2018
REGISTRATION
DOCUMENT
including the annual financial report
PIONEER AND LEADER IN VIRTUAL PROTOTYPING
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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 financial 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
2 REPORT ON CORPORATE GOVERNANCE 21
2.1. Governance Code
2.2. Functioning of the General Management
2.2.1. Combined offices of Chairman of the Board of Directors
and Chief Executive Officer during the financial year ended
January 31, 2019
22
2.2.2. Dissociation of the functions of Chairman of the Board of
Directors and Chief Executive Officer as from February 1, 2019 22
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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. Board of Directors
2.3.1. Composition of the Board of Directors
2.3.2. Offices of directors
2.3.3. Operation of the Board of Directors
2.3.4. Specialized committees
2.3.5. Relationships with shareholders
2.4. Compensation paid to the Directors and the management
2.4.1. Compensation of the Board of Directors
2.4.2. Compensation to the Executive corporate officers
2.5. Additional information in respect of corporate governance
2.5.1. Regulated agreements and commitments and related party
transactions
2.5.2. Delegations of authority
2.5.3. Provisions of the articles of association concerning the
participation of shareholders in General Meetings
2.5.4. Factors that may have an impact in the event of a public
offering
2.6. Statutory Auditors’ report on regulated agreements
and commitments
3 STATEMENT ON EXTRA-FINANCIAL
PERFORMANCE
3.1. The methodology
3.2. ESI – The Product Performance Lifecycle™ Company
3.3. ESI – A committed group
3.3.1. ESI Group Values
3.3.2. Our CSR approach
3.2.3. CSR distinctions
3.4. Risks and issues of ESI
3.4.1. Being a committed employer
3.4.2. Being an outstanding partner
3.4.3. Being an environmentally friendly player
3.4.4. Serving civil society
3.5. Report of the inspecting organization
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4 MANAGEMENT REPORT
4.1. Business activities during the 2018 financial year
4.1.1. Highlights of the 2018 financial 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 financial 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
7.1.
AND SHARE CAPITAL
Information on the Company
7.1.1. General information
7.1.2.
Information regarding rights, privileges and restrictions
attached to shares
Information concerning administrative and management
bodies
7.1.3.
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)
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
7.3. ESI shares – market
7.3.1. Share price trends
7.3.2. Survey of identifiable bearer shares
8 ADDITIONAL INFORMATION
8.1. Persons responsible for the Registration Document
8.1.1. Person responsible for the content of the Registration
Document
8.1.2. Person responsible for the financial information
8.2. Statutory Auditors
8.3. Documents available to the public
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
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ESI Group
French limited company with a share capital of €18,053,676
Registered office: 100/102, avenue de Suffren, 75015 Paris
Paris Trade and Company Register (RCS) number: 381 080 225
REGISTRATION DOCUMENT
ANNUAL FINANCIAL REPORT
Financial year 2018 (ended January 31, 2019)
This Registration Document was filed with the French
Financial Markets Authority (AMF) on May 23, 2019 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).
1
ESI GROUP • 2018 REGISTRATION DOCUMENT E S I G R O U P
The Product Performance Lifecycle™ Company
0 real
test
0 real
prototype
0 unexpected
down-time
2 0 1 8 K E Y F I G U R E S
REVENUES
PER ACTIVITY
PER GEOGRAPHICAL AREA
€139.4 M 79%
Licenses
21%
Services
49%
36%
15%
Middle East
and Africa
Asia-Pacifi c
Americas
EBITDA
€11.2 M
CURRENT OPERATING PROFIT*
ATTRIBUTABLE NET PROFIT
€6.8 M
€3.3 M
* Reclassifi cation of the amortization of intangibles assets acquired in business combinations to Current Operating Result.
2
ESI GROUP • 2018 REGISTRATION DOCUMENT
A G L O B A L C O M P A N Y
j
EMEA
j
ASIA
j
AMERICAS
5 distribution subsidiaries
20 distributors and agents
7 distribution subsidiaries
6 distributors and agents
2 distribution subsidiaries
4 distributors and agents
PRÉSENT DANS PLUS DE
Covering more than
40 PAYS
+40
COUNTRIES
A unique of expertise
+1,200
E M P L O Y E E S
mainly engineers
& scientist, many with
advanced degrees
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)
UNE EXPERTISE UNIQUE
+ de 1 200
PRINCIPALEMENT
INGÉNIEURS & DOCTEURS
GROUND TRANSPORTATION/AUTOMOTIVE
GROUND TRANSPORTATION/AUTOMOTIVE
HEAVY INDUSTRY
HEAVY INDUSTRY
AERONAUTICS & AEROSPACE
AERONAUTICS & AEROSPACE
ENERGY
OTHERS
ENERGY
OTHERS
57%
57%
12%
11%
7%
13 %
13%
12%
11%
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2
3
4
5
6
7
8
I N N O V A T I O N I N T H E T H I C K O F T H E E S I G R O U P S T R AT E G Y
7%
13 %
13%
33.5%
R&D Investments/
Licenses revenues
36 %
Group’s headcount
dedicated to R&D
93
Scientific
publications
19
R&D
centers
INCREASE IN R&D
INVESTMENTS
€36.8 M
o
ESI GROUP • 2018 REGISTRATION DOCUMENT
3
A R E S P O N S I B L E C O M PA N Y
AWARDED FIRST PLACE
OF GAÏA INDEX
for companies
under €150M of revenues.
GAÏA INDEX
which distinguishes the 70 best companies
with social, environmental
and governance practices.
4
ESI GROUP • 2018 REGISTRATION DOCUMENT
1
2
3
4
5
6
7
8
(Base 100)
(Basis 100)
33,10 €
€33.10
13 275,42
13,275.42
5 586,41
5,586.41
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
including: 3 WOMEN
and 5 INDEPENDENT
MEMBERS
Independent
Non-Independent
5
SPECIALIZED
COMMITTEES
1 Strategic Committee
2 Audit Committee
3 Nomination and
Governance Committee
4 Compensation Committee
5 Technology and Marketing Committee
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 2019)
€33.50
STOCK PRICE
SHARE PRICE EVOLUTION
between February 2016 and April 2019 (basis 100)
300
300
250
250
200
24,12 €
€24.12
10 526,20
150
10,526.20
4 392,33
200
150
4,392.33
100
€197.11 M
MARKET
CAPITALIZATION
100
50
50
0
0
AVR.-16
FÉV.-16
JUNE-16
APR.-16
FEB.-16
AOÛ.-16
JUIN-16
AUG.-16
OCT.-16
OCT.-16
DEC.-16
DÉC.-16
FEB.-17
FÉV.-17
APR.-17
AVR.-17
JUNE-17
JUIN-17
AUG.-17
AOÛ.-17
OCT.-17
OCT.-17
DEC.-17
DÉC.-17
FEB.-18
FÉV.-18
APR.-18
AVR.-18
JUNE-18
JUIN-18
AUG.-18
AOÛ.-18
OCT.-18
OCT.-18
DEC.-19
DÉC.-19
FEB.-19
FÉV.-19
APR.-19
AVR.-19
ESI Group
ESI Group
CAC 40
CAC 40
CAC Mid & Small
CAC Mid & Small
S H A R E C A P I TA L B R E A K D O W N
as of end of April 2019
Founders
and Board
37.1%
Auto-control
6.5%
Public
56.5%
ESI GROUP
Euronext Paris
Compartment B
ISIN: FR0004110310
Quote: ESI Group
Mnemonic: ESI
Reuters: ESIG.PA
Bloomberg: ESI:FP
ESI GROUP • 2018 REGISTRATION DOCUMENT
5
1
THE GROUP
Throughout this Registration Document, the terms “the Group,” “ESI Group” and “ESI” refer to ESI Group, the parent company, as well as all affiliates.
ESI Group is a leading innovator in Virtual Prototyping software and
services.
Specialist in material physics, ESI has developed a unique proficiency
in helping industrial manufacturers replace physical tests and proto-
types by virtual replicas. Coupled with the latest technologies, Virtual
Prototyping is now anchored in the wider concept of the Product
Performance LifecycleTM, which addresses the operational performance
of a product during its entire lifecycle, from creation to its market with-
drawal. The creation of Hybrid TwinTM, leveraging simulation, physics
and data analysis, enables manufacturers and operators to deliver and
pre-certify smarter and connected products, to predict product perfor-
mance and to anticipate maintenance needs.
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 enable the gradual elimination of tests and physical
components and subassembly prototypes during the product concep-
tion and manufacturing phases. The virtual prototype of the industrial
product thus designed accelerates its certification and allows the
monitoring and control of its operational performance, helping industry
players to achieve their performance and productivity objectives.
Innovative visualization technologies such as ESI IC.IDO and the avai-
lability of the Virtual Prototyping chain in Cloud/SaaS mode conside-
rably enhance the collaborative potential of ESI Group solutions while
drastically reducing acquisition and ownership costs for companies.
Most importantly, the use of technologies such as big data, System
Modeling, Machine Learning, and the Internet of Things (IoT) adds to ESI
Group’s solutions 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, from product commissioning to its operational
withdrawal including modeling of potential evolutions during its useful
life: accounting for flaws, wear and tear, maintenance procedures, and
running in of assisted operation. The Hybrid TwinTM concept is the
representation of this enhanced offer. It is about being able to follow
the evolution of your product from the conception to the end-of-life
in a digital interface that facilitates informed decision making for both
maintenance and improvement of future versions of the product.
The virtual prototype can now become agile and intelligent to support
industrial manufacturers in the age of smart factories and smart digital
products.
The Group has two main activities: the edition and distribution of
software, and the delivery of consulting services related to its software
products.
6
1.1.1.1. Software Editor/Distributor (Licensing activity)
Licenses Edition/Distribution is the Group’s main activity, accounting
for 79% of revenue in 2018. 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 2018, distribution subsidiaries
directly managed 92.6% 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;
ESI GROUP • 2018 REGISTRATION DOCUMENT THE GROUP
Activities, strategy, and markets
1
– “New Business” comprises new customers and new products
purchased by existing clients.
Licenses
Repeat Business
New Business
Renewal of products
Add-on
New customers
New products
1.1.1.2. Consulting services (Services activity)
In addition to its main business activity of software publishing and
distribution, the Group also provides consulting services directly
related to Virtual Prototyping. The Services activity, which accounted
for 21% of 2018 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
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;
• Field Services: support services in conjunction with Licenses activity
(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:
• identifying safety and performance issues early in the design cycle;
• assessing how new materials and manufacturing methods impact
product performance and integrity;
• implementing best practices to assure an optimum maintenance
cycle and cost;
• predicting equipment performance under extreme conditions and
anticipating measures to reduce down-time and repair costs.
ESI Group's solutions address three major industrial issues:
• accelerate industrial innovation with Virtual Prototyping;
• fill gaps and manage complexity in virtual product development with
the end-to-end Virtual Prototyping method;
• control the product lifecycle following rollout.
7
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 1
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 manage 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 increasingly
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 LifecycleTM (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 TwinTM
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. This Hybrid TwinTM provide an essential response to the
fundamental economic issues of the Industry 4.0.
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.
8
ESI GROUP • 2018 REGISTRATION DOCUMENT THE GROUP
Activities, strategy, and markets
1
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 $48.1 billion) in April 2019, which included Virtual Prototyping under
the category of “Simulation & Analysis Suppliers” (activity estimated at
$6.5 billion in 2018). 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.
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, aeronautic, nuclear power, transportation, energy, electro-
nics, consumer goods, biomedical, etc.).
Under current conditions, it would be a mistake to discount the possi-
bility that new and larger competitors with greater resources could
emerge in ESI Group’s field of activity. However, especially with regard
to key CAD/CAM players, major automakers seem neither to antici-
pate 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. In January 2019, Hexagon announced
the acquisition of Etalon in order to strengthen its solutions and offers
to address the issues of the Industry 4.0 of their customers.
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.
The Product Performance LifecycleTM approach, which enables manu-
facturers to develop a Hybrid TwinTM of their real product on day to day
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.
9
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 1
THE GROUP
Activities, strategy, and markets
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:
• 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.
• Americas = United-States and Brazil;
Revenues
2018
2017
2016
(in € thousands) (in % of the total)
(in € thousands) (in % of the total)
(in € thousands) (in % of the total)
Europe, Middle East and Africa
Asia-Pacific
Americas
TOTAL
68,837
49,768
20,802
139,407
49%
36%
15%
100%
63,821
49,941
21,511
135,274
47%
37%
16%
100%
63,419
54,894
22,268
140,551
45%
39%
16%
100%
As in previous years, the Group maintained a strong international presence, with 84% 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:
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.
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, FAW Group
Corporation, Fiat Chrysler Automobiles, 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.
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, Joyson Safety Systems, Mahindra, 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, Farasis, 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.
10
ESI GROUP • 2018 REGISTRATION DOCUMENT Electronics 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 2018, some 475 people worked within our distribution network to
cover software sales, services production, and support customers. The
Group’s proprietary distribution network accounted for 92.5% 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
1
In 2018, orders in the main industrial sectors broke down as follows:
Education
2.3%
Electronics
& Consumer goods
2.9%
Government
& Defense
4.4%
Energy
6.8%
Aeronautics
& Aerospace
10.8%
Heavy
Industry
12.3%
Others
2.4%
Ground
Transportation
57.1%
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 TwinTM.
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 or
Safran 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.
11
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 1
THE GROUP
History of the Group
1.2. History of the Group
1973 TO 1990
1991 TO 1999
2000 TO 2010
■
■
■
2011 TO 2018
■
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.
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).
2019
■
The Group has been through a major change in its governance on February 1, 2019 with the nomination of Cristel
de Rouvray as Chief Executive Officer of the Group. Alain de Rouvray, founder, remains Chairman of the Board of
Directors.
12
ESI GROUP • 2018 REGISTRATION DOCUMENT 1.3. Group structure
1.3.1. Operational flowchart
At April 30, 2019, the Group’s operational flowchart was as follows:
THE GROUP
Group structure
1
ESI Group
CEO
Innovation, Discovery
& Services
Products
Operations
Solutions
Sales & Marketing
Regions
F&A
IT
Facilities
HR
Corporate
Governance
13
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 1
THE GROUP
Group structure
1.3.2. Legal flowchart
At April 30, 2019, 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
(99.95%)
(98%)
99.95%
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
(100%)
100%
51%
ESI US R&D, Inc.
United-States
(100%)
Mineset Inc.
United-States
(100%)
49%
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%)
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%
100%
100%
95%
100%
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%
100%
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%
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 and Services
Innovation, Discovery,
Products Operations
% of holding
% of control
( )
Note: the percentages of equity and voting rights are identical.
For more information, see note F.8 "Table of controlled entities and affiliates” (at January 31, 2019) in the notes to the consolidated financial statements.
Nota : les pourcentages en capital et les pourcentages en droits de vote sont identiques.
14
ESI GROUP • 2018 REGISTRATION DOCUMENT THE GROUP
Selected financial information
1
1.4. Selected financial information
This information are extracted from the consolidated financial statements.
1.4.1. Revenue
ESI Group has returned to the path of growth in 2018, as part of its
ongoing commercial and operational transformation. The Company
closed out the year with revenues of €139.4 million (+3.1%), following
Q4 sales of €58.2 (+2.8%). Annual growth was +3.9% adjusted for Forex
fluctuations (-€1.2 million) associated with the falling value of three
currencies (the US Dollar, Japanese Yen, and Indian Rupee). The product
mix is evolving positively towards Licenses, which represent 79% of
total revenue compared to 78% last year. This increase is confirming
the trust of industrial global leaders. Notably, the twenty largest global
customers account for 45% of total order intake. This roster includes
some of our strategic partners and the world’s industrial leaders, which
are well along in the digital transformation of their business models.
CHANGE IN REVENUE
(in €m)
140.6
135.3
139.4
108.3
105.7
109.8
124.7
97.0
27.7
32.2
29.5
29.6
2015
2016
2017
2018
Licenses
Services
1.4.2. Strategic business alignment
The Licensing activity is the mainstay of ESI’s business model, represen-
ting 79% of annual sales at €109.8 million (+3.9%). Primarily comprised
of yearly licenses, which are for a large part billed at the end of the year,
this business brought in €70.4 million for H2 (+5.6%).
The Services (Consulting) activity combines various services, from
industrial and advanced application studies, to R&D projects and
training. The significant upturn in business during the second half (+6.3%)
at €15.7 million was driven by the global momentum of some major
European companies, particularly in the French automotive, aeronautics
and energy industries. Overall, sales for the Services division remained
steady at €29.6 million (+0.1%), for a 21% share of total annual revenues.
1.4.3. Breakdown of revenue by geographic area
7
GEOGRAPHICAL BREAKDOWN
Americas
14.9%
(vs. 16%)
Asia-Pacific
35.7%
(vs. 37%)
Europe,
Middle East
and Africa
49.4%
(vs. 47%)
(2017 data)
1.4.4. Profitability
EBITDA reached €11.2 million compared to €12.1 million, giving an
EBITDA margin of 8.0% for the year, compared with 9.0% in 2017. This
drop is a result of the transformation plan which weighed on growth,
and increased investments in R&D.
Current operating profit was €6.8 million, representing a current
operating margin of 4.9%, or €1.3 million less than last year.
EBIT dropped €8.1 million to €7.0 million, giving an EBIT margin of 5.0%,
compared to 6.0% in 2017.
8Business in BRIC countries accounted for 13.2% of revenue compared
to 13.1% in 2017.
The Financial Result was a net financial expense of €1.3 million,
compared to a financial expense of €2.7 million in 2017, this increase
of financial result is due to favorable forex impact, mostly on revalued
transactions, in US dollar, Japanese yen and South Korean won.
Attributable Net Profit came out at €3.3 million in 2018, giving a net
margin of 2.4%.
15
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT
1
THE GROUP
Major investments during the past three financial years
EBITDA
(in €m and % of revenue)
12.1
11.2
9.0%
8.0%
2017
2018
CURRENT OPERATING PROFIT*
ATTRIBUTABLE NET PROFIT
(in €m and % of revenue)
(in €m and % of revenue)
8.1
6.8
6.8%
5.6%
2017
2018
3.3
2.4
1.8%
2.4%
2017
2018
1.5. Major investments during the past three financial years
1.5.1. The Group’s recurring investments
The Group’s recurring investments in operations represent approxima-
tely 2% of its revenue. Over the past three financial years, these invest-
ments amounted to €2.3 million in 2016, and €3.6 million in 2017 and
€4.2 million in 2018. 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 €44.1 million at January 31, 2019 and corresponds to approxima-
tely 14.4 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 are subject not to amortization but rather to impair-
ment 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, 2018 and January 31, 2019 is presented in the table
below. See notes 3.2.1 and 6.1.1 to the consolidated financial statements
for further information.
(in € millions)
Goodwill
Intangible assets with an indefinite useful life
TOTAL
January 31, 2018
Change in scope of
consolidation
Foreign exchange
gain/(loss)
January 31, 2019
41.0
12.0
53.0
0.4
0.4
41.4
12.0
53.4
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.
* Reclassification of the amortization of intangibles assets acquired in business combinations to Current Operating Result.
16
ESI GROUP • 2018 REGISTRATION DOCUMENT THE GROUP
Risks factors and opportunities
1
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 order to evaluate any investment opportunities that could potentially
improve its solutions, the Group has established a Solution Strategy
Council that helps the Group Executive Committee to make investment
decisions based on market priorities and expected outcomes.
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 protectionist
policies that impede rollout of the Company’s solutions.
The Group's presence in many countries protects it from the adverse
effects of unfavorable local economic conditions.
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, the most advanced in its
digital transformation, accounts for 57% of orders and uses a variety of
technologies, thereby limiting any risk of dependence.
The Group’s twenty largest customers have accounted for approxima-
tely 45% of orders.
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.
17
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 1
THE GROUP
Risks factors and opportunities
Services contracts execution
Revenue generated by the Group’s Services activity is recognized
according to the percentage-of-completion method, and accounts
for 21% of the Group’s total revenue in 2018. 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.
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.
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, “Statement on Extra-Financial Performance.”
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
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.
The Group has a legal affairs department that is divided into two
branches:
– advising and implementing restructuring and M&A operations at
Group level and minimize the related risks,
• the corporate legal affairs branch, which is responsible for:
– ensuring consistency in the approach to legal matters by assuming
– advising on major corporate and securities law matters at Group
level, including the definition of legal standards and internal
procedures for a good corporate governance practice,
the legal coordination of the subsidiaries' operations;
• the intellectual property (IP) branch deals with:
– any IP law subject and anything directly related to business and
– ensuring the general secretariat of the Company's governance
contractual relations with research partners,
bodies,
18
ESI GROUP • 2018 REGISTRATION DOCUMENT THE GROUP
Risks factors and opportunities
1
Transfers of more rights than necessary due to customers’
General Purchase Conditions
The risk of improper transfers is eliminated by having all contracts
reviewed by in-house intellectual property law specialists.
Prevention of undue granting of free licenses and transference
of profits within R&D consortia
The intellectual property branch of the Legal Department has an
experience of "good practice" of 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.
– protection and defence of intellectual property,
– IP aspects during M&A operations.
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 Publisher
password is found, ESI Group also uses, for several products, a counter-
feit detection tool together with a legal assistance service to prosecute
counterfeiters.
Risk related to claims by third parties as to the ownership of
codes published by the Group
With regard to the risk of third-party claims, the Group’s 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 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 market losses,
production losses) and limits its contractual liabilities to the amount of
a particular event whenever possible.
1.6.5. Opportunities
Technological changes and the ability to respond rapidly
to clients’ needs
ESI Group’s business is based on a wide knowledge and customer
proximity 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;
19
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 1
THE GROUP
Risks factors and opportunities
• 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 3.4.4). Together,
these enable ESI to produce increasingly innovative solutions in a timely
manner.
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, partnership with China Soft International)
enable the Group to have a unique positioning and to be at the cutting
edge of technology. Established partnerships with industrial leaders
and the best universities and technological institutes reinforce this
positioning.
Strategic investments
Research and development investments are the Group’s technological
pillar. These investments are maintained at a high level since several
years (approximately 33.5% 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 “PPL” (Product Performance
LifecycleTM approach. Founded on the shift from the Virtual Prototype
to the connected Hybrid TwinTM, the new solutions of the Group
enable, for example, the predictive maintenance as well as the manu-
facturing 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.
20
ESI GROUP • 2018 REGISTRATION DOCUMENT 2
REPORT ON CORPORATE
GOVERNANCE
This section constitutes the report of the Board of Directors on
corporate governance pursuant to Article L. 225-37 of the French
Commercial Code. This report notably sets out the conditions of
preparation and organization of the work of the Board of Directors and
its Committees, the powers of the Corporate Officers, the principles
and rules adopted to define their remuneration and benefits of any
kind granted to them, as well as other information to be included under
Articles L. 225-37 et seq. of the French Commercial Code.
This report has been prepared on the basis of work carried out by various
departments of the Company, in particular, the Legal Department and
Finance and Administration Department.
This report was approved by the Board of Directors on April 12, 2019, after
review by the Board Committees of the parties within their respective
powers and sent to the Statutory Auditors. It will be presented to the
Combined General Meeting of July 18, 2019.
2.1. Governance Code
The Company is a limited company (société anonyme) with a Board of
Directors. The Directors, the Chairman of the Board, the Chief Executive
Officer (“CEO”) and the Chief Operating are referred to collectively in
this Registration Document by the term “Corporate Officers”.
• no service agreement binding the Corporate Officers to the Company
or any of its subsidiaries that provides benefits to be granted to them,
apart from the regulated agreements as set out under Section 2.6 of
this Registration Document.
On the date of publication of this Registration Document and to the
Company’s knowledge, there are:
In addition, to the Company’s knowledge on the date of this Registration
Document, no Corporate Officers has been in the last five years:
• no family ties among the Company’s Corporate Officers, with the
exception of parentage between Alain de Rouvray, Chairman of the
Board of Directors and Cristel de Rouvray, Director and CEO from
February 1, 2019;
• no conflicts of interest between the private interests of each
Corporate Officers and their duties with regard to the Company;
• no arrangement or agreement concluded with the principal sharehol-
ders or with clients, suppliers or others, as a result of which any of
the Corporate Officers would have been appointed in such position;
• no restriction on the sale by Corporate Officers of their sharehol-
dings in the Company’s capital except the shareholders’ agreement as
described under Section 7.2.4 of this Registration Document;
• convicted of fraudulent offences;
• associated with any bankruptcies, receiverships or liquidations;
• subject to any official public incrimination and/or sanctions by
statutory or regulatory authorities;
• disqualified by a court from acting as a member of the administrative,
management or supervisory bodies of an issuer or from acting in the
management or conduct of the affairs of any issuer.
Since April 2010, the Company has voluntarily referred to the Middlenext
Code, which is available on the website www.middlenext.com as revised
in September 2016. The Board of Directors declares that it has taken
cognizance of it and undertakes to examine annually in particular the
points of vigilance of the Code.
TABLE SHOWING THE APPLICATION OF RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE
Content of the recommendation
Application by the Company
Paragraph
of Registration Document
R.1. Code of Ethics of the Board of Directors
R.2. Conflict of interest
Recommendation followed by the Company
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
Recommendation followed by the Company
2.3.3.2
2.3.3.2
2.3
2.3.3.4
R.5. Organization of Board and Committee meetings
Recommendation followed by the Company
2.3.3.4 and 2.3.4
R.6.
Establishment of Committees
R.7.
Establishment of Board internal rules
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
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
R.13. Definition and transparency of compensation paid to corporate executive officers
Recommendation followed by the Company
2.3.4
2.3.3.1
2.3.2
2.3.1
2.4.1.2
2.3.6
2.3.5
2.4
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
2.2.2, 2.3.3.5 and 2.3.3.6
Recommendation followed by the Company
Recommendation followed by the Company
Recommendation followed by the Company
2.4.2.2
2.4.2.2
2.4.2.2
Recommendation followed by the Company
2.4.2.1.4 and 2.4.2.2
Recommendation followed by the Company
2.1
21
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT 2
REPORT ON CORPORATE GOVERNANCE
Functioning of the General Management
2.2. Functioning of the General Management
In accordance with the legal and statutory provisions, the Board of
Directors entrusts the General Management either to the Chairman of
the Board of Directors or to another individual, whether Director or
not, bearing the title of Chief Executive Officer (“CEO”).
The choice between these two methods of exercise of the General
Management is made by the Board of Directors by decision of the
majority of the Directors present or represented. The choice of the
Board is brought to the attention of Shareholders and third parties in
accordance with the regulations in force.
No one can be appointed CEO if he is over 80 years old. If the current
CEO exceeds this age, he is deemed to have resigned from office.
The CEO is vested with the broadest powers to act in all circumstances
in the name of the Company. The powers of the CEO are however
limited by the Board of Directors (see Section 2.2.4.1 below).
2.2.1. Combined offices of Chairman of the Board of Directors and Chief Executive Officer
during the financial year ended January 31, 2019
Since the creation of the Company and until January 31, 2019, the Board
of Directors had opted for a monistic governance. At its meeting on
July 22, 2015, the Board of Directors decided to maintain the combined
office of Chairman and Chief Executive Officer and to renew Alain
de Rouvray, founder of the Company and Chairman of the Board of
Directors as Director General of the Company for a term of four years
expiring in 2019.
2.2.2. Dissociation of the functions of Chairman of the Board of Directors and Chief
Executive Officer as from February 1, 2019
At its meeting of September 18, 2018, the Board of Directors decided
to modify the monist corporate governance structure of the Company
and to adopt a separate structure, in order to fully integrate into the
Company’s transformation context. Thus, as of February 1, 2019, the
Board of Directors decided to separate the functions of Chairman of
the Board of Directors and CEO, while maintaining Alain de Rouvray
as Chairman of the Board of Directors and secondly to appoint Cristel
de Rouvray as Chief Executive Officer for the remaining term of their
respective directorships.
In accordance with Article L. 225-54-1 of the French Commercial Code,
Cristel de Rouvray does not hold any other position as Chief Executive
Officer in a public limited company with its registered office in France.
2.2.3. Chief Operating Officers
At the CEO’s proposal, the Board of Directors may appoint one or more
individuals as Chief Operating Officer to assist the CEO. 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 CEO’s agreement
and sets their compensation. With respect to third parties, the Chief
Operating Officer has the same powers as the CEO.
If the CEO 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 CEO unless the Board of Directors decides
otherwise.
Chief Operating Officers may be dismissed at any time upon proposal
of the CEO. If Chief Operating Officers are dismissed without just
cause, such dismissal may be grounds for compensation.
At its December 19, 2018 meeting, the Board of Directors decided to
reappoint Vincent Chaillou and Christopher St John as Chief Operating
Officers for a term of four years, expiring in 2021.
2.2.4. Limits on the powers of the Chief Executive Officer and Chief Operating Officers
2.2.4.1. Limits to the CEO’s powers
The CEO represents the Company in its dealings with third parties. He
is vested with the broadest powers to act in all circumstances in the
name of the Company, provided that the act he carries out is part of
the corporate object and is not expressly reserved to Shareholders’
Meetings or to the Board of Directors.
Without prejudice to the legal provisions relating to authorizations to
be granted by the Board of Directors (regulated agreements, sureties,
endorsements and guarantees, transfers of participations or real estate,
etc.), the Chief Executive Officer must obtain the prior authorization of
the Board of Directors for the following operations that are outside the
scope of day-to-day management, in accordance with its internal rules:
• purchase or acquire, sell or dispose of, or mortgage any real estate,
pledge any movable property and claim, where the transaction
exceeds the amount of €100,000;
22
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Functioning of the General Management
2
• operations intended to consent to or contract any loans or loans,
credits or advances, where these exceed an amount of €2,000,000;
• direct or equity transactions that may affect the Group’s strategy and
In all cases, the Chief Operating Officers require the Company’s prior
written consent to carry out solely the following transactions on behalf
of the Company:
substantially modify its financial structure or scope of business;
• to hire managers and directors and determine or modify their annual
• settle any dispute and take legal action, with the exception of debt
recovery actions or any day to day operations and urgent actions
such as provisional or conservatory measures;
• the
issue of security
interests, guarantees, endorsements or
guarantees where these exceed an annual amount of €100,000;
• the issue of securities, whatever their nature, which may lead to a
change in the share capital, regardless of the amount.
2.2.4.2. Limits to the Chief Operating Officers’ powers
The powers of the Chief Operating Officers to act as legal representa-
tives of the Company have been delegated by the Board of Directors.
The following powers have thus been delegated to the Chief Operating
Officers:
1. to represent the Company, in general, in all ongoing business affairs
of ESI Group with respect to third parties and in compliance with the
Group procedures;
2. to enter into commercial contracts or agreements on behalf of the
Company within its commercial territory and authority;
3. to hire or terminate any employee, executive, consultant, sales 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.
compensation;
• to purchase or acquire, sell or dispose of, lease or rent, or mortgage
any real estate property;
• to pledge any movable property or receivable;
• to enter into credit arrangements;
• to take out loans on behalf of the Company (with the exception of
the use of bank overdrafts granted to the Company);
• to create or acquire stakes in other companies, to perform any other
type of similar undertaking, to accept management positions in
other companies, to establish or dissolve subsidiaries and to divest
ownership interest;
• to propose mergers;
• to grant loans;
• to bind the Company as a guarantor or in any other debt-related
situation with respect to third parties;
• to settle any disputes and to take legal action, with the exception
of debt recovery actions that form part of the Company’s ongoing
operations and urgent actions such as provisional or conservatory
measures that cannot be postponed in the interests of the Company;
• to set up retirement plans for the employees of the Company;
• to sell or dispose of, purchase or acquire, or transfer or mortgage any
assets belonging to the Company worth more than €50,000;
• to enter into commercial contracts or transactions exceeding
€250,000, with the exception of intra-Group contracts issued by the
Company, which the Chief Operating Officers 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 CEO is assisted by the GEC for the Company’s daily management
pertaining to growth strategy in the following areas:
of Directors for the execution and/or implementation of strategic
operations.
• Research;
• Innovation;
• Service activity;
• Production of products and solutions;
• Sales and marketing;
• Regional directions;
• Human resources;
• Quality;
• IT;
• Finance et administration;
• Communication.
The GEC meets at least once a month and as often as the interest of
the Company requires, to report on the activities of the Company to
the CEO. The GEC prepares, with the support of the specialize commit-
tees, all matters submitted to the prior authorization of the Board
Beginning 2018, ESI Group reviewed its management and operational
organization, in line with the adaptation of its new Hybrid TwinTM
solutions to address the challenges of the Industry 4.0 and Smart
Factory and the Outcome Economy.
In this context and to support this fundamental reorganization,
Christian Matzen, GEC member, was appointed Executive Vice President
Sales and Marketing (EVP S&M), and Dominique Lefebvre was appointed
Director of Product Operations and joined the GEC. On June 4, 2018,
Olfa Zorgati was appointed Chief Financial Officer. Following Angelita
Reyes’s departure on March 31, 2019, Cristel de Rouvray also supervises
the Group Human Resources in the interim.
23
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT1 2
REPORT ON CORPORATE GOVERNANCE
Board of Directors
As at the date of this Registration Document, the GEC comprises the following members:
From the left to the right:
Christian MATZEN
Corinne ROMEFORT-RÉGNIER
Cristel DE ROUVRAY
Olfa ZORGATI
Executive Vice President, Sales
and Marketing
Corporate Governance Director
Chief Executive Officer of the
Company
Chief Financial Officer
Christopher ST JOHN
Mike SALARI
Vincent CHAILLOU
Dominique LEFEBVRE
Chief Operating Officer – Asia-
Pacific Regional Director
Executive Vice President
Innovation, Value Discovery and
Services – Regional Director, The
Americas
Board member and Chief
Operating Officer – Group
Strategy and EMEA Regional
Director
Executive Vice President Products
Operations
2.3. Board of Directors
2.3.1. Composition 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.
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). 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 will automatically be
deemed to have resigned. He will nonetheless retain his seat until the
first Board meeting following the date at which the Director in question
exceeded the age limit.
24
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Board of Directors
2
OVERVIEW OF THE BOARD OF DIRECTORS AS AT THE DATE OF THIS REGISTRATION DOCUMENT
Members of the
Board of Directors
Age Gender Nationality
Strategic
Committee
Audit
Committee
Compensation
Committee(1)
Nominations
and
Governance
Committee(1)
Technology
and
Marketing
Committee
Start
of first
term
Start of
current
term
End of
current
term
Expertise,
experience
MEMBERS CONSIDERED NON INDEPENDENT BY THE BOARD OF DIRECTORS (SEE SECTION 2.3.1.2)
Alain de Rouvray
75
M
French
●*
●*(2)
●
1991
2015
AG
2019(3)
Vincent Chaillou
69
M
French
Cristel de Rouvray
42
F
French-
American
●
●
●
2004
2016
AG 2020
●*(4)
●*(4)
●
1999
2017
AG 2021
MEMBERS CONSIDERED INDEPENDENT BY THE BOARD OF DIRECTORS (SEE SECTION 2.3.1.2)
Charles-Helen des
Isnards
74
Éric d’Hotelans
68
Véronique Jacq
51
Rajani
Ramanathan
52
M
M
F
F
Yves de Balmann
73
M
French
French
French
American,
Indian
French-
American
●
●
●
●
●
●*
●
●
●
●*(2)
●
●
●
●
Industries,
Technologies,
Commerce,
Leadership,
M&A
Industries,
Technologies,
Commerce,
Leadership,
M&A
Leadership,
RSE
Finance,
M&A, Listed
company
Technologies,
Finance,
Leadership,
Listed
company
Finance,
M&A, Listed
company
2008
2017
AG 2021
2008
2015
AG
2019(3)
●
2014
2018
AG 2022
●*
2014
2018
AG 2022 Technologies,
Commerce,
Leadership,
CSR
2016
2016
AG 2020
Finance,
Leadership,
M&A, Listed
company
* Chairman.
● Member.
(1) The Compensation Committee and the Nomination and Governance Committee were dissociated by decision of the Board of Directors on December 19, 2018
with effect from February 1, 2019.
(2) Member and Chairman of the Committee from February 1, 2019.
(3) Mandates proposed to be renewed at the Shareholders’ Meeting of July 18, 2019.
(4) Member and Chairwoman of the Committee until January 31, 2019.
2.3.1.1. Changes in the composition
CHANGES IN THE COMPOSITION OF THE BOARD OF DIRECTORS IN 2018 AND UNTIL THE DATE OF THIS REGISTRATION DOCUMENT
Date of effect
July 18, 2018
July 18, 2018
Departure
Appointment
Renewal
-
-
-
-
Véronique Jacq
Rajani Ramanathan
Diversification
Finance, gender
International experience, technologies, gender
CHANGES IN THE COMPOSITION OF THE COMMITTEES IN 2018 AND UNTIL THE DATE OF THIS REGISTRATION DOCUMENT
Strategic Committee
Audit Committee
Compensation Committee(1)
Nomination and Governance Committee(1)
February 1, 2019
January 31, 2018
Alain de Rouvray
-
Éric d’Hotelans(2)
Technology and Marketing Committee
January 31, 2019
Cristel de Rouvray
February 1, 2019
July 18, 2018
-
-
Date of effect
July 18, 2018
July 18, 2018
-
-
January 31, 2018
Alain de Rouvray
January 31, 2019
Cristel de Rouvray
Departure
Appointment
Renewal
-
-
-
-
Rajani Ramanathan
Véronique Jacq
-
-
-
-
-
-
-
Rajani Ramanathan
Véronique Jacq
-
-
Alain de Rouvray(2)
(1) The Compensation Committee and the Nomination and Governance Committee were dissociated by decision of the Board of Directors on December 19, 2018
with effect from February 1, 2019.
