(*) EBITDA excludes non-recurring items and includes the impacts of capitalized R&D expenditure and provisions/reversals for impairment of trade receivables.
Acquisition during the period: “Scilab Enterprises” was consolidated from February 28, 2017.
Solid sales momentum
As announced, full-year sales totaled €135.3 million, down 3.8% and 2.0%, respectively, at current and constant exchange rates. There was a negative forex impact over the year of €2.5 million, mainly reflecting the depreciations of the Japanese yen and to a lesser extent the US dollar.
There was a favorable shift in the product mix towards Licenses, which contributed 78% of total sales, compared with 77% last year.
Revenue from Licenses declined by 2.4% year-on-year to €105.7 million but remained stable at constant exchange rates. A lower share of revenue from Paid-Up licenses (“PUL”) in 2017 represents a stronger base in future contract renewals. The performance of New Business was stable at constant exchange rates at €17.8 million, compared to €17.9 million for 2016 (€17.6 million at constant exchange rates).
Services revenues declined by 8.4% to €29.5 million for the year in the wake of the exceptional performance in Japan in 2016.
ESI’s geographic sales mix reflects the slight drop in business in Asia which now contributes 38% of total revenues against 39% last year. The contribution of the Americas and Europe remained stable over the year at 16% and 46% of sales, respectively.
Gross margin
Gross margin came in at 72.3%, compared to 73.3% in 2016, showing a decrease attributable to a change in the services delivered. In 2016 there were several one-off projects in Japan that had a positive impact on margin. Also, the volume of Special Projects increased in 2017. These projects are at the core of the innovation using new technologies developed by the Group and have the objectives of cocreation with customers and intellectual property development. Gross margin for Licenses remained stable year on year at 85%.
Impact of transformation plan actions
Within the scope of the strategic transformation plan, investments in R&D were maintained at a high level and grew 6.7% on the year to €34.9 million (€32.7 million in 2016). These considerable investments reflect the efforts undertaken to develop the Group’s new disruptive technology offering underpinned by the Hybrid TwinTM approach. These investments represented 33.0% of Licensing revenue, compared to 30.2% in 2016. Once the research tax credit and capitalized R&D expenditure are taken into account, total R&D costs recorded in the P&L amounted to €28.7 million, an increase of 6.5%.
The adaptation of sales and marketing strategy helped to enhance the sales force and the visibility of ESI Group. The process of bringing the sales force into line with our value proposition and the operational support requirements of customer account managers and technical sales engineers led to changes at local level and this impacted sales performance for the year. S&M costs, which totaled €41.4 million (vs €41.8 million in 2016), i.e., 30.6% of revenues, do not properly reflect these investments as they include the reversal of provisions for doubtful receivables, particularly in China.
G&A costs amounted to €18.5 million (compared to €18.9 million in 2016) and represented 13.7% of revenues. Expenditure was contained while ensuring that the Group has a solid distribution network and larger offices for local support teams specialized in new technologies to develop and grow.
Repercussions on profitability indicators
EBITDA fell from €18.3 million to €12.1 million, giving an EBITDA margin of 9.0% for the year, compared with 13.0% in 2016. This drop is a result of the transformation plan which weighed on growth, and increased investments in R&D.
Current operating profit was €9.2 million, representing a current operating margin of 6.8%, or €6.2 million less than last year.
EBIT dropped €5.6 million to €8.1 million, giving an EBIT margin of 6.0%, compared to 9.8% in 2016.
The Financial Result was a net financial expense of €2.7 million, compared to a financial expense of €2.1 million in 2016, due to forex losses following the depreciation of the Japanese yen against the euro.
Attributable Net Profit came out at €2.4 million in 2017, giving a net margin of 1.8%.
A stronger financial structure
The Group had a positive cash balance of €15.7 million at the reporting date. Net debt stood at €31.9 million at January 31, 2018 versus €37.3 million at January 31, 2017. The gearing (debt-to-equity) ratio was 31.4%, compared to 37.6% in 2016.
At January 31, 2018, ESI Group held 6.8% of its capital in treasury stock.
An ongoing and controlled transformation
