Annual Report • Apr 28, 2009
Annual Report
Open in ViewerOpens in native device viewer
André Harari and Daniel Harari Jérome Viala Véronique Zoccoletto
fashion automotive furniture other industries
company history a transnational company products and services strategy and business model key fi gures shareholder information
By developing and marketing innovative technology solutions specifically designed for industries working with textiles, leather, industrial fabrics, and composites, Lectra has grown over the past 35 years into a €200 million, transnational company revolutionizing major world markets such as the fashion, automotive, and furniture industries. The world leader in its field, Lectra, based in Paris, France, serves 23,000 customers in more than 100 countries and is listed on the Euronext Paris stock exchange. Enriching the expertise of its 1,500 employees year after year and developing long-term, value-adding relationships with its customers, Lectra provides industryspecific software, hardware, consulting, and related services. Lectra's integrated technology offer is the ultimate CAD/CAM solution, specifically developed for each individual market. Its software ranges from design to pattern-making, 3D prototyping, and more recently to PLM for the fashion industry. Its high-performance automated knife and laser cutters benefit from unrivalled technological advances, making them the most powerful, efficient, and "intelligent" cutting machines in the world. Lectra can be found in every soft materials market across the globe, from formal footwear to sports shoes, high-end apparel and luxury leather goods, to car seats and interiors, upholstered living room suites, wind turbines, personal protective equipment, and more. Since its beginning, Lectra has been helping customers streamline and improve quality and productivity while reducing costs and time-to-market, facilitating collaborative work and secure data exchanges. Today, the need for the enhanced performance offered by Lectra has never been greater. Distinguished for its five key values—leadership, entrepreneurship, excellence, customer care, and innovation—Lectra is perfectly geared for the future as well as the present.
In the challenging conditions of the unprecedented worldwide economic crisis, our results held up well in 2008, due to the effective measures we have taken and our solid business model which, combined with our many assets, should enable us to emerge from this diffi cult period stronger.
André Harari: For Lectra, as for all companies, 2008 was an atypical year due to the outbreak of the global crisis. Conditions had been steadily worsening even before the fi nancial system was shaken in September. The uncertainties were already
accumulating in number as early as July. Then, at the beginning of autumn, the fi nancial, stock market, and banking crisis took an unprecedented turn for the worse. The direct consequence of this was a further, brutal deterioration of the economy in all our sectors of activity
2
André Harari, Chairman of the Board of Directors
Daniel Harari, Chief Executive Offi cer the world over. Caught up in this downward spiral, companies were fully subjected to a slowdown of their business activities, on a scale rarely seen in many decades. In these exceedingly unusual circumstances, our revenues and earnings—albeit well below our expectations—resisted as a result of the effi cacy of the measures we have taken as well as of the solidity of our business model. Daniel Harari: At €7 million, income from operations fell only 9% relative to 2007, despite a 6% drop in revenues. This performance can be credited to the speed and effectiveness of the cost-cutting measures we introduced as early as July 1 and reinforced in September, and of course to our robust business model. Our net income came to €3.2 million. Free cash fl ow was negative at €4.8 million, but it would have been a positive €5.1 million and superior to net income had certain temporary factors been absent. When you look at our sales curve over the year, you can see it clearly headed downward quarter after quarter. The decline in orders for new software licenses and CAD/CAM equipment reached 31% over the year and 48% in the fourth quarter. We've never seen anything like it. The situation is very tough for our customers. Regardless of their country or sector of activity, the
economic downturn has forced them to cut back or halt production, and above all to suspend their investments. When you watch your fi nancial performance decline, your bank credit collapse, and your outlook darken, you reduce investments to a bare minimum and take drastic actions to cut costs.
Daniel Harari: Apprehension and hesitation have spread and gained in strength, and there is great uncertainty as to the depth and the duration of the crisis. At this time, nobody knows when it will end, and everyone is essentially playing by ear. Of course, we are seeing a few niches of opportunity through all this. Some customers are competitive enough to win market share from their competitors. And in some rare markets, activity could stay brisk. But regardless of these opportunities, which are relatively mild in any case, we need to be prepared for a diffi cult year in 2009. Not only are we ready to confront these conditions, we intend to emerge strengthened from this period.
André Harari: Pragmatically, with determination and perseverance. Today we have an extremely robust business model. In recent years, we have sharply boosted the volume and share of recurring revenues in our total revenues. In 2008, they proved that they do make an essential contribution to business stability. Daniel Harari: The fi rst source of these revenues is our subscription contracts—software evolution contracts, CAD/CAM equipment maintenance contracts, and online support contracts via our fi ve International Call Centers. These contracts concern approximately two-thirds of Lectra's 23,000 customers and account for 33%
of our revenues. The second source is the sale of spare parts and consumables, which account for another 18% of our activity. We market an integrated technological offer, unmatched in reach and performance and responding to all the needs of each customer. Our solutions, specifi c to each market sector, benefi t from a vigorous research and development program. But equally important, we also offer services enabling those customers to make the most of our solutions and optimize their investments over the long term. I'd like to stress the expansion of our training and consulting activities in 2008.
We provide our customers with global high value-added solutions geared to the specifi c needs of their sectors, vital for boosting their performance and competitiveness.
André Harari: In tandem with our business model, the defi ning strengths underlying this unmatched offer and the expertise of our teams propelled us ten years ago to global leadership, while at the same time bolstering our fi nancial fundamentals. This has enabled us to safeguard our assets in this diffi cult period, and to hold to our course. Even so, we have cut our fi xed overhead costs again and are constantly on the lookout for ways to adapt to the changing conditions on a daily basis. Our two immediate imperatives are to protect the company's fi nancial position in the short term and to limit its exposure to risks.
Daniel Harari: Fixed overheads were reduced by 7% in 2008 compared to our initial budget, representing a decline of 3% compared to 2007. Measures taken starting in July include, in particular, the suspension of our recruitment plan, not systematically replacing all departures, the eradication of temporary work missions, and the termination of certain subcontracting contracts. We have managed to safeguard jobs until now. Management and all our teams are fi ghting together for the company. Lectra has a huge amount of human capital, and its preservation has always been a priority for us. That was a prime consideration in our decision to
not delocalize production to China, unlike some of our competitors. We preferred to invest heavily in research and development to bring out a new generation of equipment at the beginning of 2007, with manufacturing costs below those of the previous generation. Those companies which did choose to delocalize must be regretting that decision now, since the rise of wages in China and the appreciation of the RMB have neutralized any advantage that they could have hoped to obtain. At this time, our manufacturing costs are competitive while our offer represents more advanced technology and greater added value.
We have also kept practically all our research teams in France, which has enabled us to capitalize on our accumulated expertise while preserving our intellectual property. André Harari: In addition, our borrowings are set to fall. Under the French government's economic stimulus plan, the €14 million research tax credit owed by the State will be paid to us in full in the fi rst half of 2009. We are also expecting the International Court of Arbitration of the International Chamber of Commerce to issue its decision before the end of the second quarter, bringing to a close the procedure Lectra initiated against Induyco in 2005 after our acquisition of Investronica. Our fi nancial situation is solid. Our 2009 action plan is benefi ting directly from recent efforts to improve our operating ratios. And the dollar's appreciation, if it lasts, will produce two positive effects: the fi rst is mechanical, boosting our revenues and income from operations; the second is competitive, as our main competitor is American.
André Harari: Given the lack of visibility, it must be understood that we have opted to not formulate an outlook for 2009. Our plan, however, is the result of exploring all types of action possible. On the one hand, we intend to continue to reduce our fi xed overhead expenses, further boost our security ratio, return to signifi cant positive free cash fl ow, and preserve our margins. On the other hand, we have mobilized all the teams towards sales and customer satisfaction, favoring a strong, rapid rebound of orders
for new systems as soon as the situation allows. Our management teams are committed and accountable. Daniel and I have a large stake in the company, holding 40% of the capital and ensuring the stability of the shareholding. The turmoil dragging down our stock price is hurting us as much as the rest of our shareholders. We strive to protect and foster the value of our company over the long term.
Daniel Harari: Diffi cult times are also an opportunity to focus on what works best: that's why we are re-centering on our priorities. The Group's managers are concentrating on building high value-added sales which offer the best service to the customer.
André Harari: More broadly, our relational value player strategy and the pertinence of our solutions will enable us to benefi t fully from the economic upturn as soon as it begins to occur. In fact, more than ever, the companies in our market sectors and regions will need to invest in vital technologies to reinforce their competitiveness. Our history is evidence of Lectra's resilience. All companies have to contend with diffi culties at some time or other, and our past trials have helped us mature, consolidate, and move forward. They have taught us to confront adversity while holding to our convictions. That's what gives us confi dence for the future, once the crisis is over. The key objectives of our strategic plan remain unchanged.
We reacted very quickly and took measures immediately that were paramount to tackling this crisis, with immediate effect starting January 1, 2009.
Jérôme Viala: Once again, our business model showed its full strength. Although revenues from new systems sales registered a drop of 14%, recurring revenues rose 2%. The latter suffered from a slight decline in sales of spare parts and consumables due to the steep downturn in our customers' activities at the end of 2008—coming after nearly 10% annual growth in recent years. However, these revenues were sustained by the 4% rise in recurring subscription contracts, and they alone account for 33% of total revenues.
Jérôme Viala: This temporary situation is already behind us. Our net fi nancial debt at December 31, 2008, was €56.4 million, with borrowings of €66.5 million and €10.2 million in available cash. €48 million of these borrowings correspond to the medium-term loan contracted to fi nance the public stock buyback tender offer in 2007, the accretive aim of which has not yet materialized. €16.9 million stems from the use of cash facilities necessitated by the temporary increase in our working capital requirement. This particular situation will improve signifi cantly in 2009 because, as a result of the French government's economic
stimulus plan, we will collect the full €14 million in research tax credits, from 2005 to 2008, in the fi rst semester.
Jérôme Viala: 2009 will be a tough year for Lectra, as it will be for many companies the world over. We have consequently lowered our breakeven point—i.e., the amount of revenues from new systems sales needed to achieve a net income of zero by 25% compared to 2007. This will be achieved by cutting our fi xed overhead costs by €12.5 million, or 10% relative to the initial budget for 2008, like for like. We have also increased our security ratio —the coverage of annual fi xed overhead costs by the gross margin generated on recurring revenues—by 4 percentage points relative to 2008 and by 7 points relative to 2007, to reach 72% as of January 1, 2009. We will nonetheless have to cut our fi xed overhead costs even further if the impact of the crisis proves deeper still and the economic conditions signifi cantly worsen.
Jérôme Viala, Chief Financial Offi cer, member of the Executive Committee
Véronique Zoccoletto: This crisis has led us to vigorously pursue and step up the implementation of our ambitious company transformation plan initiated in 2005. This metamorphosis towards an even higher-performance model means that our organizations must adapt to the ever-faster evolving needs of our markets while increasing our training efforts and recruitment quality. At the same time, we are streamlining our business processes in order to boost productivity.
Véronique Zoccoletto, Chief Human Capital Offi cer, Chief Information Offi cer, member of the Executive Committee
is the forefront of our success: now more than ever, it continues to be our primary asset and our strength.
Véronique Zoccoletto: To respond to the strategic challenges of our customers, the development of sales of high value-added solutions and of large projects is a priority. This is why we are making sure we are optimizing skills management, from R&D to the sales and service teams, so as to stretch the expertise of those teams to the maximum and to share their experience with other teams, thereby guaranteeing ultimate performance throughout the world. Enhancing the value of our teams is essential to crossing the crisis and effectively addressing the recovery period. One of our strengths is our solid capacity to anticipate and to react. Up until now, we have been able to maintain jobs, which has always been a priority for us. Our human capital
Véronique Zoccoletto: A capacity for resilience is one of Lectra's defi ning characteristics. Although times are particularly diffi cult right now, our managers and their teams stand shoulder to shoulder, mobilized to face the crisis together, fully determined to seize this situation as an opportunity and to emerge from it strengthened. All are keenly aware of a collective challenge: doing all we can to cut costs, bolster our operating ratios, and continuously improve the effi ciency and performance of our organization, while growing sales and preparing for their rebound as soon as the crisis is over. Since October 2008 we have involved Group managers in developing the company's 2009 action plan to arm them with the means to rally their own teams around a version of the plan geared to their specifi c geography. The entire company fully understands, without a doubt, the objectives that we have set and how we will achieve them.
To provide each customer with the benefi ts of high value-added, innovative solutions and expert teams, Lectra has enacted its "pure player" strategy. Dedicated to industries that use soft materials (textiles, leathers, industrial fabrics, and composite materials), Lectra maximizes the synergy among its different markets to respond to their specifi c, individual needs while developing long-term relationships. Lectra serves sectors where innovation is a key differentiating factor—fashion, automotive, furniture, and a wide range of others, such as the aeronautical, marine, and wind power industries. In its 35 years of existence, it has never ceased to innovate, so that all these industries may benefi t from the most advanced technologies. Lectra's investment in R&D has been far greater than that of its competitors.
The current economic climate is now, more than ever before, forcing fashion companies to control the costs of development and production and reduce time-to-market. To help them reach this strategic objective, Lectra, with a leadership built on 35 years of close partnerships with the fashion industry, offers them automated cutting solutions that generate material savings of up to 10% and can increase productivity by up to 60%. Furthermore, Lectra's integrated technological solutions for design, pattern-making, and prototyping enable them to reduce development costs and time, unleash greater creativity, increase responsiveness, and perpetuate their brand universe. Companies can thus satisfy the expectations of consumers looking for new ranges of original, high-quality models at attractive prices, every four to six weeks.
To renew their collections while remaining loyal to their fundamental identities, fashion companies must exercise their creative liberties within the scope of their respective, established brand images and design assets. The force of Lectra's technological solutions is found in their capacity to accelerate the visualization of ideas in a virtual environment, thereby increasing the number of creative options and possibilities that may be explored. It is also found in the instant access designers now have to their brand's model archives, which enables them to draw on the company's design culture and continue to invent its future while maintaining respect for its past. It is no coincidence that 80% of European luxury ready-towear companies use Lectra's design or pattern-making solutions.
The powerful automatic marker-making algorithms in Lectra's DiaminoFashion have brought us signifi cant material savings, up to 3%. We've been able to realize a Lectra's technology has enabled us to profi ts, and be more competitive.
Jean-Luc Lando, Head of IT Systems for Collection Development, Groupe Chantelle, France
Reducing time-to-market. Lectra's pattern-making and prototyping solutions have been the industry standard among the biggest names in apparel for more than 30 years. These solutions shorten the development process for all types of garments—men's wear, women's wear, children's wear, lingerie, and corsetry, as well as uniforms and work clothing. Manufacturers have the power to make product launch decisions corresponding to the most recent trends and consumer demands, thereby limiting the risks of running out of stock or ending up with unsold products.
Lectra Fashion PLM and Kaledo Collection have enabled us to streamline our processes, making our work both more effi cient and more consistent. Now we can focus on chasing business more. Our whole team is excited about the opportunities that Lectra is bringing to our company.
Cathy Thorpe, President, Please Mum, Canada
We have a reputation for high technology, production speed, and quality in the manufacturing of bags, packs, luggage, and sporting products for world-renowned customers such as Coach, Montblanc, Eastpak, and adidas. When potential clients hear that we cut using Lectra equipment, they are always very impressed and feel more confi dent signing a contract with us, knowing they can rely on our quality and delivery commitment.
Sahng Lee, Vice President, Pungkook Corporation, Korea
The world's leading luxury brand, since 1854 the name Louis Vuitton has been synonymous with the art of traveling in style. In 1987, Louis Vuitton became part of the French conglomerate LVMH Moët Hennessy-Louis Vuitton, the world's number one luxury group, headed up by Bernard Arnault. Since 1997, with the arrival of designer Marc Jacobs, the brand has branched out into women's and men's ready-towear apparel, footwear, watches, jewelry, and glasses. Combining artisanal know-how with intuition and innovation, the brand offers a comprehensive range for the art of living. Louis Vuitton now has a network of 430 boutiques across the globe. Through our partnership with Lectra we have devised an integrated approach to our design and production processes. The core of the system and of the method is based on Lectra's solutions, which are currently being adapted and implemented to suit the needs of Louis Vuitton's management and workshops.
ACCESSORIES
Emmanuel Mathieu, Head of Manufacturing, Franck Le Moal, Head of IT Systems, Louis Vuitton Malletier, France
Optimizing production By introducing intelligence into the cutting room, Lectra optimizes and streamlines spreading, marker-making, and cutting operations, thereby maximizing the use of raw materials. At the core of these operations is Lectra's automated cutter, available in specifi c versions designed for the needs of each market, from massproduced jeans to small-run luxury lingerie, with a constant standard of productivity and quality. Integrated Smart Services ensure the reliability of the equipment and minimize machine downtime, in particular through a direct link with Lectra's experts based in its Call Centers.
FOOTWEAR
15
Streamlining processes. Incorporating business and process applications, Lectra's collaborative software platform is the only one on the market specifi cally developed for the fashion industry. It enables more participants to communicate a greater volume of data in real time, facilitating interaction among the company's marketing, design, pattern-making, production, and management teams, even if they are thousands of kilometers apart and separated by language and cultural barriers.
The automotive sector is among those most affected by today's diffi cult economic situation, at a time when the industry has already been going through a phase of profound change. As a result, major international players are being forced to make increased efforts to ensure their survival or retain their market share, while increasing their productivity, fl exibility, and competitive edge.
As partner to the largest auto makers and equipment manufacturers, Lectra offers the most comprehensive technological response for the design and production of car seats, interiors, and airbags. Covering 3D development and automated cutting, Lectra's solutions generate signifi cant material savings, supporting fl exible production methods adapted to shorter runs. They are specifi c to each type of material, whether fabrics, leathers, or airbag textiles. In addition to lowering costs, these solutions help shorten time-to-market for new models and guarantee the high level of quality imposed by contractors and consumers.
When we introduced the complex-shaped infl atable curtain airbags, Lectra responded to this challenge with a sophisticated vision-based cutting system for One Piece Woven airbags which has perfectly met our needs. Lectra has made a veritable contribution to our productivity and our competitiveness in this highly competitive automotive environment. We appreciate the support and cooperation we have received from Lectra. They show great understanding for our products and our challenges.
Lars-Eric Florberger, Director of Special Projects Autoliv Textiles, Autoliv, Sweden
17
We chose Lectra because it provides a whole process solution which offers great fl exibility and ease of use. Since implementing Lectra's leather cutting solution, CLS Auto, we have seen an increase in productivity of between 5% and 8%. In addition, Lectra's experts have trained our workers to be effi cient with the solution in less than two weeks.
Ulrich Sandmeyer, Product Engineering Manager, Zenda, Germany
The upholstered furniture market is currently affected by a fundamental trend refl ecting a demand for product customization, model diversifi cation, and rapid collection renewal. At the same time, companies must remain conscious of the increasing obligation to be more competitive and productive in order to strengthen their position, faced with the growing numbers of evermore aggressive competitors. Lectra's business expertise and technological know-how set it apart from others in its fi eld in terms of creativity, productivity, and responsiveness. By speeding up the crucial prototyping phase, its 3D technology gives users the opportunity to rapidly multiply the number of variants for a basic model. It also facilitates decision-making, as close to the production phase as possible. Lectra's automated cutting solutions, specialized for different types of materials, fabrics, or leathers, yield material savings, accelerate the rate of production, and guarantee high quality standards.
We recently presented two of our models made using Lectra's DesignConceptFurniture at a trade show, and we were very satisfi ed with the end result. The effi ciency of this powerful 3D software is really impressive. Our pattern templates made with this solution are 100% accurate, something that is noticeable from the very fi rst physical prototype. We no longer have fl aws to correct, and quality has improved. Problems with fabric stress which can occur in a manual development process have been eliminated—all such problems are corrected on-screen when the virtual model is being developed. DesignConceptFurniture gives us greater precision, and the result is an improvement in the quality of our products.
Pierre Wegnez, Head of Design, Research, and
Mobitec, Belgium
With Lectra's MFC Furniture automated leather cutting solution we are attaining new levels of leather optimization unlike anything we have reached before, and we are producing faster and at constant levels of quality without additional costs. At Poltrona Frau, where quality is crucial, we can count on Lectra to help maintain our solid leadership and reputation for excellence.
Daniele Pelliccioni, Production Director, Poltrona Frau, Italy
20
Lectra other industries
The extensive range of Lectra's solutions present a value-creating potential which has been embraced by a number of industries using soft materials. Adapted to the technical constraints of a wide variety of materials, including industrial fabrics, composites, foams, and vinyls, these solutions respond to the needs of the marine, aeronautical, and energy (wind turbine blades) sectors. They also extend to manufacturers of sporting and leisure goods, as well as of personal protective equipment, such as bullet-proof vests. Lectra's innovative and high-performance solutions enable each sector to increase technological lead, shorten time-to-market, ensure production quality and precision, diversify models, manage feasibility conditions for decision-making purposes, and reduce development and production costs.
AERONAUTICAL
We trust Lectra with the pivotal starting point of our composites production process—the design and the cut. The quality of our entire process depends on these crucial initial steps. With DesignConceptTechTex, DiaminoTechTex, and the VectorTechTex FX, we can feel confi dent that we are meeting the industry challenges of producing high-quality fuselages and other composite aviation structures for Airbus, Dassault Aviation, and other major aircraft manufacturers, while respecting their deadlines.
Vincent Colonna d'Istria, Production Manager, Corse composites aéronautiques, France
Photograph: Engineered and manufactured by global subcontracting by Corse composites aéronautiques.
Since acquiring Lectra solutions, Suzlon has been able to rise above the challenges of company expansion while maintaining its reputation for innovation, timeliness, and quality. We are satisfi ed with our choice of Lectra as technology partner.
Sanjiv Tipnis, Vice President of Operations, Suzlon, India
leadership: as the world leader, Lectra has always strived to be the best. entrepreneurship: 35 years after its creation, Lectra has preserved its fundamentally entrepreneurial spirit. excellence: at Lectra, the quest for excellence in all domains is a permanent objective, both individually and collectively. customer care: Lectra constructs long-term relationships with its customers based on trust, because only partnerships built on such a foundation can create value. innovation: beyond technological research, Lectra views innovation as a global undertaking and has made its pursuit the driving force of its business model and competitiveness.
In an ever-changing world ever-changing world, over the last 35 years, Lectra has never wavered in its commitment to development and innovation, continually taking initiatives to anticipate change and increase its leadership to become Number One worldwide. Unique on today's market, Lectra's offer has expanded and improved over time. Now, with a comprehensive product range that responds to the specifi c needs of each customer, Lectra enables companies to overcome their biggest strategic challenges. At every step in its development, Lectra has demonstrated its resilience.
1973
Two visionary engineers create the company, originally named Lectra Systèmes, near Bordeaux, France.
1976
The fi rst computer-aided design (CAD) system for apparel pattern-making and grading is sold. Lectra employs fewer than 10 people and has revenues of €0.25 million when the founders meet André Harari, a pioneer of venture capital in France. He raises the capital necessary to implement the company's business development plan. His investment fi rm, Compagnie Financière du Scribe, becomes Lectra's second-biggest shareholder.
In 1977, Lectra gains a foothold in Spain and Japan. The fi rst international subsidiary is opened in Germany, followed in 1982 by offi ces in Spain, Great Britain, Italy, and the U.S. Lectra has since opened
31 subsidiaries worldwide and developed its relationships with 23,000 customers in more than 100 countries. Lectra's unique sales and services network is a major advantage for its customers.
1985
Lectra enters the fi eld of computer-aided manufacturing (CAM) with the launch of its fi rst automated fabric cutting system.
Initial public offering.
1986
Lectra is established as the world leader in CAD solutions for the apparel industry. Its offer and international presence already respond to needs created by economic globalization.
1990
Lectra is hit by a serious fi nancial crisis. The company risks closure. In December, André Harari and Daniel Harari, who have been minority shareholders since 1977 through their investment fi rm, Compagnie Financière du Scribe (which merged with Lectra in 1998), propose a rescue plan.
André Harari and Daniel Harari recapitalize the company and take over its management. This new team immediately implements a recovery plan followed by a strategic redeployment, transforming the company's business model and propelling it to worldwide leadership.
The company begins restructuring. Lectra launches an extensive R&D program to renew its entire product range. It accelerates geographical expansion and moves into new market sectors, including furniture, automobile, aeronautics, and footwear. In 1995, Lectra becomes joint world leader in CAD/CAM software and hardware.
After 25 years of internal growth, Lectra makes its fi rst targeted acquisitions, thus reinforcing and developing the company's design software offer and customer base.
Lectra becomes Number One worldwide. To mark this development, in 2001 Lectra Systèmes changes its name to Lectra and opens its fi rst International Call Center.
Facing worsening global economic conditions, Lectra once again takes drastic measures to reestablish solid operating fundamentals.
A new comprehensive technology offer is completed and includes the most widely used design software solutions on the market and laser cutters for the production of airbags. Intrinsically linked to these solutions, Lectra's services offer, both international and local, is the most extensive on the market.
Lectra acquires the Spanish company Investronica Sistemas (Number Three worldwide), along with a Canadian company specialized in laser cutting and a German leather-cutting specialist.
The end of textile quotas boosts the company's evolution in line with its new strategic challenges and mid-term development opportunities.
Lectra launches its PLM solution, specially developed for the management of product and collection lifecycle in the fashion industries, to which it offers the benefi t of its fashion expertise through comprehensive consultancy services.
The result of fi ve years of research and development and a total investment of nearly €50 million, Lectra's new technology offer is unveiled at Lectra World 2007. Lectra further extends its leadership with the launch of its range of Smart Services. It also reinforces its education partnerships. Lectra carries out a successful public stock buyback tender offer for 20% of its capital stock.
A global economic and fi nancial crisis on an unprecedented scale affects all Lectra market sectors and geographic markets. Demonstrating once again its resilience, Lectra reinforces its fi nancial fundamentals and implements an action plan with the aim of emerging from the global crisis stronger than ever.
Two essential values make up the foundations of Lectra's philosophy: uncompromising ethics in conducting its business activities and the respect of each individual. As for diversity, there is no need for Lectra to even insist on this point, as it has been, since the creation of the company itself, one of its most essential characteristics. Well beyond just banning all forms of discrimination, diversity represents a vital force in the company. Lectra's teams, working in 35 different countries and representing 55 different nationalities and of all ages and origins, open Lectra's doors together every day, drawing supplemental sources of creativity and strength from their differences.
€198 million in revenues
A commitment to education
Lectra recognizes the responsibilities that come with worldwide leadership status and translates them into concrete commitments. One of these commitments is to furthering education. To help prepare students for their future professional lives, Lectra has developed partnerships with more than 680 schools in 30 countries. Contracts are specially adapted to suit the pedagogical methods of each institution. In addition to providing teachers and students with the latest technologies, Lectra offers opportunities for internships and real-world working experiences and supports end-ofstudy projects. In addition, a special space has been dedicated to the world of education on lectra.com.
55 nationalities
Lectra databook
31 sales and services subsidiaries
23,000 customers in more than 100 countries
With an unparalleled international network, Lectra has a privileged relationship with major brands and manufacturers worldwide. Sharing its customers' vision over their markets, Lectra accompanies them wherever they may be in the world—Europe, North and South America, Asia-Pacifi c, and elsewhere. In addition to the advantages offered by its specialized expertise in their specifi c sectors, Lectra's customers benefi t, in these geographic markets, from the experience and know-how of both its local and international teams. In each country, Lectra's customers can rely on the group's experts to bring projects to a successful conclusion, reinforce their position, continually improve their productivity, and help them overcome the challenges of operating in a globalized economy.
27
220 R&D engineers
120 experts in 5 International Call Centers
190 consultants, trainers, and business and solutions experts
partner schools and universities
Lectra is the only player on the market able to offer all industries using soft materials such a wide range of solutions and services adapted to the specifi cities of each sector. Lectra's offer covers the entire development and production cycle. For the fashion industry, it includes a specifi c offer for collection cycle management and performance dashboard monitoring.
Lectra's solution for designing fabrics and styles, Kaledo, provides designers with an intuitive and user-friendly working environment for proposing, testing, modifying, and developing variations on creative ideas, while respecting the brand's design capital. Created with the specifi cities of each profession in mind, Kaledo gives all participants in the collection development process real-time access to information through very realistic visual simulations. An innovative offer, Kaledo signifi cantly accelerates creativity and the development cycle to overcome the constraints of the fast fashion business model.
Lectra's pattern-making solutions have been the industry standard for the biggest names in apparel worldwide for more than 25 years. Modaris and PGS cover the entire development chain: on-screen pattern creation, modifi cation of existing patterns, digitization, industrialization, verifi cation of constructions, grading in all sizes and morphologies, pre-production, and more. They are compatible with all types of apparel. Their information exchange capacities with other CAD systems on the market make these applications essential for companies working online in an extended business organization. Modaris 3D Fit enables users to visualize the fi t of a garment and test all its possible variations in terms of materials and colors.
Lectra provides its customers with more than 190 professional trainers and consultants who bring together their pedagogical know-how, product expertise, and business knowledge. They are dedicated to delivering specially tailored training programs to help customer teams acquire and develop all the skills they need to get the most out of their Lectra solutions.
In the ongoing interest of accompanying its customers through their development and evolution, Lectra's team of specialists is available to analyze their particular business issues and identify the Lectra technologies that will best meet their needs. With solid expertise in the fashion, automotive, and furniture industries, Lectra's consultants draw on proven experience in design, development, and manufacturing to carry out accurate evaluations and deliver assessments with recommendations for change management and project implementation.
For major international automotive accounts, Lectra provides special worldwide consulting teams who ensure a global approach and provide consistently solid expertise to support the implementation of new Lectra solutions throughout each customer's network of sites across the globe. Users are thus able to constantly optimize the performance of their industrial processes.
Specifi c to the footwear and accessories industries, Romans Cad is the most advanced solution on the market, cutting collection development time in half. Completely oriented to each activity in the product development process, it unites advanced technological expertise with the traditional skills of designers and pattern makers. Through the simulation of virtual 3D models, users' creative horizons are broadened, and productivity and competitiveness are improved through the reduction of costs and numbers of required physical prototypes. Dimension verifi cation functions and features that facilitate fl attening enable users to specify a model's measurements quickly and simply, all the while guaranteeing quality.
DesignConcept offers users a full range of functions, enabling them to create virtual models, develop templates, analyze feasibility, anticipate costs, and fl atten 3D designs into 2D pattern pieces ready for cutting. As a result, fewer prototypes are necessary, and decision-making is improved while manufacturing and lead times are reduced. DesignConcept is available in three versions— Auto, TechTex, and Furniture, each specifi cally adapted to the needs and constraints of seat and interiors production for the automotive, aeronautical, and marine industries and for those of the furniture industry.
At the very core of Lectra's intelligent cutting room is Optiplan management software, the key link in a chain of different technological sytems and operations: pattern-making, marker-making, spreading, and cutting. Optiplan enables users to develop a unique, high-performance process which ensures that operations run smoothly and that quality and costs are optimally controlled.
Lectra's advanced technological solutions for the creation of cut-ready markers, Diamino and MGS, offer all the advantages of interactive and automatic marker-making, taking the material and complexity of each model to be cut into account. In association with very precise management of the constraints of different fabrics, products, and markets—fashion, footwear, furniture, and industrial fabrics the solutions' powerful algorithms are defi ning new limits in material savings and productivity.
Lectra's automatic spreaders, Progress Brio, guarantee the highest quality spreading of materials to be cut. Connected to CAD software, Progress Brio can be programmed to function automatically for continuous production with excellent management of fl aws and a high level of fl exibility. Material savings are guaranteed, regardless of the type of fabric and spreading method.
Lectra's strength lies in the specialization of its automated cutting offer. Uniquely engineered according to industry sector, production type, level of complexity, or even the thickness of the material to be cut (denim, lingerie, or industrial fabrics), each model of cutter has its own specifi c characteristics.
The new generation of Vector cutters, introduced in 2007, is unparalleled on today's market and consists of three different ranges:
− the entry-level offer consists of the Vector FP, M55, and M88 lines. Even these cutters are higher performance than almost all other machines on the market;
− the more productive Vector FX, MH, and MH8 lines guarantee constant quality even when cutting the most diffi cult materials. They come with built-in Smart Services;
− the Vector MX and MX9 lines ensure productivity, quality, and an unequaled return on investment for mass production.
Developed in response to an increase in the quantity and different types of airbags used in vehicles, the FocusAirbag OPW (One Piece Woven) laser-cutting solution manages and automatically adjusts its cutting path. With its scanning vision system, this technology ensures a better quality of cut pieces. The FocusAirbag OPW is used by all market leaders and their sub-contractors.
Lectra has more than 300 engineers and experts able to maintain customer equipment and software both on-site and at a distance through remote control in real time, working out of its fi ve internally managed International Call Centers. These high value-added services enable customers to secure and maximize their return on investment through user assistance, preventive and reparative maintenance, and the optimization of design, product development, and even production processes. They guarantee a signifi cant increase in productivity by optimizing the customer's use of equipment.
Lectra's new cutting solutions come equipped with Smart Services—onboard intelligence which monitors the machines in real time, updates pilot software, and runs the machine's preventive maintenance program, as well as performing an array of other high value-added functions. A permanent communication link between the equipment and experts in Lectra's fi ve International Call Centers enables the company's teams to resolve most potential problems remotely and without delay.
30
® Kaledo, Modaris, Optiplan, Diamino, Progress, Vector, ProSpin and Focus are registered trademarks of Lectra SA, France. ® Romans Cad is a registered trademark of Stratégies SA, France.
Lectra's specially developed solutions for automated leather cutting take the specifi c constraints generated by the complex structure of this material into consideration—for example, grain, visible and invisible fl aws, thickness, etc. Cutting can be carried out either by automatic marker-making of CAD-developed pieces on a digital image of the hide or by direct projection onto the hide itself.
Romans Cad Data Management is the only comprehensive PDM solution entirely dedicated to the footwear and leather goods sector. With new 3D imaging functions and electronic transmission capacities, it cuts the time needed to create a collection in half by enabling decision-makers, designers, suppliers, and customers to share information in real time.
A highly fl exible cutting system, the ProSpinFashion ST is specifi cally intended for prototyping and small runs. The equipment is entirely modular and consists of a single-ply cutter with a fi xed table. Available in a variety of widths and lengths, this machine adapts to different working environments.
The expansive reach and specialized content of Lectra Fashion PLM make it an unprecedented performance accelerator for fashion professionals. Vastly multifunctional, it facilitates the management of business processes, task execution, collaborative work, and optimal collection management throughout the lifecycle of each product from a designer's initial ideas to a fi nished product, ready to be marketed. It is the only PLM solution to integrate applications dedicated to process management —notably for managing the product design and development—with market-leading business applications for design (Kaledo), pattern-making (Modaris and PGS), physical and virtual 3D prototyping (Modaris 3D Fit), and markermaking (Diamino and MGS).
Lectra's Product Data Management Gallery and PM Web solutions are particularly suited to small and medium-sized companies. They enable users to centralize, structure, and share detailed, visual product data, thus reducing the number of iterations involved in the modifi cation of prototypes. Gallery automatically generates status reports on style and product line development for verifi cation and monitoring purposes. This application integrates perfectly with each company's other installed tools. Using Internet technology, PM Web allows a company's internal contributors and external partners to share product information in real time, throughout the entire supply chain.
Lectra's development is based on a clear strategy and on a robust, sustainable business model.
Inherent risks in Lectra's business are naturally hedged by their spread across: •major market sectors: fashion, automobile, furniture, and many other industries with decorrelated cycles;
• the entire world: Lectra does business on all fi ve continents, benefi tting from their dissimilar growth patterns;
•23,000 customers, none representing more than 3% of total revenues;
• a broad products and services offer,
with no product taking a predominant share in new systems sales.
Consequently, except in times of severe economic crisis, the different risks balance each other.
Lectra's business model is based on its two revenue components:
•revenues from new systems sales (sales of new software licenses, CAD/CAM equipment and related services), the company's growth driver;
•recurring revenues, resulting from subscription contracts (software evolution, CAD/CAM equipment maintenance, and online support contracts), together with statistically recurring revenues on the installed base (i.e., sales of spare parts and consumables, and one-off maintenance interventions).
In addition, the free cash fl ow generated exceeds net income.*
Each €1 million change up (or down) in revenues from new systems sales results in a rise (or fall) in income from operations of approximately €0.4 million (base 2009).
The euro/dollar parity has a double direct impact:
• mechanical: a \$0.05/€1 variation would result in an increase (if the dollar rises) or a decrease (if the dollar falls) in revenues of €2 million and of €1 million in income from operations (base 2009);
• competitive: Lectra's main competitor is American, so a weak dollar versus the euro penalizes Lectra.
Recurring revenues are key to the company's stability and provide a cushion against hostile economic conditions.
A \$0.05/€1 variation would result in an increase (if the dollar rises) or a decrease (if the dollar falls) in revenues of €2 million and of €1 million in income from operations (base 2009).
An increased security ratio Lectra's security ratio has been rising steadily, with a rise of 7 percentage points in two years, reaching 72%.
The breakeven point has fallen by €24 million (–25%) in two years, from €97 million to €73 million.
The security ratio is a key performance indicator of Lectra's management. This measures the coverage of annual fi xed overhead costs by gross profi t on recurring revenues. 95% of contractual recurring revenues are known from the start of the year. Revenues from subscription contracts have grown naturally at a rate of between 5% and 7% in previous years, and revenues from spare parts and consumables have been growing at close to 10%. These increases stem from the large number of customers (more than 15,000) having signed subscription contracts, and from the scale of the installed base of software licences and CAD/CAM equipment.
Complementing the security ratio, the breakeven point measures the amount of revenues from new systems sales Lectra needs to generate in the year to achieve a net income equal to zero.
With the order backlog at January 1, 2009 (€9.1 million), down sharply (– €10.7 million) relative to January 1, 2008, the 2009 action plan adjusts fi xed overhead costs to ensure that breakeven is achieved if orders for new software licenses and CAD/CAM equipment in 2009 are down 15% compared to 2008 (representing a decline of 42% relative to 2007). This would result in revenues of €178 million and an income from operations of €1.7 million.
A persistent strengthening of the dollar would have two positive effects for Lectra: it would have a mechanical impact on its revenues and income from operations, and it would bolster its competitiveness.
2008 was a year of economic and fi nancial crisis. Across all our markets, cost-cutting and frozen investments led to a 31%* fall in orders for new systems, after growing 11%* in 2007. Revenues fell 6%* to €198.1 million. Income from operations held up well, falling 9%* to €7 million—achieved thanks to recurring revenues of €103.4 million and cost-cutting measures. Over the past fi ve years, the dollar's decline has mechanically depressed revenues by 5%* and income from operations by 45%.* Over the same period, Lectra generated an aggregate €34.5** million in free cash fl ow and invested €87 million in R&D.
* At constant exchange rates. ** Excluding non-recurring items.
| Revenues | |
|---|---|
| By type of business | |
| Software | 30% |
| CAD/CAM equipment | 28% |
| Services (training, consulting, hardware maintenance, online services) |
23% |
| Spare parts and consumables | 18% |
| Other | 1% |
| By region | |
| Europe | 60% |
| Americas | 17% |
| Asia-Pacifi c | 17% |
| Other countries | 6% |
| By market sector* | |
| Fashion | 61% |
| Automotive | 19% |
| Furniture | 7% |
| Other industries | 13% |
* Revenues from new systems sales.
Revenues
(in millions of euros)
• New systems sales • Recurring revenues
Income from operations* (in millions of euros) * Before non-recurring items.
Free cash fl ow
(in millions of euros) Free cash fl ow 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). * Before non-recurring items.
(in millions of euros) * Public stock buyback tender offer for 20% of its capital stock issued in 2007.
Research and development (in millions of euros)
Before research tax credit and R&D grants deduction.
