ESI Group Annual Report 2016

FY2016 Annual Report · ESI Group

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2016
REGISTRATION
DOCUMENT

Including the financial annual report

Pioneer and leader in Virtual Prototyping

Table of contents

5 FINANCIAL STATEMENTS.........................................................83
5.1. Consolidated financial statements ....................................83
5.2. ESI Group annual financial statements ........................ 118

6 RESOLUTIONS SUBMITTED FOR APPROVAL BY

THE GENERAL MEETING…………………..........................……143
6.1. Decisions falling within the competence of the
Ordinary General Meeting ................................................ 143

6.2. Decisions falling within the competence of the
Extraordinary General Meeting ....................................... 147

6.3. Joint decisions ........................................................................ 159

7 INFORMATION ON THE COMPANY AND

SHARE CAPITAL.....................................................................160
7.1. Information on the Company ........................................... 160
7.2. Information on the Company's capital.......................... 163

7.3. Presentation of stock option and free share
grant plans ............................................................................... 168

7.4. ESI shares – market .............................................................. 171

8 ADDITIONAL INFORMATION ..............................................173
8.1. Persons responsible for the
Registration Document.......................................................173

8.2. Statutory auditors ................................................................ 173

8.3. Documents available to the public ................................. 174

1 THE GROUP ..................................................................7
1.1. Activities, strategy, and markets ......................... 7

1.2. History of the Group .............................................. 15

1.3. Group structure ....................................................... 16
1.4. Selected financial information........................... 18

1.5. Major investments during the
past three fiscal years .................................................... 19

1.6. Risk factors ................................................................ 20

2 CORPORATE GOVERNANCE……..............................24
2.1. Corporate governance procedures ................... 24

2.2. Workings of the Board of Directors
and Executive Management .................................. 25
2.3. Composition of the Board of Directors .............27
2.4. Conditions for preparing and organizing
the work of the Board of Directors .................... 34
2.5. Principles and rules for determining
compensation ............................................................ 38

2.6. Internal control and risk management
procedures ..................................................................43

2.7. Statutory Auditors’ report, prepared in
accordance with article L.225-235 of the French
Commercial Code on the report of the Chairman
of the Board of Directors of ESI Group...............48

3 CORPORATE SOCIAL AND ENVIRONMENTAL

RESPONSIBILITY ...................................................... 50

3.1. ESI Group policy in terms of social
and environmental responsibility ....................... 50

3.2. Being a committed employer ............................... 52

3.3. Being an outstanding partner ...............................60

3.4. Being an environmentally friendly player .......62

3.5. Serving civil society ...................................................66
3.6. Report of the inspecting organization ................69

4 MANAGEMENT REPORT..........................................71
4.1. Business activities during FY2016 ......................71

4.2. Outlook .........................................................................77

4.3. Information on the agreements signed or
pursued during fiscal year 2016 ........................78

4.4. Factors that may have an impact
in the event of a public offering ...........................81
4.5. Table summarizing the results of the
past 5 fiscal years .....................................................82

ESI Group

French limited company (société anonyme) with a share capital of EUR 17,975,976
Registered office: 100/102, avenue de Suffren, 75015 Paris
Paris Trade and Company Register (RCS) number: 381 080 225

REGISTRATION DOCUMENT

INCLUDING THE FINANCIAL ANNUAL REPORT

Fiscal year 2016 (ended January 31, 2017)

This Registration Document was filed with the French Financial
Markets Authority (AMF) on Friday, May 19, 2017 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 is-
suer 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 19, 2017, in
accordance with Articles 212-13 of the AMF General Regulation.
Only the French version of the Document de Référence is legally binding.

2ESI GROUP
IN A NUTSHELL

Pioneer and world-leading provider in Virtual Prototyping
that takes into account the physics of materials

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OUR MISSION
Deliver Virtual Prototyping solutions
to boost innovation and improve
industrial product development

OUR VISION
Be the leader in Virtual Prototyping thanks
to a unique knowledge in materials physics
that brings products to life

REVENUES GROWTH

Revenues : +13%
(in €m)

Revenues distribution
per activity

Revenues distribution
per area (in €m)

140.6

124.7

109.0 111.0

94.2

84.2

2010 2011

2012 2014

2015 2016

77%
23%

LICENSES
LICENSES

SERVICES
SERVICES

Americas
16%
(VS. 19%)

Asia-Pacific
39%
(VS. 36 %)

Europe,
Middle East
and Africa
45%
(VS. 46%)

(data vs. 2015)

ESI GROUP • 2016 REGISTRATION DOCUMENT3

IMPROVEMENT IN PROFITABILITY

EBITDA: +28%
(in €m)

18.3

14.3

12.3

11.4

10.8

9.7

Current Operating
Profit: +30%
(in €m)

Attributable
Net Profit: +41%
(in €m)

15.4

11.8

10.4

8.8

8.1

9.0

6.0

5.0

5.5

5.3

7.5

2011

2012

2013 2014

2015 2016

2011

2012

2013 2014

2015 2016

2011

2012

2013 2014

2015 2016

AN INNOVATIVE AND MULTISECTORAL OFFER

GROUND
TRANSPORTATION

56%

R&D investments
evolution: +12%
(in €m)

32.7

29.1

23.9

20.6

21.3

18.7

2011

2012

2013 2014

2015 2016

Expertise based on 40 years
of R&D

30.2%

R&D investments/
Licenses revenues

Industrial diversification
(% of booking orders)

OTHERS

6.5%

GOVERNMENT,
DEFENSE & MARINE

ENERGY

HEAVY
INDUSTRY

12%

AERONAUTICS
& AEROSPACE

12.5%

12345678 ESI GROUP • 2016 REGISTRATION DOCUMENT4A GLOBAL COMPANY

COVERING MORE THAN

40 COUNTRIES

UNIQUE EXPERTISE

+1,200

EMPLOYEES
MAINLY ENGINEERS
& DOCTORS

Headquarters

Subsidiaries

Agents & Distributors

A RESPONSIBLE COMPANY

AWARDED FIRST PLACE OF GAÏA
INDEX for companies
under €150m of revenues.

IINTEGRATED IN GAÏA INDEX
which distinguished the 70 best
companies with social, societal,
environmental and governance
practices.

ESI GROUP • 2016 REGISTRATION DOCUMENT5A WELL-BALANCED CORPORATE GOVERNANCE

A Board of Directors
made up of 8 MEMBERS of which

5 INDEPENDENT MEMBERS
and 3 WOMEN

SPECIALIZED
COMMITTEES

1 Strategic Committee
2 Audit Committee
3 Compensation, Nomination
and Governance Committee

4 Technology and Marketing Committee

Independent members
Non independent members

STOCK MARKET INFORMATION (as of end of April 2017)

€53.66

STOCK PRICE

€320M

MARKET
CAPITALIZATION

Stock price evolution
between february 2014 and april 2017 (basis 100)

250

200

150

100

€24.04
8,591.77

4,107.75

€53.66

13,293.1

5,267.33

APR.-14

JUL.-14

OCT.-14

JAN.-15

APR.-15
APR.-15

JUL.-15

OCT.-15
OCT.-15

JAN.-16

APR.-16

JUL.-16

OCT.-16

JAN.-17

APR.-17
APR.-17

ESI Group

CAC 40

CAC Mid & Small

Share capital breakdown
as of end of April 2017

Founders
and Board members
37.5%

Public

55.8%

Auto-control
6.8%

ESI GROUP
Euronext Paris
Compartment B
ISIN: FR0004110310
Quote: ESI Group
Mnemonic: ESI
Reuters: ESIG.PA
Bloomberg: ESI:FP

12345678 ESI GROUP • 2016 REGISTRATION DOCUMENT6
1

THE GROUP

Throughout this registration document, the terms “the Group,” “ESI Group” and “ESI” refer to ESI Group, the parent company, as well as all affiliates.

ESI Group is a leading innovator in Virtual Prototyping soft-
ware and services.
Specialist in material physics, ESI Group has developed a
unique proficiency in helping industrial manufacturers re-
place physical prototypes by virtual ones, allowing them to
virtually manufacture, test and pre-certify their future prod-
ucts. Coupled with latest-generation technologies, Virtual
Prototyping is now anchored in the wider concept of the

Product Performance Lifecycle (PPL), which addresses prod-
ucts' operational performance throughout its entire lifecycle,
from launch to disposal. The creation of Hybrid Twins lever-
aging simulation, physics, and data analytics, enables manu-
facturers to deliver smarter products, particularly using con-
nected objects, to predict their performance and to antici-
pate maintenance needs in the context of the transition to
the factory of the future.

1.1. Activities, strategy, and markets

1.1.1. Main activities

ESI Group has developed a suite of coherent industry-ori-
ented applications to realistically simulate a product's behav-
ior during testing, fine-tune fabrication and assembly pro-
cesses in view of desired product performance, and evaluate
the impact of the environment on the use of these products.
These applications represent a unique, open, collaborative,
and multi-sector Virtual Prototyping solution to gradually
eliminate use of physical components and sub-assembly pro-
totypes during the product development phase by letting
manufacturers make decisions based on a “living” virtual
prototype. Innovative visualization technologies such as
IC.IDO and the availability of the Virtual Prototyping chain in
Cloud/SaaS mode also considerably enhance the collabora-
tive potential of ESI Group solutions while drastically reduc-
ing acquisition and ownership costs for companies.
Thanks to the recently-acquired technological bricks, partic-
ularly the acquisition of ITI GmbH in January 2016, the Group
boasts a prominent presence in the field of 0D-1D system
simulation. Its expertise, which is acknowledged by major
global companies, allows for direct access to functional fea-
tures of an industrial product and makes it possible to repre-
sent interactions and operation with its 3D components.

1.1.1.1. Software Editor/Distributor

(Licensing

activity)

License Edition/Distribution is the Group's main activity, ac-
counting for 77% of revenue
is
marketed in the form of proprietary user licenses based
for the most part on an annual leasing system that by
nature generates highly recurring revenue.

in 2016. Software

Most importantly, the use of the Information and Communi-
cation Technologies of the future (ICT) such as Big Data, Ma-
chine Learning, and the Internet of Things (IoT) now makes it
possible to present and experience ESI Group’s solutions in
an interactive space and enables real-time decision-making
in an immersive virtual environment. This enhanced offer
provides complete control over the entire lifecycle of an in-
dustrial product, including modeling of potential evolutions
during its useful life, from product commissioning to its op-
erational withdrawal, as well as accounting for flaws, wear
and tear, maintenance procedures, and running in of assisted
operation. The innovative virtual prototype can now become
agile and intelligent to support industrial manufacturers in
their transition to the age of factories of the future and smart
digital products.
The Group has two main activities: the edition and distribu-
tion of software and consulting services related to its soft-
ware products.

The significant added value provided by ESI Group's solu-
tions requires major research and development work by
highly qualified research engineers.

ESI GROUP • 2016 REGISTRATION DOCUMENT

7Products are distributed worldwide. Distribution subsidiaries
directly manage more than 90% of license sales, the rest be-
ing entrusted to a network of third-party distributors and
agents. The two distribution networks - direct and indirect -
are complementary.
The License activity may be broken down in two ways:
•


By contract type:
Annual license – user license contract renewable annu-
ally and including maintenance services – this type of
contract is predominant – or;
Perpetual license – long-term license contract (paid-up
licenses for the duration of legal protection) including
maintenance services for renewable one-year periods;
 Maintenance contract – Maintenance includes updates



1.1.1.2. Consulting services (Service Activity)
In addition to its main business activity as a software vendor,
the Group also provides consulting services directly related
to Virtual Prototyping.
The Service activity, which accounted for 23% of 2016 reve-
nue, includes Consulting and Other Services.
Consulting covers the following four fields:
•

Engineering studies are joint industrial projects carried
out in partnership with major industrial corporations
with the aim of promoting large-scale deployment of
new applications with high economic potential that
have already been proven technologically viable, such
as the specialized products described below. The Group
customizes its specialized software and the industry
partner performs the prototype trials necessary to vali-
date specialized simulation models. The Group invoices
its partners for the cost of its services, but funds its own
software development work. As a result, it retains the
intellectual property rights to the software products de-
veloped or modified;
Field Services include support services in conjunction
with software sales activities (on- and off-site training

•



•

THE GROUP
and technical support applicable as of the second
year of a perpetual license contract. As of the second
year, maintenance revenue is recognized as software
(maintenance) revenue.
Or, according to criteria concerning new client pur-
chases:
“Recurring Business” includes contracts renewed by
customers with no modification from one year to the
next, as well as additional features purchased for soft-
ware already installed in the system of an existing cli-
ent;
“New Business” comprises new customers and new
products purchased by existing clients.

and technical assistance);
Contracting consists of studies, and in particular appli-
cation tests (design verification and virtual perfor-
mance testing of industrial products). These services
are generally invoiced based on time worked (lump sum
or actual time spent) except for on line support services
which may be provided as part of the support services
included with the annual license for the use of software
packages.
Special Projects are R&D initiatives 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 corpo-
rate R&D departments. The Group treats these projects
as research and development or technology intelli-
gence activities. In some cases, they lead to govern-
ment-type co-financing arrangements in Europe and
the United States. They allow the Group to become in-
volved at a very early stage, as a scientific partner in a
wide variety of innovative high-tech projects.

ESI GROUP • 2016 REGISTRATION DOCUMENT

THE GROUP

1.1.2. Strategy

1.1.2.1. Accelerating

industrial

innovation with

Virtual Prototyping

The current global economic environment presents tough
competitive challenges for industrial companies, calling for
immediate and innovative answers.
For ESI Group and its customers, this highlights more than
ever the clear need for Virtual Prototyping.
With Virtual Prototyping, manufacturing industries have the
means necessary to rise to the foremost industrial challenge:
delivering innovative products at a lower cost, more quickly
and with greater reliability.
Customers' main concerns include:
•

Identifying safety and performance issues early in the
design cycle;
Assessing how new materials and manufacturing meth-
ods impact product performance and integrity;
Implementing best practices to assure an optimum
maintenance cycle and cost;
Predicting equipment performance under extreme con-
ditions and anticipating measures to reduce downtime
and repair costs.

•

1.1.2.2. Filling gaps and managing complexity in
virtual product development with the end-
to-end Virtual Prototyping 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 effec-
tiveness and examine potential improvements on a trial-and-
error basis.
Computer simulation helps reduce time and costs incurred in
producing and testing real prototypes, making it possible to
anticipate test results, eliminate useless tests, and drive de-
sign changes more intelligently, thereby reducing the num-
ber of real tests needed.
However, once a real prototype is produced, it is still custom-
ary and even prudent to calibrate the simulation model to
match the actual test results, in order to make the simulation
models credible.
While the traditional methodology described above does
bring about concrete gains, it has some inherent risks and
significant gaps:
•

Coupling effects between design disciplines and regula-
tions are unclear;
The impacts of the manufacturing (and assembly) pro-
cess and flaws in the procedure on product components

•

ESI Group aims to give customers across all industrial 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 con-
ditions. The Group's customers can thus enjoy a comprehen-
sive and living view of issues related to manufacturing, as-
sembly, and coupling between different product attributes
and performance domains – long before physical prototypes
can be created and tested.
Virtual Prototyping delivers key information for design itera-
tions that also help prepare physical testing in the best pos-
sible way, right up to the pre-certification stage, and in some
cases entirely eliminating the need for physical tests until fi-
nal validation.
Moreover, recent immersive and interactive 3D technologies
now offer real-time visualization and handling of physical
prototypes. Using Virtual Reality solutions such as IC.IDO, in-
dustrial companies can now bring their product to life long
before it is produced, and even entirely without a physical
prototype. This revolutionary technology makes for collabo-
rative, concurrent decision-making (multi-functional, multi-
site and multi-physical) at each stage of the design process.

•

are unknown;
Calibration is often insufficiently tailored to a specific
product, carried out too late in the process and in an
extemporaneous manner on prototypes that do not
represent the actual product;
Innovations may be wrongly rejected due to unmanage-
able complexity.

In contrast, ESI’s Virtual Prototyping solutions provide a ra-
tional and effective response to these fundamental concerns
by placing Virtual Manufacturing and Virtual Reality at the
core of a comprehensive 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 multi-domain performance, grad-
ually optimized with respect to standards, conditions of
use, and increasingly stringent current and future regu-
lations, among other factors;
Building of cause-and-effect relationships between de-
sign and fabrication parameters, from component parts

•

ESI GROUP • 2016 REGISTRATION DOCUMENT

9to the system as a whole, while making intelligent
trade-offs by using interactive virtual reality on models
of increasing complexity;
Calibrating basic material physical properties at the
start of the modeling phase to ensure realistic predic-
tive models according to the circumstances and limits
identified;
Rigorous updates of these predictive models through
predefined processes during assembly and multi-do-
main testing;
Assessment of robustness and safety interactions, reg-
ularly controlled in a fully transparent way at each step,
making it possible to pinpoint the best practices;
Finally, this all contributes to the development of the

•

1.1.2.3. Control the product lifecycle following

rollout

Coupled with latest-generation technologies, ESI Group's all-
around solution, which currently offers a comprehensive de-
velopment and manufacturing process for industrial prod-
ucts, is revolutionizing the traditional Product Lifecycle Man-
agement (PLM) market. Indeed, Virtual Prototyping is part of
an overarching approach known as Product Performance
Lifecycle (PPL), which addresses products' operating perfor-
mance throughout their complete lifecycle, from rollout to
withdrawal. The ESI solution now relies on creation of a phys-
ics-based Virtual Prototype, manufactured, assembled and
structured component by component, and then endowed
with multiple system connections that model interactions
within the assembled product in an operational and inter-
connected functioning format. This transformative approach
to Virtual Prototyping also features the virtual reality solu-
tion (IC.IDO), allowing customers to have teams all over the
world share their product in real time, all in a 3D-4D environ-
ment. However, to date, few if any methods are available to
improve and control the life of a product subsequent to roll-
out and adoption by users! That is where the extension of the
PLM approach comes into play, inaugurating a new age of

THE GROUP
model to ensure that 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 development processes, enabling virtual pre-certifi-
cation before the final physical test, which may be required
for final validation.

Innovations thus become dramatically easier to evaluate and
implement.

PPL. Indeed, the ever-growing number of possibilities offered
by Big Data and the Internet of Things now make it possible
to monitor the life of products after rollout, creating a new
outlook for hybrid virtual representations, i.e. representa-
tions that allow for updating of Virtual Prototypes using data
measured in real time and enhanced by artificial intelligence.
The creation of Hybrid Twins incorporating simulation, phys-
ics, and data analytics makes it possible to create smart prod-
ucts, particularly using connected objects, as well as to pre-
dict their performance and anticipate their maintenance re-
quirements, while providing an essential response to the fun-
damental economic issues of smart factory of the future.
This unique value proposition, incorporating numerous dis-
ruptive innovations, is the fruit of the Group's longstanding
technological differentiation strategy based on multiple in-
ternational partnerships and highly innovative industrial co-
creation projects, implemented with an eye to defining the
Group's positioning throughout the product's manufacturing
cycle and useful life.
The Group has already achieved success in a number of initi-
atives, thanks to a remarkable collaboration and co-creation
approach between ESI Group and global leaders in various
industries. The best is yet to come, thanks to the availability
of greater computing power at an affordable cost and more
user-friendly software solutions.

ESI GROUP • 2016 REGISTRATION DOCUMENT

101

THE GROUP

1.1.3. Main markets

1.1.3.1. The Virtual Prototyping market

ESI Group's business model seeks to take advantage of major
industry trends moving toward “100% digital” and compre-
hensive computerized Product Lifecycle Management (PLM).
In this market, ESI Group's solutions bring a considerable and
fundamental improvement in the decision-making process
by allowing the physical properties and behavior of the ma-
terials to be “realistically” taken into account in the digital
model. Going beyond the design and development phases of
the classic PLM model, ESI Group's solutions allow for com-
plete control over the entire lifecycle of products and prod-
uct performance, by offering a disruptive approach to virtual
performance modeling of connected or unconnected prod-
ucts in operation, as well as predictive maintenance right up
to the end of the product's useful life (PPL).

Market characteristics
The highly-specialized nature of ESI Group's operations and
its unique role in the field of Virtual Prototyping make it dif-
ficult to delineate ESI’s market with any precision. The Group
thus has little information that would shed light on the spe-
cific characteristics or short-term outlook of this market, es-
pecially since the very definition of the market varies greatly
among the players in the industry.
Nonetheless, US market research firm CIMData published a
study on PLM (estimated at $40.7 billion) in April 2017, which
included Virtual Prototyping under the category of “Simula-
tion & Analysis Suppliers” (activity estimated at $5.2 billion).
Most of the companies listed in this category are active in the
field of analysis, however, within this panel, few companies
reach the physical realism of the Virtual Prototyping solu-
tions offered by ESI Group.

High barriers to entry
The complexity of the problems the Group addresses, its
longstanding experience working closely with major indus-
trial corporations, its significant investment in research and
development, and the wide range of solutions it offers make
it difficult for any newcomers to enter its market and com-
pete 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:
•

Longstanding partnerships with major industry players
that both use (manufacturing industries) and supply
(software platforms) technical computing systems;
Highly-skilled teams of researchers, which the Company
has been able to attract and retain thanks to its special-
ized expertise and reputation in the field of physical
simulation;
Licensing agreements signed in a wide range of particu-
lar complex or highly specialized fields.

•

All of these partnerships are the result of the exceptional ex-
pertise gained since ESI's founding in 1973. The Group has a
solid reputation as a complex problem-solver for major cor-
porations worldwide in a variety of disciplines and industrial
sectors (i.e. automotive, defense, aerospace, nuclear power,
transportation, energy, electronics, consumer goods, bio-
medical, etc.)
Under current conditions, it would be a mistake to discount
the possibility that new and larger competitors with greater
resources could emerge in ESI Group’s field of activity. How-
ever, especially with regard to key CAD/CAM players, major
automakers seem neither to anticipate nor to want such a
development, preferring to do business with companies spe-
cialized in the area of physics-based simulation, distinct from
their other technology vendors.
Nevertheless, it should be mentioned that Dassault Sys-
tèmes' CATIA V5/V6 software suite did bring a certain degree
of standardization to the industry and was well-received by
automakers as a way of facilitating the sharing of computa-
tional data within the CAD/CAM world and ensuring compat-
ibility with resource management systems. It is also worth
noting the presence of Siemens/UGS in the technical data
management field with its TeamCenter solutions, the de
facto standard in the automotive market. In 2012, Siemens
complemented its Simulation offering by acquiring the Bel-
gian company LMS, followed by CD Adapco, a leader in digital
and mechanical fluid simulation, in January 2016. In February
2016, MSC Software, a software publisher specializing in de-
sign tools (CAE) was taken over by Hexagon AB.
Given the high barriers to entry that protect the 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 necessary to quickly build up a physical sim-
ulation product line as rich as that offered by ESI Group, and

ESI GROUP • 2016 REGISTRATION DOCUMENT

11one that features 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 major clients in highly specialized, mature markets –
like the automotive industry – its products can be adapted to
a wide range of industries.
However, large-scale adoption of these solutions would re-
quire 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

1.1.3.2. Geographic areas
Markets are segmented both by geographic area and in-
dustry.
Geographic areas are based on the economic breakdown
of the company:
•

Americas = United-States and Brazil;

THE GROUP
steep cuts in the research and development budgets of
major manufacturers, the worldwide economic recovery and
increased pressure from international competitors should
push many companies to move away from their current
methodologies toward Virtual Prototyping, especially in ar-
eas such as aeronautics, energy and electronics.
The Product Performance Lifecycle approach enables manu-
facturers to develop a “hybrid twin” of their real product on
a daily basis. This twin can be used to make decisions at every
stage in the product lifecycle: from design to development,
testing, manufacturing, operation, and elimination.
ESI is now targeting the wider market of professional users
such as maintenance workers and certified technicians who
interact with both the products and consumers.

•

Asia-Pacific = China, South Korea, India, Japan, Malay-
sia and Vietnam;
Europe, Middle East and Africa = Czech Republic, Eng-
land, Germany, France, Italy, Netherlands, Russia,
Spain, Sweden, Switzerland and Tunisia.

2016

2015

2014

Revenue

(in € thousands)

(as a % of the total)

(in € thousands)

(as a % of the total)

(in € thousands)

(as a % of the total)

Europe, Middle East and Africa

Asia-Pacific

Americas

TOTAL

63,419

54,864

22,268

45 %

39 %

16 %

57,098

44,291

23,329

46 %

36 %

19 %

53,480

38,475

19,062

48 %

35 %

17 %

140,551

100 %

124,718

100 %

111,017

100 %

As in previous years, the Group maintained a strong international presence, with 87.2% of revenue generated outside France.

1.1.3.3. Industrial sectors
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;
Driving and comfort (noise, vibrations, etc.);
Engine and transmission;
Aerodynamics, engine aerothermodynamics, drainage,
ford crossing.

Main clients: Alstom Transport, Audi, Fiat Chrysler Group,
Ford Motor, General Motors, Honda, Hyundai, Mercedes-

Benz, Renault-Nissan, Shanghai Automotive Industry Corpo-
ration, Volkswagen Group.

Aeronautics and Aerospace offering
ESI Group's diverse offerings allow it to propose solutions in
areas such as:
•

Engineering and optimization of air flow, noise, impact,
electromagnetics, etc.;
Improvement of noise and vibration factors.

•
Main clients: Airbus Group, AVIC, Boeing, Bombardier, Hon-
eywell, Lockheed Martin, NASA, PCC Corporate, Rolls-Royce,
Safran, Sikorsky, UTC Aerospace Systems.

Heavy industry offering
ESI Group's solutions are designed for companies working in
heavy industry and raw materials processing. They also meet
simulation needs in the following areas:
• Manufacturing processes (metal, plastic or composite

•

materials, additive manufacturing);
Optimization of parts assembly and simulation of their
ESI GROUP • 2016 REGISTRATION DOCUMENT

121

THE GROUP

behavior in their environment.

Main clients: Alcoa, Arcelor Mittal, Caterpillar, General Elec-
tric, Hitachi, Sumimoto, Takata, Whirlpool.

Main clients: CEA, CEE, DCNS, European Space Agency, Hun-
tington Ingalls Industries, Japan Automobile Research Insti-
tute, Ministère de la Recherche (RTNL), NASA, U.S. Army.

•

Energy offering
The main areas of application are the following:
•

Verification of compliance with technical regulations
(safety and useful life);
Performance and improvement of new energy sources,
e.g. wind energy;
Energy consumption optimization.

•
Main clients: Areva, EDF, GDF, General Electric, Japan Atomic
Energy Agency, Mitsubishi Heavy Industries, Siemens, U.S.
Department of Energy.

Government and Defense offering
ESI Group's product offering primarily covers the following
areas:
•
•

Complex physical phenomena;
Comfort of military vehicles.

In 2016, orders in the main industrial sectors broke down as
follows:

Electronics and Consumer Goods offering
ESI Group solutions include:
•

Physical and chemical reactions involved in the indus-
try;
Unintended hypothetical circumstances and related
safety measures.

•

Main clients: Aixtron, Applied Materials, Bertrandt, Gestamp
Group, Google, LG, Samsung.

Education offering
The solutions offered by ESI Group can be divided into two
main areas, namely:
•

Education and assistance in training future engineers in
new Virtual Prototyping tools and technologies;
Special Research Projects, undertaken in collaboration
with universities to meet the needs of industry.

•

ESI GROUP • 2016 REGISTRATION DOCUMENT

13
1.1.4. Ecosystem

ESI Group is particularly mindful of the richness and develop-
ment of its ecosystem, which it considers as the cornerstone
of its success.
Year on year, the Group strives to strengthen its ecosystem,
determining how to best target the very extensive and fast-
growing community of professionals involved in product
manufacturing and industrial processes. Always expanding,
the network built with partners, customers, suppliers, and all
of the Group's other stakeholders makes it possible to accel-
erate and spread innovation and to support the sale of soft-
ware and services.

1.1.4.1. Distribution network and local expertise

Distribution network
some 550 people worked within our
In 2016,
distribution network to cover software sales, services
production,
customers. The Group’s
proprietary distribution net-work accounted for more than
90% of sales. Remaining sales were carried out indirectly
via a network of third-party dis-tributors and agents,
complementing and enhancing our direct network.

support

and

THE GROUP

1.1.4.2. Partnerships

The Group values
its partnerships with hardware
suppliers, software solution providers, leading industrial
companies, and technological and academic
institutes
alike. These alli-ances are deeply rooted in its corporate
strategy to develop and facilitate Virtual Prototyping.

Corporate partnerships

strategic

ESI Group has always aimed to establish mutually
beneficial
partnerships with
corporate
international companies, working together to promote
innovation.
Strategic “partner-customers”

The success of ESI Group's solutions is also the fruit of
re-markable collaboration and a co-creation approach
with world leaders such as Renault-Nissan, Volkswagen,
Honda and EDF-AREVA. The Group's approach is based on
building close and long-lasting relationships which support
meeting the specific needs of customers
looking to
successfully incor-porate Virtual Prototyping into various
industrial sectors.

Strategic and academic partnerships
To ensure constant innovation, ESI Group enters into
part-nerships with many first-rate universities, technological
insti-tutes and leading colleges, in the many countries
where the Group does business. The purpose of these
collaborations is to share experiences and explore new
technologies, encour-aging young people to work in the
industrial sector,
finest employees of
tomorrow, and foster innovation in education.

training

the

Expertise
The wide range of software and services ESI Group offers
meets the increasingly demanding needs of industry at
every step of product and process development. The Group
brings this global expertise to each and every customer,
anywhere in the world.

ESI GROUP • 2016 REGISTRATION DOCUMENT

141

THE GROUP

1.2. History of the Group

1973 TO 1990

■

In 1973, Alain de Rouvray, along with three other engineering colleagues and partners, Jacques Dubois,
Iraj Farhooman and Eberhard Haug, created ESI (Engineering System International). The company ini-
tially operated as a consulting company for European defense, aerospace, and nuclear industries. In
1979, the company opened a subsidiary in Germany.
In 1985, ESI carried out the first successful digital crash-test simulation for a German consortium led by
Volkswagen. This marked the start of development of its flagship software package, PAM-CRASH.

1991 TO 1999

■

In 1991, ESI became ESI Group and raised venture capital to enter the field of software edition. The
company set up subsidiaries in the United States, Japan, and South Korea. In 1997, it took over Frama-
soft (digital and mechanical simulation for the nuclear industry), followed by Dynamic Software (stamp-
ing simulation) in 1999.

2000 TO 2010

■

2011 TO
TODAY

■

In July 2000, ESI Group launched an IPO, raising some €30 million.
From 2000 to 2008, ESI Group pursued a concerted external growth strategy, successively acquiring
Mecas, strengthening its distribution network in Eastern Europe, STRACO (Vibro-Acoustic market),
VASci (Vibro-Acoustic Sciences for noise and acoustic comfort simulation), ProCAST and Calcom
(foundry and metallurgy simulation), the Product Division of CFD Research Corporation (fluid dynamics),
the Service business of IPS International (virtual human models), ATE Technology International Ltd. (sec-
tor diversification in China), the Vdot software platform (product development process management),
and finally Mindware Engineering Inc. (fluid dynamics sector).
Meanwhile, ESI Group strengthened its international presence by opening subsidiaries in Argentina,
India, China, Italy, Brazil, and Tunisia.

In 2011, ESI Group acquired the company IC.IDO, or “I see, I do” (immersive virtual reality solutions),
followed by Efield AB (virtual simulation of electromagnetic phenomena). The following year, ESI Group
took over OpenCFD Ltd (leader in open-source fluid dynamics software) from SGI, thereby taking own-
ership of the OpenFOAM® brand.
In 2013, ESI Group signed a joint venture agreement with AVIC-BIAM to collectively operate the new
company “AVIC-ESI (Beijing) Technology Co. Ltd” (effective as of February 1, 2014), and subsequently
acquired CyDesign Labs Inc. (system modeling).
In 2015, ESI Group carried out the following acquisitions: CIVITEC (virtual simulation of automated driver
assistance – ADAS), the business assets of PicViz Labs (Big Data-based predictive analysis), the technol-
ogy assets of Ciespace (Cloud/SaaS offering), and the Presto software platform (electronics cooling mar-
ket).
In 2016, ESI Group continued to extend its strategic positioning by acquiring ITI GmbH (realistic simula-
tion of mechatronic and multi-domain systems) and Mineset Inc. (Big Data visual analytics and machine
learning). In late 2016, ESI Group signed a strategic, long-term partnership agreement with PARC, a
Xerox Group company, with the goal of expanding and industrializing the advanced research project on
Fault-Augmented Model Extension (FAME).
In early 2017, ESI Group took over Scilab Enterprises, publisher of the Scilab open source analytical
calculation software, with the goal of making immersive virtual engineering more accessible for a world-
wide community of engineers and scientists.
These numerous acquisitions have allowed ESI Group both to extend its sales positioning with an eye to
ensuring optimal service to its customers, and to develop its product portfolio, putting forth a compre-
hensive offering suited to the needs of industrial companies working in the industry of the future.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1.3. Group structure

1.3.1. Operational flowchart

At April 30, 2017, the Group's operational flowchart was as follows:

THE GROUP

Hierarchical attachment
Operational attachment

ESI GROUP • 2016 REGISTRATION DOCUMENT

THE GROUP

1.3.2. Legal flowchart

At April 30, 2017, the Group's legal flowchart was as follows (in particular, this includes the acquisition of Scilab Enterprises,
concluded in February 2017):

Note: the percentages of equity and voting rights are identical.
For more information, see note 7.9 “Table of controlled entities and affiliates at January 31, 2017” in the notes to the consolidated financial
statements.

ESI GROUP • 2016 REGISTRATION DOCUMENT

171.4. Selected financial information

This information can be found in the consolidated financial statements.

THE GROUP

CHANGE IN REVENUE (IN € MILLIONS)

1.4.1. Revenue

2016 annual sales came to €140.6 million, up 12.7% from
the previous year. Acquisition-related revenue amounted
€6.4 million (+5.1%) reflecting the implementation of initial
commercial synergies. The positive currency effect came to
€2.1 million (+1.7%), arising mainly from the positive trend
of the Japanese yen.
The product mix reflects the strong performance of Ser-
vices, which now account for 23% of total revenue, com-
pared to 22% last year.

1.4.2. Strategic business alignment

Licenses revenue came to €108.3 million, up 11.6% from the
previous year. This momentum was driven by the growth of
the installed base (+13.0%), that holds a high repeat business
rate of 89.1% measured for the organic perimeter and at con-
stant exchange rates. New Business amounted to €17.9 mil-
lion, a 3.0% increase from 2015.

Services activity amounted to €32.2 million, up an impressive
16.5%. This activity was boosted by the continued expansion
in engineering studies (+16.8%), ESI Group's core business, as
well as strong growth in special projects (+57.1%), i.e. co-cre-
ation and methodological transformation projects related to
recently acquired and emerging technologies.

1.4.3. Breakdown of revenue by geographic area

GEOGRAPHIC BREAKDOWN

Business in BRIC countries accounted for 13.3% of rev-enue
compared to 12.6% in 2015. This increase was due in
large part to solid business performance in China and India.

1.4.4. Profitability

EBITDA rose by 28.1%, from €14.3 million to €18.3 million,
giving an EBITDA margin of 13.0% compared with 11.4 % in
2015. This rise was due in particular to the low increase of
the Sales & Marketing (S&M) costs (+8.4%) and General and

Administrative (G&A) costs (+9.8%), respectively represent-
ing29.8% and 13.5% of total sales.
As a reminder, EBITDA as presented here excludes non-re-

ESI GROUP • 2016 REGISTRATION DOCUMENT

18
1

THE GROUP

curring profit and includes the impacts of capitalization of re-
search and development expenses and net allowances on im-
pairment of accounts receivable.
Current Operating Profit jumped 30.1% to €15.4 million,
showing a current operating margin of 10.9%, i.e. growth of
1.4 percentage points compared to last year.
EBIT surged by 46.7% to €13.7 million, for a margin of 9.8%,
up 2.3 percentage points compared to FY2015. This impres-
sive growth, bigger than that of EBITDA and Current Operat-
ing Profit, was mainly due to the lower non-recurring costs.

Last year, this item included expenses associated with the
most recent technological acquisitions.
The Financial Result, impacted by the rise in interest ex-
penses and foreign exchange losses following appreciation of
the Japanese yen against the euro in the second semester,
stood at €-2.1 million compared to €-0.9 million in 2015.
Attributable Net profit came to €7.5 million, i.e. a net margin
of 5.4%.

EBITDA

CURRENT OPERATING RESULT

ATTRIBUTABLE NET PROFIT

[IN € MILLIONS AND AS A % OF REVENUE)

1.5. Major investments during the past three fiscal years

1.5.1. The Group’s recurring investments

The Group's recurring investments in operations represent
approximately 2% of its revenue. Over the past three finan-
cial years, these investments amounted to €1.8 million in
2014, €2.7 million in 2015 and €2.3 million in 2016. 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 acquisi-
tion 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 primar-
ily financed using the Group's equity.

1.5.2. The Group’s non-recurring investments

a) Acquisitions of intangible assets
Since 1994, the Group has been acquiring both 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, including goodwill and intangible assets

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
develop-ment costs
in note 6.1.2 to the
is found
consolidated financial statements.
The net carrying amount of capitalized research and
devel-opment costs stood at €38.3 million at January 31,
2017 and corresponds to approximately 14 months of
research and development.

indefinite useful

with an
an impairment
test as described
the consolidated financial statements.

life, have been subject to
to

in note 3.1

ESI GROUP • 2016 REGISTRATION DOCUMENT

19The change in the net carrying amount of these intangible
assets between January 31, 2016 and January 31, 2017 is pre-
sented in the table below. See notes 3.2.1 and 6.1.1 to the
consolidated financial statements for further information.

THE GROUP

(In € millions)

Goodwill

Intangible assets with an indefinite useful life

TOTAL

January 31, 2016

Change in scope of
consolidation

Foreign exchange
gain/(loss)

January 31, 2017

38.5

12.0

50.5

2.2

0.1

40.8

12.0

52.8

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.

1.5.3. Future investments

The Group will continue to invest in order to update and im-
prove 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
customers.
In 2017, the Group plans to spend approximately €4.0 mil-
lion. Capital costs committed at the time of writing came to
approximately €1.1 million. On February 24, 2017, the Group
took over the French company Scilab Enterprises, publisher

of the Scilab open source analytical calculation software,
with the goal of making immersive virtual engineering more
accessible for a worldwide community of engineers and sci-
entists.
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 outcomes.

1.6. Risk factors

The Group has reviewed the major risks that could have a material effect on its business activities, financial position, or results,
and considers that there are no material risks other than those outlined in the four categories below.

1.6.1. Strategic risks

international economic and

Risk associated with the
political environment
The global economic, commercial, and social as well as geo-
political context may influence the Group's results and reve-
nue growth. In particular, the economic context and limited
visibility may have an impact on customer investments and
lead to lengthened sales cycles. In addition, some regions or
countries may pursue protection policies that impede rollout
of the company's solutions.
To limit the impact of economic conditions on its activities
and financial results, the Group implements a policy of diver-
sifying its customer base by strengthening its presence in
new business sectors and geographic areas.

Risk of dependence on a single client or sector
The Group strives to diversify its business, both geograph-
ically and by industry. The Ground Transportation sector ac-
counts for 56% of orders and uses a variety of technologies,
thereby limiting any risk of dependence.
For several years, the Group's twenty largest customers have
accounted for approximately 40% of orders.
To minimize this risk, the Group pursues a policy of diversify-
ing its customer base in both geographic and sectoral terms.

Risk related to technological changes and the ability to
respond rapidly to clients’ needs
ESI Group's business is based on a close customer relation-

ESI GROUP • 2016 REGISTRATION DOCUMENT

201

THE GROUP

ship that aims to meet clients' innovation needs in the differ-
ent industrial sectors suitable for implementing Virtual Pro-
totyping.
Nevertheless, to protect against the risk of disruptive tech-
nological 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 working in co-crea-

tion with the Group;

– Academic partnerships providing access to the latest tech-

nological information;

– Distribution partnerships with key hardware and Cloud
companies that offer advance access to the latest technol-
ogies.

In addition, the Group takes part in innovation projects co-
financed by European Union bodies, competitiveness clus-
ters in France, and American research projects such as SBIR

1.6.2. Operating risks

Business risk
Since it deals with a very diverse customer base made up of
major multinational industrial corporations, ESI's client insol-
vency risk is low and fully provisioned. Intermediate payment
installments are scheduled at the end of each quarter in or-
der to approve the progress thus far and to justify the recog-
nition 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). In many cases
where China is concerned, it takes over a year to collect on
accounts receivable. An analysis of receivables by age is car-
ried out each quarter in order to ensure collection and,
where necessary, to establish the required provisions. The
amounts of doubtful receivables are presented in note 4.2 to
the consolidated financial statements.
The Group is not exposed to any specific risks related to sup-
pliers and partners. Its very limited use of subcontractors,
typically 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 service contracts
Revenue generated by the Group's Services Activity is recog-
nized according to the percentage-of-completion method,
and account for 23% of the Group's total revenue. In the case
of fixed-price service contracts, the risk of underestimating
costs is borne largely by ESI Group. Nonetheless, this risk is

and Darpa. Together, these enable ESI to produce increas-
ingly innovative solutions in a timely manner.

Risk related to management and key personnel
Today, the expertise and experience of key personnel are
shared broadly among qualified teams. No employee is the
exclusive owner of a code or piece of knowledge; in other
words, all this information is shared among the teams.
The Group's success depends in large part on its ability to at-
tract, retain, and motivate quality employees, with a con-
stant focus on aligning skills with the Group's needs and chal-
lenges.
To limit this risk, the Group has implemented an employee
loyalty policy, primarily by creating Employee Share Owner-
ship Plans (stock option and free shares) and Skill Develop-
ment Plans.

based on the Group's experience in the issues involved in the
project. This risk is hedged by a contingency coefficient ap-
plied 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 amendments
to contracts in the event of additional requests by the client.
Risk related to inability to provide the expected results de-
pends on the agreements and preliminary work carried out
to grasp 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 ser-
vices agreed upon. Furthermore, the risk of results being re-
jected is covered by acceptability criteria specified either in
the bid or at the start of work.

Risk associated with the quality of products and services
ESI Group is committed to offering high-quality products and
services, in accordance with its focus on customer satisfac-
tion. These initiatives require implementing processes and
mechanisms that enable effective management of develop-
ment and production projects. To reduce the risk of quality
being compromised, for several years the Group has been
pursuing overall ISO 9001 certification with the aim of incor-
porating all of its subsidiaries.
The Group's pursuit of this certification is a testament to its
confidence in the quality of the solutions it provides to its
customers, as well as its concern for excellence regarding
overarching alignment of processes in managing quality risks.
Overarching certification guarantees that ESI Group pays

ESI GROUP • 2016 REGISTRATION DOCUMENT

21
particular attention to excellence regarding all of its pro-
cesses as well as its employees.

Risk related to the security of facilities and internal systems
To reduce the risk related to the security of facilities and in-
ternal systems, the Group has established security and data
backup mechanisms and restricts access to critical and sensi-
tive information. An experienced security officer constantly
watches systems and network security. The internet connec-
tions and firewalls of all facilities are centrally managed and
monitored, thus minimizing the risk of intrusion and/or pi-
racy. Critical services are regularly backed up in accordance
with a documented process, and, in the event of a major mal-
function or other catastrophe, a backup site has been de-
signed and is operational.

Industrial and environmental risk
The Group is bound by a best-efforts obligation towards its
customers (regarding the integrity of the algorithms used in
its software) but is not obliged to produce a specific result
regarding implementation of its software.

1.6.3. Financial risks

Exchange rate risk
See notes 7.1.4 and 7.3 to the consolidated financial state-
ments.

Interest rate risk
See notes 7.1.2, 7.1.4 and 7.3 to the consolidated financial
statements.

Equity risk
See notes 9.1 and 7.3 to the consolidated financial state-
ments.

1.6.4. Legal risks

The Group has a legal affairs department that is divided into
two branches:
– the corporate legal affairs branch, which is responsible for
monitoring, researching and optimizing the Group's legal
situation as well as coordinating the legal aspects of sub-
sidiaries’ operations;

– the intellectual property branch, which ensures that the
Group's intellectual property rights (software codes, data-
bases, inventions and expertise, trademarks, etc.) are pro-
tected, and takes all necessary measures (trademark regis-
tration, patent applications, confidentiality agreements,
establishing exclusive rights, etc.) to safeguard them. This

THE GROUP
ESI Group designs, develops and markets Virtual Pro-
totyping software. The environmental impact of these activ-
ities is relatively small by nature and limited mainly to the
production of paper waste and used computer equipment.
This impact is further minimized by the fact that a large por-
tion of the devices are leased from companies that resell or
recycle their equipment.
The automatic fire extinguishing systems installed, where
necessary, in the Group's computer rooms do not use halon,
and comply with environmental standards.
To the best of its knowledge, the Group does not currently,
nor has it ever violated any environmental regulation, and no
legal action has ever been taken against it in relation to the
environment. Furthermore, the Group'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 en-
ergy.
For more information on the Group's corporate responsibil-
ity, refer to section 3, “Corporate Social, Societal, and Envi-
ronmental Responsibility.”

Risk related to impairment of goodwill or of intangible
assets
See notes 3.1 and 6.1.3 to the consolidated financial state-
ments.

Liquidity risk
See notes 7.1 and 7.3 to the consolidated financial state-
ments.

branch is responsible for intellectual property audits when
acquisitions are made, and for drafting, revising, or negoti-
ating all contracts involving customers and partners, par-
ticularly consortium agreements.

Intellectual property risks
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
With respect to the risk of counterfeiting by third parties, no
significant incidents of counterfeiting have been observed.

ESI GROUP • 2016 REGISTRATION DOCUMENT

221

THE GROUP

The passwords used to access the Group's products are
gen-erated by ESI Group regardless of how the software is
distrib-uted (distributors and agents), and are linked to the
FlexNet Publisher software (formerly known as Flexlm),
which repre-sents the world standard for secure computer
codes. In the event that a way around the FlexNet code is
found, ESI Group also uses a counterfeit detection tool
together with a legal assistance service to prosecute
counterfeiters. This service has proven to be highly
effective.

for the codes developed

Risk related to claims by third parties as to the ownership
of codes published by the Group
With regard to the risk of third-party claims, the Group's
soft-ware products are, broadly speaking, either developed
within the Group or acquired through mergers or acquisi-
tions. In rare cases, they are the result of development con-
tracts signed with third parties.
in-house, the Group's
As
companies retain ownership of the intellectual property
under the em-ployment 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.
through an external
For
audit
property
growth operation,
if
time, beginning,
should be conducted ahead of
laws.
necessary, by analyzing local intellectual property
Furthermore, acquisition
include
warranties of title. This particularly allows the Company
to avoid buying an empty shell or software code with
too
attached.
Likewise, the Group relies on a systematic review process
for software development contracts made with third
parties, such as 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

software code acquired

agreements always

intellectual

strings

many

Transfers of more rights than necessary due to customers’
General Purchase Conditions
The risk of improper transfers is eliminated by having all
con-tracts reviewed by in-house intellectual property law
specialists.

licenses and

Prevention of undue granting of
free
transference of profits within R&D consortia
The intellectual property branch of the 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

situation

today, an

contentious

legal action,

tax burden due

its ordinary business

litigation, governmental or

Risk of
or arbitration
surrounding public
With
to
increased
finances
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
in France and
internationally, ESI Group is particularly concerned with
issues relating to the French Research Tax Credit (CIR) and
transfer pricing. The Group receives assistance in these
matters from specialized external consultants and has
the
established
This documentation
the context of
government policies of periodic
the
exception of disputes
regarding ordinary business
in any
operations,
government or legal procedure, or any arbi-tration process
liable to have material impact on its financial position,
activities or results (see note 10.2.2 to the consoli-dated
financial statements).
The Group therefore believes that it has the resources
and processes required to adequately cover any legal risks
that it may face.

appropriate documentation.
in

the Company

review. With

is verified

involved

is not

liabilities and damage clauses,
Regarding contractual
the Group always refuses damage clauses and indirect
liabilities (such as
its contractual
liabilities to the amount of a particular event whenever
possible.

losses) and

limits

ESI GROUP • 2016 REGISTRATION DOCUMENT

232

CORPORATE GOVERNANCE

In accordance with the provisions of Article L. 225-37,
subparagraphs 6-10 of the French Commercial Code, this
chapter includes the Chairman's report on corporate gov-
ernance, internal control and risk management proce-
dures (the “Report”) and outlines the following items:
•

The Corporate Governance Code followed by the
Company and application of the recommenda-
tions contained therein;
The composition of the Board and the application of
the principle of balanced gender representation;
Conditions for preparing and organizing the work of
the Board of Directors;
The limits the Board of Directors imposes on the pre-
rogatives of the Chief Executive Officer and Chief Op-
erating Officers;
The principles and rules set out by the Board of Di-
rectors to determine compensation and benefits of

•

any kind granted to executive corporate officers;
As well as internal control and risk management pro-
cedures implemented by the Company.

