Good morning, everyone. I'm Francois Baldinado from DS Dassault System Investor Relations team. From the company, we have Bernard Charles, our Vice Chairman, Chief Executive Officer and Pascal Delos, Executive Vice President, Chief Financial Officer. And Chief Strategy Officer. I would like to welcome you to Dassault System Second Quarter 2018 Earnings Presentation, which is also being webcasted.
At the end of the presentation, we'll take questions from the audience and from participants on the webcasted call. Later today, we will also hold a conference call. Dassault Systemes Financial Results are prepared in accordance with IFRS. During 2018, the 1st year of implementation of IFRS 15, we are providing IFRS financial information on both an IFRS 15 and IAS 18 basis. All figures and comparisons during the presentation are under AAAS18 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 Factor section of our 2017 Document Affairs. Let me now introduce Bernard Charles, 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 on, from that standpoint, the dynamic continues to be a very good one. So I'm going to share some insight about that with Pascal. So 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 a double digit growth on multiple brands, CATIA SOLIDWORKS Innovia, DELMIA, DELMIA, on GeoVIA. So I think it shows quite well spread, source of revenue. To be noticed, high growth countries is up 21% on core Industries, GMM, Transportation Mobility, CPG, Marine And Offshore AC, Natural Resources also double digit growth. So those are for the numbers.
If you look at the implementation of the strategy, clearly, the 3DEXPERIENCE platform is becoming more and more organized as a platform for our clients to build that 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 that we will come back on it. The industry expansion on the diversification fashion retail consumer goods.
So we are pleased to confirm today the acquisition of 63% I think of the shares of Centric Software, which we will call Centric PLM. And there are 2 names for the company, the company name on the offer. The name of the offer, Ronazio, do understand we want to position the offer brand name in a clear way, and that's what system brand portfolio. So that's a very, very good move. And if you remember, the acquisition of the remaining shares will be done in year 2 or years 3, Pascal will come back on those conditions And 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 going they are becoming cyber systems, which means governed by software on electronics. And we want to be the reference platform for that sector and no magic is a move to accelerate that positioning. So we are reconfirming reconfirming the full year plan on adding the revenue contributing from a No Magic Centric Software.
And we are also upgrading the EPS in accordance. To the currency upside that you will see in a moment in the Q2. And to the lower tax improved APS in the second quarter. So 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. And that phenomenon is extremely significant and visible.
Here are the points that should be taken into consideration. If you look at the aerospace sectors, They are going through digitalization process, which is very different from what was done in the past century. It's about redefining the offer on the way they provide solutions to airline operators. If you look at the space, sector, deliveries with drones, new type of air mobility, 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 an image of a modular vehicle that will be used for commercial deliveries within cities. It's a kind of legal think about it. You see those companies now being funded, being developed, providing these new categories products never done before. So this move to redefine what we call industries whether it's health care, architecture, construction, cities, apparel, and luxury, infrastructure, We are the catalyst on AD Enabler ADESA system to make this happen, and there are less and less competitors to provide a proper solution to this sector.
I call this the industry renaissance. It's the capacity to connect disciplines, which have never been connected together. And we are communicating that to the world this year in all forums that we host across the different geos of the world. And we are midyear on, I can tell you, it has been extremely well understood accepted by our clients going through the worldwide tool we did in the first half of this year. And we are going to continue to do that in India and in other countries, China, on 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, and the next is the way you produce things. This is an example of 3d printing. So 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 3 year experience to run industry solution and 3 d experience 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. And you will see a video that illustrate that very well in one of the country, but it's happening in all those countries around the world. And we are setting up competency centers, innovation centers, financed by government or industry consortium, to showcase those new possibilities on the number of programs here are significant. By the way, all the programs which are represented here, we are part of those program. You have 2 pictures here.
1 is illustrating the innovation center in the middle of Beijing, China. It's building 4 floor buildings. In every floor, you have demonstrations on actual use of 3 d experience in action for Defion Industries, on its aim that opened the eyes of the Defion Industry sectors to understand what is possible. Quite impressive. It was open second quarter.
And it's not on our own investment. It's It's an industry consortium. We invested in the building, the infrastructure on everything, and we power everything with our software. On the right, you have another very important next generation center for the future of Aerospace. And this is the Aerospace 3DEXPERIENCE Innovation Center.
In the center of America. This was a result of the Obama plan of $500,000,000 investment on your
We strategically designed the 3 d experience center so that we could bring our customers, whether they're 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've made here. We can take the system of work that typically is 3 to 5 years for like a UAS, and 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 and the expertise of our partnership with NIAR in Wichita State.
