A N N U A L R E P O R T

Transcription

1 A N N U A L R E P O R T w w w. e v s - g l o b a l. c o m

2 T A B L E O F C O N T E N T S INFORMATION TO SHAREHOLDERS Letter to the shareholders 3 Board of Directors as at 31/12/02 4 Historical background 5 Management Report 7 Shareholding 14 Result allocation 15 Stock Market Report 16 PRODUCTS AND MARKETS Integrated production systems 20 Broadcast solutions 22 Radio management systems 26 Digital cinema cinestore 28 Professional fairs CONSOLIDATED FINANCIAL STATMENTS General information 33 Corporate governance 35 Auditor s report 38 Income statement 39 Balance sheet 40 Appendices and comments 42 Cash flow statement 52 PARENT COMPANY FINANCIAL STATMENTS Income statement 55 Balance sheet 56 Appendix 58 Major Technical Terms 59

3 A N N U A L R E P O R T A N N U A L R E P O R T [ 1 ]

4 I N F O R M A T I O N T O S H A R E H O L D E R S EVS BROADCAST EQUIPMENT S.A. EVS Broadcast Equipment Inc. USA New Jersey 100 % % NETIA S.A. France EVS France S.A. France % 100 % NETIA Inc. USA New Jersey EVS Italia Srl Italy 95 % Branch Asia Pacific Hong Kong EVS Broadcast UK Ltd United Kingdom 100 % Branch Pacific Australia Australia Sydney EVS Broadcast Equipment Ltd Hong Kong % Branch Paris France Paris Branch Asia Pacific Hong Kong Branch Benelux Belgium Liège % FAR S.P.R.L. Belgium Liège/Huy % MECALEC SMD S.A. Belgium Liège [ 2 ] A N N U A L R E P O R T

5 L E T T E R T O T H E S H A R E H O L D E R S The overall economic environment has not improved compared to However, EVS successfully reached the 2002 full-year forecast announced early in the year. Even with the week economy in the beginning of 2003, we foresee a fruitful year for EVS. This slower economic growth led us to make some reorganisation decisions, notably the reduction of staff down to 175 in order to improve overall profitability. Our development potential remains strong and we thank all our colleagues for their continued commitment to the Group success. The revenues for 2002 amount to EUR 36.4 million, i.e. 5% more than 2001, and the net result from operations reached EUR 4.7 million or EUR 1.74 per share, equivalent to a Price/Earning ratio of This profit allows us, for the fifth consecutive year, to propose the payment of a gross dividend of 48 Eurocents per share. In a very bearish stock market, the stock price succeeded in remaining quite stable over the period. Given the relatively low stock valuation, EVS pursued its own shares buy back program which has been initiated 2 years ago. EVS currently owns approximately 5% of its shares. As announced in 2001, the third generation of our hard disk recorders has reinforced our worldwide leadership in the field of Live Slow Motion replays and highlights. It has also allowed the successful release of the High Definition Servers with first major sales during the last quarter of This promises a future steady growth for these new products in the USA, Japan, Korea and Australia before that new television format reaches Europe. The Company s financial position continues to improve, going from a net debt of EUR 0.5 million in 2001 to a net cash position of EUR 3.5 million in Long-term debts amount to EUR 6.0 million, mainly for financing fixed assets (buildings). In order to boost our future growth, we invested in a new m2 building, which will be ready to be occupied in May EVS ended the year with EUR 9.5 million in cash and marketable securities versus EUR 5.6 million in We are also enjoying the success of our diversification policy in other areas of digital video. Indeed, RTL-TVi has chosen EVS CleanEdit to equip its future digital newsroom. This installation will be a sound reference for our non-linear editing MPEG-2 long GOP compression technology. We also deployed our servers in more than 40 digital cinemas, notably in Sweden, China and Brazil. This demonstrates the potential of the Digital Cinema technology to equip the cinema screens around the world. Despite the overall weak environment in 2003, we expect to see a slight increase in sales and a much stronger growth in earnings. Pierre L Hoest Managing Director Laurent Minguet Managing Director A N N U A L R E P O R T [ 3 ]

