Getting

closer to
customers
Exova Group plc
Annual Report & Accounts 2016
Exova at a glance
Getting closer to customers

Our vision
To be recognised globally as the supplier of choice in our chosen fields
of testing, calibration and advisory services.

Our mission
We aspire to be the best. We believe that being at the forefront of our
industry requires expertise, exceptional people and excellent processes,
which we seek to improve continuously.

Our technical disciplines

Our capabilities are supported and developed by a dedicated technical management
team and a global community of experts sharing cross-sector knowledge and best practice.

Calibration Fire and Building Products

Independent, traceable and accredited calibration of Reaction to fire and fire resistance testing, fire engineering,
electrical and mechanical measuring devices supporting training, consultancy and associated certification for all
all brands and instrument types. international fire standards.

Certification Metal Technology

International certification for management systems,
chain of custody, supply chains and products across
a broad spectrum of industry sectors.
Chemistry and Microbiology
Analysis of drinking water, waste water, soil and hazardous
waste for both organic and inorganic contaminants. Testing
of food for composition, speciation and contamination.
Chemical analysis and stability testing of pharmaceuticals.
Corrosion and Protection
Material, coatings and component performance testing
during development and certification for use in ‘sour’
environments; offering a full spectrum of standard and
specialised tests; corrosion risk assessment and mitigation.
Mechanical, metallurgical and chemical testing,
with capabilities ranging from routine tensile testing to
fatigue, fracture mechanics, failure analysis, creep and
coating performance.
Polymers and Composites
Materials selection and qualification using standard
and specialised test methods, manufacturing method
development, failure analysis, repair technologies
and training.
Structures and Systems
Testing of components, assemblies and structures
for mechanical, physical and system performance
under static, dynamic and environmental loading.

33 4,200 135
Countries Employees Laboratories/
Offices
A connected world of expertise

15
73
17 1
4
10
2 2

4
1
1
Laboratories
and offices

Americas
Europe
Rest of World

Americas Europe Rest of World

35 73 27
Total Total Total

Revenue by Division Revenue by Region

Rest of World
Infrastructure, 16%
Health and
Environment Industries
25% 38%
Europe
52%
Americas
32%
Products
37%
 Testing, calibrating, advising
Exova is one of the world’s leading laboratory-based
testing groups, trusted by organisations to test and
advise on the safety, quality and performance of
their products and operations. Our capabilities help
to extend asset life, bring predictability to applications
and shorten the time to market for customers’
products, processes and materials

The Exova investment proposition

Proprietary
operating
platform
to drive
Market growth and
Highly
leading profitability
attractive
testing Strategic across the
financial
business, focus on Group – the Clear profile and
strategically technically Exova model opportunity strong historic
positioned in demanding, for continued track record
attractive mission- organic and
growth critical and M&A-driven
markets high margin growth in a
services fragmented
industry
Strategic report Report of Directors Financial statements

Strategic report Report of Directors Financial statements

Chairman’s statement 2
Group and market overview 4
Business model 6
Strategy 7
Principal risks and uncertainties 10
Key performance indicators (KPIs) 14
Chief Executive’s review 18
Operating review 22
Financial review 24
Corporate social responsibility 32
Letter from the Chairman 39
Board of Directors 40
Corporate Governance report 42
Nomination Committee report 51
Audit Committee report 53
Remuneration report 57
Directors’ report 82
Statement of Directors’ responsibilities 87
Independent Auditor’s report 88
Group income statement 96
Group statement
of comprehensive income 97
Group and Company balance sheets 98
Group and Company statement
of changes in equity 99
Group and Company
statement of cash flows 100
Notes to the consolidated
financial statements 101

Shareholder information
Shareholder information 146
Directors and advisers 147
Definitions 148

2016 Highlights

Revenue growth Adjusted EBITA margin 1

10.8% growth 15.3%

2016 £328.6m 2016 15.3%

2015 £296.5m 2015 15.8%

2014 £274.9m 2014 16.8%

Statutory operating profit Adjusted EBITA 2 

47.5% growth 7.7% growth

2016 £43.5m 2016 £50.3m

2015 £29.5m 2015 £46.7m

2014 £19.6m 2014 £46.2m

Cash conversion rate 3 Cash generated from operations

1. Adjusted EBITA margin is adjusted EBITA

72% 30% growth

expressed as a percentage of revenue.
2. Adjusted EBITA is operating profit from
continuing operations before separately
disclosed items and management fee to
private equity investor.
2016 72% 2016 £56.8m
3. Cash conversion rate measures free cash
flow as a percentage of adjusted EBITDA
2015 59% 2015 £43.6m where free cash flow is defined as adjusted
EBITDA (adjusted EBITA before depreciation),
less movements in net working capital,
2014 68% 2014 £34.1m excluding the movement in IPO related
cost accruals, less net capital expenditure.

Annual Report & Accounts 2016 1

 Chairman’s statement
2016 – Continued growth through greater customer centricity
I am delighted to report another
year of strong progress for Exova.
My first year as Chairman has seen
the business continue to deliver through
an increasingly customer-centric
approach in the sectors that we serve.
This is underpinned by deep technical
expertise, a committed team and an
unwavering focus on health, safety
and quality across the whole business.
In 2016, our core values of innovation,
teamwork, performance and integrity
underpinned our success. We continued
with strong organic revenue growth
at constant currency in most sectors,
offset by weakness in Oil & Gas and
Industrials. This was supplemented
by further development through our
continued programme of acquisitions.
Once again, our diverse business model
– from both a geographical and sector
perspective – allowed us to successfully
navigate the ongoing challenges in the
Oil & Gas and Industrials sector. I take
great pride in knowing that the results for
the year ended 31 December 2016 were
achieved through all Exova colleagues
living our values day in day out.
Organic growth ¹
The Group delivered strong organic
growth in the majority of its sectors.
Within the Industries Division, Aerospace
delivered strong organic growth, with
production release testing particularly
good for a second successive year.
1. Organic growth represents growth at constant currency for each year excluding the growth attributable to acquisitions until the acquisition has been
owned for a 12 month period and excluding disposals in the year of disposals and the preceding year.
2 Exova Group plc
Research and development related
revenues were driven primarily by
testing for aircraft engine materials
and in the second half by testing for
materials produced by additive layer
manufacturing.
We experienced another challenging
year in oil and gas, with lower levels
of activity across all geographies.
In response, we continued to take
the necessary cost actions to mitigate
volume and price pressures and maintain
our margins. We also developed our
offer to diversify away from oil and
gas to customers in the infrastructure,
agriculture and industrials segments.
In this regard we enjoyed some success
in Canada as well as securing several
long term agreements with key accounts
in Europe. We did experience an overall
decline in sales in Oil & Gas and
Industrials in 2016, but the prompt actions
we have taken mean that we are well
positioned for what we expect to be
another difficult year in the global
energy market.
In the Products Division, we saw very
good growth in the Fire, Building
Products and Certification business,
driven by the introduction of new
standards in many parts of the world,
together with an increase in demand
for inspection and certification services.
We achieved steady growth in our
Calibration business, with technology
driving our broadening scope of service.
In Transportation, as expected, overall
volumes were down as a result of
reduced engine-testing activity as
projects have completed.
The Infrastructure, Health and
Environment Division delivered strong
organic growth overall, driven by very
good performance in the Middle East,
where testing contracts associated with
large transport infrastructure projects
continued to support revenues. The
UK Environment business experienced
strong sales in core segments such as
stack emissions testing, asbestos testing
and occupational hygiene assessments.
In Health Sciences, we delivered good
growth as a result of several complex
development projects; increased
manufacturing support and
biotherapeutics testing.
Adding value to our laboratory network
We continued to focus on pursuing
market leadership in our chosen sectors
and successfully extended the reach
of our business in a number of sectors.
We made three acquisitions in the year,
starting with the acquisition of a 70%
interest in Admaterials Technologies
Private Limited (Admaterials) in February,
a Singapore-based business specialising
in testing in the construction sector, as
well as chemical, environmental and
mechanical testing and certification
services. Admaterials gives a platform
for further growth in the South East
Asian region.
 Strategic report
In the UK, we acquired Jones
Environmental Forensics Limited (Jones)
in July, one of the leading contaminated
land testing and analysis laboratories in
the country. With a strong global client
base, Jones has added significant
capability to our Environment business,
which is now amongst the UK’s leading
providers. Towards the end of the
year, we acquired Insight NDT Limited,
two UK laboratories specialising in
non-destructive testing (NDT) and
radiographic inspection services,
which broadened our offer to
industrials customers.
In 2016, we also completed two
significant divestments. In the UK and
Ireland, we sold our Food, Water and
Pharmaceutical testing business in
July and then in December, we divested
our Environment business in Eastern
Canada. After careful consideration,
we concluded that in both cases, these
businesses were sub-scale and would
benefit from a different owner with a
larger footprint. We also divested a
small non-core fire testing equipment
manufacturing operation in Gent. These
disposals demonstrated our commitment
to actively managing our global portfolio,
allowing us to dedicate significantly more
financial and management resource
to growing in sectors where we can
build on our market leading positions,
focusing on the provision of technically
demanding services.
Getting closer to customers
During the year we took the decision to
reorganise the business. Our overriding
objective was to better facilitate growth
and we are now more closely aligned to
the market sectors in which we operate
and the customers we serve. These
sectors are grouped into three Divisions
– Industries; Products; and Infrastructure,
Health and Environment – under
the leadership of three Group
managing directors.
For some of our more global sectors
such as Aerospace and Oil & Gas and
Industrials, this matches more closely
how customers organise themselves
and is already enabling us to respond to
them with more integrated propositions
which leverage our international
laboratory footprint. For all our sectors,
the reorganisation will also allow us to
drive innovation through better aligning
technical leadership and best practice
sharing, as well as improved industry
knowledge and insight.
Report of Directors Financial statements
We also firmly believe that a sector-
based business will provide improved
opportunities for our people and clearer In 2016, our core values underpinned
career development pathways. We will our success. We continued with
also be taking the opportunity to further
standardise our back office shared strong organic revenue growth at
services functions to ensure they deliver constant currency in most sectors,
the best possible support to our frontline offset by weakness in Oil & Gas and
teams. The move to the new structure
was delivered quickly, with minimal Industrials. This was supplemented
disruption to the operations of the by further development through
Group. I am pleased to report that the
our continued programme
reorganisation has been received well
by both customers and our people. of acquisitions. 
Investors
In 2017, we will continue to focus on
improving Total Shareholder Returns to
our investors. Through careful investments
in both our existing laboratory network
and in acquisitions, we will once again
look to deliver sustainable long-term
growth in revenues and earnings.
The Board remains excited by the
long-term earnings and cash flow
potential of the Group. The business will
therefore continue to retain sufficient
capital to finance its investment
programme while operating a progressive
dividend policy, subject of course to
maintaining an appropriate level of
dividend cover. In line with this approach,
the Board is pleased to recommend a
final dividend of 2.35 pence per share,
making a total dividend of 3.4 pence per
share for 2016. I remain confident that
in the medium-term Exova can deliver
good organic growth complemented
by acquisitions.
Allister Langlands
Chairman
27 February 2017
Annual Report & Accounts 2016 3

Exova is a laboratory-based testing business,
operating primarily within the Testing segment of the Testing,
Inspection and Certification (TIC) market. We provide our
clients with independent assurance on the safety, quality and
performance of their materials, products and processes
Background
Exova is a leading provider of laboratory-
based testing, certification and advisory
services, operating from 135 permanent
laboratories and offices in 33 countries.
Our focus is on providing customers
with innovative solutions to their testing,
certification and advisory needs. We
increasingly operate in the technically
demanding, value-added segment of
the market, with clients recognising our
longstanding expertise, our technical
bench strength and our ability to
successfully solve the most complex of
testing challenges. We help to ensure
compliance with the safety and quality
standards that are imposed by customers,
accreditation bodies and regulatory
authorities. Through our global network,
we are able to serve a wide range of
multinational clients and local markets,
with some customer relationships having
been developed over decades. We serve
over 25,000 customers, none of which
accounted for more than 3% of our
revenue in 2016. At 31 December the
Group employed 4,167 people.
Exova is one of the most respected
testing and related services companies
in the world, with over 90 years’ industry
experience. Our laboratories are
accredited by international and national
agencies such as ISO and UKAS, industry-
specific agencies such as Nadcap in the
Aerospace sector and, in many cases,
receive client-specific approvals from
major blue chip companies.
In 2016 we reorganised our business
which is now managed through three
Divisions: Industries, Products and
Infrastructure, Health and Environment.
Each is led by a Group managing
director who is fully supported by
a leadership team covering sales,
operations, technical, human resources
and finance. Within these Divisions, we
provide services across eight business
sectors – Aerospace; Oil & Gas and
Industrials (Industries); Fire, Building
Products and Certification; Transportation;
Calibration (all within the Products
Division); Infrastructure; Health Sciences;
and Environment. Shared service centres
deliver essential support to the Divisions
and are complemented by a small Group
head office. This reorganisation has
4 Exova Group plc
Group and market
overview
allowed us to get closer to customers; to
better leverage technical expertise; and
to deliver global best practice locally.
Our people include highly qualified
scientists, engineers, chemists and
materials specialists from a range of
technical disciplines which include:
Calibration; Chemistry and Microbiology;
Construction Engineering and
Technology; Corrosion and Protection;
Fire and Building Products Certification;
Metal Technology; Polymers and
Composites; and Structures and
Systems. Our Group technical director
oversees the development of our
technical expertise via a network of
technical leaders across our Group.
Market overview
Exova operates primarily within the
Testing, Inspection and Certification
(TIC) market. Our focus is on laboratory-
based testing services, complemented
by a growing certification business and
a limited degree of inspection services in
particular niche sectors and geographic
regions. Based on industry reports and
our own analysis, the TIC market has an
estimated global value of approximately
£120 billion, of which approximately
47% is thought to be outsourced to
third-party providers. We estimate that
the Testing segment of the TIC market
represents approximately 48% of the
total TIC market, or about £58 billion.
Testing services are required to assess
compliance with standards set out
by accreditation bodies, regulatory
authorities, our customers themselves
or the parties to whom our customers
supply their products. The testing
methods and equipment to be used
are typically defined by the relevant
standards. With new products or
materials such as those produced by
additive layer manufacturing, we often
work with customers and/or regulatory
bodies to help develop the appropriate
test methods and protocols.
Accordingly, testing laboratories
generally require teams of highly skilled
people that may be in limited supply;
accreditations by relevant authorities that
may be difficult or time-consuming to
obtain; and extensive capital investment
in laboratories and equipment. These
requirements represent significant barriers
to entry for new competitors and our
focus on the provision of technically
demanding specialist services raises
this bar even higher in some sectors.
Growth trends
Based on our experience across the
market sectors which we serve, we
believe that the Group benefits from the
following five long-term growth drivers:
Innovation
The development of new products and
services directly impacts the demand
for testing services. Competitive pressure,
consumer demand for an increasing
number of product varieties and
technological improvements are
shortening product lifecycles, which
leads to an increase in the number
of new products being developed.
Environmental concerns and high fuel
costs have driven customers in sectors
such as Aerospace and Transportation
to seek to use lighter weight materials
in their products, which has led to
increased demand for certain types
of tests. As businesses diversify into new
geographical markets, this often requires
products to be adapted to meet local
tastes and requirements.
Regulation, safety and quality
Increases in the number and complexity
of the standards with which materials,
components and products must comply
continue to result in increasing demand
for associated tests. In addition,
companies require up-to-date regulatory
expertise and advisory services to keep
their testing programmes in line with
evolving standards, especially in light
of the global trend towards harmonising
regulatory requirements across
geographies. Increasing fire safety
standards and tightening environmental
standards are two examples of regulatory
regimes that have driven growth in the
testing segment of the TIC market. In
addition, increasing consumer awareness
regarding product quality, safety and
environmental issues is driving companies
to use third-party testing as a means
of differentiating their products based
on quality, thereby protecting and
enhancing their brands and reputation.
 Strategic report Report of Directors Financial statements

End user volumes demonstrated a willingness to Market position

Our performance is directly affected by
the level of demand for our customers’
products and services. Increased
production levels can directly influence
the demand for our services. Some of
our customers may conduct testing
themselves but their laboratories
can sometimes become capacity-
constrained, leading them to use
testing providers such as Exova to
provide overflow capacity. The long-
term trend towards globalisation of
trade and markets and the migration of
manufacturing to low-cost regions are
likely to continue to create increased
future demand for testing services in
order to ensure supply chain integrity
and maintain standards of quality
control. This is particularly noticeable
in European and North American
end markets.
Outsourcing
We estimate that overall levels of
outsourcing in the TIC market are still
low at approximately 47% and many
customers still also operate in-house
laboratories. Certain customers have
outsource their in-house laboratories
and these situations can provide growth
opportunities for testing providers.
Outsourcing allows companies to focus
on their core competencies and to
reduce costs by eliminating the fixed
costs associated with maintaining
in-house laboratories, the capacity
of which they may not be able to fully
utilise, and reducing the costs of keeping
up-to-date with new technologies and
regulatory requirements.
In addition, given that new test types
often evolve from product development or
increasingly complex componentry, their
propensity to be outsourced is greater
given the need for investment in new
equipment and/or technical expertise.
Pricing
As testing processes become more
efficient, we are sometimes able to
obtain price increases (e.g. where we are
able to provide accelerated turnaround
times for our customers). Price growth is
driven by segmental pricing and can
vary depending on the sector.
Globally, the TIC market is highly
fragmented, and we believe that Exova is
one of the largest service providers that
focuses primarily on the testing segment,
in terms of the number of business sectors
we serve and geographic locations in
which we are present. A few larger,
global service providers have activities
across the TIC market but these
companies also focus extensively on the
certification and inspection segments of
the market, as well as specific end niche
segments within the testing market.
A number of medium-sized specialists or
regional firms also focus on the testing
segment of the TIC market and are
our direct competitors, although they
compete with us only in specific business
sectors in a particular region. In addition,
we face competition from local
independent laboratories, numbering
in the thousands, but only in specific
business sectors in the locations where
they are present.

How we win Focus on high value-added, technically

Exova performs a wide range of
demanding services
tests across the technical spectrum.
While we conduct more routine Exova ‘Sweet Spot’ characteristics
testing in most segments, one of
our strategic objectives is to drive
Technological ‘Sweet Spot’
High

up the proportion of technically

demanding services that we provide.
In many cases, the customer will
require their testing provider to deliver
Technical Requirement

some routine testing alongside more

demanding and complex work.

A close understanding of customers’

ng a

needs and end markets; investment

ni ov

in the development of our technical

tio x

teams and the right equipment; and

si t E

the breadth of our technical expertise

Po rge

together enable us to differentiate our

offer to deliver higher value services in
Ta

each of our sectors.

At this end of the value chain our

proposition often encompasses
advisory services and consultancy,
including the collaborative
development of new test protocols
Low

and standards alongside the Commodity Sophisticated

customer, all of which support
greater depth and length of Low High
client relationships.
Customer Perception of Value

Annual Report & Accounts 2016 5

 Business model

Our business model is built on a close understanding of our

customers and their end markets; the standards and
regulations that determine their testing and certification
needs; and the deployment of appropriate
technology to deliver the right solutions

People
Teams of highly-skilled people with extensive
experience and unique knowledge
in their particular technical fields,
who are often in limited supply.
Our inputs
Technology
Appropriate investment in equipment,
often highly specialised, to conduct
testing; deliver accurate measurement;
and facilitate in depth analysis.
Accreditations and approvals
Dynamic understanding of standards
and regulations that determine customers’
testing and certification needs, and how
these evolve over time.

Our growth drivers

Regulation,
End user
Innovation safety Outsourcing Pricing
volumes
and quality

Our impact

Test and advise on Shorten the time

the safety, quality to market for
and performance Help to extend Bring predictability customers’
of customers’ asset life to applications products,
products and processes and
operations materials

Customers
Delivering testing, certification and advisory
solutions to an international customer base,
sometimes global, often highly localised,
who value our longstanding expertise,
technical bench strength and ability
to solve complex problems.
Our outputs
Shareholders
Improving total returns to shareholders through
careful investments in our laboratory network
and acquisitions; seeking to deliver sustainable
long-term growth in revenues and earnings.
People
Growing our people through the development
of technical and business skills within
a high performing, engaging and
rewarding culture.

6 Exova Group plc

Strategic report Report of Directors Financial statements

Strategy

Our strategic goals

Our focus is to deliver sustainable growth and profitability and

we will achieve this through our strategic priorities

Strategic priorities

Focusing on • Operating in markets with stringent technical

requirements
Read more

the provision • Delivering services across a broad but clearly defined Page 8
range of sectors
of technically • Maintaining high standards of safety and quality in all
of our operations
demanding • Nurturing our team and investing in the development
services of their technical abilities

Building • Managing our customer relationships in a responsive

and professional manner
Read more

long-term client • Maintaining a reputation for integrity and excellent Page 16

service standards
relationships • Developing innovative propositions which are of real
value to our clients
• Enhancing services to our clients through our group-
wide Customer Relationship Management (CRM)
system and exploiting the trend for outsourcing to
strengthen relationships

Generating • Attracting new customers in existing markets and

organic expansion into adjacent markets
Read more

organic revenue • Building an industry-leading sales and marketing Page 16

capability
growth and • Sharing common commercial and technical
capabilities to unlock synergies across sectors
increasing and geographies
market share • Enhancing existing revenue streams and improving
sales forecasting
• Maximising opportunities through our group-wide
sales framework

Managing our • R educing costs and improving operational efficiency

and consistency by sharing best practice
Read more

laboratories • Maintaining ongoing investment in our facilities to Page 30

increase productivity and support growth
efficiently • Managing working capital through improved invoicing
and receivables collection

Extending our • Broadening our sales activities into new territories

in developing markets
Read more

service range • Executing acquisitions that meet our defined target Pages 16
criteria and where Exova’s business model can
and the global be applied 30
reach of
our business

Annual Report & Accounts 2016 7

 Strategy in action
Meeting the challenge:
delivering technically
complex solutions in the
testing of pharmaceutical
packaging
Exova leads the way on safety consulting and leading
edge expertise to provide strong foundations for its
extractables and leachables testing programmes
Any pharmaceutical packaging and
container system, from glass and plastic
bottles to pre-filled syringes and the ink
used in labels and packaging materials,
has the potential to leach unwanted
contaminants into a drug product. While
orally inhaled and nasal drug products
and parenteral and ophthalmic drug
products generally present a higher
risk for extractable and leachable
contamination, volatile/semi-volatile and
non-volatile extractables and leachables
can migrate from any drug product
container and closure system. As a result,
the FDA requires manufacturers to identify
and quantify contaminants in all drug
products at release and on stability.
Product packaging and container
systems can no longer be an afterthought
in product development. Manufacturers
must consider packaging as early as
possible during the drug development
process to avoid costly delays in delivery
of the finished product. If a safety issue
Strategic priorities
Focusing on the
provision of technically
demanding services
8 Exova Group plc
due to extractables and leachables
is not identified until the late stages of
product development, the manufacturer
will likely experience delays in product
development, regulatory reviews and
market launch. These delays almost
always carry a high cost to the
manufacturer.
Exova’s investment in time-of-flight
accurate mass spectroscopy allows
highly sensitive and accurate
identification of unknown analytes.
At the end of 2016, formal partnerships
were established with leading industry
experts in both toxicology and
extractables, and vice president of
health sciences, Dr. James Scull, has
spoken widely on the topic. As a result,
Exova is now able to offer manufacturers
a broader scope of extractables and
leachables programmes that include
testing, safety consulting and leading
expertise in study design and
development for a wide variety of
containers and implantable materials.
Strategic report Report of Directors Financial statements

3.5 billion
Globally, 3.5 billion pre-filled
syringes are produced each
year and Exova is strategically
placed to service this market

Exova’s investment in
time-of-flight accurate mass
spectroscopy has played
a crucial role in allowing
highly sensitive and accurate
identification of unknown
contaminants through
rigorous testing

Annual Report & Accounts 2016 9

 Principal risks and uncertainties

The principal risks and uncertainties that could affect the

Group are outlined below

Operational risks
Risk Description Strategic priorities Possible impact Mitigation

Health The Group’s work Focusing on Failure to operate Health and safety is always the
and safety environment the provision safely could adversely first item on Board and Executive
presents various of technically impact the Group’s Committee agendas. Overall strategy
potential risks demanding employees or visitors, and compliance is monitored by the
within our services. lead to legal action Group HSE director who reports to
laboratories and from regulators, the Group technical director. Clear
when operating Managing our reputational damage guidance is given on appropriate
on customers’ laboratories or loss of customer procedures and maintenance of
premises. efficiently. confidence. equipment, supported by regular
training, supervision and compliance
audits. Bulletins are issued in response
to any significant incidents which
might have group-wide implications.

Reputational The Group relies Focusing on Loss of existing or A comprehensive quality

damage on its reputation the provision new business. management system is in place which
and being of technically is regularly audited both internally and
awarded and demanding Loss of ability to by external accreditation bodies and
retaining a services. service customer customer approval teams.
wide range of requirements where
accreditations Building long- accreditations or Employee technical competence is
and customer term client customer specific maintained through mentoring and
specific approvals relationships. approvals are lost. training programmes.
in order to provide
its services. Generating Reduced financial
organic revenue performance.
growth.

People The Group Focusing on Inability to meet There is a comprehensive recruitment

provides the provision customer demand. and ongoing evaluation process
specialised of technically supported by incentive plans based on
technical services demanding Failure to innovate personal and financial performance.
and is dependent services. and develop
on attracting customer A Technical Career Development
and retaining Building long- relationships. Programme is in place which is
appropriately term client designed to develop and retain
qualified staff. relationships. technical staff and support
succession planning.

Global The strength of our Generating A prolonged Our business is well diversified both
economic end markets is an organic revenue economic downturn geographically and by end user
important driver growth. would limit our ability markets and our focus on technically
and market for growth. to grow the business demanding services gives us
conditions Extending our in line with our some resilience.
service range and strategic plan.
the global reach We engage regularly with our
of our business. customers to understand their
plans and requirements which are
recorded in our group-wide customer
relationship management (CRM)
system. This provides consolidated
visibility of future revenues and allows
us to plan capacity efficiently.

10 Exova Group plc

Strategic report Report of Directors Financial statements

Operational risks
Risk Description Strategic priorities Possible impact Mitigation

UK The UK business Building Loss of revenue due to Many of the standards and
withdrawal trades within the long-term client changes in standards schemes under which we operate
EU and assesses relationships. or legislation are international or client specific
from the EU whether products impacting our ability and we anticipate little or no impact
meet European Generating to provide certain in these areas.
standards. organic revenue services that can only
growth. be provided by an We will monitor the impact on
In addition the EU member. testing regimes and certification
UK sits on various programmes and will engage with
committees that Additional import the relevant representative bodies
determine future and export costs. and working groups as required.
standards and
methods of Financial performance Since a large portion of the Group’s
testing. will be impacted by profit is derived from activities outside
fluctuations in sterling. of the UK and Europe, the weakening
The Group of sterling has had a beneficial
operates in 33 impact on results, the Group does
countries and is not, at this point in time, envisage
therefore exposed a material adverse impact in the
to currency risk. future. We will continue to monitor
developments.

Business The business Managing our Lack of operational Business continuity plans are in place
infrastructure depends on laboratories capacity could affect across the Group and our substantial
its laboratory efficiently. our ability to service laboratory network often allows work
network to service existing customers to be transferred to alternative sites.
customers’ needs. and win new business.

IT systems The business Managing Lack of timely A global Information Security policy
depends on our laboratories information could is in place.
the effective efficiently. affect our ability to
operation of service customer Regular system maintenance and
global IT systems Building requirements and back-ups are taken.
for its key business long-term client make good business
processes. relationships. decisions. Disaster recovery plans in place
across the network which are tested
Major IT systems Reputational damage and improved regularly.
integrity issue from loss of systems
or data security or data. We continually review and improve
breach due to our cyber defences.
either internal or Potential legal
external factors. implications
associated with
potential loss of
sensitive data.

Acquisitions The process Extending our Failure to deliver We have a well-developed screening
of identifying, service range and expected results due process to ensure that potential
acquiring and the global reach to poor acquisition acquisitions meet the criteria in our
integrating new of our business. selection. strategic plans for market penetration
businesses is and geographical expansion and
fundamental Managing our Unforeseen liabilities our target returns on investment.
to our overall laboratories arising from failure to
growth plan. efficiently. understand business Thorough due diligence is carried
risks fully during due out by our in-house experts
diligence. supplemented by the use of specialist
advisers. Customary legal protection
Reduced financial is included in the purchase contract.
performance arising
from poor integration Detailed integration plans are
of acquired approved prior to completion and
businesses. are closely monitored in line with
an agreed timetable.

Annual Report & Accounts 2016 11

 Principal risks and uncertainties continued

Legal and regulatory risks

Risk Description Strategic priorities Possible impact Mitigation

Litigation The Group’s Building long-term Reputational damage We have a process for monitoring
operations are client relationships. leading to customer compliance with laws and regulations
subject to wide- loss and brand and internal Group procedures and
ranging laws Managing our damage. reporting any significant deviations to
and regulations laboratories the Board. We also monitor changes
including business efficiently. Diversion of in regulations and communicate these
conduct, management as appropriate.
employment, time away from
environmental and the operation of We have a clear delegation of
health and safety the business. authority for business decisions and
legislation. There is detailed training is provided on key
also exposure to Penalties for breaching areas of risk e.g. contract negotiation.
contractual risk. contracts, laws or
regulations. We carry insurance cover against
certain losses.

Business The activities of Building long-term Reputational damage Our business activities are conducted
integrity the business are client relationships. leading to customer in multiple jurisdictions and are
governed by loss and brand exposed to a wide range of business
and ethics various ethical Generating damage. practices. We have a strong Group
requirements organic revenue culture of integrity and ethical
including anti- growth. Diversion of behaviour to ensure a consistent
corruption and management time approach regardless of local custom.
bribery laws, Extending our away from the
competition service range and operation of the We have group-wide policies covering
laws, and trade the global reach business. ethical conduct and regular training
sanctions and of our business. is provided, backed up by external
export laws. Penalties for legal and professional support where
breaching laws required.
or regulations.
We encourage reporting of any
concerns about wrongdoing or
impropriety and have a whistleblowing
service managed by a third party.

12 Exova Group plc

 Strategic report Report of Directors Financial statements

Financial risks
Risk Description Strategic priorities Possible impact Mitigation

Financial The Group could Managing our Significant financial The Group has a well established
irregularity suffer financial laboratories irregularity could lead system of operational and financial
loss either through efficiently. to loss of confidence controls including documented
misappropriation by key stakeholders procedures and delegation of
of assets or the and reputational authorities supported by an
misrepresentation damage to the internal audit function.
of financial results. business. This might
impact our financial
position and ability to
raise funds and could
affect the share price.

Treasury The Group is Generating Volatile financial Borrowings are maintained in

exposed to organic performance arising appropriate currencies to partially
currency, liquidity revenue growth. from translation of hedge foreign exchange risk on
and credit risks. overseas results. overseas earnings. We are exposed
Managing our to limited transactional risk as most
laboratories Financial penalties costs and revenues are matched in
efficiently. and reputational the same currencies.
damage arising from
breach of banking Forecast cash flows are regularly
covenants. reviewed to ensure that sufficient
committed borrowing facilities
Financial loss from are in place.
inappropriate use of
financial instruments Credit risk is actively monitored and
or failure to collect is mitigated by the wide spread of
amounts owed. our customer base.

Viability statement
The Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as
they fall due, for the next three years to December 2019. The Directors’ assessment has been made with reference to the resilience
of the Group and its strong financial position, the Group’s strategy, the Board’s risk appetite and the Group’s principal risks and
how these are managed, as described in this Strategic Report.

The Group has a broad spread of customers across different geographical areas and market sectors and a high level of customer
retention and repeat business. The Group is also supported by strong operational cash flows.

The assessment period of three years has been chosen as it is consistent with the Board’s annual review of the Group’s three
year rolling strategic plan. This review covers the prospects for each business, assumptions regarding entry into new markets and
geographies, future growth rates and performance of the business. A robust financial model of the Group has been built and the
metrics for the Group’s KPIs have been reviewed for the assessment period. These metrics are also subject to sensitivity analysis
which includes flexing a number of these assumptions, namely, future organic revenue growth, operating margins and operational
cash flow. This is supplemented by an overlay of assumptions on the future level of inorganic growth from acquisitions. The results
of flexing these assumptions, both individually and in aggregate, are used to determine whether additional bank facilities will be
required during this period.

This review and analysis also considers the principal risks and uncertainties facing the Group, as described on pages 10 to 13
and the potential impact these risks would have on the Group’s business model, future performance, solvency and liquidity over
the assessment period. The Board considers that the diverse nature of the market sectors and geographies in which the Group
operates acts significantly to mitigate the impact any of these risks might have on the Group.

Annual Report & Accounts 2016 13

 Key performance indicators (KPIs)

To facilitate the evaluation of the Group’s performance,

the Board uses a range of financial and non-financial metrics,
reported on a periodic basis

Organic revenue Inorganic revenue

growth at constant growth at constant
currency currency Adjusted EBITA margin

(0.2)% 2.6% 15.3%

(0.2)% 2016 2016 2.6% 2016 15.3%

2015 2.3% 2015 7.6% 2015 15.8%

2014 0.4% 2014 4.1% 2014 16.8%

Organic revenue growth at constant
currency measures revenue growth
for each year excluding the growth
attributable to acquisitions until the
acquisition has been owned for a
12 month period and excluding the
revenue attributable to disposals in
the year of disposal and the preceding
year, all at constant currency.
We had continued strong organic
revenue growth at constant currency
in most sectors offset by weakness
in Oil & Gas and Industrials. All other
sectors had 5.5% organic growth with
Oil & Gas and Industrials (15.5)%.
Inorganic revenue growth at constant
currency measures revenue growth for
each year attributable to acquisitions
until the acquisition has been owned
for a 12 month period and including the
revenue attributable to disposals in the
year of disposal and the preceding year,
all at constant currency.
Inorganic revenue growth at constant
currency was 2.6% with acquisitions
contributing 6.2% partly offset by three
disposals which resulted in a reduction
of 3.6%.
Adjusted EBITA margin is operating
profit from continuing operations
before separately disclosed items
and management fee to private
equity investor expressed as a
percentage of revenue.
Adjusted EBITA margin decreased by
50bps from 15.8% to 15.3%. This reflects
the continuing challenges within the
Oil & Gas and Industrials sector which
negatively affected margins, offsetting
the improvements elsewhere, including
the positive contribution from acquisitions
and the favourable translation impact.

Strategic rationale Strategic rationale Strategic rationale

As the Group is focused on growing
volumes from existing customers,
attracting new customers in existing
markets and where appropriate,
expanding organically into adjacent
markets, the Directors have adopted
organic revenue growth as a KPI to
facilitate the evaluation of the Group’s
operating performance.
As the Group’s growth strategy includes
a focus on enhancing its capabilities
and accelerating growth through
targeted M&A opportunities, the Directors
have adopted inorganic revenue growth
as a KPI to facilitate the evaluation of the
Group’s operating performance.
Adjusted EBITA margin is the most
significant indicator of operating
performance for the Group. It measures
cost efficiency in relation to overall activity
levels. Comparisons are measured to
establish optimum performance and
targets for underperforming sites.

14 Exova Group plc

 Strategic report
Cash conversion rate
72%
2016 72%
2015 59%
2014 68%
The cash conversion rate measures the
Group’s free cash flow as a percentage of
Adjusted EBITDA. Free cash flow is defined
as Adjusted EBITDA (Adjusted EBITA before
depreciation), less movements in net
working capital, excluding the movement
in IPO related cost accruals, less net
capital expenditure.
Free cash flow increased by £11.7m as a
result of increased EBITDA and improved
working capital management. This had
a positive impact on cash conversion at
72% (2015: 59%).
Strategic rationale
This ratio provides a measure of the
Group’s ability to manage operational
cash flow generation.
Report of Directors
Net debt to Adjusted
EBITDA ratio
2.3 times
2016 2.3
2015 2.6
2014 2.5
This ratio is calculated as net debt
divided by Adjusted EBITDA (Adjusted
EBITA before depreciation). Net debt
represents the carrying value of all
bank financing and finance leases,
net of cash and short-term deposits.
Net debt to Adjusted EBITA ratio is lower
principally due to higher cash balances
held at year-end from business disposals.
Based on the definition in the bank
covenant, net debt to Adjusted EBITDA
ratio is 2.1x (2015: 2.4x).
Strategic rationale
The Directors use this ratio to assess
the financial strength of the business
and its ability to deliver sufficient liquidity
to reinvest in the business.
Financial statements
Lost work day incident
frequency rate
(accidents/200,000 hours)
0.43%
2016 0.43%
2015 0.39%
2014 0.48%
Lost work day incidents measure
incidents that cause employees to be
unavailable for normal duties for more
than one day. The rate is expressed as
the number of incidents per 200,000
hours worked.
Compared with 2015, the number of lost
work day incidents frequency rate rose
slightly to 0.43% (2015: 0.39%); despite
this, over a four year period, we have
reduced LWDIs by 31%, which is very
encouraging. The nature of the incidents
has changed from more equipment-
related injuries, such as lacerations, to
soft tissue type injuries arising from slips,
trips, falls and manual handling, which
are much less severe. We are pleased
to report that we had no LWDIs relating
to lacerations in 2016 representing a
reduction from 31% of all LWDIs in 2015.
We believe that our focus on behaviours
in 2017 will have a significantly positive
impact on the remaining categories
of incident.
Strategic rationale
As a people intensive business, with
a very rigorous focus on Health and
Safety issues, we measure lost work day
incidents for each site and benchmark
against the rest of the Group. The
lost work day incident performance is
discussed on page 32 of the Corporate
Social Responsibility Report.
Annual Report & Accounts 2016 15
 Strategy in action
Generating growth
and building client
relationships in Mexico
Furthering our position as a global leader in
aerospace materials testing by making investments to
enable delivery of the full scope of client requirements
Last year Exova delivered strong revenue
growth in its Aerospace sector, further
developing its range of testing services
and strengthening its long term
relationships with a number of key clients.
Since 2006, Exova has been working with
Frisa, a global leader in the manufacture
of rolled rings supplying the aerospace,
power generation, industrial machinery,
construction & mining, wind power and
oil & gas markets. As a result of this
successful partnership, in 2016 Exova
secured a ten-year contract worth an
estimated £28m to conduct a range of
aerospace testing services including
mechanical, metallurgical, chemical
analysis and non-destructive testing.
Strategic priorities
Building long-term
client relationships
Extending our service
range and the global
reach of our business
16 Exova Group plc
In order to deliver the full scope of
Frisa’s requirements, Exova committed
to invest £1.6m over the initial few years
of the agreement, ensuring both its
competency and capacity to meet
the forging specialist’s ambitious
growth plans.
Exova has been able to provide Frisa
with valuable local support via its
established Monterrey laboratory which
services the testing requirements of
clients in northern Mexico, providing
24-48 hour turnaround times on almost
all testing and analysis. This ability to fully
support clients like Frisa during the next
phase of its expansion is key to Exova’s
strategy to generate growth and market
share in new and existing territories,
while adding real value to its clients’
businesses.
Generating organic revenue
growth and increasing
market share
Strategic report Report of Directors Financial statements

This contract takes

our already strong

10 year
relationship with
Frisa into a

20 year
long term partnership

The extension of this long-

standing client relationship
comes as a result of Exova
having a real understanding
of the client’s needs,
reinforced with significant
investment, local support
and the accreditations
and approvals required
to service them

Annual Report & Accounts 2016 17

 Chief Executive’s review

Exova delivered another solid performance in 2016. Strong organic growth in most
sectors, coupled with continued success in our M&A programme, allowed us to
overcome the continuing challenges in the oil & gas sector and continue developing
Exova’s strong market positions in testing, calibration and advisory services

Overview
In 2016 Exova took further steps towards
delivering its strategic vision of being
recognised globally as the supplier of
choice in our chosen fields of testing,
calibration and advisory services.
The business delivered modest overall
growth, with further targeted acquisitions
supplementing broadly flat organic
growth performance. Once again,
we experienced a year of challenging
headwinds in the oil & gas sector, but
our business was able to weather this
successfully, with strong progress made
in several sectors to consolidate or
grow our leadership positions. I remain
immensely proud of the way all our
people responded to the challenge and
the difficult choices that we sometimes
had to make. Our technical leadership
and our increasingly customer-centric
approach served us well and will
continue to be the foundations of
our business.
Focusing on the provision of
technically demanding services
Health and safety continues to be the
number one priority for Exova and in
2016 we continued to work hard towards
our goal of an incident-free business.
Compared with 2015, the number of lost
work day incidents (LWDIs) rose slightly
to 18 (2015: 16); despite this, over a four
year period, we have reduced LWDIs
by 31%, which is very encouraging. Our
focus is very much on the behavioural
aspects of safety, with proactive
reporting of ‘near misses’ an expectation
for all laboratories. Overall the number
of proactive reports rose once again,
to 10,439. This demonstrates the culture
of openness that we believe we have
created, with an organisational willingness
to share and learn from ‘near misses’.
Of course, we continue to learn
from all aspects of health and safety
and I am delighted to see the number
of improvements that we have identified
and implemented across the business.
In terms of external recognition of our
progress we won three Royal Society
for the Prevention of Accidents (RoSPA)
awards, including two Silver awards
for a second year running.
Supporting our clients to solve their
complex problems was once again the
bedrock of our service provision, allowing
us to demonstrate our technical expertise
right across the business. Alongside this,
we once again worked with a range of
national and international regulatory
authorities, helping to develop or revise
standards with our technical leaders
often taking the lead. Our global
corrosion expert, Dr. Chris Fowler, led
an industry group that completed and
launched a revised BSI Standard (BS8701
‘Full ring ovalisation test for determining
the susceptibility to cracking of line
pipe steels in sour service’). Exova was
also honoured by NACE, the worldwide
corrosion authority, after being selected
in October to receive the prestigious 2017
NACE Distinguished Organization Award,
in recognition of the contribution Exova
has made in the field of corrosion science
and engineering over a sustained period
of time.
In Western Canada, Exova used its
environmental expertise to play a
key role in supporting the Petroleum
Technology Alliance Canada’s (PTAC)
Soil and Groundwater Research
Committee on the development of
new boron soil-contact guidelines which
take plant toxicity into account. The new
risk-based criteria will ultimately reduce
harmful impacts from contamination and
reduce destructive, wasteful and costly
remediation of otherwise healthy soil.
We had another solid year with
our Technical Career Development
Programme (TCDP), which is fundamental
to us maintaining the high levels of
technical expertise that characterise our
organisation. There were 100 colleagues
on the programme at the end of 2016
and, since its inception in 2012, over
300 technical colleagues have been
supported in their development through
a combination of on the job learning
and academic study. We also acquired
new expertise in the fields of forensic
analysis on contaminated land and
building materials testing through the
Jones Environmental Forensics and
Admaterials acquisitions.

18 Exova Group plc

 Strategic report
Building long-term client relationships
In 2016 we moved to a new
organisational structure, motivated
by the desire to get even closer to our
customers. We are now organised purely
along sector lines, which allows us to
better leverage our technical expertise
across geographies and also allows
us to meet customer needs in a more
integrated way, highly relevant for some
of our more global sectors. During the
year we had a number of contract
successes that demonstrated the
value of moving to this approach.
In the oil & gas segment we secured
a three year framework deal with
Saipem, and a two year framework
agreement with Subsea 7. In both cases
the agreements were global in scope
and involved capital investment to
ensure we could meet their evolving
requirements. While the initial focus of
the support will be from Italy and the UK
respectively, Exova’s worldwide network
of laboratories will be able to meet local
needs, facilitating the development of
revenues in new geographies. In both
cases, the arrangements also extend
long-standing relationships, testament
to the value we bring to both clients’
operations and the important role we
continue to play in materials testing
and analysis for the oil & gas industry.
In the Aerospace sector, we secured
preferred supplier status with Airbus for
the aircraft manufacturer’s operations
throughout Europe, further cementing
a long-standing and successful
partnership. Airbus is able to use
Exova’s extensive network of Airbus-
approved laboratories in the fields of
mechanical and non-mechanical
testing including fatigue and fracture
mechanics, metallurgical investigations,
and physical tests on a variety of metallic
and non-metallic materials, with the
facilities carrying over 380 approved test
methods, one of the largest of any Airbus
supplier globally. We also signed a new
ten-year framework agreement with Frisa,
which will see Exova conduct a range
of aerospace testing services, including
mechanical, metallurgical, chemical
analysis and non-destructive testing for
the Mexico-based global leader in the
manufacture of rolled rings. To deliver
the full scope of Frisa’s requirements,
Exova will invest more than £1m over
the initial few years of the agreement.
1. Organic growth represents growth at constant currency for each year excluding the growth attributable to acquisitions until the acquisition has been
owned for a 12 month period and excluding disposals in the year of disposals and the preceding year. Constant currency growth figures are provided in
order to remove the impact of currency translation. We calculate growth at constant rates by translating the current and prior period revenue at the same
exchange rates.
Report of Directors
In the Middle East, we secured
a global partnership agreement
with Samsung C&T for its operations
throughout the Middle East and Africa.
Again, this built on previous projects
that have included environmental
monitoring, fire safety and building
materials testing for major construction
projects in Abu Dhabi and Riyadh.
Deeper collaboration will be delivered
in advancing supply chain integration
and performance improvement.
Our customer satisfaction programme
has continued to mature and we now
have approaching four years of data
from the Net Promoter Score (NPS)®
programme, which measures the
likelihood that customers will recommend
us. We maintained our high-level of
performance finishing with a score of
+47 for the whole business (2015: +48),
having adjusted for the two disposals.
As the chart below indicates, our score
is high for our type of business and the
programme has become richer with a
significant increase in the number of
surveys being completed across the
Group, together with analysis of the
customer journey and how we can
better engage with our clients from the
‘need’ stage onwards. We continue
to link the insight from the programme
directly to service provision, particularly
in relation to on time delivery, turnaround
times and communication and we have
recently initiated a mystery shopper
programme in order to understand the
customer experience even more deeply.
We also enjoyed a strong year for
customer-related approvals. In January,
we secured Boeing approval for our
Aerospace laboratory in Monterrey,
Mexico, making it the fifth facility in
North America to have this client-specific
approval. In the autumn, our Teesside
(UK) laboratory received additional
Nadcap accreditation for 24 codes
including chemical analysis. Exova
now holds one of the largest scopes
for Nadcap standards for inspection,
measurement and testing in Europe
and has Nadcap accreditation at 17
laboratories globally, more than any
other aerospace testing provider. In our
industrials segment we announced the
establishment of an in-house testing
facility at Grainger and Worrall, a UK
structural castings supplier and a few
months later it had achieved UKAS
accreditation, meaning we were
accredited to ISO 17025 as a recognised
and independently audited laboratory.
Financial statements
Exova Net Promoter Score®
Programme 2013-2016
+48 +47
+40
+35
+19
2013 2014 2015 2015 2016
No. of Surveys
582 2,106 1,903 Benchmark* 2,704
Net Promoter Score & NPS are registered
trademarks of Bain & Company, Inc.,
Fred Reichheld and Satmetrix Systems, Inc.
* Source: 2015 Satmetrix on data from
91 industrial B2B companies.
Generating organic revenue growth
and increasing market share
We delivered strong organic growth ¹
of 5.5% (at constant currency) across
all sectors, excluding Oil & Gas and
Industrials. As in 2015, this meant that
we were able to absorb the extremely
adverse conditions in the global oil &
gas market, which worsened year on
year. We ended the year with organic
growth broadly flat at (0.2)% at
constant currency.
In our Industries Division, which consists
of Oil & Gas and Industrials and
Aerospace, organic growth was (7.7)%,
all driven by the continued downturn in
oil & gas. Aerospace performance was
strong, reflecting continued strength in
demand for materials testing across all
geographies, as well as an encouraging
contribution from testing associated with
ceramic composites and additive layer
manufacturing. In the oil & gas segment,
we saw further price and volume pressure
around the world; we continued to try
and offset the impact with greater focus
on the industrials segment and there
were some encouraging signs in the
second half.
Annual Report & Accounts 2016 19
 Chief Executive’s review continued
Our Products Division delivered 3.5%
overall organic growth at constant
currency. This was underpinned by
strong performance in the Fire, Building
Products and Certification (FBP&C)
business, founded on continuing
harmonisation of European standards
and the introduction of new standards
in other parts of the world. While the
Calibration business saw modest
organic growth, the third sector in the
Division, Transportation, had a mixed
year, with solid growth in our Michigan
(USA) laboratories offset by our engine-
testing operations. The latter is a function
of new model releases and after a strong
2015, volumes were down as a number
of new engine release programmes
came to an end.
The Infrastructure, Health and
Environment Division had an excellent
year, growing organically 9.3% at
constant currency. This was driven
by double-digit growth in the Middle
East Infrastructure sector, and well
supported by the Environment business
in the UK and the North America Health
Sciences business. There were some
good contract wins in the Middle East
including mining company, Ma’aden, to
provide on-site environmental monitoring
services across the Kingdom of Saudi
Arabia; and SEPCO Arabia Company
to support construction on the main
gas pipeline across Saudi Arabia, where
we have been testing and validating
materials and environments associated
with the second phase of the Kingdom’s
master gas system. Testing is being
conducted both onsite and in Exova’s
Dammam laboratory.
Managing our laboratories efficiently
We continued to make important
investments in our laboratory network,
in order to meet existing and future
customer needs. We made particularly
strong progress in our Aerospace
business, further optimising the
global laboratory network through
strengthening capability and extending
our reach as well as making us more cost
efficient. We invested in 24 new frames
across the Lancaster (UK), Mississauga
(Canada) and Anaheim (USA) facilities,
expanding services in high temperature
fatigue and creep testing, including the
proprietary testing of ceramic based
composite materials for future use in
aerospace and defence applications.
Alongside this, we consolidated our
capabilities in Plzeň (Czech Republic) to
create Europe’s largest creep and stress
rupture laboratory, with over 270 creep
and stress rupture test points. With these
enhanced capabilities, Exova now offers
2. Adjusted EBITA is operating profit from continuing operations before separately disclosed items. Refer to Note 1(d) of the financial statements on pages
102 to 103 for the explanation as to why EBITA is used as a performance measure.
20 Exova Group plc
a complete service to customers from a
single laboratory, with all tests conducted
in-house.
The challenging market conditions in oil
& gas meant that we continued to take
the necessary cost actions to mitigate
the impact on margin as well as to meet
the evolving needs of customers who
sought a more global approach. In the
Netherlands we rationalised our oil & gas
operations from two facilities into one
and in Singapore, we moved our oil &
gas testing capability and colleagues
into the Admaterials laboratory. Where
possible and appropriate, we also
reduced hours to reflect the lower levels
of activity being seen across the whole
sector, while at the same time being
mindful of retaining our full technical
capability for the point at which recovery
begins. In those oil & gas laboratories
with the capability to deliver services for
other sectors, we drove up utilisation with
Industrials customers and began to see
some encouraging signs in the UK and
the Americas in the second half of
the year.
All general managers are tasked with
effectively managing their laboratory’s
cost base and we have an established
range of management and reporting
tools that help to do this, including the
Laboratory Performance Dashboard;
Laboratory Information Management
Systems (which are tailored to the
individual characteristics of end user
markets); and a Customer Relationship
Management system that supports the
effective taking on of new business.
All laboratories are supported by
operationally-focused finance managers
and our monthly reporting and review
cycle means that leaders across Exova
have a regular view of performance
and the opportunity to support
continued improvement in all
laboratory operations.
As part of this process we constantly
review the performance of the whole
portfolio and in 2016, we took the
decision to divest two significant parts
of our business – our Food, Water and
Pharmaceutical operations in the UK
and Ireland and then, at the end of the
year, our Environment business in Eastern
Canada. In both cases, we concluded
that these businesses were sub-scale
and would benefit from a different owner
to develop them. We also divested a
small non-core fire-testing equipment
manufacturing operation in Gent.
We expect these disposals will have a
positive effect on Group margins in 2017.
In 2016 we delivered an adjusted EBITA 2
margin of 15.3% (2015: 15.8%), which
reflects the ongoing challenges in
Oil & Gas and Industrials, good margin
development in other sectors and
investments in growth and acquisitions.
Statutory operating profit of £43.5m grew
47.5% largely due to business growth from
acquisitions and a gain on disposal of
businesses. The prior year also included
a higher amortisation of intangibles
charge as the Bodycote customer
relationships are now amortised in full.
Extending our service range and the
global reach of our business
Our M&A programme continued to
deliver a significant contribution to total
growth for the business. We established
a strong initial presence in the Singapore
construction testing market and improved
our presence and technical capability in
two existing markets, Environmental and
Non-Destructive Testing (NDT) in the UK.
In all three cases, we applied our usual
discipline to the selection, due diligence
and integration processes so that all the
businesses acquired are already
embedded in the Group and contributing
additional value. We began the year by
integrating those businesses that we had
acquired at the tail end of 2015 – WTS
and the environmental monitoring
division of REC – and we also took the
opportunity to revisit our target screening
and scoring criteria and the improvements
we made to our approach contributed
to the ongoing success of our M&A
programme in 2016.
In February we acquired a majority
stake in Admaterials Technologies Private
Limited (Admaterials), a Singapore-based
business that provides testing in the
construction sector, as well as chemical,
environmental and mechanical testing
and certification services. With national
and international customers in the private
and government sectors, the business
provides the foundation for growth in the
ASEAN region and we quickly established
capability in our existing Johor Bahru,
Malaysia laboratory. Confirming the
progress that we have made, we recently
announced that this facility had been
accredited to International Standard ISO/
IEC 17025:2005 for civil engineering by
SINGLAS, improving our ability to serve
our customers in Malaysia who need
SINGLAS accreditation for products
supplied to the construction industry
in Singapore.
 Strategic report Report of Directors Financial statements

In the second half of the year we Outlook

acquired Jones Environmental Forensics
Limited (Jones), a North Wales-based
independent environmental laboratory
business and the UK’s market leader
in contaminated land analysis and a
specialist in environmental forensics.
Over its nine year history Jones has built
a strong reputation as the laboratory of
choice for contaminated soil and water
analysis, primarily selling its services
to leading global environmental
consultants, with the ultimate end
customers often including major oil and
petroleum producers and international
mining companies. The acquisition
confirmed our position as one of the
UK’s leading environmental testing
and analysis businesses, able to offer
a broad portfolio of environmental
services to clients in the UK and abroad.
In December, we completed the
acquisition of Yorkshire-based Insight
NDT Limited (Insight). Insight is at the
forefront of the NDT market in the UK,
with a reputation built on consistent
delivery of high quality, high capacity
and fast turnaround radiographic
inspection services for manufacturers
of specialised castings and forgings
within the industrials market. The deal
provided a complementary extension
to our well-established specialist testing
facilities in the Midlands.
The Board expects modest organic
revenue growth at constant currency
in 2017. This will be driven by Exova’s
diversified exposure and good growth in
most sectors, moderated by continuing
pressure in oil & gas, and a lower point in
the project cycle of our engines testing
business. Organic growth is expected to
be weighted towards the second-half,
partly as a result of more favourable
like-for-like comparisons. Our acquisitions
programme should continue to contribute
to overall revenue growth. We expect
that recent actions we have taken
to reduce cost will offset general
pressure on group margins in the
current financial year.
Our medium-term revenue expectation
remains mid-single digit organic growth,
and continued expansion through
acquisitions.
Ian El-Mokadem
Chief Executive Officer
27 February 2017

In all we welcomed almost 240 new

colleagues to the business from these
transactions, bringing new and deeper
expertise across a range of technical
disciplines, as well as intimate knowledge
of their end markets. This influx is an
important contributor to maintaining and
enhancing our technical competence,
as well as giving us access to new
customers. Our M&A pipeline for 2017
remains very healthy and we look
forward to welcoming further businesses
to the Exova Group as we continue to
extend the global reach of the business.

