Interview with Mr. Daniel Harari

Fashion/Apparel remains Lectra’s number one market and over the last three years we have strongly invested in innovative 3D CAD and PLM Fashion-dedicated solutions to support the evolving needs of fashion and apparel companies. Fashion/Apparel represents 45% of our total sales and about two thirds of our € 18.2 million R&D budget. Lectra enables fashion companies to reduce their time-to-market, while multiplying their number of styles and, most importantly, produce better quality output, whether that be more innovative designs, improved fit, higher quality or a similar goal. Brands, manufacturers, and specialist retailers are thus able to improve productivity and optimize global production costs to become more competitive and more innovative. Specially created for fashion companies, from ready-to-wear to luxury, Lectra’s technology offer is the most advanced and comprehensive on the market. Our computer-aided design solutions reduce tedious, repetitive tasks, leaving more time for creativity while guaranteeing design integrity. With the shortened design cycle — reduced up to 70% — fashion industrials companies can adhere even more to the latest trends. At the crossroads of creation and production, with Lectra’s production development and prototyping software, more models can be created in less time while the number of physical prototypes is drastically reduced. Meanwhile the quality and good fit of the garments is ensured. Our collaborative, modular, and scalable software offer covers all the phases necessary for the realization of collections, associating state-of-the-art technologies and industry savoir-faire. It integrates our CAD application software for product design, product development, and prototyping, from the initial creative idea to production. Created especially for fashion, Lectra Fashion PLM unites in real time all internal and external contributors in a company’s value chain, wherever in the world they may be, in real time. This allows them to collaborate on the latest version of the collection or product being developed. Lectra Fashion PLM enables managers to control workflow, anticipate decisions, and reach cost price objectives and high performance levels. As part of our commitment to supporting our fashion customers, our solutions are accompanied by a range of high value-added services — consulting, implementation, training and support — provided by our experts. Through this personalized support, Lectra enables its fashion customers to optimize their processes, benefit from the best practices of the profession, and thus reap the full benefits of their technologyinvestment.

The apparel industry is going through a major transformation with many companies quickly shifting strategies, as they try to distinguish themselves from one another. At least three trends are emerging. First of all, a shift towards developing strong brands as a way to stand out in the market place. This is being done by aligning design and production to create concepts in line with the supply chain strategy in place or reinforcing marketing to maintain a cohesive lifestyle concept. Either way, the goal is to both shorten the time to market, and create identifiable distinctive, quality product. Secondly, there is a genuine trend toward sustainable development, which implies vetting suppliers to verify sources and manufacturing methods, and adopting digitally based development workflows to lower the carbon footprint. The most interesting trend is the implementation of lean processes within apparel companies, to take advantage of years of best practices developed within the automotive industry. Today, good strategies must include optimizing production. Many companies are now doing all three: re-inventing design, making it more environmentally conscious, and ensuring profitability through a lean manufacturing process.

India is a fast-developing key market for Lectra. We have established a strong position in India, particularly in the apparel, automotive, wind energy, and aerospace markets. The expanding Indian domestic market is contributing to growth in the manufacturing segment, especially in the fashion and automotive industries, where Lectra has developed unrivaled, worldwide, innovative, and extensive knowledge and best practices with leading global brands and suppliers. The Indian manufacturers have now reached a critical size, and they require local expert support to optimize the benefits of using Lectra’s innovative solutions. Our strong involvement will help Indian manufacturers to implement world-class technologies to stay profitable in the current challenging market situation. We will capitalize on Lectra’s added-value solutions and services to create a clear competitive advantage for our customers and help them turn challenges into opportunities. Considering all these factors, we believe there is a strong opportunity for us in India. We are looking at the most aggressive phase of our presence in India: many Indian companies are adopting technology and looking for solutions that are going to facilitate the growth and profitability of their business. As a result, we see huge potential in India and expect to double our customer base over the next three years.

