When CEO Klaus-Peter Schulenberg said in a statement that the pandemic is “the most difficult phase ever” in the company’s history, it wasn’t hyperbole. The earnings release also warned that existing, unknown or underestimated factors “could influence the continued existence of CTS Group in the future.” Investors and stakeholders can breathe easy: management does not believe the pandemic’s risks are likely lethal. Nevertheless, it was a frank assessment that underscored the uncertainty the coronavirus creates in the live events business.
The current pace, however slow, is sustainable until concerts return in 2021. If revenues continue at the second quarter’s pace, CTS Eventim will finish the year down 84.3% -- a €1.2 billion ($1.09 billion) revenue decline. But in a crisis, liquidity is paramount, and the company has €822 million ($745.5 million) in cash and cash equivalents on hand. About €105 million ($US 95.2 million) of cash was lost from operations in the first half of the year.
For many music companies, the second quarter was a mad scramble to secure enough cash to operate at a standstill until 2021. Likewise, CTS Eventim quickly shored up its liquidity by drawing €200 million ($181.4 million) from its revolving credit facility. The European-wide ban on events means it’s “highly probable” the debt covenants -- equity ratio, for example -- could not be met at the end of 2020. So, lenders agreed to waive debt covenants from December 31 to June 30, 2021, giving the company room for multiple quarters of deep losses without defaulting. Cost-cutting and efficiency-boosting measures saved the company “a double-digit million Euro figure,” according to the earnings release. Plus, the company opted not to distribute a dividend for 2019.
Government interventions also helped CTS Eventim’s cash position. The company received loan agreements totaling €8.5 million ($7.7 million) from some European countries’ loan programs; its divisions had drawn €2.2 million ($2 million) by June 30. Also, voucher programs in some European countries will reduce the cash burden of issuing refunds for postponed or canceled events. Under this system, governments in Germany, Austria, Italy and others allow promoters and ticketing companies to issue a voucher for events that fans missed or chose not to attend. In effect, a voucher maintains liquidity by preventing cash outflows. A company survey found that 85% of fans in favor of the voucher laws want to redeem their vouchers for a different event; at Live Nation, 86% of fans chose to hold onto tickets for events postponed to 2021.
For the rest of the year, promoters will hold one-off concerts and test events in preparation for concerts’ full return in 2021. Fortunately for CTS Eventim, Europe is ahead of the Americas in containing the virus’s spread and closer to promoting concerts at scale. But regardless of the exact timing of a full-scale return, promoters need more than experiments by the summer of 2021.