• Other investments
* Public stock buyback tender offer for 20% of its capital stock issued in 2007.
| in millions of euros(1) | 2008 | 2007 | 2006 | 2005 | 2004 |
|---|---|---|---|---|---|
| Revenues | 198.1 | 216.6 | 216.1 | 211.2 | 208.5 |
| Income from operations before non-recurring items(2) | 7 | 11.2 | 17.5 | 9.7 | 12.2 |
| Income from operations after non-recurring items(2) | 7 | 10.2 | 17.3 | (9.5) | 12.2 |
| Net income | 3.2 | 5.8 | 12.1 | (12.3) | 6.1 |
| Free cash fl ow before non-recurring items | (3.2) | (1.9) | 15.4 | 8.3 | 16.1 |
| Free cash fl ow after non-recurring items | (4.8) | (8.3) | 5.7 | 7.6 | 16.1 |
| Shareholders' equity(3)(4) | 28.1 | 26.3 | 72.2 | 67 | 86.4 |
| Net cash (+) / net fi nancial debt (–)(3)(4) | (56.4) | (50.8) | 8.7 | 10.2 | 19.4 |
| Research & development(5) | 18.3 | 17.4 | 18.7 | 18 | 14.9 |
| Capital expenditure | 3.6 | 5.3 | 9.5 | 5.7 | 4.2 |
| Number of employees(3) | 1,518 | 1,551 | 1,496 | 1,532 | 1,500 |
(1) Except for earnings per share (in euros).
(2) The (French) research tax credit (crédit d'impôt recherche) is deducted from R&D expenses in the Group fi nancial statements
and has been included in income from operations since 2007. This change has been restated in the 2004-2006 fi nancial statements for purposes of comparison.
(3) At December 31. (4) In 2007, Lectra carried out a public stock buyback tender offer for 20% of its capital stock, fi nanced by a €48 million medium-term bank loan. (5) Before deduction of research tax credit and grants for R&D programs.
Revenues (in millions of euros) • Impact of currency fl uctuations • At actual exchange rates* 198.1 04 08 12.2 12.8 7 5.8 (– 45%)
Evolution at constant exchange rates Base: 2004 average exchange rates
208.5 209.6
11.5 (– 5%)
35
| In euros | 2008 | 2007 | 2006 | 2005 | 2004 |
|---|---|---|---|---|---|
| Share price – high | 5.8 | 6.5 | 6.24 | 5.94 | 8.45 |
| Share price – low | 2.63 | 5.15 | 4.14 | 3.51 | 4.35 |
| Share closing price(1) | 3.25 | 5.75 | 5.53 | 4.54 | 5 |
| Shareholders' equity per share(1) | 0.99 | 0.92 | 2.02 | 1.84 | 2.27 |
| Net cash (+)/debt (-) per share(1) | (1.98) | (1.78) | 0.24 | 0.28 | 0.51 |
| Earnings per share(2) | |||||
| • Basic | 0.11 | 0.19 | 0.34 | (0.34) | 0.17 |
| • Diluted | 0.11 | 0.18 | 0.34 | (0.34) | 0.16 |
| Number of shares(1) (3) | 28.5 | 28.5 | 35.8 | 36.4 | 38 |
| Market capitalization(1) (4) | 92.6 | 163.7 | 197.8 | 165.3 | 190.1 |
| Annual volume traded(4) (5) | 17 | 56.5 | 43.5 | 51 | 89.6 |
| Annual volume traded(3) (5) | 5 | 9.5 | 8.3 | 11.4 | 13.9 |
(1) At December 31.
(2) Earnings per share on basic capital are calculated using the weighted average number of shares.
(5) Source Euronext Paris.
Net income for 2008 is insuffi cient to pay a dividend in respect of that fi scal year. Confi rming its confi dence in the future, the Board of Directors intends to propose to the company's shareholders resuming the dividend payment policy as soon as this can be justifi ed by its fi nancial condition.
The free float is close to 60%. Most is held by institutional investors, including Financière de l'Echiquier (France) and Insinger de Beaufort (Netherlands) each with more than 10% but less than 15% of the capital and voting rights, and Delta Lloyd (Netherlands), with more than 5% but less than 10% of the capital and less than 5% of voting rights, on behalf of investment funds managed by them.
Thanks to a motivating stock option program, the management (other than André Harari and Daniel Harari) and key employees (210 in total) hold close to 10% of the diluted capital. The Group intends to pursue this selective policy of promoting employee share-ownership. At March 3, 2009, fully-vested stock options totaled 8.7% of the base capital; all have an exercise price exceeding the stock market price on that date, due to the sharp fall in Lectra's share price.
This Management Discussion and Analysis reports on the company's operations and results, as well as on those of all of its subsidiaries, for its thirty-fi fth fi scal year, ended December 31, 2008.
It is separate from the report of the Board of Directors to the Ordinary Shareholders' Meeting of April 30, 2009 (available in French only), which discusses in detail the fi nancial statements and other disclosures relating to the parent company, Lectra SA, and which presents the reasons underlying the draft resolutions submitted for approval by the shareholders.
To make the discussion of revenues and earnings as relevant as possible, detailed comparisons between 2008 and 2007 are based—except where otherwise stated—on 2007 exchange rates ("like-for-like").
Activity and financial results in 2008 fell well below the company's expectations published on February 11, 2008. At that time the Board of Directors had emphasized the diffi culty of formulating a view on the outlook for 2008 and for the medium term, given the prevailing uncertainty. The macroeconomic climate has deteriorated continuously since that time. After the upsurge in uncertainty in July, the nature and unprecedented scale of the fi nancial, stock market, and banking crisis in September led directly to a further and brutal deterioration in macroeconomic conditions. In response, the governments of all the major countries announced vigorous measures to preserve and revive their economies. Their massive support for the banking system occurred simultaneously with the direct intervention of the central banks and with interest rate cuts. Nevertheless, all sectors of the real economy, all over the world, are now suffering, consumption levels have dropped heavily and several countries have slipped into recession.
Caught up in this spiral, companies have suffered a severe slowdown in their activity, to an extent rarely seen in decades. Their fi nancial performance has worsened, their prospects have become more clouded, with reduced access to credit, and many are now incapable of fi nancing their investments.
As the economy slowed and uncertainty took hold, anxiety and hesitancy spread and gathered force. This led most companies to implement drastic cost-cutting measures, reducing or temporarily halting production and shutting down plants. Consequently, a growing number of Lectra customers have suspended their decisions and frozen their investment programs. This situation prevails in all of the company's geographical markets and market sectors, for manufacturers, brands, contractors, and subcontractors.
In this context, the downturn in orders for new software licenses and CAD/CAM equipment intensifi ed sharply throughout the year. After falling 16% in the fi rst half, orders fell by 34% in Q3 and by 48% in Q4. Overall, orders in 2008 fell by 31% (–€33.3 million) relative to 2007, to €71.9 million. Orders were down 34% in Europe and 29% in the Americas; they fell by 25% in the Asia-Pacifi c region (with a 42% fall in China, while Japan advanced 2%). Activity in the rest of the world (North and South Africa, Turkey, the Middle East, etc.) declined by 32% overall. Orders were down by 39% in the fashion and furniture market sectors.
Orders dropped 16% in the automotive sector. Orders of airbag cutting systems remained especially weak. After falling in 2007, they again fell by nearly 50% due in particular to declining sales of vehicles fi tted with several airbags (e.g. SUVs), and to resulting over-capacity at equipment suppliers. On the other hand, orders for textile and leather seat and interior cutting systems rose 4%. This performance, achieved in the market worst-hit by the crisis in 2008, confi rms the quality, competitiveness, and productivity of Lectra's offer for this type of application. Finally, orders in the other industries improved by 3%, thanks in particular to the fast-growing wind power sector in which Lectra commands a position of strength as a supplier to leading wind turbine manufacturers. The fashion, automotive, and furniture market sectors and other industries respectively represent 58%, 21%, 8%, and 13% of orders.
Revenues ended the year down 9% at €198.1 million, at actual exchange rates, and down 6% like-for-like. Revenues from new systems sales fell by 14% relative to 2007, while recurring revenues rose 2%.
The combination of a strong backlog at December 31, 2007 (due to the gradual ramp-up of the production of the new generation of Vector cutting systems, launched in early 2007, and the two exceptional contracts – totaling more than €8 million including €6.7 million in software licenses and CAD/CAM equipment – signed in 2007 with a French world leader in luxury goods), together with weak orders in 2008, resulted in two phenomena:
– 2008 revenues from new software licenses and CAD/CAM equipment exceeded orders booked during the year by 15%; and
– the order backlog at December 31, 2008 (€9.1 million) was down sharply (–€10.7 million) relative to December 31, 2007. It included €5.8 million for shipment in the fi rst quarter of 2009, €0.8 million over the rest of the year, and €2.5 million in 2010.
Income from operations amounted to €7.0 million. On a like-for-like basis, income from operations worked out to €9.3 million, down 9% relative to 2007. Net income was €3.2 million, down €2.6 million (–44%) at actual exchange rates compared to 2007. Free cash fl ow after €1.6 million in non-recurring disbursements was negative at €4.8 million (compared to a negative €8.3 million in 2007 after €6.4 million in non-recurring disbursements).
The company made no acquisition in 2008 and did not enter into any new strategic partnership agreement.
The consolidated fi nancial statements are an integral part of this report.
The US dollar was highly volatile throughout 2008. After falling below \$1.60/€1 on July 15, 2008, it rallied from August onward, rising to \$1.25/€1 on November 13, before weakening again to end the year at \$1.39/€1 on December 31.
With an average parity of \$1.47/€1 for the full-year 2008, the dollar was down 7% compared to the full-year 2007. This change mechanically reduced the various revenue components by 2 to 3% and income from operations by €2.4 million at actual exchange rates, compared to like-for-like fi gures.
Total revenues for 2008 totaled €198.1 million, down 6%, like-for-like, from 2007. They were down 9% at actual exchange rates.
The decline was 5% in Europe, 12% in the Americas, and 4% in Asia-Pacifi c. These three regions respectively accounted for 60% (including 10% for France), 17%, and 17% of total revenues. Revenues from the rest of the world fell 14% and represented 6% of total revenues.
New software license revenues (€28.8 million) decreased by 13% overall and contributed 15% of total revenues (16% in 2007).
CAD/CAM equipment revenues (€56.2 million) were down 16% and accounted for 28% of total revenues (31% in 2007). Revenues from training and consulting (€8.8 million) were up 2%.
Overall, revenues from new systems sales (€94.7 million) fell 14% and represented 48% of total revenues (52% in 2007).
Recurring revenues (€103.4 million) increased by €1.6 million overall (up 2%), and accounted for 52% of total revenues (48% in 2007).
Revenues from recurring contracts—which alone represented 64% of recurring revenues and 33% of total revenues—were up by 4%, versus the company's expectations of 6 to 7%. This weaker growth resulted from a rate of cancellations exceeding the statistical record, as a direct consequence of the global crisis, with certain customers halting or reducing their activity or cutting costs. Recurring contracts, which concern approximately two-thirds of Lectra's 23,000 customers, break down as follows:
– revenues from software evolution contracts (€29.7 million) were up 6% and represented 15% of total revenues;
– revenues from CAD/CAM equipment maintenance contracts and from subscription contracts to Lectra's fi ve International Call Centers rose 2% overall to €36.2 million and represented 18% of total revenues.
Meanwhile, revenues from spare parts and consumables (€35.6 million) fell by 1%, after having risen at an annual rate of close to 10% in recent years.
Recurring revenues nevertheless again demonstrated their role as a key stabilizing factor for the company, in Lectra's business model, acting as a cushion in periods of economic slowdown.
The overall gross margin worked out to 66.8%. Like-for-like, it came to 67.4%, up 0.4 percentage point relative to 2007 (67%). This change stems from the mix of new systems sales (for which gross margins are smaller and which contributed less to total revenues) and recurring revenues. Gross margins on the different product lines were stable overall relative to 2007, like-for-like.
Total overhead costs were €125.4 million, down €6.4 million (–5%) compared to 2007. They break down as follows:
– €118.4 million in fi xed overheads and allowances, down €3.7 million (–3%);
– €7 million in variable costs (–27%).
Research and development costs are fully expensed in the period and included in fi xed overheads. Before deducting the (French) research tax credit (crédit d'impôt recherche)—including the benefi cial impact of the new rules of calculation with effect from January 1, 2008—as well as R&D program grants received, these costs amounted to €18.3 million and represented 9.2% of revenues (compared to €17.4 million and 8% in 2007). Net R&D costs after deduction of the research tax credit and grants amounted to €10.6 million, versus €14.2 million in 2007.
The particularly adverse business conditions led the company in July to adopt measures aimed at limiting its expenses and, more generally, managing its overhead costs more rigorously. These measures were further reinforced in September and are additional to the positive effect of the research tax credit, thereby accounting for the 3% reduction in fi xed overheads relative to 2007 (compared with an expected rise of 4%), a 7 percentage-point improvement.
Income from operations amounted to €7 million. On a like-for-like basis, income from operations worked out to €9.3 million, down 9%. Income from operations in 2007 included a non-recurring charge of €1 million. The operating margin was 3.5%. On a like-for-like basis, it worked out to 4.6%, a decrease of 0.1 percentage point relative to 2007. Net fi nancial expenses amounted to €3.7 million, of which €2.8 million corresponds to the fi nancial cost of the €48 million medium-term bank loan put in place to fi nance the public stock buyback tender offer for 20% of the company's share capital carried out in May 2007. Net foreign exchange loss amounted to €0.6 million. After an income tax gain of €0.6 million, net income amounted to €3.2 million, down €2.6 million compared to 2007 at actual exchange rates. Net earnings per share on basic and diluted capital amounted to €0.11, compared respectively to €0.19 and €0.18 in 2007.
Free cash flow before non-recurring items amounted to a negative €3.2 million ; the fi gure was a negative €1.9 million in 2007.
Free cash fl ow after €1.6 million in non-recurring disbursements amounted to a negative €4.8 million (–€8.3 million in 2007, after €6.4 million in non-recurring disbursements in 2007). This was the result of €8.7 million in cash provided by operating activities (including an increase in working capital requirement resulting from current activities of €1.5 million), capital expenditures of €3.6 million, and a temporary increase in working capital requirement of €9.9 million.
The temporary increase of €9.9 million in working capital requirement stems primarily from the adverse impact of non-collection of €6 million in research tax credit, from the payment in 2008 of €2.3 million representing the 2007 variable portion of compensation and the (French) contractual performance-related incentive plan (prime d'intéressement), and from €1.6 million in non-recurring disbursements.
At December 31, 2008, consolidated shareholders' equity amounted to €28.1 million (€26.3 million at December 31, 2007).
This fi gure is computed after deduction of treasury shares held solely under the Liquidity Agreement with SG Securities (Société Générale group), carried at cost, i.e. €1.5 million (€0.6 million at December 31, 2007). Cash and cash equivalents totaled €10.2 million (€10.9 million at December 31, 2007).
Financial borrowings totaled €66.5 million (€61.7 million at December 31, 2007), of which:
– €48 million corresponds to the medium-term bank loan; – €16.9 million corresponds to the use of cash credit facilities (€12.6 million at December 31, 2007), due to the temporary increase in working capital requirement and more especially to the non-collection of the research tax credit; – €1.6 million corresponds to interest-free repayable advances to fi nance research and development programs. Net fi nancial borrowings consequently totaled €56.4 million (€50.8 million at December 31, 2007). Taking into account available cash and cash equivalents and unused confi rmed cash credit facilities, total liquidity
available to the company at December 31, 2008, amounted to €22.3 million (see note 13.3 to the consolidated fi nancial statements).
At the same time, the company held a receivable of €14 million on the French State, corresponding to the research tax credit recognized since 2005. Thanks to the measures announced by the French government on December 4, 2008, as part of its economic stimulus plan, providing in particular for early reimbursement of the fraction of the research tax credit for the years 2005 through 2008 not charged to corporate income tax, the company will receive the full amount of the €14 million due to it in the fi rst half of 2009 (see note 8.1 to the consolidated fi nancial statements).
The company has given an undertaking to the banks in respect of the €48 million medium-term loan, to comply with certain covenants at December 31 of each year. Anticipating that it would not be in a position to comply with these covenants at December 31, 2008, the company entered into discussions with the lending banks in October. An amendment to the loan contract was signed on December 19 modifying the two ratios at December 31, 2008, such as to allow the company to respect them (which it did). In return for this agreement the margin was raised to 1.85% effective January 1, 2009, versus 1% previously (see note 13.2 to the consolidated fi nancial statements).
The arbitration initiated by Lectra against Induyco in June 2005 before the International Court of Arbitration of the International Chamber of Commerce (ICC Court) in hearings in London is still in progress. This procedure relates to the acquisition in 2004 of Investronica Sistemas, whose situation, among others, obliged Lectra to recognize an €11.9 million impairment of goodwill in respect of 2005. The parties agreed in the share purchase agreement signed on April 2, 2004, that the decision of the arbitral tribunal would be fi nal.
The fi nal phase of the arbitral hearings took place in November 2007. On December 31, 2008, the arbitral tribunal informed the parties that it expected to formally close the proceedings shortly. Consequently, Lectra expects the tribunal to conclude its deliberations and submit a draft of its fi nal award to the ICC Court before the end of the fi rst quarter of 2009.
The arbitral tribunal has also indicated that it expects the award will address all extant issues, including legal and arbitration costs.
Under the ICC rules, the ICC Court is required to review and approve the draft award before the award will be noticed to the parties. As a result of this process and in light of the tribunal's communication, Lectra anticipates receiving the award before the end of the second quarter of 2009. In 2006 and 2007, Induyco provided Lectra with fi rst demand bank guarantees for a total amount of €17.2 million, in light of the company's outstanding claims. The total amount of this guarantee is without prejudice to the amount that might be awarded to Lectra in the arbitration. The aggregate amount of legal fees, expert fees, and procedural and other costs incurred by Lectra in 2008 is €0.4 million. The latter is in addition to the €5.2 million fi gure already recognized in current assets in the balance sheet at December 31, 2007, bringing this item to €5.6 million as of December 31, 2008, and bringing the total amount of fees and costs since the beginning of the procedure to €9.8 million, already paid in full (€4.2 million were expensed in the 2005 and 2006 accounts). Lectra does not anticipate signifi cant additional costs until the rendering of the award.
The total fi gure for current assets recognized until the rendering of the award will be deducted from the amount that might be awarded to Lectra in the arbitration.
This chapter describes the main risks facing the company having regard to the specifi c characteristics of its business, its structure and organization. It further describes how the company manages and prevents these risks, depending on their nature.
For internal controls to be effective, the company needs to identify and assess the risks to which it is subject. These risks are identifi ed by means of a continuous process of analyzing the Group's external environment together with the organizational changes rendered necessary by the evolving nature of its markets. This process is overseen by the Finance division and the Legal Affairs division, with input from all Group operating and corporate divisions. The key risks that could prevent the Group from achieving its objectives are described below.
Lectra designs, produces and markets full-line technological solutions, comprising software, CAD/CAM equipment and related services dedicated to a broad array of major global markets: 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 power, personnel protective equipment, etc. This activity demands continuous creativity and a relentless search for innovation, and the company consequently invests heavily in research and development. The corresponding expenditures are fully expensed in the year. As a corollary of this policy, the company must ensure both that its innovations are not copied and that its products do not infringe third parties' intellectual property. It therefore has a dedicated team of intellectual property specialists that takes both offensive and defensive measures with regard to patents.
A substantial portion of the manufacturing of the equipment the company markets is subcontracted, with Lectra providing only the R&D, fi nal assembly and testing. The selection of subcontractors is based on continuous evaluation of their technological, industrial capabilities nd their fi nancial condition. A technical, logistic or fi nancial failure on the part of an important subcontractor could result in delays or defects in equipment shipped by the company to its clients.
To reduce this risk to a minimum, subcontractors undergo technological, industrial and fi nancial scrutiny prior to selection. Once selected, their situation and performance is under constant review. The assessment is then updated at regular intervals, the frequency depending on the criticality of the product supplied by the subcontractor. Given the use made of the equipment commercialized by it, the Group is exposed to the risk of injury to its clients' employees while operating certain items of equipment supplied by it. Safety is a major concern of the Group, and it takes care to insure that the products it commercializes satisfy the strictest standards regarding safety of personnel. Despite all its efforts, there is no such thing as zero risk. The Group's product liability insurance contract covers it against adverse monetary consequences arising from claims arising from its sales of systems or provision of services in accordance with the conditions described in chapter 4.9 below.
Inventory valuation risk is minimized by means of just-intime supply and manufacturing methods.
Where software is concerned, the main risk lies in the revenue recognition criteria of this intangible revenue source. This risk is covered by the internal control procedures relative to the quality of accounting and fi nancial information.
The Group is exposed to various risks in connection with its information systems and the extensive use made of them, which is essential to the company's operations.
With respect to the security of its information system, the Group has put in place a business continuity plan incorporating resources designed to guarantee a coherent and rapid restoration of critical data and applications in the event of an incident.
Foremost among these means is the replication of systems in a backup room, physical protection of technical facilities (with a generator, surge protector, redundant climate control, and a permanently monitored fi re control system on constant alert, and daily backup on tapes stored (in an
offsite safe in a remote building). Virtual server technology, clusters and replication of storage bays all serve to guarantee very rapid deployment of the business continuity plan.
The Group is exposed to credit risks in the event of default by a counterparty. It pays close attention to the security of payment for the systems and services delivered to its customers. It notably manages this risk by preventively analyzing its customers' solvency. Sales to countries subject to high economic or political risks are for the most part guaranteed by irrevocable and confi rmed letters of credit or by bank guarantees. As in earlier years, no individual client represented more than 3% of consolidated revenues in 2008.
The solutions marketed by Group sometimes represent a major investment for clients. Part of the decision to make these investments depends on the general macroeconomic environment and on the state of the sector of activity in which the client operates. Group clients generally tend to scale back or defer their investment decisions when global economic growth slows or when a particular sector suffers a downturn or is in crisis.
The current global economic and fi nancial crisis is an additional risk factor. Its unprecedented scale is expected to lead to further deterioration in the situation of both countries and individual fi rms, in all sectors and in all parts of the world. The resulting sharp slowdown in activity among Group clients, their deteriorating fi nancial performance, their uncertain outlook, and reduced access to credit are making it hard for them to fi nance their investments. Most companies have therefore taken drastic steps to reduce their costs, cut back or temporarily halt production, and to close plants.
These situations impact Group revenues and fi nancial results.
The company markets its products to 23,000 customers in more than 100 countries through a network of 31 sales and services subsidiaries, supplemented by agents and distributors in countries where it does not have a direct presence. Consequently, it is subject to a very large number of legal, customs, tax and social regulations in these countries.
While the company's internal control procedures provide reasonable assurance of compliance with the prevailing laws and regulations, unexpected or sudden changes in certain rules (particularly regarding the establishment of trade barriers), as well as political or economic instability in certain countries, are all liable to impact the revenue and results of the Group.
The company is listed on Euronext Paris and is therefore subject to stock market regulations (particularly those of the AMF, the French Financial Markets Authority). From a tax point of view, there are many intra-Group fl ows requiring the existence of a transfer pricing policy compliant with French, local and international guidelines (in particular the OECD). Adequate documentation setting forth Group policy in this regard has been put in place. The parent company Lectra SA was the subject of a French tax audit in 2008 regarding income tax, value added tax, research tax credit, among others, for the fi scal years 2005, 2006 and 2007. The audit did not give rise to any observations and was concluded with a notice of "non-reassessment". In the normal course of its business, the Group may be involved in various disputes and lawsuits. While the Group considers that the disputes pending will neither individually nor collectively materially impact its fi nancial condition and results (with the exception of the dispute with Induyco now at arbitration, see chapter 3 above), it must be borne in mind that the outcome of any dispute is by nature uncertain.
Because of its international presence, the Group is exposed to foreign exchange risk. It is also exposed to interest rate risk. It is Group policy to manage these risks conservatively, refraining from any form of speculation, by means of hedging instruments.
A substantial proportion of revenues is denominated in various currencies whose fl uctuations against the euro creates a foreign exchange risk for the company. The mechanical and competitive effects on the Group's fi nancial statements of fl uctuations in these currencies (and more particularly the US dollar) against the euro are particularly large since its only research and development sites are located in France (mainly), Spain and Germany, while its production is done primarily in its facilities located in France, and the remaining in Germany. Approximately 33% of the Group's consolidated revenues, 10% of its cost of sales and 25% of its overhead expenses are denominated in US dollars or in currencies linked to the dollar. The Lectra Group is exposed to currency risk resulting from variations in the exchange rate of certain currencies against the euro. Its fi nancial results are particularly sensitive to fl uctuations in the US dollar/euro parity. These currency fl uctuations impact the Group at two levels: – impact on competitive position: the Group sells its products and services in global markets, competing primarily with its main competitor, a US company. As a result, prices are generally dependent on the US dollar; – translation impact:
• on income from operations, the fi nancial statements are consolidated in euros. Consequently, the revenues, gross profi t and net income of a subsidiary conducting its business in a foreign currency will mechanically be affected by exchange rate fl uctuations when translated into euros;
• on balance sheet positions: this refers primarily to foreign currency accounts receivable, in particular to those between the parent company Lectra SA and its subsidiaries, and it corresponds to the variation between exchange rates at collection date and those at billing date. This impact is recognized in "Foreign exchange loss/gain" in the income statement.
Currency risk is borne by the parent company. The Group seeks to protect all of its foreign currency receivables and debts as well as future cash fl ows against currency risk. Hedging decisions take into account currency risks and trends where these are likely to signifi cantly impact the Group's fi nancial condition and competitive situation.
The bulk of foreign currency risks concerns the US dollar. The Group generally seeks to hedge the risk arising in respect of its net operational exposure to the US dollar (revenues less all expenses denominated in US dollars or strongly correlated currencies) by purchasing dollar puts or by forward currency contracts, depending on the cost of the hedge. The fi nancial impact of fl uctuations in the US dollar/euro parity on the Group fi nancial statements before hedging, if any, is discussed in chapter 14 of this report. The Group's balance sheet exposure is monitored in real time and it utilizes forward currency contracts to hedge all relevant receivables and debts.
Given the characteristics of its fi nancial debt and the interest-rate risk hedge put in place to cover the €48 million medium-term bank loan (with interest-rate swaps), the Group's exposure to interest-rate variations applies solely to actual drawings on cash facilities. At the same time, it manages its cash surpluses conservatively, investing them exclusively in money market funds. Consequently, in light of the hedges in place and based on the spread of its borrowings at December 31, 2008, 25% of total debt at that date is exposed to interest rate risk. Sensitivity to interest rate fl uctuations is discussed in note 13.5 to the consolidated fi nancial statements.
At the same time the Group follows a conservative policy in short-term investing its cash surpluses, placing them only in money market mutual funds classifi ed as "euro money market funds" by the Autorité des Marchés Financiers.
The Group does not hold any interests in listed companies other than its own shares held under a Liquidity Provision contract (see note 9.2 to the consolidated fi nancial statements), and is therefore not subject to market risk.
Group borrowings at December 31, 2008 totaled €66.5 million. The contract terms of the €48 million medium-term bank loan, which represents a substantial portion of this total borrowing, are presented in note 13.2 to the consolidated fi nancial statements. 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 fi nancial borrowing and shareholders' equity ("gearing") on the one hand, and between net fi nancial borrowing and EBITDA ("leverage") on the other. In the event of failure to comply with one of these ratios the lenders would be entitled to demand early repayment of the balance of the loan outstanding. The repayment terms of the balance outstanding of this borrowing, particularly in the event of non-compliance with these fi nancial ratios, are spelled out in note 13.4 to the consolidated fi nancial statements.
In view of the amendment to the contract signed with the lending banks on December 19, 2008, there is no clause in the loan contract liable to entail early repayment at December 31, 2008.
At the same time, at December 31, 2008 the parent company Lectra SA had access to the following confi rmed cash facilities:
Taking into account available cash and cash equivalents of €10.2 million and unused confi rmed cash credit facilities, total liquidity available to the company at December 31, 2008, amounted to €22.3 million. At the same time, the fraction of prior year research tax credits not charged to income tax, amounting to €14 million, will be paid to the company in the fi rst half of 2009 under the French Government stimulus plan (see chapter 3 of this report).
In light of these elements and of the Group's cash generation capacity (its working capital requirement being structurally close to zero), the risk that the Group may have to contend with a short-term cash shortage is very low. However, cash fl ows may vary substantially depending on the level of sales.
The Group's performance depends to a large extent on the competence and commitment of its personnel and on the quality of its management. Given the breadth of its international reach, its size, its many different activities research and development, manufacturing and logistics, pre-sales and sales of value added technology solutions, deployment by consultants who are experts in the businesses of the different market sectors, solutions experts, support services, maintenance, training, consulting, etc.—any departure from the management team or of certain experts can affect the company's operations and fi nancial results.
The mission of the Group's human resources staff, both corporate and in each of the subsidiaries beyond a certain critical size, is to limit these risks, doing so in three main ways. These encompass an ambitious training policy to sustain competencies and transfer experience and expertise; compensation based on principles of fairness, and rewarding merit and performance; continuously adapting the Group's organization to changes in its geographic markets and market sectors, thanks in particular to a policy of targeted hiring and adapting fl exibly. However, given budgetary constraints, especially in hostile macroeconomic conditions, the company has only limited means to ensure the presence of internal replacements for each key position. Departures are generally followed by transitory solutions, entrusting a Group manager with an ad hoc mission for the time needed to appoint someone from inside the company or to recruit someone from outside. The performance of personnel is another ongoing concern. Measures taken in this regard include: investing in internal information systems to optimize business processes and procedures; deploying leading edge IT infrastructures permitting direct exchanges between teams wherever they are located in the world, with connections to match these needs; and proactive internal communications. Lectra places a high premium on compliance with existing labor regulations wherever it operates. It regularly audits its subsidiaries to ensure they are compliant with local laws and regulations. Its active policy of transparency in the disclosure of information and in managing its labor relations is one means to achieving a positive climate in the workplace, enabling the company to deal constructively with economic uncertainty.
The parent company Lectra SA oversees the management of risks and the writing of insurance programs for the Group as a whole. Lectra SA's Legal Affairs Department formulates Group policy with respect to the evaluation of its risks and their coverage, and coordinates the administration of insurance contracts and claims with respect to legal liability, property and transport. The Group exercises its judgment when assessing risks incurred in the conduct of its business, the utility or otherwise of writing insurance cover with an outside insurer and the cost of the guarantees provided. It may therefore decide to review this policy at any time. The Group works through international brokers whose network has the capacity to assist it throughout its different geographies. Insurance programs are written with reputable insurers of suffi cient size and capacity to provide cover and administer claims in all countries. At regular intervals, when programs come due for renewal, insurance companies are invited to submit competing bids in order to secure the best possible terms and conditions. The guarantees provided by these programs are calculated on the basis of estimated possible losses, the guarantee terms generally available on the market, notably for companies of comparable size and characteristics to Lectra, and depending on insurance companies' proposals. The Group has taken the following insurance coverage: – legal liability, business continuity, post-delivery and professional liability (Errors and Omissions in the United States);
Lectra manages uncertainty with respect to general liability by means of a contractual policy that excludes its liability for indirect damage and limits its liability for direct damage to the extent allowed by applicable regulations. General liability cover is capped at €25 million per claim per year.
The Property Damage program provides for payment of claims for material damage to buildings or physical assets in accordance with the declared value of each of its sites worldwide, which the Group reports annually. The program comprises additional guarantees to fi nance the continuity or reorganization of activity following a loss event.
Special emphasis is placed on protecting the Bordeaux-Cestas site, which houses research and development and production activities as well as critical services for the Group as a whole. The program notably comprises "business continuity" cover against fi nancial loss in the event of a major accident affecting the Bordeaux-Cestas site and jeopardizing the continuity of all or part of the Group's business. This program is backed up by risk prevention measures at this site.
Exchange risk hedging instruments at December 31, 2008 were comprised of forward sales or purchases of foreign currencies (mainly US dollars, Canadian dollars, Japanese yen, and British pounds) for a net total equivalent value (sales minus purchases) of €7.7 million.
The company had hedged in 2007 its exposure to the interest-rate risk on the €48 million medium-term bank loan, converting the fl oating rate into a fi xed rate by means of two interest-rate swaps. The interest-rate hedge is based on the best possible estimate of the amount of the loan over the different periods hedged, having due regard to the contractual clauses. These interest-rate swaps hedged a total of €42 million at December 31, 2008. These swaps satisfy IFRS criteria for a hedging transaction. Their fair value at December 31, 2008 was a negative €2.2 million, due to the decline in the threemonth Euribor rate relative to the rate prevailing when these swaps were put in place. These swaps are considered effective, since their value covers close to 90% of the risk, in consequence of which this amount is fully recognized in shareholders' equity.
The parent company, Lectra SA, provided a total of €2.7 million in sureties to banks, mainly to guarantee loans made by the latter to the company's subsidiaries and in guarantees given to customers or to lessors. These sureties were previously authorized by the Board of Directors, as required under article L. 225-34 al. 4 of the French Commercial Code.
In addition, the company received:
– a €17.2 million security from Induyco in 2006 and 2007, in the form of a bank guarantee payable on fi rst demand, in respect of Lectra's outstanding claims related to the arbitration initiated by Lectra against this company before the International Chamber of Commerce in hearings in London (see chapter 3 above);
– within the framework of the acquisition agreements, representations and warranties from the former shareholders of Investronica, Lacent and Humantec concerning certain assets and liabilities in the balance sheet as well as all potential litigation arising in respect of events predating the respective acquisitions. With the exception of liabilities arising out of intentional breaches not time-barred at the time of publication, the warranties obtained on the occasion of the Lacent acquisition have expired. The warranties received at the time of the acquisition of Investronica has expired also, except for those concerning tax, customs or social security liabilities that remain in force beyond the contractual three-year period stipulated in the purchase contract and not yet time-barred at the date of this report. The liabilities warranty pertaining to the acquisition of Humantec remains in force. The maximum amount of this warranty is limited to the consideration paid, except in the case of tax or customs liabilities arising from serious breaches Finally, OSEO Innovation, a French public body, has given the company a commitment to aid a new R&D program in the form of an interest-free advance. OSEO Innovation's total commitment will amount to €2 million if the company completes this program. Two initial payments of €0.4 million and €0.8 million were received in 2007 and 2008. Assuming the program is completed, the balance would be received between 2009 and 2010. The only other off-balance sheet liabilities concern normal offi ce, motor vehicle and offi ce equipment leasing and rental contracts, which may be cancelled in accordance with contract terms. These liabilities are discussed in the Notes to the Consolidated Financial Statements. Finally, no earn-outs are due on the acquisitions made by the company.
In 2004, the company initiated a policy of paying dividends to its shareholders while continuing to fund its future growth. As in 2007, as a result of the public share buyback tender offer, it will have to suspend this dividend policy in respect of fi scal year 2008, as the level of borrowings and net income of the company do not justify the payment of a dividend. Confi rming its confi dence in the future, the Board of Directors intends to propose to the shareholders to resume its dividend payment policy as soon as its fi nancial condition warrants.
Furthermore, in accordance with the provisions of the €48 million medium-term bank loan, the company has undertaken to propose to the Ordinary Shareholders' Meeting called each year to approve the fi nancial statements for the previous fi scal year to limit the dividend distributed to 50% of the consolidated net income for the year (if less than 50% of the consolidated net income for the year is distributed the difference relative to 50% may be distributed in subsequent years).
At December 31, 2008, share capital totaled €27,640,648.58 divided into 28,495,514 shares with a par value of €0.97, vs. €42,715,348.50 divided into 28,476,899 shares with a par value of €1.50 on December 31, 2007.
The Extraordinary General Meeting of April 30, 2008 following the recommendation of the Board of Directors decided to reduce the share capital by reducing the par value of each share from €1.50 to €0.97 and to charge the corresponding amount to the negative retained earnings of the parent company, Lectra SA, resulting from the accounting treatment of the public stock buyback tender offer carried out in May 2007.
This capital reduction was carried out by the Board of Directors at its meeting on April 30, 2008 held after the Shareholders' Meeting. The reduction amounted to €15,102,622.42, and the share capital at April 30, 2008, reduced to €27,640,648.58 consists of 28,495,514 shares with a par value of €0.97.
The share capital has increased by 18,615 shares as a result of the exercise of stock options. Deutsche Bank AG reported on July 7, 2008 that it had directly and indirectly crossed above the 5% capital ownership and voting rights reporting threshold, directly or indirectly holding 6.19% of the capital and 6.08% of the voting rights. It subsequently reported that it had crossed below these thresholds on July 14, 2008, directly or indirectly holding only 0.02% of the capital and voting rights. These crossings of the reporting threshold resulted from stock borrowing and lending transactions. On October 20, 2008, Delta Lloyd Asset Management NV (Netherlands), acting on behalf of funds it manages, reported that it had increased its shareholding above the 5% reporting threshold and that it held 5.06% of the capital and 4.98% of the voting rights at that date. No other change of shareholding entailing a crossing of statutory thresholds has been notifi ed to the company since the beginning of the year.
At the date of publication of this report, to the company's knowledge, the main shareholders are:
– André Harari and Daniel Harari, who together hold 39% of the capital and of the voting rights;
– Société Financière de l'Échiquier (France) and Insinger de Beaufort AM NV (Netherlands), who each hold more than 10% (but less than 15%) of the capital and voting rights, on behalf of investment funds managed by them or for their clients;
– Delta Lloyd Asset Management NV (Netherlands), acting on behalf of funds it manages, holds more than 5% (but less than 10%) of the capital and less than 5% of voting rights.
At December 31, 2008, the company held 1.3% of its own shares in treasury shares, only within the framework of the Liquidity Agreement with SG Securities.
All of the information required under article L. 225-211 of the French Commercial Code concerning purchases and sales by the company of its own shares is presented in chapter 10 below.
The Extraordinary General Shareholders Meeting of April 30, 2008 authorized the creation of a new stock option plan for a maximum of 1.5 million options for the same number of shares with a par value of €0.97, in accordance with the conditions described in the report of the Board of Directors to said meeting and in its fi rst resolution. The exercise price may not be less than the average opening price of Lectra shares listed for the twenty stockmarket trading sessions preceding the options' grant date.
On June 11, 2008, at the recommendation of the Compensation Committee, the Board of Directors granted a total of 101,678 stock options with an exercise price of €6.30 per share to 45 benefi ciaries under plan 10a, entitling them to as many shares with a par value of €0.97 and 428,370 stock options with an exercise price of €4.10 per share to 90 benefi ciaries under plan 10b. All of the options granted in fi scal 2008 by the Board of Directors concerned company employees. No options were granted to the executive directors (mandataires sociaux) of Lectra SA.
These options generally vest over a period of four years from January 1, 2008, depending on the benefi ciary's presence in the Group at the end of each annual period (the benefi ciary must retain links with the company or with one of its affi liates in the form of an employment contract or as an executive director or offi cer).
The options are valid for a period of eight years from the date of granting.
Further, at its meeting of June 11, the Board undertook to grant a maximum of 366,015 options to 43 persons in 2009 consequent upon their fulfi llment of their annual targets for 2008; the fi nal number of options and their exercise price—which will in any case be equal to or greater than €4.10—will be set by the Board of Directors on the date of their granting.
18,615 options were exercised in 2008 and 791,342 options lapsed following the departure of their benefi ciaries. In addition, 47,342 options ceased to be valid between January 1, 2009 and the date of publication of this report.
There were 233 benefi ciaries of stock options outstanding (including former employees) at December 31, 2008 (245 at December 31, 2007).
