2015
REGISTRATION DOCUMENT
INCLUDING THE ANNUAL FINANCIAL REPORT
PIONEER AND WORLD-LEADING PROVIDER IN VIRTUAL PROTOTYPING
ESI Group ● 2015 Registration Document 1
ESI Group
French limited company (société anonyme) with a share capital of EUR 17,865,216
Registered office: 100/102, avenue de Suffren, 75015 Paris, France
Paris Trade and Company Register (RCS) number 381 080 225
REGISTRATION DOCUMENT
INCLUDING THE ANNUAL FINANCIAL REPORT
Fiscal year 2015 (ended January 31, 2016)
This Registration Document was filed with the French Financial
Markets Authority (AMF) on Friday, May 20, 2016 in accordance
with Article 212-13 of the AMF's General Regulations. It may not
be used in connection with any financial transaction unless it is ac-
companied by a memorandum approved by the AMF. The issuer
prepared this document and the signatories are responsible for the
information herein.
French copies of the Registration Document are available free of charge from ESI Group (the “Company” or the “Group”)
- 100/102, avenue de Suffren, 75015 Paris, France - as well as on ESI Group's website (www.esi-group.com) and
on the AMF's website (www.amf-france.org).
This document is an English-language translation of ESI Group’s Document de référence [Registration document], which was
filed with the French Financial Markets Authority (AMF) on May 20, 2016, in accordance with Articles 212-13 of the AMF Gen-
eral Regulation.
Only the French version of the Document de référence is legally binding.
ESI Group ● 2015 Registration Document 2
CONTENT
1
2
GENERAL INFORMATION ................................................................................................. 5
1.1. Persons responsible for the Registration Document ..................................................................................................... 5
1.1.1. Person responsible for the content of the Registration Document ........................................................................................................................................ 5
1.1.2. Person responsible for the financial Information .................................................................................................................................................................... 5
1.2. Statutory auditors .............................................................................................................................................................. 5
1.3. General information .......................................................................................................................................................... 6
1.3.1. Legal information .................................................................................................................................................................................................................... 6
1.3.2. Articles of Association and Shareholder relations .................................................................................................................................................................. 6
1.3.3. History of the Company ......................................................................................................................................................................................................... 9
1.3.4. Share capital and changes in the share capital ................................................................................................................................................................... 10
THE GROUP ..................................................................................................................... 15
2.1. Main activities and markets ............................................................................................................................................ 15
2.1.1. Main activities ....................................................................................................................................................................................................................... 15
2.1.2. Main markets ........................................................................................................................................................................................................................ 17
2.2. Structure of the Company ............................................................................................................................................... 20
2.2.1. Operational organization chart ............................................................................................................................................................................................. 20
2.2.2. Legal organization chart ....................................................................................................................................................................................................... 21
2.2.3. Operational procedures of the Board of Directors................................................................................................................................................................ 22
2.2.4. Operational procedures of executive management ............................................................................................................................................................. 22
2.3. Selected financial information ........................................................................................................................................ 23
2.3.1. Revenues .............................................................................................................................................................................................................................. 23
2.3.2. Distribution of revenues per area ......................................................................................................................................................................................... 23
2.3.3. Activities strategic alignment ................................................................................................................................................................................................ 24
2.3.4. Profitability ............................................................................................................................................................................................................................ 24
2.4. Major investments during the past three fiscal years .................................................................................................. 25
2.4.1. The Group’s recurring investments ...................................................................................................................................................................................... 25
2.4.2. The Group’s non-recurring investments ............................................................................................................................................................................... 25
2.4.3. Future investments ............................................................................................................................................................................................................... 26
2.5. Risk factors ...................................................................................................................................................................... 26
2.5.1. Strategic risks ....................................................................................................................................................................................................................... 26
2.5.2. Operational risks ................................................................................................................................................................................................................... 26
2.5.3. Financial risks ....................................................................................................................................................................................................................... 27
2.5.4. Legal risks ............................................................................................................................................................................................................................. 28
3
CORPORATE GOVERNANCE ......................................................................................... 30
3.1. Main shareholders and stock price evolution ............................................................................................................... 30
3.1.1. Founding shareholders ......................................................................................................................................................................................................... 30
3.1.2. TPI survey ............................................................................................................................................................................................................................. 30
3.1.3. Stock price evolution ............................................................................................................................................................................................................. 30
3.2. Report of the Chairman of the Board of Directors on corporate governance, internal control and risk management
31
3.2.1. Composition, preparation and organization of the activities of the Board of Directors ........................................................................................................ 32
3.2.2. The internal control and risk management procedures ........................................................................................................................................................ 39
3.2.3. Limits on the powers of the Chief Executive Officer and Chief Operating Officers ............................................................................................................... 44
3.2.4. Principles and rules for determining the compensation paid to corporate officers .............................................................................................................. 45
3.2.5. Other information required by L. 225-37 of the French Commercial Code .......................................................................................................................... 48
3.2.6. Declaration by the members of the Board of Directors with respect to paragraph 14.1 of Annex I of EC Regulation No. 809/2004 ("Prospectus Regulation")
49
3.3. Statutory Auditors’ report, prepared in accordance with article L.225-235 of the French Commercial Code (Code
de commerce) on the report prepared by the Chairman of the Board of Directors of the Company .............................. 50
3.4. Potential conflicts of interest within the corporate bodies .......................................................................................... 51
3.4.1. Capital held by the members of the Board of Directors ....................................................................................................................................................... 51
3.4.2. Transactions between the Company and its management bodies ...................................................................................................................................... 51
ESI Group ● 2015 Registration Document 3
3.4.3. Shareholders' agreements .................................................................................................................................................................................................... 51
4 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS TO THE COMBINED
GENERAL MEETING OF JULY 21, 2016 ................................................................................. 52
4.1. Business activities during the 2015 fiscal year ............................................................................................................ 52
4.1.1. Business activities during the 2015 fiscal year ..................................................................................................................................................................... 52
4.1.2. Figures from the consolidated financial statements ............................................................................................................................................................. 53
4.1.3. Research and development .................................................................................................................................................................................................. 56
4.1.4. ESI Group SA annual financial statements and allocation ................................................................................................................................................... 57
4.2. Outlook ............................................................................................................................................................................. 59
4.2.1. Events after the reporting period .......................................................................................................................................................................................... 59
4.2.2. Business trends .................................................................................................................................................................................................................... 59
4.3. Report on Corporate Social Responsibility (CSR) ........................................................................................................ 59
4.3.1. ESI Group approach in terms of social and environmental responsibility............................................................................................................................ 59
4.3.2. Being a committed employer ................................................................................................................................................................................................ 62
4.3.3. Being an outstanding partner ................................................................................................................................................................................................. 70
4.3.4. Being an environmentally friendly player .............................................................................................................................................................................. 71
4.3.5. Serve civil society ................................................................................................................................................................................................................... 75
4.3.6. Report of the inspecting organization .................................................................................................................................................................................... 78
4.4. Compensation .................................................................................................................................................................. 80
4.5. Agreements ...................................................................................................................................................................... 81
4.5.1. Agreements signed during the fiscal year .............................................................................................................................................................................. 81
4.5.2. Agreements signed during prior years that remained in effect during the past fiscal year ................................................................................................... 81
4.6. Disputes ............................................................................................................................................................................ 82
4.7. Other items to be decided by the Annual General Meeting.......................................................................................... 82
5
FINANCIAL STATEMENTS .............................................................................................. 84
5.1. Consolidated financial statements ................................................................................................................................ 84
5.1.1. Consolidated income statement ........................................................................................................................................................................................... 84
5.1.2. Balance sheet ....................................................................................................................................................................................................................... 85
5.1.3. Consolidated statement of changes in equity ...................................................................................................................................................................... 86
5.1.4. Consolidated statement of cash flows .................................................................................................................................................................................. 87
5.1.5. Notes to the consolidated financial statements .................................................................................................................................................................... 88
5.1.6. Statutory auditors’ report on the consolidated financial statements .................................................................................................................................. 115
5.2. ESI Group SA annual financial statements ................................................................................................................. 116
5.2.1. Income Statement as at January 31, 2016......................................................................................................................................................................... 116
5.2.2. Balance sheet as at January 31, 2016 ............................................................................................................................................................................... 117
5.2.3. Notes to the annual financial statements of ESI Group SA ............................................................................................................................................... 119
5.2.4. Statutory auditors' report on the financial statements ........................................................................................................................................................ 138
6
RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING .......... 139
6.1. Ordinary General Meeting ............................................................................................................................................. 139
6.2. Extraordinary General Meeting ..................................................................................................................................... 141
6.3. Joint decisions .............................................................................................................................................................. 143
7
DOCUMENTS AVAILABLE TO THE PUBLIC ................................................................ 144
7.1. Press releases and financial announcements ............................................................................................................ 144
7.1.1. Press releases and financial announcements in French ................................................................................................................................................... 144
7.1.2. Press releases and financial announcements in English ................................................................................................................................................... 145
7.1.3. Information filed with the registries of the Paris Commercial Court ................................................................................................................................... 146
7.2. Information made available to the shareholders prior to the Ordinary General Meeting ........................................ 146
8 CROSS-REFERENCE TABLE ............................................................................................. 147
8.1. Information required under Regulation (EC) No 809/2004 ......................................................................................... 147
8.2. Information required in the annual financial report .................................................................................................... 149
ESI Group ● 2015 Registration Document 4
1 GENERAL INFORMATION
1.1. Persons responsible for the Registration Document
1.1.1. Person responsible for the content of the Registration Document
Paris, on May 20, 2016.
Mr Alain de Rouvray, Chairman and Chief Executive Officer of ESI Group:
"Having taken all reasonable care to ensure that such is the case and to the best of my knowledge, I hereby declare that the in-
formation contained in this Registration Document gives a true and fair view of the facts and that no material aspects have been
omitted.
I hereby declare that, to the best of my knowledge, the financial statements have been prepared in accordance with applicable
accounting standards and that they give a fair view of the assets, financial position and results of the Company and all consolidated
companies making up the Group. I further declare that, to the best of my knowledge, the management report provided in Section
4 presents a fair picture of the business trends, results and financial position of the Company and all consolidated companies
making up the Group, as well as a description of the primary risks and uncertainties these entities face.
I have obtained a letter from the statutory auditors stating that they have completed their assignment which included checking the
information relating to the financial position and the financial statements provided in this document as well as reading the entire
annual report
The statutory auditors prepared a report on the consolidated financial statements for the fiscal year 2015, ended January 31,
2016. This report appears on section 5.1.6 and contains no observations.
The statutory auditors prepared a report on the consolidated financial statements for the fiscal year 2014, ended January 31,
2015. This report appears on page 89 of the Registration Document filed with the French Financial Markets Authority (AMF) on
May 22, 2015 under number D.15-0528 and contains no observations.
The statutory auditors prepared a report on the consolidated financial statements for the fiscal year 2013, ended January 31,
2014. This report appears on page 88 of the Registration Document filed with the French Financial Markets Authority (AMF) on
May 30, 2014 under number D.14-0587 and contains no observations.”
1.1.2. Person responsible for the financial Information
Mr Laurent Bastian, Chief Financial Officer of ESI Group.
1.2. Statutory auditors
Statutory auditors
PricewaterhouseCoopers Audit
63, rue de Villiers
92200 Neuilly-sur-Seine
Represented by Mr Thierry Charron.
Date of appointment: Combined General Meeting of July 22, 2015 for a term of six years.
Term of office: Annual General Meeting called to approve the financial statements for the year ended January 31, 2021.
PricewaterhouseCoopers Audit is a member of the Versailles Regional Association of Statutory Auditors.
Ernst & Young Audit
Faubourg de l’Arche
1/2, place des Saisons
92400 Courbevoie Paris-La Défense 1
Represented by Mr Frédéric Martineau.
Date of appointment: Combined General Meeting of July 22, 2015 for a term of six years.
Term of office: Annual General Meeting called to approve the financial statements for the year ended January 31, 2021.
Ernst & Young Audit is a member of the Versailles Regional Association of Statutory Auditors.
ESI Group ● 2015 Registration Document 5
Alternate auditors
Auditex
Faubourg de l’Arche
11, allée de l’Arche
92037 Paris-La Défense Cedex
Represented by Mr Emmanuel Roger.
Date of appointment: Combined General Meeting of July 22, 2015 for a term of six years.
Term of office: Annual General Meeting called to approve the financial statements for the year ended January 31, 2021.
Monsieur Yves Nicolas
63, rue de Villiers
92200 Neuilly-sur-Seine
Date of appointment: Combined General Meeting of July 22, 2015 for a term of six years.
Term of office: Annual General Meeting called to approve the financial statements for the year ended January 31, 2021.
1.3. General information
1.3.1. Legal information
The Company's corporate name is "ESI Group”.
The Company was founded on January 28th, 1991 for a term of ninety-nine years in the form of a limited company (société
anonyme) governed by French law.
The Company is registered with the Paris Trade and Company Register (75000) under the registration number 381 080 225.
The Company’s registered office is 100/102, avenue de Suffren – 75015 Paris, France.
The Company’s fiscal year begins on February 1 of each year and ends on January 31 of the following year.
1.3.2. Articles of Association and Shareholder relations
1.3.2.1. Corporate purpose
In accordance with Article 2 of the Articles of Association, the Company's purpose in France and all other countries is to:
– Research, develop, design, create and distribute computer software. To provide all forms of assistance, training and, in
general, all related activities that may be directly or indirectly related to the corporate purpose;
– Acquire, receive, hold, manage and trade in a portfolio of securities, especially in fields related to the publishing of sci-
entific software, including digital simulation software for prototyping and manufacturing processes and related decision-
making support tools.
The Company may perform any of the abovementioned operations on its own behalf or on behalf of third parties by creating new
companies, forming partnerships, subscribing to shares in existing companies, purchasing securities or rights to equity instru-
ments, merging companies, forming business alliances, undertaking joint investments, obtaining the use of any property under a
lease or lease management agreement, forming joint ventures or otherwise.
To this end, the Company carries out any and all economic or financial studies necessary and provides recommendations in
relation to investments, acquisitions and divestitures. It also provides assistance as a management consultant to companies in
which it holds a stake and to other companies. It prepares all types of reports and expert opinions; it assists with business restruc-
turing measures and mergers.
In general, it carries out any and all financial, commercial or industrial operations and real estate and property transactions that
may be directly or indirectly related to the corporate purpose of the Company or likely to promote the Company's expansion or
growth.
1.3.2.2. Information on members of the administrative, management and supervisory bodies
Information on members of administrative, management and supervisory bodies is contained in the section 3.2 “Chairman's report
on corporate governance, internal control and risk management”.
ESI Group ● 2015 Registration Document 6
1.3.2.3. Rights, privileges and restrictions attached to shares
Allocation of income and distribution of profits (Article 22 of the Articles of Association)
Pursuant to Article 22 of the Articles of Association, five percent (5%) of the net profit for the fiscal year, less any losses carried
forward, will be set aside to form the legal reserve fund; this deduction is no longer required once the legal reserve has reached
one-tenth of the share capital; the requirement applies again when, for any reason, the reserve falls below said one-tenth fraction.
The balance of said profit, plus any profit carried forward, forms the profit available for distribution.
Shareholders have sole control over this profit and decide how it will be appropriated at the Annual General Meeting. To this end,
the Annual General Meeting may decide to allocate this profit, in full or in part, to any general or special reserve funds, carry it
forward or distribute it to the Shareholders.
However, except in the case of a capital reduction, no profit may be distributed to the Shareholders if net assets are or will
subsequently become less than the total capital plus reserves that may not be distributed in accordance with the law or the Articles
of Association.
Any losses are recorded in the balance sheet under a special account once the financial statements have been approved by the
Annual General Meeting
Double voting rights and shareholding thresholds (Article 9 of the Articles of Association)
In accordance with Article 9 of the Articles of Association, each share gives its holder ownership interest in the Company's assets
and profits, this interest being proportionate to the percentage of the share capital that the share represents.
Anyone who had held fully paid-up registered shares for at least four years as of the date of the Extraordinary General Meeting
of June 14, 2000 or thereafter is entitled to double voting rights under the law. Furthermore, if the capital is increased through the
capitalization of reserves, profits or share premiums, this double voting right will apply, from the time of issue, to registered shares
awarded free of charge to Shareholders on the basis of shares already held that bear this entitlement.
Any shares converted to bearer shares or transferred to a different owner are stripped of double voting rights, although other
rights and obligations attached to the share are transferred to any owner thereof.
However, double voting rights are not lost and the abovementioned four-year period is not interrupted in the event that shares are
transferred by way of an inheritance, following the liquidation of a marital estate, or in the form of an inter vivos gift to a spouse or
a relative in the direct line of succession.
There are no other requirements under the Articles of Association regarding shareholding thresholds except for those set forth
under current law.
1.3.2.4. Changes in share capital and the rights attached to shares (Article 8 of the Articles of
Association)
Increases and reductions in capital
Extraordinary General Meetings have sole authority to decide to carry out or to authorize capital increases, upon recommendation
by the Board of Directors.
If the share capital is increased through the capitalization of reserves, profit or share premiums, the General Meeting may make
such decision in accordance with the requirements for quorum and majority set forth for Annual General Meetings.
The share capital must be fully paid up prior to any issue of new shares to be paid up in cash, otherwise the transaction may be
declared null and void.
Shareholders are entitled, in proportion to their total shares, to pre-emptive subscription rights to cash shares issued as part of a
capital increase.
The value of any contributions in kind must be appraised by one or more contribution appraisers appointed upon request by the
presiding judge of the relevant commercial court.
Shares representing contributions in kind or stemming from the capitalization of profits or reserves must be fully paid up upon
issuance.
At least one-fourth of the value of cash shares and the entire share premium, where applicable, must be paid up at the time of
subscription. The remainder must be paid up in one or more installments within a period of five years from the date on which the
capital increase was finalized.
Subject to the restrictions and reserves set forth by law, Extraordinary General Meetings may also decide to carry out or authorize
a reduction in the share capital for any reason or in any manner whatsoever, including due to losses or via repayment or partial
buyback of shares, reduction in the number of shares, or reduction in the par value of shares; under no circumstances may the
reduction in capital undermine the principle of equality between Shareholders.
ESI Group ● 2015 Registration Document 7
Form and transfer of shares (Article 9 of the Articles of Association)
Form
Shareholders may opt to hold fully paid-up shares as either registered shares or bearer shares. Shares will be recorded in the
Company's accounts in accordance with the terms and procedures set forth by law.
Transfer of shares
Shares may be freely traded unless otherwise stipulated by law or regulation. Shares may be sold or traded by the Company and
by third parties via transfer between accounts in accordance with the regulations in force.
1.3.2.5. General Meetings (Article 18 of the Articles of Association)
Pursuant to Article 18 of the Articles of Association, decisions are made collectively by Shareholders in General Meetings classified
as either ordinary general meetings or extraordinary general meetings.
The procedures for calling and holding General Meetings are governed by French law. Meetings are held at the headquarters or
at any other place indicated in the notice of meeting.
Annual General Meetings are called to make all decisions that do not require amendments to the Articles of Association.
They meet at least once a year, within six months from the end of the previous fiscal year.
Only Extraordinary General Meetings have the power to amend any provision set forth in the Articles of Association. However,
such meetings may not increase the obligations of Shareholders, except in the event of transactions stemming from any valid
consolidation of shares.
If there are multiple classes of shares, the rights attached to the shares of a certain category may not be changed without the
approval of an Extraordinary General Meeting open to all Shareholders and, in addition, without further approval from a special
meeting open only to those Shareholders holding shares belonging to the class in question.
All Shareholders have the right, upon presentation of proof of their identify, to take part in meetings by attending them in person,
by video conference or by other means of electronic telecommunication or transmission, or by returning the mail-in ballot or
designating a proxy, subject to the following conditions:
–
Holders of registered shares must be registered, by name, in the Company's records;
–
Holders of bearer shares must submit a certificate, to the location mentioned in the notice of meeting, issued by an
authorized intermediary attesting that the shares registered in their name are unavailable for trading until the date of the meeting.
These requirements must be fulfilled at least five days prior to the meeting.
The Board of Directors may reduce this five-day period by way of a general decision for the benefit of all Shareholders.
In accordance with the conditions set forth above, the legal representatives of Shareholders deemed legally incompetent and
individuals representing entities that hold shares in the Company may take part in the meetings, regardless of whether or not they
are Shareholders themselves.
Proxy forms and mail-in ballots must be prepared and sent out in accordance with the law in force.
An attendance sheet is filled out for each meeting. This attendance sheet must be duly signed by the Shareholders present and
by the proxies, and must be certified as accurate by the officers of the meeting.
General Meetings are chaired by the Chairman of the Board of Directors and, in the absence thereof, by the member of the Board
appointed to replace him or her.
The two Shareholders representing, either on their own behalf or as proxies, the largest number of shares who are present at the
meeting and willing to accept the responsibility, are appointed to serve as vote tellers.
The officers of the meeting, thus designated, are responsible for appointing a secretary, who need not be a Shareholder.
1.3.2.6. Shareholders' agreement
Information regarding the Shareholders’ agreement is contained in section 3.4.3 « Shareholders’ Agreement »
1.3.2.7. Provisions regarding a share ownership threshold, above which any shareholding must
be disclosed
The provisions of Article L. 233-7 of the French Commercial Code that require any individual or entity to declare its stake in a
company if such stake comes to represent more than 5%, 10%, 15%, 20%, 25%,30%, 33.3%, 50%, 66.66%, 90% or 95% of the
share capital or voting rights of the Company applies to ESI Group.
In the event of failure to make such declaration, any shares exceeding the percentage that should have been declared will be
stripped of their voting rights in accordance with Article 233-14 of the French Commercial Code for a term of two years from the
date on which the declaration is properly made.
ESI Group ● 2015 Registration Document 8
There are no requirements under ESI Group's Articles of Association to declare when certain shareholding thresholds are
crossed.
1.3.2.8. Applicable charter or bylaws governing changes in share capital
Not applicable.
1.3.3. History of the Company
1973
1979
1985
1991
1997
1999
2000
2001
2002
2003
2004
2006
2008
2009
2011
2012
■ Alain de Rouvray, with three other Berkeley Ph.Ds. colleagues and partners (Jacques Dubois, Iraj Far-
hooman, Eberhard Haug) creates ESI (Engineering System International). The company initially operates as
a consulting company for European defense, aerospace and nuclear industries.
■ The company opens a subsidiary in Germany, ESI GmbH
■ First numerical simulation of a crash-test for a German consortium led by Volkswagen. First step towards the
development of the PAM-CRASH software.
■ ESI becomes ESI Group and raises venture capital from Burr, Egan Deleage and changes its structure to
become a software editor. To market its software more widely ESI Group set up subsidiaries in the United
States and Japan, and later in South Korea.
■ Acquisition of Framasoft, renamed SYSTUS International, a leading French provider of mechanical simula-
tion tools (SYSTUS, SYSWELD), especially in nuclear industry.
■ Purchase of Dynamic Software, editor of the Optris "virtual press" software, a stamping simulation solution.
■ ESI Group is introduced on the Paris "Nouveau Marché" stock market.
■ Acquisition of Mecas in order to strengthen the Group's distribution network in Eastern Europe, then acquisi-
tion of STRACO in order to enter in the Vibro-Acoustic market.
■ Strengthening of the Group’s position in Europe with the opening of a subsidiary in United-Kingdom.
Acquisition of VASci (Vibro-Acoustic Sciences), for noise and acoustic comfort simulation.
Positioning in the foundry and industrial metallurgy fields with the acquisition of ProCAST.
Integration of the Swiss company Calcom as a complement to the foundry software Simulor from Aluminium
Pechiney.
■ Opening of a subsidiary in India in order to extend its global positioning.
Acquisition of the intellectual property rights to EASi's Computer Assistance Engineering (CAE).
■
Integration of the Products division of CFD Research Corporation allowing a diversification of the activity in
the fluid dynamic area.
Opening of a subsidiary in China in order to facilitate the access to strategic industrial projects.
■ Acquisition of the Services branch of IPS International dedicated to digital simulation in the Korean market
as well as intellectual property rights to their virtual human models "H-Models”.
Signing of a strategic partnership and to take over the Chinese-based company ATE Technology Interna-
tional’s activities.
■ Opening of a subsidiary in Italy.
Acquisition of Vdot™, a software platform for lean process management from the company Procelerate Tech-
nologies Inc.
Acquisition of Mindware Engineering Inc allowing to speed up the adoption of virtual prototyping in the Sim-
ulation-Based Design Fluid Dynamics market.
■ Opening of a subsidiary in Brazil, and expansion into Tunisia with the creation of a ‘near-shore’ services
division dedicated to high value-added projects and strengthening of the strategic partnership with the Tuni-
sian firm Acoustica.
■ Acquisition of IC.IDO ("I see, I do"), a European leader in the field of immersive virtual reality solutions.
Acquisition of Efield, a European specialist in the virtual simulation of electromagnetic phenomena.
■ Acquisition of OpenCFD Ltd, a leader in open source fluid dynamics software (CFD), from SGI. ESI Group
ESI Group ● 2015 Registration Document 9
2013
2014
2015
2016
thus became the owner of the OpenFOAM® software brand.
■ Strategic collaboration agreement with Renault in accordance with the strategic plan "Renault 2016 – Drive
the Change”.
Joint Venture contract with AVIC-BIAM, initiated in 2012 to jointly operate the new company "AVIC-ESI (Bei-
jing) Technology Co. Ltd.".
Acquisition of CyDesign Labs Inc. (US), a lead innovator in systems-modeling, owner of a disruptive propri-
etary technology to bridge product inception (‘0D-1D’ system modeling) and product validation (‘3D’ compo-
nent modeling).
Acquisition of the Vietnamese company Cam Mechanical Solutions Co., Ltd, (CAMMECH) allowing the cre-
ation in Asia of a ‘near-shore’ services division that will be dedicated to execution of high value-added pro-
jects.
■ Signing of an exclusive partnership with EDF Energies Nouvelles.
■ Acquisition of CIVITEC, a breakthrough technology allowing virtual simulation of automated driver assistance
(ADAS).
Acquisition of PicViz Labs, specialist in big-data based predictive analysis through advanced visualization.
Acquisition of Ciespace’s technology assets for Cloud based CAE modeling, enabling ESI’s Virtual Prototyp-
ing solutions for Cloud/SaaS offering.
Acquisition of Presto software dedicated to the electronics cooling promising market.
■ Acquisition of the German company ITI GmbH, global leader in the realistic simulation of mechatronic and
multi-domain systems.
Acquisition of Mineset Inc., big data visual analytics and machine learning specialist.
1.3.4. Share capital and changes in the share capital
Shares making up the share capital (Article 7 of the Articles of Association)
As of the date of the Combined General Meeting of July 22, 2015 ESI Group's share capital stood at EUR 17,845,266 euros and
is comprised of 5,948,422 shares.
Aside from the stock option plans, share purchase option plans and free share award plans, there is no other financial instrument
that entitles its holder to ownership interest in the Company's share capital.
1.3.4.1. Non-equity securities
As of the date the Registration Document was drawn up, the Company had not issued any non-equity securities.
1.3.4.2. Breakdown of share capital and voting rights
Breakdown of voting rights
As of April 30, 2016, there were 7,687,767 voting rights.
As of April 30, 2015, there were 7,684,365 voting rights.
As of April 30, 2014, there were 7,725,701 voting rights.
Number of shares bought back by the Company during the year
During the fiscal year, the Company purchased 8,300 shares held by Mr Jacques Dubois, Director, under its share buyback
program. The purpose of the treasury stock buyback program is to offer stock options as part of the Group's benefits package.
The reason for this purchase was the Company’s intention to maintain the shares and subsequently use them for payment or
exchange within the context of possible external growth operations.
Breakdown of share capital as of April 30, 2016
– Capital stock
5,956,472
– Registered treasury stock 429,153
– Bearer treasury stock
0
On January 30, 2016, Mr Alain de Rouvray, conjointly with the de Rouvray family, hold 1,824,385 of the Company’s shares,
representing 30.64% of its share capital and 46.24% of its voting rights.
To the Company's best knowledge, there are no other Shareholders who directly or indirectly hold, either individually or jointly,
5% or more of its share capital or voting rights, with the exception of those named under Section 1.3.4.6.
ESI Group ● 2015 Registration Document 10
Liquidity agreement
A liquidity contract is still in effect. It is the contract signed on March 12, 2009 with CM-CIC Securities.
1.3.4.3. Other share equivalents
None.
1.3.4.4. Unissued authorized share capital
Authorized by the Combined General Meetings of July 23, 2013, July 24, 2014 and July 22, 2015
The Combined General Meeting of July 23, 2013 in its resolutions 13th and 15th, that of July 24, 2014 through its 9th and that of
July 22, 2015 in its 7th and 9th to 15th authorized the Board of Directors to increase the Company's capital as summarized below:
Resolution
number
Purpose
Term of the
authorization
Expiry date
Maximum
Authorized used
COMBINED GENERAL MEETING OF JULY 23, 2013
13th resolution Delegation of authority to the Board of Directors
for the purpose of granting stock options
38 months
September
2016
15th resolution
Authorization to the Board of Directors to award
free shares to eligible employees and corporate
officers of the Company and its affiliates
38 months
September
2016
Not to exceed 5% of the
Company's share capital at the
date of the Combined General
Meeting, i.e. 294,538 shares
Not to exceed 60,000 shares
representing 1.02% of the
Company's share capital
Stock option granted as of
January 31, 2016: 20 000
Options remaining:
274,538
Free shares awarded:
None
Free shares remaining:
60,000
COMBINED GENERAL MEETING OF JULY 24, 2014
Authorization to grant stock options
9th resolution
COMBINED GENERAL MEETING OF JULY 22, 2015
7th resolution
Authorization given to the Board of Directors
enabling the Company to buy back its own
shares
9th resolution
Delegation of authority to the Board of Directors
for the purpose of increasing capital via the
issue of shares of common stock or of any
securities convertible into equity, with pre-
emptive subscription rights accorded to
shareholders
38 months
September
2017
Not to exceed 180,000 shares
representing 3.068% of the share
capital as of the date of the Annual
& Extraordinary General Meeting
Options granted as of
January 31, 2016: 7,350
Options remaining:
172,650
18 months
January 2017 Not to exceed 10% of the
Company's share capital
Not applicable
26 months
September
2017
Securities: EUR 90,000,000
Debt securities: EUR 45,000,000
Not applicable
10th resolution Delegation of authority to the Board of Directors
26 months
for the purpose of increasing capital via the
issue of shares of common stock or of any
securities convertible into equity, through public
offerings and without pre-emptive subscription
rights
September
2017
Securities: EUR 90,000,000
Debt securities: EUR 45,000,000
Not applicable
11th resolution Delegation of authority to the Board of Directors
for the purpose of increasing the issue amount
in the event of over-demand
12th resolution Delegation of authority to the Board of Directors
for the purpose of increasing capital by the
capitalization of premiums, reserves, profits or
otherwise
Within 30
days of the
closing of the
original issue
26 months
September
2017
September
2017
13th resolution Delegation of authority to the Board of Directors
for the purpose of issuing shares without pre-
emptive subscription rights as compensation for
contributions of shares or share equivalents
granted to the Company as part of a
contribution in kind
26 months
September
2017
Not to exceed 15% of the value of
the original issue (referred to in
resolutions 9 and 10) or the total
ceiling of EUR 90,000,000.
Not to exceed the total amount of
reserves, premiums and profits
existing at the time of the capital
increase or EUR 150,000,000 (a
ceiling that might be reduced to the
amount of capital increases
undertaken pursuant to resolutions
9 to 14)
Total ceiling of EUR 90,000,000
applied to capital increases
authorized by resolutions 9 to 12
Not applicable
Not applicable
Not applicable
14th resolution Delegation of authority to the Board of Directors
26 months
for the purpose of increasing capital without
September
2017
20% of the share capital per year,
not to exceed the overall maximum
Not applicable
ESI Group ● 2015 Registration Document 11
15th resolution
pre-emptive subscription rights through private
placement
Authorization given to the Board of Directors to
increase capital by issuing shares reserved for
employees who are members of the employee
savings plan
of EUR 90,000,000.
26 months
September
2017
Not to exceed 2% of the
Company's share capital
Not applicable
1.3.4.5. Information on the share capital of any member of the Group that is under option
None.
1.3.4.6. Change in the breakdown of the Company's share capital over the past three fiscal years,
checks and balances
BREAKDOWN OF SHARE CAPITAL AND VOTING RIGHTS
Last name – First name
Number of shares % of share capital
Number of voting
rights
% of voting rights
AS AT APRIL 30, 2016
The de Rouvray family
Dubois Jacques succession
SUB-TOTAL, GROUP OF FOUNDERS (REGISTERED SHARES)
Chaillou Vincent
des Isnards Charles-Helen
d'Hotelans Éric
MEMBERS OF THE BOARD OF DIRECTORS (REGISTERED SHARES)
(EX-CLUDING FOUNDERS)
Publicly held registered shares
Publicly held bearer shares
SUB-TOTAL, PUBLICLY HELD SHARES
Treasury stock
TOTAL
AS AT APRIL 30, 2015
The de Rouvray family
Dubois Jacques succession
SUB-TOTAL, GROUP OF FOUNDERS (REGISTERED SHARES)
Chaillou Vincent
des Isnards Charles-Helen
d’Hotelans Éric
MEMBERS OF THE BOARD OF DIRECTORS (REGISTERED SHARES)
(EX-CLUDING FOUNDERS)
Publicly held registered shares
Publicly held bearer shares
SUB-TOTAL, PUBLICLY HELD SHARES
Treasury stock
TOTAL
AS AT APRIL 30, 2014
The de Rouvray family
Dubois Jacques succession
1,824,385
410,419
2,234,804
13,597
3,751
1,589
18,937
122,376
3,151,202
3,273,578
429,153
5,956,472
1,824,082
420,419
2,244,501
13,597
3,401
1,589
18,587
113,565
3,151,199
3,264,764
420,853
5,948,705
1,814,522
442,419
30.63%
6.89%
37.52%
0.23%
0.06%
0.03%
0.32%
2.05%
52.90%
54.96%
7.20%
100.00%
30.66%
7.07%
37.73%
0.23%
0.06%
0.03%
0.31%
1.91%
52.97%
54.88%
7.07%
100.00%
3,554,425
806,838
4,361,263
26,293
6,252
2,215
34,760
140,542
3,151,202
3,291,744
0
7,687,767
3,549,089
816,838
4,365,927
26,293
5,402
2,215
33,910
133,329
3,151,199
3,284,528
0
7,684,365
30.55%
7.45%
3,533,649
884,838
46.23%
10.50%
56.73%
0.34%
0.08%
0.03%
0.45%
1.83%
40.99%
42.82%
0.00%
100.00%
46.19%
10.63%
56.82%
0.34%
0.07%
0.03%
0.44%
1.74%
41.01%
42.74%
0.00%
100.00%
45.80%
11.45%
ESI Group ● 2015 Registration Document 12
SUB-TOTAL, GROUP OF FOUNDERS (REGISTERED SHARES)
Chaillou Vincent
des Isnards Charles-Helen
Bernard Francis
de la Serre Michel
d’Hotelans Éric
MEMBERS OF THE BOARD OF DIRECTORS (REGISTERED SHARES)
(EX-CLUDING FOUNDERS)
Publicly held registered shares
Publicly held bearer shares
SUB-TOTAL, PUBLICLY HELD SHARES
Treasury stock
TOTAL
2,256,941
12,696
3,101
2,321
1,615
1,589
21,322
36,554
3,213,602
3,250,156
410,853
5,939,272
38.00%
0.21%
0.05%
0.04%
0.03%
0.03%
0.36%
0.62%
54.11%
54.72%
6.92%
100.00%
4,423,487
25,392
4,252
2,992
1,615
1,590
35,841
52,771
3,213,602
3,266,373
0
7,725,701
57.26%
0.33%
0.06%
0.04%
0.02%
0.02%
0.46%
0.68%
41.60%
42.28%
0.00%
100.00%
CHANGES IN SHARE CAPITAL
Date
Operation type
Change in share capital
Issue of cash shares
Resulting total
share capital
Total number of
shares
Par value
(in Euros)
EGM of
1/28/1991
EGM of
7/26/1991
EGM of
7/29/1991
EGM of
7/31/1991
EGM of
11/5/1996
EGM of
3/26/1997
EGM of
4/24/1997
EGM of
12/9/1998
Incorporation of the Company
Issue of cash shares
Capitalization of share premium
Premium
(in Euros)
Number of
shares created
Per value
(in Euros)
15.24
15.24 (2,274,021)
15.24 (2,261,779)
2,500
834
38,112
50,827
2,312,606
2,500
3,334
3,334
Stock split and free share award
694
300,060
2,312,606
303,394
Issue of cash shares
7.62
3,565,206
32,276
2,558,628
335,670
15.24
15.24
694
7.62
7.62
Capitalization of share premium
Withdrawal from the legal reserve
Issue of cash shares
Stock split
Issue of cash shares
EGM of
3/15/1999
EGM of 7/8/1999 Capitalization of share premium
EGM of
6/14/2000
Board of Directors
meeting on
5/9/2001
Board of Directors
meeting on
5/9/2001
Issue of cash shares
Share capital adjustment
Exercise of share subscription options
Conversion of the share capital from French
francs into Euros
(EGM of
6/14/2000))
Capitalization of the share premium by
increasing the par value of the shares
Board of Directors
meeting on
3/8/2002
Share capital adjustment
Exercise of share subscription options
Board of Directors Share capital adjustment
7.62 (3,577,448)
(4,631)
18.29 130,801.26
6,140,707
335,670
18.29
975
6,158,544
336,645
18.29
18.29
3,703,095
6,158,544
4,039,740
1.52
4,364,334
524,902
6,958,752
4,564,642
1.52
2.44
4,175,251
2,783,502
11,134,003
1,141,161
13,917,505
4,564,642
5,705,803
2.44
103,236
42,324
14,020,741
5,748,127
2.44
3
3
14,020,741
5,748,127
3,223,640
17,244,381
5,748,127
7,500
2,500
17,251,881
5,750,627
3
301,500
100,500
17,553,381
5,851,127
1.52
1.52
2.44
2.44
2.44
3
3
3
3
ESI Group ● 2015 Registration Document 13
meeting on
3/8/2005
Board of Directors
meeting on
6/7/2007
Board of Directors
meeting on
4/14/2008
Board of Directors
meeting on
2/1/2012
Board of Directors
meeting on
2/28/2013
Board of Directors
meeting on
2/7/2014
Board of Directors
meeting on
2/7/2014
Board of Directors
meeting on
3/10/2015
Board of Directors
meeting on
2/18/2016
Exercise of share subscription options
Share capital adjustment
Exercise of share subscription options
Share capital adjustment
Exercise of share subscription options
Share capital adjustment
Exercise of share subscription options
Share capital adjustment
Exercise of share subscription options
Share capital adjustment
Capital increase through cash contribution for
employees who are members of the
employee savings plan
Share capital adjustment
Exercise of share subscription options
Share capital adjustment
Exercise of share subscription options
Share capital adjustment
Exercise of share subscription options
3
3
3
3
36,156
12,052
17,589,537
5,863,179
21,775
3,350
17,599,587
5,866,529
2,051
350
17,600,637
5,866,879
24,905
4,250
17,613,387
5,871,129
3 276,014.18
21,463
17,677,776
5,892,592
3
252,214.4
43,040
17,806,896
5,935,632
3
74,949.4
12,790
17,845,266
5,948,422
3
38,969
6,650
17,865,216
5,955,072
3
3
3
3
3
3
3
3
Checks and balances
The group of Founders is the Company’s main Shareholder, with as of April 30, 2016, 37.52% of the Company’s share capital
and 56.73% of the exercisable voting rights.
To ensure that the group of Founders does not abuse its control, it should be noted that the Company's Board of Directors consists
primarily of independent Board members. Furthermore, the Company's Board of Directors decided, during its meeting on April 15,
2010 to adopt the MiddleNext Governance Code for Small and Midcaps published in December 2009 (hereinafter referred to the
as the "Corporate Governance Code") as its set of standards.
Committees have also been set up to enhance the efficiency of Board of Directors meetings and to assist in the decision-making
process. These committees provide proposals, recommendations and opinions in their specific domain. The following Committees
have been formed within the Company:
– The Audit Committee;
– The Compensation, Nomination and Governance Committee;
– The Audit Committee; and
– The Technology and Marketing Committee.
It should be noted that the Compensation, Nomination and Governance Committee is made up primarily of independent board
members and that the Audit Committee consists solely of independent members.
ESI Group ● 2015 Registration Document 14
2 THE GROUP
2.1. Main activities and markets
2.1.1. Main activities
ESI Group has developed a suite of coherent industry oriented applications to realistically simulate a product's behavior during
testing, to fine-tune fabrication and assembly processes in view of desired product performance and to evaluate the environment's
impact on the use of these products.
These applications represent a unique, open, collaborative virtual prototyping solution available in multi-domains which include
the gradual elimination of the use of physical prototypes of components and sub-assemblies during the product development
phase by letting users make decisions based on a "living" virtual prototype.
2.1.1.1. Strategy
2.1.1.1.1 Accelerating industrial innovation with Virtual Prototyping
The current global economic environment brings along tough competitive challenges for industrial companies, calling for immedi-
ate innovative answers.
For ESI Group and for its customers, this reveals more than ever the evident need for Virtual Prototyping.
With Virtual Prototyping, manufacturing industries become armed to face the greatest industrial challenge: to deliver innovative
products at lower cost, faster, and with increased reliability.
Specific requirements include:
–
Identifying safety and performance issues early in the design cycle;
– Assessing how new materials and manufacturing methods impact product performance and integrity;
–
Implementing best practices that assure an optimum maintenance cycle and cost;
– Predicting equipment performance under extreme conditions and planning actions that will reduce downtime and repair
costs.
ESI Group’s objective is to give customers across many industry sectors the ability to virtually manufacture and assemble, part
by part, complete and physically realistic virtual products that can be tested under normal and exceptional operating conditions.
ESI customers can thereby expose practical issues related to manufacture, assembly and coupling between different product
attributes and performance domains – and this, long before physical prototypes can be tested.
Virtual Prototyping delivers key information for design iterations that also helps prepare physical testing in the best possible way
- up to pre-certification stage or in some cases, entirely eliminating the need for physical tests until final validation.
Moreover, recent immersive and interactive 3D technologies now offer real time visualization and handling of Virtual Prototypes.
Using Virtual Reality solutions such as ESI Group’s IC.IDO, industrial companies can now bring their product to life long before it
is produced and even without requiring a physical prototype. This revolutionary technology enables collaborative, concurrent
decision-making (multi-functional, multi-site and multi-physical) at each stage of the design process.
Finally, the deployment of ESI Group’s solutions, notably thanks to the newly acquired technological building blocks, has further
enhanced the growth potential of the Group. Innovative virtual prototypes become agile, smart and autonomous, to foster industrial
transformation towards factories of the future and autonomous digital products.
In a word, Virtual Prototyping enables ESI’s customers to get their product right: robust, innovative, for the right cost and at the
right time.
2.1.1.1.2. Filling gaps and managing complexity in virtual product development with ESI Group’s end-to-end virtual pro-
totyping method
Real or virtual prototyping is essential to traditional product development processes. Industrial companies build and test physical
prototypes to evaluate the product’s design effectiveness and examine potential improvements on a trial and error basis.
Computer simulation helps reduce time and cost incurred in producing and testing real prototypes; offering the alternative to
anticipate test results, eliminate useless tests and drive design changes more intelligently, thus cutting the number of real tests
needed.
However, once a real prototype is produced, it is still customary and even prudent to calibrate the simulation model to match the
actual test results, in order to make the simulation models credible.
While the above traditional methodology does bring about concrete gains, it has some inherent risks and significant gaps:
ESI Group ● 2015 Registration Document 15
– Coupling effects between design disciplines and regulatory domains are unclear;
– The impacts of the manufacturing process and its flaws on the parts of the products - and also during the assembly - are
unknown;
– The calibration is often generalized, late, and ad hoc on prototypes that do not represent the actual product;
–
Innovations may be unduly rejected due to unmanageable complexity.
In contrast, ESI Group’s Virtual Prototyping solutions provides a rational and effective answer to these fundamental concerns by
placing Virtual Manufacturing and Virtual Reality at the core of a complete design methodology that follows rigorous guidelines for
building reliable models:
– Virtual fabrication, step by step, while controlling and assembling the product and its components part by part;
– Virtual assessment of the multi-domain performance, gradually optimized with respect to, for example, standards, usual
conditions and the increasingly demanding regulations, current and future;
– Building of cause-and-effects relationships between design and fabrication parameters, end-to-end from part to compo-
nent to system, while making intelligent trade-offs by using interactive virtual reality on models of increasing complexity;
– Right at the onset of modeling, calibrate basic material physical properties to ensure realistic predictive models according
to the identified circumstances and limits;
– Rigorous updates of these predictive models through pre-defined processes during assembly and multi-domain testing;
– Assessment of robustness and safety interactions regularly controlled at each step and in full transparency, making it
possible to capture best practices;
– Finally all this contributing to the development of the model to ensure the final tests are right the first time.
Virtual Prototyping prevents risks and manages complexity, calibration and decision making in an interactive way. This unique
methodology supports industrial competitiveness by reducing costs and time to market. It benefits each stage of product devel-
opment processes, enabling virtual pre-certification before the final real testing, which may be required for final validation.
Innovations become dramatically easier to evaluate and implement.
Our success is the result of a remarkable collaborationand co-creation approach between ESI Group and global leaders in various
industries. More and better is to come, thanks to the availability of greater computing power at an affordable cost and more user-
friendly software solutions.
2.1.1.2. Main activities
The Group is engaged in two main business activities: the edition and distribution of software and consulting services.
2.1.1.2.1.Software edition and distribution (Licensing Activity)
Software packages are marketed in the form of licenses to use this proprietary software based on an annual fee system which,
by nature, results in highly recurring revenues.
The significant value added provided by ESI Group's solutions requires major research and development work by highly qualified
research engineers.
Solutions are sold worldwide. Distribution subsidiaries manage directly more than 90% of license sales, the rest is providing
indirectly via a network of third-party distributors and agents. Both distribution networks are essential because complementary. In
2015, 531 employees or 46% of the total workforce work in our distribution network.
2.1.1.2.2. Consulting services (Services Activity)
In addition to its main business activity as a software vendor, the Group also provides consulting services directly related to virtual
prototyping.
These services encompass three distinct areas:
– Specialized R&D projects pertaining to the creation of pre-industrial digital simulation models for new applications. These
cutting-edge, high-risk R&D projects can last from two to three years and are carried out in collaboration with university
labs and/or corporate R&D departments. These projects are handled by the Group like research and development or
technology intelligence activities. In some cases they lead to government-type co-financing arrangements in Europe and
the United States. They allow the Group to become involved, as a scientific partner, at a very early stage, in a wide
variety of high-tech, innovative projects;
–
Joint industrial engineering projects carried out in partnership with major industrial corporations striving focus on the
large-scale deployment of new applications with high economic potential that have already been proven technologically
viable, such as the specialized products described above. The Group customizes its specialized software and the indus-
try partner performs the prototype trials necessary to validate specialized simulation models. The Group bills its partners
for the cost of its services, but funds its own software development work. As a result, it keeps the intellectual property
ESI Group ● 2015 Registration Document 16
rights to the software products developed or modified;
– Engineering and other services, including application tests (design verification, virtual manufacturing and virtual perfor-
mance testing of industrial products), and support services in conjunction with software sales activities (training and
technical assistance both on-site and off-site). These services are generally billed based on time worked (lump sum or
actual time spent) except for telephone-based support services which may be provided as part of the support services
included with the annual license for the use of the software packages.
2.1.2. Main markets
2.1.2.1. The virtual prototyping market
ESI Group's business model seeks to take advantage of major industry trends moving toward "all-digital" and computerized
Product Lifecycle Management (PLM). In this market, ESI Group's solutions bring a considerable, fundamental improvement in
the decision-making process by allowing the physical properties and behavior of the materials to be "realistically" taken into
account in the digital model.
Characteristics of the market
The highly specialized nature of ESI Group's operations and its unique role in the virtual prototyping field makes any attempt to
delineate precisely its market difficult. The Group thus has little information that would shed light on the specific characteristics or
short-term outlook of this market, especially since the very definition of this market varies greatly among the players in the industry.
Consequently, US market research firm CIMData published a study on PLM (estimated at $39 billion) in April 2016 in which it
included virtual prototyping under the category of "Simulation & Analysis Suppliers" (activity estimated at $4.8 billion). Most of the
companies listed under this category are active in the analysis field. Within this panel, few companies reach the physical realism
of the virtual prototyping solutions offered by ESI Group.
High barriers to entry
The complexity of the problems addressed by the Group, its long-standing experience working closely with major industrial cor-
porations, its heavy investment in research and development and the wide range of solutions it offers, make it difficult for any
newcomers to enter its market and compete with ESI Group.
