ESI Group Annual Report 2017

FY2017 Annual Report · ESI Group

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2017
REGISTRATION
DOCUMENT

including the annual financial report

PIONEER AND LEADER IN VIRTUAL PROTOTYPING

1 THE GROUP

1.1. Activities, strategy, and markets

1.1.1. Main activities
1.1.2. Strategy
1.1.3. Main markets
1.1.4. Ecosystem
1.2. History of the Group
1.3. Group structure

1.3.1. Operational flowchart
1.3.2. Legal flowchart

1.4. Selected financial information

1.4.1. Revenue
1.4.2. Strategic business alignment
1.4.3. Breakdown of revenue by geographic area
1.4.4. Profitability

1.5. Major investments during the past three fiscal years

1.5.1. The Group’s recurring investments
1.5.2. The Group’s non-recurring investments
1.5.3. Future investments
1.6. Risks factors and opportunities

1.6.1. Strategic risks
1.6.2. Operating risks
1.6.3. Financial risks
1.6.4. Legal risks
1.6.5. Opportunities

6
6
6
7
9
11
12
13
13
14
15
15
15
15
15
16
16
16
16
17
17
17
18
18
19

2 CORPORATE GOVERNANCE

21
2.1. Corporate governance procedures
21
2.2. Functionning of the Board of Directors and Executive Management 22
22
22
22

2.2.1. Chairman of the Board of Directors
2.2.2. Chief Executive Officer
2.2.3. Chief Operating Officers
2.2.4. Limits on the powers of the Chief Executive Officer and

Chief Operating Officers

2.2.5. Group Executive Committee (“GEC”)

2.3. Composition of the Board of Directors
2.4. Conditions for preparing and organizing the work of the Board of

Directors

2.5. Compensation paid to the Directors
2.6. Compensation paid to the Executive corporate officers

2.6.1. 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

22
23
24

28
31
32

2.6.2. Report on the compensations paid to the Chief Executive

Officer and Chief Operating Officers in the 2017 financial year 34

2.7.

Information on related party agreements which were signed or
continued to exist during the 2017 financial year
2.7.1. Related party agreements falling under the scope of Article
L. 225-38 of the French Commercial Code: Consulting
Services Agreement with a Director

2.7.2. Related party agreements already approved and which

continue to exist in the 2017 financial year

2.7.3 Statutory Auditors’ report on regulated agreements

and commitments

3 CORPORATE SOCIAL, SOCIETAL

AND ENVIRONMENTAL RESPONSIBILITY 39

3.1. ESI Group policy in terms of social, societal and environmental

responsibility (CSR)
3.1.1. Our CSR approach
3.1.2. Our commitments
3.1.3. The methodology
3.1.4. ESI Group values
3.2. Being a committed employer

3.2.1. Employee headcount
3.2.2. Develop talents and encourage leadership and collaborative

management

3.2.3. Promote diversity and multicultural exchanges
3.2.4. Other indicators
3.3. Being an outstanding partner

3.3.1.
Innovative, high-quality solutions
3.3.2. Building long term, trusting relationships

3.4. Being an environmentally friendly player
3.4.1. Overall environmental policy
3.4.2. Solutions to help reduce our environmental footprint
3.4.3. Limiting the Group’s environmental impact

3.5. Serving civil society

3.5.1. Partnerships with the academic and scientific communities
3.5.2. Act ethically and responsibly

3.6. Report of the inspecting organization

39
39
40
40
41
41
41

42
43
44
47
47
48
49
49
49
50
52
53
54
55

4 MANAGEMENT REPORT

4.1. Business activities during the 2017 fiscal year
4.1.1. Highlights of the 2017 fiscal year
4.1.2. Figures from the consolidated financial statements
4.1.3. Research and development
4.1.4. ESI Group annual financial statements and allocation

4.2. Outlook

4.3.

4.2.1. Subsequent events
4.2.2. Business trends
Internal control and risk management procedures
4.3.1. Control environment
4.3.2. Organization of internal control
4.3.3. Risk management

4.4. Table summarizing the results of the past five fiscal years

5 FINANCIAL STATEMENTS

5.1. Consolidated financial statements

5.1.1. Consolidated income statement
5.1.2. Consolidated balance sheet
5.1.3. Consolidated statement of changes in equity
5.1.4. Consolidated statement of cash flows
5.1.5. Notes to the consolidated financial statements
5.1.6. Statutory Auditors’ report on the consolidated financial

statements

5.2. ESI Group annual financial statements
Income statement

5.2.1.
5.2.2. Balance sheet
5.2.3. Notes to ESI Group annual financial statements
5.2.4. Statutory Auditors’ report on the financial statements

6 RESOLUTIONS SUBMITTED FOR

APPROVAL BY THE GENERAL MEETING
6.1. Decisions falling within the competence of the Ordinary General

Meeting

6.2. Decisions falling within the competence of the Extraordinary

General Meeting
Joint decisions

6.3.

7 INFORMATION ON THE COMPANY

AND SHARE CAPITAL
Information on the Company
7.1.1. General information
7.1.2.

7.1.

7.2.

Information regarding rights, privileges and restrictions
attached to shares
124
Information concerning administrative and management bodies 126
126

7.1.3.
Information on the Company’s capital
7.2.1. Statutory requirements governing modifications to the

capital and rights attached to shares (Article 8 of the articles
of association)

7.2.2. Issued share capital and authorized unissued share capital
7.2.3. History of changes in share capital
7.2.4. Corporate shareholding structure
7.2.5. Company share buybacks
7.2.6. Factors that may have an impact in the event of a public

offering

7.3. Presentation of stock option and free share grant plans

7.3.1. Stock option plans
7.3.2. Free share grant plans

7.4. ESI shares – market

7.4.1. Share price trends
7.4.2. Survey of identifiable bearer shares

8.1. Persons responsible for the Registration Document

8 ADDITIONAL INFORMATION

135
135
8.1.1. Person responsible for the content of the Registration Document 135
135
8.1.2. Person responsible for the financial information
135
136

8.2. Statutory Auditors
8.3. Documents available to the public

57
57
57
58
59
60
62
62
62
63
63
65
66
67

68
68
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113

117

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124
124
124

126
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130

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132
133
133
134

CROSS-REFERENCE TABLES
Registration Document cross-reference tables
Annual financial report cross-reference table
Management report cross-reference table
Corporate governance report cross-reference table
Sustainable Development and Corporate Social Responsibility
cross-reference table

137
137
139
139
140

140

ESI Group

French limited company with a share capital of €18,049,326
Registered office: 100/102, avenue de Suffren, 75015 Paris
Paris Trade and Company Register (RCS) number: 381 080 225

REGISTRATION DOCUMENT
ANNUAL FINANCIAL REPORT

Fiscal year 2017 (ended January 31, 2018)

This Registration Document was filed with the French
Financial Markets Authority (AMF) on May 24, 2018 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 accompanied
by a memorandum approved by the AMF. The issuer
prepared this document and the signatories are
responsible for the information herein.

French and English 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).

ESI GROUP • 2017 REGISTRATION DOCUMENTE S I G R O U P
IN A NUTSHELL

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

OUR VISION
Be the leader in providing Product
Performance LifecycleTM solutions
towards Industry 4.0

OUR MISSION
Boost innovation
and improve industrial product
development, manufacturing
and performance thanks
to the Virtual Prototyping
and the Hybrid Twin™

A N I N N O V A T I V E A N D M U L T I S E C T O R I A L O F F E R
INDUSTRIAL DIVERSIFICATION (% of booking orders)

GROUND
TRANSPORTATION

HEAVY
INDUSTRY

AERONAUTICS
& AEROSPACE

ENERGY

GOVERNMENT,
DEFENSE & MARINE

ELECTRONICS
& CONSUMER GOODS

OTHERS

ESI GROUP • 2017 REGISTRATION DOCUMENT

58.1%
12.0%
10.6%

6.4%

3.8%

3.4%

5.7%

2017, A YEAR OF TRANSFORMATION

“The operational performance over the year is significantly impacted by the transformative actions implemented
to successfully deploy the new value proposition of the Group that addresses the emerging needs of our clients. This
proposition is tied to the Outcome Economy and the Industry of the Future, drivers of unprecedented and accelerated
changes in the economic and competitive context for manufacturing industries.”

Alain de Rouvray, Chairman and CEO of ESI Group

K E Y F I G U R E S

REVENUES
(in €m)

€ 135.3 m

PER ACTIVITY

PER GEOGRAPHICAL AREA

78%

Licenses

22%

Services

47%

37%

16%

Europe,
Middle East
and Africa

Asia-
Paciﬁ c

Americas

Expertise based
on 40 years of R&D

33.0%

R&D Investments/
Licenses revenues

EBITDA
(in €m)

18.3

14.3

12,3

11,4

9,7

CURRENT OPERATING
PROFIT (in €m)

ATTRIBUTABLE
NET PROFIT (in €m)

R&D INVESTMENTS
EVOLUTION (in €m)

15.4

11.8

12.1
10,4

8,8

8,1

32,7
34.9

29,1
32.7

23,9
29.1

9.2

6,0

5,0

5.3

7.5

20,6

21,3

18,7

2.4

2011

2012

2013 2014

2015 2016
2011
2015 2016 2017

2012

2013 2014

2015 2016 20172011

2015 2016

2012

2013 2014

2015 2016
2015 2016 2017

2011

2012

2013 2014

2015 2016
2015 2016 2017

2011

2012

2013 2014

2015 2016

ESI GROUP • 2017 REGISTRATION DOCUMENT

A G L O B A L C O M P A N Y

COVERING MORE THAN

40 COUNTRIES

Headquarter
Subsidiary
Agent
& distributor

AMERICAS

EMEA

ASIA

4 R&D centers
2 distribution subsidiaries
4 distributors & agents

12 R&D centers
5 distribution subsidiaries
20 distributors & agents

3 R&D centers
7 distribution subsidiaries
6 distributors & agents

A R E S P O N S I B L E C O M P A N Y

A unique expertise of
UNIQUE OF EXPERTISE

+ 1,200
+ de 1,200

PRINCIPALEMENT
E M P L O Y E E S
INGÉNIEURS & DOCTEURS
mainly
engineers & scientist, many
with advanced degrees

Gaïa-Index

no 1

in 2016
and 2017

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

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

ESI GROUP • 2017 REGISTRATION DOCUMENT

Investissements en R&D

(en millions d’euros)

A W E L L - B A LA NC E D C O R P O R AT E G O V E R N A N C E

A Board of Directors
made up of 8 MEMBERS
of which:
5 ARE INDEPENDENT
MEMBERS and 3 ARE WOMEN

Independent members
Non independent members

SPECIALIZED
COMMITTEES

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

4 Technology and Marketing Committee

+ 1,200

S T O C K M A R K E T I N F O R M AT I O N (as of end of April 2018)

€ 36.0

STOCK
PRICE

€ 214 m

MARKET
CAPITALIZATION

SHARE PRICE EVOLUTION
between February 2015 and April 2018 (Basis 100)

300

250

200

150

100

250

200

€23.79

10,125.35

150

4,627.67

100

0
FEB.-15

APR.-15

JUNE-15

AUG.-15

OCT.-15

DEC.-15

FEB.-16

APR.-16

JUNE-16

AUG.-16

OCT.-16

DEC.-16

FEB.-17

APR.-17

JUNE-17

AUG.-17

OCT.-17

DEC.-18

FEB.-18

APR.-18

ESI Group

CAC 40

CAC Mid & Small

(Basis 100)

€36.00

14,487.13

5,520.55

SHARE CAPITAL BREAKDOWN
as of end of April 2018

Founders
and Board members
37.0%

Public

56.2%

Auto-control
6.8%

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

ESI GROUP • 2017 REGISTRATION DOCUMENT

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 software and
services. Specialist in material physics, ESI has developed a unique
proficiency in helping industrial manufacturers replace physical proto-
types by virtual prototypes, allowing them to virtually manufacture,
assemble, test and pre-certify their future products. Coupled with the
latest technologies, Virtual Prototyping is now anchored in the wider

concept of the Product Performance Lifecycle™, which addresses the
operational performance of a product during its entire lifecycle, from
launch to disposal. The creation of Hybrid Twin™, leveraging simulation,
physics and data analysis, enables manufacturers and operators to
deliver smarter and connected products, to predict product perfor-
mance and to anticipate maintenance needs.

1.1.1.1. Software Editor/Distributor (Licensing activity)
Licenses Edition/Distribution is the Group’s main activity, accounting
for 78% of revenue in 2017. Software is marketed in the form of proprie-
tary user licenses based for the most part on an annual leasing system
that, by nature, generates highly recurring revenue.

The significant added value provided by ESI Group’s solutions requires
major research and development work by highly qualified research
engineers. Products are distributed worldwide. In 2017, distribution
subsidiaries directly managed 92% of license sales, the rest being
entrusted to a network of third-party distributors and agents. The two
distribution networks – direct and indirect – are complementary.

The Licensing activity may be broken down in two ways:

• By contract type:

– Rental

license – user

license contract renewable annually
and including maintenance services – this type of contract is
predominant;

– Paid-up license – long term license contract (paid-up licenses for
the duration of legal protection) including maintenance services
for renewable one-year periods (also named Perpetual);

– Maintenance contract – maintenance includes updates 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 purchases:

– “Repeat Business” includes contracts renewed by customers with
no modification from one year to the next, as well as additional
features purchased for software already installed in the system of
an existing client;

1.1. Activities, strategy, and markets

1.1.1. Main activities

ESI Group has developed a suite of coherent industry-oriented applica-
tions to realistically simulate a product’s behavior, fine-tune fabrication
and assembly processes 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. It enables the gradual elimination of
physical components and subassembly prototypes during the product
development phase by letting manufacturers make decisions based on
a “live” virtual prototype. Innovative visualization technologies such as
IC.IDO and the availability of the Virtual Prototyping chain in Cloud/
SaaS mode considerably enhance the collaborative potential of ESI
Group solutions while drastically reducing acquisition and ownership
costs for companies.

Since January 2016 and the acquisition of ITI GmbH, 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 features of an industrial product and makes
it possible to represent interactions and operation with its 3D compo-
nents. Most importantly, the use of the Information and Communication
Technologies of the future (ICT) such as Big Data, Machine Learning,
and the Internet of Things (IoT) now 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 lifecycle of an
industrial product, including modeling of potential evolutions during its
useful life, from product commissioning to its operational 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
smart factories and smart digital products.

The Group has two main activities: the edition (development) and
distribution of software, and consulting services related to its software
products.

ESI GROUP • 2017 REGISTRATION DOCUMENTAdd-on

• Field Services: support services in conjunction with software sales

– “New Business” comprises new customers and new products

purchased by existing clients.

Renewal of products

Licenses

Repeat Business

New Business

New customers

New products

1.1.1.2. Consulting services (Services activity)
In addition to its main business activity as a software vendor, the Group
also provides consulting services directly related to Virtual Prototyping.
The Services activity, which accounted for 22% of 2017 revenue, includes
Consulting and other services.

Consulting covers the following four fields:

• Engineering studies: 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

THE GROUP
Activities, strategy, and markets

trials necessary to validate 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 developed or modified;

activities (on- and off-site training and technical assistance);

• Contracting: studies, in particular application tests (design verifica-
tion and virtual performance 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: 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 corporate R&D departments. The Group treats these projects as
research and development or technology intelligence activities. In
some cases, they lead to government-type co-financing arrangements
in Europe and the United States. They allow the Group to become
involved at a very early stage, as a scientific partner in a wide variety
of innovative high-tech projects.

Revenues

Rental licenses

Licenses

Paid-up licenses

Maintenance

Services

Consulting

Others

Engineering studies

Field services

Contracting

Special projects

1.1.2. Strategy

The industrial market is deeply changing while new challenges appear
for its players. Draconian regulations, disruptive technologies (Artificial
Intelligence, Big Data, Internet of Things…), competition more and
more numerous, shorter time to market, constrain industrial players to
change and to look to really competitive and performing partners. 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,
with greater reliability, while ensuring their lifetime in a transformation
of the economy to focus more on the experience (“the Outcome
Economy”).

Customers’ main concerns include:

• Implementing best practices to assure an optimum maintenance

cycle and cost;

• Predicting equipment performance under extreme conditions and

anticipating measures to reduce down-time and repair costs.

In order to clarify its organization and make it more efficient, ESI Group is
now structured around the three following business pillars: Engineering
(design and development of industrial products), Manufacturing (fabri-
cation of products) and In-Service (usage, piloting and maintenance of
products from launch to repair and ultimate withdrawal), in line with the
demands of Industry 4.0, the Smart Factory and the Outcome Economy.

These pillars (and the associated teams) focus on:

• Accelerate industrial innovation with Virtual Prototyping;

• Identifying safety and performance issues early in the design cycle;

• Assessing how new materials and manufacturing methods impact

product performance and integrity;

• Fill gaps and managing complexity in virtual product development

with the end-to-end Virtual Prototyping method;

• Control the product lifecycle following rollout.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT1

THE GROUP
Activities, strategy, and markets

1.1.2.1. Accelerate industrial innovation with Virtual

Prototyping

ESI Group aims to give customers across all industrial sectors the ability
to virtually design, manufacture and assemble, part by part, complete
and physically realistic virtual products: product that can be tested
under normal and exceptional operating conditions and be monitored
throughout its lifecycle to optimize its use and maintenance. The
Group’s customers can thus enjoy a physically correct view of issues
related to manufacturing, assembly, coupling and usage between
products and their performance – long before physical prototypes can
be created and tested.

Virtual Prototyping delivers key information for design iterations that
also help prepare physical testing in the best possible way, right up to
the pre-certification stage, and in some cases entirely eliminating the
need for physical tests until final validation.

Moreover, recent immersive and interactive 3D technologies offer
real-time visualization and handling of virtual prototypes. Using Virtual
Reality solutions such as ESI IC.IDO, industrial companies can now
bring their product to life long before it is produced, and even entirely
without a physical prototype. This revolutionary technology is made
for collaborative, decision-making (multi-functional, multi-site and
multi-physical) at each stage of the development process.

1.1.2.2. Fill 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 develop-
ment processes. Industrial companies build and test physical prototypes
to evaluate the product’s design effectiveness and examine potential
improvements on a trial-and-error basis.

Computer simulation helps reduce time and costs incurred in producing
and testing real prototypes, making it possible to anticipate test results,
eliminate useless tests, and drive design changes more intelligently,
thereby reducing the number of real tests needed.

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 regulations are

unclear;

• The impacts of the manufacturing (and assembly) process and flaws

in the procedure on product components 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 unmanageable

complexity.

In contrast, ESI’s Virtual Prototyping solutions provide a rational 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, gradually
optimized with respect to standards, conditions of use, and increa-
singly stringent current and future regulations, among other factors;

• Building of cause-and-effect relationships between design and fabri-
cation parameters, from component parts to 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 predictive models according to
the circumstances and limits identified;

• Rigorous updates of these predictive models through predefined

processes during assembly and multi-domain testing;

• Assessment of robustness and safety interactions, regularly 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 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-certification before the final physical test, which
may be required for final validation.

Innovations thus become dramatically easier to evaluate and implement.

1.1.2.3. Control the product lifecycle following rollout
Coupled with latest-generation technologies, ESI Group’s end-to-end
solution, which currently offers a comprehensive development and
manufacturing process for industrial products, is revolutionizing the
traditional Product Lifecycle Management (PLM) market. Indeed, Virtual
Prototyping is part of an overarching approach known as Product
Performance Lifecycle™ (PPL), which addresses products’ operating
performance throughout their complete lifecycle, from launch to
withdrawal. The ESI solution now relies on creation of a physics-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 interconnected functioning format. This transformative approach
to Virtual Prototyping also features the virtual reality solution (ESI
IC.IDO), allowing customers to have teams all over the world sharing
their product in real time, all in a 3D-4D environment.

However, to date, few if any methods are available to improve and
control the life of a product after its launch and adoption by users! That
is where the extension of the PLM approach comes into play, inaugura-
ting a new age of 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 launch, creating a new outlook
for hybrid virtual representations, i.e. representations that allow for
updating of Virtual Prototypes using data measured in real time and
enhanced by artificial intelligence. The creation of Hybrid Twin™
incorporating simulation, physics, and data analytics makes it possible
to create smart products, particularly using connected objects, as
well as to predict their performance and anticipate their maintenance
requirements, while providing an essential response to the fundamental
economic issues of the Industry 4.0.

ESI GROUP • 2017 REGISTRATION DOCUMENTTHE GROUP
Activities, strategy, and markets

This unique value proposition, incorporating numerous disruptive
innovations, is the fruit of the Group’s longstanding technological
differentiation strategy based on multiple international 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 life in service.

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 comprehensive 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 materials 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 complete control
over the lifecycle of products and product performance, by offering a
disruptive approach to virtual performance modeling of connected or
unconnected products in operation, as well as predictive maintenance
right up to the end of the product’s life in service (PPL).

Market characteristics
The highly-specialized nature of ESI Group’s operations and its unique
role in the field of Virtual Prototyping make it difficult to delineate
ESI’s market with any precision. The Group thus has little information
that would shed light on the specific characteristics or short-term
outlook of this market, especially since the very definition of 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 “Simulation & Analysis Suppliers” (activity estimated at
$5.2 billion in 2016). 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 solutions offered
by ESI Group. In the January 2018 Transparency Market Research on
simulation market, the size of this market is estimated at $16.7 billion
in 2025.

High barriers to entry
The complexity of the problems the Group addresses, its longstanding
experience working closely with major industrial 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 compete with ESI Group.

In particular, the specialized fields in which ESI Group works require an
understanding not only of structured geometric data (digital modeling)
provided by CAD/CAM/CAE, but also of the physical phenomena
involved in simulation testing in order to make virtual models “realistic”.

ESI Group’s technologies draw on:

• Longstanding partnerships with major industry players that both use
(manufacturing industries) and supply (software platforms) technical
computing systems;

• Highly-skilled teams of researchers, whose specialized expertise and

reputation in the field of physical simulation are known;

• Licensing agreements signed in a wide range of particular complex or

highly specialized fields.

All of these partnerships are the result of the exceptional expertise
gained since ESI’s founding in 1973. The Group has a solid reputation
as a complex problem-solver for major corporations worldwide in a
variety of disciplines and industrial sectors (i.e. automotive, defense,
aerospace, nuclear power, transportation, energy, electronics, consumer
goods, biomedical, 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. However, espe-
cially 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 specialized in the area of physics-based
simulation, distinct from their other technology vendors.

Nevertheless, it should be mentioned that Dassault Systèmes’ 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 computational data within the CAD/CAM
world and ensuring compatibility with resource management systems.
It is also worth noting the presence of Siemens/UGS in the technical
data management field with its Team Center solutions, the de facto
standard in the automotive market. In 2012, Siemens complemented its
Simulation offering by acquiring the Belgian company LMS, followed
by CD Adapco, a leader in digital and mechanical fluid simulation, in
January 2016. In April 2017, MSC Software, a software publisher speciali-
zing in design tools (CAE) was taken over by Hexagon AB. In September
2017, Dassault Systèmes announced the acquisition of EXA, a fluid flow
simulation specialized company.

Given the high barriers that protect the Group’s business, a new compe-
titor 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
simulation product line as rich as the one offered by ESI Group, and
one 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 require a radical
change in how things are done that breaks away from the traditional
“trial and error” methods still widely used in many industrial fields.

After the general downturn in the economy, which led to steep cuts
in the research and development budgets of major manufacturers, the
worldwide economic recovery and increased pressure from interna-
tional competitors should push many companies to move away from
their current methodologies toward Virtual Prototyping, especially in
areas such as aeronautics, energy or electronics.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT1

THE GROUP
Activities, strategy, and markets

The Product Performance Lifecycle™ approach, which enables manu-
facturers to develop a Hybrid Twin™ of their real product on a daily
basis, brings ESI to target the wider market of professional users such as
maintenance workers and certified technicians who interact with both
the products and consumers.

1.1.3.2. Geographic areas
Markets are segmented both by geographic area and industry.

Geographic areas are based on the economic breakdown of the
Company:

• Americas = United-States and Brazil;

• Asia-Pacific = China, South Korea, India, Japan, Malaysia and Vietnam;

• Europe, Middle East and Africa = Czech Republic, England, Germany,
France, Italy, Netherlands, Russia, Spain, Sweden, Switzerland and
Tunisia.

2017

2016

2015

Revenues

(in € thousands) (in % of the total)

Europe, Middle East and Africa

Asia-Pacific

Americas

TOTAL

63,821

49,941

21,511

135,274

47%

37%

16%

100%

63,419

54,864

22,268

140,551

45%

39%

16%

100%

57,098

44,291

23,329

124,718

46%

36%

19%

100%

As in previous years, the Group maintained a strong international presence, with 86% 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 transporta-
tion 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;

• Battery life and electric vehicles.

Main customers: Alstom Transport, Audi, Daimler, Fiat Chrysler
Automotives, Ford Motor Company, General Motors, Gestamp Group,
Honda, Hyundai, Mercedes-Benz, Renault-Nissan, Shanghai Automotive
Industry Corporation, Toyota, TRW Automotive, 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, electroma-

gnetics, etc.;

• Improvement of noise and vibration factors;

• Manufacturing process.

Main customers: Airbus Group, Alcoa, AVIC, Boeing, Bombardier,
Embraer, Honeywell, General Electric, Honda, 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 behavior in

their environment.

Main customers: Alcoa, ArcelorMittal, AVIC, Caterpillar, General
Electric, Hitachi, John Deere, Mahindra, Takata, Whirlpool.

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 customers: EDF, Framatome, GDF, General Electric, Japan Atomic
Energy Agency, Samsung, Siemens.

Government, Defense and Marine offering
ESI Group’s product offering primarily covers the following areas:

• Complex physical phenomena;

• Comfort of military vehicles.

Main customers: CEA, CEE, Huntington Ingalls Industries, Naval Group,
U.S. Department of Energy.

ESI GROUP • 2017 REGISTRATION DOCUMENTElectronics and Consumer Goods offering
ESI Group solutions include:

• Physical and chemical reactions;

• Unintended hypothetical circumstances and related safety measures.

Main customers: Aixtron, Applied Materials, Google, 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 universi-

ties to meet the needs of industry.

1.1.4. Ecosystem

ESI Group is particularly mindful of the richness and development of its
ecosystem, which it considers as the cornerstone of its success.

Year on year, the Group strives to strengthen its ecosystem, deter-
mining 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 accelerate and spread innovation and to support the sale of
software and services.

1.1.4.1. Distribution network and local expertise

Distribution network
In 2017, some 551 people worked within our distribution network to
cover software sales, services production, and support customers. The
Group’s proprietary distribution network accounted for 92% of sales.
Remaining sales were carried out indirectly via a network of third-party
distributors and agents, complementing and enhancing our direct
network.

THE GROUP
Activities, strategy, and markets

In 2017, orders in the main industrial sectors broke down as follows:

Education
3.2%
Electronics
& Consumer goods
3.4%
Government,
Defense & Marine
3.8%

Energy
6.4%

Aeronautics
& Aerospace
10.6%

Heavy
Industry
12.0%

Others
2.5%

Ground
Tranportation
58.1%

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.

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 alliances are deeply rooted in its
corporate strategy to develop and facilitate the adoption of Virtual
Prototyping and the emergence of the Hybrid Twin™.

Corporate partnerships
ESI Group has always aimed to establish mutually beneficial strategic
corporate partnerships with international companies, working together
to promote innovation.

Strategic “partner-customers”
The success of ESI Group’s solutions is also the fruit of remarkable
collaborations and a co-creation approach with world leaders such as
Renault-Nissan, Volkswagen, or Honda in the automotive, or Boeing for
the aeronautics. The Group’s approach is based on building close and
long-lasting relationships which meet the specific needs of customers
looking to successfully incorporate Virtual Prototyping into various
industrial sectors.

Strategic and academic partnerships
To ensure constant innovation, ESI Group enters into partnerships
with many first-rate universities, technological institutes 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, encouraging young people to work in the industrial
sector, training the finest employees of tomorrow, and foster innova-
tion in education.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT1

THE GROUP
History of 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 initially operated
as a consulting company for European defense, aerospace, and nuclear industries. In 1979, the Company opened a
subsidiary in Germany.

1991 TO 1999

2000 TO 2010

■

2011 TO TODAY

■

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.

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 Framasoft (digital and mechanical
simulation for the nuclear industry), followed by Dynamic Software (stamping simulation) in 1999.

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. (sector 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 ownership 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 technology assets of Ciespace
(Cloud/SaaS offering), and the Presto software platform (electronics cooling market).

In 2016, ESI Group continued to extend its strategic positioning by acquiring ITI GmbH (realistic simulation 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 worldwide 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 solution portfolio, putting forth a comprehensive offering
suited to the needs of industrial companies working in the Industry 4.0.

In the course of the year 2017, ESI Group strengthened its presence with the opening of new offices in Toulouse
(France) and San Jose, California (United-States).

ESI GROUP • 2017 REGISTRATION DOCUMENTTHE GROUP
Group structure

1.3. Group structure

1.3.1. Operational flowchart
At April 30, 2018, the Group’s operational flowchart was as follows:

Business Pillars

Edition Operations

Product Operations

ESI Group
Chairman & CEO

Field Operations

S&M/Strategic
Marketing
Development

Regional Operations

Sales & Value Selling

Value Discovery

Services Operations

Finance,
Administration & IT

Support Operations

Human Resources

Corporate Governance

Corporate
Management

Hierarchical attachment

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT
1

THE GROUP
Group structure

1.3.2. Legal flowchart
At April 30, 2018, the Group’s legal flowchart was as follows:

ESI GROUP

AMERICAS

EMEA

ESI North America, Inc.
United-States
(100%)

100%

STRACO
Engineering System International
France
France
(100%)
(98%)

100%

ESI US, Inc.
United-States
(100%)

ESI SOUTH AMERICA COMERCIO
E SERVICOS DE INFORMATICA LTDA
Brazil
(95%)

95%

ESI US Holdings, Inc.
United-States
(49%)

49%

51%

ESI US R&D, Inc.
United-States
(74%)

CyDesign Labs, Inc.
United-States
(99.9%)

Mineset Inc.
United-States
(100%)

49%

99.9%

100%

9.5%

ESI Services TUNISIE
Tunisia
(95%)

ESI Nordics AB
Sweden
(100%)

ESI Italia s.r.l.
Italy
(100%)

ESI UK LIMITED
United-Kingdom
(100%)

Mecas ESI s.r.o.
Czech Republic
(95%)

ESI Group Hispania s.l.
Spain
(100%)

ENGINEERING SYSTEM
INTERNATIONAL GMBH
Germany (100%)

100%

ESI Software Germany GmbH
Germany
(100%)

CIVITEC
France
(80%)

CYDESIGN LTD
United-Kingdom
(99.9%)

OPENCFD LIMITED
United-Kingdom
(100%)

Calcom ESI SA
Switzerland
(99%)

STRACO
France
(98%)

Scilab Enterprises
France
(100%)

ESI ITI GmbH
Germany
(96%)

ITI Southern Europe
France
(96%)

85.5%

100%

95%

100%

80%

100%

99%

98%

100%

96%

100%

ASIA-PACIFIC

ESI Japan, Ltd.
Japan
(97%)

Hankook ESI Co., Ltd.
South-Korea
(98.8%)

ESI Services Vietnam Co., Ltd.
Vietnam
(100%)

Hong Kong ESI CO., Limited
Hong Kong
(100%)

ESI Group Beijing Co., Ltd.
China
(100%)

97%

98.8%

100%

AECC-ESI (Beijing) Technology Co. Ltd.
China
(45%)

45%

Zhong Guo ESI Co., Ltd.
China
(100%)

ESI-ATE HOLDINGS LIMITED
Hong Kong
(100%)

100%

ESI-ATE Technology (China), Ltd.
China
(100%)

Pacific Mindware Engineering
Private Limited
India (100%)

100%

ESI Software (India) Private Limited
India
(100%)

100%

Distribution

Edition

% of holding
% of control

( )

Nota : les pourcentages en capital et les pourcentages en droits de vote sont identiques.

Note: the percentages of equity and voting rights are identical.
For more information, see note 3.4. "List of entities in the scope of consolidation" in the notes to the consolidated financial statements.

ESI GROUP • 2017 REGISTRATION DOCUMENT1.4. Selected financial information
This information can be found in the consolidated financial statements.

1.4.1. Revenue

Full-year sales declined by 2.0% to €135.3 million at constant exchange
rates. There was a negative Forex impact over the year of €2.5 million,
mainly reflecting the depreciation of the Japanese yen – and to a lesser
extent the US dollar. The product mix shifted towards Licenses, which
contributed 78% of total sales, compared with 77% last year.

THE GROUP
Selected financial information

CHANGE IN REVENUE

(in €m)

140.6

135.3

105.7

108.3

124.7

97.0

27.7

32.2

29.5

2015

2016

2017

Licenses

Services

1.4.2. Strategic business alignment

Revenue from Licenses was stable year-on-year at €105.7 million at
constant exchange rates. The Repeat Business rate was 82.4% at constant
rates (80.7% at current rates), reflecting a lower share of revenue from
Paid-Up Licenses (PUL) in 2017 and therefore representing a positive
factor in future contract renewals. New Business, also affected by PUL
impact, remained stable at constant rates at €17.8 million, compared to
€17.9 million for 2016 (€17.6 million at current rates).

The Services business reported a 6.9% decline in revenue to €29.5 million
(at constant exchange rates). As a reminder, Services grew by 16.5% in
2016 due to exceptionally favorable conditions in Japan. The increase
in Special Projects as a proportion of Services (17.1% vs. 15.6%) confirms
the trend already witnessed in 2016, driven by innovative co-creation
projects that harness new technologies developed by the Group.

1.4.3. Breakdown of revenue by geographic area

8Business in BRIC countries accounted for 12.5% of revenue compared
to 13.3% in 2016.

GEOGRAPHICAL BREAKDOWN

Americas
16%
(vs. 16%)

Asia-Pacific
37%
(vs. 39%)

1.4.4. Profitability

Europe,
Middle East
and Africa

47%
(vs. 45%)

(Data vs. 2016)

EBITDA fell from €18.3 million to €12.1 million, giving an EBITDA margin
of 9.0% for the year, compared with 13.0% in 2016. This drop is a result
of the transformation plan which weighed on growth, and increased
investments in R&D.
Current operating profit was €9.2 million, representing a current
operating margin of 6.8%, or €6.2 million less than last year.

EBIT dropped €5.6 million to €8.1 million, giving an EBIT margin of 6.0%,
compared to 9.8% in 2016.
The Financial Result was a net financial expense of €2.7 million,
compared to a financial expense of €2.1 million in 2016, due to Forex
losses following the depreciation of the Japanese yen against the euro.
Attributable Net Profit came out at €2.4 million in 2017, giving a net
margin of 1.8%.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT1

THE GROUP
Major investments during the past three fiscal years

EBITDA

CURRENT OPERATING PROFIT

ATTRIBUTABLE NET PROFIT

(in €m and % of revenue)

18.3

14.3

12.1

11.4%

13.0%

9.0%

2015

2016

2017

15.4

11.8

9.2

9.5%

10.9%

6.8%

2015

2016

2017

7.5

5.3

2.4

4,3%

5,4%

1,8%

2015

2016

2017

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 approxi-
mately 2% of its revenue. Over the past three financial years, these
investments amounted to €2.7 million in 2015, €2.3 million in 2016, and
€3.6 million in 2017. These investments pertain mainly to the computer
equipment required to grow the Group’s business as well as the work
required to outfit and equip various facilities of the Group. Investments
are primarily financed using the Group’s equity.

1.5.2. The Group’s non-recurring investments

Research & development costs
ESI Group capitalizes the research and development costs that meet
the six criteria set forth under IAS 38 in its annual financial statements.
Information on research and development costs is found in note 6.1.2.
to the consolidated financial statements.

The net carrying amount of capitalized research and development costs
stood at €41.4 million at January 31, 2018 and corresponds to approxima-
tely 14.3 months of research and development.

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 with an indefinite useful
life, have been subject to an impairment test as described in note 3.1. to
the consolidated financial statements.

The change in the net carrying amount of these intangible assets between January 31, 2017 and January 31, 2018 is presented in the table below. See
notes 3.2.1. and 6.1.1. to the consolidated financial statements for further information.

(in € million)

Goodwill

Intangible assets with an indefinite useful life

TOTAL

January 31, 2017

Change in scope of
consolidation

Foreign exchange
gain/(loss)

January 31, 2018

40.8

12.0

52.8

0.9

(0.7)

41.0

12.0

53.0

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 improve its
production capacities and efficiency. The Group seeks out new oppor-
tunities that would allow it to increase its market share or to improve
the services provided to its customers

In 2018, the Group plans to spend approximately €4 million. Capital costs
committed at the time of writing came to approximately €1 million. 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.

ESI GROUP • 2017 REGISTRATION DOCUMENTTHE GROUP
Risks factors and opportunities

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

1.6.1. Strategic risks

International economic and political environment
The global economic, commercial, and social as well as geo-political
context may influence the Group’s results and revenue 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 diversifying its customer base
by strengthening its presence in new business sectors and geographic
areas.

Competition
The specific nature of ESI Group’s business and its unique positioning
in the Virtual Prototyping field make it very difficult to attempt to
precisely define its market. The complexity of the problems on which
the Group focuses, the long experience it has acquired by working in
close partnership with the largest industrial, its significant investments
in research and development, the wide range of solutions it offers and
the many acquisitions it has made over the years are all barriers for any
newcomer who would like to enter its market.

Dependence on a single client or sector
The Group strives to diversify its business, both geographically and
by industry. The Ground Transportation sector accounts for 58% 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 diversifying its
customer base in both geographic and sectoral terms.

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 attract, retain,
and motivate quality employees, with a constant focus on aligning skills
with the Group’s needs and challenges.

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 Development Plans.

1.6.2. Operating risks

Business risks
Since it deals with a very diverse customer base made up of major
multinational industrial corporations, ESI’s client insolvency risk is low
and fully provisioned. Intermediate payment installments are scheduled
at the end of each quarter in order to approve the progress thus far and
to justify the recognition of revenues.

Effect linked to receivables
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). For business conducted in the government sector in
China, it typically takes over a year to collect on accounts receivable.
An analysis of receivables by age is carried out each quarter in order to
ensure collection and, where necessary, to establish the required provi-
sions. The amounts of doubtful receivables are presented in note 4.2. to
the consolidated financial statements.

Use of external contractors
The Group is not exposed to any specific risks related to suppliers 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.

Effect linked to the seasonality of the activity
Because of strong seasonal variations, ESI Group’s Licenses business
recognizes a large part of its annual revenue in the fourth quarter of
the year.

Services contracts execution
Revenue generated by the Group’s Services activity is recognized
according to the percentage-of-completion method, and accounts
for 22% of the Group’s total revenue in 2017. In the case of fixed-price
service contracts, the risk of underestimating costs is borne largely by
ESI Group. Nonetheless, this risk is based on the Group’s experience in
the issues involved in the project. This risk is hedged by a contingency
coefficient applied both to the price and to the deadline; it varies
from 0% for standard projects to 50% for highly innovative projects.
In addition, bids may include clauses limiting the services provided and
providing for the negotiation of amendments to contracts in the event
of additional requests by the client.

Risk related to inability to provide the expected results depends 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 services agreed upon. Furthermore, the risk of results being
rejected is covered by acceptability criteria specified either in the bid
or at the start of work.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT1

THE GROUP
Risks factors and opportunities

Quality of products and services
ESI Group is committed to offer high-quality products and services, in
accordance with its focus on customer satisfaction. These initiatives
require implementing processes and mechanisms that enable effective
management of development 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 incorporating 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 particular attention to excellence regarding all of its
processes as well as its employees.

Security of facilities and internal systems
To reduce the risk related to the security of facilities and internal
systems, the Group has established security and data backup mecha-
nisms and restricts access to critical and sensitive information. An
experienced security officer constantly watches systems and network
security. The internet connections and firewalls of all facilities are
centrally managed and monitored, thus minimizing the risk of intrusion
and/or piracy. Critical services are regularly backed up in accordance
with a documented process, and, in the event of a major malfunction or
other catastrophe, a backup site has been designed and is operational.

1.6.3. Financial risks

Exchange rate risk
See notes 7.1.4. and 7.3. to the consolidated financial statements.

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 statements.

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 monito-
ring, researching and optimizing the Group’s legal situation as well as
coordinating the legal aspects of subsidiaries’ operations;

• The intellectual property branch, which ensures that the Group’s
intellectual property rights (software codes, data-bases, inventions
and expertise, trademarks, etc.) are protected, and takes all necessary
measures (trademark registration, patent applications, confidentiality
agreements, establishing exclusive rights, etc.) to safeguard them.
This branch is responsible for intellectual property audits when
acquisitions are made, and for drafting, revising, or negotiating all
contracts involving customers and partners, particularly consortium
agreements.

Industrial and environmental challenge
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.

ESI Group designs, develops and markets Virtual Prototyping software.
The environmental impact of these activities 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 portion 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
energy.

For more information on the Group’s corporate responsibility, refer to
Section 3, “Corporate Social, Societal, and Environmental Responsibility.”

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

Liquidity risk
See notes 7.1. and 7.3. to the consolidated financial statements.

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.