(2) Chairman in replacement of Cristel de Rouvray.
25
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT1 2
REPORT ON CORPORATE GOVERNANCE
Board of Directors
2.3.1.2. Independence
In accordance with the recommendations of the Middlenext Code (R.3), following the opinion of the Nomination and Governance Committee, the
Board of Directors analyzed and determined at a meeting of April 4, 2019, the proportion of independent directors within the Board. In particular,
it examined each of the directors’ situations in light of the five criteria presuming independence defined by the Code, namely:
Criterion 1
Criterion 2
Criterion 3
Criterion 4
Criterion 5
Not to be and not to have been during the course of the previous five years, an employee or corporate officer of the Company or an entity of
the Group
Not to have been during the course of the previous two years and not to be in a significant business relationship with the Company or its
Group (customer, supplier, competitor, service provider, creditor, banker)
Not to be majority shareholder or not holding a significant percentage of the Company’s voting right
Not being related by close family ties to a corporate officer or a majority shareholder
Not having been an Auditor of the Company during the course of the previous six years
The table below shows each director’s situation in light of the independence criteria as stated above, and the classification chosen by the Board
of Directors. The Board identified five independent director out of eight, representing 62.5% of independence, largely above the one-third of
independence recommended by the Middlenext Code for a controlled company.
Director
Criterion 1
Criterion 2
Criterion 3
Criterion 4
Criterion 5
Classification chosen by the Board
of Directors
Alain de Rouvray
Vincent Chaillou
Cristel de Rouvray
Charles-Helen des Isnards
Éric d’Hotelans
Véronique Jacq
Rajani Ramanathan
Yves de Balmann
X: Not compliant.
✓: Compliant.
X
X
X
✓
✓
✓
✓
✓
✓
✓
X
✓
✓
✓
✓
✓
X
✓
X
✓
✓
✓
✓
✓
X
X
X
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Not independent
Not independent
Not independent
Independent
Independent
Independent
Independent
Independent
2.3.1.3. Balanced gender representation on the Board
At the date of this Registration Document, the Board of Directors is composed of three women and five men. In accordance with Article L. 225-18-1
of the French Commercial Code, the difference between the two genders is not greater than two and consequently the Board of Directors has a
balanced representation.
26
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Board of Directors
2
2.3.2. Offices of directors
The number of directorships held by directors is in accordance with the limits set forth in Article L. 225-21 of the French Commercial Code. This is
an important guarantee of their commitment and availability to the Group.
Alain de Rouvray
Vincent Chaillou
Chairman and Chairman of the Board of Directors
Board member and Chief Operating Officer
Date of birth: 10/08/1943
French
Date of birth: 03/24/1950
French
Founder of ESI Group, Alain de Rouvray has been the Chairman and Chief
Executive Officer since its creation in 1991 and until January 31, 2019. Since
February 1, 2019, as from the date of dissociation of governance functions, he is
acting as Chairman of the Board of Directors. 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 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 subsidiary of
CISI Group from 1972 to 1976. In 1973, he founded ESI SA and was the COO and
Commercial Director from 1973 to 1990.
Current offices held outside the Group:
None
Expired offices held over the past five years:
None
Business address:
ESI Group – 100-102, avenue de Suffren, 75015 Paris, France
Vincent Chaillou is the Company COO is Chief Operating Officer–Group
Strategy and EMEA Regional Director. Vincent 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 mana-
gement, 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 outside the Group:
• Member of the Board of the association Alliance Industrie du Futur
• 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
Expired offices held over the past five financial years:
• Member of the Board of the association TECH’IN France
• 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, France
Cristel de Rouvray
Board member and Chief Executive Officer
Date of birth: 10/15/1976
French, American
Charles-Helen des Isnards
Independent Board member
Date of birth: 01/01/1945
French
Cristel de Rouvray was appointed Chief Executive Officer on February 1, 2019.
Cristel was Chairman of the Compensation, Nomination and Governance
Committee from 2007 to 2019 and Board Leader from 2015. A graduate of
Stanford University and the London School of Economics, where she obtained
a Ph.D. in economics. She has 14 years of experience as a Director at College
Track, a US non-profit organization.
Current offices held outside the Group:
None
Expired offices held over the past five years:
None
Business address:
ESI Group – 100-102, avenue de Suffren, 75015 Paris, France
Charles-Helen des Isnards is a graduate of the Paris Institute of Political Studies
and holds a degree in law. 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.
Current offices held outside the Group:
• Member of the Board of the Day-Solvay Foundation
Expired offices held over the past five years:
• Member of the Board of the association Les Arts Florissants
• Member of the Supervisory Board of the company Nature & Découvertes
Other current functions:
• Senior Advisor of CAP M – New York, independent consulting firm on
strategy and M&A
Business address:
ESI Group – 100-102, avenue de Suffren, 75015 Paris, France
27
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Board of Directors
Éric d’Hotelans
Independent Board member
Date of birth: 07/03/1950
French
Véronique Jacq
Independent Board member
Date of birth: 01/02/1968
French
Éric d’Hotelans held positions in the information technology sector, first at
Tandem (US computer manufacturer, taken over by HP), where he headed
the Europe/Finance Business Unit. In 1998, he joined CMG, one of the oldest
European IT services companies, as a member of the Executive Committee. In
this capacity, he created CMG France (1,200 employees), the Group’s French
subsidiary, of which he became Chairman and CEO. He left CMG group in
2003, following its acquisition by UK group Logica. He then participated
in the development of an investment fund based in Riyadh, Saudi Arabia,
specializing in research and analysis of IT-related activities. In 2003, he
joined the Board of Directors of M6 Group as Deputy Chairman in charge of
management activities. President of the Group’s online sales since 2009, he
retired in July 2017.
Current offices held outside the Group:
• Chair of the M6 Group Corporate Foundation
Expired offices held over the past five years:
• President of the company Home Shopping Services SA
• President of the company T-Commerce SAS
• Member of the Board of the company Société Nouvelle de Distribution
SA
• Member of the Board of the company Métropole Production SA
• 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, France
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 outside the Group:
• Member of the Board of the company Evaneos
• Member of the Board of the company OpenClassrooms
• Member of the Board of the company Scality
• Member of Board of the company Klaxoon
Expired offices held over the past five years:
• Member of the Board of the company Netatmo
• Censor of the company DelfMEMS
• Censor of the company Bonitasoft
• Censor of the company Teads
Business address:
Bpifrance – 6-8, boulevard Haussmann, 75009 Paris, France
Rajani Ramanathan
Independent Board member
Date of birth: 03/25/1967
American, Indian
Yves de Balmann
Independent Board member
Date of birth: 05/28/1946
French, American
Rajani Ramanathan has held a variety of positions, from running her own
companies to scaling a multi-billion company from a startup to a fully
operational business. Currently she serves as an independent Board member
at CloudCherry and serves as either a Board member/advisor/investor in
several technology startups including Vayu Technology corp., Invicara, Fitbliss,
Boon VR, Feathercap and has previously advised companies such as Medium,
Pipefy, Growbot, Lifograph, Traction Labs, Relatas, Realine TechnologyWizcal,
SaferMobility and Trendbrew to name a few. She joined Salesforce.com in
2000, when it was a very small startup, and she helped built it into a high
growth Fortune 500 company during her tenure of 14 years. In her most recent
role as COO (EVP) of Technology & Products, her responsibilities spanned from
delivering highly innovative products, while ensuring every employee can do
the best work in their careers. In 2014, she was awarded the YWCA TWIN
(Tribute to Women and Industry) Award, which has long been considered one
of Silicon Valley’s most prestigious awards honoring women who exemplify
leadership excellence in executive-level positions.
Current offices held outside the Group:
• Member of the Board of the company CloudCherry
• Member of the Board of the company Vavu
Expired 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.
Current offices held outside the Group:
• 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
Expired 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, France
Business address:
ESI Group – 100-102, avenue de Suffren, 75015 Paris, France
28
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Board of Directors
2
2.3.3. Operation of the Board of Directors
Internal rules of the Board of Directors
2.3.3.1.
The Board of Directors adopted internal rules which set out the opera-
tional procedures of the Board and its Committees, as well as the rules
of professional ethics applicable to all Directors. These internal rules
were reviewed and approved by the Board of Directors on April 12,
2019. They can be consulted on the Company’s website (www.esi-group.
com). Each member receives a copy of these internal rules upon being
appointed.
In accordance with recommendations of the Middlenext Code (R.7),
these internal rules specify in particular the following points:
• the role of the Board and, as the case may be, operations subject to
the prior authorization of the Board;
• composition of the Board / independence criteria of the members;
• definition of the missions of any specialized committees set up;
• duties of the members (deontology: loyalty, non-competition,
disclosure of conflicts of interest and duty of abstention, ethics,
confidentiality, etc.);
• operation of the Board (frequency, convening, information of the
members, self-assessment, use of videoconferencing and telecom-
munication facilities...);
• protection of corporate officers: liability insurance for corporate
officers;
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;
• rules for determining the remuneration of directors;
• allocating attendance fees;
• the question of succession plan of the management and key people.
2.3.3.2. Professional ethics of Board members and
prevention of conflicts of interest
Regarding professional ethics, it Board members refer to the Director
Charter set forth by the French Institute of Corporate Directors (IFA)
and appended to the internal rules of the Board of Directors.
Concerning prevention and management of conflicts of interest,
the internal rules recommend that each Director strive to avoid any
potential conflict between his moral and material interests and those
of the Company. Each Director is bound to inform the Board of any
potential conflict of interest. Should the Director be unable to avoid a
conflict of interest, he must abstain from taking part in the debates as
well as any decision on the subjects concerned.
To the Company’s knowledge and as at the date this Registration
Document, there is no conflict of interest between the duties of the
individual Board members with respect to the Company and their
private interest and other duties.
2.3.3.3. 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.
• creating committees within the Board of Directors, defining their
responsibilities and operational procedures, appointing and determi-
ning the compensation of the members of these committees;
• establishing and updating the internal rules of procedure of the
Board of Directors.
Certain transactions considered to be outside the scope of day-to-day
management of business are subject to the prior authorization of the
Board of Directors, as defined by the internal rules (Section 2.2.4.1 of
this Registration Document).
2.3.3.4. Organization of the Board of Directors’ work
In accordance with the internal rules of procedure, the Directors shall
each receive, within a reasonable time before each meeting of the
Board, a file containing the agenda of the meeting, the draft minutes
of the previous meeting and any relevant documentation relating to
each of the items on the agenda. The Chairman answers to requests
from Directors for additional information. The Directors consider they
receive a complete and sufficient information to fulfill their mission.
In addition, each issue raised during the session is thoroughly discussed
and debated among members before being put to the vote at the end
of the discussion. Lastly, the Directors are regularly informed between
meetings whenever the Company’s situation requires, in accordance
with Recommendation R.4 of the Middlenext Code.
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 internal
rules state that the Board of Directors meets at least four times per year.
29
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Board of Directors
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 sale;
• 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 set out the discussions, specify the decisions
made and mention the questions and hesitations raised.
Furthermore, during each meeting any major facts or events pertaining
to the Company’s operations or its general situation arising since the
previous meeting are brought to the Board members’ attention.
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 has a casting vote. In accordance with
the provisions of the articles of association, Board members who
attend the Board meeting via videoconference or teleconference are
considered present as for the quorum. This provision does not apply
to decisions for which the French Commercial Code expressly excludes
the use of this process.
An attendance sheet is drawn up and signed by the Board members
attending the Board of Directors’ meeting.
2.3.3.5. Works of the Board of Directors in 2018
In 2018, the Board of Directors held eight meetings including the Board retreat. The attendance rate was 92.2%.
ATTENDANCE OF DIRECTORS AT BOARD MEETINGS IN 2018
Dates of Board of
Directors’ meetings
03/14/2018 04/17/2018 07/18/2018
Alain de Rouvray
Vincent Chaillou
Cristel de Rouvray
Charles-Helen des Isnards
Éric d’Hotelans
Véronique Jacq
Rajani Ramanathan
Yves de Balmann
OVERALL ATTENDANCE
Board
retreat
07/29 to
31/2018
ATTENDANCE OF DIRECTORS AT COMMITTEES’ MEETINGS IN 2018
09/18/2018 11/02/2018 12/19/2018 01/24/2019
% of
attendance
(Board retreat
excluded)
% of overall
attendance
100
100
100
100
86
86
57
100
91.1
100
100
100
100
87.5
87.5
62.5
100
92.2
Director
Strategic Committee
Audit Committee
Compensation, Nomination
and Governance Committee(1)
Technology and Marketing
Committee
Alain de Rouvray
Vincent Chaillou
Cristel de Rouvray
Charles-Helen des Isnards
Éric d’Hotelans
Véronique Jacq
Rajani Ramanathan
Yves de Balmann
OVERALL ATTENDANCE RATE
Attendance
rate
Number of
meetings
Attendance
rate
Number of
meetings
Attendance
rate
Number of
meetings
Attendance
rate
Number of
meetings
100%
100%
100%
100%
100%
100%
100%
100%
100%
3/3
3/3
3/3
3/3
3/3
3/3
3/3
3/3
-
-
-
-
100%
100%
100%
-
-
100%
-
-
-
5/5
5/5
5/5
-
-
-
-
-
100%
100%
100%
-
100%
-
100%
-
-
4/4
4/4
4/4
-
4/4
-
-
75%
100%
-
-
-
100%
100%
-
93.8%
3/4
4/4
-
-
-
4/4
4/4
-
-
(1) The Compensation Committee and the Nomination and Governance Committee have been dissociated into two separate committees by decision of the Board of
Directors on December 19, 2018 with effect from February 1, 2019.
30
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Board of Directors
2
In 2018, the Board of Directors deliberated on the following items:
Meeting date
Agenda
03/14/2018
04/17/2018
07/18/2018
07/29 to
07/31/2018
Board retreat
09/18/2018
11/02/2018
12/19/2018
• Update on activity
• Review and approval of turnover for 2018 financial year ended on January 31, 2018
• Capital increase following exercise of options during financial year ended on January 31, 2018
• Annual authorization to issue sureties, endorsements and guarantees in order to guarantee the debts and contractual commitments of ESI
Group subsidiaries
• Budget approval for financial year ended on January 31, 2018
• Closing of accounts for financial year ended on January 31, 2018
• Review of regulated agreements
• Update on Directors’ offices
• Compensation of Corporate Officers
• Update on delegations
• Convening of the Combined Shareholders’ Meeting
• Review and approval of reports to the Combined Shareholders’ Meeting of July 18, 2018
• Strategic orientations
• Implementation of the share buyback program authorized by the Combined Shareholders’ Meeting of July 18, 2018
• Allocation of free shares
• Allocation of stock-options
• Perspectives related to Industry 4.0
• Review of committees’ objectives
• Review of governance, succession plan and financing
• Review and approval of 2018 first-half year results
• Report on Board Retreat and 2018/2019 planning for the committees
• Change of closing date
• Compensation of Corporate Officers
• Performance conditions – Stock-options plan and free shares
• Approval of syndicated loan
• Governance update
• Free shares – Collective plan No. 7: expiration of the acquisition period
01/24/2019
• Review and approval of Budget approval for 2019 financial year
• Compensation of legal representatives
2.3.3.6. Board assessment
In accordance with Middlenext Code Recommendation R.11 the Board
of Directors carried out during 2018 financial year, a yearly internal self-
assessment of its composition, organization and mode of operation.
This assessment was performed using a questionnaire addressed to
each Director. The results of the self-assessment were discussed and
summarized during the Board Retreat. Proposals for improvement were
made regarding in particular the launch of financial and administrative
tools, process for prioritization in recruitments and change of closing
date. Debates arose on governance and its evolution.
2.3.4. Specialized committees
The Board of Directors may decide on the creation within its Board of
committees of which it determines the composition (see Section 2.3.1
above) and defines the missions in the internal rules. The Committees
carry out an activity under the Board’s sole responsibility. The Board
of Directors remains the decision-making body. The purpose of the
committees is to optimize the discussions of the Board of Directors
and to ensure it is prepared to make its decisions. The Committees thus
draw up proposals, recommendations and opinions relative to their
respective areas at each of their meetings. In accordance with current
legislation and Middlenext Code Recommendation R.6, the following
Committees have been established within the Company:
• the Strategic Committee;
• the Audit Committee;
• the Compensation Committee(1);
• the Nomination and Governance Committee(1);
• the Technology and Marketing Committee.
The attendance of the Directors at the committees’ meetings during
financial year ended on January 31, 2019 is presented under Section 2.3.3.5
above.
2.3.4.1. Strategic Committee
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.
(1) The Compensation Committee and the Nomination and Governance Committee have been dissociated into two separate committees by decision of the Board of Directors
on December 19, 2018 with effect from February 1, 2019.
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Board of Directors
2.3.4.2. 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 attend the meetings of
the Audit Committee as guests.
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 on its acti-
vities and the results of certification of financial statements, how
said certification has contributed to the integrity of financial infor-
mation, and the role that the Committee played in the process. The
Committee immediately reports any problems that may arise.
2.3.4.3. Compensation Committee
The mission of the Compensation Committee is to prepare the
decisions of the Board of Directors concerning:
• the compensation policy of the Group, in particular for key directors
and officers, based on information provided by the Finance and
Human Resources Departments;
• the general policy to grant options to subscribe or purchase shares
or free shares, reported in the annual report and the special report
dedicated to the shareholders at the General Meeting, and the
frequency of allocations;
• the allocation of stock options or purchase of shares in favor of
employees and/or corporate officers, as well as any pattern of
ownership of Employees (profit sharing...), to issue an opinion on the
legal and financial conditions of these plans, and the list of beneficia-
ries related to strategic goals;
• the Company’s policy on equal pay and equal wages for all employees
and between women and men (Article L. 225-37-1 of the French
Commercial Code).
2.3.4.4. Nomination and Governance Committee
The mission of Nomination and Governance Committee is to prepare
the decisions of the Board of Directors concerning:
• the composition of the Board in view of the composition and
evolution of the shareholding of the Company, research and evalua-
tion of potential candidates, the opportunity of reappointments;
• the procedure for selecting future independent Directors;
• the succession plan for corporate officers in case of unexpected
vacancy, hiring, nomination or dismissal of officers;
• the criteria of independence of Directors and assessment of
independence;
• the assessment procedures of the functioning of the Board and its
Committees;
• the recruitment of executives for key activities and functions of the
Company including members of the GEC;
• the implementation of a new organization of the Group’s activities
that may have an impact on the responsibilities of the members of
the GEC.
2.3.4.5. 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.
2.3.5. Relationships with shareholders
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.
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ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Compensation paid to the Directors and the management
2
2.4. Compensation paid to the Directors and the management
2.4.1. Compensation of the Board of Directors
2.4.1.1. Attendance fees paid to Directors for financial year ended on January 31, 2019
Summary table of attendance fees and other components of compensation paid to Directors (Table 3 of AMF nomenclature)
Attendance fees paid to executive and non-executive corporate officers
FY 2018
FY 2017
EXECUTIVE CORPORATE OFFICERS
Alain de Rouvray(1)
Vincent Chaillou
NON-EXECUTIVE CORPORATE OFFICERS
Cristel de Rouvray(2)
• Attendance fees
• Other compensation(3)
Charles-Helen des Isnards
Éric d’Hotelans
Véronique Jacq
Rajani Ramanathan
Yves de Balmann
TOTAL
• Attendance fees
• Other compensation
10,000
6,000
28,000
114,894
42,000
26,471
16,471
30,200
19,000
178,142
114,894
10,000
6,000
17,500
82,105
41,500
16,500
11,200
27,975
17,750
148,425
82,105
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
(2) Cristel de Rouvray was appointed CEO from February 1, 2019.
(3) Other compensation of Cristel de Rouvray was paid under the related party agreements as presented under Sections 2.5.1 and 2.6 of this Registration Document.
It is specified as necessary that at the General Meeting of July 18, 2018, Cristel de Rouvray did not take part in the vote in the fourth resolution on the approval
of the regulated agreement of which she is a party.
The Combined Shareholders ‘Meeting of July 18, 2018 maintained at €180,000 the maximum aggregate amount of attendance fees attributable to
the Directors for the 2018 financial year, stating that the allocation of this amount would be made by the Board of Directors between its members.
2.4.1.2. Compensation policy applicable to Directors for 2019 financial year
As part of their mandate, the Directors receive attendance fees, the total amount of which is set by the General Meeting. Their distribution is
made, on proposal of the Compensation Committee to the Board of Directors, according to criteria of frequency of meetings, attendance and
participation or chairmanship of specialized Committees and with regard to special missions that may be entrusted (R.10). Some Directors receive
a specific allocation of tokens for special assignments entrusted by the Board during the financial year.
It will be proposed to the Combined General Meeting of July 18, 2019 in its 13th resolution to increase the total amount of attendance fees
attributable to the Directors for the 2019 financial year from €180,000 to €280,000. This proposal to increase the maximum aggregate amount of
attendance fees is notably related to the remuneration policy attributable to the Chairman of the Board of Directors for the 2019 financial year,
which will also be submitted to shareholders for approval at the next Shareholders’ Meeting of July 18, 2019 in its 7th resolution (see section 2.4.1.3
of this Registration Document) pursuant to Article L. 225-37-2 of the French Commercial Code.
In this context, the table below summarizes the allocation of attendance fees according to the compensation policy attributable to the Board of
Directors and in particular to the Chairman of the Board of Directors, which is submitted to the shareholders’ vote.
Allocation of attendance fees (per year, in €)
Board of
Directors
Board
Retreat
Strategic Committee, Audit
Committee, Technology and
Marketing Committee(2)
Compensation Committee,
Nomination and Governance
Committee(2)
Committee
chairmanship(2)
Specific mission(3)
Independent director(1)
2,500
2,500
4,000
2,000
5,000
Director – Chief Operating
Officer(4)
Director – CEO(4)
6,000
10,000
NA
NA
NA
NA
NA
NA
100,000
Chairman of the Board of
Directors(4)
TOTAL ATTENDANCE FEES SUBJECT TO THE APPROVAL OF THE SHAREHOLDERS’ MEETING OF JULY 19, 2019: E280,000
(1) Payment subject to an annual presence at 100%, failing which the amount is calculated in proportion to the annual presence.
(2) For each committee.
(3) For each mission.
(4) Fixed payment not subject to presence condition.
NA
NA
NA
NA
NA
NA
On a case by case
basis, depending on the
nature and importance
of the mission
NA
NA
NA
33
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT1 2
REPORT ON CORPORATE GOVERNANCE
Compensation paid to the Directors and the management
2.4.1.3. Draft resolution of the Board of Directors pursuant
Resolution No. 7
to Article L. 225-37-2 of the French Commercial
Code submitted to the approval of the Combined
Shareholders’ Meeting of July 18, 2019
Pursuant to Article L. 225-37-2 of the French Commercial Code, the
Board of Directors submits for the approval of the Combined General
Meeting of July 18, 2019, the principles and criteria for determining,
allocating and distributing allocation of the fixed, variable and excep-
tional components of total compensation and benefits of any kind
attributable to the Chairman of the Board of Directors, see below draft
resolution No. 7:
The General Meeting, pursuant to Article L. 225-37-2 of the French
Commercial Code (paragraph 1), approves the principles and criteria for
the determination, distribution and allocation of fixed, variable compo-
nents and exceptional components of total compensation and benefits
of any kind, attributable to the Chairman of the Board of Directors for
the 2019 financial year, as presented in the corporate governance report
of the Board of Directors referred to in Article L. 225-37 of the French
Commercial Code and set out in the 2018 Registration Document under
Section 2.4.1.2.
2.4.2. Compensation to the Executive corporate officers
2.4.2.1. Compensations paid to the Chief Executive Officer and Chief Operating Officers for financial year ended on
January 31, 2019
The following tables are prepared in accordance with the recommendation No. 2009-16 of the French Stock Market Authority (Autorité des
Marchés Financiers – AMF). They detail the amounts of remuneration and benefits paid, as well as the amounts due for the financial year ended
January 31, 2019.
2.4.2.1.1. Summary table of compensation and stock options granted to each executive corporate officer
(Table 1 of AMF nomenclature)
(in €)
ALAIN DE ROUVRAY, CEO UNTIL JANUARY 31, 2019(1)
Compensation due for the year (detailed in 2.4.2.1.2 below)
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, CHIEF OPERATING OFFICER
Compensation due for the year (detailed in 2.4.2.1.2 below)
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, CHIEF OPERATING OFFICER
Compensation due for the year (detailed in 2.4.2.1.2 below)
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 2018
FY 2017
548,533
554,579
None
None
None
None
229,391
None
None
81,260
74,456
243,065
None
None
81,260
22,206
None
None
None
None
243,308
None
None
None
74,456
244,819
None
None
None
22,206
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
34
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Compensation paid to the Directors and the management
2
2.4.2.1.2. Summary table of compensation to each executive corporate officer (Table 2 of AMF nomenclature)
Alain de Rouvray
CEO until January 31, 2019(1)
Fixed compensation
Annual variable compensation
Multi-annual variable compensation
Exceptional compensation
Attendance fees
Benefits in kind
TOTAL
2018
2017
Amount due
Amount paid
Amount due
Amount paid
340,444
49,996
None
None
10,000
148,093
548,533
340,444
41,007
None
None
10,000
148,093
539,544
350,109
42,172
None
None
10,000
152,298
554,579
350,109
77,724
None
None
10,000
152,298
590,131
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
Vincent Chaillou
Chief Operating Officer
Fixed compensation
Annual variable compensation
Multi-annual variable compensation
Exceptional compensation
Attendance fees
Benefits in kind
TOTAL
Christopher St John
Chief Operating Officer
Fixed compensation
Annual variable compensation
Multi-annual variable compensation
Exceptional compensation
Attendance fees
Benefits in kind
TOTAL
2018
2017
Amount due
Amount paid
Amount due
Amount paid
198,550
16,983
None
None
6,000
7,858
198,550
16,961
None
None
6,000
7,858
198,550
30,850
None
None
6,000
7,908
198,550
46,225
None
None
6,000
7,908
229,391
229,369
243,308
258,683
2018
2017
Amount due
Amount paid
Amount due
Amount paid
177,650
27,460
None
None
None
37,954
243,065
177,650
0
None
None
None
4,338
181,988
177,650
29,681
None
None
None
37,488
244,819
177,650
48,707
None
None
None
37,488
263,845
2.4.2.1.3. Summary table of attendance fees and other components of compensation paid to Directors (Table 3 of AMF nomenclature)
Please refer to Section 2.4.1.1 above of the Registration Document.
2.4.2.1.4. Share subscription or purchase options granted to each executive corporate officer by the Company and any Group
company during financial year ended on January 31, 2019 (Table 4 of AMF nomenclature)
Share subscription or purchase options granted during the year to each executive corporate officer by the Company and any Group company
Name of the executive corporate officer
Plan N° and
date
Type of options
(purchase or
subscription)
Value of options on the
method used for the
consolidated financial
statements
Number of options
granted during the
year
Exercise price
Exercise period
Alain de Rouvray
CEO until January 31, 2019(1)
Vincent Chaillou
Chief Operating Officer
Christopher St John
Chief Operating Officer
TOTAL
None
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
35
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT1 2
REPORT ON CORPORATE GOVERNANCE
Compensation paid to the Directors and the management
2.4.2.1.5. Share subscription or purchase options exercised to each executive corporate officer by the Company and any Group
company during financial year ended on January 31, 2019 (Table 5 of AMF nomenclature)
Share subscription or purchase options exercised during the year to each executive corporate officer by the Company and any Group company
Name of the executive corporate officer
Plan N° and date
Number of options
exercised during the year
Exercise price
Alain de Rouvray
CEO until January 31, 2019(1)
Vincent Chaillou
Chief Operating Officer
Christopher St John
Chief Operating Officer
TOTAL
None
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
2.4.2.1.6. Free shares allocated to each executive corporate officer during financial year ended on January 31, 2019
(Table 6 of AMF nomenclature)
Free shares allocated to each executive corporate officer
Free shares allocated by the Shareholders’
Meeting during the year to each executive
corporate officer by the Company and any
Group company
Plan No. and
date
Number of shares
allocated during the
year
Value of shares on the
method used for the
consolidated financial
statements
Acquisition
date
Availability
date
Performance
conditions
Alain de Rouvray
CEO until January 31, 2019(1)
Vincent Chaillou
Chief Operating Officer
Christopher St John
Chief Operating Officer
TOTAL
None
No. 9 & 9 Bis
07/18/2018
No. 9 & 9 Bis
07/18/2018
None
2,010
2,010
4,020
None
None
None
40.63
07/18/2021 2020 and 2021
40.63
07/18/2021 2020 and 2021
40.63
None
yes
yes
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
At the meeting of July 18, 2018, the Board of Directors proceeded,
on the proposal of the Compensation, Nomination and Governance
Committee, to the free allocation of a maximum total number of
28,560 common shares of the Company at a nominal value of €3 each,
for the benefit of beneficiaries, managers of the Company and its
related companies, of which 10,619 free shares under Plan 9, 2,441 free
shares under Plan 9 Bis and 15,500 free shares under Plan 9 Ter.
In accordance with the terms of Plan 9, the allocation of bonus shares
to the beneficiaries will become final at the end of a 36-month vesting
period. The definitive allocation of free shares to the beneficiaries is
subject to compliance with conditions of presence by them, throu-
ghout the vesting period, as well as performance conditions. The Board
will have the option to opt for the delivery of existing shares or to be
issued.
In accordance with the terms of Plan 9 Bis, the allocation of free
shares to the beneficiaries will become final after a vesting period of
48 months. The definitive allocation of the free shares to the benefi-
ciaries is subject to compliance with conditions of presence by them,
throughout the vesting period. The Board will have the option to opt
for the delivery of existing shares or to be issued. As of the definitive
allocation, the beneficiaries will have to keep these shares, without
being able to sell them, during a retention period of 24 months.
In accordance with the terms of Plan 9 Ter, the allocation of free shares
to beneficiaries will become final at the end of a vesting period, the
duration of which will be different depending on the shares allocated
in tranches 1, 2 or 3 and 4, ranging from 24 to 48 months. The definitive
allocation of free shares to beneficiaries is conditional upon the latter’s
compliance with conditions of presence throughout the vesting period.
The Board will have the option to opt for the delivery of existing shares
or to be issued. From the definitive allocation, the beneficiaries will
have to keep these shares, without being able to sell them, during a
retention period, the duration of which will also vary according to the
tranche, ranging from 0 to 24 months.
2.4.2.1.7. Free shares vested to each executive corporate officer during financial year ended on January 31, 2019
(Table 7 of AMF nomenclature)
Free shares allocated vested to each executive corporate officers
Plan N° and date
Number of shares vested
available during the year
Alain de Rouvray
CEO until January 31, 2019(1)
Vincent Chaillou
Chief Operating Officer
Christopher St John
Chief Operating Officer
TOTAL
None
No. 6
07/21/2016
No. 6
07/21/2016
None
5,000
5,000
10,000
Acquisition
conditions
None
attendance
attendance
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
36
ESI GROUP • 2018 REGISTRATION DOCUMENT 2.4.2.1.8. History of share subscription or purchase option allocations (Table 8 of AMF nomenclature)
REPORT ON CORPORATE GOVERNANCE
Compensation paid to the Directors and the management
2
Date of Shareholders’ Meeting
Date of the Board of Directors’ meeting(s)
Number of options allocated
Of which
• Alain de Rouvray, CEO until January 31, 2019(1)
• Vincent Chaillou, Chief Operating Officer
• Christopher St John, Chief Operating Officer
Start date of exercise period
Expiration date
Exercise price (in €)
Type of option
Options exercised
Subscription or purchase options cancelled or expired
Options to be exercised as at January 31, 2019
Plan No. 10:
06/26/2012
12/19/2012
02/07/2014
03/26/2015
07/22/2015
180,000
N/A
3,500
2,975
2016 to 2019
2020 to 2025
27.82; 24.42; 21.66;
27.17
Subscription
28,900
109,325
41,775
Plan No. 17:
07/24/2014
07/22/2015
03/11/2016
05/05/2017
Plan No. 9:
06/29/2017
07/18/2018
37,400
43,950
N/A
0
0
2017 to 2021
2023 to 2026
27.17; 23.35;
50.92
Subscription
2,000
14,200
21,200
N/A
0
0
07/18/2021
07/18/2026
42.97
Subscription
0
1,250
42,700
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
Allocation of share subscription options
At the meeting of July 18, 2018, the Board of Directors proceeded,
pursuant to the authorization granted by the Combined General
Meeting of June 29, 2017, and on the proposal of the Compensation,
Nomination and Governance Committee, the allocation of 43,950 share
subscription options in total, under Plan 19.
The vesting of options granted under Plan 19 is subject to two conditions:
• 25% of the options granted will vest subject to the condition of
continuous and effective presence of the beneficiaries as employees
of the Group since the grant date;
• 75% of the options granted will vest subject to the achievement of
Group performance conditions.
The options may be exercised from July 18, 2021 and for a period of five
years until July 18, 2026.
The maximum potential capital increase will be an overall nominal
amount of €128,100, corresponding to 42,700 new shares with a par
value of €3 each.
Exercise of share subscription options
The Board of Directors has noted that the number of new shares
issued as a result of the exercise of options during 2018 financial year
amounted to 1,450 shares with a nominal value of €3 representing an
increase in the share capital of the Company of an amount of €4,350,
which increased from €18,049,326 to €18,053,676.
Allocation of share purchase options
No grant of share purchase options was made during the 2018 financial
year.
SUMMARY TABLE OF SHARE SUBSCRIPTION AND PURCHASE OPTION PLANS TO EMPLOYEES AND CORPORATE OFFICERS
Subscription and purchase
option plans
Options to be
granted(1) as at
January 31, 2019
In share capital
(%)
Options granted(2) as
at January 31, 2019
Exercise price
(in €)
In share
capital (%)
Options exercised as
at January 31, 2019
In share capital
(%)
No. 9 (SM* 06/29/2006)
No. 10 (SM 06/26/2012)
No. 15 (SM 07/23/2013)
No. 17 (SM 07/24/2014)
No. 18 (SM 07/21/2017)
No. 19 (SM 07/18/2018)
TOTAL
0
0
0
142,600
297,753
136,050
577,653
0
0
0
2.37
4.95
2.26
9.52
0
39,300
375
2,100
Total: 41,775
0
4,900
16,300
Total: 21,200
0
42,700
102,675
N/A
27.82
24.42
27.17
N/A
27.17
50.92
N/A
42.97
-
0
0.69
0
0.34
0
1.03
0
28,900
0
2,000
0
0
30,900
0
0.48
0
0.03
0
0.51%
* SM: Shareholders’ Meeting.
(1) Options to be granted represent the difference between the number of stock-options authorized by the Shareholders’ Meeting and the number of stock-options
granted by the Board of Directors as at January 31, 2019.
(2) Options expired or cancelled resulting from an employee’s departure are deducted from the options granted as at January 31, 2019.
37
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT1 2
REPORT ON CORPORATE GOVERNANCE
Compensation paid to the Directors and the management
2.4.2.1.9. Share subscription or purchase options granted to the top 10 non-corporate officers beneficiary employees and options
exercised by them during financial year ended on January 31, 2019 (Table 9 of AMF nomenclature)
Share subscription or purchase options granted to the top 10 non-corporate officers beneficiary
employees and options exercised by them
Options granted during the year to the ten employees of the Company and its Group which
represent the largest number of options allocated
Options held and exercised during the year by the ten employees of the Company and its Group
which represent the largest number of options purchased or subscribed
2.4.2.1.10. History of free shares allocations (Table 10 of AMF nomenclature)
Total number of
options granted:
shares subscribed or
purchased
Weighted average
price (in €)
Plan No.
