Table of Contents
Our Core Purpose
We help the world communicate,
innovate, lead healthy lives,
and stay safe.
1
2
5
Chairman’s Letter
CEO’s Letter
Report on Operations
11 Management’s Discussion and Analysis
of Financial Condition and Results
of Operations
29 Management’s Statement of Responsibility
30 Independent Auditors’ Report
31 Consolidated Statements
of Financial Position
32 Consolidated Statements of Net Profit
33 Consolidated Statements
of Comprehensive Income
34 Consolidated Statements of Changes
in Equity
35 Consolidated Statements of Cash Flows
36 Notes to the Consolidated
Financial Statements
Chairman’s Letter
Stability through diversity focused on growth is the framework that led
Calian to unprecedented success in 2016. Revenues grew to the highest
levels in our Company’s history, while share price also increased and
dividend yields remained strong and stable.
and to increase shareholder value. I remain
extremely proud of Calian and of the great
achievements we have made in 2016.
“
Achieved over $250M in revenue for the
first time in the history of the company.
”
Kenneth Loeb
Chairman
Calian’s strength continues to lie in our leadership
team, and the strategic execution of our four-pillar
growth strategy – customer retention, customer
line evolution and
diversification, service
continuous improvement. As a result of this strat-
egy, we offer our shareholders unique access to
both domestic and global markets through five
diverse and distinctive service lines. There is great
momentum at Calian – our team is working hard,
and results of this targeted effort are evident.
Calian is committed to evolving our leadership
team to reflect our growing business. This year,
we announced the appointment of Jo-Anne
Poirier to the Board of Directors. Ms. Poirier
brings more
than 35 years of executive
leadership, and is currently the President and
Chief Executive Officer of The Victorian Order of
Nurses (VON) Canada. She offers immense value
and insight to the Company as we look toward
the future.
With the completion of Kevin Ford’s first full year
as Calian’s CEO, the Board of Directors is
enthused by his vision and passion for the growth
and direction of the Company. The Board of
Directors continues to be confident in manage-
ment’s ability to execute Calian’s growth strategy
Calian Group Ltd.
2016 Annual Report
1
Calian’s Four Pillar Growth Strategy
CEO’s Letter
To our shareholders,
The opening of the Toronto Stock
Exchange earlier this year marked
more than just the rebrand to
Calian Group Ltd. (formerly Calian
Technologies Ltd.). It marked the
beginning of a new era for our
Company; an era where our
corporate brand now aligns to the
diverse nature of our services.
With revenues of $275 million we surpassed the
$250 million level for the first time in our
Company’s history. We increased cash earnings
by $4.8 million with EBITDA results of $22 million.
Year-over-year, this is an increase of 28%.
Discretionary operating expenses continued to
be managed, ending the year with earnings of
$1.83 per share a 37% improvement over the
prior year when earnings per share was $1.33.
Factoring in amortized costs as a result of recent
acquisitions, adjusted earnings was $1.92 per
share. With strong cash flows and cash position,
the quarterly dividend remained strong at $1.12
per share. Calian is very proud of the fact that a
positive rate of return was maintained at an
attractive yield, returning to our shareholders
$8.3 million through dividends this year.
We also invested in telling Calian’s story -
sharing with the world the many attributes that
make Calian such a stable force in an often
volatile marketplace. A
few highlights of
increased public relations efforts included being
named in the top third of the Globe and Mail’s
1000 largest publically traded Canadian corpora-
tions list, being listed on several occasions as a
top small cap ‘stock to watch’ by the Globe and
Mail, and appearing on BNN Television to
discuss our growth and vision. We also
increased our social media presence, launched a
new website that is easier to navigate and more
clearly articulates our Company's vision, and we
enhanced our physical presence at trade shows
of strategic importance.
“
Kevin Ford
President and CEO, Calian Group
We continued to achieve
stability through diversity,
witnessing unprecedented
growth and momentum for
Calian. This resulted in the
highest revenues in Calian’s
history with now over
60 consecutive profitable
quarters.
”
2
2016 Annual Report
Calian Group Ltd.
$ 275M
REVENUE
(13% GROWTH)
team
leadership
Our
remains
steadfastly focused on customer
satisfaction, while continually
assessing and pursuing opportuni-
ties for growth. All of our service
lines have experienced strong
sales having signed over $321
million in new contracts, renewals
and extensions. Just one example
is the continuation of a 20+ year
relationship with the Department of National
Defence for the provision of a range of services –
health services, military training, and systems
and engineering support.
growth and prosperity. Looking
ahead, we remain driven by our
vision to be the most desirable
Canadian company to work for, buy
from, and invest in.
In order to effectively manage our
diverse offerings and provide
management capacity and focus,
Calian operates in two reportable
segments: the Systems Engineering Division
(SED), and the Business and Technology Services
(BTS) Division, which are defined by primary types
of service offerings.
Calian continues to invest in each of our service
lines to ensure all are well-positioned for long-term
“
Shares continued to yield strong dividends, while we saw the
highest recorded revenue in Calian’s history, with numerous
factors resulting in a strong increase in our share price.
”
Opening of TSX, April 2016
Calian Group Ltd.
2016 Annual Report
3
Stability through Diversity
The diversity of our operating model is at the heart of our
success. Through this diversity comes stability. By serving a
number of customers in wide ranging and geographically
varied markets, we capitalize on unique opportunities and
upturns in a number of markets while at the same time
weathering the downturns experienced in others.
4
2016 Annual Report
Calian Group Ltd.
Report on Operations
Systems Engineering Division
Calian’s SED division is a
global leader in
Engineering and Manufacturing
for the satellite, aerospace and
defence industries
Our Systems Engineering Division’s (SED) excep-
tional work in 2016 garnered attention and
accolades, both at trade shows, through media
coverage, and by the achievement of the
‘Exceptional Engineering / Geoscience Project
Award’ from the Association of Professional
Engineering and Geoscientists of Saskatchewan
for our involvement in the European Space
Agency’s Rosetta Mission. This
award is the culmination of over 10
years of SED’s involvement in the
Rosetta mission to rendezvous with
a comet.
We remained committed to quality
and customer satisfaction in 2016 by
sustaining our ISO 9001 quality
management certification and by
maintaining our reputation of being
good stewards of the environment
with our recycling programs and
lead-free manufacturing capabilities
in compliance with Restriction of
Hazardous Substances (RoHS) standards.
this year
contracts and renewals for software gateway and
planning systems to customers such as Inmarsat,
Star One, SiriusXM and Nav Canada. Other key
contracts this year included the provision of
in-orbit test and carrier monitoring systems, and
recurring product sales, including the division’s
spectrum analyser and modulator product lines,
which provided excellent contribution to the
bottom line. New product develop-
ment
the
introduction of three new test and
measurement products as well as a
strategic partnership with industry
giant Xilinx, the world’s leading
provider of programmable field gate
arrays (FPGAs), and 3D integrated
circuits (ICs) for the development of
key Data Over Cable Service
Interface Specifications (DOCSIS)
3.1 remote physical layer interface
technologies which enables higher
throughput applications over cable
networks.
included
Calian’s Deep Space
Antenna – Spain
SED’s systems engineering service line had a
very strong year with solid revenues from its radio
frequency (RF) system projects. The division
oversaw over 15 RF system installations globally
for customers including Inmarsat, Cobham and
Raytheon. We were also awarded several new
SED’s relationship with the Canadian Space
Agency thrived in 2016, with a contract renewal to
provide the agency with satellite operations
support services. We continue to be immensely
proud of our 23-year relationship with the
Canadian Space Agency, which has fostered the
evolution of Canada’s capability in low-earth orbit
17%
REVENUE
GROWTH
16%
EBIT
GROWTH
$72M
BACKLOG
Calian Group Ltd.
2016 Annual Report
5
satellite operations, with an enviable record of
achievement in maximizing the useful life of sup-
ported missions.
The Division’s manufacturing group revenues
continued at a steady pace, with manufacturing
of electronic circuit boards, control boxes and
cable assemblies for a number of new, existing
and long-term customers. The group saw growth
in contract manufacturing for the agricultural
sector, taking advantage of its close proximity to
industry participants. Contracts with long stand-
ing defence customers General Dynamics Land
Systems (GDLS) and Kidde Dual Spectrum (KDS)
resulted in revenues of $4.5 million. These cus-
tomers are excellent examples of the continued
trust our customers have in our high quality man-
ufacturing services.
In summary, it was a great year for SED. Overall,
these accomplishments yielded a divisional
contribution of $11.6 million on revenues of
$82 million, which represents 17% growth from
the previous year.
Looking to 2017, we continue to strategically
position ourselves in adjacent markets and invest
in new products to increase our competitive
position and grow value for our shareholders. An
example of this innovation is our newly formed
subsidiary, SED Research Inc., which we have
established to conduct research and development
on the next generation of satellite technologies.
The future of Calian’s SED is strong and focused,
as we remain committed to executing across all
segments of our four-pillar growth strategy.
The division oversaw over 15 RF system installations for customers including Inmarsat,
Cobham and Raytheon.
6
2016 Annual Report
Calian Group Ltd.
BTS Division
Calian’s BTS division is a leading professional services
organization, providing solutions in
Healthcare, Training,
Engineering, and
Information Technology.
The Business and Technology Services (BTS)
Division continued to reap the benefits of our
strategic reorganization completed last fiscal
year, which allowed our executive team the ability
to delve deeper into our service offerings. This
focused approach to growth yielded impressive
results for BTS, with a reported revenue growth
of 12% to $192 million, and a divisional contribu-
tion of $9.8 million.
The motivation and hard work by our executive team
to implement these changes has certainly paid off.
This year, BTS was recognized with a Gold Level cer-
tification in the Excellence, Innovation and Wellness
(EIW) Standard of Excellence Canada. We are partic-
ularly proud of this prestigious achievement, and
believe it to be a strong testament to our
commitment to quality service delivery.
Health Services
Great strides were made in our journey to be one
of Canada’s largest national health organizations.
longstanding Health Services Support
The
Contract with the Department of National
Defence (DND) was extended for a further
12-month period, with a new completion date of
March 31, 2018. The extended contract term
increased the existing ceiling value by $75 million,
and our performance continues to be rated as
superior by DND in the delivery of the contract.
The Calian Military Family Doctor Network
(MFDN), which helps to connect family members
of serving military members with a family
physician in our Primacy clinic network, was
launched in 2016. The program leverages the
more than 400 family physicians located in over
140 Primacy clinics across Canada. The MFDN is
now operational in 8 regions nation-wide and has
already served over 300 patients in more than
140 military families, with plans for continued
expansion over the course of FY 2017. We are
immensely proud of this program and the support
that it provides to the families of serving
military members.
Through our involvement with the Canadian
Institute for Military and Veteran Health Research
(CIMVHR), we are also proud to have provided Dr.
Birtwhistle and the Canadian Primary Care
Sentinel Surveillance Network (CPCSSN) with a
research grant of $105,000 in support of the first
pan-Canadian electronic medical record surveil-
lance system targeting evidence informed care for
military families and veterans.
12%
REVENUE
GROWTH
79%
EBIT
GROWTH
$416M
BACKLOG
Calian Group Ltd.
2016 Annual Report
7
In our drive to continue to diversify our health
customer base, correctional services offers an
area of growth and momentum at the federal,
provincial and municipal levels of government.
Contracts recently awarded include the provision
of a variety of health services to Canada Border
Services Agency (at their Immigration Holding
Centre in Toronto, ON) and to a number of facili-
ties across Canada under the purview of
Correctional Services Canada (federal), for serv-
ices at the Toronto South Detention Centre and
the Southwest Detention Centre in Windsor, ON,
(provincial); and to the City of Surrey, BC
(municipal) for services at the local RCMP
detention centre.
Training Services
Calian’s Training Services line saw significant
year-over-year growth in 2016. A number of
strategic contracts were secured reinforcing our
leadership position in the provision of training
in the
services, with a growing footprint
emergency management sector. Of particular
note, was the Emergency Management British
Columbia
(EMBC) contract, where Calian
facilitated in the design and execution of an exer-
cise to test the province’s new ‘Earthquake
Immediate Response Plan’ that included more
than 880 personnel from 65 different agencies.
The contract with Bruce Power to design, develop
and support their corporate emergency prepared-
ness exercises was also renewed, building on a
successful multi-year relationship. Along with
nuclear subject-matter expertise partners, we will
continue to assist Bruce Power in the development
and implementation of a demanding and sophisti-
cated two-year training, education and exercise
cycle. Other emergency management training con-
tracts were won, including airports, federal agencies
and provincial and municipal governments.
for e-Learning services at
The Department of National Defence continues
to be a primary customer for Training Services.
Several training contracts were secured in 2016;
totalling over $125 million. These included new
contracts
the
Canadian Forces School of Communications and
Electronics, and with the Directorate of General
Safety to provide basic and advanced general
safety training. Contract renewals were secured
with the Army Learning Support Centre; the
Canadian Forces School of Aerospace
Technology and Engineering; the Royal Military
College of Canada,
the Royal Canadian
Electrical and Mechanical Engineers School; and
a contract renewal/expansion in support of a
broad range of training services to Military
Personnel Generation (formerly the Canadian
Defence Academy).
The Calian Military Family Doctor
Network (MFDN) which launched in
January 2016 helps connect
military family members with a
family physician through our
Primacy clinic network.
MFDN is now operational in
11 regions nation-wide and has
already served over 300 patients
in more than 140 military families.
8
2016 Annual Report
Calian Group Ltd.
These are just a few examples of the many wins
and renewals and the excellent work that our
training team continues to execute in support of
our customer retention strategy.
Amtek managed by this service line, was acquired
in 2014. This acquisition further expanded our
engineering support capabilities and continued to
contribute positively in 2016. Amtek specializes
in providing a full-spectrum of engineering and
technical services to the Department of National
Defence and other government departments and
had a strong year in securing new contracts.
IT Professional Services
Calian’s IT Professional Services (ITPS) line
experienced unprecedented growth in 2016. The
ITPS Innovation portfolio helped to fuel this
growth with expansion in IT Security Services
and more complex enterprise class system
integration projects.
Several new projects were integral to this growth,
including a major eTime contract win with the City
of Toronto, worth $11 million. The eTime project
consisted of three components: a city-wide ‘Time
and Attendance’ solution (SAP CATS) for 35,000
employees, a complex scheduling solution
(Kronos Telestaff, and Workforce Scheduler) for
4,000 employees, and SAP modernization
deploying a more standardized SAP Time
Management and Payroll solution city-wide. Final
delivery of the project is scheduled for completion
in early FY2017. This project has already gained
significant recognition from senior officials at the
City of Toronto who referred to the project as a
‘showcase’ at a recent industry event.