Annual Report & Accounts 2016 21


Solid overall performance driven by Products and Infrastructure,
Health and Environment Divisions. Strong performance globally in Aerospace,
particularly in the Americas. Further success in our M&A programme and three
disposals allowed us to add more value to our laboratory network, and
mitigate another year of challenging market conditions in oil & gas
Industries
The Division reported a mixed
performance with strong growth in
Aerospace and some encouraging signs
in Industrials in the second half, offset by
the continued weakness in the oil & gas
market, leading to an overall contraction
in organic revenues.
Aerospace
The Aerospace sector delivered strong
organic growth, driven by high rates of
production release testing, as a result of
improved aircraft build rates, notably in
the Americas. Testing revenues associated
with research and development were
driven primarily by developments in
aircraft engine materials and more latterly
by emergent technologies such as
additive layer manufacturing, which is
being increasingly adopted by aerospace
OEMs. Following a flat 2015 our Swedish
aerospace business returned to good
organic growth in 2016, driven by strong
demand from the Swedish aerospace
and defence sectors, with a particular
focus on NDT services.
We continued to invest in our aerospace
testing facilities across the world, with
new test frames installed in the USA, UK
and Canada, as well as consolidation
of our European creep and stress rupture
test capability in Plzeň, Czech Republic.
Our 2016 investments in fatigue capacity
and modern testing technologies look
set to position the sector for continued
organic growth in 2017.
Divisional Performance
Industries
Revenue
Adjusted EBITA
Margin
22 Exova Group plc
Operating review
Oil & Gas and Industrials
In Europe continued impact of low
oil prices led to contraction and price
pressure in the oil & gas testing market.
Although some 2015 projects completed
successfully in the first part of the year,
we experienced lower levels of new
approved projects from Q2 2016 onwards.
As part of the focus on diversification,
we successfully secured a number of
contracts with non-oil & gas customers
such as Tata Steel and Sellafield in the UK;
and with the acquisition of Insight NDT
Limited, we gained greater access to
opportunities in the industrials segment.
As in Europe, the US oil & gas market
continued to experience strong
headwinds, resulting in revenue decline
versus 2015, as major Gulf of Mexico
research and development and capital
projects were delayed and/or cancelled.
During the year we took restructuring
actions to mitigate volume and price
pressures in line with the market. The
Americas industrials segment had an
encouraging end to the year. Despite
some softening in the US primary and
secondary steel markets, we saw
improvement in the second half and
overall growth in the segment, helped
by a strong performance in Canada due
to demand from the rail and automotive
sectors. In 2017, further sales focus on
industrials will help to reduce our exposure
to oil & gas market conditions and allow
us to utilise laboratory capacity and
expertise as fully as possible.
Our Western Canada oil & gas
business managed the downturn by
diversifying its client base to include
more infrastructure and agricultural
customers. We continued to benefit from
providing excellent service and using
targeted sales campaigns, with the final
2016
£m
116.6
21.5
18.4%
quarter seeing some possible green
shoots of recovery.
We also faced very strong headwinds in
our Asia Pacific oil & gas business, with
a significant reduction in subsea project
activity. We have closed our Malaysia
oil & gas laboratory and reduced
headcount in Singapore, retaining
key capability co-located with the
Admaterials laboratory. Our India facility
held up well, with good organic growth
despite a heavy reliance on oil & gas
customers; we successfully extended
our range of technically demanding
services and saw good growth from
the new corrosion facility.
Products
The Products Division showed growth
in all sectors apart from Transportation,
with particularly strong performance in
Fire, Building Products and Certification.
Fire, Building Products and Certification
Ongoing European standardisation
and the introduction of new standards in
many parts of the world have continued
to create a positive market for fire testing.
In Europe we saw continued focus on
the harmonisation of standards in the
areas of doors and door hardware,
as well as more general penetration
seals and joints. In Australia we saw
the introduction of new standards and
guidelines in the area of façade fire
protection and façade testing, which
in turn drove growth in the Exova
Warringtonfire businesses.
Overall the market for fire engineering
was positive but some concerns arising
from Brexit were apparent in the UK and
Europe. In the Middle East, projects were
not as abundant as in 2015, while North
America had a successful year through
Growth at Organic growth
2015 reported at constant
£m exchange rates exchange rates
115.1 1.4% (7.7)%
24.4 (11.9)%
21.2% (280)bps
 Strategic report
Products
Revenue
Adjusted EBITA
Margin
the introduction of new tests and
renewed sales effort in fire testing.
The sector was further supported by an
increase in inspection and certification
services, and also benefitted from the
final integration of BM TRADA into Exova.
Transportation
Our Warren and Troy laboratories both
delivered strong performances, with
the former upgrading its approach to
interiors testing and adding several
pieces of new equipment to drive
customer growth and deeper
relationships. As in 2015, the Troy
laboratory executed some major
structures and durability projects for
key clients contributing to good growth
throughout 2016. Nevertheless, in line
with expectations, total revenue for
Transportation was slightly behind in
2016, as a result of lower volumes of
engine testing compared with those
seen in 2015. There is a healthy
opportunity pipeline for 2017 across
both our Troy and Warren laboratories.
Calibration
The calibration business delivered
modest organic growth, with increases in
demand from many large clients partially
offset by one major client deciding
to move their operations away from
Scandinavia. Life sciences and energy
clients were a more significant part of the
client mix during 2016, a trend that we
expect to continue in 2017. We increased
the scope of calibration services that
we offer and we also initiated the coming
together of our operations in the Czech
Republic and Germany to drive operating
efficiencies.
Infrastructure, Health and Environment
Revenue
Adjusted EBITA
Margin
Report of Directors
2016
£m
117.0
16.9
14.4%
Infrastructure, Heath and Environment
The Infrastructure, Health and
Environment Division had a very strong
year, with revenue growth in all three
sectors leading to a 9.3% improvement
at constant currency. Revenues were
also boosted by two acquisitions in the
Division, each of which gave us strong
positions in new segments.
Infrastructure
Our Middle East business enjoyed strong
growth in the year, overcoming difficult
economic conditions due to the fall in
energy prices. Our laboratories in Saudi
Arabia, the UAE and Oman improved
their market share delivering impressive
year-on-year growth. In Saudi Arabia,
materials and environmental testing
were strong, with services being
provided to support further development
of the Kingdom’s master gas system. The
region also benefited from the full year
impact of the metro projects in Riyadh
and Doha, which offset a slowdown in
infrastructure projects in Abu Dhabi.
We were also awarded a sizeable
contract with a government entity in
Qatar to provide full production-to-sale
QA/QC testing and inspection services
for aggregate materials. The project
required the establishment of three third
party-accredited large site laboratories
in two different countries. We expect
activity on this contract to be significantly
lower in 2017. In February 2016 we
acquired Admaterials Technologies
Private Limited, a multi-disciplinary
laboratory based in Singapore,
specialising in infrastructure materials
testing and environmental chemistry.
2016
£m
94.9
11.9
12.6%
Financial statements
Growth at Organic growth
2015 reported at constant
£m exchange rates exchange rates
97.1 20.5% 3.5%
14.3 18.2%
14.7% (30)bps
Integration has been completed
successfully and the laboratory has
continued to win some excellent
projects, growing ahead of plan.
Health Sciences
Our Americas pharmaceutical
business demonstrated good growth,
driven by complex development
projects, increased manufacturing
support and biotherapeutics testing
for both Canada and US based
pharmaceutical and medical
device companies. Several long-term
agreements with pharmaceutical
companies helped to ensure a solid
base of continuous testing projects.
Investment in IT systems continues to
help us provide an improved customer
service experience. Our food laboratory
in Portland, Oregon had a very strong
year with the growth of several key clients
in a very competitive market segment.
Environment
The UK and Ireland environment
business experienced very strong overall
growth in 2016. Underpinned by good
organic growth in our market-leading
stack emissions business, our asbestos
testing and occupational hygiene
businesses, we acquired the UK’s leading
contaminated land laboratory, Jones
Environmental in July. The integration of
this business and that of the emissions
testing division of REC (acquired at the
very end of 2015) were both completed
in line with agreed plans.
Growth at Organic growth
2015 reported at constant
£m exchange rates exchange rates
84.3 12.6% 9.3%
8.1 46.9%
9.6% 300bps
Annual Report & Accounts 2016 23
 Financial review

2016 saw us deliver strong earnings growth and improved cash conversion
as a result of strong performance in most of our Sectors, supplemented by
favourable foreign exchange movements, but moderated by the continuing
challenges in Oil & Gas and Industrials

Revenue
2016
£m Growth2

2015 reported 296.5

Constant currency 1

Organic (0.5) (0.2)%

Acquisitions 20.8 6.2%
Disposals (12.2) (3.6)%
Growth at constant currency 8.1 2.4%
Currency effect 24.0 8.4%
2016 reported 328.6 10.8%

1. Constant currency growth figures are provided in order to remove the impact of currency translation. We calculate growth at constant rates by translating
the current and prior period revenue at the same exchange rates.
2. Growth percentages are calculated on constant currency revenue.

Revenue for the year was £328.6m which represented organic growth at constant currency of (0.2)%.

Acquisitions contributed 6.2% of growth, in part offset by three disposals, two being significant non-core businesses, which resulted
in a reduction of 3.6%. The Group reports in sterling which weakened during the course of the year over the currencies in the
territories in which the Group operates. This resulted in a positive translational effect of 8.4%.

24 Exova Group plc

 Strategic report Report of Directors Financial statements

Adjusted EBITA1 margin

2016 2015 Margin
£m Margin £m Margin variance

Industries 21.5 18.4% 24.4 21.2% (280)bps

Products 16.9 14.4% 14.3 14.7% (30)bps
Infrastructure, Health and Environment 11.9 12.6% 8.1 9.6% (300)bps
Group 50.3 15.3% 46.7 15.8% (50)bps

1. Adjusted EBITA is operating profit from continuing operations before separately disclosed items. Refer to Note 1(d) of the financial statements on pages
102 to 103 for the explanation as to why EBITA is used as a performance measure.

Adjusted EBITA margin decreased by 50bps from 15.8% to 15.3%. This reflects the continuing challenges within the Oil & Gas and
Industrials sector which negatively affected margins, offsetting the improvements elsewhere, including the positive contribution
from acquisitions and favourable translation impact.

Statutory operating profit

2016 2015 Margin
£m Margin £m Margin variance

Group 43.5 13.2% 29.5 10.0% 320bps

Statutory operating profit of £43.5m grew 47.5% largely due to business growth from acquisitions, favourable foreign exchange
movements, and a gain on disposal of businesses. The prior year also included a higher intangible assets amortisation charge,
as the Bodycote customer relationships are amortised in full.

Separately disclosed items

2016 2015
£m £m

Gain on disposal of businesses (6.1) –

Amortisation of intangible assets 3.9 8.9
Restructuring costs 5.9 4.9
Impairment of property, plant and equipment 1.5 –
Acquisition and integration costs 1.6 3.4
6.8 17.2
Finance costs – unwind of discount relating to deferred consideration 0.1 –
Income tax credit (0.4) (3.8)
Separately disclosed items 6.5 13.4

The Group presents, as separately disclosed items on the face of the Group income statement, those material items of income
and expense which, because of their nature, merit separate presentation to allow users to understand better the elements of
financial performance in the year. The Group believes this presentation facilitates a comparison with prior periods and a better
assessment of trends in financial performance.

Gain on disposal of businesses

The Group made three business disposals in 2016 with two being significant.

The sale of the UK and Ireland Food, Water and Pharmaceuticals business to international life sciences company, Eurofins
Scientific, completed 1 July 2016, for a cash consideration of £18.0m including a selling price adjustment of £0.1m. The cash
consideration was net of certain working capital balances retained and liabilities transferred (gross consideration £20.0m).
The net gain was £5.3m.

The sale of the Environmental East business in Canada, also to international life sciences company, Eurofins Scientific, completed
on 5 December 2016, for a cash consideration of £7.5m, subject to a further selling price adjustment. The cash consideration was
net of certain working capital balances retained and liabilities transferred (gross consideration £9.1m). The net gain was £0.6m.

The sale of a division of WFR Gent NV completed 24 March 2016 for a cash consideration of £0.2m. The net gain was £0.2m.

Annual Report & Accounts 2016 25

 Financial review continued

Summarised financial information relating to the sale of the businesses is shown in the table below.
UK and Ireland WFR Gent
Food, Water and Environmental Fire-testing
Pharmaceuticals East division Total
£m £m £m £m

Goodwill 9.5 3.3 – 12.8

Property, plant and equipment 3.1 2.9 – 6.0
Trade and other receivables 0.5 0.5 – 1.0
Trade and other payables (0.1) (0.2) – (0.3)
Provisions (1.1) – – (1.1)
Total carrying amount of net assets disposed 11.9 6.5 – 18.4
Costs of disposal 0.8 0.4 – 1.2
Gain on disposal of businesses 5.3 0.6 0.2 6.1
Proceeds on disposal of businesses 18.0 7.5 0.2 25.7

Amortisation of intangible assets

Amortisation of intangible assets for 2016 was £3.9m, a decrease of £5.0m from £8.9m in 2015. This decrease was due to customer
relationships acquired from Bodycote now fully amortised partly offset by customer relationship amortisation relating to acquisitions
made over the last few years.

Restructuring costs
Oil & gas restructure
To mitigate the poor trading conditions in oil & gas, we have undertaken further cost actions globally to right size the business.
This restructuring programme totalled £3.3m and included onerous lease provisions of £1.8m, staff redundancies of £1.2m and
other property related costs of £0.3m.

Portfolio realignment and organisational restructure

Following the completion of acquisitions earlier in 2016 coupled with the UK and Ireland Food, Water and Pharmaceuticals disposal,
we realigned our sectors and organisational structure to reflect the shape of the Group more appropriately going forward. The cost
in relation to this was £2.0m and comprised mainly staff redundancies.

Other
Having undertaken a strategic review of our laboratory footprint within our Aerospace sector and Products Division, we restructured
certain laboratories which resulted in costs of £0.6m, largely relating to staff redundancies.

Impairment of property, plant and equipment

Due to the poor oil & gas trading conditions, we undertook a review of property, plant and equipment in those laboratories and
recognised an impairment of property, plant and equipment for the amount of £1.5m.

Acquisition and integration costs

Acquisition costs incurred in relation to the purchase of Admaterials Technologies Private Limited was £0.1m, Jones Environmental
Forensics Limited £0.3m and Insight NDT Limited £0.2m. Acquisition costs include stamp duty, due diligence fees including
professional advisors fees in relation to tax, legal, property and insurance advice. Integration costs amounting to £0.5m in total
for these businesses include project management, travel and rebranding costs. Integration costs for businesses acquired towards
the end of 2015 amounted to £0.1m and costs in relation to active and failed projects amount to £1.0m. Contingent consideration
of £0.6m in relation to the acquisition of Metallurgical Services Private Limited was reversed in the current year as the target was
not met.

26 Exova Group plc

 Strategic report Report of Directors Financial statements

Net finance costs

2016 2015
£m £m

Net cash interest payable

Bank loans 5.5 5.0
Other loans and charges 0.1 0.1
Interest income on short-term deposits (0.1) –
5.5 5.1
Non-cash costs
Amortisation of debt issue costs 0.6 0.7
Pension interest 0.6 0.4
Unwind of discount on leasehold dilapidations 0.1 0.1
Unwind of discount on deferred consideration 0.1 –
1.4 1.2
Net finance costs 6.9 6.3
Included in separately disclosed items – unwind of discount on deferred consideration (0.1) –
Net finance costs before separately disclosed interest 6.8 6.3

Net cash interest payable in the year increased from £5.1m to £5.5m. The increase relates to the term loans due to the weakening
of sterling against the currencies that the bank loans are denominated.

Income tax
2016 2015
£m £m

Current tax 6.1 4.7

Deferred tax 1.8 –
Total income tax charge 7.9 4.7

The total tax charge for corporate income tax and deferred tax is £7.9m (2015: £4.7m).

The Group is in a tax paying position in a number of overseas jurisdictions, in which it operates, with a total overseas income tax
charge of £4.9m (2015: £4.2m). UK taxable profits were partially offset by UK losses which resulted in a UK tax charge of £1.2m
(2015: £0.5m).

Deferred tax includes amortisation of £0.3m (2015: £2.3m) of the deferred tax liability relating to customer relationships.

Across the Group there are tax losses of £99.0m (2015: £102.0m) most of which are available to carry forward indefinitely to offset
future taxable profits in the companies in which they arose. Deferred tax assets of £1.1m being £0.5m in USA, £0.3m in India and
£0.3m elsewhere (2015: £1.6m being £1.2m in USA and £0.4m other) have been recognised in respect of certain losses where it is
sufficiently certain that these losses will be utilised against taxable profits in the foreseeable future.

Acquisitions
During 2016 the Group completed three acquisitions.
On 15 February 2016, the Group acquired 70% of the share capital in Admaterials Technologies Private Limited (Admaterials) for a
cash consideration of £5.4m (£4.8m net of cash acquired). In addition, the consideration to acquire Admaterials includes a put
and call option to purchase the remaining shareholding three years after the acquisition based on the same earnings multiple
as the original offer of £3.8m. The acquisition has been accounted for as though 100% of the share capital had been acquired,
with a liability recognised as contingent consideration in relation to the put option. Acquisition costs incurred in the year in
respect of Admaterials amounted to £0.1m. This Singapore based business provides testing in the construction sector, as well as
chemical, environmental and mechanical testing and certification services. Founded in 2008, Admaterials is one of the leading
construction testing businesses in Singapore, as well as providing chemical, environmental and mechanical testing to a range of
customers in the private and government sectors. The business has annual revenues in the region of £3.5m and a team of more
than 70 specialists.

Annual Report & Accounts 2016 27

 Financial review continued

On 1 July 2016, the Group acquired 100% of the share capital of Jones Environmental Forensics Limited (Jones) for a purchase
consideration of £15.5m (£16.1m net of finance lease settled and cash acquired). This includes deferred consideration of £1.0m
and an amount of up to £1.6m is contingent upon future profitability of the business. The purchase consideration is subject to
further purchase price adjustments. Acquisition costs incurred in the year in respect of Jones amounted to £0.3m. Jones is a
North Wales-based independent environmental laboratory business and the UK’s market leader in contaminated land analysis
and a specialist in environmental forensics, with an excellent reputation for both quality and service. Jones has built a strong
reputation as the laboratory of choice for contaminated soil and water analysis, primarily selling its services to leading global
environmental consultants, with the ultimate end customers covering a variety of market segments, many of which Exova has
an existing presence with. The business has a team of over 150 specialists and has annual revenues of £8.0m.

On 2 December 2016, the Group acquired 100% of the share capital of Insight NDT Limited (Insight), a South Yorkshire-based
non-destructive testing (NDT) and radiographic inspection business for a purchase consideration of £7.6m (£7.1m net of cash
acquired). The purchase consideration includes deferred consideration of £0.1m and an amount of up to £1.5m is contingent
upon future profitability of the business. Acquisition costs incurred in the year in respect of Insight amounted to £0.2m. Insight is
at the forefront of the NDT market in the UK, providing its specialist services to the industrial sector since 1997. Insight’s reputation
is built on consistently providing high quality, high capacity and fast turnaround radiographic inspection services for manufacturers
of specialised castings and forgings within the industrials market, as well as providing testing for the nuclear, medical, rail and oil
& gas sectors. The business has an experienced team of 20 specialists and achieved revenues of around £2m in 2015.

Cash flow
2016 2015
£m £m

Adjusted EBITDA1 64.5 59.1

Net capital expenditure2 (18.2) (17.3)
Movements in working capital3 0.2 (7.0)
Free cash flow 46.5 34.8
Cash conversion4 72% 59%
Taxes (4.5) (3.7)
Interest (5.5) (5.1)
Free cash flow after interest and tax 36.5 26.0
Acquisition of subsidiary undertakings (23.6) (21.8)
Proceeds on disposal of businesses 25.7 –
Dividends paid to shareholders (8.1) (7.5)
Other5 (12.4) 2.8
Net movement in cash 18.1 (0.5)

1. Adjusted EBITA is operating profit from continuing operations before separately disclosed items and depreciation. Refer to Note 1(d) of the financial
statements on pages 102 to 103 for a reconciliation of profit before tax to Adjusted EBITA, Adjusted EBITDA and free cash flow.
2. Purchase of property, plant and equipment and computer software, net of disposals.
3. Excludes effect of accrual of IPO related costs.
4. Free cash flow divided by adjusted EBITDA.
5. Comprising restructuring, acquisition and integration charges, IPO cash costs and financing items.

Free cash flow increased by £11.7m as a result of increased EBITDA and improved working capital management. This had a
positive impact on cash conversion at 72% (2015: 59%).

Net capital expenditure includes proceeds on disposals of £0.1m. Gross capital expenditure of £18.3m represents 5.6% of revenue
(2015: 5.9%).

Net debt (excluding debt issue costs)

2016 2015
£m £m

Term loans 193.6 169.7

Revolving credit facility 8.0 12.0
Finance leases 0.2 0.4
Gross debt 201.8 182.1
Net cash (52.4) (29.1)
Net debt 149.4 153.0

28 Exova Group plc

 Strategic report Report of Directors Financial statements

At 31 December 2016, our term loans comprised £193.6m of non-amortising borrowings denominated in sterling, euro, Canadian
dollars, US dollars and Swedish krona. The increase in the term loan is due to the weakening of sterling against the major
currencies that the loans are denominated in. There are no repayments scheduled on our term loans until 2019.

The amounts drawn down on the revolving credit facility are denominated in sterling. In addition, £82.0m of the revolving credit
facility was undrawn at 31 December 2016.

The net debt to Adjusted EBITDA ratio was 2.3x at 31 December 2016 (2015: 2.6x). Based on the definition in the bank covenant,
net debt to Adjusted EBITDA ratio is 2.1x (2015: 2.4x).

Earnings per share (EPS)

Basic earnings per share for the 12 months ended 31 December 2016 was 10.5p (2015: 6.8p).

Basic adjusted earnings per share for the 12 months ended 31 December 2016 was 13.1p (2015: 12.2p). This measure calculates
EPS before separately disclosed items.

Dividend
The Board is recommending a final dividend of 2.35p per share (2015: 2.2p per share). This will absorb an estimated £6m of
shareholders’ funds. The total dividend for 2016 will therefore be 3.4p per share representing an increase of 6.3% (2015: 3.2p).
The dividend will be paid on 9 June 2017 to shareholders on the register at the close of business on 26 May 2017.

Going concern
The Group’s business activities, together with the factors likely to affect its future development and performance are described
in this Strategic report. The Group’s cash flows, liquidity position and borrowing facilities are described in this Financial review.
In addition, Notes 19 and 20 to the financial statements include the Group’s financial risk management objectives and policies,
and processes for managing its capital.

The Directors have reviewed the Group’s budget for 2017 and its financial trading projections and cash flows to 31 December
2018, taking account of possible sensitivities to the risks outlined on pages 10 to 13. This review considered the projected financial
performance in relation to the Group’s existing borrowing facilities described above. As a result of this review, the Directors have
a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable
future. As a result the Board continues to adopt the going concern basis in preparing the financial statements.

Foreign exchange
Exchange rates for the most significant currencies used by the Group during the year were:
Average rate Closing rate Average rate Closing rate
2016 2016 2015 2015

Euro 1.232 1.172 1.378 1.357

US dollar 1.357 1.236 1.532 1.483
Canadian dollar 1.807 1.657 1.957 2.056
Swedish krona 11.641 11.225 12.913 12.446
UAE dirham 4.987 4.538 5.630 5.447
Qatari riyal 4.952 4.500 5.585 5.404

Philip Marshall
Chief Financial Officer
27 February 2017

Annual Report & Accounts 2016 29

 Strategy in action
Proactive laboratory
portfolio management
Building capability and strengthening market leading
positions through carefully considered strategic
acquisitions and occasional disposals
Exova demonstrated its commitment
to active management of its portfolio
throughout 2016. In completing three
targeted acquisitions and two significant
disposals, the business took a major
step forward in optimising its laboratory
network. As a result of this activity it
increased the proportion of technically
demanding services that it provides;
it extended the business’s reach into
new markets; and it strengthened its
position in several existing markets.
In February, Exova took a 70% stake
in Admaterials Technologies Private
Limited, a Singapore-based laboratory
specialising in testing and analysis for
the construction sector. This gave the
business a capability to complement
its existing oil and gas laboratory in the
country and a foundation for growth
in South East Asia, reinforced by the
opening of an Admaterials facility in
Malaysia in February 2017.
In July, Exova divested its sub-scale
UK and Ireland Food, Water and
Pharmaceutical business, freeing
up capital to allow the company to
invest in other growing sectors. As the
sale completed, Exova acquired Jones
Environmental Forensics Limited, UK
market leader in contaminated land
Strategic priorities
Managing our
laboratories efficiently
30 Exova Group plc
analysis. This acquisition complemented
Exova’s existing operations by considerably
enhancing its technical expertise in
infrastructure and environmental services
and provided the foundation for further
growth in the UK and internationally.
At the end of the year we successfully
divested our Eastern Canada
Environmental business. Concurrently, we
acquired Insight NDT Limited, a specialist
non-destructive testing (NDT) business at
the forefront of the NDT market in the UK.
This acquisition significantly enhanced
Exova’s service offering in the UK NDT
market, given Insight’s established
reputation for providing high quality, high
capacity radiographic inspection services
for manufacturers of specialised castings
and forgings within the industrials market.
The acquisitions demonstrated the
company’s continuing commitment
to developing its capabilities in new
markets and reinforcing its market
leading positions. The disposals allowed
us to dedicate more financial and
management resource to enhancing
our positions in key growth markets.
Overall, these transactions added
significant value to Exova’s laboratory
portfolio and further enhanced our
credibility as a buyer in the TIC sector.
Extending our service
range and the global
reach of our business
Strategic report Report of Directors Financial statements

In 2016 more than

1.3 million tests

were carried out on soil,
water and air samples
received from more than

30 countries

Exova’s portfolio
management activities
provide more evidence
of its aim to focus resources
on strengthening its market
leading positions in the
provision of technically
demanding services

Annual Report & Accounts 2016 31

 Corporate social responsibility
Working with integrity to ensure a healthy, safe and sustainable
business, for all our people to enjoy rewarding careers
Working with integrity
During 2016, we have continued to
develop our approach to Corporate
Social Responsibility (CSR) so that
we meet the expectations of all our
stakeholders and to ensure that we
comply with all relevant legislation
and regulations.
Our commitment to conducting business
in a socially responsible and sustainable
manner has enabled us to integrate
new operations into the Exova Group,
no matter where those businesses are
located and to divest some of our Food,
Water and Pharmaceutical business
which we believed would have a stronger
future, under different ownership. As a
result of the acquisitions and divestments
carried out during 2016 we now operate
135 permanent facilities in 33 countries
across the world.
Our approach to CSR builds on the
Exova values of Innovation, Teamwork,
Performance and Integrity, with Integrity
at the heart of everything we do so that
we can:
• protect the health and safety of our
people and visitors to our facilities;
• manage the impact of our operations
on the environment;
• support our people so that they enjoy
rewarding careers and can develop
their skills and knowledge for the
benefit of our customers and deliver
advances in our industry;
• maintain the highest ethical practices
in all our business activities; and
• deliver a sustainable business by
supporting future generations of
experts and working with customers
to develop solutions that help them
to protect and enhance the world
around us.
During 2016 we have continued to drive
improvement in our health and safety
culture through the implementation of
a behaviour-based safety programme;
continued focus on proactive reporting;
and robust root cause corrective actions.
Although the direct environmental
impact of our operations remains low
compared with many industries, we are
proud of the progress we have made
in this area. Indirectly, the services
we provide enable our customers to
32 Exova Group plc
improve the safety, quality and
performance of their products, services
and operations; we have helped some
of the world’s leading organisations
to minimise the health, safety and
environmental impacts of their activities,
as well as enabling them to bring critical
products and services to the market.
At Exova, we believe that developing
strong relationships with our customers
and working with them as a strategic
partner enables us all to build more
sustainable businesses.
As we further develop our business,
we will continue to improve our policies,
processes and procedures in order to
fully embed CSR into our operations
and culture, thereby building a more
sustainable business for the future.
Health, safety and environment (HSE)
During 2016, we worked in accordance
with our three-year strategy for HSE which
is designed to support a safe, healthy
and environmentally robust delivery of
business objectives and future growth.
We have built on the significant progress
made over the last four years in improving
performance, maturity and culture
across the business. The approach we
adopted, which is based on the seven
themes of leadership, compliance,
people, resourcing, equipment/assets,
culture and HSE management systems,
has proved successful and we continue
to use this as the foundation for further
improvement. To support this, we have
implemented a set of group-wide key
performance indicators (KPIs), standards,
systems and procedures that define our
HSE expectations which are also linked
to the Group risk-based HSE auditing
protocol.
In 2013 we published our long-term HSE
strategy in which we set out our specific
objectives and targets. In the following
two years, we reported that we had
made significant progress against those
key objectives, and this year we are
pleased to report that further progress
has been made. For example, during
2016 we have:
• reduced behavioural causes of Lost
Work Day Incidents (LWDIs) by 20%;
• reassessed and realigned HSE
resources to support the Divisional
structure implemented in September
2016;
• achieved a 50% reduction in incident
reports remaining open on the internal
reporting system, with particular focus
on those over 30 days old; and
• rolled out behaviour-based safety
training to 70% of all Exova locations.
Although we have achieved a 31%
reduction in lost work day incidents since
2012, we are disappointed to report that
we have seen an 11% increase in the
number of LWDIs in 2016 compared
with 2015. However, the nature of the
incidents has changed from more
equipment-related injuries, such as
lacerations, to soft tissue type injuries
arising from slips, trips, falls and manual
handling, which are much less severe.
Indeed, we are pleased to report that we
had no LWDIs relating to lacerations in
2016 representing a reduction from 31%
of all LWDIs in 2015. We believe that our
focus on behaviours in 2017 will have
a significant positive impact on the
remaining categories of incident.
2016 2015 2014 2013 2012
LWDI 18 16 18 24 26
LWDI
frequency
rate 0.43 0.39 0.48 0.63 0.72
Notes:
A LWDI is one where the injured party is absent
from work for one full day after the day of the
incident.
The LWDI frequency rate is based on the number
of LWDIs per 200,000 hours worked.
Exova received two Silver and one
Bronze award from the Royal Society
for the Prevention of Accidents (RoSPA)
in 2016, building on the two Silver awards
achieved in 2015.
Our focus on proactive reporting
identified an opportunity to reduce
the risk of amputation or laceration by
reducing the stopping time for band saw
blades. The band saw manufacturers
were unable to provide a solution which
led us to develop an in-house upgrade
that reduced the blade stopping time
during normal use by 75% to 3 seconds,
with no detrimental impact on the
performance of the equipment. This has
 Strategic report
not only reduced the risk of injury relating
to moving blades but has also improved
the throughput of work on these
machines.
Over the past year we have continued
our emphasis on “the standard you walk
past is the standard you accept” and
proactive incident reporting (non-injury
related near misses and hazard
identifications). This remains a central
part of our approach to engaging with
colleagues across the business. We are
pleased that there were 10,439 proactive
reports during 2016 compared with
2,059 in 2013, giving an average of 2.4
proactive reports per person in 2016.
In every case, the report was reviewed
to identify the root cause and allow for
appropriate control or risk prevention/
reduction measures to be implemented.
All incidents, including proactive
reports, are reported using our internal
system and are discussed weekly
through operational and functional line
management, with onward reporting
Report of Directors
to the Sector and Divisional senior
management teams, Group Executive
Committee and Board.
In 2016 our colleagues in Warren,
USA, used an on-site defibrillator to
great effect to resuscitate an employee
with a pre-existing medical condition
and treated him until the emergency
services arrived. As a result of this
incident we reviewed our approach and
consequently agreed to provide such
equipment at sites where it would be
most valuable. We will report back in
2017 to show the progress we have made
with this. We are proud of the way our
local team responded to the emergency
and the role they had in saving the life
of their colleague.
In 2013, we developed a simple
employee engagement process called
See, Engage, Act (SEA) which has now
become the basis of our behavioural
safety programme. In 2016 we continued
the roll-out of the process to all of the
sites that were identified as having
Financial statements
reached the required level of health
and safety cultural maturity and
therefore ready to take the next step
towards a world class safety culture.
This has resulted in us providing training
at 70% of Exova sites with the remaining
planned for 2017. Our internal reporting
systems have also been upgraded to
allow us to monitor the progressive use
of the SEA programme.
At Exova, we are certain that through
direct engagement with our colleagues,
clients and other stakeholders we can
collectively deliver continuous HSE
performance improvement, and by
doing this we are creating a sustainable,
world-class business. For the next three
years we will build on our successes and
support our goal of creating a mature
world-class HSE culture that permeates
throughout the Group, and where safety
is an intuitive part of all business activities
and decisions.
Annual Report & Accounts 2016 33
 Corporate social responsibility continued
Our environment
Exova is committed to conducting
its activities in an environmentally
sustainable way to minimise negative
impacts on the environment, prevent
pollution and maximise any positive
benefits or opportunities. As a testing
and advisory business our environmental
impact is not inherently high, but does
vary considerably from site to site
depending on the nature of the work
carried out.
During 2016 we have used the systems
we introduced in 2015 for improving
our data collection and reporting to
allow us to improve the detail and scope
of reporting. This ensures that what we
report is representative of our business
and associated environmental impacts.
We can confirm that the KPIs we
introduced in 2014 remain appropriate
for measuring the effectiveness of our
environmental performance and we
continued to use these in 2016. In
2016 we reviewed our previous year’s
performance and, as a result, have
updated our three year strategy to
deliver measurable improvement in
our energy and waste performance.
Our UK operations are subject to the
requirements of the Carbon Reduction
Commitment (CRC) phase 2. We are
pleased to report that Exova achieved
compliance with this regulatory
requirement ahead of the required dates
with our UK operations achieving a 4%
reduction in CRC emissions (total CO2).
In order to allow direct year-on-year
comparisons, we report our Group
environmental data based on the
number of full-time employees (FTE)
in the business for the reporting year,
and this is the basis for the figures
used in the following sections.
Impact
We have made a number of acquisitions
and divestments during 2016 with a full
environmental review included in the
due diligence process. These acquisitions
and divestments have not had a material
impact on the high-level Environmental
Impact Assessment (EIA) that was
completed in 2014.
34 Exova Group plc
The scope of our analysis and reporting
covers all operations where Exova has
full operational and management
control, except for sites which are
embedded in clients’ premises and
for which we do not have visibility of
the relevant data.
Our analysis has shown that our key
impacts are:
• Energy: The work we have done
in 2016 confirms that energy
consumption remains our main
environmental impact. We have
collected data using the following
definitions:
–– Scope 1: Greenhouse gas (GHG)
direct emissions: Annual quantity
of GHG emissions in tonnes of CO2
equivalent (CO2e) from the
combustion of fuel and the
operation of any facility.
–– Scope 2: Greenhouse gas indirect
emissions: Annual quantity of GHG
emissions in tonnes of CO2e resulting
from the purchase of electricity,
heat, and steam or cooling by
the company for its own use.
Greenhouse gas emissions
Global Global
emissions emissions
2016 2015
(Tonnes (Tonnes
of CO2) of CO2)
Scope 1 8,148 16,431
Scope 2 16,168 17,065
Total gross
emissions 24,316 33,496
Intensity
(Tonnes of
CO2e per FTE) 5.71 8.12
1. 2014 has been restated due to discrepancies
arising mostly from inaccurate supply meters.
Note: Methodology for calculating GHG emissions
is given in the DEFRA Conversion Factors 2016
guidance document.
In 2015 we said that we would look at
a way of accounting for inorganic and
organic growth impacts on the way we
report energy data. Following a review
of our data, we concluded that the
simplest way of ensuring the impact
of organic and inorganic growth is
reflected in our energy consumption
is to normalise our data using employee
numbers.
The data for 2016 shows a decrease
in the Total Gross Emissions reported,
especially within the Scope 1 (Direct
Emissions) category. These reductions
have been influenced by a number
of factors including the nature of the
energy used for heating in the Americas
(gas) compared to other regions,
growth through the acquisition of new
businesses, divestment of the Environment
East business in Canada and the Food,
Water and Pharmaceutical businesses
in the UK and Ireland.
We continue to consider the potential for
improved energy efficiency in all aspects
of business activities including capital
expenditure decisions and operational
improvements.
• Materials used: There has been
no change to the limited volumes
of hazardous materials in the form
of gas, liquid, solid and powders
used in our operations. We therefore
conclude that our environmental
impact on non-renewable resources
Global
remains very limited and, as a result,
emissions
20141
do not report usage data.
(Tonnes • Water: There has been no change
of CO2) to the limited volumes of water usage
identified in 2014 and as such it does
14,825
not represent a material impact for
16,610 Exova and therefore we do not report
water usage data.
• Waste: During 2016 we have improved
31,435
the data collection process for waste
and initiated a number of projects to
improve waste recovery, recycling
8.47 and re-use of waste materials such as
reviews of contracted services and
further extension of waste separation
and recycling programmes across
the business to meet our objective of
introducing waste recovery, recycling
and reuse programmes at every
permanent facility.
In 2016 we have reported a 39% increase
in the amount of non-hazardous solid
waste and doubling of hazardous liquid
waste disposal. However, the increases
 Strategic report
are not considered material as the total
volumes and weights disposed of across
the Group are very low to start with and
even quite minor local actions, such
as the instruction not to dispose of
any liquid waste to land drains in
the Kingdom of Saudi Arabia, can
have a significant impact on the
volumes reported.
Waste disposal across the Group
2016 2015 2014
Hazardous
waste 123 194 246
– solid Tonnes Tonnes Tonnes
Non-
hazardous
waste 8,541 6,143 6,174
– solid Tonnes Tonnes Tonnes
Hazardous
waste 2,096,913 868,944 1,111,779
– liquid Litres Litres Litres
• Transportation and travel: Exova’s
fleet of commercial vehicles remains
relatively small and the associated
impact is therefore limited. We have
collected the data for these vehicles
and this has been rolled-up into the
GHG figures quoted in the Greenhouse
Gas Emissions table above. The sale
of the Food, Water and Pharmaceutical
business in the UK and Ireland has
reduced our commercial fleet
significantly and has therefore reduced
our vehicle-related environmental
impact. The rolling renewal programme
for our commercial vehicle fleet helps
us to ensure that our vehicles meet
the latest emissions control standards
and further helps us to ensure our
environmental impact is minimal. We
continue to encourage our colleagues
to use technological solutions such as
videoconferencing, teleconferencing
and VoIP to minimise the impact that
business travel has on the environment.
Report of Directors
Our people
Exova aims to recruit, develop, motivate
and retain the best talent. Our people
are at the heart of our business and
we are committed to creating a high
performing, engaging and rewarding
culture. We achieve this by focusing
on the development of technical skills
and capabilities across our global
operations, engaging our employees
through effective communications,
ensuring the highest standards of
ethical conduct and developing
industry standards.
In 2016 we completed the successful
acquisitions of Admaterials Technologies
Private Limited, Jones Environmental
Forensics Limited and Insight NDT Limited.
We also completed the successful sale
of the UK and Ireland Food, Water and
Pharmaceuticals business in July 2016
and the Environmental East business in
Canada in December 2016. As a result
of the divestment of these businesses a
number of colleagues transferred their
employment and we welcomed 240
new colleagues to our global Group.
At year end we had 4,167 colleagues.
Development
Our people are some of the best
scientists, engineers and technical
specialists in the world. Our Technical
Career Development Programme
(TCDP) underlines our commitment to
develop our technical talent, ensuring
that they can advance their careers
whilst continuing to offer our customers
innovative solutions to address market
opportunities. Through individually-
tailored development plans, participants
can gain from a combination of in-role
development, external training and
academic or professional study.
As part of the TCDP, in 2016 a number of
our key technical colleagues successfully
gained Registered Science Technician,
Scientist or Chartered status with the UK
Science Council. Almost one hundred
employees actively participated in
the TCDP programme globally with a
number of colleagues gaining formal
educational qualifications in relevant
Financial statements
technical disciplines and 83 delegates
attending our third European Technical
Conference in November 2016. Seven
colleagues presented on their technical
specialism and demonstrated the
advancements they have made in
support of critical customer requirements,
and the event included 23 ‘poster
presentations’ also showcasing technical
innovations and developments. The
feedback from those who attended the
event was overwhelmingly positive.
In 2016, 16 of our general managers,
sales and functional leaders from
across the Group participated in our
‘Leading the How’ global management
development programme hosted at
Ashridge Business School in the UK,
the fourth time we have run this event,
and again, this received very positive
feedback. We also re-invigorated
our recognition programme in 2016,
which focuses on the Exova Values
of Innovation, Teamwork, Performance
and Integrity. At each Group Executive
Committee meeting, nominations for
colleagues who have demonstrated
the Exova Values are presented. During
the year over one hundred colleagues
received awards, demonstrating their
commitment going above and beyond
to live the Exova Values.
Finally, as part of our Group strategy
review, we recognised that in charting
the course for the next stage of our
journey, a more global approach to
sectors would better facilitate their
growth and performance and as
a result we implemented a new global
Divisional structure across the Group.
This focus means we are better placed
to share expertise, drive innovation
across geographies and ensure our
customers have access to the best
resources from across our global
network. The new structure also
provides enhanced opportunities
for colleagues to move around the
business and develop their careers
and a number of our managers and
leaders have undertaken new and
broader developmental roles and
responsibilities as a result.
Annual Report & Accounts 2016 35
 Corporate social responsibility continued
Internal Communications
Given Exova’s global footprint, effective
communications communications are critical to the
programme success of the business by ensuring
that our colleagues are informed,
engaged and empowered. The Group
4
Communications department was
further enhanced in 2016 with a key
objective to support the business
strategy through effective communication
Exova Leadership and best practice sharing through
Team calls internal communications. We deploy a
number of communication channels for
3
our people to collaborate; to keep up to
date with all the latest Exova news; and
to access the information they need to
perform at their best, including making
Editions it easier to find people, policies and
templates. During the year we continued
of Exova Live to work on optimising these channels for
maximum effectiveness.
60
We continued to publish our colleague
e-magazine, Exova Live, which highlights
the work of our people and helps
Group colleagues better understand the Group’s
Communications strategy, strengths and successes. Exova
Live is shared electronically which enables
e-shots an improved user experience and allows
us to direct our people to a wealth of
2
additional content that helps improve
engagement across the business. This
format also helps minimise our impact
on the environment. We continued
HSE bulletins to use our email alert service to keep
colleagues informed, with 60 separate
1st
Group Communications e-shots
distributed to the business across
the year, as well as our quarterly
leadership team webinars, where
ever Exova-wide our senior managers get to hear
directly from our CEO and CFO.
communications
survey Improved social media activity habits
were encouraged by engaging with
colleagues to help inform a revised
media policy and social media guidance,
both of which are displayed across our
laboratories and offices. These highly
visible documents equip colleagues
with a clear understanding of how our
actions can have a positive impact by
playing a crucial role in raising Exova’s
profile, reputation and reach. 2016 also
saw the further development of our
M&A communications, culminating in
the creation of a good practice guide
that formalises, in an informative and
instructive way, the process by which
36 Exova Group plc
Exova successfully communicates
with internal and external stakeholders
involved in the acquisition process.
During August and September we carried
out an internal communications survey
of colleagues across the business. The
results formed part of a broader internal
communications audit and provided
data to inform where further analysis is
required. The findings will be used to
support and inform the creation of our
internal communications strategy and the
programmes that will deliver the strategy.
Ethical business
Exova is committed to conducting
business in an ethical manner. With
customers in diverse markets worldwide,
it is essential that we conduct our
business with the highest standards of
integrity and adhere to international
laws and regulations. We are an equal
opportunities employer and promote a
working environment free from any form
of discrimination, bias or harassment, no
matter where in the world we are located.
We provide a confidential whistleblowing
service, which is managed by a specialist
third party provider, across our global
business, giving all colleagues the
opportunity to raise concerns. The
outcome of any report or incident
investigation is summarised and provided
to the Audit Committee for their review.
We require all managers to undertake
annual training in Anti-Bribery and
Corruption and Competition Law policies.
This mandatory training ensures a
consistent understanding of our individual
and collective responsibilities and an
e-learning induction is carried out by
new employees including modules on
our Ethics, Anti-Bribery and Corruption
policies and the whistleblowing service.
Human rights and the Modern Slavery Act
Whilst Exova does not have a formalised
human rights policy, we are committed
to ensuring that our people are treated
in accordance with the Universal
Declaration of Human Rights and the
UN Global Compact’s ten principles.
We seek to prohibit forced, compulsory
and underage labour and any form of
discrimination based on race, gender,
religion, age, disability, the right to
 Strategic report
collective bargaining or political
affiliation. In November 2016, Exova
adopted a Modern Slavery Policy that
can be found on the Company website
at www.exova.com. Our Modern Slavery
Policy states that Exova has a zero
tolerance approach to Modern Slavery
and that the following principles apply
to our business and supply chain:
• child labour must not be used;
• any form of forced or compulsory
labour must not be used;
• passports, visas and other personal
documentation should not be taken
from employees unless requested
to be held by the employee for
safekeeping purposes;
• all forms of debt bondage are
prohibited;
• compensation and benefits must
comply with local laws relating to
minimum wages, overtime hours
and other benefits; and
• the formation of trade unions and
powers of collective bargaining
should be respected.
As required by the Modern Slavery Act
2015, Exova will publish on an annual
basis a Modern Slavery transparency
statement which will set out our approach
to preventing Modern Slavery within
Total Exova workforce
25%
75%
* Senior managers, excluding Executive Directors, who have responsibility for planning directing or controlling the activities of the Group.
Report of Directors
Exova’s business and supply chain. On
27 February 2017, Exova published its first
Modern Slavery transparency statement.
Supplier Code of Conduct
Exova is committed to conducting
business to the highest possible ethical
and business standards. We have
therefore adopted a Supplier Code of
Conduct setting out the behaviours and
principles that we expect our suppliers to
follow. Suppliers of goods and services,
contractors, joint venture partners,
consultants, advisers and all other third
parties engaged by Exova are expected
to adhere to the principles set out in
this Supplier Code of Conduct and are
encouraged to develop their own codes,
policies and procedures to adhere to
the principles of this Supplier Code of
Conduct. The Supplier Code of Conduct
can also be found on the Company
website at www.exova.com.
Diversity
We believe the diversity of our people
should reflect that of our customers
and the markets in which we operate.
Our commitment to diversity means
creating a working environment that
is respectful and engaging and that
creates opportunities for all. We not only
believe this is the right thing to do, but
Exova Board
11%
89%
Financial statements
that it makes sound business sense
as it helps to enhance productivity,
quality and innovation.
Our Board recognises the benefit of
diversity and is committed to having a
Board that engages the best combination
of gender, skills, qualities, background
and professional experience and our
Nomination Committee actively
considers these factors when making
appointments to the Board. In 2016
female representation at Board level
remained at 11% as there were no new
appointments to the Board. The Board
remains committed to increasing the
level of female representation and will
continue to give careful consideration to
this in terms of any future appointments.
At 31 December 2016 Exova employed
4,167 colleagues. Our gender diversity
reflects the specialist industries and
colleague profiles typical of those
working in the countries and sectors
in which we operate.
Exova senior management*
17%
83%
 Female
 Male
Annual Report & Accounts 2016 37
 Corporate social responsibility continued
Thought leadership
We strongly believe that it is essential
for any interaction with our customers
to occur not just via our commercial
relationships but through membership
and participation in industry bodies and
professional institutions. A number of
our senior technical colleagues have
leadership roles in these organisations
and we are incredibly proud that our
experts are among the most respected
and qualified in their chosen fields.
Around the world they lead and inform
new industry regulations, develop new
test procedures and work together with
customers to find solutions to a range
of technical challenges. There is also a
commitment to improving safety and
quality standards within the industries
we serve, and in understanding and
minimising the environmental impact
of those industries. We encourage
our people to take these leadership
positions, providing them with the
time and resources needed to do so.
Some key highlights and achievements
from 2016 were as follows:
• Dr. Chris Fowler, Group technical
director of corrosion and protection,
supported the development through
to publication of a new British Standard
for corrosion testing. By chairing the
BSI Standards Committee, who had
been developing BS8701 ‘Full ring
ovalisation test for determining the
susceptibility to cracking of line pipe
steels in sour service’, a test method
developed by Chris, he played a key
role in taking the new British Standard
forward to publication in 2016.
• Phil Dent, Group corrosion strategy
development manager, received
two prestigious accolades in 2016
by attaining a Master of Philosophy
degree from the University of
Birmingham and achieving
registration as a Chartered Engineer
by the Engineering Council.
• Dr. Iain Wood, HSEQ manager, beat
more than a thousand candidates
by obtaining the highest marks in the
38 Exova Group plc
Unit D part of his three-year National Centre in Dudley has helped a
Diploma in Occupational Health and student to complete her Level 4
Safety. He was presented with the Best apprenticeship and she is now
Candidate award at the National furthering her career by working
Examination Board in Occupational as a corrosion technician with
Safety and Health’s graduation Exova while studying for a HND in
ceremony, held at Warwick University. applied chemistry and laboratory
• Exova received the 2017 NACE management at Halesowen College.
Distinguished Organisation Award.
This award is given to organisations The strategic report on pages 2 to 38
and companies in recognition of of the Annual Report 2016 has been
contributions to the field of corrosion approved by the Board of Directors in
science and engineering over a accordance with the Companies Act
sustained period of time. 2006 (Strategic Report and Directors’
• We played a key role supporting Report) Regulations 2013.
the Petroleum Technology Alliance
Canada’s (PTAC) Soil and
Groundwater Research Committee
on the development of new boron Neil MacLennan
soil-contact guidelines which take General Counsel & Company Secretary
plant toxicity into account. Exova 27 February 2017
Edmonton worked with the Boron
Working Group, drawing on its
industry leading capabilities in
environmental and soil testing, to
help develop the new guidelines.
Looking to the future
Our global commitment to being a
sustainable business revolves around our
efforts to identify and encourage future
generations of scientists and engineers.
By ensuring visibility of the rewarding
career choices available at Exova and
supporting those in the early stages of
their education and careers, we are
committed to investing and supporting
the development of our future technical
talent.
• Exova sponsored two doctoral
students based at Surrey University
and Nottingham University. The
sponsorship includes a commitment
to provide a placement in an Exova
laboratory during the second year of
their degree.
• Apprentices in the West Midlands
(UK) are being supported by Exova.
In conjunction with the Coombs
Wood Science and Technology
Centre at Halesowen College, the
team at Exova’s specialist Corrosion
 Strategic report Report of Directors Financial statements

Corporate Governance
Letter from the Chairman

Dear Shareholder
On behalf of the Board, I am pleased
to present Exova Group plc’s Corporate
Governance Report for the year ended
31 December 2016

As a global business operating in 33 countries, Exova is committed to conducting its business in a socially responsible manner,
respecting the needs of its customers, employees, investors and other stakeholders. Corporate governance and integrity are
at the heart of everything we do and, in this report, we aim to provide shareholders and other stakeholders with details of the
Company’s corporate governance framework and activities in 2016.

