Half-year sales and results 2020
- Half year revenue decreased 8.5%; costs contained; stable gross margin & EBITDA margin down from 24.2% to 18.6%
- Half-year sales supported by strong recurrence (87.7%), resiliency driver of ESI’s business model
- Cash management under control (€24.7m vs. €16.3m in June FY19)
- Growing recognition & support for ESI’s value in mission critical industrial transformation
ESI Group, Paris, France, (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.
“In H1, while we experienced a sudden decrease in our customers 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.”Cristel de RouvrayChief Executive Officer of ESI Group
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.
- 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.
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.
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.
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.
Q3 2020 Sales
October 27, 2020
The PDF version of the press release (including appendices) is available below.
The Investor's Meeting slideshow is available here.