Calian’s presence in the ICT sector grew as we
continued to work closely with customers in this
sector. As a trusted advisor and partner of
Ericsson, Calian worked to design, implement
and operate an Engineering Support Service
Desk in their new 250,000 square foot Research
and Development Centre in Montreal. This
Service Desk supports Ericsson’s engineering
efforts worldwide.
We continue to reap the benefits of our 2014
acquisition of a cyber security services firm
known as DWP Solutions, and with the addition
of a cyber security service practice leader, we
have secured two strategic fixed-price wins in
Q4 in support of our innovation agenda. Through
his strategic direction, the ITPS team has also
established reseller arrangements with key
cyber product companies; all creating a strong
foundation from which to continue to expand
our cyber practice.
In 2016, Calian’s Training Services line secured a
number of strategic contracts reinforcing our
leadership position in the provision of training
services, with a growing footprint in the emer-
gency management sector.
Calian’s IT Professional Services (ITPS) line
experienced unprecedented growth in 2016 with
the Innovation portfolio having helped to fuel this
growth into IT Security Services and complex
enterprise class system integration project.
Calian Group Ltd.
2016 Annual Report
9
In Summary
The impact of Calian’s growth strategy was
evident in 2016. Our divisions and service lines
remained focused on a common strategic
framework that saw the retention of long-standing
customers coupled with the engagement of many
new customers, and the evolution of our service
lines; laying a solid foundation from which to
launch into 2017. With renaming the corporation
to Calian Group Ltd., we have aligned our
corporate brand to our diverse services of
the Company.
Shares continued to yield strong dividends, while
we saw the highest recorded revenue in Calian’s
history, with numerous factors resulting in a
strong increase in our share price.
This upcoming year will be Calian’s 35th year in
business. We are proud of our accomplishments
and believe the future is bright for Calian. Our
Company
innovative, proudly Canadian,
backed by strong leadership with a unified vision
and poised for long-term success.
is
Kevin Ford
CEO
Jacqueline Gauthier
Chief Financial Officer
Patrick Thera
VP and General Manager,
Systems Engineering
60+
CONSECUTIVE
PROFITABLE
QUARTERS
10
2016 Annual Report
Calian Group Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management Discussion and Analysis is dated December 2, 2016 and should be read in conjunction with
the audited consolidated financial statements and notes included in this annual report. The Company’s accounting
policies are in accordance with IFRS. As in the consolidated financial statements, all dollar amounts in this
Management Discussion and Analysis are expressed in thousands of Canadian dollars unless otherwise noted.
This MD&A is the responsibility of management and has been reviewed and approved by the Board of Directors
of the Company. This MD&A has been prepared in accordance with the requirements of the Canadian Securities
Administrators. The Board of Directors is responsible for ensuring that management fulfills its responsibilities
for financial reporting and is ultimately responsible for reviewing and approving the MD&A. The Board of
Directors carries out this responsibility principally through its Audit Committee.
IFRS and non-GAAP measures:
This MD&A contains both IFRS and non-GAAP measures. Non-GAAP measures are defined and reconciled to
the most comparable IFRS measure.
Forward Looking Statements
The Company cautions that the forward-looking statements in the following Management Discussion and Analysis are
based on certain assumptions made by the Company that may prove to be inaccurate. Forward-looking statements
include those identified by the expressions “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend” and similar
expressions to the extent that they relate to the Company or its management. These forward-looking statements are not
historical facts, but reflect the Company’s current expectations and assumptions regarding future results or events.
Assumptions made include customer demand for the Company’s services, the Company’s ability to maintain and
enhance customer relationships, as well as the Company’s ability to bring to market its services. Furthermore, the
Company cautions that the forward-looking statements in the following Management Discussion and Analysis are
based on current expectations as at December 2, 2016 that are subject to change and to risks and uncertainties
including those set out in this document under the heading “Risk Factors”. Actual results may differ due to facts such
as customer demand, customer relationships, new service offerings, delivery schedules, revenue mix, competition,
pricing pressure, foreign currency fluctuations and uncertainty in the markets in which the Company conducts business.
Additional information identifying risks and uncertainties is contained in the Company’s filings with the various
provincial securities regulators. Readers should not place undue reliance in the Company’s forward-looking statements.
Business Overview and Strategic Direction
Calian is a diverse company. For over 30 years, the company has evolved into an organization that has consistently
demonstrated the ability to manage numerous profitable service offerings while earning a high level of customer satis-
faction. Our DNA allows us to manage this complexity, and to successfully deliver in domestic and global markets.
Calian’s primary services offerings are:
• Systems Engineering
• Contract Manufacturing
• Health Services
• Training Services
• IT Professional Services
While our services are diverse, our growth strategy is anchored in a common four pillar framework. Our four pillar
growth strategy is as follows:
• Customer retention: through continued delivery excellence, maintain a valued relationship with current customer base;
• Customer diversification: through increasing the percentage of revenues derived from new business in adjacent
and non-government markets, balance customer revenue into numerous global and domestic sectors;
• Service Line Evolution: continue investment in service offerings to increase differentiation and improve gross
margin attainment;
• Continuous Improvement: leverage innovation to improve how the Company operates with a goal to streamline
processes and provide for a scalable back office support capability.
Calian Group Ltd.
2016 Annual Report
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In order to effectively manage our diverse offerings and provide management capacity and focus, we operate in two
reportable segments, the Systems Engineering Division (SED), and the Business and Technology Services Division
(BTS) defined by primary types of service offerings.
The diversity of this operating model is at the heart of our success. By serving a number of customers in wide ranging
and geographically varied markets, we capitalize on unique opportunities and upturns in a number of markets while at
the same time weathering the downturns experienced in others. This diversity is most evident when comparing the
business and operating models of the two divisions.
SED
BTS
Markets Served
Engineering and
Manufacturing
Health, Training, Engineering
and IT Professional Services
Contracting Model
Mostly Fixed Price
Mostly Cost Plus
Customer Base
Domestic & International Domestic
Quality Initiatives
ISO
Risk Profile
Workforce
High Risk
300
Excellence Canada
Low to Medium Risk
2400
Overall, the diversity in markets, customers and business models provides Calian with an enviable balance in our
consolidated business.
Of note, as both of our divisions operate in very specific niche areas within large markets, there exists very little third
party data to compare to the Company's performance. Although referring to general market trends provides some
insight into the health of those markets and some clarity on the opportunities within those markets, it is not always
indicative of the health, demand, and funding of the individual customers of the Company. In order to compensate for
this limited insight, and to provide an indication of revenue potential, this annual report provides a detailed overview of
the Company's backlog by division showing both contracted backlog and option renewals by fiscal year. In addition,
the following discussion that refers to the type of contracts performed by each of the two divisions will provide some
insight into the level of customer specific demand for our services.
Calian’s System Engineering Division
Calian's SED division, located in Saskatoon, Saskatchewan, designs and manufactures complex systems for satellite
manufacturers and operators, and also provides satellite operations services to government and commercial clients.
Additionally, the division provides low to medium volume high-end manufacturing in the defence/security and telecom-
munication industries. In both markets, SED serves a handful of multi-national organizations working on large
worldwide projects, where more than 60% of our annual revenues are derived from exports. We now have systems
operating on six continents, and we are well versed in the logistics associated with international installations. The
division is committed to quality as evidenced by our ISO 9001:2008 certification.
Our customers require sophisticated, custom-built ground-based infrastructures, and our approach is to fulfill these
requirements by integrating advanced internally and externally manufactured commercial equipment and products,
and where necessary, custom-built components. We maintain a core set of reusable designs, components and
products to reduce development time, costs and technical risks, which increases our competitive advantage. Our core
competencies in project management, systems engineering, and high-throughput embedded logic and software
development capabilities have allowed us to establish long-term relationships with many industry leaders. Our contract
manufacturing capabilities account for a substantial portion of divisional revenues and provide an on-going base of
business that helps offset the ebb and flow of core project work. The value added by our technical expertise and our
focus on high-reliability, low-volume production of complex systems to military prime contractors and equipment
suppliers differentiate our services from those of our competitors.
12
2016 Annual Report
Calian Group Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Contracts in Systems Engineering are technically complex, and are typically on a fixed-price basis with demanding
requirements to meet delivery schedules. Billings are based on achieving well defined milestones, and these can be in
advance of, or subsequent to the recognition of revenues. Accordingly, cash flows and working capital requirements
can vary significantly from project to project, and over the life of any one project. While the risks are high, the margins
are commensurate with the risk.
In 2016, SED continued to perform well, increasing both its revenue and profitability. The divisional revenues grew by
17% over the previous year and SED signed $94 million in new contracts, ending the year with a backlog of $72 million
of which $40 million is expected to be earned in fiscal 2017. SED maintained its record for on-time delivery of complex
technical solutions keeping customer satisfaction levels high. The successful projects completed this year will lay the
ground work for repeat business in the future. The following provides a summary of 2016 results across the division’s
primary service lines.
CALIAN System Engineering Services
The majority of the systems engineering work during the year came from Hughes and Inmarsat, where Calian
provided them with RF ground systems as they expanded their satellite networks. Additional RF systems work
continued on Wide-Area Augmentation Systems to assist aeronautical navigation. Communications systems work
included the development of a precursor system for the European IRIS aeronautical communications standard as well
as network capacity planning systems for Star One and Inmarsat. Sirius/XM continued to procure network
enhancements from us to improve their digital satellite radio service offerings.
Our Canadian Space Agency (CSA) satellite operations team continued supporting Canadian earth observation
missions with our current team size. SED continues to host and maintain the RF systems for Ligado, formerly
LightSquared, as well as Ciel. We continue our growth strategy with the provision and hosting of satellite beacon trans-
mission stations for Hughes in northern Canada.
SED’s communications product sales group continued with strong recurring sales of its test and measurement
products, three of which are sold by Rhode & Schwarz under their brand name. SED undertook two additional product
developments for Rhode & Schwarz which will add to product sales in the future. Steady sales of SED's Decimator
spectrum analyser product continued to provide strong margins. SED continued its DOCSIS 3.1 IP Cores product
development in partnership with Xilinx with the goal of producing more products and intellectual property cores to
increase sales to cable network manufacturers and operators. Additionally, SED continued its research activities into
technology to support higher satellite frequency ranges. SED's current intellectual property developments have led to
two patent applications. The growing pool of products and intellectual property rights will provide significant
opportunities moving forward.
CALIAN Contract Manufacturing Services
Business continued at a steady pace for SED’s commercial and defence manufacturing line as we continued to
produce modules and cable assemblies for Textron, General Dynamics Land Systems Canada and KIDDE. SED con-
tinues to take advantage of its investment in the new surface mount technology line and continuous improvement of
manufacturing processes to maintain its competitiveness. The situation for defence sales remains volatile due to con-
straints on Canadian and US military spending but we countered this volatility through our commercial manufacturing
business, gaining a foothold as new agriculture electronics customers like BitStrata and iGrain continued to procure
the manufacture of new boards and assemblies.
The markets in which SED operates are currently stable and we expect new opportunities to arise. The continued
volatility of the Canadian dollar will also affect our competitive position in international markets. While competition can
place considerable pressure on margins in all market sectors, our communications product business countered this
through standalone product sales as well as by complementing our systems sales. Continued investment in products
will enhance future sales and increase margins. New opportunities exist in the communications systems market as new
entrants look to deploy novel satellite communication networks, and existing players look to evolve their networks.
Calian Group Ltd.
2016 Annual Report
13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Calian’s Business and Technology Services Division
Calian's BTS division, with our principal office in Ottawa, Ontario, is a leading professional services organization, pro-
viding management of projects, facilities, and consultants in Healthcare, Training and Engineering, and IT Professional
Services. BTS is a continuous improvement organization, is a founding partner of Excellence Canada, and is
accredited to Excellence Canada’s Excellence, Innovation and Wellness Gold Level award.
Contracts in Business and Technology Services are typically on a per-diem basis, and can range from short-term
assignments to multi-year outsourcing contracts. Our core competencies, common across all service lines, are
recruiting and project, contract and workforce management. Each of these competencies is aligned to each service
line in the areas of:
• Health – clinic management, occupational health services, clinician services;
• Training – training development and training delivery in the areas of emergency preparedness, trades training, simulation-
based training, and career development leveraging eLearning and instructor led training delivery methods;
• IT – cyber and security, enterprise resource planning and general IT technologies.
The vast majority of revenues are derived from Canadian sources in the public and private sectors. With a large
presence in the Department of National Defence, we have been successful in our diversification strategy, and have
developed a well-established private sector customer base across oil and gas, nuclear and numerous others. For
example, our health services line includes the administration on behalf of Loblaw of over 140 medical clinics across
Canada, as well as the provision of healthcare services to customers through our own managed clinics.
The cost structure of the division is variable as direct labour costs are scalable to match contract requirements. Cash
flows are very predictable as the division enjoys the benefit of multi-year contracts that often contain provisions for
extensions, offering long-term visibility of future revenues, and most contracts call for monthly billing of work per-
formed. Revenue is also generated via direct billing to provincial healthcare organizations through health clinics in the
health services portfolio. With a reduced risk profile, margins are correspondingly lower.
Revenue growth from new opportunities will be largely dependent on the issuance of the initial proposal request and the
ultimate timing of the related contract award. With a significant portion of BTS’ contracts, specifically in the training
services line, being renewed in 2016, the division will continue to focus on ensuring appropriate effort is expended to
increase its win odds for key renewals. Calian's historical high renewal win rate combined with its win strategy provides
management confidence in its ability to successfully remain the customer’s preferred choice.
While federal government spending priorities fluctuate, profitable business does exist for companies who have the
financial strength to accommodate slowdowns in government spending, and the discipline to adjust costs to declines
in revenue. BTS' strong back office capabilities, centered on an SAP based management information system along with
our emphasis on continuous improvement and business development, ensures that it is able to identify and win new
business opportunities and accommodate that new business in a scalable fashion.
Overall, the business environment for the BTS division is stable. The division made progress in 2016 in many areas in
all of our service lines. We continue to be very successful in managing existing contracts, and we have maintained high
quality and client satisfaction levels. As a result, the division renewed 5 major contracts this year representing a 100%
win rate of the contracts up for re-compete.
At a consolidated level, with our focus on the evolution of services and diversification of our customer base, contract
wins with new customers have allowed us to penetrate certain market segments previously not available to Calian. The
realization of organic growth across all service lines combined with seed wins in new market areas allowed the division
to report revenue growth of 12%. In 2016, we also signed $227 million in contracts and ended the year with a backlog
of $416 million of which $168 million is expected to be earned during fiscal 2017.
The following provides a summary of 2016 results across the division's primary service lines.