18,700
1,450
42.97
27.82
19
10
Date of Shareholders’ Meeting
Plan No. 6:
07/21/2016
Plan No. 7:
07/21/2016
Plan No. 8:
07/21/2016
Plans No. 9, 9 Bis &
9 Ter: 07/18/2018
Date of the Board of Directors’ meeting
07/21/2016
12/23/2016
08/01/2017
07/18/2018
Number of shares allocated
Of which
• Alain de Rouvray, CEO until January 31, 2019(1)
• Vincent Chaillou, Chief Operating Officer
• Christopher St John, Chief Operating Officer
Date of delivery
Term of vesting period
Number of shares delivered
Number of shares cancelled or expired
Remaining shares as at January 31, 2019
25,000
2,275
9,000
28,560
N/A
5,000
5,000
N/A
0
0
N/A
0
0
N/A
2010
2010
From 07/21/2018
12/23/2018
From 08/01/2019
From 07/18/2020
07/21/2020
12/23/2020
08/01/2021
07/19/2022
16,688
0
8,332
1,962
313
0
0
0
9,000
0
149
28,411
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
2.4.2.1.11. Summary table of benefits or advantages to executive corporate officers (Table 11 of AMF nomenclature)
Executive corporate officers
Employment contract
Supplemental pension plan
Compensation or benefits due or likely to be due
following termination or position change
Alain de Rouvray
CEO until January 31, 2019(1)
Vincent Chaillou
Chief Operating Officer
Christopher St John
Chief Operating Officer
Yes
Suspended
Suspended
No
X
Yes
Yes
No
X
X
X
No
X
X
X
(1) Following the dissociation of the functions of Chairman of the Board of Directors and CEO, Alain de Rouvray acts exclusively as Chairman of the Board of
Directors as from February 1, 2019 (see Section 2.2.2 of the Registration Document).
38
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Compensation paid to the Directors and the management
2
2.4.2.1.12. Summary table of compensation to executive corporate officers
The Ordinary General Meeting to be held on July 18, 2019 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 financial year ended on January 31, 2019 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 2018 FINANCIAL YEAR TO ALAIN DE ROUVRAY, CHIEF EXECUTIVE OFFICER
Components of the compensation
Amount or accounting
valuation submitted for
approval (in €)
Description
Fixed compensation
340,444
Variable annual compensation
49,996
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
N/A
10,000
N/A
148,093
N/A
N/A
N/A
N/A
The fixed compensation payable to Alain de Rouvray as Chief Executive Officer in
respect of the 2018 financial year amounts to $400,000 (unchanged compared to 2017).
This compensation equals €340,444.
The amount of the variable annual compensation payable to Alain de Rouvray is limited
to 50% of his fixed compensation. It is subject to an assessment based exclusively on
quantitative criteria related to the profitability of the Group. These objectives are
set at the beginning of the year by the Board of Directors on the recommendation of
the Compensation Committee. The variable compensation is assessed by the Board of
Directors following the recommendation of the Compensation Committee at the end of
the year.
The variable compensation payable to Alain de Rouvray as Chief Executive Officer
with respect to the 2018 financial year amounts to $58,741.81 which equals €49,996,
representing 29.4% 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
2017 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
2017 financial year, and equals €148,093.
Alain de Rouvray is not a beneficiary of any severance pay.
Alain de Rouvray is not a beneficiary of any retirement compensation.
Alain de Rouvray is not a beneficiary any non-compete compensation.
Alain de Rouvray is not a beneficiary of any supplementary retirement plan.
COMPENSATION PAYABLE OR GRANTED FOR THE 2018 FINANCIAL YEAR TO VINCENT CHAILLOU, CHIEF OPERATING OFFICER
Components of the compensation
Amount or accounting
valuation submitted for
approval (in €)
Description
Fixed compensation
Variable annual compensation
198,550
16,983
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
N/A
6,000
N/A
7,858
N/A
N/A
N/A
N/A
The fixed compensation payable to Vincent Chaillou as Chief Operating Officer in
respect of the 2018 financial year amounts to €198,550 (unchanged compared to 2017).
The amount of the variable annual compensation payable to Vincent Chaillou is limited
to 60% of his fixed compensation. It is subject to an assessment based exclusively on
quantitative criteria related to the profitability of the Group. These objectives are
set at the beginning of the year by the Board of Directors on the recommendation of
the Compensation Committee. The variable compensation is assessed by the Board of
Directors following the recommendation of the Compensation Committee at the end of
the year.
The variable compensation payable to Vincent Chaillou as Chief Operating Officer with
respect to the 2018 financial year amounts to €16,983 which equals 14.15% 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 2017
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 €7,858.
Vincent Chaillou is not a beneficiary of any severance pay.
Vincent Chaillou is not a beneficiary of any retirement compensation.
Vincent Chaillou is not a beneficiary any non-compete compensation.
Vincent Chaillou is not a beneficiary of any supplementary retirement plan.
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Compensation paid to the Directors and the management
COMPENSATION PAYABLE OR GRANTED FOR THE 2018 FINANCIAL YEAR TO CHRISTOPHER ST JOHN, CHIEF OPERATING OFFICER
Components of the compensation
Amount or accounting
valuation submitted for
approval (in €)
Description
Fixed compensation
177,650
Variable annual compensation
27,460
Long term or deferred compensation
Exceptional compensation
Attendance fees
Stock-options and performance shares
Benefits in kind
Severance pay
Retirement plan
Non-compete compensation
Supplementary retirement plan
N/A
N/A
N/A
N/A
37,954
N/A
N/A
N/A
N/A
2.4.2.2. Chief Executive Officer and Chief Operating
Officers’ remuneration policy applicable in 2019
financial year
In accordance with Article L. 225-37-2 of the French Commercial Code,
the principles and criteria of definition and allocation of the fixed,
variable, exceptional components of the total remuneration as well as
benefits in kind payable to the Chief Executive Officer and the Chief
Operating Officers (the “Executive Corporate Officer(s)” are presented
below and will be subject to the approval of the Shareholders’ Meeting
to be held on July 18, 2019 (see Section 2.4.2.3 below for the draft resolu-
tion). The remuneration policy applicable to the Chairman of the Board
of Directors is presented under Section 2.4.1.2 above).
Principles of remuneration policy
The principles and criteria governing the remuneration policy of the
Executive Corporate Officers and amounts were determined by the
Board of Directors upon the recommendation of the Compensation
Committee during its meeting dated December 19, 2018.
This remuneration policy applicable to Executive Corporate Officers
takes into account the dissociation of functions between the Chairman
of the Board of Directors and the Chief Executive Officer as from
February 1, 2019 (see Section 2.2.2 above). In addition, it has been
established in accordance with the principles of completeness, balance
between the elements of remuneration, benchmark, consistency, reada-
bility of the rules, measurement and transparency (R.13) such as defined
in the Middlenext Code.
Lastly, this remuneration policy must remain consistent with the
Company’s performance, while ensuring that the objectives of the
executives are aligned with the Company’s medium-term strategy and
take into account the interests of Shareholders.
The fixed compensation payable to Christopher St John as Chief Operating
Officer in respect of the 2018 financial year amounts to €177,650 (unchanged
compared to 2017).
The amount of the variable annual compensation payable to Christopher St John
is limited to 60% of his fixed compensation. It is subject to an assessment
based exclusively on quantitative criteria related to the profitability of the
Group. These objectives are set at the beginning of the year by the Board
of Directors on the recommendation of the Compensation Committee. The
variable compensation is assessed by the Board of Directors following the
recommendation of the Compensation Committee at the end of the year.
The variable compensation payable to Christopher St John as Chief Operating
Officer in respect of the 2018 financial year amounts to €27,460 which equals
25.0% 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.
Christopher St John is not a member of the Board of Directors.
No stock-options nor performance shares were granted by the Board of
Directors.
The benefits in kind include a housing allowance of €37,954.
Christopher St John is not a beneficiary of any severance pay.
Christopher St John is not a beneficiary of any retirement compensation.
Christopher St John is not a beneficiary any non-compete compensation.
Christopher St John is not a beneficiary of any supplementary retirement plan.
Remuneration structure
The Chief Executive Officer’s remuneration is structured as follows:
• a fixed annual part 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. For 2019, Cristel de Rouvray as CEO will receive an annual
fixed amount of $360,000 estimated at €300,000; and
• a variable annual part representing a target ratio of 50% of the fixed
remuneration: it is subject to an assessment based exclusively on
quantitative criteria related to the profitability of the Group. These
objectives are set at the beginning of the year by the Board of
Directors on the recommendation of the Compensation Committee.
The variable compensation is assessed by the Board of Directors
following the recommendation of the Compensation Committee
at the end of the year. In accordance with Article L. 225-100 of the
French Commercial Code, the payment of variable or exceptional
remuneration is subject to the prior approval of this remuneration by
the Shareholders’ Meeting.
The compensation structure for the Chief Operating Officers consists
of:
• a fixed annual part determined by taking into account the level and
difficulty of responsibilities, experience in the function, seniority in
the Group, and practices in groups or companies of comparable size.
The annual fixed compensation of Vincent Chaillou and Christopher
St John as Chief Operating Officers will remain unchanged in 2019
compared to 2018 and set respectively at €198,550 and €177,650; and
40
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Compensation paid to the Directors and the management
2
• a variable annual part representing a target ratio of 60% of the
fixed remuneration: it is subject to an evaluation based exclusively
on quantitative criteria related to the profitability of the Group.
These objectives are set at the beginning of the year by the Board of
Directors on the recommendation of the Compensation Committee.
The variable compensation is assessed by the Board of Directors
following the recommendation of the Compensation Committee
at the end of the year. In accordance with Article L. 225-100 of the
French Commercial Code, the payment of variable or exceptional
remuneration is subject to the prior approval of this remuneration by
the Shareholders’ Meeting.
Long term share-based compensation
The Group has defined its long-term compensation policy in a global
competitive strategy of loyalty and motivation of its managers and
employees with regard to market practices. Each long-term compensa-
tion plan is subject to the decision of the Board of Directors acting in
accordance with the authorization of the Shareholders’ Meeting.
Executive Corporate Officers can benefit from stock option plans and
free share plans offered as part of the Group’s loyalty and motivation
policy. The conditions for acquiring and holding these plans apply in
the same way to all beneficiaries, whether Corporate Officers or not.
For stock option plans and free shares for the benefit of the Chief
Operating Officers, please refer to the tables in Section 2.4.2.1.4
onwards. With respect to Cristel de Rouvray, Chief Executive Officer
since February 1, 2019, it is specified that the Board of Directors has, on
the date of taking office, decided to grant up to 20,000 share subscrip-
tion options subject to conditions of presence and performance.
Benefits in kind
Benefits in kind include a Company car or equivalent allowance.
Exceptional compensation
Very specific circumstances (for example because of their importance
for the Company, the involvement they require and the difficulties
they represent) could give rise to exceptional remuneration granted to
Executive Corporate Officers. The award of such remuneration would
be exceptional, motivated and justified by the Board. Its payment would
be subject to the approval of the Shareholders’ Meeting.
Other components of the Executive Corporate Officers’
compensation
Severance pay
Supplementary pension plan
No Executive Corporate Officer has a supplementary pension plan
other than mandatory pension plans.
Health benefits and reimbursement scheme
The Executive Corporate Officers of the Company benefit from the
pension plan and reimbursement of health expenses applicable to all
employees.
Non-combination of employment contract and corporate office
At the time of appointment to the position of Executive Corporate
Officer, it is decided to suspend any existing employment contract with
the Company for the duration of the office.
As of the date of this Registration Document, there is no employment
contract between the Chief Executive Officer and the Company and
the employment contracts of the Chief Operating Officers with the
Company have been suspended for the duration of their terms of office.
2.4.2.3. Draft resolutions of the Board of Directors
pursuant to Article L. 225-37-2 of the French
Commercial Code submitted to the approval of
the Combined Shareholders’ Meeting of July 18,
2019
Pursuant to Article L. 225-37-2 of the French Commercial Code, the
Board of Directors submits for the approval of the Combined General
Meeting of July 18, 2019, the principles and criteria for the determina-
tion, distribution and allocation of the fixed, variable and exceptional
components of total compensation and benefits of any kind attribu-
table to Executive Corporate Officers, see below draft resolutions No. 8
and 9:
Resolution No. 8
The General Meeting, pursuant to Article L. 225-37-2 of the French
Commercial Code (paragraph 1), approves the principles and criteria for
the determination, distribution and allocation of fixed, variable compo-
nents and exceptional components of total compensation and benefits
of any kind, attributable to the Chief Executive Officer for 2019 financial
year, as presented in the corporate governance report of the Board of
Directors referred to in Article L. 225-37 of the French Commercial Code
and set out in the 2018 Registration Document under Section 2.4.2.2.
No Executive Corporate Officer of the Company receives severance
pay.
Resolution No. 9
Non-compete clause
No Executive Corporate Officer has a non-compete clause in his
corporate office.
The General Meeting, pursuant to Article L. 225-37-2 of the French
Commercial Code (paragraph 1), approves the principles and criteria
for the determination, distribution and allocation of fixed, variable
components and exceptional components of total compensation and
benefits of any kind, attributable to the Chief Operating Officers for
2019 financial year, as presented in the corporate governance report of
the Board of Directors referred to in Article L. 225-37 of the French
Commercial Code and set out in the 2018 Registration Document under
Section 2.4.2.2.
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REPORT ON CORPORATE GOVERNANCE
Additional information in respect of corporate governance
2.5. Additional information in respect of corporate governance
2.5.1. Regulated agreements and commitments and related party transactions
2.5.1.1. Regulated agreements and commitments
The Statutory Auditors’ special report on the regulated agreements
and commitments referred to in Articles L. 225-38 et seq. of the French
Commercial Code for 2018 financial year is set out under Section 2.6
below. To the best of the Company’s knowledge, there are no other
agreements and regulated commitments.
2.5.2. Delegations of authority
2.5.1.2. Transactions with related parties
Details of transactions with related parties can be found in note 11 to
the consolidated financial statements in Chapter 5 of this Registration
Document.
At the date of this Registration Document, the Company’s share capital
amounted to €18,053,676. It was divided into 6,017,892 shares with a
nominal value of €3 each, all of the same class, fully paid up.
Apart from the share subscription or purchase option plans and the
allocation of bonus shares described in Section 2.4.2.1.8, there is no
financial instrument to access the Company’s share capital.
42
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Additional information in respect of corporate governance
2
TABLE SUMMARIZING CURRENTLY VALID DELEGATIONS GRANTED TO THE BOARD OF DIRECTORS AND USE OF SUCH DELEGATIONS DURING
2018 FINANCIAL YEAR
Resolution number
Purpose
Term
Expiration date
Maximum
COMBINED GENERAL MEETING OF JUNE 29, 2017
Resolution 10
Grant of stock subscription
options
38 months
August 2020
Resolution 11
Grant of stock purchase options
38 months
August 2020
Used in 2018 and available as
at January 31, 2019
Options granted at the
date of this Registration
Document: 43,950
Options remaining: 136,050
Options granted at
January 31, 2018: None
Options remaining: 299,600
None
None
None
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
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)
26 months
August 2019
26 months
August 2019
26 months
August 2019
26 months
August 2019
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
26 months
August 2019
Not to exceed 2% of the Company’s
share capital
None
18 months
January 2020
26 months
September 2020
Not to exceed 10% of the Company’s
share capital
Not to exceed 10% of the Company’s
share capital per 24-month period
None
None
38 months
September 2021
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 2018: 28,560
Free shares granted at
January 31, 2018: 28,560
Options remaining: 31,440
Resolution 12
Resolution 13
Resolution 14
Resolution 15
Resolution 16
Resolution 17
Resolution 18
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(1)
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(1)
Increase of the issue amount in
the event of over-demand(1)
Increase of the share capital by
the capitalization of premiums,
reserves, profits and other
amounts(1)
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(1)
Increase of the share capital
without preferential subscription
rights through private
placement(1)
Increase of the share capital
by issuing shares reserved for
employees enrolled in the
employee savings plan(1)
COMBINED GENERAL MEETING OF JULY 18, 2019
Resolution 12
Resolution 13
Resolution 14
Company’s purchase of its own
shares(1)
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
(1) Renewal of the delegation submitted to the vote of the Shareholders’ Meeting on July 18, 2019.
43
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Additional information in respect of corporate governance
2.5.3. Provisions of the articles of association concerning the participation of shareholders in
General Meetings
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.
Ordinary General Meetings are convened to make all decisions that do
not require amendments to the articles of association.
They occur at least once a year, within six months from the end of the
previous financial year.
Only Extraordinary General Meetings have the power to amend any
provision set forth in the articles of association. However, such Meetings
may not increase the obligations of shareholders, except in the event of
transactions stemming from any valid consolidation of shares.
If there are multiple 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.
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,
the second General Meeting may be postponed for a maximum of two
months from the date at which it was initially convened.
The Extraordinary General Meeting issues decisions by a two-thirds
majority vote of the shareholders present or represented.
Special General Meetings cannot validly conduct business unless the
shareholders present or represented account for at least half of shares
with voting rights when first 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.
44
ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Additional information in respect of corporate governance
2
2.5.4. Factors that may have an impact in the event of a public offering
Pursuant to Article L. 225-100-337-5 of the French Commercial Code,
the following points are likely to have an impact on the public offering:
• 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 this Registration Document under the
heading “Change in the breakdown of the Company’s share capital”;
• there are no statutory restrictions on the exercise of voting rights and
share transfers;
• 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 this Registration Document 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 2.5.2 of
this Registration Document;
• any amendments to ESI Group’s articles of association are made in
accordance with legal requirements and regulations;
• there are no agreements entered into by the Company that are
modified or terminated in the event of a change of control of the
Company other than the syndicated loan agreement presented in
Chapter 5, notes 7.1.2 and 7.4 of this Registration Document;
• there are no agreements providing for compensation in the event of
the departure of members of the Board of Directors.
45
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REPORT ON CORPORATE GOVERNANCE
Statutory Auditors’ report on regulated agreements and commitments
2.6. Statutory Auditors’ report on regulated agreements and commitments
(Annual General Meeting for the approval of the financial statements for the year ended January 31, 2019)
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.
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 and agreed 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.
Pledge agreements among which in particular a pledge of all the shares that the Company holds or will hold in the share capital of ESI ITI GmbH
Terms and conditions
The Board of Directors in its meeting dated December 19, 2018, authorized the signing by the Company of pledge agreements, among which in
particular the pledge of all the shares that the Company holds or will hold in the share capital of ESI ITI GmbH, to guarantee its obligations of
reimbursement and payment under the syndicated loan agreed on December 20, 2018 under which the Company obtained (i) a facility of up to
a maximum amount of €30,000,000 (ii) a revolving credit facility with a maximum principal amount of €10,000,000 and (iii) to authorize the
establishment of an unconfirmed revolving credit facility of a maximum principal amount of €5,000,000.
Persons concerned
• Vincent Chaillou, ESI Group Director and COO and Managing Director of ESI ITI GmbH; and
• Christopher St John, ESI Group Director and COO and Managing Director of ESI ITI GmbH, a Company’s subsidiary.
Reason justifying the Company’s interest
These security agreements condition the signing of the syndicated loan agreement as described above and thus allow the Company to finance itself.
Consulting agreement between ESI Group and Mrs. Cristel de Rouvray
Terms and conditions
The Board of Directors in its meeting dated December 19, 2018, authorized the signing of a consulting agreement between ESI Group and Cristel de
Rouvray, Director of ESI Group, aiming at organizing and implementing a smooth transition to a change in the governance of the Company following
the appointment of Cristel de Rouvray as Chief Executive Officer effective from February 1, 2019.
These consultation services are estimated at approximately 220 hours during the period from December 20, 2018 to January 31, 2019 for a maximum
amount of $35,000 (US dollars). They include preparation for taking office as Chief Executive Officer, meetings with the Chief Executive Officer
currently in place, members of the Executive Committee and senior executives, particularly for the preparation of the 2019 budget, the implemen-
tation of the strategic plan for the 2019 and 2020 financial years.
The annual cost as at January 31, 2019 is $31,840.
Person concerned
Cristel de Rouvray, ESI Group Director and CEO from February 1, 2019.
Reason justifying the Company’s interest
This agreement enables the Company to prepare its governance for an effective takeover of the Chief Executive Officer effective from February 1,
2019.
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ESI GROUP • 2018 REGISTRATION DOCUMENT REPORT ON CORPORATE GOVERNANCE
Statutory Auditors’ report on regulated agreements and commitments
2
Purchase agreement by ESI Group of shares held in ESI US Holdings Inc.
Terms and conditions
The Board of Directors in its meeting dated December 19, 2018, authorized the acquisition by ESI Group of 357 shares representing 51% of the capital
of ESI US Holdings Inc. held by Amy (Shelley) and Cristel de Rouvray for a total amount of $43,621.90.
Persons concerned
• Amy (Shelley) de Rouvray, spouse of Alain de Rouvray, Chairman, CEO and main shareholder of ESI Group; and
• Cristel de Rouvray, ESI Group Director and CEO from February 1, 2019.
Reason justifying the Company’s interest
This transaction is part of a simplification of the Group’s legal structure.
Agreements and commitments previously approved by the Shareholders’ Meeting
Agreements and commitments previously approved by the Shareholders’ Meeting
Agreements and commitments authorized during previous fiscal year
We have been informed of the execution during the previous fiscal year of the following agreements and commitments, already approved by the
Shareholders’ Meeting of July 18, 2018 pursuant to the special report of the statutory accounts dated May 23, 2018:
Consulting Service Agreement between ESI North America Inc. and Mrs. Cristel de Rouvray
Terms and conditions
The Board of Directors in its meeting dated April 18, 2017, authorized the Company, via its subsidiary ESI North America Inc., to enter into a
consulting agreement with Cristel de Rouvray, Director, representing an estimated maximum annual cost of $100,000 for an average of 52 hours per
month The purpose of this Consulting Service Agreement is to grant to Cristel de Rouvray specific missions relating to human resources, consulting,
and strategic management. In 2018, within the context of the Company’s transformation, these missions consisted in works for the succession plan,
implementation of the new stock-option plan, the appointment of a new Chief Financial Officer and the induction of the new Group HR Director.
This agreement was renewed by the Board of Directors on April 17, 2018 for the financial year ended on January 31, 2019 and approved by the
Shareholders’ Meeting on July 18, 2018.
The total cost as at January 31, 2019 was $100,000.
Person concerned
Cristel de Rouvray, ESI Group Director and CEO from February 1, 2019.
Reason justifying the Company’s interest
The purpose of this Consulting Service Agreement is to grant to Cristel de Rouvray specific missions relating to human resources, consulting, and
strategic management.
Neuilly-sur-Seine and Paris-La Défense, May 22, 2019
The Statutory Auditors
PricewaterhouseCoopers Audit
Thierry Charron
Ernst & Young Audit
Frédéric Martineau
47
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT1 3
STATEMENT ON EXTRA-FINANCIAL
PERFORMANCE
3.1. The methodology
Data collection and consolidation
The Company has implemented a differentiated data collection and
consolidation process according to the themes. 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
The Group’s ambition is to gradually extend the scope to reach a full
and reliable coverage of its subsidiaries. In 2018, 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 99.8% of the total workforce in 2018 (Netherlands are
not included).
• Scope of environmental reporting:
In 2018, the Company included Italy and Brazil 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, Spain, United
Kingdom, South Korea, Italy and Spain representing 99% of the total
workforce;
• Scope of societal reporting:
Societal information is provided at a global level, with the reporting
scope covering 100% of our headcount since 2016.
48
ESI GROUP • 2018 REGISTRATION DOCUMENT STATEMENT ON EXTRA-FINANCIAL PERFORMANCE
ESI – The Product Performance Lifecycle™ Company
3
3.2. ESI – The Product Performance Lifecycle™ Company
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 enable the gradual elimination of tests and
physical components and subassembly prototypes during the product
conception and manufacturing phases. The virtual prototype of the
industrial product thus designed will accelerate its certification and
then allow the monitoring and control of its operational performance,
helping industry players to achieve their performance and productivity
objectives.
Innovative visualization technologies such as ESI IC.IDO and the avai-
lability of the Virtual Prototyping chain in Cloud/SaaS mode conside-
rably enhance the collaborative potential of ESI Group solutions while
drastically reducing acquisition and ownership costs for companies.
Most importantly, the use of technologies such as big data, System
Modeling, Machine Learning, and the Internet of Things (IoT) adds to ESI
Group’s solutions 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, from product commissioning to its operational
withdrawal including modeling of potential evolutions during its useful
life: accounting for flaws, wear and tear, maintenance procedures, and
running in of assisted operation.
The virtual prototype can now become agile and intelligent to support
industrial manufacturers in the age of smart factories and smart digital
products. The Group has two main activities: the edition (develop-
ment) and distribution of software, and consulting services related
to its software products. 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 characte-
ristics 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 $48.1 billion) in April 2019, which included Virtual
Prototyping under the category of “Simulation & Analysis Suppliers”
(activity estimated at $6.5 billion in 2018). 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. ESI Group's offer is multi-
sectorial. Its top four sectors are ground transportation, heavy industry,
aeronautic/aerospace and energy. Refer to section 1.1.3 "Main markets"
of the 2018 Registration Document for more details about the market in
which ESI Group operates.
As a player committed to the world’s leading manufacturers, ESI
has adapted its organization to accelerate innovation and facilitate
knowledge sharing between all its employees.
The organization is structured to enable maturation of technology from
conception through proof of value and eventual industrialization. In
2015, the United Nations defined a list of 17 sustainable development
goals ("SDGs"), meeting global challenges such as poverty, inequality,
education and environmental degradation. Throughout its value chain,
ESI Group addresses many of these SDGs:
• Research: 9 – Industry, Innovation and Infrastructure; 12 – Responsible
Consumption and Production; 13 – Climate Action;
• Innovation: 9 –
Industry,
Innovation and
Infrastructure; 12 –
• Employees: 3 – Good Health and Well-being; 4 – Quality Education;
8 – Decent Work and Economic Growth; 5 – Gender Equality; 10 –
Reduced Inequality;
Responsible Consumption and Production; 13 – Climate Action;
• Suppliers: 12 – Responsible Consumption and Production; 13 –
• Sales & marketing: 12 – Responsible Consumption and Production;
Climate Action.
13 – Climate Action; 16 – Peace and Justice Strong Institutions;
All the SDGs will be further developed in Section 3.4 of this statement.
49
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 3
STATEMENT ON EXTRA-FINANCIAL PERFORMANCE
ESI – A committed group
3.3. ESI – A committed group
3.3.1. 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.
3.3.2. Our CSR approach
Aware of its responsibility in each of the three pillars of sustainable development, ESI Group has gradually developed a Corporate Social
Responsibility (CSR) policy that contributes to shared economic and social development and the preservation of human balance.
ESI Group’s ambition is to become the leader in Smart Virtual Prototyping, through a responsible innovation approach that aims for zero real
tests, zero real prototypes and zero unexpected production shutdowns. The Group thus intends to be its customers’ preferred development
partner, capable of understanding and supporting them in their efforts to bring innovative, quality, sustainable, ethical and highly resource-efficient
products to market. The Group has carried out a review of major risks and opportunities, including the main CSR issues, that could have a significant
impact on its business, financial position or results. For further details, refer to section 1.6 "Risk factors and opportunities" of the 2018 Registration
Document.
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. Through its activities, ESI Group has a limited impact on the
fight against food waste, food insecurity, respect of animal welfare, as well as the promotion of responsible, fair and sustainable food consumption.
50
ESI GROUP • 2018 REGISTRATION DOCUMENT STATEMENT ON EXTRA-FINANCIAL PERFORMANCE
ESI – A committed group
3
3.3.2.1. Employees – Being a committed employer
ESI Group aims to be a leading employer among all software and service
providers on the market.
a. Develop talents and encourage leadership and collaborative
management
Human resources are ESI’s main source of value. The development of
talent is essential to ensure the Group’s sustainability. To answer the
ever more complex challenges of industrial companies and remain at
the forefront of technological innovation, the Group must develop its
employees’ sense of belonging and constantly improve their expertise.
For this purpose, ESI strives to:
• build a stimulating ecosystem with academic, scientific and industrial
partners;
• maintain a continued search for excellence with cutting-edge
technologies;
• strengthen scientific management with global experts.
The expertise of ESI’s employees is enhanced by their contact with
the ecosystem and the implementation of personal development and
professional training programs through an ESI Campus platform.
Today, talents are retained thanks to the proposed technological
challenge. The Human Resources and Communication Departments
work together on concrete actions to strengthen the feeling of
belonging within the Group, the “OneESI” culture.
b. Promote diversity and multicultural exchanges
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 interna-
tional customers.
Internally, the teams’ diversity is a strength. Various initiatives have
been taken to bring people together and share their culture and way of
working. The Group is also committed to improve the gender balance
within the Company.
ESI’s solutions help its customers dealing with digital transformation
challenges and meet the ever-changing regulations that govern their
activities.
These solutions provide customers with the following benefits:
• reduce time-to-market;
• avoid product recalls;
• reduce waste associated with prototyping and manufacturing;
• optimize energy consumption;
• reduce gas emissions;
• improve useful life of products;
• reduce total product weight.
In addition to the innovative and sustainable benefits of these solutions,
they also reflect the excellence that the Group brings to its customers:
• creation of smart products;
• a unique expertise;
• a range of solutions that take into account the operational perfor-
mance of the product throughout its lifecycle;
• a high level of requirement with ISO 9001 certification;
• significant R&D investments;
• innovative co-creation projects.
b. Building long term, trusting relationships
ESI Group has adopted an Ethics Charter that sets out the behavior to
be adopted in relations with the Group’s other employees, customers,
suppliers and other partners. All decisions must be taken based on
objective and transparent criteria.
As a French company, ESI Group has adapted its Ethics Charter to the
“Sapin II” law concerning the fight against corruption. The Group strictly
prohibits any form of corruption in its relations with its commercial
and institutional partners and with the administration. No financial or
in-kind gratuity may be granted for the purpose of obtaining a benefit,
and such a gratuity may not be received for the benefit of a company
or person.
3.3.2.2. Customers – Being an outstanding partner
3.3.2.3. Environment – Being an environmentally friendly
a. Provide innovative and sustainable high-quality solutions
that meet our customers’ requirements
Manufacturers are facing new challenges:
A strong competitivity in a global environment
Higher quality lever at lower price
Digital transformation
Increased regulation
Reduce CO2 emissions
Growing consumer interest in environmental aspects
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.
a. Develop solutions that contribute to reduce the
environmental footprint of manufacturers and respectful
with regulatory requirements
ESI’s solutions enable its customers to reduce the use of expensive
physical prototypes that consume energy, raw materials and time.
As a reminder, ESI’s solutions bring to its customers the following envi-
ronmental benefits:
• reduction of waste associated with prototyping and manufacturing;
• optimization of energy consumption;
• reduction of gas emissions;
• improvement of the useful life of products;
• reduction of the total product weight.
It also answers to gas emissions regulations and recycling requirements,
as well as the challenge of rising fuel prices.
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23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 3
STATEMENT ON EXTRA-FINANCIAL PERFORMANCE
Risks and issues of ESI
All in all, ESI’s solutions enable manufacturers to reduce the costs and
time to market of their new products, making them more competitive.
b. Reduce the environmental impact of our facilities
Like any company, ESI has an impact on the environment, although
limited as a software company. The Group is committed to encouraging
the implementation of best practices in areas where it has the most
significant expertise.
3.3.2.4. Civil society – Serving civil society
a. Contribute to innovation and establish partnerships with
the academic and scientific communities, as well as with
industry leaders
Partnerships are an integral part of the Group’s strategy to facilitate
and promote virtual prototyping while acting in a sustainable way. ESI
Group is particularly attentive to the following items:
• innovate through partnerships with academic and scientific commu-
nities and industry leaders;
• be transparent with all its stakeholders;
• support regional development by encouraging local recruitment and
partnerships;
• support innovation through co-creation projects.
ESI Group considers that innovation, which is a key component of
its business, constantly improves production processes and shortens
the conception period and the time required to develop new, more
efficient and reliable products. This contributes to more sustainable
and responsible consumption and production methods.
b. Act ethically and responsibly
ESI Group aims to be the leader in Smart Virtual Prototyping through a
responsible innovation approach. This can only be achieved by acting
ethically and responsibly towards all its stakeholders.
In 2016, the Group published an Ethics Charter to promote the respect
of its values and confirm its commitment to the main rules of conduct
it wishes to see applied internally. This Charter, which exists in six
languages, was revised in 2018.
At the same time, an Ethics Committee was set up to ensure the proper
application of the Ethics Charter.
The Ethics Committee is responsible for creating an environment in
which employees can adhere to the Ethics Charter and ensure that
its principles are respected by all on a daily basis. Through this ethical
and responsible approach, ESI Group also has to be compliant with the
European Union regulation concerning the data protection (GDPR).
3.2.3. CSR distinctions
Gaia Index
ESI Group is awarded first prize of the Gaia campaign 2018 for the third
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.
Global Compact
Since 2018, ESI Group signed the Global Compact (United Nations
Global Compact) and thus undertakes to align its CSR strategy on the
10 United Nations principles, relating to human rights, international
labor standards, the environment and the fight against corruption. The
Group also undertakes to yearly communicate its progress to its stake-
holders through the release of a Communication on Progress (COP).
For more information, visit www.unglobalcompact.org.
3.4. Risks and issues of ESI
3.4.1. 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.
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.
ESI Group’s policy is based on the following axes:
• ensure a decent work to all its employees;
• promote diversity and multicultural exchanges;
52
ESI GROUP • 2018 REGISTRATION DOCUMENT • develop talents and encourage
leadership and collaborative
management;
• ensure health and safety in the workplace and ensure the provision of
social benefits to employees.
This policy 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.
Ensure a decent work
Every company has the responsibility to provide decent
working conditions for all its employees. Promoting
decent work, with a decent wage and ensuring the
well-being of employees are major global challenges in
which ESI Group is committed. This challenge contri-
butes to sustainable development goal 8 "Promote sustained, inclusive
and sustainable economic growth, full and productive employment and
decent work for all".
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
STATEMENT ON EXTRA-FINANCIAL PERFORMANCE
Risks and issues of ESI
3
Policies:
As an employer, ESI Group strives to:
• manage its staff in connection with business growth;
• offer its employees the benefit of flexible schedule management;
• measure the impact of days of absence on the employment of the
staff so as to make the necessary corrections to our procedures,
working conditions and internal safety procedures;
• improve conditions at work for a direct impact on the well-being,
effectiveness and motivation of employees;
• establish a positive employer-employee dialogue.
Outcomes:
Data related to headcount is calculated on the number of employees
as of January 31, 2019.
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, 2019, the ESI Group workforce consisted of 1,232 employees,
compared to 1,238 at January 31, 2018, and included eight employees
from acquisitions over the period. The average headcount in 2018 was
1,222 employees, very slight increase compared to 2017 (1,201)
The percentage of the Group’s workforce on permanent contracts was
92%. Limited employment contracts such as internships, apprentice-
ships and short-term contracts accounted for 8% of the total workforce
compared to 7% in 2017. In 2018, ESI pursued its ambition to control its
workforce in line with activity growth.
2016
120
29
25
66
32(1)
9
1
22(1)
45
5
10
30
2017
144
28
24
92
17
6
11
48
12
3
33
2018
107
25
25
57
17
6
11
53
13
11
29
197(1)
209
177
(1) Employees from acquisitions have been integrated in 2016 figures to have a relevant comparison for the turnover rate between 2017 and 2016.
53
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT The length of the work week is set in compliance with local legislation.
Workplace accident
3
STATEMENT ON EXTRA-FINANCIAL PERFORMANCE
Risks and issues of ESI
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
In 2018, ESI Group hired 97 employees on permanent contracts, or
54.8% of recruitments.
The departure rate of permanent employees in 2018 was 10% [(number
of permanent contract departures/total headcount in permanent
contract) x 100] compared to 9.4% in 2017.
The 2018 turnover rate in permanent contracts was 9.6% [(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 remains stable
compared to 2017.
Work schedules
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.
In 2018, 5.4% 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.
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);
54
2016
82
29
9
44
24
8
16
37
7
30
143
2017
112
30
10
72
22
10
1
11
33
2
6
25
167
2018
101
28
13
60
23
5
18
48
3
10
35
172
• 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).
BREAKDOWN OF ABSENTEEISM (in % of total days worked)
Illness (< 20 days)
Long term illness (> 20 days)
Maternity leave
Paternity leave
Parental leave
Others
TOTAL
29%
16%
19%
5%
25%
2%
4%
100%
The absenteeism rate is stable in France at 2.39% in 2018 compared to
2.37% in 2017.
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 one in Vietnam and one in Brazil.
These employee representatives involved 26 employees who actively
participated to meetings in 2018.
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.
Well-being at work
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.
ESI GROUP • 2018 REGISTRATION DOCUMENT STATEMENT ON EXTRA-FINANCIAL PERFORMANCE
Risks and issues of ESI
3
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.
South Korea, for example, also offers training on the theme of happiness
and work-life balance. One of our German subsidiaries supports its
employees in parenthood by offering them aids for the children’s
nursery.
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.
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 innova-
tive 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 interna-
tional customers. ESI Group endeavors to boost its expertise all the
time by bringing in top talent from around the world. These challenges
are in line with United Nations goals 5 and 10: "Achieve gender equality
and empower all women and girls" and "Reduce inequality within and
among countries".
