ESI Group: Half-year Sales and Results 2020
Regulatory News:
ESI Group, (Paris:ESI) (ISIN Code: FR0004110310, Symbol: ESI), today publishes its sales and results for the first half of its 2020 fiscal year (period from January 1st to June 30th), approved by the Board of Directors on September 8, 2020.
Cristel de Rouvray, Chief Executive Officer of ESI Group, comments: “In H1, while we experienced a sudden decrease in our customer’s ability to open new projects, the solidity of our multi-year, mission critical engagements with diversified industry leaders sustained us. As we continue to manage this global pandemic, we are balancing two business imperatives: proactive cost management to optimize near-term financial health and continuation of our transformation plan. The latter gains momentum, reflected in a growing number of customer engagements positioned at the level of “outcome” and mounting interest in ESI’s offer, as evidenced in wide participation at our regular digital events.”
(€m)
6/30/2020
6/30/2019
Change
6m
6m proforma
Current rate
Constant rate (cer)
Q1 – Sales
54.9
58.4
(6.1%)
(6.9%)
Licenses
48.8
50.8
(4.0%)
(4.8%)
Services
6.1
7.6
(20.3%)
(20.9%)
Q2 – Sales
25.9
29.9
(13.2%)
(13.5%)
Licenses
20.4
22.5
(9.4%)
(9.7%)
Services
5.5
7.4
(24.8%)
(24.9%)
H1 – Sales
80.8
88.3
(8.5%)
(9.1%)
Licenses
69.2
73.3
(5.6%)
(6.3%)
Services
11.6
15.0
(22.5%)
(22.9%)
Gross Margin
62.4
68.6
(9.1%)
(9.8%)
% Sales
77.3%
77.7%
EBITDA (before IFRS161)
15.0
21.3
(29.5%)
(31.4%)
% Sales
18.6%
24.2%
EBIT (before IFRS16)
12.5
19.6
(36.3%)
(38.4%)
% Sales
15.4%
22.2%
IFRS 16 – Impacts
- EBITDA
3.0
2.8
- Operating Result
0.2
-
Recurrence and resilience in an exceptional context
ESI Group's sales for the first half of 2020 amounted to €80.8m, down 8.5% (at current rates) from the same period last year. As the entire world entered confinement in Q2, revenue contracted €4m (-13.2%), about the same absolute value as in Q1 over a smaller revenue. Overall in H1:
In licenses, representing 85.6% of revenues, Repeat Business (70.2M€) increased by 1.2%, while New Business (5M€) dropped by 53%. Confinement delayed decisions about new engagements, though customer interaction and conversations continued, anchored on a solid foundation of repeat business. In services, revenues decreased 22.5%, as industrialists temporarily shut offices and postponed certain engagements.Despite this exceptional context, the Group once again demonstrated the resilience of its business model, driven by a high level of licensing recurrence (87.7%). The solid dynamic of repeat business, proof of the strategic value of ESI Group's solutions, was particularly strong among the group’s key customers. The Top 20 customers booking increased by 3.9% and represented 56% of total booking. These customers showed a continuous interest for the Group’s innovative solutions helping them to accelerate their digital transformation as illustrated by the 21% of services booking (vs. 15% for all customers).
Geographic and sector footprint unchanged
The geographical breakdown of half-year revenues is almost identical to that of the first half of 2019: the EMEA region represents 51.6% (vs. 52.7%) of total revenues, Asia represents 34.1% (vs. 33.2%) and the Americas represent 14.3% (vs. 14.1%). The EMEA region decreased the most during the half-year, followed by Asia and the Americas.
The Group's four priority industries - Automotive & Ground Transportation, Aeronautics & Aerospace, Heavy Industry, Energy - accounted for approximately 87% of total orders during the period. The Automotive and Ground Transportation activity, the group's leading industry, remained relatively stable despite a difficult sector context. The other priority industries suffered more from the current crisis, with a significant slowdown in orders in the Aerospace industry.
Financial results
H1 EBITDA (before IFRS 16) is €15.0m (18.6%) compared to €21.3m (24.2%) over the same period last year. H1 EBIT (before IFRS 16) is €12.5m (15.4%) vs. €19.6m (22.2%) in H1FY19. Gross margin is stable, at 77.3% (vs. 77.7%). Costs to EBIT are also stable (€68.3m in H1FY20 compared to €68.7m in H1FY19).The Group reinforced cost measures over the semester. Immediately pivoting to work-from-home and adopting new methods for marketing enabled a greater than 50% reduction in travel and marketing costs. Automatic links between variable compensation and revenue growth also accounted for cost reductions. Additionally, the group continued aligning costs to priorities to reinforce a path to sustainable growth. Together, these measures will have a larger impact on H2FY20 and FY21.
