2020-2022 strategic roadmap: first progress report

The Lectra 4.0 strategy was launched in 2017 with the aim of positioning Lectra as a key Industry 4.0 player in its markets before 2030. It has been implemented to date through two consecutive strategic roadmaps.

The first roadmap, for 2017-2019, established the key fundamentals for the future of the Group. These included the successful integration into its new offers of the key new technologies for Industry 4.0 (cloud computing, the Internet of Things, big data and artificial intelligence), the strengthening of the Executive Committee, the reorganization of subsidiaries into four main regions, and the launch of the first software offers in SaaS mode.

The second roadmap, for 2020-2022, was published in the financial report dated February 11, 2020. It will enable Lectra to capture the full potential of its new offers for Industry 4.0, while delivering sustainable, profitable business growth.

Despite the consequences of the economic crisis caused by the COVID-19 pandemic (see chapter 1), most of the objectives of the 2020-2022 strategic roadmap remain unchanged, particularly the acceleration towards Industry 4.0. The only adjustments to the original objectives are in the growth targets for the end of the three-year period – particularly following the proposed acquisition of the company Gerber Technology. The Lectra 4.0 strategy, and each of the chapters in the strategic roadmap for 2020-2022, are summarized below, followed by the first progress report on the related actions implemented in 2020

Lectra 4.0: a long-term vision

Markets are undergoing profound changes

Throughout the world, Lectra customers are faced with changes in consumer behavior, as buyers reveal new expectations in terms of experience and personalization, and demand ever greater transparency, authenticity and ethical commitment from all actors in the value chain.

To remain competitive, fashion brands and manufacturers have to call themselves into question. They must rethink and merge the in-store and digital experience, release new and ever-more creative models to market quicker, and demonstrate their eco-responsibility – while also reducing inventories, markdowns, and unsold stock. In addition, automotive suppliers, under pressure from carmakers and faced with challenging market conditions, must also reinvent themselves to maintain their margins, while laying the groundwork for car interiors of the future.

Finally, furniture industry players are forced to adapt without delay to the demands of younger generations yearning for configurable and personalized furniture, changing lifestyles, and the challenges of digital technology.

Industry 4.0 is transforming industrial processes

Industry 4.0 calls for a new approach to organizing production plants based on communication across a configuration of increasingly flexible players and production tools, while optimizing the use of available resources.

To exploit the full potential of the fourth industrial revolution, companies must first digitize every process in the value chain, from creation to point of sale, and set up modular, intelligent and communicating production lines. Subsequently, automation and then continuous optimization of all processes will be possible thanks to Industry 4.0 technologies including cloud computing, big data, artificial intelligence and the Internet of Things.

Ultimately, Industry 4.0 will significantly benefit consumers by facilitating the transition from mass production to agile production – or even personalized production – at no additional cost or time.

Lectra already has the fundamentals necessary to help its customers enter this new industrial age: fourteen years’ experience in the Industrial Internet of Things (IIoT), strong business-line expertise in its customers’ markets, and total mastery of know-how regarding machines, software, data and services.

Furthermore, the Group can count on a prestigious customer base, a global presence with its network of 34 subsidiaries, technological leadership that has grown tremendously since the launch of its first offers for Industry 4.0 and a virtuous business model that enables the Group to self-finance its growth

2020-2022 strategic roadmap

Acceleration towards Industry 4.0

In February 2020, the Group set four strategic priorities:

First, accelerate organic growth

Lectra will reinforce simultaneously its prospecting actions in order to increase its market shares, and its sales actions aimed at introducing new product lines to existing customers in order to generate higher revenues per customer.

In addition, the Group will encourage customers to migrate to its higher value-added offers and will deploy programs to accelerate the replacement of older generations of equipment, whether made by Lectra or by competitors.

Second, strengthen customer relations

The Group will review its activities with a focus on how its solutions are actually used, in order to anticipate customers’ expectations and personalize their interactions with Lectra. In particular, the Group will progressively deploy Customer Success teams country by country.

The teams will seek to optimize customers’ performance through the use of Lectra solutions, with the aim of creating a virtuous circle of greater perceived added value, therefore enhanced loyalty, and as a result, higher recurring revenues for the Group. This approach will lead Lectra to adjust the mission of its sales and service teams and make greater use of digital technology in interactions with its customers.

Third, extend the offers for Industry 4.0

These offers, whether in new product lines or as additions to existing software and equipment, present strong growth potential for Lectra. They enable customers to implement the principles of Industry 4.0 and address changes in consumer demand, including the desire for personalized products.

Lectra will therefore pursue its policy of investing in R&D, devoting 11% to 12% of its revenues over the 2020-2022 period to R&D, with the aim of strengthening its expertise in the areas of data and artificial intelligence. These investments will enhance the value of existing offers and lead to the introduction of new offers for Industry 4.0.

