Lectra SA

PAR:LSS

Earnings Call Analysis

Earnings Call Transcript 2022-Q4

[Operator]

Hello, everyone. Welcome to this first ever virtual conference of Lectra in English to present the results of 2022. I will do the presentation with Jerome, Olivier and Maximilien that you all know. And I will leave the floor to Jerome immediately and come back to speak about the strategy a little later.

[Jérôme Viala, executive]

Good morning, good afternoon, everybody. So what will be the agenda of today. So we'll start by the 2022 main highlights. I will cover this part. Then Olivier du Chesnay, the CFO, will cover the Q4 2022 results and the whole year results. Daniel will come back for a reminder of the Lectra 4.0 strategy; Maximilien Abadie, our Chief Strategy Officer, will present this brand-new 2023, 2025 strategic road map, and we'll finalize this presentation with the 2023 outlook and the financial objective for this year.

So let's start by the main highlights of 2022. So the first ones is probably the strong growth in revenues and earnings that we have had last year. We'll see more in detail in a few slides, the detail of the fiscal year results. But you will allow me to tell you that it was not a very easy year as we will see. And despite that, we have been able to achieve a very strong growth in revenues and earnings. The second highlight is the acceleration of the adoption of the Lectra's offer for Industry 4.0. You know that the Industry 4.0 is the strategic objective that we have presented since 2017. So this is something that we can measure, in particular through the strong growth we have had in software orders sold under the Software-as-a-Service, SaaS mode. And this is also something we'll look at in more detail later on. And lastly, the third highlight for 2022 is the positive net cash position. So we are back to a positive net cash position and a very strong balance sheet, less than 2 years after the acquisition of Gerber. So we mentioned the difficulty that we have faced in 2022.

So obviously, 2022 was not a very easy year. So -- if we look at this slide, so we have had different lockdowns in China, in particular, in Q2, but also the drastic change of the policy against the COVID-19 at the end of the year, that has also affected us in -- at the end of December. We have had the price increase, the inflation impact, the shortage of energy and raw materials with a negative impact, not only on Lectra, but also on our customers. the growing fear of recession in many countries that was discussed a few months ago, I must admit that the situation has a little bit changed now at the beginning of 2023. Obviously, the war in Ukraine that has started on the 24th of February 2022 -- and still -- and this is still the case with a lot of consequence that we can see, in particular in Europe. And strong changes in the exchange rates, in particular, between the euro and the dollar as we have been able to see. And the increase in the interest rate that can have a negative impact on the capacity of our customers to finance their investment. So -- all in all, we have been able to achieve the strong growth in the revenues and the earnings, I mentioned earlier. Despite this environment and these difficulties and this one more time demonstrate the great resiliency of Lectra. Another highlight of 2022 is the acquisition of the majority of the capital of Textile Genesis that was announced in December 2022.

So Textile Genesis provides a platform, a SaaS platform that enables the fashion brand and the sustainable textile manufacturers to ensure reliable and secure digital mapping of the textile from the fiber to the consumer. So this is something very interesting. It has already contained, thanks to this approach. They have already convinced a certain number of customers, of which prestigious fashion brands or luxury brands, but also a company like H&M and Lenzing, which is the leading manufacturer of sustainable fibers. This acquisition will allow us to enrich our value proposition and to accompany our customers in their sustainable objective and transparency objectives. And now I let Olivier continue with the 2022 results.

[Olivier du Chesnay, executive]

Thank you, Jerome. Good morning, good afternoon. So just as a small piece of information, will do a Q&A session at the end of this presentation. So if you want to post question on the charter, please feel free, you can pose them at the end or now, we will answer at the end of the presentation. So I will come back on the Q4 2022 results as well as Q2 as well as the 2022 full year results.

So for Q4, just precision, so in Q4, there is no perimeter effect because all of the acquisition had been done in Q3 2021 -- so the actual is actually the same as the pro forma. When we look at the numbers for Q4, we will also look at comparison at actual exchange rates. So we look first at the orders. So we always have 2 indicators to follow the orders. On the left side, the orders related to perpetual software licenses, equipments and their company software and nonrecurring services. And on the right side of this slide, we have the new software subscriptions. So if we look at the left side, 2021 Q4 was a record year or a record quarter for orders. So EUR [ 56 ] million of orders, while quite a high base of comparison. So we are minus 13% versus Q4 2021 in Q4 2022. That's mainly related to the activity in China, where after a couple of years of zero-COVID policy, there was no more constraints in terms of movement in China and most of the population has been affected. So on electro population, probably 60% of the population has been affected in December, so that has delayed some of the signature of deals in China. And on the other side, we have also countries that are closer to the war in Ukraine, so mainly Eastern and Northern Europe, where we see that we have, let's say, delays in decision of investments in those customers located in those regions.

On the right side of the slide, you can see that here, the record quarter is Q4 2022 in terms of new software orders for subscriptions. So we have done the biggest quarter here. That's a growth of 68% versus last year, which shows that we do have a good, let's say, attraction of those offers to the market and to the needs of the customers. When we look now still at Q4, the revenue has been growing 3% and the EBITDA has been growing 8%, despite the environment that Jerome has described just before. If now I come to the full year 2022. So full year, there is perimeter impact. So we did acquire Gerber, [indiscernible] and Gemini during the course of Q3 2021. So we do compare 2022 with a pro forma as if those acquisitions have been done at the first of January 2021. We do also the comparison solely at actual exchange rates in this presentation. So the first piece of information is that in 2022, we are in line with the guidance that we gave to the market. So the guidance that we had given in February 2022 was fairly large, so a range of about EUR 50 million bracket on the revenue side. And on the EBITDA side, the range was EUR 12 million between the low and the high part of the guidance. We had narrowed the range in July to aim for EUR [ 544 ] million of revenue to EUR 534 million of revenue.