At the date of publication of this report, the maximum number of shares liable to comprise the capital stock, including all new shares that may be issued following the exercise of stock options outstanding and eligible for the subscription of new shares, is 31,696,541, consisting of:
Each stock option gives the benefi ciary the right to acquire one new share with a par value of €0.97, at the exercise price decided by the Board of Directors on the date of granting (adjusted to take account of the public stock buyback tender offer of May 2007). If all of the options were exercised, regardless of whether these are fully vested or have not yet vested, and regardless of their exercise price relative to the market price of Lectra shares at December 31, 2008, the company's capital (at par value) would increase by a total of €3,104,996, together with a total additional paid-in capital of €13,663,344. No subsidiary of Lectra has opened a stock-option plan. The notes to the consolidated fi nancial statements contain full details of the vesting conditions, exercise price and exercise dates and conditions of all outstanding stock options at December 31, 2008.
The Board of Directors' Special Report, as mandated under article L. 225-184 of the French Commercial Code and resulting from the May 15, 2001 New Economic Regulations Act, is provided in a separate document (available in French only).
The company has not granted any bonus shares and no plan for such shares has been submitted for approval to the Shareholders' Meeting.
In light of the foregoing, the Board of Directors has not prepared a special report on the granting of bonus shares as provided under article L. 225-197-4 of the French Commercial Code.
The company's share price at December 31, 2008, was €3.25, down 43% compared to December 31, 2007 (€5.75). Since January 1, 2008, the share price reached a high of €5.80 on January 2, and a low of €2.63 on December 5. The CAC 40 and CAC Mid&Small190 indexes were down 43% and 44% respectively, over the same period. This sharp drop occurred in especially thin trading volumes: according to Euronext fi gures, 5 million shares were traded, a decrease of 47% compared to the same period of 2007. The volume of capital traded decreased by 70%, to €17 million.
Lectra shares notably fi gure among the SBF 250, CAC Small90, and CAC Mid&Small190 indexes.
Following the steep decline in the company's stock market capitalization at December 31, 2008 (€92.6 million), Lectra's shares were transferred by Euronext from Compartment B to Compartment C in January 2009.
The company has taken strenuous measures over many years to implement the requirements of corporate governance.
Following the decision of the Extraordinary General Meeting of May 3, 2001, shares whose registration was requested subsequent to May 15, 2001, and those purchased after that date, no longer carry double voting rights (barring special cases covered by the corresponding resolution passed by the said Extraordinary General Meeting). At their own initiative, André Harari and Daniel Harari have cancelled in 2001 the double voting rights that were attached to the shares they held.
As a result of the foregoing, only 487,781 shares (representing 1.7% of the capital stock) carried double voting rights at December 31, 2008.
In 2002, the Board of Directors separated the functions of Chairman of the Board of Directors and Chief Executive Offi cer, as permitted under the May 15, 2001 Economic Regulations Act.
Furthermore, the (French) August 1, 2003 Financial Security Act introduced two new changes. First, the Chairman of the Board of Directors no longer represents the Board. Second, in a report attached to the Management Discussion and Analysis, he is henceforth required to present to the General Meeting of Shareholders a report on internal control procedures and corporate governance established by the company.
Under this organization, and pursuant to French legislation, the Board of Directors is responsible for setting strategy and broad policy governing the company's activities, and for overseeing their implementation. The Chairman organizes and directs its proceedings, being responsible for reporting to the General Meeting of Shareholders, and for overseeing the proper functioning of the company's management organization. The Chief Executive Offi cer is invested with full powers to act in the name of the company in all circumstances, and to represent it in its relations with third parties. He may be assisted by one or more Executive Vice-Presidents. As resolved by the shareholders of Lectra, the Chief Executive Offi cer must be a member of the Board of Directors. The Board of Directors believes this format for the management and administration of the company, which has been in application for the past seven years, achieves a better balance and greater operational effi ciency. It considers that the format is better suited to the size of the company, its worldwide structure and mode of operation, and will allow it to comply more fully with the requirements of corporate governance. The Chief Executive Offi cer is thus free to devote his full attention to the execution of the company's short-term goals and action plan, in the current particularly hostile macroeconomic climate and as the company speeds its transformation to address the new challenges facing it while continuing to pursue its medium-term business plan.
The Shareholders' Meeting of April 28, 2006 renewed the directorships of André Harari and Daniel Harari for a further period of six years, and the Board reelected André Harari to the position of Chairman of the Board of Directors and Daniel Harari to the position of Chief Executive Offi cer. The Board did not name an Executive Vice-President.
Daniel Harari chairs the Executive Committee, the other two members being Jérôme Viala, Chief Financial Offi cer, and Véronique Zoccoletto, Chief Human Capital and Information Offi cer.
One of the criteria of independence in the Code of Corporate Governance published by the AFEP (Association Française des Entreprises Privées – Association of French Private Corporations) and the MEDEF (Mouvement des Entreprises de France – French Business Confederation) in December 2008 concerns the duration of a director's term, specifying that a person who has been a director for more than twelve years can no longer be deemed independent. Louis Faurre and Hervé Debache have both been directors for more than twelve years now. All of the other criteria of independence, apart from the fact of having been directors for more than twelve years, are satisfi ed. At the motion of the Board of Directors, the Shareholders' Meeting of April 30, 2008 re-elected Louis Faurre and Hervé Debache to the Board for a further six-year period expiring at the close of the Ordinary Shareholders' Meeting called to approve for the fi nancial statements for fi scal year 2013.
Louis Faurre and Hervé Debache were fi rst elected to the Board by the Ordinary Shareholders' Meeting of May 22, 1996, and were re-elected by the Ordinary Shareholders' Meeting of May 3, 2002.
In furtherance of the company's strategic aims, and having particular regard to the diffi cult macroeconomic conditions prevailing since 2007, the Board recommended to the Shareholders' Meeting of April 30, 2008 that it would be in the interests of the company and its shareholders to continue to benefi t from their experience and deep knowledge of the company.
The Board of Directors established an Audit Committee and a Compensation Committee in 2001, and a Strategic Committee in 2004. Each of these committees is made up of three directors, two of them independent within the meaning of the rules laid down in the Code of Corporate Governance of Listed Companies, with the aforementioned exception of the criterion of longevity. The Audit Committee is chaired by Hervé Debache, the Compensation Committee by Louis Faurre, and the Strategic Committee by André Harari, Chairman of the Board of Directors. The membership, functions and activities of these committees are discussed in the Report of the Chairman on internal control procedures and corporate governance appended to this report.
In reply to the call issued by the President of the French Republic on the occasion of his speech of September 25, 2008, the MEDEF and AFEP published a set of recommendations on October 6, 2008, concerning the compensation of executive directors of companies whose shares are listed for trading on a regulated market, for the guidance of compensation committees. These recommendations have subsequently been consolidated with the AFEP and MEDEF report of October 2003 and their recommendations of January 2007 on the compensation of executive directors of listed companies to comprise the Code of Corporate Governance of Listed Companies of December 2008.
These recommendations:
– spell out principles for setting the compensation of executive directors of listed companies;
– prohibit the simultaneous holding of a position as executive director and an employment contract; – place a cap on one-time termination payments ("golden parachutes") to two years' compensation, and abolish the granting of indemnities in the event of voluntary resignation and in the event of failure by executive directors in their performance;
– strengthen the rules governing pension plans and place a cap on additional pension benefi ts;
– make stock option plans for senior managers conditional on the extension of such option plans to all employees or to the existence of mechanisms entitling
all employees to a share of profi ts; – terminate the granting of bonus shares unrelated to performance to executive directors; the latter must also purchase shares at market price additional to any performance-related shares granted to them;
– make compensation policies more transparent by means of a standardized disclosure format.
The French government further called on the Boards of Directors of the companies concerned to formally accept these recommendations by the end of 2008 and to ensure that they are enforced rigorously.
In response to this demand, the company issued a statement on November 28, 2008, declaring that:
– it has already been in spontaneous compliance with these recommendations for many years with regard to André Harari and Daniel Harari in their respective capacities as Chairman of the Board of Directors and Chief Executive Offi cer. In particular, they have never combined their positions as executive directors with an employment contract, are not entitled to any component of compensation, indemnity or benefi t owed or liable to be owed to them in virtue of a termination or change of their functions, to any additional defi ned benefi t pension plan, stock options or bonus shares;
– it has decided to adopt the recommendations issued jointly by the AFEP and the MEDEF as the code of corporate governance to which the company shall voluntarily refer in matters of compensation of its executive directors, and to comply with its provisions or, should any of these provisions be deemed inappropriate with respect to the specifi c circumstances of the company, to explain the reasons for not applying them, as prescribed in article L. 225-37 of the French Commercial Code.
This subject is discussed in detail in the Report of the Chairman on internal control procedures and corporate governance appended to this report. The sole executive directors (dirigeants mandataires sociaux) at present are André Harari, Chairman of the Board of Directors, and Daniel Harari, Chief Executive Offi cer. The executive directors are not the benefi ciaries of any special arrangement or specifi c benefi ts concerning deferred compensation, severance compensation or pension liabilities committing the company to pay any form of indemnity or benefi t in the event of termination of their functions, or at the time of their retirement (they are not under any employment contract to the company), or more generally subsequent to the termination of their functions. Compensation of executive directors of the company comprises a fi xed and a variable portion. The company does not award bonuses in any form.
Each year the Board of Directors determines the total amount of target-based compensation for the year. This was unchanged for the years 2005, 2006, 2007 and 2008, and has been renewed for fi scal 2009. The same holds for the fi xed portion of compensation since 2003, and for the variable portion of annual target-based compensation since 2005.
Conditional upon the fulfi llment of annual targets, variable compensation was equal to 60% of total compensation for the Chairman of the Board of Directors and the Chief Executive Offi cer.
Variable compensation is set in accordance with the following two quantitative criteria (to the exclusion of any qualitative criteria) expressed in terms of annual targets, excluding non-recurring items. The two criteria are consolidated pre-tax profi t (which accounts for 67%) and consolidated free cash fl ow (which accounts for 33%). Below a certain threshold, it is equal to zero, to 100% if annual targets are achieved, with a cap of 200% if annual targets are exceeded. Between these bounds, the amount is calculated on a straight-line basis.
Annual targets are set by the Board of Directors based on the recommendations of the Compensation Committee. The Committee is responsible for ensuring that the rules for setting the variable portion of compensation each year are consistent with the evaluation of corporate offi cers' performance, the company's medium-term strategy and the general macroeconomic context, and more particularly conditions in the company's geographic and sector markets. After the close of each fi scal year, the Committee verifi es the annual application of these rules and the fi nal amount of variable compensation paid, on the basis of the audited fi nancial statements.
These targets apply also to the two members of the Executive Committee who are not executive directors, and to around
twenty managers of the parent company Lectra SA, the only differences concerning the portion relating to target-based variable compensations, which is set individually for each manager. In 2008, both the annual profi t target and the free cash fl ow target were not fulfi lled. Altogether, the percentage obtained for the variable portion of compensation paid to the Chairman of the Board of Directors and to the Chief Executive Offi cer represented 33% of the amount tied to the fulfi llment of annual targets. In 2007 the applicable percentage represented 26%. Consequently the actual compensation due in respect of 2008 was 60% of the target-based compensation, and 56% in 2007.
The table below presents the fi xed and variable compensation (gross amounts before employee contribution deductions) assuming fulfi llment of annual targets and the compensation effectively earned, in respect of each fi scal year:
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| (in euros) | Compensation assuming fulfi llment of annual targets |
Actural compensation earned in respect of the fi scal year |
% Actual compensation / Compensation assuming fulfi llment of annual targets |
Compensation assuming fulfi llment of annual targets |
Actural compensation earned in respect of the fi scal year |
% Actual compensation / Compensation assuming fulfi llment of annual targets |
| André Harari, Chairman of the Board of Directors |
||||||
| Fixed compensation | 190,000 | 190,000 | 100% | 190,000 | 190,000 | 100% |
| Variable compensation | 285,000 | 94,909 | 33% | 285,000 | 73,676 | 26% |
| Total | 475,000 | 284,909 | 60% | 475,000 | 263,676 | 56% |
| Daniel Harari, Chief Executive Offi cer | ||||||
| Fixed compensation | 190,000 | 190,000 | 100% | 190,000 | 190,000 | 100% |
| Variable compensation | 285,000 | 94,909 | 33% | 285,000 | 73,676 | 26% |
| Total | 475,000 | 284,909 | 60% | 475,000 | 263,676 | 56% |
The table below shows fi xed and variable compensation (gross amounts before deduction of social security contributions), fringe benefi ts, and director's fees due in respect of the fi scal year and amounts actually paid in the year.
| 2008 | 2007 | |||
|---|---|---|---|---|
| (in euros) | Amounts earned in respect of the fi scal year(1) |
Amounts paid in the year(1) |
Amounts earned in respect of the fi scal year(1) |
Amounts paid in the year(1) |
| André Harari, Chairman of the Board of Directors | ||||
| Fixed compensation | 190,000 | 190,000 | 190,000 | 190,000 |
| Variable compensation | 94,909 | 73,676 | 73,676 | 405,093 |
| Directors' fees(2) | 25,000 | 25,000 | 25,000 | 25,000 |
| Benefi ts in kind(3) | 24,680 | 24,680 | 18,758 | 18,758 |
| Total | 334,589 | 313,356 | 307,434 | 638,851 |
| Daniel Harari, Chief Executive Offi cer | ||||
| Fixed compensation | 190,000 | 190,000 | 190,000 | 190,000 |
| Variable compensation | 94,909 | 73,676 | 73,676 | 405,093 |
| Directors' fees(2) | 25,000 | 25,000 | 25,000 | 25,000 |
| Benefi ts in kind(3) | 20,366 | 20,366 | 12,766 | 12,766 |
| Total | 330,275 | 309,042 | 301,442 | 632,859 |
(1) Differences between amounts earned in respect of 2008 and 2007 and the amounts paid in 2008 and 2007 stem from leads and lags in the payment of this compensation. Allowance for variable compensation due in respect of a given fi scal year is made in the fi nancial statements of the said fi scal year, the fi nal amount being calculated after closure of the annual accounts and paid in the following fi scal year.
(2) Director's fees in respect of 2008 shown here are subject to approval by the Shareholders' Meeting of April 30, 2009.
(3) The amounts shown for fringe benefi ts refl ect the value for tax purposes of the use of company cars and payments to life insurance policies for André Harari (€11,730) and Daniel Harari (€6,032).
These amounts were paid in full by the parent company, Lectra SA. Directors and offi cers received no compensation or special benefi ts from subsidiaries controlled by Lectra SA under article L. 233-16 of the French Commercial Code (for the record, Lectra SA is not controlled by any other company).
Directors' fees paid are detailed in the table below. The total fi gure of €100,000 approved by the General Meeting of Shareholders on April 30, 2008 in respect of 2007 was divided equally among the directors (€25,000, or one quarter of the total, for each director).
| (in euros) | 2008(1) | 2007 |
|---|---|---|
| André Harari, Chairman of the Board of Directors | 25,000 | 25,000 |
| Daniel Harari, Chief Executive Offi cer | 25,000 | 25,000 |
| Hervé Debache, Director | 25,000 | 25,000 |
| Louis Faurre, Director | 25,000 | 25,000 |
| Total | 100,000 | 100,000 |
(1) Director's fees shown in respect of 2008 are subject to approval by the Shareholders' meeting of April 30, 2009.
The amounts indicated for André Harari and Daniel Harari are shown in the table above giving details of their total compensation.
Stock options are reserved for persons within the company or an affi liated company that are linked by an employment contract and/or in their capacity as an executive director, and who are entitled by law to receive stock options, whose responsibilities, missions and/or performance justify their being given a stake in the capital stock of the corporation by the granting of stock options. Additional disclosure on options granted is provided in chapter 7 of this report. No stock options have been granted to either André Harari or Daniel Harari. Neither of them has been entitled to receive any further stock options since 2000, under French legislation, insofar as each of them has held more than 10% of the capital stock since that date. Daniel Harari holds no stock options. André Harari, who held 340,680 options exercisable at a price of €16.17 (after adjustments for the outcome of the public stock buyback tender offer) until June 22, 2008, has not exercised any options. He no longer holds any options.
André Harari holds no directorship or general management position in any company other than the parent company, Lectra SA.
Daniel Harari holds no directorship or general management position in any company other than the parent company Lectra SA and certain of its international subsidiaries. He is Chairman of the Board of Directors of Lectra Sistemas Española SA and of Lectra Italia SpA and President of Lectra Systems (Shanghai) Co. Ltd, all of which are direct subsidiaries of Lectra SA, located respectively in Spain, Italy, and China. He has also been a member since December 1, 2008 of the Board of Directors of Lectra USA Inc., a direct subsidiary of Lectra SA in the United States. Finally, he was also a member of the Board of Directors of Lectra Technologies India Private Limited until July 4, 2008. Louis Faurre holds no outside directorship or general management position outside Lectra SA.
Hervé Debache is director and Executive Vice-President of AWF Financial Services (France), which specializes in fi nancial engineering, mergers and acquisitions and private equity fi nancing. He is also a director of Cyber Capital (France), a venture capital company specializing in audiovisual and media companies. These directorships are held in France.
Transactions Subject to article L. 621-18-2 of the French Financial and Monetary Code and article 223-22 of the General Regulation of the Autorité des Marchés Financiers No trading in the shares of Lectra, as referred to in article L. 621-18-2 of the French Financial and Monetary Code and article 223-22 of the General Regulation of the AMF, was carried out in 2008 by directors or by Jérôme Viala and Véronique Zoccoletto, who are members of the Executive Committee, and who are the only senior executives (other than the directors) having the power to make management decisions regarding the company's development and strategy and with regular access to inside information concerning the company; Jérôme Viala and Véronique Zoccoletto did not exercise any stock options in 2008.
The company complies with the new regulations regarding the fi nancial disclosure obligations of companies listed on Euronext, which took effect on January 20, 2007. These obligations are spelled out in Title 2, Book II of the General Regulation of the AMF concerning periodic and continuous disclosure. The General Regulation defi nes regulated disclosure in the form of a list of reports and information to be disclosed by companies, together with rules governing its dissemination and storage. Lectra has recourse to the services of Hugin, a professional information provider approved by the AMF that satisfi es the criteria laid down in the General Regulation. At the same time as being published, the regulated information is fi led with the AMF and published on the company's website.
The Lectra Group booked a total of €873,000 in fees for the audit of the fi nancial statements of the parent company and all of its subsidiaries in 2008, including €680,000 to PricewaterhouseCoopers and €193,000 to KPMG, as detailed below:
| PWC | KPMG | |||||||
|---|---|---|---|---|---|---|---|---|
| Amount | % | Amount | % | |||||
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| Audit | ||||||||
| – Statutory audits, certifi cation and examination of individuals and consolidated fi nancial statements |
||||||||
| Issuer (Lectra S.A.) | 150 | 139 | 22% | 19% | 142 | 129 | 74% | 76% |
| Fully-consolidated subsidiaries | 417 | 426 | 61% | 59% | 51 | 41 | 26% | 24% |
| – Others services directly related to the Auditors' engagement |
||||||||
| Issuer (Lectra S.A.) | – | – | – | – | – | – | – | – |
| Fully-consolidated subsidiaries | – | – | – | – | – | – | – | – |
| Sub-total | 567 | 565 | 83% | 79% | 193 | 170 | 100% | 100% |
| Other services consolidated subsidiaries | ||||||||
| – Legal, tax and social reviews | 113 | 151 | 17% | 21% | – | – | – | – |
| Sub-total | 113 | 151 | 17% | 21% | – | – | – | – |
| Total | 680 | 716 | 100% | 100% | 193 | 170 | 100% | 100% |
Appointment of Statutory Auditors and Alternate Statutory Auditors
The Shareholders' Meeting of April 30, 2008 renewed the appointments of PricewaterhouseCoopers Audit and KPMG as Statutory Auditors for a period of six fi scal years expiring at the end of the Ordinary Shareholders' Meeting called to approve the fi nancial statements for fi scal year 2013. In virtue of the "six-year rotation" principle concerning members of audit fi rms signing the fi nancial statements, Jean-Pierre Raud has been replaced by Anne Jallet-Auguste at the time of KPMG's reappointment, while Christian Libéros will remain co-signatory until the Ordinary Shareholders' Meeting called to approve the fi scal 2010 fi nancial statements. This rotation also applies to Marc Ghiliotti, signatory for PricewaterhouseCoopers Audit, who will be replaced by Bruno Tesnière at the end of the Ordinary Shareholders' Meeting of April 30, 2009. Further, Franck Cournut was reappointed as alternate Statutory Auditor by the Ordinary Shareholders' Meeting of April 30, 2008, and Jacques Denizeau, alternate Statutory Auditor, was replaced by Étienne Boris. These two appointments will run for a period of six years expiring at the end of the Ordinary Shareholders' Meeting called to approve the fi nancial statements for fi scal year 2013.
Article L. 225-100-3 requires companies whose securities are eligible for trading on a regulated market to disclose and where applicable to explain the following items if they are liable to be material in the event of a public tender offer:
– the structure of the company's capital stock;
– any restrictions contained in the by-laws on the exercise of voting rights and on the transfer of shares, or clauses contained in agreements notifi ed to the company in application of article L. 233-11 of the French Commercial Code;
– direct or indirect shareholdings in the capital of the company known to it in virtue of articles L. 233-7 and L. 233-12;
– the list of holders of all securities carrying special control rights and the description thereof;
– control mechanisms provided for in the event of an employee share ownership system, when the employees do not exercise controlling rights;
– agreements between shareholders that are known to the company and that may entail restrictions on the transfer of shares and on the exercise of voting rights;
– the rules governing the appointment and replacement of members of the Board of Directors and amendments to the company by-laws;
– the powers of the Board of Directors and in particular concerning the issuance or buyback of shares;
– agreements entered into by the company that will be modifi ed or terminated in the event of change of company control;
– agreements providing for the payment of indemnities to members of the Board of Directors or employees in the event of resignation or dismissal without genuine and serious cause, or if their employment is terminated by reason of a public tender offer.
Under present conditions, none of these items is liable to be of consequence in the event of a public tender offer for the shares of Lectra SA, subject to the stipulations contained in the contract governing the €48 million loan granted to the company by Natixis and Société Générale on June 8, 2007 to fi nance the public stock buyback tender offer. This contract entitles each of the lenders to demand early repayment of the balance of the loan outstanding in the event that one or more of the company's shareholders, acting in concer—with the exception of André Harari and/or Daniel Harari—came to hold more than 50% of the capital stock and/or voting rights.
The Group's "relational value player" strategy implies forging and maintaining long-term relationships with customers in order to optimize their installed base of Lectra technologies and accompany them in their development. The sustainable development of its activities worldwide depends primarily on the expertise of its teams and on its sales and service network of subsidiaries in close proximity to its customers.
Since 2005, Lectra has undertaken major programs to drive forward the company's transformation in depth in order to respond to the deep changes taking place in its markets, boost its competitiveness and concentrate its resources in order to fulfi ll its growth potential.
2008 was a diffi cult year. As a result, steps were taken to slow the implementation of the recruitment plan introduced in 2005 at the fi rst signs pointing to the economic crisis. The company has taken the necessary measures to tighten its control over its human resources management, to clarify and refocus its priorities with a view to streamlining organizations and their processes, and to further boost the effectiveness of its marketing and sales organization. Human capital is a key factor in the performance of the Group. A key focus of the human resources plan is to continue investing signifi cantly in training and skills management, to ensure Lectra's work force is suitably qualifi ed and adapted to the strategic challenges facing it.
Lectra Group's economic headcount at December 31, 2008 was 1,518 worldwide, with a broad array of industry skills and talents. Of these, 55.5% are dedicated to marketing, sales and services activities, 14.5% to research and development, 11% to production and logistics, and 19% to administration and fi nance, human capital management and information systems.
98% of Group employees are on open-ended contracts. Fixed-term contracts apply mainly to persons hired to replace staff on maternity or long-term leave. Thanks to a proactive policy of promoting parity (men account for 63% of total staff), women accounted for 49% of hiring in 2008, compared with 43% in 2007 (the fi gure has been rising in recent years).
Lectra operates in a multicultural environment and shares its know-how with its clients the world over. Its work force is spread across 31 subsidiaries, with more than 50 nationalities represented. Lectra's objective is to hire the best international talent and develop their skills, both at headquarters and in its subsidiaries. This diversity is a major source of wealth and a key competitive advantage for the Group.
One of the company's core values is respect for the individual. Lectra rejects all notion or practice of discrimination between people, on grounds of sex, age, handicap, ethnic origin, social origin or nationality, notably.
Hiring people with a wide diversity of profi les and skills development are a company priority since 2005 to ensure perfect adequacy between the skills and competencies of its teams and the strategic challenges facing the Group. The goal in this process is to identify, develop and retain talent, bolster the Group's attractiveness worldwide, and to manage its employees' careers. As in 2007, 30% of its headcount have joined it in the last thirty-six months. Training plays a central role in skills development and transmitting the corporate culture. The company organizes a broad array of training to enable its employees the world over to develop their professional competencies and their industry know-how. It has greatly expanded its training activities since 2005 with the establishment of the Lectra Academy training center at Bordeaux-Cestas, staffed by a wholly-dedicated team working directly with the heads of each department. They design and implement training plans geared to the specifi c nature of the company's different businesses. Seminars are organized by Lectra Academy and run by outside instructors and/or Group experts in their respective area of competence.
The Group invested €2.8 million in training in 2008, representing 3.6% of total staff costs (versus €3 million and 3.9% of the Group payroll in 2007). 71% of employees attended at least one training program (75% in 2007), and the number of training days amounted to 5,200 (versus 6,600 in 2007). This still represents a very substantial training effort given that 2007 was an exceptional year. That year saw very extensive training programs at the beginning of that year, concerning more than 500 people, to accompany the launch of the new product offering and deployment of the new IT system.
The company subcontracts the production of subassemblies of the CAD/CAM equipment it markets to a network of regional, national and foreign fi rms (most of them located in European Union countries). These sub-assemblies are then assembled and tested at the Bordeaux-Cestas industrial facilities. Other subcontracted activities are mainly confi ned to cleaning and maintenance of premises and green areas, to security, staff canteens, packing and transportation of equipment shipped the world over. The company is not aware of any violation by its subcontractors and foreign subsidiaries of the fundamental provisions of the International Labor Organization (ILO).
As a world leader, Lectra believes it has a responsibility to actively help students in their personal development and preparation for their career, especially in the fashion industries. For the past several years the company and its foreign subsidiaries have forged partnerships with more than 680 schools based in 30 countries on 5 continents. These partners mainly comprise:
The company has intensifi ed its relations with the educational community starting in 2007. It embarked on a new partnership policy providing increased support for tomorrow's professionals and assisting them throughout the duration of their studies. Partnerships are adapted to the specifi c characteristics of each institution, including the nature of their programs and their students' course requirements. In particular, it has signed 24 "privileged" (the most wide-ranging) partnerships with top schools and universities in France, Switzerland, Italy, the United States and China.
Lectra offers these students access to its latest technologies and to the full extent of its expertise, so that instructors can incorporate these into their programs. It also offers internships and actively recruits students graduating from these institutions.
In addition within the framework of certain partnerships, Lectra affords students opportunities to gain practical experience of new technological innovations and of real world business activities through seminars, in which they benefi t of the experience of its best experts and by offering its support as well as an exceptional showcase for their fi nal course projects, notably thanks to its international network and dedicated website.
These partnerships are part of a joint and customized approach, forming part of a long-term reciprocal commitment.
The company invests heavily in R&D annually. Lectra employs 218 engineers dedicated to R&D, including 197 in France, 15 in Spain, and 6 in Germany. They span a wide array of specialties across a broad spectrum from software development through electronics, mechanical engineering, online services, and expert knowledge of the Group's clients' businesses.
The company also has recourse to specialized subcontractors, accounting for a small proportion of its total R&D spending, especially for certain specifi c software developments and tests. As stated above, all R&D expenditures are fully expensed in the year and booked in fi xed overheads. Before deduction of the research tax credit and grants relating to specifi c programs, these expenditures totaled €18.3 million in 2008, or 9.2% of revenues. The company has invested more than €80 million in R&D over the fi ve-year period 2002-2006. One signifi cant outcome was the new technology offering launched at the beginning of 2007.
Year-by-year, these investments have enabled the company to maintain and even strengthen its technology lead over its competitors.
The Shareholders' Meeting of April 30, 2008 renewed the program existing since the Shareholders' Meeting of April 30, 2007, and granted authority to the company to trade in its own shares for a period of eighteen months from the date of the said Meeting.
Moreover, the Shareholders' Meeting of April 30, 2007 had authorized the Board of Directors, for a period of twenty-four months ending April 30, 2009, to cancel shares representing up to 10% of the capital stock held by the company, or shares that it may come to hold as a result of purchases already made or made within the framework of the buyback program decided by the said Meeting or of any future authority that may be granted by an Ordinary Meeting of Shareholders pursuant to article L. 225-209 of the French Commercial Code. In accordance with the General Regulation of the AMF published on January 18, 2006, which notably abolishes the need for a visa on the information document presenting stock buyback programs, replacing the latter by a "program description", the company made this document available to shareholders on its website and on that of the AMF on March 21, 2008.
The company has not made any purchases or sales within the framework of the mandate given to SG Securities (Paris) (part of the Société Générale Group) to purchase company shares on its account in accordance with the terms of the program authorized by the Shareholders' Meeting.
Between January 1 and December 31, 2008, the company purchased 302,758 shares at an average price of €3.92 and sold 45,596 shares at an average price of €3.57, under the Liquidity Agreement administered by SG Securities (Paris), and in compliance with the Charter of Ethics established by the Association Française des Entreprises d'Investissement (AFEI, French association of investment companies) and approved by AMF.
The company consequently held 358,459 (or 1.3%) of its own shares at December 31, 2008, with a par value of €0.97, purchased at an average price of €4.18 and fully held within the framework of this contract.
The Board of Directors has proposed to the General Meeting of Shareholders of April 30, 2009 to renew the share buyback program pursuant to article L. 225-209 of the French Commercial Code, for a period of eighteen months from the date of the next Annual Meeting of Shareholders, i.e. until October 30, 2010.
In light of the public stock buyback tender offer in 2007 and the current fi nancial condition of the company, the new program's objectives have been scaled back by comparison with earlier years, and are confi ned to maintaining market liquidity in Lectra shares. The program will be carried out by an investment services provider acting under a liquidity agreement compliant with the Charter of Ethics established by the AFEI or any other code of conduct approved by AMF. Concerning the new share buyback program, the company will act in conformity with the requirements of French law with regard to the maintenance of suffi cient retained earnings and the elimination of voting rights attached to treasury shares.
As previously, this program will concern a variable number of shares such that the company does not come to hold a number of treasury shares exceeding 10% of the capital stock (representing 2,849,551 shares at the time of preparation of this report) adjusted for transactions affecting it subsequent to the Shareholders' Meeting of April 30, 2009, where appropriate. Shareholders are reminded that it will not be possible in any circumstances, under this program, to hold a number of shares representing 10% of the existing capital stock. The shares may be repurchased in all or in part by trading in the market or over-the-counter, including by block purchases, by recourse to warrants or to securities carrying a right to shares in the company in accordance with the terms established by the AMF, and at such times as may be decided by the Board of Directors or any person acting on the authority of the Board.
The Board of Directors will provide shareholders with the information required in articles L. 225-211 of the French Commercial Code, in its reports to the Annual Meeting of Shareholders.
The Board of Directors has proposed the following terms: – maximum purchase price: €10 per share;
– maximum amount to be utilized in the stock buyback program: €2.5 million.
If the shareholders approve this resolution, the new program will replace the one authorized by the General Meeting of Shareholders of April 30, 2008. It will have a duration of eighteen months from the date of the Annual Meeting of Shareholders, e.g., until October 30, 2010. In accordance with the General Regulation of the AMF, the company will make this program description available to shareholders on its website (www.lectra.com) and on that of the AMF (www.amf-france.org). A printed copy can be obtained free of charge (on application to Lectra, Investor Relations department, 16 18 rue Chalgrin, 75016 Paris, France).
No signifi cant event has occurred since December 31, 2008.
The Annual Shareholders' Meeting will take place on April 30, 2009.
First, second, and third quarter earnings for 2009 will be published on April 29, July 30, and October 28, 2009, respectively, after the close of trading on Euronext. The audited fi nancial results for 2009 will be published on February 11, 2010.
Article L. 225-100 of the French Commercial Code, as amended by the Executive Order (Ordonnance) of June 24, 2004, requires that the Management Discussion and Analysis comprises a table summarizing the authorities and powers granted to the Board of Directors by the Shareholders' Meeting, with respect to capital increases in application of articles L. 225-129-1 and L. 225-129-2 of the French Commercial Code, and their utilization by the Board of Directors in the course of the year. The table is attached to this report. The Extraordinary General Meeting of April 28, 2006 approved a general renewal of the authorities granted by the General Meeting of Shareholders of April 30, 2004 (not utilized by the Board of Directors) and extended its delegation of powers to include the new measures authorized under the law and regulations following the Executive Order (Ordonnance) no. 2004-604 reforming the legislation on securities issued by commercial companies. Within the framework of the "global delegation" mechanism, the Extraordinary General Meeting of April 28, 2006 delegated to the Board of Directors the power to increase the capital stock by a maximum par value of €15 million, excluding additional paid-in capital (i.e., a maximum of 10 million shares with a par value of €1.50). Moreover, in the event of a bond issue carrying a right to equity in the capital stock by conversion, exchange or otherwise, the Extraordinary General Meeting delegated authority to the Board of Directors to issue bonds for a maximum nominal amount of €100 million, allowing for the duration of the bonds and the anticipated appreciation of the company's shares over the said period. The Extraordinary General Meeting of April 28, 2006 also granted authority to the Board of Directors, within the framework of its "global delegations of authority" to increase the capital stock of the company by means of public offerings representing up to 10% of the said capital stock per year, within the aforementioned maximum par value of €15 million. It further authorized the Board of Directors
to increase the number of shares for issuance in the event of a capital increase, with or without the maintenance of preferential subscription rights, within the limit of 15% of the initial issuance, and within the aforementioned maximum amount. It further granted authority to the Board of Directors to increase the capital stock in remuneration of capital contributions in kind, up to a limit of 10% of the capital stock, within the aforementioned maximum amount. In addition, it granted authority to the Board of Directors to increase the capital stock within the framework of a stock option plan up to a maximum par value of €2.7 million.
Finally, it granted to the Board of Directors the necessary authority to increase the capital stock up to a maximum par value of €25 million, in one or more installments, by capitalization of all or part of retained earnings, additional paid-in capital, or merger or transfer premiums, by raising the par value of the shares. This capital increase, if carried out, would be distinct from the "global delegation". These delegations had a duration of twenty-six months from the date of the Shareholders' Meeting, i.e., until June 28, 2008 inclusive, with the exception of the delegation authorizing the issuance of securities for the benefi t of a category of designated persons, which had a duration of eighteen months, expiring on October 28, 2007, and the delegation for a duration of thirty-eight months expiring on June 28, 2009, authorizing the issuance of shares within the framework of a stock option plan.
The Board of Directors has not made use of these authorities, with the exception of the authority to issue shares within the framework of a stock option plan.
Further, the Extraordinary Shareholders' Meeting of April 30, 2008 authorized the issuance of shares within the framework of a stock option plan for a duration of thirtyeight months expiring on June 30, 2011 (see chapter 7). This authority automatically terminated the authority to issue shares within the framework of a stock option plan, decided by the aforementioned Extraordinary Shareholders' Meeting of April 28, 2006.
At the time of this report, macroeconomic conditions are more uncertain than ever: the unprecedented scale of the 2008 economic and fi nancial crisis continues to undermine national economies and businesses alike, despite the signifi cant measures taken by most governments. The year 2009 will therefore be a diffi cult one, for all companies around the world: the current conditions call for extreme vigilance.
Once the crisis is over, however, companies in the different geographical and market sectors served by the company will presumably need to acquire the technologies required to boost their competitiveness. Lectra customers may also begin to catch up on investments frozen or shelved for the past several quarters.
The company therefore remains confi dent in the strength of its business model and its medium-term growth prospects. The major objectives in its strategic plan are unchanged: to increase the technological advance and high value of its product and service offer, to strengthen its competitive position and its long-term relationship with its customers, to accelerate the pace of organic growth once the crisis is over, to increase profi tability by regularly increasing the operating margin, and to generate free cash fl ow exceeding net income (assuming full utilization of the research tax credit accumulated during the year). The fi gures for 2009 referred to below are based on the assumption of an average parity of \$1.40/€1 used for the 2009 budget (compared with an average parity of \$1.47/€1 in 2008)—changes are like-for-like compared to the 2008 results translated at the exchange rates used for 2009.
Lectra has demonstrated its resilience whenever it has experienced diffi cult periods in its history. Its prime objective for the coming months is therefore to take the necessary measures rapidly in order to emerge strengthened from the economic crisis. As early as September 1, 2008, the Executive Committee and the Strategic Committee of the Board of Directors sought a clear view of the many dimensions of this complicated and uncertain situation, in order to frame the company's action plan for 2009.
As a result, the necessary measures were taken very rapidly and implemented with immediate effect as of January 1. At a time when the global economic paradigm has changed radically, decisions must more than ever be made from a medium-term perspective, independently of fi nancial market reactions and of any short-term measures. The overriding imperatives of the 2009 action plan are to preserve the company's strategic assets, leverage its strengths, and continue to build the future. This action plan grew out of an exploration of every possible form of action capable of lowering the company's breakeven point, by cutting its fi xed overhead costs, safeguarding its margins, raising its security ratio (i.e., the coverage of annual fi xed overhead costs by gross margin on recurring revenues), and returning to a signifi cant positive free cash fl ow. The two immediate imperatives are to preserve the company's short term fi nancial position and limit its risk exposure. This approach has also clarifi ed and refocused the company's priorities. All of the company's resources have been mobilized to ensure the plan's success. The key parameters of the 2009 action plan are:
– fi xed overhead costs of €113.8 million, down by €12.5 million (–10%) like-for-like relative to the €126.3 million budgeted for fi scal 2008, and down 5% relative to actual fi gures for 2008 which already refl ected the impact of the savings measures initiated in the second half;
– preserving the gross margin at the same level as in 2008; – keeping recurring revenues stable or growing them slightly;
– consequently increasing the company's security ratio by 4 percentage points relative to 2008 and by 8 percentage points relative to 2007, to 72% at January 1, 2009.
If the impact of the crisis proves greater than currently foreseen in the experts' scenarios, the company will be obliged to take additional cost-cutting measures in order to lower its fi xed overheads further.
The company has opted to not formulate a view of its outlook for 2009, given the total lack of visibility. Macro-economic conditions are expected to remain deteriorated over the coming quarters and orders for new software licenses and CAD/CAM equipment persistently weak, although it is impossible to estimate the extent of this weakness.
The main uncertainty for 2009 therefore concerns the level of revenues from sales of new systems. This uncertainty is all the greater since the year has begun with a particularly weak backlog, contrary to the exceptionally strong fi gure at the beginning of 2008. Consequently, if the volume of orders remains stable in 2009 relative to 2008, this would lead to a 12% decline in revenues from new systems. The company expects that, in all probability, it will register an operating loss in Q1 2009.
The 2009 action plan allows for fi xed overhead costs to be adjusted so as to reach the company's breakeven point (i.e., to keep net income positive) if orders for new software licenses and CAD/CAM equipment booked in 2009 are 15% less than in 2008 (representing a decline of 42% relative to 2007). Corresponding revenues would be €178 million and income from operations €1.7 million.
In the company's business model, each increase or decrease of €1 million in revenues from new systems sales would respectively increase or reduce income from operations by approximately €0.4 million.
Further, a persistent strengthening of the dollar would have two positive effects for Lectra: it would have a mechanical impact on its activity and fi nancial results, and it would bolster its competitiveness (its main competitor being American).
An average rise in the dollar of \$0.05 against the euro, taking the parity from \$1.40/€1 (the parity assumed in the 2009 budget) to \$1.35/€1, would mechanically increase revenues by around €2 million and income from operations by around €1 million. Conversely, a fall in the dollar of \$0.05 would decrease revenues and income from operations by the same amounts.
