2018 ANNUAL REPORT Summary
2018 ANNUAL REPORT 1 OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS 131 5 5.1General approach and methodology 132 OVERVIEW OF THE GROUP AND ITS BUSINESSES 7 5.2 3D printing: a production method that meets the challenges of sustainable 1 1.1Key figures 8 development 135 1.2Overview of the Group and its businesses 10 5.3 Building a major player in technological 1.3 Strategy and outlook, investment and R&D innovation 135 policy 18 5.4 Medical: an area of strategic development 1.4 Analysis of consolidated performance and for PRODWAYSdGROUP 137 business sectors 20 5.5Commitments to its employees 138 1.5 Activities and results of PRODWAYS GROUP 5.6 Activities with limited impact on climate SA 23 change and the environment 142 1.6Risk factors 25 5.7 Report by the independent third-party entity on the consolidated statement of non-financial performance in the CORPORATE GOVERNANCE 35 management report 144
2.1Governance 36 2 2.2Corporate officer remuneration policy 45 INFORMATION ON THE SHAREHOLDERS’ 2.3 Company reference to a Corporate MEETING OF 7dJUNE 2019 147 Governance Code and its application by the 6 6.1 Report of the Board of Directors presenting Company 54 the resolutions submitted to the combined 2.4 Special arrangements, if any, regarding shareholders’ meeting of 7dJune 2019 148 shareholder participation in shareholders’ 6.2 Draft resolutions for the ordinary and meetings 55 extraordinary shareholders’ meeting of 2.5 Regulated agreements, related-party 7dJune 2019 152 agreements and current agreements 56 6.3 Reports of the statutory auditors presented 2.6 Internal control and risk management to the shareholders’ meeting 157 procedures 58 6.4 Other reports by the Board of Directors presented to the shareholders’ meeting of FINANCIAL AND ACCOUNTING 7dJune 2019 160 INFORMATION 61 ADDITIONAL INFORMATION 163 3 3.12018 consolidated financial statements 62 3.2Separate financial statements 2018 104 7.1 Information concerning the statutory 7 auditors 164 7.2Person responsible for the information 164 INFORMATIONdABOUT THEdCOMPANY,dITS 7.3Concordance tables 165 SHAREdCAPITALdAND SHAREHOLDERS 119 4 4.1Information about the Company 120 4.2Share capital 122 4.3Shareholding 128 4.4 Financial communication (financial agenda, share performance, dividend policy, etc.) 129 2018 ANNUAL REPORT
This document describes the Company's activity during the 2018 financial year, in accordance with the provisions of article L.451-1-2 of the French Monetary and Financial Code and articles 222–3 and 222-9 of the General Regulations of the French Financial Markets Authority (AMF). It is filed with the “Autorité des Marchés Financiers” and is available on PRODWAYS GROUP website.
PRODWAYS GROUP - 2018 ANNUAL REPORT 1 A MESSAGE FROM THE CHAIRMAN
In 2018, PRODWAYS GROUP achieved another The acquisition of SURDIFUSE-L’EMBOUT year of solid growth, and once again posted FRANÇAIS in January 2019 is also part of this one of the highest revenue growth rates in strategy. This acquisition complements that the 3D printing market. The Group continued of INTERSON PROTAC in 2017, and enables us to improve its profitability with positive EBITDA to become the French leader in hearing aid for the first time over the financial year. This eartips and to digitalise their production. performance comes from the combination of a large number of already very profitable For 2019, PRODWAYS GROUP should continue activities and some promising, yet still loss- to benefit from the development of 3D making, activities. printing as a manufacturing method in an increasing number of markets, as well as from The acquisitions and R&D developments its positioning and differentiated technologies. since the IPO have strengthened the Group’s The Group will continue its investments in positions in its core businesses, particularly the future applications of 3D printing (Rapid in 3D printing production applications. Additive Forging technology, digitalisation of Hence, the machines and materials for the processes in the healthcare sector, etc). dental sector are well-recognised in their market. The acquisition of the US machine In a market with high growth potential, we manufacturer, SOLIDSCAPE, in 2018 allows us are ready to seize opportunities and build a to position ourselves in the jewellery market, strong, innovative Group capable of creating where a significant share of production has value for our shareholders and for all of our already shifted to 3D printing. This strategic stakeholders. acquisition also offers us strengthened access to the North American market and an enlarged Raphaël GORGÉ distribution network. Chairman of the Board of Directors
2 PRODWAYS GROUP - 2018 ANNUAL REPORT Revenue €61 M EBITDA €1.2 M
HIGHLIGHTS R&D 5.4% of revenue
PRODWAYS GROUP acquires the American machine manufacturer, SOLIDSCAPE 19 MARCH 2018 Partnership with NEXTEAM PRODWAYS presents its GROUP for the use of new MOVINGLight® V10 innovative RAF technology ceramic 3D printer in the 3D printing of titanium parts.
9 APRIL 2018 17 JULY 2018 3 SEPTEMBER 2018 First multiple sale of the new PRODWAYS ProMaker LD-10 3D printer
10 SEPTEMBER 2018
PRODWAYS Materials launches its online sales site for 3D printing resins Appointment of Olivier Strebelle and powders as Chief Executive Officer of PRODWAYS GROUP
Commercial success 5 OCTOBER 2018 13 SEPTEMBER 2018 in series production
INITIAL and L’ORÉAL join forces to accelerate the development of 13 NOVEMBER 2018 thermoplastic parts using 3D printing
PRODWAYS GROUP - 2018 ANNUAL REPORT 3 PRODWAYS GROUP SPECIALIST IN INDUSTRIAL 3D PRINTING UNIQUELY POSITIONED AS AN INTEGRATED EUROPEAN PLAYER
€ 60.9 M
RAPID GROWTH € 34.8 M € 25.2 M € 17.8 M € 5.0 M € 0.1 M The Group has OUR STRATEGY 2013 2014 2015 2016 2017 2018 rapidly developed • Become a major player in the 3D printing REVENUE across the 3D market by offering high-performance products for professional and industrial printing value uses. chain (software, 3D • Continue to develop priority markets, such printers, materials, as aerospace, healthcare and jewellery, parts & services) for which the Group’s products and expertise are well-suited, and seize growth with a high value opportunities in all other sectors. added technological industrial solution OUR OBJECTIVE to meet the digital • Help our industrial customers to be more challenges of innovative, more effective and more industry. profitable thanks to our products and 31% services. OF REVENUE GENERATED INTERNATIONALLY OUR GOVERNANCE • PRODWAYS GROUP is a subsidiary of GROUPE GORGÉ, an industrial group that specialises in high-tech industries controlled by the GORGÉ family. • GROUPE GORGÉ holds 57% of the capital of PRODWAYS GROUP. The two companies are 460 listed on EURONEXT Paris. employees • Our Board of Directors comprises 5 directors including 2 independent directors. in 8 3 countries R&D CENTRES
4 PRODWAYS GROUP - 2018 ANNUAL REPORT OUR MODEL SYSTEMS PRODUCTS
• The Group targets a large number of Parts design sectors, from aerospace, to healthcare and jewellery, to support industrial companies in • PRODWAYS GROUP is today one of the their digital transformation and incorporate largest European metal and plastic parts 3D printing into their production processes. manufacturers with a sizeable fleet of 3D printers across all 3D printing technologies Machines based in Annecy, France and Austin, USA. • PRODWAYS GROUP is one of the primary Medical applications European manufacturers of industrial 3D printers, with a wide range of multi- • At the same time, PRODWAYS GROUP has technology 3D printing systems (plastic, developed activities transformed by 3D lost wax, ceramic and metal), and premium printing and digitalisation in the healthcare related materials and services. sector. • A range of 23 machines (plastic, ceramic, • The Group has a portfolio of activities lost wax). in the podiatry (orthotic insoles), dental (impression trays, mouthpieces) and • A proprietary Rapid Additive Forging audiology (custom hearing aid eartips and technology for 3D metal printing of large- custom hearing protectors) sectors, for scale parts. which a proportion of the production uses 3D printing, sold directly to healthcare Materials professionals. • A wide range of over 140 materials (liquid resins, ceramic powders and polymers, waxes).
3D software
• The Group’s businesses also include the integration of DASSAULT SYSTÈMES’ SOLIDWORKS 3D design, simulation and optimisation software.
241 215 EMPLOYEES EMPLOYEES €38.4 M €22.9 M REVENUE REVENUE
PRODWAYS GROUP - 2018 ANNUAL REPORT 5 6 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES
1.1KEY FIGURES 8 1.4 ANALYSIS OF CONSOLIDATED PERFORMANCE AND BUSINESS SECTORS 20 1.1.1Change in revenue 8 1.1.2Change in EBITDA 8 1.4.1Analysis of Group results 20 1.1.3 Change in profit (loss) from continuing 1.4.2 Group’s financial position (cash and cash operations 8 equivalents, financing and capital) 22 1.1.4Change in net income 8 1.5 ACTIVITIES AND RESULTS OF PRODWAYS GROUP 1.1.5Key financial data 9 SA 23 1.1.6Investments 9 1.5.1PRODWAYS GROUP SA’s role in the Group 23 1.1.7Change in workforce 9 1.5.2Activities and results 23 1.2OVERVIEW OF THE GROUP AND ITS BUSINESSES 10 1.5.3Proposed appropriation of income 23 1.5.4Standard payment terms 23 1.2.1 History and development of PRODWAYS GROUP 10 1.5.5Other financial and accounting information 24 1.2.2Activities, markets and competition 11 1.2.3 Principal subsidiaries and organisational 1.6RISK FACTORS 25 chart at 31dDecember 2018 16 1.6.1Legal risks 25 1.2.4Significant events 17 1.6.2Risks associated with intellectual property 26 1.6.3Operating risks 28 1.3 STRATEGY AND OUTLOOK, INVESTMENT AND 1.6.4Risks associated with the Group’s business 29 R&D POLICY 18 1.6.5Financial risks 32 1.3.1Strategy 18 1.6.6Industrial and environmental risks 33 1.3.2Outlook 18 1.3.3Investment policy and R&D 19 1.3.4Events after the reporting period 19
PRODWAYS GROUP - 2018 ANNUAL REPORT 7 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Key figures
1.1 KEY FIGURES
The key figures have been extracted from the consolidated financial statements. The 2017 figures were restated as detailed in Note 1.3 to the 2018 consolidated financial statements (“Restatement of 2018 financial statements”).
1.1.1 Change in revenue
(in millions of euros) 2018 2017 2016 Systems 38.40 17.39 13.10 Products 22.86 17.82 12.15 Structure and disposals (0.37) (0.41) (0.04) CONSOLIDATED REVENUE 60.89 34.81 25.21
1.1.2 Change in EBITDA
(in millions of euros) 2018 2017 2016 Systems 1.11 (1.55) (5.42) Products 0.53 0.84 1.39 Structure and disposals (0.44) (0.46) (0.87) CONSOLIDATED EBITDA(1) 1.19 (1.17) (4.89) (1) EBITDA: profit (loss) from operations before depreciation and amortisation, impairments, charges related to free share allocations, and other non-recurring items. This non-IFRS measure is described in Note 3.2 to the consolidated financial statements.
1.1.3 Change in profit (loss) from continuing operations
(in millions of euros) 2018 2017 2016 Systems (2.10) (3.68) (7.36) Products (1.44) (0.57) 0.20 Structure and disposals (0.40) (1.20) (0.89) CONSOLIDATED PROFIT (LOSS) FROM CONTINUING OPERATIONS (3.95) (5.45) (8.06)
1.1.4 Change in net income
(in millions of euros) 2018 2017 2016 CONSOLIDATED NET INCOME (5.66) (7.70) (8.31) NET INCOME – GROUP SHARE (5.45) (7.57) (8.27)
8 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Key figures 1
1.1.5 Key financial data
(in millions of euros) 2018 2017 2016 EQUITY(1) 80.92 86.83 26.01 Available cash and cash equivalents (a) 25.93 41.48 8.68 Financial debt(2) (b) 6.73 4.77 16.32 Net cash(3) (a) - (b) 19.19 36.71 (7.64) ADJUSTED NET CASH(4) 19.32 36.88 (7.64) (1) Equity attributable to owners of the Group plus non-controlling interests. (2) A schedule of financial debt is presented in Note 8.1.1 to the consolidated financial statements. (3) Available cash less financial debt (a negative figure indicates net debt). (4) Net cash plus market value of treasury shares.
1.1.6 Investments
(in millions of euros) 2018 2017 2016 Total R&D expenditure(1) 3.31 1.93 2.18 R&D expenditure as a percentage of revenue 5.4% 5.6% 8.7% Other capitalised investments 4.49 2.89 3.67 (1) R&D charged against income plus R&D capitalised during the financial year.
1.1.7 Change in workforce
2018 2017 2016 Systems 241 180 120 Products 215 192 128 Structure 43 - TOTAL WORKFORCE 460 375 248
PRODWAYS GROUP - 2018 ANNUAL REPORT 9 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Overview of the Group and its businesses
1.2 OVERVIEW OF THE GROUP AND ITS BUSINESSES
PRODWAYS GROUP is a specialist in industrial and professional 3D to design the most precise and fastest 3D printers on the market. printing with a unique positioning as an integrated European player. Thus MOVINGLight® technology was born. André-Luc founded The Group has developed throughout the 3D printing value chain PHIDIAS TECHNOLOGIES so that he could market the new (software, machines, materials, parts & services) with a high value machines built with that technology. added technological industrial solution. In 2013, André-Luc ALLANIC met Raphaël GORGÉ. André-Luc PRODWAYS GROUP is one of the primary European manufacturers ALLANIC became interested in partnering with a French industrial of industrial 3D printers with a wide range of multi-technology 3D Group with a strong technological culture. Raphaël GORGÉ very printing systems and premium associated materials. The Group’s quickly saw the technological advances made possible by businesses also include the integration of DASSAULT SYSTÈMES’ MOVINGLight® technology and the resources that GROUPE SOLIDWORKS 3D design, simulation and optimisation software. The GORGÉ had at its disposal for its international deployment. 3D printers developed by PRODWAYS GROUP are used in a large In May 2013, GROUPE GORGÉ acquired PHIDIAS TECHNOLOGIES. number of sectors, from healthcare, jewellery and aeronautics, The Company was renamed PRODWAYS. providing the necessary tools to innovative companies that wish to In 2014 incorporate 3D printing into their production processes. z In April 2014, GROUPE GORGÉ created PRODWAYS GROUP, The Group is also one of the largest European metal and plastic parts which acquired DELTAMED, a leading player in 3D printing materials. manufacturers with a sizeable fleet of 3D printers and using every This acquisition has since enabled the Group to master and capture kind of 3D printing technology. PRODWAYS GROUP also develops all of the value creation for the machine-material relationship for the and markets medical applications that use 3D printing for podiatry, applications developed by the Group. dentistry and audiology and sells them directly to healthcare professionals. In July, PRODWAYS GROUP acquired a 20% equity stake in DENTOSMILE, a French manufacturer of 3D transparent aligners for By making software and machine, materials and parts design an orthodontics. integral part of its core expertise, PRODWAYS GROUP is positioned throughout the entire value chain and provides its z In 2015 customers a complete offer from the design stage of their projects In February, PRODWAYS opened a subsidiary in the United States through the manufacturing of their parts. (PRODWAYS AMERICAS), allowing it to provide local support for At 31 December 2018, the Group employed 460 people, had offices its American customers, in particular in the areas of pre-sales in three countries and directly exported around 31% of its goods and consulting and technical support services. services. In March, two acquisitions marked the acceleration of the Group’s PRODWAYS GROUP is a GROUPE GORGÉ subsidiary. strategy, which aims to offer its customers multi-technology products and a full range of services: INITIAL, the leading independent French manufacturer of 3D printed parts, and the assets of NORGE SYSTEMS, an English start-up specialising in the design of 3D printers 1.2.1 History and development of using laser sintering of plastic powders. PRODWAYS GROUP In September, an agreement was signed with the Chinese company HUNAN FARSOON for the distribution of a new range of z The origins of PRODWAYS “PRODWAYS powered by FARSOON” premium printers based on In the early 1990s, André-Luc ALLANIC, one of the world’s leading laser sintering technologies for plastic powders. It was an initial step in specialists in 3D printing, who worked on many innovative the Group’s positioning as a serious alternative to the market leaders. technologies (including stereolithography, sintering of metal powder At the same time, PRODWAYS GROUP purchased a 45% equity and polymers) developed some of the first 3D printing systems in stake in the Texas Service Bureau company VARIA 3D, the historic Europe for the French National Centre for Scientific Research trading partner of HUNAN FARSOON. (CNRS) and the Company Laser 3D which he joined in 1993. The In November, PRODWAYS GROUP completed the acquisition of stereolithography machines he designed were already the fastest on EXCELTEC, a company specialising in the development and sale of the market at that time. premium polymer materials specifically designed and optimised for In 1997, André-Luc ALLANIC created his own company – Optoform selective laser sintering, for industrial applications in particular. This – and developed revolutionary systems. He went on to sell that acquisition consolidates the Group’s position on selective laser company to 3D Systems in 2001. sintering technology with a complete range of printers and premium In 2007, the arrival of the new generation of DLP® microelectronic materials, thus allowing a complete solution for all market issues and chips helped André-Luc ALLANIC make his vision a reality. He confirming the Group’s desire to become the new alternative to the combined a DLP® chip with a high-power light-emitting diode (LED) leaders in this technology.
10 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Overview of the Group and its businesses 1
z In 2016 In July, PRODWAYS GROUP acquired the US company In January, PRODWAYS GROUP took control of PODO 3D, a SOLIDSCAPE, a subsidiary of STRATASYS specialising in 3D printing start-up founded by a chiropodist whose ambition is to develop a machines for investment casting applications, particularly for the modelling and 3D printing solution for foot orthotics. jewellery market. This acquisition strengthened machine sales activity and the Group's presence in North America and internationally In May, PRODWAYS introduced the first industrial laser sintering through an expanded distributor network. printer for under €100,000. This new printer is the result of the combination of NORGE SYSTEMS products and the expertise of In October, Olivier Strebelle, previously Deputy Chief Executive PRODWAYS R&D teams in selective laser sintering technology. Officer responsible for Strategy and Business Development at GROUPE GORGÉ, was appointed Chief Executive Officer of In June, PRODWAYS GROUP set up CRISTAL to take over the PRODWAYS GROUP. assets of a French dental laboratory (SOCA laboratory) for the purpose of accelerating the development of 3D printing applications in dentistry. z In 2017 1.2.2 Activities, markets and competition In April, SAFRAN and PRODWAYS GROUP announced a PRODWAYS GROUP is one of the market leaders in Europe for 3D technological partnership to jointly develop materials and processes printing, an additive manufacturing process consisting of creating for additive manufacturing. As part of this collaboration, Safran physical objects by superimposing different layers of material. Corporate Ventures acquired a stake in PRODWAYS GROUP. 3D printing has gone through three major phases since the 1960s. In May, PRODWAYS GROUP was listed on Euronext Paris. The €66 During its early development phase (1960s-2010), 3D printing was million in funds raised helped to continue the ambitious expansion of mainly used to create prototypes. More recently, the market has seen the Group's activities. a massive improvement in the printing processes and the In June, PRODWAYS GROUP announced the development of its development of new materials. These new technological trends have new Rapid Additive Forging (RAF) technology, offering 3D metal led to a substitution phase. 3D printing today allows complex printing for large-scale parts. products and parts to be manufactured. This technology During the third quarter, PRODWAYS GROUP strengthened its complements and in some cases offers a credible alternative to medical business via the acquisition of INTERSON-PROTAC, one of conventional manufacturing techniques. In addition, the 3D printing the leading French manufacturers of earmoulds, aiming to step up market has recently enjoyed renewed interest from major development of 3D printing applications in the field of audiology. multinational companies. In 2016, the acquisition of Arcam and Concept Laser by General Electric marked the start of a new In November 2017, PRODWAYS GROUP expanded its offering to industrialisation phase for 3D printing. Parts that were formerly industry 4.0 with the acquisition of AVENAO INDUSTRIE, a subject to traditional industrial constraints can now be distributor and integrator of Dassault Systèmes’ 3D design, simulation custom-designed using 3D printing. and optimisation software for over 15 years. Basing its strategy on this new industrial cycle, PRODWAYS GROUP In 2018 z has decided to focus its activities on the industrial 3D printing market. In March, NEXTEAM GROUP and PRODWAYS GROUP announced This segment has seen significant growth in recent years, generating the installation of the first industrial machine based on Rapid Additive revenue of €6.5 billion in 2017 (compound annual growth rate – Forging (RAF) at NEXTEAM Group’s site in Toulouse. Also in March, CAGR – of 30% in the last five years – source: Wohlers report PRODWAYS GROUP took a controlling 70% equity stake in VARIA 2018). PRODWAYS GROUP is keen to expand into the rapid 3D, the U.S. office service, in which it bought a minority interest in manufacturing segment, in which 3D printing is applied to industrial 2015. This acquisition has strengthened PRODWAYS GROUP's mass production. The materials used in the 3D printing process are foothold in the U.S. market and its international production capacities mainly plastic (82%(1) of the market) and metal (16%(1) of the market). for parts on demand.
(1) Source: Wolhers report 2018
PRODWAYS GROUP - 2018 ANNUAL REPORT 11 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Overview of the Group and its businesses
The Group operates through two business segments: Products and This innovative technology quickly manufactures titanium blanks Systems. with very similar geometry to the final part. These blanks are then finish-machined, thus avoiding considerable losses of material as shavings which can represent up to 95% of the initial metal block 1.2.2.1 Systems division with traditional machining processes. The aerospace sector offers high potential for this technology. PRODWAYS GROUP develops, assembles and markets different The machines designed by PRODWAYS for these technologies are ranges of 3D printers and related materials for its customers and mainly used in a production environment, most often replacing distributes and integrates Dassault Systèmes' SOLIDWORKS 3D conventional production methods. PRODWAYS markets its printers design software. This complementary offering establishes at between €15 thousand and €400 thousand for a lifetime of up to PRODWAYS GROUP as a major player in the 4.0 industry. It also ten years. generates a recurring revenue stream for the Group, which sells the z Associated materials materials customers need to use the machines they have purchased. Following the acquisition of DELTAMED in 2014, PRODWAYS PRODWAYS GROUP has identified three key areas: medical, GROUP makes premium-quality resins for 3D printing using DLP® jewellery and aerospace. technology. By acquiring EXCELTEC, PRODWAYS GROUP gained z 3D printers 15 years of experience in polymer powders used with selective laser PRODWAYS GROUP is one of the leading manufacturers of 3D sintering technology. The Company therefore has the in-house printers. The Group develops several ranges of 3D printing machines expertise to become a major manufacturer of materials used in 3D based on different technologies: printing processes. This activity is also highly complementary with the machines sold by the Group. z stereolithography with proprietary DLP® MOVINGLight® technology for 3D printing of resins and ceramics: PRODWAYS GROUP offers a range of hybrid and composite materials in the form of liquid resins and polymer powders with a z plastic DLP® MOVINGLight®: an L range designed to produce high ceramic, metal, fibre or nanoparticle content. These materials are detailed prototypes. This range is intended for industrial designed to be high-performance. They boast distinctive applications such as dental models and surgical guides, injection characteristics in terms of mechanical properties (strength and and blow moulding, thermoforming models, insoles and elasticity), physical and aesthetic properties (colour and transparency), jewellery design, and stability over time (extended ageing). These materials can be ® ® z ceramic DLP MOVINGLight : a V range that uses proprietary used with the Group’s printers as well as with those of other ® ® DLP MOVINGLight technology to produce ceramic parts manufacturers. on an industrial scale. The ProMaker V series is designed to The 3D printing materials produced by the Group are mainly used in produce ceramic parts for biomedical applications such as cosmetic and remedial dentistry, hearing aids, jewellery, prototyping bone substitutes and R&D; and aviation. z plastic laser sintering: the selective laser sintering P range, the PRODWAYS GROUP manufactures and sells proprietary materials result of the acquisition of Norge Systems and the in-house R&D and to a lesser extent materials developed by third parties. of PRODWAYS, is designed for industrial rapid prototyping and mass production. The technology is designed for a wide range of z 3D design software (CAD) sectors, including aerospace, automotive, healthcare, design and Following the acquisition of AVENAO in 2017, PRODWAYS GROUP architecture, consumer products, education and research; integrates and distributes Dassault Systèmes’ Solidworks 3D design and z precision casting: the ranges developed by SOLIDSCAPE are development applications. Avenao handles all issues relating to the dedicated to the direct manufacture of high-precision wax parts. functioning of the design office and offers 3D design consulting This technology applies to precision casting and mould making for solutions and 3D printing solutions integration. sectors such as jewellery, in which SOLIDSCAPE is the market By offering organisations a complete solution from project design to leader, as well as the medical and aerospace sectors; parts manufacturing, AVENAO strengthens the Group's integration z Rapid Additive Forging (RAF Technology): this machine, used for strategy and collaboration between Dassault Systèmes and 3D printing of large-scale metal parts, employs a robot equipped PRODWAYS GROUP in future industry. with a head depositing molten metal in an atmosphere of inert gas.
12 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Overview of the Group and its businesses 1
1.2.2.2 Products division INTERSON PROTAC and SURDIFUSE-L’EMBOUT FRANCAIS. For all of these medical applications, additive manufacturing has replaced With its “Products” division, PRODWAYS GROUP is currently one long and costly manual customisation processes while offering greater of the largest European metal and plastic parts manufacturers with a prostheses quality and precision. sizeable fleet of 3D printers and using all 3D printing technologies. PRODWAYS GROUP also develops and markets dentistry z CRISTAL, an in-house dental laboratory which markets applications that use 3D printing for podiatry (orthopaedic insoles), PRODWAYS GROUP applications to the dental sector dental (dental impressions, trays) and audiology (custom-made PRODWAYS GROUP set up CRISTAL in June 2016 to take over hearing aid tips and hearing protection) and sells them directly to the assets of a French dental laboratory (Socalab), the aim being to healthcare professionals. expedite the development of 3D printing applications in dentistry. The division’s objectives are to: CRISTAL has built up a portfolio of over 150 dentists and works z use market intelligence to identify new industry trends; closely with health insurance companies. The dental laboratory offers z optimise value by capturing more margin; dentists a comprehensive range of dental devices, including models, surgical guides, splints and impression trays. z accelerate the uptake rate. PRODWAYS GROUP is keen to transform CRISTAL into a centre This division is a showcase for potential customers. of excellence, demonstrating the advantages of 3D printing in the dental sector. z INITIAL, manufacturer of 3D printed parts
Acquired by PRODWAYS GROUP in 2015, INITIAL is the French z Scientifeet® (PODO 3D entity), an offering that aims to market leader in the design and production of additive manufacturing revolutionise the orthotic insoles market and thermoplastic injection parts. In March 2016, PRODWAYS GROUP launched the Scientifeet® With 28 years of experience, INITIAL offers a wide range of design offering in a bid to transform the orthotic insoles industry. The and production solutions for industrial parts through 3D printing. The market is already being disrupted by 3D printing, with 3D insoles prototype or mass-produced parts are intended for the industrial, proving highly profitable compared with conventional designs. Lead aerospace, medical, dental, automotive or luxury sectors. times have also been reduced along the entire production chain. Based in Annecy, INITIAL operates 32 high-tech machines through a The manufacturing process for a 3D insole consists of four separate unique multi-brand fleet. It has 22 plastic printers and 10 metal stages: a scan of the patient’s foot, virtualisation of the impression, 3D printers and offers the best systems available on the market modelling, printing and delivery of the pair of finished insoles. (MOVINGLight®, SLS®, SLA®, FDM, DMLS, EBM etc.). Its expertise in The insoles are 3D printed by INITIAL in Annecy using SLS® the production of prototype parts now has to deal with growth in technology before being delivered by carrier to the chiropodists, who the production of mass-produced parts with 3D printing. INITIAL will then give them to patients. To date, PODO 3D has equipped over be able to respond to this increase in production because its fleet is 38,000 patients with Scientifeet® soles. sized accordingly. INITIAL produced more than one million parts in 2018, all technologies combined. INITIAL has more than 4,000 business customers in France and z INTERSON PROTAC and SURDIFUSE-L’EMBOUT FRANCAIS, across Europe, ranging from large corporations to small firms which it the leading manufacturers of customised hearing aid eartips in supports from the drafting of specifications through the France industrialisation and pre-mass production and mass production phase. Just as the prostheses developed by PRODWAYS GROUP Its tooling and thermoplastic injection activity allows it to cover all transformed the dental and podiatry sectors, the world of audiology production methods. is being transformed by 3D printing. In November 2017, INITIAL also has a design office and high-definition 3D scanners PRODWAYS GROUP expanded into the audiology market with the which can capture the geometry of any object and offer its customers acquisition of 75% of the capital of INTERSON PROTAC, followed “reverse engineering” or dimensional inspections. by the January 2019 acquisition of 100% of the capital of SURDIFUSE–L’EMBOUT FRANÇAIS. These leading French manufacturers offer audioprosthetists and industry professionals z Medical applications (dental, audiology and chiropody) to customised hearing aid and hearing protector eartips that match capture business transformed by 3D printing individual users’ ear canal impression. INITIAL identifies key sectors and applications where 3D printing Today, INTERSON PROTAC and SURDIFUSE-L’EMBOUT could revolutionise conventional industrial processes. Once these key FRANCAIS manufacture between 20% and 50% of their products markets have been identified, PRODWAYS GROUP's development through 3D printing, and their integration within PRODWAYS and marketing is handled by dedicated and specialised entities such as GROUP will enable them to take advantage of the most powerful ® CRISTAL, PODO 3D (which sells the Scientifeet product range), technologies and further increase this figure.
PRODWAYS GROUP - 2018 ANNUAL REPORT 13 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Overview of the Group and its businesses
Markets The diversity of materials, technologies used, printing systems and 3D printing enables direct finished part and product creation from a products designed using 3D printing makes it possible to handle a virtual 3D file without the need for intermediate processing steps. growing number of constraints specific to each sector of activity. This technique reduces inventories, limits materials waste and, especially, provides access to radically new designs and shapes. 3D Competition printing is already playing a key role in some applications, particularly The market is divided into four segments: in the medical field (hearing aids, implants). Its users are drawn by the z integrated players (offering all three types of 3D printing: many benefits of this new manufacturing process and, in particular, by manufacture of machines, materials and parts), and non-integrated the improved quality of complex parts and products, the reduced players; product development time and costs and access to mass z rapid prototyping and rapid manufacturing players; personalisation. z mono-technology and multi-technology players; In 2017, the industrial 3D printing market was worth €6.5 billion(1). z generalist players in the B2C and B2B market and specialist This market comprises two branches: printing the finished parts players in the industrial market (B2B). (direct approach), and printing the moulds, which are then used to design the finished parts (indirect approach). PRODWAYS GROUP is an integrated, multi-technology player. It is present in rapid manufacturing and specialises in the industrial market. Conventional mould design is a lengthy process (going back and forth on the technical specifications, making several attempts before 3D printing is a particularly dynamic market. It has strong barriers to arriving at the perfect mould). Indirect printing represents a entry (technology, patents). However, the major players are still quite considerable time saving when producing moulds to be used for limited in number and relatively small. Globally, the five companies industrial applications. With 3D printing, the mould is rapidly designed with the highest revenue are: to the exact technical specifications enabling the finished part to be z STRATASYS (€562 million in revenue in 2018(2)), which was produced. The indirect approach is also used to design metal parts, formed from the merger in late 2012 between the Israeli initially by producing a plastic mould that will be used to manufacture manufacturer OBJET and STRATASYS manufactures 3D printers the metal part (e.g. aircraft engine parts developed by PRODWAYS and offers its customers (B2B & B2C) associated services. It is GROUP). There are three major types of 3D(1) printing: present in America, Europe, Asia, Israel and Australia; z rapid prototyping (€2.0 billion in 2017, 31% of revenue in the B2B z 3D Systems (€583 million in revenue in 2018(2)), which was market). established in 1986 in California. 3D Systems manufactures 3D Rapid prototyping refers to the production of models and printers, offers its customers (B2B & B2C) associated services and prototypes from 3D Computer-Aided Design (CAD) data; materials, and is present in North America, Europe and Asia; z functional parts (€2.2 billion in 2017, 33% of revenue in the B2B z EOS is a powder sintering and fusion laser machines manufacturer market). based in Munich. EOS makes 3D printers and offers its customers (B2B) associated services, materials and software. EOS is present In this segment, 3D printing is used to manufacture custom and in Europe and North America; spare parts and small series. It is also suitable for short production (2) runs as well as mass production, particularly in the healthcare and z MATERIALISE NV (€185 million in revenue in 2018 ), which aviation markets; specialises in software solutions, industrial 3D printing services, medical applications, advanced industrial design with instruments and moulds (€1.3 billion in 2017, 20% of revenue in z MATERIALISE MGX, and 3D online printing services via I the B2B market). MATERIALISE. MATERIALISE NV is present in Europe, America, Instruments and tools are produced directly by the 3D printer, Asia and the Middle East and focuses on the B2B market; whereas moulds involve the indirect approach. This consists in z SLM SOLUTIONS (€72 million in revenue in 2018(2)), which designs using a standard template to produce the mould, which will then 3D printers (selective laser melting), provides related services and be used to make the part; supplies materials. SLM Solutions is present in Europe and America z other (€1 million in 2017, 16% of revenue generated in the B2B and focuses on the B2B market. market). This mainly concerns activities relating to research and education. Our products and solutions are widely recognised in the 3D printers have been immensely popular with technical colleges marketplace and research institutes. The Group now offers a line of 24 machines, 140 materials and a Service Bureau. Its flagship products include:
(1) Source: Wohlers report 2018 (2) Source: companies
14 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Overview of the Group and its businesses 1
z ProMaker LD-10 z SOLIDSCAPE series S300 The ProMaker LD-10 3D printer retains the strengths of The world leader in the jewellery market, SOLIDSCAPE's 3D MOVINGLight® technology, combining very high resolution and printers produce high-precision wax models. The S300 series of 3D precision with increased productivity through its motion DLP®, printers offers jewellers ultra-precise wax models with complex optimised cost-per-part and compact design. geometries and unparalleled surface finishes.
z Mass production INITIAL mass produces polymer and metal parts using additive manufacturing technology, in particular for the aeronautical sector.
z PLASTCure Model 300 resin Perfect for the manufacture of dental models, the PLASTCure Model 300 resin is suited to a wide range of dental applications from prosthesis models to orthodontics. It provides high precision and excellent resolution as well as excellent properties.
PRODWAYS GROUP - 2018 ANNUAL REPORT 15 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Overview of the Group and its businesses
z TPU-70A z PASSTOP® The TPU-70A powder is an elastomer material used for the printing Passtop® patented customised hearing protectors are anti-noise of flexible rubber parts suitable for a wide range of applications, Personal Protective Equipment (PPE) with a particularly innovative including gaskets, hoses or even sports shoe insoles and luxury goods. design. Passtop® uses a selective noise mitigation chamber that differs Its excellent stretch capacity enables ultra-flexible objects to be from conventional hole filtering. printed with a high level of precision and resolution.
1.2.3 Principal subsidiaries and organisational chart at 31dDecember 2018
PÉLICAN VENTURE
53,6% GROUPE GORGÉ
56,6% PRODWAYS GROUP
100% 100% 75% 100% 100% 99,9% 100% 95% 82,1% 100% 100% 100% 100% 100% 70% 90% AVENAO PRODWAYS PRODWAYS PRODWAYS DELTAMED IP SCI SOLIDSCAPE PRODWAYS PRODWAYS PRODWAYS SOLUTIONS INITIAL CRISTAL PODO 3D EXCELTEC ENTRE- DISTRI- RAPID VARIA 3D Germany GESTION CHAVANOD United States 2 CONSEIL 3D PRENEURS BUTION ADDITIVE United States FORGING
100% 100% 100% 100% 20% PRODWAYS PRODWAYS INTERSON 3D DENTO- AMERICAS MATERIALS PROTAC SERVICAD SMILE United States Germany
100% AVENAO INDUSTRIE
With the exception of PELICAN VENTURE’s stake in GROUPE GORGÉ, the percentages listed refer to both capital and voting rights. PELICAN VENTURE holds 53.60% of GROUPE GORGÉ’s capital and 68.31% of its voting rights. GROUPE GORGÉ holds 56.61% of the capital and voting rights of PRODWAYS GROUP. The subsidiaries listed are those included in PRODWAYS GROUP’s consolidation scope.
16 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Overview of the Group and its businesses 1
The major changes (acquisitions and disposals) in the organisational structure over the past three years were as follows:
Newly consolidated Deconsolidated 2019 L’EMBOUT FRANÇAIS - SURDIFUSE(1) - 2018 VARIA 3D(2) - SOLIDSCAPE 2017 IP Gestion (and its subsidiary INTERSON PROTAC) - AVENAO Solution 3D (and its subsidiaries) 2016 Business assets of SOCALAB (acquired by CRISTAL) - PODO 3D (1) Acquired on 3 January 2019. (2) Controlling interest acquired after a non-controlling interest in 2015.
The full list of the Group’s companies, grouped by division, can be found in note 13 to the consolidated financial statements. The table showing PRODWAYS GROUP SA subsidiaries and shareholdings can be found in note 8 of the notes to the Company’s separate financial statements. The consolidated financial statements can be found in Section 3.1 of this report, and the separate financial statements of PRODWAYS GROUP SA in Section 3.2.
1.2.4 Significant events z in March 2018, NEXTEAM GROUP and PRODWAYS GROUP announced the installation of the first industrial machine based on In 2018, the highlights were as follows: Rapid Additive Forging (RAF) technology for large-scale titanium parts at NEXTEAM GROUP’s site in Toulouse; z in April, PRODWAYS GROUP announced the first simultaneous 1.2.4.1 Systems division order of two ProMaker LD-10s by a leading North American dental laboratory; During the financial year, PRODWAYS GROUP continued to pursue z in December, PRODWAYS GROUP announced the first sale of its development strategy with the acquisition in July of the US its new ProMaker LD-20 printer to a new dental customer. This machine manufacturer SOLIDSCAPE, a subsidiary of STRATASYS. non-French customer purchased another ProMaker LD-10 For over 25 years, the Company has been developing a leading 3D machine at the same time, thus proving that there is a new type printing technology for investment casting applications, particularly for of customer directly equipping itself with several machines for the jewellery market. This acquisition strengthens the positioning of volume production; PRODWAYS GROUP, which bases its strategy on 3D printing z finally, PRODWAYS GROUP registered one of its largest orders production applications. This transaction substantially increases the with the simultaneous sale of three ProMaker L5000 machines. Group's presence in North America and strengthens its global This aeronautical sector customer already has two machines. This geographic coverage through an international distribution network. large fleet is used for the development of an industrial process The Group continued to record many commercial successes for its that could be deployed on a larger scale. various ranges of 3D printing machines. The year 2018 was marked The Group also commercially launched new machines to expand its by acceleration in the number of customers who purchased more product range: than one PRODWAYS machine and the successful launch of the new in June, PRODWAYS, in collaboration with W2P, launched a new ProMaker LD-10 3D printer dedicated to dentistry, which was z compact 3D printer, the ProMaker LD-3, based on DLP® launched commercially at the end of 2017, and the first successes for technology, to help professionals in the dental, jewellery, the Rapid Additive Forging technology: education and prototyping sectors integrate 3D printing into their z in January, PRODWAYS GROUP announced the success of the production processes; early-adopter ProMaker LD-10 programme, with its first sales in in September, PRODWAYS introduced its new MOVINGLight® the “compact” dental segment, and a sale of the ProMaker P4500 z V10 ceramic 3D printer in China; HT laser sintering 3D printer in the aeronautics sector; z in November, PRODWAYS GROUP introduced its new z in February, FISCHLER DENTAL AG, one of Switzerland's leading ProMaker LD-20 printer equipped with a dual projector at the dental laboratories, reaffirmed its confidence in the Group with Formnext trade show in Germany. This new machine is the most the purchase of a second MOVINGLight® ProMaker L5000 D 3D productive in the range and can print up to 50 dental arches in printer to increase its dental model production capabilities while less than an hour. maintaining its renowned quality and precision; Finally, in September, PRODWAYS MATERIALS launched its 3D printing resins and powders e-commerce site to facilitate industrial access to these high-performance materials.
PRODWAYS GROUP - 2018 ANNUAL REPORT 17 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Strategy and outlook, investment and R&D policy
1.2.4.2 Products division final material prototype parts using 3D printed moulds and the new 3D Molding® offer. In March, PRODWAYS GROUP took a controlling 70% equity stake In November, PRODWAYS GROUP announced new commercial in VARIA 3D, the U.S. office service, in which it bought a minority successes for its subsidiary INITIAL in mass production for interest in 2015. This acquisition has strengthened PRODWAYS aeronautics and the optical market, including a contract for the GROUP's foothold in the U.S. market and its international production of mass-produced parts for the French eyewear production capacities for parts on demand. manufacturer MOREL. An unprecedented mass production of In September, INITIAL and L’OREAL teamed up to accelerate the potentially several thousand frames per month was launched and a development of thermoplastic parts through 3D printing. This strengthening of the initial machine fleet will be needed to keep up collaboration with L’OREAL paved the way for the production of with the pace.
1.3 STRATEGY AND OUTLOOK, INVESTMENT AND R&D POLICY
1.3.1 Strategy The Group has also developed a portfolio of healthcare applications in the dental, chiropody and audiology sectors. These applications PRODWAYS GROUP is pressing ahead with its ambitious help optimise value by capturing a greater margin in markets being development strategy focused around a number of key goals: transformed by 3D printing. z become a major player in the 3D printing market by offering printers and materials which are among the best performing for professional and industrial uses; 1.3.2 Outlook z continue to develop priority markets, such as healthcare, jewellery and aeronautics, for which the Group’s products and expertise The Group believes that the markets in which it currently operates are well-suited, and seize growth opportunities in all other provides significant potential for growth and intends to become a sectors. leading player in 3D printing solutions via the implementation of its strategy. It aims to become a major player in the 3D printing market by 1.3.1.1 Systems division offering printers which are among the best performing for professional and industrial uses, and materials, services and software which will provide a recurring revenue stream. PRODWAYS GROUP is the only integrated player to offer its industrial and professional customers 3D design, simulation and The Group began 2019 with a firm backlog of €7.5 million. In the optimisation software, but also a wide range of 3D printers and current scope and excluding new acquisitions, it expects for 2019 related materials. The complementarity of this offering guarantees full-year revenue growth of at least 15%. This increase will be customers the solution which best matches their requirements and especially pronounced in the “Systems” division, driven by the launch guarantees PRODWAYS GROUP recurring revenues through the of new machines: ProMaker V10, ProMaker LD-20 and Solidscape establishment of a pool of machines, sales of related materials and DL. In the “Products” division, the Group continues to prepare for service and maintenance contracts. the digital transition of its medical activities, which should bear fruit in the medium term. PRODWAYS GROUP is more specifically developing this strategy in high-growth priority sectors such as healthcare, jewellery and aeronautics. 1.3.2.1 Recent publications
1.3.1.2 Products division In January 2019, PRODWAYS GROUP announced the completion of the acquisition of 100% of the capital of SURDIFUSE-L’EMBOUT FRANCAIS, a major player in the manufacture of customised hearing aid PRODWAYS GROUP now has a manufacturing capacity for parts eartips, some of which are produced with 3D printing. Thanks to the and solutions that covers all sectors where 3D printing has been merger of SURDIFUSE-L’EMBOUT FRANCAIS with INTERSON developed and will benefit from the acceleration of mass production. PROTAC, which was acquired in 2017, the Group aims to create the Rapid prototyping and mass production services are provided by the leading French manufacturer and a leading European manufacturer of INITIAL entity, which has expertise in each sector. INITIAL offers customised hearing aid eartips. market intelligence services, helping to detect new trends in the sector and acting as a showcase for potential customers who may then go on to purchase machines, materials or software.
18 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Strategy and outlook, investment and R&D policy 1
1.3.3 Investment policy and R&D Given the cost of filing and maintaining in force patents, the Group regularly assesses the opportunity for filing a patent application for a 1.3.3.1 R&D policy given invention and the need to maintain in force patents and patent applications, as well as the suitability of their geographic coverage in The Group’s Research and Development policy is described in relation to the Group’s current and/or future activities. Note 6.2 to the consolidated financial statements. The Company’s subsidiaries generally initially file a national patent application. Each subsidiary then takes advantage of the priority Invention protection policy period granted following this initial patent application to further The Group protects its inventions and know-how through research patent clearance and assess in-house the potential for non-disclosure agreements and patent applications. extending the protection to other countries.
1.3.3.2 Major investments in 2018
In addition to research and development, the Group’s ongoing investments mainly consist in acquiring 3D printers. Other ongoing investments involve IT equipment, software, workshop tools and the fitting and installation of sites. The value of investments over three years breaks down as follows:
(in millions of euros) 2018 2017 2016 Research and development(1) 1.59 1.94 1.79 Other intangible assets 0.18 0.06 0.10 Technical installations, equipment 3.49 2.40 3.48 Other property, plant and equipment(2) 0.15 0.43 0.10 TOTAL 5.41 4.83 5.47 (1) Only capitalised R&D. (2) Advance payments and ongoing fixed assets.
The Group has made regular acquisitions in recent years, and in 2018 1.3.3.3 Major property, plant and both divisions made one acquisition each: equipment/Property rentals z acquisition of a controlling interest of 70% in VARIA 3D, which was previously 45% owned (“Products” division); The Group’s property, plant and equipment consist of 3D printers, z the acquisition of SOLIDSCAPE (“Systems” division). fixtures, installations and computer equipment. The vehicle fleet is These two acquisitions represented a payment of €9.2 million (net of very limited and for the most part leased from specialised agencies. cash and cash equivalents of acquired companies). The Group’s “Products” division carries out the mass (and sometimes The Group has no future acquisitions in its sights and has not set a short run) production of parts. The production equipment dedicated budget for such transactions. to this activity is mainly 3D printers, for which printer usage rates are not currently measured. For the Group’s other division (“Systems”),֨ it In the second half of the year, the Group committed to acquire a site is not necessary to have production equipment with a significant in Chavanod (38) to relocate its subsidiary INITIAL, which is currently value, mainly tools and small equipment. located in two separate buildings a few kilometres away. The acquisition of the site will be effective in 2019, and the investment, The Group mainly leases its sites under standard leasing agreements. acquisition and works will total between €4.5 and €5 million. There The sites that are currently being leased do not present any risk in terms were no other significant investments for which firm undertakings of their extended availability or that of other similar operating sites. would already have been made. No planned Group investment is conditional on receipt of anticipated significant funding. 1.3.4 Events after the reporting period Major events that have occurred between the closing of the financial year and the date on which the financial statements were approved (1 April 2019) are described in Note 12.3 to the consolidated financial statements.
PRODWAYS GROUP - 2018 ANNUAL REPORT 19 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Analysis of consolidated performance and business sectors
1.4 ANALYSIS OF CONSOLIDATED PERFORMANCE AND BUSINESS SECTORS
1.4.1 Analysis of Group results This surge reflects the growth of all the Group's activities, bolstered by the contributions of SOLIDSCAPE and VARIA 3D acquired during The Board of Directors approved the 2018 consolidated financial the financial year. statements on 1 April 2019, showing: For the first time, EBITDA at €1.2 million exceeds equilibrium over z revenue of €60,895 thousand; the full year, showing the continued improvement to profitability. z net income of -€5,657 thousand; Profit (loss) from continuing operations was -€3.95 million versus -€5.45 million in 2017. Non-recurring items in operating income z net loss (Group share) of -€5,454 thousand. amounted to €1.07 million, compared with €1.20 million in 2017. The consolidated financial statements were drawn up in compliance These mainly include amortisation of intangible assets recognised at with the financial information presentation and evaluation rules of the fair value from acquisitions, acquisition costs and provisions for IFRS (International Financial Reporting Standards) and interpretations impairment. adopted by the European Union and published in the Official Journal dated 13 October 2003. The figures presented below are from the Financial expenses (net of financial income) amounted to €0.08 financial statements for 2018 and 2017. It should be noted that the million compared with €0.04 million in 2017. 2017 figures were restated retrospectively as part of the application Tax came to -€0.68 million versus -€1.16 million in 2017. Earnings of of IFRS 3R and the first application of IFRS 15. The restatements are equity-accounted companies were €0.12 million versus €0.11 million detailed in Note 1.3 to the consolidated financial statements. The in 2017. The year ended 31 December 2018 generated a data may only be compared by taking into account the changes in consolidated net loss of €5.66 million, compared with €7.74 million in scope discussed in the notes to the consolidated financial statements. 2016. The consolidated revenue for the financial year stood at €60.90 Net loss Group share was -€5.45 million (-€7.61 million in 2017) million versus €34.81 million in 2017. while non-controlling interests incurred a loss of -€0.20 million.
MAIN AGGREGATES FROM THE CONSOLIDATED INCOME STATEMENT
(in thousands of euros) 2018 2017 Revenue 60,895 34,807 Profit (loss) from continuing operations (3,947) (5,453) Operating income (5,016) (6,651) Financial income and expenses (76) (38) Equity method 118 107 Tax (683) (1,160) NET INCOME (5,657) (7,742) NET INCOME – GROUP SHARE (5,454) (7,613)
20 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Analysis of consolidated performance and business sectors 1
2018 FINANCIAL YEAR
(in thousands of euros) Systems Products Structure Disposals Consolidated Backlog beginning of period 3,873 988 - (23) 4,838 Backlog end of period 7,068 591 - (166) 7,493 Revenue 38,404 22,859 1,702 (2,070) 60,895 EBITDA 1,110 526 (443) - 1,194 % of revenue 2.9% 2.3% -26.0% - 2.0% Profit (loss) from continuing operations (2,100) (1,443) (404) - (3,947) % of revenue -5.5% -6.3% -23.7% - -6.5% Operating income (2,847) (1,517) (653) - (5,016) % of revenue -7.4% -6.6% -38.4% - -8.2% Research and development expenses capitalised over the period 1,526 60 - - 1,586 Other property, plant and equipment and intangible investments 902 3,499 85 - 4,486 Sector assets 60,921 24,698 2,959 (2,909) 85,669 Sector liabilities 15,183 5,606 1,116 (2,845) 19,060
2017 FINANCIAL YEAR*
(in thousands of euros) Systems Products Structure Disposals Consolidated Backlog beginning of period 2,556 449 - (25) 2,980 Backlog end of period 3,873 988 - (23) 4,838 Revenue 17,393 17,825 901 (1,312) 34,807 EBITDA (1,554) 841 (456) - (1,169) % of revenue -8.9% 4.7% -50.6% - -3.4% Profit (loss) from continuing operations (3,678) (572) (1,204) - (5,453) % of revenue -21.1% -3.2% -133.6% - -15.7% Operating income (4,665) (603) (1,384) - (6,651) % of revenue -26.8% -3.4% -153.6% - -19.1% Research and development expenses capitalised over the period 1,731 204 - - 1,935 Other property, plant and equipment and intangible investments 1,555 1,337 2,892 Sector assets 49,725 21,429 2,361 (1,574) 71,941 Sector liabilities 12,088 5,098 928 (1,575) 16,539 * 2017 is restated, see Note 1.3 to the consolidated financial statements.
1.4.1.1 Systems division Profit (loss) from continuing operations was negative at €2.0 million (-€3.7 million in 2017) due to €3.2 million in amortisation and The “Systems” division (3D software, 3D printers, materials and related provisions. services) generated revenue of €38.4 million in 2018, versus €17.4 million The order book was up 82% to €7.1 million. in 2017. SOLIDSCAPE was consolidated for 5.5 months and contributed €3.75 million. The division's revenue was 41% worldwide, a decrease (60% in 1.4.1.2 Products division 2017) because the weighting of AVENAO's revenue in France was higher. The “Products” division (manufacturing of special-order parts and EBITDA amounted to €1.1 million, compared to a loss of €1.6 million medical applications) generated revenue of €22.9 million in 2018, in 2017. Improved profitability was possible through the good versus €17.8 million in 2017. Growth was 28.2%. performance and positive contribution of software, the positive The division generated 16% of its revenues abroad. contribution of materials as the installed base of machines increased, and the reduction in losses in the machines activity.
PRODWAYS GROUP - 2018 ANNUAL REPORT 21 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Analysis of consolidated performance and business sectors
EBITDA for the division was €0.5 million, a decrease due to the 1.4.2 Group’s financial position (cash and investments in the parts design business to prepare the ramp-up of series production and the continued strengthening of sales efforts in cash equivalents, financing and the dental and audiology sectors. capital) Continuing operations generated a loss of €1.44 million versus a loss of €0.57 million in 2017. Consolidated shareholders’ equity stood at €81.3 million, compared with €86.8 million at 31 December 2017. The backlog fell to €0.6 million but is unlikely to account for a large share of revenue in this division given that lead times between the At 31 December 2018, consolidated net cash (cash and cash placing and delivery of orders is short. equivalents of €25.9 million less the sum of loans and financial debt of €6.4 million and bank overdrafts of €0.4 million) amounted to €19.2 million (cash was greater than debt). At 1 January 2018, it was €36.7 million. Treasury shares held by PRODWAYS GROUP are not included in these figures. Net cash plus treasury shares amounted to €19.3 million at the end of 2018. The change from a net cash position of €36.7 million to a net cash position of €19.2 million is explained by the maintenance of a high level of investments (€5.3 million), the impact of the acquisitions of new subsidiaries (€9.2 million) and changes in debt (+€0.5 million). Operating activities once again had a negative impact (-€1.7 million, compared to -€4.3 million in 2017) with a controlled but unfavourable change in working capital requirements of €1.8 million. Detailed information about the Group’s financial liabilities and any related covenants is provided in Note 8 “Borrowings and financial liabilities” to the consolidated financial statements.
