+19.6
+17% +2.0 points
+7,6
in % of revenues
132.9 75.6%
+7% +0.8 points
Income from operations in % of revenues
23.0 13.1%
15.9 9.8%
13.3 8.6%
+9.7
+73% +4.5 points
+2,7
+20% +1.2 points
Net income
16.0
na
9.6
+6.4
+66%
na
na
Free cash flow
14.8
na
9.3
+5.5
+59%
na
na
$/€ exchange rate
1.11
1.36
1.36
New systems Recurring revenues Gross profit
The roadmap corresponding to the company’s minimum objective communicated on February 11, 2015 anticipated revenues of €176.8 million and income from operations of €20.4 million for the first nine months □ At actual exchange rates, revenues were almost in line with the roadmap, income from operations is ahead by €2.6 million
The increase in gross profit represents 90% compared to that of revenues
Analyst Conference – Paris, October 30, 2015
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Growth in Revenues from New Systems Sales and in Recurring Revenues Increase in total revenues +€21.8 million (+14%) In millions of euros
+15% 73.3 64.0
Revenues from new systems sales: +15%
New software licenses: €17.8 million (+12%) CAD/CAM equipment: €44.9 million (+16%) Training and consulting: €9.1 million (+18%) Revenues from recurring contracts: +13%
Software maintenance and online service contracts
+14%
102.4
89.9
(€34.3 million): +12% Hardware maintenance and online service contracts for CAD/CAM equipment (€25.1 million): +14%
Revenues from consumables & spare parts: +15%
€42.9 million (24% of total revenues) 9M 2014
Recurring revenues
9M 2015
New systems sales
Order backlog: €16.9 million at September 30, 2015 □ -€2.7 million vs. December 31, 2014 □ Of which €9.5 million of orders for new software licenses and CAD/CAM equipment for shipment in Q4 2015 and €5.9 million for training and consulting to be delivered as projects are carried out Figures and change at actual exchange rates.
Analyst Conference – Paris, October 30, 2015
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Complex Effects Due to Strong Exchange Rate Fluctuations
Lectra has significantly bolstered its competitive position worldwide Lectra has opted to maintain its R&D and manufacturing in France, while investing in innovation to enhance its
competitiveness. Most of Lectra’s production costs are thus euro-denominated, with practically zero inflation. Conversely, most of its competitors—especially the main one, a US company—manufacture their equipment in China. Their operating costs, essentially yuan-denominated, are subject not only to continuously rising wages and social charges, but also to higher inflation. Sale prices in North America and Asia are mainly expressed in US dollars, or in yuan in China The few European vendors specialized in CAM equipment that have maintained their production in Europe have cut their sale prices in Asia and in Americas in order to expand their market shares
Lectra customers’ competitive situations have altered radically, either improving or deteriorating, depending on the location of their production and sales Those European companies that have outsourced their production or made their purchases in China must adjust to
rising import costs by revising their supply strategy Chinese manufacturers, less competitive than before, are experiencing a decline in orders from European customers, resulting in overcapacity, which in turn has negatively impacted their investment decisions The same applies to companies in emerging countries that have witnessed a strong depreciation of local currency against the dollar (the first of which was Brazil), which has significantly increased their investment costs
Given the complex effects produced by such sharp fluctuations in currency parities, like-forlike comparisons become decreasingly relevant Analyst Conference – Paris, October 30, 2015
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China Remains One of Lectra’s Growth Accelerators
Lectra’s business in China has been strongly impacted since the beginning of this year, following very strong growth that began in 2009 and which reached a historic peak in 2014 Orders for new systems have fallen, following increases of 45% and 39% for the years 2014 and 2013, respectively This short-term situation may continue for several quarters Since the beginning of the transformation plan, Lectra China’s team has been significantly strengthened Lectra’s strategy enables Chinese companies to meet the objectives established in the "Made in China 2025" government plan, which was launched at the end of July, to level Chinese industry If China wants to avoid being overtaken by manufacturers in emerging countries that have lower costs, several
challenges must be rapidly overcome, specifically it must better cooperate and compete with industrialized economies Chinese manufacturers represent very unequal levels of efficiency and quality
Change at actual exchange rates.
Analyst Conference – Paris, October 30, 2015
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The "Made in China 2025" Plan Introduced by the Chinese Government
Road-map
Large Volume Manufacturer
Manufacturing Power
Innovation Leader
2015
2025
2045
Key Highlights
Convergence of Computerization & Industrialization
Smart Manufacturing
Core Elements
Innovation-driven, Smart Manufacturing transformation
Digital, Inter-connected, Intelligent
5 Big Projects
Smart Manufacturing Innovation Center
Smart Manufacturing
Strengthen Industry base
Green Development
High-End machinery
National: $3 trillion GDP incremental over 20 years
KPIs
Companies: 20% increase in efficiency, 20% costs down, exhaust emissions reduced by 10%
Lectra’s offer and strategy enable its Chinese customers to meet the plan’s challenges
Analyst Conference – Paris, October 30, 2015
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Acceleration in Marketing Investments Click to see online content
Customer stories Brochures, White papers, Press releases
Videos
Analyst Conference – Paris, October 30, 2015
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A Digital Strategy Tailored to China
Lectra.cn, a website that incorporates the best practices made for B2C
Analyst Conference – Paris, October 30, 2015
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The Increase in Recurring Revenues Finances the Increase in Costs Related to the Transformation Plan
In millions of euros, at actual exchange rates
+7.1
Positive impact of currency fluctuations
+4.1
Increase in recurring revenues
+3.0
Increase in revenues from new systems sales
+1.2
Improvement in gross profit margins
(2.4)
Increase in investments for the future related to the company’s transformation plan
(3.3)
Natural increase in fixed overhead costs
+9.7
23.0 13.3
Income from operations 9M 2015
Income from operations 9M 2014
Analyst Conference – Paris, October 30, 2015
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Acceleration of R&D Investments R&D investments In millions of euros
21.7 18.2
22.7
19.1 17.4
9M 2015 R&D costs increased by 5% to €16.5 million and represented 9.4% of revenues (€15.7 million and 10.2% in 9M 2014) Net R&D costs1: €10.2 million (€9.4 million in 9M 2014) 260 engineers (18% of workforce) dedicated to R&D €97.0 million invested over the last 5 years Net R&D investments1: €61.5 million
2011
2012
2013
2014
2015e
R&D is not reported on the balance sheet: R&D spending is fully expensed and included in the overhead costs for the fiscal year 1
After deducting the research tax credit and the corresponding portion of the competitiveness and employment tax credit applicable in France and grants accounted for in the period.