The other information referred to in Article L. 225-100-3
of the French Commercial Code, and particularly infor-
mation concerning the share capital and shareholding
structure, can be found in section 7.
This Report was prepared with the assistance of ESI
Group executive management as well as the Legal Affairs,
Human Resources and Finance and Administration De-
partments.
In accordance with Article L. 225-37 of the French Com-
mercial Code, the Board of Directors approved the Chair-
man's report at its April 18, 2017 meeting. The Report is
also subject to review and approval by the Combined Gen-
eral Meeting of June 29, 2017.

2.1. Corporate governance procedures

note

that the Corporate Governance Code followed
by the Company since April 2010 is the Middlenext Code.
It is
It may be consulted at www.middlenext.com. The most
re-cent edition of the Code, including new areas of
attention and
recommendations, was
published in September 2016. The members of the
Board of Directors have familiarized themselves with
the Code and reiterated their commitment to comply
with all recommendations included therein and to
periodically review the areas of attention.

four new

Throughout FY2016, the Company focused on (i) taking
account of the areas of attention set out in the Middlenext
Code and (ii) adapting its practices to ensure compliance
with all recommendations mentioned in the Code. In this
respect, it is noted that, in accordance with the “comply or
explain” principle, as well as AMF Recommendation no.
2013-20, a cross-reference table laying out the different
recommendations of the Corporate Governance Code fol-
lowed by the Company is provided below.

TABLE SHOWING THE APPLICATION OF RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE

Content of the recommendation

Application by the Company

Paragraph of Registration
Document

Recommendation followed by the Company

R.1. Code of Ethics of the Board of Directors
R.2. Conflict of interest*
R.3. Composition of the Board - Presence of independent members on the Board Recommendation followed by the Company
R.4. Communication of information to members of the Board
Recommendation followed by the Company
R.5. Organization of Board and Committee meetings
R.6. Establishment of Committees
R.7. Establishment of Board rules of procedure
R.8. Choice of each Director
R.9. Terms of office of members of the Board

Recommendation followed by the Company

2.4

2.3

2.4

2.3

ESI GROUP • 2016 REGISTRATION DOCUMENT

242

CORPORATE GOVERNANCE

R.10. Director compensation
R.11. Assessment of the work done by the Board
R.12. “Shareholder”* relations
R.13. Definition and transparency of compensation paid to corporate executive
officers

R.14. Preparation of “executive”* succession
R.15. Combined employment contract and Directorship
R.16. Severance pay
R.17. Supplementary pension plans
R.18. Stock options and grant of free shares
R.19. Review of areas of attention
* New recommendation

Recommendation followed by the Company

2.5.1

2.4

2.5.2

2.4

2.5.2

2.1

2.2. Workings of the Board of Directors and Executive Management

2.2.1. Chairman of the Board of Directors
In accordance with article 11 of the articles of association,
the Board of Directors elects a Chairman from among its
natural person members, 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 Chair-
man. The Chairman organizes and supervises the work of
the Board. He/she ensures that the Company's various
bodies function properly, with particular attention to
guaranteeing that Board members are able to fulfill their
mission.

2.2.2. Chief Executive Officer
In accordance with legal provisions, the Board entrusts
executive management of the Company either to the
Chairman of the Board of Directors or to another natural
person, whether or not a Board member, who holds the
title of Chief Executive Officer.
The choice between these two executive management op-
tions is made by the Board of Directors. The Board's deci-
sion regarding the choice of executive management struc-
ture is made by majority vote of the Board members pre-
sent or represented. The Board's 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 Ex-
ecutive 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 execu-
tive management structure. The Board of Directors may,

People over the age of 80 may not serve as 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. It is noted that the
General Meeting of July 22, 2015 decided to reappoint Mr.
Alain de Rouvray for a term of four years, to expire upon
the General Meeting of 2019.

with the consent of the Chief Executive Officer or Chair-
man, if the Chairman also serves as Chief Executive Officer,
decide to modify the executive management structure be-
fore the end of their term of office. Such change in the ex-
ecutive management structure does not require an
amendment to the articles of association.
At its July 22, 2015 meeting, the Board of Directors de-
cided to combine the functions of Chairman and Chief Ex-
ecutive Officer and to reappoint Mr. Alain de Rouvray as
Chief Executive Officer for a term of four years expiring in
2019. This arrangement was consistently chosen as the
most appropriate, considering the Company's size and the
presence of two Chief Operating Officers who can assist
the Chairman and Chief Executive Officer.
The Chief Executive Officer is granted the broadest possi-
ble 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.

ESI GROUP • 2016 REGISTRATION DOCUMENT

25CORPORATE GOVERNANCE

2.2.3. Chief Operating Officers
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. In
accordance with article 14 of the articles of association,
the number of Chief Operating Officers may not exceed
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 Op-
erating 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 re-
tain their responsibilities and duties until the appoint-
ment 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.
At its July 22, 2015 meeting, the Board of Directors de-
cided to reappoint Mr. Vincent Chaillou and Mr. Christo-
pher St. John as Chief Operating Officers for a term of four
years, expiring in 2019.

•

•
•
•

2. To enter into commercial contracts or agreements on
behalf of the Company within its commercial territory
and authority;

2.2.4. Limits on the powers of the Chief Executive Officer and Chief Operating Officers
The powers of the Chief Executive Officer are not subject
To create or acquire stakes in other companies, to
to any limits.
perform any other type of similar undertaking, to ac-
However, the powers of the Chief Operating Officers to act
cept management positions in other companies, to
as legal and commercial representatives of the Company
establish or dissolve subsidiaries and to divest own-
have been delegated by the Chairman of the Board of Di-
ership interest;
rectors. The following powers have thus been delegated to
To propose mergers;
the Chief Operating Officers, Mr. Vincent Chaillou and Mr.
To grant loans;
Christopher St. John:
To bind the Company as a guarantor or in any other
1. To represent the Company, in general, in all ongoing
debt-related situation with respect to third parties;
business affairs of ESI Group with respect to third par-
To settle any disputes and to take legal action, with
ties and in compliance with the Group procedures;
the exception of debt recovery actions that form part
of the Company’s ongoing operations and urgent ac-
tions such as provisional or conservatory measures
that cannot be postponed in the interests of the Com-
pany;
To set up retirement plans for the employees of the
Company;
To sell or dispose of, purchase or acquire, or transfer
or mortgage any assets belonging to the Company
worth more than €50,000;
To enter into commercial contracts or transactions
exceeding €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 €50,000;
In general, to enter into any agreement or transac-
tion involving other Group companies, clients or
partners falling outside the Company’s commercial
territory or authority.

3. To hire or terminate any employee, executive, consult-
ant, sales representative, distributor or agent and to de-
termine the scope of their powers and their title (with
the exception of managers and directors) and to estab-
lish or increase any compensation, commission or pen-
sion for all such individuals or legal entities. Annual
compensation shall not exceed €100,000.

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);

In all cases, the Chief Operating Officers require the Com-
pany's prior written consent to carry out the following
transactions on behalf of the Company:
•

•
•
•

•

ESI GROUP • 2016 REGISTRATION DOCUMENT

262

CORPORATE GOVERNANCE

2.2.5. Group Executive Committee (“GEC”)
The GEC makes all decisions relative to the Company's
growth strategy in the following areas:
•
•
•
•
•
•
To date, GEC membership is as follows:

Distribution (establishments and subsidiaries);
Sales and Marketing;
Production of products and solutions;
Service activity;
Finance and Administration;
Human Resources;

Last name, First name

Title

Quality;
IT.

•
•
In collaboration with the Specialized committees, the GEC
prepares and submits documentation to the Board of Di-
rectors regarding certain operations that require Board
approval before they can be carried out and/or imple-
mented.

Mr. de Rouvray, Alain

Chairman of the Board and Chief Executive Officer of the Company

Mr. Chaillou, Vincent

Board member and Chief Operating Officer in charge of Editions Operations

Mr. St. John, Christopher

Chief Operating Officer in charge of Distribution and Support Operations

Mr. Bastian, Laurent

Chief Financial Officer

Mr. Salari, Mike

Mr. Schmitt, Peter

Executive Vice President, Engineering Services

Executive Vice President, Marketing and Sales

Mr. Matzen, Christian

Executive Vice President, Immersive Virtual Prototyping

Mr. Tanasescu, Christian

Executive Vice President, Systems Modeling and Data Analytics

Mr. Gremaud, Marco

EMEA Managing Director

Ms. Romefort-Régnier, Corinne

Corporate Governance Director, Secretary of the Committee

2.3. Composition of the Board of Directors

Chairman of the Board of Directors
In accordance with article 10 of the articles of association,
the Company is administered by a Board of Directors com-
posed of at least three members and at most the maximum
number of members permitted by law, unless a decision is
made to increase this maximum in the event of a merger.
The Board of Directors pursues an ongoing objective of in-
creasing the diversity and complementarity of skills re-
quired for service on the Board and ensuring balanced
representation of all shareholders and women.
Directors are appointed by the annual Ordinary General
Meeting, based on the recommendations of the Board of
Directors, for a term of four years, in accordance with the
recommendations of the Corporate Governance Code

(R.9). These duties expire at the end of the Ordinary Gen-
eral 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. Directors may be re-elected. They may be dis-
missed at any time by the Annual General Meeting.
The age limit to serve on the Board of Directors is 80. If a
member of the Board of Directors exceeds this limit, he or
she will automatically be deemed to have resigned. He or
she will nonetheless retain his/her seat until the first
Board meeting following the date at which the Director in
question exceeded the age limit.

ESI GROUP • 2016 REGISTRATION DOCUMENT

27The Board of Directors is currently made up of the following eight members:

CORPORATE GOVERNANCE

Title

Start of first term

End of term

Age

Last name, First name

Mr. de Rouvray, Alain

Mr. Chaillou, Vincent

Ms. de Rouvray, Cristel (1)(2)

Chairman and Chief Executive Officer

Board member

Mr. des Isnards, Charles-Helen (2)

Independent Board member

Mr. d’Hotelans, Éric

Ms. Jacq, Véronique

Independent Board member

Ms. Ramanathan, Rajani

Independent Board member

Mr. de Balmann, Yves

Independent Board member

1991

2004

1999

2008

2014

2016

AGM 2019

73 years old

AGM 2020

67 years old

AGM 2017

40 years old

AGM 2017

72 years old

AGM 2019

66 years old

AGM 2018

49 years old

AGM 2018

50 years old

AGM 2020

71 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 June 29, 2017.

The following provides a summary of the changes in the composition of Board of Directors over the course of FY2016 as
well as the changes expected to be made over the course of the current fiscal year:

Resignation

Reappointment

Appointment

FY2016

N/A

FY2017

N/A

Mr. Vincent Chaillou

Ms. Cristel de Rouvray
Mr. Charles-Helen des Isnards

Mr. Yves de Balmann

N/A

ESI GROUP • 2016 REGISTRATION DOCUMENT

282

CORPORATE GOVERNANCE

Personal information of current Board members

Alain de Rouvray
Chairman and Chief Executive
Officer

ate of birth: 10/8/1943

French
D

Vincent Chaillou
Board member and Chief Operating
Officer

ate of birth: 3/24/1950

French
D

Founder of ESI Group, 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 Engi-
neer at Ecole Polytechnique (Solid Mechanics Laboratory) in
1972. He then became Director of the Advanced Mechanics De-
partment 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 is the Company COO in charge of the
Software Publishing Division. 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 served as General Manager of the AEC Business Unit, a
department of ComputerVision (which has now merged
with PTC). During his 16 years at ComputerVision, he
held several management positions in sales, marketing
and general management, specifically in the Asia-Pacific
region. From 1994 to 1998, he was Regional Vice Presi-
dent for the American territory within ESI Group and CEO
of ESI Software.

Current offices held:
None

Offices held over the past five years:
None

Current offices held:
•

Member of the Board of the association Alliance In-
dustrie du Futur
Member of the Board of the association TECH'IN
France
Member of the Board of the association ASTech
Member of the Board of the association IDFORCAR
Member of the Board of the Railenium Technologi-
cal Research Institute
Member of the Board of the company CADEMCE SAS
Member of the Board of Nuclear Valley
Member of the Board of the French Mechanics asso-
ciation
Treasurer of the Excelcar collaborative innovation
platform

•

•
•
•

•

Business address:
ESI Group - 100-102 Avenue de Suffren, 75015 Paris

Offices held over the past five fiscal years:
NONE

ESI GROUP • 2016 REGISTRATION DOCUMENT

29Cristel de Rouvray
Board member

ate of birth: 10/15/1976

French, American
D

CORPORATE GOVERNANCE

Charles-Helen des Isnards
Independent Board member
ate of birth: 01/01/1945

French
D

A graduate of Stanford University and the London School of
Economics, where she obtained a Ph.D. in economics, Cristel
de Rouvray is a resident of the United States. She divides her
time between the position of Board member at ESI Group
and that of consultant at College Track in Oakland, California.

After an international career within BUE, UBAF and CIC
Group in France and in Italy, Charles-Helen des Isnards con-
tributed to the creation of CIC Finance as member of the
Board. He served as Deputy Chief Executive Officer of CM-
CIC Corporate Advisory until September 2012. He is a grad-
uate of the Paris Institute of Political Studies and holds a de-
gree in law.

Current offices held:

None

Offices held over the past five years:

None

Current offices held:
•

Member of the Board of the association Les Arts Floris-
sants
Member of the Board of the Day-Solvay Foundation

Offices held over the past five years:
Member of the Supervisory Board of the company Na-
ture & Découvertes

•

•
•

Business address:
ESI Group - 100-102 Avenue de Suffren, 75015 Paris

ESI GROUP • 2016 REGISTRATION DOCUMENT

302

CORPORATE GOVERNANCE

Éric d’Hotelans
Independent Board member
ate of birth: 07/03/1950

French
D

Véronique Jacq
Independent Board member
ate of birth: 01/02/1968

French
D

Éric d’Hotelans held positions in the information technology
sector, first at Tandem (US computer manufacturer, taken
over by HP), where he headed the Europe/Finance Business
Unit. In 1998, he joined CMG, one of the oldest European IT
services companies, as a member of the Executive Committee.
In this capacity, he created CMG France (1,200 employees), the
Group’s French subsidiary, of which he became Chairman and
CEO. He left 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 research and analysis of IT-related activities. In 2003, he
joined the Board of Directors of M6 Group as Deputy Chairman
in charge of management activities, assuming responsibility
for the Group’s online sales in 2009.

A Civil Engineer and graduate of 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 Busi-
ness Development. In 2003, she joined the 2nd Chamber
of the French Court of Auditors, where she was responsi-
ble for auditing financial statements and management re-
ports of companies and government agencies as well as
international organizations. In 2007, she joined CDC En-
treprises, a CDC subsidiary company specializing in pri-
vate equity, and in 2010 became Deputy General Manager
in charge of Business Development. In 2012, she became
head of digital technology investments first at CDC Entre-
prises and then at Bpifrance as of 2013.

Current offices held:
•
•
•
•
•

President of the company Home Shopping Services SA
President of the company CADEMCE SAS
Member of the Board of the company M6 Films
Member of the Board of the company M6 Diffusion SA
Member of the Board of the company Société Nouvelle de
Distribution SA
Member of the Board of the company Métropole Produc-
tion SA
Chair of the M6 Group Corporate Foundation

•
•
•

•
•

Current offices held:
•

Member of the Board of the company OpenClass-
rooms
Censor of the company Bonitasoft
Censor of the company Scality
Censor of the company Teads

Offices held over the past five years:
Censor of the company DelfMEMS

•

•
•

•

Offices held over the past five years:
Managing Director of the company Home Shopping Ser-
vices SA
Member of the Board of the M6 Group Corporate Foun-
dation

Business address:
M6 - 89 Avenue Charles de Gaulle - 92575 Neuilly-sur-Seine
Cedex

Business address:
Bpifrance - 6-8 Boulevard Haussmann, 75009 Paris

ESI GROUP • 2016 REGISTRATION DOCUMENT

31Rajani Ramanathan
Independent Board member
ate of birth: 3/25/1967

American, Indian
D

CORPORATE GOVERNANCE

Yves de Balmann
Independent board member
ate of birth: 05/28/1946

French, American
D

Rajani Ramanathan has held a variety of positions, from run-
ning her own companies in India to scaling a multi-billion-dol-
lar company from a startup to a fully operational business. She
currently serves as an advisor or investor in several technol-
ogy startups including 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 build it into a high growth Fortune 500 com-
pany over 14 years. In her most recent role as Executive Vice
President of Technology & Products, her responsibilities in-
cluded delivering highly innovative products while ensuring
that every employee has every chance of success. In 2014, she
was awarded the YWCA TWIN (Tribute to Women and Indus-
try) Award, which has long been considered one of Silicon Val-
ley's most prestigious awards honoring women who exem-
plify leadership excellence in executive-level positions.

A graduate of Stanford University in the United States and
Ecole Polytechnique in France, Yves de Balmann began his
career at Citibank where he served as North American Ex-
ecutive Director for the Rates and Currency Derivatives Di-
vision, as well as his own Trading Department. He joined
Bankers Trust in 1988. After the 1999 merger of this com-
pany with Deutsche Bank, de Balmann became Co-Head of
the Global Investment Bank (GIB) Department of Deutsche
Bank and Vice Chairman and CEO of Deutsche Bank Alex.
Brown, the US division of the German bank, which brings
together investment banking and intermediation activi-
ties. He held these positions until 2001. He also served on
the Board of the Global Corporates and Institutions Divi-
sion (GCI). In 2002, he created the company Bregal Invest-
ments, a first-rate international player in the field of pri-
vate equity, which he co-managed until 2012. He lives in
California.

Current offices held:
•

Member of the Board of the company CloudCherry

Offices held over the past five years:
None

Current offices held:
•

Member of the Board of the company Excelon Corpo-
ration
Member of the Board of the company Finaliste
Member of the Board of the non-profit organization
Sweetwater Spectrum

Offices held over the past five years:
Member of the Board and non-executive Chairman of
the company IP Management
Member of the Board of the company Laureate Edu-
cation

•
•

•

Business address:
ESI Group - 100-102 Avenue de Suffren, 75015 Paris

Experienced and complementary Directors
As can be seen in the short biographies presented above,
, through
the members of the Board of Directors
their education and their professional experience, consid-
erable expertise in the fields of management and finance.

have

Furthermore, most Directors are perfectly familiar with
the Company’s area of technology. Finally, their diverse
profiles guarantee that the Board benefits from a comple-
mentary set of skills.

ESI GROUP • 2016 REGISTRATION DOCUMENT

322

CORPORATE GOVERNANCE

Independent members of the Board of Directors
The criteria used by the Compensation, Nomination and
Governance Committee, and subsequently by the Board of
Directors, to deem a Board member independent and to
prevent potential conflicts of interest between the Board
Member and management, the Company or the Group are
as follows, in accordance with the recommendations of
the Corporate Governance Code (R.3):
•

five

years;

Independent Board members must not be salaried
employees or corporate officers of the Company or of
a company within the Group, and must not have held
such a position within the last
They must not have had a significant business rela-
tionship with the Company or the Group (client, sup-
plier, competitor, service provider, creditor or
banker) over the preceding two years;
They must not be a Reference Shareholder of the
Company or hold significant voting rights;
They must not have a close relationship or immedi-
ate family ties with a corporate officer or Reference
Shareholder;
They must not have been an auditor of the company

•

in the course of the previous six 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. Should Board mem-
bers come to hold more than 10% of the Company's capi-
tal or voting rights, the Board of Directors must systemat-
ically review their status as independent members, at the
recommendation of the Compensation, Nomination and
Governance Committee, in consideration of the Compa-
ny's capital structure and the existence of any potential
conflicts of interest.
The Board of Directors reviews the situation of its mem-
bers vis-à-vis these independence criteria on a yearly ba-
sis. At the present time, five Directors are considered as
independent:
•
•
•
•
•

Mr. Charles-Helen des Isnards;
Mr. Éric d’Hotelans;
Ms. Véronique Jacq;
Ms. Rajani Ramanathan;
Mr. Yves de Balmann.

Internationalization of the Board of Directors and greater presence of women
The Board of Directors is currently made up of eight mem-
bers, five men and three women. As such, the gender gap
does not exceed two, as required by law No. 2011-103 of
January 27, 2011 on gender equality in Boards of Direc-
tors and Supervisory Boards.

In addition, three Directors, Ms. Cristel de Rouvray, Ms.
Rajani Ramanathan and Mr. Yves de Balmann have dual
nationality, thereby enriching the Board with the cultural
diversity they offer.

Length of terms
Directors serve four-year terms. This duration is in line
with the recommendation R.9 of the Middlenext Code.
Considering its size and the composition of its Board, the
Company believes that four-year terms foster both long-
term commitments on the part of Board members and bet-
ter decision making thanks to in-depth knowledge of the
Company, its markets and its activities, while also rein-
forcing Directors' independence due to more frequent

submission of appointment renewals to the Company's
Shareholders.
It is noted that the Extraordinary General Meeting of July
23, 2013 decided to shorten the length of terms on the
Board of Directors from six to four years, without affecting
terms in progress at that date, so as to allow Shareholders
to be consulted sufficiently often regarding Board ap-
pointments.

Absence of criminal convictions or incriminations of corporate officers
In the past five years, to the best of the Company's
knowledge, no Board member nor executive has been con-
victed of any fraudulent offense, been associated with a
company's bankruptcy, receivership or liquidation, or re-
ceived an official public incrimination or sanctions by stat-
utory or regulatory authorities.
Furthermore, to the best of the Company's 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.

ESI GROUP • 2016 REGISTRATION DOCUMENT

2.4. Conditions for preparing and organizing the work of the Board of

Directors

CORPORATE GOVERNANCE

Rules of procedure of the Board of Directors
The Board of Directors adopted a set of rules of procedure
in 2009. These rules set out the operational procedures of
the Board and its Committees, as well as the rules of pro-
fessional ethics applicable to all Directors (R.7). These
rules of procedure were reviewed in April 2013 and April
2016 to take account of the latest regulatory
particular regarding the responsibilities of the Audit
Committee, and to ensure that the rules are con-sistent
with best practices of corporate governance. In light of the
recent revision of the Middlenext Code in Sep-tember 2016,
the Board recommends modifying the rules
of procedure as necessary in the near future to guarantee
compliance with the new recommendations set forth in
the Code.
The rules of procedure can be consulted on the Company's
website (www.esi-group.com). Each member receives a
copy of these rules upon being appointed.

changes

, in

•

•
•

In accordance with recommendations R.1, R.2 and R.7 of
the Middlenext Code, these rules of procedure particularly
specify the following points:
•

The composition of the Board of Directors and the
procedure for determining whether a Board member
is an independent member;
Directors' duties and responsibilities (especially in
terms of professional ethics, disclosure and manage-
ment of conflicts of interest and compliance with
rules applicable to insiders);
The operational procedures of the Board of Directors
(frequency of meetings, procedure for calling meet-
ings, procedure for notifying members, use of vide-
oconferencing technology) and the Committees;
The rules regarding Directors' compensation;
The role of the Board of Directors and the Commit-
tees.

Professional ethics of Board members and prevention of conflicts of interest
Regarding professional ethics, it is noted that Board mem-
bers are to refer to the Director Charter set forth by the
French Institute of Corporate Directors and appended to
the rules of procedure of the Board of Directors.
Concerning prevention and management of conflicts of in-
terest, the rules of procedure and the Charter recommend
that each Director strive to avoid any potential conflict be-
tween his/her moral and material interests and those of
the Company. Each Director is obligated to inform the

Board of any conflict of interest liable to involve him/her.
Should the Director be unable to avoid a conflict of inter-
est, he/she must recuse him/herself from any delibera-
tions and decisions regarding the issues in question.
To the Company's knowledge, at the date this report was
drawn up, there was no conflict of interest between the
duties of the individual Board members with respect to
the Company and their private interest and other duties.

•

Duties and powers 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 deter-
mines the guidelines for the Company's operations and
oversees the application thereof. Subject to the powers ex-
pressly given, under the law, to General Meetings, the
Chairman and Chief Executive Officer and the Chief Oper-
ating 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 responsibility.
The Board of Directors is entrusted with the following re-
sponsibilities 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;
Deciding on the executive management structure of
the Company by opting to appoint as Chief Executive
Officer either the Chairman of the Board of Directors
or another individual;
Determining the powers that may be delegated to a
subsidiary's General Manager and setting monetary
limits on these powers;
Preparing parent-company and consolidated annual
financial statements and interim financial state-
ments, the annual management report and the in-
terim financial report, as well as approval of these
documents;
Approving the Report of the Chairman of the Board

ESI GROUP • 2016 REGISTRATION DOCUMENT

342

CORPORATE GOVERNANCE

of Directors on corporate governance, internal con-
trol and risk management;
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 Ex-
ecutive 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, ap-
pointing 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 the Board of Di-
rectors' 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 Middlenext Code Recommendation
R.5, the rules of procedure state that the Board of Direc-
tors meets at least four times per year.
In addition to mandatory dates, the Board must also meet
to:
•

Draw up the annual financial statements and prepare
for the Annual General Meeting called to approve
said financial statements;
Report on half-year results;
Discuss the financial position, the cash position, the
Company's obligations and the share buyback pro-
gram.

•
•

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 estab-
lished strategy;

Organic growth or restructuring operations.

•
The draft minutes of each Board of Directors meeting are
formally approved and signed by the Board members dur-
ing the subsequent meeting. The minutes relate the dis-
cussions, 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 gen-
eral situation arising since the previous meeting are
brought to the Board members' attention.
Board of Directors' meetings are not valid unless at least
half of its members are in attendance. The Board’s deci-
sions are made by majority vote among the members pre-
sent 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 mem-
bers who take part in the Board meeting via videoconfer-
ence or teleconference are considered present for the pur-
pose 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 in FY2016, on the dates listed below, with an average attendance rate of 91%:

Date

February 18, 2016

March 11, 2016

April 08, 2016

May 18, 2016

July 21, 2016

September 16, 2016

November 30, 2016

December 23, 2016

January 06, 2017

Board member attendance

100%

86%

100%

88%

75%

100%

ESI GROUP • 2016 REGISTRATION DOCUMENT

35During FY2016, in addition to reviewing, monitoring and
approving the budget for the fiscal year, drawing up the
annual and interim financial statements, preparing for the
General Meeting, examining agreements falling under Ar-
ticle L.225-38 of the French Commercial Code and other
ongoing management decisions, the Board of Directors fo-
cused primarily on:
•

Establishing the terms of and implementing a share
buyback program approved by the Combined Gen-
eral Meeting of July 21, 2016;
Attributing stock options and free share grants;
Approving the procedure to determine Directors'
fees;

•
•

CORPORATE GOVERNANCE

The Company’s funding;
External growth operations.

•
•
Moreover, in accordance with Middlenext Code Recom-
mendation R.14, the Board of Directors and the Compen-
sation, Nomination and Governance Committee addressed
the issue of executives becoming suddenly unavailable fol-
lowing an accident or other eventuality, as well as the mat-
ter of succession in their duties. A plan was drawn up fol-
lowing these discussions.
As part of this work, the Board of Directors relied on the
work and recommendations of the Committees estab-
lished within the Company.

Communication of information to members of the Board
In accordance with the rules of procedure, before each
Board meeting Board members each receive a dossier
containing the agenda for the meeting, the draft minutes
from the previous meeting and any document pertaining
to the different items on the agenda. The Chairman makes
every effort to provide these items three to five days be-
fore each meeting. The Chairman also follows up on mem-
bers' requests for additional information. Board members

consider that they receive sufficient information to carry
out their duties.
Furthermore, all topics addressed during the meeting are
reviewed and discussed in depth among the members be-
fore being put to a vote following the discussion. Finally,
in accordance with Middlenext Code Recommendation
R.4, Directors are regularly kept informed between meet-
ings when required by events within the Company.

Establishment of specialized committees
The purpose of the committees is to optimize the discus-
sions 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.
In accordance with current legislation and Middlenext
Code Recommendation R.6, the following Committees
have been established within the Company:
•

The Strategic Committee;

•
•

•

The Audit Committee;
The Compensation, Nomination and Governance
Committee;
The Technology and Marketing Committee.

ESI GROUP • 2016 REGISTRATION DOCUMENT

362

CORPORATE GOVERNANCE

The specialized committees are currently composed as follows:

Specialized committees of the Board of Directors

Last name, First name

Independence

Strategic Committee

Audit
Committee

Compensation, Nomination
and Governance Committee

Technology and
Marketing Committee

Mr. de Rouvray, Alain

Mr. Chaillou, Vincent

Ms. de Rouvray, Cristel

Mr. des Isnards, Charles-Helen

Mr. d’Hotelans, Éric

Ms. Jacq, Véronique

Ms. Ramanathan, Rajani

Mr. de Balmann, Yves

Yes

Chair

Member

Chair

Member

Ms. Corinne Romefort-Régnier also attends all Board and Committee meetings as Secretary.

Member

Chair

Member

Chair

ules of

Strategic Committee
As defined in the
rocedures of the Board of Di-
rectors, 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 twice during the past year
with an average attendance rate of 100%.

Audit Committee
In accordance with regulations in force, Board members
in management roles within the Company are not allowed
to serve as members of the Audit Committee, and all mem-
bers are independent. In addition, the majority of its mem-
bers have expertise in the area of finance or accounting.
The Chairman and CEO of the Company is invited and at-
tends the meetings of the Audit Committee.
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 administration, management and supervision, this
committee is responsible, in particular, for the following
tasks:
•

Monitoring the process of drawing up financial doc-
uments and, if necessary, making recommendations
to ensure their integrity.
Monitoring the effectiveness of internal control and
risk management systems as well as internal audit
systems, if necessary, in terms of the preparation and

•

•
•
•

processing of financial and accounting information,
when such initiatives are compatible with the Com-
mittee's independence.
Issuing a recommendation regarding appointment of
auditors by the General Meeting, as well as regarding
the potential reappointment of auditors.
Monitoring auditors as they fulfill their duties.
Ensuring auditors’ independence.
Regularly reporting to the Board of Directors regard-
ing its activities. It also reports on the results of cer-
tification of financial statements, how said certifica-
tion has contributed to the integrity of financial in-
formation, and the role that the committee played in
the process. The committee immediately reports any
problems that may arise.

The Audit Committee met six times throughout FY2016
with an average attendance rate of 100%. In most cases,
the statutory auditors are also invited to attend these
meetings.

Compensation, Nomination and Governance Committee
As defined in the rules of procedures of the Board of Di-
rectors, the Compensation, Nomination and Governance
Committee, composed of five members of whom three are
independent, is responsible for (i) preparing the decisions
of the Board of Directors concerning compensation of ex-
ecutive officers and the policy for granting stock options
and/or purchase of shares, and (ii) preparing changes to
the composition of the Company’s governing bodies.
The Compensation, Nomination and Governance Commit-

ESI GROUP • 2016 REGISTRATION DOCUMENT

37tee met four times throughout FY2016 with an average at-
tendance rate of 100%.

Technology and Marketing Committee
The Technology and Marketing Committee is in charge of
advising the Board on aspects of product strategy, organ-
izing the publishing company (in particular, the method-
ologies of product management and R&D), and evaluating

Board assessment
In accordance with Middlenext Code Recommendation
R.11, in FY2016, the Board of Directors carried out a
yearly internal self-assessment of its composition, organi-
zation and mode of operation. This assessment was per-
formed using a questionnaire addressed to each Director
and including questions regarding diversification and

CORPORATE GOVERNANCE

potential partnerships or acquisitions related to technol-
ogy and marketing. The Committee also advises the Board
of Directors on all aspects of commercializing solutions.
The Technology and Marketing Committee met five times
in FY2016 fiscal year with an average attendance rate of
95%.

composition of the Board. The questionnaire was dis-
cussed and summarized during the Board Retreat. Im-
provements were proposed during the discussion, mainly
intended to enhance debates regarding future changes to
the Board and to share information regarding the market.

Shareholder relations
The Board of Directors ensures that dialogue with the
Company's Shareholders can always take place under the
best possible conditions. In particular, Directors are in-
vited to attend the General Meeting and analyze the re-
sults of the vote on each resolution. They pay special at-
tention to negative votes so as to draw the appropriate

conclusions before the following General Meeting. Moreo-
ver, in addition to the General Meeting, the Chief Executive
Officer, Chief Operating Officers and Chief Administrative
and Financial Officer regularly meet with Shareholders
and Investors at individual meetings and during road
shows and conferences, provided that such events do not
take place during blackout periods.

2.5. Principles and rules for determining compensation

2.5.1. Compensation paid to Directors
In respect for fulfillment of their duties, Directors receive
Directors' fees the overall amount of which is set by the
General Meeting. These Directors' fees are distributed,
upon the recommendation of the Compensation, Nomina-
tion and Governance Committee, according to the fre-
quency of meetings, members' attendance, participation
and, where applicable, duties as Chairs of Specialized com-
mittees. Special assignments entrusted to Directors are
also taken into account to determine compensation. Some
Directors receive specific amounts in respect of special as-
signments entrusted to them by the Board of Directors
over a fiscal year.

Moreover, the Board may grant exceptional compensation
for special assignments or mandates entrusted to Direc-
tors and subject to the procedure for approving regulated
agreements.
In its eighth resolution, the Combined General Meeting of
July 21, 2016 set the total compensation paid to members
of the Board of Directors in the form of Directors' fees for
FY2016 at €160,000, stipulating that the Board of Direc-
tors would distribute this amount among its members.
In accordance with the provisions of Article L. 225-102-1
of the French Commercial Code, please find below the to-
tal compensation received by the Directors for FY2016.

ESI GROUP • 2016 REGISTRATION DOCUMENT

382

CORPORATE GOVERNANCE

Summary table of Directors' fees and other components of compensation paid to corporate officers (Table 3 of
AMF recommendations)

Directors' fees paid to executive and non-executive corporate officers

FY2016

FY2015

FY2014

EXECUTIVE CORPORATE OFFICERS

Mr. Alain de Rouvray

Mr. Vincent Chaillou

NON-EXECUTIVE CORPORATE OFFICERS

Mr. Jacques Dubois

Ms. Cristel de Rouvray

– Directors' fees

– Other compensation

Mr. Charles-Helen des Isnards

Mr. Éric d’Hotelans

Ms. Véronique Jacq

Ms. Rajani Ramanathan

Mr. Yves de Balmann

Mr. Michel Barbier de la Serre

Mr. Francis Bernard

TOTAL

– Directors' fees

– Other compensation

2.5.2. Compensation paid to Executive corporate officers

10,000

6,000

10,000

6,000

N/A

4,000

6,643

17,500

70,503

31,500

16,500

12,182

27,567

16,750

N/A

47,042

54,270

31,033

16,500

14,078

18,033

N/A

45,036

31,500

16,500

7,363

8,893

N/A

8,393

12,902

137,999

146,686

153,230

70,503

54,270

Report on the principles and criteria for attributing
and distributing compensation payable to executive
corporate officers in respect of their term, as provided
for in Article L. 225-37-2 of the French Commercial
Code
In accordance with Article L. 225-37-2 of the French Com-
mercial Code, as introduced by the French “Sapin II” law
on transparency, prevention of corruption and moderni-
zation of the economy, the General Meeting of June 29,
2017 will be asked to approve the principles and criteria
for attributing and distributing compensation payable to
executive corporate officers in respect of their term. This
proposal will be included in Resolution 7, which appears
in section 6 of this Registration Document.
In accordance with Article L. 225-37-2, it is noted that
payment of variable and exceptional components for
FY2017 will be subject to the approval of such amounts by
the General Meeting convened to approve the financial
statements for FY2017.
To date, the executive corporate officers this report con-
cerns are the following: Mr. Alain de Rouvray, Chief Exec-
utive Officer, Mr. Vincent Chaillou, Chief Operating Officer

in charge of
, Mr. Christopher St. John,
Chief Operating Officer in charge of Distribution and
Support

Edition Operations

Fundamental principles for setting the compensation of
Operations
executive corporate officers
The Board of Directors refers to the recommendations
contained in the Middlenext Code to determine the
compensation and benefits granted to corporate officers.
As such, the Company bases its compensation criteria
on the following principles: comprehensiveness, balance
between the different components of compensation,
benchmarks, consistency, clear rules, measurability and
transparency (R.13).
The Compensation, Nomination and Governance
Committee bases its work on discussion sessions held
throughout the year, and interim preparatory work led
by the Committee Chair. At the March 28, 2017 meeting,
the Compensation, Nomination
and Governance
Committee examined the principles and criteria applied
to determine, distribute and allocate components of the
overall compensation and

benefits of any kind to ESI

ESI GROUP • 2016 REGISTRATION DOCUMENT

39Group executive corporate officers for FY2017. These
principles and criteria will subse-quently be submitted
to the General Meeting for approval.

Compensation of executive corporate officers
The Compensation, Nomination and Governance Commit-
tee puts forth a proposal to the Board of Directors regard-
ing compensation of executive corporate officers, taking
care to ensure that the rules applied to determine said
compensation are consistent with the annual assessment
of the Company's performance. It also takes account of
Shareholders' interests, changes to the Middlenext Code
and the compatibility of objectives with the medium-term
strategy. The Committee establishes the structure of this
compensation based on general or specific studies regard-
ing market practices for comparable companies. It en-
sures that no item of compensation is disproportionate
and analyzes compensation as a whole, taking account of
all related components: fixed and variable compensation,
long-term, share-based compensation plans and benefits
of any kind.

Fixed compensation
Fixed compensation paid to executive corporate officers is
determined based on the level and complexity of respon-
sibilities, individuals' experience in the position and
length of service in the Group, as well as practices ob-
served in groups or companies of similar size. It is re-
viewed regularly. Fixed compensation paid to executive
corporate officers has remained unchanged since 2015
(2014 for the Chief Executive Officer) and was renewed in
the same amount for FY2017.

Variable compensation
Executive corporate officers receive a variable component
of annual compensation, calculated on the basis of de-
manding, precise, 100% quantitative and pre-established
criteria set out by the Board of Directors acting on the rec-
ommendation of the Compensation, Nomination and Gov-
ernance Committee. This variable compensation must be
in line with the Company's medium-term strategy and
Shareholders' interests. The maximum amount of com-
pensation is reviewed on a regular basis. Variable
compensation must not lead to excessive or
priate risks. To this end, it remains
fixed component. Variable compensation paid to
executive cor-porate officers has remained unchanged
since 2015 (2014 for the Chief Executive Officer) and
was renewed in the same amount for FY2017.

compared to the
inappro-

fair

CORPORATE GOVERNANCE

and motivation among managers and employees, while
taking account of market practices. Each long-term com-
pensation plan is submitted to the Annual Ordinary Gen-
eral Meeting of Shareholders for approval.
The Group's long-term compensation policy is adjusted
according to the population in question.
The Chief Executive Officer is not eligible for long-term
compensation due to his position as a founding Share-
holder of the Company. Chief Operating Officers may par-
ticipate in the stock option plans and free share plans of-
fered as part of the employee loyalty and motivation pol-
icy. The conditions governing acquisition and ownership
of shares under these plans apply equally to all beneficiar-
ies, regardless of status as corporate officers.

Benefits in kind
Benefits in kind include various components determined
by the personal situation of corporate officers:
Company car or equivalent allowance;
•
Housing allowance in the event of an assignment
•
away from home.

Exceptional compensation
When warranted by extremely special circumstances (e.g.
significance for the Company, commitment required or
challenges involved), executive corporate officers may be
eligible for exceptional compensation. The decision to
grant such compensation must be exceptional, justified
and explained by the Board. Payment is subject to ap-
proval by the Annual Ordinary General Meeting of Share-
holders.

Commitments in favor of executive corporate officers

Severance pay
No severance pay is provided for with regard to executive
corporate officers.

Non-competition benefit
Executive corporate officers are not eligible for specific
benefits other than those provided for in their corporate
officer contract.

Supplementary retirement plan
No supplementary retirement plan is provided for with
regard to executive corporate officers.

and

scheme

healthcare

Provident
reimbursement plan
Executive corporate officers are eligible for the provident
scheme and healthcare expense reimbursement plan open
to all employees.

expense

Long-term share-based compensation
The Group's long-term compensation policy reflects an
overarching competitive strategy of promoting loyalty

ESI GROUP • 2016 REGISTRATION DOCUMENT

40
2

CORPORATE GOVERNANCE

Prohibition on combining employment contract and
corporate office
Upon proposing a nomination for the position of Chief Ex-

ecutive Officer or Chief Operating Officer, the Board of Di-
rectors decides on the suspension of the nominee's em-
ployment contract, unless otherwise stipulated by the
General Meeting of Shareholders.

Summary table of allowances and benefits for executive corporate officers (Table 11 of AMF recommendations)

Executive corporate officers

Employment contract

Supplementary retirement plan

Payments or benefits due as a result of
termination or change in position

Mr. Alain de Rouvray
Chairman and Chief Executive Officer

Mr. Vincent Chaillou
Chief Operating Officer

Mr. Christopher St. John
Chief Operating Officer

Yes

Suspended

Yes

Summary table of compensation and stock options granted to each executive corporate officer, in euros (Table
1 of AMF recommendations)

ALAIN DE ROUVRAY

Compensation owed for the year

Value of multi-year variable compensation granted during the year

Value of stock options granted during the year

Value of free shares granted during the year

Value of provisions for post-employment benefits

VINCENT CHAILLOU

Compensation owed for the year

Value of multi-year variable compensation granted during the year

Value of stock options granted during the year

Value of free shares granted during the year

Value of provisions for post-employment benefits

CHRISTOPHER ST JOHN

Compensation owed for the year

Value of multi-year variable compensation granted during the year

Value of stock options granted during the year

Value of free shares granted during the year

Value of provisions for post-employment benefits

FY2016

FY2015

610,059

593,769

None

265,235

251,837

None

147,950

74,456

None

74,456

268,490

251,853

None

147,950

22,206

None

22,206

Summary table of compensation due and paid to each executive corporate officer, in euros (Table 2 of AMF
recommendations)

Mr. de Rouvray

Salary

Bonuses

Directors' fees

2016

2015

Amounts owed

Amounts paid

Amounts owed

Amounts paid

362,136

80,394

10,000

362,136

63,430

10,000

362,554

63,503

10,000

362,554

60,261

10,000

ESI GROUP • 2016 REGISTRATION DOCUMENT

41Benefits in kind

TOTAL

Mr. Chaillou

Salary

Bonuses

Directors' fees

Benefits in kind

TOTAL

Mr. St. John

Salary

Bonuses

Benefits in kind

TOTAL

CORPORATE GOVERNANCE

157,529

610,059

157,529

593,095

157,711

593,769

157,711

590,527

2016

2015

Amounts owed

Amounts paid

Amounts owed

Amounts paid

198,550

53,280

6,000

7,405

198,550

52,842

6,000

7,405

198,550

39,827

6,000

7,459

198,550

20,194

6,000

4,681

265,235

264,797

251,837

229,425

2016

2015

Amounts owed

Amounts paid

Amounts owed

Amounts paid

177,650

48,840

42,000

268,490

177,650

43,925

42,000

263,575

177,650

32,203

42,000

251,853

177,650

39,706

42,000

259,356

Share subscription and purchase options granted
(Tables 4, 5 and 8 of AMF recommendations)
A record of previous share subscription and purchase op-
tions can be found in section 7 of this document.

Share subscription or purchase options granted to
executive corporate officers during FY2016
No share subscription or purchase options were granted
to executive corporate officers during FY2016.

Performance shares granted to corporate officers (list of
names) during FY2016
No performance shares were granted to corporate officers
during FY2016.

STOCK OPTIONS EXERCISED BY EACH EXECUTIVE
CORPORATE OFFICER DURING FY2016
No share subscription or purchase options were exercised
by corporate officers during FY2016.

Free shares granted to each corporate officer (Tables 6 and 7 of AMF recommendations)

Name of corporate officer

Number and date of plan

Number of free
shares granted

Value of shares according
to the method used for the
consolidated financial
statements

Date of delivery

Date of availability

Christopher St. John

No. 6 (July 21, 2016)

Vincent Chaillou

No. 6 (July 21, 2016)

No. 14 (June 26, 2012)

TOTAL

5,000

3,100

5,000

3,600

16,700

147,950

75,609

147,950

87,804

459,313

A record of previous free share grants can be found in section 7 of this document.

2018

2016

2018

2016

2020

2016

2020

2016

ESI GROUP • 2016 REGISTRATION DOCUMENT

422

CORPORATE GOVERNANCE

2.6. Internal control and risk management procedures

2.6.1. Control environment

General organization
ESI Group is a multinational corporation that includes 35
subsidiaries (the “subsidiaries”), 30 of which are based
outside of France.
To ensure that business operations and management ac-
tivities run efficiently, that objectives are met and that the
Group's control system is effective, executives are deter-
mined to harmonize the operational rules of the subsidi-
aries. 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 ac-
tivities are similar to those of the parent company, ESI
Group, as regards the distribution of products.
Given current constraints, particularly regarding the size
of the subsidiaries, available human resources and regula-
tions that differ from country to country, the Group’s
structure is based on the following key factors:
•

A matrix-based structure organized around business
activities and markets that ensures Group-wide shar-
ing of information;
A centralized organization to manage the Group's
business activities;
Limited hierarchical levels to streamline decision-
making processes;
A relatively small size for efficient communication
among the various departments.

•

The Company considers that internal control processes
are intended to provide reasonable assurance that the fol-
lowing objectives are met (the principles implemented
cannot provide absolute control of risks):
•

Ensuring that management activities and operations,
as well as employee conduct, are in keeping with the
guidelines set out by the Company's management
and the operational departments overseeing the var-
ious 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 of error or
fraud, especially in the areas of accounting and fi-
nance;
Verifying that the accounting, financial and manage-
ment information reported to corporate bodies,
Shareholders and third parties accurately reflects

•

the Company's position and the business situation.

Persons responsible for internal control

Within the Company

The Board of Directors
The Board of Directors is responsible for the Company's
risk assessment policies, implementation of an internal
control system suitable for managing these risks and ini-
tiatives to monitor the effectiveness of this system. This
policy features a system of checks and procedures regard-
ing financial management, as well as operational and com-
pliance monitoring.

Group Executive Committee
The Group Executive Committee oversees the internal
control policy. The Committee generally meets once a
month.

Board Retreat
The Board Retreat takes place once per year to bring to-
gether the members of the Board of Directors, the Group
Executive Committee and employees of the Company or
its subsidiaries, depending on the topics to be discussed.
It serves to assess the activities of the Board of Directors
and the Specialized Committees, review ongoing strategic
matters and define specific objectives to be achieved dur-
ing the following year, which are then submitted to the
Board of Directors for approval. The Board Retreat also
analyzes the results of the self-assessment carried out by
the Board of Directors and the Specialized Committees,
and reviews the issue of balance of powers within corpo-
rate governance bodies.
The 2016 Board Retreat took place in September, and the
2017 meeting is slated for August.

Operational departments
These departments primarily supervise business pro-
cesses and manage projects.
Their role is to oversee the implementation of procedures
in order to guarantee:
•

Effective business processes: identification of busi-
ness opportunities, distribution network, partner-
ships, responsiveness, assessment of potential eco-
nomic benefits, negotiation and signing of contracts,
profitability monitoring;

ESI GROUP • 2016 REGISTRATION DOCUMENT

43CORPORATE GOVERNANCE

•

Effective project management: evaluation of tech-
nical feasibility, team management and leadership,
compliance with specifications, customer satisfac-
tion tracking and customer service.

Functional departments
The functional departments are responsible for formaliz-
ing internal control procedures in their respective areas
and coordinating and applying these procedures.

academic institutions to ensure that the Group's in-
tellectual property rights are protected.

Management of confirmed disputes is handled by third-
party experts under the supervision of the Legal Affairs
Department. The department plays an active role in mer-
gers and acquisitions (e.g. corporate audits, intellectual
property audits, participation in acquisition agreement
negotiations).

a) Administration and Finance Department
The Administration and Finance Department handles im-
plementation of the internal control policy on a financial
level by:
•

Establishing the operating procedures for the inter-
nal control system;
Holding meetings between the managers of the ma-
jor business units and the main entities of the Com-
pany to review responsibilities and the structure of
the internal control system across the various busi-
nesses.

•

The Administration and Finance Department comprises
the following units:
•

Accounting and Consolidation, in charge of:

– recording transactions
–

the financial statements at the end of

on a daily basis

each period,
producing
– drawing up the Group's consolidated financial
statements,
– ensuring compliance with legal, tax and labor
obligations;
Contro

, in charge of:
– preparing and monitoring the budget,
lling
– issuing periodic report
,
– internal control on both an operational and
financial level;
Cash management, in charge of:

ing

– managing cash flows,
– project financing
– hedging currency and interest rate risks;
Information Systems Department (ISD).

•

b) Legal Affairs Department
The Legal Affairs Department is divided into two
branches:
•

The Corporate Legal Affairs branch which is respon-
sible for monitoring and streamlining procedures, as
well as corporate legal intelligence and coordinating
the legal aspects of the operations of Group subsidi-
aries;
The Intellectual Property branch, which reviews,
drafts and negotiates various contracts with clients
and partners in the industry, government bodies and

•

c) Quality Control Department
Under the supervision of Executive Management, the
Quality Control Department is responsible for implement-
ing the quality control policy and the corresponding sys-
tem, in keeping with Group strategy and the following four
pillars:
•

Organization and learning: Strengthening employ-
ees' skills and motivation in line with the “One ESI”
corporate culture;
Internal processes: Overall management of quality to
facilitate harmonization, development of a risk-man-
agement culture, simplification of processes and per-
formance enhancement;
Clients: Identifying and meeting clients' needs, with
a particular focus on sales and management of client
accounts, especially in highly competitive sectors
facing increasing regulations, with an eye to promot-
ing the Virtual Prototyping approach in a spirit of co-
creation ;
Profitability: internal organization by business unit
to optimize monitoring and continuous improve-
ment of performance in terms of growth and profita-
bility.