22 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Activities and results of PRODWAYS GROUP SA 1
1.5 ACTIVITIES AND RESULTS OF PRODWAYS GROUP SA
1.5.1 PRODWAYS GROUP SA’s role in the 1.5.2 Activities and results Group At its meeting of 1 April 2019, the Board of Directors approved the separate financial statements of PRODWAYS GROUP SA which The organisation of the Group is as follows: showed: PRODWAYS GROUP is a holding company whose assets are made revenue of €1,702 thousand; up of the stakes held in its subsidiaries. The Company has no z industrial activity. Its function is to: z net income of €2,749 thousand. z implement the Group’s strategy; The financial statements were prepared using the same principles and rules as for previous years. z supervise the management of its subsidiaries; Revenue came to €1.70 million versus €0.90 million in 2017. The z liaise with financial stakeholders such as banks and investors; operating loss for the financial year was -€0.64 million versus -€0.75 z provide technical assistance in areas such as management control million in 2017. and legal affairs; Income from continuing operations before tax was €1.94 million z develop and maintain common procedures in areas such as versus €0.72 million in 2017. PRODWAYS GROUP financial income reporting, management control and accounting. in 2018 was €2.58 million (€1.46 million in 2017), including €2.46 Its funding is secured by the dividends it receives and the service million in dividends (€1.49 million in 2017). contract entered into between the Company and its subsidiaries. After taking into account non-recurring income (nil in 2018 The Company is controlled by its main shareholder GROUPE compared to €0.12 million in 2017) and tax consolidation income GORGÉ. (€0.81 million), the year ended 31 December 2018 generated a net GROUPE GORGÉ is a French public limited company (société profit of €2.75 million, compared with €0.83 million in 2017. anonyme) whose shares are admitted to trading on the regulated Shareholders will note the absence of non-tax-deductible charges market of Euronext in Paris. GROUPE GORGÉ publishes a and expenses incurred during the financial year. Registration Document (Document de référence) annually. Its 2018 Registration Document is available on the GROUPE GORGÉ website at www.groupe-gorge.com. As set out in its Registration Document and on its website, GROUPE GORGÉ has two other “Business” 1.5.3 Proposed appropriation of income divisions in addition to the “3D printing” division consisting of The Company’s income for the financial year ended 31 December PRODWAYS GROUP and its subsidiaries. 2018 showed a profit of €2,749,344.25. On 1 April 2019, the Board GROUPE GORGÉ is controlled by PELICAN VENTURE. of Directors decided to appropriate €1,707,390.57 to the legal PÉLICAN VENTURE, the family holding company of the GORGÉ reserve, increasing it to €2,540,782.15, or 10% of the share capital, family, is a French simplified joint-stock company (société par actions and €1,041,953.68 to retained earnings. simplifiée). Its consolidated shareholders’ equity at 31 December As a reminder no dividend payout was made for the last three 2017 was €210 million, with its main asset being its stake in GROUPE financial years. GORGÉ. Its other assets are: z SOPROMEC, a private equity firm managing around €21 million in assets; 1.5.4 Standard payment terms z real estate and financial assets. In accordance with article D.441-4 of the French Commercial Code we point out that at 31 December 2018, the balance of PRODWAYS GROUP SA’s trade payables was €365,200 (€648,500 at 31 December 2017). These trade payables are not yet due and in general are payable at 30 days (in 2018 as in 2017).
PRODWAYS GROUP - 2018 ANNUAL REPORT 23 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Activities and results of PRODWAYS GROUP SA
1.5.5 Other financial and accounting information SECURITIES PORTFOLIO AT 31 DECEMBER 2018
Company Net asset values (in euros) I – EQUITY SECURITIES 1. French companies a/ Listed equity securities None - b/ Unlisted equity securities AVENAO SOLUTIONS 3D 16,466,467 CRISTAL 475,000 EXCELTEC 250,000 INITIAL 12,000,000 IP GESTION 2,714,428 PODO 3D 679,963 PRODWAYS 26,750,000 PRODWAYS RAPID ADDITIVE FORGING (formerly PRODWAYS 1) 575,000 PRODWAYS 2 5,000 PRODWAYS CONSEIL 4,500 PRODWAYS DISTRIBUTION 1,000 PRODWAYS ENTREPRENEURS 701,000 SCI CHAVANOD 1,999 2. Foreign companies DELTAMED 7,065,924 VARIA 3D 978,878 SOLIDSCAPE 11,725,569 TOTAL I 80,394,727 II – OTHER LONG-TERM INVESTMENTS 1. French companies a/ Listed securities None - b/ Unlisted securities None - 2. Foreign companies a/ Listed securities None - b/ Unlisted securities None - TOTAL II - III – MARKETABLE SECURITIES a/ Money market funds (SICAVs) and term deposits 2,005,008 b/ Listed French shares None - c/ Listed foreign shares None - d/ Treasury shares 148,099 TOTAL III 2,153,107 GRAND TOTAL (I + II + III) 82,547,834
24 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Risk factors 1
FINANCIAL TABLE – ARTICLE R.225-102 OF THE FRENCH COMMERCIAL CODE
Nature of information 2018 2017 2016 2015 2014* Share capital 25,407,821 25,407,821 16,896,535 16,896,535 15,717,290 Number of shares 50,815,643 50,815,643 16,896,535 16,896,535 15,717,290 Par value per share 0.50 0.50 1.00 1.00 1.00 Revenue excluding taxes 1,702,100 901,135 653,009 - - Earnings before taxes, depreciation, amortisation & provisions 1,951,182 846,707 731,210 (24,388) (362,090) Income tax 810,751 - - - - Earnings after taxes but before depreciation, amortisation & provisions 2,761,933 846,707 731,210 (24,388) (362,090) Earnings after taxes, depreciation, amortisation & provisions 2,749,344 833,392 729,639 (24,388) (362,090) Distributed earnings - - - - - Earnings per share after taxes but before depreciation, amortisation & provisions 0.0543 0,0167 0,0432 (0,0014) (0,0231) Earnings per share after taxes, depreciation, amortisation & provisions 0.0541 0,0164 0,0432 (0,0014) (0,0231) Net dividend per share - - - - - Average number of employees 3.82 2.38 4.15 - - Total payroll 423,387 357,887 442,663 - - Social security contributions and employee benefits 174,522 124,466 191,012 - - * The Company was created in March 2014.
1.6 RISK FACTORS
The Company has reviewed the risks that could materially adversely affect its business, financial position or results and is not aware of any other significant risk not presented herein. For a proper understanding of the risks to which the Group is exposed, this Chapter should be read in conjunction with the full consolidated financial statements and the annual report.
1.6.1 Legal risks 1.6.1.2 Risks associated with the regulation of chemicals and changes thereto 1.6.1.1 Risks associated with local certifications and branding of 3D printers The Group develops and markets materials that incorporate chemicals. In accordance with the European REACH Regulation (EC The 3D printers manufactured by the Company comply with current no. 1907/2006) relating to chemical risks, the Group must identify European Union quality and safety requirements, and they bear the and manage any risks associated with the materials manufactured and CE “European conformity” marking. However, this CE certification is communicate the risk management measures implemented to the different from the certification procedures in the United States, users of its materials. Canada or other countries. The Company is currently investigating Based on the state of research, the European authorities may, at any the possibility and implications of obtaining a UL(1) marking for its time, restrict or prohibit the use of substances that prove to be toxic printers. to humans or the environment. In such a scenario, it would be the The lack of certification for machines manufactured by the Group for Group’s responsibility to immediately inform the customers affected standards other than CE standards may influence the decisions made and replace the prohibited chemical with authorised substances. by customers in the purchasing of 3D printers developed by the This would involve new R&D developments to review the formulation Company, in particular in the event of public tenders that require of the materials in question and, as the case may be, the unavailability local certifications. As such, it may have an adverse impact on the of the relevant materials during the time required for their development of machine sales abroad (outside the European Union) reformulation. to certain entities, in particular entities subject to local public Were such a situation to occur, it would be likely to have a significant procurement rules. adverse effect on the Group, its business, financial position, results, development and outlook.
(1) UL is the acronym for the independent US certif cation body “Underwriters Laboratory”. A UL certif cation conf rms that the products destined for the US market have been tested for safety requirements in the United States, which differ from European CE standards.
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1.6.1.3 Risks associated with medical device 1.6.2 Risks associated with intellectual regulations and changes thereto property The Group develops biocompatible materials or medical devices that The future growth of the Group will depend in particular on its ability are subject to strict standards in Europe and the rest of the world. In to develop and protect its know-how and innovations. this respect, European medical device regulations are set to evolve in For the subsidiaries concerned, intellectual property policy consists of the coming years. The same is true for countries outside the the filing of patent applications in their country and internationally, European Union. These changes in standards may require new R&D depending on the interest that such filings may have and the to adapt the products developed by the Group. protection of their know-how as much as possible through the DELTAMED formulates, manufactures and markets special resins, preservation of its confidentiality. including for the biomedical field. The formulation, manufacture and As a result, the research and development projects the Group marketing of medical devices by DELTAMED requires the consider the most sensitive are carried out internally. R&D teams are maintenance of a certified quality management system (DELTAMED also subject to strict confidentiality rules. complies with EN ISO 13485 (EU) and AC: 2012 (Canada) standards) and a specific quality management system (DELTAMED complies with European Directive 93/42/EEC Annex II for class IIa and IIb medical devices). 1.6.2.1 Limits to the protection given by patents DELTAMED has been licensed as a manufacturer with the Food and and other intellectual property rights Drug Administration (FDA) in the United States. The maintenance of these certifications and authorisations is necessary for DELTAMED to If an invention is identified, the Group evaluates the interest of filing a continue to market its products in Europe, Canada and the United patent application. To do this, it relies on its teams of in-house States. These certifications and authorisations give DELTAMED a engineers and its industrial property attorneys. competitive advantage. Patent applications are examined by the competent regional, national A loss of the required qualifications and authorisations would have a or international patent offices. It takes a number of years before a significant adverse impact on DELTAMED’s business and therefore patent is granted. The examination process may also result in a on the Group’s results, financial position and outlook. patent being granted with narrower claims than initially sought, or even a refusal to grant a patent. The industrial property rights filed do not provide protection in all 1.6.1.4 Risks associated with research and jurisdictions and provide protection for a term that may vary from development financing one territory to another. Accordingly, systematic protection through patents could indeed be difficult to achieve and would represent significant costs if it were to be considered for use in all potential The Group has a significant level of expenditure on research and markets in which the Group is present or could carry out its activity. development. It uses the French research tax credit mechanism to partially finance its R&D. A scaling back of this mechanism in the Furthermore, there is no certainty that industrial property offices will future would jeopardise the level of R&D expenditure that the register patents, trademarks and other intellectual property rights the Group could reasonably finance and would therefore have an Group has applied or will apply for. The Group may encounter adverse impact on the Group’s business, financial position and difficulties within the framework of the filing and examination of some outlook. of its applications for patents, trademarks or other intellectual property rights currently under examination or in the registration Moreover, even if the Group ensures the compliance and quality of process. For example, when a patent application is filed, other patent its supporting documents, it is still possible that the tax authorities applications may constitute prior art that is opposable but not yet may question the calculation methods used by the Company for published. Despite prior art searches and the monitoring conducted research and development expenses. A tax adjustment to the Group by or for it, the Group cannot be certain that it was the first to design in this area could have an adverse impact on the Group’s results and an invention and to file a corresponding patent application. In cash position. particular, it should be noted that in most countries, patent applications are published 18 months after the filing of the applications themselves and that patents for inventions are 1.6.1.5 Litigation sometimes not published or applied for until months or even years later. The Group may be involved in litigation and disputes with third Similarly, when one of its trademarks is filed for registration in a parties. Ongoing litigation is reviewed and if applicable, provisioned in country where it is not covered, the Group may find that the mark in the financial statements. question is not available in that country or is not sufficiently distinctive or disclosed when significant in the Notes to the consolidated according to the criteria of certain countries. financial statements (Note 12.2 “Exceptional events and disputes”). Finally, the granting of a patent, trademark or other intellectual At 1 April 2019, no state or legal proceeding or arbitration, either property rights does not guarantee its validity or enforceability. The pending or threatened, had in the past 12 months or was likely to Group’s competitors could at any time contest the validity or have a material impact on the financial position or profitability of the enforceability of those rights before a court or in other specific Company and/or Group. proceedings. Depending on the outcome of such disputes, the rights may be reduced in scope or cancelled and thus be circumvented by competitors. In addition, developments, changes or divergences in the interpretation of the legal framework governing intellectual property in Europe, the United States or other countries could allow competitors to use the Group’s inventions or intellectual property
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rights or develop or market the Group’s products or technologies The occurrence of any of these events could have an adverse effect without financial compensation. In addition, there are still some on the competitive advantage of the Group’s product offering and countries that do not protect intellectual property rights in the same therefore on its business outlook, development and future results. way as Europe or the United States, and effective procedures and rules necessary to defend the Group’s rights may not exist in those countries. There is therefore no certainty that the Group’s existing 1.6.2.3 Risks of violation of third-party intellectual and future patents, trademarks and other intellectual property rights will not be challenged, invalidated or circumvented or will provide property rights by the Group and of the effective protection against competition and patents by third parties Group’s intellectual property rights by covering similar inventions. third-parties As a result, the Group’s rights pertaining to its patents, trademarks, related applications and other intellectual property rights may not The subsidiaries, with their internal teams, monitor the activity confer the expected protection against competition. (particularly as regards the filing of patents) of their competitors and evaluate (through freedom to operate studies) the risk of The Group cannot therefore guarantee with certainty that: infringement of third-party patents during the course of their research z it will develop new inventions for which patents may be applied or development programmes. External advice may be sought for for or granted; occasional assessments of activities of entities external to the Group. z patents, trademarks or other registered intellectual property rights However, the Group cannot guarantee that its products do not will actually be granted further to the relevant applications infringe on or violate patents or other intellectual property rights of currently under examination; third parties. Therefore, it is possible that third parties acting in z the patents or other intellectual property rights granted to the relation to infringement or violation of their rights may take action Group will not be challenged, invalidated or circumvented by against the Group to obtain damages and/or the cessation of competitors; and manufacturing activities and/or marketing of the products or z the scope of protection conferred by the Group’s patents, processes in question. trademarks and intellectual property rights is and will be sufficient In the event of disputes relating to intellectual property, the Group to protect it against competition and patents, trademarks and may have to: intellectual property rights of third parties covering similar devices, z cease to develop, sell or use the product(s) that depend on the products, technologies or developments. disputed intellectual property; In any event, despite the efforts made to protect its industrial z obtain a licence from the holder of the intellectual property rights, property, the Group cannot rule out any risk of infringement of its which may not be obtained or obtained only under conditions inventions or challenges to the validity of its patents. that are economically unfavourable to the Group; z revise the design of some of its products/technologies or, in the case of trademark applications, rename its products to avoid 1.6.2.2 Risks of disclosure of the Group’s infringement on the intellectual property rights of third parties, know-how to third parties which may prove impossible or lengthy and costly and could impact its marketing efforts; It is also important for the Group to protect itself against the z suffer a negative impact to its reputation and results. unauthorised use and disclosure of its confidential information, In addition, monitoring the unauthorised use of Group products and know-how and trade secrets. technology, and thus the infringement of its own intellectual property The Group endeavours to retain non-patented or non-patentable rights, is a delicate matter. The Group could be compelled to bring technologies, formulations, processes, know-how and proprietary legal or administrative proceedings against third parties in order to data by limiting the communication of key elements of its know-how assert its rights, intellectual property rights in particular, in court. to third parties to the information strictly necessary for cooperation However, the Group cannot guarantee in any way that it will be able with them and contractually ensuring that such third parties to avoid, sanction and obtain redress for possible misappropriation or undertake not to divert, use or disclose such information, including by unauthorised use of its products and technology, especially in foreign means of confidentiality clauses. countries where its rights are less protected by the territorial scope Despite the implementation of these confidentiality procedures, the of industrial property rights. Group cannot guarantee that such third parties will comply with Any disputes or litigation on these subjects, whether justified or not these confidentiality agreements, and there is a risk that confidential and whatever the outcome, could entail very substantial costs and information may be disclosed or that an R&D partner, customer or jeopardise the Group’s financial position and reputation. In addition, competitor may appropriate the Group’s know-how. despite the efforts undertaken and costs incurred, the Group may not obtain the protection or penalty sought.
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1.6.3 Operating risks 1.6.3.3 Risks associated with competition 1.6.3.1 Risks associated with the acceptance of 3D Foreign players have long been established in the additive printing manufacturing market, and some of them have significant resources (such as STRATASYS or 3D Systems in particular). This fast-growing The Group as a whole is positioned on the following growth market is also attracting many new players, including international areas: (1) the development and sale of 3D printing machines and the groups with significant resources, including HP, GENERAL ELECTRIC innovative materials they use,(2) the design and manufacture of parts and ADDUP, or more recent companies that have raised significant using 3D printing for third parties and(3) development of business funds, such as CARBON3D. The Group therefore faces many applications using 3D printing technologies. The Group’s customers competitors, some of whom have very deep resources and/or a high are manufacturers and professionals that are adopting additive profile. manufacturing in their production methods. The multiplication of actors in the 3D printing market, some of The industrial manufacturing market remains dominated in most whom have significant resources, may more quickly increase industrial sectors by conventional manufacturing technologies that do awareness of 3D printing technologies amongst manufacturers and not involve 3D printing. If additive manufacturing were not accepted professionals. However, this also means increased competitive by manufacturers as a more efficient technology, its development pressure for the Group. This competitive pressure could lead to a may not grow as expected. decline in demand for the Group’s products and force the Group to reduce its selling prices or make additional investments. These factors The growth of the 3D printing market therefore depends on the could have an adverse impact on the Group’s business, revenue, acceptance of these new technologies by manufacturers and their results, financial position, development and outlook. ability to integrate these new technologies into their conventional production methods or revise their production methods. Weak growth in the 3D printing market around the world would have a significant negative impact on the Group’s situation and outlook. 1.6.3.4 Risks associated with the international economic and political environment
1.6.3.2 Risks associated with technological The development of the Group’s international sales could be affected developments by national preference policies as well as the uncertain or changing economic, financial, political and regulatory environments of certain countries in which the Group markets or wishes to market its Technological innovations in recent years have been significant in the products and services (notably the United States or China). If certain additive manufacturing sector and the pace of technological markets targeted by the Group, such as the United States in developments remains strong. This market could undergo significant particular, were to adopt or reinforce protectionist practices or new technological developments, and new technologies or customs barriers, this could put a brake on attempts by potential equipment that are more efficient and/or cheaper than those offered customers to develop their business and invest in the Group’s by the Group could come into existence. Competing technologies, products or adversely affect the competitiveness of the Group’s whether they exist or are under development or as yet unknown, products, which could have an adverse impact on the Group’s could capture significant market shares in the near future and restrict business, results, financial position and outlook. the Group’s ability to market its products successfully. Since its creation, the Group has devoted a significant portion of its resources to research and development to develop and improve its lines of 3D printers and equipment and find new applications for 1.6.3.5 Risks associated with changes in health additive manufacturing. These innovation policy efforts must be policy maintained so that the Group retains its position as a benchmark player in technological innovation, remains in a position to adapt to Many outlets for the Group’s products have ties to the health sector, future technological innovations in the sector, as appropriate, and notably the dental sector. Depending on the country and the health continues to win market shares. systems in place, health policies aimed at controlling costs could lead Competitors with significant financial resources or new entrants to to the discontinuation or capping on the reimbursement of patient the market could also develop new technologies that are more care and would result in increased pressure on the prices of the efficient and/or less costly than those developed by the Group, which corresponding products sold by the Group. could lead to a reduction in demand for the Group’s existing As a result, changes in health policies could have an adverse impact products. on the business, results, financial position, development and outlook If the Group were to fail to keep pace with technological of the relevant Group subsidiaries. developments or to continue its innovation policy efforts, compared in particular to those made by competitors with greater resources, or if alternative technologies were to appear and revolutionise the market, the Group’s ability to continue to remain relevant and competitive in additive manufacturing would be affected, and this could have an adverse impact on the Group’s business, revenue, results, financial position, development and outlook.
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1.6.4 Risks associated with the Group’s The growth of the Group’s business depends on the ability of manufacturers and professionals to integrate new technologies into business their production methods, adapt their organisational structure and adopt more or less rapidly additive manufacturing, in particular the 1.6.4.1 Risks associated with the Group’s strategy solutions and products offered by the Group. The integration of on a constantly changing 3D printing additive manufacturing into a customer’s production process involves market the customer rethinking its existing processes and methods and making investments (modification of facilities, training, review of The 3D printing market is experiencing rapid and profound changes, quality processes and certification, etc.), which can hinder the which requires the Group to regularly question the relevance of its acceptance of the Group’s products by the targeted markets. strategic choices and the direction of its Systems and Products To assist manufacturers and professionals in these production activities and its commercial policy so that it can detect and penetrate method changes, the Group has developed a consulting services the most promising new markets that create value for the Group. Its offer. In addition, the INITIAL Service Bureau’s custom parts strategic choices can also be impacted by changes in its relationships manufacturing offer may allow customers to test the opportunity to with strategic partners, distributors or suppliers. integrate additive manufacturing into their production methods and The Group has demonstrated its agility and ability to adapt its adapt the technology to their needs. The scale and speed of the strategy, but it cannot guarantee that its choices will always be the Group’s development therefore depends on the ability of most relevant in a constantly changing market such as 3D printing. manufacturers and professional customers to use its technologies to If the Group’s strategic choices turn out not to be pertinent, the adapt their industrial production structures. Group’s business, financial position, results, development and outlook As a result, if the acceptance of the Group’s products by the targeted could be significantly affected in the medium and long term. markets is not as rapid or significant as expected, this could have an adverse impact on the Group’s business, revenue, results, financial position, development and outlook. 1.6.4.2 Risks associated with the Group’s rapid growth 1.6.4.4 HR risks (dependence on key personnel The growth of the Group’s business has been significant for many and enticement of Group employees) years. Difficulties related to growth management of a commercial, technical or administrative nature are likely to arise. In terms of The Group’s success and development are dependent on the work, human resources, this growth requires the steady reinforcement of know-how and experience of key employees and of the management managerial structures, the recruitment of the necessary qualified team. The temporary or permanent unavailability of a key person personnel, the ability to train employees quickly enough in the may lead to a loss of know-how and technical deficiencies that may Group’s products and the retention of qualified staff. The deployment slow down the activity of a subsidiary or the Group. of risk control procedures and the implementation of possible Raphaël GORGÉ, the Chairman and Chief Executive Officer of synergies within the Group will also be challenges. From a financial PRODWAYS GROUP, does not perform his duties on a full-time standpoint, revenue growth raises issues regarding the control of the basis as he is also Chairman and Chief Executive Officer of GROUPE working capital requirement. GORGÉ, PRODWAYS GROUP’s parent company. However, he The Group’s inability to manage its growth or unexpected difficulties devotes a significant part of his time to the PRODWAYS GROUP, encountered during its expansion could have a material adverse with the assistance of the management teams in charge of the effect on its business, results, financial position, development and Group’s “Systems” and “Products” divisions, which were outlook. strengthened in October 2018 by the appointment of a dedicated Chief Executive Officer. Expertise in additive manufacturing is relatively rare in France and the 1.6.4.3 Risks associated with the acceptance of the Group must invest in the training of its new employees in those Group’s products by the markets technologies. addressed In a growing market in which qualified people are relatively rare, the Group’s visibility makes it a target for customers or competitors that want to poach its employees. The Group’s customers are manufacturers and professionals that are adopting additive manufacturing in their production methods. The Group will also need to recruit new managers, sales Additive manufacturing machines using MOVINGLight® technology representatives and qualified staff to continue to grow. Despite its or the selective laser sintering technology that the Company attractive development outlook and the interest in additive manufactures and distributes, as well as the materials associated with manufacturing technologies, the Group may not be able to attract or each of these technologies, are particularly suitable for certain sectors retain key personnel on economically acceptable terms. of activity (many of these have already been identified: dentistry, foundry, plastic injection, medical and jewellery).
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To mitigate these risks as much as possible, the Group relies on many 1.6.4.7 Risks associated with research and factors. development partnerships and commercial Firstly, the Group’s employees are naturally motivated by a partnerships commercial and/or technical interest in the additive manufacturing sector and the projects in which they are involved. The introduction The Group is involved in a number of R&D projects with universities and of profit-sharing and shareholding plans may also serve as additional research organisations as well as strategic commercial partners, including motivation. To this end, free share allocation plans were distribution contracts under which the Group acts as a distributor. implemented in the Group in 2016 and a new one was implemented on 31 January 2019. The results of the Group’s R&D partnerships may sometimes be protected by intellectual property rights (i) held by the Group, (ii) Moreover, when this is accepted, the contracts of key employees and jointly owned by the parties, or (iii) held exclusively by the relevant managers include non-competition clauses. They also include partner, which grants the Group, as necessary, temporary usage confidentiality clauses, as well as, where relevant, clauses for rights, exclusive or non-exclusive, for the corresponding results, thus compensation and transfer to the employer of employee inventions. enabling the Group to distribute and offer its customers the new Finally, the Group ensures that the success of its subsidiaries is not products developed. based on too few people and their managers are considering the Some research and development efforts carried out through implementation of succession plans for key people. partnerships (such as for the development of new materials adapted The difficulties that the Group may encounter in recruiting and for additive manufacturing) sometimes begin before a partnership retaining qualified employees could have an adverse impact on the agreement is signed. The risk that the parties will not be able to Group’s business and outlook. finalise their agreements at an advanced stage of a project could have a negative impact for the Group on the expected profit from a partnership. 1.6.4.5 Risks associated with sales levels There is also a risk of divergence between the parties during the conduct of the partnership, which may lead to a breakdown in the The Group’s income and results are not linear and may fluctuate partnership or a calling into question of its balance. during the year due to many factors, most of which are beyond the Moreover, under its partnerships, the Group must frequently share Group’s control (degree of acceptance of its products on the market, certain aspects of its know-how or sensitive business data with its breakdown by product of revenue over a given period, competition counterparties that are not protected by patents. Although this activity, changes in policies or regulations, R&D levels, etc.). information is covered by confidentiality undertakings, the Group Moreover, the sales cycle of 3D printers is particularly long, with must allow for the possibility that its know-how or business data is equipment testing and qualification procedures for prospects. As a misappropriated and used by third parties. result, it is very difficult to predict and plan 3D printer sales and Finally, the Group’s partnerships could lead to unsatisfactory results production reliably, sales of 3D printers may be irregular from quarter or not provide immediate benefits to the Group. to quarter. The unsatisfactory performance of R&D partnerships could have an These fluctuations can have an impact on the interim presentation of adverse impact on the Group’s business, results, financial position and the Group’s revenue, its financial position and its ability to finance its outlook. activities and development.
1.6.4.8 Risks associated with the industrialisation 1.6.4.6 Risks associated with research and of an innovative product development projects The industrialisation phase of an innovative product may require The Group’s research and development projects are decided by the numerous adjustments and iterations that lead to delays in the Executive Committee, based on opportunities identified by the marketing of the product or more frequent warranty services with Group, customer demands and the Group’s strategy. Ongoing customers for repairs or adjustments, resulting in additional costs for projects are re-evaluated regularly. However, the Group cannot the Group and possible harm to its image. guarantee that all of its research and development projects will Since the reliability of its products is paramount, the Group tests its produce satisfactory results due to, for example, limited resources or main innovations relating to 3D printers and materials at its INITIAL technical challenges. Some of the projects initiated could be halted or Service Bureau or at VARIA 3D. This allows it to benefit from suspended, while others could require more investment than feedback and thus improve and stabilise its prototypes before it expected or fall behind schedule. approves the final products. In addition, the Group now tests its key Projects that fall behind schedule or are not completed will incur costs innovations with its key customers (Services Bureau or end users for the Group and are likely to affect its ability to keep pace with its qualified as early adopters), who give feedback on product competitors’ technological innovations. The Group’s inability to functionalities before the standard product is marketed. develop and market new products quickly could thus have an adverse These industrialisation phases relating to an innovation may vary in impact on the Group’s business, results, financial position and outlook. length and lead to delays in the marketing of a new product. Such delays could have an adverse impact on the Group’s business, results, financial position and outlook.
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1.6.4.9 Risks associated with poor product quality 1.6.4.11 Risks associated with key supplier failures
The Group’s sales growth depends on the quality and reliability of its To this date, the Group has not implemented systematic double products and the products distributed by the Group (such as third-party sourcing, which would be costly. ® materials and HUNAN FARSOON SLS printers). Moreover, the MOVINGLight® technology developed by the The Group’s companies have established procedures for the quality Company incorporates commercial parts manufactured exclusively by management and traceability of their products. As part of its ongoing Texas Instruments, as well as certain parts developed specifically for efforts to improve quality, the Group strives to ensure that all of its the Company by specialised companies. In order to secure its subsidiaries are working to implement quality control policies that are production process, the Group has focused on maintaining sufficient as demanding as possible. inventories and is working to identify alternative suppliers for these The subsidiaries of the Company that manufacture or resell products to critical components. the medical sector have a performance obligation regarding the quality For the manufacturing of materials, the Group receives supplies of of their products and must guarantee product quality over the stated components and products from major chemical groups or certified periods. suppliers. Any change in a component or supplier would involve new In addition, the Group tests its innovations with its INITIAL Service research and development to adapt the material formulations and the Bureau, VARIA 3D and/or key volunteer customers in order to final product evaluation process. benefit from feedback and improve its prototypes before approval of Any difficulty in supplying certain special parts or chemical components the final products. may therefore have a negative impact on the ability of a subsidiary or Nevertheless, the products manufactured or distributed by the the Group to manufacture and deliver its products. Group are complex and may contain design or production defects. Technical product reception procedures are put in place by the Group to detect any defects (in particular, the installation and receipt 1.6.4.12 Risks associated with external growth of a 3D printer involves various operating tests). transactions Defects may also be caused by parts or materials from third-party suppliers. However, the Group’s ability to claim compensation from The Group has regularly acquired businesses or third party the supplier at fault may be limited by the sales conditions imposed companies in the course of its development and intends to continue by that supplier. with this strategy as opportunities are identified. Nevertheless, the Furthermore, 3D printers are complex machines that require prior Group cannot guarantee the timeframes in which new opportunities user training and regular maintenance. Such training is mandatory when for external growth will arise or may be successful. a machine is purchased. In addition, the Group offers its customers An external growth operation may have the effect of diluting the multi-year preventive maintenance programs. Despite mandatory shareholders of the Company in the event that such growth is training and the offers of maintenance, an error in use by a customer financed through the issuance of transferable securities. or a maintenance defect is still possible. In addition, any acquisition involves risks associated with the Any product quality problem involves warranty claims for the Group, integration of the acquired company or business into the Group, the which generate unanticipated costs and may be the cause of realisation of assumptions underlying the valuation and the expected customer complaints. Repeated problems could have an adverse benefits of the transaction, the existence of unforeseen costs or impact on the Group’s results and reputation. hidden liabilities and the departure of key personnel from those companies. To limit some of these risks, the Group systematically performs 1.6.4.10 Risks associated with potential imposition financial, legal and technical audits and negotiates asset and liability of unfavourable terms of sale guarantees where possible. The Group also takes the measures it deems appropriate to retain the key persons identified and thus ensure the sustainability of those companies. The Group makes every effort to enforce its general conditions of sale. Nevertheless, certain customers from large groups have a policy Moreover, the integration of a new entity or activity within the of imposing their own terms of purchase, which are generally Group may take longer than anticipated and require increased unfavourable to suppliers and therefore to the Group, in particular mobilisation of the Group’s teams, and the assimilation by the new regarding payment conditions, machine performance and liability entity of the Group’s procedures, management tools and guidelines, clauses. or its acceptance of a change to its strategy, may vary in length. Unfavourable conditions of sale are likely to have an adverse impact on Finally, the benefits of future or completed acquisitions may not the Group’s financial position and results. materialise within the expected timeframes and standards. In most cases of acquisitions, goodwill is recognised in the consolidated financial statements. Impairment tests are carried out each year. If an impairment loss for goodwill is recognised, this could have an impact on the Group’s financial situation (revenue and equity), and would indicate that the business outlook is not at the expected level hoped-for at the time of the acquisition.
PRODWAYS GROUP - 2018 ANNUAL REPORT 31 OVERVIEW OF THE GROUP AND ITS BUSINESSES 1 Risk factors
1.6.4.13 Risks associated with the Group’s network For the most part, the insurance taken out by the Group against of distributors and agents possible risks encompasses: z liability for defective products; The Group markets its products in France and abroad, both directly z civil liability; and through its network of distributors and sales agents worldwide. z property, plant and equipment; The Group selects its distributors and agents on the basis of technical z leased premises. expertise and reputation. However, the Group cannot guarantee that the distributors and agents selected will devote the necessary efforts Specific insurance has also been purchased for the risks specific to to the commercial success of its products and comply with applicable sales in the aeronautic sector. Local insurances have also been regulations. The ramping-up of the indirect international sales implemented in accordance with local regulations. All policies are network could thus take longer than expected and require additional entered into with reputable insurance companies. However, these commercial efforts. insurance policies contain exclusions and exceptions that make it impossible to cover the totality of the potential harm suffered. The Group’s reputation and results could be adversely affected by distributors or agents who are insufficiently involved or do not Furthermore, the amount of expenses could exceed the limits of the comply with the applicable regulations. Group’s insurance coverage. Accordingly, the Group cannot guarantee that its current insurance coverage is sufficient to meet any liability claims that may be brought against the Company or any of its subsidiaries. If the Group’s liability were thereby called into question 1.6.4.14 Risks associated with inventory and if it were not in a position to obtain and maintain appropriate management insurance coverage at an acceptable cost, or protect itself effectively against liability actions for defective products, the marketing of its In order to deal with order forecasts, the Group may keep products and, more generally, its activities, results, financial position, inventories of machinery, parts or components that may be difficult development and outlook could be seriously affected. to sell or use in the event of changes to technological or regulatory developments or changes to product lines that make certain inventories obsolete. In the event of a loss of value in the machines or supplies inventoried, the Group may be required to make 1.6.5 Financial risks significant provisions for impairment of its inventories, which could 1.6.5.1 Credit or counterparty risks have an adverse effect on its financial position, results, development and outlook. The economic situation around the world and changes to it may affect the Group’s partners, customers and suppliers due to economic slowdowns and financial, geopolitical or social difficulties, or 1.6.4.15 Insurance and coverage of operating risks any other factors. The Group has a very wide variety of customers and has the capacity to obtain a growing number of new referrals, so In the course of conducting its business, the Group may be it has little exposure to a particular customer risk, but it could be confronted with disputes, proceedings and claims concerning its seriously impacted nonetheless if the international economic situation activities and products. The Group has taken out insurances to cover were to significantly weaken its customers or suppliers in general. the cost of these risks. The Group as a whole is not over-reliant on any one customer, as can be seen from the percentage of consolidated revenue generated from each of the top five customers (for each of the top five customers in 2018, the percentage of 2017 revenue generated from such client is also indicated):
2018 2017
z Customer A: 2.0% 3.7%
z Customer B: 1.9% -
z Customer C: 1.6% 3.0%
z Customer D: 1.3% -
z Customer E: 0.9% -
32 PRODWAYS GROUP - 2018 ANNUAL REPORT OVERVIEW OF THE GROUP AND ITS BUSINESSES Risk factors 1
In 2018, the top five customers accounted for 7.8% of the Group’s 1.6.5.4 Interest rate risk revenue (compared with 12.9% in 2017). The Group’s top twenty customers accounted for 17.4% of revenue in 2018 (compared with Interest rate risk is limited. It is described in detail in the Notes to the 29.0% in 2017). consolidated financial statements (Note 8.3.2 “Interest rate risk”). The diversity of the Group’s customers and the quality of most of them generally enable the Group to control customer credit risk. Impairments of trade receivables amounted to €1,143 thousand, 1.6.5.5 Foreign exchange risk compared with €860 thousand in 2017. Past-due trade receivables are disclosed in the Notes to the consolidated financial statements, The foreign exchange risk is described in the Notes to the (Note 4.5 “Customers, contract assets and liabilities”). The Group consolidated financial statements (Note 8.3.3 “Foreign exchange does not systematically carry out solvency studies on its customers. risk”). As of the date hereof, the Group’s dollar expenditure is higher Outside France, the Group operates directly or through distributors than its receipts in such currency. However, according to its forecasts, in a large number of countries. There is no high concentration of the growth in dollar sales should lead to a natural hedge of such international revenue in any particular country. The Group is growing foreign exchange risk. in the United States, which is a large mature market for 3D printing. The Group believes that the foreign exchange risk is not currently A qualitative change to its country risk would significantly affect the significant, and has therefore not made any other hedging Group. arrangements to protect its business against exchange rate To this date, the Group does not export to countries subject to fluctuations. However, due to the acquisition of SOLIDSCAPE in international sanctions. The geopolitical development of a country is, July 2018, based in the United States, this position may change however, a risk that may complicate or suspend trade relations with depending on future flows. Although SOLIDSCAPE generates all of such country. The diversity of countries to which the Group exports its revenue in US Dollars, with almost all its costs in the same its products and services is a factor that allows the impact of this risk currency, thus leading to natural hedging, the Group may be required to be reduced. An embargo or sanctions against a country in which to set up a more structured hedging policy for this risk. the Group has significant commercial prospects could, however, significantly or completely alter these prospects. 1.6.6 Industrial and environmental risks 1.6.5.2 Liquidity risk Group companies do not have facilities that are subject to the regulations for facilities classified for environmental protection (ICPE). The liquidity risk is described in Note 8.3.1 “Liquidity risk” to the Like many industrial activities, the Group’s activities require the consolidated financial statements. The Group’s low net debt, financial preservation and handling of hazardous products. The concerned position and shareholder support gave it substantial access to credit companies implement the safety procedures recommended for the until its IPO in May 2017, in particular to finance acquisitions. Since handling and storage of such products. For example, INITIAL handles the IPO in May 2017, the Group has had a positive net cash position potentially hazardous powders (explosion risks), which may pose a and a confirmed line of credit of €10 million that has never been health hazard when inhaled. Strict handling and storage procedures used. have been put in place. Similarly, the use of DLP® or lasers requires The Company specifically reviewed its liquidity risk and believes it is certain handling precautions to protect the health of the concerned in a position to meet all future maturities. employees. The collection and recycling of potentially polluting materials is entrusted to specialised service providers. 1.6.5.3 Dilution risk Compliance with these regulations is costly and any tightening of these regulations would entail additional costs for the Group. In addition to the capital increases that may be necessary to finance Regulations are also complex and any violation thereof by the Group its activities or allocate shares that may have vested under current could result in fines or penalties or could incur its liability. These free share plans, the Company may in the future issue or grant shares circumstances would have an adverse effect on the Group’s financial or new financial instruments giving access to the Company’s share position and development. capital as part of its policy to motivate its managers and employees.
PRODWAYS GROUP - 2018 ANNUAL REPORT 33 34 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE
2.1GOVERNANCE 36 2.3 COMPANY REFERENCE TO A CORPORATE GOVERNANCE CODE AND ITS APPLICATION BY 2.1.1 Composition of the Board of Directors and THE COMPANY 54 Board Committees 36 2.1.2Presentation of the members of the Board 38 2.1.3Gender balance on the Board of Directors 43 2.4 SPECIAL ARRANGEMENTS, IF ANY, REGARDING SHAREHOLDER PARTICIPATION IN 2.1.4 Information on securities transactions by SHAREHOLDERS’ MEETINGS 55 corporate officers 43 2.1.5Non-conviction and conflicts of interest 43 2.5 REGULATED AGREEMENTS, RELATED-PARTY 2.1.6Executive Management 43 AGREEMENTS AND CURRENT AGREEMENTS 56 2.1.7 Conditions for the preparation and organisation of the work of the Board of 2.5.1Presentation of agreements 56 Directors (and its Committees) during the 2.5.2 statutory auditors’ special report on period 43 regulated agreements and commitments 57
2.2CORPORATE OFFICER REMUNERATION POLICY 45 2.6 INTERNAL CONTROL AND RISK MANAGEMENT 2.2.1 Principles and rules established by the PROCEDURES 58 Board of Directors to determine the 2.6.1General organisation of internal control 58 remuneration and benefits in kind of corporate officers 45 2.6.2Group organisation 58 2.2.2 Remuneration of executive corporate 2.6.3Implementing internal control 58 officers 50 2.6.4 Preparation and control of accounting and financial information for shareholders 59 2.6.5Legal and regulatory compliance 59
PRODWAYS GROUP - 2018 ANNUAL REPORT 35 CORPORATE GOVERNANCE 2 Governance
This section on corporate governance includes the new corporate governance report pursuant to article L.225-37 of the French Commercial Code, which was approved by the Board of Directors on 1 April 2019.
2.1 GOVERNANCE
2.1.1 Composition of the Board of contract for the Group from a technological standpoint but the transactional amounts are insignificant. A qualitative and quantitative Directors and Board Committees analysis of the existing business relationship between PRODWAYS GROUP and SAFRAN CORPORATE VENTURES concluded that it The composition of the Board of Directors reflects the GROUP was not liable to compromise the latter’s status as an independent GORGÉ control over the Company. However, the Company also Director permanently represented by Hélène de Cointet. Hélène de promotes democratic and collective representation of all Cointet and Paul-François FOURNIER have continuously shareholders and the consideration of the corporate interest through demonstrated their independence and never hesitated to speak their the presence of independent Directors. mind. As at 31 December 2018, the PRODWAYS GROUP Board of Raphaël GORGÉ and Catherine GORGÉ are Directors representing Directors is composed of five Directors: Raphaël GORGÉ (Chairman GROUPE GORGÉ, the majority shareholder. of the Board of Directors and Chief Executive Officer until 4 October 2018), Catherine GORGÉ, BPIFRANCE Mr Raphaël GORGÉ is Chairman and Chief Executive Officer of PARTICIPATIONS (represented by Paul-François FOURNIER), GROUPE GORGÉ. Ms Catherine GORGÉ is married to Mr Raphaël SAFRAN CORPORATE VENTURES (represented by Hélène de GORGÉ and a Director of GROUP GORGÉ. Cointet) and Olivier STREBELLE (Chief Executive Officer since Olivier STREBELLE was GROUPE GORGÉ's Deputy Chief Executive 4 October 2018). The Board also includes one observer, Loïc LE Officer responsible for strategy and business development until BERRE. December 2018. He has been Chief Executive Officer of The terms of office of Thierry Moulonguet (independent Director) PRODWAYS GROUP since 4 October 2018. and Jacques Toupas (observer) ended at the close of the combined To strengthen the Board's governance, it is proposed that the shareholders’ meeting of 13 June 2018. shareholders’ meeting of 7 June 2019 appoint a new independent Hélène de Cointet and Paul-François FOURNIER are independent Director, Michèle LESIEUR, and two Directors appointed at the Directors. request of GROUPE GORGÉ, namely Loïc LE BERRE and Céline LEROY. Although these two Directors represent Company shareholders, the percentage of share capital held is relative compared with the As set out in the Articles of Association, Directors are appointed for majority shareholding held by GROUPE GORGÉ. These Directors a term of 3 years. have no links to the Company, its Group or its management that Given its small size, the Board of Directors has not created any Board would jeopardise the exercise of their freedom of judgement. In this Committees. The appointment of a new independent Director will respect, PRODWAYS GROUP entered into a technological enable the Board to re-consider the possibility of creating an Audit cooperation framework agreement with Safran Corporate Ventures and Risk Committee. in 2017 relating to developments in 3D printing. This is a significant
36 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Governance
At 1 January 2019, the composition of the Board of Directors is as follows:
Experience and Board Date of first Expiry of term areas of Name Independent Committees appointment of office expertise 2 Hélène DE COINTET Yes / 21 April 2017 Shareholders’ Mergers and Permanent representative of SAFRAN meeting called to acquisitions, CORPORATE VENTURES approve the financial analysis, financial aerospace statements for the industry, space year ended and defence 31 December 2019 Paul-François FOURNIER Yes / 5 May 2017 Shareholders’ Innovative Permanent representative of BPIFRANCE meeting called to industries, PARTICIPATIONS approve the telecoms, strategy financial statements for the year ended 31 December 2019 Raphaël GORGÉ No / 12 June 2015 Shareholders’ Executive Chairman of the Board of Directors meeting called to management, approve the finance, industry financial and technology, statements for the strategy year ended 31 December 2020 Catherine GORGÉ No / 5 May 2017 Shareholders’ Project meeting called to management, 3D approve the printing, luxury financial goods statements for the year ended 31 December 2019 Olivier STREBELLE No / 12 June 2015 Shareholders’ 3D Printing Chief Executive Officer meeting called to approve the financial statements for the year ended 31 December 2020 Loïc LE BERRE No / 12 May 2017 Board of Finance Observer Directors’ meeting to approve the financial statements for the year ending 31 December 2019
The appointment of Michèle LESIEUR as a new independent Director on the Board of Directors is proposed to the shareholders’ meeting of 7 June 2019. Her expertise and experience are presented below. Her contributions to the work of the Board come from her experience in international companies in the healthcare sector, her executive management experience in a listed company, and her expertise in international sales, marketing and development strategy. The appointment of Loïc LE BERRE as a new Director, representing GROUPE GORGÉ, is proposed to the shareholders’ meeting of 7 June 2019. He will bring his financial expertise to the Board. The appointment of Céline LEROY as a new Director, representing GROUPE GORGÉ, is proposed to the shareholders' meeting of 7 June 2019. She will bring her legal expertise to the Board.
PRODWAYS GROUP - 2018 ANNUAL REPORT 37 CORPORATE GOVERNANCE 2 Governance
2.1.2 Presentation of the members of the Board 2.1.2.1 Management expertise and experience of Directors, observers and candidates for the Board of Directors
Hélène DE Main function: Co-Head of SAFRAN CORPORATE VENTURES COINTET Hélène DE COINTET has been Co-Head of SAFRAN CORPORATE VENTURES since mid-2015. She joined SAFRAN’s Permanent Mergers & Acquisitions Department in 2010 where she led a number of successful acquisitions, divestments and joint representative of ventures for most of the Group’s companies. Previously she spent nine years in the Valuations Team under Mergers & SAFRAN Acquisitions at KPMG CORPORATE FINANCE and four years at CIC SECURITIES as a financial analyst responsible for CORPORATE the aeronautic and electronics sectors. VENTURES Hélène de Cointet graduated with a Master in Management Sciences from Université Paris-Dauphine in (1997) and qualified as a Certified International Investment Analyst in (2000). Independent Director Date of first appointment: shareholders’ meeting of 21 April 2017 Expiry of term of office: shareholders’ meeting called to approve the financial statements for the financial year ended 31 December 2019 Other offices and positions held within the Group: None Other offices and positions held outside the Group: Member of the Strategic Committee of DIOTASOFT SAS, representing Safran Corporate Ventures Member of the Strategic Committee of SAFETYLINE SAS, representing Safran Corporate Ventures Member of the Investment Committee of SAFRAN CORPORATE VENTURES Offices held during the last five years by Hélène de Cointet whose terms have expired: None Paul-François Main position: Innovation Director and Member of the Executive Committee at Bpifrance FOURNIER An alumnus of École Polytechnique and a graduate of Telecom ParisTech, Paul-François FOURNIER joined France Permanent Telecom Orange in 1994 as a business engineer where he spent seven years developing the Company’s B2B services. In representative of 2000, he was appointed Broadband Director at Wanadoo where he was responsible for the roll-out of ADSL in France. BPIFRANCE He was also involved in Wanadoo’s international operations as a member of its Executive Committee. He worked on PARTICIPATIONS strategic projects such as the launch of Livebox and Voice over IP in partnership with French start-ups Inventel and Netcentrex. In 2011, he became Executive Director of the Orange Technocentre where he was in charge of product Independent innovation. He favoured more regional and decentralised organisational methods, as reflected in the creation of Director Technocentres in Amman and Abidjan. Since April 2013 he has been Executive Director of the Innovation division at BPIFRANCE Date of first appointment: shareholders' meeting of 5 May 2017 Expiry of term of office: shareholders' meeting called to approve the financial statements for the financial year ended 31 December 2019 Other offices and positions held within the Group: None Other offices and positions held outside of the Group: Chairman of the Supervisory Board of CORNOVUM SAS Member representing BPIFRANCE on the Board of Directors of PARROT SA * Member representing BPIFRANCE on the Board of Directors of SIGFOX SA Member representing BPIFRANCE on the Board of Directors of YOUNITED SA Member of the Board of Directors of EUTELSAT COMMUNICATIONS SA * Member of the Board of Directors of EUTELSAT SA Offices held during the last five years by Paul-François FOURNIER whose terms have expired: None * Listed company.
38 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Governance
Raphaël GORGÉ Main position: Chairman and Chief Executive Officer of GROUPE GORGÉ* Raphaël GORGÉ joined GROUPE GORGÉ (named FINUCHEM at the time) in 2004 after a ten-year career in finance Chairman of the and technology. He initiated and implemented the Group’s withdrawal from the automotive sector (70% of its revenue in Board of Directors 2004), then steered its development toward new areas of business, including 3D printing. Raphaël GORGÉ has been the Chief Executive Officer of GROUPE GORGÉ since 2008. 2 Chief Executive Raphaël GORGÉ has an engineering degree from the École Centrale de Marseille and holds an advanced degree in Officer until molecular modelling. 4 October 2018 Date of first appointment : shareholders’ meeting of 12 June 2015 Expiry of term of office : shareholders’ meeting called to approve the financial statements for the financial year ended 31 December 2020 Other offices and positions held within the PRODWAYS GROUP: None
Other offices and positions held outside of the Group: Deputy CEO of PÉLICAN VENTURE SAS Chairman of the Board of Directors of ECA SA* Legal representative of GROUPE GORGÉ SA as Chairman of VIGIANS (formerly BALISCO) SAS Chairman of the Supervisory Board of SOPROMEC PARTICIPATIONS SA Manager of SOCIÉTÉ CIVILE COMPAGNIE INDUSTRIELLE DU VERDELET Manager of SCI THOUVENOT Manager of SCI AUSSONNE Manager of SCI MEYSSE Manager of SCI DES CARRIÈRES Chairman of STONI SAS Legal representative of PELICAN VENTURE SAS as Chairman of VIBRANIUM SAS (since 11 December 2018) Offices held during the last five years by Raphaël GORGÉ whose terms have expired: Chief Executive Officer of PRODWAYS GROUP SA * (split of the roles of CEO and Chairman of the Board of Directors in October 2018) Legal representative of PRODWAYS GROUP SA as Chairman of CRISTAL SAS, PRODWAYS SAS, PRODWAYS DISTRIBUTION SAS, PRODWAYS RAPID ADDITIVE FORGING SAS (formerly PRODWAYS 1), PRODWAYS 2 SAS, PODO 3D SAS, PRODWAYS ENTREPRENEURS SAS, PRODWAYS CONSEIL SAS, AVENAO INDUSTRIE SAS, 3D SERVICAD SAS, AVENAO SOLUTIONS 3D SAS, IP GESTION SAS, INTERSON PROTAC SAS (until 4 October 2018) Chairman of NUCLÉACTION SAS (until 31 January 2017) Chairman of FINU 10 SAS (until 10 April 2018) Member of the Executive Committee of LA VÉLIÈRE CAPITAL SAS (until 18 October 2016) Chairman of PORTAFEU NUCLEAIRE SAS (until 13 May 2016) * Listed company.