And on the EBITDA side between 95 and [ 100 ]. In the actuals, we end basically right in the middle of that guidance, EUR 522 million of revenue and EUR 98 million of EBITDA.. This slide is important to show the transformation of Lectra over the last 2 years. So it gives some perspective on those last 2 years. So it compares the revenue on the left side and the EBITDA on the right side. If we start with the first column, that's Lectra before those acquisitions. Lectra before those acquisitions, it was a company with a bit less than EUR 300 million of revenue and a bit less -- a bit more than EUR 50 million of EBITDA. the acquisition in 2021, brought to the company about EUR 200 million of revenue and only EUR 22 million of EBITDA. So the pro forma at the end of 2021 or for 2021 was EUR 468 million of revenue and EUR 73 million of EBITDA. When we look at the performance in 2022, we did manage to trigger a bit more than EUR 50 million of revenue more than 2021, so EUR 53.9 million. And on that revenue, we triggered EUR 25 million of EBITDA. So that shows the interest and the importance of those acquisitions, and that shows the benefit that the last 2 years have brought to the result of the company with now a revenue of EUR 522 million and EBITDA of EUR 98.4 million. So now we come back on the analysis of the results through the orders.

So again, we have those 2 aggregates in terms of KPI in terms of orders. On the left side, the orders related to perpetual software licenses, equipments and nonrecurring services. Here, we basically have been flat between 2021 and 2022, at the level of EUR 202 million of orders. When you look at the details in the table, you can see that we've grown a bit on the perpetual software licenses on the nonrecurring services, and we've decreased 2% on the equipment. I'll come back with some more details in the next few slides. On the right side of the slide, you can see that the new software subscription orders has grown 34% between last year and this year. So now we reach for 1 year, nearly EUR 10 million of new orders of software subscriptions. So those new orders, it's the annual value of the new subscriptions. And usually, the subscriptions are signed for a period of 3 years that then is automatically renewed for another 3 years on most of the offers that we have on the SaaS. If now we zoom on the orders without the subscriptions. We have not been able to grow in 2022, mainly because of the region called Asia Pacific. As you can see, that's the most contributive region in terms of orders because in 2021, it was EUR 75 million of orders. So we've decreased [ 15 ] -- 15% sorry, or in that region between 2022 and 2021.

And -- and you can see with a small graph that it's actually in China where we had the biggest growth, minus 23% again, at the beginning of the year because of some consignment lockdown that we had in China and at the end of the year because of some people being infected, sorry, in China. In the other regions, in Europe, we have a contrasted sorry, activity. You have some countries that are close to the war, where in Northern Europe and Eastern Europe, we have seen a decrease in the orders. But in Southern Europe, we have seen a good growth in the activity, especially in France and in Italy. In the Americas, you can see that we still enjoyed a growth of 16% in 2022. And lastly, on that slide, if you go to the far right, on the bottom right, you see the rest of the world. Here, you have a nice growth of 31% between 2021 and 2022. That's also the effect of the acquisition of the distributor of Gerber in Turkey, where now we've been able to sell Lectra brand products in that country, whereas before, we were quite inexistent in that country. If we look now at the same information of the EUR 202 million of orders, by market sectors. Fashion remained the main market sectors of the group, and that has been decreasing 2%. As you know, China is the main country where we manufacture government. So it's, of course, the decrease in China that drop, let's say, that's a number in fashion.

But that number in fashion was partially offset by the growth in North America and the growth in some countries in Southern Europe. In automotive since the beginning of the year, we've seen that we had some growth in the orders. So the full year growth is 35% and automotive is about 30% of the total orders of the group. And in furniture that market sectors had enjoyed some nice growth in 2021 after the cover. You can see that in 2022, we had lowering in the investments, and we have minus 32% versus last year, and that market sector represents about 10% of the orders of the group in 2022. So we've seen the orders. Now from the orders we move on the left to the revenue of nonrecurring revenue. So that's the revenue triggered by the orders that we just commented. So you can see that the revenue has grown 10%. So as I mentioned, the orders have been flat. So the orders have been at EUR 202 million. And as you can see, with EUR 202 million of orders in 2021, it triggered EUR 190 million of revenue and in 2022, with the same number EUR 202 million, it triggered EUR 209 million of revenue. As you can see, each of the line have grown in terms of revenue in 2022. And this is the effect of having had in 2021. Some of the orders that went in backlog at the end of the year, and the reverse happened in 2022, where we had a reduction overall for the year on the backlog level.

So the backlog at the end of 2022 is basically at a normative level. And when we are at the end of 2021, we had a bit of excessive backlog. The second part of the revenue is on the right side, where we see the recurring revenue. As a reminder, recurring revenue is 60% of the revenue of the group. As you can see, the 2 natures of the recurring revenue, recurring contracts and consumer and parts are both growing, respectively, 13% and 12%. If you see the details below the graph, you can see that on the recurring contracts, we have had a strong growth on the software subscriptions, that's the first line, so there is a mismatch in the line. But the first one is the software subscription. So we reached EUR 21 million of software subscriptions, so a growth of 58% in 2022. The second line that is only growing 5% is actually the maintenance contract on software, the one that goes with perpetual licenses. Here, it's normal to have only a growth of 5% because all of the new offers that we are selling to the market, they are done on software subscriptions, which is the first line, which is EUR 21 million. On the equipment and company software maintenance contracts, so here, it's a contract going with the equipment. Here, we enjoyed a high growth of 11%, which is a bit higher than usual. Also because on the maintenance contract, we do have clauses that enable us to pass on the inflation at each of the renewals.

