ESI : H1-FY21 - Financial Report

HALF-YEAR FINANCIAL REPORT

AS OF JUNE 30, 2021

SUMMARY
1. MANAGEMENT REPORT...............................................................................................................................................	2
1.1. Overall presentation....................................................................................................................................................	3
1.2. Revenues and consolidated financial statements...................................................................................................	3
1.3.Cash-flows....................................................................................................................................................................	5
1.4. Balance sheet...............................................................................................................................................................	5
1.5. Significant events of the period..................................................................................................................................	5
1.6. Outlook..........................................................................................................................................................................	6
1.7. Risk factors...................................................................................................................................................................	6
1.8. Transactions with related parties...............................................................................................................................	7
1.9. Information on shareholding.......................................................................................................................................	7
2. INTERIM FINANCIAL STATEMENTS...........................................................................................................................	9
2.1. Consolidated income statement................................................................................................................................	9
2.2.Balance sheet................................................................................................................................................................	11
2.3. Consolidated statement of changes in equity..........................................................................................................	12
2.4.Consolidated statement of cash flows.......................................................................................................................	14
2.5.Notes to the interim consolidated financial statements...........................................................................................	15
Note 1. Accounting principles................................................................................................................................................	15
Note 2. Significant events for the firsthalf-year....................................................................................................................	16
Note 3. Scope of consolidation...............................................................................................................................................	16
Note 4. Operating data...........................................................................................................................................................	18
Note 5. Intangible assets.........................................................................................................................................................	19
Note 6. Financing...................................................................................................................................................................	20
Note 7. Tax.............................................................................................................................................................................	21
Note 8. Subsequent events.....................................................................................................................................................	21
3. STATUTORY AUDITORS' REVIEW REPORT ON THE 2019 HALF YEAR FINANCIAL INFORMATION..............	22
4. DECLARATIONS BY THE PERSON RESPONSIBLE OF THE HALF YEAR FINANCIAL REPORT.......................	24

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1. MANAGEMENT REPORT

Preamble

The financial information below presents the activity and the financial statements of ESI Group, a French "société anonyme", registered with the Creteil Trade and Company Register under number 381 080 225. The Group's headquarters are located 3 bis rue Saarinen, Immeuble Le Séville, 94528 Rungis Cedex, France. The company is listed in compartment B of Euronext Paris, under the ISIN code: FR 0004110310.

In this report, ESI Group is hereinafter referred to as "ESI Group" or the "Company". The Company and all its affiliated companies are hereinafter referred to as the "Group" or "ESI".

1.1. Overall presentation

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, the Company 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.

1.2. Revenues and consolidated financial statements

Revenue growth and positive momentum on profitability indicators

Half year revenues were €81.8m illustrating the stability of the Group's recurring business and the rebound of the New Business activity with a growth of 18.4% and 21.8% cer (from €5.0m in H1-FY20 to €5.9m in 2021). In Q2 2021, new business increased by 67.8% cer to €2.9m from €1.8m in Q2 2020.

As part of its healthy run-rate initiative, ESI Group continues its cost management started in 2020 and shows improved gross margin rates from 77.3% in H1 2020 to 78.2% in 2021 and increased adjusted EBIT by +43.9%. Net result jumps 25.1% to €11.1m.

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Key figures

Half year closed on June 30, 2021

(€m)	6/30/2021	6/30/2020		Change			Change
		6m		6m				Constant exchange
									rate (cer)
Revenue	81.8	80.8		+1.3%			+4.3%
Licenses	70.0	69.2		+1.2%
Services	11.8	11.6		+1.8%
Gross margin	64.0	62.4		+2.4%			+5.7%
% revenue		78.2%		77.3%
EBIT (adjusted1)		18.0		12.5		+43.9%			+50.8%
% revenue		22.0%		15.5%
EBIT		18.2		12.7		+43.2%			+50.0%
Net result	11.1	8.9		+25.1%			+34.1%
% revenue		13.5%		11.0%
Cash		36.2		24.7		+46.4%

3 regions grew (excl. forex impact) and Americas is leading the growth (+10.4%)

The geographical breakdown of half-year revenues is almost identical to that of the first half of 2020: the EMEA region represents 52.1% (vs. 51.6%) of total revenues, Asia represents 33.5% (vs. 34.1%) and the Americas represent 14.4% (vs. 14.3%). Excluding the forex impact, the Americas region was the one with the highest increase: 10.4% compared to 5.2% in Asia and 2.0% in EMEA.

