Calian Group Annual Report 2017

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FY2017 Annual Report · Calian Group

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Customers trust us when
they can’t fail.

Table of Contents

Chairman’s Letter

Message from the CEO

2017 Service Line Highlights

Core Purpose

Corporate Social Responsibility

In Summary

Management’s Discussion and Analysis
of Financial Condition and Results of
Operations

Management’s Statement of Responsibility

Independent Auditors’ Report

Consolidated Statements
of Financial Position

Consolidated Statements of Net Profit

Consolidated Statements
of Comprehensive Income

Consolidated Statements of Changes
in Equity

Consolidated Statements
of Cash Flows

Notes to the Consolidated
Financial Statements

In shareholder representation, we were pleased to
see the addition of a board member this year whose
experience supports management’s growth plan and
M&A strategy. Young Park, a C-level executive with
more than 30 years of experience in fintech, insurance,
telecommunications and the public sector, joined the
board on September 1, 2017. An experienced leader
in mergers and acquisitions, Ms. Park has assessed
businesses and managed post-acquisition integrations.

In support of the company’s focus on the attraction
and retention of critical talent, Calian has taken
steps to benchmark executive compensation. The
company has implemented mechanisms to increase
compensation
long-term,
profitable growth, and expand executive share
ownership in the company. This initiative is designed
to better align compensation with the creation of long-
term value for Calian and its shareholders.

transparency, motivate

Personally, I am impressed by the ongoing financial
strength of this company. Kevin Ford—who was
named the 2017 Ottawa Chamber of Commerce
CEO of the Year—has now completed his second
full year as chief executive officer, and continues to
demonstrate an infectious passion for growth. I remain
confident in the executive team and its ability to lead
an organization executing the strategic plan—all while
maintaining the financial flexibility to deliver high
returns for shareholders.

Kenneth Loeb
Chairman

Share price performance FY2017

Chairman’s Letter

t’s been another great year to be a Calian
shareholder. With strong financials and
a strong leadership team focused on
long-term growth, shareholders are well-
positioned to continue seeing healthy returns.

total

As shareholders, we’ve enjoyed
returns
over fiscal 2017 that outperformed key market
benchmarks. While the S&P/TSX Composite index
gained 6% over the 12-month period, and the S&P/
TSX SmallCap Index fell 1.3%, Calian’s share price
climbed 23%.

The company continues to attract income and growth
investors with a consistently high dividend yield that
was at 4% at fiscal year-end, above the five-year
average on the S&P/TSX Composite, which was 3%.
Combining dividends and share price growth, we
had total shareholder return of 26% in fiscal 2017,
meaning that an investor who purchased $5,000
worth of Calian shares on September 30, 2016,
would have seen that investment rise to a value of
$6,300 in just one year.

As shareholders, we are not just stockowners
benefitting from returns. We are also participants in
Calian’s journey towards its core purpose of helping
the world communicate, innovate, lead healthy
lives, and stay safe. We can be proud of company
achievements such as helping more than 850
individuals in 400 military families gain access to a
family physician within the past two years.

Calian Group Ltd.2017 Annual ReportMessage from the CEO

s we celebrated Calian’s 35th anniver-
sary this year, we were reminded
that our diverse, high-quality service
offerings are key to our growth and

continued financial stability.

I was very proud of the dedication of our teams who
worked hard to both evolve our service offerings
and diversify Calian’s customer base. The entire
organization is embracing our Four Pillar Growth
Strategy of service line evolution, customer retention,
customer diversification, and continuous improvement.

Returns for shareholders showed continued strength,
as reflected by the 23% rise in the share price and
annual net profit of $2.03 per share, up from $1.83
the previous year. I was pleased to see double-digit
growth in our key service lines , even as consolidated
revenues of $275 million were relatively flat, reflecting
a temporary gap between some projects winding
down and others ramping up.

We continue to evolve our M&A strategy as we move
from opportunistic to strategic acquisitions aligned
with the Four Pillar Strategy. To support this shift
in direction, a new credit facility of $40 million was
signed in 2017, better positioning the organization to
take advantage of strategic opportunities.

The acquisition of International Safety Research
Inc. (ISR), a leading Ottawa-based safety and
security service provider, was directly aligned
with our service line evolution and diversification
objectives. Together, we retained the customers
we share while diversifying further into national
and international nuclear industries and emergency
management. We are happy to report the integration
is going smoothly and the ISR team is excited
about their future with Calian.

Customer retention continued to be strong across
all service lines. With many customer relationships
lasting 20 years and counting, a key metric for our
retention pillar is our excellent customer satisfaction
ratings. We recently announced a renewal of the

Kevin Ford
President and CEO, Calian Group Ltd.

2017 Annual Report

Calian Group Ltd.

of 10% to 11% of revenues. Calian will continue
to challenge discretionary spending as we invest
prudently in our service offerings and market presence.

What’s next for Calian? The Calian board has
approved our updated, three-year 2020 strategy,
which clearly sets out my expectations for the
company’s growth. Our organizational structure is
aligned with the growth objective, with each service
line operating under its own senior executive who is a
subject matter expert in their respective domain. My
role, as CEO, is to set the pace for the organization
and help capitalize on unique opportunities that arise
frequently in a diverse company setting, serving
customers across geographies and markets.

Wherever I travel, I have the honour of telling the
Calian success story. From humble beginnings
as a small professional services firm in 1982, this
publicly listed company today boasts 65 consecutive
profitable quarters, a strong financial foundation,
excellent shareholder returns, employees numbering
more than 2,900, and diverse services and projects
spanning international, U.S. and Canadian markets.
I am proud to represent the amazing team that is
Calian Group.

As Calian expands, we want to continue to be known
as nimble, responsive and customer-focused. It’s
these three characteristics that have helped us find
national and international success, and we’re just
getting started.

Health Services contract with our largest customer,
the Department of National Defence. This and
associated contracts are worth up to $1 billion over
12 years and demonstrate our ability to recapture
business through complex government procurement
processes. Calian’s training and support services
with the Canadian Army Simulation Centre (CASC)
were similarly extended for another 12 months.

Our largest Systems Engineering Division (SED)
customers—SiriusXM and Inmarsat—are pleased with
our commitment to high-quality service delivery and
have continued to trust us with additional projects.
I am proud of our reputation for superior service
delivery—the foundation of our continued growth.

Diversification has been a priority as demonstrated
through the addition of new customers. Our Health team
grew its roster with the addition of 17 new contracts,
including new customers such as Veterans Affairs
Canada, the RCMP, the military Cadets, correctional
institutions and northern community clients. SED
received new customers in the agriculture and cable
sectors. The Training Services business gained new
municipal customers as well as the National Research
Council and the Canadian Coast Guard. Our IT and
Professional Services team expanded its client base
with customers such as Agriculture Canada, DND and
private sector customers.

Calian’s service
is really about
line evolution
innovation. It’s a challenge for any business to
keep up with technology’s acceleration—yet the
innovations at Calian never fail to amaze me. In a
recent visit to our SED facility I saw first-hand how
we are investing in next-generation satellite and
cable-sector technologies. I am excited about the
excellent progress we are making toward our goal of
becoming a market leader in the next wave of industry
requirements. Notably, this year SED registered an
important radio frequency network solution with the
U.S. Patent and Trademark Office.

Continuous improvement is not just one of the
Four Pillars—it is an attitude at Calian. At SED we
are re-certifying to meet the most recent ISO 9001
certification standard, to ensure customers receive
consistent, high-quality products and services. We
are constantly reviewing processes, technology and
investments to seek cost efficiencies. Innovation
in operations remains a priority—as recognized
in our Excellence Canada gold-level certification.
While operating costs increased over the year amid
our investment in sales, marketing and service line
evolution, we maintained these costs within our target

Calian Group Ltd.

2017 Annual Report

Four Pillar Growth Strategy

Aligned with our belief in innovation, we invested in a
company called Cliniconex. This firm has developed
software that automates and personalizes patient
outreach for medical clinics. We believe technological
innovation is a critical enabler to health care delivery
and Calian will continue to look for opportunities to
support technology in our health service offerings.

IT and Professional Services

The IT and Professional Services (ITPS) business had
another successful year. We renewed our technical
support agreement
for Ericsson Canada’s R&D
initiatives, continued work with the City of Toronto
and won new business with Agriculture Canada. The
company leveraged its reputation in health services in
the oil and gas industry into new service contracts for
ITPS. For instance, Calian won a contract with Indian
Oil and Gas Canada, an organization in Alberta that
manages and administers oil and gas resources on
Indigenous reserve lands. ITPS is now providing IT
and business support services to this agency, which
manages the natural resources of more than 45 First
Nations with active oil and gas agreements.

The Calian ITPS team has been transforming its cyber
security practice into a full-service, cyber solutions
offering. The practice helps organizations stay safe
by providing services that protect, detect, respond
and recover from cyberattacks and breaches. Service
offerings
include cyber strategies, vulnerability
privacy and threat assessments, security maturity
and architecture reviews. Strategic partnerships with
industry-leading security vendors—including Fortinet
Technologies, Cylance, Gemalto, Terranova and
Forcepoint—have allowed Calian to offer a broader
range of solutions that, from 2016, drove double-
digit growth in our cyber security practice. Significant
consulting wins this year expanded our presence with
the federal government and helped us achieve record
cyber security revenue.

