Paris, 29 th November 2006 : ESI Group (ISIN FR0004110310), a pioneer and world leading solution provider in virtual prototyping and manufacturing processes , today announced its consolidated results for the first half of its 2006/2007 financial year to 31 st July 2006, and its consolidated turnover for the third quarter of FY 2006/2007 to 31 st October 2006.

Half-year results

(NB: the company's FY runs to 31 st January)

Reminder: the seasonality inherent to ESI Group's activity means that a very substantial portion of annual revenues are recorded over the second half of its financial year. The fixed costs borne by the Group, however, are spread evenly throughout the year, and this situation automatically means that operating profitability and net profitability in the first half are substantially lower than those recorded at the end of the second half.

As announced back in September, first-half revenues recorded purely organic growth of +4.0%, with +4.9% growth for Licence sales (+5.3% at constant exchange rates) and +1.1% revenue growth for Consulting and Services (+0.9% at constant exchange rates).

The €0.9 million increase in the cost of sales to 8.24 million euros was in part a result of the launching and integration of new teams in Korea and China and the strengthening of support teams. On the other hand, the substantial seasonal effect of Licence revenues and the weak level of Consulting and Services activity within the context resulted in a decrease in the gross margin to 68.8%.

Operating costs were controlled efficiently and grew by just +5.6%, essentially because of Sales & Marketing investments, as R&D costs and G&A costs were stable over the period. In fact, the Group concentrated mainly on strengthening its sales force and local support teams, notably in its small European subsidiaries, where the anticipated positive effects will take a little time. There was thus an operating loss of 2.59 million euros.

After writing down an unrealised currency loss of 0.75 million euros and taking into account the tax effect of 0.94 million euros, there was an attributable net loss of -2.64 million euros.

Alain de Rouvray , ESI Group's Chairman and CEO, stated : “These performances reflect the substantial efforts we have made in commercialising our products and services within a somewhat perturbed context - especially in Korea and Japan . Although we managed to keep all other costs under control, the net margin was down over the quarter because of the lagging recorded in our Consulting and Services activity and of a substantial seasonal effect for our Licence activity.”

• Key points for the first half

- Good performance from Licence activity

o The migration of the User Environment of our PAM-CRASH / PAM-SAFE products towards our new VISUAL product, essentially developed in India , is progressing in line with forecasts.

o A number of our emerging products and innovative products are showing significant growth, in liaison with industrial projects; they are also participating in the sectorial diversification of activity.

- Weakness of Consulting and Services activity

o Amplification of collaborative R&D: national poles of competitiveness and consortia are taking longer than planned to set up, although this is necessary to counter the episodic slowdown in direct industrial investments, notably in the automotive sector.

o Reduction in governmental projects: projects financed by the EEC are also seeing a slowdown associated with the financing cycle that lasts several years; the loss of its eligibility by the ESI Group for US “SBIR” projects reserved for small companies is resulting in a reduction in these types of R&D projects on American soil.

o The relocation of low-value projects has continued towards low-cost counties (Eastern Europe, Asia ).

o The structuring of ‘Training and Support' activity has not yet delivered the anticipated results.

o The positive activity of innovative industrial Projects has held up, notably in France (ex.: Electronuclear, defence).

- Substantial consolidation of the Group's positioning in Asia

Asia represented 43% of turnover during the first half of the current financial year, versus 37% during the same period in 2005.

o February 2006: acquisition of Korean company IPS International's digital simulation services for engineering applications (CAE), as well as the intellectual property rights to their virtual “H-Models” human dummies

o April 2006: taking over of the Chinese-based company ATE Technology International's activities

In particular, as early as July, the integration of ATE Technology's teams enabled the Group to win, in a particularly competitive context, an initial and substantial licence sales in the aeronautical domain associated with the development of structures made from composite materials.

• Available cash

Available cash totalled 10.51 million euros at 31 st July 2006, versus 14.26 million euros at the start of the period. This evolution integrates the financing of the takeover of IPS' CAE activities and ATE Technology, as well as the one-off reimbursement of financial debts; it also reflects the cyclical variation in Working Capital Requirements associated with the substantial seasonal effect of activity.

