Interim / Quarterly Report • Jul 28, 2011
Interim / Quarterly Report
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To all Shareholders,
We report below on Lectra Group's business activity and consolidated financial statements for the second quarter and first half of 2011, ending June 30. Financial statements for the first half have been subject to a limited review by the Statutory Auditors; statements relating purely to the second quarter have not been reviewed.
To make the discussion of revenues and earnings as relevant as possible, detailed comparisons between 2011 and 2010 are based on 2010 exchange rates (―like-for-like‖) unless stated otherwise. The comparison with figures for 2007, the last year before the onset of the economic and financial crisis, has been maintained in order to measure the progressive return to normal business activity and the strengthening of Lectra's key operating ratios.
With an average parity of \$1.44/€1, the U.S. dollar was down 12% compared to Q2 2010 (\$1.27/€1). The change in this and other parities mechanically decreased revenues for the quarter by 5% and income from operations by €1.6 million at actual exchange rates, compared to like-for-like figures.
At a total of €21.2 million, orders for new software licenses and CAD/CAM equipment were up 24% compared to Q2 2010 (€18.2 million). Q2 2010 orders had already significantly risen (+65%) relative to the Q2 2009 figure, which had been severely impacted by the crisis.
Orders for new software licenses were up 7%, and orders for CAD/CAM hardware rose 31%.
Sales of spare parts and consumables, up 13% at €11 million, registered new, strong gains, resulting from the combined effect of the increasing number of installed CAD/CAM systems and the continuing recovery in customers' production volumes.
Revenues totaled €52.4 million, up 12% relative to Q2 2010—up 7% at actual exchange rates.
Revenues from new systems sales (€25.5 million) were up 23%. Recurring revenues (€26.8 million) rose by 3%, resulting from the combination of a 2% decrease in revenues from recurring contracts and a 13% increase in revenues from spare parts and consumables.
Income from operations amounted to €7.4 million, up €3.6 million (+68%) and the operating margin (14.2%) increased by 5.4 percentage points like-for-like. At actual exchange rates, income from operations increased by €2.1 million (+39%), and the operating margin by 3.2 percentage points.
Net income was €5.1 million, an increase of €2.4 million (+88%) at actual exchange rates compared to Q2 2010 (€2.7 million).
There were no non-recurring items in the second quarters of either 2011 or 2010.
Free cash flow was €5.2 million. Q2 2010 free cash flow (€13.8 million) included €6.2 million related to the reimbursement of the (French) research tax credit of FY 2009, whereas this measure has been rescinded with effect from 2011. Non-recurring disbursements in Q2 2011 amounted to €0.4 million (€0.1 million in Q2 2010).
In a decision of exequatur issued on June 27, 2011, the Madrid Court of First Instance recognized the arbitral award rendered against Induyco in October 2009 by an International Arbitral Tribunal seated in London, which had awarded Lectra €25.9 million (as at June 30, 2011).
Following the September 20, 2010 decision of the Madrid Court of Appeals, Lectra called on the first demand guarantees provided by Induyco and received €15.1 million.
In view of Induyco's persistent refusal to pay the outstanding €10.8 million still due, Lectra commenced an action of exequatur before the Madrid Court of First Instance at the end of December 2010, in order to enforce in Spain the arbitral award and recover the remaining amounts owed by Induyco. The decision confirming the validity and enforceability of the award in Spain, that the Madrid Court of First Instance has just rendered, represents a major milestone in the settlement of this dispute. It reinforces Lectra in its commitment to vigorously enforce its rights and to recover the full amount due to it under the award.
Induyco having appealed the June 27, 2011 decision, this decision does not modify the recognition of the award in the company's financial statements: the company has only recorded the €15.1 million received in 2010. The balance still due by Induyco will only be recorded upon its receipt.
As all of the costs incurred by Lectra have already been paid, the execution of the arbitral decision once all possibilities of appeal are over—will result in a cash inflow equal to the balance of the award still still due by Induyco (see note 8 of the notes to this report).
First half of 2011 orders and earnings confirm that the sales dynamics are ongoing and that the operating and financial ratios—which had already significantly strengthened in 2010—are continuing to improve.
With an average parity of \$1.40/€1 for first-half 2011, the U.S. dollar was down 5% compared to first half of 2010. The change in this and other parities mechanically decreased revenues for the first-half by 2% and income from operations by €1.4 million at actual exchange rates, compared to like-for-like figures.
Orders for new software licenses and CAD/CAM equipment amounted to €43.1 million, up 24% relative to first-half 2010.
While orders for new software licenses were unchanged, those for CAD/CAM equipment were up 37%. This disparity stems primarily from market sector mix, with growth in automotive sector orders (+85%) outpacing the fashion sector (+10%). These two markets respectively represented 36% and 50% of total orders. Furniture sector orders were down 7%, and the other industries 16%.
Orders booked in the Americas jumped 28%, in the Asia-Pacific region and Europe they rose 27%; they dropped 12% overall in the rest of the world (Northern Africa, South Africa, Turkey, the Middle East, etc.). Orders in emerging countries (51% of total orders) advanced 38%, while they were up 12% in the developed countries (49% of total orders).
Orders were still down 21% relative to first-half 2007. The shortfall has narrowed to just 2% for the emerging countries, although it is still 35% for the developed countries.
These variations cannot, of course, allow for an extrapolation of trends for the coming quarters.
First-half 2011 revenues totaled €102.1 million, up 13% relative to Q1 2010, like-for-like—up 11% at actual exchange rates.
The increase was 9% in Europe, 4% in the Americas, and 37% in the Asia-Pacific region. These three regions accounted for 51% (including 12% for France), 20%, and 24% of total revenues respectively. Revenues from the rest of the world, representing 5% of total Group revenues, increased by 3%.
Revenues from new software licenses (€13.4 million) increased by 16% and contributed 13% of total revenues (as in first-half 2010).
CAD/CAM equipment revenues (€30.5 million) were up 34% and accounted for 30% of total revenues (compared to 26% in first-half 2010).
Revenues from training and consulting (€4.8 million) were up 14%.
Overall, revenues from new systems sales (€49 million) increased 26% and represented 48% of total revenues (compared to 44% in first-half 2010). This 4-percentage point increase in their relative share of total revenues reflects the continuing return to dynamic sales activity, begun in 2010.
Recurring revenues (€53.1 million) increased €1.7 million (+3%). They accounted for 52% of total revenues (compared to 56% in first-half 2010).
Revenues from recurring contracts—which represented 58% of recurring revenues and 30% of total revenues—totaled €30.9 million. After falling in 2009 and 2010, due to unusually high cancellation rates in 2008 and 2009 as a result of the crisis, these revenues have now practically stabilized (–2%).
Recurring contracts, which concern almost two-thirds of Lectra's 23,000 customers, break down as follows:
Meanwhile, revenues from spare parts and consumables (€21.4 million) grew 13%.
Given that orders for new software licenses and CAD/CAM equipment for first-half 2011 are equivalent to revenues, the order backlog (€17.6 million) is therefore unchanged, like-for-like. However, it was down by €0.9 million at actual exchange rates, due to the impact of the dollar's fall against the euro between December 31, 2010 and June 30, 2011.
The order backlog at June 30, 2011 comprised €16.2 million for shipment in the second half of 2011, and €1.4 million in 2012.
Like-for-like, gross profit margins for each product line have increased, again demonstrating their strength in the face of heavy pressure from competitors, which has been exacerbated by the crisis.
The overall gross profit margin worked out to 70.4%. Like-for-like, it came to 70.8%, down 1.2 percentage point relative to the first-half 2010 figure of 72%.