PRODWAYS GROUP - 2018 ANNUAL REPORT 39 CORPORATE GOVERNANCE 2 Governance
Catherine Main position: Chairperson of CBG CONSEIL SAS GORGÉ Catherine GORGÉ began her career as a process engineer at ATLANTIC RICHFIELD, then joined the TECHNIP Group Director as a project engineer. After working at the Industrial Projects & Services business of GROUPE GORGÉ, she joined the luxury sector. There, she held the position of Director of Development and Operations at the PUIG GROUP, first for the PACO RABANNE brand, then for the MAJE brand. She currently runs the company CBG CONSEIL, specialising in business consulting. Since 2014, she has provided consulting services to PRODWAYS GROUP. Catherine GORGÉ is also a Director of ECA and GROUPE GORGÉ. Catherine GORGÉ has an engineering degree from the École Centrale de Marseille and holds an advanced degree in project management. Date of first appointment: shareholders’ meeting of 5 May 2017 Expiry of term of office: shareholders’ meeting called to approve the financial statements for the financial year ended 31 December 2019 Other offices and positions held within the PRODWAYS GROUP: None
Other offices and positions held outside the Group: Director of GROUPE GORGÉ SA* Director of ECA SA* Offices held during the last five years by Catherine GORGÉ whose terms have expired: Manager of Immobilière BENON SCI (removed from the companies register in February 2014) Olivier Main position: Chief Executive Officer of PRODWAYS GROUP STREBELLE Olivier STREBELLE was awarded a degree in engineering (École Centrale Paris), then spent ten years with McKinsey in Director Paris and London as a management consultant, notably in the automotive industry. Olivier STREBELLE joined GROUPE GORGÉ in 2014 and was Deputy Chief Executive Officer responsible for strategy and business development until his Chief Executive appointment as Chief Executive Officer of PRODWAYS GROUP in October 2018. Officer since 4 October 2018 Date of first appointment: 12 June 2015 Expiry of term of office: shareholders’ meeting called to approve the financial statements for the financial year ended 31 December 2020 Other offices and positions held within the PRODWAYS GROUP: Member of the Board of Directors of PRODWAYS AMERICAS CEO of SOLIDSCAPE Legal representative of PRODWAYS GROUP as Chairman SA of various subsidiaries of PRODWAYS GROUP (CRISTAL SAS, PRODWAYS SAS, PRODWAYS DISTRIBUTION SAS, PRODWAYS RAPID ADDITIVE FORGING SAS (formerly PRODWAYS 1), PRODWAYS 2 SAS, PODO 3D SAS, PRODWAYS ENTREPRENEURS SAS, PRODWAYS CONSEIL SAS, AVENAO INDUSTRIE SAS, 3D SERVICAD SAS, AVENAO SOLUTIONS 3D SAS, IP GESTION SAS, INTERSON PROTAC SAS) since 4 October 2018 Other offices and positions held outside the Group: Deputy Chief Executive Officer responsible for strategy and business development (employment contract suspended until January 2020 before expiry). Offices held during the last five years by Olivier STREBELLE whose terms have expired: None * Listed company.
40 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Governance
Loïc LE BERRE Main position: Chief Financial Officer of GROUPE GORGÉ
Observer Loïc LE BERRE is a graduate of Sciences Po (1992) and holds an EMBA from HEC Paris as well as the equivalent of a Master in Accounting DESCF. Having begun his career at ARTHUR ANDERSEN, he joined the manufacturing sector at Candidate whose EURALTECH as Group Financial Controller where he then became Subsidiary Administrative and Financial Director and 2 appointment as a finally Group CFO. After a time spent at Ineo (SUEZ) as Deputy Administrative Director then Project Coordinator, he Director is joined GROUPE GORGÉ in 2006 as Group Administrative and Financial Director. He has been Chief Financial Officer of proposed to the GROUPE GORGÉ since 2008. shareholders’ meeting of 7 June Date of first appointment as observer: 12 May 2017 2019 Expiry of term of office as observer: Board of Directors' meeting called to approve the financial statements for the financial year ended 31 December 2019 Date of first appointment: Appointment proposed to the shareholders' meeting of 7 June 2019 Expiry of term of office (if appointed): shareholders' meeting called to approve the financial statements for the financial year ended 31 December 2021 Other offices and positions held within the PRODWAYS GROUP: None Other offices and positions held outside the Group: Member of the Supervisory Board of SOPROMEC PARTICIPATIONS Observer within the Board of Directors of ECA SA* Manager of SCI DES PORTES Manager of SARL FINU 12 Offices held during the last five years by Loïc LE BERRE whose terms have expired: Director of ECA S.A. (until 21 March 2017) Co-manager of VLB E&C (until January 2017) Manager of SCI BETHUNE 34 (until 9 September 2018) Michèle LESIEUR Main position: Chief Executive Officer and Chair of the Executive Board of SUPERSONIC IMAGINE*
Candidate whose Michèle LESIEUR has been Chief Executive Officer and Chair of the Executive Board of SUPERSONIC IMAGINE* since appointment as an 2016. Before serving as head of SUPERSONIC IMAGINE*, Michèle LESIEUR built a 20-year career in the PHILIPS independent GROUP. She held various management positions within the PHILIPS GROUP at the national and international level. In the Director is early 2010s, she served as Chairman of PHILIPS FRANCE and Chief Executive Officer of PHILIPS HEALTHCARE in proposed to the France. Previously, Michèle led sales and marketing for the Group's medical imaging systems for five years, after six years of shareholders’ leading the Philips Medical “Systems” division in France. Michèle LESIEUR has extensive experience in the consumer meeting of 7 June electronics and telecommunications sectors, having successively held the positions of Marketing Director of Philips Business 2019 Electronics France and General Manager of a Philips Business Electronics Department in charge of commercial policy and international development strategy. Michèle LESIEUR holds a Master's degree in physics from Université Paris XI and a DEA in optical transmission and signal processing from the Institut Supérieur d’Optique. Date of first appointment: Appointment proposed to the shareholders' meeting of 7 June 2019
Expiry of term of office (if appointed): shareholders’ meeting called to approve the financial statements for the financial year ended 31 December 2021 Other offices and positions held within the Group: None Other offices and positions held outside the Group: None Offices held during the last five years by Michèle LESIEUR whose terms have expired: Chairman of PHILIPS FRANCE Chief Executive Officer of PHILIPS HEALTHCARE * Listed company.
PRODWAYS GROUP - 2018 ANNUAL REPORT 41 CORPORATE GOVERNANCE 2 Governance
Céline LEROY Main position: General Counsel of GROUPE GORGÉ SA
Candidate whose Céline LEROY has been General Counsel of GROUPE GORGÉ since 2007. With a CAPA (Certificate of Aptitude for the appointment as Profession of Lawyer) and a DESS degree in business and tax law from the University of Paris I, Céline Leroy previously Director is practised as an attorney at the law firm Freshfields Bruckhaus Deringer in the Finance and Mergers-Acquisitions proposed to the Departments, before spending one year seconded to the Legal Department of DANONE. shareholders' meeting of 7 June Date of first appointment: Appointment proposed to the shareholders' meeting of 7 June 2019 2019 Expiry of term of office (if appointed): shareholders' meeting called to approve the financial statements for the financial year ended 31 December 2021 Other offices and positions held within the PRODWAYS GROUP: None Other offices and positions held outside of the Group: Employee Director of GROUPE GORGÉ SA(1) Director of ECA SA(1) Offices held during the last five years by Céline LEROY whose terms have expired: None * Listed company.
Professional addresses of the Directors
The business addresses of the members of the Board of Directors are the registered office of the Company.
42 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Governance
2.1.3 Gender balance on the Board of Following the separation and the appointment of a new Chief Executive Officer, it was decided that the Chairman of the Board of Directors Directors would retain an executive or active role in the following areas: The Board of Directors applies the principle of gender equality set out in article L.225-18-1 of the French Commercial Code. z financial communication; By taking into account the proposed appointments of Directors, z external growth and partnerships; 2 there is gender equality amongst the Directors. z support for the Chief Executive Officer. Scope of the CEO’s The choice of Directors (other than salaried Directors) is guided powers. mainly by the search for skills complementary to those already represented on the Board, the knowledge of the markets in which the Group operates and the issues with which the Group may be Scope of the CEO's powers confronted. No restrictions were placed on the powers of the CEO when he was appointed. The CEO is therefore vested with the broadest powers 2.1.4 Information on securities to act on behalf of the Company in all circumstances, within the limits of the corporate purpose and subject to the powers expressly transactions by corporate officers assigned by law to the general shareholders’ meeting and to the Board of Directors. To the Company's knowledge, the corporate officers, Group managers and persons referred to in article L.621-18-2 of the French Monetary and Financial Code subject to voluntary reporting of their securities transactions, have not conducted any securities transactions 2.1.7 Conditions for the preparation and during the 2018 financial year. organisation of the work of the Board of Directors (and its Committees) 2.1.5 Non-conviction and conflicts of during the period interest The rules governing the operation of the Board of Directors can be found in the Articles of Association and are set out in detail in the As far as the Company is aware, no member of the Board of Board’s Internal Regulations. Directors or corporate officer has, over the past five years, been convicted of fraud, been involved in his/her capacity as a member of the Board of Directors or manager in a bankruptcy, receivership or liquidation, been charged and/or officially sanctioned by a legal or 2.1.7.1 Frequency of Board meetings and regulatory authority, or been barred by Court order from serving on attendance record an administrative, Management or Supervisory Board of an issuer or from being involved in the management or running of an issuer. Over the past year, the Board of Directors met 8 times. Directors had As far as PRODWAYS GROUP is aware, there are no conflicts of a very strong attendance record of 95.31%. interest between the personal interests of members of the administrative bodies and their duties to the Company. As far as PRODWAYS GROUP is aware, the Directors and 2.1.7.2 Convening Board meetings executive corporate officers have not agreed to any restriction on the free transferability of any interests they may have (save as In accordance with article 15 of the Articles of Association, Board mentioned in article 4.3.4). meetings may be convened by any means, including verbally. In 2018, Board meetings were convened by email. Pursuant to article L.225-238 of the French Commercial Code, the 2.1.6 Executive Management statutory auditors were invited to attend the Board meetings held to review and approve the interim and annual financial statements. Executive Management structure
At its 12 June 2015 meeting, the Board of Directors resolved that the 2.1.7.3 Provision of information to Directors positions of Chairman of the Board of Directors and of CEO would be held by a single person (Raphaël GORGÉ). Directors were provided with all the papers, technical dossiers and On 4 October 2018, the Board of Directors chose to separate the information required to carry out their duties either when meetings positions of Chairman of the Board of Directors and Chief Executive were called or prior to Board meetings. Officer.
PRODWAYS GROUP - 2018 ANNUAL REPORT 43 CORPORATE GOVERNANCE 2 Governance
2.1.7.4 Holding of Board meetings z follow the financial reporting preparation process and, where required, formulate recommendations to ensure the integrity Meetings of the Board of Directors are held at the registered office thereof; or occasionally at a subsidiary head office. The Internal Regulations z monitor the efficiency of internal control and risk management approved by the Company’s Board of Directors, allow the use of systems and, where applicable, internal audit systems with regard video-conferencing or other telecommunications technologies subject to procedures for preparing and processing accounting and to the regulatory requirements for holding the meetings of the Board financial information, without impacting its independence; of Directors. z make a recommendation on the proposed appointment of the statutory auditors by the shareholders’ meeting to the Board in accordance with regulations, and make a recommendation on the 2.1.7.5 Decisions taken proposed reappointment of the Auditor(s) to the Board in accordance with regulations; During the past financial year, the Board of Directors took decisions z monitor the statutory auditors’ audit of the financial statements on current issues that are in the interest of the Company. and take the comments and findings of the (H3C) French auditing oversight body into account following the audits conducted in accordance with regulations; 2.1.7.6 Minutes of Board meetings z ensure the statutory auditors’ compliance with independence criteria under the terms and in accordance with the procedures Minutes of Board of Directors meetings are drawn up following each set out by applicable regulations; meeting and sent to all Directors at the latest before the next Board z approve the provision of services by the statutory auditors other meeting. than the certification of the financial statements pursuant to applicable regulations; z regularly report to the Board on the performance of its duties 2.1.7.7 Board assessment (including on certifying the financial statements, on how said certification contributed to the integrity of financial reporting, and In order to ensure compliance with Recommendation 11 of the on the role it played in this process); promptly inform the Board Middlenext Code, Directors are encouraged to express their opinion of any difficulties encountered. on the workings of the Board and the preparation of its work during In the course of preparing the GROUPE GORGÉ interim and annual Board meetings held to approve the separate financial statements. financial statements, the Audit Committee meets with the Company’s statutory auditors to finalise the interim and annual financial statements and to get updates from the statutory auditors on their 2.1.7.8 Board Committees work. In this respect, it ensures the independence of the statutory auditors. No Board committee was created. Under (article L.823-20-5° of the The Audit Committee was not required to vote on the provision of French Commercial Code) the Company is exempt from the services by the PRODWAYS GROUP statutory auditors other than obligation to create an Audit Committee given that its parent the certification of the financial statements. It took part in discussions company (GROUPE GORGÉ SA) has its own Audit Committee. with the statutory auditors during the preparation of the statutory Pursuant to article L.823.19 of the French Commercial Code, the auditors’ new report to the Audit Committee. Audit Committee of GROUPE GORGÉ is required by its Board of Directors to:
44 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Corporate officer remuneration policy
2.2 CORPORATE OFFICER REMUNERATION POLICY
2.2.1 Principles and rules established by Pursuant to the recommendations of R13 of the Middlenext Corporate Governance Code, the Board of Directors takes the the Board of Directors to determine following principles into account: 2 the remuneration and benefits in z Comprehensiveness: the remuneration determined for executive corporate officers must include the fixed portion, variable portion kind of corporate officers (bonus), stock options, free shares, attendance fees, conditions for In accordance with article L.225-37-2 of the French Commercial retirement and special benefits in its overall assessment of Code, this section sets out the principles and criteria for determining, remuneration; distributing and allocating the fixed, variable and exceptional z Balance: between each remuneration component must be components making up the total remuneration and benefits in kind justified and be in the best interests of the Company; that may be granted to executive corporate officers of PRODWAYS z Benchmark: to the extent possible remuneration must be GROUP in respect of their term of office at PRODWAYS GROUP. assessed in relation to a benchmark business and market and be Until October 2018, Raphaël GORGÉ held the positions of Chairman proportional to the Company’s position, taking into account the of the Board of Directors and Chief Executive Officer. Following the inflationary effect; separation of the functions on 4 October 2018, Raphaël GORGÉ z Consistency: executive corporate officer remuneration must be retained the position of Chairman of the Board of Directors and consistent with that of other executives and employees at the Olivier STREBELLE was appointed as the Group's Chief Executive Company; Officer. z Clarity: the rules must be simple and transparent, meaning the performance criteria used to determine the variable portion of remuneration or any stock options or free shares allocated must 2.2.1.1 General principles of the remuneration be in line with the Company’s performance, correspond to its policy for executive corporate officers of objectives, be demanding and easily explained, and be as PRODWAYS GROUP sustainable as possible. They must be described without compromising the confidentiality of certain components; The principles and criteria for determining, distributing and allocating z Moderation: remuneration must be determined and stock the total fixed, variable and exceptional remuneration and benefits in options or free shares allocated in a sensible manner and take into kind of the executive corporate officers in respect of their office are account the Company’s best interests, market practices and discussed and approved by the Board of Directors. executive performance; The Board of Directors reviews and decides the remuneration of the z Transparency: annual updates to “shareholders” about the total executive corporate officers for the current year, the calculation of remuneration and benefits paid to executives are provided in their bonus for the past year based on performance, the bonus accordance with applicable regulations. criteria for the current year and the Director's fees. If applicable, any other component of remuneration and benefits of any kind shall be considered. 2.2.1.2 Principles relating to the setting of fixed During its work, the Board of Directors assesses the individual remuneration performance of the Group's executive corporate officers, which it compares to the performance of the Company. It also takes into Since the end of 2018, PRODWAYS GROUP has had a Chief account the alignment of objectives with medium-term strategy, the Executive Officer (Olivier STREBELLE) and a Chairman of the Board interests of shareholders and changes to the Middlenext Corporate of Directors with a few executive or special assistance functions Governance Code. It also refers to external studies that indicators (Raphaël GORGÉ). market practices for comparable companies. It takes into account any remuneration received by the corporate officers in companies Principles relating to the setting of fixed remuneration of controlled by PRODWAYS GROUP or the Company controlling the Chairman of the Board of Directors PRODWAYS GROUP (GROUPE GORGÉ). It should be noted that PRODWAYS GROUP is more than 56% controlled by the GORGÉ Raphaël GORGÉ, the Chairman of the Board of Directors exercises family through the intermediary of GROUPE GORGÉ, which is in the traditional functions of chairing Board meetings and the specific turn controlled by PÉLICAN VENTURE. tasks assigned by the Board of Directors. Raphaël GORGÉ receives fixed and variable remuneration from the direct and indirect owners of PRODWAYS GROUP. To take into account the time devoted by Raphaël GORGÉ to the development of the Company and his active role in certain areas, it was decided that Raphaël GORGÉ would receive fixed remuneration from PRODWAYS GROUP. In view of the remuneration paid to Raphaël GORGÉ from the companies controlling PRODWAYS GROUP, his fixed remuneration as Chairman of the Board of Directors of PRODWAYS GROUP should not exceed €100,000 for the 2019 financial year.
PRODWAYS GROUP - 2018 ANNUAL REPORT 45 CORPORATE GOVERNANCE 2 Corporate officer remuneration policy
Principles relating to the setting of fixed remuneration of Officer’s remuneration in respect of his position for the 2019 financial the Chief Executive Officer year. Olivier STREBELLE, the Chief Executive Officer of PRODWAYS The Board of Directors determines the quantitative and qualitative GROUP receives fixed remuneration from PRODWAYS GROUP for criteria to be applied according to the priorities defined by the Group his position. and the weighting given to each of these criteria. The quantitative criteria specifically relate to the Group’s performance objectives. The The total fixed remuneration takes into account the level of difficulty qualitative criteria are defined according to projects and the Group’s of the Chief Executive Officer's responsibilities, his skills, experience strategy. The Company wishes to keep the criteria selected in the position, seniority in the Group and the practices of other confidential. similar and comparable companies. His remuneration for his position also takes into account the other remuneration that the Chief Multiannual variable remuneration may also be determined. Executive Officer may receive elsewhere in the group (it being specified that, to date, the positions held in the subsidiaries are Principles relating to the setting of variable remuneration performed without remuneration). for executive corporate officers In the event that the Company appoints other executive corporate Principles relating to the setting of fixed remuneration for officers, it will determine their annual and/or multiannual variable executive corporate officers remuneration by taking all remuneration paid to them by companies In the event that the Company appoints other executive corporate controlling, or controlled by, the Company, the level of difficulty of officers, it may determine their fixed remuneration by taking all their responsibilities, experience in the position and seniority in the remuneration paid to them by companies controlling, or controlled Group as well as the practices of comparable firms into account. by, the Company, the level of difficulty of their responsibilities, their skills and experience, seniority in the Group and the practices of comparable firms into account. 2.2.1.4 Other remuneration and benefits in kind
Executive corporate officers are not entitled to any compensation or 2.2.1.3 Principles relating to the setting of variable benefits due or likely to be due on account of their assumption, remuneration cessation or change of duties or after the performance thereof. The breakdown of attendance fee is discussed during Board of Principles relating to the setting of variable remuneration of Directors meetings. The Directors’ fee allocation policy adopted by the Chairman of the Board of Directors the Board of Directors states that only independent Directors not remunerated by a shareholder that they represent will receive Raphaël GORGÉ, Chairman of the Board of Directors, receives Directors’ fees. variable remuneration from PRODWAYS GROUP. Accordingly, if the Chief Executive Officer is also a Director, he or This variable remuneration will not exceed half of his fixed she does not receive Directors’ fees for his or her duties as Director, remuneration. It will be paid subject to quantitative performance since he or she is already remunerated by the Company for his or criteria being met and to the shareholders’ meeting called to approve her position as Chief Executive Officer and thus cannot be the 2019 financial statements approving the variable and considered as independent. non-recurring components of the remuneration of the Chairman of the Board of Directors for his position for the 2019 financial year. The Chairman of the Board of Directors may, however, receive Directors’ fees for his or her duties as a Director, depending on the The Board of Directors determines the applicable quantitative and situation and based on the remuneration received elsewhere and if qualitative criteria based on the priorities defined by the Group and he or she is considered as independent. applies a weighting to each of these criteria. Under exceptional circumstances, the Board of Directors may decide The quantitative criteria specifically relate to the Group’s to allocate non-recurring remuneration to executive corporate performance objectives. The qualitative criteria are defined according officers. The reasons for this decision would be explained. to projects and the Group’s strategy. The Company wishes to keep the criteria selected confidential. In the event that new executive corporate officers are appointed, the Board of Directors may also decide to grant benefits in kind, Principles relating to the setting of variable remuneration of complementary pension schemes or bonuses, (including the Chief Executive Officer compensation or benefits due or likely to be due on account of their assumption, cessation or change of duties or after the performance The Chief Executive Officer receives annual variable remuneration thereof), in accordance with market practices and the executive’s from PRODWAYS GROUP or, if applicable, from its subsidiaries, for experience. his position or positions held in those subsidiaries. The Board of Directors may also grant stock options or free shares This variable remuneration will not exceed half of his fixed to executive corporate officers under the conditions provided by law. remuneration. It will be paid subject to qualitative or quantitative To do this, it is granted the necessary authorisations as voted by the performance criteria being met and to the shareholders’ meeting shareholders’ meeting. In its decision of 31 January 2019, the Board called to approve the 2019 financial statements approving the decided to allocate free shares to the Chief Executive Officer. (see variable and non-recurring components of the Chief Executive Section 4.2.1)
46 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Corporate officer remuneration policy
In the event that the Board of Directors appoints one or more 2.2.1.5 Remuneration of corporate officers Deputy Chief Executive Officers, the Company pays them fixed for 2018 remuneration and, where applicable, exceptional remuneration by taking the level of difficulty of their responsibilities, experience in the Remuneration of Raphaël GORGÉ position and seniority in the Group as well as the practices of comparable firms into account. The principles and criteria for variable Raphaël GORGÉ was Chief Executive Officer until 4 October 2018. As of that date, the positions of Chairman of the Board of Directors 2 remuneration applicable to the Chief Executive Officer also apply to any Deputy Chief Executive Officers, including any necessary and Chief Executive Officer are separate: Raphaël GORGÉ became modifications. Chairman of the Board of Directors and a new Chief Executive Officer was appointed (Olivier STREBELLE). In the event that the Board of Directors combines the positions of Chairman and Chief Executive Officer, the Company pays the latter The remuneration package and benefits in kind paid or allocated for fixed, variable and, where applicable, exceptional remuneration by the 2018 financial year to Raphaël GORGÉ as Chairman and Chief taking the level of difficulty of their responsibilities, experience in the Executive Officer and then Chairman of the Board of Directors of position and seniority in the Group as well as the practices of the Company as from 4 October 2018 are summarised in the table comparable firms into account. The principles and criteria for variable below. remuneration are those set out above, including any necessary The shareholders’ meeting of 7 June 2019 (tenth resolution) will be modifications. asked to approve the fixed, variable or exceptional components of The payment of variable and any exceptional remuneration in respect the total remuneration and benefits in kind paid or allocated to of offices held during the 2019 financial year is subject to the ordinary Raphaël GORGÉ for the 2018 financial year as Chairman and Chief shareholders’ meeting approving the remuneration package of Executive Officer, then as Chief Executive Officer. His remuneration executive corporate officers paid or allocated during the year. remained unchanged when the functions were separated given the particular assignments that he retained within the Group.
Remuneration components paid Amounts or book value or allocated for the period submitted for approval Presentation Fixed remuneration from PRODWAYS GROUP €75,000 Fixed remuneration paid by PRODWAYS GROUP from 1 April 2018 Fixed remuneration paid by companies controlling €109,000 Fixed remuneration paid by GROUPE GORGÉ PRODWAYS GROUP and PÉLICAN VENTURE, in respect of the corporate offices held within these companies Fixed remuneration by controlled companies none TOTAL FIXED REMUNERATION €184,000 IN RESPECT OF 2018 Annual variable remuneration payable €45,000 On 28 March 2018, the Board of Directors of by PRODWAYS GROUP (amount to be paid after PRODWAYS GROUP decided to allocate gross approval of the shareholders’ variable remuneration of up to €50,000 to meeting) Raphaël GORGÉ for 2018, depending on the achievement of quantitative and qualitative criteria linked to the Group’s performance and projects. The criteria were precisely defined by the Board of Directors and remain confidential. Variable remuneration paid by a controlling entity €58,630 Variable remuneration paid by PÉLICAN VENTURE in 2018 (€30,000) and to be paid by GROUPE GORGÉ (€28,630) after approval by the shareholders' meeting of GROUPE GORGÉ. Variable remuneration paid by a controlled entity none Any offices held by Raphaël GORGÉ in PRODWAYS GROUP subsidiaries were exercised without remuneration. TOTAL VARIABLE REMUNERATION €103,630 (AMOUNT PAID OR TO BE PAID) IN RESPECT OF 2018
PRODWAYS GROUP - 2018 ANNUAL REPORT 47 CORPORATE GOVERNANCE 2 Corporate officer remuneration policy
Remuneration components paid Amounts or book value or allocated for the period submitted for approval Presentation Multiannual variable remuneration in cash none Raphaël GORGÉ receives no multiannual variable remuneration in cash from PRODWAYS GROUP nor from controlled or controlling companies. Stock options allocated none The Board did not grant any stock options in 2018. Free shares allocated none The Board did not grant any free shares in 2018; Raphaël GORGÉ did not benefit from the plans decided in 2016 and 2019. Exceptional compensation none No exceptional remuneration is due in respect of 2018. Attendance fees €10,000 GROUPE GORGÉ paid €10,000 in Directors' fees to Raphaël GORGÉ in 2018, in respect of his position at GROUPE GORGÉ in 2017. Compensation, allowances or benefits for taking office none Not applicable. Compensation components paid on account of the none No compensation is due on account of the cessation or change of duties, retirement commitments cessation or change of duties, retirement and non-compete commitments commitments and non-compete commitments. Remuneration components and benefits in kind under none No such agreements exist. agreements entered into with the Company by virtue The service provision agreement between of office, or any entity controlled by the Company, or GROUPE GORGÉ and PÉLICAN VENTURE is any entity that controls it, or any entity controlled by not related to Raphaël GORGÉ's position. the entity that controls it. Other components of compensation granted in respect none of the term of office Benefits of all kinds €9,964 (book value) Raphaël GORGÉ received a benefit in kind in respect of his position at PÉLICAN VENTURE.
Remuneration of Olivier STREBELLE The shareholders’ meeting of 7 June 2019 (eleventh resolution) will The remuneration package and benefits in kind paid or allocated for be asked to approve the fixed, variable or exceptional components the 2018 financial year to Olivier STREBELLE as Chief Executive of the total remuneration and benefits in kind paid or allocated to Officer of the Company as from 4 October 2018 are summarised in Olivier STREBELLE for the 2018 financial year as Chief Executive the table below. Olivier STREBELLE was not remunerated by the Officer. There is none to approve in respect of the 2018 financial Company until 1 December 2018. year given the date of his appointment.
Remuneration components paid or allocated for Amounts or book value the period submitted for approval Presentation Fixed remuneration paid by PRODWAYS GROUP €16,667 Fixed remuneration paid by PRODWAYS GROUP from 1 December 2018. Fixed remuneration paid by a controlling entity €118,758 Olivier STREBELLE was a GROUPE GORGÉ employee until 1 December 2018 and as such received remuneration from GROUPE GORGÉ, albeit unrelated to his position. TOTAL FIXED REMUNERATION €135,425 IN RESPECT OF 2018
48 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Corporate officer remuneration policy
Remuneration components paid or allocated for Amounts or book value the period submitted for approval Presentation Annual variable remuneration paid none Olivier STREBELLE is likely to receive variable by PRODWAYS GROUP remuneration starting from the 2019 financial year. 2 Variable remuneration paid €60,000 Olivier STREBELLE was a GROUPE GORGÉ by a controlling entity employee until 1 December 2018 and as such received remuneration from GROUPE GORGÉ, albeit unrelated to his position. Variable remuneration paid by a controlled entity none Olivier STREBELLE's positions in the subsidiaries of PRODWAYS GROUP were performed without remuneration. TOTAL VARIABLE REMUNERATION €60,000 (AMOUNTS PAID) IN RESPECT OF 2018 Multiannual variable remuneration in cash none Olivier STREBELLE receives no multiannual variable remuneration in cash from PRODWAYS GROUP nor from controlled or controlling companies. Stock options allocated none The Board did not grant any stock options in 2018. Free shares allocated none The Board did not grant any free shares in 2018; Olivier STREBELLE did not benefit from the plans decided in 2016. He benefited from the plan decided in January 2019. Exceptional compensation none No exceptional remuneration is due in respect of 2018. Attendance fees none The Company did not pay Directors' fees and would not pay any to the Chief Executive Officer according to its policy. Compensation, allowances or benefits for taking office none No remuneration was paid to Olivier STREBELLE for the assumption of his position. Compensation components paid on account of the none No remuneration is provided for termination cessation or change of duties, retirement commitments or change of duties. There are no specific and non-compete commitments pension commitments. The Chief Executive Officer has accepted a non-compete undertaking that could be applied on the termination of his duties. Remuneration components and benefits in kind under none No such agreements exist. agreements entered into with the Company by virtue of office, or any entity controlled by the Company, or any entity that controls it, or any entity controlled by the entity that controls it. Other components of compensation granted in respect €579 Olivier STREBELLE benefits from a GSC of the term of office (book value) insurance covered by PRODWAYS GROUP from December 2018. Benefits of all kinds €10,383 (book value) Olivier STREBELLE received a benefit in kind when he was an employee of GROUPE GORGÉ.
PRODWAYS GROUP - 2018 ANNUAL REPORT 49 CORPORATE GOVERNANCE 2 Corporate officer remuneration policy
2.2.2 Remuneration of executive corporate Olivier STREBELLE (Chief Executive Officer as from 4 October 2018, then Director) is remunerated as described in Section 2.2.1 above. officers Catherine GORGÉ (Director) acted as a consultant (via her The tables below present the remuneration and benefits paid to each consulting firm CBG CONSEIL) to the subsidiary PRODWAYS corporate officer by the Company, entities controlled by (2014 to 2016) then to PRODWAYS GROUP (in 2016 and 2017) PRODWAYS GROUP or the entities controlling PRODWAYS and invoiced fees for her services in that capacity. Since 2018, CBG GROUP in the past year. They are covered by the AMF CONSEIL has acted under a commercial collaboration agreement for recommendation on the preparation of Registration Documents. INITIAL and, as such, invoices commissions (see table 3 below and Section 2.5.1 below). Raphaël GORGÉ (Chairman and Chief Executive Officer until 4 October 2018, then Chairman of the Board of Directors as from that date) is remunerated as described in Section 2.2.1 above.
TABLE 1 – SUMMARY TABLE OF THE REMUNERATION PAID AND THE OPTIONS AND SHARES GRANTED TO EACH EXECUTIVE CORPORATE OFFICER
Raphaël GORGÉ, Chairman 2018 2017 Remuneration due for the financial year €120,000 none Remuneration due by controlling entities for the financial year (details in Table 2) €187,594 €231,301 Value of multiannual variable compensation granted during the financial year none none Value of the options granted during the financial year none none Value of free shares granted none none TOTAL FOR RAPHAËL GORGÉ €307,594 €231,301
Olivier STREBELLE, Chief Executive Officer 2018 2017 Remuneration due for the financial year €16,667 none Remuneration due by a controlling entity for the financial year (details in Table 2) €169,141 €157,114 Value of multiannual variable compensation granted during the financial year none none Value of the options granted during the financial year none none Value of free shares granted none none TOTAL OLIVIER STREBELLE €185,808 €157,114
50 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Corporate officer remuneration policy
TABLE 2 – SUMMARY TABLE OF THE REMUNERATION OF EACH EXECUTIVE CORPORATE OFFICER
Amounts for 2018 Amounts for 2017 Raphaël GORGÉ - Chairman Payable(4) Paid(5) Payable(4) Paid(5) z fixed remuneration €75,000 €75,000 none none 2 z fixed remuneration paid by controlling companies(1) €109,000 €109,000 €184,000 €184,000 z annual variable remuneration(2) €45,000 none none none z fixed remuneration paid by controlling companies(3) €58,630 €57,600 €27,600 €56,750 z multiannual variable remuneration none none none none z exceptional remuneration none none none none z attendance fees by a controlling entity(3) €10,000 €10,000 €10,000 €10,000 z benefits in kind(1) €9,964 €9,964 €9,701 €9,701 TOTAL €307,594 €261,564 €231,301 €260,451 (1) This remuneration was paid by PÉLICAN VENTURE, the entity that controls GROUPE GORGÉ, and by GROUPE GORGÉ, the entity that controls PRODWAYS GROUP. (2) The Board of Directors decided to allocate gross variable remuneration of up to €50 thousand to Raphaël GORGÉ for 2018, depending on the achievement of quantitative and qualitative criteria linked to the Group’s performance and projects. The criteria were precisely defined the beginning of the year by the Board of Directors. These criteria remain confidential. (3) The Board of Directors decided to allocate gross variable remuneration of up to €42 thousand to Raphaël GORGÉ for 2018 (€92 thousand for 2017), depending on the achievement of quantitative and qualitative criteria linked to the Group’s performance and projects. The criteria were precisely defined the beginning of the year by the GROUPE GORGÉ Board of Directors on a proposal by the Remuneration Committee. These criteria remain confidential. Raphaël GORGÉ received gross variable remuneration of €30,000 from PELICAN VENTURE. He also received Directors' fees paid by GROUPE GORGÉ. (4) Remuneration payable to the corporate officer during the financial year, the amount of which cannot be changed regardless of the payment date. (5) Remuneration payable to the corporate officer during the financial year.
Amounts for 2018 Amounts for 2017 Olivier STREBELLE, Chief Executive Officer Payable(3) Paid(4) Payable(3) Paid(4) z fixed remuneration €16,667 €16,667 none none z fixed remuneration by a controlling entity(1) €118,758 €118,758 €126,193 €126,193 z annual variable remuneration none none none none z variable remuneration by a controlling entity(2) €40,000 €60,000 €20,000 €50,000 z multiannual variable remuneration none none none none z exceptional remuneration none none none none z Director's fees none none none none z benefits in kind(1) €10,383 €10,383 €10,921 €10,921 TOTAL €185,808 €205,808 €157,114 €187,114 (1) This remuneration was paid before December 2018 by GROUPE GORGÉ, the entity that controls PRODWAYS GROUP. (2) GROUPE GORGÉ has allocated to Mr. Olivier STREBELLE gross variable remuneration of €40,000 for 2017 and €20,000 for 2018. These two variable remuneration payments were made in 2018, based on the achievement of quantitative and qualitative criteria related to the Group's performance and projects. (3) Remuneration payable to the corporate officer during the financial year, the amount of which cannot be changed regardless of the payment date. (4) Remuneration payable to the corporate officer during the financial year.
PRODWAYS GROUP - 2018 ANNUAL REPORT 51 CORPORATE GOVERNANCE 2 Corporate officer remuneration policy
TABLE 3 – TABLE OF ATTENDANCE FEES AND OTHER REMUNERATION RECEIVED BY NON-EXECUTIVE CORPORATE OFFICERS
Members of the Board of Directors Paid in 2018 Paid in 2017 Hélène DE COINTET Attendance fees none none Other remuneration none none Paul-François FOURNIER Attendance fees none none Other remuneration none none Catherine GORGÉ Attendance fees none none Other remuneration(1) €40,926 €123,063 Loïc LE BERRE Attendance fees none none Other remuneration(2) €235,999 €230,441 (1) “Other remuneration” paid to Catherine GORGÉ includes fees (excl. tax) invoiced to INITIAL, a subsidiary of PRODWAYS GROUP, by her firm CBG CONSEIL as well as €10,000 in attendance fees paid by GROUPE GORGÉ SA, the entity that controls PRODWAYS GROUP. (2) Remuneration paid by GROUPE GORGÉ SA, the entity that controls PRODWAYS GROUP.
The shareholders' meeting allocated a Directors' fees budget of €30,000 for each financial year from 2018. In accordance with its Directors' fees policy, no Directors' fees were allocated by the Board of Directors for the 2018 financial year.
TABLE 4 – STOCK OPTIONS ALLOCATED DURING THE PERIOD TO EACH EXECUTIVE CORPORATE OFFICER BY THE ISSUER AND BY ANY GROUP ENTITY None.
TABLE 5 – STOCK OPTIONS EXERCISED DURING THE PERIOD BY EACH EXECUTIVE CORPORATE OFFICER None.
52 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Corporate officer remuneration policy
TABLE 6 – FREE SHARES GRANTED TO EACH CORPORATE OFFICER
Date of Board of Directors’ meeting 31 January 2019 Date of the shareholders' meeting granting the delegation to the Board 13 June 2018 Total number of free shares allocated to corporate officers(1) 135,000 2 Olivier STREBELLE 135,000 1/3 in February 2021, 1/3 in February 2022 and Acquisition date of the shares 1/3 in February 2023 Date of end of the lock-up period -(2) Valuation of the shares(2) 427,950 (1) All the shares are allocated subject to performance conditions linked to the Group's results and share price in 2019, 2020 and 2021 and subject to a continued employment condition. (2) Olivier STREBELLE has a commitment to hold 5% of the shares that will become vested until the termination of his duties as corporate officer (3) For information purposes, the shares are valued at the closing price at 31 January 2019 (allocation date), i.e. €3.17. The value that will be selected for the consolidated financial statements, in accordance with IFRS 2, is not available. It will take into account a discount related to performance criteria and the probability of vesting.
TABLE 7 – FREE SHARES MADE AVAILABLE TO EACH CORPORATE OFFICER None.
TABLE 8 – HISTORY OF ALLOCATION OF STOCK OPTIONS None.
TABLE 9 – STOCK OPTIONS GRANTED TO THE FIRST TEN EMPLOYEES WHO ARE NOT CORPORATE OFFICERS AND EXERCISED BY THEM None.
PRODWAYS GROUP - 2018 ANNUAL REPORT 53 CORPORATE GOVERNANCE 2 Company reference to a Corporate Governance Code and its application by the Company
TABLE 10 – HISTORY OF FREE SHARE AWARDS
Date of Board of Directors’ meeting 17 February 2016 9 December 2016 Date of shareholders’ meeting granting authority to the Board 28 September 2015 28 September 2015 Total number of free shares(1) 632,200 488,500 including corporate officers 240,000 200 Philippe LAUDE(2) 240,000 200 Acquisition date of the shares 31 March 2021 at the latest 31 March 2021 at the latest Date of end of the lock-up period same same Number of shares acquired -- including corporate officers - - Number of shares cancelled or expired(3) 632,200 226,120 including corporate officers 240,000 200 Philippe LAUDE(2) 240,000 200 Free shares with ongoing acquisition period - 262,380 (1) Allocation subject to continued employment, liquidity and performance conditions associated with the Group’s profits. (2) Philippe LAUDE was a Director of the Company until May 2016. He left the Group in February 2017. (3) Shares are cancelled when the beneficiary leaves the Group, meaning the condition of continued employment has not been met. Philippe LAUDE left the Group on 28 February 2017 and thus did not meet the condition of continued employment attached to the shares allocated to him.
TABLE 11 – INFORMATION RELATING TO EMPLOYMENT CONTRACTS, SUPPLEMENTARY PENSION SCHEME AND INDEMNITIES FOR EACH EXECUTIVE CORPORATE OFFICER
Raphaël GORGÉ, Olivier STREBELLE, Executive corporate officers Chairman Chief Executive Officer Employment contract no no Supplementary pension scheme yes(1) no(1) Compensation or benefits due or likely to be due on account of the end or no no change of office Compensation relating to a non-compete clause no yes(2) (1) Supplementary pension plan with defined contributions of 2.5% of the gross salary, paid by GROUPE GORGÉ, the entity controlling PRODWAYS GROUP. Olivier STREBELLE was a beneficiary while he was employed by GROUPE GORGÉ. (2) In return for a non-compete commitment accepted by the Chief Executive Officer, throughout its duration, the Company undertakes to pay Olivier STREBELLE a gross non-compete compensation of €70,000 per year, payable in 12 monthly instalments. The Company may waive this compensation by releasing Olivier STREBELLE from his non-compete commitment.
2.3 COMPANY REFERENCE TO A CORPORATE GOVERNANCE CODE AND ITS APPLICATION BY THE COMPANY
At the Board of Directors’ meeting on 22 February 2017, the Company decided to adhere to the MIDDLENEXT Corporate Governance Code. This code can be consulted on the MIDDLENEXT website (www.middlenext.com). The Board of Directors acknowledged the “Items requiring careful attention” section of the Middlenext Code. The table below shows where the Company stands with respect to the recommendations made in the Middlenext Corporate Governance Code at the time of the 1 April 2019 Board of Directors meeting.
54 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Special arrangements, if any, regarding shareholder participation in shareholders’ meetings
Middlenext Code recommendations Compliant Non-compliant I. SUPERVISORY POWER R1: Code of ethics for Board members X R2: Conflicts of interest X 2 R3: Board members – Presence of independent members on the Board X R4: Information for Board members X R5: Organisation of Board and committee meetings X R6: Setting up of committees X(1) R7: Implementation of internal regulations for the Board X R8: Choice of Directors X R9: Terms of office of Board members X R 10: Remuneration of Directors by Directors' fees X(2) R11: Assessment of the work done by the Board X R12: Shareholder relations X II. EXECUTIVE POWER R13: Setting and transparency of executive corporate officer compensation X R14: Preparation for the succession of officers X(3) R15: Multiple employment contracts and corporate offices X R16: Severance pay X R17: Supplementary pension schemes X R18: Stock options and allocation of free shares X R19: Review of vigilance points X (1) At this stage, the Company has not set up any Board Committees given the size of the Board of Directors. Under (article L.823-20-1 of the French Commercial Code) the Company is exempt from the obligation to create an Audit Committee given that its parent company (GROUPE GORGÉ SA) has its own Audit Committee. (2) In accordance with its current remuneration policy, the payment of Directors' fees shall be reserved for independent Directors who are otherwise not paid by the Company or by a significant shareholder as a permanent representative. The Board does not have an allocation rule based on Director attendance. If, however, the participation rate is unsatisfactory, the Board is free to review its allocation policy. (3) The Company’s Board of Directors did not discuss the matter of executive succession in 2018. The Board of Directors will have to reflect on this issue.
2.4 SPECIAL ARRANGEMENTS, IF ANY, REGARDING SHAREHOLDER PARTICIPATION IN SHAREHOLDERS’ MEETINGS
The Articles of Association do not contain any provision waiving the ordinary legal provisions governing the arrangements for shareholder participation in shareholders’ meetings (see the partial excerpt of article 22 of the Articles of Association inserted in Section 4.1.2 below).
PRODWAYS GROUP - 2018 ANNUAL REPORT 55 CORPORATE GOVERNANCE 2 Regulated agreements, related-party agreements and current agreements
2.5 REGULATED AGREEMENTS, RELATED-PARTY AGREEMENTS AND CURRENT AGREEMENTS
2.5.1 Presentation of agreements z Catherine GORGÉ (through her company CBG CONSEIL) launched the PRODWAYS GROUP “Luxury, Art, Design & Commitments and regulated agreements covered Architecture” division (otherwise known as “Creations”) in 2016, in articles L.225-38 and L.225-42-1 of the French which she continued to develop in 2017. Starting in 2018, CBG CONSEIL continued to contribute to the development of this Commercial Code activity as a commercial agent. Under this commercial collaboration agreement between CBG CONSEIL and INITIAL (a During 2018, the Board of Directors of the Company authorised the subsidiary of PRODWAYS GROUP), the commissions charged by signing of the following regulated agreement: absorption agreement CBG CONSEIL to INITIAL in 2018 amounted to €30,926 entered into between PRODWAYS GROUP, GROUPE GORGÉ excluding taxes. and the new Chief Executive Officer Olivier STREBELLE, pursuant to which the suspension until January 2020 of Olivier STREBELLE's employment contract with GROUPE GORGÉ following his appointment as Chief Executive Officer of PRODWAYS GROUP is Current agreements duly noted and at the end of that suspension period, Olivier STREBELLE's employment contract will automatically be terminated. The Group deals with intra-group services agreements and leasing or sub-leasing agreements between Group companies, Director In view of the change of Olivier STREBELLE's status from GROUPE employment contracts (excluding cases of significant promotion or GORGÉ employee to PRODWAYS GROUP corporate officer, the exceptional salary increases) and tax consolidation agreements as need to provide him with unemployment coverage and the group's ordinary agreements entered into on normal terms, having regard in interest in seeing Olivier STREBELLE manage PRODWAYS GROUP, particular to the terms and remuneration applied. the Board of Directors of PRODWAYS GROUP has authorised the signing of this regulated agreement. For information purposes, PRODWAYS GROUP presents the following agreements considered current and entered into under During the 2018 financial year, the Board of Directors of the normal conditions within a Group: Company also authorised a non-compete commitment applicable to the Chief Executive Officer (Olivier STREBELLE). In return for a z GROUPE GORGÉ and PRODWAYS GROUP are bound by a non-compete commitment accepted by the Chief Executive Officer, service agreement whereby GROUPE GORGÉ undertakes to throughout its duration, the Company undertakes to pay Olivier provide PRODWAYS GROUP with extensive assistance in STREBELLE a gross non-compete compensation of €70,000 per year, operational management, administrative management and legal, payable in 12 monthly instalments. The Company may waive this accounting, financial and marketing matters. For this purpose, compensation by releasing Olivier STREBELLE from his non-compete GROUPE GORGÉ is compensated by invoicing its subsidiary a commitment. In accordance with article L.225-42-1 of the French percentage of its consolidated revenue (1.00% for 2018, i.e. €609 Commercial Code, such non-compete agreements must be treated thousand). This percentage is revalued each year in order to as regulated agreements. ensure fair distribution, in line with the reality of the pooled management fees of the main subsidiaries of GROUPE GORGÉ. In addition, the Board of Directors that approved the 2018 financial Hence, such percentage may change in 2019 and in the years to statements noted that there are no longer any regulated agreements come. This agreement, which has been in force since 2016, is entered into in previous financial years that are still in force. entered into for an indefinite period and may be terminated by either party subject to three months’ notice. It will automatically be terminated in the event of loss of control of the Company by Related-party agreements (agreements referred to GROUPE GORGÉ; in article L 225-37-4 2° of the French Commercial z PRODWAYS’s lessor for the Les Mureaux site is a subsidiary of Code) GROUPE GORGÉ. The lessor for PRODWAYS GROUP, PODO 3D, PRODWAYS ENTREPRENEURS and PRODWAYS In accordance with article L 225-37-4 2° of the French Commercial CONSEIL in Paris is GROUPE GORGÉ. The rents charged are Code, the following agreements are mentioned: identical to the rents granted to the other GROUPE GORGÉ z the development of the Group's new Rapid Additive Forging subsidiaries on the same sites and are in line with market prices; technology is partly outsourced to COMMERCY Robotique, a z the PRODWAYS GROUP further engages in joint ventures with GORGÉ GROUP company. COMMERCY Robotique posted the aeronautical activities of GROUPE GORGÉ (access to revenue of €447.100 in 2017 with a profit margin matching its GROUPE GORGÉ customers, creation of a showroom dedicated average margin; to 3D printing at ECA AEROSPACE, a GROUPE GORGÉ subsidiary in Toulouse, collaboration for commercial offers).
56 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Regulated agreements, related-party agreements and current agreements
2.5.2 statutory auditors’ special report on regulated agreements and commitments To the Shareholders, In our capacity as your company’s statutory auditors, we hereby report to you on regulated agreements and commitments. It is our responsibility to report to shareholders, based on the information provided to us, on the main terms and conditions of agreements and 2 commitments that have been disclosed to us or that we may have identified as part of our engagement, without commenting on their relevance or substance or identifying any undisclosed agreements or commitments. Under the provisions of article R. 225-31 of the French Commercial Code, it is the responsibility of the shareholders to determine whether the agreements and commitments are appropriate and should be approved. Where applicable, it is also our responsibility to provide shareholders with the information required by article R. 225-31 of the French Commercial Code in relation to the implementation, during the year, of agreements and commitments already approved by the shareholders’ 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 mission. These procedures consisted in verifying that the information given to us is consistent with the underlying documents.
Agreements and commitments submitted to the approval of the shareholders’ meeting Agreements and commitments authorised and signed during the past year In accordance with article L 225-40 of the French Commercial Code, we have been informed of the following agreements and commitments signed during the past year which received prior authorisation from your Board of Directors.
Purpose: Authorisation for the signature of a takeover agreement for the employment contract concluded between PRODWAYS GROUP, GROUPE GORGÉ and the new Chief Executive Officer, Olivier STREBELLE, under which it is noted the suspension until January 2020 of Olivier STREBELLE's employment contract at GROUPE GORGÉ. Person concerned: GROUPE GORGÉ SA, Mrs Catherine GORGÉ, (Director of PRODWAYS GROUP SA and GROUPE GORGÉ SA) Mr Raphaël GORGÉ (Chairman and Chief Executive Officer of GROUPE GORGÉ SA and Chairman of the Board of Directors of PRODWAYS GROUP SA) and Mr Olivier STREBELLE, Chief Executive Officer of PRODWAYS GROUP SA. Pursuant to this agreement, it is duly noted that the employment contract of Mr Olivier STREBELLE at GROUPE GORGÉ is suspended up to January 2020, following his appointment as Chief Executive Officer of PRODWAYS GROUP and that at the end of this suspension period, Olivier STREBELLE's employment contract will automatically be terminated. Having reviewed the terms and conditions and in view of the change of status of Olivier STREBELLE from employee of GROUPE GORGÉ to corporate officer of PRODWAYS GROUP, the need to provide unemployment insurance and the Group's interest to see Olivier STREBELLE become Chief Executive Officer of PRODWAYS GROUP, the Board of Directors of PRODWAYS GROUP authorised the signature of this regulated agreement.
Purpose: Authorisation for the signature of a non-compete commitment applicable to the Chief Executive Officer, Mr Olivier STREBELLE. Person concerned: Mr Olivier STREBELLE, Chief Executive Officer of PRODWAYS GROUP SA. Pursuant to this agreement, it is duly noted that a non-compete commitment is applicable to the Chief Executive Officer, Mr Olivier STREBELLE. In return for this non-compete commitment accepted by the Chief Executive Officer, throughout its duration, the Company undertakes to pay Olivier STREBELLE a gross non-compete compensation of €70,000 per year, payable in 12 monthly instalments. The Company may waive this compensation by releasing Olivier STREBELLE from his non-compete commitment. Having reviewed the terms and conditions, the Board of Directors of PRODWAYS GROUP approved the signature of this regulated agreement.
Agreements and commitments already approved by the shareholders’ meeting We inform you that we have not been informed of any agreements or commitments already approved by the shareholders’ meeting which remained current during the last financial year.
Neuilly-sur-Seine and Paris, 11 April 2019 The statutory auditors
PricewaterhouseCoopers Audit RSM Paris David Clairotte Stéphane Marie
PRODWAYS GROUP - 2018 ANNUAL REPORT 57 CORPORATE GOVERNANCE 2 Internal control and risk management procedures
2.6 INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES
Our Company has developed internal control procedures with a 2.6.2 Group organisation view to achieving, to the extent possible, strict financial management and risks control, and preparing the information provided to PRODWAYS GROUP SA does not carry out any industrial activities, shareholders on the financial position and financial statements. and its purpose is to: The main risks facing the Group are discussed in the management z define and implement the Group’s strategy; report and annual report published by the Company (“Risk Factors”). z supervise the management of its subsidiaries; The internal control system is built around the following organisation z liaise with financial stakeholders such as banks and investors; and methodologies: z develop and maintain common procedures in areas such as reporting, management control and accounting. The Group operates through two business segments: Products and 2.6.1 General organisation of internal Systems. Each segment is independent with its own operational and control management structures. Management at the Group’s main operating subsidiaries reports The Chairman and Chief Executive Officer, assisted by the Chief directly to the Group’s senior management. Financial Officer, established the Company’s internal control system with a view to ensuring: the safeguarding and integrity of assets; z 2.6.3 Implementing internal control z and the reliability of information flows. This internal control system primarily encompasses: 2.6.3.1 Activity report z oversight of the Group’s business by the introduction of a procedure for monthly reporting and analysis of sales, profit (loss) All direct and indirect subsidiaries of PRODWAYS GROUP and cash flow; complete the Group’s reporting scorecards which include the following business indicators: z a procedure for organising the closing of accounts and the preparation of consolidated financial statements every half-year; z monthly and year-to-date sales; z a special reporting procedure for the quarterly preparation of z monthly order intakes; consolidated revenue figures. z total order book; z significant events. These scorecards, once approved by the finance chiefs and executive management in the operating entities, are sent on the 5th of each month together with any notes or commentaries required to analyse and understand them.
