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April 2020
COMPANY BACKGROUND& STRATEGY
Lectra - Company background & strategy - April 20202
n Who is Lectra?
n Lectra 4.0 strategy
n Strategic roadmap for 2020-2022
LECTRA COMPANY BACKGROUND & STRATEGY
Lectra - Company background & strategy - April 20203
Who is Lectra?
A RECOGNIZED LEADERSHIP
For companies that breathe life into ourwardrobes, car interiors, furniture andmore, Lectra is crafting the premiumtechnologies that facilitate the digitaltransformation of their industry
Lectra’s offer empowers brands andmanufacturers from design to production,providing them with the market respect andpeace of mind they deserve. Founded in 1973,today Lectra has 34 subsidiaries across theglobe, serving customers in over 100 countries
DATA
SERVICES
EQUIPMENT
SOFTWARE
Lectra - Company background & strategy - April 20204
Who is Lectra?
SERVING WORLD-CLASS CUSTOMERS IN DIFFERENT MARKET SEGMENTS
*2019 orders for new systems
Fashion
§Brands§Manufacturers§Retailers§Hybrid Manufacturers
53%*
§Fabric car seat and interiors§ Leather car seats and interiors§Airbags
§Residential§Outdoors§Contract (Hospitality, offices, etc.)
§Aeronautic§Marine
Automotive
29%*
Furniture
14%* 4%*
Other Industries
Lectra - Company background & strategy - April 20205
Who is Lectra?
A UNIQUE WORLDWIDE PRESENCE
Europe
Americas27%
24%41% Asia-Pacific
Other countries 8%
€280 MILLION 2019 revenues 34 subsidiaries
5 international call centers
3 international advanced technology centers
1,800 employeesFrance: 52%Rest of Europe: 20%Asia-Pacific: 14%Americas: 10%Other countries: 4%
50 nationalities
Lectra generates 94% of its revenues outside France andmore than 90% directly with customers through its network of fully-owned subsidiaries, backed by agents and distributors in certain regions
Lectra - Company background & strategy - April 20206
Who is Lectra?
INNOVATION AT THE SERVICE OF EXCELLENCE
The company intends to pursue its policy of substantial investments in R&D and innovation, to further extend its technological leadand its value proposition. In October 2018, Lectra instituted the Innovation Lab at the heart of its International Advanced TechnologyCenter in Bordeaux-Cestas to promote cross-fertilization of ideas and an open innovation ecosystem.
Innovation is an integral part of Lectra’s genetic code
DNA preserved by keeping R&D and production in France
n The decision taken in 2005 to keep R&D and production in Francehas enabled Lectra to develop both a unique offer and improve itscompetitive position thanks to innovation, while protecting itsindustrial property
n The geographic proximity of R&D teams, the main Call Center andproduction teams is a genuine accelerator of innovation
n While its main competitors chose to manufacture in China – andnow face increasing production costs – Lectra has achieved itshighest-ever gross profit margins on equipment, thus confirmingthe relevance of its strategy
8.7%2016
11.4%2019
368people dedicated to the design and development of the offer
by end-2019
€90 million cumulated investments in R&D
over the last 3 years
% of revenues dedicated to R&D
Lectra - Company background & strategy - April 20207
Who is Lectra?
LECTRA’S OFFER AT THE LEADING-EDGE OF TECHNOLOGY
Fashion Automotive Furniture
Software sold in perpetual licenses Equipment and accompanying software Software sold in SaaS mode
5%
29%
4%1%
26%
21%
0.6%14%
Lectra - Company background & strategy - April 20208
Who is Lectra?
A SOLID PROVEN BUSINESS MODEL
The distribution of business activity over marketsectors and geographical markets with cycles thatare different from each other, and the very largenumber of customers throughout the world1
The three pillars of Lectra’s business model
2 A balanced revenue mix between revenues fromsoftware licenses, equipment and non recurringservices and recurring revenues
3 The generation of significant annual free cash flow
Breakdown of 2019 revenues
CAD/CAM and PLM software licenses
Equipment and accompanying software
CAD/CAM and PLM software subscription
contracts
CAD/CAM and PLM software maintenance contracts
Training & consulting services
Equipment and accompanying software maintenance contracts
Consumables and parts
Miscellaneous
Software ⋍ 30%
Lectra - Company background & strategy - April 20209
Who is Lectra?
A ZERO DEBT COMPANY, DEVELOPMENT INTERNALLY FUNDED IN FULL
A completely self-financed development
A zero-debt company
A sustainable dividend payment policy
Cash preserved for future acquisitions
n The security ratio, a leading indicator of Lectra’s performance, is the percentage of annual fixed overhead costs covered by gross profit on recurring revenues
A very strong balance sheet
The key to Lectra’s business model is the generation of a high level of free cash flow and a structurally negative working capital requirement
Lectra’s security ratio exceeded 90% in 2019
n 2019 Free cash flow: €36.2 millionn Working capital requirement1: - €20.7 million
n Zero debt1
n Net cash1: €120.6 millionn Shareholders’ quity1: €183.0 million
1 At December 31, 2019
Lectra - Company background & strategy - April 202010
Who is Lectra?
