Good morning, everyone. I'm François Bordonado from 3DS, Dassault Systèmes investor relations team. From the company, we have Bernard Charlès, our Vice Chairman, Chief Executive Officer, and Pascal Daloz, Executive Vice President, Chief Financial Officer, and Chief Strategy Officer. I would like to welcome you to Dassault Systèmes' second quarter 2018 earnings presentation, which is also being webcast. At the end of the presentation, we'll take questions from the audience and from participants on the webcasted call. Later today, we'll also hold a conference call. Dassault Systèmes' financial results are prepared in accordance with IFRS. During 2018, the first year of implementation of IFRS 15, we're providing IFRS financial information on both an IFRS 15 and IAS 18 basis. All figures and comparisons during the presentation are under IAS 18 and are on a non-IFRS basis, with revenue growth figures in constant currencies, unless otherwise noted.
We have provided supplemental IFRS 15 and IAS 18 non-IFRS financial information, and IFRS and non-IFRS reconciliation schedules are in our earnings press release. I know this transition year will be a little bit complex in terms of reporting. Some of the comments on this call will contain forward-looking statements that could differ materially from actual results. Please refer to today's press release and to the risk factors section of our 2017 Document de Référence. Let me now introduce Bernard Charlès, our Vice Chairman and Chief Executive Officer.
Good morning. Thank you for participating to this event. I think we are seeing, in the second quarter, the confirmation of what was presented in the first quarter. From that standpoint, the dynamic continues to be a very good one. I'm going to share some insight about that with Pascal. What are the takeaways of the announcement today? First of all, the organic growth of the license revenue is up 10%, excluding exchange rate. And as you can see, the 3DEXPERIENCE platform is on a very strong dynamic, 27% growth, with double-digit growth on multiple brands, CATIA, SOLIDWORKS, ENOVIA, SIMULIA, DELMIA, and GEOVIA. I think it shows a quite well-spread source of revenue. To be noticed, high-growth countries is up 21% on core industries, T&M, transportation mobility, CPG, marine and offshore, AEC, natural resources, also double-digit growth. Those are for the numbers.
If you look at the implementation of the strategy, clearly the 3DEXPERIENCE platform is becoming more and more recognized as a platform for our clients to build their platform business. We'll come back every quarter on that topic because we believe it's a very significant differentiator, and it's a possibility not offered by any of the other competitors. Once again, to provide to our clients business platforms, not only for innovation, but to create new business models. Therefore, they can change their own business model to serve their clients. There are many illustration of that. We will come back on it. The industry expansion on the diversification, fashion, retail, consumer goods. We are pleased to confirm today the acquisition of 63%, I think, of the shares of Centric Software, which we will call Centric PLM.
There are two names for the company, the company name on the offer, the name of the offer. As you do understand, we want to position the offer brand name in a clear way on the Dassault Systèmes brand portfolio. That's a very good move, and if you remember, the acquisition of the remaining shares will be done year two or year three. Pascal will come back on those conditions. The acquisition of No Magic was also closed this quarter. This is a very specific technology, but a very important one for cyber system. Cyber system is not only about defense. Cyber systems is what you find for autonomous vehicles, drones, smart equipment. They are becoming cyber systems, which means governed by software on electronics. We want to be the reference platform for that sector, and No Magic is a move to accelerate that positioning.
We are reconfirming the full-year plan on adding the revenue contributing from No Magic Centric Software. We are also upgrading the EPS in accordance to the currency upside that you will see in a moment in the Q2, and thanks to the lower tax improved EPS in the second quarter. Strategy at work I think there is something happening in the world industry, which is far beyond digitalization of the industry in every sectors we serve. That phenomenon is extremely significant and visible. Here are the points that should be taken into consideration. If you look at the aerospace sector, they are going through a digitalization process, which is very different from what was done in the past century. It's about redefining the offer and the way they provide solutions to airline operators.
If you look at the space sector, deliveries with drones, new type of air mobilities, new type of electrical airplanes, they are creating those new companies, new categories of products for new categories of consumers. That has not been seen for a long time in the industries, and it's happening in every industries. You see here an image of a modular vehicle that will be used for commercial deliveries within cities. It's a kind of Lego vehicle. Think about it. You see those companies now being funded, being developed, providing these new categories of products never done before. This move to redefine what we call industries, whether it's healthcare, architecture, construction, cities, apparel and luxury, infrastructure. We are the catalyst and the enabler at Dassault Systèmes to make this happen. There are less and less competitors to provide the proper solution to this sector.
I call this the industry renaissance. It's the capacity to connect disciplines which have never been connected together. We are communicating that to the world this year in all forums that we host across the different geos of the world. We are mid-year, and I can tell you it has been extremely well understood, accepted by our clients going through the worldwide tour we did in the first half of this year. We are going to continue to do that in India and in other countries, China, and other countries, between now and year-end. Digitalization started 30 years ago. Today, digitalization is touching everything, including retail, including the way you buy, you sell. The next is the way you produce things. This is an example of 3D printing.
To do so, we have created a platform which is uniquely positioned to operate highly sophisticated industry solutions and to help clients to build new business models for the service they want to deliver. We call this 3DEXPERIENCE to run industry solution, and 3DEXPERIENCE to trade and do supply value network, sell and buy, on the same platform on the cloud can do both. Here are the significant programs around the globe which are aimed at redefining those countries' industry policies. You will see a video that illustrates that very well in one of the countries. It is happening in all those countries around the world. We are setting up competency centers, innovation centers, financed by government or industry consortium to showcase those new possibilities. The number of programs here are significant.
By the way, all the programs which are represented here, we are part of those programs. You have two pictures here. One is illustrating the innovation center in the middle of Beijing, China. It is a building, four-floor building. In every floor, you have demonstrations on actual use of 3DEXPERIENCE in action for different industries. It is aimed at opening the eyes of the different industry sectors to understand what is possible. Quite impressive. It was opened second quarter, it is not on our own investment. It is an industry consortium. We invested in the building, the infrastructure, and everything, we power everything with our software. On the right, you have another very important next generation center for the future of aerospace, this is the Aerospace 3DEXPERIENCE Innovation Center in the center of America.