The 3 d experience 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 the real world, and that's really the core of what we're trying to do here. The university and the 3 d experience center here on the innovation campus allow 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 3 DS really brings our engine capability to the forefront, and I think that will become revolutionary, within the industry. The 3 d experience center can help us streamline our tools methods and our processes that'll help us develop an integrated digital solution for the aircraft, both in terms of the 3 d 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.
Effect that you are seeing in retail on other sectors of the economy, transport, and so on, is going to happen in the industry. And of course, when we announced on February 9 2012, the 3DEXPERIENCE strategy on the approach it was aimed at doing that, but now we see it in action. And this center is really demonstrating today that the 3 years long program can be reduced to 90 days. So don't be surprised in every intensive, extensive capital investment programs, we can see now start up coming in unchanging the rules of the game. You see that in transportation, mobility, aerospace, never seen before never seen over the last 60 years.
Performance on the revenues standpoint, you have all the numbers here. The license growth excluding Action revenue is 10%. On the key decisions this quarter, Skania, Turkish Aerospace, Land Rover, ExxonMobil, a huge program, and I will talk that EDF Bridgestone. And as you can see, the experience license revenue, the 3DEXPERIENCE license revenue is up 27% excluding exchange rate. Now how can the 3DEXPERIENCE platform be used for capital project management and capital asset management remember, at the beginning of this year, I was quite provocative.
I said we have decided to win in the AAC architecture engineering construction market. We have decided on we're going to do it. So we are winning in big programs for cities, infrastructure on very capital intensive programs. Those programs that you have seen, 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.
And we are using the platform to change those industries in a big way. This is another example.
When Welcome to the future. Through collaboration and leading innovation, Dassault System has ensured companies have flexibility to survive in a rapidly changing energy, process, and utilities industry. Faced with the growing complexity of efficacies and modern assets, companies must continually align product supply with the changing demands of their customers, the wider public. A fully integrated engineering environment has successfully delivered solutions. To the individual challenges of specific industries made possible by Desault System 3 d experience platform.
So might not creating large infrastructure project, which costs 1,000,000 of dollars around where I'm glad we can start getting things. That's the offer, and that's what we are doing. Right now. We had the World City Summit in 2 weeks ago in Singapore. 37,000 people came there.
The showcase was the Dassault System experience platform for the Singapore city state on the illustration that it could help manage evolution of the city itself including the quality of the services. A few weeks ago, you saw the press release on what we announced with Jean Bernard Levy from EDF on with Paul Hermele from Capgemini. We were selected as the platform to transform the nuclear energy sector. You can understand that those sectors are long term conditional in early sectors. You have to think that nuclear is going to last at least one century.
It's a transitional energy, but not for a presidency cycle, but for a sanitary cycle. Between renewal and between transition of those projects, including of course, the quality of operation on the safety of things. We are becoming the standard in the nuclear and energy from that standpoint. And also illustration that is announced today is ExxonMobil, where there are having huge infrastructure around the world and want to use the data analytics to manage facilities and do the reduce the cost of engineering, upstream, downstream business units, full asset management, workflow management process digitalization of all those installations on, of course, 3 d model for equipment replacement on maintenance. So those are very good illustrations about why the platform has moved from being a tool for engineering production 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 SOLIDWORK 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. And we're going to around the second half of twenty eighteen, introducing on the market the connection between SOLIDWORKS and 3D experience 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 solid works. 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, 3 axis, 5 axis machine, or 3 d additive layer manufacturing, whether it's metallic printing or plastic or any kind of material science, you can do that for human diseases. An example is the startup called geomodex. A French startup with using that platform to really produce, processes for humans. So, 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 picture course, in the world of luxury and apparel. And they have the best logos. They have Louis Vuitton. They have Gucci, many, many of the best logos of the world are already their client. It's a startup company, 61,000,000 revenue.
They grow above 50% a year. That's why they did not want it to sell us 100% of the shares. I guess they said, if you get 63% on the rest we want to get upside in year 2 or year 3, that's fair. It's okay. It's a and we put the proper criteria, so we will, we will, if they are successful, we'll be happy to pay for the remaining 37% in year 2 or year 3.
They are based in California Chris, the founder is a good friend of mine for 20 years. I've been trying to buy companies, other companies the last 20 years and never made it, but this time, we came to an agreement. So this is creating a standard for this industry, which is a very growing industry too. So the positioning is very clearly in the Dassault system, prompting them. It's Centric PLM.