Training Services

Calian’s acquisition of International Safety Research
added significantly to Training Services in 2017 by
both expanding the business and creating room for
synergies.

The addition of ISR broadened Calian’s emergency
management service offering into chemical, biological,
radiological, nuclear and explosive (CBRNE) safety
consulting. Through this acquisition Calian retained

2017
Service Line Highlights

Health Services

This fiscal year was an exceptional one for Calian
Health. In September the Health team received
confirmation that it had re-won the Health Care
Providers contract with the Department of National
Defence. The contract is for an initial term of four years
with options to extend for an additional eight years. At
the same time, Calian was also awarded new health
support services contracts for the RCMP and Veterans
Affairs Canada. These contracts are scheduled to
begin April 1, 2018, and in aggregate have a value of
up to $1 billion over the full 12-year period.

This year, Canada’s military Cadets also selected
Calian for our health support services. In the first year
of the contract we provided and managed health
services for 20,000 military Cadets for the summer
training period.

into

its Health Services

Since expanding
the
corrections sector in 2015, Calian has won several
health services contracts with municipal, provincial
and federal corrections institutions. These provide a
range of services from dental care to mental health,
in Eastern, Western and Central Canada. The quality
on-site medical services that we provide save these
correctional organizations time and resources while
minimizing the strain on local hospitals and health
resources.

Our Primacy clinic network continues to see strong
growth through the delivery of value added services to
our clinics and Loblaw partners. We opened our 150th
Primacy clinic location this year.

Calian provides high-quality health services to the
men and women working in Canada’s oil sands,
and continues to expand its onsite services to large
oil and gas companies such as Canadian Natural
Resources Limited. The Health team also operates an
occupational health clinic in Fort McKay to support
the health needs of local oil and gas contractors.

2017 Annual ReportCalian Group Ltd.customers we share with ISR and gained additional
customers in the national and international nuclear
industries, such as such as Ontario Power Generation
and Point Lepreau Generating Station.

from

We are already seeing synergies
the
methodologies and tools that ISR brings to the
business, as well as from the brand power that Calian
offers to ISR’s growing presence in nuclear safety and
emergency preparedness. This year alone, Calian
expanded its emergency management services to
additional customers including the City of Ottawa,
the National Research Council, the Canadian Coast
Guard and the City of Nanaimo. Additionally, Calian
is leveraging ISR’s deep nuclear engineering skillset
to strengthen our engineering services.

For 22 years Calian has worked with the the Canadian
Army Simulation Centre (CASC) to offer training
methodology, expertise and a framework specifically
designed to support a wide range of training exercise
requirements for the Army. We are happy to see this
partnership continue. This year Calian’s existing
training and support services contract with CASC
was extended for another 12 months, to March 31,
2019. Our team of approximately 600 full and part-
time personnel will continue to apply their experience,
knowledge and passion to ensure that we create
realistic and cost-effective training environments that
help prepare Canada’s troops for deployment.

Systems Engineering

Calian’s Systems Engineering business continued to
expand with new contracts and product development
projects. Our services for communication gateways
and planning systems experienced higher revenues,
largely on our technical expertise, reputation for
quality and customer satisfaction. One of our largest
customers, SiriusXM, continues to return for new
solutions to enhance and broaden its services. We
launched the Satellite Capacity Planning System, a
tool for satellite operators to plan the allocation of
network resources and better satisfy their customers’
service demands. We are developing a Satellite Load
Manager for one of our longstanding customers,
Inmarsat, to help the company optimally share
network resources among its users. This innovative
tool helps balance the customer data load across
satellite beams, alleviating network congestion.

One of the service line’s longest successful products

2017 Annual Report

Calian Group Ltd.comes from a digital spectrum analyzer called the
Decimator, a cornerstone communication product
offered by SED. Built to assist telecom and broadcast
network operators with the cost-effective monitoring
and troubleshooting of their radio frequency (RF)
communication paths, the Decimator is deployed in
hundreds of communication gateways around the
world. The product line has maintained popularity
with customers, generating record revenue and
margin contribution in 2017. We continue to evolve
this communications product with the aim of offering
deeper measurement and analysis for the same
competitive price.

In fiscal 2017, Systems Engineering advanced
its plan to evolve our portfolio of communication
products. We continue to work on a leading-edge
DOCSIS Remote PHY core solution for cable network
operability, successfully completing critical progress
demonstrations with key potential customers. Work
continued on two network test tools branded by
Rohde & Schwarz, a global test equipment leader.
We are pleased to report that System Engineering’s
commitment to Rohde & Schwarz and their customers
has earned us a top-50 supplier rating. As a part of
an ongoing plan to broaden our thought leadership
and intellectual property, SED received a patent from
the United States Patent and Trademark Office on an
Intelligent RF Redundancy Switch, covering a new
concept in Radio Frequency signal switching.

Calian’s services in communications ground systems
had a transition year as we completed several large RF
ground systems and signed orders for new systems
for both commercial and government customers.
The fiscal year successfully marked one of our most
demanding RF ground system deployments ever as
the service line installed and commissioned more than
20 Ka-band RF ground systems. These deployments
enabled the customer to reach its network go-live
objective on schedule and without any compromise
to technical performance. Additional contracts for
new ground systems contributed to an overall healthy
backlog heading into 2018.

2017 Annual Report

Calian Group Ltd.Contract Manufacturing

In 2017, both commercial and defence customers
drove Contract Manufacturing revenue growth. The
defence market, which has lagged for several years,
provided significant expansion as U.S. and Canadian
defence prime contractors placed orders
for
electronic assemblies used in vehicle electronics and
surveillance applications. Our contract manufacturing
capabilities are supplemented by our systems
engineering expertise, generating notable synergies
and increasing our value to these customers.

One of our largest agriculture electronics customers
experienced significant growth in market share

this year, further increasing demand for these
manufacturing services.

Calian’s Contract Manufacturing and Systems
Engineering business lines continue to advance
a three-year growth agenda led by the Systems
Engineering Division. In line with this growth plan, the
division increased its staff to 300 in 2017, up from
272 the previous year. These additional resources
support all services within the two businesses,
including satellite operations and manufacturing.

Stability Through Diversity, Focused on Growth

Calian Group Ltd.2017 Annual ReportHow we help the world

At Calian, our core purpose is to help the world
communicate, innovate, lead healthy lives, and
stay safe. This is the shared vision that drives
the entire team as we grow the company and
deliver exceptional-quality services.

Communicate

in many
Calian helps the world communicate
ways. We provide critical
technologies and
infrastructure supporting a range of applications,
from emergency and secure communications to the
worldwide broadcast of news and entertainment.
The infrastructure we provide allows people to
communicate in some of the harshest environments
in the world.

infrastructure

Our largest contribution to global communications
is through the Systems Engineering business,
which plans, designs, and implements complex
communication systems for land, sea, and outer
include
space. Systems Engineering’s services
ground
deliver
that
programming from the DJ booth to satellites—a
communications link allowing broadcasts to more
than 15 million subscribers 24 hours a day, seven
days a week. Our deep-space networks and earth
observation systems help scientists understand
and explore the far reaches of space as well as the
planet’s ecosystems.

systems

technology services enable customers
Calian’s
to transfer massive amounts of data. The IT and
Professional Services (ITPS) business at Calian helps
global
telecommunications companies maintain
products that move exabytes of data daily. We help
them meet their communications needs and stay
abreast of demanding lifecycles. The ITPS team
has significant information and communications
technology (ICT) contracts supporting Ciena, Ericsson
and Genband—three of the largest manufacturers
of voice and data communications equipment in
the world.

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Innovate

Innovation is integral to the culture at Calian – it is
a vital part of our identity. Team members at Calian
think about how to innovate in everything they do.
Calian’s ITPS team helps organizations transform
their IT environments to keep up with the evolving
needs of security and technology. Our deep technical
expertise helps our customers solve a range of
complex IT challenges on their preferred platforms.

Calian’s Training Services business is constantly
innovating with the work of our recently acquired
International Safety Research going all the way to
the International Space Station (ISS). For instance,
in 2015 ISR researched and developed a gel version
of a “novel DNA-based dosimeter”—a tool used to
measure the effects of radiation exposure for ISS
space crews.

Innovation at Calian goes well beyond technology.
We are proud of some of the innovations by the Calian
Health team, including the Military Family Doctor
Network launched in 2015. The initiative leveraged
our Primacy clinic network to match family doctors
with military families, who due to frequent relocations
have more difficulty finding a doctor than the average
family. Calian was in a unique position to help and
support with this longstanding issue.

the world’s

Calian employs some of
leading
communications experts who create and advance our
intellectual property. Our design and development of
leading-edge DOCSIS cable network technologies
have led to partnerships with some of the world’s
largest chip manufacturers, broadcasters and cable
networking companies. Calian’s Systems Engineering
Division is currently researching core technologies in
new RF ranges so that we can maintain our leadership
in the next generation of satellite communication
network designs.