The passwords used to access the Group’s products are generated by
ESI Group regardless of how the software is distributed (distributors
and agents), and are linked to the FlexNet Publisher software (formerly
known as Flexlm), which represents 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.

ESI GROUP • 2017 REGISTRATION DOCUMENTRisk 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 software
products are, broadly speaking, either developed within the Group or
acquired through mergers or acquisitions. In rare cases, they are the
result of development contracts signed with third parties.

As for the codes developed in-house, the Group’s companies retain
ownership of the intellectual property under the employment contracts
and supplementary provisions in accordance with labor law. Where
necessary, development agreements are signed between ESI Group and
its subsidiaries in charge of development in order to ensure that ESI
Group is considered the owner of the intellectual property.

For software code acquired through an external growth operation,
an intellectual property audit should be conducted ahead of time,
beginning, if necessary, by analyzing local intellectual property laws.
Furthermore, acquisition agreements always include warranties of title.
This particularly allows the Company to avoid buying an empty shell or
software code with too many strings 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
Regarding contractual liabilities and damage clauses, the Group always
refuses damage clauses and indirect liabilities (such as losses) and limits
its contractual liabilities to the amount of a particular event whenever
possible.

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

1.6.5. Opportunities

Technological changes and the ability to respond rapidly
to clients’ needs
ESI Group’s business is based on a close customer relationship that aims
to meet clients’ innovation needs in the different industrial sectors
suitable for implementing Virtual Prototyping.

Nevertheless, to protect against the risk of disruptive technological
changes in all the layers of the Group’s products and services, the
following networks have been developed:

• The Scientific Committee;

• Strategic partnerships with customers working in co-creation with

the Group;

• Academic partnerships providing access to the latest technological

information;

• Distribution partnerships with key hardware and Cloud companies

that offer advance access to the latest technologies.

In addition, the Group takes part in innovation projects co-financed
by European Union bodies, competitiveness clusters in France, and
American research projects such as SBIR and Darpa (see 3.5.1.). Together,
these enable ESI to produce increasingly innovative solutions in a timely
manner.

THE GROUP
Risks factors and opportunities

Prevention of undue granting of free licenses and 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.

Risk of litigation, governmental or legal action, or
arbitration
With the contentious situation surrounding public finances today, an
increased tax burden due to reconsideration of existing tax mecha-
nisms, establishment of new taxes, or more aggressive tax collection
could have negative consequences on the Group’s net financial income.

As part of its ordinary business 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 established the
appropriate documentation.

This documentation is verified in the context of government policies
of periodic review. With the exception of disputes regarding ordinary
business operations, the Company is not involved in any government
or legal procedure, or any arbitration process liable to have material
impact on its financial position, activities or results (see note 10.2.2 to
the consolidated financial statements).

The Group therefore believes that it has the resources and processes
required to adequately cover any legal risks that it may face.

Corruption, ethics and integrity
The Group issued an Ethics Charter which 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.

The ESI Charter also reaffirms the behavior to adopt in terms of business
ethics, prohibiting any form of corruption.

Acquisition and strategic investments

Acquisitions of assets and/or companies, and creations of
joint-ventures or partnerships
Since its creation, the Group has acquired companies or assets to
complete its offer and to create business synergies. These acquisitions
and strategic collaborations (joint-venture with BIAM, Beijing Institute
of Aeronautical Materials) enable the Group to have a unique positio-
ning and to be at the cutting edge of technology. Established partner-
ships with industrial leaders and the best universities and technological
institutes reinforce this positioning.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT1

THE GROUP
Risks factors and opportunities

Strategic investments
Research and development investments are the Group’s technological
pillar. These investments are maintained at a high level since several
years (approximately 30% of the Licenses revenues) to innovate, in
particular with the development of new technologies such as Big Data
or Artificial Intelligence.

Also, these investments support the new disruptive “PPL” (Product
Performance Lifecycle™) approach. Founded on the shift from the Virtual

Prototype to the connected Hybrid Twin™, the new solutions of the
Group enable, for example, the predictive maintenance as well as the
manufacturing and the assisted or autonomous driving. These solutions
meet the challenges of the Industry 4.0 with a complete control of the
product lifecycle, from its launch to its withdrawal, passing through the
manufacturing of the new product and the operational monitoring of
the used product which integrates the in-service damages and potential
repairs.

ESI GROUP • 2017 REGISTRATION DOCUMENT2

CORPORATE
GOVERNANCE

In accordance with the provisions of Article L. 225-37 and Articles
L. 225-37-2 to L. 225-37-5 of the French Commercial Code, this chapter
includes the report of the Board of Directors on corporate governance
and outlines the following items:

• Corporate Governance Code followed by the Company and applica-

tion of the recommendations contained therein;

• 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;

• Limits the Board of Directors imposes on the prerogatives of the

Chief Executive Officer and Chief Operating Officers;

• All offices held by the Directors with any company with respect to

the financial year;

• Principles and rules set out by the Board of Directors to determine
compensation and benefits of any kind granted to executive
corporate officers;

• Total compensation and benefits in kind payable or granted to each

executive corporate officer in the 2017 financial year;

2.1. Corporate governance procedures

The Corporate Governance Code followed by the Company
since April 2010 is the Middlenext Code. It may be consulted at
www.middlenext.com. It should be noted that the most recent edition
of the Code, including new areas of attention and four new recom-
mendations, was published in September 2016. At the meeting held on
April 18, 2017 the members of the Board of Directors have familiarized
themselves with the updated Code and reiterated their commitment to
comply with all recommendations included therein and to periodically
review the areas of attention.

• As well as related party agreements concluded or which continue to

exist in the 2017 financial year.

The information relative to (i) the authorizations in force to increase
the share capital granted by the General Shareholders’ Meeting to the
Board of Directors as well as their use in the 2017 financial year, (ii) the
factors likely to have an impact in the event of a public offer referred
to in Article L. 225-100-3 of the French Commercial Code, and (iii) the
procedures governing shareholder participation in General Meetings
can be found in Section 7 of this Document.

This report was prepared with the assistance of ESI Group executive
management as well as the Legal Affairs, Human Resources and Finance
and Administration Departments.

In accordance with Article L. 225-37 of the French Commercial Code,
the Board of Directors approved the report at its meeting held on
April 17, 2018. The report will also be subject to review and approval by
the Combined General Meeting to be held on July 18, 2018.

Throughout the 2017 financial year, 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 recom-
mendations 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
followed by the Company is provided below.

TABLE SHOWING THE APPLICATION OF RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE

Content of the recommendation

R.1. Code of Ethics of the Board of Directors

R.2. Conflict of interest

Application by the Company

Paragraph of
Registration Document

Recommendation followed by the Company

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

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

R.10. Director compensation

R.11. Assessment of the work done by the Board

R.12. “Shareholder” relations

Recommendation followed by the Company

R.13. Definition and transparency of compensation paid to corporate executive officers

Recommendation followed by the Company

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

Recommendation followed by the Company

2.4.

2.3.

2.4.

2.3.

2.5.

2.4.

2.6.

2.4.

2.5.2.

2.6.2.

2.1.

12345678 ESI GROUP • 2017 REGISTRATION DOCUMENT2

CORPORATE GOVERNANCE
Functionning of the Board of Directors and Executive Management

2.2. Functionning 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 Chairman. 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.

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.

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 options is made
by the Board of Directors. The Board’s decision regarding the choice of
executive management structure is made by majority vote of the Board
members present 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 Executive Officer or
Chairman, if the Chairman also serves as Chief Executive Officer. At the
end of this period, the Board of Directors must again decide on the
Company’s executive management structure. The Board of Directors
may, with the consent of the Chief Executive Officer or Chairman, if the
Chairman also serves as Chief Executive Officer, decide to modify the

executive management structure before the end of their term of office.
Such change in the executive management structure does not require
an amendment to the articles of association.

People over the age of 80 may not serve as Chief Executive Officer of
the Company. If the current Chief Executive Officer comes to exceed
this age, he or she will automatically be deemed to have resigned.

At its July 22, 2015 meeting, the Board of Directors decided to combine
the functions of Chairman and Chief Executive 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 possible powers to
act in all circumstances on behalf of the Company. The powers of the
Chief Executive Officer may be limited by the Board of Directors.

2.2.3. 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 Operating Officer has the same powers as the Chief
Executive Officer.

If the Chief Executive Officer resigns or is no longer able to carry out his
duties, the Chief Operating Officers will retain their responsibilities and
duties until the appointment of a new Chief Executive Officer unless
the Board of Directors decides otherwise.

Chief Operating Officers may be dismissed at any time at the recom-
mendation 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 decided to reappoint
Mr. Vincent Chaillou and Mr. Christopher St.John as Chief Operating
Officers for a term of four years, expiring in 2019.

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 any limits.

2. To enter into commercial contracts or agreements on behalf of the

However, the powers of the Chief Operating Officers to act as legal and
commercial representatives of the Company have been delegated by
the Chairman of the Board of Directors. The following powers have thus
been delegated to the Chief Operating Officers, Mr. Vincent Chaillou
and Mr. Christopher St.John:

1. To represent the Company, in general, in all ongoing business affairs
of ESI Group with respect to third parties and in compliance with the
Group procedures;

Company within its commercial territory and authority;

3. To hire or terminate any employee, executive, consultant, sales repre-
sentative, distributor or agent and to determine the scope of their
powers and their title (with the exception of managers and directors)
and to establish or increase any compensation, commission or
pension for all such individuals or legal entities. Annual compensa-
tion shall not exceed €100,000.

ESI GROUP • 2017 REGISTRATION DOCUMENTCORPORATE GOVERNANCE
Functionning of the Board of Directors and Executive Management

In all cases, the Chief Operating Officers require the Company’s prior
written consent to carry out the following transactions on behalf of
the Company:

• To hire managers and directors and determine or modify their annual

compensation;

• To purchase or acquire, sell or dispose of, lease or rent, or mortgage

any real estate property;

• To bind the Company as a guarantor or in any other debt-related

situation with respect to third parties;

• To settle any disputes and to take legal action, with the exception
of debt recovery actions that form part of the Company’s ongoing
operations and urgent actions such as provisional or conservatory
measures that cannot be postponed in the interests of the Company;

• To set up retirement plans for the employees of the Company;

• To pledge any movable property or receivable;

• To sell or dispose of, purchase or acquire, or transfer or mortgage any

• To enter into credit arrangements;

• To take out loans on behalf of the Company (with the exception of

the use of bank overdrafts granted to the Company);

• To create or acquire stakes in other companies, to perform any other
type of similar undertaking, to accept management positions in
other companies, to establish or dissolve subsidiaries and to divest
ownership interest;

• To propose mergers;

• To grant loans;

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 transaction involving other
Group companies, clients or partners falling outside the Company’s
commercial territory or authority.

2.2.5. Group Executive Committee (“GEC”)

The GEC makes all decisions relative to the Company’s growth strategy
in the following areas:

• Distribution (establishments and subsidiaries);

• Sales and Marketing;

• Production of products and solutions;

• Service activity;

• Finance and Administration;

• Human Resources;

• Quality;

• IT.

In collaboration with the specialized committees, the GEC prepares
and submits documentation to the Board of Directors regarding certain
operations that require Board approval before they can be carried out
and/or implemented.

At the end of 2017/beginning 2018, ESI Group proceeded with the
transformation of its management and operational organization, in line
with the adaptation of its new Hybrid Twin™ solutions.

The Group’s organization is now structured, in alignment with the chal-
lenges of the Industry 4.0 and Smart Factory and the Outcome Economy,
around three business pillars: “Engineering” (design and development of
industrial products), “Manufacturing” (manufacturing of products) and
“In-Service” (usage, control and maintenance of products, from launch
to withdrawal).

In this context and to support this fundamental reorganization, Christian
Matzen, GEC member, was promoted to Executive Vice President Sales
and Marketing (EVP S&M), and Dominique Lefebvre was appointed
Director of Product Operations and joins the GEC.

These executive corporate management changes follow the appoint-
ment in December 2017 of Angelita Reyes as the Group Human
Resources Director, and GEC member.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT2

CORPORATE GOVERNANCE
Composition of the Board of Directors

To date, the GEC comprises the following members (from left to right):

• Ms. Angelita Reyes – Group Human Resources Director

• Mr. Christopher St.John – Chief Operating Officer in charge of the

• Mr. Mike Salari – Executive Vice President Engineering Services

• Mr. Vincent Chaillou – Board member and Chief Operating Officer in

charge of the Edition Operations

Distribution and Support Operations

• Mr. Christian Matzen – Executive Vice President Sales and Marketing

• Ms. Corinne Romefort-Régnier – Corporate Governance Director,

• Mr. Alain de Rouvray – Chairman of the Board and Chief Executive

Secretary of the Committee

Officer of the Company

• Mr. Dominique Lefebvre – Product Operations Director

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 composed 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 increasing the
diversity and complementarity of skills required 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
General Meeting called to approve the financial statements of the
previous fiscal year and held during the year in which the term of the
Board member in question is scheduled to expire. Directors may be
re-elected. They may be dismissed at any time by the Ordinary 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.

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

Last name, First name

Mr. de Rouvray, Alain

Mr. Chaillou, Vincent

Ms. de Rouvray, Cristel(1)

Mr. des Isnards, Charles-Helen

Mr. d’Hotelans, Eric

Ms. Jacq, Véronique(2)

Ms. Ramanathan, Rajani(2)

Mr. de Balmann, Yves

Title

Start of first term

End of term

Age

Chairman and Chief Executive Officer

Board member

Independent Board member

1991

2004

1999

2008

2014

2016

AGM 2019

AGM 2020

AGM 2021

AGM 2019

AGM 2018

AGM 2020

74 years old

68 years old

41 years old

73 years old

67 years old

50 years old

51 years old

72 years old

(1) Ms. Cristel de Rouvray is the daughter of Mr. Alain de Rouvray, Chairman and Chief Executive Officer.
(2) The renewal of the appointments of these Directors is submitted for approval by the Combined General Meeting of July 18, 2018.

ESI GROUP • 2017 REGISTRATION DOCUMENTThe following provides a summary of the changes in the composition of Board of Directors over the course of FY 2017 as well as the changes
expected to be made over the course of the current fiscal year:

CORPORATE GOVERNANCE
Composition of the Board of Directors

Resignation

Reappointment

Appointment

Personal information of current Board members

Alain de Rouvray

Chairman and Chief Executive Officer

Bate of birth: 10/08/1943

French

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 École Centrale de Paris (1967), a degree from the Sorbonne in Economic
sciences (1967), and a Ph.D. in civil engineering from the University of Berkeley
(1971). Alain de Rouvray started his career as Research Engineer at École
Polytechnique (Solid Mechanics Laboratory) in 1972. He then became Director
of the Advanced Mechanics Department for the international software subsi-
diary of CISI Group from 1972 to 1976. In 1973, he founded ESI SA and was the
COO and Commercial Director from 1973 to 1990.
Current offices held:

None

Offices held over the past five years:

None

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

Cristel de Rouvray

Board member

Bate of birth: 10/15/1976

French, American

FY 2017

N.A.

FY 2018

N.A.

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

Ms. Véronique Jacq
Ms. Rajani Ramanathan

N.A.

Vincent Chaillou

Board member and Chief Operating Officer

Bate of birth: 03/24/1950

French

Vincent Chaillou is the Company COO in charge of the Software Publishing
Division. Vincent Chaillou holds a PhD in civil engineering from the École des
Ponts et Chaussées (1973) and an engineering degree from École 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 President for the
American territory within ESI Group and CEO of ESI Software.
Current offices held:
• Member of the Board of the association Alliance Industrie du Futur
• Member of the Board of the association TECH’IN France
• Member of the Board of the association ASTech
• Chairman of the association ID4CAR
• Member of the Board of the Railenium Technological Research

Institute

• Member of the Board of Nuclear Valley
• Member of the Board of the French Mechanics association
• Treasurer of the Excelcar collaborative innovation platform

Offices held over the past five fiscal years:
• Member of the Board of the association ID4CAR
• Member of the Board of the company CADEMCE SAS
Business address:
ESI Group – 100-102, avenue de Suffren, 75015 Paris

Charles-Helen des Isnards

Independent Board member

Bate of birth: 01/01/1945

French

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.

Current offices held:

None

Offices held over the past five years:

None

After an international career within BUE, UBAF and CIC Group in France and
in Italy, Charles-Helen des Isnards contributed 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 graduate of the
Paris Institute of Political Studies and holds a degree in law.
Current offices held:
• Member of the Board of the association Les Arts Florissants
• Member of the Board of the Day-Solvay Foundation

Offices held over the past five years:
• Member of the Supervisory Board of the company Nature &

Découvertes

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

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT2

CORPORATE GOVERNANCE
Composition of the Board of Directors

Eric d’Hotelans

Independent Board member

Bate of birth: 07/03/1950

French

Véronique Jacq

Independent Board member

Bate of birth: 01/02/1968

French

Eric 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. President of the Group’s online sales since 2009, he
retired in July 2017.
Current offices held:
• President of the company Home Shopping Services SA
• President of the company CADEMCE SAS
• Member of the Board of the company Société Nouvelle de

Distribution SA

• Member of the Board of the company Métropole Production SA
• Chair of the M6 Group Corporate Foundation

Offices held over the past five years:
• Managing Director of the company Home Shopping Services SA
• Member of the Board of the M6 Group Corporate Foundation
• Member of the Board of the company M6 Films
• Member of the Board of the company M6 Diffusion SA
Business address:
M6 – 89, avenue Charles-de-Gaulle – 92575 Neuilly-sur-Seine Cedex

A Civil Engineer and graduate of the École des Mines de Paris (French enginee-
ring school), Véronique Jacq began her career in the Nuclear Safety Authority
(1994-2000). In 1997, she was appointed Deputy Director in charge of monitoring
the safety of EDF nuclear power plants. In 2000, she joined Anvar (now OSEO)
as Director of Business Development. In 2003, she joined the 2nd Chamber of
the French Court of Auditors, where she was responsible for auditing financial
statements and management reports of companies and government agencies as
well as international organizations. In 2007, she joined CDC Entreprises, a CDC
subsidiary company specializing in private 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 Entreprises and then at Bpifrance
as of 2013. She is now in charge of Seed & venture Capital operations.
Current offices held:
• Member of the Board of the company Netatmo
• Member of the Board of the company Evaneos
• Member of the Board of the company OpenClassrooms
• Censor of the company Scality

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

Business address:
Bpifrance – 6-8, boulevard Haussmann, 75009 Paris

Rajani Ramanathan

Independent Board member

Bate of birth: 03/25/1967

American, Indian

Yves de Balmann

Independent Board member

Bate of birth: 05/28/1946

French, American

Rajani Ramanathan has held a variety of positions, from running her own
companies in India to scaling a multi-billion-dollar company from a startup
to a fully operational business. She currently serves as an advisor or investor
in several technology startups including Vayu Technology corp, Feathercap,
Fitbliss, BoonVR, Realine Technology, Liforgraph, Traction Labs, Relatas,
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 company over 14 years. In her most recent role
as Executive Vice President of Technology & Products, her responsibilities
included 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 Industry) Award, which has long been consi-
dered one of Silicon Valley’s most prestigious awards honoring women who
exemplify leadership excellence in executive-level positions.

Current offices held:
• Member of the Board of the company CloudCherry

Offices held over the past five years:

None

A graduate of Stanford University in the United States and École Polytechnique
in France, Yves de Balmann began his career at Citibank where he served as
North American Executive Director for the Rates and Currency Derivatives
Division, as well as his own Trading Department. He joined Bankers Trust in
1988. After the 1999 merger of this company 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 activities. He held these positions until 2001. He also
served on the Board of the Global Corporates and Institutions Division (GCI).
In 2002, he created the company Bregal Investments, a first-rate international
player in the field of private equity, which he co-managed until 2012. He lives
in California.

Current offices held:
• Member of the Board of the company Excelon Corporation
• Member of the Board of the company Finalsite
• 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 Education

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

ESI GROUP • 2017 REGISTRATION DOCUMENTCORPORATE GOVERNANCE
Composition of the Board of Directors

• Mr. Eric 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 members, 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 Directors 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 recom-
mendation 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
better decision making thanks to in-depth knowledge of the Company,
its markets and its activities, while also reinforcing Directors’ inde-
pendence due to more frequent submission of appointment renewals
to the Company’s shareholders.

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 convicted of any fraudulent
offense, been associated with a company’s bankruptcy, receivership or
liquidation, or received an official public incrimination or sanctions by
statutory or regulatory authorities.

Furthermore, to the 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.

Experienced and complementary Directors
As it can be seen in the short biographies presented above, the members
of the Board of Directors exhibit, through their education and their
professional experience, considerable expertise in the fields of mana-
gement and finance. Furthermore, most Directors are perfectly familiar
with the Company’s area of technology. Finally, their diverse profiles
guarantee that the Board benefits from a complementary set of skills.

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):

• 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 three
years;

• They must not have had a significant business relationship with the
Company or the Group (client, supplier, 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 immediate 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 inde-
pendent as long as they do not take part in control of the Company.
Should Board members come to hold more than 10% of the Company’s
capital or voting rights, the Board of Directors must systematically
review their status as independent members, at the recommendation
of the Compensation, Nomination and Governance Committee, in
consideration of the Company’s capital structure and the existence of
any potential conflicts of interest.

The Board of Directors reviews the situation of its members vis-à-vis
these independence criteria on a yearly basis. At the present time, five
Directors are considered as independent:

• Mr. Charles-Helen des Isnards;

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT2

CORPORATE GOVERNANCE
Conditions for preparing and organizing the work of the Board of Directors

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

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 professional 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 developments,
in particular regarding the responsibilities of the Audit Committee, and
to ensure that the rules are consistent with best practices of corporate
governance. In light of the recent revision of the Middlenext Code
in September 2016, the Board will modify the rules of procedure as
necessary in the 2018 financial year 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.

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

• Composition of the Board of Directors and the procedure for deter-

mining whether a Board member is an independent member;

• Directors’ duties and responsibilities (especially in terms of profes-
sional ethics, disclosure and management of conflicts of interest and
compliance with rules applicable to insiders);

• Operational procedures of the Board of Directors (frequency of
meetings, procedure for calling meetings, procedure for notifying
members, use of videoconferencing technology) and the Committees;

• Rules regarding Directors’ compensation;

• Role of the Board of Directors and the Committees.

Professional ethics of Board members and prevention of
conflicts of interest
Regarding professional ethics, it is noted that Board members are
to refer to the Director Charter set forth by the French Institute of
Corporate Directors (IFA) and appended to the rules of procedure of
the Board of Directors.

Concerning prevention and management of conflicts of interest, the
rules of procedure and the Charter recommend that each Director
strive to avoid any potential conflict between 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 interest, he/
she must recuse him/herself from any deliberations 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 determines the guidelines for the Company’s
operations and oversees the application thereof. Subject to the powers
expressly given, under the law, to General Meetings, the Chairman and
Chief Executive Officer and the Chief Operating Officers and in keeping
with the corporate purpose, the Board of Directors may handle any
matter relevant to the Company’s operations and meets to decide all
matters within its responsibility.

The Board of Directors is entrusted with the following responsibilities
in accordance with the law:

• Preparing for and calling Annual General Meetings;

• Preparing the wording of the resolutions to be voted on by the

shareholders;

• 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 state-
ments and interim financial statements, the annual management
report and the interim financial report, as well as approval of these
documents;

• Approving the report of the Board of Directors on corporate

governance;

• Approving the agreements referred to in Article L. 225-38 of the

French Commercial Code;

• Authorizing guarantees and similar undertakings;

• Appointing or dismissing the Chairman and Chief Executive Officer
and the Chief Operating Officers, and supervising their management
of the Company;

• Creating committees within the Board of Directors, establishing the
rules of procedure that set out their responsibilities and operational
procedures, appointing and determining the compensation of the
members of these committees;

• Distributing Directors’ fees;

• Establishing and updating the Rules of procedure of the Board of

Directors.

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 Directors’ meetings must be
such as to allow members to conduct an in-depth review and discussion
of the topics falling under its responsibility. The same principle applies
to meetings of Board Committees.

In accordance with Middlenext Code Recommendation R.5, the rules of
procedure state that the Board of Directors 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 program.

The Board of Directors must also meet, when convened by the
Chairman, in the event of major operations such as the following:

• Business acquisitions or divestitures;

• Significant operations outside the Group’s established strategy;

• Organic growth or restructuring operations.

The draft minutes of each Board of Directors meeting are formally
approved and signed by the Board members during the subsequent
meeting. The minutes relate the discussions, specify the decisions made
and mention the questions and hesitations raised.

ESI GROUP • 2017 REGISTRATION DOCUMENTCORPORATE GOVERNANCE
Conditions for preparing and organizing the work of the Board of Directors

Furthermore, during each meeting any major facts or events pertaining
to the Company’s operations or its general situation arising since the
previous meeting are brought to the Board members’ attention.

Board of Directors’ meetings are not valid unless at least half of its
members are in attendance. The Board’s decisions are made by majority
vote among the members present or represented. In the event of a tie,
the Chairman of the meeting casts the deciding vote. In accordance
with the provisions of the articles of association, Board members who
take part in the Board meeting via videoconference or teleconference
are considered present for the purpose of determining whether a
quorum is present. This provision does not apply to decisions for which
the French Commercial Code expressly bars the use of these methods.

An attendance sheet is drawn up and signed by the Board members
taking part in the Board of Directors’ meeting.

Works of the Board of Directors in 2017
In 2017, the Board of Directors held eight meetings. The attendance rate
was 95.3%. The Strategic Committee met two times, with an attendance
rate of 100%; the Audit Committee met seven times with an attendance
rate of 100%; the Compensation Committee met four times with an
attendance rate of 100%; the Technology and Marketing Committee
met four times with an attendance rate of 93.8%.

ATTENDANCE OF DIRECTORS AT BOARD AND COMMITTEE MEETINGS IN 2017

Director

Board of Directors

Strategic Committee

Audit Committee

Compensation, Nomination
and Governance Committee

Technology and
Marketing Committee

Attendance
rate

Number of
meetings

Attendance
rate

Number of
meetings

Attendance
rate

Number of
meetings

Attendance
rate

Number of
meetings

Attendance
rate

Number of
meetings

Mr. Alain de Rouvray

M. Vincent Chaillou

Ms. Cristel de Rouvray

Mr. Charles-Helen des Isnards

Mr. Eric d’Hotelans

Ms. Véronique Jacq

Ms. Rajani Ramanathan

Mr. Yves de Balmann

TOTAL ATTENDANCE RATE

100%

75%

88%

100%

95.3%

8/8

6/8

7/8

8/8

–

100%

–

100%

–

100%

2/2

–

2/2

–

100%

–

100%

–

7/7

–

100%

–

100%

–

100%

–

100%

4/4

–

4/4

–

4/4

–

100%

–

75%

100%

–

93.8%

4/4

–

3/4

4/4

–

In 2017, the Board of Directors deliberated on the following items:

4th quarter
Meeting as of 11/6/2017

• Authorization of bank guarantees
• Review in the revenues of the 3rd quarter

3rd quarter
Meetings as of 8/1/2017 & 9/18/2017

• Grants of free shares
• Review and approval of the half-year
financial statements

95%
of attendance rate
in 2017

1st quarter
Meetings as of 2/23/2017, 3/13/2017
& 4/18/2017

• Authorization of an acquisition
• Share capital increase resulting from
the exercise of stock-options
• Approval of the 2017 budget
• Company funding plan
• Review of the 2016 financial statements
• Review of related party agreements
• Compensations payable to the Directors
and executive corporate officers
• Convening of the Annual General Meeting
and preparation of reports

2nd quarter
Meetings as of 5/5/2017 & 6/29/2017

• Grants of stock-options
• Implementation of a share buyback program

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT
2

CORPORATE GOVERNANCE
Conditions for preparing and organizing the work of the Board of Directors

Moreover, in accordance with Middlenext Code Recommendation
R.14, the Board of Directors and the Compensation, Nomination and
Governance Committee addressed the issue of executives becoming
suddenly unavailable following an accident or other eventuality, as
well as the matter of succession in their duties. A plan was drawn up
following these discussions.

As part of this work, the Board of Directors relied on the work and
recommendations of the Committees established within the Company.

Communication of information to members of the Board
In accordance with the rules of procedure, before each Board meeting
Board members receive a dossier containing the agenda for the meeting,
the draft minutes from the previous meeting and any document pertai-
ning to the different items on the agenda. The Chairman makes every
effort to provide these items three to five days before each meeting.
The Chairman also follows up on members’ 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 before being put to a vote
following the discussion. Finally, in accordance with Middlenext Code
Recommendation R.4, Directors are regularly kept informed between
meetings when required by events within the Company.

Establishment of specialized committees
The purpose of the committees is to optimize the discussions of the
Board of Directors and to ensure that the Board is prepared to make
its decisions. The Committees thus draw up proposals, recommenda-
tions 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.

The specialized committees are currently composed as follows:

Last name, First name

Independence

Strategic
Committee

Audit Committee

Compensation, Nomination and
Governance Committee

Technology and
Marketing Committee

Specialized committees of the Board of Directors

Mr. de Rouvray, Alain

Mr. Chaillou, Vincent

Ms. de Rouvray, Cristel

Mr. des Isnards, Charles-Helen

Mr. d’Hotelans, Eric

Ms. Jacq, Véronique

Ms. Ramanathan, Rajani

Mr. de Balmann, Yves

Yes

Chair

Member

Chair

Member

Member*

Chair

Member

Chair

* From the 2018 financial year Mr. de Rouvray will no longer be a member of the Compensation, Nomination and Governance Committee.

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

Strategic Committee
As defined in the Rules of Procedures of the Board of Directors, the
Strategic Committee is in charge of preparing the deliberations of the
Board of Directors on the major strategic challenges of the Group,
especially development axes and financing as well as examining the
evolution of the Group’s business portfolio.

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 members are independent. In addition, the
majority of its members have expertise in the area of finance or accoun-
ting. The Chairman and CEO of the Company is invited and attends 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 adminis-
tration, management and supervision, this Committee is responsible, in
particular, for the following tasks:

• Monitoring the process of drawing up financial documents and, if

necessary, making recommendations to ensure their integrity;

• Monitoring the effectiveness of internal control and risk manage-
ment systems as well as internal audit systems, if necessary, in terms
of the preparation and processing of financial and accounting infor-
mation, when such initiatives are compatible with the Committee’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 regarding its activities.
It also reports on the results of certification of financial statements,
how said certification has contributed to the integrity of financial
information, and the role that the Committee played in the process.
The Committee immediately reports any problems that may arise.

ESI GROUP • 2017 REGISTRATION DOCUMENTCORPORATE GOVERNANCE
Compensation paid to the Directors

Compensation, Nomination and Governance Committee
As defined in the rules of procedures of the Board of Directors, 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 executive 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.

assessment of its composition, organization and mode of operation.
This assessment was performed using a questionnaire addressed
to each Director and including questions regarding diversification
and composition of the Board. The questionnaire was discussed and
summarized during the Board Retreat. Improvements were proposed
during the discussion, mainly intended to enhance debates regarding
future changes to the Board and to share information regarding the
market.

Technology and Marketing Committee
The Technology and Marketing Committee is in charge of advising
the Board on aspects of product strategy, organizing the publishing
company (in particular, the methodologies of product management
and R&D), and evaluating potential partnerships or acquisitions related
to technology and marketing. The Committee also advises the Board of
Directors on all aspects of commercializing solutions.

Board assessment
In accordance with Middlenext Code Recommendation R.11, in the 2017
financial year, the Board of Directors carried out a yearly internal self-

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 invited to attend the General Meeting and
analyze the results of the vote on each resolution. They pay special
attention to negative votes so as to draw the appropriate conclusions
before the following General Meeting. Moreover, in addition to the
General Meeting, the Chief Executive Officer, Chief Operating Officers
and Chief 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. Compensation paid to the 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, Nomination and Governance Committee, according to
the frequency of meetings, members’ attendance, participation and,
where applicable, duties as Chairs of specialized committees. Special
assignments entrusted to Directors are also taken into account to
determine compensation. Some Directors receive specific amounts
in respect of special assignments 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 Directors and subject to the
procedure for approving regulated agreements.

In its eighth resolution, the Combined General Meeting of June 29, 2017
set the total maximum compensation paid to members of the Board
of Directors in the form of Directors’ fees for the 2017 financial year at
€180,000, stipulating that the Board of Directors 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 total compensation received
by the Directors for the 2017 financial year.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT2

CORPORATE GOVERNANCE
Compensation paid to the Executive corporate officers

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

FY 2017

FY 2016

FY 2015

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. Eric d’Hotelans

Ms. Véronique Jacq

Ms. Rajani Ramanathan

Mr. Yves de Balmann

TOTAL

• Directors’ fees

• Other compensation

10,000

6,000

N.A.

17,500

82,105

41,500

16,500

11,200

27,975

17,750

10,000

6,000

N.A.

17,500

70,503

31,500

16,500

12,182

27,567

16,750

10,000

6,000

4,000

47,042

54,270

31,033

16,500

14,078

18,033

N.A.

148,425

82,105

137,999

70,503

146,686

54,270

2.6. Compensation paid to the Executive corporate officers

2.6.1. 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 Commercial Code,
as introduced by the French “Sapin II” law on transparency, prevention
of corruption and modernization of the economy, the General Meeting
of July 18, 2018 will be asked, by the adoption of the seventh resolution
featured in Chapter 6 of this Registration Document, to approve the
principles and criteria for attributing and distributing compensation
payable to company officers in respect of their term.

It should be noted that, in accordance with Article L. 225-37-2 of the
French Commercial Code, payment of the variable and exceptional
components for FY 2017 will be subject to the approval of such
amounts by the adoption of specific resolutions by the General Meeting
convened to approve the financial statements for FY 2017.

To date, this report concerns the following company officers: Alain de
Rouvray, Chairman and Chief Executive Officer, Vincent Chaillou, Chief
Operating Officer for Edition Operations, and Christopher St.John,
Chief Operating Officer of Field and Support Operations.

Fundamental principles for setting the compensation of
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 compo-
nents of compensation, benchmarks, consistency, clear rules, measura-
bility 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.

The Compensation, Nomination and Governance Committee puts
forth a proposal to the Board of Directors regarding compensation
of executive 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 the consistency
of the objectives with the Company’s medium-term strategy, of the
shareholders’ interests and of changes to the Middlenext Code. The
Committee establishes the structure of this compensation based on
general or specific studies regarding market practices for comparable
companies. It ensures 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.

Implementation of the principles governing total annual
compensation
The principles governing the compensation of the Chairman and Chief
Executive Officer have remained unchanged since 2014 and those
governing the compensation of the Chief Operating Officers have not
changed since 2015. Moreover, the Compensation, Nomination and
Governance Committee commissioned a study to determine whether
the compensation principles were consistent with those of the market
for positions of similar responsibility and in comparable companies,
taking into account geographical location and coherence with the wage
policy applied to all employees.

Thus, the principles and criteria applied to determine, attribute and
distribute the components of total compensation and the benefits
of all types granted to company officers of ESI Group for FY 2018
were reviewed by the Compensation, Nomination and Governance
Committee at its meeting of April 16, 2018 before being proposed to the
Board of Directors, which approved them at its meeting of April 17, 2018.

ESI GROUP • 2017 REGISTRATION DOCUMENTCORPORATE GOVERNANCE
Compensation paid to the Executive corporate officers

An analysis of the study conducted showed the need for a compen-
sation adjustment in 2018, to be applied as of August 1, 2018, the date
agreed upon to update all compensation within the Group.

The following principles govern the compensation of the Chairman and
Chief Executive Officer:

• The variable objective-based component is equal to 50% of the fixed

compensation;

• The benefits in kind that were granted in connection with the reloca-
tion of the Chairman and Chief Executive Officer will be eliminated
and will be incorporated into his fixed compensation;

• The variable component may vary between 0% and 100% of the

amount of the variable objective-based component.

The following principles govern the compensation of the Chief
Operating Officers:

• The variable objective-based component is equal to 57% of the fixed

compensation;

Long term share-based compensation

The Group’s long term compensation policy reflects an overarching
competitive strategy of promoting loyalty and motivation among
managers and employees, while taking account of market practices.
Each long term compensation plan is submitted to the Annual Ordinary
General Meeting of Shareholders for approval.

The Group’s long term compensation policy is adjusted according to
the population in question.

The Chairman and Chief Executive Officer is not eligible for long term
compensation due to his position as a founding shareholder of the
Company. The Chief Operating Officers may participate in the stock
option plans and free share plans offered as part of the employee
loyalty and motivation policy. The conditions governing acquisition and
ownership of shares under these plans apply equally to all beneficiaries,
regardless of status as company agents.

Benefits in kind

• The benefits in kind are the provision of a company car and vary

depending on the type of vehicle;

Benefits in kind include various components determined by the
personal situation of company agents:

• The variable component may vary between 0% and 100% of the

• Company car or equivalent allowance;

amount of the variable objective-based component.

• Housing allowance in the event of an assignment away from home.

Fixed compensation

Exceptional compensation

Fixed compensation paid to executive officers is determined based on
the level and complexity of responsibilities, experience in the position
and length of service in the Group, as well as practices observed in
groups or companies of similar size.

The composition of the compensation of the Chairman and Chief
Executive Officer will change due to the elimination of benefits in kind,
the amount of which is incorporated into his fixed compensation. As a
result, fixed compensation as of August 1, 2018 will be $575,000 instead
of $574,000 (benefits in kind included).
For the two Chief Operating Officers, compensation is set at €210,000
in order to be more closely aligned with market practices and to ensure
internal consistency.

Variable compensation

Executive officers receive annual variable compensation, which is
calculated on the basis of demanding, precise, 100% quantitative and
pre-established criteria defined by the Board of Directors acting on the
recommendation of the Compensation, Nomination and Governance
Committee. This variable compensation must be in line with the
Company’s medium-term strategy and shareholders’ interests. Variable
compensation must not lead to excessive or inappropriate risk-taking.
To this end, it remains fair compared to the fixed component.

For the Chairman and Chief Executive Officer, the variable compensa-
tion is equal to 50% of fixed compensation and totals $287,500.

For the two Chief Operating Officers, the variable compensation is
equal to 57% of fixed compensation and totals $120,000.

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

Commitments made to the executive officers

Severance pay

There is no provision for severance pay for executive officers.

Non-compete compensation

Executive officers are not eligible for specific benefits other than those
provided for in their company agent contract.

Supplementary retirement plan

There is no provision for any supplementary retirement plan for
executive officers.

Provident scheme and healthcare expense reimbursement plan

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

Prohibition on combining employment contract and corporate office

Upon proposing a nomination for the position of Chairman and Chief
Executive Officer or Chief Operating Officer, the Board of Directors
will decide to suspend the nominee’s employment contract, unless
otherwise stipulated by the Annual General Meeting of Shareholders.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT2

CORPORATE GOVERNANCE
Compensation paid to the Executive corporate officers

2.6.2. Report on the compensations paid to the Chief Executive Officer and Chief Operating

Officers in the 2017 financial year

This report prepared by the Board of Directors, on a proposal of the Compensation, Nomination and Governance Committee, in accordance with
Article L. 225-37-3 of the French Commercial Code, presents the total compensations and benefits of all kinds payable or granted with respect to
the 2017 financial year to the Chief Executive Officer and both Chief Operating Officers. It describes separately the fixed, variable and exceptional
components of the total compensation and benefits of all kinds, as well as the criteria for calculating these components and the circumstances
under which they were granted. Also, this report gives an overview of the commitments made by the Company for the benefit of the executive
corporate officers.

The Ordinary General Meeting to be held on July 18, 2018 will be called upon to approve the fixed, variable and exceptional components constitu-
ting the total compensation and benefits of all kinds paid or granted with respect to the 2017 financial year to the executive corporate officers of
ESI Group pursuant to Article L. 225-100 of the French Commercial Code.

COMPENSATION PAYABLE OR GRANTED FOR THE 2017 FINANCIAL YEAR TO MR. ALAIN DE ROUVRAY, CHIEF EXECUTIVE OFFICER

Components of the compensation

Amount or accounting
valuation submitted for
approval

Description

Fixed compensation

€350,109

Variable annual compensation

€42,172

Long term or deferred
compensation

Exceptional compensation

Attendance fees

Stock-options and performance
shares

N.A.

€10,000

N.A.

Benefits in kind

€152,298

The fixed compensation payable to Mr. de Rouvray as Chief Executive Officer in respect of the
2017 financial year amounts to $400,000 (unchanged compared to 2016). This compensation
equals €350,109.

The amount of the variable annual compensation payable to Mr. de Rouvray is limited to 50% of
his fixed compensation.
The variable compensation payable to Mr. de Rouvray as Chief Executive Officer with respect
to the 2017 financial year amounts to $48,181 which equals €42,172, representing 24.1% of the
maximum compensation.

No long term of deferred compensation was granted by the Board of Directors.

No exceptional compensation was granted by the Board of Directors.

The attendance fees amount to €10,000, this amount is unchanged compared to the 2016
financial year.

No stock-options nor performance shares were granted by the Board of Directors.

These benefits in kind include an allowance for vehicle of $24,000 and a housing allowance of
$150,000. The total amount is $174,000, unchanged compared with the 2016 financial year, and
equals €152,298.

Severance pay

Retirement compensation

Non-compete compensation

Supplementary retirement plan

N.A.

Mr. de Rouvray is not a beneficiary of any severance pay.