It focuses on consumer goods on retail and they have their own direct sales for all customers we contacted are extremely pleased with that decision. In fact, many of the big players like H And M said, well, 2 years or 3 years ago, we refused to buy these solution because the company was too small now being part of Dassault System. We feel safe for the future. It's not pre announced not 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 4, 5 months. That's what they do. It's 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's extremely complex.
This is what they do and they do it extremely well. So we are very pleased to have, to have now this solution in the portfolio. On the last comment I want to do in terms of acquisition, it's a very, very strategic acquisition. It's no magic, but it's magic the name is no magic, but it's really magic because it's a technology that helps you and will help our customer do extremely smart, highly integrated products that contains physical parts, electronics and so software because everything is becoming an integration of software, electronic on 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 and no magic is the reference. It's used by the DOD Department defense of America, DOE, Department of Energy, everywhere in their applications and it's going to be part of the portfolio. So the cyber physical system is a major extension of our portfolio, no magic is now part of Dassault Systemes and 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, on the floor.
Thank you, Bernard. So welcome to all of you. Always a good pleasure to be with you at that time. So to follow-up, what Bernard said, We we I mean, you remember Centrix Software, it's a 2 step acquisitions. So we just acquired 63 percent centric software.
The payment, we did the closing yesterday, in fact, last night, to be more precise. The payment in cash is around 1,000,000. And keep in mind that with as part of this price, you also have an advance payment for the shareholders, keeping their shares. So it's not only the price for the $63,000,000. It's also an advance payment.
We will buy the remaining piece, in the 2021. And the price will depend, in fact, of the revenue growth and the profitability in 'nineteen and 'twenty, and we will do an average for the 2 years. And the multiple will be in a range of 3 to 6 times the 'nineteen and the 'twenty revenue. So this is for Centric, and we expect this acquisition to be slightly dilutive for the full year And the main reason is the following, in fact, the 2 largest quarter for them are July January. And unfortunately, we are closing this acquisition, the 24th July.
So we will have not too much we'll have in our book for the third quarter. And January will be in 'nineteen, not in 'eighteen So this is basically the reason why this acquisition is slightly dilutive. And we have obviously the cost. For no magic, We did, we completed the acquisition in June 20. The revenue, we will will integrate on the second half of the year is 1,000,000 with a natural effect on the earnings and 170 employees will join are joining in fact Dassault Systemes' response.
So 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. And 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 and in fact, if you look at Q2 and Q1, they tracked each other very pretty closely. And it's a good demonstration that basically Q2 is in almost in the same the same momentum than Q1.
So to zoom on it, the top line growth is 8% with a revenue at 1,000,000 Europe, an operating margin of 30.2 percent, with a margin expansion of 0.1 points for Q2 and 0.5 points for the 1st semester. And an EPS for Q2 at plus 16% and if you exclude the currency effect plus 22%. And it's a combination of basically this in 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. And you remember last year, we had some, I would say, we were behind a little bit in China.
So now we we have the proof that we not only recover the situations, but we are demonstrating a good dynamics. And this good dynamic in Asia is across all the different countries. Both China, Japan, South Korea, Indian, and EPI South. So all of them, they have a double digit growth for the 1st semester as well as the Q2. We also have a good momentum in Americas, 9% for the semesters, 7% for this quarter, keep in mind that last year, we had a very good quarter.
The Q2 quarter was very good. So clearly, we have some base effect for the second quarter. So Europe is still at 6% consistent with the 1st quarter. And in fact, if you zoom a little bit, Europe is almost split in 2 different parts. You have the source of Europe driving the growth with a double digit growth.
As well as the east part with Russia. And we have a much more modest growth in what we call URS, France, Germany and the Euronors, which is basically Great Britain and the Nordics. So this is for the region. 3rd brand, the good news is you take all the major brands we have Katya and SOLIDWORKS all of them, they have a double digit growth in terms of license, closing the currency effect. So for CATIA, it's across all the different regions.
So it's relatively consistent. For Innovia, the double digit growth is coming from the diversifying the as well as the core industry. So it's a solid one. And for SOLIDWORKS, it's a seb, it almost holds the region of the world, And if you remember, last year, we had a very good year with SOLIDWORKS. And I will come back to this specifically for the Q3.
Although software are also growing well, plus 13% for the 1st semester, 11% for the for the second quarter. And the growth is driven by DELMIA, Simuliya as well as GeoVR, and I will make a zoom on India afterwards. So overall, the growth for the software, 9% aligned with the expectations and again, is consistent with the full year. A proof of basically the strategy we have developed with industry solutions is this 1. Safran, electronics and defense.