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Lead Healthy Lives

As one of the country’s largest health services
organizations, Calian Health has a network of more
than 1,800 health care professionals supporting over
six million patient visits per year at over 180 clinic
locations in Canada. These include 150 Primacy
clinics located in Loblaw stores across Canada.

Our Health team is always working to improve the health
of the people we serve—from members of the Canadian
Armed Forces (CAF) to oil and gas workers. For the past
13 years, Calian has provided health support services
to DND at 32 bases and installations across the country.
These services encompass 60 different categories of
health practitioners, offering physical and mental health
support to all Canadian military members.

We provide similar health services expertise to
Correctional Services Canada, northern communities,
the military Cadets program and the Canada Border
Services Agency. We also operate an occupational
health clinic in Fort McKay, Alberta, for workers in the
oil and gas sector.

Calian’s work in technology and innovation makes
important contributions to healthier lives. Our Health
Services team has supported innovations such as a
hand-held tool for skin cancer screening, and at SED
has developed earth observation systems, allowing
scientists to monitor the planet’s most fragile
ecosystems.

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Stay Safe

Calian helps the world stay safe. One of our longest-
running programs is the delivery of mission readiness
training for the Canadian Armed Forces. Security and
stability missions are more complex than ever, lending
new importance to mission rehearsal and operational
training. To support this readiness, Calian designs,
delivers and evaluates training exercises, many of which
employ constructive and virtual simulation systems.

We train organizations and community teams to quickly
and effectively respond to potentially catastrophic
emergency situations. For over 22 years, Calian
Training has provided these emergency management
services to military and public sector organizations.

face complex threats.

While no one wants to experience a real emergency,
today’s communities
It’s
vital that they be prepared. We have trained
organizations for responses to possible earthquakes
and tornadoes; terror attacks; public disturbances;
unexpected shutdowns or system compromises; and
transportation accidents such as spills, derailments
and crashes. We have also delivered training to
multiple agencies to ensure security and public safety
for large-scale events such as the 2010 Vancouver
Olympics or G8 and G20 meetings.

Calian’s Training business helps the world safely
use nuclear power. Although we have worked with
the nuclear industry for many years, the acquisition
of ISR this year deepened Calian’s involvement in
nuclear safety. ISR provides critical nuclear waste
security and safety solutions. For instance, it uses
modelling software and field surveys to characterize
and protect against radiation hazards, and conducts
risk assessments of nuclear facilities for any gaps and
plans for corrective actions.

Our Training services also help to ensure the Canadian
Air Force flies safely. We train the next generation of
Canadian Air Force technicians, who maintain aircraft
according to all maintenance standards. The training
is essential to ensure that that all Royal Canadian Air
Force (RCAF) aircraft are properly maintained and
safe for flying through the life of the machines. A team
of our specialists support the RCAF’s Airworthiness
Program, which ensures the RCAF fleet remains
operational, meets all relevant policies and standards
and guarantees the safety of the RCAF air crews.

No organization is safe in today’s environment without
an excellent cyber security program. Calian’s team of
cyber security professionals offer expertise, solutions

and tools to protect information systems and assets.
They deliver impact assessments, incident response
plans in advance of a cyber threat, and governance to
support privacy and security obligations.

Calian’s Systems Engineering
and Contract
Manufacturing businesses help the world stay safe
through communications, systems engineering and
manufacturing. We manufacture components for
military equipment, including a fire suppression system
for light armoured vehicles. Our communications
network infrastructure relays vital aircraft cockpit
communications on transoceanic flights. We also
provide communications infrastructure for emergency
situations when critical communications have been
disabled through floods, storms or other events.

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Corporate
Social Responsibility

Calian’s Corporate Social Responsibility is driven
by our core purpose and a strong desire to make a
difference in people’s lives.

We are proud, for instance, to be making a difference
in the lives of military members and their families. For
three consecutive years, Calian has received Canada
Company’s Military Employment Transition (MET)
Top Employer Award, recognizing the company as
a top employer for Canadian veterans and serving-
member spouses. Calian has helped more than
500 retired military personnel transition into civilian
employment since 2012, and has provided jobs
for more than 100 military spouses since Canada
Company’s MET Spouse program launched in 2016.
In September, the Veterans Affairs Minister called on
corporate Canada to recognize the skills of veterans
and hire more soldiers who are transitioning to civilian
life. Calian welcomes this challenge.

Military families face unique health needs. Relocating
frequently, they are less likely to have a family doctor.
That’s why in 2015 Calian created the Military Family
Doctor Network. This innovative program improves
access to physicians for CAF members by matching
them with one of Calian’s physicians within our
national network of Primacy clinics. As of October
we had placed more than 850 patients from over 400
military families with family doctors.

This year, we were happy to sponsor four young
Master Corporals with the CAF so that they could
participate in the 100th anniversary of the Battle of
Vimy Ridge. With a delegation of veterans, youth,
Indigenous organizations and parliamentarians,
these four young soldiers had the opportunity to
travel to France and participate in a battlefield study
tour with the joint Royal Canadian Artillery and
Communications and Electronics Branch.

Calian Group Ltd.

2017 Annual ReportAt Calian, we are big believers in research. Aligned
with our care for military families, the company has
been a major supporter of the Canadian Institute for
Military and Veteran Health Research, an organization
that focuses on the health and well-being of Canadian
military personnel, veterans and their families. Calian
is proud to support such research, having also
committed a $105,000 grant to the Canadian Primary
Care Sentinel Surveillance Network for research on
the specific care requirements of military families.

Calian supported a national symposium this year
on the sidelines of the Invictus Games in Toronto.
The event, called the Toronto 2017 Invictus Games
Multi-National Symposium, hosted by True Patriot
Love, discussed the impact of injury on the family
and brought together 250 VIPs and thought leaders
from government, the military, industry, academia,
and the not-for-profit sector—all from the 17 nations
competing in the Invictus Games. The forum offered
opportunities
for stakeholders to connect and
discuss the pressing issues facing military members
and the veteran community, such as the importance
of sport in recovery.

Calian believes companies
like ours have a
responsibility to make a measurable difference within
their communities. We encourage our employees to
use paid time to help out in the community—and Calian
team members have responded admirably. We have
employees who have been regularly involved in the
local Women for Mental Health program, the Kanata
Food Cupboard, the Shoppers Run for Women and
many other laudable initiatives. Each year, Calian has
several participants in local charitable activities such
as the Canada Army Run and the HOPE Volleyball
tournament. Calian is also a significant supporter of
campaigns for the United Way, the Ottawa Hospital
Foundation and
the Ottawa Senators’ annual
Canadian Armed Forces Appreciation Night.

As part of Calian’s commitment to having a positive
impact on our community, we remain cognizant
of our environmental footprint. Calian’s contract
manufacturing services are managed so that we
maintain a reputation as a good environmental
steward. We offer lead-free manufacturing capabilities,
for instance, in compliance with Restriction of
Hazardous Substances (RoHS) standards.

Calian Group Ltd.

2017 Annual ReportIn Summary

With a strong financial foundation, cash flows and contract backlog,
Calian is well-positioned to execute its long-term growth plan.

With a strong financial foundation, cash flows and
contract backlog, Calian is well-positioned to execute
its long-term growth plan. The company entered 2018
with a contract backlog of more than $1 billion, after
re-winning our health services contract with DND
while gaining related health contracts for the RCMP
and Veterans Affairs Canada. This is a victory we can
put behind us as the organization looks forward.

Calian will continue to focus on our long-term
growth, both organically and through acquisitions.
Our experienced management team is evolving
our service lines while the company as a whole

embraces the Calian core purpose: To help the
world communicate, innovate, lead healthy lives
and stay safe.

With total shareholder return of 26% in 2017 and
65 consecutive profitable quarters over the past 16
years, Calian will continue to leverage our diverse
business and reputation for high-quality services.
We are proud to have shareholders on this journey
with us, celebrating this year’s milestones such as 35
years in business. Together, we can look forward to
our long-term success.

Kevin Ford
CEO

Jacqueline Gauthier
Chief Financial Officer

Patrick Thera
VP and General Manager,
Systems Enginerring

2017 Annual ReportCalian Group Ltd.The following Management Discussion and Analysis is dated December 8, 2017 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 8, 2017 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 35 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
satisfaction. 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.2017 Annual ReportManagement’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 and International

Quality Initiatives

ISO

Risk Profile

Workforce

High Risk

300

Excellence Canada / ISO

Low to Medium Risk

2700

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.
SED also provides leading-edge communications products for terrestrial and satellite networks. Additionally, the division
provides low to medium volume high-end manufacturing in the defence/security and telecommunication 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 systems engineering capability enables us to build products, systems, networks and infrastructure; to maximize
utilization, efficiency and throughput of these systems for our customers. Our primary market is the satellite industry,
but we are also applying our capabilities and expertise to broader adjacent markets with needs for similar systems
and services. As a systems solution provider, we work with our customers on a project basis to develop custom
systems tailored to their specific operational requirements. From one project to the next, we attempt to reuse system
architecture, core modules, and custom components to reduce development time, cost and technical risk. The products
that we develop help us to be more competitive on systems opportunities and contribute solidly to our overall margins
when sold on a recurring basis.