This was a result of the Obama plan of $500 million investment, you are going to see this video now.
We strategically designed the 3DEXPERIENCE Center so that we could bring our customers, whether they are an OEM, a supplier, or even a startup They can perform their experiments, their research, their training, their demonstrations without having to make an investment like we have made here. We can take the system of work that typically is 3 to 5 years for a UAS, our mission is to take that 3-to-5-year life cycle down to 90 days. We have the right tools. We have the right processes, methods, libraries, the right platform, the expertise of our partnership with NIAR and Wichita State.
The 3DEXPERIENCE Center really pushes the envelope. If we can do things in a virtual world and have it certified in a virtual world, that means less testing in the real world, and that's really the core of what we're trying to do here. The university and the 3DEXPERIENCE Center here on the innovation campus allows these industries to step away from their normal day. It challenges a good engineer to be the best engineer he can be. Give them all the tools necessary to solve some of the most complicated problems.
As we begin to look at how our engineering centers are set up around the globe, having the ability to collaborate through a system like the 3DS really brings our engineering capability to the forefront. I think that will become revolutionary within the industry. The 3DEXPERIENCE Center can help us streamline our tools and our methods and our processes. It'll help us develop an integrated digital solution for the aircraft, both in terms of the 3D configuration, but also all of the analysis tools that also integrate into that. That can help us increase and become more efficient in the way we develop airplanes.
In fact, that you have seen in retail on all the sectors of the economy, transport, and so on, is going to happen in the industry. Of course, when we announced on February 9th, 2012, the 3DEXPERIENCE strategy on the approach, it was aimed at doing that, but now we see it in action. This center is really demonstrating today that the three years long program can be reduced to 90 days. Don't be surprised, in every intensive, extensive capital investment programs, we can see now startup coming in and changing the rules of the game. You see that in transportation, mobility, aerospace. Never seen before. Never seen over the last six years. The performance from the revenue standpoint, you have all the numbers here. The license growth, excluding FX revenue, is 10%.
On the key decisions this quarter, Scania, Turkish Aerospace, Land Rover, ExxonMobil, a huge program, and I will talk about that, EDF, Bridgestone. As you can see, the 3DEXPERIENCE license revenue is up 27%, excluding exchange rate. How can the 3DEXPERIENCE platform be used for capital project management and capital asset management? You remember at the beginning of the year, I was quite provocative. I said, "We have decided to win in the AEC, architecture, engineering, and construction market." We have decided, we are going to do it. We are winning in the big programs for cities, infrastructure, on very capital-intensive programs. Those programs that you see here, engineering, procurement, construction programs, or very large programs, they are not digitized yet. They use drawing systems.
They use very old Excel-based quantity management systems. We are using the platform to change those industries in a big way. This is another example.
Welcome to the future. Through collaboration and leading innovation, Dassault Systèmes has ensured companies have the flexibility to survive in a rapidly changing energy, process, and utilities industry. Faced with the growing complexity of legacies and modern assets, companies must continually align product supply with the changing demands of their customers and the wider public. A fully integrated engineering environment has successfully delivered solutions, all uniquely tailored to the individual challenges of specific industries, made possible by Dassault Systèmes 3DEXPERIENCE platform.
Why not creating large infrastructure project which cost billions of EUR around the world like reconstruct their cities? That's the offer, that's what we are doing right now. We had the World Cities Summit two weeks ago in Singapore. 37,000 people came there. The showcase was the Dassault Systèmes 3DEXPERIENCE platform for the Singapore city-state on the illustration that it could help manage the evolution of the city itself, including the quality of the services. Few weeks ago, you saw the press release on what we announced with Jean-Bernard Lévy from EDF and with Paul Hermelin from Capgemini. We were selected as the platform to transform the nuclear energy sector. You can understand that those sectors are long-term conditional energy sectors. You have to think that nuclear is going to last at least one century.
It's a transitional energy, not for a presidency cycle, for a century cycle between renewal and between transition of those projects, including, of course, the quality of operation and the safety of things. We are becoming the standard in the nuclear and energy sector from that standpoint. Another illustration that is announced today is ExxonMobil, where they are having huge infrastructure around the world and want to use the data analytics to manage facilities and reduce the cost of engineering upstream, downstream business units, full asset management, workflow management process, digitalization of all those installations, of course, 3D model for equipment replacement and maintenance.
Those are very good illustrations about why the platform has moved from being a tool for design, engineering, and production, to a business platform to connect all actors in terms of activities that they have to do to be optimized to serve the companies or the clients they are serving. On the SOLIDWORKS side, the question is very simple. How the 3DEXPERIENCE platform is bringing value to users who love SOLIDWORKS as a design tools and want to discover the value of having cloud services online. We're going to, on the second half of 2018, introducing on the market the connection between SOLIDWORKS and 3DEXPERIENCE to provide collaborative services, PLM services, all on cloud, nothing to be installed for the SOLIDWORKS users, as well as, of course, opening to them the possibility of marketplaces. What does it mean? You have done a design on SOLIDWORKS.
One click away, you can produce your part anywhere around the planet, and you can have an immediate evaluation of the cost to produce it. Whether it's laser cutting, three-axis, five-axis machine, or 3D additive layer manufacturing, whether it's metallic printing or plastic or any kind of material science. You can do that for human prosthesis. An example is the startup called BioModex, a French startup, who is using that platform to really produce prosthesis for humans so a surgeon can evaluate the practices they are going to apply before they actually go in the surgery room. Those are very precise illustration of the power of the platform on the cloud to provide new ways to deliver services to those industries. Centric Software acquisition, this is a very cool, exciting one. Beautiful pictures, of course, in the world of luxury and apparel. They have the best logos.
They have Louis Vuitton, they have Gucci. Many of the best logos of the world are already their client. It's a startup company, EUR 61 million revenue. They grow about 50% a year. That's why they did not wanted to sell us 100% of the shares, I guess. They said, "You get 63%. On the rest, we want to get upside in year two and year three." That's fair. It's okay. We put the proper criteria. If they are successful, we'll be happy to pay for the remaining 37% in year two or year three. They are based in California. Chris, the founder, is a good friend of mine for 20 years. I've been trying to buy his other companies for the last 20 years and never made it. This time, we came to an agreement.