The Group's financial structure remains sound, with a low indebtedness ratio (long-term financial debt over shareholders equity) of 13.84%.

Third-quarter turnover

Turnover for the third quarter of the 2006 financial year totalled 12.6 million euros, up 4.7% organically on the same quarter of the previous financial year. At constant exchange rates, the increase was +7.3%. The performance of Licence activity over the third quarter was marked by very dynamic growth (+ 17.9% at constant exchange rates), thus continuing the trend noted the previous quarter. The weakness of Consulting & Services activity (-18.4%) is essentially due to projects delays in the Asian zone, notably with a significant fall in Japan associated with the halting of low value-added projects.

Consolidated turnover for the first 9 months of the year totalled 39.0 million euros (+4.2%). The surge in Asia has been reaffirmed.

Outlook
Focus on restoring Consulting & Services activity

Whilst Licence activity was generally in line with expectations, Consulting & Services activity had to cope with major mutations: transfer of standard projects to emerging countries, difficulties in accessing government funding, a somewhat unfavourable situation regarding decision makers in the automotive sector. Thanks to internal transfers, the perpetuation of expertise has been ensured and has enabled activities with substantial value added to level out or even increase. This expertise must allow the redeployment of Consulting & Services activity around consortia and collaborative industrial projects, whilst support activities (training and technical assistance) should benefit from the structuring efforts undertaken.

Annual activity growth of between 5 and 7%

Despite the current dynamic level of Licence activity, which should hold up, overall performances over the first 9 months of the current financial year – with Consulting & Services at a lower-than-expected level and a negative foreign exchange impact – lead us to anticipate cumulative organic growth for annual activity of between 5 and 7%.

Anticipated operating margin of between 6 and 8%

As a consequence of the S&M efforts undertaken during the first half of the year and the lower level of activity for Consulting and Services, the annual operating margin should now be within a 6 to 8% bracket.

Alain de Rouvray concludes: “ Our sector's growth drivers are currently moving to emerging zones such as China and India . ESI Group's participation in the French State 's recent visit to China reflects the quality and soundness of our relationships in Asia . Despite structural and situational difficulties in Consulting & Services, the ongoing dynamism of our Licence activity and the intensification of our S&M efforts – notably in Asia – should, in the short term, allow an acceleration in growth, a reduction in our average costs through the globalisation of our teams, and an improvement in our profitability, a direct consequence of an essentially fixed-cost structure ”.

About ESI Group

ESI Group is a world-leading supplier, and a pioneer of digital simulation software for prototyping and manufacturing processes that take into account the physics of materials. ESI Group has developed an extensive suite of coherent, industry oriented applications to realistically simulate a product's behaviour during testing, to fine-tune manufacturing processes in accordance with desired product performance, and evaluate the environment's impact on product performance. ESI Group's products, which have a proven track record in manufacturing and have been combined in multi-trade value chains, represent a unique collaborative and open virtual engineering solution known as the Virtual Try-Out Space (VTOS), enabling virtual prototypes to be improved in a continuous and collaborative manner. This integrated protocol allows all the company's solutions to work with each other and with applications developed by independent software vendors. By significantly reducing costs and development lead times and enabling product/process synergies, VTOS solutions offer major competitive advantage by progressively eliminating the need for physical prototypes during product development. The company generated sales of €62.2m in 2005, employs over 500 high-level specialists worldwide covering more than 30 countries. ESI Group is listed in Eurolist compartment C of Euronext Paris. For further information, visit www.esi-group.com.

Listed in Eurolist compartment C of Euronext Paris - Next Economy - ISIN FR0004110310 - FTSE 977- Bloomberg ESI FP - Reuters ESIG.LN

ESI GROUP has been qualified as “an innovative company” since January 20 2000 by the ANVAR and is eligible for inclusion in “FCPI” (venture capital trusts dedicated to innovation).

FY 2006/07 turnover will be published on 13 th March 2007   (after market)

Virtual Try-Out Space® and VTOS® are registered trademarks of ESI Group. All other products, names or companies are the brands or registered trademarks of their respective owners.