ANNUAL REPORT
SGS is the world’s leading inspection,
verification, testing and certification company.
SGS is recognised as the global benchmark for
quality and integrity. With more than 75 000
employees, SGS operates a network of over
1 500 offices and laboratories around the world.
We provide competitive advantage, drive
sustainability and deliver trust. At SGS,
we are continually pushing ourselves to deliver
innovative services and solutions that help
our customers move their businesses forward.
SGS LUDWIG GROUP
IN OUR
BUSINESS,
INTEGRITY IS
EVERYTHING
FRANk M LANGENEckER
General Manager,
SGS Ludwig Group
People trust in our ability to keep
things together. At SGS Ludwig
Group, our business is solving
materials fracture and welding
challenges in one of the
harshest environments on earth.
We offer services to the Alberta
oil and gas sector where physical
integrity is everything for our
customers’ operations. We are
a leader in specialised welding
engineering, the understanding of
failure mechanisms, government
regulations, and the codes and
standards required to allow
our customers to successfully
complete their projects. We help
our customers – from government
regulators to sophisticated
technologists and non-technical
decision makers – to design,
manufacture, evaluate, and
maintain their infrastructure
correctly in order to reduce
risk. For every customer, we
communicate solutions that they
can grasp easily. Our experts do
this by translating the most
up-to-date technological
innovations into a simple message:
‘It won’t break.’ Our integrity rests
on this promise every day.
cONTENTS
07 FINANcIAL HIGHLIGHTS FROM 2012
08 LETTER FROM THE cHAIRMAN & cEO
12 SGS AT A GLANcE
14 BUSINESS REVIEW
22 cORPORATE GOVERNANcE
48 SGS GROUP RESULTS
48 Consolidated income statement
100 SGS SA RESULTS
100 Income statement
120 DATA
120 SGS Group – five year statistical
data income statements
121 SGS Group – five year statistical
data consolidated balance sheets
101 Balance sheet
102 Notes to the financial statements
116 Proposal of the Board of Directors
122 SGS Group – five year statistical
for the appropriation of available
retained earnings
117 Report of the statutory auditor to
the General Meeting of SGS SA
share data
122 SGS Group share information
124 SGS Group principal operating
companies and ultimate parent
130 SHAREHOLDER INFORMATION
48 Consolidated statement
of comprehensive income
49 Consolidated balance sheet
50 Consolidated statement of
cash flows
51 Statement of changes in
consolidated equity
52 Notes to the consolidated
financial statements
97 Report of the statutory auditor
to the General Meeting of SGS SA
FINANcIAL HIGHLIGHTS FROM 2012
10.2organic revenue growth in % 1
16.9 adjusted operating income margin in %
556net profit for the year in CHF million
72.97basic earnings per share in CHF
800cash flow from operating activities
5.6total revenue in CHF billion
16.3 total revenue up in %
18acquisitions
176total cash consideration in CHF million
for the acquisitions
30proposed ordinary dividend in CHF 28proposed additional dividend per share
in CHF million
in CHF
7
1. Constant currency basis.
LETTER FROM THE cHAIRMAN & cEO
DEAR SHAREHOLDERS,
The SGS Group results for 2012 show a
year of solid achievement. Our revenue
of CHF 5.6 billion (constant currency
basis) was up 14.5% over 2011. On a
reported basis, revenue for the year
increased 16.3% compared with the
2011 published figures, benefiting from
a favourable foreign exchange translation
effect of 1.8%. This increase to the
Group's 2012 revenues includes 4.3%
from recently acquired companies as
well as a strong organic revenue growth
of 10.2%.
Our 2012 acquisitions growth benefited
most of our regions and business lines,
with South America gaining 36.2%
acquisitions revenue growth and
North America 5.3%. At the same time
the SGS Group achieved double-digit
organic revenue growth across five
business lines and in all geographies
other than Europe. Minerals Services
maintained a healthy full-year organic
growth rate of 13.8%, while Agricultural,
Oil, Gas & Chemicals and Consumer
Testing Services exhibited double-digit
growth rates and positive momentum
throughout the year.
Our adjusted operating income for
2012 increased 12.9% over 2011
on a constant current basis, reaching
CHF 941 million and resulting in a
margin of 16.9%. Operating cash flows
remained strong at CHF 800 million,
an increase of 15.9% over the prior
year. With this the Board of Directors
proposed a dividend of CHF 58 per share,
CHF 30 representing an ordinary
distribution of 41% of net profit and
an additional CHF 28 reflecting the
healthy cash generation capabilities
of the Group.