58 PRODWAYS GROUP - 2018 ANNUAL REPORT CORPORATE GOVERNANCE Internal control and risk management procedures
2.6.3.2 Performance report objective was to stabilise a robust and sustainable internal control system, taking into account the specificities of the Group, and to All direct and indirect subsidiaries of PRODWAYS GROUP prepare provide a reasonable level of assurance for control of the main risks. a monthly income statement in the Group’s format with a The work carried out by the Group was reviewed by one of our comparison against the budget. The cash flow position and a statutory auditors, PwC. three-month cash flow forecast are also included. These reports also With regard to risk, the project began with risk identification, which 2 include information on Working Capital Requirements (WCR) and took place through a set of maintenance actions. The identified risks capital expenditures. were sorted, categorised and evaluated in terms of impact and This information, together with any commentary required for likelihood of occurrence. The risks were regrouped on a map. Risk understanding it and following approval by management, is sent to mapping is meant to be updated annually for each business segment HQ on the 18th of each month. and at Group level. Monthly meetings are held between Group management and On the basis of the risk mapping, actions to improve risk control management of subsidiaries to discuss the information sent and to were defined. The most important of these actions are the consider any corrective measures taken or to be taken and to update strengthening and dissemination of internal control measures. forecasts. A Group internal control framework common to all GROUPE These monthly reports are accompanied by an end-of-year income GORGÉ subsidiaries was developed to facilitate the dissemination statement, which is updated several times during the year. and monitoring of good internal control practices. Critical processes were identified (accounting closure, cash, purchases, sales, inventories, HR/payroll, project management, legal and tax, R&D, control environment and general computer controls). An internal control 2.6.3.3 Closing of the financial statements framework was built for each process and then adapted and validated in cross-functional workshops. The sum of the frameworks for each All the Group’s subsidiaries close their annual and interim financial process constitutes the Group’s internal control framework. For each statements on 31 December and 30 June respectively. process and sub-process, this framework defines the risks to which The interim and annual financial statements as well as the the Group is exposed, the objectives of the controls to be carried consolidation reporting are audited or partially reviewed by the out, the control activities, their frequency, responsible persons and statutory auditors. proof of achievement. Preparation meetings between Group management and management The dissemination of the internal control framework within the at subsidiaries are held at each accounting close in order to agree the Group was accompanied by self-assessment questionnaires that relevant options for said accounting closes. focused on the controls deemed to be priorities. The data required for preparing the consolidated financial statements The use of the internal control framework within the Group is the are entered in a decentralised input system. The software used is responsibility of the entire management chain, starting with the SAP BFC, with an automatic module that immediately reconciles managers (division managers or CEOs of subsidiaries) who rely for reported intra-group transactions. An internal manual details the this on the administrative and financial managers or Directors. principles and policies applied by the Group for the purposes of preparing the consolidation reporting. The Group’s consolidated financial statements are prepared internally in 2.6.4 Preparation and control of accordance with applicable principles and are audited by the statutory auditors. accounting and financial information Following these accounting closes, all legal disclosure requirements for shareholders are satisfied. The Chairman of the Board of Directors, assisted by the Chief The SAP BFC software package is used for the consolidation of the Financial Officer, establishes the financial communications policy. financial statements as well as all budgets, reports and forecasts. Presentations of highlights, outlook and interim and annual financial statements are put up on the Group’s website when results are published. The Company also takes part in investor meetings. 2.6.3.4 Quarterly business reports
The Group publishes its quarterly consolidated revenue. These numbers are prepared in the same way as for the preparation of the 2.6.5 Legal and regulatory compliance consolidated financial statements. The press releases disclosing quarterly revenue numbers are prepared on the basis of the business In order to ensure that their businesses are in compliance with and profit (loss) reports as well as discussions with management at applicable regulations, Group companies have recourse to the the subsidiaries. Group’s Legal Department and to external advisers (lawyers, labour law experts and intellectual property experts).
2.6.3.5 Assessment of internal control
In 2016, GROUPE GORGÉ comprehensively reviewed the Company’s risk mapping and internal control accounting system. The
PRODWAYS GROUP - 2018 ANNUAL REPORT 59 60 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION
3.12018 CONSOLIDATED FINANCIAL STATEMENTS 62 3.2SEPARATE FINANCIAL STATEMENTS 2018 104
3.1.1Consolidated income statement 62 3.2.1Income statement 104 3.1.2Statement of comprehensive income 63 3.2.2Balance sheet 104 3.1.3 Statement of consolidated financial 3.2.3Change in cash and cash equivalents 105 position 63 3.2.4 Notes to the parent company financial 3.1.4Consolidated cash flow statement 65 statements 106 3.1.5 Statement of changes in consolidated 3.2.5 Statutory auditors’ report on the separate shareholders’ equity 66 financial statements 115 3.1.6 Notes to the consolidated financial statements 67 3.1.7 Statutory auditors’ report on the consolidated financial statements 101
PRODWAYS GROUP - 2018 ANNUAL REPORT 61 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
3.1 2018 CONSOLIDATED FINANCIAL STATEMENTS
The Group’s consolidated financial statements are prepared in accordance with IFRS published by the International Accounting Standards Board (IASB) as approved by the European Union. The accounting policies are detailed in Section 3.1.6 of the notes to the consolidated financial statements.
3.1.1 Consolidated income statement
(in thousands of euros) Notes 2018 2017* REVENUE 4.1 60,895 34,807 Capitalised production 2,139 3,224 Inventories and work in progress 134 (287) Other income from the business 4.2 1,166 938 Purchases and external charges (35,863) (22,377) Personnel expenses 5.2 (26,002) (17,914) Tax and duties (739) (540) Depreciation, amortisation and provisions (net of reversals) 4.3 (5,181) (3,537) Other operating income and expenses (496) 235 PROFIT (LOSS) FROM CONTINUING OPERATIONS (3,947) (5,453) Non-recurring items in operating income 3.2.1 (1,069) (1,199) OPERATING INCOME (5,016) (6,651) Interest on gross debt (139) (211) Interest on cash and cash equivalents 61 5 COST OF NET DEBT (A) 8.2 (78) (206) Other financial income (B) 82 334 Other financial expense (C) (80) (166) FINANCIAL INCOME AND EXPENSES (D = A+B+C) 8.2 (76) (38) Income tax 9.1 (683) (1,160) Group share of the earnings of affiliated companies 8.1.4 118 107 NET INCOME FROM CONTINUING ACTIVITIES AFTER TAX (5,657) (7,742) Net income from discontinued activities -- CONSOLIDATED NET INCOME (5,657) (7,742) INCOME ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS (5,454) (7,613) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS (203) (130) Average no. of shares 10.2 50,765,920 44,061,841 Earnings per share (in euros) 10.2 (0.107) (0.173) Diluted earnings per share (in euros) 10.2 (0.107) (0.173) * Column 2017 restated for the elements detailed in Note 1.3.
62 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
3.1.2 Statement of comprehensive income
(in thousands of euros) 2018 2017* NET INCOME (5,657) (7,742) Currency translation adjustment 88 30 Tax relating to currency translation adjustments - - Actuarial gains and losses on defined benefit plans (9) 57 Tax relating to actuarial gains and losses on defined benefit plans 2 (26) Group share of gains and losses recognised directly in equity of equity-accounted companies - - TOTAL OTHER COMPREHENSIVE INCOME 82 61 of which can be reclassified subsequently to profit and loss 82 61 of which cannot be subsequently reclassified to profit and loss - - 3 COMPREHENSIVE INCOME (5,574) (7,682) Comprehensive income attributable to parent company shareholders (5,383) (7,550) Comprehensive income attributable to non-controlling interests (192) (131) * Column 2017 restated for the elements detailed in Note 1.3.
3.1.3 Statement of consolidated financial position ASSETS
(in thousands of euros) Notes 31/12/2018 31/12/2017* NON-CURRENT ASSETS 62,217 52,961 Goodwill 6.1 37,883 29,760 Other intangible assets 6.2 13,320 14,054 Property, plant and equipment 6.3 9,442 6,700 Investments in affiliated companies 8.1.4 995 1,504 Other financial assets 8.1.4 517 273 Deferred tax assets 9.2 60 670 CURRENT ASSETS 52,948 63,885 Net inventories 4.4 6,693 4,722 Net trade receivables 4.5 13,391 10,989 Contract assets 4.5 2,202 1,806 Other current assets 4.6 2,973 3,678 Tax receivables payable 9.1.1 1,762 1,182 Other current financial assets -31 Cash and cash equivalents 8.1.2 25,927 41,476 ASSETS HELD FOR SALE -- TOTAL ASSETS 115,165 116,846 * Column 2017 restated for the elements detailed in Note 1.3.
PRODWAYS GROUP - 2018 ANNUAL REPORT 63 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
TOTAL EQUITY AND LIABILITIES
(in thousands of euros) Notes 31/12/2018 31/12/2017* EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 80,917 86,306 Capital(1) 10.1 25,408 25,408 Premiums(1) 84,408 84,371 Retained earnings and other reserves(2) (28,899) (23,473) STAKES ATTRIBUTABLE TO NON-CONTROLLING INTERESTS 398 522 NON-CURRENT LIABILITIES 7,451 6,906 Long-term provisions 5.3 863 836 Long-term liabilities – portion due in more than one year 8.1.1 4,219 3,183 Other financial liabilities 8.1.3 930 889 Deferred tax liabilities 9.2 1,438 1,998 Other non-current liabilities 4.7 - - CURRENT LIABILITIES 26,399 23,112 Short-term provisions 11 388 210 Long-term liabilities – portion due in less than one year 8.1.1 2,515 1,582 Operating payables 4.7 8,949 8,476 Contract liabilities 4.5 3,199 1,353 Other current liabilities 4.7 11,274 11,414 Tax liabilities payable 9.1.1 73 77 LIABILITIES HELD FOR SALE -- TOTAL LIABILITIES 115,165 116,846 (1) Of the consolidating parent company. (2) Including profit (loss) for the financial year. * Column 2017 restated for the elements detailed in Note 1.3.
64 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
3.1.4 Consolidated cash flow statement
(in thousands of euros) Notes 2018 2017* NET INCOME FROM CONTINUING OPERATIONS (5,657) (7,742) Accruals 5,336 4,790 Capital gains and losses on disposals 453 127 Group share of income of equity-accounted companies (118) (107) CASH FLOW FROM OPERATING ACTIVITIES (BEFORE ELIMINATION OF NET BORROWING COSTS AND TAXES) 7.1 14 (2,933) Expense for net debt 8.2 78 206 Tax expense 9.1 683 1,160 CASH FLOW FROM OPERATING ACTIVITIES (AFTER 3 ELIMINATION OF NET BORROWING COSTS AND TAXES) 775 (1,566) Tax paid (611) (653) Change in working capital requirements 7.2 (1,849) (2,099) NET CASH FLOW FROM OPERATING ACTIVITIES (A) (1,685) (4,319) Investing activities Payments/acquisition of intangible assets (1,452) (1,997) Payments/acquisition of property, plant and equipment (3,627) (2,805) Proceeds/disposal of property, plant and equipment and intangible assets - 7 Payments/acquisition of long-term investments (241) (4) Proceeds/disposal of long-term investments 14 24 Net cash inflow/outflow on the acquisition/disposal of subsidiaries 7.3 (9,166) (8,481) NET CASH FLOW FROM INVESTING ACTIVITIES (B) (14,472) (13,255) Financing activities Capital increase or contributions 10.1.1 - 62,483 Dividends paid to parent company shareholders 10.1.2 - - Dividends paid to non-controlling interests (38) - Proceeds from borrowings 8.1.1 2,352 987 Repayment of borrowings 8.1.1 (1,867) (11,157) Cost of net debt 8.2 (58) (168) NET CASH FLOW FROM FINANCING ACTIVITIES (C) 390 52,146 CASH FLOW GENERATED BY (USED IN) ALL ACTIVITIES (D = A+B+C) (15,767) 34,572 CHANGE IN CASH AND CASH EQUIVALENTS (15,767) 34,572 Effects of exchange rate changes 63 (8) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 8.1.2 41,228 6,871 Reclassification of cash(1) 27 (206) CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 8.1.2 25,552 41,228 (1) Treasury shares. * Column 2017 restated for the elements detailed in Note 1.3.
PRODWAYS GROUP - 2018 ANNUAL REPORT 65 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
3.1.5 Statement of changes in consolidated shareholders’ equity
Group share or owners of the parent company Equity – Equity – Retained attributable attributable Share earnings to parent to non- capital Treasury and other company controlling Total (in thousands of euros) Capital reserves shares reserves shareholders interests equity 2016 SHAREHOLDERS’ EQUITY 16,897 23,857 - (14,842) 25,911 101 26,012 Share capital transactions(1) 8,511 59,966 - - 68,477 - 68,477 Treasury share transactions - - (196) - (196) - (196) Payments in shares - 548 - 6 554 - 554 Commitments to non-controlling interests - - - (889) (889) - (889) Dividends ------Net income (loss) for the financial year(2) - - 27 (7,640) (7,613) (130) (7,743) Gains and losses recognised directly in equity - - - 62 62 (1) 61 CONSOLIDATED COMPREHENSIVE INCOME - - 27 (7,578) (7,550) (131) (7,682) Changes in scope - - - (1) (1) 553 551 2017 CLOSING EQUITY 25,408 84,371 (168) (23,305) 86,306 522 86,828 Share capital transactions ------Treasury share transactions - - (26) - (26) - (26) Payments in shares - 37 6 43 - 43 Commitments to non-controlling interests - - - (41) (41) - (41) Dividends - - - - - (38) (38) Net income (loss) for the period - - 60 (5,514) (5,454) (203) (5,657) Gains and losses recognised directly in equity - - 71 71 11 82 CONSOLIDATED COMPREHENSIVE INCOME - - 60 (5,443) (5,383) (192) (5,574) Changes in scope - - 18 18 105 123 2018 SHAREHOLDERS’ EQUITY 25,408 84,408 (134) (28,765) 80,917 398 81,315 (1) Including the redemption of convertible bonds. (2). Restated for the elements detailed in Note 1.3
66 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
3.1.6 Notes to the consolidated financial statements
NOTEd1 Accounting principles 68 NOTEd6 Property, plant and equipment and 1.1Standards applied 68 intangible assets 85 1.2Basis for preparation 69 6.1Goodwill 85 1.3 Restatement of financial information for previous 6.2Other intangible assets 85 financial years 69 6.3Property, plant and equipment 87 NOTEd2 Scope of consolidation 72 6.4Value impairments on non-current assets 88 2.1 Accounting principles related to the consolidation NOTEd7 Details of cash flows 89 scope 72 7.1Calculation of cash flow 89 2.2Changes in the consolidation scope 72 7.2Change in working capital requirements 90 3 2.3 Off-balance sheet commitments related to the 7.3Acquisitions/Disposals of equity holdings 90 consolidation scope 73
NOTEd3 Segment information 74 NOTEd8 Financing and financial instruments 91 8.1Financial assets and liabilities 91 3.1Key indicators by division 74 8.2Financial income and expenses 93 3.2Reconciliations with Group data 75 8.3Policy for the management of risks 93 3.3Revenue by geographical area 77 8.4 Off-balance sheet commitments related to the NOTEd4 Operational data 78 Group’s financing 94 4.1Recognition of income and revenue 78 NOTEd9 Corporate income taxes 95 4.2Other income from the business 78 9.1Corporate income tax 95 4.3Net charges to amortisation and provisions 78 9.2Deferred tax liabilities 96 4.4Inventories and work in progress 78 4.5Customers, contract assets and liabilities 79 NOTEd10 Shareholders’ equity and earnings per 4.6Other current and non-current assets 80 share 97 4.7Other current and non-current liabilities 81 10.1Equity 97 4.8 Off-balance sheet commitments related to 10.2Earnings per share 97 operations 81 10.3Pledges of the issuer’s shares 97 NOTEd5 Employee expenses and benefits 82 NOTEd11 Other provisions and contingent 5.1Workforce 82 liabilities 98 5.2Employee expenses and benefits 82 5.3Provisions for pensions and similar commitments 82 NOTE 12 Other notes 99 5.4Share-based payments 83 12.1Statutory auditors’ fees 99 5.5 Remuneration of the Directors and related parties 84 12.2Exceptional events and disputes 99 12.3Subsequent events 99
NOTEd13 List of consolidated companies 100
PRODWAYS GROUP - 2018 ANNUAL REPORT 67 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
Noted1 Accounting principles
The consolidated financial statements of PRODWAYS GROUP for z standards not adopted by the European Union: the year ended 31 December 2018 include: z IFRS 17 – Insurance contracts, z the financial statements of the company PRODWAYS GROUP; z amendments to IAS 19 – Modification, reduction or liquidation z the financial statements of its subsidiaries; of a plan, z the proportion of the net assets and the net income of the z amendments to references to the conceptual framework in companies accounted for using the equity method (joint ventures the IFRS standards, and partnership businesses). z amendments to IAS 28 – Long-term Interests in Associates The consolidated financial statements of PRODWAYS GROUP for and Joint Ventures, the 2018 financial year were approved by the Board of Directors on z annual improvements to IFRS – cycle 2015-2017 1 April 2019. (December 2017), They will be subject to approval by the next ordinary shareholder’s z amendments to IFRS 10 and IAS 28 – Sale or Contribution of meeting. Assets between an Investor and its Associate or Joint Venture, z amendments to IFRS 3 – Definition of a business, 1.1 Standards applied z amendments to IAS 1 and IAS 8 – Definition of relative importance. The accounting standards used to prepare the consolidated financial These interpretations and amendments should have no material statements comply with the regulations and interpretations of the impact on the Group's financial statements. International Financial Reporting Standards (IFRS) as adopted by the European Union as of 31 December 2018. These accounting Application of IFRS 16 – Leases in 2019 standards are consistent with those used to prepare the annual The application of IFRS 16 – Leases will be mandatory for financial consolidated financial statements for the year ended 31 December years beginning 1 January 2019. 2017, with the exception of the new standards, revised standards and interpretations applicable from 1 January 2018. Per this standard, all leases other than short-term leases and leases of low-value assets must be recognised on the lessee’s balance sheet in The application over the period of the following new standards and the form of a right-of-use asset and in counterpart to a financial debt. interpretations did not have any significant effect on the consolidated Currently leases qualified as “operating” are presented off balance financial statements on 31 December 2018: sheet (see Note 4.8). z IFRIC 22 – Foreign Currency Transactions and Advance The Group's lease contracts mainly concern real estate (office Consideration; buildings) and, to a lesser extent, vehicles. z amendments to IFRS 2 – Classification and evaluation of The Group has identified the potential impacts of the application of share-based payment transactions; IFRS 16 and has collected information on the characteristics of the z amendments to IAS 40 – Transfers of Investment Property; various ongoing lease contracts. z annual improvements to IFRS – cycle 2014-2016 In 2018, the Group adjusted its internal procedures on the collection (December 2016); and integrity of data relative to lease contracts. z amendments to IFRS 4 – Apply the IFRS 9 standard Financial The Group intends to apply this standard on 1 January 2019, using a instruments with IFRS 4. modified retrospective approach (without restatement of the The Group implemented IFRS 15 – Revenue from Contracts with comparative period). Customers for the first time in 2018. Note 1.3 provides detailed The two exemptions provided by the standard will be used comments on this implementation. concerning the following contracts: The Group has not applied the following standards and z lease contracts of short duration or with a residual duration less interpretations, which had not been adopted by the European Union than twelve months at the date of transition; at 31 December 2018 or for which application is not mandatory as lease contracts relating to assets of low value as new. of 1 January 2018: z The Group used the simplification measure enabling it no not assess z standards adopted by the European Union: if a contract existing at the date of application is, or contains, a lease z amendments to IFRS 9 – Prepayment Features with Negative contract pursuant to IFRS 16. Compensation, Based on this study, the application of IFRS 16 to the financial z IFRS 16 – Leases; statements of the Group will increase financial debt by an estimated amount between €4.0 and €6.0 million on 1 January 2019.
68 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
1.2 Basis for preparation The main reasons for discrepancies between past rules and IFRS 15 are as follows: The financial statements are presented in euros and are rounded to the nearest thousand. Backlog The financial statements have been prepared under the historical cost IFRS 15 introduces the concept of an accounting backlog (“revenue convention, except in the case of derivatives and available-for-sale to be recognised”). The Group did not previously include the backlog financial assets, which are measured at fair value. Financial liabilities in its notes to the financial statements, but does so now. The are measured at amortised cost. The carrying amount of hedged definition of IFRS 15 complies with that previously applied by the assets and liabilities and the related hedging instruments corresponds Group. to their fair value. Segmentation of contracts into performance obligations The preparation of the financial statements requires that Group In certain situations, IFRS 15 imposes the segmentation of contracts management or the subsidiaries’ management make estimates and into performance obligations with differentiated profit margins. This assumptions that affect the reported amounts of assets and liabilities may be the case in particular for contracts combining construction on the consolidated balance sheet, the reported amounts of income and operations. The Group has not identified any such situations in its and expense items on the income statement and the commitments contracts. relating to the period under review. The actual results may differ. Contract costs 3 The above-mentioned assumptions mainly concern: Under IFRS 15, the costs of obtaining a contract must be recognised z the calculation of the recoverable amounts of assets; as an asset and amortised if they represent incremental costs, i.e. z the calculation of provisions for risks and charges; costs the entity would not have incurred had that individual contract z the calculations performed in the context of acquisitions; not been obtained, and which the entity expects to recover on the z the calculation of pension and other post-employment benefit basis of the contract's expected profit. The Group has not identified obligations (assumptions set out in Note 5.3). any such costs. As the Group’s consolidated companies operate in different sectors, Elements of variable consideration the valuation and impairment methods used for certain items may IFRS 15 defines the total transaction price as the total amount to vary according to the sector. which an entity expects to be entitled, which may therefore include upward or downward adjustments (discounts, revisions, indexation, penalties, etc.). The Group is already identifying the elements of 1.3 Restatement of financial information for variable consideration and including them in the transaction price as previous financial years soon as they are estimated to be highly probable. In particular, late delivery penalties are treated according to the same principle. The financial statements on 31 December 2017 were modified for two reasons: the completion in 2018 of the work on the fair Revenue recognition based on progress valuation related to the acquisitions of 2017; the first implementation Under past rules, revenue from construction contracts was of the IFRS 15 standard. In all of the notes, the information relative to recognised using the percentage-of-completion method. 2018 is compared to the restated 2017 information. IFRS 15 provides criteria to demonstrate the gradual transfer of 1.3.1 Completion of the work to value acquired assets control of goods and services to the client and recognise revenue and liabilities (IFRS 3R) using the percentage-of-completion method. Revenue relating to service contracts is, as previously, recognised over time based on the The IFRS 3R standard specifies that the fair valuation of acquired completion of services, with the client benefiting from such services assets and liabilities must be subject to retrospective modifications, as as they are performed. if the modifications were made from the date of entry into scope. The financial statements on 31 December 2017 were therefore Method for measuring progress modified due to the completion of fair valuation work on assets, With IFRS 15, the method for measuring progress is based on cost. liabilities and contingent liabilities acquired from the companies Since the Group was already applying a cost-based AVENAO and INTERSON PROTAC. percentage-of-completion measurement method (the rate of The modifications made cover the valuation of intangible assets completion is equal to the ratio between the costs recognised to excluding deferred taxation: date and the total estimated costs at the end of the project), the rule now set by IFRS 15 has no impact. z for AVENAO, €5,934 thousands for the brand and the distribution contract; Contract assets and liabilities z for INTERSON PROTAC, €670 thousand for the brand and the New aggregates were created under assets and liabilities of the customer relationships. consolidated statement of financial position. “Contract assets” and “contract liabilities” are determined on a 1.3.2 Application of IFRS 15 - Revenue from contracts with contract-by-contract basis. “Contract assets” correspond to the share customers of revenue not yet invoiced to date, less customer advances. The Group implemented IFRS 15 – Revenue from Contracts with Revenue not yet invoiced is the difference between revenue Customers for the first time in 2018. Since the Group chose the full calculated using the percentage-of-completion method to date and retrospective approach, the financial statements for 2018 include the the invoices issued. Conversely, when the invoices issued exceed the 2017 comparative financial statements, restated to reflect the effects revenue recognised to date, the net amount is accounted for under of applying this new standard. The opening balance sheet at 1 January deferred income and aggregated with customer advances under 2017 was also adjusted. “contract liabilities”.
PRODWAYS GROUP - 2018 ANNUAL REPORT 69 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
1.3.3 Impacts of restatements on the 2017 financial statements The impacts of all modifications made to the financial statements are described in the following tables:
IFRS impact 3R 31/12/2017 AVENAO and 31/12/2017 (in thousands of euros) published INTERSON restated REVENUE 34,807 - 34,807 Capitalised production 3,224 - 3,224 Inventories and work in progress (287) - (287) Other income from the business 938 - 938 Purchases and external charges (22,377) - (22,377) Personnel expenses (17,914) - (17,914) Tax and duties (540) - (540) Depreciation, amortisation and provisions (net of reversals) (3,537) - (3,537) Other operating income and expenses 235 - 235 PROFIT (LOSS) FROM CONTINUING OPERATIONS (5,453) - (5,453) Non-recurring items in operating income (1,137) (62) (1,199) OPERATING INCOME (6,590) (62) (6,651) Financial income and expenses (38) - (38) Income tax (1,178) 17 (1,160) Group share of the earnings of affiliated companies 107 - 107 CONSOLIDATED NET INCOME (7,698) (44) (7,742) INCOME ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS (7,574) (39) (7,613) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS (124) (5) (130)
Impact of IFRS 15 on the financial Impact of IFRS Impact IFRS 3R 31/12/2017 statements at 15 over the AVENAO and 31/12/2017 (in thousands of euros) published 1/1/2017 period INTERSON restated NON-CURRENT ASSETS 51,119 - - 1,842 52,961 Goodwill 34,394 - - (4,634) 29,760 Other intangible assets 7,512 - - 6,542 14,054 Property, plant and equipment 6,700 - - - 6,700 Investments in affiliated companies 1,504 - - - 1,504 Other financial assets 273---273 Deferred tax assets 736 - - (66) 670 CURRENT ASSETS 63,885 - - - 63,885 Net inventories 5,669 (1,359) 412 - 4,722 Net trade receivables 11,849 (680) (181) - 10,989 Contract assets - 2,038 (231) - 1,806 Other current assets 3,678 - - - 3,678 Tax receivables payable 1,182 - - - 1,182 Other current financial assets 31---31 Cash and cash equivalents 41,476 - - - 41,476 ASSETS HELD FOR SALE - - - - - TOTAL ASSETS 115,004 - - 1,842 116,846
70 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
Impact of IFRS 15 on the financial Impact of IFRS Impact IFRS 3R 31/12/2017 statements at 15 over the AVENAO and 31/12/2017 (in thousands of euros) published 1/1/2017 period INTERSON restated EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 86,344 - - (39) 86,306 NON-CONTROLLING INTERESTS 408 - - 115 522 NON-CURRENT LIABILITIES 5,140 - - 1,766 6,906 Long-term provisions836---836 Long-term liabilities – portion due in more than one year 3,183 - - - 3,183 Other financial liabilities 889 - - - 889 Deferred tax liabilities 232 - - 1,766 1,998 3 CURRENT LIABILITIES 23,112 - - - 23,112 Short-term provisions 210 - - - 210 Long-term liabilities – portion due in less than one year 1,582 - - - 1,582 Operating payables 8,476 - - - 8,476 Contract liabilities - 653 700 - 1,353 Other current liabilities 12,767 (653) (700) - 11,414 Tax liabilities payable 77---77 LIABILITIES HELD FOR SALE - - - - - TOTAL LIABILITIES 115,004 - - 1,842 116,846
PRODWAYS GROUP - 2018 ANNUAL REPORT 71 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
Noted2 Scope of consolidation
2.1 Accounting principles related to the z the difference between the consideration transferred and the fair consolidation scope value of the identifiable assets acquired and liabilities taken over as at the date of taking control represents the goodwill, recognised 2.1.1 Consolidation method in the assets in the report on the financial position. The companies that are either directly or indirectly controlled by the Adjustments to the fair value of identifiable assets acquired and liabilities Group are fully consolidated. Companies over which the Group exercises taken over recognised on a provisional basis (as a result of expert significant influence are accounted for using the equity method. Significant assessment work in progress or additional analyses) are recognised as influence is assumed to exist when the Group holds more than 20% of the retrospective adjustments to the goodwill if they occur within a period of voting rights. one year with effect from the date of acquisition and if they result from facts or circumstances existing at the date of acquisition. Beyond this Acquisitions or disposals of companies during the year are recognised deadline, the effects are recognised directly in the income statement, as in the consolidated financial statements from the date on which the are any changes in estimates or error corrections. Group took direct or indirect control or gained significant influence (or until the date on which control or significant influence was lost). For each takeover of control which involves the taking of an equity stake of less than 100%, the interest fraction which is not required All significant transactions between consolidated subsidiaries are (equity stakes which do not give control) is valued: eliminated, as is income that is internal to the Group (capital gains, profits on stocks and dividends). z either at fair value, in which case goodwill is recognised for the proportion relating to equity stakes which do not give control Consolidation is carried out with reference to the financial statements (complete goodwill method); or positions as of 31 December. or at its proportion of the net identifiable assets of the acquired The list of consolidated subsidiaries and equity interests is shown in z entity, in which case only goodwill in respect of the proportion Note 13. Certain subsidiaries, which are not significant in terms of the acquired is recognised (partial goodwill method). Group, may not be consolidated. The costs directly attributable to the acquisition are recognised in 2.1.2 Translation of the financial statements of foreign expenses over the period during which they are incurred. companies The currency in which the consolidated financial statements are 2.2 Changes in the consolidation scope prepared is the euro. The financial statements of subsidiaries that have a different functional 2.2.1 Transactions carried out in 2018 currency are translated into euros using: Changes in scope over the year are as follows: z the official exchange rate on the reporting date, in the case of z the takeover of the company VARIA 3D, which was previously assets and liabilities; held at only 45% and consolidated by the equity method; the z the average exchange rate for the year, in the case of income Company has been fully consolidated from the second quarter of statement and cash flow statement items. 2018 and contributed €0.4 million to revenue and -€62 thousand The average exchange rates for the year may be calculated using to the Group's net profit/loss (not including the proportionate monthly exchange rates prorated in relation to revenue. share of profit/loss accounted for by the equity method from the beginning of the year). Goodwill was recognised in the financial Translation differences arising from the application of these exchange statements; rates are recognised under the item “Cumulative translation reserves” in consolidated equity. z the acquisition by PRODWAYS GROUP of 100% of the capital of SOLIDSCAPE, a company specialised in 3D printing machines, 2.1.3 Transactions in foreign currencies which is developing a technology for precision casting applications. Integration into the consolidated financial statements from Transactions in foreign currencies are recognised using the exchange mid-July 2018 contributed €3.8 million to revenue and -€383 rate applicable on the date the transactions are recognised or the thousand to the Group's net income. hedging rate. At closing, payables or receivables denominated in foreign currencies are converted into euros at the closing exchange SOLIDSCAPE only prepared its financial statements according to U.S. rate or at the hedging rate. Currency exchange rate differences on standards. Financial statements according to IFRS standards were foreign currency transactions are recognised in financial income. prepared on entry into the consolidation scope. In the first half-year, under U.S. standards, SOLIDSCAPE had revenue of €5.0 million and 2.1.4 Business combinations a net loss of -€691 thousand. The Group did not reconstitute the accounts under IFRS for the first half-year and considers that this The Group is applying, on an advance basis, the revised IFRS 3 would require a disproportionate effort in relation to the expected standard – Business combinations. precision of information. Business combinations are recognised in accordance with the The fair valuations of the assets, liabilities and contingent liabilities acquisition method: acquired in 2017 from AVENAO and INTERSON PROTAC are z the cost of an acquisition is evaluated at the fair value of the finalised; they were adjusted from the prior financial statements (see consideration transferred, including any price adjustment, at the Note 1.3). date of taking control. Any subsequent variation in the fair value The assets and liabilities of companies acquired during the period are of a price adjustment is recognised in the income statement or in still being valued. other items of the overall net income, in accordance with the standards applicable; The fair value assessment of the assets, liabilities and contingent liabilities of companies acquired during the period has not been finalised, and may be subject to adjustments over the 12 months following the acquisition date.
72 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
2.2.2 Contribution of business combinations First consolidation of SOLIDSCAPE The assets and liabilities acquired break down as follows:
Revaluation at fair (in thousands of euros) Carrying amount value First consolidation Intangible assets 49 - 49 Property, plant and equipment and financial assets 711 - 711 Inventories 1,308 - 1,308 trade receivables 843 - 843 Social and tax receivables 5 - 5 Prepaid expenses 76 - 76 Cash and cash equivalents 2,842 - 2,842 3 Trade payables (246) - (246) Tax and operating debt (719) - (719) Deferred income (576) - (576) TOTAL 4,292 - 4,292
First consolidation of VARIA 3D The assets and liabilities acquired break down as follows:
Revaluation at fair (in thousands of euros) Carrying amount value First consolidation Property, plant and equipment 783 - 783 Inventories 70 - 70 Trade and other receivables 106 - 106 Cash and cash equivalents 46 - 46 Financial debt (619) - (619) Trade and other payables (35) - (35) TOTAL 351 - 351
2.3 Off-balance sheet commitments related to the after which it will be reduced to €367 thousand for the following consolidation scope eighteen months. The Group did not call the guarantee. In 2017, PRODWAYS GROUP acquired all of the shares comprising In the first quarter of 2015, PRODWAYS acquired the assets of the share capital of AS3D, 3D SERVICAD, and AVENAO NORGE Systems. The transaction was carried out with the payment INDUSTRIE. The vendors granted an assets and liabilities guarantee of a fixed part of the price and three price additions conditional on with a term of two to three years depending on the nature of any the achievement of milestones in the further development of the 3D claim. This guarantee is capped at €2,000 thousand. The Group did printer created by NORGE. A price addition of €200 thousand was not call the guarantee. paid in February 2017. A potential earn-out was shown in the In 2018, PRODWAYS GROUP acquired all shares making up the Group's debts in 2017 for €200 thousand, but the milestones that share capital of SOLIDSCAPE. The vendors granted an assets and should have triggered its payment before the end of January 2019 liabilities guarantee with duration of 18 months to 8 years depending was not achieved, so the debt was cancelled by recognising a profit. on the nature of any claim. This guarantee is limited to $1 million or In 2107, PRODWAYS GROUP acquired 75% of the shares the acquisition price according to the nature of the claims. The comprising the share capital of IP GESTION SAS, which was itself the Group did not call the guarantee. sole shareholder of INTERSON PROTAC. The vendors granted an In PODO 3D, CRISTAL and IP GESTION, PRODWAYS GROUP is assets and liabilities guarantee with a term of three years. This associated with minority shareholders who are managers of those guarantee is capped at €733 thousand in the first eighteen months companies. Shareholders’ agreements provide for the possible liquidity of their holdings.
PRODWAYS GROUP - 2018 ANNUAL REPORT 73 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
Noted3 Segment information
In accordance with the provisions of the IFRS 8 standard – Operating z the Research and Development expenses recognised in the assets segments, the segment information presented below is based on the during the financial year; internal reporting used by the General Management to assess the z the other tangible and intangible investments; performances and allocate resources to the various segments. The the segment assets which describe the current assets used within General Management is the principal operational decision maker z the operational businesses (stocks, receivables, advances from within the meaning of IFRS 8. suppliers, other operating debtors), the property, plant and The three sectors adopted correspond to the organisation of the equipment and intangible assets (including the goodwill); Group by divisions and are the following: z segment liabilities refer to supplier and other operating liabilities, z “Systems” division: PRODWAYS, PRODWAYS AMERICAS, accrued liabilities, customer advances, warranty provisions and PRODWAYS MATERIALS, DELTAMED, EXCELTEC, costs related to goods and services sold. PRODWAYS RAPID ADDITIVE FORGING, GROUPE AVENAO Key non-IFRS financial indicators examined by Group management and SOLIDSCAPE; are also presented: z “Products” division: INITIAL, CRISTAL, PODO 3D, PRODWAYS EBITDA (Earnings Before Interest, Taxes, Depreciation, and CONSEIL, INTERSON PROTAC, VARIA 3D and DENTOSMILE; z Amortisation) which corresponds to profit (loss) from continuing z “STRUCTURE” division: PRODWAYS GROUP (and the operations before depreciation, amortisation, impairments and companies with no activity, PRODWAYS DISTRIBUTION, other non-recurring income and items; PRODWAYS ENTREPRENEURS and PRODWAYS 2). z profit (loss) from continuing operations; The key indicators by division presented in the tables below are the EBITDA and profit (loss) from continuing operations are not IFRS following: financial aggregates and may not be comparable to indicators of a z the backlog, which corresponds to the revenue remaining to similar name used by other companies. recognise for orders that have been taken; These non-IFRS indicators are defined and reconciled with operating z the revenue includes revenue made with other divisions; income in Note 3.2.1. z operating income;
3.1 Key indicators by division 2018 Financial year
(in thousands of euros) Systems Products Structure Disposals Consolidated Backlog beginning of period 3,873 988 - (23) 4,838 Backlog end of period 7,068 591 - (166) 7,493 Revenue 38,404 22,859 1,702 (2,070) 60,895 EBITDA 1,110 526 (443) - 1,194 % of revenue 2.9% 2.3% -26.0% - 2.0% Profit (loss) from continuing operations (2,100) (1,443) (404) - (3,947) % of revenue -5.5% -6.3% -23.7% - -6.5% Operating income (2,847) (1,517) (653) - (5,016) % of revenue -7.4% -6.6% -38.4% - -8.2% Research and development expenses capitalised over the period 1,526 60 - - 1,586 Other property, plant and equipment and intangible investments 902 3,499 85 - 4,486 Segment assets 60,921 24,698 2,959 (2,909) 85,669 Assets segment liabilities 15,183 5,606 1,116 (2,845) 19,060
74 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
2017 financial year*
(in thousands of euros) Systems Products Structure Disposals Consolidated Backlog beginning of period 2,556 449 - (25) 2,980 Backlog end of period 3,873 988 - (23) 4,838 Revenue 17,393 17,825 901 (1,312) 34,807 EBITDA (1,554) 841 (456) - (1,169) % of revenue -8.9% 4.7% -50.6% - -3.4% Profit (loss) from continuing operations (3,678) (572) (1,204) - (5,453) % of revenue -21.1% -3.2% -133.6% - -15.7% Operating income (4,665) (603) (1,384) - (6,651) % of revenue -26.8% -3.4% -153.6% - -19.1% Research and development expenses 3 capitalised over the period 1,731 204 - - 1,935 Other property, plant and equipment and intangible investments 1,555 1,337 - - 2,892 Segment assets 49,725 21,429 2,361 (1,574) 71,941 Assets segment liabilities 12,088 5,098 928 (1,575) 16,539 * 2017 is restated for the elements detailed in Note 1.3.
3.2 Reconciliations with Group data decision taken by a competent body, and which materialise before the reporting date through the announcement of said decision to 3.2.1 Reconciliation of EBITDA with operating income third parties and provided the Group no longer expects Operating income includes all income and expenses other than: consideration for these costs. These costs consist primarily of compensation for termination of employment contracts, interest income and expenses; z severance pay, as well as miscellaneous expenses. Other z other financial income and expenses; non-recurring items of operating income concern the acquisition z Group share of net income of equity-accounted companies; costs of companies, amortisation of acquired intangible assets z corporate income tax. recorded under business combinations, impairment of goodwill, expenses related to the allocation of free shares and all unusual To make it easier to compare financial years and monitor its items by their occurrence or amount; operating performance, the Group has decided to isolate non-recurring items of operating income and present “profit (loss) z EBITDA (Earnings Before Interest, Taxes, Depreciation and from continuing operations”. It also uses an EBITDA indicator: Amortisation) is defined by the Group as profit (loss) from continuing operations before depreciation, amortisation, non-recurring items of operating income include restructuring z impairment, expenses related to the allocation of free shares and costs, recognised or fully provisioned if they are liabilities arising other non-recurring operating items. from a Group obligation to third parties, which stem from a
2018 Financial year
(in thousands of euros) Systems Products Structure Consolidated EBITDA 1,110 526 (443) 1,194 Payments in shares - (6) 46 40 Depreciation, amortisation and provisions (3,211) (1,963) (8) (5,181) PROFIT (LOSS) FROM CONTINUING OPERATIONS (2,100) (1,443) (404) (3,947) Restructuring costs (133) - - (133) Acquisition costs - - (249) (249) Amortisation of intangible assets recognised at fair value during the acquisitions (505) (74) - (579) Exceptional provisions for impairment of asset values (109) - - (109) TOTAL NON-RECURRING ITEMS (746) (74) (249) (1,069) OPERATING INCOME (2,847) (1,517) (653) (5,016)
PRODWAYS GROUP - 2018 ANNUAL REPORT 75 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
2017 financial year*
(in thousands of euros) Systems Products Structure Consolidated EBITDA (1,554) 841 (456) (1,169) Payments in shares - (6) (741) (747) Depreciation, amortisation and provisions (2,124) (1,406) (7) (3,537) PROFIT (LOSS) FROM CONTINUING OPERATIONS (3,678) (572) (1,204) (5,453) Restructuring costs (151) - 14 (138) Acquisition costs (194) (194) Amortisation of intangible assets recognised at fair value during the acquisitions (353) (31) - (384) Exceptional provisions for impairment of asset values (483) - - (483) TOTAL NON-RECURRING ITEMS (987) (31) (181) (1,199) OPERATING INCOME (4,665) (603) (1,384) (6,651) * 2017 is restated for the elements detailed in Note 1.3.
3.2.2 Reconciliation of the segment assets and liabilities The total segment assets and liabilities are reconciled as follows with the total assets and liabilities of the Group: 2018 Financial year
(in thousands of euros) Systems Products Structure Disposals Consolidated Segment assets 60,921 24,698 2,959 (2,909) 85,669 Deferred tax assets - 60 - - 60 Tax receivables payable 728 398 636 - 1,762 Other current and non-current assets 1,661 601 17,483 (17,998) 1,747 Cash and cash equivalents 8,456 2,039 15,431 - 25,927 TOTAL CONSOLIDATED ASSETS 71,767 27,795 36,510 (20,907) 115,165 Assets segment liabilities 15,183 5,606 1,116 (2,845) 19,060 Long-term provisions 193 659 11 - 863 Long-term debt 1,415 5,320 - - 6,734 Other current financial liabilities - - 930 - 930 Other current and non-current liabilities 16,629 3,168 3,015 (18,062) 4,750 Deferred tax liabilities 1,862 35 (459) - 1,438 Tax liabilities payable 73 - - - 73 TOTAL CONSOLIDATED LIABILITIES(1) 35,354 14,789 4,613 (20,907) 33,849 (1) Total liabilities less shareholders’ equity and non-controlling interests.
76 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
2017 financial year*
(in thousands of euros) Systems Products Structure Disposals Consolidated Segment assets 49,725 21,429 2,361 (1,574) 71,941 Other current financial assets - - 31 - 31 Deferred tax assets 16 337 316 - 670 Tax receivables payable 840 343 - - 1,182 Other current and non-current assets 1,106 431 9,381 (9,372) 1,546 Cash and cash equivalents 4,750 2,919 33,807 - 41,476 TOTAL CONSOLIDATED ASSETS 56,437 25,458 45,895 (10,946) 116,846 Assets segment liabilities 12,088 5,098 928 (1,575) 16,539 Long-term provisions 142 688 6 - 836 Long-term debt 1,679 3,087 - - 4,766 3 Other current financial liabilities - - 889 - 889 Other current and non-current liabilities 12,521 1,762 2 (9,370) 4,914 Deferred tax liabilities 1,875 123 - - 1,998 Tax liabilities payable 64 13 - - 77 TOTAL CONSOLIDATED LIABILITIES(1) 28,367 10,770 1,826 (10,946) 30,018 (1) Total liabilities less shareholders’ equity and non-controlling interests. * 2017 is restated for the elements detailed in Note 1.3.
3.3 Revenue by geographical area 2018 Financial year
North (in thousands of euros) France % Europe % America % Other % Total % SYSTEMS 22,765 54% 8,571 74% 5,445 93% 1,662 99% 38,404 63% PRODUCTS 19,472 47% 2,980 26% 389 7% 19 1% 22,859 38% Structure and disposals (368) -1% ------(368) -1% TOTAL 41,869 100% 11,551 100% 5,834 100% 1,641 100% 60,895 100% % 69% 19% 9% 3% 100%
2017 financial year
North (in thousands of euros) France % Europe % America % Other % Total % SYSTEMS 7,039 32% 7,038 72% 2,819 100% 497 98% 17,393 50% PRODUCTS 15,049 69% 2,763 28% - 0% 13 2% 17,825 51% Structure and disposals (411) -2% ------(411) -1% TOTAL 21,678 100% 9,800 100% 2,819 100% 509 100% 34,807 100% % 62% 28% 8% 1% 100%
PRODWAYS GROUP - 2018 ANNUAL REPORT 77 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
Noted4 Operational data
4.1 Recognition of income and revenue 4.3 Net charges to amortisation and provisions The “Systems” division manufactures and sells different types of 3D printers and associated materials and distributes and integrates 3D (in thousands of euros) 2018 2017 design software. The “Products” division prints 3D parts on demand DEPRECIATION, AMORTISATION for its customers. It develops and markets healthcare applications AND PROVISIONS (chiropody, dental, audiology) sold directly to healthcare Intangible assets (1,980) (1,337) professionals. The Group now applies IFRS 15 regarding the recognition of revenue Property, plant and equipment (2,010) (1,425) from contracts with customers. Its revenues consist of sales of goods, Capital leases (600) (524) provision of services and project completion revenues. The circumstances under which revenue may be recognised in progress, SUBTOTAL (4,590) (3,286) the method to measure progress and the treatment of elements of CHARGES TO PROVISIONS, NET variable consideration in contracts are described in Note 1.3. OF REVERSALS The backlog corresponds to the amount of customer contracts for Inventory and work in progress (76) - which revenue has not yet been recognised. The Group expects the December 2018 backlog to be consumed within 12 months. Current assets (216) (132) The Group's revenue grew strongly in five years, going from €5.0 Liabilities and expenses (300) (119) million in 2014 (pro forma integrating PRODWAYS) to €17.8 million SUBTOTAL (592) (251) in 2015, €25.2 million in 2016, €34.8 million in 2017 and €60.9 million in 2018. This trend is partly associated with acquisitions. TOTAL NET CHARGES TO AMORTISATION AND PROVISIONS (5,181) (3,537) 4.2 Other income from the business The other income from the business mainly comprises public subsidies, research tax credits (RTC) and tax credits for 4.4 Inventories and work in progress competitiveness and employment (TCCE). These subsidies and research tax credits (RTC), which partially or Inventories of raw materials and semi-finished and finished goods are totally cover the cost of an asset, are recognised in the income valued at the lower of their acquisition cost or their estimated net statement at the same rate as the asset’s depreciation. In 2018, the realisable value. The cost price is calculated using the FIFO or research tax credit for the period stood at €0.3 million, all of it weighted average cost method. recognised directly as deferred income. The research tax credit The methods for valuing and impairing work in progress are tailored recorded as deferred income in previous years was also recognised in to the context of each consolidated company. However, the the income statement in 2018 for €0.7 million. valuation principles generally accepted in the field are followed, The deferred income that appears in liabilities includes €1,287 including: thousand in research tax credits. z work in progress is valued at direct and indirect production costs, excluding all sales and financial costs; (in thousands of euros) 2018 2017 z hourly production rates are based on normal activity excluding Subsidies 26 56 any sub-activity cost; Research tax credit 696 525 z when, based on the forecast revenue and cost estimates, a termination loss is probable, said loss is covered by an impairment Employment and competitiveness tax credit 445 357 provision for the portion included in work in progress and a TOTAL OF OTHER INCOME FROM provision for liabilities and expenses for the part of the costs yet THE BUSINESS 1,166 938 to be committed.
Tax credits recognised in income which cannot be charged to tax payable appear mainly in assets in the consolidated balance sheet under “other current assets”, more specifically under “receivables related to tax consolidation” for the years before 2017 and under “income tax receivables” for 2017 and 2018. They amount to €2,572 thousand, including a research tax credit of €1,772 thousand and an employment and competitiveness tax credit of €800 thousand.
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Movements in inventories in the consolidated balance sheet are as follows:
2018 2017* Gross Impairment Gross Impairment (in thousands of euros) values losses Net values values losses Net values Raw materials 2,696 (172) 2,524 1,357 - 1,357 Semi-finished and finished 1,923 (126) 1,797 1,253 (513) 740 Goods 2,564 (192) 2,371 2,881 (256) 2,625 TOTAL INVENTORY AND-WORK IN PROGRESS 7,183 (490) 6,693 5,492 (769) 4,722 * Column 2017 restated for the elements detailed in Note 1.3. Over the period, impairments were recognised for €76 thousand in the income statement. 3 4.5 Customers, contract assets and liabilities The backlog (revenue to be recognised) is indicated by division in Note 3.1. Trade receivables are receivables invoiced that give certain entitlement to payment.
(in thousands of euros) 2018 2017* trade receivables 14,535 11,857 Impairment losses (1,143) (865) CUSTOMERS, NET VALUES 13,391 10,989 * Column 2017 restated for the elements detailed in Note 1.3.
Trade receivables are impaired according the IFRS 9 simplified the receivable and its impairment are transferred to losses in the approach. As soon as they arise, trade receivables would be income statement. impaired for their expected losses over their remaining term. Credit The risk of customer default is the main credit risk to which the risk assessment of trade receivables is carried out for each customer. Group is exposed. The Group has implemented a policy of Provisions for expected losses are thus assessed by using the default monitoring its credit risk at all of its subsidiaries. history of comparable customers, the aged balance of the receivables Overdue trade receivables for which there is no provision were €4.6 and the Group's assessment of credit risk for each receivable. million, and are broken down as follows: When it is certain that the receivable will not be collected,
Overdue (in thousands of euros) 2018 In % Trade receivables not yet due 8,803 66% <1 month overdue 2,798 21% 1-2 months overdue 886 7% 2-3 months overdue 280 2% >3 months overdue 624 5% NET TRADE RECEIVABLES 13,391 100%
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Of the total receivables, almost €1.9 million has been paid as at received. “Contract liabilities” correspond to all contracts in a 10 March 2019. The Group is not aware of additional difficulties situation where the assets (work in progress, receivables in progress) which might justify a provision. are less than the liabilities (advances from clients and deferred “Contract assets” and “contract liabilities” are determined on a income recorded when the invoices issued exceed the revenue contract-by-contract basis. “Contract assets” correspond to contracts recognised to date). These new items arise from the application of in force for which the value of created assets exceeds the advances IFRS 15 (see Note 1.3).
(in thousands of euros) 2018 2017* Work in progress (A) 885 946 Receivables in progress (B) 1,316 860 Down payments received (C) -- Deferred income (D) -- ASSETS FROM CONTRACTS (A) + (B) - (C) - (D) 2,202 1,806 * Column 2017 restated for the elements detailed in Note 1.3.
(in thousands of euros) 2018 2017* Work in progress (A) -- Receivables in progress (B) -- Down payments received (C) 1,665 629 Deferred income (D) 1,534 724 Other liabilities (E) -- LIABILITIES FROM CONTRACTS (A) + (B) - (C) - (D) - (E) 3,199 1,353 * Column 2017 restated for the elements detailed in Note 1.3.
4.6 Other current and non-current assets
2018 2017 (in thousands of euros) Gross values Write-downs Net values Net values Advances and down-payments made 133 - 133 197 Other receivables(1) 1,160 - 1,160 1,258 Social and tax receivables 1,093 - 1,093 1,936 Prepaid expenses 587 - 587 288 TOTAL OTHER CURRENT RECEIVABLES 2,973 - 2,973 3,678 (1) Of which €1,018 thousand corresponding to receivables related to tax consolidation for which GROUPE GORGÉ was the parent company. GROUPE GORGÉ will refund these tax receivables to PRODWAYS once it has received its own payment from the French finance ministry.
80 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
4.7 Other current and non-current liabilities
(in thousands of euros) 2018 2017* Suppliers 8,594 8,444 Fixed asset suppliers 355 32 TOTAL TRADE PAYABLES 8,949 8,476 Advances and down-payments received 1- Social Security liabilities 4,755 4,817 Tax liabilities 2,122 1,714 Current accounts payable -- Miscellaneous debts 3,103 3,187 Deferred income 1,292 1,695 3 TOTAL OTHER CURRENT LIABILITIES 11,274 11,414 * Column 2017 restated for the elements detailed in Note 1.3.
Trade payables are paid on their normal due dates, provided the services from the suppliers are fully completed and in the absence of litigation. Deferred income corresponds to subsidies and research tax credits that will be recognised in profit/loss as the corresponding assets are depreciated (€1,287 thousand, see Note 4.2).
4.8 Off-balance sheet commitments related to operations The operating lease commitments that will be restated on 1 January 2019 for the application of IFRS 16 break down as follows:
Less than 1 years (in millions of euros) old From 1 to 5 years More than 5 years TOTAL Real estate rentals 1.13 2.52 1.09 4.75 Movable property rentals 0.34 0.30 0.02 0.66 TOTAL RENTAL COMMITMENTS 1.47 2.83 1.11 5.41
No other commitment has been given related to operating activities that are not included in the Group’s debts.