In particular, the specialized fields in which ESI Group works require an understanding not only of structured geometric data
(digital modeling) provided by CAD/CAM/CAE but also of the physical phenomena involved in simulation testing in order to make
virtual models "realistic". ESI Group’s technologies draw on:
–
Long-standing partnerships with major industry players that both use (manufacturing industries) and supply (software
platforms) technical computing systems;
– The highly-skilled teams of researchers, which the Company has been able to attract and retain thanks to its specialized
expertise and reputation in the physical simulation field;
–
Licensing agreements signed in a wide range of particular complex or highly specialized fields. All of these partnerships
are the result of the exceptional degree of expertise gained since its founding in 1973. The Group has a solid reputation
as a complex problem-solver for major corporations worldwide in a variety of disciplines and industrial sectors (automo-
tive, defense, aerospace, nuclear power, transport, energy, electronics, consumer goods, biomedical, etc.)
As things stand today, it would be a mistake to discount the possibility that new competitors could appear on ESI Group’s digital
prototyping field with greater resources, but, especially as regards major CAD/CAM players, such a development does not seem
desirable to or anticipated by major automakers, which appreciate doing business with specialized companies in the area of
physics-based simulation, companies different from their other technology vendors.
Nevertheless, it should be mentioned that Dassault Systèmes' CATIA V5/V6 software suite did bring a certain degree of stand-
ardization to the industry and was well received by automakers in order to facilitate the sharing of computational data within the
CAD/CAM world and ensure compatibility with resource management systems. It is also worth noting that Siemens/UGS entered
the technical data management field with its TeamCenter solutions, the de facto standard in the automotive market. In 2012,
Siemens supplemented its simulation offering by acquiring Belgian company LMS; however, the benefits generated by this acqui-
sition, for Siemens, remain to be seen. Then, in January 2016, Siemens acquired CD Adapco, one of the leaders of digital simu-
lation in fluid mechanics.
Given the high barriers to entry that protect ESI Group’s business, a new competitor would not be successful except in the event
of an industry-wide trend toward consolidation. It would also be difficult for a new industry player to make the acquisitions neces-
sary to quickly build up a physical simulation product line as rich as that offered by ESI Group that offers the same prediction
capabilities valued by the Group's major clients.
The need for a change in methodology
Although the solutions developed by ESI Group are typically used by the major clients in highly specialized, mature markets – like
the automotive industry – its products can be adapted to a wide range of industries.
ESI Group ● 2015 Registration Document 17
Large-scale adoption of these solutions would require, however, a radical change in how things are done that breaks away from
the traditional "trial and error" methods still widely used in many industrial fields.
After the general downturn in the economy, which led to steep cuts in the research and development budgets of major manufac-
turers, the worldwide economic recovery and the increased pressure from international competitors should push many companies
to move away from their current methodologies toward virtual prototyping, especially in areas such as aeronautics, energy and
electronics.
The product performance lifecycle approach enables manufacturers to develop what might be considered a “virtual twin” of their
daily real product. This “virtual twin” can be used to make decisions in each phase of the product lifecycle, including design,
development, testing, manufacturing, operation, and disposal.
ESI is now orienting itself towards the wider market of professional users such as maintenance workers and certified technicians
who interact with both the products and consumers.
2.1.2.2. Geographic zones
Markets are segmented both by geographic zone and by industry.
Geographic zones are based on the economic breakdown of the company:
– Americas = United-States and Brazil;
– Asia-Pacific = China, South Korea, Japan, Vietnam, India and Malaysia;
– Europe, Middle East and Africa = Germany, the United Kingdom, Spain, France, Italia, the Netherlands, Czech Republic,
Russia, Sweden, Switzerland and Tunisia.
Revenues
2015
2014
2013
Europe, Middle East and Africa
Asia-Pacific
Americas
TOTAL
(In thousands of
euros)
(as a % of the
total)
(In thousands of
euros)
(as a % of the
total)
(In thousands of
euros)
(as a % of the
total)
57,098
44,291
23,329
124,718
46%
36%
19%
100%
53,480
38,475
19,062
111,017
48%
35%
17%
100%
49,449
39,085
20,783
109,317
45%
36%
19%
100%
As in previous years, ESI Group maintained a strong international presence, with 85.4% of its revenues coming from outside
France.
2.1.2.3. Industries
The ESI Group's product and service offering is grouped into product lines and industrial solutions according to seven main
sectors:
Ground transportation offering (automotive, railroad, etc.)
ESI Group offers a wide variety of industry-leading virtual prototyping solutions for components and sub-assemblies used in the
transportation industry, focusing on the following areas:
– Passenger safety (airbags, seats, etc.);
– Vehicle body manufacturing and assembly;
– Vehicle body with trims and interior;
– Comfort (noise, vibrations, etc.);
– Engine and transmission;
– Aerodynamics, aerothermodynamics, under the hood simulation, ford crossing.
Main customers: Arcelor Mittal, Audi, Fiat Chrysler Group, Ford Motor, General Motor, Honda, Mercedes-Benz, Nissan, Renault,
Shanghai Automotive Industry Corporation, Volkswagen Group.
Heavy industry offering
ESI Group's solutions are designed for companies such as those involved in processing raw materials and heavy industry. They
are also meeting simulation needs in the following areas:
– Manufacturing processes (metal, plastic or composite materials, additive manufacturing);
– Optimization of the assembly of parts and simulation of their behavior in their environment.
Main customers: Alcoa, Arcelor, Caterpillar, General Electric, Henkel, Sumimoto, Takata.
ESI Group ● 2015 Registration Document 18
Aeronautics and Aerospace offering
ESI Group's diverse offering allows it to propose other solutions in areas such as:
– Engineering and optimization of air flow, noise, impact, electromagnetics, etc.;
–
Improvement of noise and vibration factors.
Main customers: Airbus Group, AVIC, Boeing, Lockheed Martin, NASA, PCC Corporate, Rolls-Royce, Safran-Snecma, Sikorsky,
UTC Aerospace Systems.
Energy offering
The main application areas are the following:
– Verification of compliance with technical regulations (safety and useful life);
– Performance and improvement of new wind technologies;
– Energy consumption optimization.
Main customers: Areva, EDF, GDF, General Electric, Japan Atomic Energy Agency, Mitsubishi Heavy Industries, U.S. Department
of Energy.
Government and Defense offering
The ESI Group product offering primarily covers the following areas:
– Complex physical phenomena;
– Comfort of military vehicles.
Main customers: BMBF, CEE, DCNS, Huntington Ingalls Industries, Japan Automobile Research Institute, Ministry of Research
RTNL.
Electronics and Consumer Goods offering
ESI Group solutions include, in particular:
– Physical and chemical reactions involved in the industry;
– Unintended hypothetical circumstances and related safety measures.
Main customers: Applied Materials, Aixtron, Gestamp Group, Honeywell, LG, Samsung.
Education offering
The solutions offered by ESI Group can be divided into two main areas, namely:
– Education, which helps train future engineers in new virtual prototyping tools and technologies;
– Special Research projects, undertaken in collaboration with universities to meet the needs of industry.
In 2015, booking orders between the main industrial sectors were broken down as follows:
ESI Group ● 2015 Registration Document 19
2.2. Structure of the Company
2.2.1. Operational organization chart
The Group's current operational structure is presented in the following diagram:
ESI Group ● 2015 Registration Document 20
2.2.2. Legal organization chart
As of April 30, 2016, the Group's legal structure is as presented in the following chart, including Mineset Inc., acquired in February
2016.
Note: the percentages of equity and voting rights are identical.
ESI Group ● 2015 Registration Document 21
2.2.3. Operational procedures of the Board of Directors
Information regarding operational procedures of the Board of Directors is contained in section 3.2 “Chairman's report on corporate
governance, internal control and risk management”.
2.2.4. Operational procedures of executive management
2.2.4.1. Chief Executive Officer
In accordance with the law, either the Chairman of the Board of Directors or another individual appointed by the Board of Directors
(or the “Board”) to serve as Chief Executive Officer is responsible for the executive management of the Company.
The choice between these two executive management options is made by the Board of Directors. The Board of Directors' decision
relative to the choice of executive management structure is made by majority vote among the Board members present or repre-
sented. The Board of Directors' choice is reported to the shareholders and to third parties in accordance with the provisions set
forth by the regulations in force.
The option selected by the Board of Directors must remain in effect until the end of the term of office of the Chief Executive Officer
or Chairman, if the Chairman also serves as Chief Executive Officer.
At the end of this period, the Board of Directors must again decide on the Company's executive management structure.
The Board of Directors may, with the consent of the Chief Executive Officer or Chairman, if the Chairman also serves as Chief
Executive Officer, decide to modify the executive management structure before the end of their term of office. Such change in the
executive management structure does not require an amendment to the articles of association.
The Chief Executive Officer is given the broadest possible powers to act in all circumstances on behalf of the Company.
The powers of the Chief Executive Officer may be limited by the Board of Directors.
2.2.4.2. Chief Operating Officer
At the proposal of the Chief Executive Officer, regardless of whether this function is performed by the Chairman of the Board of
Directors or by another person, the Board of Directors may appoint one or more individuals as Chief Operating Officer to assist
the Chief Executive Officer.
The maximum number of Chief Operating Officer is five.
The Board of Directors determines the scope and duration of the powers granted to the Chief Operating Officer with the Chief
Executive Officer's agreement and sets their compensation.
With respect to third parties, the Chief Operating Officer has the same powers as the Chief Executive Officer.
If the Chief Executive Officer resigns or is no longer able to carry out his duties, the Chief Operating Officers will retain their
responsibilities and duties until the appointment of a new Chief Executive Officer unless the Board of Directors decides otherwise.
Chief Operating Officers may be dismissed at any time at the recommendation of the Chief Executive Officer. If Chief Operating
Officers are dismissed without just cause, such dismissal may be grounds for compensation.
The powers of Chief Operating Officers are presented in the Chairman's report on internal control.
2.2.4.3. Limits on executive management
The powers of the Chairman and Chief Executive Officer are not subject to any limits.
2.2.4.4. Group Executive Committee (GEC)
The GEC makes all decisions relative to the Company's growth strategy in the following areas:
– Distribution (establishments and subsidiaries);
– Sales and Marketing;
– Product Operations;
– Service Operations;
– Finance and Administration;
– Human Resources;
– Quality;
–
IT.
To this end, the GEC reviews the actions underway and sets out timelines for their completion.
The GEC prepares and submits documentation to the Board of Directors relative to certain operations that require Board approval
ESI Group ● 2015 Registration Document 22
before they can be carried out and/or implemented.
The GEC consists of members of the management team and a secretary. The number of members may be modified depending
on changes in the management team.
Its members are presented in the Chairman Report in section 3.2.2.1.2.
The GEC may ask any individual who may be able to provide information on the topics addressed to help it make its decisions in
an informed manner.
Any person invited to attend the GEC meetings is bound by the duty of confidentiality regarding any confidential information or
data presented by the members of the GEC.
2.3. Selected financial information
This information can be found in the consolidated financial statements.
2.3.1. Revenues
2015 annual sales totaled EUR 124.7 million, up +12.3% on the previous year at actual rates. Acquisition-related revenues re-
mained limited at EUR 0.7 million, split equally between Licensing and Services. There was a positive currency effect of EUR 6.1
million, arising mainly from the positive trend of the US dollar and, to a lesser extent, the Japanese yen and South Korean won.
The product mix shifted towards Licensing activity, which now accounts for 77.8% of total sales compared with 76.1% in previous
year.
2.3.2. Breakdown of revenues per area
In 2015, the geographical split in sales reflected strong growth in Licenses activity in Asia and the Americas. These regions
accounted respectively for 36% and 19% of total sales versus 35% and 17% for fiscal year 2014, whereas Europe made up 46%
of sales, compared with 48%.
The BRIC countries accounted for 12.6% of sales in 2015, similar to the 2014 figure. Strong growth in Licenses activity in China
(despite the yuan crisis of mid-2015) has compensated the economic difficult context in Russia, whereas Brazil remained stable
despite the Brazilian crisis.
ESI Group ● 2015 Registration Document 23
2.3.3. Activities strategic alignment
Licenses activity recorded annual sales of EUR 97.0 million, up 14.8% at actual rates compared with the previous year. That solid
growth reflects ESI Group's success in developing its installed base, which generates the very high repeat business rate of 90%
at constant exchange rates. New Business amounted to EUR 17.4 million, a small decrease of 2.4% compared with 2014 despite
strong momentum in the second half, particularly in China.
Services activity recorded a moderate growth of 4.5%, driven by a solid 14.8% increase in engineering studies, the core of ESI
Group's Consulting activity (Services excluding Other Services, such as supply of equipment).
2.3.4. Profitability
EBITDA increased sharply by 32.2% to EUR 14.3 million, giving an EBITDA margin of 11.4% in 2015 compared with 9.7% in
2014. The reconciliation table below details the effect of the standardization in the definition of EBITDA and confirms the Group’s
good performance in terms of increase in profitability both prior to and after the integration of its acquisitions.
2015
2014
Variation at actual terms
Turnover
EBITDA – former definition
– of which organic
– of which 2015 M&A
R&D capitalization– net effect
Net provisions for accounts receivable depreciation
EBITDA – new definition
– of which organic
– of which 2015 M&A
Amortization on other tangible and intangible assets
Other net provisions
Current Operating Profit
124.7
11.7
13.6
- 1.9
3.5
- 0.8
14.3
14.8
- 0.5
- 2.2
- 0.2
11.8
111.0
10.1
10.1
0.0
1.2
- 0.4
10.8
10.8
0.0
- 2.1
0.3
9.0
%
12.3%
15.3%
34.5%
32.2%
37.2%
31.8%
Amount
13.7
1.5
3.5
- 1.9
2.3
- 0.4
3.5
4.0
- 0.5
- 0.1
- 0.5
2.9
Current Operating Profit grew strongly by 31.8% to EUR 11.8 million, showing a current operating margin of 9.5%, or 1.4 percent-
age point on the previous year.
EBIT increased by 12.0% to EUR 9.4 million, giving a margin of 7.5%, stable on the previous year. This increase was smaller than
the increase in EBITDA and current operating profit mainly because of exceptional costs, classified in non-recurring costs, asso-
ciated with the last six technological acquisitions carried out in 2015.
The Financial Result was -EUR 0.9 million versus +EUR 0.7 million in 2014. In 2015, financial costs, notably associated with
interest charges, were not totally offset by revenue from currency gains and losses, which in 2014 exceptionally totaled EUR 1.6
million following the strengthening of the US dollar at the end of the year.
Affected by the effects of non-recurring acquisitions costs and the Financial Result, attributable Net Profit totaled EUR 5.3 million
ESI Group ● 2015 Registration Document 24
in 2015, to yield a net margin of 4.3%. This takes into account a tax burden of EUR 3.2 million.
(1) Standardization in the definition of
EBITDA implemented during the
year 2015. The figures for previous
years have been restated accord-
ingly
2.4. Major investments during the past three fiscal years
2.4.1. The Group’s recurring investments
The Group's recurring investments in operations represent approximately 2.5% of its revenues. Over the past three fiscal years,
these investments have amounted to EUR 3.0 million in 2013, 1.8 million in 2014 and 2.7 million in 2015. This amount does not
include the intangible assets recognized when allocating the acquisition prices (see notes 6.1 and 6.2 to the consolidated financial
statements) or for the acquisition of technological bricks. These investments pertain mainly to the computer equipment required
to grow the Group's business as well as the work required to outfit and equip various facilities of the Group. Investments are
primarily financed using the Group's equity.
Research & development costs
ESI Group capitalizes the research and development costs that meet the six criteria set forth under IAS 38 in its annual financial
statements. Information on research and development costs is found in notes 6.1.2 to the consolidated financial statements.
The net carrying amount of capitalized research and development costs stood at EUR 33.5 million as at January 31, 2016 and
corresponds to almost 14 months of research and development.
2.4.2. The Group’s non-recurring investments
a) Acquisitions of intangible assets
Since 1994, the Group has been acquiring both entire companies and specific branches of companies in order to supplement its
offering and expand its market opportunities.
Intangible assets subject not to amortization but rather to impairment tests include goodwill and intangible assets with an indefinite
useful life. These intangible assets have been subject to an impairment test as described in note 3.1 to the consolidated financial
statements.
The change in the net carrying amount of these intangible assets between January 31, 2015 and January 31, 2016 is given in the
table below. See notes 3.2.1 and 6.1.1 to the consolidated financial statements for further information.
(In millions of euros)
Goodwill
Intangible assets with an indefinite useful life
TOTAL
January
31, 2015
Perimeter
change
Foreign exchange gain/loss
January 31,
2016
23.8
12.0
35.8
14.5
14.5
0.2
0.2
38.5
12.0
50.6
ESI Group ● 2015 Registration Document 25
b) Financial investments
The Group does not engage in any type of financial investments and uses strictly conventional investments to earn interest on its
available liquid assets.
2.4.3. Future investments
The Group will continue to invest in order to update and improve its production capacities and efficiency. The Group seeks out
new opportunities that would allow it to increase its market share or to improve the services provided to its clients.
The Group plans to spend about EUR 2.9 million in 2016. Recurrent capital costs committed to at the time of writing are about
EUR 0.1 million. On February 5, 2016, the Group also acquired the US company Mineset Inc., a machine learning specialist.
In order to evaluate any investment opportunities that could potentially improve its solutions, the Group has established a Product
Council that helps the Group Executive Committee to make investment decisions based on market priorities and expected out-
comes.
2.5. Risk factors
The Company has reviewed the risks that could have a material adverse effect on its business activities, financial position or
results and considers that there are no material risks other than those described below.
In addition, there is a plan in progress to determine all the risk factors associated with the company's processes in order to meet
the requirements of the new ISO 9001:2015 standard.
Risks can be classified into four sections, as follows.
2.5.1. Strategic risks
Risk related to technological changes and the ability to respond rapidly to customer needs
The ESI Group's line of business is based on a close customer relationship, so as to meet the customer's innovation needs in the
different industrial segments suitable for implementing Virtual Prototyping. Nevertheless, to protect against the risk of disruptive
technological changes in all the layers of the Group's products and services, the following networks have been developed:
– The Scientific Committee;
– Strategic partnerships with customers who co-create with the Group;
– Academic partnerships giving access to the latest technological information;
– Distribution partnerships with key hardware and cloud companies, giving advance access to the latest technologies.
Finally, the Group takes part in innovation projects co-financed by bodies of the European Union, competitiveness clusters in
France and American research projects such as SBIR or Darpa. Together, these enable ESI Group to produce increasingly inno-
vative solutions in a timely manner.
Risk of dependence on customers or one industrial sector
The Group strives to diversify its business, both geographically and by industry. The Ground transportation sector represents 53%
of our revenues versus 57% last year, but uses a variety of technologies, which minimizes the risk of dependence.
In addition, we do not have a major account representing over 10% of our yearly orders written. The Group's twenty largest clients
represent more than 40% of booking orders since several years.
It should also be noted that the Volkswagen scandal, one of the Group’s main customers, in September 2015 (Dieselgate) did not
have any impact on fiscal year 2015 revenues.
2.5.2. Operational risks
Business risk
As regards business risks, the revenues earned from its Services Activity are recognized according to the percentage of comple-
tion method and represent, overall, 22.2% of the Group's total revenues. Intermediate payment installments are scheduled at the
end of each quarter in order to approve the progress thus far and to justify the recognition of revenues.
The payment terms used by the Group vary from country to country. These terms stand at an average of 50 days for Northern
Europe, the United States and Japan, and at 60-100 days for Southern Europe (including France). With respect to China, in many
cases it takes over a year to collect on accounts receivable. An analysis of receivables by age is carried out each quarter in order
to ensure collection and, where necessary, to establish the required provisions. Total doubtful debts are low. They are presented
in note 4.2 to the consolidated financial statements.
The Group is not exposed to any specific risks as regards suppliers and partners. Its very limited use of subcontractors, typically
ESI Group ● 2015 Registration Document 26
on a personnel level, is not in any way strategic and does not represent any sort of risk factor.
Moreover, the Group has standard terms in place based on the type of service rendered.
Risk related to fixed-price contracts
In the case of fixed-price contracts in the Services division, the risk of underestimating costs is borne largely by ESI Group.
Nonetheless, this risk is a function of the experience the Group has in the issues involved in the project. This risk is hedged by a
contingency coefficient applied both to the price and to the deadline; it varies from 0% for standard projects to 50% for highly
innovative projects. In addition, bids may include clauses limiting the services provided and providing for the negotiation of amend-
ments to contracts in the event of additional requests by the customer.
With regard to the risk related to the inability to provide the expected results, this depends on the agreements and preliminary
work known as "grasping the problem", which has so far allowed ESI Group to avoid this risk. No agreements are signed without
having a precise idea of how to proceed in order to deliver the services agreed upon. Furthermore, the risk as to the acceptance
of the results is covered by acceptability criteria specified either in the bid or at the start of work.
Risk related to management and key personnel
The expertise and experience of key personnel are today shared broadly among qualified staff. No employee is the exclusive
owner of a code or piece of know-how not shared among the teams.
In addition, the Company has committed to an employee loyalty policy, primarily by creating Employee Share Ownership Plans
(stock option and free shares) for key personnel.
Risk related to the security of facilities and internal systems
An experienced security agency constantly watches our systems and network security. The internet connections and firewalls of
all facilities are centrally managed and monitored, thus minimizing risks of intrusion or piracy. Critical services, located in Rungis,
are regularly backed up in accordance with a documented process. In the event of a major malfunction or catastrophe, a back-up
site (in Lyon) has been designed and is operational since 2014.
Industrial and environmental risk
ESI Group has an obligation of means to its clientele (e.g. the integrity of the algorithms used in its software) but not an obligation
to produce a specific result regarding the implementation of its software. Since it deals with a very diverse customer base of major
multinational industrial corporations, ESI Group's risk of client insolvency is low and fully provisioned.
ESI Group and its subsidiaries design, develop and sell Virtual Prototyping software. The environmental impact of these activities
is, by its nature, relatively small and limited mainly to the production of paper waste and used computer equipment.
This impact is minimized by the fact that a large portion of the devices are leased from companies that resell or recycle their
equipment.
The automatic fire extinguishing systems installed, where necessary, in the Company's computer rooms, do not use halon and
comply with environmental standards.
To the Company's best knowledge, it does not currently and has not ever violated any environmental regulation and no legal
action has ever been taken against it in relation to the environment. Furthermore, the Company's digital simulation products allow
its clients to reduce the number of full scale tests (crash tests, foundry, injection, welding, etc.) and thus allow them to cut back
significantly on raw materials and energy.
2.5.3. Financial risks
Exchange rate risk
See note 7.1.4 and note 7.3 to the consolidated financial statements.
Interest rate risk
See note 7.1.2, note 7.1.4 and note 7.3 to the consolidated financial statements.
Equity risk
See note 9.1 and note 5.4 to the consolidated financial statements.
ESI Group ● 2015 Registration Document 27
Risk related to impairment of goodwill or of intangible assets
See note 3.1 and note 3.1.3 to the consolidated financial statements.
Liquidity risk
The Company has specifically reviewed its liquidity risk and considers itself to be in a position to satisfy future payment obligations.
The Group's debts are broken down by type, interest rate type and maturity in note 7.1 “Financial assets and liabilities” to the
consolidated financial statements. This note also includes a description of the corresponding interest rate hedging. All loans, with
the exception of leasing, are taken out in euros. The Group has integrated a short-term revolving line of credit to its syndicated
line of credit in order to finance the company's recurring year-end working capital requirements. Additionally, commitments related
to new financing are described in note 7.4 to the consolidated financial statements, “Commitments relating to Group financing”.
The Group has to adhere to several financial ratios, under penalty of early repayment.
Risk of litigation, governmental or legal action, or arbitration
With the contentious situation surrounding public finances today, an increased tax burden due to reconsideration of existing tax
mechanisms, establishment of new taxes, or more aggressive tax collection could have negative consequences on the Group's
net financial income.
As part of the Group's normal business in France and internationally, ESI Group is particularly concerned with issues relating to
the French Research Tax Credit (CIR) and transfer pricing. The Company receives assistance in these matters from specialized
external consultants. Furthermore, the Company has established the appropriate documentation for transfer pricing.
Over the last twelve months, ESI ended a tax audit in France relating to the CIR and transfer pricing. To ESI's knowledge, there
has been no litigation, governmental or legal action, or arbitration that could significantly affect the Group's financial situation,
business, or net financial income.
2.5.4. Legal risks
The Group has a legal affairs department divided in two divisions:
– The corporate legal affairs division, which is responsible for monitoring, researching and optimizing the Group's legal
situation as well as coordinating the legal aspects of the subsidiaries’ operations;
– The intellectual property division, which makes sure the Group's intellectual property rights (software code, databases,
inventions and knowledge of processes, trademarks, etc.) are protected and takes all necessary measures to safeguard
them (trademark registration, patent applications, confidentiality agreements, establishing exclusive rights, etc.). It is
responsible for intellectual property audits when acquisitions are made and for drafting, revising, or negotiating all con-
tracts involving customers and partners, particularly consortium agreements.
Given the nature of its activities, the risks faced by the Group pertain mainly to intellectual property.
These potential risks are as follows:
Counterfeiting of products marketed by the Group
As regards the risk of counterfeiting by third parties, no significant incidents of counterfeiting have been observed.
The passwords used to access the Group's products are generated by ESI Group no matter how the software is distributed
(distributors and agents) and they are linked to the FlexNet Publisher software (formerly known as Flexlm), which represents the
world standard for secure computer codes. If a way around the FlexNet code were found, ESI Group also uses a counterfeit
detection tool (Vi Labs) that has gradually been incorporated into all its codes and is linked with the legal assistance service
against software counterfeiting. This service has proven to be highly effective.
Risk related to claims by third parties as to the ownership of codes published by the Group
With regard to risks of third-party claims, the Company's software products are, broadly speaking, either developed within the
Group or acquired in mergers or acquisitions. In rare cases, they are the result of development contracts signed with third parties.
As regards the codes developed in-house, the Group's companies retain ownership of the intellectual property under the employ-
ment contracts and supplementary provisions in accordance with labor law. Where necessary, development agreements are
signed between ESI Group and its subsidiaries in charge of development in order to ensure that ESI Group is considered the
owner of the intellectual property.
For software code acquired through an external growth operation, an intellectual property audit should be conduct ahead of time,
beginning, if necessary, by analyzing local intellectual property laws. Furthermore, acquisition agreements always include war-
ranties of title. This particularly allows the Company to avoid buying an empty shell or software code with too many strings at-
tached.
Likewise, the Group relies on a systematic review process for software development contracts made with third parties, such as
ESI Group ● 2015 Registration Document 28
university partners, in order to ensure effective, risk-free transfer of intellectual property in the event that an ESI Group contract
ensuring effective transfer is not used.
Contractual liabilities and damage clauses
In regards to contractual liabilities and damage clauses, the Group always refuses damage clauses and indirect liabilities (such
as losses) and limits its contractual liabilities to the amount of a particular event whenever possible.
Transfers of more rights than necessary due to customers’ General Purchase Conditions
The risk of improper transfers is eliminated by having all contracts reviewed by in-house intellectual property law specialists.
Prevention of undue granting of free licenses and transference of profits within R&D consortia
The intellectual property legal department has a long history of working with consortia and negotiating with them in the interests
of the Group, particularly rejecting the granting of free licenses for in-house research when said research only involves using pre-
existing or improved software belonging to ESI Group.
The Group therefore believes that it has the resources and processes required to adequately cover any legal risks that it may
face.
ESI Group ● 2015 Registration Document 29
3 CORPORATE GOVERNANCE
3.1. Main shareholders and stock price evolution
3.1.1. Founding shareholders
Information on founding shareholders is contained in section 1.3.4.6., Change in the breakdown of the Company's share capital
over the past three fiscal years.
3.1.2. TPI survey
On April 15, 2016, the Group carried out a survey of identifiable bearer shares (TPI: Titres au Porteur Identifiable) on 99% of its
free float (excluding treasury shares and nominative shares) which could be compared to the one realized on April 17, 2015.
Domestic investors
Foreign investors
Individual Shareholder
Companies
As of April 2016
As of April 2015
% of free float % of share capital
% of free float
% of share capital
70%
18%
10%
0%
37%
10%
5%
0%
71%
18%
10%
1%
37%
10%
5%
0%
This analysis shows a stability in the capital breakdown of the Company which stays mainly composed by domestic investors.
3.1.3. Stock price evolution
The chart below shows how ESI Group's stock price has performed relative to the CAC Mid&Small and CAC 40 base 100 index
since January 2012 until the end of April 2016:
ESI Group ● 2015 Registration Document 30
The chart below shows how ESI Group's stock price has performed since its initial public offering on July 6, 2000 until April 29,
2016 and the daily volume of transactions:
3.2. Report of the Chairman of the Board of Directors on
corporate governance, internal control and risk
management
The purpose of this report (the “Report”) is to provide information on the composition of ESI Group's Board of Directors, the
preparation and the organization of its activities and works, as well as the internal control and risk management procedures in
place during the fiscal year ended January 31, 2016.
The Report was drawn up in accordance with Article L. 225-37 of the French Commercial Code.
The Report is submitted to the Company's Combined General Meeting of Shareholders to be held on July 21, 2016. It was first
submitted to the Board of Directors for approval on April 8, 2016. The Report was prepared with the assistance of the Company's
executive management, Legal Affairs Department, Human Resources Department and Finance and Administration Department.
This Report covers the following topics:
– Reference to a corporate governance code;
– Composition, preparation and organization of the activities of the Board of Directors during the fiscal year ended January
31, 2016;
Internal control and risk management procedures;
Limits on the powers of the Chief Executive Officer and the Chief Operating Officers;
–
–
– Principles and rules applied to determine the compensation and other benefits of the corporate executive officers;
– Special provisions related to the participation of shareholders in the Annual General Meeting.
First of all, it is noted that the Company's Board of Directors decided, at its meeting of April 15, 2010, to refer to the MiddleNext
Governance Code for Small and Midcaps published in December 2009 (hereinafter referred to as the "Corporate Governance
Code") as Company’s set of standards and agreed to comply with the recommendation of the aforementioned Code. This Code,
which adapts the principles of good governance set forth in the AFEP/MEDEF Code for small- and mid-sized companies, seemed
better suited to the Company's size and capital structure.
The MiddleNext code is available on the website www.middlenext.com.
Pursuant to the Corporate Governance Code, the Company worked, throughout the 2015 fiscal year, (i) to take the “Points to
watch out for” set out in the Code into account and (ii) to improve its practices in order to comply with the recommendations of the
Corporate Governance Code. In this respect, it is noted that, in compliance with the "comply or explain" principle, as well as AMF
Recommendation no. 2013-20, a cross-reference table given below shows the different recommendations of the Corporate Gov-
ernance Code followed by the Company.
After comparing its practices to the recommendations of the MiddleNext Code, the Board of Directors made the following obser-
vations:
– As of this date, the Board of Directors consists of seven members, including four independents and three women.
– The Extraordinary General Meeting of July 23, 2013 amended the term of office of Directors to four years. This decision
was made to ensure the independence and long-term commitment of Board members, by submitting the renewal of their
appointments to the Company's shareholders more frequently. The current tenures will continue to the date provided for
when the current Directors first came onto the Board, so that their duration will not be amended before they expire. The
ESI Group ● 2015 Registration Document 31
shorter term applies only to new appointments and to those renewed starting with the Combined General Meeting of July
23, 2013 (R. 10).
– With regard to the presence of independent Directors, it should be noted that the Board includes four independent mem-
bers. This figure is significantly higher than that recommended by Corporate Governance Code, which recommends two
such members in case a Board consists of more than five members. Furthermore, the criteria for independence adopted
conform to those laid out in the MiddleNext Code (R. 8).
– As in 2014, the assessment of the Board's work during the reporting period was conducted internally and pursuant to the
recommendations of the Corporate Governance Code (R. 15). This assessment was carried out using a questionnaire
sent to each Board member and the summary was presented at Board Retreat.
– The rules of procedure in effect are those approved by the Board meeting of April 25, 2013 and updated by the Board
meeting of April 8, 2016, and comply with the recommendation issued by MiddleNext (R. 6).
– The compensation paid to the corporate executive officers is proposed and annually reviewed by the Compensation,
Nomination and Governance Committee, which is composed primarily of independent members. This Committee makes
recommendations to the Board of Directors then officially determines compensation amounts. This process ensures the
fairness and transparency of compensation, as recommended under the Corporate Governance Code (R. 2).
– At this point no severance packages or supplementary retirement plans have been established for the corporate execu-
tive officers. In general, there are no compensation policies in place within the Company likely to have an impact on a
takeover bid (in accordance with recommendations R. 3 and R. 4).
–
In terms of the organization of senior management, since 2013 Alain de Rouvray, Chairman and Chief Executive Officer,
can rely on two Chief Operating Officers, Vincent Chaillou, in charge of the Edition Operations, and Christopher St.John,
in charge of the Field and Support Operations.
TABLE SHOWING THE APPLICATION OF RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE
Content of the recommendation
R. 1. Combined employment contract and directorship
R. 2. Definition and transparency of compensation paid to corporate executive officers
R. 3. Severance pay
R. 4. Supplementary pension plans
R. 5. Stock options and grant of free shares
R. 6. Establishment of Board rules of procedure
R. 7. Code of Ethics of the Board of Directors
R. 8. Composition of the Board - Presence of independent members on the Board
R. 9. Selection of Directors
R. 10. Terms of office of members of the Board
R. 11. Communication of information to members of the Board
R. 12. Establishment of committees
R. 13. Meetings of the Board and the Committees
R. 14. Compensation of Directors - Directors' fees
R. 15. Assessment of the work done by the Board
Application by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Paragraph.
3.2.4.2.
3.2.4.
3.2. & 3.2.4.6.
3.2. & 3.2.4.6.
3.2.4. & 3.2.4.2.
3.2. & 3.2.1.1.3.
3.2.1.1.3.
3.2. & 3.2.1.1.
3.2.1.1.1.
3.2. & 3.2.1.1.
3.2. & 3.2.1.1.3.
3.2.1.2. & 3.2.1.3.
3.2.1.2.
3.2.1.2. & 3.2.4.
3.2. & 3.2.2.1.2.1.
3.2.1. Composition, preparation and organization of the activities of the Board of
Directors
3.2.1.1. The Board of Directors
In accordance with Article 10 of the articles of association, the Company is administered by a Board of Directors composed of at
least three members and no more members than that allowable under the law, unless a decision is made to increase this maximum
in the event of a merger.
The Board of Directors has an ongoing objective to increase the diversity and complementarity of skills required for service on the
Board and to ensure the balanced representation of all shareholders and women.
Members of the Board of Directors are appointed by an Annual General Meeting, based on the recommendations of the Board of
ESI Group ● 2015 Registration Document 32
Directors, for a term of four years, this term complying with the recommendations of the Corporate Governance Code (R. 10).
These duties expire at the end of the Annual General Meeting called to approve the financial statements of the previous fiscal
year and held during the year in which the term of the Board member in question is scheduled to expire. Members of the Board
of Directors may be re-elected. They may be dismissed at any time by the Annual General Meeting. People over the age of 80
may not be appointed as members of the Board of Directors if their appointment would bring the number of Board members over
this age to over one-third. If this fraction is exceeded, the oldest Board member shall be deemed to have resigned automatically
at the end of the Annual General Meeting called to approve the financial statements for the fiscal year during which the limit was
surpassed.
Four of the seven members of the Board of Directors are independent members, in compliance with the Corporate Governance
Code, which recommends that there be at least two independent members on the Board (R. 8). Board members' "independence"
is reviewed by the Board of Directors, which deliberates this matter at the recommendation of the Compensation, Nomination and
Governance Committee. The selected criteria and the review of the situation of each Board member are discussed at least once
a year and published in this report.
3.2.1.1.1. Composition of the Board of Directors
The Board of Directors is currently made up of the following seven members:
First name – Last name
Mr Alain de Rouvray
Mr Vincent Chaillou (2)
Ms Cristel de Rouvray (1)
Mr Charles-Helen des Isnards
Mr Éric d’Hotelans
Ms Véronique Jacq
Ms Rajani Ramanathan
Position
Starting date
End of term
Age
Chairman and Chief Executive
Officer
Board member
Board member
Independent board member
Independent board member
Independent board member
Independent board member
1991
2004
1999
2008
2008
2014
2014
AGM 2019
AGM 2016
AGM 2017
AGM 2017
AGM 2019
AGM 2018
AGM 2018
72 years old
66 years old
39 years old
71 years old
65 years old
48 years old
49 years old
(1) Ms Cristel de Rouvray is the daughter of Mr Alain de Rouvray, Chairman and Chief Executive Officer.
(2) The renewal of the appointments of these Directors is submitted for approval by the Combined General Meeting of July 21, 2016
In August 2015, the members of the Board of Directors were saddened to learn of the passing of Mr Jacques Dubois, Director
since 1991. Mr Dubois graduated from the École des Ponts et Chaussées de Paris in 1968 and received a PhD in civil engineering
from the University of California, Berkeley in 1972. In 1973, he co-founded ESI SA where he served as Research Director from
1973 to 1990.
Given that the number of Directors remains greater than the legal and statutory minimum, the Board had decided not to appoint
a provisional replacement for Mr Dubois. However, the Board decided at its May 18, 2016 meeting that it would fill the open seat
by nominating Mr Yves de Balmann to serve as a new Director at the General Meeting that will be held on July 21, 2016.
The following provides a summary of the changes in the Board of Directors’ composition that occurred over the course of the 2015
fiscal year as well as the changes expected to be made over the course of the current fiscal year:
Resignation
Reappointment
Appointment
Fiscal year 2015
Fiscal year 2016
Mr Jacques Dubois
Mr Alain de Rouvray
Mr Jacques Dubois
Mr Éric d’Hotelans
N/A
N/A
Mr Vincent Chaillou
Mr Yves de Balmann
ESI Group ● 2015 Registration Document 33
Board members personal information
Alain de Rouvray, 72 years old, Chairman and CEO
Founder of ESI Group Company, Alain de Rouvray has been the Chairman and Chief Executive Officer since its creation in 1991.
He holds an engineering degree from Ecole Centrale de Paris (1967), a degree from La Sorbonne in Economic sciences (1967),
and a Ph.D. in civil engineering from the University of Berkeley (1971). Alain de Rouvray started his career as Research Engineer
at Ecole Polytechnique (Solid Mechanics Laboratory) in 1972; he then became Director of the Advanced Mechanics Department
for the international software subsidiary of CISI Group from 1972 to 1976. In 1973, he founded ESI SA and was the COO and
Commercial Director from 1973 to 1990.
Vincent Chaillou, 66 years old, Board member and COO
Vincent Chaillou is the COO of the Company in charge of the Edition Operations unit. He is also CEO of ESI Software India and
ESI US R&D. Vincent Chaillou holds a PhD in civil engineering from the Ecole des Ponts et Chaussées (1973) and an engineering
degree from Ecole Polytechnique (1971). Before joining ESI Group in 1994, he was General Manager of the AEC business unit
of Computervision for worldwide operations (which has now merged with PTC). During his 16 years with Computervision, he
served in several management positions in sales, marketing and general management, specifically of Asia-Pacific. From 1994-
1998, he was Regional Vice-President for the American territory within ESI Group and CEO of ESI Software.
Cristel Anne de Rouvray, 39 years old, Board member
Graduated from Stanford University and from London School of Economics, where she obtained a PhD in economics, Cristel de
Rouvray is a resident of the United States. She shares her time between the position of Board member at ESI Group and the
position of consultant at College Track in Oakland, California.
Charles-Helen des Isnards, 71 years old, Board member
After an international carrier within the BUE, the UBAF and the CIC Group, in France and in Italy, Charles Helen des Isnards
contributed to the creation of CIC Finance as member of the Board. He was a Deputy Chief Executive Officer of CM-CIC Corporate
Advisory until September 2012. He graduated from the Paris Institute of Political Studies and has a degree in law.
Éric d’Hotelans, 65 years old, Board member
Eric d’Hotelans held positions in the information technology sector, and first at Tandem (US computer manufacturer, taken over
by HP), where he was the director of the Europe/Finance Business Unit. In 1998, he decided to join CMG, one of the oldest
European IT Services companies, as a member of the executive committee, where he created CMG France (1,200 employees),
the group’s French subsidiary, of which he became Chairman and CEO. He left the CMG group in 2003, following its acquisition
by UK group Logica. He then participated in the development of an investment fund based in Riyadh (Saudi Arabia), specializing
in the research and analysis of IT-related activities. In 2003, he joined the M6 group’s Board of Directors as Deputy Chairman, in
charge of management activities and in 2009 took the responsibility of the group’s internet sales. Since 2009 he is Chairman and
CEO of Home Shopping Services SA.
Véronique Jacq, 48 years old, Board member
Civil Engineer, graduated from the Ecole des Mines de Paris (French engineering school), Véronique Jacq began her career in
the Nuclear Safety Authority (1994-2000). In 1997, she was appointed deputy director in charge of monitoring the safety of EDF
nuclear power plants. In 2000, she joined Anvar (now OSEO) as Director of Business Development. Then in 2003, she joined the
2nd Chamber of the French Audit Office, where she was responsible for auditing financial statements and management of
companies and government agencies as well as international organizations. In 2007, she joined CDC Entreprises, a CDC
subsidiary company specialized in private equity, and in 2010 became Deputy General Manager in charge of Business
Development. In 2012, she took responsibility for investment in digital technology first in CDC Entreprises and then in 2013 in
Bpifrance.
Rajani Ramanathan, 49 years old, Board member
Rajani Ramanathan has held a variety of positions, from running her own companies in India to scaling a multi-billion company
from a startup to a fully operational business. She currently serves as an advisor or investor in several technology startups includ-
ing Realine Technology, Growbot, Medium, Invicara, Pipefy, Wizcal, SaferMobility and Trendbrew. She joined Salesforce.com in
2000, when it was a small startup, and she helped built it into a high growth Fortune 500 company during over 14 years. In her
most recent role as Executive Vice President of "Technology & Products", her responsibilities spanned from delivering highly
innovative products, while ensuring every employee can do the best work in their careers. In 2014, she was awarded the YWCA
TWIN (Tribute to Women and Industry) Award, which has long been considered one of Silicon Valley's most prestigious awards
honoring women who exemplify leadership excellence in executive-level positions.
For further information on the management responsibilities of the Board members outside the Company, see the list under ap-
pendix I to this report.
ESI Group ● 2015 Registration Document 34
Pursuant to the Board members’ short biographies presented above which highlight education, professional experience and
offices held and exercised within other companies, each Director has extensive expertise in business management. Furthermore,
most of Directors are perfectly familiar with the Company’s area of technology.
Independent members of the Board of Directors
There are no potential conflicts of interest within the administrative and management bodies or executive management with re-
spect to their responsibilities to the Company and their personal interests.
The criteria used by the Compensation, Nomination and Governance Committee and then by the Board of Directors to deem a
Board member independent and to prevent potential conflicts of interest between the Board Member and the management, the
Company or its Group are as follows, in accordance with the recommendations of the Corporate Governance Code (R. 8):
– They must not be a salaried employee or corporate officer of the Company or of a company in the Group, and must not
have held such a position within the last three years;
– They must not be a significant client, supplier or banker of the Company or of a company in the Group, or a client, supplier
or banker for whom the Company or its Group represents a significant share of its business;
– They must not be a reference Shareholder of the company;
– They must not have a close family relationship with a corporate officer or reference Shareholder;
– They must not have been an auditor of the company in the course of the previous three years.
As for Board members who hold a significant number of shares in the Company, the Board has recommended that they be
considered independent as long as they do not take part in control of the Company. If Board members come to hold more than
10% of the Company's capital or voting rights the Board of Directors must systematically review their status as an independent,
at the recommendation of the Compensation, Nomination and Governance Committee, in consideration of the Company's capital
structure and the existence of any potential conflicts of interest.
Consequently, the following individuals are considered independent directors:
– Mr Charles-Helen des Isnards;
– Mr Éric d’Hotelans;
– Ms Véronique Jacq;
– Ms Rajani Ramanathan.
Feminization and internationalization of the Board of Directors
The Board of Directors has seven members, four men and three women. Thus the proportion of women currently reaches 43%,
which is higher than the percentage required by French Law No. 2011-103 of January 27, 2011, relative to the balanced repre-
sentation of women and men on Boards of Directors and Supervisory Boards, providing a 40% quota of proportion of women
during the General Meeting of 2017.
Two Board members, Ms Cristel de Rouvray and Ms Rajani Ramanathan, are foreign nationals.
3.2.1.1.2. Chairman of the Board of Directors
In accordance with Article 11 of the articles of association, the Board of Directors elects one of its members, who must be a private
individual, to serve as Chairman for a term that may not exceed his or her term as Board member. The Board of Directors also
determines the compensation to be paid to the Chairman.
People over the age of 80 may not be appointed Chairman of the Board of Directors. If the current Chairman comes to exceed
this age, he or she will automatically be deemed to have resigned.
Mr Alain de Rouvray, one of the Company's co-founders, is Chairman of the Board of Directors. The Board of Directors believes
that it is appropriate for Mr Alain de Rouvray to serve both as Chairman and Chief Executive Officer.
The General Meeting on July 22, 2015 decided to reappoint Mr Alain de Rouvray for a term of four years which expire during
General Meeting of 2019.
3.2.1.1.3. Rules of procedure of the Board of Directors
The Board of Directors, under the leadership of the Chairman, approved a set of rules of procedure for the Board on November
26, 2009. These rules of procedure were revised and approved by the Board of Directors on April 25, 2013 to account for changes
in corporate governance best practices and translated into English. The Board of Directors on April 8, 2016 approved an update
of the rules of procedure in order to take into account in particular the latest regulatory changes concerning the scope of the
missions of the Audit Committee.
ESI Group ● 2015 Registration Document 35
The rules of procedure define the operational rules of the Board of Directors and aims to improve working methods and the
procedures used to keep members informed. It also specifies the rules and powers of the Company’s Board of Directors in line
with the provisions set forth in the articles of association. The internal regulations can be consulted on the Company's website,
(www.esi-group.com).
In accordance with the Corporate Governance Code (R. 6), these rules of procedure specify the following items in particular:
– The composition of the Board of Directors and the procedure for determining whether a Board member is an independent
member;
– The members' duties and responsibilities (especially in terms of conduct and ethics);
– The operational procedures of the Board of Directors (frequency of meetings, procedure for calling meetings, procedure
for notifying members, use of videoconferencing technology) and the Committees;
– The rules relevant to the Board members' compensation;
– The role of the Board of Directors and the Committees;
– The access to the information and documents necessary to carry out their duties so that members are informed suffi-
ciently in advance.
For the Code of Ethics of the members of the Board, in its internal regulations the Board chose to refer to the Director's Charter
proposed by the Institut Français des Administrateurs (French Institute of Directors).
3.2.1.2. Duties and powers of the Board of Directors
Responsibilities of the Board of Directors
The Board of Directors is and must remain a collegial body that collectively represents all Shareholders. It must act in keeping
with the Company's corporate interests under any and all circumstances. The Board of Directors determines the guidelines for the
Company's operations and oversees the application thereof. Subject to the powers expressly given, under the law, to General
Meetings, the Chairman and Chief Executive Officer and the Chief Operating Officers and in keeping with the corporate purpose,
the Board of Directors may handle any matter relevant to the Company's operations and meets to decide all matters within its
remit.
The Board of Directors has the following responsibilities in accordance with the law:
– Preparing for and calling Annual General Meetings;
– Preparing the wording of the resolutions to be voted on by the Shareholders;
– Choosing the executive management structure of the Company by opting to either have the Chairman of the Board of
Directors serve as Chief Executive Officer or another individual appointed by the Board of Directors;
– Determining the powers that may be delegated to a subsidiary's General Manager and setting monetary limits on these
powers;
– Preparing separate financial statements consolidated annual financial statements and interim financial statements, the
annual management report and the interim financial report, as well as the approval thereof;
– Approving the Report of the Chairman of the Board of Directors on corporate governance, internal control and risk man-
agement;
– Approving the agreements referred to in Article L. 225-38 of the French Commercial Code;
– Authorizing guarantees and similar undertakings;
– Appointing or dismissing the Chairman and Chief Executive Officer and the Chief Operating Officers, and supervising
their management of the Company;
– Creating committees within the Board of Directors, establishing the rules of procedure that set out their responsibilities
and operational procedures, appointing and determining the compensation of the members of these committees;
– Distributing directors' fees.
Decisions and meetings of the Board of Directors
The Board meets as often as required for the interests of the Company. The frequency and length of Board of Directors' meetings
must be such as to allow members to conduct an in-depth review and discussion of the topics falling under its responsibility. The
same principle applies to meetings of Board Committees.
In accordance with the Corporate Governance Code, it is recommended that the Board of Directors meet at least four times per
year. During the 2015 fiscal year, the Board of Directors met nine times in compliance with recommendation R. 13 under the
Corporate Governance Code.