14
2016 Annual Report
Calian Group Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
CALIAN Health Services
Our goal is to be one of the largest national health services organizations in Canada, and this year there has been
progress in achieving this goal. Calian's main health service contract, the DND Health Service Support Contract, con-
tinues to be successful, and with the latest option period exercised by the customer, revenues are secured through to
March 2018. We continue to be rated superior by our DND customer in the delivery of the contract. In supporting DND
for over 11 years in 32 bases across Canada with over 60 healthcare practitioner categories, we have developed an
extensive national healthcare practitioner network. We continue to focus on expanding our footprint in the healthcare
market. With the acquisition of Primacy in 2012, the Med-Team Clinic in 2014, the opening of an occupational health
clinic in Fort McKay, Alberta in 2015 and an $11 million contract in the oil and gas industry, combined with strategic
wins in other areas of healthcare, the division made solid progress with our strategic goals to leverage our national
medical practitioner network and expand our health service offerings to a broader range of clients. We are also growing
our footprint in correctional facilities, a new customer segment to the division, with wins in Surrey, British Columbia,
Toronto, Ontario and smaller wins with the Federal Government. Primacy continued to run strong this year currently
operating over 140 clinics across Canada. In addition, by leveraging the Primacy clinics, we are very proud of the
progress made this year working with DND to provide access for military families to medical services, and we
continue to roll out this program nationally with 8 locations now live.
CALIAN ITPS services
Our IT Professional Services (ITPS) line also made some significant strides with a goal to evolve service offerings.
During 2015, ITPS was awarded an $11 million contract with the City of Toronto to provide a time and attendance
solution. The project is progressing well with significant milestones completed on time and on budget. This solution
based win provides Calian the opportunity to further evolve ITPS away from strictly staff augmentation
contracts. With the acquisition of DWP Solutions in 2014, a security and cyber services company, and our recent hire
of a Cyber solutions practice lead, ITPS continues to leverage this experience and background to expand our
capability in this high-demand market. In addition to securing two small fixed-price wins in Q4 that support our goal to
become a solution-based cyber security provider, we have also expanded our cyber security product resale for
customers including relationships with Tripwire, Fortinet and Cylance. In the ICT sector, we continue to build upon our
subject matter expertise through the delivery of a worldwide Engineering Support Service Desk. The federal
government’s recent spending patterns have also helped the ITPS service line increase its presence, including an
Information Technology Service Management Support Services contract win with the Department of National Defence.
However, we continue to experience a very competitive environment, and increased pressure on margins within the
federal government. To offset this trend, ITPS continues to grow its customer base outside the Federal Government to
target different market areas such as telecommunications where we achieved our largest revenue in this sector this
year. Focus on the evolution of IT services to project and solution based business remains a key priority.
CALIAN Training Services
Our training contracts continue to represent a solid base of revenues. In 2016, we experienced an increase in training
demand from our main customer, the Department of National Defence, and were successful in our customer retention
focus with the re-win of contracts with long-time customers including the Army Learning Support Center (ALSC), the
Military Personnel Generation School, the Royal Canadian Electrical and Mechanical Engineers School (RCEME), the
Royal Military College of Canada (RMCC) and the Canadian Forces School of Aerospace Technology and Engineering
(CFSATE). We have diversified our customer base by successfully securing various seed contracts with Emergency
Management British Columbia, Olds College, the National Research Council and the Vancouver Airport. We have also
built on our existing experience in the nuclear sector, winning two new contracts with Bruce Power. These contracts
solidify our training relationship with a major nuclear organization, and serve as a platform to expand our emergency
response preparedness training service offering. We have successfully integrated Amtek, with the acquisition com-
pleted in 2014, and continue to further expand our engineering support capabilities. Amtek specializes in providing the
full-spectrum of engineering and technical services supporting DND and other government departments. In addition,
we increased marketing efforts this year to raise our profile on our services offering. For example, thought leaders from
the service line spoke at two conferences, and we raised our profile through conference advertising at targeted cus-
tomer events. These combined with our web site re-design promote Calian as a premier training company.
Calian Group Ltd.
2016 Annual Report
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In summary, 2016 was a year where Calian sustained our double digit growth posture; both divisions grew revenue
with significant improvements in EBITDA and earnings. As importantly, we made tangible progress in the execution of
our long term strategy. The company enters 2017 with a strong backlog of work and a reasonable expectation of future
prospects. In the coming year, we are expecting stability on our existing contracts, and positive results from
investments made in research and development and sales resources. We continue to increase our investment in the
marketing function with a focus on proactive social media engagement and targeted marketing campaigns in support
of all service lines.
Calian is a diverse company which has consistently demonstrated the ability to manage this diversity and provide
excellent returns for our shareholders. Under the framework of a common strategy, each segment of the company has
the ability, capacity and management focus to control and manage their respective business segment. We are an
innovative company, proudly Canadian, and are focused on sustaining our positive momentum in 2017.
Backlog
The Company’s backlog at September 30, 2016 was $488 million with terms extending to fiscal 2021. This compares
to $442 million reported at September 30, 2015. Contracted Backlog represents maximum potential revenues
remaining to be earned on signed contracts, whereas Option Renewals represent customers’ options to further extend
existing contracts under similar terms and conditions.
During 2016 the following contracts were the major contributors to the Company’s backlog. These contracts are further
described in the business overview section of this Management Discussion and Analysis.
• $75 million extension of the Health Services Contract with DND
• $35 million contract with DND for research assistance services to its Royal Military College of Canada
• $35 million contract with DND for training services for its Canadian Forces School of Aerospace Technology and Engineering
• $21 million contract with DND Military Personnel Generation school
• $30 million contracts for commercial RF systems and various antennas
• $15 million contract with ALSC for the provision of courseware production support
• $ 8 million contract with MacDonald Dettwiler to provide two Earth-observation antenna systems
There were no contracts which were cancelled unexpectedly that would have resulted in a significant decrease in our backlog.
Most fee for service contracts provide the customer with the ability to adjust the timing and level of effort throughout the
contract life and as such the amount actually realized could be materially different from the original contract value. The
following table represents management’s best estimate of the backlog realization for 2017, 2018, and beyond based on
management’s current visibility into customers’ existing requirements.
Management’s estimate of the realizable portion (current utilization rates and known customer requirements) is less than the
total value of signed contracts and related options by approximately $94 million. The Company’s policy is to reduce the
reported contractual backlog once it receives confirmation from the customer that indicates the utilization of the full contract
value may not materialize.
(dollars in millions)
Contracted Backlog
Option Renewals
TOTAL
Fiscal
2017
$ 193
$
15
Fiscal
2018
85
33
$ 208
$ 118
Business and Technology Services
$ 168
$
Systems Engineering
40
96
22
TOTAL
$ 208
$ 118
Estimated
realizable
portion of
Backlog
Excess over
estimated
realizable
portion
Beyond
2018
$
$
$
$
31
37
68
58
10
68
$ 309
85
$ 394
$ 322
72
$ 394
$
$
$
$
71
23
94
94
-
94
TOTAL
$ 380
108
$ 488
$ 416
72
$ 488
16
2016 Annual Report
Calian Group Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Selected Annual Information
(dollars in millions, except per share data)
Revenues
EBITDA(1)
Net profit
Adjusted net profit(1)
Net profit per share, basic and diluted
Adjusted net profit per share, basic and diluted(1)
Total assets
Dividends per share
(1) See reconciliation regarding non-GAAP measures below
2016
$ 274.6
22.0
$
13.6
$
14.2
$
1.83
$
$
1.92
$ 117.7
1.12
$
2015
242.3
17.2
9.8
10.8
1.33
1.48
102.3
1.12
$
$
$
$
$
$
$
$
2014
$ 211.3
16.2
$
10.6
$
10.7
$
1.44
$
$
1.45
$ 100.9
1.12
$
2016 Results of Operations
Profit before interest and income taxes were $18,733 in 2016 compared with $13,437 in 2015, and net profit was
$13,593 for the year compared with $9,767 in the previous year. The Company completed the year with $16,761 of
cash compared to $10,624 at the end of 2015.
Revenues
SED revenues
BTS revenues
Consolidated revenues
2016
$ 82,141
$192,446
$274,587
2015
% change
$ 70,188
$172,065
$242,253
17%
12%
13%
The general business environment in 2016 reflects increases in government spending which primarily benefited the
BTS division. SED also benefited from high levels of activity with many of its recurring customers. With a healthy
opening backlog of $190 million consumed in 2016 combined with the win of several contracts in new market
segments during 2016 resulted in double digit growth in revenues this fiscal year.
SED revenues for 2016 were up 17% compared to 2015 revenues. Work continued at a steady state in both defence
related and commercial contract manufacturing. A significant increase in commercial RF ground systems work was a
major contributor to the increase in SED revenues over the previous year. The manufacturing group continued at a
steady pace, producing assemblies for Defence programs while continuing to forge a beachhead into the agricultural
manufacturing sector. Innovations in our communications product group allowed us to introduce two new test and
measurement products into the market.
BTS revenues for 2016 were up 12% compared to 2015 revenues. Revenues from the division’s traditional business
lines showed a healthy increase over the prior year from continued recovery with federal government spending sup-
ported with incremental wins with new customers and within new markets as the division continues to focus on
diversification of its customer base.
The Company derives a significant portion of its revenues from the Government of Canada. During 2016 (2015), 61% (62%)
of revenues were related to contracts with various departments and agencies of the Government of Canada with approxi-
mately 53% (45%) directly with DND. Both of the Company’s divisions conduct business with the Government of Canada.
Management expects that the marketplace for the near term will continue to be competitive and the timing of new
contract awards is always subject to delay. Our backlog provides a reasonable level of revenue assurance on existing
contracts and new opportunities continue to arise. Although we continue to focus our efforts on the diversification of
our customer base outside of government, the nature and extent of future government spending constraints remain
uncertain and therefore, future revenues in this sector will ultimately be determined by customer demand on existing
contracts as well as the timing of future contract awards.
Calian Group Ltd.
2016 Annual Report
17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cost of revenues and Gross profit
2016
2015
% change
SED gross profit
As a percentage of SED revenues
BTS gross profit
As a percentage of BTS revenues
Consolidated gross profit
As a percentage of consolidated revenues
$ 18,995
23.1%
$ 29,839
15.5%
$ 48,834
17.8%
$ 16,417
23.4%
$ 25,094
14.6%
$ 41,511
17.1%
16%
19%
18%
The Company’s cost of revenues includes all direct costs incurred in the provision of its products and services. These
costs include all expenses associated with direct full-time staff, contract staff and subcontractors. They also include
other direct costs including the landed cost of hardware and software sold as components of a solution, travel and
living expenses necessary in the delivery of the services, and warranty costs where applicable.
The consolidated gross margin for 2016 reflects mix improvements and the solid execution on contracts.
Lower gross margin in SED in comparison to the previous year is indicative of competitive pressures and the higher
number of RF system projects which have a much larger non-labour component. Although the mix of revenues always
plays a role in the margin ultimately realized, results demonstrate solid execution in all of SED’s business areas. As a
whole, the division realized positive outputs from its sales initiatives and its new product investments.
Gross margin in BTS reflects improved revenue mix from increased activity with mainstay customers. In addition, with
increased revenues we benefited from economies of scale as it pertains to fixed payroll costs. The traditional BTS busi-
ness which is concentrated within the federal government has stabilized in recent quarters. While stiff competition on
new work is expected to temper any significant near-term improvement, the division continues to evolve its service
offering with a goal to increase gross margins realized in the longer term.
Because of the significant difference in gross margin between each of the two divisions, the overall gross margin of the
Company is dependent on the relative level of revenue generated from each division. Management will continue to focus
on operational execution and diligent negotiation of supplier costs in order to maximize margins. However, increased
competition is expected to maintain the pressure on margins in both divisions. The volatility of the Canadian dollar is
always an influencing factor for margins on new work in the SED division when denominated in foreign currencies.
Selling and marketing
Selling and marketing
As a percentage of consolidated revenues
2016
$ 4,124
1.5%
2015
$
3,904
1.6%
% change
5.6%
Selling and marketing expenses increased over the prior year as a result of increased focus on selling and marketing
efforts. Costs for 2017 may continue to increase slightly over the 2016 level as the Company continues to invest in its
diversification, evolution and the broadening of its target markets.
General and administration
General and administration
As a percentage of consolidated revenues
2016
$ 18,893
6.9%
2015
$ 16,924
7.0%
% change
11.6%
General and administration costs increased over the prior year as a result of investing in service line evolution
capabilities in addition to recognizing additional variable compensation stemming from increased profitability and
performance. However, total costs as a percentage of revenues decreased. Management will continue to challenge
discretionary spending; however, prudent investments may be required to support the evolution of the Company’s
service lines.
18
2016 Annual Report
Calian Group Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Facilities
Facilities
2016
$ 3,804
2015
$
3,461
% change
9.9%
Facility expenses, which include costs associated with office space, have been relatively stable over the past several
years. Overall facility costs are expected to increase slightly in 2017.
Earnings before interest income, income tax expense, depreciation and amortization (EBITDA)(1)
EBITDA(1) for fiscal 2016 was $22,013 compared to EBITDA of $17,222 in the previous year.
(1) See reconciliation regarding non-GAAP measures below
Depreciation and amortization
Depreciation
Amortization
2016
$ 1,290
$ 1,348
2015
% change
$ 1,285
$
1,431
0.4%
(5.8%)
Depreciation expense is in line with prior year and is expected to remain stable for 2017. Amortization expense has
begun to decrease. Further decreases in amortization expense are expected for 2017.
Deemed compensation related to acquisitions
The deemed compensation results from a portion of the purchase price related to the Amtek and DWP acquisitions
being deemed as deferred compensation payable to certain shareholders under IFRS and therefore excluded from the
total consideration of the purchase. For 2016, the remaining portion of the deemed compensation related to
acquisitions was expensed in the amount of $642 compared to $1,069 recorded in 2015.
Income tax expense
The Company reports its results on a fully taxed basis. The provision for income taxes for 2016 was $5,177 or 27.6%
of earnings before income taxes compared to $3,757 or 27.8% of earnings before income taxes in 2015. The decrease
in tax rate is reflective of the reduction in the deemed compensation recognized in 2016. The effective tax rate for 2017,
prior to considering the impact of non-taxable transactions, is expected to be approximately 26.9%.
Net profit
The Company reported net profit of $13,593 or $1.83 per share basic and diluted for 2016 compared to $9,767 or $1.33
per share basic and diluted in 2015. The Company reported adjusted net profit(1) of $14,235 or $1.92 per share basic
and diluted for 2016 compared to $10,836 or $1.48 per share basic and diluted in 2015.
(1) See reconciliation regarding non-GAAP measures below
Reconciliation of non-GAAP measures to most comparable IFRS measures:
Management believes that providing certain non-GAAP performance measures, in addition to IFRS measures, provides
users of the Company's financial reports with enhanced understanding of the Company's results and related trends
and increases transparency and clarity into the core results of the business.