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Noted5 Employee expenses and benefits
5.1 Workforce 5.3 Provisions for pensions and similar commitments 31/12/2018 31/12/2017 The Group makes provisions for post-employment benefits Workforce at end of period 460 375 (retirement pay) and long term employee benefit plans (awards). The Average workforce 425 284 cost of retirement and related benefits (awards) is provisioned for the remaining obligations. It is estimated for the entire workforce on the basis of accrued rights and a projection of current salaries, taking The workforce is mainly based in France; at 31 December 2018, 104 into account the risk of mortality, staff turnover and a discounting people were based abroad. assumption. The discount rates are determined by reference to the yields on bonds issued by first class corporations over terms equivalent to 5.2 Employee expenses and benefits those of the commitments on the date of valuation. The employee benefits are estimated in accordance with the revised Actuarial variances are generated where differences are recorded IAS 19. They are broken down between short term and long term between the actual data and the forecasts made previously, or due to benefits. changes in actuarial assumptions. The actuarial variances generated The employees of the Group receive short term benefits such as are recognised in the overall income statement, net of deferred taxes. holiday pay, sickness pay, bonuses and other benefits (other than The expense recognised in the income statement includes: contract termination payments) payable within the 12 months z the costs of services provided during the financial year, the cost of following the end of the period during which the employees provided past services, as well as any effects of any reduction or liquidation the corresponding services. of the scheme; These benefits are recognised in current liabilities and recorded in the z the net interest expense on bonds and hedging assets. expenses in the year in which the service is provided by the employee. The provision for claims is updated annually on the basis of the prevailing fee schedules, changes to the assessment base, staff The long term benefits cover two categories of employee benefit: turnover and mortality assumptions and discount rates. z the benefits subsequent to employment, which include the The main parameters used for the year are as follows: allowance paid on retirement; z departure at the employee’s initiative (voluntary departure); z the other long term benefits (during employment), which mainly concern long service awards. z calculation of compensation under the collective agreement in force in each of the companies (SYNTEC); The various benefits offered to each employee depend on the local legislation and the conventions and agreements in effect in each z assumed retirement age 67; Group company. z IBOXX discount rate in the euro zone 1.58%; Employee expenses include the following items: z loading rate 50%; z turnover deferred from one entity to another according to the (in thousands of euros) 2018 2017 type of activity, seniority and the average age of personnel; Salaries and benefits (19,136) (12,444) z average wage revaluation rate 2.4%, including inflation; Social security contributions (6,517) (4,557) z INSEE mortality table 2013-2015. Payments in shares 40 (747) Profit sharing and incentive schemes - - Other (390) (166) TOTAL (26,002) (17,914)
82 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
Change in the obligation (in thousands of euros) 2018 2017 OPENING PROVISION 836 547 Cost of services provided for the period 106 96 Interest on discounting 17 11 Cost of services provided -- First consolidation/(Deconsolidation) - 250 Profit/Loss relating to liquidation or curtailment (104) (13) Actuarial losses/(gains) generated on the obligation 8 (56) Benefits paid -- CLOSING PROVISION 863 836
With respect to retirement and other post-employment benefits, a 0.5 point increase in the discount rate would reduce the amount of the 3 obligation by approximately €84 thousand. An equivalent reduction would increase the obligation by €94 thousand.
5.4 Share-based payments number of potential shares. Where applicable, it recognises the consequences of the revision of its estimates in the income Certain employees of the Group receive a remuneration in equity statement. instruments, for which the payment is based on shares. The costs of PRODWAYS GROUP set up free share allocation plans in 2016. the free share award schemes, share subscription warrants or options Under the terms of these plans, the vesting period is at least two are recognised in employee costs. This expense, which corresponds years. The vesting of the shares in April 2019 is subject to presence to the fair value of the instrument issued, is spread over the vesting and performance conditions. The potential shares are those that fulfil period for the rights, counterbalanced by a corresponding adjustment the required performance conditions. to the shareholders’ equity. The Group periodically re-examines the
FSA 02-2016 FSA 12-2016 Free share allocation plans PRODWAYS GROUP PRODWAYS GROUP Initial number of recipients 200 239 Support share PRODWAYS GROUP PRODWAYS GROUP Number of shares allocated 632,200 488,500 Vesting / cancellations over the financial year 0 / 86,460 0 / 208,120 Cumulative vesting / cancellations 0 / 632,200 0 / 226,120 Potential share balance - 262,380 Date of establishment February 2016 December 2016 Start of the vesting period February 2016 December 2016 End of the vesting period 15 April 2017 15 April 2017 End of lock-up period 15 April 2017 15 April 2017 Total expense recognised (in thousands of euros) - 618 Potential value of the shares (in thousands of euros) - 705
PRODWAYS GROUP - 2018 ANNUAL REPORT 83 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
CRISTAL also set up a stock option plan for the benefit of an executive. At the end of that plan, the capital of the Company may be increased by 27,777 shares and the holding rate of PRODWAYS GROUP may be reduced by up to 90%.
Stock option plan CRISTAL options Initial number of recipients 1 Support share CRISTAL Potential number of shares 27,777 Options exercised/cancellations for the year 0 / 0 Cumulative options exercised/cancellations 0 / 0 Potential share balance 27,777 Date of establishment December 2016 Subscription price per share 1 euro Start of the subscription period July 2020 End of the subscription period June 2021 Potential value of the shares (in thousands of euros) 28
5.5 Remuneration of the Directors and related GORGÉ and PRODWAYS GROUP on the approval date of the parties financial statements of PRODWAYS GROUP. A Director of PRODWAYS GROUP became Chief Executive Officer 5.5.1 Directors' remuneration in October 2018. He was remunerated in 2018 by GROUPE The members of PRODWAYS GROUP’s Board of Directors did not GORGÉ until November 2018, and then by PRODWAYS GROUP. receive any attendance fees. GROUPE GORGÉ paid him overall gross remuneration of €189,641 (€118,758 in remuneration, €60,000 in variable remuneration for The Chairman is remunerated by PRODWAYS GROUP and by the 2017 and for 2018, and €10,383 of benefits in kind). PRODWAYS controlling companies GROUPE GORGÉ and PÉLICAN VENTURE, GROUP paid him gross overall remuneration of €16,667 (fixed itself related to GROUPE GORGÉ by a service provision agreement. remuneration). In 2018, PÉLICAN VENTURE paid him gross overall remuneration of €79,600 (€49,600 of fixed remuneration and €30,000 of variable 5.5.2 Related parties remuneration), as well as €9,964 of benefits in kind. GROUPE GORGÉ paid total gross remuneration of €97, 000 (€59,400 in fixed Related parties are persons (Directors, managers of PRODWAYS remuneration, €27,600 in variable remuneration for 2017, and GROUP or of its principal subsidiaries) or companies owned or €10,000 in attendance fees for GROUPE GORGÉS’ Board of managed by such persons (except for subsidiaries of PRODWAYS Directors). PRODWAYS GROUP paid him gross overall GROUP). The following transactions with related parties conducted remuneration of €75,000 (€75,000 of fixed remuneration). The during the year have been identified in the PRODWAYS GROUP variable remuneration of the Chairman for 2018 has not yet been financial statements: determined by the meetings of the Boards of Directors of GROUPE 2018 Financial year
(in thousands of euros) GROUPE GORGÉ GROUPE GORGÉ’s subsidiaries CBG CONSEIL INCOME STATEMENT Revenue 4 145 - Other income 1 3 - Purchases and external charges (609) (1,329) (31) Financial result - - - BALANCE SHEET Trade accounts receivable 5 46 - Deposits and guarantees 7 - - Debtors 1,018 - - Prepaid expenses - - - Suppliers 67 207 - Creditors - - - Deposits and guarantees received - - -
84 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION 2018 consolidated financial statements
GROUPE GORGÉ is PRODWAYS GROUP’s main shareholder. The Director of GROUPE GORGÉ and married to Raphaël GORGÉ. Her Company’s Chairman is Raphaël GORGÉ who is also PRODWAYS company CBG CONSEIL performs services for the PRODWAYS GROUP’s Chairman. CBG CONSEIL belongs to Catherine GORGÉ, GROUP. Pursuant to 2018, she invoiced €31 thousand excluding tax a Director of PRODWAYS GROUP since May 2017. She is also a and had no claims on the Group at the reporting date.
Noted6 Property, plant and equipment and intangible assets
6.1 Goodwill 6.2 Other intangible assets Goodwill is initially recognised at the time of a combination of Intangible assets acquired separately are recognised in the balance businesses as described in Note 2.1. sheet at their acquisition cost. They are subsequently measured at Goodwill corresponds to the difference between the cost of an amortised cost, as recommended by IAS 38 – Intangible Assets. acquisition and the fair value of the Group’s share in the identifiable Intangible assets acquired in a business combination are recognised in net assets acquired. Positive differences are recognised under the balance sheet at their fair value, determined on the basis of “Goodwill” on the assets side of the balance sheet, while negative external valuations. These valuations are performed using generally 3 differences are recognised directly in the income statement. The accepted methods, based on future inflows. The value of intangible goodwill is assigned to one of the Cash Generating Units (CGU). The assets is tested on a regular basis for impairment. essential elements of the business are treated in the same way as Intangible assets are amortised on a straight-line basis over their goodwill. The profit/loss on disposal of the activity of a CGU takes useful life, taking into account the period of legal protection, if into account the goodwill related to the transferred activity based on applicable. the relative values of the activity transferred and the share of the The value of amortised intangible assets is tested when there is any CGU retained. indication that their recoverable amount may be less than their Goodwill may be adjusted in the 12 months following the acquisition carrying amount. Any impairment resulting from these valuation tests date to reflect the final calculation of the fair value of the assets and is recognised in non-current items of operating income. liabilities acquired. Subsequent to their initial recognition, they are not Fixed assets generated internally, concerning mainly expenses for amortised but are the subject of an impairment test on the development of new projects. They are capitalised where the appearance of indications of loss of value, and at least once a year. following criteria are strictly fulfilled: The impairment test procedures carried out in 2017 and 2018 are the technical feasibility necessary for the completion of the described in Note 6.4. z intangible assets with a view to its commissioning or its sale; Net value (in thousands of euros) 2018 2017* z the intention to complete the intangible assets and to commission it or to sell it; At 1 January 29,760 18,560 z the capacity to use or sell the intangible assets; Acquisitions - - z the way in which the intangible assets will generate probable Changes in scope(1) 8,123 11,200 future economic benefits. The entity must demonstrate, among other things, the existence of a market for the production from Departures - - the intangible assets or for the intangible assets itself or, if the Other changes - - latter has to be used internally, its utility; At 31 December 37,883 29,760 z the availability of technical, financial and other resources necessary to complete the development and to commission or sell the Of which depreciation at 31 December - - intangible assets; Systems 74% 69% z the capacity to reliably estimate the expenses attributable to the Products 26% 31% intangible assets during its development. Development costs that do not meet these criteria are expensed in * Column 2017 restated for the elements detailed in Note 1.3. the period in which they are incurred. This is notably the case for (1) First-time consolidations break down as follows: in 2017, INTERSON PROTAC (€1,126 thousand) and AVENAO (€10,074 thousand); in 2018, VARIA 3D (€690 research and development work that may be carried out in thousand) and SOLIDSCAPE (€7,433 thousand). connection with customer orders where the costs cannot be separated from the costs involved in fulfilling the order. Capitalised development projects are depreciated over the lifetime of the underlying technology, generally between 3 and 15 years from their date of completion.
PRODWAYS GROUP - 2018 ANNUAL REPORT 85 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
(in thousands of euros) Development projects Other intangible assets Total Gross value At 1 January 2018 * 9,130 10,284 19,413 Acquisitions 1,586 180 1,766 Changes in scope - 74 74 Departures - (652) (652) Other changes - 1 1 Impact of changes in exchange rates (1) 1 - At 31 December 2018 10,715 9,889 20,603 Depreciation and amortisation, and impairment At 1 January 2018 * 3,161 2,198 5,359 Depreciation and amortisation 2,032 528 2,559 Changes in scope - 25 25 Impairment losses - - - Departures - (651) (651) Other changes - (9) (9) Impact of changes in exchange rates - - - At 31 December 2018 5,193 2,091 7,283 Net value At 1 January 2018 * 5,968 8,086 14,054 AT 31 DECEMBER 2018 5,522 7,798 13,320 * Data at 1 January 2018 restated for the elements detailed in Note 1.3.
Other intangible assets include intangibles relative to the customer z developing new additive manufacturing printing materials in the relationship (€1,399 thousand, including €1,758 thousand of gross photosensitive resin and plastic polymer powders families. The value and 359 of amortisation) recognised during the consolidation of goal of these developments are to create high-performance DELTAMED and INTERSON-PROTAC as well as €5,673 thousand materials in terms of mechanical properties (strength and (€5,934 thousand of gross value and €213 thousand of amortisation) elasticity) and physical and aesthetic properties (colour and relative to the contract binding AVENAO to DASSAULT SYSTEMES. transparency) and stability over time (for liquid and viscous resins The Group makes major investments in research and development for polymerisation and for plastic powders for laser sintering); to maintain and further develop its competitive edge. The Group files z developing a digital impression process for feet (Podoclic and now patent applications when necessary to protect patentable technical, its new version Podostep), an orthopaedic insole design, and an technological and commercial breakthroughs. order and 3D printing tracking software system for these The Group’s research and development has been primarily focused orthopaedic insoles. on the following areas over the past three years: R&D work in progress pertains primarily to the following three areas: z improving the DLP® – MOVINGLight® polymerisation z 3D metal printing processes, in particular Rapid Additive Forging technology, with the development of a new generation of (RAF) technology which is used for 3D printing of large metal machines for which the first model (LD 10), more specifically parts. After finalising a first prototype using RAF in collaboration dedicated to dental applications, has been marketed since the end with an aerospace partner, two new machines were ordered, of 2017 and has been highly commercially successful. A variant confirming the merits of this technology; with even greater productivity (LD20) has been marketed since z New materials in both plastic powders and photosensitive resins; the end of 2018; z developing Norge technology and fine-tuning a 3D printer using selective laser sintering of plastic powders (launch of the P1000, an entry-level laser sintering manufacturing machine, in late 2016);
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z the next generations of 3D printers, with productivity that is protection following the acquisition of INTERSON-PROTAC in constantly improved and a wide range of fields of application, with 2017, followed by the companies Surdifuse and Embout Français optimised integration into the design chain for manufacturing at the beginning of 2019; objects using 3D printing in the medical field; z the development of new printers dedicated to high-precision z the continuation of developments of the SCIENTIFEET solution casting, and more specifically, to jewellery, following the takeover (solution for the design and manufacture of orthopaedic insoles) in mid-2018 of Solidscape in the United States, the recognised and the finalisation of new products for hearing aids or hearing leader in this market.
R&D expenditure amounted to some €3.31 million in 2018. The R&D expenditures evolved as follows:
(in millions of euros) 2018 2017 Capitalised research and development 1.59 1.93 Research and development recognised as an expense 1.73 - TOTAL R&D EXPENDITURE 3.31 1.93 Total research and development as % of revenue 5.4% 5.6% 3 Research tax credit for the financial year 0.29 0.65 Research and development net of tax credits 3.02 1.28
To finance its investments, the Group systematically seeks external Finance leases financing (Bpifrance, FUI, Europe, Regions, etc.) and uses the research Properties used in the framework of a finance lease are capitalised, in tax credit. All subsidiaries of the Group obtained research tax credits consideration of a debt, when the effect of the finance lease is to for a total of €0.3 million, the total of which is recognised in deferred transfer almost all the risks and benefits of the ownership of the income and will contribute to future profit/loss. properties to the Group. R&D expenditure is virtually solely internal costs and it is very rare Finance leases where the risks and benefits are not transferred to the that R&D work is sub-contracted. Group are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the term of the lease. 6.3 Property, plant and equipment Property, plant and equipment primarily comprises land, buildings and production equipment, and is recognised at purchase cost, less accumulated depreciation and any impairment losses, as recommended by IAS 16 – Property, Plant and Equipment. Each component of an item of property, plant and equipment with a useful life that differs from that of the item as a whole, is depreciated separately on a straight-line basis, without taking into account the residual values. The useful lives of items of property, plant and equipment are generally considered to be the following: z buildings: 10 to 35 years; z technical facilities, equipment and tools: 3 to 10 years; z other: 3 to 12 years. The useful life of items of property, plant and equipment used in operating activities reflect the estimated life cycles of the products. The useful life of items of property, plant and equipment are reviewed periodically, and may be adjusted prospectively, if appropriate. Depreciation is expensed in the year incurred. Items of property, plant and equipment are tested for impairment when there is an indication that they may be impaired (see Note 6.4).
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Equipment Land and Fixtures and held under Non-current (in thousands of euros) buildings equipment finance lease assets in progress Total Gross value At 1 January 2018 837 11,393 3,452 433 16,115 Acquisitions 62 3,428 668 148 4,306 Changes in scope 230 3,081 - 112 3,423 Departures - (784) - - (784) Other changes - 344 - (430) (86) Impact of changes in exchange rates 4 105 - 1 110 At 31 December 2018 1,133 17,568 4,120 264 23,085 Depreciation and amortisation, and impairment At 1 January 2018 329 7,155 1,932 - 9,415 Depreciation and amortisation 92 2,033 600 - 2,725 Changes in scope 133 1,813 - - 1,946 Impairment losses - (115) - - (115) Departures - (374) - - (374) Other changes 3 3 - - 6 Impact of changes in exchange rates 2 37 - - 39 At 31 December 2018 559 10,552 2,531 - 13,643 Net value At 1 January 2018 509 4,238 1,520 433 6,700 AT 31 DECEMBER 2018 573 7,016 1,588 264 9,442
6.4 Value impairments on non-current assets Process for the impairment tests At 31 December 2018, impairment tests on all property, plant and Open-ended non-current assets are not amortised and are tested for equipment and intangible assets resulted in impairment losses of €65 impairment at each reporting date. These assets consist of goodwill. thousand on capitalised 3D printers. These impairments are Goodwill impairment losses are irreversible. non-current items of the operating income. No impairment of Amortised property, plant and equipment and intangible assets are goodwill was observed. tested for impairment when, due to special events or circumstances, the The recoverable value of a CGU is determined using the discounted probability of recovering their carrying amount comes into question. The future cash flow method. The discount rate adopted corresponds to appearance of impairment factors specific to certain assets other than the Weighted Average Cost of Capital (WACC) calculated with the goodwill and specifically R&D assets may be related either to internal rates of the 10 year OAT (risk-free rate at 0.76%), a market risk factors (e.g. changes in the assessment of management’s ability to bring premium and a ßeta calculated according to the Company's share an R&D project to conclusion) or external events (e.g. a changing price and changes to the ENT Tech 40 index. Flows after taxes are commercial outlook). The sum of these factors influences management’s projected conservatively over the forecast period of the relevant appraisal, asset by asset, of whether or not there are any future activity (five years) and may include a terminal value with a growth economic benefits or what those future economic benefits are. For assumption of 3%. non-current assets that are impaired, the possible recovery of the impairment is reviewed on each reporting date. The following key operational assumptions are used: we anticipate strong growth in business activity for the SYSTEMS CGU (due to For the purposes of measuring impairment, assets are then grouped increases in machine sales after enlarging the range, especially smaller into cash-generating units (CGUs), which represent the lowest level machines, and the dissemination of production processes of unit generating separate cash flow. technology). Strong growth in sales of material and services Impairment is accounted for to match the surplus of the carrying (maintenance) is also forecasted. This growth is linked to the number amount over the recoverable amount of a CGU. In the absence of of installed machines (there is a multiplier effect because each market value, the recoverable amount of a CGU is its value after tax, installed machine consumes material and requires regular calculated using discounted future cash flow method. maintenance). For the PRODUCTS CGU, we are planning to The main CGUs in the Group’s current configuration and develop our applications, notably for the medical and aeronautical organisation are the two existing “Systems” and “Products” divisions. sectors. The assumptions on rates of profitability include the optimisation of production costs and, especially for the SYSTEMS CGU, better absorption of fixed costs. To support this phase of
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strong growth, a sustained level of R&D investment and working lead to the carrying amount of a CGU being considerably higher than capital requirement was planned and which could be improved. its recoverable value. The discount rates used in 2018 are 11.7% for the SYSTEMS and The CGUs and the discount rates used are therefore the following: PRODUCTS CGUs. The tests performed take into account the measurement of the sensitivity of key assumptions (including Discount rates operational ones) used for calculating the recoverable value (discount used, including rate of +/- 0.5 points, perpetual growth rate of +/- 0.5 points, CGU Goodwill risk premiums EBITDA of +/- 0.5 points). These sensitivity measurements are SYSTEMS 28,103 11.7% identical for each of the CGUs. PRODUCTS 9,780 11.7% Management does not believe that any reasonably possible change in the key assumptions used to calculate the recoverable value might CONSOLIDATED 37,883
Noted7 Details of cash flows 3 7.1 Calculation of cash flow
(in thousands of euros) 2018 2017* NET INCOME FROM CONTINUING OPERATIONS (5,657) (7,742) Allowances for/reversals of depreciation, amortisation and provisions 5,367 4,266 Earnings of equity-accounted companies (118) (107) Payments in shares 43 554 Capital gains and losses on disposals 453 127 Other (74) (30) CASH FLOW FROM OPERATING ACTIVITIES (BEFORE ELIMINATION OF NET BORROWING COSTS AND TAXES) 14 (2,933) * Column 2017 restated for the elements detailed in Note 1.3.
EBITDA is reconciled with the operating cash flow as follows:
(in thousands of euros) 2018 2017* EBITDA 1,194 (1,169) Cancellation of capital gains and losses on treasury shares (74) (30) Capital gains and losses on disposals 453 127 Payments in shares 84 (193) Appropriations and reversals concerning current assets (291) (132) Offsetting of reversals of provisions with an expense (153) (13) Non-recurring items excluding charges and reversals (440) (375) Financial income excluding financial charges and reversals (76) 13 Corporation tax (683) (1,160) CASH FLOW FROM OPERATING ACTIVITIES (BEFORE ELIMINATION OF NET BORROWING COSTS AND TAXES) 14 (2,933) * Column 2017 restated for the elements detailed in Note 1.3.
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7.2 Change in working capital requirements
Start of Change Currency the Changes in over the Other translation (in thousands of euros) Notes period* scope year movements(1) adjustment Closing Net inventories 4,722 1,377 567 - 26 6,693 Net receivables 10,989 949 1,432 -) 21 13,391 Contract assets 1,806 - 396 - - 2,202 Advances and down-payments 197 - (64) - - 133 Prepaid expenses 288 76 223 - 1 587 SUBTOTAL A 18,002 2,403 2,553 - 48 23,006 Trade payables 8,444 271 (128) - 6 8,594 Contract liabilities 1,353 575 1,261 - 11 3,199 Advances and down-payments - - 1 - - 1 Deferred income - - 5 - - 5 SUBTOTAL B 9,797 846 1,140 - 16 11,800 WORKING CAPITAL REQUIREMENT C = A - B 8,205 1,556 1,414 - 32 11,207 Social and tax receivables 3,118 5 (267) - - 2,855 Other receivables 1,289 - (211) 82 1 1,160 SUBTOTAL D 4,407 5 (479) 82 1 4,015 Tax and social debts 6,647 725 (439) - 18 6,951 Accrued interest ------Other payables and derivative instruments 4,038 3 (68) 218 19 4,210 Current accounts payable ------Deferred income from subsidies and research tax credit 1,695 - (408) - - 1,287 SUBTOTAL E 12,380 728 (915) 218 36 12,448 OTHER ITEMS OF WORKING CAPITAL REQUIREMENT F = D - E (7,973) (723) 436 (136) (35) (8,433) WORKING CAPITAL G = C + REQUIREMENT F 232 833 1,849 (136) (3) 2,774 * Data upon opening restated for elements detailed in Note 1.3. (1) The “Other changes” column contains cash flows that do not generate cash movements.
7.3 Acquisitions/Disposals of equity holdings Cash flows from acquisitions are summarised in the table below. In 2018, the Group acquired SOLIDSCAPE and acquired an additional, and controlling, stake in VARIA 3D. In 2017, the Group acquired INTERSON PROTAC and AVENAO.
(in thousands of euros) 2018 2017 Payments (12,058) (11,685) Cash and cash equivalents 2,892 3,205 TOTAL (9,166) (8,480)
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Noted8 Financing and financial instruments
The financial assets and liabilities consist mainly of the following items: Financial liabilities consist primarily of current and non-current z long term financial liabilities, short term loans and bank overdrafts financial debt contracted with credit institutions. These liabilities are which make up the gross financial debt (see Note 8.1.1); initially recognised at fair value, from which are deducted, if need be, any directly attributable transaction costs. They are then valued at loans and other long term financial assets and the cash and cash z amortised cost based on their actual interest rate. equivalents which are added to the gross financial debt to arrive at the net financial debt (see Note 8.1.2); INITIAL has subscribed three new loans to finance its investments: z derivative instruments (see Note 8.1.3); z in April 2018, two bank loans of €300 thousand and €700 thousand subscribed with Crédit Agricole at fixed rates of 0.15% other financial assets and liabilities (see Note 8.1.4). z and 0.55% respectively (amortisable over a 5-year period); z in June 2018, a bank loan of €1,350 thousand subscribed with 8.1 Financial assets and liabilities BNP at a fixed rate of 0.57% (repayable over 5 years). 8.1.1 Gross financial debt Gross financial debt includes long-term financial liabilities, short-term 3 loans and bank overdrafts.
Changes in borrowings and financial debt
Finance Gross lease Bank Other Long-term Bank financial (in thousands of euros) liabilities borrowings borrowings debt overdrafts debt At 1 January 2018 1,519 2,722 277 4,518 248 4,766 New finance lease contracts 668 - - 668 - 668 New bond issuance/subscription - 2,350 2 2,352 379 2,731 Redemptions (608) (1,207) (52) (1,867) (248) (2,114) Other changes(1) -20-20-20 First consolidation/(Deconsolidation) - 449 174 623 (4) 619 Impact of changes in exchange rates - 32 13 46 - 46 AT 31 DECEMBER 2018 1,579 4,367 414 6,360 374 6,734 (1) Changes with no impact on cash related to effective interest rates and accrued interest on borrowings.
The credit facility of €10 million secured by PRODWAYS GROUP in December 2017 to fund general corporate requirements and acquisitions. The facility is confirmed for €10 million until June 2019 and then on a declining basis for €2.5 million per year until December 2022; no draw-downs were made.
Schedule of borrowings and financial debt
two to
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The costs attributable to the implementation of loans are amortised 8.1.3 Derivative financial instruments over the term of the debt (amortised cost method) based on their Composite financial instruments such as convertible or redeemable true interest rate. bonds are recognised in accordance with IAS 32, i.e. separate posting The “other borrowings” include the repayable advances cashed by of the bond component recorded as debt at amortised cost and of the Group, notably for COFACE prospection advances. These the share component recognised as equity (similar to selling a stock advances cannot be repaid, or only repaid partially according to the purchase option), expenses related to the issue being recognised as success of the operations on the basis of which they were granted. equity and debt respectively in proportion to the proceeds of the issue. 8.1.2 Net cash and cash equivalents In 2015 PRODWAYS GROUP issued 10 million convertible bonds Cash and cash equivalents presented in the balance sheet consist of to FIMALAC DEVELOPPEMENT. In the first quarter of 2017, new cash in hand, bank accounts, term deposits of no more than three convertible bonds were issued for a total of €17.67 million, of which months and marketable securities meeting the criteria in IAS 7. €10 million to redeem the 2015 bonds. These bonds were Accrued interest earned on term accounts is recorded under redeemable only as shares and did not have coupons. They were investment income. A provision for impairment is recognised when recognised as equity, net of issuance costs, until they were the net asset value is less than the acquisition cost. automatically converted to shares when the Company was floated in May 2017. (in thousands of euros) 2018 2017 The Group may use, if it deems it necessary, derivative financial Marketable securities and term deposits 2,007 24,504 instruments to hedge against foreign exchange or interest rate risks associated with operations. These risks mainly arise from variable rate Cash and cash equivalents 23,919 16,972 financing and sales in USD. On initial posting, derivatives are recorded GROSS CASH (A) 25,927 41,476 in the balance sheet at their acquisition cost. They are then valued at their fair value calculated on the basis of market prices provided by Bank overdrafts (B) 374 248 the relevant financial institutions. The Group applies hedge CASH AND CASH EQUIVALENTS accounting for foreign exchange transactions according to the criteria (C) = (A)-(B) 25,552 41,228 defined by IFRS 9. This is macro hedging, with changes in the fair value of the hedging instrument being recognised as income. Financial debt (D) 6,360 4,518 A rate cap was taken out in September 2016 to cover the 10 million NET CASH (NET DEBT) (C)-(D) 19,192 36,711 variable rate loan contracted with LCL. The cap was set at 1%. Due Treasury shares 128 165 to prepayment of the underlying asset, this hedge was discontinued in the second half of 2017. NET DEBT CASH, ADJUSTED 19,320 36,876 IP GESTION’ minority shareholders have put options exercisable from 2023. PRODWAYS GROUP has a call option exercisable from 2021. These options have been valued at fair value through equity. The valuation is equivalent to the estimated current value of the option to date, which is itself a multiple of the estimated income of the subsidiary over the period in question.
Start of Equity (in thousands of euros) the period In Income effect Other Closing INTERSON-PROTAC call option 889 - - 41 - 930 NON-CURRENT TOTAL 889 - - 41 - 930
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8.1.4 Other non-current financial assets Net value (in thousands of euros) 2018 2017 The new IFRS 9 standard covers three main financial asset classifications, those valued at amortised cost, those valued at fair Loans 39 51 value through other comprehensive income and those valued at fair Deposits and guarantees 380 124 value through net income. Financial assets are classified according to the asset's economic holding model and the characteristics of its Non-consolidated holdings 92 92 contractual cash flows. Other long-term investments 5 5 The application of IFRS 9 did not impact the Group's accounting TOTAL OF OTHER FINANCIAL methods regarding the valuation of assets at amortised cost (loans ASSETS 517 273 and receivables) nor the valuation of securities previously recognised at historic cost €92 million).
Investments in affiliated companies The movements are as follows: 3 Currency Start of the translation (in thousands of euros) period In Income adjustment Exit Closing DENTOSMILE 901 - 94 - - 995 VARIA 3D 603 - 24 - (627) - TOTAL 1,504 - 118 - (627) 995
8.2 Financial income and expenses 8.3 Policy for the management of risks On the one hand, financial income and expenses comprise interest 8.3.1 Liquidity risk income and expense related to the cost of net financial debt and, on At 31 December 2018, the Group’s net cash amounted to €19.2 the other hand, financial income and expenses. million (€25.9 million in cash, minus €6.7 million in financial debt). Interest expenses correspond to the amount of interest recognised in The Group has the funding it needs and there are no loans essential respect of the financial debts and the interest income to the amount to its activity being negotiated. The Group has no bank financing that of the interest received from cash investments. depends on the Group’s rating, and its credit risk is focused on a small number of first rate partners. (in thousands of euros) 2018 2017 Interest expense (139) (211) Income from other securities (16) (35) Net income on sales of marketable securities 77 40 Cost of net debt (78) (206) Other interest income 3 113 Net exchange gain or loss (1) 105 Financial allowances net of reversals - (50) TOTAL FINANCIAL INCOME AND EXPENSES (76) (38)
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The arrangements for repaying the principal loans are as follows:
Loan Outstanding (in thousands of euros) Rate Amount capital Maturity RCF maturity December 2022, declining basis from LCL E+0.80% 10,000 - June 2019 BNP PARIBAS 0.57% 1,350 1,220 60 monthly payments starting in July 2018 BPI France 0% 1,400 910 20 quarterly instalments from June 2017 CREDIT AGRICOLE 0.55% 700 596 60 monthly payments starting in April 2018 CREDIT AGRICOLE 0.60% 700 440 60 monthly payments starting in February 2017 BNP PARIBAS 0.96% 600 234 60 monthly payments starting in December 2015
The BPIFRANCE loan is guaranteed by GROUPE GORGÉ. It carries a A uniform exchange rate with a rise or fall of 1 cent (euro) against change-of-control clause, as does the revolving credit facility (RCF). the major currencies could have an impact of +/-€24 thousand on the net position, assuming a strict stability of assets and liabilities. 8.3.2 Interest rate risk Generally, the Group’s policy for managing interest rate risk is to 8.3.4 Market risk examine on a case by case basis credit agreements concluded on the PRODWAYS GROUP holds 49,723 treasury shares. These shares basis of a variable interest rate and to consider, with the help of its were acquired under liquidity contracts or in order to deliver shares external financial advisors, whether it is opportune to use ad hoc when exercising rights attached to securities giving access to capital financial instruments to hedge, where appropriate, identified rate through redemption, granting stock purchase options to employees, risks. Excluding short-term placements and bank overdrafts, the cancelling all or some of the shares thus redeemed, delivering Group was exposed to a change in interest rates of €10 million on securities in payment or exchange in the framework of external the LCL variable rate loan taken out in 2016. This risk was covered growth transactions, or regulating the share price on the stock by a 1% interest rate cap which was discontinued in the second half market. of 2017 due to prepayment of the underlying asset. The market value of treasury shares at 31 December 2018 was €0.13 Overdrafts and short-term loans (financing of trading receivables) are million. A uniform change of 10% in share prices could have an concluded at variable rates and therefore expose the Group to impact on equity of €13 thousand compared with the position at fluctuations in interest rates. 31 December 2018. The rest of the cash invested by the Group is in money market funds 8.3.3 Exchange-rate risk or deposits. Foreign currency transactions mainly concern the U.S. dollar. The share of foreign currency revenues by Group companies remained limited until 2018 but increased due to the acquisition of 8.4 Off-balance sheet commitments related to the SOLIDSCAPE (United States), whose purchases are nevertheless Group’s financing made in US dollars. The Group’s expenditure in dollars remains stable and is financed by There is no collateral, guarantee or surety at closure of the 2018 an overdraft in dollars and growing sales in dollars. The increased financial year other than the pledging of assets to guarantee loans sales in dollars will gradually permit the overdraft to be reduced. used to finance them. Moreover, the Group must develop a more elaborate policy for GROUPE GORGÉ stood as guarantor for Bpifrance for the managing its foreign exchange risk, and will require an assessment of repayment of the Zero Rate Loan for Innovation (PTZI) taken out by the risk of currency rate changes by the management on the advice PRODWAYS during the first half of 2015. At the end of 2018, the of its banks. outstanding amount of this loan was €910 thousand. PRODWAYS GROUP SA has a renewable credit line of €10 million, (in thousands of euros) USD confirmed until December 2022. This line reduces by €2.5 million per Assets 4,628 year from June 2019. It was not used. It has a “change of control” clause and a financial covenant. Liabilities 1,875 Net position before management 2,754 Off-balance sheet position - Net position after management 2,754
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Noted9 Corporate income taxes
9.1 Corporate income tax Tax receivable is mainly made up of research tax credit receivables for (€938 thousand) and CICE receivables for (€616 thousand), The tax charge on net income includes the tax payable and the which it was not possible to deduct from the tax charge payable. deferred taxes of the consolidated companies. The taxes related to items recognised directly in other items of total 9.1.2 Analysis of the tax charge net income are recognised in other items of total net income and not In accordance with standard practice and with IAS 12 and IAS 20, as in the income statement. the research tax credit is neither an element of taxable income, nor computed on the basis of taxable income, and as it is neither a tax 9.1.1 Details of corporate income tax liquidation component nor limited to the amount of tax liquidated, it Breakdown of tax expense is classified as operating income. Research tax credits for subsidiaries are recognised in current (in thousands of euros) 2018 2017* operating income rather than as a decrease in tax expense if they are Deferred tax liabilities (72) (507) not generated by research and development expenses included in the consolidated balance sheet. If they are generated by research and 3 Taxes payable (611) (653) development expenses recognised in the consolidated balance sheet, TAX EXPENSE (683) (1,160) research tax credits are recognised as deferred income in liabilities and recognised in income at the rate of future amortisation. * Column 2017 restated for the elements detailed in Note 1.3. Contributions on Corporate Added Value (CVAE) are recognised in income tax accounts, this tax being based on value added. The Tax expense does not include research tax credits, classified as other Group’s analysis is based in particular on the definition of income tax income (see Notes 4.2 and 9.1.2). It does, however, include CVAE in as defined in IAS 12 and on an IFRIC position from 2006 that states the amount of €336 thousand in 2018 and €127 thousand in 2017. that the term “taxable income” implies a notion of a net rather than Tax receivables and payable a gross amount, although not necessarily identical to the accounting income. (in thousands of euros) 2018 2017 Tax receivables 1,762 1,182 Tax payable (73) (77) NET TAX RECEIVABLE/(DUE) 1,689 1,105
(in thousands of euros) 2018 2017* NET INCOME FROM CONTINUING OPERATIONS (5,657) (7,742) Tax Income/(Expense) (683) (1,160) Earnings of equity-accounted companies 118 107 Earnings before tax (5,092) (6,689) Tax rate 28.00% 33.33% THEORETICAL TAX CHARGE 1,426 2,229 Reconciliation items Uncapitalised tax losses incurred for the period (2,016) (2,914) Use of uncapitalised tax losses 46 56 Reassessment of deferred tax assets (137) (696) Differential rates France/Foreign countries and reduced rates (50) 41 CVAE (336) (127) Tax impact associated with the accounting classification of the value added contribution (CVAE) and tax credits/or tax savings on the CVAE and the theoretical restatement/cancellation on tax credit 182 255 Other permanent differences 203 (35) Impact of the tax reform -31 ACTUAL NET TAX INCOME (EXPENSE) (683) (1,160) * Column 2017 restated for the elements detailed in Note 1.3.
The tax rate matches the parent company’s current rate.
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9.2 Deferred tax liabilities The main timing differences are related to tax losses carried forward, to provisions for pensions and other similar benefits, to other Deferred taxes corresponding to time differences between the taxes provisions which are temporarily non tax-deductible and to and accounting bases of consolidated assets and liabilities are capitalised development expenses. The deferred tax assets and recognised using the liability method. Deferred tax assets are liabilities are calculated using tax rates which will be in effect at the recognised when their future realisation seems likely on a date which time of the reversal of the timing differences. can be reasonably determined. Deferred tax assets and liabilities are not discounted and are offset if Future income tax breaks arising from the use of tax loss they relate to the same taxable entity and have identical repayment carry-forwards (including unlimited carry-forward) are recognised maturities. only when they can be reasonably anticipated.
Breakdown of deferred taxes by type
(in thousands of euros) 2018 2017* Differences over time Retirement and related benefits 207 160 Development costs (58) (55) Finance leases (1) 1 Derivative financial instruments (10) (16) Fair value – IFRS 3 R (2,449) (2,535) Other 59 132 SUBTOTAL (2,251) (2,315) Temporary differences and other restatements 113 91 Deficits carried forward 760 897 TOTAL (1,378) 1,328 DEFERRED TAX LIABILITIES (1,438) (1,998) DEFERRED TAX ASSETS 60 670 * Column 2017 restated for the elements detailed in Note 1.3.
Deficits carried forward are capitalised due to opportunities for rapid them if it had not transmitted them under the tax consolidation. The posting of these deficits. PRODWAYS GROUP and its eligible Group will therefore be indemnified for the deficits which were subsidiaries formed part of the tax consolidation constituted by transmitted to GROUPE GORGÉ when its result would have GROUPE GORGÉ from 2014 to 2016. Tax consolidation ended allowed the deduction of deficits, if they had not been transmitted when GROUPE GORGÉ’s percentage ownership fell below 95% in under the tax consolidation, at the tax rate at that time. The terms of May 2017. The deficits carried forward include those transferred to the agreement remain in force as long as deficits transferred are not GROUPE GORGÉ under the tax consolidation in force between indemnified, thus guaranteeing the Group complete tax neutrality. 2014 and 2016. They amounted to €16 million at 31 December Some deferred tax assets resulting from these capitalisations can be 2018. The tax agreement with GROUPE GORGÉ stipulates that the charged to tax liabilities because of the net deferred tax liability deficits transmitted will be indemnified, not immediately, but position of the companies concerned. according to the use PRODWAYS GROUP would have made of
UNDERLYING TAX POSITION
Bases(1) (in millions of euros) 2018 2017 Ordinary deficits 33.2 25.6 TOTAL 33.2 25.6 (1) Ordinary tax deficits carried forward including the indemnifiable deficits transmitted to GROUPE GORGÉ, only the non-capitalised part in the consolidated financial statements.
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Noted10 Shareholders’ equity and earnings per share
10.1 Equity Potential shares None of the convertible bonds issued by PRODWAYS GROUP 10.1.1 Capital and issue premiums remain in circulation. As at 31 December 2018, the share capital of PRODWAYS GROUP PRODWAYS GROUP decided on two free share allotment plans was €25,407,821.50 consisting of 50,815,643 fully paid-up shares, (see Note 5.4). Given the cancellations which have occurred, the each with a nominal value of €0.50. maximum number of potential shares is 262,380.
Changes in capital 10.1.2 Dividend per share Cumulative Amount The Company has never paid dividends. number of of capital The distributable reserves of the parent company (shareholders’ shares (in euros) equity excluding share capital and legal reserve) amount to €84,879 Capital at 31/12/2016 16,896,535 16,896,535 thousand, before appropriation of the 2018 net income. They were €84,963 thousand on 31 December 2017. Capital at 31/12/2017 50,815,643 25,407,821.50 3 Capital at 31/12/2018 50,815,643 25,407,821.50 10.2 Earnings per share In May 2017, the share capital was increased when the Company Basic earnings per share are calculated by dividing the Group’s net listed on Euronext Paris, Compartment B. A total amount of €66 profit attributable to shareholders by the weighted average number million was raised (before share issue expenses), taking into account of shares outstanding during the year calculated on a pro rata basis, convertible bonds subscribed prior to the capital increase. net of treasury shares, in compliance with IAS 33. In November 2017, the share capital was increased once again to pay Diluted earnings per share is calculated by increasing the weighted for part of the acquisition of AVENAO. The share capital was average number of shares outstanding that would result from the increased by 992,586 new shares to pay for the contribution of a creation of all potentially dilutive shares in view of the weighted portion of the shares of AVENAO Solution 3D (AVENAO). The average on a pro rata basis for the number of shares equivalent to value of the shares contributed was set at €5,995,230.12. shares outstanding during the year. Dilutive instruments are taken The share premiums represent the difference between the nominal into account if and only if their dilutive effect decreases earnings per value of the shares issued and the amount, net of costs, of the share or increases loss per share. contributions received by PRODWAYS GROUP at the time of the issues. They amount to €83,787 thousand.
2018 2017* Weighted average number of shares 50,765,920 44,061,841 EARNINGS PER SHARE (IN EUROS) (0.107) (0.173) EARNINGS PER SHARE FROM ONGOING ACTIVITIES (IN EUROS) (0.107) (0.173) Dilutive potential ordinary shares(1) 262,380 556,960 DILUTED EARNINGS PER SHARE (IN EUROS) (0.107) (0.173) DILUTED EARNINGS PER SHARE FROM ONGOING ACTIVITIES (IN EUROS) (0.107) (0.173) (I) To date, free share allocations are currently the only type of instrument outstanding with a potentially dilutive effect. To the extent that accounting for the dilutive effect of free shares would have decreased loss per share, diluted earnings per share is equal to basic earnings per share for the periods presented. * Column 2017 restated for the elements detailed in Note 1.3.
10.3 Pledges of the issuer’s shares The Company has no knowledge of any pledges of PRODWAY GROUP shares outstanding at the reporting date.
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Noted11 Other provisions and contingent liabilities
The Group recognises a provision if it has an obligation to a third z provisions for termination losses on ongoing projects, party prior to the reporting date, where the loss or liability is z provisions for work outstanding on projects already delivered; probable and can be reasonably estimated. In cases where such loss restructuring costs, if the restructuring was covered by a detailed or liability is neither probable nor reliably measurable, but still z plan and an announcement or project launch before the reporting possible, the Group reports a contingent liability in commitments date. (excluding the posting of contingent liabilities in the event of acquisition). Provisions are estimated on a case by case basis or on a In contrast to the foregoing definition of a provision, a potential statistical basis. liability is: Provisions are primarily intended to cover: z a potential obligation resulting from a past event of which the existence will only be confirmed by the occurrence or otherwise z economic risks: these provisions cover tax risks identified during of an uncertain event which is not within the control of the inspections carried out locally by tax authorities and financial risks Group; arising primarily on guarantees given to third parties covering certain assets and liabilities; z a current obligation resulting from a past event for which either the amount of the obligation cannot be reliably estimated or it is z business risks and contingencies; these provisions comprise: unlikely that an outflow of resources representative of economic z statistical provisions for guarantees: Group subsidiaries provide benefits will be necessary to extinguish the obligation. for all guarantees which may be given on equipment sales on a As part of business combinations, potential liabilities may be statistical basis. Some guarantees may cover 24 months, recognised as provisions in accordance with the criteria defined in the IFRS 3R standard.
Provisions Customer (in thousands of euros) Litigation warranties Other Total At 1 January 2018 70 28 112 210 Appropriations 60 4 295 359 Provisions used - - (86) (86) Reversals (70) (25) (95) Impact on income for the period (10) 4 184 178 Changes in scope - - - - Other changes - - - - Impact of changes in exchange rates - - - - AT 31 DECEMBER 2018 60 32 296 388
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Note 12 Other notes
12.1 Statutory auditors’ fees The fees invoiced to all Group companies by PRODWAYS GROUP SA’s statutory auditors were as follows: 2018 Financial year
(in thousands of euros) PWC RSM TOTAL Statutory Audits, review of financial statements 83 100% 101 100% 184 100% z Parent company 54 50 104 z Fully consolidated companies 29 52 81 Services other than certification of the financial statements - - - - TOTAL 83 100% 101 100% 184 100% 3 2017 financial year
(in thousands of euros) PWC RSM TOTAL Statutory Audits, review of financial statements 64 100% 93 100% 157 100% z Parent company 39 38 77 z Fully consolidated companies 25 55 80 Services other than certification of the financial statements - - - TOTAL 64 100% 93 100% 157 100%
12.2 Exceptional events and disputes 12.3 Subsequent events The Group is involved in various legal proceedings. After reviewing On 3 January 2019, PRODWAYS GROUP acquired EMBOUT each case and seeking counsel, the provisions considered necessary FRANÇAIS and SURDIFUSE, within its “Products” division. have, as applicable, been recorded in the financial statements. On 31 January, the Board of Directors of PRODWAYS GROUP approved a new free share allocation plan. Under this plan, there are 802,800 potential shares, subject to continued employment and/or performance conditions concerning the financial years 2019 to 2021. No other significant event took place between 31 December 2018 and the date on which the Board of Directors approved the consolidated financial statements.
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Noted13 List of consolidated companies
Parent company % control % interest Method Company At 31 December 2018 2018 2017 2018 2017 2018 2017 Structure PRODWAYS GROUP Consolidating company Top Top Top Top FC FC PRODWAYS DISTRIBUTION(1) PRODWAYS GROUP 100 100 100 100 FC FC PRODWAYS ENTREPRENEURS PRODWAYS GROUP 100 100 100 100 FC FC PRODWAYS 2(1) PRODWAYS GROUP 100 100 100 100 FC FC Systems 3D SERVICAD AVENAO SOLUTIONS 3D 100 100 100 100 FC FC AVENAO INDUSTRIE AVENAO SOLUTIONS 3D 100 100 100 100 FC FC AVENAO SOLUTIONS 3D PRODWAYS GROUP 100 100 100 100 FC FC DELTAMED (Germany) PRODWAYS GROUP 100 100 100 100 FC FC EXCELTEC PRODWAYS GROUP 100 100 100 100 FC FC PRODWAYS PRODWAYS GROUP 100 100 100 100 FC FC PRODWAYS AMERICAS (USA) PRODWAYS 100 100 100 100 FC FC PRODWAYS MATERIALS (Germany) DELTAMED 100 100 100 100 FC FC PRODWAYS RAPID ADDITIVE FORGING PRODWAYS GROUP 100 100 100 100 FC FC SOLIDSCAPE (USA)(2) PRODWAYS GROUP 100 - 100 - FC - Products CRISTAL PRODWAYS GROUP 95 95 95 95 FC FC DENTOSMILE PRODWAYS ENTREP. 20 20 20 20 EM EM INTERSON-PROTAC IP GESTION 100 100 75 75 FC FC INITIAL PRODWAYS GROUP 100 100 100 100 FC FC IP GESTION PRODWAYS GROUP 75 75 75 75 FC FC PODO 3D PRODWAYS GROUP 82.07 82.07 82.07 82.07 FC FC PRODWAYS CONSEIL PRODWAYS GROUP 90 90 90 90 FC FC EM VARIA 3D (USA) PRODWAYS GROUP 70 45 70 45 FC EM (1) Companies with no activities. (2) Companies acquired in 2018.
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3.1.7 Statutory auditors’ report on the consolidated financial statements To the Shareholders,
Opinion In application of the assignment entrusted to us by your Articles of Association and your shareholders' meeting, we have conducted an audit of the PRODWAYS GROUP consolidated financial statements for the year ended 31 December 2018, appended to this report. In our opinion, the consolidated financial statements give a true and fair view of the results of operations, financial position and assets and liabilities at year-end, of all of the persons and entities within the scope of consolidation, in accordance with International Financial Reporting Standards as adopted by the European Union.
Basis for the opinion Audit framework We conducted our review 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 audit opinion. Our responsibilities in view of these standards are set out in the section “statutory auditors’ responsibilities regarding the audit of the 3 consolidated financial statements” in this report. Independence We conducted our audit in accordance with the rules of independence governing our assignments, for the period from 1 January 2018 to the date on which our report was issued; in particular, we did not render any services prohibited by article 5, paragraph 1 of EU Regulation N° 537/2014 or by the Code of ethics governing statutory auditors. Observation Without qualifying the above opinion, we draw your attention to Note 1.3 “Restatement of the financial information for prior years” to the consolidated financial statements, outlining the impact of the adoption at 1 January 2018 of the new IFRS 15 “Revenue from Contracts with Customers.”
Justification of our assessment - Key audit points Pursuant to the provisions of articles L.823-9 and R.823-7 of the French Commercial Code on the justification of our assessments, we hereby inform you of the key audit points relating to risks of material misstatements which, in our professional judgement, were most significant for the audit of the consolidated financial statements for the year, as well as our responses to address such risks. These assessments were made as part of the audit of the consolidated financial statements, taken as a whole, and of the opinion we formed and expressed above. We have not expressed an opinion on individual elements contained in these consolidated financial statements.
Evaluation of the recoverable amount of goodwill Risk identified As part of its development, the Group has carried out targeted acquisitions and recognised a certain amount of goodwill. At 31 December 2018, goodwill recorded on the balance sheet amounted to a net carrying amount of €37.9 million, representing 32.89% of assets. Each year, management ensures that goodwill is not carried at more than its recoverable amount by performing impairment tests. For the purposes of these tests, goodwill acquired through a business combination is allocated to the cash generating units (CGUs) that would benefit from synergies. Determining the net recoverable amount of each CGU relies on discounted future cash flow projections and requires management to exercise significant judgement, specifically with respect to preparing forecasts and the discount and long-term growth rates to adopt. In light of the foregoing, we considered the recoverable amount of goodwill to be a key audit point, given the proportion of goodwill on the balance sheet and the inherent uncertainty linked to certain factors, such as the likelihood of forecasts used to determine the recoverable amount actually materialising.
PRODWAYS GROUP - 2018 ANNUAL REPORT 101 FINANCIAL AND ACCOUNTING INFORMATION 3 2018 consolidated financial statements
Our response We carried out a critical review of the methods used by management to analyse impairment indicators and perform impairment testing. Our work consisted in: z taking due note of the PRODWAYS GROUP's process for preparing estimates and assumptions used as part of the impairment tests; z verifying that the discounted future cash flow projections used to determine the value in use of the cash generating units (CGUs) tested corresponds to those generated by elements comprising the carrying amount of the CGUs; z assessing the appropriateness of assumptions used, in particular cash flow projections, the discount rate and long-term growth rate, via a comparison with past performance and external analyses available on the market context; z reviewing the tests carried out by management on the sensitivity of the recoverable amount of the CGUs to a reasonable change in the discount or long-term growth rates. Finally, we assessed the appropriateness of information provided in Note 6.4 to the consolidated financial statements.
Specific verifications In accordance with professional standards applicable in France, we have also carried out specific verifications of the information and data relating to the Group presented in the Board of Directors' management report. We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements.
Information resulting from other legal and regulatory obligations Appointment of statutory auditors We were appointed statutory auditors of PRODWAYS GROUP by the Articles of Association of 13 March 2014, for RSM Paris and by your shareholders' meeting of 5 May 2017 for PricewaterhouseCoopers Audit. At 31 December 2018, RSM Paris was in the 5th year of its assignment without interruption, and PricewaterhouseCoopers Audit in its 2nd year, and two years for each firm since the Company's securities were admitted for trading on a regulated market.
Responsibilities of management and those in charge of corporate governance in relation to the consolidated financial statements It is management’s responsibility to prepare fair and accurate consolidated financial statements in accordance with IFRS as adopted in the European Union, and to implement the internal control procedures that it deems necessary for the preparation of consolidated financial statements free of any material misstatements, whether resulting from fraud or errors. In preparing the consolidated financial statements, it management’s responsibility to assess the Company's ability to continue as a going concern, to present, where relevant, the necessary information relating to the going concern, and to apply the going concern principle of accounting, unless there are plans to liquidate or cease the Company's activity. These consolidated financial statements have been approved by the Board of Directors.
Responsibilities of the statutory auditors in relation to the audit of the consolidated financial statements Audit objective and approach We are tasked with preparing a report on the consolidated financial statements. Our aim is to obtain reasonable assurance that the consolidated financial statements, taken as a whole, do not include any material misstatements. Reasonable assurance means a high level of assurance, however without any guarantee that an audit conducted in accordance with professional standards will systematically detect any material misstatement. Misstatements may be the result of fraud or errors, and are considered material when, individually or combined, they can be reasonably expected to impact economic decisions taken based on the financial statements. As set out in article L.823-10-1 of the French Commercial Code, our assignment to certify the financial statements does not involve guaranteeing the sustainability or quality of the management of your company. As part of an audit conducted in accordance with professional standards applicable in France, the Statutory Auditor exercise their professional judgement throughout the entire audit.
