ESI Group SA :ESI-FR: Earnings Analysis: For the six months ended July 31, 2017 : October 6, 2017

ESI Group SA reports financial results for the half-year ended July 31, 2017.

Highlights

  • Summary numbers: Revenues of EUR 53.74 million, Net Earnings of EUR -5.91 million.
  • Gross margins narrowed from 46.89% to 43.88% compared to the same period last year, operating (EBITDA) margins now 12.09% from 18.96%.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-07-31 2017-01-31 2016-07-31 2016-01-31 2015-07-31
Relevant Numbers (Semi-Annual)
Revenues 53.74 84.57 55.98 76.32 48.4
Revenue Growth (YOY) -3.99 10.81 15.66 11.59 13.55
Earnings -5.91 10.99 -3.46 8.91 -3.58
Earnings Growth (YOY) -70.72 23.34 3.19 -15 28.22
Net Margin -11 12.99 -6.19 11.67 -7.39
EPS -1.06 1.97 -0.62 1.61 -0.65
Return on Equity -6.11 11.66 -3.83 10.17 -4.2
Return on Assets -5.58 10.52 -3.49 10.01 -4.46

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, ESI-FR’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if ESI-FR’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -36.45% and earnings by -153.81% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 46.89% to 43.88%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 18.96% to 12.09% in this time frame. For comparison, gross margins were 60.72% and EBITDA margins were 36.28% in the previous period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ESI-FR’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 133.55 days, compared to last year’s level of 131.10 days.

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History

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Company Profile

ESI Group SA engages in the design, development, and supply of end-to-end virtual prototyping software and solutions. Its business activities include the sales of licenses and services such as training, consulting, and research & development. The firm’s products are categorized into the following divisions: Virtual Reality; Biomechanics; Casting; Virtual Seat; Composites; Crash, Impact, and Safety; Electromagnetics; Fluid Dynamics; Multiphysics; NVH and Dynamics; Sheet Metal Forming; Simulation Systems Integration; Vibro-Acoustics; and Welding and Assembly. The company also provides Engineering Services, Computational Fluid Dynamics Consulting Services, OpenFOAM, Methodology Development, Process Automation, Training, Technical Support, and myESI Customer Portal. ESI Group was founded by Alain de Rouvray, Jacques Dubois, Iraj Farhooman and Eberhard Haug in 1973 and is headquartered in Paris, France.

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