EVS Broadcast Equipment reports 2020 results

We therefore continued executing our PLAYForward strategy, materialized by new solutions and the acquisition and integration of Axon, extending the scope of EVS solutions in the Media Infrastructure domain. I am very pleased with the current synergies already materialized at a higher level than initially planned and the dynamic of the integration with two teams fruitfully collaborating to win more business.

The launch of LSM-VIA – the new replay and highlight remote control device of EVS, particularly fitting the needs of remote production – is a success and we currently experience a strong appetite from our operators community to produce content leveraging the new flexibility offered by the device.”

Commenting on the results and prospects, Yvan Absil, CFO, said: “Our second half reflects the continued impact of the sanitary crisis. The order intake in the last quarter was fairly strong giving us a solid order book as we enter 2021. The environment remained challenging in this second part of the year as we continued our actions to keep our costs under control. We are particularly pleased with the results of our cost control initiatives, which allowed us to keep our operating expenses increasing only 1.9% year over year following the integration of Axon. Given the uncertainties on the market, these cost management efforts will continue this year as part of our FOCUS21 plan, allowing us to forecast a slight growth of our operating expense following the integration of Axon in 2021 vs 2020. Our strong order book of EUR 44.1 million (including Big Event Rentals) does give us some positive but prudent outlook for 2021”.

Revenue in 2H20 and FY20

EVS revenue amounted to EUR 48.5 million in 2H20, a 22.2% decrease compared to a 2H19 (-19.9% at constant currency and excluding Big Event Rentals). Revenue of solutions in LSP (Live Service Providers) represented 28.3% of the total group revenue. LAB (Live Audience Business) revenue represented 71.5% of total revenue in 2H20, and Big Event Rentals represented 0.3% of total revenue.

In FY20, EVS revenue reached EUR 88.1 million, a decrease by 14.8% (-14.3% at constant currency and excluding the Big Event Rentals) compared to FY19. Out of the 2020 revenue, Live Service Providers, the most impacted by the COVID crisis had their  revenues decreasing by 39% YoY. It represented 34.2% of the total revenues (vs 48.1% in 2019). Live Audience Business saw their revenues increase by 8.3% YoY. It represented 64.3% of the total revenues (vs 50.6% in 2019). Big events rentals represented 1.4% of the total revenues.

Since May 1^st, 2020 Axon (Media infrastructure), also impacted by the Covid Crisis contributed for EUR 7,9 million to 2020 revenues and EUR -1,6 million to net profit in the consolidated income statement for the 8 month-period ended 31 December 2020.

Geographically, revenues (excl. Big Event Rentals) are distributed in FY20 as follows:

• Europe, Middle-East and Africa (“EMEA”): EUR 41.0 million (-14.1% YoY)
• Americas: EUR 26.5 million  (-25.1% YoY)
• Asia & Pacific (“APAC”): EUR 19.3 million (+2.3% YoY)

Second half 2020 results

In 2H20, consolidated gross margin was 65.0%, compared to 72.9% in 2H19. This lower gross margin was mainly due to product mix which now includes Media Infrastructure products (ex-Axon) which have a lower gross margin than other EVS products. Operating expenses increased by 8.5% vs 2H19, mainly due the integration of Axon. The 2H20 EBIT margin was 4.5%. Income taxes were EUR -2.5 million following the adjustment for uncertain tax provision. Group net profit amounted to EUR 3.8 million in 2H20, compared to EUR 15.9 million in 2H19. Basic net profit per share amounted to EUR 0.28 in 2H20 (compared to EUR 1.14 in 2H19).

2020 results

Consolidated gross margin was 66.5% for FY20, compared to 71.6% in FY19 due to the inclusion of Media Infrastructure (ex-Axon) into the product mix. Operating expenses increased by 1.9% YoY, thanks to strict cost management and careful headcount management despite inclusion of Axon costs for 8 months. The FY20 EBIT margin was 6.4% at EUR 5.6 million (or 7.7% at EUR 6.8 million excluding a one-time exceptional cost of EUR 1.1 million for the goodwill impairment from the SVS acquisition in 2014). Income taxes in FY20 amounts to EUR -2.8 million, mainly due to the effect of the innovation box regime in Belgium and other R&D tax incentives as well as the reversal of the uncertain tax provision.
Group net profit amounted to EUR 7.2 million in FY20, compared to EUR 19.6 million in FY19. Basic net profit per share amounted to EUR 0.53 in FY20, compared to EUR 1.40 in FY19.