Mr. de Rouvray is not a beneficiary of any retirement compensation.

Mr. de Rouvray is not a beneficiary any non-compete compensation.

Mr. de Rouvray is not a beneficiary of any supplementary retirement plan.

COMPENSATION PAYABLE OR GRANTED FOR THE 2017 FINANCIAL YEAR TO MR. VINCENT CHAILLOU, CHIEF OPERATING OFFICER

Components of the compensation

Amount or accounting
valuation submitted for
approval

Description

Fixed compensation

€198,550

Variable annual compensation

€30,850

Long term or deferred
compensation

Exceptional compensation

Attendance fees

Stock-options and performance
shares

Benefits in kind

Severance pay

Retirement compensation

Non-compete compensation

Supplementary retirement plan

N.A.

€6,000

N.A.

€7,908

N.A.

The fixed compensation payable to Mr. Chaillou as Chief Operating Officer in respect of the 2017
financial year amounts to €198,550 (unchanged compared to 2016).

The amount of the variable annual compensation payable to Mr. Chaillou is limited to 60% of his
fixed compensation.
The variable compensation payable to Mr. Chaillou as Chief Operating Officer with respect to the
2017 financial year amounts to €30,850 which equals 25.7% of the maximum compensation.

No long term of differed compensation was granted by the Board of Directors.

No exceptional compensation was granted by the Board of Directors.

The attendance fees amount to €6,000, this amount is unchanged compared to the 2016
financial year.

No stock-options nor performance shares were granted by the Board of Directors.

The benefits in kind include an allowance for vehicle of €7,908.

Mr. Chaillou is not a beneficiary of any severance pay.

Mr. Chaillou is not a beneficiary of any retirement compensation.

Mr. Chaillou is not a beneficiary any non-compete compensation.

Mr. Chaillou is not a beneficiary of any supplementary retirement plan.

ESI GROUP • 2017 REGISTRATION DOCUMENTCORPORATE GOVERNANCE
Compensation paid to the Executive corporate officers

COMPENSATION PAYABLE OR GRANTED FOR THE 2017 FINANCIAL YEAR TO MR. CHRISTOPHER ST.JOHN, CHIEF OPERATING OFFICER

Components of the compensation

Amount or accounting
valuation submitted for
approval

Description

Fixed compensation

€177,650

Variable annual compensation

€29,681

Long term or deferred
compensation

Exceptional compensation

Attendance fees

Stock-options and performance
shares

N.A.

The fixed compensation payable to Mr. St.John as Chief Operating Officer in respect of the 2017
financial year amounts to €177,650 (unchanged compared to 2016).

The amount of the variable annual compensation payable to Mr. St.John is limited to 62% of his
fixed compensation.
The variable compensation payable to Mr. St.John as Chief Operating Officer in respect of the
2017 financial year amounts to €29,681 which equals 27.0% of the maximum compensation.

No long term of differed compensation was granted by the Board of Directors.

No exceptional compensation was granted by the Board of Directors.

M. St.John is not a member of the Board of Directors.

No stock-options nor performance shares were granted by the Board of Directors.

Benefits in kind

Severance pay

Retirement plan

Non-compete compensation

Supplementary retirement plan

€37,488

The benefits in kind include a housing allowance of €37,488.

N.A.

Mr. St.John is not a beneficiary of any severance pay.

Mr. St.John is not a beneficiary of any retirement compensation.

Mr. St.John is not a beneficiary any non-compete compensation.

Mr. St.John is not a beneficiary of any supplementary retirement plan.

SUMMARY TABLE OF COMPENSATION AND STOCK OPTIONS GRANTED TO EACH EXECUTIVE CORPORATE OFFICER, IN €
(TABLE 1 OF AMF RECOMMENDATIONS)

(in €)

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

FY 2017

FY 2016

554,579

610,059

None

243,308

None

74,456

244,819

None

22,206

None

265,235

None

147,950

74,456

268,490

None

147,950

22,206

SUMMARY TABLE OF COMPENSATION DUE AND PAID TO EACH EXECUTIVE CORPORATE OFFICER, IN €
(TABLE 2 OF AMF RECOMMENDATIONS)

Mr. de Rouvray

Salary

Bonuses

Directors’ fees

Benefits in kind

TOTAL

2017

2016

Amounts owed

Amounts paid

Amounts owed

Amounts paid

350,109

42,172

10,000

152,298

554,579

350,109

77,724

10,000

152,298

590,131

362,136

80,394

10,000

157,529

610,059

362,136

63,430

10,000

157,529

593,095

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT2

CORPORATE GOVERNANCE
Compensation paid to the Executive corporate officers

Mr. Chaillou

Salary

Bonuses

Directors’ fees

Benefits in kind

TOTAL

Mr. St.John

Salary

Bonuses

Benefits in kind

TOTAL

2017

2016

Amounts owed

Amounts paid

Amounts owed

Amounts paid

198,550

30,850

6,000

7,908

243,308

198,550

46,225

6,000

7,908

243,308

198,550

53,280

6,000

7,405

265,235

198,550

52,842

6,000

7,405

264,797

2017

2016

Amounts owed

Amounts paid

Amounts owed

Amounts paid

177,650

29,681

37,488

244,819

177,650

48,707

37,488

263,845

177,650

48,840

42,000

268,490

177,650

43,925

42,000

263,575

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

Performance shares granted to corporate officers (list of
names) during FY 2017
No performance shares were granted to corporate officers during FY
2017.

Share subscription or purchase options granted to executive
corporate officers during FY 2017
No share subscription or purchase options were granted to executive
corporate officers during FY 2017.

Stock options exercised by each executive corporate officer
during FY 2017
No share subscription or purchase options were exercised by corporate
officers during FY 2017.

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

Mr. Christopher St.John

No. 6 (July 21, 2016)

Mr. Vincent Chaillou

No. 6 (July 21, 2016)

TOTAL

5,000

10,000

147,950

295,900

2018

2020

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

SUMMARY TABLE OF ALLOWANCES AND BENEFITS FOR EXECUTIVE CORPORATE OFFICERS (TABLE 11 OF AMF RECOMMENDATIONS)

Employment contract

Supplementary retirement plan

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

Executive corporate officers

Yes

Mr. Alain de Rouvray
Chairman and Chief Executive Officer

Mr. Vincent Chaillou
Chief Operating Officer

Mr. Christopher St.John
Chief Operating Officer

Suspended

Yes

ESI GROUP • 2017 REGISTRATION DOCUMENTCORPORATE GOVERNANCE
Information on related party agreements which were signed or continued to exist during the 2017 financial year

2.7. Information on related party agreements which were signed or

continued to exist during the 2017 financial year

2.7.1. Related party agreements falling under the scope of Article L. 225-38 of the French

Commercial Code: Consulting Services Agreement with a Director

It should be noted that on April 15, 2015 the Company and Ms. Cristel
de Rouvray, Director, concluded a Consulting Service Agreement. This
Agreement is regarded as a regulated agreement referred to in Article
L. 225-38 of the French Commercial Code and was earlier authorized
by the Board of Directors held on April 14, 2015. This Agreement was
renewed under the same conditions for the 2016 financial year, and was
reviewed by the Board of Directors held on April 8, 2016.

On the recommendation of the Compensation, Nomination and
Governance Committee held on March 28, 2017, the Board of Directors
held on April 18, 2017 decided to renew the Agreement while modifying
its terms to meet the market conditions. This new Agreement between
ESI North America Inc. and Ms. de Rouvray was signed based on an
estimated maximum annual cost of $ 100,000 for an average of 52 hours
per month.

Following the review by the Compensation Committee held on April 16,
2018, it was recommended to renew the Agreement under the same
conditions for the 2018 financial year. The Board of Directors held on
April 17, 2018 approved this renewal.

The objective of this consulting contract is to entrust to Ms. de Rouvray
specific missions relating to Human Resources, consulting and strategic
management.

Il should be noted that the special report by the Statutory Auditors on
the agreements referred to in Article L. 225-38 of the French Commercial
Code is presented in Section 2.7.3 of this Registration Document and
will be submitted for approval of the General Meeting to be held on
July 18, 2018.

2.7.2. Related party agreements already approved and which continue to exist in the 2017

financial year

No related party agreements authorized by the Board of Directors and approved by the General Meeting in prior years continued to exist in the
2017 financial year.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT2

CORPORATE GOVERNANCE
Information on related party agreements which were signed or continued to exist during the 2017 financial year

2.7.3 Statutory Auditors’ report on regulated agreements and commitments

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 accordance with, French
law and professional auditing standards applicable in France.

(Annual General Meeting for the approval of the financial statements for the year ended January 31, 2018)

To the shareholders,

In our capacity as Statutory Auditors of your Company, 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 Shareholders’ General Meeting.

We conducted the procedures we deemed necessary in accordance with the professional guidelines of the French National Institute of Statutory
Auditors (Compagnie nationale des commissaires aux comptes) relating to this engagement. These procedures consisted in verifying the concor-
dance of the information provided to us with the relevant source documents.

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 agreements and commitments
which had received prior authorization from your Board of Directors.

Consulting Service Agreement with a Board member

• With: Ms. Cristel de Rouvray.

• Nature and purpose: Consulting Service Agreement.

• Terms and conditions: On April 15, 2015, the Company signed a Consulting Service Agreement with Ms. 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 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 Agreement was renewed under the same conditions for the 2016 financial year, and was reviewed by the Board of Directors held on April 8,
2016.

On the recommendation of the Compensation, Nomination and Governance Committee held on March 28, 2017, the Board of Directors held on
April 18, 2017 decided to renew the Agreement for the 2017 financial year based on an estimated maximum annual cost of USD 100,000 for an
average of 52 hours per month.

At January 31, 2018, the annual cost of this contract amounts to USD 93,600.

• Grounds of the interest for the Company: The purpose of this Consulting Service Agreement is to grant to Ms. Cristel de Rouvray specific

missions relating to human resources, consulting, and strategic management.

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 23, 2018

The Statutory Auditors

PricewaterhouseCoopers Audit
Thierry Charron

ERNST & YOUNG Audit
Frédéric Martineau

ESI GROUP • 2017 REGISTRATION DOCUMENT3

CORPORATE SOCIAL, SOCIETAL
AND ENVIRONMENTAL RESPONSIBILITY

CSR awards and commitments

Gaia Index
ESI Group is awarded first prize of the Gaia campaign 2017 for the second
year in a row in the category of mid-cap companies with revenue of less
than €150 million, and keeps its place in the index which singles out the
70 top-rated companies in the CSR domain.

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 medium-sized companies based on their non-
financial performance.

The Global Compact
ESI Group signed the Global Compact (United Nations Global Compact)
and thus undertakes to align its CSR strategy on the 10 United Nations
principles, and to yearly communicate its progress to its stakeholders
through the release of a Communication on Progress (COP). For more
information, visit www.unglobalcompact.org.

3.1. ESI Group policy in terms of social, societal and environmental

responsibility (CSR)

Aware of its responsibility in each of the three pillars of sustainable
development, ESI Group has gradually devised a CSR policy that contri-
butes to shared economic and social development and the preservation
of human equilibrium.

ESI Group’s ambition is to become the leader in Smart Virtual Prototyping,
through a responsible innovation approach. 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 products that are also sustainable, ethical and highly
resource-efficient.

Within the Group, the CSR policy is seen as a genuine corporate
commitment and one that will create value. ESI Group has made a list
of the stakeholders inside and outside the Group on whom it has the
greatest influence: employees, customers, the environment and the civil
society, towards all of whom serious commitments have been made.

This fifth CSR report outlines a wider scope as described in Section 3.1.3.

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 areas 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 environmental responsibility.

12345678 ESI GROUP • 2017 REGISTRATION DOCUMENT3

CORPORATE SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY
ESI Group policy in terms of social, societal and environmental responsibility (CSR)

3.1.2. Our commitments
Divided into four axes and expressed as eight commitments, the CSR strategy aims at ensuring harmonious work conditions 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. The methodology

Data collection and consolidation
Social reporting is covered by an HR officer who works with local HR
representatives. The corporate communication 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 Korea, Thailand and

Vietnam;

• Europe, Middle East and Africa = Czech Republic, France, Germany,
Italy, Netherlands, Russia, Spain, Sweden, Switzerland, Tunisia and the
United Kingdom.

Scope
In 2017, in keeping with its commitments, ESI Group continued 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 mana-

gement software (called HR-IS, or Human Resources Information
System). Along with this analysis is the annual worldwide survey
initiated in 2014 on the operations, legislation, practices and norms of
the different countries. This gives the Group a reliable, international
picture of all employment indicators. Exceptions remain concerning
the absenteeism rate and the professional training for which not
all subsidiaries are able to report in a sufficiently reliable way, due
partly to terminology and partly to local practices. These indicators
are provided for 97% of the total workforce in 2017 (Sweden, Italy,
Netherlands, Brazil and Russia are not included).

• Scope of environmental reporting:

In 2017, the Company included Switzerland, China and Spain to
expand 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, India, Switzerland, China
and Spain, representing 91% of the total workforce (versus 85% in
2016).

• Scope of societal reporting:

Societal information is provided at a global level, with the reporting
scope covering 100% of our headcount since 2016.

ESI GROUP • 2017 REGISTRATION DOCUMENTCORPORATE SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY
Being a committed employer

3.1.4. ESI Group values
The values of ESI Group infuse this 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 Responsibility and
Energy – anchor the Group’s identity and fit logically together, as can
be seen in the Corporate Social Responsibility actions defined below.

3.2. Being a committed employer

ESI Group aims to be a leading employer among all software 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 collaborative

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 flexibility to the organization. It also
promotes better use of resources by focusing on skills, to encourage
a more involved, multi-disciplinary managerial culture. The platform
provides an ongoing view of changes in employment indicators and
makes it possible to drive our resource needs more easily.

A selection of employment indicators is provided monthly to the
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.Ds from prestigious universities and institutes worldwide.

In addition to the close relationship that the Group has always had
with these schools, there are a number of other factors that exemplify
ESI’s commitment to value employees’ experience and foster highly
qualified recruitment and internal development. These factors include
ESI’s positioning in the field of virtual simulation that takes into account
the physics of materials, the Group’s prominence as a publicly listed
company on the Paris stock exchange, the Group’s continuing education
programs, and its focus on internal promotion at an international level.

Data related to headcount is calculated on the number of employees
as of January 31, 2018.

CHANGE IN HEADCOUNT OVER THREE YEARS

1,238

1,202

1,190

1,153

1,144

1,054

Full time equivalent
Headcount as of 01/31/N+1

2015

2016

2017

The Group’s total headcount includes permanent and fixed-term
employees as well as those on student contracts such as work/study
programs and internships. It does not include temporary workers,
consultants and external distribution networks. At January 31, 2018, the
ESI Group workforce consisted of 1,238 employees, compared to 1,190
at January 31, 2017, and included eight employees from acquisitions
over the period. The average headcount in 2017 was 1,202 employees,
compared to 1,153 in 2016.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT3

CORPORATE SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY
Being a committed employer

The percentage of the Group’s workforce on permanent contracts was
93%. Limited employment contracts such as internships, apprentice-
ships and short term contracts accounted for 7% of the total workforce
compared to 5.2% in 2016.

In 2017, 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

Human resources are ESI’s greatest source of value. Developing talent is
key to ensuring the Group’s long term sustainability. To meet the ever
more complex issues manufacturers face, and to remain on the cutting
edge of technological innovation, the Group must build employee
loyalty and continuously enhance employees’ expertise.

construct appropriate local and/or global training plans that meet the
needs of a changing business. These performance reviews also represent
the opportunity to identify the Company’s high potentials and put in
place individual development plans. Additionally, this system provides
support for certain employees via a Performance Improvement Plan.

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.

Finally, the transformation of the Group and its new solutions focused
on Hybrid Twin™, in connection with ESI’s core business, provide an
opportunity to develop and expand the trades and skills of the existing
teams, and to recruit new talents directly related to these new concepts.

Recruiting and retaining talent
The Group pays special attention to the onboarding of new hires
through an induction program managed locally. 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 individual access to a unique
level of information to support them in their first days, weeks and
months at ESI Group.

In 2018, a corporate induction program will also be launched. A pilot
project has been tested in April bringing together new employees from
France and Germany who have been hired since the beginning of 2018.
The objective of this program is to give to all Group newcomers a more
in-depth knowledge about ESI organization, values, and challenges. It
also provides an opportunity to meet with top management in person
and to interact with colleagues from different countries.

The Group has also defined an internal mobility program, integrated in
the performance assessment tool, enabling each employee to express
their motivations and thereby highlight their skills and expertise by
applying for positions available within the Group, linked with needs and
projects of the customers.

Professional development and career management
The Group has an individual performance and development review
process that calls for at least one performance assessment per year
between an employee and his or her supervisor. The objective is to
evaluate the past year objectives, set new ones for the coming year and
also to build a personal development plan.

The initial phase of integrating digital annual performance and develop-
ment reviews started in the Americas, Europe and India in 2017. Asia has
been integrated later for the fiscal year 2018, mainly for language issues.

In 2017, 81.4% of employees achieved a performance review on the new
online tool (excluding Asia).

This new phase in the performance evaluation process aims to enhance
annual feedback by promoting data exchange, monitoring and archiving,
especially for remote teams. It also provides better access to perfor-
mance data, employee satisfaction, and professional training objectives
to foster a more proactive career management.

These performance reviews are the means for collecting information
as training needs and development plans, and they make it easier to

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 November 2017, a Virtual
ESI Campus has been implemented in the corporate intranet: it enables
all ESI employees to have access to various trainings. The objective is to
democratize the access to training and to support employees to acquire
new skills and to develop competences on a common basis.

In 2017, 587 employees, or 47% of the workforce, received trainings, at a
cost to the Company of €352,000.
In total for 2017, 16,676 training hours were provided, or an average of
28.4 hours of training per employee trained.

A key priority on the leadership skill has been identified by the top
management in 2017 and pursues in 2018.

Actions towards apprenticeship
Numerous partnership agreements have been signed with universi-
ties and engineering schools that allow ESI Group to play an active
role in the training of young people. In EMEA, we can highlight the
École Centrale de Paris (France), the Technical University of Dresden
(Germany), the University of West Bohemia (Czech Republic), ENIT of
Tunisia, with which ESI Group has special arrangements.

The universities of Alabama, Shanghai and Beijing, along with the
Indian Institute of Sciences among others, work closely with ESI in the
Americas and in Asia-Pacific.

The Chair created in 2013 with the École Centrale de Nantes, France,
enables for the first time in 2017 to offer to young searchers to contri-
bute to a research project between the school, ESI and a customer or
partner. In February 2018, the Group announced the launch of a 5-year
joint research program with the CEU Cardenal Herrera University
(CEU-UCH) in Valencia, Spain. This kind of partnership, supported by
our Scientific Department, will be launched in September 2018 with
the creation of the ESI Chair in the ENSAM, a French engineering school
internationally reputed and structured in network.

Additionally, the Group is very involved in working with young graduated
and integrated 46 students in 2017 (44 interns and two apprentices).

Well-being at work
The Group is aware that improving conditions at work has a direct
impact on the well-being, effectiveness and motivation of employees
and that it significantly improves the Company’s overall performance.

Various initiatives have been launched in different countries in recent
years to enhance employee well-being, under the responsibility of the
local Human Resources Departments and working with employee repre-
sentative bodies such as the Health, Safety and Working Conditions
Committee (CHSCT) in France.

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At the end of 2017, the Group’s employees implemented relaxation
sessions on the French site of Rungis. Among the benefits, there are
a better stress management, an improvement in productivity or the
development of positive thinking. 10% of the total employees in Rungis
has already attended to a session.

The majority of projects carried out for our customers are completed
in-house, meaning 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.

Moreover, ESI enables its employees to work remotely in numerous
countries. For example, France is currently working on a home office
charter and the right to disconnect.

3.2.3. Promote diversity and multicultural exchanges

Through the "Global" value of the Group, diversity is emphasized as it
allows to enrich the organization of a 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 create a modern and efficient
work environment to better serve its international customers. ESI
Group endeavors to boost its expertise all the time by bringing in top
talent from around the world.

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

2016

56.4%

32.5%

11.1%

2016

24.9%

19.0%

16.6%

10.3%

6.2%

23.0%

2017

56.9%

32.6%

10.5%

2017

25.7%

19.9%

16.6%

9.9%

6.1%

21.8%

EMPLOYEE DISTRIBUTION BY REGION

Europe, Middle East and Africa

Asia-Pacific

Americas

Note: Among the 56.9% of employees located in the Europe, Middle East and Africa region, 55.1% are located in Europe.

EMPLOYEE DISTRIBUTION IN THE MAIN COUNTRIES

France

India

Germany

United-States

Japan

Others

GENDER BREAKDOWN

79.4%

79.2%

77.0% 76.2%

86.1% 85.1%

80.3%

79.4%

20.6%

20.8%

23.0%

23.8%

13.9%

14.9%

19.7%

20.6%

Americas

Europe, Middle East and Africa

Asia-Pacific

Total

Women 2016

Women 2017

Men 2016

Men 2017

The percentage of women among permanent employees was 19.5%,
which is relatively low and unchanged from previous years. This low
representation is due to the small number of women in engineering
schools, which are our main source for recruiting, as well as socio-
geographical disparities that can sometimes conduct to a lower rate of
women activity.

Nevertheless, our professional HRs are aware of the need to improve
women ratio and carefully consider female candidates whenever the
Group is hiring. In 2017, 57 women joined the Group, which represents
27% of total new recruits, higher compared to 2016 (25%).

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT3

CORPORATE SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY
Being a committed employer

Principles of non-discrimination
The Group complies with laws and regulations banning any form of
discrimination based on age, race, gender, ethnicity, nationality, religion,
health, disability, marital status, sexual orientation, political or philoso-
phical opinions, trade union affiliation or any other aspect protected by
local legislation. Furthermore, the Company does not tolerate any form
of sexual, physical or moral harassment, coercion 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 14.2% are women, a slight
increase compared to 2016 (13.9%).

The Ethics Committee (composed of two women and three men) also
ensures that none of the above discrimination is made within the Group
(see 3.5.2.).

Inclusion of employees with a disability
The Company has taken steps to ensure that employees with a disability
have access to all advertised positions.

Since the beginning of 2017 at its Rungis site in France, the Group works
with Cèdre, for the selective sorting, a 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 workplace and company produc-
tivity. In addition to complying with regulatory requirements, healthy
employer-employee dialogue improves the Company’s performance
in both of these areas. A strong relationship between employer and
employees is guaranteed through frequent exchanges between the
Group’s management and the employees plus their representatives.
The employee representative bodies are appointed in accordance with
the applicable laws in their respective countries. We have six employee

representative bodies in France and one in Vietnam. These employee
representatives involved 27 employees who actively participated to
meetings in 2017.

Summary of agreements

• Summary of collective agreements: the French subsidiary signed a
variety of agreements with its employee representatives, such as the
reduced workload agreement, the profit-sharing agreement and the
Company savings plan agreement;

• Summary of agreements relating to health and safety: no company

signed an agreement in this regard.

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 intranet to teach new
employees about the Group and its structure and values, and also to
provide access to the information they need to help their integration
go smoothly.

Chatter, an internal social network, allows all employees to share ideas
and inform each other about a wide range of topics. Multiple commu-
nication initiatives are available to strengthen information sharing and
cohesion within the Group, such as global presentations, monthly
newsletters, Flash Corporate News, Flash HR News and corporate or
product webinars.

The Skype for Business tool is implemented in all subsidiaries and
enables employees to easily share information and organize meetings.

Corporate events are also organized to allow the management from
different entities to meet and exchange on the Group's strategy.
Management meetings are organized twice a year, as well as a Kick
Off Meeting dedicated for sales and marketing. The team of Product
Development and Engineering organizes once a year an Engineering
Management Meeting, a one week seminar where key managers and
experts can meet.

3.2.4. Other indicators

ESI Group reports on other employment indicators required by Articles
L. 225-102-1 and R. 225-104 to R. 225-105-2 of the French Commercial
Code.

Work schedules
In 2017, 4.7% of the total workforce was part-time; additionally, 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.
In the great majority of its subsidiaries, ESI Group offers its employees
flexible work schedules. In some countries, particularly Japan, schedules

are set to meet the requirements of the job but are limited to eight
hours per day. In France, work hours are organized based on working
days or according to a fixed schedule. An employee who is under a
working days basis works a defined 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:

• Employees who work on a full-time and on a working days basis work
217 days per year, plus one extra day for France’s “national solidarity
day”;

• For some other employees they work an average of 37-hours per
week with 10 days of RTT (day off) per year for a full-time employee.

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Employee distribution per activity

Workforce breakdown by age

Cost of sales Licensing

Cost of sales Consulting and
Support

Research and Development

Sales and Marketing

General and Administrative

Licensing

2016

9.3%

21.3%

34.4%

23.0%

11.9%

2017

8.8%

20.3%

36.1%

23.4%

11.5%

These teams are made up of engineers in charge of providing customers
with technical support, distributing software and handling royalties on
third-party products.

>60 years old

56 to 60 years old

51 to 55 years old

46 to 50 years old

41 to 45 years old

36 to 40 years old

31 to 35 years old

26 to 30 years old

21 to 25 years old

<21 years old

Research and Development

Women

Men

112

129

175

198

156

0 1
0

120

160

200

240

These teams are made up primarily of highly-educated engineers; their
expertise and experience are key to the Group’s added value.

R&D teams are primarily located in India, France, Germany and the
United States.

Sales and Marketing

These teams include, at the central level:

• Product Marketing;

• Marketing and Communication;

• Business development for the sale of products and related services in

the deployment phase.

At the distribution level:

• Pre-sale support;

• Direct sales;

• Operational marketing;

• Customer support.

Consulting

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 customers 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.

The average age of employees is 38.8 (female employees: 36.9 and
male employees: 39.3).

ESI Group is compliant with laws promoting hiring and retaining people
regardless of age. As such, 14.8% of employees are aged 50 or more, i.e.
183 people worldwide (158 men and 25 women).

Of those aged 50 and older, 68.9% are located in Europe, compared to
21.3% in Americas and 9.8% in Asia.

In addition, 39.8% of Group employees are under 35, which contributes
to youth employment overall. In 2017, 74.7% of employees hired were
under 35.

Workforce breakdown by length of service

Women

Men

>26 years old

21 to 25 years old

16 to 20 years old

11 to 15 years old

6 to 10 years old

1 to 5 years old

104

<1 year old

150

100

41
50

131

117

200

375

100

150 200 250 300 350 400

The average length of service in the Group is 7.6 years. This is relatively
high for the dynamic sector of technologies and computing (source:
Society for Human Resource Management study, 2015).

The average length of service for employees over the age of 35 is
11.1 years.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT3

CORPORATE SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY
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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

2015

182

2016

120

32(1)

22(1)

197(1)

(1) Employees from acquisitions have been integrated in 2016 figures to have a relevant comparison for the turnover rate between 2017 and 2016.

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

2015

2016

158

143

2017

144

209

2017

112

167

In 2017, ESI Group hired 136 employees on permanent contracts, or 65%
of recruitments. The eight employees incorporated over the course of
the year due to mergers are integrated in the recruitments, which was
not the case in previous years.

The departure rate of permanent employees in 2017 was 9.4% [(number
of permanent contract departures/total headcount in permanent
contract) x 100] compared to 8.0% in 2016.

The 2017 turnover rate in permanent contracts was 10.8% [(Number
of permanent contract departures throughout the year N + number
of permanent contract recruitments throughout the year N)/2]/total
headcount in permanent contracts of the year N] and was 9.3% in 2016.

The formulas have been changed for a more accurate vision.

Absenteeism
Absenteeism is monitored locally in accordance with the regulations
in force in the various countries where ESI Group is present. The Group
does not have a standardized system in place to manage absences
across all of its subsidiaries.

However, while taking into account the variety of laws and the numerous
particular factors considered by countries in terms of absenteeism as
well as local management of this information, ESI Group has chosen to
extend the definition of absenteeism to the following circumstances:

• Short-term absence of an employee due to illness (less than

20 business days);

• Long term absence due to illness (more than 20 business days);

• Leave granted to parents following the birth or adoption of a child in

their household (maternity and paternity leave);

• Parental leave granted to parents so that they can raise their young
children (the legal duration of this leave varies according to local
laws);

• An accident that befalls an employee while performing his or her job

or during job-related travel (workplace and travel accidents).

All countries reported their absenteeism data, except Sweden, Italy,
Netherlands, Brazil and Russia. The Group’s intention is to be able to
measure the impact of these days of absence on the employment
of staff so as to make the necessary corrections to our procedures,
working conditions and, if necessary, internal safety procedures.

BREAKDOWN OF ABSENTEEISM (in % of total days worked)

Illness (< 20 days)

Long term illness (> 20 days)

Maternity leave

Paternity leave

Parental leave

Leave for personal reasons

TOTAL

16%

22%

35%

100%

The absenteeism rate is stable in France at 2.37% in 2017 compared to
2.3% in 2016.

In 2017, absences related to birth, adoption, or raising of one or more
children represented 64% of absences within the selected parameters.
This can be partly explained by the high proportion of employees under
the age of 40 years old within the Company.

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Being an outstanding partner

Health and safety
ESI Group has set an objective to provide high-quality welfare coverage
for all its employees throughout the world with regard to healthcare,
aging, disability and death.

Nine countries out of 14 offer their employees to finance a local
healthcare insurance in compliance with regulations and employees
well-being. Some countries, such as India, now offer a medical check-up
once a year to their employees.

Compensation policy
To attract and retain the best talents on the market, ESI Group offers
an attractive compensation and benefits package. This policy aims to
recognize employee talents by rewarding both individual and collective
performance.

The compensation of employees comprises both direct and indirect
elements. The latter includes deferred cash or in-kind additions to their
monthly compensation (bonuses, commissions, savings plan, benefits,
etc.).

All the countries in the employment reporting scope offer their
employees indirect compensation.

In Europe and the Americas, six subsidiaries have created an employee
savings program.

A corporate mutual fund (called FCPE) for employee shareholders was
set up in France in 2013 to collect future profit-sharing amounts and
voluntary contributions within the Company savings plan. This FCPE
allows employees to buy Company shares, with the employer matching
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, 2018, the FCPE owned
31,000 Company shares.

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 processes safely? How can an organiza-
tion 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 requirements are met?

To meet its customers’ demand for ever more innovative products, the
Group offers Virtual Prototyping solutions that save manufacturers
and their subcontractors significant 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 virtual simula-
tions as of the preliminary design phase, during detailed design phases,
and throughout the product lifecycle, and also to approve the perfor-
mance 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 the first
time. Following the acquisitions of innovative companies in the last
years, in new technologies such as Artificial Intelligence, Big Data, or
Internet of Things, ESI Group is now able to represent the connected
product as used in its operational environment, meaning after its launch
on the market. This Hybrid Twin™ targets product predictive perfor-
mance and maintenance, to optimize repairs, facilitate certification
update, and minimize recalls. Once the brand-new product is “right the
first time” thanks to its pre-certified Virtual Prototype, it must be kept
right when in-Service, and perform right in real life with its connected
and operationally assisted Hybrid Twin™.

A comprehensive approach to quality
In 2000, ESI Group obtained its first ISO 9001 certification, followed
by the independent certification of its subsidiaries, so as to guarantee
the quality of its products and services and ensure client satisfaction.
Since 2010, ESI Group has extended the scope of its certification using
a global 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 solutions 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 2017, the global certification applied to 95% of the workforce, up
from 88% in 2016.

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 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, ESI China, ESI Italia
and ESI Hispania. 2017 also proved to be very successful with the inte-
gration of two new entities – ESI ITI (in Germany) and ESI UK (in United-
Kingdom) – and for the implementation of the new ISO 9001:2015
standard, and the rollout of the risk-based approach in the different
entities of the Group. ESI Group’s objective is to have full global certi-
fication 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 continues to evaluate and improve its
processes. Within the Company, certification calls on employees to
actively engage in an overall consistent management system.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT3

CORPORATE SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY
Being an outstanding partner

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 2017, this represented 43 persons for a total of 86 hours of training.

ESI Group has also undertaken an ISO 27001 certification project, and
is implementing an information security management system, which
through appropriate risk management will ensure the confidentiality,
integrity and availability of information.

3.3.2. Building 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 subcontractors. In
this regard, the subcontractors are subject to the same rules and verifi-
cations 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 provided. A list of approved suppliers is made available for this
purpose on the intranet and updated periodically.

Relations with our business partners
The Group 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 Group is committed to providing quality products
and services that meet the needs of its customers. Purchasing decisions
are based on an objective assessment of the reliability and integrity
of the supplier or subcontractor, as well as on the overall appeal of
their offer in relation to short- and long term aims and considerations.
In order to protect the Company’s interests, goods and services are
purchased based on price, quality, performance, delivery, and suitability
criteria.

In 2017, the Group added the environmental criteria to select its
suppliers and subcontractors, effective in 2018. ESI Group also takes
care not to become dependent on suppliers or subcontractors.

Finally, the Company requires its suppliers and subcontractors 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 institutional partners and with the
administration. No financial or in-kind gratuities may be given with a
view to obtaining an advantage, nor may such gratification be received
to benefit a company or person.

Therefore, it is prohibited to 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 obtaining
favorable treatment or influencing the outcome of a negotiation
involving the Company. If an employee makes facilitation payments or
influence-peddling in the course of their professional activities, he is
likely to be subject to criminal penalties and its contract of employment
will be terminated. Moreover, ESI Group is prohibited from directly or
indirectly receiving, giving, promising or soliciting facilitation payments
or influence-peddling undue benefits with a view to granting, obtaining
or maintaining a contract or any other advantage.

In the Ethics Charter, the section on Business Ethics has been reinforced
pursuant to the French law “Sapin II”, which makes compulsory the
prevention of corruption for companies with more than 500 employees
and €100 million of revenues. A training for managers will be imple-
mented in the course of the year 2018 to sensitize them on this topic.

Fraud and money laundering
Fraud and money laundering are processes that disguise the illegal
origin of money, typically related to criminal activity. The Group’s Ethics
Charter stipulates that ESI Group complies 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, especially concerning
partners whose business conduct may raise suspicion.

The internal control mechanism is particularly vigilant about warnings
(false invoicing, market price for equivalent services, etc).

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 arrange-
ment – formal or informal – or attempt to enter into arrangements
with competitors which seek to fix prices or conditions of sale, to share
a market or to boycott a particular market actor, for example in the
course of meetings of professional organizations or associations.

Furthermore, the Group refrains from abusing a dominant 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.

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Being an environmentally friendly player

However, the products developed by ESI Group are used to bring to
market innovative products, more performing, at a lower cost and with
greater reliability. The Group’s Virtual Prototyping solutions enable it
to satisfy its customers’ main needs, and so the consumers’ demands,
namely to:

• Identify challenges in terms of safety and performance early in the

design cycle;

• Assess ways in which new materials and manufacturing processes will
impact the overall performance of the product and its operation;

• Predict the performance of equipment used in extreme conditions

and anticipate any necessary adjustments.

Virtual Prototyping gives manufacturers a “live” and comprehensive
vision of problems in relation to manufacturing, assembly and
coupling between the characteristics of different products and their
performance. It provides vital information during the successive itera-
tions of the design phase, and offers the privilege of anticipating the
results of physical tests, allowing the necessary changes to be carried
out before the actual manufacture of a product. For example, using
Virtual Prototyping to design airbags or carrying out an in-depth study
of advanced driver assistance 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
sales of 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 regulatory requirements;

3.4.1. Overall environmental policy

• Limiting the environmental impact of our global offices.

Scope adopted: France, Germany, Czech Republic, Japan, United States,
Tunisia, India, Switzerland, China and Spain.

ESI Group believes that environmental responsibility should be a priority
for all companies, and strives to reduce its environmental impact both
directly and indirectly.

The main environmental challenges facing the Group are:

1. External, to help customers significantly reduce their environmental
footprint by providing solutions allowing for the realistic simulation
of the behavior of a product throughout the design, manufacturing
and assembly cycle;

Given the limited industrial and environmental risks inherent to the
Group’s operations, costs related to the assessment, prevention and
treatment of industrial and environmental risks are immaterial. As all
Group sites are leased, building improvement costs are borne entirely
by the owners. Accordingly, ESI Group does not have full control over
these aspects.

Moreover, no provisions or guarantees for environmental risks were
recorded in the Group’s 2017 consolidated financial statements.

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 industrial or
environmental risks liable to have a significant impact on its assets or
earnings. Most of its assets being intangible in nature, ESI Group believes
that its environmental footprint is very small.

Continuously raising employee awareness
For ESI Group, implementing an environmental policy only makes sense
if all of the Group’s employees are involved. That is why the Group
constantly strives to raise its employees’ awareness of measures taken
to avoid wasting energy, and thereby to reduce its environmental
impact.

An Environment, Health and Safety Charter applied in France must be
extended to the entire Group.

3.4.2. Solutions to help reduce our environmental footprint

From the outset, by developing innovative Virtual Prototyping products,
ESI Group has sought to measure the impact of its solutions on society.
Indeed, ESI’s solutions enable reductions in the number of physical
prototypes, which are costly and require large amounts of energy, raw
materials and time, and bringing more environmentally friendly produc-
tion to the market.

Tighter regulations on greenhouse gas emissions and recycling requi-
rements, 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
innovation. All the sectors where ESI Group operates are working to
improve their environmental performance by manufacturing more
environmentally friendly products, developing more ecological manu-
facturing processes, and reducing or eliminating physical prototypes.

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By successfully combining advanced manufacturing processes with the
most innovative materials, such as composites, ESI’s solutions bring
customers the following advantages:

• Reduced time-to-market: with ESI Visual-Environment, the Korean
group Hwaseung R&A could virtually simulate assembly of the trunk
seal and reduce the development time of their products, and thus
their time-to-market.

• Reduced total product weight: using ESI’s Virtual Seat Solution, the
company Expliseat has developed the lightest seat ever certified
by the European Aviation 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% reduction in fuel usage, saving $300,000 to
$500,000 per aircraft per year.

Recently, the French automotive manufacturer start-up Gazelle Tech
has developed a lightweight vehicle (one third of the usual weight)
with an energy consumption reduced by half thanks to the use of
ESI Virtual Performance Solution. Also, the time to market has been
reduced by eliminating physical prototypes.

• Reduced waste associated with prototyping and manufacturing:
with ESI Group solutions, Patriot Foundry & Castings, a specialized
manufacturer of parts in bronze-, aluminum- and zinc-based alloys,
reduced its scrap rate by 98% in casting a gearbox part.

• Improved useful life of products: the creation of a Hybrid Twin™ based
on the virtual prototype to recreate the behavior of a windmill in
operation and in its environment helps to ensure the maintenance
and to reduce its cost (-47%). The predictive maintenance and the
repairs optimization allow an increased reliability of windmills.

• Reduced gas emissions: the European target to reduce 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 viable fabrication and
assembly processes.

• Reduced energy consumption: by properly managing and optimizing
the office temperature control system developed using Scilab Cloud,
Sanofi was able to reduce its energy consumption by 15%.

• Improvement of the security: Boeing was nominated for the Green
Cross Safety Innovations Awards for their work with ESI virtual reality
software IC.IDO, which helps them to identify and mitigate security
risks before the manufacturing of engines.

As such, ESI Group’s digital prototypes can significantly reduce
consumption of raw materials and energy and help achieve compliance
with environmental standards for new products as shown in these
examples. Furthermore, the new Hybrid Twin™ offer of the Group targets
product predictive performance and maintenance, to optimize repairs,
facilitate certification update, and minimize recalls.

3.4.3. Limiting the Group’s environmental impact

3.4.3.1. Use of resources and measures to reduce

consumption

Energy consumption
In 2017, electricity consumption on the Rungis site totaled 644,184 kWh,
an average of 4,504.8 kWh per employee. This increase of 51% is partly
due to the obsolescence of the building. This is one of the reason
which motivated the move of the Rungis office, that will occur in the
course of the year 2018 in a HQE certified building. Thus, a better energy
consumption management can be possible. On the Ter@tec campus
where ESI has been involved since 2012, the installation of the PoD in
2016 (Point of Delivery – a high-density mobile data center that can
house up to 3,500 server nodes) increased the energy consumption
(+24% in 2017). The energy consumption in the Group’s headquarters,
located in Paris, decreased by 13.3%. Electricity 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 2,579.0 kWh for
the sites in Germany, the Czech Republic, India, Tunisia, Spain and China,
representing a slight decrease of 3.8% compared to 2016. 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
as the facilities are leased. Energy usage is included in the utility

fees, which include factors other than electricity, and is re-evaluated
annually. The comparison of energy consumption on the Japanese site
is not available this year due to the move of the offices.

Within the 2017 reporting scope, ESI Group uses renewable energy
production at its Swiss site, where hydropower is used for electricity.
The Swiss office is located in a Minergie-certified building. Minergie is
a Swiss association whose objective is to reduce energy consumption
in buildings by proposing rational energy consumption and the use of
renewable energies.

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 upgrades of certain workspaces in France, the
Group has given preference to lighting with low power consumption,
removed hot water tanks from restrooms, and refurbished air conditio-
ning systems. Motion sensors have been installed for lighting systems
in Tunisia, in San Jose in the USA, and also in ESI Software in Germany.