•

d) Human Resources Department
Working closely with Senior Management, the ESI Group
Human Resources Department assists the Company's
strategy by factoring in employer-employee considera-
tions.
ESI Group's Human Resources policy has four main com-
ponents:
•
•
•
•
Personnel management includes the following activities
and initiatives:
•

Personnel management;
Performance management;
Compensation management;
An advisory function for operational staff.

Ensure compliance with all legal and regulatory re-
quirements;
Administer payroll and personnel files;
Oversee and manage labor relations;
Ensure that employment reporting is carried out and
produce performance indicators;

•
•
•

ESI GROUP • 2016 REGISTRATION DOCUMENT

442

CORPORATE GOVERNANCE
•
•

Ensure that employees are kept properly informed;
Ensure that information is relayed to senior manage-
ment;
Develop Group HR procedures.

•
Performance management entails attracting, integrating,
retaining and developing the highest level of performance
for each employee and ensuring adherence to the Compa-
ny's strategy.
•

Recruitment: employment management, anticipat-
ing skill needs both qualitatively and quantitatively;
Training: identifying needs, preparing a training plan
and implementing in-house and external training
courses;
Performance evaluation: employee reviews, per-
sonal development plans, identifying potential, ca-
reer planning and promotions.

•

Compensation management entails coordinating and
overseeing the Group's compensation policy and:
•

Ensuring the wage revision process in accordance
with time frames, budgets and reporting;
Leading the annual process of setting and paying var-
iable compensation;
Overseeing stock option, free share awards and com-
pany savings programs in the Group;
Preparing all the items needed by the Company's
governance bodies (Compensation Committee);
Ensuring that employee and employment data are

•

using

reported

fostering

subsidiaries

HR-IS.
independence
Advising operational staff:
among Managers on employment issues by offering
them assistance in the field on a day-to-day basis, and
by providing them with services tailored to their specific
needs.
The Group Human Resources Department sets the
guidelines for the Group's human resources policy,
broken down into operational objectives for regional
Directors of Human Resources. Regional HR Directors
coordinate
in
collaboration with a team of HR operating managers
located in each country, and with support from the
central HR department.

implementation of

these objectives

the Company

Statutory auditors
Third-parties of
The statutory auditors, who certify the regularity,
truthfulness and the fair presentation of the financial
statements provided to the Shareholders at the balance
sheet date, may
in their audit opinions
recommendations regarding the internal control system
,
used to prepare financial information.

include

Legal counsel
The Company calls on renowned law firm
for dispute
management, as well as a tax advisory firm. The
Company also calls on specialists from time to time to
review
complex mergers
and acquisitions.

legal aspects of

the

2.6.2. Organization of internal control
The increasingly international nature of our business and
the cross-organizational character of projects involving
international interactions of ever-greater complexity and
speed have highlighted the need for more rapid and effi-
cient methods and operational management tools, both
centrally and in the subsidiaries.
The Administration and Finance Department is organized
so as to ensure internal control in the following three ar-
eas:
•

An organization and network of local financial con-
trollers located in most of the Group's subsidiaries;
Centralized tools and databases;
Processes to organize reporting and control of finan-
cial information.

•
•

A network of financial controllers
This network makes it possible to cover all aspects of fi-
nance 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

the

across

spread

attached

controllers

an organizational
and functionally

is implemented by a network of some fifteen local
financial
three
regions: EMEA, Asia and the Americas, each region
overseen by a regional financial controller. Each local
and regional financial controller, while reporting to
local
his or her local manager (the head of
standpoint,
is
from
entity)
the
to
hierarchically
and,
Administration
and Finance Department
and
ultimately, to the Group Chief Administrative
Financial Officer. These
local controllers head up a
local team of financial, accounting or administrative
staff (from one to three depending on the size of the
local financial
entity)
control tasks. In the case of smaller entities, local
financial controls under the
outside
.
management of
In addition to this network, a central team of six
controller
financial controllers is distributed among the three
the Group, namely
lines of
principal business

to carry out all

firms handle

the regional

in order

financial

, Distribution and Support.

Edition Operations

ESI GROUP • 2016 REGISTRATION DOCUMENT

45The management information system
Financial control is based on a management IT system
consisting of the following centralized tools and data-
bases:
•

A single sales database (SalesForce) serves as the
backbone of the organization and internal control
system for sales. This data flows into a single finan-
cial database (NCA) to determine monthly revenues
and the order book;
A financial consolidation tool, Talentia CPM, which
enables the Company to centralize financial data
from the various accounting departments of subsidi-
aries. It should be noted that subsidiaries account for
their operations using their own accounting systems
and ensure proper reporting of data to the parent
company using consolidation packages which are all
centralized and processed using Talentia;
An HR data management tool called HR-Information
System (HR-IS base) allows for Group-level consoli-
dation of data relating to salaries and headcount. In
particular, this tool makes it possible to monitor the
different of steps in the hiring process and provide
managers with any information necessary to opti-
mize management of their teams. HR-IS data is in-
cluded in the source information used for financial
reporting regarding employees.

•

information

Main accounting and financial
monitoring processes
he Group prepares consolidated financial statements
on a quarterly basis. Its revenue is also published on a
T
quarterly basis, with
statements published
twice a year. A Group-wide budget is established at the
financial
beginning of each fiscal year and monitored monthly.

Consolidation process
The process of preparing the consolidated financial
the
state-ments
accounting and financial data provided by each entity
with the Group. These procedures include:
•

follows procedures

to centralize

A reporting schedule and calendar of tasks to be car-
ried out by the persons involved;
Use of a specialized consolidation software package;
A distinction between preparation of consolidated fi-
nancial information, performed by the consolidation
manager, and control activities performed by the
central financial controllers and the Chief Adminis-
trative and Financial Officer;
Assistance from accounting experts for certain sensi-
tive and technical issues, especially
outside of France;

•
•

•

for subsidiaries

CORPORATE GOVERNANCE

•

A review of the interim and yearly financial state-
ments by statutory auditors, the Audit Committee
and the 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 laid out the pre-
ceding year for the three-year business plan, and the five-
year strategic objectives reviewed annually by senior
management. Throughout the year, a monthly reporting
system serves to:
•

Monitor the budget so as to track the amount, nature
and allocation of expenses compared to the current
year's budget;
Set out monthly forecasts used to predict earnings,
initially for the first half year, and subsequently for
the second half.

•

ling

Control
thus provides key management indicators
used to monitor the Company's performance. These
indicators, reported to executives, provide the in-
formation necessary for management of the Company.
They include, among other indicators:
Orders in the Licensing and Service Divisions;
•
Output and backlog of the Service Division;
•
Change in headcount and in average personnel costs;
•
The cash position and three-month projections.
•
In conjunction with the budgeting and reporting process,
the Company has implemented a structure based on Per-
formance Units, each with a manager in charge of oversee-
ing the unit based on key performance indicators (KPI) in
a balanced scorecard format. These indicators cover four
areas: financial, sales, internal processes and organization
and learning.

Revenue recognition process
The Finance Department

revenue

is responsible
and ensuring:

for

•
•

•

•
accuracy of

the
Consistency between actual revenues and contrac-
recognition
tual data as regards the Licensing Division;
The accuracy of billing information;
The
primarily for the Service Division.

of the services invoiced,

exhaustiveness

Client risk management process
Client risk is managed at two different levels:
•

Upstream, by assessing client risk before processing
orders;
Downstream, through a periodic follow-up proce-
dure suited to each client in order to reduce out-
standing debt.

Regular monitoring of average payment times makes it
possible to assess how effectively accounts receivable are

ESI GROUP • 2016 REGISTRATION DOCUMENT

CORPORATE GOVERNANCE

managed across the various subsidiaries.

Cash management process
The Chief Administrative and Financial Officer, with the
support of cash management teams, is responsible for
managing cash flows and monitoring:
•

Cash levels necessary to cover the Company's ongo-
ing business needs while tracking inflows and out-
flows;
Profitability and the risk level of various cash surplus
investments;
Foreign exchange risks, in order to take any neces-
sary corrective action;
Implementation of loans necessary for growth of the
Company.

•

The cash position of each entity is centralized and a con-
solidated quarterly forecast is drawn up each month.

Payroll management process
The payroll process falls under the responsibility of the
Director of Human Resources and involves:
•

Processing the various items involved in calculating
salaries;
Entering payroll information in the accounting sys-
tem;
Provisioning for paid vacation in order to distribute
the expense over the full year;
Ensuring compliance with labor-related reporting
obligations.

•

ISO 9001:2008

2.6.3. Risk management
Process management and
certification
The Company, which has been granted ISO 9001:2008 cer-
tification, has oriented its quality control procedures to-
ward developing a worldwide certification for the entire
Group, aiming to include all its subsidiaries whether or
not they are already certified. This process, combined
with the new requirements of the ISO 9001:2015 stand-
ard, is an additional asset to strengthen process-based
management and facilitate implementation of risk man-
agement, ensuring long-term and effective prevention.

risk coverage – general

Insurance and
information
The Company has taken out an insurance policy that co-
recovery, additional operat-ing
vers the cost of
costs and operating losses (loss of profit resulting from

data

the decrease in revenues caused by the interruption or de-
cline 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 “employer li-
ability” and/or “workers’ compensation” policies and au-
tomobile-related risks, are excluded from this policy.
The French policy (head office and subsidiaries) is not a
replacement for those taken out outside of France in ac-
cordance with local laws from local insurance companies
licensed to operate in the country in question.
ESI Group has also taken out an insurance policy covering
civil liability of the managers and corporate officers of the
Company and its subsidiaries (D&O), as well as insurance
policies covering the Company's key protagonists.
ESI Group has also taken out a Group-wide international
insurance policy to cover all employees who travel outside
of France.

ESI GROUP • 2016 REGISTRATION DOCUMENT

47CORPORATE GOVERNANCE

2.7. Statutory Auditors’ report, prepared in accordance with article
L.225-235 of the French Commercial Code on the report of the Chair-
man of the Board of Directors of ESI Group

This is a free translation into English of the Statutory Auditors’ report on the report of the Chairman of the Board of Directors of ESI Group issued in the
French language and is provided solely for the convenience of English speaking readers. This report should be read in conjunc tion with, and construed in
accordance with, French law and professional auditing standards applicable in France.

Year ended January 31, 2017
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, 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, 2017.
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 additional infor-
mation required under Article L.225-37 of the French Commercial Code relating in particular to corporate governance.
It is our responsibility to:
•

Report to you on the information contained in the Chairman’s report on internal control and risk management pro-
cedures relating to the preparation and processing of financial and accounting information, and
Attest that the report contains the other information required under Article L.225-37 of the French Commercial
Code, it being specified that we are not responsible for assessing 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
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 entailed:
•

Obtaining an understanding of the internal control and risk management procedures relating to the preparation and
processing 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 provided in the report and of the
existing documentation;
Determining whether 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 comments or reservations regarding the information provided on internal control
and risk management procedures 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.

ESI GROUP • 2016 REGISTRATION DOCUMENT

CORPORATE GOVERNANCE

Other information
We attest that the Chairman’s report contains the other information required by article L.225-37 of the French Commer-
cial Code.

Neuilly-sur-Seine and Paris-La Défense, May 18, 2017

The statutory auditors

PricewaterhouseCoopers Audit

Thierry Charron

Ernst & Young Audit

Frédéric Martineau

ESI GROUP • 2016 REGISTRATION DOCUMENT

CORPORATE SOCIAL AND
ENVIRONMENTAL RESPONSIBILITY

ESI Group joins the Gaia Index
ESI Group tied for first place in the 2016 Gaia ranking, in the category of companies with revenue of less than €150 million
(up from third place in 2015), and for the first time was included in the Gaia Index, made up of the top 70 out of 230 com-
panies.
The Gaia Index (www.gaia-index.com) was created in 2009 and is now the benchmark sustainability index for medium-
sized listed French companies. Developed by EthiFinance, (www.ethifinance.com) the Gaia Index selects small and me-
dium-sized companies based on their non-financial performance.

3.1. ESI Group policy in terms of social and environmental responsibil-

efficient.
Within the Group, the CSR policy is seen as a genuine cor-
porate commitment and one that will create value. ESI
Group has made a list of the stakeholders inside and out-
side the Group on whom it has the greatest influence: em-
ployees, customers, the environment and civil society, to-
wards all of whom serious commitments have been made.
This fourth CSR report outlines a wider scope as described
in section 3.1.3.

ity

Aware of its responsibility in each of the three pillars of
sustainable development, ESI Group has gradually de-
vised a CSR policy that contributes to shared economic
and social development and the preservation of human
equilibrium.
ESI Group's ambition is to become the leader in Virtual
Prototyping through responsible innovation. The Group
therefore plans to be the favored development partner for
its customers, able to understand and assist them in their
approach in bringing to market innovative, quality prod-
ucts that are also sustainable, ethical and highly resource-

3.1.1. Our CSR approach

In 2013, the Group carried out diagnostics that enabled it
to draw up an inventory of the existing process, assess the
measures and initiatives taken in support of sustainable
development, and identify the relevant indicators, all of
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 ar-
eas where it has the greatest responsibilities and the
greatest impact.
Since then, ESI Group has been dedicated to developing
actions that uphold these beliefs in terms of social and en-
vironmental responsibility.

ESI GROUP • 2016 REGISTRATION DOCUMENT

CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

3.1.2. Commitments
Divided into four axes and expressed as eight commitments, the CSR strategy aims at ensuring harmonious work condi-
tions for its employees, providing its customers with innovative solutions that allow them to become long-term partners,
and limiting the Group’s and its customers’ environmental footprint while acting ethically and responsibly within civil
society.

3.1.3. Methodology

Data collection and consolidation
Qualitative and quantitative information is collected and
consolidated at the Group’s head office.
Social reporting is covered by an HR officer who works
with local HR representatives. The corporate communica-
tion team is responsible for environmental and societal
reporting through local professional representatives.
The Group plans to gradually broaden 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 = the United States and Brazil;
•
Asia-Pacific = China, India, Japan, Malaysia, South Ko-
•
rea and Vietnam;
Europe, Middle East and Africa = Czech Republic,
France, Germany, Italy, Netherlands, Russia, Spain,
Sweden, Switzerland, Tunisia and the United King-
dom.

•

Scope
In keeping with its commitments, in 2016 ESI Group con-
tinued its actions to expand the collection and analysis of
indicators internationally.
•

Scope of social reporting:

Since 2012, most indicators analyzed for the entire
workforce have been managed on a single source using
the employment data management software (called HR-
IS, or Human Resources Information System). Along
with this analysis is the annual worldwide survey initi-
ated in 2014 on the operations, legislation, practices and
norms of the different subsidiaries. This gives the Group
a reliable, international picture of all employment indi-
cators. One exception remains, however, concerning the
absenteeism rate, which not all subsidiaries are able to
report in a sufficiently reliable way, due partly to termi-
nology and partly to local practices. To remedy this sit-
uation, these indicators previously provided only for
France, Germany, the Czech Republic and Japan for the
year 2015 are being reviewed for a total of 13 countries
for 2016.

ESI GROUP • 2016 REGISTRATION DOCUMENT

51CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

•

Scope of environmental reporting:

In 2016, the Company included Tunisia and India to ex-
pand the scope of reporting for environmental data. As
a result, environmental data are now provided for
France, Germany, the Czech Republic, Japan, the United

States, Tunisia and India, representing 85% of the total
workforce.

•

Scope of societal reporting:

Societal information is provided at a global level, with
the reporting scope covering 100% of our headcount.

3.1.4. ESI Group values

infuse

The values of ESI Group
recognized
organization with a culture and an ambition that have
produced innovation for the benefit of the Group’s
customers and employees for more than 40 years.
These values—Passion, Global, Change, Trust, Social
Re-sponsibility and Energy—anchor
the Group’s
identity and fit logically together, as can be seen in the
corporate social responsibility actions defined below.

our

3.2. Being a committed employer
ESI Group aims to be a leading employer among all soft-
ware and service providers on the market and plans to
stay that way.
This strategy is based on the following principles:
•

Develop talents and encourage leadership and col-
laborative management;
Promote diversity and multicultural exchanges.
•
This strategy draws on various tools, including the Human
Resources Information System (HR-IS) to consolidate the
HR reporting process worldwide, and lends greater flexi-

bility to the organization. It also promotes better use of re-
sources by focusing on skills, to encourage a more in-
volved, multi-disciplinary managerial culture. The plat-
form 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 Group Executive Committee in order to measure the
effectiveness of HR policies.
The data from HR-IS are provided on a worldwide scope.

3.2.1. Employee headcount

ESI Group’s employees consist primarily of highly-trained
engineers and Ph.D.s from prestigious universities and in-
close
stitutes worldwide.
relationship

addition

the

that the Group has always had with these
employees’
schools, there are a number of other factors that
experience and foster highly qualified recruitment and
exemplify ESI’s commitment
internal development. These
include ESI’s
positioning
in the field of virtual simulation that
takes into account the physics of materials,

to value
factors

grams, and its focus on internal promotion within

prominence as a publicly listed company on the Paris
stock exchange, the Group’s continuing education
its international network.
pro
Data related to headcount is calculated on the number
of employees as of January 31, 2017.

the Group's

ESI GROUP • 2016 REGISTRATION DOCUMENT

52CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

CHANGE IN HEADCOUNT OVER THREE YEARS

The Group's total headcount includes permanent and
fixed-term employees as well as those on student con-
tracts such as work/study programs and internships. It
does not include temporary workers, consultants and ex-
ternal distribution networks.

January 31, 2017, the ESI Group workforce consisted
of 1,190 employees, compared to 1,144 for FY2016, and
On
in-cluded 11 employees from companies acquired over
the period. The average headcount in 2016 was 1,153
em-ployees, compared 1,054 in 2015.
The percentage of the Group’s workforce on permanent
contracts was 94.8%. Limited employment contracts such
as internships and apprenticeships account for 2% of the
total workforce.
In 2016, ESI pursued its ambition to manage its staff in
connection with business growth. These figures should be
analyzed in light of the mergers and acquisitions carried
out over the period.

3.2.2. Develop talents and encourage leadership and collaborative management

innovation,

Human resources are ESI’s greatest source of value.
Developing talent is key to ensuring the Group’s long-
term viability. To meet the ever more complex issues
manufacturers face, and to remain on the cutting edge of
technological
the Group must build
employee loyalty and continuously enhance employees’
expertise. Furthermore, the Group’s sheer size and its
distribution in numerous countries mean that many
projects involving various entities and cultures must
be managed on a Group-wide scale. Leadership,
expertise and collaborative management are essential
qualities that will make ESI Group successful at what
it does.

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, a
welcome portal was

designed on the internal website to
guide new hires through the steps of onboarding and
guarantee
level of
individual access to a unique
information to support them in their first days, weeks
and months at ESI Group.

The Group has defined an internal mobility program
enabling each employee to express their motivations
and thereby highlight their skills and expertise by
applying for positions available within the Group.

Professional development and career management
The Group has an individual performance and develop-
ment 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,
year.
and
the
for
d a perfor-
In 2016, 96% of all Group employees
mance evaluation interview.

coming

goals

set

receive

It also provides better access

Building on this continuous progress since 2013, in Feb-
ruary 2017 the Group computerized the management of
these annual interviews.
The initial phase of integrating annual interviews into
the computer system is underway in the Americas,
Europe and India, and will be extended with the
integration of Asia to cover the entire scope by 2018.
This new phase in the performance evaluation process
aims to enhance annual interviews by promoting data
exchange, monitoring and archiving, especially for
and
employee
remote teams.
to
professional and training objectives to help foster more
performance
proactive and advanced management of development.
These assessment interviews are the means for collecting
information as to training needs and staff development,
it easier to construct appropriate
and they make
local training plans
the needs of a
that meet
changing business. These evaluation interviews also
identify the company's
present the opportunity to
and put professional
talents
greatest potential
in place
development
employees
grow within
the company. Additionally, this system
particularly provides support for certain employees
via an individualized plan for improving performance.

satisfaction,

to help

those

data,

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CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

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.).

In 2016, 583 employees, or 49% of the workforce,
received training, at a cost to the Company of €361,000.
In total for 2016, 9,033 training hours were provided, or
an average of 15.4 hours of training per employee
trained.

Actions supporting apprenticeship
Numerous partnership agreements have been signed
with universities and engineering schools that allow ESI
Group to play an active role in the training of young
people. In Europe
, one can point to
the École Centrale 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

and North Africa

closely with ESI in the Americas and in Asia-Pacific.
Additionally, the Group is very involved in working
with young people and integrated 57 students in 2016
(48 interns, five apprentices and four doctoral students).

the

Company's

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
performance.
overall
improves
Various initiatives have been launched in different
countries in recent years to enhance employee well-
the responsibility of the
being
local Human Resources Departments
with
. These actions are under
employee representative bodies such as the France’s
Health, Safety, and Working Conditions Committee
(CHSCT).
Moreover, the majority of projects carried out for our
customers are completed
that
engineers do not necessarily need to be at the
customer's site to develop or apply the software. This
limits lengthy travel for employees and so improves
their work-life balance.

in-house, meaning

, who

wor

3.2.3. Promote diversity and multicultural exchanges
Diversity is one of the values emphasized by the Group
because it enriches society.
The power of ESI Group’s highly innovative solutions
has

made it possible to develop successfully worldwide.
As an international company, ESI Group is proud to have
a diverse, multicultural workforce.

The Group has always valued difference and encouraged
its employees to share their ideas beyond borders to cre-
ate a modern and efficient work environment to better
boost its expertise all the time by bringing in top
serve its international customers. ESI Group endeavors
talent from around the world.
to

The charts below present a breakdown of employees by region and by country.

EMPLOYEE DISTRIBUTION BY REGION

Americas

Europe, Middle East and Africa

Asia-Pacific

Note: Among the 56.4% of employees located in the Europe, Middle East and Africa region, 54.4% are located in Europe.

EMPLOYEE DISTRIBUTION BY COUNTRY

Brazil

China

Czech Republic

France

Germany

India

Italy

2016

11.1%

56.4%

32.5%

2016

0.8%

2.9%

6.1%

24.9%

16.6%

19.0%

1.3%

2015

10.8%

55.7%

33.6%

2015

0.9%

3.2%

5.9%

24.5%

15.9%

19.7%

1.2%

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54CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

Japan
Malaysia
Netherlands
Russia
South Korea
Spain
Sweden
Switzerland
Thailand
Tunisia
United Kingdom
United States
Vietnam

GENDER BREAKDOWN AND EQUALITY

6.2%
0.3%
0.2%
0.5%
3.0%
1.4%
0.8%
1.3%
0.2%
2.0%
1.4%
10.3%
0.9%

6.2%
0.3%
0.2%
0.4%
3.3%
1.4%
0.7%
1.5%
0.1%
2.4%
1.6%
9.9%
0.7%

among permanent
The percentage of women
, which is relatively low
employees was 19.7%
and unchanged
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

from previous years. This

in 2016

has begun to rise in recent years but remains
in such
very low in post-secondary engineering courses (19.8%
institutes
in 2014). Female students are much better represented in
biology, social sciences and psychology (51%, 58% and
70% respectively in 2014). These figures show that
women are more highly represented in sectors dealing
with psychology or healthcare (72.8% and 69.9%
respectively) and much less so in engineering (14.5%)
(source: NSF report – Women, Minorities, and Persons
with Disabilities in Science and Engineering – January
2017).
Nevertheless, our HR professionals are aware of the
need to add women to local teams and carefully consider
female candidates whenever the Group is hiring. In
2016, 50 women joined the Group, which represents
25% of total

new recruits.
The Group strives to ensure that all its subsidiaries com-
ply 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
The Group complies with laws and regulations banning
any form of discrimination based on age, race, gender, eth-
nicity, nationality, religion, health, disability, marital sta-
tus, sexual orientation, political or philosophical opinions,
trade union affiliation or any other aspect protected by lo-
cal legislation. Furthermore, the Company does not toler-
ate any form of sexual, physical or moral harassment, co-
ercion or bullying.
To provide more detailed information, particularly with
respect to 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, and 13.9% of these managers are

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553

CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

women.

Inclusion of employees with a disability

to ensure

taken steps

The Company has
that
employees with a disability have access to all advertised
positions. Since the beginning of 2017 at its Rungis site in
France, the Group has been working with Cèdre, which is
within a special category of company that aims to
create permanent jobs for people with disabilities.

Employer-employee dialogue

The quality of the employer-employee relationship is a
key factor in determining the quality of life in the work-
to
place and company productivity.
complying with regulatory requirements, healthy
employer-employee dialogue improves the company’s
performance in both of these areas. A strong relationship
the Group's
is guaranteed
between employer and employees
their
plus
and
management
through
representatives.

employees
the
frequent exchanges between

In addition

The employee representative bodies are appointed in
accordance with the applicable laws in their respective
countries. We had 14 employee representative bodies at
in Europe and Asia-Pacific.
our various
These bodies, based in the United Kingdom, France, Ger-
many, China, Japan and India, involved a total of 42 em-
3.2.4. Other indicators

sites

ESI Group reports on other employment indicators re-
quired by Articles L. 225-102-1 and R. 225-104 to
R.

225-105-2 of the French Commercial Code.

Work schedules
In 2016, 4.2% of the total workforce was part-time; ad-
ditionally, most part-time jobs are created to meet the
needs of employees who request them to plan around
their parental leave or retirement, or to go back to
school.
The length of the work 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 coun-
tries, particularly Japan, schedules are set to meet the
requirements of the job but are limited to eight hours
per day.

ployees who actively participated in a total of 60 meetings
during 2016.
•
Summary of agreements

Summary of collective agreements: the French sub-
sidiary signed a variety of agreements with its em-
ployee representatives, such as the reduced work-
load 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 re-
gard.

•

Internal communication
ESI Group has introduced several communication tools so
that its employees stay well-informed while working
across over 20 countries.
A welcome portal was integrated into the Group’s internal
website to teach new employees about the Group and its
structure and values, and also to provide access to the in-
formation they need to help their integration go smoothly.
Chatter, an enterprise social network, allows all employ-
ees to share ideas and inform each other about a wide
range of topics.
Multiple communication initiatives are available to
strengthen information sharing and cohesion within the
Group, such as global presentations, monthly newsletters,
Flash Corporate News bulletins, corporate and products
webinars, and Virtual Coffee Breaks.

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 work
week following France's "RTT" (days off) law to re-
duce work hours.

•

Employee distribution by activity

2016

2015

Cost of sales Licensing
Cost of sales Consulting and Support
Research and Development
Sales and Marketing
General and Administrative

9.3%
21.3%
34.4%
23.0%
11.9%

9.2%
23.0%
33.1%
22.7%
12.0%

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56
CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

Licensing
These teams are made up of engineers in charge of provid-
ing customers with technical support, distributing soft-
ware and handling royalties on third-party products.

Research and Development
These teams are made up primarily of highly-educated en-
gineers; their expertise and experience are key to the
Group’s added value.
R&D teams are primarily located in India, France, Ger-
many and the United States.

Sales and Marketing
These teams include, at the central level:
•
• Marketing and Communication;

Product Marketing;

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 project
production and those responsible for providing technical
support (including via a hotline) either directly to custom-
ers or via our subsidiaries.

General and Administrative
This category consists of employees from the Finance,
IT, Human Resources, Quality and Legal departments,
along with a portion of our management teams.

Workforce breakdown by age

The average age of employees is 38.5 (male
employees 38.8, female employees 36.8).
ESI Group is compliant with laws promoting hiring and
re-taining people regardless of age. As such, 15.6% of
em-ployees are aged 50 or more, i.e. 185 people
worldwide (157 men and 28 women).
Of those aged 50 and older, 67.8% are located in
Europe, compared to 20% in the Americas and 10.3% in
Asia.
In addition, 41.5% of Group employees are under
35, which contributes to youth employment overall. In
2016, 73.6% of employees hired were under 35.

Workforce breakdown by

seniority

in the Group is seven years. This

The average
relatively low level is due on the one hand to the
high proportion of employees under 35 (41.5%),
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
however, is 10.5 years.
seniority

for employees over the age of 35,

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Employee turnover

Recruitments

EUROPE, MIDDLE EAST AND AFRICA
Apprenticeship/internship
Temporary contracts
Permanent contracts
AMERICAS
Apprenticeship/internship

Temporary contracts
Permanent contracts
ASIA-PACIFIC
Apprenticeship/internship
Temporary contracts
Permanent contracts
GRAND TOTAL

Departures

EUROPE, MIDDLE EAST AND AFRICA
Apprenticeship/internship
Temporary contracts
Permanent contracts
AMERICAS
Apprenticeship/internship

Temporary contracts
Permanent contracts
ASIA-PACIFIC

Apprenticeship/internship
Temporary contracts
Permanent contracts
GRAND TOTAL

2014

2015

2016

97
35
4
58
25
11

14
57
1
12
44
179

93
39
6
48
31
5

26
58
8
8
42
182

120
29
25
66
21
9

1
11
45
5
10
30
186

2014

2015

2016

90
34
7
49
27
7

1
19
39

7
32
156

84
37
4
43
34
6

28
40

1
14
25
158

82
29
9
44
24
8

16
37

7
30
143

In 2016, ESI Group hired 107 employees on permanent
contracts. In addition to these hirings, 11 employees were
incorporated over the course of the year due to mergers.
The departure rate of permanent employees in 2016 was
7.8% [(departures/average headcount) x 100] compared
to 10.2% in 2015.
The 2016 turnover rate excluding temporary employees
was 10.1% [((departures in year N + new hires in year
N)/2)/average headcount in year N-1] x 100] compared
to 11.9% in 2015.

Absenteeism
Absenteeism is monitored locally in accordance with the
regulations in force in the various countries where ESI

Employee turnover is declining, with a total improvement
of 2.1 points over the past three years.
ESI’s turnover rate is below the high rate typical of the ser-
vice sector, at 16% according to the BenchmarkPro study
conducted with 30,000 companies in 2016 by ComptData
Surveys.
The change in this indicator has encouraged the Group to
continue its efforts in boosting employee loyalty, particu-
larly by developing internal mobility.

Group is present. The Group does not have a standardized

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CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

system in place to manage absences across all of its sub-
sidiaries.
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 defi-
nition 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 adop-
tion of a child in their household (maternity and pa-
ternity 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 perform-
ing his or her job or during job-related travel (work-
place and travel accidents);
An illness that befalls an employee solely due to his
or her work in the Company (occupational illness).

Information on absenteeism was gathered for a scope cov-
ering 66.8% of the Group in 2016. France, Germany, the
Czech Republic, Spain, Russia, the United Kingdom, Brazil,
China, South Korea, Vietnam and Japan all reported their
absenteeism data. The Group's intention is to be able to
measure the impact of these days of absence on the em-
ployment of staff so as to make the necessary corrections
to our procedures, working conditions and, if necessary,
internal safety procedures.

BREAKDOWN OF ABSENTEEISM (IN % OF TOTAL DAYS WORKED)

Illness
Long-term illness
Maternity leave
Paternity leave
Parental leave
Leave for personal reasons

35%
13%
12%
10%
25%
5%

In 2016, absences related to birth, adoption, or raising of
one or more children represented almost 50% of absences
within the selected parameters. This can be partly ex-
plained by the high proportion of employees under the
age of 40 years old within the Company.

The Group’s business is such that the risk of workplace ac-
cidents is limited. Any day of absence for workplace acci-
dent, job-related travel or occupational illness has been
noted on the total of subsidiaries.

Health and safety
ESI Group has set an objective to provide high-quality wel-
fare coverage for all its employees throughout the world
with regard to healthcare, aging, disability and death. This
coverage 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 supple-
mentary health insurance, except for Tunisia, which is cur-
rently looking into offers with a local healthcare provider.
In addition, eight subsidiaries in Europe and two in Asia-
Pacific have a provider whose mission is to monitor and
advise the Company and its employees about risks related
to workplace health and safety. In all, 30 employees are
involved in these local organizations.

Compensation policy
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 (bo-
nuses, 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.
A FCPE, or corporate mutual fund, for employee share-
holders was set up in France in 2013 to collect future
profit-sharing amounts and voluntary contributions
within the Company savings plan. This FCPE allows em-
ployees to buy Company shares, with the employer match-
ing contributions of 100% for up to €400 per year. Over
this amount, ESI matches 20% of employee contributions
in an amount ranging from €401 to a maximum of €2,000.
At January 31, 2017, the FCPE owned 32,260 Company
shares.

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3.3. Being an outstanding partner
The Group solutions help its customers cope with the challenges of their digital transformation. These solutions meet the
continuously changing regulations that govern the Group’s businesses, in order to:
•
•

Provide innovative, sustainable, high-quality solutions that meet our clients' requirements;
Build long-term, trusting relationships.

3.3.1. Innovative, high-quality solutions
Innovative solutions
How can an organization bring innovative products to
market while keeping costs and deadlines reasonable?
How can an organization integrate new materials and pro-
cesses safely? How can an organization reduce the impact
of these new materials, such as composites, on product
performance and integrity? What are the best practices
for optimizing the product lifecycle and maintenance
costs? What processes will ensure that recycling require-
ments are met?
To meet its customers’ demand for ever more innovative
products, the Group offers Virtual Prototyping solutions
that save manufacturers and their subcontractors signifi-
cant amounts of time and money, and therefore support
their efforts to innovate. These are all key advantages that
help customers keep up with international competition.
ESI Group gives its customers the capacity to perform vir-
tual simulations as of the preliminary design phase, dur-
ing detailed design phases, and throughout the product
lifecycle, and also to approve the performance of their
complete digital model step by step before producing a
physical prototype. This approach makes it easier to make
key decisions very early in the process. Innovation is made
possible through reliable virtual prototypes and helps
customers get their product right on the first time.

A comprehensive approach to quality
In 2000, ESI Group obtained its first ISO 9001 certification,
followed by the independent certification of its subsidiar-
ies, so as to guarantee the quality of its products and ser-
vices and ensure client satisfaction. Since 2010, ESI Group
has extended the scope of its certification using a system
common to all its subsidiaries. Since risk management and
quality management are closely linked, this worldwide
certification is a sign of confidence in the quality of the so-
lutions that the Group offers its customers and guarantees
that particular attention is paid to excellence and to the

alignment of all the Group's processes.
In 2016, the overall certification applied to 88% of the
workforce, up from to 83% in 2015.
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 (which now includes the Pune and Bangalore sites),
ESI SW Germany, ESI NA in the United States, ESI Mecas in
Czech Republic, ESI Service Tunisia, ESI GmbH, ESI Korea
and ESI China. 2016 also proved to be very successful with
the integration of two new entities—ESI Italia and ESI His-
pania—and the gradual rollout of the risk-based approach
to meet the new ISO 9001:2015 standard. ESI Group's ob-
jective is to have full global certification by 2020. The
roadmap is updated every year to identify new entities to
bring under the Group, taking account of their impact on
business, new acquisitions and the associated risks and
opportunities.
The benefits of ISO 9001 certification accrue to external as
well as in-company stakeholders. Outside the Company,
certification guarantees that ESI Group provides products
and services that meet the needs of its clients, while it con-
tinues to evaluate and improve its processes. Within the
Company, certification calls on employees to actively en-
gage in an overall consistent management system.
All people hired in France (including all types of contacts
of more than six months) have to undergo training in
Quality in the year following their hire. The objectives of
this training are to:
•
•

Understand the quality management system;
Realize the importance of complying with defined
rules and to grasp how each employee contributes to
making the quality system work.

In 2016, this represented 21 persons for a total of 42
hours of training.

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3.3.2. Build long-term, trusting relationships

Subcontractors and suppliers
ESI Group has a wide range of internal skills that cover its
software Edition activity on the one hand and its services
activities on the other. However, when it is necessary to
mobilize resources outside its usual scope of business, or
when specific expertise is recommended, ESI Group may
occasionally call on external suppliers.
ESI Group remains fully responsible for all outside sub-
contractors. In this regard, the subcontractors are subject
to the same rules and verifications as any other employee
of the Group.
To provide its customers with quality products, ESI Group
monitors and regularly evaluates all suppliers having an
effect on quality through a questionnaire completed in-
house to assess the supplier based on the service pro-
vided. A list of approved suppliers is made available for
this purpose on the intranet and updated periodically.

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
that meet the needs of its customers.
Purchasing decisions are made based on an objective as-
sessment of the reliability and integrity of the supplier or
subcontractor, as well as on the overall appeal of their of-
fer in relation to short- and long-term aims and consider-
ations. In order to protect the Company’s interests, goods
and services are purchased based on price, quality, perfor-
mance, delivery, and suitability criteria. The Company
takes care not to become dependent on suppliers or sub-
contractors.
Also, the Company requires its suppliers and subcontrac-
tors to comply strictly with all legal provisions relating to
their activities 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 institu-
tional 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 offer or accept gifts worth
more than the amounts set by the law or in-house policies.
It is also 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 ob-
taining favorable treatment or influencing the outcome of

a negotiation involving the Company.
Moreover, ESI Group is prohibited from directly or indi-
rectly receiving, giving, promising or soliciting illegal pay-
ments or other undue benefits with a view to granting, ob-
taining 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 related to criminal ac-
tivity. The Group’s Ethics Charter stipulates that ESI
Group comply with laws on fraud and money laundering
and conduct business only with reputable partners.
Moreover, each employee must be vigilant regarding any
payments made, in order to detect any irregularities, es-
pecially concerning 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, in its Ethics
Charter, ESI Group 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 exam-
ple in the course of meetings of professional organizations
or associations.
Furthermore, the Company refrains from abusing a domi-
nant position or a monopoly and also from acquiring or
maintaining a dominant power other than by recognized
legitimate means such as patents, skills, superior know-
how or geographical location.

Measures to promote consumer health and safety
Due to the nature of its business, which is 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 perfor-
mance early in the design cycle;
Assess ways in which new materials and manufac-
turing processes will impact the overall performance
of the product and its operation;
Predict the performance of equipment used in ex-
treme conditions and anticipate any necessary ad-
justments.

•

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Virtual Prototyping gives manufacturers a “live” and com-
prehensive vision of problems in relation to manufactur-
ing, 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 car-
ried out before the actual manufacture of a product. For
example, using Virtual Prototyping to design airbags or
carrying out an in-depth study of advanced driver assis-
tance systems (ADAS) increases the safety of vehicles for
consumers. ESI Group solutions give consumers greater
safety and comfort.

3.4. Being an environmentally friendly player
Considering the nature of its activity—distribution 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. However, the Group has still pledged
to work towards limiting its environmental footprint by:
•

Developing solutions that will help reduce the environmental footprint of manufacturers and comply with regula-
tory requirements;
Limiting the environmental impact of our global offices.

•
Scope adopted: France, Germany, Czech Republic, Japan, United States, Tunisia and India.

3.4.1. Overall environmental policy

Group

believes

ESI
environmental
responsibility should be a priority for all companies,
and strives to reduce its environmental impact both
directly and

indirectly.

that

The main environmental

challenges facing the Group are:
1. External, to help customers significantly reduce their
environmental footprint by providing solutions allow-
manufacturing and assembly
ing for the realistic simulation of the behavior of a prod-
cycle;
uct throughout the design,
2. Internal, 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.

In view of its business, ESI Group has no knowledge of in-
dustrial 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 environ-
mental footprint is very small.

Given the limited industrial and environmental risks in-
herent to the Group’s operations, costs related to the as-
sessment, prevention and treatment of industrial and en-
vironmental risks are immaterial. As all Group sites are
the owners. Accordingly, ESI Group does not have full
leased, building improvement costs are borne entirely by
control over these aspects.
Moreover,
for
environmental risks were recorded in the Group’s 2016
consolidated fi-nancial statements.

guarantees

provisions

involved. That

implementing an

Continuously raising employee awareness
For ESI Group,
policy only makes sense if all of the Group’s employees
environmental
is why the Group constantly
are
strives
of
measures
avoid wasting energy, and
thereby to reduce its environmental
An Environment, Health and Safety Charter that
applies in France must be extended to the entire Group.

raise
taken to

employees’

awareness

impact.

its

3.4.2. Solutions to help reduce our environmental footprint

From the outset, by developing innovative Virtual Proto-
typing products, ESI Group has sought to measure the im-
pact of its solutions on society. Indeed, ESI’s solutions en-
able reductions in the number of physical prototypes,
which are costly and require large amounts of energy, raw
materials and time, and bringing more environmentally
friendly production to the market.

Tighter regulations on greenhouse gas emissions and re-
cycling requirements, higher fuel prices and consumers’
growing environmental concerns are all boosting demand
for more environmentally friendly products. Reducing
one’s environmental footprint now drives industry inno-
vation. All the sectors where ESI Group operates are work-

ESI GROUP • 2016 REGISTRATION DOCUMENT

62
CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

ing to improve their environmental performance by man-
ufacturing more environmentally friendly products, de-
veloping more ecological manufacturing processes, and
reducing or eliminating physical prototypes.
ESI Group enables its clients to significantly reduce their
environmental footprint with the use of its Virtual Proto-
typing solutions. By successfully combining advanced
manufacturing processes with the most innovative mate-
rials, such as composites, ESI’s solutions bring customers
the following advantages:
•

Reduced total product weight: using ESI’s Virtual
Seat Solution, the company Expliseat has developed
the lightest seat ever certified by the European Avia-
tion Safety Agency (EASA). This titanium seat is 50%
lighter than the lightest models currently available
on the market (8 kg to 10 kg). This significant weight
reduction could result in an estimated 3% to 5% re-
duction in fuel usage, saving USD 300,000 to
USD 500,000 per aircraft per year.
Reduced waste associated with prototyping and
manufacturing: with ESI Group solutions, Patriot
Foundry & Castings, specializing in manufacturing
parts in bronze-, aluminum- and zinc-based alloys,

•

reduced its scrap rate by 98% in casting a gearbox
part.
Improved useful life and recyclability of products: by
taking into account the effects caused in stamping
and assembling various parts during Virtual Proto-
typing of a car suspension system, Honda was able to
figure out why two subcontractors following the
same specifications were supplying components
with very different fatigue performances.
Reduced gas emissions: the European target to re-
duce new car CO2 emissions to 95 grams by 2021 is
largely based on reducing the mass and use of new
materials (aluminum, magnesium, composites, etc.),
requiring the development of new, industrially via-
ble fabrication and assembly processes.
Reduced energy consumption: by properly managing
and optimizing the office temperature control sys-
tem developed using Scilab Cloud, Sanofi was able to
reduce its energy consumption by 15%.

As such, digital prototypes can significantly reduce con-
sumption of raw materials and energy and help achieve
compliance with environmental standards for new prod-
ucts as shown in these examples.

3.4.3. Limiting the Group’s environmental impact

3.4.3.1. Use of resources and measures to reduce consumption

Energy use
In 2016, electricity consumption on the Rungis site totaled
439,275 kWh, an average of roughly 2,988 kWh per em-
ployee. The significant 57% decrease is due to both the de-
localization of most of the data center operations at the
Ter@tec site and the measures taken based on the energy
audit. On the Ter@tec campus where ESI has been in-
volved since 2012, comparing electricity consumption be-
tween 2016 and 2015 is not relevant due to the installa-
tion of the PoD (Point of Delivery, a high-density mobile
data center that can house up to 3,500 server nodes). Elec-
tricity consumption data is not available for the other
French sites, as it is either included in rental charges or
collective.
Average electricity consumption per employee came to
2,726 kWh for the sites in Germany, Japan, the Czech Re-
public, India and Tunisia. However, it should be noted that
data on electricity consumption is not available for one of
the three German sites.
Moreover, energy consumption in the United States is not
measurable since the facilities are leased. Energy usage is

included in the utility fees, which include factors other
than electricity, and is re-evaluated annually.
ESI Group does not use renewable energy on the sites con-
tained in the 2016 reporting scope.
To minimize energy consumption, the Group has installed
LED lights at its Rungis, Paris and Ter@tec offices in
France and at its offices in India. In addition, during up-
grades of certain workspaces in France, the Group has
given preference to lighting with low power consumption,
removed hot water tanks from restrooms, and refur-
bished air conditioning systems. Motion sensors have
been installed for lighting systems in Tunisia, ESI Software
in Germany and the Milpitas site in the United States.
Following the energy audit in 2015, the site in Rungis,
France was fitted with a main switch to control the light-
ing system. Other actions are likely to be taken in the
longer term, such as optimizing 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.

Paper consumption
Everyday use by employees is the main source of paper consumption.

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PAPER CONSUMPTION PER EMPLOYEE (IN NUMBER OF REAMS OF 500 SHEETS)

For all data studied (with the exception of Japan), average
paper consumption in 2016 was low, and had decreased
by over 24% from 2015, with about two reams of paper
used per employee.
ESI Group also continues to pursue its electronic docu-
ments 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, SharePoint, a Cloud-based
service for electronic document archiving and storage,
was installed in 2016. Yooz, a Cloud-based software solu-
tion used to automate invoicing and purchasing processes,
was also implemented in 2016.
In early 2017, employee representatives were elected in a
fully electronic voting process, preventing the need to
print ballots for the nine offices in France. Annual evalua-
tions were also performed electronically in 2017 using the
Loopline Systems tool.
In 2014, in a process of environmental responsibility, a
new “greener” paper was promoted among all purchasers
of French office consumables. On a lighter basis weight of
75 g versus 80 g, this paper helps reduce environmental

3.4.3.2. Waste management and pollution

Treatment and recycling of waste
Due to its activity, ESI Group mainly produces non-haz-
ardous waste, as well as paper, cardboard and plastic. To
the best of its knowledge, the Group does not generate any
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 work-
force is aware of this action in their daily lives. Since early
2017, the Rungis site has been testing a more elaborate
waste sorting system that better meets environmental
standards in partnership with Cèdre, a company that col-
lects and manually sorts office paper into five categories

impact. In France, 90% of purchased paper was recycled.

Water consumption
The software publishing business is not very water-inten-
sive as the activities do not require water for production.
ESI Group’s water is therefore solely for sanitary use and
is 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 and can therefore not be broken down in
detail. However, as for the sites for which we have infor-
mation (the Rungis site in France, ESI Mecas in the Czech
Republic, ESI GmbH in Germany and the two sites in In-
dia), water consumption remained stable in 2016 com-
pared to last year, with average consumption of 5.7 m3 per
employee.

Land use
Non applicable. ESI Group is the tenant of all its offices.

Combating food waste
Non applicable. ESI Group does not manage company res-
taurants directly.

to optimize recycling. All 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.
With regard to other specific waste, notably waste electri-
cal 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
Group cannibalizes computer hardware (uses parts of one
machine to repair another) whenever possible to give a
second life to some faulty equipment.

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64CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

the

and

cleaning

collecting

In Germany,

the United States, end-of-life or
In France and
is collected by an authorized
obsolete hardware
provider that manages the processing of electronic
waste.
facilities
management department, in coor-dination with the IT
used
departments,
tasked with
electronic equipment. Waste management
then
passed on
local authority of each city.
Furthermore, on request to our supplier in France,
a
printer cartridges are collected and recycled
the
completely
chain. Lastly,
entire
ink
cartridges, batteries, defective light bulbs and fluores-
cent tubes are recovered by our various suppliers.
Con-tainers are available to staff for this purpose in
offices.

except Tunisia,

environmental

via
in

ecological

scope,

the

3.4.3.3. Greenhouse gas emissions (GHG) related
to business travel
Measures to limit 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. To limit travel, in 2015, the Group redefined
its travel policy in France, which will be extended to the
entire Group in the future. Employees are encouraged to
travel by train rather than by plane for trips of less than
three hours. In France, a car policy also applies to people
with a company car (as the French vehicle fleet is
mainly comprised of vehicles under 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 is
initially applicable to French employees. To limit the use
of transport, the Group also provides employees with
web conferencing tools to facilitate cooperation between
employees working
locations without
requiring them to travel. Some meeting rooms are also
equipped with audio and/or video conferencing sys-
tems
all
workstations are equipped with the Skype for Business
software allowing online audio and video meetings up to
250 persons. In 2016, an average of 86 audio meetings,
lasting about one hour on average, were organized
within the Group every day using Skype for Business.

remote meetings. Also,

in different

facilitate

Emissions associated with Group employees
In 2016, emissions resulting from business travel
by French employees by train and by air totaled
361,634 kg of CO2,
representing 1,218 kg per
employee, down 9% compared with 2015. In the United
States, these emissions totaled 325,381 kg of CO2 in
2016, representing 2,645 kg

per employee. It should be
noted that 40% of the Executive Committee is based in
the United States.

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
indus-trial activities requiring heavy production work.