This is creating a standard for this industry, which is a very fast-growing industry, too. The positioning is very clear in the Dassault Systèmes branding system. It's Centric PLM. It focuses on consumer goods and retail, and they have their own direct sales force. All customers we contacted are extremely pleased with that decision. In fact, many of the big players, like H&M, said, "Well, two years or three years ago, we refused to buy this solution because the company was too small. Now being part of Dassault Systèmes, we feel safe for the future." It's not pre-announcement, just customer testimony. What do they do? Okay. Everything which is related to companies doing collections, spring collection, summer collection, autumn collection.
How do you organize yourself to have a collection ready on time when you source textile on different pieces around the globe, and you want all this to be coordinated globally in less than four or five months? That's what they do. It is a PLM fully adapted to source, create, design, engineer, manufacture, prepare the data for marketing and sales, and comply with the different countries' size of Asian profile will be different from European profile. It is extremely complex. This is what they do, and they do it extremely well. We are very pleased to have now this solution in the portfolio. The last comment I want to do in terms of acquisition, it is a very, very strategic acquisition. It is NoMagic, but it is magic.
The name is NoMagic, but it is really magic, because it is a technology that will help our customer do extremely smart, highly integrated products that contains physical parts, electronics, and software, because everything is becoming an integration of software, electronics, and mechanical systems for what we call smart things, like autonomous vehicles, drones, airplanes, and so on. We call this the cyber physical systems. We want to be the world leader there. NoMagic is the reference. It is used by the DOD, Department of Defense of America, DOE, Department of Energy, everywhere in their applications. It is going to be part of the portfolio. The cyber physical system is a major extension of our portfolio. NoMagic is now part of Dassault Systèmes. We plan to leverage that. With that, I give the floor to Pascal.
He will tell you what are the impacts of those acquisitions and also give you an update about what the full year program. Pascal, you have the floor.
Thank you, Bernard. Welcome to all of you. Always a good pleasure to be with you at that time. To follow up what Bernard said, you remember Centric Software, it is a two-step acquisition. We just acquired 63% of Centric Software. The payment, we did the closing yesterday. In fact, last night, to be more precise. The payment in cash is around EUR 350 million. Keep in mind that as part of this price, you also have an advance payment for the shareholders keeping their shares. It is not only the price for the 63, it is also an advance payment. We will buy the remaining piece in the 2020 and 2021. The price will depend, in fact, on the revenue growth and the profitability in 2019 and 2020. We will do an average for the two years.
The multiple will be in a range of 3-6x the 2019 and the 2020 revenue. This is for Centric, and we expect this acquisition to be slightly dilutive for the full year. The main reason is the following. In fact, the two largest quarter for them are July and January. Unfortunately, we are closing this acquisition the 24th of July, so we will have not too much we'll have in our book for the third quarter. January will be in 2019, not in 2018. This is basically the reason why this acquisition is slightly dilutive. We have, obviously, the cost. For No Magic, we completed the acquisition in June 20. The revenue we integrate on the second half of the year is EUR 6 million, with a neutral effect on the earnings.
170 employees are joining, in fact, Dassault Systèmes this month. This is for basically the acquisition and how you have to deal with it. If we zoom on the Q2 and H1, I think in general, it's a good start for the year. We told you this last time, but here we have the confirmations. It's a good start because not only we are delivering what we committed to do, but also this is putting us in a good position to deliver strong earning growth for the full year. In fact, if you look at Q2 and Q1, they tracked each other very pretty closely. It's a good demonstration that basically Q2 is almost in the same momentum than Q1. To zoom on it, the top line growth is 8%, with a revenue at EUR 840.3 million.
An operating margin of 30.2%, with a margin expansion of 0.1 points for Q2 and 0.5 points for the first semester. An EPS for Q2 at EUR 0.72, plus 16%, and if you exclude the currency effect, plus 22%. It's a combination of basically this margin expansion and the lower income tax and also some good financial results. Now, if we zoom a little bit more on the revenue per regions, I think the good news is coming from Asia. You remember last year we were behind a little bit in China. Now we have the proof that we not only recover the situations, but we are demonstrating a good dynamics. This good dynamic in Asia is across all the different countries. China, Japan, South Korea, India, and AP South.
All of them, they have a double-digit growth for the first semester as well as the Q2. We also have a good momentum in Americas, 9% for the semester, 7% for this quarter. Keep in mind that last year we had a very good quarter. The Q2 quarter was very good. Clearly we have some base effects for the second quarter. Europe is still at 6%, consistent with the first quarter. In fact, if you zoom a little bit, Europe is almost split in two different parts. You have the Source of Europe driving the growth, with the double-digit growth, as well as the east part with Russia. We have a much more modest growth in what we call URS, France, Germany, and EU North, which is basically Great Britain and the Nordics. This is for the regions.
Per brand, the good news is you take all the major brands we have, CATIA, ENOVIA, and SOLIDWORKS, and all of them, they have a double-digit growth in terms of license, so that's the currency effect. For CATIA, it's across all the different regions, so it's relatively consistent. For ENOVIA, the double-digit growth is coming from the diversified industry as well as the core industry, so it's a solid one. For SOLIDWORKS, it's the same. It's almost all the regions of the world. If you remember last year, we had a very good year with SOLIDWORKS, and I will come back to this specifically for the Q3. Other software are also growing well, plus 13% for the first semester, 11% for the second quarter. The growth is driven by DELMIA, SIMULIA, as well as GEOVIA, and I will make a zoom on DELMIA afterwards.
Overall, the growth for the software, 9%, aligned with the expectations, and again, consistent with the full year. A proof of basically the strategy we have developed with industry solutions is this one, Safran Electronics & Defense. I like it because you remember, we are telling you on a regular basis that when we approach our customers with an industry solutions, methods and offers, we are dragging basically all the different solutions, all the different application, all the different brands together. In this specific case, Safran, they bought from us a few solutions, business operation excellence, Co-Design to Target , Smarter, Faster, Lighter. Those are three well-known industry solutions for the aerospace sectors. Automatically, they are basically part of this value proposal. You have CATIA, DELMIA, ENOVIA, EXALEAD, and also SIMULIA.