We have an extensive electronic manufacturing capability. Our customers for this market are typically large US defence
contractors and wireless communication device manufacturers. We can offer our customers full life cycle support

2017 Annual ReportCalian Group Ltd.Management’s Discussion and Analysis of Financial Condition and Results of Operations

including initial design, prototyping, production, service and long-term product support. The SED products that we
build along with the contract manufacturing and satellite operations contracts provide an on-going base of business
that helps offset the ebb and flow of core project work.

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 2017, SED continued to grow in profitability in spite of a reduction in revenues. The divisional revenues decreased
by 8% over the previous year as a result of significant non-labor throughput included in the 2016 revenues. SED
signed $70 million in new contracts, ending the year with a backlog of $71 million of which $53 million is expected to
be earned in fiscal 2018. Profitability increased by 7% in spite of lower revenues. The differing margins on the mix of
work between projects, products and manufacturing factored into the higher profitability as well as excellent project
execution. 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 2017 results across the division’s primary service lines.

CALIAN System Engineering Services

The majority of the systems engineering work during the year came from providing RF ground systems for several
customers including Hughes, Inmarsat, Cobham, McDonald Detweiller and Associates and Lockheed Martin. The
applications ranged from communication systems to earth observation and avionic navigation augmentation.
Communications systems work included upgrades to several planning and management systems for Inmarsat as
well as studies for future communication systems. 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, Ciel and Hughes.

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 continued its two additional
product developments for Rhode & Schwarz to generate and analyze RF signals for DOCSIS 3.1 cable transmissions.
Steady sales of SED’s Decimator spectrum analyzer 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 one patent approval and one application still pending. 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 defense manufacturing line as we continued to produce
modules and cable assemblies for General Dynamics Land Systems Canada, KIDDE and DRS. SED’s investment
in the new surface mount technology line and continuous improvement of manufacturing processes continues to
show through increased capacity and efficiency. The situation for defense sales remains volatile due to constraints on
Canadian and US military spending. However, there was an increase in defense related orders in the fourth quarter. We
continue to counter the volatility in the defense industry by growing our commercial manufacturing business through
customers such as IntraGrain, whose products that we manufacture, continue to grow in popularity.

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.2017 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of OperationsCalian’s Business and Technology Services Division

Calian’s BTS division, with our principal office in Ottawa, Ontario, is a leading professional services organization,
providing services and solutions in Healthcare, Training and Engineering, and IT Professional Services. BTS is a
continuous improvement organization, 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. Historically our core competencies, common across all service lines,
are recruiting and project, contract and workforce management; however the division continues to evolve its services
to incorporate technology in order to offer full solutions to our customers. Each of these competencies is aligned to
each service line in the areas of:

• Health – clinic management, occupational health services, clinician services;

• Training and Engineering – 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 service line includes the administration on behalf of Loblaw of over 150 medical clinics across
Canada, as well as the provision of health care 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
performed. Revenue is also generated via direct billing to provincial health care 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. The Health Services contract was renewed in 2017 for up to 12 years
and with most of the training and engineering service line contracts being renewed in 2016, the division has visibility
into at least $171 million of contract value to be generated in fiscal 2018. 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 2017 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 all of its major contracts that were up for renewal
in 2017, 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 contract wins in new markets areas
allowed the division to report revenue growth of 4%. In 2017, we also signed $973 million in contracts and ended the
year with a backlog of $1,190 million of which $171 million is expected to be earned during fiscal 2018.

The following provides a summary of 2017 results across the division’s primary service lines.

2017 Annual ReportCalian Group Ltd.Management’s Discussion and Analysis of Financial Condition and Results of OperationsCALIAN Health Services

Our goal is to be the largest national health services organization in Canada, and this year there was significant
progress towards achieving this goal. Calian’s largest health services contract with DND, the Health Services Support
Contract (HSSC), was re-won for another 4-year term with options for up to an additional 8 years. Two additional
contracts with similar terms were simultaneously awarded for the provision of health support services to RCMP and
Veterans Affairs Canada (VAC), with a total aggregate contract value for the three contracts over 12 years of up to $1
billion. We are thrilled to be able to continue to provide our ‘superior’-rated health services to DND (and now RCMP
and VAC). We have been supporting DND’s delivery of health services for over 12 years at all 32 bases across Canada
with a network of over 1,500 health practitioners in over 60 different categories. In addition, our diversification efforts
continued to see success with new contracts being won in the oil and gas industry in Alberta, with strategic wins in
both federal and provincial corrections, and with our first wins in northern nursing and dental services in Nunavut and
Northern Ontario. Primacy also continued to run strong this year opening our 150th clinic. In addition, we were very
proud of the progress Primacy made this year working with DND’s Military Family Services (MFS) and local MFRCs on
our Military Family Doctor Network (MFDN) to improve access for military families to family doctors across Canada.
This year we opened our 11th MFDN location and to date have helped over 850 patients in over 400 different families.

CALIAN ITPS services

Our IT Professional Services (ITPS) line also made some significant strides with a goal to evolve service offerings.
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. 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 this year, 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. Focus
on the evolution of IT services to project and solution based business remains a key priority.

CALIAN Training and Engineering Services

For Calian Training, 2017 was characterized by steady performance in traditional contracts as well as a number of
opportunities with new customers and capped off by the acquisition of International Safety Research. All of our major
contracts continue to do well, with noticeable growth in the work we do at the Canadian Army Simulation Centre
and significant growth in the work we do on our Military Personnel Generation contract, which allows us to provide
instruction in a number of new military school houses. In addition we have won new contracts in the public and private
sector which will expand our training reach. In Emergency Management we have expanded our customer base with
work with the City of Ottawa, National Research Council, Coast Guard and the City of Nanaimo. We continue to
raise our profile through conferences, presentations and thought leadership pieces (radio, TV news) from our subject
matter experts. Finally, with the acquisition of International Safety Research, we have enhanced our overall position
in Emergency Management and significantly increased our connection to nuclear customers, such as Bruce Power,
Ontario Power Generation and Point Lepreau Generating Station as well as the ability to leverage ISR’s global footprint
in Europe and UAE. With the acquisition of International Safety Research, the Calian-ISR synergies will create additional
growth opportunities in the coming years.

In summary, 2017 was a year of continued growth for Calian with significant improvements in EBITDA and earnings.
As importantly, we made tangible progress in the execution of our long term strategy. The company enters 2018 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 2018.

Calian Group Ltd.2017 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of OperationsBacklog
The Company’s backlog at September 30, 2017 was $1,261 million with terms extending to fiscal 2030. This compares
to $488 million reported at September 30, 2016. 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 2017 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.

• up to $1 Billion contract with DND, RCPM and VAC for Health for health care provider requirements
• $22 million contracts for RF ground systems
• $30 contract extension with Canadian Army Simulation Center for training and support services

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 2018, 2019, 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 $113 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)

Fiscal
2018

Fiscal
2019

Beyond
2019

Estimated
realizable
portion of
Backlog

Excess over
estimated
realizable
portion

Contracted Backlog

$ 215

$ 115

$ 169

$ 499

Option Renewals

TOTAL

609

649

$ 224

$ 146

$ 778

$ 1,148

$ 113

$ 1,261

TOTAL

$ 587

674

Business and Technology Services

$ 171

$ 136

$ 770

$ 1,077

$ 113

$ 1,190

Systems Engineering

TOTAL

$ 224

$ 146

$ 778

$ 1,148

$ 113

$ 1,261

Selected Annual Information

(dollars in millions, except per share data)

Revenues
EBITDA(1)
Net profit
Adjusted net profit(1)
Net profit per share, basic
Net profit per share, diluted
Adjusted net profit per share, basic(1)
Adjusted net profit per share, diluted(1)
Total assets
Dividends per share

2017

275.4
23.5
15.4
15.4
2.03
2.01
2.03
2.01
133.6
1.12

$
$
$
$
$
$
$
$
$
$

2016

274.6
22.0
13.6
14.2
1.83
1.83
1.92
1.92
117.7
1.12

$
$
$
$
$
$
$
$
$
$

2015

$ 242.3
17.2
$
9.8
$
10.8
$
1.33
$
1.33
$
1.48
$
$
1.48
$ 102.3
1.12
$

(1) See reconciliation regarding non-GAAP measures below

2017 Annual ReportCalian Group Ltd.Management’s Discussion and Analysis of Financial Condition and Results of Operations

2017 Results of Operations
Profit before interest and income taxes were $20,888 in 2017 compared with $18,733 in 2016 and net profit was
$15,390 for the year compared with $13,593 in the previous year. The Company completed the year with $28,639 of
cash compared to $16,761 at the end of 2016.

Revenues

SED revenues

BTS revenues

Consolidated revenues

2017

2016

% change

$ 75,634

$ 199,789

$ 275,423

$ 82,141

$ 192,446

$ 274,587

(8%)

The general business environment in 2017 reflects continued strong demand with our government customers
which primarily benefited the BTS division. SED also benefited from high levels of activity with many of its recurring
customers; with the drop of revenues attributed mostly to a decrease in the material and subcontractor component
of revenues this year. Despite the impact of this reduction, the Company’s healthy backlog combined with the win of
several contracts in new market segments during 2017 allowed the Company to maintain revenues at the same level
as in the prior fiscal year.