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
lia-ble to affect the vicinity are data centers, the two
main ones being
in France. To protect
employees authorized to enter computer rooms, the
Group provides anti-noise headphones.
A memo
in
computer rooms is given to employees with access to
such areas in the course of their duties.

governing working

conditions

located

the

Group’s

that manage

in Germany due

in the Czech Republic and 50

In Germany, 37,130 kg of CO2 were produced in 2016
through business travel by German employees by train
and by air (two out of three entities), representing
308 kg per employee. Across the entire scope,
emissions resulting from business travel by air and by
train remained stable despite the rise in staff numbers.
It is worth noting that this data is provided by travel
agencies
travel
reservations. Any reservations made by employees
themselves are not included.
In 2016, 43 employees in France had a company car,
along with 33
in
Germany, but there were no company cars in the United
States, India or Tunisia. In Japan, only one person had
a company car. The granting rate of company cars
was higher
in particular to the
higher proportion of salespeople and to German
culture which encourages this type of compensation.
The estimate of annual CO2 emissions from company
car travel in France was 152,940 kg or 3,557 kg per
company car, down nearly 10% from the previous year.
employees
Overall, business
generated 514.6 metric tons of CO2 in 2016, a 2%
decrease despite a rise in the number of employees.
in the Czech Republic, the
As for company cars
estimated emissions in 2016 were 102,233 kg of CO2, an
average of 3,098 kg per car, dropping nearly 17%
compared with 2015. Lastly, for Germany, vehicle
emissions fell 9% to 232,550 kg of CO2, an average of
4,651 kg per car.
The drop in CO2 emissions noted by the Group in 2016
is due to a combination of the measures implemented
over the past few years and
increased employee
awareness about the issue.

travel by French

ESI GROUP • 2016 REGISTRATION DOCUMENT

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3

CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

3.5. Serving civil society
Partnerships are an integral part of the Group’s business
strategy to facilitate and promote Virtual Prototyping
while acting sustainably:
•

Boost innovations and establish partnerships with
the academic and scientific communities;
Act ethically and responsibly.

•
Exemplary corporate conduct and excellent relationships
with all stakeholders are, for our Company, the foundation
necessary for balanced and durable growth. For this rea-
son, ESI Group is especially attentive to the following
points:
•
•
•

Total transparency to all of its stakeholders;
Complete satisfaction of clients’ needs;
Supporting regional development by encouraging lo-
cal recruitment and partnerships;
Support for innovation through co-creation projects.
•
The Group considers its main stakeholders to be its em-
ployees, customers, suppliers, and 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. Innovation continually im-
proves production processes and shortens the design pe-
riod and the time it takes to develop new, more efficient
and more reliable products.
To remain at the leading edge of innovation, the Group in-
vested 30.2% of its Licensing revenues in R&D in 2016.
Innovation makes it possible to resolve the multiple con-
straints and pressures that weigh on all manufacturers—
to develop a safer, more efficient and more environmen-
tally friendly product faster and at a lower cost. The inno-
vative Virtual Prototyping solutions offered by ESI Group
allow us to approach these ever-present economic goals.
ESI Group strongly believes that its ability to innovate and
research is a key factor in its differentiation and hence its
competitiveness, two essential levers for sustainable
growth.

3.5.1. Partnerships with the academic and scientific communities

Relations with the digital community
The Group makes a point of creating and maintaining ex-
cellent relationships with the various members of the dig-
ital community, including those in industry, academic in-
stitutions and voluntary associations. It does so in order
to facilitate collaboration and thus to foster industrial in-
novation.
The Company is an active member of the Board of Direc-
tors of TECH IN France (formerly AFDEL, the French asso-
ciation of software publishers), which helps promote the
software publishing industry and develop digital simula-
tion, and which currently represents over 350 members.
In so doing, ESI Group is strengthening its position in
France as a leading player in digital transformation and is
bringing in its vision for virtual engineering as well as its
economic and social values.

Participation in regional competitiveness clusters and
technology research institutes (IRT)
ESI Group participates in several competitiveness clus-
ters, principally in France. These clusters provide the
proximity needed for collaborative work with major in-
dustrial players and research and development organiza-
tions in order to bring highly innovative products to mar-
ket. Located all over France, these organizations are as fol-
lows: Aerospace Valley (Toulouse), ASTech Paris Région
(Île-de-France), Nuclear Valley (Burgundy), Mov’eo (Nor-
mandy and Île-de-France), I-Trans (Nord Pas-de-Calais
and Picardy), iD4CAR (Brittany and Pays de la Loire), Sys-
tematic (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 in-
tensive computing center, based on the Saclay platform in
Île-de-France, alongside the CEA (the atomic and alterna-
tive energy commission), a major player in research, de-
velopment 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 Com-
petitiveness 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 recommenda-
tions 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 competi-
tiveness 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 a technical platform for R&D excellence in
Brittany, devoted to automotive applications and sup-
ported by PSA. This initiative is supported by the Union
des industries et des métiers la métallurgie of Ile-et-Vi-
laine and Morbihan (UIMM 35-56), for the purpose of
stimulating the automotive industry in Brittany around
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CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

PSA Rennes, which has announced its strategic plan for
the coming years. ESI participates in the 3DMat innova-
tion platform specifically for developing a digital simula-
tion and Virtual Prototyping channel for new multi-mate-
rial and composite architectures, with priority given to
the automotive industry.
Again in the transportation sector, ESI is an active mem-
ber of the Board of IRT Railenium, whose main mission is
to lengthen the lifecycle of railway infrastructure and cap-
italize on the rapid international development of its new
products. Involving a broad consortium of manufacturers
and research organizations, in 2011, ESI Group was se-
lected by the Investissements d’Avenir (Grand Emprunt)
Program. ESI is also a founding member of the CADEMCE

and

technology

researchers)

SAS railway testing platform.
ESI also assists the mechanical engineering field and pro-
motes its activities. The Company is a member of the
Board of Directors of the Association Française de Méca-
nique (AFM), a body for information, dialogue and
discussion for the mechanical engineering community
transfer
(industry professionals
and
teachers
organizations,
representing French mechanical engineering to
its
foreign counterparts.
In the field of aeronautics, ESI actively participates in ini-
tiatives from the Council for Civil Aeronautics Research
by the seven top
(CORAC) undertaken as part of the Plan d’Investissement
French aeronautics companies, which are members of
d’Avenir. In 2014, ESI was invited
join the Usine Aéronautique du Futur
GIFAS, to
(Aeronautics Factory of the Future) platform as an as-
sociate member. This major initiative was launched to
transform production facilities in the fast-moving aero-
nautics industry, which must deal with an unprecedented
increase 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.

3.5.2. Act ethically and responsibly

Ethics Charter
In 2016, the Group issued its Ethics Charter to promote
observance of its values and confirm its commitment to
the main rules of conduct that the Group wants to see ap-
plied 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. It is based on the observance of the

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 keep cost margins
under control for manufacturing important parts in heli-
copter transmissions boxes.
Since 2013, a number of initiatives have emerged to de-
sign the Usine de Demain (Factory of the Future) and to
use it to drive competitiveness and attractiveness for the
region. ESI Group participates in the Nouvelle France In-
member of the Alliance pour l’Industrie du Futur.
dustrielle national initiative, and is, on this basis, an
The SOFIA program (Solutions pour la Fabrication
active
Industrielle Additive métallique) to support metal
additive manufac-turing solutions in the aerospace
industry is currently one of the ESI Group’s major
projects.
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 institutional 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 applications.

Relations with customer-partners
The Group’s success also stems from an approach
based on close collaboration with world leaders in each
sector where the Group is active, including Renault-
Nissan and Volkswagen in the automotive industry and
EDF-AREVA in energy. By building strong relations with
large indus-trial firms, the Group can perfectly match
their Virtual Prototyping needs. These strategic
partnerships help the Group’s customers assess their
innovation requirements and implement them jointly
with ESI Group.

tional Labor Organization. The Ethics Charter was
dissem-inated to all employees and is available in six
languages on the Group’s internal and external websites.

five-member Ethics Committee was

Ethics Committee
A
formed to
make sure the Ethics Charter is applied properly.
The Ethics Committee is responsible for creating an
envi

ethical rules promoted by the conventions of the

Interna-

ronment where employees can adhere to the Ethics

ESI GROUP • 2016 REGISTRATION DOCUMENT

67
CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

ter and ensure that its principles are upheld by
everyone, every day. The Committee listens to and
Char
assists employees so that they can discuss any issue
involving the implemen-tation of and compliance with
the Ethics Charter. It also

works to make sure that all Group subsidiaries apply the
principles set out in the Charter.
This Committee meets every quarter to discuss ethics is-
sues and come up with corrective measures, if necessary.

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3.6. Report of the inspecting organization

Year ended January 31, 2017

To the Shareholders,
Following the request made to us by ESI Group SA and in our capacity as an independent third-party organization ac-
credited 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, 2017 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 re-
sponsibility information referred to in Article R. 225-105-1 of the French Commercial Code (hereinafter the “Infor-
mation”) and prepared in accordance with the guidelines (the “Guidelines”) used by the Company and available on re-
quest 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 Article L. 822-11 of
the French Commercial Code. Furthermore, we have implemented a quality control system including documented poli-
cies and procedures to ensure compliance with ethical standards, professional standards and applicable laws and regu-
lations.

Independent third-party organization’s responsibility
On the basis of our work, our responsibility is to:
•

Attest whether the required information is presented in the Management Report or, if not presented, whether an
appropriate explanation is given in accordance with the third paragraph of Article R. 225-105 of the French Com-
mercial Code and Decree No. 2012-557 of April 24, 2012 (Attestation of CSR Information presentation);
Express 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:
•

Compared the Information presented in the Management Report with the list provided in Article R. 225-105-1 of
the French Commercial Code;
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;
Verified that, in the absence of certain consolidated information, 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, 2017 and May 10, 2017, for a period of about six
person-days at the ESI Group headquarters.
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.

ESI GROUP • 2016 REGISTRATION DOCUMENT

69CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

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:
•

Assess the appropriateness of the Guidelines in terms of their relevance, completeness, neutrality, comprehensibil-
ity 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 manage-
ment 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 activ-
ity and the characteristics 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 (organi-
zation, policies, actions, etc.);
Carried out analytical procedures on the quantitative information and, based on sampling, verified the calculations
and the consolidation of the data;
Ran detailed tests based on sampling(1) ithat 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 60% of the consolidated value of the numerical indicators in the employment portion and
60% 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, 2017
on a narrow but significantly expanding scope.

Conclusion
Based on our work, we have not identified any significant misstatement that causes us to believe that CSR Information,
taken together, has not been fairly presented, in accordance with reporting criteria.

Lyon, May 11, 2017
FINEXFI
Isabelle Lhoste, Partner

i Companies selected for the tests: Rungis, Germany and Czech Republic sites for the environmental component and France
sites for the social component.

ESI GROUP • 2016 REGISTRATION DOCUMENT

704

MANAGEMENT REPORT

Fiscal year 2016 (ended January 31, 2017)
In accordance with Article L.451-1-2 of the French Mone-
tary and Financial Code, this chapter includes the Board’s
Management Report to the Combined General Meeting of
June 29, 2017. This report accounts for the Company’s ac-
tivities during the 2016 fiscal year (ended January 31,
2017), including the result of these activities and the Com-
pany’s outlook, and presents the Company’s accounts and
balance sheets for the fiscal year.
Information on various risk factors is included in Chapter
1, under Section 1.6, “Risk factors.”

Information on corporate governance and the managing
boards and their members is included in Chapter 2 of this
Document.
The report on corporate, social and environmental re-
sponsibility is reproduced in full in Chapter 3 of this Doc-
ument.
Information on the company’s share capital and the par-
ticipation of shareholders in the General Meeting is in-
cluded in Chapter 7 of this Document.

4.1. Business activities during FY2016
4.1.1. Highlights of FY2016

Financial data
The success of ESI Group’s commercial offering was con-
firmed in 2016, as testified by its strong revenue growth
in 2016. The growth of its Licensing activity, particularly
sustained in Asia, and the marked dynamism of its high
value-added services reflect an increasing need for sup-
port in industrial customers’ transition to the Industry of
the Future, confirming ESI’s PPL (Product Performance
Lifecycle) approach. Over the fiscal year, revenues gener-
ated from recent acquisitions, mainly linked to ESI ITI
GmbH, reflect the implementations of initial commercial
synergies. There was a positive currency effect of €2.1
million, arising mainly from the positive trend of the Japa-
nese yen, though the effect was limited by the fall of the
British pound.
Total gross margin improved due to an improved Services
margin and a maintained high margin in Licenses. Fur-
thermore, R&D investments continued at a high rate of
€32.7 million. Sales and Marketing and General and Ad-
ministrative costs grew at a slower rate than revenue
growth.
These elements all led to a substantial improvement in
profitability, as evidenced by an increase in all profitabil-
ity indicators despite continued investment in R&D and
external growth.
Finally, year-end available cash was up compared to the
previous fiscal year.

Structural changes
On February 5, 2016, ESI Group acquired 100% of the cap-
ital of the American company Mineset Inc. This acquisition
was financed by a drawdown on the syndicated loan
signed in November 2015.

The Group also bought out several minority interests, in-
cluding those in ESI Software Germany, increasing its
shareholding to 98.5% as at January 31, 2017, in ESI Ser-
vices Tunisia, increasing its shareholding to 95%, and in
CyDesign Labs Inc., thereby increasing its shareholding to
99.9%.

Rollout of solutions

Renewal of major contracts in the Automotive sector
The signatures in 2016 of the three-year agreement with
Volkswagen Group with an expanded perimeter for the
ninth consecutive time (in a highly sensitive context), and
of a second joint contract with Renault-Nissan, reflect an
indisputable need for ESI’s virtual engineering solutions.
These solutions offer customers a unique, multi-domain
and multi-physics environment that enables them to vir-
tually manufacture and assemble essential components
using a single core model that captures the level of physi-
cal information needed to meet industrial and regulatory
requirements. Collaboration with Honda, another key
partner, was also solidified, reaffirming the strategic ties
between ESI and Automotive, a sector at the forefront of
the transition to Digital Factory.

Business sector diversification
ESI Group has notably strengthened its position in the
Aerospace sector, which has become the Group’s second
most important sector after Ground Transportation. As a
sign of the sector’s steady shift to Digital Factory, innova-
tive Services orders saw strong growth throughout the fis-
cal year.

ESI GROUP • 2016 REGISTRATION DOCUMENT

71
MANAGEMENT REPORT

Successful integration of the ESI ITI GmbH solution
The integration of recent acquisitions continued success-
fully in 2016, confirming ESI Group’s expertise in that do-
main.
The strong sales growth posted by ESI ITI GmbH, the
leader in 0D-1D mechatronic and multi-domain systems
simulation with its SimulationX solution, reflects the

achievement of commercial synergies. More broadly, the
relevance of the Group’s strategic vision of bringing to-
gether the different universes of modelling with areas of
physics, from the most simplified (0D-1D dimensional sys-
tems) to the most sophisticated (3D-4D components), is
reaffirmed.

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)

2016

2015

Variation at
actual currency
rate

Variation at
constant
currency rate

Total sales

Licenses

Services

Gross margin

% of sales

EBITDA (1)

% of sales

Current operating profit

% of sales

EBIT

% of sales

Net profit (Group share)

% of sales

140.6

108.3

32.2

103.1

73.3%

18.3

13.0%

15.4

10.9%

13.7

9.8%

7.5

5.4%

124.7

+ 12.7%

+ 11.0%

97.0

27.7

90.4

72.5%

+ 11.6%

+ 16.5%

+ 9.9%

+ 15.0%

+ 14.0%

+ 11.9%

14.3

+ 28.1%

+ 14.6%

11.4%

11.8

9.5%

9.4

7.5%

5.3

4.3%

+ 30.1%

+ 13.8%

+ 46.7%

+ 25.9%

+ 41.1%

+ 18.3%

(1) EBITDA excluding non-recurring result, and including the impacts of capitalization of development expenses and net allowance on account

depreciation.

receivables'

4.1.2.1.2. General information

Sales growth
2016 revenue totaled €140.6 million, up €15.9 million
(12.7%). Acquisition-related revenue contributed €6.4
million, reflecting the implementation of initial commer-
cial synergies. There was a positive currency effect of €2.1
million, arising mainly from positive movements of the
Japanese yen.
The product mix remained stable, with Services perform-
ing well, and now accounting for 23% of total sales com-
pared to 22% in the previous year.
Licensing sales totaled €108.3 million, up 11.6% com-
pared with the previous year. That solid growth was
driven by the growth in the installed base (+13.0%), that
holds a high repeat business rate of 89.1% measured for
the organic perimeter and at constant exchange rates,

while new business remained stable.
Services sales totaled €32.2 million, a strong growth of
16.5%, driven by a solid +16.8% increase in engineering
studies, the core of ESI Group's activity, and by the re-
markable growth (+57.1%) of special projects that sup-
port the group’s methodological transformation, includ-
ing co-creation projects linked to recently-acquired
emerging disruptive technologies.
The geographical split in sales reflected strong activity in
Asia and in the BRIC countries, particularly China and In-
dia.

Improved gross margin
The gross margin increased to 73.3% of sales, compared
with 72.5% in 2015. This solid performance is driven by
an improved margin in Services and a maintained high
margin in Licenses. This improvement was driven by the
ESI GROUP • 2016 REGISTRATION DOCUMENT

724 MANAGEMENT REPORT

dynamic growth of the high-value-added engineering
studies delivered by ESI Group to industrial firms wishing
to make the transition to Digital Factory.

•

Continued investments
R&D investments, the lifeblood of technological innova-
tion, were maintained at a high level of €32.7 million, up
12.3%. This ongoing effort reflects ESI’s constant focus on
the newly acquired technologies that underpin its disrup-
tive PPL approach. These investments represent 30.2% of
Licensing sales. Once the French Research Tax Credit
(CIR) and
capitalization are taken into
account, the total R&D costs recorded in the P&L
statement amounted to €26.9 million at actual rates, an
increase of 18.3%.

development costs

Strong growth of profitability indicators
EBITDA rose by 28.1%, from €14.3 million to €18.3 mil-
lion, giving a margin rate of 13.0% compared with 11.4%
in 2015. This improvement benefited from slight in-
creases in Sales & Marketing (S&M) and General & Admin-
istrative (G&A) costs (+8.4% and +9.7%, respectively),
which now represent 29.8% and 13.5% of total sales.
) grew by 30.1% to €15.4
Current Operating Profit (CO
million, showing a current operating margin of 10.9%, or
P
1.4 percentage points higher than the previous year. EBIT
increased by 46.7% to €13.7 million, giving a 9.8%
margin, up 2.3 percentage points over the previous year.
This strong growth, stronger than the increase in EBITDA
and COR, was primarily due to the lower non-recurring
costs due to expenditure related to the Group’s most re-
cent technological acquisitions recorded in non-recurring
items in 2015.
The Financial Result was €-2.1 million compared to €-0.9
million in 2015, affected by a rise in interest charges and
exchange losses, following appreciation of the Japanese
yen against the euro in the second semester. Attributable
Net Profit totaled €7.5 million, to yield a net margin of
5.4%.

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 (ex-
cluding financial debt), increased by €8.5 million.
This growth is explained by the acquisitions of tech-
nological bricks and companies for an amount of

€4.4 million and by
the development costs
capitalization which had impacted the fixed assets
by €2.8 million;

Financial debt increased by €5.3 million, due to two
opposing effects: rising debt due to recent acquisi-
tions and the factoring of the 2015 CIR debt, which
was partially offset by the reimbursement of €4.3
million of the syndicated loan. The use of the revolv-
ing credit line remained stable, at €8.0 million.

Equity stood at €99.5 million, up due to appropriations
from net profit for the year.
Net financial debt totaled €37.4 million. Gearing (net
financial debt to equity) represents 37.6% of equity,
versus 39.3% at January 31, 2016.

increased by €3.7 million, from
€10.3 million to €14.1 million at January 31, 2017. At
Net cash available
January 31, 2017, ESI Group also held 7.0% of its
equity in treasury stock.

4.1.2.3. Risk management

Country risks and foreign exchange risk
Because of its international dimension, particularly
in countries with a currency other than the euro, the
Group is exposed to country risk and foreign exchange
risk.
A description of these risks and their hedging is
detailed in notes 7.1.4 and 7.3 to the consolidated
financial statements.
Foreign exchange risk
Most of the Group's financial debts have variable
interest rates. In order to limit the negative impacts of
rate fluctuation, the Group applies a non-speculative
management policy, which uses 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

available at January, 31, 2017 amounted to
€14.1 million, made up of a positive cash position of
Net cash
€14.5 million less a €0.4 million bank overdraft. The €
+3.7 million increase over FY2016 can be explained by
the events listed below.
Net cash flows came to €10.5 million compared to
€7.5 million for the previous fiscal year. This change is
primarily due to:

•
•

•

An increase in EBITDA of €4.0 million;

A reduction of €0.6 million in development cost
A reduction of €1.1 million in non-recurring,
capitalization;
acquisition-related costs;
An impact of the financial result on cash flows of
€-

2.2 million, including €-0.5 million due to higher

ESI GROUP • 2016 REGISTRATION DOCUMENT

interest on loans, and a €-1.7 million currency
foreign currency transactions (the
result of
impact on cash flows of hedging instruments
remained stable compared to the previous year);

An increase of €0.4 million in

taxes paid.
in working capital requirement (WCR) had
negative impact of €1.5 million. The amount

income

from operations

thus €9.0

compared
improvement
marked
Current capital expenditures paid by the
worth €2.3 million, compared to €2.9

•
Variation
a
limited
of
million,
to
Company are
million for the

a
2015.

cash flows

fiscal year. In FY 2015,
ESI made significant investments in the area of high
4.1.3. Research and development
performance computing

4.1.3.1. Research and development costs
Research and development costs are recorded as soon as
they are incurred. These costs amounted to €32.7 million
in 2016, an increase of 12.3% compared to the previous
year. This investment rise mainly concerns development
on last external growth operations.
The capitalization of R&D costs had a €+2.8 million impact
on the income statement in 2016.
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 prod-
ucts in line with the Group's strategy and market needs. It
also seeks to maintain the competitive edge of ESI Group's
solutions, focusing on:
•

Generic analysis and simulation tools needed to ap-
proach the market (Virtual Tool);
Business solutions that provide realistic physical
modeling properties via simulation tests;
Component lines to manage processes and best prac-
tices by industrial segment or multi-model design
(Virtual Component);
Systems involving component chains or mechatronic
systems and sub-systems (Virtual System);
Complete prototyping lines covering all aspects of
the virtual engineering process in line with the cus-
lifecycle management process,
tomer's product
providing optimization and 3D visualization capabil-
ities and assisting in the local, departmental, or
global decision-making process;
Comprehensive, "living” virtual prototyping plat-
forms that support all product modules and cus-
tomer processes and that improve the customer's
products performance cycle.

•

MANAGEMENT REPORT

(HPC).
In addition to these current capital expenses, there
were acquisitions of
technological bricks and
subsidiaries and payment earnouts for €4.7 million.
The main financing flows were related to recent
the
acquisitions
reimbursement on maturity of the syndicated loan for
€-4.3 million. Financial debts also increased due to
factoring of the CIR debt for €2.4 million. The use of
revolving credit remained stable at €8 million.
Overall,
increased by €5.1 million.

for €5.8 million

financial debts

over-drafts

excluding

and

•
The R&D policy supports:

The business model in an effort to adapt the changes
in how products are used and to push boundaries for
new computer platforms (GPU, SaaS, Cloud) or plat-
forms 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 cus-
tomers to deploy new products and processes or to
improve their performance by working jointly with
ESI Group.

•

The Edition Operation allots different levels of investment
depending on the maturity of the product:

•

Investments are made in mature products 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 accelerate adoption of these
products in industrial applications;
Investments are made in innovative products by in-
creasing research contracts with leading customers
in order to ensure the viability of these new tools,
and where applicable, to increase the chance of com-
mercial success.

The Products Direction also maintains a technology
watch in support of all products.
The Edition Operation follows an approach that is both
•
Ensuring generic products and components to meet
specific and generic in nature to meet different goals:
multiple needs in multiple industrial segments and
to support developments of services, customers, or

ESI GROUP • 2016 REGISTRATION DOCUMENT

MANAGEMENT REPORT

•

third parties;
Ensuring the competitiveness and productivity of
our products by targeting specific, high-potential
business applications and solutions;
Maximizing synergies between products to make it
easier to release competitive, affordable versions
and minimize maintenance efforts;
Integrating this generic expertise into a comprehen-
sive virtual prototyping platform that makes it easy
to take needs into account for specific applications or
custom services.

The Edition Operation continues to partner actively to en-
sure:
•

The identification of technologies, acquisition tar-
gets, and market opportunities in collaboration with
its Scientific Committee;
An evaluation of financing opportunities to guide the
levels of investment;
A discovery process in partnership with the various
approaches to research and development (academic
chairs, European projects, and co-creation projects);
Rapid industrialization for optimal market introduc-
tion.

•

This environment reduces risks and ensures a high rate of
co-financing and research tax credits.
The Edition Operation follows a methodology 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 is used to strike a balance

between human interests and financial interests, is being
expanded to reduce dependence on exchange rate effects
and also 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 interna-
tional copyright, by specific laws concerning database
producers within the European Union, and by competition
law outside the EU.
The ownership of all development work ordered and per-
formed by ESI Group's subsidiaries is transferred to the
Company. ESI Group products are either owned directly
by the Company or published by the Company under a
publishing contract and owned by its subsidiaries.
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 prod-
ucts represent either software integrated within the Com-
pany’s offering (for which replacement solutions could be
obtained in the event that the third-party software is dis-
continued) or complementary solutions. These latter so-
lutions are not, however, critical to the operation of the
Company's software.
Furthermore, some of the Company’s subsidiaries own pa-
tents.

4.1.4. ESI Group annual financial statements and allocation

4.1.4.1. ESI Group annual financial statements
ESI Group 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’s revenue consist mainly of:
1. Royalties paid by subsidiaries, distributors, and agents

and received for software licensing;

Amounts billed to direct customers for software
of profits
licens-ing and/or services, in territories not covered by
its subsidiaries;
Management fees billed to subsidiaries as
compensation for ESI Group oversight responsibilities;
Self-created assets stemming from development work.
The operating result for 2016 is a profit of €3.2 million
4.
compared to a profit of €1.6 million for the previous year.

ESI GROUP • 2016 REGISTRATION DOCUMENT

75
MANAGEMENT REPORT

This increase of €1.5 million is explained in the table below:

(in € thousands)

Operating profit

Increase in revenue

Increase in inventory

Increase in net impact of capitalization of R&D costs (capitalization and
amortization)

Increase in external expenses

Increase in salaries and social charges

Change in provisions for contingencies and risks (operating result)

Other change

TOTAL CHANGE

2016

3,192

2015

1,649

Change

1,543

5,156

622

257

(2,890)

(1,373)

(265)

1,543

The financial result is a loss of €2.5 million compared to a profit of €0.5 million in 2015. The financial result can be broken
down as follows:

(in € thousands)

Realized foreign exchange currency result

Unrealized foreign exchange currency result

Interest on loans

Provision for depreciation of investments

Other financial income (expenses)

TOTAL

January 31,
2017

January 31,
2016

(230)

(484)

(868)

(827)

(83)

(2,492)

1,471

313

(431)

(910)

522

Current income before tax is a profit of €0.7 million,
compared to €2.1 million in 2015.
The Company has also recorded €0.7 million of
of
exceptional

essentially

composed

loss,

allowances.

capital

The Company recognizes a credit tax income of €1.7
accelerated
million, compared to €2.2 million in 2015, which
corresponds to a corporate tax expense of €1.3 million,
to a CIR credit of €2.8 million and to a CICE credit of €0.1
million.
Net profit stands finally at €1.6 million, compared
Equity fell by €0.9 million,
to €4.0 million in 2015.
from €92.0 to €91.2 million due to:
•
•

Decreases in retained earnings (€3.2 million) follow-
Net i
ing a change in accounting methods for retirement
and post-employment benefits (ESI now applies the

ncome (+ €1.6 million);

The
are

preferred method for recording these commitments
in the balance sheet);
Capital increases after the exercise of stock options

Net capital assets increased by €7.0 million, from

•
(€+0.4 million);
•
Changes in regulated provisions (€+0.3 million).
main changes in the balance sheet over the fiscal year
described below:
•
€114.9 million to €121.9 million, due mainly to an in-
crease in capitalized
and
•
million to €44.4 million, up €1.1 million. The annual
syndicated debt repayment of €4.3 million partially
offsets the increase of €5.4 million, which particularly
resulted from new acquisitions for €4.5 million.

an increase in investments for €3.9 million.
Financial debt remained relatively stable, from €43.3

costs for €3.5 million

development

ESI GROUP • 2016 REGISTRATION DOCUMENT

MANAGEMENT REPORT

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, 2017, the balance of ESI Group's liabilities to its vendors breaks down as follows:

Term

<30 days

30 to 60 days

60 to 90 days

90 to 120 days

> 120 days

SUB-TOTAL

Invoices not received

TOTAL

Terms greater than 120 days are debts to Group subsidi-
aries.
Two branches are integrated within ESI Group’s
financial statements; details are shown in Note F.3. to
the

financial statements.

annual

4.1.4.2. Allocation of profits
Situation at January 31, 2017:
•

Net profit for the year: €1,632,373.85;

2016
(in €
thousands)

2015
(in €
thousands)

9,182

2,582

1,693

1,072

13,466

27,994

10,594

5,314

3,075

342

805

9,299

18,835

11,645

38,588

30,480

Profit carried forward: €30,927,210.21;
Total to be allocated: €1,632,373.85.

•
•
Allocation:
•
•
Following this allocation, the balance of the legal reserve
stands at €1,797,597.60, representing 10% of share capi-
tal. Profit carried forward stands at €32,548,508.07.

€11,075.99 to the legal reserve;
€1,621,297.86 to profit carried forward.

4.2. Outlook

4.2.1. Subsequent events

In February 2017, ESI announced the acquisition of Scilab
Enterprises SAS, editor of Scilab, recognized as the best
open source alternative to the commercial software
MATLAB®. Scilab offers extended solutions for numerical
computation and a powerful development environment
for engineering and scientific applications. The acquisi-
tion of Scilab Enterprises will help ESI Group broaden its
positions at the early design and analysis stages of indus-
trial products. Following the acquisition of ITI and its sys-
tem modeling software SimulationX (0D-1D models), this
extended position aligns with the Group’s disruptive
transformation strategy aimed at providing all players in

4.2.2. Business trends

the industrial product development process with the
power of computer modeling at the earliest stages. Engi-
neers working in a traditional PLM (Product Lifecycle
Management) approach already use analytical mathemat-
ical models created under Scilab to explore design options
rapidly with simplified 0D models before moving on to de-
tailed design work with more refined (0D-1D to 3D-4D)
models, certification, and production.
In February 2017, the Company also bought back out-
standing minority interest in its subsidiary ESI Italia,
which it now wholly owns.

2016 was characterized by the success of legacy solutions
as well as by new acquisitions focused on the develop-
ment of innovative solutions within the PPL strategy.

2017 promises to be a year of integration and transfor-
mation for the Group, both in continuing investment and
expanding its Virtual Prototyping and hybrid solutions,

ESI GROUP • 2016 REGISTRATION DOCUMENT

77MANAGEMENT REPORT

and also in adapting its commercial and marketing re-
sources to a new commercial dynamic. The Group remains
confident in its ability to amplify its own ongoing transfor-
mation into the Industry of the Future. This should con-
tribute to positioning the Group ideally to capture the

growth arising from the diversification and democratiza-
tion of Virtual Prototyping and its expansion towards the
in-service performance, while continuing to improve its
profitability.

4.3. Information on the agreements signed or pursued during fiscal

year 2016

4.3.1. Agreements signed by a director or significant shareholder of the Company with

a subsidiary under Article L. 225-102-1

To the Company’s knowledge, currently there are no agreements between any director or significant shareholder of the
Company and any subsidiary.

4.3.2. Regulated agreements falling under Article L. 225-38 of the French Commercial

Code

Buyback of shares from a Shareholder holding more
than 10% of voting rights
On December 20, 2016, the Company purchased 8,000
shares from the successors of Mr. Jacques Dubois (former
Director, deceased in 2015), who at that date held more
than 10% of voting rights, under its share buyback pro-
gram. The transaction was approved by the Board of Di-
rectors in its meeting of November 30, 2016.
These shares were bought back at the average market

price over the 20 trading sessions preceding the transac-
tion after a deduction of 5%, the price corresponding to
€39.29 per share or €314,320 for the 8,000 shares.
The reason for this purchase was the Company’s intention
to maintain the shares and either to subsequently use
them as part of its share purchase option program or to
allocate free shares to employees and/or directors, in ac-
cordance with Article L. 225-209 of the French Commer-
cial Code.

Consultancy contract with a Board member
It is recalled that 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 Directors at their meeting on April 14, 2015.
This contract was renewed under the same conditions in FY2016 and reviewed by the Board on April 8, 2016. Following
a review by the Compensation, Nomination and Governance Committee on March 28, 2017, the Board decided to renew
the contract but to review its conditions to bring them closer to market conditions.
The purpose of this contract is to grant to Mrs. de Rouvray specific missions relating to human resources, consulting, and
strategic management.
It is recalled that the special statutory auditors’ report on regulated agreements falling under Article L. 225-38 of the
French Commercial Code, as reproduced in section 4.3.3. below, is submitted for consideration and approval by the Share-
holders’ meeting of June 29, 2017.

ESI GROUP • 2016 REGISTRATION DOCUMENT

MANAGEMENT REPORT

4.3.3. Statutory Auditors’ report on regulated agreements

This is a free translation into English of the Statutory Auditors’ report on regulated agreements issued in the French language and is
provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accord-
ance with, French law and professional auditing standards applicable in France.

Special Statutory Auditors’ report on regulated agreements and commitments

(Annual meeting of the shareholders on results for the year ended January 31, 2017)
To the Shareholders,
As your Company’s Statutory Auditors, we hereby present our report on regulated agreements and commitments.
It is our responsibility to communicate to you, based on information provided to us, the characteristics, the principal
terms and conditions, and the grounds of the interest to the Company of those agreements and commitments brought to
our attention or which we may have discovered during the course of our audit, without expressing an opinion on their
usefulness and appropriateness or identifying any other such agreements and commitments. It is your responsibility,
pursuant to Article R. 225-31 of the French Commercial Code, to assess the interest involved in the conclusion of these
agreements and commitments for the purpose of approving them.
Our role is also to provide you with the information stipulated in Article R. 225-31 of the French Commercial Code relating
to the implementation during the past fiscal year of any agreements and commitments previously approved by the Share-
holders’ General Meeting.
We conducted the procedures we deemed necessary in accordance with the professional guidelines of the French Na-
tional Institute of Statutory Auditors (Compagnie Nationale des Commissaires aux Comptes) relating to this engagement.
These procedures consisted in verifying the concordance of the information provided to us with the relevant source doc-
uments.

AGREEMENTS AND COMMITMENTS SUBMITTED FOR THE APPROVAL OF THE SHAREHOLDERS’ MEETING

Agreements and commitments authorized during the fiscal year
Pursuant to Article L. 225-40 of the French Commercial Code, we have been advised of the following regulated agree-
ments and commitments which had received prior authorization from your Board of Directors.

Buyback of shares from a Shareholder holding more than 10% of voting rights
• With: The successors of Mr. Jacques Dubois, former Director deceased in 2015.
•
•

Nature and purpose: Buyback by the company of its own shares.
Terms and conditions: On December 20, 2016, your company purchased 8,000 shares from the successors of Mr.
Jacques Dubois, a former Director deceased in 2015, under its share buyback program.

These shares were bought back at the average market price over the 20 trading days preceding the transaction after a
deduction of 5%, or the price corresponding to €39.29 per share or €314,320 for the 8,000 shares.
•

Grounds of the interest for the company: The reason for this purchase was the Company’s intention to maintain the
shares and subsequently use them as part of its share purchase option program, or to allocate free shares to em-
ployees and/or directors, in accordance with Article L. 225-209 of the French Commercial Code.

Nature and purpose: Consultancy contract.

Consultancy contract with a board member
• With: Ms. Cristel de Rouvray.
•
• Terms and conditions: On April 15, 2015, the Company signed a consultancy contract with Ms. Cristel de Rouvray, Di-
rector. The agreement was made in accordance with Article L. 225-38 of the French Commercial Code, having received
prior authorization from the Board of Directors at their meeting of April 14, 2015.

The initial duration of the contract was from April 15, 2015 to January 1, 2016, automatically renewable for a period of
one year.
This contract was renewed under the same conditions in FY2016 and reviewed by the Board on April 8, 2016.
The annual cost of this contract is estimated at USD77,875
•

Grounds of the interest for the company: The purpose of this consultancy contract is to grant to Mrs. Cristel de
Rouvray specific missions relating to human resources, consulting, and strategic management.

ESI GROUP • 2016 REGISTRATION DOCUMENT

79
MANAGEMENT REPORT

AGREEMENTS AND COMMITMENTS PREVIOUSLY APPROVED BY THE SHAREHOLDERS’ MEETING
We have not been informed of any agreements previously approved by the Shareholders’ meeting, the performance of
which continued during the previous fiscal year.

Neuilly-sur-Seine and Paris-La Défense, May 18, 2017
The Statutory Auditors

PricewaterhouseCoopers Audit

Thierry Charron

ERNST & YOUNG Audit

Frédéric Martineau

ESI GROUP • 2016 REGISTRATION DOCUMENT

MANAGEMENT REPORT

4.4. Factors that may have an impact in the event of a public offering
In accordance with article L. 225-100-3 of the
French Commercial Code, the following is clarified:
•

•

The structure of the share capital as well as direct or
indirect investments of which the Company is aware
and all such information is included in Section 7.2.4.
of Chapter 7 under the heading “Change in the break-
down of the Company’s share capital”;
To the Company’s knowledge, there are no agree-
ments or other commitments signed by the share-
holders other than those mentioned in Section 7.2.4.
of Chapter 7 under the heading “Shareholders’ agree-
ments”;
There are no securities giving special control rights
other than double voting rights stipulated in Article
9 of the Articles of Association and mentioned in Sec-
tion 7.1.2. of Chapter 7 under the heading “Double
voting rights (article 9 of the articles of association)”;

•

There are no restrictions in the bylaws on the exer-
cise of voting rights and the transfer of shares;
Voting rights attached to ESI shares with regard to
the employee savings plan are exercised by the ESI
FCPE;
The rules for appointing and removing members of
the Board of Directors are those of common law;
Concerning the powers of the Board of Directors, cur-
rent authorizations are described in the table sum-
marizing powers delegated with regard to share re-
demption and capital increases in Section 7.2.2. of
Chapter 7;
Any amendments to ESI Group’s articles of associa-
tion are made in accordance with legal requirements
and regulations;
There are no agreements providing for compensa-
tion in the event of the departure of directors.

ESI GROUP • 2016 REGISTRATION DOCUMENT

81MANAGEMENT REPORT

4.5. Table summarizing the results of the past 5 fiscal years

Balance sheet date

01/31/2017

01/31/2016
Restated

01/31/2015

01/31/2014

01/31/2013

Duration of fiscal year (months)

CAPITAL AT BALANCE SHEET DATE

Share capital

Number of shares

– ordinary shares

– preference shares

Maximum number of shares to be created

– via convertible bonds

17,975,976

17,865,216

17,845,266

17,806,896

17,613,387

5,991,992

5,955,072

5,948,422

5,935,632

5,871,129

– via subscription rights

207,080

159,095

178,910

225,850

OPERATIONS AND RESULTS

Revenue (excl. tax)

84,313,214

79,156,886

68,487,405

65,743,553

62,077,701

Earnings before tax, employee profit-
sharing, allowances for amortization and
provisions

28,651,433

30,414,474

25,228,586

25,909,345

20,463,075

Income tax

(1,669,380)

(2,205,946)

(1,865,499)

(1,427,906)

(1,079,267)

Employee profit-sharing

15,967

for

amortization

and

Allowances
provisions

Net income

Distributed earnings

EARNINGS PER SHARE

Earnings after tax and employee profit-
sharing, before allowances for
amortization and provisions

Earnings after tax, employee profit-
sharing, allowances for amortization and
provisions

Dividend

PERSONNEL

28,688,439

19,916,428

26,012,821

20,703,306

17,980,688

1,632,374

3,931,981

1,081,264

6,633,945

3,561,654

5.06

4.00

4.55

4.61

3.67

0.27

0.66

0.18

1.12

0.61

Average headcount

234

217

212

202

185

Payroll

14,159,959

13,203,318

12,446,007

12,200,768

11,645,485

Amounts paid in benefits (social security,
social welfare, etc.)

6,711,622

6,295,088

5,772,990

5,652,434

5,314,973

ESI GROUP • 2016 REGISTRATION DOCUMENT

FINANCIAL STATEMENTS

5.1. Consolidated financial statements

5.1.1. Consolidated income statement

(in € thousands)

Licenses and maintenance

Consulting

Other

REVENUE

Cost of sales

Research and development costs

Selling and marketing expenses

General and administrative expenses

CURRENT OPERATING RESULT

Other operating income and expenses
Total operating expenses

INCOME FROM OPERATIONS

FINANCIAL RESULT

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 (GROUP SHARE)

Earnings per share (in euros)
Diluted earnings per share (in euros)

Note

January 31, 2017

January 31, 2016

108,316

31,177

1,058

140,551

(37,491)

(26,942)

(41,842)

97,038

26,524

1,155

124,718

(34,305)

(22,772)

(38,611)

(18,912)

(17,223)

15,365

(1,644)
(126,830)

11,807

(2,454)
(115,365)

13,721

(2,115)

11,695

(3,992)

7,703

180

7,523

1.36
1.35

9,353

(950)

123

8,527

(3,157)

5,370

5,330

0.96
0.96

4.1

6.1.2

3.2.2
4.4

7.2

8.1

9.3
9.3

ESI GROUP • 2016 REGISTRATION DOCUMENT

83
5

FINANCIAL STATEMENT

Statement of comprehensive income

(in € thousands)

NET INCOME BEFORE MINORITY INTERESTS

Other comprehensive income recycled to income
Change in the fair value of hedging instruments
Translation differences

Other comprehensive income (loss) not recycled to income
Actuarial gains and losses
INCOME AND EXPENSES RECORDED DIRECTLY IN EQUITY
COMPREHENSIVE INCOME
Attributable to Group equity holders
Attributable to minority interests
The notes are an integral part of the consolidated financial statements.

5.1.2. Consolidated balance sheet

Assets

(in € thousands)

NON-CURRENT ASSETS
Goodwill
Intangible assets
Property, plant and equipment

Investment in associates
Deferred tax assets
Other non-current assets
Cash-flow hedging instruments

CURRENT ASSETS
Trade receivables
Other current receivables
Prepaid expenses
Cash and cash equivalents

TOTAL ASSETS

January 31, 2017

January 31, 2016

7,703

5,370

(8)
27

(481)
(462)
7,241
7,064
178

23
61

43
127
5,497
5,454
44

Note

January 31, 2017

January 31, 2016

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

122,794
40,810
57,830
4,440

890
10,901
7,900
22

104,921
74,064
12,273
4,115
14,470

227,715

112,966
38,508
54,623
4,266

859
10,548
4,072
90

94,049
67,676
12,692
3,355
10,327

207,015

ESI GROUP • 2016 REGISTRATION DOCUMENT

Liabilities

(in € thousands)

EQUITY

Equity (Group share)

Capital

Additional paid-in capital

Reserves and retained earnings

Net income (loss)

Translation differences

Minority interests

NON-CURRENT LIABILITIES

Long-term share of financial debt
Provision for employee benefits
Deferred tax liabilities
Cash-flow hedging instruments

Other long-term debt

CURRENT LIABILITIES

Short-term share of financial debt

Trade payables

Accrued compensation; taxes and others short-term liabilities
Provisions for contingencies, risks and disputes
Deferred income

FINANCIAL STATEMENT

Note

January 31, 2017

January 31, 2016

9.1

7.1.2
5.3
8.2
7.1.4

7.1.2

10.2.1
10.2.2
4.3

99,488

98,475

17,976

25,218

45,915

7,523

1,843

1,013

48,766

36,031
8,472
2,963
53

1,247

79,461

15,805

10,895

29,329
1,042
22,389

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

8,073

26,593
1,551
21,064

TOTAL LIABILITIES

227,715

207,015

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

ESI GROUP • 2016 REGISTRATION DOCUMENT

855

FINANCIAL STATEMENT

5.1.3. Consolidated statement of changes in equity

(In € thousands except number of shares)

Number of
shares

Capital Additional
paid-in
capital

Net income,
reserves
and
retained
earnings

Translation
differences

Equity
attributable
to parent
company
owners

Minority
interests

Total
Equity

AT JANUARY 31, 2015

5,948,422

17,845

24,899

41,879

1,773

86,396

457

86,853

Change in fair value of hedging instruments

Translation differences

Actuarial gains and losses

Income and expenses recognized directly in equity

Net income

COMPREHENSIVE INCOME

Proceeds from issue of shares

6,650

Treasury shares

Share-based payments

Transactions with non-controlling interests

AT JANUARY 31, 2016

5,955,072

17,865

24,938

Change in fair value of hedging instruments

Translation differences

Actuarial gains and losses

5,330

5,399

(229)

286

(1,123)

46,212

(8)

(476)

123

5,330

5,454

(3)

(229)

286

(1,123)

90,842

(8)

(476)

1,827

127

5,370

5,497

(229)

286

384

884

(740)

91,727

(8)

(481)

(4)

Income and expenses recognized directly in equity

(485)

(459)

(2)

(462)

Net income

COMPREHENSIVE INCOME

Proceeds from issue of shares

36,920

111

280

Treasury shares

Share-based payments

Transactions with non-controlling interests

7,523

7,039

(315)

333

169

7,523

180

7,703

7,064

178

7,241

391

(315)

333

(9)

160

391

(315)

333

111

99,488

(49)

1,013

AT JANUARY 31, 2017

5,991,992

17,976

25,218

53,438

1,843

98,475

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

ESI GROUP • 2016 REGISTRATION DOCUMENT

865.1.4. Consolidated statement of cash flows

(in € thousands)

January 31, 2017

January 31, 2016

FINANCIAL STATEMENT

Net income before minority interests
Share of profit of associates
Amortization and provisions
Net impact of capitalization of research & development costs
Income taxes (current and deferred)
Income taxes paid
Unrealized financial gains and losses
Share-based payment transactions

Gains and losses on asset disposals
CASH FLOWS
Trade receivables
Trade payables
Other receivables and other liabilities
Change in working capital requirement
NET CASH FROM OPERATING ACTIVITIES
Purchase of intangible assets
Purchase of property, plant and equipment
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
Purchase and proceeds from disposal of treasury shares
CASH FLOWS FROM FINANCING ACTIVITIES
Effect of exchange rate changes on cash and cash equivalents
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Opening cash position
Closing cash position (1)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(1)
The notes are an integral part of the consolidated financial statements.

7,703

(89)

4,574

(2,832)

3,992

(3,243)

(60)

333

130

10,509

(6,649)

2,949

2,198

(1,502)

9,007

(528)

(2,201)

(4,361)

(3,566)

(10,656)

19,891

(14,775)

391

(315)

5,193

186

3,729

10,327

14,056

3,729

5,370

(123)

3,860

(3,456)

3,157

(2,817)

1,190

286

7,481

(7,573)

211

(445)

(7,807)

(326)

(2,590)

(2,637)

(17,552)

(2,112)

(24,866)

47,916

(24,222)

(229)

23,523

(1,613)

11,940

10,327

(1,613)

Net cash and cash equivalents at January 31, 2017 comprised €14.47 million in assets less €0.414 million in bank overdrafts.

ESI GROUP • 2016 REGISTRATION DOCUMENT

875 FINANCIAL STATEMENTS

5.1.5. Notes to the consolidated financial statements

Table of contents of notes to the consolidated financial statements

Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.

Accounting principles
Significant events of the year
Scope of consolidation
Operating data
Personnel costs and employee benefits
Intangible and tangible assets
Financing and financial instruments

88
89
89
95
98
102
105

Note 1. Accounting principles
Note 1.1. General information
ESI Group is a listed French limited company (société
anonyme), registered in France and governed by French
law.
ESI Group has its head office at 100-102 Avenue de Suf-
fren, Paris (75015), France.
ESI Group is the parent company of some 30 subsidiaries
operating throughout the world, together comprising

Group

ESI

ESI Group is the world's foremost creator of Virtual Pro-
the
totyping software and services. Specializing in the physics
of materials, ESI Group has developed unique expertise to
help industrial players replace physical prototypes with
virtual ones, thus making it possible to virtually manufac-
ture and test the products of the future, ensuring pre-cer-
tification. Used together with latest-generation technolo-
gies, today Virtual Prototyping is part of an overarching
approach to the Product Performance Lifecycle (PPL),
which addresses products' operating performance
throughout its useful life cycle, from rollout to withdrawal.
The creation of Hybrid Twins incorporating simulation,
physics and data analysis makes it possible to create
smart products, particularly using connected objects, as
well as to predict their performance and anticipate their
maintenance requirements.
The Group's fiscal year runs from February 1 to January
31.
Financial statements are presented in thousands of euros.
The 2016 financial statements were approved by the
Board of Directors on April 18, 2017 and will be submitted
to the General Meeting of June 29, 2017 for approval.

As such, FY2016 ended on January 31, 2017.

Note 1.2. Accounting standards applied
The consolidated financial statements at January 31, 2017
were prepared in accordance with the IFRS standards, as
approved by the European Union at January 31, 2017.
These standards are available on the European Union
website.