It's a good test case and proof point that basically when we enter with industry solutions, the sum of the part is much bigger than the part itself. A quick zoom for this quarter and this first semester is DELMIA. Why I want to zoom on it, for a few reasons. You remember last year when we spoke about the Boeing win, we told you that it would have been almost difficult to make this win without having a strong value proposal for the manufacturing space. Because this is where this industry basically is facing the major challenge. We, I think, over the time with DELMIA, combining the digital manufacturing, the manufacturing executions capabilities, in conjunction also with the scheduling and the planning coming from Quintiq, we have built, I think, a unique value proposal. Here you have the proof.
For the first half, the organic growth for DELMIA is plus 17%. It's driven by almost all the industry, but especially the core industries, wherever the tires, the automakers, including the new entrants, by the way, Faraday Future, for example, this quarter, and also the aerospace and defense. The proof point of this is Bridgestone. You know very well this company, they are developing the rubbers and the tires. We won them in the U.S. last year. Here it's basically the European part, having decided to adopt our solutions. They have decided to adopt not only the DELMIA manufacturing execution system, but also the Quintiq part. It's basically the scheduling and the optimization in conjunction with the manufacturing execution systems.
We had almost all the traditional players, the competitors in front of us, and we have been able to displace them because what we have is unique on the market. Let's zoom a little bit more on the financials. The software revenue growth for the second quarter is +9%, excluding the currency effect, in line for the first semester. It's an organic growth of 6%, which is consistent with our guidance we gave to you for the full year. If I zoom a little bit more, and I do the split between the license and the subscriptions, the license is growing at 8% for the second quarter, 10% for the first half, and it's an organic growth with no contribution from the M&A of the license. On the subscriptions, the growth is finishing at 9%, consistent for between Q2 and H1.
It's a good demonstration of the good renewal rate we have with our customers. The organic growth is 6%. The rest is coming from the acquisition we did last year, Exa Corporation. The services revenue is improving. We are still behind our expectation, and we are EUR 6 million behind what we planned to do. Nevertheless, it's a slight improvement compared to the Q1. The main reason are always basically the same. There are two key explanations. One is we have this 3DEXCITE, this acquisition we did a few years ago. They are acting like a digital agency, and we are transitioning their business model towards a technology approach, which is much more software-centric, and this has definitively an impact on the services growth. The second reason is we are more and more transitioning the services activities to system integrators.
You saw in Bernard's presentations, we are talking about EDF. It's a joint approach with Capgemini. ExxonMobil, it's a joint approach with Accenture. This joint approach and joint sales with large system integrators is gaining more and more traction. It's key for us because it's a way to scale. The good news in services, anyway, is we are facing a double-digit growth in all the services related to the 3DEXPERIENCE. This is basically the key point. On the operating margin standpoint, here are the points. An organic improvement of +1.6%, which is significant, in fact, and sufficient to absorb the currency effects, -0.7%. The acquisition effect, the dilution coming from Exa, -0.4%. For an average margin for the first half of 28.7%, compared to 28.2% last year.
This obviously is reflecting automatically in the EPS, we have an EPS growth of 16%, 22% if you exclude the currency effect. As I told you, it's a combination of not only this margin expansion, but also some tax benefits, because compared to last year, the tax rate has been decreased from 33.3% to 28.3%. It's a significant improvement, and this is reflecting automatically in the EPS. EUR 0.72 compared to EUR 0.62 last year, EUR 0.10 in addition. On the cash flow, it's a record because EUR 645 million cash flow for the first half of the year. Increase of 9% compared to last year, it's really driven by the operating, by the activities. Few comments, anyway. On the acquisition side, you have this EUR 79 million cash out. It's not only the NoMagic acquisitions. NoMagic is part of it.
Also we acquire the remaining shares from 3DPLM for EUR 26 million. The EUR 26 million is coming from other things. We have also some complements in term of price for small acquisition we did last year, Exa and others. If we zoom a little bit more on the details, I think there is one point I want to draw your attention, is basically this increase in unearned revenue. You see positive changes compared to last year. It is +8% if you exclude the currency effects, compared to 6% organic growth. Why I'm telling you this? Because, in fact, it is a proof that we had a good business condition, I would say, at the very end of the quarter. This is the reason why you have this unearned revenue increasing.
The second point is this changes, minus EUR 50 million on the decrease in income tax payable. There are two effects. One is lower tax charges in the U.S. for 2018. The variations is having an impact. The second one is higher tax income we have to pay in Q2, and it was the 2017 tax income we have to cash out on this quarter. If I zoom on the objective for the full year, I think you will see it is a good momentum. We are increasing the revenue by EUR 55 million. Here you have the split. EUR 21 million is coming from capital gain, -EUR 14 million coming from the counter-performance of the services, but largely offset by a much better performance on the software side, +EUR 15 million. The contribution of NoMagic and Centric Software, EUR 33 million for the full year at the revenue level.
The net of this is we are adding 1 point growth on the revenue side compared to the previous guidance. On the EPS variations, it is +EUR 0.12 overall, and the range is between EUR 2.95 to EUR 3.00. Here you have the splits. EUR 0.03 is coming from the currency impact, positively. EUR 0.07 is coming from the activities, and EUR 0.03 coming from the tax rate improvement. You have a slight dilution coming from Centric Software, EUR 0.01. Overall, we are gaining in term of growth, 4 points compared to the previous guidance. This range is also interesting to notice that, if we achieve the high end of the guidance, the EUR 3.00, and we are confident, we will be in a very good position to achieve the targets we gave to you for 2019.
You remember 5 years ago, Thibault stated in front of you, and he said we are going to reach EUR 3.50 in 2019. If we are landing at EUR 3.00, we are in a very good position to achieve and deliver it. It is too early to declare the success, but I think we are in a good position. Zooming in on the objective for the full year, let me make some comments. On the revenue side for the full year, the revenue is now between EUR 3,410,000,000 and EUR 3,440,000,000. If I split the growth, between 9%-10% is coming from the software, 9%-11% from the license, and 9% from the recurring. It is pretty consistent. On the operating margin level, we are planning to achieve between 31.5% and 31% operating margin. Here you have the detail. The acquisition dilutions is around 1 point.