The Board places great importance on Corporate Governance and has sought to present a fair, balanced and understandable
assessment of the Group’s position and prospects in the Annual Report & Accounts for 2016, providing the information necessary
for shareholders to assess the Group’s position and performance, business model and strategy.

The members of the Board are aware of their duties and responsibilities and the Board has put in place Audit, Remuneration and
Nomination Committees, further details of which are set out in this report.

In April 2014, the Company and TABASCO B.V, the Company’s principal shareholder and the holding company which is owned
by CD&R Fund VII L.P., entered into a Relationship Agreement to ensure that the Company and its subsidiaries are capable of
carrying on business independently of TABASCO B.V. and its associates and that transactions with them are at arm’s length and
on normal commercial terms. As at 27 February 2017, TABASCO B.V. held approximately 54% of the issued share capital of the
Company. Under the Relationship Agreement, TABASCO B.V. is currently able to appoint two Non-Executive Directors to the Board.
Fred Kindle and Christian Rochat are both Directors appointed by TABASCO B.V.

On 12 March 2014 in advance of the IPO, Helmut Eschwey and Andrew Simon, both Independent Non-Executive Directors,
became Directors of the Company. From 27 November 2008 until 12 March 2014, both Helmut Eschwey and Andrew Simon
were Directors of the former Parent Company of the Group. After taking into account their time as Directors of the former Parent
Company of the Group, Helmut Eschwey and Andrew Simon will have served nine years as Directors as at the end of November
2017. The composition of the Board will continue to be kept under review and Board succession will be considered further at the
meetings of the Nomination Committee to be held in 2017. It is expected that Helmut Eschwey will stand down as a Director of the
Company at or in advance of the annual general meeting in May 2018. In the interests of preserving the continuity of the Board
and its Committees, it is intended that Andrew Simon will stand down as a Director of the Company thereafter and by no later
than the time of the annual general meeting in May 2019. In accordance with the Company’s articles of association, each of
the Directors, including Helmut Eschwey and Andrew Simon, shall submit themselves for annual re-election at each annual
general meeting.

Our approach to applying the principles of the September 2014 edition of UK Corporate Governance Code and how we
comply with its provisions are described in the Corporate Governance Report that follows. In the Annual Report & Accounts for
the year ended 31 December 2017, the Company will report against the April 2016 edition of the UK Corporate Governance Code.
On 1 January 2016, I replaced Fred Kindle as Chairman, on appointment becoming the Group’s first independent Chairman.
I continued to chair the Nomination Committee with Helmut Eschwey (an Independent Non-Executive Director) and Fred Kindle (a
Non-Executive Director appointed to the Board by TABASCO B.V.) also remaining as members. Under the UK Corporate Governance
Code, a majority of the members of the Nomination Committee should be independent Non-Executive Directors. As I am now
Chairman, I am not treated as an independent Non-Executive Director for this purpose and, in 2016, the Company no longer
complied with the UK Corporate Governance Code provisions in this regard. Throughout the financial year ended 31 December
2016, save in respect of the composition of the Nomination Committee, the Company complied with the UK Corporate Governance
Code published in September 2014 by the Financial Reporting Council. With effect from 20 December 2016, Bill Spencer (Senior
Independent Non-Executive Director) and Vanda Murray (an Independent Non-Executive Director) also joined the Nomination
Committee and a majority of the members of the Nomination Committee are now independent Non-Executive Directors.

In 2016, we made significant progress in enhancing the Group’s corporate governance structure and the Board will continue to
lead the development of a corporate governance framework that promotes transparency, accountability and challenge. I am
confident that the Board retains an appropriate balance of skills, experience, independence and knowledge of the Group’s
business to ensure continued challenge, debate and effective decision making in the best long-term interests of the Group.

Allister Langlands
27 February 2017

Annual Report & Accounts 2016 39


Allister Langlands
Non-Executive
Chairman
Biography Allister became Senior
Independent Director of
Exova Group plc upon the
Company’s IPO on 16 April
2014. On 1 January 2016,
Allister replaced Fred Kindle
as Chairman.
Allister was Chairman of
John Wood Group PLC
(Wood Group) from November
2012 until May 2014. He was
formerly Chief Executive of
Wood Group (from 2007)
and Deputy Chief Executive
(from 1999). Allister served
as Group Finance Director
of Wood Group from 1991
to 2000. Prior to joining Wood
Group, he was a partner with
Coopers & Lybrand Deloitte
(now Pricewaterhouse
Coopers LLP).
Allister has an MA (Hons) in
Economics from the University
of Edinburgh.
Appointment 16 April 2014
Date
Independent Yes, on appointment 1
Non-Executive
Director
External Allister is the Non-Executive
Directorships Chairman of Maven Income
& Growth VCT 5 PLC. He is also
a Non-Executive Director of
WS Atkins plc, Standard Life UK
Smaller Companies Trust plc
and a number of private
companies.
Committee Chairman of the Nomination
Memberships Committee and a member
of the Audit Committee
1. Provision A.3.1 of the UK Corporate Governance Code published by the Financial Reporting Council in September 2014 states that the chairman should,
on appointment, meet the independence criteria, but thereafter the test of independence is not appropriate in relation to the chairman.
40 Exova Group plc
Board of Directors
Ian El-Mokadem
Chief Executive
Officer
Ian joined the Group as Chief
Executive Officer in early 2011
and became a Director of
Exova Group plc on 12 March
2014. He was a Director of the
previous Parent Company of
the Group prior to the IPO.
Ian joined Exova from
Compass Group plc where he where he was Chief Financial
was Group Managing Director, Officer from April 2014 until
UK & Ireland and a member of June 2015. Philip previously
its Group Executive Committee. spent 17 years with General
Prior to Compass, Ian’s
career included positions
with Centrica plc and the
global management
consultancy Accenture.
Ian has a BSc (Hons) in
Economics and Statistics
from University College London
and an MBA from INSEAD.
12 March 2014
No
None
None
Philip Marshall Bill Spencer
Chief Financial Senior Independent
Officer Non-Executive Director
Philip joined the Group Bill became a Non-Executive
on 28 September 2015. Director of Exova Group plc
On 30 November 2015, on 12 March 2014. Bill was a
he became Chief Financial Non-Executive Director of the
Officer and a Director of previous Parent Company of
Exova Group plc. the Group from July 2011 until
the IPO. On 1 January 2016, Bill
Philip joined Exova most became Senior Independent
recently from Wood Mackenzie, Non-Executive Director.
Bill's early career was in the
industrial, manufacturing
and technology sectors. He
Electric Company where he began working in the testing
was latterly President and inspection and certification
Chief Executive Officer of the industry in 1992 and he was
European, Middle East and the Chief Financial Officer of
Africa (EMEA) Consumer and Intertek Group Plc for 15 years
Industrial Solutions business, until 2010. Since then, he has
having also been Chief developed a varied non-
Financial Officer of this executive career. He was a
business from 2005 to 2008. Non-Executive Director and the
Audit Committee Chairman of
Philip holds a Bachelor of Arts UK Mail Group Plc from 2011
Degree from University of West until the sale of the business
London and is a Chartered in 2016.
Management Accountant.
Bill is a Chartered Management
Accountant and Corporate
Treasurer and has a BSc in
Management Sciences from
the University of Manchester.
30 November 2015 12 March 2014
No Yes
None Bill is the Senior Independent
Non-Executive Director and
Audit and Risk Committee
Chairman of Northgate Plc.
He is also a Non-Executive
Member of the Finance
Committee of the Royal
Institution of Chartered
Surveyors.
None Chairman of the Audit
Committee and a member of
the Remuneration Committee
and the Nomination Committee
 Strategic report
Helmut Eschwey
Independent
Non-Executive Director
Helmut became a
Non-Executive Director of
Exova Group plc on 12
March 2014 prior to its IPO.
From 27 November 2008
until the IPO, Helmut was a
Non-Executive Director of the
previous Parent Company
of the Group.
Helmut served until 2008
as Chairman of the
Management Board and
Chief Executive Officer of
Heraeus Holding GmbH.
Before joining Heraeus
Holding GmbH, he held
senior positions at Henkel,
Pirelli, Freudenberg and the
SMS Group.
Helmut holds a PhD in
chemistry from the University
of Freiburg in Breisgau.
12 March 2014
Yes
Helmut is Non-Executive
Chairman and board
member of a number
of private companies.
Nomination Committee
Report of Directors
Fred Kindle
Non-Executive Director
Fred became a Director and
Non-Executive Chairman of
Exova Group plc on 12 March
2014 prior to the IPO. On
1 January 2016, Fred stood
down as Chairman and is
now a Non-Executive Director.
Fred was Non-Executive
Chairman of the previous
Parent Company of the
Group from November 2008
until the IPO in April 2014.
Fred joined Clayton, Dubilier
& Rice LLP as a partner in
2008. On 1 January 2016,
Fred retired as a partner
and became an operating
adviser to Clayton, Dubilier
& Rice LLP. Fred is the
former President and Chief
Executive Officer of ABB
Limited. Prior to joining ABB,
Fred served from 1999 to
2004 as President and Chief
Executive Officer of Sulzer Ltd.
Previously Fred worked for
McKinsey and Company
in New York and Zurich.
Fred graduated from the Swiss DESEM (Diplome d'Etudes
Federal Institute of Technology Superieures Europeenes
in Zurich with a masters
degree in engineering. He
also holds an MBA from
Northwestern University.
12 March 2014
No
Fred is Chairman of
VZ Holding AG and a
member of the boards of
Zurich Insurance Company
Ltd and Stadler AG and
Schneider-Electric SA.
Nomination Committee
Vanda Murray OBE
Independent
Non-Executive Director
Vanda became a
Non-Executive Director of
Exova Group plc upon the
Company’s IPO on 16 April
2014. She has over 20 years
of senior management
experience across a range
of industrial, manufacturing
and support services sectors
in the UK, Europe, USA
and Asia.
Vanda was the Chief
Executive Officer of Blick plc
from 2001 to 2004, before
becoming President of
Europe for Stanley Security
Solutions. She was the UK
Managing Director and
Group Marketing Director
at Ultraframe plc from 2004
to 2006. She was also a
Non-Executive Director of
Carillion plc from June 2005
until May 2014.
Vanda holds a BA (Hons)
in European Business
Administration from
Middlesex University and a
de Management) from
Neoma Management
School in Reims, France.
16 April 2014
Yes
Vanda is currently a
Non-Executive Director
of Manchester Airports
Holdings Limited and Bunzl
plc, Chairman of Fenner plc
and the Chair of the Board
of Governors of Manchester
Metropolitan University.
Member of the
Remuneration Committee
and the Nomination
Committee
Financial statements
Christian Rochat
Non-Executive Director
Christian became a
Non-Executive Director
of Exova Group plc on
12 March 2014. Christian
was a Non-Executive
Director of the previous
Parent Company of the
Group from November
2008 until the IPO.
Christian joined Clayton,
Dubilier & Rice LLP in 2004.
Prior to joining Clayton,
Dubilier & Rice LLP, Christian
was managing director at
Morgan Stanley Capital
Partners, having previously
been a director at Schroder
Ventures (now Permira). He
also worked in the London
and New York offices of
Morgan Stanley’s mergers
and acquisitions
department.
Christian holds a BA and
PhD in law from the Université University of Pennsylvania.
de Lausanne and an MBA
from the Stanford Graduate
School of Business.
12 March 2014
No
Partner at Clayton, Dubilier
& Rice LLP and a director
of a number of portfolio
companies.
None
Annual Report & Accounts 2016
Andrew Simon OBE
Independent
Non-Executive Director
Andrew became a
Non-Executive Director
of Exova Group plc on
12 March 2014. Andrew
was a Non-Executive
Director of the previous
Parent Company of the
Group from 27 November
2008 until the IPO.
Andrew spent the first
23 years of his career at
the Evode Group variously
as Chief Executive and
Chairman. Since 1993 he
has built a varied career of
non-executive directorships
in the UK and overseas in
both private equity and
public companies.
Andrew has a BSc in social
sciences from the University
of Southampton and an
MBA from the Wharton
Business School at the
12 March 2014
Yes
Andrew is on the board of
iCON Infrastructure Partners II,
LP and iCON Infrastructure
Partners III, LP.
Chairman of the
Remuneration Committee
and a member of the
Audit Committee
41
 Corporate Governance report

Introduction
The Directors present their Annual Report and the audited financial statements for Exova Group plc for the 12 months ended
31 December 2016. On 16 April 2014, Exova Group plc’s ordinary share capital was admitted to the premium listing segment of the
Official List of the UK Financial Conduct Authority and to trading on the London Stock Exchange’s main market for listed securities.

The Corporate Governance Report includes the Directors’ Report on pages 82 to 86 which contains certain statutory disclosures. The
Strategic Report on pages 2 to 38 contains a description of the Group’s business model and information relating to the performance
of the Group’s business during the financial year, the position of the Group at the end of the year, and likely future developments.

Compliance with the UK Corporate Governance Code

Responsibility for good governance lies with the Board. The Board is accountable to shareholders and is committed to
the highest standards of corporate governance as set out in the UK Corporate Governance Code (the Code), published
by the Financial Reporting Council in September 2014. In April 2016 the Financial Reporting Council published the 2016
version of the Code. The Company will be required to comply with the April 2016 version of the Code from January 2017 and
the Board anticipates that the Company will be able to report its compliance with the April 2016 version of the Code in next
year’s report. The Code is available publicly on the Financial Reporting Council website at www.frc.org.uk. In the 12 months
ended 31 December 2016, the Board complied with the UK Corporate Governance Code, save for the composition of the
Nomination Committee, as described below. This report describes how the Board has applied the main principles of good
governance during the period of the review, being from 1 January 2016 to 31 December 2016.

Compliance statement
During the period from 1 January 2016 until 31 December 2016, the Company complied with the UK Corporate Governance
Code published by the Financial Reporting Council in September 2014, save in respect of the composition of the Nomination
Committee. On 1 January 2016, Allister Langlands replaced Fred Kindle as Chairman, on appointment becoming the Group’s
first Independent Chairman and thereby enhancing the Group’s corporate governance framework. In 2016, Allister Langlands
also continued to chair the Nomination Committee with Helmut Eschwey (an Independent Non-Executive Director) and Fred
Kindle (a Non-Executive Director appointed to the Board by TABASCO B.V.) both remaining as members. Under the UK Corporate
Governance Code, a majority of the members of the Nomination Committee should be independent non-executive directors.
As Allister Langlands is now Chairman, he is not treated as an Independent Non-Executive Director for this purpose and,
in 2016, the Company no longer complied with the UK Corporate Governance Code provisions in this regard. With effect from
20 December 2016, Bill Spencer (Senior Independent Non-Executive Director) and Vanda Murray (Independent Non-Executive
Director) also joined the Nomination Committee and a majority of the members of the Nomination Committee are now
Independent Non-Executive Directors.

Set out below is an overview of the Company’s compliance with the UK Corporate Governance Code.

A. Leadership
A.1 The role of the Board The Board provides leadership to the Group. It meets formally on a regular basis and
ensures that the Group has the necessary financial and human resources in place
to meets its objectives, review management performance and strategy against set
objectives and help to deliver long-term success. Details of the matters specifically
reserved for the Board are set out on page 45.
A.2 Division of responsibilities The roles of the Chairman and Chief Executive Officer are separate, clearly defined,
set out in writing and approved by the Board. The Chairman is responsible for
leadership of the Board and ensuring its effectiveness. The Chief Executive Officer
is responsible for the day-to-day leadership of the Group’s business and managing
it within the authorities delegated by the Board.
A.3 The Chairman The Chairman sets the agendas and timetables for Board meetings. He facilitates
debate and dialogue during the meetings. Allister Langlands, who became
Chairman on 1 January 2016, met the independence criteria set out in the UK
Corporate Governance Code on appointment.
A.4 Non-Executive Directors The Non-Executive Directors scrutinise the performance of the management and
are responsible for determining levels of remuneration of the Executive Directors of the
Company and such other senior employees as the Board may determine from time to
time. They also have a primary role in succession planning. Bill Spencer, an Independent
Non-Executive Director, has been appointed as Senior Independent Director.

42 Exova Group plc

Strategic report Report of Directors Financial statements

B. Effectiveness
B.1 The composition of the Board The Board includes an appropriate combination of Executive and Non-Executive
Directors. At least half of the Board, excluding the Chairman, comprise Non-Executive
Directors determined by the Board to be independent.
B.2 Appointments to the Board The Nomination Committee leads the process for Board appointments. A majority
of its members are independent Non-Executive Directors.
B.3 Commitment The time commitments of Non-Executive Directors are defined on appointment and
set out in a letter of appointment. Other significant commitments must be disclosed
to the Board before appointment as must subsequent changes.
B.4 Development Directors receive a full, formal induction on joining the Board. The Chairman,
in conjunction with the General Counsel & Company Secretary, reviews each
Director’s training and development needs.
B.5 Information and support The Chairman, in conjunction with the General Counsel & Company Secretary,
ensures that all Board members receive accurate, timely and clear information.
B.6 Evaluation In February 2016, the Group carried out an internally facilitated evaluation of
the performance of the Board, Audit Committee, Nomination Committee and
Remuneration Committee. A similar evaluation was also carried out in February 2017.
B.7 Re-election All Directors will be subject to annual election by the shareholders.
C. Accountability
C.1 Financial and Please refer to page 87 for the Board’s statement on the Annual Report & Accounts
business reporting being fair, balanced and understandable. The Annual Report & Accounts set out
details of the Group’s financial position and prospects and how it generates value
over the longer term. The Strategic Report on pages 2 to 38 includes an explanation
of the Company’s business model and the strategy for delivering the objectives of
the Company and a statement on the status of the Company and the Group as a
going concern.
C.2 Risk management The Board has carried out a robust assessment of the principal risks and uncertainties
and internal control facing the Company and how those risks affect the prospects of the Company. Please
refer to pages 10 to 13 for further information on the Company’s principal risks and
uncertainties and their impact on the prospects of the Company.

The overall responsibility for the Company’s systems of internal control and for reviewing
their effectiveness rests with the Board. The Board has conducted an annual review of
the effectiveness of the systems of internal control during the year. Further information
on the Company’s risk management and internal control systems is given on page 49.
C.3 Audit Committee and auditors The Board established the Audit Committee which assists the Board with the discharge
of its responsibilities. Its activities are described on pages 48 and 53. Allister Langlands,
the Chairman of the Board, met the independence criteria on appointment. All of the
other members of the Audit Committee are Independent Non-Executive Directors.
D. Remuneration
D.1 The levels and components The levels of remuneration of Directors and their link to performance are explained
of remuneration in the Remuneration Report on pages 57 to 81.
D.2 Procedure The Board established the Remuneration Committee of three Independent
Non-Executive Directors. Its activities during 2016 are described on page 58.
E. Relations with shareholders
E.1 Dialogue with shareholders The Board seeks to engage with shareholders. Details of how the Board engages
with shareholders are set out on page 50.
E.2 Constructive use of the AGM At any general meeting, the Company will propose a resolution on each separate
issue. Attendees at the AGM will have the opportunity to put questions to the Board
and to speak to individual Directors following the formal business of the meeting.

Annual Report & Accounts 2016 43

 Corporate Governance report continued

The Board
Composition
The Board is responsible for the proper management of Group strategy and direction. It also oversees the activities and direction
of Exova Group plc.

The Board currently has nine members. It comprises the Chairman, two Executive Directors, two Non-Executive Directors and four
Independent Non-Executive Directors, who are considered by the Board to be independent for the purposes of the UK Corporate
Governance Code. The Board benefits from the wide range of sector experience of its Non-Executive Directors. Details of the
Directors and their biographies can be found on pages 40 and 41.

The Board acknowledges that Fred Kindle (a Non-Executive Director), and Christian Rochat (a Non-Executive Director) are not
considered to be independent for the purposes of the UK Corporate Governance Code as a result of their roles at Clayton,
Dubilier & Rice LLP, as described below.

Directors on the Board during the period from 1 January 2016 and up to the date of this report are as follows:
Director Date of appointment

Allister Langlands 16 April 2014

Ian El-Mokadem 12 March 2014
Philip Marshall 30 November 2015
Helmut Eschwey 12 March 2014
Fred Kindle 12 March 2014
Vanda Murray 16 April 2014
Christian Rochat 12 March 2014
Andrew Simon 12 March 2014
Bill Spencer 12 March 2014

Provision B.7.1 of the UK Corporate Governance Code states that all directors of FTSE 350 companies should stand for annual
election by shareholders. Although at the date of this report the Company is not a constituent of the FTSE 350, in accordance
with the Company’s Articles of Association, each of the Directors shall submit themselves for re-election at every annual general
meeting held. All the present Directors of the Company will be subject to election by shareholders at the Annual General Meeting
of the Company which will be held on 24 May 2017.

The Board’s responsibilities

The Board is responsible to shareholders for providing leadership and setting the values and standards of the Company and the
Group. The Board has adopted a schedule of matters reserved for its attention. The Board approves the Group’s business strategy
and objectives, budget and forecasts and any material changes to them. It reviews significant investment proposals and the
performance of past investments and maintains an overview and control of the Group’s operating and financial performance.
The Board sets policies for monitoring the Group’s overall system of internal controls, governance and compliance and ensures
that the necessary financial and human resources are in place for the Company to meet its objectives.

The Board believes that documented roles and responsibilities for Directors, with a clear division of key responsibilities between the
Chairman and the Chief Executive Officer, are essential elements in the Group’s governance framework and facilitate the effective
operation of the Board. Accordingly, the Board has agreed the division of responsibilities between the Chairman and the Chief
Executive Officer and the role of the Senior Independent Director. The General Counsel & Company Secretary’s responsibilities
include ensuring that the Board and its Committees receive information and papers in a timely manner to enable full and proper
consideration to be given to relevant issues. The General Counsel & Company Secretary minutes proceedings and resolutions
of Board and Committee meetings. The appointment and removal of the General Counsel & Company Secretary is a matter
reserved for the Board.

Chairman
Allister Langlands is the Chairman of the Board. He is responsible for the leadership and overall effectiveness of the Board and
setting its agenda, but takes no part in the day-to-day running of the business.

The Chairman’s key responsibilities include:

• running the Board effectively by ensuring meetings are held with appropriate frequency and the Board’s agenda reflects
the important issues facing the Group, with an emphasis on strategic rather than routine issues;
• ensuring the Board determines the significant risks the Group is willing to take in the implementation of its strategy;
• encouraging all Directors to contribute fully to Board discussions and ensuring that sufficient challenge applies to
major proposals;
• fostering relationships within the Board and providing a sounding board for the Chief Executive Officer on important
business issues;
• identifying development needs for the Board and Directors;
• leading the process for evaluating the performance of the Board, its Committees and individual Directors; and
• ensuring effective communication with major shareholders.

44 Exova Group plc

 Strategic report Report of Directors Financial statements

Chief Executive Officer

Ian El-Mokadem is the Chief Executive Officer. He reports to the Chairman and to the Board directly. The Chief Executive Officer
is responsible for leadership of the Group’s business and managing it within the authorities delegated by the Board.

The Chief Executive Officer’s key responsibilities include:

• managing the Group on a day-to-day basis within the authority delegated by the Board;
• developing and proposing the Group strategy, annual plans and commercial objectives to the Board;
• leading the executive team in the day-to-day management of the Group;
• identifying and executing strategic opportunities for the Group;
• maintaining a dialogue with the Chairman and the Board on important strategic issues facing the Group;
• ensuring that the development needs of the Executive Directors and senior management are met;
• making plans for the succession and replacement of key personnel;
• recommending budgets and forecasts for Board approval;
• providing recommendations to the Remuneration Committee on remuneration strategy for Executive Directors and other
senior management; and
• leading the communication programme with shareholders and ensuring the appropriate and timely disclosure of information
to the stock market.

Senior Independent Director

Bill Spencer is the Senior Independent Director and is available to shareholders, in accordance with the UK Corporate Governance
Code, if they have concerns that contact through the normal channels of Chairman, Chief Executive Officer or Chief Financial
Officer has failed to resolve or for which contact is inappropriate. The Senior Independent Director provides a sounding board for
the Chairman and acts as an intermediary for the other Directors when necessary. The Senior Independent Director also conducts
an annual review of the performance of the Chairman.

Non-Executive Directors
The Company has experienced Non-Executive Directors on its Board. Allister Langlands (the Chairman) met the independence
criteria set out in the UK Corporate Governance Code on appointment. The Board also considers Bill Spencer (Senior Independent
Director), Helmut Eschwey, Vanda Murray and Andrew Simon to be independent as they are free from any business or other
relationship which could materially influence their judgement and they represent a strong source of advice and independent
challenge. Fred Kindle and Christian Rochat were both appointed as Non-Executive Directors on 12 March 2014. They are
representatives of Clayton, Dubilier & Rice LLP, which manages CD&R Fund VII L.P., the owner of TABASCO B.V.  As at the date
of this report, TABASCO B.V. holds 54% of the issued share capital of the Company and Fred Kindle and Christian Rochat are
not, therefore, regarded as independent for the purposes of the UK Corporate Governance Code.

Other than the fees which are disclosed on page 75, the Chairman and Non-Executive Directors received no remuneration from
the Company during the year. When Non-Executive Directors are considered for appointment, the Nomination Committee will
take into account their other responsibilities in assessing whether they can commit sufficient time to their prospective directorship.

Board reserved matters

Decisions on operational matters are delegated to the Executive Directors under documented policies and procedures. In
advance of scheduled Board meetings, each Director receives documentation providing updates on the Group’s strategy,
finances, operations and development. A formal schedule of matters reserved for Board approval is in place which includes
matters relating to:

• the Group’s business strategy and objectives, budget and forecast and any material changes to them;
• changes in capital structure;
• approving the half-year financial statements, trading updates and preliminary announcement of final results;
• approving the Annual Report & Accounts including the Corporate Governance Report and Directors’ Remuneration Report;
• ensuring the Group has effective systems of internal control and risk management in place, including approving the Group’s
risk appetite and procedures for the detection of fraud and the prevention of bribery;
• approving major capital projects, corporate actions and transactions;
• convening general meetings and approval of circulars;
• changes to the structure, size and composition of the Board, following the recommendations from the Nomination Committee;
• reviewing the performance of the Board and its committees and the Group’s overall Corporate Governance framework;
• approving the Group’s dividend policy; and
• approving other matters reserved for decision by the Board by law or where likely to have a material impact on the Group’s
finances, operation, strategy or reputation.

The schedule of matters reserved for Board approval is reviewed annually.

Annual Report & Accounts 2016 45

 Corporate Governance report continued

The Board continued

Directors’ training and information
New directors participate in an induction process organised by the Group HR Director and the General Counsel & Company
Secretary. Each induction is tailored to meet the needs of each individual director and includes a number of site visits to key
locations within the Group, meetings with members of the executive team and other operational and functional employees.
The induction also includes a review of the Group’s governance policies, business and operations including details of the Group’s
risks, management processes and procedures. Upon their appointment, Directors are advised of their legal and other duties and
obligations as directors of a listed company and under the Companies Act 2006. New directors are also given the opportunity to
meet the Group’s external advisers, including its auditors.

Ongoing training and development is also provided to all Directors to ensure that they keep abreast with relevant regulatory
and legislative requirements. During 2016, the Board was briefed on a range of subjects including: monitoring risk management
and internal controls; the Group’s financial processes; taxation matters; sanctions and export controls; data protection; the EU
Market Abuse Regulation; and the UK Modern Slavery Act 2015. The training needs of Directors and of members of the Board’s
Committees will also be formally considered on an annual basis and monitored throughout the year.

Detailed papers and presentation materials are circulated in advance of Board and Committee meetings to each of the Directors
to allow Directors to be properly briefed in advance of meetings. Board and Committee packs include detailed financial and
operational information. Presentations are given at the meetings and minutes of previous meetings and the status of agreed
actions are considered. Separate strategy meetings and meetings with senior executives are also held throughout the year.

Directors may seek independent professional advice at the Company’s expense where they consider it appropriate in relation
to their duties. All Directors have access to the advice and services of the General Counsel & Company Secretary.

Performance evaluation of the Board and its Committees

Each year, the Company will carry out a formal evaluation to explore the effectiveness of the Board and its Committees and
the contribution made by individual Directors. In February 2016, a full evaluation of the Board, the Audit Committee, Nomination
Committee and the Remuneration Committee was carried out. The internal evaluation process included a review of issues relating
to the Board as a whole, the performance of the Chairman, and the priority of tasks. Similar processes were carried out in relation
to the Audit Committee, Nomination Committee and Remuneration Committee. The process also included the completion
of a questionnaire by Directors and an opportunity was given for each Director to make comments. The areas covered in each
questionnaire included the composition of the Board; the role and performance of the Board, its members and Committees;
the Board dynamic and relationships; quality of information flows and decision making; and Board Committees, performance
monitoring and the Board’s priority tasks. The findings were compiled by the General Counsel & Company Secretary into a report
which was agreed with the Chairman, who led the evaluation process other than the evaluation of his own performance, which
was led by Bill Spencer being the Senior Independent Director. The report was subsequently discussed by the Board. A similar
internally evaluated exercise was also carried out in February 2017. Overall, the Board considered the performance of each
Director to be effective and concluded that the Board and its Committees continue to provide effective leadership and exert
the required levels of governance and control. The importance of succession planning for executive and non-executive directors
was noted as part of this review. The Board will continue to review its procedures and effectiveness in 2017.

Conflicts of interest
A Group policy and process is in place to address possible conflicts of interest of Directors. The Company’s Articles of Association
enable the Board to authorise conflicts of interest matters pursuant to Section 175 of the Companies Act 2006. Each of the Directors
has completed a questionnaire to ensure that any potential conflicts of interest are disclosed. The Directors have been advised
of the Group’s procedures and policies in relation to conflicts of interest. Any relevant conflicts and potential conflicts with the
interests of the Company that arise must be disclosed at the next Board meeting for consideration and, if appropriate, authorised
by relevant Board members in accordance with the Company’s Articles of Association. Any new Directors will also be made aware
of these procedures and policies in advance of their appointment. A conflicts register with details of other directorships/interests
of the Directors is maintained by the General Counsel & Company Secretary. Directors abstain from voting when there is a vote to
approve their own reported conflicts. In the period from 1 January 2016 until 31 December 2016, this process operated effectively.

Fred Kindle and Christian Rochat, both being Non-Executive Directors, hold positions at Clayton, Dubilier & Rice LLP, the manager
of CD&R Fund VII L.P., which owns TABASCO B.V.  As at the date of this report, TABASCO B.V. holds 54% of the issued share capital of
the Company. In addition, Andrew Simon previously acted as a Non-Executive Director at BCA Osprey IV Limited which was owned
or controlled by funds advised by Clayton, Dubilier & Rice LLP. Helmut Eschwey previously acted as a consultant to Clayton, Dubilier
& Rice LLP on an independent contractor basis.

Save as set out in the paragraph above, there are no potential conflicts of interest between any duties owed by the Directors to
the Company and their private interests or other duties. No other Director had any material interest in any significant contract with
the Company or with any Group undertaking during the year.

The Executive Directors may not (without the prior written consent of the Board) accept any other executive or non-executive
appointment, or be directly or indirectly engaged, concerned or interested in any other business (other than as a minority holder
of listed shares or loans in a publicly traded company). As part of their ongoing development, the Executive Directors may seek
up to one external non-executive appointment on a non-competitor board, for which they may retain the remuneration in respect
of the appointment. In order to avoid any conflict of interest, all appointments are subject to the Board’s approval and the Board
monitors the extent of Directors’ other interests to ensure that its effectiveness is not compromised. As at the date of this report,
Ian El-Mokadem, the Chief Executive Officer and an Executive Director, and Philip Marshall, the Chief Financial Officer and an
Executive Director, do not hold any external non-executive roles.

46 Exova Group plc

 Strategic report Report of Directors Financial statements

Directors’ interests
The Directors’ interests in the ordinary shares of the Company are shown on page 77 of the Remuneration Report.

Directors’ powers and Articles of Association

The Directors are responsible for the management of the Company and their powers to do so are determined by the provisions
of the Companies Act 2006 and the Company’s Articles of Association. The Articles of Association set out the internal regulations
of the Company and cover such matters as the rights of shareholders, the appointment or removal of Directors and the conduct
of the Board and general meetings. Copies are available upon request from the General Counsel & Company Secretary and
will be available at the Company’s AGM. Details of the powers of the Directors in relation to the issue or buyback of shares by
the Company are set out in the Directors’ Report on pages 82 to 86 of this report.

Directors’ service agreements

Details of the Executive Directors’ service agreements are set out on pages 70 and 71. The Chairman and the Non-Executive
Directors have letters of appointment which are available for inspection at the registered office of the Company during normal
business hours and at the place of the AGM from at least 15 minutes before and until the end of the AGM.

Committees of the Board

The Board has delegated specific responsibilities to the Audit, Remuneration and Nomination Committees to assist it with the
direction and control of the Group. These committees, together with the Group Executive Committee, are the principal operating
committees of the Group. If the need should arise, the Board may set up additional committees as appropriate.

The Chief Executive Officer operates a Group Executive Committee to support him in the performance of his duties, including the
development and implementation of strategy, the monitoring of operating and financial performance, the assessment of control
and risk and the supervision and prioritisation of resources.

The Group Executive Committee comprises the Executive Directors being Ian El-Mokadem and Philip Marshall, and the following
from the Group’s senior management: Paul Barry (Group Managing Director, Industries), Matthew Davies (Group Managing
Director, Infrastructure & Environment), John Willox (Group Managing Director, Products), Dr. Roger Digby (Group Technical
Director and HSE Director), Neil MacLennan (General Counsel & Company Secretary), Manus McGonigle (Chief Information
Officer), Jim McHugh (Group HR Director) and Andrew Pickup (Corporate Affairs Director). The Group Executive Committee
meets regularly to discuss and approve operational matters.

In addition to its principal operating committees, the Board has established a Market Disclosure Committee, which will meet
whenever necessary. The Market Disclosure Committee’s responsibilities are to ensure that the Company’s obligations to make
timely and accurate disclosure of information under the Market Abuse Regulation, the Financial Conduct Authority’s Listing Rules
and Disclosure and Transparency Rules (DTR) are met. As at the date of this report, the Market Disclosure Committee comprises
Ian El-Mokadem (Chief Executive Officer), Phil Marshall (Chief Financial Officer), Neil MacLennan (General Counsel & Company
Secretary) and Andrew Pickup (Corporate Affairs Director).

Each Board Committee has written terms of reference setting out its duties, reporting responsibilities and authorities which
are reviewed annually. Committee terms of reference are reviewed annually and subject to periodic updating to reflect any
changes in legislation, regulation or best practice. Further details on the Board Committees are set out on pages 51 to 81 of this
report. The terms of reference for the Audit, Remuneration and Nomination Committees are available on the Group’s website at
www.exova.com.

The three main Board Committees are comprised of Non-Executive Directors of the Company. The Chairman of each Committee
reports on the proceedings of the previous Committee meeting at the next scheduled Board meeting. The General Counsel &
Company Secretary acts as Secretary to all Board Committees.

The following table shows the members of the Board Committees:

Audit Remuneration Nomination
Committee Committee Committee

Allister Langlands* Member – Chair

Ian El-Mokadem – – –
Philip Marshall – – –
Helmut Eschwey – – Member
Fred Kindle – – Member
Vanda Murray** – Member Member
Christian Rochat – – –
Andrew Simon Member Chair –
Bill Spencer*** Chair Member Member

* On 1 January 2016, Allister Langlands became the Chairman.

** On 20 December 2016, Vanda Murray became a member of the Nomination Committee following its most recent meeting.
*** On 1 January 2016, Bill Spencer became Senior Independent Director. On 20 December 2016, he became a member of the Nomination Committee
following its most recent meeting.

Annual Report & Accounts 2016 47

 Corporate Governance report continued

Committees of the Board continued

Meetings attendance
During the period from 1 January 2016 until 31 December 2016, there were seven scheduled Board meetings.

The table below shows attendance levels at the scheduled Board and Committee meetings held during this period and confirms
how many meetings each Director was eligible to attend and attended.
Audit Remuneration Nomination
Main Board Committee Committee Committee

Number of scheduled meetings held* 7 5 4 2

Allister Langlands (Chairman) 7/7 5/5 – 2/2
Ian El-Mokadem 7/7 – – –
Philip Marshall 7/7 – – –
Helmut Eschwey 7/7 – – 2/2
Fred Kindle 7/7 – – 2/2
Vanda Murray** 7/7 – 4/4 –
Christian Rochat 7/7 – – –
Andrew Simon 7/7 5/5 4/4 –
Bill Spencer (Senior Independent Director)** 7/7 5/5 4/4 –

* In addition to the scheduled meetings, the Board also met at short notice on a quorate basis on eleven occasions and the Remuneration Committee also
had one further meeting called at short notice during 2016.
** On 20 December 2016, Bill Spencer and Vanda Murray became members of the Nomination Committee.

If a Director is unable to attend a meeting, he or she will be provided with all the papers and information relating to that meeting
and will be able to discuss issues arising directly with the Chairman and Chief Executive Officer.

Activities/matters covered at Board Meetings in 2016 included:

• receiving health, safety, environmental and quality updates at every meeting;

• receiving updates in relation to the performance of the Group and the outlook;
• reviewing the Group’s strategy;
• approval of full year results, Annual Report & Accounts, half-year results and payment of dividends;
• approving the move from a regional to a global sector-based organisational structure;
• considering M&A opportunities and approving significant transactions;
• holding a Board Meeting at the BM TRADA site at High Wycombe in the United Kingdom and carrying out laboratory tours and
a site visit. The BM TRADA business was acquired by the Group in 2015 and this visit provided the Board with an opportunity to
meet the local management team;
• succession planning;
• receiving detailed presentations from Group Managing Directors and Finance Directors and other Divisional management;
• reviewing the potential implications of the United Kingdom leaving the European Union;
• considering the internal evaluation of the Board and its committees;
• considering changes to the Company’s governance policies and procedures in connection with the EU Market Abuse
Regulation which came into force on 3 July 2016; and
• approving the Company’s Modern Slavery Policy, reviewing the Supplier Code of Conduct and considering the draft Modern
Slavery and Trafficking statement.

There are seven Board meetings currently planned for 2017. In 2016, the Non-Executive Directors held sessions at the end of
several Board meetings without the Executive Directors being present.

Audit Committee
The Audit Committee’s role is to assist the Board with the discharge of its responsibilities in relation to financial reporting, including
reviewing the Group’s Annual Report & Accounts and half-year financial statements, reviewing and monitoring the scope of the
annual audit and the extent of the non-audit work undertaken by external auditors, advising on the appointment of external
auditors and reviewing the effectiveness of the internal audit function, internal controls, whistleblowing, cyber security and fraud
systems in place within the Group. The Audit Committee will normally meet not less than four times a year.

The Audit Committee is chaired by Bill Spencer and its other members are Andrew Simon and Allister Langlands. The UK Corporate
Governance Code recommends that the Board should establish an Audit Committee of at least three, or in the case of smaller
companies, two independent non-executive directors. In smaller companies the company’s chairman may be a member of,
but not chair, the committee in addition to the independent non-executive directors, provided that he or she was considered as
independent on appointment as chairman. The UK Corporate Governance Code also states that the Board should satisfy itself
that at least one member of the Audit Committee has recent relevant financial experience. The Company is not a constituent
of the FTSE 350 and is a smaller company for the purpose of the UK Corporate Governance Code. Bill Spencer (the Chairman of
the Audit Committee) and Andrew Simon are Non-Executive Directors, independent in character and judgement and free from
any relationship or circumstance which may, could or would be likely to, or appear to, affect their judgement. Allister Langlands
(the Chairman) was considered as an independent director on his appointment as Chairman. At least one member of the Audit
Committee has relevant financial experience. The Board considers that the Company complies with the requirements of the UK
Corporate Governance Code in respect of the composition of the Audit Committee.

48 Exova Group plc

 Strategic report Report of Directors Financial statements

Remuneration Committee
The Remuneration Committee recommends the Group’s policy on executive remuneration, determines the levels of remuneration
for Executive Directors and the Non-Executive Chairman and other senior executives as the Board may determine and prepares
an annual Remuneration Report for approval by the shareholders at the Annual General Meeting. The Remuneration Committee
will normally meet not less than three times a year.

The Remuneration Committee is chaired by Andrew Simon and its other members are Bill Spencer and Vanda Murray. The UK
Corporate Governance Code recommends that all members of the Remuneration Committee be non-executive directors,
independent in character and judgement and free from any relationship or circumstance which may, could or would be likely to,
or appear to, affect their judgement. The Board considers that the Company complies with the requirements of the UK Corporate
Governance Code in this respect.

Nomination Committee
The Nomination Committee assists the Board in reviewing the structure, size and composition of the Board. It is also responsible for
identifying potential candidates to be appointed as Directors, as the need may arise. The Nomination Committee also determines
succession plans for the Directors and other senior executives. The Nomination Committee will meet at least once a year.

The Nomination Committee is chaired by Allister Langlands and its other members are Helmut Eschwey Fred Kindle, Vanda Murray
and Bill Spencer. Vanda Murray and Bill Spencer became members of the Nomination Committee on 20 December 2016. The
UK Corporate Governance Code recommends that a majority of the members of the Nomination Committee be non-executive
directors, independent in character and judgement and free from any relationship or circumstance which may, could or would be
likely to, or appear to, affect their judgement. Following the appointment of Vanda Murray and Bill Spencer as members, the Board
considers that the Company complies with the requirements of the UK Corporate Governance Code in this respect.

Accountability and Audit

Financial reporting
The Group has in place comprehensive financial reporting procedures. This includes a detailed annual budgeting process
where budgets are prepared for approval by the Board. A formal re-forecast of the current year numbers is carried out twice
a year. Regular updates to the forecasts are prepared and reviewed by management.

The Group also uses a number of KPIs to measure both operational and financial activity within the business. On a regular basis,
the Group and divisional results, including details of the variance to the budget, most recent forecasts and figures for the previous
year, are provided to the Group Executive Committee and other relevant senior employees. A monthly report is also provided to
the Board and the Group Executive Committee. Amongst other things, this includes a financial performance overview and CFO’s
report, including profit and loss and cash flow statements.

Internal control and risk management

The Directors acknowledge that they have overall responsibility for risk management and internal controls, reviewing the
effectiveness of those controls and ensuring that an appropriate culture has been embedded throughout the organisation. In
accordance with the guidance set out in the FRC’s Guidance on Risk Management, Internal Control and Related Financial and
Business Reporting 2014 and in the UK Corporate Governance Code, an ongoing process has been established for identifying,
managing and evaluating the risks faced by the Group. The Directors confirm that these processes have been in place throughout
2016 and up to the date of approval of the Annual Report & Accounts. These robust processes support the Viability Statement.
However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can
provide only reasonable and not absolute assurance against material misstatement or loss.

Key elements of the Group’s internal control and risk management systems and procedures in relation to the financial reporting
process are currently as follows:

• a system for planning, reporting and reviewing performance as described above;

• an Enterprise Risk Management (ERM) framework is in place which includes a training module and annual sign off by senior
management. ERM forms an integral part of the annual business planning cycle and a Risk Steering Committee is in place,
which oversee the Group ERM process and meets to review the Corporate Risk Register on a regular basis. The Corporate Risk
Register captures the strategic, compliance, operational and financial risks facing the business together with management’s
assessment of relevant controls and other risk mitigation strategies. In support, a corporate level Risk Register, Divisional Risk
Registers and Central Functional Registers have been maintained across the Group. These have been consolidated into the
Exova Corporate Risk Register and, together with a set of uniform procedures, form the basis of ongoing risk management
across the Group. This reflects the Group’s commitment to conduct its business responsibly and in accordance with all
relevant laws and regulations. The Audit Committee and the Board also regularly reviews and assesses the management
of principal risks and the Company’s strategic risks arising from the processes described; and
• the Group has in place comprehensive financial controls which are well established and documented. Senior managers are
required to sign quarterly confirmations of compliance with key procedures and to report any exceptions or material issues
together with an annual training and sign off on the financial and commercial policies and procedures. Summarised results
are presented in a report to the Board which is discussed at meetings of the Audit Committee.

