Strong growth in 2010/11 annual results

• Sharp improvement in operating and net profitability
• Validation of the business model’s leverage effects
• Confidence in the pursuance of profitable growth
• Buoyant growth in revenue and Licenses activity

As announced on March 14 2011, consolidated annual revenue saw purely organic growth of +12.1% to €84.2 million in 2010.

The key indicators were positive over the financial year:

• License sales increased by +14.4% to €61.9 million,
• the License volume of repeat business was up +11.2%,
• License repeat business reached the very high level of 91%,
• License new business grew +31.7% to €13.1 million,
• Services sales were up +6.2% over the year as a whole, to €22.3 million, after a slow start but a very dynamic final quarter.

Note that activity also benefited from a positive exchange rate effect.

Sharp increase in the gross margin

The split in business activity reflects the good strategic alignment of our product mix: 73.5% for Licenses and 26.5% for Services. The gross margin jumped +18.3% to €59.0 million, benefitting from the re-allocation of resources to S&M (Product Marketing and Sales), R&D activities and a better utilization of the Services teams.

EBITDA margin: 10.2% and EBIT margin : 9,2%

Benefitting from the effects of the improvement in the product mix, a better allocation of Sales & Marketing cost resources and an operating cost structure under control, EBITDA totaled €8.5 million, up +46.6% on the figure of €5.8 million recorded in 2009/10. The EBITDA margin was 10.2%.

The Group continued to benefit from the leverage of the substantial R&D investments it has carried out for many years in order to maintain the Group’s leadership position in the emerging virtual prototyping market. Research & Development investments (before the impact of IFRS rules and Research Tax Credits) were up +11.6%, and represented 28.5% of Licenses sales, a figure that has continued to decrease in recent years. The increase in the IFRS costs of R&D was 14.2% in 2010/11.

Reflecting the Group’s intention of accelerating its sales penetration worldwide, notably with sales investments in Europe, the United States and the BRIC emerging markets, and given its diversification initiatives, Sales & Marketing costs exceptionally increased by +16.8% to €26.4 million.

General and Administrative costs were almost unchanged at €10.7 million, versus €10.2 million in 2009/10.

Once net provisions and depreciations, which were down on the previous year, are taken into account, operating profit was up +67.2% at €7.7 million. The operating margin was thus 9.2% in 2010/11, versus 6.1% in 2009/10.

Sharp increase in net profit to €5.4 million (+365%)

The sharp increase in net profit was due to the substantial increase in operating profitability, the stable financial result at -€1.3 million and non-recurrent tax savings associated with financial support for the Group’s Chinese activity.

All in all, attributable net profit increased by +€4.3 million over the year, with a net margin of 6.5% for the financial year to January 2011 versus 1.6% the previous year.

Sound financial structure

The Group had €6.8 million in available cash at the end of the 2010/11 financial year, stable on the year when restated after divestment of exceptional accounts receivables carried out at the end of the 2009/10 financial year. The financial structure was further strengthened, with a gearing (long-term financial debt over shareholders equity) of 6.4%, compared to 14% at the end of 2009/10. The improvement in this figure was notably the result of the reimbursement of bank loans enabled by the operating cash generated by the Group, which totaled €3.6 million over the year.

At January 31 2011, ESI Group held 6.57% of its own capital.

Outlook

2010/11 was a good year for ESI, in terms of both the growth in activity and the improvement in profitability. The substantial increase in Licenses sales, the significant improvement in new business and the signing, at the end of the year, of a number of major multiyear contracts all lay witness to a more favourable market context for the upramping of our virtual prototyping solutions. At the same time, we are reaping the benefits of the high level of R&D and Sales & Marketing investments we have carried out for many years, and which are now providing us with a leverage effect on our margins. These positive evolutions again reaffirm the pertinence of our strategic positioning and our business model. We are confident that our revenues will continue to grow and our profitability will keep improving.

Alain de Rouvray
Chairman & CEO