This variation stems from changes in the product mix, with a rise in the share of revenues from CAD/CAM equipment and spare parts and consumables in total revenues, where margins are lower than for the other revenue components.
It should be noted that personnel expenses and other operating expenses incurred in the execution of service contracts are not included in cost of sales, but are recognized in selling, general, and administrative expenses.
Total overhead costs were €59 million, up €1.6 million (+3%) compared to first-half 2010. They break down as follows:
Research and development costs are fully expensed in the period and included in fixed overhead costs. Before deducting the (French) research tax credit and certain R&D program grants, R&D costs amounted to €9.3 million and represented 9.1% of revenues (compared to €8.3 million and 9.0% in 2010). This reflects the company's decision to step up its R&D effort. Net R&D costs after deduction of the research tax credit (the aggregate rate of which is lower in 2011 following the applicable tax changes) and grants amounted to €6.1 million (€5.1 million in 2010).
Income from operations was €12.9 million. Like-for-like, it amounted to €14.3 million, an increase of €6 million (+71%) relative to first-half 2010 (€8.3 million). At actual exchange rates, it increased by €4.5 million (+54%).
The operating margin was 12.6%. Like-for-like, it worked out to 13.7% and increased by 4.6 percentage points compared to first-half 2010 (9.1%). This represents an increase of 3.5 percentage points at actual exchange rates.
Financial income and expenses represent a net charge of €0.9 million. A positive foreign exchange gain of €0.1 million was recognized as a result of hedges against U.S. dollar risks, put in place for the first quarter.
After an income tax charge of €3.3 million, net income was €8.8 million, the double of first-half 2010 figure (€4.4 million) at actual exchange rates.
Net earnings per share on basic capital (€0.31) increased by 94% and on diluted capital (€0.30) by 88% at actual exchange rates (€0.16 per share for both items, in first-half 2010).
Free cash flow amounted to €9.3 million before non-recurring items (€19.3 million in first-half 2010). First-half 2010 free cash flow included €6.2 million arising from early repayment of the 2009 research tax credit, this measure having been rescinded with effect from 2011.
After €0.9 million in non-recurring disbursements, free cash flow was €8.4 million (€18.8 million in 2010 after €0.5 million in non-recurring disbursements). This figure results from positive cash flow provided by operating activities of €9.8 million (which includes an increase in working capital requirement of €2.8 million) and capital expenditures of €1.4 million (see note 7 of the notes to this report).
The first-half 2011 research tax credit (€2.7 million) was accounted for but not yet received. Assuming that the research tax credit was received, free cash flow before non-recurring items would amount to €12 million, exceeding net income by €3.2 million.
At June 30, 2011, consolidated shareholders' equity amounted to €47.9 million (€42 million at December 31, 2010).
This figure is calculated after deduction of treasury shares held solely within the Liquidity Agreement with SG Securities (Société Générale), carried at cost, i.e., €0.4 million (versus €0.4 million at December 31, 2010). It is also calculated after deduction of the total amount of €5.2 million dividend paid on May 10, 2011 in respect of fiscal 2010, as decided by the Ordinary Shareholders' Meeting of April 29, 2011.
Cash and cash equivalents totaled €31 million (€30.2 million at December 31, 2010).
Financial borrowings totaled €28.3 million (€32.6 million at December 31, 2010), of which:
Consequently, the net cash position is positive at €2.8 million at June 30, 2011 (versus net financial debt of €2.4 million at December 31, 2010, and €29.4 million at June 30, 2010). The improvement therefore represents €5.2 million for the first-half and €32.2 million for the last twelve-month period.
Further, given the improvement in the company's financial ratios, the margin on interest due on the medium-term loan has been reduced from 1.85% in 2010 to 0.95% as at January 1, 2011, in accordance with the loan contract (see chapter 10.1 of the notes to this report).
In light of the cash surplus it now holds, the company decided not to renew the cash credit facilities totaling €14 million that expired in June 2011.
At June 30, 2011, share capital totaled €28,017,538.20, divided into 28,884,060 shares with a par value of €0.97. It was €27,644,043.58, divided into 28,499,014 shares, at December 31, 2010.
Share capital has increased by 385,046 shares since January 1, 2011, resulting from the exercise of stock options (€373,494.62 par value together with total additional paid-in capital of €1,414,022.12).
On April 18, 2011, Société Financière de l'Echiquier (France), on behalf of investment funds managed by it, reported that it had fallen below the threshold of 10% of the company's voting rights, and that it held 10.16% of the capital stock and 9.99% of the voting rights. On June 8, 2011, it reported that it had increased its holding of voting rights above the 10% threshold, and that it held 10.21% of the capital stock and 10.04% of the voting rights at that date.
No other crossing of share ownership reporting thresholds has been reported to the company since January 1, 2011.
At the date of publication of this report, to the company's knowledge, the main shareholders are:
On June 9, 2011, the Board of Directors granted 247,267 options, at an exercise price of €6.25 per share to 67 beneficiaries in respect of the achievement of their annual performance targets set for 2010. These grants are consistent with the Board's undertaking at the time of the granting of the 2010 stock option plan.
Under the 2011 plan, the Board of Directors granted 188,460 options to 100 beneficiaries at an exercise price of €6.25 per share, and an undertaking has been given to grant a maximum of 461,700 options to 85 beneficiaries upon the condition of achievement of their annual performance targets for 2011. The final number and exercise price of the options corresponding to this undertaking will be set by the Board of Directors at the time of granting in 2012, and the exercise price will, under no circumstances, be less than €6.25.
All beneficiaries of the options granted are Group employees. The two corporate executive officers, André Harari and Daniel Harari, have not received any stock options since 2000.
At June 30, 2011, the company held 0.3% of its own shares in treasury shares, solely within the framework of the Liquidity Agreement managed by SG Securities (Société Générale).
After rising sharply (+86%) in 2010, following two years of substantial falls, Lectra's share price continued to rise in the first-half. The company's share price at June 30, 2011, was €5.80, up 38% compared to December 31, 2010 (€4.19). The CAC 40 index and the CAC Mid&Small index rose by 5% and 6% respectively, over the same period. The share price recorded a low of €4.12 on January 3 and a high of €6.81 on April 7.
Trading volumes continued to strongly progress. According to Euronext figures, the number of shares traded (4.9 million) has more than doubled, and trading volumes (€28.1 million) have increased fivefold, compared to the same period in 2010.
No significant event has occurred since June 30, 2011.
The Q3 financial results for 2011 will be published on October 27, after close of trading on NYSE Euronext.
The company discussed in detail its expectations regarding its activities and the outlook for the future in its Management Discussion of February 10, 2011, and in its 2010 Annual Report, both of which serve as a reference.
While the macroeconomic environment has confirmed its progressive improvement since the start of 2011, it has still not reverted to pre-crisis levels yet. Global economic conditions were marked by the consequences of the tragic disasters in Japan and the geopolitical crises in certain North African and Middle Eastern countries on the one hand, and by the rising concern over sovereign debt in the United States and certain European countries.
The recovery remains fragile, therefore, risks and uncertainties have increased, and a further deterioration in the economic and monetary situation remains possible, demanding continuing caution and vigilance.
Sales activity and earnings for first-half 2011 are generally in line with company expectations, confirming the strengthening of its operating ratios and its balance sheet. The order backlog is still strong. However, the situation remains disparate across the different regions and market sectors, and the combined activity of all Lectra customers has yet to recover its 2007 level.
On February 10, 2011, the company adopted as its central scenario for 2011, assuming that the economic recovery continued at its pace of the preceding months, revenues of around €207 million, and income from operations before non-recurring items of approximately €28.5 million, thus generating an operating margin before non-recurring items of close to 14% and a net income of close to €18 million.
These figures were based on an average parity of \$1.35/€1.