So that growth also benefited from those inflation factors in 2022. So with the nonrecurring revenue, plus the recurring revenue, the total revenue grew 12% in 2022 to reach EUR 522 million. As you can see from that slide, we had a higher growth on the gross profit than we had on the revenue, plus 14%. That means that despite the effect of inflation on raw materials, inflation and salary, inflation and transportation costs, all of that, we managed to increase the gross profit percentage between 2021 and 2022. That's the first effect of the synergies that we had with the acquisitions. We also grew the overhead by 7%. So the EBITDA grew by 35% between 2021 and 2022, reaching EUR 98.4 million in 2022. We can also see that the net income has grown 64% to a level of nearly EUR 44 million of net income. So that graph tried at waterfall, try to illustrate the evolution of the EBITDA between 2021 and 2022. As you can see from that graph, you can see the strength of the model that we have. The [ 2 first ] brick, the green bricks that you see on the left, they are the effect on the EBITDA of the increase of volume of recurring revenues. So when we grow the recurring revenues in 2022, it brought us EUR 26 million more EBITDA than last year. The third brick is the volume coming from the nonrecurring revenue as we had stable level of orders.

You can see that this brick is usually higher in terms of contribution. But still here, you have a positive contribution to the volume effect of the nonrecurring revenue. You have then on the fourth break the effect of the gross profit increase, so the gross profit margin item by item, they have increased between 2021 and 2022 that enabled to finance the investments in fixed overheads. And the last brick is actually the decrease in variable overhead costs. It's because in 2021, we had an exceptional year with high level of salary compensation and bonuses due to the results that we had in 2021. So we had less of that in 2022. Both elements is the waterfall that explains the evolution of the EBITDA. On the free cash flow, so I told you that we had made EUR 44 million of net income. As you can see in 2022 on the red bar, we are making the same level of free cash flow than the level of net income. Again, one of the strengths of the business model of Lectra. And that EUR 44 million here has been done by still financing a temporary increase in working capital requirements. One of the element is related to the variable portion of compensation that I explained before. We had high compensation in 2021. They were paid at the beginning of 2022. That's an impact of EUR 10 million on the free cash of 2022.

We also increased inventory. We increased inventory to face the different difficulties to get parts on some of the machines, some of the equipments. So we had to finance more inventory for that and also to fuel the growth in the recurring revenue on the maintenance contract. So that impact is EUR 15 million. And the last piece of information on that slide is that last year in 2021, we had cashed in the reimbursement of the R&D tax credit from 2017 that we get reimbursement for 4 years after, so for EUR 4.5 million. This year, in 2022, we have not yet received the R&D tax credit of 2018, which is about EUR 5 million due to the fact that we still have an ongoing tax audit. So until this is closed, we don't get that reimbursement. On the balance sheet. So we still have a very important cash in our balance sheet, EUR 130 million of cash. We have a debt of EUR 140 million that we started to repay for EUR 21 million. So basically, the debt is EUR 119 million. So EUR 130 million, minus EUR 119 million, we have a net cash of EUR 11 million. that net cash is only 18 months or 2 years after the purchase of Gerber. And we have a growth on the shareholders' equity that is now reaching EUR 450 million. On the evolution of the share price. So we do have a market cap, which is around EUR 1.5 billion 2 day ago. We have an evolution that map basically the evolution of the cap, mid and small.

And we are doing better than the tech leaders, which is an index to which we were added in the last 18 months. With that, I will hand the mic to Daniel that will talk about the strategy 4.0.

[Daniel Harari, executive]

Thank you, Olivier. So the Lectra 4.0 strategy was launched in February 2017. Is the fourth strategy in Lectra history, Lectra is 50 years old today. And this strategy is to be a key industry 4.0 player by the end of 2030. On our 3 major sectors, fashion, automotive and furniture and discrete strategic market sectors are going into profound changes, not the same in each of the industry, but very significant. In fashion, part of the brands put the focus on reducing cost, the other half put focused on working capital. And the ones who used to focus on reducing costs are in trouble today because there is a limit to the cost reduction. They produce in Asia with long-term commitments. They had a lot of stock during the COVID and after. And today, they are short of cash. On the opposite, the one that had an agile approach with smaller stocks, smaller series and processing close to the consumers are in good shape today.

And when we look also on the position on the Internet, the one who sell a lot on the e-commerce sites are in good position and the one who sold only in physical stores are in bad position. So in fashion, we consider there will be winners and losers, and there will be a restructuration of the market in the coming years, with some players investing a lot to achieve that transformation and some others in trouble that we'll try to survive and will not invest. On the automotive part, the situation is different. Automotive is very optimized. As we know, it's -- they have applied lean manufacturing methodology for years. but there are limits because today, they do what they can to optimize, but they need profound change to get there and to apply the Industry 4.0 means reviewing the way they produce. So there will be also an in-depth transformation on the automotive part. And then when we look at furniture. During the COVID years, furniture was selling both on inventory and on demand. And most of our customers realize that when they were selling on demand once they had the order from the consumer they did not need to finance the production, finance the inventory, and so they had a much better business model than producing to stock. And therefore, there is a switch in the financial industry to produce on-demand more and more.

We should add that the CSR constraint on this market and mainly in fashion is something which is very important today and which creates a lot of constraints on our customers. A few words about the Industry 4.0. Just as a reminder, the Industry 4.0 is the fourth industrial revolution. The first one happened in the 18th century with the steam -- the creation of steam that enable to start producing and create the industry. In fact, the second revolution happened at the beginning of the [ 20 ] century and was all about electricity and the capacity to do mass production. Then came the computer and the automation. And with this -- with the electronic IT systems there was an acceleration in terms of automation in the 1970s. And now, the Industry 4.0 is a major step forward in interconnecting creation centers, manufacturing centers and selling points and the consumer. And it is a way to make the company more agile, more smart by having integrated smart equipment, smart software that enable the companies to take decisions faster. And this Industry 4.0 is based on 4 technology, the cloud, big data, Internet of Things and artificial intelligence. When we look at this, we see that it will create an acceleration after adoption of the key Industry 4.0 in the coming years, but it's a journey. Most of our customers are just at the beginning of this journey, which is described on our website.