We had a successful 2012, despite it
being another tough year for the global
economy. Market conditions continued
to be challenging and showed no
sign of widespread global economic
recovery. The early months of 2012 set
a slow global economic pace due to the
ongoing sovereign debt crisis in Europe
and reduced activities in this region,
the general high public debt in advanced
economies, continued unrest in the
Middle East, and food price increases
in maize, wheat and soybeans caused
by a dry summer in the US, Ukraine
and Kazakhstan. The debt problems in
the Eurozone and weak growth across
advanced economies had a negative
effect on developing economies too,
and world trade and industrial production
slowed as a result. Subsequently,
in advanced and emerging markets
commodity prices were lowered over
the course of 2012.
In these difficult economic conditions
the sustained solid revenue growth
achieved by the SGS Group is testament
to our focused approach on product,
market and service development and
the value of our consistent ability to
listen to our customers and deliver
solutions. Our approach to innovation,
investment and employee development
has placed us ahead of market trends
and enabled us to continue to surpass
our previous results.
INNOVATION AND INVESTMENT
ARE FUNDAMENTAL DRIVERS
OF OUR GROWTH
2012 was an important year in terms
of our 2014 objectives. It marked the
midpoint towards achieving the goals
laid out in the Plan and has set the
pace for the years to come. Across the
SGS Group we facilitated innovation,
continued with our strategic investment
and internally enhanced our programmes
to support our people and cement our
operational integrity.
We now have strong teams and
processes in place identifying customers’
needs and innovatively finding and
delivering solutions that go beyond
expectations. This has allowed us to
create new technologies, improve on
existing technologies already in the
marketplace to make them more efficient
and profitable, and to establish more
effective processes. We are continually
looking for new opportunities to bring our
services together in ways that add value
to our customers’ businesses.
Throughout 2012 we sustained our
strategic investment programme,
developing initiatives to improve our
processes and productivity, as well
as to generate savings across the
SGS Group. Some examples of process
optimisation investments are the
Laboratory Excellence Programme,
our Sales Management Programme and
Sales Pipeline, and our Standardised
Inspections Reporting tool.
Procurement has been working on
developing company-wide processes to
ensure that we have the right resources
in the right places, when we need them.
This intelligent resource management
is key if we are to continuously improve
our ability to achieve more with less, as
championed by our Sustainability team.
We have implemented a system that
increases the visibility of outsourcing
expenditure across the SGS Group,
which has allowed us to integrate
purchasing and generate savings
by increasing the volume of inhouse
tasks we handle.
During 2012, we have further enhanced
the foundations of the SGS business –
our people. The key to continuing the
global success of SGS is to support our
employees and provide them with the
best platform for their success. Our
headcount has been steadily growing,
which can be attributed to both
the amalgamation of acquisitions
and our Group's strong organic growth
supported by focused recruitment and
onboarding initiatives.
THE SGS GROUP SAW GLOBAL
AcQUISITION GROWTH AcROSS
SEVEN BUSINESS LINES
During 2012 we acquired a further
18 businesses across 11 countries as
part of our ongoing strategic growth
plan, including Herguth Laboratories and
E&S Engineering Solutions, closed on
December 31, 2012. The four acquired
companies in South America have
significantly strengthened our market
presence in this region, while across
all our acquisitions we grew SGS in
Australia, the USA and Canada,
South Africa and Europe and developed
our services across seven of our
business lines.
CIMM T&S was our first acquisition of
the year, in January 2012. It provides
outsourced analytical and technical
services to the South American minerals
industry. Through the integration of this
business into the SGS Group we
are now in a position to service major
players operating in this field. The
acquisition allows us to draw on
expertise gained in geometallurgical
services, hydrometallurgical services,
mineralogy, plant operation and
control services, production quality
control, and environmental monitoring
and consulting.
During the year we also expanded
our ability to serve the energy,
infrastructure, construction and public
services sectors across Columbia, Peru
and Panama with the acquisition of
Columbian industrial services provider
Estudios Técnicos SA, (ETSA) in
March 2012. ETSA is now opening up
significant business opportunities for
SGS in the region, supported by the
500 highly skilled ETSA employees that
joined the SGS Group.
We have continued to integrate each
new acquisition into the SGS Group and
utilise our integration plan to leverage
the best synergistic opportunities
within our planned timeframes. This
process will continue throughout 2013
ensuring our customers benefit from the
additional resources and expertise each
acquisition brings.