And I like it because you remember, we are telling you on a regular basis that when we approach, our customers within industry solutions, methods and offers, we are dragging basically all the different solution all the different applications, all the different brands together. And in this specific case, Safran, they bought from us a few solutions, business operation excellence, co designs to target, smarter and faster and lighter. Those are 3 well known industry solutions for the aerospace sectors. And automatically, they are basically part of this value proposal. You have TIA Delvia, Innovia, Exelayed and also Simolia.
So it's a good test case and proof point that basically when we enter within 3 solutions. The sum of the part is much bigger than the part itself. A quick zone for this quarter and this 1st semester is DELMIA and 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, I mean, difficult to make this win without having a strong value proposal in the manufacturer for the manufacturing space because this is where this industry was basically is facing the major challenge.
And 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. And here, you have the proof. I mean, for the first half, the organic growth for the EMEA is plus 17%. And it's driven by almost all the industry, but especially the core industries, whatever the tires, the automakers, including the new entrants, by the way, Far Day Future, for example, this quarter and also the Aerospace And Defense. And the proof point of this is by Bridgestone.
So you know very well this company, they are developing the repairs and the tires. We won them in the States last year. And here, it's basically the European parts having decided to adopted our solutions but they have decided to adopt not only the DELMIA manufacturing execution system, but also the Quintiq part. So it's basically the scheduling and the optimization in conjunction with the manufacturing execution systems. And for this win, 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 a market.
Let's zoom a little bit more on the financials. So the software revenue growth for the second quarter is +9 percent excluding the currency effects in line for the 1st semester. And 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, so the license is growing at 8% for the 2nd quarter, 10% for the 1st half, and it's an organic growth. With no contribution from the M and A of the license.
On the subscriptions, the growth is establishing at 9%, consistent for between Q2 and H1, And it's a good demonstration of the good renewal rate we have with our customers. And the organic growth is 6% The rest is coming from the acquisition we did last year exacorporations. The services revenue is improving. We are still behind our expectation and we are 6,000,000 behind what we plan to do. But nevertheless, it's a slight improvement compared to the Q1.
And the main reason are always basically the same. There 2 key explanations. One is we have this 3 d x side, 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. And so, so one reason is We are more and more transitioning the services activities to system integrators. And you saw in Bernard's presentations, we are talking about EDF it's a joint approach with Catgemini, ExxonMobil, it's a joint approach with Accenture.
So basically, this this joint approach and joint sales with large system integrators is gaining more and more attractions And it's key for us because it's a way to scale. The good news in services anyway is we have we are facing a double digit growth in all the services related to the 3 d experience. So this is basically the key point. On the operating margin standpoint, so here are the points an organic improvement of 1.6, which is a significant impact and sufficient to absorb the currency effect minus 0.5 minus 0.7. And the acquisition effects, the dilution coming from Exane, minus 0.4.
For an average, margin for the first half of twenty eight point seven compared to 28.2 last year. This obviously is reflecting automatically in the EPS. And we have an EPS growth of 16%, 22% if you exclude the currency effect. And as I told you, it's a combination of not only this margin expansion, but also some tax benefits because we compare to last year, the tax rate has been decreased from 33.3 percent to 28.3 percent. So it's a significant improvement.
And this is reflecting automatically in the EPS. So $0.07 to $0.62 last year, so in addition. On the cash flow, it's a record because 645 1,000,000 cash flow for the first half of the year, an increase of 9% compared to last year and it's really driven by the operating, by the activities. Few comments, anyway, On the acquisition side, you have this 79,000,000 cash out. It's not only the No Magic acquisitions, No Magic is part of it, but also we acquired the remaining shares from 3 d PLM for 1,000,000.
So the 1,000,000 is coming from other things. And we have also some complements in terms 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 And you see positive changes compared to last year. It's plus 8% at the if you exclude the currency effects, compared to 6% of the organic growth.
So why I'm telling you this? Because in fact, it's 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, I don't know, the revenue increasing. The second point is this, changes, is this minus 1,000,000 on the decrease in income tax payable There are 2 effects. 1 is lower tax charges in the U.
S. For year 2018. The variations is having an impact. The second one is higher tax income we have to pay in Q2 and it was the 17 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's a good momentum.
We are increasing the revenue by 1,000,000. And here you have the split. 1,000,000 coming from a capital gain, minus 1,000,000 coming from the contract performance of the services, but largely offset by a much better performance on the software side, plus 1,000,000. And the contribution of No Magic and Centric SoftwareF 33,000,000 for the full year at the revenue level. The net of this is we are adding one point growth on the revenue side compared to the previous guidance.