Note 8.
Note 9.
Note 10.
Note 11.
Note 12.
Note 13.

Income tax
Equity and earnings per share
Other balance sheet items
Related party transactions
Fees paid to statutory auditors
Subsequent events

110
112
113
114
115
115

Note 1.3. New IFRS standards and interpretations

standards, amendments and

interpretations
New
effective in the European Union and mandatory for fiscal
years beginning on or after February 1, 2016
The adoption of the following texts had no significant im-
pact on the information presented by the Group:
•
•

Amendments to IFRS 11 – Joint Arrangements;
Amendments to IAS 16 and IAS 38 – Fixed assets:
Clarification of acceptable methods of depreciation
and amortization;
Annual improvements – 2012-2014 cycle;
Amendments to IAS 1 – Presentation of Financial
Statements;
Amendments to IAS 27 – Equity Method in Separate
Financial Statements.

•
•

•

Application of new standards prior to their mandatory
effective date
The Group did not opt for early application of standards
and interpretations not mandatory as of February 1, 2016,
in particular the following:
•

IFRS 15 “Revenue from Contracts with Customers”
applicable to fiscal years beginning on or after Janu-
ary 1, 2018;
IFRS 9 “Financial instruments” applicable to fiscal
years beginning on or after January 1, 2018;

•

The impact of these new standards on consolidated finan-
cial statements is currently being analyzed.
In addition, the Group's consolidated financial statements
do not take into account any new standards, amendments
and interpretations not yet approved by the European Un-
ion at January 31, 2017, in particular IFRS 16 “Leases” ap-
plicable to fiscal years beginning on or after January 1,
2019. The impact of this new standard on consolidated fi-
nancial statements is currently being analyzed.

ESI GROUP • 2016 REGISTRATION DOCUMENT

Note 1.4. Use of estimates and assumptions
Preparation of the consolidated financial statements re-
quires the use of various estimates and assumptions made
by the Group's management. These estimates and as-
sumptions have an impact on the valuation of assets and
liabilities, 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

Note 2. Significant events of the year

Change in scope of consolidation – see details in notes 3.2
and 3.4
In H1 2016, Group acquired 100% of the capital of the U.S.-
based company Mineset Inc. on February 5, 2016. This ac-
quisition was financed through a drawdown on the syndi-
cated loan signed in November 2015.

Note 3. Scope of consolidation

FINANCIAL STATEMENTS

impact of options and free shares granted to employees,
business combinations, revenue recognition, depreciation
of non-current assets, valuation of deferred tax assets, val-
uation of derivative instruments, capitalized development
costs, provisions for impairment of doubtful receivables,
taxes, risks and disputes, as well as provisions for post-
employment benefits.

The Group also repurchased a number of minority inter-
ests, particularly concerning ESI Software Germany, of
which the Group holds 98.5% at January 31, 2017, ESI Ser-
vices Tunisia of which the Group owns 95%, and CyDesign
Labs Inc. of which the Group owns 99.9%.

Note 3.1. Accounting policies related to the scope of consolidation
Consolidation method
The annual financial statements of the companies con-
trolled by ESI Group are fully consolidated from the date
at which ESI Group takes control until the date when con-
trol is transferred outside the Group. Associates, defined
as companies over which the Group exercises significant
influence, are accounted for using the equity method. The
Group does not own stakes in any entity over which it ex-
ercises joint control.
The Group's scope of consolidation at January 31, 2017 is
detailed in note 3.4.

Closing date
Subsidiaries with a closing date other than January 31 pre-
pare interim financial statements as of January 31 for con-
solidation purposes.

Internal transactions
All transactions between consolidated companies, includ-
ing intra-Group gains, are eliminated in the consolidated
financial statements.

Conversion of the financial statements of non-French
subsidiaries
The Group's foreign subsidiaries generally use local cur-
rency as their functional currency. ESI Group's functional
and presentation currency is the euro.
Balance sheet items of foreign subsidiaries are translated
to euros at the closing rate, with the exception of compo-
nents of the net equity, which are maintained at the his-
torical rate. Income statements are translated at the aver-
age exchange rate for the period. Translation differences

are recorded in a specific “Translation differences”
Other Comprehensive
account on a
Income.

line

separate

in the
in

Transactions and balances
foreign currencies
At the closing date, monetary assets and liabilities
denominated in foreign currencies 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
“Translation
Comprehensive
differences.”

(OCI), under

Income

Business combinations
Business combinations are recognized by the
acquisition method:
•

The identifiable assets acquired and liabilities as-
sumed are measured at fair value as of the acquisi-
tion date;
Any non-controlling interest in the acquiree (i.e. mi-
nority interest) is measured either at fair value (“full
goodwill method”) or at the non-controlling inter-
est’s proportion of the acquiree’s identifiable net as-
set (“partial goodwill method”). This option applies
on an individual transaction basis.

•

Costs directly related to the acquisition are recorded as
expenses when incurred, in “Other operating income and
expenses.”

ESI GROUP • 2016 REGISTRATION DOCUMENT

895 FINANCIAL STATEMENTS

Any contingent consideration related to business combi-
nations 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 re-
porting period. Any changes in the fair value of contingent
consideration arising more than one year after the acqui-
sition 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 acquisi-
tion date. Other changes are offset against goodwill.
Where put options have been granted to minority share-
holders of subsidiaries, the amount recognized in liabili-
ties 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 date. The

balance is allocated either to Goodwill (“full goodwill
method”) or to Equity (“partial goodwill method”). Dis-
counting adjustments are recorded in the Financial Result.
Subsequent gains and losses (or changes) in fair value of
the liability are recognized directly in equity
At the acquisition date, goodwill represents the difference
between:
•

The fair value of the consideration transferred, plus
the total minority interests in the acquiree and, for
step acquisitions, the fair value of the stake previ-
ously held at the corresponding acquisition date, re-
valuated in the income statement; and
The net fair value of the identifiable assets and lia-
bilities acquired.

•

ESI GROUP • 2016 REGISTRATION DOCUMENT

90The Group has 12 months from the acquisition date to de-
termine the fair value of the assets and liabilities and de-
clare the amount of goodwill acquired. If the acquisition
price is lower than the fair value of identified assets, lia-
bilities and contingent liabilities, the difference is immedi-
ately recorded in the income statement.
In accordance with IFRS standards, goodwill is not amor-
tized but is instead subject to an impairment test. This test
is performed at least once a year and when an impairment
indicator is identified. Goodwill is allocated to cash-gener-
ating units (“CGU”) for the purposes of impairment test.
For intangible assets acquired in the context of a business
combination, the amortization expenses as well as the
costs directly attributable to acquisitions are presented on
a separate line of the income statement entitled “Other op-
erating income and expenses.” The “Current operating re-
sult” presented in the income statement is equal to “In-
come 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 ac-
quired technologies (source codes, algorithms, etc.).
As the Group has pursued its development, it has become
clear that certain technologies acquired to resolve a spe-
cific issue could be used to resolve other issues as well. In-
corporating this technology portfolio in the Group's soft-
ware packages makes it possible to use all of these tech-
nologies in all of the Group's projects depending on the so-
lutions required. The consequence of this ever-increasing
integration is that it is more and more difficult to allocate
revenue to a specific technology and to thus create a CGU
for each technology or software program.
In addition, the revenue earned by a sales subsidiary is de-
pendent not only on its own commercial performance but

FINANCIAL STATEMENTS

also, even more so, on the software offering. The large
multinational corporations with which ESI Group works
regard the Group as a partner. As both a software pub-
lisher and technological partner, ESI helps implement
standardized methods within their organizations. It
should be noted that the Group's top twenty customers
have accounted for more than 40% of its order bookings
for several years.
The impairment test is based on discounted value of fore-
cast future cash flows according to business projections,
technology penetration and the competitive situation. Fu-
ture cash flows are estimated as follows:
•
•
•

The last fiscal year for the reference year (Y);
Annual budget for the following year, Y+1;
Cash flows for the years Y+2 to Y+5 are estimated on
the basis of Y+1 data by applying growth rates that
reflect the Group's strategy, have been approved by
senior management and, can be based on past expe-
rience.

The discount rate applied as of January 31, 2017 is the
Group’s weighted average cost of capital (WACC) adjusted
with a risk premium. It stands at 11.4% compared to 11%
at January 31, 2016.
The present value of the CGU is determined by adding:
•

The present value of forecast future cash flows over
the explicit period of 5 years, as described above;
The terminal value, calculated by capitalizing to per-
petuity the last cash-flow of the explicit period. The
long-term growth rate applied is 1%.

•

This present value of the CGU either confirms the fair
value of the assets of the CGU, or serves as a basis for cal-
culating potential impairment.
The impairment test performed on the CGU at January 31,
2017 did not identify any loss in value for these assets. The
test was analyzed for sensitivity to reasonably plausible
changes in key assumptions, based on a 1% increase in the
discount rate and a 1% decrease in the long-term growth
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. Change in goodwill

(in € thousands)

January 31, 2016

Increase

Decrease

Gross values

TOTAL NET VALUES

38,508

2,223

Foreign exchange
gain/loss

January 31, 2017

40,810

ESI GROUP • 2016 REGISTRATION DOCUMENT

915 FINANCIAL STATEMENTS

Acquisition of Mineset Inc.
In February 2016, ESI Group acquired a 100% interest in the US-based company Mineset Inc., specialized in machine
learning. At the preliminary allocation of the acquisition price of €4.017 million, the net assets acquired were revaluated
at €1.797 million. Details of this valuation are presented below. As a result, goodwill comes to €2.22 million.

(in € thousands)

Capitalized development costs
Deferred tax liabilities on intangible assets
Deferred tax assets on tax loss carryforwards
Carrying amount of net assets prior to the acquisition
NET ASSET VALUE AT ACQUISITION DATE (100%)

Follow-up on FY2015 acquisitions

Preliminary
allocation

1,885
(628)
509
32
1,797

Acquisition of CIVITEC
In March 2015, ESI Group acquired an 80% interest in CIVITEC. The definitive allocation of the acquisition price of €0.9
million remained unchanged vis-a-vis the preliminary valuation and did not lead recognition of goodwill. The net asset
value described below comes to €1.125 million for a 100% stake, i.e. €0.9 million for the interest held by ESI Group
(80%).

(in € thousands)

Deferred tax assets on tax loss carryforwards
Not booked pension obligations
Carrying amount of net assets prior to the acquisition
NET ASSET VALUE AT ACQUISITION DATE (100%)

Definitive allocation

Preliminary
allocation

272
(9)
863
1,125

Acquisition of ITI GmbH
In January 2016, ESI Group acquired a 96% interest in ITI GmbH. Allocation of the acquisition price of €17.952 million
led to the recognition of goodwill amounting to €14.541 million. The net asset value described below comes to €3.549
million for a 100% stake, i.e. €3.407 million for the interest held by ESI Group (96%).

(in € thousands)

Client Relationship
Capitalized development costs
Deferred tax liabilities on intangible assets
Deferred tax assets on tax loss carryforwards
Carrying amount of net assets prior to the acquisition
Other items
NET ASSET VALUE AT ACQUISITION DATE (100%)

Allocation at
January 31, 2017

Allocation at
January 31, 2016

3,044
1,469
(1,422)
220
170
68
3,549

3,044
1,469
(1,354)
220
174
-
3,553

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 amortization costs related to intangible assets acquired as part of a business combination.

(in € thousands)

Amortization of acquired intangibles assets

Acquisition costs

Other external expenses and income

TOTAL OTHER OPERATING INCOME AND EXPENSES

January 31, 2017

January 31, 2016

(1,470)
(195)

21
(1,644)

(1,160)
(1,294)

-
(2,454)

ESI GROUP • 2016 REGISTRATION DOCUMENT

92FINANCIAL STATEMENTS

Note 3.3. Off-balance sheet commitments related to acquisitions during the fiscal year
There are no off-balance sheet commitments related to the acquisition of Mineset Inc.

Note 3.4. List of entities in the scope of consolidation
The table below presents the dates of creation
head offices
capital directly or indirectly held:

and

addresses

of Group subsidiaries and the percentage of

ESI GROUP • 2016 REGISTRATION DOCUMENT

935

FINANCIAL STATEMENTS

Subsidiaries

SUBSIDIARIES FULLY CONSOLIDATED
Engineering System International
Engineering System International GmbH
ESI Japan, Ltd.
ESI North America, Inc.

Hankook ESI Co., Ltd.
ESI Group Hispania s.l.
STRACO
Mecas ESI s.r.o.
ESI UK Limited
ESI US Holding, Inc.
ESI US R&D, Inc.
Calcom ESI SA
ESI Software (India) Private Limited
Hong Kong ESI Co., Limited
Zhong Guo ESI Co., Ltd
ESI-ATE Holdings Limited
ESI ATE Technology (China) Ltd.
ESI South America Comércio e Serviços de Informatica,
Ltda

ESI Italia s.r.l.
Pacific Mindware Engineering Private Limited
ESI Services TUNISIA
ESI Group Beijing Co., Ltd
ESI Software Germany GmbH
Efield AB
ESI US Inc.

OpenCFD Limited
CyDesign Labs, Inc.
CYDESIGN LTD
ESI Services Vietnam Co., Ltd
CIVITEC
ITI GmbH
ITI Southern Europe
Mineset Inc.
SUBSIDIARIES ACCOUNTED FOR USING THE EQUITY METHOD
AVIC-ESI (Beijing) Technology Co. Ltd

% of capital held

Date of creation or
acquisition

Subsidiary head office

January 31,
2017

January 31,
2016

April 1973
July 1979
July 1991

March 1992

Rungis, France
Neu-Isenburg, Germany
Tokyo, Japan
Farmington Hills, Michigan,
USA

Seoul, South Korea
September 1995
Madrid, Spain
February 2001
Compiègne, France
April 2001
Plzen, Czech Republic
May 2001
Oxford, England
January 2002
August 2002 Dover, Delaware, United States
San Diego, California, USA
August 2002
Lausanne, Switzerland
December 2002
Bangalore, India
February 2004
Hong Kong, China
February 2004
Guangzhou, China
February 2004
Hong Kong, China
July 2006
Beijing, China
August 2006

June 2008

São Paulo, Brazil

September 2008
December 2008
April 2009
October 2010
August 2011
December 2011

February 2012

September 2012
October 2013
October 2013
December 2013
March 2015
January 2016
January 2016
February 2016

Bologna, Italy
Pune, India
Tunis, Tunisia
Beijing, China
Stuttgart, Germany
Sollentuna, Sweden
Farmington Hills, Michigan,
USA

Berkshire, England
Palo Alto, United States
Oxford, England
Ho Chi Minh City, Vietnam
Versailles, France
Dresden, Germany
Rungis, France
Milpitas, USA

100%
100%
97%

100%

99%
100%
98%
95%
100%
49%
74%
99%
100%
100%
100%
100%
100%

95%

90%
100%
95%
100%
98.5%
100%

100%

100%
99.9%
99.9%
100%
80%
96%
96%
100%

100%
100%
97%

100%

99%
100%
98%
95%
100%
49%
74%
99%
100%
100%
100%
100%
100%

95%

90%
100%
90%
100%
95.5%
100%

100%

100%
99.5%
99.5%
100%
80%
96%
96%
-

February 2014

Beijing, China

45%

ESI US Holdings is fully consolidated, as ESI Group has exclusive control.

ESI GROUP • 2016 REGISTRATION DOCUMENT

94Note 4. Operating data

Note 4.1. Revenue
There are two main sources of ESI Group revenue: a soft-
ware user licensing and related maintenance activity,
and a service activity.
To ensure better management of orders and business
opportunities, the Group has a customer base and CRM
(Customer Relationship Management) software. As rev-
enue from the License activity is recognized upon instal-
lation or renewal, the notion of backlog is only relevant
for the Service activity, for which revenue is recognized
based on actual production. The backlog represents at
all times the amount of revenue remaining to be recog-
nized (future production) on orders already recorded.
Each of the Group’s production units is in charge of con-
tinuously monitoring the backlog of its activity.

User Licensing and maintenance
Licensing revenue is generated from royalties paid un-
der 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 one year. In this case, revenue from mainte-
nance accounts for
Sale of perpetual rights to use the software plus
one year (renewable) of maintenance services. In
this case, revenue from maintenance accounts for

15% of total royalties;

•

FINANCIAL STATEMENTS

•

5% of total royalties;
Maintenance services on software for which per-
petual user rights have been purchased.

Maintenance services include updates and technical
support.

•
•

Revenue from user licensing is recorded when:
•

The Group can demonstrate the existence of an
agreement with the client;
The software has been delivered and accepted;
The amount of the user license for the software is
determined or determinable;
Recovery is likely.

•
If any of these four criteria is not met, revenue from user
licensing is deferred until all criteria are met. Revenue
from maintenance is differed and recorded according to
the straight-line method over the term of the mainte-
nance agreement, which is generally one year.

Services
Service revenue consists mainly of consulting and train-
ing fees. It is recognized according to the percentage of
completion method. Corresponding costs are recorded
as soon as they are incurred. A provision for losses on
completion is recorded if necessary.
Services also include sale of IT equipment, particularly
that related to Virtual Reality.

(in € thousands)

January 31, 2017

January 31, 2016

TOTAL LICENSES AND MAINTENANCE
Consulting
Other revenue
TOTAL SERVICES
CONSOLIDATED REVENUE
O/w total co-financed research and development projects included in service revenue

Note 4.2. Trade receivables
Trade receivables are initially recorded at their nominal
value, as the potential impact of discounting is immate-
rial. They are then recorded at amortized cost, less im-
pairment resulting from irrecoverability, when applica-
ble.
Receivables are depreciated when their net realizable

108,316
31,177
1,058
32,235
140,551
5,041

97,038
26,524
1,155
27,680
124,718
3,209

value, estimated by reference to the risk of non-recovery
as determined by type of receivable, is less than their
carrying amount. Depending on the nature of receiva-
bles, the risk associated with bad debts is appreciated
individually or based on statistical methods.

ESI GROUP • 2016 REGISTRATION DOCUMENT

95
5 FINANCIAL STATEMENTS

DETAILS OF TRADE RECEIVABLES

•
(cid:23)(cid:138)(cid:135)(cid:3)(cid:10)(cid:148)(cid:145)(cid:151)(cid:146)(cid:821)(cid:149)(cid:3)(cid:133)(cid:142)(cid:139)(cid:135)(cid:144)(cid:150)(cid:135)(cid:142)(cid:135)(cid:3)(cid:143)(cid:131)(cid:139)(cid:144)(cid:142)(cid:155)(cid:3)(cid:133)(cid:145)(cid:143)(cid:146)(cid:148)(cid:139)(cid:149)(cid:135)(cid:149)(cid:483)

Major industrial corporations, especially compa-
nies in the automotive, aerospace and steel indus-
tries;

(in € thousands)

Trade receivables

Work in progress and non-invoiced receivables

Impairment of trade receivables

TOTAL TRADE RECEIVABLES, NET OF IMPAIRMENT

•

Government agencies for governmental and de-
fense projects;
Academic bodies.

January 31, 2017

January 31, 2016

62,143

16,389

(4,468)

74,064

57,472

13,902

(3,699)

67,676

(in € thousands)

Impairment
TOTAL

January 31, 2016

Provisions

Reversals

Foreign exchange
gain/loss

January 31, 2017

(3,699)
(3,699)

(1,145)
(1,145)

344
344

32
32

(4,468)
(4,468)

AGE OF TRADE RECEIVABLES

(in € thousands)
Not due
0 to 30 days
30 to 90 days
Higher than 90
days Total

January 31,2017

January 31,2016

54,538
7,079
6,529
5,918
74,064

51,105
8,301
5,299
2,971
67,676

The large amount of not due receivables is due to the highly seasonal nature of sales, with Q4 accounting for more than
40% of Group revenue.
Receivables overdue by more than 90 days mainly include Chinese state and public-sector clients, whose payment terms
are longer.

Note 4.3. Deferred income
Deferred income essentially corresponds to maintenance to be rendered.

(in € thousands)

Maintenance services to be rendered
Other deferred income
DEFERRED INCOME

Note 4.4. Operating expenses

(in € thousands)

Other purchases and external expenses
Real estate rentals
Fees
Taxes and duties
Amortization and provisions

January 31, 2017

January 31, 2016

18,765
3,624
22,389

16,204
4,860
21,064

January 31, 2017

January 31, 2016

(14,026)
(6,291)
(3,168)
(587)

(3,044)

(13,300)
(5,187)
(2,786)
(538)

(2,921)

ESI GROUP • 2016 REGISTRATION DOCUMENT

96Personnel costs (1)
Other external expenses and income
TOTAL CURRENT OPERATING EXPENSES
Other operating income and expenses (2)
TOTAL OPERATING EXPENSES
(1) Details on personnel costs are presented in note 5.2.
(2) Details on other operating income and expenses are presented in note 3.2.2.

Note 4.5. Information by geographic area
In accordance with paragraphs 31-34 of IFRS 8, ESI
Group presents revenue from ordinary activities and
non-current assets by region (the three main regions be-
ing EMEA (Europe, Middle East, Africa), Asia-Pacific and

FINANCIAL STATEMENTS

(86,592)
(11,478)
(125,186)
(1,644)
(126,830)

(78,594)
(9,585)
(112,911)
(2,454)
(115,365)

the Americas). Indeed, the Group works in a unique seg-
ment, with close ties between its two identified busi-
ness, Licenses and Services.
Revenue is distributed over the regions where it was ef-
fectively generated.

(in € thousands)

Europe, Middle-
East and Africa

Asia-Pacific

Americas

Eliminations

Consolidated

YEAR ENDED JANUARY 31, 2017

External clients
Affiliate companies
NET SALES
ASSETS ALLOCATED

YEAR ENDED JANUARY 31, 2016

External clients
Affiliate companies
NET SALES
ASSETS ALLOCATED

63,419

80,148

143,567

286,979

57,098
76,535
133,633
253,466

54,864

9,286

64,150

41,661

44,291
8,206
52,497
33,243

22,268

8,863

31,131

23,506

23,329
6,944
30,273
21,279

140,551

(98,296)

(124,431)

(91,685)
(91,685)
(100,973)

140,551

227,715

124,718

-
124,718
207,015

Intra-Group transactions consist mainly of royalties paid by the Group's subsidiaries. These royalties are proportional to
Licensing revenue 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, 2017 are listed below:

Due at January 31
(in € thousands)

2018

2019

2020

2021

2022 and beyond

Total

Minimum rental payment

6,693

4,519

3,645

2,692

4,117

21,665

At January 31, 2017, ESI Group also had a rent security deposit with Crédit du Nord in an amount of €82 thousand, es-
tablished in December 2012 and expiring in December 2022.

ESI GROUP • 2016 REGISTRATION DOCUMENT

975 FINANCIAL STATEMENTS

Note 5. Personnel costs and employee benefits

Note 5.1. Headcount
Headcount is calculated on a “Full-Time Equivalent”
(FTE) basis and distributed as follows:

(FTE)

France
Rest of the world

January 31, 2017

January 31, 2016

286
867
1,153

288
767

1,054

Note 5.2. Personnel costs
Personnel costs are presented by destination in the in-
come statement. Their break down by nature is as fol-
lows:

(in € thousands)

January 31, 2017 January 31, 2016

Salaries
Payroll taxes
Share-based payments
Post-employment benefits
TOTAL PERSONNEL COSTS

(68,962)
(16,653)
(333)

(644)

(86,592)

(61,876)
(15,858)
(286)

(575)

(78,594)

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 require-
ments and additional post-employment benefits. To
cover these benefits, the Group has defined-contribution
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 en-
tity. 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 bene-
fits that may be paid when the employee retires.
For defined-benefit plans, in accordance with IAS 19 R
“Employee Benefits,” obligations are determined using

5.3.1. Actuarial assumptions

Discount rates
Discount rates correspond to:
•

For France: AA-rate corporate bond rates in the Eu-
rozone, adjusted according to the duration of the
Group's commitments;
For other counties: rates reported by the central
banks.

•

Discount rates

January 31, 2017

January 31, 2016

France
Germany
Japan
South Korea
India

1.70%
1.98%
0.60%
2.20%
7.30%

1.90%
-
0.75%
2.10%
8.40%

the projected unit credit method. This actuarial method
stipulates that each period of service entitles the em-
ployee to one unit of benefit rights and evaluates each of
these units separately to arrive at a final commitment.
These calculations use assumptions in terms of mortal-
ity, staff turnover and future salary increases.
Defined-benefit pension schemes and long-term bene-
fits recognized in accordance with IAS 19 R are as fol-
lows:
•

For France: retirement benefits, supplementary
pension plan provided by an insurance company;
For Korea, India and Japan: severance pay owed to
employees upon departure from the company re-
gardless of reason for departure, calculated on the
basis of length of service within the company;
For Germany: defined-contribution benefits owed
to selected managers.

•

Rate of salary increase
Details by country are presented below:

Rate of salary increase

January 31, 2017

January 31, 2016

France
Germany
Japan
South Korea
India

2.50%
2.00%
3.00%
3.00%
10.00%

2.50%
-
3.00%
3.00%
8.33%

ESI GROUP • 2016 REGISTRATION DOCUMENT

98FINANCIAL STATEMENTS

Staff turnover rates
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)

January 31,
2016

Change in
scope of
consolidation

Change in
equity (OCI)

Provisions

Reversals

Foreign
exchange
gain/loss

January 31,
2017

TOTAL
PROVISION
EMPLOYEE BENEFITS

FOR

6,820

308

724

542

(100)

178

8,472

ANALYSIS OF THE VARIATION IN THE PROVISION RECORDED IN THE BALANCE SHEET:
(in € thousands)

January 31, 2017

January 31, 2016

CHANGE IN COMMITMENTS

Commitments at opening
Acquired companies
Costs of services rendered in the period
Interest expenses
Benefits paid
Actuarial gains and losses
Foreign exchange gain/loss
COMMITMENTS AT CLOSING

CHANGE IN FAIR VALUE OF ASSETS

Fair value of assets at opening
Acquired companies
Yield on assets
Employer contributions (1)
Benefits paid
Actuarial gains and losses
Foreign exchange gains and other
FAIR VALUE OF ASSETS AT CLOSING

NET EXPENSE FOR THE YEAR

Costs of services rendered
Finance charges
Interest expenses
Yield on assets
NET EXPENSE FOR THE YEAR

PROVISION RECORDED IN THE BALANCE SHEET

Commitments financed
Fair value of assets
Net commitments financed
Commitments not financed
PROVISION AT CLOSING

CHANGE IN PROVISION

Provision at opening
Net expense for the year
Actuarial gains and losses
Employer contributions (1)

(7,520)
(967)
(743)

(191)

244
(758)
(216)
(10,152)

700
659
25
367
(144)
34
38
1,680

(743)

(166)

(191)

25
(909)

(4,230)
1,680
(2,550)
(5,923)
(8,472)

(6,820)
(909)

(724)
367

(6,944)
(9)
(690)

(136)

118
69
73
(7,520)

95
-
6
633
(6)
4
(32)
700

(690)

(130)

(136)

6
(820)

(2,439)
700
(1,739)
(5,082)
(6,820)

(6,849)
(820)

73
633

ESI GROUP • 2016 REGISTRATION DOCUMENT

995

FINANCIAL STATEMENTS

Benefits paid
Acquired companies
Foreign exchange gain/loss
PROVISION AT CLOSING
(1) The change in hedging assets corresponds primarily to Korea.

5.3.3. Sensitivity of commitments to fluctuations in the discount rate

100
(308)
(178)
(8,472)

(in € thousands)

Commitment – 0.5%
Commitment
Commitment + 0.5%

(in € thousands)

Total actuarial gains/losses
Experience adjustment
Change in financial assumptions
Yield on assets

112
(9)
40
(6,820)

(10,552)
(10,152)
(9,308)

(724)
(173)
(543)
(8)

Note 5.4 Share-based payments

Stock options may be granted to selected Group employ-
ees. They entitle employees 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,
additionally to continued employment requirement.
In accordance with IFRS 2, options are measured at the
fair value of the benefit granted to the employee, esti-
mated 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 eq-
uity. The expense is recorded in the income statement

per destination according to the allocation of each con-
cerned person.
The fair value of the option is determined using the
“Black–Scholes” model, the main parameters of which
include: 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 Group employees.
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.

ESI GROUP • 2016 REGISTRATION DOCUMENT

100FINANCIAL STATEMENTS

Terms and conditions of stock options and free shares plans
Stock options and free share grants have been authorized by various General Meetings and could potentially dilute ESI
Group's capital. The table below describes the status of the various plans under which options have been granted but not
yet exercised.

Plan number

Year of
implementation

Number of stock
options/shares
allotted or to be
allotted

Number of stock
options/shares
granted

O/w
performance
shares

Weighted
average
exercise price

Number of existing
stock
options/shares at
January 31, 2017

Year that
stock
options can
be exercised

Plan 10
Plan 15
Plan 17

Plan 18

TOTAL STOCK OPTIONS

Plans 6 and 7

TOTAL FREE SHARES

2012
2013
2014

2016

180,000
294,538
180,000

297,753

180,000
20,000
17,350

62,300
20,000
0

25.95
21.66
24.97

111,175
20,000
17,350

2020-2025
2025
2023

957,291

217,350

82,300

60,000

27,262

148,525

27,208

2018-2020

27,208

175,733

TOTAL STOCK OPTIONS AND FREE SHARES

1,012,291

244,612

82,300

The total expense related to share-based payments for the fiscal year ended January 31, 2017 stands at €80 thousand.
That related to free shares stands at €253 thousand.
All stock options and free shares include a continued employment requirement.

Movements in stock options and free shares plans are as follows:

2016

2015

Numbers of stock
options and free
shares

Weighted average
exercise price

Numbers of options
and free shares

Weighted average
exercise price

STOCK OPTIONS AND SHARES EXISTING AT OPENING
Stock options/free shares granted
Stock options expired or canceled
Stock options exercised and free shares delivered
STOCK OPTIONS AND SHARES EXISTING AT CLOSING
OPTIONS THAT MAY BE EXERCISED AT THE BALANCE SHEET
DATE

207,080
37,262
(12,544)
(56,065)
175,733

20.54
6.27
25.75
6.98
21.56

178,330
45,500
(10,100)
(6,650)
207,080

31,920

19.71
24.26
25.81
8.86
20.54

8.86

The main data and assumptions underlying the valuation of stock options and free shares at fair value were as follows:

Stock options

Plan 10

Plan 15

Share price at grant date
Exercise period of stock options/free shares in years
Volatility
Dividend rate
Interest rate

25 to 28
3 to 5
22% to 25%
0%
0.3% to 1.3%

25
4
22%
0%
0.4%

Plan 17

24 to 28
1 to 5
23%
0%
0.7%

Free shares

Plan 6

30
2 to 4
n.a.

0%
1.2%

Plan 7

46
2
n.a.

0%
1.1%

ESI GROUP • 2016 REGISTRATION DOCUMENT

1015

FINANCIAL STATEMENTS

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)

GROSS VALUES

Development costs

Intangible assets with an indefinite useful life

Other intangible assets

TOTAL

AMORTIZATION

Development costs

Intangible assets with an indefinite useful life

Other intangible assets

TOTAL

NET CARRYING AMOUNTS

Development costs

Intangible assets with an indefinite useful life

Other intangible assets

TOTAL

January 31,
2016

Change in
scope of
consolidation

Increase

Decrease

Foreign
exchange
gain/loss

January 31,
2017

49,166

12,044

22,556

83,766

(15,626)

(73)

(13,444)

(29,143)

33,539

11,971

9,112

54,623

1,885

28,289

(25,447)

1,885

478

28,767

(291)

(25,738)

(25,457)

25,447

(1,949)

269

(27,406)

25,715

1,885

2,832

1,885

(1,471)

1,361

(23)

53,894

12,044

22,744

88,681

(15,637)

(73)

(15,142)

(30,851)

38,257

11,971

7,602

57,830

(18)

(16)

Changes related to change in scope of consolidation refer to Mineset development costs.

6.1.2. Capitalized development costs

evelopment costs borne to gain new scientific or
technical knowledge are recorded as expenses when
D
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 development
project has been established;
The Group intends to complete the project;
The Group will be able to use or sell the product aris-
ing from the development project;
The product is likely to generate future economic
benefits, and a market exists for this product;
There are appropriate technical, financial and other
resources available to complete the development
project and to sell the resulting product;
The Group has the ability to reliably measure the ex-
penses attributable to the development

project.

•
•

•

The expenses thus converted into assets include the
cost of direct labor as well as subcontracting.
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 may decide to wait until several upgrades
have been made before marketing a new version rather
than to release several different versions with minor up-
grades during the year; in other cases, a new version fea-
turing a major innovation may be marketed even if other
improvements are planned in the near future. While pro-
ject releases are generally planned on a yearly basis, the
actual release timeline may vary from one year to the next.
These changes have an impact on amortization start dates
and, consequently, on amortization amounts recorded.
Capitalized expenses are amortized on a straight-line ba-
sis over a period of 12 months for development work that
leads to the yearly release of new annual versions of soft-
ware packages sold by the Group, and on a straight-line

ESI GROUP • 2016 REGISTRATION DOCUMENT

102

FINANCIAL STATEMENTS

basis over 24 or 36 months for development work that
leads to major improvements to existing products, de-
pending on the degree of innovation.

evelopment costs that do not meet IAS 38 criteria are

recorded as expenses when incurred.
D

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 DEVELOPMENT COSTS

(in € thousands)

Development costs capitalized during the period
Development costs amortized during the period
NET IMPACT OF THE CAPITALIZATION OF DEVELOPMENT COSTS

January 31, 2017

January 31, 2016

28,289
(25,457)
2,832

23,556
(20,100)
3,456

Net value of capitalized developments costs represented 14.0 months of research and development costs (€38.3 million)
incurred at January 31, 2017, compared to 13.8 months (€33.5 million) at January 31, 2016.

RECONCILIATION OF R&D COSTS INCURRED AND ACCOUNTED FOR IN THE INCOME STATEMENT

(in € thousands)

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 RECOGNIZED AS EXPENSES DURING THE FISCAL YEAR
(1) Including €4.405 million in expenses accounted for as direct costs in 2017, compared to €5.553 million in 2016.

January 31, 2017

January 31, 2016

(32,694)

28,289

(25,457)

2,920

(26,942)

(29,109)
23,556
(20,100)
2,881
(22,772)

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 intellec-
tual property rights to the software code. Specifically, it
involves the translation of the laws of physics into pro-
gramming 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 rev-
enue 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 re-
search and development efforts (accounting for 30% of
revenue from licensing) focusing on these up-and-com-
ing 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. The impairment testing process and results at Jan-
uary 31, 2017 are 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 circumstances continue to support an indef-
inite useful life assessment for this asset. If they do not,
the change in the useful life assessment from indefinite
to finite must be accounted for prospectively.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1035 FINANCIAL STATEMENTS

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 fol-
lowing criteria:

Office and similar software applications

Other operational software

Codes - third-party software integrated into products

Method

Straight-line method

Useful life

1 to 3 years

3 to 5 years

5 to 8 years

The period and method of amortization for an intangible asset with a finite useful life are re-measured at the end of
each period or more frequently. 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 prospectively 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.

Note 6.2. Property, plant and equipment

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

Method

Straight-line method
Straight-line method
Straight-line method

Useful life

5 to 10 years
3 to 5 years
5 to 10 years

ESI GROUP • 2016 REGISTRATION DOCUMENT

104FINANCIAL STATEMENTS

6.2.2. Change in the gross value, amortization and net value of property, plant and equipment

(in € thousands)

GROSS VALUES

Fixtures and fittings

Computer hardware (1)

Office furnishings and other tangible assets (1)

TOTAL

AMORTIZATION

Fixtures and fittings

Computer hardware (1)

Office furnishings and other tangible assets (1)

TOTAL

NET CARRYING AMOUNTS

Fixtures and fittings

Computer hardware (1)

Office furnishings and other tangible assets (1)

January 31,
2016

Change in
scope of
consolidation

Increase

Decrease

Foreign
exchange
gain/loss

January 31,
2017

3,729

11,858

3,164

18,751

(2,502)

(9,397)

(2,587)

(14,485)

1,227

2,461

577

(22)

1,611

309

2,016

(222)

(1,398)

(176)

(1,797)

(126)

213

133

(385)

(303)

(126)

(814)

279

290

126

696

(106)

(12)

(1)

113

(24)

(26)

(21)

(71)

3,478

13,270

3,372

20,120

(2,469)

(10,552)

(2,659)

(15,680)

1,010

2,717

713

TOTAL
(1) €280 thousand in fixed assets were reclassified at opening with no impact on the gross value or total net value of the Group's property, plant and equipment.

4,266

220

(118)

4,440

Note 7. Financing and financial instruments

Note 7.1. Financial assets and liabilities
Financial assets and liabilities mainly comprise:
•

Long-term financial debts, short-term borrowings and overdrafts, together comprising gross debt – see details in
note 7.1.2;
Loans and other short-term financial assets, and 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 • 2016 REGISTRATION DOCUMENT

1055

FINANCIAL STATEMENTS

7.1.1. Fair value of financial assets and liabilities

(in € thousands)

ASSETS

Non-current financial assets:

•

Non-consolidated investments

Deposits and guarantees

Factoring of French R&D tax credit for 2014 and 2015 (debt
due from the French state)

Derivative assets

Trade receivables

Cash and cash equivalents

LIABILITIES

Bank borrowings

Factoring of French R&D tax credit for 2014 and 2015 (debt due from ESI
to the factor)

Other financial debts

Derivative liabilities

Other financial liabilities

Payables

In accordance with IFRS 13, the various valuation tech-
niques for each financial instrument must be ranked.
The different categories are as follows:
•

Level 1: direct reference to quoted (unadjusted)
prices accessible on active markets for identical as-
sets or liabilities;
Level 2: valuation method based on directly or in-
directly observable data associated with the asset
or liability other than the quoted prices included in
level 1 data;
Level 3: valuation method based on unobservable
data.

•

The fair value of cash and cash equivalents is calculated
using level 1.
Derivative instruments (see notes 7.1.4 and 7.3) are val-
ued using level 2.
Debts on earnouts, put options (other financial liabilities)
and investments in non-consolidated companies are val-
ued using level 3.

Carrying amount under IAS 39

January 31, 2017

Amortized cost

Fair value through
equity

Fair value through
profit and loss

Carrying amount

3,437

4,439

74,064

46,188

4,439

796

10,895

1,247

124

14,470

414

124

3,437

4,439

74,064

14,470

46,188

4,439

1,210

1,247

10,895

7.1.2. Gross financial debt
In November 2015, ESI Group signed a €49 million
syndicated loan agreement with a pool of six banks. The
lines of credit for refinancing the previous syndicated
loan and external growth (€39 million) have a maturity
date of November 2022, partly with annual straight-
line amortization. WCR financing, which aims to optimize
cash management at ESI Group, heavily impacted by
the highly seasonal nature of its business model, was
included in the syndicated loan in the form of a €10
million revolving line of credit.
At January 31, 2017, €34.6 million of the long-term
lines of credit had been used (following an initial
repayment of €4.3 million) and ESI Group had
established rate hedging instruments for 40% of the
nominal amount of these lines (see note 7.1.4). €8
million of the revolving line of credit has been used. At
the

date

, the entire revolv-ing line of credit had been
of approval of financial statements by the Board

paid off.
of Directors
All financial debts are denominated in euros.

ESI GROUP • 2016 REGISTRATION DOCUMENT

106
FINANCIAL STATEMENTS

Detail and maturity of financial debt

At January 31, 2017

(in € thousands)

Syndicated loan

Short-term revolving loan

Other bank borrowings

Factoring of French R&D tax
credit for 2014 and 2015

Profit-sharing funds

Other financial debts
TOTAL

At January 31, 2016

(in € thousands)

Syndicated loan

Short-term revolving loan

Other bank borrowings

Factoring of French R&D tax
credit for 2014

2018

4,464

8,000

2,635

163

543
15,805
CURRENT: 15,805

2017

3,777

8,000

2,058

Profit-sharing funds

Repayable advances

Other financial debts
TOTAL

108
13,967
CURRENT: 13,967

Maturity at January 31

2020

4,464

1,991

65
6,520

Maturity at January 31

2019

3,777

258

328
4,363

2019

4,464

310
4,774

2018

3,777

155

272

129
4,333

400

2,448

65
7,377

1,991

65
5,833

2021

2022 and beyond

4,464

16,695

600

2020

2021 and beyond

3,777

17,940

Total

34,553

8,000

3,635

4,439

163

Total

33,048

8,000

2,316

1,991

179

272

65
17,360

1,047
51,837
NON-CURRENT: 36,031

129
18,069

759
46,566
NON-CURRENT: 32,597

Financial debt by type of interest rate and maturity

At January 31, 2017

(in € thousands)

Fixed-rate debt
Variable-rate debt
No-interest debt
TOTAL

2018

163
15,513
129
15,805
CURRENT: 15,805

Maturity at January 31

2019

-
4,464
310
4,774

2020

-
6,455
65
6,520

2021

2022 and beyond

Total

-
7,312
65
7,377

-
17,295
65
17,360

163
51,041
633
51,837
NON-CURRENT: 36,031

7.1.3. Cash and cash equivalents

“Cash and cash equivalents” corresponds to cash, bank
interest-bearing accounts, mutual funds,
deposits,
money market funds and other liquid and easily con-
vertible investments subject to an insignificant risk of

changes in value qualified as cash equivalents, in ac-
cordance with 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.
The Group classifies no-risk investments in interest-

ESI GROUP • 2016 REGISTRATION DOCUMENT

1075

FINANCIAL STATEMENTS

bearing accounts, commercial paper and certificates of
deposit originally maturing in three months or less and
not bearing any significant interest rate risk, as cash
equivalents.

(in € thousands)

Cash
Marketable securities
TOTAL
EQUIVALENTS

CASH

AND

CASH

January 31,
2017

January 31,
2016

14,470
-

10,327
-

14,470

10,327

7.1.4. Financial instruments

The Group uses derivative instruments to manage its ex-
posure to fluctuations in exchange rates and interest
rates. In accordance with IAS 39, derivative instruments
are recorded at fair value on the balance sheet.
Changes in fair value of derivative financial instruments
are accounted for as follows :
•

Cash flow hedges: changes in value are recognized
in equity and reclassified in profit or loss until the
effective completion of the forecast transaction.
Instruments not qualifying for hedge accounting:
certain derivatives that in substance represent
hedges do not qualify for hedge accounting under
IAS 39. Changes in fair value measurement of these
derivative instruments are recognized in Financial
Result.

•

Interest rate derivatives
Interest rate swaps signed by ESI Group are hedging in-
struments to the variable interest rate of the syndicated
loan.
Interest rate swaps signed at January 31, 2017 are as fol-
lows:
•

Three swaps of €1.9 million, ESI Group receiving var-
iable rate 1-month Euribor (with a 0% floor) and
paying a fixed rate of 0.195% with two banks and
0.22% with a third bank;
Three swaps of €2.7 million, ESI Group receiving var-
iable rate 1-month Euribor (with a 0% floor) and
paying fixed rates of 0.16%, 0.18% and 0.19%, re-
spectively.

•

At January 31, 2017, the market value of these instru-
ments was €-34 thousand.

Foreign exchange instruments
In order to manage foreign currency risk on cash flows be-
tween the Group's 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 exchange instruments in
place
2017 concerned Japanese yen (forwards,
tunnels, targets), South Korean won (non-delivery
forwards) and Indian rupee (non-delivery forwards).
These
considered hedging
instruments are not
instruments as defined by IAS 39.
At January 31, 2017, the market value of these
instruments was €3 thousand.

during

Note 7.2. Financial income and expenses

(in € thousands)

January 31,
2017

January 31,
2016

Interest and
borrowings

related expenses on

Interest income
Foreign exchange gain/(loss)
Floor of syndicated credit
Other financial expenses
FINANCIAL RESULT

(1,000)

12
(818)

258
(566)

(2,115)

(552)

30
314

(258)
(484)

950

The increase in borrowing expenses is due to the draw-
downs on long-term syndicated lines of credit carried out
in January and February 2016 following the acquisitions
of ITI GmbH and Mineset Inc.
In accordance with IFRIC's position, issued in H1 2016
and stating that separate recognition is not necessary for
an embedded interest rate floor in a syndicated debt con-
tract, ESI Group reclassified to profit and loss the €258
thousand financial debt recognized at January 31, 2016.
Other financial expenses include:
•

Interest charges calculated on employee benefit
commitments;
Factoring expenses for receivables under the French
R&D tax credit;
Overdraft interest charges;
•
Impairment of non-consolidated Cademce securities.
•
Details on foreign exchange gains and losses are as fol-
lows:

•

(in € thousands)

January 31, 2017 January 31, 2016

USD
JPY
KRW
Other currencies
TOTAL

(216)

(823)

114
107
(818)

415

120

(200)
(21)
314

Note that the effect of the net foreign exchange loss on

ESI GROUP • 2016 REGISTRATION DOCUMENT

108FINANCIAL STATEMENTS

cash and cash equivalents did not exceed €-550 thousand
(hedging instruments and transactions in foreign curren-
cies). Foreign exchange losses on JPY were due to the vol-
atility of the currency starting from June 2016.

Note 7.3. Risk management policy

Country risk and foreign currency risk
During the fiscal year ended January 31, 2017, 45.1% of
the Group's revenue was generated in Europe, 39% in Asia
(mainly Japan, South Korea, China and India) and 15.8%
in the Americas (mainly the United States and Brazil). The
Group is thus exposed to economic and political uncer-
tainties in these areas.
The Group is also highly exposed to risks stemming from
changes in foreign exchange rates: for the fiscal year
ended January 31, 2017, 42.2% of revenue was generated

in EUR, 19.6% in USD (US dollar), 21.7% in JPY (Japanese
yen), 4.4% in KRW (Korean won) and 4.6% in CZK (Czech
koruna).
Furthermore, 53.7% of costs are spent in EUR, 17.0% in
USD (US dollar), 8.6% in JPY (Japanese yen), 6.5% in INR
(Indian rupee), 3.2% in KRW (South Korean won), 3.0% in
CZK (Czech koruna) and 2.6% in CHF (Swiss franc).
The Group's policy aims, whenever possible, to hedge
budgeted net operating cash flows on the basis of budg-
eted exchange rates.

The table below shows the results of sensitivity analysis of EBIT to exchange rate fluctuations. The assumption is a 10%
decline in the average exchange rate applied to all transactions (purchases and sales), with respect to the principal cur-
rencies to which the Group is exposed.

Currency

JPY
KRW
CZK
USD
INR
CHF

Average
consolidation
exchange rate
119.80
1,280.14
27.03
1.10
74.28
1.09

Exchange rate used
for analysis

Effect on Current Operating
Result in € millions

131.78
1,408.15
29.74
1.22
81.71
1.20

- 1.8

- 0.2

- 0.1

0.4

0.3

the Group's

Interest rate risk
feature
Most of
st rates. To limit the negative impacts
variable inter
a non-
the Group
of rate fluctuation,
speculative management policy, using derivatives
described in Note 7.1.4.

financial debts

applies

rate

interest

analysis

risk
to
Sensitivity
The only debts included in the calculation of interest
rate sensitivity are those with variable interest rates.
These are mostly bank loans for which drawdown and
repayment are left to the borrower's discretion. At
January 31,

cash

Given ESI Group's optimization of
flow
management, the amount of debt incurred from bank
loans over the course of the year has fluctuated,
with generally lower levels, like-for-like, during the
period than at the end of the fiscal year.
The
sensitivity
presented below assume that financial debts remain
stable at January 31, 2017 levels, meaning a fixed level of
drawdown on bank loans as of that date.

foreign-exchange

calculations of

2017, €8 million of the revolving credit line
has been used and this line was entirely paid off at the
date of approval of financial statements by the Board of
Directors (April 18, 2017).

ESI GROUP • 2016 REGISTRATION DOCUMENT

1095

FINANCIAL STATEMENTS

The table below simulates the effects in terms of outflows of interest rates rising and falling by 1%:

(in € thousands)

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

< 1 year

(15,513)

≥ 1 year, < 5 years

≥ 5 years

(18,231)

(17,295)

(15,513)

(18,231)

(17,295)

Total

(51,041)

(51,041)
44
(251)

Equity risk
In accordance with IAS 32, treasury shares are accounted
for as part of consolidated shareholder equity and varia-
tions 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 in the context of a liquidity agreement or in-
tended to cover stock options and free share grants.
As part of its cash flow management strategy, the Group
does not directly hold any other listed stock and does not

invest in equity-dominated or equity-benchmark UCITS.
Thus, the Group's net financial income is not directly or
significantly affected by variation 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 obligations. The ratios to be maintained (cove-
nants) with regard to the syndicated loan contract entered
into 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 ESI Software Germany as collateral in a credit
agreement dated November 5, 2015.
As long as the Group remains bound by the collateral
agreement or documents, it undertakes to adhere to the
following ratios under penalty of early repayment:
•

Ratio R1: Consolidated net financial debt divided by
consolidated EBITDA: less than or equal to 2.9 at Jan-
uary 31, 2017 (tapering threshold for future years);
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: equal or greater than 1. If the ratio is
lower than 1, the Ratio may still be considered as be-
ing met if the net consolidated cash balance is posi-
tive.