I invite you to look in more detail about what we say on the Industry 4.0 that will become the next big thing in our opinion in the coming years. Why do we believe that Lectra is in a good position to become a key Industry 4.0 player for 3 reasons. We have started being in the Internet of Things 16 years ago. Equipment were connected to the Internet 16 years ago. And today, we have 7,700 cutters that are connected and sell information daily. So it's a gold mine in terms of information. We also have an offer which combines software data services and equipment and the addition over the last few years has been the data, the fact that we enable our customers to access to very detailed information about their operation, about their sales, about the creation model, and this enables to take better decisions. And then we also have a strong team in terms of services and customer success to accompany our customers with 850 people who are specialist offer technology or of the business of our customers. When we look at all this, we are in a very unique situation to be a key partner to accompany our customer for this journey. In addition, the corporate social responsibility is now more and more impacting our customers, especially in fashion through first the expectation of the consumer, which is increasing year after year to more and more regulation in the different countries and also to internal pressure from their own employees.

The companies are pushed to be more and more sustainable. And for that, they need to reassess all their processes to echo design their products and also to adjust the way they work in the different sites and the way they work with their partners to implement the sustainability. When we look at the strategy Industry 4.0, that was announced 6 years ago, it was based on 4 pillars: a premium positioning. Whatever we do, we want to offer more to the customer with more value product and our cheapest product, our 30% to 100% above the most expensive product of our competitors. So this premium positioning is in our DNA for some years. Then we want to focus on 3 strategic market sectors and not disperse our energy and other sectors. Automotive, fashion and furniture. We also want to put more and more the customer at the heart of activities. It has always been the case, but we have reinforced this position over the last few years by naming customer success managers, person in charge of guaranteeing the satisfaction and the success of the customer, we set with customers' objectives, their own objectives in terms of productivity, quality, fabric saving. We put in place dashboards, and we help them to improve the numbers.

Then the fourth component is 4.0 services that we just start to release at the end of 2022. And these services are based on data, artificial intelligence and expertise from our people. And we use these services to help our customers to improve their operation. It's a very strong product for us, and it's very important because we can deliver these services from remote. Most of what we do is automatic and the value brought to the customer is very important. And then at the beginning of 2023, we had a fifth pillar to these pillars. It's the committed -- to have a committed CSR policy. CSR Has always been in Lectra DNA, but we never communicate so much on this. This time, we have decided to take a certain commitment -- 12 commitments, which are going to be described in our annual report. The way we have executed our strategy was 3-year strategic road map. The first one was from 2017 to 2019, and it was mainly to introduce Industry 4.0 products. We were doing zero in [indiscernible], zero in these products. In 2017, nearly zero in 2018, where we introduced the first product then the 3 years [ out ] of 2020 to 2022, the goal was to expand the presence of this product and cover more customers with these new solutions. And we now have a new road map for 2023, 2025, but Max will tell you more about this in a few seconds.

[Maximilien Abadie, executive]

So good morning, good afternoon, everyone. Pleasure to be with you. So as Daniel said, the Lectra 4.0 strategy remains valid, more relevant than before. All the pillars that are still relevant for our future, and this is the third chapter in our history of the Lectra 4.0 strategy, the 2023, 2025 strategic road map. So for this road map, we are convinced that at the end, we will achieve in a better position, our long-term objective, which is to become a key industry 4.0 player in the 3 market sectors we serve. For this road map, we have set 3 ambitions. The first one is to take the full advantage of the new dimension we have now following the acquisition of Gerber notably to accelerate our growth. The second one is to significantly, sorry, increase the volume of the SaaS revenues in the group's total revenues. And the third ambition is to seize all the acquisition opportunities we will have in the coming years. Of course, as Daniel said, we have always been very focused on CSR, and we have always been trying to be at the forefront in building a more sustainable future for our customers, but also for the planet. To achieve these 3 ambitions, we have set 6 strategic priorities, and I will detail each of these 6 strategic priorities.

I will start with the first one, which is to reinforce implementation of ethical, social, societal, environmental best practices, both internally and for our customers. At Lectra, as Daniel said, we have always been trying to be a responsible company. We are also viewed by our customers as what we call a sustainability enabler. It's part of our DNA also. We help our customers to become more responsible save also the resources, the key resources of planet. We help them to optimize the usage of the fabric, the material. We help them digitize their processes to not use papers, as an example, to connect people wherever they are located in to lower the footprint also of the CO2, et cetera, et cetera. And we have been not so vocal about that, and this is something we want to change, and we want to go one step further. As you know, at Lectra, we have always have an unfailing respect for ethical standard. We have always cared for the environment, and we have always cared also for our employees, even in tough times, even during crisis. To give you 1 example, we have already increased by 3x the salaries of all our teams all around the world to help them face the, I would say, difficult living cost, which is increasing because of the inflation. We have framed a CSR policy, and we have set commitments, which will be detailed in our annual report, which will be issued in about 2 months from now.

And we have certain commitments in 5 categories. The first one is to have a strong respect of the highest ethical standards. It's something on which we are very good already and we want to go one step further. Second one is to echo design all our offers. We have already been working on the equipment side, but not enough on the software side, on the data side, and there are many things we can do, notably to lower the impact of the cloud infrastructure on the planet. The third one is to promote what we call an inclusive, diverse and vibrant work culture and not able to adapt the culture of Lectra to the new generations, which are more and more present within the company. The fourth one is to reduce the environmental footprint of all our activities at Lectra. We are -- we do not pollute a lot. We do not have a lot of CO2 emissions, but there are many things we can implement and all around the world because we have a huge network of subsidiaries, as you know, and there are things we can do quickly and in an agile way. And the last category is about providing support for the next generations, notably to the fashion students. As you may know, we have had a program for education for about 20 years now. We provide for free software licenses to the fashion schools, fashion universities so that they can train the students to the Lectra group solutions, Lectra brand solutions, Gerber Brand solution and Gemini solutions.