At the date of this report, the company has hedged approximately 70% of its exposure to the dollar for 2009 (estimated at \$33−\$38 million) through monthly forwarddollar sales at an average parity of \$1.30/€1. At the same time, free cash fl ow before non-recurring items will be lifted in 2009 by the early reimbursement by the French Inland Revenue Service (Trésor public) of the total fi gure of €14 million in respect of research tax credit
recognized in the balance sheet at December 31, 2008. This item should therefore be comfortably positive in all fi nancial scenarios.
The Board of Directors March 3, 2009
note to chapiter 13 of the Management Discussion
| Type of issue | Authorization date |
Maturity | Term | Maximum amount | Utilization 2006-2008 |
|---|---|---|---|---|---|
| General authorities granted | |||||
| Issuance of securities granting access to equity in the capital stock with maintenance of preferential subscription rights |
April 28, 2006 | June 28, 2008 | 26 months | Capital* : € 15,000,000 Debt : € 100,000,000 |
Unused - Expired |
| Issuance of securities granting access to equity in the capital stock with waiver of preferential subscription rights |
April 28, 2006 | June 28, 2008 | 26 months | Capital* : € 15,000,000 Debt: € 100,000,000 |
Unused - Expired |
| Issuance of securities by public offering within an annual limit of 10% of capital stock |
April 28, 2006 | June 28, 2008 | 26 months | 10% of capital stock per year |
Unused - Expired |
| Increase in number of securities for issuance in the event of a capital increase, with or without waiver of preferential subscription rights in case of overallocation |
April 28, 2006 | June 28, 2008 | 26 months | Capital*: 15% of initial issue and at same price |
Unused - Expired |
| Increase of capital by capitalization of reserves, additional paid-in capital, or earnings |
April 28, 2006 | June 28, 2008 | 26 months | Capital* : € 25,000,000 | Unused - Expired |
| Issuance of securities in remuneration of capital contributions in shares |
April 28, 2006 | June 28, 2008 | 26 months | 10% of capital stock | Nil - Expired |
| Specifi c authorities granted in favor of employees and directors and offi cers |
|||||
| Stock options | April 28, 2006 | June 28, 2008 | 38 months | Capital* : € 1,746,000(1) | Amount utilized: € 1,085,847 |
| Stock options | April 30, 2006 | June 30, 2008 | 38 months | Capital* : € 1,455,000 | Amount utilized: € 487,767 |
| Total authorized, non expired and |
unutilized at December 31, 2008 € 1,627,386
* Par value.
(1) The General Shareholders Meeting of April 28, 2006 authorized the creation of a new stock option plan for a maximum of 1,800,000 options with a par value of €1.50. The maximum amount and amounts utilized at December 31, 2008 are shown with the par value of the shares at December 31, 2008, i.e. €0.97 (see note 9.5 to the consolidated fi nancial statements).
"We certify that, to our knowledge, the fi nancial statements have been prepared in accordance with currently applicable accounting standards and provide a fair view of the assets, fi nancial condition, and results of the company and of its consolidated companies. We further certify that the management discussion and analysis presents a true and fair view of the operations, results, and fi nancial condition of the parent company and consolidated companies, together with a description of the main risks and uncertainties faced by the company."
Paris, March 3, 2009
Daniel Harari Jérôme Viala Chief Executive Offi cer Chief Financial Offi cer
The French Financial Security Act of August 1, 2003, modifying the obligations of French sociétés anonymes, notably amended article L. 225-37 of the French Commercial Code. This requires the Chairman of the Board of Directors of a société anonyme to append to the Management Discussion and Analysis of Financial Condition and Results of Operations a report giving details of the manner in which the Board's proceedings are prepared and organized, and on the company's internal control procedures. The French December 30, 2006 "Employee Profi t Sharing and Share Ownership Development Act" (law no. 2006-1770) again amended article L. 225-37 of the French Commercial Code. Under the amended legislation, the report of the Chairman of the Board of Directors on conditions governing the preparation and organization of board proceedings and on internal control procedures is also required to describe the principles and rules established by the Board regarding compensation and benefi ts of all kind of the company's executive directors (mandataires sociaux).
The French law no. 2008-649 of July 3, 2008, which amends various aspects of French company law in order to comply with European Union law (and transpose Directive 2006/46/EC amending the directives on the annual fi nancial statements and consolidated fi nancial statements) has further amended the terms of article L. 225-37 of the French Commercial Code. In particular, this requires that, when a company voluntarily refers to a code of corporate governance framed by representative organizations of corporations, the report of the Chairman on internal control procedures and corporate governance must identify the provisions it has chosen not to apply and the reasons for doing so. Alternatively, if the company does not refer to any such code of corporate governance, the report must state which rules it has adopted in addition to those required by law and explain why the company has decided not to apply any of the provisions of this code of corporate governance. Furthermore, the Autorité des Marchés Financiers (AMF – French fi nancial markets authority) published the reference framework of this report, together with an application guide in its Recommendation of January 22, 2007. In the position issued on January 9, 2008 by the working group on the adaptation of fi nancial regulations to smaller and mid-sized market participants, chaired by Yves Mansion, the AMF has
published a specifi c application guide for implementation of this reference framework by these companies. Finally, in reply to the call issued by the President of the French Republic on the occasion of his speech of September 25, 2008, the Afep (Association Française des Entreprises Privées – Association of French Private Corporations) and the Medef (Mouvement des Entreprises de France – French Business Confederation) published a set of recommendations on October 6, 2008, concerning the compensation of executive directors of companies whose shares are listed for trading on a regulated market, for the guidance of compensation committees. These recommendations have subsequently been consolidated with the AFEP and MEDEF report of October 2003 and their recommendations of January 2007 on the compensation of executive directors of listed companies to comprise the Code of Corporate Governance of listed companies of December 2008, hereafter referred to as the "AFEP-MEDEF Code". The French government further called on the Boards of Directors of the companies concerned to formally accept these recommendations by the end of 2008 and to ensure that they are enforced rigorously. In response to this demand, the Board of Directors issued a statement on November 28, 2008, declaring that the company:
– has already been in spontaneous compliance with these recommendations for many years with regard to André Harari and Daniel Harari in their respective capacities as Chairman of the Board of Directors and Chief Executive Offi cer;
– has decided unanimously to adopt the recommendations issued jointly by the AFEP and the MEDEF as the code of corporate governance to which the company shall voluntarily refer in matters of compensation of its executive directors, and to comply with its provisions or, should any of these provisions be deemed inappropriate with respect to the specifi c circumstances of the company, to explain the reasons for not applying them, as prescribed in article L. 225-37 of the French Commercial Code. This report describes (i) the conditions in which the Board prepared and organized its proceedings in the fi scal year ended December 31, 2008, (ii) the internal control and risk management procedures implemented by the company, (iii) the rules established by the Board of Directors for
the purpose of determining the compensation and benefi ts of executive directors, and (iv) identifi es which of the recommendations of the AFEP-MEDEF Code have been considered ill-suited to the particular characteristics of the company, and explains the reasons for not applying them, as prescribed in article L. 225-37 of the French Commercial Code. This report was submitted and commented on to the Audit Committee and approved by the Board of Directors at their meeting of March 3, 2009.
The Board of Directors is responsible under French law for setting the company's strategy and direction for company operations, and for overseeing their implementation. In 2002, as permitted under the newly enacted New Economic Regulations Act of May 15, 2001, the Board of Directors separated the functions of Chairman of the Board of Directors from those of Chief Executive Offi cer. The Chairman of the Board is responsible for organizing and directing the Board's proceedings, and for reporting to the General Meeting of Shareholders; he is also responsible for ensuring the proper operation of the company's management bodies. The Chief Executive Offi cer is invested with full powers to act in the company's name in all circumstances and represents the company in its dealings with third parties. He may be assisted by one or more Executive Vice-Presidents. As required in the second resolution of the Extraordinary Shareholders' Meeting of May 3, 2002, the Chief Executive Offi cer must be a member of the Board of Directors.
The Board of Directors has four members, out: André Harari, Chairman of the Board of Directors, Daniel Harari, Hervé Debache, and Louis Faurre. Article 12 of the company's by-laws stipulates that each director must hold at least one share of the company throughout his or her term as a director.
At December 31, 2008, André Harari held 5,606,851 of the company's shares, and Daniel Harari 5,507,560 shares. Also, at that date, Louis Faurre held 65,296 of the company's shares, and Hervé Debache directly held one share and indirectly held 140,000 shares through AW Financial Services, of which he holds 25% of the capital and is a director and Executive Vice-President.
André Harari, who is Chairman of the Board of Directors, and Daniel Harari, the Chief Executive Offi cer, are the two executive directors and as such are not deemed to be independent.
To comply with the rules of corporate governance, as set forth in the AFEP-MEDEF Code, the Board of Directors must include at least two independent directors. A director is deemed to be independent of company's management when there is no relationship whatever between him and the company or the group to which it belongs liable to compromise the said director's freedom of judgment. Such is the case for two of the four members of the Board of Directors, namely Hervé Debache and Louis Faurre. One of the criteria of independence in the AFEP-MEDEF Code concerns the length of a director's term, specifying that a person who has been a director for more than twelve years can no longer be deemed independent. This is now the case for Louis Faurre and Hervé Debache. All of the other criteria of independence, apart from the fact of having been directors for more than twelve years, are satisfi ed. At the motion of the Board of Directors, the Shareholders' Meeting of April 30, 2008 re-elected Louis Faurre and Hervé Debache to the Board for a further six-year period expiring at the close of the Ordinary Shareholders' Meeting called to approve the fi nancial statements for fi scal year 2013. Louis Faurre and Hervé Debache were fi rst elected to the Board by the Ordinary Shareholders' Meeting of May 22, 1996, and were re-elected by the Ordinary Shareholders' Meeting of May 3, 2002. In furtherance of the company's strategic aims, and having particular regard to the diffi cult macroeconomic conditions prevailing since 2007, in its recommendations to the Meeting of April 30, 2008, the Board considered that it would be in the interests of the company and its shareholders to continue to benefi t from their experience and deep knowledge of the company.
The AFEP-MEDEF Code recommends that duration of Board appointments laid down in the corporate by-laws should not exceed four years. This is not the case at Lectra, where for very many years the by-laws have stipulated a duration of six years.
The appointments of André Harari and Daniel Harari expire at the close of the Shareholders' Meeting called to approve the fi nancial statements for fi scal year 2012, while those of Hervé Debache and Louis Faurre will expire at the close of the Shareholders' Meeting called to approve the fi nancial statements for fi scal year 2013.
The Board of Directors has created 3 committees: an Audit Committee (2001), a Compensation Committee (2001) and a Strategic Committee (2004). Each committee has three members, including the two independent directors (in keeping with the rule requiring that independent directors represent a minimum of two thirds of each committee's members), the Audit Committee and the Compensation Committee being chaired by an independent director. Given the limited number of directors, the functions of the Nominating Committee as laid down in the AFEP-MEDEF Code is performed either by the Compensation Committee or by the Board of Directors in plenary session, depending on the case.
The AFEP-MEDEF Code recommends that the Audit and Compensation Committees contain no executive director. This is not the case, since the Board has considered it useful for the Chairman of the Board of Directors, André Harari, to take part in these committees (André Harari does not hold any operational position, being neither Chief Executive Offi cer nor Executive Vice-President, but he is closely involved in the oversight of the company's operations).
The members of the Audit Committee are Hervé Debache, Committee Chairman, Louis Faurre and André Harari. The AFEP-MEDEF Code requires the members of the Committee to be competent in fi nancial and accounting matters, and that, upon their appointment, they should be provided with information regarding the specifi c
accounting, fi nancial and operational characteristics of the company. This is the case with three of its members. In particular, the Chairman is a certifi ed accountant and a graduate of HEC Business School (Paris, France) and of Harvard Business School (International Teachers Program, United States).
As recommended by the AFEP-MEDEF Code, the mission of the Audit Committee is to:
– review the fi nancial statements, and in particular to ensure that the Company's accounting methods used in preparing the consolidated and statutory fi nancial statements are appropriate and permanent, and to review the effective implementation of processes for the preparation of fi nancial disclosure and of internal control and risk management procedures. The Committee scrutinizes important transactions liable to give rise to confl icts of interest;
– oversee application of the rules governing the independence and objectivity of the Statutory Auditors, guide the procedure for the selection of Statutory Auditors when their current appointment expires, and to make its recommendation to the Board of Directors. The Statutory Auditors also inform the Committee each year of fees paid to members of their network by Lectra Group companies in respect of fees not directly related to their mission as Statutory Auditors, as well as providing information to the Committee concerning the services performed in respect of audits directly related to their mission as Statutory Auditors.
The Audit Committee meets at least four times per year, before the Board meetings called to review the quarterly and annual fi nancial statements. The Statutory Auditors and the Chief Financial Offi cer attend all of these meetings. The Audit Committee held fi ve meetings in 2008. All members of the Committee were present or represented at all fi ve of its meetings, with an effective attendance rate, excluding proxies, of 93%. The review of the fi nancial statements by the Committee, which takes place quarterly, is accompanied by a presentation by the Chief Financial Offi cer of the company's results, accounting choices made, risk exposure and signifi cant off-balance sheet liabilities.
It is also accompanied by a presentation by the Statutory Auditors drawing attention to the essential points raised in regard to fi nancial results, together with accounting choices made. The Committee Chairman systematically asks the Statutory Auditors if their reports will be qualifi ed. The Audit Committee continuously oversees the preparation of the company accounts, internal audits and fi nancial communication, together with the quality and fairness of the company's fi nancial reports. The Chief Financial Offi cer assists the Committee in the discharge of its duties, and the Committee periodically reviews with him areas of potential risk to which it needs to be alerted or requiring closer attention. The Committee also works with him in reviewing and approving guidelines for the work program on management control and internal control for the year in progress. He also reviews the assumptions used in closing the consolidated and statutory, quarterly, half-year and annual fi nancial statements before they are submitted to the Board of Directors. In 2008, and on February 12, 2009, for the review of the fi scal 2008 fi nancial statements, the Committee notably reviewed the goodwill impairment tests, deferred tax assets at December 31, 2008, as well as the possible consequences of the arbitration procedure initiated by the company before the International Chamber of Commerce in London against Induyco, following the acquisition of Investronica in 2004, together with the accounting treatment of expenses relating to the arbitration. The Committee also reviewed the company's 2009 budget as well as the revenue and income from operations scenarios basing the information communicated to the market. For fi scal year 2009, it has in particular reviewed the plan to cut costs and to increase the Group's security ratio. It has also reviewed the question of the covenants contained in the €48 million medium-term loan contract and the corresponding negotiations with the lending banks; The Committee has not identifi ed any operations liable to give rise to a confl ict of interests.
Finally, the Committee reviews and discusses with the Statutory Auditors the scope of their engagement and their fees, and ensures that these are suffi cient to enable them to exercise a satisfactory level of control: each Group company is subject to an annual verifi cation, usually carried out by a local member of the Statutory Auditors' fi rms; a limited review is conducted on the half-year reporting
package of the main subsidiaries. At each meeting the Committee invites them to report on their control program and on new areas of risk they may have identifi ed in the course of their work, and it discusses the quality of accounting information with them. Once a year, it receives from the Statutory Auditors a report prepared exclusively for its attention on the fi ndings of their audit of the statutory and consolidated fi nancial statements for the year ended, and confi rming the independence of their fi rms in accordance with the French code of professional ethics and the August 1, 2003 Financial Security Act. The AFEP-MEDEF Code recommends that at the time of expiration of their appointment, the selection or renewal of the Statutory Auditors by the Audit Committee should be preceded by a call for tenders, to be decided by the Board and supervised by the Audit Committee, with the latter insuring selection of the "best bidder" and not the "lowest bidder". Giving priority to continuity and the expertise gained by its Statutory Auditors, the company did not comply with this recommendation on the occasion of the renewal in 2008 of the appointments of the full and alternate Statutory Auditors, but their fees were discussed. The Committee conducts an annual review with the Statutory Auditors of the risks to their independence. Given the size of the Lectra Group, there is no cause to review safeguard measures required in order to attenuate these risks: the size of the fees paid by the company and its subsidiaries and the share of revenues paid to the audit fi rms and their networks, are immaterial and are not therefore such as to impair the independence of the Statutory Auditors.
The Committee assures itself each year that the mission of the Statutory Auditors is exclusive of any other service unrelated to statutory audit, and in particular of any form of consulting activity (legal, tax, IT, etc.) directly or indirectly performed for the benefi t of the company and its subsidiaries. However, additional work or work directly complementing the audit of the fi nancial statements are performed after prior approval by the Committee, and the corresponding fees are insignifi cant.
The Committee has not seen fi t to call upon outside experts.
The members of the Compensation Committee are Louis Faurre, Committee Chairman, Hervé Debache and André Harari.
The mission of the Compensation Committee is broader than that laid down in the recommendations of the AFEP-MEDEF Code, and is to:
– lay down the principles and amount of fi xed and variable compensation, together with the corresponding annual targets serving to determine the variable portion thereof, and the additional benefi ts paid to executive directors and other members of the Executive Committee. At balance sheet date the Committee validates the actual amount corresponding to variable compensation earned during the year elapsed;
– review the fi xed and variable compensation of all Group managers whose annual compensation exceeds €145,000 or \$190,000;
– review prior to the meeting of the Board of Directors the procedures and regulations and the granting of stock option plans;
– be apprised annually of the Group's human resources performance report, of its policies and of the corresponding plan for the current fi scal year.
The Compensation Committee meets before each meeting of the Board whenever the setting of executive directors and other members of the Executive Committee's compensation and related benefi ts or the granting of stock options are placed on the Board's agenda. It also reviews the compensation of the Group's senior managers once a year. The Committee reviews in detail all corresponding documents prepared by the Chief Executive Offi cer and the Chief Human Capital Offi cer, and communicates its recommendations to the Board. The Committee met twice in 2008. All members of the Committee were either present or represented at both meetings, with an effective attendance rate of 100%.
For the reasons given above, the Board of Directors has not seen fi t to appoint a Selection or Nominating Committee, this mission being performed as required by the Compensation Committee or the Board of Directors in full session.
Moreover, the AFEP-MEDEF Code recommends that, when reporting on the proceedings of the Compensation Committee to the Board of Directors, the executive directors should be absent when the Board discusses and votes on their compensation. In view of the way in which the Board of Directors functions, the independent directors of the company, who are both members of the Compensation Committee, have not seen fi t to discuss the matter in the absence of the executive directors.
The members of the Strategic Committee are André Harari, Committee Chairman, Hervé Debache, and Louis Faurre.
The prime mission of the Strategic Committee is to review the coherence of the company's strategic plan, its key challenges, and the internal and external growth drivers allowing it to optimize its development in the medium term.
The Committee met four times in 2008, in particular to review the broad driving directions of the three-year business plan for 2008-2010, the different quantifi ed scenarios and the main phases contained in it. It also reviewed and discussed the main strategic challenges, risks and priorities for the Group for 2008, together with the broad outlines of its corresponding research and development, marketing and human resources plans. All of the Committee's members attended its meetings, resulting in a 100% effective attendance rate.
As the fi nancial and economic crisis spread worldwide in early-September, the Strategic Committee met three times in October and November. It has been kept closely informed of the impact of this situation on the operations of the Group and of the progress of the Executive Committee in drawing up the 2009 action plan, on which it has contributed recommendations.
The Strategic Committee also met on February 5, 2009, before the meeting of the Board of Directors called to close the fi nancial statements for fi scal year 2008. In particular it reviewed the defi nitive 2009 action plan, scrutinizing plans for its practical implementation as of January 1, 2009, together with the specifi c action plans for North America, the results of the fi rst PLM projects, and the main points of the research and development plan. All of the Committee's members were present.
Subjects that the Chairman of either of these committees wish to discuss are placed on the agenda of the Committee concerned. When an item on the agenda of the Board of Directors requires prior discussion by the Audit Committee, the Compensation Committee, or the Strategic Committee, the Chairman of the Committee concerned communicates his Committee's comments and recommendations, if any, to the full session of the Board. This communication enables the Board to be fully informed, thus facilitating its resolutions.
No decision within the competence of the Board of Directors is made by the Audit Committee, the Compensation Committee, or the Strategic Committee. All decisions required to be made by the Board of Directors, and in particular those concerning the compensation of executive directors and the granting of stock options or bonus shares issue programs to managers and employees, together with all external growth operations, are reviewed and approved in full sessions of the Board of Directors. Moreover, all fi nancial press releases and notices published by the company are submitted to prior review by the Board and the Statutory Auditors, and are published on the same evening after the close of Euronext.
The AFEP-MEDEF Code recommends that, at the time of reporting on the work of the Compensation Committee on the compensation of executive directors, the Board of Directors should discuss the matter in the absence of the latter. This has not been the practice at Lectra since all issues are discussed fully and openly by the Board in plenary session. However, André Harari and Daniel Harari abstain from voting on decisions concerning them.
The AFEP-MEDEF Code recommends the establishment of internal rules to govern the procedures of the Board of Directors and the Board Committees.
The Board of Directors has not seen fi t to introduce internal rules, considering that its size does not justify the institution of such rules to govern its proceedings and functioning.
The company's fi nancial calendar setting out the dates for the publication of quarterly and annual fi nancial results, those of the Annual General Meeting of Shareholders and the two annual analysts' meetings, is established before the end of the previous fi scal year. The calendar is published on the company's website and communicated to Euronext. The dates of six meetings of the Board of Directors are decided on the basis of this calendar. These comprise the quarterly and annual fi nancial results publication dates, approximately 45-60 days prior to the Annual General Meeting of Shareholders in order to review the documents and decisions to be presented, and approximately 20 trading days after the dividend approved by the Annual Meeting of Shareholders is made payable for the granting of the annual stock option plan. The Statutory Auditors are invited to, and systematically attend, these meetings (with the exception of the meeting to decide on the annual stock options plan). In addition, the Board also meets outside of these dates to discuss other subjects falling within its responsibilities (including all planned acquisitions or the review of the company's strategic plan) or those that the Chairman wishes to submit to the directors. The Chief Financial Offi cer was appointed Board Secretary in 2006, and is systematically invited to attend and takes part in all Board meetings, except when prevented from doing so.
The Board of Directors met seven times in 2008. All members of the Committee were present or represented at all seven of its meetings, with an effective attendance rate, excluding proxies, of 96%.
The agenda is set by the Chairman of the Board of Directors after consulting with the Chief Executive Offi cer, the Chief Financial Offi cer and, where appropriate, the Chairman of the Audit Committee or the Compensation Committee in order to place on the agenda all subjects they wish to be discussed at the forthcoming Board meeting. In advance of each Board meeting, a set of documents is systematically addressed to each director, to the employees' Works Council representatives and to the Chief Financial Offi cer, as well as to the Statutory Auditors for the four meetings called to review the fi nancial statements and for the meeting to prepare for the Annual General Meeting of Shareholders. Details of each item on the agenda are provided in a written document prepared by either the Chairman of the Board of Directors, the Chief Executive Offi cer, the Chief Financial Offi cer, or the Chief Human Capital and Information Offi cer, as required.
As in previous years, in 2008 all documents required to be communicated to the directors were made available to them in compliance with regulations. Further, the Chairman regularly asks directors if they require additional documents or reports in order to complete their information.
Detailed minutes are produced for each meeting and submitted to the Board of Directors for approval at a subsequent meeting.
The AFEP-MEDEF Code recommends that once a year the Board should devote an item on its agenda to a discussion of its own functioning. It also recommends a formal evaluation exercise every three years at least, and that the shareholders be informed annually of the performance of these evaluations. No such evaluation has been performed by the company.
The Board considers that, because of its small size, the comprehensive nature of the subjects discussed, the extent of its disclosure, and the fact that the directors have many years experience of working together and regularly discussing its functioning, this recommendation is satisfi ed informally, and that there is no need for a formal evaluation.
The AFEP-MEDEF Code further recommends that the outside directors meet periodically in the absence of the internal directors. In light of the functioning of the Board of Directors, the company's independent directors have not seen fi t to meet without the executive offi cers being present.
In its work, and in preparing this report, the Board referred to the principles set forth in the reference framework published by the AMF on January 22, 2007, and to the guide to implementing this recommendation for small and mid-sized companies, published in January 2008. The approach adopted for the purpose of carrying out these procedures and drawing up this report makes due allowance for issues specifi cally applicable to the company and its subsidiaries having regard to their size and respective activities.
This chapter refers to the parent company Lectra SA and to its consolidated subsidiaries.
The internal control system designed and implemented by the Group comprises a body of rules, procedures and charters. It also encompasses reporting obligations and the individual conduct of all of the players involved in the internal control system by virtue of their knowledge and understanding of its aims and rules.
This system aims at providing reasonable assurance of achieving the following objectives:
The company's internal control procedures are designed to provide assurance that the operations carried out in all Group companies comply with the laws and regulations in force in each of the countries concerned for the different areas in question (e.g. company, customs, labor and tax, etc. law).
A range of procedures have been put in place to defi ne the scope and the limits to the powers of action and decision of Group employees at all levels of responsibility. In particular these serve to ensure that the business of the Group is conducted in accordance with the policies and ethical rules laid down by General Management.
The purpose of the processes in place and procedures to control their application is to optimize the fi nancial performance consistently with the company's short and medium-term fi nancial goals.
Internal control procedures contribute to ensure the safeguarding of Group fi xed and intangible assets (such as intellectual property, company brands, customer relationships and corporate image), as well as the Group human capital, all of which play a key role in its property, business activity and growth dynamism.
Among the control mechanisms in place, special emphasis is placed on procedures for preparing and processing accounting and fi nancial information. Their aim is to generate reliable, high quality information that presents a fair view of the company's operations and fi nancial condition. In addition, these procedures are designed to produce timely quarterly and annual fi nancial statements, ready for publication 30 days after the close of each quarter at the latest, and a maximum of 45 days after fi scal year end. The internal control system put in place by Lectra covers all Group companies, taking into account their diversity in terms of size and the goals and situation of the different subsidiaries and the parent company. Similarly, the cost of implementing the system's performance target for covered risks versus residual risks is compatible with the Group's resources, its size and the complexity of its organization. While this system provides reasonable assurance of fulfi llment of the aforesaid objectives, it can provide no absolute guarantee of doing so. Many factors independent of the system's quality, in particular human factors or those attributable to the outside environment in which the company operates, could impair its effectiveness.
As indicated in Chapter 1, the Board of Directors is responsible under French law for setting the company's strategy and direction for company operations, and for overseeing their implementation. The Chairman of the Board is responsible for ensuring the proper operation of the company's management bodies.
The Audit Committee discusses the internal control system at least once a year with the Group Statutory Auditors. It gathers their recommendations and, notably, ensures that their level and quality of coverage are adequate. It reports on its proceedings and opinions to the Board of Directors. The Executive Committee implements the strategy and policies defi ned by the Board of Directors. The Executive Committee is chaired by the Chief Executive Offi cer and comprises two other members, the Chief Financial Offi cer and the Chief Human Capital and Information Offi cer, to whom broad powers have been delegated and who are critical to the effectiveness of the internal control system. The Chief Executive Offi cer is directly responsible for worldwide sales and service operations, and the regional managers and subsidiaries report directly to him. The heads of the Lectra Group's various corporate divisions also report directly to the Chief Executive Offi cer, i.e.: – the Finance division, which comprises: treasury, accounting and consolidation, management control and audit, legal affairs, industrial affairs (purchasing,
All important decisions (sales strategy, organization, investments and recruitment) relating to the operations of a region or Group subsidiary are made by a "board of directors" responsible for the region or subsidiary concerned. These boards, chaired by the Chief Executive Offi cer, usually meet quarterly for the regions and/or main countries, with the regional managers and heads of the subsidiaries concerned as well as their management teams attending. The latter submit to the "boards" their detailed action plans drawn up on the basis of Group strategic and budget directives, and they report on the implementation of decisions as well as on their operations and performance.
The powers and limits to the powers of Directors of subsidiaries and regions and of the Directors of the various corporate divisions are laid down by the Chief Executive Offi cer or by a member of the Executive Committee, depending on the area concerned. These powers and their limits are communicated in writing to the Directors concerned. The Directors are then required to account for their utilization of the powers thus conferred on them in the pursuit of their objectives, in monthly reports on their activities to the Chairman of the Board of Directors and to the members of the Executive Committee. The internal control process involves a large number of other players. The corporate divisions are at the center of this organization. They are responsible for formulating rules and procedures, for monitoring their application and, more generally, for approving and authorizing a large number of decisions connected with the operations of each Group entity. Clear and precise delineation of organizations, responsibilities and decision making processes, together with regular written and verbal exchanges, allow all players to understand their role, discharge their duties and form a precise assessment of their performance vis-a-vis the objectives assigned to them and also vis-a-vis those of the Group as a whole.
The Group's information and reporting systems allow it to monitor the performances contributing to fulfi llment of its objectives regularly and precisely. The information systems have been upgraded and adapted to the expanded requirements of General Management in terms of the quality, relevance, timeliness and comprehensiveness of information, while at the same time providing stronger controls.
Phase one of the Elios project to overhaul all IT systems, launched in 2005, which concerned all front offi ce and back offi ce activities in France and in all subsidiaries, entered into operations on January 1, 2007. Functions concerned currently comprise purchasing, supply chain, accounting, order and billing processing, and after sales services of the parent company, Lectra SA. The new system has introduced new operational modes with improved management procedures and rules, thanks in particular to better integration of business processes. Deployment was accompanied by extensive training in the new procedures and support for the change process. Elios has been deployed in certain Group subsidiaries since the beginning of 2008, and will be deployed in all subsidiaries by the end of 2010. Additional benefi ts further bolstering the Group's internal controls will include the integration of inter-company fi nancial information and homogeneous IT tools offering greater interoperability, the system being better adapted to business and operational processes, which spell improved performance and more effective controls.
Over the period 2001-2004 the company deployed a Customer Relationship Management (CRM) system dedicated to marketing and sales.
Finally, specifi c procedures are in place to insure the physical security and preservation of data, these procedures being periodically upgraded in response to the changing nature of risks.
A large number of procedures spell out the manner in which the different processes are to be performed, together with the roles of the different persons concerned, the powers delegated to them within the framework of these processes. They further prescribe the method of controlling compliance with rules for the performance of processes. The main cycles or subjects entailing issues critical to Group objectives are:
A series of procedures exists to cover the sales cycle and more generally the entire marketing and sales process. In particular the "Sales rules and guidelines" clearly set forth rules, delegations of powers, and circuits, together with the controls performed at the different stages in the sales process to verify the authenticity and content of orders, together with shipment and billing thereof.
Credit management procedures are designed to limit the risks of non-recovery and shorten accounts collection delays. These procedures also track all Group accounts receivable above a certain threshold, providing for both upstream control of contractual payment terms and the customer's solvency prior to booking of the order, together with the systematic and sequenced implementation of all means of recovery, from simple reminders to legal proceedings. These means of recovery are coordinated by the credit management department in conjunction with the Legal Affairs department.
Historically, bad debts and customer defaults have been rare.
The parent company's purchases and capital expenditure account for the bulk of Group outlays under these headings. Procedures are in place to ensure that all purchases from third parties are compliant with budgetary authorizations. They further spell out formally the delegations of powers regarding expenditure commitments and signatures, based on the principle of the separation of tasks within the process. The deployment of the new computerized purchasing management systems at the parent company on January 1, 2007 has further enhanced control of these procedures.
Under the procedures in place all forecast or actual personnel changes are communicated to the Group Human Resources division. All recruitments and dismissals must receive the division's prior authorization. In the case of dismissals, the division must systematically assess the actual and forecast costs of the dismissal and communicate its fi ndings to the Finance division, which in turn ensures that the resulting liability is recognized in the Group fi nancial statements.
Compensation is reviewed annually and submitted to the Chief Human Capital Offi cer for approval. Finally, for all personnel whose total annual compensation exceeds €145,000 or \$190,000, the Executive Committee submits the annual compensation review, together with rules for the calculation of variable compensation, to the Compensation Committee for prior approval.
The company's internal control procedures regarding treasury operations mainly concern bank reconciliations, security of payment means, delegation of signing authority, and monitoring of currency risk.
Bank reconciliation procedures are systematic and comprehensive. They entail verifi cation of all treasury department book entries, together with reconciliation between treasury balances and the accounts' bank balances.
The company has implemented secure means of payment to avoid or limit as far as possible all risks of fraud, and agreements covering check security have been signed with each of the Group's banks. This stage, which is intended to secure all means of payment (implementing the ETEBAC 5 protocol), was fi nalized in 2006. Bank signature authorizations for each Group company are governed by written procedures laid down by the Executive Committee and are revocable at all times with immediate effect. Signing powers delegated under these procedures are notifi ed to the banks, which must acknowledge receipt thereof.
Recourse to short and medium-term borrowing is strictly limited and is subject to prior approval by the Chief Financial Offi cer within the framework of delegations previously authorized by the Board of Directors. All decisions pertaining to currency hedging instruments are made jointly by the Chief Executive Offi cer and the Chief Financial Offi cer, and are implemented by the Group Treasurer.
Risk factors and risk management processes are described in detail in chapter 4 of the Management Discussion to which this report is appended.
The Group does not have an internal audit department as such, but the Group Finance division—in particular the treasury and management control teams—and the Department of Legal Affairs are central to the internal control and risk management system.
Controls are in place at many points throughout the Group's organization. These are adapted to the critical aspects of the processes and risks to which they apply, depending on their infl uence on the performance and fulfi llment of Group objectives. Controls are conducted by means of IT applications, procedures subject to systematic manual control, via ex post audits, or via the chain of command, in particular by members of the Executive Committee. Spot checks are also performed in the various Group subsidiaries.
In each subsidiary, the person in charge of fi nance and administration, which usually comprises legal affairs, also plays a major role in the organization and conduct of internal controls. The primary mission of this person, who reports functionally to the Group Finance division, is to ensure that the subsidiary complies with the rules and procedures established by the corporate divisions. The Information Systems division is responsible for guaranteeing the integrity of data processed by the various software packages in use within the Group. It works with the Group Finance division to ensure that all automated processing routines contributing to the preparation of fi nancial information are compliant with accounting rules and procedures. In addition, it verifi es the quality and completeness of information transferred between the different software applications. Finally, it is responsible for information systems security.
The Group Legal Affairs department and Human Resources division perform legal and social audits of all Group subsidiaries.
Their role notably consists in verifying that their operations are compliant with the laws and other legal and social regulations in force in the countries concerned. They also supervise most of the contractual relations entered into between Group companies and employees or third parties. The Legal Affairs department works with a network of law fi rms located in the countries concerned and specializing in the subjects at issue, as needed. The Legal Affairs department is also responsible for identifying risks requiring insurance and formulating a policy for covering these risks by means of appropriate insurance contracts. It supervises and manages potential or pending litigation, in conjunction with the Group's attorneys where appropriate. Currency risk is managed centrally by the Group Treasurer. Group exposure is hedged by a range of derivative instruments. Forward currency contracts are used to hedge foreign exchange balance sheet positions; purchases of currency puts are utilized—when their cost relative to their benefi ts is not prohibitive—to hedge estimated net exposure to currency fl uctuations for a stipulated future period. Finally, the company employs a dedicated intellectual property team that works in conjunction with the Legal Affairs department. It acts preventively to protect the company's innovations and avert all risks of intellectual property rights infringement. In 2008, the procedures and actions initiated by the Group on this subject have been signifi cantly reinforced.
Incidents observed on the occasion of controls or the fi ndings of ex post audits of compliance with internal control rules and procedures serve both to ensure the proper functioning of the latter and to consider appropriate improvements.
Given the nature of its business, the Group is obliged to adapt its organization to market changes whenever necessary. Each change in its organization or modus operandi is preceded by a review process to ensure that the proposed change is consistent with the preservation of an internal control environment complying with the objectives described in chapter 2.1 above.
Within this context, the scope and distribution of the powers of individuals and teams, reporting lines and rules for the delegation of signing authority, are subject to scrutiny, and are adjusted if necessary, prior to all organizational changes.
Oversight of internal controls is underpinned by a continuous improvement process focused notably on: – updating the Group's risk mapping;
– updating and/or formalizing accounting and fi nancial procedures, procedures relating to human resources management and internal control rules;
– updating and improving reporting and information systems;
– general improvements to internal control procedures, IT systems and rules as part of the deployment of the Elios project to Group subsidiaries.
In addition to the elements described in the foregoing paragraphs, the Group has implemented precise procedures for the preparation and control of accounting and fi nancial information. This is notably the case regarding reporting and budget procedures, and procedures for the preparation and verifi cation of the consolidated fi nancial statements, which are an integral part of the internal control system. Their purpose is to ensure the quality of accounting and fi nancial information communicated to management teams, the Audit Committee, the Board of Directors, and to the shareholders and the fi nancial market, with particular reference to the consolidated and statutory fi nancial statements.
The Finance Department regularly identifi es risks liable to impair the compilation and processing of accounting and fi nancial information, together with the quality of that information. It communicates continuously with the accounting and fi nance departments of the Group's subsidiaries to insure that these risks are managed. Diffi culties arising in the management of a specifi c risk are dealt with and/or give rise to specifi c action by the fi nancial control teams. This analysis and centralized risk management process are additional to the
procedures described below to reduce the risks of deliberate or involuntary error in the accounting and fi nancial information published by the company.
The company produces a comprehensive and detailed fi nancial reporting that covers all aspects of the activities of each parent company unit and each subsidiary. This is based on a sophisticated fi nancial information system built around a market-leading software package. Reporting procedures are based primarily on the budgetary control system put in place by the Group. The Group's annual budget is prepared centrally by the Finance division management control teams. This detailed, comprehensive process consists in analyzing and quantifying the budgetary targets of each subsidiary and Group unit under a very wide range of income statement and treasury headings, working capital requirements, together with indicators specifi c to each activity and the structure of operations. This system permits rapid identifi cation of any deviation in actual or forecasted results, and of any risk of error in the fi nancial information produced.
The actual results of each Group company are verifi ed and analyzed on a monthly basis, and new forecasts for the current quarter are consolidated. Each deviation is identifi ed and described in detail in order to determine its causes, verify that procedures have been respected and the fi nancial information properly prepared. This approach is designed to ensure that transactions recorded in the accounts fully refl ect the economic reality of the Group's business and operations. Assets and liabilities are subject to regular controls to ensure the accuracy of monthly reported results. These controls include physical counting of fi xed assets and reconciliation with accounts; a revolving physical count of inventories (the most important references being counted four times per year); a comprehensive monthly review, with the credit management department, of overdue accounts receivable (see paragraph 2.2.1 (c) above); a monthly analysis of provisions for risks and charges, and provisions for asset impairment.
Group fi nancial statements (balance sheet, statement of income, statement of cash fl ows, and statements of changes in shareholders' equity) are consolidated on a quarterly basis. The process of preparing the consolidated fi nancial statements comprises a large number of controls to ensure the quality of the accounting information communicated by each of the consolidated companies and of the consolidation process itself.
All Group subsidiaries employ a single standard consolidation reporting package and the procedure is subject to a wide range of precise controls. Actual results are compared with forecasts received previously in the monthly reporting procedure. Discrepancies are analyzed and justifi ed and, more generally, the quality of information transmitted is verifi ed. Upon completion of the consolidation process, all items in the statement of income, balance sheet and statement of cash fl ows are analyzed and justifi ed.
The resulting fi nancial statements are reviewed by the Chief Executive Offi cer and then submitted to the Audit Committee, before being reviewed and approved by the Board of Directors, and published by the company.