SED revenues for 2017 were down 8% compared to 2016 revenues with several large system implementations
which generated significant revenues in 2016 entering the close-out phase in early 2017. However, work continued
at a steady state in all areas of the division including systems engineering, defense related and commercial contract
manufacturing. As well, activities this year continued to reflect a higher amount of labor based revenue in comparison
to the revenues dominated by the RF Systems in the same periods of last year which had a higher non-labor content.

BTS revenues for 2017 were up 4% compared to 2016 revenues. Revenues from the division’s traditional business lines
showed a steady state with the prior year, with increases in the newly acquired ISR contributing to growth in revenues.
The Company experiences continued recovery with federal government spending supported 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 2017 (2016), 66%
(61%) of revenues were related to contracts with various departments and agencies of the Government of Canada with
approximately 60% (53%) 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 strong 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.

Cost of revenues and Gross profit

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

2017

$ 20,398
27.0%

$ 32,506
16.3%

$ 52,904
19.2%

2016

% change

$ 18,995
23.1%

$ 29,839
15.5%

$ 48,834
17.8%

Calian Group Ltd.2017 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operations

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 2017 reflects mix improvements and solid execution on contracts.

Improvements in SED gross margin in comparison to the previous year is due to the successful completion of sev-
eral projects allowing the retirement of end of project risks, solid product sales and a higher labor component in the
current mix of projects which yields higher margins. Although the mix of revenues plays a significant role in the margin
ultimately realized, product sales and excellent project execution helped the division maintain a solid level of margins.

Gross margin in BTS reflects improved revenue mix from increased activity with mainstay customers and solid exe-
cution across its portfolios. While competition on new work continues to be fierce, the division continues to evolve its
service offering with a goal to increase differentiation and 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 Cana-
dian 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

2017

$ 4,396
1.6%

2016

$ 4,124
1.5%

% change

6.6%

Selling and marketing expenses increased over the prior year as a result of increased focus on diversification, evolution
of its service lines and the broadening of its target markets. Costs for 2018 may continue to increase slightly over the
2017 level as the Company continues to invest to support its growth objectives.

General and administration

As a percentage of consolidated revenues

2017

$ 20,718
7.5%

2016

$ 18,893
6.9%

% change

9.7%

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.
Management will continue to challenge discretionary spending; however, prudent investments may be required to
support the evolution of the Company’s service lines.

Facilities

2017

2016

$ 4,319

$ 3,804

% change

13.5%

Facility expenses, which include costs associated with office space, have been relatively stable over the past several
years. However they have increased in the current year with the renewal of leases at increased market rates. With other
spaces renewing in 2019, costs are expected to increase as well into 2019.

Earnings before interest income, income tax expense, depreciation and amortization (EBITDA)(1)

EBITDA(1) for fiscal 2017 was $23,471 compared to EBITDA of $22,013 in the previous year.
(1) See reconciliation regarding non-GAAP measures below

2017 Annual ReportCalian Group Ltd.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Depreciation and amortization

Depreciation
Amortization

2017

$ 1,490
$ 1,093

2016

$ 1,290
$ 1,348

% change

15.5%

(18.9%)

Depreciation expense has increased due to significant equipment investment in fiscal 2016 at SED. Depreciation will
increase somewhat during 2018 based on the levels of spending in recent past. Amortization expense has decreased
as the intangibles acquired during 2014 have been substantially amortized. However in 2018, this decrease will be
offset by the amortization of intangibles acquired as part of the ISR acquisition.

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. The remaining portion of the deemed compensation related to these acquisitions
was fully expensed in 2016.

Income tax expense

The Company reports its results on a fully taxed basis. The provision for income taxes for 2017 was $5,663 or 26.9% of
earnings before income taxes compared to $5,177 or 27.6% of earnings before income taxes in 2016. The decrease in
tax rate is reflective of the reduction in the deemed compensation recognized in 2017. The effective tax rate for 2018,
prior to considering the impact of non-taxable transactions, is expected to be approximately 26.9%.

Net profit

The Company reported net profit of $15,390 or $2.03 per share basic and $2.01 diluted for 2017 compared to $13,593
or $1.83 per share basic and diluted in 2016. The Company reported adjusted net profit(1) of $15,390 or $2.03 per
share basic and $2.01 diluted for 2017 compared to $14,235 or $1.92 per share basic and diluted in 2016.

(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.

These non-GAAP measures are mainly derived from the consolidated financial statements, but do not have a
standardized 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.2017 Annual ReportManagement’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

2017

15,390

2017

Profit before interest and income tax expense

20,888

Depreciation

Amortization

Deemed compensation related to acquisitions

1,490

1,093

2016

13,593

642

14,235

2016

18,733

1,290

1,348

642

EBITDA

23,471

22,013

Selected Quarterly Financial Data
(dollars in millions, except per share data)

Revenues

EBITDA(1)

Net profit

Q4/17

Q3/17

Q2/17

Q1/17

Q4/16

Q3/16

Q2/16

Q1/16

$ 72.3 $ 67.3 $ 67.1

$ 68.7

$ 68.8

$ 73.2

$ 68.1

$ 64.5

$ 6.6 $ 5.5 $ 6.2

$ 5.2

$ 5.3

$ 6.1

$ 5.4

$ 5.2

$ 4.3 $ 3.5 $ 4.2

$ 3.4

$ 3.9

$ 3.2

$ 3.1

Adjusted net profit(1)

$ 4.3 $ 3.5 $ 4.2

$ 3.4

$ 4.0

$ 3.5

$ 3.3

Net profit per share
Basic
Diluted

Adjusted net profit per share(1)
Basic
Diluted

$ 0.57 $ 0.46 $ 0.55
$ 0.56 $ 0.45 $ 0.55

$ 0.45
$ 0.45

$ 0.52
$ 0.52

$ 0.44
$ 0.44

$ 0.42
$ 0.42

$ 0.57 $ 0.46 $ 0.55
$ 0.56 $ 0.45 $ 0.55

$ 0.45
$ 0.45

$ 0.54
$ 0.54

$ 0.48
$ 0.48

$ 0.45
$ 0.45

(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.

2017 Annual ReportCalian Group Ltd.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Calian’s net cash position was $28,639 at September 30, 2017, compared to $16,761 at September 30, 2016.

Cash flows from operating activities before changes in working capital

$ 23,777

22,191

2017

2016

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 in cash

Operating activities

1,394

(6,783)

25,171

15,408

(5,325)

(7,968)

(6,325)

(2,946)

$ 11,878

6,137

Cash inflows from operating activities for the period ended September 30, 2017 were $25,171 compared to cash inflows
of $15,408 in 2016. Cash flows have been positively impacted the decrease in accounts receivable commensurate
the close off of certain large projects at SED. The aging of the accounts receivable remain in excellent health. These
variations in 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, 2017,
the Company’s total unearned revenue amounted to $8,831 compared to $11,271 at September 30, 2016, with the
decrease attributable to work progressing on certain contracts that had previously benefited from advance payments.

Calian Group Ltd.2017 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operations

Financing activities

Dividend

As a result of continuing earnings and a strong cash position, the Company maintained its dividend in 2017. The
Company paid quarterly dividends totaling $8,520 or $1.12 cents per share compared to 2016 when the Company paid
$8,320 in dividends or $1.12 cents per share. The Company intends to continue with its quarterly dividend policy for
the foreseeable future.

At September 30, 2017 there were 240,600 options outstanding at an average price of $20.10 expiring at various dates
between December 4, 2017 and May 17, 2022.

At September 30, 2017 there were 7,655,713 common shares outstanding and as of the date of this Management
Discussion and Analysis, there were 7,706,454 common shares outstanding.

Investing activities

Equipment expenditures

Calian acquired $2,374 in equipment and application software during 2017 compared to $1,751 during 2016. The
Company continues to invest in innovation projects that will allow the Company to scale and grow operations in the
future. At September 30, 2017 there were no significant commitments to expend capital assets.

Acquisitions

During 2017 (2016), the Company paid $5,344 ($1,195) for various acquisitions as described in the notes to the
consolidated financial statements.

Investments

During 2017 (2016), the Company paid $100 ($Nil) for an equity investment in Cliniconex as described in the notes
to the consolidated financial statements. The Company also provided $150 ($Nil) to Cliniconex Inc. in the form of a
convertible loan.

Capital resources

At September 30, 2017 the Company had a short-term credit facility of $40,000 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

18,519

17,289

Total contractual obligations

$ 47,223

$ 20,395

Total

<1 year

1-3 years

4-5 years

$ 28,704

$ 3,106

$ 6,345

1,227

$ 7,572

$ 6,400

>5 years

$ 12,853

$ 6,403

$ 12,853

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, 2017.

2017 Annual ReportCalian Group Ltd.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating leases
The Company leases various premises and office equipment through operating leases.

Related party transactions
There were no transactions with related parties during 2017 and 2016.

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 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 complexities and
risks are used in estimating the percentage completion.