And we want to go one step further to empower the students to really master well all the Lectra Group family solutions. If we now move to the second strategic priority is to leverage all the synergies arising from the acquisition of Gerber technology. I think you will agree with me, this acquisition has had a tremendous impact on Lectra. We have reached a new dimension, and we have already implemented the very short Don't forget that the acquisition was done in June 2021. So only in 18 months, we have already achieved some of the synergies. Olivier showed you before, it has already had an impact on the EBITDA. And now we move to the second step, which is to work on the medium-term and long-term synergies and more, in particular, on 4 key synergy levers. The first one is to leverage the potential of the expanded installed base. If you think about the fashion brand, all -- nearly all the fashion brands in the world, they are Lectra Group customer. It's also the case for the largest fashion manufacturers. If you think about all the leading automotive supplier delivering car seats, interior and airbags, they are all Lectra customers. And it's the same for the largest furniture manufacturers we serve all around the world.

The Lectra base and the Gerber base in terms of products in terms of software licenses and equipment, they are about the same all around the world. However, Gerber in the past, didn't focus a lot on selling the value of the services going together with the software and the equipment, which is a key component of the value proposition we have had now at Lectra for more than 15 years. And it's something we want to work on to improve the coverage rate of all the Gerber solutions, software and equipment and bring back these solutions under maintenance contracts. And also, we want to improve the service level of all the Gerber solutions by applying the Lectra best-in-class standards. The second main lever is to unify the R&D effort. In the past, Lectra and Gerber were competitors. Now it's no longer the case. We are 1 single company, 1 group, focused on the same R&D road map. And as you know, when you want to develop new solutions for the Industry 4.0, you need to integrate new resources, new talents, expert of the cloud, expert of the artificial intelligence, expert of IoT of big data. It has a huge cost. A cost Gerber was not able to finance and to fund. If you remember, in 2019, Lectra was investing EUR 32 million in R&D. And last year, it was almost EUR 53 million. So it's a huge investment. And now we have merged all the R&D teams, and they are all working to deliver new solutions and new innovation to the larger installed base.

The third lever is to launch new joint offers. Short term, as you know, we have worked on the compatibility between the Lectra and Gerber solutions, software and equipment. It was, I would say, quite an intense work because it's very difficult to ensure a perfect consistency of the data between the Gerber solution and the Lectra solution, but now it's behind us. We have delivered a perfect compatibility between all the solutions. And more importantly, when we acquired Gerber, Gerber didn't have the Industry 4.0 solutions, we have launched since 2018, all the new offers, fashion on demand, furniture on demand, the quick offer, the flex offer, [indiscernible] and so on. These are products Gerber didn't have in its portfolio before. And now that we are working all together as a group, we can offer these solutions to the larger installed base of the family. And of course, the more we move on, the more we'll bring to the market, new offers coming from the unified R&D efforts that will address a bigger and larger sales potential than before Lectra was alone. Last but not least, the fourth lever is to reorganize all the industrial operations around 3 sites. As you know, the Lectra historical industrial operation site was in Bordeaux in France. It was addressing all the world from Bordeaux. And Gerber had a different strategy.

Gerber, when we acquired the company moved to a fabless strategy. It was a decision notably driven by AIP, that is owner of Gerber and Gerber contracted with manufacturers outside of Gerber in the U.S. and in China. In 2022, we took the decision to reinternalize the production done by the U.S. manufacturer of Gerber back in [ Poland ]. Poland is the headquarter former headquarter of Gerber. And this is the place where now we assemble some of the Gerber brand equipment. And now we have really a strong industrial footprint in the 3 main and most important geographies in Asia, in Europe and in Americas, which will enable us to think about different things to improve our supply chain operations, our logistic operation to produce things more closer to the customer location and, of course, to reduce the environmental impact of other industrial operations. The third strategic priority is to accelerate the transition of software sales to the SaaS model. As you know, we decided back 6 years ago to introduce to the market, all the new software only in SaaS mode. But SaaS, it's not only a financial model. It's really about repackaging completely the offer in a new way, the software offer, the service offer in a new way. So it's not just about selling on a subscription mode. It's really a transformation, a deep transformation on the way we package the offer, and we support the offer.

When customers subscribe to the offer, it's not the end of the journey. It's really the beginning of the journey, a journey which will last years maybe in the future. So it's really a different way to work and to exchange with our customers. We started from zero in SaaS revenues 6 years ago. And even in 2018, it was EUR 0-point something million. Last year, 2022, we achieved more than EUR 21 million revenue from software subscription, a figure that many companies of the size of Lectra couldn't achieve, I think, in a short period of time. And we have set a very ambitious objective to achieve EUR 70 million in software subscription revenues in 2025. How we do that? By increasing the sales and marketing programs to encourage our customers to adopt more and more all the SaaS offers; second, to intensify the prospecting activities and actions because all the offers we have been introducing for 5 years now, they are brand new. They are at the beginning of their life cycle. They have been adopted by dozens, hundreds of customers, but the sales potential is far bigger. Last but not least, we will keep accelerating the R&D investments for these offers to so that we can bring more value to the current offers already available, but also we'll launch new solutions that will address more needs around the Industry 4.0.

The fourth strategic priority is about accelerating the transformation of the group customer relationship and customer engagement model. It's a journey we started in 2019 when we initiated the introduction of the customer success. Customer success, it's both a philosophy, which aims to empower our customers to use well our solutions. And it's also a team at Lectra, which comprise support people, expert people, technicians, professional services, trainers, consultants and also people helping our customers to integrate our solutions. Today, we have also introduced a new profile in the customer success team. It's called the customer success managers. These people, they are helping on a daily basis, our customers using Industry 4.0 solutions. So the ones we have been introducing for 5 years to use well these solutions. Our ambition is to increase the number of customer success managers so that they can help our customers dealing with more and more offers we have on our portfolio. We have always been careful about the customer satisfaction and loyalty. We have disclosed the customers more satisfaction scores, the Net Promoter Scores on a regular basis. And there are things we can improve to 1 step further, notably on the Gerber base to serve in a better way and improve the quality of service for the Gerber customers. Last but not least, we will finally adjust the responsibility of some of the sales teams so that they can focus on prospection by transferring some of the responsibilities, which were previously under the sales team to the customer success team.