Assuming that the average parity for second-half 2011 is \$1.45 / €1, the currency effect alone would, for the full fiscal year, mechanically reduce revenues by € 4 million, income from operations by €2.3 million, and the operating margin by 1 percentage point, bringing these respectively to around €203 million, €26 million, and 13%. Like-for-like increases relative to 2010, of 10%, 30% and 2 percentage points, respectively, would remain unchanged. Net income would be reduced by €1.5 million and close to €16.5 million (+ 16% at actual exchange rates relative to the 2010 figure restated for non-recurring items). Finally, free cash flow would work out to around €14 million.
As of the date of publication, the February 10 central scenario, as updated by the sole impact of exchange rates fluctuations, remains the most likely.
Under this updated hypothesis, therefore, revenues would still lag behind the 2007 figure by €14 million (–6%), but income from operations, on the other hand, would be multiplied by 2.3, testifying to the improvement in the company's key operating ratios in the midst of the crisis.
2011 will also be the year in which net cash becomes positive again, of approximately €8 million at year-end, whereas net financial borrowings peaked at €56.4 million at the end of 2008. Moreover, receipt of the €10.8 million outstanding in respect of the damages awarded to the company by the international arbitral tribunal would strengthen the company's financial position correspondingly. The company's present aim is to pursue its policy of paying dividends to its shareholders and to preserve its cash in order to finance its organic growth.
Bolstered by its results, the company is confident in the strength of its business model and its growth prospects for the medium term.
The Board of Directors July 28, 2011
We certify that, to our knowledge, the financial statements have been prepared in accordance with currently applicable accounting standards and provide a fair view of the assets, financial condition, and results of the company and of its consolidated companies. We further certify that the first-half report on operations presents a true and sincere view of the significant events that occurred during the first six months of the fiscal year and their impact on the financial statements, and a description of the main risks and uncertainties for the coming six months.
Paris, July 28, 2011
Daniel Harari Jérôme Viala Chief Executive Officer Chief Financial Officer
| ASSETS | |
|---|---|
| (in thousands of euros) | As at June 30, 2011 | As at December 31, 2010 | As at June 30, 2010 |
|---|---|---|---|
| Goodwill | 30,371 | 30,999 | 37,753 |
| Other intangible assets | 5,244 | 5,452 | 5,793 |
| Property, plant and equipment | 10,810 | 11,066 | 11,886 |
| Non-current financial assets | 1,627 | 1,700 | 1,553 |
| Deferred tax assets | 10,909 | 12,938 | 15,706 |
| Total non-current assets | 58,961 | 62,155 | 72,691 |
| Inventories | 21,633 | 19,336 | 18,854 |
| Trade accounts receivable | 36,923 | 43,862 | 38,994 |
| Current income tax receivable | 9,580 | 6,918 | 3,774 |
| Other current assets | 7,794 | 4,674 | 12,130 |
| Cash and cash equivalents | 31,035 | 30,174 | 17,060 |
| Total current assets | 106,965 | 104,964 | 90,812 |
| Total assets | 165,926 | 167,119 | 163,503 |
| (in thousands of euros) | As at June 30, 2011 | As at December 31, 2010 | As at June 30, 2010 |
|---|---|---|---|
| Share capital | 28,018 | 27,644 | 27,641 |
| Share premium | 2,453 | 1,039 | 1,033 |
| Treasury shares | (446) | (386) | (1,278) |
| Currency translation adjustment | (9,130) | (8,877) | (9,229) |
| Retained earnings and net income | 26,982 | 22,612 | 10,464 |
| Total equity | 47,876 | 42,032 | 28,630 |
| Retirement benefit obligations | 4,108 | 4,124 | 4,008 |
| Borrowings, non-current portion | 21,936 | 27,694 | 36,851 |
| Total non-current liabilities | 26,044 | 31,818 | 40,859 |
| Trade and other current payables | 47,417 | 49,120 | 48,037 |
| Deferred revenues | 33,543 | 35,835 | 33,891 |
| Current income tax liabilities | 1,327 | 537 | 208 |
| Borrowings, current portion | 6,336 | 4,905 | 9,625 |
| Provisions for other liabilities and charges | 3,383 | 2,872 | 2,253 |
| Total current liabilities | 92,006 | 93,269 | 94,014 |
| Total equity and liabilities | 165,926 | 167,119 | 163,503 |
| (in thousands of euros) | Three months ended June 30, 2011 |
Six months ended June 30, 2011 |
Three months ended June 30, 2010 |
Six months ended June 30, 2010 |
|---|---|---|---|---|
| Revenues | 52,352 | 102,129 | 48,871 | 91,833 |
| Cost of goods sold | (15,805) | (30,228) | (13,538) | (25,691) |
| Gross profit | 36,547 | 71,901 | 35,333 | 66,142 |
| Research and development | (3,082) | (6,019) | (2,594) | (5,121) |
| Selling, general and administrative expenses | (26,046) | (53,001) | (27,383) | (52,680) |
| Income (loss) from operations | 7,419 | 12,881 | 5,356 | 8,341 |
| Financial income | 160 | 268 | 7 4 |
104 |
| Financial expenses | (624) | (1,192) | (881) | (1,866) |
| Foreign exchange income (loss) | (141) | 112 | (710) | (656) |
| Income (loss) before tax | 6,814 | 12,069 | 3,839 | 5,923 |
| Income tax | (1,690) | (3,277) | (1,108) | (1,569) |
| Net income (loss) | 5,124 | 8,792 | 2,731 | 4,354 |
| (in euros) | ||||
| Earnings per share | ||||
| - basic | 0.18 | 0.31 | 0.10 | 0.16 |
| - diluted | 0.17 | 0.30 | 0.10 | 0.16 |
| Shares used in calculating earnings per share | ||||
| - basic | 28,749,907 | 28,611,406 | 28,048,678 | 28,048,682 |
| - diluted | 29,513,192 | 29,315,615 | 28,048,678 | 28,048,682 |
| (in thousands of euros) | Three months ended June 30, 2011 |
Six months ended June 30, 2011 |
Three months ended June 30, 2010 |
Six months ended June 30, 2010 |
|---|---|---|---|---|
| Net income (loss) | 5,124 | 8,792 | 2,731 | 4,354 |
| Currency translation adjustment | (79) | (253) | (302) | (644) |
| Effective portion of the change in fair value of currency hedges | - | - | (186) | (200) |
| Effective portion of the change in fair value of interest-rate swaps | 222 | 635 | 321 | 349 |
| Tax effect on the comprehensive income items | (74) | (212) | (45) | (50) |
| Comprehensive income (loss) | 5,193 | 8,962 | 2,520 | 3,809 |
| (in thousands of euros) | Six months ended June 30, 2011 |
Six months ended June 30, 2010 |
|---|---|---|
| I - OPERATING ACTIVITIES | ||
| Net income (loss) | 8,792 | 4,354 |
| Depreciation and amortization | 1,837 | 3,309 |
| Non-cash operating expenses | 302 | 101 |
| Loss (profit) on sale of fixed assets | (9) | (29) |
| Changes in deferred income taxes, net value | 1,608 | 503 |
| Changes in inventories | (1,321) | (995) |
| Changes in trade accounts receivable | 4,689 | 2,540 |
| Changes in other current assets and liabilities | (6,123) | 9,755 |
| Net cash provided by (used in) operating activities | 9,775 | 19,538 |
| II - INVESTING ACTIVITIES | ||
| Purchases of intangible assets | (615) | (543) |
| Purchases of property, plant and equipment | (1,021) | (395) |
| Proceeds from sales of intangible assets and property, plant and equipment |
9 8 |
128 |
| Purchases of financial assets | (336) | (154) |
| Proceeds from sales of financial assets | 449 | 269 |
| Net cash provided by (used in) investing activities | (1,425) | (695) |
| III - FINANCING ACTIVITIES | ||
| Proceeds from issuance of ordinary shares | 1,788 | - |
| Dividends paid | (5,164) | - |
| Purchases of treasury shares | (516) | (149) |
| Sales of treasury shares | 848 | 149 |
| Proceeds from long term and short term borrowings | - | 400 |
| Repayments of long term and short term borrowings | (4,320) | (3,914) |
| Net cash provided by (used in) financing activities | (7,364) | (3,514) |
| Increase (decrease) in cash and cash equivalents | 986 | 15,329 |
| Cash and cash equivalents at the opening (1) | 30,174 | 2,149 |
| Increase (decrease) in cash and cash equivalents | 986 | 15,329 |
| Effect of changes in foreign exchange rates | (125) | (418) |
| Cash and cash equivalents at the closing | 31,035 | 17,060 |
Free cash flow before non-recurring items 9,253 19,354 Non-recurring items of the free cash flow (903) (511) Free cash flow 8,350 18,843
| Income tax paid (reimbursed) (2) | (70) | (159) |
|---|---|---|
| Interest paid | 860 | 1,476 |
(1) After deducting the amount of cash credit facilities used of €7.6 million at December 31, 2009. Cash credit facilities have not been used since June 30, 2010.