Cash position
The Group's cash position increased to €24.7m at June 30, 2020 (vs. €16.3m end June 2019).
Gross financial debt is €39.6m (vs. €49.6m as of December 2019) and net debt decreased to €14.9m (vs. €29.4m) related to business seasonality. The gearing ratio (net debt to equity) is 15.6% (vs. 34.4%).
As of June 30, 2020, ESI Group held 6.3% of its capital in treasury shares.
ESI Group requested a State-guaranteed loan (PGE) from its French banking pool and Bpifrance. At the date of the Board of Directors, the PGE granted by Bpifrance has been received (€1.75m) and the agreements of all the banks in the pool have been obtained for a syndicated PGE of €12m - the contract is currently being drawn up.
Perspectives
ESI Group is recognized as providing among the best performing mission critical solutions on the market and benefits from a growing number of solid customer references:
- ESI’s collaboration with Kion Group, the global leader in industrial trucks, is a great illustration. ESI enables Kion Group to accelerate their digital transformation and increase productivity by reducing or even eliminating the need for physical prototypes during production processes.
- In Aerospace, a very challenging sector, ESI secured 100% of the annual software renewal from a major American Aerospace company, including a part of New Business, at the peak of the pandemic. This illustrates the strategic importance of ESI’s solutions.
ESI ‘s key customers seek to improve performance of products throughout the lifecycle, as they know the imperative of transforming to provide outcomes. In this perspective, ESI Group collaborates with one of the leading manufacturers of construction and mining equipment, to reduce their power consumption. Thanks to a dedicated project based on the Hybrid Twin™ concept, ESI’s teams help this manufacturer in the full lifespan of their product – from design to in-service performance improvement.
To meet this demand, ESI Group is accelerating its global transformation plan, developing its sales and increasing its margins focusing on four priority industries and four outcome solutions for each (Pre-certification, Smart Manufacturing, Human Centric and Pre-experience). This value and customer benefits will be illustrated at the upcoming “ESI Live”, Global Digital Forum, Nov 5th, 2020.
Board Decisions
The Board of Directors of September 8, 2020 has decided to convene an Extraordinary Shareholder meeting on October 21, 2020 to mainly offer the opportunity to nominate observers in the perspective of onboarding of new directors.
Upcoming events
Q3 2020 Sales
October 27, 2020
About ESI Group
Founded in 1973, ESI Group is a leading innovator in Virtual Prototyping solutions and a global enabler of industrial transformation. Thanks to the company’s unique know-how in the physics of materials, it has developed and refined, over the last 45 years, advanced simulation capabilities. Having identified gaps in the traditional approach to Product Lifecycle Management (PLM), ESI has introduced a holistic methodology centered on industrial productivity and product performance throughout its entire lifecycle, i.e. Product Performance Lifecycle™, from engineering to manufacturing and in operation. Present in more than 20 countries, and in major industrial sectors, ESI employs 1200 high level specialists around the world and reported 2019 sales of €146 million. ESI is headquartered in France and is listed on compartment B of Euronext Paris.
For further information, go to www.esi-group.com.
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APPENDIX 1
Consolidated financial statements H1 2020
Half-year results press release
Sept 10, 2020
1. Consolidated income statement
Half year closed on June 30, 2020
Reminder: Further to July 18, 2019 General Meeting decision, Group fiscal year closing date has been shifted from January 31 to December 31. Consequently, half-year financial statements refer to period from January 1 to June 30 (previously February 1 to July 31).
Due to important seasonality of Licensing activity in January, results comparison between first half of 2019 and 2020 is not relevant, thus proforma information have been computed (January – June 2020 compared to January - June 2019).