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, 2017 and 2016 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.

Calian Group Ltd.2017 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of OperationsAdoption 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 2017 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, 2017, have concluded that the Company’s
dis- closure 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
dis- closed by the Company is recorded, processed, summarized and reported within the time periods specified in
the securities legislation.

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, 2017, 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, 2017, 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.

2017 Annual ReportCalian Group Ltd.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe 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
contractual 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.

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.

Calian Group Ltd.2017 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of OperationsGovernment contracts

During fiscal 2017, approximately 66% 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.

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, 2017 the Company’s backlog included $113 million of contract value in excess of the current estimated
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
established 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 20% 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, 2017, the Company had various forward exchange
contracts, which are explained in Note 19 to the Company’s consolidated financial statements for the year ended
September 30, 2017. 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.

2017 Annual ReportCalian Group Ltd.Management’s Discussion and Analysis of Financial Condition and Results of OperationsMedical malpractice

As a result of the Company executing health services for numerous customers, the Company is subject to risks
associated 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.

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 five 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. The recent delays, deferrals and cancellations of DND capital

Calian Group Ltd.2017 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operationsprocurements 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.

The BTS Division’s professional services are adaptable to many different markets. Currently, its strength lies in providing
professional services, solutions, and delivery services across Canada with a significant portion of this work currently
with the Department of National Defence. Recently the division has been successful in diversifying its customer base
and evolving 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 federal government
continues to spend on priority programs and while there is general uncertainty as to the extent of demand from this
customer, at least in the short term spending seems to have stabilized With recent investments in sales, marketing,
acquisitions and success in new markets outside of the federal government, the division is better positioned to
manage through any potential government spending downturns. Recent acquisitions have also bolstered the division’s
performance and it is expected that overall, the acquired companies will continue to meet and exceed the financial
targets established as part of the acquisitions.

Additional Information
Additional information about the Company such as the Company’s 2017 Annual Information Form and Management
Circular can be found on SEDAR at www.SEDAR.com

Dated: December 8, 2017

2017 Annual ReportCalian Group Ltd.Management’s Discussion and Analysis of Financial Condition and Results of OperationsManagement’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 15, 2017

Jacqueline Gauthier

Chief Financial Officer

Calian Group Ltd.2017 Annual ReportIndependent 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, 2017 and September 30, 2016, 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 control. 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, 2017 and September 30, 2016, 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 15, 2017
Ottawa, Ontario

2017 Annual ReportCalian Group Ltd.ASSETS

CURRENT ASSETS
Cash
Accounts receivable
Work in process
Prepaid expenses
Derivative assets

Total current assets

NON-CURRENT ASSETS
Equipment
Application software

Investments and loan receivable

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

NOTES

September 30,
2017

September 30,
2016

6
7
8
9
10

15
19

28,639
54,884
19,490
1,650
123

104,786

6,503
766
530
5,586
15,383

28,768

16,761
61,032
17,269
1,044
534

96,640

5,472
612
-
2,898
12,037

21,019

133,554

117,659

32,584
8,831
360

41,775

2,292

44,067

26,240
541
62,776
(70)

89,487

26,671
11,271
484

38,426

912

39,338

22,820
472
55,906
(877)

78,321

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

133,554

117,659

The accompanying notes are an integral part
of the consolidated financial statements.

Approved by the Board
on November 15, 2017:

Kenneth Loeb
Chairman

Richard Vickers
Director

Calian Group Ltd.2017 Annual ReportCalian Group Ltd.Consolidated Statements of Financial PositionAs at September 30, 2017 and 2016 (Canadian dollars in thousands)

Calian Group Ltd.
Consolidated Statements of Net Profit
For the years ended September 30, 2017 and 2016
(Canadian dollars in thousands, except per share data)

NOTES

2017

2016

$ 275,423

$ 274,587

222,519

225,753

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

52,904

4,396

20,718

4,319

1,490

1,093

20,888

165

21,053

5,613

5,663

48,834

4,124

18,893

3,804

1,290

1,348

642

18,733

18,770

5,343

(166)

5,177

NET PROFIT

Net profit per share:

Basic

Diluted

$ 15,390

$ 13,593

2.03

2.01

1.83

The accompanying notes are an integral part of the consolidated financial statements.

2017 Annual ReportCalian Group Ltd.

Calian Group Ltd.
Consolidated Statements of Comprehensive Income
For the years ended September 30, 2017 and 2016
(Canadian dollars in thousands)

NET PROFIT

Other comprehensive income, net of tax

NOTES

2017

2016

$ 15,390

$ 13,593

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 $296 (2016 - $780).

Other comprehensive income, net of tax

807

2,172

COMPREHENSIVE INCOME

$ 16,197

$ 15,765

The accompanying notes are an integral part of the consolidated financial statements.

Calian Group Ltd.2017 Annual Report

Calian Group Ltd.
Consolidated Statements of Changes in Equity
For the years ended September 30, 2017 and 2016
(Canadian dollars in thousands, except per share data)

Notes

Issued Contributed
surplus
capital

Retained
earnings

Cash flow
hedging
reserve

Total

Balance October 1, 2016

$ 22,820

$ 472

$ 55,906

(877)

$ 78,321

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

11,12

476

2,944

(147)

216

15,390

807

16,197

(8,520)

-
-

(8,520)

476

2,797

216

Balance September 30, 2017

$ 26,240

$ 541

$ 62,776

(70)

$ 89,487

Notes

Issued Contributed
surplus
capital

Retained
earnings

Cash flow
hedging
reserve

Total

Balance October 1, 2015

$ 20,673

$ 458

$ 50,633

$ (3,049)

$ 68,715

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

11,12

388

1,759

(89)

103

13,593

2,172

15,765

(8,320)

388

1,670

103

Balance September 30, 2016

$ 22,820

$ 472

$ 55,906

(877)

$ 78,321

The accompanying notes are an integral part of the consolidated financial statements.

2017 Annual ReportCalian Group Ltd.

Calian Group Ltd.
Consolidated Statements of Cash Flows
As at September 30, 2017 and 2016
(Canadian dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net profit

Items not affecting cash:

Interest income

Income tax expense

Employee share plans 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

11,12

Dividends

CASH FLOWS USED IN INVESTING ACTIVITIES

Investment

Equipment and application software expenditures

Acquisitions

6,7

NOTES

2017

2016

$ 15,390

$ 13,593

(165)

5,663

306

2,583

(37)

5,177

178

2,638

642

23,777

22,191

8,066

(2,011)

(557)

3,643

(2,440)

30,478

204

(5,511)

25,171

3,195

(8,520)

(5,325)

(250)

(2,374)

(5,344)

(7,968)

(10,848)

162

405

3,710

4,291

19,911

(4,540)

15,408

1,995

(8,320)

(6,325)

(1,751)

(1,195)

(2,946)

NET CASH INFLOW

CASH, BEGINNING OF PERIOD

CASH, END OF PERIOD

$ 11,878

6,137

16,761

10,624

$ 28,639

$ 16,761

The accompanying notes are an integral part of the consolidated financial statements.

Calian Group Ltd.2017 Annual Report

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.

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, 2017. 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, 2017 were authorized for issuance by the Board of Directors
on November 15, 2017.

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, DWP
Solutions Inc., located in Ottawa, Ontario and International Safety Research 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 completed
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.

2017 Annual ReportCalian Group Ltd.Calian Group Ltd.Notes to the Consolidated Financial StatementsFor the years ended September 30, 2017 and 2016 (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 has 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. Each tranche of an award is considered a separate award with its own vesting period and grant date
fair value. Compensation expense for each tranche is recorded on a straight-line basis over the vesting period based on the Company’s
estimate of share 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 a restricted share unit plan for executives and other key employees. The Company measures and recognizes
compensation expense based on the grant date fair-value of the units issued using the market value based on the price at the date
preceding the grant. The offsetting credit is recorded in contributed surplus. Each tranche of an award is considered a separate award
with its own vesting period and grant date fair value. Compensation expense for each tranche is recorded on a straight-line basis over
the vesting period based on the Company’s estimate of units that will ultimately vest. At each reporting period, the Company revises its
estimate of the units expected to vest. The impact on the change in estimate, if any, is recognized over the remaining vesting period.

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.

Calian Group Ltd.2017 Annual ReportCalian Group Ltd.Notes to the Consolidated Financial StatementsFor the years ended September 30, 2017 and 2016 (Canadian dollars in thousands, except per share amounts)2. Summary of significant accounting policies (continued)

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 temporary differences, and they are expected to reverse in the foreseeable future.

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 furniture and computer equipment, along with leasehold improvements, is stated at cost less accumulated
depreciation and impairment losses, if any. The carrying value is net of any 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:
• Equipment:

over the term of each lease
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:
• Other customer relationships:
• Contracts with customers:
• Non-competition agreements:
• Trademarks & software:

indefinite
3 to 5 years
3 to 5 years
5 years
5 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 of disposal 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.

2. Summary of significant accounting policies (continued)
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.

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 18.

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
prevailing 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.

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 and loan receivable
Investments
Derivative assets

Loans and receivables
Loans and receivables
Cost and equity method
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.