(2) This amount does not include repayments of (French) research tax credit
| (in thousands of euros, | Share capital | Currency | Retained | |||||
|---|---|---|---|---|---|---|---|---|
| except for par value per | Number | Par value | Total | Share | Treasury | translation | earnings | |
| share expressed in euros) | of shares | per share | par value | premium | shares | adjustment and net income | Equity | |
| Balances at January 1, 2010 | 28,495,514 | 0.97 | 27,641 | 1,033 | (1,439) | (8,585) | 6,039 | 24,689 |
| Net income (loss) | 4,354 | 4,354 | ||||||
| Other comprehensive income (loss) | (644) | 99 | (545) | |||||
| Comprehensive income (loss) | (644) | 4,453 | 3,809 | |||||
| Fair value of stock options | 7 9 |
7 9 |
||||||
| Sale (purchase) of treasury shares | 161 | 161 | ||||||
| Profit (loss) on treasury shares | (107) | (107) | ||||||
| Balances at June 30, 2010 | 28,495,514 | 0.97 | 27,641 | 1,033 | (1,278) | (9,229) | 10,464 | 28,630 |
| Balances at January 1, 2010 | 28,495,514 | 0.97 | 27,641 | 1,033 | (1,439) | (8,585) | 6,039 | 24,689 |
| Net income (loss) | 15,647 | 15,647 | ||||||
| Other comprehensive income (loss) | (292) | 682 | 390 | |||||
| Comprehensive income (loss) | (292) | 16,329 | 16,037 | |||||
| Exercised stock options | 3,500 | 0.97 | 3 | 5 | 9 | |||
| Fair value of stock options | 193 | 193 | ||||||
| Sale (purchase) of treasury shares | 1,053 | 1,053 | ||||||
| Profit (loss) on treasury shares | 5 1 |
5 1 |
||||||
| Balances at December 31, 2010 | 28,499,014 | 0.97 | 27,644 | 1,039 | (386) | (8,877) | 22,612 | 42,032 |
| Net income (loss) | 8,792 | 8,792 | ||||||
| Other comprehensive income (loss) | (253) | 423 | 170 | |||||
| Comprehensive income (loss) | (253) | 9,215 | 8,962 | |||||
| Exercised stock options | 385,046 | 0.97 | 373 | 1,414 | 1,788 | |||
| Fair value of stock options | 5 8 |
5 8 |
||||||
| Sale (purchase) of treasury shares | (60) | (60) | ||||||
| Profit (loss) on treasury shares | 261 | 261 | ||||||
| Dividends paid | (5,164) | (5,164) | ||||||
| Balances at June 30, 2011 | 28,884,060 | 0.97 | 28,018 | 2,453 | (446) | (9,130) | 26,982 | 47,876 |
Lectra was established in 1973 and has been listed on NYSE Euronext (compartment C) since 1987. Lectra is the world leader in software, CAD/CAM equipment and related services dedicated to largescale users of textiles, leather and industrial fabrics. Lectra addresses a broad array of major global markets, including fashion (apparel, accessories, and footwear), automotive (car seats and interiors, airbags), and furniture, as well as a wide variety of other industries, such as the aeronautical and marine industries, wind turbines, personal protective equipment, etc.
The company's technology offering is geared to the specific needs of each market, enabling its customers to design, develop and manufacture their products (garments, seats, airbags, etc.). For the fashion industry, Lectra's software applications also enable the management of collections and cover the entire product lifecycle (Product Lifecycle Management, or PLM). Lectra forges long-term relationships with its customers and provides them with full-line, innovative solutions.
The Group's customers comprise large national and international corporations and medium-sized companies. Lectra helps them to overcome their major strategic challenges: e.g., cutting costs and boosting productivity; reducing time-to-market; dealing with globalization; developing secure electronic communications across the supply chain; enhancing quality; satisfying the demand for masscustomization; and monitoring and developing their corporate image and brands. The Group markets end-to-end solutions comprising the sale of software, CAD/CAM equipment and associated services (technical maintenance, support, training, consulting, sales of consumables and spare parts).
With the exception of certain products for which the company has formed long-term strategic partnerships, all Lectra software and equipment is designed and developed in-house. Equipment is assembled from sub-elements produced by an international network of subcontractors, and tested in the company's main industrial facilities in Bordeaux–Cestas (France) where most of Lectra's R&D is performed.
Lectra's strength lies in the skills and experience of its nearly 1,350 employees worldwide, encompassing expert R&D, technical and sales teams with deep knowledge of its customers' businesses.
The Group has been present worldwide since the mid-1980s. Based in France, the company serves 23,000 customers in more than 100 countries through its extensive network of 30 sales and services subsidiaries, which are backed by agents and distributors in some regions. Thanks to this unrivalled network, Lectra generated 92% of its revenues directly in 2010. Its five International Call Centers, at Bordeaux–Cestas (France), Madrid (Spain), Milan (Italy), Atlanta (U.S.A.) and Shanghai (China) cover Europe, North America and Asia. All of the company's technologies are showcased in its International Advanced Technology & Conference Center at Bordeaux–Cestas (France) for Europe and international visitors, and its two International Advanced Technology Centers at Atlanta (U.S.A.) for North and South America, and Shanghai (China) for Asia and the Pacific. Lectra is geographically close to its customers wherever they are, with nearly 750 employees dedicated to marketing, sales and services. It employs 210 engineers dedicated to R&D, and 160 employees in industrial purchasing, assembly and testing of CAD/CAM equipment, and logistics.
Lectra's business model comprises two types of revenue streams:
In addition, the business model is geared to generating free cash flow in excess of net income assuming utilization or receipt of the annual research tax credit applicable in France.
The consolidated financial statements are compliant with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Boards as adopted within the European Union, and available for consultation on the European Commission website:
The condensed consolidated financial statements at June 30, 2011 have been prepared in accordance with IAS 34 – Interim Financial Statements. They do not comprise all of the financial disclosures required in the complete annual financial statements and should be read in conjunction with the Group's consolidated financial statements and attached notes for the fiscal year 2010, available on the company's website (www.lectra.com).
They have been prepared in accordance with the same rules and methods as those applied in the preparation of the 2010 financial statements. They have been prepared under the responsibility of the Board of Directors at its meeting of July 28, 2011. They have been the subject of a limited review by the Statutory Auditors; the second quarter financial statements have not been reviewed separately.