Policies:
In order to promote diversity and reduce inequalities within the Group,
ESI applies to:
• promote diversity and multicultural exchanges;
• increase the rate of feminization of permanent contracts;
• be compliant with laws promoting hiring and retaining people
regardless of age;
• be compliant with laws and regulations banning any form of discri-
mination based on age, race, gender, ethnicity, nationality, religion,
health, disability, marital status, sexual orientation, political or
philosophical opinions, trade union affiliation or any other aspect
protected by local legislation;
• not tolerate any form of sexual, physical or moral harassment,
coercion or bullying.
Outcomes:
The tables below present a breakdown of employees by region and by country:
EMPLOYEE DISTRIBUTION BY REGION
Europe, Middle East and Africa
Asia-Pacific
Americas
Note: Among the 57.1% of employees located in the Europe, Middle East and Africa region, 53.8% are located in Europe.
EMPLOYEE DISTRIBUTION IN THE MAIN COUNTRIES
France
India
Germany
United-States
Japan
Others
2017
56.9%
32.6%
10.5%
2017
25.7%
19.9%
16.6%
9.9%
6.1%
21.8%
2018
57.1%
33.0%
10.0%
2018
26.1%
20.1%
15.7%
9.2%
6.2%
22.6%
55
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 3
STATEMENT ON EXTRA-FINANCIAL PERFORMANCE
Risks and issues of ESI
GENDER BREAKDOWN
79.2
78.0
84.7
76.2
85.1
75.0
79.4
78.5
20.8
22.0
23.8
15.3
25.0
14.9
20.6
21.5
Americas
Europe, Middle East and Africa
Asia-Pacific
Total
Man 2017
Man 2018
Woman 2017
Woman 2018
The percentage of women among permanent employees was 19.8%,
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 2018, 47 women joined the Group, which represents
33% of total new recruits, higher compared to 2017 (27%).
WORKFORCE BREAKDOWN BY AGE
>60 years old
56 to 60 years old
51 to 55 years old
46 to 50 years old
41 to 45 years old
Woman
1
10
Man
32
51
21
28
34
87
107
36 to 40 years old
43
31 to 35 years old
54
26 to 30 years old
47
133
141
178
188
21 to 25 years old
27
48
<21 years old
80
40
0 2
0
40
80
120
160
200
240
The average age of employees is 39.3 (female employees: 37.4 and male
employees: 39.9).
ESI Group is compliant with laws promoting hiring and retaining people
regardless of age. As such, 17.69% of employees are aged 50 or more, i.e.
218 people worldwide (184 men and 34 women).
Of those aged 50 and older, 67% are located in Europe, compared to
18.8% in Americas and 14.2% in Asia.
In addition, 36.7% of Group employees are under 35, which contributes
to youth employment overall. In 2019, 78.2% of employees hired were
under 35.
WORKFORCE BREAKDOWN BY LENGTH OF SERVICE
>26 years
21 to 25 years
16 to 20 years
11 to 15 years
6 to 10 years
1 to 5 years
<1 year
Woman
Man
37
43
94
6
16
14
28
58
99
160
199
348
150
100
44
50
86
100
0
50
150 200 250 300 350 400
The average length of service in the Group is 8.2 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
11.2 years.
Principles of non-discrimination
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 15.54% are women, a slight
increase compared to 2016 (14.2%).
The Ethics Committee (composed of two women and one man) also
ensures that none of the above discrimination is made within the Group
(see 3.4.4).
In addition, in 2018, the Group raised awareness of intercultural issues
among 87 people. These awareness sessions were held in small groups
in virtual classroom format. Employees from different countries of the
Group were able to discuss about cultural differences and intercultural
communication.
Inclusion of employees with a disability
Since the beginning of 2016 the Group works with Elise at its Lyon site
in France and since 2017 with Cèdre at its Rungis site, for the selective
sorting. These two companies aim to create permanent jobs for people
with disabilities.
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Risks and issues of ESI
3
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 computerization of annual reviews was implemented for the entire
Group in 2018. In 2018, 93% of employees achieved a performance
review on the new online tool.
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
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.
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 2018, 549 employees, or 44.6% of the workforce, received trainings, at
a cost to the Company of €505,000.
In total for 2018, 10,377 training hours were provided, or an average of
18.9 hours of training per employee trained.
A key priority on the leadership skill has been identified by the top
management in 2017 and was pursued in 2018. During 2018, five sessions
were held, 31 people were trained in total.
In terms of technical skills, the Group has set up a partnership with the
e-learning platform Pluralsight where 190 employees can be trained all
year round on several hundred different subjects.
Ensure the development of collaborators’ competencies
Human resources are ESI’s greatest
source of value and are in line with the
two following sustainable development
goals: "Ensure inclusive and equitable
quality education and promote lifelong
learning opportunities for all" and "Promote sustained, inclusive and
sustainable economic growth, full and productive employment and
decent work for all". Developing talent is key to ensuring the Group’s
long term sustainability. To meet the ever more complex issues manu-
facturers face, and to remain on the cutting edge of technological
innovation, the Group must build employee loyalty and continuously
enhance employees’ expertise.
Furthermore, the Group’s sheer size and its distribution in numerous
countries mean that many projects involving various entities and
cultures must be managed on a Group-wide scale. Leadership, expertise
and collaborative management are essential qualities that will make ESI
Group successful at what it does.
Finally, the transformation of the Group and its new solutions focused
on Hybrid TwinTM, 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.
Policies:
In this way, ESI Group applies to:
• ensure the onboarding of new hires;
• enhance annual feedback by promoting data exchange to collect
information as training needs and development plans and to facilitate
the construction of appropriate local and/or global training plans
that meet the needs of a changing business;
• implement training programs to allow employees to learn more about
the portfolio of solutions available and to boost their managerial and
professional skills (techniques, sales, etc.);
• develop partnership agreements with universities and engineering
schools to play an active role in the training of young people;
• promote the spread of information to all the Group employees.
Outcomes:
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 was launched: The Welcome
Days. Two sessions were held in 2018, one for newcomers from France
and Germany and the other for newcomers from all EMEA offices.
For 2019, the deployment of the “Welcome Days” is planned for Asia
and the United States. 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.
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Actions towards apprenticeship
Numerous partnership agreements have been signed with universities
and engineering schools that allow ESI Group to play an active role in the
training of young people. In 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.
Following the successful partnership set up between ESI, EC Nantes
and a Japan partner in 2017, these international student exchanges are
being prosecuted which strengthen the links between the academic
ecosystem and ESI projects. This kind of partnership, supported by its
Scientific Department, is still illustrated by the implementation since
September 2018, the ESI Chair in the ENSAM, and by a new contract
signed with the University of Zaragoza for five years on Augmented
Reality and Model Reduction. On these themes, a post-doctoral student
from Zaragoza is currently on a mission in Seattle, at the University of
Washington.
Always supported by our Scientific Department, 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.
Additionally, the Group is very involved in working with young graduated
and integrated 44 students in 2018 (42 interns and two apprentices).
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. In 2019, a new
discussion group will be implemented during the first semester, around
environmental issues. Each employee is invited to share the eco-
responsible actions carried out in their professional and/or personal
environment.
Multiple communication initiatives are available to strengthen informa-
tion sharing and cohesion within the Group, such as global presenta-
tions, monthly newsletters, Flash Corporate News, Flash Quality News,
Flash HR News and corporate or product webinars.
Q&A (Questions & Answers) sessions were also initiated in 2018 to
enable a more fluid and transparent exchange between management
and employees.
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.
Ensure health and safety in the workplace and guarantee
the provision of social benefits to employees
The Group's approach is also implemen-
ting benefits package for our employees
around the world,
in particular by
ensuring the employees' health on a daily
basis. This contributes to the following
two objectives: "Ensure healthy lives and promote well-being for all at
all ages" and "Promote sustained, inclusive and sustainable economic
growth, full and productive employment and decent work for all".
Policies:
Since health and safety of employees in the workplace and employee
benefits are necessary for the smooth running of activities, ESI has set
itself the objective of:
• provide high-quality welfare coverage for all its employees throu-
ghout the world;
• offer an attractive compensation and benefits package.
Outcomes
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.
13 countries out of 19 offer their employees to finance a local heal-
thcare insurance in compliance with regulations and employee’s well-
being. Some countries, such as India, now offer a medical check-up
once a year to their employees and, Tunisia has offered five sick leave
days since February 2017. Since October 2018, one of our subsidiaries
in Germany has also been offering access to a company restaurant to
enable its employees to eat in a balanced way.
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, 2019, the FCPE owned
29,500 Company shares, 0.49% of the capital.
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3.4.2. 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.
Develop innovative and high-quality 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 organization reduce the
impact of these new materials, such as composites,
on product performance and integrity? What are the best practices
for optimizing the product lifecycle and maintenance costs? What
processes will ensure that recycling requirements are met?
The products developed by ESI Group are used to bring to market
innovative products at a lower cost and with greater reliability and
contributes through this section to the sustainable development goal 9
of the United Nations :"Build resilient infrastructure, promote inclusive
and sustainable industrialization and foster innovation".
Policies:
In its approach, ESI strives to:
• meet its customers’ demand for ever more innovative products;
• engage itself in a process of zero physical test, zero physical
prototype, zero interruption of production;
• guarantee the quality of its products and services and ensure client
satisfaction;
• acquire a full global certification by 2021.
Outcomes:
Innovative solutions to the zero-physical test, zero physical prototype,
zero interruption of production
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.
Virtual Prototyping makes it possible to prepare physical tests under
the best conditions, going as far as pre-certification or eliminating the
need to carry out physical tests until final validation.
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 TwinTM targets product predictive performance 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, connected and operationally
assisted in its digital version.
The Group’s success also stems from an approach based on close
collaboration with world leaders in each sector where the Group is
active, including Renault-Nissan, Fiat Chrysler and Volkswagen in the
automotive industry, or Boeing and Airbus in the aeronautic industry or
EDF and Framatome in the energy 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 requirements and implement them
jointly with ESI Group.
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.
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.
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.
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. ESI Group’s
objective is to have full global certification by 2021. 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.
In 2018, the global certification applied to 95% of the workforce.
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,
ESI Hispania, ESI ITI in Germany and ESI UK.
2018 also proved to be very successful with the integration of two
new entities: ESI Open CFD (in United-Kingdom) and ESI Nordics AB
(in Sweden), 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.
In addition, since their creation in 2018, the “Welcome Days” have
included a session on Quality in the agenda in order to understand
the meaning of evolving under a Quality Management System and the
approach to process improvement.
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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.
Select and maintain trusting relationships with
committed partners
By developping the partnership ecosystem that
respects the Group's values its commitments, ESI
contributes to the sustainable development goal 12
"Ensure sustainable consumption and production
patterns". 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.
Policies:
Develop a partnership ecosystem that respects the Group’s values and
commitments.
3.4.3. 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.
The main environmental challenges identified by the Group are:
• to reduce energy consumption in its buildings and data centers;
• to limit emissions of greenhouse gases associated with travel by
Group employees;
• to limit the impact related to waste electrical and electronic
equipment (WEEE).
Scope adopted: France, Germany, Czech Republic, Japan, United States,
Tunisia, India, Switzerland, China, Spain, United-Kingdom, South Korea,
Italy and Brazil.
Ensure a more sustainable consumption and production
ESI Group believes that environmental responsibility
should be a priority for all companies, and strives to
reduce its environmental impact and to manage its
resources in a more sustainable way and contributes
to the sustainable development goal 12 "Ensure sustai-
nable consumption and production patterns".
Policies:
The main environmental issues in which ESI is involved are:
• limiting energy consumption;
• limiting paper consumption and transitioning to the use of recycled
paper;
• limiting water consumption;
• develop a waste recycling process all over the sites;
Outcomes:
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 influencing quality through a question-
naire 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.
The Company now includes an environmental criterion (energy
consumption for operation, local purchasing, possibility of recycling
the product, etc.) in the purchasing procedure of its suppliers and
subcontractors. Training on responsible purchasing have been planned
for the most important buyers. To date, one person has completed this
training.
ESI Group also takes care not to create a situation of dependence on
suppliers and subcontractors.
• constantly raise its employees’ awareness of measures taken to avoid
wasting energy, and thereby to reduce its environmental impact.
Outcomes:
Energy consumption
In 2018, electricity consumption on the Rungis site totaled 463,561 kWh,
an average of 3,287.7 kWh per employee, a decrease of 27%, partly due
to the move in the new HQE certified building during summer 18. 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 (+24.24% in 2017 and +10.45% in 2018). These successive
increases are due to the increasing use of the servers. The energy
consumption in the Group’s headquarters, located in Paris, has slightly
increased by 1.73% (due to technical issues and heat inside the building).
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 2,161.2 kWh for
the sites in Germany, the Czech Republic, India, Tunisia, Spain, Japan
and China, representing a slight decrease of 16.20% compared to 2017.
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.
Within the 2018 reporting scope, ESI Group uses renewable energy
production at its Swiss site, where hydropower is used for electricity
and thermic energy for heat. 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.
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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.
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. In
Japan, the lights automatically turn off after a while.
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
1.9
1.7
1.0
2.1
1.9
1.9
1.4
1.5
1.4
1.3
0.9
1.2
0.98
1.0
1.1
1.0
1.4
France
Czech
Republic
Germany
United-States
Tunisia
Switzerland
Spain
India
China
2017
2018
For all data studied (with the exception of Japan and South Korea),
average paper consumption in 2018 was a little higher and stable with
about 2.0 reams of paper used per employee. The paper consumption
is higher in France but reduced by 35.1% in 2018. Nearly 67% of the
countries included in the scope have automatically set up black and
white and single-sided printing. Japan made 100% of its prints with
recycled paper, followed by Spain on 50% of its prints and China on
30%.
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
2018 using the Loopline Systems tool.
ESI also offers its employees in France the possibility to create a safe on
Digiposte to dematerialize HR documents such as pay slips.
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 Company’s business is not very water-intensive as it does not
require water for production. ESI Group’s water is therefore solely for
sanitary use and is drawn from urban networks.
It is difficult to perform an accurate assessment of water consumption.
The Group is the lessee of all of its offices, and the water consumption
of each site is included in rental charges and can therefore not be broken
down in detail. However, as for the sites for which we have information,
for the Rungis site in France, ESI Mecas in the Czech Republic, the two
sites in India, the UK site, the Spanish site, the Chinese site and South
Korea, the average water consumption was of 4.0 cubic meters per
employee. In 2017, the average consumption was of 5.3 cubic meters
per employee (on a smaller scope: Rungis, Czech Republic, ESI GmbH in
Germany, India and China).
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 2018, 126 kg
of waste were recovered by Cèdre in the French site of Rungis, in which
90 kg of paper, against 696 kg in 2017, 81.9% less waste.
At the Lyon site, ESI collaborates with Elise, a waste collection and
recycling company that provides stable employment for people with
integration difficulties, particularly those with disabilities. In 2018, Elise
recovered 1,029 kg of waste, including 931 kg of paper. Recycling this
waste saved 21,600 litres of water, 5,934 kWh of energy and 18 trees.
The Aix-en-Provence site, 60 kg of paper was recycled by Recy’go,
generating a saving of 17 kg of CO2.
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All the German, American, Czech, Japanese, Spanish, Italian 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. In Spain, an instruction
explains where obsolete electronic equipment must be taken in order
to be recycled. Furthermore, on request to our supplier in France, printer
cartridges are collected and recycled via a completely ecological chain.
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.
Raising employee awareness
During summer 2018, ESI produced a short video clip for all employees
on simple ecofriendly actions to adopt at work (https://www.youtube.
com/watch?v=nUIdRRLDgRk). In 2019, a new discussion group will be
implemented during the first semester, around environmental issues.
Each employee is invited to share the eco-responsible actions carried
out in their professional and/or personal environment.
Reduce its greenhouse emission
As ESI Group operates both in France and internatio-
nally, and as its activity is within the tertiary sector,
transport is the main source of its greenhouse gas
emissions. ESI Group’s actions meet the sustainable
development goal 13 “Take urgent action to combat
climate change and its impacts”.
Policies:
In order to reduce its carbon footprint, ESI Group is committed to a
process of:
• limit emissions resulting from business travel by train and by plane;
• limit CO2 emissions from company car travel;
• develop the use of web conferencing tools.
Outcomes:
To limit travels, the Group updated its travel policy. This policy is global
in scope and adapts to local specificities. 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, but
should be extended to all ESI sites. During the first quarter of 2019, a
new tool was implemented to centralize travel requests and employee
expenses throughout the Group. This tool will facilitate administrative
procedures and, above all, will allow a better monitoring of travel
across the whole ESI Group.
In 2018, emissions resulting from business travel by French, American
and German employees by train and by air totaled 1,975.8 kg per
employee, an increase of 17% compared 2017. 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 transformation. It should be noted
that four 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 them-
selves are not included.
In 2018, 42 employees in France had a company car, 55 in Germany, 33 in
the Czech Republic, five in Spain, five in Italy and two in Switzerland. In
Japan, India and China, only one person had a company car. There were
no company cars in the United States, in Tunisia or Brazil in 2018. 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 155,021 kg or 3,691 kg per company car, a 10.6% decrease
compared to last year.
Overall, business travel by French employees generated 493.7 tons of
CO2 in 2018, a decrease of 14.3% per employee.
As for company cars in the Czech Republic, the estimated emissions
in 2018 were 105 tons of CO2, an average of 3,182 kg per car, a slightly
increase of 5% compared to 2017.
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Lastly, for Germany, estimated emissions related to train and plane are
amounted to 188 tons of CO2 (two entities out of three), a decrease
of 21% compared to 2017. Consumption related to cars is amounted
to 1,857 kg of CO2 per car, an increase of 27% linked to an increase
of vehicles. In total, the German employees consumption, which is
amounted to 446 tons, has been stable compared to 2017.
Among the measures implemented over the past few years, the
adoption of Gelato in the beginning of 2018 helps to avoid 925,712 km,
a diminution of 65% of the past shipping distance for the delivery of
our documents.
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 2018, an average of 144 audio meetings, lasting about 41.6 minutes on
average (24% more than in 2017), were organized within the Group per
day using Skype for Business.
3.4.4. Serving civil society
Partnerships are an integral part of the Group’s strategy to facilitate and
promote Virtual Prototyping while acting sustainably (see 3.2.2.4).
The Group considers its main stakeholders to be its employees,
customers, suppliers, and industry and academic partners, but also its
investors and shareholders.
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.
To remain at the leading edge of innovation, the Group invested 26.4%
of its revenues in R&D in 2018.
Innovation makes it possible to resolve the multiple constraints and
pressures that weigh on all manufacturers – 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.
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.
Develop solutions that contributes to reducing the
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 production to the market. ESI Group contri-
butes to through this challenge to the sustainable development goal 9
of the United Nations “Build resilient infrastructure, promote inclusive
and sustainable industrialization and foster innovation”.
Policies:
ESI is committed through its solutions to helping its customers to:
• reduce time-to-market;
• reduce total product weight;
• reduce waste associated with prototyping and manufacturing;
• improve useful life of products;
• reduce the environmental footprint of products;
• improve the safety of the products.
Outcomes:
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.
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 ProCAST, Nissin Kogyo, who
develops, manufactures, and sells brake equipment for two- and four-
wheeled, could successfully cast complex shapes after an analysis
using precise finite element technology. All possible defects were
predicted with the highest accuracy. By introducing ESI ProCAST on
a full-scale basis, Nissin Kogyo reduced their development time and
trial production, allowing them to reach the market faster;
• 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.
Likewise, the use of Virtual Performance Solution by ESI experts
helps to design lighter vehicles to help vehicle manufacturers in
their weight reduction challenge. This challenge is even more present
today with the acceleration towards the electric vehicle, whose
weight, and particularly the weight of the battery, becomes a central
issue;
• Reduced waste associated with prototyping and manufacturing:
Students from the Czech Technical University in Prague (ČVUT),
Czech Republic, were able to avoid physical crash tests of their
race car thanks to ESI Virtual Performance Solution (VPS), using only
virtual tests of the material to validate the model. This enabled them
to move swiftly to the design optimization of the crash absorber
structure. The capability of VPS to complete multiple simulations on
a single core model allowed the team to thoroughly examine various
measurements. The End to End solution supported the project goals,
which were met entirely within the allotted time and budget;
• Improved useful life of products: the creation of a Hybrid TwinTM
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: Thanks to ESI PAM-STAMP solution, Kirchhoff
Automotive was able to integrate ultra-high strength steel, which
caused a springback issue, into the conception and forming process of
its components more quickly. This new material offers a lightweight
option to traditional steels and can thereby contribute to reduced
CO2 emissions.
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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 TwinTM concept of the Group
targets product predictive performance and maintenance, to optimize
repairs, facilitate certification update, and minimize recalls.
Act ethically and responsibly
The Ethics Charter applied across the Group is in
line with the principles of sustainable development
objective 16 “Promote peaceful and inclusive societies
for sustainable development, provide access to justice
for all and build effective, accountable and inclusive
institutions at all levels”.
A three-member Ethics Committee is responsible for creating an envi-
ronment 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.
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 has been communicated 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”.
Regarding the European Union data protection regulations, which are
supervised in France by the CNIL (Commission nationale Informatique
et Libertés), ESI Group, as a French company, must comply with them.
Within ESI, we launched the GDPR project in 2016 with a raising
awareness approach at Company level in France and at local level in
Germany. A specific working group has been created to manage the
entire project and coordinate local initiatives. Several working groups
have been created for functions that are particularly affected by these
regulations, either because of their use of our employees’ personal data
or because of the customers, suppliers, investors and partners’ data of
ESI Group.
The Ethics Charter contains the policies and procedures inherent in the
following business conduct:
• Relations with our business partners:
– establish transparent and loyal business dealings with clients,
– deal honestly and fairly with all clients no matter the size of their
company,
– provide quality products and services that meet the needs of its
customers;
• Actions taken to prevent corruption:
– prohibition of 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,
– 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,
– prohibition to receive, give, promise or solicitate facilitation
payments or influence-peddling undue benefits with a view
to granting, obtaining or maintaining a contract or any other
advantage;
• Fraud and money laundering:
– comply with laws on fraud and money laundering,
– conduct business only with reputable partners,
– be vigilant regarding any payments made, in order to detect any
irregularities, especially concerning partners whose business
conduct may raise suspicion,
– ensure that the accounting and tax declarations sent to the autho-
rities are complete and reflect the reality of each subsidiary;
• Compliance with antitrust laws:
– prohibition of any exchange of confidential information and any
arrangement – formal or informal – or attempt to enter into arran-
gements with competitors which seek to fix prices or conditions
of sale, to share a market or to boycott a particular market actor,
– prohibition of 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.
Regarding the European Union data protection regulations, which are
supervised in France by the CNIL (Commission nationale Informatique
et Libertés), ESI Group, as a French company, must comply with them.
Within ESI, we launched the GDPR project in 2016 with a raising
awareness approach at Company level in France and at local level in
Germany. These measures include:
• the creation of a specific working group to manage the entire project
and coordinate local initiatives;
• the creation of several working groups for the functions that are
particularly affected by these regulations, either because of their
use of our employees’ personal data or because of our customers,
suppliers, investors and partners’ data;
• the implementation of a dedicated section on the Group's intranet
to share all relevant information. The information on current regu-
lations, past webinars and the strategy applied to each function
(Marketing and Sales, Human Resources, IT, Legal, etc.) are available
in this section.
Develop partnerships with the academic and scientific
communities
By developing partnerships with the
various digital players, ESI Group is once
again contributing to the following
sustainable development objectives
“Build resilient infrastructure, promote
inclusive and sustainable industrialization and foster innovation” and
“Ensure inclusive and equitable quality education and promote lifelong
learning opportunities for all”.
ESI Group is convinced that it is by investing with various players in
the digital community that the Group will strengthen its position as a
leading player in digital transformation and leader in virtual engineering.
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The Company is an active member 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 400 members. In so doing, ESI Group is
strengthening its position in France as a leading player in digital trans-
formation and is bringing in its vision for virtual engineering as well as
its economic and social values.
Policies:
In order to facilitate collaboration and encourage industrial innovation,
the Group makes sure to create and maintain quality relationships with
various players in the digital community, at the industrial, academic and
associative levels.
Outcomes:
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 (Île-de-France), Nuclear Valley
(Burgundy), Mov’eo (Normandy and Île-de-France), I-Trans (Nord-Pas-de-
Calais and Picardy), iD4CAR (Brittany and Pays-de-la-Loire), Systematic
(Île-de-France), Minalogic (Grenoble and Rhône-Alpes), Pôle Pégase
(Provence-Alpes-Côte d’Azur) and Pôle ViaMeca (Auvergne-Rhône-
Alpes). Since 2013, ESI Group has had a presence on the campus and
the Board of Directors of Ter@tec, Europe’s largest intensive computing
center, based 20 km outside Paris at the Saclay platform in Île-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 Île-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.
Through this presidency, ESI Group contributed to the development
of the strategic plan for the automotive industry. These plans are
developed at the initiative of the CNI so that each CSF (strategic
committee of the sector) develops its own transformation plan towards
the industry of the future in general and particularly digitalization, by
involving the entire value chain contributing to the sector.
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.
ESI Group is also an active member of the Nuclear Valley cluster. Nuclear
Valley helps to restore the competitiveness of the nuclear industry on
the international market by providing its expertise in virtual reality to
facilitate the replacement of existing equipment or its maintenance.
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
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.
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ESI is also a player of the Alliance for the industry of the future for
the development of key technologies for the industrial transformation.
Thus, ESI is the top-tier partner of the SOFIA program aiming to develop
the additive manufacturing sector in France (Solutions pour la fabri-
cation industrielle additive métallique). The additive manufacturing, a
numerical process, gives an essential role to Virtual Prototyping, which
positions naturally ESI as a key player of this sector.
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.
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).
At the international level, ESI Group is involved in promoting French
know-how in the technological field of the Industry of the Future. In
2018, its actions took place in the Russian industrial ecosystem with the
setting up of bilateral meetings. It is also as part of this commitment that
ESI Group participated to the SPIEF 2018 (Saint-Petersburg International
Economic Forum) where France and President Macron were Honorary
Guests. ESI took part in the official round table on the Industry of the
Future, being the only French mid-cap company present at this debate.
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Report of the inspecting organization
3
3.5. Report of the inspecting organization
Year ending January 31, 2018
This is a free translation into English of the original report issued in the French language and it is provided solely for the convenience of English
speaking users. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable
in France.
To the shareholders,
Following the request received from ESI Group (referred to hereinafter as “the entity”) and in our capacity as an independent third-party body with
an accreditation granted by the COFRAC under registration n° 3-1081 (available on www.cofrac.fr), we hereby present our report on the consolidated
statement on non-financial performance for the year ending January 31, 2018 (referred to hereinafter as the “Statement”), presented in the Group’s
management report in accordance with the statutory and regulatory provisions of Articles L. 225-102-1, R. 225-105 and R. 225-105-1 of the French
Code of Commerce.
Entity’s duty
The Board of Directors has a duty to draw up a Statement that complies with statutory and regulatory provisions, including a presentation of the
business model, a description of the main non-financial risks, a presentation of the policies applied in view of these risks together with the results
of those policies, including key performance indicators.
The Statement has been drawn up according to the authoritative accounting pronouncements used, (referred to hereinafter as the “Pronouncements”)
by the entity whose significant elements available upon request from the Company’s head office.
Independence and quality control
Our independence is defined in the provisions of L. 822-11-3 of the French Code of Commerce and the profession’s Code of Conduct. Moreover, we
have set up a quality control system that includes documented policies and procedures aiming to ensure that rules of conduct, professional ethics
and the applicable statutory and regulatory provisions are complied with.
Duty of the independent third-party body
We have a duty, on the basis of our work, to formulate a reasoned opinion expressing a conclusion of a moderate level of assurance as to:
• the Statement’s compliance with the provisions set out in Article R. 225-105 of the French Code of Commerce;
• the sincerity of the information furnished in application of 3° of I and of II of Article R. 225-105 of the French Code of Commerce, namely the
results of the policies, including key performance indicators and actions relating to the main risks, referred to hereinafter as the “Information”.
However, we have no duty to give an opinion on:
• whether the entity has complied with other applicable statutory and regulatory provisions, including, matters relating to the vigilance plan and
the fight against corruption and tax evasion;
• compliance of products and services with applicable regulations.
Nature and scope of the work
We carried out the work in accordance with standards that apply in France and that determine the ways in which the independent third-party body
carries out its mission, and with international standard ISAE 3000.
We carried out our work between May 2, 2019 May 21, 2019 for a period of approximately eight days/person.
We held two interviews with people in charge of the Statement.
We carried out the work enabling us to evaluate the extent to which the Statement complies with the regulatory provisions and the sincerity of
the Information:
• we informed ourselves of the activity of all of the companies falling within the scope of the consolidation, of the exposure to the main corporate
and environmental risks linked to this activity, and of its effects on human rights and the fight against corruption and tax evasion together with
the policies that ensue and their results;
• we looked into the appropriateness of the Pronouncements with a view to their relevance, exhaustiveness, reliability, neutrality and comprehen-
sive nature, taking into account, where necessary, the sector’s good practices;
• we checked that the Statement covered each category of information provided under III of Article L. 225-102-1 on corporate and environmental
matters and whether human rights were being complied with and the fight against corruption and tax evasion;
• we checked that the Statement presents the business model and the main risks linked to the activity of all of the companies falling within the
scope of the consolidation, including, where relevant and proportionate, the risks created by business relations, products or services as well as
policies, actions and results along with key performance indicators;
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• we checked, where relevant in view of the main risks or policies presented, that the Statement presents information set out in II of Article
R. 225-105;
• we looked into the selection and validation process of the main risks;
• we enquired about the existence of internal verification and risk management procedures set up by the entity;
• we looked into the coherence of results and of key performance indicators used in view of the main risks and policies presented;
• we checked that the Statement covers the consolidated scope, namely all of the companies falling within the scope of consolidation in accor-
dance with Article L. 233-16 with the limits set out in the paragraph 3.1 ‘The methodology’ and 3.4.3 ‘Being an environmentally friendly player’;
• we studied the information-gathering process set up by the entity aiming to obtain information that is exhaustive and sincere;
• with regard to key performance indicators and other quantitative results that we consider to be the most important, we implemented:
• analytical procedures consisting of checks to ensure that the data collected was consolidated correctly and that its evolution was coherent;
• detailed tests on the basis of surveys, consisting of checks to ensure definition and procedures were applied correctly and of checks linking data
to supporting documentation. This work was carried out with a selection of contributing entities(1) and covered between 10% and 100% of the
consolidated data of the key performance indicators and results selected for these tests(2);
• we consulted documentary sources and held interviews to corroborate what we considered to be the most important qualitative information
(actions and results);
• we looked into the overall coherence of the Statement with reference to our knowledge of the companies as a whole falling within in the scope
of the consolidation.
We consider that the work carried out and, exercising our professional judgment, enables us to formulate a conclusion of a moderate level of
assurance; a higher level of assurance would have required more extensive verification work.
In view of the fact that sampling techniques were used and that there are other limits inherent to the functioning of any system of information and
internal control, we cannot rule out totally the risk that a significative anomaly in the Statement has not been detected.
Conclusion
On the basis of our work, we did not note any significant anomaly of such a nature as to cast any doubt on the fact that the statement of non-
financial performance complies with the applicable regulatory provisions and that that Information, as a whole, has been presented with sincerity,
in accordance with the Pronouncements.
Lyon, on May 22, 2019
FINEXFI
Isabelle Lhoste
Partner
(1) Social indicators: ESI Group.
Environmental indicators: ESI site in Rungis, Lyon, Tunisia and United-Kingdom.
(2) Ensure a decent work, Promote diversity and multicultural exchanges, Actions towards apprenticeship, Internal communication, Ensure a more sustainable consumption and
production, Reduce its greenhouse emissions.
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ESI GROUP • 2018 REGISTRATION DOCUMENT 4
MANAGEMENT
REPORT
Financial year 2018 (ended January 31, 2019)
In accordance with Article L. 451-1-2 of the French Monetary and
includes the Board’s Management
Financial Code, this Chapter
Report to the Combined General Meeting of July 18, 2019. This report
accounts for the Company’s activities during the 2018 financial year
(ended January 31, 2019), including the result of these activities and the
Company’s outlook, and presents the Company’s accounts and balance
sheets for the financial 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 2018 financial year
4.1.1. Highlights of the 2018 financial year
Financial information
As anticipated, ESI Group has returned to the path of growth in 2018, as
part of its ongoing business and operational transformation.
Evolution of the financing
As part of its financing policy, ESI Group announced the signature
of a €40 million syndicated credit line, taken out with a consortium
of leading European banks. This credit line will be used to fund the
acceleration of the Group’s development plan and diversify its financial
partners. It replaces the syndicated credit line signed in 2015.
The banking consortium is made up of the following seven members:
• Arranger and Agent: Banque Palatine;
• Participants: Banque Palatine, HSBC France, Crédit Agricole Île-de-
France, CIC Paris, Crédit du Nord, Société Générale, BNP Paribas.
Evolution of Group Governance
After announcing the nomination within the Group Executive
Committee of Christian Matzen, EVP Solutions, Sales & Marketing and
Dominique Lefebvre, Product Operations Director, as well as the recruit-
ment of Olfa Zorgati as Chief Financial Officer, the Group announced
the nomination of Cristel de Rouvray as Chief Executive Officer, Alain
de Rouvray remaining Chairman of the Board of Directors.
is transforming
2018, an ongoing transformation
A technological and digital revolution
industry
worldwide, opening countless new possibilities for design, manufactu-
ring and asset management, straining the traditional ways of evaluating
performance that still heavily rely on real (hardware) tests and proto-
types. Companies have no choice but to digitize their product deve-
lopment and performance evaluation, not only for pre-certification but
increasingly for the asset in-Service. This is the most critical facet of the
digitization of industry (Industry 4.0, Smart Factory).
Standing on more than five decades of pioneer experience in virtual
prototyping and sustained investments in advanced technologies, ESI
Group is well positioned to enable this major disruptive change among
OEMs, their suppliers and the owners of fleets of industrial assets –
whether incumbents or new players. ESI has a unique technology stack
and credibility to become the Product Performance LifecycleTM (PPL)
Company. Anchored on the concept of the Hybrid TwinTM, our tech-
nologies bring the ability to evaluate the outcome at any stage in the
asset’s life, new or used and integrated in its operational environment. A
new frontier is created in simulation that combines sophisticated causal
models from virtual prototyping with guidance on what sensor data to
collect and process so as to be able to track performance practically
in real time and unlock the benefits of evaluating the ageing of the
product from the conception stage and reduced down time.
69
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MANAGEMENT REPORT
Business activities during the 2018 financial 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
% of sales
Current operating profit(1)
% of sales
EBIT
% of sales
Net profit (Group share)
% of sales
2018
139.4
109.8
29.6
101.5
72.8%
11.2
8.0%
6.8
4.9%
7.0
5.0%
3.3
2.4%
2017
Variation at actual
currency rate
Variation at constant
currency rate
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%
3.1%
3.9%
0.2%
3.8%
3.9%
4.8%
0.8%
4.6%
(7.8%)
(13.8%)
(16.5%)
(26.0%)
(13.2%)
(22.7%)
40.4%
19.9%
(1) Current operating profit including amortization of assets acquired in business combinations.
4.1.2.1.2. General information
Results confirming the trust of industrial global leaders
Sales came to €139.4 million (+3.1%; +3.9% at constant exchange rate
(CER)), bolstered by renewed momentum in the Licensing business
(79% of revenues to €109.8 million, up +3.9%; +4.6% CER). Services
(Consulting) remained stable at €29.6 million (+0.2%; +0.8% CER), for a
21% share of total revenue.
The progress is the result of a good performance on key accounts and
the launching of strategic initiatives such as in light weight enginee-
ring and immersive human centric engineering. Building on a strongly
established and growing solid installed base, this promises a significant
growth potential for the Group.
Notably, the twenty largest global customers account for 45% of total
order intake and increased by 12% in average. This roster includes some
of our strategic partners and the world’s industrial leaders (particularly
in the Automotive, Aeronautics and Energy sectors), which are well
along in the digital transformation of their business models. ESI’s
business average growth with these customers is double-digit growth
rates and as much as twice the PLM market average. These leaders of
the Industry 4.0 and Smart Factory have welcomed ESI Group’s physics
based Virtual Prototyping solutions and their further development
perspective of performance in-service.
Strengthening Financial structure
In the context of the moderate average growth over the period, the
current transformation and increased long-term investments weigh, as
anticipated, on the Group’s results and profitability for the 2018 year.
Individually, the Group’s core business shows a good level of profita-
bility, while the innovation activity, that contributes to positioning the
Group for the future, carries by construction lower profitability in the
early years.
Improvement of the gross margin
ESI Group’s gross margin increased by +3.8% to €101.5 million, repre-
senting 72.8% of revenues (vs. 72.3% in 2017). This progression is due to
an improved gross profit margin for Licensing of 85.2% (vs. 84.7%) and
a greater increase in the Licensing business compared to the Services.