Other than the mandatory dates on which the Board must meet to:
– Draw up the annual financial statements and prepare for the Annual General Meeting called to approve these financial
statements;
ESI Group ● 2015 Registration Document 36
– Report on performance for the first half of the year;
– Discuss the financial position, the cash position, the Company's obligations and the share buyback program.
The Board of Directors must also meet, when convened by the Chairman, in the event of major operations such as the following:
– Business acquisitions or divestitures;
– Significant operations outside the Group's established strategy;
– Organic growth restructuring or restructuring operations.
Before each Board meeting, the Board members each receive a dossier containing the agenda for the meeting, the draft minutes
from the previous meeting and any pertinent document for each of the items on the agenda. All topics addressed during the
meeting are reviewed and discussed in depth among the members before being put to a vote following the discussion.
The draft minutes of each Board of Directors meeting are formally approved and signed by the Board members during the subse-
quent meeting. The minutes relate the discussions, specify the decisions made and mention the questions and hesitations raised.
Furthermore, during each meeting any major facts or events pertaining to the Company's operations or its general situation arising
since the previous meeting are brought to the Board members' attention.
The Board of Directors' meetings are not valid unless at least half of its members are in attendance. The Board’s decision are
made by majority vote among the members present or represented. In the event of a tie, the Chairman of the meeting casts the
deciding vote. In accordance with the provisions of the articles of association, Board members who take part in the Board meeting
via videoconference or teleconference are considered present for the purpose of determining whether a quorum is present. This
provision does not apply to decisions for which the French Commercial Code expressly bars the use of these methods.
An attendance sheet is drawn up and signed by the Board members taking part in the Board of Directors' meeting.
The Board of Directors met nine times, on the dates listed below, during the previous fiscal year, with an average attendance rate
of 87% by its members:
Date
March 10, 2015
March 26, 2015
April 14, 2015
July 3, 2015
July 22, 2015
September 15, 2015
October 26, 2015
December 16, 2015
December 29, 2015
Board member attendance
75%
100%
100%
75%
88%
86%
86%
86%
86%
In 2015, aside from approving the budget for the fiscal year, reviewing and monitoring this budget, drawing up the annual and
interim financial statements, preparing for the General Meeting, examining forward planning documents during the first and sec-
ond half of the year, reviewing any agreements like those defined under Article L. 225-38 of the French Commercial Code and
other ongoing management decisions, the Board of Directors' focused primarily on:
– Establishing the terms of and implementing a share buyback program approved by the Combined General Meeting of
July 22, 2015;
– Approving the procedure to determine directors' fees;
– The Company’s funding;
– Corporate governance: reappointment of a Board member;
– The mergers and acquisitions activities.
As part of this work, the Board of Directors relied on the work and recommendations of the Committees established within the
Company. These specialized committees were established in accordance with the guidelines set forth in the corporate governance
code (R. 12).
3.2.1.3. Specialized committees
The purpose of the committees is to optimize the discussions of the Board of Directors and to ensure that the Board is prepared
to make its decisions. The Committees thus draw up proposals, recommendations and opinions relative to their respective areas
at each of their meetings.
ESI Group ● 2015 Registration Document 37
The following Committees have been formed within the Company:
– The Strategic Committee;
– The Compensation, Nomination and Governance Committee;
– The Audit Committee; and
– The Technology and Marketing Committee.
The specialized committees are currently composed in the following manner:
First name – last name
Independence Strategic Committee
Specialized committees of the Board of Directors
Compensation, Nomination and
Governance Committee
Audit Committee
Technology and
Marketing
Committee
Mr Alain de Rouvray
Mr Vincent Chaillou
Ms Cristel de Rouvray
Mr Charles-Helen des Isnards
Mr Éric d’Hotelans
Ms Véronique Jacq
Ms Rajani Ramanathan
X – Chairman of the Committee.
X – Member of the Committee.
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
A secretary, Ms Corinne Romefort-Régnier, attends also the meetings.
Strategic Committee
As defined in the Rules of Procedures of the Board of Directors, the Strategic Committee is in charge of preparing the deliberations
of the Board of Directors on the major strategic challenges of the Group, especially development axes and financing as well as
examining the evolution of the Group's business portfolio.
The Strategic Committee met four times during the previous year with an average attendance rate of 90%.
Compensation, Nomination and Governance Committee
As defined in the rules of procedures of the Board of Directors, composed of five members including three independent, the
mission of the Compensation, Nomination and Governance Committee is to firstly prepare the decisions of the Board of Directors
concerning the compensation of executive officers and the policy for granting stock options and / or purchase of shares (and,
where appropriate, policy of free shares) and secondly to prepare changes in the composition of the Company’s governing bodies.
A special assignment was given to Ms Cristel de Rouvray with regard to the succession and capital structuring plan and to organ-
izing and managing the annual Board Retreat, as well as to her participation in the governance of certain Group subsidiaries. She
received a special Director's fee for this particular assignment.
In addition, special assignments were given to Mr Charles-Helen des Isnards as part of the transition of the Administration and
Finance Department and financial transactions. He received a special director's fee for said assignments.
The Compensation, Nomination and Governance Committee met four times throughout the 2015 fiscal year with an average
attendance rate of 100%.
Audit Committee
According to the regulation in force, Board members in management roles within the Company are not allowed to serve as mem-
bers of the Audit Committee, and all members are independent. Besides, the majority of its members has expertise in the area of
finance or accounting.
The Chairman of the Company is invited and attends the meetings of the Audit Committee.
ESI Group ● 2015 Registration Document 38
According to the regulation in force the Audit Committee monitors issues relating to the preparation and control of accounting and
financial information.
Without prejudice to the powers of the bodies responsible for the administration, management and supervision, this committee is
responsible in particular for the following tasks:
–
–
–
–
–
–
It monitors the process of preparing financial documents and, if necessary, makes recommendations to ensure their
integrity.
It monitors the effectiveness of internal control and risk management as well as, if necessary, internal audit in terms of
financial and accounting information processing without causing harm to the independent nature of systems in place.
It issues a recommendation for the auditors to be appointed by the General Meeting; it also issues a recommendation
when the contract with auditors is to be renewed.
It monitors the auditors as they fulfill their duties.
It ensures the auditors’ independence.
It regularly reports to the Board of Directors regarding its activities. It also reports on the results of certifying financial
statements, how that certification has contributed to the integrity of financial information, and the role that the committee
played in the process. The committee immediately reports any problems that arise.
The Audit Committee met seven times throughout the 2015 fiscal year with an average attendance rate of 100%. In most cases,
the statutory auditors are also invited to attend these meetings.
Technology and Marketing Committee
The Technology and Marketing Committee is in charge of advising the Board on aspects of product strategy, the organization of
the publishing company in particular the methodologies of product management and R&D, and evaluate potential partnerships or
acquisitions related to technology and marketing. The Committee also advises the Board of Directors on all aspects of commer-
cializing solutions.
The Technology and Marketing Committee met four times throughout the 2015 fiscal year with an average attendance rate of
100%.
3.2.2. The internal control and risk management procedures
3.2.2.1. Control environment
3.2.2.1.1 General structure
ESI Group is a multinational corporation that includes 34 subsidiaries (the “subsidiaries”), 30 of which are headquartered outside
of France.
To ensure that business operations and management activities run efficiently, that objectives are met and that the Group's control
system is effective, executives are determined to harmonize the operational rules of the subsidiaries. This also applies to internal
control activities and is reflected in the gradual standardization of information systems and processes throughout the organization.
This is facilitated by the fact that the subsidiaries' business activities are similar to those of the parent company, ESI Group SA,
as regards the distribution of products.
Given current constraints, namely in terms of the size of the subsidiaries, available human resources and regulations that differ
from country to country, the structure is based on the following key factors:
– A matrix-based structure organized around business activities and markets that ensures Group-wide sharing of infor-
mation;
– A centralized organization to manage the Group's business activities;
–
Limited hierarchy to streamline decision-making processes;
– A relatively small size for efficient communication among the various departments.
The Company considers internal control processes as intended to provide reasonable assurance that the following objectives are
met; the principles implemented cannot provide absolute control of risks:
– Ensuring that management acts and operations, as well as employee behavior, are in keeping with the guidelines laid
down by the Company's management and the operational departments overseeing the various business activities and
countries, as well as any applicable laws and regulations and the Company's core values and internal rules;
– Anticipating and managing risks that stem from the Group's business activities and risks or fraud, especially in the areas
of ac-counting and finance;
– Verifying that the accounting, financial and management information reported to the corporate bodies, the Shareholders
or to third parties accurately reflect the Company's position and the business situation.
ESI Group ● 2015 Registration Document 39
3.2.2.1.2. Personnel responsible for internal control
3.2.2.1.2.1. Internal personnel
The Board of Directors
The Board of Directors is responsible for the Company's policies in relation to risk assessment, for the implementation of an
internal control system suitable to manage these risks and to monitor the effectiveness of this system. This policy encompasses
a system of checks and verifications, financial management procedures, operational monitoring and compliance monitoring..
Group Executive Committee
The Group Executive Committee oversees the internal control policy. As a rule, the latter meets once a month.
The Group Executive Committee is composed as follows:
First name – Last Name
Alain de Rouvray
Vincent Chaillou
Christopher St.John
Laurent Bastian
Mike Salari
Peter Schmitt
Christian Matzen (1)
Marco Gremaud (1)
Cristian Tanasescu (2)
Corinne Romefort-Régnier
(1) Members of the Committee since February 1st, 2016
(2) Member of the Committee since March 1st, 2016
The Board Retreat
Function
Chairman and Chief Executive Officer of the Company
Board member and Chief Operating Officer in charge of the software publishing Activity
Chief Operating Officer in charge of the distribution and support Activities
Chief Financial Officer
Executive Vice President, Engineering Services
Executive Vice President, Marketing and Sales
Executive Vice President, Immersive Virtual Prototyping
EMEA Managing Director
Executive Vice President, Systems Modeling and Data Analytics
Corporate Governance Director, Secretary of the Committee
The Board Retreat is held once per year to bring together the members of the Board of Directors, the Group Executive Commit-
tee and employees of the Company or its subsidiaries depending on the topics to be discussed. Its aim is to assess the activities
of the Board of Directors and the specialized committees, to review ongoing strategic matters and to define specific objectives to
be achieved during the coming year, which are then submitted to the Board of Directors for approval. The Board Retreat also
examines the summary of the Board of Directors’ and Specialized committees’ self-assessment reports.
For 2015 this meeting took place in September and for 2016 it is planned for September 2016.
Operational departments
In particular, these departments supervise business processes and manage projects.
Their role is to oversee the implementation of procedures in order to guarantee:
– Effective business processes: identification of business opportunities, sales and distribution network, partnerships, re-
sponsiveness, evaluation of economic interest, negotiation and signing of contracts, and profitability monitoring;
– Effective project management: evaluation of technical feasibility, management and leadership of teams, compliance with
specifications, customer satisfaction tracking and customer service.
Functional departments
The functional departments are responsible for formalizing internal control procedures in their respective areas and coordinating
and applying these procedures.
a) The Administration and Finance Department
The Administration and Finance Department handles implementation of the internal control policy on a financial level by:
– Establishing the procedures making up the internal control system;
– Holding meetings between the managers of the major business units and the main entities of the Company in order to
review responsibilities and the manner in which the internal control system should be organized across the various areas.
The Administration and Finance Department encompasses the following units:
– The Accounting and Consolidation Unit, responsible for:
-
-
Verifying and recording transactions;
Closing the financial statements at the end of each period;
ESI Group ● 2015 Registration Document 40
-
-
Consolidating Group-wide information;
Ensuring compliance with legal, tax-related and labor-related obligations.
– Management Control, in charge of:
-
-
-
Preparing and monitoring the budget;
Issuing periodic reports;
Internal control on both an operational and financial level.
– Cash management, in charge of:
- Managing cash flows;
Project financing;
-
Hedging currency and interest rate risks.
-
–
Information Systems Department (ISD).
b) The Legal Affairs Department
The Legal Affairs Department is divided into two divisions:
– The corporate legal affairs division, which is responsible for monitoring, researching and optimizing the Group's legal
situation as well as coordinating the legal aspects of the operations of the Group's subsidiaries;
– The intellectual property division, which makes sure the Group's intellectual property rights are protected by reviewing,
writing, or negotiating various contracts with customers and partners in the industry, and governmental bodies or aca-
demic institutions.
Management of known disputes is handled by third-party experts under the supervision of the Legal Affairs Department. The legal
department takes an active role mergers and acquisitions (e.g. corporate audits, intellectual property audits, participation in ac-
quisition agreement negotiations).
c) The Human Resources Department
Working closely with Senior Management, ESI Group Human Resources Department assists the Company's strategy by factoring
in employer-employee considerations.
The policy of ESI Group Human Resources Department has four main components:
– Personnel management;
– Performance management;
– Compensation management;
– Advising line managers.
Personnel management includes the following activities and initiatives, whose objectives are to:
-
-
Ensure that all legal and regulatory requirements are complied with;
Administer payroll and personnel files;
- Oversee and lead labor relations;
-
-
-
Ensure that employment reporting is carried out and to produce performance indicators;
Ensure that employees are kept properly informed;
Ensure that information is passed to senior management;
- Develop the HR procedures in the Group.
Performance management consists of attracting, integrating, retaining and developing each employee's highest performance level
and ensuring that it is aligned with the Company's strategy.
- Hiring: employment management: to anticipate the skills needed, both qualitatively and quantitatively;
-
-
Training: needs identification, preparation of a training plan and provision of in-house and external training
courses;
Performance evaluations: employee reviews, personal development plans, identification of potential, career
planning and promotions.
Compensation management consists of coordinating and overseeing the Group's compensation policy and:
-
-
Ensuring the process of wage and salary adjustments, with respect to time frames, budgets and reporting;
Leading the annual process of setting and paying variable compensation;
- Overseeing the stock options, free share awards and company savings programs in the Group;
-
-
Preparing all the items needed by the Company's governance bodies (such as the Compensation Committee)
Ensuring that employee and employment data are reported from the subsidiaries using the HR IS.
Advising line managers: fostering independence among line managers on employment issues by helping them on a daily basis,
ESI Group ● 2015 Registration Document 41
in the field and by making available to them services tailored to their specific needs.
The Group Human Resources Department sets the guidelines for the Group's human resources policy, broken down into opera-
tional objectives for the regional directors of human resources. The latter coordinate the implementation of these objectives in
collaboration with a team of HR operating managers located in each country and with support from the central human resources
department.
3.2.2.1.2.2. External personnel
Statutory auditors
The statutory auditors, who certify the regularity, truthfulness and the fair view of the financial statements provided to the Share-
holders at the balance sheet date may give opinions and recommendations regarding the internal control system applicable to the
preparation of financial information as part of their audit of the financial statements.
Legal counsel
The Company uses the services of a renowned law firm for dispute management and tax advising. The Company also calls on
specialists from time to time to review the legal aspects of complex mergers and acquisitions.
3.2.2.2. Organization of internal control
The increasing globalization of our business and the cross-organizational nature of projects involving international interactions of
increasing complexity and speed have highlighted the need to improve the Group's ability to respond quickly in its methods and
tools for operational management, both centrally and in the subsidiaries.
The Administration and Finance Department is organized in a way to ensure internal control through the following three levers:
– An organization and network of local financial controllers located in most of the Group's subsidiaries;
– Centralized tools and data;
– Processes that arrange for the reporting up of financial data and its control.
A network of financial controllers
This network makes it possible to cover all aspects of finance at the local level and to pass the statutory financial information and
reporting data up to central staff.
The financial control system for the Group's subsidiaries is implemented by a network of some fifteen local financial controllers
spread across three regions: EMEA, Asia and the Americas, each region being overseen by a regional financial controller. Each
local and regional financial controller, while operationally attached to his or her local manager (the person in charge of the local
entity) is hierarchically and functionally attached to the Administration and Finance Department and, ultimately, to the Group
Director of Administration and Finance.
These local controllers head up a local team of financial, accounting or administrative staff (from one to three depending on the
size of the entity) in order to carry out all local financial control tasks. In the case of smaller entities, local outside firms handle
financial controls under the management of the regional financial manager.
Added to this network is a central team of six financial controllers divided over the three principal business lines of the Group,
namely Edition, Distribution and Support.
The management information system
Financial control relies on a management information system consisting of the following centralized tools and databases:
– A single commercial database (SalesForce) serves as the backbone of the organization and internal control system for
sales. These data flow into a single database (NCA) for financial purposes to determine monthly revenues and the order
book;
– A financial consolidation tool, Talentia CPM, which enables the Company to centralize the financial data from the various
accounting departments of subsidiaries. It should be noted that the subsidiaries account for their operations using their
own accounting systems and provide the correct reporting of data to the parent company using consolidation packages
which are all centralized and processed by the Talentia tool;
– An HR data management tool called HR-Information System (HR-IS base) allows consolidation at the Group level of the
data relating to salaries as well as to headcount. In particular, this tool allows the monitoring of steps of the hiring proce-
dure and establishing information for every manager allowing him or her to manage his or her team better.
HR-IS data are part of the information behind the financial reporting about employees.
The Information Systems Department launched several projects to improve and optimize these tools.
ESI Group ● 2015 Registration Document 42
The main processes for monitoring accounting and financial information
The Group prepares consolidated financial statements on a quarterly basis. Its revenues are also published on a quarterly basis,
with income statements published twice a year. A Group-wide budget is established at the beginning of the fiscal year and moni-
tored on a monthly basis.
Consolidation process
The process to prepare the consolidated financial statements follows procedures that make it possible to centralize the accounting
and financial data coming from each entity with the Group. These procedures include:
– A reporting schedule and calendar of tasks to be carried out by personnel;
– The use of a specialized consolidation software application;
– Separation of the preparation of consolidated financial information, performed by the consolidation director, and the
control activities performed by the central financial controllers and the Chief Financial Officer;
– Assistance from accounting experts for certain complicated, technical issues, especially in relation to business outside
of France;
– A review of the interim and annual financial statements by statutory auditors, the Audit Committee and Board of Directors.
Budget monitoring and reporting process
The yearly budgets are prepared at the start of the fiscal year in accordance with the assumptions in the three-year business plan
established in year N-1 and with the five-year strategic objectives redefined annually by senior management. Throughout the year
a monthly reporting system enables us to:
– Monitor the budget so as to track the amount, nature and allocation of expenses versus the current year budget;
– And make monthly forecast updates so as to predict firstly the earnings of the first half year and secondly those of the
second half year.
Management Control thus provides key management indicators used to monitor the Company's performance. These indicators,
reported to executives, provide the information necessary to oversee the Company. They include the following four indicators:
– Orders in the Licensing and Service Divisions;
– Output and backlog of the Service Division;
– Change in headcount and in the average personnel costs;
– The cash position and three-month projections.
In conjunction with the budgeting and reporting process, the Company has implemented a performance unit-based structure with
business unit directors in charge of the management based on key performance indicators (KPI) in a balanced scorecard format.
These indicators cover financial aspects, commercial aspects, internal processes, the organization and trainings.
Revenue recognition process
The Finance Department is responsible for recognizing revenues and ensuring:
– That actual revenues are consistent with contractual data as regards the Licensing Division;
– The accuracy of billing information;
– The completeness of the services billed, primarily for the Service Division.
Customer risk management process
Customer risk is managed at two different levels:
– Upstream, by assessing customer risk before processing orders;
– Downstream, through a periodic follow-up procedure adapted to each customer in order to reduce outstanding debt.
Regular monitoring of average payment times makes it possible to assess how effectively accounts receivable are managed
across the various subsidiaries.
Cash management process
The Chief Financial Officer, with the support of the treasurer, is responsible for managing cash flows and monitoring:
– Cash levels necessary to cover the Company's ongoing business needs while tracking inflows and outflows;
– Profitability and the risk of various cash surplus investments;
– Foreign exchange risks, in order to take any necessary corrective actions
– The use of loans necessary for the expansion of the Company.
The cash position of each entity is centralized and a consolidated quarterly outlook is drawn up each month.
ESI Group ● 2015 Registration Document 43
Payroll management process
The payroll process is under the responsibility of the Director of Human Resources and makes it possible to:
– Process the various items involved in calculating salaries;
– Enter payroll information in the accounting system;
– Provision for paid vacation in order to distribute the expense throughout the year;
– Comply with labor-related reporting obligations.
3.2.2.3. Risk management
Process management and ISO 9001:2008 certification
The Company, which is ISO 9001:2008 certified, has oriented its quality-assurance procedures toward developing a worldwide
certification for the entire Group, aiming to include all its subsidiaries whether they are already certified or not. This process,
combined with the new requirements of the ISO 9001:2015 standard, is an additional asset for strengthening management via
established processes and facilitating the implementation of risk management, ensuring long-term and effective prevention.
Insurance and risk coverage – general information
The Company has taken out an insurance policy that covers the cost of information recovery, additional operating costs and
operating losses (loss of profit resulting from the decrease in revenues caused by the interruption or decline in the Company's
business activities) in the event of direct damage to its equipment.
For its foreign subsidiaries, damages that would fall under operational civil liability coverage, including so-called "employer liability"
and/or "workers’ compensation" policies and automobile-related risks are excluded from this policy.
The French policy (headquarters and subsidiaries) is not a replacement for those taken out outside of France in accordance with
local laws from local insurance companies licensed to operate in the country in question.
In addition, ESI Group has taken out an insurance policy covering the liability of senior executives and corporate officers of the
Company and its subsidiaries.
ESI Group has also taken out a Group-wide international insurance policy to cover all employees who travel outside of France.
3.2.3. Limits on the powers of the Chief Executive Officer and Chief Operating
Officers
The law provides that the Board of Directors elect from among its members a Chairman who is a natural person, who organizes
and directs its work and ensures that the Company's various bodies function properly. The Board entrusts general management
either to the Chairman of the Board of Directors or to another natural person, whether or not a director of the Board, who carries
the title Chief Executive Officer. The Board of Directors chose to appoint the Chairman of the Board of Directors as Chief Executive
Officer no limits have been put on the powers of the Chairman and Chief Executive Officer. This arrangement was chosen as the
most appropriate, given the Company's size and the presence of two Chief Operating Officers who can assist the Chairman and
Chief Executive Officer.
However, the powers of the Chief Operating Officers to act as legal and commercial representatives of the Company have been
delegated by the Chairman of the Board of Directors. The following powers have thus been delegated to the Chief Operating
Officers, Mr Vincent Chaillou and Mr Christopher St.John:
1. To represent the Company, in general, in all ongoing business affairs of ESI Group with respect to third parties and in compliance
with the Group procedures;
2. To enter into commercial contracts or agreements on behalf of the Company within its commercial territory and authority;
3. To hire or terminate any employee, executive, consultant, sales representative, distributor or agent and to determine the scope
of their powers and their title (with the exception of managers and directors) and to establish or increase any compensation,
com-mission or pension for all such individuals or legal entities. The annual compensation cannot exceed EUR 100,000.
At any rate, the Chief Operating Officers need the Company's prior written consent to carry out the following transactions on behalf
of the Company:
– To hire managers and directors and determine or modify their annual compensation;
– To purchase or acquire, sell or dispose of, lease or rent, or mortgage any real estate property;
– To pledge any movable property or receivable;
– To enter into credit arrangements;
– To take out loans on behalf of the Company (with the exception of the use of bank overdrafts granted to the Company);
– To create or acquire stakes in other companies, to perform any other type of similar undertaking, to accept management
positions in other companies, to establish or dissolve subsidiaries and to divest ownership interest;
– To propose a merger;
ESI Group ● 2015 Registration Document 44
– To grant loans;
– To bind the Company as a guarantor or in any other debt-related situation with respect to third parties;
– To settle any disputes and to take legal action, with the exception of debt recovery actions that form part of the Company’s
ongoing operations and with the exception of urgent actions such as provisional or conservatory measures that cannot
be postponed in the interests of the Company;
– To set up retirement plans for the employees of the Company;
– To sell or dispose of, purchase or acquire, transfer or mortgage any assets belonging to the Company worth more than
EUR 50,000;
– Enter into commercial contracts or transactions exceeding EUR 250,000, with the exception of intra-group contracts
issued by the Company, which Mr Vincent Chaillou and Mr Christopher St.John may sign without any limitation as to
amount;
–
–
In general, to take any action related to the Company involving an amount greater than EUR 50,000;
In general, to enter into any agreement or transaction involving other companies within the Company, customers or
partners falling outside the Company’s commercial territory or authority.
3.2.4. Principles and rules for determining the compensation paid to corporate of-
ficers
Fees are paid to the Board of Directors, at the recommendation of the Compensation, Nomination and Governance Committee,
based on the frequency of meetings, members' attendance and participation rate and whether or not they chair one of the spe-
cialized committees and in light of the special assignments that they may be given.
In accordance with recommendation R. 2 of the Corporate Governance Code, corporate offers' compensation complies with legal
and regulatory requirements, as well as the seven principles set forth in said Code. These seven principles are as follows: ex-
haustive, balanced, benchmarked, consistent, clear, measured and transparent.
The Chairman and Chief Executive Officer and the Chief Operating Officers received both a fixed salary and a variable bonus.
The Chief Operating Officers are also eligible for free share awards.
The compensation policy, including stock options and free share awards, is regularly discussed by the Compensation, Nomination
and Governance Committee and approved by the Board of Directors (R. 5 of the Corporate Governance Code).
3.2.4.1. Compensation paid to members of the Board of Directors
In accordance with the provisions of Article L. 225-102-1 of the French Commercial Code, the total compensation received by Mr
Alain de Rouvray, Chairman and Chief Executive Officer of the Company, and by the other corporate officers during the year 2015
is listed below.
Directors' fees received by executive and non-executive corporate officers
Fiscal year 2015
Fiscal year 2014
Executive corporate officers
Mr Alain de Rouvray
Mr Vincent Chaillou
Non-executive corporate officers
Mr Jacques Dubois
Ms Cristel de Rouvray
Mr Charles-Helen des Isnards
Mr Éric d’Hotelans
Ms Véronique Jacq
Ms Rajani Ramanathan
Mr Michel Barbier de la Serre
Mr Francis Bernard
TOTAL
10,000
6,000
4,000
47,042
31,033
16,500
14,078
18,033
N/A
N/A
146,686
10,000
6,000
6,643
45,036
31,500
16,500
7,363
8,893
8,393
12,902
153,230
Through its eighth resolution, the Combined General Meeting of July 22, 2015 set the total compensation paid to members of the
Board of Directors in the form of directors' fees for the 2015 fiscal year at EUR 160,000, stipulating that this amount would be
distributed by the Board of directors among its members.
ESI Group ● 2015 Registration Document 45
3.2.4.2. Compensation of the Chairman and Chief Executive Officer and the Chief Operating
Officers
The terms of compensation for the Chairman and Chief Executive Officer and the Chief Operating Officers are proposed by the
Compensation, Nomination and Governance Committee, which is composed primarily of independent members. As part of its
work, this Committee makes recommendations to the Board of Directors regarding the type and amount of such compensation.
The Board of Directors, half of whose members are independent, then decides on these recommendations and establishes the
compensation to be paid to executives.
The variable compensation of senior managers thus depends on quantitative criteria drawn up by the Board of Directors. The
degree to which each of these criteria has been met has been precisely noted but is not made public for reasons of confidentiality.
This process ensures the fairness and transparency of the compensation paid to the Chairman and Chief Executive Officer and
the Chief Operating Officers in accordance with recommendations R. 2 to R. 5 of the Corporate Governance Code.
Alain de Rouvray
Compensation owed for the year
Value of options granted during the year
Value of performance shares granted during the year
Vincent Chaillou
Compensation owed for the year
Value of options granted during the year
Value of performance shares granted during the year
Christopher St.John
Compensation owed for the year
Value of options granted during the year
Value of performance shares granted during the year
Mr de Rouvray
Salary
Bonuses
Director’s fees
Fringe benefits
TOTAL
Mr Chaillou
Salary
Bonuses
Director’s fees
Fringe benefits
TOTAL
Mr St.John
Fiscal year 2015
Fiscal year 2014
593,769
-
-
251,837
-
-
251,853
-
-
508,429
-
-
230,939
-
-
243,947
-
-
2015
2014
Amounts owed
Amounts paid
Amounts owed
Amounts paid
362,554
63,503
10,000
157,711
593,769
362,554
60,261
10,000
157,711
590,527
305,344
60,261
10,000
132,824
508,429
309,160
0
10,000
164,885
484,046
2015
2014
Amounts owed
Amounts paid
Amounts owed
Amounts paid
198,550
39,827
6,000
7,459
251,837
198,550
20,194
6,000
4,681
229,425
190,000
27,480
6,000
7,459
230,939
190,000
15,577
6,000
7,459
219,036
2015
2014
Amounts owed
Amounts paid
Amounts owed
Amounts paid
ESI Group ● 2015 Registration Document 46
Salary
Bonuses
Fringe benefits
TOTAL
177,650
32,203
42,000
251,853
177,650
39,706
42,000
259,356
170,000
31,947
42,000
243,947
170,000
26,255
42,000
238,255
Executive corporate officers
Employment contract
Supplementary re-
tirement plan
Payments or benefits due as
a result of termination or
change in position
Compensation payable under a non-
competition clause
Yes
No
Yes
No
Yes
No
Yes
No
Mr Alain de Rouvray
Chairman and Chief Executive
Officer
Mr Vincent Chaillou
Chief Operating Officer
Mr Christopher St.John
Chief Operating Officer
Suspended
X
X
3.2.4.3. Options and free shares awarded
X
X
X
X
X 25% of annual compensation
X
X
X
STOCK SUBSCRIPTION OR STOCK PURCHASE OPTIONS GRANTED DURING THE 2015 FISCAL YEAR TO EXECUTIVE
CORPORATE OFFICERS
No stock subscription or stock purchase options have been granted during the 2015 fiscal year to executive corporate officers.
PERFORMANCE SHARES ALLOCATION TO CORPORATE OFFICERS (LIST OF NAMES) DURING THE 2015 FISCAL YEAR
No performance shares have been granted during the 2015 fiscal year to corporate officers.
FREE SHARES ALLOCATION TO CORPORATE OFFICERS (LIST OF NAMES) DURING THE 2015 FISCAL YEAR
No free shares have been granted during the 2015 fiscal year to corporate officers.
3.2.4.4. Options and free shares exercised
STOCK OPTIONS EXERCISED DURING THE 2015 FISCAL YEAR BY EACH EXECUTIVE CORPORATE OFFICER
Stock options exercised during the fiscal year by each executive corporate officer
Name of the executive corporate officer
Christopher St.John
TOTAL
3.2.4.5. History of stock option grants
Plan number and
date
Number of options exer-
cised during the fiscal
year
Exercise price (in
Euros)
No. 7 (June 30,
2005)
3,500
3,500
8.86
8.86
Meeting date
Plan 7: 6/30/2005
Plan 9: 6/29/2006 Plan 10: 6/26/2012
Plan 15 :
7/23/2013
Plan 17 :
7/24/2014
Date(s) of the meeting(s) of the Board of Directors
July 10, 2008
July 10, 2008
2012 to 2015
March 26, 2015
July 22, 2015
Number of shares eligible to be subscribed or
purchased
100,000
200,000
180,000
20,000
7,350
Of which :
– Vincent Chaillou
– Christopher St.John
32,000
6,000
0
14,000
3,500
2,975
0
0
0
0
ESI Group ● 2015 Registration Document 47
Starting date of exercise period
Expiration of exercise period
Subscription or purchase price (in euros)
Total number of subscribed shares
Total number of shares eligible to be subscribed or
purchased expired or cancelled
Shares eligible to be subscribed or purchased
remaining at the balance sheet date
July 10, 2013
July 8, 2016
8.86
13,100
86,900
0
July 10, 2013
July 8, 2016
8.86
53,980
114,100
31,920
2017 to 2019
2020 to 2025
25.94
0
February 1st, 2019
February 1st, 2025
21.66
0
51,375
128,625
0
20,000
July 22, 2019
July 21, 2023
27.17
0
0
7,350
3.2.4.6. History of free shares grants
Meeting date
Date(s) of the meeting(s) of the Board of Directors
Number of granted shares
– Vincent Chaillou
– Christopher St.John
Starting date of exercise period
Expiration of exercise period
Total number of subscribed shares
Total number of expired or cancelled shares
Shares remaining at the balance sheet date
Plan 14: 6/26/2012
December 19, 2012
21,755
3,600
3,100
December 20, 2016
December 20, 2020
0
2,570
19,185
3.2.4.7. Stock options granted to the top ten employee grantees (not including corporate officers)
Stock options granted to/exercised by the top ten employee grantees (not including corporate officers)
Total number of options
granted/shares
subscribed or purchased
Weighted
average price
Plan number
Options granted to the top ten employee grantees during the fiscal year, by the issuer and any other
companies within the issuer's group entitled to grant options
Options issued by the issuer and any aforementioned company exercised during the fiscal year by the
top ten employees who thus purchased or subscribed to the largest number of options
45,500
3,150
22.9
8.86
10, 15 &17
9
At this point the Chairman and Chief Executive Officer and the Chief Operating Officers do not receive any other type of compen-
sation; specifically, they are not eligible for severance pay under any circumstances nor has any type of supplementary retirement
plan been established for them, in accordance with the recommendations of the Corporate Governance Code (R. 3 and R. 4).
3.2.5. Other information required by L. 225-37 of the French Commercial Code
3.2.5.1. Special provisions related to the participation of shareholders in the Annual General
Meeting
The procedures relative to Shareholder participation in the Company's Annual General Meeting are set forth under Article 18 of
the articles of association. Specifically, all Shareholders have the right, upon presentation of proof of their identify, to take part in
meetings by attending them in person, by videoconference or by other means of electronic telecommunication or transmission, or
by returning the mail-in ballot or designating a proxy, subject to the conditions set forth in the articles of association.
3.2.5.2. Information required by Article L. 225-100-3 of the French Commercial Code
In accordance with Article L. 225-100-3 of the French Commercial Code, the following items are included under Section 1.3.4
(regarding the capital structure and direct or indirect shareholdings in the Company's capital), Section 1.3.2.3 (regarding double
voting rights granted by the articles of association), and Section 3.4.3 (regarding the existing shareholders' agreement) of ESI
Group's Registration Document.
The procedure for appointing and replacing members of the Board of Directors, as well as the powers of this Board, is also
described in the Report.
ESI Group ● 2015 Registration Document 48
3.2.6. Declaration by the members of the Board of Directors with respect to para-
graph 14.1 of Annex I of EC Regulation No. 809/2004 ("Prospectus Regulation")
In the past five years, to the Company's best knowledge, no Board member nor executive has been convicted of any fraudulent
offence, been associated with a company's bankruptcy, receivership or liquidation or, received an official public incrimination or
sanctions by statutory or regulatory authorities.
Furthermore, to the Company's best knowledge, none of its Board members or corporate executives has been barred, by court
order, from serving as a member of an administrative, management or supervisory body of any company or from participating in
the management and business dealings of any company during the last five years.
The Report was approved by the Board of Directors on April 8, 2016.
Appendix I: List of other positions currently held by the Company’s Board members and exercised outside the entity
Independent members of the Board of Directors*
Mr Charles-Helen des Isnards
– Member of the Supervisory Board of Nature & Découvertes;
– Board member of Les Arts Florissants association;
– Board member of the Day-Solvay Foundation.
Mr Éric d’Hotelans
– Chairman and Chief Executive Officer of Home Shopping Services SA since 2009;
– Chairman of T-Commerce SAS;
– Board member of M6 Films;
– Board member of M6 Diffusion SA;
– Board member of Société Nouvelle de Distribution SA;
– Board member of Métropole Production SA;
– Board member of the M6 Group’s company Foundation.
Ms Véronique Jacq
Not applicable.
Ms Rajani Ramanathan
Not applicable.
* All of the positions held by independent Board members outside the entity are held outside the Group's scope of consolidation.
ESI Group ● 2015 Registration Document 49
3.3. Statutory Auditors’ report, prepared in accordance with
article L.225-235 of the French Commercial Code (Code de
commerce) on the report prepared by the Chairman of the
Board of Directors of the Company
Year ended January 31, 2016
To the Shareholders,
In our capacity as Statutory Auditors of the Company, and in accordance with article L.225-235 of the French Commercial Code
(Code de commerce), we hereby report to you on the report prepared by the Chairman of your company in accordance with article
L.225-37 of the French Commercial Code for the year ended January 31, 2016.
It is the Chairman's responsibility to prepare, and submit to the Board of Directors for approval, a report describing the internal
control and risk management procedures implemented by the company and providing the other information required by article
L.225-37 of the French Commercial Code (Code de commerce) in particular relating to corporate governance.
It is our responsibility to:
–
–
to report to you on the information set out in the Chairman’s report on internal control and risk management procedures
relating to the preparation and processing of financial and accounting information, and
to attest that the report sets out the other information required by article L.225-37 of the French Commercial Code (Code
de commerce), it being specified that it is not our responsibility to assess the fairness of this information.
We conducted our work in accordance with professional standards applicable in France.
Information concerning the internal control and risk management procedures relating to the preparation and processing of financial
and accounting information
The professional standards require that we perform procedures to assess the fairness of the information on internal control and
risk management procedures relating to the preparation and processing of financial and accounting information set out in the
Chairman’s report. These procedures mainly consisted in:
–
–
–
obtaining an understanding of the internal control and risk management procedures relating to the preparation and pro-
cessing of financial and accounting information on which the information presented in the Chairman's report is based,
and of the existing documentation;
obtaining an understanding of the work performed to support the information given in the report and of the existing
documentation;
determining if any material weaknesses in the internal control procedures relating to the preparation and processing of
financial and accounting information that we may have identified in the course of our work are properly described in the
Chairman's report.
On the basis of our work, we have no matters to report on the information given on internal control and risk management proce-
dures relating to the preparation and processing of financial and accounting information, set out in the Chairman of the Board’s
report, prepared in accordance with article L.225-37 of the French Commercial Code (Code de commerce).
Other information
We attest that the Chairman’s report sets out the other information required by article L.225-37 of the French Commercial Code
(Code de commerce).
Neuilly-sur-Seine and Paris-La Défense, May 19, 2016
The statutory auditors
French original signed by
PricewaterhouseCoopers Audit
Thierry Charron
Ernst & Young Audit
Frédéric Martineau
ESI Group ● 2015 Registration Document 50
3.4. Potential conflicts of interest within the corporate bodies
With the exception of the items addressed below, executives do not have any other potential conflicts of interest.
3.4.1. Capital held by the members of the Board of Directors
As at July 22, 2015 the date of the Company's Annual General Meeting, the members of the Board of Directors held a total of
1,852,364 shares, representing 31.1% of the Group's capital, and 3,583,087 voting rights, representing 46.6% of the voting rights
within the Group.
3.4.2. Transactions between the Company and its management bodies
Not applicable.
3.4.3. Shareholders' agreements
An agreement was signed on October 25, 2000 between Mr Alain de Rouvray (Chairman and founder of the Company), the
members of his family Group (Ms Amy de Rouvray, Ms Cristel Anne de Rouvray, Mr John Alexandre de Rouvray and Ms Amy
Louise de Rouvray), Mr Jacques Dubois (member of the Board of Directors and co-founder of the Company) and Mr Philippe
Billaud in their capacity as ESI Group shareholders.
The parties indicated that the purpose of the agreement was to formalize a concert party agreement that took effect between them
on the date that the Company’s shares were first listed on the "Nouveau Marché" stock market.
This shareholders' agreement was published in La Tribune on Friday, October 27, 2000 following CMF decision No. 200C1608
dated October 27, 2000.
This agreement includes mutual first-refusal rights.
These rights of first refusal do not apply to transfers of shares to the heirs of any shareholder who is a private individual and a
party to the agreement in the event of death or to transfers between members of the de Rouvray family who are party to the
agreement.
This agreement also contains:
– An obligation, on the part of the parties to the agreement, to either purchase or sell their shareholding: in the event that
Mr Alain de Rouvray decides to sell all ESI Group shares that he currently holds or holds at some point in the future,
each party is irrevocably bound to either:
– Exercise its first-refusal rights and purchase the shares under the conditions set forth under the agreement;
– Waive its right of first refusal and consequently sell its entire shareholding at the sale price;
– A commitment to act in concert prior to the purchase of any additional shares that would force the parties to the agree-
ment to jointly file a draft takeover bid.
In keeping with this agreement, the parties declare that they act in concert.
In accordance with the so-called "Dutreil" law in France, an agreement was also signed on December 22, 2003 between Mr Alain
de Rouvray (Chairman and founder of the Company), Ms Cristel Anne de Rouvray, Mr John Alexandre de Rouvray and Ms Amy
Louise de Rouvray in their capacity as shareholders of the Company. As at January 31, 2016, this agreement represented 30.6%
of the Company's capital and 46.2% of its voting rights and collectively binds its signatories to retain half of their shares for at least
six years.
This agreement was renewed on December 31, 2011 for a further term of six years.
ESI Group ● 2015 Registration Document 51
4 MANAGEMENT REPORT OF THE
BOARD OF DIRECTORS TO THE
COMBINED GENERAL MEETING OF
JULY 21, 2016
Fiscal year 2015 (ended January 31, 2016)
4.1. Business activities during the 2015 fiscal year
4.1.1. Business activities during the 2015 fiscal year
Financial data
The marked improvement in our earnings over the year testifies to the success of our policy of improved profitability and controlled
costs.
The strong growth of our 2015 revenues reflects the strength of the Licensing activity and the strategic refocusing of the Services
activity towards high value-added Engineering Services.
There was a positive currency effect of EUR 6.1 million, arising mainly from the positive trend of the US dollar and, to a lesser
extent, the Japanese yen and South Korean won.
Moreover the 2015 fiscal year was characterized by a significant improvement in profitability, as we can see by the increases of
the EBITDA and Current Operating Profit, despite the R&D investments and external growth.
The product mix shifted towards Licensing activity, which now accounts for 78% of total sales compared with 76% in 2014.
Total gross margin improved both because of the change in the product mix towards Licensing activity, and because of slight
improved margins in Licenses and Services. Furthermore, while continuing its R&D investments and its external growth strategy,
ESI maintained its operational costs control, as reflected in the fact that Sales and Marketing as well as General and Administrative
costs remained contained.
Year-end available cash is at slightly lower levels and have been affected by seasonal fluctuations including a payment that was
delayed to the next year, which is particularly evident with strong sales growth occurring mostly in the fourth quarter.
Structural changes
CIVITEC (80% of share capital acquired) was integrated into the Group as of March 27, 2015. As of April 10, 2015, the assets of
Ciespace were consolidated. The assets of PicViz Labs were consolidated as of March 30, 2015, and Presto software was inte-
grated as of May 6, 2015. ITI GmbH (96% of share capital acquired) was consolidated as of January 6, 2016. These acquisitions
represent EUR 0.7 million of the Group's revenues for the year, including EUR 0.5 million in the fourth quarter and a decrease of
EUR 0.5 million from EBITDA for the year.
Roll-out of solutions
Booking rose sharply among major customers in the automotive sector, and in particular from high-profile strategic partners such
as Volkswagen Group, Renault-Nissan and Honda. Thanks to its strongly disruptive Virtual Performance solution, ESI provides
these customers with a unique multi-domain and multi-physics environment that enables them to virtually manufacture and as-
semble essential components using a single core model that captures the level of physical information needed to meet industrial
and regulatory requirements.
Sector diversification
ESI has notably strengthened its positions in the aerospace, energy and heavy industry sectors. Companies in those sectors,
subject to heavy competitive pressure and environmental constraints, have benefited greatly from ESI's solutions. In particular,
ESI's sharply rising activities with the EDF group attest to the unique value that ESI can add in nuclear safety and to the develop-
ment of new energy options, an area in which a strategic partnership was signed with EDF Energies Nouvelles last year.
ESI Group ● 2015 Registration Document 52
Success of the virtual reality solution
In 2015, the dynamic growth of the virtual reality solutions continued with new contracts signed with leading manufacturers in the
aerospace and transport sectors, such as US helicopter manufacturer Sikorsky Aircraft Corporation and Bombardier, a world-
leading player in aircraft and train production. ESI's virtual reality solution has also being widely used by Boeing, which has
installed it at its new sites. The solution enables Boeing to improve its decision-making through globally distributed teams working
collaboratively on an immersive, real-time virtual model.
Realization of the strategic vision
The expansion of the Group’s strategic positioning, notably thanks to the newly acquired technological building blocks, has further
enhanced our growth potential. In particular, the acquisition of ITI GmbH in January 2016 has given the Group a recognized
presence in the simulation of 0D-1D systems. The latter’s expertise, which is acknowledged by major global companies, allows
direct access to an industrial product functional features and to represent its interactions with its 3D components. Most importantly,
the use of the information and communication technologies of the future (ICT) such as Big Data, Machine Learning and the Internet
of Things (IoT) now allows to present and experience ESI’s solutions in an interactive space and to enable real-time decision-
making in a virtual immersive environment. The innovative virtual prototype can now become agile and smart to support industrial
manufacturers in their transformation towards the era of factories of the future and of autonomous digital products.
4.1.2. Figures from the consolidated financial statements
4.1.2.1. Review of financial performance
The consolidated financial information presented below is compliant with IFRS standards.
4.1.2.1.1. Consolidated key figures
(In millions of euros)
Total sales
Licenses
Services
Gross margin
% of sales
EBITDA (1)
% of sales
current Operating Profit
% of sales
EBIT
% of sales
Attributable net profit
% of sales
2015
2014
Variation at
actual currency
rate
FOREX impact
Variation at
constant currency
rate
124.7
97.0
27.7
90.4
72.5%
14.3
11.4%
11.8
9.5%
9.4
7.5%
5.3
4.3%
111.0
84.5
26.5
79.1
71.3%
10.8
9.7%
9.0
8.1%
8.4
7.5%
5.5
5.0%
+ 12.3%
+ 14.8%
+ 4.5%
+ 14.3%
+ 32.2%
6.1
4.8
1.3
4.7
+ 6.8%
+ 9.1%
- 0.5%
+ 8.3%
0.6
+ 26.2%
+ 31.8%
0.6
+ 25.6%
+ 12.0%
- 3.0%
0.5
+ 5.4%
0.4
- 10.7%
(1) EBITDA excluding non-recurring result, and now including the impacts of capitalization of research and development expenses and net allowance on
account receivables’ depreciation. 2014 data have been adjusted accordingly. See the adjusted table below.
4.1.2.1.2. General information
Revenues
Sales totaled €124.7 million, up 12.3% year-on-year at actual rates, and up 6.8% at constant exchange rates. Acquisition-related
revenues remained limited at EUR 0.7 million, split equally between Licensing and Services. There was a positive currency effect
of EUR 6.1 million, arising mainly from positive movements of the US dollar and to a lesser extent the Japanese yen and South
Korean won.
Licenses activity recorded annual sales of EUR 97.0 million, up 14.8% at actual rates compared with the previous year. That solid
growth reflects ESI Group's success in developing its installed base, which generates the very high repeat business rate of 90%
at constant exchange rates. New Business amounted to EUR 17.4 million, a small increase of 2.4% compared with 2014 despite
strong momentum in the second half, particularly in China.
Services activity recorded a moderate growth of +4.5%, driven by a solid +14.8% increase in engineering studies, the core of ESI
Group's Consulting activity (Services excluding Other Services, such as supply of equipment).
ESI Group ● 2015 Registration Document 53
In 2015, the geographical split in sales reflected strong growth in Licenses activity in Asia and the Americas. Asia accounted for
35.5% of total sales versus 34.7% in 2014, and the Americas for 18.7% compared with 17.2% in 2014, whereas Europe made up
45.8% of sales, compared with 48.2%.
The BRIC countries remained stable compare to the 2014 figure (12.6% of sales in 2015 vs 12.7% last year). Strong growth in
Licenses activity in China was partly offset by ongoing economic difficult context in Russia.
Gross margin and operating expenses
The gross margin was 72.5% of sales, compared with 71.3% in 2014. This improvement was a result of the shift in the product
mix towards Licenses and also an improvement in margin in both Licensing and Consulting activities.
In alignment with our strategy based on technological innovation, R&D investments increased by +21.6% at actual rates. R&D
costs thus totaled EUR 29.1 million (excluding the French Research Tax Credit ‘CIR’) and now represent 30.0% of Licensing
sales. This increased investment concerns existing technologies and also technologies associated with recent external growth
operations. Once CIR and R&D capitalization costs are taken into account, the total R&D costs recorded in the P&L statement
amounted to EUR 22.8 million at actual rates, an increase of +14.0%.
In 2015, Sales and Marketing (S&M) and General and Administrative (G&A) costs represented 31.0% and 13.8% of global sales
respectively. Altogether, these costs increased by +10.2% in 2015, compared with a +12.3% increase in sales. This result, which
fully includes S&M and G&A expenses of the Group’s acquisitions, highlights ESI’s good management of its operating costs over
the year.