6 I N F O R M A T I O N T O S H A R E H O L D E R S B O A R D O F D I R E C T O R S A S O F 3 1 / 1 2 / 0 2 Francis BODSON (55) (1) Director since September 25, Francis Bodson is Deputy Managing Director of CANAL+ Benelux and is also the Head Engineering of Canal+ Belgium since its start in He was Director of Engineering at the RTBF («Radio Télévision Belge de service de la Communauté Française de Belgique») for fifteen years ( ). He graduated as a civil engineer in electronics at the University of Liège and is specialized in acoustics. Christophe CARNIEL (36) Director since September 7, 1999, Christophe CARNIEL is currently the Managing Director of NETIA. In 1993, he founded NETIA with Pierre KEIFLIN. He holds an engineer degree from the Ecole des Mines in Alès (France). Prior to founding NETIA, Christophe Carniel was working for three years as Project Manager for a Company responsible for the development of interactive record playing terminals, ordered by FNAC stores. Michel COUNSON (42) (2) Chairman of the Company since it was founded in He graduated in 1982 from the «Institut Electronique» in Liège. He started his career as a hardware engineer in 1983 with TECHNIQUE DIGITAL VIDEO S.A. before founding his own Company in 1986, VIDEO SYSTEM ENGINEERING S.P.R.L., working in partnership with EVS on numerous projects. Over the time he has acquired a significant share of EVS. Working beside Pierre L HOEST and Laurent MINGUET, he is part of the management team of the EVS Group and is Manager of the hardware department. ING (former BANQUE BRUXELLES LAMBERT) Arnaud LAVIOLETTE (41) (3) Director of EVS since June 1997, represented by Arnaud LAVIOLETTE, Head of the Investment Banking Department. CYTINDUS S.A Michel DELLOYE (46) (3) Director of EVS since June 1997, represented by Michel DELLOYE. Michel DELLOYE runs his own investment management Company. From 1992 to 1996 he was the Managing Director of the «Compagnie Luxembourgeoise de Télédiffusion» (CLT-UFA, now RTL Group), the largest European TV and Radio broadcasting Company. He previously worked in various positions (Financial Manager, General Manager) for the Bruxelles Lambert Group (GBL). Jean DUMBRUCH (51) Jean Dumbruch graduated as an engineer in electronics. He has been playing an active role in the Company since it was founded. He is Director of several companies and is now the Company s administrative Director. Jacques GALLOY (32) (2) Director since May 21, 2002, Jacques GALLOY is Chief Financial Officer of EVS. He is a commercial engineer from HEC Liège and had been working for Coopers & Lybrand in Luxemburg and then for RTL Group as Financial Controller of RTL Netherlands and Business Development Manager TV & Radio prior to joining EVS. Laurent LEVAUX ( 47) (1) (3) Director since December 27, 2000, Laurent LEVAUX is the Managing Director of ABX Logistics Group and lecturer (Corporate Strategy) at HEC (Hautes Etudes Commerciales) of Liège. He is also Director in other Belgian Companies. He holds a degree in Applied Economics from the University of Louvain (Belgium) and a MBA from the University of Chicago. He occupied different positions in Mc Kinsey & Co and was CEO of CMI Group during 7 years. [ 4 ] A N N U A L R E P O R T

7 Pierre L HOEST (44) (1) (2) Managing Director of the Company since it was founded in He graduated from the «Académie d Architecture» (Academy of Architecture) in Liège as an architect specialized in computer processing and 3D modelling. Since 1984, he acquired a broad expertise in video simulation production. He was involved in the foundation of EVS in 1994 following the purchase of the Company s assets and is Head of the Research and Development department together with Laurent MINGUET and is also supervising Production and European Sales. Laurent MINGUET (43) (2) Managing Director of the Company since it was founded in He graduated in 1982, as a physicist engineer from the University of Liège, specialized in digital analysis. With Pierre L HOEST and Michel COUNSON, he contributed to the creation of EVS in 1994 and is in charge of the Research and Development department. He is also in charge of the D-Cinema department and supervises the Sales outside the European Union. (1) Member of the Compensation Committee (2) Member of the Executive Committee (3) Member of the Audit Committee H I S T O R I C A L B A C K G R O U N D Laurent MINGUET, Pierre L HOEST and Michel COUN- SON, who bought the EVS logo and some assets of an existing Company already active in this sector, founded EVS Broadcast Equipment in February The founders of EVS aimed at developing equipment for the digital recording of pictures on hard disks (disk recorders) for professionals within the television industry: the Broadcasters. In September 1995, EVS signed a contract with PANA- SONIC, the exclusive supplier of Broadcast equipment for the Atlanta Olympic Games, to develop a slow motion system. This partnership allowed Panasonic to release their first «Super Motion camera and EVS to develop the corresponding hard disk recorder, which were successfully deployed at those Summer Olympic Games. In 1997, EVS opened two subsidiaries, EVS Inc. in the United States and EVS Ltd in Hong Kong, to market their equipment on the American and Asian continents. In April 1998, EVS acquired the Liège based Company VSE, known worldwide for its range of picture mosaics. Founded in 1986, VSE had worked alongside EVS for many years in design and electronic production work. In October 1998, EVS listed on the first market of the Brussels Stock Exchange and collected EUR. This amount has been used to guarantee the expansion of the Company, increase its reputation and attract top quality employees. In 1999, EVS set up a subsidiary in Italy and one in United Kingdom. On September 7th, 1999, EVS acquired the French Company NETIA, well known in the digital Radio world, TV and Internet Broadcast. In 2000, the Group booked record sales and earnings of EUR 38 and 6 million. In 2002, following the structural economic slump in South America, EVS decided to reorganize its sales force and thus pass the responsibility of these markets have under the New York office. Today, over EVS and over NETIA systems are in use in over 60 countries at 300 prestigious Radio and Television stations. In July 1998, EVS opened a subsidiary in France in order to follow up the important developments of this market. A N N U A L R E P O R T [ 5 ]