EBITDA, Adjusted net profit and adjusted net profit per share exclude items that do not reflect, in our opinion, the
Company’s core performance and helps users of our MD&A to better analyze our results, enabling comparability of our
results from one period to another. In addition, as a result of significant increases in amortization from of recent
acquisitions, the Company believes it is appropriate to explain its result prior to these acquisition charges.
These non-GAAP measures are mainly derived from the consolidated financial statements, but do not have a stan-
dardized meaning prescribed by IFRS; therefore, others using these terms may calculate them differently. The exclusion
of certain items from non-GAAP performance measures does not imply that these are necessarily non-recurring. From
time to time, we may exclude additional items if we believe doing so would result in a more transparent and
comparable disclosure. Other entities may define the above measures differently than we do. In those cases, it may be
difficult to use similarly named non-GAAP measures of other entities to compare performance of those entities to the
Company’s performance.
Calian Group Ltd.
2016 Annual Report
19
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reconciliation of Adjusted Net Profit
NET PROFIT
Deemed compensation related to acquisitions
Adjusted net profit
Reconciliation of EBITA
Profit before interest and income tax expense
Depreciation
Amortization
Deemed compensation related to acquisitions
2016
$
13,593
642
$
14,235
2016
$
18,733
1,290
1,348
642
2015
$
9,767
1,069
$
10,836
2015
$
13,437
1,285
1,431
1,069
EBITDA
$
22,013
$
17,222
Selected Quarterly Financial Data
(dollars in millions, except per share data)
Revenues
EBITDA(1)
Net profit
Adjusted net profit(1)
Net profit per share
Basic
Diluted
Adjusted net profit per share(1)
Basic
Diluted
Q4/16 Q3/16
Q2/16
Q1/16
Q4/15
Q3/15
Q2/15
Q1/15
$ 68.8
$ 73.2
$ 68.1
$ 64.5
$ 60.9
$ 64.3
$ 61.0
$ 56.0
$ 5.3
$ 6.1
$ 5.4
$ 5.2
$ 4.9
$ 4.0
$ 4.0
$ 4.4
$ 3.4
$ 3.4
$ 3.9
$ 4.0
$ 3.2
$ 3.5
$ 3.1
$ 3.3
$ 2.9
$ 3.1
$ 2.2
$ 2.5
$ 2.2
$ 2.5
$ 2.5
$ 2.7
$ 0.45
$ 0.45
$ 0.52
$ 0.52
$ 0.44
$ 0.44
$ 0.42
$ 0.42
$ 0.39
$ 0.39
$ 0.30
$ 0.30
$ 0.30
$ 0.30
$ 0.34
$ 0.34
$ 0.45
$ 0.45
$ 0.54
$ 0.54
$ 0.48
$ 0.48
$ 0.45
$ 0.45
$ 0.43
$ 0.43
$ 0.34
$ 0.34
$ 0.34
$ 0.34
$ 0.37
$ 0.37
(1) See reconciliation regarding non-GAAP measures above
The Company’s operations are subject to some quarterly seasonality due to the timing of vacation periods and
statutory holidays. Typically the Company’s first and last quarter will be negatively impacted as a result of the Christmas
season and summer vacation period. During these periods, the Company can only invoice for work performed and is
also required to pay for statutory holidays. This results in reduced levels of revenues and a drop in gross margins. This
seasonality may not be apparent in the overall results of the Company depending on the impact of the realized sales
mix of its various projects.
The full text of the Company’s fourth quarter management discussion and analysis can be found on SEDAR at
www.SEDAR.com.
20
2016 Annual Report
Calian Group Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Calian’s net cash position was $16,761 at September 30, 2016, compared to $10,624 at September 30, 2015.
Cash flows from operating activities before changes in working capital
Changes in working capital
Cash flows from (used in) operating activities
Cash flows from (used in) financing activities
Cash flows from (used in) investing activities
Increase (decrease) in cash
Operating activities
2016
22,191
(6,783)
15,408
(6,325)
(2,946)
6,137
$
$
$
2015
17,409
(20,264)
(2,855)
(7,820)
(3,901)
(14,576)
$
$
$
Cash inflows from operating activities for the year ended September 30, 2016 were $15,408 compared to cash
outflows of $2,855 in 2015. Cash flows for the recent year reflect the increase in cash earnings with working capital
elements moving in line with the business activities. The aging of the accounts receivable remains in excellent health
at 98% current. Variations in working capital cash flows are not considered unusual and reflect normal working capital
fluctuations associated with the ebbs and flows of the business. The market for the Systems Engineering Division is
characterized by contracts with billings tied to milestones achieved, which often results in significant working capital
requirements. Conversely, given the nature of this business, it is sometimes possible to negotiate advance payments
on contracts. Such advance payments give rise to unearned revenue that will be realized as revenue over the course
of the contract. As at September 30, 2016, the Company’s total unearned revenue amounted to $11,271. This
compares to $6,980 at September 30, 2015.
Financing activities
Dividend
As a result of continuing earnings and a strong cash position, the Company maintained its dividend in 2016. The
Company paid quarterly dividends totalling $8,320 or $1.12 cents per share compared to 2015 when the Company
paid $8,262 in dividends or $1.12 cents per share. The Company intends to continue with its quarterly dividend policy
for the foreseeable future.
Shares
At September 30, 2016 there were 351,500 options outstanding at an average price of $19.38 expiring at various dates
between August 13, 2017 and September 9, 2020.
At September 30, 2016 there were 7,483,599 common shares outstanding and as of the date of this Management
Discussion and Analysis, there were 7,503,849 common shares outstanding.
Investing activities
Equipment expenditures
Calian acquired $1,751 in equipment, furniture and fixtures during 2016, compared to $2,701 during 2015 when the
SED division invested in a new Surface Mount Technology manufacturing line. At September 30, 2016 there were no
significant commitments to expend capital assets.
Acquisitions
During 2016 (2015), the Company paid $1,195 ($1,200) for various acquisitions as described in the notes to the
consolidated financial statements.
Calian Group Ltd.
2016 Annual Report
21
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Capital resources
At September 30, 2016 the Company had a short-term credit facility of $10,000 with a Canadian chartered bank that
bears interest at prime and is secured by assets of the Company. An amount of $75 was drawn to issue a letter of
credit to meet customer contractual requirements.
Management believes that the company has sufficient cash resources to continue to finance its working capital
requirements and pay a quarterly dividend.
Contractual obligations
Payments due:
Operating leases
Purchase obligations
Total contractual obligations
Total
$20,251
12,071
$32,322
<1 year
$ 3,419
10,415
$13,834
1-3 years
$ 5,015
1,470
$ 6,485
4-5 years
$ 4,183
187
$ 4,370
>5 years
$ 7,634
-
$ 7,634
Purchase obligations include agreements to purchase goods and services that are enforceable and legally binding.
They do not include agreements that are cancellable without penalty.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements at September 30, 2016.
Operating leases
The Company leases various premises and office equipment through operating leases.
Related party transactions
There were no transactions with related parties during 2016 and 2015.
Critical Accounting Estimates
The preparation of financial statements in accordance with IFRS requires management to make estimates and
assumptions that affect the Company’s financial condition and results of operations. On an on-going basis,
management reviews its estimates and assumptions, including those related to revenue recognition on fixed-price
projects, provisions and contingencies, estimated timing of reversals of income tax temporary differences, allowance
for doubtful accounts, valuation of investment and impairment of goodwill. Management bases its estimates and
assumptions on historical experience and on various other factors that it believes to be reasonable under the
circumstances; actual results could differ from those estimates.
Revenue recognition
The Business and Technology Services Division’s revenue is derived primarily from per-diem contracts where revenue
is recognized when the services are provided. However, a significant portion of the Systems Engineering Division’s
revenue is derived from fixed price contracts. Revenue from these fixed price projects is recognized using the per-
centage of completion method using management’s best estimate of the costs and related risks associated with
completing the projects. The greatest risk on fixed price contracts is the possibility of cost overruns. Management’s
approach to revenue recognition is tightly linked to detailed project management processes and controls. The infor-
mation provided by the project management system combined with a knowledgeable assessment of technical
complexities and risks are used in estimating the percentage completion.
22
2016 Annual Report
Calian Group Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Contingencies
From time to time the Company is involved in claims in the normal course of business. Management assesses such
claims and where considered likely to result in a material exposure and where the amount of the claim is quantifiable,
provisions for loss are made based on management’s assessment of the likely outcome. The Company does not
provide for claims that are considered unlikely to result in a significant loss, claims for which the outcome is not deter-
minable or claims where the amount of the loss cannot be reasonably estimated. Any settlements or awards under
such claims are provided for when reasonably determinable.
Income taxes
The Company records future income tax assets and liabilities related to deductible temporary differences. The
Company assesses the value of these assets and liabilities based on their probability of being realized given
management assessments of future taxable income.
Allowance for doubtful accounts
The Company has extensive commercial history upon which to base its provision for doubtful accounts. Due to the
nature of the industry in which the Company operates, the Company does not create a general provision for bad debts
but rather determines bad debts on a specific account basis. Due to the blue chip list of customers, the Company’s
allowance for doubtful accounts at September 30, 2016 and 2015 was minimal.
Goodwill
Goodwill is tested for impairment annually or more frequently when events occur or circumstances arise that could
indicate a reduction in its fair value. Testing for impairment is accomplished by determining whether the fair value of
the cash generating unit exceeds the net carrying value as of the assessment date. If the fair value is greater than the
carrying amount, no impairment is necessary. The determination of fair value is based on management’s estimate of
future results of operations of the reporting unit using reasonable assumptions relating to growth levels when
considering the current and forecasted business environment and each cash-generating unit’s discount rate. For
purpose of determining fair value, management considered a growth level range of 0% to 3% and a discount rate range
of 12% to 15% for its BTS division.
Adoption of New Accounting Rules and Impact on Financial Results
The Company did not adopt any new accounting policies this year.
Impact of Accounting Pronouncements Not Yet Implemented
There were no new accounting pronouncements issued in 2016 which would affect the Company's results of
operations or financial conditions.
Management’s Conclusion on the Effectiveness of Disclosure Controls
The Chief Executive Officer and the Chief Financial Officer of the Company, after evaluating the effectiveness of the
Company's disclosure controls and procedures as of September 30, 2016, have concluded that the Company’s
disclosure controls and procedures were adequate and effective to ensure that material information relating to the
Company and its consolidated subsidiaries would have been known to them and that information required to be
disclosed by the Company is recorded, processed, summarized and reported within the time periods specified in the
securities legislation.
Calian Group Ltd.
2016 Annual Report
23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Conclusion on the Effectiveness of Internal Control over Financial Reporting
The Chief Executive Officer and the Chief Financial Officer of the Company, after evaluating the effectiveness of the
Company’s internal control over financial reporting as of September 30, 2016, have concluded that the Company’s
internal controls over financial reporting provide reasonable assurance regarding the reliability of financial reporting for
external purposes in accordance with IFRS.
During the most recent interim quarter ending September 30, 2016, there have been no changes in the design of the
Company’s internal controls over financial reporting that has materially affected, or is reasonably likely to materially
affect, the Company's internal controls over financial reporting.
Risk Factors
The Company is subject to a number of risks and uncertainties that could significantly affect the Company’s financial
condition and future results of operations. The company continues to evolve its risk management processes and risk
management is an integral part of how the Company plans and monitors the business strategies and results. We have
embedded risk management activities in the operational responsibilities of management and made them an integral
part of our overall governance, organizational and accountability structure. The Company faces some or all of the
following risks and uncertainties:
Competition for contracts within key markets
The markets for the Company’s services are very competitive, rapidly evolving and subject to technological changes. The
principal competitive factors in the Company’s markets are quality, performance, price, timeliness, customer support and
reputation. The Company has a disciplined approach to management of all aspects of its business. The Company is a
proponent of quality management; SED is registered under ISO 9001-2008 standards and BTS is a founding partner of
Excellence Canada recently re-accredited at the Gold Level. This approach to management, with a focus on quality was
developed to help the Company ensure that its employees deliver services consistently according to the Company’s high
standards and based on strong values underlying its client-focused culture.
Concentration of Revenues
The Company has certain ongoing contracts that account for a significant portion of revenues. Should these contracts
not be renewed at expiry or should a competitor win the renewal, the Company’s future revenue stream and overall
profitability could be significantly reduced. While there is no indication that such contracts will be left to expire, there
is a risk that a competitor could win the work at the next renewal point. Our strong historical performance and keen
focus on customer requirements puts us in good stead, but winning the renewal is not assured.
The availability of qualified professionals
Competition from other firms has a two-fold impact on the Company. The Company must not only vie for qualified
employees for its own operations but must have ready access to a large pool of qualified professionals to satisfy con-
tractual arrangements with customers. The Company mitigates these factors through a number of means. The
Company’s performance-driven remuneration policies and its favorable working environment are conducive to
attracting ambitious, qualified professionals. As a supplier of professional employees through outsourcing contracts,
the Company regularly establishes relationships with a significant number of professionals in key markets. While SED
revenues are usually predominately export, its labour costs are largely influenced by domestic and regional economic
factors. Accordingly, labour costs could become significantly higher than those of foreign competitors, thereby eroding
our competitive position.
24
2016 Annual Report
Calian Group Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Performance on fixed-price contracts
A large percentage of SED’s contracts are based on a fixed price for the provision of a specified service or system
against an agreed delivery schedule. At times these fixed-price contracts involve the completion of large-scale system
engineering projects. There is a risk in all fixed-price contracts that the Company will be unable to deliver the system
within the time specified and at the expected cost. The Company employs sophisticated design and testing
processes and practices, which include a wide range of stringent factory and on-site acceptance tests with criteria and
requirements jointly developed with the customer. However, non-performance could result in a customer being in a
position to terminate the contract for default, or to demand repayments or penalties. Program management
methodologies have been implemented to adequately manage each project and any customer change, and to
identify and mitigate potential technical risks and related cost overruns. In addition, the Company employs procedures
to ensure accurate estimating of costs and performs regular detailed reviews of progress on each project.
Non-performance of a key supplier or contractor
The Company’s business is often dependent on performance by third parties and subcontractors for completion of
contracts for which the Company is the prime contractor. Subcontractors for large systems are selected in concurrence
with the customer’s requirements, and if not directed by the customer, are selected through a competitive bid or
negotiated process. Most major development subcontracts are established as fixed-price contracts. The Company
believes that these subcontractors have an economic incentive to perform such subcontracts for the Company.
However, no company can protect itself against all material breaches, particularly those related to financial insolvency
of the sub- contractors or to cost overruns by subcontractors. Risks include a significant price increase in those few
subcontracts that are not fixed-price, delay in performance, failure of any major subcontractor to perform or the
inability of the Company to obtain replacement subcontractors at a reasonable price. The performance of key
subcontracts is closely monitored as part of the Company’s project management process to promptly identify
potential issues and develop remedial actions.