Staff

At the end of 2020, EVS employed 550 people (FTE). This is an increase by 86 team members compared to the end of 2019, following the integration of 80 team members from Axon. Average FTE in 2020 was 514 vs 465 in 2019.

Balance sheet and cash flow statement

Total equity represents 74.0% of the total balance sheet as of the end of 2020. Inventories amount to EUR 22.6 million. This is an expected increase compared to the end of December 2019, reflecting the preparation of the big sporting events in 2021 and the Media infrastructure inventory. In the liabilities, provisions include mainly the provision for technical warranty on EVS products for labor and parts.

Lands and building mainly include the headquarters in Liège. Annual depreciation on this building is approximately EUR 2 million. Liabilities include EUR 17.0 million of financial debt (including long term and short-term portion of it), mainly relating to the Axon acquisition (EUR 5.0 million) and the lease liabilities (EUR 11.8 million). EVS repays EUR 1.1 million per year for the loan. Full details about IFRS 16 impact on the consolidated financial statements can be seen in note 5.2 and 5.12.

The net cash from operating activities amounts to EUR 17.0 million in FY20. On December 31, 2020, cash and cash equivalents total EUR 52.7 million. This is a decrease compared to the end of 2020, following negative cash flows from the share buyback program (EUR 7.9 million) and acquisition of Axon.

At the end of December 2020, there were 14,327,024 EVS shares outstanding, of which 928,207 were owned by the company. At the same date, 325,832 warrants were outstanding with an average exercise price of EUR 20.17 and an average maturity of March 2025.

2020 – different realities for the different market pillars

From a market pillar perspective, we observed different dynamics on the market during this first pandemic year.

Our LSP customers (Live Service Providers) did suffer a lot with a long list of cancelled events forcing them to let their OBVans on their parking. They focused on getting their business through this difficult period in Q2 and slowly started preparing for the events during the second half of the year. Organizing the production linked to the events was very challenging. They thus focused on short term operational issues more than planning the evolution of their infrastructure, strictly managing their cash. This explains the significant drop of revenue in 2020 compared to 2019 (-39%).

Our LAB customers (Live Audience Business) market offered a different perspective. With countries locked down at home, broadcasters experienced exceptional levels of audience, even if suffering from significant decrease of advertising revenues. Broadcasters continued their modernization projects. Some broadcasters even considered the need to accelerate the modernization to support remote production workflows. LAB revenues slightly increased in 2020 vs 2019 (+8%) and LAB customers represent the majority of the order book for 2021. As announced in 2019, LAB represents a growth potential for EVS, even materialized during the challenging year 2020.

BER (Big Events Rental) market stayed flat due to major summer sport events postponed to 2021. EVS managed to preserve the contracts and supported the customers in the adaptation of the production to the new realities.

From a regional perspective, it must be noticed that the rhythm of the pandemic has been different in APAC with a sooner recovery and a shorter lock down cumulated period. Revenues in APAC region have been higher in 2020 than in 2019 (+2.3% YoY). NALA was the most affected region with a major decrease (-25% YoY). EMEA region also experienced a significant decrease (-14% YoY), especially in the second part of the year.

For a similar perimeter as EVS on Jan 1^st, OPEX have been significantly reduced due to strong bonus reduction, several layers of cost optimizations and the cancellation of marketing expenses linked to NAB2020 and IBC2020 shows.

2021 financial outlook and beyond

2021 remains a challenging year to predict, considering the timing of the vaccine, the presence of different virus variants forcing authorities to organize long lockdown periods and the consequences on events and media industry.

In BER market pillar, EVS 2021 revenues will be influenced by the occurrence of the major summer sport events, representing around EUR 12.9 million of revenues. At this time, the events are still planned, and all the teams are preparing the infrastructure accordingly.

We expect a recovery in the LSP market with an order book on Dec 31^st, 2020 higher than the one of 2019 at the same date.

Considering the order book, LAB is expected to be the structural market pillar supporting the growth of revenues in 2021 with continued modernization projects.

We can also observe that we managed to increase our “long term order book” (beyond 2021), nearly doubling the ones of the 3 previous years. This result from the availability of OPEX offerings, SLA orders covering longer periods of time and multi-year revenue recognition linked to large modernization contracts.