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Furthermore: z identifies and assesses the risk of material misstatement in the consolidated financial statements, whether the result of fraud or errors, defines and implements audit procedures to address such risks, and gathers adequate and appropriate information on which to form an opinion. The risk of not detecting a material misstatement resulting from fraud is higher than that of a material misstatement resulting from an error, given that fraud may imply collusion, falsification, wilful omissions, false statements or the circumvention of internal control; z takes note of internal control processes relevant to the audit, in order to define suitable audit procedures, and not for the purpose of expressing an opinion on the effectiveness of such internal control; z assesses the appropriateness of the accounting methods adopted and the soundness of accounting estimates made by management, as well as information concerning them provided in the consolidated financial statements; z assesses the appropriateness of management's application of the going concern principle and, based on the information obtained, whether there is significant uncertainty with regard to events or circumstances that could jeopardise the Company's ability to continue as a going concern. This assessment is founded on information obtained up until the date of the report, it being specified, however, that subsequent circumstances or events may jeopardise business continuity. If the auditor identifies significant uncertainty, they highlight such uncertainty in their report by drawing readers' attention to the corresponding information presented in the consolidated financial statements, or, if this information has not been provided or is not relevant, issues certification with reserves or a refusal to certify; z assesses the overall presentation of the consolidated financial statements and determines whether they provide a true and fair reflection of 3 the underlying transactions and events; z regarding financial information of persons or entities included in the consolidation scope, gathers adequate and appropriate information on which to form an opinion. The auditor is responsible for the management, supervision and completion of the audit of the consolidated financial statements, as well as the opinion issued on these financial statements.
Neuilly-sur-Seine and Paris, 11 April 2019 The statutory auditors
PRICEWATERHOUSECOOPERS AUDIT RSM Paris David Clairotte Stéphane Marie
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3.2 SEPARATE FINANCIAL STATEMENTS 2018
3.2.1 Income statement
(in thousands of euros) 2018 2017 REVENUE 1,702.1 901.1 Reversals of provisions, expense transfers and other income 32.6 22.4 TOTAL OPERATING INCOME 1,734.7 923.5 Other purchases and external charges 1,648.7 1,108.1 Taxes and similar payments 8.8 7.4 Payroll expense 717.6 554.9 DEPRECIATION, AMORTISATION AND PROVISIONS: non-current assets 3.4 2.6 current assets -- Other expenses -- TOTAL OPERATING EXPENSES 2,378.5 1,673.0 OPERATING RESULTS (A) (643.8) (749.5) FINANCIAL INCOME (B) 2,582.4 1,464.9 INCOME FROM CONTINUING OPERATIONS BEFORE TAX (C) = (A)+(B) 1,938.6 715.4 NON-RECURRING INCOME (D) - 118.0 Income tax (E) 810.7 - NET INCOME (F) = (C)+(D)+(E) 2,749.3 833.4
3.2.2 Balance sheet ASSETS
2018 2017 Dep., Amort. (in thousands of euros) Gross & provisions Net Intangible assets 80.0 0.6 79.4 - Property, plant and equipment 12.0 7.0 5.0 2.8 Equity securities 80,394.7 - 80,394.7 65,265.2 Receivables related to shareholdings - - - - Other long-term investments 230.7 - 230.7 3.9 NON-CURRENT ASSETS 80,717.4 7.6 80,709.8 65,271.9 Net trade receivables and related accounts 2,434.1 - 2,434.1 1,454.6 Other trade receivables 18,417.4 - 18,417.4 10,636.6 Cash and cash equivalents 15,574.6 19.8 15,554.8 33,997.6 CURRENT ASSETS 36,426.1 19.8 36,406.3 46,088.8 Prepaid expenses 9.6 - 9.6 6.1 TOTAL ASSETS 117,153.1 27.4 117,125.7 111,366.8
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LIABILITIES AND SHAREHOLDERS’ EQUITY
(in thousands of euros) 2018 2017 Share capital 25,407.8 25,407.8 Share premiums 83,786.8 83,786.8 Legal reserve 833.4 - Other reserves -- Retained earnings 343.2 343.2 Income (loss) for the period 2,749.3 833.4 EQUITY 113,120.5 110,371.2 PROVISIONS FOR RISKS AND CHARGES - Bonds -- Bank borrowings --3 Other borrowings -2.3 Suppliers 365.2 648.5 Tax and social debts 625.5 344.8 Other liabilities 3,014.5 - TOTAL DEBT 4,005.2 995.6 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 117,125.7 111,366.8
3.2.3 Change in cash and cash equivalents
(in thousands of euros) 2018 2017 NET INCOME 2,749.3 833.4 Accruals 3.4 2.6 Capital gains and losses on disposals -- Other -- CASH FLOW FROM OPERATING ACTIVITIES 2,752.7 836.0 Change in working capital requirements (8,824.2) (10,727.6) NET CASH FLOW FROM OPERATING ACTIVITIES (A) (6,071.5) (9,891.6) Investing activities Payments/acquisition of intangible assets (80.0) - Payments/acquisition of property, plant and equipment (5.0) - Proceeds/disposal of property, plant and equipment and intangible assets - - Payments/acquisition of long-term investments (12,286.3) (10,690.2) Proceeds/disposal of long-term investments - 0.2 NET CASH FLOW FROM INVESTING ACTIVITIES (B) (12,371.3) (10,690.0) Financing activities Capital increase or contributions - 62,482.1 Dividends paid -- Proceeds from borrowings -- Repayment of borrowings - (10,000.0) Change in other debt - (377.4) NET CASH FLOW FROM FINANCING ACTIVITIES (C) - 52,104.7 CHANGE IN CASH AND CASH EQUIVALENTS (D = A + B + C) (18,442.8) 31,523.1 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 33,997.6 2,474.5 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 15,554.7 33,997.6
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3.2.4 Notes to the parent company financial statements
NOTEd1 Accounting principles 107 NOTEd5 Notes to the balance sheet 109 5.1Non-current assets 109 NOTEd2 Significant events of the year 107 5.2Statement of operating and other receivables 110 5.3Equity 110 NOTEd3 Notes to the income statement 107 5.4Net debt 111 3.1Operating income 107 5.5Operating payables and other liabilities 111 3.2Operating expenses 107 3.3statutory auditors’ fees 107 NOTEd6 Transactions with affiliate companies 3.4Directors' remuneration 107 and related parties 111 3.5Financial result 108 3.6Income tax 108 NOTEd7 Off-balance sheet commitments 112 7.1 Off-balance sheet commitments related to NOTEd4 Notes to the cash flow statement 109 ordinary activities 112 4.1Cash flows from operating activities 109 7.2Complex commitments 112 4.2Cash flows from investing activities 109 7.3Commitments received 112 4.3Cash flows from financing activities 109 7.4Financial covenants 112 7.5Pledges, guarantees and sureties 112
NOTEd8 Subsidiaries and equity interests 113
NOTEd9 Other information 114
The notes, tables and comments referenced below in the list of contents to the Notes are an integral part of the annual financial statements. The financial year covers the 12 months from 1 January to 31 December 2018. The financial statement (balance sheet, income statement) presented is as follows: z the net balance sheet total for the year ended 31 December 2018 is €117,125,636.83; z the income statement presented in list form shows a profit of €2,749,344.25. The Board of Directors approved the separate financial statements of PRODWAYS GROUP on 1 April 2019. They are subject to the approval of the shareholders' meeting of 7 June 2019.
106 PRODWAYS GROUP - 2018 ANNUAL REPORT FINANCIAL AND ACCOUNTING INFORMATION Separate financial statements 2018
Noted1 Accounting principles
The separate financial statements were prepared in accordance with (French association of chartered accountants) and the Compagnie the French Commercial Code, the accounting decree of nationale des Commissaires aux comptes (French national institution of 29 November 1983 and Regulation 2014-03 issued by the ANC statutory auditors) have been applied. (French accounting standards Board) on the revised French GAAP, as The basic method used to value items in the financial statements is amended by ANC regulations 2016-06, 2016-07, 2017-01 and the historical cost method. 2018-07, applicable at year-end, with the following assumptions: Generally accepted accounting principles have been applied in z going concern; accordance with French legislation in effect on the reporting date. z consistency of accounting methods; The accounting rules and methods applied are identical to those used z separateness of accounting periods. in the previous financial year. The recommendations of the Autorité des normes comptables (French accounting standards authority), the Ordre des experts comptables
Noted2 Significant events of the year 3
2017 was marked by the initial public offering of PRODWAYS In April 2018, PRODWAYS GROUP increased its stake in the share GROUP in May 2017 and the acquisitions of IP GESTION and its capital of VARIA 3D in the United States, which specialises in the wholly-owned subsidiary INTERSON PROTAC in the audiology design and manufacture of parts on demand. sector, and the AVENAO Group, an integrator of software for 3D In July 2018, PRODWAYS GROUP acquired 100% of the share design, simulation and optimisation. capital of SOLIDSCAPE, a major player in 3D printing, specialised in machines for high-precision casting, particularly in jewellery.
Noted3 Notes to the income statement
3.1 Operating income 3.3 statutory auditors’ fees PRODWAYS GROUP had revenue of €1,702.1 thousand in the The fees for PRODWAYS GROUP’s statutory auditors in 2018 were form of services invoiced to its subsidiaries, including €140.1 €103 thousand. thousand exported.
3.4 Directors' remuneration 3.2 Operating expenses The members of PRODWAYS GROUP’s Board of Directors did not Operating expenses were €2,378.5 thousand, consisting primarily of: receive any attendance fees. z services of €609 thousand invoiced by GROUPE GORGÉ, the The corporate officers received gross overall remuneration of €92 main shareholder; thousand (fixed remuneration of Raphaël GORGÉ and Olivier z fees of €760 thousand; STREBELLE) during the 2018 financial year. Olivier STREBELLE was only remunerated by the Company from December 2018. Previously, personnel expenses of €718 thousand; z he was remunerated by GROUPE GORGÉ, the controlling company z travel expenses of €136 thousand of PRODWAYS GROUP. Raphaël GORGÉ was only remunerated by the Company from April 2018. He is also remunerated by Average workforce over the financial year is broken down as follows: GROUPE GORGÉ.
2018 2017 Average workforce employed 3 2 of which executives and higher professional positions 3 2 of which technicians and supervisors - -
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3.5 Financial result 3.6 Income tax Since 1 January 2017, PRODWAYS GROUP and its subsidiaries are (in thousands of euros) 2018 2017 no longer included in the tax consolidation group constituted by Investment income(1) 2,462.5 1,495.4 GROUPE GORGÉ. The losses transferred by these companies (€16,419 thousand in total) could be compensated, depending on Net income from financial investments and their use. interest on current accounts 267.6 83.9 Interest expense (138.6) (103.7) FINANCIAL INCOME BEFORE PROVISIONS 2,591.5 1,475.6 Reversals of provisions for impairment 10.7 - Provisions for impairment (19.8) (10.7) FINANCIAL RESULT 2,582.4 1,464.9 (1) Investment income consists of dividends received in 2018 from subsidiaries IP GESTION, AS3D and INITIAL.
From 1 January 2018, PRODWAYS GROUP SA has been solely liable for income tax as head of the tax consolidation group formed by itself and the following subsidiaries:
Company Date of entry PRODWAYS 1 January 2018 PRODWAYS ENTREPRENEURS 1 January 2018 PRODWAYS DISTRIBUTION 1 January 2018 INITIAL 1 January 2018 EXCELTEC 1 January 2018 PRODWAYS RAPID ADDITIVE FORGING 1 January 2018 PRODWAYS 2 1 January 2018 3D SERVICAD 1 January 2018 AVENAO SOLUTIONS 3D 1 January 2018 AVENAO INDUSTRIE 1 January 2018
At 31 December 2018, the taxable income of the consolidated group is a loss carryforward of €5,596 thousand. Income resulting from the tax consolidation of €811 thousand was recognised.
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Noted4 Notes to the cash flow statement
4.1 Cash flows from operating activities 4.3 Cash flows from financing activities Change in working capital requirements amounted to -€8,824.1 No financing transactions were carried out during the financial year thousand. This requirement is explained in particular by the increase 2018. in net outstandings of subsidiaries' current accounts of €7,349.5 As a reminder, PRODWAYS GROUP had its initial public offering on thousand (including the tax integration current accounts for €175.0 the Euronext Paris Compartment B in May 2017 (its information thousand). The €1,076.0 thousand increase in trade receivables is document was filed with the French Financial Markets Authority on completes this explanation. 23 March 2017 under number I. 17-008 and its prospectus was authorised by the AMF on 25 April 2017 under number 17–174). A total amount of €62,482 thousand was raised (after share issue 4.2 Cash flows from investing activities expenses), taking into account convertible bonds subscribed prior to the capital increase. In 2018, PRODWAYS GROUP acquired shares of VARIA 3D to become the majority shareholder and acquired SOLIDSCAPE. The In 2016, PRODWAYS GROUP took out a €10 million bank loan Company also had a €2 thousand equity investment in the creation repayable in four annual instalments from 2019. 3 of the property investment company SCI CHAVANOD, to acquire a This loan was fully paid off in September 2017 following the capital building to accommodate the Group's companies. The total paid for increase in May 2017 undertaken to avoid interest charges. At the these transactions was €12,059.5 thousand. Added to this amount is same time a credit facility for the same amount was taken out with the payment of deposits and guarantees for €226.8 thousand. the same institution allowing drawdowns at any time. The amount In 2017, PRODWAYS GROUP acquired IP Gestion and AS3D. The authorised under this credit facility will decline by a quarter from total paid for these transactions was €10,685.7 thousand. The 2019 according to the same schedule as the annual instalments on Company also provided 90% of the share capital, i.e. €4.5 thousand, the initial loan. to create PRODWAYS CONSEIL.
Noted5 Notes to the balance sheet
5.1 Non-current assets acquire the securities. Value after tax is estimated according to the value of the share of equity of the relevant entities at year-end as Equity securities are recognised on the balance sheet at their well as their income and short-term earnings outlook. This involves acquisition cost less any necessary estimated impairment. using cash flow projections or any other method. An impairment may be recognised based on the value after tax of the securities, which represents the acceptable value payable to
Start of the Gross values (in thousands of euros) period Increase Decrease End of period INTANGIBLE ASSETS Industrial know-how - 80.0 - 80.0 PROPERTY, PLANT AND EQUIPMENT Office and computer equipment 7.0 5.0 - 12.0 LONG-TERM INVESTMENTS Equity securities 65,265.2 15,129.6 - 80,394.8 Loans ---- Other long-term investments 3.9 226.8 - 230.7 TOTAL 65,276.1 15,441.4 - 80,717.5
The main increases in the financial year were as follows (in thousands of euros): z acquisition of the balance of 25% of VARIA 3D shares: 332.0; z acquisition of 100% of SOLIDSCAPE: 11,725.6; z share capital increase PRODWAYS RAPID ADDITIVE FORGING: 570.0 by capitalisation of receivables; z earn-out on the AVENAO Group: 2,500.0 not disbursed on 31/12/2018; z investment in SCI Chavanod at its creation €2,000.
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5.2 Statement of operating and other receivables Maturity of receivables
Due within 1 Due in more (in thousands of euros) Gross amount year than 1 year Loans --- Receivables related to shareholdings - - - Other long-term investments 230.7 - 230.7 Other trade receivables 2,434.1 2,434.1 - Social Security and other organisations 4.9 4.9 - State and other government authorities:
z income tax 635.8 - 635.8
z value-added tax 113.0 113.0 - Group and associated companies 17,663.7 - 17,663.7 Other receivables --- Prepaid expenses 9.6 9.6 - TOTAL 21,091.8 2,561.6 18,530.2
The item “Group and associated companies” includes current account advances granted to subsidiaries, as well as compensation for tax on subsidiaries, related to the tax integration within the Group. Accrued income: none.
5.3 Equity 5.3.1 Change in equity
Capital Beginning of increase or Appropriation of Payment of (in thousands of euros) period decrease income dividends End of period Capital 25,407.8 - - - 25,407.8 Share premiums 83,786.8 - - - 83,786.8 Legal reserve - - 833.4 - 833.4 Other reserves - - - - - Retained earnings 343.2 - - - 343.2 N-1 income 833.4 - (833.4) - - TOTAL 110,371.2 - - - 110,371.2 Income (loss) for the period 2,749.3 TOTAL EQUITY AT END OF PERIOD 113,120.5
At 31 December 2018, the share capital of PRODWAYS GROUP was allocated at least 200 potential shares in February and was made up of 50,815,643 shares at a par value of €0.5 amounting December. The vesting of these shares is subject to the Group to €25,407,821.50. achieving its performance targets and on continued employment with the Group. Given cancellations already made, these two plans 5.3.2 Potential shares together represent a total of 262,380 potential shares, now only In February and December 2016, PRODWAYS GROUP issued free linked to presence conditions. share allocation plans for Group employees. Each employee present
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5.4 Net debt PRODWAYS GROUP holds 49,723 treasury shares under its liquidity contract managed by Portzamparc. On 31 December 2018, 5.4.1 Available cash the value of the shares held stood at €148.1 thousand. Comparison Where applicable, marketable securities are recognised on the with the closing rate led the Company to recognise a provision for balance sheet at their acquisition cost. Accrued interest earned on impairment of €19.8 thousand. term accounts is recorded under investment income. A provision for impairment is recognised when the net asset value is less than the 5.4.2 Financial debt acquisition cost. In June 2016, the Company took out a €10 million loan with LCL The “Cash and cash equivalents” line on the assets side of the bank. This loan was fully paid off in September 2017. A credit facility balance sheet, with a net value of €15,554.8 thousand at for the same amount was taken out with the same institution 31 December 2018, comprises cash current accounts in the amount allowing drawdowns at any time. of €13,421.5 thousand.
5.5 Operating payables and other liabilities Schedule of debts 3
At more than one (in thousands of euros) Gross amount Due within 1 year year Trade payables 365.2 365.2 - Employees 136.7 136.7 - Social Security and other social services 99.5 99.5 - State and other government authorities: z income tax --- z value-added tax 381.4 381.4 - z other taxes and similar payments 7.9 7.9 - Group and associated companies 512.2 - 512.2 Other liabilities 2,502.3 2,502.3 - TOTAL 4,005.2 3,493.0 512.2
The “Other debts” include the €2,500.0 thousand earn-out to be paid at the beginning of 2019 to the former shareholders of the AVENAO group. Accrued liabilities: €464 thousand.
Noted6 Transactions with affiliate companies and related parties
Related parties are persons (Directors or managers of PRODWAYS GROUP or its main subsidiaries) or entities owned or managed by these persons. All transactions between related companies and parties are catted out under normal market terms and conditions. The net amounts for related undertakings included in PRODWAYS GROUP SA’s balance sheet and income statement items for the year ended 31 December 2018 are as follows:
(in thousands of euros) Subsidiaries GROUPE GORGÉ STATEMENT OF FINANCIAL POSITION Deposits - - 1.9 Net trade receivables and related accounts - 2,434.1 - Current accounts receivable - 17,663.7 - Suppliers - 22.4 1.8 Current accounts payable - 512.2 - INCOME STATEMENT Operating income - 1,733.0 - Purchases and external charges - 23.9 612.7 Investment income - 2,462.5 - Other financial income - 197.5 - Financial expense - - -
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Noted7 Off-balance sheet commitments
7.1 Off-balance sheet commitments related to with a term of two to three years depending on the nature of any ordinary activities claim. This guarantee is capped at €2,000 thousand. The Group did not call the guarantee. None In 2018, PRODWAYS GROUP acquired all shares making up the share capital of SOLIDSCAPE. The vendors granted an assets and liabilities guarantee with duration of 18 months to 8 years depending 7.2 Complex commitments on the nature of any claim. This guarantee is limited to $1 million or the acquisition price according to the nature of the claims. The In March 2015, PRODWAYS GROUP acquired all the shares making Group did not call the guarantee. up the share capital of INITIAL SAS. The vendor granted an assets and liabilities guarantee with a term of 2 to 3 years depending on the nature of any claim. This guarantee is capped at €2,500 thousand in 7.3 Commitments received the first year, after which it will be reduced to €1,250 thousand. The Group did not call the guarantee, which has now expired. PRODWAYS GROUP has a confirmed credit facility of €10 million Within PODO 3D, CRISTAL, IP GESTION and VARIA 3D, which has not yet been used. This facility is confirmed up to PRODWAYS GROUP is associated with minority shareholders who June 2019 and thereafter on a declining basis for €2.5 million per year are managers of those companies. In certain cases, shareholders' up to December 2022. agreements provide for the potential liquidity of their holdings. In 2107, PRODWAYS GROUP acquired 75% of the shares comprising the share capital of IP GESTION SAS, which was itself the 7.4 Financial covenants sole shareholder of INTERSON PROTAC. The vendors granted an PRODWAYS GROUP’s confirmed credit facility is accompanied by a assets and liabilities guarantee with a term of three years. This change of control clause and a financial covenant which applies in the guarantee is capped at €733 thousand in the first eighteen months event of a drawdown. after which it will be reduced to €367 thousand for the following eighteen months. The Group did not call the guarantee. In 2017, PRODWAYS GROUP acquired all of the shares comprising 7.5 Pledges, guarantees and sureties the share capital of AS3D, 3D SERVICAD, and AVENAO INDUSTRIE. The vendors granted an assets and liabilities guarantee None
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Noted8 Subsidiaries and equity interests
Capital Share Gross value of shares Loans, advances Revenues (in thousands of euros) Equity Dividends Net value of securities Warranties Income DELTAMED 27.0 100% 7,065.9 - 4,700.3 3,130.7 - 7,065.9 - 654.6 PRODWAYS ENTREPRENEURS 701.0 100% 701.0 187.2 - 599.8 - 701.0 - (9.5) PRODWAYS 6,426.7 100% 26,750.0 13,229.1 8,188.0 (6,307.6) - 26,750.0 - (6,610.6) INITIAL 400.0 100% 12,000.0 - 11,970.5 2,268.3 750.0 12,000.0 - (257.3) 3 PRODWAYS DISTRIBUTION 1.0 100% 1.0 10.5 - (10.4) - 1.0 - (1.0) VARIA 3D 525.7 70% 978.9 - 388.8 287.2 - 978.9 - (90.6) EXCELTEC 20.0 100% 250.0 186.3 572.3 24.6 - 250.0 - 45.8 PODO 3D 27.9 82.1% 680.0 1,651.5 1,108.1 (1,362.7) - 680.0 - (874.6) CRISTAL 500 95% 475.0 1,040.9 4,674.2 (277.2) - 475.0 - (719.2) PRODWAYS Rapid Additive Forging 575.0 100% 575.0 566.7 261.6 580.0 - 575.0 - 11.6 PRODWAYS 2 5.0 100% 5.0 2.5 - (2.0) - 5.0 - (2.2) PRODWAYS CONSEIL 5.0 90% 4.5 101.7 142.7 (61.0) 4.5 - 78.2 IP GESTION 592.0 75% 2,714.4 - - 1,024.3 112.5 2,714.4 - 197.7 AS3D 20.8 100% 16,466.5 - 17,648.0 3,357.5 1,600.0 16,466.5 - 1,725.5 SOLIDSCAPE 28,930.2 100% 11,725.6 - 3,751.1 (since 14 July 2018) 3,847.0 - 11,725.6 - (518.3) SCI CHAVANOD 2.0 99.95% 2.0 - - (since 13 September 2018) 2.0 - 2.0 - -
PRODWAYS GROUP - 2018 ANNUAL REPORT 113 FINANCIAL AND ACCOUNTING INFORMATION 3 Separate financial statements 2018
Noted9 Other information
9.1 Identity of the consolidating parent company On 31 January 2019, PRODWAYS GROUP issued a free share allocation plan in two tranches, in favour of Group employees. Under PRODWAYS GROUP prepares consolidated financial statements. a collective plan, each employee of a French company is allocated at The financial statements of PRODWAYS GROUP are in turn least 50 potential shares subject only to a presence condition. Under consolidated by GROUPE GORGÉ, a société anonyme (public limited a selective plan reserved for 50 persons, 783,000 shares were company) with a Board of Directors and share capital of €13,502,843 allocated, with the vesting of these shares being subject to the domiciled at 19 rue du Quatre-Septembre 75002 Paris. achievement of the Group's performance objectives in 2019, 2020 and 2021 and to presence conditions. These two plans together represent a total of 802,800 potential shares. 9.2 Subsequent events There were no other significant events occurring between Since January 2019, PRODWAYS GROUP acquired Embout Français 31 December 2018 and the date of the meeting of the Board of and Surdifuse, specialised in the manufacture of hearing aids. This Directors which approved the separate financial statements. strengthened the position of the Group in this sector after the acquisition of IP GESTION and its subsidiary INTERSON PROTAC in summer 2017.
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3.2.5 Statutory auditors’ report on the separate financial statements To the Shareholders,
Opinion In application of the assignment entrusted to us by your Articles of Association and shareholders' meeting, we have conducted an audit of the PRODWAYS GROUP financial statements in respect of the year ended 31 December 2018, which are appended hereto. We hereby certify that the financial statements give a true and fair view of the assets and liabilities and of the financial position of the Company as at 31 December 2016 and of the results of its operations for the year then ended in accordance with French accounting principles.
Basis of the opinion Audit framework We conducted our review 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 audit opinion. Our responsibilities in view of these standards are set out in the section entitled “statutory auditors’ responsibilities regarding the audit of the separate financial statements” in this report. 3 Independence We conducted our audit in accordance with the rules of independence governing our assignments, for the period from 1 January 2018 to the date on which our report was issued; in particular, we did not render any services prohibited by article 5, paragraph 1 of EU Regulation N° 537/2014 or by the Code of ethics governing statutory auditors.
Justification of our assessment - Key audit points Pursuant to the provisions of articles L.823-9 and R.823-7 of the French Commercial Code on the justification of our assessments, we hereby inform you of the key audit points relating to risks of material misstatements which, in our professional judgement, were most significant for the audit of the financial statements for the year, as well as our responses to address such risks. These assessments were made as part of the audit of the financial statements, taken as a whole, and of the opinion we formed and expressed above. We have not expressed an opinion on individual elements contained in these financial statements.
Assessment of equity securities As at 31 December 2018, equity securities were recorded on the balance sheet with a total net carrying value of €80.4 million, representing 69% of total assets. They are recognised on the date of purchase at their acquisition cost. When the value in use of securities is lower than their net carrying value, a provision for impairment is recorded for the difference. Value in use is determined, where applicable, based on: z the value of the share of equity of the investment; z an analysis of the short and medium-term results and profitability outlook of the investment, in particular through the use of cash flow projections. Estimating the value in use of these securities therefore requires management to exercise its judgement in selecting the items to consider, depending on the investments concerned. In this respect, we considered the estimation of the value in use of equity securities a key audit point, given the representation of equity investments on the balance sheet and inherent uncertainty linked to the likelihood of forecasts used to determine the value in use actually materialising.
Audit procedures implemented to address identified risks Our work consisted in: z assessing the appropriateness of the valuation method applied by management, the assumptions and the figures used; z comparing the data used to conduct impairment testing of securities with accounting data, where applicable; z where relevant, assessing the consistency of management's cash flow projections with subsidiaries' past performances. We also verified the appropriateness of the information presented in Section 5.1 “Non-current assets” in the notes to the separate financial statements.
Specific Verifications We have also performed, in accordance with professional standards applicable in France, the specific verifications required by French law and regulations.
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Information provided in the management report and in the other documents with respect to the financial position and the financial statements We have no matters to report as to the fair presentation and consistency with the financial statements of the information given in the management report from the Board of Directors, and in the other documents sent to shareholders with respect to the financial position and the financial statements. In application of the law, we hereby inform you that the information relative to customer payment terms specified by article D. 441-4 of the French Commercial Code, taken in application of article L. 441-6-1 of the said Code, is incompletely discussed in the management report. Consequently, we cannot attest to their accuracy and fair presentation or their agreement with the separate financial statements. Corporate governance report We hereby certify the inclusion, in the Board of Directors' report on corporate governance, of information required by articles L. 225-37-3 and L. 225-37-4 of the French Commercial Code. Concerning the information given pursuant to the requirements of article L. 225-37-3 of the French Commercial Code 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 companies controlling or controlled by your Company. Based on this work, we attest the accuracy and fair presentation of this information. Concerning the information relating to factors that your Company considers likely to have an impact in the event of a public tender or exchange offer, provided in application of the provisions of article L. 225-37-5 of the French Commercial Code, we verified its compliance with the documents from which it was taken and which were provided to us. On the basis of this work, we have no observations to make regarding this information.
Other information Pursuant to French law, we have verified that the required information concerning the acquisition and takeover of control and the identity of shareholders and holders of the voting rights has been properly disclosed in the management report.
Information resulting from other legal and regulatory obligations Appointment of statutory auditors We were appointed statutory auditors of PRODWAYS GROUP by the Articles of Association of 13 March 2014, for RSM Paris and by the ordinary shareholders' meeting of 5 May 2017 for PricewaterhouseCoopers Audit. At 31 December 2018, RSM Paris was in the fifth year of its assignment without interruption, and PricewaterhouseCoopers Audit in its second year, and two years for each firm since the Company's securities were admitted for trading on a regulated market.
Responsibilities of management and those in charge of corporate governance in relation to the separate financial statements It is management’s responsibility to prepare fair and accurate separate financial statements in compliance with French accounting principles, and to implement the internal control procedures that it deems necessary for the preparation of separate financial statements free of any material misstatements, whether resulting from fraud or errors. In preparing the financial statements, it is management’s responsibility to assess the Company's ability to continue as a going concern, to present, where relevant, the necessary information relating to the going concern and to apply the going concern principle of accounting, unless there are plans to liquidate or cease the Company's activity. These financial statements have been approved by the Board of Directors.
Statutory auditors’ responsibilities regarding the audit of the separate financial statements Audit objective and approach We are tasked with preparing a report on the financial statements. Our objective is to obtain reasonable assurance that the financial statements, taken as a whole, are free of material misstatements. Reasonable assurance means a high level of assurance, however without any guarantee that an audit conducted in accordance with professional standards will systematically detect any material misstatement. Misstatements may be the result of fraud or errors, and are considered material when, individually or combined, they can be reasonably expected to impact economic decisions taken based on the financial statements. As set out in article L.823-10-1 of the French Commercial Code, our assignment to certify the financial statements does not involve guaranteeing the sustainability or quality of the management of your Company.
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As part of an audit conducted in accordance with professional standards applicable in France, the Statutory Auditor exercise their professional judgement throughout the entire audit. Furthermore: z identifies and assesses the risk of material misstatement in the financial statements, whether the result of fraud or errors, defines and implements audit procedures to address such risks, and gathers adequate and appropriate information on which to form an opinion. The risk of not detecting a material misstatement resulting from fraud is higher than that of a material misstatement resulting from an error, given that fraud may imply collusion, falsification, wilful omissions, false statements or the circumvention of internal control; z acknowledges internal control processes relevant to the audit, in order to define suitable audit procedures, and not for the purpose of expressing an opinion on the effectiveness of such internal control; z assesses the appropriateness of the accounting methods adopted and the soundness of accounting estimates made by management, as well as information concerning them provided in the financial statements; z assesses the appropriateness of management's application of the going concern principle and, based on the information obtained, whether there is significant uncertainty with regard to events or circumstances that could jeopardise the Company's ability to continue as a going concern. This assessment is founded on information obtained up until the date of the report, it being specified, however, that subsequent circumstances or events may jeopardise business continuity. If the auditor identifies significant uncertainty, they highlight such uncertainty in their report by drawing readers' attention to the corresponding information presented in the financial statements, or, if this information has not been provided or is not relevant, issues certification with reserves or a refusal to certify; 3 z assesses the overall presentation of the financial statements and determines whether they provide a true and fair reflection of the underlying transactions and events.
Paris and Neuilly-sur-Seine, 11 April 2019
The statutory auditors
RSM Paris Statutory Auditing Company PRICEWATERHOUSECOOPERS AUDIT Member of the Compagnie Régionale de Paris Statutory Auditing Company Stéphane MARIE Member of the Compagnie Régionale de Versailles Partner
PRODWAYS GROUP - 2018 ANNUAL REPORT 117 118 PRODWAYS GROUP - 2018 ANNUAL REPORT INFORMATIONdABOUT THEdCOMPANY,dITS SHAREdCAPITALdAND SHAREHOLDERS
4.1INFORMATION ABOUT THE COMPANY 120 4.3SHAREHOLDING 128
4.1.1General information 120 4.3.1 Breakdown of share capital and voting 4.1.2 Corporate charter and Articles of rights 128 Association 120 4.3.2Voting rights of the major shareholders 128 4.3.3Controlling shareholders 128 4.2SHARE CAPITAL 122 4.3.4 Information liable to have an impact in the event of a public offer 128 4.2.1 Total subscribed share capital and potential share capital 122 4.3.5Employee shareholding 128 4.2.2Treasury shares 124 4.2.3 Additional information on the share 4.4 FINANCIAL COMMUNICATION (FINANCIAL capital 125 AGENDA, SHARE PERFORMANCE, DIVIDEND POLICY, ETC.) 129
4.4.1Stock market information 129 4.4.2Dividend policy 129 4.4.3Information documents 130
PRODWAYS GROUP - 2018 ANNUAL REPORT 119 INFORMATIONdABOUT THEdCOMPANY,dITS SHAREdCAPITALdAND SHAREHOLDERS 4 Information about the Company
4.1 INFORMATION ABOUT THE COMPANY
4.1.1 General information Provisions of the Articles of Association, a charter or regulations related to the members of administrative, Company name management and supervisory bodies The Company’s name is PRODWAYS GROUP. The Articles of Association of PRODWAYS GROUP stipulate that the Board of Directors consists of three members at least and 18 at Place of registration and registration number the most, except where this is waived pursuant to the law in the The Company is registered with the Paris Trade and Companies event of a merger. Register under number 801 018 773. Throughout the Company’s lifetime, Directors are appointed, Code ISIN FR0012613610 – PWG reappointed or removed by the ordinary shareholders’ meeting. They may always be re-elected for new terms. Date of incorporation and term Each Director serves for a term of three years that ends after the The Company was incorporated on 7 March 2014 for a period of 99 ordinary shareholders’ meeting called for the purpose of approving years from the date of its registration with the Trade and Companies the financial statements of the preceding financial year and held in the Register on 13 March 2014, i.e. until 12 March 2113, except in the year in which their term expires. event of extension or early dissolution. Directors can be natural or legal persons. At the time of appointment, legal persons must appoint a permanent representative Registered office, legal form and applicable law who is subject to the same conditions and obligations and incurs the The Company is a société anonyme (public limited company) with a same liability as if he or she were a Director in his/her own name, Board of Directors governed by French law whose operation is without prejudice to the joint and several liability of the legal entity he primarily subject to articles L.225-1 et seq. of the French Commercial or she represents. Code. The Article of Association allow, as the case may be, the The head office of the Company is located at 19 rue du appointment of employee Directors on the Board of Directors. Quatre-Septembre, 75002 Paris, France. The Board of Directors elects a Chairman among its members who The contact information for the Company is as follows: are natural persons. The Board of Directors sets the Chairman’s Telephone: +33 (0) 1 44 77 94 77 compensation and the length of tenure, which cannot exceed his/her Fax: +33 (0) 1 44 77 89 77 term of office as Director. article 14 of the Articles of Association sets a maximum age limit for the Chairman (75 years old). Email: [email protected] The Board of Directors prepares and presents the half-yearly and Website: www.prodways-group.com annual financial statements and convenes the shareholders’ meetings. Meetings of the Board of Directors may be held as often as is necessary in the Company’s interest. The Internal Regulations provide 4.1.2 Corporate charter and Articles of that meetings may be held by videoconference or by other telecommunication means in accordance with the regulatory Association requirements for holding meetings. Corporate object Quorum is achieved by half of the members of the Board of As set forth in (article 3 of the Articles of Association), the Directors and decisions are made by a majority vote of the members Company’s purpose is: in attendance or represented by other Directors of the Board. z the acquisition for its own account by purchase, subscription, The Directors’ powers are those as defined by law and have not exchange or otherwise and management of capital investments in been limited either by statute or at the time of appointment by the any French or foreign company existing now or in the future Board of Directors. regardless of their legal form or purpose; The Chief Executive Officer may be assisted by the Deputy Chief z any provision of service or advice in any field to its investees and Executive Officers who are vested with the same powers. If the Chief subsidiaries, including any hiring of personnel, in particular for its Executive Officer is a Director, he or she is appointed for the length subsidiaries and investees; of his or her term of office as Director. The same applies for the Deputy Chief Executive Officer. z and generally enter into any transactions that are directly or indirectly related to these purposes or to similar or related purposes or that might aid in their application or development.
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Rights, privileges and restrictions attaching to each class of identification process guaranteeing its connection with the instrument existing shares to which it relates. There are no privileges or restrictions attached to certain shares or All shareholders have the right to access the documents required to classes of shares. be able to make an informed decision on the Company’s management and situation. “With respect to the percentage of share capital that they represent, double voting rights are conferred upon all fully paid-up shares which The laws and regulations determine the type of documents as well as have been held in registered form for at least two(2) years in the how they are sent and made available to shareholders. name of the same holder. In the event of a share capital increase by The officers of the meeting certify as accurate the attendance sheet, incorporating reserves, profits or premiums, this double voting right duly signed by the attending shareholders and their proxies and to will be attached on the date of their issuance to the new registered which shall be appended the powers of attorney awarded to each shares allotted free of charge to a shareholder in consideration for proxy and, where applicable, the vote-by-mail forms. the old shares giving rise to such right.”(Extract from article 12 of the The meetings are presided over by the Chairman of the Board of Articles of Association). Directors or, in his or her absence, by a Deputy Chairman or another Director specially appointed for this purpose by the Board. Failing Steps necessary to amend shareholders’ rights such measures, the shareholders’ meeting appoints the Chairman of The shareholders’ rights may be amended by an extraordinary the meeting itself. shareholders’ meeting and, where necessary, after having been The duties of scrutineer shall be performed by the two shareholders, ratified by the special shareholders’ meeting for shareholders present and accepting such duties, who hold the largest number of benefiting from special advantages. shares, either on their own behalf or as proxy-holders. The officers so appointed shall appoint the Secretary, who does not need to be a General shareholders’ meetings shareholder. Shareholders’ meetings are convened and deliberate under the terms The minutes of the meetings will be prepared and copies or excerpts and conditions set by the law. of the proceedings will be certified in accordance with law. Shareholder resolutions are made at ordinary, extraordinary or Ordinary and extraordinary shareholders’ meetings, acting according special shareholders’ meetings depending on the type of decision. to the corresponding conditions of quorum and majority required by Shareholders’ meetings are convened by the Board of Directors, or, legal provisions, shall exercise the powers conferred on them by law.” 4 failing that, by those individuals named by the French Commercial (Extract from article 23 of the Articles of Association) Code, particularly the statutory auditors or a court-appointed agent as provided by law. Crossing of ownership thresholds Meetings are held at the head office or in any other location stated in The Company’s Articles of Association include an obligation to the convocation. report crossing the thresholds of 2%, 3% and 4%. Shareholders’ meetings are convened as provided by the regulations “In addition to the applicable regulation governing the crossing of in force. thresholds, any physical or legal person who, alone or together, Any shareholder, regardless of the number of shares he or she holds, comes to hold or ceases to hold, in any manner whatsoever, a has the right to attend and vote at the shareholders’ meetings, number of shares representing more than 2%, 3% or 4% of the whether in person, by proxy, or by remote voting, under the capital or voting rights, is required to notify the Company within a conditions and within the time limits laid down by the regulations in period of ten calendar days from the crossing of one of these force. thresholds, of the number of shares, securities giving access to the Shareholders may, under the conditions laid down by the legislation capital and voting rights attached thereto, that it holds. For the in force, send their voting form by mail for any shareholders’ meeting, purposes of application of this statutory obligation, the participation either as a printed paper copy or, on a decision by the Board of thresholds are determined under the same conditions as legal Directors recorded in the meeting notice and the convening notice, participation thresholds. as an electronic copy. In the event of non-compliance with the statutory requirement, the Shareholders may, on a decision by the Board of Directors, attend shares exceeding the undeclared fraction shall be deprived of voting and vote at any shareholders’ meeting by means of video-conference rights for any shareholders’ meeting held up until the expiry of a or any means of telecommunication, under the conditions laid down period of two years following the date of regularisation, at the by the regulations in force. This decision is included in the meeting request, recorded in the minutes of the shareholders’ meeting, of one notice published in the Bulletin des Annonces Légales Obligatoires or more shareholders holding 5% at least of the share capital.” (B.A.L.O.). These shareholders are thereupon considered to be in (Extract from article 10 of the Articles of Association) attendance at the meeting, for the purpose of counting the quorum and majority. Terms and conditions in the Company’s Articles of Postal voting forms and proxies granted to be represented at a Association regarding modifications to share capital which meeting may include an electronic signature by the shareholder or his are more restrictive than the law or her legal or court-appointed representative, in the form of a The Company’s Articles of Association do not contain any provisions process in compliance with the requirements of article 1316-4, concerning modifications of share capital which are more restrictive sub-paragraph 2, of the French Civil Code, namely a reliable than those provided under the law.
PRODWAYS GROUP - 2018 ANNUAL REPORT 121 INFORMATIONdABOUT THEdCOMPANY,dITS SHAREdCAPITALdAND SHAREHOLDERS 4 Share capital
4.2 SHARE CAPITAL
4.2.1 Total subscribed share capital and Allocations of free shares potential share capital 1/ Plans in effect at 31 December 2018 Free share allocation plans were set up in February and At 31 December 2018, the Company’s share capital was December 2016. As at 2 April 2019, under these plans, there are €25,407,821.50 divided into 50,815,643 fully paid-up shares, each 262,380 potential shares for which the performance conditions have with a par value of €0.50. been met. These shares will vest to the beneficiaries who fulfil the continued employment condition at 15 April 2019.
FREE SHARES Date of general shareholders’ meeting authorising the Free 28 September 2015 Shares allocations Date of the Board of Directors’ vote to grant the Free Shares 17 February 2016 9 December 2016 9 December 2016 (plan effective as of (plan effective as of 9 December 2016) 30 December 2016) Maximum number of shares authorised 5% of the share capital at the date of grant Number of free shares allocated 632,200 478,400 10,100 of which total number that may be acquired by the current --- corporate officers of the Company Number of recipients not corporate officers (at first) 198 237 1 Dates and terms of vesting See below See below See below Cumulative number of allocated free shares cancelled 632,200 18,000 - or voided Number of free shares outstanding at 31 December 2018 - 252,280 10,100
Free shares known as Performance Shares are subject to the Performance condition following conditions: Vesting of the Performance Shares is subject to (i) fulfilling performance conditions related to Group’s revenues and EBITDA in a) Vesting period the IFRS consolidated financial statements of the Group for financial The Vesting Period ends on 15 April 2019. years 2016, 2017 and 2018 and (ii) for certain beneficiaries named by Provided the vesting conditions referred to in Section (b) below are the Board of Directors and for only a portion of the Performance met, the performance shares will vest on the first business day Shares granted to them, the Company's market capitalisation. following the expiration of the Vesting Period (the “Vesting Date”). The performance condition was met with respect to performance for the 2017 financial year and the Company's market capitalisation. b) Vesting conditions Continued employment condition The vesting of the performance shares on the Vesting Date is subject to meeting the cumulative conditions as to liquidity, performance and Unless the Board of Directors decides otherwise, the performance continued employment (the “Vesting Conditions”). shares will vest only if the recipient is still a corporate officer or employee of the Company or a Group company at the end of the Liquidity conditions Vesting Period. The vesting of the Performance Shares was subject to a liquidity For the 2016 plans, the total number of ordinary shares that may be condition that was achieved with the Company's initial public offering created by the exercise of all instruments giving access to the share in May 2017. capital is 262,380 shares, or a maximum dilution of approximately 0.52% of the share capital. The dilution of voting rights would be identical (without taking double voting rights into account).
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2/ New plan decided in 2019 A new free share allocation plan was introduced in January 2019. Under this plan, there are 802,800 potential shares, subject to continued employment and/or performance conditions and share price.
FREE SHARES Date of general shareholders’ meeting authorising the Free Shares allocations 13 June 2018 Date of the Board of Directors’ vote to grant the Free Shares 31 January 2019 Maximum number of shares authorised 5% of the share capital at the date of grant Number of free shares allocated 802,800 of which total number that may be acquired by the corporate officers of the Company 135,000 Number of recipients not corporate officers (at first) 445 Dates and terms of vesting See below Cumulative number of allocated free shares cancelled or voided - Number of free shares outstanding at 31 December 2018 -
Free shares known as Performance Shares are subject to the b) Vesting conditions following conditions: The vesting of the performance shares on the Vesting Date is subject to meeting the cumulative performance and continued employment 2.1/ Collective plan for 396 people (19,800 shares) conditions (the “Vesting Conditions”). a) Vesting period Performance condition 4 The Vesting Period ends on 1 February 2021. The vesting of the Performance Shares is subject to (i) compliance Provided the vesting conditions referred to in Section (b) below are with performance conditions related to the levels of operating met, the performance shares will vest on the first business day income in the Group's IFRS consolidated financial statements for following the expiration of the Vesting Period (the “Vesting Date”). financial years 2019, 2020 and 2021 (85% of shares) or (ii) the level of the Company's share price as at 31 December 2019, 2020 and b) Vesting conditions 2021 (15% of shares). The vesting of Performance Shares on the Vesting Date is subject only to compliance with the continued employment condition at Continued employment condition 1 February 2021. Unless the Board of Directors decides otherwise, the performance shares will vest only if the recipient is still a corporate officer or Continued employment condition employee of the Company or a Group company at the end of the Unless the Board of Directors decides otherwise, the performance Vesting Period. shares will vest only if the recipient is still a corporate officer or For the 2019 plans, the total number of ordinary shares that may be employee of the Company or a Group company at the end of the created by the exercise of all instruments giving access to the share Vesting Period. capital is 802,800 shares, or a maximum dilution of approximately 2.2/ Selective plan for 50 people (783,000 shares) 1.58% of the share capital. The dilution of voting rights would be identical (without taking double voting rights into account). a) Vesting period For all of the plans (2016 and 2019), the total number of ordinary The Vesting Period expires on 1 February 2021 (one-third of the shares that may be created by the exercise of all instruments giving shares subject to 2019 performance conditions), 1 February 2022 access to the share capital is 1,065,180 shares, or a maximum dilution (one-third of the shares subject to 2020 performance conditions) and of approximately 2.10% of the share capital. The dilution of voting 1 February 2023 (one-third of the shares subject to 2021 rights would be identical (without taking double voting rights into performance conditions). account). Provided the vesting conditions referred to in Section (b) below are There are no potential shares relating to stock option, stock warrant met, the performance shares will vest on the first business day or free share allocation plans, or other securities that may be following the expiration of the Vesting Period (the “Vesting Date”). convertible, exchangeable or associated with stock warrants, or acquisition rights and/or obligations attached to subscribed but not paid-up capital.
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4.2.2 Treasury shares e) Number of shares potentially used Repurchased shares may be used to: Share buybacks z transfer shares when exercising the rights attached to securities giving access to the share capital by reimbursement; The share buyback in 2018 took place under the authorisations granted by the shareholders’ meeting of 21 March 2017 and the z grant stock options to employees; shareholders’ meeting of 13 June 2018. z cancel all or part of the shares thus repurchased; z provide securities in payment or exchange for acquisitions; a) Number of shares bought and sold during the financial z stabilise the share’s stock market price. year in accordance with articles L.225-208, L.225-209 and L.225-209-1 of the French Commercial Code and average f) Potential reallocation for other purposes decided during purchase and sale price the 2018 financial year In 2018, 402,581 PRODWAYS GROUP shares were repurchased by None. the Company under the authorisation granted by the shareholders’ meeting of 21 March 2017 at an average price of €4.022 per share for a total cost of €1,619,368. Renewal of the share repurchase programme – In 2018, 387,462 PRODWAYS GROUP shares were sold at an Description of the share repurchase programme average price of €4.059per share under the liquidity contract.
b) Trading charges Shareholders will be asked at the shareholders’ meeting of 7 June 2019 to authorise the Board of Directors, with power to In 2018, trading charges consisted solely of fees under the liquidity sub-delegate, to renew the Company’s share repurchase programme contract, which amounted to €12,000. (fourteenth resolution). c) The number of shares registered in the Company’s name The purpose of this authorisation is to enable the Company to trade at the end of the financial year and their value at purchase in its own shares, as provided for by law, in order to: price – fraction of the share capital that they represent z stimulate the secondary market or the liquidity of Company shares through the intermediary of an investment service provider At 31 December 2018, PRODWAYS GROUP held 49,723 treasury under a liquidity contract that complies with the Code of Ethics as shares (representing 0.098% of its share capital) recorded at recognised by the French Financial Markets Authority (AMF); €175,394 in the statement of financial position (€128,285 at the stock market price of €2.58 on the same date). z retain the purchased shares and subsequently allocate them in payment or exchange in potential external growth transactions, in All of the shares are owned to stabilise the stock market price. respect of market practices approved by the AMF; The above number of shares and figures are given on the basis of a z provide coverage for stock option plans and/or free share nominal value of €0.50 per share and 50,815,643 shares making up allotments (or similar plans) for Group employees and/or the share capital at 31 December 2018. corporate officers as well as all share allotments to Group or Treasury shares are recorded in the balance sheet of PRODWAYS Company savings plans (or similar plans), under profit-sharing GROUP SA under “Marketable securities”. schemes and and/or all other forms of share allotment to Group employees and/or corporate officers; d) Cancellation of company shares during the 2018 financial z allot shares upon the exercise of rights linked to securities giving year access to the share capital through reimbursement, conversion, In 2018, the Company did not use the authorisation granted by the exchange, presentation of a warrant or by any other method; shareholders’ meeting of 21 March 2017 and the shareholders’ z cancel shares purchased, subject to the authorisation granted by a meeting of 13 June 2018 to reduce the share capital by cancelling shareholders’ meeting; shares owned by the Company, up to 10% of the capital for every 24-month period. z more generally, carry out any objective authorised by law or any market practice approved by market authorities.
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This authorisation falls within the legal scope of article L.225-209 of z the maximum purchase price per share would be set at €20. the French Commercial Code: In the event that the capital is increased through capitalisation of z it would be valid for a maximum period of 18 months and, as reserves and allocation of free shares, as well as in the event of a from its adoption by the shareholders’ meeting and for the share split, reverse share split or any other transaction affecting remaining balance, it would cancel and replace any prior equity, the shareholders’ meeting would delegate to the Board of delegation of authority to the Board of Directors to allow the Directors the power to adjust the aforementioned prices in such a Company to trade in its own shares; way as to allow for the impact of such transactions on the share z the maximum amount of shares which the Board of Directors value. may acquire cannot exceed 10% of the total number of shares It is understood that these transactions should be performed in forming the share capital, with the understanding that the compliance with the rules laid down by articles 241–1 to 241-7 of Company may not hold more than 10% of the shares forming the the AMF’s General Regulation on market trading conditions and share capital at any time; timing.