Income
The EBITDA increased sharply of +32.2% to EUR 14.3 million, giving an EBITDA margin of 11.4% in 2015 compared with 9.7%
in 2014. This increase totaled + 26.2% at constant rates (for an equivalent of EUR 13.6 million, to 11.5% of gross margin). The
annexed reconciliation table documents the effect of the standardization in the definition of EBITDA and confirms the Group’s
good performance in terms of increase in profitability both prior to and after the integration of its acquisitions.
FY15
FY14
Variation at actual terms
Turnover
EBITDA – former definition
– Of which organic
– Of which 2015 M&A
R&D capitalization –net effect
Net provisions for accounts receivable depreciation
EBITDA – new definition
– Of which organic
– Of which 2015 M&A
Amortization on other tangible and intangible assets
Other net provisions
Current Operating Profit
124.7
11.7
13.6
- 1.9
3.5
- 0.8
14.3
14.8
- 0.5
- 2.2
- 0.2
11.8
111.0
10.1
10.1
0.0
1.2
- 0.4
10.8
10.8
0.0
- 2.1
0.3
90
%
12.3%
15.3%
34.5%
32.2%
37.2%
31.8%
Amount
13.7
1.5
3.5
- 1.9
2.3
- 0.4
3.5
4.0
- 0.5
- 0.1
- 0.5
2.9
Current Operating Profit strongly grew by +31.8% to EUR 11.8 million, showing a current operating margin of 9.5%, or 1.4 per-
centage points on the previous year. At constant rates, it totaled EUR 11.2 million, an increase of 25.6%.
EBIT increased by +12.0% to EUR 9.4 million, giving a margin of 7.5%, stable on the previous year. At constant rates, it amounted
to EUR 8.8 million, an increase of 5.4%, or + EUR 0.5 million. This increase was smaller than the increase in EBITDA and current
operating profit mainly because of exceptional costs, classified in non-recurring costs, associated with the last six technological
acquisitions carried out in 2015.
Financial Result was -EUR 0.9 million versus +EUR 0.7 million in 2014. In 2015, financial costs, notably associated with interest
charges, were not totally offset by revenue from currency gains and losses, which exceptionally totaled EUR 1.6 million in 2014
following the strengthening of the US dollar at the end of the year.
Affected by the effects of non-recurring acquisitions costs and the Financial Result, attributable Net Profit totaled EUR 5.3 million
in 2015, to yield a net margin of 4.3%, and takes into account a strong tax burden of EUR 3.2 million.
ESI Group ● 2015 Registration Document 54
4.1.2.2. Financial position – consolidated balance sheet
The main changes in the balance sheet over the fiscal year are described below:
– Non-current assets, less non-current liabilities (excluding financial debt), increased by EUR 25.3 million. This growth is
explained by the acquisitions of technological bricks and companies for an amount of EUR 21.3 million and by the R&D
capitalization which had impacted the fixed assets EUR 3.5 million;
– Total financial debt (long-term and short-term) increased by EUR 24.0 million, mainly due to acquisitions of subsidiaries
and technological bricks during 2015 fiscal year. A new syndicated loan was signed during the fiscal year, enabling the
refinancing of the previous loan as well as providing funds for external growth, in particular for the acquisition of ITI GmbH
at the end of the fiscal year. The use of the revolving credit line(which replaced commercial paper used in 2014) remains
at a more-or-less stable level, having increased 0.5 million euros.
Equity stood at EUR 91.7 million. Financial debt came to EUR 46.6 million, representing 50.8% of equity, versus 26.0% one year
earlier.
Financial debt, net of available cash flows, totaled EUR 36.2 million and represents 39.6% of equity (the gearing ratio), versus
12.3% at January 31, 2015.
Cash and cash equivalents at the closing decreased of EUR 1.6 million, from EUR 11.9 million to EUR 10.3 million at January 31,
2016.
At January 31, 2015 ESI Group also held 7.2% of its equity in treasury stock.
4.1.2.3. Risk management
Country risks and foreign exchange risk
Because of its international dimension, notably in countries with a currency other than the euro, the Group is exposed to country
risk and foreign exchange risk.
– Country risk: During the fiscal year ended January 31, 2016, 45.8% of the Group's revenues were earned inside of Europe,
35.5% coming from Asia (mainly Japan, South Korea, China and India) and 18.7% coming from the Americas (mainly the United
States). The Group is therefore exposed to economic and political uncertainties in these zones.
– Foreign exchange risk: The Group is also exposed to risks stemming from changes in foreign exchange rates. For the fiscal
year ended January 31, 2016, 59.1% of revenues were generated outside the Euro zone and 47.6% of the costs are spent in a
currency other than the euro. The Group's policy aims, whenever possible, to hedge net operating cash flows projected in the
budget based on the exchange rate applied for budgetary purposes.
A detailed description of these risks and hedging is submitted in notes 7.1.4 and 7.3 to the consolidated financial statements.
Interest rate risk
Most of the Group's financial debts are with variable interest rates. In order to limit the negative impacts of rate fluctuation, the
Group applies a non-speculative management policy, using derivatives. A detailed description of this risk and of hedging can be
found in notes 7.1.2, 7.1.4, and 7.3 to the consolidated financial statements.
4.1.2.4. Cash flows and financing
The 1.6 million-euro decrease in cash over the 2015 fiscal year can be explained by the events listed below.
Net cash flows came to EUR 7.5 million versus EUR 7.9 million for the previous fiscal year. This change is primarily due to:
– An increase in EBITDA of 3.5 million euros;
– Variation of non-cash items of 2.0 million euros, mostly related to an increase in capitalization of R&D costs;
– Non-recurring costs related to 2015 acquisitions of 1.3 million euros;
– An increase in assets for coverage of retirement benefits in South Korea following regulatory changes, with an impact of
0.6 million euros.
Variation in several components of working capital requirement (WCR) has had a negative impact of 7.8 million euros due mostly
to growth in revenues over the fourth quarter, which receivables will be paid only in the following year. The amount of liquid assets
from operations is thus at - 0.3 million euros.
Current capital expenditures paid by the Company are worth 2.9 million euros, versus 1.4 million euros for the previous fiscal year.
This increase can mostly be explained by investments made in high-performance computing (HPC) and a decrease in debts owed
to suppliers of fixed assets.
In addition to these current capital expenses, there were investments in technological bricks and acquisitions of subsidiaries for
20.4 million euros (excluding liquid assets of the companies acquired) and payment of earnouts for 0.2 million euros.
ESI Group ● 2015 Registration Document 55
The main financing flows in 2015 were related to acquisitions for 21.5 million euros. Additionally, at the beginning of fiscal year
2015, ESI Group paid off 7.5 million euros in commercial paper and, at the end of fiscal year 2015, used 8.0 million euros of its
short-term revolving credit to cover the strong effects of variation in WCRs related to significant growth in revenues at the end of
the year. Overall, financial debts increased by 24.0 million euros.
4.1.3. Research and development
4.1.3.1. Research and development costs
Research and development costs are recorded as soon as they are incurred. This amounted EUR 29.1 million in 2015, an increase
of 21.6% compared to previous year. This investment rise concerns existing technologies, but also those on last external growth
operations.
The capitalization of R&D costs had a EUR + 3.5 million impact on the income statement in 2015.
A breakdown of the expenses is provided in the note 6.1.2 to the consolidated financial statements.
Research and development (R&D) policy
The Edition Department in charge of R&D delivers products in line with the Group's strategy and market needs. It also seeks to
maintain the competitive edge of ESI Group's solutions. It focuses on:
– Generic analysis and simulation tools needed to approach the market (Virtual Tool);
– Business solutions that provide realistic physical modeling properties via simulation (Virtual Test);
– Component lines to manage processes and best practices by industrial segment or multi-model design (Virtual Compo-
nent);
– Systems involving component chains or mechatronic sub-systems and systems (Virtual Systems);
– Complete prototyping lines covering all aspects of the virtual engineering process in line with the customer's product life-
cycle management process, providing optimization and 3D visualization capabilities and assisting in the local, depart-
mental or global decision-making process;
– Comprehensive, "living” virtual prototyping platforms that support all product modules and customer processes and that
improve the customer's products performance cycle.
The R&D policy supports:
– The business model in an effort to adapt to changes in how products are used and to push boundaries for new computer
platforms (GPU, SaaS, Cloud) or platforms in development with a view to upgrading the installed base;
– Product improvements with a view to expanding the installed base or winning over new customers with existing products;
– New products with a view to encouraging our customers to deploy new products and new processes or to improve their
performance by working jointly with ESI Group.
The Products Department allots different levels of investment depending on the maturity of the product:
–
–
–
Investments are made in mature products in order to ensure maintenance, product improvements, widespread adoption
of major innovations and the delivery of new competitive products;
Investments are made in emerging products with greater demand and with the potential to drive growth in order to ac-
celerate adoption of these products in industrial applications;
Investments are made in innovative products by increasing the research contracts with leading customers in order to
ensure the viability of these new tools and to increase the chance of commercial success, where applicable;
– Technology intelligence is performed to support all products.
The Edition Department follows an approach that is both specific and generic in nature to meet different goals:
– To ensure generic products and components to meet multiple needs in multiple industrial segments and to support de-
velopments of services, customers or third parties;
– To ensure the competitiveness and productivity of our products by targeting specific, high-potential business applications
and solutions;
– To maximize synergies between products to make it easier to release competitive, affordable versions and minimize
maintenance efforts;
– To integrate this generic know-how into a comprehensive virtual prototyping platform that makes it easy to take needs
into account for specific applications or custom services.
The Edition Department continues to partner actively, to ensure:
– The identification of technologies, acquisition targets and market opportunities in collaboration with its Scientific Commit-
tee;
– An evaluation of financing opportunities to guide the levels of investment;
ESI Group ● 2015 Registration Document 56
– A discovery process in partnership with the various approaches to research and development (academic chairs, Euro-
pean projects, co-creation projects);
– Rapid industrialization for optimal market introduction.
This environment reduces risks and ensures a high rate of co-financing and research tax credits.
The Edition Department follows a methodology that is tailored to the needs of highly innovative customers and always uses the
best tools on the market to avoid redundancies and the obsolescence of in-house solutions. In addition, near-shoring or multi-
shoring, which are used to strike a balance between human interests and financial interests, is being expanded to reduce depend-
ence on exchange rate effects and to reduce related expenses.
4.1.3.2. Intellectual property (excluding trademarks)
Most of the Company’s intellectual property consists of software and databases that are protected by copyright in the world, and
by specific laws concerning database producers within the European Union, and by competition law outside.
The ownership of all development work performed by ESI Group's subsidiaries and ordered by these latter is transferred to the
Company. The Group's publishing division thus holds all intellectual property rights.
Most of the software products and databases published by the Company belong to ESI Group.
The Company is the beneficiary of publishing contracts for the few products that belong to third parties. These products represent
either software integrated within its offer (for which replacement solutions could be obtained in the event that the third-party
software is discontinued) or complementary solutions which are not, however, critical to the operation of the Company's software.
The Company also owns several patents, directly or via its subsidiaries.
4.1.4. ESI Group SA annual financial statements and allocation
4.1.4.1. ESI Group SA annual financial statements
ESI Group SA is the parent company of the Group; therefore, it owns or controls all of its subsidiaries.
It oversees all of its subsidiaries and centralizes most of software publishing activities.
ESI Group SA's revenues consist mainly of:
1. Royalties paid by subsidiaries, distributors and agents and received for software licensing;
2. Amounts billed to direct customers for software licensing and/or services, in territories not covered by its subsidiaries;
3. Group services fees billed to subsidiaries as compensation for ESI Group oversight responsibilities;
4. Self-created assets stemming from research and development work;
5. The licensing of exclusive software distribution rights to the subsidiaries.
The operating result for 2015 is a profit of EUR 1,649 thousand versus a loss of EUR 846 thousand for the previous year.
This increase of EUR 2,495 thousand is explained in the table below:
(in thousands of euros)
Operating profit
ESI North America debt write-off (1)
TOTAL EXCLUDING ESI NORTH AMERICA DEBT WRITE-OFF
Increase in revenues
Decrease in production held as inventory
Increase in external expenses
Change in capitalization of research and development costs
Increase in salaries and social charges
Change in provisions for contingencies and risks (operating result)
Change in provision allowances and/or reversals, and losses on current assets
Change in depreciation and amortization allowance
Other change
2015
1,649
1,649
2014
(846)
3,538
2,698
Change
2,495
(3,538)
(1,043)
10,670
(736)
(12,257)
2,536
(1,279)
155
(63)
(371)
302
ESI Group ● 2015 Registration Document 57
TOTAL CHANGE
(1) Debt write-off recorded in 2015, but related assets depreciation recorded in 2014.
(1,043)
The financial result is a profit of EUR 522 thousand versus a profit of EUR 291 thousand in 2014. Financial result can be broken
down as follows:
(in thousands of euros)
Foreign exchange currency result and provision for foreign exchange
Depreciation of controlling interests
Reversal of provisions on receivables related to controlling interests
Interest on borrowings
Interest on current accounts, subsidiary payables and receivables
Other financial income (expenses)
TOTAL
Current income before tax is a profit of EUR 2.2 million.
2015
1,784
(910)
150
(391)
29
(140)
522
2014
696
-
-
(292)
11
(124)
291
The Company has also recorded EUR 341 thousand of exceptional loss, essentially composed of EUR 217 thousand accelerated
capital allowances on subsidiaries’ acquisition costsand of EUR 151 thousand of accelerated amortization of previous syndicated
loan issuance expenses (early terminated in 2015). The Company recognizes a credit tax income of EUR 2.2 million that corre-
sponds to a corporate tax expense of EUR -0.8 million, to a tax credit for research of EUR 2.8 million and to a tax credit for
competitiveness and employment of EUR 0.1 million
Net profit stands finally at EUR 4.0 million, versus EUR 1.1 million in 2014.
Equity rose by EUR 4.3 million, from EUR 87.7 million to EUR 92.0 million due to retained earnings (EUR 4.0 million), capital
increases after the exercise of stock options (EUR 0.1 million) and change in regulated provisions (EUR 0.2 million).
ESI Group's working capital stands at EUR 8.2 million:
(In millions of euros)
Equity
Provisions/reserve
Borrowings and conditional advances (1)
Short-term borrowings (1)
LONG-TERM CAPITAL
Net assets
WORKING CAPITAL
Working capital requirement
CASH AND CASH EQUIVALENTS
(1) Reclassification in 2014 of EUR 7.5 million of commercial paper in bank borrowings in order to restore comparability of data.
2015
92.0
1.4
43.3
(13.6)
123.1
114.9
8.2
(1.3)
7.0
2014
87.7
2.4
20.5
(11.4)
99.2
90.8
8.3
(2.2)
6.2
In spite of the financial debt’s increase further to recent acquisitions, the Group's financial position remains strong. Equity repre-
sents 75% of long-term capital, versus 88% in 2014.
In accordance with Articles L. 441-6-1 and D. 441-4 of the French Commercial Code regarding reporting of payment terms, at
January 31, 2016, the balance of ESI Group's liabilities to its vendors could be broken down as follows:
Term
≤ 30 days
30 to 60 days
60 to 90 days
90 to 120 days
2015
2014
Trade payables
(In thousands of
euros)
Trade payables
(In thousands of
euros)
28.21%
16.33%
1.81%
4.27%
(5,314)
(3,075)
(342)
(805)
37.17%
7.07%
3.36%
6.92%
(5,550)
(1,055)
(501)
(1,033)
ESI Group ● 2015 Registration Document 58
> 120 days
SUB-TOTAL
Invoices not received
TOTAL
49.37%
100.00%
N/A
(9,299)
(18,835)
(11,645)
(30,480)
45.48%
100.00%
N/A
(6,792)
(14,932)
(7,720)
(22,652)
Terms greater than 120 days are debts towards subsidiaries of the Group.
4.1.4.2. Allocation of profits
Net profit for the fiscal year ended January 31, 2016 comes to EUR 34,272,561.70.
Origin:
– Net profit for the year: EUR 4,035,722.76;
– Profit carried forward: EUR 30,236,838.94;
– Total to be allocated: EUR 34,272,561.70.
We propose to allocate as follows:
– EUR 144,753.48 to the legal reserve;
– EUR 34,127,808.22 to profit carried forward;
Following this allocation, the balance of the legal reserve stands at EUR 1,786,521.60, representing 10% of share capital.
4.2. Outlook
4.2.1. Events after the reporting period
In February 2016, ESI announced the acquisition of Mineset Inc., a big data visual analytics and machine-learning specialist. This
acquisition will allow ESI Group to amplify its virtual engineering solutions thanks to a disruptive approach. Indeed, Mineset’s
technology and its human-in-the-loop iterative analytics with an intuitive user interface will be integrated within ESI Group’s overall
Virtual Engineering offer and adapted to each specific application in the product-design process. Significantly improving decision-
making processes, big data analytics, pattern recognition and machine-learning technology will enhance ESI Group’s solutions
with new capabilities in terms of simulation result analysis, discovery of hidden correlations, fault detection, predictive maintenance
and design optimization. This will thus contribute to the delivery of better simulation and modeling results and, subsequently, to a
reduction in production and maintenance times.
4.2.2. Business trends
The quality of the business indicators in the first months of 2016, combined with recent strategic advances in recent acquisitions,
place ESI Group in an ideal position to increase its business volume and achieve profitable growth this new fiscal year.
The business dynamic will also be supported by the accelerated growth of ESI Group in markets of the future, such as advanced
driver assistance systems (ADAS) vehicle safety, visualization and exploitation of scientific Big Data, mechatronic and multi-
domain 0D-1D systems, machine learning, or even the Internet of Things (IoT). This diversification, into areas with strong potential
derives in particular from numerous acquired companies since 2015 and early 2016. Some acquisitions have an established
commercial base which broadens diversification across industry sectors. Also, they play a role in reinforcing the innovative poten-
tial of ESI Group's digital modeling and Virtual Prototyping solution. The Group expects to draw on its solid experience in acqui-
sitions to successfully integrate these acquired top class companies.
Because it is aware how crucial competitive innovation is to its leadership in guiding manufacturers to the smart numerical factory,
ESI Group expects further improvement of its economic performance combined with a sales growth and the deployment of ac-
quired solutions.
4.3. Report on Corporate Social Responsibility (CSR)
4.3.1. ESI Group approach in terms of social and environmental responsibility
Aware of its responsibility in each of the three pillars of sustainable development, ESI has gradually devised a CSR policy that
contributes to shared economic and social development and the preservation of human equilibrium. In 2015, the Company final-
ized formalizing the major areas and commitments of its approach.
From the outset, by developing innovative virtual prototyping products, ESI has sought to measure the impact of its solutions on
ESI Group ● 2015 Registration Document 59
society. Indeed, ESI's solutions enable reductions in the number of physical prototypes, which are costly and require large amounts
of energy, raw materials and time, and bring to the market production which is more environmentally friendly and socially respon-
sible. Furthermore, making models virtual also means optimizing the sustainability of products by letting manufacturers the pos-
sibility to refine their reflection on the solutions they put into production and spend more time on socially important issues such as
safety, comfort and performance. ESI Group's ambition is to become the leader in Virtual Prototyping through responsible inno-
vation. The Group therefore plans to be the favored development partner for its clients, able to understand and assist them in their
approach in bringing to market quality products that are also sustainable, ethical and highly resource-efficient.
Within the Group, CSR policy is seen as a genuine corporate commitment and one that will create value. In 2015, the actions
carried out by the Company were all focused in this direction. ESI has made a list of the stakeholders inside and outside the Group
on whom it has the greatest influence: employees, customers, the environment and civil society, towards all of whom serious
commitments have been made.
This third CSR report outlines a wider scope as described in section 4.3.1.3.
4.3.1.1. Commitments
Divided into 4 axes and declined in 8 commitments, the CSR strategy aims at ensuring to its employees harmonious work conditions,
providing its customers with innovating solutions allowing them to become long-term partners and limiting the Group’s and its cus-
tomers’ environmental footprint while acting ethically and responsibly within civil society.
1. Being a committed employer
– Develop talents and encourage leadership and collaborative management;
– Promote diversity and global thinking.
2. Being an outstanding partner
– Provide innovative and sustainable high-quality solutions that meet our customers' requirements;
– Build long-term, trusting relationships.
3. Being an environmentally friendly player
– Develop solutions that will help reduce the environmental footprint of manufacturers and comply with regulatory require-
ments;
–
Limit the environmental impact of our global offices.
4. Serve civil society
– Boost innovations and establish partnerships with the academic and scientific communities;
– Act ethically and responsibly.
ESI Group ● 2015 Registration Document 60
4.3.1.2. ESI Group values
ESI strongly affirms its values, which infuse its culture and its ambition which is to be a highly respected organization that has
produced innovation for the sake of its customers and its employees for more than 40 years.
ESI's values — Passion, Global, Change, Trust, Social Responsibility and Energy — anchor its identity and fit logically together,
as can be seen in the corporate social responsibility actions defined below.
4.3.1.3. Our CSR efforts
An evolving approach
In 2013 the Group carried out diagnostics that enabled it to make an inventory of the existing process, survey the measures and
initiatives taken in support of sustainable development and identify the relevant indicators, which were real issues for the Group.
Starting in 2014, the Group's CSR has been guided by a pragmatic goal of continuous improvement, as ESI seeks to advance
the implementation of best practices in the areas where it has the greatest responsibilities and the greatest impact.
The collection of quantitative and qualitative data has been organized in close collaboration between top Management and the
various professional groups in the countries, with the goal of gradually broadening the scope until it covers every subsidiary in a
reliable manner.
The data available are sorted into three geographic areas corresponding to the Company's business divisions:
– Americas = United-States and Brazil;
– Asia-Pacific = China, South Korea, Japan, Vietnam, India and Malaysia;
– Europe, Middle East and Africa = Germany, United Kingdom, Spain, France, Italia, Netherlands, Czech Republic, Russia,
Sweden, Switzerland, and Tunisia.
Scope
In keeping with its commitments, ESI Group continued in 2015 its actions to expand the gathering and analysis of indicators
internationally.
– Scope of social reporting:
Using the employment data management software (called HR-IS, or human resources information system) installed in 2012,
the majority of employment indicators, now managed on a single source, have been analyzed for the entire workforce since
2013. Furthermore, thanks to the annual worldwide survey conducted in on the operations, legislation, practices and norms
of the different subsidiaries, the Group now has a reliable, international picture of all employment indicators. One exception
remains, though, concerning the absenteeism rate, which not all subsidiaries are able to report in a sufficiently reliable way,
partly due to terminology and partly to local practices. To improve this situation, these indicators previously provided only for
France are extended to Germany, Czech Republic and Japan for the year 2015. All entities are organizing an efficient follow
up for these indicators that will allow a regular extension of the perimeter for the two next year until full coverage.
– Scope of environmental reporting:
The scope for environmental data is France, Germany, Czech Republic, Japan and United-States representing more than
62% of the total workforce.
– Scope of societal reporting:
The scope for societal data is France, Germany and United-States, representing 50% of the total workforce.
ESI Group ● 2015 Registration Document 61
4.3.2. Being a committed employer
– Develop talents and encourage leadership and collaborative management
– Promote diversity and multicultural exchanges
The Human Resources Information System (HR-IS), implemented in 2012, consolidates the HR reporting process worldwide and
lends greater flexibility to the organization. It also promotes better use of resources by focusing on skills, to encourage a more
involved, multi-disciplinary managerial culture.
The platform provides an ongoing view of changes in employment indicators and makes it possible to drive our resource needs more
easily.
A selection of employment indicators is provided monthly to the Management Committee in order to measure the effectiveness of
HR policies.
The data from HR-IS are provided on a worldwide scope, while fully respecting individual privacy and confidentiality requirements of
different geographies.
4.3.2.1. Employees headcount
ESI's employees consist primarily of highly-trained engineers and Ph.Ds. from prestigious universities and institutes in France
and abroad. In addition to the close relationship that ESI has always had with these schools, there are a number of other factors
that exemplify ESI's commitment to value employees' experience and foster highly qualified recruitment and internal development.
For example, ESI's positioning in the field of virtual simulation that takes into account the physics of materials, the Group's prom-
inence as a publicly listed company on the Paris stock exchange, the Group's continuing education programs and its focus on
internal promotion within its international network.
Data related to headcount are calculated on the number of employees on January 31, 2016.
The Group's total headcount includes permanent and fixed-term employees as well as those on student contracts such as
work/study and internships. It does not include temporary workers, consultants and external distribution networks.
At January 31, 2016 the ESI Group workforce consisted of 1,144 employees as against 1,025 for FY2014 and includes 84 em-
ployees from companies acquired during the fiscal year 2015 (of which 68 coming from the acquisition of ITI). The average
headcount in 2015 was 1,054 employees from which 22 resulting from FY2015 acquisitions, against 1,003 in 2014.
With very few limited employment contracts, 97.7% of the Group's workforce is on permanent contracts. Internships and appren-
ticeships account for 1.6% of the total workforce.
In 2015, ESI pursued its ambition to control its staff in connection with business growth. It should be noted that the scope is not
comparable from one year to the next because of mergers and acquisitions made over the period. Also, at the close of 2013 staff
left employment in the direct operation in China to form a joint venture.
The charts below present a breakdown of employees by region, country and general business activity.
ESI Group ● 2015 Registration Document 62
Note: Among the 55.7% of employees located in the Europe/Middle East/Africa region, 53.2% are located in Europe.
Research & Development resources
These teams are made up primarily of highly-educated engineers; their expertise and experience are key to the Group's value
added.
R&D teams are primarily located in France, India and the United States, where synergy and versatility of teams are developed.
Sales & Marketing activities
At the central level:
– Product Marketing;
– Marketing and Communication;
ESI Group ● 2015 Registration Document 63
– Business development for the sale of products and related services in the deployment phase.
At the distribution level:
– Pre-sale support;
– Direct sales;
– Customer support.
Consulting and Support
These teams are made up of engineers in charge of projects production and engineers responsible for providing technical sup-
port (including via a hotline) both directly to customers and via our subsidiaries.
General & Administrative costs
Consisting of teams from Legal, Quality, Finance and Human Resources departments, along with a part of management and IT
teams.
The percentage of women among permanent employees was 19.7%, which is relatively low and unchanged from previous years.
This low representation is primarily due to the small number of women in engineering schools, which are our main source for
recruiting. The proportion of women is very low in post-secondary engineering courses (12.9% in 2012). Female students are
much better represented in the social sciences, biology and psychology (62% in 2012). The poor representation of women in
engineering is even more pronounced in Asia, where females made up 2.6% of students in 2012 (source: NFS Study, "Women,
Minorities, and Persons with Disabilities in Science and Engineering" – January 2015).
Nevertheless, our HR professionals are aware of the need to add women to local teams and carefully consider female candi-
dates whenever the Group is hiring. In 2015, 57 women joined the Group, which represents 22% of total new recruits.
The average age of employees is 38 years (male employees: 38.3 years / female employees: 37.3 years).
ESI Group is compliant with the laws in favor of hiring and continuing to employ people regardless of their age. Thus 15.5% of
employees are aged 50 or more, i.e. 177 people worldwide (149 men and 28 women).
67.8% of those aged 50 years and older are located in Europe, compared to 20.3% in the Americas and 11.9% in Asia.
ESI Group ● 2015 Registration Document 64
In addition, 43% of Group employees are under 35 years of age, which contributes to the employment of young people overall. In
2015, 69.5% of employees hired were younger than 35.
The average length of service in the Group is seven years. This relatively low level of seniority is due on the one hand to the high
proportion of employees under the age of 35 (43.1%), who are currently in a strong position on the labor market and therefore
more mobile early in their careers, and on the other hand to the fast growth of the software publishing industry.
The average length of service for employees over the age of 35, however, is 10 years.
4.3.2.2. Employee turnover
Recruitments (excluding acquisitions)
EUROPE, MIDDLE-EAST AND AFRICA
Permanent contracts
Temporary contracts
Apprenticeship/ traineeship
AMERICAS
Permanent contracts
Temporary contracts
Apprenticeship/ traineeship
ASIA-PACIFIC
Permanent contracts
Temporary contracts
Apprenticeship/ traineeship
TOTAL
Exits
EUROPE, MIDDLE-EAST AND AFRICA
Permanent contracts
Temporary contracts
Apprenticeship/ traineeship
AMERICAS
Permanent contracts
Temporary contracts
Apprenticeship/ traineeship
ASIA-PACIFIC
2013
105
72
11
22
26
19
7
32
32
163
2013
68
39
6
23
75
62
13
61
2014
2015
98
58
6
34
26
15
11
63
59
3
1
187
92
47
5
40
26
19
2
5
62
59
2
1
180
2014
2015
91
52
7
32
27
19
1
7
39
83
43
5
35
33
27
6
40
ESI Group ● 2015 Registration Document 65
Permanent contracts
Temporary contracts
Apprenticeship/ traineeship
TOTAL
61
39
204
157
37
2
1
156
In 2015, ESI Group hired 125 employees on permanent contracts, with a very low rate of temporary contracts (5%). To these
hirings are added 84 employees integrated in the course of the year because of the mergers.
The departure rate of permanent employees in 2015 was 10.2% [(departures/average headcount) x 100] as against 12.6% in
2014.
The 2015 turnover rate excluding temporary employees was 11.9% [((departures in year N + new hires in year N)/2)/average
headcount in year N-1] x 100] as against 12.2% in 2014.
4.3.2.3. Work organization
Work schedules
FULL-TIME
Women
Men
PART-TIME
Women
Men
TOTAL
204
896
26
18
1,144
In 2015, 3.9% of the total workforce was part-time; additionally, most part-time jobs are created to meet the needs of employees
who request them.
The length of the working week is set in compliance with local legislation.
The global average working week is 39.8 hours.
In the great majority of its subsidiaries, ESI Group offers its employees flexible work schedules. In some countries, particularly
Japan, schedules are set to meet the requirements of the job but are limited to eight hours per day.
In France, work hours are organized based on days worked or according to a fixed schedule. An employee who works on a days-
worked basis works a certain number of days during the year, while an employee who works on a schedule basis works the
number of hours stipulated under the employment agreements:
– Managers who work on a full-time, days-worked basis, work 217 days per year, plus one extra day for France's "national
solidarity day";
– Non-managers work an average 35-hour workweek following France's "RTT" (days off) law to reduce work hours
Absenteeism
Absenteeism is monitored locally in accordance with the regulations in force in the various countries where ESI is present. The
Group does not have a standardized system in place to manage absences across all of its subsidiaries.
However, while taking into account the variety of laws and the numerous particular factors considered by countries in terms of
absenteeism as well as local management of this information, ESI Group has chosen to extend the definition of absenteeism to
the following circumstances:
– Absence of an employee due to illness for any length of time;
–
–
Long-term absence (more than 20 business days) due to illness;
Leave granted to parents following the birth or adoption of a child in their household (maternity and paternity leave);
– Parental leave granted to parents so that they can raise their young children (the legal duration of this leave varies
according to local laws);
– An accident that befalls an employee while performing his or her job or during job-related travel (workplace and travel
accidents);
– Or an illness that befalls an employee due solely to his or her work in the Company (occupational illness).
ESI Group ● 2015 Registration Document 66
Information on absenteeism for 2015 was gathered for France, Germany, the Czech Republic, and Japan. Please note that the
information for Germany does not include absences of employees integrated into the Group via mergers and acquisitions over
the course of the year.
The Group's intention is to be able to measure the impact of these days of absence on the employment of staff so as to make the
necessary corrections to our procedures, working conditions and, if necessary, internal safety procedures.
BREAKDOWN OF ABSENTEEISM IN NUMBER OF DAYS
In 2015, absences related to birth, adoption, or raising of one or more children represented more than 50% of absences within
the selected parameters.
The Group's business is such that the great majority of its employees are sedentary, limiting the risk of workplace accidents. Any
day of absence for workplace accident, job-related travel or occupational illness has been noted on the total of subsidiaries.
This can be partly explained by the high proportion of employees under the age of 40 years old within the Company.
4.3.2.4. Recruiting and retaining talent
The Group pays special attention to the entry of new hires through an induction program managed locally by each subsidiary. In
order to standardize and globalize the induction process for new employees, an integration program is being implemented to
guide and support subsidiaries in their assistance to new employees during their first days, weeks and months on the job at ESI
Group.
The Group is currently defining a dynamic internal mobility program to highlight the skills of each employee and thereby promote
their internal development. Internal mobility allows us to retain the expertise and skills of employees while increasing their ambi-
tions to contribute to new experiences.
4.3.2.5. Professional development, training and career management
Professional development and career management
The Group has an individual performance and development review process that calls for at least one meeting per year between
an employee and his or her supervisor in order to evaluate the employee's performance during the past year in relation to
predetermined objectives and to set goals for the coming year.
95% of all Group employees underwent a performance evaluation interview during the 2015 fiscal year, a 32% significant
increase compared to 2013.
These assessment interviews are the most important source for collecting information as to training needs and staff develop-
ment, and make it easier to construct appropriate local training plans that meet the needs of a changing business. These
evaluation interviews also present the opportunity to identify the company's greatest potential talents and put in place professional
development to help those employees grow within the company. Additionally, this system particularly provides support for certain
employees via an individualized plan for improving performance.
Professional training
Training programs have also been implemented within the Group's various subsidiaries. Training plans are in line with ESI Group's
strategy and market trends. They allow employees to learn more about the portfolio of solutions available and to boost their
managerial and professional skills (techniques, sales, etc.).
This year, 544 employees or 47.5% of the workforce, received training, at a cost to the Company of EUR 382 thousand. France,
India and Czech Republic were particularly active this year with the organization of actions helping over 80% of their respective
workforce.
In total for 2015, 8,974 training hours were provided, or an average of 16.5 hours of training per trained employee.
ESI Group ● 2015 Registration Document 67
Actions supporting apprenticeship
Numerous partnership agreements have been signed with universities and engineering schools and allow ESI Group to play an
active role in the training of young people. In Europe, one can point to the École centrale de Paris, the Technical University of
Dresden (Germany), the University of West Bohemia (Czech Republic), ENIT of Tunisia, etc., with which ESI Group has special
arrangements.
The Universities of Alabama, Shanghai and Beijing, along with the Indian Institute of Sciences among others, work closely with
ESI in the Americas and in Asia-Pacific.
Additionally, the Group is very involved in working with young people and has integrated 62 students in 2015 (51 interns, four
apprenticeships and seven doctoral students).
4.3.2.6. Labor relations
Employer-employee dialogue
The quality of the employer-employee relationship is guaranteed through frequent exchanges between the Group's management
and the employees and their representatives.
The employee representative bodies are appointed in accordance with the applicable laws in the countries. We had 17 employee
representative bodies at our various sites in Europe and Asia-Pacific.
These bodies, based in United Kingdom, France, Germany, China, Japan and India, involved a total of 46 employees who actively
participated in a total of 47 meetings during 2015.
– Summary of collective agreements: the French subsidiary signed a variety of agreements with its employee repre-
sentatives, such as the reduced workload agreement, the profit-sharing agreement and the company savings plan
agreement;
– Summary of agreements relating to health and safety: no company signed an agreement in this regard.
Health and safety
ESI Group has set as an objective to provide high quality welfare cover for all its employees throughout the world with regard to
healthcare, aging, disability and death. This cover takes the form of policies that are best tailored to the needs of employees and
in compliance with local regulations and cultures.
The subsidiaries already offer all their employees supplementary health insurance, except for Tunisia where a majority of the
employees, when asked to vote on a collective plan, declined the subsidiary's offer. A new proposal will be done in June 2016.
In addition, eight subsidiaries in Europe and two in Asia-Pacific have an organization whose mission is to monitor and advise the
Company and its employees about risks related to workplace health and safety. In all, 24 employees are involved in these local
organizations.
4.3.2.7. Well-being at work
The Group is aware that improving conditions at work has a direct impact on the well-being, effectiveness and motivation of
employees and that it significantly improves the Company's overall performance.
The majority of projects carried out for our customers are completed in-house, in that engineers do not necessarily need to be at
the customer's site to develop or apply the software. This limits lengthy travel by employees and so improves the balance between
personal life and working life.
Furthermore, in the various countries a range of initiatives has been undertaken in recent years in favor of employees' well-being.
The Rungis site in France, the Plsen site in the Czech Republic and the Tunisian site have pleasant, well-equipped break rooms
where employees, can meet, relax and eat meals.
At the Neu-Isenburg (Germany), Plsen (Czech Republic) and Rungis (France) sites, showers are available to employees who
wish to exercise during their lunch break. In the Czech Republic a table tennis table has been set up, offering moments of relax-
ation to employees, who can also receive a massage each week.
In addition, in the majority of countries (India, Japan, South Korea, China, Germany, Czech Republic, Tunisia, United States, etc.)
employees have self-service hot drinks available, and even fruit.
In France, an initiative between the Health, Safety, and Working Conditions Committee (CHSCT) and the Human Resources
Department has led to a study of psychosocial risks for support positions. In accordance with a study conducted by an external
group, the French subsidiary established working groups whose mission is to develop proposals and recommendations for the
organization and management of time. Through this collaboration, the subsidiary hopes to considerably improve employees well-
being based on their requests.
ESI Group ● 2015 Registration Document 68
4.3.2.8. Equal opportunity and anti-discrimination
Gender equality
The ESI Group strives to comply to all its subsidiaries with the applicable regulations regarding gender equality in the workplace
and non-discrimination. Job postings are written in a unisex manner.
Principles of non-discrimination
In 2015, ESI Group drafted its ethics charter in order to promote the observance of its values and to confirm its commitment to
the main rules of conduct that the Group wants to see applied internally. This ethics charter reaffirms the legal, regulatory and
internal provisions relating to the respect of fundamental rights at work, professional integrity, the elimination of discrimination,
and the prohibition of child labor and forced labor.
This charter is based on the observance of the ethical rules promoted by the conventions of the International Labor Organization.
The charter was submitted to all employees in the first half of 2016.
To provide more detailed information, particularly as regards gender equality and non-discrimination, the Group completed its
social HR database by introducing the status of Manager for individuals who supervise one or more employees. 14.5% of our
managers are women.
Inclusion of employees with a disability
The Company has undertaken to ensure that employees with a disability have access to all advertised positions.
On the whole scope, the Group employs one person with disabilities in Asia.
4.3.2.9. Compensation
To attract and retain the best talent on the market, ESI Group offers an attractive compensation and benefits package. This policy
aims to recognize employee talent by rewarding both individual and collective performance.
The compensation of employees comprises both direct and indirect elements. The latter includes deferred cash or in-kind additions
to their monthly compensation (bonuses, commissions, savings plan, benefits, etc.).
All the countries in the employment reporting scope offer their employees indirect compensation.
In Europe and the Americas six subsidiaries out of 15 have created an employee savings program.
The FCPE for employee shareholders, created in France in 2013 to house future profit sharing amounts and voluntary contribu-
tions within the Company savings plan lasting until 2015, acquired 21,463 shares of ESI Group during its first subscription period
of November 2013, on behalf of 151 employees. Total subscriptions by French employees were EUR 340,403. Given the success
of this operation in France, with a 60% participation rate, senior management would like to encourage investment by the employ-
ees of the Group's foreign subsidiaries in ESI stock so that all employees will have a stake in the Company's development.
In 2015, there were 112 voluntary payments into the ESI ACTIONS fund totaling EUR 110,640. As regards these voluntary pay-
ments, the matching contribution was EUR 57,264 gross, and EUR 52,683 net.
CROSS-REFERENCE TABLE - INDICATORS REQUIRED BY ARTICLE R. 225-105-1 OF THE FRENCH COMMERCIAL CODE
- EMPLOYMENT INFORMATION
1.1 | Employment
1.1.1 | Total workforce and breakdown by gender, age and geographic area
1.1.2 | Hirings and layoffs
1.1.3 | Compensation and changes in compensation over time
1.2 | Organization of work
1.2.1 | Work schedules
1.2.2 | Absenteeism
1.3 | Labor relations
1.3.1 | Organization of employer-employee dialogue
1.4 | Health and safety
1.4.1 | Workplace health & safety conditions
1.3.2 | Summary of collective agreements
1.4.2 | Summary of agreements signed with trade unions or employee representatives in
respect of workplace health and safety
1.4.3 | Workplace accidents, in particular their frequency and severity, as well as occupational
illnesses
1.5 | Training
1.5.1 | Policies implemented in terms of training
1.6 | Equal treatment
1.6.1 | Steps taken in support of gender equality
1.5.2 | Total number of training hours
1.6.2 | Steps taken in support of employment and inclusion of people with a disability
4.3.2.1.
4.3.2.2.
4.3.2.9.
4.3.2.3.
4.3.2.3.
4.3.2.6.
4.3.2.6.
4.3.2.6.
4.3.2.6.
4.3.2.3.
4.3.2.5.
4.3.2.5.
4.3.2.8.
4.3.2.8.
ESI Group ● 2015 Registration Document 69
1.6.3 | Anti-discrimination policy
1.7 | Promotion and observance of the
fundamental conventions of the International
Labor Organization
1.7.1 | Observance of freedom of assembly and the right to collective bargaining
1.7.2 | Elimination of discrimination in employment and occupation
1.7.3 | Elimination of forced or mandatory labor
1.7.4 | Effective elimination of child labor
4.3.2.8.
4.3.2.6.
4.3.2.8.
4.3.2.8.
4.3.2.8.
4.3.3. Being an outstanding partner
– Provide innovative and sustainable high-quality solutions that meet our customers' requirements;
– Build long-term, trusting relationships.
4.3.3.1. Subcontracting and suppliers
ESI Group has a wide range of internal skills that cover its software publishing activity on the one hand and its services activities
on the other hand. However, when it is necessary to mobilize resources outside its usual scope of business, or when specific
expertise is recommended, ESI Group may occasionally use external providers.
ESI Group remains fully responsible for all outside subcontractors. In this regard, the subcontractors are subject to the same rules
and verifications as any other employee of the Company.
To provide its customers with quality products, ESI Group follows a specific procedure to monitor and regularly evaluate all sup-
pliers having an effect on quality. A list of approved suppliers is made available for this purpose on the intranet and updated
periodically.
A comprehensive approach to quality
In 2000, ESI Group obtained its first ISO 9001 certification, followed by the independent certification of its subsidiaries, so as to
guarantee the quality of its products and services and ensure the satisfaction of its customers. Since 2010, ESI Group has ex-
tended the scope of its certification using a system common to all its subsidiaries. Since risk management and quality management
are closely linked processes, this worldwide certification is a sign of confidence in the quality of the solutions that the Group offers
its customers and offers a guarantee that particular attention is given to excellence and to the alignment of all the Group's pro-
cesses.
In 2015, the overall certification applied to 83% of the workforce as compared to 72% in 2014.
Global certification is now successfully applied in Europe, Asia and the United States, within the ESI Group parent company and
most of its subsidiaries: ESI US R&D, ESI France, ESI Japan, Calcom ESI SA in Switzerland, ESI SW India, ESI SW Germany,
ESI NA in the United-States, ESI Mecas in Czech Republic and ESI Tunisia. FY2015 also proved to be very successful with the
integration of three new entities: ESI GmbH, ESI Korea and ESI China.
In 2016, the integration of additional entities will continue and the risk based approach requested by the new ISO:2015 standard
will be gradually deployed across the company's entities. ESI Group's objective is to have full global certification by 2020.
In France, all hired people (including all types of contacts of more than six months) have to take training in Quality. In 2015, this
represented 46 persons for a total of 92 hours of training.
The benefits of ISO 9001 certification accrue to outside as well as in-company stakeholders. Outside the Company, certification
guarantees that ESI Group provides products and services that meet the needs of its customers, while it continues to evaluate
and improve its processes. Within the Company, certification calls on employees to actively engage in an overall consistent man-
agement system.
4.3.3.2. Fair trade practices
The laws governing our activities enable the Company to develop and foster our long-term growth. That is why all employees
must comply with them.
Relations with our business partners
The Company strives to establish transparent and loyal business dealings and to deal honestly and fairly with all clients, no matter
the size of their company. The Company is committed to providing quality products and services to its clients which meet their
needs.
Purchasing decisions are made based on an objective assessment of the reliability and integrity of the supplier or subcontractor,
as well as the overall appeal of their offer in relation to short- and long-term aims and considerations. In order to protect the
Company’s interests, goods and services are purchased based on price, quality, performance, delivery, and suitability criteria.
The Company takes care not to create a situation of dependence with suppliers and subcontractors.
Also, the Company requires its suppliers and subcontractors to strictly comply with all legal provisions relating to their activities
ESI Group ● 2015 Registration Document 70
and their professional environment.
Actions taken to prevent corruption
The Group’s Ethics Charter strictly prohibits any form of corruption in its relations with its business and institutional partners and
with the administration. No financial or in-kind gratuities may be given with a view to obtaining an advantage, nor may such
gratification be received to benefit a company or person.
Therefore, it is prohibited to pay, offer or agree to pay for gifts, bribes or other gratifications, or to grant undue benefits, whether
directly or via an intermediary, to a public agent and/or a private person in any country with a view to obtaining favorable treatment
or influencing the outcome of a negotiation which involves the Company.
Moreover, the Company is prohibited from directly or indirectly receiving or giving, promising or soliciting illegal payments or other
undue benefits with a view to granting, obtaining or maintaining a contract or any other advantage.
Fraud and money laundering
Fraud and money laundering are processes that disguise the illegal origin of money, typically associated with criminal activity.
The Group’s Ethics Charter stipulates that ESI Group respects laws on fraud and money laundering and conducts business only
with reputable partners.
Beside, each employee has to be vigilant regarding any payments made in order to detect any irregularities, notably with partners
whose business conduct may raise suspicion.
Compliance with antitrust laws
Competition is necessary for economic efficiency. It is one of the essential conditions of the open and fair economy in which the
Company believes. Consequently, the Company prohibits any exchange of confidential information and any arrangement –formal
or informal – or attempt to enter into arrangements with competitors which seek to fix prices or conditions of sale, to share a
market or to boycott a particular market actor, for example in the course of meetings of professional organizations or associations.
Furthermore, the Company refrains from abusing a dominant position or a monopoly and from acquiring or maintaining a dominant
power other than by recognized legitimate means such as patents, skills, superior know-how or a geographical situation.
Measures promoting the health and safety of consumers
Due to the nature of its business, rooted in the sale of software and services, the Group’s impact on the health and safety of its
direct customers is very limited.
However, the products developed by ESI Group are used to bring to market innovative products at a lower cost and with greater
reliability. The Group’s virtual prototyping solutions enable it to satisfy its customers’ main needs, namely to:
–
Identify challenges in terms of safety and performance early in the design cycle;
– Assess ways in which new materials and manufacturing processes will impact the overall performance of the product
and its operation;
– Predict the performance of equipment used in extreme conditions and anticipate any necessary adjustments.
Virtual Prototyping gives manufacturers a “live” and comprehensive vision of problems in relation to manufacturing, assembly and
coupling between the characteristics of different products and their performance. It provides vital information during the successive
iterations of the design phase, and offers the privilege of anticipating the results of physical tests, allowing the necessary changes
to be carried out before the actual manufacture of a product.
CROSS-REFERENCE TABLE – INDICATORS REQUIRED UNDER ARTICLE R. 225-105-1 OF THE FRENCH COMMERCIAL
CODE – SOCIETAL INFORMATION
3.3 | Subcontracting and suppliers
3.3.1 | Consideration of social issues in the purchasing policy
3.3.2 | Consideration of environmental issues in the purchasing policy
3.3.3 | Amount of subcontracting and consideration of the social and environmental responsibility of
suppliers and subcontractors in relationships with them
3.4 | Fair trade practices
3.4.1 | Action taken to prevent corruption
3.4.2 | Measures promoting the health and safety of consumers
4.3.3.1.
4.3.3.1.
4.3.3.1.
4.3.3.2.
4.3.3.2.
4.3.4. Being an environmentally friendly player
– Develop solutions that will help reduce the environmental footprint of manufacturers and comply with regulatory require-
ments;
Limit the environmental impact of our global offices.
–
Scope adopted: France, Germany, Czech Republic, Japan and United-States.
ESI Group ● 2015 Registration Document 71
4.3.4.1. Overall environmental policy
ESI Group believes that environmental responsibility should be a priority for all companies, and strives to reduce its environmental
impact both directly and indirectly.
However, considering the nature of its activity — sales of software and consulting services — the Group believes its impact on
the environment to be very limited. All of its activities are carried out in offices.
The main environmental challenges facing the Group are:
1. Externally: to help clients significantly reduce their environmental footprint by providing solutions allowing the realistic simulation
of the behavior of a product throughout the design, manufacturing and assembly cycle:
2. Internally, to limit impacts linked to:
– Emissions of greenhouse gases associated with travel by Group employees,
– Waste electrical and electronic equipment (WEEE),
– Energy consumption in its buildings and data centers.
Aside from these direct environmental impacts, ESI Group enables its clients to significantly reduce their environmental footprint
with the use of its virtual prototyping solutions. Digital prototypes can significantly reduce consumption of raw materials and energy,
and help achieve compliance with environmental standards for new products.