Fourth, develop new areas for growth

Continuing on from the previous roadmap, the Group plans to intensify its targeted acquisitions. Lectra privileges two types of targets. The first are strategic targets – mainly start-ups – that bring to market offers that could complete Lectra’s current range of products, or that have technological “bricks” capable of being incorporated into its portfolio.

The second are tactical targets that operate in the same industry as Lectra and would enable the Group to increase its market shares. At the same time, Lectra will promote open innovation and strengthen the resources allocated to its Innovation Lab located in the technological campus in Bordeaux-Cestas, while developing partnerships with different industry players.

Progress report

These four strategic priorities guided the Group’s action in 2020. The growing adoption of Lectra’s offers for Industry 4.0 – Quick Estimate, Quick Nest, Fashion On Demand by Lectra, Furniture On Demand by Lectra, Kubix Link and Retviews – confirms the relevance of Lectra’s strategy and choices since 2017.

In 2020, nearly 150 new customers chose one of these offers for Industry 4.0, bringing the total number of customers for these offers to 270. This success can be seen in the rise in orders for new software subscription contracts in 2020 (see chapter 1). These offers, which will be further expanded in the next two years, mean that Lectra will be fully capable of helping all companies in its markets to meet the challenges of the post-COVID-19 world. Prospecting actions were intensified throughout the year, using digital marketing tools to acquire new customers and reach out to the installed base; over 5000 people participated in webinars and digital events organized in 2020.

Lectra teams multiplied interactions with customers throughout the year.

Deployment of Customer Success teams was accelerated to further strengthen customer relationships and help customers minimize disruptions from lockdowns and remote working. The Group believes that these decisions limited the number of maintenance contract cancellations to the same level as in previous years. This deployment will continue in 2021 and 2022, at a faster pace than initially planned.

Lectra has also maintained its policy of strong investment in R&D, which came to 31.5 million euros, or 13.3% of revenues, in 2020. While the amount was stable relative to the 31.8 million in 2019, it represented a greater percentage of revenues following the reduction in business activity caused by the COVID-19 epidemic. Innovations were introduced to all the existing offers throughout the year, and new offers will be launched in 2021 and 2022. R&D spending in 2021 will exceed 12% of revenues.

Furthermore, the Group continued to investigate potential acquisitions. While the COVID-19 epidemic and its consequences led to the postponement or cancellation of potential operations in the first half of 2020, some discussions have since resumed and could lead to the announcement of targeted acquisitions in 2021, in addition to the proposed acquisition of the company Gerber Technology announced on February 8, 2021.

Finally, following the announcement, Lectra has added a fifth strategic priority for its 2020-2022 strategic roadmap: “to capture all synergies arising from the acquisition of Gerber Technology.” The two groups have many complementary strengths (see chapter 12) that will enable Lectra to make optimal use of its product portfolio with Gerber Technology customers – particularly its offers for Industry 4.0 – while aiming to optimize cost-effectiveness by rationalizing the internal capacities of both companies.

Sustainable, profitable growth

To ensure sustainable growth in an uncertain macroeconomic and geopolitical environment, the Group’s ambition is to increase its recurring revenues by 20% in three years. Recurring revenues should then account for over 60% of the revenues in 2022, with the following objectives:

• revenue from software sold in SaaS mode to exceed 13 million euros;
• 4% annual growth in revenue from CAD/CAM and PLM software maintenance contracts, and equipment and accompanying software maintenance contracts;
• 5% annual growth in revenue from consumables and parts. The growth in margin generated by recurring revenues provides the means to finance the Group’s development, particularly through strong investment in R&D, and reinforcement of its sales and services teams.

The security ratio will therefore be maintained at 90% – the 2019 level – during the 2020-2022 period, with continuing strict controls over the increase in fixed overhead costs.

The Group has set the objective of maintaining its dividend payment policy with dividends that over the roadmap period should represent a payout ratio of 40% to 50% of net income (excluding non-recurring items). Lectra will use its available cash to finance future targeted acquisitions. In the case of major acquisitions or opportunities available under the right conditions, the Group could take on debt equivalent to half its shareholders’ equity.

Progress report

While the Group maintains its determination to ensure sustainable, profitable growth, the financial objectives announced previously must be adjusted to take into account the consequences of the economic crisis arising from the COVID-19 epidemic and have been revised to take into account the proposed acquisition of Gerber Technology.

The revised objectives the Group has set for itself are indicated in chapter 14. The cash portion of the Gerber Technology acquisition price (175 million euros) will be funded by the Group’s cash resources and by debt. Free cash flow generated by the new entity will allow continued pursuit of the strategy of targeted acquisitions, maintaining of the dividend payment policy, and payment of the debt.