Business Wire | Sep 10, 2020 12:00PM EDT

ESI Group: Half-year Sales and Results 2020

Sep. 10, 2020

PARIS--(BUSINESS WIRE)--Sep. 10, 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."

((eu)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 IFRS16^1) 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 (euro)80.8m, down 8.5% (at current rates) from the same period last year. As the entire world entered confinement in Q2, revenue contracted (euro)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(euro)) increased by 1.2%, while New Business (5M(euro)) 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 (euro)15.0m (18.6%) compared to (euro)21.3m (24.2%) over the same period last year. * H1 EBIT (before IFRS 16) is (euro)12.5m (15.4%) vs. (euro)19.6m (22.2%) in H1FY19. * Gross margin is stable, at 77.3% (vs. 77.7%). Costs to EBIT are also stable ((euro)68.3m in H1FY20 compared to (euro)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 (euro)24.7m at June 30, 2020 (vs. (euro)16.3m end June 2019).

Gross financial debt is (euro)39.6m (vs. (euro)49.6m as of December 2019) and net debt decreased to (euro)14.9m (vs. (euro)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 ((euro)1.75m) and the agreements of all the banks in the pool have been obtained for a syndicated PGE of (euro)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(tm) 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(tm), 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 (euro)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).

H1 2020 H1 2019 Dec 31,(In (eu) thousands) 2019 Jan to Feb to June July 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 11,687 (9,542) (24,360)INTERESTS

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

H1 2020 H1 2019 Dec 31,(In (eu) thousands) 2019 Jan to Feb to June July 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 9 (16) (12)instruments

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 (565) 725 166equity

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

H1 2020 H1 2019(In (eu) thousands) Dec 31, June 30, 2019 June 30, 2020 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 27,295 24,230 17,771short-term liabilities

Provisions for contingencies, risks and 507 675 701disputes

Deferred income 20,716 28,421 22,400

TOTAL LIABILITIES 225,830 233,655 225,042

3. Consolidated statement of changes in equity

Net Equity(In (eu) Additional income, attributablethousands Number of Share paid in reserves Translation to parent Minority Totalexcept number shares capital capital and differences company interests Equityof shares) retained owners earnings

AT JANUARY 31, 6,017,892 18,053 25,818 61,197 (205) 104,861 771 105,6332019

Change in fairvalue of (12) (12) (12)hedginginstruments

Translation 848 848 18 866differences

Actuarial gains (682) (682) (6) (688)and losses

Income andexpensesrecognized (694) 848 154 12 166directly inequity

Net income (20,946) (20,946) 32 (20,912)

COMPREHENSIVE (21,640) 848 (20,792) 44 (20,748)INCOME

Proceeds from 600 2 15 17 17issue of shares

Treasury shares 22 22 22

Share-based 690 690 690payments

Transactionswith 927 927 (750) 177non-controllinginterests

Other movements 187 187 6 193

AT DECEMBER 31, 6,018,492 18,055 25,833 41,383 643 85,912 71 85,9832019

Change in fairvalue of 9 9 9hedginginstruments

Translation (555) (555) (4) (559)differences

Actuarial gains (15) (15) (15)and losses

Income andexpensesrecognized (6) (555) (561) (4) (565)directly inequity

Net income 8,880 8,880 (5) 8,874

COMPREHENSIVE 8,874 (555) 8,309 (9) 8,310INCOME

Proceeds from issue of shares

Treasury shares (12) (12) (12)

Share-based 424 424 424payments

Transactionswith (39) (39) (39)non-controllinginterests

Other movements 1,006 1,006 1,006

AT JUNE 30, 6,018,492 18,055 25,833 51,636 88 95,611 62 95,6732020

CHANGES IN FIRST-HALF 2019

Net Equity(In (eu) Additional income, attributablethousands Number of Share paid in reserves Translation to parent Minority Totalexcept number shares capital capital and differences company interests Equityof shares) retained owners earnings

AT JANUARY 31, 6,017,892 18,053 25,818 61,197 (205) 104,861 771 105,6332019

Change in fairvalue of (16) (16) (16)hedginginstruments

Translation 717 717 20 737differences

Actuarial gains 4 4 4and losses

Income andexpenses recognized directly in (12) 717 705 20 725equity

Net income (7,144) (7,144) 103 (7,041)

COMPREHENSIVE (7,156) 717 (6,439) 123 (6,316)INCOME

Proceeds from issue of shares

Treasury shares (114) (114) (114)

Share-based 359 359 359payments

Transactionswith (41) (41) (41)non-controllinginterests

Other movements 35 35 35

AT JULY 31, 6,017,892 18,053 25,818 54,280 512 98,661 894 99,5562019

4. Consolidated statement of cash flows

H1 2020 H1 2019 Dec 31,(In (eu) thousands) 2019 Jan to Feb to June July 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 11 (82) (1,300)costs

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 4 16 114components

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 - 33 (795)acquired

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 (12) (114) 22shares

NET CASH USED FOR FINANCING ACTIVITIES (12,775) (2,110) 4,312

Effect of exchange rate changes on cash and cash (294) 164 216equivalents

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 +(euro)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 -(euro)2.7 million.

APPENDIX 2

Methodology for preparing proforma informationin 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

H1 H1 2019 H1 2020 2019 (In (eu) million) Jan to Jan June Feb to to June PROFORMA July

A EBIT 12,7 19,6 (8,3)

Depreciation & Amortization before net depreciation ofB accounts receivable and amortization of capitalized (5,3) (4,5) (4,6) developement costs

A-B EBITDA 18,0 24,1 (3,7)=C



D Lease retreatment IFRS 16 3,0 2,8 2,8

E Amortization IFRS 16 (2,8) (2,8) (2,8)

D+E IFRS 16 impact on EBIT 0,2 0,0 0,0=F



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 -(euro)0,4 million in H1 2020) and net impact of development costs capitalization (capitalization net of amortization, impact of -(euro)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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CONTACT: ESI - Shareholder Relations Florence Barr investors@esi-group.com +33 1 49 78 28 28

CONTACT: SHAN - Press & Shareholder Relations Florent Alba ESIgroup@shan.fr