The recommendations of the AFEP-MEDEF Code: – spell out principles for setting the compensation
of executive directors of listed companies;
– prohibit the simultaneous holding of a position as executive director and an employment contract;
– place a cap on one-time termination payments ("golden parachutes") to two years' compensation, and abolish the granting of indemnities in the event of voluntary resignation and in the event of failure;
– strengthen the rules governing pension plans and place a cap on additional pension benefi ts;
– make stock option plans for senior managers conditional on the extension of such option plans to all employees or to the existence of mechanisms entitling all employees to a share of profi ts;
– terminate the granting of bonus shares unrelated to performance to executive directors; the latter must also purchase shares at market price additional to any performance-related shares granted to them;
– make compensation policies more transparent by means of a standardized disclosure format. In its statement on November 28, 2008, the company declared that:
– it has already been in spontaneous compliance with these recommendations for many years with regard to André Harari and Daniel Harari in their respective capacities as Chairman of the Board of Directors and Chief Executive Offi cer;
– in particular, André Harari and Daniel Harari have never combined their positions as executive directors with an employment contract, are not entitled to any component of compensation, indemnity or benefi t owed or liable to be owed to them in virtue of a termination or change of their functions, to any additional defi ned benefi t pension plan, stock options or bonus shares.
The sole executive directors at present are André Harari, Chairman of the Board of Directors, and Daniel Harari, Chief Executive Offi cer.
The principles and rules for determining the compensation and benefi ts of executive directors are subject to prior review and recommendation by the Compensation Committee. This Committee notably reviews total compensation and the precise rules for determining its variable portion and the specifi c annual performance targets that serve to calculate it. All of these components are then discussed by the Board of Directors in full session and are subject to its sole discretion.
No bonuses in any form are paid, as a matter of principle. The compensation of executive directors is paid in its entirety by Lectra SA. They receive no compensation or particular benefi t from companies controlled by Lectra SA within the meaning of article L. 233-16 of the French Commercial Code (Lectra SA is not controlled by any company). No stock options have been granted to executive directors since 2000. The only benefi t accorded to them concerns the valuation for tax purposes of the utilization of company cars and the payment of life insurance premiums, which amount is indicated in the Management Discussion and Analysis to which this report is amended. Finally, the executive directors are not the benefi ciaries of any particular arrangement or specifi c benefi t regarding deferred compensation, termination payment or retirement benefi t committing the company to pay them any form of indemnity or benefi t if their duties are terminated, at the time of their retirement (they are not bound to the company by any form of employment contract) or, more generally, subsequent to the termination of their functions.
Each year the Board of Directors determines the total amount of target-based compensation for the year if annual targets are achieved. This was unchanged for the years 2005, 2006, 2007 and 2008, and has been renewed for fi scal year 2009. The same holds for the fi xed portion of compensation since 2003, and for the variable portion of annual target-based compensation since 2005.
The variable portion of target-based compensation for the Chairman of the Board of Directors and the Chief Executive Offi cer is equal to 60% of their total compensation. The variable portion of their compensation is determined on the basis of two quantitative criteria (to the exclusion of all qualitative criteria) expressed in terms of annual targets, excluding non-recurring items, namely: consolidated pre-tax income (67%), and consolidated free cash fl ow (33%). This variable portion is equal to zero if certain thresholds are not met, to 100% if annual targets are achieved, with a cap of 200% if annual targets are exceeded. Between these bounds, the amount is calculated on a straight-line basis.
Annual targets are set by the Board of Directors as recommended by the Compensation Committee. The Committee carefully examines each year the consistency of the rules for determining the variable portion of compensation with evaluation of executive directors performance and with the company's medium-term strategy, the general macro-economic conditions and in particular those of the geographic markets and market sectors in which the company operates. After year-end closing it audits the annual application of these rules and the actual amount of variable compensation paid, based on the audited fi nancial statements. These targets apply also to the two members of the Executive Committee who are not executive directors – namely Jérôme Viala, Chief Financial Offi cer, and Véronique Zoccoletto, Chief Human Capital and Information Offi cer – together with around twenty managers of the parent company Lectra SA, the only differences concerning the portion relating to target-based variable compensation, which is set individually for each manager.
Directors' fees approved annually by the General Meeting of Shareholders are distributed in equal proportions among the Directors. Directors who are also executive directors therefore receive their Directors' fees in addition to their fi xed and variable compensation described above.
Non-executive directors—i.e. the two independent Directors—receive no form of compensation other than Directors' fees.
In keeping with the rules of corporate governance, the Board of Directors decided on May 23, 2006 to prohibit members of the corporate management and management teams of the Lectra Group from buying or selling the company's shares during the period starting fi fteen (15) calendar days before the end of each calendar quarter and expiring two (2) stock market trading days after the meeting of the Board of Directors closing the quarterly and the annual fi nancial statements of the Lectra Group. This prohibition does not apply to the exercise of stock options during the period in question by any person fi guring on the list drawn up by the Board of Directors, but the said persons are required to hold any resulting shares until the expiration of the period.
The Board of Directors has further decided that, in addition to each of its members, only the two members of the Executive Committee who do not hold a directorship have "the power to make management decisions regarding the company's development and strategy" and, further, have "regular access to inside information" and are therefore required to notify the AMF within the stipulated deadlines of any purchases, sales, subscriptions or exchanges of fi nancial instruments issued by the company. Daniel Dufag, the company's General Counsel, has also been named compliance offi cer for all matters pertaining to the General Regulation of the AMF concerning the drawing up of lists of insiders. His duties include adapting the guidelines published by the ANSA and to draw up the guide to procedures specifi c to Lectra, to draw up lists of permanent and occasional insiders, to notify these people individually in writing, accompanied by a memorandum spelling out the procedures specifi c to Lectra.
The list drawn up on the occasion of the meeting of the Board of Directors of July 27, 2007, which has been updated to indicate the people on this list that have left the company, together with those whom the General Management proposes to add to this list in virtue of their new duties or because they have reached a level of responsibility and information within the Group justifying their inclusion, or because they have been recently recruited is reviewed and approved annually by the Board of Directors.
The Chief Executive Offi cer is invested with full and unlimited powers. He exercises his powers within the limits of the corporate aims and subject to those explicitly attributed to the Shareholders' Meetings and to the Board of Directors.
The right of attendance at shareholders' meetings, to vote by correspondence or to be represented, is subject to the following conditions:
– for registered shareholders (actionnaires nominatifs): shares must be registered in their name or in the name of an authorized intermediary in the company register, which is maintained by Société Générale in its capacity as bookkeeper and company agent, at zero hour, Paris time, on the third working day preceding the day set for the said Meeting;
– for holders of bearer shares (actionnaires au porteur): receipt by the General Meetings Department of Société Générale of a certifi cate of attendance noting the registration of the shares in the register of bearer shares at zero hour, Paris time, on the third working day preceding the day set for the said Meeting, delivered by the fi nancial intermediary (bank, fi nancial institution or brokerage) that holds their account.
Shareholders are free to dispose of their shares in whole or in part until the time of the Meeting. However, if the disposal takes place before zero hour, Paris time, on the third working day preceding the day set for the said Meeting, the fi nancial intermediary that holds their account shall notify the disposal to Société Générale, and shall transmit the necessary information. The company shall invalidate or modify the vote by correspondence, proxy vote, admission card or the certifi cate of attendance in consequence of the foregoing. However, if the disposal takes place after zero hour, Paris time, on the third working day preceding the day set for the said Meeting, it will not be notifi ed by the fi nancial institution holding the account, nor taken into consideration by the company for the purposes of attendance at the Shareholders' Meeting.
Registered shareholders and holders of bearer shares unable to attend the Meeting in person may vote by correspondence or by proxy by applying to Société Générale for a voting form at least six days before the Meeting. Correspondence and proxy voting forms together with all documents and information relating to the Meetings are available on the company website at www.lectra.com at least twenty-one days before the time of these Meetings. These documents are also obtainable on request, free of charge, from the company. Written questions for submission to the Meeting may be addressed to the company by electronic mail.
All correspondence and proxy voting forms sent by post must reach Société Générale by the day prior to the date of the Meeting.
Shareholders holding a fraction of the capital defi ned in article L. 225-102 para. 2 and R. 225-71 para. 2 of the French Commercial Code must transmit any draft resolutions they wish to place on the agenda of the Meeting at least twenty-fi ve days prior to the date of the Meeting. Practical details pertaining to the above will be communicated in the Notice of Meeting sent to the shareholders.
As required under article L. 225-37 para. 9 of the French Commercial Code, potentially material information is disclosed in chapter 8 of the Management Discussion and Analysis to which this report is appended, under "Information Concerning Items Covered by article L. 225-100-3 of the French Commercial Code as Amended by the March 31, 2006 Public Tender Offers Act".
consolidated
| As at December 31 (in thousands of euros) |
2008 | 2007 | |
|---|---|---|---|
| Goodwill | note 1 | 36,077 | 36,465 |
| Other intangible assets | note 2 | 5,887 | 5,727 |
| Property, plant and equipment | note 3 | 14,420 | 15,236 |
| Non-current fi nancial assets | note 4 | 1,656 | 1,802 |
| Deferred income tax | note 5.3 | 12,097 | 9,327 |
| Total non-current assets | 70,137 | 68,557 | |
| Inventories | note 6 | 28,614 | 30,156 |
| Trade accounts receivable | note 7 | 39,997 | 49,806 |
| Current income tax receivable | note 8.1 | 15,207 | 8,940 |
| Other current assets | note 8.2 | 8,698 | 10,193 |
| Cash and cash equivalents | 10,175 | 10,897 | |
| Total current assets | 102,691 | 109,992 | |
| Total assets | 172,828 | 178,549 | |
| EQUITY AND LIABILITIES | 2008 | 2007 | |
| Share capital | note 9 | 27,641 | 42,715 |
| Share premium | 1,033 | 976 | |
| Treasury shares | note 9.1 | (1,498) | (581) |
| Retained earnings | note 10 | 9,471 | (8,092) |
| Currency translation adjustment | note 11 | (8,529) | (8,719) |
| Total equity | 28,118 | 26,299 | |
| Retirement benefi t obligations | note 12 | 3,746 | 3,518 |
| Borrowings, non-current portion | note 13.2 | 49,433 | 48,849 |
| Total non-current liabilities | 53,179 | 52,367 | |
| Trade and other payables | 39,490 | 51,964 | |
| Deferred revenues | note 14 | 32,310 | 32,522 |
| Current income tax liabilities | 654 | 454 | |
| Borrowings | note 13.2 | 17,096 | 12,817 |
| Provisions for other liabilities and charges | note 15 | 1,981 | 2,126 |
| Total current liabilities | 91,531 | 99,883 | |
| Total equity and liabilities | 172,828 | 178,549 |
The notes on pages 86 through 132 are an integral part of the Consolidated Financial Statements. .
consolidated
| For year ended December 31 (in thousands of euros) |
2008 | 2007 | |
|---|---|---|---|
| Revenues | notes 17 and 18 | 198,133 | 216,565 |
| Cost of goods sold | note 19 | (65,757) | (71,568) |
| Gross profi t | note 19 | 132,376 | 144,997 |
| Research and development | note 20 | (10,607) | (14,225) |
| Selling, general and administrative expenses | note 21 | (114,808) | (119,564) |
| Non-recurring income and expenses | note 22 | – | (997) |
| Income from operations | 6,961 | 10,211 | |
| Financial income | note 25 | 424 | 377 |
| Financial expense | note 25 | (4,128) | (2,582) |
| Foreign exchange loss | note 26 | (602) | (686) |
| Income before tax | 2,655 | 7,320 | |
| Income tax expense | note 5.1 | 583 | (1,509) |
| Net income | 3,238 | 5,811 |
| (in euros) | 2008 | 2007 | |
|---|---|---|---|
| Earnings per share | note 27 | ||
| – basic | 0.11 | 0.19 | |
| – diluted | 0.11 | 0.18 | |
| Shares used in calculating earnings per share | |||
| – basic | 28,236,981 | 31,047,895 | |
| – diluted | 28,236,981 | 31,471,409 | |
The notes on pages 86 through 132 are an integral part of the Consolidated Financial Statements
consolidated
| For year ended December 31 (in thousands of euros) |
2008 | 2007 | |
|---|---|---|---|
| I. OPERATING ACTIVITIES | |||
| Net income | 3,238 | 5,811 | |
| Depreciation and amortization | 8,851 | 5,857 | |
| Non-cash operating expenses | note 30 | 26 | 894 |
| Fees on public stock buyback tender offer recognised in equity |
– | (380) | |
| Loss on sale of fi xed assets | (5) | (11) | |
| Changes in deferred income taxes, net value | note 5.3 | (1,956) | (599) |
| Changes in inventories | note 31 | (1,542) | (5,402) |
| Changes in trade accounts receivable | note 31 | 8,427 | (461) |
| Changes in other current assets and liabilities | note 31 | (18,263) | (8,705) |
| Net cash used in operating activities | (1,224) | (2,996) | |
| II. INVESTING ACTIVITIES | |||
| Purchases of intangible assets | note 2 | (1,476) | (1,158) |
| Purchases of property, plant and equipment | note 3 | (2,202) | (4,010) |
| Proceeds from sales of intangible assets and property, | |||
| plant and equipment | 27 | – | |
| Purchases of fi nancial assets | note 4 | (1,240) | (225) |
| Proceeds from sales of fi nancial assets | 1,297 | 71 | |
| Net cash used in investing activities | (3,594) | (5,322) | |
| III. FINANCING ACTIVITIES | |||
| Proceeds from issuance of ordinary shares | note 9.1 | 86 | 2,903 |
| Dividends paid | – | (5,198) | |
| Purchases of treasury shares | note 9.2 | (1,187) | (5,438) |
| Purchase of shares in public stock buyback tender offer | note 9.1 | – | (47,687) |
| Sales of treasury shares | note 9.2 | 163 | 4,461 |
| Proceeds from borrowings | note 33 | 800 | 48,400 |
| Repayments of borrowings | note 34 | (146) | (558) |
| Net cash used in fi nancing activities | (284) | (3,117) | |
| Decrease in cash and cash equivalents | (5,102) | (11,435) | |
| Cash and cash equivalents at the openning | (1,715) | (9,997) | |
| Decrease in cash and cash equivalents | (5,102) | (11,435) | |
| Effect of changes in foreign exchange rates | 92 | (277) | |
| Cash and cash equivalents at the closing | note 35 | (6,725) | (1 715) |
| Free cash fl ow before non-recurring items | (3,234) | (1,930) | |
| Non-recurring items of the free cash fl ow | (1,584) | (6,388) | |
| Free cash fl ow | note 32 | (4,818) | (8,318) |
| Income tax paid | 256 | 2,026 | |
| Interest paid | 3,549 | 2,005 | |
The notes on pages 86 through 132 are an integral part of the Consolidated Financial Statements
consolidated
| Share capital | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands of euros, except for par value per share expressed in euros) |
Number of shares |
Par value per share |
Total par value |
Share premium |
Treasury shares |
Retained earnings |
Translation adjustment |
Net income |
Equity | |
| Balances at 1 January, 2007 | 35,772,448 | 1.50 | 53,659 | 3,944 | (4,099) | 14,700 | (8,141) | 12,136 | 72,199 | |
| Fees on public stock buyback tender offer |
(380) | (380) | ||||||||
| Fair value variation of interest-rate swaps (effi cient part) |
(325) | (325) | ||||||||
| Currency translation adjustment | note 11 | (578) | (578) | |||||||
| Net expense recognised directly in equity |
– | – | (705) | (578) | – | (1,283) | ||||
| Net income | 5,811 | 5,811 | ||||||||
| Net income (expense) recognised as at December 31 |
– | – | (705) | (578) | 5,811 | 4,528 | ||||
| Fair value of stock options | 642 | 642 | ||||||||
| Issuance of ordinary shares | note 9.1 | 645,855 | 968 | 1,935 | 2,903 | |||||
| Cancellation of treasury shares | (876,612) | (1,315) | (3,525) | 4,840 | – | |||||
| Sale (purchase) of treasury shares note 9.2 | (1,322) | (1,322) | ||||||||
| Profi t (loss) on treasury shares | 231 | 231 | ||||||||
| Purchase and cancellation of shares in public stock buyback tender offer |
(7,064,792) | (10,597) | (1,378) | (35,712) | (47,687) | |||||
| Dividends paid | note 10 | (5,198) | (5,198) | |||||||
| Appropriation of prior-year earnings |
12,136 | (12,136) | – | |||||||
| Other changes | 3 | 3 | ||||||||
| Balances at December 31, 2007 | 28,476,899 | 1,50 | 42,715 | 976 | (581) | (13,903) | (8,719) | 5,811 | 26,299 | |
| Fair value variation of interest-rate swaps (effi cient part) |
(1,157) | (1,157) | ||||||||
| Currency translation adjustment | note 11 | 190 | 190 | |||||||
| Net income (expense) recognised directly in equity |
– | – | (1,157) | 190 | – | (967) | ||||
| Net income | 3 238 | 3 238 | ||||||||
| Net income (expense) recognised as at December, 31 |
– | – | (1,157) | 190 | 3,238 | 2,271 | ||||
| Fair value of stocks options | 452 | 452 | ||||||||
| Issuance of ordinary shares | note 9.1 | 18,615 | 28 | 57 | 85 | |||||
| Sale (purchase) of treasury shares note 9.2 | (917) | (917) | ||||||||
| Profi t (loss) on treasury shares | (73) | (73) | ||||||||
| Reduction in share capital | (0.53) | (15,103) | 15,103 | – | ||||||
| Appropriation of prior-year earnings |
5,811 | (5,811) | – | |||||||
| Balances at December 31, 2008 | 28,495,514 | 0.97 | 27,640 | 1 033 | (1,498) | 6,233 | (8,529) | 3,238 | 28,118 |
The notes on pages 86 through 132 are an integral part of the Consolidated Financial Statements.
The Lectra Group, hereafter the Group, refers to Lectra SA, hereafter the company, and its subsidiaries. The Group's consolidated fi nancial statements were approved by the Board of Directors on February 12, 2009 and will be proposed to the General Meeting of Shareholders for approval on April 30, 2009.
Lectra was established in 1973 and has been listed on Euronext Paris (compartment C) since 1987. Lectra is the world leader in software, CAD/CAM equipment and related services dedicated to large-scale 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 power, personnel protective equipment, etc. The company's technology offering is geared to the specifi c 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 enables 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 growing demand for mass-customization; and monitoring and developing their corporate image and brands. The Group markets full-line 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 PCs and peripherals and 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 more than 1,520 employees worldwide, encompassing expert R&D, technical and sales teams with deep knowledge of its customers' businesses.
Lectra 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 31 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 2008. Its fi ve International Call Centers, at Bordeaux-Cestas (France), Madrid (Spain), Milan (Italy), Atlanta (USA) 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), and its four International Advanced Technology Centers at Atlanta (USA), Istanbul (Turkey), Shanghai (China) and Mexico City (Mexico). Lectra is geographically close to its customers wherever they are, with nearly 920 employees dedicated to marketing, sales and services. It employs 220 engineers dedicated to R&D, and 170 employees in industrial purchasing, assembly and testing of CAD/CAM equipment, and logistics.
Lectra's business model comprises two types of revenue streams:
– revenues from new systems sales (new software licenses and CAD/CAM equipment, and related services), the company's growth driver;
– recurring revenues, consisting partly of recurring contracts (e.g., software evolution, hardware maintenance and on-line support contracts), and partly of other statistically recurring revenues generated by the installed base (sales of spare parts and consumables, and per-call maintenance and support interventions). These recurring revenues are a key factor in the company's stability, acting as a cushion in periods of slow overall economic growth. In addition, the business model is geared to generating free cash fl ow in excess of net income assuming utilization or receipt of the annual research tax credit applicable in France.
No signifi cant event has occurred.
The company will declare no dividend in 2009, in respect of the 2008 fi scal year, net income for the year being insuffi cient to justify payment of one.
Given the mechanical accounting treatment of the public stock buyback tender offer, carried out in 2007, on the parent company Lectra SA's reserves available for distribution, the company has not paid a dividend in 2008.
The consolidated fi nancial statements are compliant with the International Financial Reporting Standards (IFRS) as adopted by the European Union on December 31, 2008. This framework can be consulted on the European Commission website: http://ec.europa.eu/internal_market/ accounting/ias_en.htm#adopted-commission Since January 1, 2008, the Group has applied the following IFRIC interpretations:
– IFRIC 11: Group and Treasury Share Transactions;
– IFRIC 14: The Limit on a Defi ned Benefi t Asset Minimum Funding Requirements and their Interaction. In the opinion of the Group, application of these standards has had no material impact on its fi nancial statements. Accounting rules and methods other than the new applications referred to above remain unchanged.
The Group did not opt for an earlier adoption on January 1, 2008 of IFRS 8 (Operating Segments). It is currently considering the defi nition of the sectors of activity it intends to present in its fi nancial reports from January 1, 2009 onward.
The consolidated fi nancial statements include the accounts of the parent company and the subsidiaries the Group controls. A company is deemed to be controlled when the Group has the power to determine, either directly or indirectly, the fi nancial and operating policies of the company such as to benefi t from the said company's operations.
Subsidiaries are fully consolidated from the date of transfer of control over them to the Group. They are deconsolidated from the date at which it ceases to control them. The parent company holds more than 99% of the voting rights of the fully-consolidated companies. They are designated FC (fully consolidated) in the schedule of consolidated companies below. Certain sales and service subsidiaries not material to the Group, either individually or in the aggregate, are not consolidated and are designated NC in the schedule.
Companies are consolidated on the basis of company documents and fi nancial statements closed in each country and restated in accordance with the aforementioned accounting rules and methods.
All intra-Group balances and transactions, together with unrealized profi ts arising from these transactions, are eliminated upon consolidation.
All consolidated companies close their annual fi nancial statements at December 31.
At December 31, 2008, the Group's scope of consolidation comprised Lectra SA, together with 26 fully-consolidated companies.
| % of ownership and control |
Consolidation method (1) |
|||||
|---|---|---|---|---|---|---|
| Company | City | Country | 2008 | 2007 | 2008 | 2007 |
| Parent company | ||||||
| Lectra SA | Cestas | France | FC | FC | ||
| Subsidiaries | ||||||
| Lectra Systems Pty Ltd. | Durban | South Africa | 100.0 | 100.0 | FC | FC |
| Lectra Deutschland GmbH | Ismaning | Germany | 99.9 | 99.9 | FC | FC |
| Humantec Industriesysteme GmbH | Huisheim | Germany | 100.0 | 100.0 | FC | FC |
| Lectra Australia Pty Ltd. | Melbourne | Australia | 100.0 | 100.0 | FC | FC |
| Lectra Benelux NV | Ghent | Belgium | 99.9 | 99.9 | FC | FC |
| Lectra Brasil Ltda. | Sao Paulo | Brazil | 100.0 | 100.0 | FC | FC |
| Lectra Canada Inc. | Montreal | Canada | 100.0 | 100.0 | FC | FC |
| Lectra Systems (Shanghai) Co. Ltd. | Shanghai | China | 100.0 | 100.0 | FC | FC |
| Lectra Hong Kong Ltd. | Hong Kong China | 99.9 | 99.9 | FC | FC | |
| Pan Union International Ltd. | Hong Kong China | 100.0 | 100.0 | FC | FC | |
| Prima Design Systems Ltd. | Hong Kong China | 100.0 | 100.0 | FC | FC | |
| Lectra Danmark A/S | Ikast | Denmark | 100.0 | 100.0 | FC | FC |
| Lectra Sistemas Española SA | Madrid | Spain | 100.0 | 100.0 | FC | FC |
| Lectra USA Inc. | Atlanta | USA | 100.0 | 100.0 | FC | FC |
| Lectra Suomi Oy | Helsinki | Finland | 100.0 | 100.0 | FC | FC |
| Lectra Hellas EPE | Athens | Greece | 99.9 | 99.9 | FC | FC |
| Lectra Technologies India Private Ltd. | Bangalore | India | 100.0 | 100.0 | FC | NC |
| Lectra Italia SpA | Milan | Italy | 100.0 | 100.0 | FC | FC |
| Lectra Japan Ltd. | Osaka | Japan | 100.0 | 100.0 | FC | FC |
| Lectra Systèmes SA de CV | Mexico | Mexico | 100.0 | 100.0 | FC | FC |
| Lectra Portugal Lda. | Matosinhos Portugal | 99.9 | 99.9 | FC | FC | |
| Lectra UK Ltd. | Shipley | United Kingdom | 99.9 | 99.9 | FC | FC |
| Lectra Sverige AB | Borås | Sweden | 100.0 | 100.0 | FC | FC |
| Lectra Taiwan Co. Ltd. | Taipei | Taiwan | 100.0 | 100.0 | FC | FC |
| Lectra Systèmes Tunisie SA | Tunis | Tunisia | 99.8 | 99.8 | FC | FC |
| Lectra Systèmes CAD-CAM AS | Istanbul | Turkey | 99.0 | 99.0 | FC | FC |
| Lectra Chile SA | Santiago | Chile | 99.9 | 99.9 | NC | NC |
| Lectra Israel Ltd. | Natanya | Israel | 100.0 | 100.0 | NC | NC |
| Lectra Maroc Sarl | Casablanca Morocco | 99.4 | 99.4 | NC | NC | |
| Lectra Philippines Inc. | Manila | Philippines | 99.8 | 99.8 | NC | NC |
| Lectra Singapore Pte Ltd. | Singapore | Singapore | 100.0 | 100.0 | NC | NC |
(1) FC: Fully consolidaded - NC: Non-consolidaded
The company's Indian subsidiary, Lectra Technologies India Private Ltd, which was formed in September 2007 and which had no activity before 2008, has been consolidated since January 1, 2008. This subsidiary's revenue, profi t and balance sheet items were immaterial in 2008, the bulk of sales to this country continuing to be billed by the parent company, Lectra SA.
There has been no other change in the scope of consolidation in 2008. There was no change in the scope of consolidation in 2007.
In view of the parent company's percentage of interest in its consolidated subsidiaries, minority interests are immaterial and are therefore not shown in the fi nancial statements.
Group consolidated fi nancial statements are prepared on a historical cost basis with the exception of the assets and liabilities listed below:
– cash equivalents, marked to market in the income statement;
– derivative fi nancial instruments marked to market. The Group uses these instruments to hedge its foreign exchange risks and recognizes them at fair value in the income statement (see section on Risk Hedging Policy), and to hedge interest-rate risk, which is recognized at fair value in shareholders' equity (see section on Interest-Rate Hedging Policy).
Current assets comprise assets connected with the normal operating cycle of the Group, assets held with a view to disposal in the twelve months following the close of the fi scal year, together with cash and cash equivalents. All other assets are non-current. Current liabilities comprise debts maturing in the course of the normal operating cycle of the Group or in the twelve months following the close of the fi scal year.
Goodwill is the difference between purchase cost (including a best estimate of earn-outs stipulated in the purchase agreement, if any) and fair value of the purchaser's share in the acquired identifi able assets, liabilities and potential liabilities.
Goodwill recognized in a foreign currency is translated at the year-end exchange rate.
Goodwill is tested for impairment at the close of each fi scal year in order to identify possible impairment. Each goodwill item is allocated to a cash-generating unit according to the specifi c nature of the acquisition concerned with respect to geography or product line.
Intangible assets are carried at their purchase cost less cumulative amortization and impairment, if any. Amortization is charged on a straight-line basis depending on the estimated useful life of the intangible asset.
This item contains only software utilized for internal purposes.
The new information system deployed on January 1, 2007 is amortized on a straight-line basis over eight years. Activation of costs relating to this project has been made possible by the fact that the project's technical feasibility has been consistently demonstrated and the probability that this fi xed asset will generate future benefi ts for the Group. Other purchased management information software packages are amortized on a straight-line basis over three years.
In addition to expenses incurred in the acquisition of software licenses, the Group also activates direct software development and confi guring costs, comprising staff costs for personnel involved in development of the software and external expenses directly relating to these items.
Patents, trademarks and associated costs are amortized on a straight-line basis over three to ten years from the date of registration. The amortization period refl ects the rate of consumption by the company of the economic benefi ts generated by the asset. The Group is not dependent on any patents or licenses that it does not own. In terms of intellectual property, no patents or other industrial property rights belonging to the Group are currently under license to third parties.
The rights held by the Group, notably with regard to software specifi c to its business as a software developer and publisher, are used under license by its customers within the framework of sales activity. The Group does not activate any internally-generated expense relating to patents and trademarks.
Other intangible assets are amortized on a straight-line basis over two to fi ve years.
Property, plant and equipment is carried at cost less accumulated depreciation and impairment, if any. When a tangible asset comprises signifi cant components with different useful lives, the latter are analyzed separately. Consequently, costs incurred in replacing or renewing a component of a tangible asset are booked as a distinct asset. The carrying value of the component replaced is written-off. The useful life of assets is reviewed at each closing date and adjusted as required. Subsequent expenditures relating to a tangible asset are capitalized if they increase the future economic benefi ts of the specifi c asset to which they are attached. All other costs are expensed directly at the time they are incurred. Financial expense is not included in the cost of acquisition of tangible assets. Investment grants received are deducted from the value of tangible assets. Losses or gains on disposals of assets are recognized in the income statement under other operating expenses, in "Selling, general and administrative expenses".
Depreciation is computed on the straight-line method over their estimated useful lives as follows:
When events or changes in the market environment, or internal factors, indicate an impairment of value of goodwill, other intangible assets or property, plant and equipment, these are subjected to detailed scrutiny. In the case of goodwill, impairment tests are carried out systematically at least once a year.
Goodwill is tested for impairment by comparing its carrying value with its recoverable amount or value in use, which is defi ned as the present value of future cash fl ows attached to them, excluding interest and tax. The results utilized are derived from the Group's three-year plan. Beyond the time frame of the three-year plan, cash fl ows are projected to infi nity, the assumed growth rate being dependent on the growth potential of the markets and/or products concerned by the impairment test. The discount rate is computed under the Weighted Average Cost of Capital (WACC) method, the cost of capital being determined by applying the Capital Asset Pricing Model (CAPM). If the impairment test reveals an impairment of value relative to the carrying value, an irreversible impairment loss is recognized to reduce the carrying value of the goodwill to its recoverable amount. This charge, if any, is recognized under "Goodwill impairment" in the income statement.
Other intangible assets and property, plant and equiment are tested by comparing the carrying value of each relevant group of assets (which may be an isolated asset or a cash-generating unit) with its recoverable amount. If the latter is less than the carrying value, an impairment charge equal to the difference between these two amounts is recognized. In the case of Lectra's new information system, impairment testing consists in periodically verifying that the initial assumptions regarding the useful life and functions of the system remain valid. The base and the schedule of amortization/depreciation of the assets concerned are reduced if a loss is recognized, the resulting charge being recorded as an amortization/ depreciation charge under "Cost of goods sold", "Research and development expenses", or "Selling, general and administrative expenses" in the income statement depending on the nature and use of the assets concerned.
This item mainly comprises investments in subsidiaries and receivables relating to fi nancial investments in unconsolidated companies.
Investments in subsidiaries are classifi ed with available for sale securities.
Deferred income tax is accounted for using the liability method on temporary differences arising between the accounting bases and tax bases of assets and liabilities. The same is true for tax loss carry-forwards. Deferred taxes are calculated at the future tax rates enacted or substantially enacted at the fi scal year closing date. For a given entity, assets and liabilities are netted where taxes are levied by the same tax authority, and where permitted by the local tax authorities. Deferred tax assets are recognized where their future utilization is deemed probable in light of expected future taxable profi ts. Deferred taxes are recognized in respect of timing differences relating to investments in subsidiaries and associates, except when the Group controls the timetable for reversal of these timing differences and when it is probable that this reversal will not take place in the near future.
Inventories of raw materials are valued at the lower of purchase cost (based on weighted-average cost, including related costs) and their net realizable value. Finished goods and works-in-progress are valued at the lower of standard industrial cost (adjusted at year-end on an actual cost basis) and their net realizable value. Net realizable value is the probable sale price in the normal course of business, less the estimated cost of completion or upgrading of the product and unavoidable selling costs. Industrial cost does not include interest expense. A write-down is recorded if net realizable value is less than the book value.
Write-downs on inventories of spare parts and consumables are calculated by comparing book value and probable net realizable value after a specifi c analysis of the rotation and obsolescence of inventory items, taking into account the utilization of items for maintenance and after-sales services activities, and changes in the range of products marketed.
Accounts receivable are shown at their fair value, which generally corresponds to their nominal value. Provisions for impairment are recorded on the basis of the risk of non-collectibility of the accounts, measured on a case-bycase basis in light of how long they are overdue, the results of reminders sent out, the local payment practices, and the risks specifi c to each country.
Sales in those countries presenting a high degree of political or economic risk are generally secured by letters of credit or bank guarantees.
Owing to the very short collection delays, trade accounts receivable are not discounted.
Cash (as shown in the cash flow statement) is defi ned as the sum of cash and cash equivalents, less bank overdrafts where applicable. Cash equivalents comprise investments in money-market funds recorded at market value at year-end, convertible at any time into a known amount of cash.
Net fi nancial debt (as shown in note 13.3) is defi ned as the amount of "Cash and cash equivalents" less borrowings (as shown in note 13.2) when this difference is negative. When this difference is positive, the result corresponds to a net cash.
Cash equivalents are recognized at their fair value; changes in fair value are recognized in the income statement.
In managing its capital, the Group seeks to achieve the best possible return on capital employed and to comply with the gearing ratio (net fi nancial debt to shareholders' equity) attached to its €48,000,000 bank loan (see note 13.4).
The liquidity of Lectra's shares on the stock market is insured by means of a Liquidity Agreement with SG Securities (Société Générale Group) (see note 9.2). The payment of dividends is an important instrument in the Group's capital management policy, the aim being to compensate shareholders adequately as soon as this is justifi ed by the fi nancial situation.
The company has granted stock options to Group employees and managers. All plans are issued at an exercise price greater than the average stock market price for the twenty trading days prior to granting.
Under the regulations governing the company's stock option plans, which have been accepted by all of their benefi ciaries, the Group is not exposed to the risk of liability for payment of French social security charges on capital gains arising from sales of shares within four years of the granting of options.
The application of IFRS 2 has resulted in the recognition of a charge corresponding to the fair value of the advantage granted to benefi ciaries. This charge is recognized in staff costs and retained earnings. It is measured using the Black & Scholes model and is deferred prorata temporis over the stock options' vesting period.
The non-current portion of borrowings and fi nancial debt comprises the portion due in more than one year of:
– the interest-bearing bank loans;
– non-interest bearing reimbursable advances corresponding to research and development grants. The current portion of borrowings and fi nancial debt comprises:
– the portion of borrowings and fi nancial debt due in less than one year;
– cash facilities.
Borrowings and fi nancial debts are recognized initially at fair value.
At balance sheet date, borrowings and fi nancial debt are stated at amortized cost using the effective interest rate method, defi ned as the rate whereby cash received equals the total cash fl ows relating to the servicing of the borrowing. Interest expenses on the bank loans and on the utilization of cash credit facilities are recognized as fi nancial expenses in the income statement.
The Group is subject to a variety of deferred employee benefi t plans, depending on the subsidiary concerned. The only deferred employee liabilities are retirement benefi t obligations.
These refer to benefi ts payable subsequent to the period of employment. Under these plans, for certain employee categories, the Group pays defi ned contributions to an outside insurance company or pension fund. Contributions are paid in exchange for services performed by employees in respect of the fi scal period. They are expensed as incurred, according to the same logic as wages and salaries. Defi ned contributions plans do not create future liabilities for the Group and hence do not require recognition of provisions.
Most of the defi ned contributions plans to which the company and its subsidiaries contribute are additional to the employees' legal retirement plans. In the case of the latter, the Company and its subsidiaries contribute directly to a social security fund, their contributions being charged to income according to the same logic as wages and salaries.
These refer to benefi ts payable subsequent to the period of employment under plans that guarantee contractual additional income for certain employee categories (in some cases these plans are governed by specifi c industrywide agreements). For the Group, the plans cover lump-sum termination payments solely as required by legislation or as defi ned by the relevant industrywide agreement. The guaranteed additional income represents a future liability.
This liability is calculated by estimating the benefi ts to which employees will be entitled having regard to projected end-of-career salaries.
Benefi ts are reviewed in order to determine the net present value of the liability in respect of defi ned benefi ts in accordance with the principles set forth in IAS 19. Actuarial assumptions notably include a rate of salary increase, a discount rate (this corresponds to the average annual yield on bonds with maturities approximately equal to those of the Group's obligations) an average rate of social charges and a turnover rate, in accordance with local regulations where appropriate, based on observed historical data.
The Group has opted to record actuarial differences in full in the income statement. When plan's terms are modifi ed, the portion relating to the increase in benefi ts pertaining to past services performed by personnel is booked as a charge and accounted for on a straight-line basis over the average residual vesting period of the corresponding entitlements. To the extent that rights vest immediately, the cost is directly expensed.
The total charge represented by all of the foregoing is recognized in staff costs in the income statement.
All known risks at balance sheet date are reviewed in detail and a provision is recognized if an obligation exists, if the costs entailed to settle this obligation are probable or certain, and if they can be measured reliably. In view of the short-term nature of the risks covered by these provisions, the discounting impact is immaterial and therefore not recognized.
At the time of the effective payment, the provision is deducted from the corresponding expenses.
A provision for warranties covers, on the basis of historical data, probable costs arising from warranties granted by the Group to its customers at the time of the sale of CAD/ CAM equipment, for replacement of parts, travel of technicians and labor. This provision is recorded at the time the sale is booked by the company.
Revenues from sales of hardware are recognized when the signifi cant risks and benefi ts 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 fulfi lled 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 fulfi lled 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 systems sales, and a share of depreciation of the manufacturing facilities. This heading 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 rendering the recognition of research and development costs in assets at the moment they occur mandatory are not met, and research and development costs are therefore expensed in the year in which they are incurred. Attention is drawn to the fact that the (French) research tax credit (crédit d'impôt recherche) is deducted from research and development expenses.
Government investment grants are deducted from the cost of the fixed assets in respect of which they were received. Consequently they are recognized in income over the period of consumption of the economic benefi ts expected to derive from the corresponding asset.
Operating grants are recognized in deferred income at the time of receipt, then deducted from their associated charges in the income statement.
The Group receives interest-free reimbursable advances which are recognized at their amortized cost. Benefi ts arising from the non-remuneration of these advances are initially recognized as operating grants in deferred income, then deducted from research and development expenses in the income statement.
Net earnings per share on basic capital are calculated by dividing net income attributable to shareholders by the weighted-average number of shares outstanding during the period, excluding treasury shares. Net earnings per share on diluted capital are calculated by dividing net income attributable to shareholders by the weighted-average number of shares comprising the basic capital, plus stock options that could have been exercised considering the average market price of the shares during the period. 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 Group operates in a single sector of activity, namely industries that utilize soft materials. Because it serves customers in different market sectors, including fashion (apparel, accessories, footwear), automotive, aeronautical, marine, and furniture, and in many countries worldwide, the Group has differentiated its global offering in order to respond more precisely to the specifi c needs of its different customers. Nevertheless the resources and means deployed (including assets) to design, manufacture and commercialize its products and services are generally pooled across the company and cannot be differentiated in the same way as above.
Consequently, the Group considers that it is neither possible nor relevant to measure the performances and the distribution of its assets for a given line of products, market sector or geographic region.
Preparation of the fi nancial 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 methods. Although such estimates are made in a particularly uncertain environment, their relevance is supported by the business model features.
The areas involving a higher degree of judgment or complexity, or requiring material assumptions and estimates in relation to the consolidated fi nancial statements, concern goodwill impairment (see note 1) and deferred taxation (see note 5.3). There has been no material change in the estimates utilized by Group Management since December 31, 2007.
Most subsidiaries' functional currency is the local currency, which corresponds to the currency in which the majority of their transactions are denominated.
Accounts of foreign companies are translated as follows: – assets and liabilities are translated at the offi cial year-end closing rates;
– reserves and retained earnings are translated at historical rates;
– income statement items are translated at the average monthly exchange rates for the year for revenues and cost of products and services sold, and at the annual average rate for all other income statement items other than in the case of material transactions;
– items in the cash fl ow statement are translated at the annual average exchange rate. Thus, movements in shortterm assets and liabilities are not directly comparable with the corresponding balance sheet movements, due to the currency translation impact, which is shown under a separate heading in the cash fl ow statement: "Effect of changes in foreign exchange rates";
– gains or losses arising from the translation of the net assets of foreign consolidated subsidiaries, and those derived from the use of average exchange rates to determine income or loss, are recognized in "Currency translation adjustment" in shareholders' equity and therefore have no impact on earnings, unless all or part of the corresponding investments are divested. They are adjusted to refl ect long-term unrealized gains or losses on internal Group positions.
