PARIS, Oct. 30, 2001 (PRIMEZONE) -- Lectra (PSE:lecs) income from operations breaks even despite reduced activity due to September 11 events, thanks to cost-cutting measures implemented march-end
(In Millions of Euros) July 1st - September 30 2001/2000 Change
2001 2000 Euros %
Revenues 46.9 56.2 -9.3 -16%
Income from operations (1) 0.3 6.0 -5.7 ns
Pre-tax income (2) -0.4 4.7 -5.1 ns
Net income (3) -0.6 3.7 -4.3 ns
Free cash flow (4) -1.1 2.6 -3.7 ns
Stockholder's equity
at September 30 75.9 78.7 -2.8 -4%
Net cash at September 30(5) 15.3 23.1 -7.8 -34%
(1) The 2001 accounts include a EUR 0.6 million non-recurring charge for cost-cutting measures.
(2) Includes goodwill amortization of EUR 0.4 million in 2001 and 2000.
(3) Includes a corporate income tax charge of EUR 0.2 million in 2001 and EUR 1.0 million in 2000, taking into account tax losses carried forward.
(4) Free cash flow: cash flow provided by operating activities, less all investments other than acquisitions.
(5) Net cash at September 30, 2001: cash and cash equivalents (EUR 22.2 million) less total financial indebtedness (EUR 6.9 million).
The Board of Directors for Lectra met today to review the unaudited accounts for the third quarter of 2001.
Business activity slowed sharply in the wake of September 11 events Business activity in July and August reverted to the same levels as 2000, after falling 7.5% in Q2 2001 and 11% in Q1 due to the U.S. economic slowdown and its worldwide knock-on effects.
The September 11 attacks shut down virtually all activity in the ensuing two weeks. Activity did not begin to pick up perceptibly, until mid-October, although sales activity still remains slow. Many customers project the company had been hoping to bring to fruition, in the period under review, failed to materialize. However, business discussions are as brisk as ever. In the company's view, therefore, in most cases its customers have merely put their investment decisions on hold pending an improvement in visibility, or, alternatively, investments are being spread over a longer time frame.
In these tough global economic conditions, Q3 revenues fell by 16% relative to Q3 2000. Sales of new software licenses, CAD/CAM equipment and related services were down 26%. Recurring revenues (on software evolution contracts, services and spares & consumables) increased by 3%, and accounted for 42% of total revenues.
Geographically speaking, while Europe was practically unchanged (+1%), North America and Asia declined by nearly 35%.
Income from operations breaks even in Q3
After having initially forecast revenue growth in excess of 10% for 2001 and scaled its investment plans accordingly, the company responded to the unexpected downturn in the world economy at the beginning of the year by implementing a cost-cutting program in March 2001. Then, at the end of July, it streamlined its management team. These measures nevertheless excluded cuts in research & development expenditures and sales forces. They represented a non-recurring charge of EUR 0.6 million for the third quarter (compared with EUR 1.3 million for the first half 2001), which was fully expensed in operating costs.
These measures helped maintain Q3 fixed overheads unchanged from their Q3 2000 figure, compared with a rise of 9% for first-half 2001. Despite the sharp fall in revenues, and before accounting for the one-time costs associated with cost-cutting measures, income from operations came to EUR 0.9 million as a result.
Results for the first nine months of the year
Revenues for the first nine months of the year totaled EUR 145.8 million, down 12% relative to 2000.
Income from operations, before taking into account the one-time costs of the cost-cutting program, was EUR 1 million (compared with EUR 15.8 million for the first nine months of 2000). After the non-recurring charge, the figure was a negative EUR 0.9 million.
The company registered a pre-tax loss of EUR 2.8 million for the first nine months of 2001 (compared with a pre-tax income of EUR 12.5 million for the first nine months of 2000). Net loss came to EUR 3.6 million after a EUR 0.8 million tax charge (compared with net income of EUR 9.8 million in 2000, after a EUR 2.7 million tax charge).
Negative free cash flow of EUR 4.9 million (+ EUR 9.1 million in 2000) reflects the loss for the period and a temporary rise in inventories due to the business slowdown.
Q4 2001 outlook marked by low visibility
The fourth quarter, traditionally the busiest in the year, began slowly in October, still suffering from the effects of September 11. Despite the large number of ongoing customer projects, visibility for the next two months is still poor. It is difficult, at this date, to forecast which projects will materialize before the end of the year, and those that will be postponed until 2002. The revenue figure for Q4 therefore remains uncertain.
In its press release of July 27, 2001, the company stated that, absent exceptional events, it had no reason to expect any further deterioration in revenues in the second half, beyond the decline registered in the first half. In the circumstances at the time, the company expected at least to offset the first-half loss in the second half, and thus move back into net profit for the full year, as indicated by the level of sales activity up to September 11.
Given today's altered world economic situation, this outcome appears hard to achieve. A net profit in Q4 remains conceivable; in view of the cost-cutting measures implemented, the company would break even in Q4 if revenues declined by a percentage identical to the one registered in Q3.
The company's fundamentals remain excellent
While international business conditions in 2001 have adversely affected the steady growth in the company's revenues and income, its fundamentals remain excellent. It enjoys a strong competitive position, a unrivaled global presence, an installed base of 10,000 customers, leading edge technology, and a strong balance sheet (with stockholders' equity of EUR 75.9 million, EUR 22.2 million in cash and cash equivalents, and only EUR 6.9 million in financial borrowings, at September 30, 2001).
In addition, annual recurring revenues cover more than two-thirds of fixed costs, while research and development expenditures are fully expensed in the year.
Cost-cutting measures already in place will start to produce their maximum impact on the company's operating ratios from January 1, 2002 onward. The company will thus start 2002 with fixed overheads below their 2000 level. It should therefore be in a position to operate more profitably than in 2001 if adverse world economic conditions persist. A positive upturn in the world economy, on the other hand, would prompt a revival of technology investment among its clients and would naturally trigger a sharp upswing in the company's revenues and earnings.
The company will publish its full-year results for 2001 on February 11, 2002. Traded on the Second Marche of the Euronext Paris stock exchange, Lectra is the world's leading technology provider of software and equipment dedicated to industries using textiles, leather and other soft goods: textiles, apparel, retail distribution, footwear, luggage & leather goods, furniture & furnishings, and the automotive, aeronautics and nautical industries. with a global technology offering combining CAD/CAM, virtual reality and the Internet.
With a staff of near 1,500 worldwide, Lectra generates more than 88% of its revenues outside France each year, thanks to an extensive international network of 38 subsidiaries and 78 offices in more than 100 countries, serving more than 10,000 clients.
Lectra's shares are part of the Next 150 index of Euronext, of the SBF 250, Midcac and Second Marche indexes of the Euronext Paris exchange, as well as being part of the European technology stocks of the FTSE eTX All-Shares, eTX Innovation and eTX Software indexes. Learn more about Lectra at: www.lectra.com