8 I N F O R M A T I O N T O S H A R E H O L D E R S K E Y F A C T S NETIA Rome 15/01/2002 EVS Salt Lake City 1/02/2002 NETIA Chicago 25/02/2002 EVS DC Sao Polo 3/04/2002 EVS Seoul 2/05/2002 EVS DC Cannes 20/05/2002 EVS Tokyo, Seoul 12/06/2002 NETIA Sydney 21/06/2002 EVS DC Stockholm 30/08/2002 Public Italian Radio Television RAI has initiated its network digitization with the Radio-Assist 7 software suite. EVS staff at the Winter Olympic Games of Salt Lake City. Sporting News Radio has selected NETIA for the digitization of its (digital) audio systems (contradiction) for its central operations in Chicago. In Brazil, EVS in partnership with UCI and Casablanca Digital System announces the opening of the second digital screen in Sao Paulo. EVS delivers High Definition Servers for SBS Television in South Korea. EVS chosen for the digital screening of STAR WARS Episode 2: «Attack of the Clones» at the Cannes Film Festival. EVS participates at the Soccer World Cup in Korea and Japan with its team and 100 Live Slow Motion Recorders. ABC Radio, the main National Public Australian radio pursues its digitization process with Radio-Assist. First Swedish Digital Cinema projection in the 7 screens pilot circuit of Folkets Hus & Parker. NETIA Athens 19/09/2002 Radio Athens 98.4 FM acquires Radio-Assist 7 in the light of Athens 2004 Olympic Games. EVS Columbia 4/10/2002 NETIA Ankara 15/10/2002 EVS Barcelona 23/10/2002 EVS Burbank 2/01/2003 EVS Hilversum 17/01/2003 EVS Melbourne 26/01/2003 EVS DC Las Vegas 15/03/2003 ASEM is the first truck Company in the USA to integrate the High Definition LSM XT of EVS. TRT, the national Turkish radio, prefers Radio-Assist 7.0 for its workflow automation. Mediapro Group, one the European leading sport TV production companies, adopts the XT technology and upgrades its 26 systems into 6 channels networkable LSM s. Bexel Inc, one of the leading US TV production rental companies, rents High Definition LSM s to CBS Sports for the National Football League, the most popular sport in the USA. Cinevideogroep, the important Dutch sport production corporation acquires the very first maxs server which has been developed by the EVS teams. Seven Network Australia uses the Live SportServer at the Australian Tennis Open for Slow Motion, network, automatic archiving and non-linear editing. The Digital Cinema Providers Group (DCPG) is launched by the equipment manufacturers at ShoWest 2003 to promote and ease Digital Cinema Initiatives. NETIA Claret 25/03/2003 TurnKey Media System is selected as US distributor for the Radio-Assist v7.1 products suite. [ 6 ] A N N U A L R E P O R T

9 M A N A G E M E N T R E P O R T Consolidated figures, audited, in million EUR % 02/01 Operating income % Sales % R&D expenditures % Gross operating cash-flow % Operating result (EBITA) % EBITA margin % 29% 25% 21% n.c. Goodwill amortization n.c. Financial result (incl goodwill amortization) n.c. Profit from operations before taxation % Extraordinary items n.c. Profit before taxes % Income taxes % Net profit % Net profit share of the Group % Net profit from operations % Net profit margin 17% 15% 13% -17% Net cash-flow % Per share data, in Euro Number of shares as of 31 December Number of shares excluding own shares Net profit from operations by share % - Consolidation: EVS S.A., EVS France, EVS Hong Kong, EVS USA, EVS Italy, EVS UK, NETIA - The Goodwill amortization for VSE (as of 01/01/98) and NETIA (as of 01/07/99) is carried out over 5 yrs - The net profit from operations is the net profit (share of the Group) excluding goodwill amortization and extraordinary income, taking into account tax items - The net profit margin is the net profit from operations divided by the operating income Turnover has increased by 5% compared to 2001 despite the global market recession and the US dollar evolution. This confirms the good resistance of EVS to the effects on the Broadcasters (Media & Entertainment) market undermined by the slowdown of advertising spending and investments in digital bouquets. This good performance is due to the success of the third generation of EVS LSM s, the LSM-XT, particularly in Europe. R&D expenses represent 17% of the operating income (EUR 6.2 million). The main R&D priorities have been the Digital Cinema, safety of the radio databases and mainly the focus of converging technologies linked to the Sport, Live Entertainment and editing solutions for journalists. As a consequence, EVS now offers an integrated solution that goes beyond the slow motion recorders. During the year, EVS installed more than 40 digital cinema servers all over the world. Given the weak environment, which affects the media industry, the Group staff has been carefully reduced from 190 to 175 employees over the year The gross operating cash-flow of EUR 10.3 million is 3% lower than in 2001 but still represents 28% of the Group s 2002 revenues. This allows the Group to selffinance its growth and its investments while paying-out a dividend. The goodwill amortizations of EUR 2.3 million are in line with 2001 and represent one year of amortization derived from the VSE and NETIA acquisitions in 1998 and These goodwill s are amortized over 5 years and will be almost fully amortized at the end of The 2001 net debt of EUR 0.5 million has been converted into a net cash position of EUR 3.5 million in 2002 while a EUR 1.4 million dividend has been paid in A N N U A L R E P O R T [ 7 ]