4.2.3 Additional information on the share capital TABLE OF THE HISTORY OF THE DEVELOPMENT OF THE COMPANY’S SHARE CAPITAL
Number Additional Share capital of shares Number of Par value paid-in capital after Date Transactions before shares after (in euros) (in euros) (in euros) 13 March 2014 Founding of the Company 5,000 5,000 €1 - 5,000 24 November 2014 Share capital increase in cash 5,000 7,967,290 €1 - 7,967,290 29 December 2014 Capital increase by the issue of shares as remuneration for the contribution of shares of 4 PRODWAYS 7,967,290 15,717,290 €1 - 15,717,290 12 June 2015 Share capital increase in cash 15,717,290 16,896,535 €1 + 13,820,751.40 16,896,535 21 March 2017 2-for-1 split in the par value of the shares 16,896,535 33,793,070 €0.50 - 16,896,535 12 May 2017 Share capital increase in cash and through conversion of all convertible bonds (Company IPO) 33,793,070 48,237,529 €0.50 + 58,037,765.70 24,118,764.50 22 May 2017 Share capital increase in cash and through conversion of all convertible bonds (Company IPO) 48,237,529 49,823,057 €0.50 + 6,472,707.52 24,911,528.50 3 November 2017 Share capital increase as remuneration for the contribution of Avenao Solutions 3D shares 49,823,057 50,815,643 €0.50 + 5,455,565.02 25,407,821.50
PRODWAYS GROUP - 2018 ANNUAL REPORT 125 INFORMATIONdABOUT THEdCOMPANY,dITS SHAREdCAPITALdAND SHAREHOLDERS 4 Share capital
TABLE AT 28 MARCH 2018 OF CURRENTLY VALID DELEGATIONS ON SHARE CAPITAL INCREASES GRANTED TO THE BOARD OF DIRECTORS BY THE SHAREHOLDERS’ MEETING
Maximum nominal Date Delegation Validity amount Use Shareholders’ Delegation of authority to increase the 26 months €3,000,000 None meeting share capital by incorporating reserves, of 13/06/2018 profits, premiums or other sums by issuing (12th resolution) and allocating free shares or by raising the nominal value of existing shares or by a combination of these two procedures Shareholders’ Delegation of authority to increase the 26 months €6,000,000(1) None meeting share capital by issuing ordinary shares or €30,000,000(1) of 13/06/2018 securities giving access immediately or in (debt securities giving access (13th resolution) future to the share capital with pre-emptive to the share capital) rights Shareholders’ Delegation of authority to increase the 26 months €6,000,000(1) None meeting share capital immediately or in future by €30,000,000(1) of 13/06/2018 issuing ordinary shares or equity securities (debt securities giving access (14th resolution) giving access to other equity securities or to the share capital) rights to the allocation of debt securities and/or securities giving access to equity securities issued, without pre-emptive rights by way of a public offering Shareholders’ Delegation of authority to increase the 26 months €4,000,000(1) None meeting share capital immediately or in future by (subject to the statutory of 13/06/2018 issuing ordinary shares or equity securities limit, currently set at 20% of (15th resolution) giving access to other equity securities or the share capital in any rights to the allocation of debt securities 12-month period) and/or securities giving access to equity €20,000,000 (debt securities securities issued as part of a public offering giving access to the share in favour of qualified investors or a limited capital) group of investors as defined by article L.411-2-II of the French Monetary and Financial Code Shareholders’ Authorisation granted to the Board of 26 months Not to exceed 10% of the None meeting Directors in the event of an issue of shares share capital of 13/06/2018 or any securities giving access to the share (16th resolution) capital without pre-emptive rights to set the issue price up to a limit of 10% of the share capital and within the limits set by the shareholders’ meeting Shareholders’ Authorisation granted to the Board of 26 months Not to exceed 15% of the None meeting Directors to increase the amount of issues initial issue or any other of 13/06/2018 decided on pursuant to the 13th to 15th percentage set by the (17th resolution) resolutions in case of excess demand regulations in force Shareholders’ Delegation of authority to issue ordinary 26 months 10% of share capital(1) None meeting shares and/or transferable securities giving of 13/06/2018 access to the share capital of the Company, (18th resolution) as consideration for non-cash transfers of securities giving access to share capital
126 PRODWAYS GROUP - 2018 ANNUAL REPORT INFORMATIONdABOUT THEdCOMPANY,dITS SHAREdCAPITALdAND SHAREHOLDERS Share capital
Maximum nominal Date Delegation Validity amount Use Shareholders’ Delegation of authority to increase the 18 months €4,000,000(1) None meeting share capital through the issue, immediately €20,000,000(1) of 13/06/2018 or in future, of ordinary shares or equity (debt securities giving access (19th resolution) securities giving access to other equity to the share capital) securities or rights to the allocation of debt securities and/or securities giving access to equity securities issued, without pre-emptive rights, in favour of a category of persons who will underwrite the Company’s equity securities that might result therefrom in connection with an equity line of financing Shareholders’ 38 months 5% of the existing share None meeting Authorisation to grant stock options to capital at the date of grant(2) of 13/06/2018 employees and/or corporate officers of the (20th resolution) Company or affiliated companies Shareholders’ Authorisation to allocate existing or future 38 months 5% of the share capital at Free shares were meeting of free shares to employees and/or certain the date of grant(2) granted under the 13/06/2018 (21th company officers terms of the free resolution) share allocation plans of 31 January 2019 described in Section 4.2.1 of the annual report 4 (1) Charged against the overall nominal ceiling set by the 13th resolution, i.e. €6,000,000 (or €30,000,000 for issues of debt securities giving access to the share capital). This cap does not apply to debt securities whose issue may be decided or authorised by the Board of Directors in accordance with article L.228-40 of the French Commercial Code. (2) The total number of shares that can be allocated by the Board of Directors free of charge under the 21st resolution of the shareholders’ meeting of 13/06/2018 and the total number of shares to which any options granted by the Board of Directors pursuant to the authorisation given in the 20th resolution of the shareholders’ meeting of 13/06/2018 may carry rights.
PRODWAYS GROUP - 2018 ANNUAL REPORT 127 INFORMATIONdABOUT THEdCOMPANY,dITS SHAREdCAPITALdAND SHAREHOLDERS 4 Shareholding
4.3 SHAREHOLDING
4.3.1 Breakdown of share capital and voting rights The share capital and voting rights break down as follows:
December 2018 December 2017 % of % of Voting voting Voting voting rights rights rights rights exer- exer- exer- exer- cisable cisable cisable cisable at the at the at the at the % of share- Share- % of share- Share- share of holders’ holders’ share of holders’ holders’ Shares capital meeting(1) Meeting Shares capital meeting(1) meeting GROUPE GORGÉ(1) 28,767,733 56.61% 28,767,733 56.67% 28,767,733 56.61% 28,767,733 56.65% FIMALAC DÉVELOPPEMENT 3,403,508 6.70% 3,403,508 6.70% 3,403,508 6.70% 3,403,508 6.70% SAFRAN CORPORATE VENTURES 907,894 1.79% 907,894 1.79% 907,894 1.79% 907,894 1.79% BPIFRANCE PARTICIPATIONS 750,000 1.48% 750,000 1.48% 750,000 1.48% 750,000 1.48% Treasury shares 49,723 0.10% - - 34,604 0.07% - - Public 16,936,785 33.33% 16,936,785 33.36% 16,951,904 33.36% 16,951,904 33.38% TOTAL 50,815,643 100%50,765,920 100% 50,815,643 100%50,781,039 100% (1) Voting rights exercisable at the shareholders’ meeting do not include treasury shares. The number of theoretical votes may be obtained by adding the number of votes exercisable at the shareholders’ meeting to the number of treasury shares.
To the Company’s knowledge, since the reporting date, no significant changes in shareholding have occurred and there are no shareholders, other than those mentioned above, directly or indirectly holding 5% or more of the Company’s share capital or voting rights.
4.3.2 Voting rights of the major 4.3.4 Information liable to have an impact shareholders in the event of a public offer In accordance with the Company’s Articles of Association, Holders of shares registered in their names for more than two years PRODWAYS GROUP shares held in registered form for more than enjoy double voting rights. two years carry double voting rights. These double voting rights apply The Company is controlled by GROUPE GORGÉ. from the initial listing of the Company’s shares on the Euronext The Company’s Articles of Association do not contain any regulated market in Paris on 12 May 2017. mechanisms for delaying, postponing or preventing a change of GROUPE GORGÉ registered its shares in its name and should control. therefore, after two consecutive years of registration after the Company’s initial public offering, receive double voting rights, as would any shareholder in a similar situation. To the Company’s knowledge no shareholder’s or other agreement 4.3.5 Employee shareholding exists that could result in a change of control of the Company. The Group’s existing stock option plans, free share allocation plans and stock warrant plans are described in Note 5.4 to the consolidated financial statements and Section 4.2.1 of the annual 4.3.3 Controlling shareholders report. In accordance with article L.225-102 of the French Commercial The Company is controlled, within the meaning of article L.233-3 of Code, it should be noted that at 31 March 2019: the French Commercial Code, by GROUPE GORGÉ. z no employees' shares were held under collective management; GROUPE GORGÉ intends to remain the Company’s primary, 1,065,180 PRODWAYS GROUP shares were likley to be long-term shareholder. z acquired by Group employees under free share allocation plans. The presence of independent Directors on the Board of Directors of PRODWAYS GROUP makes it possible to ensure that GROUPE GORGÉ’s control over the Company is not abused.
128 PRODWAYS GROUP - 2018 ANNUAL REPORT INFORMATIONdABOUT THEdCOMPANY,dITS SHAREdCAPITALdAND SHAREHOLDERS Financial communication (financial agenda, share performance, dividend policy, etc.)
4.4 FINANCIAL COMMUNICATION (FINANCIAL AGENDA, SHARE PERFORMANCE, DIVIDEND POLICY, ETC.)
4.4.1 Stock market information CHANGES IN SHARE PRICES AND VOLUMES TRADED ON EURONEXT IN 2018
Highest Lowest Number of Share capital Month (in euros) (in euros) shares traded (in euros) January 2018 5.19 4.65 766,000 3,775,252 February 2018 4.90 4.04 1,572,651 7,290,629 March 2018 4.65 4.22 1,089,945 4,852,025 April 2018 4.69 4.00 1,320,035 5,602,108 May 2018 4.69 4.06 768,475 3,330,254 June 2018 4.65 4.12 603,702 2,688,524 July 2018 4.58 4.04 795,743 3,415,404 August 2018 4.45 4.08 415,183 1,766,078 September 2018 4.50 4.01 609,379 2,595,374 October 2018 4.12 2.67 2,146,092 6,987,272 November 2018 3.60 2.97 1,371,967 4,358,979 4 December 2018 3.28 2.08 1,027,160 2,654,451 January 2019 3.23 2.31 955,947 2,803,581 February 2019 3.22 2.98 525,626 1,635,996 Source: Euronext.
Information on PRODWAYS GROUP shares 4.4.2 Dividend policy PRODWAYS GROUP shares have been listed on EURONEXT Paris since 12 May 2017. PRODWAYS GROUP joined Compartment C The Company intends to pay dividends when results permit, but it which includes listed companies with a market capitalisation below has not defined a systematic policy with respect to the €150 million. apportionment of its profits between dividends and the financing of its operations. Since 2 October 2017, PRODWAYS GROUP has met all the eligibility criteria for the French PEA-SME tax-efficient investment No dividends have been paid since the creation of the Company; the regime (in accordance with Decree 2014-283), meaning it has fewer Board of Directors will not propose payment of a dividend to the than 5,000 employees and annual revenue of less than €1,500 million shareholders’ meeting of 7 June 2019. or total assets of less than €2,000 million. PRODWAYS GROUP shares have been included in the SRD long-only deferred settlement list since 27 December 2017. The SRD long-only listing should help improve trading liquidity.
PRODWAYS GROUP - 2018 ANNUAL REPORT 129 INFORMATIONdABOUT THEdCOMPANY,dITS SHAREdCAPITALdAND SHAREHOLDERS 4 Financial communication (financial agenda, share performance, dividend policy, etc.)
4.4.3 Information documents from the website www.prodways-group.com. The Company's press releases are relayed via professional distribution services The Company communicates with its shareholders primarily via its (ACTUSNEWSWIRE) and can be viewed on the main stock market website (www.prodways-group.com), its Twitter account and the sites accessible to the public, such as BOURSORAMA, BOURSIER. financial wire agency Actusnews. COM, EURONEXT, etc. The quarterly, half-yearly and annual financial results are disclosed in The Company’s website contains all of PRODWAYS GROUP’s press releases according to the indicative timetable below: up-to-date financial information. All PRODWAYS GROUP press z Q1 2019 revenue: 25 April 2019; releases are readily available on it, as are all documents of relevance to shareholders such as underlying documents, annual reports, z shareholders’ meeting: 7 June 2019; half-year consolidated financial statements and information on share z Q2 2019 revenue: 25 July 2019; buybacks. z HY 2019 financial results: 18 September 2019; PRODWAYS GROUP participates in small and/or mid cap events z Q3 2019 revenue: 24 October 2019; and road shows as well as other events throughout the year at which the Company presents its activities and results to analysts, investors z Q4 2019 revenue: end February 2020. and shareholders. The Group also organises investor and analyst Meetings with analysts and investors and a conference call with a meetings at relevant trade shows during the year and at its main Q&A session dedicated to the Group's financial analysts take place operating sites (specifically PRODWAYS’ Tech Centre). just after the publication of results. The 2018 financial results were announced on 3 April 2019 and the 2019 first half financial results will A Securities Service directly administers fully registered shares free of be announced on 18 September 2019. charge. Shareholders who wish to register their securities in this form may send their request to CACEIS Financial Services, 14, rue Throughout the period of validity of the annual report, the following Rouget-de-Lisle, 92862 Issy-les-Moulineaux Cedex 09, France, or to documents may be consulted at the Company’s head office: their own financial advisor. z the Company’s Articles of Association; Our shareholder/investor contact, ACTUS FINANCE (52, rue de z all reports, correspondence and other documents included or Ponthieu – 75008 Paris), is available for all questions about news and mentioned in this annual report; the various press releases about the Group. z the issuer’s historical financial information for each of the two financial years prior to the publication of the annual report. The annual reports are available from the head office of the Company, 19, rue du Quatre-Septembre, 75002 Paris (France), and
130 PRODWAYS GROUP - 2018 ANNUAL REPORT OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS
5.1GENERAL APPROACH AND METHODOLOGY 132 5.5COMMITMENTS TO ITS EMPLOYEES 138
5.1.1 Specific context of the Statement of 5.5.1 Investing in sustainable and responsible Non-Financial Performance 132 relationships with employees 138 5.1.2PRODWAYS GROUP CSR commitments 132 5.5.2Promoting learning opportunities 140 5.1.3Our Business model 133 5.5.3 Workplace health, safety and well-being, a 5.1.4 The CSR risks and issues of commitment for all employees 141 PRODWAYSdGROUP 134 5.6 ACTIVITIES WITH LIMITED IMPACT ON CLIMATE 5.2 3D PRINTING: A PRODUCTION METHOD THAT CHANGE AND THE ENVIRONMENT 142 MEETS THE CHALLENGES OF SUSTAINABLE 5.6.1 Resource and product end-of-life DEVELOPMENT 135 management 142 5.6.2Employee travel 143 5.3 BUILDING A MAJOR PLAYER IN 5.6.3Energy consumption 143 TECHNOLOGICAL INNOVATION 135
5.3.1 Innovation: the heart of the Group's 5.7 REPORT BY THE INDEPENDENT THIRD-PARTY strategy 136 ENTITY ON THE CONSOLIDATED STATEMENT OF 5.3.2Co-innovation and knowledge sharing 136 NON-FINANCIAL PERFORMANCE IN THE MANAGEMENT REPORT 144
5.4 MEDICAL: AN AREA OF STRATEGIC DEVELOPMENT FOR PRODWAYSdGROUP 137
5.4.1Medical industry requirements 137 5.4.2Sponsorships 137
PRODWAYS GROUP - 2018 ANNUAL REPORT 131 OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS 5 General approach and methodology
5.1 GENERAL APPROACH AND METHODOLOGY
5.1.1 Specific context of the Statement of 5.1.2 PRODWAYS GROUP CSR commitments Non-Financial Performance In 2018, to give greater depth to the assessment of its CSR issues and risks, PRODWAYS GROUP conducted a materiality analysis, In accordance with article R.225-105 of the French Commercial with the assistance of an external consultant, to anticipate the Code, PRODWAYS GROUP produces a Statement of Non-Financial requirements, risks and opportunities related to sustainable Performance for the Group's scope of consolidation. This statement development issues, and our responsibilities vis-à-vis our stakeholders. is verified by an independent third-party entity. This analysis was conducted in several stages: Completion of this Statement of Non-Financial Performance is a new step that is part of the ongoing improvement of PRODWAYS z establishment of sector benchmarks; GROUP's social, environmental and economic commitments. z identification of the main issues using internal resources, including Scope of reporting risk mapping; The information presented in this report is consolidated and relates z organisation of internal workshops with operational staff to verify to the French subsidiaries with more than 50 employees at issue relevance; 31 December 2018, of which there were five at that date, versus z the collection of CSR data by the GROUP GORGÉ Financial three in 2017. At the end of 2018, these subsidiaries represented Department. 74% of the workforce and 82% of the Group's revenue, versus 83% This work made it possible to identify and prioritise the Group's of the workforce and 89% of revenue in 2017. For practical and environmental, social and societal challenges based on: organisational reasons within the Group, it seemed relevant to retain this materiality threshold. z stakeholder expectations; CSR indicator reporting method z their impact on the Group's activity. The production of CSR (Corporate Social Responsibility) indicators The listing of these risks revealed three levels of potential risks: requires a system to report information to the Financial Department moderate, high and capital. of its parent company GROUPE GORGÉ Financial Department. A PRODWAYS GROUP assessed its challenges and the contribution of protocol that describes CSR indicators in a precise, consistent its mission and its social and environmental initiatives to the 2030 manner has been established. Agenda for Sustainable Development adopted by the UN in 2015. This programme consists of 17 Sustainable Development Goals (SDGs). The SDGs are emerging as the new global priority framework and their adaptation for companies by the Global Compact, the WBCSD and the GRI is a new comprehensive and sustainable CSR framework with which the Group hopes to comply.
132 PRODWAYS GROUP - 2018 ANNUAL REPORT OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS General approach and methodology
5.1.3 Our Business model The solutions developed by the Group make it possible to reduce the consumption of raw materials and create new sustainable PRODWAYS GROUP is a specialist in industrial and professional 3D production methods. In addition, the Group's activities have a low printing with a unique positioning as an integrated player. The Group impact on the environment and climate change and are part of a has developed right across the 3D printing value chain (software, 3D sustainable development strategy. printers, materials, parts & services) with a high value added The Group's detailed business model is presented in the Section 1.2 technological industrial solution to meet the digital challenges of “Overview of the Group and its businesses” of this annual report. industry. The Group is targeting the aerospace and healthcare sectors The following diagram gives the Group's stakeholders an overview of as a priority. its value creation model.
Our results and achievements / our value Our resources creation
Financial capital Stability guaranteed by a majority family z +75% growth in revenue shareholder (GROUPE GORGÉ) z Growth in profitability and cash generated by A solid financial structure operations z 2 acquisitions in 2018 Industrial/societal capital 8 technology centres in France and abroad Help our customers innovate and support them in A network of industrial and university partners their digital transformation z Development of thermoplastic parts with L’ORÉAL z Rapid Additive Forging with NEXTEAM GROUP Innovation for healthcare: development of custom-made prostheses for audiology, podiatry and dentistry
Intellectual capital €3.3 million of R&D expenditurez 13 patents filed z Innovative new product launches: ProMaker V10 ceramic 3D printer, ProMaker LD-20
Human capital 28% engineers and executives in 3 countriesz 87 hires on permanent employment contracts z 448 hours of training
Environmental capital 1,830m3 of water z A moderate environmental footprint 176 MWh of gas consumed z Technologies enabling resources used in production 2,150 MWh of electricity consumed to be saved 5
PRODWAYS GROUP - 2018 ANNUAL REPORT 133 OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS 5 General approach and methodology
5.1.4 The CSR risks and issues of PRODWAYSdGROUP The issues related to PRODWAYS GROUP's activity were attributed to the various Sustainable Development Goals to monitor the Group's CSR contribution and measure actions and their related performance. PRODWAYS GROUP materiality matrix The PRODWAYS GROUP materiality matrix represents the CSR issues identified as priorities for the Group. The Group's materiality analysis identified five priority issues, corresponding to six Sustainable Development Goals. These 5 issues reflect the risks and opportunities identified during the risk analysis. Capital Stakeholder expectations High Moderate
Impact on PRODWAYS GROUP activities Moderate High Capital
SDG CSR issue 3D printing: a production method that meets the challenges of sustainable development
Building a major player in technological innovation
z Medical: an area of strategic development for PRODWAYS GROUP z Workplace health, safety and well-being, a commitment for all employees
Attracting and shaping talent
Investing in sustainable and responsible relationships with employees
Activities with limited impact on climate change
134 PRODWAYS GROUP - 2018 ANNUAL REPORT OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS 3D printing: a production method that meets the challenges of sustainable development
5.2 3D PRINTING: A PRODUCTION METHOD THAT MEETS THE CHALLENGES OF SUSTAINABLE DEVELOPMENT
final shape of the part (this is called subtractive manufacturing). With the 3D printing technique, objects are formed by adding material, which allows users to overcome the constraints of a mould, sheet metal plate or block of metal. PRODWAYS GROUP’s Rapid Additive Forging technology can manufacture blank parts in titanium that are close to the geometry of the final part, which will then be sent for final machining. This avoids considerable losses of material as shavings which can represent up to 95% of the metal block with traditional machining processes. 3D printing is considered an environmentally-friendly technology By offering the option of printing custom-made parts on demand, because of its additive process, which means that only the raw manufacturers and consumers can repair objects that would material necessary to manufacture a part is used. Due to the otherwise be thrown out because a part is no longer available. nature of its activity, PRODWAYS GROUP contributes to 3D printing also means that production sites can be relocated nearer reducing the consumption of raw materials. customers, thus reducing transport emissions. In 2018, PRODWAYS 3D printing, also called additive manufacturing, consists of creating GROUP was awarded the Made In France prize by Reporter d’Espoir physical objects by superimposing different layers of material. This for the theme Employment, Ecology, Relocation: the promises of 3D manufacturing process is mostly computer-assisted using digital files printing. (this is called Computer Aided Design, or CAD). Once the object is Thanks to the new possibilities offered, this manufacturing process is finalised by the operator for that file, it is sent to special software that appreciated by all industrial trades, in particular by the aerospace cuts it into slices and sends it to the printer, which deposits or industry, for the rapid prototyping of complex geometric parts, and solidifies material (depending on the materials and techniques used) by the medical industry, for the manufacture of several different parts layer by layer until the final piece is obtained. on a single production line. 3D printing differs from traditional manufacturing techniques such as The Group is positioned in the majority of its activities as a designer machining, carving, milling and drilling. These traditional manufacturing and assembler, and it has set up recycling processes for materials, techniques use blocks of material (steel, aluminium, titanium, etc.) and namely the powders and liquid resins used. Accordingly, its activities processes to eliminate everything deemed unnecessary to obtain the do not directly cause any major environmental hazards.
5.3 BUILDING A MAJOR PLAYER IN TECHNOLOGICAL INNOVATION 5 Since its creation, PRODWAYS GROUP has had a reputation for its ability to innovate using know-how and thanks to significant Research and Development efforts. The Group has devoted a significant portion of its resources to Research and Development to develop and improve its lines of 3D printers and equipment and find new applications for additive manufacturing. These efforts enable the Group to maintain its position as a respected player in technological innovation in the additive manufacturing sector.
PRODWAYS GROUP - 2018 ANNUAL REPORT 135 OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS 5 Building a major player in technological innovation
5.3.1 Innovation: the heart of the Group's 5.3.2 Co-innovation and knowledge strategy sharing Born from the meeting of Dr. André-Luc ALLANIC, a PRODWAYS GROUP bases its vision of innovation on openness world-renowned expert in additive manufacturing, with the and partnership, along several dimensions. industrialist Raphaël GORGÉ, innovation has always formed the very DNA of PRODWAYS GROUP. The Group has eight technology centres dedicated to specific areas Co-innovation with customers and the additive of involvement and a team of engineers dedicated to the manufacturing ecosystem development of future applications. The Group's research focuses on 3 key areas: In 2018, INITIAL and L’OREAL joined forces to accelerate the z machines; development of thermoplastic parts through 3D printing. This new method of production incorporates sustainable development issues. z materials; The Group has also set up a partnership with the aeronautical z medical prostheses (dental, audiology, podiatry). machine tool operator NEXTEAM GROUP around the innovative The Group focuses its efforts on mass production applications, Rapid Additive Forging technology for the 3D printing of titanium particularly the medical, aeronautics and jewellery sectors, where the parts for the aeronautical and other sectors. R&D resulted in a benefits of 3D printing are significant. reduction of over 80% in material loss compared to traditional This ability to innovate has enabled the Group to develop several machining techniques. leading innovations in 2018, including the new ProMaker V10 ceramic To strengthen its supply of additive manufacturing materials, the 3D printing machine and the MOVINGLight® ProMaker LD-20 Group has set up numerous partnerships with leading chemists such machine. as BASF, ARKEMA and A. SCHULMAN. In 2018, €3.3 million was allocated to R&D, which represents 5.4% of revenue, compared to €1.9 million and 5.6% of revenue in 2017. The Group makes major investments in research and development Entrepreneurial partnerships through joint ventures to maintain and further develop its competitive edge. The Group files with start-ups patent applications when necessary to protect patentable technical, technological and commercial breakthroughs. In 2015, PRODWAYS GROUP invested in the USINE IO incubator, As a result, PRODWAYS GROUP holds a portfolio of 13 patent a technological innovation space that provides inventors, families to protect the material formulas and the proprietary DLP® entrepreneurs, SMEs and large companies with machine resources, a MOVINGLight® technology developed in its own 3D printers. centre of technical expertise and networking in order to design, prototype and prepare the industrialisation of objects. Thanks to a concept unique in Europe, USINE IO disrupts the way in which start-ups, SMEs and large industrial groups innovate by supporting them from the idea to the object.
Sharing knowledge with as many people as possible
As an additive manufacturing expert in France, the Group tries, through meetings, conferences and round tables, to initiate knowledge about its activities with associations, business clubs, students or any other audience that may take an interest in the Group's activities. By attending these types of events, the Group seeks to promote the role of middle-market companies in France and support French innovation. The Group also participates in technical conferences at trade shows or events dedicated to additive manufacturing such as the Journée de la Fabrication Additive, in which it participates.
136 PRODWAYS GROUP - 2018 ANNUAL REPORT OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS Medical: an area of strategic development for PRODWAYSdGROUP
5.4 MEDICAL: AN AREA OF STRATEGIC DEVELOPMENT FOR PRODWAYSdGROUP
A 3D printer dedicated to medical applications allows the printing of 5.4.1 Medical industry requirements objects that are smaller (like teeth) or have thinner walls. Whether a hospital, university or research laboratory, many medical institutions The medical industry is highly regulated. To meet its stringent are interested in 3D printing technologies. requirements, the Group has put in place a quality system based on In the medical sector, 3D printing makes it possible to (i) plan standards and certifications. surgeries using accurate anatomical models made from scanners or In addition, the Group must meet the European standards for MRIs, (ii) develop custom implants or prostheses, (iii) use 3D-printed Personal Protective Equipment (PPE) for noise protection earplugs models for medical education, and (iv) bio-print live tissues for drug (EU 2016/425). The new European regulations require stricter testing and implant placement. compliance procedures, continuous monitoring of the production By making it possible to print unique, custom parts at a reduced process and a guarantee of quality. price, the use of 3D printing has grown very quickly in this industry. As a medical raw material supplier, the Group is also subject to EN Within its “Products” division, PRODWAYS GROUP houses medical 9001 and REACH Regulations. In accordance with regulations, the activities that produce medical prostheses through 3D printing: Group controls the risks related to raw materials and informs its users. z INTERSON PROTAC has been an important player in audiology for over 40 years. The Company produces customised hearing aid tips and Personal Protection Equipment (PPE) hearing protectors; 5.4.2 Sponsorships z CRISTAL is a dental prosthesis laboratory; INTERSON PROTAC is a sponsor of the AuditionSolidarité. Org z PODO 3D produces 3D printed orthopaedic and comfort insoles association, whose goal is to work to improve auditory well-being for as under the “SCIENTIFEET” brand, sold to podiatrists. many people as possible. In addition, PRODWAYS GROUP has developed a range of 3D As part of its sponsorship, INTERSON PROTAC donates €1.00 to printers and materials specifically dedicated to the dental sector. Its the Audition Solidarité association for each pair of customised additive manufacturing expertise in the dental industry is part of its Pianissimo® sold and €0.50 for each standard Pianissimo® sold. partnership with the biggest names in the sector such as Dreve, INTERSON PROTAC also supports the association in humanitarian DELTAMED or DENTOSMILE. It is also associated with leading missions abroad. A team of hearing professionals are working around dentists and top-tier international providers. the world in schools for deaf and hearing-impaired children to equip The machines are specially designed for their application and are all children and train teachers on site for daily monitoring. As part of adapted to the biocompatible materials used in various sectors. For its missions, INTERSON PROTAC provides Audition Solidarité with example, the Group developed PLASTCure, a biocompatible expertise in the manufacture of hearing aid eartips and donates material perfectly suited to surgical modelling. materials and accessories. 5
PRODWAYS GROUP - 2018 ANNUAL REPORT 137 OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS 5 Commitments to its employees
5.5 COMMITMENTS TO ITS EMPLOYEES
With the growth of its activities, the Group has undertaken 5.5.1.1 Employment policy sustained recruitment efforts in recent years. The recruitment of key skills is one of the Group's challenges. In high technology sectors innovation – and therefore talent – determines the successes of tomorrow. This is why the development of human potential is a priority for PRODWAYS GROUP. In recent 5.5.1 Investing in sustainable and years, the Group has experienced strong growth in its workforce, through external growth in particular. A common HR policy is being responsible relationships with developed at Group level. employees Total Group workforce and geographic distribution The total workforce is the number of people present within the Group at 31 December 2018 who are bound by a permanent contract, a fixed-term contract or a trainee contract. Part-time workers are counted as one person. The following indicators (with the exception of the table below) relate to the total Group workforce for the selected subsidiaries, totalling 337 employees in 2018 (74% of the total and 61% on a comparable basis). Indicators for 2017 related to 3 subsidiaries totalling 193 employees. PRODWAYS GROUP pays close attention to its relationships with its employees, access to quality health services for all and the application of a sustainable and attractive employment policy.
Systems Products Corporate Total 2018 2017 2018 2017 2018 2017 2018 2017 Executives and engineers 101 100 54 46 4 3 159 149 Technicians and supervisors 73 22 71 69 - - 144 91 Employees 43 43 67 54 - - 110 97 Workers 24 15 23 23 - - 47 38 TOTAL 241 180 215 192 4 3 460 375
In France, the Group operates in many regions. Through its activities, the Group is a local and sustainable job provider.
Gender distribution by socioprofessional categories
Men Women Total (%) 2018 2017 2018 2017 2018 2017 Managers and higher professional positions 27 30 5 8 32 38 Technicians and supervisors 24 28 9 15 33 42 Employees 15 11 13 8 28 20 Workers 2 - 4 - 7 - Apprentices 1 - - - 1 - TOTAL 69 69 31 31 100 100
138 PRODWAYS GROUP - 2018 ANNUAL REPORT OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS Commitments to its employees
Distribution by age 2018 2017 (%) 2018 2017 Number of disabled employees 7 3 Less than 30 years old 26 20 Integration of young graduates and the Group's 30 to 39 years old 34 31 employment policy 40 to 49 years old 23 31 PRODWAYS GROUP promotes its innovative activities on social 50 to 59 years old 16 18 networks through several of its subsidiaries using both LinkedIn and Twitter. With this presence, it can relay important information about 60 years old and over 1 1 the markets in which it operates, share trends, communicate about the latest contracts awarded to it, announce new solutions or trade show attendance, publish job offers, and so on. 5.5.1.2 Recruitment policy The Group attends a number of student events, including those at the École Centrale Marseille, to approach engineering students General recruitment policy seeking to join the Group for internships of three to seven months. As the Group is positioned in high-tech activities that most often Since 2014, several engineering students who had spent their require its employees to have special know-how and/or expertise, it final-year internship in the Group have been offered permanent prefers to recruit in the form of permanent contracts, so as to retain contracts on completion of their internships. knowledge and know-how. In fact, in 2018, permanent employment Trade fairs also provide an opportunity to meet potential candidates contracts represent 97% of the total workforce and 82% of hires. and an applications box is always made available whenever we take part in fairs. Several Group companies have initiated recruitment 2018 2017 webinars during which they present the Group’s various businesses. Hires*: 106 47 In 2018, the Group had 25 new interns and apprentices, ie. 7.4% of z of which permanent employment its workforce. contracts 87 34 2018 2017 z of which fixed-term employment contracts 18 13 Employees on a work-study contract 2 4 z of which trainee contracts 1-Interns 23 15 * Excluding transfer between Group entities. 5.5.1.3 Gender parity We note that over the year, a 125% increase in hires compared to the previous year was related in particular to the entry of new Within PRODWAYS GROUP, women represent nearly 31% of the companies into the scope of reporting. workforce. The table below breaks down departures by reason. In 2018, they represented 16% of managers. 5 2018 2017 The employment of women varies according to the divisions. Thus, the “Systems” division, which represents 52% of the Group's Departures 89 42 workforce, employs 12% of women whereas the “Products” division z for economic reasons -1which represents 48% of the Group's workforce, employs 73% of women. z for other reasons 62 z end of contract, retirement, (%) 2018 2017 resignation, termination by mutual Total workforce (% women) 31 31 agreement 83 39 Executives (% women) 58 In 2018, the Group had a turnover rate of 25.6% compared to 16.4% Non-executives (% women) 26 23 in 2017. This increase is mainly linked to newly consolidated entities Permanent employment contract workers and the higher turnover of their businesses. (% women) 29 31 Non-discriminatory hiring policy Fixed-term contract workers (% women) 21 PRODWAYS GROUP is convinced that a diversity of profiles is an asset for the Company. The Group is committed to being a Gender distribution remains relatively constant from year to year. responsible employer and takes care to ensure that its conduct and practices are exemplary. For this reason, it is committed to Actions implemented to promote gender parity preventing any form of discrimination in hiring. As regards gender parity, the Group's actions are organised around In 2018, 2.1% of the PRODWAYS GROUP's total workforce was four concepts: professional promotion, remuneration, professional disabled. training and work/family balance.
PRODWAYS GROUP - 2018 ANNUAL REPORT 139 OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS 5 Commitments to its employees
Two of the Group's subsidiaries have signed agreements on equal 5.5.2 Promoting learning opportunities pay for men and women. Work/life balance measures also benefit gender parity as they enable both parents to handle family responsibilities. Agreements for work/life balance are currently being negotiated and include measures such as: z “sick children” leave; z better consideration of the constraints of personal life through scheduling of work meetings on adapted schedules and telecommuting; z voluntary part-time; The development of know-how and innovation is a priority in the continued remuneration of men during paternity leave. z skills management policy of the Group given its rapid evolution in a Moreover, the composition of the Board of Directors of the constantly growing 3D printing market. Company complies with the rules on gender equality set out in law Thanks to a training and development policy, employees can learn a 2011-103. The PRODWAYS GROUP's Board of Directors is skill while furthering their personal and professional development. concerned to ensure equality of treatment between men and women in its subsidiaries. The Group's subsidiaries are developing their own training policies. The human resource management policy on training is focused on two types of training: 5.5.1.4 Remuneration policy and financial benefits z training to adapt to a workstation and/or related to job advancement and job retention; Each subsidiary has its own wage policy and makes its own z skills development training. independent decisions regarding the wage developments of its During 2018, nearly 1,353 hours of training were provided. The share employees, depending on its field of business and growth or its own of people trained increased to 25% of the workforce, representing 16 constraints, salary evolution of its employees. To maintain employee training hours on average per trained employee. loyalty, in 2016, the Group set up free share allocation plans for all Group employees present as of the date of the decision to allocate 2018 2017 shares and free share allocation plans for a limited number of Number of hours of training provided 1,353 695 employees. A new plan was implemented at the beginning of 2019. Rate of access to training 25 17 Overview of remuneration Average number of hours per employee 16 17 2018 2017 Number of persons trained 83 42 Gross remuneration 13,336 7,837 Budget (thousands of euros) 59 29 Social security contributions 5,632 2,995 Pension liabilities: compensation paid and Skills development training IAS 19 provision 114 75 3D printing skills do not always exist outside the Group. To meet its Shareholding plans, profit-sharing - - needs, the Group sometimes sets up internal training programmes. INTERSON PROTAC trains each employee internally in hearing aid Total 18,968 10,907 technology. AVENAO offers its employees the chance to earn professional qualification certificates (CQPs) specific to technical positions to obtain certification; thus AVENAO trains all of its technicians so that they can develop additional skills. In addition, all AVENAO salespeople receive training from DASSAULT SYSTEMES and its young managers receive external training.
140 PRODWAYS GROUP - 2018 ANNUAL REPORT OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS Commitments to its employees
5.5.3 Workplace health, safety and Similarly, the use of DLP® or lasers requires certain handling precautions to protect the health of the employees concerned. The well-being, a commitment for all collection and recycling of potentially polluting materials is entrusted employees to specialised service providers. PRODWAYS GROUP Health and Safety policy performance
224018 2017 Number of workplace accidents with stoppage 2 4 Number of days lost 24 25 Frequency rate 3.77 15.35 Each Group company has its own workplace health and safety issues, Severity rate 0.05 0.23 depending on its activity. In addition, Group companies do not have facilities that are subject to the regulations for facilities classified for GROUP registered 2 workplace accidents which included stoppages. environmental protection (ICPE). Frequency and severity rates were significantly lower than 2017. Workplace health and safety policies are managed within each Company in the Group depending on its field of business and its own The very satisfactory results demonstrate the high quality of safety constraints. The assessment of health and safety risks in relation to management in the Group and the quality of the related training. employees is set out in a document drawn up by each company. PRODWAYS GROUP produces and uses Personal Protective Employees are also informed of these risks through the CHSCT Equipment (PPE). Thus, in the INITIAL subsidiary, operators have (Committee for Health, Safety and Working Conditions), in been equipped with PODO 3D “Scientifeet” brand 3D printed companies where such a Committee exists. Customised training is orthopaedic insoles to improve employee comfort and reduce foot provided based on the risks monitored by employees, especially for pain. A business study in partnership with occupational physicians, a hazardous or polluting products. podiatrist and an applied biomechanics laboratory has been launched. Some of the Group's activities require the storage and handling of INTERSON PROTAC, a specialist in audiology, sells hearing hazardous products. The concerned companies implement the safety protection for industry to protect employees from noise in open-plan procedures recommended for the handling and storage of such offices or factories, and it has equipped several of the Group's products. subsidiaries. For example, INITIAL handles potentially hazardous powders (explosion risks), which may pose a health hazard when inhaled. Strict handling and storage procedures have been put in place. 5
PRODWAYS GROUP - 2018 ANNUAL REPORT 141 OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS 5 Activities with limited impact on climate change and the environment
5.6 ACTIVITIES WITH LIMITED IMPACT ON CLIMATE CHANGE AND THE ENVIRONMENT
End-of-life waste management actions and partnerships have been established in the majority of subsidiaries. INTERSON PROTAC has created an Environmental Charter so that it can be a responsible company, protect the environment and further integrate economic and environmental priorities into all aspects of its business. All hazardous waste generated by the subsidiaries is collected and processed in accordance with the regulations in force. Powders and resins are recycled via a specialised waste management circuit.
Quantity of waste produced (tonnes) 2018 2017 Given its activities, the Group has a limited impact on climate change and the environment, but deploys actions as soon as Powders and resins 22 24 possible to reduce its environmental impact. Plaster 6.5 N/A
The amounts of metal shavings and polluted content (oils and 5.6.1 Resource and product end-of-life solvents) were negligible. management
5.6.1.1 End-of-life management of raw materials 5.6.1.1 Water consumption and waste Water is used for sanitary and industrial purposes. Group companies In its production activities, the Group only assembles components are not located in areas of water stress and their water supply is purchased from suppliers and produces a limited quantity of waste. provided by the public drinking water system. In addition, simple measures to limit water waste have been taken in Consumption of raw materials several Group companies, such as the installation of water saving The main raw materials used by the subsidiaries of PRODWAYS devices. GROUP are: z Polyamides 2018 2017 z Thermoplastics Water consumption (m3) 1,830 1,131 z Plaster Part production activities use whenever possible recycled polymer The change in consumption is mainly due to newly consolidated powders. Thus, the INITIAL subsidiary uses used powders to companies. produce new PODO 3D printed “Scientifeet” insoles. Scope of energy consumption indicators Raw material (tonnes) 2018 2017 The coverage rate for data relating to energy consumption, water Powder and resins 50 42 and greenhouse gas emissions represents 100% of total surfaces occupied by panel companies. Direct GHG emissions relate to Plaster 7.3 N/A natural gas consumption and vehicle fleets, and indirect GHG emissions relate to electricity consumption. Waste management The three main types of waste produced by PRODWAYS GROUP Identification of main sources of GHG emissions are: The Group has identified the vehicle fleet as the main source of z Polyamides direct C02 emissions. And the main source of indirect emissions is electricity consumption related to buildings and machines. z Thermoplastics z Plaster
142 PRODWAYS GROUP - 2018 ANNUAL REPORT OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS Activities with limited impact on climate change and the environment
5.6.2 Employee travel 2018 2017 A policy has been in place since 2015 to reduce business travel by Gas consumption (MWh PCS) 176 208 the Group’s employees. Now, internal video conferencing and phone Electricity consumption (MWh) 2,150 1781 conferencing are commonplace, as well as more widespread use of public transport. Some subsidiaries have invested in the installation of electric charging stations to encourage employees to use electric The change in consumption is mainly due to newly consolidated vehicles. Employee carpooling has also been promoted within the companies. Company. In 2018, emissions related to subsidiaries’ vehicle fleets totalled 360 Summary of greenhouse gas emissions teq CO2. CO2 equivalent emissions were 519 tonnes in 2018, 69% of which relates to the vehicle fleets. 2018 2017 2018 2017 GHG emissions related to vehicle fleets
(teq CO2.) 360 N/A GHG emissions related to vehicle fleets (teq CO2.) 360 N/A
GHG emissions from gas (t. CO2 eq.) 36 46
GHG emissions from electricity (teq CO2.) 123 86 5.6.3 Energy consumption Total CO2 emissions 519 131 Most gas and electricity consumption is generated by site heating and the powering of mainly small industrial equipment. To limit its energy consumption, INITIAL, the Group's main industrial site, recovers the 2018 2017 heat emitted by its 3D printer fleet via a heat network. This facility Direct GHG emissions (teq CO2) 396 46 allows it to heat its premises using the energy generated by its 3D printer fleet. Indirect GHG emissions (teq CO2) 123 86
The Group occasionally invests in new energy-efficient installations Total CO2 emissions 519 131 such as lighting automation.
5
PRODWAYS GROUP - 2018 ANNUAL REPORT 143 OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS 5 Rapport de l’organisme tiers indépendant, sur la déclaration consolidée de performance extra-financière
5.7 REPORT BY THE INDEPENDENT THIRD-PARTY ENTITY ON THE CONSOLIDATED STATEMENT OF NON-FINANCIAL PERFORMANCE IN THE MANAGEMENT REPORT
To the Shareholders,
Corporate responsibility It is the Board of Directors' responsibility to prepare a Statement that complies with the legal and regulatory provisions, including a presentation of the business model, a description of the main non-financial risks, a presentation of the policies with regard to these risks and the results of these policies, including key performance indicators. The Statement was prepared by applying the Company's procedures (hereafter the “Framework”) for which the significant elements are presented in the Statement.
Independence and quality control Our independence is defined by the provisions in article L. 822-11-3 of the French Commercial Code and the profession's Code of ethics. In addition, we have implemented a quality control system including documented policies and procedures that aim to ensure compliance with ethical rules, professional standards and the applicable legal and regulatory texts.
Independent third-party entity responsibility Based on our work, it is our responsibility to provide a reasoned opinion expressing a conclusion of moderate assurance on: z the Statement's compliance with the provisions in article R. 225-105 of the French Commercial Code; z the truthfulness and fairness of the information provided in application of paragraph 3 of I and II of article R. 225 105 of the French Commercial Code, namely, the results of the policies, including key performance indicators and actions, relating to the main risks, hereafter the “Information”. It is not our responsibility to express an opinion on: z the Company's compliance with the other applicable legal and regulatory provisions, notably in terms of the vigilance plan and the fight against corruption and tax evasion; z the compliance of products and services with applicable regulations.
Nature and scope of work Our work described below was conducted in accordance with the provisions of article A. 225 1 et seq. of the French Commercial Code determining the terms and conditions according to which the independent third-party entity conducts its assignment and with ISAE 3000 - Assurance engagements other than audits or reviews of historical financial information. We conducted work to enable us to assess the compliance of the Statement to the regulatory provisions and the true and fair view of the Information: z we acknowledged the activity of all of the companies included in the consolidation scope, the presentation of the main social and environmental risks associated with this activity; z we assessed the appropriateness of the Framework with regard to its relevance, completeness, reliability, neutrality and understandability, by taking into consideration, where applicable, good sector practices; z we checked that the Statement covers each information category stipulated in III of article L. 225 102 1 in social and environmental terms; z we checked that the Statement presents the business model and the main risks related to the activity for all entities included in the consolidation scope, including, where relevant and proportionate, the risks created by its business relations, products or services and the policies, actions and results, including the key performance indicators; z we checked, where relevant in view of the main risks or policies presented, that the Statement presents the information stipulated in II of article R. 225-105; z we assessed the process to select and validate the main risks; z we enquired into the existence of internal control and risk management procedures implemented; z we assessed the consistency of the results and key performance indicators selected in view of the main risks and policies present; z we checked that the Statement covers the consolidated scope, namely all of the companies included in the consolidation scope, in accordance with article L. 233-16 with the limits stipulated in the Statement(1); z we assessed the collection process implemented by the entity to ensure the completeness and true and fair view of the Information;
(1) The accreditation scope is available on the website www.cofrac.fr.
144 PRODWAYS GROUP - 2018 ANNUAL REPORT OUR VALUES, OURdEMPLOYEES AND OUR CSR COMMITMENTS Rapport de l’organisme tiers indépendant, sur la déclaration consolidée de performance extra-financière
z we implemented for the key performance indicators and other quantitative results that we considered to be the most important(1): z analytical procedures to check the correct consolidation of the collected data and the consistency of their changes; z detail tests based on surveys, to check the correct application of the definitions and procedures and reconcile the data with the supporting documents. This work was carried out for a selection of contributing entities(2) covering between 24% and 59% of the consolidated data for the key performance indicators and results selected for these tests; z we consulted documentary sources and conducted interviews to substantiate the qualitative information (actions and results) that we considered to be the most important(3); z we assessed the consistency of the entire Statement compared to our knowledge of the Company. We believe that the work we have conducted in exercising our professional judgement enables us to express moderate assurance; a higher level of assurance would have required more extensive verification work.
Means and resources Our work mobilised the skills of 4 people and took place between November 2018 and April 2019. We called upon the help of our experts in sustainable development and corporate social responsibility to complete this assignment. We conducted interviews with the people responsible for preparing the Statement.
Conclusion Based on our work, we found no material misstatement that would cause us to believe that the Statement of non-financial performance is not presented in accordance with applicable regulatory provisions and that the Information, as a whole, is presented in a fair manner in compliance with the Framework.
Neuilly-sur-Seine, 11 April 2019 Independent third-party entity
Grant THORNTON Vincent Papazian French member of Grant Thornton international Partner 5
(1) Quantitative social information: total headcount and breakdown by gender, age and region; recruitments; departures (of which dismissals); number of accidents with work stoppage; number of days lost for accidents with work stoppage; theoretical number of hours worked; frequency rate; severity rate; number of training hours; number of people trained. Quantitative environmental information: water consumption; electricity consumption; gas consumption; fuel consumption; direct GHG emissions; indirect GHG emissions; amount of waste generated; amount of raw materials consumed. (2) AS3D and 3D Servicad. (3) Qualitative information relating to the following sections: “Integration of graduates and the Group's employer policy”; “Building a major player in technological innovation”.
PRODWAYS GROUP - 2018 ANNUAL REPORT 145 146 PRODWAYS GROUP - 2018 ANNUAL REPORT INFORMATION ON THE SHAREHOLDERS’ MEETING OF 7dJUNE 2019
6.1 REPORT OF THE BOARD OF DIRECTORS 6.4 OTHER REPORTS BY THE BOARD OF DIRECTORS PRESENTING THE RESOLUTIONS SUBMITTED TO PRESENTED TO THE SHAREHOLDERS’ MEETING THE COMBINED SHAREHOLDERS’ MEETING OF OF 7dJUNE 2019 160 7dJUNE 2019 148 Management report 160 Board of Directors’ corporate governance report 6.2 DRAFT RESOLUTIONS FOR THE ORDINARY AND prepared in accordance with articledL.225-37 et EXTRAORDINARY SHAREHOLDERS’ MEETING OF seq. of the French Commercial Code 160 7dJUNE 2019 152 Special report by the Board of Directors prepared Agenda 152 in accordance with articledL.225-197-4 of the French Commercial Code 160 Draft resolutions 152
6.3 REPORTS OF THE STATUTORY AUDITORS PRESENTED TO THE SHAREHOLDERS’ MEETING 157
Statutory auditors’ special report on regulated agreements and commitments 157 Statutory auditors’ report on capital reduction 157 Statutory auditors' report on the delegation of competence to increase the capital within the framework of an equity financing line 158 Report of the statutory auditors on the issue of shares and/or transferable securities giving access to the capital reserved for subscribers to Company savings plans 159
PRODWAYS GROUP - 2018 ANNUAL REPORT 147 INFORMATION ON THE SHAREHOLDERS’ MEETING OF 7dJUNE 2019 6 Report of the Board of Directors presenting the resolutions submitted to the combined shareholders’ meeting of 7dJune 2019
6.1 REPORT OF THE BOARD OF DIRECTORS PRESENTING THE RESOLUTIONS SUBMITTED TO THE COMBINED SHAREHOLDERS’ MEETING OF 7dJUNE 2019
1. Approval of the separate and consolidated 4. Appointment of new Directors (sixth, seventh financial statements for the financial year and eighth resolutions) ended 31dDecember 2018 – Approval of In order to strengthen the Company’s governance, we request that non-tax-deductible expenses and charges you appoint Ms Michèle LESIEUR as a Director of the Company for a (first and second resolutions) period of three years expiring following the ordinary shareholders' meeting called to approve the financial statements of the financial We ask you to approve the separate financial statements for the year ending 31 December 2021 (sixth resolution). financial year ended 31 December 2018 showing a profit of €2,749 The skills and experience of Michèle LESIEUR are presented in thousand, and the consolidated financial statements for the financial Chapter 2 of the Registration Document. Michèle LESIEUR would be year ended 31 December 2018 showing net income (Group share) independent with regard to the independence criteria of the of -€5,454 thousand. Middlenext Governance Code. We also ask you to approve the total amount of the expenses and We also request you to appoint Mr Loïc LE BERRE as a Director of charges referred to in article 39–4 of the French General Tax Code, the Company for a period of three years expiring following the namely the sum of €0 and the corresponding tax. ordinary shareholders' meeting called to approve the financial statements of the financial year ending on 31 December 2021 (seventh resolution). 2. Appropriation of income for the year (third The skills and experience of Mr Löic LE BERRE are presented in Chapter 2 of the Registration Document. He represents the majority resolution) shareholder GROUPE GORGÉ and will therefore not be The appropriation of the Company’s income that we are proposing independent with regard to the independence criteria of the complies with the law and our Articles of Association. Middlenext Governance Code. We propose to appropriate the income for the 2018 financial year as We also request you to appoint Mrs Céline LEROY as a Director of follows: the Company for a period of three years expiring following the ordinary shareholders' meeting called to approve the financial z origin: statements of the financial year ending on 31 December 2021 (eighth z profit for the financial year €2,749,344.25; resolution). z appropriation: The skills and experience of Mrs Céline LEROY are presented in z legal reserve €1,707,390.57, Chapter 2 of the Registration Document. She represents the majority z retained earnings: €1,041,953.68. shareholder GROUPE GORGÉ and will therefore not be independent with regard to the independence criteria of the We therefore ask you not to resolve on the payment of any Middlenext Governance Code. dividend. In accordance with article 243 bis of the French General Tax Code, we remind you that no dividend payout was made in respect of the last three financial years. 5. Setting the amount of Directors’ fees (ninth resolution) The shareholders' meeting of 2018 allocated Directors' fees to the 3. Approval of regulated agreements and Board of Directors of an overall amount of €30,000 from 1 January commitments (fourth and fifth resolutions) 2018. According to the Company's current remuneration policy, only independent Directors not remunerated elsewhere by the Group or In the fourth resolution, we request you to approve each of the by a shareholder that they represent may receive Directors' fees. agreements covered by article L.225-38 of the French Commercial In order to take into account the presence of independent Directors Code duly authorised by the Board of Directors. within the Board of Directors and to enable, where applicable, the In the fifth resolution, we request you, in accordance with future appointment of new independent Directors, we propose to article L.225-42-1 of the French Commercial Code, to approve the bring this amount to €60,000 from 1 January 2019. Company's commitment to pay, where applicable, compensation to the Chief Executive Officer in return for his non-compete undertaking. These commitments and undertakings are presented to you in the special report from the statutory auditors related to them shown in Chapter 2.5 of the Registration Document and which will be presented to you in the meeting.