Increased investments
The operational optimization associated with the Group’s transfor-
mation has differing impacts on two main expense items. In 2018, the
Group increased:
• R&D investments, which came to €36.8 million (33.5% of licensing
revenue), up €1.9 million, in consequence of integrating technologies
and adapting the offer. Considering ESI Group’s Research Tax Credit
and capitalization of development costs, R&D expenditures recorded
in the Profit & Loss Statement were lower, at €31.7 million, an +8.2%
growth;
• Sales and Marketing (S&M) expenses, which came to €43.0 million
(30.9% of revenues), up €1.1 million as part of a sales structuring
focused on developing and targeting around accounts and strategic
initiatives.
Slight decrease in operating profitability
EBITDA amounted to €11.2 million (vs. €12.1 million in financial year 2017),
for a margin of 8.0% of total revenues (vs. 9.0%), before considering the
depreciation and amortization associated with major amortization of
investments, which bring the Group’s operating income to €7.0 million
(5.0% of revenues) compared to €8.1 million in financial year 2017 (6.0%
of revenues).
4.1.2.2. Financial position – consolidated balance sheet
As at January 31, 2019, The Group’s cash position was €18.1 million (vs.
€15.8 million at January 31, 2018).
Financial debt amounts to €45.1 million (vs. €47.6 million). The Group’s
net debt stood at €27.0 million (vs. €31.8 million at the end of January
2018, and €37.3 million at the end of January 2017). Gearing (net debt to
equity) improved and is now 25.5% (vs. 31.4% at the end of January 2018
and 37.6% at the end of January 2017).
70
ESI GROUP • 2018 REGISTRATION DOCUMENT As part of its financing policy, the Group secured a €40 million
syndicated credit line from a consortium of leading European banks,
replacing the 2015 agreement.
At January 31, 2019, ESI Group held 6.5% of its share capital in treasury
shares.
Equity stood at €105.6 million, up due to the net profit for the year.
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.
Interest rate risk
Most of the Group’s financial debts have variable interest rates. 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, 2019 amounted to €18.1 million compared
with €15.7 at January 31, 2018. The €+2.4 million increase over financial
year 2018 can be explained by the flows listed below.
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 €36.8 million in 2018, an increase
of 5.4% 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 TwinTM approach.
The capitalization of development costs had a €+2.7 million impact on
the income statement in 2018 (vs €+3.2 million in 2017).
A breakdown of the expenses is provided in the note 6.1.2. to the conso-
lidated financial statements.
Research and development (R&D) policy
Not only the Product Operations teams but also Discovery and
Innovation teams in charge of R&D deliver products in line with the
Group’s strategy and market needs. It also seeks to maintain the compe-
titive edge of ESI Group’s solutions, focusing on:
• generic analysis and simulation tools needed to approach the market
(Analysis Tools);
• business solutions that provide realistic physical modeling properties
via simulation tests;
• 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);
MANAGEMENT REPORT
Business activities during the 2018 financial year
4
Operating cash flow came to €6.0 million compared to €4.7 million for
the previous financial year. This change of €+1.3 million is mainly due
to the decrease in taxes paid during the year, generating a positive cash
impact of €1.7 million, partially offset by the decrease in EBITDA.
Variation
(WCR) amounts to
€+4.1 million, which is a decrease of €3.3 million compared to previous
year-end. The change in WCR was particularly high in 2017, following an
intense recovery campaign at the end of the financial year. The addi-
tional improvement recorded at January 31, 2019 results from temporary
payment delays associated to other receivables and payables.
in working capital
requirement
Current capital expenditures paid by the Company amount to
€4.2 million, compared to €3.6 million for previous financial year. ESI
has made investments in new office in Paris area (in Rungis).
The other financing and investing operations represented a net outflow
of €3.5 million, mainly corresponding to the repayment of €5 million
of a revolving credit line and the refinancing of the costs of move of
Rungis office for €1.6 million. In addition, the long-term part of the
syndicated credit remained stable at €30 million, as the signing of the
contract enabled to re-obtain the €4.5 million installment initially paid
in November 2018.
• 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 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 teams allot 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;
71
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 4
MANAGEMENT REPORT
Business activities during the 2018 financial year
• investments are made in emerging products with greater demand and
with the potential to drive growth, to accelerate adoption of these
products in industrial applications;
• investments are made in innovative products by increasing research
contracts with leading customers 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 teams follow 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 teams continue 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 support 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 Products 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 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 publishing contracts held 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
replacement solutions could be obtained if 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, the Company owns patents directly or through its
subsidiaries.
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 consists mainly of:
1. Royalties paid by subsidiaries, distributors, and agents and received in
return for the right to grant software licenses to end customers;
This decrease of €1.6 million is explained in the table below:
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 2018 is a loss of €0.3 million compared to a
profit of €1.3 million for the previous year.
(in € thousands)
OPERATING PROFIT
Increase in revenue
Increase in inventory
Decrease in net impact of capitalization of development costs (capitalization and amortization)
Increase in external expenses
Increase in salaries and social charges
Change in provisions for contingencies and risks (operating result)
Other change
TOTAL CHANGE
2018
(337)
2017
1,296
Change
(1,633)
2,139
583
(1,399)
(2,168)
(1,609)
867
(46)
(1,633)
72
ESI GROUP • 2018 REGISTRATION DOCUMENT MANAGEMENT REPORT
Business activities during the 2018 financial year
4
The ESI Group' financial result is a profit of €2.6 million compared to a loss of €2 million in 2017. The financial result can be broken down as follows:
(in € thousands)
Realized foreign exchange currency result
Interest on loans
Provision for depreciation of investments (including in 2018 €1.2 million of reversal of provision for CyDesign Labs)
Dividend ESI Japan Ltd
Dividend Mecas ESI s.r.o.
Other financial income (expenses)
TOTAL
January 31, 2019
January 31, 2018
143
(824)
1,517
0
1,690
70
2,595
(544)
(840)
(456)
3,921
0
(77)
2,004
Current income before tax is a profit of €2.3 million, compared to
€3.3 million in 2017.
The Company has also recorded €2.1 million of exceptional loss
including the liquidation result of the subsidiary CyDesign Labs for
-€1.3 million.
The Company recognizes a profit on income tax of €2.7 million,
compared to €2.2 million in 2017, which corresponds to corporate tax
expense of €0.4 million, to French R&D tax credit of €2.9 million and
to CICE tax credit of €0.1 million.
Net profit stands finally at €2.8 million, compared to €5.6 million in
2017.
Equity rose by €2.8 million, from €97.6 to €100.4 million primarily due
to the net income of the same amount.
The main changes in the balance sheet over the financial year are
described below:
• fixed assets increased by €4.4 million, from €124.6 to €129 million,
due mainly to an increase in capitalized development costs for
€2.6 million and an increase in property, plant and equipment for
€1.3 million further to Rungis office move;
• financial debt decreased by €3 million, from €39.8 million to
€36.8 million. This corresponds to the reimbursement of the
revolving credit for -€5 million and the refinancing of the cost of
Rungis office move for €1.6 million.
BREAKDOWN OF INVOICES ISSUED AND RECEIVED AT JANUARY 31, 2019 (ARTICLE D. 441-4 OF THE FRENCH COMMERCIAL CODE)
Invoices Issued (Customers)
(in € thousands)
Installment payment
Number of related invoices
Total amount of the invoices (all taxes included)
Percentage based on total of revenue of the year
(all taxes included)
Total amount of invoices excluded related to doubtful
receivables or not yet issued
5,887
0 day
(indicative)
1
to 30 days
31
to 60 days
61
to 90 days
91 days
and more
Total
(1 day and more)
184
33,441
15
675
37.63%
0.76%
31
1,813
2.04%
40
1,450
1.63%
907
16,890
993
20,829
19.00%
23.44%
2,430
2,430
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)
44
404
24
(49)
26
(41)
1,089
26,354
1,183
26,667
0.59%
(0.07%)
(0.06%)
38.42%
38.88%
68
2,996
4.37%
7,308
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, 2019:
• net profit for the year: €2,819,816.34;
• profit carried forward: €38,088,140.54;
• total to be allocated: €2,819,816.34.
Allocation:
• €435 to the legal reserve;
• €2,819,381.34 to profit carried forward.
Following this allocation, the legal reserve stands at €1,805,367.60,
representing 10% of share capital. Profit carried forward stands at
€40,907,521.88.
73
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 4
MANAGEMENT REPORT
Outlook
4.2. Outlook
4.2.1. Subsequent events
Aware of the potential offered to it but also of the initiatives to be
implemented to achieve its objectives, the Company has announced, in
April 2019, an ambitious short- and medium-term action plan based on
two fundamental axes:
2. Focus: increase commercial efficiency and maximize the ROI of
innovation – capitalize on acquired technologies (M&A) and their
complete integration into the Group’s solutions:
– align commercial/R&D resources with a channel (Engineering,
1. Operational excellence – optimize operational performance by
Manufacturing, In-Service) and industry approach,
clarifying the Group’s organization;
– measure, energize and control performance,
– improve internal/external readability by implementing “Best-in-
class” management tools;
– focus commercial development on key accounts, as well as on
the three sectors: Ground Transportation, Aeronautics and Energy,
which account for 75% of sales in 2018.
Furthermore, the Company is submitting a resolution to the Combined
General Meeting of July 18, 2019 to change the financial year closing
date to December 31, with the consequence that the fiscal year will
comprise 11 months (from February 1, 2019 to December 31, 2019).
4.2.2. Business trends
The year 2018, the year of continued transformation, shows a return to
growth. The continuation of the plan still has an impact on the Group’s
profitability level; an announced and necessary one.
zero real prototypes, and zero unscheduled production shutdowns”,
fully addresses the short- and medium-term objectives of global indus-
trial leaders.
The linearization of the Group’s organization to align with the value
chain of its solutions: from Research to the marketing of solutions, via
innovation and the Go to Market phase, allows it to eliminate silos in its
organization, thus strengthening collaboration, complementarities and,
de facto, operational efficiency.
By launching at the right time its own in depth technological and orga-
nizational transformation, ESI Group has kept pace with the evolution
of its industrial lead customers (Industry 4.0 and Smart Factory) and
anticipated their future needs. By systematically integrating cutting-
edge technologies (Internet of Things, big data, Artificial Intelligence,
additive manufacturing etc.) into solutions that draw on its unique
expertise in physics of materials, ESI Group has articulated a new global
approach centered on industrial productivity and the performance
of products beyond their initial development to their entire lifecycle
(Product Performance Lifecycle™). The Group’s vision of: “zero real tests,
Along with shorten industrial development cycles and time-to-market,
regulatory and consumer requirements increase, industrial players must
find trusted partners that will enable them to innovate more safely and
achieve their performance and productivity objectives.
This approach is gaining traction with the Group’s strategic customers
and is already bearing fruit in the form of tangible commercial successes.
For example:
• elimination of the physical prototyping stage in the tender for supply
of equipment for a major European car manufacturer;
• achievement of ‘zero real prototype’ prior to the five stars official
certification stage at a major European car manufacturer;
• use of immersive virtual reality to accelerate and secure the manu-
facturing of a new helicopter for a US aeronautic OEM.
4.3. Internal control and risk management procedures
4.3.1. Control environment
General organization
ESI Group is a multinational corporation that includes 33 subsidiaries
(the “subsidiaries”), 28 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:
• a matrix-based structure organized around business activities and
markets that ensures Group-wide sharing of information;
• a centralized organization to manage the Group’s business activities;
• limited hierarchical levels to streamline decision-making processes;
• a relatively small size for efficient communication among the various
departments.
74
ESI GROUP • 2018 REGISTRATION DOCUMENT MANAGEMENT REPORT
Internal control and risk management procedures
4
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.
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 2018 Board Retreat took place in July, and the 2019 meeting is also
planned in July.
Operational departments
These departments primarily supervise business processes and manage
projects.
Their role is to oversee the implementation of procedures 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 financial
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 financial control system across the various
businesses.
The Administration and Finance Department comprises the following
units:
• Accounting and Consolidation, in charge of:
– daily recording of transactions,
– establishing periodic financial statements of each entity,
– 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 operational and financial level;
• Cash management, in charge of:
– managing cash flows,
– project financing,
– hedging currency and interest rate risks;
• Information Systems Department (ISD).
b) Legal Affairs Department
The Legal Affairs Department is divided into two branches:
• 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 negotiates
various contracts with clients and partners in the industry, govern-
ment 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;
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23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 4
MANAGEMENT REPORT
Internal control and risk management procedures
• 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 LifecycleTM 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 compliance with all legal and regulatory requirements;
• administer payroll and personnel files;
• oversee and manage labor relations;
• 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;
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 continue to adapt 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.
76
• 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.
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.
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.
ESI GROUP • 2018 REGISTRATION DOCUMENT 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) 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 financial controllers is
dedicated to operational divisions of the Group.
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. This tool makes it possible to monitor the different
steps in the hiring process and provide managers with any informa-
tion 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 financial 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.
MANAGEMENT REPORT
Internal control and risk management procedures
4
Budget monitoring and reporting process
The yearly budgets are prepared at the start of the financial 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 serves to:
• monitor the budget 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 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, organization and learning.
Revenue recognition process
The Finance Department is responsible for recognizing revenues and
ensuring:
• the consistency between actual revenues and contractual data about
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:
• upstream, by assessing client risk before processing orders;
• downstream, through a periodic follow-up procedure suited to each
client in order to reduce outstanding debt.
Regular monitoring of average payment times makes it possible to
assess how effectively accounts receivable are managed across the
various subsidiaries.
Cash management process
The Chief 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;
• profitability and the risk level of various cash surplus investments;
• foreign exchange risks, to take any necessary preventive action;
• implementation of loans necessary for growth of the Company.
The cash position of each entity is centralized, when local regulations
allow, and a consolidated monthly forecast is drawn up each month.
77
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 4
MANAGEMENT REPORT
Table summarizing the results of the past five financial years
Payroll management process
The payroll process falls under the responsibility of the Director of
Human Resources and involves:
• entering payroll information in the accounting system;
• provisioning for paid vacation to distribute the expense over the full
year;
• processing the various items involved in calculating salaries;
• ensuring compliance with labor-related reporting obligations.
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.
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 and also a Group-wide international insurance policy to
cover all employees who travel outside of France.
4.4. Table summarizing the results of the past five financial years
Figures presented here below are extracted from ESI Group annual financial statements.
Balance sheet date
01/31/2019
01/31/2018
01/31/2017
01/31/2016
01/31/2015
Duration of financial year (number of months)
12
12
12
12
12
CAPITAL AT BALANCE SHEET DATE
Share capital (in €)
Number of shares
• ordinary shares
• preference shares
Maximum number of shares to be created
• via convertible bonds
• via subscription rights
OPERATIONS AND RESULTS (in €)
Revenue (excl. tax)
Earnings before tax, employee profit-sharing,
allowances for amortization and provisions
Income tax
Employee profit-sharing
Allowances for amortization and provisions
Net income
Distributed earnings
EARNINGS PER SHARE (in €)
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 (in €)
18,053,676
18,049,326
17,975,976
17,865,216
17,845,266
6,017,892
6,016,442
5,991,992
5,955,072
5,948,422
151,448
108,843
175,733
207,080
159,095
86,022,988
83,883,977
84,313,214
79,156,886
68,487,405
27,025,120
(2,698,695)
26,903,999
2,819,816
31,555,313
(2,228,379)
28,762,466
5,546,976
28,651,433
(1,669,380)
15,967
28,688,439
1,632,374
21,642,463
(2,205,946)
19,916,428
3,931,981
25,228,586
(1,865,499)
26,012,821
1,081,264
4.94
0.47
246
5.70
0.92
243
5.06
0.27
234
4.00
0.66
217
4.55
0.18
212
15,880,764
14,766,952
14,159,959
13,203,318
12,446,007
Amounts paid in benefits (social security, social
welfare, etc.) (in €)
7,466,508
6,971,314
6,711,622
6,295,088
5,772,990
78
ESI GROUP • 2018 REGISTRATION DOCUMENT 5
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(1)
Other operating income and expenses(1)
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 €)
Note
January 31, 2019
January 31, 2018
109,836
28,793
784
139,413
(37,907)
(31,718)
(43,042)
(19,970)
6,776
233
7,010
(1,277)
106
5,839
(2,505)
3,334
0
3,334
0.59
0.59
105,748
29,100
429
135,277
(37,487)
(29,311)
(41,896)
(18,471)
8,112
(32)
8,080
(2,718)
216
5,578
(3,197)
2,381
6
2,375
0.42
0.42
4.1
6.1.2
3.2.2
7.2
8.1
9.3
9.3
(1) Reclassification, over the two financial years presented, of the amortization of intangibles assets acquired in business combinations from Other operating
income and expenses to Current Operating Result – see note 3.2.2.
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.
January 31, 2019
January 31, 2018
3,334
15
(534)
(201)
(720)
2,614
2,599
15
2,381
(1)
(1,544)
(214)
(1,759)
622
671
(49)
79
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT Note
January 31, 2019
January 31, 2018
129,389
127,598
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
41,404
61,811
6,101
1,083
10,920
8,070
0
101,186
65,131
15,348
2,620
18,087
230,575
105,633
104,863
18,054
25,818
57,862
3,334
(205)
771
51,370
36,255
9,979
3,738
13
1,385
73,572
8,801
8,848
30,560
762
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
36
985
73,112
13,464
9,968
26,493
591
24,601
230,575
22,596
222,239
5
FINANCIAL STATEMENTS
Consolidated financial statements
5.1.2. Consolidated balance sheet
(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.
80
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
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, 2017
5,991,992
17,976
25,218
53,438
1,843
98,475
1,013
99,488
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
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, 2019
24,450
73
563
6,016,442
18,049
25,782
1,450
4
36
(1)
(209)
(210)
2,375
2,165
404
499
191
(237)
56,460
15
(196)
(181)
3,334
3,153
(131)
751
688
276
(1,494)
(1,494)
(1,494)
(1)
(1,494)
(209)
(1,704)
2,375
671
636
404
499
191
(237)
349
100,638
(554)
(554)
(554)
15
(554)
(196)
(735)
3,334
2,599
40
(131)
751
688
276
6,017,892
18,053
25,818
61,197
(205)
104,861
(50)
(5)
(55)
6
(49)
(121)
1
844
20
(5)
15
0
15
(89)
1
771
(1)
(1,544)
(214)
(1,759)
2,381
622
636
404
499
70
(236)
101,483
15
(534)
(201)
(720)
3,334
2,614
40
(131)
751
599
277
105,633
The notes are an integral part of the consolidated financial statements.
81
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
Consolidated financial statements
5.1.4. 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
Change in working capital requirement
NET CASH FROM OPERATING ACTIVITIES
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds from the sale of assets
Acquisition of subsidiaries, net of cash acquired
Other investment operations
NET CASH USED FOR INVESTING ACTIVITIES
Proceeds from loans
Repayment of borrowings
Proceeds from issue of shares
Purchase and proceeds from disposal of treasury shares
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
Closing cash position
NET CHANGE IN CASH AND CASH EQUIVALENTS
The notes are an integral part of the consolidated financial statements.
January 31, 2019
January 31, 2018
3,334
(106)
4,353
(2,679)
2,505
(1,736)
(370)
751
(6)
6,046
(442)
(1,066)
5,582
4,074
10,120
(796)
(3,395)
8
(4)
(2,425)
(6,613)
49,365
(49,869)
40
(131)
(89)
(684)
(456)
2,367
15,720
18,087
2,367
2,381
(216)
3,905
(3,216)
3,197
(3,492)
1,497
499
65
4,620
8,261
(837)
9
7,433
12,053
(512)
(3,067)
-
(566)
(2,382)
(6,527)
11,409
(15,392)
636
(146)
(121)
(3,615)
(243)
1,665
14,056
15,720
1,665
82
ESI GROUP • 2018 REGISTRATION DOCUMENT 5.1.5. Notes to the consolidated financial statements
FINANCIAL STATEMENTS
Consolidated financial statements
Table of contents of notes to the consolidated financial statements
Note 8.
Note 1. Accounting principles
Note 9. Equity and earnings per share
Note 2. Significant events of the year
Note 10. Other balance sheet items
Note 3. Scope of consolidation
Note 11. Related party transactions
Note 4. Operating data
Note 12. Fees paid to Statutory Auditors
Note 5. Personnel costs and employee benefits
Note 13. Subsequent events
Note 6.
Intangible and tangible assets
Note 7. Financing and financial instruments
83
84
84
88
90
94
96
Income tax
5
101
102
103
104
104
104
IFRS 15 – Revenue from Contracts with Customers
IFRS 15 establishes the accounting principles that an entity shall apply
to recognize revenue from contracts with customers. It replaces the
previous standards and interpretations related to revenue recognition,
notably IAS 18 “Revenue”. The standard provides a single, principle-
based, five-step model to be applied in order to define the timing and
the amount of revenue arising from a contract. It includes a guide to
applying the standard, notably regarding the licenses and specific provi-
sions for how to recognize incremental costs of obtaining or fulfilling
a contract, that are not addressed by other standards. The standard
requires the disclosure of new qualitative and quantitative information
in the notes of the consolidated accounts.
After an analysis of IFRS 15, the Group concluded there were no change
in revenue recognition method applied until now, since we historically
split licensing revenue between access to the software and related
transfer of control, and maintenance service, with an allocation of
price between both components and separated revenue recognition
methods. The consulting revenue recognized using percentage of
completion remained also unchanged. The revenue recognition and
accounting principles are detailed in note 4.1.
IFRS 9 – Financial instruments
IFRS 9 “Financial instruments” replaces IAS 39 “Financial Instruments:
Recognition and Measurements” and addresses the classification and
measurement of financial instruments, impairment of financial assets
and hedge accounting.
IFRS 9 application does not imply changes to the classification and
measurement of financial assets and liabilities.
IFRS 9 introduces a new impairment model based on expected credit
loss, while the former standard was based on an incurred credit loss
model. The Group has conducted a historical analysis of credit losses
and risk profile of trade receivables portfolio by geography and by
customer’ which has not lead to the identification of higher provisions
for bad debts that the impairment recognized previously.
For financial instruments, their eligibility and treatment under hedge
accounting or not remain unchanged between IAS 39 and IFRS 9.
Note 1. Accounting principles
Note 1.1. General information
ESI Group is a listed French limited company (société anonyme),
registered in France and governed by French law. ESI Group has its head
office at 100-102, avenue de Suffren, Paris (75015), France. ESI Group SA
is the parent company of some 30 subsidiaries operating throughout
the world (see Chapter 1.3.2 of this Registration Document), 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 TwinTM 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 financial year runs from February 1 to January 31. As such,
FY 2018 ended on January 31, 2019.
Financial statements are presented in thousands of euros. The 2018
financial statements were approved by the Board of Directors on
April 12, 2019 and will be submitted to the General Meeting of July 18,
2019 for approval.
Note 1.2. Accounting standards applied
The consolidated financial statements at January 31, 2019 were prepared
in accordance with the IFRS standards, as approved by the European
Union at January 31, 2019. 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 financial years
beginning on or after February 1, 2018
Change in accounting policies mainly relate to the adoption of IFRS 15
and IFRS 9 standards. These changes are described hereafter.
Other new standards,
interpretations or amendments effective
beginning on February 1, 2018 had no impact on the Company’s consoli-
dated financial statements.
83
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
Consolidated financial statements
Application of new standards prior their mandatory effective
date
The Group estimates the value of the new right-of-use asset, mainly
related to the leased offices and cars, to approximately €23 million.
IFRS 16 – Leases
IFRS 16 is a major revision in the accounting of leases. The standard
provides a single lessee accounting model, requiring lessees to recognize
assets and liabilities for all leases. Based on this model, the amortization
of assets is accounted for in operating expense, and the cost of the
debt towards the lessor is accounted for in financial expense. Under
the standard applied on the financial year ended on January 31, 2019,
the rent expense is recorded within the operating expense. The Group
has chosen to apply two exemptions provided by IFRS 16: recognize
short-term leases (term <1 year) and leases with underlying asset of low
value as operating rent expenses.
The Company adopts IFRS 16 for the financial year beginning February 1,
2019 using the simplified retrospective approach. Under this approach,
the effect of the first-time application of the standard is recognized as
adjustment to the opening balance of the consolidated equity without
restatement of comparative information.
Note 2. Significant events of the year
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 financial 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.
Change in scope of consolidation – see notes 3.2 and 3.4
The Group purchased minority interests (51% shares) of ESI US Holdings
Inc., of which the Group holds 100% of the capital at January 31, 2019.
The Company dissolved the entity CyDesign Labs, Inc. as of October 31,
2018.
Financing - see note 7.1.2
In December 2018, advance repayment of the previous syndicated
loan (outstanding long-term balance of €25,6 million and €10 million
revolving credit line) and signing of a new syndicated loan with a
€30 million long-term part and €15 million revolving credit line of
which €10 million confirmed.
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, 2019 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”.
84
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
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.
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.
Costs directly related to acquisitions are recorded as expenses when
incurred, and presented on a separate line of the income statement, in
‘other operating income and expenses’.
For intangible assets acquired in the context of a business combi-
nation, amortization is recorded in Current Operating Income, split
between ‘research and development costs’ and ‘selling and marketing
expenses’, depending on the type of asset - codes are amortized over
five years in research and development costs, customer relationships
are amortized in selling and marketing expenses and their amortization
periods vary and are for each newly acquired activity.
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 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 financial 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 cash flows derive from the business plan drawn up by the Group’s
Management.
The discount rate applied as of January 31, 2019 is the Group’s weighted
average cost of capital (WACC) adjusted with a risk premium. It stands
at 10.5% compared to 12.7% at January 31, 2018.
The present value of the CGU is determined by adding:
• the present value of forecasted future cash flows over the explicit
period of 5 years, as described above;
• the terminal value calculated by capitalizing to perpetuity the last
cash-flow of the explicit period. The long-term growth rate applied
is 3%.
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, 2019 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 or a 1% decrease in the
long-term growth rate. No impairment has been identified. The
Group’s Management believe no reasonable change in key assumptions
mentioned above that would have caused the CGU’s recoverable to be
significantly below its carrying amount.
85
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
Consolidated financial statements
Note 3.2. Impact of the change in the scope of consolidation on goodwill and non-recurring result
3.2.1. Change in goodwill
(in € thousands)
January 31, 2018
Increase
Decrease
Gross values
TOTAL NET VALUES
41,026
41,026
No acquisition took place during financial year 2018.
Foreign exchange
gain/loss
January 31, 2019
378
378
41,404
41,404
The purchase price allocation of Scilab Enterprise is definitive since financial year 2018 closing and remains unchanged compared to which had
been booked in 2017: the difference between the initial purchase price, the estimated additional consideration and the net asset value at the
acquisition date has been fully affected to goodwill. The adjustment on the estimated additional consideration to be paid in 2019 is not significant
(€34 thousand) and booked in non-recurring result.
3.2.2. Non-recurring result
(in € thousands)
Acquisition costs
Other external expenses and income
TOTAL OPERATING INCOME AND EXPENSES
January 31, 2019
January 31, 2018
0
233
233
(36)
4
(32)
Until January 31, 2018, the amortization of intangibles assets acquired in business combinations was presented in Other operating income and
expenses. However, due to significant amounts involved and the recurrence of the amortization, it has been reclassed in the Current operating
result effective from January 31, 2019 closing – see note 3.3. To ensure relevant comparison, data as of January 31, 2018 have been reclassified in the
comparative table above and the financial statements.
Note 3.3. Amortization of intangibles assets acquired in business combinations
Starting from January 31, 2019, the amortization of intangibles assets acquired in business combinations is presented in the Current operating result,
allocated between research and development costs and selling and marketing expenses depending on their type (respectively for codes and
customer relationships).
At January 31, 2019, the amortization of codes amounts to €407 thousand (€464 thousand as of January 31, 2018), and the amortization of the
customer relationships stands at €613 thousand (same amount as of financial year 2017).
86
ESI GROUP • 2018 REGISTRATION DOCUMENT 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:
FINANCIAL STATEMENTS
Consolidated financial statements
5
Date of creation or
acquisition
Subsidiary head office January 31, 2019 January 31, 2018
% of capital held
Subsidiaries
FULLY CONSOLIDATED SUBSIDIARIES
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
ESI Nordics 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
March 1992
September 1995
February 2001
April 2001
May 2001
January 2002
August 2002
August 2002
December 2002
February 2004
February 2004
February 2004
July 2006
August 2006
June 2008
September 2008
December 2008
April 2009
October 2010
August 2011
December 2011
February 2012
September 2012
October 2013
October 2013
December 2013
March 2015
January 2016
January 2016
February 2016
February 2017
Paris, France
Eschborn, Germany
Tokyo, Japan
Troy, Michigan, USA
Seoul, South Korea
Madrid, Spain
Compiègne, France
Plzen, Czech Republic
London, England
Dover, Delaware, United States
San Diego, California, USA
Lausanne, Switzerland
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
Farmington Hills, Michigan, USA
Berkshire, England
Palo Alto, United States
Oxford, England
Ho Chi Minh City, Vietnam
Versailles, France
Dresden, Germany
Rungis, France
Milpitas, USA
Paris, France
SUBSIDIARIES ACCOUNTED FOR USING THE EQUITY METHOD
JV AECC-ESI (Beijing) Technology Co. Ltd
February 2014
Beijing, China
100%
100%
97%
100%
99%
100%
98%
95%
100%
100%
100%
99%
100%
100%
100%
100%
100%
95%
100%
100%
95%
100%
100%
100%
100%
100%
0%
99.9%
100%
80%
96%
96%
100%
100%
45%
100%
100%
97%
100%
99%
100%
98%
95%
100%
49%
74%
99%
100%
100%
100%
100%
100%
95%
100%
100%
95%
100%
100%
100%
100%
100%
99.9%
99.9%
100%
80%
96%
96%
100%
100%
45%
87
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
Consolidated financial statements
Note 4. Operating data
Note 4.1. Revenue
The Group ESI derives revenue from two primary sources: a software
licensing and related maintenance activity, and services activity.
The Company accounts for a contract with a client when there is a
written agreement that creates legally enforceable rights and obliga-
tions, including payment terms, when the contract has commercial
substance and when collection consideration is probable. A perfor-
mance obligation is a promise in a contract with a client to transfer
products or services that are distinct from the other promises of the
contract.
Revenue is recognized when, or as, control of a promised product or
service is transferred to a client, in an amount that reflects the consi-
deration to which the Company expects to be entitled in exchange for
those products or services.
Software licensing and maintenance
Licensing revenue is generated from royalties paid under licensing
agreements granted to end customers and related maintenance
services. Maintenance services include updates and technical support.
Revenue is split between three types of contracts:
• lease of annual renewable licenses that include the right to use the
software plus maintenance services for one year;
• lease of “paid up licenses” conferring to end clients the right to use
the software for unlimited duration, with one year of maintenance
services – with the possibility of renewal through a maintenance
contract;
• maintenance services alone – this contract completes “paid up
licenses” contracts.
In compliance with IFRS 15, ESI’ customer contracts have been analyzed
in five stages in order to identify the component of the performance
obligations and the price of each. Two performance obligations
have been identified: access to the license (the licensing itself) and
the maintenance service – please note that this distinction has been
applied by the Group prior the entry into force of the standard. For
the annual licensing contracts and the “paid up licenses”, the allocation
of the price has been realized according to the residual approach. As
a result, 15% of the price of annual licensing contracts and 5% of the
price of “paid up licenses’” contracts have been allocated to main-
tenance service. Revenue for the access to the license is recognized
at a point in time at the moment when control is transferred to the
client, and the revenue from maintenance service is recognized on a
straight-line basis over the one-year term of the support agreement.
Services
Service revenue consists mainly of consulting and training fees. The
consulting revenue is recognized according to the percentage of
completion method. Corresponding costs are recorded as soon as
they are incurred. Contracts with a probable final loss are covered by a
provision for loss on completion, recorded as a liability on the balance
sheet. The loss is fully provisioned as soon as it is known and reliably
estimated, regardless the stage of completion. Revenue for training is
recognized upon completion.
Backlog
The Group's backlog for licensing activity is composed of all signed
orders received from customers at the closing date, with execution
starting from the first day of next fiscal year.
Despite most of licensing contracts are renewable from a fiscal year
to the next one, only signed orders for next year are included in the
backlog. As purchase order are often send and signed by customers
just before start of the execution period, this explain the level of
backlog vs high recurring part of licensing contracts.
For services activity, backlog is composed of work to be done on
contracts being executed, and of contracts signed at closing date
which execution has not started yet.
(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
January 31, 2019
January 31, 2018
109,836
28,793
784
29,577
139,413
4,567
105,748
29,100
429
29,529
135,277
5,045
Backlog as of January 31, 2019 amounts to €4.2 million, out of which €3.3 million for Licensing and €0.9 million for Services.
Note 4.2. Trade receivables
Trade receivables are initially recorded at their nominal value, as the
potential impact of discounting is immaterial. They are then recorded
at amortized cost, reduced when applicable by impairment resulting
from non recoverable amounts and estimate of future losses.
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
individually or based on statistical methods. Impairment of trade
receivables represents best estimate of the risk related to the asset.
Contract assets and liabilities
After having delivered its services, the Group records the customers
counterparty either as trade receivables or as contract assets. A trade
receivable is an unconditionnal right to be paid, while a contract asset
is a right to be paid which is conditionned to factors other than time.
Contract assets are related to amounts to be invoiced on contracts
with milestones or subject to customer's acceptance.
When invoiced amounts exceed recognised revenue, difference is
recorded as contract liabilities.
88
ESI GROUP • 2018 REGISTRATION DOCUMENT DETAILS OF TRADE RECEIVABLES
(in € thousands)
Trade receivables
Impairment of trade receivables
TOTAL TRADE RECEIVABLES, NET OF IMPAIRMENT
FINANCIAL STATEMENTS
Consolidated financial statements
5
January 31, 2019
January 31, 2018
64,822
(3,810)
61,012
62,584
(4,010)
58,574
(in € thousands)
January 31, 2018
Consolidation scope
entry
Provisions
Reversals
Foreign exchange
gain/loss
Other movements
January 31, 2019
Impairment
TOTAL
(4,010)
(4,010)
(777)
(777)
986
986
(32)
(32)
22
22
(3,810)
(3,810)
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;
• academic bodies.
AGE OF TRADE RECEIVABLES
Higher than 90 days
9.8%
30 to 90 days
8.2%
0 to 30 days
9.3%
CONTRACT ASSETS
(in € thousands)
Contract assets
Not due
72.8%
Note 4.3. Contract liabilities and deferred income
(in € thousands)
Contract liabilities – Maintenance services to be rendered
Other deferred income
DEFERRED INCOME
Note 4.4. Operating expenses
(in € thousands)
Other purchases and external expenses
Real estate rentals
Fees
Taxes and duties
Amortization and provisions
Personnel costs(1)
Other external expenses and income
TOTAL CURRENT OPERATING EXPENSES
Other operating income and expenses(2)
TOTAL OPERATING EXPENSES
(1) Details on personnel costs are presented in note 5.2.
(2) Details on other operating income and expenses are presented in note 3.2.2.
(in € thousands)
January 31, 2019
January 31, 2018
Not due
0 to 30 days
30 to 90 days
Higher than 90 days
TOTAL
44,390
5,652
4,999
5,971
61,012
39,262
7,300
5,811
6,201
58,574
The amount of trade receivables not due represents 31.8% of annual
revenue. The large amount of not due receivables results from highly
sales, especially at the end of the fourth quarter.
The amount of trade receivables due for more than 90 days includes
receivables from Chinese state or parastatal clients for which collection
time is more important.
January 31, 2019
January 31, 2018
4,119
4,350
January 31, 2019
January 31, 2018
19,979
4,622
24,601
18,309
4,287
22,596
January 31, 2019
January 31, 2018
(13,088)
(6,764)
(3,164)
(515)
(3,465)
(92,774)
(12,866)
(132,636)
233
(132,403)
(12,794)
(6,524)
(3,719)
(572)
(3,627)
(88,313)
(11,616)
(127,165)
(32)
(127,197)
89
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
Consolidated financial statements
Note 4.5. Information by geographic area
The Group develops sells and provides technical support for its
softwares 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). Revenue is split between regions where it is
actually produced.