Lectra has always been heavily involved in their education, partnering with more than 850 schools and universities throughout the world. Lectra equips professors and students with its latest technologies and shares best-practices with them to develop training programs that better prepare students for their future careers. We have developed a close network of “Privilege Partners” composed of thirty top schools. Lectra’s Annual Education Congress is the highlight of the projects established by Lectra specifically for its Education “Privilege Partners”. This event is one key element of Lectra’s push to provide active support to education. The 4th edition of our Education Congress gathered directors, deans, and professors, from around the world and emphasized peer-to-peer sharing and support while also honoring teamwork, design, and 3D technologies. 3D technologies represent a major revolution in the way of working in the fashion industry and a real advantage for design and pattern-making departments. It requires a new way of thinking and a different perspective. There are so many advantages to working with 3D for both design and product development that fashion companies will need professionals who fully understand the benefits of using 3D and how to correctly apply these technologies. For this reason, we believe it is very important that future fashion professional assimilate this new technology as soon as possible. This is why we have decided to share, at an early stage, our 3D technology with our education partners and works closely with them to incorporate 3D in their fashion courses. During the event, some of our education partners shared their experience on how they use Modaris V7, Lectra’s pattern-making and 3D virtual prototyping solution, and the benefits it brings to their students. It has led to rich exchanges on how this very innovative solution can be efficiently taught to students.

For the fashion market in general, we notice a shift in consumer behavior. Consumers want new products more often for trendy looks at a reasonable price. They are also now relying on many distribution and sales channels at the same time; easily shopping either in stores or by e-retail. As a result, many fashion companies are today under enormous pressure to produce interesting styles at lower prices, and to do so faster and more frequently than before. The Indian market is also changing, as it faces a fast growing domestic demand. Thus, it is important for fashion brands, retailers, and manufacturers to quickly address this evolving market situation in an efficient manner in order to capitalize from on seeds of change being planted now. These challenges require a new approach for fashion companies and one that demands an investment in innovation. Lectra Fashion PLM is a solution to leverage talent and boost performance across the fashion development process and supply chain. It pushes back the limits of product lifecycle management by covering all the steps necessary for the creation of collections and bringing together role-based knowledge for product design, product development, and physical and 3D virtual prototyping with tools for planning and management. It helps synchronize the needs of creativity, flexibility, and efficiency in the organization. Modular and scalable, Lectra Fashion PLM meets the needs of medium-sized companies just as well as of large international groups. It can support the major business models in the fashion sector, such as companies who are brand and product oriented, retail and merchandisers, or manufacturing oriented. For almost 40 years, Lectra has managed the complexity of the fashion market. Our PLM solution is a major technological leap forward — we have drawn on best practices developed with customers to profoundly improve upon all the processes the solution covers, making a real difference to the entire value chain. For our customers this means better collaboration, time and costs savings, and, ultimately, increased competitiveness. Lectra Fashion PLM allows fashion companies to deliver the right product, at the right time and at the right price.

Both textile and fashion designers are now expected to produce profitable and technically feasible collections more frequently, while at the same time displaying more creativity. To meet this challenge, they must not only be able to count on powerful tools but also on the know-how of other professionals within the company. Close collaboration involves more specialists early on in the process and enables designers to create collections that are more coherent and better adapted to the demands of the market. Even those involved in creative activities are now being put under pressure to show more productivity. With Kaledo, fashion companies can develop new models and collections using existing elements, capitalizing on their creative assets season after season, while taking new trends into account. They can thus respond to a request for designs or modifications in just a few hours, all the while ensuring the quality of their styles and limiting their costs. Kaledo also provides designers with fashion specific tools to develop and transform creative ideas into production-ready specifications for fashion but also for print, knit, and woven fabrics. Kaledo helps streamline the creative design process. Designers end up with fewer manual tasks - comparative tests have proved that Kaledo enables them to halve the time they spend on repetitive tasks – and - and have more time to design. This translates into reduced sampling costs and shorter lead times for fashion companies. But technology is only half the battle. Knowledge and experience provide the rest and our Professional Services teams step in to make sure that the process is solid first, and then that technology is fully leveraged.