On the EPS variations, It's plus, overall. And the range is between to And here, you have the split. $0.03 is coming from the currency impacts positively. $7, sorry, is coming from the activities and $0.03 coming from the tax rate improvement. And you have a slight dilution coming from Centrix of $0.01.
And overall, we are gaining in terms of growth for points compared to the previous guidance. This range is also interesting to notice that If we achieve the high end of the guidance, so and we are confident, we will be in a very good position to achieve the targets we gave to you, for 'nineteen, because you remember 5 years ago, Tivo stated in front of you, and he said we're going to reach a in 'nineteen. And if we are lending at we are say, very good positions to achieve and deliver it. It's too early to declare the success, but I think we are in a good position. Zooming 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 1,000,000,000
44,000,000.
And if I split the growth between 9% to 10% is coming from the software, 9% to 11% from the license and 9% from the recurring. So it's pretty consistent. On the operating margin level, we are planning to achieve between 31.5% 31 percent operating margin. And here you have the detail. The acquisition dilutions is around one point.
In fact, alpha is coming from Exane and the rest is coming from the new acquisitions. And you have, 0.3 points coming from the currency. The tax rate at 29.1 percent for the full year and an EPS growth of 10% to 12% and including the current CFL 15% to 17% sold. Good things. We are not changing the currency rate for the second half, still 1.21 135 for the yen and the dollar.
If I zoom on Q3, and this will be my last comment, Francois, to be on time, The revenue is planned to we are giving the guidance between 805,000,000, hence 825,000,000, a growth excluding the currency effect between 8% to 11%. And if I split this growth between software license and Urecurrence, you have this detail, 9% to 10% for the software, 6% to 9% for the license. And the reason why I'm giving a larger range It's 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. So we have a base effect, and I want this to take this into account. The recurring is really pretty stable and, again, it's 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% to 30% And here you have the details. So the acquisitions will have a dilution of 1.5. And again, same story, you have half is coming from Exane, the rest is coming from the new acquisition we are doing. And the reason why we are giving an in margin with a range of minus 3 to minus 2 points. It's because we have to catch up some investment.
So we are relatively late in the marketing spending compared to last year, and we want to accelerate the our marketing program on the second half of the year in order to fulfill the growth for 'nineteen. And 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 terms of hiring. So we want to catch up. Same story because we want to be ready and fully in operation for 'nineteen, and it's a time to do it.
The EPS acts between $0.64 $0.68 and the EPS growth between 0% to 6% against consistent for the full year. And I think it's those are good objectives and it's not only a reconfirmation of what we told you. It's 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. So ready to deliver a strong earning growth for the full year. That's it.
Bernard and I will be ready to take all the questions
you have. So just this one will start with a conference call.
Our first question comes from Stacy Pollard from JP Morgan.
Thank you. 3 questions for me, please. 1st, 3 d experience 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 products.
Can you talk about what you're experiencing there? I know you mentioned solidworks in marketplace. Perhaps you could discuss cloud trends across other product areas too. And third, services was still weak in Q2. I thought 3 d experience would be heavier on services, but are you saying that the use of 3rd party systems integrators is offsetting that?
And really, how should we think about the midterm growth services 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 because it simplifies the process in a big way and provide integration that they had to do them self before and cost them a lot of money. Because basically when you buy multiple pieces, you have to put them together to do what we call digital continuity. That's a given for with our industry solutions. A few example of that very briefly.
When the new design engineering process are changing for additive layer manufacturing because it does integrate design on the simulation, for example. And if you do not have a deep integration, you cannot do it. In every industries, you will find the similar reasons to select solutions versus capabilities isolated capabilities Now, the platform effect is both an accelerator on a process that is in some way, slowing down what could be our full power growth because adopting the platform for large companies as to be orchestrated. But there is no doubt that most of the decisions which are done today with by our customers are driven by the platform aspect. Why?
Because first, they have a lot of legacy software, those companies, but 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. And 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, use the cloud whenever they want. And the cloud is especially interesting for the suppliers or for very dedicated specialized projects, which leads me to the 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. So no one else provide no one else in our sector provides that. And this a strategic advantage for clients. And there is another reason, the platform is also the same platform for trading what we call the marketplace.
