WHEB Commentary

Tim Dieppe

Designing for Sustainability


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Bad design is unsustainable.  Products that don’t work, don’t sell, and end up as waste; design flaws can shorten product lives and again consign even good ideas to the scrap heap.  Even the very process of designing a new product can itself be very wasteful, as materials and time are spent chasing down blind alleys.

Fortunately today’s industrial designers can use Computer Aided Design (CAD) techniques that replicate real-life product performance in a virtual world, and at a fraction of a cost and time required by traditional methods.  We recently commented on our review of the Computer Aided Design (CAD) companies which qualify for investment in our Resource Efficiency theme.  One of the leading companies in the space, and which we have recently started a position in, is French company Dassault Systèmes (Dassault).

Dassault stood out in our review because of its position at the forefront of sustainable uses of design. We particularly like their Life Cycle Assessment tools, which show the environmental implications of each design decision across the product’s lifecycle, with measurements of carbon footprint and energy. One packaging customer was able to reduce plastic resin use by 27% with associated reductions in carbon footprint.[1] Dassault can also enable users to design the entire manufacturing process in a virtual environment, providing feedback for potential issues or areas of improvement well before an actual site is constructed.

Dassault’s shares underperformed the CAC250 index of larger French companies last year, but have now started to recover.  Having built a reputation for beating guidance the company lost friends when its growth was half what it had predicted.  Chief amongst its problems, a shift from selling systems outright to renting them.  In the long term, Dassault reckons, this model works better because it becomes more embedded in customer systems and price rises are easier to achieve.  But in the short term the transition caused a revenue slowdown, which now appears to be behind us.

 

Also helping the cause is the rollout of the new sixth version of its most popular product CATIA.  As earlier versions are still deeply embedded, the new architecture has struggled to gain traction, and only 5% of the installed base uses it right now.  But we think a tipping point seems to have been reached, with 22% of renewals being upgrades.  Having negotiated this transition period, our view is that Dassault is well-placed to pick growth up again.

Analyst consensus is for an inflection point in earnings, with double digit growth until 2018.  We think this is achievable.  Perhaps the greatest risk is in the competition: although the switching costs between CAD systems tends to keep customers loyal, our review identified plenty of very credible competitors with strengths in particular niches. All of these companies are looking to expand.

Dassault Systèmes is helping its customers design more sustainable products which make more efficient and sustainable uses of the materials involved, and is benefitting from the growth this creates.  It’s a great example of the Resource Efficiency theme which the FP WHEB Sustainability Fund is aiming to exploit.

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[1] Dassault Systèmes 2013 Environmental Report

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