Our cutting solutions integrate an energy saver so that the system is automatically put on a low level of electricity consumption when not cutting. Additional control systems about to be implemented will lower energy consumption even further. In addition, our solutions are well-known for reaching the best results for material savings, be it fabric, leather, or industrial textiles. These material savings also represent a significant reduction in CO2 emissions when applied to annual mass volumes of production — both the energy required to produce the material not used and the energy needed to dispose of scraps. Concerning leather, we can’t forget that the fewer hides used, the less waste produced by chemical treatment, which has it’s a huge positive impact for the environment. Moreover, our expertise in lean manufacturing allow our customers to reduce the non necessary tasks, the level of work-in-progress stocks / finished goods stocks, the through put time, etc. so that at the end, the reduction in CO2 emissions is considerable. Regarding our software solutions, Lectra Fashion PLM helps our customers to reduce costs and avoid waste-generating errors, with our PLM calendaring and workflow functionalities. This allows the users to track individual product tasks and milestones in real time as compared to the scheduled dates of hand-offs and approvals. Lectra Fashion PLM can also address the challenges of sourcing by simulating costs based on manufacturers, freight, ordering costs, to help select optimal production locations, delivery times, and pricing. The result is high-level visibility of individual product development progress as well as delivery deadlines to ensure the integrity of entire collections. The Design and Product Data Management modules of Lectra Fashion PLM support the first steps to sustainable clothing. A product that doesn’t fit quite right or is poorly constructed will be less likely to stay in the wardrobe and out of the trash than one that fits well, has seams that stay together, and whose buttons don’t fall off after just a few uses. Knowledge communication is central to good quality construction. Creating a library of approved construction methods with corresponding diagrams is something that our customers can manage in our PLM system. This information provides a failsafe method of sharing construction information with factories. The result is a better garment built in a more sustainable way. Last but not least, we integrate spectral color technology within our design and PLM solutions which can help companies reduce their carbon footprint while saving time and money in the color validation process for fabrics, trims, and other components. Color standards are measured physically but are communicated and compared digitally. Lectra is a partner with X-Rite who offer color management systems and measurement devices that enable accurate color scanning and monitor calibration. Lectra Fashion PLM supports the X-Rite ColorMunki spectrophotometer which can sample any object to find the closest Pantone match thus eliminating lengthy lab-dip validation processes.

Lectra has recently published its Y2011 financial results. Revenues — $287 million — were up 10% like-for-like, compared to 2010. In 2010, they had already risen 20%, following sharp falls in 2008 and 2009. Given the Worse-than-Expected Macroeconomic Environment, our 2011 performance is all the more remarkable. The rebound in activity led to record financial results in 2011 for Lectra and enabled us to enter 2012 with stronger key operating ratios and a radically transformed balance sheet. The year 2011 ended with a tougher economic, financial, and monetary environment, of unknown scale and duration, in addition to downward revisions of growth forecasts for 2012 and 2013 for most countries. The alternation of good news and bad news, the lack of visibility, and the growing concerns of companies so long as there are still no signs of a sustainable improvement in the economy will weigh heavily on those companies’ investment decisions. Our clear and ambitious 2010-2012 strategic roadmap, formulated at the end of 2009, amply demonstrated its pertinence in 2010 and in 2011. In addition, Lectra has continued to invest in R&D, and we have renewed and expanded our technology offer. Today, overriding objectives of the company remain unchanged and we have decided to continue to focus on our long-term strategy. Our first established priority is to bolster our roadmap for accelerating our growth and our capacity to create value for our customers. The strengthening of Lectra’s sales and marketing teams and the continuation of our steadfast investment in R&D constitute the keys to accelerating the company’s full-scale transformation plan over the next 24 months, so as to enable us, as soon as the economic crisis ends, to fully realize our growth potential in our most promising geographic markets and market sectors. Bolstered by its performance in 2011 and with the pertinence of its 2012 action plan, Lectra is confident in the strength of its business model and its growth prospects for the medium term.

You are welcome.

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