(in € thousands)
YEAR ENDED JANUARY 31, 2019
External clients
Affiliate companies
NET SALES
ASSETS ALLOCATED
YEAR ENDED JANUARY 31, 2018
External clients
Affiliate companies
NET SALES
ASSETS ALLOCATED
Europe, Middle East
and Africa
Asia-Pacific
Americas
Eliminations
Consolidated
68,843
83,328
152,172
301,695
63,821
78,889
142,710
291,995
49,769
9,425
59,193
43,191
49,943
8,691
58,634
38,200
20,802
7,292
28,094
20,188
21,511
7,194
28,705
17,671
(100,046)
(100,046)
(134,500)
-
(94,774)
(94,774)
(125,331)
139,413
139,413
230,575
135,275
-
135,275
222,535
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, 2019 are listed below:
(in € thousands)
Due at January 31
2020
2021
2022
2023
2024 and beyond
Total
MINIMUM RENTAL PAYMENT
8,446
5,159
3,136
2,501
3,589
22,831
At January 31, 2019, 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, 2019
January 31, 2018
317
904
1,221
300
901
1,201
Note 5.2. Personnel costs
Personnel costs are presented by destination in the income statement. Their break down by nature is as follows:
(in € thousands)
Salaries
Payroll taxes
Share-based payments
Post-employment benefits
TOTAL PERSONNEL COSTS
90
January 31, 2019
January 31, 2018
(73,626)
(17,834)
(751)
(563)
(92,774)
(70,821)
(16,497)
(499)
(497)
(88,313)
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
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 financial
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, 2019
January 31, 2018
1.45%
1.66%
0.43%
2.10%
7.83%
1.40%
1.60%
0.56%
2.70%
7.92%
• 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, 2019
January 31, 2018
2.50%
2.00%
3.00%
4.00%
10%
2.50%
2.00%
3.00%
4.00%
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, 2018
Change in
equity (OCI)
Provisions
Reversals
Foreign exchange
gain/loss
Other
movements
January 31, 2019
Provision for employee benefits
TOTAL
8,798
8,798
269
269
901
901
(221)
(221)
197
197
35
35
9,979
9,979
91
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
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
Others
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 booked in equity
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
Others
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)
Experience adjustment
Change in financial assumptions
Yield on assets
Change in demographic assumptions
TOTAL ACTUARIAL GAINS/LOSSES
92
January 31, 2019
January 31, 2018
(10,666)
(10,152)
-
(902)
(223)
243
(271)
5
(211)
-
(824)
(218)
412
(292)
-
409
(12,034)
(10,666)
1,867
49
175
(21)
2
15
2,086
(901)
(175)
(223)
49
1,680
-
32
322
(85)
(8)
(75)
1,867
(824)
(186)
(218)
32
(1,076)
(1,010)
(4,900)
2,141
(2,759)
(7,686)
(10,445)
(8,798)
(1,076)
(269)
175
221
(197)
(35)
(9,979)
(3,136)
1,114
(2,021)
(6,777)
(8,798)
(8,472)
(1,010)
(299)
322
327
-
334
-
(8,798)
January 31, 2019
(12,992)
(12,034)
(11,328)
January 31, 2019
(94)
(132)
(31)
(11)
(269)
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
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 period, 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
Exercise
price
Number of existing
stock options/shares
at January 31, 2019
Limit year
for exercising
options
Plan 10 (GM 2012)
Plan 10 Bis (GM 2012)
Plan 10 Ter (GM 2012)
Plan 10 Quater (GM 2012)
Plan 15 (AG 2013)
Plan 17 (GM 2014)
Plan 17 Bis (GM 2014)
Plan 17 Ter (GM 2014)
Plan 17 Quater (GM 2014)
02/01/2013
02/07/2014
02/01/2015
07/22/2015
Total
02/01/2015
07/22/2015
03/11/2016
05/05/2017
05/05/2017
180,000
294,538
Plan 19 (GM 2017)
07/18/2018
Total
180,000
Authorization given at the
GM of July 2017
TOTAL STOCK-OPTIONS
Plan 6 (GM 2016)
Plan 7 (GM 2016)
Plan 8 (GM 2016)
Plan 9 (GM 2018)
Plan 9 Bis (GM 2018)
Plan 9 Ter (GM 2018)
TOTAL FREE SHARES
07/21/2016
12/23/2016
08/01/2017
07/18/2018
07/18/2018
07/18/2018
229,600
952,291
60,000
60,000
120,000
150,850
11,000
15,000
3,150
180,000
20,000
7,350
10,000
18,175
1,875
37,400
43,950
281,35
25,000
2,275
9,000
10,619
2,441
15,500
64,833
TOTAL STOCK-OPTIONS AND FREE SHARES
1,072,291
346,183
62,300
62,300
20,000
1,875
1,875
32,963
117,138
7,963
7,963
125,101
27.82
24.42
21.66
27.17
21.66
23.35
27.92
50.92
42.97
39,300
375
2,100
41,775
4,900
16,300
21,200
42,700
105,675
8,332
9,000
10,619
2,324
15,500
45,773
151,448
2021
2022
2025
2025
2025
2023
2026
2025
2025
2026
2020
2021
2021
2020
2020
2022
The total expense related to share-based payments for the financial
year ended January 31, 2019 stands at €115 thousand. That related to free
shares stands at €636 thousand.
All stock options and free shares include a continued employment
requirement.
93
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
Consolidated financial statements
Movements in stock options and free shares plans
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
2018
2017
Numbers of stock options
and free shares
Weighted average
exercise price
Numbers of options
and free shares
Weighted average
exercise price
108,843
72,510
(9,823)
(20,080)
151,450
0
20.34
42.97
36.84
41.01
24.49
175,733
29,050
(71,490)
(24,450)
108,843
0
21.56
35.14
26.76
26.09
20.34
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 02/01/2013)
Plan 10 Bis (Board of 02/07/2014)
Plan 10 Ter (Board of 02/01/2015)
Plan 10 Quater (Board of 07/22/2015)
Plan 15 (Board of 02/01/2015)
Plan 17 Bis (Board of 07/22/2015)
Plan 17 Ter (Board of 03/11/2016)
Plan 17 Quater (Board of 05/05/2017)
Plan 17 (Board of 05/05/2017)
Plan 19 (Board of 07/18/2018)
FREE SHARES
Plan 6 (Board of 07/21/2016)
Plan 7 (Board of 12/23/2016)
Plan 8 (Board of 08/01/2017)
Plan 9 (Board of 07/18/2018)
26.99
24.50
24.94
28.31
24.94
28.31
24.39
55.56
55.56
42.97
30.30
45.73
46.19
42.97
4
3
4
4
4
4
1 to 5
2 to 4
2 to 4
2 to 4
2 to 4
2
2 to 4
2 to 4
24.80%
23.73%
22.13%
23.36%
23.36%
22.13%
22.79%
28.16%
28.16%
37.33%
N/A
N/A
N/A
N/A
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
1.30%
0.30%
0.36%
0.65%
0.65%
0.36%
0.65%
0.86%
0.86%
0.66%
1.2%
1.1%
1.1%
0.95%
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)
January 31, 2018
Increase
Decrease Foreign exchange
gain/loss
Other
movements
January 31, 2019
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
57,720
12,044
21,048
90,812
(16,248)
(73)
(14,623)
(30,944)
41,473
11,971
6,425
59,869
29,937
(24,465)
745
30,681
(15)
(24,480)
(27,258)
24,465
(1,482)
(28,740)
15
24,480
2,679
(737)
1,942
-
-
-
-
(141)
(141)
141
141
-
-
-
-
-
(1)
(1)
-
-
1
1
-
-
-
-
63,192
12,044
21,636
96,872
(19,041)
(73)
(15,948)
(35,062)
44,152
11,971
5,687
61,811
94
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
6.1.2. Capitalized development costs
Research 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 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.
In certain cases, research and development costs entitle the Group to
a tax credit, recorded during the financial year when expenses were
incurred. These tax credits are deducted from research and develop-
ment 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, 2019
January 31, 2018
29,937
(27,258)
2,679
29,511
(26,295)
3,216
Net value of capitalized developments costs represents 14.4 months of research and development costs (€44.1 million) incurred at January 31, 2019,
compared to 14.3 months (€41.4 million) at January 31, 2018.
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
Amortization of codes acquired in business combinations
TOTAL R&D COSTS RECOGNIZED AS EXPENSES DURING THE FINANCIAL YEAR
(1) Including €6.826 million in expenses accounted for as direct costs in 2018, compared to €5.362 million in 2017.
January 31, 2019
January 31, 2018
(36,763)
29,937
(27,258)
2,979
(613)
(31,718)
(34,873)
29,511
(26,295)
2,959
(613)
(29,311)
6.1.3. Intangible assets with an indefinite useful life
Intangible assets with an indefinite useful life include source codes
that allow the Company to obtain intellectual property rights to the
software code. Specifically, it involves the translation of the laws of
physics into programming language in the form of algorithms that
make it possible to simulate the reaction of materials under external
constraints.
The intangible assets stemming from the purchase of business units are
deemed to have indefinite useful lives as long as no substitute 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, 2019 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.
95
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
Consolidated financial statements
6.1.4. Other intangible assets
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 revalua-
tion. 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
Straight-line
Straight-line
5 to 10 years
3 to 5 years
5 to 10 years
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 1 to 3 years
Other operational software
Straight-line 3 to 5 years
Codes – third-party software integrated
into products
Straight-line 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
amortization. The impact of such change is accounted for prospecti-
vely 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.
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, 2018
Change in scope
of consolidation
Increase
Decrease Foreign exchange
gain/loss
January 31, 2019
4,226
14,501
3,571
22,298
(2,892)
(11,790)
(2,740)
(17,422)
1,335
2,711
831
4,877
1,262
1,656
395
3,314
(294)
(1,564)
(303)
(2,161)
969
92
92
1,153
(939)
(575)
(457)
(1,970)
939
571
457
1,967
-
(3)
-
(3)
46
51
(1)
96
(8)
(8)
(5)
(21)
39
42
(6)
75
4,596
15,633
3,508
23,737
(2,254)
(12,791)
(2,591)
(17,636)
2,342
2,842
917
6,101
Note 7. Financing and financial instruments
Note 7.1. Financial assets and liabilities
Financial assets and liabilities mainly comprise:
• long term financial debts, short-term borrowings and overdrafts, together comprising gross debt – see details in note 7.1.2;
• loans and other short-term financial assets, and cash and cash equivalents – see details in note 7.1.3 – which added to gross debt represent net
financial debt;
• derivative financial instruments – see details in note 7.1.4;
• short-term trade receivables — see details in note 4.2, and short-term trade payables.
96
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
7.1.1. Fair value of financial assets and liabilities
(in € thousands)
ASSETS
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 as of January 31, 2019
Amortized cost
Fair value through
equity
Fair value through
profit and loss
28
-
18,073
2,929
7,322
65,131
38,841
7,322
1,342
8,848
13
1,199
Total
28
2,929
7,322
-
65,131
18,073
38,841
7,322
1,342
13
1,199
8,848
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 investments in non-consolidated companies are valued using level 3.
7.1.2. Gross financial debt
ESI Group's main source of financing is the syndicated loan. In
December 2018, the previous syndicated loan signed in November 2015
was reimbursed by anticipation (long-term outstanding balance of
€25.6 million and use of the revolving loan for €10 million) and a new
syndicated loan signed with a pool of seven banks.
This new syndicated loan consists of a long-term part of €30 million
and a revolving loan of €15 million, of which €10 million has been
confirmed. The long-term part will be gradually reimbursed annually
on April 30 each year until April 30, 2025. The syndicated loan is remu-
nerated based on the Euribor rate and a margin of 2%, 2.25% or 2.5%
depending on the level of the Net financial debt/EBITDA ratio related
to previous year financial statements. The margin initially used after
signature of the syndicated loan is 2.5%.
At the date of approval of financial statements by the Board of
Directors, the entire revolving line of credit has been paid off.
All financial debts are denominated in euros.
Detail and maturity of financial debt
At January 31, 2019
(in € thousands)
Syndicated loan
Short-term revolving loan
Other bank borrowings
Factoring of French R&D tax credit for 2015,
2016 and 2017
Repayable advances
Other financial debts
TOTAL
Maturity at January 31
2019
2,000
1,000
3,111
2,448
119
123
8,801
2020
1,890
600
2,433
33
65
5,021
2021
3,390
600
65
4,055
2022
4,390
2,441
2023
and beyond
17,780
1,575
995
6,831
20,350
Total
29,450
1,000
5,886
7,322
1,147
253
45,058
CURRENT: 8,801
NON-CURRENT: 36,256
97
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
Consolidated financial statements
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
Repayable advances
Other financial debts
TOTAL
2018
4,464
6,000
2,734
1,991
119
148
13,464
CURRENT: 13,464
Financial debt by type of interest rate and maturity
At January 31, 2019
(in € thousands)
Fixed-rate debt
Variable-rate debt
No-interest debt
TOTAL
2019
-
8,558
243
8,801
Maturity at January 31
2020
4,464
400
2,433
65
6,520
2021
2022 and beyond
4,464
12,227
600
65
9,410
0
12,227
Total
30,085
6000
3,734
6,872
119
744
47,553
NON-CURRENT: 34,089
Maturity at January 31
2021
-
3,990
65
4,055
2022
2023 and beyond
-
6,831
6,831
1,575
17,780
995
20,350
Total
1,575
42,082
1,401
45,058
2019
4,464
2,448
467
4,931
2020
-
4,923
98
5,021
CURRENT: 8,801
NON-CURRENT: 36,256
The following table shows the changes in financial debt in 2018, with a split between flows with cash impact and flows without cash impact.
(in € thousands)
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
Other
movement
January 31,
2019
Syndicated loan
Short-term revolving loan
Other bank borrowings
Factoring of French R&D tax
credit
Profit-sharing funds
Other financial debts
TOTAL
30,085
6,000
3,733
6,872
119
744
29,450
11,000
5,847
2,441
627
-
47,553
49,365
(30,085)
(16,000)
(3,628)
-
(156)
(49,869)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2)
(2)
-
-
(68)
(1,991)
401
(334)
29,450
1,000
5,886
7,322
1,147
253
(1,991)
45,058
Other movement related to factoring of French R&D tax credit represents the repayment by the French state of 2014 receivable directly to the
factoring bank — thus this flow has no cash impact for ESI Group.
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, in accordance with IAS 7.
The Group classifies as cash equivalents no-risk investments in inte-
rest-bearing accounts, commercial paper and certificates of deposit
originally maturing in three months or less and not bearing any signifi-
cant interest rate risk.
In accordance with IFRS 9, marketable securities are recognized at
market value at the closing date. Changes in market value are reco-
gnized in Financial Result.
(in € thousands)
Cash
Marketable securities
TOTAL CASH AND CASH EQUIVALENTS
January 31, 2019
January 31, 2018
18,073
14
18,087
15,502
219
15,721
98
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
7.1.4. Financial instruments
The Group uses derivative instruments to manage its exposure to fluc-
tuations in exchange rates and interest rates. In accordance with IFRS 9,
derivative instruments are recorded at fair value on the balance sheet.
• hedges accounting: changes in value are recognized in equity and
reclassified in profit or loss until the effective completion of the
forecast transaction;
Changes in fair value of derivative financial instruments are accounted
for as follows:
• instruments not qualifying for hedge accounting: changes in fair
value measurement of these derivative instruments are recognized
in Financial Result.
Interest rate instruments
Interest rate swaps signed by ESI Group have always been set up to
hedge the variable interest rate of the syndicated loan.
The new syndicated loan signed in December 2018 requires set up
of interest rates hedging instruments at the latest four months after
the signature – as of January 31, 2019 there are not put in place yet.
Active interest rates instruments at January 31, 2019 relate to previous
syndicated loan, hedge accounting cannot thus be applied and the fair
value of these swaps is recorded in income statement in financial result.
Interest rate swaps active at January 31, 2019 are as follows:
• three swaps of €2 million, ESI Group receiving variable rate 1-month
Euribor (with a 0% floor) and paying a fixed rate of 0.16%, 0.18% and
0.19%;
• 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, 2019, the market value of these instruments was
-€12 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
during 2018 concerned Japanese yen, South Korean won (non-delivery
forwards) and Indian rupee (non-delivery forwards). At January 31, 2019,
all foreign exchange instruments arrived to maturity and their result was
booked in income statement in financial result.
Note 7.2. Financial income and expenses
(in € thousands)
Interest and related expenses on borrowings
Interest income
Foreign exchange gain/(loss)
Other financial expenses
FINANCIAL RESULT
January 31, 2019
January 31, 2018
(1,187)
32
379
(501)
(1,277)
(962)
4
(1,290)
(466)
(2,714)
Interests on borrowings are mostly related the syndicated credit and related charges. The increase of this expense compared to the previous year is
due to the costs of set up for the previous syndicated loan early repayed during this financial year for an amount of €0.3 million.
Details on foreign exchange gains and losses are as follows:
(in € thousands)
USD
JPY
KRW
Other currencies
TOTAL
January 31, 2019
January 31, 2018
184
(54)
206
42
379
(516)
(378)
(136)
(261)
(1,290)
The positive foreign exchange result is mainly due to the revaluation at
closing rate of the accounts payables and receivables.
States). The Group is thus exposed to economic and political uncer-
tainties in these areas.
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.
Note 7.3. Risk management policy
Country risk and foreign currency risk
During the financial year ended January 31, 2019, 49.4% of the Group's
revenue was generated in Europe, 35.6% in Asia (mainly Japan, South
Korea, China and India) and 15% in the Americas (mainly the United
The Group is also highly exposed to risks stemming from changes in
foreign exchange rates: for the financial year ended January 31, 2019,
46.4% of revenue was generated in EUR, 19.4% in USD (US dollar), 17.9%
in JPY (Japanese yen), 6.6% in KRW (Korean won) and 4.6% in CZK (Czech
koruna).
Furthermore, 56.6% of costs are spent in EUR, 15.4% in USD, 7.5% in JPY,
6.6% in INR (Indian rupee), 2.5% in KRW, 3.3% in CZK 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.
99
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
Currency
JPY
KRW
CZK
USD
INR
CHF
Average consolidation
exchange rate
Exchange rate used
for analysis
Effect on Current Operating Result
(in € millions)
129.50
1,297.64
25.66
1.17
80.99
1.15
142.45
1,427.40
28.23
1.29
89.09
1.27
(1.4)
(0.2)
(0.3)
(0.2)
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
At January 31, 2019, €1 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, than at the end of the financial year.
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.
The calculations of foreign-exchange sensitivity presented below
assume that financial debts remain stable at January 31, 2019 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-
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
ratio to be maintained (covenants) with regard to the syndicated loan
contract entered into in December 2018 is detailed in note 7.4.
< 1 year
≥ 1 year, < 5 years
(8,558)
(15,744)
≥ 5 years
(17,780)
Total
(42,082)
(8,558)
(15,744)
(17,780)
(42,082)
-
(266)
Note 7.4. Off-balance sheet commitments relating to
Group financing
As part of the credit agreement dated December 20, 2018, ESI Group
granted a pledge of 99.98% of the shares of Engineering System
International, 100% of the shares of the subsidiary ESI Software
Germany, and 96% of the shares of the subsidiary ESI ITI GmbH.
As long as it owes an obligation under the agreement or the security
documents, the borrower undertakes, under prepayment constraint, to
comply with the ratio of consolidated net financial debt divided by
consolidated EBITDA, the thresholds to be respected over the term of
the syndicated loan agreement are gradually decreasing. As at January 31,
2019, the threshold to be respected is 3.5%. At January 31, 2019, on the
basis of the annual consolidated financial statements certified by the
Statutory Auditors, the Group was in compliance with this ratio.
100
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
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.
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
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 net result and taxable income
Impact of liability method
Impact of standard tax rate differentials between parent company and subsidiaries
Unrecognized deferred tax assets and unused tax losses
Recognition of previously unrecognized deferred tax assets
GROUP INCOME TAX EXPENSE
Effective tax rate
Note 8.2. Deferred taxes
BREAKDOWN OF DEFERRED TAXES BY TAX BASE
(in € thousands)
DEFERRED TAX ASSETS
Tax loss carryforwards
Temporary differences related to tax treatment of maintenance
Provisions for employee benefit commitments
Temporary differences related to personnel
Provisions and other adjustments
TOTAL DEFERRED TAX ASSETS
DEFERRED TAX LIABILITIES
Amortization of acquired intangible assets
Other
TOTAL DEFERRED TAX LIABILITIES
NET DEFERRED TAX
January 31, 2019
January 31, 2018
(2,397)
(109)
(2,505)
(2,494)
(703)
(3,197)
January 31, 2019
January 31, 2018
5,840
106
29.5%
(1,692)
(452)
(39)
384
(706)
-
(2,505)
43.7%
5,578
216
33.33%
(1,786)
(667)
(582)
148
(541)
230
(3,197)
59.6%
January 31, 2019
January 31, 2018
1,128
4,478
3,159
590
1,566
10,920
(1,323)
(2,415)
(3,738)
7,182
1,752
4,038
2,937
507
1,505
10,738
(1,722)
(2,015)
(3,737)
7,001
Unrecognized deferred tax assets on tax loss carryforwards came to €2.2 million. The timeframe used for estimating the recoverability of these
deferred tax assets is generally five years.
101
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
Consolidated financial statements
RECONCILIATION OF DEFERRED INCOME TAX EXPENSE ON THE BALANCE SHEET AND INCOME STATEMENT
(in € thousands)
NET DEFERRED TAX ASSETS AT OPENING (FEBRUARY 1, 2018)
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, 2019)
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, 2019, ESI Group's share capital was €18.053 million,
comprising 6,017,892 common shares with a par value of €3 each.
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.
7,001
-
(108)
60
(21)
251
7,182
Dividend payout
ESI Group did not pay out any dividend during the period.
Treasury shares
The number of treasury shared declined by 19,424 shares over the
financial year. The percentage of capital held as treasury shares
following these transactions stood at 6.4% at January 31, 2019, compared
to 6.8% at January 31, 2018. The Group owns a total of 390,882 treasury
shares, purchased at a historical cost of €4.215 million and with a
market value of €10.143 million at the same date, for an unrealized gain
of €5.929 million.
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.
January 31, 2019
January 31, 2018
3,334
0.59
5,616,310
0.59
5,666,522
2,375
0.42
5,594,573
0.42
5,648,574
102
ESI GROUP • 2018 REGISTRATION DOCUMENT 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
FINANCIAL STATEMENTS
Consolidated financial statements
5
January 31, 2019
January 31, 2018
2,929
4,874
239
28
8,070
3,043
6,872
247
24
10,186
Security deposits mainly concern real estate rentals.
Factored French R&D tax credit receivables concern FY 2016 and FY 2017
(see note 7.1.2).
Factoring of French R&D tax credit receivables represents a cash in
flow, which counterparty is a financial debt. Thus, in the cash flow
statement, cash collected related to this factoring corresponds to the
increase of new borrowings, such as indicated in the financing flows’
part (respectively for €2.433 million and €2.441 million on January 31,
2018 and January 31, 2019).
The two other flows presented in the cash-flow statement related to
the factoring of French R&D tax credit receivables result from book
entries. They are:
• the increase of long-term receivable in consolidated statements
(non-current assets in investments’ part of cash flow statement) for
respectively €2.836 million and €2.834 million on January 31, 2018
and January 31, 2019;
• the decrease of short-term receivable in local accounts of the parent
company (operating cash flows’ part of cash flow statement) for the
same amounts.
10.1.2. Other current receivables
(in € thousands)
French R&D tax credit
Other tax credits
VAT and other receivables
TOTAL OTHER CURRENT ASSETS
January 31, 2019
January 31, 2018
6,036
1,392
7,920
15,348
3,038
1,941
6,975
11,954
French R&D tax credit receivables as of January 31, 2019 are related to costs incurred in FY 2018, for an amount of €3,588 thousand, and 2015 for the
balance (repayment by the French State planned for 2019).
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)
Employee-related liabilities
Tax payables
Other current liabilities
TAX PAYABLES, EMPLOYEE-RELATED LIABILITIES AND OTHER SHORT-TERM LIABILITIES
Tax payables consist primarily of VAT payables for €9.431 million.
10.2.2. Other provisions
January 31, 2019
January 31, 2018
15,329
10,640
4,590
30,560
12,792
9,692
4,009
26,493
In accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, a provision is recorded when the following three 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, 2018
Provisions
Reversals –
provisions used
Reversals –
provisions not
used
Foreign exchange
gain/loss
January 31, 2019
Disputes
CURRENT PROVISIONS FOR
LIABILITIES
591
591
182
182
(26)
(26)
-
-
15
15
762
762
103
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL 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 financial years ended January 31, 2019 and January 31,
2018 breaks down as follows:
(in € thousands)
Fixed compensation
Variable compensation
Travel bonus
Benefits in kind
Directors' fees
TOTAL
Related party transactions
January 31, 2019
January 31, 2018
717
42
17
160
16
952
726
43
129
198
16
1,113
Ms. Cristel de Rouvray, Director, carried out during 2018 assignments relating to human resources, consulting and strategic management for $100
thousand, continuing work started in previous years. This agreement was renewed by the Board of Directors during April 17, 2018 meeting and
approved by General Meeting on July 18, 2018. Moreover, Ms. de Rouvray also carried out specific assignments relating to governance change, for
$32 thousand. This agreement has been autorized by the Board of Directors during December 18, 2018 meeting.
Note 12. Fees paid to Statutory Auditors
PricewaterhouseCoopers Audit
Ernst & Young
Total
Amount
%
Amount
%
Amount
%
(in € thousands, excluding tax)
Y
Y-1
Y
Y-1
Y
Y-1
Y
Y-1
Y
Y-1
Y
Y-1
STATUTORY AUDIT
Certification, review of annual and consolidated financial statements
• Parent company
• Fully consolidated subsidiaries
161
86
Services other than certification of accounts
• Parent company
• Fully consolidated subsidiaries
SUB-TOTAL STATUTORY AUDIT
21
0
267
116
90
57
0
263
51%
28%
7%
0%
86%
OTHER WORK AND SERVICES DIRECTLY RELATED TO STATUTORY AUDIT
Legal, tax, social
Others
SUB-TOTAL OTHER SERVICES
45
0
45
34
0
34
14%
0%
14%
39%
30%
19%
0%
88%
12%
0%
12%
184
128
7
0
144
128
7
0
58%
28%
2%
0%
52%
46%
3%
0%
319
279
100%
100%
0
0
0
0
0
0
0%
0%
0%
0%
0%
0%
344
214
28
0
586
45
0
45
260
218
64
0
542
34
0
34
55%
34%
4%
0%
93%
7%
0%
7%
45%
38%
11%
0%
94%
6%
0%
6%
TOTAL
312
298
100%
100%
319
279
100%
100%
631
577
100%
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
financial year ended January 31, 2019 came to €303 thousand. Services
other than certification of accounts correspond primarily to certifica-
tion of costs statements issued for co-financed projects and of bank
covenant calculation.
Note 13. Subsequent events
The Board of Directors, during April 12, 2019 meeting, analysed the project of change of closing date from January 31 to December 31. This decision
will be proposed for validation to General Meeting on July 18, 2019. If the decision is validated, 2019 fiscal year will have 11 months.
104
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
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 and other documents provided to 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, 2019
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, 2019.
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, 2019 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, 2018 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 justification
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.
105
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
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, 2019, their net book value
amounts to €44,152 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.
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
Our response
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 €41,404 thousand at end January 2019.
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.
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 obtained and reviewed sensitivity analyzes performed by Management.
106
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
Consolidated financial statements
5
Revenue recognition principles
Risk identified
Our response
The group ESI derives revenue from two primary sources: software licensing and related maintenance activity, and services activity.
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.
In compliance with IFRS 15, ESI customer contracts have been analyzed in five stages in order to identify the component of the performance
obligations and the price of each. For licensing revenue, two performance obligations have been identified: access to the license (the licensing
itself) and the maintenance service. The part of revenue allocated to maintenance is determined as presented 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.
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
principles set out in paragraphs 1.1 and 4.1 of the notes to consolidated financial statements, which conformity with IFRS was previously
assessed.
Specific verifications
We have also performed, in accordance with professional standards applicable in France, the specific verifications required by laws and regulations
of the Group’s information in the management report of the Board of Directors.
We have no matters to report as to their fair presentation and their consistency with the consolidated financial statements.
We attest that the consolidated non-financial information statement required by Article L.225-102-1 of the French Commercial Code is presented
in the Group’s information given in the management report, being specified that, in accordance with Article L.823-10 of this Code, the information
given in this statement have not been verified by us with respect to the fair presentation and consistency with the consolidated financial statements
and has to be subject to a report by an independent third party.
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, 2019, PricewaterhouseCoopers Audit and Ernst & Young Audit were in the 10th year and 22nd year of total uninterrupted engagement
(which is the 19th 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.
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.
107
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
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 to the Audit Committee a report 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) N° 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 22, 2019
The Statutory Auditors
French original signed by
PricewaterhouseCoopers Audit
Thierry Charron
Ernst & Young Audit
Frédéric Martineau
108
ESI GROUP • 2018 REGISTRATION DOCUMENT 5.2. ESI Group annual financial statements
5.2.1. Income statement
(in € thousands)
REVENUE
Production held as inventory
Capitalized production
Operating subsidies
Reversals of depreciation, amortization, and provisions, expense transfers
Other income
OPERATING INCOME
Purchase and change in stock of goods
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)
FINANCIAL STATEMENTS
ESI Group annual financial statements
5
Note
January 31, 2019
January 31, 2018
E.1
E.3
E.4
E.5
E.5
E.6
E.7
E.8
F.5
86,023
83
29,975
63
2,578
890
119,611
40
62,674
1,363
15,881
7,467
28,661
2,054
1,809
119,948
(337)
2,595
2,258
(2,138)
(2,699)
2,820
83,884
(500)
29,540
144
1,435
1,311
115,814
60
60,506
1,384
14,767
6,971
26,984
2,357
1,489
114,518
1,296
2,004
3,300
18
(2,228)
5,547
109
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT January 31, 2019
January 31, 2018
Notes
Gross value
Amortization/
Provisions
Net value
Net value
C.1
C.2
C.3
C.4
C.4
C.5
C.6
C.7
C.7
89,265
11,007
68,789
169,062
1,998
152
63,517
10,120
4,163
2,365
82,315
1,550
552
890
(27,616)
(8,080)
(4,402)
(40,098)
(1,958)
(280)
(2,238)
61,649
2,928
64,387
128,964
1,998
152
61,559
9,840
4,163
2,365
80,077
1,550
552
890
58,818
1,599
64,235
124,652
1,648
62
57,070
8,756
4,512
5,005
77,052
2,558
358
1,576
254,369
(42,336)
212,033
206,196
Notes
January 31, 2019
January 31, 2018
D.2
D.10
D.4
D.5
D.7
D.8
D.6
D.9
D.6 & D.10
18,054
38,350
1,805
38,088
2,820
1,284
100,400
1,029
5,452
34,386
2,500
36,886
219
42,034
8,500
14,992
65,745
630
1,890
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
212,033
206,196
5
FINANCIAL STATEMENTS
ESI Group annual financial statements
5.2.2. 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
110
ESI GROUP • 2018 REGISTRATION DOCUMENT 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
Note B. Accounting principles and methods
Note C. Asset details
111
111
113
Note D. Liability details
Note E. Details on income statement
Note F. Other information
5
117
120
122
The balance sheet total at January 31, 2019 amounts to €212,033 million
and the income statement for the financial year shows net profit of
€2.820 million.
The financial year corresponds to a 12-month period, from February 1,
2018 to January 31, 2019.
The financial statements were prepared in accordance with the French
General Accounting Plan and generally accepted accounting principles
(French GAAP 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
Note A.1. Significant events
Changes in scope of consolidation
• Dissolution of subsidiary CyDesign Labs Inc. at the end of October 2018.
• Acquisition on January 15 2019 of 51% of the shares of the subsidiaries
ESI US Holdings, (100% of capital owed at January, 2019).
Refer to note C.3.
Financing
In December 2018, advance repayment of the previous syndicated
loan (outstanding long-term balance of €25,6 million and €10 million
revolving credit line) and signing of a new syndicated loan with a €30
million long-term part and €15 million revolving credit line of which
€10 million confirmed.
Refer to note D.7.
Note B. Accounting principles and methods
The rules and methods remain unchanged from last year.
The general accounting conventions have been applied prudently, in
accordance with the following assumptions:
• basic assumptions:
– going concern,
– consistency in accounting methods from one financial year to the
next,
– independence of financial years;
reviews of these estimates and assessments to take account of past
experience and other factors judged relevant with regard to economic
conditions.
These estimates, assumptions and assessments are 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 development work incurred during the
financial 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 projects or the portion of
expenses not meeting all of the six criteria continue to be recognized
as expenses in the income statement. Amortization starts upon release
of the project. Projects that are unfinished at the closing date are capi-
talized as work in progress.
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.
Amortization starts 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.
• general rules for preparing and presenting annual financial state-
ments: the basic method used to measure accounting items is the
historical cost method.
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
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
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.
111
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
ESI Group annual financial statements
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.
Other investments
Other investments mainly comprise deposits and guarantees and
factoring guarantee funds (factoring of receivables from the French R&D
tax credit).
Note B.5. Inventories
Supply inventories
Other supply inventories are valued at cost according to the first in,
first out method.
Work in progress
Work in progress corresponds to consulting studies in 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 financial year ended January 31, 2019, marketable
securities 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 related to
liquidity contract exceeds the current value as determined by the share
price at the closing date.
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.
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.
112
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
ESI Group annual financial statements
5
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 financial 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.
Note C. Asset details
Note C.1. Intangible assets
(in € thousands)
Development costs
Patents, licenses, brands
Goodwill
Intangible assets in progress, development costs
Other intangible assets in progress
TOTAL GROSS VALUE
Development costs
Patents, licenses, brands
Goodwill
TOTAL AMORTIZATION, PROVISIONS
Development costs
Patents, licenses, brands
Goodwill
Intangible assets in progress, development costs
Other intangible assets in progress
TOTAL NET VALUE
January 31, 2018
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
Increase
29,418
333
442
364
30,556
(27,225)
(500)
(27,724)
2,193
(167)
442
364
2,831
Decrease
January 31, 2019
(25,930)
(25,930)
25,930
25,930
2,998
42,879
26,338
1,028
16,617
2,402
89,265
(17,146)
(10,397)
(73)
(27,616)
25,733
15,941
955
16,617
2.402
61,649
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.
113
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
ESI Group annual financial statements
Note C.2. Property, plant and equipment
(in € thousands)
Fixtures and fittings
Office furnishings and equipment
Other tangible non-current assets
TOTAL GROSS VALUE
Fixtures and fittings
Office furnishings and equipment
Other tangible non-current assets
TOTAL AMORTIZATION, PROVISIONS
Fixtures and fittings
Office furnishings and equipment
Other tangible non-current assets
TOTAL NET VALUE
January 31, 2018
Increase
Decrease(1)
January 31, 2019
2,500
7,052
27
9,579
(1,795)
(6,159)
(26)
(7,980)
705
893
1
1,600
1,148
1,066
2,214
(184)
(700)
(886)
964
364
1,328
(688)
(98)
(786)
688
98
786
2,961
8,019
27
11,007
(1,292)
(6,762)
(26)
(8,080)
1,669
1,257
1
2,928
(1) This column corresponds to scraping of fully amortized office fixtures and fittings because of an office move in July 2019.
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, 2018
Increase
Decrease
January 31, 2019
57,151
11,532
1,532
70,215
(4,125)
(1,852)
(4)
(5,981)
53,026
9,680
1,528
64,234
38
887
395
1,320
949
949
(2,188)
(559)
(2,747)
1,517
62
1,579
(632)
(165)
(797)
55,002
12,419
1,368
68,789
(2,608)
(1,790)
(4)
(4,402)
52,394
10,629
1,363
64,387
(1) This line primarily includes deposits and guarantees on rental properties for an amount of €598 thousand, factoring guarantee funds for an amount of
€700 thousand, and treasury shares (liquidity contract) for an amount of €70 thousand.
114
ESI GROUP • 2018 REGISTRATION DOCUMENT 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
FINANCIAL STATEMENTS
ESI Group annual financial statements
5
January 31, 2018
Increase
Decrease
January 31, 2019
458
75
3,726
164
2,678
941
100
912
1,789
796
193
2
2
111
119
2
1,737
56
1,050
6
242
8
543
10,708
322
446
129
2,351
162
1,904
283
124
14
576
87
4,017
293
900
62
17,952
436
550
25
100
38
1,904
283
458
75
3,726
164
2,678
941
100
912
1,789
834
193
2
2
111
119
2
1,737
56
1,050
6
242
8
543
10,708
322
446
129
2,351
162
0
0
124
14
576
87
4,017
293
900
62
17,952
436
550
25
100
57,151
38
2,188
55,002
Movements of the year are related to acquisition of 51% of the shares of d’ESI US Holdings (currently 100% of the capital owned by ESI Group); and
to dissolution of CyDesign Labs, Inc. (disposal of gross value of equity investment and of acquisition costs).
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, 2018
Increase
Reversal
January 31, 2019
1,737
119
193
1,326
651
100
4,125
1,326
191
1,517
0
1,737
119
193
0
459
100
2,608
As at January 31, 2019, following dissolution of the subsidiary CyDesign Labs, Inc., its related shares provision has been fully reversed, and those of
the subsidiary OpenCFD has been adjusted according to the restated value of the shares(note B.4).
115
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
ESI Group annual financial statements
Receivables related to equity investments
(in € thousands)
Loan ESI North America, Inc. ($9.7 million)
Loan Hong Kong ESI ($1.124 million)(1)
Loan ESI Group Hispania SL
Loan ESI ATE Holdings ($2.271 million)(2)
TOTAL
(1) This loan has been impaired by €0.699 million.
(2) This loan has been impaired by €1.091 million.