(In € thousands)
H1 2020
Jan to June
H1 2019
Feb to July
Dec 31, 2019
Feb to Dec
Licenses and maintenance
69,214
40,854
75,320
Consulting
11,341
13,585
25,718
Other
256
369
1,159
REVENUE
80,811
54,809
102,197
Cost of sales
(18,378)
(17,886)
(33,873)
Research and development costs
(15,485)
(16,078)
(29,832)
Selling and marketing expenses
(21,613)
(19,539)
(38,841)
General and administrative costs
(12,643)
(9,650)
(21,476)
CURRENT OPERATING RESULT
12,692
(8,345)
(21,825)
Other operating income and expenses
6
28
1
OPERATING RESULT
12,698
(8,317)
(21,824)
FINANCIAL RESULT
(822)
(961)
(2,563)
Share of profit of associates
(189)
(264)
26
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY INTERESTS
11,687
(9,542)
(24,360)
Provision for income tax
(2,813)
2,501
3,446
NET INCOME BEFORE MINORITY INTERESTS
8,874
(7,041)
(20,914)
Minority interests
(5)
103
32
NET INCOME (GROUP SHARE)
8,880
(7,144)
(20,946)
Earnings per share (in euros)
1.57
(1.27)
(4.06)
Diluted earnings per share (in euros)
1.55
(1.26)
(4.01)
Statement of comprehensive income
(In € thousands)
H1 2020
Jan to June
H1 2019
Feb to July
Dec 31, 2019
Feb to Dec
NET INCOME BEFORE MINORITY INTERESTS
8,874
(7,041)
(20,914)
OTHER COMPREHENSIVE INCOME RECYCLED TO INCOME
Change in the fair value of hedging instruments
9
(16)
(12)
Translation differences
(559)
737
866
OTHER COMPREHENSIVE INCOME (LOSS) NOT
RECYCLED TO INCOME
Actuarial gains and losses
(15)
4
(688)
Income and expenses recorded directly in equity
(565)
725
166
COMPREHENSIVE INCOME
8,309
(6,316)
(20,748)
Attributable to Group equity holders
8,318
(6,439)
(20,792)
Attributable to minority interests
(9)
123
44
2. Balance sheet
(In € thousands)
H1 2020
June 30, 2020
Dec 31, 2019
H1 2019
June 30, 2019
ASSETS
NON-CURRENT ASSETS
146,120
152,176
152,224
Goodwill
41,438
41,448
41,550
Intangible assets
61,843
62,139
61,708
Property, plant and equipment
5,181
5,633
5,889
Rights-of-use assets
18,320
20,680
22,077
Shares in affiliated companies
807
1,099
823
Deferred tax assets
15,254
17,204
14,603
Other non-current assets
3,271
3,264
5,570
Cash-flow hedging instruments
7
6
3
CURRENT ASSETS
79,710
82,183
72,818
Trade receivables
32,845
44,733
38,729
Other current receivables
19,078
13,720
14,663
Prepaid expenses
3,094
3,489
3,939
Cash and cash equivalents
24,692
20,241
15,487
TOTAL ASSETS
225,830
233,655
225,042
LIABILITIES
EQUITY
95,673
85,983
99,555
Equity (Group share)
95,611
85,912
98,661
Capital
18,055
18,055
18,053
Additional paid in capital
25,833
25,833
25,818
Reserves and retained earnings
42,392
61,982
61,422
Net income (loss)
8,880
(20,946)
(7,144)
Translation differences
450
987
512
Minority interests
62
71
894
NON-CURRENT LIABILITIES
55,675
65,941
69,883
Long-term share of financial debt
25,957
30,457
33,157
Non-current finance lease obligation
13,504
20,002
21,821
Provision for employee benefits
11,328
11,016
10,315
Deferred tax liabilities
3,761
3,761
3,763
Cash-flow hedging instruments
16
28
55
Other long-term debt
1,109
677
772
CURRENT LIABILITIES
74,463
81,731
55,605
Short-term share of financial debt
13,601
19,143
7,670
Current finance lease obligation
4,350
631
324
Trade payables
8,011
8,632
6,740
Accrued compensation; taxes and others short-term liabilities
27,295
24,230
17,771
Provisions for contingencies, risks and disputes
507
675
701
Deferred income
20,716
28,421
22,400
TOTAL LIABILITIES
225,830
233,655
225,042
3. Consolidated statement of changes in equity
(In € thousands except number of shares)
Number of shares
Share capital
Additional paid in capital
Net income, reserves and retained earnings
Translation differences
Equity attributable to parent company owners
Minority interests
Total Equity
AT JANUARY 31, 2019
6,017,892
18,053
25,818
61,197
(205)
104,861
771
105,633
Change in fair value of hedging instruments
(12)
(12)
(12)
Translation differences
848
848
18
866
Actuarial gains and losses
(682)
(682)