Loans and receivables
Accounts receivable and loan 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.

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
comprehensive 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.

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 comprehensive income is recognized immediately in net profit.

Note 19 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 October 1, 2018. Assessment of the impact is currently
underway by the Company but at this time the impact is not yet known.

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
October 1, 2018. Assessment of the impact is currently underway by the Company but at this time the impact is not yet known.

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 October 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.

2017 Annual ReportCalian Group Ltd.Calian Group Ltd.Notes to the Consolidated Financial StatementsFor the years ended September 30, 2017 and 2016 (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
complexities 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, 2017 and September 30, 2016, 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.

September 30, 2017

September 30, 2016

Leasehold improvements
Equipment

$ 1,753
16,432

1,480
10,202

Cost

Accumulated
Amortization

Carrying
Value

273
6,230

Cost

Accumulated
Amortization

$ 1,608
14,421

1,270
9,287

Carrying
Value

338
5,134

$ 18,185

$ 11,682

$ 6,503

$ 16,029

$ 10,557

5,472

7. Application software

September 30, 2017

September 30, 2016

Cost

Accumulated
Amortization

Carrying
Value

Cost

Accumulated
Amortization

Carrying
Value

Application software

$ 3,483

2,717

766

$ 3,067

2,455

612

8. Investments and loan receivable
During the year, the Company invested $100 to acquire a 4% 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 is measured at cost. The Company also provided $150 to Cliniconex Inc. in
the form of a convertible loan. The loan has a stated interest rate of 12% and matures on June 9, 2020. The loan contains an optional
conversion feature that allows the Company to convert the principal and interest owing on maturity to common shares of Cliniconex
Inc. The loan is measured at amortized cost.

On May 9, 2017, and included as part of the acquisition of ISR (Note 20), Calian acquired a 49% equity position in International Safety
Research Europe for $280. The investment is measured using the equity method.

9. Acquired intangible assets

Acquired intangible assets are allocated to the Business and Technology Services Division segment.

September 30, 2017

September 30, 2016

Cost

Accumulated
Amortization

Carrying
Value

Cost

Accumulated
Amortization

Carrying
Value

Customer relationship
related to Primacy

$ 1,909

1,909

Other customer relationships

Contract with customers

Non-competition agreements

Trademarks and software assets

5,600

2,703

543

562

3,611

1,720

272

128

1,989

983

271

434

3,815

1,485

249

3,031

1,333

196

784

152

$ 11,317

5,731

$ 5,586

$ 7,536

4,638

2,898

10. Goodwill

Business and
Technology Services

September 30, 2017

September 30, 2016

Cost

Impairment

Carrying
Value

Cost

Impairment

Carrying
Value

$ 15,383

$ 12,037

$ 15,383

$ 12,037

Annual test for impairment
Goodwill recorded is allocated in its entirety to the Business and Technology Services division. At September 30, 2017 and 2016,
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, 2017 and 2016, 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.

11. 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:

Balance, beginning of year
Shares issued under stock option plan
Shares issued under employee stock purchase plan

Issued capital

September 30, 2017

September 30, 2016

7,483,599
140,900
31,214

7,655,713

Amount

$ 22,820
2,944
476

$ 26,240

7,378,298
83,500
21,801

7,483,599

Amount

$ 20,673
1,759
388

$ 22,820

Subsequent to the date of the statement of financial position, on November 15, 2017, the date of issuance of these consolidated
financial statements, the Company declared a dividend of $0.28 per common share payable on December 13, 2017.

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.

12. Share-based compensation

Stock Options
The Company has an established stock option plan. Under the plan, eligible directors and employees are granted the right to purchase
shares of common stock at a price established by the Board of Directors on the date the options are granted but in no circumstances
below fair market value of the shares at the date of grant. Stock options are issued at market value based on the price at the date
preceding the grant, and can have a contractual term of up to ten years and generally vest over 3 years. The maximum number of
common shares reserved for issuance under the Plan is equal to 9% of the Company’s issued and outstanding shares from time to time
less the aggregate number of shares reserved for issuance or issuable under any other security-based compensation arrangement for
the Company. As at September 30, 2017, based on the Company’s total common shares outstanding, a total of 689,014 stock options
and RSU’s may be issued and outstanding. Based on this, the Company could grant up to 437,069 additional stock options beyond
what was issued and outstanding as at September 30, 2017.

At September 30, 2017 (2016) there were 240,600 (351,500) options outstanding with a weighted average remaining contractual life of
1.94 (2.1) years of which 222,600 (331,500) were exercisable at a weighted average price of $19.52 ($19.49). During the years ended
September 30, 2017 (2016), 30,000 (NIL) options were granted and 140,900 (83,500) options were exercised. The Company has total
unrecognized compensation expense of $28 (2016 - $NIL) that will be recorded in the next fiscal year.

The following share-based payment arrangements are in existence:

Option series:

Number

Grant date

Expiry date

(1) Issued August 13, 2012

22,000

August 13, 2012

December 4, 2017

(2) Issued September 3, 2014

113,600

September 3, 2014

September 3, 2019

(3) Issued September 9, 2015

75,000

September 9, 2015

September 9, 2020

(4) Issued May 17, 2017

30,000

May 17, 2017

May 17, 2022

Exercise Fair value at
grantdate

price

20.54

19.70

17.69

27.30

0.99

1.18

0.90

3.42

For the option issuance dated September 9, 2015, 29,000 options vested immediately with the remaining vested through to
September 9, 2017. For the option issuance dated May 17, 2017, 6,000 options vested immediately with the remaining vesting
through to May 17, 2018.

12. Share-based compensation (continued)
The weighted average fair value of options granted during the year ended September 30, 2017 was $3.42 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 2 years after vesting. The following assumptions were
used to determine the fair value of the options granted in 2017:

Grant date share price

Exercise price

Expected price volatility

Expected option life

Expected dividend yield

Risk-free interest rate

Forfeiture rate

2017

27.30

24.3%

4.2 yrs

4.01%

0.91%

Outstanding, beginning of year

Exercised

Expired

Granted

Outstanding, end of year

2017

Weighted Avg.
Exercise Price

$ 19.38

19.85

$ 27.30

$ 20.10

Options

351,500

(140,900)

30,000

240,600

2016

Weighted Avg.
Exercise Price

$ 19.40

20.00

18.65

Options

495,000

(83,500)

(60,000)

351,500

$ 19.38

Restricted share units:
The Company has established a restricted stock unit (“RSU”) plan as of February 3, 2017. Under the RSU plan, the maximum number
of common shares reserved for issuance is equal to 9% of the Company’s issued and outstanding shares from time to time less the
aggregate number of shares reserved for issuance or issuable under any other security-based compensation arrangement for the
Company. Share units may be awarded to any officer or employee of the Company. Each restricted share unit will vest on the date
or dates designated for that unit, conditional on any vesting conditions being met. Participants in the RSU plan may elect to redeem
their share units either by the Company issuing the participant one common share for each whole vested share unit or, subject to the
consent by the Company, elect to receive an amount in cash. The cash amount is equal to the number of vested share units to be
redeemed multiplied by the value of the common shares otherwise issuable on redemption of the share units.

The following table summarizes information about the RSU’s as of September 30, 2017and 2016:

2017

2016

RSU

Weighted Avg.
Exercise Price

RSU

Weighted Avg.
Exercise Price

Outstanding, beginning of year

Transferred to common shares

Expired

Granted

Outstanding, end of year

11,345

27.43

12. Share-based compensation (continued)
In 2017, the Company issued 11,345 RSU’s, with a weighted average fair value of $27.43 per RSU. Of the entire units issued to date
under the RSU plan, NIL have vested as of September 30, 2017. The Company has recorded $142 of share-based compensation
expense in 2017 (2016 - NIL) related to the RSUs that have been granted. The Company has total unrecognized compensation
expense of $169 (2016 - $NIL) that will be recorded over the next three years.

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
2017 (2016), the Company issued 31,214 (21,801) shares under the ESPP at an average price of $12.73 ($14.92) for a total cash of
$398 ($325) and total non-cash of $78 ($63). Employees subscribed to approximately 22,260 common shares, which will be issued
during fiscal 2018 at an average price of $21.57. Since inception and including the issuance of shares in 2017, 461,938 shares have
been issued under the plan.

13. 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 and RSU’s

Weighted average number of common shares – diluted

2017

7,586,899

76,353

7,663,252

2016

7,411,361

7,499

7,418,860

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 2017 (2016), Nil (257,750) options and NIL (NIL) RSU’s 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.