Rapidly changing technologies and customer demands
The markets in which the Company operates are characterized by changing technology and evolving industry
standards. The Company keeps pace with developments in the industries it serves and actively monitors the evolution
of these markets, thus ensuring that it can meet the evolving needs of its clients. The Company achieves this by
continually recruiting professionals in high demand positions and providing regular training to ensure employee skills
remain current. The Company’s ability to anticipate changes in technology, technical standards and service offerings
will be a significant factor in the Company’s ability to compete or expand into new markets.
Customer’s ability to retain market share
The Company performs manufacturing services for a number of customers, whereby we build their products to meet
their market demands. While these relationships are long-standing, the Company is susceptible to overall shifts in
market demand for such products as well as our customers’ share of such markets. While the Company has regular
discussions with customers regarding upcoming requirements, an erosion of a customer’s market share for a
particular product could have a direct impact on the Company’s revenues and profitability.
Government contracts
During fiscal 2016, approximately 61% of the Company’s total revenues were derived from contracts with the Canadian
government and its agencies. The government may change its policies, priorities or funding levels through agency or
program budget reductions or impose budgetary constraints. Furthermore, contracts with governments, including the
Canadian government, may be terminated or suspended by the government at any time, with or without cause, and
may be subject to certain audits or other claims. Although in the past the Company has rarely experienced
cancellations of previously awarded significant contracts by the Canadian government, there can be no assurance that
any contract with the government will not be terminated or suspended in the future.
Calian Group Ltd.
2016 Annual Report
25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Backlog
Most fee for service contracts provide the customer with the ability to adjust the timing and level of effort throughout
the contract life and as such the amount actually realized could be materially different from the original contract value.
At September 30, 2016 the Company’s backlog included $94 million of contract value in excess of the current esti-
mated utilization levels. Should additional customer requirements for the Company’s services under these contracts
not materialize, this excess will not be realized.
Credit risk concentration with respect to accounts receivable
As the Company grows, it monitors the concentration of its business in its various segments and with particular
customers. In management’s opinion, the fact that the Company operates in two segments that provide some
diversification of its customer base mitigates the potential impact on earnings and cash flow of problems related to an
individual sector or customer.
Insufficient or inappropriate mix of work for fixed labour resources
Virtually all employees of SED are full time staff and represent a broad spectrum of unique skill sets. Accordingly, SED
strives to secure sufficient labour sales that adequately match the skill sets. SED’s business development practices are
designed to dynamically adjust pursuits of contracts to address the sufficiency and mix of available resources. In the
event SED cannot secure the required workforce, it may not be in a position to bid on or secure certain contracts.
Operational risk
Operational risk is managed through the establishment of effective infrastructure and controls. Key elements of the
infrastructure are qualified, well-trained personnel, clear authorization levels and reliable technology. Controls estab-
lished by documented policies and procedures include the regular examination of internal controls by internal
employees as well as our auditors, segregation of duties, and financial management and reporting. In addition, the
Company maintains insurance coverage and contingency plans for systems failures or catastrophic events.
Foreign currency risk
The Company operates internationally with approximately 25% of its business derived from non-Canadian sources. A
substantial portion of this international business is denominated in major foreign currencies and therefore the
Company’s results from operations are affected by exchange rate fluctuations of these currencies relative to the
Canadian dollar. The Company uses financial instruments, principally in the form of forward exchange contracts, in its
management of foreign currency exposures. At September 30, 2016, the Company had various forward exchange
contracts, which are explained in Note 18 to the Company’s consolidated financial statements for the year ended
September 30, 2016. The strengthening of the Canadian dollar relative to other foreign currencies may negatively
impact the Company’s competitiveness and increase pressure on margins for new work.
Sufficiency of insurance
The Company carries various forms of insurance to protect itself from a variety of insurable risks. However, such
coverage may not be sufficient in extreme circumstances, and accordingly there exists a risk to the Company. While
the Company cannot reasonably insure itself for all events, it regularly reviews the availability, scope and amounts of
coverage with its professional advisors and implements an approach balancing both cost and risk.
Medical malpractice
As a result of the Company executing health services for numerous customers, the Company is subject to risks asso-
ciated with the medical profession. In order to mitigate such risks to the degree possible, the Company has obtained
medical malpractice and professional liability insurance. In addition, it is a condition of employment for doctors,
dentists and other medical professionals to maintain appropriate credentials, be in good standing with their medical
associations, and obtain medical malpractice insurance from their respective association.
26
2016 Annual Report
Calian Group Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Political and trade barriers
Revenues on certain projects are derived from customers in foreign jurisdictions and are subject to trade and political
barriers relating to the protection of national interests. These barriers could have an adverse effect on our ability to win
repeat business and attract new customers. In addition there is a risk that economic sanctions imposed by Canada
against aggressive countries could limit pursuits of new business with those countries.
Consolidation of customer base
Certain markets and industries can experience both restructuring and consolidation from time-to-time. As the newly
formed entities focus on optimizing cash flows and gaining economies of scale, opportunities may be diminished or
work currently performed by the Company could be repatriated, resulting in a loss of revenue or the creation of a very
competitive environment with commensurate pressure on margins.
Reliance on information systems
Unauthorized access to our or our customers’ information and systems could negatively impact our business. We face
certain security threats, including threats to the confidentiality, availability and integrity of our data and systems. While
management supervises and maintains what it considers to be appropriate control, enforcement and monitoring systems
designed to prevent, detect and respond to unauthorized activity in our systems, no system is failsafe and certain types
of attacks or system failures could result in significant financial or information losses and/or reputational harm.
Long term Outlook
Management is confident that the Company is well positioned for sustained growth in the long term. The Company’s
strong contract backlog provides a solid base for the realization of future revenues. Leveraging the Company's diverse
services offerings; the Company operates in global and domestic markets that will continue to require the services that
the Company offers. To ensure the Company is positioned to respond to market requirements, the Company will focus
on the execution of its four pillar growth strategy:
• Customer retention: through continued delivery excellence, maintain a valued relationship with current customer base;
• Customer diversification: through increasing the percentage of its revenues derived from new business in adjacent and non-
government markets, balance customer revenue into numerous global and domestic sectors;
• Service Line Evolution: continue investment in service offerings to increase differentiation and improve gross margin attainment;
• Continuous Improvement: leverage innovation to improve how the company operates with a goal to streamline processes
and provide for a scalable back office support capability.
The Company has completed four acquisitions in the past 5 years, and will proactively look for companies that can
accelerate its growth strategy with a focus on customer diversification and service line evolution.
The SED Division has been working within a sustainable satellite sector and is expecting opportunities to continue to
arise as systems adopting the latest technologies will be required by customers wishing to maintain and improve their
service offerings and react to an increasing demand for bandwidth. SED continues to invest in communications
products, software development and manufacturing equipment to strengthen its competitive position. However in the
short-term, activity levels in custom manufacturing will continue to be directly dependent upon SED’s customers’
requirements and continuing volatility in orders is anticipated as both government and commercial customers
continue to re-examine their traditional spending patterns. Continued delays of DND capital procurements have created
intense competition for available manufacturing work. Finally, changes in the relative value of the Canadian dollar may
negatively or positively impact the Systems Engineering Division’s competitiveness on projects denominated in
foreign currencies.
Calian Group Ltd.
2016 Annual Report
27
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The BTS Division’s professional services are adaptable to many different markets. Currently, its strength lies in
providing program management and delivery services across Canada with a significant portion of this work currently
with the Department of National Defence. The division has been successful in diversifying its customer base and evolv-
ing its service offerings. As an example, the division now provides direct to customer health services through the
operation of managed medical clinics as well as onsite health practitioners in the oil and gas sector. Management
believes that for the long term, the public and private sector will continue to require health, IT, and training services
from private enterprise to achieve their business outcomes. Looking at the current outlook, the current economic
climate, the new federal government agenda may create uncertainty as to the extent of demand from this customer, at
least in the short term. With continued investments in sales, marketing and success in new markets outside of the
federal government, the division is better positioned to manage through these downturns. Acquisitions have also
bolstered the division’s performance and we will continue to look at acquisition opportunities to support our
growth strategy.
Additional Information
Additional information about the Company such as the Company’s 2016 Annual Information Form and Management
Circular can be found on SEDAR at www.SEDAR.com
Dated: December 2, 2016
28
2016 Annual Report
Calian Group Ltd.
Management’s Statement of Responsibility
The accompanying consolidated financial statements of Calian Group Ltd. and its subsidiaries and all information in the
annual report are the responsibility of management and have been approved by the Board of Directors.
The financial statements include some amounts that are based on management’s best estimates that have been made
using careful judgment.
The financial statements have been prepared by management in accordance with accounting principles generally
accepted in Canada. Financial and operating data elsewhere in the annual report are consistent with the information
contained in the financial statements.
In fulfilling its responsibilities, management of Calian has developed and continues to maintain systems of internal
accounting controls including written policies and procedures and segregation of duties and responsibilities.
Although no cost-effective system of internal controls will prevent or detect all errors and irregularities, these systems
are designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, transactions
are properly recorded and the financial records are reliable for preparing the financial statements.
The Board of Directors carries out its responsibility for the financial statements in this report through its Audit
Committee. The Audit Committee meets periodically with management to discuss the results of audit examinations
with respect to the adequacy of internal controls and to review and discuss the financial statements and financial
reporting matters. The Audit Committee also meets periodically with the external auditors to review and discuss the
financial statements and financial reporting matters.
The financial statements have been audited by Deloitte LLP, Chartered Professional Accountants, who have full access
to the Audit Committee with and without the presence of management.
Kevin Ford
President and CEO
Ottawa, Ontario
November 9, 2016
Jacqueline Gauthier
Chief Financial Officer
Calian Group Ltd.
2016 Annual Report
29
Independent Auditor’s Report
To the Shareholders of Calian Group Ltd.
We have audited the accompanying consolidated financial statements of Calian Group Ltd., which comprise the
consolidated statements of financial position as at September 30, 2016 and September 30, 2015, and the
consolidated statements of net profit, consolidated statements of comprehensive income, consolidated statements of
changes in equity and consolidated statements of cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Calian Group Ltd. as at September 30, 2016 and September 30, 2015, and its financial performance and its cash flows
for the years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants
Licensed Public Accountants
November 9, 2016
Ottawa, Ontario
30
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Consolidated Statements of Financial Position
As at September 30, 2016 and 2015
(Canadian dollars in thousands)
NOTES
September 30,
2016
September 30,
2015
ASSETS
CURRENT ASSETS
Cash
Accounts receivable
Work in process
Prepaid expenses
Derivative assets
Total current assets
NON-CURRENT ASSETS
Equipment
Application software
Acquired intangible assets
Goodwill
Total non-current assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Unearned contract revenue
Derivative liabilities
Total current liabilities
NON-CURRENT LIABILITIES
Deferred tax liabilities
Total non-current liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Issued capital
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
TOTAL SHAREHOLDERS’ EQUITY
18
6
7
8
9
14
18
13
10
$
16,761
61,032
17,269
1,044
534
96,640
5,472
612
2,898
12,037
21,019
$
10,624
50,494
17,431
1,449
424
80,422
5,245
377
4,246
12,037
21,905
$ 117,659
$ 102,327
$
26,671
11,271
484
38,426
912
912
39,338
22,820
472
55,906
(877)
78,321
$
25,582
6,980
751
33,313
299
299
33,612
20,673
458
50,633
(3,049)
68,715
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$ 117,659
$ 102,327
The accompanying notes are an integral part of the consolidated financial statements.
Approved by the Board
on November 9, 2016:
Kenneth Loeb
Chairman
Richard Vickers
Director
Calian Group Ltd.
2016 Annual Report
31
Calian Group Ltd.
Consolidated Statements of Net Profit
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share data)
Revenues
Cost of revenues
Gross profit
Selling and marketing
General and administration
Facilities
Depreciation of equipment and application software
Amortization of acquired intangible assets
Deemed compensation related to acquisitions
Profit before interest income and income tax expense
Interest income
Profit before income tax expense
Income tax expense – current
Income tax expense – deferred
Total income tax expense
NET PROFIT
Net profit per share:
Basic
Diluted
NOTES
$
19
13
2016
274,587
225,753
48,834
4,124
18,893
3,804
1,290
1,348
642
18,733
37
18,770
5,343
(166)
5,177
$
13,593
12
12
$
$
1.83
1.83
2015
242,253
200,742
41,511
3,904
16,924
3,461
1,285
1,431
1,069
13,437
87
13,524
4,068
(311)
3,757
9,767
1.33
1.33
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
32
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Consolidated Statements of Comprehensive Income
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands)
NET PROFIT
Other comprehensive income, net of tax
Items that will be reclassified subsequently to net profit:
Change in deferred gain (loss) on derivatives designated as cash
flow hedges, net of tax of $780 (2015 - $1,062).
Other comprehensive income (loss), net of tax
COMPREHENSIVE INCOME
NOTES
2016
2015
$ 13,593
$
9,767
2,172
2,172
(2,975)
(2,975)
$ 15,765
$
6,792
The accompanying notes are an integral part of the consolidated financial statements.
Calian Group Ltd.
2016 Annual Report
33
Calian Group Ltd.
Consolidated Statements of Changes in Equity
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share data)
Balance October 1, 2015
Comprehensive income
Dividend paid ($1.12 per share)
Issue of shares under employee
stock purchase plan
Issue of shares under stock option plan
Share-based compensation expense
Balance September 30, 2016
Notes
Issued
capital
Contributed
surplus
Retained
earnings
Cash flow
hedging
reserve
Total
$ 20,673
$ 458
$ 50,633
$ (3,049) $ 68,715
-
-
10,11
10
11
388
1,759
-
$ 22,820
-
-
-
(89)
103
$ 472
13,593
(8,320)
-
-
(2,172)
15,765
-
-
-
-
(8,320)
388
1,670
-
$ 55,906
-
103
$ (877) $ 78,321
Balance October 1, 2014
Comprehensive income
Dividend paid ($1.12 per share)
Issue of shares under employee
stock purchase plan
Issue of shares under stock option plan
Share-based compensation expense
Balance September 30, 2015
Notes
Issued
capital
Contributed
surplus
Retained
earnings
Cash flow
hedging
reserve
Total
$ 20,161
$ 336
$ 49,128
$
(74) $ 69,551
-
-
413
99
-
$ 20,673
-
-
-
(6)
128
$ 458
9,767
(8,262)
-
-
(2,975)
6,792
-
-
-
(8,262)
413
93
-
$ 50,633
-
128
$ (3,049) $ 68,715
10,11
10
11
The accompanying notes are an integral part of the consolidated financial statements.