On the basis of the above, the Board, advised by the Audit Committee, has concluded that the systems of internal control
are effective.

Annual Report & Accounts 2016 49

 Corporate Governance report continued

Accountability and Audit continued

Whistleblowing
The Group encourages staff to report any concerns which they feel need to be brought to the attention of management
concerning any possible impropriety, financial or otherwise. The Group has also put in place a whistleblowing service where
employees can confidentially contact an external provider if they have any concerns over wrongdoing at work. This may be used
to report incidents of fraud, bribery and corruption, discrimination, bullying or harassment, breach of the Group’s competition
law policy or health and safety, quality compliance or environmental concerns. Information in relation to this whistleblowing
service is provided to employees as part of their induction and is also regularly communicated to existing employees. The
Group provides the Audit Committee with information in relation to matters reported, any subsequent investigations and
follow up actions and the reports are discussed regularly at Audit Committee meetings.

External audit
Ernst & Young LLP, the Company’s auditor, has indicated their willingness to continue in office. It is proposed that Ernst & Young
LLP be the auditor for the year ending 31 December 2017. The Board has agreed, based on the recommendation of the Audit
Committee, that a resolution be put to shareholders at the forthcoming Annual General Meeting for the appointment of Ernst
& Young LLP as auditor of the Company and to authorise the Directors to determine the remuneration of the auditor.

The Audit Committee reviews the appointment of the auditor and the auditor’s effectiveness and relationship with the Group,
including the level of audit and non-audit fees paid. Further details on the work of the Audit Committee are set out on pages
53 to 56 of this report.

Internal audit
The Group employs a Group Internal Audit Manager. In advance of each meeting, the Audit Committee is provided with an
update report setting out the findings and recommendations of the Group Internal Audit Manager from the work carried out
since the previous meeting. The purpose of this report is to highlight any major control issues arising from the annual audit plan
approved by the Audit Committee, together with information on current activities and reports on the progress, findings and
recommendations in respect of actions required of management. The Audit Committee discusses lessons learned and challenges
whether further actions or changes to process are required as a result of internal audit findings and recommendations.

Communicating with shareholders

The Company maintains an ongoing dialogue with its major institutional shareholders through a programme of meetings which
are generally undertaken by the Chief Executive Officer and the Chief Financial Officer. The Board is also provided with regular
analyses of investor activity and share price performance. Analysts’ and brokers’ reports are made available to all Directors
and they also receive feedback from investor meetings. The Chairman and the Senior Independent Director are available for
consultation with shareholders as appropriate. Further information for shareholders is included on page 146.

Relations with shareholders and Capital Markets Day

The Board recognises that it is accountable to shareholders for the performance and activities of the Company. The Chief
Executive Officer and Chief Financial Officer are closely involved in relation to investor relations matters. The Company formally
updates the market on its financial performance at the half-year and full-year results. These announcements are posted on
the investor relations section of the Company’s website so as to be available to all shareholders. The Company has a regular
programme of meetings with its major institutional shareholders providing an opportunity to discuss the progress of the business,
following release of publicly available information. The Chief Executive Officer and the Chief Financial Officer regularly report
to the Board the views of major shareholders about the Company and the Company’s brokers regularly present to the Board,
providing feedback from investors and market updates. The Chairman, Senior Independent Director and other Non-Executive
Directors are available to meet shareholders as required. In September 2016, the Company held a Capital Markets Day in
London which was attended by the Chairman, Chief Executive Officer, Chief Financial Officer and other members of the
Executive Committee. A presentation was given at the Capital Markets Day to attendees by Divisional management in
relation to the Fire, Building Products & Certification business.

50 Exova Group plc

 Strategic report Report of Directors Financial statements

Nomination Committee report

Chairman: Allister Langlands

Other members: Helmut Eschwey, Fred Kindle, Vanda Murray
and Bill Spencer

Biographies including qualifications of members are set out on

pages 40 and 41.

All members are Non-Executive Directors. Helmut Eschwey,

Vanda Murray and Bill Spencer are Independent Directors. Allister
Langlands (the Chairman of the Board) was considered to be
independent on his appointment as Chairman of the Board.

Dear Shareholder
Introduction from the Chairman
Welcome to the Nomination Committee Report of Exova Group plc. The report is for the period from 1 January 2016 until
31 December 2016. The Nomination Committee met twice during the period with attendance disclosed on page 48.

Role of the Nomination Committee

On behalf of the Board, the Nomination Committee assists the Board in discharging its responsibilities relating to the composition
of the Board.

The Nomination Committee is responsible for:

• evaluating and reviewing the balance of skills, knowledge and experience on the Board;
• the size, structure and composition of the Board;
• retirements and appointments of additional and replacement Directors; and
• making appropriate recommendations to the Board on such matters.

Composition and diversity

The UK Corporate Governance Code provides that a majority of the members of the Nomination Committee should be independent
non-executive directors. The Nomination Committee comprises Allister Langlands, Helmut Eschwey, Fred Kindle, Vanda Murray
and Bill Spencer. Helmut Eschwey, Vanda Murray and Bill Spencer are considered by the Board to be Independent Non-Executive
Directors. Allister Langlands (the Chairman of the Board) was considered to be independent on appointment as Chairman. Since
20 December 2016 when Vanda Murray and Bill Spencer became members (as described later in this report), the Company has
therefore complied with the UK Corporate Governance Code in respect of the composition of the Nomination Committee.

The Nomination Committee believes that the members of the Board have an appropriate mix of skills, experience, knowledge
and diversity which enables them to discharge their respective duties and responsibilities effectively. In line with the UK Corporate
Governance Code, the Company will continue to make Board appointments on merit, against objective criteria and with due
regard for the benefits of diversity on the Board, including gender.

Effectiveness
We have carried out an evaluation of the terms of reference and considered the succession planning of the Directors and senior
management. In February 2016, an internally facilitated evaluation of the effectiveness of the Nomination Committee was carried
out. Details of the evaluation are set out on page 46.

Annual Report & Accounts 2016 51

 Nomination Committee report continued

Activity of the Committee

The Nomination Committee meets formally when appropriate and the General Counsel & Company Secretary acts as Secretary
of the Committee. The Nomination Committee met formally twice during the 12 months ended 31 December 2016.

The principal other work undertaken by the Nomination Committee during the year included evaluating the skills, experience
and diversity of the Board, considering succession planning for Non-Executive Directors, setting the agenda for 2017 and reviewing
its terms of reference. At its meeting in December 2016, the Nomination Committee recommended the appointment of Vanda
Murray and Bill Spencer (both Independent Non-Executive Directors) as members and they joined this committee with effect from
20 December 2016.

The Nomination Committee also reviewed the composition of the Board. As mentioned in my Letter from the Chairman, on
12 March 2014 in advance of the IPO, Helmut Eschwey and Andrew Simon, both independent non-executive directors, became
directors of the Company. From 27 November 2008 until 12 March 2014, both Helmut Eschwey and Andrew Simon were Directors of
the former Parent Company of the Group. After taking into account their time as Directors of the previous Parent Company of the
Group, Helmut Eschwey and Andrew Simon will have served nine years as at the end of November 2017. In 2016, a rigorous review
of the composition of the Board was carried out. It was agreed to keep the composition of the Board under review and further
consider succession arrangements for Helmut Eschwey and Andrew Simon at the next meeting of the Nomination Committee to
be held in 2017. It is expected that Helmut Eschwey will stand down as a Director of the Company at or in advance of the annual
general meeting in May 2018. In the interests of preserving the continuity of the Board and its Committees, it is intended that
Andrew Simon will stand down as a Director of the Company thereafter and by no later than the time of the Annual General
Meeting in May 2019.

AGM
The Nomination Committee recommends that the Directors be re-elected at the forthcoming Annual General Meeting. As
Chairman of the Nomination Committee, I will be available at the AGM to answer questions about the work of the Nomination
Committee during the year.

Allister Langlands
Nomination Committee Chairman
27 February 2017

52 Exova Group plc

 Strategic report Report of Directors Financial statements

Audit Committee report

Chairman: Bill Spencer

Other members: Allister Langlands and Andrew Simon

Biographies including qualifications of members are set out on

pages 40 and 41.

Bill Spencer and Andrew Simon are Independent Non-Executive

Directors. Allister Langlands (the Chairman of the Board) was
independent on his appointment as Chairman of the Board.

Dear Shareholder
Introduction from the Chairman
I am pleased to report on the activities of the Audit Committee (the Committee) in respect of the 12 months ended 31 December
2016. During this period, the Committee met five times, with attendance disclosed on page 48.

Role of the Audit Committee

The Audit Committee has received delegated authority from the Board set out in its written terms of reference. The main
duties are:

• to monitor and review the integrity of the Group’s financial statements and the appropriateness of the underlying accounting
policies judgements and estimates;
• to monitor and review the scope, resources and effectiveness of the Group’s internal audit function and its material findings;
• to keep under review the effectiveness of the Group’s system of internal financial controls and risk management systems;
• to oversee the Group’s procedures for detecting fraud and to review the arrangements for employees to raise concerns
through whistleblowing; and
• to oversee the relationship with the external auditor, including:

–– considering the scope of work to be undertaken by the external auditor and reviewing that work;
–– approving the terms of engagement and fees;
–– reviewing and monitoring the independence of the external auditor and approving their provision of non-audit
services; and
–– approving the appointment and nominating the re-appointment or removal of the external auditor, before being put to
shareholders in a general meeting.

Composition of the Audit Committee

I am joined on the Committee by Allister Langlands and Andrew Simon. Andrew Simon is an Independent Non-Executive Director.
Allister Langlands (the Chairman of the Board) was independent on his appointment as Chairman. Meetings of the Committee
are also attended, where relevant, by other Board members, the Chief Executive Officer, the Chief Financial Officer, Group
Financial Controller, Group Internal Audit Manager, other senior management and representatives from the external auditors,
Ernst & Young LLP (EY). The Board considers that a number of the members of the Committee have recent and relevant
financial experience.

Work carried out by the Audit Committee

The Committee has an annual work plan, developed from its terms of reference, with standing items that provide a framework
for the agenda for each meeting. The Committee will meet a minimum of four times a year.

During the 12 months ended 31 December 2016, the Committee met on five occasions, with the principal work being:

• reviewing and approving the Committee’s terms of reference and approving the Committee’s rolling agenda;
• reviewing internal audit reports, key control questionnaires and approving the future internal audit work plans;
• reviewing key IT controls and cyber security;
• considering the draft interim report and financial statements, including any significant judgement items, such as impairment
of goodwill, and receiving the review undertaken by the external auditors;
• receiving reports on tax reporting, compliance, and ethics;
• reviewing the Group tax policy prior to its approval by the Board;
• considering and approving the external audit scope, fees and plan;
• discussing the adherence to the policies on preventing fraud and on anti-bribery and corruption;
• reviewing the adequacy and effectiveness of the Group’s ongoing risk management systems and control processes;
• reviewing the strategy for the development of information technology systems used for financial reporting; and
• reviewing and approving the policy for the provision of non-audit services by the external auditors.

Annual Report & Accounts 2016 53

 Audit Committee report continued

Work carried out by the Audit Committee continued

In February 2017, the Committee had one further meeting which included the following:

• reviewing the Annual Report & Accounts for 2016 and recommending to the Board its adoption as fair, balanced
and understandable;
• reviewing the Viability Statement prior to Board review;
• receiving the external Auditor’s Report to the Audit Committee;
• considering the appropriateness of preparing the full year accounts on a going concern basis; and
• considering EY’s confirmation of independence.

Significant issues considered by the Committee

Following discussion with both management and the external auditors, the Committee determined that there were the following
areas of significant judgement that have a higher risk of material misstatement:

Revenue recognition
There is a risk of fraud and management override of internal controls in relation to the adherence of the Group’s revenue recognition
policies on the accrual or deferral of revenue and the cut-off for amounts to be recognised in the year. The Committee confirmed
that the Group had in place an appropriate revenue recognition policy and received reports confirming adherence to the policy
and to consistency of its application across the Group.

Impairment of goodwill
The challenging global market performance could lead to an impairment of goodwill specifically in relation to the risks of
incorrectly allocating goodwill to the revised organisational structure. The Committee considered whether goodwill should be
impaired. There was a particular focus on the Infrastructure, Health and Environment Division, where expected cash generation
had in recent years given low headroom when testing for impairment. The judgements in relation to asset impairment largely
relate to the assumptions underlying future performance. As such, the Committee received relevant financial reports from
management, from which it challenged and debated the assumptions underlying the forecast information. As part of this
process the Committee specifically assessed the headroom in the goodwill valuation and concluded that the valuations
performed and the accounting treatment adopted, which resulted in no impairment charges, were appropriate.

Accounting for acquisitions and disposals

Accounting for acquisitions and disposals, specifically in relation to the valuation of acquired intangible assets and the value of
intangible assets disposed of, requires a level of estimation and judgement. There is a risk in that the estimates and judgements
made may be inappropriate and the valuation of assets and liabilities may be misstated. The Committee reviewed the accounting
treatments proposed and disclosed in the financial statements and concluded that it was appropriate.

Fair, balanced and understandable

At the request of the Board, the Audit Committee considered whether the Annual Report & Accounts, were considered to be fair,
balanced and understandable (FBU).

Ensuring that the FBU standard is met requires continuous assessment of the financial issues affecting the Group. In addition,
in preparing and finalising the 2016 Annual Report & Accounts, the Committee considered a FBU review framework prepared
by management. Detailed reporting from and discussion with, the external auditor were also considered by the Committee.
These processes assisted the Committee in being able to carry out its own assessment and being able to advise the Board
that it considered that the Annual Report & Accounts, taken as a whole, were fair balanced and understandable.

The Director’s statement on a FBU in the Annual Report and Accounts is set out on page 87.

Internal controls
In assisting the Board with the discharge of its responsibilities in relation to internal controls, the Audit Committee has reviewed
the effectiveness of the Group’s control systems based on reports from Group Internal Audit and the Chief Financial Officer.
Overall, the Audit Committee concluded that the Group’s internal controls are appropriate to the Group’s needs at this time.

Key judgements
The Audit Committee is satisfied that the judgements made by management are reasonable and that appropriate disclosures
in relation to key judgements have been included in the financial statements. In reaching this conclusion, the Audit Committee
considered reports and analysis prepared by management and constructively challenged the assumptions. Detailed reporting
from, and discussion with, the external auditor were also considered by the Audit Committee.

External audit process and effectiveness

A review of EY independence and audit process effectiveness was conducted by the Audit Committee as part of its review of the
Group’s financial reporting for the year ended 31 December 2016. Accordingly, the Audit Committee recommended to the Board
that shareholder approval be sought at the forthcoming AGM for the re-appointment of EY as the Company’s auditor for 2017
and for the Board to determine the auditor’s remuneration.

54 Exova Group plc

 Strategic report Report of Directors Financial statements

The Audit Committee assesses the effectiveness of the external audit process by:

• reviewing EY’s audit plan at the start of the audit cycle, their materiality level and identification of key audit risks;
• challenging the findings of EY in testing management’s assumptions and estimates in relation to the key audit risks;
• considering the execution of EY’s audit against the plan and their reporting to the Audit Committee in respect of the half-year
and full-year financial statements; and
• holding discussions with management and (without management present) the audit engagement partner.

Management reported to the Audit Committee that they were satisfied that the quality of the external audit process had been
satisfactory, with appropriate focus and challenge on the key audit risks. Based on this and its own assessment work, the Audit
Committee agreed with the view of management.

Auditor tenure
EY has audited the accounts of the Group since the year ended 31 December 2009. No tender for external audit services has
been undertaken since their appointment. The current audit partner, Mark Harvey, will come to the end his term after the 2017
audit. While there is no current plan to tender the audit, the Committee will keep this under review. Under the Committee’s terms
of reference, the external audit is expected to be put out to tender at least every ten years.

Non-audit services
To help ensure the objectivity and independence of the Company’s auditor, there is a Group policy governing the undertaking
of non-audit services by external auditors. This policy was reviewed by the Audit Committee during the period.

With effect from 1 January 2016 and following a tender process, the Company appointed KPMG to provide global tax advisory
services to the Group which reduced the level of non-audit services provided by EY. Any engagement where the fee is contingent
must always be approved in advance by the Audit Committee.

A summary of the fees paid to EY for non-audit services is set out below:
2016 2015
£m £m

Total non-audit fees – 0.4

Audit fee 0.4 0.4
% of audit fee – 100%

The Audit Committee has concluded that the provision of these services did not compromise the objectivity and independence
of EY as external auditor. The Committee is satisfied that the provision of these services was concluded by EY staff that were
independent of the audit process.

During the year the external auditor undertook the following non-audit work:

• review covenant compliance; and

• review half-year results announcement.

A more detailed analysis of audit and non-audit fees is given in Note 3 to the financial statements.

With effect from 1 January 2016, a revised policy governing the undertaking of non-audit services by external auditors was adopted.
Certain services, such as tax advisory services, are not permitted to be provided by the external auditor, while other specific services
are permitted. Under the revised policy, non-audit fees for permitted services must not exceed 70% of the audit fee for statutory work
in any financial year. Regular reports are provided to the Audit Committee in relation to any non-audit services provided by the
external auditor. Any proposal to appoint the external auditor to provide non-audit services which breach the 70% limit requires the
prior approval of the Audit Committee. The Audit Committee must be notified at any point in the financial year if the cumulative fees
for non-audit services exceed 50% of the audit fee. Contingent fees must always be approved in advance by the Audit Committee.
Non-audit fees will remain the subject to scrutiny and approval by the Audit Committee and the policy will be reviewed by the Audit
Committee at least annually and be updated to reflect changes in laws and regulations.

In assessing EY’s independence, the Audit Committee received written confirmation that, in EY’s professional judgement, EY is
independent within the meaning of all UK regulatory and professional requirements and the objectivity of the audit engagement
partner and audit staff is not impaired.

Annual Report & Accounts 2016 55

 Audit Committee report continued

Internal audit and controls

On behalf of the Board, during the year the Committee monitored the Group’s risk management and reviewed the effectiveness
of internal control procedures. Management is responsible for establishing and maintaining adequate internal controls over
financial reporting. Such controls are designed to manage, rather than eliminate, risk of failure to achieve its business objectives
and can be summarised as follows:

• Strategy and performance reporting: The business strategy and long-term financial planning is reviewed and approved
by the Board, updated annually and feeds into the annual budget process. Executive management review performance
against budgets and latest forecasts on a monthly basis and key trends, KPIs and variances are analysed and explained.
• Risk management and internal control: Management are responsible for identifying and managing risk in the
business. Risk registers are maintained and regularly reviewed by management and high level risks are presented to the
Audit Committee and Board with mitigating actions and controls identified to help reduce risks. The Board monitors the
Company’s risk management and internal controls and reviews their effectiveness. The Board, as a whole, including the
Audit Committee members, consider the nature and extent of the Company’s risk management framework and the risk
profile that is acceptable in order to achieve the Company’s strategic objectives. The Audit Committee has reviewed the
work done by management, the Committee itself and the Board on the assessment of the Company’s principal risks, including
their impact on the prospects of the Company. As a result, it is considered that the Board has fulfilled its obligations under the
Code in relation to risk management and internal controls. Further details on the Company’s principal risks and uncertainties
and their impact on the prospects of the Company are set out on pages 10 to 13.
The Company’s system of internal controls, along with its design and operating effectiveness, is subject to review by the
Audit Committee, through reports received from management, along with those from both internal and external auditors.
Any controls deficiencies identified are followed up with action plans tracked by the Committee.
• Financial and operational control: The Group has an established delegation of authority matrix to ensure that decisions
and transactions are approved at the appropriate level. End-to-end controls and the individuals responsible for management
and review of these controls are documented for each financial process stream. There is also a policies and procedures
document which sets out the Group standard on key financial and operational matters. Management level and other relevant
employees are required to undergo induction and refresher training on these procedures.
• Key Control Questionnaires (KCQs): Self-assessment questionnaires covering key controls are completed and signed off
annually by the appropriate operational and finance managers. Issues identified are followed up at the half year.

Internal audit function

The internal audit function carries out an independent assessment of the effectiveness of the control environment, including
sample checking of the accuracy of KCQs submitted by management. Internal audit reports are reviewed by the Committee.

Internal audits are undertaken across a range of the Group’s operations and all reports of these audits are presented to the
Committee. As well as receiving individual internal audit reports, the Committee reviews progress made by management in
implementing the control improvements recommended by internal audit. The internal audit reports are reviewed by local
management with significant findings also reviewed and followed up by executive management.

The Group employs a Group Internal Audit Manager who reports to the Chief Financial Officer. The Internal Audit Manager also
has direct access to the Committee Chairman and during the year met with the Audit Committee without the Executive Directors
present.

Bill Spencer
Audit Committee Chairman
27 February 2017

56 Exova Group plc

 Strategic report Report of Directors Financial statements

Remuneration report
Chairman of the Remuneration Committee’s annual statement

Chairman: Andrew Simon

Other members: Bill Spencer and Vanda Murray

Biographies including qualifications of members are set

out on pages 40 and 41. All members are Independent
Non-Executive Directors.

Dear Shareholder
Introduction from the Chairman
As the Chairman of the Remuneration Committee, I am pleased to present the report of the Board covering the remuneration
policy and practice for the year ended 31 December 2016. The report has been set out in the following parts:

• the Chairman of the Remuneration Committee’s annual statement;

• the ‘At a glance’ section providing a summary overview of pay and performance in 2016;
• the Remuneration Policy section outlining the Directors’ Remuneration Policy which will be put to shareholders for a binding
vote at the Company’s AGM; and
• the annual report on remuneration which sets out payments made to the Directors and details the link between Company
performance and remuneration for the 2016 financial year.

Business context of remuneration policy review

As the business strategy has evolved, the Remuneration Committee has considered whether our current remuneration policy
is appropriately structured to support the delivery of the Group’s strategy going forward and deliver long-term sustainable value
for shareholders. In light of this, the Committee has undertaken a full review of the Policy and wishes to make a small number
of amendments to ensure focus on the evolved strategy of the business, reflect the impact of the external market and maintain
ongoing good corporate governance. It is our view that the Policy put forward provides an approach to remuneration which
supports the culture and strategy of Exova and is acceptable to shareholders in driving long-term performance. The Committee
has consulted with our largest shareholders in relation to the proposed revised remuneration policy and the outputs from this
process have influenced, and are reflected in, the revised Directors’ Remuneration Policy which will be subject to a binding vote
at the 2017 AGM in May 2017.

Company highlights for the 2016 financial year

As the Chairman’s statement indicated, the Company continued to execute a number of important initiatives in line with the
Group’s strategy in 2016. The Company completed the successful acquisitions of Admaterials Technology, Jones Environmental
Forensics and Insight NDT in 2016, and the successful sale of the Food, Water and Pharmaceuticals business in the UK and Ireland
in July 2016 and the Eastern Canada Environmental business in December 2016. The Product and Certification, Aerospace, Health
Sciences and Infrastructure and Environment businesses delivered strong organic growth and at Group level the successful
evolution of the business to a global Divisional structure was completed in the second half of the year. Whilst oil & gas markets
continued to weaken management responded accordingly with further cost and efficiency actions taken to mitigate the poor
trading conditions and remains optimistic in the medium term outlook for this important part of the business. The following
financial results were achieved in 2016:

• organic revenue growth at constant currency of (0.2)%;

• 5.5% organic growth at constant currency excluding Oil & Gas and Industrials;
• total revenue growth on a constant currency basis of 2.4%; and
• adjusted EBITA margin decreased by 50bps from 15.8% to 15.3% which reflects the continuing challenges within the Oil & Gas
and Industrials sector which negatively affected margins, offsetting the improvements elsewhere and positive contribution
from acquisitions.

Annual Report & Accounts 2016 57

 Remuneration report continued
Chairman of the Remuneration Committee’s annual statement

Remuneration review for the 2016 financial year

The report on remuneration set out on pages 60 to 81 provides full details on the salaries and awards made to the Executive
Directors in 2016 and the application of the policy included the following:

• As previously disclosed, the salary of the Chief Executive Officer (CEO) increased by 2% in line with UK-based employees.
Given the appointment of Philip Marshall as an Executive Director and Chief Financial Officer (CFO) on 30 November 2015
his salary did not increase in 2016.
• For 2016, annual bonus measures were based on adjusted EBITA (60%), cash conversion (20%) and personal objectives (20%).
The remuneration policy aims to support a high performance culture with appropriate reward for superior performance. Annual
bonuses of 29% of the maximum for the Chief Executive Officer and 32% of the maximum for the Chief Financial Officer reflect
the improvement in the performance of the Group. As the EBITA threshold target was not achieved no bonus was payable in
relation to this element of the bonus. The Cash conversion element was achieved at maximum level and the Chief Executive
Officer achieved 75% and the Chief Financial Officer 100% of target performance for the Personal objectives and therefore a
bonus of 16% and 15% of salary was payable respectively for this element. In total, bonuses amounting to £231,801 for the Chief
Executive Officer and £130,000 for the Chief Financial Officer were awarded.
• With respect to 2014 LTIP awards, an award was granted to the Chief Executive Officer on 17 April 2014 following the successful
IPO of the Company with 50% of the award based on Earnings Per Share (EPS) growth and 50% of the award based on Total
Shareholder return (TSR). The adjusted EPS element was calculated against the 2013 calendar year baseline and over the
subsequent three year period. As the EPS performance condition threshold of 7% was not met, this element of the award will
lapse. The TSR element is calculated on the 36 month period following on from the listing of the company and any award for
this element of the 2014 LTIP award will be reported in 2017.

All arrangements operated by the Company during the year were in line with the Policy.

Role of the Remuneration Committee

The Remuneration Committee met four times during 2016 and its key activities were as follows:

• reviewed 2015 Directors’ Remuneration Report (DRR) and emerging themes from 2016 AGM and engaged in shareholder
consultation based on the votes cast against approval of the DRR;
• review and formulation of a revised remuneration policy and shareholder engagement in respect of this;
• provided oversight of any remuneration changes and awards in relation to Group Executive Committee members;
• approved targets and participants under the Company’s Long-Term Incentive Plan (LTIP);
• approved 2016 bonus arrangements and reviewed possible future changes to bonus and LTIP;
• reviewed performance against targets for 2014 and 2015 LTIP awards;
• confirmed Executive Director 2016 bonus awards;
• reviewed Executive Directors’ remuneration arrangements for 2017;
• reviewed performance and appointment of remuneration consultants;
• reviewed draft 2016 DRR; and
• reviewed the performance and effectiveness of the Committee and terms of reference.

Looking forward – Revised Directors’ Remuneration Policy

The Committee welcomes the views of shareholders on remuneration and we engaged with our largest shareholders in developing
our thinking and proposals. Based on the shareholder consultation undertaken in relation to the revised policy, the following table
provides an overview of the key changes that are proposed in the revised Directors’ Remuneration Policy:
Area Change Rationale
Annual Bonus Plan • Reduce CEO maximum annual bonus • Reduced maximum to align with market
opportunity to 150% and reduce CFO practice.
maximum to 100% from 175% and 125% • Increased deferral aligns Executive Director and
of salary respectively. shareholder interests more closely and helps to
• Increase deferral proportion to top third of any retain key talent over the long-term.
bonus payable (i.e. any bonus above 100% of • Performance conditions aligned with strategy
salary for CEO will be paid in shares deferred of the business and delivery of growth.
for 3 years). • The level of bonus payable for threshold
• Performance conditions for the 2017 annual performance is proposed to be set at 20%
bonus and their weightings will be: to reflect the lowering of the overall bonus
opportunity and the challenge the Committee is
–– Adjusted EBITA (50%). setting to reach threshold levels of performance.
–– Cash conversion (25%).
–– Personal objectives (25%).

• 20% of the bonus opportunity will be payable

for threshold performance (previously 0%).

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 Strategic report Report of Directors Financial statements

Area Change Rationale

Long-term Incentive • Introduce third performance condition relating
Plan (LTIP) to adjusted free cash flow.
• Performance conditions for the 2017 LTIP award
will be equally weighted between:
–– Total shareholder return (TSR).
–– Earnings per share (EPS).
–– Adjusted free cash flow (FCF).
• Maximum opportunity under the LTIP for 2017
will remain unchanged at 150% of salary for
CEO and 100% of salary for CFO.
Shareholding • Increase shareholding requirement to 300%
guidelines of salary for CEO and 200% of salary for CFO
(currently 200% and 100% respectively).
• 50% of any awards vesting to be held in shares
until shareholding requirement achieved.
Recruitment policy • Remove ability to provide sign-on awards on
recruitment.
• The use of earnings per share (EPS) focuses
the executive directors on ensuring the annual
profit performance targeted by the Annual
Bonus Plan flows through to long-term
sustainable EPS growth.
• The use of comparative total shareholder
return (TSR) measures the success of the
implementation of the Company’s strategy
in delivering an above market level of return.
• The use of free cash flow (FCF) measures the
effective management of cash to support
long-term profitability and is also a measure
of the quality of earnings growth.
• This policy ensures that the interests of Executive
Directors and those of shareholders are closely
aligned.
• Reflecting previous shareholder concern and
good corporate governance.

The Remuneration Committee and I will continue to provide strong scrutiny over the performance targets set for the incentive
plans to ensure they are suitably stretching given the potential value and that overall remuneration outcomes remain sensitive to
the shareholder experience. Whilst the level of potential bonus payable at threshold will increase (with a corresponding increase
in the challenge of the performance targets), the reduction in maximum bonus payable, increased shareholding requirements
for Executive Directors and increased deferral represent a strengthened alignment to shareholder value and continue to support
the business strategy. We will continue to retrospectively disclose detailed targets and actual performance outcomes for the
bonus and prospective disclosure of targets for the LTIP. These proposals have the full support of the Remuneration Committee
and we trust that they will receive your support.

With respect to the application of the policy in 2017 the Committee has considered a base pay increase for the Chief Executive
Officer and Chief Financial Officer in line with our policy. Based on the performance of the business a salary increase of 2% will
be awarded to the Executive Directors in April 2017, which is in line with other UK-based employees.

The award levels in relation to the 2017 LTIP remain unchanged. In setting targets for the 2017 LTIP and as part of shareholder
consultation and engagement, the Committee will introduce an additional LTIP metric based on adjusted Free Cash Flow (FCF).
Having evaluated a range of suitable cash conversion and cash return metrics we are satisfied that this will represent a suitable
measure of long-term profitability of the business and quality of earnings growth. Subject to shareholder approval of the revised
remuneration policy, FCF threshold vesting will be set at £141m with maximum vesting set at £155m. The Committee is satisfied that
equal weighting of Total Shareholder Return (TSR), Earnings Per Share (EPS) and adjusted Free Cash Flow (FCF) are appropriate and
threshold vesting remains unchanged at 25% of maximum vesting. For TSR, the performance required for threshold and maximum
vesting remains unchanged at median performance and upper quartile performance respectively. As part of the Group strategy
review, and having carefully considered market conditions, outlook and the continued weakness evident in global energy markets,
balanced by shareholder feedback in respect of the 2016 EPS performance condition, we believe a modest increase at threshold is
justified. The Committee has therefore determined to increase the threshold level of EPS performance from 4% to 5% per annum over
the three year period with maximum vesting to 10% per annum.

I hope that you find the information in this report helpful and I look forward to your support at the Company’s Annual General
Meeting both in relation to the revised Directors’ Remuneration Policy and the application of the current policy in 2016.

I am always happy to hear from the Company’s shareholders and you can contact me at andrew.simon@exova.com or via the
Company Secretary if you have any questions on this report or more generally in relation to the Company’s remuneration.

Andrew Simon
Chair of the Remuneration Committee
27 February 2017

Notes
This report has been prepared in accordance with Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008 as amended in 2013 (the ’Regulations’), the provisions of the UK Corporate Governance Code as amended in 2014 and the Listing Rules.

The Chairman’s annual statement and the annual report on remuneration will be subject to an advisory vote at the AGM.

Annual Report & Accounts 2016 59

 Remuneration report continued
At a glance

Introduction
In this section we highlight the performance and remuneration outcomes for the 2016 financial year. More detail can be found
in the annual report on remuneration.

How we have performed against our objectives in 2016

KPIs (Bonus) Threshold Target Maximum Actual

Adjusted EBITA (£m) 1

48.2 50.3 51.8 46.2
Cash conversion (%) 64 64 70 72
Personal objectives (%) 2

  Ian El-Mokadem 0% 21% 35% 16%

  Philip Marshall 0% 15% 25% 15%

1. Calculated using constant currency 2016 exchange rates.

2. Represents percentage of total salary payable.

What did our Executives earn during the year?

The following tables set out:

• the single total figure of remuneration for Executive Directors for 2016; and
• the current shareholdings of the Executive Directors.
Taxable 2016 2015
Salary Benefits Bonus Pension Other Total Total
Executive Directors £’000 £’000 £’000 £’000 £’000 £’000 £’000

Ian El-Mokadem (CEO) 457 17 232 69 – 775 622

Philip Marshall (CFO) 325 13 130 49 – 517 3131

1. Philip Marshall appointment as an Executive Director was effective from 30 November 2015 and this is reflected in his 2015 remuneration which includes a
one-off nil cost LTIP award on appointment.

The following table shows the shareholdings for the Executive Directors at 31 December 2016.
Unvested LTIP
Unvested LTIP interests not
Shareholding Current Shares interests subject subject to Shareholding
requirement shareholding Beneficially to performance performance requirement
Director % salary % salary Owned conditions conditions met?

Ian El-Mokadem 200% 849% 2,050,0001 929,971 – Yes

Philip Marshall 100% 68% 115,493 354,089 165,419 No2

1. 88,569 of these shares are jointly held by Ian El-Mokadem with his spouse.
2. Executive Directors are required to build up their shareholding over a reasonable period of time which would normally be five years.

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How we will implement the policy in 2017

The table below sets out what will change for the 2017 financial year:
Operation Performance metrics used, weightings and time
Element of element Potential value period applicable
Salary No change Chief Executive Officer salary will be n/a
increased by 2% to £468,180.

Chief Financial Officer salary will be

increased by 2% to £331,500.
Benefits No change No change n/a
Pension No change No change n/a
Annual Bonus No change The maximum bonus opportunity for 2017 Performance conditions for the 2017 financial
will be reduced to: year and their weighting:

Chief Executive Officer 150% of salary; and Adjusted EBITA (50%);

Chief Financial Officer 100% of salary.
Cash conversion (25%); and
100% and 67% of salary respectively of
these maximum bonus opportunities will be Personal objectives (25%).
provided in cash with any bonus in excess
of this amount (being the top third of any
bonus payable) provided in shares.
Long-Term No change The maximum LTIP awards for the Executive One third of award based on EPS growth. 25% of
Incentive Plan Directors remain at: this element of the award will vest for EPS growth
of 5% per annum with full vesting occurring for
Chief Executive Officer 150% of salary; and EPS growth of 10% per annum;
Chief Financial Officer 100% of salary.
one third of award based on FCF performance
over the three year performance period. 25%
of this element of the award will vest for FCF
achievement of £141m with full vesting occurring
for FCF achievement of £155m; and

one third of award based on Total Shareholder

Return (TSR) performance of the Company
compared to the FTSE 250 (excluding financial
services and real estate and equity investment
trusts). 25% of this element of the award will vest
for median TSR comparative performance with
full vesting at upper quartile.

Annual Report & Accounts 2016 61

 Remuneration report continued
Remuneration policy

Introduction
In accordance with the regulations, the Directors’ Remuneration Policy (the ‘Policy’) as set out below will become formally effective
at the Annual General Meeting to be held in May 2017 and will apply for a period of three years from that date.

Policy summary
The Remuneration Committee determines the remuneration policy for the Executive Directors, Chairman and other senior executives
for current and future years and this is reviewed on an annual basis. The remuneration policy is designed to support the strategic
objectives of the Company and to allow the business to attract, retain and motivate the quality of senior management needed to
shape and execute strategy and deliver shareholder value.

The remuneration policy aims to align the interests of the Executive Directors, senior management and employees to the long-
term interests of shareholders and aims to support a high performance culture with appropriate reward for superior performance
without creating incentives that will encourage excessive risk taking or unsustainable Company performance. The Remuneration
Committee is satisfied that the design of the proposed remuneration policy continues to promote the long-term success of
the Company.

The Remuneration Committee considers that a successful remuneration policy needs to be sufficiently flexible to take account
of future changes in the Company’s business environment and in remuneration practice.

Our principles of remuneration

The principles of our remuneration policy remain unchanged and are:

• shareholder alignment – ensure a strong link between reward and individual and Company performance to align the interests
of senior executives with those of shareholders;
• competitive remuneration – maintain a competitive package against businesses of a comparable size in the FTSE and
comparable peer group businesses in the sector with reference to the breadth of the role and experience the role holder
brings to the Company;
• strategy alignment – encourage a material, personal stake in the business and a long-term focus on sustained growth through
long-term shareholding;
• performance focused compensation – provide a balanced package with a focus on variable pay; and
• setting appropriate performance conditions in line with the agreed risk profile of the business.

The Remuneration Committee will review annually the remuneration arrangements for the Executive Directors and key senior
management drawing on trends and adjustments made to all employees across the Group and taking into consideration:

• business strategy over the period;

• overall corporate performance;
• market conditions affecting the Company;
• changing practice in the international markets where the Company competes for talent; and
• changing views of institutional shareholders and their representative bodies.

UK Corporate Governance Code

The Remuneration Committee is comfortable that the proposed Policy is in line with the revised Code. The following table sets out
the key elements of the revised Code and how the Company’s remuneration policy for Executive Directors is in line with the Code:
Code Provision Company Remuneration Policy
Executive Directors’ remuneration The Company has increased the amount deferred into shares under its annual bonus
should be designed to promote the plan to 33% of bonus opportunity, if maximum pay-out is achieved. The deferral period
long-term success of the Company. is 3 years.
Performance-related elements
should be transparent, stretching The Company has an LTIP with a 3 year performance period and the Remuneration
and rigorously applied. Committee has the facility to add an additional holding period post vesting.

It is the Remuneration Committee’s view that these arrangements provide a holistic

approach to ensuring Executive Directors are focused on the long-term success of
the Company.

The Remuneration Committee is committed to providing detailed targets and

actual performance outcomes retrospectively.

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Code Provision Company Remuneration Policy

Schemes should include provisions that
would enable the Company to recover
sums paid or withhold the payment of
any sum, and specify the circumstances
in which it would be appropriate to
do so.
Both the Bonus Plan and the Long-Term Incentive Plan include best practice malus
and clawback provisions. The circumstances in which malus and clawback could
apply are:
• discovery of a material misstatement resulting in an adjustment in the audited
consolidated accounts of the Company or any Group member;
• the assessment of any performance condition or condition in respect of an Annual
Bonus or LTIP award was based on error, or inaccurate or misleading information;
• the discovery that any information used to determine the Annual Bonus, Deferred
Bonus Plan award or LTIP award was based on error, or inaccurate or misleading
information;
• action or conduct of a participant which, in the reasonable opinion of the Board,
amounts to employee misbehaviour, fraud or gross misconduct; or
• events or the behaviour of a participant have led to the censure of a Group
Member by a regulatory authority or have had a significant detrimental impact on
the reputation of any Group Member provided that the Board is satisfied that the
relevant participant was responsible for the censure or reputational damage and
that the censure or reputational damage is attributable to the participant.

Malus will apply as follows:

Annual Bonus Plan – Up to the date of a payment under the plan.
Deferred Bonus Plan – 3 years from the date of grant.
LTIP – To the end of the 3 year vesting period.

Clawback will apply as follows:

Annual Bonus Plan – 3 years post the date of any payment under the Plan.
Deferred Bonus Plan – n/a.
LTIP – 2 years post vesting.

For share-based remuneration, the
Remuneration Committee should
consider requiring directors to hold a
minimum number of shares and to hold
shares for a further period after vesting
or exercise, including for a period after
leaving the Company, subject to the
need to finance any costs of acquisition
and associated tax liabilities.
The Committee believes that the rules of the Plans provide sufficient powers to enforce
malus and clawback where required.
The policy contains the following relevant features:
Minimum shareholding requirements for the CEO is 300% of salary; which is materially
exceeded by his current shareholdings. The minimum shareholding requirement for
the CFO is 200% of salary.
The Remuneration Committee currently believes that, following an increase to
the shareholding requirement and the increase in the part of the annual bonus
provided in deferred shares, additional holding periods are not required. However,
the Remuneration Committee will consider this position on an annual basis.

Discretion
The Remuneration Committee has discretion in several areas of Policy as set out in this report. The Remuneration Committee
may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set
out in those rules. In addition, the Remuneration Committee has the discretion to amend the Policy with regard to minor
or administrative matters where it would be, in the opinion of the Remuneration Committee, disproportionate to seek or
await shareholder approval.

It is the Remuneration Committee’s intention that commitments made in line with its policies prior to the date of the 2017 AGM will
be honoured, even if satisfaction of such commitments is made post the AGM and may be inconsistent with the remuneration
policies set out below.

Differences in policy from the wider employee population

The Group aims to provide a remuneration package for all employees that is market competitive and operates the same reward
and performance philosophy throughout the business. As with many companies, the Group operates variable pay plans primarily
focussed on mid to senior management level, with pension provisions offered to all Executive Directors and many employees
appropriate to their local jurisdictions. In addition, salary increases for Executive Directors are generally in line with those for
UK-based employees.

Annual Report & Accounts 2016 63

 Remuneration report continued
Remuneration policy
Policy
How it supports the Company’s
Element of short and long term strategic
Remuneration objectives
Executive Directors
Salary Policy Provides a base level of
remuneration to support
recruitment and retention of
Executive Directors with the
necessary experience and
expertise to deliver the
Group’s strategy.
Benefits Policy Provides a benefits package in
line with standard market practice
relative to its comparator group
to enable the Company to recruit
and retain Executive Directors with
the experience and expertise to
deliver the Company’s strategy.
64 Exova Group plc
Operation Maximum
An Executive Director’s basic salary Typically, the base salaries of
is set on appointment and reviewed Executive Directors in post at the
annually or when there is a change start of the policy period and who
in position or responsibility. remain in the same role throughout
the policy period will be increased
When determining an appropriate by a similar percentage to the
level of salary, the Committee average annual percentage
considers: increase in salaries of all other
employees in the Company.
• general salary rises to employees; The exceptions to this rule may
• remuneration practices within be where:
the Company;
• any change in scope, role and • an individual is below market
responsibilities; level and a decision is taken
• the general performance of the to increase base pay to reflect
Company; proven competence in role; or
• the experience and performance • there is a material increase in
of the relevant director; scope or responsibility to the
• the economic environment; and Executive Director’s role.
• when the Committee determines
a benchmarking exercise is The Committee ensures that
appropriate – salaries within the maximum salary levels are
ranges paid by the companies in positioned in line with companies
the comparator groups used for of a similar size to Exova and
remuneration benchmarking. validated against other companies
in the industry, so that they are
Individuals who are recruited or competitive against the market.
promoted to the Board may, on
occasion, have their salaries set The Committee intends to review
below the targeted policy level until the comparators periodically and
they become established in their may add or remove companies
role. In such cases subsequent from the group as it considers
increases in salary may be higher appropriate. Any changes to the
than the general rises for employees comparator groups will be set out in
until the target positioning is the section headed Implementation
achieved. of Remuneration Policy, in the
following financial year.
Benefits include car allowance, The maximum is the cost of
health insurance, life assurance providing the relevant benefits
and travel expenses (including set out adjacent.
tax if any).
The Committee recognises the
need to maintain suitable flexibility
in the benefits provided to ensure it
is able to support the objective of
attracting and retaining personnel
in order to deliver the Company
strategy. Additional benefits may
therefore be offered such as
relocation allowances on
recruitment, tax equalisation and
support in meeting specific costs
incurred by directors to ensure
the Company and the individuals
comply with their obligations in
the reporting of remuneration.
 Strategic report Report of Directors Financial statements

How it supports the Company’s

Element of short and long term strategic
Remuneration objectives
Executive Directors continued
Pensions Policy Provides a standard UK market
level of retirement funding to
enable the Company to recruit
and retain Executive Directors with
the experience and expertise to
deliver the Company’s strategy.
HMRC Share To encourage wide employee
Incentive Plan share ownership and thereby
align employees’ interests
with shareholders.
Operation
The Company provides a pension
contribution allowance in line with
practice relative to its comparators
to enable the Company to recruit
and retain Executive Directors with
the experience and expertise to
deliver the Group’s strategy.
This allowance will be a non-
consolidated allowance and
will not impact any incentive
calculations.
The Company has a share
incentive plan in which the
Executive Directors are eligible
to participate (which is HMRC
approved and is open to all
eligible employees).
Maximum
The maximum value of the pension
contribution allowance is 15% of
basic salary per annum.
The Company will set out in the
section headed Implementation
of Remuneration Policy, in the
following financial year the pension
contributions for that year for each
of the Executive Directors.
UK scheme in line with HMRC limits
as amended from time to time.

However, awards under this plan

have yet to be made to any
employee.

The Company retains the discretion

to introduce additional plans, and
to make directors eligible for these
as appropriate.

Annual Report & Accounts 2016 65

 Remuneration report continued
Remuneration policy

Policy continued
How it supports the
Company’s short and
Element of long-term strategic
Remuneration objectives Operation Maximum Performance conditions
Executive Directors continued
Annual Bonus The Annual Bonus Plan The Remuneration Maximum = 100% The Annual Bonus Plan is
Plan Policy provides a significant Committee will of opportunity. based on a mix of financial
incentive to the determine the maximum Target = 60% and strategic/operational
Executive Directors annual participation in of opportunity. conditions and is measured
linked to achievement the Annual Bonus Plan Threshold = 20% over a period of one
in delivering goals that for each year, which will of opportunity. financial year. The financial
are closely aligned with not exceed 150% for the measures will account for
the Company’s strategy CEO and 100% for the Annual bonus will no less than 50% of the
and the creation of CFO. The Company will be paid in cash and bonus opportunity.
value for shareholders. set out in the section deferred shares. For
headed statement Executive Directors, The Remuneration
In particular, the Plan of Implementation of the maximum value of Committee retains
supports the Company’s Remuneration Policy in deferred shares is 50% discretion in exceptional
objectives allowing the following financial of the bonus earned. circumstances to change
the setting of annual year, the nature of performance measures and
targets based on the the targets and their It is the intention of targets and the weightings
businesses’ strategic weighting for each year. the Remuneration attached to performance
objectives at that time, Committee that in 2017 measures part-way through
meaning that a wider Details of the a maximum of 100% a performance year if there
range of performance performance conditions, and 67% of salary of is a significant and material
metrics can be used targets and their level of the Chief Executive event which causes the
that are relevant and satisfaction for the year Officer and Chief Remuneration Committee
achievable. being reported on will Financial Officer to believe the original
be set out in the annual respective bonus measures, weightings
report on remuneration. opportunity will be and targets are no longer
provided in cash with appropriate.
any bonus in excess of
this amount provided The Committee may make
in shares. downward or upward
adjustments to the amount
of bonus resulting from
the application of the
performance measures if
the Committee believe that
the outcomes are not a fair
and accurate reflection
of business performance.

The Remuneration
Committee is of the opinion
that given the commercial
sensitivity arising in relation
to the detailed financial
targets used for the annual
bonus, disclosing precise
targets for the bonus plan
in advance would not be
in shareholder interests.
Actual targets, performance
achieved and awards
made will be published at
the end of the performance
periods so shareholders
can fully assess the basis
for any pay-outs under
the Annual Bonus Plan.

The Annual Bonus Plan

contains malus and
clawback provisions.

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 Strategic report Report of Directors Financial statements

How it supports the

Company’s short and
Element of long-term strategic
Remuneration objectives Operation Maximum Performance conditions
Executive Directors continued
Deferred Annual The Remuneration The Remuneration The annual bonus will The DBP contains malus
Bonus Plan (DBP) Committee has Committee can be paid in cash and and clawback provisions.
discretion to defer determine that part of deferred shares. For
part of the annual the bonus earned under Executive Directors
bonus earned in shares the Annual Bonus Plan a maximum value
under the Deferred is provided in the form of 50% of the bonus
Annual Bonus Plan. The of an award of shares earned can be
advantage of deferral is: under the Deferred deferred into shares.
Annual Bonus Plan.
• ongoing risk
adjustment due The maximum value of
to the link to the deferred shares is 50%
share price over the of the bonus earned.
deferral period; and The main terms of these
• amounts deferred awards are:
in shares are also
forfeitable on an • minimum deferral
Executive Director’s period of three years;
voluntary cessation and
of employment • the participants’
which provides an continued
effective lock-in. employment at the
end of the deferral
period.

The Remuneration
Committee may award
dividend equivalents
on those shares to plan
participants to the extent
that they vest.

The Remuneration
Committee retain the
discretion to subject the
DBP awards to a holding
period of up to two years
post vesting.

Annual Report & Accounts 2016 67

 Remuneration report continued
Remuneration policy
Policy continued

How it supports the

Company’s short and
Element of long-term strategic
Remuneration objectives Operation Maximum Performance conditions
Executive Directors continued
Long-Term Awards are designed to Awards are granted Maximum value of up Details of the performance
Incentive Plan incentivise the Executive annually to Executive to 200% of salary p.a. conditions and targets for
(LTIP) Policy Directors to deliver Directors in the form based on the market the year being reported on
long-term sustainable of a conditional share value at the date of and the next year will be set
Company performance award, nil cost option or grant set in accordance out in the annual report on
and align their interests restricted share award. with the rules of the LTIP. remuneration.
with shareholders.
Details of the 25% of the award The Committee may
The use of earnings performance conditions will vest for threshold change the balance
per share (EPS) ensures for grants made in the performance. of the measures, or use
Executive Directors are year will be set out in 100% of the award different measures for
focused on ensuring the Annual Report on will vest for maximum awards, as appropriate.
the annual profit Remuneration and performance. There
performance targeted for future grants in is straight line vesting No material change will
by the Annual Bonus the section headed between these points. be made to the type of
Plan flows through to Implementation of performance conditions
long-term sustainable Remuneration Policy, in without prior shareholder
EPS growth. the future financial year. consultation.