Furthermore, an energy audit has been realized in 2017 on the three
German sites of the Group, in Neu-Isenburg, Stuttgart and Dresden. The
result shows that the sites are good energy quality.

It should be also noted that the Spanish office in Madrid is part of a
LEED (Leadership in Energy and Environmental Design) certification
project, led by the owner.

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Being an environmentally friendly player

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

PAPER CONSUMPTION PER EMPLOYEE (in number of reams of 500 sheets)

3.0

2.7

2.1

1.7

1.9

1.7

1.6

1.5

1.4

1.2

0.9

1.0

0.7

France

Czech Republic

Germany

United-States

Tunisia

Switzerland

Spain

India

China

2016

2017

For all data studied (with the exception of Japan), average paper
consumption in 2017 was low and stable with about 1.9 ream of paper
used per employee. The paper consumption is higher in France due to
the strong presence of support services in this country.

ESI Group also continues its electronic documents program by
implementing IT tools and processes to reduce the use of paper and
energy consumption related to printing. Dematerialization has been
established for many documents, including travel orders, leave requests
and offer reviews. The invoices and purchase order processing is done
via a tool called Yooz. In addition, SharePoint, a Cloud-based service for
electronic document archiving and storage, was installed 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 evaluations were also performed electronically in 2017
using the Loopline Systems tool.

Finally, the use of a new local printing and delivery tool, called Gelato,
allows subsidiaries to locally order the necessary quantity of documents
they need. Ultimately, this tool saves paper by printing on demand,
which allows ordering only what is needed and on a local basis.

Water consumption
The software publishing business is not very water-intensive 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 consump-
tion 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
information (the Rungis site in France, ESI Mecas in the Czech Republic,
ESI GmbH in Germany, the two sites in India and the Chinese site) water
consumption decreased by almost 2% in 2017, with average consump-
tion of 5.3 cubic meters per employee (versus 5.4 cubic meters in 2016).

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

Combating food waste
Non applicable. ESI Group does not manage company restaurants
directly.

3.4.3.2. Waste management and pollution

Treatment and recycling of waste
Due to its activity, ESI Group mainly produces non-hazardous waste, as
well as paper, cardboard and plastic. To the best of its knowledge, the
Group does not generate any hazardous waste, except waste electrical
and electronic equipment (WEEE).

In 2014, recycling bins were introduced on the Lyon site, the second
biggest site in France, as it was done in 2013 on the Rungis site. Thus
almost 100% of the French workforce 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 collects and manually sorts
office paper into five categories to optimize recycling. In 2017, 696 kg
of waste were recovered by Cèdre in the French site of Rungis in which
545 kg of papers, equivalent in environmental benefits to 10 saved trees,
16,350 water liters saved and 300 kg of preserved CO2.
All the German, American, Czech, Japanese and Swiss 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 electrical and elec-
tronic 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.

In France and the United States, end-of-life or obsolete hardware is
collected by an authorized provider that manages the processing of
electronic waste. In Germany, the cleaning and facilities management
department, in coordination with the IT departments, is tasked with
collecting used electronic equipment. Waste management is then
passed on to the local authority of each city.

Furthermore, on request to our supplier in France, printer cartridges are
collected and recycled via a completely ecological chain.

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Lastly, in the entire environmental scope, except Tunisia, ink cartridges,
batteries, defective light bulbs and fluorescent tubes are recovered by
our various suppliers. Containers are available to staff for this purpose
in offices.

Measures to reduce discharges into the air, water and soil
ESI Group’s software publishing activity has very limited impact on
the air, water and soil compared to other industrial activities requiring
heavy production work.

Noise pollution and other types of pollution linked to activities
The majority of ESI Group’s activities are not a source of noise pollution.
The only facilities that generate noise liable to affect the vicinity are
data centers, the two main ones being located in France. To protect
employees authorized to enter computer rooms, the Group provides
anti-noise headphones.

A memo governing working conditions in computer rooms is given to
employees with access to such areas in the course of their duties.

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). A car policy is also
defined in the German site of Neu-Isenberg. 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 in different locations without requiring them to travel. Some
meeting rooms are also equipped with audio and/or video conferen-

cing systems to facilitate remote meetings. Also, all workstations are
equipped with the Skype for Business software allowing online audio
and video meetings up to 250 persons. In 2017, an average of 116 audio
meetings, lasting about 40 minutes on average, were organized within
the Group per day using Skype for Business.

Emissions associated with Group employees
In 2017, emissions resulting from business travel by French, American
and German (two entities out of three) employees by train and by air
totaled 1,687.5 kg per employee, an increase of 26% compared 2016. In
2017, the Group engaged a restructuration and an alignment of its teams,
which led to an increase of travels in order to optimize this transforma-
tion, and ensure the success of the five-year strategic plan of the Group
called “Objective 2020”. It should be noted that five members out of
eight of the Group Executive Committee are based out of France. The
Group also intensified its participation to international events, which
led to an increase of travels. It is worth noting that this data is provided
by travel agencies that manage the Group’s travel reservations. Any
reservations made by employees themselves are not included.

In 2017, 45 employees in France had a company car, along 31 in the Czech
Republic, 52 in Germany, and six in Spain. There were no company cars
in the United States, India or Tunisia. In Japan and China, only one
person had a company car. The granting rate of company cars is higher
in Germany due 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 173,479 kg or 3,855 kg per company car, a 8.4% increase compared
to last year.

Overall, business travel by French employees generated 576.5 metric
tons of CO2 in 2017, a slight increase of 6% per employee.
As for company cars in the Czech Republic, the estimated emissions in
2017 were 99,786.4 kg of CO2, an average of 3,219 kg per car, a 4% increase
compared to 2016. Lastly, for Germany, vehicle emissions fell almost
11%, after a decrease of 9% last year.

Among the measures implemented over the past few years, the
adoption of Gelato in the beginning of 2017 helps to avoid 149,000 km,
a diminution of 70% of the past shipping distance for the delivery of
our documents.

3.5. Serving civil society

Partnerships are an integral part of the Group’s strategy to facilitate and
promote Virtual Prototyping while acting sustainably:

• The total transparency to all of its stakeholders;

• Meeting the demands of the final consumer;

• Boost innovations and establish partnerships with the academic and

scientific communities;

• Act ethically and responsibly.

Exemplary corporate conduct and excellent relationships with all stake-
holders are, for the Company, the foundation necessary for balanced
and durable growth. For this reason, ESI Group is especially attentive to
the following points:

• The innovation in partnerships with the academic and scientific

communities;

• Supporting regional development by encouraging local recruitment

and partnerships;

• The support for innovation through co-creation projects.

The Group considers its main stakeholders to be its employees,
customers, suppliers, and industry and academic partners, but also its
investors and shareholders.

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Innovation, which is at the core of ESI Group’s business, is also a key
issue of CSR. Innovation continually improves production processes
and shortens the design period and the time it takes to develop more
efficient and more reliable new products.

facturers – to develop a safer, more efficient and more environmentally
friendly product, faster and at a lower cost. The innovative Virtual
Prototyping solutions offered by ESI Group allow us to approach these
ever-present economic goals.

To remain at the leading edge of innovation, the Group invested 33%
of its Licensing revenues in R&D in 2017. Innovation makes it possible to
resolve the multiple constraints and pressures that weigh on all manu-

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 excellent rela-
tionships with the various members of the digital community, including
those in industry, academic institutions and voluntary associations. It
does so in order to facilitate collaboration and thus to foster industrial
innovation.

The Company is an active member of the Board of Directors of TECH IN
France (formerly AFDEL, the French association of software publishers),
which helps promote the software publishing industry and develop
digital simulation, 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 clusters, principally in
France. These clusters provide the proximity needed for collaborative
work with major industrial players and research and development
organizations in order to bring highly innovative products to market.
Located all over France, these organizations are as follows: Aerospace
Valley (Toulouse), ASTech Paris Région (Ile-de-France), Nuclear Valley
(Burgundy), Mov’eo (Normandy and Ile-de-France), I-Trans (Nord-Pas-de-
Calais and Picardy), iD4CAR (Brittany and Pays de la Loire), Systematic
(Ile-de-France), Minalogic (Grenoble and Rhône-Alpes), Pôle Pégase
(Provence-Alpes-Côte d’Azur) and Pôle ViaMeca (Auvergne-Rhône-
Alpes). Since 2013, ESI Group has had a presence on the campus and
the Board of Directors of Ter@tec, Europe’s largest intensive computing
center, based at 20 km of the Saclay platform in Ile-de-France, alongside
the CEA (the atomic and alternative energy commission), a major player
in research, development and innovation. Today, ESI Group is involved
in several collaborative projects under the leadership of the System X
IRT.

ESI Group is also a member of the Executive Committee of the
Systematic Paris Region Competitiveness Cluster and of AS Tech Paris
Region, two local competitiveness clusters with a global influence,
which anime the collaborative research in the Ile-de-France ecosystem,
respectively in the digital sector and the aerospace industry.

As a pioneer in innovation in the automotive sector, the ID4CAR cluster
has appointed Vincent Chaillou, Chief Operating Officer of ESI Group,
as the new President of ID4CAR in February 2018, after a regular atten-
dance to its Board of Directors since 2012. The aim of this cluster is to
increase the competitiveness of the sustainable vehicles and transpor-
tation sector in western France through innovation.

ESI is also 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 automo-
tive applications and supported by PSA. This initiative is supported by
the Union des industries et des métiers la métallurgie of Ille-et-Vilaine
and Morbihan (UIMM 35-56), for the purpose of stimulating the auto-
motive industry in Brittany around PSA Rennes, which has announced

its strategic plan for the coming years. ESI participates in the 3DMat
innovation platform specifically for developing a digital simulation
and Virtual Prototyping channel for new multi-material and composite
architectures, with priority given to the automotive industry.

Again in the transportation sector, ESI is an active member of IRT
Railenium whose main mission is to lengthen the lifecycle of railways
infrastructure and capitalize on the rapid international development
of its new products. Involving a broad consortium of manufacturers
and research organizations, in 2011, ESI Group was selected by the
Investissements d’Avenir (Grand Emprunt) Program.

ESI also assists the mechanical engineering field and promotes its
activities. The Company is a member of the Board of Directors of the
Association Française de Mécanique (AFM), a body for information,
dialogue and discussion for the mechanical engineering community
(industry professionals and technology transfer organizations, teachers
and researchers) and representing French mechanical engineering to
its foreign counterparts. In the field of aeronautics, ESI actively parti-
cipates in initiatives from the Council for Civil Aeronautics Research
(CORAC) undertaken as part of the Plan d’Investissement d’Avenir. In
2014, ESI was invited by the seven top French aeronautics companies,
which are members of GIFAS, to join the Usine Aéronautique du Futur
(Aeronautics Factory of the Future) platform as an associate member.
This major initiative was launched to transform production facilities
in the fast-moving aeronautics industry, which must deal with an
unprecedented 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 manufacturing of large composite materials.

ESI also participates in other CORAC plans, like those for the DEPACE
platforms for the Composite Aircraft of the Future, the SEFA platform
to develop the Cockpit of the Future, and the plans for the Helicopter
of the Future, in order to strengthen French excellence in these fields. In
this way, ESI helps to make commercial aircraft cockpits safer and more
comfortable, and thus keep cost margins under control for manufactu-
ring important parts in helicopter transmissions boxes.

Since 2013, several initiatives have emerged to design 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 Industrielle, a national initiative, and contributes, on this basis,
to the work of the Alliance pour l’Industrie du Futur. Vincent Chaillou is
the representative of the TECH IN professional association of software
publishers on the Board of Directors of the Alliance Industrie du Futur
since August 2015.

Thereby, ESI contributes to several working groups that focus, in parti-
cular, on developing and promoting key technologies of the Industry
4.0.

ESI Group has coordinated the “Promotion of Existing Technological
Supply” group since its creation. In this regard, the Group is working
with its peers to structure and circulate the French supply, in particular
by jointly creating with the French Chamber of Commerce and Industry

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the first national directory of Suppliers of Solutions for the Industry
of the Future (Offreurs de Solutions Industrie du Futur – OIF). This
tool will boost the technological supply and its deployment within
the industry both in France and internationally. Through its action in
this working group, ESI Group has also contributed to launching the
Créative Industrie trademark in partnership with Business France. ESI’s
IC.IDO virtual reality solution was selected to illustrate the Value Chain
Digitalization Technologies trademark when it was launched by the
current President of the Republic of France, Emmanuel Macron, at the
Hannover Messe in April 2016.

ESI is also a player of the Alliance for the industry of the future for
the development of key technologies for the industrial transforma-
tion. Thus, ESI is the top-tier partner of the SOFIA program aiming to
develop the additive manufacturing sector in France (Solutions pour la
Fabrication Industrielle Additive métallique). The additive manufactu-
ring, a numerical process, gives an essential role to Virtual Prototyping,
which positions naturally ESI as a key player of this sector.

Regionally, ESI Group is part of the Aerocampus Aquitaine Cluster which
is the first European expert’s network that answers the training needs of

companies in the aeronautic and aerospace sectors. The Aerocampus
training center uses ESI IC.IDO, ESI’s virtual reality solution, together
with the Institute of Aeronautic Maintenance (IMA).

ESI Group has worked with the Nouvelle-Aquitaine Regional Council
to create the “SMART 4D” simulation community within the Digital
Aquitaine cluster. 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 community dedicated
to simulation, HPC, virtual prototyping and immersive experience to
support industries and future applications.

Relations with customer-partners
The Group’s success also stems from an approach based on close colla-
boration with world leaders in each sector where the Group is active,
including Renault-Nissan and Volkswagen in the automotive industry, or
Boeing and Airbus in the aeronautic industry.

By building strong relations with large industrial firms, the Group
can perfectly match their Virtual Prototyping needs. These strategic
partnerships help the Group’s customers assess their innovation requi-
rements and implement them jointly with ESI Group.

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 applied internally. This Ethics Charter reaffirms
the legal, regulatory and internal provisions relating to the respect of
fundamental rights at work, professional integrity, the elimination of
discrimination, and the prohibition of child labor and forced labor. It is
based on the observance of the ethical rules promoted by the conven-
tions of the International Labor Organization. The Ethics Charter was
disseminated to all employees and is available in six languages on the
Group’s internal and external websites.

A new version of the Charter will be communicate to all employees
in the course of the first 2018 semester. This version strengthens the

Group’s position on corruption, facilitation payment and other frauds,
in the context of the French law “Sapin II”.

Ethics Committee
A five-member Ethics Committee was formed to make sure the Ethics
Charter is applied properly.

The Ethics Committee is responsible for creating an environment
where employees can adhere to the Ethics Charter and ensure that its
principles are upheld by everyone, every day. The Committee listens
to and assists employees so that they can discuss any issue involving
the implementation 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 regularly, at least once a year, to discuss ethics
issues and come up with corrective measures, if necessary.

ESI GROUP • 2017 REGISTRATION DOCUMENTCORPORATE SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY
Report of the inspecting organization

3.6. Report of the inspecting organization

Year ended January 31, 2018

To the shareholders,

Following the request made to us by ESI Group and in our capacity as an independent third-party organization accredited by Cofrac under No. 3-1081
(scope available at www.cofrac.fr), we submit to you our report on the consolidated Corporate Social Responsibility information presented in the
management report written with regard to the period ending January 31, 2018 pursuant to Article L. 225-102-1 of the French Commercial Code.

Company responsibility
It is the duty of the Board of Directors to prepare a management report including the consolidated Corporate Social Responsibility information
referred to in Article R. 225-105-1 of the French Commercial Code (hereinafter the “Information”) and prepared in accordance with the guidelines
(the “Guidelines”) used by the Company and available on request at the Group’s registered office.

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 policies and procedures to ensure compliance with ethical
standards, professional standards and applicable laws and regulations.

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 Commercial 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.

Attendance certificate

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 between March 23, 2018 and May 14, 2018 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.

We conducted four 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, comprehensibility and reliability, taking into

consideration best practices, if any, in the sector;

• Verify the implementation within the Group of a process for collecting, compiling, processing and checking the CSR Information with regard
to its completeness and consistency. We reviewed the internal control and risk management procedures relating to the preparation of the CSR
Information.

We identified consolidated information to test and determined the nature and extent of tests, taking into account the importance of the infor-
mation in question in relation to the social, societal and environmental consequences of the activity and the characteristics of the Group, its CSR
objectives and best practices in its sector.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT3

CORPORATE SOCIAL, SOCIETAL AND ENVIRONMENTAL RESPONSIBILITY
Report of the inspecting organization

For the CSR Information we judged to be most important at the level of the consolidating entity, we:

• Consulted the documentary sources and conducted interviews to corroborate the qualitative information (organization, policies, actions, etc.);

• 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) that consisted of verifying the calculations made and comparing them with the data in the supporting

documents, and we verified their consistency with the other information contained in the management report.

For the other consolidated CSR Information, we judged its consistency in light of our knowledge of the Company.

Finally, we judged the validity of any explanations given as to the total or partial absence of certain information.

It is our belief that the sampling methods and sample sizes we used in exercising our professional judgment allow us to draw a conclusion of
moderate assurance. A higher level of assurance would have required a more extensive review.

Our work covered 60% of the consolidated value of the numerical indicators in the employment portion and 50% 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.

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 16, 2018
Finexfi
Isabelle Lhoste
Partner

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

ESI GROUP • 2017 REGISTRATION DOCUMENT4

MANAGEMENT
REPORT

Fiscal year 2017 (ended January 31, 2018)
In accordance with Article L. 451-1-2 of the French Monetary and Financial
Code, this chapter includes the Board’s Management Report to the
Combined General Meeting of July 18, 2018. This report accounts for the
Company’s activities during the 2017 fiscal year (ended January 31, 2018),
including the result of these activities and the Company’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 and opportunities.”

The report on corporate, social and environmental responsibility is
reproduced in full in Chapter 3 of this document.

Information on the Company’s share capital, stock options and free
shares grant plans, and the transactions on the Company’s shares are
included in Chapter 7 of this Document.

4.1. Business activities during the 2017 fiscal year

4.1.1. Highlights of the 2017 fiscal year

Financial data
The operational performance over the year is significantly impacted
by the transformative actions implemented to successfully deploy the
new value proposition of the Group that addresses the emerging needs
of our clients. This proposition is tied to the Outcome Economy and
the Industry 4.0, drivers of unprecedented and accelerated changes in
the economic and competitive context for manufacturing industries.
It positions the Group as a catalyst and solution integrator of our
customers’ digital transformation as they apply our multi-domain
Virtual Prototyping solutions.

To consolidate our solutions, adapt our sales strategy and build
methodological support teams for customers, we have implemented
an active investment policy and a deep operational reorganization. Our
disruptive solutions enable our customers to reduce time-to-market
for innovative and more performant products in operation, targeting a
“zero physical tests” methodology.

Structural changes
On February 24, 2017, ESI Group acquired 100% of the capital of Scilab
Enterprises.

The Group also bought out minority interests of ESI Software Germany,
increasing its shareholding to 100%.

2017, a year of transformation

Continued integration of new technologies as part of ESI’s
Product Performance Lifecycle™ approach
The acquisition in early 2017 of Scilab, publisher of an open source
numerical analysis software and recognized internationally by a
community of over one million users, constitutes a powerful vector for

increased visibility and democratization of the Group’s approach. By
consolidating its position in the pre-project design phase, the segment
on which Scilab is focused, ESI seeks to harness its Hybrid Twin™ solution
to provide manufacturing businesses with complete control over their
products entire lifecycle, including anticipation of wear and tear for
predictive maintenance and repairs, beyond design, manufacturing and
regulatory certification of the product “as brand new”.

Continued restructuring of the organization in line with the
new value proposition
A number of significant milestones in the Group’s “Objective 2020”
five-year plan were achieved in 2017. The plan aims to align the business
and executive management around the Group’s new value proposition
underpinned by the Product Performance Lifecycle™ concept and the
Hybrid Twin™ solution. The management organization is now re-struc-
tured around three business pillars, namely: Engineering (design and
development of industrial products), Manufacturing (fabrication of
products) and In-Service (usage, piloting and maintenance of products
from launch to repair and ultimate withdrawal), in line with the demands
of Industry 4.0, the Smart Factory and the Outcome Economy.

This fundamental transformation, which has impacted our short-
term sales performance, aims to bring the sales force in line with the
operational support requirements of industrial clients via a regional
local coordination structure based around customer account managers
focused on value selling, and technical sales engineers to foster accele-
rated technical and methodological change.

Strengthening of the Group Executive Committee
To provide effective support for this operational governance strategy,
the Group has appointed Angelita Reyes as Group Human Resources
Director and member of the Group Executive Committee.

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MANAGEMENT REPORT
Business activities during the 2017 fiscal year

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)

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

2017

135.3

105.7

29.5

97.8

72.3%

12.1

9.0%

9.2

6.8%

8.1

6.0%

2.4

1.8%

Variation at actual
currency rate

Variation at constant
currency rate

-3.8%

-2.4%

-8.4%

-5.1%

-33.7%

-40.2%

-41.1%

-68.4%

-2.0%

-0.5%

-6.9%

-3.1%

-28.3%

-34.0%

-34.9%

-60.5%

2016

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%

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

depreciation.

4.1.2.1.2. General information

Sales evolution
Full-year sales declined by 2.0% to €135.3 million at constant exchange
rates. There was a negative Forex impact over the year of €2.5 million,
mainly reflecting the depreciation of the Japanese yen – and to a lesser
extent the US dollar.

The product mix shifted towards Licenses, which contributed 78% of
total sales, compared with 77% last year.
Revenue from Licenses declined by 2.4% year-on-year to €105.7 million
but remained stable at constant exchange rates. A lower share of
revenue from Paid-Up licenses (“PUL”) in 2017 represents a stronger
base in future contract renewals. The performance of New Business
was stable at constant exchange rates at €17.8 million, compared to
€17.9 million for 2016 (€17.6 million at constant exchange rates).
Services revenues declined by 8.4% to €29.5 million for the year in the
wake of the exceptional performance in Japan in 2016.

ESI’s geographic sales mix reflects the slight drop in business in Asia
which now contributes 38% of total revenues against 39% last year. The
contribution of the Americas and Europe remained stable over the year
at 16% and 46% of sales, respectively.

Gross margin evolution

Gross margin came in at 72.3%, compared to 73.3% in 2016, showing a
decrease attributable to a change in the services delivered. In 2016 there
were several one-off projects in Japan that had a positive impact on
margin. Also, the volume of Special Projects increased in 2017. These
projects are at the core of the innovation using new technologies
developed by the Group and have the objectives of co-creation with
customers and intellectual property development. Gross margin for
Licenses remained stable year on year at 85%.

Continued investments and impact of transformation plan actions

Within the scope of the strategic transformation plan, investments
in R&D were maintained at a high level and grew 6.7% on the year to
€34.9 million (€32.7 million in 2016). These considerable investments
reflect the efforts undertaken to develop the Group’s new disruptive
technology offering underpinned by the Hybrid Twin™ approach. These
investments represented 33.0% of Licensing revenue, compared to
30.2% in 2016. Once the French R&D tax credit and capitalized develop-
ment costs are taken into account, total R&D costs recorded in the P&L
amounted to €28.7 million, an increase of 6.5%.
The adaptation of sales and marketing strategy helped to enhance the
sales force and the visibility of ESI Group. The process of bringing the
sales force into line with our value proposition and the operational
support requirements of customer account managers and technical
sales engineers led to changes at local level and this impacted sales
performance for the year. S&M costs, which totaled €41.4 million (vs.
€41.8 million in 2016), i.e., 30.6% of revenues, do not properly reflect
these investments as they include the reversal of provisions for doubtful
receivables, particularly in China.
G&A costs amounted to €18.5 million (compared to €18.9 million in 2016)
and represented 13.7% of revenues. Expenditure was contained while
ensuring that the Group has a solid distribution network and larger
offices for local support teams specialized in new technologies to
develop and grow.

Impact on profitability indicators
EBITDA fell from €18.3 million to €12.1 million, giving an EBITDA margin
of 9.0% for the year, compared with 13.0% in 2016. This drop is a result
of the transformation plan which weighed on growth, and increased
investments in R&D.
Current operating profit was €9.2 million, representing a current
operating margin of 6.8%, or €6.2 million less than last year.

ESI GROUP • 2017 REGISTRATION DOCUMENTMANAGEMENT REPORT
Business activities during the 2017 fiscal year

Interest rate 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
Cash position at January 31, 2018 amounted to €15.7 million. At January 31,
2017, it amounted to €14.1 million, made up of cash assets of €14.5 million
less €0.4 million bank overdraft. The €+1.7 million increase over FY 2017
can be explained by the flows listed below.
Operating cash flow came to €4.7 million compared to €10.5 million for
the previous fiscal year. This change of €-5.8 million is primarily due to:
• A decrease in EBITDA of €-6.2 million;
• An impact of the financial result on cash flows of €-0.8 million
compared to €-1.6 million last year, which is an improvement of
€+0.8 million. Interest paid on loans remained stable at €-1 million,
moreover, foreign currency transactions generated a profit of
€+0.2 million against a loss of €-0.6 million in 2016;

• An increase of €-0.2 million in taxes paid.
Variation in working capital requirement (WCR) amounts to €+7.4 million,
which is an increase of €+8.9 million compared to previous year-end
resulting mainly from increased collection from customers. Net cash
from operating activities stands at €12.1 million, which is a €3.0 million
improvement compared to 2016.

Current capital expenditures paid by the Company amount to
€3.6 million, compared to €2.3 million for previous fiscal year. ESI has
made investments in new premises, particularly in Japan.

The main financing flows were related to the yearly reimbursement of
the syndicated loan for €-4.5 million. Financial debts increased due to
factoring of the French R&D tax credit for 2016 for €2.4 million. The use
of revolving credit decreased to €6.0 million against €8.0 million at the
end of 2016. Overall, financial debts decreased by €4.3 million.

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 increased by €5 million. This evolution is explained
by the net impact of capitalization of development costs which
impacted fixed assets by €3.2 million and the factoring of French R&D
tax credit for 2016 which increased non current assets by €2.4 million;
• Financial debts decreased by €4.3 million, mainly due to the
annual repayment of the syndicated loan (€4.5 million). In addition,
€6 million of the revolving line of credit has been used at closing
date, compared to €8 million last year, and the Group contracted a
new factoring debt for its 2016 French R&D tax credit for €2.4 million.

Equity stood at €101.5 million, up due to the net profit for the year.
Net financial debt totaled €31.9 million. Gearing (net financial debt
to shareholders’ equity) represents 31.4% of equity, versus 37.6% at
January 31, 2017.
Cash and cash equivalents stood at €15.7 million.
At January 31, 2018, ESI Group also held 6.8% of its equity in treasury
shares.

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.

4.1.3. Research and development

4.1.3.1. Research and development costs
Research and development investments are recorded as soon as they
are incurred. These costs amounted to €34.9 million in 2017, an increase
of 6.7% compared to the previous year. These considerable investments
reflect the efforts undertaken to develop the Group’s new disruptive
technology offering underpinned by the Hybrid Twin™ approach.
The capitalization of development costs had a €+3.2 million impact on
the income statement in 2017.

Research and development (R&D) policy
The Edition Department in charge of R&D delivers products in line with
the Group's strategy and market needs. It also seeks to maintain the
competitive edge of ESI Group's solutions, focusing on:

• Generic analysis and simulation tools needed to approach the market

(Analysis Tool);

• Business solutions that provide realistic physical modeling properties

via simulation tests;

A breakdown of the expenses is provided in the note 6.1.2. to the conso-
lidated financial statements.

• Component lines to manage processes and best practices by indus-

trial segment or multi-model design (Virtual Component);

• Systems involving component chains or mechatronic systems and

sub-systems (Virtual System);

12345678 ESI GROUP • 2017 REGISTRATION DOCUMENT4

MANAGEMENT REPORT
Business activities during the 2017 fiscal year

• Complete prototyping lines covering all aspects of the virtual
engineering process in line with the customer's product lifecycle
management process, providing optimization and 3D visualization
capabilities and assisting in the local, departmental, or global deci-
sion-making process;

• Comprehensive, “living” virtual prototyping platforms that support
all product modules and customer processes and that improve the
customer's products performance cycle.

The R&D policy supports:

• The business model in an effort to adapt the changes in how products
are used and to push boundaries for new computer platforms (GPU,
SaaS, Cloud) or platforms in development with a view to upgrading
the installed base;

• Product improvements with a view to expand the installed base or

winning over new customers with existing products;

• New products with a view to encourage our customers 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 increasing research
contracts with leading customers in order to ensure the viability of
these new tools, and where applicable, to increase the chance of
commercial success.

The Products Direction also maintains a technology watch in support
of all products.

The Edition Operation follows an approach that is both specific and
generic in nature to meet different goals:

• Ensuring generic products and components to meet multiple needs
in multiple industrial segments and to support developments of
services, customers, or 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 comprehensive virtual proto-
typing platform that makes it easy to take needs into account for
specific applications or custom services.

The Edition Operation continues to partner actively to ensure:

• The identification of technologies, acquisition targets, 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);

• A rapid industrialization for optimal market introduction.

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 international 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 performed 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 products represent either
software integrated within the Company’s offering (for which repla-
cement solutions could be obtained in the event that the third-party
software is discontinued) or complementary solutions. These latter
solutions are not, however, critical to the operation of the Company's
software.

Furthermore, some of the Company’s subsidiaries own patents.

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 and/
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;

2. Amounts billed to direct customers for software licensing and/or

services, in territories not covered by its subsidiaries;

3. Management fees billed to subsidiaries as compensation for ESI

Group oversight responsibilities;

4. Self-created assets stemming from research and development work.
The operating result for 2017 is a profit of €1.3 million compared to a
profit of €3.2 million for the previous year.

ESI GROUP • 2017 REGISTRATION DOCUMENTMANAGEMENT REPORT
Business activities during the 2017 fiscal year

This decrease of €3.2 million is explained in the table below:

(in € thousands)

Operating profit

Decrease in revenue

Decrease in inventory

Increase in net impact of capitalization of development costs (capitalization and amortization)

Decrease in external expenses

Increase in salaries and social charges

Change in provisions for contingencies and risks (operating result)

Other change

TOTAL CHANGE

2017

1,296

2016

3,192

Change

(1,896)

(429)

(1,044)

513

467

(867)

(496)

(40)

(1,896)

The financial result is a profit of €2 million compared to a loss of €2.5 million in 2016. 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

Dividend ESI Japan Ltd

Other financial income (expenses)

TOTAL VARIATION

January 31, 2018

January 31, 2017

(544)

(840)

(456)

3,921

(77)

2,004

(230)

(484)

(868)

(827)

(83)

(2,492)

Current income before tax is a profit of €3.3 million, compared to
€0.7 million in 2016.
The Company has also recorded €0.02 million of exceptional loss.
The Company recognizes a profit on income tax of €2.2 million,
compared to €1.7 million in 2016, which corresponds to corporate tax
expense of €0.5 million, to French R&D tax credit of €2.6 million and to
CICE tax credit of €0.2 million.
Net profit stands finally at €5.5 million, compared to €1.6 million in 2016.
Equity rose by €6.4 million, from €91.2 to €97.6 million due to:
• Net income (+€5.5 million);
• Capital increases after the exercise of stock options (€+0.6 million);

• Changes in regulated provisions (€+0.3 million).
The main changes in the balance sheet over the fiscal year are described
below:
• Fixed assets increased by €2.8 million, from €121.9 million to
€124.7 million, due mainly to an increase in capitalized development
costs for €4.3 million and a decrease in receivables related to equity
investments for €1.8 million (exchange rate effect);

• Financial debt decreased by €6.9 million, from €46.7 million to
€39.8 million. This corresponds to the annual syndicated debt
repayment of €4.5 million and to a lower use for €2.0 million of the
revolving credit line.

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, 2018, the
balance of ESI Group's liabilities to its vendors breaks down as follows:

Invoices Issued (Customers)
(in € thousands)
Installment payment

Number of related invoices

Total amount of the invoices (all taxes includes)

Percentage based on total of revenue of the year
(all taxes included)

Number of invoices excluded related to doubtful receivables
or not yet issued

Total amount of invoices excluded related to doubtful
receivables or not yet issued

0 day
(indicative)

1 to 30 days

31 to 60 days

61 to 90 days

91 days
and more

Total
(1 day and more)

32,005

37.04%

5,887

1,643

1.90%

1,074

1.24%

2,009

705

14,189

770

18,915

2.32%

16.42%

21.89%

2,430

12345678 ESI GROUP • 2017 REGISTRATION DOCUMENT4

MANAGEMENT REPORT
Outlook

Invoices Received (Suppliers)
(in € thousands)
Installment payment

Number of related invoices

Total amount of the invoices (all taxes includes)

Percentage based on total of expenses of the year
(all taxes included)

Number of invoices excluded that are related to bad debts
or debts not invoiced or recorded

Total amount of invoices excluded that are related to bad
debts or debts not invoiced or recorded

0 day
(indicative)

1 to 30 days

31 to 60 days

61 to 90 days

91 days
and more

Total
(1 day and more)

102

734

1.15%

1,010

1.59%

1,266

823

17,322

985

20,333

1.99%

27.17%

31.90%

4,065

6.38%

13,096

Reference terms of payment used are contractual terms.

Terms greater than 91 days are debts to Group subsidiaries.

Two branches are integrated within ESI Group’s financial statements;
details are shown in Note F.3 to the financial statements.

4.1.4.2. Allocation of profits
Situation at January 31, 2018:
• Net profit for the year: €5,546,967.47;

4.2. Outlook

4.2.1. Subsequent events

• Profit carried forward: €32,548,508.07;
• Total to be allocated: €5,546,967.47.
Allocation:
• €7,335 to the legal reserve;
• €5,539,632.47 to profit carried forward.
Following this allocation, the legal reserve stands at €1,804,932.60,
representing 10% of share capital. Profit carried forward stands at
€38,088,140.54.

In March 2018, ESI announced the promotion of Christian Matzen
as Executive Vice-President “Sales and Marketing” (EVP S&M), GEC
member, and the promotion of Dominique Lefebvre as Director of
Edition Product Operations and its integration in the GEC. These
executive corporate management changes followed the appointment

of Angelita Reyes as the Group Human Resources Director at the end of
2017. The evolution of the Group Executive Committee aims at aligning
the strategic vision with the new value proposition, founded on the
Hybrid Twin™.

4.2.2. Business trends

2017 was a year of transformation that featured major strategic invest-
ments and a reorganization around three pillars. It represented an
essential milestone, before a better growth momentum as early as 2018.
The impact of this transformation is based on the value creation and
the credibility of our solutions, clearly confirmed by our relations with
our innovative customers and partners.

Structuring ESI’s offer development around the three pillars of our core
activities will enable it to leverage all of the strength of its two historic
core businesses – Engineering and Manufacturing – in order to provide
industrial clients with Virtual Prototyping solutions for developing
and manufacturing industrial products. The French vehicle manufac-
turer startup Gazelle Tech is a pioneering high potential example. It
succeeded in developing its concept of “sustainable mobility for all”
with ESI’s Integral Virtual Prototyping solutions, by designing, certifying
and producing, in less than three years, a vehicle which is intended for
the emerging countries market.

Throughout the year 2017, ESI also strengthened its collaboration with
AP&T, the hot forming systems builder. Initially a supplier of individual
tooling software for virtual testing, ESI has progressively emerged as a
strategic partner for AP&T, enabling the Company to meet Industry 4.0
challenges for the manufacturing of its smart assembly lines with an
Integral Virtual Prototyping solution; chaining the virtual tests that now
replicate each individual step in the manufacturing process.

The third core activity – In-Service – couples Big Data and Artificial
Intelligence to complement the Virtual Prototype with collected data
in operation (IoT) and enriched by Machine Learning. This pillar is the
catalyst for the new value proposition. This sets ESI well apart based on
its ability to partner with clients throughout a product’s entire lifecycle,
including in its “as used” state after it has been put on the market.

At this stage of its development, thanks to the high growth potential
of its market, ESI Group has the essential assets it needs to successfully
realize its vision and the adoption of its new value proposition.

ESI GROUP • 2017 REGISTRATION DOCUMENTMANAGEMENT REPORT
Internal control and risk management procedures

4.3. Internal control and risk management procedures

4.3.1. 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 activities run
efficiently, that objectives are met and that the Group's control system
is effective, executives are determined to harmonize the operational
rules of the subsidiaries. This also applies to internal control activities
and is reflected in the gradual standardization of information systems
and processes throughout the organization. This is facilitated by the
fact that the subsidiaries' business activities are similar to those of the
parent company, ESI Group, as regards the distribution of products.

Given current constraints, particularly regarding the size of the subsidia-
ries, available human resources and regulations that differ from country
to country, the Group’s structure is based on the following key factors:

Board Retreat

The Board Retreat takes place once a year to bring together 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 during 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 corporate governance bodies.

The 2017 Board Retreat took place in August, and the 2018 meeting is
planned in July.

Operational departments

• A matrix-based structure organized around business activities and

markets that ensures Group-wide sharing of information;

These departments primarily supervise business processes and manage
projects.

• 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 following 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 over-
seeing the various business activities and countries, as well as any
applicable laws and regulations and the Company's core values and
internal rules;

• Anticipating and managing risks that stem from the Group's business
activities and risks of error or fraud, especially in the areas of accoun-
ting and finance;

• Verifying that the accounting, financial and management information
reported to corporate bodies, shareholders and third parties accura-
tely 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 initiatives to monitor the effectiveness of
this system. This policy features a system of checks and procedures
regarding financial management, as well as operational and compliance
monitoring.

Group Executive Committee

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

Their role is to oversee the implementation of procedures in order to
guarantee:

• Effective business processes: identification of business opportunities,
distribution network, partnerships, responsiveness, assessment of
potential economic benefits, negotiation and signing of contracts,
profitability monitoring;

• Effective project management: evaluation of technical feasibility,
team management and leadership, compliance with specifications,
customer satisfaction tracking and customer service.

Functional departments

The functional departments are responsible for formalizing internal
control procedures in their respective areas and coordinating and
applying these procedures.

a) Administration and Finance Department

The Administration and Finance Department handles the implementa-
tion of the internal control policy on its financial level by:

• Establishing the operating procedures for the internal control system;

• Holding meetings with the managers of the major business units and
the main entities of the Company to review responsibilities and the
structure of the internal control system across the various businesses.

The Administration and Finance Department comprises the following units:

• Accounting and Consolidation, in charge of:

– Recording transactions on a daily basis,

– Establishing the financial statements of each entity in the Group at

the end of each period,

– Drawing up the Group's consolidated financial statements,

– Ensuring compliance with legal, tax and labor obligations;

• Financial Control, in charge of:

– Preparing and monitoring the budget,

– Issuing periodic reports,

– Internal control on both an operational and financial level;

• Cash management, in charge of:

– Managing cash flows,

– Project financing

– Hedging currency and interest rate risks;

• Information Systems Department (ISD).

12345678 ESI GROUP • 2017 REGISTRATION DOCUMENT4

MANAGEMENT REPORT
Internal control and risk management procedures

b) Legal Affairs Department

• Administer payroll and personnel files;

The Legal Affairs Department is divided into two branches:

• Oversee and manage labor relations;

• The Corporate Legal Affairs branch which is responsible for monito-
ring and streamlining procedures, as well as corporate legal intelli-
gence and coordinating the legal aspects of the operations of Group
subsidiaries;

• The Intellectual Property branch, which reviews, drafts and nego-
tiates various contracts with clients and partners in the industry,
government bodies and academic institutions to ensure that the
Group's intellectual 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 mergers and acquisitions (e.g. corporate audits,
intellectual property audits, participation in acquisition agreement
negotiations).

c) Quality Control Department

Under the supervision of Executive Management, the Quality Control
Department is responsible for implementing the quality control policy
and the corresponding system, in keeping with Group strategy and the
following four pillars:

• Organization and learning: with the global amplification of compe-
tencies of employees to develop talents, encourage leadership and
collaborative management and with the promotion of ESI core values
to leverage the One-ESI culture;

• Internal processes: with a global Quality management to facilitate
harmonization, develop a global risk management framework and
ensure simplification of processes, that improve performance and
effectiveness;

• Clients: meeting the business challenges of customer as they address
the expectations of the Outcome Economy and the Industry 4.0,
focusing on the Product Performance Lifecycle™ through an account
management policy and a value selling approach of our solutions;

• Profitability: an internal organization by Business Pillars (Engineering,
Manufacturing, In-Service) of both EO and FO Business Units that
strengthens the synergies between departments, targeting continual
performance improvement in growth, profitability and sustainability.

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 considerations.

ESI Group's Human Resources policy has four main components:

• Personnel management;

• Performance management;

• Compensation management;

• An advisory function for operational staff.

Personnel management includes the following activities and initiatives:

• Ensure that employment reporting is carried out and produce perfor-

mance indicators;

• Ensure that employees are kept properly informed;

• Ensure that information is relayed to senior management;

• 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 Company's strategy:

• Recruitment: employment management, anticipating skill needs both

qualitatively and quantitatively;

• Training: identifying needs, preparing a training plan and implemen-

ting in-house and external training courses;

• Performance evaluation: employee reviews, personal development

plans, identifying potential, career 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 variable

compensation;

• Overseeing stock option, free share awards and company 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 reported by subsi-

diaries using HR-IS.