Foreign currency receivables and payables are booked at the average exchange rate for the month in which they are recorded, and may be hedged. Receivables and payables denominated in foreign currencies are translated at the December 31 exchange rate. Unrealized differences arising from the translation of foreign currencies appear in the income statement. Where a currency has been hedged forward, the translation adjustment refl ected on the income statement is offset by the variation in fair value of the hedging instrument.
Translation differences on short-term receivables and payables are included in net income using the same procedure as for third party receivables and payables. Unrealized translation gains or losses on long-term assets and liabilities, whose settlement is neither scheduled nor probable in the foreseeable future, are recorded as a component of shareholders' equity under the heading "Currency translation adjustment" and have no impact on net income, in compliance with the paragraph "Net Investment in a Foreign Operation" of IAS 21.
| (equivalent value of one euro) | 2008 | 2007 |
|---|---|---|
| US dollar | ||
| Annual average rate | 1.47 | 1.37 |
| Closing rate | 1.39 | 1.47 |
| Japanese yen (100) | ||
| Annual average rate | 1.52 | 1.61 |
| Closing rate | 1.26 | 1.65 |
| British pound | ||
| Annual average rate | 0.80 | 0.68 |
| Closing rate | 0.95 | 0.73 |
| Canadian dollar | ||
| Annual average rate | 1.56 | 1.47 |
| Closing rate | 1.70 | 1.44 |
| Hong Kong dollar | ||
| Annual average rate | 11.45 | 10.69 |
| Closing rate | 10.78 | 11.48 |
| Chinese Yuan | ||
| Annual average rate | 10.22 | 10.42 |
| Closing rate | 9.50 | 10.75 |
In addition to the discussion of risks contained in these notes to the consolidated fi nancial statements, the Group's risk management policy is also discussed in the Management Discussion, in chapter 4, Risk Factors— Management of Risks, and in chapter 14, Business Trends and Outlook.
Exchange rate fl uctuations impact the Group's income in two ways:
Lectra sells on worldwide markets and its main competitor is a US company. As a result, prices are generally dependent on the US dollar.
On income from operations, the fi nancial statements are consolidated in euros. Consequently, the revenues, gross profi t and net income of a subsidiary whose transactions are expressed in a foreign currency are automatically affected by exchange rate fl uctuations when translated into euros.
The impact of balance sheet positions chiefl y concerns foreign currency receivables, in particular those between the parent company Lectra SA and its subsidiaries, and corresponds to the variation between exchange rates at collection date and those at billing date. Such impact is refl ected in the foreign exchange loss/gain in the income statement. Currency risk is borne by the parent company. Practically all billings by the company and its subsidiaries of transactions with customers located outside the euro-zone are expressed in foreign currencies and represent 40% of revenues (see note 17). The Group monitors its exposure in real time. As far as possible and insofar as is economically reasonable, the Group seeks
to protect all of its foreign currency receivables and debts as well as future cash fl ows against currency risk, using the following fi nancial instruments for this purpose: – forward currency contracts to hedge receivables and debts;
– forward currency contracts and currency options to hedge future fl ows of sales and purchases when there is a strong probability that they will take place. Hedging decisions take into account currency risks and trends where these are likely to impact signifi cantly the Group's fi nancial condition and competitive situation. To hedge its balance sheet positions, the Group uses fi nancial instruments to hedge its net foreign currency positions (receivables and debts). Consequently, all changes in the value of these instruments offset foreign exchange gains and losses on the remeasurement of these receivables and debts. However, these hedges are not treated as such within the meaning of IAS 39. Derivative fi nancial instruments to hedge future fl ows of funds are initially booked at fair value. Thereafter they are marked to market at the balance sheet date. Resulting profi ts or losses are recognized in shareholders' equity or in the income statement, depending upon whether the hedge (or the portion of the hedge concerned) was deemed to be effective or not, as defi ned by IAS 39. In the event that an appreciation was initially recognized in shareholders' equity, the accumulated profi ts or losses are then included in income for the period in which the initially planned transaction actually takes place.
The Group manages its fi nancing costs by limiting the impact of interest-rate variations on the income statement. In 2007, it entered two interest-rate swap contracts in order to hedge the medium-term bank loan contracted to fi nance the public stock buyback tender offer, carried out in the course of the fi scal year, by swapping the fl oating interest rate for a fi xed rate. These contracts qualify for recognition as hedges. Consequently, changes in the fair value of these derivatives are directly recognized in shareholders' equity.
The Group did not use any instruments to hedge interest rate risks in prior years, since its fi nancial borrowings consisted exclusively of interest-free repayable advances. Available cash is held in money-market funds.
The Group is exposed to credit risk in the event of default by a third party. It manages its exposure through careful selection of third parties and by verifying guarantees before accepting orders from them.
The Group's exposure to this risk is limited, and it considers that there is no substantial concentration of risk on a single counterpart.
It does not anticipate any third-party default likely to have a major impact on the fi nancial statements of the Group.
The main indicator monitored by the Group in order to measure a possible liquidity risk is the cumulative unused confi rmed credit lines granted to the Group and available cash (see note 13.3).
No acquisition was made in fi scal years 2008 and 2007.
Tests of goodwill shown in the balance sheet at December 31, 2008 revealed no impairment.
The projections used are based on the 2009-2011 plan for each cash-generating unit concerned and on a projection to infi nity using a growth rate assumption based on forecast trends in each market concerned. The assumed growth rate beyond the 2009-2011 plan is 2%.
Future fl ows after tax are discounted using the weighted average cost of capital. The discount rates adopted differ depending on the Cash Generating Unit (CGU) to allow for exposure to certain riskier sectors of activity (in particular the automobile sector). They range from 8.48% to 9.33% and are broken down as follows:
An identical valuation of the CGUs would result from application of a pre-tax discount rate to pre-tax cash fl ows. The following sensitivity calculations have been performed:
As in 2007, the Group did not recognize any additional goodwill impairment in 2008, and the only material changes concerned currency translation adjustment.
All acquisitions have been paid for in full, and no further earn-out is due on these transactions.
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Book value at January 1 | 36,465 | 36,919 |
| Goodwill adjustment | (89) | – |
| Exchange rate differences | (300) | (454) |
| Book value at December 31 | 36,077 | 36,465 |
Breakdown of goodwill at December 31, 2008:
| (in thousands of euros) | Date of acquisition |
Book value |
|---|---|---|
| CDI UK Ltd. | 1998 | 384 |
| CDI US Inc. | 1998 | 4,357 |
| Prima Design Systems Ltd. | 1999 | 2,142 |
| Cadtex | 2000 | 2 |
| Prima UK Ltd. | 2000 | 17 |
| Investronica Sistemas SA | 2004 | 19,527 |
| Lacent Technologies Inc. | 2004 | 2,611 |
| Sétif | 2005 | 1,256 |
| Humantec Systems Inc. | 2005 | 784 |
| Humantec Industriesysteme GmbH | 2005 | 4,997 |
For all goodwill items, the cash-generating units considered are associated with product lines, with the exception of goodwill on Investronica Sistemas SA, which is associated with a geographic region.
The company has received within the framework of the acquisition agreements, representations and warranties from the former shareholders of Investronica, Lacent and Humantec concerning certain assets and liabilities in the balance sheet as well as all potential litigation arising in respect of events predating the respective acquisitions. With the exception of liabilities arising out of intentional breaches not time-barred at the time of publication, the warranties obtained on the occasion of the Lacent acquisition have expired. The warranty obtained on the occasion of the Investronica acquisition also expired, except for the liabilities of a tax, customs or social nature subject to a prescription longer than the three year contractual prescription stipulated in the acquisition contract and that have not yet expired. The warranty obtained on the Humantec acquisition is limited to the acquisition price, except for liabilities of a tax or customs nature resulting from serious misconducts.
Further, within the framework of the arbitration initiated by Lectra against Induyco, the former shareholder of Investronica, in June 2005 before the International Court of Arbitration of the International Chamber of Commerce (ICC Court) in hearings in London, Induyco provided Lectra with fi rst demand bank guarantees for a total amount of €17,200,000. The total amount of this guarantee is without prejudice to the amount that might be awarded to Lectra in the arbitration.
| (in thousands of euros) | Management | |||
|---|---|---|---|---|
| 2007 | information software |
Patents and trademarks |
Other | Total |
| Gross value at January 1, 2007 | 17,896 | 2,414 | 5,334 | 25,644 |
| External puchases | 634 | 210 | 72 | 916 |
| Internal developments | 241 | – | – | 241 |
| Write-offs and disposals | (47) | – | – | (47) |
| Exchange rate differences | (40) | – | (4) | (44) |
| Gross value at December 31, 2007 | 18,684 | 2,624 | 5,402 | 26,710 |
| Amortization at December 31, 2007 | (13,606) | (2,231) | (5,146) | (20,983) |
| Net value at December 31, 2007 | 5,078 | 393 | 256 | 5,727 |
| (in thousands of euros) 2008 |
Management information software |
Patents and trademarks |
Other | Total |
| Gross value at January 1, 2008 | 18,684 | 2,624 | 5,402 | 26,710 |
| External puchases | 752 | 244 | 44 | 1,040 |
| Internal developments | 356 | – | – | 356 |
| Write-offs and disposals | – | – | – | – |
| Exchange rate differences | 65 | – | 2 | 67 |
| Gross value at December 31, 2008 | 19,857 | 2,868 | 5,448 | 28,173 |
| Amortization at December 31, 2008 | (14,734) | (2,404) | (5,148) | (22,286) |
| Net value at December 31, 2008 | 5,123 | 464 | 300 | 5,887 |
Changes in amortization:
| (in thousands of euros) | Management information |
Patents and | ||
|---|---|---|---|---|
| 2007 | software | trademarks | Other | Total |
| Amortization at January 1, 2007 | (12,438) | (2,093) | (5,148) | (19,679) |
| Amortization charges | (1,255) | (138) | (2) | (1,395) |
| Amortization write-backs | 47 | – | – | 47 |
| Exchange rate differences | 40 | – | 4 | 44 |
| Amortization at December 31, 2007 | (13,606) | (2,231) | (5,146) | (20,983) |
| (in thousands of euros) 2008 |
Management information software |
Patents and trademarks |
Other | Total |
| Amortization at January 1, 2008 | (13,606) | (2,231) | (5,146) | (20,983) |
| Amortization charges | (1,137) | (173) | – | (1,310) |
| Amortization write-backs | – | – | – | – |
| Exchange rate differences | 9 | – | (2) | 7 |
| Amortization at December 31, 2008 | (14,734) | (2,404) | (5,148) | (22,286) |
As part of an ongoing process of upgrading and reinforcing its information systems, in 2007 and 2008 the Group purchased licenses of new management information software together with additional licenses for software already in use in order to increase the number of users.
Investments concerned license purchase costs together with the cost of developing and confi guring the corresponding software.
The company capitalized €648,000 in 2008 corresponding to the deployment of its upgraded IT system in its subsidiaries. Phase one of this upgrade project became operational on January 1, 2007. The capitalized amount is amortized under the straightline method over eight years. Internal development expenses amounted to €356,000. In 2007, the company capitalized an expense of €296,000 on this project, including €241,000 in respect of internal development expenses.
| (in thousands of euros) | ||||
|---|---|---|---|---|
| 2007 | Land and buildings |
Fixtures and fi ttings |
Equipment and other |
Total |
| Gross value at January 1, 2007 | 9,060 | 13,090 | 20,708 | 42,858 |
| Additions | 416 | 1,135 | 2,460 | 4,011 |
| Write-offs and disposals | – | (80) | (857) | (937) |
| Exchange rate differences | – | (156) | (230) | (386) |
| Gross value at December 31, 2007 | 9,476 | 13,989 | 22,081 | 45,546 |
| Accumulated depreciation at December 31, 2007 | (6,482) | (7,128) | (16,700) | (30,310) |
| Net value at December 31, 2007 | 2,994 | 6,861 | 5,381 | 15,236 |
| (in thousands of euros) | Land | Fixtures | Equipment | |
| 2008 | and buildings | and fi ttings | and other | Total |
| Gross value at January 1, 2008 | 9,476 | 13,989 | 22,081 | 45,546 |
| Additions | 2 | 530 | 1,673 | 2,205 |
| Write-offs and disposals | – | (481) | (584) | (1,065) |
| Transfers | – | 21 | (11) | 10 |
| Exchange rate differences | – | 61 | 79 | 140 |
| Gross value at December 31, 2008 | 9,478 | 14,120 | 23,238 | 46,836 |
| Accumulated depreciation at December 31, 2008 | (6,546) | (7,929) | (17,941) | (32,416) |
| Net value at December 31, 2008 | 2,932 | 6,191 | 5,297 | 14,420 |
| Changes in depreciation: | ||||
| (in thousands of euros) | Land | Fixtures | Equipment | |
| 2007 | and buildings | and fi ttings | and other | Total |
| Accumulated depreciation at January 1, 2007 | (6,418) | (6,239) | (15,954) | (28,611) |
| Additional depreciation | (64) | (1,016) | (1,704) | (2,784) |
| Write-offs and disposals | – | 69 | 794 | 863 |
| Exchange rate differences | – | 58 | 164 | 222 |
| Accumulated depreciation at December 31, 2007 | (6,482) | (7,128) | (16,700) | (30,310) |
| (in thousands of euros) | ||||
| 2008 | Land and buildings |
Fixtures and fi ttings |
Equipment and otherh |
Total |
| Accumulated depreciation at January 1, 2008 | (6,482) | (7,128) | (16,700) | (30,310) |
| Additional depreciation | (64) | (1,005) | (1,742) | (2,811) |
| Write-offs and disposals | – | 211 | 562 | 773 |
| Transfers | – | – | (10) | (10) |
| Exchange rate differences | – | (7) | (51) | (58) |
| Accumulated depreciation at December 31, 2008 | (6,546) | (7,929) | (17,941) | (32,416) |
"Land and buildings" pertain solely to the Group's industrial facilities in Bordeaux-Cestas (France), amounting to €9,478,000, net of investment grants received.
The facility covers an area of 11.4 hectares (28.5 acres) and the buildings represent 27,300 m2 (295,000 sq.ft.).
Land and buildings were partly purchased outright by the company, and partly under fi nancial leases. These have been paid for in full.
The assets purchased outright by the company (excluding fi xtures and fi ttings) represent €5,022,000, of which €2,360,000 has been depreciated.
The assets (including fi xtures and fi ttings) purchased under fi nance leases are valued at €4,745,000 including €4,272,000 for the buildings, depreciated in full, and €473,000 for the land. In October 2002, the company became owner of the entire Bordeaux-Cestas land and buildings facilities.
Purchases of land, construction, and fi xtures and fi ttings in 2008 mainly concerned fi xtures and fi ttings relating to the Bordeaux-Cestas (France) industrial site amounting to €142,000, premises for Lectra Hong Kong amounting to €143,000, and for Lectra USA amounting to €133,000.
No acquisitions of new equipment were made using fi nance leases in 2007 or 2008.
Other fi xed assets purchased in 2007 and 2008 mainly concerned manufacturing molds and tools for the Bordeaux-Cestas (France) industrial facility.
| (in thousands of euros) | Investment in | Other non-current | |||
|---|---|---|---|---|---|
| 2007 | Loans | subsidiaries | fi nancial assets | Total | |
| Gross value at January 1, 2007 | 247 | 2,932 | 1,079 | 4,258 | |
| Additions | – | 247 | 1,743 | 1,990 | |
| Disposals | (11) | – | (1,755) | (1,766) | |
| Exchange rate differences | – | (2) | (38) | (40) | |
| Gross value at December 31, 2007 | 236 | 3,177 | 1,029 | 4,442 | |
| Impairment provision at December 31, 2007 | – | (2,571) | (69) | (2,640) | |
| Net value at December 31, 2007 | 236 | 606 | 960 | 1,802 |
| (in thousands of euros) 2008 |
Loans | Investment in subsidiaries |
Other non-current fi nancial assets |
Total |
|---|---|---|---|---|
| Gross value at January 1, 2008 | 236 | 3,177 | 1,029 | 4,442 |
| Additions | – | – | 1,387 | 1,387 |
| Disposals | (236) | (162) | (1,296) | (1,694) |
| Exchange rate differences | – | (2) | 74 | 72 |
| Gross value at December 31, 2008 | – | 3,013 | 1,194 | 4,207 |
| Impairment provision at December 31, 2008 | – | (2,481) | (70) | (2,551) |
| Net value at December 31, 2008 | – | 532 | 1,124 | 1,656 |
"Loans" and "Investments in subsidiaries" exclusively concern companies not included in the scope of consolidation. "Other non-current fi nancial assets" at December 31, 2008 primarily consist of deposits and guarantees.
The amounts below refer to fi scal year 2008 or December 31, 2008, as applicable.
| Type of transaction | Items concerned in consolidated fi nancial statements |
Non-consolidated subsidiaries concerned |
Amounts (in thousands of euros) |
|---|---|---|---|
| Receivables | Trade accounts receivable | Lectra Maroc Sarl (Morocco) | 881 |
| Lectra Chile SA (Chile) | 300 | ||
| Lectra Systemes Inc. (Philippines) | 167 | ||
| Other subsidiaries | 49 | ||
| Payables | Trade payables and other current liabilities | Lectra Singapore Pte Ltd (Singapore) | 169 |
| Lectra Maroc Sarl (Morocco) | 34 | ||
| Other subsidiaries | (71) | ||
| Sales | Revenues | Lectra Maroc Sarl (Morocco) | 259 |
| Lectra Chile SA (Chile) | 111 | ||
| Lectra Israel Ltd (Israel) | 54 | ||
| Lectra Systemes Inc. (Philippines) | 15 | ||
| Commissions | Selling, general and administrative expenses | Lectra Singapore Pte Ltd (Singapore) | (136) |
| Other subsidiaries | (2) | ||
| Personnel invoiced | Selling, general and administrative expenses | Lectra Singapore Pte Ltd (Singapore) | (372) |
| Financial interest | Interest income | Lectra Maroc Sarl (Morocco) | 35 |
| Lectra Singapore Pte Ltd (Singapore) | 11 | ||
| Lectra Chile SA (Chile) | 11 | ||
| Other subsidiaries | 8 |
The parties concerned are either agents or distributors of the company's products in their respective countries. The transactions in question mainly concern purchases from the parent company for the purposes of their local operations or charges and commissions billed to the parent company in order to cover their overheads in the case of agents. Transactions with the Chairman of the Board of Directors, the Chief Executive Offi cer and the other members of the Executive Committee are disclosed in notes 23.4 and 23.5.
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Current tax charge | (1,373) | (2,229) |
| Deferred tax | 1,956 | 720 |
| Net tax charge | 583 | (1,509) |
The research tax credit (crédit d'impôt recherche), applicable in France, is deducted from research and development expenses (see note 20). It amounted to €6,306,000 in 2008 (€3,193,000 in 2007). Income tax payable totaled €654,000 at December 31, 2008 (€454,000 at December 31, 2007).
| 2008 | 2007 | |||
|---|---|---|---|---|
| (in thousands of euros) | in % | in value | in % | in value |
| Standard rate of corporate income tax in France(1) | 33.33% | (886) | 33.33% | (2,440) |
| Impact of unrecognized deferred tax assets | 17.35% | (461) | –11.19% | 819 |
| Effect of other countries' different tax rates | –4.44% | 118 | –1.29% | 95 |
| Effect of income and expenses with a low or nil/zero tax rate(2) | –71.08% | 1,890 | –5.11% | 374 |
| Others | 2.92% | (78) | 4.90% | (357) |
| Effective tax rate | –21.92% | 583 | 20.64% | (1,509) |
(1) By convention, for tax rates, a plus sign indicates a tax charge and a minus sign a tax credit.
(2) This corresponds primarily to non-tax deductible charges for the year and to the elimination for tax purposes of certain consolidation entries.
Owing to uncertainty over the future profi t-earning capacity of some subsidiaries, none, or only part, of the said subsidiaries' tax losses and other potential deferred tax assets on timing differences is recognized as a deferred tax asset.
At December 31, 2008, unrecognized deferred tax assets totaled €10,042,000, compared with €9,736,000 at December 31, 2007. The Spanish subsidiary accounted for the bulk of this fi gure.
The share of deferred taxes directly recognized in retained earnings totals €579,000 and corresponds to the tax effect on the mark-to-market of interest-rate swaps (see note 13.8). Deferred taxes are listed below according to the type of timing difference:
| (in thousands of euros) | 2007 | Impact P&L | Impact equity | Translation adjustments |
2008 |
|---|---|---|---|---|---|
| Losses available for carry-forward | 3,929 | 1,914 | – | 36 | 5,879 |
| Depreciation/amortization of tangible and intangible assets |
2,928 | (284) | – | (31) | 2,613 |
| Impairment of accounts receivable | 220 | 52 | – | 3 | 275 |
| Write-downs of inventories | 1,385 | 54 | – | 123 | 1,562 |
| Financial instruments | 164 | – | 579 | - | 743 |
| Other timing differences | 701 | 220 | – | 104 | 1,025 |
| Total | 9,327 | 1,956 | 579 | 235 | 12,097 |
| (in thousands of euros) | 2006 | Impact P&L | Impact equity | Translation adjustments |
2007 |
|---|---|---|---|---|---|
| Losses available for carry-forward | 2,512 | 1,494 | – | (77) | 3,929 |
| Depreciation/amortization of tangible and | |||||
| intangible assets | 2,794 | 132 | – | 2 | 2,928 |
| Impairment of accounts receivable | 300 | (71) | – | (9) | 220 |
| Write-downs of inventories | 1,541 | (5) | – | (151) | 1,385 |
| Financial instruments | – | – | 164 | – | 164 |
| Other timing differences | 1,567 | (830) | – | (36) | 701 |
| Total | 8,714 | 720 | 164 | (271) | 9,327 |
| Expiration date | ||||
|---|---|---|---|---|
| (in thousands of euros) | Until 2009 |
Between 2010 and 2014 |
Beyond 2014 |
Total |
| Deferred tax assets on tax losses (1) | 9 | 2,820 | 3,050 | 5,879 |
(1) The above expiration date corresponds to the maximum period of utilization. Apart from Lectra Sistemas Española SA activated deferred tax assets are expected to be utilized within a period of between one and fi ve years.
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Raw materials | 25,416 | 26,112 |
| Finished goods and works-in-progress (1) | 13,609 | 13,907 |
| Inventories, gross value | 39,025 | 40,019 |
| Raw materials | (5,313) | (4,717) |
| Finished goods and works-in-progress (1) | (5 098) | (5 146) |
| Write-downs | (10,411) | (9,863) |
| Raw materials | 20,103 | 21,395 |
| Finished goods and works-in-progress (1) | 8,511 | 8,761 |
| Inventories, net value | 28,614 | 30,156 |
(1) Including demonstration and second-hand equipment.
€2,540,000 of inventory fully written down was scrapped in the course of 2008 (€753,000 in 2007), thereby diminishing the gross value and write-downs by the same amount.
Inventory rose in 2007 due to the launch of the new generation of Vector cutting systems and the gradual ramp-up of manufacturing capacity. Inventory fell by less than expected in 2008 as a result of weak sales of CAD/CAM equipment in a hostile macroeconomic environment.
Inventory write-downs charged for the year amounted to €3,652,000 (€3,002,000 in 2007). Reversals of previous write-downs relating to sales transactions amounted to €818,000 (€1,612,000 in 2007), booked against the charges for the period.
| (in thousands of euros) | 2,008 | 2,007 |
|---|---|---|
| Trade accounts receivable excluding deferred revenues | 12,592 | 21,709 |
| Deferred recurring software evolution and services contracts | 30,544 | 30,708 |
| Other deferred equipment and services revenues | 1,766 | 1,814 |
| VAT on deferred recurring contracts and on deferred revenues | 3,971 | 4,228 |
| Trade accounts receivable, gross value | 48,873 | 58,459 |
| Provision for impairment | (8,876) | (8,653) |
| Trade accounts receivable, net value | 39,997 | 49,806 |
Trade receivables at December 31, 2008 include €32,310,000, excluding value-added and other sales taxes on recurring contracts, other services and equipment billed in advance for 2009 (compared with €32,522,000, excluding value-added and other sales taxes, at December 31, 2007 in respect of 2008). These amounts have no impact on income, since an identical amount is recorded in "Deferred revenues" (see note 14).
The Group recognizes an impairment charge on trade accounts in light of an individual analysis of accruals. Changes in impairment charges are analyzed below:
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Provisions at January 1 | (8,653) | (8,708) |
| Additional provision | (2,747) | (2,191) |
| Write-back of provisions no longer required | 55 | 339 |
| Write-back of provisions on receivables paid | 1,288 | 777 |
| Write-back of provisions on irrecoverable receivables now cancelled | 1,159 | 1,077 |
| Exchange rate differences | 22 | 53 |
| Provisions at December 31 | (8,876) | (8,653) |
Changes in provisions for impairment of accounts receivable and related accounts, net of irrecoverable receivables, are recognized under "Selling, general and administrative expenses" in the income statement, on the line "Net provisions".
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Research tax credit | 14,035 | 8,015 |
| Income tax down payment | 1,172 | 925 |
| Total income tax receivaibles | 15,207 | 8,940 |
The measures within the framework of the economic stimulus plan announced by the French Government on December 4, 2008, provide for early reimbursement, in 2009, by the French tax administration (Trésor public) of the fraction not chargeable to income tax of the research tax credit in respect of the years 2005, 2006, 2007 and 2008. The company will receive the full amount of the €14,035,000 shown in the table above.
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Other tax receivables | 1,061 | 2,311 |
| Advances to personnel | 270 | 266 |
| Other current assets | 7,367 | 7,616 |
| Other current assets | 8,698 | 10,193 |
Other tax receivables at December 31, 2008 comprised the parent company's (French) recoverable value-added tax in the amount of €755,000 (€1,743,000 at December 31, 2007).
Other current assets notably comprise €5,608,000 (€5,161,000 at December 31, 2007) in legal fees and costs relating to the arbitration initiated by Lectra against the former Investronica's shareholder, Induyco, together with rental expenses, insurance premiums and equipment rental charges.
At December 31, 2008, the Group's capital stood at €27,640,648.58, including 28,495,514 shares with a par value of €0.97 per share.
The Extraordinary General Meeting of April 30, 2008 following the recommendation of the Board of Directors decided to reduce the share capital by reducing the par value of each share from €1.50 to €0.97 and to charge the corresponding amount to negative retained earnings of the parent company, Lectra SA, resulting from the accounting treatment of the public stock buyback tender offer carried out in May 2007.
This capital reduction was carried out by the Board of Directors at its meeting held on April 30, 2008 after the Shareholders' Meeting. The reduction amounted to €15,102,622.42, and the share capital at April 30, 2008, reduced to €27,640,648.58 consisting of 28,495,514 shares with a par value of €0.97.
At the close of this transaction, retained earnings of the parent company were brought back from a negative fi gure of €15,131,000 at December 31, 2007 after appropriation of the 2007 net income to an amount close to zero, before appropriation of 2008 earnings.
Since January 1, 2008, the share capital has increased by 18,615 shares as a result of the exercise of stock options. The tables below provide details of changes in the number of shares, the capital and additional paid-in capital and merger premiums in fi scal 2007 and 2008.
At December 31, 2008, apart from the authority to increase the capital granted by the Shareholders' Meeting within the framework of the granting of stock options to senior managers and employees, there is no other authorisation outstanding such as to alter the number of shares comprising the Group's capital.
2008 2007 Number of shares Share capital (total par value, in euros) Number of shares Share capital (total par value, in euros) Share capital at January 1 28,476,899 42,715,348.50 35,772,448 53,658,672.00 Stock options exercised 18,615 27,922.50 645,855 968,782.50 Cancellation of treasury shares – – (876,612) (1,314,918.00) Repurchase and cancellation of shares in public stock buyback tender offer – – (7,064,792) (10,597,188.00) Capital reduction – (15,102,622.42) – – Share capital at December 31 28,495,514 27,640,648.58 28,476,899 42,715,348.50
The shares comprising the Group's capital are fully paid up.
| note 9.1.2 Share Premium | ||
|---|---|---|
| (in thousands of euros) | 2008 | 2007 |
| Share premium at January 1 | 976 | 3,944 |
| Stock options exercised | 57 | 1,935 |
| Cancellation of treasury shares | – | (3,525) |
| Repurchase and cancellation of shares in public | ||
| stock buyback tender offer | – | (1,378) |
| Share premium at December 31 | 1,033 | 976 |
The General Meeting of Shareholders on April 30, 2008 renewed the existing share buyback program and authorized the Board of Directors to buy and sell company shares. The purposes of this program, which contributes to the fi nancial management of the company's equity, are, by order of priority:
– to maintain liquidity in the market in the company's shares, via an authorized investment services provider acting within the framework of a liquidity agreement in compliance with the Charter of Ethics of the French Association of Investment Companies (AFEI) or any other charter recognized by the French Financial Markets Authority (AMF);
– to retain or use all or part of the repurchased shares as a means of payment or exchange or otherwise within the framework of external growth transactions;
– to grant shares, notably to present or future offi cers or employees of the company and/or the Lectra Group, or to some of them, and in particular within the framework of articles L. 225−179 and subsequent, and L. 225-197-1 and subsequent of the French Commercial Code;
– to deliver shares in the company on the occasion of the exercise of rights attached to securities entailing an entitlement by whatever means to the company's equity;
– to cancel shares by reduction of the capital stock.
This share buyback program was published on March 21, 2008 on the Lectra website (www.lectra.com).
In accordance with French stock market regulations, the company has rolled over its Liquidity Agreement with SG Securities (Paris) (Société Générale Group) in order to maintain the liquidity for Lectra's shares on the stock market, and has traded in its own shares.
In addition, the company continued its contract with SG Securities (Paris) to buy and sell its own shares in accordance with the terms of the program authorized by the General Meeting of Shareholders. No transaction was carried out in 2008 under this contract.
Overall, at December 31, 2008, the company held 1.3% of its capital within the framework of the Liquidity Agreement (compared with 0.4% at December 31, 2007) for a total of €1,498,000 representing an average purchase price of €4.18 per share (compared with €581,000 at December 31, 2007), which has been deducted from shareholders' equity. Further, as at December 31, 2007, the company no longer held any shares at December 31, 2008 within the framework of the mandate given to SG Securities (Paris) to trade on its own account.
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| Number of shares |
Amount (in thousands of euros) |
Average price per share (in euros) |
Number of shares |
Amount (in thousands of euros) |
Average price per share (in euros) |
|
| Treasury shares at January 1 | ||||||
| Liquidity agreement | 101,297 | 581 | 5.74 | 300,707 | 1,465 | 4.87 |
| Treasury shares owned by the company on its own account |
– | – | – | 440,803 | 2,634 | 5.97 |
| Total at January 1 (historical cost) | 101,297 | 581 | 5.74 | 741,510 | 4,099 | 5.53 |
| Liquidity agreement | ||||||
| Purchases (at purchase price) | 302,758 | 1,188 | 3.93 | 281,668 | 1,628 | 5.78 |
| Sales (at sale price) | (45,596) | (163) | 3.57 | (481,078) | (2,895) | 6.02 |
| Net cash fl ow | 257,162 | 1,025 | (199,410) | (1,267) | ||
| Gains (losses) on disposals | – | (108) | – | 383 | ||
| Purchases and sales by the company on its own shares |
||||||
| Purchases (at purchase price) | – | – | 685,809 | 3,810 | 5.56 | |
| Sales (at sale price) | – | – | (250,000) | (1,567) | 6.27 | |
| Net cash fl ow | – | – | 435,809 | 2,243 | ||
| Gains (losses) on disposals | – | – | (37) | |||
| Cancellations (1) | – | – | (876,612) | (4,840) | 5.52 | |
| Treasury shares at December 31 | ||||||
| Liquidity agreement | 358,459 | 1,498 | 4.18 | 101,297 | 581 | 5.74 |
| Treasury shares owned by the company on its own account |
– | – | – | – | ||
| Total at December 31 (historical cost) | 358,459 | 1,498 | 4.18 | 101,297 | 581 | 5.74 |
(1) The company had cancelled 454,115 shares and 422,497 shares respectively on February 9 and June 8, 2007.
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Treasury shares at January 1 (historical cost) | 581 | 4,099 |
| Treasury shares at December 31 (historical cost) | 1,498 | 581 |
| Gross changes in the year (historical cost) | 917 | (3,518) |
| - of which gains (losses) on disposals | (108) | 346 |
| - of which cancellation of shares | – | (4,840) |
| Net cash fl ow of the period(1) | 1,025 | 976 |
(1) A positive fi gure corresponds to a net outfl ow refl ecting purchases and sales of its own shares by the company.
Voting rights are proportional to the capital represented by stock held.
However, double voting rights, subject to certain conditions, existed until May 3, 2001.
The Extraordinary Meeting of Shareholders of May 3, 2001 decided that shares registered after May 15, 2001, together with shares purchased after that date, are not eligible for double voting rights (with the exception of special cases covered by the corresponding resolution submitted to the said Extraordinary Meeting).
At their own initiative, André Harari and Daniel Harari have canceled the double voting rights attached to the shares they held. Overall, at December 31, 2008, 27,649,274 shares qualifi ed for normal voting rights, and only 487,781 (i.e. 1.71% of the capital stock) for double voting rights. Moreover, no other shares could potentially qualify for double voting rights at some future date.
In principle, at December 31, 2008, the total number of voting rights attached to the company's shares was 28,983,295. This number is reduced to 28,624,836 due to the fact that no voting rights are attached to treasury shares.
Other than the legal notifi cation requirements for crossing the thresholds established by French law, there is no special statutory obligation.
At December 31, 2008, Lectra's management and employees held 3,201,027 stock options each exercisable for one share of Lectra SA, the Group's parent company, with a par value of €0.97.
If all stock options were exercised, 3,201,027 ordinary shares would be issued and the capital increased by €3,104,996.19 (plus a total additional paid-in capital of €13,663,344.27). The company's capital would thereby be raised to €30,745,644.77, divided into 31,696,541 shares with a par value of €0.97 each.
The number of benefi ciaries decreased from 245 at December 31, 2007 to 233 at December 31, 2008 (i.e. 15% of Group employees at that date); this fi gure takes into account the departure of certain benefi ciaries still holding exercisable options.
IFRS 2 requires companies to expense the value of the benefi t granted to the benefi ciaries of stock options. Fair value of stock options granted in 2008 and 2007 was measured at grant date by means of the Black & Scholes method, using the following assumptions:
| (in euros) | 2008 | 2007 |
|---|---|---|
| Exercise price (1) | 6.30/4.10 | 6.30 |
| Share price on the date of allocation (2) | 3.92 | 6.26/6.00 |
| Risk-free interest rate | 4.38% | 4.41% |
| Dividend payout rate (2) | 2.87% | 2.40%/2.50% |
| Volatility (3) | 30.00% | 30.00% |
| Duration of options | 4 years | 4 years |
| Fair value of one option | 0.37/0.85 | 1.50 |
(1) The company made two grants on June 11, 2008, namely: 101,678 options at an exercise price of €6.30, and 428,370 options at an exercise price of €4.10 (see note 9.5.6).
(2) The company made two grants in 2007, one concerning 633,374 options on June 8, 2007 carrying a 2.40% dividend, and the other concerning 37,891 options on July 27, 2007 carrying a 2.50% dividend.
(3) Expected volatility is calculated on the basis of the observed historical volatility of the company's shares.
Volatility is calculated on the basis of the observed historical volatility of the company's share price over a time frame corresponding to the vesting period. This calculation ignores peaks resulting from exceptional events such as the public stock buyback tender offer. Fair value of the options granted on June 11, 2008 amounts to €402,000.
An expense of €452,000 is recognized in the 2008 fi nancial statements, including €156,000 in respect of the grants made in 2008, and €296,000 in respect of options granted previously. Charges for the year are recognized under personnel expenses. Plans in force at December 31, 2008 will impact the years 2009, 2010 and 2011 alone in the amounts of €240,000, €99,000 and €22,000 respectively. The Group made an employer's contribution based on the fair value of the options granted in 2008. This contribution, amounting to €20,000, is fully expensed in staff costs for 2008.
| 2008 | 2007 | |||
|---|---|---|---|---|
| Number of stock options |
Average exercise price (in euros) |
Number of stock options |
Average exercise price (in euros) |
|
| Stock options outstanding at January 1 | 3,480,936 | 6.48 | 3,458,383 | 6.13 |
| Stock options granted during the year | 530,048 | 4.52 | 671,265 | 6.30 |
| Stock options exercised during the year | (18,615) | 4.59 | (645,855) | 4.54 |
| Stock options expired/cancelled during the year | (791,342) | 10.26 | (65,660) | 5.81 |
| Stock options following the public stock buyback tender offer (1) | - | n/a | 62,803 | 6.31 |
| Stock options outstanding at December 31 | 3,201,027 | 5.24 | 3,480,936 | 6.48 |
| - of which fully vested | 2,482,566 | 5.22 | 2,735,295 | 6.59 |
| - for which exercise rights remain to be acquired | 718,461 | 5.31 | 745,641 | 6.09 |
(1) As required under Article R. 225-138 of the French Commercial Code, on June 8, 2007, the Board of Directors adjusted the number of options pertaining to the plans in force at May 22, 2007.
For plans in force at December 31, 2008, the terms relating to the vesting of options are determined on an annual basis generally over a period of four to fi ve years and may refl ect one or several of the following criteria, depending on the benefi ciary:
From fi scal year 2006 onward, performance-based options are granted by the Board of Directors only upon fi nal approval of the relevant actual results against the corresponding targets for that year and are notifi ed in advance to benefi ciaries individually. The number of potential options concerned in this respect is indicated in note 9.5.6.
The average exercise price for options exercised in 2008 was €4.59.
| Number of benefi ciaries |
Number of stock options |
% | Of which fully vested |
Of which exercise rights remain to be acquired |
|
|---|---|---|---|---|---|
| Executive directors and other members | |||||
| of the Executive Committee (1) | 2 | 626,206 | 20% | 497,242 | 128,964 |
| Group management | 32 | 1,223,250 | 38% | 879,949 | 343,301 |
| Other employees | 184 | 1,291,231 | 40% | 1,045,035 | 246,196 |
| Persons having left the company and still | |||||
| holding unexercised options | 15 | 60,340 | 2% | 60,340 | – |
| Total | 233 | 3,201,027 | 100% | 2,482,566 | 718,461 |
111
(1) The executive directors are: André Harari, Chairman of the Board of Directors, and Daniel Harari, Chief Executive Offi cer. Having each held more than 10% of the capital since 2000, they have been ineligible since then to benefi t from further stock option plans under French legislation, and no option has been granted to them. The last options held by André Harari expired unexercised in July 2008; Daniel Harari no longer held any options. Jérôme Viala, Chief Financial Offi cer and Véronique Zoccoletto, Chief Human Capital and Information Offi cer are the only other members of the Executive Committee alongside Daniel Harari.
| Grant date | Expiration date | Number of stock options |
Exercise price (in euros) |
|---|---|---|---|
| November 27, 2001 | November 27, 2009 | 682,125 | 4.21 |
| June 4, 2002 | June 4, 2010 | 161,980 | 5.09 |
| September 10, 2002 | September 10, 2010 | 45,405 | 4.21 |
| September 10, 2002 | September 10, 2010 | 20,788 | 5.09 |
| May 27, 2003 | May 27, 2011 | 313,312 | 4.75 |
| May 28, 2004 | May 28, 2012 | 342,303 | 6.61 |
| May 23, 2006 | May 23, 2014 | 573,637 | 5.63 |
| June 8, 2007 | June 8, 2015 | 520,733 | 6.30 |
| July 27, 2007 | July 27, 2015 | 37,891 | 6.30 |
| June 11, 2008 | June 11, 2016 | 97,132 | 6.30 |
| June 11, 2008 | June 11, 2016 | 405,721 | 4.10 |
Total 3,201,027
note 9.5.4 Breakdown of Stock Options for Which Exercise Rights Remain to be Acquired After December 31, 2008 by the Benefi ciaries
| Year of vesting | Number of stock options |
|---|---|
| 2009 | 331,274 |
| 2010 | 261,611 |
| 2011 | 125,576 |
| Total | 718,461 |
No stock options were granted in 2008 or in 2007 to André Harari and Daniel Harari, each of whom owns more than 10% of the capital since 2000 and is therefore prohibited since this date by French law from being granted further stock options. The executive directors held no stock options at December 31, 2008. All of the options held by Mr. André Harari at December 31, 2007 expired unexercised in 2008.