The use of comparative Awards will vest at the In exceptional

total shareholder return end of a three year circumstances the
(TSR) measures period subject to: Committee retains the
the success of the discretion to:
implementation of the • the Executive
Company’s strategy in Director’s continued • vary, substitute or
delivering an above employment at the waive the performance
market level of return. date of vesting; and conditions applying to
• satisfaction of the LTIP Awards if the Board
The use of adjusted performance considers it appropriate
free cash flow (FCF) conditions. and the new
ensures effective performance conditions
management of cash The Committee will are deemed reasonable
to support long-term review prior to each and are not materially
profitability and is LTIP grant whether easier to satisfy than the
also a measure to place additional original conditions; and
of the quality of holding periods (of up • make downward or
earnings growth. to 2 years) post vesting. upward adjustments
to the amount vesting
The Committee under the LTIP award
may award dividend resulting from the
equivalents on awards application of the
to the extent that performance measures
these vest. if the Committee believe
that the outcomes are
not a fair and accurate
reflection of business
performance.

The LTIP contains malus and

clawback provisions.

68 Exova Group plc

 Strategic report Report of Directors Financial statements

Minimum shareholding requirement

The Committee has adopted formal shareholding requirements that will encourage the Executive Directors to build up over a five
year period and then subsequently hold a shareholding equivalent to a percentage of base salary. Adherence to these guidelines
is a condition of continued participation in the equity incentive arrangements. This policy ensures that the interests of Executive
Directors and those of shareholders are closely aligned.

In addition, Executive Directors will be required to retain 50% of the post-tax amount of vested shares from the Company incentive
plans until the minimum shareholding requirement is met and maintained.

The Committee retains the discretion to increase the shareholding requirements. The minimum shareholding requirement for
Executive Directors is as follows:
Shareholding requirement
Role (% of Salary)

CEO 300%
Other executives 200%

How it supports the Company’s

Element of short and long-term strategic
Remuneration objectives
Non-Executive Provides a level of fees to support
Director Fees Policy recruitment and retention of
Non-Executive Directors with the
necessary experience to advise
and assist with establishing and
monitoring the Company’s
strategic objectives.
Operation
The Board is responsible for
setting the remuneration of the
Non-Executive Directors. The
Remuneration Committee is
responsible for setting the
Chairman’s fees.
Non-Executive Directors are paid Directors and the Chairman will
an annual fee and additional fees be set taking account of any
for chairmanship of committees
and the Company retains the
flexibility to pay fees for the
membership of committees. The
Chairman does not receive any
additional fees for membership
of committees.
Fees are reviewed annually
based on equivalent roles in
the comparator group used
to review salaries paid to the
Executive Directors.
Maximum
The fees for Non-Executive
Directors and the Chairman are
broadly set at a competitive level
against the comparator group.
In general the level of fee
increase for the Non-Executive
change in responsibility and the
general rise in salaries across
employees.
The Company will pay reasonable
expenses incurred by the Non-
Executive Directors and Chairman
and may settle any tax incurred in
relation to these.

Non-Executive Directors and the

Chairman do not participate in
any variable remuneration or
benefits arrangements. Non-
Executive Directors do not have
a shareholding requirement but
are encouraged to maintain a
shareholding in the company
to align their interests with
shareholders.

Recruitment policy
The Company’s approach when setting the remuneration of any newly recruited Executive Director will be assessed in line with
the same principles for the Executive Directors, as set out in the remuneration policy table above. The Remuneration Committee’s
approach to recruitment remuneration is to pay no more than is necessary to attract candidates of the appropriate calibre and
experience needed for the role from the market in which the Company competes.

The Remuneration Committee is mindful that it wishes to avoid paying more than it considers necessary to secure the preferred
candidate and will have regard to guidelines and shareholder sentiment regarding one-off or enhanced short-term or long-term
incentive payments made on recruitment and the appropriateness of any performance measures associated with an award.

Annual Report & Accounts 2016 69

 Remuneration report continued
Remuneration policy

Recruitment policy continued

The Company’s detailed policy when setting remuneration for the appointment of new directors is summarised in the table below:
Remuneration element Recruitment policy
Salary Salary will be set in line with the policy for existing Executive Directors.
Benefits The standard benefit package for existing Executive Directors will apply, subject to any local legal
requirements in the country in which the new director is being employed. As the Company competes
internationally for its senior employees, it may be necessary for the Remuneration Committee to
provide one off benefits or allowances to take account of this, for example, relocation. Any such
benefits or allowances would be disclosed to shareholders retrospectively.
Pension The maximum employer contribution will be set in line with the Company’s policy for existing directors,
subject to any local legal requirements in the country in which the new director is being employed.
Annual Bonus Maximum annual participation will be set in line with the Company’s policy for existing directors and
will not exceed 150% of salary.
LTIP Maximum annual participation will be set in line with the Company’s policy for existing directors and
will not exceed 200% of salary.
Maximum variable In the year of recruitment the maximum variable pay will be 350% of salary (excluding the value of
pay (incentive any buy out awards).
opportunity)
Buy Out of incentives The Remuneration Committee’s policy is not to provide buy outs as a matter of course.
forfeited on cessation However, should the Remuneration Committee determine that the individual circumstances of
of employment recruitment justified the provision of a buy out, the equivalent value of any incentives that will be forfeited
on cessation of a director’s previous employment will be calculated taking into account the following:

• the proportion of the performance period completed on the date of the director’s cessation of
employment;
• the performance conditions attached to the vesting of these incentives and the likelihood of them
being satisfied; and
• any other terms and condition having a material effect on their value (lapsed value).

The Remuneration Committee may then grant up to the same value as the lapsed value, where
possible, under the Company’s incentive plans. To the extent that it was not possible or practical to
provide the buyout within the terms of the Company’s existing incentive plans, a bespoke arrangement
would be used.

Where an existing employee is promoted to the Board, the policy set out above would apply from the date of promotion but there
would be no retrospective application of the policy in relation to subsisting incentive awards or remuneration arrangements.
Accordingly, prevailing elements of the remuneration package for an existing employee would be honoured and form part of the
ongoing remuneration of the person concerned. These would be disclosed to shareholders in the Remuneration Report for the
relevant financial year.

The Company’s policy when setting fees for the appointment of new Non-Executive Directors is to apply the policy which applies
to current Non-Executive Directors.

Service agreements and letters of appointment

Each of the Executive Directors’ service agreements is for a rolling term and may be terminated by the Company or the Executive
Director by giving 12 months’ notice. As part of their on-going development, the Executive Directors may seek up to one external
non-executive role on a non-competitor board, for which they may retain the remuneration in respect of the appointment. In
order to avoid any conflict of interest, all appointments are subject to the Board’s approval and the Board monitors the extent of
Directors’ other interests to ensure that its effectiveness is not compromised. As at the date of this report, neither of the Executive
Directors holds any external non-executive roles. The service agreements for each of the Executive Directors include customary
provisions for the directors of a public limited company, including restrictive covenants.

The Remuneration Committee’s policy for setting notice periods is that a 12 month period will apply for Executive Directors. The
Remuneration Committee may in exceptional circumstances arising on recruitment, allow a longer period, which would in any
event reduce to 12 months following the first year of employment.

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 Strategic report Report of Directors Financial statements

Notice periods Notice periods

Unexpired term by Company by Director
Name Position Date of service agreement (months) (months) (months)

Ian El-Mokadem CEO 10 April 2014 12 12 12

Philip Marshall CFO 28 September 2015 12 12 12

The Non-Executive Directors of the Company (including the Chairman) do not have service contracts. The Non-Executive
Directors are appointed by letters of appointment. Each independent Non-Executive Director’s term of office runs for an initial
period of 3 years unless terminated earlier upon written notice or upon their resignations.

The initial terms of the non-executive directors’ positions are subject to their re-election by the Company’s shareholders at the
AGM scheduled to be held on 24 May 2017 and to re-election at any subsequent AGM at which the non-executive directors
stand for re-election.

The Company follows the UK Corporate Governance Code’s recommendation that all directors of FTSE 350 companies be
subject to annual re-appointment by shareholders.

The details of each Non-Executive Director’s term which they are currently serving are set out below:
Current term
(Note: from IPO
date of 16 April
2014)
Name Date of letter of appointment (full years)

Allister Langlands 24 February 2016 3

Helmut Eschwey 3 April 2014 3
Fred Kindle 25 February 2016 3
Vanda Murray 3 April 2014 3
Christian Rochat 10 April 2014 3
Andrew Simon 3 April 2014 3
Bill Spencer 23 December 2015 3

No Non-Executive Director is currently serving out a period of notice.

Illustrations of the application of the remuneration policy

The chart below illustrates the remuneration that would be paid to each of the Executive Directors, based on salaries at the start
of financial year 2017, under three different performance scenarios: (i) Minimum; (ii) On-target; and (iii) Maximum. The elements
of remuneration have been categorised into three components: (i) Fixed; (ii) Annual Bonus (Deferred Bonus); and (iii) LTIP.
Element Description Minimum On-Target Maximum

Fixed Salary, benefits and pension. Included. Included. Included.

Annual Bonus Annual bonus (including deferred No variable 60% of maximum 100% of maximum
shares). payable. bonus. bonus.
Long-Term Incentive Plan Award under the Long-Term Incentive No annual 62.5% of the 100% of the
Plan. minimum. maximum award. maximum award.

In accordance with the regulations share price growth has not been included. In addition, dividend equivalents have not been
added to deferred share bonus and LTIP share awards.

Annual Report & Accounts 2016 71

 Remuneration report continued
Remuneration policy

CEO (£’000)
At minimum variable remuneration is 0% of salary; at target, variable remuneration represents 184% of salary and at maximum,
variable remuneration represents 300% of salary.

CFO (£’000)
At minimum, variable remuneration is 0% of salary; at target, variable remuneration represents 123% of salary and at maximum,
variable remuneration represents 200% of salary.

£’000

2,500

2,250
1,959
2,000

1,750
36%

1,500 1,414

1,250 31% 1,058

1,000 36% 31%

775 801
30%
750 26%
30%
554 517 31%
500 394 25%
25%

70% 100% 39% 28%

250 75% 100% 49% 38%

Actual Minimum On-Target Maximum Actual Minimum On-Target Maximum

Ian El-Mokadem, Chief Executive Officer Philip Marshall, Chief Financial Officer

Salary, Benefits & Pension Bonus LTIP

Payment for loss of office

When determining any loss of office payment for a departing individual the Remuneration Committee will always seek to
minimise cost to the Company whilst seeking to address the circumstances at the time.

The Committee will honour Executive Directors’ contractual entitlements. Service contracts do not contain liquidated damages
clauses. If a contract is to be terminated, the Committee will determine such mitigation as it considers fair and reasonable in
each case. There are no contractual arrangements that would guarantee a pension with limited or no abatement on severance
or early retirement. There is no agreement between the Company and its Directors or employees, providing for compensation
for loss of office or employment that occurs because of a takeover bid. The Committee reserves the right to make additional
payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for
breach of such an obligation); or by way of settlement or compromise of any claim arising in connection with the termination
of an Executive Director’s office or employment.
Remuneration element Treatment on exit Discretion
Salary Salary will be paid over the notice period. The Committee has discretion to make a lump sum
In all cases the Company will seek to payment on termination of the salary payable during
mitigate any payments due. the notice period.
Benefits Benefits will normally be provided over the The Committee has discretion to make a lump sum
notice period. In all cases the Company payment on termination equal to the value of the
will seek to mitigate any payments due. benefits payable during the notice period.
Pension Company pension contributions will The Company has discretion to make a lump sum payment
normally be provided over the notice on termination equal to the value of the Company pension
period. In all cases the Company will contributions during the notice period.
seek to mitigate any payments due.

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 Strategic report Report of Directors Financial statements

Remuneration element Treatment on exit Discretion

Annual Bonus Plan Good leaver reason¹
Good leavers: Performance conditions
will be measured at the normal
measurement date. The amount of the
bonus will normally be pro-rated for the
period worked during the financial year.
Other reason
Other leavers: No bonus payable for year
of cessation.
Deferred Bonus Good leaver reason¹
Good leavers: All subsisting deferred
share awards will vest in full on cessation
of employment.
Other reason
Other leavers: Lapse of any unvested
deferred share awards.
LTIP Good leaver reason¹
Good leavers: Pro-rated to time
and performance in respect of
each subsisting LTIP award.
Other reason
Other leavers: Lapse of any unvested LTIP
awards.
The Remuneration Committee has the following elements
of discretion:
• to determine that an executive is a good leaver. It is
the Committee’s intention to only use this discretion in
circumstances where there is an appropriate business
case which will be explained in full to shareholders; and
• to determine whether to pro-rate the bonus to time. The
Remuneration Committee’s normal policy is that it will
pro-rate for time. It is the Remuneration Committee’s
intention to use discretion to not pro-rate in circumstances
where there is an appropriate business case which will
be explained in full to shareholders.
The Remuneration Committee has the following elements
of discretion:
• to determine that an executive is a good leaver. It is
the Remuneration Committee’s intention to only use
this discretion in circumstances where there is an
appropriate business case which will be explained
in full to shareholders;
• to determine to vest the awards at the normal vesting
date or at the date of cessation. The Remuneration
Committee will make this determination depending on
the type of good leaver reason resulting in the cessation;
• to determine whether the payment of the award should
be in cash or shares or a combination of both; and
• to determine whether to pro-rate the maximum number
of shares to the time from the date of grant to the date
of cessation. The Remuneration Committee’s policy is
generally to not pro-rate to time. The Remuneration
Committee will determine whether to pro-rate based on
the circumstances of the Executive Director’s departure.
The Remuneration Committee has the following elements
of discretion:
• to determine that an executive is a good leaver. It is
the Remuneration Committee’s intention to only use
this discretion in circumstances where there is an
appropriate business case which will be explained
in full to shareholders;
• to determine to pay cash in lieu of shares;
• to measure performance over the original performance
period or at the date of cessation. The Remuneration
Committee will make this determination depending on
the type of good leaver reason resulting in the cessation;
and
• to determine whether to pro-rate the maximum number
of shares to the time from the date of grant to the date of
cessation. The Remuneration Committee’s normal policy is
that it will pro-rate awards for time. It is the Remuneration
Committee’s intention to use discretion to not pro-rate in
circumstances where there is an appropriate business
case which will be explained in full to shareholders.

1.   A good leaver reason is defined as cessation in the following circumstances:

• death;
• ill-health;
• injury or disability;
• redundancy;
• retirement with agreement of employer;
• employing company ceasing to be a Group company;
• transfer of employment to a company which is not a Group company; and
• at the discretion of the Remuneration Committee (as described above).

Cessation of employment in circumstances other than those set out above is cessation for other reasons.

Annual Report & Accounts 2016 73

 Remuneration report continued
Remuneration policy

Change of control
The Remuneration Committee’s policy on the vesting of incentives on a change of control is summarised below:
Name of Incentive Plan Change of control Discretion

Annual Bonus Plan Performance conditions will
be measured at the date
of the change of control.
The bonus will normally be
pro-rated at the date of the
change of control.
Deferred Bonus Plan Subsisting deferred share
awards will vest on a change
of control.
LTIP The number of shares
subject to subsisting LTIP
awards vesting on a change
of control will be pro-rated
to time and performance.
The Remuneration Committee has the following element of discretion:
• to determine whether to pro-rate the bonus to time. The
Remuneration Committee’s normal policy is that it will pro-rate for
time. It is the Remuneration Committee’s intention to use discretion
to not pro-rate in circumstances where there is an appropriate
business case which will be explained in full to shareholders.
The Remuneration Committee has the following elements of
discretion:
• to determine whether the payment of the award should be
in cash or shares or a combination of both; and
• to determine whether to pro-rate the balance of the awards
vesting on change of control. The Committee’s normal policy
is that it will not pro-rate. The Remuneration Committee will
determine whether to pro-rate based on the circumstances
of change of control.
The Committee has discretion regarding whether to pro-rate the
LTIP awards to time. The Committee’s normal policy is that it will
pro-rate the LTIP awards for time. It is the Committee’s intention to
use its discretion to not pro-rate in circumstances only where there
is an appropriate business case which will be explained in full to
shareholders.

Statement of conditions elsewhere in the company

Each year, prior to reviewing the remuneration of the Executive Directors and other senior employees of the Group, as determined
by the Board, the Remuneration Committee considers a report prepared by the Group HR Director detailing pay and employment
conditions across the Company. In particular, the Remuneration Committee considers the range of base pay increases across
the Group, and in particular the level of base pay increase for UK-based employees. While the Company does not directly consult
with employees as part of the process of reviewing executive pay and formulating the remuneration policy set out in this report,
the Company does receive updates from the Executive Directors on their discussions and reviews with senior management
and employees.

The Company does not use remuneration comparison measurements.

Consideration of shareholder views

The Remuneration Committee takes the views of the shareholders seriously and these views are taken into account in shaping
remuneration policy and practice. Shareholder views are considered when evaluating and setting remuneration strategy
and the Remuneration Committee commits to consulting with key shareholders prior to any significant changes to its
remuneration policy.

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 Strategic report Report of Directors Financial statements

Annual Report on remuneration

Single total figure of remuneration (audited)

The table below sets out the single total figure of remuneration and breakdown for each Executive Director in respect of the 2016
financial year. Comparative figures for the 2015 financial year have also been provided. Figures provided have been calculated
in accordance with the UK disclosure requirements: the Large and Medium-Sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 (Schedule 8 to the Regulations).

Executive Directors (audited)

Salary 1 (£’000) Benefits 2 (£’000) Bonus 3 (£’000) LTIP 4 (£’000) Pension 5 (£’000) Other 6 (£’000) Total (£’000)
Director 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Ian El-Mokadem 457 450 17 33 232 71 – – 69 68 – – 775 622

Philip Marshall7 325 27 13 1 130 – – – 49 4 – 281 517 313

Notes:
1. Relates to actual salaries paid in each calendar year. Ian El-Mokadem’s salary was increased by 2% in April 2016. Philip Marshall’s appointment as an
Executive Director was effective from 30 November 2015 and he was not eligible for a salary increase in 2016.
2. The benefits provided include a car allowance, private health cover and annual executive medical health-check.
3. A bonus award in respect of the Cash conversion (20% weighting) element of the bonus for both the Chief Financial Officer and Chief Executive Officer
was achieved based on the achievement of maximum performance target. In terms of Personal objectives (20% weighting) the Chief Executive Officer
achieved 75% of target performance and the Chief Financial Officer achieved 100% of target performance resulting in an award of 15.75% of salary for
the Chief Executive Officer and 15% of salary for the Chief Financial Officer.
4. An LTIP award was granted to Ian El-Mokadem on 17 April 2014 following the successful IPO of the Company with 50% of the award based on Earnings Per
Share (EPS) growth and 50% of the award based on Total Shareholder return (TSR). The adjusted EPS element was calculated against the 2013 calendar
year baseline and over the subsequent three year period. As the performance condition threshold of 7% was not met this element of the award will lapse.
The TSR element is calculated on the 36 month period following on from the listing of the company and any award in relation to this element will be
reported in 2017.
5. Pension contribution is 15% of the respective salaries. This is provided to the Executive Directors in the form of a non-pensionable salary supplement.
6. The Other 2015 payment relates to the one-off nil cost LTIP award granted to Philip Marshall on appointment as disclosed in the 2015 Directors’
Remuneration Report.
7. Philip Marshall appointment as an Executive Director was effective from 30 November 2015 and his 2015 remuneration reflects the period from this date
to 31 December 2015 and includes the one-off nil cost LTIP award made on appointment.

Non-Executive Directors (audited)

The table below sets out the single total figure of remuneration and breakdown for each Non-Executive Director.
2016 2015
Fees Fees
Director £’000 £’000 Roles

Chairman and Chairman –

Allister Langlands 1701 70 Nomination Committee
Senior Independent Director and
Bill Spencer 70 60 Chairman – Audit Committee
Andrew Simon 60 60 Chairman – Remuneration Committee
Helmut Eschwey 50 50 Non-Executive Director
Fred Kindle 2
50 160 Non-Executive Director
Vanda Murray 50 50 Non-Executive Director
Christian Rochat 2
50 160 Non-Executive Director

Notes
1. Allister Langlands was appointed Chairman effective from 1 January 2016.
2. Fees for Fred Kindle and Christian Rochat are payable to CD&R and no benefit is received by the individuals.

Annual fee is set out below:

2017 2016
Fee Percentage Fee
Role £’000 change £’000

Chairman 160 – 160

Senior Independent Director 60 – 60
Other Director – base fee 50 – 50
Chairman of Board Committee 10 – 10
Member of Board Committee – – –

Annual Report & Accounts 2016 75

 Remuneration report continued
Annual Report on remuneration

Additional information regarding single figure table (audited)

The Remuneration Committee considers that performance conditions for all incentives are suitably demanding, having regard to
the business strategy, shareholder expectations, the markets in which the Group operates and external advice. To the extent that
any performance condition is not met, the relevant part of the award will lapse. There is no retesting of performance.

Bonus awards (audited)

In respect of the 2016 financial year, bonuses were payable in cash to the Executive Directors for the Cash conversion and Personal
objectives elements of the bonus plan. As the EBITA threshold target was not achieved no bonus was therefore payable in relation
to this element of the bonus, which forms 60% of the total bonus payable. Details of the targets used for the 2016 financial year and
actual performance are shown in the table below:
Threshold Target Maximum
Weighting performance performance performance Actual
Performance condition (%) required required required performance

Adjusted EBITA (£m) 60 48.2 50.3 51.8 46.2

Cash conversion (%) 20 64 64 70 72
Personal Objectives (%) 20
Ian El-Mokadem1 – 21 35
Philip Marshall2 – 15 25

% of salary earned
Maximum Total
bonus (% of Group Cash Personal Total payable
salary) EBITA conversion objectives outcome £’000

Ian El-Mokadem 175% 0% 35% 15.75% 50.75% 232

Philip Marshall 125% 0% 25% 15% 40% 130

Notes:
1. The 20% Personal objectives element for the Chief Executive Officer included a range of measures relating to Group strategy, investors, organic growth,
M&A, margin management and organisation and team development. In setting Personal objectives the Board considered the Principal risks and
uncertainties set out in pages 10 to 13 of the Annual Report and the alignment of objectives to these to ensure appropriate focus. Overall the Committee
has judged these objectives as achieved at 75% of target level.
2. The 20% Personal objectives element for the Chief Financial Officer included a range of measures relating to Finance function capability and development,
investor relations, Group strategy, M&A, leveraging Purchasing capability and IT strategy. In setting Personal objectives the Board considered the Principal
risks and uncertainties set out in pages 10 to 13 of the Annual Report and the alignment of objectives to these to ensure appropriate focus. Overall the
Committee has judged these objectives as achieved at 100% of target level.

Long-term incentives awarded in 2016 (audited)

The table below sets out the details of the long-term incentive awards granted in the 2016 financial year where vesting will be
determined according to the achievement of performance conditions that will be tested in future reporting periods.
Basis on
which award Face value of
Award type made award (£’000)
Maximum
number of
shares Maximum
multiplied Percentage of percentage
Annual Number of by share Exercise award vesting of face Performance
cycle of shares price at price in total at threshold value that period end Performance
Director LTIP awards awarded grant (£) (£) performance could vest date conditions

LTIP – nil Relative TSR &

cost EPS equally
Ian El-Mokadem option Annual 425,000 688 1 25% 100% April 2019 weighted
LTIP – nil Relative TSR &
cost EPS equally
Philip Marshall option Annual 200,617 325 1 25% 100% April 2019 weighted

The awards were granted on 18 April 2016, the face value is calculated using the closing share price on date of grant, which was
162 pence. The performance conditions are as set out below:

• 50% of award based on EPS growth. 25% of this element of the award will vest for EPS growth of 4% per annum with full vesting
occurring for EPS growth of 10% per annum; and
• 50% of award based on Total Shareholder Return (TSR) performance of the Company compared to the FTSE 250 (excluding
financial services and real estate and equity investment trusts). 25% of this element of the award will vest for median TSR
comparative performance with full vesting at upper quartile.

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 Strategic report Report of Directors Financial statements

Total pension entitlement (audited)

During the year, Executive Directors received cash payments in lieu of a pension benefit. There were no Directors who were
members of a defined benefit pension scheme during the year.

External Directorships
Executive Directors are permitted to take on one external non-executive directorship under the terms of their service agreements
subject to Board approval. Philip Marshall maintained his involvement in PhotonStar LED Group plc, an AIM Listed company, as a
non-executive director until 30 June 2016 at which point he resigned his position and for which he received a fee of £9,000. The
Company allowed Philip Marshall to retain his fee in relation to this appointment.

Payments to past Directors/payments for loss of office (audited)

No payments have been made to past directors during the year.

Statement of Directors’ shareholdings and share interests (audited)

Shareholding requirements in operation at the Company are currently 200% of base salary for the Chief Executive Officer
and 100% of base salary for the Chief Financial Officer. Executive Directors are required to build up their shareholdings over a
reasonable amount of time which would normally be five years. The number of shares of the Company in which current Directors
had a beneficial interest and details of long-term incentive interests as at 31 December 2016 are set out in the table below:
Unvested LTIP
Current Unvested LTIP interests not
shareholding Current Shares interests subject subject to Shareholding
requirement % shareholding % beneficially to performance performance requirement
Director salary salary 1 owned conditions conditions met?

Ian El-Mokadem 200% 849% 2,050,000² 929,971 – Yes

Philip Marshall 100% 68% 115,493 354,089 165,419 No

1. The share price of 190 pence as at 30 December 2016 has been taken for the purpose of calculating the current shareholding as a percentage of salary.
Unvested LTIP shares and options do not count towards satisfaction of the shareholding guidelines. Shares awarded under the DBP and matching shares
under the Share Incentive Plan will not count towards the shareholding requirement. The one-off award on appointment to Philip Marshall has not been
included in the calculation of the shareholding requirement as the award is only exercisable on the second anniversary of appointment.
2. 88,569 of the shares are jointly held by Ian El-Mokadem with his spouse.

No changes in the above Directors’ interests have taken place between 31 December 2016 and the date of this report.

Non-Executive Directors are not subject to a shareholding requirement. Details of their interests in shares are set out below:
Shares held
31 December
Director 2016

Allister Langlands 190,909

Bill Spencer 113,636
Helmut Eschwey 16,104
Fred Kindle –
Vanda Murray 4,545
Christian Rochat –
Andrew Simon 22,727

Non-Executive Directors do not have a shareholding requirement but are encouraged to maintain a shareholding in the
company to align their interests with shareholders. Fred Kindle and Christian Rochat each have an interest in the shares held
through TABASCO B.V. (formerly Exova Group B.V.) as a result of their interests in CD&R Fund VII L.P.

Annual Report & Accounts 2016 77

 Remuneration report continued
Annual Report on remuneration

Comparison of overall performance and pay (TSR graph)

The graph below shows the value of £100 invested in the Company’s shares since listing compared to the FTSE 250 index
(excluding financial services, real estate and equity investment trust companies). The graph shows the Total Shareholder
Return generated by both the movement in share value and the reinvestment over the same period of dividend income. The
Remuneration Committee considers that the FTSE 250 index (excluding financial services, real estate and equity investment trust
companies) is the appropriate index as this is the LTIP comparator group. This graph has been calculated in accordance with
the Regulations. It should be noted that the Company listed on 16 April 2014 and therefore only has a listed share price for the
period from 16 April 2014 to 31 December 2016.
Total shareholder return (assuming £100 invested at IPO)

125
115
105
95
85
75
65
55
O

14

14

15

15

15

16

16

16
14

15

16
IP

20

20

20

20

20

20

20

20
20

20

20
n

n
p

ec

ar

ec

ar

ec
Ju

Ju

Ju
Se

Se

Se
M

M
D

Exova FTSE 250 ex-investment trusts

Chief Executive Officer historic remuneration

The table below sets out the total remuneration delivered to the Chief Executive Officer over the last three years valued using
the methodology applied to the single total figure of remuneration. The Remuneration Committee does not believe that the
remuneration payable in its earlier years as a private company bears any comparative value to that paid in its later years and
therefore the Remuneration Committee has chosen to disclose remuneration only for the three most recent financial years:

Chief Executive Officer 2016 2015 2014

Total Single Figure (£’000) 775 622 906

Annual bonus payment level achieved (% of maximum opportunity) 29% 9% 0%
LTIP vesting level achieved (% of maximum opportunity) 0% n/a n/a

It should be noted that the Company only introduced the LTIP on its admission to listing in April 2014.

78 Exova Group plc

 Strategic report Report of Directors Financial statements

Change in Chief Executive Officer’s remuneration compared with employees

The following table sets out the change in the remuneration paid to the Chief Executive Officer from 2015 to 2016 compared
with the average percentage change for all UK employees. The comparator group was selected as the Chief Executive Officer
is based in the UK, the UK headcount is the largest in the Company covering all levels of roles and consequently provides a
broad and diverse basis for comparison.

The Chief Executive Officer’s remuneration disclosed in the table below has been calculated to take into account actual base
salary paid in 2015 and 2016, taxable benefits, excluding his allowance in lieu of pension, and annual bonus (including any
amount deferred). The employee pay (on which the average percentage change in salary is based) is calculated using the
total actual base salary paid in 2015 and 2016 respectively divided by the average number of UK employees paid in each year,
excluding Executive Directors. Taxable benefits are calculated using P11d data from tax years 2014/15 and 2015/16 for all UK
employees including the Chief Executive Officer. Bonus is calculated based on incentive, bonus and commission payments
paid to all UK employees in calendar years 2015 and 2016 respectively.
Salary1 Taxable benefits2 Bonus
2016 2015 % 2016 2015 % 2016 2015 %
£’000 £’000 change £’000 £’000 change £’000 £’000 change

Chief Executive Officer 457 450 1.6% 17 33 (48)% 232 71 227%

Total pay 33,199 29,293
Number of employees 1,149 1,105 316 248 237 164
Average per employee 28.9 26.5 9.1% 1.8 1.3 38.5% 5.5 3.7 49%

1. The increase in salary for the Chief Executive Officer between 2015 and 2016 reflects the salary increase of 2% awarded to the Chief Executive Officer
in 2016 in line with UK employees effective 1 April 2016.
2. The reduction in taxable benefits is solely due to the cessation of reimbursement of reasonable expenses the Chief Executive Officer incurred travelling
to and from his home in London to the Company’s office in Edinburgh and for tax (if any) thereon. Car allowance benefit and private health care cover
are unchanged.

Relative importance of the spend on pay

The table below sets out the relative importance of spend on pay in the 2016 financial year and 2015 financial year compared
with other disbursements. All figures provided are taken from the relevant Company Accounts.
Disbursements Disbursements
from profit in 2016 from profit in 2015
financial year financial year
£m £m % change

Profit distributed by way of dividend 8.1 7.5 0.8%

Overall spend on pay including Executive Directors 168.6 148.5 1.4%

Statement of shareholder voting

The Committee is committed to shareholder dialogue, seeks to ensure optimal alignment for all stakeholders and to ensure
shareholders’ views are taken into account in shaping remuneration policy and practice. The Directors’ Remuneration Report
was subject to a shareholder vote at the AGM on 19 May 2016, the result of which was as follows:
Item For Against Votes withheld

To receive and approve the Directors’ Remuneration Report (other than the part
containing the Directors’ Remuneration Policy referred to in Resolution 3 below)
contained within the Annual Report & Accounts for the financial year ended 195,589,657 41,092,958
31 December 2015. (82.64%) (17.36%) 0

As a result of the vote I followed up with the largest shareholders who voted against the Annual Report on Remuneration last year
and I have again engaged with our largest shareholders on the proposed changes to the Directors’ Remuneration Policy which
will be voted on at the 2017 AGM.

The key shareholder concerns reflected in the 2016 vote on the Directors’ Remuneration Report were the provision of a sign-on
award to the CFO and the challenge in the EPS performance conditions for the 2016 LTIP award. We value the views and feedback
received and this is reflected in the revised policy through the removal of the ability to provide sign-on awards. In addition, the
Committee has determined to increase the threshold level of EPS performance for the proposed 2017 LTIP award from 4% to 5%.

Annual Report & Accounts 2016 79

 Remuneration report continued
Annual Report on remuneration

Statement of shareholder voting continued

The Directors’ Remuneration Policy was last subject to a binding vote at the 2015 AGM and received overwhelming support. The
results of this vote are as follows:
Item For Against Votes withheld

211,008,264 1,000,350
To receive and approve the Directors’ Remuneration Policy (2015 AGM) (99.53%) (0.47%) 0

Statement of implementation of remuneration policy in financial year 2017

Subject to approval of the revised Directors’ Remuneration Policy at the 2017 AGM, the Remuneration Committee proposes to
implement the policy for 2017 as set out below:

Salary
The salaries for 2017 are set out below:
Salary
2017 2016
Director £’000 £’000 % change

Ian El-Mokadem 468.2 459 2%

Philip Marshall 331.5 325 2%

Changes to Non-Executive Directors’ fees

No changes are proposed to the current fee components in place. Breakdown of fee components will remain as follows:
£’000

Chairman fee 160

Senior Independent Director fee 60
Base fee 50
Chair of Committee fee 10

Benefits and pension

No changes are proposed to benefits or pension.

Bonus Plan
For the 2017 financial year: Maximum bonus opportunity:

Chief Executive Officer 150% of salary;

Chief Financial Officer 100% of salary.

• It is the intention of the Remuneration Committee in 2017 that a maximum of 100% and 67% of salary for the Chief Executive
Officer and Chief Financial Officer respectively of the bonus opportunity will be provided in cash with any bonus in excess of
this amount (being the balance of the top third of any bonus payable) provided in shares for each of the Executive Directors
which vest after a further three years subject to the Executive Director’s continued employment.

Performance conditions for the 2017 financial year and their weighting:

• Adjusted EBITA (50%);

• Cash conversion (25%);
• Personal objectives (25%).

The Remuneration Committee is of the opinion that given the commercial sensitivity arising in relation to the detailed financial
targets used for the annual bonus, disclosing precise targets for the bonus plan in advance would not be in shareholders’ interests.
Actual targets, performance achieved and awards made will be published at the end of the performance periods so shareholders
can fully assess the basis for any pay-outs under the annual bonus.

80 Exova Group plc

 Strategic report Report of Directors Financial statements

LTIP Award
The maximum LTIP awards for the Executive Directors remain at:

Chief Executive Officer 150% of salary;

Chief Financial Officer 100% of salary.

The performance conditions are as set out below:

• One third of award based on EPS growth. 25% of this element of the award will vest for EPS growth of 5% per annum with full
vesting occurring for EPS growth of 10% per annum;
• One third of award based on Adjusted FCF. 25% of this element of the award will vest for FCF achievement of £141m with full
vesting occurring for FCF achievement of £155m; and
• One third of award based on Total Shareholder Return (TSR) performance of the Company compared to the FTSE 250
(excluding financial services and real estate and equity investment trusts). 25% of this element of the award will vest for median
TSR comparative performance with full vesting at upper quartile.

Composition and terms of reference of the Remuneration Committee

The Board has delegated to the Remuneration Committee, under agreed terms of reference, responsibility for the remuneration
policy and for determining specific packages for the Chairman, Executive Directors, the Company Secretary and such other
senior employees of the Group as the Board may determine from time to time. The Company consults with key shareholders in
respect of remuneration policy and the introduction of new incentive arrangements. The terms of reference for the Remuneration
Committee are available on the Company’s website, https://investors.exova.com/about-us/governance, and from the Company
Secretary at the registered office.

All members of the Remuneration Committee are Independent Non-Executive Directors and were appointed on 16 April 2014.
The Remuneration Committee receives assistance from the Group HR director and Company Secretary, who attend meetings by
invitation, except when issues relating to their own remuneration are being discussed. The Chairman and Chief Executive Officer
also attend by invitation on occasions. The Remuneration Committee met four times during 2016. Meeting attendance is shown
on page 48 of this report.

Advisers to the Remuneration Committee

During the financial year the Committee took advice from PricewaterhouseCoopers LLP (PwC) who were retained as external
advisors to the Committee. The Remuneration Committee is satisfied that the advice received was objective and independent
and the Committee undertakes due diligence periodically to ensure that PwC remains independent of the Company and that
the advice provided is impartial and objective. PwC is a member of the Remuneration Consultants Group and the voluntary
code of conduct of that body is designed to ensure objective and independent advice is given to remuneration committees.
PwC received £61,000 for their advice during 2016 on the basis of time and materials.

On behalf of the Board

Andrew Simon
Chair of the Remuneration Committee
27 February 2017

Annual Report & Accounts 2016 81

 Directors’ report

Corporate structure
Exova Group plc is a public company limited by shares incorporated in England and Wales and its shares are traded on the
main market of the London Stock Exchange.

Information to be disclosed under Listing Rule 9.8.4R

Listing Rule Detail Page reference
9.8.4R (1), (2), (5), (6) Not applicable n/a
9.8.4R (4) Long-Term Incentive Schemes 59 and 60
9.8.4R (7) Allotment for cash of equity securities on a non-pre-emptive basis 83 and 84
9.8.4R (8), (9), (10), (11) Not applicable n/a
9.8.4R (12) Waiver of dividends 83
9.8.4R (14)(a) Relationship Agreement 84

Additional information pursuant to Listing Rule 9.8.6R

Listing Rule Detail Page reference
9.8.6R (1) Directors’ (and their connected persons) interests in Exova shares as at the 77
end of the period under review
9.8.6R (2) Interests in Exova shares disclosed under DTR 5 as at the year-end 83
9.8.6R (3)(a) Directors’ going concern statement 86
9.8.6R (3)(b) Directors’ assessment of the Company’s prospects 13
9.8.6R (4)(a) Amount of the authority to purchase own shares available at year-end 83
9.8.6R (4)(b) Off-market purchase of own shares during the year None
9.8.6R (4)(c) Off-market purchase of own shares during post the year-end None
9.8.6R (4)(d) No pro-rata sales of treasury shares during the year None
9.8.6R (5) Compliance with the Main Principles of the UK Corporate Governance Code 42 and 43
9.8.6R (6)(b) Details of non-compliance with the UK Corporate Governance Code and 42
reasons
9.8.6R (7) Re-election of Directors 44

The Board
The names, roles and biographical details of the Directors of the Company as at the date of this report are set out on pages 40
and 41.

Dividends
The Directors have adopted a progressive dividend policy while maintaining an appropriate level of dividend cover. This dividend
policy will reflect the long-term earnings and cash-flow potential of the Group, consistent with maintaining sufficient financial
flexibility in the Group. The Board has adopted this baseline policy in order to align shareholder returns with the growth and
profitability achieved in the business. It is therefore the Board’s current intention to target a payout ratio of approximately 20% to
30% of adjusted net income, before separately disclosed items. Assuming that there are sufficient distributable reserves available
at the time, the Directors intend that the Company will pay an interim dividend and a final dividend in respect of each financial
year in the approximate proportions of one-thirds and two-thirds respectively of the total annual dividend. The Company may
revise its dividend policy from time to time. At the Board Meetings in August and February each year the Board considers a
detailed paper prepared by management in relation to the proposed amount of dividend to be paid before approving the
declaration of dividends. This paper takes into account the level of available distributable reserves in the Parent Company, the
future cash flows and the level of dividend cover. The Parent Company is a non-trading, investment holding company and has
sufficient distributable reserves to pay dividends for a number of years, and when required, the Company can receive dividends
from its subsidiaries to further increase distributable reserves. Final dividends are subject to the approval of shareholders at
the annual general meeting each year. Extreme economic, regulatory, political or operational events which could lead to
a significant deterioration in the Group’s financial metrics during the policy period may present risks to policy sustainability.

An interim dividend of 1.05 pence per ordinary share was paid on 11 November 2016. The Directors are recommending a final
dividend of 2.35p pence per ordinary share, making a total for the year of 3.4p pence per ordinary share. Shareholders will be
asked to approve the final dividend at the AGM on 24 May 2017, for payment on 9 June 2017 to ordinary shareholders on the
register at the close of business on 26 May 2017.

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 Strategic report Report of Directors Financial statements

Share capital
General
As at the date of this report, the Company has 250,490,374 ordinary shares of £0.01 each in issue. The ordinary shares are
admitted to listing on the premium segment of the Official List of the Financial Conduct Authority and to trading on the main
market of the London Stock Exchange.

The rights attached to shares in the Company are set out in the Articles of Association, which may be amended or replaced by
means of a special resolution of the Company in a general meeting. The Directors’ powers are conferred on them by UK
legislation and by the Articles of Association.

The ordinary shares carry the right to the profits of the Company available for distribution and to the return of capital on winding
up of the Company. The ordinary shares carry the right to attend and speak at general meetings of the Company; each share
holds the right to one vote. No ordinary shares carry any special rights with regard to control of the Company and there are no
restrictions on voting rights except that a shareholder has no right to vote in respect of a share unless all sums due in respect of
that share are fully paid.

There are no arrangements known to the Company by which financial rights carried by any shares in the Company are held by
a person other than the holders of the shares. All issued shares are fully paid. Shares are admitted to trading on the main market
of the London Stock Exchange and may be traded through the CREST system.

As at 31 December 2016, there were no shares held in treasury and the Company’s employee benefit trust held 37 shares. Details
of the Company’s issued share capital, together with details of shares issued during the year, are given in Note 23 on page 138.

A waiver of dividend exists in respect of all the shares held by the Exova Group Employee Benefit Trust as at 31 December 2016.

Substantial shareholdings
As at 31 December 2016, the Company had been notified, in accordance with Rule 5 of the Disclosure Rules and Transparency
Rules of the UK Listing Authority, of the following major shareholdings in the ordinary share capital of the Company:
Ordinary share
holdings at
Name 31.12.2016 % of capital

TABASCO B.V. 135,045,958 53.91

Mubadala Development Company PJSC 13,608,438 5.43
Fidelity Management & Research (US) 12,886,204 5.14
T. Rowe Price 9,653,694 3.85
First Pacific Advisors 8,823,536 3.52
Aberdeen Asset Management Limited 7,585,901 3.03

Authorities
At the Annual General Meeting held on 19 May 2016, shareholders gave the Company authority to make market purchases
of up to an aggregate of 25,037,272 ordinary shares, representing 10% of the Company’s issued ordinary share capital as of
22 March 2016. The Company did not repurchase any ordinary shares during the 12 month period ended 31 December 2016.

At the Annual General Meeting held on 19 May 2016, shareholders also gave the Directors authority to:

(i) allot ordinary shares up to an aggregate nominal value of £834,575 representing approximately one-third of the issued
ordinary share capital as of 22 March 2016;
(ii) allot ordinary shares up to an aggregate nominal value of £1,669,151 representing approximately two-thirds of the issued
ordinary share capital as of 22 March 2016 (including within such limit any shares issued under paragraph (i) above) in
connection with an offer by way of rights issue to shareholders;
(iii) allot ordinary shares for cash up to an aggregate nominal value of £125,186 representing approximately 5% of the issued
ordinary share capital as of 22 March 2016; and
(iv) allot ordinary shares (otherwise than pursuant to (iii) above), up to an aggregate nominal value of £250,372 (including
within such said amount any equity securities allotted under paragraph (iii) above)) representing 10% of the Company’s
issued ordinary share capital as of 22 March 2016 in connection with an acquisition or a specified capital investment.

Pursuant to these authorities, during the year ended 31 December 2016, the Company issued 117,647 ordinary shares to the
Exova Group Employee Benefit Trust, details of which are set out below. These authorities will expire at the end of the AGM to
be held on 24 May 2017 and resolutions to renew them will be put to shareholders at that meeting.

Issue of new ordinary shares

During the year ended 31 December 2016, 117,647 ordinary shares of £0.01 each in aggregate were issued to the Exova Group
Employee Benefit Trust as follows: (i) on 4 May 2016, 58,823 ordinary shares of £0.01 each were issued at par value; and (ii) on
23 November 2016, 58,824 ordinary shares of £0.01 each were issued at par value, in each case to satisfy the vesting of share
awards made on 2 November 2015 to Paul Barry, Group Managing Director, Industries, under the Exova Group plc Deferred
Bonus Plan. The aggregate nominal value of the shares allotted was £1,176.47 and the terms of issue were fixed by reference to

Annual Report & Accounts 2016 83

 Directors’ report continued

Share capital continued

Issue of new ordinary shares continued
the closing price on 30 October 2015 (being the last business day prior to the grant of the award). On 30 October 2015, the
closing price of an ordinary share in the capital of the Company was £1.4875.

The Company intends to follow the provisions of the 2015 Pre-emption Group Statement of Principles regarding cumulative usage
of authorities within a rolling three year period. Those Principles provide that a company should not issue shares for cash (other
than to satisfy share scheme requirements) representing more than 7.5 per cent. of the Company’s issued share capital in any
rolling three year period, other than to existing shareholders, without prior consultation with shareholders. This limit excludes any
ordinary shares issued pursuant to a general disapplication of pre-emption rights in connection with an acquisition or specified
capital investment. Save in respect of the allotment of 372,727 ordinary shares on 4 September 2014 to the Exova Group Employee
Benefit Trust to satisfy a vested award made to Anne Thorburn (the previous Chief Financial Officer) and the allotment of 117,647
ordinary shares to the Exova Group Employee Benefit Trust during the year ended 31 December 2016 (described above) to satisfy
vested awards under the Exova Group plc Deferred Bonus Plan made to Paul Barry (Group Managing Director, Industries) the
Company has not issued any shares in its capital since the IPO in April 2014.

Share transfer restrictions

There are no restrictions on the transfer of shares in the Company other than certain restrictions which may from time to time
be imposed by law and regulations, including the requirements of the EU Market Abuse Regulation, the Listing Rules and insider
trading laws. In accordance with the Group’s securities dealing policies and procedures, the Directors and certain employees
are required to seek the approval of the Company to deal in its shares or other related securities.

Corporate governance
A report on Corporate Governance and compliance with the UK Corporate Governance Code is set out on pages 42 to 50 and
forms part of this report by reference.

Directors’ insurance and indemnities

As permitted by the Companies Act 2006, the Company purchases and maintains Directors’ and Officers’ insurance cover against
certain legal liabilities and costs incurred by the Directors and Officers of the Group companies in the performance of their duties.
The Company has also granted an indemnity to each of its Directors in relation to the Directors’ exercise of their powers, duties and
responsibilities as Directors of the Company, the terms of which are in accordance with the Companies Act 2006.

Provisions on change of control

On 19 March 2014, the Group entered into a £170m term loan facility and a £90m revolving credit facility with Royal Bank
of Scotland as agent, and a syndicate of banking institutions. These facilities contain customary conditions precedent,
representations, covenants, events of default and mandatory prepayments, including on a change of control of the Company.
The rules of the Company’s incentive plans contain certain clauses relating to a change of control resulting from a takeover
and in such an event awards may vest, subject to the satisfaction of associated performance conditions where applicable.

There are no agreements between the Company and its Directors or employees providing for compensation for loss of office
or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.

Relationship Agreement
On 10 April 2014, the Company and TABASCO B.V., the holding company which is wholly owned by CD&R Fund VII L.P. and
the Company’s principal shareholder (holding 54% of the issued share capital as at the date of this report), entered into a
Relationship Agreement, regulating the ongoing relationship between the Company and CD&R. The principal purpose of
the Relationship Agreement is to ensure that the Company and its subsidiaries are capable of carrying on their business
independently of TABASCO B.V. and its Associates (as defined in the Listing Rules), that transactions and relationships with
TABASCO B.V. or any of its Associates (including any transactions and relationships with any member of the Group) are at arm’s
length and on normal commercial terms, and that the reputation and commercial interests of the Company are maintained. The
Relationship Agreement with TABASCO B.V. will continue for so long as: (i) the Company’s shares are listed on the premium listing
segment of the Official List and traded on the London Stock Exchange’s main market for listed securities; and (ii) TABASCO B.V.
together with its Associates hold, in aggregate, 10% or more of the issued share capital of the Company. Under the Relationship
Agreement, TABASCO B.V. is able to appoint two Non-Executive Directors to the Board for so long as it and its Associates hold, in
aggregate 25% or more of the issued share capital of the Company and one Non-Executive Director to the Board if they hold, in
aggregate 10% or more, but less than 25% of the issued share capital of the Company. Fred Kindle and Christian Rochat, are both
Directors appointed by TABASCO B.V. During the period from 1 January 2016 to 31 December 2016 the Company complied and,
so far as the Company is aware, TABASCO B.V.  and its Associates complied with the independence provisions and procurement
obligations included in the Relationship Agreement.

Financial instruments
Details of the Group’s financial risk management objectives and policies of the Group and exposure to foreign exchange risk,
interest rate risk, credit risk and liquidity risk are given in Note 19 to the consolidated financial statements.

Corporate social responsibility

The Group is committed to responsible corporate behaviour and the Board has established policies for the Group to ensure
that it operates all aspects of the business in an ethical manner with consideration for employee health and safety, care for
the environment and community involvement. These policies are set out in more detail on pages 32 to 38.

84 Exova Group plc

 Strategic report Report of Directors Financial statements

Modern Slavery Act and Supplier Code of Conduct

Our commitment to act ethically underlies every aspect of our business, from the way we treat our employees, to our relationships
with customers, and to the manner in which we engage with third parties and act in the communities in which we are present.
During the year, the Company assessed the affect of the Modern Slavery Act 2015 on its business and its relationship with
suppliers and contractors. In November 2016, Exova adopted a Modern Slavery Policy stating our zero tolerance approach to
modern slavery and the principles applying to our business and supply chain. We also adopted a Supplier Code of Conduct.
Exova will publish on an annual basis a Modern Slavery transparency statement which will set out our approach to preventing
Modern Slavery within Exova’s business and supply chain. On 27 February 2017, Exova published its first Modern Slavery
transparency statement, following its approval by the Board.

Employees
The Group now has around 4,200 employees and operates in 33 countries. Throughout the year we have continued to develop our
communications platform and arrangements to provide employees with information on matters of concern, consult with and take
into account their views when making decisions which are likely to affect their interests and increase their awareness of the financial
and economic factors affecting the performance of the Group. This included the use of employee roadshows, newsletters, calls
and online meetings with the wider Exova Leadership Team who cascade information to their teams. This helps ensure that
colleagues are well engaged and informed in relation to material developments.