10 I N F O R M A T I O N T O S H A R E H O L D E R S At year-end, long term debts amount to EUR 6.0 million, mainly financing fixed assets and buildings. The good financial health of the Group is expressed by its low debt/equity ratio of As previously announced, the Group has pursued its own shares buy back program. At December 31st, 2002, the Group held 4.8% of its own shares. As expected, the net return on sales of the Group is about 13%. EVS Group has achieved a net profit from operations (after tax) of EUR 4.7 million in Group Turnover CONSOLIDATED OPERATING INCOME EVOLUTION (in EUR million) The analysis of the operating income shows a 5% growth compared to 2001, notably thanks to the contracts for the Salt Lake City s Olympic Games and the Soccer World Cup, and that in spite of the negative US dollar evolution. RADIO CINEMA The EVS Group sales are divided up by segment as follows : BROADCAST SOLUTIONS Products (in million EUR) % 2002 Turnover % 02/01 Slow motion recorders (Sport) % + 36 % Broadcast Solutions % - 54 % Radio Management Systems % - 23 % Digital Cinema Servers % N/A TOTAL % + 5 % SPORT - The turnover corresponds to the operating income excluding the stock variations of finished goods and other revenues In the current recession period, EVS star product, the slow motion recorder, enjoys a 36% growth, namely +15% excluding contracts for major sporting events. The third generation of Live slow motion recorders («LSM-XT») is a clear answer to the market need for production and distribution of live transmissions, thus confirming EVS leadership in this segment. The HDTV (High-Definition television) market in the USA and in Asia is showing a promising future for the Group. On the other side, the sales of broadcast solutions to the TV industry have dropped by 54% in a very competitive market environment. One should observe that 2001 took advantage of the last deliveries of OEM contract with an important American client (with an impact of 2.2 million EUR). France 3, Canal+, RTL, PBS (USA), ABC (Australia) have renewed their trust in EVS and Netia products. The 2002 projects postponements must be positive for 2003 as the present order book gives evidence. Radio Management Systems experienced a 23% decrease in an expectant market by virtue of the drop of advertising incomes. The Radio-Assist software already equips numerous radios all over the world. [ 8 ] A N N U A L R E P O R T

11 The digitization processes are ongoing even though they have slowed down in The national Turkish and Malaysian broadcasters, have selected the product «Radio-Assist» to completely reshuffle their business processes. The RAI (Italy) has also signed an important long term maintenance contract. EVS Digital Cinema has deployed more than 40 servers (8 in Sweden, 4 in Brazil, 6 in Italy, 8 in China, 3 in USA etc.). Today, there are around 140 systems installed in the world. The growth of the digital screenings in theatres has accelerated with the worldwide release of StarWars II in June EVS also contributes to the emergence of alternative business models for projection of local content like in Sweden, China or Brazil. EVS worldwide distribution network has permitted the spread and the support of the products. EVS does not expect a massive digital cinema expansion in the short term. The EVS Group sales are divided up by segment as follows : ASIA PACIFIC AMERICAS EUROPE AFRICA MIDDLE-EAST Regions (in million EUR) % Sales 02 % 02/01 Europe, Middle-East and Africa % + 8 % Americas % - 27 % Asia Pacific % + 45 % TOTAL % + 5 % The Group confirms its international expansion with a strong commercial presence on every continent. The temporary slow down of the American sales has been balanced by the strong European and Asian performances in The decrease in the Americas is explained by the termination of an OEM contract in 2001 (EUR 2.2 million), by the economic crisis in South America and by the US Dollar effect. However, the current order book shows a strong improvement for the North American market for EVS products. Research & Development The Group has expensed 17% of its sales in R&D, compared to 14% in 2001 to reach EUR 6.2 million. In accordance with the Group accounting rules, these costs are not activated but are prudently and completely expensed over the period. Today, more than 70 high level engineers work on the conversion of broadcasters from the age of tape towards digital and IT based solutions. Tomorrow, television, radio and cinema will be built more and more around a network of servers with dedicated applications like CleanEdit, the non-linear editing software. R&D efforts have sustained the convergence of the various solutions of acquisition (slow motion etc), editing and broadcast. In doing so, EVS has clearly positioned itself as a reference for integrated network solutions for the sport but also for Live Entertainment and the increasing market for Digital Newsrooms. These investments in R&D permitted EVS to gain new types of contracts with customers ranging from a solution of Video-on-Demand for a luxury cruise boat to the digitalization of the newsroom of a significant European TV network. NETIA launched the MBOX, musical solution for a chain of shops. NETIA also launched the version 7.1 of the Radio-Assist software with functionalities of advanced security features for database. NETIA continued the development of a A N N U A L R E P O R T [ 9 ]

12 I N F O R M A T I O N T O S H A R E H O L D E R S solution for the bandwidth management of the transfer of video files over a dedicated exchange network. This being done without forgetting the development of the servers for the digital cinema, intended to replace the film 35mm in the medium term. The good margins that are derived thanks to a well-mixed product portfolio allow EVS to finance its growth and to prepare today its future successes while balancing profit and investments. R&D EXPENSES (in EUR million) HEADCOUNT EVOLUTION AS OF 31/12 Manpower By prudence in a difficult market, EVS Group reduced its manpower by 8% (15 employees) in 2002 both in Belgium and abroad going from 190 people at the start of the year to 175 at year-end. The average arises to 183 people in 2002 against an average of 175 people in The total employment costs amounts to EUR 10.8 million, which is 29% of operating income. HEADCOUNT EVOLUTION BY SUBSIDIARY AND BY DEPARTMENT IN FULL TIME EQUIVALENTS : Split as of Services & Research & Sales & Production & TOTAL December 31, 2001 Administration Development Marketing Operations EVS Belgium EVS Europe Offices 8 8 NETIA EVS USA 6 6 EVS Hong Kong 4 4 TOTAL Split as of Services & Research & Sales & Production & TOTAL December 31, 2002 Administration Development Marketing Operations EVS Belgium EVS Europe Offices 7 7 NETIA EVS USA EVS Hong Kong 4 4 TOTAL [ 1 0 ] A N N U A L R E P O R T