THE YEAR AHEAD
As we enter the third year of the 2014
Plan, we are increasingly focused on
the absolute achievement of its goals.
The SGS Group has been taking decisive
steps towards these targets and we aim
to continue to grow the business both
organically and through acquisitions.
Strategically, we will target business
areas and geographical locations that
will further strengthen our services,
while continuing to make investments
into internal projects to support the
achievement of The Plan's objectives.
Innovations, streamlining processes and
systems, and the development of our
employees will all remain central.
Thank you to every SGS employee who
helped to grow the business in 2012.
Our continued success depends on your
dedication. Together, our commitment
ensures SGS continues to be the leading
testing, inspection, certification and
verification company. It is through our
desire to innovate and build customer
value that we are creating a path to
success in 2014 and beyond.
8
9
Sergio Marchionne
Chairman of the Board
Christopher Kirk
Chief Executive Officer
SGS cIMM T&S
WE’VE
ALWAYS BEEN
LOOkING FOR
THE PERFEcT
PARTNER
ROBERTO cASTILLO
Managing Director, SGS Chile
Which is why we knew SGS and
CIMM Tecnologías y Servicios
S.A would be a great partnership.
At SGS CIMM T&S, we have
over 15 years of experience
delivering leading technologies and
consultation for mining, metallurgy
and environmental management
in Chile. We offer an unrivalled
network delivering state-of-the-art
analytical technologies and
specialised outsourcing to the
major players within the South
American mining industry. Our
team provides unique capabilities
in a comprehensive range of
services including resource
and geometallurgical services,
analytical services, design and
commissioning of geochemical
and metallurgical facilities,
metallurgical testing at the bench
and pilot scale, hydrometallurgical
services, mineralogy, plant
operation and control services,
outsourcing, production quality
control, environmental monitoring
and consulting. SGS CIMM T&S
combines global expertise and
intimate knowledge of the local
market to create the perfect
partnership for innovation and
new business opportunities for
our customers in South America.
SGS AT A GLANcE
SGS has an unrivalled reputation as the
industry leader in finding innovative solutions
to the complex challenges faced everyday by
organisations. Our consultancy, outsourcing and
training services complement our core inspection,
verification, testing and certification services in
delivering these solutions across all industries.
Through our unique global network we deliver
independent results tailored to the precise
needs of the industry or sector. Our customers
trust in our expertise, experience and resources
to support them in achieving outstanding
performance in everything they do.
Our focus is on innovative ways to deliver
business benefits. This enables us to help our
customers improve quality, safety, efficiency,
productivity and speed to market, while reducing
risk and building trust in sustainable operations.
OUR VISION
OUR MANAGEMENT
We aim to be the most competitive and
the most productive service organisation
in the world. Our core competencies
in inspection, verification, testing and
certification are being continuously
improved to be best-in-class. They are
at the heart of what we are. Our chosen
markets will be solely determined by our
ability to be the most competitive and to
consistently deliver unequalled service
to our customers all over the world.
SGS is led by a dynamic group of individuals with many years of experience in their
respective fields, and who are committed to our success as a company and to the
success of our customers.
We are organised into ten lines of business and operate across ten geographic regions.
Each business is led by an Executive Vice President (EVP), and each region is led by
a Chief Operating Officer (COO). The EVPs and the COOs, in conjunction with the
functional Senior Vice Presidents (SVPs) and the Group’s Chief Executive Officer,
Chief Financial Officer and General Counsel, make up the Operations Council, which
meets regularly throughout the year to determine Group-wide strategies and priorities
and review performance.
OUR VALUES
We seek to be epitomised by our
passion, integrity, entrepreneurship and
our innovative spirit, as we continually
strive to fulfil our vision. These values
guide us in all that we do and are the
bedrock upon which our organisation
is built.
* Denotes members of the Operations Council
directly supervised by the Board of Directors
(Senior Management).
Organisation as at 1 February 2013.