Considering diversity
As a Company we have an uncompromising commitment to equal opportunities. We will not discriminate against anyone
applying for a job or whilst in our employment for reasons of gender, marital status, family status, sexual orientation, religion
or belief, age, disability, race, ethnic or national origin, or for any other reason. All decisions are based on the merits of the
individual concerned.

When recruiting Directors, the Board give due regard to a number of factors including the diversity of its members. The Company now
has eight male Directors and one female Director. The Directors have a wide range of international business experience are from or
nationals of the United Kingdom, Switzerland, Germany and Liechtenstein. The Board believes that its members have an appropriate
mix of skills, experience, knowledge and diversity which enables them to discharge their respective duties and responsibilities
effectively. In line with the UK Corporate Governance Code, the Company will continue to make Board appointments on merit,
against objective criteria and with due regard for the benefits of diversity on the Board, including gender.

Employment of disabled persons

Applications for employment of disabled persons are always fully considered, bearing in mind the aptitudes of the applicant
concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment within
the Company continues and that appropriate training is arranged. It is the policy of the Company that the training, career
development and promotion of disabled persons should, as far as possible, be identical to that of other employees.

Employee share schemes

Details of awards made under the employee share scheme to the Executive Directors are set out in the Remuneration Report on
pages 57 to 81. Details of employees’ share schemes and grants made to employees are disclosed in Note 24 to the consolidated
financial statements.

Carbon emissions
The Company is required to state the annual quantity of emissions in tonnes of carbon dioxide equivalent from activities for which
the Group is responsible, including the combustion of fuel and operation of any facility. Information about the Group’s greenhouse
gas emissions is given on page 34.

Political donations
No political contributions were made, or political expenditure incurred, by the Company and its subsidiaries during the year
ended 31 December 2016.

It is the Company’s policy not, directly or through any subsidiary, to make what are commonly regarded as donations to any
political party. However, at the AGM in 2017, shareholders’ approval will be sought on a precautionary basis, to authorise the
Company to make donations to EU political organisations and to incur EU political expenditure (as such terms are defined in
the Companies Act 2006) not exceeding £100,000. Further details will be contained in the notice of AGM.

Contractual arrangements
The Group has contractual arrangements with numerous third parties in support of its business activities. The disclosure in this
report of information about any of those third parties is not considered necessary for an understanding of the development,
performance or position of the Group’s businesses.

Future developments
Details of the likely future developments of the Group are set out in the Strategic Report on pages 2 to 38.

Research and development

Details of the research and development activities of the Group are set out in the Strategic Report on pages 2 to 38.

Branches of the Company outside the United Kingdom

As a global group, our interests and activities are held or operated through subsidiaries, branches, joint arrangements
or associates which are established in, and subject to the laws and regulations of, many different jurisdictions.

Annual Report & Accounts 2016 85

 Directors’ report continued

Disclosure of information to the auditor

Each of the persons who is a Director of the Company at the date of approval of this report has confirmed that, so far as the
Director is aware, there is no relevant audit information of which the Company’s auditor is unaware. Each Director has taken
all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit
information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be
interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

Going concern statement

After making enquiries, the Directors are satisfied that the Company and the Group have adequate resources to continue in
business and to meet their obligations for the foreseeable future. Accordingly, they continue to adopt the going concern basis
in the preparation of the financial statements. In making this assessment the Directors have considered the key assumptions
underlying the assumption of going concern, reviews of sensitivity analyses and possible management actions, the Group’s
latest business plan and consequences for projections of cash flow, liquidity and regulatory solvency, together with reviews of
any expected changes associated with banking and other financing relationships.

Annual general meeting

The notice convening the AGM to be held at 11.00 a.m. on 24 May 2017 is contained in a circular sent out to shareholders with
this report. The meeting will be held at the Cavendish Hotel, 81 Jermyn Street, London SW1Y 6JF. The notice of AGM contains full
details of the resolutions that will be put to shareholders.

Special business
At the AGM, a special resolution will be proposed that, in accordance with the Company’s Articles of Association, a general
meeting (other than an AGM) may be called on not less than 14 clear days’ notice.

The Directors’ Report and Corporate Governance Report has been approved by the Board and signed on its behalf by:

Neil MacLennan
General Counsel & Company Secretary
27 February 2017
Exova Group plc
Registered in England and Wales No. 08907086

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 Strategic report Report of Directors Financial statements

Statement of Directors’ responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable
United Kingdom law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are
required to prepare the Group and Company financial statements for each financial year in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union.

Under Company law the Directors must not approve the Group and Company financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for
that period. In preparing the Group and Company financial statements the Directors are required to:

• present fairly the financial position, financial performance and cash flows of the Group and Company;
• select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• make judgements that are reasonable;
• provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is
insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s
financial position and financial performance; and
• state whether the Group and Company financial statements have been prepared in accordance with IFRS as adopted by the
European Union.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and
Company transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company
and enable them to ensure that the Group and Company financial statements comply with the Companies Act 2006 and Article
4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for preparing the Directors’ Report, the Directors’ Remuneration Report, Strategic Report and
the Corporate Governance Statement in accordance with the Companies Act 2006 and applicable regulations, including the
requirements of the Listing Rules and the Disclosure and Transparency Rules.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

Directors’ responsibility statement

Each of the Directors, as at the date of this report, confirms to the best of their knowledge that:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the Company and the Group; and
• the Strategic Report and the Report of Directors include a fair review of the development and performance of the business
and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

We consider the Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s position and performance, business model and strategy.

The Strategic Report contains certain forward-looking statements providing additional information to shareholders to assess the
potential for the Group strategies to succeed. Such statements are made by the Directors in good faith, based on the information
available to them up to the date of their approval of this report, and should be treated with caution due to the inherent
uncertainties underlying forward-looking information.

Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report & Accounts except to
the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance
on any untrue or misleading statement or omission shall be determined in accordance with Section 90A and Schedule 10A of the
Financial Services and Markets Act 2000.

By order of the Board:

Ian El-Mokadem Philip Marshall

Chief Executive Officer Chief Financial Officer
27 February 2017

Annual Report & Accounts 2016 87

 Independent Auditor’s report
To the members of Exova Group plc

Our opinion on the financial statements

In our opinion:

• Exova Group plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give a
true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2016 and of the Group’s
profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards
the Group financial statements, Article 4 of the IAS Regulation.

What we have audited

Exova Group plc’s financial statements comprise:
Group Parent company
Group balance sheet as at 31 December 2016 Balance sheet as at 31 December 2016
Group income statement for the year then ended Statement of changes in equity for the year then ended
Group statement of comprehensive income for the year
then ended Cash flow statement for the year then ended
Group statement of changes in equity for the year then ended Related notes 1 to 29 to the financial statements
Group cash flow statement for the year then ended
Related notes 1 to 29 to the financial statements

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of
the Companies Act 2006.

Overview of our audit approach

Risks of material misstatement • Accounting for acquisition and disposals, specifically in relation to the valuation of
acquired intangible assets, the estimation of the value of intangible assets disposed
of and appropriate accounting treatment and disclosure.
• Challenging global market performance could lead to impairment of goodwill,
specifically in relation to the risks of incorrectly allocating goodwill to the revised
organisational structure.
• Risk of fraud and management override of internal controls, specifically in relation
to the accrual or deferral of revenue and revenue cut-off.
Audit scope • We performed an audit of the complete financial information of 4 components and
audit procedures on specific balances for a further 18 components.
• The components where we performed full or specific audit procedures accounted for
78% (2015: 93%) of profit before tax, 83% (2015: 86%) of revenue and 98% (2015: 91%) of
total assets before group adjustments.
Materiality • Overall Group materiality of £1.5m which represents 4% of profit before tax.

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 Strategic report Report of Directors Financial statements

Our assessment of risk of material misstatement

We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit
strategy, the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks,
we have performed the procedures below which were designed in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual areas.
Key observations
communicated to
Risk Our response to the risk the Audit Committee
Accounting for acquisition and • We read the sale and purchase agreement We concluded that the
disposals, specifically in relation to to understand key terms and conditions. acquisition accounting
the valuation of acquired intangible • We read the due diligence report prepared has been calculated and
assets, the estimation of the value by management to understand the financial disclosed in line with the
of intangible assets disposed of and position of the acquired company. requirements of IFRS 3 and the
appropriate accounting treatment • We understood and tested the opening balance assumptions underlying the
and disclosure. sheet and fair value adjustments to supporting fair value exercise and tax
audit evidence and confirmed the accounting balances are appropriate.
Acquisitions – total consideration paid was in line with Group policy.
– £32.3m. • We assessed the appropriateness of discount rates We assessed the disposal
by comparing to market rates; we compared the accounting for compliance
Disposals – total consideration received key trading assumptions integral to the cash flow with IAS 16. We reviewed
– £25.7m. forecasts to historical financial information and the treatment against the
performance of previous acquisitions. requirements of IFRS 5 and
Refer to the Accounting policies (page • We utilised EY valuation specialists to test concluded the disposal did
103); and Note 12 of the Consolidated assumptions and underlying fair value assessments; not meet the requirements
Financial Statements (page 119). and associated goodwill. In addition we obtained for a discontinued operation.
evidence to corroborate the associated redundancy
During 2016 Exova completed the and restructuring related costs.
acquisition of Admaterials Technologies, • We agreed the acquisition disclosures in the
Jones Environmental Forensics and financial statements for compliance with the
Insight NDT. There is a risk that estimates requirements of IFRS 3.
& judgements made in the accounting • We verified the disposal accounting to the
of an acquisition may be inappropriate sale agreement, confirming all relevant assets were
and the valuations of assets and identified and removed from the underlying records.
liabilities may be misstated. These • We performed testing of the manual journals
include accounting for intangible asset posting acquisition and disposal accounting
valuation and opening balance sheet adjustments, corroborating a sample to
fair value adjustments. supporting documentation.

During the period, Exova completed In-scope component audit teams performed full scope
the disposal of a number of laboratories audit procedures over this risk area.
in UK and Ireland and Canada. There
is a risk that the disposals are not
appropriately recorded in the financial
statements, including removal of
related assets and associated costs
such as redundancy accounted for.

Annual Report & Accounts 2016 89

 Independent Auditor’s report continued
To the members of Exova Group plc
Our assessment of risk of material misstatement continued
Key observations
communicated to
Risk Our response to the risk the Audit Committee
Challenging global market • We assessed the new reporting structure for We conclude that the new
performance could lead to compliance with the requirements of IFRS 8 for CGU groups were determined
impairment of Goodwill, specifically segmental reporting and IAS 36 for assessment of in line with IAS 36.
in relation to the risks of incorrectly impairment purposes. We read the management
allocating goodwill to the revised information presented to the CODM to ensure The CGU groups were
organisational restructure. consistency with the revised operating segments. identified at the same level as
We agreed the allocation of individual ledgers to the segments reported under
Total goodwill NBV – £409.8m. the new operating segments. IFRS 8, which is considered
• We discussed management’s process and appropriate given how
Refer to the Accounting policies (page assumptions for reallocating goodwill to the revised management and Board
103); and Note 11 of the Consolidated cash generating units. We then appraised the monitor the business.
Financial Statements (page 118). appropriateness of management’s cash flows by
reference to historical outturn, trends and industry We agree with management
The Group carries out an annual analysis and confirmed the cash flows used to that there is no impairment
impairment review in connection allocate goodwill and re-performed the allocation. of goodwill; it would require
with the carrying value of its goodwill. • We discussed management’s procedures for a significant change in
identifying indicators of impairment and the assumptions for an impairment
The significant risk arises because of annual impairment review. to exist.
the significance of the goodwill to the • We performed detailed testing on a sample basis
financial statements and the level of of value in use calculations and agreement of
management judgement required in underlying methodology and assumptions as
estimating future cash flows and the prepared by management.
appropriate growth and discount rates. • We checked the integrity of the models used
and appropriateness of the value of the cash
In addition, the organisational generating units through re-performance of
restructure conducted during calculations and reconciling to underlying data.
2016 which resulted in the cash • We discussed key judgements and sensitivities with
generating unit (CGU) being at management, and challenged and corroborated
an industry Divisional level rather assumptions. Assumptions included discount rates,
than a geographical segment level, growth rates and the key trading assumptions
requires that goodwill be reallocated integral to cash flow forecasts. We utilised EY
to the new cash generating units. This valuation specialists to assess discount rates used
presents a risk that the reallocation by management, taking into account industry
is not appropriate or in line with the specific risks.
requirements of IAS 36 Impairment • We performed independent sensitivity analysis
of Assets and an impairment is not on the forecasted cash flows.
therefore identified. • We agreed the disclosures in the financial
statements to ensure technical compliance
with IFRS.

The group audit team performed audit procedures

over the entire risk area.

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 Strategic report Report of Directors Financial statements

Risk
Risk of fraud and management
override of internal controls,
specifically in relation to the
accrual or deferral of revenue and
revenue cut-off (total revenue for
year ended 31 December 2016
£328.6m; accrued revenue debtor
£5.3m; deferred revenue liability
£5.2m at 31 December 2016).
Refer to the Accounting policies
(page 103); and Note 2, Note 16 and
Note 17 of the Consolidated Financial
Statements (pages 110, 128 and 129).
We have evaluated that the key
areas of fraud risk related to revenue
recognition is where there is accrual
or deferral of revenue (as this involves
judgement over whether partly
completed work meets the Group’s
revenue recognition policy) and
where manual journal adjustments
to revenues are made as a result of
overriding existing processes and
controls, particularly around the
period end.
Key observations
communicated to
Our response to the risk the Audit Committee
In respect of the risk of inappropriate accrual or We have not identified any
deferral of revenue, we: audit adjustments as a result
of this work and we can
• Tested revenue recognised in full and specific conclude that the revenue
scope locations by agreeing a sample of revenue recognition policy is being
items to completion test reports, sales invoices, applied consistently
underlying customer contracts and cash received. throughout the Group.
• Tested that the revenue recognised is in line with
the terms of the contract and with IFRS 15.
• Used analytical procedures to review material
balances against prior period, obtaining an
understanding of significant movements and
corroborating these to underlying documentation.
In respect of manual journal entries we identified
entries impacting revenue at in scope locations and
tested material journals by understanding the reasons
for the adjustments and corroborating to appropriate
audit evidence.
In respect of the specific risk around cut-off of revenue
at the period end we performed cut-off testing of
revenue items, targeted around the period end, to
ensure revenue has been recognised in line with the
terms of the contract and has been appropriately
recognised in the correct period.
In-scope component audit teams performed full and
specific scope audit procedures over this risk area at
the group level, which covered 83% of total revenue,
85% of the accrued revenue balance and 77% of the
deferred revenue balance.

The scope of our audit

Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our
audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial
statements. We take into account size, risk profile, the organisation of the group, the effectiveness of group-wide controls,
changes in the business environment and other factors such as recent internal audit results when assessing the level of work
to be performed at each entity.

In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, of the 107 reporting components of the Group, we selected
22 components covering entities within the UK, the Americas, the Middle East, Scandinavia and Singapore, which represent
the principal business units within the Group.

Of the 22 components selected, we performed an audit of the complete financial information of 4 components (“full scope
components”) which were selected based on their size or risk characteristics. For the remaining 18 components (“specific
scope components”), we performed audit procedures on specific accounts within that component that we considered had
the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these
accounts or their risk profile.

The 22 reporting components where we performed audit procedures accounted for 115% of the Group’s profit before tax (2015:
126%). Taking into account consolidation adjustments which reduce the profit before tax, the reporting components comprised
78% of profit before tax (2015: 93%). The reporting components accounted for 83% of the Group’s revenue (2015: 86%) and 98% of
the Group’s total assets (2015: 91%).

For the current year, the full scope components contributed 76% (2015: 88%) of the Group’s profit before tax, 58% (2015: 70%) of
the Group’s revenue and 97% (2015: 79% before group adjustments) of the Group’s total assets. The specific scope components
contributed 2% (2015: 5%) of the Group’s profit before tax, 25% (2015: 16%) of the Group’s revenue and 1% (2015: 12% before group
adjustments) of the Group’s total assets. The audit scope of these components may not have included testing of all significant
accounts of the component but will have contributed to the coverage of significant accounts tested for the Group.

Annual Report & Accounts 2016 91

 Independent Auditor’s report continued
To the members of Exova Group plc

The scope of our audit continued

Tailoring the scope continued
Of the remaining 85 components, none are individually greater than 5% of the Group’s profit before tax. For these components,
we performed other procedures, including analytical review, testing of consolidation journals and intercompany eliminations
and other specific procedures to respond to any potential risks of material misstatement to the Group financial statements.

Changes from the prior year

We have revisited our identification of full and specific scope locations to more closely align with our identification of significant
risks across the Group. This has resulted in some locations being reclassified from full to specific scope. We have focussed our
scoping in our specific scope locations on the balances we consider to be higher risk.

Involvement with component teams

In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each
of the components by us, as the primary audit engagement team, or by component auditors from other EY global network firms
operating under our instruction. Of the 4 full scope components, audit procedures were performed on 2 of these directly by the
primary audit team. For the other 2 full scope components and 13 specific scope components, where the work was performed
by component auditors, we determined the appropriate level of involvement to enable us to determine that sufficient audit
evidence had been obtained as a basis for our opinion on the Group as a whole.

The primary audit team continued to follow a programme of planned visits that has been designed to ensure that the Senior
Statutory Auditor visits the key full scope locations. During the current year’s audit cycle, visits were undertaken by the primary
audit team to the component teams in Canada and the Middle East. These visits involved discussing the audit approach with
the component team and any issues arising from their work, meeting with local management, attending completion meetings
and reviewing key audit working papers on risk areas. The primary team interacted regularly with the component teams where
appropriate during various stages of the audit, reviewed key working papers and were responsible for the scope and direction
of the audit process. This, together with the additional procedures performed at Group level, gave us appropriate evidence for
our opinion on the Group financial statements.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements
on the audit and in forming our audit opinion.

Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent
of our audit procedures.

We determined materiality for the Group based on a percentage of profit before tax as we believe that profit before tax will
be one of the principal considerations of shareholders when assessing the value of the business. In calculating materiality
we revised management’s forecast downwards for the risk that forecasts may not be achieved. We calculated materiality to
be £1.5 million (2015: £1.2 million), which represents 5% of forecast profit before tax.

We re-calculate materiality once we obtain the final profit before tax. Although this would result in a higher materiality we
considered it prudent to leave materiality unadjusted, materiality of £1.5 million therefore represents 4% of the final profit before
tax of £36.6m.

Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement
was that performance materiality was 75% (2015: 75%) of our planning materiality, namely £1.1m (2015: £0.9m).

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts
is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is
based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement
at that component. In the current year, the range of performance materiality allocated to components was £0.2m to £0.8m
(2015: £0.2m to £0.7m).

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 Strategic report Report of Directors Financial statements

Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £75,000
(2015: £60,000), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and
have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by
the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial
information in the annual report to identify material inconsistencies with the audited financial statements and to identify any
information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in
the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.

Respective responsibilities of directors and auditor

As explained more fully in the Directors’ Responsibilities Statement set out on page 87 the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit
and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006;
• based on the work undertaken in the course of the audit:
–– the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
–– the Strategic Report and Directors’ Report have been prepared in accordance with applicable legal requirements.

Annual Report & Accounts 2016 93

 Independent Auditor’s report continued
To the members of Exova Group plc
Matters on which we are required to report by exception
ISAs (UK and Ireland) reporting
Companies Act 2006 reporting
Listing Rules review requirements
94 Exova Group plc
We are required to report to you if, in our We have no exceptions to report.
opinion, financial and non-financial
information in the annual report is:
• materially inconsistent with the
information in the audited financial
statements; or
• apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the Group acquired in
the course of performing our audit; or
• otherwise misleading.
In particular, we are required to
report whether we have identified any
inconsistencies between our knowledge
acquired in the course of performing the
audit and the Directors’ statement that they
consider the annual report and accounts
taken as a whole is fair, balanced and
understandable and provides the
information necessary for shareholders to
assess the entity’s performance, business
model and strategy; and whether the
annual report appropriately addresses
those matters that we communicated
to the audit committee that we consider
should have been disclosed.
In light of the knowledge and We have no exceptions to report.
understanding of the Company and
its environment obtained in the course of
the audit, we have identified no material
misstatements in the Strategic Report or
Directors’ Report.
We are required to report to you if,
in our opinion:
• adequate accounting records have
not been kept by the Parent Company,
or returns adequate for our audit have
not been received from branches not
visited by us; or
• the Parent Company financial
statements and the part of the
Directors’ Remuneration Report to
be audited are not in agreement with
the accounting records and returns; or
• certain disclosures of Directors’
remuneration specified by law are
not made; or
• we have not received all the
information and explanations we
require for our audit.
We are required to review: We have no exceptions to report.
• the Directors’ Statement in relation to
going concern, set out on page 86
and longer-term viability, set out on
page 13; and
• the part of the Corporate Governance
Statement relating to the company’s
compliance with the provisions of the
UK Corporate Governance Code
specified for our review.
 Strategic report Report of Directors Financial statements

Statement on the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the entity

ISAs (UK and Ireland) reporting We are required to give a statement as We have nothing material to add or to
to whether we have anything material to draw attention to.
add or to draw attention to in relation to:

• the Directors’ confirmation in the annual

report that they have carried out a
robust assessment of the principal risks
facing the entity, including those that
would threaten its business model, future
performance, solvency or liquidity;
• the disclosures in the annual report that
describe those risks and explain how
they are being managed or mitigated;
• the Directors’ statement in the financial
statements about whether they
considered it appropriate to adopt the
going concern basis of accounting in
preparing them, and their identification
of any material uncertainties to the
entity’s ability to continue to do so over
a period of at least twelve months from
the date of approval of the financial
statements; and
• the Directors’ explanation in the annual
report as to how they have assessed
the prospects of the entity, over what
period they have done so and why they
consider that period to be appropriate,
and their statement as to whether they
have a reasonable expectation that
the entity will be able to continue in
operation and meet its liabilities as
they fall due over the period of their
assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions.

Mark Harvey (Senior Statutory Auditor)

For and on behalf of Ernst & Young LLP, Statutory Auditor
Edinburgh
28 February 2017

Notes:
1. The maintenance and integrity of the Exova Group plc web site is the responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Annual Report & Accounts 2016 95

 Group income statement
For the year ended 31 December 2016
2016 2015
Before Separately Before Separately
separately disclosed separately disclosed
disclosed items disclosed items
items (Note 4) Total items (Note 4) Total
  Notes £m £m £m £m £m £m

Revenue 2 328.6 – 328.6 296.5 – 296.5

Net operating costs 3 (278.3) (6.8) (285.1) (249.8) (17.2) (267.0)
Operating profit   50.3 (6.8) 43.5 46.7 (17.2) 29.5
Finance costs 8 (6.9) (0.1) (7.0) (6.3) – (6.3)
Finance income 8 0.1 – 0.1 – – –
Profit before taxation   43.5 (6.9) 36.6 40.4 (17.2) 23.2
Income tax 9 (8.3) 0.4 (7.9) (8.5) 3.8 (4.7)
Profit for the year   35.2 (6.5) 28.7 31.9 (13.4) 18.5
Profit attributable to:              
Equity holders of the Parent       26.2     17.1
Non-controlling interests       2.5     1.4
Profit for the year       28.7     18.5
Earnings per share              
Basic 5     10.5p     6.8p
Diluted 5     10.3p     6.8p

96 Exova Group plc

 Strategic report Report of Directors Financial statements

Group statement of comprehensive income

For the year ended 31 December 2016
2016 2015
  Notes £m £m

Profit for the year 28.7 18.5

Other comprehensive income to be reclassified in profit or loss in subsequent periods  
Exchange differences on translation of foreign operations and related borrowings 41.3 (5.2)
Other comprehensive income not to be reclassified to profit or loss in subsequent periods
Actuarial (loss)/gain on defined benefit plans 27 (4.7) 1.2
Income tax effect 0.8 (0.4)
Impact of rate change on deferred tax (0.2) (0.3)
Other comprehensive income/(loss) for the year (net of tax) 37.2 (4.7)
Total comprehensive income for the year 65.9 13.8
Total comprehensive income for the year attributable to:
Equity holders of the Parent 61.5 12.3
Non-controlling interests 4.4 1.5
Total comprehensive income for the year 65.9 13.8

Annual Report & Accounts 2016 97

 Group and Company balance sheets
As at 31 December 2016
Group Company
2015
(restated
2016 Note 1(c)) 2016 2015
Notes £m £m £m £m

Assets          
Non-current assets          
Goodwill 11 409.8 354.9 – –
Intangible assets 13 22.0 17.7 – –
Property, plant and equipment 10 79.6 68.7 – –
Government grants 14 8.2 7.1 – –
Deferred tax assets 22 9.4 8.0 0.5 –
Investments 15 0.2 0.2 108.1 108.1
    529.2 456.6 108.6 108.1
Current assets          
Trade and other receivables 16 81.4 74.5 122.5 122.0
Income tax receivable   2.5 0.3 – –
Cash and short-term deposits 18 52.4 29.2 – –
    136.3 104.0 122.5 122.0
Total assets   665.5 560.6 231.1 230.1
Equity          
Issued share capital 23 2.5 2.5 2.5 2.5
Share premium   109.5 109.5 109.5 109.5
Merger reserve   324.5 324.5 – –
Capital contribution reserve   114.9 114.9 – –
Foreign currency translation reserve   34.0 (5.4) – –
Retained earnings   (247.3) (262.9) 94.6 102.3
Equity attributable to equity holders of the Parent 338.1 283.1 206.6 214.3
Non-controlling interests   8.7 4.7 – –
Total equity   346.8 287.8 206.6 214.3
Liabilities          
Non-current liabilities          
Bank and other borrowings 18 192.1 167.6 – –
Finance leases 18 0.1 0.3 – –
Retirement benefit obligations 27 20.7 15.8 – –
Provisions 21 7.0 6.7 – –
Deferred tax liabilities 22 13.9 10.4 – –
Other liabilities 17 13.8 6.2 24.2 14.3
    247.6 207.0 24.2 14.3
Current liabilities          
Bank and other borrowings 18 8.0 12.1 – –
Finance leases 18 0.1 0.1 – –
Trade and other payables 17 55.6 50.5 0.3 1.5
Income tax payable   3.8 – – –
Provisions 21 3.6 3.1 – –
    71.1 65.8 0.3 1.5
Total liabilities   318.7 272.8 24.5 15.8
Total equity and liabilities   665.5 560.6 231.1 230.1

The Parent Company’s loss for the year is £1.2m (2015: profit of £119.9m).
The financial statements were approved by the Board of Directors on 27 February 2017 and signed on its behalf by:

Ian El-Mokadem Philip Marshall

Chief Executive Officer Chief Financial Officer

Company registration number: 08907086

98 Exova Group plc

 Strategic report Report of Directors Financial statements

Group and Company statement of changes in equity

For the year ended 31 December 2016

Attributable to equity holders of the Parent

Foreign Total
Capital currency share- Non-
Share Share Merger contribution translation Retained holders’ controlling Total
capital premium reserve reserve reserve earnings equity interests equity
Group Notes £m £m £m £m £m £m £m £m £m

At 1 January 2015   2.5 109.5 324.5 114.9 (0.1) (273.4) 277.9 3.7 281.6
Profit for the year   – – – – – 17.1 17.1 1.4 18.5
Other comprehensive income   – – – – (5.3) 0.5 (4.8) 0.1 (4.7)
Total comprehensive income for
the year   – – – – (5.3) 17.6 12.3 1.5 13.8
Share-based payments 24 – – – – – 0.4 0.4 – 0.4
Dividends 6 – – – – – (7.5) (7.5) (0.5) (8.0)
At 31 December 2015   2.5 109.5 324.5 114.9 (5.4) (262.9) 283.1 4.7 287.8
At 1 January 2016   2.5 109.5 324.5 114.9 (5.4) (262.9) 283.1 4.7 287.8
Profit for the year   – – – – – 26.2 26.2 2.5 28.7
Other comprehensive income   – – – – 39.4 (4.1) 35.3 1.9 37.2
Total comprehensive income for
the year   – – – – 39.4 22.1 61.5 4.4 65.9
Share-based payments 24 – – – – – 1.4 1.4 – 1.4
Income tax effect of share-based
payments   – – – – – 0.2 0.2 – 0.2
Dividends 6 – – – – – (8.1) (8.1) (0.4) (8.5)
At 31 December 2016   2.5 109.5 324.5 114.9 34.0 (247.3) 338.1 8.7 346.8

Parent Company                    
At 1 January 2015   2.5 109.5 – – – (10.5) 101.5    
Profit for the year   – – – – – 119.9 119.9    
Other comprehensive income   – – – – – – –    
Total comprehensive income for
the year   – – – – – 119.9 119.9    
Share-based payments 24 – – – – – 0.4 0.4    
Dividends 6 – – – – – (7.5) (7.5)    
At 31 December 2015   2.5 109.5 – – – 102.3 214.3    
At 1 January 2016   2.5 109.5 – – – 102.3 214.3    
Loss for the year   – – – – – (1.2) (1.2)    
Other comprehensive income   – – – – – – –    
Total comprehensive income for
the year   – – – – – (1.2) (1.2)    
Share-based payments 24 – – – – – 1.4 1.4    
Income tax effect of share-based
payments   – – – – – 0.2 0.2    
Dividends 6 – – – – – (8.1) (8.1)    
At 31 December 2016   2.5 109.5 – – – 94.6 206.6    

Annual Report & Accounts 2016 99

 Group and Company statement of cash flows
For the year ended 31 December 2016
Group Company
2016 2015 2016 2015
  Notes £m £m £m £m

Profit before taxation   36.6 23.2 (1.4) 119.9

Depreciation of property, plant and equipment 10 14.2 12.4 – –
Amortisation of intangible assets 13 3.9 8.9 – –
Gain on disposal of property, plant and equipment   (0.1) – – –
Gain on disposal of businesses 4 (6.1) – – –
Impairment of property, plant and equipment   1.5 – – –
Government grants 14 (0.7) (0.6) – –
Share-based payments   1.4 0.4 1.4 0.4
Non-cash movement in defined benefit pension obligations   0.2 0.5 – –
Non-cash dividend income   – – – (120.0)
Net finance costs 8 6.9 6.3 – –
Operating cash flows before movements in working capital   57.8 51.1 – 0.3
Decrease/(increase) in trade and other receivables   4.3 (3.8) (0.5) –
Decrease in provisions and retirement benefit obligations   (1.0) (1.7) – –
Decrease in trade and other payables   (4.3) (2.0) 0.5 (0.3)
Movements in working capital   (1.0) (7.5) – (0.3)
Cash generated from operations   56.8 43.6 – –
Interest paid   (5.6) (5.1) – –
Tax paid   (4.5) (3.7) – –
Net cash flows from operating activities   46.7 34.8 – –
Investing activities          
Purchase of property, plant and equipment 10 (17.4) (15.7) – –
Purchase of intangible assets 13 (0.9) (1.8) – –
Acquisition of subsidiary undertakings (net of cash acquired) 12 (23.6) (21.8) – –
Proceeds on disposal of businesses 4 25.7 – – –
Proceeds from sale of property, plant and equipment   0.1 0.2 – –
Interest received   0.1 – – –
Net cash flows used in investing activities   (16.0) (39.1) – –
Net cash flows before financing activities   30.7 (4.3) – –
Financing activities          
Proceeds from borrowings   9.0 17.0 – –
Repayment of bank borrowings   (13.0) (5.0) – –
Payment of finance lease liabilities   (0.1) (0.2) – –
Dividends paid to shareholders 6 (8.1) (7.5) – –
Dividends paid to non-controlling interests   (0.4) (0.5) – –
Net cash flows (used in)/from financing activities   (12.6) 3.8 – –
Net increase/(decrease) in cash and cash equivalents   18.1 (0.5) – –
Cash and cash equivalents at 1 January   29.1 29.9 – –
Effects of exchange rate changes   5.2 (0.3) – –
Cash and cash equivalents at 31 December 18 52.4 29.1 – –
Separately disclosed items included in cash flows from operating
activities   (8.5) (8.3) – –

100 Exova Group plc

 Strategic report Report of Directors Financial statements

Notes to the consolidated financial statements

For the year ended 31 December 2016

Authorisation of financial statements and statement of compliance with IFRSs

The consolidated financial statements of Exova Group plc (hereinafter, Exova or the Company) and its subsidiaries (together
referred to as the Group) for the year ended 31 December 2016 were approved and authorised for issue in accordance with a
resolution of the Directors on 27 February 2017. Exova Group plc is a public limited company incorporated in England and Wales
(registration number 08907086) and is listed on the London Stock Exchange. The registered office is located at 6 Coronet Way,
Centenary Park, Eccles, Manchester, M50 1RE.

The consolidated and Parent Company financial statements have been prepared in accordance with International Financial
Reporting Standards as adopted by the EU (adopted IFRSs).

1. Basis of preparation and significant accounting policies

(a) Basis of preparation
The financial statements have been prepared on a going concern basis. The reasons for this are outlined in the Directors’ Report
on page 86.

The financial statements are presented in Pounds Sterling (£), which is the Company’s functional and presentational currency,
and all values are rounded to the nearest hundred thousand (£0.1m) except where otherwise indicated.

(b) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December
2016. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only
if, the Group has:

• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement with the investee; and
• the ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group
has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:

• the contractual arrangement with the other vote holders of the investee;
• rights arising from other contractual arrangements; and
• the Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one
or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary
and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or
disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the
date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the Parent of the
Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line
with the Group’s accounting policies.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling
interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained
is recognised at fair value.

The results of subsidiaries acquired or disposed of during the year are included in the Group income statement from the effective
date of acquisition or up to the effective date of disposal as appropriate.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the
Group are eliminated in full on consolidation.

The Group has a number of joint arrangements where more than half of the voting power is not owned. As the Group is exposed, or
has rights, to variable returns from its involvement with these companies and has the ability to use its power over these companies
to affect the amount of the company returns, these investments are accounted for as subsidiaries.

(c) Restatement
During the year the provisional fair values attributable to the 2015 acquisitions of Western Technical Services Limited and Accusense
Systems Limited were finalised. In the balance sheet the effect has been to decrease goodwill by £0.2m, reverse the contingent
consideration payable of £0.3m and increase deferred consideration payable by £0.1m. Note 12 Business Combinations provides
further details.

Annual Report & Accounts 2016 101

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

1. Basis of preparation and significant accounting policies continued

(d) Adoption of new accounting standards, amendments and interpretations
The following accounting standards and interpretations have been adopted in these financial statements and have not had
a material impact on the Group’s accounts in the period of initial application.
Standard name Effective date for periods

Amendments to IAS 27: Equity Method in Separate Financial Statements 1 January 2016
Amendments to IAS 1: Disclosure Initiative 1 January 2016
Annual Improvements to IFRSs 2012-2014 Cycle 1 January 2016
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 1 January 2016
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations 1 January 2016
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities – Applying the Consolidation Exception 1 January 2016

The International Accounting Standards Board and International Financial Reporting Interpretations Committee have issued
the following standards and interpretations, which are considered relevant to the Group, with an effective date after the date
of these financial statements.
Standard name Effective date for periods

Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017*
Amendments to IAS 7: Disclosure Initiative 1 January 2017*
IFRS 15: Revenue from Contracts with Customers 1 January 2018
Clarifications to IFRS 15: Revenue from Contracts with Customers 1 January 2018*
IFRS 9: Financial Instruments 1 January 2018
IFRS 16: Leases 1 January 2019*
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions 1 January 2018*
Annual Improvements to IFRS Standards 2014-2016 Cycle 1 January 2017/2018*
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 January 2018*

* Not yet adopted for use in the European Union.

The above standards and interpretations will be adopted in accordance with their effective dates and have not been adopted in
these financial statements. The Directors are still assessing whether or not the adoption of these standards and interpretations will
have a material impact on the Group’s financial statements in the period of initial application, along with the exact impact of
these standards.

As permitted by Section 408 of the Companies Act 2006 no income statement is presented for the Company.

The European Markets and Securities Authority has issued “Guidelines on Alternative Performance Measures” which are effective
from 3 July 2016 and which have been followed in explaining the use of non-GAAP measures in these financial statements.

Non-GAAP Measures
The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union and applied in accordance with the provisions of the Companies Act 2006. In measuring our operating
performance, the financial measures used include those which have been derived from our reported results and cash flows
in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures.
We believe this information, along with comparable GAAP measurements, is useful for users of the financial statements in
providing a basis for measuring our operational performance. Below we set out our definitions of non-GAAP measures and
provide reconciliations to relevant GAAP measures.

Adjusted EBITA and Adjusted EBITDA

The Group’s operations are defined as laboratory based testing, certification and advisory services. For a user to understand
the Group’s operations, we aggregated and disclosed separately those material items which are not in the ordinary course of
laboratory based testing, certification and advisory services.

We define the Group’s profit from these operations as Adjusted EBITA, which is operating profit from continuing operations before
separately disclosed items, interest, and taxation.

We believe Adjusted EBITA is the most significant indicator of operating performance for the Group as it measures cost efficiency
in relation to overall activity levels and allows a better understanding of the underlying or long term profitability of the Group.
Adjusted EBITDA is Adjusted EBITA before depreciation.

102 Exova Group plc

 Strategic report Report of Directors Financial statements

Free cash flow

Free cash flow is used in the calculation of the Group’s cash conversion rate. This provides a measure of the Group’s ability to
manage operational cash flow generation which we believe is useful to users of the financial statements as it represents cash
flows that could be used for repayment of debt or to fund our strategic initiatives, including acquisitions, if any.

Free cash flow is defined as Adjusted EBITDA less movement in net working capital (excluding the effect of the IPO related cost
accrual), less capital expenditure net of disposals.

A reconciliation of profit before tax to Adjusted EBITA, Adjusted EBITDA and free cash flow is presented below:
2016 2015
  Notes £m £m

Profit before tax 36.6 23.2

Finance costs 8 7.0 6.3
Finance income 8 (0.1) –
Amortisation of intangible assets 4 3.9 8.9
Restructuring costs 4 5.9 4.9
Impairment of property, plant and equipment 4 1.5 –
Acquisition and integration costs 4 1.6 3.4
Gain on disposal of businesses 4 (6.1) –
Adjusted EBITA 50.3 46.7
Depreciation of property plant and equipment 14.2 12.4
Adjusted EBITDA 64.5 59.1
Net capital expenditure comprising: (18.2) (17.3)
– Purchase of property, plant and equipment 10 (17.4) (15.7)
– Purchase of intangible assets 13 (0.9) (1.8)
– Less: proceeds on disposal of property, plant and equipment and intangible assets 0.1 0.2
Movements in working capital (1.0) (7.5)
IPO costs paid 1.2 0.5
Free cash flow 46.5 34.8

(e) Summary of significant accounting policies

Revenue recognition
Revenue comprises the fair value net of tax of the consideration received or receivable for services rendered by the Group’s
companies in the ordinary course of their business, after the elimination of intra-group transactions. The Group recognises revenue
when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the Group.

Short term projects are recognised in revenue once the service is completed, this is usually when the report of findings is issued.

In some instances, where the project is classed as long-term, the Group accounts for the transaction on the basis of the value
of the work done if this can be measured reliably. This is referred to as the stage of completion and is measured with reference
to the costs incurred to date as a proportion of the total anticipated cost of the service. In the case that it cannot be measured
reliably the revenue is limited to the recoverable value of the cost so far incurred.

Foreign currency transactions

Foreign currency transactions are translated into the functional currency of the Group using the exchange rates prevailing at
the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance
sheet date. Differences arising on translation are charged or credited to the income statement except when deferred in equity
as qualifying cash flow hedges or qualifying net investment hedges.

Foreign operations
Items included in the financial statements of the Group’s subsidiary companies are measured using the currency of the primary
economic environment in which the subsidiary operates (the functional currency).

The income statements of foreign subsidiary companies are translated into Sterling at monthly average exchange rates and the
balance sheets are translated at the exchange rates ruling at the balance sheet date.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and are translated at the closing rate.

Annual Report & Accounts 2016 103

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

1. Basis of preparation and significant accounting policies continued

(e) Summary of significant accounting policies continued
Hedge of net investment in foreign operation
On consolidation, exchange differences arising from the translation of the net investment in foreign subsidiaries and of borrowings
designated as hedges of such investments are taken to shareholders’ equity. These exchange differences are disclosed as
separate components of shareholders’ equity.

Separately disclosed items

The Group presents, as separately disclosed items on the face of the Group income statement, those material items of income
and expense which, because of their nature, merit separate presentation to allow users to understand better the elements of
financial performance in the year. The Group believes this presentation facilitates a comparison with prior periods and a better
assessment of trends in financial performance.

Where applicable, these items include amortisation of intangible assets, impairment of property, plant and equipment, acquisition
and integration costs, profit or loss on disposal of a business, IPO related costs and restructuring costs.

Amortisation is separately disclosed as our key internal measure of operating performance is EBITA, which by definition excludes
amortisation. We also consider EBITA to be the key performance measure used by our investors and other stakeholders when
assessing the financial performance of the business. To allow EBITA to be more easily identified we present the amortisation
expense as a separately disclosed item on the face of the income statement. The annual amortisation charge may also fluctuate
significantly over time depending on the timing and size of the business combinations undertaken, and the nature, composition
and useful lives of the assets acquired as part of these business combinations. We consider that presenting the amortisation
charge as a separately disclosed item will aid comparability from year to year; allowing users of the financial statements to more
accurately assess the financial performance of the business. The presentation of the amortisation charge as a separately
disclosed item also assists users of the accounts in making a more meaningful direct comparison of the Group’s financial
performance compared to that of its competitors.

Restructuring costs are separately disclosed as the business is continuing to evolve to position itself for future profitability and
therefore the nature of these costs is not reflective of the group’s long term profitability.

Impairment of property, plant and equipment is exceptional in nature and is not reflective of the on-going performance of
the business.

Acquisition and integration costs are separately disclosed as they are directly related to the Group’s acquisition activity of which
the volume and value fluctuate significantly. We therefore consider it more appropriate to identify these costs as separately
disclosed to allow for comparison with our peer group when comparing long term profitability.

Profit or loss on disposal of businesses is separately disclosed as by their nature these costs are not reflective of the long term
profitability of the business.

Share-based payments
Equity settled share-based incentives are provided to employees under the Group’s Long Term Incentive Plan (LTIP), the Share
Option Plan (SOP), the Deferred Bonus Plan (DBP) and occasional one-off conditional awards made to senior executives. The LTIP
and SOP are discretionary executive share plans.

The fair value of the LTIP and SOP awards at the date of the grant is calculated using appropriate option pricing models and the
cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures
during the vesting period due to failure to satisfy service or performance conditions.

Retirement benefit obligations

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments to state-
managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligation
under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

The Group operates defined benefit plans in UK, Sweden, Germany and Norway which require contributions to be made to a
separately administered fund. The cost of providing benefits under the defined benefit plans are determined using the projected
unit credit method in accordance with the advice of qualified actuaries.

The liability recognised in the balance sheet in respect of defined benefit plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of the plan assets.

Re-measurements arising from adjustments and changes in actuarial assumptions when estimating the present value of the
obligation are recognised in equity in the group statement of comprehensive income in the period in which they arise.

Finance income and finance costs

Finance income represents interest income received on funds invested in short-term deposits. Interest income is recognised
as it accrues in the income statement using the effective interest method.

Finance costs are recognised in the income statement using the effective interest method. Interest on finance leases is recognised
on a straight-line basis over the life of the lease.

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Finance costs include costs relating to the bank loans including debt issue costs, commitment fees, pension interest and other
related expenses. Debt issue costs are released to the income statement on a straight-line basis over the term of the loan. In the
event of the loan being repaid earlier, or replaced, the remaining costs are immediately charged to the income statement.
Pension interest represents the net of interest income on scheme assets and interest charges on scheme liabilities.

Income tax
The tax expense represents the sum of the current taxes payable and deferred tax.

The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation
is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities. The tax charge is included in the income statement except if it relates to an item recognised directly in equity or other
comprehensive income.

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax is determined using tax rates and
laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is realised. Deferred tax assets are recognised to the extent that it is probable that taxable profits will
be available against which the temporary differences can be utilised.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint
ventures where the timing of the reversal of the temporary differences can be controlled and it is probable, that the temporary
differences will not reverse in the foreseeable future.

Dividends
The Company recognises a liability to make cash distributions to the equity holders of the Parent Company when the distribution is
authorised and is no longer at the discretion of the Company. A distribution is authorised when it is approved by the shareholders.
A corresponding amount is recognised directly in equity.

Property, plant and equipment

Property, plant and equipment is shown at historical cost less subsequent depreciation and impairment.

Cost represents invoiced cost plus any other costs that are directly attributable to the acquisition of the item.

No depreciation is provided on freehold land.

Depreciation is provided on all other property, plant and equipment to write down their cost or, where their useful economic lives
have been revised, their carrying amount at the date of revision to their estimated residual values on a straight-line basis over the
periods of their estimated, or revised, remaining useful economic lives respectively. These lives are considered to be:

Freehold buildings 50 years

Leasehold buildings Over the period of the lease
Plant and equipment Between 3 and 15 years

The residual value and useful economic life are reviewed, and adjusted if appropriate at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount.

Business combinations and goodwill

(i) Business combinations from 1 January 2010
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate
of the consideration transferred measured at acquisition fair value and the amount of any minority interest in the acquiree. For
each business combination, the acquirer measures the minority interest in the acquiree either at fair value or at the proportionate
share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed.

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of
the acquired subsidiary at the date of acquisition. Goodwill is not subject to annual amortisation but is instead tested annually
for impairment and carried at cost less accumulated impairment losses.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-
generating units that are expected to benefit from the business combination in which the goodwill arose.

Annual Report & Accounts 2016 105

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

1. Basis of preparation and significant accounting policies continued

(e) Summary of significant accounting policies continued
Business combinations and goodwill continued
(ii) Business combinations prior to 31 December 2009
In comparison to the above mentioned requirements, the following differences applied:

• business combinations were accounted for using the purchase method;

• transaction costs directly attributable to the acquisition formed part of the acquisition costs; and
• the minority interests were measured at the proportionate share of the acquiree’s identifiable net assets.

Other intangible assets

Other intangible assets are stated at cost less accumulated amortisation and any recognised impairment losses.

Intangible assets acquired separately are measured on initial recognition at cost. An intangible asset acquired in a business
combination is recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal
rights, is expected to generate future economic benefits and its fair value can be measured reliably.

Customer relationships
Customer relationships represents the fair value attributed to contracts at the point of acquisition and is determined by
discounting the expected future cash flows to be generated from that asset at the relevant risk-adjusted weighted average
cost of capital. These customer relationships are amortised over the life of the contracts which vary between 5 and 20 years,
depending on each acquisition.

Trade names
Trade names represents the fair value attributed to the trading name of the business acquired and is determined with reference
to the revenues generated by the trade name and the royalty rate that a third party would be willing to pay for use of the trade
name discounted at the relevant risk-adjusted weighted average cost of capital. The expected useful life is dependent on how
long the Group will use this name with a useful life between 7 and 10 years depending on each acquisition.

Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected
in the income statement in the year in which the expenditure is incurred.

The expected useful lives of intangible assets are as follows:

Customer relationships Between 5 and 20 years

Computer software Between 3 and 5 years
Trade names Between 7 and 10 years
Patents Indefinitely

The residual value and useful economic life are reviewed, and adjusted if appropriate at each balance sheet date.

Intangible assets are amortised over the useful lives as outlined above on a straightline basis.

Impairment
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash
flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which
the asset belongs. Intangible assets with indefinite useful lives, including goodwill, are tested for impairment annually and
whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an
expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated
as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount. The increase applied brings the revised carrying value to an amount that does not
exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-
generating unit) in prior years. Goodwill impairments are never reversed.

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Joint ventures
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement and have rights to
the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require unanimous consent of the parties sharing control. The Group’s investments in
joint ventures are accounted for using the equity method.

Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the investment is
adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating
to the joint venture is included in the carrying amount of the investment and is not tested for impairment individually. The income
statement reflects the Group’s share of the results of operations of the joint venture. Any change in other comprehensive income
of those investees is presented as part of the Group’s other comprehensive income. In addition, when there has been a change
recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the
statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture
are eliminated to the extent of the interest in the joint venture. The aggregate of the Group’s share of profit or loss of a joint
venture is shown on the face of the income statement.

Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached
conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period
necessary to match the grant on a systematic basis to the costs that it is intended to compensate.

Trade receivables
Trade receivables do not carry interest and are stated at the lower of their original invoiced value and recoverable amount.
Balances are written off when the probability of recovery is assessed as being remote.

Cash and cash equivalents

Cash and short-term deposits comprise cash at bank and in hand, short-term deposits and other short-term highly liquid
investments with original maturities of three months or less held for the purpose of meeting short-term cash commitments.
Bank overdrafts are presented in current liabilities to the extent that there is no right of offset with cash balances.

Borrowings
Borrowings are recognised initially at fair value, being the issue proceeds net of any transaction costs incurred.

Borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is adjusted for the
amortisation of any transaction costs. The amortisation is recognised in finance costs.

All borrowings denominated in currencies other than Sterling are translated at the rate ruling at the balance sheet date.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for
at least 12 months after the balance sheet date.

Leases
Finance leases that transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group,
are capitalised at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as
to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs
in the income statement.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will
obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset
and the lease term.

Rentals paid under operating leases (those leases where a significant portion of the risks and rewards of ownership are retained
by the lessor) are charged to the income statement over the term of the lease on a straight-line basis.

Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material,
provisions are determined by discounting the future expected cash flows at a pre-tax rate that reflects the current market
assessment of the time value of money and, where appropriate, the risks specific to the liability.

Trade and other payables

Trade and other payables are non interest-bearing and are stated at amortised cost. Trade payables are classified as a current
liability if it is likely to be settled within 12 months of the year end, otherwise it is classified as non-current.