13 Earnings DSO (Days of Sales Outstanding) has been reduced from 126 to 71 days in particular thanks to a more effective recovery policy. The Group has written off receivables and obsolete stock items for approximately EUR 1 million. As announced, the operating margin (EBITA) exceeds 20% of operating income to reach 21%. Net operating profit - net result excluding goodwill amortization and extraordinary items (taking into account tax elements) amounted to EUR 4.7 million against EUR 5.1 million in 2001, i.e. a reduction of 8%. However, the Group s net profitability, excluding goodwill amortization and extraordinary items, remains high at 13%. EVOLUTION OF NET PROFIT FROM OPERATIONS (in EUR million) Investments Production of the equipment manufactured and marketed by EVS and NETIA does not require important tangible investment. Nor does R&D require any considerable investment, since engineers and programmers work directly on the machines to be sold or on PC type equipment for the software development. The net asset value of tangible fixed assets is EUR 0.96 million as at December 31, The Group policy is to own its buildings and to finance them with long-term loans. The net value of the land and buildings of Liège and Montpellier amounts to EUR 4.0 million. A new m 2 building is nearly ready and will costs approximately EUR 3.8 million, out of which EUR 3.0 million appear in Building in Progress as at December 31, 2002 (versus EUR 0.9 million as at December 31, 2001). Cash-Flow and Net cash position The 2002 net Cash-Flow of EUR 6.8 million has transformed the net debt position of EUR 0.5 million at December 31, 2001 into a positive net treasury of EUR 3.5 million at December This taking into account the buy back of own shares for EUR 1.2 million, the dividend of EUR 1.4 million paid in June 2002 and long-term financing of the Group of EUR 6.0 million at the end of The Group s excellent financial health at December is also illustrated by its low ratio debts / equity of 0,24. The residual goodwill of EUR 2.7 million will be completely amortized over the next 18 months. Furthermore, the Group has received confirmation of regional state and European grants and subsidies, that explains the EUR 0.7 million increase of investment grants. This amount is depreciated at the same rhythm as the related buildings. EVS acquired VSE in 1998 and NETIA in The net remaining value of goodwill is about EUR 2.7 million as at year-end. EVS has also acquired minority stakes in two companies FAR and MECALEC SMD which are accounted for at equity. The positive differences resulting from the first application of the equity method were EUR thousand and the remaining value at year-end is zero. A N N U A L R E P O R T [ 1 1 ]

14 I N F O R M A T I O N T O S H A R E H O L D E R S Shares buy-back and dividend The Group devotes around 30% of its cash-flow to the Company development, 30% to the strengthening of its balancesheet structure and 40% to shareholders interest : on the one side through the dividend distribution (EUR 1.4 million in June 2002) and on the other side through the own shares buyback program (EUR 1.2 million in the course of 2002). As previously announced, the Group carried out in 2002 its program to buy back its own shares. At December 31, 2002, the Group held 4.8% of its own capital ( shares). The Board of Directors intends to maintain its dividend policy with a payout of 30% of the Net operating profit, which corresponds to 70% of the Net profit share of the Group. So, the Board of Directors will propose the following to next May 20, 2003 s General Shareholders Meeting: EUR 0.48 per share dividend payment, excluding the own shares, i.e. EUR This decision to distribute a dividend underlines the quality of the Company and its ability to generate and distribute profits each year while at the same time pursuing its investments. Outlook 2003 EVS Group is a pioneer in the digitization of media companies and is determined to maintain its growth thanks to its intrinsic product quality and with the confidence from its large number customers. The fast adaptation to the market needs, the service quality and the equipment reliability remain the key success factors for the Group both in Europe and in the rest of the world. In starting on new market opportunities like digital cinema, EVS relies on its technological expertise and commercial dynamism to dominate new niches. Today, the Group is a leader on its worldwide niches. The Group intends to reinforce these positions and to create new opportunities by widening its line of products. For example, the solutions developed for the Sport were adapted to the new needs for digitization of the editing desks of television journalists. This highlights the convergence of the radio solutions developed by NETIA and the broadcast solutions developed by EVS. In the year 2003, EVS Group will continue to benefit from the growth of its Sport activities / LSM, in particular in Asia and in the United States. The Group anticipates new significant orders of digital Solutions and radio management systems without forgetting the continuation of the deployment of the digital cinema servers. The Group will carry on its costs control. Even if it is confirmed that the digitization process of the media industry corresponds to a fundamental strategic need, the whole will also depend on the good news on the side of the incomes of advertising and the digital bouquets. SPEED TO AIR The order book as of 1 January 2003 amounted to EUR 8.3 million. For the year 2003, the EVS Group foresees a slight growth of its sales in comparison of 2002 but a strong growth of its net operating profit. The gross margin will be better than in 2002 : there should be less non-recurring charges and the tax rate will roughly be lower thanks to the new Belgian tax law. The Group intends to pursue its buy back program of own shares according to opportunities of the stockmarket. [ 1 2 ] A N N U A L R E P O R T