SENIOR MANAGEMENT *
EXEcUTIVE VIcE PRESIDENTS
Christopher Kirk
Chief Executive Officer & IT
Michael Belton
Minerals Services
Geraldine Matchett
Chief Financial Officer
Olivier Merkt
General Counsel &
Chief Compliance Officer
cHIEF OPERATING OFFIcERS
Teymur Abasov
Eastern Europe & Middle East
Helmut Chik
China & Hong Kong
Pauline Earl
Western Europe
Alejandro Gomez de la Torre
South America
Anthony Hall
South Eastern Asia & Pacific
Dirk Hellemans
Central & North West Europe
Frédéric Herren
Africa
Jeffrey McDonald
North America
Ladislav Papik
South East Europe
Dennis Yang
Eastern Asia
Olivier Coppey
Agricultural Services
Anne Hays
Life Science Services
Frédéric Herren
Governments & Institutions Services
Thomas Klukas
Automotive Services
François Marti
Systems & Services Certification
Frankie Ng
Industrial Services
Peter Possemiers
Environmental Services
Malcolm Reid
Consumer Testing Services
Alim Saidov
Oil, Gas & Chemicals Services
SENIOR VIcE PRESIDENTS
Dominique Ben Dhaou
Human Resources
Jean-Luc de Buman
Corporate Development,
Corporate Communications
& Investor Relations
François Marti
Strategic Transformation
12
13
BUSINESS REVIEW
REVENUE AND ADjUSTED OPERATING INcOME BY BUSINESS
REVENUE
GIS 4.6 %
AUTO 5.1 %
ENVI 5.8 %
IND 16.1 %
SSC 7.1 %
ADjUSTED OPERATING INcOME 1
GIS 5.9 %
AUTO 6.7 %
ENVI 3.6 %
IND 10.7 %
SSC 7.8 %
AGRI 6.6 %
MIN 15.6 %
OGC 18.7 %
LIFE 3.6 %
CTS 16.8 %
AGRI 6.5 %
MIN 17.4 %
OGC 14.8 %
LIFE 1.8 %
CTS 24.8 %
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
REVENUE BY REGION
Europe / Africa /
Middle East 47.1 %
Asia Pacific 28.5 %
Americas 24.4 %
14
AGRIcULTURAL SERVIcES
Agricultural Services delivered strong
double-digit comparable revenue growth
of 12.3% (of which 11.0% organic) to
CHF 369 million for the year, with the
positive momentum experienced in the
first half carrying through into the second
semester in most regions.
Revenues from trade-related services
remained strong, sustained by high export
volumes in the Black Sea, as well as
favourable market conditions in Eastern
Europe, India and Latin America for grain
and in Vietnam for rice. Pest control and
fumigation activities benefited from the
high trade volumes in Europe and in North
America. Inland activities also performed
well with seed & crop services growing
almost 30% for the year. These activities,
which were introduced via acquisitions
in North America, have now been
successfully replicated in several locations
in Europe and South America, while in
Africa soil and leaf testing volumes also
increased in the second semester.
MINERALS SERVIcES
Minerals Services delivered excellent
comparable revenue growth of 24.2%
(of which 13.8% organic) to CHF 868 millon
for the year. This growth came from all
activities in the service value chain and
sustained growth in Africa, Asia and
the Americas.
Despite high comparative figures in prior
year and weaker market conditions in
the second semester, the only segments
that experienced a slowdown were energy
minerals in Australia and North America
and, to a lesser extent, the iron ore sector.
Demand for geochemistry remained
strong overall, driven by high sample
volumes in Africa and South America,
while the number of metallurgy
projects also remained high with only
a few postponements in Australia.
In January 2012, the Group acquired CIMM
T&S, the leading provider of technical
services to the mining industry in Chile,
through a privatisation process. Since
acquisition, the CIMM and SGS operations
have been merged, combining locations,
The adjusted operating income margin
for the year increased to 16.6% from
15.7% in prior year (constant currency
basis) supported by the high volumes and
favourable geographical patterns in trade
services as well as a stronger peak season
for field trials. Restructuring plans executed
early in the year also supported the overall
margin by addressing underperformance
issues in legacy operations.
During the year, the Group acquired
Gravena, an established contract research
provider in Brazil with over 120 specialists in
field trials, to strengthen and accelerate the
growth of seed & crop services in South
America. In addition, the Group acquired
Ware Care, a pest management company
based in the Netherlands. Investments in
growth initiatives to sustain organic revenue
growth also continued and the Group
successfully commissioned a flagship
Food Safety and Cold Chain facility in
India, for which client up-take and market
feedback is very positive.
(CHF million)
REVENUE
Change in %
ADjUSTED OPERATING INcOME 1
Change in %
MARGIN % 1
2012
RESULTS
369.5
61.3
16.6
2011
PRO-FORMA 2
2011
PUBLISHED
329.0
12.3
51.8
18.3
15.7
327.1
13.0
51.2
19.7
15.7
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
workforce and capabilities throughout
the country thereby successfully extracting
the anticipated synergies. Effective
31 December 2012, the Group also acquired
E&S Engineering Solutions based in the
USA, specialising in the development of
mineral processing facilities for the mining
industry throughout the world.