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 carryforwards. 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 re-
versed or paid. Deferred tax assets and liabilities are adjusted for each entity 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 real-
ized. The Group reviews the probability of future recovery of deferred tax assets on a periodic basis for each tax entity.
In some cases, this review can lead the Group to derecognize deferred tax assets that it had recognized in prior years.

ESI GROUP • 2016 REGISTRATION DOCUMENT

110The Group has three tax groups:
•
•
•

In France, with the parent company, ESI Group, as head company;
In Germany, with ESI Software Germany GmbH as head company;
In the United States, with ESI North America, Inc. as head company.

8.1.1. Income tax expense

(in € thousands)

Current taxes
Deferred taxes
TOTAL

8.1.2. Tax proof

(in € thousands)

Net income before taxes
Including share of profit of associates

Theoretical tax rate
Theoretical tax (expense)/benefit
Permanent differences between accounting income and taxable income
Impact of liability method
Impact of standard tax rate differentials between parent company and subsidiaries
Unrecognized deferred tax assets and unused tax losses
Recognition of previously unrecognized deferred tax assets
GROUP INCOME TAX EXPENSE
Effective tax rate

Note 8.2. Deferred taxes

BREAKDOWN OF DEFERRED TAXES BY TAX BASE

(in € thousands)

DEFERRED TAX ASSETS

Tax loss carryforwards
Temporary differences related to tax treatment of maintenance
Provisions for employee benefit commitments
Temporary differences related to personnel
Provisions and other adjustments
TOTAL DEFERRED TAX ASSETS

DEFERRED TAX LIABILITIES

Amortization of acquired intangible assets
Other
TOTAL DEFERRED TAX LIABILITIES
NET DEFERRED TAX

FINANCIAL STATEMENTS

January 31, 2017

January 31, 2016

(4,322)
330
(3,992)

(3,254)
97
(3,595)

January 31, 2017

January 31, 2016

11,695
89

33.33%
(3,868)
(263)
(268)
207
(736)

936
(3,992)
34.4%

8,527
123

33.33%
(2,801)
79
(85)
(218)
(381)

250
(3,157)
37.6%

January 31, 2017

January 31, 2016

1,928
4,454
2,792
1,073
654
10,901

(2,005)
(958)

(2,963)
7,939

1,616
4,411
2,196
872
656
9,752

(1,697)
(788)

(2,485)
7,267

Unrecognized deferred tax assets on tax loss carryforwards came to €2.015 million. The timeframe used for estimating
ESI GROUP • 2016 REGISTRATION DOCUMENT

1115 FINANCIAL STATEMENTS

the recoverability of these deferred tax assets is generally five years, except in cases where the results of an entity are
extremely predictable.

RECONCILIATION OF DEFERRED INCOME TAX EXPENSE ON THE BALANCE SHEET AND INCOME STATEMENT

(in € thousands)

Net deferred tax assets at opening (February 1, 2016)
Acquired companies
Deferred tax expenses recorded in the income statement
Deferred tax expenses recognized directly in equity (IAS 19 revised)
Foreign exchange gain/loss on deferred tax expenses
NET DEFERRED TAX ASSETS AT CLOSING (JANUARY 31, 2017)

Note 9. Equity and earnings per share

Note 9.1. Share capital, reserves and treasury stock
ESI Group’s share capital is made up of ordinary shares.

7,267
(66)
330
247
160
7,939

The “Currency translation difference” line item 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.

Share capital
At January 31, 2017, ESI Group's share capital was
€17.976 million, comprising 5,991,992 common shares
with a par value of €3 each.

Dividend payout
ESI Group did not pay out any dividend during the period.

Treasury shares
The number of treasury shared declined by 11,498 shares
over the fiscal year. The percentage of capital held as
treasury shares following these transactions stood at
7.0% at January 31, 2017, compared to 7.2% at January
31, 2016. The Group owns a total of 419,386 treasury
shares, purchased at a historical cost of €4.437 million
and with a market value of €19.439 million at the same
date, for an unrealized gain of €15.001 million.
€4.525 million corresponding to treasury shares and ad-
justments for gains or losses on past disposals is deducted
from equity.

Transactions with non-controlling interests
Transactions with non-controlling interests are recog-
nized directly in equity. See details in notes 3.1 and 3.2.

Note 9.2. Minority interests
If, in the event of losses, the share corresponding to mi-
nority 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 table below details the net income (Group share) per
share:

(in € thousands)

January 31, 2017 January 31, 2016

NET INCOME (GROUP SHARE)
Net earnings per share
(in euros)

Average number of shares
Diluted earnings per share
(in euros)

7,523

5,330

1.36

0.96

5,547,500

5,534,542

1.35

0.96

Average number of diluted shares
Only stock options and free shares may have a dilutive ef-
fect

5,577,169

5,591,671

ESI GROUP • 2016 REGISTRATION DOCUMENT

112FINANCIAL STATEMENTS

Note 10. Other balance sheet items

Note 10.1. Other assets

10.1.1. Other non-current assets

(in € thousands)

Security deposits mainly concern real estate rentals.
Factored receivables under the French R&D tax credit
concern FY2014 and FY2015 (see Note 7.1.2). Factoring
from previous years was deconsolidated.

January 31,
2017

January 31,
2016

10.1.2. Other current receivables

Security deposits
Factored French R&D tax credit
Other long-term assets
Investments
companies

non-consolidated

3,082
4,439
355

1,957
1,991
-

124

TOTAL OTHER NON-CURRENT
ASSETS

7,900

4,072

(in € thousands)

French R&D tax credit

Other tax credits

VAT and other receivables

January 31, 2017 January 31, 2016

3,230

1,488

7,554

2,836

2,647

7,208

TOTAL OTHER CURRENT ASSETS

12,273

12,692

French R&D tax credit receivables as of January 31, 2017
are related to costs incurred in FY2016.

10.1.3. Prepaid expenses
Prepaid expenses consist primarily of rent for real estate and other property.

Note 10.2. Other liabilities

10.2.1. Tax payables, employee-related liabilities and other short-term liabilities

(in € thousands)

January 31, 2017 January 31, 2016

Employee-related liabilities
Tax payables
Other current liabilities
TAX PAYABLES, EMPLOYEE-RELATED LIABILITIES AND OTHER SHORT-TERM LIABILITIES

14,061
10,494
4,774
29,329

13,335
9,958
3,300
26,593

Tax payables consist primarily of VAT payables in the amount of €8.279 million.

10.2.2. Other provisions

In accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets,” a provision is recorded when the
following 3 conditions are met: the Group has an obligation towards a third party resulting from past events, it is prob-
able 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)

January 31, 2016

Provisions

Reversals –
provisions used

Reversals –
provisions not
used

Foreign
exchange
gain/loss

January 31, 2017

Disputes
CURRENT PROVISIONS FOR LIABILITIES

1,551
1,551

105
105

(623)
(623)

-
-

8
8

1,042
1,042

Reversals during the fiscal year essentially concerned tax and employee-related risks France. The provision referring to
tax audit for the years 2009-2011 has been totally reversed, as the audit is finished and the tax adjustment has been paid.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1135 FINANCIAL STATEMENTS

Note 11. Related party transactions

Executive corporate officers’ compensation
Compensation and benefits paid to the Group's three executive corporate officers during the fiscal years ended January
31, 2017 and January 31, 2016 breaks down as follows:

(in € thousands)

Fixed compensation

Variable compensation

Travel bonus
Benefits in kind
Directors' fees
TOTAL

January 31, 2017

January 31, 2016

738

134
207
16
1,121

739

118
204
16
1,079

Related party transactions
During the fiscal year, Ms. Cristel de Rouvray, Director, carried out specific assignments for ESI Group relating to human
resources, consulting, and strategic management, in respect of which she received compensation in the amount of USD70
thousand. This agreement was renewed during FY2106 and reviewed by the Board of Directors at its April 8, 2016 meet-
ing.

ESI GROUP • 2016 REGISTRATION DOCUMENT

114FINANCIAL STATEMENTS

Note 12. Fees paid to statutory auditors

PricewaterhouseCoopers Audit

Ernst & Young

Total

Amount

(In € thousands, excluding tax)

Y-1

STATUTORY AUDIT, CERTIFICATION, REVIEW OF ANNUAL AND CONSOLIDATED FINANCIAL STATEMENTS

135

132

37%

52%

148

155

51%

60%

283

287

43%

56%

•

Parent company

Fully
subsidiaries

consolidated

101

236

28%

30%

209

65%

82%

OTHER WORK AND SERVICES DIRECTLY RELATED TO STATUTORY AUDIT

•

Parent company

Fully
subsidiaries

consolidated

TOTAL

125

361

13%

15%

22%

35%

18%

133

281

46%

37%

252

97%

234

517

134

651

174

36%

34%

461

79%

90%

12%

21%

11%

514

100%

256

100%

290

259

100%

The Group opted to follow the recommendations of the French Association of Statutory Auditors (CNCC) to record, at the
reporting date, expenses related to audit fees corresponding to services actually rendered during the period. The total
budget for certification fees for the parent-company and consolidated financial statements for the fiscal year ended Jan-
uary 31, 2017 came to €274 thousand.

Note 13. Subsequent events
In February 2017, ESI Group acquired 100% of the capital of French company Scilab Enterprises and purchased the mi-
nority interests in its subsidiary ESI Italia, now 100% owned by the Group.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1155

FINANCIAL STATEMENTS
5.1.6. Statutory Auditors’ report on the consolidated financial statements

This is a free translation into English of the statutory auditors’ report on the consolidated financial statements issued in French and it is provided solely for
the convenience of English-speaking users.
The statutory auditors’ report includes information specifically required by French law in such reports, whether modified or not. This information is pre-
sented below the audit opinion on the consolidated financial statements and includes an explanatory paragraph discussing the auditors’ assessments of
certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opini on on the consolidated
financial statements taken as a whole and not to provide separate assurance on individual account balances, transactions or disclosures.
This report also includes information relating to the specific verification of information given in the group’s management report.
This report should be read in conjunction with and construed in accordance with French law and professional auditing standards applicable in France.

Year ended January 31, 2017

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, 2017, on:
•
•
•
These consolidated 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.

The audit of the consolidated financial statements of ESI Group as appended to this report;
The justification of our assessments;
The specific verification required by law.

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 that the consolidated financial statements are free of material
misstatement. An audit involves sampling techniques or other methods of selection to verify information regarding the
amounts and disclosures in the consolidated financial statements. An audit also involves evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of
the 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 provide a true and fair view of the assets and liabilities, financial
position and results of the group comprising the consolidated entities, in accordance with International Financial Report-
ing Standards as adopted by the European Union.

II. Justification of our assessments
In accordance with the provisions of Article L. 823-9 of the French Commercial Code relating to the justification of our
assessments, we draw your attention to the following matters:

Development costs
As part of our assessment of the accounting principles followed by your Group, we reviewed the criteria used for capital-
izing and amortizing development expense and measuring the recoverable amount. We ensured that note 6.1.2 to the
consolidated financial statements provides appropriate information.

Impairment testing of intangible assets
At each fiscal year end, your company systematically performs impairment tests on goodwill and intangible assets with
indefinite useful lives, and assesses whether there exists evidence of impairment of these assets, as described in notes
3.1 (paragraph 7) 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 provided in notes 3.1 (paragraph 7) 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
accounting and valuation of deferred tax assets. Our work entailed assessing the data and assumptions underlying the
estimation of the value of the deferred tax assets.
These assessments were made as part of our audit of the consolidated financial statements taken as a whole, and there-
fore contributed to our opinion as expressed in the first part of this report.

III. Specific verification
As required by law and in accordance with professional standards applicable in France, we also verified the information
ESI GROUP • 2016 REGISTRATION DOCUMENT

116FINANCIAL STATEMENTS

presented 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 18, 2017

The statutory auditors

PricewaterhouseCoopers Audit

Thierry Charron

Ernst & Young Audit

Frédéric Martineau

ESI GROUP • 2016 REGISTRATION DOCUMENT

1175

FINANCIAL STATEMENTS

5.2. ESI Group annual financial statements

5.2.1. Income statement

(in € thousands)

Sales of goods

Sales of services

NET REVENUE

Production held as inventory

Capitalized production

Operating subsidies

Reversals of depreciation, amortization, and provisions, expense transfers

Other income

INCOME FROM OPERATIONS

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
Other expenses

OPERATING EXPENSES

OPERATING INCOME

FINANCIAL INCOME

CURRENT INCOME BEFORE TAX

EXCEPTIONAL INCOME

Employee profit-sharing

Income tax

PROFIT (LOSS)

Note

January 31, 2017

January 31, 2016
Published

January 31, 2016
Restated (1)

E.1

E.3

E.4

E.5

E.6

E.7

E.8

F.5

84,313

543

79,138

79,157

(78)

79,138

79,157

(78)

28,467

24,132

173

675

4,282

114,173

107,541

114

(96)

60,973
1,246

14,160

6,712

26,618
1,041
212

58,083
1,263

13,203

6,295

22,489
774
3,749

58,083
1,263

13,203

6,295

22,489
838
3,749

110,981

105,893

105,956

3,192
(2,492)

700

(721)

(1,669)

1,632

1,649

522

2,171

(341)

(2,206)

4,036

1,585

482

2,067

(341)

(2,206)

3,932

(1) The restated income statement at January 31, 2016 accounts for the change of accounting method for the fiscal year ended January 31, 2017, i.e. recognition

of the provision for retirement obligations and post-employment benefits (see note A.2).

ESI GROUP • 2016 REGISTRATION DOCUMENT

1185.2.2. Balance sheet

Assets

(in € thousands)

Intangible assets
Property, plant and equipment
Financial assets

NON-CURRENT ASSETS

Inventories

Down payments to suppliers

Trade receivables
Other receivables

Marketable securities (treasury shares)

Cash

CURRENT ASSETS

Prepaid expenses

Expenses capitalized, to be amortized

Foreign exchange gains and losses

C.1

C.2

C.3

C.4

C.5

C.6

C.7

1,671

307

58,878
9,431

4,375

5,328

79,990

2,595

434

1,044

FINANCIAL STATEMENTS

Notes

Gross value Amortization/Provisions

Net value Restated net value (1)

January 31, 2017

January 31, 2016

80,385
8,983
70,413

(25,455)
(6,940)
(5,521)

54,931
2,043
64,892

51,770
2,201
60,891

159,781

(37,916)

121,865

114,862

(2,093)
(131)

1,671

1,668

307

56,785
9,299

4,375

5,328

48,898
9,041

4,106

2,856

(2,224)

77,766

66,592

2,595

434

1,044

203,704

2,137

509

560

1,668

48,898
9,041

4,106

2,856

66,592

2,137

509

560

TOTAL ASSETS

243,844

(40,140)

184,660

ESI GROUP • 2016 REGISTRATION DOCUMENT

1195

FINANCIAL STATEMENTS

Liabilities

(in € thousands)

Share capital

Additional paid-in capital

Legal reserve

Retained earnings

Net profit (loss)

Regulated provisions

EQUITY
OTHER EQUITY
PROVISIONS FOR CONTINGENCIES AND CHARGES
Bank borrowings
Miscellaneous financial debt

Down payments from clients

FINANCIAL LIABILITIES

Trade payables

Notes

January 31, 2017

January 31, 2016

January 31, 2016
restated (1)

D.2

D.10

D.4

D.5

D.7

D.8

17,976

37,749

1,787

30,927

1,632

1,084

91,155
310
5,031
44,103
2,633

233

46,969

38,523

6,719
11,372

56,614

345

3,280

17,865

37,469

1,642

30,237

4,036

758

92,007
371
1,445
42,884
2,398

230

45,512

30,233

5,907
5,896

42,036

619

2,670

17,865

37,469

1,642

27,140

3,932

758

88,806
371
4,645
42,884
2,398

230

45,512

30,233

5,907
5,896

42,036

619

2,670

203,704

184,660

Tax payables and employee-related liabilities
Other liabilities

OPERATING LIABILITIES AND MISCELLANEOUS DEBTS

D.9

D.6 & D.10

Deferred income

Foreign exchange gains and losses

TOTAL LIABILITIES

(1) The restated balance sheet at January 31, 2016 accounts for the change of accounting method for the fiscal year ended January 31, 2017, i.e. recognition of

the provision for retirement obligations and post-employment benefits (see note A.2).

ESI GROUP • 2016 REGISTRATION DOCUMENT

120FINANCIAL STATEMENTS

5.2.3. Notes to ESI Group annual financial statements

Table of contents of notes to the annual financial statements
Significant events of the year and
Note A.
change in accounting

Note B. Accounting principles and methods
Note C. Asset details

method

121
121
124

Note D.

Liability details

Note E.

Details on income statement

130

Note F.

Other information

134
136

The balance sheet total at January 31, 2017 came to
€203,704 million and the income statement for the fiscal
year showed net profit of €1.632 million.
The fiscal year corresponds to a 12-month period, from
February 1, 2016 to January 31, 2017.
The financial statements were prepared in accordance

with the French General Accounting Plan and generally ac-
cepted accounting principles (French GAP Art. 831-1/1).
All amounts listed in these notes are in thousands of euros
unless otherwise indicated.
The notes below are an integral part of the annual finan-
cial statements.

Note A. Significant events of the year and change in accounting method
Note A.1. Significant events

Changes in s

•

take in subsidiaries

Acquisition of a 100% interest in the US-based com-
pany Mineset Inc. on February 5, 2016, financed
through a drawdown on the syndicated loan.
Buyout of minority interests in the subsidiaries ESI
Software Germany (98.5% owned at January 31,
2017), ESI Services Tunisia (95%) and CyDesign
Labs Inc. (99.9%).

Note A.2. Change in accounting method
As of the fiscal year ended January 31, 2017, ESI Group
opted for recognition of the provision for retirement obli-
gations and post-employment benefits in the balance
sheet, and corresponding changes in the income state-
ment. In previous years, these obligations were presented

Note B. Accounting principles and methods
The rules and methods remain unchanged from last year,
with the exception of the change presented in note A.2.
The general accounting conventions have been applied
prudently, in accordance with the following assumptions:
•

Basic assumptions:

– Going concern,
– Consistency in accounting methods from one fiscal

year to the next;

– Independence of fiscal years;

•

General rules for preparing and presenting annual fi-
nancial statements: the basic method used to meas-
ure accounting items is the historical cost method.

Note B.1. Use of estimates
Preparation of the financial statements requires the use of

in “Off-balance-sheet commitments” in the notes to the fi-
nancial statements.
This change in accounting method aims to offer a more
relevant view of the Company's commitments by adopting
the preferential method.
The provision for retirement obligations and post-em-
ployment benefits came to €3.604 million at January 31,
2017 and reflected the amount of the gross actuarial com-
mitment (no hedging assets). At the start of the fiscal year,
the €3.2 million provision was recorded as a correspond-
ing decrease in retained earnings.
For information purposes, the income statement and bal-
ance sheet are presented with comparative figures at Jan-
uary 31, 2016 – as published last year and restated (pro
forma incorporating the change in method).

estimates and assumptions that may have an impact on
the carrying amount of certain items in the balance sheet
or income statement, as well as the information provided
in selected notes. ESI Group carries out comprehensive re-
views of these estimates and assessments to take account
of past experience and other factors judged relevant with
regard to economic conditions.
These estimates, assumptions and assessments are estab-
lished on the basis of existing information or situations at
the time the financial statements are drawn up, and which
may not reflect future realities.
These estimates mainly concern provisions for contingen-
cies and charges and assumptions used for the valuation
of equity investments and selected intangible assets.

ESI GROUP • 2016 REGISTRATION DOCUMENT

121

5 FINANCIAL STATEMENTS

Note B.2. Intangible assets

Research and development costs

and development

Internal research and development costs are recorded
category; expenses
in
the appropriate expense
development
and
research
corresponding
to
performed by service providers within the Group or
third parties are recorded as subcontracting expenses.
to development work
Internal expenses
incurred during the fiscal year (wages, payroll taxes and
environment-related costs) are capitalized and recog-
nized as capitalized production.
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
or
assets. Research
not meeting all of the six criteria continue to be
recognized as expenses. Amortization begins upon
delivery of the project. Projects that are unfinished at the
in progress.
closing date are capitalized as work
Projects involving development of new versions of
ESI software delivered on a yearly basis are amortized
over 12 months.
Projects involving the development of new, significant
features are amortized over 24 or 36 months
depending on the degree of innovation.
the version.
Amortization begins at
If there is a risk that a project will not be marketed, a
provision for depreciation is recorded on developments
that will not generate
future economic gains.
At the end of the amortization period, development
costs are removed from the asset line.

release of

projects

costs

Other intangible assets
Other
amortized according
according to their estimated useful life.

intangible assets
to

software) are
(patents,
the straight-line method

Office and similar software applications

Other operational software

1 year on a straight-line
basis

3 years on a straight-line
basis

Codes - third-party software integrated into
products

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 impair-
ment tests if there are signs of impairment or at least once
per year. A provision based on the difference between the
calculated value and the carrying amount is recorded if
applicable.

Note B.3. Property, plant and equipment
Property, plant and equipment is valued at cost (purchase
price plus related expenses), and amortized according to
expected useful life:

General facilities
Fixtures and
building work

fittings, miscellaneous

Transportation equipment
Office equipment
New computer equipment
Used computer equipment

Furnishings

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 tapering basis
1 year on a straight-line basis
5 to 10 years on a straight-line
basis

Note B.4. Financial assets

Equity investments and related receivables, acquisition
costs
Equity investments are recorded on the balance sheet at
the historical cost of acquisition of shares.
At the closing date, if the restated value of the shares is
less than their purchase price, a provision is established
for the difference. The restated value is calculated using
one of several methods according to the situation of the
subsidiary in question:
•

Shares in active subsidiaries are valued on the basis
of a multiple of revenue adjusted for net cash posi-
tion of the subsidiary, or alternatively on the basis of
discounted forecast cash flows for recently acquired
entities;
Shares in dormant subsidiaries or those with re-
duced activity levels are valued on the basis of the
share of the net equity attributable to ESI Group.
Acquisition costs are recorded as part of the cost of the
shares and deducted, for tax purposes, through acceler-
ated capital allowances, over a period of five years.
Receivables related to equity investments are
there is a risk of non-recovery.

•

impaired

Other investments
Other investments mainly comprise deposits and guaran-
tees and factoring guarantee funds (factoring of receiva-
bles from the French R&D tax credit).

Note B.5. Inventories

Supply inventories
Other supply inventories are valued at cost according to
the first in, first out method.

Work in progress
Work in progress corresponds to consulting studies in
ESI GROUP • 2016 REGISTRATION DOCUMENT

122
progress and valued at production cost with a margin as-
sessed according to the percentage of completion
method.

A provision for contingencies is recorded for foreign ex-
change losses.

FINANCIAL STATEMENTS

Note B.6. Receivables and debts
Receivables and debts are measured at par value.
A provision for impairment is recognized where the
book value of a receivable (excluding advances to
subsidiaries), based on the likelihood of recovery, is
less than
is
determined on a case-by-case basis or
following
statistical analysis. Regarding advances granted to
subsidiaries, the book value of these receivables follows
the same
as equity investments in terms of
impairment.

its accounting value. All impairment

principles

Note B.7. 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, impairment
is recorded for the difference.
At the close of the fiscal year ended January 31, 2017,
mar-ketable securities were made up exclusively of the
Com-pany's treasury shares, valued according to the
first in, first out method.

Note B.8. Treasury shares
In the context of the authorizations, limits and
objectives set by the Shareholders' General Meeting, ESI
Group may purchase, exchange or transfer its own
shares.
The recognition and impairment method for
treasury shares depends on the objective underlying
the acquisi-tion.
Treasury shares backed by the liquidity contract signed
by the Company are recognized as financial assets.
Treasury shares acquired in the context of other
objectives set by the General Meeting (primarily external
growth and share grants to employees) are recognized
as marketable secu-rities.
Impairment is recorded when the share acquisition
cost exceeds the current value as determined by the
average share price over the final month of the fiscal
year.

Note B.9. Foreign currency transactions
Income and expenses in foreign currency are recorded
at their exchange value as at the date of the transaction.
Lia-bilities, receivables and cash in foreign currency are
rec-orded on the balance sheet at the exchange value
prevail-ing 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.”

Note B.10. Financial foreign exchange
instruments
ESI Group uses financial instruments to manage its
exposure to exchange rate fluctuations. The Group's
policy is to trade in the financial markets only 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 transactions. They are
ial income and expense at
recognized under finan
maturity,
as Off-balance-sheet
commitments in the notes to the financial statements
in the period between subscription and maturity.

presented
c

and

Amortization of share acquisition costs.

Differences between tax-related amortization

Note B.11. Regulated provisions
Regulated provisions consist of accelerated capital
allowances of two types:
•
and amortization for depreciation;
•
These regulated provisions are
statement under exceptional allowances and reversals.
Note B.12. Provisions for contingencies and
charges
Provisions for contingency and charges are calculated
on the basis of the assessment of related risks at the
balance sheet date.

in the income

booked

the projected unit

Provision for retirement and post-employment benefits
Retirement commitments are valued and recognized
using
credit method. This
actuarial method stipulates that each period of service
entitles the employee to one unit of benefit rights and
evaluates each of these units separately to arrive at a
final commitment. These calculations use assumptions in
terms of mortality, staff turnover, discount rate,
increases.
inflation
The expense for the period is recognized:
•

In operating profit or loss for the amount pertaining
to cost of services and changes in actuarial gains and
losses;
In financial income and expense for the amount per-
taining to interest on discounting to present value.

future

salary

rate

and

•

Differences observed between the valuation of obligations
and forecasts of such obligations (on the basis of new pro-
jections or assumptions) are known as actuarial gains and
losses.
The provision at the close of the fiscal year is the actuarial
commitment. The Company has no hedging assets.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1235 FINANCIAL STATEMENTS

Note B.13. Recognition of revenue
Licensing revenue is generated from royalties paid under
licensing agreements granted to end customers and re-
lated maintenance services.
This revenue is recognized when the following four crite-
ria are met:

•

•
•

The Group can demonstrate the existence of an
agreement with the client;
The software has been delivered and accepted;
The amount of the user license for the software is de-
termined or determinable;
Recovery is likely.

•
Revenues from services consist mainly of consulting and
training fees. They are recognized according to the per-
centage of completion method with regard to projects,
such as the margin. Costs are recorded as soon as they are
incurred. A provision for losses on completion is recorded
if necessary.
Intragroup revenue mainly comprises royalty income re-
ceived from the Group's distribution subsidiaries and in-
come from subcontracted consulting services, re-invoic-
ing of personnel expenses and invoicing of management
fees.

Co-financed projects
During production of a co-financed project, the income

recognized in revenue is determined on the basis of the
percentage of completion of the project, on a pro-rata ba-
sis with regard to the proportion financed.

Note B.14. Tax consolidation
On February 1, 2008, ESI Group has formed a tax consoli-
dation group with its French subsidiary, Engineering Sys-
tem International.
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 mem-
ber 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 ab-
sence of tax consolidation.
Neither of the two companies in the tax group has loss car-
ryforwards.
For information, the French competitiveness and employ-
ment tax credit (crédit d’impôt pour la compétitivité et
l’emploi or CICE) is recognized in the income statement as
a deduction from tax expense.

Note C. Asset details

Note C.1. Intangible assets

(in € thousands)

Development costs
Patents, licenses, brands

Goodwill

Intangible assets in progress, development costs

Other intangible assets in progress

TOTAL GROSS VALUE
Development costs

Patents, licenses, brands

Goodwill

TOTAL AMORTIZATION, PROVISIONS

Development costs

Patents, licenses, brands

Goodwill

Intangible assets in progress, development costs

Other intangible assets in progress

TOTAL NET VALUE

January 31, 2016

38,372
27,247

1,028

9,939

76,586
(16,100)

(8,643)

(73)

(24,816)

22,272

18,604

955

9,939

51,770

Increase

22,629
43

12,470

1,944

37,086
(25,017)

(689)

(25,705)

6,434

1,944

8,379

Decrease

January 31, 2017

(25,663)
(1,588)

(6,035)

(33,287)
25,067

25,067

(2,984)

(2,234)

(5,218)

35,338
25,701

1,028

16,373

1,944

80,385
(16,050)

(9,332)

(73)

(25,455)

19,288

16,370

955

16,373

1,944

54,931

ESI GROUP • 2016 REGISTRATION DOCUMENT

124FINANCIAL STATEMENTS

The decrease in development costs reflects scrapping of
fully amortized assets.
The decrease in the patents, licenses, brands line item re-
flects reclassification to other intangible assets in pro-
gress.

The goodwill mainly reflects the acquisition on July 26,
1991 from the company Engineering System Interna-
tional, of the branch specialized in the edition of digital
simulation software (Product in Applied Mechanics). It
has not been impaired or amortized since this date.

Note C.2. Property, plant and equipment

(in € thousands)

Fixtures and fittings

Office furnishings and equipment

Other tangible non-current assets

TOTAL GROSS VALUE

Fixtures and fittings

Office furnishings and equipment

Other tangible non-current assets

TOTAL AMORTIZATION, PROVISIONS

Fixtures and fittings

Office furnishings and equipment

Other tangible non-current assets

TOTAL NET VALUE

Note C.3. Financial assets

(in € thousands)

Equity investments

Receivables related to equity investments

Other financial assets (1)

TOTAL GROSS VALUE

Provisions for impairment of equity investments

Provisions for receivables related to equity investments

TOTAL AMORTIZATION, PROVISIONS

Equity investments

Receivables related to equity investments

Other investments

January 31, 2016

Increase

Decrease

January 31, 2017

2,281

5,998

8,305

(1,311)

(4,771)

(22)

(6,104)

970

1,227

2,201

625

678

(151)

(682)

(4)

(837)

(99)

(57)

(3)

(159)

2,333

6,623

8,983

(1,464)

(5,453)

(26)

(6,940)

871

1,170

2,043

January 31, 2016

Increase

Decrease

January 31, 2017

4,634

184

4,818

(827)

3,807

51,231

13,012

1,354

65,597

(2,958)

(1,749)

(4,707)

48,278

11,263

1,354

55,865

13,196

1,351

70,413

(3,785)

(1,736)

(5,521)

52,080

11,460

1,351

(3)

TOTAL NET VALUE
(1) This line primarily includes deposits and guarantees on rental properties for an amount of €447 thousand, factoring guarantee funds for an amount of €695

60,891

3,991

64,892

thousand, and treasury shares (liquidity contract) for an amount of €62 thousand.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1255

FINANCIAL STATEMENTS

Movements in shares/equity investments (gross value)

(in € thousands)

Engineering System International

ESI Japan, Ltd

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

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

Participation Mineset Inc.

Acquisition costs Mineset Inc.

CIVITEC

Acquisition costs CIVITEC

ITI GmbH

Acquisition costs ITI GmbH

Cademce SAS

TOTAL

January 31, 2016

Increase

Decrease

January 31, 2017

458

3,726

164

2,678

941

100

912

1,789

796

193

111

119

1,737

656

128

543

114

9,891

500

322

446

129

2,351

162

1,904

283

124

576

290

900

17,952

436

100

4,017

51,231

4,634

458

3,726

164

2,678

941

100

912

1,789

796

193

111

119

1,737

656

242

543

10,391

322

446

129

2,351

162

1,904

283

124

576

4,017

293

900

17,952

436

100

55,865

ESI GROUP • 2016 REGISTRATION DOCUMENT

126FINANCIAL STATEMENTS

Movements in the provision for shares/equity investments

(in € thousands)

ESI-ATE Holdings Limited

Hong Kong ESI CO., Limited

Zhong Guo Co., Ltd

CyDesign Labs, Inc.

OpenCFD Limited

Cademce

TOTAL

January 31, 2016

Increase

Reversal

January 31, 2017

1,737

119

193

910

2,958

295

432

100

827

1,737

119

193

1,205

432

100

3,785

CyDesign Labs, Inc. shares have been impaired such that the net carrying amount equals the portion of the net equity of
the subsidiary held by ESI, and those of the subsidiary OpenCFD have been depreciated according to the restated value
of the shares. Cademce shared have been fully impaired.

Receivables related to equity investments

(in € thousands)

Gross value

Remuneration rate

Loan ESI North America, Inc. (USD9.7 million)

Loan Hong Kong ESI (USD1.124 million) (1)

Loan ESI Group Hispania SL

Loan ESI ATE Holdings (USD2.271 million) (2)

January 31, 2017

January 31, 2016

9,019

1,045

1,020

2,112

8,883

1,029

6-month Libor $ + 1% margin

1,020

Profit-sharing loan capped at 5%

2,080

6-month Libor $ + 1% margin

TOTAL

13,196

13,012

(1) This loan has been impaired by €0.683 million.
(2) This loan has been impaired by €1.052 million.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1275

FINANCIAL STATEMENTS

Note C.4. Receivables – Provisions for receivables

(in € thousands)

At January 31, 2017

Gross value Due in 1 year or less

Due in between 1 and 5
years

At January 31, 2016

Gross value

Loans granted to controlling interests

Loans

Treasury shares

Deposits and guarantees

Doubtful or disputed receivables

Trade receivables

Trade receivables with affiliate companies

Income tax receivables – advance payment

R&D tax credit receivable

Competitiveness and employment tax credit receivable

Other tax credits

Value added tax (VAT)

Co-financed projects

Other receivables

Prepaid expenses

TOTAL

Details of provisions for receivables

(in € thousands)

Provisions for doubtful receivables

Provisions for other receivables

TOTAL

13,196

147

1,142

2,091

10,784

46,003

759

3,083

136

155

1,037

4,054

206

2,595

85,450

147

2,091

10,784

46,003

759

3,083

136

155

1,037

4,054

206

2,595

71,117

13,196

13,012

452

861

1,531

10,162

38,753

1,031

2,836

108

255

1,133

3,594

216

2,137

76,121

1,138

14,333

January 31, 2016

Increase

Reversal used

January 31, 2017

1,548

126

1,674

623

629

(79)

2,093

131

2,224

Note C.5. Treasury shares
Treasury shares in the balance sheet are classified in Financial assets in an amount of €62 thousand (liquidity contract)
and in Marketable securities in an amount of €4.375 million.

Change in the number of treasury shares

January 31, 2016

Increase

Decrease

January 31, 2017

Treasury shares

430,884

117,832

129,330

419,386

The total value on the balance sheet is thus €4.437 million, compared to a market fair value of €19.439 million at January
31, 2017, for an unrealized gain of €15.001 million.

ESI GROUP • 2016 REGISTRATION DOCUMENT

128Note C.6. Prepaid expenses and expenses capitalized, to be amortized

(in € thousands)

Prepaid rent

Maintenance prepaid expenses

Other prepaid expenses

Debt issuance expenses (1)

TOTAL

(1) Amortization over the duration of the loan.

Note C.7. Foreign exchange gains and losses
These gains and losses pertain to the following balance sheet items:

(in € thousands)

Trade receivables
Trade payables
Current accounts
TOTAL

Note C.8. Accrued income

(in € thousands)

Receivables to be invoiced
Receivables to be invoiced from affiliate companies
Vendor credit notes to be issued
Miscellaneous income
TOTAL

FINANCIAL STATEMENTS

January 31, 2017

January 31, 2016

932

691

972

434

644

732

760

509

3,029

2,646

January 31, 2017

January 31, 2016

374
670
0
1,044

109
375
76
560

January 31, 2017

January 31, 2016

3,043
1,249
31
108
4,432

2,630
636
39
10
3,315

ESI GROUP • 2016 REGISTRATION DOCUMENT

1295 FINANCIAL STATEMENTS

Note D. Liability details

Note D.1. Equity
The main movements during the fiscal year are summarized in the table below:

(in € thousands)

Capital

Share premium

ESI Software merger premium

Systus merger premium

Legal reserve

Retained earnings

Net profit for the year

Regulated provisions

TOTAL

January 31, 2016

Allocation of 2015
profit

2016 profit

Other

January 31, 2017

17,865

24,938

9,677

2,854

1,642

30,237

4,036

758

92,007

145

3,891

(4,036)

1,632

111

280

(3,201)

326

(2,484)

17,976

25,218

9,677

2,854

1,787

30,927

1,632

1,084

91,155

Movements in the “Other” column reflect:
•

The capital increase with the associated share issuance premium following the exercise of 36,920 share subscription
options during the fiscal year;
A decrease in retained earnings following the change in accounting method concerning retirement obligations and
post-employment benefits (see Note A.2);
Accelerated capital allowances in an amount of €326 thousand.

•

Note D.2. Legal capital

Common shares (par value of €3)

O/w preferred shares (double voting rights)

Number of shares

At the end of the fiscal
year

Created during the fiscal
year

Repaid during the fiscal year

5,991,992

2,227,080

36,920

The capital increase is attributable to the exercise of share subscription options for 36,920 shares.

Note D.3. Stock subscription option plan
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.

ESI GROUP • 2016 REGISTRATION DOCUMENT

130Plan number

Plan 10
Plan 15
Plan 17

Plan 18

TOTAL STOCK OPTIONS

Plans 6 and 7

TOTAL FREE SHARES

FINANCIAL STATEMENTS

Year that plan
was
established

Number of stock
options/shares
allotted or to be
allotted

Number of stock
options/shares
granted

Of which
performance
shares

Weighted
average
exercise price

Number of existing
stock
options/shares at
January 31, 2017

Year that
stock options
can be
exercised

2012
2013
2014

2016

180,000
294,538
180,000

297,753

957,291

60,000

180,000
20,000
17,350

62,300
20,000
0

217,350

82,300

27,262

25.95
21.66
24.97

111,175
20,000
17,350

2020-2025
2025
2023

148,525

27,208

2018-2020

27,208

175,733

TOTAL STOCK OPTIONS AND FREE
SHARES

1,012,291

244,612

82,300

All stock options and free shares include a continued employment requirement.

Note D.4. Conditional advances

(in € thousands)

January 31, 2017

Up to 1 year

1 to 5 years

More than 5 years

January 31, 2016

Advance on Ademe financing agreement

Bpifrance advance

TOTAL

162

147

310

162

245

162

209

371

Note D.5. Provisions for contingencies and charges

(in € thousands)

January 31, 2016

Increase

Reversal used

January 31, 2017

Foreign exchange gains and losses (Note C.7)
Provisions for contingencies and charges (operating result)

Provision for retirement obligations (Note A.2)

560
885

3,200 (1)

1,044
75

404

(560)

(577)

TOTAL
(1) Amount at opening restated on a proforma basis, the €3.2 million was recorded as a corresponding decrease in retained earnings.

1,523

4,645

(1,137)

1,044

383

3,604

5,031

Provisions for contingencies and charges as at January
31, 2017 mainly correspond to tax and labor-related
risks. The provision referring to tax audit for the years
2009-2011 has been totally reversed, as the audit has
been completed and the tax adjustment has been paid.
The €404 thousand provision allowance for retirement
obligations breaks down as follows:
•

thousand

€343 thousand for an operating allowance, o/w
€273
services
rendered, €107 thousand in actuarial gains and
losses and €-37 thousand in services paid during
the fiscal year;
€61 thousand for a financial allowance corre-
sponding to interest expenses.

costs

for

•

Actuarial assumptions for retirement obligations

January 31, 2017 January 31, 2016

Discount rates
Rate of salary increase

1.70%
2.50%

1.90%
2.50%

The discount rate corresponds to AA-rate corporate
bond rates in the Eurozone, adjusted according to the
duration of the Group's commitments;
Turnover rates are calculated per age group according
to the past experience of the Company.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1315

FINANCIAL STATEMENTS

Note D.6. Statement of liabilities

(in € thousands)

Banks borrowings (D.7)

Miscellaneous financial debt (D.8)

Trade payables

January 31, 2017

Up to 1 year

1 to 5 years More than 5 years

January 31, 2016

44,103

2,633

7,994

13,011

2,633

7,994

18,258

12,833

Group trade payables

30,529

Personnel and related receivables (D.9)

Payroll taxes (D.9)

Value-added tax (D.9)

Other 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

TOTAL

2,697

2,151

1,409

462

9,096

2,211

345

103,694

2,697

2,151

1,409

462

9,096

2,211

345

72,603

18,258

12,833

42,884

2,398

5,520

24,713

2,217

1,898

1,339

453

249

4,151

1,496

619

87,938

•
•

Note D.7. Bank borrowings
At January 31, 2017, bank borrowings stand at €44.103
million and break down as follows:
•

€34.553 million related to the long-term syndicated
lines of credit;
€1 million in long-term borrowings from Bpifrance;
€8 million in drawdowns from the revolving credit
line;
€135 thousand in accrued interest on borrowings;
•
€415 thousand in short-term bank overdrafts.
•
In November 2015, ESI Group signed a €49 million syndi-
cated loan agreement with a pool of six banks. The lines of
credit for refinancing the previous syndicated loan and ex-
ternal growth (€39 million) have a maturity date of No-

vember 2022, partly with annual straight-line amortiza-
tion. WCR financing, which aims to optimize cash manage-
ment at ESI Group, heavily impacted by the highly sea-
sonal nature of its business model, was included in the
syndicated loan in the form of a €10 million revolving line
of credit.
At January 31, 2017, long-term lines of credit account for
€34.6 million and ESI Group has established hedging in-
struments for 40% of the nominal amount of these lines.
€8 million of the revolving line of credit has been used. As
of the date of approval of financial statements by the
Board of Directors (April 18, 2017), the entire revolving
line of credit has been paid off.
Off-balance-sheet commitments associated with this bor-
rowing are presented in Note F.4.

Note D.8. Miscellaneous financial debt

(in € thousands)

Coface financing

Employee profit sharing/interest accrued

Promissory note

TOTAL

January 31, 2017

Up to 1 year

1 to 5 years More than 5 years

January 31, 2016

133

2,500

2,633

133

2,500

2,633

272

126

2,000

2,398

ESI GROUP • 2016 REGISTRATION DOCUMENT

132Note D.9. Tax payables and employee-related liabilities

(in € thousands)

Provision for paid leave, including payroll taxes
Provision for bonuses to be paid to employees, including payroll taxes
Other payroll taxes
VAT collected
Other taxes
TOTAL

FINANCIAL STATEMENTS

January 31, 2017

January 31, 2016

2,257
1,387
1,107
1,409
559
6,719

2,071
1,133
829
1,339
534
5,907

Note D.10. Other operating payables

(in € thousands)

Subsidiaries current account

Advances on co-financed projects

Other liabilities

TOTAL

January 31, 2016

4,151

1,397

5,647

Increase

5,936

699

6,651

Decrease

January 31, 2017

(991)

9,096

2,096

114

11,307

Note D.11. Foreign exchange gains and losses
These gains and losses pertain to the following balance sheet items:

(in € thousands)

Trade receivables
Trade payables
Intercompany receivables
Current accounts
TOTAL

Note D.12. Accrued expenses

(in € thousands)

Borrowings and financial debts
Trade payables
Provision for paid leave, including payroll taxes
Provision for bonuses to be paid to employees, including payroll taxes
Other tax expenses
Other liabilities (advances on co-financed projects)
Other liabilities
TOTAL

January 31, 2017

January 31, 2016

925
87
2,079
189
3,280

667
46
1,895
63
2,670

January 31, 2017

January 31, 2016

167
10,594
2,257
1,387
354
2,096
8
16,863

83
11,645
2,071
1,133
168
1,397
0
16,497

ESI GROUP • 2016 REGISTRATION DOCUMENT

1335 FINANCIAL STATEMENTS

Note E. Details on income statement

Note E.1. Revenue
Breakdown by type

(in € thousands)

Software licenses
Sub-contracting, consulting and other income
Royalties received from Group distribution subsidiaries
Sub-contracting, consulting and other income - Group
Income from related activities - Group
Management fees Group
TOTAL

Breakdown by geographic area:

(in € thousands)

France
Europe (except France)
Americas
Asia
TOTAL

Note E.2. Other income from operations

(in € thousands)

Production held as inventory
Capitalized production
Reversal on depreciation and amortization
Reversal on impairment of trade receivables from ESI North America, Inc.
Other income
TOTAL OTHER INCOME

Note E.3. Other purchases and external expenses

(in € thousands)

Engineering studies and other services
Engineering studies and other services - Group
Research and development costs - Group
Materials and supplies
Leases and rental expenses
Maintenance and repairs
Insurance
Payments to intermediaries and fees
Royalties on third-party products and sales commissions
Advertising, external relations
Travel expenses

January 31, 2017

January 31, 2016

13,983
1,865
57,834
4,458
1,638
4,535
84,313

12,018
2,908
54,917
4,154
1,477
3,683
79,157

January 31, 2017

January 31, 2016

9,905
21,668
13,884
38,856
84,313

9,692
25,938
14,962
28,565
79,157

January 31, 2017

January 31, 2016

543
28,467
675
0
175
29,861

(78)
24,132
677
3,538
116
28,384

January 31, 2017

January 31, 2016

9,055
18,159
19,567
305
3,642
1,543
302
1,884
2,942
897
1,557

8,217
18,962
17,724
304
3,508
1,302
278
1,754
2,065
754
2,034

ESI GROUP • 2016 REGISTRATION DOCUMENT

134Postage, telecommunications expenses
Miscellaneous
TOTAL

Note E.4. Income tax expense

(in € thousands)

Corporate Value-Added Contribution (CVAE)
Corporate Real Estate Contribution (CFE)
Apprenticeship, continuing education and construction-related taxes
Other taxes
TOTAL

Note E.5. Operating allowances

(in € thousands)

Amortization allowance for development costs
Amortization allowance for other intangible assets
Amortization allowance for tangible assets
Amortization allowance for capitalized expenses to be amortized
Provision for impairment of trade receivables
Provision for retirement obligations
Provision for contingencies and charges
TOTAL

Note E.6. Other operating expenses

(in € thousands)

Royalties
Directors' fees
Debt forgiveness agreement with ESI North America, Inc.
Miscellaneous expenses
TOTAL

Note E.7. Financial income

(in € thousands)

Foreign exchange gain/(loss) realized
Unrealized foreign exchange gain/(loss)
Interest on borrowings
Interest on subsidiaries current account

Provision for retirement obligations

Provision for impairment equity investments
Reversal provision for investments

AVIC ESI dividend

Other financial income/(expenses)
TOTAL

FINANCIAL STATEMENTS

516
603
60,973

568
612
58,083

January 31, 2017

January 31, 2016

583
129
291
244
1,246

631
128
256
249
1,263

January 31, 2017

January 31, 2016

24,831
875
837
75
623
343
75
27,659

20,752
987
694
56
621
0
153
23,264

January 31, 2017

January 31, 2016

56
147
0
9
212

56
150
3,538
4
3,749

January 31, 2017

January 31, 2016

(230)

(484)
(868)
39

(61)

(827)
13

(105)
(2,492)

1,471

313

(431)

(910)
150

(98)
522

ESI GROUP • 2016 REGISTRATION DOCUMENT

1355

FINANCIAL STATEMENTS

Note E.8. Exceptional income

(in € thousands)

Profit or loss on movements of treasury shares
Accelerated capital allowances
Exceptional expense on treasury shares sales

Presto additional payment

Miscellaneous
TOTAL

Note F. Other information

Note F.1. Average headcount

(in full-time equivalent)

Executives
Office personnel
TOTAL

Note F.2. Compensation paid to executive corporate officers
Total compensation paid to ESI Group's three executive corporate are as follows:

(in € thousands)

Wages

Benefits in kind

Directors' fees

Compensation paid by controlled companies

Fringe benefits paid by controlled companies

TOTAL

January 31, 2017

January 31, 2016

(25)
(326)
22

(148)

(244)
(721)

(8)
(217)
(17)

(99)
(341)

January 31, 2017

January 31, 2016

Headcount

214
20
234

197
20
217

January 31, 2017

January 31, 2016

473

426

158

436

423

158

1,121

1,079

Note F.3. Branches
There are two branches integrated within ESI Group’s financial statements:

Name

Address

ESI Group Netherlands – Branch Office
ESI Group Shanghai Representative Office

Postbus 1000-Box E57-2260BA Leidschendam
Cross Region Plaza, Unit 20D, 899 Lingling Road 200235 Shanghai

Country

Netherlands
China

ESI GROUP • 2016 REGISTRATION DOCUMENT

136Note F.4. Off-balance sheet commitments

Future lease obligations

(in € thousands)

Real estate rentals
Movable property rentals
TOTAL

FINANCIAL STATEMENTS

Less than 1 year

Between 1 and 5 years

1,409
1,385
2,794

3,158
530
3,688

Future lease commitments correspond to the outstanding amounts due on the Group's main lease and rental contracts
until the contractual next maturity date.

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 bound by the collateral
agreement or documents, it undertakes to adhere to the
following ratios under penalty of early repayment:
•

•

As of January 31, 2017, on the basis of the consolidated
financial statements certified by the auditors, the Group
was compliant with the ratios described above.
During the fiscal year ended January 31, 2017, ESI Group
signed with Bpifrance a long-term financing envelope of
up to €3 million over five years, €1 million of which had
been used at the end of the fiscal year.
In terms of managing exposure to fluctuations in exchange
rates and interest rates, ESI Group uses the following fi-
nancial instruments, recognized under financial income
and expense at maturity:
•

Interest rate derivatives

– Three swaps in a nominal amount of €1.9 million, ESI
Group receiving variable rate 1-month Euribor (with
a 0% floor) and paying a fixed rate of 0.195% with two

banks and 0.22% with a third bank;

– Three swaps in a nominal amount of €2.7 million, ESI
Group receiving variable rate 1-month Euribor (with
a 0% floor) and paying fixed rates of 0.16%, 0.18%
and 0.19%, respectively.