34
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Consolidated Statements of Cash Flows
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands)
NOTES
2016
2015
$ 13,593
$
9,767
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net profit
Items not affecting cash:
Interest income
Income tax expense
13
Employee stock purchase plan and share-based compensation expense
Depreciation and amortization expense
Deemed compensation related to acquisitions
Change in non-cash working capital
Accounts receivable
Work in process
Prepaid expenses
Accounts payable and accrued liabilities
Unearned contract revenue
Interest received
Income tax paid
CASH FLOWS USED IN FINANCING ACTIVITIES
Issuance of common shares
Dividends
CASH FLOWS USED IN INVESTING ACTIVITIES
Equipment and application software expenditures
Acquisitions
10,11
6,7
19
(37)
5,177
178
2,638
642
22,191
(10,848)
162
405
3,710
4,291
19,911
37
(4,540)
15,408
1,995
(8,320)
(6,325)
(1,751)
(1,195)
(2,946)
( 87)
3,757
187
2,716
1,069
17,409
(10,445)
( 4,840)
251
( 3,072)
1,838
1,141
87
( 4,083)
(2,855)
442
( 8,262)
( 7,820)
( 2,701)
( 1,200)
( 3,901)
NET CASH INFLOW (OUTFLOW)
CASH, BEGINNING OF PERIOD
CASH, END OF PERIOD
$
6,137
10,624
$ 16,761
$ (14,576)
25,200
$ 10,624
The accompanying notes are an integral part of the consolidated financial statements.
Calian Group Ltd.
2016 Annual Report
35
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
1. Basis of preparation
Calian Group Ltd. (“the Company”) is incorporated under the Canada Business Corporations Act. The address of its registered office
and principal place of business is 340 Legget Drive, Ottawa, Ontario K2K 1Y6. The Company's capabilities include the provision of
business and technology services to industry and government in the health, IT services and training and engineering domains as well
as the design, manufacturing and maintenance of complex systems to the communications and defence sectors.
On April 1, 2016, the Company changed its name from Calian Technologies Ltd. to Calian Group Ltd. The Company name change
was done to better reflect the diversity of its services in light of the expansion into areas such as healthcare and training.
Statement of compliance
These consolidated financial statements are expressed in Canadian dollars and have been prepared in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standard Board ("IASB") and in place for September
30, 2016. These consolidated financial statements were prepared using the accounting policies as described in Note 2 – Summary of
significant accounting policies.
These consolidated financial statements for the year ended September 30, 2016 were authorized for issuance by the Board of
Directors on November 9, 2016.
2. Summary of significant accounting policies
The accounting policies below have been applied consistently to all periods presented in these consolidated financial statements
unless otherwise stated.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Calian Ltd. located in
Ottawa, Ontario, Primacy Management Inc., located in Burlington, Ontario, Med-Team Clinic Inc., located in Ottawa, Ontario, Amtek
Engineering Services Ltd., located in Ottawa, Ontario and DWP Solutions Inc., located in Ottawa, Ontario. All transactions and
balances between these companies have been eliminated on consolidation.
Basis of presentation
The consolidated financial statements are presented at historical cost unless otherwise noted. Historical cost is generally based on
the fair value of the consideration given in exchange for the asset or liability.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue from a contract to provide services is
recognized by reference to the stage of completion of the contract. The stage of completion of the contract is determined as follows:
Fixed price contracts
Where the outcome of fixed-price construction contracts can be estimated reliably, revenue is recognized by reference to the com-
pleted activity of the contract as at each reporting period, measured based on the proportion of the costs incurred for work performed
to-date relative to the estimated total contract costs including warranty costs where applicable, except where this would not be
representative of the stage of completion. As some contracts extend over more than one year, any revision in cost and profit estimates
made during the course of the work is reflected in the accounting period in which the facts indicating a need for the revision become
known. Variations in contract work, claims and incentive payments if any, are included to the extent that the amount can be measured
reliably and its receipt is considered probable.
Where the outcome of fixed-price construction contracts cannot be estimated reliably, contract revenue is recognized to the extent of
contract costs incurred that it is probable will be recoverable. Contract costs are recognized as expenses in the period they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.
Where contract costs incurred to-date plus recognized profits less recognized losses exceed progress billings, the surplus is shown
as work in process. For contracts where progress billings exceed contract costs incurred to date plus recognized profits less
recognized losses, the surplus is shown as unearned contract revenue. Amounts received before the related work is performed are
included in the consolidated statement of financial position, as a liability, as unearned contract revenue. Amounts billed for
work performed but not yet paid by the customer are included in the consolidated statement of financial position under
accounts receivable.
36
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
Time and material contracts
Revenue derived from time and material contracts is recognized at the contractual rates as labour hours are delivered and direct
expenses are incurred. Variations in revenue incentive payments, if any, are included to the extent that the amount can be measured
reliably and its receipt is considered probable.
Share-based compensation
The Company had in place for periods up to February 5, 2016 a stock option plan for executives and other key employees. The
Company measures and recognizes compensation expense based on the grant date fair-value of the stock options issued using the
Black-Scholes pricing model. The offsetting credit is recorded in contributed surplus. Compensation expense is recorded on a straight-
line basis over the vesting period, based on the Company’s estimate of stock options that will ultimately vest. At each reporting period,
the Company revises its estimate of the stock options expected to vest. The impact on the change in estimate, if any, is recognized
over the remaining vesting period. Consideration paid by employees on the exercise of options and related amounts of contributed
surplus are recorded as issued capital when the shares are issued.
The Company has an employee stock purchase plan available to all employees of the Company. The plan provides for a discount to
the fair market value at the date the shares are issued. Compensation expense representing the discount is recorded as general and
administration expenses with an offsetting amount to issued capital.
Leases
Leases entered into are classified as either finance or operating leases. Leases that transfer substantially all of the risks and rewards
of ownership of property to the Company are accounted for as finance leases. For leases which are classified as operating leases, lease
payments are recognized as an expense on a straight-line basis over the lease term. In the event that lease incentives are received to
enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a
reduction of rental expense on a straight-line basis. The Company does not have any finance leases.
Income taxes
Income tax expense comprises current and deferred tax. Income tax expense is recognized in net profit, except when it relates to items
that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized
in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for
a business combination, the tax effect is included in the accounting for the business combination.
Current tax
The tax currently payable is based on taxable income for the period using tax rates enacted or substantively enacted as at each
reporting period and any adjustments to tax payable related to previous years. Taxable profit differs from profit as reported in the
consolidated statement of net profit because it excludes items of income or expense that are taxable or deductible in other years, and
it further excludes items that are never taxable or deductible.
Deferred tax
Deferred tax is recognized using the balance sheet method, providing for differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the corresponding tax bases used for taxation purposes calculated using the tax rates in
effect when the differences are expected to reverse.
Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized
for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those
deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from
goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the
Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in
the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only
recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the tem-
porary differences, and they are expected to reverse in the foreseeable future.
Calian Group Ltd.
2016 Annual Report
37
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable income will be available to allow all or part of the asset to be recovered. Deferred tax assets and
liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized,
based on tax rates that have been enacted or substantively enacted at each reporting period. The measurement of deferred tax
liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting
date, to recover or settle the carrying amount of its assets and liabilities.
Equipment
Equipment, comprising leasehold improvements, furniture and computer equipment is stated at cost less accumulated depreciation
and impairment losses, if any. The carrying value is net of related government assistance and investment tax credits. Depreciation is
recognized in net profit on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized
on a straight-line basis over the term of the leases. The estimated useful lives are as follows:
• Leasehold improvements:
over the term of each lease
• Equipment:
5 years
The estimated useful lives, residual values and depreciation methods are reviewed annually, with the effect of any changes in estimate
accounted for on a prospective basis.
Application software
Application software is measured at cost less accumulated depreciation and is amortized on a straight-line basis over its estimated
useful life not exceeding five years. The amortization method and estimate of useful lives are reviewed annually.
Acquired intangible assets
Acquired intangible assets are measured at cost less accumulated amortization. Amortization is recognized in net profit on a straight-
line basis over the estimated useful lives of the underlying assets. The estimated useful lives are as follows:
• Customer relationship Primacy:
indefinite
• Other customer relationships:
• Contracts with customers:
3 to 5 years
3 to 5 years
• Non-competition agreements:
7 years
The customer relationship from the Primacy acquisition, representing expected renewals of the acquired contract, is considered to have
an indefinite life based on the fact that the contract is renewable on an annual basis indefinitely. The amortization method and estimate
of useful life for all other intangible assets is reviewed annually.
Impairment of equipment, application software and intangible assets
At each reporting period, management reviews the carrying amounts of its equipment, application software and acquired intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. Intangible assets with an
indefinite life are also tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset
might be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of
the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, management estimates
the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation
can be identified, corporate assets are also allocated to individual cash-generating units. The Company performs its annual review of
acquired intangible assets with an indefinite life on September 30th each year.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of
the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
38
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
Impairment of goodwill
Goodwill arising on the acquisition of a business represents the excess of the purchase price over the net fair value of identifiable assets,
liabilities and contingent liabilities of the acquired businesses recognized at the date of the acquisition. Goodwill is initially recognized as
an asset at cost, and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing,
goodwill is allocated to the cash-generating units expected to benefit from the synergies of the combination. Cash-generating units or
groups of cash generating units to which goodwill has been allocated are tested for impairment annually or more frequently if events or
changes in circumstances indicate that the unit might be impaired. For purposes of impairment testing of goodwill, cash-generating units
or groups of cash generating units correspond to the Company's reporting segments as disclosed in Note 17.
When the recoverable amount of the cash-generating unit is less than the carrying amount of the cash-generating unit, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of
the cash-generating unit on a pro-rata basis. An impairment loss recognized for goodwill is not reversed in a subsequent period.
The Company performs its annual review of goodwill on September 30th each year.
Business acquisition
Acquisition of businesses is accounted for using the acquisition method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, and
liabilities incurred by the Company to the former owners of the acquiree in exchange for control of the acquiree. Acquisition-related
costs are generally recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that deferred
tax assets or liabilities are recognised and measured in accordance with IAS 12 Income Taxes.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date
amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts
of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-
controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is
recognised immediately in profit or loss as a bargain purchase gain.
When the consideration transferred by the Company in a business combination includes a payment subject to the retention of the
principal shareholders, the amount is deemed to represent deferred compensation payable to such shareholders and therefore is
excluded from the total consideration to the purchase, and is expensed on a straight-line basis over the retention period in the
Company’s consolidated statement of net profit as deemed compensation related to acquisitions.
When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a
contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part
of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as
measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period
adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed
one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
Foreign currency translation
Transactions in currencies other than the Company’s functional currency (foreign currencies) are recorded at the rates of exchange pre-
vailing at the dates of the transactions. Income and expense items are translated at the average exchange rates for the period, unless
exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used.
At each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at each reporting
period. Non-monetary items which are measured in terms of historical cost in a foreign currency are not retranslated. Exchange
differences are recognized in net profit in the period in which they arise except for exchange differences on transactions entered into
in order to hedge certain foreign currencies (see note below for hedging policy).
The functional currency of the parent company and its subsidiaries is the Canadian dollar.
Calian Group Ltd.
2016 Annual Report
39
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
Financial instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through
profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit
or loss are recognized immediately in profit or loss.
Financial assets
The classification of financial assets depends on the nature and purpose of the financial assets and is determined at the time of initial
recognition. The Company’s financial assets are classified as follows:
Cash
Accounts receivable
Derivative assets
Fair value through profit or loss
Loans and receivables
Fair value through profit or loss
Financial assets at fair value through profit or loss (“FVTPL”)
Financial assets are classified as at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets
at FVTPL are measured at fair value. Derivative assets are classified as FVTPL. Changes in fair value of financial assets other than
derivatives are recognized in net profit and changes in fair values of derivatives are recognized in Other Comprehensive Income (“OCI”).
Loans and receivables
Accounts receivable are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective
interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term
receivables when the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each reporting period. Financial assets are
impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of financial assets have been impacted. Objective evidence of impairment could include
significant financial difficulty of the issuer or counterparty, default or delinquency in interest or principal payments or it becoming
probable that the borrower will enter bankruptcy or financial re-organization.
Accounts receivable are assessed for impairment individually. Objective evidence of impairment could include the Company’s past
experience of collecting payments, and an increase in the number of delayed payments past the average credit period.
For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and
the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
Impairment losses, if any, are recognized in net profit. The carrying amount of the financial asset is reduced by the impairment loss
directly for all financial assets with the exception of accounts receivable, where the carrying amount is reduced through the use of an
allowance account. When an accounts receivable is considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount
of the allowance account are recognized in net profit, if any. If in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized
impairment loss is reversed through net profit to the extent that the carrying amount of the investment at the date the impairment is
reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Financial liabilities
Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. The Company’s accounts payable and
accrued liabilities are classified as other financial liabilities. Accounts payable and accrued liabilities are initially measured at fair value
and are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an
effective yield basis. Derivative liabilities are classified as FVTPL. The share purchase obligation is based on the fair value of the
Company’s shares at the end of each period.
40
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts))
2. Summary of significant accounting policies (continued)
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial asset (or financial liability), and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts
(cash disbursements), including all fees paid or received that form an integral part of the effective interest rate, transaction costs and
other premiums or discounts, through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period.
Fair value hierarchy
The Company’s fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair
value hierarchy are:
Level 1 values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for
identical assets or liabilities.
Level 2 values are based on quoted prices in markets that are not active or model inputs that are observable either directly or
indirectly for substantially the full term of the asset or liability.
Level 3 values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the
overall fair value measurement.
When the inputs used to measure fair value fall within more than one level of the hierarchy, the level within which the fair value
measurement is categorized is based on the Company’s assessment of the lowest level input that is the most significant to the fair
value measurement.
Derivative financial instruments and risk management
The Company enters into derivative financial instruments, mainly foreign exchange forward contracts to manage its foreign exchange
rate risk. The Company’s policy does not allow management to enter into derivative financial instruments for trading or speculative
purposes. Foreign exchange forward contracts are entered into to manage the foreign exchange rate risk on foreign denominated
financial assets and liabilities and foreign denominated forecasted transactions.
Derivatives are initially recognized at fair value at the date a derivative contract is entered into with transaction costs recognized in profit
and loss. Derivatives are subsequently re-measured to their fair value at each reporting period. The resulting gain or loss is recognized
in net profit immediately unless the derivative is designated and effective as a hedging instrument, in which event the effective portion
of changes in the fair value of the derivative is recorded in other comprehensive income and is recognized in net profit when the hedged
item affects net profit. The Company expenses transaction costs related to its foreign exchange contracts. Fair value of the forward
exchange contracts reflects the cash flows due to or from the Company if settlement had taken place at the end of the period.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12
months and it is not expected to be realized or settled within 12 months.