Adjusted operating income margin for
the year decreased from 19.4% in prior
year to 18.8% (constant currency basis).
The CIMM acquisition, while significantly
ahead of valuation assumptions, remains
dilutive to the overall margin but this
impact has been partly offset by strong
incremental margins across the network
thanks to high capacity utilisation and a
favourable product mix.
During the year, the Group continued to
invest in expanding network capacity,
with total investments reaching
CHF 90 million. These investments
include nine new on-site laboratories
and three commercial laboratories which
will commence operations in 2013.
(CHF million)
REVENUE
Change in %
2012
RESULTS
868.0
ADjUSTED OPERATING INcOME 1
163.3
Change in %
MARGIN % 1
18.8
2011
PRO-FORMA 2
2011
PUBLISHED
698.7
24.2
135.5
20.5
19.4
677.7
28.1
131.2
24.5
19.4
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
15
BUSINESS REVIEW
OIL, GAS & cHEMIcALS SERVIcES
cONSUMER TESTING SERVIcES
Oil, Gas & Chemicals Services delivered
strong double-digit comparable revenue
growth of 12.2% (of which 11.6%
organic) to CHF 1 046 million for the year,
becoming the first business to exceed
one billion in annual turnover. All regions
contributed to this increased top line, with
North America, Africa and Australasia
maintaining a consistently high growth
rate throughout the year.
Trade inspection and laboratory testing
services sustained solid revenue growth,
with increased volumes in oil & gas trade
and market share gains in North America,
Asia, Eastern Europe and the Middle
East, while chemical testing volumes also
increased, mainly in the USA. Double-
digit growth was achieved primarily in
non-trade related activities. Upstream
services delivered revenues up 35% over
prior year, with key onshore contract
wins in Australia, Papua New Guinea
and the Middle East as well as increased
subsurface consultancy and reserve
validation work. Strong growth was also
achieved in Plant & Terminal Operations
and Cargo Treatment services, especially
in North America, offsetting reduced
volumes in Europe and the Caribbean.
The adjusted operating income margin for
the year declined slightly from 13.5% in prior
year (constant currency basis) to 13.3%,
impacted by lower volumes in Europe
following the closure of terminals and
refineries as well as start-up costs related to
new upstream contracts in the Middle East.
During the year, the business made capital
investments amounting to CHF 76 million
to support its organic growth, focusing
primarily on equipment for well-side
services, laboratory capacity expansions
and mechanical sampling facilities. The
Group also acquired three companies:
Roplex, a company specialised in support
and testing of vapour recovery systems,
and EMICS, a leading independent UKAS
(United Kingdom Accreditation Service)
calibration laboratory, both in the UK; and
on 31 December, the Group closed the
acquisition of Herguth, a state-of-the-art
petroleum and lubricant testing laboratory
in California, USA.
(CHF million)
REVENUE
Change in %
2012
RESULTS
1 046.0
ADjUSTED OPERATING INcOME 1
139.2
Change in %
MARGIN % 1
13.3
2011
PRO-FORMA 2
2011
PUBLISHED
932.0
12.2
126.0
10.5
13.5
911.7
14.7
123.3
12.9
13.5
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
LIFE ScIENcE SERVIcES
Life Science Services experienced a
difficult year, reporting revenues of
CHF 199 million, 3.7% above prior year on
a constant currency basis (of which 0.9%
organic) as the decline in clinical research
volumes largely offset the double-digit
growth delivered by laboratory services.
Laboratory operations delivered strong
organic revenue growth of 15.5% and now
account for over half of the revenues and
profits of the division. This growth was
driven by biologics-related activities in
Europe, including the M-Scan operations
acquired in 2010, the upgrade of all three
North American quality control laboratories
and the opening of a new state-of-the-art
facility in Mumbai. These developments
offset a slower than expected recovery
in bioanalysis and mass spectrometry
services in France.
Revenues from clinical research activities
declined further in comparison with 2011,
itself a very weak year, hampered by the
small number of molecules reaching early
phase trial stage and clear over-capacity
amongst Clinical Research Organisations.
This decline in activity levels particularly
impacted the Paris clinic due to its fixed
cost base and independent infrastructure.
As the early phase clinical trial market
conditions are expected to remain weak, an
initial consultation phase in view of closing
the Paris clinic has been launched and as a
result, restructuring costs of CHF 21 million
(net of tax) were provisioned in 2012.