Gross value
Remuneration rate
January 31, 2019
January 31, 2018
8,444
978
1,020
1,977
12,419
7,787
902
1,020
1,823
11,532
6-month Libor $ + 1% margin
6-month Libor $ + 1% margin
Profit-sharing loan capped at 5%
6-month Libor $ + 1% margin
Note C.4. Receivables – Provisions for depreciation of receivables
(in € thousands)
Loans granted to controlling interests
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
Group and associates
Other receivables
Prepaid expenses
TOTAL
Details of provisions for depreciation of receivables
At January 31, 2019
At January 31, 2018
Gross value Due in 1 year or less Due in between 1 and 5 years
Gross value
12,419
70
1,298
1,939
12,978
48,600
210
3,189
620
443
1,569
2,732
742
486
130
1,550
88,974
70
284
1,939
12,978
48,600
210
3,189
620
443
1,569
2,732
742
486
130
1,550
75,541
12,419
1,014
13,433
11,532
147
1,386
2,430
10,600
46,478
839
2,679
160
396
1,005
3,197
540
2
67
2,558
84,017
(in € thousands)
January 31, 2018
Increase
Reversal unused
Reversal used
January 31, 2019
Provisions for doubtful receivables
Provisions for other receivables
TOTAL
2,439
129
2,569
491
151
642
(433)
(433)
(539)
(539)
1,958
280
2,238
Note C.5. Treasury shares
Treasury shares in the balance sheet are classified in Financial assets for €70 thousand (liquidity contract) and in Marketable securities for
€4.145 million.
Change in the number of treasury shares
TREASURY SHARES
January 31, 2018
410,306
Increase
98,458
Decrease
January 31, 2019
117,882
390,882
The total value on the balance sheet is thus €4.215 million, compared to a market fair value of €10.143 million at January 31, 2019, for an unrealized
gain of €5.929 million.
Note C.6. Prepaid expenses and expenses capitalized, to be amortized
(in € thousands)
Prepaid rent
Maintenance prepaid expenses
Other prepaid expenses
Expenses related to syndicated loan set up(1)
TOTAL
(1) Amortization over the duration of the loan.
116
January 31, 2019
January 31, 2018
420
493
638
552
2,102
507
1,347
704
358
2,916
ESI GROUP • 2018 REGISTRATION DOCUMENT 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 vendors credit notes to be issued
Miscellaneous income
TOTAL
Note D. Liability details
FINANCIAL STATEMENTS
ESI Group annual financial statements
5
January 31, 2019
January 31, 2018
473
416
890
1,082
493
1,576
January 31, 2019
January 31, 2018
5,755
1,522
123
619
0
8,050
4,010
1,877
259
275
39
6,460
Note D.1. Equity
The main movements during the financial 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, 2018
Allocation
of 2017 profit
2018
net profit
Other
January 31, 2019
18,049
25,782
9,677
2,854
1,798
30,927
5,547
1,344
97,600
7
5,540
(5,547)
-
2,820
2,820
4
36
(59)
(19)
18,054
25,818
9,677
2,854
1,805
38,088
2,820
1,285
100,400
Movements in the “Other” column reflect:
• the capital increase with the associated share issuance premium following the exercise of 1,450 share subscription options during the financial
year;
• a net reversal on regulated provisions for €59 thousand, of which an allowance of €224 thousand and a reversal of €283 thousand of amortiza-
tion of the acquisition costs of the shares of subsidiary CyDesign Labs Inc. dissolved in 2018.
Note D.2. Legal capital
At the end of the financial year Created during the financial year Repaid during the financial year
Number of shares
Common shares (par value of €3)
O/w preferred shares (double voting rights)
6,016,442
2,245,888
1,450
-
-
The capital increase is attributable to the exercise of share subscription options for 1,450 shares.
Note D.3. Stock subscription option plan
Stock options have been authorized by various General Meetings and could potentially dilute ESI Group's legal capital. The table below describes
the status of the various plans under which options have been granted but not yet exercised.
117
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
ESI Group annual financial statements
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
Exercise
price
Number of existing
stock options/shares
at January 31, 2019
Limit year
for exercising
options
Plan 10 (GM 2012)
Plan 10 Bis (GM 2012)
Plan 10 Ter (GM 2012)
Plan 10 Quater (GM 2012)
Plan 15 (AG 2013)
Plan 17 (GM 2014)
Plan 17 Bis (GM 2014)
Plan 17 Ter (GM 2014)
Plan 17 Quater (GM 2014)
02/01/2013
02/07/2014
02/01/2015
07/22/2015
Total
02/01/2015
07/22/2015
03/11/2016
05/05/2017
05/05/2017
180,000
294,538
Plan 19 (GM 2017)
07/18/2018
Total
180,000
Authorization given at the
GM of July 2017
TOTAL STOCK-OPTIONS
Plan 6 (GM 2016)
Plan 7 (GM 2016)
Plan 8 (GM 2016)
Plan 9 (GM 2018)
Plan 9 Bis (GM 2018)
Plan 9 Ter (GM 2018)
TOTAL FREE SHARES
07/21/2016
12/23/2016
08/01/2017
07/18/2018
07/18/2018
07/18/2018
229,600
952,291
60,000
60,000
120,000
150,850
11,000
15,000
3,150
180,000
20,000
7,350
10,000
18,175
1,875
37,400
43,950
281,35
25,000
2,275
9,000
10,619
2,441
15,500
64,833
TOTAL STOCK-OPTIONS AND FREE SHARES
1,072,291
346,183
All stock options and free shares include a continued employment requirement.
Note D.4. Conditional advances
27.82
24.42
21.66
27.17
21.66
23.35
27.92
50.92
42.97
62,300
62,300
20,000
1,875
1,875
32,963
117,138
7,963
7,963
125,101
39,300
375
2,100
41,775
4,900
16,300
21,200
42,700
105,675
8,332
9,000
10,619
2,324
15,500
45,773
151,448
2021
2022
2025
2025
2025
2023
2026
2025
2025
2026
2020
2021
2021
2020
2020
2022
(in € thousands)
January 31, 2019
Up to 1 year
1 to 5 years
More than 5 years
January 31, 2018
Advance on Ademe financing agreement
Bpifrance advance
TOTAL
772
257
1,029
0
257
257
772
772
402
83
485
Note D.5. Provisions for contingencies and charges
(in € thousands)
January 31, 2018
Increase
Reversal used
January 31, 2019
Foreign exchange gains and losses (Note C.7)
Provisions for contingencies and charges (operating result)
Provision for retirement obligations
TOTAL
1,540
28
3,993
5,561
890
165
376
1,431
(1,540)
(1,540)
890
193
4,369
5,452
Variation mainly correspond to the impact of changes in currency rates. Provisions for operating risks and expenses correspond to social risks.
Provision allowance for retirement obligations breaks down as follows:
• €322 thousand of operating allowance, o/w €271 thousand in costs for services rendered, €30 thousand in actuarial gains and losses and
€81 thousand for transfers from other Group entities;
• €54 thousand of financial allowance corresponding to interest expenses.
Actuarial assumptions for retirement obligations
Discount rates
Rate of salary increase
January 31, 2019
January 31, 2018
1.45%
2.50%
1.40%
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.
118
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
ESI Group annual financial statements
5
Note D.6. Statement of liabilities
(in € thousands)
Banks borrowings (D.7)
Miscellaneous financial debt (D.8)
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, 2019
Up to 1 year
1 to 5 years
More than 5 years
January 31, 2018
34,386
2,500
7,293
34,690
4,361
1,652
1,999
489
51
12,382
2,630
630
103,042
3,611
2,500
7,293
34,690
4,361
1,652
1,999
489
51
13,382
2,630
630
72,267
16,200
14,575
37,251
2,633
7,512
30,137
2,583
2,268
1,662
479
4
13,968
2,085
724
16,200
14,575
101,375
Note D.7. Bank borrowings
At January 31, 2019, bank borrowings stand at €34.386 million and break
down as follows:
• €30,000 thousand related to the long-term syndicated lines of
credit, of which 2 million that needs to be repaid in 2019;
• €1 million in drawdowns from the revolving credit line;
• €1.8 million in long term borrowings from Bpifrance, including
€600 thousand due in 2019;
• €1,575 thousand corresponding to a loan signed in October 2018 to
finance the cost of moving Rungis' offices in 2018 – due October 2023;
• €11 thousand in accrued interest on borrowings.
ESI Group's main source of financing is the syndicated loan. In
December 2018, the previous syndicated loan signed in November 2015
was reimbursed by anticipation (long-term outstanding balance of
Note D.8. Miscellaneous financial debt
€25.6 million and use of the revolving loan for €10 million) and a new
syndicated loan signed with a pool of seven banks.
This new syndicated loan consists of a long-term part of €30 million
and a revolving loan of €15 million, of which €10 million has been
confirmed. The long-term part will be gradually reimbursed annually
on April 30 each year until April 30, 2025. The syndicated loan is remu-
nerated based on the Euribor rate and a margin of 2%, 2.25% or 2.5%
depending on the level of the Net financial debt/EBITDA ratio related
to previous year financial statements. The margin initially used after
signature of the syndicated loan is 2.5%.
At 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)
Promissory note
TOTAL
January 31, 2019
Up to 1 year
1 to 5 years
More than 5 years
January 31, 2018
2,500
2,500
2,500
2,500
2,500
2,500
Note D.9. Tax payables and employee-related liabilities
(in € thousands)
January 31, 2019
January 31, 2018
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
2,557
1,804
1,652
1,999
489
8,500
2,518
1,177
1,044
1,662
591
6,991
January 31, 2018
Increase
Decrease
January 31, 2019
272
13,968
1,752
66
16,058
40
645
784
54
1,524
(272)
(2,252)
(66)
(2,590)
40
12,362
2,536
54
14,992
119
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
ESI Group annual financial statements
Note D.11. Foreign exchange gains and losses
These gains and losses pertain to the following balance sheet items:
(in € thousands)
Trade receivables
Trade payables
Intercompany receivables
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
120
January 31, 2019
January 31, 2018
359
229
1,302
1,890
205
556
415
1,176
January 31, 2019
January 31, 2018
11
12,195
2,557
1,804
182
2,536
2
19,287
165
13,096
2,518
1,177
169
1,752
0
16,876
January 31, 2019
January 31, 2018
15,531
2,958
58,583
3,831
1,855
3,264
86,023
15,449
2,575
56,150
5,376
1,544
4,790
83,884
January 31, 2019
January 31, 2018
13,449
27,105
13,746
31,723
86,023
11,607
27,715
13,082
31,480
83,884
January 31, 2019
January 31, 2018
83
29,975
973
1,576
889
93
33,588
(500)
29,540
395
1,044
1,310
141
31,930
ESI GROUP • 2018 REGISTRATION DOCUMENT 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 impairment of other assets
Provision for retirement obligations
Provision for change on trade receivables and payables
Provision for contingencies and charges
TOTAL
Note E.6. Other operating expenses
(in € thousands)
Royalties
Directors' fees
Foreign exchange losses on trade receivables and payables
Loss on trades receivables
Miscellaneous expenses
TOTAL
FINANCIAL STATEMENTS
ESI Group annual financial statements
5
January 31, 2019
January 31, 2018
8,224
17,824
20,978
338
4,473
1,953
339
2,153
2,286
962
2,014
428
701
8,104
17,300
20,715
270
3,845
1,667
302
2,242
1,721
918
2,218
491
712
62,674
60,506
January 31, 2019
January 31, 2018
697
115
314
236
734
127
313
210
1,363
1,384
January 31, 2019
January 31, 2018
27,225
25,391
500
856
80
491
150
322
926
165
30,715
661
857
75
435
382
1,540
0
29,341
January 31, 2019
January 31, 2018
56
169
1,148
433
3
1,809
58
138
1,291
0
2
1,489
121
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
ESI Group annual financial statements
Note E.7. Financial income
(in € thousands)
Foreign exchange gain/(loss) realized
Interest on borrowings
Interest on subsidiaries current account
Provision for retirement obligations
Provision for impairment equity investments
Reversal provision for investments (C3)
AVIC ESI dividend
Mecas ESI s.r.o. dividend
ESI Japan, Ltd dividend
Other financial income/(expenses)
TOTAL
Note E.8. Exceptional income
(in € thousands)
Profit or loss on movements of treasury shares
Accelerated capital allowances
Exceptionnal amortization of set up costs of the previous syndicated loan
Exceptionnal amortization
Dissolution result of subsidiary CyDesign Labs, Inc.
Reversal of exceptional accrual
Income on payment through treasury shares for acquisition of Scilab Enterprises
Presto additional payment
Miscellaneous
TOTAL
January 31, 2019
January 31, 2018
144
(824)
39
(55)
0
1,517
18
1,690
0
67
2,595
(544)
(840)
86
(61)
(456)
0
0
0
3,921
(102)
(2,004)
January 31, 2019
January 31, 2018
(211)
(224)
(291)
(30)
(1,285)
0
0
(73)
(24)
(2,137)
(61)
(260)
0
(185)
0
105
468
(71)
22
18
The dissolution result of subsidiary CyDesign Labs Inc. for €1,285 thousand is reconciliated with to the reversal of provision of this same subsidiary
for an amount of €1,326 thousand which appears in financial result, this for a total net impact of €41 thousand.
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 officers are as follows:
(in € thousands)
Wages
Benefits in kind
Directors' fees
Compensation paid by controlled companies
Fringe benefits paid by controlled companies
TOTAL
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
122
January 31, 2019
January 31, 2018
228
18
246
224
19
243
January 31, 2019
January 31, 2018
393
12
16
383
148
952
471
45
16
428
152
1,113
Country
Netherlands
Postbus 1000-Box E57-2260BA Leidschendam
Cross Region Plaza, Unit 20D, 899 Lingling Road 200235 Shanghai
China
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
ESI Group annual financial statements
5
Note F.4. Off-balance sheet commitments
Future lease obligations
(in € thousands)
Real estate rentals
Movable property rentals
TOTAL
Future lease commitments correspond to the outstanding amounts due
on the Group's main lease and rental contracts until the contractual
next maturity date.
Financial commitments
As part of the credit agreement dated December 20, 2018, ESI Group
granted a pledge of 99.98% of the shares of Engineering System
International, 100% of the shares of the subsidiary ESI Software
Germany, and 96% of the shares of the subsidiary ESI ITI GmbH.
As long as it owes an obligation under the agreement or the security
documents, the borrower undertakes, under prepayment constraint, to
comply with the ratio of consolidated net financial debt divided by
consolidated EBITDA, the thresholds to be respected over the term of
the syndicated loan agreement are gradually decreasing. As at January 31,
2019, the threshold to be respected is 3.5%. At January 31, 2019, on the
basis of the annual consolidated financial statements certified by the
Statutory Auditors, the Group was in compliance with this ratio.
In terms of managing its exposure to changes in exchange rates and
interest rates, ESI Group has subscribed to the following financial
instruments. Results at maturity are recognised in financial income for
interest rate instruments and in operating income for foreign exchange
instruments:
• interest rate instruments:
Less than 1 year
Between 1 and 5 years
1,301
1,639
2,940
7,515
455
7,973
– three swaps of €2 million at January 31, 2019, where ESI Group
receives a one-month Euribor (with a 0% floor) and pays a fixed
rate of 0.16%, 0.18% and 0.19% respectively,
– a swap of €0.5 million at January 31, 2019, where ESI Group receives
Euribor 1 month (with a floor at 0%) and pays a fixed rate of 0.30%,
– at January 31, 2019, the market value of these instruments was
-€12 thousand;
• foreign exchange instruments:
– in order to hedge foreign currency cash flows between the Group's
parent company and its subsidiaries, ESI Group may at any time
acquire currency options and any other form of currency contract.
The instruments in place during the year ended January 31, 2019
were the Japanese yen (tunnels), the Korean won (non-delivery
forward) and the Indian rupee (non-delivery forward). As at
January 31, 2019, all financial instruments had matured.
Pledges
At January 31, 2019, 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.
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
Taxable income
Tax (expense)/
income
Profit (loss) after
tax
2,258
(2,137)
(899)(1)
1,314
1,359
(823)
121
415
536
(383)
149
2,933
2,699
1,875
(2,137)
149
2,933
2,820
(1) The retreatment of € 899 thousand corresponds mostly to dividend received from Mecas s.r.o. for €1,690 thousand and the liquidation result of CyDesign Labs,
Inc. for €1,285 thousand.
The tax expense of €383 thousand at January 31, 2019, in a negative tax result context, corresponds to losses on foreign tax certificates that cannot
be used for payment of income tax during this financial 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, 2019
109
1,890
879
2,879
960
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.
123
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
ESI Group annual financial statements
Note F.8. Table of controlled entities and affiliates (at January 31, 2019)
(in € thousands)
Head-
quarters
% of
capital
owned
(as a %)
Capital
(converted
at the
closing
rate)
Shareholders’
equity other
than capital
and net profit
for the year
(converted
at the closing
rate)
Total
guarantees
granted
by the
Company
Outstanding
loans and
advances
granted
by the
Company
or by the
subsidiary
Revenues,
after tax,
for the last
financial
year
(converted
at the
average
exchange
rate)
Profit or
loss for
the last
financial
year
(covered
at the
average
exchange
rate)
Dividends
received
by the
Company
during the
financial
year
Carrying
amount of
shares held
Gross
Net
A. DETAILED INFORMATION ON EACH SECURITY WITH GROSS VALUE EXCEEDING 10% OF THE COMPANY'S CAPITAL
1. Over 50%-owned subsidiaries
Engineering System
International
STRACO
ESI Japan, Ltd.
France
France
Japan
Hankook ESI Co., Ltd.
South Korea
ESI North America, Inc.
ESI Group Hispania s.l.
Mecas ESI s.r.o.
ESI UK Limited
ESI US R&D, Inc.
Calcom ESI SA
USA
Spain
Czech
Republic
United
Kingdom
USA
Switzerland
Zhong Guo Co., Ltd
China
ESI Software (India)
Private Ltd
Hong Kong ESI Co.,
Limited
ESI-ATE Holdings Limited
ESI Italia s.r.l.
ESI South America
Comércio e Serviços de
Informática, Ltda
ESI Services Tunisia
India
China
China
Italy
Brazil
Tunisia
ESI Group Beijing Co., Ltd China
ESI Software Germany
GmbH
Efield AB
OpenCFD Limited
ESI Services Vietnam
Co., Ltd
CIVITEC
ITI GmbH
Mineset Inc.
Germany
Sweden
United
Kingdom
Vietnam
France
Germany
USA
SAS Scilab Enterprises
France
ESI US Holding, Inc.
USA
2. 10-50% owned subsidiaries
1,020
499
99
1,155
0
100
16
114
194
83
0
1
1
10
500
9
62
650
517
10
0
73
1,125
26
0
424
674
2,691
2,994
2,031
(2,552)
(1,733)
(692)
100.0
458
458
97.7
97.0
98.8
100.0
100.0
1,789
1,789
75
941
75
941
3,726
3,726
100
100
(1,861)
(515)
8,444
1,020
2
95.0
912
912
(821)
1,071
1,379
344
207
100.0
74.0
98.5
164
111
164
111
2,678
2,678
100.0
193
5,067
100.0
2
(816)
(1,197)
416
100.0
100.0
100.0
119
1,737
1,050
0
2
0
0
1,050
978
1,977
101
784
95.0
95.0
1,303
100.0
6
242
543
6
242
543
6,087
577
100.0
10,708
10,708
100.0
446
446
1,690
20,216
0
25,182
6,550
21,799
4,335
7,938
3,695
9,694
3,654
0
634
52
359
(275)
177
61
472
173
224
261
(4)
10,625
1,079
0
0
0
0
4,305
(33)
695
475
4,200
8,691
1,653
8
228
499
764
52
(111)
100.0
2,351
1,892
(120)
1,350
(89)
71
(1,025)
1,190
270
(786)
(559)
100.0
80.0
124
900
124
900
484
96.0
17,952
17,952
(1,139)
100
100
100.0
4,017
4,017
550
834
550
834
(333)
123
134
5,976
1,717
573
0
(49)
(581)
(180)
180
(77)
0
JV AECC-ESI
China
1,275
672
45.0
576
576
5,733
236
The data at January 31, 2019 of the table of controlled entities and affiliates is a non audited data.
Note F.9. Subsequent events
The Board of Directors, during April 12, 2019 meeting, analysed the project of change of closing date from January 31 to December 31. This decision
will be proposed for validation to General Meeting on July 18, 2019. If the decision is validated, 2019 fiscal year will have 11 months.
124
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
ESI Group annual financial statements
5
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, 2019
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, 2019.
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, 2019 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
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 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, 2018 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 justification
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.
125
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
ESI Group annual financial statements
Capitalization of development costs
Risk identified
Our response
In the balance sheet of the Company, fixed assets include capitalized development costs. As of January 31, 2019 their net book value amounts
to €25,733 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.
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.
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.
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
Our response
In the balance sheet as of January 31, 2019, net book value of equity investments amounts to €52,394 thousand. At acquisition date, equity
investments 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.
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.
126
ESI GROUP • 2018 REGISTRATION DOCUMENT FINANCIAL STATEMENTS
ESI Group annual financial statements
5
Specific verifications
We have also performed, in accordance with professional standards applicable in France, the specific verifications required by laws and regulations.
Information given in the management report and in the other documents with respect to the financial position and the financial
statements provided to the Shareholders
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 with respect to the financial position and the financial statements
provided to the Shareholders.
We attest the fair presentation and the consistency with the financial statements of the information relating to the payment terms required by
Article D.441-4 of the French Commercial Code.
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 favour, 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 takeover bid or exchange
offer, provided pursuant to Article L. 225-37-5 of the French Commercial Code (Code de commerce), we have agreed this information to the source
documents communicated to us. Based on these procedures, 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
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, 2019, PricewaterhouseCoopers Audit and Ernst & Young Audit were in the 10th year and 22nd year of total uninterrupted engagement
(which is the 19th 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 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 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 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.
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.
127
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 5
FINANCIAL STATEMENTS
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.
Report to the Audit Committee
We submit to the Audit Committee a report 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 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) N° 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 22, 2019
The Statutory Auditors
French original signed by
PricewaterhouseCoopers Audit
Thierry Charron
Ernst & Young Audit
Frédéric Martineau
128
ESI GROUP • 2018 REGISTRATION DOCUMENT 6
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
financial year ended January 31, 2019
2. Approval of the consolidated financial statements for the financial
year ended January 31, 2019
3. Allocation of net profit for the year
4. Special report of the Statutory Auditors on the regulated agreements
and commitments and approval of the new agreements referred to
in Article L. 225-38 of the French Commercial Code
5. Reappointment of Mr. Alain de Rouvray
6. Reappointment of Mr. Éric d’Hotelans
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 of the Board of Directors for 2019 financial year
8. 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
Chief Executive Officer for 2019 financial year
9. 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
Chief Operating Officers for 2019 financial year
10. Approval of the components of the total compensation payable or
allocated to Mr. Alain de Rouvray, Chief Executive Officer, for the
financial year ended on January 31, 2019
11. Approval of the components of the total compensation payable or
allocated to Mr. Vincent Chaillou, Chief Operating Officer, for the
financial year ended on January 31, 2019
12. Approval of the components of the total compensation payable or
allocated to Mr. Christopher St John, Chief Operating Officer, for the
financial year ended on January 31, 2019
13. Determination of the compensation paid to the members of the
Board of Directors (Attendance fees)
14. 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
15. Delegation of authority to the Board of Directors for the purpose of
increasing the capital via the issue of shares of common stock or of
any securities convertible into equity, with preferential subscription
rights
19. Delegation of authority to the Board of Directors for the purpose of
issuing shares without preferential subscription rights as compensa-
tion for contributions of shares or share equivalents granted to the
Company as part of a contribution in kind
16. Delegation of authority to the Board of Directors for the purpose of
increasing the capital via the issue of shares of common stock or of
any securities convertible into equity, through public offerings and
without preferential subscription rights
17. Delegation of authority to the Board of Directors for the purpose of
increasing the issue amount in the event of over-demand
18. Delegation of authority to the Board of Directors for the purpose
of increasing the capital by the capitalization of premiums, reserves,
profits or otherwise
Joint decisions
24. Powers for formalities
20. Delegation of authority to the Board of Directors for the purpose
of increasing the capital without preferential subscription rights
through private placement
21. Authorization given to the Board of Directors to increase the capital
by issuing shares reserved for employees enrolled in the employee
savings plan
22. Amendment to the articles of association – Article 22 change of
financial year closing date
23. Amendment
the articles of association – Additional
paragraph under Article 9B related to obligations to declare crossing
thresholds
to
129
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT 6
RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING
Decisions falling within the competence of the Ordinary General Meeting
6.1. Decisions falling within the competence of the Ordinary General
Third resolution
Allocation of net profit for the year
Statement of reasons
The General Meeting is requested to allocate the profit of
€2,819,816.34 as follows:
• €435 to the legal reserve;
• €2,819,381.34 to retained earnings.
Following this allocation, the balance of the legal reserve will stand
at €1,805,367.60.
Following
€40,907,521.88.
The Board of Directors reminds the General Meeting that no dividends
have been paid out for the past three financial years.
retained earnings will
this allocation,
stand at
The General Meeting, acknowledging that the net profit for the year
ended January 31, 2019 stands at €2,819,816.34, decides, upon the Board
of Directors’ recommendation, to allocate this profit as follows:
Current position:
• net profit for the year:
• retained earnings:
• total to be allocated:
€2,819,816.34
€38,088,140.54
€2,819,816.34
Allocated as follows:
• €435 to the legal reserve;
• €2,819,816.34 to retained earnings.
Following this allocation, the balance of the legal reserve will stand at
€1,805,367.60.
Following this allocation, retained earnings will stand at €40,907,521.88.
The General Meeting notes that no dividends have been paid out for
the past three financial years.
Meeting
First resolution
Approval of the parent company financial statements for
the financial year ended January 31, 2019
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 financial year ended
January 31, 2019, showing a profit of €2,819,816.34.
The General Meeting, 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 financial year ended January 31, 2019, approves the
financial statements and balance sheet, as presented, showing a profit
of €2,819,816.34.
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 €249,786.
Second resolution
Approval of the consolidated financial statements for the
financial year ended January 31, 2019
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 financial year ended
January 31, 2019 showing a net profit of €3,334,237.
The General Meeting, 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 consoli-
dated financial statements and the consolidated financial statements
as at January 31, 2019, approves these financial statements as presented,
resulting in a net profit of €3,334,237.
130
ESI GROUP • 2018 REGISTRATION DOCUMENT RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING
Decisions falling within the competence of the Ordinary General Meeting
6
Fourth resolution
Sixth resolution
Special report of the Statutory Auditors on the regulated
agreements and commitments and approval of the new
agreements referred to in Article L. 225-38 of the French
Commercial Code
Statement of reasons
Based on the special report by the Statutory Auditors on regulated
agreements, the General Meeting is requested to acknowledge
that during the financial year ended on January 31, 2019 the
following agreements gave rise to the procedure provided for in
Articles L. 225-38 et seq. of the French Commercial Code.
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 2.6 of the 2018 Registration
Document and will be submitted for approval of the General Meeting
to be held on July 18, 2019.
Ruling on the special report of the Statutory Auditors on the regulated
agreements and commitments that were presented to it, the General
Meeting approves the new agreements entered into during the year
ended January 31, 2019 mentioned in the special report pursuant to
Article L. 225-38 of the French Commercial Code, approves the agree-
ments mentioned therein.
Fifth resolution
Reappointment of Mr. Alain de Rouvray
Statement of reasons
As the directorship of Mr. Alain de Rouvray expires at the end of
this General Meeting, the shareholders are requested to renew his
directorship for a term of four years, until the General Meeting to be
convened in 2023 to approve the financial statements for the 2022
financial year.
The Board of Directors reminds the General Meeting that The Board
of Directors recalls that Alain de Rouvray has been Chairman and
Chief Executive Officer of the Company since its creation in 1991 and
until January 31, 2019. Since February 1, 2019, he is exclusively acting
as Chairman of the Board of Directors. His biography is presented
in the report of the Board of Directors on corporate governance in
Section 2.3.2 of the 2018 Registration Document.
The General Meeting, having reviewed the report of the Board of
Directors and noting that the term of office of Mr. Alain de Rouvray
expires at the end of the General Meeting, decides to renew his
directorship for a term of four years, expiring at the end of the General
Meeting to be convened in 2023 to approve the financial statements for
the 2022 financial year.
Reappointment of Mr. Éric d’Hotelans
Statement of reasons
As the directorship of Mr. Éric d’Hotelans expires at the end of
this General Meeting, the shareholders are requested to renew his
directorship for a term of four years, until the General Meeting to be
convened in 2023 to approve the financial statements for the 2022
financial year.
The Board of Directors reminds the General Meeting that Mr. Éric
d’Hotelans has been an independent director since 2008. He is
currently Chair of the Compensation, Committee. His biography
is presented in the report of the Board of Directors on corporate
governance in Section 2.3.2 of the 2018 Registration Document.
The General Meeting, having reviewed the report of the Board of
Directors and noting that the term of office of Mr. Éric d’Hotelans
expires at the end of the General Meeting, resolves to renew his
directorship for a term of four years, expiring at the end of the General
Meeting to be convened in 2023 to approve the financial statements for
the 2022 financial year.
Seventh, eighth and ninth resolutions
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 of the
Board of Directors, Chief Executive Officer and Chief
Operating Officers for 2019 financial year
Statement of reasons
In accordance with Article L. 225-37-2 of the French Commercial
Code, the General Meeting is requested every year to approve the
principles and criteria for determining, distributing and allocating the
fixed, variable and exceptional components of the total compensa-
tion and benefits of all types attributable to the Chairman of the
Board of Directors, Chief Executive Officer and the Chief Operating
Officers, in respect to their mandate for 2019 financial year.
These principles and criteria are presented in the report of the Board
of Directors on corporate governance in Section 2.4.1.2 and 2.4.2.2 of
the 2018 Registration Document.
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RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING
Decisions falling within the competence of the Ordinary General Meeting
Resolution No. 7
Tenth resolution
The General Meeting, pursuant to Article L. 225-37-2 of the French
Commercial Code (paragraph 1), approves the principles and criteria for
the determination, distribution and allocation of fixed, variable compo-
nents and exceptional components of total compensation and benefits
of any kind, attributable to the Chairman of the Board of Directors for
2019 financial year, as presented in the corporate governance report of
the Board of Directors referred to in Article L. 225-37 of the French
Commercial Code and set out in the 2018 Registration Document under
Section 2.4.1.2.
Resolution No. 8
The General Meeting, pursuant to Article L. 225-37-2 of the French
Commercial Code (paragraph 1), approves the principles and criteria for
the determination, distribution and allocation of fixed, variable compo-
nents and exceptional components of total compensation and benefits
of any kind, attributable to the Chief Executive Officer for 2019 financial
year, as presented in the corporate governance report of the Board of
Directors referred to in Article L. 225-37 of the French Commercial Code
and set out in the 2018 Registration Document under Section 2.4.2.2.
Resolution No. 9
The General Meeting, pursuant to Article L. 225-37-2 of the French
Commercial Code (paragraph 1), approves the principles and criteria
for the determination, distribution and allocation of fixed, variable
components and exceptional components of total compensation and
benefits of any kind, attributable to the Chief Operating Officers for
2019 financial year, as presented in the corporate governance report of
the Board of Directors referred to in Article L. 225-37 of the French
Commercial Code and set out in the 2018 Registration Document under
Section 2.4.2.2.
Tenth, eleventh and twelfth resolutions
Approval of the fixed, variable and exceptional
components of the total compensation payable or
allocated to the Chairman of the Board of Directors,
Chief Executive Officer and Chief Operating Officers for
the financial year ended on January 2019
Statement of reasons
In accordance with Article L. 225-100-II of the French Commercial
Code, the General Meeting is requested every year to approve the
fixed, variable and exceptional components of the total compensa-
tion and benefits of all kinds payable or allocated to the Chairman of
the Board of Directors, Chief Executive Officer and Chief Operating
Officers in respect to their mandate for the for the financial year
ended on January 2019.
These components of the compensation are presented in the report
of the Board of Directors on corporate governance in Section 2.4.2.1
of the 2018 Registration Document, including in particular a summary
table under Section 2.4.2.1.12.
Approval of the components of the total compensation
payable or allocated to Mr. Alain de Rouvray, Chief
Executive Officer, for the financial year ended on
January 31, 2019
The General Meeting, in accordance with 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
financial year ended on January 31, 2019 as set out in the report of
the Board of Directors on corporate governance pursuant to Article
L. 225-37 of the French Commercial Code and presented in the 2018
Registration Document in Section 2.4.2.1).
Eleventh resolution
Approval of the components of the total compensation
payable or allocated to Mr. Vincent Chaillou, Chief
Operating Officer, for the financial year ended on
January 31, 2019
The General Meeting, in accordance with 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
financial year ended on January 31, 2019, as set out in the report of
the Board of Directors on corporate governance pursuant to Article
L. 225-37 of the French Commercial Code and presented in the 2018
Registration Document in Section 2.4.2.1).
Twelfth resolution
Approval of the components of the total compensation
payable or allocated to Mr. Christopher St John, Chief
Operating Officer, for the financial year ended on
January 31, 2019
The General Meeting, in accordance with 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 of the Board of Directors on corporate governance pursuant
to Article L. 225-37 of the French Commercial Code, and presented in
the 2018 Registration Document in Section 2.4.2.1).
Thirteenth resolution
Determination of the compensation paid to the
members of the Board of Directors (Attendance fees)
Statement of reasons
The General Meeting is requested to set the total annual amount of
Attendance fees allocated to members of the Board of Directors for
the 2019 financial year at €280,000 (vs. €180,000). This increase is part
of the remuneration policy of the Directors as presented in the report
of the Board of Directors on corporate governance in Section 2.4.1.2
of the 2018 Registration Document. It is particularly related to the
compensation attributable to the Chairman of the Board of Directors
following the dissociation in corporate governance effective since
February 1, 2019 (see Section 2.2.2 of the 2018 Reference Document).
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6
The General Meeting decides to set the compensation paid to the
members of the Board of Directors in the form of attendance fees at
€280,000 for the 2019 financial year.
The Board will freely distribute this amount among its members.
- plans granting stock options for the purchase of existing shares
by the Group’s employees or corporate officers,
- employee profit-sharing plans under which these shares would
be granted to employees and/or corporate officers,
- free share grants to the Group’s employees and corporate
Fourteenth resolution
officers,
Authorization to be granted to the Board of Directors for
the Company to buy back its own shares
Statement of reasons
As the existing authorization expires in January 2020, 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, 2019.
It is proposed to set the maximum purchase price at €60 (sixty) 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, 6.5% as at January 31, 2019.
The Company will not be allowed to pay out more than €13,000,000
(thirteen million) 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, 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, 2019, 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:
- 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 €60 (sixty);
3. decides to fix the maximum amount that the Company may spend
within the framework of this buy-back program at €13,000,000
(thirteen million);
4. acknowledges that this authorization shall render ineffective the
previous authorization granted by the twelfth resolution of the
Combined General Meeting of July 18, 2018 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.
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RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING
Decisions falling within the competence of the Extraordinary General Meeting
6.2. Decisions falling within the competence of the Extraordinary General
Meeting
Fifteenth resolution
Delegation of authority to the Board of Directors for the
purpose of increasing the capital via the issue of shares
of common stock or of any securities convertible into
equity, with preferential subscription rights
Statement of reasons
As the existing authorization expires in August 2019, it is proposed to
the General Meeting to terminate this authorization and grant the
Board of Directors a new authorization to increase capital via the
issue of shares of common stock or of any securities convertible into
equity, with preferential subscription rights. This authorization will
be granted for a new period of 26 months starting with the General
Meeting of July 18, 2019.
Shareholders will have preferential subscription rights, in proportion
to the number of their shares, to the securities issued in accordance
with this resolution. The Board of Directors will have the option of
granting the Shareholders the right to apply for a number of securi-
ties in excess of the number of shares for which they can apply as
of right, in proportion to their subscription rights and according to
their request.
The nominal amount of any immediate or future capital increases
may not exceed €20,000,000 or its equivalent in any other currency.
All capital increases that may be carried out pursuant to the autho-
rizations granted to the Board of Directors by resolutions 15 to 20
submitted at the General Meeting will be deducted from this limit.
The General Meeting, having reviewed the Report of the Board of
Directors and the special report of the Statutory Auditors, and in
accordance with Articles L. 225-129, L. 225-129-1, L. 225-129-2 et seq. and
L. 228-92 et seq. of the French Commercial Code:
• Authorizes the Board of Directors to issue, on one or more occasions,
common stock of the Company or any other securities, including
stand-alone share subscription warrants with or without considera-
tion, carrying immediate or deferred rights to common stock of the
Company. The Board of Directors will have full discretionary powers
to determine the amount, terms and timing of this issue, which may
be carried out in France or abroad and within the framework of this
resolution, and may be denominated in euros, foreign currency or any
monetary unit determined by reference to a basket of currencies.
Securities may be subscribed for in cash or by offsetting debt.
The issue price of each share may not be less than the par value.