– At January 31, 2017, the market value of these instru-

ments was €-34 thousand.
Foreign exchange instruments:

•

– In order to manage foreign currency risk on cash
flows between the Group's parent company and its
subsidiaries, ESI Group may purchase foreign cur-
rency options at any time and enter into any other
type of foreign exchange contract. Foreign exchange
instruments in place at January 31, 2017 concerned
Japanese yen (forwards, tunnels, targets), South Ko-
rean won (non-delivery forwards) and Indian rupee
(non-delivery forwards).

– At January 31, 2017, the market value of these instru-

ments was €3 thousand.

ESI Group also has an obligation relating to the 2015 ac-
quisition of Presto: a variable earnout payable in three in-
stallments to the founders on the first three anniversaries
of the acquisition, on condition of their employment at ESI
on the payment dates. The first payment carried out dur-
ing the fiscal year ended January 31, 2017 was recognized
in exceptional items.

Pledges
At January 31, 2017, ESI Group had a rent security deposit
with Crédit du Nord in an amount of €82 thousand, estab-
lished in December 2012 and expiring in December 2022.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1375

FINANCIAL STATEMENTS

Note F.5. Reconciliation of profit /(loss) and tax income/(charge)

(in € thousands)

Current income (loss)

Exceptional income

Employee profit sharing

Competitiveness and employment tax credit

French R&D tax credit

TAX INCOME (LOSS)

Profit (loss) before
tax

Reconciliation of
income/loss

Taxable income

Tax
(expense)/income

Profit (loss) after tax

700

(721)

1,817 (1)

(4)

2,517

(725)

(21)

1,812

1,791

(1,318)

242

(16)

136

2,610

1,653

(619)

(479)

(16)

136

2,610

1,632

(1) This amount of €1.817 million refers primarily to the tax neutralization of the expense of branches included in the financial statements, in the amount of €877

thousand, as well as to provisions for equity investments in the amount of €826 thousand.

Note F.6. Increases and decreases in future tax liabilities

(in € thousands)

Special social security contribution (contribution sociale de solidarité)

Translation differences

Interest

TOTAL TEMPORARY DIFFERENCES

NET DECREASE IN FUTURE INCOME TAX LIABILITIES (TAX RATE OF 33.33%)

January 31, 2017

3,280

852

4,219

1,406

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.7. ESI Group, consolidating company
ESI Group is the consolidating holding company of the Group of the same name.

ESI GROUP • 2016 REGISTRATION DOCUMENT

138FINANCIAL STATEMENTS

Note F.8. Table of controlled entities and affiliates (At January 31, 2017)

(in € thousands)

Head-quarters

% of
capital
owned
(As a %)

Carrying amount
of shares held

Gross

Net

Capital
(converted
at the
closing
rate)

Shareholders’
equity other
than capital
and net profit
for the year
(converted at
the closing
rate)

Total
guarantees
granted by
the
Company

Outstanding
loans and
advances
granted by
the Company
or by the
subsidiary

Dividends
received by
the
Company
during the
fiscal year

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)

A. DETAILED INFORMATION ON EACH SECURITY WITH GROSS VALUE EXCEEDING 10% OF THE COMPANY'S CAPITAL

1. Over 50%-owned subsidiaries

Engineering
International

STRACO

ESI Japan, Ltd.

System

France

Japan

1,020

2,559

100.0

458

(1,652)

15,608

(22)

2,981

97.7

1,789

(534)

499

3,729

97.0

Hankook ESI Co., Ltd.

South Korea

1,185

(2,294)

98.8

941

ESI North America, Inc.

USA

(2,543)

100.0

3,726

ESI Group Hispania s.l.

Spain

Mecas ESI s.r.o.

Czech Republic

ESI UK Limited

United Kingdom

ESI US R&D, Inc. (1)

USA

Calcom ESI SA

Switzerland

Zhong Guo Co., Ltd

China

Software

ESI
Private Ltd

(India)

India

Hong Kong ESI Co., Limited China

ESI-ATE Holdings Limited

China

100

116

237

(987)

100.0

425

95.0

100.0

74.0

910

285

100

912

164

111

100

912

164

111

98.5

2,678

232

100.0

193

3,363

100.0

(870)

100.0

119

(1,361)

100.0

1,737

ESI Italia s.r.l.

Italy

500

482

90.0

656

South

ESI
America
Comércio e Serviços de
Informática, Ltda

Brazil

ESI Services TUNISIA

Tunisia

ESI Group Beijing Co., Ltd

China

Software Germany

ESI
GmbH

Efield AB

Germany

Sweden

OpenCFD Limited

United Kingdom

676

621

95.0

388

100.0

242

543

242

543

517

4,738

98.5

10,391

504

100.0

446

9,019

1,020

(1,249)

1,045

2,112

31,002

1,384

6,393

(201)

23,432

3,421

7,821

344

218

692

4,869

1,012

9,820

3,300

401

(10)

9,151

4,813

869

626

4,050

8,309

1,313

694

(1)

(2)

125

(85)

179

792

753

198

666

100.0

2,351

1,920

(761)

1,008

(549)

CyDesign Labs, Inc.

USA

1,422

(416)

99.9

1,904

699

ESI Services Vietnam Co.,
Ltd

CIVITEC

ITI GmbH

Vietnam

France

Germany

Mineset Inc.

USA

2. 10–50% owned subsidiaries

ESI US Holding, Inc.

AVIC-ESI

USA

China

100.0

1,125

(506)

80.0

124

900

124

900

(192)

479

96.0

17,952

100

4,017

720

1,346

(591)

436

49.0

45.0

796

576

796

576

(1) ESI US R&D, Inc.: direct interest = 49%; indirect via US Holdings = 25%.

(299)

(104)

760

121

197

219

398

6,779

2,134

4,293

Note F.9. Subsequent events
In February 2017, ESI Group acquired 100% of the capital of French company Scilab Enterprises and purchased the mi-
nority interests in its subsidiary ESI Italia, now 100% owned by the Group.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1395 FINANCIAL STATEMENTS

5.2.4. Statutory Auditors’ report on the annual financial statements

This is a free translation into English of the statutory auditors’ report on the financial statements issued in French and it is provided solely for the conven-
ience of English-speaking users.
The statutory auditors' report includes information specifically required by French law in such reports, whether modified or not. This information is pre-
sented below the audit opinion on the financial statements and includes an explanatory paragraph discussing the auditors’ ass essments of certain signifi-
cant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the fi nancial statements taken
as a whole and not to provide separate assurance on individual account balances, transactions or disclosures.
This report also includes information relating to the specific verification of information given in the management report and in the documents addressed to
the shareholders.
This report should be read in conjunction with and construed in accordance with French law and professional auditing standards applicable in France.

Year ended January 31, 2017

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, 2017, on:
•
•
•
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.

The audit of the accompanying financial statements of ESI Group;
The justification of our assessments;
The specific verifications and information required by law.

I. Opinion on the annual 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 that the annual 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 financial statements. An audit also involves evaluating the ap-
propriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall
presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropri-
ate 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, 2017 and of the results of its operations for the year then ended in accordance with
French accounting principles.
Without qualifying the opinion expressed above, we draw your attention to note A.2 to the annual financial statements,
which present the change in accounting method regarding the provision for retirement obligations and post-employment
benefits.

Development costs
Note B.2 to the annual financial statements presents the accounting rules and methods adopted with respect to recogni-
tion of research and development costs. As part of our assessments of the accounting principles followed by your com-
pany, we reviewed the criteria used for capitalizing and amortizing research and development expense and measuring
the recoverable amount. We ensured that notes B.2 and C.1 to the financial statements provide appropriate information.

Investments
Investments are valued in accordance with the valuation methods described in note B.4 to the annual financial state-
ments. Our work consisted in assessing the data and assumptions underlying these book value estimates. We made sure
of the reasonableness of these estimates. 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.

ESI GROUP • 2016 REGISTRATION DOCUMENT

140FINANCIAL STATEMENTS

III. Specific verifications and information
We have also performed, in accordance with professional standards applicable in France, the specific verifications re-
quired by French law.
We have no matters to report as to the fair presentation and the consistency with the financial statements of the infor-
mation 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 relating to compensation and benefits paid to corporate officers and any other commitments made in their favor,
we have verified that such information is consistent with the financial statements, or with the underlying information
used to prepare said financial statements and, where applicable, with the information obtained by your company from
companies controlling your company 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 sharehold-
ers or holders of the voting rights has been properly disclosed in the management report.

Neuilly-sur-Seine and Paris-La Défense, Thursday, May 18, 2017 The statutory auditors

French original signed by

PricewaterhouseCoopers Audit

Thierry Charron

Ernst & Young Audit

Frédéric Martineau

ESI GROUP • 2016 REGISTRATION DOCUMENT

141RESOLUTIONS SUBMITTED FOR
APPROVAL BY THE GENERAL
MEETING

Decisions falling within the competence of the Ordinary General Meeting
1. Approval of the parent-company financial statements

for the fiscal year ended January 31, 2017

2. Approval of the consolidated financial statements for

the fiscal year ended January 31, 2017

3. Allocation of net profit for the year
4. Approval of the agreements referred to in Article

L. 225-38 of the French Commercial Code
5. Reappointment of Mrs. Cristel de Rouvray
6. Reappointment of Mr. Charles-Helen des Isnards
7. Approval of the principles and criteria for determining,

distributing and allocating the fixed, variable and ex-
ceptional items that make up the total compensation
and benefits of all types attributable to the Chairman
and Chief Executive Officer and the Chief Operating Of-
ficers

8. Determination of the compensation paid to the mem-

bers of the Board of Directors (Directors’ fees)

9. Authorization to be granted to the Board of Directors

for the Company to buy back its own shares

Decisions falling within the competence of the Extraordinary General Meeting
10. Authorization to be granted to the Board of Directors

to award stock subscription options
Authorization to be granted to the Board of Directors
to award stock purchase options
Delegation of authority to the Board of Directors for
the purpose of increasing the capital via the issue of
shares of common stock or of any securities convertible
into equity, with
preferential subscription rights
Delegation of authority to the Board of Directors for
the purpose of increasing the capital via the issue of
shares of common stock or of any securities convertible
into equity, through public offerings

maintenance of the shareholders'

11.

12.

13.

14.

15.

16.

preferential subscription rights

with cancellation
Delegation of authority to the Board of Directors for
of the shareholders'
the purpose of increasing the issue amount in the event
of over-demand
Delegation of authority to the Board of Directors for
the purpose of increasing the capital by the capitaliza-
tion of premiums, reserves, profits or otherwise
Delegation of authority to the Board of Directors for
the purpose of issuing shares without preferential sub-
scription rights as compensation for contributions of
shares or share equivalents granted to the Company as
part of a contribution in kind
Delegation of authority to the Board of Directors for

17.

the purpose of increasing the capital without preferen-
tial subscription rights through private placement
Authorization given to the Board of Directors to in-
crease the capital by issuing shares reserved for em-
ployees enrolled in the employee savings plan
Extension of the age limit for the Chief Executive Of-
ficer from 75 to 80 years of age and corresponding
amendment to article 14-II, paragraph 4 of the articles
of association

18.

19.

tion
20. Amendment to
applicable to the
to comply

article 16 of the articles of
with the new legal requirements
associa-
scheme of regulated agreements
article 18, paragraphs 7 to 9 of the
with the new legal

21. Amendment to

articles of association
requirements ap-plicable to the date and procedures
to comply
for drawing up the
General Meetings –Record Date

list of persons authorized to attend

article 4 of the articles of
with the new provisions of Article L.
French Commercial Code, as amended
No. 2016-1691 of December 9, 2016

associa-

tion
22. Amendment to
225-36 of the
to comply
by French Law
(“Sapin II” Law)

article 13 of the articles of
with the new provisions of Article L.
French Commercial Code, as amended
No. 2016-1691 of December 9, 2016

associa-

tion
23. Amendment to
225-36 of the
to comply
by French Law
(“Sapin II” Law)

ESI GROUP • 2016 REGISTRATION DOCUMENT

142

RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

with the new provisions of
24. Amendment to article 17 of the articles of
Article L. 823-1 of the French Commercial Code, as
association to comply
Joint decisions
25. Powers for formalities.

2016 (“Sapin II” Law)
amended by French Law

No. 2016-1691 of December 9,

6.1. Decisions falling within the competence of the Ordinary General
Meeting

First resolution

Approval of the parent-company financial statements for the fiscal year ended January 31, 2017

Statement of reasons
Based on the review of 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, the Gen-
eral Meeting is requested to approve the parent-company financial statements for the fiscal year ended January 31, 2017,
showing a profit of €1,632,373.85.

The General Meeting, having reviewed the Management
report of the Board of Directors, the Report of the Chair-
man of the Board of Directors on corporate governance,
internal control and risk management, and the reports of
the statutory auditors and the parent-company financial
statements for the fiscal year ended January 31, 2017, ap-

proves the financial statements and balance sheet, as pre-
sented, showing a profit of €1,632,373.85.
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 €204,186.

Second resolution

Approval of the consolidated financial statements for the fiscal year ended January 31, 2017

Statement of reasons
Based on the review of 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, the
General Meeting is requested to approve the consolidated financial statements for the fiscal year ended January 31, 2017.

the statutory auditors and the consolidated financial
statements as at January 31, 2017, approves these finan-
cial statements as presented.

Third resolution

Allocation of net profit for the year

Statement of reasons
The General Meeting is requested to allocate the profit of €1,632,373.85 as follows:
•
•
Following this allocation, the balance of the legal reserve will stand at €1,797,597.60.
Following this allocation, retained earnings will stand at €32,548,508.07.

€11,075.99 to the legal reserve;
€1,621,297.86 to retained earnings.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1436

RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

The Board of Directors reminds the General Meeting that no dividends have been paid out for the past three fiscal years.

the year ended

The General Meeting, acknowledging that the net profit
for
January 31, 2017 stands at
€1,632,373.85, decides, at the Board of Directors’ recom-
mendation, to allocate this profit as follows:
Current position:
•
•
•

Net profit for the year:
Retained earnings: €30,927,210.21
Total to be allocated:

€1,632,373.85

€11,075.99 to the legal reserve;
€1,621,297.86 to retained earnings.

Allocated as follows:
•
•
Following this allocation, the balance of the legal reserve
will stand at €1,797,597.60.
Following this allocation, retained earnings will stand at
€32,548,508.07.
The General Meeting notes that no dividends have been
paid out for the past three fiscal years.4082422123

Fourth resolution

Approval of the agreements referred to in Article L. 225-38 of the French Commercial Code

Statement of reasons
Based on the special report by the statutory auditors on regulated agreements, the General Meeting is requested to
acknowledge that during FY2016 the two following agreements gave rise to the procedure provided for in Articles L. 225-
38 et seq. of the French Commercial Code:
•

the buyback of 8,000 ESI shares from a shareholder who held over 10% of the voting rights under terms set out in the
report of the statutory auditors;
the consultancy contract initially signed in 2015 with Ms. Cristel de Rouvray, Director, and extended under the same
terms in 2016 following a review by the Board of Directors on April 8, 2016.

•

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,

Fifth resolution

Reappointment of Mrs. Cristel de Rouvray

acknowledges the conclusions of said report and approves
the agreements mentioned therein.

Statement of reasons
As the directorship of Mrs. Cristel de Rouvray expires at the end of this General Meeting, the Shareholders are requested to
renew her directorship for a term of four years, until the General Meeting to be convened to approve the financial state-
ments for the year ending January 31, 2021.
The Board of Directors reminds the General Meeting that Ms. Cristel de Rouvray has been a director since 1999. She is
currently Chair of the Compensation, Nomination and Governance Committee and a member of the Strategic Committee.
Her biography is presented in the Chairman’s report.

The General Meeting, having reviewed the Report of the
Board of Directors, and noting that the term of office of
Ms. Cristel de Rouvray expires at the end of the General
Meeting, decides to renew her 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, 2021.

Sixth resolution

Reappointment of Mr. Charles-Helen des Isnards

Statement of reasons
As the directorship of Mr. Charles-Helen des Isnards expires at the end of this General Meeting, the Shareholders are re-
quested to renew his directorship for a term of four years, until the General Meeting to be convened to approve the financial

ESI GROUP • 2016 REGISTRATION DOCUMENT

144RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

statements for the year ending January 31, 2021.
The Board of Directors reminds the General Meeting that Mr. Charles-Helen des Isnards has been an independent board
member since 2008. He is currently Chair of the Audit Committee and a member of the Strategic Committee and Compen-
sation, Nomination and Governance Committee. Mr. Charles-Helen des Isnards has also been given special assignments in
recent years. His biography is presented in the Chairman’s report.

The General Meeting, having reviewed the Report of the
Board of Directors, and noting that the term of office of
Mr. Charles-Helen des Isnards expires at the end of the
General Meeting, resolves to renew his directorship for a

Seventh resolution

term of four years, expiring at the end of the General Meet-
ing to be convened to approve the financial statements for
the year ending January 31, 2021.

Approval of the principles and criteria for determining, distributing and allocating the fixed, variable
and exceptional items that make up the total compensation and benefits of all types attributable to the
Chairman and Chief Executive Officer and the Chief Operating Officers

Statement of reasons
In application of Article L. 225-37-2 of the French Commercial Code, as introduced by the French “Sapin II” Law on Trans-
parency, Anti-Corruption and Modernization of Economic Life, the General Meeting is requested every year as of 2017 to
approve the principles and criteria for determining, distributing and allocating the fixed, variable and exceptional items
that make up the total compensation and benefits of all types attributable to the corporate executive officers, based on
their mandate.
These principles and criteria are presented in the report appended to the Report of the Board of Directors and are included
in section 2.5.2 of the Registration Document.

The General Meeting, deliberating in accordance with the
quorum and majority requirements for Ordinary General
Meetings, in application of Article L. 225-37-2 of the
French Commercial Code, approves the principles and cri-
teria for determining, distributing and allocating the fixed,
variable and exceptional items that make up the total com-
pensation and benefits of all types attributable to the

Eighth resolution

Chairman and Chief Executive Officer and the Chief Oper-
ating Officers as set out in the report appended to the re-
port mentioned in Articles L. 225-100 and L. 225-102 of
the French Commercial Code, and presented in the Regis-
tration Document.

Determination of the compensation paid to the members of the Board of Directors (Directors’ fees)

Statement of reasons
The General Meeting is requested to set the total annual amount of Directors’ fees allocated to members of the Board of
Directors for FY2017 at €180,000 to account for changes in the Board of Directors.
It should be noted that in its previous decision, the General Meeting of July 21, 2016 set the total amount at €160,000.

The General Meeting decides to set the compensation paid
to the members of the Board of Directors in the form of
Directors’ fees at €180,000 for FY2017.

The Board will freely distribute this amount among its
members.

ESI GROUP • 2016 REGISTRATION DOCUMENT

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RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

Ninth resolution

Authorization to be granted to the Board of Directors for the Company to buy back its own shares

Statement of reasons
As the existing authorization expires in January 2018, it is proposed to the General Meeting to terminate this
authorization and grant the Board of Directors a new authorization for the Company to buy back its own shares for a
new period of 18 months as from the General Meeting of June 29, 2017.
Given the rise in the ESI share price, it is proposed to set the maximum purchase price at €80 per share. Pursuant to
current legislation, the maximum number of shares that may be vested is limited to 10% of the capital, after deduction of
treasury stock held by the Company, 7% at the end of the 2016 fiscal year. The Company will not be allowed to pay out
more than €15,000,000 under the share buyback program.
The Company can buy back its own shares to:
•

stimulate the secondary market or the liquidity of ESI Group shares through a liquidity contract signed with an in-
vestment service provider;
allocate them to free share awards or stock purchase options;
hold them and use them at a later date as payment for acquisitions;
cancel them by a reduction in share capital.

•
•
•

The General Meeting, deliberating in accordance with the
quorum and majority requirements for Ordinary General
Meetings, and having reviewed the Report of the Board of
Directors in accordance with Article L. 225-209 of the
French Commercial Code:
•

Terminates the authorization granted by the seventh
resolution of the Ordinary and Extraordinary Gen-
eral Meeting of July 21, 2016, which authorized the
Board to trade in its own shares;
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 June 29,
2017, in order to:

•

(i) 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);
(ii) Fulfill its share issue obligations, in accordance with
the terms and conditions set forth by law, undertaken as
part of the following:

- Plans granting stock options for the purchase of ex-
isting shares by the Group’s employees or corpo-
rate officers;

- Employee profit-sharing plans under which these
shares would be granted to employees and/or cor-
porate officers;

- Free share grants to the Group’s employees and

corporate officers;

- Shares provided upon exercise of the rights at-
tached to securities giving access to shares by any

•

means, whether immediately or in the future, un-
der the conditions set forth by the AMF and at any
time deemed appropriate by the Board of Direc-
tors;

(iii) Retain shares to subsequently use them in exchange
or as payment for future business acquisitions;
(iv) Cancel shares by a reduction in share capital.

•

Decides that the purchase price per share may not
exceed €80.

Shares may be purchased or retained at the discretion of
the Board of Directors by any means by trading on or off
the market, or on an over-the-counter market, on one or
more occasions. All shares purchased under the author-
ized 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 ac-
cordance 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
€15,000,000 under the share buyback program.
The Board of Directors shall inform Shareholders of any
purchases or sales carried out pursuant to this authoriza-
tion in its management report.
The General Meeting grants full authority to the Board of
Directors to:
•

Publish, on the website of the AMF, a detailed notice
explaining this share buyback program authorized
by the General Meeting prior to using this authoriza-
tion;
Place any and all stock market orders and enter into

ESI GROUP • 2016 REGISTRATION DOCUMENT

146RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

any and all agreements to record share purchases
and sales;

•

Make any and all disclosures to the stock market reg-
ulators, carry out any other formalities and, in gen-
eral, take any necessary steps.

6.2. Decisions falling within the competence of the Extraordinary Gen-

eral Meeting

Tenth resolution

Authorization to be granted to the Board of Directors to award stock subscription options

Statement of reasons
As the existing authorization expires in September 2017, it is proposed to the General Meeting to terminate this authori-
zation and grant the Board of Directors a new authorization to award stock subscription options to corporate officers and
employees of the Company and its affiliates, or certain categories of them, for a new period of 38 months starting with the
General Meeting of June 29, 2017.
The number of shares that may be awarded under this authorization must not exceed 3% of the share capital at the date
of the General Meeting, i.e. 180,000 options.
The subscription price of shares will be determined at the date on which the options are granted by the Board of Directors.
Pursuant to current legislation, 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.
The Board of Directors will determine the identity of the beneficiaries of the share grants and the procedures and condi-
tions under which they are awarded within the limits of this authorization and within legal and regulatory limits.
Options must be exercised no later than eight years after the date on which they are granted; however, the Board of Direc-
tors may nonetheless shorten this period 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.
This authorization will entail the Shareholders’ express waiver, for the benefit of beneficiaries of the options, of the Share-
holders' preferential subscription rights to shares that will be issued as options are exercised.
In accordance with legal requirements, the increase in capital resulting from the exercise of stock 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.

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 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 parent-company financial state-
ments, 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 pub-
lic, 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.

ESI GROUP • 2016 REGISTRATION DOCUMENT

1476

RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

Options must be exercised no later than eight years after
the date on which they are granted; however, the Board of
Directors may nonetheless shorten this period 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 dur-
ing 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 authoriza-
tion entails the Shareholders' express waiver, for the ben-
efit of beneficiaries of the options, of the Shareholders'
preferential subscription rights to shares that will be is-
sued as options are exercised.
The General Meeting grants full authority to the Board of
Directors to decide all other terms and conditions regard-
ing 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, dur-
ing certain periods or within a certain period follow-
ing certain events (b) bring forward exercise dates or

•

periods for the options, extend the exercisable na-
ture 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 appli-
cable, in keeping with the legal and regulatory re-
quirements in force.

•

The increase in capital resulting from the exercise of stock
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 offset-
ting 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 pub-
lic disclosure formalities.
This authorization cancels, in the amount of the unused
portion, the ninth resolution of the Ordinary and Extraor-
dinary General Meeting of July 24, 2014.

ESI GROUP • 2016 REGISTRATION DOCUMENT

148RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

Eleventh resolution

Authorization to be granted to the Board of Directors to award stock purchase options

Statement of reasons
The General Meeting is requested to terminate the existing authorization of July 21, 2016 and grant the Board of Directors
a new authorization to award stock purchase options to corporate officers and employees of the Company and its affiliates,
or certain categories of them, for a new period of 38 months starting with the General Meeting of June 29, 2017.
The number of shares that may be awarded under this authorization must not exceed 5% of the share capital at the date
of the General Meeting, i.e. 299,600 shares.
The purchase price of shares will be determined at the date on which the options are granted by the Board of Directors.
Pursuant to current legislation, this price shall be no less than 80% of the average share price over the last 20 trading days
preceding the date on which the options are granted.
The Board of Directors will determine the identity of the beneficiaries of the share grants and the procedures and condi-
tions under which they are awarded within the limits of this authorization and within legal and regulatory limits.
Options must be exercised no later than eight years after the date on which they are granted; however, the Board of Direc-
tors may nonetheless shorten this period 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 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 of the French Commercial Code,
options to purchase existing shares bought back by the
Company under the conditions provided for by law, not to
exceed the number of shares representing 5% of the capi-
tal as of the date of this Meeting, i.e. 299,600 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 purchase price of shares will be determined at the
date on which the options are granted by the Board of Di-
rectors.
This price shall be no less than 80% of the average share
price over 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 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 parent-company financial state-
ments, are published, nor within the period between the

was

disclosed to

date on which the Company's corporate bodies
became aware of information that, if it
the pub-lic, 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 shorten this period for all or
part of the beneficiaries.
The Board of Directors may prohibit the immediate resale
of the shares purchased; however, the period of time dur-
ing which beneficiaries are required to retain shares may
not exceed three years from the date on which the option
is exercised.
The General Meeting grants full authority to the Board of
Directors to decide all other terms and conditions regard-
ing 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, dur-
ing certain periods or within a certain period follow-
ing certain events and (b) bring forward exercise

•

ESI GROUP • 2016 REGISTRATION DOCUMENT

1496

RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

dates or periods for the options, extend the exercisa-
ble 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

•

Twelfth resolution

•

which the option was exercised;
Adjust the number and the price of the shares that
may be obtained by exercising options, where appli-
cable, in keeping with the legal and regulatory re-
quirements in force.

This authorization cancels, in the amount of the unused
portion, the eleventh resolution of the Ordinary and Ex-
traordinary General Meeting of July 21, 2016.

Delegation of authority to the Board of Directors for the purpose of increasing the capital via the issue
of shares of common stock or of any securities convertible into equity, with maintenance of the
shareholders' preferential subscription rights

Statement of reasons
As the existing authorization expires in September 2017, it is proposed to the General Meeting to terminate this authori-
zation and grant the Board of Directors a new authorization to increase capital via the issue of shares of common stock
or of any securities convertible into equity, with maintenance of the shareholders' preferential subscription rights. This
authorization will be granted for a new period of 26 months starting with the General Meeting of June 29, 2017.
Shareholders will have preferential subscription rights, in proportion to the number of their shares, to the securities issued
in accordance with this resolution. The Board of Directors will have the option of granting the Shareholders the right to
apply for a number of securities in excess of the number of shares for which they can apply as of right, in proportion to
their subscription rights and according to their request.
The nominal amount of any immediate or future capital increases may not exceed €20,000,000 or its equivalent in any
other currency. All capital increases that may be carried out pursuant to the authorizations granted to the Board of Direc-
tors by resolutions 12 to 17 submitted at the General Meeting will be deducted from this limit.

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 report of the statutory
auditors, and
in accordance with Articles L. 225-
129,L. 225-129-1, L. 225-129-2 et seq. and L. 228-92 et
seq. of the French Commercial Code:
•

Authorizes the Board of Directors to issue, on one or
more occasions, common stock of the Company or
any other securities, including stand-alone share
subscription warrants with or without considera-
tion, carrying immediate or deferred rights to com-
mon stock of the Company. The Board of Directors
will have full discretionary powers to determine the
amount, terms and timing of this issue, which may be
carried out in France or abroad and within the frame-
work of this resolution, and may be denominated in
euros, foreign currency or any monetary unit deter-
mined by reference to a basket of currencies.
Securities may be subscribed for in cash or by offset-
ting debt.
The issue price of each share may not be less than the
par value.

•

This authorization granted to the Board of Directors
is valid for a period of 26 months as from the date of
this Meeting.
Decides that the total nominal amount of immediate
or future capital increases that may be carried out
may not exceed €20,000,000 or its equivalent in any
other currency, plus the amount of any additional
shares issued to maintain the rights of holders of se-
curities giving access to shares, in line with legal pro-
visions. All capital increases that may be carried out
pursuant to the authorizations granted to the Board
of Directors by resolutions 12 to 17 submitted at the
General Meeting will be deducted from this limit.
Furthermore, the total nominal amount of debt in-
struments with immediate or deferred access to the
capital that may be issued in application of this au-
thorization may not exceed €300,000,000 or its
equivalent in any other currency.
Decides that existing Shareholders will have a pref-
erential right to subscribe for the securities issued
pursuant to this authorization, in proportion to their
existing holdings;

ESI GROUP • 2016 REGISTRATION DOCUMENT

150RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

•

The Board of Directors will have the option of grant-
ing the Shareholders the right to apply for a number
of securities in excess of the number of shares for
which they can apply as of right, in proportion to
their subscription rights and according to their re-
quest.
Decides that if the applications for shares as of right
and, if applicable, applications for excess shares, do
not cover the entire issue, the Board of Directors may
use one or more of the options below in the order it
deems fit:

– Limit the amount of the issue to the subscriptions
received, provided that at least 75% of the issue
is taken up;

– Freely distribute all or part of the unsubscribed

Thirteenth resolution

•

securities;

– Float all or part of the unsubscribed securities.
Notes that, as required, this authorization automati-
cally waives Shareholders’ preferential subscription
rights to the shares to which these securities entitle
them in favor of holders of securities issued in appli-
cation of this resolution and giving deferred access to
Company shares that may be issued.
Decides that this authorization also covers the au-
thorization granted to the Board of Directors to
amend the articles of association as necessary.
Acknowledges that this authorization cancels and re-
places any previous authorizations with the same
purpose.

Delegation of authority to the Board of Directors for the purpose of increasing the capital via the issue
of shares of common stock or of any securities convertible into equity, through public offerings
with cancellation of the shareholders' preferential subscription rights

Statement of reasons
As the existing authorization expires in September 2017, it is proposed to the General Meeting to terminate this authori-
zation and grant the Board of Directors a new authorization to increase capital via the issue of shares of common stock or
of any securities convertible into equity, through public offerings with cancellation of the shareholders' preferential
subscription rights.
This authorization will be granted for a new period of 26 months starting with the General Meeting of June 29, 2017.
Shareholders’ preferential subscription rights to securities to be issued under this authorization will be cancelled. The
Board of Directors will have the option of granting Shareholders a priority subscription right to shares as of right and, if
applicable, applications for excess shares, for all or part of the issue, for the period and on the terms it will set pursuant to
the applicable legislative and regulatory provisions when it decides to exercise this authorization.
The nominal amount of any immediate or future capital increases may not exceed €20,000,000 or its equivalent in any
other currency. All capital increases that may be carried out pursuant to the authorizations granted to the Board of Direc-
tors by resolutions 12 to 17 submitted at the General Meeting will be deducted from this limit. Furthermore, the total nom-
inal amount of debt instruments with immediate or deferred access to the capital that may be issued in application of this
authorization may not exceed €300,000,000 or its equivalent in any other currency.
The issue price may not be less than the weighted average price of shares quoted over the three days prior to the decision,
less 5%. For issues of stand-alone share subscription warrants carrying immediate or deferred rights to Company shares,
this minimum price applies to the sum of the price of the warrant and the share.

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 report of the statutory
auditors, and in accordance with Articles L. 225-129,
L. 225-129-1, L. 225-129-2 et seq., L. 225-135, L. 255-136,
and L. 228-92 et seq. of the French Commercial Code:
•
Authorizes the Board of Directors to issue,
through public offerings, on one or more occasions,
common stock of the Company and/or share
equivalents

carrying rights to other equity securities or to debt
securities and/or share equivalents carrying rights
to equity securities to be issued governed by Articles
L. 228-91 et seq. of the French Commercial Code. The
Board of Directors will have full discretionary pow-
ers to determine the method and terms of this issue,
which may be carried out in France or abroad.
Securities may be subscribed for in cash or by offset-
ting debt, or may result from securities tendered to a

ESI GROUP • 2016 REGISTRATION DOCUMENT

1516

RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

future capital

public exchange offer initiated by the Company un-
der Article L. 225-148 of the French Commercial
Code.
This authorization granted to the Board of Directors
is valid for a period of 26 months from the date of this
Meeting.
Decides that the nominal amount of any immediate
or
increases may not exceed
€20,000,000 or its equivalent in any other currency.
All capital increases that may be carried out pursuant
to the authorizations granted to the Board of Direc-
tors by resolutions 12 to 17 submitted at this General
Meeting will be deducted from this limit. Further-
more, the total nominal amount of debt instruments
with immediate or deferred access to the capital that
may be issued in application of this authorization
may not exceed €300,000,000 or its equivalent in
any other currency.
Decides to cancel Shareholders’ preferential sub-
scription rights to securities to be issued under this
authorization, and give the Board of Directors the op-
tion of granting Shareholders a priority subscription
right to shares as of right and, if applicable, applica-
tions for excess shares, for all or part of the issue, for

•

the period and on the terms it will set pursuant to the
applicable legislative and regulatory provisions
when it decides to exercise this authorization. This
priority subscription right will not be transferable or
tradable.
Decides that the issue price may not be less than the
weighted average price of shares quoted over the
three days prior to the decision, less 5%. For issues
of stand-alone share subscription warrants carrying
immediate or deferred rights to Company shares,
this minimum price applies to the sum of the price of
the warrant and the share.
Notes that, as required, this authorization automati-
cally waives Shareholders’ preferential subscription
rights to the shares to which these securities entitle
them in favor of holders of securities issued in appli-
cation of this resolution and giving deferred access to
Company shares that may be issued.
Decides that this authorization also covers the au-
thorization granted to the Board of Directors to
amend the articles of association as necessary.
Acknowledges that this authorization cancels and re-
places any previous authorizations with the same
purpose.

•

Fourteenth resolution

Delegation of authority to the Board of Directors for the purpose of increasing the issue amount in the
event of over-demand

Statement of reasons
As the existing authorization expires in September 2017, it is proposed to the General Meeting to terminate this authori-
zation and grant the Board of Directors a new authorization to increase the issue amount in the event of over-demand for
a new period of 26 months.
For each issue carried out in application of the twelfth and thirteenth resolutions above, the Board of Directors will be
authorized to increase the number of shares to be issued in accordance with Article L. 225-135-1 of the French Commercial
Code in the event of over-demand, and under the following terms: (i) within 30 days of the close of the original issue, (ii) for
up to 15% of its amount, (iii) for a maximum of €20,000,000, and (iv) at the same price applied in the original issue.

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 report of the statutory
auditors, decides that for each issue carried out in appli-
cation of the twelfth and thirteenth resolutions above, the
Board of Directors is authorized to increase the number of
shares to be issued in accordance with Article L. 225-135-
1 of the French Commercial Code in the event of over-de-
mand, and within 30 days of the close of the original issue,

Fifteenth resolution

and for up to 15% of its amount. The subscription price
will be the same as that applied in the original issue.
However, this increase may not exceed the overall maxi-
mum of €20,000,000 authorized for all capital increases
carried out by the Board of Directors pursuant to resolu-
tions 12 to 17 submitted at this General Meeting.
The General Meeting acknowledges that the present au-
thorization cancels and replaces any previous authoriza-
tions with the same purpose.

ESI GROUP • 2016 REGISTRATION DOCUMENT

152RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

Delegation of authority to the Board of Directors for the purpose of increasing the capital by the
capitalization of premiums, reserves, profits or otherwise

Statement of reasons
As the existing authorization expires in September 2017, it is proposed to the General Meeting to terminate this authori-
zation and grant the Board of Directors a new authorization to increase capital by the capitalization of premiums, reserves,
profits or otherwise, for a new period of 26 months.
The total amount of capital increases that may be carried out, plus the amount required to maintain the rights of holders
of securities giving access to shares, in line with legal provisions, may not exceed the total amount of reserves, premiums
and profits existing at the time of the capital increase, or €100,000,000. This limit may be reduced to the amount of capital
increases carried out pursuant to resolutions 12 to 17 submitted at this General Meeting.

In application of Article L. 225-130 of the French Commer-
cial Code, the General Meeting, having reviewed the Re-
port of the Board of Directors:
•

Authorizes the Board of Directors, for a period of 26
months as from the date of this Meeting, to increase
the capital, on one or more occasions, through incor-
poration of additional paid-in capital, retained earn-
ings, earnings, or other amounts that may be capital-
ized in accordance with the applicable laws and the
Company’s articles of association, in the form of free
share awards, the increase of the nominal amount of
existing shares or a combination of these two meth-
ods. The total amount of capital increases that may
be carried out, plus the amount required to maintain
the rights of holders of securities giving access to
shares, in line with legal provisions, may not exceed
the total amount of reserves, premiums and profits

Sixteenth resolution

•

existing at the time of the capital increase, or
€100,000,000. This limit may be reduced to the
amount of capital increases carried out pursuant to
resolutions 12 to 17 submitted at this General Meet-
ing.
Decides that, in the event that the Board of Directors
exercises this authorization, rights to fractional
shares may not be traded or transferred, and that the
corresponding securities will be sold. Proceeds from
sale will be allocated to rights holders within the
time limit set forth in regulations in force.
Decides that this authorization also covers the au-
thorization granted to the Board of Directors to
amend the articles of association as necessary.
The General Meeting acknowledges that the present au-
thorization cancels and replaces any previous authoriza-
tions with the same purpose.

•

Delegation of authority to the Board of Directors for the purpose of issuing shares without preferential
subscription rights as compensation for contributions of shares or share equivalents granted to the
Company as part of a contribution in kind

Statement of reasons
As the existing authorization expires in September 2017, it is proposed to the General Meeting to terminate this authori-
zation and grant the Board of Directors a new authorization to issue shares without preferential subscription rights as
compensation for contributions of shares or share equivalents granted to the Company as part of a contribution in kind.
This authorization will be granted for a new period of 26 months.
Within the overall maximum of €20,000,000, the Board of Directors will have the option of issuing shares of common stock
in line with the report of the contributions auditor(s), not to exceed 10% of the Company’s share capital.

Within the overall maximum of €20,000,000 appli-
cable to capital increases authorized by the resolu-
tions 12 to 17 submitted at this General Meeting and
in accordance with Article L. 225-147 of the French
Commercial Code, the General Meeting, deliberating
in accordance with the quorum and majority re-
quirements for Extraordinary General Meetings,

having reviewed the Report of the Board of Direc-
tors, authorizes the Board of Directors, for a period
of 26 months as from the date of this Meeting, to is-
sue shares of common stock in line with the report of
the contribution appraiser(s), not to exceed 10% of
the Company’s share capital, as compensation for
contributions in kind granted to the Company in the

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form of shares or share equivalents.
The General Meeting acknowledges that this author-
ization cancels and replaces any previous authoriza-
tions with the same purpose. This authorization also

covers the authorization granted to the Board of Di-
rectors to amend the articles of association as neces-
sary.

Seventeenth resolution

Delegation of authority to the Board of Directors for the purpose of increasing the capital without
preferential subscription rights through private placement

Statement of reasons
As the existing authorization expires in September 2017, it is proposed to the General Meeting to terminate this authori-
zation and grant the Board of Directors a new delegation of authority to increase the share capital without preferential
subscription rights by private placement, for an additional 26 months.
The total amount of share capital increases that may be carried out pursuant to this delegation is limited to 20% of the
share capital per year, up to an overall ceiling of €20,000,000.
The issue price of the shares issued directly will be equal to or greater than the minimum required by the regulatory pro-
visions in force on the day of issue for an issue without preferential subscription rights (to date, the weighted average of
the share price over the three trading days preceding the setting of the subscription price of the capital increase less 5%),
after correcting of this average in the event of a difference between the dividend dates.

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 report of the statutory
auditors, in application of Article L. 225-136 of the French
Commercial Code and Article L. 411-2 of the French Mon-
etary and Financial Code:
•

Delegates to the Board of Directors, for a period of 26
months from the date of this General Meeting, the au-
thority to carry out, on one or more occasions, a cap-
ital increase reserved for qualified investors or a lim-
ited circle of investors in accordance with the provi-
sions of Article L. 225-136 of the French Commercial
Code and Article L. 411-2 of the French Monetary and
Financial Code.
Decides that the issue price of the shares issued di-
rectly will be equal to or greater than the minimum

•

required by the regulatory provisions in force on the
day of issue for an issue without preferential sub-
scription rights (to date, the weighted average of the
share price over the three trading days preceding the
setting of the subscription price of the capital in-
crease less 5%), after correcting of this average in the
event of a difference between the dividend dates.
Decides that the total amount of share capital in-
creases that may be carried out pursuant to this del-
egation is limited to 20% of the share capital per
year, up to an overall ceiling of twenty million euros
(€20,000,000).

•

In all cases, the amount of the capital increases carried out
pursuant to this resolution shall be charged against the
ceilings provided for in resolutions 12 to 17.

The General Meeting acknowledges that this delegation
cancels and replaces any previous authorization having
the same purpose.

Eighteenth resolution

Authorization granted to the Board of Directors to increase the capital by issuing shares reserved for
employees enrolled in the employee savings plan

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154RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

Statement of reasons
In accordance with the provisions of Articles L. 3332-1 et seq. of the French Labor Code and Articles L. 225-129-6 and
L. 225-138-1 of the French Commercial Code, providing in particular for a permanent obligation to consult the Sharehold-
ers regarding capital increases reserved for employees enrolled in the company savings plan, the General Meeting is called
upon to terminate the existing authorization and to authorize the Board of Directors to carry out capital increases reserved
for employees enrolled in the company savings plan.
This authorization will be granted for a new period of 26 months as of the General Meeting of June 29, 2017.
The ceiling of the nominal amount of the Company's capital increase, resulting from all share issues carried out pursuant
to this resolution, is set at 2% of the share capital, this ceiling being autonomous and distinct from the ceilings referred to
in other resolutions and established without taking into account the nominal value of the ordinary shares to be issued, if
any, in respect of adjustments carried out to preserve the rights of holders of securities conferring entitlement to shares in
the Company, in accordance with the law.
The preferential subscription right to which the issue of shares or other securities giving access to the capital provided for
in this resolution confers immediate or subsequent entitlement will be canceled for the benefit of employees enrolled in the
company savings plan.
The Board of Directors shall be free to determine the terms and conditions of such increases, within the limits of this au-
thorization and within legal and regulatory limits.

•

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 report of the statutory
auditors, in application of Articles L. 3332-1 et seq. of the
French Labor Code and Articles L. 225-129-6 and L. 225-
138-1 of the French Commercial Code, and acting in ac-
cordance with the provisions of said Code:
•

Decides that the Board of Directors shall have a max-
imum period of 26 months to implement a new com-
pany savings plan in accordance with the provisions
of Articles L. 3332-1 et seq. of the French Labor Code.
Delegates to the Board of Directors, for a period of 26
months from the date of this General Meeting, all
powers to increase the share capital, on one or more
occasions, at its sole discretion, by issue of shares or
other securities giving access to the Company's capi-
tal reserved for members of a company savings plan
implemented by the Company and French or foreign
companies affiliated thereto, pursuant to Article L.
225-180 of the French Commercial Code and L. 3344-
1 and L. 3344-2 of the French Labor Code.
The ceiling of the nominal amount of the Company's
capital increase, resulting from all share issues car-
ried out pursuant to this resolution, is set at 2% of
the share capital, this ceiling being autonomous and
distinct from the ceilings referred to in other resolu-
tions and established without taking into account the
nominal value of the ordinary shares to be issued, if
any, in respect of adjustments carried out to preserve
the rights of holders of securities conferring entitle-
ment to shares in the Company, in accordance with

•

the law.
Decides that the issue price of shares issued pursu-
ant to this authorization will be determined by the
Board of Directors in accordance with the legal and
regulatory provisions applicable to companies
whose shares are admitted to trading on a regulated
market.
Decides that the characteristics of the other securi-
ties giving access to the capital of the Company will
be determined by the Board of Directors under the
conditions set out by regulations.
Decides to cancel the preferential subscription right
to shares to which the issue of shares or other secu-
rities giving access to the capital as provided for in
this resolution confers immediate or subsequent en-
titlement, for the benefit of the employees enrolled in
a company savings plan, and to waive any right to
any shares or other securities to be awarded pursu-
ant to this resolution.
Decides that the Board of Directors shall have full
powers to implement this delegation, within the lim-
its and under the conditions specified above, partic-
ularly for the following purposes:
determine the characteristics of the securities to be
issued, the amounts proposed for subscription and,
in particular, set the issue prices, dates, deadlines,
terms and conditions for subscription, release, deliv-
ery and enjoyment of securities, in accordance with
applicable laws and regulations;
record the completion of capital increases up to the
amount of the shares that will actually be subscribed

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•

or other securities issued pursuant to this authoriza-
tion;
if applicable, charge the costs of the capital increases
against the amount of the related premiums and de-
ducting from this amount the sums necessary to
bring the legal reserve to one-tenth of the new capital
after each capital increase;
conclude all agreements, perform directly or by
proxy all transactions and procedures including pro-
ceeding with all formalities following capital in-
creases and corresponding amendments to the arti-
cles of association and, more generally, do whatever
is necessary;

in general, enter into any agreement, in particular to
successfully complete the proposed issues, take all
measures and carry out all formalities relevant to the
issue, listing and financial servicing of securities is-
sued pursuant to this delegation and the exercise of
the rights attached thereto.
Decides that this authorization shall terminate, as of
this date, up to the amount of the unused portion, au-
thorizations previously granted to the Board of Di-
rectors to increase the share capital of the Company
by issue of shares reserved for members of company
savings plans with cancellation of preferential sub-
scription rights in favor of the latter.

Nineteenth resolution

Extension of the age limit for the Chief Executive Officer from 75 to 80 years of age and corresponding
amendment to article 14-II, paragraph 4 of the articles of association

Statement of reasons
The General Meeting is called upon to approve the extension of the age limit of the Chief Executive Officer from 75 to
80 years of age and the corresponding amendment to article 14-II, paragraph 4, of the Company's articles of association.
For information, it is specified that, according to article 10 of the articles of association, the age limit for the exercise of
the functions of member of the Board of Directors and Chairman of the Board is 80 years of age.

The General Meeting therefore decides to amend article
14-II, paragraph 4 of the articles of association as follows:
“For the performance of his duties, the Chief Executive Of-
ficer must be under 80 years of age. When this age limit
has been reached during the term of office, the Chief Exec-
utive Officer shall be deemed to have resigned and a new
Chief Executive Officer shall be appointed.”
The remainder of this article remains unchanged.

Twentieth resolution

Amendment to article 16 of the articles of association to comply with the new legal requirements
applicable to the scheme of regulated agreements

Statement of reasons
With respect to the agreements submitted for approval, Article L. 225-38 of the French Commercial Code, as amended by
Order No. 2014-863 of July 31, 2014, now provides for an obligation to state the reasons for the decision to authorize said
agreements. In addition, the new Article L. 225-40-1 of the French Commercial Code, as introduced by the aforementioned
ordinance, provides for an annual review by the Board of Directors of agreements concluded and authorized in previous
fiscal years.
As regards current agreements, Article L. 225-39 of the French Commercial Code, as amended by the same ordinance, ex-
cluded certain intra-Group agreements from the regulated agreements procedure.
The General Meeting is called upon to approve the amendment of article 16 of the Company's articles of association to bring
it into line with these new legal provisions relating to regulated and current agreements.

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, decides to amend article 16 of the ar-
ticles of association, bringing it in line with the provisions
of (i) of Article L. 225-38 of the French Commercial Code,
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156RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

as amended by Ordinance No. 2014-863 of July 31, 2014,
which now provides for an obligation to state the reasons
for the decision to authorize the agreement; (ii) the new
Article L. 225-40-1 of the French Commercial Code as in-
troduced by Ordinance 2014-863 of July 31, 2014, which
now provides for an annual review by the Board of Direc-
tors of the agreements concluded and authorized in previ-
ous years; and (iii) those of Article L. 225-39 of the French
Commercial Code, as amended by Ordinance No. 2014-
863 of July 31, 2014, which excluded certain intra-Group
agreements from the regulated agreements procedure.
The General Meeting therefore decides to:
•

Amend article 16, paragraph 5 of the articles of asso-
ciation as follows:
“These agreements must be authorized and ap-
proved in accordance with Article L. 225-40 of the
French Commercial Code. Previous authorization by
the Board of Directors is motivated by justifying the
benefits of the agreement for the Company, particu-
larly by specifying the financial conditions related
thereto.”
Add the following text after article 16, paragraph 5 of

•

the articles of association:
“In addition, agreements concluded and authorized
in previous fiscal years, the execution of which has
continued during the past fiscal year, are examined
each year by the Board of Directors and transmitted
to the auditors for the purposes of drawing up the
statutory auditors' special report on regulated agree-
ments.”
Amend article 16, paragraph 6 of the articles of asso-
ciation as follows:
“Agreements relating to current and ordinary trans-
actions, as well as agreements concluded between
two companies, one of which holds, directly or indi-
rectly, 100% of the capital of the other, following de-
duction of the minimum number of shares required
to meet the requirements set out in Article 1832 of
the French Civil Code or Articles L. 225-1 and L. 226-
1 of the French Commercial Code, if applicable, are
not subject to the authorization and approval proce-
dure provided for in Articles L. 225-38 et seq. of the
French Commercial Code.”