Advising operational staff: fostering independence 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 objec-
tives for regional Directors of Human Resources. Regional HR Directors
coordinate implementation of these objectives in collaboration with
a team of HR operating managers located in each country, and with
support from the central HR department.

Third-parties to the Company

Statutory Auditors

The Statutory Auditors, who certify the regularity, truthfulness and the
fair presentation of the financial statements provided to the share-
holders at the balance sheet date, may include in their audit opinions
recommendations regarding the internal control system used to prepare
financial information.

• Ensure compliance with all legal and regulatory requirements;

Legal counsel

The Company calls on renowned law firms for dispute management,
as well as a tax advisory firm. The Company also calls on specialists
from time to time to review the legal aspects of complex mergers and
acquisitions.

ESI GROUP • 2017 REGISTRATION DOCUMENTMANAGEMENT REPORT
Internal control and risk management procedures

4.3.2. 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 efficient 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 areas:

• An organization and network of local financial controllers located in

most of the Group's subsidiaries;

• Centralized tools and databases;

• Processes to organize reporting and control of financial information.

A network of financial controllers
This network makes it possible to cover all aspects of finance at the
local level and to pass the statutory financial information and reporting
data up to central staff.

The financial control system for the Group's subsidiaries is implemented
by a network of some fifteen local financial controllers spread across
three regions: EMEA, Asia and the Americas, each region overseen by a
regional financial controller. Each local and regional financial controller,
while reporting to his or her local manager (the head of the local entity)
from an organizational standpoint, is hierarchically and functionally
attached to the Administration and Finance Department and, ultima-
tely, to the Group Chief Administrative and 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
entity) in order to carry out all local financial control tasks. In the case
of smaller entities, local accounting firms handle daily bookkeeping
under the management of the regional financial manager.

In addition to this network, a central team of six financial controllers is
dedicated to three divisions of the Group, namely Edition, Distribution
and Support.

The management information system
Financial control is based on a management IT system consisting of the
following centralized tools and databases:

• A single sales database (SalesForce) serves as the backbone of the
organization and internal control system for sales. This data flows
into a single financial 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 subsidiaries. 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 consolidation of data relating to salaries
and headcount. In particular, this tool makes it possible to monitor
the different steps in the hiring process and provide managers with

any information necessary to optimize management of their teams.
HR-IS data is included in the source information used for financial
reporting regarding employees.

Main accounting and financial information monitoring
processes
The Group prepares consolidated financial statements on a quarterly
basis. Its revenue is published on a quarterly basis, whereas full financial
statements are published twice a year. A Group-wide budget is esta-
blished at the beginning of each fiscal year and monitored monthly.

Consolidation process
The process of preparing the consolidated financial statements follows
procedures to centralize the accounting and financial data provided by
each entity within the Group. These procedures include:

• A reporting schedule and calendar of tasks to be carried out by the

persons involved;

• Use of a specialized consolidation software;

• A distinction between preparation of consolidated financial
information, performed by the consolidation manager, and control
activities performed by the central financial controllers and the Chief
Administrative and Financial Officer;

• Assistance from accounting experts for some technical issues;

• A review of the interim and yearly financial statements 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 preceding 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 of the year.

Financial Control thus provides key management indicators used to
monitor the Company's performance. These indicators, reported to
executives, provide the information necessary for management of the
Company. They include, among other indicators:

• Backlog in the Licensing and Service activities;

• Production of the Services activity;

• Evolution of in headcount and average personnel costs;

• The cash position and cash forecast until the end of the current year

and for next year at year-end.

In conjunction with the budgeting and reporting process, the Company
has implemented a structure based on Performance Units, each with
a manager in charge of overseeing 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.

12345678 ESI GROUP • 2017 REGISTRATION DOCUMENT4

MANAGEMENT REPORT
Internal control and risk management procedures

Revenue recognition process
The Finance Department is responsible for recognizing revenues and
ensuring:

• Profitability and the risk level of various cash surplus investments;

• Foreign exchange risks, in order to take any necessary corrective

action;

• The consistency between actual revenues and contractual data as

• Implementation of loans necessary for growth of the Company.

regards the Licensing revenue;

• The accuracy of billing information;

• The completeness of the services invoiced, primarily for the Services

revenue.

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

The cash position of each entity is centralized and a consolidated
monthly 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;

• Upstream, by assessing client risk before processing orders;

• Entering payroll information in the accounting system;

• Downstream, through a periodic follow-up procedure suited to each

• Provisioning for paid vacation in order to distribute the expense over

client in order to reduce outstanding debt.

the full year;

Regular monitoring of average payment times makes it possible to
assess how effectively accounts receivable are managed across the
various subsidiaries.

Cash management process
The Chief 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 ongoing business

needs while tracking inflows and outflows;

4.3.3. Risk management

Process management and ISO 9001:2015 certification
ESI Group has been ISO 9001-certified since the 2000’s and has always
oriented its Quality approach to develop a worldwide certification for
the entire Group, thereby aiming to align its business activities under
the same operational criteria for all its subsidiaries. This approach has
recently been supplemented by the transition to the 2015 version, which
is an additional asset to strengthen process management and facilitate
the implementation of risk management, thereby ensuring long term
and effective prevention.

Insurance and risk coverage – general information
The Company has taken out an insurance policy that covers the cost of
information recovery, additional operating costs and operating losses
(loss of profit resulting from the decrease in revenues caused by the
interruption or decline in the Company's business activities) in the
event of direct damage to its equipment.

• Ensuring compliance with labor-related reporting obligations.

For its foreign subsidiaries, damages that would fall under operational
civil liability coverage, including “employer liability” and/or “workers’
compensation” policies and automobile-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 accordance 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 subsi-
diaries (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 • 2017 REGISTRATION DOCUMENTMANAGEMENT REPORT
Table summarizing the results of the past five fiscal years

4.4. Table summarizing the results of the past five fiscal years

Figures presented here below are extracted from ESI Group annual financial statements.

Balance sheet date

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

• via subscription rights

OPERATIONS AND RESULTS

Revenue (excl. tax)

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

Income tax

Employee profit-sharing

01/31/2018

01/31/2017

01/31/2016

01/31/2015

01/31/2014

18,049,326

17,975,976

17,865,216

17,845,266

17,806,896

6,016,442

5,991,992

5,955,072

5,948,422

5,935,632

107,528

175,733

207,080

159,095

178,910

83,883,977

84,313,214

79,156,886

68,487,405

65,743,553

31,555,313

28,651,433

30,414,474

25,228,586

25,909,345

(2,228,379)

(1,669,380)

(2,205,946)

(1,865,499)

(1,427,906)

15,967

Allowances for amortization and provisions

28,762,466

28,688,439

19,916,428

26,012,821

20,703,306

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

Average headcount

Payroll

5,546,976

1,632,374

3,931,981

1,081,264

6,633,945

5.70

0.92

5.06

0.27

4.00

0.66

4.55

0.18

4.61

1.12

243

234

217

212

202

14,766,952

14,159,959

13,203,318

12,446,007

12,200,768

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

6,971,314

6,711,622

6,295,088

5,772,990

5,652,434

12345678 ESI GROUP • 2017 REGISTRATION DOCUMENT5

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

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 €)

Diluted earnings per share (in €)

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.

Note

January 31, 2018

January 31, 2017

105,748

29,100

429

135,277

(37,487)

(28,698)

(41,433)

(18,471)

9,188

(1,108)

8,080

(2,718)

216

5,578

(3,197)

2,381

2,375

0.42

108,316

31,177

1,058

140,551

(37,491)

(26,942)

(41,842)

(18,912)

15,365

(1,644)

13,721

(2,115)

11,695

(3,992)

7,703

180

7,523

1.36

1.35

4.1

6.1.2

3.2.2

7.2

8.1

9.3

January 31, 2018

January 31, 2017

2,381

(1)

(1,544)

(214)

(1,759)

622

671

(49)

7,703

(8)

(481)

(462)

7,241

7,064

178

ESI GROUP • 2017 REGISTRATION DOCUMENT5.1.2. Consolidated balance sheet

Assets

(in € thousands)

ASSETS

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

LIABILITIES

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

TOTAL LIABILITIES

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

FINANCIAL STATEMENTS
Consolidated financial statements

Note

January 31, 2018

January 31, 2017

127,598

122,794

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

9.1

7.1.2

5.3

8.2

7.1.4

7.1.2

10.2.1

10.2.2

4.3

41,026

59,869

4,877

960

10,738

10,015

113

94,641

62,924

11,954

4,043

15,720

222,239

101,482

100,638

18,049

25,782

54,082

2,375

349

844

47,645

34,089

8,798

3,737

985

73,112

13,464

9,968

26,493

591

22,596

227,239

40,810

57,830

4,440

890

10,901

7,900

104,921

74,064

12,273

4,115

14,470

227,715

99,488

98,475

17,976

25,218

45,915

7,523

1,843

1,013

48,766

36,031

8,472

2,963

1,247

79,461

15,805

10,895

29,329

1,042

22,389

227,715

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

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, 2016

5,955,072

17,865

24,938

46,212

1,827

90,842

884

(4)

(2)

180

178

(49)

1,013

(50)

(5)

(55)

(49)

(121)

844

91,727

(8)

(481)

(462)

7,703

7,241

391

(315)

333

111

99,488

(1)

(1,544)

(214)

(1,759)

2,381

622

636

404

499

(236)

101,483

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

Treasury shares

Share-based payments

Transactions with non-controlling interests

36,920

111

280

(8)

(476)

(485)

7,523

7,039

(315)

333

169

AT JANUARY 31, 2017

5,991,992

17,976

25,218

53,438

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

Treasury shares

Share-based payments

Transactions with non-controlling interests

Other movements

AT JANUARY 31, 2018

24,450

563

(1)

(209)

(210)

2,375

2,165

404

499

191

(237)

(9)

1,843

(1,494)

(1 494)

(1,494)

(8)

(476)

(459)

7,523

7,064

391

(315)

333

160

98,475

(1)

(1,494)

(209)

(1,704)

2,375

671

636

404

499

191

(237)

6,016,442

18,049

25,782

56,460

349

100,638

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

ESI GROUP • 2017 REGISTRATION DOCUMENT5.1.4. Consolidated statement of cash flows

(in € thousands)

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 (losses) on sales of assets

OPERATING CASH FLOW

Trade receivables

Trade payables

Other receivables and other liabilities(2)

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(2)

NET CASH USED FOR INVESTING ACTIVITIES

Proceeds from loans(2)

Repayment of borrowings

Proceeds from issue of shares

Purchase and proceeds from disposal of treasury shares

Dividends paid

NET CASH USED FROM FINANCING ACTIVITIES

Effect of exchange rate changes on cash and cash equivalents

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Opening cash position(1)

Closing cash position(1)

NET CHANGE IN CASH AND CASH EQUIVALENTS

FINANCIAL STATEMENTS
Consolidated financial statements

January 31, 2018

January 31, 2017

2,381

(216)

3,905

(3,216)

3,197

(3,492)

1,497

499

4,620

8,261

(837)

7,433

12,053

(512)

(3,067)

(566)

(2,382)

(6,527)

11,409

(15,392)

636

(146)

(121)

(3,615)

(243)

1,669

14,056

15,725

1,669

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

(1) Opening cash position at January 31, 2017 comprised €14.47 million of cash and cash equivalents in assets less €0.414 million in bank overdrafts in liabilities.

Closing cash position at January 31, 2018 corresponds to cash and cash equivalents on the assets side of the balance sheet. There is no bank overdraft.

(2) Refer to note 10.1.1.

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

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

5.1.5. Notes to the consolidated financial statements

Table of contents of notes to the consolidated financial statements

Note 1. Accounting principles
Note 2. Significant events of the year
Note 3. Scope of consolidation
Note 4. Operating data
Note 5. Personnel costs and employee benefits
Note 6.
Intangible and tangible assets
Note 7. Financing and financial instruments

Income tax

Note 8.
Note 9. Equity and earnings per share
Note 10. Other balance sheet items
Note 11. Related party transactions
Note 12. Fees paid to Statutory Auditors
Note 13. Subsequent events

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89
90
91
91
91

Note 1. Accounting principles

Note 1.1. General information
ESI Group is a listed French limited company (société anonyme), regis-
tered in France and governed by French law.

ESI Group has its head office at 100-102, avenue de Suffren, Paris (75015),
France.

ESI Group SA is the parent company of some 30 subsidiaries operating
throughout the world, together comprising ESI Group.

ESI Group is the world's foremost creator of Virtual Prototyping
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 manufacture and test the products of the future, ensuring
pre-certification. Used together with latest-generation technologies,
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 perfor-
mance and anticipate their maintenance requirements.

The Group's fiscal year runs from February 1 to January 31. As such,
FY 2017 ended on January 31, 2018.

Financial statements are presented in thousands of euros. The 2017
financial statements were approved by the Board of Directors on
April 17, 2018 and will be submitted to the General Meeting of July 18,
2018 for approval.

Note 1.2. Accounting standards applied
The consolidated financial statements at January 31, 2018 were prepared
in accordance with the IFRS standards, as approved by the European
Union at January 31, 2018. These standards are available on the European
Union website.

Moreover, consolidated financial statements have been prepared in
accordance with the historical cost method, with some exceptions such
as financial assets and liabilities booked at fair value.

Note 1.3. New IFRS standards and interpretations

New standards, amendments and interpretations effective in
the European Union and mandatory for fiscal years beginning
on or after February 1, 2017
The adoption of the following texts had no significant impact 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 12 – Income Taxes;

• Amendments to IAS 7 – Disclosure Initiatives;

• 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 interpre-
tations not mandatory as of February 1, 2017, in particular the following:

• IFRS 15 – Revenue from Contracts with Customers applicable to fiscal

years beginning on or after January 1, 2018;

• IFRS 9 – Financial instruments applicable to fiscal years beginning on

or after January 1, 2018;

• IFRS 16 – Leases applicable to fiscal years beginning on or after

January 1, 2018.

Regarding IFRS 15, the main focus area for ESI is the recognition method
of revenue related to licensing activity. The Group finalised the analysis
of the impact of the new standards and concluded there will be no
change in revenue recognition method applied until now, as the latter
already met principles of the new standards.

The Group expects IFRS 9 to have a limited impact.

The impact of IFRS 16 on consolidated financial statements is currently
being analyzed.

Note 1.4. Use of estimates and assumptions
Preparation of the consolidated financial statements requires the use of
various estimates and assumptions made by the Group's management.
These estimates and assumptions have an impact on the valuation of
assets and 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 impact of options and
free shares granted to employees, business combinations, revenue
recognition, depreciation of non-current assets, valuation of deferred
tax assets, valuation of derivative instruments, capitalized development
costs, provisions for impairment of doubtful receivables, taxes, risks and
disputes, as well as provisions for post-employment benefits.

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

Note 2. Significant events of the year

Change in scope of consolidation – see details in notes 3.2 and 3.4

In February 2017, Group acquired 100% of the capital of the French company Scilab Enterprises. This acquisition was financed by treasury shares.

The Group also repurchased minority interests of several entities, particularly concerning ESI Software Germany and ESI Services Tunisia, of which
the Group holds 100% of the capital at January 31, 2018.

Note 3. Scope of consolidation

Note 3.1. Accounting policies related to the scope of consolidation

Consolidation method
The annual financial statements of the companies controlled by ESI
Group are fully consolidated from the date at which ESI Group takes
control until the date when control is transferred outside the Group.
As defined by IAS 27, the Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power
to direct the activities of the entity.

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 exercises joint
control.

The Group's scope of consolidation at January 31, 2018 is detailed in
note 3.4.

Closing date
Subsidiaries with a closing date other than January 31 prepare interim
financial statements as of January 31 for consolidation purposes.

Internal transactions
All transactions between consolidated companies, including 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 currency 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 components of the net equity,
which are maintained at the historical rate. Income statements are
translated at the average exchange rate for the period. Translation
differences are recorded in a specific “Translation differences” account
on a different line from Other Comprehensive Income.

Transactions and balances in foreign currencies
At the closing date, monetary assets and liabilities denominated in
a foreign currencies are translated to the functional currency at the
year-end exchange rate. Foreign exchange gains and losses on transac-
tions in foreign currencies are recorded as such, with the exception of
those arising from transactions that may be characterized as long term
investments, which are recorded in equity on a separate line in the
Other Comprehensive Income (OCI), under “Translation differences”.

Business combinations
Business combinations are recognized by the acquisition method:

• The identifiable assets acquired and liabilities assumed are measured

at fair value as of the acquisition date;

• Any non-controlling interest in the acquiree (i.e. minority interest)
is measured either at fair value (“full goodwill method”) or at the
non-controlling interest’s proportion of the acquiree’s identifiable
net asset (“partial goodwill method”). This option applies on an
individual transaction basis.

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

Any contingent consideration related to business combinations is
recognized at its fair value on the acquisition date. After the acquisi-
tion date, contingent consideration is measured at fair value at the end
of each subsequent reporting period. Any changes in the fair value of
contingent consideration arising more than one year after the 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 acquisition date. Other changes are offset
against goodwill.

Where put options have been granted to minority shareholders of
subsidiaries, the amount recognized in liabilities is measured at the
present value of the option exercise price and recorded in “Other long
term debt” or “Other short-term liabilities” according to its maturity
date. The balance is allocated either to Goodwill (“full goodwill
method”) or to Equity (“partial goodwill method”). Discounting
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 previously held at the corresponding acquisition
date, revaluated in the income statement; and

• The net fair value of the identifiable assets and liabilities acquired.

The Group has 12 months from the acquisition date to determine
the fair value of the assets and liabilities and declare the amount of
goodwill acquired. If the acquisition price is lower than the fair value
of identified assets, liabilities and contingent liabilities, the difference
is immediately recorded in the income statement.

In accordance with IFRS standards, goodwill is not amortized but is
instead subject to an impairment test. This test is performed at least
once a year and when an impairment indicator is identified. Goodwill
is allocated to cash-generating units (“CGU”) for the purposes of
impairment test.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

For intangible assets acquired in the context of a business combi-
nation, the amortization expenses as well as the costs directly
attributable to acquisitions are presented on a separate line of the
income statement entitled “Other operating income and expenses.”
The “Current operating result” presented in the income statement is
equal to “Income from operations” less “Other operating income and
expenses.”

Impairment test of goodwill and other intangible assets with
an indefinite useful life
ESI Group uses a single CGU for the entire Group. The Group's strategy
is to focus on growth through innovation stemming from its R&D
efforts and the integration of acquired technologies (source codes,
algorithms, etc.).

As the Group has pursued its development, it has become clear that
certain technologies acquired to resolve a specific issue could be used
to resolve other issues as well. Incorporating this technology portfolio
in the Group's software packages makes it possible to use all of these
technologies in all of the Group's projects depending on the solutions
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 dependent not
only on its own commercial performance but 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
publisher 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 forecast future
cash flows according to business projections, technology penetration
and the competitive situation. Future cash flows are estimated as
follows:

• The last fiscal year for the reference year (Y);

• Annual budget for the 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 which can be based on past
experience.

The discount rate applied as of January 31, 2018 is the Group’s weighted
average cost of capital (WACC) adjusted with a risk premium. It stands
at 12.7% compared to 11.4% at January 31, 2017.

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 perpetuity 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 calculating potential
impairment.

The impairment test performed on the CGU at January 31, 2018 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)

Gross values

TOTAL NET VALUES

January 31, 2017

Increase

Decrease

Foreign exchange gain/loss

January 31, 2018

40,810

925

(709)

41,026

Acquisition of Scilab Enterprises
In February 2017, ESI Group acquired 100% of the capital of Scilab Enterprises. The initial purchase price amounts to €550 thousand and has been
paid in treasury shares and there may be an additional price up to €250 thousand. The difference between the estimated total purchase price and
the net asset value at the acquisition date (negative of €219 thousand), has been fully affected to goodwill during the final allocation of the purchase
price.

Follow-up on 2016 acquisitions

Acquisition of Mineset Inc.

In February 2016, ESI Group acquired a 100% interest in the US-based company Mineset Inc., specialized in machine learning. The definitive alloca-
tion of the acquisition price of USD4.5 million is the same as the preliminary allocation as of January 31, 2017.

(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%)

Definitive allocation

1,885

(628)

509

1,797

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

3.2.2. Non-recurring result
Other operating income and expenses are mostly composed of 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 OPERATING INCOME AND EXPENSES

January 31, 2018

January 31, 2017

(1,076)

(36)

(1,108)

(1,470)

(195)

(1,644)

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 Scilab Enterprises.

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

Date of creation
or acquisition

Subsidiary head office

January 31, 2018

January 31, 2017

% of capital held

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.

Scilab Enterprises

April 1973

July 1979

July 1991

Rungis, France

Neu-Isenburg, Germany

Tokyo, Japan

March 1992

Farmington Hills, Michigan, USA

September 1995

February 2001

April 2001

May 2001

January 2002

Seoul, South Korea

Madrid, Spain

Compiègne, France

Plzen, Czech Republic

Oxford, England

August 2002

Dover, Delaware, United States

August 2002

San Diego, California, USA

December 2002

Saint-Sulpice, Switzerland

February 2004

July 2006

August 2006

June 2008

September 2008

December 2008

April 2009

October 2010

August 2011

December 2011

Bangalore, India

Hong Kong, China

Guangzhou, China

Hong Kong, China

Beijing, China

São Paulo, Brazil

Bologna, Italy

Pune, India

Tunis, Tunisia

Beijing, China

Stuttgart, Germany

Sollentuna, Sweden

February 2012

Farmington Hills, Michigan, USA

September 2012

Berkshire, England

October 2013

Palo Alto, United States

Oxford, England

December 2013

Ho Chi Minh City, Vietnam

March 2015

January 2016

February 2016

February 2017

Versailles, France

Dresden, Germany

Rungis, France

Milpitas, USA

Paris, France

SUBSIDIARIES ACCOUNTED FOR USING THE EQUITY METHOD

AVIC-ESI (Beijing) Technology Co. Ltd

February 2014

Beijing, China

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

100%

97%

100%

99%

100%

98%

95%

100%

49%

74%

99%

100%

95%

100%

95%

100%

99.9%

100%

80%

96%

100%

45%

100%

97%

100%

99%

100%

98%

95%

100%

49%

74%

99%

100%

95%

90%

100%

95%

100%

98.5%

100%

99.9%

100%

80%

96%

45%

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

Note 4. Operating data

Note 4.1. Revenue

There are two main sources of ESI Group revenue: a software 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 revenue from the License activity is
recognized upon installation 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 recognized (future production) on orders
already recorded. Each of the Group’s production units is in charge of
continuously monitoring the backlog of its activity.

User Licensing and maintenance
Licensing revenue is generated from royalties paid under licensing
agreements granted to end customers and related maintenance
services. Royalties are earned for the following two types of services:

• Lease of annual renewable licenses that include the right to use
the software plus maintenance services for one year. In this case,
revenue from maintenance accounts for 15% of total royalties;

• Sale of perpetual rights to use the software plus one year (renewable)
of maintenance services. In this case, revenue from maintenance
accounts for 5% of total royalties;

• Maintenance services on software for which perpetual 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 maintenance agreement, which is generally one year.

Services
Service revenue consists mainly of consulting and training 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 related to Virtual Reality software.

(in € thousands)

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

January 31, 2018

January 31, 2017

105,748

29,100

429

29,529

135,277

5,045

108,316

31,177

1,058

32,235

140,551

5,041

Trade receivables are initially recorded at their nominal value, as the
potential impact of discounting is immaterial. They are then recorded
at amortized cost, less impairment resulting from irrecoverable, when
applicable.

Receivables are depreciated when their net realizable 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 receivables, the risk associated with bad debts is appreciated indivi-
dually or based on statistical methods.

DETAILS OF TRADE RECEIVABLES

(in € thousands)

Trade receivables

Work in progress and non-invoiced receivables

Impairment of trade receivables

TOTAL TRADE RECEIVABLES, NET OF IMPAIRMENT

January 31, 2018

January 31, 2017

51,407

15,527

(4,010)

62,924

62,143

16,389

(4,468)

74,064

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

(in € thousands)

January 31,
2017

Consolidation scope
entry

Provisions

Reversals

Foreign
exchange gain/
loss

Other movements

January 31,
2018

Impairment

TOTAL

(4,468)

(62)

(635)

994

(4,010)

The Group's clientele mainly comprises:

• Major industrial corporations, especially companies in the automo-

tive, aerospace and steel industries;

• Government agencies for governmental and defense projects;

The amount of trade receivables not due represents 68.7% of annual
income. The large amount of not due receivables is due to the highly
seasonal nature of sales especially at the end of the fourth quarter.

The type of ESI Group’s customers, mainly major clients accounts,
presents a history and a very limited risk of non-recovery of receivables.

The amount of trade receivables higher than 90 days includes recei-
vables from Chinese state or parastatal clients whose days of sales
outstanding are more important.

• Academic bodies.

AGE OF TRADE RECEIVABLES

Higher than 90 days
10%

30 to 90 days
9.2%

0 to 30 days
12.1%

Not due
68.7%

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

January 31,
2018

January 31,
2017

18,309

4,287

22,596

18,765

3,624

22,389

(in € thousands)

January 31,2018

January 31,2017

Not due

0 to 30 days

30 to 90 days

Higher than 90 days

TOTAL

43,226

7,612

5,811

6,275

62,924

54,538

7,079

6,529

5,918

74,064

Note 4.4. Operating expenses

(in € thousands)

Other purchases and external expenses

Real estate rentals

Fees

Taxes and duties

Amortization and provisions

Personnel costs(1)

Other external expenses and income

TOTAL CURRENT OPERATING EXPENSES

Other operating income and expenses(2)

TOTAL OPERATING EXPENSES

January 31, 2018

January 31, 2017

(12,794)

(6,524)

(3,719)

(572)

(2,551)

(88,313)

(11,616)

(126,089)

(1,108)

(127,197)

(14,026)

(6,291)

(3,168)

(587)

(3,044)

(86,592)

(11,478)

(125,186)

(1,644)

(126,830)

(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
The Group innovates, sells and provides the technical support for its
products which allow engineers to predict and improve, by virtual tests,
the performance and the expected quality of a product.

Operating segments are the Group’s components which have isolated
financial information available and whose operating results are regularly

reviewed by the company’s management in order to evaluate their
performance and to decide how resources are allocated.

The Group works in a unique segment, with close ties between its two-
identified business, Licenses and Services.

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 being EMEA (Europe, Middle East, Africa), Asia-Pacific
and the Americas).

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

(in € thousands)

YEAR ENDED JANUARY 31, 2018

External clients

Affiliate companies

NET SALES

ASSETS ALLOCATED

YEAR ENDED JANUARY 31, 2017

External clients

Affiliate companies

NET SALES

ASSETS ALLOCATED

Europe, Middle East
and Africa

Asia-Pacific

Americas

Eliminations

Consolidated

63,821

78,889

142,710

291,995

63,419

80,148

143,567

286,979

49,943

8,691

58,634

38,200

54,864

9,286

64,150

41,661

21,511

7,194

28,705

17,671

22,268

8,863

31,131

23,506

(94,774)

(125,331)

(98,296)

(124,431)

135,275

222,535

140,551

227,715

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, 2018 are listed below:

Due at January 31
(in € thousands)

Minimum rental payment

2019

4,033

2020

2,579

2021

2,832

2022

2023 and beyond

Total

2,415

4,106

15,964

At January 31, 2018, ESI Group also had a rent security deposit with Crédit du Nord in an amount of €82 thousand, established in November 2012
and expiring November 28, 2021 plus six months.

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, 2018

January 31, 2017

300

901

1,201

286

867

1,153

Note 5.2. Personnel costs
Personnel costs are presented by destination in the income statement. Their break down by nature is as follows:

January 31, 2018

January 31, 2017

(70,821)

(16,497)

(499)

(497)

(88,313)

(68,962)

(16,653)

(333)

(644)

(86,592)

(in € thousands)

Salaries

Payroll taxes

Share-based payments

Post-employment benefits

TOTAL PERSONNEL COSTS

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

Note 5.3. Provision for employee benefits

In certain countries, the Group's employees benefit from different
pension plans, retirement compensation, length-of-service awards
linked to seniority requirements and additional post-employment
benefits. To cover these benefits, the Group has defined-contribution
plans and defined-benefit plans in place.

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 and
future salary increases.

A defined-contribution plan is a pension plan into which the Group
pays fixed contributions to a third-party entity. The Group does not
have any obligation other than to pay the premiums, and the corres-
ponding expense is recorded in the income statement for the fiscal
year.

A defined-benefit plan is a plan that guarantees a certain level of
benefits in the future depending on salary, age and seniority of the
employee. Such is the case for benefits that may be paid when the
employee retires.

For defined-benefit plans, in accordance with IAS 19 R “Employee
Benefits,” obligations are determined using the projected unit credit

Defined-benefit pension schemes and long term benefits recognized
in accordance with IAS 19 R are as follows:

• 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 regardless of reason for departure,
calculated on the basis of length of service within the company;

• For Germany: defined-contribution benefits owed to selected

managers.

5.3.1. Actuarial assumptions

Discount rates

France

Germany

Japan

South Korea

India

Discount rates correspond to:

January 31, 2018

January 31, 2017

1.40%

1.60%

0.56%

2.70%

7.92%

1.70%

1.98%

0.60%

2.20%

7.30%

• For France: AA-rate corporate bond rates in the Eurozone, adjusted according to the duration of the Group's commitments;

• For other counties: rates reported by the central banks.

Rate of salary increase

France

Germany

Japan

South Korea

India

January 31, 2018

January 31, 2017

2.50%

2.00%

3.00%

4.00%

10.00%

2.50%

2.00%

3.00%

10.00%

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, 2017

Change in scope of
consolidation

Change in equity
(OCI)

Provisions

Reversals

Foreign exchange
gain/loss

January 31, 2018

Provision for employee
benefits

TOTAL

8,472

299

688

(327)

(334)

8,798

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

ANALYSIS OF THE VARIATION IN THE PROVISION RECORDED IN THE BALANCE SHEET:

(in € thousands)

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

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

Benefits paid

Acquired companies

Foreign exchange gain/loss

PROVISION AT CLOSING

5.3.3.

Sensitivity of commitments to fluctuations in the discount rate

(in € thousands)

Commitment -0.5%

Commitment

Commitment +0.5%

(in € thousands)

TOTAL ACTUARIAL GAINS/LOSSES

Experience adjustment

Change in financial assumptions

Yield on assets

January 31, 2018

January 31, 2017

(10,152)

(7,520)

(824)

(218)

412

(292)

409

(967)

(743)

(191)

244

(758)

(216)

(10,666)

(10,152)

1,680

322

(85)

(8)

(75)

1,867

(824)

(186)

(218)

(1,010)

(3,136)

1,114

(2,021)

(6,777)

(8,798)

(8,472)

(1,010)

(299)

322

327

334

700

659

367

(144)

1,680

(743)

(166)

(191)

(909)

(3,867)

1,680

(2,187)

(6,285)

(8,472)

(6,820)

(909)

(724)

367

100

(308)

(178)

(8,798)

(8,472)

(11,567)

(10,666)

(10,011)

(299)

(132)

(160)

(8)

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

Note 5.4. Share-based payments

Stock options may be granted to selected Group employees. 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, estimated at grant date. They are
recorded as personnel costs in the income statement on a straight-
line basis over the vesting period of the option, offset against equity.

The expense is recorded in the income statement per destination
according to the allocation of each concerned person.

The fair value of the option is determined using the “Black–Scholes”
model, 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.

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 (date of General
Meeting)

Date of Board of
Directors

Number of stock
options/shares
allotted or to be
allotted

Number of
stock options/
shares granted

O/w performance
shares

Number of
existing stock
options/shares at
January 31, 2018

Exercise price

Limit year
for exercising
options

Plan 10
(GM of June 26, 2012)

Plan 15
(GM of July 23, 2013)

Plan 17
(GM of July 24, 2014)

03/26/2015

07/22/2015

03/11/2016

05/05/2017

Total

Authorization given at the GM of July 2016

TOTAL STOCK-OPTIONS

Plan 6
(GM of July 21, 2016)

Plan 7
(GM of July 21, 2016)

Plan 8
(GM of July 21, 2016)

TOTAL FREE SHARES

07/21/2016

12/23/2016

08/01/2017

12/19/2012

02/07/2014

03/26/2015

07/22/2015

62,300

150,850

11,000

15,000

3,150

Total

180,000

62,300

294,538

180,000

297,753

952,291

60,000

20,000

7,350

10,000

18,175

1,875

37,400

20,000

1,875

237,400

84,175

25,000

2,275

9,000

36,275

41,850

375

3,150

45,375

7,350

18,175

1,875

27,400

72,775

25,000

2,068

9,000

36,068

108,843

27.82

24.42

21.66

27.17

21.66

27.17

50.92

2020

2022

2025

2023

2025

2023

2026

2025

2020

2021

TOTAL STOCK-OPTIONS AND FREE SHARES

1,012,291

273,675

84,175

The total expense related to share-based payments for the fiscal year ended January 31, 2018 stands at €43 thousand. That related to free shares
stands at €456 thousand.
All stock options and free shares include a continued employment requirement.

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

2017

2016

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 THE OPENING

Stock options/free shares granted

Stock options expired or canceled

Stock options exercised and free shares delivered

STOCK OPTIONS AND SHARES EXISTING AT THE CLOSING

OPTIONS THAT MAY BE EXERCISED AT THE CLOSING

175,733

29,050

(71,490)

(24,450)

108,843

21.56

35.14

26.76

26.09

20.34

207,080

37,262

(12,544)

(56,065)

175,733

20.54

6.27

25.75

6.98

21.56

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

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

Share price at grant date

Exercise period of stock
options/free shares in years

Volatility

Dividend rate

Interest rate

STOCK-OPTIONS

Plan 10 (Board of 12/19/2012)

Plan 10 (Board of 02/07/2014)

Plan 10 (Board of 03/26/2015)

Plan 10 (Board of 07/22/2015)

Plan 15 (Board of 03/26/2015)

Plan 17 (Board of 07/22/2015)

Plan 17 (Board of 03/11/2016)

Plan 17 (Board of 05/05/2017)

FREE SHARES

Plan 6 (Board of 07/21/2016)

Plan 7 (Board of 12/23/2016)

Plan 8 (Board of 08/01/2017)

26.99

24.50

24.94

28.31

24.94

28.31

24.39

55.56

30.30

45.73

46.19

1 to 5

2 to 4

24.80%

23.73%

22.13%

23.36%

22.13%

22.79%

28.16%

1.30%

0.30%

0.36%

0.65%

0.36%

0.65%

0.86%

1.2%

1.1%

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

6.1.2. Capitalized development costs

January 31, 2017

Change in scope
of consolidation

Increase

Decrease

Foreign exchange
gain/loss

January 31, 2018

53,894

12,044

22,744

88,681

(15,637)

(73)

(15,142)

(30,851)

38,257

11,971

7,602

57,830

(8)

31,058

(25,684)

462

31,520

(2,260)

(27,945)

(27,842)

25,684

(1,597)

(29,439)

3,216

(1,135)

2,081

2,207

27,891

(53)

(83)

(3)

59,267

12,044

21,048

92,359

(17,794)

(73)

(14,623)

(32,490)

41,473

11,971

6,425

59,869

Research and development costs borne to gain new scientific or
technical knowledge are recorded as expenses when incurred.

Development costs are capitalized in situations where the six require-
ments set forth under IAS 38, “Intangible Assets”, are met:

• Technical feasibility of completing the research and development

project has been established;

• The Group intends to complete the project;

• The Group will be able to use or sell the product arising from the

research and 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 research and development project and to
sell the resulting product;

• The Group has the ability to reliably measure the expenses attribu-

table to the research and development project.

The expenses thus converted into assets include the cost of direct
labor as well as sub-contracting.

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 upgrades during the
year; in other cases, a new version featuring a major innovation may
be marketed even if other improvements are planned in the near
future. While project 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 basis over a
period of 12 months for development work that leads to the yearly
release of new annual versions of software packages sold by the
Group, and on a straight-line basis over 24 or 36 months for deve-
lopment work that leads to major improvements to existing products,
depending on the degree of innovation.

Research and development costs that do not meet IAS 38 criteria are
recorded as expenses when incurred.

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

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, 2018

January 31, 2017

29,511

(26,295)

3,216

28,289

(25,457)

2,832

Net value of capitalized developments costs represented 14.3 months of research and development costs (€41.4 million) incurred at January 31, 2018,
compared to 14 months (€38.3 million) at January 31, 2017.

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

(in € thousands)

R&D costs incurred during the period(1)

Development costs capitalized during the period

Development costs amortized during the period

French R&D tax credit

TOTAL R&D COSTS RECOGNIZED AS EXPENSES DURING THE FISCAL YEAR

(1) Including €5.362 million in expenses accounted for as direct costs in 2018, compared to €4.405 million in 2017.

6.1.3.

Intangible assets with an indefinite useful life

January 31, 2018

January 31, 2017

(34,873)

29,511

(26,295)

2,959

(28,698)

(32,694)

28,289

(25,457)

2,920

(26,942)

Intangible assets with an indefinite useful life include source codes
that allow the Company to obtain intellectual property rights to the
software code. Specifically, it involves the translation of the laws of
physics into programming language in the form of algorithms that
make it possible to simulate the reaction of materials under external
constraints.

The intangible assets stemming from the purchase of business units are
deemed to have indefinite useful lives as long as no substitute tech-
nology currently exists and as long as the recurrent business model
(yearly leases) ensure that the installed base continues to generate
revenue over the long term.

The Group is of the opinion that the useful life of these intangible
assets cannot be determined as long as the underlying scientific

content in purchased products is not challenged by a technological
breakthrough that would render it obsolete. Furthermore, significant
research and development efforts (accounting for 30% of revenue
from licensing) focusing on these up-and-coming products guarantee
the long term value of the asset.

Assets with an indefinite useful life are not amortized. They are subject
to impairment tests performed each year. The impairment testing
process and results at January 31, 2018 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 indefinite 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.

6.1.4. Other intangible assets

Intangible assets with a finite useful life consist mainly of software. In
accordance with IAS 38, they are valued at cost.

Amortization is recorded in the income statement based on the
estimated useful life of the asset, according to the following criteria:

Office and similar software applications

Straight-line method

1 to 3 years

Other operational software

Straight-line method

3 to 5 years

Codes – third-party software integrated
into products

Straight-line method

5 to 8 years

Method

Useful life

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 amorti-
zation. 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.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

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

Useful life

Straight-line method

5 to 10 years

Straight-line method

3 to 5 years

Straight-line method

5 to 10 years

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

Office furnishings and other tangible assets

TOTAL

AMORTIZATION

Fixtures and fittings

Computer hardware

Office furnishings and other tangible assets

TOTAL

NET CARRYING AMOUNTS

Fixtures and fittings

Computer hardware

Office furnishings and other tangible assets

TOTAL

January 31,
2017

Change in scope of
consolidation

Increase

Decrease

Foreign
exchange gain/
loss

January 31,
2018

3,478

13,270

3,372

20,120

(2,469)

(10,552)

(2,659)

(15,680)

1,010

2,717

713

4,440

(23)

(37)

(58)

817

1,868

388

3,074

(453)

(1,731)

(246)

(2,430)

365

137

142

644

(13)

(294)

(89)

(396)

283

384

(2)

(11)

(12)

(84)

(380)

(101)

(565)

246

362

(43)

(134)

(26)

(203)

4,226

14,501

3,571

22,298

(2,892)

(11,790)

(2,740)

(17,422)

1,335

2,711

831

4,877

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;

7.1.1.

Fair value of financial assets and liabilities

• 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.

(in € thousands)

ASSETS

Non-current financial assets:

• Non-consolidated investments

• Deposits and guarantees

• French R&D tax credit receivables for 2014, 2015 and 2016

• Derivative assets

Trade receivables

Cash and cash equivalents

LIABILITIES

Bank borrowings

Factoring of French R&D tax credit for 2014, 2015 and 2016

Other financial debts

Derivative liabilities

Other financial liabilities

Payables

Carrying amount under IAS 39
January 31, 2018

Amortized cost

Fair value through
equity

Fair value through
profit and loss

3,290

6,872

62,924

38,819

6,872

863

9,968

113

15,502

851

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

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

• Level 2: valuation method based on directly or indirectly observable
data associated with the asset or liability other than the quoted
prices included in level 1 data;

• Level 1: direct reference to quoted (unadjusted) prices accessible on

• Level 3: valuation method based on unobservable data.

active markets for identical assets or liabilities;

The fair value of cash and cash equivalents is calculated using level 1.

Derivative instruments (see notes 7.1.4 and 7.3) are valued using level 2.

Debts on earnouts, put options (other financial liabilities) and invest-
ments in non-consolidated companies are valued using level 3.

7.1.2. Gross financial debt
The main source of funding for ESI Group is the syndicated loan
agreement signed in November 2015, made up of long term lines of

credit with a maturity date of November 2022, and a short time line of
€10 million revolving credit.
At January 31, 2018, ESI Group had established rate hedging instruments
for 40% of the nominal amount of long term lines (see note 7.1.4).
Moreover, at the closing date, €6 million of the revolving line of credit
has been used. At the balance date of approval of financial statements
by the Board of Directors, the entire revolving line of credit had been
paid off.

All financial debts are denominated in euros.