The standards and interpretations adopted by the European Union as of January 1, 2011 had no impact on the Group's financial statements, i.e.:
The Group has not adopted, before they became mandatory, any standards or interpretations whose application is not required for fiscal years starting January 1, 2011. It does not expect their adoption to have a material impact on the financial statements.
Comparability of the Group's interim and annual accounts may be affected by the slightly seasonal nature of the Group's business, which mostly achieves a higher level of revenues during the fourth quarter of the year. This notably applies to sales of new software licenses and CAD/CAM equipment. Moreover, overhead costs are reduced during the third quarter due to the summer holidays in France and in European subsidiaries. These two items have a positive impact on the income from operations of those quarters.
Comparisons identified as ―like-for-like‖ correspond to 2011 figures restated at 2010 exchange rates, in comparison with actual data for 2010.
Preparation of the financial statements in accordance with IFRS demands that certain critical accounting estimates be made. Management is also required to exercise its judgment in applying the Group's accounting policies. Although such estimates are made in a particularly uncertain environment, the Group's business model supports their relevance.
The areas involving a higher degree of judgment or complexity, or requiring material assumptions and estimates in relation to the consolidated financial statements, concern goodwill impairment and deferred taxation. The Group has reviewed its cash generating units (CGU) and has found no indication of any impairment of assets.
Revenues from sales of hardware are recognized when the significant risks and benefits relating to ownership are transferred to the purchaser.
For hardware, or for software in cases where the company also sells the computer equipment on which the software is installed, these conditions are fulfilled upon physical transfer of the hardware in accordance with the contractual sale terms.
For software not sold with the hardware on which it is installed, these conditions are generally fulfilled at the time of installation of the software on the customer's computer (either by CD-Rom or downloading).
Revenues from software evolution contracts and recurring services contracts are booked monthly over the duration of the contracts.
Revenues from the billing of services not covered by recurring contracts are recognized at the time of performance of the service or, where appropriate, on a percentage of completion basis.
Cost of goods sold comprises all purchases of raw materials included in the costs of manufacturing, the change in inventory and inventory write-downs, all labor costs included in manufacturing costs which constitute the added value, freight-out costs on equipment sold, and a share of depreciation of the manufacturing facilities.
Cost of goods sold does not include salaries and expenses associated with service revenues, which are included under ―Selling, General and Administrative Expenses‖.
The technical feasibility of software and hardware developed by the Group is generally not established until a prototype has been produced or until feedback is received from its pilot sites, conditioning their commercialization. Consequently, the technical and economic criteria that render the recognition of R&D costs in assets at the moment they occur are not met, and R&D costs are therefore expensed in the year in which they are incurred.
The (French) research tax credit (crédit d'impôt recherche) as well as grants linked to R&D projects, if any, are deducted from R&D expenses.
Basic net earnings per share are calculated by dividing net income by the weighted-average number of shares outstanding during the period, excluding the weighted average number of treasury shares.
Diluted net earnings per share are calculated by dividing net income by the weighted-average number of shares adjusted for the dilutive effect of stock options outstanding during the period and excluding the weighted average number of treasury shares held.
The dilutive effect of stock options is computed in accordance with the share repurchase method provided in the revised version of IAS 33. The assumed proceeds from exercise of stock options are regarded as having been used to repurchase shares at the average market price during the period. The number of shares thus obtained is deducted from the total number of shares resulting from the exercise of stock options.
Only options with an exercise price below the said average share price are included in the calculation of the number of shares representing the diluted capital.
The non-current portion of borrowings and financial debt comprises the portion due in more than one year of:
The current portion of borrowings and financial debt comprises:
Borrowings and financial debts are recognized initially at fair value.
At balance sheet date, borrowings and financial debt are stated at amortized cost using the effective interest rate method, defined as the rate whereby cash received equals the total cash flows relating to the servicing of the borrowing. Interest expenses on the bank loans and on the utilization of cash credit facilities are recognized as financial expenses in the income statement.
Free cash flow is equal to net cash provided by operating activities minus cash used in investing activities—excluding cash used for acquisitions of companies (net of cash acquired).
Operating segment reporting is based directly on the company's performance tracking and review systems. The operating segments presented in note 6 are identical to those covered by the information regularly communicated to the Executive Committee, in its capacity as the company's ―chief operating decision maker‖.
Operating segments refer primarily to the marketing regions in the sense of the regions whose performance is reviewed by the Executive Committee. The regions concerned are: the ―Americas‖, ―Europe‖, ―Asia-Pacific‖, and the ―Rest of the World‖, where the company operates chiefly in Northern Africa, South Africa, Turkey, Israel, and the Middle East. These regions are involved in sales and the provision of services to their customers. They do not perform any industrial activities or R&D. They draw on centralized competencies and a wide array of functions that are pooled among all of the regions, including marketing, communication, logistics, procurement, finance, legal affairs, human resources, information systems, etc. All of these cross-divisional activities are reported as an additional operating segment referred to here as the ―Corporate‖ segment.
Performance is measured by the segment's income from operations before non-recurring items and impairment of assets, if any. Marketing regions derive their revenues from external customers; all inter-segment billings are excluded from this item. The gross profit margin rates used to determine operating performance are identical for all regions. They are computed for each product line and include value added supplied by the Corporate segment. Consequently, for products or services supplied in full or in part by the Corporate segment, a percentage of consolidated gross profit is retained in the income computed for the Corporate segment sufficient to cover its costs. Because the Corporate segment's general overheads are mainly fixed costs, its gross profit and consequently its income from operations therefore depend mainly on the volume of business billed by these regions.
At June 30, 2011, the Group's scope of consolidation comprised Lectra S.A. together with 25 fullyconsolidated companies.
There were no changes in the scope of consolidation during the first-half 2011.
Five sales and service subsidiaries are not consolidated, their revenues being immaterial both separately and in the aggregate. At June 30, 2011, their combined revenues totaled €0.8 million, and their combined assets in their statement of financial position totaled €2 million. They had no non-Group financial debt. Most of these subsidiaries' sales activity is billed directly by the parent company, Lectra SA.
Transactions with these related parties mainly refer to purchases from the parent for the purposes of their local activity, or to expenses and commissions billed to the parent in order to cover their operating costs when acting as an agent. The amount concerned by these transactions was not material in the first half of 2011.