So no doubt 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 corporation with Accenture and with Capgemini Capgemini with, for all the nuclear ecosystem integration. And with accenture, with Bouygues on the others around the world, are bringing very good results and we want to expand that. So Stacy to
answer to your two questions. The first one, I already basically give some answers because if I, if you have seen my slide, we are expecting compared to the previous guidance, minus 1,000,000 on the services side. So in term of growth, it's a range between 5% to 10%, 11%. Okay, depending on where we nevertheless, we see some improvement. On the 3d X side side, we have been penalized in in first half of the year by General Motors because it's a large customer for Sweet X Sight in the U.
S. And they were relatively late in the ordering for the services for the first half. And we will capture And also, we are seeing more and more services, attractions from Boeing as well. So basically, the situation is improving. I still want to be cautious because I think having 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. And 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. So this is improving, but do not expect that more than 10% from the lead will come from them.
I mean, 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 doucher system integrators by Capgemini, Accenture, Deloitte. And we expect that for the direct engagement, this number will reach 50% in the coming years.
Our next question comes from Adam Wood from Morgan Stanley.
Good morning. Thanks for taking the question. I've got 2 please. Just 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 a slowdown in the 3rd quarter versus the 2nd quarter. We need a pretty big pick up 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 that's going to happen in terms of the pipeline and the business you're seeing And maybe George, you'll just clarify the 9% to 11% guide for the year. How much of that is organically, how much does Centric contribute to that to gauge 9% to 11? And then secondly, just looking at these deals that are coming outside of the traditional areas, so the deals with Exxon, EDF Week. 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? And if there's not very much design in there today, what's the opportunity to back fill that, over time as those companies adopt the platform and start using it.
Pascal new license growth? Yes.
So first of all, Adam, I want to to come back to your point because you are challenging a little bit the license growth for Q2. And frankly speaking, 8% organic growth 10% for the 1st semester. I think it's not so bad, as you say. And compared to the consensus, we are 2,000,000 below the high end. So I just want this to be clear that the momentum is relatively good.
I also gave to you some very important messages. I was when I was commenting the cash flow, I say you should pay attention to the announced revenue. And you have seen a 1,000,000 positive increase. So this is nothing more than the revenue we have recognize in the coming month because the more we are engaging on the large projects, the more also we have some time dependency on the services, we have to fulfill. And by the way, this is the reason why we are partnering more and more with system integrators to have this capability and this capability to scale.
Now coming back for the full year, the license growth is at 9% to 11%. Which is a good growth. And the contribution of the different acquisitions, I say 6,000,000 for No Magic and 27,000,000 for Centric Software. And if I remember well, you should, for Neo Magic, you should take ALF, which is basically the recurrent part. And for Centric, it's 2 third of the numbers are a new license.
I think with this, you will be able to compute very precisely the performance on the new license. Related to
you 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. But at this point in time, what do they do with it ExxonMobil? They use the platform to beat 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 on after 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 we'll ask their providers, engineering, firms or design to use our design tools or simulation tools to do so. Same case with EDF, was looking at the news this morning just as we were presenting about the Flamanville project being postponed for the commissioning, but 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 on your start, the nuclear reactor, and it has been a major help and it was started only 16 months ago, which basically provides a higher quality of data integrity. Obviously, more should be done. And I am convinced and Jean Bernard Levy mentioned that in the, for the multi 1,000,000,000 contract with Inkelet Point, UK, which would be the 1st project where everything will be integrated upfront, which we believe is going to be a significant, improving factors for productivity on large program management, specifically with the massive investment, which does represent So that's a side note, but it's a good concrete example. But why platform is now required to really transform this very capital intensive projects because it's billions over many years on the digital experiencing of the twin to plan track on realize a project on time.
Is becoming a differentiator.
Our next question comes from John King from Merrill Lynch.
Good morning. I've got 2, if that's okay. So first one was maybe Pascal to come back on the trajectory of the recurring revenue growth. Now this 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 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? And then the second question, you've got a couple of rollouts going now with some major customers for 3 d experience Jaguar Land Rover Springs to mind as well as Boeing, Amaspase Gania, perhaps 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 3 or 4 big customers all at once? Thank you.
Pascal, I'm taking the first one. For the recurring revenue. So first of all, the recurring is growing at 9%. And as I told you, it's consistent for the first half, between the first half, the Q2 and also the full year. Or it's pretty stable and it's pretty predictable.
The organic growth is as you say, 6%. And 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, EXAR It's a rental model. So the acquisition we did last year, it's a pure rental, and we are enjoying, in fact, the more than 20% growth on the rental piece coming from this point. So I think the fundamental for the recurring is really strong.
Now coming back to your point, you are right. I mean, the more we are deploying inside Boeing. The more contribution you're going to have on the recurrent part of the revenue And the deployment is starting to be material for 'nineteen. And this is the reason why also we are pretty confident for next year.