Hedge accounting
Management designates its foreign exchange forward contracts as either hedges of the fair value of recognized assets or liabilities (fair
value hedges) or hedges of highly probable forecast transactions and firm commitments (cash flow hedges).
At the inception of the hedge relationship, the Company documents the relationship between the hedging instruments and the hedged
items, as well as its risk management objective and strategy for undertaking various hedge transactions. Furthermore, both at the
hedge’s inception and on an on-going basis, the Company also assesses whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values or cash flows of hedged items.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in net profit immediately,
together with any changes in the fair value of the hedged item that are attributable to the hedged risk. The change in the fair value of
the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in the line of the income
statement relating to the hedged item.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in other
comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective
portion is recognized immediately in net profit, and is included in other gains and losses, if any. Amounts deferred in other compre-
hensive income are recycled in net profit in the periods when the hedged item is recognized in net profit, in the same line of the
consolidated statement of net profit as the recognized hedged item.
Calian Group Ltd.
2016 Annual Report
41
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
Hedge accounting is discontinued when management revokes the hedging relationship; the hedging instrument is terminated or no
longer qualifies for hedge accounting. For fair value hedges, the adjustment to the carrying amount of the hedged item arising from the
hedged risk is amortized to net profit from that date. For cash flow hedges, any cumulative gain or loss deferred in other comprehensive
income at that time remains in other comprehensive income and is recognized when the forecast transaction is ultimately recognized in
net profit. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in other compre-
hensive income is recognized immediately in net profit.
Note 18 sets out details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in
equity are also detailed in the consolidated statement of changes in equity.
3. Changes in accounting policies
During the current year, the Company has made no changes to its accounting policies.
4. Future changes in accounting policies
IFRS 15 Revenue from Contracts with Customers
In April 2014, the IASB released IFRS 15 – Revenue from Contracts with Customers. The Standard replaces IAS11 Construction
Contracts and IAS18 Revenue, providing a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers. IFRS 15 is effective for annual periods beginning on or after January 1, 2018. The Company has not yet
assessed the impact of the adoption of this standard on its consolidated financial statements.
IFRS 9 Financial instruments
IFRS 9 was issued by the IASB in November 2009 and October 2010, was amended in 2013, finalized in July 2014, and will replace IAS
39, Financial Instruments: Recognition and Measurement (“IAS 39”).
IFRS 9 uses a single approach to determine whether a financial instrument is measured at fair value through profit or loss, fair value
through other comprehensive income or amortized cost, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how
an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of those
financial instruments. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods
in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. The Company has not yet assessed the impact
of the adoption of this standard on its consolidated financial statements.
IFRS 16 Leases
In January 2016, the IASB released IFRS 16 Leases which replaces IAS 17 Leases. For lessees applying IFRS 16, a single recognition
and measurement model for leases would apply, with required recognition of assets and liabilities for most leases. IFRS 16 is effective
for annual periods beginning on or after January 1, 2019. The Company has not yet assessed the impact of the adoption of this
standard on its consolidated financial statements.
5. Critical accounting judgments and key sources of estimation uncertainty
Estimates:
The preparation of financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting periods presented. Actual results could differ from those estimates.
42
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
5. Critical accounting judgments and key sources of estimation uncertainty (continued)
Percentage completion on revenue
A significant portion of the revenue is derived from fixed-price contracts which can extend over more than one reporting period.
Revenue from these fixed-price projects is recognized using the percentage of completion method using management’s best estimate
of the costs and related risks associated with completing the projects. The greatest risk on fixed-price contracts is the possibility of
cost overruns. Management’s approach to revenue recognition is tightly linked to detailed project management processes and
controls. The information provided by the project management system combined with a knowledgeable assessment of technical com-
plexities and risks are used in estimating the percentage complete.
Impairment of goodwill and intangible assets
Determining whether goodwill or acquired intangibles assets are impaired requires an estimation of the value in use of the
cash-generating units to which goodwill has been allocated. The value in use calculation requires management to estimate the future
cash flows expected to arise from the cash-generating unit, and a suitable discount rate in order to calculate present value.
Income taxes
The Company records deferred income tax assets and liabilities related to deductible or taxable temporary differences. The Company
assesses the value of these assets and liabilities based on the likelihood of the realization as well as the timing of reversal given
management assessments of future taxable income.
Contingent liabilities
From time-to-time the Company is involved in claims in the normal course of business. Management assesses such claims and where
considered probable to result in an exposure and where the amount of the claim can be measured reliably, provisions for loss are made
based on management’s assessment of the likely outcome.
Allowance for doubtful accounts receivable
The Company has extensive commercial history upon which to base its provision for doubtful accounts receivable. Due to the nature
of the industry in which the Company operates, the Company does not create a general provision for bad debts but rather determines
bad debts on a specific account basis.
For the years ended September 30, 2016 and September 30, 2015, no material changes in estimates have been made.
Judgments:
Financial instruments
The Company’s accounting policy with regards to financial instruments is described in Note 2. In applying this policy, judgments are made
in applying the criteria set out in IAS 39 – Financial instruments: recognition and measurement, to record financial instruments at fair value
through profit or loss, and the assessments of the classification of financial instruments and effectiveness of hedging relationships.
Accounting policy for equipment and intangible assets
Management makes judgments in determining the most appropriate methodology for amortizing long-lived assets over their useful
lives. The method chosen is intended to mirror, to the best extent possible, the consumption of the asset.
Deferred income taxes
The Company’s accounting policy with regards to income taxes is described in Note 2. In applying this policy, judgments are made in
determining the probability of whether deductions or tax credits can be utilized and related timing of such items.
Percentage complete methodology
The Company uses judgment in determining the most appropriate basis on which to determine percentage of completion. Options
available to the Company include the proportion that contract costs incurred for work performed to-date bear to the estimated total
contract costs, surveys of work performed, and completion of a physical proportion of the contract work. While the Company
considers the costs to complete, the stage of completion is assessed based upon the assessment of the proportion of the contract
completed. Judgments are also made in determining what costs are project costs for determining the percentage complete.
Calian Group Ltd.
2016 Annual Report
43
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts))
6. Equipment
September 30, 2016
September 30, 2015
Cost
Accumulated
Amortization
Carrying
Value
Cost
Accumulated
Amortization
Leasehold improvements
$
1,608
$
1,270
$
338
Equipment
14,421
9,287
5,134
$
16,029
$ 10,557
$
5,472
$
$
1,609
13,601
15,210
$
$
1,094
8,871
9,965
7. Application software
Carrying
Value
$
515
4,730
$ 5,245
September 30, 2016
September 30, 2015
Cost
Accumulated
Amortization
Carrying
Value
Cost
Accumulated
Amortization
Carrying
Value
Application software
$
3,067
$
2,455
$
612
$
2,686
$
2,309
$
377
8. Acquired intangible assets
Acquired intangible assets are allocated to the Business and Technology Services Division segment.
September 30, 2016
September 30, 2015
Cost
Accumulated
Amortization
Carrying
Value
Cost
Accumulated
Amortization
Carrying
Value
Customer relationship
related to Primacy
$
Other customer relationships
Contract with customers
Non-competition agreements
Trademarks
1,909
3,815
1,485
249
78
$
-
$
1,909
$
3,031
1,333
196
78
784
152
53
-
1,909
3,815
1,485
249
78
$
-
$ 1,909
2,144
1,671
958
134
54
527
115
24
$
7,536
$
4,638
$
2,898
$
7,536
$
3,290
$ 4,246
44
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
9. Goodwill
Business and
Technology Services
Annual test for impairment
September 30, 2016
September 30, 2015
Cost
Impairment
Carrying
Amount
Cost
Impairment
Carrying
Amount
$ 12,037
$ 12,037
$
$
-
-
$ 12,037
$ 12,037
$
$
12,037
12,037
$
$
-
-
$ 12,037
$ 12,037
Goodwill recorded is allocated in its entirety to the Business and Technology Services division. At September 30, 2016 and 2015,
management assessed the recoverable amount of goodwill and concluded that a goodwill impairment charge was not required.
The recoverable amount of the cash-generating units or groups of cash generating units was assessed by reference to value in use.
For the years ended September 30, 2016 and 2015, the discount factor assumption of 12% to 15% and the growth rate assumption
of 0% to 3% were used in arriving at value in use for the Business and Technology Services segment. Outlooks for the next three years
were used as the basis for the future cash flow estimates, and the future estimated growth rates were validated by comparing to
average growth levels for the previous 5 years.
10. Issued capital and reserves
Issued capital
Authorized: Unlimited number of common shares, no par value
Unlimited number of preferred shares issuable in series, no par value
Issued:
Common shares as follows:
September 30, 2016
September 30, 2015
Balance, beginning of year
Shares issued under stock option plan
Shares issued under employee stock purchase plan
Shares
7,378,298
83,500
21,801
Amount
$ 20,673
1,759
388
Shares
7,353,908
5,000
19,390
Amount
$ 20,161
99
413
Issued capital
7,483,599
$ 22,820
7,378,298
$ 20,673
Subsequent to the date of the statement of financial position, on November 9, 2016, the date of issuance of these consolidated
financial statements, the Company declared a dividend of $0.28 per common share payable on December 7, 2016.
Contributed surplus
Contributed surplus comprises the value of share-based compensation expense related to options granted that have not been
exercised or have expired unexercised.
Calian Group Ltd.
2016 Annual Report
45
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
11. Share-based compensation
Stock Options
The Company had an established stock option plan which expired on February 5, 2016 when the shareholders elected not to renew
the plan. Under the plan, eligible directors and employees were granted the right to purchase shares of common stock at a price
established by the Board of Directors on the date the options were granted but in no circumstances below fair market value of the
shares at the date of grant. Effective February 5, 2016, no further grants can be made under the plan. As at September 30, 2016 (2015),
351,500 (495,000) options are outstanding of which 331,500 (391,100) are exercisable. During the years ended September 30, 2016
(2015), NIL (95,000) options were granted and 83,500 (NIL) options were exercised.
The following share-based payment arrangements are in existence:
Option series:
Number
Grant date
Expiry date
price
Exercise
Fair value at
grantdate
(1) Issued August 13, 2012
92,500
August 13, 2012
August 12, 2017
(2) Issued September 3, 2014
165,250
September 3, 2014
September 3, 2019
(3) Issued September 9, 2015
93,750
September 9, 2015
September 9, 2020
$ 20.54
$ 19.70
$ 17.69
$
$
$
0.99
1.18
0.90
For the option issuance dated August 13, 2012, 49,000 options vested immediately with the remaining vesting through to August 13,
2014. For the option issuance dated September 3, 2014, 50,600 options vested immediately with the remaining vesting through to
September 3, 2016. For the option issuance dated September 9, 2015, 29,000 options vested immediately with the remaining vesting
through to September 9, 2017.
The weighted average fair value of options granted during the year ended September 30, 2015 was $0.90 per option calculated using
the Black-Scholes option pricing model. Where relevant, the expected life of the options was based on historical data for similar
issuance and adjusted based on management’s best estimate for the effects of non-transferability, exercises restrictions and
behavioural considerations. Expected volatility is based on historical price volatility over the past 5 years. To allow for the effects of
early exercise, it was assumed that options would be exercised on average 4.0 years after vesting. The following assumptions were
used to determine the fair value of the options granted in 2015:
Grant date share price
Exercise price
Expected price volatility
Expected option life
Expected dividend yield
Risk-free interest rate
Forfeiture rate
$
$
2015
17.69
17.69
17.6%
4.0 yrs
6.4%
1.0%
0%
46
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
11. Share-based compensation (continued)
Outstanding, beginning of year
Exercised
Expired
Granted
Outstanding, end of year
2016
Options
495,000
(83,500)
(60,000)
-
351,500
Weighted Avg.
Exercise Price
$
$
$
$
$
19.40
20.00
18.65
-
19.38
2015
Weighted Avg.
Exercise Price
$
$
$
$
$
19.80
18.65
20.12
17.69
19.40
Options
415,000
(5,000)
(10,000)
95,000
495,000
At September 30, 2016 (2015) there were 351,500 (495,000) options outstanding with a weighted average remaining contractual life of
2.1 (2.9) years of which 331,500 (391,100) were exercisable at a weighted average price of $19.49 ($19.65).
Employee stock purchase plan
The Company has an Employee Stock Purchase Plan ("ESPP") under which most full-time employees may register once a year to
participate in one of two offering periods. Eligible employees may purchase common shares by payroll deduction throughout the year
at a price of 80% of the fair market value at the beginning of the initial offering period or may purchase common shares at a price of
90% of the fair market value at the beginning of the interim offering period. Such shares are issued from treasury once a year at the
end of the offering periods. A total of 750,000 common shares have been authorized for issuance under the plan. During 2016 (2015),
the Company issued 21,801 (19,390) shares under the ESPP at an average price of $14.92 ($17.99) for a total cash of $325 ($349) and
total non-cash of $63 ($64). Employees subscribed to approximately 32,200 common shares, which will be issued during fiscal 2017
at an average price of $12.83. Since inception and including the issuance of shares in 2016, 430,724 shares have been issued under
the plan.
12. Net profit per share
The diluted weighted average number of shares has been calculated as follows:
Weighted average number of common shares – basic
Additions to reflect the dilutive effect of employee stock options
Weighted average number of common shares – diluted
2016
7,411,361
7,499
7,418,860
2015
7,366,652
-
7,366,652
Options that are anti-dilutive because the exercise price was greater than the average market price of the common shares are not
included in the computation of diluted net profit per share. For 2016 (2015), 257,750 (495,000) options were excluded from the above
computation of diluted weighted average number of common shares because they were anti-dilutive.
Net profit is the measure of profit or loss used to calculate profit per share.
Calian Group Ltd.
2016 Annual Report
47
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
13. Income taxes
The following table reconciles the difference between the income taxes that would result solely by applying statutory tax rates to pre-
tax income and the reported income tax expenses:
Profit before income taxes
Tax provision at the combined basic Canadian federal
and provincial income tax rate of 26.9% (2015: 26.7%)
Increase (decrease) resulting from:
Effect of expenses that are not deductible in determining taxable profits
Impact of rate reductions on valuation of deferred income tax assets
Other
Income tax expense
The effective income tax rate in the year was 26.9% (2015 - 26.7%).