Analyst Conference – Paris, October 30, 2015
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2
Free Cash Flow Continues to Reflect the Pertinence 30,0 of Lectra’s Business Model 30,0
9M 2015 free cash flow: €14.8 million Cash flow provided by operating activities: €19.6 million (including 20,7 16.0 16.020,7 16,0 16,0 16,0 16,0 16,016,0 a 19,5 €2.3 million increase in the working capital requirement) 15.2 15,2 15,215,2 19,5 Increase in working capital requirement: €2.3 million 1,21,2 1.2 1,2 17,3 5,5 17,3 19,5 15,6 5,5 □ Excluding the impact of the non-received 2015 research tax credit and 5.9 15,6 5,95,9 5,9 17,3 competitiveness and employment 13,6 tax credit, and the 2011 research 9.7 9,7 13,6 the increase in working capital requirement 5,8 tax credit 9,79,7 5,8 reimbursement, would have been limited to 13,6 €1 million 5,8 Capital expenditures: €5.2 million 14.8
In millions of euros
14,8 14,814,8
9.3 9,39,3 9,3
9M 2014
15,2
9M 2015
15,2
€ 4.8 million received in Q3 corresponding to the non-deducted
2011 research tax credit 11,5 tax 11,5 The research credit (€5.4 million) and the competitiveness and employment tax credit (€0.6 million) for the first nine months of 11,5 2015 were accounted for but not received □ If they had been received, free cash flow would have been €16 million, excluding the 2011 research tax credit reimbursement
Free cashCFL flow Difference between the CFL CFLCIRCFLCIR CIRCF2 Résultat Net Résultat CIRCF2 Résultat Net Net2 Résultat Net2 amount of tax credits Cumulated freeltat cash flow since January 1, 2013: NetRésu income ltat Net Résu Net2 recognized and received €51.4 million €40.3 million before non-recurring items
Analyst Conference – Paris, October 30, 2015
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A Zero-Debt Company, Shareholders’ Equity and Net Cash Position Further Reinforced At September 30, 2015
Shareholders’ equity: €105.3 million €94.3 million at December 31, 2014
Net cash: €52.0 million €43.1 million at December 31, 2014 The company has no financial debt After payment of the dividend of €7.6 million (€0.25 per share) declared in respect of FY 2014
In millions of euros, at December 31, except 2015 (at September 30)
100
80
60
40
20
0 2012
2013
Shareholders' equity
2014
2015
Cash & Cash equivalents
Net cash
Analyst Conference – Paris, October 30, 2015
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A Structurally Negative Working Capital Requirement, a Key Feature of Lectra’s Business Model In millions of euros, at December 31, except 2015 (at September 30)
20
Working capital requirement was negative at €0.5 million This includes the receivable of €22.8 million on the French tax administration (Trésor public) corresponding to the research tax credit recognized since FY 2012, which have not yet been received or offset against income tax
15 10 5 0
Restated for this receivable, the working capital requirement was negative at €23.3 million
-5 -10 -15 -20 -25 2008 2009 2010 2011 Working Capital Requirement
2012
2013
2014
2015
Working Capital Requirement after restatement of the research tax credit and competitiveness and employment tax credit receivable Analyst Conference – Paris, October 30, 2015
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Following an Increase of 81% Since October 1, 2014, Lectra’s Share Price Fell 26% since its Peak on July 30 Evolution from January 1, 2014 to October 28, 2015 (in euros, daily closing price and index)
14.0 14,0
Lectra: +30%
Share price October 28, 2015: €10.78 9M 2015 □ High (July 30): €14.65
CAC Mid & Small: +26%
□ Low (January 6): €8.98
12.0 12,0
Volume traded1 in 9M 2015 □ Shares: 7.1 million (+50%)
10.0 10,0
□ Capital: €85.1 million (+125%)
8.0 8,0 6.0 6,0
2014
2015
Market Capitalization2: €332 million Enterprise Value: €280 million □ 1.2 x LTM Revenues3
Ownership2 André Harari and Daniel Harari: 36.1% Free float: 63.9%
□ 9.5 x LTM EBIT3
LTM PER3: 16.1x
□ Delta Lloyd (Netherlands): >5% and 5% and