Detail and maturity of financial debt

At January 31, 2018

(in € thousands)

Syndicated loan

Short-term revolving loan

Other bank borrowings

Factoring of French R&D tax credit
for 2014, 2015 and 2016

Profit-sharing funds

Other financial debts

TOTAL

At January 31, 2017

(in € thousands)

Syndicated loan

Short-term revolving loan

Other bank borrowings

Factoring of French R&D tax credit
for 2014

Profit-sharing funds

Other financial debts

TOTAL

2018

4,464

6,000

2,734

119

148

13,464

CURRENT: 13,464

2017

4,464

8,000

2,635

163

543

15,805

2019

4,464

1,991

467

4,931

2018

4,464

310

4,774

Maturity at January 31

2020

4,464

400

2,448

6,520

Maturity at January 31

2019

4,464

1,991

6,520

2021

2022 and beyond

4,464

600

2,433

9,410

12,227

13,227

NON-CURRENT: 34,089

2020

2021 and beyond

4,464

400

2,448

7,377

16,695

600

17,360

CURRENT: 15,805

NON-CURRENT: 36,031

Financial debt by type of interest rate and maturity

At January 31, 2018

(in € thousands)

Fixed-rate debt

Variable-rate debt

No-interest debt

TOTAL

Maturity at January 31

2018

13,130

266

13,464

2019

4,464

467

4,931

2020

6,455

6,520

2021

2022 and beyond

9,345

9,410

13,227

CURRENT: 13,464

NON-CURRENT: 34,089

Total

30,085

6,000

3,734

6,872

119

744

47,553

Total

34,553

8,000

3,635

4,439

163

1,047

51,837

Total

46,622

863

47,553

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

The following table shows the changes in financial debts in 2017, and identifies the changes with an impact on cash or those without.

(in € thousands)

January 31, 2017

Flows with cash impact

Flows without cash impact

January 31, 2018

New borrowings

Repayment

Other cash flows
from financing
activities

Change in
consolidation
scope

Foreign
exchange gain/
loss

Syndicated loan

Short-term revolving loan

Other bank borrowings

Factoring of French R&D tax
credit

Profit-sharing funds

Other financial debts

TOTAL

34,553

8,000

3,635

4,439

163

1,047

6,000

2,738

2,433

240

(4,468)

(8,000)

(2,635)

(163)

(543)

51,837

11,411

(15,809)

119

(5)

30,085

6,000

3,733

6,872

119

744

47,853

7.1.3. Cash and cash equivalents

“Cash and cash equivalents” correspond to cash, bank deposits, inte-
rest-bearing accounts, mutual funds, money market funds and other
liquid and easily convertible investments subject to an insignificant
risk of changes in value qualified as cash equivalents, in accordance
with IAS 7.

In accordance with IAS 39, marketable securities are recognized at
market value at the closing date. Changes in market value are reco-
gnized in Financial Result.

The Group classifies no-risk investments in interest-bearing accounts,
commercial paper and certificates of deposit originally maturing in
three months or less and not bearing any significant interest rate risk,
as cash equivalents.

(in € thousands)

January 31, 2018

January 31, 2017

Cash

Marketable securities

TOTAL CASH AND CASH EQUIVALENTS

15,502

219

15,721

14,470

• Three swaps of €2.5 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.

• One swap of €0.5 million, ESI Group receiving variable rate 1-month

Euribor (with a 0% floor) and paying fixed rates of 0.30%.

At January 31, 2018, the market value of these instruments was
€-36 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 currency options at any time and enter into any other type of
foreign exchange contract. Foreign exchange instruments in place at
January 31, 2018 concerned Japanese yen (forwards, tunnels, targets),
South Korean won (non-delivery forwards) and Indian rupee (non-
delivery forwards). These instruments are not considered hedging
instruments as defined by IAS 39.

At January 31, 2018, the market value of these instruments was
€113 thousand.

7.1.4. Financial instruments

Note 7.2. Financial income and expenses

The Group uses derivative instruments to manage its exposure to
fluctuations in exchange rates and interest rates. In accordance
with IAS 39, derivative instruments are recorded at 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 deriva-
tives 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 instruments

Interest rate swaps signed by ESI Group are hedging instruments to the
variable interest rate of the syndicated loan.

Interest rate swaps signed at January 31, 2018 are as follows:
• Three swaps of €1.5 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;

(in € thousands)

January 31, 2018 January 31, 2017

Interest and related expenses on
borrowings

Interest income

Foreign exchange gain/(loss)

Floor of syndicated credit

Other financial expenses

FINANCIAL RESULT

(962)

(1,290)

(466

(2,718)

(1,000)

(818)

258

(566)

2,115

Interests on borrowings are related to the drawdowns on long term lines
of syndicated credit and related charges. Despite an annual reimburse-
ment of €4.5 million and thus a lowering of long term credit, interests
paid are similar to 2016 due to higher use of the revolving credit line
during the year. Other financial expenses include:

• Interest charges calculated on employee benefit commitments;

• Factoring expenses for receivables related to the French R&D tax

credit;

• Overdraft interest charges.

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

Details on foreign exchange gains and losses are as follows:

Note 7.3. Risk management policy

(in € thousands)

January 31, 2018

January 31, 2017

USD

JPY

KRW

Other currencies

TOTAL

(516)

(378)

(136)

(261)

(1,290)

(216)

(823)

114

107

(818)

The negative foreign exchange result is mainly due to the revaluation of
the accounts payables and receivables in foreign currency at the closing
rate.

Country risk and foreign currency risk
During the fiscal year ended January 31, 2018, 47.1% of the Group's
revenue was generated in Europe, 37% in Asia (mainly Japan, South
Korea, China and India) and 15.9% in the Americas (mainly the United
States and Brazil). The Group is thus exposed to economic and political
uncertainties 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, 2018, 44.3%
of revenue was generated in EUR, 19.4% in USD (US dollar), 19.2% in JPY
(Japanese yen), 4.8% in KRW (Korean won) and 5% in CZK (Czech koruna).

Furthermore, 55.1% of costs are spent in EUR, 16.4% in USD (US dollar),
7.7% in JPY (Japanese yen), 7.3% in INR (Indian rupee), 2.9% in KRW (South
Korean won), 3.3% in CZK (Czech koruna) and 2.5% in CHF (Swiss franc).

The following table 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 currencies to which the Group is exposed.

Currency

JPY

KRW

CZK

USD

INR

CHF

Average consolidation
exchange rate

Exchange rate used
for analysis

Effect on Current Operating
Result in € millions

127.75

1,279.71

26.20

1.14

73.95

1.12

140.52

1,407.68

28.82

1.26

81.34

1.23

-1.5

-0.3

-0.2

-0.1

0.5

0.3

Interest rate risk
Most of the Group's financial debts feature variable interest rates. To
limit the negative impacts of rate fluctuation, the Group applies a non-
speculative management policy, using derivatives described in note 7.1.4.

Sensitivity analysis to interest rate risk

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

At January 31, 2018, €6 million of the revolving credit line has been used
and this line was entirely paid off at the date of approval of accounts
by the Board of Directors. Given ESI Group's optimization of cash flow
management, the amount of debt incurred from bank loans over the
course of the year has fluctuated, with generally lower levels, like-for-
like, during the period than at the end of the fiscal year.

The calculations of foreign-exchange sensitivity presented below
assume that financial debts remain stable at January 31, 2018 levels,
meaning a fixed level of drawdown on bank loans as of that date.

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

Equity risk
In accordance with IAS 32, treasury shares are accounted for as part
of consolidated shareholder equity and variations in value are not
recorded. When treasury shares are acquired or sold, shareholder equity
is adjusted to reflect the value of the shares acquired or sold. Note 9.1
contains a detailed description of changes in treasury stock, whether in
the context of a liquidity agreement or intended 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-

< 1 year

≥ 1 year, < 5 years

(13,130)

(20,265)

≥ 5 years

(13,227)

Total

(46,622)

(13,130)

(20,265)

(13,227)

(46,622)

(251)

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 (covenants) with regard to the syndicated loan
contract entered into in November 2015 are detailed in note 7.4.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

Note 7.4. Off-balance sheet commitments relating to

• Ratio R2: Consolidated net financial debt divided by consolidated

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 2.7 at January 31, 2018 (tapering threshold
for future years);

equity: less than or equal to 0.6;

• 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 being met if the net consolidated cash balance is
positive.

As of January 31, 2018, on the basis of the consolidated financial state-
ments certified by the auditors, the Group was compliant with the
ratios described above.

In January 2017, ESI Group signed with BPI France a long term financing
envelope of up to €3 million over five years, €1 million has been used
since January 31, 2017.

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 reversed 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 realized. 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.

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

The 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

January 31, 2018

January 31, 2017

(2,494)

(703)

(3,197)

(4,322)

330

(3,992)

January 31, 2018

January 31, 2017

5,578

216

33,33%

(1,786)

(667)

(582)

148

(541)

230

(3,197)

59.6%

11,695

33.33%

(3,868)

(263)

(268)

207

(736)

936

(3,992)

34.4%

The tax rate is significantly higher than 2016 exercise due to three
factors (the first two are exceptional in 2017):

• The revaluation of deferred tax assets and liabilities in prevision of
tax rates decrease in France and in United States, which represents a
charge of €582 thousand against a charge of €268 thousand in 2016;

• Tax credit losses of €526 thousand;
• The revaluation of deferred tax assets on tax loss carryforwards
following the update of estimates, which represents a cost of
€311 thousand against a profit of €200 thousand in 2016.

ESI GROUP • 2017 REGISTRATION DOCUMENTNote 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
Consolidated financial statements

January 31, 2018

January 31, 2017

1,752

4,038

2,937

507

1,505

10,738

(1,722)

(2,015)

(3,737)

7,001

1,928

4,454

2,792

1,073

654

10,901

(2,005)

(958)

(2,963)

7,939

Unrecognized deferred tax assets on tax loss carryforwards came to
€2.663 million. The timeframe used for estimating 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, 2017)

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

Other movements

NET DEFERRED TAX ASSETS AT CLOSING (JANUARY 31, 2018)

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.

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, 2018, ESI Group's share capital was €18.049 million, compri-
sing 6,016,442 common shares with a par value of €3 each.

Dividend payout

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

7,939

(86)

(819)

(132)

7,001

Treasury shares

The number of treasury shared declined by 9,080 shares over the
fiscal year, mainly due to the payment of the acquisition of Scilab
Enterprises. The percentage of capital held as treasury shares following
these transactions stood at 6.8% at January 31, 2018, compared to 7%
at January 31, 2017. The Group owns a total of 410,306 treasury shares,
purchased at a historical cost of €4.440 million and with a market
value of €17.643 million at the same date, for an unrealized gain of
€13.203 million.
€4.123 million corresponding to treasury shares and adjustments for
gains or losses on past disposals is deducted from equity.

Transactions with non-controlling interests

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

Note 9.2. Minority interests
If, in the event of losses, the part of equity corresponding to minority
interests becomes negative, it will be retreated so as to be at least equal
to zero. Nevertheless, this situation never happened.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

Note 9.3. Earnings per share
The table below details the net income (Group share) per share:

(in € thousands)

NET INCOME (GROUP SHARE)

Net earnings per share (in €)

Average number of shares

Diluted earnings per share (in €)

Average number of diluted shares

Only stock options and free shares may have a dilutive effect.

Note 10. Other balance sheet items

Note 10.1. Other assets

10.1.1. Other non-current assets

(in € thousands)

Security deposits

Factored French R&D tax credit

Other long term assets

Investments in non-consolidated
companies

TOTAL OTHER NON-CURRENT ASSETS

January 31, 2018 January 31, 2017

3,043

6,872

247

10,186

3,082

4,439

355

7,900

Security deposits mainly concern real estate rentals.

Factored receivables under the French R&D tax credit concern FY 2014,
FY 2015 and FY 2016 (see note 7.1.2.). Factoring from previous years was
deconsolidated.

Factoring of French R&D tax credit receivables represents a cash
collection, which counterparty is a financial debt. Thus, in the cash flow
statement, the cash collected related to these factoring corresponds
to the increase of new borrowings, such as indicated in the financing
flows’ part of the cash flow statement (respectively for €2.448 million
and €2.433 million on January 31, 2017 and January 31, 2018).
The two others flows presented in the cash-flow statement related
to the factoring of French R&D tax credit receivables do not represent
cash but result from book entries. They are:

• the increase of long term receivable in consolidated statements,
indicated on the line of other non-current assets in investments’ part
of cash flow statement, for respectively € 2.836 million and €2.827
million on January 31, 2017 and January 31, 2018;

• the decrease of short-term receivable in local accounts of the
parent company, indicated in operating cash flows’ part of cash flow
statement, for the same amounts.

The income related to French R&D tax credit for 2017 is classified in
operating cash flows’ part of cash flow statement, for respectively
€2.679 million and €2.827 million on January 31, 2017 and January 31, 2018.

January 31, 2018

January 31, 2017

2,375

0.42

5,594,573

0,42

5,648,574

7,523

1.36

5,547,500

1.35

5,591,671

10.1.2. Other current receivables

(in € thousands)

January 31, 2018 January 31, 2017

French R&D tax credit

Other tax credits

VAT and other receivables

3,038

1,941

6,975

3,230

1,488

7,554

TOTAL OTHER CURRENT ASSETS

11,954

12,273

French R&D tax credit receivables as of January 31, 2018 are related to
costs incurred in FY 2017.

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, 2018 January 31, 2017

Employee-related liabilities

Tax payables

Other current liabilities

TAX PAYABLES, EMPLOYEE-RELATED
LIABILITIES AND OTHER SHORT-TERM
LIABILITIES

12,792

9,692

4,009

14,061

10,494

4,774

26,493

29,329

Tax payables consist primarily of VAT payables in the amount of
€8.647 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 probable that future outflows of
resources embodying economic benefits will be necessary to settle
the obligation, the amount of the obligation can be estimated in a
reliable way.

Provisions are established mostly to mitigate labor-related risks and other risks and expenses related to the Company's business activities.

(in € thousands)

January 31, 2017

Provisions

Reversals –
provisions used

Reversals – provisions
not used

Foreign exchange
gain/loss

January 31, 2018

Disputes

CURRENT PROVISIONS FOR
LIABILITIES

1,042

104

(498)

(57)

591

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated 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, 2018 and January 31, 2017
breaks down as follows:

(in € thousands)

Fixed compensation

Variable compensation

Travel bonus

Benefits in kind

Directors' fees

TOTAL

January 31, 2018

January 31, 2017

726

121

198

738

134

207

1,113

1,121

The detailed terms of remuneration of executive corporate officers are
presented in Section 2.6. of the Reference Document.

Regarding post-employment benefits, the provision for retirement
benefits for the two executive corporate officers whose employment
contract was suspended at the time of taking office is €97 thousand.
They also benefit from the allocation of 6,475 stocks options to
purchase or subscribe for shares under Plan No. 10 and 10,000 free
shares under Plan No. 6.

Note 12. Fees paid to Statutory Auditors

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 USD94 thousand. This agreement was
approved by the Board of Directors during April 8, 2017 meeting.

PricewaterhouseCoopers Audit

Ernst & Young

Total

Amount

(in € thousands, excluding tax)

Y-1

STATUTORY AUDIT

Certification, review of annual and consolidated financial statements

Amount

Y-1

Amount

Y-1

• Parent company

• Fully consolidated subsidiaries

Services other than certification of accounts

• Parent company

• Fully consolidated subsidiaries

SUB-TOTAL STATUTORY AUDIT

116

263

144

101

283

OTHER WORK AND SERVICES DIRECTLY RELATED TO STATUTORY AUDIT

Legal, tax, social

Others

SUB-TOTAL OTHER SERVICES

TOTAL

39%

30%

19%

88%

12%

40%

28%

11%

78%

22%

52%

46%

54%

46%

144

128

157

133

279

290

100%

Y-1

46%

36%

88%

12%

260

218

542

301

234

573

45%

38%

11%

94%

298

361

100%

290

259

100%

577

651

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 January 31, 2018 came to €303 thousand.

Note 13. Subsequent events
No post-closing events.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

5.1.6. Statutory Auditors’ report on the consolidated financial statements

This is a translation into English of the Statutory Auditors’ report on the consolidated financial statements of the Company issued in French and
it is provided solely for the convenience of English speaking users.

This Statutory Auditors’ report includes information required by European regulation and French law, such as information about the appointment
of the Statutory Auditors or verification of the information concerning the Group presented in the 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, 2018

To the General Meeting of ESI Group,

Opinion
In compliance with the engagement entrusted to us by your General Meeting, we have audited the accompanying consolidated financial statements
of ESI Group for the year ended January 31, 2018.

In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group
as at January 31, 2018 and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards as
adopted by the European Union.

The audit opinion expressed above is consistent with our report to the Audit Committee.

Basis for opinion

Audit framework
We conducted our audit in accordance with professional standards applicable in France. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

Our responsibilities under those standards are further described in the “Statutory Auditors’ Responsibilities for the Audit of the Consolidated
Financial Statements” section of our report.

Independence
We conducted our audit engagement in compliance with independence rules applicable to us, for the period from February 1, 2017 to the date of
our report and specifically we did not provide any prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No. 537/2014 or in the
French Code of Ethics (Code de déontologie) for Statutory Auditors.

Justification of assessments – Key audit matters
In accordance with the requirements of Articles L. 823-9 and R. 823-7 of the French Commercial Code (Code de commerce) relating to the justifica-
tion of our assessments, we inform you of the key audit matters relating to risks of material misstatement that, in our professional judgment, were
of most significance in our audit of the consolidated financial statements of the current period, as well as how we addressed those risks.

These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on specific items of the consolidated financial statements.

Capitalization of development costs

Risk identified

In the balance sheet of the Group, non-current assets include capitalized development costs. As of January 31, 2018, their net book value amounts to
€41,473 thousand. They correspond mostly to cost of direct labor as well as sub-contracting, incurred for the development of new annual versions
or major improvements of existing ESI software.

As indicated in paragraph 6.1.2 of the notes to consolidated financial statements, development costs are capitalized in situations where the six
requirements set forth under IAS 38, “Intangible Assets”, are met. Capitalized development costs start to be amortized after the market release of
the related version of the software. Capitalized expenses are amortized on a straight-line basis over a period of 12 months for new annual versions
of software, and over 24 or 36 months for major improvements to existing products, depending on the degree of innovation.

ESI Management set up procedures and rules to ensure that:

• The process to distinguish between research and development costs is respected;

• Capitalized development costs met all criteria set forth under IAS 38; and

• Useful life period over which each project is amortized is adapted to the nature / level of innovation of the project.

However, regarding the significant impact on the consolidated income statement of capitalization of development costs and the significant balance
of these capitalized costs recorded as assets in the consolidated balance sheet, it follows that any deviation from the procedures in place or any
misinterpretation of the capitalization criteria could lead to significant impacts on the Group's consolidated financial statements and financial
performance.

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

The assessment of compliance with the criteria for capitalization of development costs, as well as the determination of the amortization period
depending on the nature of the project, are very much based on Management's judgment and the reliability of the procedures applied for the
identification and allocation of expenses between the different projects.

On this basis, we considered capitalization of development costs as a key audit matter.

Our response

We examined the compliance of the Group's accounting treatment of research and development costs with current accounting standards.

We also conducted a critical review of how this methodology was implemented. In particular, we conducted the following procedures:

• We have taken notice of the procedure followed by the Group to distinguish between research and development costs and, for the latter, the

rules put in place to assess compliance with the capitalization criteria laid down in IAS 38;

• We tested by sampling the correct application of the procedures implemented for the identification, monitoring and recording of research and

development costs;

• We audited, for a selection of projects, the correct application of the capitalization criteria set out in IAS 38 and tested the accuracy and

completeness of the most significant expenses charged to these projects;

• We verified the correct calculation of amortization expense mainly by controlling the correct application of the rules for setting the straight-line

amortization period, depending on the nature of the project (major improvement or new version).

We have reconciled accounting and management data in order to assess the accuracy and completeness of information reporting process for
recording.

Valuation of goodwill

Risk identified

As part of its development, the Group was led to carry out targeted acquisitions leading to recognition of goodwill.

This goodwill, which corresponds to the difference between the price paid and the fair value of identifiable assets and liabilities acquired, amounts
to €41,026 thousand at end January 2018.
Any adverse change in the expected returns of the business, due to internal or external factors, for example related to the economic and financial
environment, is likely to significantly affect the recoverable amount and require the recognition of impairment. Such a change therefore implies
a regular reappraisal (at least once a year, or when an indication of loss of value is identified) of the relevance of all the assumptions used to
determine this value as well as the reasonableness and coherence of the valuation parameters. To this end, Management examines indicators of
potential losses and performs an impairment test by ensuring annually that the book value of goodwill does not exceed their recoverable amount.
This recoverable amount is determined by reference to the value in use, itself calculated from the present value of the expected cash flows of the
group of assets. For the purpose of the impairment test, goodwill is allocated to cash generating units ("CGUs"). ESI Group uses a single CGU for
the entire Group.

Methodology applied for the impairment test and assumptions used are presented in paragraph 3.1 of the notes to consolidated financial statements.

The determination of the recoverable value of goodwill is largely based on Management's judgment, in particular as regards the growth rate used
for the cash flow projections and the discount rate applied. We therefore considered the valuation of goodwill as a key audit matter.

Our response

We obtained the last budget and strategic plan as well as the impairment test established by Management. Based on this information, we performed
the following procedures:

• We examined the regularity and permanence of the accounting principles and methods applied;

• We analyzed the key assumptions retained:

– regarding cash flows: critical review of the budget and strategic plan validated by Management, based on our knowledge of the Group,

– regarding the long-term growth rate and the discount rate applied to these flows, we have assessed, with the help of our valuation specialists,

the main assumptions used;

• We performed an arithmetic check of the calculation of the recoverable value of the assets and of their book value.

We obtained and reviewed sensitivity analyzes performed by Management.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
Consolidated financial statements

Revenue recognition principles

Risk identified

The Group generates revenue from several sources, the main ones being software licenses, periodic licenses, maintenance services and services.

In the case of contracts that include several of these items sold together, the determination of the date of recognition of the revenue and its
allocation between the different components of the contracts may require, if necessary, a part of the judgment of Management.

Revenue from software licenses comes from end-user license fees and associated maintenance services. The portion of revenue allocated to
maintenance is determined by the nature of the license sold, as described in paragraph 4.1 of the notes to consolidated financial statements. This
allocation of revenue between the different components of a contract requires analyzes and restatements of the Management.

We therefore considered for these various reasons the recognition of revenue as a key audit matter.

Our response

As part of our audit, we conducted tests on all contracts deemed significant as well as on a sample of contracts selected at random, in order to
(i) review the allocation (in accordance with the accounting principles described in paragraph 4.1 of the notes to consolidated financial statements)
of the revenue between each component of the contract; (ii) analyze the revenue recognition for the appropriate amount and the appropriate
accounting period.

These tests include analyzing the contractual terms, recalculating each item and examining the revenue recognition in accordance with the prin-
ciples set out in paragraph 4.1 of the notes to consolidated financial statements, which conformity with IFRS was previously assessed.

Verification of the information pertaining to the Group presented in the management report
As required by law we have also verified in accordance with professional standards applicable in France the information pertaining to the Group
presented in the management report of the Board of Directors.

We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements.

Report on other legal and regulatory requirements

Appointment of the Statutory Auditors
We were appointed as Statutory Auditors of ESI Group by the General Meeting held on June 25, 2009 for PricewaterhouseCoopers Audit and on
December 16, 1997 for Ernst & Young Audit.
As at January 31, 2018, PricewaterhouseCoopers Audit and Ernst & Young Audit were in the 9th year and 21th year of total uninterrupted engagement
(which are the 18th year since securities of the Company were admitted to trading on a regulated market) respectively.

Responsibilities of Management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International
Financial Reporting Standards as adopted by the European Union and for such internal control as Management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, Management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it is expected to liquidate the
Company or to cease operations.

The Audit Committee is responsible for monitoring the financial reporting process and the effectiveness of internal control and risks management
systems and where applicable, its internal audit, regarding the accounting and financial reporting procedures.

The consolidated financial statements were approved by the Board of Directors.

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
Consolidated financial statements

Statutory Auditors’ responsibilities for the audit of the consolidated financial statements

Objectives and audit approach
Our role is to issue a report on the consolidated financial statements. Our objective is to obtain reasonable assurance about whether the consoli-
dated financial statements as a whole are free from material misstatement. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with professional standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.

As specified in Article L. 823-10-1 of the French Commercial Code (Code de commerce), our statutory audit does not include assurance on the
viability of the Company or the quality of management of the affairs of the Company.

As part of an audit conducted in accordance with professional standards applicable in France, the Statutory Auditor exercises professional judgment
throughout the audit and furthermore:

• Identifies and assesses the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, designs and
performs audit procedures responsive to those risks, and obtains audit evidence considered to be sufficient and appropriate to provide a basis
for his opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

• Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,

but not for the purpose of expressing an opinion on the effectiveness of the internal control;

• Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by

Management in the consolidated financial statements;

• Assesses the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going
concern. This assessment is based on the audit evidence obtained up to the date of his audit report. However, future events or conditions may
cause the Company to cease to continue as a going concern. If the Statutory Auditor concludes that a material uncertainty exists, there is a
requirement to draw attention in the audit report to the related disclosures in the consolidated financial statements or, if such disclosures are
not provided or inadequate, to modify the opinion expressed therein;

• Evaluates the overall presentation of the consolidated financial statements and assesses whether these statements represent the underlying

transactions and events in a manner that achieves fair presentation;

• Obtains sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express
an opinion on the consolidated financial statements. The Statutory Auditor is responsible for the direction, supervision and performance of the
audit of the consolidated financial statements and for the opinion expressed on these consolidated financial statements.

Report to the Audit Committee
We submit a report to the Audit Committee which includes in particular a description of the scope of the audit and the audit program imple-
mented, as well as the results of our audit. We also report, if any, significant deficiencies in internal control regarding the accounting and financial
reporting procedures that we have identified.

Our report to the Audit Committee includes the risks of material misstatement that, in our professional judgment, were of most significance in the
audit of the consolidated financial statements of the current period and which are therefore the key audit matters that we are required to describe
in this report.

We also provide the Audit Committee with the declaration provided for in Article 6 of Regulation (EU) No. 537/2014, confirming our independence
within the meaning of the rules applicable in France such as they are set in particular by Articles L. 822-10 to L. 822-14 of the French Commercial
Code (Code de commerce) and in the French Code of Ethics (Code de déontologie) for Statutory Auditors. Where appropriate, we discuss with the
Audit Committee the risks that may reasonably be thought to bear on our independence, and the related safeguards.

Neuilly-sur-Seine and Paris-La Défense, May 23, 2018
The Statutory Auditors
French original signed by

PricewaterhouseCoopers Audit
Thierry Charron

Ernst & Young Audit
Frédéric Martineau

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
ESI Group annual 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

OPERATING INCOME

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 RESULT

FINANCIAL RESULT

CURRENT RESULT BEFORE TAX

EXCEPTIONAL RESULT

Employee profit-sharing

Income tax

NET PROFIT (LOSS)

Note

January 31, 2018

January 31, 2017
Published

January 31, 2017
Restated(1)

E.1

E.3

E.4

E.5

E.6

E.7

E.8

F.5

83,861

83,884

(500)

29,540

144

1,435

1,311

84,313

543

28,467

173

675

84,313

543

28,467

173

1,235

1,076

115,814

114,173

115,807

(10)

60,506

1,384

14,767

6,971

26,984

2,357

1,489

114,518

1,296

2,004

3,300

(2,228)

5,547

114

(96)

60,973

1,246

14,160

6,712

26,618

1,041

212

110,981

3,192

(2,492)

700

(721)

(1,669)

1,632

114

(96)

60,973

1,246

14,160

6,712

26,618

2,085

1,298

113,111

2,697

(1,997)

700

(721)

(1,669)

1,632

(1) The restated income statement at January 31, 2017 accounts for the change of accounting method for the fiscal year ended January 31, 2018, i.e. booking in

operating result of all foreign exchange gains or losses on trade receivables and payables (see note A.2).

ESI GROUP • 2017 REGISTRATION DOCUMENT5.2.2. 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

TOTAL ASSETS

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

FINANCIAL LIABILITIES

Down payments from clients

Trade payables

Tax payables and employee-related liabilities

Other liabilities

OPERATING LIABILITIES AND MISCELLANEOUS DEBTS

Deferred income

Foreign exchange gains and losses

TOTAL LIABILITIES

FINANCIAL STATEMENTS
ESI Group annual financial statements

January 31, 2018

January 31, 2017

Notes

Gross value

Amortization/
Provisions

Net value

C.1

C.2

C.3

C.4

C.5

C.6

C.7

84,639

9,579

70,216

164,434

1,648

59,509

8,885

4,512

5,005

79,621

2,558

358

1,576

(25,822)

(7,980)

(5,981)

(39,782)

(2,439)

(130)

(2,569)

58,818

1,599

64,235

124,652

1,648

57,070

8,756

4,512

5,005

77,052

2,558

358

1,576

54,931

2,043

64,892

121,865

1,671

307

56,785

9,299

4,375

5,328

77,766

2,595

434

1,044

248,547

(42,351)

206,196

203,704

Notes

January 31, 2018

January 31, 2017

D.2

D.10

D.4

D.5

D.7

D.8

D.6

D.9

D.6 & D.10

18,049

38,314

1,798

32,549

5,547

1,344

97,600

485

5,561

37,251

2,500

39,751

202

37,649

6,992

16,058

60,900

724

1,176

17,976

37,749

1,787

30,927

1,632

1,084

91,155

310

5,031

44,103

2,633

46,736

233

38,523

6,719

11,372

56,847

345

3,280

206,196

203,704

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
ESI Group annual financial statements

5.2.3. Notes to ESI Group annual financial statements

Table of contents of notes to the annual financial statements

Note A. Significant events of the year and change

in accounting method

Note B. Accounting principles and methods
Note C. Asset details

98
98
101

Note D. Liability details
Note E. Details on income statement
Note F. Other information

104
107
109

The balance sheet total at January 31, 2018 came to €206,196 million
and the income statement for the fiscal year showed net profit of
€5.547 million.
The fiscal year corresponds to a 12-month period, from February 1, 2017
to January 31, 2018.

The financial statements were prepared in accordance with the French
General Accounting Plan and generally accepted 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 financial statements.

Note A. Significant events of the year and change in accounting method

Note A.1. Significant events

Changes in scope of consolidation
• Acquisition in February 2017 of 100% of the shares of the French
company Scilab Enterprises paid essentially in ESI treasury shares.

• Buyout of minority interests in the subsidiaries ESI Software Germany
and ESI Italia s.r.l. (100% of capital owed for both at January, 2018).

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 financial state-
ments: the basic method used to measure accounting items is the
historical cost method.

Note B.1. Use of estimates
Preparation of the financial statements requires the use of 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 informa-
tion provided in selected notes. ESI Group carries out comprehensive
reviews of these estimates and assessments to take account of past
experience and other factors judged relevant with regard to economic
conditions.

Note A.2. Change in accounting method
As of the fiscal year ended January 31, 2018, ESI Group applies the
ANC Regulation 2015-05 on forward financial instruments and hedging
transactions, which is compulsory to fiscal years beginning on or after
January 1, 2017.

According to this new regulation, realized foreign exchange gains or
losses on trade receivables and payables are now recorded in operating
result. By analogy, provisions and provisions reversals for unrealized
foreign exchange losses on trade receivables and payables are reco-
gnized in operating income.

For information purposes, the income statement is presented with
comparative figures at January 31, 2017 – as published last year and
restated (pro forma incorporating the change in method).

These estimates, assumptions and assessments are established 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 contingencies and
charges and assumptions used for the valuation of equity investments
and selected intangible assets.

Note B.2. Intangible assets

Research and development costs
Internal research and development costs are recorded in the appro-
priate expense category; expenses corresponding to research and
development performed by service providers within the Group or third
parties are recorded as subcontracting expenses.

Internal expenses related to research and development work incurred
during the fiscal year (wages, payroll taxes and environment-related
costs) are capitalized and recognized 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 assets. Research and development projects or
the portion of expenses not meeting all of the six criteria continue to
be recognized as expenses. Amortization begins upon delivery of the
project. Projects that are unfinished at the closing date are capitalized
as work in progress.

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
ESI Group annual financial statements

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.

Other investments
Other investments mainly comprise deposits and guarantees and
factoring guarantee funds (factoring of receivables from the French R&D
tax credit).

Amortization begins at release of the version.

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.

Other intangible assets
Other intangible assets (patents, software) are amortized according to
the straight-line method according to their estimated useful life.

Office and similar software applications

1 year on a straight-line basis

Other operational software

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 impairment 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 fittings,
miscellaneous building work

Transportation equipment

Office equipment

New computer equipment

Used computer equipment

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

Furnishings

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 the methods presented here
below according to the situation of the subsidiary:

• Shares in active subsidiaries are valued on the basis of a multiple of
revenue adjusted for net cash position of the subsidiary, or alterna-
tively on the basis of discounted forecast cash flows for recently
acquired entities;

• Shares in dormant subsidiaries or those with reduced 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 accelerated capital allowances,
over a period of five years.

Receivables related to equity investments are provisioned if there is a
risk of non-recovery.

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 progress and
valued at production cost with a margin assessed according to the
percentage of completion method.

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 likeli-
hood of recovery, is less than its accounting value. All impairment 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 reasoning as equity investments in terms
of impairment.

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, 2018, marketable securi-
ties were made up exclusively of the Company'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 acquisition.

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 securities.

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. Liabilities, receivables and cash
in foreign currency are recorded on the balance sheet at the exchange
value prevailing at the balance sheet date.

The difference resulting from the conversion of the debts and recei-
vables in currencies at this final exchange rate is recorded on the
balance sheet as a “currency translation adjustment.”

A provision for contingencies is recorded for foreign exchange losses
only for the part that does not have hedging.

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
ESI Group annual financial statements

Losses, gains or foreign exchange provisions on operating trade recei-
vables and payables are accounted in operating result, and those on
financial items are accounted in financial result.

Note B.10. 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. When maturities
fall, gains and losses from financial instruments are booked in operating
result when they cover receivables or debts and in financial result when
they are related to financial receivables or debts.

Signed financial instruments are presented as Off-balance-sheet
commitments in the notes to the financial statements in the period
between subscription and maturity.

Note B.11. Regulated provisions
Regulated provisions consist of accelerated capital allowances of two
types:

• Differences between tax-related amortization and amortization for

depreciation;

• Amortization of share acquisition costs.

These regulated provisions are offset in the income 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.

Provision for retirement and post-employment benefits
Retirement commitments are valued and recognized using the projected
unit 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, inflation rate and future salary increases.

Differences observed between the valuation of obligations and forecasts
of such obligations (on the basis of new projections or assumptions) are
known as actuarial gains and losses.

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 pertaining to interest

on discounting to present value.

The provision at year-end represents the actuarial commitment. The
Company has no hedging asset.

Note B.13. Recognition of revenue
Licensing revenue is generated from royalties paid under licensing
agreements granted to end customers and related maintenance services.

This revenue is recognized when the following four criteria 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 determined or

determinable;

• Recovery is likely.

Revenues from services consist mainly of consulting and training
fees. They are recognized according to the percentage 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 received from
the Group's distribution subsidiaries and income from subcontracted
consulting services, re-invoicing 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 basis with regard to the proportion financed.

Note B.14. Tax consolidation
On February 1, 2008, ESI Group has formed a tax consolidation group
with its French subsidiary, Engineering System 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 member of the tax Group.

As regards the financial statements for the fiscal year, for Engineering
System International there is no difference between the tax borne as
part of the tax consolidation group and that which would have been
borne in the absence of tax consolidation.

Neither of the two companies in the tax group has loss carryforwards
prior to the current year.

For information, the French competitiveness and employment 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.

100

ESI GROUP • 2017 REGISTRATION DOCUMENTNote 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

FINANCIAL STATEMENTS
ESI Group annual financial statements

January 31, 2017

35,338

25,701

1,028

16,374

1,944

80,385

(16,050)

(9,332)

(73)

(25,455)

19,288

16,369

955

16,374

1,944

54,930

Increase

29,738

304

30,137

(25,486)

(566)

(26,051)

4,252

4,347

Decrease

January 31, 2018

(25,684)

(199)

(25,883)

25,684

(261)

(199)

(460)

39,392

26,005

1,028

16,175

2,038

84,639

(15,851)

(9,898)

(73)

(25,822)

23,541

16,108

955

16,175

2,038

58,818

The decrease in development costs reflects scrapping of fully amortized assets.

The goodwill mainly reflects the acquisition on July 26, 1991 from the company Engineering System International, 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(1)

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

January 31, 2017

Increase

Decrease

January 31, 2018

2,333

6,623

8,983

(1,462)

(5,453)

(26)

(6,940)

871

1,171

2,043

167

430

597

(334)

(707)

(1,042)

(167)

(278)

(445)

(1)

2,500

7,052

9,579

(1,795)

(6,159)

(26)

(7,980)

705

893

1,599

(1) This line includes an exceptional provision of € 185 thousand. It corresponds to an accelerated amortization of Rungis office fixtures and fittings because of a

future relocation in july 2018.

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

Provisions for depreciation of other financial assets

TOTAL AMORTIZATION, PROVISIONS

Equity investments

Receivables related to equity investments

Other investments

TOTAL NET VALUE

January 31, 2017

55,865

13,196

1,351

70,412

(3,785)

(1,736)

(5,521)

52,080

11,460

1,351

64,891

Increase

1,286

347

1,633

(340)

(116)

(4)

(460)

946

177

1,123

(1) This line primarily includes deposits and guarantees on rental properties for an amount of €486 thousand, factoring guarantee funds for an amount of

€900 thousand, and treasury shares (liquidity contract) for an amount of €147 thousand.

Decrease

January 31, 2018

(1,664)

(166)

1,830

(1,780)

57,151

11,532

1,532

70,215

(4,125)

(1,852)

(4)

(5,981)

53,026

9,680

1,528

64,235

101

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
ESI Group annual financial statements

Movements in 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

Scilab Enterprises

Acquisition costs Scilab Entreprises

Cademce SAS

TOTAL

Movements in the provision for 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, 2017

Increase

Decrease

January 31, 2018

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

394

317

550

1,286

458

3,726

164

2,678

941

100

912

1,789

796

193

111

119

1,737

1,050

242

543

10,708

322

446

129

2,351

162

1,904

283

124

576

4,017

293

900

17,952

436

550

100

57,151

January 31, 2017

Increase

Reversal

January 31, 2018

1,737

119

193

1,205

432

100

3,785

121

219

339

1,737

119

193

1,326

651

100

4,125

As at January 31, 2018 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.

102

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
ESI Group annual financial statements

Receivables related to equity investments

(in € thousands)

January 31, 2018

January 31, 2017

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)

TOTAL

(1) This loan has been impaired by €0.718 million.
(2) This loan has been impaired by €1.134 million.

Note C.4. Receivables – Provisions for depreciation of receivables

7,787

902

1,020

1,823

11,532

9,019

1,045

1,020

2,112

13,196

6-month Libor $ + 1% margin

Profit-sharing loan capped at 5%

6-month Libor $ + 1% margin

(in € thousands)

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

Trade payables debtors

Other receivables

Prepaid expenses

TOTAL

At January 31, 2018

At January 31, 2017

Gross value Due in 1 year or less

Due in between 1 and 5
years

Gross value

11,532

147

1,386

2,430

10,600

46,478

839

2,679

160

396

1,005

3,197

540

2,558

84,017

147

292

2,430

10,600

46,478

839

2,679

160

396

1,005

3,197

540

2,558

71,391

11,532

1,094

12,626

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

Details of provisions for depreciation of receivables

(in € thousands)

Provisions for doubtful receivables

Provisions for other receivables

TOTAL

January 31, 2017

Increase

Reversal used

January 31, 2018

2,093

131

2,224

435

(89)

(2)

(90)

2,439

129

2,569

Note C.5. Treasury shares
Treasury shares in the balance sheet are classified in Financial assets in an amount of €147 thousand (liquidity contract) and in Marketable securities
in an amount of €4.293 million.

Change in the number of treasury shares

Treasury shares

January 31, 2017

419,386

Increase

86,899

Decrease

January 31, 2018

95,979

410,306

The total value on the balance sheet is thus €4.440 million, compared to a market fair value of €17.643 million at January 31, 2018, for an unrealized
gain of €13.203 million.

Note 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.

January 31, 2018

January 31, 2017

507

1,347

704

358

2,916

932

691

972

434

3,029

103

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
ESI Group annual financial statements

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

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

Group trade payables credit note to issue

Miscellaneous income

TOTAL

Note D. Liability details

January 31, 2018

January 31, 2017

1,082

493

1,576

374

670

1,044

January 31, 2018

January 31, 2017

4,010

1,877

259

275

6,460

3,043

1,249

108

4,432

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, 2017

Allocation
of 2015 profit

2017 profit

Other

January 31, 2018

17,976

25,218

9,677

2,854

1,787

30,927

1,632

1,084

91,155

1,621

(1,632)

5,547

565

260

898

18,049

25,782

9,677

2,854

1,798

32,548

5,547

1,344

97,600

Movements in the “Other” column reflect:

• The capital increase with the associated share issuance premium following the exercise of 24,450 share subscription options during the fiscal year;
• Accelerated capital allowances for an amount of €260 thousand.