148 PRODWAYS GROUP - 2018 ANNUAL REPORT INFORMATION ON THE SHAREHOLDERS’ MEETING OF 7dJUNE 2019 Report of the Board of Directors presenting the resolutions submitted to the combined shareholders’ meeting of 7dJune 2019
6. Approval of the payment of variable and occasions, at the times it will determine, within the limit of 10% of the number of shares comprising the share capital, adjusted where exceptional remuneration due pursuant to appropriate in order to take account of any increase or reduction of the 2018 financial year for executive capital that may occur during the term of the programme. corporate officers (Say on pay ex post) (tenth This authorisation would cancel the authorisation granted to the Board by the shareholders’ meeting of 13 June 2018 in its tenth and eleventh resolutions) ordinary resolution. Your Board prepared a report on corporate governance presenting Acquisitions may be made to: the remuneration due with respect to the 2018 financial year to z stimulate the secondary market or the liquidity of Company Raphaël GORGÉ in his capacity of Chairman and Chief Executive shares through the intermediary of an investment service provider Officer until 4 October 2018, then in his capacity of Chairman of the under a liquidity contract that complies with the Code of Ethics as Board of Directors, and to Olivier STREBELLE in his capacity of Chief recognised by the French Financial Markets Authority; Executive Officer from 4 October 2018 (see Section 2.2 of the retain the purchased shares and subsequently allocate them in annual report). z payment or exchange in potential external growth transactions, in Pursuant to article L.225-37-2 of the French Commercial Code, we respect of market practices approved by the AMF; ask you to approve the fixed, variable and exceptional components provide coverage for stock option plans and/or free share of the total remuneration and benefits in kind paid or allocated to z allotments (or similar plans) for Group employees and/or Raphaël GORGÉ for the prior financial year in his capacity as corporate officers as well as all share allotments to Group or Chairman and Chief Executive Officer and then as Chairman of the Board of Directors (tenth resolution) and to Olivier STREBELLE in Company savings plans (or similar plans), under profit-sharing his capacity as Chief Executive Officer (eleventh resolution). The schemes and and/or all other forms of share allotment to Group payment of variable and exceptional remuneration with respect to employees and/or corporate officers; the 2018 financial year to executive corporate officers depends upon z allot shares upon the exercise of rights linked to securities giving the approval by an ordinary shareholders' meeting of the access to the share capital through reimbursement, conversion, components of the remuneration of the corporate officer concerned. exchange, presentation of a warrant or by any other method; z cancel shares purchased, subject to the authorisation granted by a shareholders’ meeting; 7. Approval of the remuneration policy for z more generally, carry out any objective authorised by law or any executive corporate officers (Say on pay ex market practice approved by market authorities. These share purchases may be carried out by any means, including by ante) (twelfth and thirteenth resolutions) acquisition of blocks of shares, and at times that the Board deems Pursuant to article L.225-37-2 of the French Commercial Code, the appropriate. Board prepared a report on corporate governance presenting the The Company reserves the right to use option mechanisms or criteria for determining, distributing and allocating the fixed, variable derivatives in line with applicable regulations. or exceptional components of the total remuneration and benefits in We propose that you set a maximum purchase price of €20 per kind attributable to the Chairman of the Board of Directors (namely, share and consequently, that you set the maximum amount of the currently Raphaël GORGÉ) and to the Chief Executive Office operation at €101,631,280. (namely, currently Olivier STREBELLE), for the 2019 financial year As a consequence of the cancellation objective, we ask you to (see Section 2.2 of the annual report). authorise the Board of Directors, for a period of 24 months, to After reviewing this report, we ask you to approve the principles and cancel, at its sole discretion, on one or more occasions, within the criteria for determining, distributing, and allocating the fixed, variable, limit of 10% of the capital, calculated on the day of the cancellation and exceptional components of the total remuneration and benefits decision, excluding any shares cancelled during the preceding 24 in kind attributable to the Chairman of the Board of Directors months, the shares that the Company holds or may hold as a result (twelfth resolution) and to the Chief Executive Officer (thirteenth of repurchases under its programme to repurchase shares, and to resolution). reduce the share capital accordingly, in accordance with the legal and regulatory provisions in force (fifteenth resolution). The description of the share repurchase programme set out in 6 8. Proposal to renew the authorisation for article 241–2 of the General Regulations of the French Financial implementing the share repurchase Markets Authority is published in the terms set out in article 221–3 of said Regulations and contains all useful additional information for your programme (fourteenth resolution) and information about this repurchase programme (see Section 4.2.2 of authorisation for the related share capital the annual report). reduction (fifteenth resolution) We propose that you authorise the Board of Directors, for a period of 18 months, to purchase shares of the Company, on one or more
PRODWAYS GROUP - 2018 ANNUAL REPORT 149 INFORMATION ON THE SHAREHOLDERS’ MEETING OF 7dJUNE 2019 6 Report of the Board of Directors presenting the resolutions submitted to the combined shareholders’ meeting of 7dJune 2019
9. Financial delegations issued to preserve the rights of security holders and other rights giving access to the share capital, in accordance with the law and any The Board of Directors wishes to have the necessary powers to applicable contractual stipulations. make all issues, should it think fit that may be required for the The maximum nominal amount of debt securities that may be issued development of the Group’s activities. The financial delegations under this delegation will be set at €20,000,000 (or exchange value if approved during the shareholders' meeting of 13 June 2018 are still the issue is in another currency). valid until mid-2020 with the exception of the delegation enabling the The issue price of the shares issued under this delegation will be Board to proceed, where applicable, with a capital increase by issue determined by the Board of Directors and will be at least equal to of ordinary shares, equity securities giving access to other equity the weighted average price of the last three trading sessions securities or giving rights to the allocation of debt securities and/or preceding the setting of the price, less a discount, if any, not to securities giving access to equity securities to be issued, without exceed 30% corrected in the case of any difference in the settlement pre-emptive subscription rights for the benefit of a category of date. Furthermore, it is specified that (i) in the event that securities persons who will underwrite the Company's equity securities that giving access to the share capital are issued, the issue price of the might result therefrom in connection with an equity line of financing. shares likely to result from their exercise, conversion or exchange The meeting is therefore requested to renew this single delegation may be priced, if appropriate, at the discretion of the Board of under the conditions presented below. Directors, using a formula defined by the Board and subsequently applicable to the issue of said securities (for example, at the time of their exercise, conversion or exchange), to which the 9.1 Delegation of powers to the Board to aforementioned maximum discount may be applied, if the Board of increase the share capital through the Directors deems it appropriate, at the application date of said issue, immediately or in future, of ordinary formula (and not at the issue date of the security), and (ii) the issue price of securities giving access to the share capital that may be issued shares or equity securities giving access to pursuant to this resolution will be such that proceeds received other equity securities or rights to the immediately by the Company, plus those likely to be received on the allocation of debt securities, and/or exercise or conversion of said securities, shall be for each share securities giving access to equity securities issued as a result of issuing these securities, at least equal to the issued, without pre-emptive subscription aforementioned minimum amount. rights for the benefit of a category of The 30% discount on the issue price of the shares or transferable persons who will underwrite the securities allows the Company to have greater flexibility in the context of negotiations that could take place with institutions should Company’s equity securities that might the Company wish to set up this equity line of financing. result therefrom in connection with an This delegation would have be for a period of 18 months. equity line of financing (sixteenth resolution) 9.2 Delegation of authority to increase the This delegation will authorise the Board to increase capital through share capital for the benefit of members of the issue of ordinary shares or equity securities giving access to other equity securities or rights to the allocation of debt securities, and/or a Company savings plan (seventeenth securities giving access to equity securities issued, without preemptive resolution) rights in favour of a category of persons who will underwrite the Company’s capital securities that might result therefrom in We submit this resolution for your approval, in order to comply with connection with an equity line of financing. the provisions of article L.225-129-6 of the French Commercial Such a delegation could be used by the Company to set up an equity Code, pursuant to which the extraordinary shareholders’ meeting line with which the Company could increase its financial flexibility must also vote on a resolution to increase the share capital under the alongside the other financing tools it may already have in place. conditions laid down by articles L.3332-18 et seq. of the French Labour Code, when it delegates its authority to carry out a capital Under this delegation, we ask you to cancel the preemptive rights of increase in cash. As the meeting is called to vote on a delegation for ordinary shareholders to equity securities giving access to other a share capital increase in cash, it must therefore also vote on a equity securities or giving rights to the allocation of debt securities delegation for the benefit of members of a Company savings plan, and/or any transferable securities issued in favour of the following with the observation that inclusion on the agenda of this delegation category of persons: any credit institution, investment service for the benefit of members of a Company savings plan also allows provider, or member of an investment banking syndicate or any the Company to satisfy its three-year obligation included in the investment fund or Company undertaking to guarantee the aforementioned provisions. completion of the capital increase or of any issue that may eventually result in a capital increase that could be completed pursuant to this As part of this delegation, we propose that you authorise the Board delegation in the context of the setup of an equity line of financing. of Directors to increase the share capital, on one or more occasions, by the issuance of ordinary shares or securities giving access to For the bearers of transferable securities thus issued, this delegation Company capital for the benefit of members of one or more is, as of right, an express waiver by shareholders of their preemptive Company or Group savings plans set up by the Company and/or the rights to the shares to which these transferable securities will give French or foreign companies related to it under the conditions of right. article L.225-180 of the French Commercial Code and The total number of share capital increases that may be carried out article L.3344-1 of the French Labour Code. immediately and/or in future under this delegation cannot exceed Pursuant to the provisions of article L.3332-21 of the French Labour €4,000,000 or its exchange value in foreign currency to which ceiling Code, the Board of Directors may decide on the allocation, free of will be added, as the case may be, the additional amount of shares
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charge, to beneficiaries of shares to be issued or already issued or The Board of Directors would have, within the limits defined above, other securities giving access to the Company’s share capital to be the necessary powers to set the conditions for the issuance(s), issued or already issued, in connection with (i) the matching acknowledge completion of the resulting capital increases, make the contribution that may be paid pursuant to Company or Group corresponding changes to the Articles of Association, charge, at its savings plan regulations, and/or (ii), where applicable, the discount. sole initiative, the costs of the capital increases to the amount of In accordance with the law, the shareholders’ meeting would remove related premiums and withdraw from this amount the sums shareholders’ pre-emptive subscription rights. necessary to bring the legal reserve to one-tenth of the new capital after each increase, and more generally, do all that is necessary in The maximum nominal amount of share capital increases that may be such matters. made by using the delegation is 1% of the amount of share capital reached upon the Board’s decision to realise this increase, where this However, insofar as this delegation seems to it neither relevant nor amount is independent of any other limit set on delegating a capital appropriate, the Board of Directors suggests that you reject it. increase. To this amount would be added, where applicable, the additional amount of the ordinary shares to be issued to maintain, in accordance with the law and with any applicable contractual 9.3 Authorisations for individual employee provisions regarding other adjustment cases, the rights of holders of shareholding marketable securities giving entitlement to the Company’s capital securities. As the authorisations enabling the Board to allocate stock options or This delegation would be for a period of 26 months. free shares are still valid and the ceilings for the authorisations remain It should be noted that, in accordance with the provisions of sufficient in spite of the new free share allocation plans put in place article L.3332-19 of the French Labour Code, the price of the shares on 31 January 2019, we propose that you renew them during a to be issued cannot be more than 20% (or 30% when the subsequent shareholders' meeting. non-availability provided for by the plan pursuant to The Board invites you to approve, by your vote, the text of the articles L.3332-25 and L.3332-26 of the French Labour Code is resolutions that it proposes, with the exception of the seventeenth greater than or equal to ten years) less than the average of the resolution. opening prices quoted for the share during the 20 trading sessions On 1 April 2019 prior to the decision of the Board of Directors relating to the capital increase and the corresponding issuance of shares, nor higher than The Board of Directors this average.
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6.2 DRAFT RESOLUTIONS FOR THE ORDINARY AND EXTRAORDINARY SHAREHOLDERS’ MEETING OF 7dJUNE 2019
Agenda 17) Delegation of authority to be given to the Board of Directors to increase capital by issuing ordinary shares and/or securities giving Ordinary resolutions access to share capital with cancellation of shareholders’ pre-emptive subscription rights for the benefit of members of a 1) Approval of the separate financial statements for the financial Company savings plan pursuant to articles L.3332-18 et seq. of year ended 31 December 2018 – approval of non-tax-deductible the French Labour Code. expenses and charges. Ordinary resolutions 2) Approval of the consolidated financial statements for the financial year ended 31 December 2018. 18) Powers for formalities. 3) Appropriation of income for the financial year. 4) Special report of the statutory auditors on regulated agreements and commitments and approval of those agreements (agreement Draft resolutions on the takeover of employment contracts concluded between PRODWAYS GROUP, GROUPE GORGÉ and the Chief Executive Ordinary resolutions Officer). ■ 5) Special report of the statutory auditors on regulated agreements First resolution – Approval of the separate financial and commitments and approval of those agreements statements for the year ended 31 December 2018 – (compensation planned in return for the non-compete Approval of non-tax-deductible expenses and charges undertaking by the Chief Executive Officer). The shareholders’ meeting, ruling under the quorum and majority 6) Appointment of Mrs Michèle LESIEUR as Director. conditions for ordinary shareholders’ meetings, after having taken 7) Appointment of Mr Löic LE BERRE as Director. note of the reports by the Board of Directors and statutory auditors for the financial year ended 31 December 2018 approves, as they 8) Appointment of Mrs Céline LEROY as Director. were presented, the annual financial statements as of this date, 9) Modification of the amount of Directors' fees. showing a profit of €2,749,344.25. 10) Approval of the fixed, variable and exceptional components of The shareholders’ meeting specifically approves the total, amounting the total remuneration and benefits in kind paid or allocated to to €0, of the expenses and charges referred to in article 39–4 of the Raphaël GORGÉ in his capacity as Chairman and Chief Executive French General Tax Code, and the corresponding tax. Officer, then Chairman of the Board of Directors for the 2018 financial year. ■ Second resolution – Approval of the consolidated 11) Approval of the fixed, variable and exceptional components of financial statements for the financial year ended the total remuneration and benefits in kind paid or allocated to Olivier STREBELLE in his capacity as Chief Executive Officer for 31 December 2018 the 2018 financial year. The shareholders’ meeting, ruling under the quorum and majority conditions for ordinary shareholders’ meetings, after having taken 12) Approval of the policy on the remuneration of the Chairman of note of the reports by the Board of Directors and statutory auditors the Board of Directors. on the consolidated financial statements as at 31 December 2018, 13) Approval of the policy on the remuneration of the Chief Executive approves those financial statements as they were presented, Officer. returning a loss (Group share) of -€5,454 thousand. 14) Authorisation to be given to the Board of Directors for the Company to repurchase treasury shares pursuant to ■ Third resolution – Appropriation of income for the article L.225-209 of the French Commercial Code (share repurchase financial year programme), duration of the authorisation, objectives, term and conditions, ceiling. The shareholders’ meeting, ruling under the quorum and majority conditions for ordinary shareholders’ meetings, on the proposal of Extraordinary resolutions the Board of Directors, decides to appropriate the income for the year ended 31 December 2018, as follows: 15) Authorisation to be given to the Board of Directors with the aim z origin: of cancelling shares repurchased by the Company pursuant to article L.225-209 of the French Commercial Code. z profit for the financial year €2,749,344.25; 16) Delegation of powers to be given to the Board to increase the z allocation: share capital through the issue, immediately or in future, of z legal reserve €1,707,390.57, ordinary shares or equity securities giving access to other equity z retained earnings: €1,041,953.68. securities or rights to the allocation of debt securities, and/or In accordance with article 243 bis of the French General Tax Code, securities giving access to equity securities issued, without the shareholders’ meeting notes it was reminded that no dividend pre-emptive rights for the benefit of a category of persons who payout was made in respect of the last three financial years. will underwrite the Company’s equity securities that might result therefrom in connection with an equity line of financing.
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■ Fourth resolution – Special report of the statutory the report by the Board of Directors, sets the total amount of auditors on regulated agreements and commitments and Directors’ fees allocated to the Board of Directors at €60,000 a year, approval of those agreements (agreement on the until further resolution, from the year starting 1 January 2019. takeover of employment contracts concluded between ■ PRODWAYS GROUP, GROUPE GORGÉ and the Chief Tenth resolution – Approval of the fixed, variable and Executive Officer) exceptional components of the total remuneration and benefits in kind paid or allocated for the financial year Ruling under the quorum and majority conditions for ordinary shareholders' meetings on the special report from the statutory ending 31 December 2018 to Raphaël GORGÉ, as auditors on the regulated agreements and commitments as Chairman and Chief Executive Officer, then Chairman of presented, the general meeting approves the agreement on the the Board of Directors since 4 October 2018 takeover of employment contracts concluded between PRODWAYS The shareholders’ meeting, ruling under article L.225-100 paragraph II GROUP, GROUPE GORGÉ and the Chief Executive Officer. of the French Commercial Code, having reviewed the special report of the Board of Directors, approves the fixed, variable and ■ Fifth resolution – Special report of the statutory exceptional components of the total remuneration and benefits in auditors on regulated agreements and commitments and kind paid or allocated for the financial year ended 31 December approval of those agreements (compensation planned in 2018 to Raphaël GORGÉ, Chairman and Chief Executive Officer until 4 October 2018, then Chairman of the Board of Directors, as return for the non-compete undertaking by the Chief presented in this report (see Section 2.2 of the annual report). Executive Officer) Ruling under the quorum and majority conditions for ordinary ■ Eleventh resolution – Approval of the fixed, variable shareholders’ meetings on the special report by the statutory auditors and exceptional components of the total remuneration on the regulated agreements and commitments as presented, the shareholders’ meeting approves the commitment of the Company and benefits in kind paid or allocated for the financial corresponding to the payment, where applicable, of compensation in year ending 31 December 2018 to Olivier STREBELLE, return for the non-compete undertaking by the Chief Executive as Chief Executive Officer Officer. The shareholders’ meeting, ruling under article L.225-100 paragraph II of the French Commercial Code, having reviewed the special report ■ Sixth resolution – Appointment of Mrs Michèle of the Board of Directors, approves the fixed, variable and LESIEUR as Director exceptional components of the total remuneration and benefits in kind paid or allocated for the financial year ended 31 December The shareholders’ meeting, ruling under the quorum and majority 2018 to Olivier STREBELLE in his capacity as Chief Executive Officer conditions for ordinary shareholders’ meetings, resolves to appoint since 4 October 2018, as presented in this report (see Section 2.2 of Michèle LESIEUR as Director for a term of three years ending at the the annual report). close of the shareholders’ meeting to be held in 2022 to approve the financial statements for the financial year ending 31 December 2021. ■ Twelfth resolution – Approval of the remuneration ■ Seventh resolution – Appointment of Mr Löic policy of the Chairman of the Board of Directors LE BERRE as Director The shareholders’ meeting, ruling under the quorum and majority conditions for ordinary shareholders’ meetings, having reviewed the The shareholders’ meeting, ruling under the quorum and majority report of the Board of Directors on the remuneration policy for conditions for ordinary shareholders’ meetings, resolves to appoint corporate officers established in accordance with article L.225-37-2 Mr Löic LE BERRE as Director for a term of three years ending at the of the French Commercial Code, approves the principles and criteria close of the shareholders’ meeting to be held in 2022 to approve the for determining, distributing and allocating the fixed, variable and financial statements for the financial year ending 31 December 2021. exceptional components of the total remuneration and benefits in ■ kind that may be allocated to the Chairman of the Board of Eighth resolution – Appointment of Mrs Céline Directors, by virtue of his office, as presented in this report. LEROY as Director The shareholders’ meeting, ruling under the quorum and majority ■ Thirteenth resolution – Approval of the 6 conditions for ordinary shareholders’ meetings, resolves to appoint remuneration policy of the Chief Executive Officer Mrs Céline LEROY as Director for a term of three years ending at The shareholders’ meeting, ruling under the quorum and majority the close of the shareholders’ meeting to be held in 2022 to approve conditions for ordinary shareholders’ meetings, having reviewed the the financial statements for the financial year ending 31 December report of the Board of Directors on the remuneration policy for 2021. corporate officers established in accordance with article L.225-37-2 ■ of the French Commercial Code, approves the principles and criteria Ninth resolution – Allocation of Directors' fees – for determining, distributing and allocating the fixed, variable and Fixing the amount of Directors' fees exceptional components of the total remuneration and benefits in The shareholders’ meeting, ruling under the quorum and majority kind that may be allocated to the Chief Executive Officer by virtue of conditions for ordinary shareholders’ meetings, having taken note of his office, as presented in this report.
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■ Fourteenth resolution – Authorisation to be given to The shareholders’ meeting grants all powers to the Board of the Board of Directors for the Company to buy its own Directors for the purpose of carrying out these operations, to shares in accordance with article L.225-209 of the approve the terms and conditions, to conclude all agreements and execute all formalities. French Commercial Code The shareholders’ meeting, ruling under the quorum and majority conditions for ordinary shareholders’ meetings, noting the report of Extraordinary resolutions the Board of Directors, authorises the latter, for a period of 18 months, in accordance with articles L.225-209 et seq. of the French ■ Commercial Code to purchase, on one or more occasions, at times it Fifteenth resolution – Authorisation to be given to will determine, shares in the Company, up to a maximum of 10% of the Board of Directors to cancel shares repurchased by the number of shares comprising the share capital, adjusted where the Company in accordance with article L.225-209 of the appropriate to take account of any capital increase or reduction that French Commercial Code may occur during the term of the program. The shareholders’ meeting, having noted the report by Board of This authorisation cancels the authorisation granted to the Board by Directors and the report by the statutory auditors: the shareholders’ meeting of 13 June 2018 in its tenth ordinary 1) authorises the Board of Directors to cancel, at its sole discretion, resolution. on one or more occasions, within the limit of 10% of the capital, Acquisitions may be made to: calculated on the day of the cancellation decision, excluding any z stimulate the secondary market or the liquidity of Company shares shares cancelled during the preceding 24 months, the shares that through the intermediary of an investment service provider under a the Company holds or may hold as a result of repurchases under liquidity contract that complies with the Code of Ethics as article L.225-209 of the French Commercial Code, and to reduce recognised by the French Financial Markets Authority; the share capital accordingly, pursuant to the laws and regulations z retain the purchased shares and subsequently allocate them in in force; payment or exchange in potential external growth transactions, in 2) sets the period of validity of this authorisation at twenty-four respect of market practices approved by the AMF; months starting from the date of this meeting; z provide coverage for stock option plans and/or free share 3) gives the Board of Directors all powers to carry out the allotments (or similar plans) for Group employees and/or transactions required for such cancellations and the related corporate officers as well as all share allotments to Group or reductions in share capital, amend the Company Articles of Company savings plans (or similar plans), under profit-sharing Association as a result, and complete all required formalities. schemes and and/or all other forms of share allotment to Group employees and/or corporate officers; ■ Sixteenth resolution – Delegation of powers to be z allot shares upon the exercise of rights linked to securities giving given to the Board to increase the share capital through access to the share capital through reimbursement, conversion, the issue, immediately or in future, of ordinary shares or exchange, presentation of a warrant or by any other method; equity securities giving access to other equity securities z cancel shares purchased, subject to the authorisation granted by a or with rights to the allocation of debt securities and/or shareholders’ meeting; securities giving access to equity securities issued, z more generally, carry out any objective authorised by law or any without pre-emptive rights for the benefit of a category market practice approved by market authorities. of persons who will underwrite the Company’s equity These share purchases may be carried out by any means, including by securities that might result therefrom in connection with acquisition of blocks of shares, and at times that the Board deems an equity line of financing appropriate. The shareholders’ meeting, ruling under the quorum and majority The Company reserves the right to use option mechanisms or conditions for ordinary shareholders’ meetings, having taken note of derivatives in line with applicable regulations. the report of the Board of Directors and the report of the statutory The maximum purchase price is set at €20 per share. In case of auditors, in accordance with articles L.225-129 et seq. of the French operations on the capital, including division or grouping of shares or a Commercial Code, specifically articles L.225-129-2, L.225-129-4, free allocation of shares, the aforementioned amount will be adjusted L.225-135, L.225-138 and L.228-91 et seq.: in the same proportions (multiplier coefficient equal to the ratio of 1) delegates to the Board of Directors its powers to approve the the number of shares composing the capital before the operation and issue, in one or more instalments, in the proportions and at the the number of shares after the operation). times it deems appropriate, in France or abroad, in euros, foreign The maximum amount of the transaction is thus set at €101,631,280 currency or any other unit of account established in reference to (corresponding to 10% of the share capital as at 1 April 2019, at a a set of currencies, of ordinary shares or equity securities giving maximum price of €20 per share). access to other equity securities or giving right to the allocation of debt securities and/or marketable securities (including all debt securities) giving access to equity securities issued;
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2) resolves that the marketable securities issued can consist of debt securities (for example, at the time of their exercise, conversion securities, can be associated with the issue of such securities or or exchange), to which the aforementioned maximum discount allow the issue thereof as intermediate securities; may be applied, if the Board of Directors deems it appropriate, at 3) decides to cancel the pre-emptive rights of ordinary shareholders the application date of said formula (and not at the issue date of to equity securities giving access to other equity securities or the security), and (ii) the issue price of securities giving access to giving rights to the allocation of debt securities and/or any the share capital that may be issued pursuant to this resolution transferable securities to be issued in favour of the following will be such that proceeds received immediately by the category of persons: any credit institution, investment service Company, plus those likely to be received on the exercise or provider, or member of an investment banking syndicate or any conversion of said securities, shall be for each share issued as a investment fund or company undertaking to guarantee the result of issuing these securities, at least equal to the completion of the capital increase or of any issue that may aforementioned minimum amount; eventually result in a capital increase that could be completed 8) specifies that the delegation thus conferred on the Board is valid pursuant to this delegation in connection with an equity line of for a period of eighteen months from this shareholders’ meeting; financing; 9) decides that the Board of Directors will have all powers, with the 4) duly notes that where necessary this delegation entails the waiver option of sub-delegation pursuant to the law, to implement, by shareholders of their pre-emptive rights to any shares to under the conditions set by law and the Articles of Association, which these securities give access; this delegation in order specifically to: 5) decides that the total nominal amount of share capital increases z decide the amount of share capital increase, the issue price that may be carried out immediately and/or in future under this (determined per the pricing conditions recorded above) and delegation cannot exceed €4,000,000 or its exchange value in the amount of the premium that may, as applicable, be foreign currency to which ceiling will be added, as the case may requested at issue, be, the additional amount of shares issued to preserve the rights z set the dates, conditions and procedures of any issue as well as of security holders and other rights giving access to the share the form and features of the shares or marketable securities capital, in accordance with the law and any applicable contractual giving access to the share capital issued, set the vesting date, stipulations; which may be retroactive, of the shares or marketable 6) resolves to set at €20,000,000 (or exchange value if the issue is securities giving access to the share capital issued and their in another currency) the maximum nominal amount of debt method of payment, securities that can be issued under this delegation, given that: z set the list of beneficiaries in the aforementioned category of z this amount will be supplemented where applicable by any persons and the number of shares to be allocated to each of above-par redemption premium, them, z this ceiling does not apply to debt securities referred to in z at its sole initiative and when it deems appropriate, charge the articles L.228-40, L.228-36-A and L.228-92 paragraph 3 of the costs, duties and fees incurred by the capital increases carried French Commercial Code whose issue is decided or out under the delegation mentioned in this resolution, against authorised by the Board of Directors under the conditions set the amount of premiums related to these transactions and out in article L.228-40 of said code or, in other cases, under withdraw, from the amount of these premiums, the sums the conditions determined by the Company in accordance necessary to bring the legal reserve to one-tenth of the new with article L.228-36-A of said code; share capital after each increase, 7) the issue price of the shares issued under this delegation will be z note the completion of each share capital increase and amend determined by the Board of Directors and will be at least equal the Articles of Association accordingly, to the weighted average price of the last three trading sessions z in general enter into any agreement to ensure the success of preceding the setting of the price, less a discount, if any, not to the planned issues, take all measures and carry out all exceed 30% corrected in the case of any difference in the formalities required for the issue and listing of and trade in the settlement date. Furthermore, it is specified that (i) in the event securities issued under this delegation as well as the exercise that securities giving access to the share capital are issued, the of the rights attached thereto, issue price of the shares likely to result from their exercise, z make any decision with a view to admitting the securities and conversion or exchange may be priced, if appropriate, at the marketable securities thus issued to any market on which the discretion of the Board of Directors, using a formula defined by Company’s shares are admitted for trading. 6 the Board and subsequently applicable to the issue of said
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■ Seventeenth resolution – Delegation of authority to applicable contractual provisions regarding other adjustment be given to the Board of Directors to increase the share cases, the rights of holders of marketable securities giving capital by issuing ordinary shares and/or securities giving entitlement to the Company’s capital securities; access to share capital without pre-emptive rights for 5) decides that the price of the shares to be issued, pursuant to the benefit of members of a company savings plan paragraph 1/ of this delegation of powers, shall not be more than 20% lower – or 30% lower if the lock-in period prescribed by pursuant to articles L.3332-18 et seq. of the French the plan pursuant to articles L.3332-25 and L.3332-26 of the Labour Code French Labour Code is greater than or equal to ten years – than The shareholders’ meeting, having noted the report of the Board of the average of the opening prices quoted for the share during Directors and the special report of the statutory auditors pursuant to the 20 trading sessions prior to the decision of the Board of articles L.225-129-6, L.225-138-1 and L.228-92 of the French Directors relating to the capital increase and the corresponding Commercial Code, and L.3332-18 et seq. of the French Labour Code: issue of shares, nor shall that price be higher than this average; 1) delegates its powers to the Board of Directors, if the latter sees 6) decides, pursuant to the provisions of article L.3332-21 of the fit and at its sole discretion, to increase the share capital on one French Labour Code, that the Board of Directors may resolve to or more occasions, by issuing ordinary shares or transferable allocate free of charge, to the beneficiaries defined in the first securities giving access to capital securities to be issued by the paragraph above, shares to be issued or already issued, or other Company to members of one or more Company or Group securities giving access to the Company’s share capital to be savings plans set up by the Company and/or French or foreign issued or already issued, for (i) the bonus payment that may be companies related to it under the terms of article L.225-180 of made under Company or Group savings plan rules, and/or (ii), the French Commercial Code and article L.3344-1 of the French where applicable, the discount; Labour Code; 7) notes that this delegation cancels and replaces any prior 2) waives for the benefit of these individuals the pre-emptive delegation of powers having the same purpose. subscription rights to shares which may be issued pursuant to this The Board of Directors may or may not implement this delegation, delegation; take all measures and carry out all necessary formalities. 3) sets the period of validity of this authorisation at twenty-six months starting from the date of this delegation; 4) limits the maximum nominal amount of share capital increases Ordinary resolutions that may be made by using this delegation to 1% of the amount of share capital reached upon the Board’s decision to effectuate ■ Eighteenth resolution – Powers for formalities this increase. This amount is independent of any other limit set on delegating a capital increase. To this amount will be added, The shareholders’ meeting, ruling under the quorum and majority conditions for ordinary shareholders’ meetings, grants all powers to where applicable, the additional amount of the ordinary shares to the bearer of an example, a copy or an extract of these minutes in be issued to maintain, in accordance with the law and with any order to accomplish all filing and publicity formalities required by law.
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6.3 REPORTS OF THE STATUTORY AUDITORS PRESENTED TO THE SHAREHOLDERS’ MEETING
Statutory auditors’ special report on regulated agreements and commitments See Section 2.5.2 of the annual report.
Statutory auditors’ report on capital reduction To the Shareholders,
As statutory auditors of your Company and pursuant to the assignment set forth in article L. 225-209 of the French Commercial Code in case of capital reduction through the cancellation of shares purchased, we have drawn up this report intended to inform you of our assessment of the causes and conditions of the proposed capital reduction. Your Board of Directors proposes that you delegate to it, for a period of 24 months from the date of this meeting, all powers to cancel, up to a limit of 10% of its capital, per 24-month period, the shares purchased pursuant to the implementation of a purchase authorisation by your company for its own shares within the framework of the provisions of the aforementioned article. 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 mission. These procedures require us to examine whether the causes and conditions of the proposed capital reduction, of a nature not to impair the equality of shareholders, are regular. We have no matters to report on the causes and conditions of the proposed capital reduction.
Neuilly-sur-Seine and Paris, 11 April 2019
The statutory auditors RSM Paris PricewaterhouseCoopers Audit Stéphane Marie David Clairotte
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Statutory auditors' report on the delegation of competence to increase the capital within the framework of an equity financing line (Shareholders’ meeting of 7 June 2019 – 16th resolution)
To the Shareholders, As statutory auditors of your Company and in execution of the assignment stipulated in articles L. 228-92 and L. 225-135 et seq. of the French Commercial Code, we hereby present our report on the proposed delegation of authority to the Board of Directors to decide on an issue with cancellation of the preferential subscription rights reserved for any credit institution, investment service provider, or member of an investment banking syndicate or any investment fund or company undertaking to guarantee the completion of the capital increase or of any issue that may eventually result in a capital increase that could be completed pursuant to this delegation in the context of implementing an equity line of financing, that you are asked to approve. Based on its report, your Board of Directors asks you to grant it a delegation of authority for a period of 18 months, to decide on the issue of ordinary Company shares or equity securities giving access to other equity securities or giving right to the allocation of debt securities and/or marketable securities (including all debt securities) giving access to the equity securities issued without any preferential subscription rights to the securities issued. If applicable, it will determine the final terms and conditions of this transaction.
The overall nominal amount of the capital increases which may be carried out immediately or in the future may not exceed €4,000,000. The overall nominal amount of the marketable securities representing debt securities which may be issued may not exceed €20,000,000. It is the responsibility of the Board of Directors to prepare a report in compliance with articles L. 225-113 et seq. of the French Commercial Code. Our role is to report to you on the fairness of the financial information extracted from the financial statements, on the proposal to waive the preferential subscription rights and on certain other information concerning these transactions, set out in this report.
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 mission. These procedures consisted in verifying the contents of the report from the Board of Directors on this transaction and the process for setting the issue price of the future securities. Subject to reviewing at a future date the terms and conditions of any issues of shares or securities granting access to the share capital that may be decided upon, we have no comments to make on the process for setting the issue price of the future securities, set out in the report of the Board of Directors. As indicated in the Board of Directors' report, the cancellation of preferential subscription rights would be in favour of any credit institution, investment service provider, or member of an investment banking syndicate or any investment fund or company undertaking to guarantee the completion of the capital increase or of any issue that may eventually result in a capital increase that could be completed pursuant to this delegation in the context of implementing an equity line of financing. This description does not appear to us to comply with the provisions of article L. 225-138 of the French Commercial Code providing for the possibility of reserving capital increases to categories of persons satisfying determined characteristics insofar as the shareholders' meeting does not sufficiently nor precisely specify the identification criteria for the category to which the beneficiaries of the envisaged issue belong.
As a result, we cannot give our opinion on the proposed cancellation of preferential subscription rights made to you.
Pursuant to article R. 225-116 of the French Commercial Code, we will prepare an additional report, as required, when the Board of Directors makes use of this delegation.
Neuilly-sur-Seine and Paris, 11 April 2019
The statutory auditors
PricewaterhouseCoopers Audit RSM Paris David Clairotte Stéphane Marie
158 PRODWAYS GROUP - 2018 ANNUAL REPORT INFORMATION ON THE SHAREHOLDERS’ MEETING OF 7dJUNE 2019 Reports of the statutory auditors presented to the shareholders’ meeting
Report of the statutory auditors on the issue of shares and/or transferable securities giving access to the capital reserved for subscribers to Company savings plans (Shareholders' meeting of 7 June 2019 – 17th resolution)
To the Shareholders,
As statutory auditors of your Company and pursuant to the assignment set forth in articles L. 228-92 and L. 225-135 et seq. of the French Commercial Code (Code de commerce), we hereby present our report on the proposed delegation of authority to your Board of Directors to decide an increase in the share capital, through issues of shares or securities granting access to the share capital, with cancellation of preferential subscription rights, reserved for subscribers to one or more Company savings plans implemented within the Group, comprising the Company and the French and foreign companies falling within the consolidation scope of the Company’s financial statements pursuant to article L. 225-180 of the French Commercial Code and article L. 3344-1 of the French Labour Code (Code du travail), a transaction that your are being asked to approve. The maximum nominal amount of the capital increase likely to result from this issue is set at 1% of the amount of the share capital reached upon the Board’s decision to carry out this increase. This share capital increase is subject to your approval pursuant to the provisions of article L. 225-129-6 of the French Commercial Code and articles L. 3332-18 et seq. of the French Labour Code. Based on its report, your Board of Directors is asking that you grant it full powers, for a period of twenty-six months commencing from the date of this shareholders’ meeting, to decide an issue with cancellation of your preferential subscription rights to the transferable securities to be issued. When appropriate, it will set the final terms and conditions of these issues. It is the responsibility of the Board of Directors to prepare a report in compliance with articles R. 225-113 et seq. of the French Commercial Code. Our role is to express an opinion on the fair presentation of the quantified financial information drawn from the accounts, on the proposal to cancel preferential subscription rights and on certain other information concerning this issue, contained in this report. 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 mission. These procedures consisted in verifying the contents of the report from the Board of Directors on this transaction and the process for setting the issue price of the future securities. Subject to reviewing at a future date the terms and conditions of any issues of shares or securities granting access to the share capital that may be decided upon, we have no comments to make on the process for setting the issue price of the future securities, set out in the report of the Board of Directors. As the definitive terms and conditions of the share capital increase have not been set, we do not express an opinion thereon and, as such, on the proposed cancellation of preferential subscription rights on which you are asked to decide.
Pursuant to article R. 225-116 of the French Commercial Code, we will prepare an additional report, as required, when the Board of Directors makes use of this authorisation.
Neuilly-sur-Seine and Paris, 11 April 2019 The statutory auditors
PricewaterhouseCoopers Audit RSM Paris 6 David Clairotte Stéphane Marie
PRODWAYS GROUP - 2018 ANNUAL REPORT 159 INFORMATION ON THE SHAREHOLDERS’ MEETING OF 7dJUNE 2019 6 Other reports by the Board of Directors presented to the shareholders’ meeting of 7dJune 2019
6.4 OTHER REPORTS BY THE BOARD OF DIRECTORS PRESENTED TO THE SHAREHOLDERS’ MEETING OF 7dJUNE 2019
Management report See concordance table in Chapter 7.3.3 of the annual report.
Board of Directors’ corporate governance report prepared in accordance with articledL.225-37 et seq. of the French Commercial Code See concordance table in Chapter 7.3.4 of the annual report.
Special report by the Board of Directors prepared in accordance with articledL.225-197-4 of the French Commercial Code Report concerning the free share allocation plans of 2016
Dear Shareholders, In its only resolution, the extraordinary shareholders’ meeting of 28 September 2015 authorised the Board of Directors to allocate existing or future free shares, on one or more occasion, in accordance with articles L.225-197-1 and L.225-197-2 of the French Commercial Code, amounting to 5% of the share capital to: z salaried employees of the Company or entities that are directly or indirectly affiliated with it under article L.225-197-2 of the French Commercial Code; z and/or corporate officers meeting the conditions laid down in article L.225-197-1 of the French Commercial Code. As a result of this authorisation. the Board of Directors prepared a number of free share allocation plans in 2016 to involve all and in particular key employees in the Group’s performance. The Board prepared a report on the 2016 allocations and presented this to the combined shareholders’ meeting of 21 March 2017. The vesting period for the free share allocation plans of 2016 expires on 15 April 2019. The presence condition must be examined at this date; the liquidity condition of the plans is already fulfilled; the performance conditions are partially fulfilled solely for the December 2016 plans. Vesting is in progress as detailed in Section 4.2 of the annual report. On 1 April 2019 The Board of Directors
Report concerning the free share allocation plans of 2019
Dear Shareholders, Pursuant to article L.225-197-4 of the French Commercial Code, we are pleased to present you the information on the allocation of free shares to the employees and Directors of PRODWAYS GROUP during the year ended 31 December 2019. Pursuant to the provisions of article L.225-197-5 of the French Commercial Code, this report will also be presented to the ordinary shareholders' meeting of GROUPE GORGÉ, as parent company of PRODWAYS GROUP. In its 21st resolution, the extraordinary shareholders’ meeting of PRODWAYS GROUP of 13 June 2018 authorised the Board of Directors to allocate existing or future free shares of the Company, on one or more occasions, in accordance with articles L.225-197-1 and L.225-197-2 of the French Commercial Code, amounting to 5% of the share capital to: z salaried employees of the Company or entities that are directly or indirectly affiliated with it under article L.225-197-2 of the French Commercial Code; z and/or corporate officers meeting the conditions set by article L.225-197-1 of the French Commercial Code.
As a result of this authorisation, the Board of Directors of PRODWAYS GROUP set up free share allocation plans. In compliance with the law, you will find below the information relating to these free share allocations of PRODWAYS GROUP approved by the Board of Directors.
160 PRODWAYS GROUP - 2018 ANNUAL REPORT INFORMATION ON THE SHAREHOLDERS’ MEETING OF 7dJUNE 2019 Other reports by the Board of Directors presented to the shareholders’ meeting of 7dJune 2019
On 31 January 2019, the Board of Directors approved two free share allocation plans: z a free share allocation plan for all employees of PRODWAYS GROUP and its subsidiaries with their registered offices in France (the collective plan); and z a free performance share allocation plan for the benefit of certain employees and corporate officers of the Company and its French and foreign subsidiaries (the selective plan).
The allocation of free shares under the collective plan The collective free share allocation plan approved by the Board of Directors on 31 January 2019 whose aim is to reward all employees for the Group's performance and value creation, provides for the free allocation of 19,800 shares for the benefit of all employees of PRODWAYS GROUP and its majority-owned subsidiaries with their registered offices in France. These shares were allocated equally between the 396 employees of the Company and its French subsidiaries, with 50 shares per employee. The plan is explained in more detail in the table below:
Number of Vesting Period/ Origin of the shares Duration of the Total number Allocation conditions shares to be allocated lock-up period of recipients and criteria allocated Value of shares
From 31 January 2019 z No Group performance Based on the share's to 1 February 2021 closing price on condition New shares to be 19,800 368 z Condition of continued 31 January 2019 (i.e. issued No lock-up period employment on €3.17): 1 February 2021 €62,766
The allocation of free shares under the selective plan The selective free performance share allocation plan approved by the Board of Directors on 31 January 2019 whose aim is to retain key employees and link them to the Group's performance and value creation, provides for the free allocation of 783,800 performance shares for the benefit of certain employees and corporate officers of PRODWAYS GROUP or its French and foreign subsidiaries. The plan is explained in more detail in the table below:
Total number of Vesting period / Origin of the shares Duration of the Total number Allocation conditions shares to be allocated lock-up period of recipients and criteria allocated Value of shares
31 January 2019 to z Performance condition 1 February 2021, then based on the Group's on 1 February 2022 consolidated operating and lastly 1 February income for the 2019, 2020 2023 and 2021 financial years Or No lock-up period, z Performance condition Based on the share's except for executive based on the Company's closing price on New shares to be 783,000 corporate officers 50 share price at 31 31 January 2019 (i.e. issued December of 2019, 2020 €3.17): and 2021 €2,482,110 And z Condition of continued 6 employment at each intermediate vesting period (1 February 2021, 1 February 2022 and 1 February 2023)
PRODWAYS GROUP - 2018 ANNUAL REPORT 161 INFORMATION ON THE SHAREHOLDERS’ MEETING OF 7dJUNE 2019 6 Other reports by the Board of Directors presented to the shareholders’ meeting of 7dJune 2019
Additional information pursuant to article L.225-197-4 of the French Commercial Code The tables below have been prepared in accordance with the requirements of article L.225-197-4 of the French Commercial Code:
Free allocation of shares, on this date in 2019, to corporate officers of PRODWAYS GROUP, or by companies affiliated within the meaning of article L.225-197-2 of the French Commercial Code
Corporate officers concerned Number of shares Value Based on the share's closing price on 31 January 2019 (i.e. €3.17): Olivier STREBELLE (Chief Executive Officer) 135,000 €427,950
Free allocation of shares to corporate officers of PRODWAYS GROUP, on this date in 2019, by controlled companies within the meaning of article L.233-16 of the French Commercial Code, for terms of office and positions performed by the said corporate officers within the said controlled companies None
List of the ten employees of PRODWAYS GROUP SA, that are not corporate officers, to which the largest number of shares has been allocated on this date in 2019 by PRODWAYS GROUP and by the companies indicated in article L. 225-197-2 of the French Commercial Code The Company only has 5 employees.
Employees Number of shares allocated Value (euros) Based on the share's closing price on 31 January 2019 (i.e. €3.17): A 30,000 (selective plan) and 50 (collective plan) €95,258.50 Based on the share's closing price on 31 January 2019 (i.e. €3.17): B 25,000 (selective plan) and 50 (collective plan) €79,408.50 Based on the share's closing price on 31 January 2019 (i.e. €3.17): C 20,000 (selective plan) and 50 (collective plan) €63,558.50 Based on the share's closing price on 31 January 2019 (i.e. €3.17): D 5,000 (selective plan) and 50 (collective plan) €16,008.50 Based on the share's closing price on 31 January 2019 (i.e. €3.17): E 50 (collective plan) €158.50
Breakdown of shares between beneficiary categories
Collective % of shares by beneficiary plan Selective plan Total category Corporate officers - 505,000 505,000 62.9% Employees 19,800 278,000 297,800 37.1% Total 19,800 783,000 802,800 100 %
The Board of Directors 31 January 2019
162 PRODWAYS GROUP - 2018 ANNUAL REPORT ADDITIONAL INFORMATION
7.1 INFORMATION CONCERNING THE STATUTORY 7.3CONCORDANCE TABLES 165 AUDITORS 164 7.3.1 Concordance table – Annual financial report 165 7.2PERSON RESPONSIBLE FOR THE INFORMATION 164 7.3.2 Concordance table – Consolidated management report pursuant to 7.2.1 Person responsible for the annual report articlesdL.225-100 et seq. of the French containing the annual financial report 164 Commercial Code 165 7.2.2 Statement by the person responsible for 7.3.3 Concordance table – Corporate governance the annual report 164 report pursuant to articledL.225-37 of the French Commercial Code 167
PRODWAYS GROUP - 2018 ANNUAL REPORT 163 ADDITIONAL INFORMATION 7 Information concerning the statutory auditors
7.1 INFORMATION CONCERNING THE STATUTORY AUDITORS
Principal statutory auditors Alternate statutory auditors
PRICEWATERHOUSECOOPERS AUDIT FIDINTER Member of the Versailles Regional Association of statutory auditors 26 rue Cambacérès, 75008 Paris, France Represented by David CLAIROTTE Alternate Statutory Suditor of the Company appointed under the 63, rue de Villiers – 92200 Neuilly-Sur-Seine Articles of Association dated 13 March 2014 for a term of six years to expire at the end of the shareholders’ meeting called to approve Statutory Auditor of the Company appointed by the combined the financial statements for the financial year ending 31 December shareholders’ meeting of 5 May 2017 for a term of six years to expire 2019 (first appointment). at the end of the shareholders’ meeting called to approve the financial statements for the financial year ending 31 December 2022 (first appointment).
RSM PARIS Member of the Versailles Regional Association of statutory auditors Represented by Stéphane MARIE 26 rue Cambacérès, 75008 Paris, France Statutory Auditor of the Company appointed under the Articles of Association dated 13 March 2014 for a term of six years to expire at the end of the shareholders’ meeting called to approve the financial statements for the financial year ending 31 December 2019 (first appointment).
7.2 PERSON RESPONSIBLE FOR THE INFORMATION
7.2.1 Person responsible for the annual 7.2.2 Statement by the person responsible report containing the annual for the annual report financial report “I certify that, to my knowledge, the financial statements have been prepared in accordance with applicable accounting standards and give Mr Olivier STREBELLE as Chief Executive Officer of PRODWAYS a true and fair view of the assets and liabilities, financial situation and GROUP SA. earnings of the Company and of all the companies included in the scope of consolidation, and that the management report (incorporated by reference in the annual report, according to the concordance tables on pages 165 to 167) fairly presents the business trends, earnings and financial situation of the Company and of all the companies included in the scope of consolidation, as well as a description of the main risks and uncertainties they face.”
Signed in Paris, 11 April 2019 The Chief Executive Officer
164 PRODWAYS GROUP - 2018 ANNUAL REPORT ADDITIONAL INFORMATION Concordance tables
7.3 CONCORDANCE TABLES
7.3.1 Concordance table – Annual financial report This annual report includes all sections of the annual financial report listed under article L.451-1-2 of the French Monetary and Financial Code, as well as article 222–3 of the French Financial Markets Authority (Autorité des Marchés Financiers – AMF) General Regulations. The documents referred to in article 222–3 of the aforementioned General Regulations and the corresponding sections of this annual financial report are specified below:
Annual financial report (article L.451-1-2 of the French Monetary and Financial Code and article 222–3 of the General Regulations of the AMF) Chapter/Section Page 1. Separate financial statements 3.2 106-114 2. Consolidated financial statements 3.1 62-100 3. Management report See concordance 165 table in Section 7.3.2 4. Statement by the person responsible for the annual financial report 7.2.2 164 5. Statutory auditors’ report on the separate financial statements 3.2.5 115-117 6. Statutory auditors’ report on the consolidated financial statements 3.1.7 101-103 7. Statutory auditors’ special report on regulated agreements and commitments 2.5.2 57 8. Board of Directors’ corporate governance report (article L.225-37 See concordance 167 of the French Commercial Code) table in Section 7.3.3
7.3.2 Concordance table – Consolidated management report pursuant to articlesdL.225-100 et seq. of the French Commercial Code This annual report includes the items from the management report referred to in articles L.225-100 et seq. and L.232-1 of the French Commercial Code and the corporate governance report pursuant to articles L.225-37 et seq. of the French Commercial Code.
Consolidated management report Chapter/Section Page I Business activities and risks 1. Position and activity of the Company over the past year 1.5.3 23 2. Results of the activity of the Company, its subsidiaries and companies under its control 1.4 20-22 3. Key financial performance indicators 1.1 8-9 4. Key non-financial performance indicators 1.1 and 5 8-9, 132-143 5. Analysis of changes to the business, its results and financial position 1.4.1, 1.4.2 20-22 6. Significant events occurring between the closing of the financial year and the date the 1.3.4, Note 12.3 to the 19, 99, 114 management report was drawn up consolidated financial statements and Note 9.2 to the separate financial statements 7. Trends and outlook Chairman and CEO’s 2, 18 Message, 1.3.2 8. Research and development activities 1.3.3, 1.6.1, Note 6.2 to 19, 25-26, 85 the consolidated financial statements 9. Significant new shareholdings or controlling interests acquired during the year in 1.2.3, 1.2.4, 1.3.1, 16-18, 72-73 7 companies with head offices on French territory Note 2.2 to the consolidated financial statements 10. Statement of existing branches N/A -
PRODWAYS GROUP - 2018 ANNUAL REPORT 165 ADDITIONAL INFORMATION 7 Concordance tables
Consolidated management report Chapter/Section Page II Internal control and risk management procedures 11. Main risks and uncertainties 1.6 25-33 12. Main features of the Company’s internal control and risk management procedures for 2.6 58-59 preparing and processing financial and accounting information 13. Information on financial risks relating to the effects of climate change and presentation 1.6.6, 5.1.4 33, 134 of the steps taken to mitigate such risks through a low-carbon strategy 14. Information on the use of financial instruments (policy and hedging) Note 8 to the 91-94, 109-111, consolidated financial 112 statements, Note 5 and 7 to the separate financial statements III Statement of non-financial performance IV Shareholders and share capital 15. Shareholder structure and changes occurring during the year 4.2, 4.3 122-125, 125-128 16. Employee share ownership statement 4.3.5 128 17. Repurchase and resale by the Company of its treasury shares 4.2.2 124-125 18. Names of controlled entities and interests held Note 13 to the 100 consolidated financial statements 19. Transfers of shares to regularise cross-shareholdings N/A - 20. Trading in Company shares by senior managers and persons with close ties to them 2.1.4 43 21. Information on stock option plans granted to corporate officers and employees 2.4, Note 5.4 to the 55, 83-84 consolidated financial statements 22. Information on free shares allocated to corporate officers and employees 2.4, Note 5.4 to the 55, 83-84 consolidated financial statements V Corporate governance report (Art. L.225-37 et seq. of the French Commercial See concordance table 167 Code) below VI Other information 23. Non-tax-deductible expenses and expenses added back following a tax adjustment 1.5.2 23 24. Table of financial results for the last five financial years 1.5.5 24-25 25. Total dividends and other income paid out over the previous three financial years 1.5.3, 4.4.2, 6.1 23, 129, 148-151 26. Orders or financial penalties for anti-competitive practices N/A - 27. Amount of intercompany loans granted under article L.511-6-3a of the French N/A - Monetary and Financial Code 28. Works council opinion on changes to the Company’s financial and legal structure N/A - 29. Payment times for trade receivables and payables 1.5.4 23
166 PRODWAYS GROUP - 2018 ANNUAL REPORT ADDITIONAL INFORMATION Concordance tables
7.3.3 Concordance table – Corporate governance report pursuant to articledL.225-37 of the French Commercial Code
Corporate governance report Chapter/Section Page 1. Composition of the Board of Directors 2.1 36-42 2. Presentation of the members of the Board of Directors, list of their offices and positions 2.1 36-42 3. Conditions for the preparation and organisation of the Board of Directors’ work 2.1.7 43-44 4. Gender balance on the Board of Directors 2.1.3 43 5. Forms of Executive Management 2.1.6 43 6. Limitations of CEO powers 2.1.6 43 7. Principles and criteria for the determination, distribution and allocation of remuneration, 2.2 45-54 benefits in kind and commitments made to executive corporate officers 8. Individual remuneration of executive corporate officers for the past financial year 9. Reference to a Corporate Governance Code 2.3 54-55 10. Information on factors liable to have an impact in the event of an IPO 4.3.4 128 11. Summary table of valid financial delegations and their eventual use 4.2.3 125-127 12. Special arrangements for shareholder participation in shareholders’ meetings 2.4 55 13. Agreements entered into between an executive or major shareholder and a subsidiary 2.5, Note 5.5 to the 56, 84-85 consolidated financial statements
7
PRODWAYS GROUP - 2018 ANNUAL REPORT 167 ADDITIONAL INFORMATION 7 Concordance tables
168 PRODWAYS GROUP - 2018 ANNUAL REPORT This document is printed in compliance with ISO 14001.2004 for an environmental management system. 19, rue du Quatre-Septembre 75002 Paris Tél. : +33(0)1 44 77 94 77 www.prodways-group.com