| Three Months Ended June 30 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Changes 2011/2010 | ||||||
| (in thousands of euros) | Actual | At 2010 exchange rates |
Actual | Actual | Like-for-like | |||
| Revenues | 52,353 | 54,916 | 48,871 | +7% | +12% | |||
| Cost of goods sold | (15,806) | (16,050) | (13,538) | +17% | +19% | |||
| Gross profit | 36,547 | 38,866 | 35,333 | +3% | +10% | |||
| (in % of revenues) | 69.8% | 70.8% | 72.3% | -2,5 points | -1,5 point | |||
| Research and development | (3,082) | (3,082) | (2,594) | +19% | +19% | |||
| Selling, general and administrative expenses | (26,045) | (26,781) | (27,383) | -5% | -2% | |||
| Income (loss) from operations | 7,420 | 9,003 | 5,356 | +39% | +68% | |||
| (in % of revenues) | 14.2% | 16.4% | 11.0% | +3,2 points | +5,4 points | |||
| Profit (loss) before tax | 6,814 | 8,399 | 3,839 | +77% | +119% | |||
| Income tax | (1,690) | na | (1,108) | +53% | na | |||
| Net income (loss) | 5,124 | na | 2,731 | +88% | na |
| Six Months Ended June 30 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Changes 2011/2010 | ||||||
| (in thousands of euros) | Actual | At 2010 exchange rates |
Actual | Actual | Like-for-like | |||
| Revenues | 102,129 | 104,069 | 91,833 | +11% | +13% | |||
| Cost of goods sold | (30,228) | (30,360) | (25,691) | +18% | +18% | |||
| Gross profit | 71,901 | 73,709 | 66,142 | +9% | +11% | |||
| (in % of revenues) | 70.4% | 70.8% | 72.0% | -1,6 point | -1,2 point | |||
| Research and development | (6,019) | (6,019) | (5,121) | +18% | +18% | |||
| Selling, general and administrative expenses | (53,001) | (53,398) | (52,680) | +1% | +1% | |||
| Income (loss) from operations | 12,881 | 14,292 | 8,341 | +54% | +71% | |||
| (in % of revenues) | 12.6% | 13.7% | 9.1% | +3,5 points | +4,6 points | |||
| Profit (loss) before tax | 12,069 | 13,481 | 5,923 | +104% | +128% | |||
| Income tax | (3,277) | na | (1,569) | +109% | na | |||
| Net income (loss) | 8,792 | na | 4,354 | +102% | na |
| Three Months Ended June 30 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2011 | Changes 2011/2010 | ||||||||
| Actual | % | At 2010 | Actual | % | Actual | Like-for-like | |||
| (in thousands of euros) | exchange rates | ||||||||
| Europe, of which : | 25,318 | 48% | 25,343 | 24,099 | 49% | +5% | +5% | ||
| - France | 5,771 | 11% | 5,771 | 4,642 | 9% | +24% | +24% | ||
| Americas | 9,930 | 19% | 11,114 | 10,417 | 21% | -5% | +7% | ||
| Asia-Pacific | 13,910 | 27% | 15,224 | 11,033 | 23% | +26% | +38% | ||
| Other countries | 3,195 | 6% | 3,235 | 3,323 | 7% | -4% | -3% | ||
| Total | 52,353 | 100% | 54,916 | 48,872 | 100% | +7% | +12% |
| Three Months Ended June 30 | |||||||
|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Changes 2011/2010 | |||||
| Actual | % | At 2010 | Actual | % | Actual | Like-for-like | |
| (in thousands of euros) | exchange rates | ||||||
| Software, of which : | 13,884 | 27% | 14,402 | 13,941 | 29% | 0% | +3% |
| - New licenses | 6,608 | 13% | 6,923 | 6,400 | 13% | +3% | +8% |
| - Software evolution contracts | 7,276 | 14% | 7,479 | 7,541 | 16% | -4% | -1% |
| CAD/CAM equipment | 16,433 | 31% | 17,754 | 13,219 | 27% | +24% | +34% |
| Hardware maintenance and on-line services | 8,559 | 16% | 8,806 | 9,117 | 19% | -6% | -3% |
| Spare parts and consumables | 10,990 | 21% | 11,411 | 10,109 | 21% | +9% | +13% |
| Training and consulting services | 2,349 | 4% | 2,403 | 2,334 | 5% | +1% | +3% |
| Miscellaneous | 138 | 0% | 140 | 152 | 0% | -9% | -7% |
| Total | 52,353 | 100% | 54,916 | 48,872 | 100% | +7% | +12% |
| Three Months Ended June 30 | |||||||
|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Changes 2011/2010 | |||||
| Actual | % | At 2010 | Actual | % | Actual | Like-for-like | |
| (in thousands of euros) | exchange rates | ||||||
| Revenues from new systems sales(1) | 25,527 | 49% | 27,220 | 22,104 | 45% | +15% | +23% |
| Recurring revenues(2), of which : | 26,826 | 51% | 27,696 | 26,768 | 55% | 0% | +3% |
| - Recurring contracts | 15,354 | 29% | 15,794 | 16,192 | 33% | -5% | -2% |
| - Other recurring revenues on the installed base | 11,472 | 22% | 11,902 | 10,576 | 22% | +8% | +13% |
| Total | 52,353 | 100% | 54,916 | 48,872 | 100% | +7% | +12% |
(1) Revenues from sales of new systems comprise sales of new software licenses, CAD/CAM equipment, PC's and peripherals, and related services.
(2) Recurring revenues fall into two categories :
- software evolution, hardware maintenance and online support contracts, which are renewable annually,
- revenues from sales of spare parts and consumables, and one-off interventions, on the installed base, which are statistically recurrent.
| Six Months Ended June 30 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Changes 2011/2010 | ||||||
| Actual | % | At 2010 | Actual | % | Actual | Like-for-like | ||
| (in thousands of euros) | exchange rates | |||||||
| Europe, of which : | 51,816 | 51% | 51,696 | 47,338 | 52% | +9% | +9% | |
| - France | 10,877 | 11% | 10,877 | 9,410 | 10% | +16% | +16% | |
| Americas | 19,993 | 20% | 21,036 | 20,249 | 22% | -1% | +4% | |
| Asia-Pacific | 24,764 | 24% | 25,773 | 18,819 | 20% | +32% | +37% | |
| Other countries | 5,556 | 5% | 5,564 | 5,427 | 6% | +2% | +3% | |
| Total | 102,129 | 100% | 104,069 | 91,833 | 100% | +11% | +13% |
| Six Months Ended June 30 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Changes 2011/2010 | ||||||
| Actual | % | At 2010 | Actual | % | Actual | Like-for-like | ||
| (in thousands of euros) | exchange rates | |||||||
| Software, of which : | 28,046 | 27% | 28,391 | 26,601 | 29% | +5% | +7% | |
| - New licenses | 13,446 | 13% | 13,696 | 11,799 | 13% | +14% | +16% | |
| - Software evolution contracts | 14,600 | 14% | 14,695 | 14,802 | 16% | -1% | -1% | |
| CAD/CAM equipment | 30,471 | 30% | 31,689 | 23,610 | 26% | +29% | +34% | |
| Hardware maintenance and on-line services | 17,176 | 17% | 17,266 | 17,960 | 20% | -4% | -4% | |
| Spare parts and consumables | 21,354 | 21% | 21,622 | 19,074 | 21% | +12% | +13% | |
| Training and consulting services | 4,838 | 5% | 4,856 | 4,276 | 5% | +13% | +14% | |
| Miscellaneous | 244 | 0% | 245 | 312 | 0% | -22% | -22% | |
| Total | 102,129 | 100% | 104,069 | 91,833 | 100% | +11% | +13% |
| Six Months Ended June 30 | |||||||
|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Changes 2011/2010 | |||||
| Actual | % | At 2010 | Actual | % | Actual | Like-for-like | |
| (in thousands of euros) | exchange rates | ||||||
| Revenues from new systems sales(1) | 49,001 | 48% | 50,486 | 39,997 | 44% | +23% | +26% |
| Recurring revenues(2), of which : | 53,128 | 52% | 53,583 | 51,836 | 56% | +2% | +3% |
| - Recurring contracts | 30,889 | 30% | 31,074 | 31,850 | 35% | -3% | -2% |
| - Other recurring revenues on the installed base | 22,239 | 22% | 22,510 | 19,986 | 22% | +11% | +13% |
| Total | 102,129 | 100% | 104,069 | 91,833 | 100% | +11% | +13% |
(1) Revenues from sales of new systems comprise sales of new software licenses, CAD/CAM equipment, PC's and peripherals, and related services.