The remainder of this article remains unchanged.

Twenty-first resolution

Amendment to article 18, paragraphs 7 to 9 of the articles of association to comply with the new legal
requirements applicable to the date and procedures for drawing up the list of persons authorized to
attend General Meetings – Record Date

Statement of reasons
Decree No. 2014-1466 of December 8, 2014 amended the date and procedures for drawing up the list of persons authorized
to attend a General Meeting as a Shareholder or bondholder of a French listed company. For meetings held from 2015
onwards, the right to attend or be represented at the Meeting is subject to the registration of the securities in the name of
the Shareholder or the intermediary registered on behalf of the latter, at least two business days prior to the General
Meeting, at 12:00 AM Paris time.
The General Meeting is called upon to approve the amendment of article 18, paragraphs 7-9 of the Company's articles of
association to bring them in line with these new legal provisions relating to the “Record Date.”

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, decides to amend article 18, para-
graphs 7-9 of the articles of association to bring them in
line with the provisions of Decree No. 2014-1466 of De-
cember 8, 2014 modifying the date and procedures for
drawing up the list of persons authorized to attend Gen-
eral Meetings (Record Date).
The General Meeting therefore decides to amend article
18, paragraphs 7-9 of the articles of association as follows:
“All Shareholders have the right, upon presentation of

proof of their identify, to take part in meetings by attend-
ing them in person, by video conference or by other means
of electronic telecommunication or transmission, or by re-
turning the mail-in ballot or designating a proxy.
The right to attend or be represented at the Meeting is
subject to the registration of the securities in the name of
the Shareholder or the intermediary registered on behalf
of the latter, at least two business days prior to the General
Meeting, at 12:00 AM Paris time:
•

Either in the registered share account kept by the
Company;
Or in bearer share accounts kept by the authorized
intermediary.

•

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A participation certificate must be established by the au-
thorized intermediary on the basis of this registration and
attached to the mail-in ballot/proxy form or the access

card application submitted in the name of the Share-
holder.”
The remainder of this article remains unchanged.

Twenty-second resolution

Amendment to article 4 of the articles of association to comply with the new provisions of Article L.
225-36 of the French Commercial Code, as amended by French Law No. 2016-1691 of December 9,
2016 (“Sapin II” Law)

Statement of reasons
Until now, the Board of Directors could decide to transfer the Company's head office within the département or to a
neighboring département, subject to ratification of this decision by the next Ordinary General Meeting. Article 142 of the
“Sapin II” law extended this possibility, authorizing the transfer of the head office throughout France, subject nonetheless
to ratification of the decision by the General Meeting after the fact.
The General Meeting is called upon to approve the amendment of article 4 of the articles of association of the Company
to bring it into line with these new legal provisions relating to the authority of the Board of Directors to transfer the head
office.

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, decides to bring article 4 of the articles
of association in line with the new provisions of Article L
225-36 of the French Commercial Code as amended by
law No. 2016-1691 of December 9, 2016, known as the
"Sapin II" law.
The General Meeting therefore decides to amend article 4
of the articles of association as follows:
“The head office of the Company is located at

Twenty-third resolution

100-102 Avenue de Suffren – 75015 Paris.
It may be transferred to any other location in France by
simple decision of the Board of Directors, subject to ratifi-
cation of this decision by the next Ordinary General Meet-
ing, and to any other location by decision of the Extraordi-
nary General Meeting of Shareholders.
The Board of Directors may create, transfer and eliminate,
all institutions, agencies, branches, offices and counters in
France and abroad.”

Amendment to article 13 of the articles of association to comply with the new provisions of Article L.
225-36 of the French Commercial Code, as amended by French Law No. 2016-1691 of December 9,
2016 (“Sapin II” Law)

Statement of reasons
Article 142 of the “Sapin II” law amended Articles L. 225-36 and L. 225-65 of the French Commercial Code with a view to
extending the powers of the Board of Directors: henceforth, pursuant to a delegation of powers by the Extraordinary
General Meeting, the Board may amend the articles of association as necessary to bring them in line with legal and reg-
ulatory provisions, subject to ratification of such amendments by the next Extraordinary General Meeting.
The General Meeting is called upon to approve the amendment of article 13 of the Company’s articles of association to
bring it into line with these new legal provisions relating to the authority of the Board of Directors to amend the articles
of association.

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, decides to bring article 13 of the arti-
cles of association in line with the new provisions of Arti-
cle L 225-36 of the French Commercial Code as amended
by law No. 2016-1691 of December 9, 2016, known as the

“Sapin II” law.
The General Meeting therefore decides to amend article
13 of the articles of association, appending to said article
a paragraph to read as follows:
“Pursuant to a delegation of powers by the Extraordinary
General Meeting, the Board amends the articles of associ-

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158RESOLUTIONS SUBMITTED FOR APPROVAL BY T HE GENERAL MEETING

ation as necessary to bring them in line with legal and reg-
ulatory provisions, subject to ratification of such amend-
ments by the next Extraordinary General Meeting.”

Twenty-fourth resolution

The remainder of this article remains unchanged.

Amendment to article 17 of the articles of association to complywith the new provisions of Article L.
823-1 of the French Commercial Code, as amended by French Law No. 2016-1691 of December 9,
2016 (“Sapin II” Law)

Statement of reasons
Article 140 of the “Sapin II” law, amending Article L. 823-1, paragraph 2 of the French Commercial Code, eliminated
the obligation to appoint (an) alternate statutory auditor(s), except in the event that the principle statutory auditor is a
nat-ural person or a one-person company.
The General Meeting is called upon to approve the amendment of article 17 of the Company's articles of association
to bring it in line with these new legal provisions.

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, decides to bring article 17 of the arti-
cles of association in line with the new provisions of Arti-
cle L 823-1 of the French Commercial Code as amended by
law No. 2016-1691 of December 9, 2016, known as the
“Sapin II” law.
The General Meeting therefore decides to:
•

Amend article 17, paragraph 1 of the articles of asso-
ciation as follows:
“The Ordinary General Meeting appoints one or more

•

statutory auditors responsible for carrying out the
assignments set out by law and complementary reg-
ulations.”
Amend the last paragraph of article 17 of the articles
of association as follows:
“In the event that the statutory auditor thus ap-
pointed is a natural person or a one-person company,
one or more alternate statutory auditors, called upon
to replace the principle statutory auditors in the
event of refusal, impediment, resignation or death,
are appointed under the same conditions.”

The remainder of this article remains unchanged.

6.3. Joint decisions:

Twenty-fifth resolution

Powers to carry out formalities

Statement of reasons
This resolution is intended to grant the powers necessary to carry out formalities subsequent to the General Meeting.

The General 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
applicable law.

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INFORMATION ON THE COMPANY
AND SHARE CAPITAL

7.1. Information on the Company

7.1.1. General information
Corporate name and head office
ESI Group
100-102, avenue de Suffren
75015 Paris, France

Legal form
ESI Group is a French limited company (société anonyme)
with a Board of Directors.

Legislation governing the issuer
French

Date of incorporation and term of the issuer
ESI Group was incorporated on January 28, 1991. The
term of the Company is 99 years from registration, unless
extended or dissolved before such time.

Company registration
Paris Trade and Companies Registry No. 381 080 225

Corporate purpose (article 2 of the articles of
association)
The Company pursues the following corporate purpose in
France and in all other countries:
•

To research, develop, design, manufacture and dis-
tribute computer software. To provide all forms of
assistance, training and, in general, all activities that
may be directly or indirectly related to the corporate
purpose;
To acquire, receive, hold, manage and trade in a port-
folio of securities, especially in fields related to the
publishing of scientific software, including digital
simulation software for prototyping and manufac-
turing processes and related decision-making sup-
port 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, sub-
scribing to shares in existing companies, purchasing secu-
rities or rights to equity instruments, merging companies,
forming business alliances, undertaking joint invest-
ments, 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 recommenda-
tions in relation to investments, acquisitions and divesti-
tures. It also provides assistance as a management con-
sultant 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 restructuring 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 pro-
mote the Company's expansion or growth.

Fiscal year (article 22 of the articles of association)
The fiscal year begins on February 1st and ends on January
31 of each year. It covers 12 months.

Exceptional events and disputes
To the best of the Company's knowledge, there is no ex-
ceptional event or dispute that may have or has had a ma-
terial impact on the financial position or profit of the Com-
pany or the Group of which it is a part.
With the exception of disputes arising in the ordinary
course of business, the Company was not involved in any
in
governmental,
FY2016.

judicial or arbitration procedure

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7.1.2. Information regarding 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, 5% of
the net profit for the fiscal year, less any losses carried for-
ward, 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 retained earnings,
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 al-
locate 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 spe-
cial account once the financial statements have been ap-
proved by the Annual General Meeting.

General Meetings (Article 18 of the articles of
association)
In accordance with Article 18 of the articles of association
and legislation in force, decisions are made collectively by
Shareholders in General Meetings classified as either Or-
dinary or Extraordinary General Meetings.
The procedures for convening and holding General Meet-
ings are governed by French law. Meetings are held at the
head office or at any other location indicated in the meet-
ing notice.
Ordinary General Meetings are convened to make all deci-
sions that do not require amendments to the articles of as-
sociation.
They occur 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 associa-
tion. However, such meetings may not increase the obliga-
tions of Shareholders, except in the event of transactions
stemming from any valid consolidation of shares.

If there are multiple categories of shares, the rights at-
tached to the shares of a certain category may not be
changed without the approval of an Extraordinary Gen-
eral 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 category in question.
All Shareholders are entitled, 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 re-
turning the mail-in ballot or designating a proxy.
The right to attend or be represented at the General Meet-
ing is subject to shares being recorded for accounting pur-
poses in the name of the Shareholder or the intermediary
registered on behalf of the latter, by 12:00 AM Paris time,
two working days prior to the General Meeting:

• Either in the registered share account kept by the

Company;

• Or in bearer share accounts kept by the author-

ized intermediary.

A participation certificate must be established by the au-
thorized intermediary on the basis of this registration and
attached to the mail-in ballot/proxy form or the access
card application submitted in the name of the Share-
holder.
In accordance with the conditions set forth above, the le-
gal representatives of Shareholders deemed legally in-
competent and individuals representing legal persons
that hold shares in the Company may take part in General
Meetings, regardless of whether or not they are Share-
holders themselves.
Proxy forms and mail-in ballots must be prepared and
sent out in accordance with legislation in force.
An attendance sheet is filled out for each meeting. This at-
tendance sheet must be duly signed by the Shareholders
present and by the proxies, and must be certified as accu-
rate 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
Board member appointed to replace him or her.
The two Shareholders present at the Meeting who repre-
sent the largest number of shares, either on their own be-
half or as proxies, are appointed to serve as scrutineers,
provided that they accept the responsibility.

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INFORMATION ON THE COMPANY AND SHARE CAPITAL

The officers of the meeting, thus designated, are responsi-
ble for appointing a secretary who need not be a Share-
holder.

Quorum and majority (Article 19 of the articles of
association)
The Ordinary General Meeting cannot validly conduct
business when first convened unless the Shareholders
present or represented account for at least one-fifth of
shares with voting rights.
When convened a second time, no quorum is required.
The Meeting issues decisions by a majority vote of the
shareholders present or represented.
The Extraordinary General Meeting cannot validly con-
duct business unless the Shareholders present or repre-
sented account for at least one-fourth of shares with vot-
ing rights when first convened, and one-fifth when con-
vened a second time. If this quorum is not attained, the
second General Meeting may be postponed for a maxi-
mum of two months from the date at which it was initially
convened.
The Extraordinary General Meeting issues decisions by a
two-thirds majority vote of the shareholders present or
represented.
Special General Meetings cannot validly conduct business
unless the Shareholders present or represented account
for at least half of shares with voting rights when first con-
vened, and one-fourth when convened a second time. If
this quorum is not attained, the second General Meeting
may be postponed for a maximum of two months from the
date at which it was initially convened, the one-fourth
quorum remaining necessary.
Special General Meetings issue decisions by a two-thirds
majority vote of the shareholders present or represented.

Shareholders' right to information (Article 21 of the
articles of association)
All shareholders are entitled to receive information, and
the Board of Directors is required to send or make availa-
ble any documents necessary for Shareholders to make in-
formed decisions relating to the management and situa-
tion of the Company.
Shareholders' right to information, the nature of docu-
ments provided and the arrangements for such docu-
ments to be made available or transmitted shall adhere to
the terms set out by applicable law.

of the share capital the share represents.
Anyone who has held fully paid-up registered shares for
at least four years as of the date of the Extraordinary Gen-
eral 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 al-
ready held that bear this entitlement.
Any shares converted to bearer shares or transferred to a
different owner are stripped of double voting rights, alt-
hough other rights and obligations attached to the share
are transferred to any owner thereof.
However, double voting rights are not lost and the above-
mentioned four-year period is not interrupted in the event
that shares are transferred by way of an inheritance, fol-
lowing 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.

Shareholding thresholds
In accordance with the provisions of Article L. 233-7 of the
French Commercial Code, any natural or legal person, act-
ing alone or in concert, that comes to own, directly or in-
directly, a number of shares accounting for more than 5%,
10%, 15%, 20%, 25%, 30%, 33.3%, 50%, 66.66%, 90% or
95% of the share capital or voting rights is required to so
inform the Company as provided for by law.
In the event of failure to make such a declaration, any per-
son holding 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 Commer-
cial Code for a term of two years from the date on which
the declaration is duly made.
There are no other requirements under the articles of as-
sociation regarding shareholding thresholds except for
those set forth under current law.

Form and transfer of shares (Article 9 of the articles
of association)

Form
Shareholders may opt to hold fully paid-up shares as ei-
ther registered shares or bearer shares. Shares will be rec-
orded in the Company's accounts in accordance with the
terms and procedures set forth by law.

Double voting rights (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 Com-
pany's assets and profits, proportionate to the percentage

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 ac-
counts in accordance with the regulations in force.

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INFORMATION ON THE COMPANY AND SHARE CAPITAL

7.1.3. Information concerning administrative and management bodies

Information on members of administrative and management bodies, as well as their respective authority, is presented in
chapter 2, “Corporate Governance.”

7.2. Information on the Company's capital

7.2.1. Statutory requirements governing modifications to the capital and rights

attached to shares

Extraordinary General Meetings have sole authority to de-
cide 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 require-
ments for quorum and majority set forth for Ordinary
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 trans-
action may be declared null and void.
Shareholders are entitled, in proportion to their total
shares, to preferential subscription rights to shares issued
for cash 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 en-
tire 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, re-
duction in the number of shares, or reduction in the par
value of shares; under no circumstances may the reduc-
tion in capital undermine the principle of equality be-
tween Shareholders.

7.2.2. Issued share capital and authorized unissued share capital

At January 31, 2017, the Company's share capital stood at
€17,975,976. It was divided into 5,991,992 shares with a
par value of €3 each, all in the same category and fully paid
up.

Aside from the stock option plans and free share grants
described in section 7.3, there is no other financial instru-
ment that entitles its holder to ownership interest in the
Company's share capital.

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1637

INFORMATION ON THE COMPANY AND SHARE CAPITAL

Table summarizing currently valid delegations granted to the Board of Directors and use of such delegations
during the fiscal year

Resolution
number

Purpose

Term
authorization

the

Expiration
date

Maximum

Authorized uses

COMBINED GENERAL MEETING OF JULY 24, 2014

Resolution
9

Authorization to grant stock options

38 months

September
2017

Not to exceed 180,000 shares representing
3.068% of the share capital as of the date of
the Combined General Meeting

COMBINED GENERAL MEETING OF WEDNESDAY, JULY 22, 2015

Resolution
9

Resolution
10

Delegation of authority
the Board of
Directors for the purpose of increasing the
capital via the issue of shares of common
stock or of any securities convertible into
equity, with preferential subscription rights
accorded to shareholders

Delegation of authority
the Board of
Directors for the purpose of increasing the
capital via the issue of shares of common
stock or of any securities convertible into
equity, through public offerings and eliminating
preferential subscription rights

26 months

September
2017

26 months

September
2017

Securities:
€90,000,000
Debt securities:
€45,000,000

granted
31,

at
2017:

remaining:

Options
January
17,350
Options
162,650

None

Resolution
11

Delegation of authority
the Board of
Directors for the purpose of increasing the
issue amount in the event of over-demand

Within 30 days of
the closing of the
original issue

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 €90,000,000.

None

Resolution
12

Delegation of authority
the Board of
Directors for the purpose of increasing the
capital by the capitalization of premiums,
reserves, profits or otherwise

26 months

September
2017

Not to exceed the total amount of reserves,
premiums and profits existing at the time of
the capital increase or €150,000,000 (a
ceiling that might be reduced to the amount
of capital increases undertaken pursuant to
resolutions 9 to 14)

None

Resolution
13

Delegation of authority
the Board of
Directors for the purpose of issuing shares
without preemptive subscription rights as
compensation for contributions of shares or
share equivalents granted to the Company as
part of contributions in kind

Resolution
14

Delegation of authority
the Board of
Directors for the purpose of increasing the
capital without preemptive subscription rights
through private placement

Resolution
15

Authorization given to the Board of Directors to
increase
issuing shares
reserved for employees who are members of
the employee savings plan

the capital by

26 months

September
2017

Total ceiling of €90,000,000 applied to capital
increases authorized by resolutions 9 to 12

None

26 months

September
2017

20% of the share capital per year, not to
exceed the overall maximum of €90,000,000

None

26 months

September
2017

Not to exceed 2 % of the Company's share
capital

None

COMBINED GENERAL MEETING OF THURSDAY, JULY 21, 2016

Resolution
7

Authorization to be granted to the Board of
Directors for the Company to buy back its own
shares

18 months

January
2018

Not to exceed 10 % of the Company's share
capital

8,000
Acquisition
shares
in December
2016 from a Shareholder
with more than 10% of
voting rights

Resolution
9

Authorization to the Board of Directors to
reduce the share capital by canceling shares
purchased by the Company under Article L.
225-209 of the French Commercial Code

26 months

September
2018

Not to exceed 10% of the Company's share
capital per 24-month period

None

Resolution
10

Authorization to the Board of Directors to grant
free shares
to eligible employees and
executive corporate officers of the Company
and affiliated companies

38 months

September
2019

Not to exceed 60,000 shares representing
1% of the share capital as of the date of the
Combined General Meeting

Free shares awarded at
January 31, 2017:
27,262
Free shares remaining:
32,738

Resolution
11

Authorization to the Board of Directors to grant
stock purchase options

38 months

September
2019

Not to exceed 5% of the Company's share
capital at the date of the Combined General
Meeting, i.e. 297,753 shares

None

Non-equity securities
As of the date the Registration Document was drawn up, the Company had not issued any non-equity securities.

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164

INFORMATION ON THE COMPANY AND SHARE CAPITAL

7.2.3. History of changes in share capital

Meeting date

Operation type

Change in share capital
Issue of cash shares

Resulting total
share capital

Total number of
shares

Par
value
(In
euros)

Premium
(In euros)

Number of
shares created

Par
value
(In
euros)

15.24

EGM of 1/28/1991

Incorporation of the Company

EGM of 7/26/1991 Capital increase in cash

EGM of 7/26/1991 Capitalization of share premium

15.24

(2,274,021)

15.24

(2,261,779)

2,500

834

38,112

50,827

2,500

15.24

3,334

15.24

2,312,606

3,334

694

EGM of 7/31/1991 Stock split and free share award

694

300,060

2,312,606

303,394

7.62

EGM of 11/5/1996 Capital increase in cash

7.62

3,565,206

32,276

2,558,628

335,670

7.62

EGM of 3/26/1997 Capitalization of share premium

7.62

(3,577,448)

6,140,707

335,670

18.29

And withdrawal from the legal reserve

(4,631)

EGM of 4/24/1997 Capital increase in cash

18.29 130,801.26

975

6,158,544

336,645

18.29

EGM of 12/9/1998 Stock split

18.29

3,703,095

6,158,544

4,039,740

1.52

EGM of 3/15/1999 Capital increase in cash

1.52

4,364,334

524,902

6,958,752

4,564,642

1.52

EGM of 7/8/1999 Capitalization of share premium

1.52

4,175,251

11,134,003

4,564,642

2.44

EGM of 6/14/2000 Capital increase in cash

2.44

2,783,502

1,141,161

13,917,505

5,705,803

2.44

BoD meeting of
5/9/2001

Share capital adjustment
Exercise of share subscription options

2.44

103,236

42,324

14,020,741

5,748,127

2.44

BoD meeting of
5/9/2001

Conversion of the share capital from French francs to
euros

2.44

14,020,741

5,748,127

(EGM of
6/14/2000))

Capitalization of the share premium by increasing the
par value of the shares

3,223,640

17,244,381

5,748,127

BoD meeting of
3/8/2002

Share capital adjustment
Exercise of share subscription options

BoD meeting of
3/8/2005

Share capital adjustment
Exercise of share subscription options

BoD meeting of
6/7/2007

Share capital adjustment
Exercise of share subscription options

BoD meeting of
4/14/2008

Share capital adjustment
Exercise of share subscription options

BoD meeting of
2/1/2012

Share capital adjustment
Exercise of share subscription options

BoD meeting of
2/28/2013

Share capital adjustment
Exercise of share subscription options

BoD meeting of
2/7/2014

Share capital adjustment
for
Capital
employees who are members of the employee savings
plan

through cash contribution

increase

BoD meeting of
2/7/2014

Share capital adjustment
Exercise of share subscription options

BoD meeting of
3/10/2015

Share capital adjustment
Exercise of share subscription options

BoD meeting of
2/18/2016

Share capital adjustment
Exercise of share subscription options

BoD meeting of
2/23/2017

Share capital adjustment
Exercise of share subscription options

7,500

2,500

17,251,881

5,750,627

301,500

100,500

17,553,381

5,851,127

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

252,214.4

43,040

17,806,896

5,935,632

74,949.4

12,790

17,845,266

5,948,422

38,969

6,650

17,865,216

5,955,072

280,351

36,920

17,975,976

5,991,992

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165

INFORMATION ON THE COMPANY AND SHARE CAPITAL

7.2.4. Corporate shareholding structure

Shareholding structure
At January 31, 2017, Mr. Alain de Rouvray, conjointly with
the de Rouvray family, held 1,824,385 shares, represent-
ing 30.45% of the share capital and 46.35% of voting
rights.
To the Company's knowledge, there are no other Share-
holders who hold, directly or indirectly, individually or

jointly, 5% or more of the Company's share capital or vot-
ing rights, with the exception of those named in the table
below.
The number of shares held by each member of the Board
of Directors, as well as employee shareholding, is pre-
sented in the table below.

CHANGE IN THE BREAKDOWN OF THE COMPANY'S SHARE CAPITAL OVER THE PAST THREE FISCAL YEARS

At January 31, 2017
First and last name

Number and
shares

% of
capital

Number of voting rights that
may be exercised

% of voting rights that
may be exercised

The de Rouvray family (Ms. Amy de Rouvray, Ms. Cristel Anne de Rouvray, Mr.
John Alexandre de Rouvray and Ms. Amy Louise de Rouvray)

Estate of Jacques Dubois

1,824,385

30.4%

400,619

6.7 %

SUB-TOTAL OF SHAREHOLDERS' AGREEMENT (REGISTERED SHARES)

2,225,004

37.1%

Vincent Chaillou

Charles-Helen des Isnards

Éric d’Hotelans

Véronique Jacq

Rajani Ramanathan

Yves de Balmann

16,197

0.3%

3,751

0.1%

1,589

0.0%

MEMBERS OF THE BOARD OF DIRECTORS (REGISTERED SHARES)
(EXCLUDING FOUNDERS)

21,540

0.4%

TOTAL EMPLOYEE SHAREHOLDING (REGISTERED SHARES)

64,288

1.1%

Public shareholding, registered shares

Public shareholding, bearer shares

SUB-TOTAL PUBLIC SHAREHOLDING

TREASURY SHARES

TOTAL

Total number of theoretical voting rights: 8,219,072

32,565

0.5%

3,230,594

53.9%

3,263,159

54.5%

418,001

7.0%

5,991,992

100.0%

7,801,071

3,619,425

797,038

4,416,463

28,893

6,552

2,928

38,376

76,091

39,547

3,230,594

3,270,141

46.4%

10.2%

56.6%

0.4%

0.1%

0.0%

0.5%

1.0%

0.5%

41.4%

41.9%

0.0%

100.0%

ESI GROUP • 2016 REGISTRATION DOCUMENT

166INFORMATION ON THE COMPANY AND SHARE CAPITAL

Number and
shares

% of
capital

Number of voting rights that
may be exercised

% of voting rights that may
be exercised

At January 31, 2016
First and last name

The de Rouvray family

Estate of Jacques Dubois

SUB-TOTAL OF SHAREHOLDERS' AGREEMENT (REGISTERED
SHARES)

2,234,804

37.5%

4,361,263

1,824,385

30.6 %

410,419

6.9%

3,554,425

806,838

Vincent Chaillou

Charles-Helen des Isnards

Éric d’Hotelans

13,597

0.2%

3,751

0.1%

1,589

0.0%

MEMBERS OF THE BOARD OF DIRECTORS (REGISTERED
SHARES) (EXCLUDING FOUNDERS)

18,937

0.3%

TOTAL EMPLOYEE SHAREHOLDING (REGISTERED SHARES)

52,814

0.9%

Public shareholding, registered shares

Public shareholding, bearer shares

SUB-TOTAL PUBLIC SHAREHOLDING

TREASURY SHARES

TOTAL

Total number of theoretical voting rights: 8,115,520

At January 31, 2015
First and last name

The de Rouvray family

Jacques Dubois

SUB-TOTAL OF SHAREHOLDERS' AGREEMENT (REGISTERED
SHARES)

Vincent Chaillou

Charles-Helen des Isnards

Éric d’Hotelans

Francis Bernard

Michel de la Serre

88,149

1.5%

3,131,215

52.6%

3,219,364

54.1%

429,153

7.2%

5,955,072

100.0%

1,814,522

30.5%

396,419

6.7%

2,210,941

37.2%

13,597

0.2%

3,401

0.1%

1,589

0.0%

2,321

0.0%

1,615

0.0%

MEMBERS OF THE BOARD OF DIRECTORS (REGISTERED
SHARES) (EXCLUDING FOUNDERS)

22,523

0.4%

TOTAL EMPLOYEE SHAREHOLDING (REGISTERED SHARES)

46,642

0.8%

Public shareholding, registered shares

Public shareholding, bearer shares

SUB-TOTAL PUBLIC SHAREHOLDING

TREASURY SHARES

TOTAL

Total number of theoretical voting rights: 8,104,577

86,589

1.5%

3,160,874

53.1%

3,247,463

54.6%

420,853

7.1%

5,948,422

100.0%

46.2 %

10.5%

56.7%

0.3%

0.1%

0.0%

0.5%

0.8%

1.2%

40.7%

42.0%

0.0%

100.0%

26,293

6,252

2,215

34,760

64,643

94,486

3,131,215

3,225,701

7,686,367

3,539,099

792,838

4,331,937

26,293

5,402

2,215

3,592

1,845

39,347

58,571

92,995

3,160,874

3,253,869

7,683,724

46.1%

10.3%

56.4%

0.3%

0.1%

0.0%

0.5%

0.8%

1.2%

41.1%

42.3%

0.0%

100.0%

Number and
shares

% of
capital

Number of voting rights that may
be exercised

% of voting rights that may
be exercised

Shareholders' agreement and other agreements
An agreement was signed on October 25, 2000 between
Mr. Alain de Rouvray (Chairman and founder of the Com-
pany), the members of his family group (Ms. Amy de Rou-
vray, Ms. Cristel Anne de Rouvray, Mr. John Alexandre de
Rouvray and Ms. Amy Louise de Rouvray), Mr. Jacques Du-
bois (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 ef-
fect 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 Trib-
une on Friday, October 27, 2000 following CMF decision
No. 200C1608 dated October 27, 2000.
This agreement includes a right of first refusal.
This right of first refusal does not apply to transfers of
shares to the heirs of any shareholder who is a private in-
dividual 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 agree-
ment, to either purchase or sell their shareholding: in
the event that Mr. Alain de Rouvray decides to sell all

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167

INFORMATION ON THE COMPANY AND SHARE CAPITAL

ESI Group shares that he currently holds or may hold
at some point in the future, each party is irrevocably
bound to either:
– Exercise its right of first refusal and purchase the
shares under the conditions set forth under the
agreement, or

– 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 agreement to jointly file a draft takeover bid.

In keeping with this agreement, the parties declare that
they act in concert.

In accordance with the “Dutreil” law in France, an agreement was also signed on December 22, 2003, and renewed on
December 31, 2011 for a term of five years and six months, renewable indefinitely, between Mr. Alain de Rouvray
(Chairman and founder of the Company), Ms. Amy de Rouvray, Ms. Cristel Anne de Rouvray, Mr. John Alexandre de
Rouvray and Ms. Amy Louise de Rouvray in their capacity as shareholders of the Company. At January 31, 2017, this
agreement represented 30.4% of the Company's capital and 46.4% of voting rights, and collectively binds its signatories
to retain half of their shares.

7.2.5. Company share buybacks
The description of the share buyback program implemented by the Company can be consulted on the website.
A liquidity contract was concluded with CIC in 2009 and remains in force. The monthly report on the liquidity contract is
also available on the website.

During FY2016, the Company repurchased 8,000 of its own shares.

Date of authorization by the General Meeting

Date of expiration of the authorization

Ceiling on authorized buybacks

Minimum purchase price per share

Authorized purposes

Board of Directors' meeting at which buybacks were decided

Buyback period

Number of shares repurchased

Purchase price per share

Use of repurchased shares

Number of treasury shares at January 31, 2017

Percentage of capital held by the Company at January 31, 2017

Resolution 7 of July 21, 2016

January 21, 2018

10% of share capital at the transaction date

€60

Cancellation
Share purchase options
Free share grants
Liquidity and market-making
External growth

November 30, 2016

December 20, 2016

8,000

€39.29

Share purchase options
Free share grants

418,001

7.3. Presentation of stock option and free share grant plans

7.3.1. Stock option plans
Grant of stock subscription options
At its March 11, 2016 meeting, the Board of Directors, act-
ing on the proposal of the Compensation, Nomination and
Governance Committee, allocated 10,000 shares to a man-
ager. This allocation was governed by plan No. 17bis. Vest-
ing will take place in five equal annual tranches as of
March 1, 2017, followed by March 1, 2018-2021, and will
be subject to continued employment of the beneficiary.
The maximum potential capital increase will be in a total
par amount of €30,000, corresponding to 10,000 new

shares with a par value of €3 each.

Exercise of stock subscription options
The Board of Directors noted that the number of new
shares issued following exercise of stock options during
FY2016 came to 36,920 shares with a par value of €3, rep-
resenting a capital increase in an amount of €110,760,
thereby bringing the capital from €17,865,216 to
€17,975,976.

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INFORMATION ON THE COMPANY AND SHARE CAPITAL

Allocation of stock purchase options
No stock purchase options were allocated during FY2016.

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169

INFORMATION ON THE COMPANY AND SHARE CAPITAL

Table summarizing the stock option plans available to employees and corporate officers

Stock option plan for the subscription
and purchase of new shares

Stock options available
to be awarded(1)
at January 31, 2017

As a % of
share capital

Existing stock
options(2) at
January 31,
2017

Exercise
price
(In €)

As a % of
share capital

Stock options
exercised at
January 31, 2017

As a % of
share capital

No. 9 (GM of June 29, 2006)

No. 10 (GM of June 26, 2012)

No. 15 (GM of July 23, 2013)

No. 17 (GM of Thursday, July 24,
2014)

8.86

111,175

25.95

20,000

21.66

1.86%

0.33%

162,650

2.71%

17,350

24.97

0.29%

85,900

5,000

1.43%

0.08%

No. 18 (GM of July 21, 2016)

297,753

TOTAL

460,403

7.71%

148,525

2.48%

90,900

1.51%

(1) “Stock options available to be allocated” represent the difference between the total number of stock options authorized by the General Meeting and the number of

stock options already granted by the Board of Directors at January 31, 2017.

(2) The options forfeited or canceled following an employee’s departure were removed from “Existing options” at January 31, 2017.

History of allocations of stock subscription or purchase options (Table 8 of AMF recommendations)

Meeting date

Plan 7:
6/30/2005

Plan 9:
6/29/2006

Plan 10:
6/26/2012

Plan 15:
7/23/2013

Date(s) of the meeting(s) of the Board of Directors

7/10/2008 7/10/2008

2012 to 2015 3/26/2015

Plan 17:
7/24/2014

7/22/2015
3/11/2016

Number of options granted

O/w:

• Vincent Chaillou

• Christopher St. John

100,000

200,000

180,000

20,000

17,350

32,000

6,000

14,000

3,500

2,975

Starting date of exercise period

7/10/2013 7/10/2013

2017 to 2019

2/1/2019

2017 to 2019

Expiration date

Subscription or purchase price (in euros)

7/8/2016

2020 to 2025

2/1/2025

2023 to 2026

8.86

25.94

21.66

24.97

Total number of options exercised

13,100

85,900

5,000

Total number of shares eligible to be subscribed or purchased, expired or
canceled

86,900

114,100

63,825

Existing stock options at the balance sheet date

111,175

20,000

17,350

Stock options granted to the top ten employee grantees, not including corporate officers (Table 9 of AMF
recommendations)

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 during the fiscal year, by the issuer and any other companies within the issuer's group
entitled to grant options, to the top ten employees of the issuer and any aforementioned company having
granted the highest number of 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

10,000

23.35

24,450

11.48

9 & 10

7.3.2. Free share grant plans
At its July 21, 2016 meeting, the Board of Directors, acting on the proposal of the Compensation, Nomination and Gov-
ernance Committee, granted a maximum total number of 25,000 ordinary shares in the Company, with a par value of €3
each, to eight beneficiaries.
At its December 23, 2016 meeting, the Board of Directors, acting on the proposal of the Compensation, Nomination and
Governance Committee, granted a maximum total number of 2,262 ordinary shares in the Company, with a par value of
€3 each, to all employees and corporate officers of the Group's French companies present at that date, i.e. ESI Group, ESI
France and CIVITEC.

ESI GROUP • 2016 REGISTRATION DOCUMENT

170

INFORMATION ON THE COMPANY AND SHARE CAPITAL

The table below lists the free share grant plans for employees with and without the status of corporate officer

Free share award plans

Free shares available to be awarded(1) at January 31, 2017

As a % of
share capital

Existing free shares(2) at
January 31, 2017

As a ²% of
share capital

Authorization of the GM of July 21, 2016

TOTAL

32,738

0.55%

27,208

0.45%

(1) “Free shares available to be allocated” represent the difference between the total number of free shares authorized by the General Meeting and the number of shares

already granted by the Board of Directors at January 31, 2017.

(2) The forfeited free shares were removed from “Existing free shares” at Tuesday, January 31, 2017.

History of allocations of free shares (Table 10 of AMF recommendations)

Meeting date

Plan 14:
6/26/2012

Plan 6:
7/21/2016

Plan 7:
7/21/2016

Date(s) of the meeting(s) of the Board of Directors

Number of granted shares

O/w:

• Vincent Chaillou

• Christopher St John

Date of delivery

Date of availability

Total number of shares delivered

Total number of expired or canceled shares

Existing shares at the balance sheet date

7.4. ESI shares – market

12/19/2012

21,755

3,600

3,100

12/20/2016

19,145

2,610

7/21/2016

12/23/2016

25,000

2,262

5,000

As of 7/21/2018

12/23/2018

7/21/2020

12/23/2020

25,000

2,208

7.4.1. Share price trends
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 February 1st, 2012 until the end of April 2017:

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171

INFORMATION ON THE COMPANY AND SHARE CAPITAL

The chart below shows how ESI Group's stock price has performed since its initial public offering on July 6, 2000 until
the end of April 2017 and the daily volume of transactions:

7.4.2. Survey of identifiable bearer shares
On April 24, 2017, the Group carried out a survey of identifiable bearer shares (TPI: Titres au Porteur Identifiable) on
99 % of its free float (excluding treasury shares) which could be compared to the one realized on April 15, 2016.

French institutional investors

Foreign investors

Individual Shareholders

Companies

At April 24, 2017

At April 15, 2016

As % of free float

As a % of share capital

As % of free float

As a % of share capital

48%

42%

26%

23%

70%

18%

10%

37%

10%

This analysis points to a strong increase in foreign shareholders, which currently account for 23% of share capital, com-
pared to 10% last year.

ESI GROUP • 2016 REGISTRATION DOCUMENT

172

ADDITIONAL INFORMATION

8.1. Persons responsible for the Registration Document

8.1.1. Person responsible for the content of the Registration Document

Paris, May 19, 2017.
Mr. Alain de Rouvray, Chairman and Chief Executive Of-
ficer 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 information contained in this Registration Docu-
ment gives a true and fair view of the facts and that no ma-
terial aspects have been omitted.
I hereby declare that, to the best of my knowledge, the fi-
nancial 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 pri-
mary risks and uncertainties these entities face.
I have obtained a letter from the statutory auditors stating
that they have completed their assignment, which in-
cluded checking the information relating to the financial
position and the financial statements provided in this doc-
ument as well as reading the entire annual report.”

8.1.2. Person responsible for the financial information

Mr. Laurent Bastian, Chief Financial Officer of ESI Group.

8.2. Statutory auditors

Statutory auditors

PricewaterhouseCoopers Audit
63, rue de Villiers
92200 Neuilly-sur-Seine France
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.

Alternate auditors

Auditex
Faubourg de l’Arche
11 Allée de l’Arche
92037 Paris-La Défense Cedex
Represented by Mr. Emmanuel Roger.

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173

ADDITIONAL INFORMATION

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.

Mr. Yves Nicolas
63, rue de Villiers
92200 Neuilly-sur-Seine France
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.

8.3. Documents available to the public

All 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, and on its
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 financial information
for shareholders and investors, including all mandatory
information required under the European Transparency
Directive. It provides access to registration documents, fi-
nancial reports, annual and interim consolidated financial

statements, press releases, regulated information, the ar-
ticles of association, Shareholder letters and guides and
stock prices.
In keeping with the Transparency Directive adopted in
2007, ESI Group has decided to use a reporting service li-
censed by the French Financial Markets Authority (AMF).
This allows the Group 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

ESI GROUP • 2016 REGISTRATION DOCUMENT

174

Registration Document cross-reference table

CROSS-REFERENCE TABLE

Pursuant to Article 28 of European Commission Regulation (EC) No 809/2004 of April 29, 2004, the following
information is incorporated by reference in this registration document:

•

The parent-company financial statements, consolidated financial statements, and the report of the statutory audi-
tors for the fiscal year ended January 31, 2016, which appear on pages 69–112 of the Registration Document filed
with the French Financial Markets Authority (AMF) on May 20, 2016 under number D.16-0512;
The parent-company financial statements, consolidated financial statements, and the report from the statutory au-
ditors 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;

Information

Responsible persons

1.1.

Persons responsible for the information contained in the document

1.2.

Statement by the persons responsible for the document

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

Selected financial information

3.1.

Selected historical financial information

3.2.

Selected historical financial information for interim periods

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 of 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 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 alread y undertaken firm

commitments

Business overview

6.1. Main activities

6.1.1. Description of 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 having 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

Flowchart

7.1.

Brief description of the Group and the issuer's position within the Group

7.2.

List of major subsidiaries

Property, plant and equipment

8.1.

Significant property, plant and equipment, existing or planned

8.2.

Environmental considerations that may affect the use of these assets

Review of financial position and performance

Chapters

8.1.

8.2.

N/A

1.4.

N/A

1.6.

1.2.

7.1.1.

1.2.

1.5.

1.5.1.

1.5.

1.5.3.

1.1.

1.1.1.

N/A.

1.1.3.

N/A

1.1.3.

1.3.

1.3.2, 5.1.5. note 3.4. and 5.2.3.
note F.9.

5.1.5. note 6.2. and 4.6.

1.6.2. and 3.4.3.

ESI GROUP • 2016 REGISTRATION DOCUMENT

175

CROSS-REFRENCE TABLE

Information

9.1.

Financial position of the issuer

9.2. Operating income

9.2.1. Major 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 concerning 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 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.

Headcount

17.1. Number of employees

17.2. Profit-sharing and stock options

17.3. Description of any employee profit-sharing agreements involving the issuer's capital

18.

Key Shareholders

18.1. Key Shareholders

18.2. Different voting rights

18.3. Control of the Company

18.4. 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

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 payout 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.

Instrument of incorporation and articles of association

22.

Key contracts

23.

Information provided by third parties, statements made by experts and declarations of interests

Chapters

4.1.

1.6.

5.1.5.

5.1.4. & 4.1.2.

4.1.2.4. and 5.1.5. note 7.1.

4.1.2.4. and 5.1.5. notes 7.1. and
7.4.

4.1.2.4. and 5.1.5. note 7.1.

4.1.3.

4.2.2

N/A

2.4.

2.2.

2.5.

2.5. and 5.1.5. note 5.

2.5

2.2.

2.3

1.6.2.

2.4.

2.1.

3.2.

3.2.1.

7.3.

3.2.4.

7.2.4.

7.1.2.

7.2.4.

N/A

5.1. & 5.2.

N/A

5.1. & 5.2.

5.1.6. & 5.2.4.

N/A

1.6.4. & 7.1.1.

4.1.1. & 5.1.5. note 2.

7.2.

7.1. & 7.2.

4.1.1.

N/A

ESI GROUP • 2016 REGISTRATION DOCUMENT

176

Information

24.

Documents available to the public

25.

Information on equity interests

CROSS-REFERENCE TABLE

Chapters

8.3.

5.2.3. notes C and F9.

Annual financial report cross-reference table

For ease of reference, the following cross-reference table facilitates identification of information making up the Annual
financial report, the publication of which is required under Article L. 451-1-2 of the French Financial and Monetary Code
and Article 222-3 of French Financial Markets Authority (AMF) General Regulations.

Information

Statement by the person responsible for the registration document

• Annual financial statements

• Consolidated financial statements

• Statutory Auditors’ report on the annual financial statements

• Statutory Auditors’ report on the consolidated financial statements

• Management report

Article L. 225-100 of the French Commercial Code

– Analysis of business development

– Analysis of performance

– Analysis of the financial position

– Key contingencies and uncertainties

– Table summarizing currently valid delegations granted to the Management Board by the General Meeting of Shareholders regarding capital increases

Article L. 225-100-3 of the French Commercial Code

– Factors that may have an impact in the event of a public offering

Article L. 225-211 of the French Commercial Code

– Company share buybacks

• Statutory Auditors’ special report on regulated agreements

• Fees paid to statutory auditors

• Report of the Chairman of the Board of Directors on corporate governance, internal control and risk management

• Statutory Auditors’ report on the report of the Board of Directors

Chapter

8.1.

5.2.

5.1.

5.2.4.

5.1.6.

w
o
e
b

e
b
a
t

e
c
n
e
r
e
f
e
r
-
s
s
o
r
c

e
e
S

4.3.3.

5.1.5 note 12.

2.7.

ESI GROUP • 2016 REGISTRATION DOCUMENT

177

CROSS-REFRENCE TABLE
Management report cross-reference table

For ease of reference, the following cross-reference table facilitates identification of information required in the Manage-
ment report pursuant to Articles L. 225-100 et seq., L. 232-1 et seq. and R. 225-102 et seq. of the French Commercial
Code.

Information

Group position and business

• Objective and exhaustive analysis of development of the Group's business, performance and financial position

• Key events between the closing date and the date of the Management report

• Description of main risks and uncertainties and indication regarding the use of financial instruments by the Group

• Foreseeable development of the Group's situation and future outlook

• Research and Development activity

Corporate governance/corporate officers

• List of all offices and positions held in any company by each corporate officer during the fiscal year

• Compensation and benefits of any kind paid by the Group to each corporate officer during the fiscal year

• Report on the principles and criteria for determining, distributing and attributing fixed, variable and exceptional components comprising total compensation and

benefits of any kind payable to executive corporate officers

• Agreements entered into between a manager of key shareholder and a subsidiary

• Allocation and retention of stock options by corporate officers

• Allocation and retention of free shares by executive corporate officers

Shareholding and share capital

• Structure and development of the Group's share capital

• Status of employee share ownership

• Acquisition and disposal of own shares by the Group

• Information that may have an impact in the event of a public offering

Environmental, social and societal information

• Environmental information

• Social information

• Societal information

Other information

• Information regarding supplier payment terms

• Table summarizing currently valid delegations granted by the General Meeting

• Table showing the Group's results over each of the past five fiscal years

• Report of the Chairman of the Board of Directors on corporate governance, internal control and risk management

Chapter

4.1.1. & 4.1.2.

4.2.1.

1.6.

4.2.

4.1.3.

2.3.

2.5.

N.A.

2.5.2. & 7.3.

7.2.

7.2.4.

7.2.5.

4.4.

3.4.

3.2.

3.3. & 3.5.

4.1.4.

7.2.2.

4.5.

ESI GROUP • 2016 REGISTRATION DOCUMENT

178

Sustainable Development and Corporate Social Responsibility cross-reference table

CROSS-REFERENCE TABLE

For ease of reference, the following cross-reference table facilitates identification of environmental, social and societal
information making up the Report on Sustainable Development and Corporate Social Responsibility, provided in accord-
ance with Articles L. 225-102-1, R. 225-105 and R. 225-105-1 of the French Commercial Code.

SOCIAL INFORMATION

Employment

• Total workforce and breakdown by gender, age and geographic area

• Recruitments and dismissals

• Compensation and changes in compensation over time

Work organization

• Work schedules

• Absenteeism

Labor relations

• Organization of employer-employee dialogue

• Summary of collective agreements

Health and safety

• Workplace health & safety conditions

• Summary of agreements signed with trade unions or employee representatives regarding workplace health and safety

• Workplace accidents, in particular frequency and severity, as well as occupational illnesses

Training

• Training policies implemented

• Total number of training hours

Equal treatment

• Steps taken in support of gender equality

• Steps taken in support of employment and inclusion of people with disabilities

• Anti-discrimination policy

Promotion and observance of the fundamental conventions of the International Labor Organization

• Observance of freedom of assembly and the right to collective bargaining

• Elimination of discrimination in employment and occupation

• Elimination of forced or mandatory labor

• Effective elimination of child labor

SOCIETAL INFORMATION

Territorial, economic and social impact of the Company’s activity

• In terms of employment and regional development

• On neighboring or local communities

Relations with persons or organizations with an interest in the activity of the Company, including NGOs, educational institutions and local communities

• Terms of dialog with such persons or organizations

Subcontracting and suppliers

• Consideration of social issues in the purchasing policy

• Consideration of environmental issues in the purchasing policy

• Amount of subcontracting and consideration of the social and environmental responsibility of suppliers and subcontractors in relationships with them

Fair trade practices

• Actions taken to prevent corruption

• Measures promoting the health and safety of consumers

ENVIRONMENTAL INFORMATION

Overall environmental policy

• Organization of the Company for the consideration of environmental issues and environmental evaluation or certification proce sses, where applicable

• Employee training and information on environmental protection

3.2.1.

3.2.4.

3.2.3.

3.2.4.

3.2.2.

3.2.3.

3.5.2.

3.5.1.

3.3.2.

3.4.1.

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179

CROSS-REFRENCE TABLE
• Resources devoted to preventing environmental risks and pollution

• Amount of provisions and guarantees for environmental risks

Pollution

• Prevention, reduction or remediation of discharges with serious environmental impact on the air, water or soil

• Consideration of noise and any other form of pollution specific to an activity

Circular economy

• Waste prevention and management:

prevention, recycling, reuse and other waste recovery and elimination measures

measures to fight food waste;

• Sustainable use of resources:

water consumption and supply in relation to local constraints;

consumption of raw materials and measures to enhance efficiency;

energy consumption, measures to improve energy efficiency and use of renewable energies;

land use

Climate change

• Significant factors of greenhouse gas emissions caused by the Company's activity, particularly through use of the goods and services produced by the Company;

• Adapting to the impact of climate change

Protecting biodiversity

• Measures to preserve or enhance biodiversity

3.4.1. & 3.4.2.

3.4.1.

3.4.3.

3.4.3.2.

3.4.3.1.

3.4.3.3.

Not relevant

ESI GROUP • 2016 REGISTRATION DOCUMENT

180Shareholders relations
Corinne Romefort-Régnier & Corentine Lemarchand
100-102, avenue de Suffren – 75015 Paris – France
Tel: + 33 (0)1 53 65 14 51
Fax: + 33 (0)1 53 65 14 12
investors@esi-group.com

G.LE/17.0052-A