15 Miscellaneous During this financial year, parent Company s auditor, ERNST & YOUNG, Statutory Auditors S.C.C. (B160), represented by Philippe PIRE and associated Companies provided consulting services valued at EUR in the following areas: assistance in preparing consolidated accounts, tax advices, IFRS/IAS diagnostic and miscellaneous other issues. The Annual General Meeting of 21st May 2002 voted to renew the Directors authorisation to buy back the Company s shares, subject to specific conditions of timing and value. This buy-back policy is carried out in order to stabilise and support the share price, and also to demonstrate the Company s confidence in its future. Most share purchases have taken place within the framework of a contract entered into with the stockbrokers «Dewaay» (HSBC Group) in As a consequence of its reorganisation, Bank Dewaay stopped its liquidity providing services. After a search, EVS has selected Delta Lloyd Securities as new liquidity provider as from February 1, At 31st December 2002, EVS held 4.8% of its own capital, or shares, with a total value, based on the stock price at the end of the year (EUR 20.00), of EUR 2.7 million. The Board of Directors proposes to the Annual General Meeting of 20th May 2003 to renew this authorisation for a period of 18 months. The same General Meeting of 20th May 2003 decided to issue additional warrants. At 31st December 2002, of the warrants issued for staff had been allocated. The Board of Directors Liège, April 25, A N N U A L R E P O R T [ 1 3 ]

16 I N F O R M A T I O N T O S H A R E H O L D E R S S H A R E H O L D I N G A S A T A P R I L 4, L. Minguet and Family 33.3 % P. L'Hoest and Family 33.3 % 3.2 % 3.2 % M. Counson DTV S.A % Public and misc % 2.4 % EVS Broadcast Equipment S.A % 15.4 % Institutionnals (ING, Cytindus, BIP) Own shares 4.8 % Situation as it appears from the last official statements received by the Company and the last modifications of the shareholders register until April 4, 2003 : Shareholders Number of shares in % in % diluted (with issued warrants) Linked shares DTV Pierre L Hoest and Family Laurent Minguet and Family Michel Counson SUB-TOTAL linked shares CYTINDUS S.A ING Group (BBL) BGL Investment Partners SA Public and misc Own shares Issued warrants 5.0 TOTAL DÉVELOPPEMENT TECHNOLOGIQUE VIDÉO (DTV) is a Holding Company, whose purpose is the management and financing of companies in which it holds a stake. It is owned equally by Pierre L HOEST, Laurent MINGUET and Michel COUNSON. ING Group (former BBL) is a large international Bank which has accompanied EVS during its continued growth since It is represented by Mr Arnaud LAVIOLETTE. [ 1 4 ] A N N U A L R E P O R T

17 CYTINDUS S.A. is an investment Company essentially owned by Michel DELLOYE and founded in 1997 with the purpose of investing in expanding companies, actively contributing to their long-term management. BGL INVESTMENT PARNERS (BIP) is an investment Company listed on the Luxembourg Stock Market. It is specialised in the development financing of strong growth companies located in the large neighbouring region of Luxembourg. On 31 December 2002 as well as on 4 April 2003, there are registered shares of which are owned by DTV, by CYTINDUS S.A. and 125 by five other shareholders. There are bearer shares and physical bearer shares. P R O F I T A L L O C A T I O N P O L I C Y The Board of Directors examines the results of the last financial year and proposes at its Annual General Meeting to distribute those profits in the best interest of the Company and its shareholders. Bearing in mind the legal restrictions on profit distribution, the Board of Directors can propose a dividend policy that will respect the Company s investment and acquisition requirements. In the IPO prospectus of October 1998, EVS announced dividends of around 30% of consolidated net profit from operations. The healthy financial structure of EVS has permitted the Group to comply with its commitment as illustrated on the following chart : GROSS DIVIDEND PER SHARE (in EUR) % OF NET PROFIT FROM OPERATIONS The Board will propose at the Ordinary General Meeting of 20 May 2003 a dividend of 0.48 EUR per share, i.e. 28% of net profit from operations. This decision emphasizes the quality of the Company and its capacity for making profit, paying dividends and going on with investments. Dividends are payable at following financial institutions: - Fortis Bank SA, Montagne du Parc, 3, 1000 Bruxelles, Belgium - ING (BBL) Bank SA, Cours Saint-Michel 60, 1040 Bruxelles, Belgium A N N U A L R E P O R T [ 1 5 ]

18 I N F O R M A T I O N T O S H A R E H O L D E R S S T O C K M A R K E T R E P O R T Market and listing EVS shares are quoted continuously on EURONEXT and form part of the 253. Electronic Equipment sector, which also includes the Companies THOM- SON, BARCO NEW and PHILIPS. The Company was listed on the first market of the Brussels Stock Exchange in October 1998 at a price of 37.2 EUR. EVS has been selected to be part of the Next Economy segment, which includes companies such as MOBISTAR, BARCO NEW, IBA, IRIS Group and TELINDUS. In order to fit in with the requirements of these segments, the Company will publish its accounts according to the IAS/ IFRS standards in 2005 at the latest. EVS is ready for this conversion. EVS share and benchmarks After the euphoria of 1998 and 1999, the Company s valuation returned to a more reasonable Price Earning Ratio (P/E): it declined from 39 (31/12/98) to 27.5 (31/12/99), 15.4 (31/12/00) then to 10.7 (31/12/01). Due to stock market trends by the end of 2002 and low liquidity of the share, the P/E at the closing date amounts to 12.1 and even 11.5 if the 4.8% own shares are taken into account. The average number of shares traded per month over the year 2002 is approximately COMPARED EVOLUTION OF STOCK PRICE AND P/E RATIO The maximum price achieved over 2002 was 27 EUR on February 27 and the minimum price was 14 EUR on October 10. Following the IPO, the stock was back to more reasonable levels in The EVS stock price did actually not enjoyed the overall peak of technology and media stocks during On the contrary, EVS followed those stocks in September During the period between January 1, 2000 and March 31, 2003, Dow Jones Euro Stoxx Media et Dow Jones Euro Stoxx Technology indices have lost 74 % while BEL20 and EVS respectively lost 53 and 54 % COMPARED EVOLUTION OF STOCK PRICE SINCE JANUARY 1, 2000 (BASE 100) [ 1 6 ] A N N U A L R E P O R T