This authorization granted to the Board of Directors is valid for a
period of 26 months as from the date of this Meeting;
• Decides that the total nominal amount of immediate or future capital
increases that may be carried out may not exceed €20,000,000 or its
equivalent in any other currency, plus the amount of any additional
shares issued to maintain the rights of holders of securities giving
access to shares, in line with legal provisions. All capital increases
that may be carried out pursuant to the authorizations granted
to the Board of Directors by resolutions 15 to 20 submitted at the
General Meeting will be deducted from this limit. Furthermore,
the total nominal amount of debt instruments with immediate or
deferred access to the capital that may be issued in application of
this authorization may not exceed €300,000,000 or its equivalent in
any other currency;
• Decides that existing Shareholders will have a preferential right to
subscribe for the securities issued pursuant to this authorization, in
proportion to their existing holdings.
The Board of Directors will have the option of granting the
Shareholders the right to apply for a number of securities in excess
of the number of shares for which they can apply as of right, in
proportion to their subscription rights and according to their request;
• Decides that if the applications for shares as of right and, if appli-
cable, applications for excess shares, do not cover the entire issue,
the Board of Directors may use one or more of the options below in
the order it deems fit:
– limit the amount of the issue to the subscriptions received,
provided that at least 75% of the issue is taken up,
– freely distribute all or part of the unsubscribed securities,
– float all or part of the unsubscribed securities;
• Notes that, as required, this authorization automatically waives
Shareholders’ preferential subscription rights to the shares to which
these securities entitle them in favor of holders of securities issued in
application of this resolution and giving deferred access to Company
shares that may be issued;
• Decides that this authorization also covers the authorization granted
to the Board of Directors to amend the articles of association as
necessary;
• Acknowledges that this authorization cancels and replaces any
previous authorizations with the same purpose.
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Decisions falling within the competence of the Extraordinary General Meeting
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Sixteenth resolution
Delegation of authority to the Board of Directors for the
purpose of increasing the capital via the issue of shares
of common stock or of any securities convertible into
equity, through public offerings and without preferential
subscription rights
Statement of reasons
As the existing authorization expires in August 2019, it is proposed to
the General Meeting to terminate this authorization and grant the
Board of Directors a new authorization to increase capital via the
issue of shares of common stock or of any securities convertible into
equity, through public offerings and without preferential subscrip-
tion rights. This authorization will be granted for a new period of
26 months starting with the General Meeting of July 18, 2019.
Shareholders’ preferential subscription rights to securities to be issued
under this authorization will be cancelled. The Board of Directors will
have the option of granting Shareholders a priority subscription right
to shares as of right and, if applicable, applications for excess shares,
for all or part of the issue, for the period and under the terms it will
set pursuant to the applicable legislative and regulatory provisions
when it decides to exercise this authorization.
The nominal amount of any immediate or future capital increases
may not exceed €20,000,000 or its equivalent in any other currency.
All capital increases that may be carried out pursuant to the autho-
rizations granted to the Board of Directors by resolutions 15 to 20
submitted at the General Meeting will be deducted from this limit.
Furthermore, the total nominal amount of debt instruments with
immediate or deferred access to the capital that may be issued in
application of this authorization may not exceed €300,000,000 or
its equivalent in any other currency.
The issue price may not be less than the weighted average price of
shares quoted over the three days prior to the decision, less 5%. For
issues of stand-alone share subscription warrants carrying immediate
or deferred rights to Company shares, this minimum price applies to
the sum of the price of the warrant and the share.
The General Meeting, deliberating in accordance with the quorum
and majority requirements for Extraordinary General Meetings, having
reviewed the Report of the Board of Directors and the special report
of the Statutory Auditors, and in accordance with Articles L. 225-129,
L. 225-129-1, L. 225-129-2 et seq., L. 225-135, L. 255-136, and L. 228-92 et
seq. of the French Commercial Code:
• Authorizes the Board of Directors to issue, through public offerings,
on one or more occasions, common stock of the Company and/or to
share equivalents carrying rights to other equity securities or to debt
securities and/or share equivalents carrying rights to equity securi-
ties to be issued governed by Articles L. 228-91 et seq. of the French
Commercial Code. The Board of Directors will have full discretionary
powers to determine the method and terms of this issue, which may
be carried out in France or abroad.
Securities may be subscribed for in cash or by offsetting debt or may
result from securities tendered to a public exchange offer initiated
by the Company under Article L. 225-148 of the French Commercial
Code.
This authorization granted to the Board of Directors is valid for a
period of 26 months from the date of this Meeting;
• Decides that the nominal amount of any immediate or future capital
increases may not exceed €20,000,000 or its equivalent in any other
currency. All capital increases that may be carried out pursuant to
the authorizations granted to the Board of Directors by resolutions 15
to 20 submitted at this General Meeting will be deducted from this
limit. Furthermore, the total nominal amount of debt instruments
with immediate or deferred access to the capital that may be issued
in application of this authorization may not exceed €300,000,000 or
its equivalent in any other currency;
• Decides to cancel Shareholders’ preferential subscription rights to
securities to be issued under this authorization, and give the Board of
Directors the option of granting Shareholders a priority subscription
right to shares as of right and, if applicable, applications for excess
shares, for all or part of the issue, for the period and on the terms it
will set pursuant to the applicable legislative and regulatory provi-
sions when it decides to exercise this authorization. This priority
subscription right will not be transferable or tradable;
• Decides that the issue price may not be less than the weighted average
price of shares quoted over the three days prior to the decision, less
5%. For issues of stand-alone share subscription warrants carrying
immediate or deferred rights to Company shares, this minimum price
applies to the sum of the price of the warrant and the share;
• Notes that, as required, this authorization automatically waives
Shareholders’ preferential subscription rights to the shares to which
these securities entitle them in favor of holders of securities issued in
application of this resolution and giving deferred access to Company
shares that may be issued;
• Decides that this authorization also covers the authorization granted
to the Board of Directors to amend the articles of association as
necessary;
• Acknowledges that this authorization cancels and replaces any
previous authorizations with the same purpose.
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Decisions falling within the competence of the Extraordinary General Meeting
Seventeenth resolution
Eighteenth resolution
Delegation of authority to the Board of Directors for the
purpose of increasing the issue amount in the event of
over-demand
Delegation of authority to the Board of Directors for the
purpose of increasing the capital by the capitalization of
premiums, reserves, profits or otherwise
Statement of reasons
Statement of reasons
As the existing authorization expires in August 2019, it is proposed to
the General Meeting to terminate this authorization and grant the
Board of Directors a new authorization to increase the issue amount
in the event of over-demand for a new period of 26 months starting
with the General Meeting of July 18, 2019.
For each issue carried out in application of the 15th and 16th resolutions
above, the Board of Directors will be authorized to increase the
number of shares to be issued in accordance with Article L. 225-135-1
of the French Commercial Code in the event of over-demand, and
under the following terms: (i) within 30 days of the close of the
original issue, (ii) for up to 15% of its amount, (iii) for a maximum of
€20,000,000, and (iv) at the same price applied in the original issue.
The General Meeting, having reviewed the Report of the Board of
Directors and the special report of the Statutory Auditors, decides that
for each issue carried out in application of the twelfth and thirteenth
resolutions above, the Board of Directors is authorized to increase the
number of shares to be issued in accordance with Article L. 225-135-1
of the French Commercial Code in the event of over-demand, and
within 30 days of the close of the original issue, and for up to 15% of its
amount. The subscription price will be the same as that applied in the
original issue.
However, this increase may not exceed the overall maximum of
€20,000,000 authorized for all capital increases carried out by the
Board of Directors pursuant to resolutions 15 to 20 submitted at this
General Meeting.
The General Meeting acknowledges that the present authorization
cancels and replaces any previous authorizations with the same
purpose.
As the existing authorization expires in August 2019, it is proposed to
the General Meeting to terminate this authorization and grant the
Board of Directors a new authorization to increase capital by the
capitalization of premiums, reserves, profits or otherwise, for a new
period of 26 months starting with the General Meeting of July 18,
2019.
The total amount of capital increases that may be carried out, plus
the amount required to maintain the rights of holders of securities
giving access to shares, in line with legal provisions, may not exceed
the total amount of reserves, premiums and profits existing at the
time of the capital increase, or €100,000,000. This limit may be
reduced to the amount of capital increases carried out pursuant to
resolutions 15 to 20 submitted at this General Meeting.
In accordance with Article L. 225-130 of the French Commercial Code,
the General Meeting, having reviewed the Report of the Board of
Directors:
• Authorizes the Board of Directors, for a period of 26 months as from
the date of this Meeting, to increase the capital, on one or more
occasions, through incorporation of additional paid-in capital,
retained earnings, earnings, or other amounts that may be capitalized
in accordance with the applicable laws and the Company’s articles
of association, in the form of free share awards, the increase of the
nominal amount of existing shares or a combination of these two
methods. The total amount of capital increases that may be carried
out, plus the amount required to maintain the rights of holders of
securities giving access to shares, in line with legal provisions, may
not exceed the total amount of reserves, premiums and profits
existing at the time of the capital increase, or €100,000,000. This
limit may be reduced to the amount of capital increases carried out
pursuant to resolutions 15 to 20 submitted at this General Meeting;
• Decides that, in the event that the Board of Directors exercises this
authorization, rights to fractional shares may not be traded or trans-
ferred, and that the corresponding securities will be sold. Proceeds
from sale will be allocated to rights holders within the time limit set
forth in regulations in force;
• Decides that this authorization also covers the authorization granted
to the Board of Directors to amend the articles of association as
necessary.
The General Meeting acknowledges that the present authorization
cancels and replaces any previous authorizations with the same
purpose.
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Decisions falling within the competence of the Extraordinary General Meeting
6
Nineteenth resolution
Twentieth resolution
Delegation of authority to the Board of Directors for
the purpose of issuing shares without preferential
subscription rights as compensation for contributions of
shares or share equivalents granted to the Company as
part of a contribution in kind
Statement of reasons
As the existing authorization expires in August 2019, it is proposed
to the General Meeting to terminate this authorization and grant
the Board of Directors a new authorization to issue shares without
preferential subscription rights as compensation for contributions
of shares or share equivalents granted to the Company as part of a
contribution in kind.
This authorization will be granted for a new period of 26 months
starting with the General Meeting of July 18, 2019.
Within the overall maximum of €20,000,000, the Board of Directors
will have the option of issuing shares of common stock in line with
the report of the contributions auditor(s), not to exceed 10% of the
Company’s share capital.
Within the overall maximum of €20,000,000 applicable to capital
increases authorized by the resolutions 15 to 20 submitted at this
General Meeting and in accordance with Article L. 225-147 of the French
Commercial Code, the General Meeting, deliberating in accordance
with the quorum and majority requirements for Extraordinary General
Meetings, having reviewed the Report of the Board of Directors, autho-
rizes the Board of Directors, for a period of 26 months as from the date
of this Meeting, to issue shares of common stock in line with the report
of the contribution appraiser(s), not to exceed 10% of the Company’s
share capital, as compensation for contributions in kind granted to the
Company in the form of shares or share equivalents.
The General Meeting acknowledges that this authorization cancels
and replaces any previous authorizations with the same purpose. This
authorization also covers the authorization granted to the Board of
Directors to amend the articles of association as necessary.
Delegation of authority to the Board of Directors for the
purpose of increasing the capital without preferential
subscription rights through private placement
Statement of reasons
As the existing authorization expires in August 2019, it is proposed
to the General Meeting to terminate this authorization and grant
the Board of Directors a new delegation of authority to increase
the share capital without preferential subscription rights by private
placement, for an additional 26 months starting with the General
Meeting of July 18, 2019.
The total amount of share capital increases that may be carried out
pursuant to this delegation is limited to 20% of the share capital per
year, up to an overall ceiling of €20,000,000.
The issue price of the shares issued directly will be equal to or greater
than the minimum required by the regulatory provisions in force on
the day of issue for an issue without preferential subscription rights
(to date, the weighted average of the share price over the three
trading days preceding the setting of the subscription price of the
capital increase less 5%), after correcting of this average in the event
of a difference between the dividend dates.
The General Meeting, deliberating in accordance with the quorum
and majority requirements for Extraordinary General Meetings, having
reviewed the Report of the Board of Directors and the special report
of the Statutory Auditors, in application of Article L. 225-136 of the
French Commercial Code and Article L. 411-2 of the French Monetary
and Financial Code:
• Delegates to the Board of Directors, for a period of 26 months from
the date of this General Meeting, the authority to carry out, on one
or more occasions, a capital increase reserved for qualified investors
or a limited circle of investors in accordance with the provisions of
Article L. 225-136 of the French Commercial Code and Article L. 411-2
of the French Monetary and Financial Code;
• Decides that the issue price of the shares issued directly will be equal
to or greater than the minimum required by the regulatory provisions
in force on the day of issue for an issue without preferential subscrip-
tion rights (to date, the weighted average of the share price over the
three trading days preceding the setting of the subscription price of
the capital increase less 5%), after correcting of this average in the
event of a difference between the dividend dates;
• Decides that the total amount of share capital increases that may
be carried out pursuant to this delegation is limited to 20% of the
share capital per year, up to an overall ceiling of twenty million euros
(€20,000,000);
• In all cases, the amount of the capital increases carried out pursuant
to this resolution shall be charged against the ceilings provided for in
resolutions 15 to 20.
The General Meeting acknowledges that this delegation cancels and
replaces any previous authorization having the same purpose
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RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING
Decisions falling within the competence of the Extraordinary General Meeting
Twenty first resolution
Authorization granted to the Board of Directors to
increase the capital by issuing shares reserved for
employees enrolled in the employee savings plan
Statement of reasons
In accordance with the provisions of Articles L. 3332-1 et seq. of the
French Labor Code and Articles L. 225-129-6 and L. 225-138-1 of the
French Commercial Code, providing in particular for a permanent
obligation to consult the Shareholders regarding capital increases
reserved for employees enrolled in the Company savings plan, the
General Meeting is called upon to terminate the existing authori-
zation and to authorize the Board of Directors to carry out capital
increases reserved for employees enrolled in the Company savings
plan.
This authorization will be granted for a new period of 26 months
starting with the General Meeting of July 18, 2019.
The ceiling of the nominal amount of the Company's capital increase,
resulting from all share issues carried out pursuant to this resolution,
is set at 2% of the share capital, this ceiling being autonomous and
distinct from the ceilings referred to in other resolutions and esta-
blished without taking into account the nominal value of the ordinary
shares to be issued, if any, in respect of adjustments carried out to
preserve the rights of holders of securities conferring entitlement to
shares in the Company, in accordance with the law.
The preferential subscription right to which the issue of shares or
other securities giving access to the capital provided for in this reso-
lution confers immediate or subsequent entitlement will be canceled
for the benefit of employees enrolled in the Company savings plan.
The Board of Directors shall be free to determine the terms and
conditions of such increases, within the limits of this authorization
and within legal and regulatory limits.
The General Meeting, deliberating in accordance with the quorum
and majority requirements for Extraordinary General Meetings, having
reviewed the Report of the Board of Directors and the special report
of the Statutory Auditors, in application of Articles L. 3332-1 et seq. of
the French Labor Code and Articles L. 225-129-6 and L. 225-138-1 of the
French Commercial Code, and acting in accordance with the provisions
of said Code:
• Decides that the Board of Directors shall have a maximum period of
26 months to implement a new Company savings plan in accordance
with the provisions of Articles L. 3332-1 et seq. of the French Labor
Code;
• Delegates to the Board of Directors, for a period of 26 months from
the date of this General Meeting, all powers to increase the share
capital, on one or more occasions, at its sole discretion, by issue
of shares or other securities giving access to the Company's capital
reserved for members of a Company savings plan implemented by
the Company and French or foreign companies affiliated thereto,
pursuant to Article L. 225-180 of the French Commercial Code and
L. 3344-1 and L. 3344-2 of the French Labor Code.
The ceiling of the nominal amount of the Company's capital increase,
resulting from all share issues carried out pursuant to this resolution,
is set at 2% of the share capital, this ceiling being autonomous and
distinct from the ceilings referred to in other resolutions and esta-
blished without taking into account the nominal value of the ordinary
shares to be issued, if any, in respect of adjustments carried out to
preserve the rights of holders of securities conferring entitlement to
shares in the Company, in accordance with the law;
• Decides that the issue price of shares issued pursuant to this autho-
rization will be determined by the Board of Directors in accordance
with the legal and regulatory provisions applicable to companies
whose shares are admitted to trading on a regulated market;
• Decides that the characteristics of the other securities giving access
to the capital of the Company will be determined by the Board of
Directors under the conditions set out by regulations;
• Decides to cancel the preferential subscription right to shares to
which the issue of shares or other securities giving access to the
capital as provided for in this resolution confers immediate or
subsequent entitlement, for the benefit of the employees enrolled in
a Company savings plan, and to waive any right to any shares or other
securities to be awarded pursuant to this resolution;
• Decides that the Board of Directors shall have full powers to
implement this delegation, within the limits and under the conditions
specified above, particularly for the following purposes:
– determine the characteristics of the securities to be issued, the
amounts proposed for subscription and, in particular, set the issue
prices, dates, deadlines, terms and conditions for subscription,
release, delivery and enjoyment of securities, in accordance with
applicable laws and regulations,
– record the completion of capital increases up to the amount of the
shares that will actually be subscribed or other securities issued
pursuant to this authorization,
– if applicable, charge the costs of the capital increases against the
amount of the related premiums and deducting from this amount
the sums necessary to bring the legal reserve to one-tenth of the
new capital after each capital increase,
– conclude all agreements, perform directly or by proxy all tran-
sactions and procedures including proceeding with all formalities
following capital increases and corresponding amendments to
the articles of association and, more generally, do whatever is
necessary,
– in general, enter into any agreement, in particular to successfully
complete the proposed issues, take all measures and carry out all
formalities relevant to the issue, listing and financial servicing of
securities issued pursuant to this delegation and the exercise of
the rights attached thereto;
• Decides that this authorization shall terminate, as of this date, up
to the amount of the unused portion, authorizations previously
granted to the Board of Directors to increase the share capital of
the Company by issue of shares reserved for members of Company
savings plans with cancellation of preferential subscription rights in
favor of the latter.
138
ESI GROUP • 2018 REGISTRATION DOCUMENT RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING
Decisions falling within the competence of the Extraordinary General Meeting
6
The General Meeting, having reviewed the report of the Board of
Directors, decides to amend the articles of association by adding under
Article 9 B of the articles of association as follows:
"In addition to the obligations provided for in paragraph 1 of Article
L. 233-7 of the French Commercial Code, any natural or legal person,
acting alone or in concert, who comes to hold or who ceases to hold
directly or indirectly a fraction – of capital, vote or securities giving
term access to the capital of the Company equal to or greater than 2.5%
or a multiple of that fraction, including beyond the reporting thresholds
provided for by the legal and regulatory authorities, is required to notify
the Company no later than closing of trading on the 4th trading day
following the day of the crossing threshold, or at the latest, when a
General Meeting has been convened on the third working day preceding
the Assembly at midnight, Paris time, the total number of shares, voting
rights or securities giving access to the capital, which it owns alone,
directly or indirectly, or in concert.
It is specified that the determination of the thresholds to be declared
in application this paragraph shall be carried out in accordance with the
provisions of Articles L. 233-7 and L. 233-9 of the French Commercial
Code.
Non-compliance with this obligation may be punished by deprivation
of voting rights for the shares or rights attached thereto exceeding the
undeclared fraction for any Shareholders' Meeting which shall be held
until the expiry of two years from the date of regularization of the
above declaration.
The sanction is applicable if it is recorded in the minutes of the General
Meeting and requested by one or more Shareholders holding at least
5% of the capital of the Company."
The rest of the Article remains unchanged.
Twenty second resolution
Amendment to the articles of association – Article 22
change of financial year closing date
Statement of reasons
The Board of Directors proposes to the General Meeting of change
the closing date of the financial year to December 31 instead of
January 31, to change seasonality and allow greater clarity in terms of
financial reporting. It is thus proposed to amend the first paragraph of
Article 22 of the articles of association as follows:
"The financial year begins on January 1 and ends on December 31 of
each year."
The rest of the Article remains unchanged.
It is specified that the 2019 financial year after this vote will last 11
months (from February 1, 2019 to December 31, 2019).
The General Meeting, having reviewed the report of the Board of
Directors, decides to change the closing date of the financial year and
to amend the first paragraph of Article 22 of the articles of association
as follows:
"The financial year begins on January 1 and ends on December 31 each
year."
The rest of the Article remains unchanged.
Twenty third resolution
Amendment to the articles of association – Additional
paragraph under Article 9B related to obligations to
declare crossing thresholds
Statement of reasons
In order to allow a better follow-up of the significant evolutions in
the shareholding of the Company, the Board of Directors proposes
to the General Meeting to include in the articles of association, in
addition to obligations provided for in paragraph 1 of Article L. 233-7
of the French Commercial Code, an obligation to declare the crossing
upwards and downwards of 2.5% threshold and any multiple of that
fraction. Failure to comply with this obligation, at the request of
one or several shareholders holding at least 5% of the capital of the
Company, will be punished by the deprivation of voting rights for the
shares or rights attached thereto exceeding the undeclared fraction,
for any Shareholders' Meeting to be held until the expiry of a two
years after the date of the regularization of the declaration above.
It is thus proposed to add a section under Article 9 B of the articles
of associations relating to the obligations of declaration of crossing
thresholds.
139
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 6
RESOLUTIONS SUBMITTED FOR APPROVAL BY THE GENERAL MEETING
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.
140
ESI GROUP • 2018 REGISTRATION DOCUMENT 7
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 securities,
especially in fields related to the publishing of scientific software,
including digital simulation software for prototyping and manufactu-
ring 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.
Financial year (Article 22 of the articles of association)
The financial year begins on February 1 and ends on January 31 of each
year. It covers 12 months.
It will be proposed to the next General Meeting of July 18, 2019, in
the 22nd resolution, to amend this articles of association so that the
financial year begins on January 1 and ends on December 31 of each year.
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.
Except for disputes arising in the ordinary course of business, the
Company was not involved in any governmental, judicial or arbitration
procedure during the exercise that ended at January 31, 2019.
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 financial year, less any losses carried forward, will be set aside
to form the legal reserve fund; this deduction is no longer required
once the legal reserve has reached one-tenth of the share capital; the
requirement applies again when, for any reason, the reserve falls below
said one-tenth fraction.
The balance of said profit, plus any 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.
141
12345678 ESI GROUP • 2018 REGISTRATION DOCUMENT 7
INFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company’s capital
Provisions of the articles of association concerning
the participation of shareholders in General Meetings
(Articles 18 and 19 of the articles of association)
Please refer to Section 2.5.3 of this Registration Document.
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.
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.
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.
There are no other requirements under the articles of association
regarding shareholding thresholds except for those set forth under
current 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.
It will be proposed to the next General Meeting of July 18, 2019, in the
23rd resolution, to introduce a requirement to declare that the statutory
threshold has been crossed at 2.5% of the total number of shares or
voting rights of the Company.
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.
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.
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.
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.
142
ESI GROUP • 2018 REGISTRATION DOCUMENT INFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company’s capital
7
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
For a summary of the delegations granted to the Board of Directors that may impact the Company's share capital, please refer to Section 2.5.2 of
this Registration Document.
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 €)
EGM of 01/28/1991
Incorporation of the Company
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 11/05/1996
Capital increase in cash
EGM of 03/26/1997
Capitalization of share premium
And withdrawal from the legal reserve
EGM of 04/24/1997
Capital increase in cash
EGM of 12/09/1998
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
15.24
15.24
15.24
694
7.62
7.62
18.29
18.29
1.52
1.52
2.44
(2,274,021)
(2,261,779)
3,565,206
(3,577,448)
(4,631)
130,801.26
4,364,334
4,175,251
Par value
(in €)
Premium
(in €)
Number of
shares
created
2,500
834
300,060
32,276
975
3,703,095
524,902
38,112
50,827
2,312,606
2,312,606
2,558,628
6,140,707
6,158,544
6,158,544
6,958,752
11,134,003
2,500
3,334
3,334
303,394
335,670
335,670
336,645
4,039,740
4,564,642
4,564,642
5,705,803
2,783,502
1,141,161
13,917,505
BoD meeting of 05/09/2001 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
BoD meeting of 01/02/2019 Share capital adjustment
Exercise of share subscription options
* EGM: Extraordinary General Meeting ; BoD: Board of Directors.
3
3
3
3
3
3
3
3
3
3
3
3
3
3
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
12,052
17,589,537
5,863,179
21,775
3,350
17,599,587
5,866,529
2,051
350
17,600,637
5,866,879
24,905
4,250
17,613,387
5,871,129
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
40,339
1,450
18,053,676
6,017,892
15.24
15.24
694
7.62
7.62
18.29
18.29
1.52
1.52
2.44
2.44
2.44
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
143
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 7
INFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company’s capital
7.2.4. Corporate shareholding structure
Shareholding structure
As of January 31, 2019, the shareholding structure of ESI Group is as follows:
Auto-control
6.5%
Founders
and Board of Directors
37.1%
Public
56.5%
7
8
Change in the breakdown of the Company’s share capital over the past three financial years
Over the past three financial years, the breakdown of share capital and voting rights evolved as follows:
SUB-TOTAL OF SHAREHOLDERS’ AGREEMENT (REGISTERED SHARES)
2,205,004
36.64%
At January 31, 2019
First and last name
The de Rouvray Family
Xiu Mei Dubois
Alex Peng Dubois-Sun
Vincent Chaillou
Charles-Helen des Isnards
Éric 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: 8,263,780
144
Number of
shares
% of
capital
Number of voting
rights that may be
exercised
% of voting rights
that may be
exercised
1,824,385
25,200
355,419
30.2%
0.42%
5.91%
21,197
3,951
1,589
61
1
1
26,800
70,953
32,782
3,294,006
3,326,788
388,347
0.35%
0.07%
0.03%
0.00%
0.00%
0.00%
0.45%
1.18%
0.54%
54.74%
55.28%
6.45%
3,638,907
48,200
710,838
4,397,945
34,794
7,352
3,178
62
2
2
45,390
87,416
50,234
3,294,448
3,334,682
0
6,017,892
100.00%
7,875,433
46.1%
0.61%
9.03%
55.84%
0.44%
0.09%
0.04%
0.00%
0.00%
0.00%
0.58%
1.11%
0.64%
41.83%
42.47%
0.00%
100.00%
ESI GROUP • 2018 REGISTRATION DOCUMENT INFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company’s capital
7
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
Éric 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
Éric 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
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
61
1
1
21,600
68,311
27,709
3,286,830
3,314,539
406,988
6,016,442
30.3%
6.3%
36.6%
0.3%
0.1%
0.0%
0.0%
0.0%
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
61
1
1
38,986
84,874
42,310
3,286,830
3,329,140
0
100.0%
7,850,945
46.4%
9.6%
56.0%
0.4%
0.1%
0.0%
0.0%
0.0%
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
1
1
1
21,540
64,288
32,565
3,230,594
3,263,159
418,001
5,991,992
30.4%
6.7%
37.1%
0.3%
0.1%
0.0%
0.0%
0.0%
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
1
1
1
38,376
76,091
39,547
3,230,594
3,270,141
0
46.4%
10.2%
56.6%
0.4%
0.1%
0.0%
0.0%
0.0%
0.0%
0.5%
1.11%
0.5%
41.4%
41.9%
0.0%
100.0%
7,801,071
100.0%
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, 2019, 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 5.91% of share
capital and 9.03% of voting rights.
Declarations of ownership thresholds crossed in FY 2018
On December 11, 2018, Loys Investment, acting on behalf of funds,
declared that it had crossed the 5% threshold of ESI Group's share
capital and held, on behalf of the said funds, 5.17% of the share capital
and 3.77% of the voting rights of the Company.
The Company was not notified of any other crossing of legal thresholds
of share capital or voting rights at January 31, 2019.
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.
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.
145
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 7
INFORMATION ON THE COMPANY AND SHARE CAPITAL
Information on the Company’s capital
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 share-
holding at the sale price;
7.2.5. Company share buybacks
The Shareholders’ Meeting of June 18, 2018 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
June 29, 2017.
The description of the share buyback program implemented by the
Board of Directors’ meeting of July 18, 2018, pursuant to the authori-
zation granted by the Shareholders’ Meeting can be consulted on the
website.
• 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, 2019, this agreement represented 30.32%
of the Company’s capital and 46.35% of voting rights, and collectively
binds its signatories to retain half of their shares.
Shares buyback in FY 2018
In 2018, ESI Group did not buy back any shares.
Cancellation of shares in FY 2018
In 2018, ESI Group did not cancel any shares.
Assignments or transfers of shares in FY 2018
In 2018, ESI Group distributed 18,630 treasury shares under its free share
plans.
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.
TABLE SUMMARIZING THE OPERATIONS OF THE COMPANY ON ITS OWN SHARES IN 2018
Date of authorization by the General Meeting
Date of expiration of the authorization
Ceiling on authorized buybacks
Maximum purchase price per share
Authorized purposes
Board of Directors’ meeting at which buybacks were implemented
Number of shares purchased in 2017
Number of shares cancelled in 2017
Number of treasury shares at January 31, 2018(1)
Percentage of capital held by the Company at January 31, 2018
(1) Excluding liquidity contract.
Resolution 12 of July 18, 2018
December 17, 2020
10% of share capital at the transaction date
€80
Cancellation
Share purchase options
Free share grants
Liquidity and market-making
External growth
July 18, 2018
0
0
388,347
6.5%
146
ESI GROUP • 2018 REGISTRATION DOCUMENT INFORMATION ON THE COMPANY AND SHARE CAPITAL
ESI shares – market
7
7.3. ESI shares – market
7.3.1. 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 2019:
300
250
200
150
100
50
0
€24.12
10,526.20
4,392.33
(Basis 100)
€33.10
13,275.42
5,586.41
FEB.-16
APR.-16
JUNE-16
AUG.-16
OCT.-16
DEC.-16
FEB.-17
APR.-17
JUNE-17
AUG.-17
OCT.-17
DEC.-17
FEB.-18
APR.-18
JUNE-18
AUG.-18
OCT.-18
DEC.-19
FEB.-19
APR.-19
ESI Group
CAC 40
CAC Mid & Small
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 2019 and the
daily volume of transactions:
(in ¤)
60
50
40
30
€26.72
20
10
0
July-00
(number of shares)
300,000
250,000
200,000
€33.10
150,000
100,000
50,000
0
July-01
July-02
July-03
July-04
July-05
July-06
July-07
July-08
July-09
July-10
July-11
July-12
July-13
July-14
July-15
July-16
July-17
July-18
ESI Group stock price
Daily volume
7.3.2. Survey of identifiable bearer shares
On April 25, 2019 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 23, 2018.
French institutional investors
Foreign investors
Individual shareholders
Companies
At April 25, 2019
At April 23, 2018
As % of
free float
As % of
share capital
As % of
free float
As % of
share capital
33.9%
58.6%
7.5%
0%
18.6%
32.2%
4.1%
0%
41%
52%
7%
0%
22%
28%
4%
0%
This analysis points to a strong increase in foreign shareholders. which currently account for 32.2% of share capital. compared to 28% last year.
147
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 8
ADDITIONAL
INFORMATION
8.1. Persons responsible for the Registration Document
8.1.1. Person responsible for the content of the Registration Document
Paris, May 23, 2019.
Mrs. Cristel de Rouvray, 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
Mrs. Cristel de Rouvray, 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.
148
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.
ESI GROUP • 2018 REGISTRATION DOCUMENT ADDITIONAL INFORMATION
Documents available to the public
8
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
Florence Barré
100-102, avenue de Suffren
75015 Paris
investors@esi-group.com
Shan
Florent Alba
30, rue des Mathurins
75008 Paris
esigroup@shan.fr
149
23456781 ESI GROUP • 2018 REGISTRATION DOCUMENT 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 financial year ended
January 31, 2018 which appear on pages 68-116 of the Registration Document filed with the French Financial Markets Authority (AMF) on May 25,
2018 under number D.18-0507;
• the parent company financial statements, consolidated financial statements, and the report of the Statutory Auditors for the financial 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.
Information
1.
Responsible persons
1.1. Persons responsible for the information contained in the document
1.2. Statement by the persons responsible for the document
2.
Statutory Auditors
2.1. Name and address of the issuer’s Statutory Auditors
2.2. Statutory Auditors who resigned, were removed or were not reappointed during the period in question
3.
Selected financial information
3.1. Selected historical financial information
3.2. Selected historical financial information for interim periods
4.
5.
Risk factors
Information concerning the issuer
5.1. History and development of the Company
5.1.1. Corporate name and commercial name of the issuer
5.1.2. Place 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 financial 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
6.
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
7.
Flowchart
7.1. Brief description of the Group and the issuer’s position within the Group
7.2. List of major subsidiaries
8.
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
9.
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
150
Page(s)
148
148
148
148
148
N/A
15
15
N/A
17
141
12
141
141
141
141
12
16
16
16
17
6
6
6
7
9
N/A
N/A
9
13
6
14, 87 & 124
90 & 96
17 & 60
69
69
69
69
17
ESI GROUP • 2018 REGISTRATION DOCUMENT CROSS-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
Page(s)
83
70 & 82
71 & 96
71, 96 & 100
71 & 96
71
74
N/A
21
24
29
33
33 & 90
33
24
24
42
24
21
52
52
33
52
144
144
141
144
144
N/A
79
79 & 109
N/A
79 & 109
105 & 125
N/A
N/A
N/A
18 & 141
69 & 84
148
142
141 & 142
69
N/A
149
113 & 124
151
12345678Registration Document cross-reference tables ESI GROUP • 2018 REGISTRATION DOCUMENT CROSS-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
Page(s)
148
109
79
125
105
See cross-reference table below
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
• Objective and exhaustive analysis of development of the Group’s business, performance and financial position
• Key events between the closing date and the date of the Management report
• Description of main risks and uncertainties and indication regarding the use of financial instruments by the Group
• Foreseeable development of the Group’s situation and future outlook
• Research and Development activity
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 financial years
Internal control and risk management procedures
• Control environment
• Organization of internal control
• Risk management
Page(s)
69 & 70
74
17
74
71
142
144
146
144
144
60
52
59 & 63
72
78
74
74
76
78
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 financial year
• Compensation and benefits paid during the financial 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
152
Page(s)
22
22
23 & 24
24
33
34
42
33
33
42
45
Annual financial report cross-reference table ESI GROUP • 2018 REGISTRATION DOCUMENT CROSS-REFERENCE TABLES
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.
Page(s)
SOCIAL INFORMATION
Employment
• Total workforce and breakdown by gender, age and geographic area
• Recruitments and dismissals
• Compensation and changes in compensation over time
Work organization
• Work schedules
• Absenteeism
Labor relations
• Organization of employer-employee dialogue
• Summary of collective agreements
Health and safety
• Workplace health & safety conditions
• Summary of agreements signed with trade unions or employee representatives regarding workplace health and safety
• Workplace accidents, in particular frequency and severity, as well as occupational illnesses
Training
• Training policies implemented
• Total number of training hours
Equal treatment
• Steps taken in support of gender equality
• Steps taken in support of employment and inclusion of people with disabilities
• Anti-discrimination policy
Promotion and observance of the fundamental conventions of the International Labor Organization
• Observance of freedom of assembly and the right to collective bargaining
• Elimination of discrimination in employment and occupation
• Elimination of forced or mandatory labor
• Effective elimination of child labor
SOCIETAL INFORMATION
Territorial, economic and social impact of the Company’s activity
• In terms of employment and regional development
• On neighboring or local communities
Relations with persons or organizations with an interest in the activity of the Company, including NGOs, educational institutions
and local communities
• Terms of dialog with such persons or organizations
Subcontracting and suppliers
• Consideration of social issues in the purchasing policy
• Consideration of environmental issues in the purchasing policy
• Amount of subcontracting and consideration of the social and environmental responsibility of suppliers and subcontractors in relationships
with them
Fair trade practices
• Actions taken to prevent corruption
• Measures promoting the health and safety of consumers
52
52
52
52
52
52
52
52
52
52
52
52
52
52
52
52
52
52
52
63
63
63
59
59
59
63
59
153
12345678Sustainable Development and Corporate Social Responsibility cross‑reference table ESI GROUP • 2018 REGISTRATION DOCUMENT CROSS-REFERENCE TABLES
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
Page(s)
60
60
60
60
60
60
60
60
60
60
60
60
60
Not relevant
Not relevant
154
Sustainable Development and Corporate Social Responsibility cross‑reference table ESI GROUP • 2018 REGISTRATION DOCUMENT Shareholders relations
Corinne Romefort-Régnier & Florence Barré
100-102, avenue de Suffren – 75015 Paris – France
Tel.: +33 (0)1 49 78 28 28
Fax: +33 (0)1 53 65 14 12
investors@esi-group.com
Design:
www.rubanblanc.fr
A
-
8
1
-
9
1
/
C
F
.
G
French limited company (société anonyme) with a share capital of €18,053,676
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
www.esi-group.com