In view of its business, ESI Group has no knowledge of industrial or environmental risks liable to have a significant impact on its
assets or earnings. Most of its assets being intangible in nature, ESI Group believes that its environmental footprint is very small.
Indeed, the Group does not expect to have major exposure to climate change in the short to medium term; to the best of its
knowledge, ESI Group’s activities do not have a significant negative impact on biodiversity, and do not generate noise or odor
liable to affect local residents; no site in its scope generates hazardous waste or environmentally detrimental discharges into the
air, water or soil (excluding electrical and electronic equipment); no French site has ICPE (Classified Installations for Environmen-
tal Protection) or Seveso classification; all ESI Group sites are located in urban areas, and their water is accordingly supplied by
urban networks. No real supply constraints have been reported.
Lastly, given the limited industrial and environmental risks inherent to the Group’s operations, costs related to the assessment,
prevention and treatment of industrial and environmental risks are not material. As all Group sites are leased, building improve-
ment costs are borne entirely by the owners. ESI Group accordingly has no control over these aspects.
Moreover, no provisions or guarantees for environmental risks were recorded in the Group's 2015 consolidated financial state-
ments.
Nevertheless, the Group is increasingly recognizing its responsibility for protecting the environment, and seeks to take initiatives
in favor of sustainable development, as outlined below.
Awareness raising among permanent employees
For ESI Group, the implementation of an environmental policy only makes sense if all of the Group’s employees are involved.
That is why the Group constantly strives to raise its employees’ awareness of measures taken to avoid the wasting of energy, and
thereby to reduce its environmental impact.
4.3.4.2. Use of resources and measures to reduce consumption
Energy consumption
In 2015, electricity consumption on the Rungis site totaled 980,837 kWh, an average of roughly 7,006 kWh per employee. On the
Ter@tec campus where ESI is involved, electricity consumption in 2015 totaled 104,505 kWh. Electricity consumption data are
not available for the other French sites, as it is either included in rental charges or collective.
Total electricity consumption on the German, Japanese and Czech sites totaled 770,768 kWh, an average per employee of
2,408.6 kWh.
Energy consumption in the United States is not measurable since the facilities are leased. Energy usage is therefore included in
the utility fees and re-evaluated annually, in which factors other than electricity are included.
ESI Group does not use renewable energy on the sites contained in the 2015 reporting scope.
To minimize energy consumption, the Group has installed LED lights at its Paris and Rungis offices as it was done at its Ter@tec
site in 2013. In addition, during upgrades of certain workspaces in France, the Group has given preference to lighting with low
power consumption, removed hot water tanks from restrooms, and refurbished the air conditioning. An energy audit was conducted
in 2015 at the Group's site in Rungis, France. This audit will lead to improvements in 2016 such as installing a timer for the lighting
system, or installing motion detectors for lights in hallways. Other actions are likely to be taken in the longer term such as optimiz-
ing management of when the ventilation system is running, or managing and optimizing the temperature of the cold water line;
however, such changes depend on the landlord.
ESI Group ● 2015 Registration Document 72
Paper consumption
Everyday use by employees is the main source of paper consumption.
In France, 861 reams of 500 pages were purchased in 2015, or roughly three reams per employee. For several years, ESI Group
has taken a number of measures to reduce the consumption of paper, for environmental reasons, but also to control costs. Thus,
between 2013 and 2015, the number of reams purchased in France decreased of 15%.
In the Czech Republic, 1,671 reams were used in 2015, just under 3.5 reams per person. Paper consumption declined by 30%
versus 2014 while the number of employees has remained stable.
In the United States, employees use an average of two 500-page reams per year, leading to a total of 240 reams purchased in
2015.
Regarding ESI GmbH, 287 reams were purchased in 2015, equaling nearly five reams per employee.
For all data studied (with the exception of Japan), average paper consumption in 2015 was low, about three reams per employee
per year.
ESI Group continues to pursue its electronic documents program by implementing IT tools and processes to reduce the use of
paper and energy consumption related to printing. Dematerialization has been established for many documents, including travel
orders, leave requests and offer reviews. In addition, document management software for archiving and electronic document
storage was installed in September 2012.
In 2014, in a process of environmental responsibility, a new environmentally friendly “greener” paper was promoted among all
purchasers of French office consumables On a lighter basis weight of 75g versus 80g, this paper helps reducing the environmental
impact. In France 90% of purchased paper was recycled.
Water consumption
The software publishing business is not very water-intensive as software publishing activities do not require water for its produc-
tion. ESI Group’s water is solely for sanitary use and drawn from urban networks.
It is difficult to perform an accurate assessment of water consumption. The Group is the lessee of all of its offices, and the water
consumption of each site is included in rental charges. As such, it cannot be broken down in detail. However, for the sites for
which we have information (the Rungis site in France and ESI Mecas in the Czech Republic), water consumption remained stable
in 2015 compared to last year, with average consumption of 5 m3 per employee.
4.3.4.3. Waste management and pollution
Treatment and recycling of waste
By virtue of its activity, ESI Group mainly produces non-hazardous waste, as well as paper, cardboard and plastic. To the best of
its knowledge, the Group does not generate hazardous waste.
In 2014, recycling bins were introduced on the Lyon site, the second biggest site in France, as it was done in 2013 on the Rungis
site. Thus almost 100% of the French workforce are aware of this action in their daily lives. All five German, American and Czech
sites are also equipped with bins for sorting waste. It is planned to extend this measure to all European sites in the future.
As regards other specific waste, notably waste electrical and electronic equipment (WEEE), ESI Group attaches great importance
to the environmental management of its IT equipment, in terms of both its use and its recycling.
The Group’s IT equipment mainly comprises desktop and laptop computers, servers, copiers and printers. The Company canni-
balizes computer hardware (uses parts of one machine to repair another) whenever possible to give a second life to some faulty
equipment.
In France and in the United States, end-of-life or obsolete hardware is collected by an authorized provider that manages the pro-
cessing of electronic waste. On the French Rungis site, the total volume of waste removal was 327 kg in 2015, or 2.3 kg per
employee.
Furthermore, on request to our supplier, printer cartridges are collected and recycled via a completely ecological chain.
In the entire scope, except Japan, ink cartridges, batteries, defective light bulbs and fluorescent tubes are recovered by our various
suppliers. Containers are available to staff for this purpose in offices.
In Germany, the cleaning and facilities management department, in coordination with the IT departments, is tasked with collecting
used electronic equipment. Waste management is then passed on to the local authority of each city.
Noise pollution and other types of pollution linked to activities
The majority of ESI Group’s activities are not a source of noise pollution. The only facilities that generate noise liable to affect the
vicinity are data centers, the two main data centers being located in France. To protect employees authorized to enter computer
rooms, the Company provides anti-noise headphones.
A memo governing working conditions in computer rooms is given to employees with access to such areas in the course of their
duties.
ESI Group ● 2015 Registration Document 73
Land use
Non applicable. ESI Group is the tenant of all its offices.
4.3.4.4. Emissions of greenhouse gases (GHG) related to business travel
As ESI Group operates both in France and internationally, and as its activity is within the tertiary sector, transport is the main
source of its greenhouse gas emissions.
In 2015, emissions resulting from business travel by French employees by train and by plane totaled 375,465 kg of CO2, repre-
senting 1,341 kg per employee. In United-States, these emissions totaled 316,804 kg of CO2 in 2015, representing 2,804 kg per
employee. It should be noted that 40% of the Executive Committee is based in the United-States. In Germany 44,418 kg of CO2
were produced in 2015 through business travel by German employees by train and by plane, representing 244 kg per employee.
The estimate of annual emissions from company car travel in France is 149,364 kg or 3,931 kg per company car.
Overall, business travel by French employees generated 525 metric tons of CO2 in 2015.
As for company cars in the Czech Republic, the estimated emissions in 2015 were 96,696 kg of CO2, an average of 3,719 kg per
car. Lastly, for ESI GmbH, vehicle emissions were estimated at 168,820 kg of CO2, an average of 5,116 kg per car.
In 2015, 38 people have a company car in France and 26 people in the Czech Republic. In Germany, there were 40 company
cars in 2015. The granting rate of company cars was higher in Germany than in France due in particular to the higher proportion
of salespeople in Germany and to the German culture which encourages this type of compensation.
Measures to reduce travel were introduced several years ago to reduce the environmental impact of travel. Furthermore, to limit
the use of transport, the Group provides employees with web conferencing tools to facilitate cooperation between employees
working in different locations without requiring them to travel. Some meeting rooms are also equipped of audio and/or visio confer-
encing systems in order to facilitate remote meetings. Also, all workstation are equipped with the Skype software allowing audio and
video online meetings up to 250 persons.
Moreover, and again with a view to limiting travel, ESI Group has adopted a travel policy. Employees are expected to favor web
conferencing over travel for meetings, travel by train rather than by plane for journeys lasting less than three hours, and economy
class for air travel (the carbon footprint being much smaller in economy class than in business class).
The car policy is in force in France, applicable to those driving a company car. The auto fleet in France consists largely of vehicles
less than three years old.
In 2015, ESI Group began to redraft its “Good driver charter” to incorporate limitations on, among other things, engine power and
CO2 emissions. This policy will be in a first place applicable to French employees.
Measures to reduce discharges into the air, water and soil
ESI Group’s software publishing activity has very limited impact on the air, water and soil compared to other industrial activities
requiring heavy production work.
CROSS-REFERENCE TABLE – INDICATORS REQUIRED UNDER ARTICLE R. 225-105-1 OF THE FRENCH COMMERCIAL
CODE – ENVIRONMENTAL INFORMATION
2.1 | Overall environmental
policy
2.1.1 | Organization of the Company for the consideration of environmental issues or environmental evaluation or
certification processes
2.2 | Pollution and waste
management
2.3 | Sustainable use of
resources
2.1.2 | Employee training and information on environmental protection
2.1.3 | Resources used to prevent environmental risks and pollution
2.1.4 | Amount of provisions and guarantees for environmental risks
2.2.1 | Prevention, reduction or remediation of discharges with serious environmental impact on the air, water or soil
2.2.2 | Measures taken for the prevention, recycling and disposal of waste
2.2.3 | Consideration of noise and other forms of pollution specific to an activity
2.3.1 | Water consumption
2.3.2 | Water supply in relation to local constraints
2.3.3 | Consumption of raw materials
2.3.4 | Measures taken to improve efficiency in the use of raw materials
2.3.5 | Energy consumption
2.3.6 | Measures taken to improve energy efficiency and use of renewable energy
2.4 | Climate change
2.4.1 | Greenhouse gas emissions
2.3.7 | Land use
2.4.2 | Adapting to the impact of climate change
4.3.4.1.
4.3.4.1.
4.3.4.1.
4.3.4.1.
4.3.4.4.
4.3.4.3.
4.3.4.3.
4.3.4.2.
Not relevant
4.3.4.2.
4.3.4.2.
4.3.4.2.
4.3.4.2.
Not relevant
4.3.4.4.
Not relevant
ESI Group ● 2015 Registration Document 74
2.5 | Protecting biodiversity
2.5.1 | Measures taken to preserve or enhance biodiversity
Article 2016-138
of February 2016, 11
Fight against wasting food
Not relevant
Not relevant
4.3.5. Serve civil society
– Boost innovations and establish partnerships with the academic and scientific communities;
– Act ethically and responsibly.
Scope adopted: France, Germany and US.
Exemplary corporate conduct and excellent relationships with all stakeholders are, for our Company, the foundation necessary
for balanced and durable growth. For this reason ESI Group is especially attentive to the following points:
– Total transparency to all of its stakeholders;
– Complete satisfaction of customers’ needs;
– Support regional development by encouraging local recruitment and partnerships;
– Support for innovation through co-creation projects.
The Group considers its main stakeholders to be its employees, customers, suppliers, industry and academic partners, but also
its investors and shareholders.
Innovation, which is at the core of ESI Group’s business lines, is also a key issue of CSR. It is innovation that continually improves
production processes, shortens the design period and the time it takes to develop new, higher performing, more reliable products.
In order to remain at the leading edge of innovation the Group has invested 30% of its Licensing revenues in R&D in 2015.
Innovation makes it possible to resolve the multiple constraints and pressures that weigh on all manufacturers: to develop a safer
and better performing product to a shorter timetable, at lower cost and that is more environmentally friendly. The innovative virtual
prototyping solutions offered by ESI Group allow us to deal with these ever-present economic challenges.
ESI Group strongly believes that its ability to innovate and research is a key factor in its differentiation and hence its competitive-
ness, two essential levers for sustainable growth.
Regional, economic and social impact
ESI Group attaches great importance to the relationships it holds with neighboring communities, and works to promote construc-
tive dialogue with and to support the development of local players.
Relations with the digital community
The Group makes a point of creating and maintaining excellent relationships with the various members of the digital community,
in industry, academic institutions and voluntary associations. It does so in order to facilitate collaboration and thus to foster indus-
trial innovation. The Company is an active member of the Board of Directors of Tech in France (ex AFDEL - the French association
of software publishers), an association that helps promote the software publishing industry and develop digital simulation, and
that today represents over 350 members.
Participation in regional competitiveness clusters and technology research institutes (IRT)
ESI Group participates in several competitiveness clusters, principally in France. These clusters provide the proximity needed for
collaborative work with the major industrial players and research and development organizations in order to bring highly innovative
products to market. Located all over France, they are: Aerospace Valley (Toulouse), ASTech Paris Région (Île-de-France), Pôle
Nucléaire Bourgogne (Burgundy), Mov’eo (Normandy and Île-de-France), I-Trans (Nord Pas-de-Calais and Picardy), iD4CAR
(Brittany and Pays de la Loire), Systematic (Île-de-France), Minalogic (Grenoble and Rhône-Alpes), Pôle Pégase (Provence
Alpes-Côte d’Azur and Pôle ViaMeca (Auvergne-Rhône-Alpes).
Since 2013 ESI Group has had a presence on the campus and the Board of Directors of Ter@tec, Europe's largest intensive
computing center, based on the Saclay platform in Ile-de-France, alongside the CEA (the atomic and alternative energy commis-
sion), a major player in research, development and innovation. Today, ESI Group is involved in several collaborative projects on
that campus, under the leadership of the System X IRT. ESI is also a member of the Executive Committee of the Systematic Paris
Region Competitiveness Cluster.
ESI Group is a member of the Board of Directors of AS Tech Paris Region, the competitiveness cluster, of the aerospace industry,
whose main objective is to make recommendations to the Paris region concerning the certification of R&D projects within its field.
A prime mover of innovation in its key segments, ESI Group was a member of the iD4CAR Board of Directors in 2014. The aim
of this cluster is to increase the competitiveness of the sustainable vehicles and transportation sector in western France, through
innovation.
ESI is one of the founding members of Excelcar. Created in 2014, the aim of this association is to revitalize and create jobs around
ESI Group ● 2015 Registration Document 75
a technical platform for R&D excellence in Brittany, devoted to automotive applications and supported by PSA. This is an initiative
supported by the Union des industries et des métiers la métallurgie of Ille-et-Vilaine and Morbihan (UIMM 35-56), for the purpose
of stimulating the automotive industry in Brittany around PSA Rennes, which has announced its strategic plan for the coming
years.
ESI participates in the 3DMat innovation platform specifically for developing a digital simulation and virtual prototyping channel for
new multi-material and composite architectures, with priority given to the automotive industry.
Again in the transportation sector, ESI is an active member of the Board of IRT Railenium, whose main mission is to lengthen the
life cycle of the railway infrastructure and capitalize on the rapid international development of its new products. Involving a broad
consortium of manufacturers and research organizations, in 2011 ESI Group was selected under the Programme Investissements
d’Avenir (Grand Emprunt). ESI is also a founding member of the CADEMCE SAS railway testing platform
ESI also assists the mechanical engineering field and promotes its activities. The Company is a member of the Board of Direc-
tors of the Association Française de Mécanique (AFM), a body for information, dialogue and discussion for the mechanical engi-
neering community (industry professionals and technology transfer organizations, teachers and researchers) and representing
French mechanical engineering to its foreign counterparts.
In the field of aeronautics, ESI actively participates in initiatives from the Council for Civil Aeronautics Research (CORAC) under-
taken as part of the Plan d’Investissement d’Avenir. In 2014, ESI was invited by the seven top French aeronautics companies,
which are members of GIFAS, to join the Usine Aéronautique du Futur platform as an associate member. This major initiative was
launched to transform production facilities in the fast-moving aeronautics industry, which must deal with an unprecedented in-
crease in requirements. As a result, ESI participated in the development of a plan and is already contributing to four major projects
that aim to spread the use of virtual prototyping and increase development of manufacturing processes for the future, such as
additive manufacturing or robotic manufacturing of composite materials.
ESI also participates in other CORAC plans, like those for the DEPACE platforms for the Composite Aircraft of the Future, the
SEFA platform to develop the Cockpit of the Future, and the plans for the Helicopter of the Future, in order to strengthen French
excellence in these fields. In this way, ESI helps to make commercial aircraft cockpits safer and more comfortable, and thus
keeping cost margins under control for manufacturing important parts in helicopter transmissions boxes.
Since 2013, a number or initiatives have emerged to design the Usine de Demain and to use it as a competitiveness and attrac-
tiveness leverage for the region. ESI Group participates in the Nouvelle France Industrielle national initiative, and is, on this basis,
an active member of the Alliance pour l’Industrie du Futur. ESI Group is thus an operational representative of the French Associ-
ation of Software Publishers (AFDEL), recently renamed Tech’IN France. ESI Group also attends at the Alliance's Board of Direc-
tors and its steering committee headed by the French Minister of the Economy and Digital Technology. In so doing, ESI Group is
strengthening its position in France as a leading actor in digital transformation and is bringing its vision for virtual engineering as
well as its economic and societal values.
Regionally, ESI Group has worked with the Aquitaine-Limousin-Poitou-Charentes (ALPC) Regional Council to create the “it3D
Aquitaine” simulation community. This group brings together a number of industrial, academic and institutionnal players from the
region. It has led to the creation of the first interdisciplinary digital, technical, and scientific community dedicated to interactive
simulation and virtual experience to support industries and future usages.
Relations with academia
The Group has always worked towards establishing favored, long-term relationships with the worlds of secondary and higher
education, all over the world. To encourage young people to join the industry, train the best employees of tomorrow in its soft-
ware and foster innovation in education, ESI Group works with a great many universities, technological institutes and elite spe-
cialized colleges in the various countries where the Group is located. These partnerships also enhance the reputation of ESI
Group by making known its lines of business and its values, so as to facilitate the hiring of recent graduates.
In order to support its growth and meet its hiring goals, ESI Group enjoys close, trusting relationships with many elite schools and
universities, in France such as UTC in Compiegne, Ecole centrale in Paris, INSA Lyon, ENS des Mines in Saint-Étienne, ENSIAME
in Valenciennes, the technology university of Troyes, Ecole Polytechnique…Furthermore in 2013, ESI Group and Centrale Nantes
have created a 6-year joint research program on the topics of model reduction, advanced welding simulation, and thermoplastic
welding. In Germany, with the University of Stuttgart and the Institute of Aircraft Design (IFB) which is associated with it and the
Technological University of Dresden; in the United States with MIT (Massachusetts Institute of Technology), Virginia Tech and
the Universities of Iowa, Michigan and Alabama.
ESI Group places a high priority on hiring employees locally in order to boost regional economic development. In 2014 ESI Group
had facilities in 18 countries and covered over 40 countries through its distribution network.
CROSS-REFERENCE TABLE – INDICATORS REQUIRED UNDER ARTICLE R. 225-105-1 OF THE FRENCH COMMERCIAL
CODE – SOCIETAL INFORMATION
3.1 | Territorial, economic and social impact of the Company’s activity
3.1.1 | In terms of employment and regional development
3.1.2 | On neighboring or local communities
4.3.5.
4.3.5.
ESI Group ● 2015 Registration Document 76
3.2 | Relationships with persons or organizations with an interest in the activity
of the Company, including NGOs, educational institutions and local communities
3.2.1 | Terms of dialog with such persons or organizations
4.3.5.
ESI Group ● 2015 Registration Document 77
4.3.6. Report of the inspecting organization
This is a free translation into English of the original report issued in the French language and it is provided solely for the conven-
ience of English speaking users. This report should be read in conjunction with, and construed in accordance with, French law
and professional standards applicable in France.
Year ended January 31, 2016
To the Shareholders,
Following the request made to us by ESI Group SA and in our capacity as an independent third-party organization accredited by
COFRAC under no. 3-1081 (scope available at www.cofrac.fr), we submit to you our report on the consolidated corporate social
responsibility information presented in the management report written with regard to the period ending January 31, 2016 pursuant
to Article L. 225-102-1 of the French Commercial Code.
Company responsibility
It is the duty of the Board of Directors to prepare a management report including the consolidated corporate social responsibility
information referred to in Article R. 225-105-1 of the French Commercial Code (hereinafter the "Information") and prepared in
accordance with the guidelines (the "Guidelines") used by the Company and available on request at the Group's registered office,
a summary of which appears in the methodological note available on the Group's website.
Independence and quality control
Our independence is defined by regulatory requirements, the Code of Ethics of our profession, and the provisions of Article L.
822-11 of the French Commercial Code. Furthermore, we have implemented a quality control system including documented pol-
icies and procedures to ensure compliance with ethical standards, professional standards and applicable laws and regulations.
Third party assurance report
It is our role, based on our work:
– To attest whether the required CSR Information is present in the Management Report or, in the case of its omission, that
an appropriate explanation has been provided in accordance with the third paragraph of Article R. 225-105 of the French
Commercial Code and Decree No. 2012-557 of April 24, 2012 (Attestation of presence of CSR information);
– To express a limited assurance on whether the CSR information is presented, in all material aspects, in accordance with
the Reporting Criteria.
Attestation of presence of CSR information
We conducted the following procedures in accordance with professional standards applicable in France:
– we compared the Information presented in the Management Report with the list as provided for in Article R. 225 -105-1
of the French Commercial Code;
– we verified that the Information covers the consolidated perimeter, namely the Company and its subsidiaries as aligned
with the meaning of Article L. 233-1 and the entities which it controls as aligned with the meaning of Article L. 233 -3 of
the French Commercial Code;
–
in the absence of certain consolidated information, we have verified that explanations were provided in accordance with
the provisions of Decree No. 2012-557 of April 24, 2012.
Based on this work, and given limitations mentioned above, we confirm the presence in the Management Report of the required
CSR information.
Opinion stating reasons on the accuracy and fairness of the CSR information
Nature and scope of our work
Our work was carried out by a team of two people between April 26, 2016 and May 11, 2016, for a period of about six person-
days.
We conducted the work in accordance with the standards of professional practice applicable in France, with ISAE 3000 and with
the decree of May 13, 2013 stating how the third-party independent organization is to carry out the assignment.
We conducted three interviews with the persons responsible for preparing the CSR information in the departments in charge of
the process of gathering the information and, when necessary, those responsible for the internal control and risk management
procedures, so as to:
ESI Group ● 2015 Registration Document 78
–
–
assess the appropriateness of the Guidelines in terms of their relevance, completeness, neutrality, comprehensibility and
reliability, taking into consideration best practices, if any, in the sector;
verify the implementation within the Group of a process for collecting, compiling, processing and checking the CSR
Information with regard to its completeness and consistency. We reviewed the internal control and risk management
procedures relating to the preparation of the CSR Information.
We identified consolidated information to test and determined the nature and extent of tests, taking into account the importance
of the information in question in relation to the social, societal and environmental consequences of the activity and the character-
istics of the Group, its CSR objectives and best practices in its sector.
For the CSR Information we judged to be most important at the level of the consolidating entity:
– we consulted the documentary sources and conducted interviews to corroborate the qualitative information (organization,
policies, actions, etc.);
– we carried out analytical procedures on the quantitative information and, based on sampling, verified the calculations
and the consolidation of the data;
– we carried out detailed tests based on sampling(1) that consisted of verifying the calculations made and comparing them
with the data in the supporting documents, and we verified their consistency with the other information contained in the
management report.
For the other consolidated CSR information, we judged its consistency in light of our knowledge of the Company.
Finally, we judged the validity of any explanations given as to the total or partial absence of certain information.
It is our belief that the sampling methods and sample sizes we used in exercising our professional judgment allow us to draw a
conclusion of moderate assurance. A higher level of assurance would have required a more extensive review.
Our work covered on average 70% of the consolidated value of the numerical indicators in the employment portion and 70% of
the consolidated value of the numerical indicators in the environmental portion.
Due to the use of sampling techniques as well as to the limitations inherent in the operation of any information and internal control
system, the risk of not detecting a material irregularity in the CSR information cannot be totally ruled out.
Comments on the Information
– ESI Group elected, as explained in the “Scope” paragraph, to collect CSR information for the year ended January 31,
2016 on a narrow scope.
Conclusion
Based on our work; we have not identified any significant misstatement that causes us to believe that CSR information, taken
together, have not been fairly presented, in accordance with the Reporting criteria.
Lyon, May 12, 2016
FINEXFI
Isabelle Lhoste
Partner
(1) Companies selected for the tests: Rungis and Czech Republic sites for the environmental part and France sites for the social part.
ESI Group ● 2015 Registration Document 79
4.4. Compensation
Table summarizing the stock option plans available to employees and corporate officers
Stock options plan for the
subscription and purchase of
new shares
Options available
to be granted at
January 31,2016
As of % of
share capital
Options remaining
at January 31,
2016
Exercise price
(in euros)
As of % of
share capital
Options exercised
at January 31,
2016
as of % of
share capital
No. 7 (AGM of June 30,
2005)
No. 9 (AGM of June 29,
2006)
No. 10 (AGM of June 26,
2012)
No. 15 (AGM of July 23,
2013)
No. 17 (AGM of July 24,
2014)
TOTAL
0
0
0
274,538
172,650
447,188
0%
0%
0%
4.61%
2.90%
7.51%
0
31,920
128,625
20,000
7,350
187,895
8.86
8.86
25.95
21.66
27.17
0.00%
0.54%
2.16%
0.34%
0.12%
3.16%
3,500
3,150
0.06%
0.05%
0
0
0
6,650
0.11%
The “options available to be granted” at January 31, 2016 represent the difference between the total amount granted by the Annual
General Meeting under its authorization to allocate options and the number of options actually allocated to beneficiaries.
The options forfeited or cancelled following an employee’s departure were removed from “options granted and not exercised” at
January 31, 2016.
Free share awards to executive corporate officers and non-executive corporate officers
The table below lists the free share award plans for executive and non-executive corporate officers:
Free share award plans
Authorization of the AGM of June 26, 2012
Authorization of the AGM of July 23, 2013
TOTAL
Free shares
available to be
awarded as at
January 31 2016
0
60,000
60,000
As a % of share
capital
Free shares
awarded as at
January 31, 2016
As a % of share
capital
0%
0.33%
0.33%
19,185
0
19,185
0.32%
0
0.32%
The “free shares eligible to be awarded” at January 31, 2016 represent the difference between the total amount granted by the
Annual General Meeting under its authorization to allocate shares and the number of shares actually allocated to beneficiaries.
The forfeited free shares were removed from “Free shares awarded as at January 31, 2016. Note that in December 2012 man-
agement granted five free shares to 211 employees of its French subsidiaries, representing a total of 1,055 free shares, and
20,700 shares, including forfeited shares, to persons who had made outstanding contributions to the success of the Company.
As of this date, the number of awarded and not forfeited shares is 19,185.
Stock options granted to/exercised by corporate officers (list of names)
Stock options exercised by each corporate officers during the fiscal year
Name of corporate officer
Christopher St.John
TOTAL
No. and date of plan
Number of options exercised
in the fiscal year
Number of options allocated
in the fiscal year
Exercise price
No. 7 (June 30,2005)
3,500
3,500
None
8.86
Share subscription options granted to/exercised by employees (not including corporate officers)
See Section 3.2.4.7., “Stock options granted to the top ten employee grantees (not including corporate officers)”.
ESI Group ● 2015 Registration Document 80
Grants of free shares employees who are not corporate officers
No free shares were granted to employees who are not corporate officers in fiscal year 2015.
Compensation of the Chairman and Chief Executive Officer and the Chief Operating Officers
See Section 3.2.4.2., “Chairman's, Chief Executive Officer and the Chief Operating Officers’ Compensation”.
4.5. Agreements
We also ask the Shareholders to approve the agreements referred to in Article L. 225-38 of the French Commercial Code, duly
authorized by your Board of Directors during the past fiscal year or signed during a previous fiscal year and remaining in effect
during the fiscal year in question.
4.5.1. Agreements signed during the fiscal year
Agreements falling under Article L.225-38 of the French Commercial Code
Debt forgiveness agreement with ESI North America, Inc.
On July 9, 2015, the Company wrote off debts worth USD 4,000,000 in its fully-owned subsidiary, United States-based ESI North
America, Inc.
This agreement was reasoned by commercial reasons. It was authorized by the Board of Directors at its meeting on July 3, 2015
in compliance with Article L. 225-38 of the French Commercial Code.
Buyback of shares from a board member
On July 3, 2015, the Company purchased 8,300 shares held by Mr Jacques Dubois, Director, under its share buyback program.
These shares were bought back at the average market price over the 20 trading sessions preceding the transaction after a de-
duction of 5%, the price corresponding to 22.99 euros per share or 190,817 euros for 8,300 shares.
The reason for this purchase was the Company’s intention to maintain the shares and subsequently use them for payment or
exchange within the context of possible external growth operations, in accordance with article L. 225-209 of the French Commer-
cial Code.
Consultancy contract with a board member
On April 15, 2015, the Company signed a consultancy contract with Mrs. Cristel de Rouvray, Director. The agreement was made
in accordance with Article L. 225-38 of the French Commercial Code, having received prior authorization from the Board of Direc-
tors at their meeting on April 14, 2015.
The purpose of this contract is to grant to Mrs. Cristel de Rouvray specific missions relating to human resources, consulting, and
strategic management, with the time spent on these subjects ranging from 40 to 50 hours per month.
The annual cost of this contract is estimated at USD 60,000 . The initial duration of the contract is from April 15, 2015 to January 1,
2016, automatically renewable for a period of one year.
Agreements falling under Article L.225-39 of the French Commercial Code
Not applicable.
4.5.2. Agreements previously signed and remained in effect during the past fiscal
year
In accordance with the provisions of Article L. 225-39 of the French Commercial Code, we must disclose any agreements con-
cerning the day-to-day business of the Company and concluded under normal conditions. These agreements are as follows:
Type of agreement
Group services fees
Nature
Income
Company(ies) involved
Engineering System International
ESI Group Hispania s.l.
ENGINEERING SYSTEM INTERNATIONAL
GMBH
ESI Italia s.r.l.
Hankook ESI Co., Ltd.
Mecas ESI s.r.o.
Calcom ESI SA
ESI UK LIMITED
ESI Group ● 2015 Registration Document 81
Royalties
Income
Nihon ESI K.K.
ESI North America, Inc.
Engineering System International
ESI US R&D, Inc.
Pacific Mindware Engineering Private Limited
ESI-ATE HOLDINGS LIMITED
ENGINEERING SYSTEM INTERNATIONAL
GMBH
Mecas ESI s.r.o.
Nihon ESI K.K.
ESI North America, Inc.
ESI Italia s.r.l.
ESI Group Hispania s.l.
ESI UK LIMITED
ESI Software (India) Private Limited
Cash management agreements
Loan agreements
Hankook ESI Co., Ltd.
Income/Expense ESI Services TUNISIE
ESI North America, Inc.
Income
Engineering System International
ESI-ATE HOLDINGS LIMITED
Mecas ESI s.r.o.
ESI Software Germany GmbH
ENGINEERING SYSTEM INTERNATIONAL GMBH
Nihon ESI K.K.
Hankook ESI Co., Ltd.
ESI Group Hispania s.l.
CyDesign Labs, Inc.
Other similar arrangements have been entered into during the past year, but due to their purpose and/or financial implications
these other arrangements are not considered material for any of the parties and do not, therefore, need to be mentioned.
The statutory auditors have been informed of these regulated agreements with related parties.
The statutory auditors confirm that they have completed their assignment in their special report.
4.6. Disputes
The Company is not involved in any dispute or litigation likely to have a material impact on the financial statements or the assets
of the Group or that imply specific mention due to the amounts.
4.7. Other items submitted to the Annual General Meeting
Fifth and sixth resolutions: Reappointment of Mr Vincent Chaillou as Director and appointment of a new
Director
Noting that the term of office of Mr Vincent Chaillou expires at the end of the General Meeting, it is proposed to the General
Meeting, under Resolution No.5, to renew the tenure of Mr Chaillou as Director for a term of four years. This term should end at
the end of the General Meeting convened to approve the financial statements for the fiscal year ending January 31, 2020.
Furthermore, under Resolution No. 6 it is proposed to the General Meeting to appoint as a new Director Mr Yves de Balmann for
a term of four years. This term should end at the end of the General Meeting convened to approve the financial statements for the
year ending January 31, 2020.
It is noted that this appointment of a new Director will allow to complete the Board following the death of Mr Jacques Dubois and
to strengthen Board’s expertise in terms of finances,mergers, funding and investment.
Seventh resolution: Authorization to the Board of Directors for the Company to buy back its own shares
It is proposed to the General Meeting, deliberating in accordance with the quorum and majority conditions requirements for Ordi-
nary General Meetings, in accordance with Article L. 225-209 and subsequent of the French Commercial Code:
1. To terminate the authorization granted by the seventh resolution of the Ordinary and Extraordinary General Meeting of July 22,
2015, which authorized the Board to trade in its own shares;
2. To authorize the Board of Directors to purchase the Company's shares, not to exceed 10% of its capital, for a period of 18
months beginning on July 21, 2016, in order to:
a. Stimulate the secondary market or the liquidity of ESI Group shares through a liquidity contract signed with an investment
service provider and compliant with the AMAFI's code of ethics dated September 23, 2008 and approved by the French
Financial Markets Authority (AMF);
b. Fulfill its share issue obligations, in accordance with the terms and conditions set forth by law, undertaken as part of the
ESI Group ● 2015 Registration Document 82
following:
- Plans granting stock options for the purchase of existing shares by the Group's employees or corporateofficers;
- Employee profit-sharing plans under which these shares would be granted to employees and/or corporate officers;
- Free share grants to the Group's employees and corporate officers;
- Shares provided upon exercise of the rights attached to securities giving access to shares by any means, whether imme-
diately or in the future, under the conditions set forth by the AMF and at any time deemed appropriate by the Board of
Directors;
c. Retain shares to subsequently use them in exchange or as payment for future business acquisitions;
d. Cancel shares by reduction in share capital.
3. To decide that the purchase price per share may not exceed EUR 40.
Shares may be purchased or retained at the Board of Directors' discretion by any means by trading on the market or off the
market, on an over-the-counter market, on one or more occasions. All shares purchased under the authorized share buyback
program may be acquired in the form of blocks of shares. Such transactions may be carried out at any time, including during
public offering periods, in accordance with the regulations in force.
The Company shall not, at any time, hold, either directly or via an intermediary, more than 10% of the total shares making up its
legal capital.
The Company will not be allowed to pay out more than EUR 6,500,000 under the share buyback program.
The Board of Directors will inform shareholders in its management report of acquisitions and sales conducted in accordance with
this authorization.
The General Meeting confers upon the Board of Directors all powers for:
– Publishing, prior to usage, a detailed communiqué on this share-buying plan authorized by the General Meeting on the
website of the Autorité des Marchés Financiers;
– Placing any stock market orders and making any agreements, particularly for maintaining the register of purchases and
sales;
– Making any declarations to securities market authorities and any other formalities and, in general, doing all that is nec-
essary.
Eighth resolution: Determination of the compensation paid to members of the Board of Directors (Directors'
fees)
The Board of Directors invites the General Meeting to set the compensation paid to members of the Board of Directors in the
form of Directors' fees at EUR 160,000 for the 2016 fiscal year.
The Board will freely distribute this amount among its members.
ESI Group ● 2015 Registration Document 83
5 FINANCIAL STATEMENTS
5.1. Consolidated financial statements
5.1.1. Consolidated income statement
(in thousands of euros)
Licenses and maintenance (1)
Consulting
Other (1)
TOTAL REVENUES
Cost of revenues
Research and development costs
Selling and marketing expenses
General and administrative costs
CURRENT OPERATING RESULT
Other operating income and expenses
Total operating expenses
INCOME FROM OPERATIONS
Note
January 31, 2016
January 31, 2015
4.1
6.1.2
3.2.2
4.4
7.2
97,038
26,524
1,155
124,718
(34,305)
(22,772)
(38,611)
(17,223)
11,807
(2,454)
84,521
24,284
2,213
111,017
(31,901)
(19,969)
(35,030)
(15,161)
8,956
(607)
(115,365)
(102,668)
9,353
(950)
123
8,527
8.1
(3,157)
5,370
40
5,330
0.96
0.96
9.3
9.3
8,350
741
100
9,191
(3,595)
5,596
101
5,496
0.99
0.99
INCOME (LOSS) FROM FINANCIAL ACTIVITIES
Share of profit of associates
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY INTERESTS
Provision for income tax
NET INCOME BEFORE MINORITY INTERESTS
Minority interests
NET INCOME
Earnings per share (in euros)
Diluted earnings per share (in euros)
(1) 2014 data have been reclassified for a better comparability with 2015 – see note 4.1
The notes are an integral part of the consolidated financial statements.
Statement of comprehensive income
(In thousands of euros)
Net income before minority interest
OTHER COMPREHENSIVE INCOME RECYCLED TO INCOME
Change in the fair value of hedging instruments
Currency translation adjustment
OTHER COMPREHENSIVE INCOME (LOSS) NOT RECYCLED TO INCOME
Actuarial gains and losses on pension obligations
Income and expenses recorded directly in equity
Comprehensive income
January 31, 2016
January 31, 2015
5,370
5,596
23
61
43
127
5,497
4
1,534
(1,100)
438
6,035
ESI Group ● 2015 Registration Document 84
Attributable to Group equity holders
Attributable to minority interests
The notes are an integral part of the consolidated financial statements.
5.1.2. Balance sheet
(In thousands of euros)
ASSETS
NON-CURRENT ASSETS
Goodwill
Intangible assets
Non-current assets
Investment in associates
Deferred tax assets
Other non-current assets
Cash-flow hedge instruments
CURRENT ASSETS
Short term receivables
Other current receivables
Prepaid expenses
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
CONSOLIDATED EQUITY
5,454
44
5,905
130
Note
January 31, 2016
January 31, 2015
3.2
6.1
6.2
8.2
10.1.1
7.1.4
4.2
10.1.2
10.1.3
7.1.3
112,966
38,508
54,623
4,266
859
10,548
4,072
90
94,049
67,676
12,692
3,355
10,327
84,801
23,792
45,476
3,542
752
9,028
1,994
216
86,585
61,626
10,129
2,890
11,940
207,015
171,387
Equity attributable to parent company owners
9.1
Share capital
Additional paid in capital
Reserves and retained earnings
Net income (loss)
Currency translation difference
Minority interests
NON-CURRENT LIABILITIES
Long-term share of financial debt
Provision for employee benefits
Deferred tax liabilities
Cash-flow hedge instruments
Other long-term debt
CURRENT LIABILITIES
Short-term share of financial debt
7.1.2
5.3
8.2
7.1.4
7.1.2
91,727
90,842
17,865
24,938
40,882
5,330
1,827
884
44,040
32,597
6,820
3,281
21
1,321
71,248
13,967
86,853
86,396
17,845
24,899
36,382
5,496
1,773
457
18,458
9,916
6,849
797
684
212
66,076
12,684
ESI Group ● 2015 Registration Document 85
Trade payables
Accrued compensation and income tax expense, and other short-term liabilities
Provisions for contingencies, risks and disputes
Deferred income
TOTAL EQUITY AND LIABILITIES
10.2.1
10.2.2
4.3
8,073
26,593
1,551
21,064
7,936
24,170
2,331
18,956
207,015
171,387
The notes are an integral part of the consolidated financial statements.
5.1.3. Consolidated statement of changes in equity
(In thousands of euros
except for the number of shares)
Number of
shares
Share
capital
Additional
paid in
capital
Net in-
come, re-
serves and
retained
earnings
Currency
translation
difference
Equity at-
tributable
to parent
company
owners
Equity attribut-
able to minor-
ity interests
Total Equity
AS AT JANUARY 31, 2014
5,935,632
17,807
24,824
37,284
269
80,183
405
80,587
Hedging instruments fair value
Currency translation difference
4
4
1,500
1,500
Actuarial gains and losses on pension obligations
(1,095)
(1 095)
Recognized income and expense directly in equity
(1,091)
1,500
409
Net income
COMPREHENSIVE INCOME
Capital increase
Treasury stock
Share-based payments
Transactions with non-controlling interests
12,790
38
75
5,496
5,496
4,405
1,500
5,905
113
(189)
219
164
4
(189)
219
160
AS AT JANUARY 31, 2015
5,948,422
17,845
24,899
41,879
1,773
86,396
Hedging instruments fair value
Currency translation difference
Actuarial gains and losses on pension obligations
Recognized income and expense directly in equity
Net income
COMPREHENSIVE INCOME
Capital increase
Treasury stock
Share-based payments
23
46
69
54
23
54
46
54
123
5,330
5,330
5,399
54
5,454
(229)
286
59
(229)
286
6,650
20
39
Transactions with non-controlling interests
(1,123)
(1,123)
AS AT JANUARY 31, 2016
5,955,072
17,865
24,938
46,212
1,827
90,842
The notes are an integral part of the consolidated financial statements.
4
1,534
(1,100)
438
5,596
6,035
113
(189)
219
87
86,853
23
61
43
127
5,370
5,497
59
(229)
286
(740)
91,727
34
(5)
29
101
130
(78)
457
7
(3)
4
40
44
384
884
ESI Group ● 2015 Registration Document 86
5.1.4. Consolidated statement of cash flows
(In thousands of euros)
Net income before minority interests
Share of profit of associates
Depreciation and provisions
Net impact of capitalization of research & development costs
Income taxes (current and deferred) (1)
Income taxes paid(1)
Unrealized financial gains and losses (1)
Share-based payment transactions
Loss (gain) on sales of assets
CASH FLOWS(1)
Trade and other receivables (1)
Trade payables
Other receivables and other liabilities (1)
Changes in working capital(1)
NET CASH FROM OPERATING ACTIVITIES
Purchase of intangible assets
Purchase of tangible assets
Proceeds from the sale of assets
Acquisition of subsidiaries, net of cash acquired
Other investment operations
NET CASH USED FOR INVESTING ACTIVITIES
Proceeds from loans
Repayment of borrowings
Proceeds from issue of shares
Sale (purchase) of treasury stock
NET CASH USED IN FINANCING ACTIVITIES
Effect of exchange rate changes on cash and cash equivalents
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Beginning of year
End of year
NET CHANGE IN CASH AND CASH EQUIVALENTS
January 31, 2016
January 31, 2015
5,370
(123)
3,860
(3,456)
3,157
(2,817)
1,190
286
14
5,596
(100)
3,054
(1,198)
3,595
(1,870)
(1,294)
219
(78)
7,481
7,925
(7,573)
(5,018)
211
(445)
976
892
(7,807)
(3,150)
(326)
(2,590)
(2,637)
24
(17,552)
(2,112)
4,775
(444)
(999)
121
(999)
(99)
(24,866)
(2,419)
47,916
9,787
(24,222)
(11,889)
59
(229)
113
(189)
23,523
(2,177)
55
(1,613)
11,940
10,327
(1,613)
1,047
1,226
10,714
11,940
1,226
(1)
2014 data have been reclassified for a better comparability with 2015 – EUR 56 thousand from Changes in working capital to Cash flows
The notes are an integral part of the consolidated financial statements.
ESI Group ● 2015 Registration Document 87
5.1.5. Notes to the consolidated financial statements
Table of contents to the notes to the consolidated financial statements
Note 1. Accounting principles
Note 8. Income tax
Note 2. Significant events of the year
Note 9. Equity and earnings per share
Note 3. Scope of consolidation
Note 4. Operating data
Note 10. Other balance sheet items
Note 11. Related party transactions
Note 5. Personnel costs and employee benefits
Note 12. Fees paid to statutory auditors
Note 6. Intangible and tangible assets
Note 13. Subsequent events
Note 7. Financing and financial instruments
Note 1. Accounting principles
Note 1.1. General information
ESI Group SA is a French limited company (société anonyme), registered in France and governed by French law.
ESI Group SA is headquartered at 100-102, avenue de Suffren, Paris (75015), France.
ESI Group SA is the parent company of some 30 subsidiaries operating throughout the world (see part 2.2.2. of the Registration
document on Legal organization chart), together comprising ESI Group.
ESI Group is a pioneer and world-leading provider in Virtual Prototyping that takes into account the physics of materials. ESI
boasts a unique know-how in Virtual Product Engineering, based on an integrated suite of coherent, industry-oriented applications.
Addressing manufacturing industries, Virtual Product Engineering aims to replace physical prototypes by realistically simulating a
product’s behavior during testing, to fine-tune fabrication and assembly processes in accordance with desired product perfor-
mance, and to evaluate the impact on product use under normal or accidental conditions. ESI’s solutions fit into a single collabo-
rative and open environment for End-to-End Virtual Prototyping. These solutions are delivered using the latest technologies,
including immersive Virtual Reality, to bring products to life in 3D; helping customers make the right decisions throughout product
development.
The Group's fiscal year begins on February 1 and ends on January 31 of the following year; therefore the fiscal year 2015 ended
on January 31, 2016.
The 2015 consolidated financial statements have been validated by the Board of Directors on April 8, 2016. They will be presented
to the Shareholders’ Annual General Meeting for approval on July 21, 2016.
Figures in the financial statements are presented in thousands of euros.
Note 1.2. Accounting standards applied
The consolidated financial statements at January 31, 2016 were prepared in accordance with the IFRS standards, as approved
by the European Union on January 31, 2016. These standards are available on the European Union's website.
Note 1.3. New IFRS standards and interpretations
New standards, amendments and interpretations effective in the European Union and mandatory for annual periods beginning on
or after February 1, 2015
The adoption of the following texts had no significant impact on the information presented by the Group:
-
-
-
-
IFRIC 21 “Levies”;
Amendments to IAS 19 – “Defined Benefit Plans: Employee Contributions”;
Annual improvements - 2010-2012 cycle;
Annual improvements - 2011-2013 cycle.
Application of new standards prior to their mandatory effective date
The Group did not make early application of standards and interpretations not mandatory as of February 1, 2015, in particular the
following:
-
-
Amendments to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations” published by the IASB in May
2014 and applicable to periods beginning from January 1, 2016 forward;
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortization” published by
the IASB in May 2014 and applicable to periods beginning from January 1, 2016 forward;
ESI Group ● 2015 Registration Document 88
-
-
Annual improvements - 2012-2014 cycle, published by the IASB in September 2014 and applicable to periods beginning
from January 1, 2016 forward;
Amendments to IAS 1 “Disclosure Initiative” published by the IASB in December 2014 and applicable to periods begin-
ning from January 1, 2016 forward.
The Group does not anticipate that the adoption of these standards will have any material impacts on its consolidated financial
statements.
In addition, the Group's consolidated financial statements do not take into account any new standards, amendments and interpre-
tations not yet approved by the European Union as of January 31, 2016, in particular:
-
-
-
IFRS 15 “Revenue from Contracts with Customers” applicable to periods beginning from January 1, 2018 forward;
IFRS 9 “Financial instruments” applicable to periods beginning from January 1, 2018 forward;
IFRS 16 “Leases” applicable to periods beginning from January 1, 2019 forward.
The impact of these new standards on consolidated financial statements is currently being analyzed.
Note 1.4. Use of estimates and assumptions
The preparation of the consolidated financial statements requires the use of various estimates and assumptions made by the
Group's management. These estimates and assumptions have an impact on the valuation of assets and liability, as well as on the
amounts recorded as income or expenses throughout the fiscal year. Estimates include, but are not limited to, assumptions used
to determine the impact of options granted to employees, business combinations, revenue recognition, depreciation of non-current
assets, valuation of deferred tax assets, valuation of hedging instruments, capitalized R&D costs, provisions for doubtful receiva-
bles, taxes, risks and disputes, as well as provisions for employee benefits.
Note 2. Significant events of the year
Change in scope of consolidation – See details in notes 3.1 and 3.3
– Acquisition on March 27, 2015 of a 80% stake in French company CIVITEC
– Acquisition on January 5, 2016 of a 96% stake in German company ITI GmbH
Acquisition of technological bricks (intangible assets) – See details in note 6.1
– Acquisition of Ciespace and Presto activities in the United States and of Picviz Labs in France, respectively on April 10,
2015, May 6, 2015 and March 3, 2015.
Group financing – See details in note 7.1.2
– Early reimbursement of the previous syndicated loan and signing on November 5, 2015 of a new syndicated loan of EUR
49 million with a 7 years maturity (2022).
