COMPANY BACKGROUND & STRATEGY...4 key technologies of Industry 4.0 (cloud, big data, IoT, AI) in its...

May 2020

COMPANY BACKGROUND& STRATEGY

Lectra - Company background & strategy - May 20202

n Who is Lectra?

n Lectra 4.0 strategy

n Strategic roadmap for 2020-2022

n 2020 revenues and earnings impacted by the COVID-19 virus

LECTRA COMPANY BACKGROUND & STRATEGY


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


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


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


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


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%


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%


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


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


n Who is Lectra?






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 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 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 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 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 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


n Who is Lectra?






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.

April 29, 2020 update: While most of the objectives of the 2020-2022 strategic roadmap remainvalid, and particularly the acceleration towards Industry 4.0, the growth objectives for the endof the period will have to take the consequences of the COVID-19 crisis into account. Lectrawill update its objectives when it considers that visibility has returned to a sufficient level.



FOUR STRATEGIC PRIORITIES

Accelerate organic growth

1Strengthen customer

relations

2

Extend the offers for Industry 4.0

3Develop new areas for

growth

4



REINFORCE PROSPECTION AND SALES OF NEW PRODUCT LINES TO EXISTING CUSTOMERS (1/2)


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



REINFORCE PROSPECTION AND SALES OF NEW PRODUCT LINES TO EXISTING CUSTOMERS (2/2)


Extend the range of products used

More

productsMore

customers



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.



DEPLOY CUSTOMER SUCCESS PROGRESSIVELY


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



CONSTANTLY ENSURE CUSTOMER SATISFACTION


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%



PURSUE THE POLICY OF INVESTMENT IN R&D

11 to 12%


= 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



BRING MORE VALUE TO 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



TRANSFORM INTERNAL PROCESSES TO SUPPORT THE ROLLOUT OF SAAS OFFERS


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



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



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



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

April 29, 2020 update: Theseobjectives will be reviewed assoon as visibility returns to asufficient level.



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




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



n Who is Lectra?






2020 revenues and earnings impacted by the COVID-19 virus

Q1 2020: REVENUES AND EARNINGS IMPACTED BY THE COVID-19 VIRUS

Lectra has maintained the continuity of all business operations:implementation of the necessary hygiene and distancing measures,remote working system for all employees whose physical presence onsite is not required, manufacturing and worldwide delivery ofequipment, consumables and spare parts, after-sales support for itssolutions, …

n Orders from software licenses, equipmentand accompanying software, and non-recurring services: €19.3 million (-28%)

n Orders from software subscriptions1: €0.6 million (+51%)

n Revenues: €63.5 million (-6%)

n Income from operations: €5.1 million (-39%)

n Net income: €3.4 million (-41%*)

n Free cash flow: €3.7 million

After emerging in China in December 2019, the health crisis quicklyspread across the world in March, causing a global economic crisisof unprecedented proportions.

Change like-for-like (unless otherwise indicated*: change at actual exchange rates)1 Annual value of new software subscription orders

April 29, 2020 update


2020 revenues and earnings impacted by the COVID-19 virus

2020 WILL BE MARKED BY THE COVID-19 CRISIS AND ITS CONSEQUENCES

Lectra is financially equipped to deal with a temporary or moresustained reduction in its business activity:

n Particularly robust balance sheetn Net cash of €124 million at March 31, 2020n Proven business modeln Very high percentage of recurring revenuesn Cancellation or postponement of non-essential expenses

(initially budgeted to increase fixed overhead costs by 8%)n Temporarily modifying the assignments of those teams

whose current workload is the most affected

Lectra intends to maintain its entire R&D effort, has decided notto put in place short-time working arrangements and not tobenefit from any financial support from the French government.

At this stage, while the consequences of the crisis arealready apparent in Q1 business operations and financialstatements, it is difficult to predict the impact over the restof the year.

The greatest impact, however, could be expected inQ2, which could see a sharp decline in revenues andin income from operations.

April 29, 2020 update

The Group's business activity should rebound after thiscrisis; however, the date and extent of the rebound aredifficult to estimate, due to the uncertainties regarding howthe pandemic will evolve.

Investor relations

[email protected]

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