14. 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% (2016: 26.9%)

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

2017

2016

$ 21,053

$ 18,770

5,673

160
(126)
(44)

5,053

217
14
(107)

5,663

5,177

14. Income taxes (continued)

The movements of deferred tax assets and liabilities are shown below:

Deferred tax assets (liabilities)

Equipment
and application
software

Acquired
intangible
assets

Cash flow
hedging
reserve

Other

Total

Deferred tax liability at September 30, 2016

(548)

(768)

234

170

(912)

Current year acquisition

Credited (debited) to statement of net profit

Credited (debited) to other comprehensive income

(1,032)

(277)

369

(296)

Deferred tax liability at September 30, 2017

(825)

$ (1,431)

(62)

(1,032)

(144)

(52)

(296)

$ (2,292)

Deferred tax assets (liabilities)

Equipment
and application
software

Acquired
intangible
assets

Cash flow
hedging
reserve

Deferred tax liability at September 30, 2015

(259)

$ (1,145)

1,014

Credited (debited) to statement of net profit

Credited (debited) to other comprehensive income

(289)

377

(780)

Other

Total

(299)

167

(780)

Deferred tax liability at September 30, 2016

(548)

(768)

234

170

(912)

15. Construction contracts
Construction contract revenues recorded during the period ended September 30, 2017 are $78,569 (2016: $89,037) 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

2017

2016

$ 231,600

(219,607)

$ 11,993

2017

$ 18,914

(6,921)

$ 11,993

$ 254,607

(248,017)

6,590

2016

$ 17,311

(10,721)

6,590

At September 30, 2017 (2016), advances received from customers for contract work amounted to $8,831 ($11,271).

As at September 30, 2017 (2016), the Company had $2,224 ($2,323) 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 2017 and 2016 is considered to be a short-term receivable.

16. Commitments
The Company has non-cancellable lease agreements for office space and equipment with terms extending to the year 2029.
The aggregate minimum rental payments under these arrangements are as follows:

2018
2019
2020
2021
2022
thereafter

Total

3,106
3,208
3,137
3,214
3,186
12,853

$ 28,704

17. 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.

18. 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 acquisition of ISR, as explained in Note 20.

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, 2017

Revenues
Profit before interest income and income tax
Interest income
Income tax expense (Note 14)

Net profit

Systems
Engineering

Business and
Technology
Services

Corporate

Total

75,634
12,381

$ 199,789
11,822

-
(3,315)

$ 275,423
20,888
165
(5,663)

15,390

Total assets other than cash and goodwill
Goodwill
Cash

Total assets

35,257
-
-

54,145
15,383
-

130
-
28,639

89,532
15,383
28,639

35,257

69,528

28,769

$ 133,554

Equipment and application software expenditures

Acquired intangible assets (Note 20)

Acquired goodwill (Note 20)

1,924

565

3,896

3,346

2,489

3,896

3,346

18. Segmented information (continued)

For the year ended September 30, 2016

Revenue
Profit before interest income and income tax expense
Interest income
Income tax expense (Note 14)

Net profit

Systems
Engineering

Business and
Technology
Services

Corporate

Total

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
-
-

48,485
12,037
-

131
-
16,761

88,861
12,037
16,761

40,245

60,522

16,892

$ 117,659

Equipment and application software expenditures

1,147

604

1,751

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

2017

80%
14%
6%

2016

75%
19%
6%

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, 2017 and 2016
represented 66% (61%) of the Company’s total revenues. Both operating segments conduct business with this major customer. In
addition for the year ended September 30, 2017 and 2016 revenues from Hughes Networks represented 5% (11%) of the Company’s
total revenues, all generated from the SED division.

19. 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.

19. Financial instruments and risk management (continued)

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.

Market Risk
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, 2017, the Company had the following forward foreign exchange contracts:

Type

BUY
BUY
BUY

Derivative assets

SELL
SELL
SELL

Derivative liabilities

Notional

16,481
3,250
112

42,265
10,516
114

Currency

USD
EURO
GBP

Maturity

October 2017
October 2017
October 2017

USD
EURO
GBP

October 2017
October 2017
October 2017

At September 30, 2016, the Company had the following forward foreign exchange contracts:

Type

Notional

Currency

Maturity

USD
EURO

October 2016
October 2016

Equivalent
Cdn. Dollars

$
$

20,568
4,791
187

52,747
15,503
191

Equivalent
Cdn. Dollars

52,191
15,032

USD
USD
EURO

October 2016
September 2017
October 2016

22,465
1,312
6,462

39,789
10,201

17,127
1,000
4,385

SELL
SELL

Derivative assets

BUY
SELL
BUY

Derivative liabilities

Fair Value
September 30,
2017

$
$

49
72
2

123

127
231
2

360

Fair Value
September 30,
2016

450
84

534

194
254
36

484

19. Financial instruments and risk management (continued)
A 10% strengthening of the Canadian dollar against the following currency at September 30, 2017 would have increased (decreased)
other comprehensive income by the amounts shown below.

September 30,
2017

2,925
974

3,899

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, 2017 (2016), 62% (61%) of
its accounts receivable were due from various departments and agencies of the Canadian federal government. 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, 2017

September 30, 2016

$ 28,639
54,884
123

$ 83,646

$ 16,761
61,032
534

$ 78,327

The aging of accounts receivable at the reporting date was:

September 30, 2017

September 30, 2016

Current
Past due (61-120 days)
Past due (> 120 days)

$ 50,548
3,055
1,281

$ 54,884

$ 59,790
971
271

$ 61,032

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, 2017, the Company has a cash balance of $28,639 and has an unsecured credit facility, subject to annual renewal. The
credit facility permits the Company to borrow funds up to an aggregate of $40,000. As at September 30, 2017 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.

19. Financial instruments and risk management (continued)

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, 2017, 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

2017
Level 1

28,639
-
-

28,639

2016
Level 1

16,761
-
-

16,761

2017
Level 2

-
123
(360)

(237)

2016
Level 2

-
534
(484)

There were no transfers between Level 1 and Level 2 during the years ended September 30, 2017 and 2016.

20. Acquisitions

Amtek Engineering Services Ltd. (“Amtek”)
During the years ended September 30, 2017 (2016), under the contingent consideration agreement the Company paid NIL ($830)
related to the earn-outs.

DWP Solutions Inc. (DWP)
During the years ended September 30, 2017 (2016), under the contingent consideration agreement the Company paid NIL ($365)
related related to the earn-outs.

International Safety Research Inc. (“ISR”)
On May 9, 2017, the Company acquired all of the outstanding shares of ISR for a purchase price of up to $8,979. Of this amount $4,879
was paid on the date of closing, $820 was placed in escrow and $3,280 is payable contingently.

20. Acquisitions (continued)
Under the contingent consideration arrangement, the Company is required to pay the former shareholders of ISR an additional $1,640
and $1,640 if ISR attains specified levels of earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the years ended
April 30, 2018 and 2019 respectively. With the current levels of contracts signed by ISR and the ability to grow in its selected market
segment, management believes that ISR can achieve its earn-out target in both years. Therefore, the amount of $3,074 represents the
estimated fair value of the Company’s obligation at the acquisition date. ISR specializes in nuclear safety and emergency preparedness
and response nationally and internationally. ISR was acquired to expand the Company’s emergency preparedness service offering and
will be reported as part of the Business and Technology Services operating segment.

Acquisition-related costs amounting to $92 have been excluded from the consideration and have been recognized as an expense
during 2017, within the general and administration line item in the consolidated statement of net profit. The acquisition is a business
combination to which IFRS 3 Business Combination applies.

Consideration:

Cash
Contingent payments

Consideration to allocate

5,699
3,074

8,773

The following are the assets acquired and liabilities recognized at the date of the acquisition:

Current assets:

Cash
Accounts receivable
Work in progress
Prepaid expenses and other

Non-current assets:

Equipment
Investment
Intangible assets

Current Liabilities:

Accounts payable and accrued liabilities
Deferred income
Deferred tax liability

Net assets acquired

Goodwill arising on acquisitions:

Total consideration allocated
Net assets acquired

355
2,960
210
49

3,574

186
280
3,896

7,936

1,430
47
1,032

2,509

5,427

8,773
(5,427)

3,346

None of the goodwill arising on the acquisition is expected to be deductible for tax purposes. The allocation of the purchase price is
final as at September 30, 2017.

Net cash outflow during the current year related to the acquisitions:

Consideration paid in cash
Less: cash balance acquired

5,699
(355)

5,344

20. Acquisitions (continued)

Impact of the acquisitions on the consolidated result of the Company:
Had the business combinations been effected at October 1, 2016, the revenue and net profit of the Company for the year ended
September 30, 2017 would have been higher by $6,383 and $757, respectively. Management considers these ‘pro-forma’ numbers to
represent an approximate measure of the performance of the combined group for the year ended September 30, 2017 and provide a
reference point for comparison in future periods.

21. Pension Plan
The Company sponsors a defined contribution pension plan for certain of its employees. Required contributions have been fully
funded to September 30, 2017. For fiscal 2017 (2016), an amount of $945 ($843) was expensed related to this pension plan.

22. 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

Total

2017

2,015
309

2,324

2016

1,937
140

2,077

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 9, 2018 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

Board of Directors

Kenneth J. Loeb
President, Mystic Investments Inc.
Chairman, Calian Group Ltd.
Chair of the Nominating Committee

Richard Vickers, FCA
Consultant
Chair of the Audit Committee

George Weber
President and CEO,
Royal Ottawa Health Care Group
Chair of the Compensation Committee

Jo-Anne Poirier
President and CEO, VON Canada
Chair of the Governance Committee

Ray Basler
Consultant

Young Park
Consultant

Kevin Ford
President and CEO, Calian Group Ltd.