Note 3. Scope of consolidation
Note 3.1. Accounting policies related to the scope of consolidation
Consolidation method
The annual financial statements of the companies controlled by ESI Group are fully consolidated from the date when ESI Group
takes control over them until the date when control is transferred outside the Group. Associates, defined as companies over which
the Group exercises significant influence, are accounted for by the equity method. The Group does not own stakes in any entity
over which it would exercise joint control.
The Group's scope of consolidation as of January 31, 2016 is detailed in note 3.4.
Financial statements’ closing date
Subsidiaries which annual closing date differs from January 31 prepare interim financial statements as of January 31 for consoli-
dation purposes.
Internal transactions
All transactions between consolidated companies, including intra-Group gains, are eliminated in the consolidated financial state-
ments.
ESI Group ● 2015 Registration Document 89
Conversion of the financial statements of non-French subsidiaries
The Group's foreign subsidiaries generally use local currency as their functional currency. The euro is ESI Group's functional and
presentation currency.
Financial statement items measured in the functional currency are translated into euros as follows:
– Balance sheet items are translated at the closing rate;
–
Income statement items and cash flows are translated at the average exchange rate for the period.
The difference between equity translated at the closing rate and the historical rate, and that resulting from the translation of net
income at the average rate for the period, are recorded in equity on a separate line in the Other Comprehensive Income (OCI),
under “Currency translation difference”.
Transactions and balances in foreign currencies
At the closing date, monetary assets and liabilities denominated in a foreign currency are translated to the functional currency at
the year-end exchange rate. Foreign exchange gains and losses on transactions in foreign currencies are recorded as such, with
the exception of those arising from transactions that may be characterized as long-term investments, which are recorded in equity
on a separate line in the Other Comprehensive Income (OCI), under “Currency translation difference”.
Business combinations
Business combinations are recognized by the acquisition method:
– The identifiable assets acquired and liabilities assumed are measured at fair value as of the acquisition date;
– Any non-controlling interest in the acquiree (i.e. minority interest) is measured either at fair value (“full goodwill method”) or
at the non-controlling interest’s proportion of the acquiree’s identifiable net asset (“partial goodwill method”). This option
applies on an individual transaction basis.
Costs directly related to the acquisition are recorded as expenses when incurred, on the income statement line “Other operating
income and expenses”.
Any contingent consideration related to business combinations is recognized at its fair value on the acquisition date. After the
acquisition date, contingent consideration is measured at fair value at the end of each subsequent reporting period. Any changes
in the fair value of contingent consideration arising more than one year after the acquisition date are recognized in income.
Changes in fair value within one year of the acquisition date are recognized in income if they clearly result from events after the
acquisition date. Other changes are offset against goodwill.
Where put options have been granted to minority shareholders of subsidiaries, the amount recognized in liabilities is measured at
the present value of the option exercise price and recorded in “Other long-term debt” or “Other short-term liabilities” according to
its maturity. The balance is allocated either to Goodwill (“full goodwill method”) or to Equity (“partial goodwill method”). Discounting
adjustments are recorded into financial result. Future changes in the fair value are recognized as Equity.
At the date of acquisition, goodwill represents the difference between:
– The fair value of the consideration transferred, plus the total minority interests in the acquire, plus, for step acquisitions, the
fair value of the stake previously held, revaluated in the income statement; and
– The net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.
The Group has 12 months from the acquisition date to determine the fair value of the assets and liabilities and declare the amount
of goodwill acquired. If the acquisition price is lower than the fair value of identified assets, liabilities and contingent liabilities, the
difference is immediately recorded in the income statement.
In accordance with IFRS standards, goodwill is not amortized but is instead subject to an impairment test. This test is performed
once an impairment indicator is identified and at least once a year. Goodwill is allocated to cash-generating units (“CGU”) for
impairment test purpose.
For intangible assets acquired as part of a business combination, the amortization expense as well as the costs directly attributable
to acquisitions are presented on a separate line of the income statement entitled "Other operating income and expenses".
The "Current operating result" presented in the income statement is equal to "Income from operations" less "Other operating
income and expenses".
Impairment test of goodwill and other intangible assets with an indefinite useful life
ESI Group uses a single CGU for the entire Group. The Group's strategy is to focus on growth through innovation stemming from
its R&D efforts and the integration of acquired technologies (source codes, algorithms, physical laws, etc.).
As ESI Group has grown, it has been found that certain technologies acquired to resolve a specific issue could be used to re-
solve other issues as well. The integration of this portfolio of technologies with the Group's software makes it potentially possible
to use all of these technologies in all of the Group's projects depending on the solutions required. The consequence of this ever-
ESI Group ● 2015 Registration Document 90
increasing integration is that it is more and more difficult to allocate revenues to a specific technology and to thus create a CGU
for each technology or software program.
In addition, the revenues earned by a sales subsidiary are dependent not only on its own commercial performance but also, even
more so, on the software published. The large multinational corporations with which ESI Group works regard the Group as a
partner. As both publisher and technological partner, ESI helps implement standardized methods within their organizations. It
should be noted that the Group's top twenty customers represent more than 40% of its order bookings for several years.
As regard to the companies and assets acquired in 2015, integration follows the same principles. Research and development
teams work to integrate the software solutions within the line of existing ESI Group products.
The impairment test is based on discounted value of forecasted future cash flows according to business projections, technology
penetration and the competitive situation.
Future cash flows are estimated as follows:
The last fiscal year for the reference year (Y);
Annual budget for the year Y+1;
-
-
- Cash flows for the years Y+2 to Y+5 are estimated by applying to Y+1 data growth rates that are consistent, in particular, with
past experience.
The discount rate applied as of January 31, 2016, of 11%, is the Group’s weighted average cost of capital (WACC) adjusted with
a risk premium. The discount rate as of January 31, 2015 was 10.3%.
The present value of the CGU is determined by adding:
-
-
The present value of forecasted future cash flows over the explicit period of 5 years, as described above;
The terminal value, calculated by capitalizing to perpetuity the last cash-flow of the explicit period. The perpetuity growth rate
applied is 1%.
This present value of the CGU either confirms the fair value of the assets of the CGU, or is the basis for calculation of a potential
depreciation.
The impairment test performed on the CGU as of January 31, 2016 did not lead to identify any loss for these assets. Sensitivity
tests to reasonably possible changes in key assumptions were conducted, based on a 1% increase in the discount rate and a 1%
decrease in the long-term gross rate. No impairment has been identified.
Note 3.2. Impact of the change in the scope of consolidation on goodwill and non-recurring result
3.2.1. Goodwill
(In thousands of euros)
January 31, 2015
Increase
Decrease
Gross amount
TOTAL NET VALUES
Acquisition of CIVITEC
23,792
23,792
14,541
14,541
Foreign exchange
gain/(loss)
January 31,
2016
174
174
38,508
38,508
In March 2015, ESI Group acquired an 80% stake in CIVITEC. The preliminary allocation of the acquisition price of EUR 900
thousand did not lead to recognize a goodwill.
(In thousands of euros)
Deferred tax assets on previous years losses
Provision for employee benefits
Carrying amount of net assets prior to the acquisition
NET ASSET VALUE AT ACQUISITION DATE (100%)
Preliminary allocation
272
(9)
863
1,125
Minority shareholder has a put option, which has been recorded as a decrease in Equity for EUR 225 thousand. ESI Group also
benefits from an indefinite-life call option (see details in note 3.3).
ESI Group ● 2015 Registration Document 91
Acquisition of ITI
In January 2016, ESI Group acquired a 96%stake in ITI GmbH. The preliminary allocation of the acquisition price of EUR 17 952
thousand led to the recognition of a goodwill amounting to EUR 14 541 thousand.
(in thousands of euros)
Customer Relationship
Capitalized Research and Development costs
Deferred tax liabilities on intangible assets
Deferred tax assets on previous years losses
Carrying amount of net assets prior to the acquisition
NET ASSET VALUE AT ACQUISITION DATE (100%)
Preliminary allocation
3,044
1,469
(1,354)
220
174
3,553
Minority shareholder has two put options, which have been recorded as a decrease in Equity for EUR 874 thousand. ESI Group
also benefits from two call options (see details in note 3.3).
3.2.2. Non-recurring result
Other operating income and expenses are mostly composed of acquisition costs incurred during the fiscal year, as well as amor-
tization costs related to intangible assets acquired as part of a business combination.
(In thousands of euros)
January 31, 2016
January 31, 2015
Amortization of acquired intangibles assets
Acquisition costs
Others external income and expenses
TOTAL OPERATING INCOME AND EXPENSES
(1,160)
(1,294)
-
(2,454)
(679)
(24)
96
(607)
Evolution in amortization costs related to business combination between 2014 and 2015 results from the acquisition of technolog-
ical bricks in 2015. Costs for the fiscal year 2015 include only one month of amortization of ITI GmbH assets. Expected costs for
the fiscal year 2016 should amount to at least EUR 1.8 million.
Note 3.3. Off-balance sheet commitments related to 2015 acquisitions
Following the acquisition of CIVITEC, ESI has an option to purchase shares from the minority shareholder. The price of this call
option cannot be reliably estimated given that the option is to be offered indefinitely and the underlying shares are not listed on
an active market.
Following the acquisition of ITI GmbH, ESI has two options to purchase shares from the minority shareholder. These options can
be exercised between July and December 2018 and 2019 respectively. To date, the exercise of these call options cannot be
presumed.
Note 3.4. List of entities in the scope of consolidation
The table below presents the dates of entry into the scope of consolidation, headquarters and the percentage of capital directly
or indirectly held of Group subsidiaries:
Fully consolidated subsidiaries
Date of creation or
acquisition
Subsidiary headquarters
% ownership
January 31,
2016
January 31,
2015
Calcom ESI SA
December 2002
Lausanne, Switzerland
99%
99%
ESI Group ● 2015 Registration Document 92
ITI GmbH
ITI Southern Europe
CIVITEC
CyDesign Labs, Inc.
CYDESIGN LTD
Efield AB
January 2016
Dresden, Germany
January 2016
Lyon, France
March 2015
Versailles, France
October 2013
Palo Alto, United States
October 2013
West Midlands, United Kingdom
96%
96%
80%
99%
99%
99%
99%
December 2011
Kista, Sweden
100%
100%
Engineering System International
April 1973
Paris, France
100%
100%
Engineering System International GmbH
July 1979
Eschborn, Germany
100%
100%
ESI Group Beijing Co., Ltd
October 2010
Beijing, China
100%
100%
ESI Group Hispania SL
February 2001
Madrid, Spain
100%
100%
ESI Italia Srl
September 2008
Bologna, Italy
100%
100%
ESI North America, Inc.
March 1992
Troy, Michigan, United States
100%
100%
ESI South America Comércio e Serviços de Informatica, Ltda
June 2008
Sao Paulo 015, Brazil
95%
95%
ESI Software (India) Private Limited
February 2004
Bangalore, India
100%
100%
ESI Services TUNISIE
ESI UK LIMITED
ESI US Holdings, Inc.
ESI US R&D, Inc.
April 2009
Hammam Lif, Tunisia
90%
90%
January 2002
London, United Kingdom
100%
100%
August 2002
Dover, Delaware, United States
August 2002
San Diego, California, United States
49%
74%
49%
74%
ESI ATE Holdings Limited
July 2006
Hong Kong, China
100%
100%
ESI ATE Technology (China) Ltd
August 2006
Beijing, China
100%
100%
ESI US Inc.
February 2012
Farmington Hills, United States
100%
100%
ESI Services Vietnam Co., Ltd
December 2013
Ho Chi Minh City, Vietnam
100%
100%
ESI Software Germany GmbH
August 2011
Stuttgart, Germany
100%
100%
Hankook ESI Co., Ltd
Hong Kong ESI Co., Ltd
Mecas ESI s.r.o.
Nihon ESI K.K.
OpenCFD Limited
September 1995
Seoul, South Korea
99%
99%
February 2004
Hong Kong, China
100%
100%
May 2001
Plzen, Czech Republic
July 1991
Tokyo, Japan
95%
97%
95%
97%
September 2012
Berkshire, United Kingdom
100%
100%
Pacific Mindware Engineering Private Limited
December 2008
Maharashtra, India
100%
100%
Straco
April 2001
Compiègne, France
98%
98%
Zhong Guo ESI Co., Ltd
February 2004
Guangzhou, China
100%
100%
Subsidiary accounted for using the equity method
Date of creation or
acquisition
Subsidiary headquarters
% ownership
January 31,
2016
January 31,
2015
AVIC ESI (Beijing) Technology Co., Ltd
February 2014
Beijing, China
45%
45%
ESI US Holdings is fully consolidated, as ESI Group has exclusive control.
ESI Group ● 2015 Registration Document 93
Note 4. Operating data
Note 4.1. Revenues
There are two main sources of ESI Group revenues: user licensing and related maintenance services, and services.
To ensure better management of orders and business opportunities, the Group has a customer base and CRM (Customer Re-
lationship Management) software. As the revenues of the Licenses activity are recognized on installation or renewal, the notion
of backlog is only relevant for the Services activity, which revenues are recognized based on actual production. The backlog
represents at all times the amount of revenues remaining to be recognized (future production) on orders already recorded. Each
of the Group’s production units is in charge of continuously monitoring the backlog of its activity.
User Licensing and maintenance
Revenues from licensing stem from royalties paid under licensing agreements granted to end customers and related maintenance
services. Royalties are earned for the following two types of services:
-
Lease of annual renewable licenses that include the right to use the software plus maintenance services for a year. In
this case, revenues from maintenance represent 15% of the total royalty;
- Grant of perpetual rights to use the software plus a year (renewable) of maintenance services. In this case, revenues
-
from maintenance represent 5% of the total royalty;
Software maintenance services in cases where the customer has previously been granted perpetual user rights' for this
software.
Maintenance services include updates and technical support.
Revenues from user licensing are recorded if:
The Group can demonstrate the existence of an agreement with end customer;
The software has been delivered and accepted;
The amount represented by the user license for the software is determined or determinable;
-
-
-
- Recovery is likely.
If one of these four criteria is not met, revenues from user licensing are deferred until all criteria are met. Revenues from mainte-
nance are differed and recorded according to the straight-line method over the term of the maintenance agreement, which gen-
erally lasts one year.
Services
Revenues from services consist mainly of consulting and training fees. They are recognized according to the percentage of
completion method. Associated costs are recorded as expenses when incurred based on project progress. A provision for losses
on completion is recorded if necessary.
(In thousands of euros)
January 31, 2016
January 31, 2015
TOTAL LICENCES AND MAINTENANCE(1)
Consulting
Other (1)
TOTAL SERVICES(1)
CONSOLIDATED REVENUES
97,038
26,524
1,155
27,680
84,521
24,284
2,213
26,496
124,718
111,017
Total co-financed research and development projects in revenues from services
3,209
2,888
(1)
2014 data have been reclassified from the line « Other » to « Total licenses and maintenance » (EUR 1.2 million) for a better comparability with 2015.
Note 4.2. Trade receivables
Trade receivables are initially recorded at their nominal value, as the potential impact of discounting is immaterial.
Receivables are depreciated when their net realizable value, estimated by reference to the risk of non-recovery, is less than their
carrying amount.
Depending on the nature of the receivables, the risk associated with doubtful receivables is assessed individually or using statis-
tical methods.
ESI Group ● 2015 Registration Document 94
DETAIL OF SHORT TERM RECEIVABLES
(In thousands of euros)
Trade receivables
Work in progress and unbilled receivables
Depreciation of trade receivables
TOTAL SHORT TERM RECEIVABLES, NET OF DEPRECIATION
January 31, 2016
January 31, 2015
57,472
13,902
(3,699)
67,676
50,728
13,696
(2,797)
61,626
(In thousands of euros)
January 31,
2015
Change in scope of con-
solidation
Provisions
Reversals
Foreign ex-
change
gain/(loss)
January 31,
2016
Depreciation
Total
(2,797)
(2,797)
(72)
(72)
(924)
(924)
90
90
5
5
(3,699)
(3,699)
The Group's clientele includes mainly:
- Major industrial corporations, especially companies in the automotive, aerospace and steel industries;
- Government agencies for governmental and defense projects;
- University bodies.
AGE OF SHORT TERM RECEIVABLES
Not due
0- 30 days
30- 90 days
More than 90 days
TOTAL short term receivables
January 31, 2016
January 31, 2015
52,291
8,301
5,299
1,785
67,676
48,356
7,887
2,350
3,035
61,626
Total trade receivables not yet due represent 41.9% of annual revenues. This percentage is relatively high because of important
seasonality of sales, especially high at the end of the fourth quarter of the fiscal year.
Receivables overdue by more than 90 days concern mainly Chinese state and Chinese public sector customers, whose payment
terms are longer.
Note 4.3. Deferred income
Deferred income essentially corresponds to maintenance to be realized. Maintenance includes updates, technical support and
developments of minor additional features for the standards products made at the request of the customers.
ESI Group ● 2015 Registration Document 95
(In thousands of euros)
January 31, 2016
January 31, 2015
Maintenance services to be rendered
Other deferred income
TOTAL DEFERRED INCOME
Note 4.4. Operating expenses
16,204
4,860
21,064
14,423
4,532
18,956
(In thousands of euros)
January 31, 2016
January 31, 2015
External expenses
Real estate rentals
Fees
Taxes and duties
Amortization and provisions
Personnel costs (1)
Other external expenses and income
TOTAL CURRENT OPERATING expenses
Other operating income and expenses (2)
TOTAL OPERATING EXPENSES
(13,300)
(12,120)
(5,187)
(2,786)
(538)
(2,921)
(78,594)
(9,585)
(112,911)
(2,454)
(115,365)
(5,193)
(2,778)
(642)
(2,578)
(67,538)
(11,215)
(102,063)
(607)
(102,668)
(1)
(2)
For personnel costs details see note 5.2.
For other operating income and expenses details see note 3.2.2.
Note 4.5. Information by geographic area
The Group develops, markets and provides technical support for software that allows engineers to conduct virtual tests designed
to predict and improve the anticipated performance and quality of a product based on a series of constraints. The Group's "oper-
ating segments" refer to components making up the Group for which separate financial information is available and whose oper-
ating results are reviewed regularly by the Company's management in order to evaluate their performance and make decisions
about how to allocate resources. ESI Group is classified as operating in a single segment since the two main business activities
identified by the Group (Licensing and Services) are closely linked. In accordance with paragraphs 31-34 of the IFRS 8 standard,
ESI Group presents the revenues from ordinary activities and non-current assets by region (the three main regions being EMEA
(Europe, Middle East, Africa), Asia-Pacific and the Americas).
Revenues are distributed over the regions where they were effectively earned.
(In thousands of euros)
EMEA
Asia-Pacific
Americas
Eliminations
Consolidated
YEAR ENDED JANUARY 31, 2016
External customers
Affiliate companies
NET SALES
ASSETS ALLOCATED
YEAR ENDED JANUARY 31, 2015
External customers
Affiliate companies
NET SALES
ASSETS ALLOCATED
57,098
44,291
23,329
-
124,718
76,535
8,206
6,944
(91,685)
-
133,633
253,466
52,497
33,243
30,273
(91,685)
124,718
21,279
(100,973)
207,015
53,480
38,475
19,062
-
111,017
66,737
6,700
4,246
(77,683)
-
120,217
209,430
45,175
33,311
23,308
(77,683)
111,017
16,164
(87,518)
171,387
ESI Group ● 2015 Registration Document 96
Intra-Group transactions consist mainly of royalties paid by the Group's subsidiaries. These royalties are proportional to Licensing
revenues and based on the practices observed between software publishers and distributors within the industry covered by ESI
Group.
Note 4.6. Off-balance sheet commitments related to operational activities
The Group leases all of its office buildings and some of its computer equipment through simple lease contracts. These contracts
are not capitalized.
Minimum future lease payments due under lease contracts as of January 31, 2016 are listed below:
Due at January 31
(In thousands of euros)
2017
2018
2019
2020
2021 and be-
yond
Total
Minimum rental payment
5,193
4,250
3,198
2,479
3,059
18,179
As part of its recurring operational activities, the Company has entered into the following pledges:
- Rent security deposit established in December 2012 with Crédit du Nord for EUR 82 thousand (lease expires
December 2022);
- Rent security deposit established in February 2014 with BNP Paribas for EUR 64 thousand (lease expires Oc-
tober 2016).
Note 5. Personnel costs and employee benefits
Note 5.1. Headcount
Headcount is calculated on a "Full-Time Equivalent" (FTE) basis:
(In thousands of euros)
January 31, 2016
January 31, 2015
France
Rest of the world
TOTAL
288
767
271
732
1,054
1,003
The increase of + 51 FTE results from 2015 acquisitions for + 22 FTE.
Note 5.2. Personnel costs
Personnel costs are presented by destination in the income statement. Their split by nature is as follows:
(In thousands of euros)
January 31, 2016
January 31, 2015
Salaries
Payroll taxes
Share-based payment
Long term employee benefits
(61,739)
(53,418)
(15,994)
(14,339)
(286)
(575)
(219)
438
TOTAL PERSONNEL COSTS
(78,594)
(67,538)
ESI Group ● 2015 Registration Document 97
Note 5.3. Provision for employee benefits
In certain countries, the Group's employees benefit from different pension plans, retirement compensation, length-of-service awards
linked to seniority requirements and additional post-employment benefits. To cover these benefits, the Group has defined contri-
bution plans and defined benefit plans in place.
A defined contribution plan is a pension plan into which the Group pays fixed contributions to a third-party entity. The Group does
not have any obligation other than to pay the premiums, and the corresponding expense is recorded in the income statement for
the fiscal year.
A defined benefit plan is a plan that guarantees a certain level of benefits in the future depending on salary, age and seniority of
the employee. Such is the case for benefits that may be paid when the employee retires.
For defined benefit plans, in accordance with IAS 19 R "Employee Benefits", obligations are determined using the "projected unit
credit method". This actuarial method stipulates that each period of service entitle the employee to one unit of rights to benefit and
evaluate each of these units separately in order to arrive at a final commitment. Actuarial assumptions used differ depending on
the country (discount rate, inflation rate, mortality table) and the company (staff turnover rates, rate of future salary increases).
Defined benefit long term plans recognized in accordance with IAS 19 R are as follows:
-
-
For France: retirement benefits, supplementary pension plan provided by an insurance company;
For South Korea, India and Japan: severance pay owed to employees when they leave the company, calculated on
the basis of seniority within the company.
5.3.1. Actuarial assumptions
Discount rates
France
Japan
South Korea
India
January 31, 2016
January 31, 2015
1.90%
0.75%
2.10%
8.40%
1.30%
0.50%
2.40%
7.90%
The discount rates used are the following:
AA-rate corporate bond rates in the eurozone, adjusted according to the duration of the Group's commitments for France;
-
- Rates reported by the central banks of the other countries.
Rate of salary increase
January 31, 2016
January 31, 2015
France
Japan
South Korea
India
2.50%
3.00%
3.00%
8.33%
2.50%
3.00%
3.00%
8.33%
Turnover rates are calculated per subsidiary and per age group according to the past experience of each subsidiary.
5.3.2. Change in commitment and provisions
(In thousands of euros)
January 31,
2015
Change in
scope of con-
Change in equity
(OCI)
Provisions
Reversals
Provision for employee benefits
TOTAL
solidation
9
9
6,849
6,849
Foreign ex-
change
gain/(loss)
January 31,
2016
(73)
(73)
190
190
(115)
(115)
(40)
(40)
6,820
6,820
ESI Group ● 2015 Registration Document 98
Analysis of the variation in the provision recorded in the balance sheet:
(In thousands of euros)
CHANGE IN COMMITMENTS
Commitments at opening
Costs of services rendered in the period
Interest expenses
Benefits paid
Actuarial gains and losses
Acquired companies
Change in plan
Reduction in plan
Foreign exchange gain/ (loss)
COMMITMENTS AT CLOSING
CHANGE IN FAIR VALUE OF ASSETS
Fair value of assets at opening
Calculated return on assets
Employer contributions (1)
Benefits paid
Actuarial gains and losses
Foreign exchange gains and other
FAIR VALUE OF ASSETS AT CLOSING
NET EXPENSES FOR THE YEAR
Costs of services rendered in the period
Finance charges
Interest expenses
Calculated return on assets
Change in plan
Reduction in plan
NET PENSION (EXPENSE)/INCOME FOR THE YEAR
PROVISION RECOGNIZED ON THE BALANCE SHEET
Commitments financed
Fair value of assets
Net commitments financed
Commitments not financed
(PROVISION)/ASSET AT CLOSING
CHANGE IN THE PROVISION
Provision at opening
Net expense for the year
Actuarial gains and losses
January 31, 2016
January 31, 2015
(6,944)
(5,372)
(690)
(136)
118
69
(9)
-
-
73
(531)
(149)
148
(1,629)
567
261
(239)
(7,520)
(6,944)
95
6
633
(6)
4
(32)
700
(690)
(130)
(136)
6
-
-
(820)
45
3
38
(3)
0
11
95
(532)
(146)
(149)
3
568
261
151
(2,439)
(1,586)
700
(1,739)
(5,082)
(6,820)
95
(1,491)
(5,358)
(6,849)
(6,849)
(5,327)
(820)
73
151
(1,629)
ESI Group ● 2015 Registration Document 99
Employer contributions (1)
Benefits paid
Acquired companies
Foreign exchange gain/ (loss)
(PROVISION)/ASSET AT CLOSING
633
112
(9)
40
38
146
(227)
(6,820)
(6,849)
(1)
Contributions paid by the employer to external funds are mainly due to South Korea, where it is now mandatory to fund a large portion of the commitments
5.3.3. Sensitivity of commitments to fluctuations in the discount rate
(In thousands of euros)
Obligation – 0.5%
Obligation
Obligation + 0.5%
(In thousands of euros)
Total actuarial gains and losses
Experience adjustment
Change in financial assumptions
Change in demographic assumptions
Yield on assets
(8,009)
(7,520)
(7,074)
73
(204)
388
(115)
4
Note 5.4. Share based payments
Stock options may be granted to certain employees of the Group. They entitle them to subscribe to new shares or purchase
existing shares of ESI Group four or five years after stock options are awarded at a fixed exercise price set on the award date.
Criteria for the granting of stock options may include performance requirements as well as continued employment within the Group.
In accordance with IFRS 2 standard, options are measured at the fair value of the benefit granted to the employee, estimated at
grant date. They are recorded as personnel costs in the income statement on a straight-line basis over the vesting period of the
option, offset against equity. The expense is recorded in the income statement per destination according to the allocation of each
concerned person.
The fair value of the option is determined using the "Black–Scholes" model which main parameters are: the exercise price of the
options, their expected life, share price at grant date, the inherent volatility of the share price and the risk-free interest rate.
Free shares may also be awarded to employees of the Group. The fair value of the benefit granted is determined based on the
share price on the day of the award multiplied by the number of shares awarded. This cost is recorded on a straight-line basis over
the vesting period.
Terms and conditions of stock options and free shares plans
Stock options have been authorized by various General Meetings and could potentially dilute ESI Group's legal capital. The table
below describes the status of the various plans under which options have been granted but not yet exercised
Plan number
Year that plan was
established
Number of stock op-
tions / of shares al-
lotted or to be allot-
ted
Number of shares
granted
Of which perfor-
Exercise price
mance shares
Outstanding op-
tions not yet exer-
cised at January
31, 2016
Year that stock op-
tions can be exer-
cised
Plan 7
Plan 9
Plan 10
2005
2006
2012
100,000
100,000
200,000
200,000
60,900
97,900
8.86
8.86
0
2015-2016
31,920
2016
180,000
180,000
62,300
25.94
128,625
2020-2025
ESI Group ● 2015 Registration Document 100
Plan 15
Plan 17
TOTAL STOCK OPTIONS
Plan 14
Plan 14 bis
TOTALFREE SHARES
2013
2014
2012
2013
294,538
180,000
20,000
20,000
7,350
0
954,538
507,350
241,100
21,755
60,000
81,755
21,755
0
21,755
0
0
0
21.66
27.17
0
0
TOTAL STOCK OPTIONS AND FREE
SHARES
1,036,288
529,105
241,100
20,000
7,350
187,895
2025
2023
19,185
2021
19,185
207,080
Total expense incurred related to share-based payments for the fiscal year ended January 31, 2016 stands at EUR 180 thousand.
Those related to free shares stands at EUR 106 thousand.
All stock options and free shares include a continued employment requirement.
Movements in stock options and free shares plans are as follows:
2015
2014
Numbers of options
and free shares
Weighted average
exercise price
Numbers of options
and free shares
Weighted average
exercise price
OPTIONS NOT EXERCISED / FREE SHARES TO BE REMITTED AT FEB-
RUARY 1ST
Options granted / Free shares to be remitted
Options expired or cancelled
Options exercised
OPTIONS NOT EXERCIESED / FREE SHARES TO BE REMITTED AT JAN-
UARY 31
OPTIONS THAT MAY BE EXERCISED AT JANUARY 31, 2016
178,330
45,500
(10,100)
(6,650)
207,080
31,920
19.71
24.26
25.81
8.86
20.54
8.86
248,910
32,755
(90,545)
(12,790)
178,330
38,570
19.35
8.84
16.12
8.86
19.71
8.86
The main data and the assumptions underlying the valuation of equity instruments at fair value were as follows:
Share price at grant date
Exercise period in years
Volatility
Dividend rate
Risk-free rate
Stock-options
Free shares
Plan 7
Plan 9
Plan 10
Plan 15
Plan 17
Plan 14
9
5
30%
0%
9
5
25 to 28
3 to 5
30%
22% to 25%
0%
0%
25
4
22%
0%
28
4
23%
0%
4.0%
4.0%
0.3% to 1.3%
0.4%
0.7%
27
4
25%
0%
1.2%
The fair value of free shares was calculated on the basis of ESI Group’s share price at the award date and is valued at EUR 24.31
per share.
Note 6. Intangible and tangible assets
Note 6.1. Intangible assets
6.1.1. Change in the gross value, amortization and net value of intangible assets
(In thousands of euros)
January 31, 2015 Change in scope
of consolidation
Increase
Decrease Foreign exchange
gain/loss
January 31, 2016
ESI Group ● 2015 Registration Document 101
GROSS AMOUNTS
Research and development costs
Intangible assets with an indefinite useful life
Other intangible assets
TOTAL
AMORTIZATION
41,616
12,044
16,375
70,034
1,469
23,556
(17,487)
12
49,166
3,376
4,845
2,837
(30)
26,393
(17,517)
Research and development costs
(13,013)
(20,100)
17,487
Intangible assets with an indefinite useful life
(73)
(11,472)
(24,558)
(307)
(307)
(1,746)
27
(21,846)
17,514
12,044
22,556
83,766
(15,626)
(73)
(13,444)
(29,143)
(2)
10
54
54
Other intangible assets
TOTAL
NET CARRYING AMOUNTS
Research and development costs
Intangible assets with an indefinite useful life
Other intangible assets
TOTAL
28,603
11,971
4,902
45,477
1,469
3,456
12
33,539
3,069
4,538
1,092
4,547
(3)
(3)
52
64
11,971
9,112
54,623
Evolutions related to change in scope of consolidation refer to ITI GmbH acquisition for research and development costs, and to
ITI GmbH and CIVITEC acquisitions for other intangible assets (respectively customer relationship and codes).
Increase over the fiscal year of other intangible assets results mainly from acquisition of activities during the first half of the year:
Ciespace, Presto, Picviz Labs, representing EUR 2.3 million.
6.1.2. Research and development costs
Research and development costs borne to gain new scientific or technical knowledge are recorded as expenses when incurred.
Research and development costs are capitalized in situations where the six requirements set forth under IAS 38, "Intangible Assets,"
are met:
-
-
-
-
-
-
Technical feasibility of completing the research and development project has been established;
The Group has the intention of completing the project;
The Group will be able to use or sell the product arising from the research and development project;
There will likely be future economic benefits attached to the product arising from the project, and a market exists for this
product;
There are proper technical, financial and other resources available to complete the research and development project and
to sell the resulting product;
The Group has the ability to reliably measure the expenses attributable to the research and development project.
The expenses thus converted into assets include the cost of direct labor as well as sub-contracting. They are amortized on a straight-
line basis over a period of 12 months for development work that leads to the yearly release of new software versions sold by the
Group, and on a straight-line basis over 24 months for development work that leads to major improvements to existing products.
Research and development costs that do not meet IAS 38 criteria are recorded as expenses when incurred.
In certain cases research and development costs entitle the Group to a tax credit, recorded during the fiscal year when expenses
were incurred. These tax credits are deducted from research and development costs.
NET IMPACT OF THE CAPITALIZATION OF RESEARCH AND DEVELOPMENT COSTS
(In thousands of euros)
January 31, 2016
January 31, 2015
Research and development costs capitalized during the period
Research and development costs amortized during the period
NET IMPACT OF THE CAPITALIZATION OF RESEARCH AND DEVELOPMENT COSTS
23,556
(20,100)
3,456
21,109
(19,910)
1,198
ESI Group ● 2015 Registration Document 102
Releases, which correspond to the commercial launch of new versions or upgrades to our software, are the result of commercial
and strategic decisions. In some cases, management decides to wait until several upgrades have been made to market a new
version rather than to release several different versions with minor upgrades during the year; in other cases, a new version with
a major upgrade may be marketed even if other improvements are planned in the near future. While projects are generally planned
to be released on a yearly basis, actual release calendar may vary from one year to the next. These changes have an impact on
amortization start dates and, consequently, on amortization amounts recorded.
Net value of capitalized developments costs stands for 13.8 months of incurred research and development costs (EUR 33.5
million) as of January 31, 2016, as compared to 14.3 months (EUR 28.6 million) as of January 31, 2015.
RECONCILIATION OF R&D COSTS INCURRED AND ACCOUNTED FOR TO THE INCOME STATEMENT
(In thousands of euros)
January 31, 2016
January 31, 2015
R&D costs incurred during the period(1)
R&D costs capitalized during the period
R&D costs amortized during the period
French R&D tax credit
TOTAL R&D COSTS ACCOUNTED FOR DURING THE FISCAL YEAR
(29,109)
23,556
(20,100)
2,881
(22,772)
(23,945)
21,109
(19,910)
2,777
(19,969)
(1)
Including EUR 5,553 thousand of expenses accounted for as direct costs in 2015, versus EUR 2,836 thousand in 2014
6.1.3. Intangible assets with an indefinite useful life
Intangible assets with an indefinite useful life include source codes that allow the Company to obtain intellectual property rights
to the software code. Specifically, it involves the translation of the laws of physics into programming language in the form of
algorithms that make it possible to simulate the reaction of materials under external constraints.
The intangible assets stemming from the purchase of business units are deemed to have indefinite useful lives as long as no
substitute technology currently exists and as long as the recurrent business model (yearly leases) ensure that the installed base
continues to generate revenues over the long-term.
The Group is of the opinion that the useful life of these intangible assets cannot be determined as long as the underlying scientific
content in purchased products is not challenged by a technological breakthrough that would render it obsolete. Furthermore,
significant research and development efforts (representing 30% of revenues from licensing) focusing on these up-and-coming
products guarantee the long-term value of the asset.
Assets with an indefinite useful life are not amortized. They are subject to impairment tests performed each year, either on an
individual basis or as part of cash-generating units (CGUs). The impairment testing process for CGUs is described in note 3.1.
The useful life of an intangible asset with an indefinite useful life is reviewed each year to determine whether events and circum-
stances continue to support an indefinite useful life assessment for this asset. If they do not, the change in the useful life assess-
ment from indefinite to finite must be accounted for prospectively.
6.1.4. Other intangible assets
Intangible assets with a finite useful life consist mainly of software. In accordance with IAS 38, they are valued at cost.
Amortization is recorded in the income statement based on the estimated useful life of the asset, according to the following criteria:
Office and similar software applications
Straight-line method
1 to 3 years
Operational software
Straight-line method
3 to 5 years
Codes – third-party software integrated in the products
Straight-line method
5 to 8 years
Amortization
Useful life
The period and method of amortization for an intangible asset with a finite useful life are re-measured at least at the end of each
period. Any change in the estimated useful life or the expected pattern of consumption of the future economic benefits embodied
in the asset are recorded by modifying the period or method of amortization. The impact of such change is accounted for prospec-
tively as a change in estimate.
Amortization costs of intangible assets with finite useful lives are recorded in the income statement under the category of expense
related to the function of the intangible asset.
ESI Group ● 2015 Registration Document 103
Note 6.2. Tangible assets
6.2.1. Accounting principles
In accordance with IAS 16 "Property, Plant and Equipment", these assets are valued at cost. They are not subject to any type of
revaluation. Amortization is recorded in the income statement based on the estimated useful life of the asset, according to the
following criteria:
Fixtures and fittings
Computer hardware
Office furnishings
Amortization
Useful life
Straight-line
method
Straight-line
method
Straight-line
method
5 to 10 years
3 to 5 years
5 to 7 years
6.2.2. Change in the gross value, amortization and net value of tangible assets
(In thousands of euros)
January 31, 2015 Change in scope
of consolidation
Increase
Decrease Foreign exchange
gain/loss
January 31, 2016
GROSS AMOUNTS
Fixtures and fittings
Computer hardware and equipment
Office furnishings and other tangible assets
TOTAL
AMORTIZATION
Fixtures and fittings
Computer hardware and equipment
Office furnishings and other tangible assets
TOTAL
NET CARRYING AMOUNTS
Fixtures and fittings
Computer hardware and equipment
Office furnishings and other tangible assets
TOTAL
3,121
11,134
2,816
17,070
(2,286)
(8,985)
(2,257)
(13,528)
835
2,149
558
3,542
3
22
628
653
(2)
(22)
(445)
(469)
1
183
184
635
1,487
89
(19)
(975)
(42)
(11)
(95)
(41)
3,729
11,572
3,450
2,211
(1,036)
(147)
18,751
(241)
(1,225)
(135)
19
950
36
8
74
26
(2,502)
(9,208)
(2,775)
(1,601)
1,005
108
(14,485)
394
262
(46)
610
(25)
(6)
(31)
(3)
(22)
(14)
(39)
1,227
2,364
675
4,266
Note 7. Financing and financial instruments
Note 7.1. Financial assets and liabilities
Financial assets and liabilities are mainly composed of:
-
-
Long term financial debts, short term borrowings and overdrafts, which represent gross debt – see details in note
7.1.2 ;
Loans, other short term financial assets, cash and cash equivalents – see details in note 7.1.3, which added to
gross debt represent net financial debt ;
- Derivative financial instruments – see details in note 7.1.4.
ESI Group ● 2015 Registration Document 104
7.1.1. Fair value of financial assets and liabilities
(In thousands of euros)
Amortized cost
Fair value through
Fair value through
Carrying amount
equity
income statement
Carrying amount under IAS 39
January 31, 2016
ASSETS
Non-current financial assets:
-
-
-
-
Long term investments
Deposits and guarantees
Factoring of French R&D tax credit for 2014
Hedging instruments assets
Trade receivables
Cash and cash equivalents
LIABILITIES
Bank borrowings
Factoring of French R&D tax credit for 2014
Others financial debts
Hedging instrument liabilities
Others financial liabilities
Payables
1,957
1,991
67,676
43,105
1,991
1,210
8,073
21
1,397
124
90
10,327
124
1,957
1,991
90
67,676
10,327
258
43,363
1,991
1,210
21
1,397
8,073
In accordance with IFRS 13, financial income and expenses at fair value are classified according to the following hierarchy:
-
-
-
Level 1: inputs for the asset or liability that are quoted prices on an active market;
Level 2: inputs for the asset or liability that are based on observable market data;
Level 3: inputs for the asset or liability that are not based on observable market data.
Cash and cash equivalents’ fair value is level 1 according to IFRS 13 hierarchy.
Hedging instruments and floor of the syndicated loan (see note 7.2) fair values are level 2.
Debts on earn-out, put options (other financial liabilities) and long term investments fair values are level 3.
7.1.2. Gross debt
On November 5, 2015, ESI Group signed a syndicated line of credit for EUR 49 million with a pool of six banks. The goals of this
new line of credit include refinancing residual debt from the former syndicated loan and financing of future acquisitions, as well as
meeting recurring year-end needs for working capital (short-term revolving credit for a maximum total of 10 million euros).
The lines of credit for refinancing and external growth have a maturity date of November 2022, partly with annual straight-line
amortization. The repayment rate is the Euribor rate for each drawdown period with a minimum rate of 0% and with a margin
between 1.9% and 2.4% depending on the type of amortization. Financing of needs for working capital was added into the syndi-
cated loan in order to optimize ESI Group's cash flow management, which is strongly affected by the seasonal nature of the
company’s business model.
As of January 31, 2016, EUR 33 million of the long-term lines of credit has been used and ESI Group has established hedging
instruments for 40% of the principal for the refinancing line of credit (see Note 7.1.4). For the revolving credit, EUR 8 million has
been used. As of the date of account statements, the entire revolving line of credit has been paid off.
All financial debts are denominated in euros.
ESI Group ● 2015 Registration Document 105
Detail of financial debt by maturity
At January 31, 2016
Maturity at January 31
(In thousands of euros)
Syndicated loan
Short-term revolving loan
Other bank borrowings
Factoring of French R&D tax
credit for 2014
2017
3,777
8,000
2,058
Profit-sharing funds
25
Repayable advances
Other long-term liabilities
TOTAL
108
13,967
CURRENT: 13,967
At January 31, 2015
(In thousands of euros)
Syndicated loan
Commercial paper
Other bank borrowings
Leasing
Profit-sharing funds
Repayable advances
2016
2,818
7,500
1,921
15
355
75
2018
3,777
155
272
129
4,333
2017
2,818
144
272
111
2019
3,777
258
328
4,363
Maturity at January 31
2018
2,818
23
0
137
TOTAL
12,684
3,345
2,978
2020
2021 and beyond
Total
3,777
17,940
33,048
8,000
2,316
1,991
179
272
759
129
18,069
46,566
NON-CURRENT: 32,597
1,991
65
5,833
2019
2020 and beyond
Total
2,818
276
0
0
305
3,399
11,272
7,500
2,197
182
627
822
22,600
194
194
CURRENT: 12,684
NON-CURRENT: 9,916
Financial debt by type of interest rate and maturity
At January 31, 2016
(In thousands of euros)
Fixed-rate debt
Variable-rate debt
No-interest debt
TOTAL
2017
25
13,835
108
13,967
2018
155
3,777
401
4,333
Maturity at January 31
2019
2020
2021 and beyond
4,035
328
4,363
5,768
65
5,833
17,940
129
18,069
Total
180
45,355
1,031
46,566
CURRENT: 13,967
NON-CURRENT: 32,597
7.1.3. Cash and cash equivalents
Cash and cash equivalents correspond to cash and marketable securities qualified as cash equivalents under IAS 7.
In accordance with IAS 39, marketable securities are recognized at market value at the closing date. Changes in market value are
recognized in financial result.
ESI Group ● 2015 Registration Document 106
The Group classifies no-risk investments in interest-bearing accounts, commercial paper and certificates of deposit originally maturing
in three months or less and not bearing any significant interest rate risk. These cash equivalents are denominated in euros and
recorded at their net asset value.
(In thousands of euros)
January 31,
2016
January 31,
2015
Cash
10,327
11,940
Other marketable securities
-
-
Total Cash and cash equivalents
10,327
11,940
7.1.4. Derivative financial instruments
The Group uses derivative instruments to manage its exposure to fluctuations in exchange rates and interest rates. In accordance
with IAS 39, derivative instruments are recorded at cost and revaluated at fair value at each closing date.
Changes in fair value of derivative financial instruments are accounted for as follows :
- Cash flow hedges: the effective portion of the gain or loss from re-measurement at fair value is recognized directly in
equity until the effective completion of the scheduled transaction. When the scheduled transaction is completed, the
amount recognized in equity is reclassified in profit;
-
Instruments not qualifying for hedge accounting: certain derivatives that in substance represent hedges do not qualify
for hedge accounting under IAS 39. Gains and losses from the fair value measurement of these derivative instruments
are recognized directly in financial income and expenses, in accordance with the criteria of IAS 39.
INTEREST RATE DERIVATIVES
Interest rate swaps signed by ESI Group are hedging instruments to the variable interest rate of the syndicated loan. The same
hedging principle was applied for the previous syndicated loan which was early terminated in November 2015, along with related
interest rate swaps.
New interest rate swaps signed in December 2015 are as follows:
-
Two swaps of EUR 1.9 million, ESI Group receiving variable rate 1-month Euribor (with a 0% floor) and paying a fixed
rate of 0.195% ;
- One swap of EUR 1.9 million, ESI Group receiving variable rate 1-month Euribor (with a 0% floor) and paying a fixed
rate of 0.22%.
As of January 31, 2016 market value of these instruments was EUR -21 thousand.
FOREIGN CURRENCY DERIVATIVES
In order to manage foreign currency risk on cash flows between the Group parent company and its subsidiaries, ESI Group may
purchase foreign currency options at any time and enter into any other type of foreign exchange contract.
Foreign currency derivatives used in 2015 enabled hedging of flows in Japanese yen (through forwards, tunnels, targets), in South
Korean won (through non delivery forwards) and in Indian rupee (through non delivery forwards). These instruments are not
qualified and recorded as hedge accounting as defined by IAS 39.
As of January 31, 2016 market value of these instruments was EUR 90 thousand.
Note 7.2. Financial income and expenses
(In thousands of euros)
Interest on borrowings
Interest income
Foreign exchange gains and losses
Other financial expenses
Financial result
January 31, 2016
January 31, 2015
(552)
30
314
(742)
(950)
(379)
65
1,598
(543)
741
ESI Group ● 2015 Registration Document 107
Interest on borrowings are composed of interests paid on bank loans, costs related to hedging instruments for the syndicated
loan, and of EUR 151 thousand of costs related to the signing of the early-terminated previous syndicated loan, which were
recorded in the balance sheet and not fully amortized.
Other financial expenses include:
-
-
-
-
Financial costs related to employee benefits;
Financial costs related to factoring of R&D French tax credit for 2012-2014;
The valuation of the 0% floor included in our current syndicated loan (cost of EUR 258 thousand);
Interests paid related to other short-term financing, especially commercial papers used in 2014.
The tables below give a breakdown of foreign exchange gains and losses for main currencies during 2015 fiscal year:
(In thousands of euros)
January 31, 2016
January 31, 2015
USD
JPY
KRW
Others currencies
Total
(In thousands of euros)
Realized
Unrealized (revalued at closing rates)
Hedging – realized
-
-
-
Of which JPY
Of which KRW
Of which INR
Hedging – unrealized (valued at market value)
Total
Note 7.3. Risk management policy
Country risks and foreign currency risk
415
120
(200)
(21)
314
2,112
(657)
282
(140)
1,598
January 31, 2016
January 31, 2015
1,429
(1,434)
(184)
(348)
(76)
239
502
314
164
1,774
103
103
-
-
(444)
1,598
During the fiscal year ended January 31, 2016, 45.8% of the Group's revenues were generated in Europe and 54.2% outside of
Europe, with 35.5% coming from Asia (mainly Japan, South Korea, China and India) and 18.7% coming from the Americas (mainly
the United States). The Group is thus exposed to economic and political uncertainties in these zones.
The Group is also highly exposed to risks stemming from changes in foreign exchange rates. For the fiscal year ended January
31, 2016, 40.9% of revenues were generated in EUR (euro), 21.6% in USD (US dollars), 19.3% in JPY (Japanese yen) and 5.4%
in KRW (South Korean won).
Furthermore, 52.4% of costs are spent in EUR (euro), 17.2% in USD (US dollars), 7.6% in JPY (Japanese yen), 6.6% in INR
(Indian rupee), 3.5% in CZK (Czech koruna), 3.5% in KRW (South Korean won) and 3.3% in CHF (Swiss franc).
The Group's policy aims, whenever possible, at hedging budgeted net operating cash flows by entering into instruments which
guarantee as close as possible budgeted exchange rates.
The table below shows the results of sensitivity analysis of EBIT to exchange rate fluctuations. The assumption made is a 10%
decline in the average exchange rate applied to all transactions (purchases and sales), with respect to the principal currencies to
which the Group is exposed.
ESI Group ● 2015 Registration Document 108
Currency
Average consolidation
Exchange rate used for
JPY
KRW
CZK
USD
INR
CHF
Interest rate risk
exchange rate
133.52
1259.19
27.21
1.10
71.26
1.07
analysis
146.88
1385.11
29.93
1.21
78.38
1.17
Effect on EBIT in
millions of euros
- 1.5
- 0.3
- 0.2
- 0.1
0.5
0.4
Most of the Group's financial debts are with variable interest rates. In order to limit the negative impacts of rate fluctuation, the
Group applies a non-speculative management policy, using derivatives described in Note 7.1.4.