In June 2008, the Board of Directors granted twice stock options under the authority given to it by the Extraordinary General Meeting of April 28, 2008:
– 101,678 stock options to 45 Group employees, each option entitling the benefi ciary to one share at an exercise price of €6.30 in respect of performance in 2007;
– 428,370 stock options to 90 Group employees, each option entitling the benefi ciary to one share at an exercise price of €4.10.
A maximum of 366,015 options have been committed for granting in 2009 in respect of performance in 2008.
Of the 530,048 stock options granted in 2008, the 10 Group employees other than executive directors receiving the largest number of options in 2008 were granted a total of 229,076 options.
One person exercised options in 2008 before leaving the company. The options exercised are broken down as follows:
| 2008 | ||||
|---|---|---|---|---|
| Number of stock options exercised |
Exercise price (in euros) |
|||
| November 27, 2001 stock option plan | 5,355 | 4.21 | ||
| May 27, 2003 stock option plan | 13,260 | 4.75 | ||
| Total | 18,615 | 4.59 |
No executive directors exercised options in 2008.
The average subscription price of these 18,615 options was €4.59 per share.
Details of changes in retained earnings are shown in the statement of changes in shareholders' equity. The balance on this item totaled €6,233,000 at December 31, 2008.
The parent company will not declare a dividend in 2009, in respect of fi scal 2008, net income being insuffi cient to justify such payment.
In light of the mechanical accounting treatment of the public stock buyback tender offer on the parent company Lectra SA's reserves available for the distribution, the company has paid no dividend in 2008.
Analysis of changes recorded in 2007 and 2008:
(in thousands of euros) 2008 2007 Cumulative translation adjustment at January 1 (8,719) (8,141) Differences on translation of subsidiaries' income statements (456) 167 Adjustment required to maintain subsidiaries' retained earning at historical exchange rate 756 (754) Other movements (110) 9 Cumulative translation adjustment at December 31 (8,529) (8,719)
Retirement benefi t obligations correspond to lump-sum amounts payable under defi ned benefi t plans. These lump-sum amounts are generally paid at the time of retirement, but they may also be paid upon resignation or dismissal, depending on local legislation. These obligations apply mainly in France, in Italy and Japan, as detailed below:
| (in thousands of euros) | France | Italy | Japan | Taiwan | Others | Total |
|---|---|---|---|---|---|---|
| Retirement benefi ts at January 1, 2007 | 1,019 | 2,185 | 551 | – | 151 | 3,906 |
| Charges of the year | 42 | (272) | 15 | 67 | 44 | (104) |
| Benefi ts paid | – | (190) | – | (67) | – | (257) |
| Exchange rate differences | – | – | (27) | – | – | (27) |
| Retirement benefi ts at December 31, 2007 | 1,061 | 1,723 | 539 | – | 195 | 3,518 |
| (in thousands of euros) | France | Italy | Japan | Taiwan | Others | Total |
| Retirement benefi ts at January 1, 2008 | 1,061 | 1,723 | 539 | – | 195 | 3,518 |
| Charges of the year | – | 166 | 7 | 37 | 1 | 211 |
| Benefi ts paid | – | (106) | – | (37) | – | (143) |
| Exchange rate differences | – | – | 167 | – | (7) | 160 |
| Retirement benefi ts at December 31, 2008 | 1,061 | 1,783 | 713 | – | 189 | 3,746 |
| Breakdown of net annual charge: | ||||||
| (in thousands of euros) | ||||||
| 2007 | France | Italy | Japan | Taiwan | Others | Total |
| Cost of benefi ts provided in the year | 65 | 45 | 49 | 36 | 44 | 239 |
| Interest paid | 1 | 88 | 12 | 21 | – | 122 |
| Write-back relating to the new regulations | – | (283) | – | – | – | (283) |
| Actuarial gains/losses for the year | (24) | (122) | (46) | 10 | – | (182) |
| Charge (income) of the year | 42 | (272) | 15 | 67 | 44 | (104) |
| 2008 | France | Italy | Japan | Taiwan | Others | Total |
| Cost of benefi ts provided in the year | 43 | – | 54 | 34 | 1 | 132 |
| Interest paid | 49 | 95 | 13 | 20 | – | 177 |
| Actuarial gains/losses for the year | (92) | 71 | (60) | (17) | – | (98) |
| Charge (income) of the year | – | 166 | 7 | 37 | 1 | 211 |
| Main actuarial assumptions used: | ||||||
| France | Italy | Japan | Taiwan | |||
| Discount rate | 4.49% | 5.00% | 2.20% | 3.00% | ||
| Average rate of salary increase, including infl ation | 2.70% | 2.00% | 1.77% | 1.50% | ||
| Personnel turnover rate (1) | 2.19% / 10.12% | 5.00% | 3.49% | 9.67% |
(1) Calculated via a table based on age group. The personnel turnover rate for France is 2.19% for non-managerial grade personnel and 10.12% for managerial grade personnel.
At December 31, 2008, 100% of the company's fi nancial debt was euro-denominated, as at December 31, 2007.
At December 31, 2008, the repayment schedule is as follows:
| Short term | Long term | ||||
|---|---|---|---|---|---|
| (in thousands of euros) | Less than 1 year |
Between 1 and 5 years |
More than 5 years |
Total | |
| Interest-bearing bank loan | – | 48,000 | – | 48,000 | |
| Interest-free repayable advances (1) | 196 | 1,433 | – | 1,629 | |
| Cash facilities | 16,900 | – | – | 16,900 | |
| Total | 17,096 | 49,433 | – | 66,529 |
(1) The repayable advances correspond to public grants to fi nance research and development programs.
During the course of 2007 the company contracted a €48 million bank loan in order to fi nance the public stock buyback tender offer in May. This medium-term loan is repayable in eight half-yearly installments starting June 30, 2010—the fi rst two for €3,840,000 each, the following four for €5,280,000 each, and the last two for €9,600,000 each (on June 30 and December 31, 2013). The contract provides for an acceleration of these repayments subject to an increase in cash and cash equivalents of a non-recurring character in the fi rst three years, and arising from operations in subsequent years. The repayment dates listed above are the latest contractual dates assuming no acceleration of repayments.
In 2008, the loan carried interest at the three-month Euribor rate plus 1% per year. This margin was increased to 1.85% as from January 1, 2009 (and may be reduced to 0.95% depending on the company's leverage ratio) (see note 13.4 below). The company has hedged in 2007 its interest-rate risk exposure (see note 13.8 below). The total effective fi xed rate after inclusion of the cost of the hedging instruments is 5.75% in 2008 (assuming an annual margin of 1%). The total effective rate for 2009, calculated on the basis of the three-month Euribor rate at January 2, 2009, is forecast to be 6.34% (with a margin of 1.85%) representing interest paid of €3,086,000 calculated on €48,000,000.
Further, in 2008 the company booked a €800,000 repayable advance from OSEO Innovation, a French public body. The Group had already received an initial repayable advance of €400,000 under the same R&D program aid contract in 2007 (see note 13.6 below). These have been booked at fair value for €682,000 and €324,000 respectively. The advances are repayable subject to the success and profi tability of the corresponding R&D project after March 31, 2012. The utilization of cash facilities results from the temporary increase in working capital requirement.
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Cash | 7,813 | 8,174 |
| Cash equivalents | 2,362 | 2,723 |
| Total borrowings | (66,529) | (61,666) |
| Net fi nancial debt | (56,354) | (50,769) |
The table below summarize the Group access to liquidity at December 31, 2008 via available cash, cash facilities confi rmed by its banks, and its borrowings:
| (in thousands of euros) | Limits | Utilizations | Available Amounts |
|---|---|---|---|
| Confi rmed cash credit facilities | |||
| - until March 31, 2009 | 8,000 | – | 8,000 |
| - until July 18, 2009 | 6,000 | 5,100 | 900 |
| - until July 31, 2010 | 15,000 | 11,800 | 3,200 |
| Total | 29,000 | 16,900 | 12,100 |
| Bank loan | 48,000 | 48,000 | |
| Non-interest bearing repayable advances | 1,629 | 1,629 | |
| Total borrowings | 78,629 | 66,529 | 12,100 |
| Cash and cash equivalents | 10,175 | ||
| Total | 78,629 | 66,529 | 22,275 |
During the period of the €48 million bank loan contracted in 2007, the company is bound by covenants governing the ratios between its net fi nancial borrowing and shareholders' equity ("gearing") on the one hand, and between net fi nancial borrowing and EBITDA ("leverage") on the other. Anticipating that it would be unable to comply with these covenants at December 31, 2008, the company signed an amendment to the loan contract with the two lending banks in December 2008, modifying the ratios at December 31, 2008, such as to allow the company to respect them (which it did). In return for this agreement the margin was raised to 1.85% effective January 1, 2009.
The ratios to be respected until the maturity of this loan are as follows:
| 2009 | 2010 | 2011 | 2012 | |
|---|---|---|---|---|
| Leverage | < 2.3 | < 1.9 | < 1.7 | < 1.7 |
| Gearing | < 1.4 | < 1.2 | < 1 | < 1 |
Moreover, the banks are entitled to demand early repayment of the balance of the loan outstanding under a "change of control" clause in the event that one of 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. Finally, the company's compliance with these covenants will be calculated yearly on the basis of the annual fi nancial statements. 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).
All fi nancial borrowings are in euros.
The analysis of fi nancial borrowings by type of interest rate and sensitivity analysis is the following:
| 2008 | 2007 | ||||||
|---|---|---|---|---|---|---|---|
| (in thousands of euros) | Carrying amount |
Annual average |
Impact on fi nancial expenses of a 50bp increase |
Carrying amount |
Annual average (1) |
Impact on fi nancial expenses of a 50bp increase |
|
| Total debt at fi xed rate (bank loans) | 48,000 | 48,000 | 15 | 48,000 | 26,696 | – | |
| Total debt at fl oating rate (credit lines) | 1,629 | 1,228 | – | 1,054 | 1,040 | – | |
| Interest free advance from OSEO | 16,900 | 16,841 | 84 | 12,612 | 10,292 | 51 | |
| Total | 66,529 | 66,069 | 99 | 61,666 | 38,028 | 51 |
(1) The €48,000,000 bank loan having been contracted in June 2007, the fi gure of €26,696,000 corresponds to its inclusion prorata temporis in the annnual average for 2007.
| (in thousands of euros) | Payments due by period | |||||
|---|---|---|---|---|---|---|
| Contractual commitments | Less than 1 year |
Between 1 and 5 years |
More than 5 years |
Total | ||
| Rental contracts : offi ces | 5,330 | 14,456 | 6,376 | 26,162 | ||
| Rental contracts : others(1) | 4,676 | 3,295 | 12 | 7,983 | ||
| Total rental contracts | 10,006 | 17,751 | 6,388 | 34,145 | ||
| Other guarantees: sureties(2) | 1,601 | 48 | 1,083 | 2,732 |
(1) These contracts mainly cover IT and offi ce equipment.
(2) This mainly concerns sureties given by banks on the company's behalf, or given by the company to fi nancial institutions against loans made by the latter to its subsidiaries.
Rentals booked as charges in 2008 amounted to €11,973,000.
No provision is made for employee training entitlements since future training represents a use value in return for the Group. The cumulative number of hours is mentioned in note 23.7.
In addition to the confi rmed cash facilities available to the parent company Lectra SA, details of which are provided in note 13.3 above, the company's German subsidiary, Lectra Deutschland GmbH, has access to a confi rmed bank credit facility of €1 million intended for the giving of guarantees. These facilities are generally renewed annually.
117
OSEO Innovation, a French public body, has given the company a commitment to aid a new R&D program in the form of an interest-free advance. OSEO Innovation's total commitment will amount to €2,000,000 if the company completes this program. Two initial payments of €400,000 and €800,000 were received in 2007 and 2008. Assuming the program is completed, the balance would be received between 2009 and 2010.
The Group mainly uses forward sales and purchases of currencies to hedge its foreign currency balance sheet positions at the end of each month. The currencies commonly concerned are the US dollar, the Hong Kong dollar, the Australian dollar, the Canadian dollar, the Taiwanese dollar, the Japanese yen and the British pound.
The Group may have occasion to purchase currency put options to hedge its exposure to the US dollar. However, the company has not had recourse to such options since January 1, 2006 given their very high cost owing the volatility of the fi nancial markets.
Forward transactions entered into by the company to hedge balance sheet currency positions at December 31, 2008 and 2007 are analyzed below:
| 2008 | 2007 | |||||||
|---|---|---|---|---|---|---|---|---|
| In foreign currency (1) (in thousands) |
Equivalent value(2) in thousands of euros |
Difference in value |
Expiration date | In foreign currency (1) (in thousands) |
Equivalent value(2) in thousands of euros |
Difference in value |
Expiration date | |
| USD | 15,536 | 11,004 | (160) | January 29, 2009 | 6,546 | 4,428 | (18) | January 23, 2008 |
| AUD | (1,297) | (632) | 7 | January 29, 2009 | (1,313) | (789) | (5) | January 23, 2008 |
| CAD | 5,184 | 3,034 | (15) | January 29, 2009 | 4,415 | 2,946 | (110) | January 23, 2008 |
| CHF | 5 | 5 | 1 | January 29, 2009 | – | – | – | |
| DKK | (9,052) | (1,214) | 1 | January 29, 2009 | – | – | – | |
| GBP | (501) | (524) | 1 | January 29, 2009 | (557) | (760) | (1) | January 23, 2008 |
| HKD | (1,850) | (170) | 1 | January 29, 2009 | (7,583) | (662) | (2) | January 23, 2008 |
| INR | 3,928 | 21 | (36) | January 29, 2009 | – | – | – | |
| JPY | (487,881) | (3,862) | 5 | January 29, 2009 | (458,848) | (2,858) | (77) | January 23, 2008 |
| SEK | (4,259) | (390) | 2 | January 29, 2009 | – | – | – | |
| SGD | (550) | (270) | 4 | January 29, 2009 | (1,077) | (510) | (1) | January 23, 2008 |
| TWD | 28,808 | 626 | 40 | January 29, 2009 | 21,469 | 458 | 8 | March 25, 2008 |
| ZAR | 1,389 | 101 | (4) | January 29, 2009 | (598) | (60) | (1) | January 23, 2008 |
| 7,729 | (153) | 2,192 | (206) |
(1) For each currency, net balance of forward sales (and purchases) against euros.
(2) Equivalent value of forward contracts is calculated by multiplying the amounts in local currencies hedged by the closing rate.
Fair value of forward currency contracts at December 31, 2008 is calculated on the basis of exchange rates published by the European Central Bank (ECB) or, in the absence of quotation by the ECB, on the basis of rates published by Natixis. This valuation is comparable to the procedure utilized for information purposes by the banks with which these forward currency contracts were entered into.
With the exception of Mexico, Tunisia, and Turkey (together representing less than 5% of Group revenue), each entity bills and is billed in local currency. Consequently, Group exposure to currency risk is borne by the parent company. The table below, showing foreign currency exposure, lists all of the parent company's foreign currency assets and liabilities, together with the net value of forward transactions unexpired at December 31, 2008 and December 31, 2007:
| 2008 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands of currencies) | USD | AUD | BRL | CAD | CHF | DKK | GBP | HKD | INR | JPY | SEK | SGD | TWD | ZAR |
| Carrying position to be hedged: | ||||||||||||||
| Trade account receivables | 15,785 | (1,212) | 3,821 | 5,219 | – | (7,988) | (295) | 938 | – (438,016) | (4,104) | 6 | 21,697 | 3,433 | |
| Cash | 254 | – | – | – | – | – | – | – | – | – | – | – | – | – |
| Trade payables | (4,769) | (17) | (3,222) | (85) | 5 | (271) | (19) | (884) | (3,778) | (19,585) | (40) | (326) | 8,836 | (930) |
| Total | 11,270 | (1,229) | 599 | 5,134 | 5 | (8,259) | (314) | 54 | (3,778) (457,601) | (4,144) | (320) | 30,533 | 2,503 | |
| Nominal net of hedges | (15,536) | 1,297 | – | (5,184) | (5) | 9,052 | 501 | 1,850 | (3,929) 487,881 | 4,259 | 550 | (26,808) | (1,389) | |
| Net residual position | (4,266) | 68 | 599 | (50) | – | 793 | 187 | 1,904 | (7,707) | 30,280 | 115 | 230 | 3,725 | 1,114 |
| Equivalent value in euros at closing rate |
(3,065) | 34 | 185 | (29) | – | 106 | 196 | 177 | (113) | 240 | 11 | 115 | 81 | 85 |
| Analysis of sensitivity to currency fl uctuations |
||||||||||||||
| Closing rates | 1,392 | 2,027 | 3,244 | 1,700 | 1,485 | 7,451 | 0,953 | 10,786 | 68,220 | 126,140 | 10,870 | 2,004 | 45,731 | 13,067 |
| 5% currency depreciation relative to closing rate |
||||||||||||||
| Closing rates parity | ||||||||||||||
| depreciated by 5% | 1,461 | 2,129 | 3,406 | 1,785 | 1,559 | 7,823 | 1,000 | 11,325 | 71,631 | 132,447 | 11,414 | 2,104 | 48,018 | 13,720 |
| P&L impact | 146 | (2) | (9) | 1 | – | (5) | (9) | (8) | 5 | (11) | (1) | (5) | (4) | (4) |
| Impact on shareholders' equity | – | – | – | – | – | – | – | – | – | – | – | – | – | – |
| 5% currency appreciation relative to closing rate |
||||||||||||||
| Closing rates parity | ||||||||||||||
| appreciated by 5% | 1,322 | 1,926 | 3,081 | 1,615 | 1,411 | 7,078 | 0,905 | 10,247 | 64,809 | 119,833 | 10,327 | 1,904 | 43,444 | 12,413 |
| P&L impact | (161) | 2 | 10 | (2) | – | 6 | 10 | 9 | (6) | 13 | 1 | 6 | 4 | 4 |
| Impact on shareholders' equity | – | – | – | – | – | – | – | – | – | – | – | – | – | – |
| 2007 | ||||||||||||||
| (in thousands of currencies) | USD | AUD | BRL | CAD | CHF | DKK | GBP | HKD | INR | JPY | SEK | SGD | TWD | ZAR |
| Carrying position to be hedged: | ||||||||||||||
| Trade account receivables | 16,675 | (1,165) | 7,189 | 4,915 | – | (3,016) | (204) | 1,357 | – | (407,590) | (4,475) | 105 | 25,846 | 1,147 |
| Cash | 823 | – | – | – | (135) | – | – | – | – | – | – | – | – | – |
| Trade payables | (4,797) | (47) | (2,555) | (8) | – | (73) | (40) | (7,449) | (8,999) | (20,003) | – | (1,107) | (7,798) | (1,016) |
| Total | 12,701 | (1,212) | 4,634 | 4,907 | (135) | (3,089) | (244) | (6,092) | (8,999) | (427,593) | (4,475) | (1,002) | 18,048 | 131 |
| Nominal net of hedges | (6,546) | 1,313 | – | (4,415) | – | – | 557 | 7,583 | – | 458,848 | – | 1,077 (21,648) | 598 | |
| Net residual position | 6,155 | 101 | 4,634 | 492 | (135) | (3,089) | 313 | 1,491 | (8,999) | 31,255 | (4,475) | 75 | (3,600) | 729 |
| Equivalent value in euros at closing rate |
4,181 | 60 | 1,781 | 341 | (82) | (414) | 427 | 130 | (155) | 190 | (474) | 35 | (75) | 73 |
| Analysis of sensitivity to currency fl uctuations |
||||||||||||||
| Closing rates | 1,472 | 1,676 | 2,602 | 1,442 | 1,655 | 7,458 | 0,733 | 11,480 | 58,120 | 164,930 | 9,442 | 2,116 | 47,750 | 10,030 |
| 5% currency depreciation relative to closing rate |
||||||||||||||
| Closing rates parity | ||||||||||||||
| depreciated by 5% | 1,546 | 1,759 | 2,732 | 1,514 | 1,737 | 7,831 | 0,770 | 12,054 | 61,026 | 173,177 | 9,914 | 2,222 | 50,138 | 10,531 |
| P&L impact | (199) | (3) | (85) | (16) | 4 | 20 | (20) | (6) | 7 | (9) | 23 | (2) | 4 | (3) |
| Impact on shareholders' equity | – | – | – | – | – | – | – | – | – | – | – | – | – | – |
| 5% currency appreciation relative to closing rate |
||||||||||||||
| Closing rates | ||||||||||||||
| parity appreciated by 5% | 1,398 | 1,592 | 2,472 | 1,370 | 1,572 | 7,085 | 0,697 | 10,906 | 55,214 | 156,684 | 8,969 | 2,010 | 45,363 | 9,528 |
| P&L impact | 220 | 3 | 94 | 18 | (4) | (22) | 22 | 7 | (8) | 10 | (25) | 2 | (4) | 4 |
| Impact on shareholders' equity | – | – | – | – | – | – | – | – | – | – | – | – | – | – |
The company has hedged its interest-rate risk exposure in connection with the €48 million medium-term bank loan by converting the fl oating interest rate payable on the loan (three-month Euribor rate) into a fi xed rate via two interest-rate swap 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.
These €42 million swaps meet the hedging criteria of IFRS. Their fair value at December 31, 2008 is a negative €2,226,000. The effective part, corresponding to their full fair value, is entirely recognized in shareholders' equity. No ineffective part has been booked in net fi nancial expenses in 2008.
For a 0.5% (50 basis points) variation in the three-month Euribor (the interest rate on the underlying borrowing being hedged), the value of the swaps would rise by €607,000 if the interest rate rose, and would fall by the same amount if the interest rate fell. The counterpart of this variation in the value of swaps would be recognized in shareholders' equity.
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Deferred recurring software evolution and services contracts | 30,544 | 30,708 |
| Other deferred revenues (1) | 1,766 | 1,814 |
| Total | 32,310 | 32,522 |
(1) Other deferred revenues mainly correspond to invoiced services, which were not completed at year-end.
The counterpart of "Deferred recurring software evolution and services contracts" and "Other deferred revenues" is recorded for the same amount (plus VAT and related taxes) in "Trade accounts receivable" in the balance sheet (see note 7).
| (in thousands of euros) | Provisions for litigation |
Provisions for warranty |
Other provisions |
Total |
|---|---|---|---|---|
| Provisions at January 1, 2008 | 710 | 627 | 789 | 2,126 |
| Additional provisions | 291 | 362 | 180 | 833 |
| Used during the year | (17) | (461) | (224) | (702) |
| Unused amounts reversed | – | – | (148) | (148) |
| Exchange rate differences | (117) | – | (11) | (128) |
| Provisions at December 31, 2008 | 867 | 528 | 586 | 1,981 |
The Group has no knowledge, at the balance sheet date, of any potential liability at December 31, 2008.
Given the nature of its business the Group is not exposed to any environmental risks.
The Group has designated the following main categories of fi nancial assets and liabilities:
| At december 31, 2008 | IAS 39 category | Carried at amortized cost |
Carried at cost |
Carried at fair value through profi t or loss |
Carried at fair value with changes recognized in equity |
Carrying amount |
Fair value |
|---|---|---|---|---|---|---|---|
| Loans, deposits and guarantees | Loans and receivables | X | – | – | |||
| Other non current fi nancial assets Loans and receivables | X | 1,124 | 1,124 | ||||
| Trades account receivables | Loans and receivables | X | 40,150 | 40,150 | |||
| Other current assets | Loans and receivables | X | 8,698 | 8,698 | |||
| Derivatives not designated | Financial assets at fair value | ||||||
| as hedges | through profi t and loss | X | (153) | (153) | |||
| Derivatives designated as hedges (1) |
Financial assets at fair value with changes recognized in equity |
X | – | – | |||
| Cash ans cash equivalents | Financial assets at fair value through profi t and loss |
X | 10,175 | 10,175 | |||
| Total fi nancial assets | 59,994 | 59,994 | |||||
| Interest-bearing bank loans | Financial liabilities carried at amortized cost |
X | 48,000 | 48,000 | |||
| Financial liabilities carried | |||||||
| Repayable advance OSEO | at amortized cost | X | 1,629 | 1,629 | |||
| Financial liabilities carried | |||||||
| Cash facilities | at amortized cost | X | 16,900 | 16,900 | |||
| Derivatives not designated | Financial liabilities at fair value | ||||||
| as hedges | through profi t and loss | X | – | – | |||
| Derivatives designated | Financial liabilities at fair value | ||||||
| as hedges (1) | with changes recognized in equity | X | 2,226 | 2,226 | |||
| Trade payables and other | Financial liabilities carried at | ||||||
| current liabilities | amortized cost | X | 39,490 | 39,490 | |||
| Total fi nancial liabilities | 108,245 | 108,245 | |||||
| Carried at | Carried at fair | Carried at fair value | |||||
| amortized | Carried | value through | with changes | Carrying | Fair | ||
| At december 31, 2007 | IAS 39 category | cost | at cost | profi t or loss | recognized in equity | amount | value |
| Loans, deposits and guarantees | Loans and receivables | X | 236 | 236 | |||
| Other non current fi nancial assets Loans and receivables | X | 960 | 960 | ||||
| Trades account receivables | Loans and receivables | X | 50,012 | 50,012 | |||
| Other current assets | Loans and receivables | X | 10,193 | 10,193 | |||
| Derivatives not designated | Financial assets at fair value | ||||||
| as hedges | through profi t and loss | X | (206) | (206) | |||
| Derivatives designated | Financial assets at fair value | ||||||
| as hedges (1) | with changes recognized in equity | X | – | – | |||
| Financial assets at fair value | |||||||
| Cash ans cash equivalents | through profi t and loss | X | 10,897 | 10,897 | |||
| Total fi nancial assets | 72,092 | 72,092 | |||||
| Financial liabilities carried | |||||||
| Interest-bearing bank loans | at amortized cost | X | 48,000 | 48,000 | |||
| Financial liabilities carried | |||||||
| Repayable advance OSEO | at amortized cost | X | 1,054 | 1,054 | |||
| Financial liabilities carried | |||||||
| Cash facilities | at amortized cost | X | 12,612 | 12,612 | |||
| Derivatives not designated | Financial liabilities at fair value | ||||||
| as hedges | through profi t and loss | X | – | – | |||
| Derivatives designated | Financial liabilities at fair value | ||||||
| as hedges (1) | with changes recognized in equity | X | 481 | 481 | |||
| Trade payables and other current liabilities |
Financial liabilities carried at amortized cost |
X | 51,964 | 51,964 |
(1) Concerns swaps intended to hedge the bank borrowing against interest-rate risk.
Fair value of loans and trade accounts receivable, suppliers and other current liabilities is identical to their book value. Group borrowings essentially comprise fl oating-rate borrowings (excluding hedges where applicable). Consequently, fair value of fi nancial borrowings corresponds to their face value.
By convention, a minus sign in the tables of notes to the income statement represents a charge for the year, and a plus sign an income or gain for the year.
To make the discussion of revenues and earnings as relevant as possible, detailed comparisons between 2008 and 2007 are also provided at 2007 exchange rates ("like-for-like"), as indicated in the notes concerned.
No single customer represents more than 3% of annual revenues.
| 2008 | 2007 | |
|---|---|---|
| Euro | 60% | 59% |
| US dollar | 22% | 23% |
| Japanese yen | 4% | 3% |
| British pound | 3% | 4% |
| Chinese yuan | 3% | 3% |
| Other currencies (1) | 8% | 8% |
| Total | 100% | 100% |
(1) No other single currency represents more than 2% of total revenues.
The Group develops, manufactures and markets software and equipment entirely dedicated to the major industrial users of textiles, leather and other soft materials, and provides related services. The Group analyzes its sales according to two broad criteria: by country or geographic region, and by product line. The Group also analyzes its new systems sales by market sector.
| 2008 2007 |
Changes 2008/2007 | ||||||
|---|---|---|---|---|---|---|---|
| (in thousands of euros) | Actual | % | At 2007 exchange rates |
Actual | % | Actual | Like-for-like |
| Europe, of which: | 118,891 | 60% | 119,844 | 125,502 | 58% | –5% | –5% |
| – France | 20,862 | 11% | 20,862 | 17,199 | 8% | +21% | +21% |
| Americas | 34,427 | 17% | 36,855 | 41,682 | 19% | –17% | –12% |
| Asia - Pacifi c | 34,073 | 17% | 34,728 | 36,289 | 17% | –6% | –4% |
| Other countries | 10,742 | 5% | 11,248 | 13,092 | 6% | –18% | –14% |
| Total | 198,133 | 100% | 202,675 | 216,565 | 100% | –9% | –6% |
| 2008 | 2007 | Changes 2008/2007 | |||||
|---|---|---|---|---|---|---|---|
| (in thousands of euros) | Actual | % | At 2007 exchange rates |
Actual | % | Actual | Like-for-like |
| Software, of which : | 58,566 | 30% | 59,973 | 62,858 | 29% | –7% | –5% |
| – New licenses | 28,830 | 15% | 29,537 | 34,047 | 16% | –15% | –13% |
| – Software evolution contracts | 29,736 | 15% | 30,437 | 28,811 | 13% | +3% | +6% |
| CAD/ CAM equipment | 56,172 | 28% | 57,719 | 68,386 | 32% | –18% | –16% |
| Hardware maintenance and on-line services | 38,072 | 19% | 38,695 | 38,427 | 18% | –1% | +1% |
| Spare parts and consumables | 35,636 | 18% | 36,416 | 36,715 | 17% | –3% | –1% |
| Training and consulting services | 8,769 | 4% | 8,942 | 8,753 | 4% | +0% | +2% |
| Miscellaneous | 918 | 0% | 930 | 1,426 | 1% | –36% | –35% |
| Total | 198,133 | 100% | 202,675 | 216,565 | 100% | –9% | –6% |
| 2008 | 2007 | Changes 2008/2007 | |||||
|---|---|---|---|---|---|---|---|
| (in thousands of euros) | Actual | % | At 2007 exchange rates |
Actual | % | Actual | Like-for-like |
| Revenues from new systems sales (1) | 94,689 | 48% | 97,128 | 112,611 | 52% | –16% | –14% |
| Recurring revenues (2), of which: | 103,444 | 52% | 105,547 | 103,954 | 48% | –0% | +2% |
| – Recurring contracts | 65,910 | 33% | 67,215 | 64,743 | 30% | +2% | +4% |
| – Other recurring revenues on the installed base |
37,534 | 19% | 38,332 | 39,211 | 18% | –4% | –2% |
| Total | 198,133 | 100% | 202,675 | 216,565 | 100% | –9% | –6% |
(1) Revenues from new systems sales 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.
| 2008 | 2007 | Changes 2008/2007 | |||||
|---|---|---|---|---|---|---|---|
| (in thousands of euros) | Actual | % | At 2007 exchange rates |
Actual | % | Actual | Like-for-like |
| Fashion (apparel, accessories, footwear) | 57,588 | 61% | 59,078 | 67,711 | 60% | –15% | –13% |
| Automotive | 17,615 | 19% | 18,048 | 23,827 | 21% | –26% | –24% |
| Furniture | 6,936 | 7% | 7,031 | 11,140 | 10% | –38% | –37% |
| Other industries | 12,550 | 13% | 12,971 | 9,933 | 9% | +26% | +31% |
| Total | 94,689 | 100% | 97,128 | 112,611 | 100% | –16% | –14% |
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Revenues | 198,133 | 216,565 |
| Cost of goods sold, of which: | (65,757) | (71,568) |
| Purchases and freight-in costs | (57,587) | (68,081) |
| Inventory movement, net | (1,327) | 4,432 |
| Industrial added value | (6,843) | (7,919) |
| Gross profi t | 132,376 | 144,997 |
| (in % of revenues) | 66.8% | 67.0% |
Staff costs and other operating expenses incurred in the performance of service activities are not included in cost of goods sold but are recognized in "Selling, general and administrative expenses".
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Fixed staff costs | (15,910) | (15,444) |
| Variable staff costs | (14) | (27) |
| Other operating expenses | (1,975) | (1,568) |
| Depreciation expenses | (413) | (402) |
| Total before research tax credit | (18,312) | (17,441) |
| (in % of revenues) | 9.2% | 8.1% |
| Research tax credit and grants | 7,705 | 3,216 |
| Total | (10,607) | (14,225) |
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Fixed staff costs | (67,006) | (64,498) |
| Variable staff costs | (3,940) | (6,408) |
| Other operating expenses | (39,140) | (43,683) |
| Depreciation expenses | (3,046) | (3,181) |
| Net provisions | (1,676) | (1,794) |
| Total (1) | (114,808) | (119,564) |
| (in % of revenues) | 57.9% | 55.2% |
(1) "Selling, general and administrative expenses" do not include the expenses comprised in "Industrial added value" (see note 19), which amounted to €6,843,000 in 2008 (€7,919,000 in 2007).
Other operating expenses comprise €873,000 in respect of the audit of all Group companies. Details of fees paid by the company in 2008 to each of the statutory auditors are provided below:
| (in thousands of euros) | PWC | KPMG | ||||||
|---|---|---|---|---|---|---|---|---|
| Amount | % | Amount | % | |||||
| (in thousands of euros) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
| Audit | ||||||||
| – Statutory audits, certifi cation and examination of individuals and consolidated fi nancial statements |
||||||||
| Issuer (Lectra SA) | 150 | 139 | 22% | 19% | 142 | 129 | 74% | 76% |
| Fully-consolidated subsidiaries | 417 | 426 | 61 % | 59% | 51 | 41 | 26% | 24% |
| – Others services directly related to the Auditors' engagement |
– | – | – | – | – | – | – | – |
| Issuer (Lectra SA) | – | – | – | – | – | – | – | – |
| Sub-total | 567 | 565 | 83% | 79% | 193 | 170 | 100% | 100% |
| Other services to consolidated entities | ||||||||
| – Legal, tax and social reviews | 113 | 151 | 17% | 21% | – | – | – | – |
| Sub-total | 113 | 151 | 17% | 21% | – | – | – | – |
| Total | 680 | 716 | 100% | 100% | 193 | 170 | 100% | 100% |
No non-recurring item was booked in 2008.
In fi scal 2007, the company recognized a non-recurring charge of €997,000 relating to the dismissal of nine employees of Lectra Sistemas Española SA (previously employees of Investronica Sistemas before its merger into Lectra Sistemas Española SA), who had been dismissed in 2006 as part of the restructuring of operations in Spain.
The table below combines all fi xed and variable staff costs for the Group.
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Research and development | (15,924) | (15,471) |
| Selling, general and administrative | (70,946) | (70,906) |
| Manufacturing, logistics and purchasing (1) | (4,640) | (5,707) |
| Total | (91,510) | (92,084) |
(1) "Manufacturing, logistics and purchasing" personnel expenses are included in the cost of goods sold, in "Industrial added value" (see note 19).
| 2008 | 2007 | |
|---|---|---|
| Parent company | 677 | 694 |
| Subsidiaries(1) , of which: | 841 | 857 |
| Europe | 405 | 416 |
| Americas | 167 | 178 |
| Asia - Pacifi c | 198 | 187 |
| Other countries | 71 | 76 |
| Total | 1,518 | 1,551 |
(1) Refers to all consolidated and non-consolidated Group companies.
| 2008 | 2007 | |
|---|---|---|
| Administration, fi nance, human resources, management information systems | 291 | 305 |
| Research and development | 218 | 232 |
| Manufacturing, logistics, purchasing | 168 | 165 |
| Marketing, sales, training, consulting | 457 | 450 |
| Call centers, technical maintenance, support | 384 | 399 |
| Total | 1,518 | 1,551 |
A rider to the October 1984 employee profi t-sharing plan was signed in October 2000. Under this plan, applicable solely to parent company employees, a portion of the special employee profi t-sharing reserve set aside annually may be invested in equity securities via four types of funds, one consisting exclusively of Lectra SA stock, at the benefi ciary's discretion. In light of the deterioration of the Group's results and in particular those of its parent company, Lectra SA, there was no profi t-sharing in respect of 2008, as in 2007.
A collective employee incentive plan, applicable solely to parent company employees, was signed for the fi rst time in September 1984.
Similar plans have been renewed every year since that date. The most recent incentive plan was signed in June 2008 to cover the period 2008 to 2010.
Incentive payments in respect of 2008 totaled €64,000 (€516,000 in 2007).
The Group management team consists of the Chairman of the Board of Directors, the Chief Executive Offi cer, the Chief Financial Offi cer, and the Chief Human Capital and Information Offi cer.
Their compensation, regardless of whether they are executive directors, comprises a fi xed and a variable portion. They do not receive bonuses in any form.
Variable compensation is set in accordance with two criteria expressed in terms of annual targets:
– consolidated income before non-recurring items, if any, net fi nancial expenses, and income tax (which accounts for 67%);
– and consolidated free cash fl ow restated for disbursements and receipts booked in respect of non-recurring items, if any, net fi nancial expenses, and income tax (which accounts for 33%).
This variable compensation is equal to zero below a certain threshold, to 100% at annual targets fulfi lled, and is capped at 200% in the event that annual targets are exceeded. Between these thresholds, it is calculated on a linear basis. Conditional upon fulfi llment of annual targets, variable compensation for 2008 and 2007 was equal to 60% of total compensation for the Chairman of the Board of Directors and Chief Executive Offi cer, 30% for the Chief Financial Offi cer, and 30% for the Chief Human Capital and Information Offi cer.
The Board of Directors sets annual targets based on the recommendations of the Compensation Committee. The Committee is careful to ensure that the rules framed each year for setting variable compensation are consistent with the evaluation of executive directors' performance, the company's medium term strategy, general macroeconomic conditions and, more particularly, the state of the company's geographic and sectoral markets. After the end of the year, it verifi es the annual application of these rules and the fi nal amount of variable compensation on the basis of the audited fi nancial statements. These targets also apply to the two members of the Executive Committee who are not executive directors, and to approximately twenty managers of the parent company, Lectra SA. Only the performance-based share of variable compensation varies, being set individually for each executive.
Both the annual targets for income and free cash fl ow were not fulfi lled in 2008. Altogether, the percentage achieved for the variable portion of compensation represented 33% of the fi gure set assuming fulfi llment of the annual targets. In 2007, both the annual targets for income and free cash fl ow were not fulfi lled : the percentage achieved for the variable portion of compensation represented 26% of the fi gure set upon fulfi llment of the annual targets.
Aggregate compensation and benefi ts in kind paid to the Group management team in 2008, excluding directors' fees, amounted to €1,086,000, of which €783,000 in fi xed compensation, €247,000 in variable compensation, and €56,000 in benefi ts in kind.
Aggregate compensation and benefi ts in kind paid to these same managers in respect of 2007 amounted to €993,000 (of which €765,000 in fi xed compensation, €190,000 in variable compensation, and €38,000 in benefi ts in kind). Of the Group management team, only the Chief Financial Offi cer and the Chief Human Capital and Information Offi cer were granted stock options in the course of the year (respectively 44,812 and 28,680).