A HIGHLY COMMITTED, EXPERIENCED LEADERSHIP TEAM
Executive committee
1 2 3 4 5 6 7
8 9 10 11
1. Daniel Harari, Chairman & CEO; 2. Javier Garcia, President Asia-Pacific; 3. Véronique Zoccoletto, ChiefTransformation Officer; 4. Holger Max-Lang, President Northern & Eastern Europe, Middle East; 5. Olivierdu Chesnay, Chief Financial Officer; 6. Jérôme Viala, Executive Vice President; 7. Maximilien Abadie, ChiefStrategy Officer; 8. Fabio Canali, President Southern Europe & North Africa; 9. Céline Choussy, ChiefMarketing & Communications Officer; 10. Edouard Macquin, President Americas; 11. Laurence Jacquot,Chief Customer Success Officer
Group management team
Lectra - Company background & strategy - April 202011
n Who is Lectra?
n Lectra 4.0 strategy
n Strategic roadmap for 2020-2022
LECTRA COMPANY BACKGROUND & STRATEGY
Lectra - Company background & strategy - April 202012
Lectra 4.0 strategy
A LONG-TERM VISION
Continuing its focus on the long-term,the Lectra 4.0 strategy, launched in2017, aims to position Lectra as a keyIndustry 4.0 player in its marketsectors between now and 2030.
Lectra - Company background & strategy - April 202013
Lectra 4.0 strategy
LECTRA’S MARKETS ARE UNDERGOING PROFOUND CHANGES
Automotive suppliers, under pressurefrom carmakers and faced with difficultmarket conditions, must also reinventthemselves to maintain their margins,while laying the groundwork for carinteriors of the future.
Fashion brands and manufacturersmust rethink the in-store and digitalexperience, be always more creative,shorten time-to-market, demonstratetheir eco-responsibility while alsoreducing inventories, markdowns, andunsold stock.
Fashion Automotive Furniture
Furniture industry players are forced toadapt without delay to the demands ofyounger generations yearning forconfigurable and personalizedfurniture, changing lifestyles, and thechallenges of digital technology.
INDUSTRY 1.0
Mechanization, steam, water power
End of the 18th century
Electronic, IT systems, automation
The early 1970s
Mass production, electricity
Start of the 20th century
Factories are at the heart of the value chain
driving a new digitalized product lifecycle that will benefit consumers
Lectra - Company background & strategy - April 202014
Lectra 4.0 strategy
INDUSTRY 4.0 IS TRANSFORMING INDUSTRIAL PROCESSES
INDUSTRY 4.0
Cloud, big data, Internet of Things, artificial intelligence…
Today
INDUSTRY 2.0 INDUSTRY 3.0
Lectra - Company background & strategy - April 202015
Lectra 4.0 strategy
SIX KEY STEPS TO EXPLOIT THE FULL POTENTIALOF THE INDUSTRY 4.0
1 2 3 4 5 6
What will happen?Being prepared
Valu
e
DIGITALIZATION
How can an autonomous response be achieved?Self-optimising
Why is it happening?Understanding
What is happening?Seeing
INDUSTRY 4.0
COMPUTERIZATION VISIBILITYPREDICTIVECAPACITY ADAPTABILITYTRANSPARENCYCONNECTIVITY
sour
ce: F
IR e
. V. a
t RW
TH A
ache
n U
nive
rsity
Lectra - Company background & strategy - April 202016
Lectra 4.0 strategy
LECTRA 4.0: A STRATEGY TO ADDRESS THE CHALLENGES OF THE INDUSTRY 4.0
Fashion, automotive, and furniture, with a specific approach for each in terms of offers, organization and processes.
A commitment from Lectra teams to do everything in their power to enable customers to make optimal use of its solutions.
High value-added solutions and services with strong business-line expertise.
Gradually launched on the market, they will combine data analysis, Lectra's expertise and artificial intelligence, to enable customers to continuously improve their operations.
Focus on three strategic market sectors
Customers at the heart of the activities
New 4.0 servicesPremium positioning
Close to 4,500 cutting machines, equipped with censors and capable of being connected to the Internet, are compatible with the new offers for Industry 4.0.
The sole player in its industry to integrate the 4 key technologies of Industry 4.0 (cloud, big data, IoT, AI) in its products and services offers.
540 consultants and solution experts accompany customers on a daily basis and will be by their side during their transformation towards Industry 4.0.