19 Velocity and Liquidity Providing In the course of 2002, around 15 % of the Company shares have been traded. An average of shares have been daily traded on Euronext, which represent a 41% improvement compared to With a true float of %, EVS has a high adjusted velocity of 44 %, also in progress compared to Innovative Financial Communication In order to improve the financial communication and to highlight the new international and multi products dimension of the Group, EVS teams have developed a new portal website for professional and financial visitors : Annual Average Standard Adjusted traded daily velocity velocity volume volume (1) (2) % 63 % % 55 % % 31 % % 44 % (1) Standard velocity represents the annual volume traded on the stock market and expressed as a percentage of the total number of shares of the Company ( ). (2) Adjusted velocity represents the annual volume traded on the stock market and expressed as a percentage of the unidentified float (around 35 %). ADJUSTED VELOCITY In order to encourage the liquidity of the share and avoid major fluctuations in its price, a market stimulation contract was concluded on October 2000 with the Company Dewaay, member of HSBC. Given internal reorganisation, Dewaay stopped the liquidity providing agreement. EVS then selected Delta Lloyd Securities as new liquidity provider as from February 1, This stock-broker also executes the acquisition of the Company s own shares within the limits fixed at the Extraordinary General Meeting on 21 May This site includes a vertical investor relations with last press releases, shareholders calendar, corporate governance, last available financial analyst s reports and recent annual reports in pdf format. It also presents the four business activities of the Group: Sport (slow motion disk recorders), Broadcast Solutions, Radio Management Systems and Digital Cinema Servers. The investors area was also improved and allows both better visibility and transparency. EVS regularly participates in various road shows for institutional or private investors. If you wish to be informed about these meetings or automatically receive our e-news and press-releases, please mail to: EVS Broadcast Equipment S.A. Jacques Galloy, CFO & Corporate Communication 16 rue Bois Saint Jean 4102 Ougrée, Belgium or to: corpcom@evs.tv A N N U A L R E P O R T [ 1 7 ]

20 [ 1 8 ] A N N U A L R E P O R T P R O D U C T S A N D M A R K E T S

21 I N T R O D U C T I O N EVS Broadcast Equipment is a designer and manufacturer of digital broadcast equipment and automation software for the radio and television industry. The EVS Group continues to expand within its core business sector as well as expanding into new markets. This growth includes the cinema segment, which is currently undergoing a transition into the digital world. EVS maintains its leading edge trough a dynamic and creative R & D approach. The products are developed to fit into niche markets, while manufactured in small volumes with a high added value. EVS has established its roots within the sports television broadcasting business. The Live Slow Motion (LSM) system has become a worldwide standard since it revolutionized the industry in the early 1990s. EVS has sustained a steady growth through worldwide marketing and continued excellence in post-sales support. This stability enabled strategic diversification through various acquisitions but mainly through developments brought about by an ambitious R & D program. Today, EVS continues to show their expertise in the sports broadcasting market with the LSM XT and its networking capabilities. These latest developments have led to a full range of products, which allows production to do away with the last remaining needs of tape in their mobile sports productions. This full compliment of options embraces the complete production workflow: from the capture of camera feeds; to the non-linear editing and archive; up to the final play-out. This range of modular solutions were launched at the International Broadcast Convention (IBC) at Amsterdam in September As a result from the request of NHK, the first Japanese national television station, for the Sydney Olympics in 2000, EVS has developed the High Definition (HD) version of the LSM, the HD LSM. In 2002, with the increase of the HD demand, EVS delivered a large quantity of HD LSM in the United States and Asia. By comparison with a Standard Definition signal (350,000 NTSC, US & Japan or 400,000 PAL, Europe and Australia pixels per image), the HD image offers a significantly greater number of pixels per image (e.g x 1080 represents 2 million pixels). Therefore, these HD images require approximately 6 times greater bandwidth resulting in a superior picture quality. The most recent range of EVS broadcast video servers has offered an even larger array of Broadcast Solutions to EVS customers and clients. This choice of servers includes models for live broadcast applications as well as solutions for automation play-out systems. The EVS DTV servers offer unique features that follow a MPEG-2, all the way through concept. These servers are optimal solutions for cable and satellite operators, as well as Pay-TV platforms that require the management of an ever-increasing number of digital bouquets. The acquisition of NETIA, world leader in radio management and broadcast automation software, augmented the EVS Group expertise into automation, Internet services and networking technology. Such an addition has added to the diversity of the respective R & D teams that collaborate closely, exchanging and sharing their wide base of know-how. These collaborations have lead to the use of NETIA s play-out automation in the EVS DTV servers, a combination which has produced an extremely powerful solution for television. In addition, web streaming devices and other Internet based products are being released with a rapid pace. FAR, with EVS stake of %, designs and builds professional active and passive loudspeaker systems and complete studio interiors. CineStore incorporates a family of EVS High Definition servers configured to fit the needs of the cinema business as it embarks on the replacement of 35mm film projectors by high performance digital projectors. EVS is contributing to this pioneering venture with the development of a full range of digital cinema servers, with associated control software, to meet the requirements of distributors all the way through to the movie theater of the future. The EVS Group has maintained a continuous growth pattern through its international presence and high quality products combined with excellent after sales service. Given these assets, the Company looks to continually diversify with a strategy based on an ambitious R & D program. A N N U A L R E P O R T [ 1 9 ]