In fact, half is coming from Exa and the rest is coming from the new acquisitions. You have 0.3 points coming from the currency. The tax rate at 29.1% for the full year and an EPS growth of 10%-12%, and including the currency effect, 15%-17%. It is good things. We are not changing the currency rate for the second half, still 1.2 and 135 for the JPY and the USD. If I zoom on Q3, and this will be my last comment, François, to be on time. The revenue, we are giving the guidance between EUR 805 million and EUR 825 million. A growth excluding the currency effect between 8%-11%. If I split this growth between software license and recurrent, you have the detail, 9%-10% for the software, 6%-9% for the license.
The reason why I am giving a larger range, it is because you remember last year, we had a fantastic quarter for SOLIDWORKS, with a 16% growth for the software and more than 30% growth for the license. We have a base effect, and I want to take this into account. The recurring is really pretty stable and again, it is a good demonstration of our ability to manage a renewal rate. On the operating margin, few comments also. We are giving the range of 29%-30%. Here you have the details. The acquisition will have a dilution of 1.5. Again, same story, you have half is coming from Exa and the rest is coming from the new acquisition we are doing.
The reason why we are giving an operating margin with a range of minus 3 to minus 2 points is because we have to catch up some investment. We are relatively late in the marketing spending compared to last year, and we want to accelerate our marketing program on the second half of the year in order to fulfill the growth for 2019. Also we have to catch up the hiring because you have seen we have a significant organic improvement on the EBIT level for the first half, and the reason is because we are a little bit late in term of hiring, so we want to catch up. Same story, because we want to be ready and fully in operation for 2019, and it is the time to do it.
The EPS acts between EUR 0.64 and EUR 0.68, and an EPS growth between 0%-6%, against consistent for the full year. I think those are good objectives. It is not only a reconfirmation of what we told you, it is updating because we are taking into account the new acquisitions, but also we are upgrading because we have this tax improvement and some financial contributions. Ready to deliver a strong earning growth for the full year. That is it. Bernard and I will be ready to take all the questions you have. Just this once, we will start with the conference call.
Our first question comes from Stacy Pollard from JPMorgan.
Thank you. Three questions from me, please. First, 3DEXPERIENCE seems to be gaining traction. Do you think it is the platform that is key for you moving into new verticals, or is it more about industry-specific functionality? Second question, some of your competitors are pushing more cloud product. Can you talk about what you're experiencing there? I know you mentioned SOLIDWORKS and Marketplace. Perhaps you could discuss cloud trends across other product areas too. Third, services was still weak in Q2. I thought 3DEXPERIENCE would be heavier on services, but are you saying that the use of third-party systems integrators is offsetting that? Really, how should we think about the midterm growth for services revenues?
Thank you very much. The first question about 3DEXPERIENCE on the stimulating factor for clients' decision. I think it's both the industry solution performance, it simplifies the process in a big way and provide integration that they had to do themselves before, and cost them a lot of money. When you buy multiple pieces, you have to put them together to do what we call digital continuity. That's a given with our industry solutions. A few example of that, very briefly. When the new design and engineering process are changing for additive layer manufacturing, it does integrate design on simulation, for example. If you do not have a deep integration, you cannot do it. In every industry, you will find similar reasons to select solutions versus isolated capabilities.
The platform effect is both an accelerator on a process that is in some way slowing down what could be our full power growth, adopting the platform for large companies has to be orchestrated. There is no doubt that most of the decisions which are done today by our customers are driven by the platform aspect. Why? First, they have a lot of legacy software, those companies. What means homegrown development that they want to remove because it costs them a lot to maintain. They want to replace them by ready-to-use solutions. We see that trend going across all industries. The second remark about the platform is the fact that they know they have the freedom to use the software, as we say, on-premise, or use the software or use the cloud whenever they want.
The cloud is especially interesting for the suppliers or for very dedicated, specialized projects. Which leads me to the second question about the cloud. Yes, we are very familiar with the fact that the competitors, landscape, are promoting what they do in cloud. I think our solution is simply superior by far. Why? Because we are the only companies to provide the same platform, whether you put it on-premise, meaning inside your IT infrastructure, or you use it on the cloud, public or private. No one else in our sector provide that, and this is a strategic advantage for clients. There is another reason. The platform is also the same platform for trading, what we call the marketplace. No doubts that the platform is a significant catalyst and an enabler for the digital transformation.
The third question, I will leave it to Pascal related to the service. I just want to notice that this quarter we announced and we made it visible that the cooperation with Accenture and with Capgemini for all the nuclear ecosystem integration, and with Accenture, with Wipro and others around the world are bringing very good results, and we want to expand that.
Stacy, to answer to your two questions. The first one, I already basically give some answers because if you have seen my slide, we are expecting, compared to the previous guidance, minus EUR 14 million on the services side. In term of growth, it's a range between 5% to 10%, 11%. Okay, depending on where we see. Nevertheless, we see some improvement. On the 3DEXCITE side, we have been penalized in first half of the year by General Motors because it's a large customer for 3DEXCITE in the U.S., and they were relatively late in their ordering for the services for the first half, and we will catch up. Also, we are seeing more and more services tractions from Boeing as well. Basically, the situation is improving.
I still want to be cautious because I think delivering better software growth, I think it's probably more important for you. Related to the system integrators, you remember right now, when I computed the number, in average for the direct sales, you have 6% of the revenue being sourced through the system integrators. We are improving, in fact, because few years ago, it was close to 2% to 3%, and our goal is to be at 10% next year. This is improving, but do not expect that more than 10% from the lead will come from them. We are basically the lead generators. Where there is a significant change is right now you have 30% of the engagements, which are joint engagement with larger system integrators by Capgemini, Accenture, Deloitte. We expect that for the direct engagements, this number will reach 50% in the coming years.
Thanks very much.
Next question, please. Adam.
Our next question comes from Adam Wood, from Morgan Stanley.