13 years of experience in IoT
Strong business-line expertise
Lectra - Company background & strategy - April 202017
Lectra 4.0 strategy
LECTRA ALREADY HAS THE FUNDAMENTALS NECESSARY FOR INDUSTRY 4.0
Prestigious customer base
Global presence with a network of 34 subsidiaries
Strong technological leadership
Virtuous business model and strong financial position
Combination of equipment, software, services and data
Lectra - Company background & strategy - April 202018
n Who is Lectra?
n Lectra 4.0 strategy
n Strategic roadmap for 2020-2022
LECTRA COMPANY BACKGROUND & STRATEGY
Lectra - Company background & strategy - April 202019
Strategic roadmap for 2020-2022
ACCELERATION TOWARDS INDUSTRY 4.0
The objective of Lectra through its2020-2022 strategic roadmap is tocapture the full potential of its newoffers for Industry 4.0, while deliveringsustainable, profitable business growth.
Lectra - Company background & strategy - April 202020
Strategic roadmap for 2020-2022
FOUR STRATEGIC PRIORITIES
Accelerate organic growth
1Strengthen customer
relations
2
Extend the offers for Industry 4.0
3Develop new areas for
growth
4
Lectra - Company background & strategy - April 202021
Strategic roadmap for 2020-2022
REINFORCE PROSPECTION AND SALES OF NEW PRODUCT LINES TO EXISTING CUSTOMERS (1/2)
Accelerate organic growth
X
More
productsMore
customers
Gainedmarket share
Increasedshare of wallet
Greaterprofitability
Accelerate the replacement of old generations of equipment (Lectra and competitors)
Encourage customers to migrate to higher value-added offers
Exploit data to identify business opportunities
Use digital more for marketing actions in order to acquire new customers and
leverage the installed base
Reinforce prospecting actions
Lectra - Company background & strategy - April 202022
Strategic roadmap for 2020-2022
REINFORCE PROSPECTION AND SALES OF NEW PRODUCT LINES TO EXISTING CUSTOMERS (2/2)
Accelerate organic growth
Extend the range of products used
More
productsMore
customers
Lectra - Company background & strategy - April 202023
Strategic roadmap for 2020-2022
SEIZE EVERY MARKET OPPORTUNITY
Accelerate organic growth
Automation of leather cuttingin automotive and furniture
Transformation of the Chinese ecosystem
n Deep structural changes: more agility, more creativity and modernization of tools
n Increasingly diverse production flows between China and other Asian countries
Rise in airbag production
n Increasing number and variety in each vehicle
n Stricter safety regulations in many countries
n Increasing number of options, shortage of skilled labor
n Cutting essentially always done using manual cutting tools such as dies
The Group will strive to seize every opportunity in its markets, including:
Lectra - Company background & strategy - April 202024
Strategic roadmap for 2020-2022
IMPROVE CUSTOMER PERFORMANCE
Strengthen customer relations
X
More
productsMore
customers
Gainedmarket share
Increasedshare of wallet
Greaterprofitability
X
Better use of
solutions
Increased value perceived by customers and Lectra
Decreased risk of churn1
1 Churn refers to the loss of customers under contract or subscribed
Customer Success teams will be progressively deployed country by country.
Lectra - Company background & strategy - April 202025
Strategic roadmap for 2020-2022
DEPLOY CUSTOMER SUCCESS PROGRESSIVELY
Strengthen customer relations
Objective: optimize customers' performance through the use of Lectra solutions.
n Reactiven Solve problemsn Short term perspective
Customer Care
n Proactiven Increased product value
for the customer
n Long term perspective
Customer Success
+Professional
Services
+n Expertisen Training & consulting
Lectra - Company background & strategy - April 202026
Strategic roadmap for 2020-2022
CONSTANTLY ENSURE CUSTOMER SATISFACTION
Strengthen customer relations
n Increase the number of surveys throughout the customer journey
n Reinforce customer relations thanks to digital tools
n Accelerate the implementation of recovery actions linked to customer dissatisfaction
CSAT: percentage of customers giving a score of 8, 9 or 10/10 to the question “What is your level of global satisfaction regarding Lectra”Super CSAT: percentage of customers giving a score of 9 or 10/10 to the question “What is your level of global satisfaction regarding Lectra”
A continuous improvement approach that will benefit customersBased on more than 2,000 customer surveys done in 2019
Super customer satisfaction score
(Super CSAT)
86%Customer satisfaction
score (CSAT)
71%
Lectra - Company background & strategy - April 202027
Strategic roadmap for 2020-2022
PURSUE THE POLICY OF INVESTMENT IN R&D
11 to 12%
Extend the offers for Industry 4.0
= In % of revenues
54,766,6
90,4
0
2011-2013 2014-2016 2017-2019 2020-2022
11-12%10.8%
9.4%9.0%
Evolution of R&D investmentIn millions of euros
devoted to R&D investment over the strategic roadmap period. These investments will enhance the value of existing offers and lead to the creation of new offers for Industry 4.0.