(2) Recurring revenues fall into two categories :
- software evolution, hardware maintenance and online support contracts, which are renewable annually,
- revenues from sales of spare parts and consumables, and one-off interventions, on the installed base, which are statistically recurrent.
| Six Months Ended June 30 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | Changes 2011/2010 | ||||||
| Actual | % | At 2010 | Actual | % | Actual | Like-for-like | ||
| (in thousands of euros) | exchange rates | |||||||
| Fashion (apparel, accessories, footwear) | 29,808 | 61% | 30,417 | 22,251 | 56% | +34% | +37% | |
| Automotive | 13,994 | 29% | 14,764 | 9,535 | 24% | +47% | +55% | |
| Furniture | 2,531 | 5% | 2,509 | 2,799 | 7% | -10% | -10% | |
| Other industries | 2,668 | 5% | 2,796 | 5,412 | 14% | -51% | -48% | |
| Total | 49,001 | 100% | 50,486 | 39,997 | 100% | +23% | +26% |
| As at June 30, 2011 (in thousands of euros) |
Europe | Americas | Asia Pacific |
Other countries |
Corporate segment |
Total |
|---|---|---|---|---|---|---|
| Revenues | 51,816 | 19,993 | 24,764 | 5,556 | - | 102,129 |
| Income (loss) from operations before non-recurring items | 5,007 | (31) | 744 | 719 | 6,442 | 12,881 |
| As at June 30, 2010 | Asia | Other | Corporate | |||
| (in thousands of euros) | Europe | Americas | Pacific | countries | segment | Total |
| Revenues | 47,338 | 20,249 | 18,819 | 5,427 | - | 91,833 |
| Income (loss) from operations before non-recurring items | 3,627 | (526) | 142 | 661 | 4,437 | 8,341 |
Income from operations, which is obtained by adding together the income for each segment, is identical to consolidated income from operations shown in the Group's consolidated financial statements and therefore does not require reconciliation.
| Cash and | Net cash (+) | |||
|---|---|---|---|---|
| (in millions of euros) | cash equivalent | Financial debts | Net debt (–) | |
| Free cash flow before non-recurring items | 9.3 | - | 9.3 | |
| Non-recurring items included in free cash flow | (0.9) | - | (0.9) | |
| Proceeds from issuance of ordinary shares(1) | 1.8 | - | 1.8 | |
| Sale and purchase of treasury shares(2) | 0.3 | - | 0.3 | |
| Dividends paid | (5.2) | - | (5.2) | |
| Change in borrowings | (4.3) | 4.3 | - | |
| Impact of currency variations - other | (0.1) | - | (0.1) | |
| Change in cash position for the period | 0.9 | 4.3 | 5.2 | |
| Cash and cash equivalents at December 31, 2010 | 30.2 | (32.6) | (2.4) | |
| Cash and cash equivalents at June 30, 2011 | 31.0 | (28.3) | 2.8 | |
| Change in cash position for the period | 0.9 | 4.3 | 5.2 |
(1) Resulting solely from the exercise of stock options.
(2) Carried out solely under the Liquidity Agreement administered by SG Securities (Société Générale) in the framework of the stock buyback program approved by the April 30, 2010 and April 29, 2011 General Shareholders' Meetings.
Free cash flow at June 30, 2011 amounts to €8.4 million.
Excluding the disbursements of non-recurring items (corresponding to the costs of restructuring measures deployed at the end of last year and provisioned in the 2010 financial statements), free cash flow was €9.3 million. This figure results from a combination of €10.7 million in cash flows provided by
operating activities (out of which an increase in working capital requirement of €1.9 million) and of €1.4 million in capital expenditures.
The main variations are:
The total increase in working capital requirement, including €0.9 million of non-recurring items, amounted to €2.8 million.
As approved by the Shareholders' Meeting of April 29, 2011, the company declared a dividend of €0.18 per share in respect of fiscal year 2010, representing a total amount of €5.2 million, which was paid on May 10, 2011.
See note 23 to the 2010 consolidated financial statements for a detailed discussion of this dispute.
In June 2005, Lectra initiated arbitration proceedings against Induyco (a member of the Spanish group El Corte Inglés), the former shareholder of Investronica Sistemas, following the acquisition of this company. Under the stock purchase agreement signed on April 2, 2004, the parties agreed that any disputes arising out of the stock purchase agreement would be finally settled by international arbitration under the Rules of the International Chamber of Commerce in London, England.
In its decision of October 21, 2009, the international arbitral tribunal awarded Lectra €21.7 million (plus interest):
Induyco refused to honor the award, which was binding on it under international law, and commenced an action in England to set aside the award (the London High Court of Justice dismissed this action in its entirety and denied leave to appeal). Induyco also commenced proceedings in Spain to prevent Lectra from recovering the amounts due to it under the award.
Following the September 20, 2010 decision of the Madrid Court of Appeals, Lectra called on the first demand bank guarantees provided by Induyco and received €15.1 million.
In view of Induyco's persistent refusal to pay the outstanding €10.8 million still due, Lectra commenced an action of exequatur before the Madrid Court of First Instance at the end of December 2010, in order to enforce in Spain the arbitral award and recover the remaining amounts owed by Induyco.
In its decision of exequatur issued on June 27, 2011, the Madrid Court of First Instance recognized the arbitral award rendered against Induyco in October 2009 by the International Arbitral Tribunal. The Madrid Court of First Instance has thus recognized the award is valid and enforceable in Spain and rejected Induyco's challenge to exequatur.
The decision just rendered by the Madrid Court of First Instance, against which Induyco has appealed, represents a major milestone in the settlement of this dispute. It reinforces Lectra in its commitment to vigorously enforce its rights and to recover the full amount due to it under the award.
In the 2010 consolidated financial statements, the receipt of €15.1 million resulted in a €6.1 million reduction in goodwill and a net non-recurring gain of €3.3 million resulting from a non-recurring gain of €9 million less legal costs (€5.7 million) previously recognized in other current assets.
Induyco having appealed the June 27, 2011 decision, this decision does not modify the accounting of the award in the company's financial statements: the balance (€10.8 million) of the total amount of the award (€25.9 million) was not recorded in the financial statements and will only be recorded upon its receipt.
As all of the costs incurred by Lectra have already been paid, execution of the arbitral decision will result in a cash inflow equal to the balance of the award still owed by Induyco.
Under the Liquidity Agreement administered by SG Securities (Paris), during first half of 2011, the company purchased 88,279 shares and sold 158,541 shares at an average purchase price of €5.85 and €5.35 respectively.
Consequently, at June 30, 2011, the company held 73,478 Lectra shares (or 0.3% of share capital) with an average purchase price of €6.07 entirely under the Liquidity Agreement.
In 2007, the company contracted a €48 million medium-term bank loan from Société Générale and Natixis in order to finance the public stock buyback tender offer for 20% of the company's share capital, carried out in May 2007, at a price of €6.75 per share.
The first two half-yearly installments of €3.8 million each were repaid on June 30 and December 31, 2010. Additionally, and in light of its sharply improved cash position in the course of 2010, the company made a voluntary repayment of €10 million on December 31, 2010, ahead of the scheduled repayment date. This voluntary repayment replaced the contractual half-yearly installments due in respect of 2011, which are consequently reduced to €0.6 million at December 31, 2011.
A supplemental repayment of €3.8 million took place on June 30, 2011 pursuant to the excess cash flow clause in the loan contract, in virtue of the sharp increase in cash and cash equivalents as at December 31, 2010.
The balance outstanding on the loan, i.e. €25.9 million, is repayable in four half-yearly installments as from June 30, 2012—the first two for €5.3 million each (on June 30 and December 31, 2012), the following one for €9.6 million (June 30, 2013) and the last one for €5.8 million (on December 31,
2013). Repayments may be scheduled to accelerate relative to this timetable, under the terms of the contract, depending on the increase of cash and cash equivalents at December 31, 2011.