Hi, good morning. Thanks for taking the question. I've got two, please. First of all, on the license trajectory through this year. We've seen a slowdown in the new license growth from 2Q versus 1Q, and you're guiding again to slow down in the third quarter versus the second quarter. We need a pretty big pickup into the fourth quarter to get to your full year guide. Could you maybe just talk a little bit through why you have the confidence that's going to happen in terms of the pipeline and the business you're seeing? And maybe also just clarify the 9%-11% guide for the year. How much of that is organic? So basically, how much does Centric contribute to that to get you to 9%-11%?
Secondly, just looking at these deals that are coming outside of the traditional areas, so the deals with Exxon, EDF, Bouygues. Could you maybe just give a little bit more of a feel for how much pure design software is being sold in those contracts versus how much is the platform and the other applications? If there's not very much design in there today, what's the opportunity to backfill that over time as those companies adopt the platform and start using it? Thank you.
Pascal, new license growth?
Yep. First of all, Adam, I want to come back to your point because you are challenging a little bit the license growth for Q2. Frankly speaking, 8% organic growth, 10% for the first semester, I think it's not so bad, as you say. Compared to the consensus, we are EUR 2 million below the high end. I just want this to be clear that the momentum is relatively good. I also gave to you some very important messages. When I was commenting the cash flow, I say you should pay attention to the unearned revenue. You have seen a EUR 9 million positive increase. This is nothing more than the revenue we have to recognize in the coming month, because the more we are engaging on the large projects, the more also we have some time, some dependency on the services we have to fulfill.
By the way, this is the reason why we are partnering more and more with system integrators to have this capacity and this capability to scale. Now, coming back for the full year, the license growth is at 9%-11%, which is a good growth. The contribution of the different acquisitions, I say EUR 6 million for NoMagic and EUR 27 million for Centric Software. If I remember well, for NoMagic, you should take half, which is basically the recurrent part, and for Centric is two-third of the numbers are new license. I think with this, you will be able to compute very precisely the performance on the new license. Related to the new contract with the platform versus the design part.
Thank you, Adam, for mentioning in your question that, of course, all those decisions are platform decisions, which basically does not contain design tools, yet will ultimately. At this point in time, what do they do with it, ExxonMobil? They use the platform to build the single source of truth of all the digital data they have for project or asset management, and create the digital data twin, not the design twin, but making sure they can capture all data for project and program organization in a consistent way so they can manage all suppliers and actors which are involved in that process. That does represent significant upside because you can imagine that for all future projects, they will use the same platform and then will ask their providers, engineering firms or design firms to use our design tools or simulation tools to do so. Same case with EDF.
I was looking at the news this morning just as we were presenting about the Flamanville project being postponed for the commissioning. You have to know that we started with EDF about 16 months ago to help them use the platform to collect all data for the commissioning, which is basically the certification process before you open and you start the nuclear reactor. It has been a major help, and it was started only 16 months ago.
Which basically provides higher quality of data integrity. Obviously, more should be done, and I am convinced, and Jean-Bernard Lévy mentioned that for the multi-billion contract with Hinkley Point C, which will be the first project where everything will be integrated up front, which we believe is going to be a significant improving factor for productivity on large program management, specifically with the massive investment which it does represent. That's a side note, but it's a good concrete example about why platforms are now required to really transform these very capital-intensive projects. It's billions over many years on the digital experiencing of the twin to plan, track, and realize the project on time is becoming a differentiator.
Perfect. Thank you very much.
Next question, please. John?
Our next question comes from John King from Merrill Lynch.
Thank you for taking the questions. Good morning. I've got two, if that's okay. First one was maybe Pascal to come back on the trajectory of the recurring revenue growth. I may not quite have the acquisition contribution exactly correct, but it seems like still the recurring is growing. I think you said 6% in Q2, and the guidance implies no real acceleration. I'm just wondering why that is. We've obviously seen a little bit of betterment license momentum. I suppose we're going to have Boeing ramping up next year, but maybe you could just talk about where you expect or when you expect to see the recurring line accelerate, because I assume that's going to be fairly key to delivering the overall acceleration. Is that simply a question of when Boeing goes live, or perhaps do we see any underlying improvement over and above that?
The second question, you've got a couple of rollouts going now with some major customers for 3DEXPERIENCE. Jaguar Land Rover springs to mind, as well as Boeing and I suppose Scania. If you could just give us an update in general how those are progressing, any learnings that you're getting as you roll out the product, not for the first time, but in a major way to two, three or four big customers all at once. Thank you.
Pascal?
I'm taking the first one for the recurring revenue. First of all, the recurring is growing at 9%. As I told you, it's consistent between the first half, the Q2, and also the full year. It's pretty stable and it's pretty predictable. The organic growth is, as you say, 6%. If you look at the different constituents between the ALC, I mean, the maintenance and support and the rental, I think we are still having a good momentum on the rental side because you remember Exa, it's a rental model. The acquisition we did last year, it's a pure rental and we are enjoying, in fact, more than 20% growth on the rental piece coming from this point. I think the fundamental for the recurring is really strong. Coming back to your point, you are right.
The more we are deploying inside Boeing, the more contribution you're going to have on the recurrent part of the revenue. The deployment is starting to be material for 2019, and this is a reason why also we are pretty confident for next year.
Yes. Well, related to the very large rollout plan, I think it's underway. It's very interesting to see that some of the big decisions that have been visible to the market. In fact, we are even starting deployment outside the scope of the initial intent from the customer because they have discovered that the 3DEXPERIENCE platform can be used immediately for all the things they were not planning to do with. I have an example in mind is, as Pascal implied, the effect of the Boeing deployment is not visible basically this year, except that we are doing deployment in areas where that were not planned initially. Traffic management inside the plant with robots on extremely smart equipment. That's the case for many clients.
They are discovering that the platform is a business platform, not only serving engineering, design, simulation, and production, but really to create a business modeling to improve their business performance, basically. We like that because at the end, it's a significant expansion of the footprint. The same happened, by the way, on the cloud. We are quite pleased with the dynamic of the cloud. It's not so visible in numbers because this is pure subscription. If we were a startup, we would make it a big deal. We would present this cloud dynamic as an extremely promising business environment. The customers are very pleased with our 3DEXPERIENCE on the cloud. They are doing real project with it, whether car, drones, planes, even, on other project, on high-tech projects.