(6)
(688)
Income and expenses recognized directly in equity
(694)
848
154
12
166
Net income
(20,946)
(20,946)
32
(20,912)
COMPREHENSIVE INCOME
(21,640)
848
(20,792)
44
(20,748)
Proceeds from issue of shares
600
2
15
17
17
Treasury shares
22
22
22
Share-based payments
690
690
690
Transactions with non-controlling interests
927
927
(750)
177
Other movements
187
187
6
193
AT DECEMBER 31, 2019
6,018,492
18,055
25,833
41,383
643
85,912
71
85,983
Change in fair value of hedging instruments
9
9
9
Translation differences
(555)
(555)
(4)
(559)
Actuarial gains and losses
(15)
(15)
(15)
Income and expenses recognized directly in equity
(6)
(555)
(561)
(4)
(565)
Net income
8,880
8,880
(5)
8,874
COMPREHENSIVE INCOME
8,874
(555)
8,309
(9)
8,310
Proceeds from issue of shares
Treasury shares
(12)
(12)
(12)
Share-based payments
424
424
424
Transactions with non-controlling interests
(39)
(39)
(39)
Other movements
1,006
1,006
1,006
AT JUNE 30, 2020
6,018,492
18,055
25,833
51,636
88
95,611
62
95,673
CHANGES IN FIRST-HALF 2019
(In € thousands except number of shares)
Number of shares
Share capital
Additional paid in capital
Net income, reserves and retained earnings
Translation differences
Equity attributable to parent company owners
Minority interests
Total Equity
AT JANUARY 31, 2019
6,017,892
18,053
25,818
61,197
(205)
104,861
771
105,633
Change in fair value of hedging instruments
(16)
(16)
(16)
Translation differences
717
717
20
737
Actuarial gains and losses
4
4
4
Income and expenses recognized directly in equity
(12)
717
705
20
725
Net income
(7,144)
(7,144)
103
(7,041)
COMPREHENSIVE INCOME
(7,156)
717
(6,439)
123
(6,316)
Proceeds from issue of shares
Treasury shares
(114)
(114)
(114)
Share-based payments
359
359
359
Transactions with non-controlling interests
(41)
(41)
(41)
Other movements
35
35
35
AT JULY 31, 2019
6,017,892
18,053
25,818
54,280
512
98,661
894
99,556
4. Consolidated statement of cash flows
(In € thousands)
H1 2020
Jan to June
H1 2019
Feb to July
Dec 31, 2019
Feb to Dec
Net income before minority interests
8,874
(7,041)
(20,946)
Share of profit of associates
(189)
(264)
(32)
Amortization and provisions (1)
6,042
5,096
8,882
Net impact of capitalization of development costs
11
(82)
(1,300)
Income taxes (current and deferred)
2,813
(2,501)
(3,446)
Income taxes paid
(401)
(415)
(1,980)
Unrealized financial gains and losses
359
(368)
120
Share-based payment transactions
424
358
690
Gains and losses on assets disposals and other components
4
16
114
Operating cash flow
18,316
(4,722)
(17,879)
Trade receivables
10,873
26,703
19,446
Trade payables
(549)
(2,058)
(293)
Other receivables and other liabilities
(9,979)
(18,534)
(865)
Changes in working capital requirements
345
6,101
18,288
NET CASH FROM OPERATING ACTIVITIES
18,661
1,379
409
Purchase of intangible assets
(577)
(566)
(591)
Purchase of property, plant and equipment
(754)
(713)
(1,390)
Acquisition of subsidiaries, net of cash acquired
-
33
(795)
Other investment operations
190
(785)
(7)
NET CASH USED FOR INVESTING ACTIVITIES
(1,141)
(2,032)
(2,784)
Proceeds from loans
-
8,034
14,422
Repayment of borrowings (1)
(12,763)
(10,030)
(10,148)
Proceeds from issue of shares
-
0
17
Purchase and proceeds from disposal of treasury shares
(12)
(114)
22
NET CASH USED FOR FINANCING ACTIVITIES
(12,775)
(2,110)
4,312
Effect of exchange rate changes on cash and cash equivalents
(294)
164
216
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
4,452
(2,599)
2,153
Opening cash position
20,241
18,086
18,087
Closing cash position
24,692
15,487
20,241
NET CHANGE IN CASH AND CASH EQUIVALENTS
4,452
(2,599)
2,154
(1) The impact of IFRS 16 for 2020 first half is an increase of +€2.7 million in the amortization and provision retreatment and thus an improvement in operating cash-flow, against the repayment of finance lease obligation in the financing part of the Cash Flow Statement for -€2.7 million.