The fifth strategic priority is to continue to pursue our external growth strategy. I think you will agree with me. We have been quite busy in terms of acquisitions. Over the past 5 years, we acquired Kubix Slab, [ Reviews ], Gerber, [indiscernible] and the assets -- business assets of Glengo Technologies, the previous distributor of Gerber in Turkey. And lastly, as Jerome said, Textile Genesis. These acquisitions, they have enabled Lectra to achieve and reach a new dimension, following notably the Gerbers acquisition, to increase also the technological advance and capabilities of the team at Lectra to also acquire new expertise, new talents on areas we were not covering before, and also to change the image of Lectra in front of our customers. The company, our customers, and maybe some of you knew in the past 5 years ago is totally different from the company we work in today. Lectra before was viewed as a company selling CAT solutions, equipment solution, but it's not the full story of today. We have really changed dimension, and now we cover many processes from the creation, production and sales activities of our customers, notably in the fashion industry.

So we will keep being active in terms of external growth by focusing on companies which could complement our product portfolio. And also, we want to build new expertise in areas which we do not cover today in the fashion market. And the last strategic priority is to prepare Lectra for the period after this new road map, 2026, 2030 because as any tech company, if we only look at the short term, the coming 2 or 3 years, we may lose some opportunities for the future. We have to think about the next 5 to 7, 10 years. And we need to start working on this future right now if you want to be on time, and we want to address the future challenges of our customers. That's why we work on an R&D side and will dedicate a huge portion of the R&D investment to work on new offers that we will bring to the market in 2026. We'll keep the R&D investment, the annual R&D investment at 10% of our revenues. But as we want to increase the level of total revenues, it's part of the key financial objectives I will detail in 2 slides from now. The annual R&D expenses, they will increase. As I told you, last year, they reached almost EUR 53 million. In the next 3 years, the annual average amount of R&D investment will be close to EUR 65 million every year. We'll also work on several activities, notably to phase out some products which are nonstrategic for Lectra.

And all these products, they account for less than 5% of the group revenues. Some of these products, they are not relevant for the Industry 4.0. They have been there for 15 years, 20 years, sometimes they are not compatible with the industry 4.0 principals. And some others are coming from acquisitions we did from Gerber from [indiscernible] and as an example, they are not strategic for us, and they do not focus on the 3 strategic market sectors. As Daniel told you, we want to focus on, fashion, automotive and furniture. And also, the Board of Directors will work on the evolution of the group governance, notably to ensure that Lectra will keep applying its long-term strategy after the period 2026. So we are really starting this new phase, this third chapter in our history of the Lectra 4.0 strategy with a very ambitious road map with many changes. And as I told you, we want to integrate well and communicate more and do more in terms of CSR to be really here as a key player and to build a more sustainable future for the planet. In terms of financial objectives, we have set 3 financial objectives. The first one is to achieve revenue of more than EUR 700 million, both through organic growth and also from external growth. The second one is to achieve 10% of our revenues coming from SaaS.

Today, software subscription. So SaaS, they represent 4% of total revenues. We want to move that percentage to 10%, while increasing the total level of revenues, as I told you. And the third financial objective is to reach more than 20% of EBITDA margin, which is an increase, of course, compared to what we are doing today. We will keep our attractive shareholder payment policy by distributing a dividend, which should represent about 40% of net income, which is in line with what we have been doing for years now. And I will leave the floor to Jerome to tell you more about the 2023 outlook.

[Jérôme Viala, executive]

Thank you, Maximilien. So -- now that the 2023 to 2025 road map has no secret anymore for anybody listening to this presentation with very ambitious objective. Let's go back to [ 2023 ]. So first of all, even though it has been said already, it has been set by Daniel and by Maximilien. I just wanted to come back to this new dimension. I think it's important because basically this new mention is something that will enable us also to accelerate in 2023. But more than that, it's important to understand that this new I mention has not deteriorated the financial fundamentals that Lectra had before the acquisition of Gerber and before the other acquisition.

As an example, as you can see, on the left side of this slide, we still have and we have now a breakdown in revenue with recurring revenue representing 60% after the acquisition. This is something that is coming from the EUR 522 million revenue that have been presented and explained by Olivier, we still have 60% of the revenue that are recurring and known basically with a few percent uncertainty only at the beginning of the year. We came back to a very strong and we have always had. But even after the acquisition of Gerber, we still have an even stronger financial situation. We have more than EUR 450 million shareholder equity and the net cash situation as mentioned. And obviously, we have a capacity for innovation that is very strong. So we need to be very confident that with this new dimension, we have all the strengths and assets to reach our objectives. So if we come back to the few topics or situations that have affected 2022 that were sometimes a little bit difficult to manage, okay? Let's look at the situation now. We still stop 2023 with a low visibility. We have to be honest with that on a certain number of market, market sectors. But we have to acknowledge the fact that if the environment is still degraded, we can show and we can see some signs of improvement.

If we stop by China, obviously, even if 2022 have been particularly difficult in China, the fact that now China is fully open since January [ 8 ] is something positive, positive for us, but also positive for our customers. We have a lot of customers with operations or suppliers in China. And the fact they will be able to resume some travel, discussion with their partners, you know is something very important. We can see also the situation that is improving on the shortage, this is something we can see the price of the energy and the raw materials and that has stabilized in the past weeks, okay? The feel of frustration is a little bit behind us. Even though, as I said, there is uncertainty but the situation seems to be stabilized. Obviously, the war in Ukraine is still a concern, okay? We don't know the way it will move in the next weeks and months. And we have seen through the analysis that was done by Olivier, that some of the countries, some of the market that are very important for Lectra close to Ukraine, this is the casing [indiscernible] in the Baltic countries are still affected because customers in those countries are still hesitant to invest. And lastly, we still have a situation that may affect the decision of our customers, which is the increase in the interest rate that may have an impact on their capacity to invest.