A charge of €61,000 and €38,000 was recognized in respect of 2008 as a result of the new stock option plan together with prior-year plans concerning these two benefi ciaries (respectively €78,000 and €47,000 in respect of 2007). The executive directors held no stock options at December 31, 2008 (see note 9.5.5).
Subject to the approval of the General Meeting of Shareholders on April 29, 2009, €100,000 in directors' fees will be allocated to the four members of the Board with respect to fi scal 2008 (€100,000 in 2007), split equally among the four directors. Compensation paid to the two non-executive directors in respect of 2008 consists exclusively of directors' fees amounting to €25,000 each.
Contributions to compulsory or contractual pension plans are expensed in the year in which they are paid. During 2008, subsidiaries subject to defi ned-contribution pension plans booked a sum of €3,624,000 under staff costs in respect of their contributions to these pension or retirement funds. The main subsidiaries concerned, in addition to the parent company, were those in the United States, the United Kingdom, Italy, Taiwan, and Hong Kong.
According to French regulation, the accumulated number of hours corresponding to rights acquired by employees of the parent company is 51,367. Employees have not yet exercised their rights to 50,511 hours of training.
The table below combines all depreciation and amortization charges on tangible and intangible fi xed assets (excluding goodwill) and their allocation between income statement items:
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Research and development | (413) | (402) |
| Selling, general and administrative | (3,046) | (3,181) |
| Manufacturing, logistics and purchasing (1) | (665) | (596) |
| Total | (4,124) | (4,179) |
(1) "Manufacturing, logistics and purchasing" depreciation and amortization charges are included in "Industrial added value" (see note 19).
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Financial income, of which: | 424 | 377 |
| – Gains on sales of cash equivalents | 177 | 39 |
| – Other interest income | 149 | 338 |
| – Reversal of provisions for depreciation of investments and loans | 98 | – |
| Financial expense, of which: | (4,128) | (2,582) |
| – Bank charges | (550) | (454) |
| – Other interest expense | (3,561) | (1,974) |
| – Provisions for impairment of investments and loans | (17) | (154) |
| Total | (3,704) | (2,205) |
Interest expense on borrowings in 2008 comprised €2,804,000 (€1,532,000 in 2007) in interest on the medium-term bank loan contracted to fi nance the public stock buyback tender offer and €757,000 (€442,000 in 2007) on drawings on cash facilities (see note 13.2).
A foreign exchange loss of €602,000 was recognized in 2008, comprising a loss of €478,000 against the US dollar and US dollar-linked currencies (i.e. the Canadian dollar, the Hong Kong dollar, the Australian dollar, the Singapore dollar, the Chinese yuan and the Taiwan dollar).
At December 31, 2008, as at December 31, 2007, the company held no currency options (see note 13.7).
Earnings per share have been calculated in accordance with revised IAS 33, using the share repurchase method. The net income used is identical under both calculations.
| 2008 | 2007 |
|---|---|
| 28,236,981 | 31,047,895 |
| – | 423,514 |
| 28,236,981 | 31,471,409 |
(1) 18,615 stock options were exercised in the course of 2008 (see note 9.5.7). The number of shares created as a result has been included prorata temporis in the basis for calculating earnings per share. At December 31, 2008, the company held 358,459 treasury shares (see note 9.1) within the framework of the Liquidity Agreement managed by SG Securities. The average number of treasury shares held in the course of the year has been deducted from the basis for calculating earnings per share.
(2) In 2008, the exercise price of all of the options was below the stock market price. Consequently, the number of shares used to compute diluted earnings per share is identical to the number used to compute basic earnings. Net earnings per share based on diluted earnings are therefore identical to basic earnings.
| 2008 | 2007 | Changes 2008/2007 | |||
|---|---|---|---|---|---|
| (in thousands of euros) | Actual | At 2007 exchange rates |
Actual | Actual | Like-for-like |
| Revenues | 198,133 | 202,675 | 216,565 | –9% | –6% |
| Cost of goods sold | (65,757) | (66,035) | (71,568) | –8% | –8% |
| Gross profi t | 132,376 | 136,640 | 144,997 | –9% | –6% |
| Research and development | (10,607) | (10,607) | (14,225) | –25% | –25% |
| Selling, general and administrative expenses | (114,808) | (116,768) | (119,564) | –4% | –2% |
| Non-recurring income and expenses | – | – | (997) | n/a | n/a |
| Income from operations | 6,961 | 9,265 | 10,211 | –32% | –9% |
| (in % of revenues) | 3.5% | 4.6% | 4.7% |
The company's net operational exposure to foreign exchange fl uctuations corresponds to the difference between revenue and total costs denominated in each of these currencies. This exposure mainly concerns the US dollar, which is the principal currency in which business is transacted after the euro. The other currencies having a signifi cant impact on Group exposure to foreign exchange risk are the Japanese yen, the Chinese yuan, the Canadian dollar, the Hong Kong dollar, and the Brazilian real. Currency variations between 2007 and 2008 have reduced Group revenue by €4,542,000 and income from operations by €2,304,000. The US dollar alone (average parity versus the euro \$1.37/€1 in 2007 and \$1.47/€1 in 2008) accounts for €3,437,000 and €1,831,000 of these variations, respectively.
| March 31 | June 30 | Sept. 30 | Dec. 31 | 2008 |
|---|---|---|---|---|
| 51,973 | 50,795 | 48,131 | 47,234 | 198,133 |
| (18,156) | (17,151) | (16,438) | (14,013) | (65,757) |
| 33,817 | 33,644 | 31,693 | 33,221 | 132,376 |
| (2,823) | (3,018) | (2,168) | (2,598) | (10,607) |
| (29,389) | (29,308) | (27,358) | (28,752) | (114,806) |
| – | – | – | – | – |
| 1,605 | 1,318 | 2,167 | 1,871 | 6,961 |
| 649 | 903 | 1,238 | 448 | 3,238 |
| 2007 : quarter ended | March 31 | June 30 | Sept. 30 | Dec. 31 | 2007 |
|---|---|---|---|---|---|
| Revenues | 49,545 | 54,631 | 52,281 | 60,108 | 216,565 |
| Cost of goods sold | (16,041) | (17,239) | (16,651) | (21,637) | (71,568) |
| Gross Profi t | 33,504 | 37,392 | 35,630 | 38,471 | 144,997 |
| Research and development | (3,565) | (3,649) | (3,216) | (3,795) | (14,225) |
| Selling, general and administrative expenses | (30,063) | (30,209) | (28,252) | (31,040) | (119,564) |
| Non-recurring income and expenses | – | – | – | (997) | (997) |
| Income (loss) from operations | (124) | 3,534 | 4,162 | 2,639 | 10,211 |
| Net Income | 214 | 2,251 | 2,368 | 978 | 5,811 |
In 2008, as in 2007, "Non-cash operating expenses" includes unrealized translation gains or losses on short-term balance sheet positions affecting the gain or loss on foreign exchange translation (see note on "translation of balance sheet items denominated in foreign currency" in accounting rules and methods), additional fi nancial provisions, the impact of measurement of stock options, and reversal of the provision for impairment of investments in non-consolidated subsidiaries.
Working capital requirement increased by €11,378,000 in 2008. While accounts receivable declined by €8,427,000 and inventories rose by €1,542,000 million, the growth in working capital requirement stemmed from the €18,263,000 increase in other current assets and liabilities. The latter fi gure is mainly explained by the following items:
– €6,020,000 correspond to the 2008 research tax credit (crédit d'impôt recherche), accounted for and which did not give rise to a receipt of funds, less the refund of the balance outstanding of the research tax credit in respect of 2004;
– €9,133,000 correspond to the reduction in payables to suppliers, due to lower Q4 2008 raw material purchases and other expenses than in Q4 2007; and to the change in other current assets and liabilities;
– €2,326,000 correspond to payments in the fi rst half of 2008 of the 2007 variable portion of compensation and of the (French) contractual incentive plan related to performance (prime d'intéressement), for which allowance was made in the fi nancial statements at December 31, 2007;
– €1,584,000 corresponds to non-recurring disbursements, consisting of €677,000 in fees relating to the arbitration against Induyco (see note 8.2), €863,000 relating to the payment of the non-recurring expense recognized in the 2007 fi nancial statements following the unfavorable employment court ruling against its Spanish subsidiary concerning the dismissal of employees within the framework of the restructuring initiated at the end of 2005, as authorized by the Spanish Department of Social Affairs (see note 22) and €44,000 relating to the restructuring of a subsidiary initiated in 2005;
– €800,000 corresponds to the collection of tax receivables.
In 2007, the €14,568,000 increase in the working capital requirement was primarily due to a €5,402,000 increase in inventory, to the uncollected research tax credit for the period (€3,193,000) and to €5,337,000 in non-recurring disbursements, concerning in particular fees and expenses relating to the arbitration procedure with Induyco.
As in 2007, and as indicated above, the volume of trade accounts receivable net of prepaid income in 2008, fell relative to the previous year (see note 7). This impacted positively on cash provided by operating activities. At December 31, 2008, the net accounts receivable DSO (Days Sales Outstanding) ratio represented 6 days of revenue (inclusive of VAT), compared with 14 days at December 31, 2007.
Free cash fl ow is equal to net cash provided by operating activities plus cash used in investing activities—excluding cash used for acquisitions of companies (net of cash acquired).
| (in thousands of euros) | 2008 | 2007 |
|---|---|---|
| Net cash (used in) / provided by operating activities | (1,224) | (2,996) |
| Net cash used in investing activities | (3,594) | (5,322) |
| Free cash fl ow | (4,818) | (8,318) |
Net cash provided by operating activities consists of cash fl ow amounting to €10,154,000 in 2008 (compared with €11,572,000 in 2007) and a €11,378,000 increase in working capital requirement (this increased by €14,568,000 in 2007). Details of changes in working capital requirement are provided in note 31 above.
Net cash provided by investing activities amounted to €3,594,000 in 2008 (versus €5,322,000 in 2007). Not including €1,584,000 in non-recurring payments, free cash fl ow would have amounted to a negative fi gure of €3,324,000 for 2008. In 2007, net non-recurring payments amounted to €6,388,000.
The increase in non-current borrowings in 2008 was due to the granting of a €800,000 repayable advance by OSEO Innovation in France (see note 13.2). The amount of cash facilities drawn at December 31, 2008, considered as borrowings in the balance sheet (see note 13.2), is included in the computation of cash in the cash fl ow statement (see note 35). The increase in borrowings in 2007 comprised €48,000,000 relating to the bank loan contracted to fi nance the public stock buyback tender offer carried out in May 2007 and €400,000 relating to a repayable advance granted by OSEO Innovation in France (see note 13.2). The amount of cash credit facilities used at December 31, 2007, considered as borrowings in the balance sheet (see note 13.2) is included in the calculation of cash and cash equivalents in the cash fl ow statement (see note 35).
Repayment of borrowings in 2008 chiefl y concerns public subsidies previously received to fi nance research and development programs (€147,000).
Repayment of borrowings in 2007 chiefl y concerned public subsidies previously received to fi nance research and development programs (€440,000).
| At December 31 | 2008 | 2007 |
|---|---|---|
| Cash and cash equivalents (balance sheet) | 10,175 | 10,897 |
| Cash credit facilities used | (16,900) | (12,612) |
| Cash and cash equivalents (cash fl ow statement) | (6,725) | (1,715) |
Year ended December 31, 2008
This is a free translation into English of the Statutory Auditors' report issued in French and is provided solely for the convenience of English speaking users. The Statutory Auditors' report includes information specifi cally required by French law in such reports, whether modifi ed or not. This information is presented below the opinion on the consolidated fi nancial statements and includes an explanatory paragraph discussing the auditors' assessments of certain signifi cant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the consolidated fi nancial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated fi nancial statements.
This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
Following our appointment as Statutory Auditors by your Annual General Meeting, we hereby report to you, for the year ended December 31, 2008, on:
The consolidated fi nancial statements have been approved by the Board of Directors. Our role is to express an opinion on these fi nancial statements based on our audit.
We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated fi nancial statements are free of material misstatement. An audit involves performing procedures, on a test basis or by selection, to obtain audit evidence about the amounts and disclosures in the fi nancial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. In our opinion, the consolidated fi nancial statements give a true and fair view of the assets and liabilities and of the fi nancial position of the Group as of December 31, 2008 and of the results of its operations for the year then ended in accordance with IFRS as adopted by the European Union.
Accounting estimates used in connection with the preparation of the fi nancial statements at December 31, 2008 have been made in an economic environment making it diffi cult to assess business prospects. In such an uncertain context and in accordance with the requirements of article L. 823-9 of the French Commercial Code relating to the justifi cation of our assessments, we bring to your attention the following matters:
Your Company systematically performs impairment tests of goodwill at year end and also assesses any impairment indicators, as explained in the notes to the consolidated fi nancial statements "Summary of Accounting Policies" in relation to goodwill, other intangible assets and impairment of fi xed assets. We examined the ways this impairment test was implemented as well as the cash fl ow forecasts and the assumptions upon which these forecasts were based. We verifi ed the appropriateness of the information provided in the notes "Summary of accounting policies" and in note 1 "Goodwill".
As explained in the note "Summary of Accounting Policies" concerning deferred taxes, your Company is obliged to make estimates and assumptions with respect to the evaluation of deferred tax assets. In the context of our assessments, our procedures consisted in assessing the overall consistency of the data and the underlying assumptions used to support the evaluation of these deferred tax assets and in reviewing the company's calculations and the appropriateness of the information provided in note 5.3.
These assessments were made in the context of our audit of the consolidated fi nancial statements, taken as a whole, and therefore contributed to the formation of the opinion expressed in the fi rst part of this report.
We have also performed the specifi c verifi cation required by law of the information given in the Group's management report. We have no matters to report as to its fair presentation and its consistency with the consolidated fi nancial statements.
Neuilly-sur-Seine and Mérignac, March 3, 2009
The Statutory Auditors
PricewaterhouseCoopers Audit SA KPMG SA
Marc Ghiliotti Anne Jallet-Auguste Christian Libéros
Year ended December 31, 2008
This is a free translation into English of the Statutory Auditors' report issued in the French language 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.
In our capacity as Statutory Auditors of Lectra SA, and in accordance with article L. 225-235 of the French Commercial Code, we hereby report to you on the report prepared by the Chairman of your Company in accordance with article L. 225-37 of the French Commercial Code for the year ended December 31, 2008.
It is the Chairman's responsibility to prepare, and submit to the Board of Directors for approval, a report describing the internal control and risk management procedures implemented by the company and providing the other information required by article L. 225-37 of the French Commercial Code in particular relating to corporate governance.
– to report to you on the information set out in the Chairman's report on internal control procedures relating to the preparation and processing of fi nancial and accounting information; and
– to attest that the report sets out the other information required by article L. 225-37 of the French Commercial Code, it being specifi ed that it is not our responsibility to assess the fairness of this information.
We conducted our work in accordance with professional standards applicable in France.
The professional standards require that we perform procedures to assess the fairness of the information on internal control procedures relating to the preparation and processing of fi nancial and accounting information set out in the Chairman's report. These procedures mainly consisted of:
– obtaining an understanding of the internal control procedures relating to the preparation and processing of fi nancial and accounting information on which the information presented in the Chairman's report is based, and of the existing documentation; – obtaining an understanding of the work performed to support the information given in the report and of the existing documentation;
– determining if any material weaknesses in the internal control procedures relating to the preparation and processing of fi nancial and accounting information that we may have identifi ed in the course of our work are properly described in the Chairman's report.
On the basis of our work, we have no matters to report on the information given on internal control procedures relating to the preparation and processing of fi nancial and accounting information, set out in the Chairman of the Board's report, prepared in accordance with article L. 225-37 of the French Commercial Code.
We attest that the Chairman's report sets out the other information required by article L. 225-37 of the French Commercial Code.
Neuilly-sur-Seine and Mérignac, March 3, 2009
The Statutory Auditors
PricewaterhouseCoopers Audit SA KPMG SA
Marc Ghiliotti Anne Jallet-Auguste Christian Libéros
André Harari, 65, Chairman of the Board of Directors of Lectra since May 3, 2002. He had been Vice-Chairman of Lectra's Board of Directors since 1991, and Vice-Chairman and Executive Vice-President since 1998. He was a member of the Supervisory Board of Lectra from 1978 to 1990, Compagnie Financière du Scribe having been a minority shareholder of Lectra since its early stage, before taking control of it at the end of 1990. André Harari holds no outside directorships. André Harari was Chairman and Chief Executive Offi cer of Compagnie Financière du Scribe (Paris, France), a venture capital fi rm specializing in technology companies, which he founded in 1975. Together with his brother, Daniel Harari, he was the main shareholder in Compagnie Financière du Scribe until its merger with Lectra on April 30, 1998. He began his career with the consulting division of Arthur Andersen (Paris, 1970-1975). André Harari is a graduate of the École Polytechnique and the École Nationale de la Statistique et de l'Administration Économique (Paris, France). He also holds a doctorate in management science from the University of Paris-Dauphine.
Daniel Harari, 54, Director and Chief Executive Offi cer of Lectra since May 3, 2002. He was Chairman and Chief Executive Offi cer of Lectra from 1991, following its takeover by Compagnie Financière du Scribe at the end of 1990. He holds no directorships outside the company and its subsidiaries. Daniel Harari has been a director (since 1981) and Chief Executive Offi cer (since 1986) of Compagnie Financière du Scribe, a venture capital fi rm specializing in technology companies founded by his brother André Harari, of which they were the main shareholders until its merger with Lectra on April 30, 1998. He began his career as Vice-President of la Société d'Etudes et de Gestion Financière Meeschaert, an asset management company (Paris, France, 1980-1983). He was then Chairman and Chief Executive Offi cer of La Solution Informatique (1984-1990), a PC distribution and services company, and of Interleaf France (1986-1989), a subsidiary of the US software publisher, both of which he founded in Paris. Daniel Harari is a graduate of the École Polytechnique (Paris, France) and the Institut Supérieur des Affaires (Paris, coupled with the second year of the Stanford Business School MBA program, Palo Alto, CA, United States).
Jérôme Viala, 47, Chief Financial Offi cer of Lectra since 1994, responsible for all fi nancial, legal and manufacturing functions. He joined the fi nance department of Lectra in 1985, then successively held the positions of Controller for Europe and North America (1988-1991), CFO for France (1992-1993) and CFO for the Product Division (1993-1994). Jérôme Viala began his career as a credit analyst at Esso (France). He is a graduate of the École Supérieure de Commerce de Bordeaux (Bordeaux, France).
Véronique Zoccoletto, 49, Chief Human Capital Offi cer, Chief Information Offi cer since 2005. She joined Lectra in 1993 as Chief Financial Offi cer for the Lectra France division, and subsequently was Group Controller (1996-1998), Group Sales Administration manager (1998-2000), and Director of Organization and Information Systems (2000-2004). She began her career with Singer (France) in 1983 as Controller, and then was head of the budget and internal audit department. From 1989 to 1991 she was Chief Financial Offi cer of SYS-COM Ingénierie (France). In 1991 she became CFO of Riva Hugin Sweda France. Véronique Zoccoletto graduated from the University of Paris-Dauphine (France).
Hervé Debache, 63, Director of Lectra since 1996. Hervé Debache is a Director and Executive Vice-President of AWF (Paris, France), which specializes in fi nancial engineering, mergers and acquisitions and private equity fi nance since it merged in 2002 with Tertiaire Développement (Paris) of which he was the founder and Chairman and Chief Executive Offi cer since 1991. He is also a director of Cyber Capital (Paris), a venture capital company specializing in audiovisual and media companies. Hervé Debache began his career as an auditor and consultant at Price Waterhouse (Paris, 1967-1981) before joining SEMA Group as Chief Operating Offi cer of its consulting subsidiary (1982-1988). He then co-founded Compagnie Financière JP Elkan, a French investment bank specializing in mergers and acquisitions and private equity fi nance, of which he was Chief Operating Offi cer. Hervé Debache is a graduate of École des Hautes Études Commerciales (Paris) and a French Certifi ed Public Accountant, as well as a graduate of the Harvard Business School's International Teachers Program (Cambridge, Mass., United States).
Louis Faurre, 75, Director of Lectra since 1996. He holds no outside directorships. Now retired, Louis Faurre was Chairman and Chief Executive Offi cer of Sagem-Sat-Service (1983-1995, Paris, France), which specializes in IT and offi ce automation equipment. He began his career as an engineer at Sagem (1964-1970, Paris), becoming Senior Vice-President, IT division (1970-1983). Louis Faurre was a Director of Compagnie Financière du Scribe (since 1981) until its merger with Lectra on April 30, 1998. Louis Faurre is a graduate of the École Polytechnique and the École Nationale Supérieure des Télécommunications (Paris, France).
www.lectra.com
16-18 rue Chalgrin 75016 Paris – France Tel.: +33 (0)1 53 64 42 00 Fax: +33 (0)1 53 64 43 00
23 chemin de Marticot 33610 Bordeaux – Cestas – France Tel.: +33 (0)5 57 97 80 00 Fax: +33 (0)5 57 97 82 07
Europe Call Center Tel.: +00 800 00 LECTRA / +00 800 00 532872 (Free call) Fax: +33 (0)5 57 97 82 13
North America Call Center Tel.: +1 877 4 LECTRA / +1 877 453 2872 (Free call) Fax: +1 800 746 8760
Asia-Pacifi c Call Center Tel.: +86 21 6121 2211 Fax: +86 21 6495 7233
Italy Call Center Tel.: +800 532 872 (Free call)
Fax: +39 (02)26 41 04 17 Spain Call Center Tel.: +34 900 800 501 (Free call) Fax: +34 917 888 906
23 chemin de Marticot 33610 Bordeaux – Cestas – France Tel.: +33 (0)5 57 97 80 00 Fax: +33 (0)5 57 97 82 07
IATC North America 889 Franklin Road, SE Marietta, GA 30067-7945 – United States Tel.: +1 770 422 8050 Fax: +1 770 422 1503
Floor 6th, building No. 91, Phase 13 Caohejing Hi-Tech Park, No. 1122, Qinzhou Bei Rd, 200233 Shanghai – China Tel.: +86 (0)21 5426 2929 Fax: +86 (0)21 5426 2576
Cadiz 59, Col. Insurgentes Mixcoac Del. Benito Juarez, C.P. 03920 Mexico D.F. – Mexico Tel.: +00 52 55 55 63 91 91 Fax: +00 52 55 56 11 60 18
Mimar Sinan Bulvari No:9 Erdinc Binalari A Blok 3. Kule Kat: 4 34540 Gunesli – Istanbul – Turkey Tel.: +90 212 656 90 09 Fax: +90 212 656 71 95
Monash Corporate Centre Unit 19 – 20 Duerdin Street, Clayton North 3168 Melbourne Tel.: +61 3 9912 5499 Fax: +61 3 9558 6294
Ghent
Dendermondesteenweg 636 9070 Destelbergen Tel.: +32 9 222 20 26 Fax: +32 9 222 50 06
São Paulo
Al. Jau, 1754 – 3o. andar – Jardim Paulista 01420-002 São Paulo – SP Tel.: +55 11 3894 9144 Fax: +55 11 3083 0744
Blumenau Av. Martin Luther, 545 Sala 03 89012-010 Blumenau – SC Tel.: +55 47 3322 1222 Fax: +55 47 3340 4658
Montreal 110 Bd Crémazie ouest Bur. 900 Montreal (Québec) H2P 1B9 Tel.: +1 514 383 4613 Fax: +1 514 383 5270
Santiago
Av. Santos Dumont 267 Recoleta – Santiago de Chile Tel.: +56 2 735 6137 Fax: +56 2 735 5787
Floor 6th, Building No. 91, Phase 13, Caohejing Hi-Tech Park, No. 1122, Qinzhou Bei Rd, 200233 Shanghai Tel.: +86 (0)21 5426 2929 Fax: +86 (0)21 5426 2576
Units 2301-2&12, Tower 2 The Gateway 25 Canton Road – Tsimshatsui Kowloon, Hong Kong Tel.: +852 2722 5687 Fax: +852 2723 4664
1803 Zhong Yu Building, No. 6 Jia, Gongtibei Road 100027 Chaoyang District, Beijing Tel.: +86 10 400 6700 160 Fax: +86 10 5894 6330
Room 2501, Dongbao Tower, No. 767 Dong Feng Dong Road, Guangzhou Tel.: +86 20 3832 0884 Fax: +86 20 3832 0957
6-2-1701, Guihe Garden, 20 Fuzhou Road (South) 266071 Qingdao, Shandong Tel.: +86 (0)532 8575 8655 Fax: +86 (0)532 8575 8652
Bur. 606, HaoHuHua Building, Shi Quan Road 362700 Shishi, Fujian Tel.: +86 (0)595 8856 8198 Fax: +86 (0)595 8856 8198
Lectra glavna podru˜znica Zagreb, Kustošijanska 8 10 000 Zagreb Tel.: +385 (0)1 3906 842 Fax: +385 (0)1 3906 843
Ikast Nygade 95 A 7430 Ikast Tel.: +45 97 15 49 66 Fax: +45 97 15 48 99
Helsinki Upseerinkatu 1-3 C 02600 Espoo Tel.: +358 (0)9 759 44 30 Fax: +358 (0)9 759 44 344
Paris 66 rue de la Chaussée-d'Antin 75009 Paris Tel.: +33 (0)1 40 13 59 59 Fax: +33 (0)1 40 13 59 58
Le Polaris 45 rue Sainte-Geneviève 69006 Lyon Tel.: +33 (0)4 72 83 84 10 Fax: +33 (0)4 72 83 84 20
Espace Performance – Bât. A 2 place Michel-Ange 49300 Cholet Tel.: +33 (0)2 41 49 18 70 Fax: +33 (0)2 41 49 18 79
Adalperostrasse 80, 85737 Ismaning Tel.: +49 (0)89 99 6260 Fax: +49 (0)89 99 6261 99
Wemdinger Strasse 35, 86685 Huisheim Tel.: +49 (0)90 92 9699 0 Fax: +49 (0)90 92 9699 101
Süd West Park 60, 90449 Nuremberg Tel.: +49 (0)91 19 6798 66 Fax: +49 (0)91 19 6798 67
Lectra Technologies India Pvt Ltd No. 31/1 2nd Floor, Bull Temple Road Basavanagudi, Bangalore 560004 Tel.: +91 (0)80 4001 8000 Fax: +91 (0)80 4001 8008
Netanya 5 Arye Regev St, P.O. Box 8309 New Industrial Area Netanya 42504 Tel.: +972 9 835 5227 Fax: +972 9 835 5228
Milan Via Gaetano Crespi, 12 20134 Milano (MI) Tel.: +39 02 21 0471 Fax: +39 02 2641 0417
Strada Vecchia del Pinocchio, 26 B 60100 Ancona (AN) Tel.: +39 071 286 5021 Fax: +39 071 286 6146
Via Parini, 16 40069 Zola Predosa (BO) Tel.: +39 051 750 376 Fax: +39 051 618 7119
Via Torta, 70, Localita Osmannoro 50019 Sesto Fiorentino (FI) Tel.: +39 055 319 349 Fax: +39 055 319 349
Via Casa Pagano, 14 84012 Angri (SA) Tel.: +39 081 513 9011 Fax: +39 081 513 9789 Vicenza
Via Zamenhof, 22 B 36100 Vicenza (VI) Tel.: +39 0444 913 417 Fax: +39 0444 914 485
Zexel Building Akasaka 2F 2-13-1 Nagata-cho, Chiyoda-ku, 100-0014 Tokyo Tel.: +81 (0) 3 5521 1521 Fax: +81 (0) 3 5521 1522
156-1 Nakamachi Nakago, Toyota-shi, 473-0904 Aichi Tel.: +81 (0) 565 53 9901 Fax: +81 (0) 565 53 9902
1-11-15-112, Jiromaru, Sagara-Ku, Fukuoka-shi, 814-0165 Fukuoka Tel.: +81 (0)92 871 6731 Fax: +81 (0)92 871 6733
2-24-30-105, Daishin Kooriyama-shi, 963-8852 Fukushima Tel.: +81 (0)23 421 3587 Fax: +81 (0)24 925 4431
1-73-1-A-102, Nimaibashi-cho Minami, Hanamaki-shi, 025-0315 Iwate Tel.: +81 (0)198 26 0710 Fax: +81 (0)503 348 2500
Kurasta Tamashima 1F, 3-111-1 Shin Kurashiki Ekimae, Kurashiki, 710-0253 Okayama Tel.: +81 (0)86 525 0830 Fax: +81 (0)86 525 0834
Rena Tenmabashi Building 3F 1-6-6, Funakoshi-cho, Chuo-ku, 540-0036 Osaka Tel.: +81 (06) 6946 1248 Fax: +81 (06) 6946 1244
Koei Building 2F 1-4-6 Shinbashi, Sakata-shi, 998-0864 Yamagata Tel.: +81 (0)234 21 3587 Fax: +81 (0)234 21 3592
Cadiz 59, Col. Insurgentes Mixcoac Del. Benito Juarez, 03920 Mexico City Tel.: +52 (01) 5555 639 191 Fax: +52 (01) 5555 639 192
219, Boulevard Zerktouni 65 et 66 Casablanca Tel.: +212 (0)522 25 59 80 / 77 44 20 / 21/22 Fax: +212 (0)522 23 00 44
Breda Voorerf 19 4824 GM Breda Tel.: +31 (0)76 548 2188 Fax: +31 (0)76 548 2199
Unit 407B, 4/F Quadstar Building #80 Ortigas Avenue, Greenhills San Juan City 1500 Philippines Tel.: +63(2) 725 2366 / 8693 Fax: +63(2) 744 0670
Oddzial w Polsce Ul. Smolenskiego 4 /2 01-698 Warsaw Tel.: +48 (0) 22 646 8479 Fax: +48 (0) 22 646 8481
Av. Dr. Antunes Guimarães, 521 4450-621 Leça da Palmeira Tel.: +351 229 991 000 Fax: +351 229 991 001
Rua da Corredoura, Lote 20 R C Esq. Posterior 6300-825 Guarda Tel.: +351 271 237 210 Fax: +351 271 237 210
Estrada Nacional 249 Multi Business Center, D5 Abóboda 2785-035 S. Domingos de Rana Tel.: +351 214 462 480 Fax: +351 214 462 481
Cluj
Str. Cometei, nr. 9 400439 Cluj-Napoca Tel.: +40 (0)264 593 268 Fax: +40 (0)264 439 033
Singapore 101 Thomson Road #09-01 United Square Singapore 307591 Tel.: +65 6353 9788 Fax: +65 6352 5355
Durban
197 North Ridge Road 4th Floor, Suite 406 Durban 4001 Tel.: +27 (31) 207 7110 Fax: +27 (31) 207 2920
1 East Gate Lane Bedfordview Johannesburg 2001 Tel.: +27 (11) 622 2714 Fax: +27 (11) 622 2490
Cape Town Offi ce 102 WJM House
Logan Way Pinelands 7430 Cape Town Tel.: +27 (21) 696 0600 Fax: +27 (21) 696 0606
Madrid
Vía de los Poblados, N°. 1 Edifi cio C/D Parque Empresarial Alvento 28033 Madrid Tel.: +34 917 888 800 Fax: +34 917 888 999
Via Augusta 13-15, Of. 308 08006 Barcelona Tel.: +34 917 888 800 Fax: +34 917 888 999
Parque Tecnológico Empresarial Avda. Juan de La Cierva N°. 27 Edifi cio 1 Wellness Local 112 46900 Valencia Tel.: +34 917 888 800 Fax: +34 917 888 999
P.T.L. – Area TexVigo. Calle C Edifi cio Dotacional Plta. Baja Ofi cina B4. 36315 Valladares-Vigo (Pontevedra) Tel.: +34 981 112 914 Fax: +34 981 112 915
Borås
Varbergsvägen 48 P.O. Box 974 50110 Borås Tel.: +46 (0)33 237 870 Fax: +46 (0)33 237 878
Taipei 2F, 38-1, Sec. 1, Mingshen N. Rd., Guishan Shiang, Taoyuan 333, Taipei R.O.C. Tel.: +886 3 326 7210 Fax: +886 3 326 1049
RDC, Immeuble El Amen, Rue du Lac Turkana 1053 Les Berges du Lac, Tunis Tel.: +216 71 963 703 / 962 470 / 861 689 / 861 582 Fax: + 216 71 965 660 Ksar Hellal
Avenue Habib Bourguiba 5070 Ksar Hellal Tel.: +216 73 545 351 Fax: +216 73 547 206
Mimar Sinan Bulvari No. 9 Erdinc Binalari A Blok 3. Kule Kat: 4 34540 Günesli Tel.: +90 (0)212 656 90 09 Fax: +90 (0)212 656 71 95
Jade Building, Albion Mills Albion Road Greengates, BD10 9TQ Tel.: +44 (0)12 7462 3080 Fax: +44 (0)12 7462 3099
15 Hay's Mews, London, W1J 5PX Tel.: +44 (0)20 7016 7600 Fax: +44 (0)20 7016 7601
889 Franklin Road, SE Marietta, GA 30067-7945 Tel.: +1 770 422 8050 Fax: +1 770 422 1503
5836 Corporate Ave., Suite 150 Cypress, CA 90630 Tel.: +1 714 484 6600 Fax: +1 714 484 6625
25 West 39th Street, 4th Floor New York, NY 10018 Tel.: +1 212 730 4444 Fax: +1 212 730 4344
Compensation Committee Louis Faurre, Chairman
Hervé Debache André Harari
André Harari, Chairman Daniel Harari, Chief Executive Offi cer Hervé Debache Louis Faurre
Audit Committee Hervé Debache, Chairman Louis Faurre André Harari
Daniel Harari, Chief Executive Offi cer, Chairman Jérôme Viala, Chief Financial Offi cer Véronique Zoccoletto, Chief Human Capital Offi cer, Chief Information Offi cer
Antoine Bertier, Director, Software R&D Hervé Claverie, Director, Strategic Accounts and Projects Daniel Dufag, General Counsel Laurence Jacquot, Director, Manufacturing Didier Teiller, Director, Services Jean-Marc Vigneron, Director, Hardware R&D
Director, Italy
Corinne Barbot-Morales, Director, Spain Fabio Canali,
Alexander Neuss, Director, Germany and Eastern Europe
Philippe Heckenbenner, Director, Northern Europe
Bernard Karmin, Director, France Rodrigo Siza, Director, Portugal
PricewaterhouseCoopers Audit SA KPMG SA
92208 Neuilly-sur-Seine Cedex 33692 Merignac Cedex
Roy Shurling, Director, North America Édouard Macquin, Director, South America
Robert Agnes, Director, Asia-Pacifi c Yves Delhaye, Director, ASEAN, South Korea, India Hotsumi Baba, Director, Japan
Represented by Marc Ghiliotti(1) Represented by Anne Jallet-Auguste and Christian Libéros
Crystal Park – 63 rue de Villiers Domaine de Pelus – 11, rue Archimède
(1) In virtue of the "six-year rotation" principle concerning members of audit fi rms signing the fi nancial statements, Marc Ghiliotti will be replaced by Bruno Tesnière at the end of the Ordinary Shareholders' Meeting of April 30, 2009.
André Harari, Chairman Hervé Debache Louis Faurre
Lectra shares are listed on Euronext Paris (compartment C). They fi gure among the French stocks making up the SBF 250, CAC Small90 and CAC Mid&Small190 of Euronext Paris. ICB sector: 9537 – Software ISIN code: FR 00000 65484 Liquidity Provider: SG Securities (Société Générale) – Paris.
Lectra's fi nancial statements are compliant with the International Financial Reporting Standards (IFRS) as adopted by the European Union.
The company publishes its fi nancial results quarterly.
This English version of the 2008 Annual Report is a translation of the original French Annual Report prepared in the format currently adopted by French publicly traded companies in accordance with French legal requirements.
The following documents exist only in French: the parent company's fi nancial statements and notes for 2008; the Board of Directors' report submitted to the Ordinary General Meeting of shareholders of April 30, 2009; the Board of Directors' special report on stock options granted or exercised in 2008; the Board of Directors' report to the Extraordinary General Meeting of shareholders of April 30, 2009; the statutory auditors' report to the Ordinary General Meeting on the parent company's fi nancial statements; the statutory auditors' special report to the Extraordinary General Meeting of Shareholders of April 30, 2009; and the resolutions submitted to the Ordinary and Extraordinary General Meetings of April 30, 2009.
Copies of these documents, as well as all fi nancial information and regulatory disclosures, as defi ned in the General Regulation (Règlement Général) of the French Autorité des Marchés Financiers, are available on www.lectra.com, or by request from the Investor Relations department.
Publication of quarterly and annual fi nancial results
| • First quarter 2009 April 29, 2009 | |
|---|---|
| • Second quarter 2009 July 30, 2009 | |
| • Third quarter 2009 October 28, 2009 | |
| • Full year 2009 February 11, 2010 | |
| (after the close of Euronext Paris) | |
| Annual Meeting of Shareholders – Paris. April 30, 2009 | |||
|---|---|---|---|
| -- | -------------------------------------------------------- | -- | -- |
Analyst Conferences
| • Paris. October 29, 2009 | |
|---|---|
| • Paris. February 12, 2010 |
The fi nancial calendar is updated on www.lectra.com
Analysts from the following institutions have issued regular reports on the company's performance: Natixis Securities, SG Securities (Société Générale).
e-mail : investor.relations lectra.com
Lectra, a French Société Anonyme with capital of €27,640,648 RCS Paris B 300 702 305 Registered offi ce: 16-18, rue Chalgrin – 75016 Paris – France Tel.: +33 (0)1 53 64 42 00 – Fax: +33 (0)1 53 64 43 00
Lectra would like to thank the following companies and individuals for their assistance with the illustrations featured in this report: Corse composites aéronautiques, Maria Grachvogel, Hervé Lefebvre/Studio Twin, Mobitec, Mulberry, Please Mum, Poltrona Frau, Pungkook, DR. Illustrations: Bo Lundberg.
Design and production: Eurorscg C&O – Printing: Relais Graphique.
ACE STYLE • ADOLFO DOMINGUEZ • AERNNOVA • AIRBUS • AIR CRUISERS • ARMANI • ASHLEY FURNITURE • AUTOLIV • AZIMUT - BENETTI • B&B ITALIA • BAE SYSTEMS • BENETTON • BMW • BOEING • CENTURY FURNITURE • CESSNA AIRCRAFT COMPANY • GROUPE CHANTELLE • COATEX • COINDU • CORNELIANI • DE CORO • DECATHLON • DEVANLAY-LACOSTE • DIESEL • DIOR • DOLCE & GABBANA • DRAEXLMAIER • EMBRAER • ERMENEGILDO ZEGNA • EUROCOPTER • FAURECIA • FENDI • FRUIT OF THE LOOM • GKN WESTLAND AEROSPACE • H&M • HANES • HARMONT & BLAINE • HAWORTH • HEMPEL • ITG AUTOMOTIVE SAFETY • JC PENNEY • JOHNSON CONTROLS • KENZO • KONGSBERG AUTOMOTIVE • KOOKAI • LA PERLA • LAFUMA • LEVI STRAUSS & CO • LISE CHARMEL • LIZ CLAIBORNE • LOEWE • LONIA • LOUIS VUITTON • LUNENDER • MALWEE • MANGO • MARKS & SPENCER • MITCHELL GOLD+BOB WILLIAMS • MOLTENI • MULBERRY • PARK • PRADA • PREVENT • PUNGKOOK • ROLF BENZ • ROSSIMODA • RUSSELL • SEARS • SEFAR FYLTIS • SPIRIT AEROSYSTEMS • ST. JOHN • SUMISHO AIRBAG SYSTEMS • SUMITOMO • THE CHILDREN'S PLACE • TOYOTA BOSHOKU • TREK BICYCLE • VAN DE VELDE • VERSACE • VESTEBENE • VICTORIA'S SECRET • VTL • YOUNGONE • YVES SAINT LAURENT • ZANNIER • ZODIAC AEROSPACE...
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.