2021 OPEX costs should slightly increase vs 2020 as it will include a full year of Axon costs.

Status of the control by the Statutory Auditors

The Statutory Auditor EY Réviseurs d’Entreprises SRL confirmed that their audit work on the annual consolidated financial statements, which is substantially complete, did not reveal significant matters requiring adjustments to be brought to the accounting information presented in the press release.

Conference call – Registration required

EVS will hold a conference call in English today at 3.30 pm CET for financial analysts and institutional investors. Other interested parties may join the call in a listen-only mode. The presentation used during the conference call will be available shortly before the call on the EVS website.

Participants must register in advance of the conference using the link provided below. Upon registering, each participant will be provided with Participant Dial In Numbers, Direct Event Passcode and unique Registrant ID.

1. Online registration: https://emea.directeventreg.com/registration/7199544
2. Webcast Player URL: https://edge.media-server.com/mmc/p/65bsvo7a

Corporate Calendar:

May 18, 2021: Ordinary General Meeting
May 20, 2021: 1Q21 trading update
August 26, 2021: 1H21 results
November 18, 2021: 3Q21 trading update

* representing a SRL

Condensed Interim Consolidated financial statements

ANNEX 1: CONDENSED CONSOLIDATED INCOME STATEMENT

  (1)     The diluted earnings per share does include 187,000 warrants attributed in December 2020 and outstanding at the end of the year with an exercise price below the share price. These 187,000 warrants have maturity of October 2026. It does not include 138,832 warrants outstanding at the end of 2020 as these are not exercisable given the exercise prices were above the share price.

ANNEX 2: CONDENSED STATEMENT OF FINANCIAL POSITION
(BALANCE SHEET)

ANNEX 3: CONDENSED STATEMENT OF CASH FLOWS

ANNEX 4: CONDENSED STATEMENT OF CHANGE IN EQUITY

ANNEX 5: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.1: BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The full year 2020 and 2019 information in this condensed financial statement on pages 7 to 10 of this financial report is based on EVS Group’s consolidated financial statements of EVS Group for the 12 month-period ended December 31, 2020, which have not yet been published. This condensed interim financial statements of the Group were authorized for issue by the Board of Directors on February 24, 2021.

This interim report only provides an explanation of events and transactions that are significant to an understanding of the changes in financial position and reporting since the last annual reporting period, and should therefore be read in conjunction with the full 2020 consolidated financial statements from which these condensed financial statements have been derived and which are planned to be published on EVS Group’s website by April 17, 2021.

These condensed interim financial statements have been prepared and presented in accordance with the International Financial Reporting Standards (IFRS), as adopted for use in the European Union. The accounting framework and standards adopted by the European Commission can be accessed through the following link on the website: http://ec.europa.eu/finance/company-reporting/index_en.htm.

NOTE 5.2: SIGNIFICANT ACCOUNTING POLICIES AND METHODS

These condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, as issued by the IASB, and as adopted by the EU. The accounting policies and methods adopted for the preparation of the Company's IFRS consolidated financial statements are consistent with those applied in the 2019 consolidated financial statements. The Company’s IFRS accounting policies and methods are available in the 2019 annual report on www.evs.com, except for the new, amended or revised IFRS standards and IFRIC Interpretations that have been adopted as of January 1, 2020 which are listed hereunder:

• IBOR reform Phase 1 amendments – effective 1 January 2020
• IFRS 3 amendments – effective 1 January 2020
• IFRS 16 amendment – effective 1 June 2020
• New materiality definition – effective 1 January 2020
• Updated references to the Conceptual Framework – effective 1 January 2020

The adoption of these new, amended or revised pronouncements did not have significant impact on the consolidated financial statements of the Group.

NOTE 5.3: SEGMENT REPORTING

From an operational point of view, the company is vertically integrated with the majority of its staff located in the headquarters in Belgium, including the R&D, production, marketing and administration departments. Following Axon acquisition, EVS now also has a portion of its staff located in Netherlands and UK, mainly R&D and production teams. The Axon products, forming the Media Infrastructure part of the solution blueprint are integrated into EVS solution portfolio. The majority of the investments and costs are still located at the level of the Belgian parent company. The other foreign subsidiaries are primarily sales and representative offices. The Chief Operating Decision Maker, being the Executive Committee, reviews the operating results, operating plans, and makes resource allocation decisions on a company-wide basis. Revenue related to products of the same nature (digital broadcast production equipment) are realized by commercial polyvalent teams. The company’s internal reporting is the reflection of the above-mentioned operational organization and is characterized by the strong integration of the activities of the company.