You have to keep in mind that our, just to close the loop here, we have a high level of recurring revenue, which is what Pascal mentioned, the predictability of our business model. The evolution to cloud, unlike all our competitors, for us, is not disruptive. It is additional, and it is consistent with the current business model we have for the company. We continue to push very hard YFC model, even for companies buying software inside their infrastructure. Because we prefer to have this annual revenue flow than just having an upfront payment. We are doing that, especially EXA is a good example. SIMULIA, basically, you should keep SIMULIA, forget EXA. You use our flow for our simulation. We continue to push that model because we believe it is very aligned with the future of fully subscription-based model.
Next question, Mo?
Our next question comes from Mohammed Moawalla from Goldman Sachs. Great.
Thank you very much. I just wanted to drill back into some of the unearned revenue you referred to, Pascal. Again, as we start to think about that quarterly cadence in license growth, in the back half of the year, can you sort of, again, quantify how much of that, is all the EUR 9 million essentially already recognized? If I can call it slippage, what was the reasoning? Was it macro, or are there still some sort of smaller teething issues in terms of the sales force execution that need to be ironed out? Then if you can just give us some update on sort of pipeline and sort of visibility in that back half as we think about that sort of license growth trajectory.
I wanted to just come back secondly on the 2019 EUR 3.50 guidance that you have. Do you need to do a sort of significant number of more acquisitions? Or do you think that given the trajectory you are now, that can be achieved sort of largely through sort of organic growth from this point onwards? Thank you.
I'm going to take the two questions. Thank you, Mo, for your question. The first answer is related to the EUR 9 million you have seen in the unearned revenue. Most of them are coming from the fact that the more we have large deployments, the more services intensive. Basically, we have to fulfill the services before to recognize the revenue. Having said that, we expect that the vast majority of them will be recognized in H2. This is an answer, I think to your first question. Coming back to the second question, which is the EUR 3 target for this year, and are we in a good position to deliver the EUR 3.50 without acquisitions? I think if you apply the growth we have, the organic growth on the EPS for this year, and you apply to EUR 3, you will see that we are landing at EUR 3.50.
If we are able to continue to fulfill the same momentum, we are convinced we are capable to do it without having significant acquisition, we can basically fulfill the targets. Having said that, you know that in our model we continue to-- Doing acquisition is part of the model because we are expanding our footprint, we are expanding our addressable market on a regular basis. With more than EUR 700 million cash flow per year, and two-third being reinvested to expand what we do, I think you could also take into account that we will anyway continue to do acquisition without having to do it only to fulfill the commitment to the EUR 3.5.
In short, Thibault made a commitment and you are delivering.
He did most of the job.
The point on the acquisition, just if I may add something, is we are not going to plan to do acquisition just for the sake of meeting the EPS target. We do acquisition because we think they expand the footprint and the potential, the reachable market. The discipline we have been following in the last 20 years, we will continue to keep it. It's needless to say, we have a lot of opportunities, and we are tracking them carefully to really do smart moves like what we believe is announced today with Centric PLM on No Magic, because we think they have significant potential to access to new diversification, accelerate the diversification, and fulfill needs that are not fulfilled by other players, basically. We'll keep going doing that. Thank you, Mo.
We'll take one question from the room, and then the last question from the call for you, Michael.
Good morning. It's Laurent from Kepler Cheuvreux. A couple of questions. The first is on your services margin. The gross margin is down from last year. I was wondering if it has to do with some overruns, or is it utilization rate or any kind of reorganization that is weighing on the profit of the services? The second one is, sorry to come back on your Q3 license target. If I take the M&A impact and your confidence related to the unknown revenue at the end of Q2, your guidance seems extremely cautious, even more cautious than Thibault, in fact. Maybe you're trying to win the prize for him. The organic growth is not very strong. Any granularity on that would be extremely useful.
My last question is, I think it was six months back, you were saying you were planning to expand rapidly in architecture construction. I know you talked a lot. You have not made any M&A. Was it something that is still in your plans or have you changed mind and basically organic growth will be enough in that field? Thank you.
Well, I will just do a cosmetic comment. Thank you, Laurent. I think my dream is to have Pascal building a reputation, which will be even as high as Thibault did, and I'm confident he will do it and make sure what we say, we deliver. Trust you for that. Don't calibrate by assuming that he's playing low. Wait one or two years. That's just for this. We want to make sure we deliver on what we've said we are doing, because otherwise it creates unnecessary stress for all of you and for all of us. It's not good. I don't see the value of doing that. That's a good discipline. Now, we can always be exposed to good news, and we shouldn't be blamed to be exposed to good news, too.
We will be consistent with what has been the track record over the past many years from that standpoint. I prefer no speculation on that side. Pascal, you want to-
On the services margin, the point is coming from the utilization rate, especially for 3DEXCITE and also a little bit for Quintiq, because we have a lot of volatility, and for this quarter, the utilization rate is slightly below our expectation for Quintiq. This is the explanation.
On architecture, on construction, things are moving in the right direction. The question related to the M&A, at this point in time, there is not much to say, basically. We believe that this sector is very much behind in terms of digitalization, and there is a game changer need in that sector. The sector is not productive. The sector is changing in Asia, China especially, big way, more than in Europe and U.S. If you look at the Grand Paris with the billions of EUR investment, it's difficult for me to still understand why things are not simulated before. It's a story by itself. Other countries are going to do it.
The World Cities Summit was an amazing showcase for us to reveal that the future of construction is about looking at the city from a systems standpoint, not the building itself, but the city and territories will drive the way the infrastructure is built, not the other way around. Today, in most cities, especially in Europe and the U.S., it's the sum of little things, and they don't match at the end to provide the proper level of services for the citizen, for economical performance or even quality of living. There is a problem. I think India has understood it. China has understood it. AP South also, with the showcase of Singapore. We are really approaching architecture, engineering, and construction, whether it's large project like energy or entire city by themselves, in a very different way from what has been done.
We will do the proper investment. We don't want to buy old technology. Most of the players are having very old technology. Yes, news flow probably, but very selective on keeping the same philosophy as the one we have been setting up for the past years in other sectors.