Moreover, the contract provides for accelerated repayment of the portion actually collected of the arbitral award against Induyco. The receipt of €15.1 million in 2010 has not given rise to early repayment, the threshold above which this clause applies not having been reached in regard to the aggregate legal fees and costs incurred by Lectra since the start of the proceedings, these being deducted from the indemnity received for the purpose of calculating a repayment, if applicable. On the other hand, receipt of the balance of the arbitral award (€10.8 million) still owed by Induyco will give rise to early repayment amounting to almost 50% of the total amount to be received.
The repayment dates of the borrowing used in the table in note 10.2 are the contractual payment dates, at the latest without taking into account the accelerated repayments under the various contract clauses concerned.
Further, the company is bound during the period of the loan to respect at December 31 of each year the covenants governing the ratios between its net financial borrowing and shareholders' equity (―gearing‖) on the one hand, and between net financial borrowing and EBITDA (―leverage‖) on the other. A loan covenant provides for early repayment of the loan in its entirety in the event of failure to comply with these ratios; in that event the company would recontact its banks in order to come to a satisfactory arrangement.
The ratios to be respected at December 31 of each year until the maturity of this loan are as follows:
| 2011 | 2012 | |
|---|---|---|
| Leverage | < 1.7 | < 1.7 |
| Gearing | < 1 | < 1 |
The ratio of net financial borrowing to shareholders' equity (gearing) and the leverage ratio were both equal to 0.1 for fiscal year 2010. The company considers that it will be in compliance with both covenants at December 31, 2011.
At the same time, the loan contract entitles the banks to demand early repayment of the balance of the loan outstanding under a ―change of control‖ clause in the event that one or more of the company's shareholders, acting in concert—with the exception of André Harari and/or Daniel Harari—came to hold more than 50% of the share capital and/or voting rights.
Furthermore, the company has undertaken to limit its capital expenditures to €10 million per year and the dividends distributed to 50% of the consolidated net income for the year elapsed, subject to certain conditions (if less than 50% of consolidated net income for a given year has been distributed, the difference relative to 50% may be distributed in subsequent years). Payment of the total dividend of €5.2 million in respect of fiscal 2010 is consistent with this condition.
The loan carries interest at the 3-month Euribor rate plus a margin that was set at 1.85% per year as from January 1, 2009. As provided under the contract, this margin was reduced to 0.95% per year as from January 1, 2011 given the leverage ratio of fiscal year 2010.
The company hedged in 2007 its interest-rate risk exposure on part of the loan by converting this floating rate into a fixed rate via two interest-rate swaps (see note 11 below). The total effective interest rate after including the cost of the hedging instruments and amounts hedged is 5.72% in firsthalf 2011.
At June 30, 2011, the repayment schedule is as follows:
| Short term | Long term | |||
|---|---|---|---|---|
| Less than | Between 1 | More than | ||
| (in thousands of euros) | 1 year | and 5 years | 5 years | Total |
| Bank loan | 5,840 | 20,640 | - | 26,480 |
| Interest-free repayable advances (1) | 496 | 1,296 | - | 1,792 |
| Cash facilities | - | - | - | - |
| Total | 6,336 | 21,936 | - | 28,272 |
(1) The repayable advances correspond to public grants to finance R&D programs.
The €14 million in cash facilities outstanding at December 31, 2010 expired in June 2011. The company did not intend to renew these cash facilities, in light of the cash surplus available to it.
Based on cash and cash equivalents available at June 30, 2011, total liquidity available to the company amounted to €31 million. Net cash therefore totaled €2.8 million (versus net financial borrowings of €2.4 million at December 31, 2010).
As stated in note 10 above, the company has hedged its exposure to the interest-rate risk on part of the €48 million medium-term bank loan, converting the floating rate payable on the loan (3-month Euribor rate) into a fixed rate via two interest-rate swaps contracts. The interest-rate has been hedged on the basis of the best estimate of the amount of the loan over the different periods covered, having due regard to the contract terms.
Since the face value of these swaps remains lower than the face value of the loan, they meet the hedge accounting criteria as defined by IFRS. Their fair value at June 30, 2011 is a negative €0.5 million. The effective portion, corresponding to their full fair value, is entirely recognized in shareholders' equity. No ineffective part has been booked in net financial expenses during the first half 2011.
As at January 1, 2011, the nominal value of interest-rate swaps has been reduced to €30 million. This amount has been reduced to €18 million at July 1, 2011, and will be reduced to €13 million at January 1, 2012, and €5 million at July 1, 2012 and until December 31, 2012, when the swaps expire.
Consequently, and in the theoretical event that the 3-month Euribor rate remains identical to that at July 26, 2011 (1.62%), the total effective implied interest rate including the cost of the hedging instruments and the amounts hedged would be 4.73% in the second half of 2011, 4.18% in the first half of 2012, 3.36% in the second half of 2012, and 2.60% in 2013.
The Group's exposure to currency risks and its currency risk management policy are unchanged relative to December 31, 2010.
During the first half of 2011, the average dollar/euro parity was \$1.40/€1.
Exchange risk hedging instruments at June 30, 2011 are comprised of forward sales or purchases of foreign currencies (mainly U.S. dollars, Canadian dollars, Japanese yen, and British pounds) for a net total equivalent value (sales minus purchases) of €1 million, intended to hedge existing positions.
On January 7, 2011, the company has hedged its exposure to the U.S. dollar for the first quarter of 2011 by means of forward sales at a parity of \$1.29/€1. These forward sales have given rise to a €0.4 million foreign exchange gain in the Q1 2011 financial statements. The company has not hedged its exposure beyond that period.
Under the company's business model, each €1 million increase (or decrease) in revenues from new systems sales results in a rise (or fall) in income from operations of approximately €0.45 million.
The average parity assumed for the 2011 budget was \$1.35/€1 (versus an actual parity of \$1.33/€1 in 2010 and \$1.40/€1 in the first half of 2011).
The average euro / dollar parity assumed for the second half is \$1.45/€1. Given the estimated share of revenue and expenses denominated in dollars or in currencies correlated with the dollar, an average rise of \$0.05 in the dollar against the euro (bringing the parity from \$1.45/€1 to \$1.40/€1) would mechanically increase second-half revenues by around €1.3 million and income from operations by €0.8 million. Conversely, a \$0.05 fall in the dollar against the euro (bringing the average parity to \$1.50/€1) would reduce revenues and income from operations by the same amounts. These amounts take into consideration an increase in the portion of revenues denominated in dollars compared to the company's estimates of the beginning of the year.
A tax audit has been ongoing since June 2010 at the parent company, Lectra SA, concerning fiscal years 2008 and 2009, and was completed in the first quarter of 2011. The tax arrears notified by the tax authorities to the company chiefly concern the (French) research tax credit. Their amount is not deemed material and was fully provisioned at December 31, 2010.
PricewaterhouseCoopers Audit KPMG SA « Crystal Park » Domaine de Pelus 63, rue de Villiers 11, rue Archimède 92208 Neuilly-sur-Seine 33692 Mérignac Cedex
This is a free translation into English of the Statutory Auditors' review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
16-18, rue Chalgrin 75016 Paris
To the Shareholders,
In compliance with the assignment entrusted to us by Shareholders' meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier) , we hereby report to you on:
These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review.
We conducted our review in accordance with professional standards applicable in France except as explained in the following paragraph. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have not reviewed the consolidated statement of income for the second quarter of the year 2011 and the comparative second quarter 2010 figures.
Based on our review, and subject to the limitation referred to in the previous paragraph, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information.
We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. At the exception of the possible impact of the fact mentioned above, we have no other matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements.
Neuilly-sur-Seine and Mérignac, July 28, 2011
The Statutory Auditors
French original signed by
PricewaterhouseCoopers Audit SA KPMG SA
Bruno Tesnière Anne Jallet-Auguste Eric Junières
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