Yes. Well, related to the very large rollout, van. I think it's underway. It's very interesting to see that some of the big decisions that I 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 experience platform can be used immediately for all the things that we are not planning to do with, I have an example in mind is, we, 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 we are not plan initially, like a traffic management inside the plant, we 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 on production, but really to create a business modeling to improve their business performance basically. And we like that because at the end, it's an 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.
But if we're 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 3 year experience on the cloud. They are doing real project with it, whether car, drones, planes, even on other project, on high-tech projects. So you have to keep in mind that our just to close the loop here the we have a high level of recurring revenue, which is what Pascal mentioned, the predictability of our business model. So the evolution to cloud unlike all our competitors for us is not disruptive.
It is additional and it's consistent with the current business model we have for the company. We continue to push very hard YFC model, even for companies buying software insight or infrastructure because we prefer to have this annual revenue flow than just having an upfront payment. And we are doing that, especially, Exa is a good example. Simuliar basically, you should keep simuliar forgot for the DXA. You use power flow for our simulation.
And we continue to put that model because we believe it's very aligned with the future of fully description based model.
Our next question comes from Mohammed Mabalala from Goldman Sachs.
I just wanted to drill back into some of the unearned revenue you referred to Pascal. So 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 I how much of that's or 9 is all the 9,000,000 essentially already recognized? And if I can call it slippage, what was the reasoning? Was it macro or are there still some sort of smaller teasing issues in terms of the Salesforce 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.
And then, I wanted to just come back, secondly, on the, the 2019, EUR 50 guidance, that you have. Do you think that, do you need to do a sort of significant number of more acquisitions, or do you think that given the direct year or now that can be achieved sort of largely through sort of organic growth from this point onwards?
I'm going to take 2 questions. So thank you more for your question. The first answer is related to the 1,000,000 you have seen in, in annual revenue. Most of them are coming from the fact that we the more we have large deployments, the more it's services incentive. And basically, we have to fulfill the services before to recognize the revenue.
So 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. The coming back to the second question, which is the target for this year? And are we in a good position to deliver the 350 without acquisitions? I think if you apply the growth, we have the organic growth on the EPS for this year and you apply to you will see that we are lending at 350.
So if I'm able if we are able to continue to fulfill same momentum and we are convinced we are capable to do it. Without having significant acquisition, we can basically fulfill the targets. Now having said that, you know that in our model, we continue to, I mean, doing acquisition is part of the model because we are at spending our footprint, we are expanding our addressable market on a regular basis. And with more than 1,000,000 cash flow per year, I mean, and to serve, been 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
So in short, Thibault made the commitment on you are delivering? Well, he did most of the job. But the point on the acquisition, just if I may add something is, we are not going to plan to to do acquisition just for the sake of, meeting the APS target. We do acquisition because we think they expand the footprint on the potential, the reachable market. The discipline we have been following in the last 20 years, we will continue to keep it.
But 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 a significant potential to access to new diversification, accelerate the diversification on fulfill needs that are not fulfilled by other players, basically. So we'll keep going doing that.
We'll take one question from the room and then, the last question from the call for you, Michael.
Good morning. It's Glenda 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 has to do with some overruns? Or is it utilization rate or any kind of reorganization that is waiting on the profit of the services? The second one is sorry to come back on your Q3 license target. But if I take the M and A impact, and your confidence related to the earn on revenue at the end of Q2. The guidance seems to be extremely cautious even more cautious than Tivo, in fact.
So maybe you're trying to win the price for him. So because the organic growth is not very, very strong, So any granularity on that would be extremely useful. And my last question is back. I think it was 6 months back you were saying you were planning to expand a rapidly in architecture construction. And we just talked a lot but you have not made any M and A, but is it something that is still in your plans?
Or have you changed mine? And basically, organic growth will be enough speed in that field?
Well, I will just do a cosmetic comment. Thank you all for, I think, I think my dream is to have Pascal building reputation, which will be even Even as high as embodied, then I'm confident is we'll do it and make sure we what we say we deliver. So trust you for that. But don't expect, don't calibrate by assuming that he's playing low Wait 1 or 2 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. So it's not good. I don't see the value of doing that. So that's a good discipline. Now we are we can always be exposed to good news and we shouldn't be blamed to be exposed to good news too.
So, but we will be system with what has been the track record over the past many years from that standpoint. I prefer no speak really on that side. Scott, do you want to
So on the services margin, the point is coming from the utilization rate especially for 3 d X side. 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. So this is the explanation.