APPENDIX 2
Methodology for preparing proforma information
in the context of change of closing date
Half-year results press release Sept 10, 2020
Further to change of closing date, half-year financial statements refer to period from January 1 to June 30 (previously February 1 to July 31). As January is a significant month in terms of sales (renewal of almost half of the contracts in the licensing business), result for the new half-year differ substantially from those of the previous half-year.
To ensure good comparability of information and in accordance with AMF Recommendation 2013-08, the main aggregates of the financial statements have been recalculated on proforma basis from January to June 2019.
H1 2019 proforma data have been prepared using the same methodology as for 2019 12-months proforma data presented end 2019:
- Additional consolidation closings have been made for ESI Group and all subsidiaries as of December 31, 2018 and June 30, 2019, completing “historical” closings done as of January 31, 2019 and July 31, 2019. These additional closings enabled to produce income statement from January to June 2019 and balance sheet as of June 30, 2019, directly comparable with the balance sheet as of June 30, 2020.
- The process applied for additional consolidation closings was the same as for a usual “historical” closing, for all Group subsidiaries.
- More specifically, the following methods have been applied:
Licensing revenue is related to two performance obligations: access to the software (or license itself) and the maintenance service. Revenue for the access to the license is recognized at a point in time at the moment when control is transferred to the client, and the revenue from maintenance service is recognized on a straight-line basis over the one-year term of the support agreement – which is the usual method of each closing, in accordance with IFRS 15; Service revenue consists mainly of consulting fees. The consulting revenue is recognized according the percentage of completion method at end June 2019, for all entities with monthly monitoring. In the absence of monthly monitoring, a prorata by month has been calculated – this approach being acceptable given the month-to-month linearity of this activity’s sales; Costs directly linked to revenue (such as royalties paid to third parties or commissions paid to agents) were calculated on the basis of monthly revenue; Staff costs excluding bonuses result from the payroll and social security charges paid each month, related accruals have been calculated according to the actual situation existing at each closing date. Bonus accruals have been adjusted end June 2019 using same hypothesis than calculation done end June 2020; The net impact of the capitalization of development costs and net charges to amortization, depreciation and provisions were calculated at each closing date; Some other external costs may result from prorata temporis estimates, such as office rental expenses which are invoiced quarterly.Components of the cash flow were determined through a cash flow statement drawn up according to the usual consolidation process.
APPENDIX 3
Reconciliation of EBIT with EBITDA before IFRS 16 impact
Half-year results press release
Sept 10, 2020
(In € million)
H1 2020
Jan to June
H1 2019
Jan to June
PROFORMA
H1 2019
Feb to July
A
EBIT
12,7
19,6
(8,3)
B
Depreciation & Amortization before net depreciation of accounts receivable and amortization of capitalized developement costs
(5,3)
(4,5)
(4,6)
A-B=C
EBITDA
18,0
24,1
(3,7)
D
Lease retreatment IFRS 16
3,0
2,8
2,8
E
Amortization IFRS 16
(2,8)
(2,8)
(2,8)
D+E=F
IFRS 16 impact on EBIT
0,2
0,0
0,0
A-F
EBIT before IFRS 16 impact
12,5
19,6
(8,3)
C-D
EBITDA before IFRS 16 impact
15,0
21,3
(6,5)
Reminder:
- EBITDA presented every half-year include net depreciation of accounts receivable (net allowance of -€0,4 million in H1 2020) and net impact of development costs capitalization (capitalization net of amortization, impact of -€11 thousand in H1 2020)
- IFRS 16: Applicable since fiscal year 2019, IFRS 16 specifies how to recognize and measure lease assets and liabilities (property, plant and equipment – real estate and vehicles – and lease liabilities). The lease expense is now broken down between amortization and depreciation and the interest on the debt. ESI recognized the assets and liabilities related to the right to use offices and leased vehicles. The impact of IFRS 16 on EBIT remains limited.
1 New lease accounting standard applicable as of January 1, 2019
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