Sales in line with the key strengths of the Group

The Group's main customers continue to show interest in ESI's solutions, which reinforces the relevance of the value provided.

The Group's four priority focus industries - Automotive & Ground Transportation, Aeronautics & Aerospace, Heavy Industry, Energy - accounted for around 88.6% of revenues before deferred. ESI Group's sales was driven by the Automotive market, first industry of the Group, with a 2.3% increase at current rate.

ESI strengthens its cash flow and its balance sheet

During 2021 first half, ESI Group improved its Free Cash Flow (FCF) by €2.9m compare to the first semester 2020 thanks to lower capital expenditure and higher net cash margin.

The Group strengthens its balance sheet with a strong cash position at €36.2m, compared to €24.7m in June 2020. The net financial debt is at €6.8m vs €14.9m end of June 2020, with a gearing to 6.9% (Net debt/Equity) vs 15.6% end of June 2020.

1 Adjusted EBIT is a non-GAAP measure composed of EBIT (IFRS) retreated from the impact of IFRS 16 standard. This impact amounts to €+0.2m for 2021 first half, composed of lease retreatment for €+3.0m and amortization for €-2.8m. This impact and its components are stable vs 2020 first half.

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1.3. Cash-flows

Cash position amounted to €36.2m as at June 30, 2021, compared with €22.5m at December 31, 2020 and €24.7m at June 30, 2020.

Evolution of cash position between December 31, 2020 and June 30, 2021 is mainly due to:

• A net cash margin of €18m (before impact of IFRS 16 standard representing €2.7m) compared to €15.7m in 2020 first half, this increase resulting mostly from raise in profitability;
• A change in WCR of €0.2m compared to €0.3m in 2020 first half;
• Capital expenditures of -€0.6m compared to -€1.3m in 2020 first half;
• Payment of yearly installment of syndicated loan for -€4.5m.

Increase by €11.5m of cash position between June 30, 2020 and June 30, 2021 results mostly from:

• €13.75m received from two State-guaranteed loans (PGE) signed in 2020 second half;
• Payment of two yearly installments of syndicated loan: for 2020 for -€3.5m paid in 2020 second half (ESI benefited from French Covid-related governmental measures enabling 6 months postponement in payment), and for 2021 for -€4.5m paid in 2021 first half;
• Capital expenditures of -€0.7m for 2020 second half and -€0.6m for 2021 first half;
• Net cash generated from operating activities of €5.3m mostly resulting from operating result of 2020 second half and 2021 first half.

ESI Board meeting held on June 22, 2021 validated the extension of reimbursement of both State-guaranteed loan pursuant to options proposed by the contracts signed respectively with BPI France in August 2020 for €1.75m and with ESI French banking pool in October 2020 for €12m. Both State-guaranteed loans will be reimbursed over a five year period, with start of repayment differed by one year. At the date of approval of financial statements by the Board related contract amendments are under signing.

As of June 30, 2021, ESI Group held 6.0% of its capital in treasury shares.

1.4. Balance sheet

Gross financial debt is €43m (vs. €47.4m as of December 2020) and net debt decreased to €6.8m (vs. €24.9m) related to business seasonality. The main flow of the period is the -€4.5m payment of syndicated loan installment. Gearing (net debt-to-equity) thus stood at 6.9% compared with 28.4% at end 2020.

1.5. Significant events of the period

At the operational level, ESI Group is accelerating the execution of its worldwide transformation plan, which is focused on developing its revenues and improving its margins. In the first half of 2021, the Group has recorded initial positive signs showing overall growth (+4.3% at constant rate), particularly in New Business with +21.8% at constant rate (from €5.0m in the first half of 2020 to €5.9m in 2021), and a significant improvement in margins and financial indicators. A 3-year strategic plan will be presented on October 5, 2021.

In terms of governance, ESI Group is transforming itself by adopting recognized best practices for an international listed company.

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