On architecture on construction, things are moving in the right direction. The question related to the M and A That's, 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. There is a game changer need in that sector. The sector is not productive.
The sector is is changing in Asia, China, especially Big way, more than in Europe and U. S. If you look at the Grand Paris, we the billions of investment, it's difficult for me to still understand why things are not simulated before, but it's a story by itself. But other countries are going to do it. The work city summit was an amazing show case for us to reveal that the future of construction is about looking at the city from a systems endpoint, not the build itself, but the city and territories will drive the way the infrastructure is built, not the other way around on today in most cities, especially in Europe and on 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 So there is a problem. But I think India has understood it, China has understood it, South AP also with the showcase of Singapore. So we are really approaching architecture engineering on 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 we will do the proper investment, but I don't want to buy, we don't want to buy old technology. And most of the players are having very old technology.
So yes, news flow probably but very selective on keeping the same pillars of years, the one we have been setting up for the past years in other sectors.
And last question related to the Q3 license. There are one point I want you to take into account is Remember, I told you that July is 1 of the largest months of Centric Software. And in fact, to be more precise, it's representing 55% of the revenue for the quarter. So to make a long story a short one, in Q3, we will recognize only 45% of the revenue are centric, and we're going to have to serve the cost. For the reason I just mentioned.
So this is the reason why, basically, the contribution of the acquisition is not I mean, so important. And the second point is I really want to emphasize the fact that last year for SOLIDWORK the Q3 was really something, I mean, difficult to reproduce, I would say. Very high. Very high. So achieving 30% growth on the new license, it's not something we will be able to do it.
And this is the reason why also I'm taking some cautiousness, but it is to the base effect impact.
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
Thank you, Francois. A couple from me as well. If we can go back to the Centric acquisition, Pascal. I think in the original press release, there was talk about a 4 to 6 times sales multiple being paid and it's now 3 to 6. Is that just some clarification?
And just to understand the growth rate there and your comments just now about the seasonality, if I take the million you're expecting for the 5 months, and annualize that coming out at about, just under $80,000,000, which would suggest about 30% growth. What should we put in for a 12 month run rate at Centric? And then Bernard for you, sort of Central Europe, France, Germany, UK Nordics, not particularly strong. There was also the comment about a backend loaded quarter. I'm just curious what your customers are making of the tariff discussion 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 very much, Pascal. I'm taking the first 2.
Yes. Take the last one. So related to Centric software, you are right. And you have a good memory, Michael, we say that the multiple will be between 4 time to 6 time. And the reason is, if you remember, we gave to you a range of the percentage of the share we will acquire in the first step.
And we gave to you between 58% to 69%. Now we have the precise number in 63%. And 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 4th time was based on the 58% of the shares we will acquire with the first step. Related to the seasonality, as I told you, you could expect 1,000,000 revenue coming from Centric on the second half of the year.
Now on a 12 month basis, the growth is still significant, I mean, we are targeting 50% growth. But you have to exclude basically July and January because their fiscal year is ahead of January. And those 2 quarter those 2 months represent 55% of the 2 largest quarter.
On the a question related to, I mean, 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 this 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 the 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, but we want to help them solve those problems. So So those are the reality for those sectors which are very gigantic sector. And then you have the new players who are coming with new categories of solutions. And those are adopting our platform. Many of them on the cloud directly.
They don't use the old techniques. So those are just elements of proof points that despite the big debates on tariffs and other questions, the industry a recalibration about what they do, how they do, how they produce and how they sell. And those players who are not going to transform digitally their companies, will not be competitive. So I think that's the highest driver for us on the midterm, long term and even show term, activities. So there's no direct effect.
Question, Charlie.
Our last question comes from Charles 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 No Magic between license and recurring was wondering if you could reiterate that as I missed your comments on the call. And 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 No Magic, I gave to you 1,000,000 revenue for the second half of the year and 20% of them are services. So the rest is coming from the software. And the split between the recurrent part and the license is almost fifty-fifty for Centric Software, the 27000000, 40% are from the services activity, so 60% from the license. And then after the 3rd is the recurrent part and to serve are coming from the new license. I think with this, you have all the details.
Charlie, you're right with the major deals on those are large scale potential. And you are also right on the fact that and we mentioned 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. But 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 the track record for that. So 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 But overall, up to now, we are delivering what we said. I think that's the most important point.
But we are never, we are always at risk of having good news, but I prefer that risk. That's the risk of a bad news, of course. Thank you very much. And 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. Sertaso is my benchmark, 93%. So I have some time ahead. Thank you very much, and enjoy your day.