By consequence, the company is composed of one segment according to the IFRS 8 definition, and the consolidated income statement of the group reflects this unique segment. All long-term assets are located in the parent company EVS Broadcast Equipment SA in Belgium.

The company provides only one type of solution: live video technology for broadcast and new media productions with a consistent modular architecture. This is the product of EVS. There are no other significant classes of business, either singularly or in aggregate. Indeed, identical modules can meet the needs of different markets. Our customers themselves are often multi-markets. Providing information for each module is therefore not relevant for EVS.

At the geographical level, our activities are divided into the following regions: Asia-Pacific (“APAC”), Europe, Middle East and Africa (“EMEA”), and America (“NALA”). This division follows the organization of the commercial and support services within the group, which operate worldwide. A fourth region is dedicated to the worldwide events (“Big Event Rentals”).

The company provides additional information with a presentation of the revenue by market pillar: “Live Service provider” (LSP), “Live Audience Business” (LAB) and “Big Event Rentals” (BER) for rental contracts relating to the big sporting events.

Finally, sales are presented by nature: systems and services.

5.3.1. Information on revenue by destination

Revenue can be presented by Market Pillar: “Live Service provider”, “Live Audience Business” and “Big Event Rentals”. Maintenance and after sale service are included in the complete solution proposed to the clients.

The above presentation includes the latest and refined classification of our customers by market pillar for both 2019 and 2020.

5.3.2. Information on revenue by geographical information

Activities are divided by three regions: Asia-Pacific (“APAC”), Europe, Middle East and Africa (“EMEA”), and “Americas”. Aside of them, we also identify a fourth category “Big Event Rentals”.

Revenue realized in Belgium (the country of origin of the company) with external clients represent less than 5% of the total revenue for the period. In the last 12 months, the group realized significant revenue with external clients (according to the definition of IFRS 8) in two countries: The United States & the United Kingdom (respectively, EUR 22.8 million & EUR 9.0 million in the last 12 months).

5.3.3. Information on revenue by nature

Revenue can be presented by nature: systems and services.

Services include advice, installations, project management, training, maintenance, and support.

5.3.4. Information on important clients

Over the last 12 months, no external client of the company represented more than 10% of the revenue.

NOTE 5.4: EQUITY SECURITIES

The number of treasury shares has changed as follows during the period, together with the outstanding warrants:

In 2020, the company repurchased 544,307 shares on the stock market (under a share buyback program started on October 25, 2018 and May 6, 2020). No shares were used to satisfy the exercise of warrants by employees. The Ordinary General Meeting of shareholders of May 19, 2020 approved the allocation of 16,280 shares to EVS employees (grant of 54 shares to each staff member in proportion to their effective or assimilated time of occupation in 2019) as a reward for their contribution to the group successes. The expense related to this profit-sharing plan amounts to EUR 0.3 million and has been recorded under the caption “Stock based compensation and ESOP plan”. As a consequence, at the end of 2020, the company owned 928,207 own shares at an average historical price of EUR 19.21. At the same date, 325,832 warrants were outstanding (no grant, no exercise and 167 cancellations in 2020) with an average strike price of EUR 20.17 and an average maturity of March 2025.

NOTE 5.5: DIVIDENDS

The Ordinary General Meeting of May 19, 2020 approved the payment of a total gross dividend of EUR 0.50 per share, including the interim dividend of EUR 0.50 per share paid in November 2019, leading to no final gross dividend.

NOTE 5.6: OTHER NET FINANCIAL INCOME / (EXPENSES)

The functional currency of EVS Broadcast Equipment S.A. as well as all of the subsidiaries is the euro, except for the American EVS Inc. subsidiary, whose functional currency is the US dollar. The presentation currency of the consolidated financial statements of EVS Group is the euro. For more information on exchange rates, see also the note 5.9.

NOTE 5.7: INCOME TAX EXPENSE

Reconciliation of the tax charge

The effective tax charge of the group obtained by applying the effective tax rate to the pre-tax profit of the group, has been reconciled for the two periods with the theoretical tax charge obtained by applying the theoretical tax rate:

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