Some comments. 2022 was a particular year. If we look at the different quarters of 2022, there have been very [indiscernible] for different reasons. First of all, just come back to Q2 in 2022. Q2 was not a good quarter in 2022 for 1 main reason, which is the strong lockdown in China, that has affected our capacity to deliver the product, the Gerber brand products. You know manufacture at the contract manufacturer of Gerber in this country. So we have booked a certain number of orders during this quarter or even coming from Q1, but we have not been able to deliver because of the lockdown and the fact that this contract manufacturer was closed during 6 to 8 weeks. And it has improved the Q3 results have been exceptionally high because the delivery that we could not do in Q2 have been much done in Q3 and have improved the situation in [ Q2 ]. So we will need to be very careful when comparing the quarterly 2022 results to what happened in 2022 because 2022 was a little bit strange. And it will start in Q1 because Q1 2022 was a very good quarter. It came from the fact that the backlog of orders on January 1, 2022, coming from the very strong level of orders that we have had in Q4 2021, as explained by Olivier. This very strong backlog has helped to increase the revenue of Q1 2022, whereas the backlog on January 1, 2023, came back to a more normative level.

So let's just say that we need to be careful when comparing the quarterly performance of [ 2023 ] to the same quarter of 2022. But if we look at the overall 2023 financial objectives, so let's look at those objective that has been set by Lectra. So first of all, as you can see, and for the revenues and for the EBITDA, we have first started to correct. The impact of the exchange rate between the actual results of 2022 and the same results computed with the exchange rate. We have used to prepare the scenarios for 2023. As a reminder, the exchange rates have changed a lot during 2022. It was the case for the euro dollar. In average, the euro-dollar exchange rate which has an importance on our operation and on our P&L was [ 1.05 ]. And to build the scenarios and the objective for 2023, we have viewed the exchange rate, the euro-dollar exchange rate of December 30, so the last exchange rates of the year. And we have done the same for the other currencies. And if we just retreat and calculate the 2022 revenues and EBITDA with the exchange rate that we have used for the 2023 scenarios, we can see that it has a mechanical impact on the revenue, minus EUR 8.3 million. And it has also a mechanical impact of minus EUR 3.8 million on the EBITDA. So if now we start from the 2022 results converted using the 2022 exchange rate, just to ensure like-for-like comparison as far as the exchange rates are concerned.

Our objective is to reach revenues between EUR 522 million and EUR 576 million, which is fairly large because still of the uncertainty we have on the nonrecurring part of our business, of our revenues. It represents a plus 2% to plus 12% growth in the revenue. If we look at the impact it will have on the EBITDA for the scenarios at EUR 522 million, it would represent a EUR 90 million EBITDA, going slightly down 5% compared to 2022. And for the scenario at EUR 576 million of revenue. This would mean a EUR 113 million EBITDA, growing 20% a compared to 2022 results. That's the end of the presentation. I let you look at the financial calendar. We will have in 2023 with the next Annual Shareholders Meeting, but also the release of the quarterly results in 2023 and beginning of 2024 for the fiscal year 2022. And together with Daniel, Olivier and Maximilien, we are now ready to answer to your questions.

[Unknown Executive]

Thank you, Jerome. So we'll take the first question. Yes, we have a few questions here. So the first one will be about 2025. What portion of the EUR 700 million revenue in 2025 is coming from organic versus external growth?

[Olivier du Chesnay, executive]

We've built scenarios. Based on these scenarios, most of the increase could come from organic growth or from external acquisitions. If times are tough, the internal growth will be lower but there will be more opportunities for acquisitions with companies that are priced at a lower value and our capacity to bring to the Lectra family, some of the start-ups and some of the company that could bring a lot will be higher. And the opposite, if the economy is doing better, the internal growth will be higher, and we may acquire less company. So the mix between internal and external growth depends on the scenarios. But in all these scenarios, we are above the EUR 700 million in revenue and above the 20% in EBITDA.

[Unknown Executive]

We have a second question here is about the SaaS model you talk about, are the SaaS offers only dedicated to the fashion industry.

[Jérôme Viala, executive]

So no, it's not the case. It's mainly dedicated to fashion. It was the case for the first products we have developed and introduced in 2018. It was the case also for the SaaS offer that is coming from the company we have acquired Kubix [indiscernible], [indiscernible]. But we have always -- we have also developed and we have launched recently. It was in October 2022. A brand-new offer of software, dedicated to the automotive industry. You know this is a name that have been used by Maximilien, Algopex, Valia, Empower. And our intention in the next quarters and years is to launch products to launch software product that will be sold under the SaaS mode that will be for 3 market sectors. But at the end of the day, that's true that it will remain mainly for fashion, even though we'll also cover the other market sectors.

[Unknown Executive]

And the first product launched in 2018, we have for furniture on demand and fashion on demand. So furniture was already one of the first markets. Another question about the activities. Can you be more specific on the activities that you plan to discontinue between 2023 and 2025?

[Jérôme Viala, executive]

So when we acquired Gerber, Gerber had already other activities that came from a long time ago when it was -- when Gerber Technology was a division of a bigger company listed on the New York Stock Exchange and called Gerber Scientific. And they had kept within Gerber technology, an activity called [indiscernible] graphic. You know what you can see behind me is an example of what they are doing. I don't know if it is the word in English, [indiscernible]. But they also and develop things that you can put on helmet for the different -- so this is not something strategic, okay? This is something with new nonrecurring sales, but also consumables. So the phaseout of these activities and the impact on the revenue being progressive. But all in all, all those activities will be phased out in the next 3 to 5 years, progressively. And all in all, they represent a little bit less than 5% of the total revenue so around EUR 25 million revenue. So we will not really see it. It's just that it will allow us to really focus on resources on what is strategic and what will bring us more than those activities that are absolutely not strategic.