22 P R O D U C T S A N D M A R K E T S 1. I N T E G R A T E D P R O D U C T I O N S Y S T E M S 1.1. LSM-XT, Slow-motion replay & editing server The new generation of the LSM, the LSM-XT combines astounding speed with unprecedented flexibility thanks to the new MultiCam unified software. This new software allows seamless operation as the various applications run the same user interface sparing operators the task of learning new software each time they use the different configurations. The system can be configured to run in either standard (25 or 30 frames per second) or Super Motion (75 or 90 frames per second) mode, or a combination of both at the same time; a Super motion camera can be used in conjunction with 1 or 2 standard rate cameras with 5 or 6-Channel LSM systems. The LSM-XT is a powerful 6-Channel system with the ability to record up to 5 sources simultaneously, as well as the possibility to be controlled by 3 operators from the same unit, if so configured. The LSM-XT becomes even more versatile with networking capability in SportNet, becoming a fully integrated production environment. All recorded material from any device on the network can be accessed from anyone on the same network for editing or playback, instantly. EVS Integrated Production System - Outside/Studio 1.2. maxs, Universal production server This is the XT technology packaged in a compact (4U) chassis for applications that do not require either Supermotion or local editing. The maxs can be controlled by all the standard protocols including SONY, LOUTH, ODETICS, THOMSON DD35 or EVS. The fixed 2 record & 2 play channel configuration with the variable RS-422 control ports allows the maxs to replace 2 Video Tape Recorders effortlessly, yet the SportNet SDTI Networking option enables automatic archiving and opens the door to the EVS integrated live production system XFile, Digital Archiving on Removable hard drive The biggest stumbling block for the transition to a tapeless environment has been the need for a removable media source. Currently, recorded video tape material is transported back to the studio for further editing and/or archival purposes. In addition, pre-built material such as graphics, commercials and transition effects need to be loaded during preproduction, which again is transported via video tape. [ 2 0 ] A N N U A L R E P O R T

23 The XFile is a robust 3U frame containing 2 «off-theshelf» IDE drives on which all clips built on the active LSM XT and maxs units within the SportNet SDTI network are archived. As each clip is created on the network servers, a copy is automatically made on the XFile. The transfer to the XFile is a pure data copy; no decoding/encoding takes place at any point, preserving the original quality of the footage through out the entire process. Super motion footage is also maintained in its original format, allowing the full range of playback on these archived clips. As soon as the event is complete, the hard drives can be removed and sent on to the next event and back to the studio. One removable drive can store up to 14 hours of standard definition video XBrowse, Digital browsing station with SDI output 1.5. SportServer, Digital media server, Non Linear Editing(NLE) and Playout This compact (5U) powerful engine supports faster than real-time media file transfer, asset / database management, non-linear editing and playout, simultaneously. Installed on site, the SportServer automatically collects all action captured on the LSM-XT and maxs servers via SportNet. Indexing, sorting and editing can then commence during the match instantaneously. Additional content can also be fed to the SportServer from the XFile or XBrowse via the network. The SportServer comes standard with a local license of the CleanEdit NLE software, as well as additional options through the Gigabit Ethernet port allowing up to 3 clents positions with the capability of a combination of CleanEdit workstations or playout modules. The media that was archived out in the field by the XFile can now be restored in the XBrowse after which the clips can be viewed and sorted on the local VGA monitor. This Xbrowse, which can be installed in the studio ( TV Station ), can be seen as an extended version of XFile. This is also a highly efficient method to preload an EVS server with pre-produced material. Jingles and synchronised key & fill sequences can be put on removable disk packs using maxs and XBrowse in the Studio. A N N U A L R E P O R T [ 2 1 ]

24 P R O D U C T S A N D M A R K E T S 2. B R O A D C A S T S O L U T I O N S The EVS Group offers a wide range of products that has been developed to provide its customers with tailormade solutions Production and Playout Servers The television industry is facing a real technologic revolution in which videotape is being progressively replaced by digital solutions. In some countries, such as the United States and Australia, some legal decrees have been issued forcing broadcasters to digitise their operations within a certain deadline. This forces even the most reluctant TV stations to make the move to digital. The EVS catalogue contains a family of broadcast servers based on the JPEG technology but also based on DVB standards. These servers include control software tailored to the workflow of the new Digital TV (DTV) stations. The DVB standards open up various new business opportunities to broadcasters who can now offer many new (interactive-) services to consumers. Here is a list of the many applications linked with the EVS servers. AirBox is a cost effective, user-friendly video server with multi-channel configurations for integrated play-list management - a play-out studio in a box. Applications range from simple clip storage to more sophisticated play-out capabilities, including the ability to control an external VTR and switcher. It can be used for news or entertainment productions with the ability to build and roll a play-list for unattended or night broadcast. The AirBox replaces the need of several VTRs at a fraction of the cost with the many added advantages of a nonlinear video server. AirEdit features a continuous recording loop with live editing capabilities which allows the addition or removal of content to/from a live program. Applications for the AirEdit server include time delay, content control (censorship) and automated or manual commercial insertion. PLAYOUT AUTOMATION SPEED TO AIR EVS LBS Mpeg-2 Server with Harris Automation Multi- channel ASI/SDI playout controlled through VDCP protocol [ 2 2 ] A N N U A L R E P O R T