Sensitivity analysis to interest rate risk
The only debts included in the calculation of interest rate sensitivity are those with variable interest rates. These are mostly bank
loans which drawdown and repayment are left to the borrower's discretion. As of January 31, 2016, EUR 8 million of the revolving
credit line have been used and this line has been entirely paid off as of the date of issuance of account statements. Given ESI
Group's optimization of cash flow management, the amount of debt incurred from bank loans over the course of the year has
fluctuated, with generally lower levels during the year than at the end of the fiscal year, like-for-like.
The calculations of foreign-exchange sensitivity below assume stability of financial debts incurred at the January 31, 2016 levels,
meaning a fixed level of drawdown on bank loans as of that date.
The table below simulates the effects of interest rates rising and falling by 1% in terms of interest payments:
(In thousands of euros)
< 1 Year
≥ 1 Year, < 5 Year
≥ 5 Years
Total
Variable rate financial liabilities
Variable rate financial assets
Off-balance sheet commitments
NET POSITION
Sensitivity to a 1-point decrease
Sensitivity to a 1-point increase
Equity risk
(13,835)
(13,580)
(17,940)
(45,355)
(13,835)
(13,580)
(17,940)
(45,355)
40
(230)
In accordance with IAS 32, treasury shares are accounted for as part of consolidated shareholder equity and variations in value
are not recorded. When treasury shares are acquired or sold, shareholder equity is adjusted to reflect the value of the shares
acquired or sold. Note 9.1 contains a detailed description of changes in treasury stock, whether those changes be part of a liquidity
agreement or to cover stock options and shares given to employees for free.
As part of its cash flow management, the Group does not directly hold any other listed stock and does not invest in equity-
dominated or equity-benchmark UCITSes. Thus, the Group's net financial income is not directly or significantly affected by varia-
tion in any given stock or market index.
Liquidity risk
The Company has specifically reviewed its liquidity risk and it considers itself to be in a position to satisfy future payment obliga-
tions. Off-balance sheet commitments (covenants) relating to the syndicated loan signed in November 2015 are detailed in Note
7.4.
Note 7.4. Off-balance sheet commitments relating to Group financing
ESI Group pledged 99.98% of the shares of ESI France and 95.50% of the shares of ESI Software Germany as collateral in the
credit agreement signed on November 5, 2015.
ESI Group ● 2015 Registration Document 109
As long as the Group remains a debtor under the collateral agreement or documents, the borrower agrees, under penalty of early
repayment, to adhere to the following ratios:
- Ratio R1: Consolidated net financial debt divided by consolidated EBITDA: less than or equal to 3;
- Ratio R2: Consolidated net financial debt divided by consolidated equity: less than or equal to 0.60;
- Ratio R3: Consolidated free cash-flow divided by debt servicing: higher than or equal to 1. If the ratio is lower than 1, net
consolidated cash balance should be positive.
It should be noted that the following clarifications have been added to these definitions with the agreement of the bank pool:
-
-
The consolidated EBITDA used in ratio R1 is calculated according to the new method used by ESI Group since the first
half of 2015. This indicator used for financial communication include, among others, the impact of capitalization of re-
search and development costs;
The net consolidated cash balance used in ratio R3 includes short-term financial debts as shown on the balance sheet,
excluding the portion of long-term lines of credit from the syndicated loan that will be reimbursed in less than one year
and excluding debts related to French R&D tax credit, which represents a long-term financing.
As of January 31, 2016, on the basis of the consolidated financial statements certified by the auditors, the Group was compliant
with the ratios described above.
Note 8. Income tax
Note 8.1. Income tax expense
Deferred tax assets and liabilities reflect future decreases or increases in income tax expense to be paid that result, for certain asset
and liability items, from temporary valuation differences between their carrying amounts and their tax base, as well as from tax loss
and tax credit carry-forwards. Deferred tax assets and liabilities are assessed by tax entity or group based on the tax rates applicable
to the years during which these temporary differences are likely to be reversed or paid. Deferred tax assets and liabilities are adjusted
for each entity in order to present either a net asset position or a net liability position.
Deferred tax assets are only recorded in cases where it is likely that the future tax savings they represent will be realized. The Group
reviews the probability of future recovery of deferred tax assets on a periodic basis for each tax entity. This review can, if applicable,
lead the Group to derecognize deferred tax assets that it had recognized in prior years.
Company head of the tax group
ESI Group
ENGINEERING SYSTEM INTERNATIONAL GMBH
ESI North America, Inc.
8.1.1. Income tax expense
(In thousands of euros)
Current taxes
Deferred taxes
TOTAL
8.1.2. Tax proof
(In thousands of euros)
Net income before income taxes
Including share of profit of associates
Standard tax rate in France
Theoretical tax
Permanent differences between accounting income and taxable income
Country
France
Germany
United States
January 31, 2016
January 31, 2015
(3,254)
97
(3,157)
(2,287)
(1,308)
(3,595)
January 31, 2016
January 31, 2015
8,527
123
33.33%
(2,801)
79
9,191
100
33.33%
(3 030)
(338)
ESI Group ● 2015 Registration Document 110
Impact of liability method
Impact of tax rate differences
Unrecognized deferred tax assets and unused tax losses
Recognition of previously unrecognized deferred tax assets
GROUP INCOME TAX EXPENSE
Effective tax rate
The effective tax rate for 2015 includes a reversal in the provision for tax risk in France.
Note 8.2. Deferred taxes
BREAKDOWN OF DEFERRED TAXES
(In thousands of euros)
DEFERRED TAX ASSETS
Tax loss carryforwards
Temporary differences related to the treatment of maintenance
Provisions for employee benefit commitments
Temporary differences related to the treatment of internal sales
Provisions and other adjustments
TOTAL DEFERRED TAX ASSETS
DEFERRED TAX LIABILITIES
(85)
(218)
(381)
250
(3,157)
37.6%
(128)
(65)
(33)
-
(3 595)
39.5%
January 31, 2016
January 31, 2015
1,616
4,411
2,196
214
1,314
9,752
3,077
3,823
2,135
606
257
9,898
Amortization of acquired intangible assets
(1,697)
(1,024)
Other
TOTAL DEFERRED TAX LIABILITIES
NET DEFERRED TAX
(788)
(2,485)
7,267
(643)
(1,667)
8,231
Total non-capitalized deferred tax expense on companies' loss carryforwards unlikely to be recovered amounts to EUR 942 thou-
sand. The timeframe used for estimating the recoverability of deferred tax assets relating to tax loss carryforwards is five years.
RECONCILIATION OF DEFERRED INCOME TAX EXPENSE ON THE BALANCE SHEET AND ON THE INCOME STATEMENT
(In thousands of euros)
Net deferred tax assets at opening (February 1st 2015)
Acquired companies
Deferred tax expenses recorded in the income statement
Deferred tax expenses recognized directly in equity (revised version of IAS 19)
Foreign exchange loss on deferred tax expenses
Deferred tax expenses related to allocations of goodwill assets and other items
NET DEFERRED TAX ASSETS AT CLOSING (January 31, 2016)
Note 9. Equity and earnings per share
Note 9.1. Share capital, reserves and treasury stock
ESI Group’s legal capital is made up of ordinary stock.
8,231
(942)
97
(42)
(57)
(21)
7,267
ESI Group ● 2015 Registration Document 111
The currency translation difference in Equity is used to record losses or gains generated by converting the financial statements of
foreign subsidiaries into euros as well as foreign exchange losses or gains on transactions characterized as long-term investments
with foreign subsidiaries.
When the Group buys back its own shares, these shares are recorded at their net purchase price as treasury stock and deducted
from equity. The proceeds from the sale of treasury stock are accounted for directly in equity.
Legal capital
As of January 31, 2016, ESI Group's legal capital was EUR 17,865 thousand, consisting of 5,955,072 common shares with a par
value of 3 euros each.
Dividend
ESI Group did not pay out any dividend during the period.
Treasury shares
The number of treasury shares held by ESI increased by 6,237 during the fiscal year as part of a liquidity agreement. The per-
centage of capital held as treasury shares following these transactions stood at 7.2% as of January 31, 2016, versus 7.1% as of
January 31, 2015. The Group owns a total of 430,884 shares of its own stock, purchased at a historical cost of EUR 4,147
thousand and having, at this same date, a market value of EUR 10,384 thousand, for an unrealized gain of EUR 6,237 thousand.
Historical cost and adjustments for gains or losses on past disposals are deducted from equity.
Transactions with non-controlling interests
Transactions with non-controlling interests are recognized directly in equity. See details in notes 3.1 and 3.2.
Note 9.2. Minority interest
If, in the event of losses, the share corresponding to minority interests is negative, the excess and any further losses attributable
to the minority interests are deducted from the minority interests.
Note 9.3. Earnings per share
The summary table below details the earnings per share:
(In thousands of euros)
January 31,
2016
January 31,
2015
NET INCOME
5,330
5,496
Earnings per share (in euros)
0.96
0.99
Average number of shares
5,534,542
5,539,558
Diluted earnings per share (in euros)
0.96
0.99
Average number of diluted shares
5,577,169
5,553,743
Only stock options and free shares may have a dilutive effect
Note 10. Other balance sheet items
Note 10.1. Other assets
10.1.1. Other non-current assets
(In thousands of euros)
Security deposits
Other financial assets
Investments in non-consolidated companies
Total Other non-current assets
January 31, 2016
January 31, 2015
1,957
1,991
124
4,072
1,937
-
57
1,994
ESI Group ● 2015 Registration Document 112
Security deposits are related to real estate rentals.
Other financial assets correspond to French 2014 R&D tax credit, which has not been used to pay income tax and financed
(factoring, see details in note 7.1.2)
10.1.2. Other current assets
(in thousands of euros)
French R&D tax credit
Other tax credits
VAT and other receivables
TOTAL OTHER CURRENT ASSETS
January 31, 2016
January 31, 2015
2,836
2,647
7,208
12,692
2,269
1,907
5,953
10,129
French R&D tax credit receivables as of January 31, 2016 are related to costs incurred in 2015 fiscal year.
R&D tax credits related to fiscal years 2010 to 2013, not used to pay corresponding income taxes, have been financed (factoring)
and deconsolidated.
10.1.3. Prepaid expenses
Prepaid expenses consist primarily of rent for real estate and other property.
Note 10.2. Others liabilities
10.2.1. Accrued compensation and taxes and others short-term liabilities
(In thousands of euros)
Employee-related liabilities
Tax payables
Other current liabilities
ACCRUED COMPENSATION AND TAXES AND OTHERS SHORT-TERM LIABILI-
TIES
Tax payables consist primarily of VAT payables in the amount of EUR 7,539 thousand.
10.2.2. Provisions for contingencies, risks and disputes
January 31, 2016
January 31, 2015
13,335
9,958
3,300
26,593
10,774
9,417
3,979
24,170
According to IAS 37 " Provisions, Contingent Liabilities and Contingent Assets ", a provision is recorded when the following 3 condi-
tions are met: the Group has an obligation towards a third party resulting from past events, it is probable that future outflows of
resources embodying economic benefits will be necessary to settle the obligation, the amount of the obligation can be estimated in a
reliable way.
Provisions are established mostly to mitigate labor-related risks and other risks and expenses related to the Company's business
activities.
(In thousands of euros)
Disputes
CURRENT PROVISIONS FOR LIABILITIES
January 31,
2015
Provisions Reversals – pro-
visions used
Reversals – pro-
visions not used
Foreign ex-
change gain/loss
January 31,
2016
2,331
2,331
153
153
(397)
(397)
(533)
(533)
(3)
(3)
1,551
1,551
The reversals accounted for in 2015 are related to social and fiscal risks in France. In particular, the provision related to tax audit
on fiscal years 2009-2011 has been partially reversed as the tax control is finished.
ESI Group ● 2015 Registration Document 113
Note 11. Related party transactions
Executive corporate officers’ compensation
Compensation and benefits paid to the Group's executive corporate officers during the fiscal years ended January 31, 2016 and
January 31, 2015 can be broken down as follows:
(In thousands of euros)
January 31, 2016
January 31, 2015
Salary
Bonuses
Travel bonus
Fringe benefits
Director’s fees
TOTAL
740
2
118
205
16
1,081
669
4
38
214
16
941
Related party transactions
Mrs. Cristel de Rouvray, Director, conducted in 2015 for ESI Group specific missions relating to human resources, consulting, and
strategic management, for USD 60,000. This contract was authorized by the Board of Directors of April 14, 2015, prior to the
beginning of the mission.
Note 12. Fees paid to statutory auditors
PricewaterhouseCoopers Audit
Ernst & Young
Total
Amount
%
Amount
%
Amount
%
(In thousands of euros, VAT excluded)
Y
Y-1
Y
Y-1
Y
Y-1
Y
Y-1
Y
Y-1
Y
Y-1
Audit
Statutory audit, certification, review of annual and consolidated financial statements
–
–
Parent company
139
159
54%
64%
162
175
63%
67%
301
333
58%
66%
Fully consolidated subsidiaries
77
81
30%
33%
97
86
37%
33%
174
167
34%
33%
Other work and services directly related to statutory audit
–
–
Parent company
Fully consolidated subsidiaries
31
0
7
0
12%
3%
0%
0%
0
0
0
0
0%
0%
31
0%
0%
0
7
0
6%
1%
0%
0%
AUDIT SUB-TOTAL
247
247
96%
100%
259
261
100%
100%
505
507
98%
100%
OTHER SERVICES RENDERED BY STATUTORY AUDITORS’ MEMBER FIRMS TO FULLY CONSOLIDATED SUBSIDIARIES
Legal, tax, social
Other
OTHER SERVICES SUB-TOTAL
9
0
9
0
0
0
4%
0%
0%
0%
4%
0%
0
0
0
0
0
0
0%
0%
0%
0%
0%
0%
9
0
9
0
0
0
2%
0%
0%
0%
2%
0%
TOTAL
256
247
100%
100%
259
261
100%
100%
514
507
100%
100%
On January 31, 2008, ESI Group elected to follow the recommendation of the French Association of Statutory Auditors (CNCC)
from December 2007 and to record, at the reporting date, the expenses related to audit fees corresponding to services actually
rendered during the period. Total fees related to parent company legal auditors accounted for as of January 31, 2016 amount to
EUR 267 thousand.
Note 13. Subsequent events
On February 5, 2016, ESI Group acquired 100% of shares of the US company Mineset Inc., specialized in machine learning.
ESI Group ● 2015 Registration Document 114
5.1.6. Statutory auditors’ report on the consolidated financial statements
Year ended January 31, 2016
To the Shareholders,
In compliance with the assignment entrusted to us by your annual general meeting, we hereby report to you, for the year ended
January 31, 2016, on:
-
-
-
The audit of the accompanying consolidated financial statements of ESI Group;
The justification of our assessments;
The specific verification required by law.
These consolidated financial statements have been approved by your Board of Directors. Our role is to express an opinion on
these consolidated financial statements based on our audit.
I. Opinion on the consolidated financial statements
We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material mis-
statement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit
evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes evaluating the ap-
propriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presen-
tation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial
position of the group as at January 31, 2016 and of the results of its operations for the year then ended in accordance with
International Financial Reporting Standards as adopted by the European Union.
II. Justification of our assessments
In accordance with the requirements of article L. 823-9 of the French Commercial Code (Code de commerce) relating to the
justification of our assessments, we bring to your attention the following matters:
Development costs
As part of our assessments of the accounting principles followed by your group, we reviewed the criteria used for capitalizing and
amortizing development expense and measuring the recoverable amount. We ensured that note 6.2 to the consolidated financial
statements gives appropriate information.
Impairment testing of intangible assets
At each financial year end, your company performs impairment tests on goodwill and assets with indefinite useful lives, as de-
scribed in notes 3.1 and 6.1.3 to the consolidated financial statements. We reviewed the impairment testing method as well as
the cash flow projections and assumptions used for the tests and ensured that the information given in notes 3.1 and 6.1.3 is
appropriate.
Deferred tax assets
Note 8.1 to the consolidated financial statements presents the accounting rules and methods adopted with respect to the deferred
tax assets accounting and valuation. Our work consisted in assessing the data and assumptions underlying the estimation of the
deferred tax assets value.
These assessments were made as part of our audit of the consolidated financial statements taken as a whole, and therefore
contributed to the opinion we formed which is expressed in the first part of this report.
III. Specific verification
As required by law we have also verified, in accordance with professional standards applicable in France, the information pre-
sented in the group’s management report.
We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements.
Neuilly-sur-Seine and Paris-La Défense, May 19, 2016
The statutory auditors
French original signed by
PricewaterhouseCoopers Audit
Thierry Charron
ERNST & YOUNG Audit
Frédéric Martineau
ESI Group ● 2015 Registration Document 115
5.2. ESI Group SA annual financial statements
5.2.1. Income Statement as at January 31, 2016
Income statement (in list form)
(in euros)
Sales of goods held for resale
Sales of services
NET REVENUES
Production held as inventory
Self-created assets
Operating subsidies
Reversals of depreciation, amortization, and provisions, expense
transfers
Other income
OPERATING INCOME
Purchases of goods (including customs duties)
Change in inventory (goods)
Purchases of raw materials and other supplies (and customs duties)
Changes in inventory (raw materials and supplies)
Other purchases and external expenses
Taxes and duties
Wages and salaries
Payroll taxes
Depreciation and amortization of non-current assets
Provisions
– On current assets
– For contingencies and charges
Other expenses
OPERATING EXPENSES
OPERATING RESULT
Intercompany income
Income from other securities and receivables from non-current assets
Other interest and similar income
Provision reversals and expense transfers
Foreign exchange gains
Net gains from sales of marketable securities
FINANCIAL INCOME
France
Exports
January 31, 2016
January 31, 2015
9,692,197
9,692,197
18,670
69,446,019
69, 446,019
18,670
79 138 216
79,156,885
(78,327)
179,658
68 307 747
68,487,405
657,310
24,131,565
21,595,695
47,422
99,088
4,281,797
2,006
716,244
858
107,541,349
91,556,602
137,076
63,662
(51,648)
35,623
58,082,944
45,826,133
1,262,932
1,260,825
13,203,318
12,446,007
6,295,088
5,772,989
22,489,443
22,118,342
621,420
153,000
3,749,068
4,067,565
308,477
453,428
105,892,840
92,402,859
1,648,509
138,988
28,062
1,022,304
3,527,978
50
(846,257)
141,487
6,460
56,300
905,387
2,036,814
767
4,717,384
3,147,217
ESI Group ● 2015 Registration Document 116
Financial amortization allowances and provisions
Interest expense
Foreign exchange losses
Net losses from sales of marketable securities
FINANCIAL EXPENSES
FINANCIAL RESULT
CURRENT INCOME BEFORE TAX
Income statement (cont.)
(In euros)
Non-recurring income from management transactions
Non-recurring income from capital transactions
Provision reversals and expense transfers
NON-RECURRING INCOME
Non-recurring expenses from management transactions
Non-recurring expenses from capital transactions
Non-recurring amortization allowances and provisions
NON-RECURRING EXPENSES
NON RECURRING RESULT
Employee profit-sharing
Income tax
TOTAL INCOME
TOTAL EXPENSES
NET PROFIT (LOSS)
1,470,014
668,364
2,056,588
6
4,194,974
522,410
2,170,919
872,546
613,750
1,370,360
2,856,658
290,559
(555,697)
January 31, 2016
January 31, 2015
103,434
16,553
87,079
207,067
120,901
24,118
403,189
548,210
(341,143)
(2,205,946)
112,465,800
108,430,079
4,035,722
65,923
20,922
86,845
83,131
32,037
200,215
315,384
(228,538)
(1,865,499)
94,790,666
93,709,403
1,081,263
5.2.2. Balance sheet as at January 31, 2016
Assets
(In euros)
INTANGIBLE ASSETS
Start-up costs
Research and development costs
Franchises, patents, licenses and other similar rights
Goodwill
Other intangible assets
Intangible advances and prepaids
TANGIBLE ASSETS
Land
Buildings
Gross value
Amortization
Net Amounts
76,585,602
24,815,759
51,769,844
46,767,333
January 31, 2016
January 31, 2015
38,371,999
27,246,620
1,027,970
9,939,014
16,100,242
8,642,970
72,547
22,271,758
18,603,649
955,423
9,939,014
14,381,250
16,910,319
955,423
14,220,341
8,305,146
6,103,662
2,201,484
1,647,987
ESI Group ● 2015 Registration Document 117
Machinery and equipment
Other tangible non-current assets
In-progress tangible assets
Advances and prepaids
INVESTMENTS
Controlling interests
Loans granted to controlling interests
Other fixed securities
Loans
Other investments
NON-CURRENT ASSETS
INVENTORIES
Raw materials and supplies
Work in progress, goods
Work in progress, services
Finished and semi-finished goods
Goods held for resale
Down payments to suppliers
RECEIVABLES
Trade receivables
Other receivables
Shares subscribed, called and unpaid
MISCELLANEOUS
Marketable securities (treasury stock)
Cash
ADJUSTMENT ACCOUNTS
Prepaid expenses
CURRENT ASSETS
Expenses capitalized, to be amortized
Bond discounts to be amortized
Foreign exchange gains and losses
OVERALL TOTAL
Liabilities
(In euros)
Individual or legal capital
Additional paid-in capital
Legal reserve
Retained earnings
8,305,146
6,103,662
2,201,484
1,647,987
65,597,840
51,231,780
13,011,681
15
451,680
902,684
150,488,589
1,690,478
46,740
1,621,721
22,017
59,618,679
50,446,124
9,172,555
6,962,540
4,106,217
2,856,323
2,136,708
2,136,708
70,408,405
508,826
4,706,879
2,958,356
1,748,523
35,626,299
0
1,679,723
1,548,340
131,384
0
1,679,723
60,890,962
48,273,425
11,263,158
15
451,680
902,684
114,862,289
1,690,478
46,740
42,699,697
29,348,833
12,265,765
15
452,303
632,781
90,815,017
1,885,165
82,364
1,621,721
1,741,549
22,017
57,938,956
48,897,784
9,041,171
6,962,540
4,106,217
2,856,323
2,136,708
2,136,708
68,728,681
508,826
61,253
51,725,497
44,285,835
7,439,662
6,182,842
3,915,400
2,267,442
1,977,333
1,977,333
61,770,838
189,005
560,031
221,965,850
0
37,306,023
560,031
184,659,827
872,548
153,647,406
January 31, 2016
January 31, 2015
17,865,216
37,468,611
1,641,768
30,236,839
17,845,266
37,429,642
1,587,705
29,209,639
ESI Group ● 2015 Registration Document 118
Net profit (loss)
Regulated provisions
EQUITY
Conditional advances
OTHER EQUITY
Provisions for contingencies
Provisions for charges
PROVISIONS FOR CONTINGENCIES AND CHARGES
FINANCIAL LIABILITIES
Bank borrowings (1)
Miscellaneous financial debt (1)
Down payments from clients
OPERATING LIABILITIES
Trade payables
Accrued taxes and personnel expenses
MISCELLANEOUS LIABILITIES
Liabilities to fixed asset suppliers, including unpaid amounts on subscribed investment shares
Other liabilities
ADJUSTMENT ACCOUNTS
Deferred income
LIABILITIES
Foreign exchange gains and losses
OVERALL TOTAL
4,035,723
758,350
92,006,507
370,674
370,674
1,444,801
1,444,801
45,512,340
42,884,431
2,397,985
229,924
36,139,930
30,233,386
5,906,544
5,895,968
248,573
5,647,395
619,329
619,329
88,167,567
2,670,279
184,659,827
1,081,263
541,346
87,694,862
370,674
370,674
2,365,639
2,365,638
23,056,227
20,133,434
2,697,167
225,626
27,341,031
21,971,523
5,369,508
8,658,187
680,816
7,977,372
168,125
168,125
59,223,571
3,992,661
153,647,406
(1) Reclassification in 2014 of EUR 7.5 million of commercial papers from Miscellaneous financial debt to Bank borrowings for a better comparability
5.2.3. Notes to the annual financial statements of ESI Group SA
Table of contents to the notes to annual financial statements
Note A. Significant events of the year
Note D. Notes on liabilities items of the balance sheet
Note B. Accounting principles
Note E. Notes on the income statement
Note C. Notes on assets items of the balance sheet
Note F. Other information
The balance sheet total at January 31, 2016 is EUR 184,659,827.37 and the income statement for the fiscal year shows a net
profit of EUR 4,035,722.76.
The financial statements cover a 12-months period, from February 1, 2015 to January 31, 2016.
They have been prepared in accordance with the French General Accounting Plan and generally accepted accounting principles.
All amounts listed in these notes are in thousands of euros unless otherwise indicated.
The notes below are an integral part of the annual financial statements.
Note A. Significant events of the year
Acquisitions of subsidiaries
– Acquisition on March 27, 2015 of a 80% stake in French company CIVITEC
– Acquisition on January 5, 2016 of a 96% stake in German company ITI GmbH
ESI Group ● 2015 Registration Document 119
Acquisition of technological bricks (intangible assets)
– Acquisition of Ciespace and Presto activities in the United States and of Picviz Labs in France, respectively on April 10,
2015, May 6, 2015 and March 3, 2015.
Financing
– Early reimbursement of the previous syndicated loan and signing on November 5, 2015 of a new syndicated loan of EUR
49 million with a 7 years maturity (2022).
Note B. Accounting principles
Accounting principles are unchanged from the previous fiscal year.
The general accounting conventions have been applied in compliance with the principle of prudence, in accordance to the basic
assumptions of:
– Going concern;
– Consistency in accounting methods from one fiscal year to the next;
– Fiscal year independence;
– As well as the general rules governing the preparation and presentation of annual financial statements.
The basic method used to measure the items recorded in the financial statements is the historical cost method.
Note B.1. Intangible assets
Research and development costs
Internal research and development costs are recorded as expenses in the income statement following the nature of the expense
method; for costs of research and development performed by providers forming part of the Group or third party vendors, these
costs are recorded as subcontracting expenses in the income statement.
All internal expenses related to research and development work incurred during the fiscal year (salaries, environment-related
costs and expenses) are capitalized and recognized as self-created assets.
Capitalization is performed on a per-project basis. Only projects meeting the six criteria for capitalization defined in the regulations
on assets are capitalized as assets. Research and development projects or the portion of expenses not meeting all of the six
criteria continue to be recognized as expenses. Amortization begins at delivery of the project. Projects that are unfinished at the
reporting date are capitalized as work in progress.
Projects involving the development of new versions delivered on a yearly basis are amortized over 12 months.
Projects involving the development of new, significant features, which represent investments, are amortized over 24 months.
Amortization begins at release of the version.
If there is a risk that a project will not be marketed, a provision for depreciation equivalent to the net carrying amount is recorded.
At the end of the amortization period, research and development costs are removed from the asset line.
Other intangible assets
Other intangible assets (patents, software, etc.) are amortized according to the straight-line method according to their estimated
useful life.
Office and similar software applications
Other software
Codes
1 year on a straight-line basis
3 years on a straight-line basis
5 years on a straight-line basis
Assets with an indefinite useful life (including goodwill) are not amortized. They are recorded on the balance sheet at their gross
carrying amount. They are subject to impairment tests if there are signs of impairment or at least once per year. For purposes of
these tests, they are integrated into cash generating units (CGUs), which represent a homogeneous group of assets that generate
identifiable cash flows. A provision based on the difference between the calculated value and the carrying amount is recorded if
applicable.
Note B.2. Tangible assets
Tangible assets are measured at their net purchase price (purchase price plus related expenses).
Amortization is calculated according to estimated useful life:
ESI Group ● 2015 Registration Document 120
General facilities
Fixtures and fittings, miscellaneous building
work
Transportation equipment
Office equipment
New computer equipment
Used computer equipment
Furnishings
Note B.3. Investments
6 years on a straight-line basis
10 years on a straight-line basis
5 years on a straight-line basis
3 years on a straight-line basis
3 years on a double-declining balance
basis
1 year on a straight-line basis
5-10 years on a straight-line basis
– The "Controlling interests" item corresponds to the historic cost of shares held in other companies.
At the reporting date, if the remeasured value of the shares is less than their purchase price, a provision is established for the
difference.
This value is calculated by the Company based on a multiple of estimated revenues and is adjusted for the cash and cash equiv-
alents of the company in question.
If a provision is recorded on the net carrying amount of a controlling interest on the basis of its remeasured value, and if this entity
shows a ngative net equity, the negative part of this equity will also be subject to a provision. This provision will be recorded first
on the remaining net carrying amount of the controlling interest, then on its trade receivables, and, where applicable, the balance
is recorded under provision for contingencies.
Intercompany receivables are provisioned if there is a risk of non-recovery. No provision of this type was recorded during the fiscal
year.
– Other investments include deposits and securities.
Accelerated capital allowances
The acquisition costs incurred since 2009 related to the purchase of shares in controlled entities are recorded, for tax purposes,
at the cost of the shares and deducted, through accelerated capital allowances, over a period of five years (Art. 21; French General
Tax Code Art. 209-VII, December 2006).
Note B.4. Supply inventories
Other supply inventories are valued at cost according to the first in, first out method.
Note B.5. Work in progress
Work in progress is valued at production cost with a margin assessed according to the percentage of completion method.
Note B.6. Trade and other receivables
Receivables are measured at their par value. A depreciation is established if the market value is less than the carrying amount of
the receivable. All depreciations are determined on a case-by-case basis.
Note B.7. Provisions for contingency and charges
Provisions for contingency and charges are calculated on the basis of the assessment of related risks at the balance sheet date.
The Company complies with Regulation No. 00-06 of December 7, 2000 with regard to liabilities.
Note B.8. Foreign currency transactions
Income and expenses in foreign currency are recorded at their exchange value as at the date of the transaction. Liabilities, re-
ceivables and cash in foreign currency are recorded on the balance sheet at the exchange value prevailing at the balance sheet
date.
The difference resulting from the conversion of the debts and receivables in currencies at this final exchange rate is recorded on
the balance sheet as a "currency translation adjustment."
A provision for contingencies is recorded for foreign exchange losses.
ESI Group ● 2015 Registration Document 121
Note B.9. Hedging of exchange rate risk
ESI Group uses financial instruments to hedge its exposure to the risk of fluctuation in exchange rates. ESI Group's policy is to
trade in the financial markets only in order to hedge its business-related obligations and not for speculative purposes.
Gains or losses stemming from the financial instruments used as part of hedging operations are assessed and recorded in line
with the income and expenses recorded on underlined trasactions.
Given the amounts ESI Group pays out and receives in foreign currencies as part of its business, especially in the Japanese yen,
ESI Group may use forwards and/or currency options to protect itself from exchange rate fluctuations.
Note B.10. Marketable securities
Marketable securities are recorded at their net purchase price. If, at the balance sheet date, the net asset value is less than the
acquisition value, a depreciation is recorded for the difference.
Note B.11. Accounting treatment of European projects
During production of a European project, the income recognized in revenues is determined on the basis of the percentage of
completion of the project.
Note B.12. Recognition of revenues
Revenues from licensing stem from royalties paid under licensing agreements granted to end customers and related maintenance
services.
Revenues from user licensing are recorded if:
– The Group can demonstrate the existence of an agreement;
– The software has been delivered and accepted;
– The amount represented by the user license for the software is determined or determinable;
– Recovery is likely.
Revenues from services consist mainly of consulting and training fees. They are recognized according to the percentage of com-
pletion method. Associated costs are recorded as expenses progressively as they are incurred based on project progress. A
provision for losses on completion is recorded if necessary.
Note C. Notes on assets items of the balance sheet
Note C.1. Non-current assets
(In thousands of euros)
Gross value as at February 1, 2015
Acquisitions, increases
Acquisitions, R&D increases
Disposals/item-to-item transfers and scrap
R&D disposals
GROSS VALUE AS AT JANUARY 31, 2016
Amortization and provision as at February 1, 2015
R&D allowances for the year
Net allowances for the year
Provisions for the year
Reversal of provisions for the year
Disposals
R&D disposals
AMORTIZATION AND PROVISION AS AT JANUARY 31, 2016
NET VALUE AS AT JANUARY 31, 2016
Intangible assets
Tangible assets
Investments
67,741
2,539
24,503
(18,197)
76,586
21,273
20,843
897
(18,197)
24,816
51,770
7,101
1,253
46,646
20,538
(49)
(1,586)
8,305
5,454
694
(44)
6,104
2,201
65,598
3,947
910
(150)
4,707
60,891
Total
121,488
24,329
24,503
(1,635)
(18,197)
150,489
30,673
20,843
2,501
(150)
(44)
(18,197)
35,627
114,862
ESI Group ● 2015 Registration Document 122
ESI Group has EUR 657k in goodwill. This amount represents the acquisition on July 26, 1991 to the company Engineering
System International, of the branch specializing in the edition of digital simulation software (Product in Applied Mechanics). It has
not be depreciated or amortized since this date.
Movements in intangible assets
Increase in intangible assets’ gross amount may be broken down as follows:
(In thousands of euros)
Capitalized research and development costs
Franchises and patents
TOTAL
Amount
24,503
2,539
27,042
The EUR 2,539k increase in franchises and patents corresponds primarily to the acquisition of Ciespace activity code for EUR
1,886k and to the PicViz Lab activity software.
Reductions in intangible assets’ gross amount consist primarily of EUR 18,197k for research and development costs fully amor-
tized at January 31, 2016 and taken off the balance sheet.
Movements in tangible assets
The increase in tangible assets is broken down as follows:
(In thousands of euros)
Acquisitions of fixtures and fittings
Office and computer equipment
TOTAL
Investments
Acquisitions
486
766
1,253
This item, totaling EUR 65,598k, includes EUR 51,232k of controlling interests (see item C.2), EUR 13,012k of receivables related
to subsidiaries and affiliates (see item C.2), a loan to the managers of ESI Software Germany in the amount of EUR 365k with the
associated interest in the amount of EUR 58k, EUR 41k of treasury stock (liquidity contract), as well as deposits and securities
related to real estate rentals in Paris, Aix, Lyon and Rungis for EUR 866k.
Note C.2. Controlling interests
Movements in shares/equity investments (gross value)
(In thousands of euros)
Engineering System International
Nihon ESI K.K.
ESI North America, Inc.
ESI UK LIMITED
Calcom ESI SA
Hankook ESI Co., Ltd.
ESI Group Hispania s.l.
Mecas ESI s.r.o.
STRACO
ESI US Holding, Inc.
Zhong Guo ESI Co., Ltd
Acquisition costs Zhong Guo ESI Co., Ltd
As at February
1,2015
Increase
Decrease
As at January 31,
2016
458
75
3,726
164
2,678
941
100
912
1,789
796
193
2
458
75
3,726
164
2,678
941
100
912
1,789
796
193
2
ESI Group ● 2015 Registration Document 123
ESI Software (India) Private Limited
ESI US R&D, Inc.
HONG KONG ESI CO., Limited
Acquisition costs HONG KONG ESI CO., Limited
ESI-ATE HOLDINGS LIMITED
Acquisition costs ESI-ATE HOLDINGS LIMITED
ESI Italia s.r.l.
ESI SOUTH AMERICA COMÉRCIO E SERVIÇOS DE
INFORMÁTICA LTDA
ESI Services TUNISIA
Acquisition costs ESI Services TUNISIA
ESI Group Beijing Co., Ltd
ESI Software Germany GmbH
Acquisition costs ESI Software Germany GmbH
Efield AB
Acquisition costs Efield AB
OPENCFD LIMITED
Acquisition costs OPENCFD LIMITED
CyDesign Labs, Inc.
Acquisition costs CyDesign Labs, Inc.
ESI Services Vietnam Co., Ltd
Acquisition costs ESI Services Vietnam Co. Ltd
AVIC-ESI (Beijing) Technology Co. Ltd
Acquisition costs AVIC-ESI (Beijing) Technology Co. Ltd
Acquisition costs Mineset Inc.
CIVITEC
Acquisition costs CIVITEC
ITI GmbH
Acquisition costs ITI GmbH
Cadence
TOTAL
2
111
119
2
1,737
56
656
6
128
8
543
9,891
322
301
129
2,351
162
1,904
283
124
14
576
87
50
31,396
145
290
900
62
17,952
436
50
19,835
2
111
119
2
1,737
56
656
6
128
8
543
9,891
322
446
129
2,351
162
1,904
283
124
14
576
87
290
900
62
17,952
436
100
51,232
Fluctuations in shares/equity investments are described under note A "Significant events of the year".
Intercompany receivables
(In thousands of euros)
Loan ESI North America, Inc. 9,700 KUSD
Loan Hong Kong ESI 1,124 KUSD (1)
Loan ESI Group Hispania SL
Gross value
Rate
8,883
1,029
1,020
6-month Libor $ + 1% lending margin
6-month Libor $ + 1% lending margin
Profit-sharing loan capped at 5%
ESI Group ● 2015 Registration Document 124
Loan ESI ATE Holdings 2,271 KUSD (2)
TOTAL
(1) This loan is depreciated by EUR 687k
(2) This loan is depreciated by EUR 1,062k
6-month Libor $ + 1% lending margin
2,080
13,012
Movements in the provision for shares/equity investments
(In thousands of euros)
As at February
1,2015
Increase
Reversal
As at January 31,
2016
ESI-ATE HOLDINGS LIMITED
HONG KONG ESI CO., Limited
Zhong Guo Co., Ltd
CyDesign Labs, Inc.
TOTAL
1,737
119
193
0
2,049
910
910
used
unused
-
-
-
-
1,737
119
193
910
2,959
-
The CyDesign Labs, Inc shares have been depreciated such as the net carrying amount equals the portion of the net equity of
the subsidiary held by ESI Group.
Note C.3. Work in progress
Work in progress corresponds to consulting studies currently in progress as at January 31, 2016 and measured according to the
percentage of completion method.
Note C.4. Receivables – Provisions for receivables
The statement of receivables is presented as follows:
(In thousands of euros)
Loans granted to controlling interests
Loans
Treasury stock
Other investments
Doubtful or disputed receivables
Trade receivables
Trade receivables with affiliate companies
Personnel and related receivables
Social security and other social welfare agencies
Income tax receivables – advance payment
2015 R&D tax credit receivable
Competitiveness and employment tax credit receivable
Other tax credits
Value added tax (VAT)
Business tax
CyDesign Labs, Inc. current account
Trade payables, credit notes to be received
Gross value
Up to 1 year
1 year to 5 years
13,012
836
2,836
108
13,012
452
41
861
1,531
10,162
38,753
2
19
1,031
2,836
108
255
1,133
15
126
41
452
41
25
1,531
10,162
38,753
2
19
1,031
255
1,133
15
126
41
ESI Group ● 2015 Registration Document 125
Co-financed projects
Miscellaneous receivables
Prepaid expenses
TOTAL
(In thousands of euros)
3,594
13
2,137
76,121
3,594
13
2,137
59,329
As at February
1,2015
Increase
Reversal
16,792
As at January 31,
2016
Provisions for doubtful receivables
4,468
621
Note C.5. Marketable securities and treasury stock held
used
(3,538)
unused
(3)
1,548
Marketable securities
(In thousands of euros)
Treasury stock (1)
TOTAL
(1) Of which EUR 41k in other investments
Change in the number of treasury shares
(In thousands of euros)
Treasury stock
Carrying amount
Net asset value
Unrealized gain or loss
4,147
4,147
10,384
10,384
6,237
6,237
As at February
1,2015
421,346
Increase
Decrease
As at January 31,
2016
102,839
(93,301)
430,884
As at January 31, 2016, the net asset value of the 430,884 treasury shares owned stands at EUR 10,384,304 for an unrealized
gain of EUR 6,236,845.
Note C.6. Prepaid expenses and expenses capitalized, to be amortized
(In thousands of euros)
Prepaid rent
Maintenance prepaid expenses
Other prepaid expenses
Debt issuance expenses (1)
TOTAL
(1) Amortization on the loan’s duration.
Note C.7. Foreign exchange gains and losses
These gains and losses pertain to the following balance sheet items:
(In thousands of euros)
Trade receivables
Trade payables
Current accounts
TOTAL
As at January 31,
2016
644
732
760
509
2,646
As at January 31,
2016
109
375
76
560
ESI Group ● 2015 Registration Document 126
Note D. Notes on liabilities items of the balance sheet
Note D.1. Equity
The main movements during the fiscal year are summarized in the table below:
(In euros)
As at February
1,2015
Allocation of 2014
profit,
Other movements
As at January 31,
2016
Capital
Share premium
ESI Software merger premium
Systus merger premium
Legal reserve
Retained earnings
Net profit for the year
Regulated provisions
TOTAL
Note D.2. Legal capital
Increase
Decrease
19,950
38,969
54,063
1,027,200
(1,081,263)
-
4,035,723
217,003
4,311,645
-
17,845,266
24,898,551
9,676,883
2,854,209
1,587,705
29,209,639
1,081,263
541,347
87,694,862
17,865,216
24,937,520
9,676,883
2,854,209
1,641,768
30,236,839
4,035,723
758,350
92,006,506
Number of shares
At the end of the
fiscal year
Created during the
fiscal year
Repaid during the
fiscal year
Common shares (par value of EUR 3)
5,955,072
6,650
Of which preferred shares (double voting rights)
2,160,448
The increase in capital is attributable to the exercise of share subscription options for 6,650 shares.
-
-
Note D.3. Regulated provisions
This item consists of accelerated capital allowances. These accelerated capital allowances on the balance sheet correspond to
the difference between tax-related amortization and amortization for depreciation. This amortization also corresponds to amorti-
zation of the purchase cost of shares.
These regulated provisions are offset in the income statement under exceptional allowances and reversals.
Note D.4. Conditional advances
This item, amounting to EUR 371k, is broken down in the table below:
(In thousands of euros)
Ademe advance financing agreement
Bpifrance advance
TOTAL
As at January 31,
2016
Up to 1 year
1 year to 5 years More than 5 years
162
209
371
43
43
162
166
328
0
Note D.5. Provisions for contingencies
Provisions for contingencies may be broken down as shown in the table below:
(In thousands of euros)
As at February
1,2015
Increase
Reversal
As at January 31,
2016
ESI Group ● 2015 Registration Document 127
Foreign exchange gains and losses (note C.7)
Provisions for contingencies and charges
(operating result)
TOTAL
873
1,493
2,366
560
153
713
used
(873)
(228)
(1,101)
unused
(533)
(533)
560
885
1,445
Provisions for contingencies and charges as at January 31, 2016 mainly correspond to social and tax risks. The provision referring
to tax audit for the years 2009-2011 has been partially reversed, as the control is finished.
Note D.6. Statement of liabilities
The statement of liabilities is presented as follows:
(In thousands of euros)
Banks borrowings (D.7)
Miscellaneous financial debt (D.8)
Trade payables – out of Group
Group trade payables, before minority interests
Personnel and related receivables (D.9)
Social security and other social welfare agencies (D.9)
Net value added tax (D.9)
Net other income tax expense (D.9)
Liabilities to fixed asset suppliers
Other operating payables - Group and associates (D.10)
Other operating payables – out of Group (D.10)
Deferred income (D.11)
TOTAL
Note D.7. Bank borrowings
As at January 31,
2016
Up to 1 year
1year to 5 years More than 5 years
42,884
2,398
5,520
24,713
2,217
1,898
1,339
453
249
4,151
1,496
619
87,938
13,614
2,000
5,520
24,713
2,217
1,898
1,339
453
249
4,151
1,496
619
58,269
15,107
398
14,163
15,505
14,163
On November 5, 2015, ESI Group signed a syndicated line of credit for EUR 49 million with a pool of six banks. The goals of this
new line of credit include refinancing residual debt from the former syndicated loan and financing of future acquisitions, as well as
meeting recurring year-end needs for working capital (short-term revolving credit for a maximum total of EUR 10 million).
The lines of credit for refinancing and external growth have a maturity date of November 2022, partly with annual straight-line
amortization. The repayment rate is the Euribor rate for each drawdown period with a minimum rate of 0% and with a margin
between 1.9% and 2.4% depending on the type of amortization. Financing of needs for working capital was added into the syndi-
cated loan in order to optimize ESI Group's cash flow management, which is strongly affected by the seasonal nature of the
company’s business model.
As of January 31, 2016, EUR 33 million of the long-term lines of credit has been used and ESI Group has established hedging
instruments for 40% of the principal for the refinancing line of credit. For the revolving credit, EUR 8 million has been used. As of
the date of account statements, the entire revolving line of credit has been paid off.
Covenants related to this borrowing are presented in Note F.8.
As of January 31, 2016, bank borrowings amount to EUR 42,884,000 and include:
– EUR 33,047,000 of long-term lines of credit from the new syndicated loan;
– EUR 8,000,000 of revolving credit;
– EUR 58,000 of accrued interest on borrowings;
– EUR 1,779,000 of short-term bank advances.
ESI Group ● 2015 Registration Document 128
Note D.8. Miscellaneous financial debt
This item, totaling EUR 2,398k, is broken down according to the table below:
(In thousands of euros)
Liabilities corresponding to Coface financing (1)
Intercompany payables/interest accrued
Commercial paper (2)
TOTAL
(1) Under a marketing insurance policy (repayable advance).
(2) Past due February 1st 2016.
As at January 31,
2016
Up to 1 year
1 year to 5 years More than 5 years
272
126
2,000
2,398
2,000
2,000
272
126
398
Note D.9. Tax payables and employee-related liabilities
This item is composed of the following components:
(In thousands of euros)
Provision for paid leave, including social charges
Provision for bonuses to be paid to employees, including social charges
Social welfare agencies, etc.
VAT collected on customer invoices
Training, apprenticeship and construction-related taxes
Business tax
Organic
Other tax payables and employee-related liabilities
TOTAL
Note D.10. Other operating payables
This item, totaling EUR 5,647k, may be broken down as follows:
(In thousands of euros)
Straco current account
Mecas ESI s.r.o. current account
Engineering System International current account
ESI Italia SRL current account
Engineering System International GmbH current account
OpenCFD Ltd current account
Efield AB current account
Civitec current account
Advance payments from customers, special projects
Trade credit notes to be issued - Group
Trade credit notes to be issued – out of Group
Other liabilities
TOTAL
As at January 31,
2016
1,987
1,217
829
1,339
270
63
107
95
5,907
As at February
1,2015
Increase
Decrease
As at January 31,
2016
559
1,100
1,625
400
1,186
872
432
1,716
12
4
71
7,977
(9)
(484)
(758)
(400)
(997)
(15)
(318)
(12)
(4)
(2,997)
1
639
28
667
550
616
867
0
190
857
432
639
1,397
0
0
99
5,647
ESI Group ● 2015 Registration Document 129
Note D.11. Deferred income
This item, totaling EUR 619k, pertains to income from operations.
Note D.12. Foreign exchange gains and losses
These gains and losses pertain to the following balance sheet items:
(In thousands of euros)
Trade receivables
Trade payables
Intercompany receivables
Current account
TOTAL
Note D.13. Accrued expenses and income
(In thousands of euros)
Borrowings and financial debts
Trade payables
Provision for paid leave, including expenses
Provision for bonuses to be paid to employees, including expenses
Other tax expenses
Other liabilities (advances on co-financed projects)
TOTAL
(In thousands of euros)
Unbilled receivables – out of Group
Unbilled receivables with affiliate companies - Group
Vendor credit notes to be issued
Miscellaneous income
TOTAL
Note E. Notes on the income statement
Note E.1. Income from operations
Revenues include the following items:
(In millions of euros)
Royalties
Software licensing
Sub-contracting, consulting and other income
Sub-contracting, consulting and other income - Group
Income from related activities
Services
TOTAL
As at January 31,
2016
667
46
1,895
63
2,670
As at January 31,
2016
83
11,645
1,987
1,217
168
1,397
16,497
As at January 31,
2016
2,630
636
39
10
3,315
As at January 31,
2016
54,9
12,0
2,9
4,2
1,5
3,7
79,2
%
69%
15%
4%
5%
2%
5%
100%
Observations
Licensing by the distribution subsidiaries of ESI Group
Licensing directly by ESI Group
Consulting sold directly by ESI Group
Consulting invoiced to the subsidiaries
Rebilling of expenses to subsidiaries
Subsidiaries holding fees
ESI Group ● 2015 Registration Document 130
Revenues may be broken down by region as follows:
(In millions of euros)
France
Europe (except France)
Americas
Asia
TOTAL
As at January 31,
2016
9,7
25,9
15,0
28,7
79,2
%
12%
33%
19%
36%
100%
Note E.2. Other income from operations
This item consists mainly of EUR 24,132k in research and development costs capitalized during the fiscal year, broken down
below:
(In thousands of euros)
Production held as inventory
Self-created assets
Reversal on depreciation and amortization
Reversal on depreciation of trade receivables from ESI North America, Inc. (debt waiver, see note E.7)
Transfers of expenses related to salaries/employee benefits expense/fringe benefits
Other transfers of expenses
Subsidies
TOTAL OTHER INCOME
Note E.3. Other purchases and external expenses
(In thousands of euros)
Engineering and services
Group's engineering and services (1)
Research and development costs (1)
Materials and supplies
Capital leases, rental and rental expenses
Maintenance and repairs
Insurance
Payments to intermediaries and fees
Cost of sales (2)
Advertising, external relations
Travel expenses
Postage, telecommunications expenses
Miscellaneous
TOTAL
(1) Subsidiaries of the Group
(2) Royalties on third-party products and sales commissions.