The movements of deferred tax assets and liabilities are shown below:
2016
$ 18,770
5,053
217
14
(107)
$ 5,177
Deferred tax assets (liabilities)
Equipment
and software
application
Acquired
intangible
assets
Cash flow
hedging
reserve
Deferred tax liability at September 30, 2015
$
Credited (debited) to statement of net profit
Credited (debited) to other comprehensive income
(259)
(289)
-
Deferred tax liability at September 30, 2016
$
(548)
$
(768)
$
$
170
$
(1,145)
$
1,014
$
377
-
-
(780)
234
Other
91
79
-
2015
$
13,524
3,604
323
20
(190)
3,757
Total
(299)
167
(780)
(912)
$
$
$
Deferred tax assets (liabilities)
Equipment
and Software
application
Acquired
intangible
assets
Deferred tax liability at September 30, 2014
$
(178)
$
(1,524)
Credited (debited) to income statement of net profit
Credited (debited) to other comprehensive income
(81)
-
379
-
Deferred tax liability at September 30, 2015
$
(259)
$
(1,145)
Cash flow
hedging
reserve
$
$
(48)
-
1,062
1,014
Other
Total
$
$
78
13
-
91
$
(1,672)
311
1,062
$
(299)
48
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
14. Construction contracts
Construction contract revenues recorded during the period ended September 30, 2016 are $89,037 (2015: $71,218) substantially all of
which is from the Systems Engineering Division.
Contracts in progress at the balance sheet date:
Construction costs incurred plus recognized profits
less recognized losses to-date
Less: progress billings
Recognized and included in the consolidated financial statements as amounts due:
From customers under construction contracts
To customers under construction contracts
2016
254,607
(248,017)
6,590
2016
17,311
(10,721)
6,590
$
$
$
$
2015
$ 203,581
(188,742)
14,839
$
2015
19,939
(5,100)
14,839
$
$
At September 30, 2016 (2015), advances received from customers for contract work amounted to $11,271 ($6,980).
As at September 30, 2016 (2015), the Company had $2,323 ($1,952) in holdbacks receivable. Holdbacks are amounts of progress
billings that are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects
have been rectified. The entire amount for 2016 and 2015 is considered to be a short-term receivable.
15. Commitments
The Company has non-cancellable lease agreements for office space and equipment with terms extending to the year 2026. The
aggregate minimum rental payments under these arrangements are as follows:
2017
2018
2019
2020
2021
thereafter
Total
$
$
3,419
2,785
2,230
2,083
2,100
7,634
20,251
16. Contingencies
In the normal course of business, the Company is party to business and employee related claims. The potential outcomes related to
existing matters faced by the Company are not determinable at this time. The Company intends to defend these actions, and
management believes that the resolution of these matters will not have a material adverse effect on the Company’s financial condition.
Calian Group Ltd.
2016 Annual Report
49
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
17. Segmented information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, regarding how to allocate resources and assess performance. The Company’s chief
operating decision maker is the Chief Executive Officer. The Company operates in two reportable segments described below, defined
by their primary type of service offering, namely Systems Engineering and Business and Technology Services.
• Systems Engineering involves planning, designing and implementing solutions that meet a customer’s specific business and
technical needs, primarily in the satellite communications sector.
• Business and Technology Services involves short and long-term placements of personnel to augment customers’ workforces as
well as the long-term management of projects, facilities and customer business processes. This segment includes the recent
acquisitions: Med-Team, Amtek and DWP as explained in Note 19.
The Company evaluates performance and allocates resources based on profit before interest and income taxes. The accounting
policies of the segments are the same as those described in Note 2. Revenues reported below represents revenue generated from
external customers. There were no significant inter-segment sales in the year.
For the year ended September 30, 2016
Systems
Engineering
Business and
Technology
Services
Corporate
Total
Revenues
Profit before interest income and income tax
Interest income
Income tax expense (Note 13)
Net profit
$
82,141
11,638
$ 192,446
9,792
$
-
(2,697)
$ 274,587
18,733
37
(5,177)
$
13,593
Total assets other than cash and goodwill
Goodwill
Cash
Total assets
$
40,245
-
-
$
40,245
$ 48,485
12,037
-
$ 60,522
$
131
-
16,761
$
88,861
12,037
16,761
$ 16,892
$ 117,659
Equipment and application software expenditures
$
1,147
$
604
$
-
$
1,751
For the year ended September 30, 2015
Systems
Engineering
Business and
Technology
Services
Corporate
Total
Revenue
Profit before interest income and income tax expense
Interest income
Income tax expense (Note 13)
Net profit
$
70,188
10,077
$ 172,065
5,461
$
-
(2,101)
$ 242,253
13,437
87
(3,757)
$
9,767
50
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
17. Segmented information (continued)
Total assets other than cash and goodwill
Goodwill
Cash
Total assets
Systems
Engineering
$
$
37,488
-
-
37,488
Business and
Technology
Services
$ 42,073
12,037
-
$ 54,110
Corporate
$
105
-
10,624
$ 10,729
Total
$
79,666
12,037
10,624
$ 102,327
Equipment and application software expenditures
$
2,275
$
426
$
-
$
2,701
The Company operates in Canada but provides services to customers in various countries. Revenues from external customers are
attributed as follows:
Canada
United States
Europe
2016
75%
19%
6%
2015
77%
18%
5%
Revenues are attributed to foreign countries based on the location of the customer. No assets are held outside of Canada. Revenues
from various departments and agencies of the Canadian federal government for the year ended September 30, 2016 and 2015 repre-
sented 61% (62%) of the Company’s total revenues. Both operating segments conduct business with this major customer. In addition
for the year ended September 30, 2016 and 2015 revenues from Hughes Networks represented 11% (12%) of the Company's total
revenues, all generated from the SED division.
18. Financial instruments and risk management
Capital Risk Management
The Company’s objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business and provide the ability to continue as a going concern. Management defines capital as the
Company’s shareholders’ equity excluding accumulated other comprehensive income relating to cash flow hedges. The Company
does not have any debt and therefore net profit generated from operations are available for reinvestment in the Company or
distribution to the Company’s shareholders. The Board of Directors does not establish quantitative return on capital criteria for
management; but rather promotes year-over-year sustainable profitable growth. The Board of Directors also reviews on a quarterly
basis the level of dividends paid to the Company’s shareholders and monitors the share repurchase program activities. The Company
does not have a defined share repurchase plan and buy and sell decisions are made on a specific transaction basis and depend on
market prices and regulatory restrictions. There were no changes in the Company’s approach to capital management during the period.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
Calian Group Ltd.
2016 Annual Report
51
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
18. Financial instruments and risk management (continued)
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, and interest rates will affect the Company’s
income or the value of its holding of financial instruments.
Foreign currency risk related to contracts
The Company is exposed to foreign currency fluctuations on its cash balance, accounts receivable, accounts payable and future cash
flows related to contracts denominated in a foreign currency. Future cash flows will be realized over the life of the contracts. The
Company utilizes derivative financial instruments, principally in the form of forward exchange contracts, in the management of its
foreign currency exposures. The Company’s objective is to manage and control exposures and secure the Company’s profitability on
existing contracts and therefore, the Company’s policy is to hedge 100% of its foreign currency exposure. The Company does not
utilize derivative financial instruments for trading or speculative purposes. The Company applies hedge accounting when appropriate
documentation and effectiveness criteria are met. The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process
includes linking all derivatives to specific firm contractually related commitments on projects. The Company also formally assesses,
both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items. Hedge ineffectiveness has historically been insignificant.
The forward foreign exchange contracts primarily require the Company to purchase or sell certain foreign currencies with or for
Canadian dollars at contractual rates.
At September 30, 2016, the Company had the following forward foreign exchange contracts:
Type
SELL
SELL
Derivative assets
BUY
SELL
BUY
Derivative liabilities
Notional
39,789
10,201
17,127
1,000
4,385
Currency
Maturity
USD
October 2016
EURO
October 2016
Equivalent
Cdn. Dollars
$ 52,191
15,032
USD
October 2016
$ 22,465
USD September 2017
EURO
October 2016
1,312
6,462
Fair Value
September 30,
2016
$
$
$
$
450
84
534
194
254
36
484
52
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
18. Financial instruments and risk management (continued)
At September 30, 2015, the Company had the following forward foreign exchange contracts:
Type
SELL
SELL
Derivative assets
BUY
SELL
SELL
BUY
Derivative liabilities
Notional
53,291
3,391
26,423
1,000
1,000
63
Currency
Maturity
USD
October 2015
EURO
October 2015
Equivalent
Cdn. Dollars
$ 71,117
5,070
USD
October 2015
$ 35,261
USD September 2016
USD September 2017
EURO
October 2015
1,335
1,335
94
Fair Value
September 30,
2015
$
$
$
$
394
30
424
196
300
254
1
751
A 10% strengthening of the Canadian dollar against the following currency at September 30, 2016 would have increased (decreased)
other comprehensive income by the amounts shown below.
September 30,
2016
2,822
780
3,602
$
$
USD
EURO
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Company’s accounts receivable and its foreign exchange contracts.
The Company’s exposure to credit risk with its customers is influenced mainly by the individual characteristics of each customer. The
Company’s customers are for the most part, federal and provincial government departments and large private companies. A significant
portion of the Company’s accounts receivable is from long-time customers. At September 30, 2016 (2015), 61% (62%) of its accounts
receivable were due from the Government of Canada. Over the last five years the Company has not suffered any significant credit
related losses.
The Company limits its exposure to credit risks from counter-parties to derivative financial instruments by dealing only with major
Canadian financial institutions. Management does not expect any counter-parties to fail to meet their obligations.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the
reporting date was:
Cash
Accounts receivable
Derivative assets
September 30, 2016
September 30, 2015
$
16,761
61,032
534
$
78,327
$
10,624
50,494
424
$
61,542
Calian Group Ltd.
2016 Annual Report
53
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
18. Financial instruments and risk management (continued)
The aging of accounts receivable at the reporting date was:
Current
Past due (61-120 days)
Past due (> 120 days)
September 30, 2016
September 30, 2015
$
59,790
971
271
$
61,032
$
47,891
2,409
194
$
50,494
Based on historic default rates, the Company believes that there are minimal requirements for an allowance for doubtful accounts.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach
to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. At
September 30, 2016 the Company has a cash balance of $16,761 and has an unsecured credit facility, subject to annual renewal. The
credit facility permits the Company to borrow funds up to an aggregate of $10,000. As at September 30, 2016 an amount of $75 was
drawn to issue a letter of credit to meet customer contractual requirements. All of the Company’s financial liabilities have contractual
maturities of less than 30 days.
Fair Value
The fair value of accounts receivable, accounts payable and accrued liabilities approximates their carrying values due to their short-
term maturity. Fair value of the forward exchange contracts reflects the cash flows due to or from the Company if settlement had taken
place on September 30, 2016, and represent the difference between the hedge rate and the exchange rate at the end of the reporting
period.
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value,
grouped into Levels 1 to 3 of the fair value hierarchy based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
Cash
Derivative financial assets
Derivative financial liabilities
Total
Cash
Derivative financial assets
Derivative financial liabilities
Total
$
2016
Level 1
16,761
-
-
$
16,761
$
2015
Level 1
10,624
-
-
$
10,624
2016
Level 2
-
534
(484)
50
2015
Level 2
-
424
(751)
(327)
$
$
$
$
There were no transfers between Level 1 and Level 2 during the years ended September 30, 2016 and 2015.
54
2016 Annual Report
Calian Group Ltd.
Calian Group Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2016 and 2015
(Canadian dollars in thousands, except per share amounts)
19. Acquisitions
Amtek Engineering Services Ltd. (“Amtek”)
Under the contingent consideration arrangement, the Company is required to pay the former shareholders of Amtek an additional $900
and $900 if Amtek attains specified levels of earnings before interest, taxes, depreciation and amortization (EBITDA) for the years ended
April 30, 2015 and 2016 respectively. During the years ended September 30, 2015 (2016), the Company paid $900 ($830) related to the
first (second) year earn-outs.
DWP Solutions Inc. (DWP)
Under the contingent consideration arrangement, the Company is required to pay the former shareholders of DWP an additional $300
and $375 if DWP attains specified levels of earnings before interest, taxes, depreciation and amortization (EBITDA) for the years ended
June 30, 2015 and 2016 respectively. During the years ended September 30, 2015 (2016) the Company paid $300 ($365) related to the
first (second) year earn-outs.
20. Pension Plan
The Company sponsors a defined contribution pension plan for certain number of its employees. Required contributions have been
fully funded to September 30, 2016. For fiscal 2016 (2015), an amount of $843 ($804) was expensed related to this pension plan.
21. Related Party Transactions
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on
consolidation and are not disclosed in this note. Other than transactions related to the compensation of key management personnel
as described below, there have been no other transactions between the Company and other related parties.
Compensation of key management personnel:
The compensation for directors and other members of key management during the year was as follows. The compensation of
directors and key executives is determined by the compensation committee having regards to the performance of individuals
and market trends. The key executives are the Chief Executive Officer, the Chief Financial Officer and the Vice-President,
Systems Engineering Division.
Short-term benefits
Share-based payments
22. Subsequent Event
2016
1,937
140
2,077
$
$
2015
1,950
134
2,084
$
$
On October 31, 2016, the Company invested $100 to acquire a non-controlling interest in common shares of Cliniconex Inc., an
Ottawa-based patient outreach solutions vendor. As part of the investment, a member of the Company’s management team has been
appointed to the Cliniconex Inc. Board of Directors. The investment will be measured at cost.
Calian Group Ltd.
2016 Annual Report
55
Common Share Information
The Company’s common shares are listed for trading on
the Toronto Stock Exchange under the symbol CGY.
Dividend Policy
The Company intends to continue to declare a quarterly
dividend in line with its overall financial performance and
cash flow generation. Decisions on dividend payments are
made on a quarterly basis by the Board of Directors. There
can be no assurance as to the amount of such dividends
in the future.
Annual Meeting of Shareholders
The Annual General Meeting of the Shareholders of
Calian will be held on February 3, 2017 at 10:00 a.m. at
the Brookstreet Hotel, Ottawa, Ontario, Canada. All
shareholders are invited to attend. The telephone number
of the Brookstreet Hotel is 613.271.1800.
Corporate Information
Corporate & Business
and Technology Services
340 Legget Drive, Suite 101,
Ottawa, Ontario, Canada K2K 1Y6
Phone: 613.599.8600
Fax: 613.599.8650
Web: www.calian.com
Systems Engineering (SED)
18 Innovation Blvd.
Saskatoon, Saskatchewan, Canada
S7N 3R1
Phone: 306.931.3425
Fax: 306.933.1486
Web: www.sedsystems.ca
Primacy Management Inc.
2321 Fairview Street, Suite 100
Burlington, Ontario
L7R 2E3
Phone: 905.637.2888
Board of Directors
Kenneth J. Loeb
President, Mystic Investment Inc.
Chairman, Calian Group Ltd.
Chair of the Nominating Committee
David Tkachuk
Senator
Chair of the Compensation Committee
Richard Vickers, FCA
Consultant
Chair of the Audit Committee
George Weber
President and CEO,
Royal Ottawa Health Care Group
Chair of the Governance Committee
Ray Basler
Consultant
Jo-Anne Poirier
President and CEO EO, VON Canada
Kevin Ford
President and CEO, Calian Group Ltd.
56
2016 Annual Report
Calian Group Ltd.