Annual Report & Accounts 2016 107

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

1. Basis of preparation and significant accounting policies continued

(e) Summary of significant accounting policies continued
Financial instruments
Financial assets and liabilities
The Group’s financial assets in the balance sheet comprise trade and other receivables and cash and short-term deposits. Loans
and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
These assets are carried at amortised cost using the effective interest method. Financial liabilities in the balance sheet comprise
bank and other borrowings and trade and other payables. They are included in current liabilities, except for maturities greater
than 12 months after the balance sheet date, which are classified as non-current liabilities.

Offsetting
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated financial statements if there
is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to
realise the assets and settle the liabilities simultaneously.

Derivative financial instruments

The Group uses derivative financial instruments to hedge exposure to changes in the value of specific assets, liabilities or cash
flows. It does not use derivative financial instruments for speculative purposes.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequently re-measured
at fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:

• hedges of a particular risk associated with a recognised asset or liability or a highly probable forecasted transaction (cash
flow hedge); or
• hedges of a net investment in a foreign operation (net investment hedge).

The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in cash flows of hedged items.

The effective portion of changes in the fair value of cash flow and net investment derivatives that are designated and qualify as
hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in net finance costs
in the income statement.

The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the
hedged item is more than one year, and as a current asset or liability when the remaining maturity of the hedged item is less
than one year.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedge instrument expires or is sold,
terminated, exercised or no longer qualifies for hedge accounting. Any cumulative gain or loss previously recognised in other
comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit
or loss.

(f) Significant accounting judgements, estimates and assumptions

The preparation of the consolidated financial statements requires the Directors to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates. Areas requiring the Directors to
make judgements, estimates and assumptions are highlighted in these accounting policies and throughout the notes to the
consolidated financial statements. Key estimation and judgement areas are as follows:

(i) Revenue recognition

The varied nature of the contractual arrangements entered into by the Group requires consideration to be given to the most
appropriate accounting treatment. This involves judgement over whether partly completed work meets the Group’s revenue
recognition policies. See Note 1(e) for details of the revenue recognition policy.

(ii) Impairment of assets

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated above.
The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations
require the use of estimates as detailed in the financial statements. Note 11 Goodwill discloses further details regarding the
assumptions used in determining impairment. The carrying amount of Goodwill at 31 December 2016 was £409.8m (2015: £354.9m).

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(iii) Accounting for acquisitions and disposals

On the acquisition of a business it is necessary to attribute fair values to any intangible assets acquired, provided they meet the
criteria to be recognised. The fair values of these intangible assets are dependent on estimates of attributable future revenues,
margins and cash flows, as well as appropriate discount rates. In addition, the allocation of useful lives to acquired intangible
assets requires the application of judgement based on available information and management expectations at the time of
recognition. See Note 1(e) Other intangibles for further details. Intangible assets recognised in respect of acquisitions was £6.4m
(2015: £10.5m).

(iv) Taxation
The Group is subject to income taxes in the various jurisdictions in which it operates. Judgements are required in determining
the consolidated provision for income taxes. During the ordinary course of business, there are transactions and calculations for
which the ultimate tax determination is uncertain. As a result, the Group recognises tax liabilities for anticipated tax audit issues
based on estimates of whether additional taxes will be due. The amount of such liabilities is based on an assessment of various
factors, such as experience of previous tax audits and differing interpretations of tax law. This assessment relies on estimates
and assumptions and involves a series of judgements about future events. To the extent that the final tax outcome of these
matters is different from the amount recognised, such differences will impact the income tax and deferred tax provisions in
the period in which such determination is made. Income tax (2016: £1.3m net payable; 2015: £0.3m net receivable), Note 14
Government grants (2016: £8.2m; 2015 £7.1m) and Note 22 Deferred tax (2016: £4.5m; 2015: £2.4) provide further details of the
judgements made.

(v) Retirement benefits

The assumptions underlying the calculation of retirement benefits are important and based on independent advice. Changes in
these assumptions could have a material impact on the measurement of the Group’s retirement benefit obligation. See Note 27
for further details.

The retirement benefit obligation was £20.7m at 31 December 2016 (2015: £15.8m).

2. Segmental reporting
The Group has historically reported operating segments on a regional basis. Following a refresh of the Group’s strategy and while
charting a course for the next stage of the Group’s journey, it was recognised that a global sector-based approach would better
facilitate growth and improve business performance. For this reason, the Group is now organised into three operating Divisions
which are; Industries, Products and Infrastructure, Health & Environment. These three Divisions are organised and managed
separately based on the sectors they operate in and each is treated as an operating segment and a reportable segment. The
principle activities in each Division are as follows:

• The Industries Division operates in the development, qualification, validation and production control testing undertaken for the
Aerospace sector as well as materials and infrastructure testing undertaken for the oil & gas industry.
• The Products Division services and calibrates measurement instruments; provides fire safety testing, analysis, consultancy, and
certification; as well as structural, systems and component testing for the transportation market.
• The Infrastructure, Health & Environment Division provides civil engineering testing, health sciences and environmental testing;
as well as material analysis and testing for major infrastructure projects.

The operating and reportable segments were determined based on reports reviewed and used to make operational decisions,
by the Board of Directors. The Board of Directors are deemed to be the Group’s Chief Operating Decision Maker (CODM).

The Board monitors the operating results of its Divisions separately for the purpose of making decisions about resource allocation
and performance assessment. Divisional performance is evaluated based on adjusted EBITA and is measured consistently in the
consolidated financial statements.

Group financing (including finance costs and finance income) and income taxes are managed centrally and are not allocated
to operating segments.

Transfer prices between operating Divisions are on an arm’s length basis in a manner similar to transactions with third parties and
inter-Divisional revenues are eliminated on consolidation.

Annual Report & Accounts 2016 109

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

2. Segmental reporting continued

The segment information is prepared in conformity with the accounting policies of the Group and the accounting standard
IFRS 8 Operating Segments. Segment information from the prior year has been restated to be consistent with the new operating
segments and in order to provide more meaningful comparison.
Infrastructure,
Health and Eliminations/
Industries Products Environment unallocated Total
2016 £m £m £m £m £m

Revenue – external customers 116.6 117.0 94.9 – 328.6

Revenue – inter-business segments 1.4 0.3 0.4 (2.1) –
Total revenue 118.0 117.3 95.3 (2.1) 328.6
Adjusted EBITDA 27.9 20.8 15.8 – 64.5
Depreciation (6.4) (3.9) (3.9) – (14.2)
Adjusted EBITA 21.5 16.9 11.9 – 50.3
Gain on disposal of businesses – 0.2 5.9 – 6.1
Amortisation of intangible assets (1.0) (2.0) (0.9) – (3.9)
Restructuring costs (4.1) (1.0) (0.8) – (5.9)
Impairment of property, plant and equipment (1.5) – – – (1.5)
Acquisition and integration costs (0.1) (0.4) (1.1) – (1.6)
Segmental operating profit 14.8 13.7 15.0 – 43.5
Net finance costs – – – (6.9) (6.9)
Profit/(loss) before tax 14.8 13.7 15.0 (6.9) 36.6
Income tax – – – (7.9) (7.9)
Profit/(loss) for the year 14.8 13.7 15.0 (14.8) 28.7
Other segment items          
Capital expenditure (property, plant and equipment and software) 7.3 5.1 5.9 – 18.3

Revenue from external customers for each product and service or each group of similar products and services are not presented
as this information is not readily available and the cost to develop it would be excessive.
Non-current
Revenues assets
2016 Geographic analysis £m £m

UK 96.1 156.3
Canada 40.6 90.2
USA 62.7 81.5
Sweden 27.5 21.4
Other countries individually less than 10% of total revenue/non-current assets 101.7 170.4
  328.6 519.8
Deferred tax asset   9.4
  328.6 529.2

The revenue above is based on the location of the legal entity performing the work. Non-current assets analysed by geography
comprise goodwill, intangible assets, property, plant and equipment, government grants and investments.

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Infrastructure,
Health and Eliminations/
Industries Products Environment unallocated Total
2015 £m £m £m £m £m

Revenue – external customers 115.1 97.1 84.3 – 296.5

Revenue – inter-business segments 1.3 0.2 0.3 (1.8) –
Total revenue 116.4 97.3 84.6 (1.8) 296.5
Adjusted EBITDA 30.1 17.9 11.1 – 59.1
Depreciation (5.7) (3.6) (3.0) – (12.4)
Adjusted EBITA 24.4 14.3 8.1 – 46.7
Amortisation of intangible assets (3.4) (3.9) (1.6) – (8.9)
Restructuring costs (2.6) (1.8) (0.5) – (4.9)
Acquisition and integration costs (0.5) (2.0) (0.9) – (3.4)
Segmental operating profit 17.9 6.6 5.1 – 29.5
Net finance costs – – – (6.3) (6.3)
Profit/(loss) before tax 17.9 6.6 5.1 (6.3) 23.2
Income tax – – – (4.7) (4.7)
Profit/(loss) for the year 17.9 6.6 5.1 (11.0) 18.5
Other segment items          
Capital expenditure (property, plant and equipment and software) (8.6) (3.8) (5.1) – (17.5)

Non-current
assets
(restated
Revenues Note 1(c))
2015 Geographic analysis £m £m

UK 91.6 147.6
Canada 40.0 77.0
USA 56.9 67.8
Sweden 25.3 19.5
Other countries individually less than 10% of total revenue/non-current assets 82.7 136.7
  296.5 448.6
Deferred tax asset   8.0
  296.5 456.6

The revenue above is based on the location of the legal entity performing the work. Non-current assets analysed by geography
comprise goodwill, intangible assets, property, plant and equipment and government grants.

Annual Report & Accounts 2016 111

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

3. Operating costs
2016 2015
Net operating costs Notes £m £m

Cost of sales   208.6 185.8

Selling and administrative expenses   72.6 66.2
Other income   (2.9) (2.2)
Separately disclosed items 4 6.8 17.2
    285.1 267.0
Group operating profit is arrived at after charging/(crediting):      
Cost of sales      
Depreciation of property, plant and equipment 10 14.2 12.4
Other operating lease rentals payable      
– plant and machinery   0.5 0.3
– property   10.3 9.6
Repairs and maintenance expenditure on property, plant and equipment   5.7 4.7
Other income      
Government grants 14 (0.7) (0.6)
Rental income   (1.4) (0.8)

Audit services
The Group paid the following amounts to its auditors in respect of the audit of the financial statements and for other services
provided to the Group:
2016 2015
Audit £m £m

Audit of the financial statements* 0.1 0.1

Local statutory audits of subsidiaries 0.3 0.3
Other fees:    
Taxation compliance services – 0.2
Taxation advisory services – 0.1
Corporate finance transaction services – 0.1

* £65,000 (2015: £65,000) relating to audit of the Group financial statements and £6,000 (2015: £6,000) relating to the audit of the Company financial statements.

4. Separately disclosed items

2016 2015
  £m £m

Gain on disposal of businesses (6.1) –

Amortisation of intangible assets 3.9 8.9
Restructuring costs 5.9 4.9
Impairment of property, plant and equipment 1.5 –
Acquisition and integration costs 1.6 3.4
Separately disclosed items included in operating profit 6.8 17.2
Finance costs – unwind of discount relating to deferred consideration 0.1 –
Separately disclosed items included in profit before tax 6.9 17.2
Income tax credit (0.4) (3.8)
Separately disclosed items included in profit for the year 6.5 13.4

The Group presents, as separately disclosed items on the face of the Group income statement, those items of income and
expense which, because of their nature, merit separate presentation to allow users to understand better the elements of financial
performance in the year to facilitate a comparison with prior years and a better assessment of trends in financial performance.

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Gain on disposal of businesses

The Group made three business disposals in 2016, with two being significant.

The sale of the UK and Ireland Food, Water and Pharmaceuticals business to international life sciences company, Eurofins
Scientific, completed 1 July 2016, for a cash consideration of £18.0m including a selling price adjustment of £0.1m. The cash
consideration was net of certain working capital balances retained and liabilities transferred (gross consideration £20.0m).
The net gain was £5.3m.

The sale of the Environmental East business in Canada, also to international life sciences company, Eurofins Scientific, completed
on 5 December 2016, for a cash consideration of £7.5m, subject to a further selling price adjustment. The cash consideration was
net of certain working capital balances retained and liabilities transferred (gross consideration £9.1m). The net gain was £0.6m.

The sale of a division of WFR Gent NV completed 24 March 2016 for a cash consideration of £0.2m. The net gain was £0.2m.

Summarised financial information relating to the sale of the businesses is shown in the table below:
UK and Ireland
Food, Water and Environmental WFR Gent
Pharmaceuticals East Fire division Total
2016 2016 2016 2016
  £m £m £m £m

Goodwill 9.5 3.3 – 12.8

Property, plant and equipment 3.1 2.9 – 6.0
Trade and other receivables 0.5 0.5 – 1.0
Trade and other payables (0.1) (0.2) – (0.3)
Provisions (1.1) – – (1.1)
Total carrying amount of net assets disposed 11.9 6.5 – 18.4
Costs of disposal 0.8 0.4 – 1.2
Gains on disposal of businesses 5.3 0.6 0.2 6.1
Proceeds on disposal of businesses 18.0 7.5 0.2 25.7

Amortisation of intangible assets

Amortisation of intangible assets for 2016 was £3.9m, a decrease of £5.0m from £8.9m in 2015. This decrease was due to customer
relationships acquired from Bodycote now fully amortised, partly offset by customer relationship amortisation relating to acquisitions
made over the last few years.

Restructuring costs
Oil & gas restructure
To mitigate the poor trading conditions in oil & gas, we have undertaken further cost actions globally to right size the business.
This restructuring programme totalled £3.3m and included onerous lease provisions of £1.8m, staff redundancies of £1.2m and
other property related costs of £0.3m.

Portfolio realignment and organisational restructure

Following the completion of acquisitions earlier in 2016 coupled with the UK and Ireland Food, Water and Pharmaceuticals
disposal, we realigned our sectors and organisational structure to reflect the shape of the Group more appropriately going
forward. The cost in relation to this was £2.0m and comprised mainly staff redundancies.

Other
Having undertaken a strategic review of our laboratory footprint within our Aerospace sector and Products Division, we
restructured certain laboratories which resulted in costs of £0.6m, largely relating to staff redundancies.

Impairment of property, plant and equipment

Due to the poor oil & gas trading conditions, we undertook a review of property, plant and equipment in those laboratories and
recognised an impairment of property, plant and equipment of £1.5m.

Acquisition and integration costs

Acquisition costs incurred in relation to the purchase of Admaterials Technologies Private Limited was £0.1m, Jones Environmental
Forensics Limited £0.3m and Insight NDT Limited £0.2m. Acquisition costs included stamp duty, due diligence fees including
professional advisors fees in relation to tax, legal, property and insurance advice. Integration costs amounting to £0.5m in
total for these businesses include project management, travel and rebranding costs. Integration costs for businesses acquired
towards the end of 2015 amounted to £0.1m and costs in relation to active and failed projects amount to £1.0m. Contingent
consideration of £0.6m in relation to the acquisition of Metallurgical Services Private Limited was reversed in the current year
as the target was not met.

Included in the income tax credit is £0.3m (2015: £2.0m) related to the amortisation of the deferred tax liability in respect of
customer relationships. An income tax debit of £1.6m (2015: credit £1.8m) relates to restructuring, amortisation and integration
costs; and an income tax credit of £1.5m relates to the tax charge credit on the gain on disposal of businesses.

Annual Report & Accounts 2016 113

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

5. Earnings per share

2016 2015
Based on the profit for the year Notes £m £m

Profit attributable to equity holders of the Parent Company   26.2 17.1

Separately disclosed items 4 6.5 13.4
Adjusted earnings after tax   32.7 30.5

2016 2015
Number of shares million million

Basic weighted average number of ordinary shares 250.4 250.4

Potentially dilutive share awards 2.8 0.3
Diluted weighted average number of shares 253.2 250.7

2016 2015
  pence pence

Basic earnings per share 10.5 6.8

Share awards (0.2) –
Diluted earnings per share 10.3 6.8
Basic adjusted earnings per share 13.1 12.2
Share awards (0.2) –
Diluted adjusted earnings per share 12.9 12.2

Basic earnings per share (EPS) amounts are calculated by dividing the profit for the year attributable to the ordinary equity
holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year.

6. Dividends
2016 2015
Cash dividends to the equity holders of the Parent £m £m

Interim paid in respect of 2016: 1.05p per share (2015: 1.0p per share) 2.6 2.5
Final paid in respect of 2015: 2.2p per share (2014: 2.0p per share) 5.5 5.0
  8.1 7.5

Proposed dividends
The Board is recommending a final dividend of 2.35p per share (2015: 2.2p per share). This will absorb an estimated £6m of
shareholders funds. The total dividend for the year will therefore be 3.4p per share representing an increase of 6.3% (2015: 3.2p).
The dividend will be paid on 9 June 2017 to shareholders’ on the register at the close of business on 26 May 2017.

7. Staff costs
Average monthly number of people (including Executive Directors) employed by the Group during 2016 2015
the year: number number

Production 3,314 3,398

Selling and administration 836 966
  4,150 4,364

Average monthly number of people (including Executive Directors) employed by the Company 2016 2015
during the year: number number

Administration 9 9

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 Strategic report Report of Directors Financial statements

2016 2015
The costs incurred in respect of the Group’s employees were: Notes  £m £m

Wages and salaries   147.2 130.6

Social security costs   13.8 12.2
Defined contribution pension costs   6.0 5.1
Defined benefit pension costs 27 0.2 0.3
Share-based payments expense   1.4 0.3
    168.6 148.5

Included within restructuring costs shown in Note 4 Separately Disclosed Items are staff related redundancy costs of £2.9m and
£0.1m of share-based payments expense.
2016 2015
The costs incurred in respect of the Company’s employees were: £m £m

Wages and salaries   1.7 1.5

Social security costs   0.2 0.2
Pension costs   0.1 0.1
Share-based payments expense   0.4 0.1
    2.4 1.9

2016 2015
  £m £m

Directors’ Remuneration 1.8 1.6

The emoluments of the highest paid Director were £1.0m (2015: £0.7m).

No company contributions were made to a pension scheme on behalf of Directors’ qualifying services.

Defined contribution pension schemes

The Group operates defined contribution schemes in the UK and other territories across the Group. The assets of these schemes
are held separately from those of the Group, being invested in funds under the control of a number of insurance companies. The
pension charge includes contributions payable by the Group to the various insurance companies.

8. Net finance costs

2016 2015
  £m £m

Finance costs    
Bank loans 5.5 5.0
Other loans and charges 0.3 0.2
Amortisation of debt issue costs 0.6 0.7
Pension interest 0.6 0.4
Total finance costs 7.0 6.3
Finance income    
Interest income on short-term deposits (0.1) –
Total finance income (0.1) –
Net finance costs 6.9 6.3
Included in separately disclosed items – unwind of discount on deferred consideration (0.1) –
Net finance costs before separately disclosed items 6.8 6.3

Annual Report & Accounts 2016 115

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

9. Income tax
2016 2015
The taxation charge for the year comprises: £m £m

Current tax    
UK 1.0 0.5
Overseas 5.2 4.5
Adjustments in respect of previous year    
UK 0.2 –
Overseas (0.3) (0.3)
Total current tax 6.1 4.7
Deferred tax    
Origination and reversal of temporary differences    
UK (0.5) (2.4)
Overseas 2.3 1.5
Adjustments in respect of previous year    
UK – –
Overseas – 0.9
Total deferred tax 1.8 –
Total income tax charge 7.9 4.7

A tax credit of £0.6m (2015: £0.7m debit) is recorded in other comprehensive income.

A reconciliation of the total tax charge for the year compared to the effective rate of corporation tax is summarised below:
2016 2015
  £m £m

Profit on ordinary activities before tax 36.6 23.2

Tax at 20.00% (2015: 20.25%) 7.3 4.7
Effects of:    
Permanent differences arising from UK and overseas operations 0.2 0.6
Withholding tax written off 0.1 0.1
Non-taxable gain on disposal (0.7) –
Higher tax rates in overseas companies 1.6 1.5
Impact of changes in tax rates – (0.5)
Movement in unrecognised deferred tax 0.1 (1.6)
Adjustments in respect of previous periods (0.1) (0.3)
Movement in previously unrecognised temporary differences (0.3) (0.7)
Other non-taxable income (0.4) –
Other adjustments to deferred tax in respect of previous periods 0.1 0.9
Total charge for the year 7.9 4.7

The Group has tax losses of £99.0m (2015: £102.0m) which arose in various jurisdictions and that are available for offset against future
taxable profits of the companies in which the losses arose. The majority of the losses are available for carry forward indefinitely. The
major jurisdictions affected are UK £67.2m (2015: £74.6m), USA £1.4m (2015: £3.4m), Sweden £23.0m (2015: £19.9m), Saudi Arabia
£2.3m (2015: £1.9m), India £2.7m (2015: £1.8m) Norway £1.2m (2015: £0.9m) and Singapore £0.6m (2015: £0.5m).

Deferred tax assets of £1.1m being £0.5m in USA, £0.3m in India and £0.3m elsewhere (2015: £1.6m being £1.2m in USA and £0.4m
other) have been recognised in respect of certain losses where it is sufficiently certain that these losses will be utilised against
taxable profits in the foreseeable future.

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UK Corporation tax rate changes

Finance Act (No. 2) 2015, which was substantively enacted on 26 October 2015, includes legislation reducing the main rate of
UK corporation tax from 20% to 18%. This decrease is to be phased in with a reduction to 19%, effective from 1 April 2017, and a
reduction to 18%, effective from 1 April 2020. The Chancellor announced in the Budget on 16 March 2016 that the full rate of UK
corporation tax will reduce by a further 1% to 17% from 1 April 2020. This further reduction was included within the Finance Act
2016 which was substantively enacted on 6 September 2016. Consequently UK deferred tax has been provided at the tax rates
at which temporary differences are expected to reverse.

10. Property, plant and equipment

Land and Plant and
buildings equipment Total
Notes £m £m £m

Cost        
At 1 January 2016   27.0 122.3 149.3
Additions   2.0 15.4 17.4
Acquisitions 12(a) 1.6 4.3 5.9
Disposals   (4.2) (32.4) (36.6)
Exchange adjustments   4.5 21.5 26.0
At 31 December 2016   30.9 131.1 162.0
Accumulated depreciation        
At 1 January 2016   10.9 69.7 80.6
Charge for the year   1.8 12.4 14.2
Released on disposal   (2.2) (28.5) (30.7)
Impairment loss   0.6 0.9 1.5
Exchange adjustments   2.3 14.5 16.8
At 31 December 2016   13.4 69.0 82.4
Net book value at 31 December 2016   17.5 62.1 79.6

Cost        
At 1 January 2015   26.1 110.2 136.3
Additions   1.7 14.0 15.7
Acquisitions 12(c) – 1.8 1.8
Disposals   – (1.0) (1.0)
Exchange adjustments   (0.8) (2.7) (3.5)
At 31 December 2015   27.0 122.3 149.3
Accumulated depreciation        
At 1 January 2015   9.6 62.0 71.6
Charge for the year   1.6 10.8 12.4
Released on disposal   – (0.9) (0.9)
Exchange adjustments   (0.3) (2.2) (2.5)
At 31 December 2015   10.9 69.7 80.6
Net book value at 31 December 2015   16.1 52.6 68.7

Annual Report & Accounts 2016 117

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

10. Property, plant and equipment continued

2016 2015
Land and buildings comprise: £m £m

Cost    
Freehold 10.4 9.2
Long leasehold 5.6 5.1
Short leasehold 14.9 12.7
  30.9 27.0
Accumulated depreciation    
Freehold 2.6 2.4
Long leasehold 3.3 2.6
Short leasehold 7.5 5.9
  13.4 10.9

Finance leases
The carrying value of property, plant and equipment held under finance leases at 31 December 2016 was £0.3m (2015: £0.4m).
There were no additions (2015: £0.2m) of plant and equipment under finance leases during the year. Leased assets are pledged
as security for the related finance lease.

11. Goodwill
  Notes £m

Cost and net book value    

At 1 January 2015   335.4
Acquisitions (restated) 12(c) 25.6
Exchange adjustments   (6.1)
At 31 December 2015 (restated)   354.9
Acquisitions 12(a) 20.3
Disposals   (12.8)
Exchange adjustments   47.4
At 31 December 2016   409.8

Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to operating segment.

As outlined in Note 2, the Group reorganised its reporting structure during the year, resulting in a change in its operating
segments, as determined under IFRS 8. Consequently the CGU groups to which goodwill was previously allocated have changed
resulting in a reallocation to new CGU groups in the current year.

A summary of the carrying amounts of goodwill by operating segments (representing groups of CGUs) is presented below:
2015
2016 (restated)
  £m £m

Industries 172.2 145.8

Products 167.7 148.9
Infrastructure, Health and Environment 69.9 60.2
At 31 December 409.8 354.9

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 Strategic report Report of Directors Financial statements

A summary of the carrying amounts of goodwill by the previous operating segments (representing groups of CGUs) as presented
in 2015 is shown below:
2015
(restated)
  £m

Europe 168.0
Americas 110.1
Rest of World 76.8
At 31 December 354.9

Impairment reviews
Goodwill has been tested for impairment by comparing the carrying amount of each CGU, including goodwill, with the
recoverable amount. The recoverable amounts are determined from value-in-use calculations.

The key assumptions for the value-in-use calculations are those regarding operating margin, discount rates and growth rates. The
operating margin is based on past performance and expectations as set out in the latest forecasts for the next five years for the
CGUs as approved by management and the discount rate reflects the current market assessment of the time value of money and
the risks specific to the CGUs. The Group prepares cash flow forecasts derived from the most recent five year financial forecasts
approved by management plus a terminal value at the end of the five year period, based on an appropriate industry multiple of
EBITDA (Earnings before interest, tax, depreciation and amortisation). The Group’s terminal growth rates reflect industry experience
by geographic area creating an average estimated Group terminal growth rate of 2.5% (2015: 2.5%). The pre-tax rate used to
discount the cash flows is the Group’s weighted average cost of capital adjusted for risks specific to the CGU. The discount rates
used for the CGUs in 2016 were: Industries 8.1%, Products 11.2% and Infrastructure, Health and Environment 7.4%. In 2015 the
discount rates used for the CGUs were: Europe 8.7%, Americas 10.7% and Rest of World 10.5%.

Impairment reviews were carried out at the year-end by comparing the carrying value of each CGU, including goodwill with the
recoverable amount of the CGUs to which goodwill has been allocated. Management determined that there has been
no impairment.

Base case forecasts show significant headroom above carrying value for each CGU with the exception of Infrastructure, Health and
Environment (2015: Rest of World). Sensitivity analysis has been undertaken for each CGU to assess the impact of any reasonably
possible change in key assumptions. With the exception of the Infrastructure, Health and Environment Division (2015: Rest of World),
there is no reasonably possible change that would cause the carrying values to exceed recoverable amounts of goodwill.

In respect of Infrastructure, Health and Environment Division, management have concluded that a reasonably possible change
in a key assumption could cause the carrying values to exceed recoverable amounts. Under the above assumptions, the
recoverable amount exceeds the carrying amount by £57.0m.

A decrease in forecast cash flows from £163.8m to £106.8m will result in the carrying value of the net assets being equal to
recoverable amounts.

In 2015 in respect of Rest of World, management concluded that a reasonably possible change in a key assumption could cause
the carrying values to exceed recoverable amounts. Under the above assumptions, the recoverable amount exceeded the
carrying amount by £17.3m.

A decrease in forecast cash flows from £107.2m to £89.9m would have resulted in the carrying value of the net assets being equal
to recoverable amounts.

12. Business combinations

(a) Acquisitions in the year
During the year, the Group acquired a number of companies as detailed below.

(i) Admaterials Technologies Private Limited

On 15 February 2016, the Group acquired 70% of the share capital in Admaterials Technologies Private Limited (Admaterials) for a
cash consideration of £5.4m (£4.8m net of cash acquired). In addition, the consideration to acquire Admaterials includes a put
and call option to purchase the remaining shareholding three years after the acquisition based on the same earnings multiple
as the original offer of £3.8m. The acquisition has been accounted for as though 100% of the share capital had been acquired,
with a liability recognised as contingent consideration in relation to the put option. Acquisition costs incurred in the year in
respect of Admaterials amounted to £0.1m. This Singapore based business provides testing in the construction sector, as well as
chemical, environmental and mechanical testing and certification services. Founded in 2008, Admaterials is one of the leading
construction testing businesses in Singapore, as well as providing chemical, environmental and mechanical testing to a range of
customers in the private and government sectors. The business has annual revenues in the region of £3.5m and a team of more
than 70 specialists.

Annual Report & Accounts 2016 119

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

12. Business combinations continued

(a) Acquisitions in the year continued
(ii) Jones Environmental Forensics Limited
On 1 July 2016, the Group acquired 100% of the share capital of Jones Environmental Forensics Limited (Jones) for a purchase
consideration of £15.5m (£16.1m net of finance lease settled and cash acquired). This includes deferred consideration of £1.0m
and an amount of up to £1.6m is contingent upon future profitability of the business. The purchase consideration is subject to
further purchase price adjustments. Acquisition costs incurred in the year in respect of Jones amounted to £0.3m. Jones is a
North Wales-based independent environmental laboratory business and the UK’s market leader in contaminated land analysis
and a specialist in environmental forensics, with an excellent reputation for both quality and service. Jones has built a strong
reputation as the laboratory of choice for contaminated soil and water analysis, primarily selling its services to leading global
environmental consultants, with the ultimate end customers covering a variety of market segments, many of which Exova has
an existing presence with. The business has a team of over 150 specialists and has annual revenues of £8.0m.

(iii) Insight NDT Limited

On 2 December 2016, the Group acquired 100% of the share capital of Insight NDT Limited (Insight), a South Yorkshire-based
non-destructive testing (NDT) and radiographic inspection business for a purchase consideration of £7.6m (£7.1m net of cash
acquired). The purchase consideration includes deferred consideration of £0.1m and an amount of up to £1.5m is contingent
upon future profitability of the business. Acquisition costs incurred in the year in respect of Insight amounted to £0.2m. Insight is
at the forefront of the NDT market in the UK, providing it’s specialist services to the industrial sector since 1997. Insight’s reputation is
built on consistently providing high quality, high capacity and fast turnaround radiographic inspection services for manufacturers
of specialised castings and forgings within the industrials market, as well as providing testing for the nuclear, medical, rail and oil &
gas sectors. The business has an experienced team of 20 specialists and achieved revenues of around £2m in 2015.

The fair values are set out in the following table:

Jones
Admaterials Environmental
Technologies Forensics Insight NDT
Private Limited Limited Limited Total
Notes £m £m £m £m

Intangible assets 13 1.7 4.7 – 6.4

Property, plant and equipment 10 1.2 3.5 1.2 5.9
Trade and other receivables   0.8 2.0 0.5 3.3
Cash and cash equivalents   0.4 0.7 0.5 1.6
Trade and other payables   (0.8) (0.7) (0.3) (1.8)
Finance lease   – (1.3) – (1.3)
Provisions   – (0.4) – (0.4)
Income tax payable   – – (0.3) (0.3)
Deferred tax liabilities   (0.3) (1.1) – (1.4)
Net assets acquired   3.0 7.4 1.6 12.0
Goodwill 11 6.2 8.1 6.0 20.3
Total purchase price   9.2 15.5 7.6 32.3
Finance lease settled on acquisition   – 1.3 – 1.3
Acquired cash and cash equivalents   (0.4) (0.7) (0.5) (1.6)
Deferred consideration   (0.6) (1.0) (0.1) (1.7)
Contingent consideration   (3.8) (1.6) (1.5) (6.9)
Net cash outflow on acquisitions   4.4 13.5 5.5 23.4
Purchase consideration:          
Gross cash consideration paid in the year   4.8 12.9 6.0 23.7
Deferred consideration   0.6 1.0 0.1 1.7
Contingent consideration   3.8 1.6 1.5 6.9
    9.2 15.5 7.6 32.3

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 Strategic report Report of Directors Financial statements

During the year the following payments were made for acquisitions completed during the current and prior year:
2016 2015
  £m £m

Contingent consideration – 3.5

Deferred consideration 0.1 –
Purchase price adjustment 0.1 0.2
Net cash outflow in current year on acquisitions made in the prior year 0.2 3.7
Net cash outflow on acquisitions made in the current year 23.4 18.1
Total net cash outflow for the year 23.6 21.8

At year-end the acquisition accounting for acquisitions made between July and December 2016 is not complete due to the
timing of the transactions and will be finalised during the following financial year. This includes all acquired assets and liabilities.
No allocation has been made in the determination of the provisional fair values from goodwill to identifiable intangible assets for
Insight NDT Limited. External advisers are assisting with this allocation and this allocation will be finalised along with all other fair
values in the next financial year.

No material adjustments have been made in respect of the trade and other receivables acquired.

Goodwill
The goodwill of £20.3m comprises the fair value of the expected synergies arising from the acquisitions and the value of the
human capital that does not meet the criteria for recognition as a separable intangible asset.

Contribution of acquisitions to revenue and profits

From the dates of acquisition the newly acquired subsidiaries contributed £9.0m to revenue and if the acquisitions were assumed
to have been made on 1 January 2016, the Group revenue would have been £335.2m.

No profit figures are disclosed as these businesses have now been integrated into the rest of the Group and therefore it would be
impracticable to obtain a meaningful profit number.

(b) Restatement (Note 1 (c))

In the 2015 financial statements, the fair value of the acquisitions of Western Technical Services Limited and Accusense Systems
Limited were provisional due to the timing of the transactions. The fair values have now been finalised resulting in adjustments to
the provisional fair values attributed.

The following table summarises the adjustments made to the provisional values during the year.
Re-assessment
of contingent
Provisional consideration Final
fair values Note 1(c) fair values
  £m £m £m

Intangible assets 0.2 – 0.2

Trade and other receivables 0.3 – 0.3
Cash and cash equivalents 0.3 – 0.3
Trade and other payables (0.2) – (0.2)
Income tax payable (0.2) – (0.2)
Net assets acquired 0.4 – 0.4
Goodwill 1.3 (0.2) 1.1
Total purchase price 1.7 (0.2) 1.5
Acquired cash and cash equivalents (0.3) – (0.3)
Contingent consideration (0.3) 0.3 –
Deferred consideration – (0.1) (0.1)
Net cash outflow on acquisitions 1.1 – 1.1

Annual Report & Accounts 2016 121

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

12. Business combinations continued

(c) Acquisitions in the prior year
The aggregated fair values arising from the 2015 acquisitions are set out in the following table:
  Notes £m

Investment in joint ventures   0.2

Intangible assets   10.5
Property, plant and equipment   1.8
Deferred tax asset   3.0
Trade and other receivables   6.6
Cash and cash equivalents   4.3
Trade and other payables   (12.2)
Income tax payable   (0.4)
Long term provisions   (0.1)
Retirement benefit obligations   (14.2)
Deferred tax liabilities   (2.1)
Net liabilities acquired   (2.6)
Goodwill (restated) 1(c) 25.4
Total purchase price (restated)   22.8
Acquired cash and cash equivalents   (4.3)
Purchase price adjustment   (0.1)
Deferred consideration   (0.3)
Net cash outflow on acquisitions   18.1
Purchase consideration:    
Gross cash consideration paid in the year   22.4
Purchase price adjustment   0.1
Deferred consideration   0.3
    22.8

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 Strategic report Report of Directors Financial statements

13. Intangible assets

Customer Computer Trade

relationships software Patents names Total
  Notes £m £m £m £m £m

Cost            
At 1 January 2016   73.8 6.3 0.2 0.7 81.0
Acquisitions 12(a) 6.4 – – – 6.4
Additions   – 0.9 – – 0.9
Disposals   – (0.1) – – (0.1)
Exchange adjustments   8.7 0.6 – – 9.3
At 31 December 2016   88.9 7.7 0.2 0.7 97.5
Accumulated amortisation            
At 1 January 2016   59.7 3.5 – 0.1 63.3
Charge for the year   2.6 1.2 – 0.1 3.9
Disposals    – (0.1) – – (0.1)
Exchange adjustments   8.0 0.4 – – 8.4
At 31 December 2016   70.3 5.0 – 0.2 75.5
Net book value at 31 December 2016   18.6 2.7 0.2 0.5 22.0

Cost
At 1 January 2015   65.2 4.6 – – 69.8
Acquisitions (restated) 12(c) 9.6 – 0.2 0.7 10.5
Additions   – 1.8 – – 1.8
Exchange adjustments   (1.0) (0.1) – – (1.1)
At 31 December 2015   73.8 6.3 0.2 0.7 81.0
Accumulated amortisation            
At 1 January 2015   52.8 2.6 – – 55.4
Charge for the year   7.9 0.9 – 0.1 8.9
Exchange adjustments   (1.0) – – – (1.0)
At 31 December 2015   59.7 3.5 – 0.1 63.3
Net book value at 31 December 2015   14.1 2.8 0.2 0.6 17.7

14. Government grants

2016 2015
  £m £m

At 1 January 7.1 8.8

Amount earned in the year 0.7 0.6
Utilised during the year (1.4) (1.3)
Exchange adjustment 1.8 (1.0)
At 31 December 8.2 7.1
Current – –
Non-current 8.2 7.1
At 31 December 8.2 7.1

Government grants are receivable in relation to research and development (R&D) expenditure. Accumulated tax credits
(Scientific Research and Experimental Development) from R&D expenditure in Canada can be used to settle future cash tax
liabilities and can be carried forward for up to 20 years. A reserve has been booked against the R&D credits carried forward to
provide against uncertainties in prior year claims that are still open to challenge from the Canadian tax authorities.

Annual Report & Accounts 2016 123

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

15. Investments
2016 2015
Group Notes £m £m

Investments in joint ventures      

At 1 January   0.2 –
Acquisitions 12(c) – 0.2
At 31 December   0.2 0.2

2016 2015
Company £m £m

Shares in subsidiary undertakings’ equity    

At 1 January 108.1 2.2
Additions in the year – 105.9
At 31 December 108.1 108.1

The prior year additions of £105.9m represent a loan waiver granted during the year to a subsidiary undertaking.

A list of the investments in subsidiaries and joint ventures, including the name, country of incorporation and proportion of
ownership interest is given below.
Country of Principal Percentage
Subsidiary undertakings Registered office incorporation activity holding
Exova 2014 Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
Exova Treasury Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
Exova (Mexico) Ltd 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Exova Group (UK) Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
Exova (UK) Limited Lochend Industrial Estate, Queen UK Testing 100%
Anne Drive, Newbridge, Midlothian,
EH28 8LP
Pipeline Developments Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
(dissolved 24 January 2017) Eccles, Manchester, M50 1RE
Law Laboratories Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
(dissolved 24 January 2017) Eccles, Manchester, M50 1RE
J. W. Worsley (Coventry) Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
(dissolved 24 January 2017) Eccles, Manchester, M50 1RE
Lawlabs Limited (dissolved 24 January 2017) 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
MTS Pendar Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
Catalyst Environmental Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Environmental Evaluation Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Western Technical Services Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Accusense Systems Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Warrington Certification Limited Holmesfield Road, Warrington, UK Dormant 100%
Cheshire, WA1 1RE
Warrington Fire Research Centre (London) 6 Coronet Way, Centenary Park, UK Dormant 100%
Limited Eccles, Manchester, M50 1RE
Warrington Fire Research Consultants Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE

124 Exova Group plc

 Strategic report Report of Directors Financial statements

Country of Principal Percentage

Subsidiary undertakings Registered office incorporation activity holding
Warrington Fire Research Group Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
Warrington Fire Research Centre Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Warrington APT Laboratories Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Certifire Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Firas Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
BM TRADA Group Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
BM TRADA Certification Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
TRADA Technology Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
Chiltern International Fire Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
FIRA International Limited 6 Coronet Way, Centenary Park, UK Testing 100%
Eccles, Manchester, M50 1RE
BM TRADA Overseas Limited 6 Coronet Way, Centenary Park, UK Holding 100%
Eccles, Manchester, M50 1RE
U.K. First Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
TRADA Certification Limited 6 Coronet Way, Centenary Park, UK Dormant 100%
Eccles, Manchester, M50 1RE
CCB Evolution Limited Chiltern House, Stocking Lane, UK Dormant 100%
Hughenden Valley, High Wycombe,
Buckinghamshire, HP14 4ND
Jones Environmental Forensics Limited 6 Coronet Way, Centenary Park, UK Testing 100%
Eccles, Manchester, M50 1RE
Insight N.D.T. Limited 6 Coronet Way, Centenary Park, UK Testing 100%
Eccles, Manchester, M50 1RE
Exova (Ireland) Limited Unit D8, North City Business Park, Ireland Testing 100%
North Road, Finglas, Dublin 11,
D11Y267
Exova s.r.o. Podnikatelska 39, Plzeň, 301 00 Czech Republic Testing 100%
Exova Metech s.r.o. Veselska 699, Prague, 19900 Czech Republic Testing 100%
Exova B.V. (formerly Exova (Holdings) B.V.) Kapitein Nemostraat 12, 7821 AC, Netherlands Testing 100%
Emmen, Drenthe
Exova S.R.L. Via della Pierina 9/11, 26013, Crema Italy Testing 100%
C.T.R. S.R.L. Via del Santo n. 211, 35010, Italy Testing 100%
Limena (PD)
BM TRADA Italia S.R.L. Via Al Ponte Reale, 2/91, Genova Italy Testing 100%
Exova AS Bygning 3, Fabrikkvegen 11, Norway Testing 100%
Raufoss, 2830
Exova Metech AS Bygning 3, Fabrikkvegen 11, Norway Testing 100%
Raufoss, 2830
Exova SAS ZAC du Perget, 3 Avenue Andre- France Testing 100%
Marie Ampere, Zone D’Activite
Commerciale, 31770, Du Perget,
Colomiers
Financiere Gerard Aubert SAS ZAC du Perget, 3 Avenue Andre, France Testing 100%
Marie Ampere, 31770, Colomiers

Annual Report & Accounts 2016 125

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

15. Investments continued

Country of Principal Percentage
Subsidiary undertakings Registered office incorporation activity holding
Exova Holdings GmbH Industriepark, Hochst, 65926, Germany Holding 100%
Geb. C369, Frankfurt
Exova GmbH Industriepark, Hochst, 65926, Germany Testing 100%
Geb. C369, Frankfurt
Exova Metech GmbH Hans-Böckler-Ring 9, D-22851 Germany Testing 100%
Norderstedt, Hamburg
BM TRADA Deutschland GmbH~ Landwehrstrasse 61, 80336, Munich Germany Certification 50%
WFR Gent NV* Ottergemsesteen weg-Zuid 711, Gent Belgium Testing 65%
BM TRADA Certificaciones Lusas SL Cl Amos de Escalante 2 3 F, 39002, Spain Testing 100%
Santander
BM TRADA Certification Espana SL Cl Amos de Escalante 2 3 F, 39002, Spain Testing 100%
Santander
Exova (Sweden) Holdings AB Box 1340, 581 13, Linkoping Sweden Holding 100%
Exova Materials Technology AB Box 1340, 581 13, Linkoping Sweden Testing 100%
CSM NDT Certification AB* Artilleriplan 4 691, 50, Karlskoga Sweden Testing 80%
Exova Metech AB Box 1340, 581 13, Linkoping Sweden Testing 100%
Exova Metech A/S Flyvestation, Karup, DK-7470, Denmark Testing 100%
Herningvej 30, Karup
Exova Metech OY Kuormakuja, Nummela, 03100 Finland Testing 100%
BM TRADA Suomi OY~ Niemenkatu 73, 15140 Lahti, Suomi Finland Certification 50%
Exova Metech Measurement Technology Room 1719, 17F, C1, TEDA MSD, No.79 China Testing 100%
Services (Tianjin) Co. Limited First Avenue, TEDA, Tianjin, 300457
Tianjin C-Kai BM TRADA Certification Room 708, Suite F Hai Tai Plaza, China Certification 40%
Company Limited~ No.8 Hua Tian Road, Tianjin,
Hua Yuan Industrial Zone
Exova (US) Holdings Inc 160 Greentree Drive, Suite 101, US Holding 100%
Dover, DE 19904
Exova, Inc 194 International Boulevard, US Testing 100%
Glendale Heights, IL 60139 2094
BM TRADA Certification North America Inc 1 Riverfront Plaza, 8th Floor, Newark US Testing 100%
NJ 07102
Exova Canada Inc 2395 Speakman Drive, Mississauga Canada Testing 100%
ON L5K 1B3
Exova Property Holdings Inc 2395 Speakman Drive, Mississauga Canada Property 100%
ON L5K 1B3 Holding
BM TRADA Certification North America Inc 398-2416 Main Street, Vancouver BC Canada Testing 100%
V5T 3E2
Exova de Mexico S. de R. L de CV Carretera Monterrey-Saltillo 3279 B, Mexico Testing 100%
Privada de Santa Catarina, Santa
Catarina, Nuevo Leon, C.P. 66367
Exova (Qatar) LLC* Street 46, Gate 16, Salwa Industrial Qatar Testing 24.5%
Area, P.O. Box 23650, Doha
Exova Warringtonfire LLC* P.O. Box 24863, Doha Qatar Testing 49%
Exova (Singapore) Pte Ltd 60 Paya Lebar Road, #08-43 Paya Singapore Testing 100%
Lebar Square, Singapore, 409051
Exova Warringtonfire Consulting (Singapore) 60 Paya Lebar Road, #08-43 Paya Singapore Testing 100%
Pte Ltd Lebar Square, Singapore, 409051
Exova Limited LLC* Muscat Governorate/Bawshar/ Oman Testing 70%
Ghala, PO Box 3552, PC 112
Exova Saudi Arabia Company Limited* Dammam, 2nd Industrial City, Saudi Arabia Testing 50%
Road 76-27
Exova Limited PO Box 309, Ugland House, Cayman Islands Testing 100%
Grand Cayman, KY1-1104

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 Strategic report Report of Directors Financial statements

Country of Principal Percentage

Subsidiary undertakings Registered office incorporation activity holding
Al Futtaim Exova LLC* Dubai Investments Park, Dubai Testing 49%
P.O. Box 34924
Exova Warringtonfire Middle East LLC* Dubai Investments Park, Dubai Testing 49%
P.O. Box 34924
Metallurgical Services Private Limited Mehta House, Ashok Silk Mills Lane, India Testing 100%
Khatkopar (West), Mumbai, 40086
BM TRADA RKCA Certifications Private 515 Tulsiani Chambers, Nariman India Dormant 50%
Limited~ Point, Mumbai, 400021
Exova Malaysia Sdn.Bhd Suite 13.03, 13th Floor, Menara Tan Malaysia Testing 100%
& Tan, 207 Jalan Tun Razak, 50400
Kuala Lumpur
Exova Warringtonfire Consulting Limited PO Box 119, Martello Court, Channel Islands Testing 100%
Admiral Park, St Peter Port,
GY1 3HB, Guernsey
Certifire (Hong Kong) Limited Flat/RM C 18/F, Infotech Centre, Hong Kong Dormant 100%
21 Hung to Road, Kwun Tong
Exova Certification and Inspection Unit C, 18/F., Infotech Centre, 21 Hong Kong Dormant 100%
(Hong Kong) Limited Hung to Road, Kwun Tong, Kowloon
Exova Warringtonfire (HK) Limited Unit C, 18/F., Infotech Centre, 21 Hong Kong Testing 100%
Hung to Road, Kwun Tong, Kowloon
BM TRADA (HK) Limited~ Unit 5, 5/F, Wah Chun Industrial Hong Kong Certification 70%
Centre, No.54 Tai Chung Road,
Tsuen Wan, N.T.
FIRA – CMA Testing Services Limited~ Room 1401-3 Yan Hing Centre, Hong Kong Certification 50%
9-13 Wong Chuk Yeung Street,
Fo Tan, Shatin
Exova Warringtonfire Aus Pty Ltd Unit 2, 409-411 Hammond Road, Australia Testing 100%
Dandenong VIC 3173
Exova Certifire Pty Ltd Unit 2, 409-411 Hammond Road, Australia Testing 100%
Dandenong VIC 3173
Exova Certification & Inspection Services Ltd PO Box 309, Ugland House, Grand Cayman Islands Testing 100%
Cayman, KY1-1104
Exova Warringtonfire NZ Limited c/o Whitelaw Weber & Co., New Zealand Dormant 100%
2 Clifford Street, Kaikohe
Exova Certfire NZ Limited 203 Manukau Road, Epsom, New Zealand Dormant 100%
Auckland
BM TRADA Cyprus Limited~ Andrea Assioti, 4A, Akropoli, Cyprus Certification 50%
Niscoai, 2007
Standard BM TRADA Belgelendirme AS~ Mimar Sinan, Mah. Yedpa, Bulvari Turkey Certification 50%
N.1, Yedpa Tic. Mer., F Cd. N. 14/15,
Atasehir, Istanbul
BM TRADA Latvija~ Volguntes Street 32, Riga, LV-1046 Latvia Certification 50%
BM TRADA RKCA Lanka Certifications No. 1041-2/1 Maradana Road, Sri Lanka Certification 50%
(Private) Limited~ Borella, Columbo 8
BM TRADA Eesti Ou~ Peterburi tee 46, Tallinn 11415 Estonia Certification 50%
BM TRADA Lietuva~ Neires Krantine 16, Kaunas, LT-48402 Lithuania Certification 50%
Exova Jones Environmental Laboratory Unit D2 and D5, 9 Quantum Road, South Africa Testing 100%
South Africa (Pty) Ltd Firgrove Business PA, Somerset West,
Western Cape, 7130

* These companies are treated as subsidiaries in the results of the Group as effective control over their operations exists, as described in the shareholder
and management services agreements with the related parties.
~ These are companies where the Group exercises joint control.

Exova 2014 Limited’s shareholding is held directly whilst all others are held through wholly owned subsidiaries.

Annual Report & Accounts 2016 127

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

16. Trade and other receivables

2016 2015
Group £m £m

Trade receivables 67.5 62.4

Less: provision for impairment of receivables (1.9) (1.6)
Net trade receivables 65.6 60.8
Other receivables 5.2 5.1
Prepayments 5.3 4.8
Accrued income 5.3 3.8
  81.4 74.5

The average credit period on sales was 62 days (2015: 64 days).