Note D.2. Legal capital

Common shares (par value of €3)

O/w preferred shares (double voting rights)

6,016,442

2,241,491

24,450

The capital increase is attributable to the exercise of share subscription options for 24,450 shares.

At the end of the fiscal year Created during the fiscal year

Repaid during the fiscal year

Number of shares

104

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
ESI Group annual financial statements

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.

Plan number (date of
General Meeting)

Date of Board of
Directors

Number of stock
options/shares
allotted or to be
allotted

Number of stock
options/shares
granted

O/w
performance
shares

Number of existing
stock options/shares
at January 31, 2018

Exercise
price

Limit year
for exercising
options

Plan 10
(GM of June 26, 2012)

Plan 15
(GM of July 23, 2013)

Plan 17
(GM of July 24, 2014)

12/19/2012

02/07/2014

03/26/2015

07/22/2015

Total

180,000

03/26/2015

07/22/2015

03/11/2016

05/05/2017

Total

294,538

180,000

297,753

952,291

60,000

1,012,291

150,850

11,000

15,000

3,150

180,000

20,000

7,350

10,000

18,175

1,875

37,400

62,300

20,000

1,875

237,400

84,175

25,000

2,275

9,000

36,275

273,675

84,175

27.82

24.42

21.66

27.17

21.66

27.17

50.92

41,850

375

3,150

45,375

7,350

18,175

1,875

27,400

72,775

25,000

2,068

9,000

36,068

108,843

2020

2022

2025

2023

2025

2023

2026

2025

2020

2021

Authorization given at the GM of July 2016

TOTAL STOCK-OPTIONS

Plan 6
(GM of July 21, 2016)

Plan 7
(GM of July 21, 2016)

Plan 8
(GM of July 21, 2016)

TOTAL FREE SHARES

07/21/2016

12/23/2016

08/01/2017

TOTAL STOCK-OPTIONS AND FREE SHARES

All stock options and free shares include a continued employment requirement.

Note D.4. Conditional advances

(in € thousands)

January 31, 2018

Up to 1 year

1 to 5 years

More than 5 years

January 31, 2017

Advance on Ademe financing agreement

Bpifrance advance

TOTAL

402

485

402

162

147

310

Note D.5. Provisions for contingencies and charges

(in € thousands)

January 31, 2017

Increase

Reversal used

January 31, 2018

Foreign exchange gains and losses (Note C.7)

Provisions for contingencies and charges (operating result)

Provision for retirement obligations

TOTAL

1,044

383

3,604

5,031

1,540

444

1,983

(1,044)

(355)

(55)

(1,454)

1,540

3,993

5,561

Provisions for contingencies and charges as at January 31, 2018 mainly
correspond to the impact of changes in currency rates and labor-related
risks.

The movements concerning provision allowance for retirement obliga-
tions breaks down as follows:
• €383 thousand for an operating allowance, o/w €277 thousand in
costs for services rendered, €106 thousand in actuarial gains and
losses and €-55 thousand in services paid during the fiscal year;

• €61 thousand for a financial allowance corresponding to interest

expenses.

Actuarial assumptions for retirement obligations

Discount rates

Rate of salary increase

January 31,
2018

January 31,
2017

1.40%

2.50%

1.70%

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.

105

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
ESI Group annual financial statements

Note D.6. Statement of liabilities

(in € thousands)

Banks borrowings (D.7)

Miscellaneous financial debt (D.8)

Down payments from clients

Trade payables

Group trade payables

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

January 31, 2018

Up to 1 year

1 to 5 years

More than 5 years

January 31, 2017

37,251

2,500

202

7,512

30,137

2,583

2,268

1,662

479

13,968

2,085

724

101,375

10,630

2,500

202

7,512

30,137

2,583

2,268

1,662

479

13,968

2,085

724

74,754

18,258

8,363

44,103

2,633

233

7,994

30,529

2,697

2,151

1,409

462

9,096

2,211

345

18,258

8,363

103,927

Note D.7. Bank borrowings
At January 31, 2018, bank borrowings stand at €37.251 million and break
down as follows:
• €30.085 million related to the long term syndicated lines of credit;
• €1 million in long term borrowings from Bpifrance;
• €6 million in drawdowns from the revolving credit line;
• €165 thousand in accrued interest on borrowings.
The main source of funding for ESI Group is the syndicated loan signed
in November 2015, consisting of long term lines of credit maturing in

Note D.8. Miscellaneous financial debt

November 2022, with a partial annual amortization, and of revolving
line of credit of €10 million.
At January 31, 2018, ESI Group has established hedging instruments for
40% of the nominal amount of long term lines. Moreover, short term
line of €6 million of the revolving credit has been used. As of the date
of approval of financial statements by the Board of Directors, the entire
revolving line of credit has been paid off.

Off-balance-sheet commitments associated with this syndicated loan
are presented in note F.4.

(in € thousands)

January 31, 2018

Up to 1 year

1 to 5 years

More than 5 years

January 31, 2017

Employee profit sharing/interest accrued

Promissory note

TOTAL

2,500

133

2,500

2,633

Note D.9. Tax payables and employee-related liabilities

(in € thousands)

January 31, 2018

January 31, 2017

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

Note D.10. Other operating payables

(in € thousands)

Creditor trade receivables

Subsidiaries current account

Advances on co-financed projects

Other liabilities

TOTAL

106

2,518

1,177

1,044

1,662

591

6,991

2,257

1,387

1,107

1,409

559

6,719

January 31, 2017

Increase

Decrease

January 31, 2018

9,096

2,096

114

11,307

272

9,556

9,827

(4,684)

(345)

(48)

(5,077)

272

13,968

1,752

16,508

ESI GROUP • 2017 REGISTRATION DOCUMENTNote 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

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 change provision on trade receivables and payables

Foreign exchange gains on trade receivables and payables

Other income

TOTAL OTHER INCOME

(1) Please refer to note A.2.

FINANCIAL STATEMENTS
ESI Group annual financial statements

January 31, 2018

January 31, 2017

205

556

415

1,176

925

2,079

189

3,280

January 31, 2018

January 31, 2017

165

13,096

2,518

1,177

169

1,752

18,876

167

10,594

2,257

1,387

354

2,096

16,863

January 31, 2018

January 31, 2017

13,449

2,575

56,150

5,376

1,544

4,790

83,884

13,983

1,865

57,834

4,458

1,638

4,535

84,313

January 31, 2018

January 31, 2017

11,607

27,715

13,082

31,480

83,884

9,905

21,668

13,884

38,856

84,313

January 31, 2018

January 31, 2017
Published

January 31, 2017
Restated(1)

(500)

29,540

395

1,044

1,310

141

31,930

543

28,467

675

175

29,860

543

28,467

675

560

1,074

175

31,494

107

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
ESI Group annual financial statements

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

Postage, 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 change on trade receivables and payables

Provision for contingencies and charges

TOTAL

(1) Please refer to note A.2.

Note E.6. Other operating expenses

(in € thousands)

Royalties

Directors' fees

Foreign exchange losses on trade receivables and payables

Miscellaneous expenses

TOTAL

(1) Please refer to note A.2.

108

January 31, 2018

January 31, 2017

8,104

17,300

20,715

270

3,845

1,667

302

2,242

1,721

918

2,218

491

712

9,055

18,159

19,567

305

3,642

1,543

302

1,884

2,942

897

1,557

516

603

60,506

60,973

January 31, 2018

January 31, 2017

734

127

313

210

583

129

291

244

1,384

1,246

January 31, 2018

January 31, 2017
Published

January 31, 2017
Restated(1)

25,391

24,831

661

857

435

382

1,540

875

837

623

343

29,341

27,659

875

837

623

343

1,044

28,702

January 31, 2018

January 31, 2017
Published

January 31, 2017
Restated(1)

138

1,291

1,489

147

212

147

1,086

1,298

ESI GROUP • 2017 REGISTRATION DOCUMENTNote E.7. Financial income

(in € thousands)

Foreign exchange gain/(loss) realized

Unrealized foreign exchange gain/(loss)

Realized change result on trade receivables and payables provision

Interest on borrowings

Interest on subsidiaries current account

Provision for retirement obligations

Provision for impairment equity investments

Reversal provision for investments

AVIC ESI dividend

ESI Japan, Ltd dividend

Other financial income/(expenses)

TOTAL

(1) Please refer to note A.2.

Note E.8. Exceptional income

(in € thousands)

Profit or loss on movements of treasury shares

Accelerated capital allowances

Exceptionnal amortization(1)

Reversal of exceptional accrual

Exceptional expense on treasury shares sales

Produit cession actions propres lié à l’acquisition de Scilab Enterprises (please refer to note A.1.)

Presto additional payment

Miscellaneous

TOTAL

FINANCIAL STATEMENTS
ESI Group annual financial statements

January 31, 2018

January 31, 2017
Published

January 31, 2017
Restated(1)

(544)

(840)

(61)

(456)

3,921

(102)

2,004

(230)

(484)

(868)

(61)

(827)

(230)

(484)

495

(868)

(61)

(827)

(105)

(2,492)

(105)

(1,997)

January 31, 2018

January 31, 2017

(61)

(260)

(185)

105

468

(71)

(25)

(326)

(148)

(244)

(721)

(1) This exceptional amortization of €185 thousand corresponds to an accelerated amortization of Rungis office fixtures and fittings because of a future relocation

in July 2018.

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, 2018
Headcount

January 31, 2017
Headcount

224

243

214

234

January 31, 2018

January 31, 2017

471

428

152

473

426

158

1,113

1,121

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

109

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT5

FINANCIAL STATEMENTS
ESI Group annual financial statements

Note F.4. Off-balance sheet commitments

Future lease obligations

(in € thousands)

Real estate rentals

Movable property rentals

TOTAL

Less than 1 year

Between 1 and 5 years

1,162

1,365

2,527

8,493

165

8,658

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:

• Ratio R1: Consolidated net financial debt divided by consolidated
EBITDA: less than or equal to 2.7 at January 31, 2018 (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, net consolidated
cash balance should be positive.

As of January 31, 2018, on the basis of the consolidated financial state-
ments certified by the auditors, the Group was compliant with the
ratios described above.

During the fiscal year ended January 31, 2018, 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 since January 31, 2017.
In terms of managing exposure to fluctuations in exchange rates and
interest rates, ESI Group uses the following financial instruments,
recognized under financial result for interest rate instruments an in
operating result for change instruments:

• Interest rate derivatives:

– Three swaps in a nominal amount of €1.5 million as of January 31,
2018, 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 €2.4 million, as of January 31,
2018, 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.
– One swap in a nominal amount of €0.5 million, as of January 31,
2018, ESI Group receiving variable rate 1-month Euribor (with a 0%
floor) and paying fixed rates of 0.30.

– At January 31, 2018, the market value of these instruments was

-€36 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 currency options at any time and enter into
any other type of foreign exchange contract. Foreign exchange
instruments in place at January 31, 2018 concerned, US dollar (term
purchase) Japanese yen (forwards, tunnels, targets), South Korean
won (non-delivery forwards) and Indian rupee (non-delivery
forwards).

– At January 31, 2018, the market value of these instruments was

€113 thousand.

– Currency hedging instruments subscribed at January 31 2018, with
maturities falling planned for the next year correspond to asym-
metric tunnels sellers of Japanese yen with borders of 130,7-134 for
amounts respectively of JPY 1,006 million and JPY 805 million.

ESI Group also has an obligation relating to the 2015 acquisition of
Presto: a variable earnout payable in three installments to the founders
on the first three anniversaries of the acquisition, on condition of their
employment at ESI on the payment dates. The second payment carried
out during the fiscal year ended January 31, 2018 was recognized in
exceptional items.

Pledges
At January 31, 2018, ESI Group had a rent security deposit with Crédit du
Nord in an amount of €82 thousand, established in November 2012 and
expiring November 28, 2021 plus 6 months.

110

ESI GROUP • 2017 REGISTRATION DOCUMENTFINANCIAL STATEMENTS
ESI Group annual financial statements

Note F.5. Reconciliation of profit /(loss) and tax income/(charge)

(in € thousands)

Current income (loss)

Exceptional income

Competitiveness and employment tax credit

French R&D tax credit

TAX INCOME (LOSS)

Profit (loss) before
tax

Reconciliation of
income/loss

3,300

(3,960)(1)

Taxable
income

(660)

3,319

(3,939)

(620)

Tax (expense)/income

Profit (loss) after
tax

(526)

160

2,594

2,228

2,774

160

2,594

5,547

(1) The retreatment of € 3,960 thousand corresponds mostly to dividend received from ESI Japan for €3,921 thousand.

The tax expense of €526 thousand at January 31, 2018, in a negative tax result context, corresponds to losses on foreign tax certificates that cannot
be used for payment of income tax during this fiscal year.

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, 2018

1,176

868

2,126

709

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.

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FINANCIAL STATEMENTS
ESI Group annual financial statements

Note F.8. Table of controlled entities and affiliates (at January 31, 2018)

(in € thousands)

Head-quarters

Capital
(converted
at the closing
rate)

Shareholders’
equity other
than capital
and net profit
for the year
(converted at
the closing rate)

Carrying amount
of shares held

% of
capital
owned
(as a %)

Gross

Net

Total
guarantees
granted by
the Company

Outstanding
loans and
advances
granted by
the Company
or by the
subsidiary

Revenues,
after tax,
for the last
fiscal year
(converted
at the
average
exchange
rate)

Profit or
loss for
the last
fiscal year
(covered
at the
average
ex-change
rate)

Dividends
received
by the
Company
during the
fiscal year

A. DETAILED INFORMATION ON EACH SECURITY WITH GROSS VALUE EXCEEDING 10% OF THE COMPANY'S CAPITAL

3,921

17,097

26,325

6,673

22,435

4,161

8,597

4,295

9,759

3,234

154

812

(114)

314

614

154

142

(7)

10,307

1,055

4,494

(235)

971

553

3,515

8,895

1,388

1,042

222

233

6,340

2,161

637

4,669

266

215

502

(276)

(2)

(415)

(49)

119

(279)

(6)

1. Over 50%-owned subsidiaries

Engineering System
International

STRACO

ESI Japan, Ltd.

France

Japan

Hankook ESI Co., Ltd.

South Korea

ESI North America, Inc.

USA

ESI Group Hispania s.l.

Spain

Mecas ESI s.r.o.

ESI UK Limited

Czech Republic

United Kingdom

ESI US R&D, Inc.(1)

USA

Calcom ESI SA

Switzerland

Zhong Guo Co., Ltd

China

ESI Software (India)
Private Ltd

Hong Kong ESI Co.,
Limited

India

China

ESI-ATE Holdings Limited China

ESI Italia s.r.l.

Italy

ESI South America
Comércio e Serviços de
Informática, Ltda

ESI Services TUNISIA

ESI Group Beijing Co.,
Ltd

ESI Software Germany
GmbH

Efield AB

Brazil

Tunisia

China

Germany

Sweden

OpenCFD Limited

United Kingdom

CyDesign Labs, Inc.

USA

ESI Services Vietnam
Co., Ltd

CIVITEC

ITI GmbH

Mineset Inc.

Vietnam

France

Germany

USA

SAS Scilab Enterprises

France

2. 10-50% owned subsidiaries

ESI US Holding, Inc.

AVIC-ESI

USA

China

1,020

499

1,112

100

114

194

500

107

602

517

1,127

1,125

424

588

1,275

2,537

2,993

1,037

(2,346)

(1,916)

(769)

1,194

915

1,141

293

210

100.0

458

97.7

97.0

98.8

100.0

95.0

100.0

74.0

98.5

1,789

941

3,726

100

912

164

111

100

912

164

111

2,678

100.0

193

4,242

100.0

(752)

(868)

647

100.0

119

1,737

1,050

608

95.0

242

1,046

100.0

543

5,665

100.0

10,708

629

151

(523)

100.0

99.9

446

2,351

1,904

446

1,701

578

(1,505)

(521)

7,787

1,020

(2,232)

902

1,823

(119)

100.0

(610)

1,239

126

(507)

(476)

547

80.0

96.0

100

49.0

45.0

124

900

124

900

17,952

(1,039)

4,017

550

(143)

796

576

796

576

(1) ESI US R&D, Inc.: direct interest = 49%; indirect via US Holdings = 25%.

The data at January 31,2018 of the table of controlled entities and affiliates is a non audited data.

Note F.9. Subsequent events
There are no subsequent events.

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5.2.4. Statutory Auditors’ report on the financial statements

This is a translation into English of the Statutory Auditors’ report on the financial statements of the Company issued in French and it is provided
solely for the convenience of English speaking users.

This Statutory Auditors’ report includes information required by European regulation and French law, such as information about the appointment
of the Statutory Auditors or verification of the management report and other documents provided 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, 2018

To the General Meeting of ESI Group,

Opinion
In compliance with the engagement entrusted to us by your General Meeting, we have audited the accompanying financial statements of ESI Group
for the year ended January 31, 2018.

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, 2018 and of the results of its operations for the year then ended in accordance with French accounting principles.

The audit opinion expressed above is consistent with our report to the Audit Committee.

Basis for opinion

Our responsibilities under those standards are further described in the “Statutory Auditors’ Responsibilities for the Audit of the Financial Statements”
section of our report.

Emphasis of matter
We draw attention to the following matter described in paragraph A.2 in the notes to annual financial statements, which sets out the impact of
the change in accounting method resulting from the application of the ANC regulation 2015-05 on forward financial instruments and hedging
transactions, mandatory for fiscal years beginning on or after January 1, 2017. Our opinion is not modified in respect of this matter.

Justification of assessments – Key audit matters
In accordance with the requirements of Articles L. 823-9 and R. 823-7 of the French Commercial Code (Code de commerce) relating to the justifica-
tion of our assessments, we inform you of the key audit matters relating to risks of material misstatement that, in our professional judgment, were
of most significance in our audit of the financial statements of the current period, as well as how we addressed those risks.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on specific items of the financial statements.

Capitalization of development costs

Risk identified

In the balance sheet of the Company, fixed assets include capitalized development costs. As of January 31, 2018 their net book value amounts to
€23,541 thousand. They correspond mostly to direct labor costs as well as sub-contracting, incurred for the development of new annual versions or
major improvements of existing ESI software.

As indicated in paragraph B.2 of the notes to annual financial statements, capitalization of development costs is subject to compliance with the six
criteria set out in the French accounting rules and principles.

Capitalized development costs start to be amortized after the market release of the related version of the software. Capitalized expenses are
amortized on a straight-line basis over a period of 12 months for new annual versions of software, and over 24 or 36 months for major improvements
to existing products, depending on the degree of innovation.

ESI Management set out procedures and rules to ensure that:

• The process to distinguish between research and development costs is respected;

• Capitalized development costs met all capitalization criteria; and

• Useful life period over which each project is amortized is adapted to the nature / level of innovation of the project.

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However, regarding the significant impact on the income statement of capitalization of development costs and the significant balance of these
capitalized costs recorded as assets in the balance sheet, it follows that any deviation from the procedures in place or any misinterpretation of the
capitalization criteria could lead to significant impacts on the Company’s annual financial statements and financial performance.

On this basis, we considered capitalization of development costs as a key audit matter.

Our response

We examined the compliance of the Company's accounting treatment of research and development costs with current accounting standards.

We also conducted a critical review of how this methodology was implemented. In particular, we conducted the following procedures:

• We have taken notice of the procedure followed by the Company to distinguish between research and development costs and, for the latter, the

rules put in place to assess compliance with the capitalization criteria laid down in French accounting rules and principles;

• We tested by sampling the correct application of the procedures implemented for the identification, monitoring and recording of research and

development costs;

• We audited, for a selection of projects, the correct application of the capitalization criteria set out in French accounting rules and principles and

tested the accuracy and completeness of the most significant expenses charged to these projects;

• We verified the correct calculation of amortization expense mainly by controlling the correct application of the rules for setting the straight-line

amortization period, depending on the nature of the project (major improvement or new version).

We have reconciled accounting and management data in order to assess the accuracy and completeness of information reporting process for
recording.

Valuation of equity investments

Risk identified
In the balance sheet as of January 31, 2018, net book value of equity investments amounts to €53,026 thousand. At acquisition date, equity invest-
ments are valued at acquisition cost, which includes the purchase price and the costs directly attributable thereto. At each year-end, the net book
value of equity investments is compared with its value in use, and if the value is lower than the net book value, a provision for depreciation is
recorded in order to reduce the book value to the value in use of the asset.

The different methods used to determine the value in use of equity investments are described in paragraph B.4 of the notes to annual financial
statements and are detailed as follows:

• Shares in active subsidiaries are valued on the basis of a multiple of revenue adjusted for net cash position of the subsidiary, or alternatively on

the basis of discounted forecast cash flows for recently acquired entities;

• Shares in dormant subsidiaries or those with reduced activity levels are valued on the basis of the share of the net equity attributable to ESI

Group.

Estimating the value in use of equity investments requires the exercise of Management's judgment in identifying the criteria determining the choice
of valuation method to be applied and the factors to be considered depending on the participating interests, particularly historical items (equity)
or forecasts (profitability forecasts and economic conditions in related countries).

We therefore considered equity investments valuation as a key audit matter.

Our response

We examined the compliance of the Company's methodology for the valuation of equity investments with the applicable accounting standards.

Our work consisted of reviewing the justification provided by Management for the valuation method chosen and the data used. Our review of the
methodology applied, for both types of equity investments, is detailed as follows:

For shares in active subsidiaries:

• Obtaining the multiple of revenue adjusted for net cash position of the subsidiary and assessing the consistency of the data used with the

accounts of the corresponding entities;

• Review of the permanence of the calculation method used and its execution;

• Obtaining the cash flow and operating forecasts of the entities concerned and assessing their consistency with the forecast data from the latest

strategic plans, drawn up under the control of Senior Management and approved by the Board of Directors;

• Review of the consistency of assumptions used with the economic environment at the closing date;

• Comparison of the forecasts retained for previous periods with corresponding achievements in order to assess the achievement of past objectives;

• Verification that the value resulting from the cash flow forecasts has been adjusted for the indebtedness of the entity.

For shares in dormant subsidiaries or those with reduced activity levels:

• Reconciliation of net equity attributable to ESI Group retained for the valuation with the accounts of the concerned entities and, if applicable,

examination of the documentation justifying the adjustments made.

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Verification of the management report and of the other documents provided to the shareholders
We have also performed, in accordance with professional standards applicable in France, the specific verifications required by French law.

Information provided in the management report and in the other documents provided to the shareholders with respect to the
financial position and the financial statements
We have no matters to report as to the fair presentation and the consistency with the financial statements of the information given in the
management report of the Board of Directors and in the other documents provided to the Shareholders with respect to the financial position and
the financial statements.

Report on Corporate Governance
We attest that the Board of Directors’ Report on Corporate Governance sets out the information required by Articles L. 225-37-3 and L. 225-37-4 of
the French Commercial Code (Code de commerce).

Concerning the information given in accordance with the requirements of Article L. 225-37-3 of the French Commercial Code (Code de commerce)
relating to remunerations and benefits received by the directors and any other commitments made in their favor, we have verified its consistency
with the financial statements, or with the underlying information used to prepare these financial statements and, where applicable, with the
information obtained by your Company from controlling and controlled companies. Based on these procedures, we attest the accuracy and fair
presentation of this information.

With respect to the information relating to items that your Company considered likely to have an impact in the event of a public purchase offer
or exchange, provided pursuant to Article L. 225-37-5 of the French Commercial Code (Code de commerce), we have agreed these to the source
documents communicated to us. Based on our work, we have no observations to make on this information.

Other information
In accordance with French law, we have verified that the required information concerning the purchase of investments and controlling interests and
the identity of the shareholders and holders of the voting rights has been properly disclosed in the management report.

Report on other legal and regulatory requirements

Responsibilities of Management and those charged with governance for the financial statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with French accounting principles
and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the financial statements, Management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting unless it is expected to liquidate the Company or to
cease operations.

The financial statements were approved by the Board of Directors.

Statutory Auditors’ responsibilities for the audit of the financial statements

Objectives and audit approach
Our role is to issue a report on the financial statements. Our objective is to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with professional standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.

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ESI Group annual financial statements

As part of an audit conducted in accordance with professional standards applicable in France, the Statutory Auditor exercises professional judgment
throughout the audit and furthermore:

• Identifies and assesses the risks of material misstatement of the financial statements, whether due to fraud or error, designs and performs audit
procedures responsive to those risks, and obtains audit evidence considered to be sufficient and appropriate to provide a basis for his opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control;

• Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,

but not for the purpose of expressing an opinion on the effectiveness of the internal control;

• Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by

Management in the financial statements;

• Assesses the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going
concern. This assessment is based on the audit evidence obtained up to the date of his audit report. However, future events or conditions may
cause the Company to cease to continue as a going concern. If the Statutory Auditor concludes that a material uncertainty exists, there is a
requirement to draw attention in the audit report to the related disclosures in the financial statements or, if such disclosures are not provided or
inadequate, to modify the opinion expressed therein;

• Evaluates the overall presentation of the financial statements and assesses whether these statements represent the underlying transactions and

events in a manner that achieves fair presentation.

Our report to the Audit Committee includes the risks of material misstatement that, in our professional judgment, were of most significance in the
audit of the financial statements of the current period and which are therefore the key audit matters that we are required to describe in this report.

Neuilly-sur-Seine and Paris-La Défense, May 23, 2018
The Statutory Auditors
French original signed by

PricewaterhouseCoopers Audit
Thierry Charron

Ernst & Young Audit
Frédéric Martineau

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RESOLUTIONS 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, 2018

2. Approval of the consolidated financial statements for the fiscal year

ended January 31, 2018

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 Ms. Véronique Jacq

6. Reappointment of Ms. Rajani Ramanathan

7. 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

8. Approval of the components of the total compensation payable or
allocated to Mr. Alain de Rouvray, Chief Executive Officer, for the
2017 financial year

9. Approval of the components of the total compensation payable or
allocated to Mr. Vincent Chaillou, Chief Operating Officer, for the
2017 financial year

10. Approval of the components of the total compensation payable or
allocated to Mr. Christopher St.John, Chief Operating Officer, for the
2017 financial year

11. Determination of the compensation paid to the members of the

Board of Directors (Directors’ fees)

12. 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

13. Authorization to be granted to the Board of Directors to reduce
the share capital through the cancellation of shares purchased by
the Company within the scope of Article L. 225-209 of the French
Commercial Code

14. Authorization to be granted to the Board of Directors to award free
shares to eligible employees and executive corporate officers of the
Company and of its affiliated companies.

Joint decisions

15. Powers for formalities.

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, 2018

Statement of reasons

Based on the review of the Management report of the Board of
Directors, the report of the Board of Directors on corporate gover-
nance, the reports of the Statutory Auditors on the parent company
financial statements, the General Meeting is requested to approve
the parent company financial statements for the fiscal year ended
January 31, 2018, showing a profit of €5,546,967.47.

The General Meeting, deliberating in accordance with the quorum and
majority requirements for Ordinary General Meetings, having reviewed
the Management report of the Board of Directors, the report of the
Board of Directors on corporate governance, and the reports of the
Statutory Auditors on the parent company financial statements and
the parent company financial statements for the fiscal year ended
January 31, 2018, approves the financial statements and balance sheet, as
presented, showing a profit of €5,546,967.47.

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 €201,248.

Second resolution

Approval of the consolidated financial statements for the
fiscal year ended January 31, 2018

Statement of reasons

Based on the review of the Management report of the Board of
Directors, the report of the Board of Directors on corporate gover-
nance, and the reports of the Statutory Auditors on the consolidated
financial statements, the General Meeting is requested to approve
the consolidated financial statements for the fiscal year ended
January 31, 2018.

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RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING
Decisions falling within the competence of the Ordinary General Meeting

Statutory Auditors on the consolidated financial statements and the
consolidated financial statements as at January 31, 2018, approves these
financial statements as presented.

Fourth resolution

Approval of the agreements referred to in Article L. 225-38
of the French Commercial Code

Third resolution

Allocation of net profit for the year

Statement of reasons

The General Meeting is requested to allocate the profit of
€5,546,967.47 as follows:
€7,335 to the legal reserve;
€5,539,632.47 to retained earnings.
Following this allocation, the balance of the legal reserve will stand
at €1,804,932.60
Following this allocation, retained earnings will stand at €38,088,140.54.
The Board of Directors reminds the General Meeting that no
dividends have been paid out for the past three fiscal years.

The General Meeting, deliberating in accordance with the quorum and
majority requirements for Ordinary General Meetings, acknowled-
ging that the net profit for the year ended January 31, 2018 stands at
€5,546,967.47, decides, at the Board of Directors’ recommendation, to
allocate this profit as follows:

Current position:

• Net profit for the year:

• Retained earnings:

• Total to be allocated:

€5,546,967.47
€32,548,508.07
€38,095,475.54

Allocated as follows:
• €7,335 to the legal reserve;
• €5,539,632.47 to retained earnings.
Following this allocation, the balance of the legal reserve will stand at
€1,804,932.60.
Following this allocation, retained earnings will stand at €38,088,140.54.
The General Meeting notes that no dividends have been paid out for
the past three fiscal years.

Statement of reasons

Based on the special report by the Statutory Auditors on regulated
agreements, the General Meeting is requested to acknowledge that
during the 2017 financial year only one agreement gave rise to the
procedure provided for in Articles L. 225-38 et seq. of the French
Commercial Code.

It should be noted that on April 15, 2015 the Company and Ms. Cristel
de Rouvray, Director, concluded a Consulting Service Agreement. This
Agreement is regarded as a regulated agreement referred to in Article
L. 225-38 of the French Commercial Code and was earlier authorized
by the Board of Directors held on April 14, 2015. This Agreement was
renewed under the same conditions for the 2016 financial year, and
was reviewed by the Board of Directors held on April 8, 2016.

On the recommendation of the Compensation, Nomination and
Governance Committee held on March 28, 2017, the Board of
Directors held on April 18, 2017 decided to renew the Agreement
while modifying its terms to meet the market conditions. This new
Agreement between ESI North America Inc. and Ms. de Rouvray was
signed based on an estimated maximum annual cost of $ 100,000 for
an average of 52 hours per month.

Following the review by the Compensation Committee held on
April 16, 2018, it was recommended to renew the Agreement under
the same conditions for the 2018 financial year. The Board of Directors
held on April 17, 2018 approved this renewal.

The objective of this consulting contract is to entrust to Ms. de
Rouvray specific missions relating to Human Resources, consulting
and strategic management.

It should be noted that the special report by the Statutory Auditors
on the agreements referred to in Article L. 225-38 of the French
Commercial Code is presented in Section 2.7.3 of the 2017 Registration
Document and will be submitted for approval of the General Meeting
to be held on July 18, 2018.

The General Meeting, deliberating in accordance with the quorum and
majority requirements for Ordinary General Meetings, having reviewed
the special report by the Statutory Auditors on the agreements referred
to in Article L. 225-38 of the French Commercial Code, acknowledges
the conclusions of said report and approves the agreements mentioned
therein.

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Decisions falling within the competence of the Ordinary General Meeting

Fifth resolution

Seventh resolution

Reappointment of Ms. Véronique Jacq

Statement of reasons

As the directorship of Ms. Véronique Jacq 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 in 2022 to approve the financial statements for the 2021
financial year.

The Board of Directors reminds the General Meeting that
Ms. Véronique Jacq has been an independent director since 2014. She
is currently a member of the Audit Committee and the Technology
and Marketing Committee. Her biography is presented in the report
of the Board of Directors on corporate governance.

The General Meeting, deliberating in accordance with the quorum and
majority requirements for Ordinary General Meetings, having reviewed
the report of the Board of Directors, and noting that the term of office
of Ms. Véronique Jacq 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 in 2022 to approve the
financial statements for the 2021 financial year.

Sixth resolution

Reappointment of Ms. Rajani Ramanathan

Statement of reasons

As the directorship of Ms. Rajani Ramanathan 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 in 2022 to approve the financial statements for the 2021
financial year.

The Board of Directors reminds the General Meeting that Ms. Rajani
Ramanathan has been an independent director since 2014. She is
currently Chair of the Technology and Marketing Committee and
a member of the Compensation, Nomination and Governance
Committee. Her biography is presented in the report of the Board of
Directors on corporate governance.

The General Meeting, deliberating in accordance with the quorum and
majority requirements for Ordinary General Meetings, having reviewed
the report of the Board of Directors, and noting that the term of office
of Ms. Rajani Ramanathan expires at the end of the General Meeting,
resolves to renew her directorship for a term of four years, expiring at
the end of the General Meeting to be convened in 2022 to approve the
financial statements for the 2021 financial year.

Approval of the principles and criteria for determining,
distributing and allocating the fixed, variable and
exceptional components of 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 Transparency,
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 components of the total compensation and
benefits of all types attributable to the corporate executive officers,
due to their mandate.

These principles and criteria are presented in the report of the Board
of Directors on corporate governance and are included in Section 2.6.1
of the 2017 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 prin-
ciples and criteria for determining, distributing and allocating the fixed,
variable and exceptional components of the total compensation and
benefits of all types attributable to the Chairman and Chief Executive
Officer and the Chief Operating Officers as set out in the report on
corporate governance mentioned in Article L. 225-37 of the French
Commercial Code, and presented in the 2017 Registration Document
(Chapter 2.6.1.).

Eighth, ninth and tenth resolutions

Approval of the fixed, variable and exceptional
components of the total compensation payable or
allocated to Chief Executive Officer and Chief Operating
Officers for the 2017 financial year

Statement of reasons

In application of Article L. 225-100-II of the French Commercial
Code, as amended by the French “Sapin II” Law on Transparency,
Anti-Corruption and Modernization of Economic Life, the General
Meeting is requested every year as of 2018 to approve the fixed,
variable and exceptional components of the total compensation and
benefits of all kinds payable or allocated to the corporate executive
officers for the ended financial year due to their mandate.

These components of the compensation are presented in the report
of the Board of Directors on corporate governance and are included
in Section 2.6.2. of the 2017 Registration Document.

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Decisions falling within the competence of the Ordinary General Meeting

The General Meeting, deliberating in accordance with the quorum and
majority requirements for Ordinary General Meetings, decides to set
the compensation paid to the members of the Board of Directors in the
form of Directors’ fees at €180,000 for the 2018 financial year.
The Board will freely distribute this amount among its members.

Twelfth 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 December 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 (eighteen) months as from the
General Meeting of July 18, 2018.
It is proposed to set the maximum purchase price at €80 (eighty) 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, 6,76% at the end of the 2017
fiscal year. The Company will not be allowed to pay out more than
€15,000,000 (fifteen millions) 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 investment 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:

1. Authorizes the Board of Directors to purchase the Company’s shares,
not to exceed 10% of its capital, for a period of 18 months beginning
on July 18, 2018, 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 existing shares

by the Group’s employees or corporate officers,

- Employee profit-sharing plans under which these shares would

be granted to employees and/or corporate officers,

Eighth resolution

Approval of the components of the total compensation
payable or allocated to Mr. Alain de Rouvray, Chief
Executive Officer, for the 2017 financial year

The General Meeting, deliberating in accordance with the quorum and
majority requirements for Ordinary General Meetings, in application of
Article L. 225-100-II of the French Commercial Code, approves the fixed,
variable and exceptional components of the total compensation and
benefits of all kinds paid or allocated to Mr. Alain de Rouvray, Chief
Executive Officer, for the 2017 financial year, as set out in the report
on corporate governance mentioned in Article L. 225-37 of the French
Commercial Code, and presented in the 2017 Registration Document
(Chapter 2.6.2.).

Ninth resolution

Approval of the components of the total compensation
payable or allocated to Mr. Vincent Chaillou, Chief
Operating Officer, for the 2017 financial year

The General Meeting, deliberating in accordance with the quorum and
majority requirements for Ordinary General Meetings, in application of
Article L. 225-100-II of the French Commercial Code, approves the fixed,
variable and exceptional components of the total compensation and
benefits of all kinds paid or allocated to Mr. Vincent Chaillou, Chief
Operating Officer, for the 2017 financial year, as set out in the report
on corporate governance mentioned in Article L. 225-37 of the French
Commercial Code, and presented in the 2017 Registration Document
(Chapter 2.6.2.).

Tenth resolution

Approval of the components of the total compensation
payable or allocated to Mr. Christopher St.John, Chief
Operating Officer, for the 2017 financial year

The General Meeting, deliberating in accordance with the quorum and
majority requirements for Ordinary General Meetings, in application
of Article L. 225-100-II of the French Commercial Code, approves the
fixed, variable and exceptional components of the total compensation
and benefits of all kinds paid or allocated to Christopher St.John, Chief
Operating Officer, as set out in the report on corporate governance
mentioned in Article L. 225-37 of the French Commercial Code, and
presented in the 2017 Registration Document (Chapter 2.6.2.).

Eleventh resolution

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
the 2018 financial year at €180,000.
It should be noted that in its previous decision, the General Meeting
of June 29, 2017 also set the total amount at €180,000.

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Decisions falling within the competence of the Extraordinary General Meeting

- Free share grants to the Group’s employees and corporate

officers,

- Shares provided upon exercise of the rights attached to securi-
ties giving access to shares by any means, whether immediately
or in the future, under the conditions set forth by the AMF and
at any time deemed appropriate by the Board of Directors,

(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;

2. Decides that the purchase price per share may not exceed €80

(eighty);

3. Decides to fix the maximum amount that the Company may spend
within the framework of this buy-back program at €15,000,000
(fifteen millions);

4. Acknowledges that this authorization shall render

ineffective
the previous authorization granted by the ninth resolution of the
Combined General Meeting of June 29, 2017 authorizing the Board to
trade in its own shares;

5. Decides that the shares may be purchased or retained at the discre-
tion 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 authorized share buyback program
may be acquired in the form of blocks of shares. Such transactions
may be carried out at any time, including during public offering
periods, in accordance with the regulations in force.

6. Acknowledges that 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.

7. 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 authorization;

– Place any and all stock market orders and enter into any and all

agreements to record share purchases and sales;

– Make any and all disclosures to the stock market regulators, carry
out any other formalities and, in general, take any necessary steps.

The Board of Directors shall inform shareholders of any purchases
or sales carried out pursuant to this authorization in its management
report.

6.2. Decisions falling within the competence of the Extraordinary General

Meeting

Thirteenth resolution

Authorization to be granted to the Board of Directors
to reduce the share capital through the cancellation of
shares purchased by the Company within the scope of
Article L. 225-209 of the French Commercial Code

Statement of reasons

The authorization granted to the Board of Directors in 2016 to
cancel shares purchased by the Company within the scope of
Article L. 225-209 of the French Commercial Code is due to expire
in September 2018.

It is proposed that the Annual General Meeting give the Board a new
authorization allowing it to carry out share cancellations, subject to
the legal limits and the limit of 10% of the share capital at the day
of operation. This authorization shall be granted for a duration of 26
(twenty-six) months from the Annual General Meeting of July 18, 2018
and shall render ineffective all previous authorizations.

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:

1. Authorizes the Board of Directors, with the right to sub-delegate, in
accordance with the legal and regulatory requirements, pursuant to
Article L. 225-209 of the French Commercial Code, to:

– Cancel, at its sole discretion, on one or more occasions, the shares
purchased by the Company on the basis of the authorization
given by the Ordinary General Meeting in the twelfth resolution
(provided that this resolution is adopted) or any similar resolutions
adopted by previous General Meetings, within the limit of 10% of
its share capital, this percentage applying to the share capital as
subsequently adjusted following transactions after this General
Meeting, per 24 (twenty-four) months period, and

– Conduct, for the same amount, a reduction in share capital by

cancelling shares;

2. Gives to the Board of Directors all powers, with the right to sub-
delegate, in accordance with the legal and regulatory requirements,
pursuant to Article L. 225-209 of the French Commercial Code, to:

– Determine the final amount of the capital reduction within the

limits provided by the law and by this resolution,

– Set the terms for said operation and record its completion,

– Deduct the difference between the book value of the cancelled
shares and their par value from the available reserves and premiums
at the choice of the Board,

– Carry out all deeds, formalities, or declarations in order to record
and finalize the capital reductions that may be conducted in accor-
dance with this authorization and that would result in subsequent
amendment to the articles of association;

3. Acknowledges that this authorization shall render

ineffective
the previous authorization granted by the ninth resolution of the
Extraordinary General Meeting held on July 21, 2016.

This authorization is granted to the Board of Directors for a duration of
26 (twenty-six) months from this General Meeting.

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RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING
Decisions falling within the competence of the Extraordinary General Meeting

Fourteenth resolution

Authorization to be granted to the Board of Directors
to award free shares to eligible employees and executive
corporate officers of the Company and of its affiliated
companies

Statement of reasons

In order to benefit from the new favorable tax and social security
treatment, it is proposed that the General Meeting cancel its autho-
rization given to the Board of Directors in 2016 and grant a new
authorization to carry out free grants of shares to employees and
executive corporate officers of the Company and its affiliates.

Under the scope of this authorization, the number of free shares that
may be granted may not exceed 60,000 shares, representing around
1% of the share capital existing on July 18, 2018.

The Board of Directors will decide the identity of the beneficiaries
of the grants, the number of shares allocated to each one, the terms,
and, where applicable, the criteria for such share grants.