Note E.4. Fees paid to statutory auditors
As at January 31,
2016
(78)
24,132
677
3,538
49
20
47
28,384
%
14%
33%
31%
1%
6%
2%
1%
3%
4%
1%
4%
1%
1%
100%
As at January 31,
2016
8,217
18,962
17,724
304
3,508
1,302
278
1,754
2,065
754
2,034
568
612
58,083
Total fees paid to the statutory auditors and recorded on the income statement for the fiscal year may be broken down as follows:
ESI Group ● 2015 Registration Document 131
(In thousands of euros)
Ernst & Young
PricewaterhouseCoopers Audit
Total
Closing date
01/31/2016
01/31/2015
01/31/2016
01/31/2015
01/31/2016
01/31/2015
Certification of annual and
consolidated financial
statements
Related assignments
Covenants certification
Other (disbursements,
etc.)
TOTAL
147
0
7
8
162
170
0
7
6
182
120
31
7
12
170
137
7
7
16
166
267
31
13
20
331
306
7
13
22
348
ESI Group opted to follow the recommendations of the French Association of Statutory Auditors (CNCC) from September 2007
and to record, at the reporting date, the expenses related to audit fees corresponding to services actually rendered during the
period. Total audit fees paid to the statutory auditors of ESI Group for the fiscal year ended January 31, 2016 amount to EUR 267k.
Note E.5. Income tax expense
This item is broken down as follows:
(In thousands of euros)
Business tax
Continuing education tax
Apprenticeship tax
Construction-related tax
Tax on company vehicles
Organic
Branch tax
Other
TOTAL
Note E.6. Operating allowances
This item is broken down as follows:
(In thousands of euros)
Amortization allowance for research and development costs
Amortization allowance for other intangible assets
Amortization allowance for tangible assets
Amortization allowance for capitalized expenses to be amortized
Provision allowance for depreciation of trade receivables
Provision allowance for contingencies and charges
TOTAL
Note E.7. Other operating expenses
This item is broken down as follows:
(In thousands of euros)
Royalties
As at January 31,
2016
758
122
81
52
41
87
67
54
1,263
As at January 31,
2016
20,752
987
694
56
621
153
23,264
As at January 31,
2016
56
ESI Group ● 2015 Registration Document 132
Compensation in the form of Directors' fees.
Debt waiver in favor of ESI North America Inc. (Reversal provision, see note E.2)
Miscellaneous expenses
TOTAL
Note E.8. Financial result
The positive financial result is composed of the following items:
(In thousands of euros)
Foreign exchange gain/(loss)
Gain/(loss) on the foreign exchange rate provision
Interest on borrowings
Interest on commercial paper
Interest on current trade payables, subsidiary payables
Interest on current accounts receivable, subsidiary receivables
Interest on employee profit sharing
Factoring financial expenses
Provision for depreciation of CyDesign US ‘s shares
Reversal provision for investments
Other financial income/(expenses)
TOTAL
Note E.9. Exceptional profit
Exceptional profit for the fiscal year is composed of the following items:
(In thousands of euros)
Profit on sale of treasury stock
Accelerated capital allowances
Profit on miscellaneous current assets
Provision on miscellaneous current assets
Exceptional expense on share sales
Exceptional Amortization on loan’s capitalized expenses
Miscellaneous
TOTAL
Note F. Other information
Note F.1. Average headcount
(in full-time equivalent)
Management
Supervisors, technicians
Employees
Laborers
TOTAL
150
3,538
4
3,749
As at January 31,
2016
1,471
313
(391)
(40)
(122)
151
(7)
(61)
(910)
150
(30)
522
As at January 31,
2016
(8)
(217)
89
(35)
(17)
(151)
(2)
(341)
Headcount
197
20
217
ESI Group ● 2015 Registration Document 133
Note F.2. Retirement-related obligations
The Company does not record any retirement-related provisions.
Total obligations related to retirement were estimated at EUR 3,201k at January 31, 2016.
Note F.3. Compensation paid to executive corporate officers
Compensation and benefits paid to the company’s executive corporate officers during the fiscal year can be broken down as
follows:
(In thousands of euros)
Salaries
Fringe benefits
Directors' fees
Fringe benefits paid by controlled companies
Compensation paid by controlled companies
TOTAL
As at January 31,
2016
437
47
16
158
423
1 081
Note F.4. Items pertaining to affiliates and controlled entities, corresponding to multiple balance sheet and
financial result items
(In thousands of euros)
CURRENT ASSETS
Intercompany receivables
Inventories and work in progress
Down payments
Trade receivables
Credit notes to be received, excluding minority interests
Current account
Prepaid expenses
LIABILITIES
Advances and payments on account received on orders
Trade payables
Credit notes to be issued, excluding minority interests
Current account
Deferred income
FINANCIAL RESULT ITEMS
Expenses
Income
Note F.5. Branches
There are two branches integrated within ESI Group’s financial statements:
Name
1
2
ESI Group Netherlands – Branch Office
ESI Group Shanghai Representative Office
Affiliate companies
Participations
52,884
13,012
1,622
0
38,117
0
126
8
29,095
230
24,713
0
4,151
0
122
139
-
-
-
-
-
-
-
-
-
-
-
-
-
ESI Group ● 2015 Registration Document 134
Address
1
2
Rotterdamseweg 183C 2629 HD Delft
Cross Region Plaza, Unit 20D,
899 Lingling Road 200235 Shanghai
Note F.6. Off-balance sheet commitments
Capital lease and future lease obligations
(In thousands of euros)
Real estate rentals
Movable property rentals
Capital leases
TOTAL
Country
Netherlands
China
Less than 1 year
Between 1 and 5 years
1,568
834
0
2,402
3,314
653
0
3,966
Future lease commitments correspond to the outstanding amounts due on the Group's main lease and rental contracts until the
contract is next set to expire.
These figures do not omit the existence of material off-balance sheet commitments in accordance with current accounting stand-
ards.
Note F.7. Off-balance sheet commitments relating to financing
ESI Group pledged 99.98% of the shares of ESI France and 95.50% of ESI Software Germany as collateral in a credit agreement
dated November 5, 2015.
As long as the Group remains a debtor under the collateral agreement or documents, the borrower agrees, under penalty of early
repayment, to adhere to the following ratios:
– Ratio R1: Consolidated net financial debt divided by consolidated EBITDA: less than or equal to 3;
– Ratio R2: Consolidated net financial debt divided by consolidated equity: less than or equal to 0.60;
– Ratio R3: Consolidated free cash-flow divided by debt servicing: higher than or equal to 1. If the ratio is lower than 1, net
consolidated cash balance should be positive.
It should be noted that the following clarifications have been added to these definitions with the agreement of the bank pool:
– The consolidated EBITDA used in ratio R1 is calculated according to the new method used by ESI Group since the first
half of 2015. This indicator used for financial communication include, among others, the impacts of capitalization of
research and development costs;
– The net consolidated cash balance used in ratio R3 includes short-term financial debts as shown on the balance sheet,
excluding the portion of long-term lines of credit from the syndicated loan that will be reimbursed in less than one year
and excluding debts related to R&D French tax credit, which represent a long-term financing.
As of January 31, 2016, on the basis of the consolidated financial statements certified by the auditors, the Group was compliant
with the ratios described above.
ESI Group SA also has financial obligations relating to the acquisition of Presto: a variable earnout of USD 500,000, payable in
three installments to the two founders on the first three anniversaries of the acquisition, on condition of their employment at ESI
on the payment dates.
Note F.8. Pledges
As part of its recurring operational activities, the Company has entered into the following pledges:
– Rent security deposit established in December 2012 with Crédit du Nord for EUR 82 thousand (lease expires December
2022);
– Rent security deposit established in February 2014 with BNP Paribas for EUR 64 thousand (lease expires October 2016).
Note F.9. Reconciliation of profit /(loss) and tax income/(charge)
(In thousands of euros)
Profit (loss) before
tax
Reconciliation of
income/loss
Taxable income
Tax (expense)/
income (Charge)/
Profit (loss) after tax
ESI Group ● 2015 Registration Document 135
Current income (loss)
Exceptional profit
Controlled entities
Competitiveness and employment tax credit
French R&D tax credit
TAX INCOME (LOSS)
2,171
(341)
702 (1)
14
2,873
(327)
1,830
717
2,547
(867)
109
127
2,836
2,206
1,304
(232)
0
127
2,836
4,036
(1) This amount of EUR 702k refers partly, in the amount of EUR 921k, to the tax neutralization of the expense of branches included in the financial statements
Since February 1, 2008, ESI Group has formed a tax consolidation group with its French subsidiary, Engineering System Interna-
tional.
As part of the tax consolidation agreement, it was agreed that the tax burden of Engineering System International integrated for
tax purposes would be equal to that which would have applied to it if the subsidiary was not a member of the tax Group.
As regards the financial statements for the fiscal year, for Engineering System International there is no difference between the tax
borne as part of the tax consolidation group and that which would have been borne in the absence of tax consolidation.
Neither of the two companies in the tax group has loss carryforwards.
For information, the competitiveness and employment tax credit (CICE) was credited to account 69 “tax credits” as a deduction
from tax expense.
Note F.10. Increases and decreases in future tax liabilities
(In thousands of euros)
Special social security contribution (contribution sociale de solidarité)
Foreign exchange gains and losses
Interest
TOTAL TEMPORARY DIFFERENCES
NET DECREASE IN FUTURE INCOME TAX LIABILITIES (TAX RATE OF 33.33%)
Amount
87
2,670
836
3,593
1,198
Increases and decreases in future income tax liabilities were measured based on the statutory tax rate for the French income tax.
They result from time difference between tax and accounting treatment of income and expenses.
Note F.11. Subsequent events
On February 5, 2016, ESI Group acquired 100% of shares of the US company Mineset Inc., specialized in machine learning.
Note F.12. ESI Group, consolidating company
ESI Group is the consolidating holding company of the Group.
Note F.13. Table of controlled entities and affiliates (As at January 31, 2016)
Head-
quarters
Capital
(con-
verted at
the ex-
change
rate on the
reporting
date)
Share-
holders’
equity other
than capital
and net
profit for the
year (con-
verted at
the
exchange
rate on the
reporting
date)
% of
capital
owned
Carrying amount of
shares held
(In thousands of
euros)
Total
guaran-
tees
granted by
the Com-
pany
Outstand-
ing loans
and
advances
granted by
the
Company
or by the
subsidiary
Revenues,
after tax,
for the last
fiscal year
(converted
at the
average
exchange
rate)
Profit or
loss for
the last
fiscal year
(covered
at the
average
ex-change
rate)
Dividends
received by
the
Company
during the
fiscal year
(In euros)
(In euros)
(As %)
Gross
Net
(In euros) (In euros)
(In euros) (In euros)
(In euros)
A. DETAILED INFORMATION ON EACH STAKE OWED THAT EXCEEDS 1% OF THE COMPANY'S CAPITAL
ESI Group ● 2015 Registration Document 136
1. Over 50%-owned subsidiaries
Engineering System
International
France 1,020,000
3,643,963
100,0
458
458
(866,974)
16,053,573 (193,884)
STRACO
France
498,768
2,954,248
Japan
75,614
2,305,002
South
Korea 1,118,611 (1,505,576)
97,7
97,0
98,8
1,789
1,789
(550,000)
75
941
75
941
7,616
26,862
24,04 403 1,122,898
6,788,069 (691,127)
United
States
0 (5,826,575)
100,0
3 726
3 726
8,882,784
24,294,391 3,288,053
Spain
100,000
(932,013)
100,0
Czech
Republic
United
Kingdom
United
States
14,801
421,128
95,0
130,873
(277,027)
100,0
233,702
567,807
100
912
164
111
164
111
74,0
98,5
Calcom ESI SA
Switzerland
89,734
199,341
2,678
2,678
100
1,019,737
3,880,498
(55,111)
912
(616,123)
6,952,407
(81,217)
China
0
249,989
100,0
195
India
1,349
2,732,401
100,0
2
China
1,174
(856,836)
100,0
120
China
11,784
(766,288)
100,0
1 793
0
2
0
0
1,029,128
2,080,032
Italy
500,000
154,753
90,0
656
656
5,396,029
327,360
Brazil
4,515
90,388
ESI Services TUNISIA
Tunisia
95,307
562,929
ESI Group Beijing Co., Ltd
China
696,552
95,703
100,0
95,0
80,5
6
136
543
6
136
543
ESI Software Germany
GmbH
Germany
516,594
3,287,988
95,5
10,214
10,214
Efield AB
Sweden
10,697
447,265
100,0
576
576
(432,292)
1,034,602
62,588
United
Kingdom
1
904,791
100,0
2,514
2,514
(857,218)
1,234,902 (178,142)
United
States 1,412,392
(460,206)
99,1
2,188
1,278
125,606
207,023
50,031
Nihon ESI K.K.
Hankook ESI Co., Ltd.
ESI North America, Inc.
ESI Group Hispania s.l.
Mecas ESI s.r.o.
ESI UK LIMITED
ESI US R&D, Inc. (1)
Zhong Guo Co., Ltd
ESI Software (India)
Private Ltd
HONG KONG ESI CO.,
Limited
ESI-ATE HOLDINGS
LIMITED
ESI Italia s.r.l.
ESI SOUTH AMERICA
COMÉRCIO E
SERVIÇOS DE
INFORMÁTICA, LTDA
OPENCFD LIMITED
CyDesign Labs, Inc.
ESI Services Vietnam
Co., Ltd
138
962
138
962
(639,041)
18,388
18,388
80,0
96,0
Vietnam
87,636
5,896
100,0
CIVITEC
France 1,125,000
(247,244)
25,565
571,920
ITI GmbH
2. 10–50% owned subsidiaries
Germany
ESI US Holding, Inc.
United
States
708,978
(581,987)
49,0
796
AVIC
China 1,391,895
(1) ESI US R&D, Inc.: owned directly = 49%; owned indirectly via US Holdings = 25%.
250,949
45,0
663
796
663
4,424,787
357,256
9,611,827
324,777
3,893,557
79,829
0
(11,040)
8,395,994
587,841
0
(359)
0 (234,127)
696,746
20,943
746,034
125,051
3,675,955
328,128
7,959,689 1,449,954
133,662
888
162,800 (249,468)
326,620
(92,534)
0
0
279,771
279,771
ESI Group ● 2015 Registration Document 137
5.2.4. Statutory auditors' report on the financial statements
Year ended January 31, 2016
To the Shareholders,
In compliance with the assignment entrusted to us by your annual general meeting, we hereby report to you, for the year ended
January 31, 2016, on:
-
-
-
The audit of the accompanying financial statements of ESI Group;
The justification of our assessments;
The specific verifications and information required by law.
These financial statements have been approved by your Board of Directors. Our role is to express an opinion on these financial
statements based on our audit.
I. Opinion on the financial statements
We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about
the amounts and disclosures in the financial statements. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the financial state-
ments. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements give a true and fair view of the assets and liabilities and of the financial position of the
company as at January 31, 2016 and of the results of its operations for the year then ended in accordance with French accounting
principles.
II. Justification of our assessments
In accordance with the requirements of article L. 823-9 of the French Commercial Code (Code de commerce) relating to the
justification of our assessments, we bring to your attention the following matters:
Investments
Investments are valued in accordance with the valuation methods described in note B.3 to the financial statements. Our work
consisted in assessing the data and assumptions underlying these book value estimates. We made sure of the reasonableness
of these estimates.
Development costs
As part of our assessments of the accounting principles followed by your company, we reviewed the criteria used for capitalizing
and amortizing development expense and measuring the recoverable amount. We ensured that note B.1 to the financial state-
ments gives appropriate information.
These assessments were made as part of our audit of the financial statements taken as a whole, and therefore contributed to the
opinion we formed which is expressed in the first part of this report.
III. Specific verifications and information
We have also performed, in accordance with professional standards applicable in France, the specific verifications required by
French law.
We have no matters to report as to the fair presentation and the consistency with the financial statements of the information given
in the management report of the board of directors and in the documents addressed to the shareholders with respect to the
financial position and the financial statements.
Concerning the information given in accordance with the requirements of article L. 225-102-1 of the French Commercial Code
(Code de commerce) relating to remunerations and benefits received by the directors and any other commitments made in their
favor, we have verified its consistency with the financial statements, or with the underlying information used to prepare these
financial statements and, where applicable, with the information obtained by your company from companies controlling your com-
pany or controlled by it. Based on this work, we attest the accuracy and fair presentation of this information.
In accordance with French law, we have verified that the required information concerning the identity of the shareholders or holders
of the voting rights has been properly disclosed in the management report.
Neuilly-sur-Seine and Paris-La Défense, May 19, 2016
The statutory auditors
French original signed by
PricewaterhouseCoopers Audit
Thierry Charron
ERNST & YOUNG Audit
Frédéric Martineau
ESI Group ● 2015 Registration Document 138
6 RESOLUTIONS SUBMITTED
FOR APPROVAL BY THE GENERAL
MEETING
6.1. Ordinary General Meeting
First resolution: Approval of the annual financial statements for the fiscal year
The General Meeting, having reviewed the Management report of the Board of Directors, the Report of the Chairman of the Board
of Directors on corporate governance, internal control and risk management, the reports of the statutory auditors and the annual
financial statements for the fiscal year ended January 31, 2016, approves the financial statements and balance sheet, as pre-
sented, showing a profit of EUR 4,035,722.76.
It approves the transactions reflected in said financial statements or summarized in said reports.
The General Meeting also approves the total expenses and charges not deductible from profits subject to income tax, equal to
EUR 170,992.
Second resolution: Approval of the consolidated financial statements for the fiscal year
The General Meeting, having reviewed the Management report of the Board of Directors, the Report of the Chairman of the Board
of Directors on corporate governance, internal control and risk management and the reports of the statutory auditors and the
consolidated financial statements as at January 31, 2016, approves these financial statements as presented.
It therefore approves the transactions reflected in the consolidated financial statements or summarized in the aforementioned
reports.
Third resolution: Allocation of profits
The General Meeting, acknowledging that the net profit for the year ended January 31, 2016 stands at EUR 4,035,722.76, decides,
at the Board of Directors' recommendation, to allocate this profit as follows:
Origin:
– Net profit for the year:
– Profit carried forward:
– Total to be allocated:
EUR 4,035,722.76;
EUR 30,236,838.94;
EUR 34,272,561.70.
Allocated as follows:
– EUR 144,753.48 to the legal reserve;
– EUR 34,127,808.22 to profit carried forward.
Following this allocation, the balance of the legal reserve stands at EUR 1,786,521.60.
The General Meeting notes that no dividends have been paid out for the past three fiscal years.
Fourth resolution: Approval of the agreements referred to in Article L.225-38 of the French Com-
mercial Code
The General Meeting, having reviewed the special report by the statutory auditors on the agreements referred to in Article L.
225-38 of the French Commercial Code, acknowledges the conclusions of said report and approves the agreements mentioned
therein.
Fifth resolution: Reappointment of Mr Vincent Chaillou as Director
The General Meeting, having reviewed the Report of the Board of Directors, and noting that the term of office of Mr Vincent
Chaillou expires at the end of the General Meeting, resolves to renew his directorship for a term of four years, expiring at the end
of the General Meeting to be convened to approve the financial statements for the year ending January 31, 2020.
ESI Group ● 2015 Registration Document 139
Sixth resolution: Appointment of a new Director
The General Meeting, having reviewed the Report of the Board of Directors, resolves to appoint Mr Yves de Balmann as Director,
for a term of four years. This term will expire at the end of the General Meet to be convened in 2020 to approve the financial
statements for the year ending January 31, 2020.
Seventh resolution: Authorization to be granted to the Board of Directors for the Company to buy
back its own shares
The General Meeting, deliberating in accordance with the quorum and majority requirements for Ordinary General Meetings,
having reviewed the Report of the Board of Directors in accordance with Article L. 225-209 and subsequent of the French Com-
mercial Code:
1. Terminates the authorization granted by the seventh resolution of the Ordinary and Extraordinary General Meeting of July
22, 2015, which authorized the Board to trade in its own shares;
2. Authorizes the Board of Directors to purchase the Company's shares, not to exceed 10% of its capital, for a period of 18
months beginning on July 21, 2016, in order to:
a. Stimulate the secondary market or the liquidity of ESI Group shares through a liquidity contract signed with an investment
service provider and compliant with the AMAFI's code of ethics dated September 23, 2008 and approved by the French
Financial Markets Authority (AMF);
b. Fulfill its share issue obligations, in accordance with the terms and conditions set forth bylaw, undertaken as part of the
following:
– Plans granting stock options for the purchase of existing shares by the Group's employees or corporate officers;
– Employee profit-sharing plans under which these shares would be granted to employees and/or corporate officers;
– Free share grants to the Group's employees and corporate officers;
– Shares provided upon exercise of the rights attached to securities giving access to shares by any means, whether
immediately or in the future, under the conditions set forth by the AMF and at any time deemed appropriate by
the Board of Directors;
c. Retain shares and subsequently use them in exchange or as payment for future business acquisitions;
d. Cancel shares by a reduction in share capital.
3. Decides that the purchase price per share may not exceed EUR 40.
Shares may be purchased or retained at the Board of Directors' discretion by any means by trading on the market or off the
market, on an over-the-counter market, on one or more occasions. All shares purchased under the authorized share buyback
program may be acquired in the form of blocks of shares. Such transactions may be carried out at any time, including during
public offering periods, in accordance with the regulations in force.
The Company may not, at any time, hold, either directly or via an intermediary, more than 10% of the total shares making up its
own share capital.
The Company will not be allowed to pay out more than EUR 6,500,000 under the share buyback program.
The Board of Directors shall inform Shareholders of any purchases or sales carried out pursuant to this authorization in its man-
agement report.
The General Meeting grants full authority to the Board of Directors to:
– Publish, on the website of the French Financial Markets Authority (AMF), a detailed notice explaining this share
buyback program authorized by the General Meeting prior to using this authorization;
– Place any and all stock market orders and enter into any and all agreements, in order to record share purchases
and sales;
– Make any and all disclosures to the stock market regulators, to carry out any other formalities and, in general, to
do whatever is necessary.
Eighth resolution: Determination of the compensation paid to the members of the Board of Direc-
tors (Directors’ fees)
The General Meeting decides to set the compensation paid to the members of the Board of Directors in the form of Directors'
fees at EUR 160,000 for the 2016 fiscal year.
The Board will freely distribute this amount among its members.
ESI Group ● 2015 Registration Document 140
6.2. Extraordinary General Meeting
Ninth resolution: Authorization to the Board of Directors to reduce the share capital by cancelling
shares purchased by the Company under Article L. 225-209 of the French Commercial Code
The General Meeting, deliberating in accordance with the quorum and majority requirements for Extraordinary General Meetings,
having reviewed the Report of the Board of Directors and the special audit report:
1. Authorizes the Board of Directors, with the option to sub-delegate, within the legal and regulatory conditions as per Article
L. 225-209 of the French Commercial Code, to:
– Cancel, at its sole discretion, on one or more occasions,shares purchased by the Company on the basis of the authorization
given by the Ordinary General Meeting in the seventh resolution (provided that this resolution is adopted) or any similar
resolutions adopted by previous General Meetings, within the limit of 10% of its share capital, this percentage applying to the
share capital as subsequently adjusted following transactions after this General Meeting, per twenty-four (24) months period;
and
– Conduct, for the same amount, a reduction in share capital by cancelling shares.
2. Gives to the Board of Directors all powers, with the option to sub-delegate, within the legal and regulatory conditions as per
Article L. 225-209 of the French Commercial Code, to:
– Determine the final amount of reduction in the share capital within the limits provided by the law and by this resolution;
– Set the modalities for said operation and acknowledge its completion;
– Allocate the difference between the book value of the shares cancelled and their par to all reserves and available share
premiums at the choice of the Board;
– Carry out all deeds, formalities, or declarations in order to record and finalize the reductions in share capital that may be
conducted in accordance with this authorization and that would have the result of modifying statutes.
The General Meeting gives this authorization for a term of twenty-six (26) months as from this General meeting.
Tenth resolution: Authorization to the Board of Directors to grant free shares to eligible
employees and executive corporate officers of the Company and of its affiliated companies
The General Meeting, deliberating in accordance with th quorum and majority requirements for Extraordinary General Meetings,
having reviewed the Report of the Board of Directors and the special audit report, and in accordance with Article L. 225-197-1 and
subsequent articles of the French Commercial Code:
1. Authorizes the Board of Directors to make, in one or more occasions, to eligible employees and executive corporate officers of
the Company or its affiliated entities in accordance with Article L.225-197-2 of the French Commercial Code, free grants of
existing shares or shares to be issued, within the limits of 60,000 shares, representing 1% of the share capital of the Company
as of the date of this authorization.
Granting of shares to their beneficiaries shall be final and binding after a vesting period set by the Board of Directors.
The Board of Directors will be able to set, in accordance with the provisions of Article L. 225-197-1 of the French Commercial
Code, the duration of vesting and holding periods, provided that the time condition respects a minimum vesting period of at
least one year and the total duration of both vesting and holding periods is at least two years.
2. Decides, notwithstanding the provisions of the paragraph hereinafter that the final grant of free shares and the right to freely
sell said shares shall nevertheless be vested in the event of disability of said beneficiary in accordance with the provisions of
Article L. 225-197-1 of the French Commercial Code.
The Board of Directors shall grant free shares and shall decide in particular:
– The identities of beneficiaries of granted shares;
– The conditions and, if necessary, the criteria for granting shares.
The Board of Directors shall have the necessary powers to implement this authorization, within the conditions previously described
herein and within the limits authorized by applicable texts, and particularly to set, if necessary, the conditions for issuance, to
record any resulting increases in share capital, to amend the articles of association, and, in general, take all necessary actions.
Each year, the Board of Directors shall inform the General Meeting of operations conducted within the framework of this resolution,
within legal and regulatory conditions, in particular Article L. 225-197-4 of the French Commercial Code.
The General Meeting duly notes that this authorization entails the waiver by the Shareholders of their preferential subscription
right to purchase ordinary shares of the Company which may be issued for the purposes of final grants of free shares, and of all
rights to ordinary shares granted freely on the basis of this authorization.
This authorization shall remain in force for a duration of thirty-eight (38) months from the date of this General Meeting.
This authorization terminates the previous authorization given by the Extraordinary General Meeting of July 23, 2013, in the
ESI Group ● 2015 Registration Document 141
fifteenth resolution.
Eleventh resolution: Authorization to the Board of Directors to grant stock purchase options
The Extraordinary General Meeting, having reviewed the Report of the Board of Directors and the special report of the statutory
auditors, authorizes the Board of Directors to grant to the corporate executives defined by law and the employees of the Company
and its affiliates, as defined under Article L. 225-180-III of the French Commercial Code, options for the purchase of new Company
shares to be issued through the Company's capital increase operations, not to exceed the number of shares representing 5% of
the capital as of the date of this Meeting, i.e. 297,753 shares.
This authorization, which may be exercised on one or more occasions, is granted for a term of thirty-eight months from the date
of this General Meeting.
The subscription price of shares will be determined the date on which the options are granted by the Board of Directors. This price
shall be no less than 80% of the average share price from the last 20 trading days preceding the date on which the options are
granted.
This price may not be subsequently modified, except where necessary to protect the interests of beneficiaries of options pursuant
to Article L. 225-181 of the French Commercial Code.
No option may be granted less than 20 twenty days following an ex-coupon date (whereby the option entitled the holder to a
dividend or to participate in a share issue), nor within a period of ten trading days preceding and following the date on which the
consolidated financial statements, or, in the absence thereof, the annual financial statements, are published, nor within the period
between the date on which the Company's corporate bodies became aware of information that, if it were disclosed to the public,
would have a material impact on the Company's share price and the date ten trading days after the date on which said information
is made public.
Options must be exercised no later than eight years after the date on which they are granted; however, the Board of Directors
may nonetheless set a shorter expiration date for all or part of the beneficiaries.
The Board of Directors may prohibit the immediate resale of the shares subscribed; however, the period of time during which
beneficiaries are required to retain shares may not exceed three years from the date on which the option is exercised.
The General Assembly acknowledges that this authorization entails the Shareholders' express waiver, for the benefit of benefi-
ciaries of the options, of the Shareholders' pre-emptive subscription rights to shares that will be issued as options are exercised.
The General Meeting grants full authority to the Board of Director to decide all other terms and conditions regarding the granting
and exercising of options, within legal and regulatory limits, and specifically authorizes the Board of Directors to:
– Grant options to designated individuals;
– Determine the expiration date of the options, within the limits set forth above;
– Set forth requirements governing the granting and exercising of options; the Board of Directors may (a) restrict, limit or
prohibit (i) the exercise of options or (ii) the sale or conversion to bearer shares of the shares obtained through the exercise
of options, during certain periods or within a certain period following certain events and (b) bring forward exercise dates or
periods for the options, extend the exercisable nature of the options or modify dates or periods within which the shares
obtained by exercise of the options may not be transferred or converted to bearer shares;
– Establish, where applicable, a period during which shares arising from the exercise of options may not be sold or converted
to bearer shares; such lock-up period may not exceed three years from the date on which the option was exercised;
– Adjust the number and the price of the shares that may be obtained by exercising options, where applicable, in keeping
with the legal and regulatory requirements in force.
The increase in capital resulting from the exercise of share subscription options will be final and definite as of the declaration of
the exercise of the option(s) accompanied by the corresponding payment made in cash or by offsetting receivables with the
Company.
At its first meeting following the end of each fiscal year, the Board of Directors will record the total shares issued during the course
of the year, where applicable, amend the articles of association as necessary and perform any public disclosure formalities.
The General Meeting resolves that this authorization terminates as of this date the authorization granted by the Combined General
Meeting held July 23, 2013, in its 13th resolution.
ESI Group ● 2015 Registration Document 142
6.3. Joint decisions
Twelfth resolution: Powers to carry out formalities
The Meeting grants full powers to the bearer of an original, excerpt or copy of the minutes of this Meeting to carry out all legal
and administrative formalities, as well as all filing and publication requirements set forth by law in force.
ESI Group ● 2015 Registration Document 143
7 DOCUMENTS AVAILABLE TO THE
PUBLIC
All the corporate documents related to the Company can be consulted at the Company's headquarters, located at 100-102, avenue
de Suffren in Paris (75015), France.
ESI Group keeps its Shareholders regularly informed on its business activities through press releases published in the economic
and financial media, primarily online, as well as through reports prepared for the General Meeting. These reports are available to
any shareholder upon simple request.
ESI Group also works continuously to boost its communication efforts by improving its company website, www.esi-group.com.
The website provides both in French and English a detailed description of the Group and its business activities, as well as finan-
cial information for shareholders and investors, including all mandatory information required under the European Transparency
Directive. It provides access to reports, registration documents, Shareholders letters and guide, annual and interim consolidated
financial statements, press releases, articles of association and stock prices on the Paris stock exchange.
In keeping with the Transparency Directive, adopted in 2007, ESI Group has decided to use a reporting service licensed by the
French Financial Markets Authority (AMF). This allows to provide proof of compliance with legal reporting requirements.
Lastly, this registration document is available in a paper version upon simple request sent to:
ESI Group
Corentine Lemarchand
100-102, avenue de Suffren
75015 Paris
investors@esi-group.com
NewCap
Louis-Victor Delouvrier
21, place de la Madeleine
75008 Paris
esi@newcap.fr
7.1. Press releases and financial announcements
7.1.1. Press releases and financial announcements in French
Avril 2016
Mars 2016
Fév. 2016
Janv. 2016
Déc. 2015
Nov. 2015
Oct. 2015
Sept. 2015
Juillet 2015
– Résultats annuels 2015
– ESI présente ProCAST, son logiciel phare de simulation de fonderie, à CastExpo 2016
– Formalisation d’une démarche RSE en accord avec les valeurs d’ESI Group
– La Directrice Générale d’ESI en Chine, Zhimin Cui, est élue l’une des « 10 femmes les plus importantes de l’économie chinoise »
– Chiffre d’affaires annuel 2015 : + 12,3 %
– Renforcement du Comité Exécutif en ligne avec la stratégie du Groupe
– ESI propose de gagner encore en temps et en productivité avec la nouvelle version de sa plateforme multidomaines Visual-Environment 11.5
– Acquisition de Mineset Inc., spécialiste de l’analyse visuelle big data et de l’apprentissage automatique (« machine learning »)
– ESI lance la nouvelle version de son logiciel phare : Virtual Performance Solution 2015
– ESI et JMDA proposent du Prototypage Virtuel de Sièges Auto pour Enfant
– Bilan annuel du contrat de liquidité
– Acquisition de la société ITI GmbH, un leader mondial de la simulation réaliste des systèmes mécatroniques et multidomaines
– L’IAO désormais disponible à la demande avec ESI Cloud
– Calendrier de communication financière 2016
– Le nouveau Centre de Calcul Européen d’ESI bénéficie des dernières solutions data center de Legrand
– Chiffre d’affaires du 3e trimestre 2015 : + 10,3 %
– ESI et DAHER présentent le Prototypage Virtuel Immersif à la Conférence numérique franco-allemande à Paris
– ESI lance la version 2015 de PAM-STAMP
– Signature d’un nouveau crédit syndiqué de 49 millions d’euros
– ESI Group distingué au classement GAÏA 2015 pour la qualité de ses fondamentaux extra-financiers
– ESI organise la 3e conférence utilisateurs OpenFOAM du 19 au 21 octobre à Stuttgart, en Allemagne
– Mise à disposition du rapport financier semestriel 2015
– Descriptif du programme de rachat d’actions
– Résultats du 1er semestre 2015
– ESI annonce ses prochains Forums Utilisateurs en Allemagne, en République tchèque et au Japon
– ESI lance ESI-Xplorer, solution de modélisation des systèmes, intégrée dans la plateforme Visual-Environment
– Bilan semestriel du contrat de liquidité
– Assemblée Générale Mixte du 22 juillet 2015
ESI Group ● 2015 Registration Document 144
Juin 2015
Mai 2015
Avril 2015
Mars 2015
Fév. 2015
Janv. 2015
– ESI sera présent au 10e Forum Teratec pour soutenir le calcul haute performance
– ESI présente sa Solution Logicielle ProCAST 2015 au Salon GIFA
– ESI présente ses Solutions de Prototypage Virtuel au Salon international de l’aéronautique et de l’espace de Paris – Le Bourget
– Chiffre d’affaires du 1er trimestre 2015
– Le Prototypage Virtuel d’ESI contribue au projet « Sièges passagers du futur » mené par Zodiac Seats France
– Mise à disposition du document de référence 2014
– ESI Group fait l’acquisition du logiciel Presto
– ESI Group réaffirme son éligibilité au PEA-PME
– Résultats annuels 2014
– Acquisition des actifs technologiques de Ciespace pour déployer l’IAO sur le Cloud
– Les solutions logicielles d’ESI au service du domaine biomédical
– ESI Group fait l’acquisition des actifs de PicViz Labs, le spécialiste de l’analyse prévisionnelle de big data grâce
à une capacité de visualisation avancée
– ESI Group fait l’acquisition de CIVITEC
– Chiffre d’affaires annuel 2014 : Croissance de 2,5 % à taux de change constants
– ESI présente sa Solution de Simulation des Composites 2015 au JEC Europe
– ESI Group poursuit avec succès sa certification mondiale ISO 9001
– Nomination de Peter Schmitt au poste de Executive Vice President Ventes et Marketing opérationnel d’ESI Group
– ESI lance Virtual Seat Solution, une solution logicielle unique, dédiée au prototypage de sièges
– ESI lance la nouvelle version de VA One
– ESI annonce la nouvelle version de Virtual Performance Solution
7.1.2. Press releases and financial announcements in English
April 2016
March 2016
Feb. 2016
Jan. 2016
Dec. 2015
Nov. 2015
Oct. 2015
Sept. 2015
July 2015
June 2015
May 2015
April 2015
March 2015
Feb. 2015
Jan. 2015
– 2015 annual results
– ESI Presents Leading Casting Simulation Software ProCAST at CastExpo 2016
– Formalization of a CSR approach in line with ESI Group’s values
– ESI China’s Chief Operating Officer, Zhimin Cui, Awarded as One of the “Top 10 Ladies in the Chinese Economy”
– 2015 annual sales up 12.3%
– Strengthening of the Group Executive Committee, in accordance with the Group’s strategy
– ESI unleashes further productivity and time gains with the latest release of its multi-domain platform Visual-Environment 11.5
– Acquisition of Mineset Inc., a big data visual analytics and machine learning specialist
– ESI releases the newest version of flagship software Virtual Performance Solution 2015
– ESI and JMDA team up to enable the Virtual Prototyping of Child Car Seats
– Acquisition of ITI GmbH, a global leader in the realistic simulation of mechatronic and multi-domain systems
– CAE Now Available On Demand with ESI Cloud
– 2016 Financial communication agenda
– ESI’s new European HPC center benefits from the latest datacenter infrastructures by Legrand
– Sales for the 3rd quarter of 2015 up 10.3%
– ESI and DAHER showcase Immersive Virtual Prototyping at the French-German Digital Conference in Paris
– ESI releases PAM-STAMP 2015
– Signature of a new syndicated loan amounting to €49 million
– ESI Group rewarded at the GAÏA 2015 ranking for the quality of its non-financial fundamentals
– ESI’s 3rd OpenFOAM User Conference will take place October 19-21 in Stuttgart, Germany
– Results for the 1st half of 2015
– ESI announces its upcoming User Forums in Germany, Czech Republic and Japan
– ESI launches ESI-Xplorer, Systems Modeling Solution Integrated into its Visual-Environment platform
– ESI attends the 10th Teratec Forum for the Development of High Performance Computing
– ESI presents its Casting Simulation Suite ProCAST 2015 at GIFA
– ESI presents its Virtual Prototyping solutions at the International Paris Air Show
– Revenue for the 1st quarter of 2015
– ESI’s Virtual Prototyping contributes to the project “Passenger Seats of the Future” led by Zodiac Seats France
– ESI Group acquires Presto software
– 2014 Annual results
– ESI Group acquires Ciespace’s technology assets for Cloud based CAE modeling
– ESI Software Solutions Benefit the Biomedical Sector
– ESI Group to acquire the assets of PicViz Labs, specialist in big data-based predictive analysis through advanced visualization
– ESI Group to acquire CIVITEC
– 2014 annual sales : growth of 2.5% at constant currency
– ESI presents its Composites Simulation Solution 2015 at JEC Europe
– ESI Group successfully pursues global ISO 9001 certification
– Dr. Peter Schmitt is appointed Executive Vice President, Sales & Operational Marketing of ESI Group
– ESI releases Virtual Seat Solution, a unique software solution dedicated to seat prototyping
ESI Group ● 2015 Registration Document 145
– ESI releases the latest version of VA One
– ESI releases its newest version of Virtual Performance Solution
7.1.3. Information filed with the registries of the Paris Commercial Court
– Change of private addresses of Mr Alain de Rouvray, Mr Vincent Chaillou and Ms Cristel de Rouvray.
– Death of Mr Jacques Dubois, Director, occurred on August 21, 2015 and acknowledged by the Board of Director’s meet-
ing of December 16, 2015 and decision to not appoint a new Director to replace the deceased.
–
Increase of the Company’s capital from EUR 17,845,266 to EUR 17,865,216,duly noted by the Board of Directors at its
meeting of February 18, 2016 following the exercise of options in fiscal year 2015.
7.2. Information made available to the shareholders prior to
the Ordinary General Meeting
Agenda:
Decisions falling within the jurisdiction of the Annual General Meeting:
– Approval of the annual financial statements for the fiscal year ended January 31, 2016
–Approval of the consolidated financial statements for the fiscal year ended January 31, 2016
– Allocation of net profit for the year
– Approval of the agreements referred to in Article L. 225-38 of the French Commercial Code
– Reappointment of Mr Vincent Chaillou as Director
– Appointment of a new Director
– Authorization to be granted to the Board of Directors for the Company to purchase its own shares
– Determination of the compensation paid to members of the Board of Directors (Directors' fees)
Decisions falling within the competence of the Extraordinary General Meeting:
– Authorization given to the Board of Directors in order to reduce share capital by eliminating shares acquired by the Company within the framework of Article L. 225-
209 of the French Commercial Code
– Authorization to confer upon the Board of Directors the power to grant free shares to eligible employees and representatives of the Company and of its associated
companies
– Authorization to be granted to the Board of Directors to award stock purchase options
Joint decisions:
– Powers for formalities.
Management report including the following notes:
–Five-year financial summary
–Table summarizing powers delegated to the Board of Directors with regard to capital increases
Consolidated financial statements and notes
Separate financial statements and notes
Statutory auditors' report on the consolidated financial statements and annual financial statements
Statutory auditors' statement on total compensation paid
Special report on regulated agreements with related parties
Statutory auditors' report on the Chairman's report on the Board of Directors' operational procedures, internal control and risk management procedures
Board of Directors' special report on free share awards granted during the fiscal year
Chairman's report on corporate governance, internal control and risk management procedures
Board of Directors' report to the Extraordinary General Meeting
Draft resolutions proposed to the General Meeting
List of ESI Group's registered shareholders
Composition of the Board of Directors
Mail-in vote form
ESI Group's articles of association as at February 18, 2016
ESI Group ● 2015 Registration Document 146
8 CROSS-REFERENCE TABLE
8.1. Information required under Regulation (EC) No 809/2004
Pursuant to Article 28 of European Commission Regulation (EC) No 809/2004 of April 29, 2004, the following information is incor-
porated by reference in this registration document:
– The separate financial statements, consolidated financial statements, and the report from the statutory auditors for the
fiscal year ended January 31, 2015, which appear on pages 65–108 of the registration document filed with the French
Financial Markets Authority (AMF) on May 20, 2015 under number D.15-0528;
– The separate financial statements, consolidated financial statements, and the report from the statutory auditors for the
fiscal year ended January 31, 2014, which appear on pages 65–108 of the registration document filed with the AMF on
May 30, 2014 under number D.14-0587.
Information
1.
Persons responsible
1.1. Persons responsible for the information in the document
1.2. Statement by the persons responsible for the document
2.
Statutory auditors
2.1. Name and address of the issuer's statutory auditors
2.2. Statutory auditors who resigned, were removed or were not reappointed during the period in question
3.
Selected financial information
3.1. Selected historical financial information
3.2. Selected historical financial information for interim periods
4.
5.
Risk factors
Information concerning the issuer
5.1. History and development of the Company
5.1.1. Corporate name and commercial name of the issuer
5.1.2. Place or registration and registration number of the issuer
5.1.3. Date of incorporation and term of the issuer
5.1.4. Headquarters and legal form of the issuer, law governing its operations, country of origin, address and telephone number of its
registered headquarters
5.1.5. Significant events in the issuer's business development
5.2.
Investments
5.2.1. Principal investments made by the issuer during each fiscal year
5.2.2. Principal investments made by the issuer in progress
5.2.3. Principal investments that the issuer intends to make in the future and for which its management bodies have already undertaken
firm commitments
6.
Business overview
6.1. Main activities
6.1.1. Description of the operations carried out by the issuer and its principal business activities
6.1.2. Significant new products or services launched on the market
6.2. Main markets
6.3. Exceptional factors that have influenced information provided under items 6.1 and 6.2
6.4. Extent to which the issuer is dependent on patents or licenses, industrial, commercial or financial contracts or new manufacturing
processes
6.5. Basis for any statements made by the issuer regarding its competitive position
7.
Organization chart
7.1. Brief description of the Group and the issuer's position with the Group
Chapters
1.1.
1.1.
1.1.
1.2.
1.2.
N/A
2.3.
2.3.
N/A
2.5.
1.
1.3.
1.3.1.
1.3.1.
1.3.1.
1.3.
1.3.3.
2.4.
2.4.1.
2.4.2.
2.4.3.
2.
2.1.1.
2.1.1.
7.1.
2.1.2.
N/A
N/A
2.1.2.
2.2.
2.2.1.
7.2. List of major subsidiaries
5.1.5. note 3.4. & 5.2.3.
ESI Group ● 2015 Registration Document 147
Information
8.
Real estate, factories and equipment
8.1. Existing or planned tangible capital assets
8.2. Environmental considerations that may affect the use of these assets
9.
Review of financial position and performance
9.1. Financial position of the issuer
9.2. Operating profit or loss
9.2.1. Significant factors
9.2.2. Reasons for major changes in net revenues or income
9.2.3. Governmental, economic, fiscal, monetary or political strategies or factors that have materially affected, or could materially affect,
the issuer's operations either directly or indirectly
10. Cash flows and capital
10.1. Information on the issuer's capital
10.2. Source and amount of the issuer's cash flows and descriptions of these cash flows
10.3. Information on the borrowing requirements and financing structure of the issuer
10.4. Information regarding any restrictions on the use of capital resources that have materially affected, or could materially affect, the
issuer’s operations
10.5. Information regarding anticipated sources of funds
11. Research and development, patents and licenses
12.
Information on business trends
13. Profit forecasts or estimates
14. Administrative, management and supervisory bodies and executive management
14.1. Administrative bodies
14.2. Conflicts of interest within administrative, management and supervisory bodies
15. Compensation and benefits
15.1. Compensation and benefits paid to corporate officers
15.2. Total amounts set aside or accrued to provide pension, retirement or similar benefits
16. Practices and procedures of the administrative and management bodies
16.1. End date of current terms of office
16.2. Information on service agreements
16.3. Information on the issuer's committees
16.4. Declaration of compliance with the corporate governance standards
17. Employees
17.1. Number of employees
17.2. Profit-sharing and stock options
17.3. Description of any employee profit-sharing agreements involving the issuers capital
18. Major Shareholders
18.1. Major Shareholders
18.2. Different voting rights
18.3. Control of the Company
18.4. A description of any agreements, known to the Company, the performance of which may result in a change in control of the
Company at a later date
19. Related party transactions
20. Financial information concerning the issuer’s assets and liabilities, financial position and performance
20.1. Historical financial information
Chapters
note F13.
5.1.5. note 6.2. & 4.6.
2.5.2. & 4.3.4.
4.1.
4.1.
4.1.
4.1.
2.5.
5.1.5.
5.1.4. & 4.1.2.
4.1.2.4. & 5.1.5. note 7.1.
4.1.2.4. & 5.1.5. notes 7.1. &
7.4.
4.1.2.4. & 5.1.5. note 7.1.
4.1.3.
4.2.
N/A
3.2.
3.2.
3.4.
3.2.4. & 4.4.
3.2.4. & 5.1.5. note 5.11.
3.2.4.
3.2.1.
3.2.1.1.1.
3.2.1.
3.2.
3.2.
4.3.2.
4.3.2.1.
4.4.
4.4.
1.3.
1.3.4.
1.3.2.3.
1.3.4.
3.4.3.
N/A
5.
5.1. & 5.2.
ESI Group ● 2015 Registration Document 148
Information
20.2. Pro-forma financial information
20.3. Financial statements
20.4. Auditing of historical annual financial information
20.5. Date of latest financial information
20.6. Interim and other financial information
20.7. Dividend policy
20.8. Legal and arbitration proceedings
20.9. Material changes in the financial or trading position
21. Additional information
21.1. Legal capital
21.2. Articles of association and bylaws
22. Material contracts
23.
Information provided by third parties, statements made by experts and declarations of interests
24. Documents available to the public
25.
Information on equity securities
8.2. Information required in the annual financial report
Information
STATEMENT BY THE PERSON RESPONSIBLE FOR THE REGISTRATION DOCUMENT
– Management report
– Analysis of the performance, financial situation and risks of the parent company and the Group
– Information regarding the structure and ownership of share capital and factors that may have an impact in the event of a public
offering
– Information regarding share buybacks
– Information regarding risk factors
– Report on Sustainable Development and Corporate Social Responsibility (CSR)
FINANCIAL STATEMENTS AND REPORTS
– Annual financial statements
– Statutory Auditors’ report on the annual financial statements
– Consolidated financial statements
– Statutory Auditors’ report on the consolidated financial statements
Chapters
N/A
5.1. & 5.2.
5.1.6. & 5.2.4.
7.1.
7.1.
N/A
4.6.
4.1.1. & 5.1.5. note 2.
1.
1.3.
1.3.
4.1.
N/A
7.
5.2.3. notes C2. & F13.
Chapter
1.
4.
4.
4.
4.
4.
4.3.
5.
5.2.
5.2.4.
5.1.
5.1.6.
ESI Group ● 2015 Registration Document 149
Shareholders relations
Corinne Romefort-Régnier & Corentine Lemarchand
100-102, avenue de Suffren – 75015 Paris – France
Tel: +33 (0)1 53 65 14 14
Fax: +33 (0)1 53 65 14 12
investors@esi-group.com
Copyright for the cover image: Expliseat
Design and realization: Ruban Blanc
G.LE/16.0046-A
ESI Group ● 2015 Registration Document 150