Analysis of trade receivables

Neither impaired nor past due 46.6 45.4
Past due but not impaired 19.0 15.4
Impaired 1.9 1.6
  67.5 62.4
The ageing of past due but not impaired trade receivables    
Up to 3 months 17.0 13.8
Over 3 months 2.0 1.6
  19.0 15.4
Ageing of impaired trade receivables
Up to 3 months 0.2 0.2
Over 3 months 1.7 1.4
  1.9 1.6
Movements on the provision for impairment of trade receivables
At 1 January 1.6 1.1
Provision for receivables impairment 0.6 0.3
Acquisitions 0.1 0.2
Receivables written off during the year as uncollectable (0.6) –
Exchange adjustments 0.2 –
At 31 December 1.9 1.6

At 31 December 2016 £1.9m trade receivables (2015: £1.6m) were determined to be impaired based on age and recoverability of
the debt and fully provided for.
2016 2015
Company £m £m

Amounts due from subsidiary undertakings 122.5 122.0

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 Strategic report Report of Directors Financial statements

17. Trade and other payables

Group Company
2015
(restated
2016 Note 1(c)) 2016 2015
  £m £m £m £m

Due within one year        

Trade payables 11.2 9.7 – –
Other taxes and social security 4.9 6.0 – –
Other payables 18.0 14.3 – –
Accruals 12.9 12.9 0.3 1.5
Deferred income 5.2 6.7 – –
Contingent consideration 1.6 0.6 – –
Deferred consideration 1.8 0.3 – –
  55.6 50.5 0.3 1.5
Due after more than one year        
Other payables 7.8 6.1 – –
Contingent consideration 5.9 – – –
Deferred consideration 0.1 0.1 – –
Amounts due to subsidiary undertakings – – 24.2 14.3
  13.8 6.2 24.2 14.3

18. Bank and other borrowings

Amounts falling due in: Amounts falling due in:
less than more than 2016 less than more than 2015
one year one year Total one year one year Total
  £m £m £m £m £m £m

Term loans – 193.6 193.6 – 169.7 169.7

Revolving credit facility 8.0 – 8.0 12.0 – 12.0
Bank overdraft – – – 0.1 – 0.1
Debt issue costs – term loans – (1.5) (1.5) – (2.1) (2.1)
Bank and other borrowings 8.0 192.1 200.1 12.1 167.6 179.7
Finance leases 0.1 0.1 0.2 0.1 0.3 0.4
  8.1 192.2 200.3 12.2 167.9 180.1

The following analysis details outstanding borrowings, the facilities available to the Group and the undrawn amounts at the
balance sheet date.
Amounts falling due in:
between between
less than one and two and five 2016
one year two years years Total
  Maturity £m £m £m £m

Term loans 2019 – – 193.6 193.6

Revolving credit facility 2017 8.0 – – 8.0
Finance leases 2017 – 2020 0.1 0.1 – 0.2
Total drawn facilities   8.1 0.1 193.6 201.8
Revolving credit facility   82.0 – – 82.0
Total undrawn facilities   82.0 – – 82.0
Total facilities   90.1 0.1 193.6 283.8

Annual Report & Accounts 2016 129

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

18. Bank and other borrowings continued

Amounts falling due in:
between between
less than one and two and five 2015
one year two years years Total
  Maturity £m £m £m £m

Term loans 2019 – – 169.7 169.7

Revolving credit facility 2016 12.0 – – 12.0
Bank overdraft On demand 0.1 – – 0.1
Finance leases 2016 – 2021 0.1 0.1 0.2 0.4
Total drawn facilities   12.2 0.1 169.9 182.2
Revolving credit facility   78.0 – – 78.0
Total undrawn facilities   78.0 – – 78.0
Total facilities   90.2 0.1 169.9 260.2

Net debt is arrived at as follows:

2016 2015
  £m £m

Term loans 193.6 169.7

Revolving credit facility 8.0 12.0
Finance leases 0.2 0.4
Gross debt 201.8 182.1
Cash and cash equivalents (52.4) (29.1)
Net debt 149.4 153.0

Net debt is shown gross of unamortised debt issue costs of £1.5m (2015: £2.1m).

Cash and cash equivalents

For the purposes of the calculation of net debt and the statement of cash flows, cash and cash equivalents comprise the following:
2016 2015
  £m £m

Cash and short-term deposits 52.4 29.2

Bank overdrafts – (0.1)
Cash and cash equivalents 52.4 29.1

19. Financial instruments

Financial risk management objectives and policies
The Board has the responsibility for setting the financial risk management policies applied by the Group. The policies are
implemented by the central treasury department which receives regular reports from the operating companies to enable
prompt identification of financial risks so that the appropriate actions may be taken.

(a) Foreign exchange risk policy

The Group has operations in 33 countries and is therefore exposed to foreign exchange translation risk when the profits and net
assets of these entities are consolidated into the Group financial statements.

Assets are partially hedged, where appropriate, by matching the currency of borrowings to the net assets of the subsidiaries.

It is Group policy not to hedge the translational exposure arising from profit and loss items.

Transaction related foreign exchange exposures arise when entities within the Group enter into contracts to pay or receive funds
in a currency different from the functional currency of the entity concerned.

It is Group policy that all operating units eliminate exposures on material committed transactions usually by undertaking forward
foreign currency contracts through the Group’s treasury function.

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(b) Net Investment in foreign operations

Euro variable loans included in interest-bearing loans and borrowings, amounting to EUR 20.6m (2015: EUR 20.6m), US Dollar
variable loans included in interest-bearing loans and borrowings, amounting to USD 85.6m (2015: USD 85.6m), Sterling variable
loans included in interest-bearing loans and borrowings, amounting to GBP 57.0m (2015: GBP 63.0m), Canadian Dollar variable
loans included in interest-bearing loans and borrowings, amounting to CAD 78.5m (2015: CAD 78.5m) and Swedish Krona
variable loans included in interest-bearing loans and borrowings, amounting to SEK 93.8m (2015: SEK 93.8m) have been
designated as a hedge of the Group’s exposure to translational foreign exchange risk on its net investments in foreign operations.
Gains or losses on the retranslation of the borrowings are transferred to equity to offset any gains or losses on translation of the
net investments in these subsidiaries.

(c) Interest rate risk policy

The Group’s bank borrowings are at variable rates of interest. Interest rate risk is regularly monitored to ensure that the mix of
variable and fixed rate borrowing is appropriate for the Group in the short to medium-term.

(d) Credit risk policy

Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and
unrelated. Consequently, management believe there is no further credit risk provision required in excess of a normal provision for
doubtful receivables. Therefore, the maximum exposure to credit risk at the reporting date is the fair value of each class of receivable.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer and before accepting
any significant new customer, the Group uses an external credit scoring system to assess the potential customer’s credit quality
and define a credit limit for the customer.

The geographic profile of credit risk in these financial statements is broadly in line with that of revenue as disclosed in Note 2
Segmental reporting.

Cash and cash equivalents representing cash, other short-term deposits and bank overdrafts, are held with banks that are not
expected to fail.

(e) Liquidity risk policy

The Group actively maintains a mixture of committed facilities that are designed to ensure the Group has sufficient available
funds for existing operations and planned expansions.

Management monitors rolling forecasts of the Group’s liquidity reserve (comprising undrawn borrowing facilities and cash and
cash equivalents (Note 18 Bank and other borrowings)) on the basis of expected cash flow. The Group’s liquidity management
policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these;
monitoring balance sheet liquidity ratios against internal and external requirements and maintaining debt financing plans.

The Group has no derivative financial instruments which will be settled on a gross basis.

Carrying amounts and fair values

Set out below is a comparison by category of carrying amounts and fair values of all the Group’s financial instruments, other than
those with carrying amounts that are reasonable approximations of fair values, that are carried in the financial statements.
2016 2015
Carrying
Fair value Carrying amount Fair value
measurement amount Fair value (restated) (restated)
  Notes level £m £m £m £m

Amortised cost            
Non-derivative financial liabilities            
Contingent consideration 17 3 7.5 7.5 0.6 0.6

In accordance with IFRS 7 Financial Instruments: Disclosures, financial instruments are classified in the form of a three level fair
value hierarchy, by class, for all financial instruments recognised at fair value:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or
indirectly; and
• Level 3: inputs for the asset or liability that are not based on observable market data.

At 31 December 2015 and 31 December 2016, the Group held all financial instruments at level 2 fair value measurement for the
purposes of disclosing their fair value, with the exception of trade receivables and payables, cash and cash equivalents and
contingent consideration. Between 31 December 2015 and 31 December 2016, there were no transfers between level 1 and level
2 fair value measurements and no transfers into or out of level 3 fair value measurements.

Annual Report & Accounts 2016 131

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

19. Financial instruments continued

Carrying amounts and fair values continued
At 31 December 2016 there is one level 3 fair value measurement which relates to contingent consideration liabilities resulting from
acquisition activity. The fair value of the contingent consideration liabilities is based on an assessment of the probability of possible
outcomes discounted to net present value. Subsequent changes to the fair value of the contingent consideration liabilities are
adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes
in the fair value of contingent consideration liabilities are accounted for in accordance with relevant IFRSs.

For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to
the fair value measurement as a whole) at the end of each reporting period.

The methods and assumptions used to estimate the fair values shown above are:

• finance leases – the fair value of borrowings and obligations under finance leases have been estimated by discounting future
cash flows using rates currently available for debt on similar terms, credit risks and remaining maturities;
• term loans and revolving credit facility loans – the fair value of the term and revolving credit facility loans approximates to the
carrying amount as these loans have floating rates of interest; and
• other financial instruments – the fair value of all other items have been calculated by discounting the expected future cash
flows at prevailing interest rates.

The carrying amount of financial instruments of the Company, i.e. other long term liabilities, is a reasonable approximation of fair value.

Contingent consideration
2015
(restated
2016 Note 1(c))
  £m £m

Admaterials Technologies Private Limited 4.4 –

Jones Environmental Forensics Limited 1.6 –
Insight NDT Limited 1.5 –
Metallurgical Services Private Limited – 0.6
  7.5 0.6

The contingent consideration is sensitive to changes in the assumptions. A decrease in EBITDA projections would result in a
decrease in contingent consideration. A decrease in the EBITDA multiple would decrease the contingent consideration.

The consideration to acquire Admaterials Technologies Private Limited included a put and call option to purchase the remaining
shareholding three years after acquisition based on the same earnings multiple as the original offer. The contingent consideration’s
range was between a minimum of £nil and a maximum of £8.7m. The contingent consideration becomes due in 2019. The fair
value of the contingent consideration is the present value of expected future cash flows based on the latest forecasts of future
performance.

The consideration to acquire Jones Environmental Forensics Limited included contingent consideration based on future targets
being met. The contingent consideration relating to the future target’s range was between a minimum of £nil and a maximum of
£1.6m. The contingent consideration is due in 2017. The fair value of the contingent consideration is based on the latest forecasts
of future performance.

The consideration to acquire Insight NDT Limited included contingent consideration based on future targets being met. The
contingent consideration range is between a minimum of £nil and a maximum of £1.5m. The contingent consideration becomes
payable in 2018. The fair value of the contingent consideration is based on the latest forecasts of future performance.

The consideration to acquire Metallurgical Services Private Limited included contingent consideration based on future targets
being met. The contingent consideration range was between a minimum of £nil and a maximum of £2.8m. The first contingent
consideration of £2.2m became payable in August 2015 with the second one of £0.6m payable in October 2016. The target
for the second contingent consideration was not met therefore the amount was reversed. The fair value of the contingent
consideration was the present value of expected future cash flows based on the latest forecasts of future performance.

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Liquidity and credit risk

The Group manages liquidity risk by maintaining adequate banking facilities, by continuously monitoring forecast and actual
cash flows and matching the maturity profiles of financial assets and liabilities. The Group has at its disposal additional undrawn
facilities which further reduce the liquidity risk and are disclosed in Note 18 Bank and other borrowings.

The following analysis details the contractual maturities of financial liabilities at the balance sheet date including interest and
principal cash flows, using undiscounted cash flows. For floating rate financial liabilities, the interest applied in the analysis below
has been calculated using the prevailing rate at the year end.
Amounts falling due:
between
in less than one and
one year two years Total
2016 £m £m £m

Amortised cost      
Non-derivative financial liabilities      
Trade payables 11.2 – 11.2
Term loans 4.7 203.1 207.8
Revolving credit facility 8.0 – 8.0
Finance leases 0.1 0.1 0.2
  24.0 203.2 227.2

Amounts falling due:

between between
in less than one and two and five
one year two years years Total
2015 £m £m £m £m

Amortised cost        
Non-derivative financial liabilities        
Trade payables 9.7 – – 9.7
Bank overdrafts 0.1 – – 0.1
Term loans 4.2 4.2 178.0 186.4
Revolving credit facility 12.0 – – 12.0
Finance leases 0.1 0.1 0.2 0.4
  26.1 4.3 178.2 208.6

Interest rate risk

The following table analyses the carrying amount of the Group’s financial instruments between fixed and floating rate:
2016
Cash and
Floating cash
Fixed rate rate equivalents Total
Currency and interest rate profile £m £m £m £m

Currency:        
Sterling 0.1 59.0 (4.6) 54.5
Euro – 17.6 (4.5) 13.1
US dollar – 69.3 (1.9) 67.4
Canadian dollar 0.1 47.4 (17.0) 30.5
Swedish krona – 8.3 (2.1) 6.2
UAE dirham – – (9.7) (9.7)
Qatari riyal – – (3.1) (3.1)
Other – – (9.5) (9.5)
  0.2 201.6 (52.4) 149.4

Annual Report & Accounts 2016 133

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

19. Financial instruments continued

Interest rate risk continued
2015
Cash and
Floating cash
Fixed rate rate equivalents Total
Currency and interest rate profile £m £m £m £m

Currency:        
Sterling 0.1 63.0 (1.1) 62.0
Euro – 15.2 (5.2) 10.0
US dollar 0.1 57.8 (2.1) 55.8
Canadian dollar 0.1 38.2 (4.2) 34.1
Swedish krona – 7.5 (1.9) 5.6
UAE dirham – – (6.6) (6.6)
Qatari riyal – – (2.0) (2.0)
Other 0.1 – (6.0) (5.9)
  0.4 181.7 (29.1) 153.0

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant.
Effect on
profit
Increase in before tax
basis (loss)
2016 points £m

Sterling +100 (0.6)

Euro +100 (0.2)
US dollar +100 (0.7)
Canadian dollar +100 (0.5)
Swedish krona +100 (0.1)

Effect on
profit
Increase in before tax
basis (loss)
2015 points £m

Sterling +100 (0.6)

Euro +100 (0.2)
US dollar +100 (0.6)
Canadian dollar +100 (0.4)
Swedish krona +100 (0.1)

Foreign exchange risk

The following table demonstrates the sensitivity to Sterling strengthening by 10% (2015: 10%) in these respective foreign currency
exchange rates with all other variables held constant, of the Group’s profit before tax (due to foreign exchange translation of
monetary assets and liabilities) and the Group’s equity (due to changes in net investment hedges). The impact of translating
the net assets of foreign operations into Sterling is excluded from the sensitivity analysis.
Effect on
profit Effect on
Increase in before tax equity
currency (loss) (loss)
2016 rate £m £m

Euro +10% (0.5) (0.9)

US dollar +10% (1.1) (2.3)
Canadian dollar +10% (0.7) (3.3)
Swedish krona +10% (0.2) (0.7)
UAE dirham +10% (0.1) (1.4)
Qatari riyal +10% (0.2) (0.7)

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 Strategic report Report of Directors Financial statements

Effect on
profit Effect on
Increase in before tax equity
currency (loss) (loss)
2015 rate £m £m

Euro +10% (0.2) (1.1)

US dollar +10% (1.1) (2.0)
Canadian dollar +10% (0.5) (1.9)
Swedish krona +10% (0.1) (0.6)
UAE dirham +10% (0.1) (1.1)
Qatari riyal +10% (0.1) (0.5)

The following significant exchange rates applied during the year:

Average Average
rate Closing rate rate Closing rate
  2016 2016 2015 2015

Euro 1.232 1.172 1.378 1.357

US dollar 1.357 1.236 1.532 1.483
Canadian dollar 1.807 1.657 1.957 2.056
Swedish krona 11.641 11.225 12.913 12.446
UAE dirham 4.987 4.538 5.630 5.447
Qatari riyal 4.952 4.500 5.585 5.404

20. Capital management

The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support
its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it in the light of
changes in economic conditions. The Directors consider the ratios listed below for 2016 and 2015 to be acceptable for the Group.

The Group monitors capital using the following indicators:

(a) Gearing ratio

Gearing is calculated as net debt divided by total equity. Net debt represents the carrying value of all financing including bank
financing and finance leases net of cash and cash equivalents. Net debt does not include capitalised debt issue costs.
2016 2015
  Notes £m £m

Net debt 18 149.4 153.0

Total equity   346.8 287.8
Gearing ratio (%)   43 53

(b) Net debt to adjusted EBITDA cover

Net debt to adjusted EBITDA ratio is calculated as net debt divided by adjusted EBITDA. Adjusted EBITDA is defined as operating
profit from continuing operations before separately disclosed items and depreciation.
  Notes £m £m

Net debt 18 149.4 153.0

Operating profit   43.5 29.5
Gain on disposal of businesses 4 (6.1) –
Restructuring costs 4 5.9 4.9
Impairment of property, plant and equipment 4 1.5 –
Acquisition and integration costs 4 1.6 3.4
Depreciation and amortisation   18.1 21.3
Adjusted EBITDA   64.5 59.1
Net debt to adjusted EBITDA cover ratio (times)   2.3 2.6

Annual Report & Accounts 2016 135

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

20. Capital management continued

(c) Interest cover
Interest cover comprises adjusted EBITDA divided by net cash interest payable. Net cash interest payable excludes amortisation
of debt issue costs, pension interest and unwind of discount on leasehold dilapidations.

2016 2015
  £m £m

Adjusted EBITDA 64.5 59.1

Net cash interest payable 5.5 5.1
Interest cover (ratio) 11.7 11.6

21. Provisions
2016 2015
Restructuring Dilapidations Total Restructuring Dilapidations Total
  Notes £m £m £m £m £m £m

At 1 January   3.5 6.3 9.8 4.0 6.5 10.5

Acquisitions 12(a) – 0.4 0.4 0.1 – 0.1
Additions in the year   4.2 0.7 4.9 2.8 0.1 2.9
Utilised   (4.1) (0.8) (4.9) (3.2) (0.2) (3.4)
Released during the year   – (0.7) (0.7) – – –
Exchange adjustments   0.4 0.7 1.1 (0.2) (0.1) (0.3)
At 31 December   4.0 6.6 10.6 3.5 6.3 9.8
Current   2.2 1.4 3.6 2.5 0.6 3.1
Non-current   1.8 5.2 7.0 1.0 5.7 6.7
Total   4.0 6.6 10.6 3.5 6.3 9.8

Restructuring provisions relate to termination payments payable within one year and onerous lease contracts payable within six years.

Provisions have been recognised for dilapidation costs associated with exiting operating leases. It is expected that the majority
of these costs will be incurred in the next 15 years.

22. Deferred tax

Group
(Credit)/
debit to Credit to other At 31 December
At January 2016 income comprehensive Exchange 2016
(asset)/liability statement income adjustment Acquired (asset)/liability
£m £m £m £m £m £m

Losses (1.6) – – 0.5 – (1.1)

Fixed assets timing differences 1.3 (0.1) – 0.4 0.2 1.8
Intangible assets timing differences 5.5 (0.2) – 0.9 1.2 7.4
Research and development 2.1 (0.1) – 0.5 – 2.5
Accrued interest disallowed until paid (0.8) 0.3 – (0.3) – (0.8)
Provisions/accruals (1.9) – – (0.3) – (2.2)
Retirement benefit obligations (2.4) – (0.6) (0.4) – (3.4)
Share based payments – (0.3) (0.2) – – (0.5)
Other 0.2 0.8 – (0.2) – 0.8
  2.4 0.4 (0.8) 1.1 1.4 4.5

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(Credit)/
debit to Debit to other At 31 December
At January 2015 income comprehensive Exchange 2015
(asset)/liability statement income adjustment Acquired (asset)/liability
£m £m £m £m £m £m

Losses (1.8) (0.5)  – 0.7  – (1.6)

Fixed assets timing differences 1.6 0.2 – (0.5) – 1.3
Intangible assets timing differences 5.2 (1.7) – (0.1) 2.1 5.5
Research and development 2.6 (0.2) – (0.3) – 2.1
Accrued interest disallowed until paid (1.9) 1.0 – 0.1 – (0.8)
Provisions/accruals (1.9) – – – – (1.9)
Retirement benefit obligations – (0.1) 0.7 – (3.0) (2.4)
Other (0.3)  – – 0.5 – 0.2
  3.5 (1.3) 0.7 0.4 (0.9) 2.4

The current year movement in deferred tax shown in Note 9 includes the government grants utilised during the year (see Note 14).
The element of deferred tax included in government grants is not included in the table above.

Recognised deferred tax assets and liabilities

2016 2015
Deferred tax Deferred tax Net deferred tax Deferred tax Deferred tax Net deferred tax
assets liabilities (asset)/liability assets liabilities (asset)/liability
  £m £m £m £m £m £m

Losses (1.1) – (1.1) (1.6) – (1.6)

Fixed asset timing difference (1.1) 2.9 1.8 (1.1) 2.4 1.3
Intangible assets timing difference – 7.4 7.4 – 5.5 5.5
Research and development – 2.5 2.5 – 2.1 2.1
Accrued interest disallowed until paid (0.8) – (0.8) (0.8) – (0.8)
Provisions/accruals (2.2) – (2.2) (1.9) – (1.9)
Retirement benefit obligations (3.4) – (3.4) (2.4) – (2.4)
Share based payments (0.5)  – (0.5) – – –
Other (0.3) 1.1 0.8 (0.2) 0.4 0.2
  (9.4) 13.9 4.5 (8.0) 10.4 2.4

Company
Recognised deferred tax assets
Share based payments (0.5) – (0.5) – – –

Deferred tax assets have been recognised in respect of certain losses, fixed asset timing differences, accrued interest, other
accruals and retirement benefit obligations where it is probable that they will be utilised against taxable profits in the foreseeable
future. The carrying value of these deferred tax assets was assessed based on estimates and judgements of the availability of
future taxable profits arising during the same time frame used for impairment reviews (see Note 11). A key judgement in 2016, was
the non-recognition of a UK deferred tax asset on UK losses of approximately £0.9m due to uncertainty in the currency markets.
If sterling strengthens in 2017 it is likely this asset will be recognised.

The deferred tax liability in respect of intangible asset timing differences relates to customer relationships which are being amortised
between 5 and 20 years and on which there is no associated tax deduction against taxable profits.

No deferred tax liability has been recognised in respect of unremitted earnings of subsidiaries. It is likely that the majority of
the overseas earnings will qualify for the UK dividend exemption and the Group can control the distribution of dividends by its
subsidiaries. In some jurisdictions, local tax is payable on the remittance of a dividend. If dividends were to be remitted from
subsidiaries in these countries the additional tax payable would be £9.1m with the gross timing differences being £65.0m.

Annual Report & Accounts 2016 137

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

23. Issued share capital and reserves

2016 2015
Ordinary shares £m £m

Allotted, issued and fully paid:    

250,490,374 ordinary shares of £0.01 each (2015: 250,372,727 ordinary shares of £0.01 each) 2.5 2.5

Share transactions in 2016

(i) Transactions in Exova Group plc (the Company):
On 4 May 2016, the Company issued a further 58,823 shares of £0.01 each.
On 23 November 2016, the Company issued a further 58,824 shares of £0.01 each.

Share premium
The shares issued on the date of listing of 16 April 2014 were valued at a consideration of £110.0m with £109.5m being transferred
to the Share Premium reserve.

Merger reserve
As a result of the capitalisation of the loan to parent undertaking, the conversion of the preference shares and accrued dividend,
and the redemption of deferred share capital, a merger reserve was created.

Foreign currency translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign
operations, as well as from the translation of the liabilities that hedge the Group’s net investment in a foreign subsidiary.

Capital contribution reserve

The capital contribution reserve was created on 3 October 2011 following the execution of a deed of release whereby TABASCO
B.V. (formerly Exova Group B.V.) agreed to unconditionally and irrevocably release Exova Topco Limited from its obligation to
repay the sum of £102.5m from the then current sum outstanding under the group undertaking loan agreement. Exova Topco
Limited was dissolved on 5 July 2016.

On 16 November 2011, following a resolution by Exova 2014 Limited (formerly Exova Group Limited), the existing holders of the
preference shares of Exova 2014 Limited waived their right to receive any of the accrued preference dividends at the rate of 15%
to 31 December 2010, totalling £12.4m. Furthermore, the preference rate dividend was reset from 15% to 8% per annum with effect
from 1 January 2011.

The capital contribution reserve is distributable in future periods, subject to the provisions of the Companies Act 2006.

24. Share-based payments

The Company operates the Exova Group plc Long-Term Incentive Plan, the Exova Group plc Share Option Plan, the Exova Group
plc Deferred Bonus Plan, the Exova Group plc Share Incentive Plan and the Exova Group plc Employee Share Purchase Plan.

No awards have been granted under either the Share Incentive or Employee Share Purchase Plans.

Description of the plans

Long-Term Incentive Plan (LTIP)
The LTIP is a discretionary executive share plan and the Board may, within certain limits and subject to any applicable
performance conditions, grant to eligible employees (i) nil cost options over shares and/or (ii) conditional awards and/or (iii)
shares which are subject to restrictions and the risk of forfeiture. LTIP awards may be granted to such eligible employees with a
maximum total market value in any financial year of up to 200% of the relevant individual’s annual base salary. The performance
conditions for awards are based on earnings per share (EPS) and comparative total shareholder return (TSR). Except in certain
circumstances, LTIP awards lapse upon the participant ceasing to be an employee of the Group.

Share Option Plan (SOP)

The SOP is a discretionary executive option plan and the Board may, within certain limits, grant to eligible employees awards
in the form of options over shares. The Board may grant SOP options with a maximum total market value in any financial year of
up to 150% of the relevant individual’s annual base salary. A SOP option will normally vest and become exercisable on the third
anniversary of the date of grant to the extent that any applicable performance conditions have been satisfied. Except in certain
circumstances, SOP awards lapse upon the participant ceasing to be an employee of the Group.

Deferred Bonus Plan (DBP)

This is a discretionary executive share plan where the Board may, within certain limits, grant to eligible employees (i) nil cost
options over shares and/or (ii) conditional awards and/or (iii) shares which are subject to restrictions and the risk of forfeiture.
The Board has discretion to grant awards under the DBP subject to a holding period of a maximum of up to two years. Except in
certain circumstances, DBP awards will lapse immediately upon a participant ceasing to be employed by or holding office with
the Group.

During the year the Group recognised an expense of £1.4m in respect of the share awards of which £1.4m is equity settled
(2015: £0.4m).

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 Strategic report Report of Directors Financial statements

The terms and conditions of the grants made during the year are as follows:
Share price Shares
at grant Exercise under Vesting
date price Number of option period
Plan name Grant date pence pence employees Number Years

LTIP award 18/4/16 162 £1 in total 20 1,917,001 3

SOP 18/4/16 162 162 29 1,162,594 6.5

Fair value of options

The options granted under the LTIP scheme have been valued using a combination of the Black-Scholes and the Monte-Carlo
option pricing models. The SOP scheme options have been valued using the Black-Scholes model.

The following tables list the inputs to the models used for the years ended 31 December 2016 and 2015 respectively:
2016 2015
LTIP
– additional
Plan name LTIP SOP LTIP LTIP award SOP SOP DBP

Grant date 18/04/16 18/04/16 15/05/15 01/10/15 01/10/15 15/05/15 01/10/15 02/11/15
Fair value per option £1.30 £0.36 £1.51 £1.39 £1.70 £0.60 £0.42 £1.50
Risk free interest rate 0.51% 1.09% 0.84% 0.77% n/a 1.59% 1.40% n/a
Expected volatility  1
29.4% 25.6% 27.4% 25.5% n/a 33.6% 30.0% n/a
Share price £1.62 £1.42 £1.95 £1.70 £1.70 £1.95 £1.70 £1.50
Dividend yield2 1.98% 2.25% 1.79% 2.06% n/a 1.79% 2.06% n/a
Option life (years) 3 6.5 3 3 2 6.5 6.5 1
Expected life (years) 3 6.5 3 3 2 6.5 6.5 1

1. As a result of the Company being listed in April 2014, the expected volatility is based on the historical volatility of a comparator group of companies of
a similar size and industry over the same period as the expected life of the awards.
2. The dividend yield is based on management expectations and the share price at the date of grant.

Movement in share options

A reconciliation of conditional share movements during the year is shown below:
2016 2015
Weighted Weighted
average Share price average Share price
exercise at date of exercise at date of
price exercise price exercise
  Number £ £ Number £ £

Outstanding at 1 January 3,959,365 0.52   1,915,124 0.88  

Granted during the year 3,079,595 0.60   2,913,990 0.55  
Exercised during the year – 4 May 2016 (58,823) £1 in total 1.60 – – –
Exercised during the year – 23 November 2016 (58,824) £1 in total 1.95 – – –
Lapsed (432,673) 1.00 – –
Forfeited during the year (1,055,660) 1.00   (869,749) 0.59  
Outstanding at 31 December 5,432,980 0.91   3,959,365 0.52  
Exercisable at 31 December – –   – –  
Range of exercise prices            
£1 in total 3,938,102     2,590,708    
£1.60 – £1.92 1,385,719     779,707    
£2.20 541,832     588,950    

The weighted average remaining contractual life for the share options outstanding as at 31 December 2016 is 2.83 years
(2015: 3.14 years).

Annual Report & Accounts 2016 139

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

25. Commitments
(a) Group capital commitments
2016 2015
  £m £m

Contracted for but not provided 1.4 3.4

(b) Group operating lease commitments

The total of future minimum lease payments in respect of non-cancellable operating leases are as follows:
2016 2015
Land and Land and
buildings Other Total buildings Other Total
  £m £m £m £m £m £m

Within one year 10.2 1.4 11.6 8.0 0.8 8.8

Between two and five years 26.0 1.5 27.5 16.4 0.7 17.1
After five years 17.1 – 17.1 10.2 – 10.2
  53.3 2.9 56.2 34.6 1.5 36.1

The Group leases various properties and plant and equipment under non-cancellable operating lease agreements. The leases
have various terms and renewal rights. The Group has also sub-let certain properties under non-cancellable sublease agreements
and the total of future minimum lease payments expected to be received amounts to £1.9m (2015: £1.6m).

(c) Group finance lease and hire purchase commitments

The Group has finance leases and hire purchase contracts for various items of plant and equipment. These leases have terms of
renewal, but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease.
Future minimum lease payments under finance leases and hire purchase contracts, together with the present value of the net
minimum lease payments, are as follows:
2016 2015
Present Present
Minimum value of Minimum value of
payments payments payments payments
  £m £m £m £m

Within one year 0.1 0.1 0.1 0.1

Between two and five years 0.1 0.1 0.3 0.3
After five years – – – –
Total minimum lease payments 0.2 0.2 0.4 0.4
Less amounts representing finance charges – – – –
Present value of minimum lease payments 0.2 0.2 0.4 0.4

(d) Company
The Company had no obligations under capital, operating or finance lease and hire purchase commitments.

26. Contingent liabilities

The Group provided a total of £2.7m in guarantees and performance bonds at 31 December 2016 (2015: £1.4m). An amount of £0.5m
cash has been deposited to facilitate the issuance of the individual guarantees and is recognised under other receivables.

A further guarantee of 2% of the Sweden defined benefit pension liability has been provided to PRI Pensions Garanti. This amounted
to £0.1m at 31 December 2016.

27. Retirement benefit obligations

The Group operates a number of pension schemes throughout the world. In most locations, these are defined contribution
arrangements. However, there are defined benefit pension plans in the UK, Sweden, Germany and Norway, which require
contributions to be made to separately administered funds.

Defined contribution pension schemes

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined
contribution pension plans are recognised as an employee benefit expense in the income statement as incurred.

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Defined benefit pension schemes

A defined benefit plan is a post employment benefit plan other than a defined contribution plan.

The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the
amount of future benefits that employees have earned in return for their service in the current and prior years; that benefit is
discounted to determine its present value. Any unrecognised past service costs and the fair values of any plan assets are deducted.

The largest of the defined benefit pension schemes is the UK scheme, TTL Chiltern Group Pension Scheme. The assets of this
scheme are administered by trustees in a fund independent from those of the participating companies and invested directly
on the advice of the independent professional investment managers.

The Scheme provides pensions in retirement and death benefits to members. Pension benefits are linked to a member’s final salary
at retirement and their length of service. Since 1 October 2015 the Scheme has been closed to future accrual. The Scheme is a
registered scheme under UK legislation and was contracted out of the State Second Pension. The Scheme is subject to the scheme
funding requirements outlined in UK legislation. The Scheme was established from 2 March 1978 under trust and is governed by the
Scheme’s rules dated 22 July 2011 and subsequent amending deeds (the “Rules”). The Trustees are responsible for the operation
and the governance of the Scheme, including making decisions regarding the Scheme’s funding and investment strategy. Under
clause 66 of the Rules the Company is entitled to an unconditional right to a refund of surplus if the Scheme winds up with excess
assets.

The Scheme exposes the Company to actuarial risks such as; market (investment) risk, interest rate risk, inflation risk currency risk
and longevity risk. The Scheme does not expose the Company to any unusual Scheme-specific or Company-specific risks.

There have been no amendments, curtailments or settlements over the year.

The Scheme’s investment strategy is to invest broadly 55% in return seeking assets (with 27.5% allocated to diversified growth funds
and 27.5% allocated to equities) and 45% in matching assets (with 20.5% allocated to index-linked gilts or other inflation linked
assets, and 24.5% allocated to corporate bonds). This strategy reflects the Scheme’s liability profile and the Trustees’ and Company’s
attitude to risk.

The last scheme funding valuation of the Scheme was as at 31 December 2013 and revealed a funding deficit of £9.3m. The
Company agreed to pay monthly contributions of £61k increasing at a rate of 3% per annum each 1 January with the view to
eliminating the shortfall by 31 December 2025 in line with the recovery plan dated 4 July 2014.

The Company is expected to pay contributions of £798k over the next accounting period. In addition, Scheme expenses, Pension
Protection Fund Levies and insurance premiums are paid directly by the Company. Contributions to the Scheme are subject
to review at future actuarial valuations and subsequent certification of a new schedule of contributions. The next actuarial
valuation of the Scheme is due with effective date 31 December 2016 and a new schedule of contributions must be in place
within 15 months of the effective date.

The liabilities of the Scheme are based on the current value of expected benefit payment cashflows to members of the Scheme
over the next 70 to 80 years. On the chosen IAS 19 assumptions the average duration of the liabilities at 31 December 2016 is
around 16-17 years.

Total pension cost

The total pension cost included in operating profit for the Group was:
2016 2015
  £m £m

Defined contribution schemes 6.0 5.1

Defined benefit scheme – current service cost 0.2 0.3
Scheme administration costs – 0.1
Pension cost included in operating profit 6.2 5.5

Defined benefit schemes

The amounts recognised in the income statement were as follows:
2016 2015
  £m £m

Current service cost 0.2 0.3

Scheme administration costs – 0.1
Net pension interest cost 0.6 0.4
Total charge 0.8 0.8

The current service cost and scheme administration costs are included in operating costs in the Group income statement. Net
pension interest cost is included in net finance costs.

Annual Report & Accounts 2016 141

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

27. Retirement benefit obligations continued

Defined benefit pension schemes continued
Defined benefit schemes continued
Actuarial gains and losses recognised directly in the group statement of comprehensive income:
2016 2015
  £m £m

Cumulative losses at 1 January 0.8 2.0

Recognised losses/(gains) in the year 4.7 (1.2)
Cumulative loss at 31 December 5.5 0.8

Remeasurements of the net defined liability shown in the group statement of comprehensive income are as follows:
2016 2015
  £m £m

Net remeasurement – financial 9.4 (2.1)

Net remeasurement – demographic (0.9) –
Net remeasurement – experience (0.4) (0.2)
Return on assets – excluding interest income (3.4) 1.1
Total remeasurement of the net defined liability shown in the group statement of other
comprehensive income 4.7 (1.2)

Employer contributions
In 2016, the Group made contributions of £0.8m (2015: £1.0m). The Group expects to make contributions of £0.8m in 2017.

Pension liability for defined benefit schemes

The amounts recognised in the balance sheet for defined benefit schemes were as follows:
Total schemes
2016 2015
  £m £m

Fair value of scheme assets 39.6 36.4

Present value of funded defined benefit obligations (60.0) (51.9)
Net funded obligations (20.4) (15.5)
Present value of unfunded defined benefit obligations (0.3) (0.3)
Net liability in the balance sheet (20.7) (15.8)

The fair value changes in the schemes are shown below:

2016 2015
Defined Defined
Fair value of benefit Fair value of benefit
plan assets obligation Total plan assets obligation Total
£m £m £m £m £m £m

At 1 January 36.4 (52.2) (15.8) 3.0 (6.1) (3.1)

Acquisition of UK scheme – – – 34.3 (48.5) (14.2)
Current service cost – (0.2) (0.2) – (0.3) (0.3)
Scheme administration costs – – – (0.1) – (0.1)
Net interest cost 1.3 (1.9) (0.6) 0.8 (1.2) (0.4)
Actuarial gains/(losses) 3.4 (8.1) (4.7) (1.6) 2.8 1.2
Contributions by the employer 0.8 – 0.8 1.0 – 1.0
Employee contributions – – – 0.1 (0.1) –
Benefits paid (2.7) 2.7 – (1.0) 1.1 0.1
Effect of exchange rate changes on overseas schemes 0.4 (0.6) (0.2) (0.1) 0.1 –
31 December 39.6 (60.3) (20.7) 36.4 (52.2) (15.8)

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Composition of scheme assets in each category:

UK scheme Sweden scheme Germany scheme Norway scheme
2016 2015 2016 2015 2016 2015 2016 2015
  £m £m £m £m £m £m £m £m

Equities 18.8 17.6 0.9 0.2 – – – –

Bonds 10.3 8.8 1.9 1.0 – – – –
Property 6.8 6.4 – – – – – –
Structured products – – 0.7 – – – 0.1 0.1
Cash 0.1 0.4 – 1.9 – – – –
  36.0 33.2 3.5 3.1 – – 0.1 0.1

The equities and bonds held within the UK and Swedish scheme are all quoted in active markets. The German scheme has no assets.

The actual return on scheme assets was as follows:

UK scheme Sweden scheme Germany scheme Norway scheme
2016 2015 2016 2015 2016 2015 2016 2015
  £m £m £m £m £m £m £m £m

Actual return (4.6) (1.0) (0.1) – – – – –

The pension deficit of each scheme at 31 December was as follows:

UK scheme Sweden scheme Germany scheme Norway scheme
2016 2015 2016 2015 2016 2015 2016 2015
  £m £m £m £m £m £m £m £m

Fair value of scheme assets 36.0 33.2 3.5 3.1 – – 0.1 0.1
Present value of funded defined benefit
obligations (53.5) (46.5) (6.4) (5.3) – – (0.1) (0.1)
Present value of unfunded defined benefit
obligations – – – – (0.3) (0.3) – –
Deficit in schemes (17.5) (13.3) (2.9) (2.2) (0.3) (0.3) – –

Principal actuarial assumptions:

UK scheme Sweden scheme Germany scheme Norway scheme
  2016 2015 2016 2015 2016 2015 2016 2015

Discount rate 2.6% 3.8% 2.7% 3.0% 2.5% 2.5% 2.6% 2.5%
Inflation rate 3.2% 2.9% 1.5% 1.5% 2.0% 2.0% 0.0% 0.0%
Rate of salary increases 2.2% 1.9% 2.6% 2.6% 2.0% 2.0% 2.3% 2.5%
Life expectancy for pensioners at the age
of 65 (years):                
Male 21.9 22.1 22.0 23.0 19.0 19.0 21.3 21.3
Female 23.9 24.1 24.0 25.0 23.1 23.1 24.4 24.4

Changes in significant assumptions and the impact on the defined benefit obligations at 31 December is shown below:
2016 Sensitivity level
UK Scheme Sweden Scheme
0.25% 0.25% 0.5% 0.5%
increase decrease increase decrease
  £m £m £m £m

Assumptions        
Inflation rate 1.4 – 0.4 (0.4)
Discount rate – 2.3 (0.5) 0.6
Rate of salary increase – – 0.3 (0.2)

Annual Report & Accounts 2016 143

 Notes to the consolidated financial statements continued
For the year ended 31 December 2016

27. Retirement benefit obligations continued

Defined benefit pension schemes continued
Pension liability for defined benefit schemes continued
Increase Decrease Increase Decrease
by one year by one year by one year by one year
  £m £m £m £m

Assumed life expectancy at age 65 1.8 n/a 0.2 (0.2)

2015 Sensitivity level

UK Scheme Sweden Scheme
0.25% 0.25% 0.5% 0.5%
increase decrease increase decrease
  £m £m £m £m

Assumptions        
Inflation rate 1.0 – 0.3 (0.3)
Discount rate – 1.8 (0.5) 0.5
Rate of salary increase – – 0.3 (0.2)

increase decrease increase decrease

by one year by one year by one year by one year
  £m £m £m £m

Assumed life expectancy at age 65 – increase/decrease by one year 1.3 n/a 0.2 (0.2)

The sensitivity analyses above have been determined based on a method that extrapolates the impact on the defined benefit
obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.

The average duration of the defined benefit plan obligations at the end of the reporting period is 16.8 years (2015: 15.3 years).

28. Related party transactions

During the year the Group entered into certain transactions with related parties. Details of these transactions are as follows:

Income statement
Company
2016 2015
  £m £m

Dividend received from subsidiary undertaking   – 120.0

Balances at 31 December
Group Company
2016 2015 2016 2015
Assets  Notes £m £m £m £m

Amounts due from subsidiary undertakings 16 – – 122.5 122.0

Liabilities          
Termination of consultancy agreement fee to private equity investor   – 1.0 – 1.0
Amounts due to subsidiary undertakings 17 – – 24.2 14.3

Key management compensation

Group Company
2016 2015 2016 2015
  £m £m £m £m

Salaries and short-term benefits 3.8 3.3 0.9 0.9

Post employment benefits 0.2 0.3 0.1 0.1
Termination benefits 0.5 0.1 – –
Share-based payments 0.9 0.2 0.1 0.1
  5.4 3.9 1.1 1.1

144 Exova Group plc

 Strategic report Report of Directors Financial statements

Key management comprises members of the executive team. The executive team is responsible for the day to day running of the
Group, and comprises the CEO, CFO, managing directors and group functional directors.

The Group holds equity interests of less than 51% in the following companies where it exercises control:
  % shareholding

Exova (Qatar) LLC 24.5%

Al Futtaim Exova LLC 49.0%
Exova Warringtonfire Middle East LLC 49.0%
Exova (Saudi Arabia) Limited 50.0%
Exova Warringtonfire LLC 49.0%

Exova (Qatar) LLC approved and paid a dividend of £0.8m (QAR 4,000,000) (2015: £1.1m QAR: 6,000,000) to its shareholders.

The Group is exposed, or has rights, to variable returns from its involvement with the equity interests and has the ability to affect
those returns through its power over the equity interests. Based on this, the Directors have determined that the Group has control
over these equity interests and therefore consolidates them within the financial statements.

The Group has interests in joint venture arrangements in the following companies:
Principal Group
place of ownership
Name business interest Held by
BM TRADA (HK) Limited Hong Kong 70% BM TRADA Overseas Limited
BM TRADA RKCA Certifications Private Limited India 50% BM TRADA Overseas Limited
FIRA – CMA Testing Services Limited Hong Kong 50% BM TRADA Overseas Limited
BM TRADA Cyprus Limited Cyprus 50% BM TRADA Overseas Limited
Standardt BM TRADA Belgelendirme AS Turkey 50% BM TRADA Overseas Limited
BM TRADA Latvija Latvia 50% BM TRADA Overseas Limited
BM TRADA RKCA Lanka Certifications (Private) Limited Sri Lanka 50% BM TRADA RKCA Certifications Private Limited
BM TRADA Suomi OY Finland 50% BM TRADA Latvija
BM TRADA Eesti Ou Estonia 50% BM TRADA Latvija
BM TRADA Deutschland GmbH Germany 50% BM TRADA Latvija
BM TRADA Lietuva Lithuania 50% BM TRADA Latvija
Tianjin C-Kai BM TRADA Certification Company Limited China 40% BM TRADA Certification Limited

29. Ultimate parent company and controlling parties

The immediate parent undertaking and controlling party is TABASCO B.V. Clayton, Dubilier & Rice LLC, the manager of Clayton,
Dubilier & Rice Fund VII L.P., is considered to be the ultimate controlling party. Exova Group plc is the Parent Company of the
smallest group of which the Company is a member, and for which group financial statements are prepared.

Annual Report & Accounts 2016 145

 Shareholder information

Financial calendar 2017

Annual General Meeting 24 May 2017

Record date for proposed final dividend 26 May 2017
Payment of final dividend, subject to shareholder approval 9 June 2017

Final dates and any changes will be notified as appropriate. The Company’s results announcements are published through the
London Stock Exchange.

Investor relations enquiries

For all investor relations enquiries about the Company, please contact our Investor Relations department at Exova, Queen Anne
Drive, Newbridge, Edinburgh, EH28 8PL or email investor.relations@exova.com. Individual shareholders with queries regarding
their shareholding in Exova Group plc should contact our Registrar, Capita Registrars, whose contact details are set out below.
All announcements and Annual Reports & Accounts are available on the investor relations section of the Company’s website at
https://investors.exova.com.

Exova Group plc share price

Exova Group plc’s ordinary shares have a premium listing on the London Stock Exchange and are listed under the symbol EXO.
Current and historical share price information is available on our website at https://investors.exova.com.

Warning about unsolicited approaches to shareholders and ‘boiler room’ scams

In recent years, many companies have become aware that their shareholders have received unsolicited phone calls or
correspondence concerning investment matters. These are typically from overseas based ‘brokers’ who target UK shareholders,
offering to sell them what often turn out to be worthless or high risk shares in UK investments. These operations are commonly
known as ‘boiler rooms’. These ‘brokers’ can be very persistent and persuasive. Exova Group plc shareholders are advised
to be extremely wary of such approaches and are advised to only deal with firms authorised by the UK Financial Conduct
Authority (FCA). You can check whether an enquirer is properly authorised and report scam approaches by contacting
the FCA on www.fca.org.uk/consumers or by calling 0800 111 6768.

Registrar
The Company’s register of shareholders is maintained by our Registrar, Capita Registrars. All enquiries concerning existing
shareholdings, change of address or lost share certificates should be directed to Capita Registrars using either of the
methods below:

In writing: Capita Asset Services (a trading name of Capita Registrars Limited), The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU.

By telephone: By calling Capita Registrars on Tel: 0871 664 0300 (calls cost 12 pence per minute plus network extras)
(from outside the UK: +44 371 664 0300). Lines are open Monday to Friday, 9.00a.m. to 5.30p.m.

Electronic communications
Shareholders can view up-to-date information about their shareholding by visiting www.exovagroup-shares.com.

146 Exova Group plc

 Strategic report Report of Directors Financial statements

Directors and advisers

Directors
Allister Langlands Non-Executive Chairman
Ian El–Mokadem Chief Executive Officer
Philip Marshall Chief Financial Officer
Bill Spencer Senior Independent Director
Helmut Eschwey Independent Non-Executive Director
Fred Kindle Non-Executive Director
Vanda Murray Independent Non-Executive Director
Christian Rochat Non-Executive Director
Andrew Simon Independent Non-Executive Director

General Counsel & Company Secretary

Neil MacLennan

Head office of the Company

Queen Anne Drive
Newbridge
Edinburgh EH28 8PL

Registered office of the Company

6 Coronet Way
Centenary Park
Eccles
Manchester M50 1RE

Registered number of the Company

Registered in England and Wales number 08907086

ISIN number
GB00BKY7HG11

LEI number
213800BFE317FGSYMZ19

Website
www.exova.com

Telephone number
Tel: +44 (0)131 333 4360

Joint corporate broker

Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB

Joint corporate broker

Investec Bank plc
2 Gresham Street
London EC2V 7QP

Solicitors
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS

Auditors
Ernst & Young LLP
10 George Street
Edinburgh EH2 2DZ

Registrars
Capita Asset Services
(A trading name of Capita Registrars Limited)
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Annual Report & Accounts 2016 147

 Definitions

Act: the Companies Act 2006, as amended

Adjusted EBITA: Adjusted EBITA is operating profit from continuing operations before separately disclosed items and
management fee to private equity investor

Adjusted EBITA margin: Adjusted EBITA expressed as a percentage of revenue

Adjusted EBITDA: Adjusted EBITDA is adjusted EBITA before depreciation

AGM: Annual general meeting

bps: Basis points, ten basis points are equivalent to 0.1% movement

Cash conversion rate: free cash flow as a percentage of adjusted EBITDA

CD&R: Clayton, Dubilier & Rice LLC

CD&R Fund VII L.P.: Clayton, Dubilier & Rice Fund VII, L.P., a fund managed by CD&R

Company or Parent Company: Exova Group plc

Constant currency: Constant currency growth figures are provided in order to remove the impact of currency translation.
We calculate growth at constant rates by translating the current and prior period results at the same exchange rates

Directors: the Directors of the Company

Executive Director: an Executive Director of the Company

Free cash flow: Adjusted EBITDA less movements in net working capital, excluding the movement in IPO related cost accruals,
less net capital expenditure

IPO: Initial Public Offering

NPS®: is a measure of customer satisfaction and predictor of customer loyalty. Net Promoter® and NPS® are registered trademarks
and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld

Non-Executive Director: a Non-Executive Director of the Company

Organic revenue growth at constant currency: revenue growth at constant currency for each year excluding the growth
attributable to acquisitions until the acquisition has been owned for a 12 month period and excluding the revenue attributable
to disposals in the year of disposal and the preceding year, all at constant currency

Prospectus: the prospectus published by the Company on 11 April 2014

Relationship Agreement: the relationship agreement entered between the Company and TABASCO B.V. on 10 April 2014

148 Exova Group plc

Exova Group plc
Queen Anne Drive
Newbridge
Edinburgh
EH28 8PL
Scotland
T: +44 (0) 131 333 4360
investor.relations@exova.com

www.exova.com