The Board of Directors will be able to set, in accordance with the
provisions of Article L. 225-197-1 of the French Commercial Code,
the duration of vesting and holding periods, provided that the time
condition respects a minimum vesting period of at least one year and
the total duration of both vesting and holding periods is at least two
years. In application of Article L. 225-197-1 of the French Commercial
Code, the free grant of shares to their beneficiaries will become final
and binding subject to the satisfaction of the other conditions set
at the time of the grant, and specifically the employment condition
and/or the performance condition, after a vesting period set out by
the Board of Directors.

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 Article
L. 225-197-1 et seq. of the French Commercial Code:

1. Authorizes the Board of Directors to carry out, on one or several
occasions, free grants of existing shares or shares to be issued
by ESI Group, to employees and executive corporate officers of
the Company or its affiliated entities, in accordance with Article
L. 225-197-2 of the French Commercial Code and the conditions set
out hereinafter;

2. Resolves that the Board of Directors will decide the identity of the
beneficiaries of the grants, the number of shares allocated to each
one, as well as the conditions, and, where applicable, the criteria for
such share grants;

3. Decides that the number of free shares that may be granted under
the scope of this authorization may not exceed 60,000 shares, repre-
senting around 1% of the share capital existing on July 18, 2018;

4. Decides that the Board of Directors will be able to set, in accordance
with the provisions of Article L. 225-197-1 of the French Commercial
Code, the duration of vesting and holding periods, provided that the
time condition respects a minimum vesting period of at least one
year and the total duration of both vesting and holding periods is at
least two years;

5. Decides that the free grant to their beneficiaries will become final
and binding after a vesting period set out by the Board of Directors;

6. Authorizes the Board of Directors to vest the shares prior to the end
of the vesting period as well as to permit the free transfer of these
shares in the event the beneficiary has a disability corresponding
to the second or third categories defined by Article L. 341-4 of the
French Social Security Code;

7. Decides that the Board of Directors shall have all powers, including
powers of sub-delegation in accordance with the legal requirements,
to implement this authorization, and, in particular, in order to:

– Determine whether to grant existing shares or whether to issue

shares for such purpose,

– Determine all the terms relating to the granting of shares, in
particular the conditions under which such shares will be vested
(especially the presence and performance conditions), define the
categories of beneficiaries, the beneficiaries and establish the
number of shares granted to each of them and the grant date or
dates in compliance with the law and regulations in force as of the
date of transactions contemplated,

– Adjust, during the vesting period, if it deems necessary, the number
of shares granted in order to protect the rights of the beneficiaries,
in compliance with the laws and regulations in force as of the date
of the transactions contemplated, based on potential Company
equity transactions, it being specified that the shares, granted
further to these adjustments, shall be deemed granted on the same
date as, that of the initial share grant, and

– More generally, to take all necessary measures, in particular to
conclude any and all agreements and contracts to effect the
closing of an issuance, to carry out any and all formalities to effect
the related share capital increase or increases subsequent to the
vesting of Company shares, to amend the articles of association;

8. Acknowledges that this authorization automatically entails the
waiver by shareholders of their preferential subscription rights to
ordinary Company shares which may be issued for the purposes of
the vesting of free shares, and of all rights to ordinary shares granted
under the scope of this authorization;

9. Acknowledges that this authorization supersedes the unused portion
of the previous authorization granted by the tenth resolution of the
Extraordinary General Meeting held on July 21, 2016.

Each year, in accordance with the legal and regulatory requirements, in
particular pursuant to Article L. 225-197-4 of the French Commercial
Code, the Board of Directors shall inform the General Meeting about
the operations carried out under this authorization.

This authorization is granted to the Board of Directors for a duration of
38 (thirty-eight) months from the date of this Meeting.

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Joint decisions

6.3. Joint decisions

Fifteenth 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 distribute 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 portfolio of secu-
rities, especially in fields related to the publishing of scientific

software, including digital simulation software for prototyping and
manufacturing processes and related decision-making support tools.

The Company may perform any of the abovementioned operations on
its own behalf or on behalf of third parties by creating new companies,
forming partnerships, subscribing to shares in existing companies,
purchasing securities or rights to equity
instruments, merging
companies, forming business alliances, undertaking joint investments,
obtaining the use of any property under a lease or lease management
agreement, forming joint ventures or otherwise.

To this end, the Company carries out any and all economic or financial
studies necessary and provides recommendations in relation to invest-
ments, acquisitions and divestitures. It also provides assistance as a
management consultant to companies in which it holds a stake and to
other companies. It prepares all types of reports and expert opinions; it
assists with business 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 promote the Company’s expansion or growth.

Fiscal year (Article 22 of the articles of association)
The fiscal year begins on February 1 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 exceptional event
or dispute that may have or has had a material impact on the financial
position or profit of the Company 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 governmental, judicial
or arbitration procedure in FY 2017.

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 forward, will be set aside to
form the legal reserve fund; this deduction is no longer required once
the legal reserve has reached one-tenth of the share capital; the requi-
rement 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 allocate this profit, in full or in part, to
any general or special reserve funds, carry it forward or distribute it to
the shareholders.

However, except in the case of a capital reduction, no profit may be
distributed to the shareholders if net assets are or will subsequently
become less than the total capital plus reserves that may not be distri-
buted in accordance with the law or the articles of association.

Any losses are recorded in the balance sheet under a special account
once the financial statements have been approved by the Annual
General Meeting.

General Meetings (Article 18 of the articles of association)
In accordance with Article 18 of the articles of association and legis-
lation in force, decisions are made collectively by shareholders in
General Meetings classified as either Ordinary or Extraordinary General
Meetings.

The procedures for convening and holding General Meetings are
governed by French law. Meetings are held at the head office or at any
other location indicated in the meeting notice.

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AND SHARE CAPITAL

INFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company

Ordinary General Meetings are convened to make all decisions that do
not require amendments to the articles of association.

the second General Meeting may be postponed for a maximum of two
months from the date at which it was initially convened.

They occur at least once a year, within six months from the end of the
previous fiscal year.

The Extraordinary General Meeting issues decisions by a two-thirds
majority vote of the shareholders present or represented.

Only Extraordinary General Meetings have the power to amend any
provision set forth in the articles of association. However, such meetings
may not increase the obligations of shareholders, except in the event of
transactions stemming from any valid consolidation of shares.

If there are multiple categories of shares, the rights attached to the shares
of a certain category may not be changed without the approval of an
Extraordinary General Meeting open to all shareholders and, in addition,
without further approval from a special meeting open only to those
shareholders holding shares belonging to the category in question.

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 convened, 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.

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 returning the mail-in ballot or designating a proxy.

The right to attend or be represented at the General Meeting is subject
to shares being recorded for accounting purposes 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 authorized intermediary.

A participation certificate must be established by the authorized inter-
mediary 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 shareholder.

In accordance with the conditions set forth above, the legal represen-
tatives of shareholders deemed legally incompetent 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 accor-
dance with legislation in force.

An attendance sheet is filled out for each meeting. This attendance
sheet must be duly signed by the shareholders present and by the
proxies, and must be certified as accurate by the officers of the Meeting.

General Meetings are chaired by the Chairman of the Board of Directors
and, in the absence thereof, by the Board member appointed to replace
him or her.

The two shareholders present at the Meeting who represent the largest
number of shares, either on their own behalf or as proxies, are appointed
to serve as scrutineers, provided that they accept the responsibility.

The officers of the meeting, thus designated, are responsible for
appointing a secretary who need not be a shareholder.

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 conduct business
unless the shareholders present or represented account for at least
one-fourth of shares with voting rights when first convened, and
one-fifth when convened a second time. If this quorum is not attained,

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 available any documents
necessary for shareholders to make informed decisions relating to the
management and situation of the Company.

Shareholders’ right to information, the nature of documents provided
and the arrangements for such documents to be made available or
transmitted shall adhere to the terms set out by applicable 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 Company’s assets and
profits, proportionate to the percentage 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 General Meeting of June 14,
2000 or thereafter is entitled to double voting rights under the law.
Furthermore, if the capital is increased through the capitalization of
reserves, profits or share premiums, this double voting right will apply,
from the time of issue, to registered shares awarded free of charge
to shareholders on the basis of shares already held that bear this
entitlement.

Any shares converted to bearer shares or transferred to a different
owner are stripped of double voting rights, although other rights and
obligations attached to the share are transferred to any owner thereof.

However, double voting rights are not lost and the abovementioned
four-year period is not interrupted in the event that shares are trans-
ferred by way of an inheritance, following the liquidation of a marital
estate, or in the form of an inter vivos gift to a spouse or a relative in
the direct line of succession.

Shareholding thresholds
In accordance with the provisions of Article L. 233-7 of the French
Commercial Code, any natural or legal person, acting alone or in
concert, that comes to own, directly or indirectly, 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 by law.

In the event of failure to make such a declaration, any person 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 Commercial 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 association
regarding shareholding thresholds except for those set forth under
current law.

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INFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company’s capital

Form and transfer of shares
(Article 9 of the articles of association)

Form
Shareholders may opt to hold fully paid-up shares as either registered
shares or bearer shares. Shares will be recorded in the Company’s
accounts in accordance with the terms and procedures set forth by law.

Transfer of shares
Shares may be freely traded unless otherwise stipulated by law or
regulation. Shares may be sold or traded by the Company and by third
parties via transfer between accounts in accordance with the regula-
tions in force.

7.1.3. Information concerning administrative and management bodies
Information on 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 (Article 8 of the articles of association)

Extraordinary General Meetings have sole authority to decide to carry
out or to authorize capital increases, upon recommendation by the
Board of Directors.

If the share capital is increased through the capitalization of reserves,
profit or share premiums, the General Meeting may make such decision
in accordance with the requirements for quorum and majority set forth
for 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 transaction may be declared null
and void.

Shareholders are entitled, in proportion to their total shares, to prefe-
rential 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 capita-
lization of profits or reserves must be fully paid up upon issuance.

At least one-fourth of the value of cash shares and the entire share
premium, where applicable, must be paid up at the time of subscription.
The remainder must be paid up in one or more installments within a
period of five years from the date on which the capital increase was
finalized.

Subject to the restrictions and reserves set forth by law, Extraordinary
General Meetings may also decide to carry out or authorize a reduction
in the share capital for any reason or in any manner whatsoever, including
due to losses or via repayment or partial buyback of shares, reduction in
the number of shares, or reduction in the par value of shares; under no
circumstances may the reduction in capital undermine the principle of
equality between shareholders.

7.2.2. Issued share capital and authorized unissued share capital

At January 31, 2018, the Company’s share capital stood at €18,049,326. It
was divided into 6,016,442 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 instrument that entitles its holder
to ownership interest in the Company’s share capital.

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Information on the Company’s capital

TABLE SUMMARIZING CURRENTLY VALID DELEGATIONS GRANTED TO THE BOARD OF DIRECTORS AND USE OF SUCH DELEGATIONS DURING
THE FISCAL YEAR 2017

Resolution
number

Purpose

Term

Expiration date

Maximum

Use in 2017 and available
balance as of January 31, 2018

COMBINED GENERAL MEETING OF JULY 24, 2014

Resolution 9

Grant of stock options(1)

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

Options granted during the year
2017: 20,050(2)
Options granted at January 31,
2018: 37,400
Options remaining: 0

COMBINED GENERAL MEETING OF JULY 21, 2016

Resolution 9

Resolution 10

Share capital reduction by canceling
shares purchased by the Company
under Article L. 225-209 of the
French Commercial Code

Grant of free shares to eligible
employees and executive corporate
officers of the Company and
affiliated companies

COMBINED GENERAL MEETING OF JUNE 29, 2017

Resolution 9

Company’s purchase of its own
shares

26 months

September 2018

Not to exceed 10% of the Company’s
share capital per 24-month period

None

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 granted during the
year 2017: 9,000
Free shares granted at
January 31, 2018: 36,275
Options remaining: 23,725

18 months December 2018

Not to exceed 10% of the Company’s
share capital

None

Resolution 10

Grant of stock subscription options

38 months August 2020

Resolution 11

Grant of stock purchase options

38 months August 2020

Resolution 12

Resolution 13

Resolution 14

Increase of the share capital via
the issue of shares of common
stock or any securities convertible
into equity with maintenance of
the shareholders' preferential
subscription rights

Increase of the share 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

Increase of the issue amount in the
event of over-demand

Resolution 15

Increase of the share capital by
the capitalization of premiums,
reserves, profits and other amounts

26 months August 2019

26 months Within 30 days of
the closure of the
initial issue

26 months August 2019

Options granted at January 31,
2018: None
Options remaining: 180,000

Options granted at January 31,
2018: None
Options remaining: 299,600

None

Not to exceed 3% of the Company’s
share capital at the date of the
Combined General Meeting, i.e.
180,000 shares

Not to exceed 5% of the Company’s
share capital at the date of the
Combined General Meeting, i.e.
299,600 shares

Global amount of capital increases:
less than €20,000,000
Nominal amount of the debt
securities: less than €300,000,000

Not to exceed 15% of the value of
the original issue (referred to in
resolutions 12 and 13), and the total
ceiling of €20,000,000

Not to exceed the total amount
of reserves, premiums and
profits existing at the time of
the capital increase or a ceiling
of €100,000 (that might be
reduced to the amount of capital
increases undertaken pursuant to
resolutions 12 to 17)

Resolution 16

Resolution 17

Resolution 18

Issue of shares without preferential
subscription rights as compensation
for contributions of shares
equivalents granted to the Company
as part of a contribution in kind

Increase of the share capital without
preferential subscription rights
through private placement

Increase of the share capital
by issuing shares reserved for
employees enrolled in the employee
savings plan

26 months August 2019

Not to exceed 10% of the Company’s
share capital, and the total ceiling of
€20,000,000

None

26 months August 2019

Not to exceed 20% of the Company’s
share capital, and the total ceiling of
€20,000,000

None

Not to exceed 2% of the Company’s
share capital

None

(1) The authorization granted by the tenth resolution of the General Meeting held on June 29, 2017 superseded the unused portion of the previous authorization

granted by the General Meeting held on July 24, 2014.

(2) This refers to the grant of 20,050 subscription stock-options decided by the Board of Directors held on May 5, 2017.

Non-equity securities
As of the date the Registration Document was drawn up, the Company had not issued any non-equity securities.

127

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT7

INFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company’s 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 €)

Premium
(in €)

Number of
shares created

EGM of 01/28/1991

Incorporation of the Company

15.24

EGM of 07/26/1991

Capital increase in cash

EGM of 07/26/1991

Capitalization of share premium

EGM of 07/31/1991

Stock split and free share award

EGM of 11/5/1996

Capital increase in cash

15.24 (2,274,021)

15.24 (2,261,779)

694

7.62

3,565,206

EGM of 03/26/1997

Capitalization of share premium

7.62 (3,577,448)

And withdrawal from the legal reserve

EGM of 04/24/1997

Capital increase in cash

EGM of 12/9/1998

Stock split

EGM of 03/15/1999

Capital increase in cash

EGM of 07/08/1999

Capitalization of share premium

EGM of 06/14/2000

Capital increase in cash

BoD meeting of 05/09/2001 Share capital adjustment

(4,631)

18.29

130,801.26

18.29

1.52

2.44

4,364,334

4,175,251

2,783,502

2,500

834

300,060

32,276

975

3,703,095

524,902

1,141,161

38,112

50,827

2,312,606

2,558,628

6,140,707

6,158,544

6,958,752

11,134,003

13,917,505

2,500

3,334

303,394

335,670

15.24

694

7.62

18.29

336,645

18.29

4,039,740

4,564,642

5,705,803

BoD meeting of 5/9/2001

Conversion of the share capital from French
francs to euros

2.44

14,020,741

5,748,127

Exercise of share subscription options

2.44

103,236

42,324

14,020,741

5,748,127

(EGM of 06/14/2000))

Capitalization of the share premium by
increasing the par value of the shares

BoD meeting of 03/08/2002 Share capital adjustment

Exercise of share subscription options

BoD meeting of 03/08/2005 Share capital adjustment

Exercise of share subscription options

BoD meeting of 06/07/2007 Share capital adjustment

Exercise of share subscription options

BoD meeting of 04/14/2008 Share capital adjustment

Exercise of share subscription options

BoD meeting of 02/01/2012 Share capital adjustment

Exercise of share subscription options

BoD meeting of 02/28/2013 Share capital adjustment

Exercise of share subscription options

BoD meeting of 02/07/2014 Share capital adjustment

Capital increase through cash contribution
for employees who are members of the
employee savings plan

BoD meeting of 02/07/2014 Share capital adjustment

Exercise of share subscription options

BoD meeting of 03/10/2015 Share capital adjustment

Exercise of share subscription options

BoD meeting of 02/18/2016 Share capital adjustment

Exercise of share subscription options

BoD meeting of 02/23/2017 Share capital adjustment

Exercise of share subscription options

BoD meeting of 03/14/2018 Share capital adjustment

Exercise of share subscription options

3,223,640

17,244,381

5,748,127

7,500

2,500

17,251,881

5,750,627

301,500

100,500

17,553,381

5,851,127

36,156

21,775

2,051

24,905

12,052

17,589,537

5,863,179

3,350

17,599,587

5,866,529

350

17,600,637

5,866,879

4,250

17,613,387

5,871,129

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

637,909

24,450

18,049,326

6,016,442

7.2.4. Corporate shareholding structure

Shareholding structure
As of January 31, 2018, the shareholding structure of ESI Group is as follows:

Employee shareholding

1.1%
Auto-control
6.8%

Board
(except Founders)

0.4%

Public
55.1%

Founders

36.6%

128

1.52

2.44

ESI GROUP • 2017 REGISTRATION DOCUMENTINFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company’s capital

Change in the breakdown of the Company’s share capital over the past three fiscal years
Over the past three fiscal years, the breakdown of share capital and voting rights evolved as follows:

At January 31, 2018
First and last name

The de Rouvray Family

Estate of Jacques Dubois

SUB-TOTAL OF SHAREHOLDERS’ AGREEMENT (REGISTERED SHARES)

Vincent Chaillou

Charles-Helen des Isnards

Eric d’Hotelans

Véronique Jacq

Rajani Ramanathan

Yves de Balmann

MEMBERS OF THE BOARD OF DIRECTORS (REGISTERED SHARES) (EXCLUDING FOUNDERS)

TOTAL EMPLOYEE SHAREHOLDING (REGISTERED SHARES)

Public shareholding, registered shares

Public shareholding, bearer shares

SUB-TOTAL PUBLIC SHAREHOLDING

TREASURY SHARES

TOTAL

Total number of theoretical voting rights: 8,257,933

At January 31, 2017
First and last name

The de Rouvray Family

Estate of Jacques Dubois

SUB-TOTAL OF SHAREHOLDERS’ AGREEMENT (REGISTERED SHARES)

Vincent Chaillou

Charles-Helen des Isnards

Eric d’Hotelans

Véronique Jacq

Rajani Ramanathan

Yves de Balmann

MEMBERS OF THE BOARD OF DIRECTORS (REGISTERED SHARES) (EXCLUDING FOUNDERS)

TOTAL EMPLOYEE SHAREHOLDING (REGISTERED SHARES)

Public shareholding, registered shares

Public shareholding, bearer shares

SUB-TOTAL PUBLIC SHAREHOLDING

TREASURY SHARES

TOTAL

Total number of theoretical voting rights: 8,219,072

At January 31, 2016
First and last name

The de Rouvray Family

Estate of Jacques Dubois

SUB-TOTAL OF SHAREHOLDERS’ AGREEMENT (REGISTERED SHARES)

Vincent Chaillou

Charles-Helen des Isnards

Eric d’Hotelans

MEMBERS OF THE BOARD OF DIRECTORS (REGISTERED SHARES) (EXCLUDING FOUNDERS)

TOTAL EMPLOYEE SHAREHOLDING (REGISTERED SHARES)

Public shareholding, registered shares

Public shareholding, bearer shares

SUB-TOTAL PUBLIC SHAREHOLDING

TREASURY SHARES

TOTAL

Total number of theoretical voting rights: 8,115,520

Number of
shares

% of capital

Number of voting
rights that may be
exercised

% of voting rights
that may be
exercised

1,824,385

380,619

2,205,004

16,197

3,751

1,589

21,600

68,311

27,709

3,286,830

3,314,539

406,988

30.3%

6.3%

36.6%

0.3%

0.1%

0.0%

0.4%

1.1%

0.5%

54.6%

55.1%

6.8%

3,638,907

759,038

4,397,945

28,893

6,852

3,178

38,986

84,874

42,310

3,286,830

3,329,140

6,016,442

100.0%

7,850,945

46.4%

9.6%

56.0%

0,4%

0.1%

0.0%

0.5%

1.1%

0.5%

41.9%

42.4%

0.0%

100.0%

Number of
shares

% of capital

Number of voting
rights that may be
exercised

% of voting rights
that may be
exercised

1,824,385

400,619

2,225,004

16,197

3,751

1,589

21,540

64,288

32,565

3,230,594

3,263,159

418,001

30.4%

6.7%

37.1%

0.3%

0.1%

0.0%

0.4%

1.1%

0.5%

53.9%

54.5%

7.0%

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

5,991,992

100.0%

7,801,071

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%

Number of
shares

% of capital

Number of voting
rights that may be
exercised

% of voting rights
that may be
exercised

1,824,385

410,419

2,234,804

13,597

3,751

1,589

18,937

52,814

88,149

3,131,215

3,219,364

429,153

30.6%

6.9%

37.5%

0.2%

0.1%

0.0%

0.3%

0.9%

1.5%

52.6%

54.1%

7.2%

3,554425

806,838

4,361,263

26,293

6,252

2,215

34,760

64,643

94,486

3,131,215

3,225,701

5,955,072

100.0%

7,686,367

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%

129

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT7

INFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company’s capital

Shareholdings above legal thresholds
Pursuant to the provisions of Article L. 233-13 of the French Commercial
code, it is noted that at January 31, 2018, Mr. Alain de Rouvray, jointly
with its family group, held 1,824,385 shares representing 30.32% of the
share capital and 46.35% of voting rights.

Mr. Alex Pen Dubois-Sun held 355,419 shares representing 5.9% of share
capital and 9% of voting rights.

To the Company’s knowledge, there are no other shareholders who
hold, directly or indirectly, individually or jointly, 5% or more of the
Company’s share capital or voting rights, with the exception of those
named in the table below.

Declarations of ownership thresholds crossed in FY 2017
On July 4, 2017, Ms. Xiumei Sun Dubois, widow of Mr. Jacques Dubois and
legal administrator of the minor Mr. Alex Peng Dubois-Sun, declared to
have crossed downward the threshold of 10% of the Company’s voting
rights. This threshold was crossed as a result of selling of shares on the
market. At January 31, 2018, Mr. Alex Pen Dubois-Sun held 355,419 shares
representing 5.9% of share capital and 9% of voting rights.

The Company was not notified of any other crossing of legal thresholds
of share capital or voting rights in 2017.

Shareholders’ agreement and other agreements
An agreement was signed on October 25, 2000 between Mr. Alain de
Rouvray (Chairman and founder of the Company), the members of
his family group (Ms. Amy de Rouvray, Ms. Cristel Anne de Rouvray,
Mr. John Alexandre de Rouvray and Ms. Amy Louise de Rouvray),
Mr. Jacques Dubois (member of the Board of Directors and co-founder
of the Company) and Mr. Philippe Billaud in their capacity as ESI Group
shareholders.

7.2.5. Company share buybacks

The Shareholders’ Meeting of June 29, 2017 authorized the Board of
Directors, pursuant to the provisions of Article L. 225-209 of the French
commercial code, of European regulation No. 596/2014 of April 16,
2014 on market abuse and of AMF’s General Rule, to purchase or sell
Company’s shares in the context of the implementation of a buyback
program. The maximum purchase price has been fixed to €80 per share.
The number of shares acquired could not exceed 10% of the share
capital. This authorization was granted for a duration of 18 months and
supplanted the previous authorization of the Shareholders’ Meeting of
July 21, 2016.

The description of the share buyback program implemented by the
Board of Directors’ meeting of June 29, 2017, pursuant to the authori-
zation granted by the Shareholders’ Meeting can be consulted on the
website.

The parties indicated that the purpose of the agreement was to
formalize a concert party agreement that took effect between them on
the date that the Company’s shares were first listed on the “Nouveau
Marché” stock market.

This shareholders’ agreement was published in La Tribune on Friday,
October 27, 2000 following CMF decision No. 200C1608 dated
October 27, 2000.

This agreement includes 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 individual and a party to the
agreement in the event of death, or to transfers between members of
the de Rouvray family who are party to the agreement.

This agreement also contains:

• An obligation on the part of the parties to the agreement, to either
purchase or sell their shareholding: in the event that Mr. Alain de
Rouvray decides to sell all ESI Group shares that he currently holds
or 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 addi-
tional 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, 2018, this agreement represented 30.3%
of the Company’s capital and 46.4% of voting rights, and collectively
binds its signatories to retain half of their shares.

Shares buyback in FY 2017
In 2017, ESI Group did not buy back any shares.

Cancellation of shares in FY 2017
In 2017, ESI Group did not cancel any shares.

Assignments or transfers of shares in FY 2017
In 2017, 11,018 ESI shares had been transferred as a payment in an external
growth transaction.

Liquidity contract
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.

130

ESI GROUP • 2017 REGISTRATION DOCUMENTINFORMATION ON THE COMPANY AND SHARE CAPITAL
Presentation of stock option and free share grant plans

TABLE SUMMARIZING THE OPERATIONS OF THE COMPANY ON ITS OWN SHARES IN 2017

Date of authorization by the General Meeting

Date of expiration of the authorization

Ceiling on authorized buybacks

Maximum purchase price per share

Authorized purposes

Resolution 9 of June 29, 2017

December 28, 2018

10% of share capital at the transaction date

€80

Cancellation
Share purchase options
Free share grants
Liquidity and market-making
External growth

Board of Directors’ meeting at which buybacks were implemented

June 29, 2017

Number of shares purchased in 2017

Number of shares cancelled in 2017

Number of shares sold/transferred in 2017

Use of repurchased shares in 2017

Number of treasury shares at January 31, 2018

Percentage of capital held by the Company at January 31, 2018

11,018

External growth

406,988

6.8%

7.2.6. 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 invest-
ments 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 breakdown of the Company’s share capital”;

• To the Company’s knowledge, there are no agreements or other
commitments signed by the shareholders other than those mentioned
in Section 7.2.4. of Chapter 7 under the heading “Shareholders’
agreements”;

• 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 Section 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 exercise 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, current authoriza-
tions are described in the table summarizing powers delegated with
regard to share redemption and capital increases in Section 7.2.2 of
Chapter 7;

• Any amendments to ESI Group’s articles of association are made in

accordance with legal requirements and regulations;

• There are no agreements providing for compensation in the event of

the departure of directors.

7.3. Presentation of stock option and free share grant plans

7.3.1. Stock option plans

Grant of stock subscription options
At its May 5, 2017 meeting, the Board of Directors, pursuant to the
authorization granted by the Shareholders’ Meeting of July 24, 2017
and acting on the proposal of the Compensation, Nomination and
Governance Committee, allocated 20,050 individual stock options, of
which 18,175 in the Plan No. 17 Ter and 1,875 in the Plan No. 17 Quater.

Vesting of shares granted in the Plan No. 17 Ter is conditional on the
continued and effective presence of the beneficiaries as Company’s
employees since the grant date. The stock options may be exercised
in tranches as of May 5, 2019, May 5, 2020 or May 5, 2021 from case to
case, during an eight-year period as of May 5, 2017, i.e. until May 4, 2025.

Vesting of shares granted in the Plan No. 17 Quater is conditional to
both the presence of the beneficiary and to the achievement of the
objectives set out in this plan. The stock options may be exercised as

of May 5, 2021 during an eight-year period as of May 5, 2017, i.e. until
May 4, 2025.

The maximum potential capital increase will be in a total par amount
of €60,150, corresponding to 20,050 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 FY 2017 came to 24,450 shares
with a par value of €3, representing a capital increase in an amount of
€73,350, thereby bringing the capital from €17,975,976 to €18,049,326.

Allocation of stock purchase options
No stock purchase options were allocated during FY 2017.

131

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT7

INFORMATION ON THE COMPANY AND SHARE CAPITAL
Presentation of stock option and free share grant plans

TABLE SUMMARIZING THE STOCK OPTION PLANS AVAILABLE TO EMPLOYEES AND CORPORATE OFFICERS

Stock option plan for the
subscription and purchase
of new shares

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 July 24, 2014)

No. 18 (GM of July 21, 2017)

TOTAL

Stock options
available to be
awarded(1) at
January 31, 2018

As a %
of share
capital

Existing stock
options(2) at
January 31, 2018

Exercise price
(in €)

As a %
of share
capital

Stock options
exercised at
January 31, 2018

As a %
of share
capital

142,600

297,753

440,353

2.37%

4.95%

7.32%

41,850
375
3,150
Total: 45,375

7,350
20,050
Total: 27,400

72,775

N.A.

27.82
24.42
27.17

N.A.

27.17
50.92

N.A.

0.75%

0.46%

1.20%

27,450

2,000

0.46%

0.03%

29,450

0.49%

(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, 2018.

(2) The options forfeited or canceled following an employee’s departure were removed from “Existing options” at January 31, 2018.

HISTORY OF ALLOCATIONS OF STOCK SUBSCRIPTION OR PURCHASE OPTIONS (TABLE 8 OF AMF RECOMMENDATIONS)

Meeting date

Date(s) of the meeting(s) of the Board of Directors

Number of options granted

O/w:

• Vincent Chaillou

• Christopher St.John

Starting date of exercise period

Expiration date

Exercise price (in €)

Total number of options exercised

Total number of shares eligible to be subscribed or purchased, expired or canceled

Existing stock options at the balance sheet date

Plan 10:
06/26/2012

12/19/2012
02/07/2014
03/26/2015
07/22/2015

180,000

3,500

2,975

Plan 15:
07/23/2013

03/26/2015

Plan 17:
07/24/2014

07/02/2015
03/11/2016
05/05/2017

20,000

37,400

2017 to 2019

2020 to 2025

2/01/2019

2017 to 2021

2/01/2025

2023 to 2026

27.82; 24.42; 21.66; 27.17

21.66

27.17; 50.92

27,450

107,175

45,375

20,000

2,000

8,000

27,400

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

20,050

50.92

15,250

25.05

10 & 17

7.3.2. Free share grant plans

At its August 1, 2017 meeting, the Board of Directors, acting on
the proposal of the Compensation, Nomination and Governance
Committee, granted a maximum total number of 9,000 ordinary shares
of the Company, with a par value of €3 each, to four beneficiaries,
managers of the Company and its subsidiaries.

In accordance with the terms of Plan 8, the free shares will be granted
to the beneficiaries at the end of a vesting period of which the length
will be different depending on the granted shares tranches 1, 2 or 3 and

4, from 24 to 48 months. The definitive grant of free shares is condi-
tional on their presence during the entire vesting period. The Board of
Directors can choose to grant the existing shares or those to be issued.
From the definitive grant, the beneficiaries should keep these shares,
without selling them, during a retention period of which the length
will also be different depending on the tranche, from 0 to 24 months.
By way of exception, corporate officers commit to keep 20% of the
granted shares until the end of their office, for any reason.

132

ESI GROUP • 2017 REGISTRATION DOCUMENTINFORMATION ON THE COMPANY AND SHARE CAPITAL
ESI shares – market

TABLE SUMMARIZING THE FREE SHARES PLANS AVAILABLE TO EMPLOYEES AND CORPORATE OFFICERS

Free share award plans

Free shares
available to
be awarded at
January 31, 2018

As a % of share
capital

Existing free shares
at January 31, 2018

As a % of share
capital

Authorization of the GM of July 21, 2016

TOTAL

23,725

0.44%

36,068

0.56%

HISTORY OF ALLOCATIONS OF FREE SHARES (TABLE 10 OF AMF RECOMMENDATIONS)

Meeting date

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

Plan 6:
07/21/2016

Plan 7:
07/21/2016

07/21/2016

12/23/2016

25,000

5,000

2,275

Plan 8:
07/21/2016

08/01/2017

9,000

From 07/21/2018

07/21/2020

12/23/2018

12/23/2020

From 08/01/2019

08/01/2021

25,000

207

2,068

9,000

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 index since February 1, 2015 until
the end of April 2018:

300

250

200

150

100

€23.79

10,125.35

4,627.67

FEB.-15

APR.-15

JUNE-15

AUG.-15

OCT.-15

DEC.-15

FEB.-16

APR.-16

JUNE-16

AUG.-16

OCT.-16

DEC.-16

FEB.-17

APR.-17

JUNE-17

AUG.-17

OCT.-17

DEC.-18

FEB.-18

APR.-18

ESI Group

CAC 40

CAC Mid & Small

(Basis 100)

€36.00

14,487.13

5,520.55

133

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT7

INFORMATION ON THE COMPANY AND SHARE CAPITAL
ESI shares – market

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 2018 and the
daily volume of transactions:

(in €)
60

30
€26.72
20

0
July-00

(Number of shares)

300,000

€36.00

June-01

July-02

June-03

July-04

June-05

July-06

June-07

July-08

June-09

July-10

June-11

July-12

June-13

July-14

June-15

July-16

June-17

250,000

200,000

150,000

100,000

50,000

ESI Group stock price

Daily volume

7.4.2. Survey of identifiable bearer shares

On April 23, 2018, 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 24, 2017.

French institutional investors

Foreign investors

Individual shareholders

Companies

At April 23, 2018

At April 24, 2017

As % of free float

As a % of share capital

As % of free float

As a % of share capital

41%

52%

22%

28%

48%

42%

26%

23%

This analysis points to a strong increase in foreign shareholders, which currently account for 28% of share capital, compared to 23% last year.

134

ESI GROUP • 2017 REGISTRATION DOCUMENT8

ADDITIONAL
INFORMATION

8.1. Persons responsible for the Registration Document

8.1.1. Person responsible for the content of the Registration Document

Paris, May 24, 2018.

Mr. Alain de Rouvray, Chairman and Chief Executive Officer of ESI
Group:

“Having taken all reasonable care to ensure that such is the case and
to the best of my knowledge, I hereby declare that the information
contained in this Registration Document gives a true and fair view of
the facts and that no material aspects have been omitted.

I hereby declare that, to the best of my knowledge, the financial state-
ments have been prepared in accordance with applicable accounting
standards and that they give a fair view of the assets, financial position
and results of the Company and all consolidated companies making up

the Group. I further declare that, to the best of my knowledge, the
management report provided in Section 4 presents a fair picture of the
business trends, results and financial position of the Company and all
consolidated companies making up the Group, as well as a description
of the primary risks and uncertainties these entities face.

I have obtained a letter from the Statutory Auditors stating that they
have completed their assignment, which included checking the infor-
mation relating to the financial position and the financial statements
provided in this Document as well as reading the entire annual report.”

8.1.2. Person responsible for the financial information

Mr. Alain de Rouvray, Chairman and Chief Executive Officer of ESI
Group.

8.2. Statutory Auditors

Statutory Auditors

PricewaterhouseCoopers Audit
63, rue de Villiers

92200 Neuilly-sur-Seine

Represented by Mr. Thierry Charron.

Date of appointment: Combined General Meeting of July 22, 2015 for a
term of six years.

Term of office: Annual General Meeting called to approve the financial
statements for the year ended January 31, 2021.

PricewaterhouseCoopers Audit is a member of the Versailles Regional
Association of Statutory Auditors.

Alternate Auditors

Auditex
Faubourg de l’Arche

11, allée de l’Arche

92037 Paris-La Défense Cedex

Represented by Mr. Emmanuel Roger.

Date of appointment: Combined General Meeting of July 22, 2015 for a
term of six years.

Term of office: Annual General Meeting called to approve the financial
statements for the year ended January 31, 2021.

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.

Mr. Yves Nicolas
63, rue de Villiers

92200 Neuilly-sur-Seine

Date of appointment: Combined General Meeting of July 22, 2015 for a
term of six years.

Term of office: Annual General Meeting called to approve the financial
statements for the year ended January 31, 2021.

135

12345678 ESI GROUP • 2017 REGISTRATION DOCUMENT8

ADDITIONAL INFORMATION
Documents available to the public

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, financial reports, annual and interim conso-
lidated financial statements, press releases, regulated information, the
articles of association, shareholders letters and guides and stock prices.

In keeping with the Transparency Directive adopted in 2007, ESI Group
has decided to use a reporting service licensed by the French Financial
Markets Authority (AMF). This allows 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

Justine Brosset

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

136

ESI GROUP • 2017 REGISTRATION DOCUMENTCROSS-REFERENCE TABLES

CROSS-REFERENCE TABLES

Registration Document cross-reference tables

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 Auditors for the fiscal year ended
January 31, 2017 which appear on pages 67-110 of the Registration Document filed with the French Financial Markets Authority (AMF) on May 19,
2017 under number D.17-0543;

• The parent company financial statements, consolidated financial statements, and the report of the Statutory Auditors 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.

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 already

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

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

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.

1.1.2.

1.1.3.

N.A.

1.1.3.

1.3.

1.3.2., 5.1.5. note 3.4. &
5.2.3. note F.8.

5.1.5. note 6.2. & 4.6.

1.6.2. & 3.4.3.

4.1.

1.6.

137

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENTCROSS-REFERENCE TABLES

Information

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

24. Documents available to the public

25.

Information on equity interests

Chapters

5.1.5.

5.1.4. & 4.1.2.

4.1.2.4. & 5.1.5. note 7.1.

4.1.2.4. & 5.1.5. notes 7.1.
& 7.4.

4.1.2.4. & 5.1.5. note 7.1.

4.1.3.

4.2.2.

N.A.

2.2.

2.4.

2.6.

2.6. & 5.1.5. note 5.

2.6.

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.

8.3.

5.2.3. notes C. & F.9.

138

ESI GROUP • 2017 REGISTRATION DOCUMENTCROSS-REFERENCE TABLES

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 publica-
tion 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

• Person responsible for the document

• Annual financial statements of ESI Group

• Consolidated financial statements of the Group ESI

• Statutory Auditors’ report on the annual financial statements

• Statutory Auditors’ report on the consolidated financial statements

• Management report

• Report of the Board of Directors on the corporate governance

Chapters

8.1.

5.2.

5.1.

5.2.4.

5.1.6.

See cross-reference table below

Management report cross-reference table

For ease of reference, the following cross-reference table facilitates identification of information required in the Management 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

Chapters

• Objective and exhaustive analysis of development of the Group’s business, performance and financial position

4.1.1. & 4.1.2.

• 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

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

• Declarations of ownership thresholds crossed

• Shareholder agreements corresponding to securities comprising Company’s share capital

Environmental, social and societal information

• Environmental information

• Social information

• Societal information

Other information

• Information regarding supplier payment terms

• Table summarizing the results of the past five fiscal years

Internal control and risk management procedures

• Control environment

• Organization of internal control

• Risk management

4.2.1.

1.6.

4.2.

4.1.3.

7.2.

7.2.4.

7.2.5.

7.2.4.

3.4.

3.2.

3.3. & 3.5.

4.1.4.

4.4.

4.3.

4.3.1.

4.3.2.

4.3.3.

139

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENTCROSS-REFERENCE TABLES

Corporate governance report cross-reference table

For ease of reference, the following cross-reference table facilitates identification of information required in the corporate governance report
pursuant to Articles L. 225-37, L. 225-37-2 to L. 225-37-5 of the French Commercial Code.

Information

• Executive management choice

• Limits on the powers of the Chief Executive Officer and Chief Operating Officers

• Composition of the Board of Directors, conditions for preparing and organizing the work of the Board of Directors

• List of all positions held in all companies by each corporate officers during the fiscal year

• Compensation and benefits paid during the fiscal year to each corporate officer

• Report on the principles and criteria for attributing and distributing compensation payable to executive corporate officers

in respect of their term

• Agreements signed between a Director or a major shareholder and a subsidiary

• Grant and conservation of stock options to corporate officers

• Grant and conservation of free shares to corporate officers

• Table summarizing currently valid delegations granted by the Shareholders’ Meeting

• Factors that may have an impact in the event of a public offering

Chapters

2.2.2.

2.2.4.

2.3. & 2.4.

2.3.

2.6.

2.6.1.

2.7.

2.6. & 7.3.

7.2.2.

7.2.6.

Sustainable Development and Corporate Social Responsibility
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 accordance 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

3.2.1.

3.2.4.

3.2.3.

3.2.4.

3.2.2.

3.2.3.

3.5.2.

140

ESI GROUP • 2017 REGISTRATION DOCUMENTCROSS-REFERENCE TABLES

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 processes,

where applicable

• Employee training and information on environmental protection

• 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

3.5.1.

3.3.2.

3.4.1.

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

141

23456781 ESI GROUP • 2017 REGISTRATION DOCUMENT142

ESI GROUP • 2017 REGISTRATION DOCUMENTm

Shareholders relations
Corinne Romefort-Régnier & Justine Brosset

100-102, avenue de Suffren – 75015 Paris – France

Tel.: +33 (0)1 53 65 14 41

Fax: +33 (0)1 53 65 14 12

investors@esi-group.com

Design:

http://www.rubanblanc.fr/

A
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2
0
0
8
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French limited company (société anonyme) with a share capital of €18,049,326

Registered office: 100/102, avenue de Suffren, 75015 Paris – France

Paris Trade and Company Register (RCS) number: 381 080 225

Tel.: +33 (0)1 49 78 28 28