[Unknown Executive]

Another question about the governance of the group. Can you give me -- can you give us more color on the evolution of the governance plan after 2025, please?

[Olivier du Chesnay, executive]

So already in 2023, we have 2 new board members that will replace Bernard Jourdan and Anne Binder, who have been boarded for 12 years. They have already been selected by the Board and will be presented to the next general assembly. They have strong background and should reinforce the board for the coming years. We also have a succession plan for some of the executive committee Board members that will retire in 2025. Jerome will retire in April 2024, and we'll present Jerome as a Board member for the next assembly in 2024. I'm 68. So I won't be there forever. Where I feel like a teenager, I still want to be there for some years, but the goal for me is to stay in my position for the next [ 3 ] years, and then I will act only as Chairman. If I also stay CEO, I will focus more on strategy and acquisition and less on day-to-day operations. We also have in one of the [indiscernible] of the board, we review 1 or 2 times a year, the position of each of the executive committee members to decide on the continuation plan in case something happened, if somebody is ill or is in pitch to work.

And also if people resign or if they come to retirement on a more planned logic, we don't publish the details because it would be damageable for the company, but we have plans for the replacement of each of the executive committee members.

[Unknown Executive]

Question about inflation. What are the consequences of the inflation on your costs and selling prices?

[Jérôme Viala, executive]

So we have had an impact on the manufacturing cost of our products. Obviously, last year, you know that was around the level of inflation that we have had in Europe or in developed country because as we all know, the level of inflation in Asia was much lower. So when we speak about the products -- the Gerber brand products manufacturer in China, they have not really suffered of the inflation. The increase was only 1% to 2%. But when we speak about the product that are manufactured in the U.S. or in France, the apart from the inflation rate.

The good news is that we have a pricing power that is strong enough to transfer the impact of the inflation that we have had on our manufacturing costs and even on our overheads to the customers. So what we have done in 2022 for the first time, probably in the past 20 years or even in Lectra history is to increase the public price of all our products 2x, 1 in January 2022 and another time in July 2022. It was 5% and 4% in developed countries in Europe and in the U.S., but it was much lower in China for the same reason I mentioned earlier, which is a lower inflation rate. And at the end of the day, if you remember the part of the presentation of Olivier and the main indicators of the P&L at the end of 2022, the fact that when revenues have grown in 12% in 2022 compared to 2021. The fact that the gross margin rate has increased 14% is also a good feedback and a good proof that we have been able to transfer the impact of the increase of the cost to the price invoice to the customers.

[Olivier du Chesnay, executive]

And we should add that our business plan for the next 3 years is based on inflation plus a certain percentage. So we have growth objectives that are independent of the inflation.

[Unknown Executive]

And now a question about EBITDA. How will evolve the EBITDA margin every year until 2025?

[Jérôme Viala, executive]

I think that we have not disclosed released the detail of the evolution of the P&L from 2023 to 2025. So I think we have given our objective at the end of the 3 years road map, EUR 700 million revenue, 10% in SaaS revenue and an EBITDA margin of 20% plus. We have also given the guidance, the financial objective with a range for 2023, knowing that we still have some uncertainty. So we may be able to narrow the range at mid-year this year, but we have not given the details. So obviously, we are starting around 18%. We'll go to 20%. If the situation is improving, we may accelerate stronger and earlier, but there is no detail of the evolution from 2023 to 2025 of the revenues and the EBITDA.

[Unknown Executive]

I think it will be the 2 last questions. The first one, it's about your profit margin. Would you be able to increase the gross profit margin and go back to the level of 70 plus, which was the level before Gerber acquisition.

[Olivier du Chesnay, executive]

Maybe we'll do that in 2 steps. The first one is in the coming 3 years, where we will improve mainly the recurring revenues by selling more contract on the Gerber installed base, selling more SaaS software, which have a better margin and also improving slightly the gross margin on the equipment by selling more Lectra brand equipment or higher level equipment in the product mix. After that, for the period 2026, 2030, we have new equipment, which we will base on Lectra's technology that should have better margin. So yes, we will progressively reach back the 70%. Not sure that we'll do that before the end of 2025, but we should improve in the coming 3 years.

[Unknown Executive]

So maybe the last question is, how has evolved the competitive environment?

[Olivier du Chesnay, executive]

So very differently on our main activities around cutting more, what we call the extended carting from planning to cutting to what happens after the cutting. Today, we have a unique position. We are the only premium player. Our competitors are mainly low-cost players in China, and we don't fit on the same business model. They sell low-cost cutters with no services and they want to catch customers that are very sensitive to cost. We are focusing on customers that focus on their profitability and we bring the customer the capacity to develop sustainability and improve their margins. Therefore, we don't expect this position to change a lot. We should -- we are not afraid of having any competitors catching Lectra because we have invested a multiple of what they invest in R&D over the last 10 years. So it's very difficult for them to catch us. The second product line is around what we traditionally call [indiscernible]. We call this now product development, which is all around what brands do to develop their product.

Here, the customer are very captive the worst year of our history, we lost 1% of our customer to competition. Gerber lost 1% of its customers to competition, and I believe it's the same for everyone. The cost of change is too high, and therefore, we don't expect any change in the market, and we have a majority of the customer we target now in Europe and in the U.S. And the third that business line is around everything we do new around e-commerce, around [indiscernible], around the sustainability. And here, we are more challenges than leaders. We are in new markets that we don't know so well. So here, this is where we believe we have to take care about where the competition is, how the competition will grow, and this is where we really have risks.

[Unknown Executive]

So no more questions here, so I'll let you to conclude this meeting.

[Olivier du Chesnay, executive]

So thank you, everyone, for having been with us today. I hope you enjoyed the presentation. We are available, should you want one-to-one meetings to know more about our new strategic road map and our strategy. Thank you so much, and enjoy the rest of the day.

[Jérôme Viala, executive]

Thank you. Bye-bye.