368People involved in the
design and development of the offers
at the end of 2019
of revenues
Mechanical and electronic engineering of equipment
70 =
298Software and cloud +Data and Artificial Intelligence ++
Software sold in perpetual licenses, equipment and accompanying software
Lectra - Company background & strategy - April 202028
Strategic roadmap for 2020-2022
BRING MORE VALUE TO THE OFFERS FOR INDUSTRY 4.0
Extend the offers for Industry 4.0
11 to 12%of revenues devoted to R&D investment
Software sold in SaaS mode New offers to be launched during the strategic roadmap for 2020-2022
Lectra - Company background & strategy - April 202029
Strategic roadmap for 2020-2022
TRANSFORM INTERNAL PROCESSES TO SUPPORT THE ROLLOUT OF SAAS OFFERS
Extend the offers for Industry 4.0
Proactive relationshipindividual monitoring of usage
Perpetual license
Mastering the management of recurring revenuesCapacity to sell services since the 1990s5 Call Centers worldwideExperts in software, cloud and dataFirst developments in the cloud at the beginning of 2015
By leveraging existing foundations
Lack of visibilityon the usage and on achieved results
Reactive relationshiplimited interactions with users
Measured and shared success
SaaSLong and complex “project” selling
VS“Progressive” selling
Lectra - Company background & strategy - April 202030
Strategic roadmap for 2020-2022
PROMOTE MORE OPEN INNOVATION
Develop new areas for growth
The Innovation Lab, located in Lectra’s technological campus in Bordeaux-Cestas, will become the driving force behind this new policy
Research laboratories, partners, start-ups
Lectra - Company background & strategy - April 202031
Strategic roadmap for 2020-2022
INTENSIFY TARGETED ACQUISITIONS
Strategic Tactic
Lectra mainly targets companies whose value is between €10m and €60m
Objectives of external growth
Develop new areas for growth
Complete range of products
Incorporate technological “brick” Increase market share
Lectra - Company background & strategy - April 202032
Strategic roadmap for 2020-2022
FINANCIAL OBJECTIVES: ENSURE SUSTAINABLE, PROFITABLE GROWTH
2016 2017 2018 2019 2020 2021 2022
+20%CAD/CAM and PLM software, equipment and accompanying software maintenance contracts
Software sold in SaaS mode
Consumables and parts
€13m in 2022
+4%/year
+5%/year
Objective
Recurring revenues
Lectra - Company background & strategy - April 202033
Strategic roadmap for 2020-2022
FINANCIAL OBJECTIVES: PURSUE INVESTMENTSWHILE ENSURING PROFITABILITY
Objective maintain at more than
Security ratio: percentage of annual fixed overhead costs covered by gross profit on recurring revenues
The Group will use the growth in margin generated by recurring revenues to finance its development:
n Innovationn Customer Successn Sales forcen Services
Continuing strict controls over the increase in fixed overhead costs.
Evolution of the security ratio 90%82%
84%
86%
88%
90%
92%
2017 2018 2019 2020 2021 2022
Lectra - Company background & strategy - April 202034
Strategic roadmap for 2020-2022
FINANCIAL OBJECTIVES: CREATE VALUE FOR SHAREHOLDERS
The Group has set itself the objective of maintaining its dividend payment policy.
Lectra will use its available cash to finance future targeted acquisitions.
In the case of major acquisitions, the Group could take on debt equivalent to half its shareholders’ equity.
40-50%
50-60%Acquisitions
Dividends
Free cash flow= Net income
over the 2020-2022 period
Objective
Lectra - Company background & strategy - April 202035
Strategic roadmap for 2020-2022
FINANCIAL OBJECTIVES: INTERNAL AND EXTERNALFACTORS WEIGHING ON THE 2020 OUTLOOK
Uncertain macroeconomic and geopolitical environment, coronavirus epidemic
The year ahead is still fraught with unpredictability in lightof persisting uncertainty regarding geopolitical factors andthe slowdown in the automotive sector, which couldcontinue to weigh on businesses’ investment decisions.
The coronavirus epidemic, whose impact on the businessof the Group and its customers is difficult to assess at thistime, is an additional major source of uncertainty.
Therefore, until visibility improves, the Companyhas decided, at this stage, not to formulateestimates for the year.
Bolstered by the strength of its businessmodel and a new roadmap fully geared to thedemands of Industry 4.0, the Group remainsconfident in its growth prospects for themedium term.
Impact of the sale of software on a subscription basis
Positive impact on revenues and income from operations in the medium term
On results for 2020: - 1 to 2 percentage points on revenues and operating margin1
1 Compared to the levels that would be booked if 2020 SaaS sales were in the form of perpetual licenses along with their associated maintenance contracts