Last question related to the Q3 license. There is one point I want you to take into account. You remember I told you that July is one of the largest month of Centric Software. In fact, to be more precise, it's representing 55% of the revenue for the quarter. To make a long story a short one, in Q3, we will recognize only 45% of the revenue of Centric, and we're going to have two-third of the cost for the reason I just mentioned. This is the reason why, basically, the contribution of the acquisition is not so important. The second point is, I really want to emphasize the fact that last year for SOLIDWORKS, the Q3 was really something difficult to reproduce, I would say.
Very high.
Very high. Achieving 30% growth on the new license, it's not something we will be able to do. This is the reason why also I'm taking some cautiousness related to the base effect, in fact.
We'll take another question from the webcast, and after that will be you, Michael, and after, Charlie Brennan. Please go on.
Our next question comes from Michael Briest from UBS.
Thank you, François. A couple from me as well. If we can go back to the Centric Software acquisition, Pascal, I think in the original press release, there was talk about a 4x-6x sales multiple being paid, and it's now 3x-6x. Is that just some clarification? Just to understand the growth rate there and your comments just now about the seasonality. If I take the EUR 27 million you're expecting for the five months and annualize that, I'm coming out at about just under EUR 80 million, which would suggest about 30% growth. What should we put in for a 12-month run rate at Centric Software?
Then Bernard, for you, sort of Kepler Cheuvreux , France, Germany, U.K., Nordics, not particularly strong. There was also the comment about a back-end loaded quarter. I'm just curious what your customers are making of the tariff discussions, and whether that's having any effect on their willingness to purchase, and if that's maybe coloring some of your expectations for Q3, or have you not really factored anything in for risks around tariff talk and uncertainty there? Thank you.
Thank you very much, Pascal. I'm taking the first two and you take the last one. Related to Centric Software, you are right. You have a good memory, Michael. We say that the multiple will be between 4x-6x. The reason is, if you remember, we gave to you a range of the percentage of the share we would acquire in the first step. We gave to you between 58%-69%. Now we have the precise number, it's 63%. In fact, this is helping us to have, I would say, a better multiple. This is the reasons, if you do the computation and the calculations, in fact, the 4x was based on the 58% of the shares we will acquire with the first step.
Related to the seasonality, as I told you could expect EUR 27 million revenue coming from Centric on the second half of the year. On a 12-month basis, the growth is still significant. We are targeting 50% growth. You have to exclude, basically, July and January because their fiscal year is ending end of January. Those two months represent 55% of the two largest quarter.
Thank you.
On the question related to the tariff discussion. We don't see a debate, not even a discussion, it's a debate. We don't see any specific customer decision being influenced with that for the business we do with them. If you think about the future of transportation on mobility, all companies are investing massively on many new technology and set of services, whether it's about autonomy, smart vehicle, electrification. I don't think those investment will be influenced by the big discussions going on. The volume of the car on the portfolio might change, but they need to develop next generation of solutions, all of them. Why? Because there are so many newcomers in these extremely capital-intensive industries, even in aerospace. In the aerospace sector, we have a different situation, is the current players cannot keep up delivering. They have huge backlog.
They need to modernize their production efficiency and supply chain efficiency. In fact, most of the sector today is at risk with supplier not being able to provide what they need to provide to deliver the planes which are in the backlog. It's a good problem to have as long as you can solve it. We want to help them solve those problems. Those are the reality for those sectors, which are very gigantic sector. You have the new players, who are coming with new categories of solutions. Those are adopting our platform, many of them on the cloud directly. They don't use the old techniques.
Those are just elements of proof points that, despite the big debates on tariff, on other questions, the industry at large, in all sectors we serve, is going through a significant recalibration about what they do, how they do, how they produce, and how they sell. Those players who are not going to transform digitally their companies will not be competitive. I think that's the highest driver for us on the mid-term, long-term, and even short-term activities.
Okay, thank you.
No direct effect.
We'll take one very last question. Charlie?
Our last question comes from Charlie Brennan from Credit Suisse.
Great. Thank you so much for squeezing me in. Just two very quick questions, if I can. The first, just a quick clarification. Pascal, you gave us a breakdown of Centric and NoMagic between license and recurring. I was wondering if you could reiterate that, as I missed your comments on the call. Secondly, a broader question. You've had some great success signing up some major customers, whether it's Boeing or EDF or Exxon. It feels like they've got the potential to drive faster growth than you're currently reporting. I appreciate those bigger deals take time to ramp up and recognize. Are there any metrics you can give us around an uninvoiced backlog that might give us some comfort on the outlook for the next couple of years? Thank you.
Coming back to your question, Charlie, for NoMagic, I gave to you EUR 6 million revenue for the second half of the year, and 20% of them are services. The rest is coming from the software, the split between the recurrent part and the license is almost 50/50.
Okay.
For Centric Software, the EUR 27 million, 40% are from the services activity, 60% from the license. After the third is the recurrent part and two-third are coming from the new license. I think with this, you have all the details.
Perfect.
Charlie, you're right with the major deals, and those are large-scale potential. You are also right on the fact that, and we mention it each time when we announce those big decisions, first of all, it's a preemptive, it's great news at the same time, it will be taking time to deploy for those clients. I think it's, at this point in time for the 3DEXPERIENCE Platform, it's too early to try to build a reliable model. I think in the next 18 months, we will have more visibilities based on track record. Today, it's too early even for us to build. We have an incredible visibility, but the speed at which the deployment are operating, we need still to build a track record for that. I think the next 12 to 16 months will provide higher visibility.
It's not the fact that we don't want to share something with you, it's the fact that I don't think today it's reliable enough. Overall, up to now, we are delivering what we said, and I think that's the most important point. We are always at risk of having good news, but I prefer that risk than the risk of bad news, of course. Thank you very much. Thank you for participating this morning. Thank you for your great questions. Which shows that you are really having a lot of insight about what we do. We are very excited about the future. This is industry renaissance. This is not just a little bit of digitalization of what was the 20th century. We are building up the 21st century industry around the world, and it's more exciting than ever.
I hope to be able to work as long as Mr. Serge Dassault is my benchmark, 93. I have some time ahead. Thank you very much, and enjoy your day.