Overall, the adjusted operating income
margin declined from 10.8% in prior
year to 8.7% (constant currency basis),
impacted by the deteriorating margins in
clinical research.
During the year, the Group acquired
Vitrology, a biopharmaceutical contract
testing organisation, very active in biosafety
testing, based in Glasgow, UK. This
acquisition completes the biologics service
offering, adding biosafety and synergies
with M-Scan. In addition, the Group
acquired Exprimo, a life science consultancy
company based in Belgium.
(CHF million)
REVENUE
Change in %
ADjUSTED OPERATING INcOME 1
Change in %
MARGIN % 1
2012
RESULTS
199.3
17.3
8.7
2011
PRO-FORMA 2
2011
PUBLISHED
192.1
3.7
20.8
(16.8)
10.8
192.0
3.8
20.7
(16.4)
10.8
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
16
Consumer Testing Services delivered
strong double-digit comparable revenue
growth of 12.9% (of which 10.8% organic)
to CHF 936 million for the year, with all
regions contributing to the top line increase.
Organic revenue growth was sustained
by all activities. Traditional segments such
as food testing continued their positive
momentum delivering double-digit growth
with particularly strong market share in
South America and Asia and benefiting
from an extensive geographical footprint
following investments made by the Group
in the laboratory network. Softline testing
also remained solid, with new laboratory
capacity now in operation, supported by
focused global key account management.
Newer segments, such as automotive parts
testing, delivered revenues significantly
ahead of prior year with the new laboratory
in Tianjin, China, further reinforcing our
position as the market leader.
The adjusted operating income margin for
the year decreased slightly from 25.7%
in prior year (constant currency basis)
to 24.9%, reflecting some increases in
operating costs in China. These costs were
only partially offset by operational efficiency
gains and investments in new facilities in
the network yet to reach full capacity.
In addition, some of the recent acquisitions,
while adding valuable new activities to the
national service portfolios, currently remain
dilutive to the overall margins.
During the year, the Group acquired
the Sercovam Group headquartered in
Cestas, France. Sercovam is a leading
laboratory testing group with state of
the art facilities in Etupes and Cestas
in France and sales offices in Spain and
Italy. It serves the automotive, aeronautic
and rail industry as well as the packaging
industry in France, Germany, Spain and
Italy. Founded in 1987, Sercovam employs
85 highly qualified experts.
(CHF million)
REVENUE
Change in %
2012
RESULTS
936.2
ADjUSTED OPERATING INcOME 1
233.0
Change in %
MARGIN % 1
24.9
2011
PRO-FORMA 2
2011
PUBLISHED
829.1
12.9
213.3
9.2
25.7
802.0
16.7
202.7
14.9
25.3
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
SYSTEMS & SERVIcES cERTIFIcATION
Systems & Services Certification delivered
organic revenue growth of 6.2% over
prior year to CHF 395 million, with strong
profitable growth in most regions being
partly offset by difficult market conditions
in Spain and Italy.
Despite the uncertain economic
environment, statutory certification
delivered solid organic revenue growth
overall. All regions contributed to this
increased top line, with double-digit growth
in China, South America, Eastern Europe
and Africa compensating for a weaker
performance in Southern Europe and North
America. Other activities also performed
well, in particular second-party audit
programmes which gained momentum
in the second semester, supported by
investments made in previous years to both
enhance the Group’s international sales
and key account management structure
and introduce new programmes such
as sustainability-related supplier audits.
Training activities, while achieving double-
digit growth in Asia and North America,
did not progress as intended, hampered by
a weak performance in Australia following
the loss of an important contract with the
mining industry.
The adjusted operating income margin
for the year declined slightly from 18.9%
in prior year (constant currency basis) to
18.7%, reflecting the impact of difficult
market conditions in Southern Europe.
Restructuring activities have been
undertaken throughout the year to align the
organisation to these changing markets.
Also reflected in the margin are investments
made in line with the growth strategy to
develop new industry bespoke services as
well as expand the food safety certification
and training activities into several key
countries across Asia and South America.
During the year, new service
development programmes were initiated,
focusing on specific needs of the
healthcare and automotive sectors as
well as supply chain activities around
environment, health and safety.
(CHF million)
REVENUE
Change in %
ADjUSTED OPERATING INcOME 1
Change in %
MARGIN % 1
2012
RESULTS
394.9
73.7
18.7
2011
PRO-FORMA 2
2011
PUBLISHED
372.0
6.2
70.3
4.8
18.9
364.0
8.5
68.2
8.1
18.7
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
17
BUSINESS REVIEW
INDUSTRIAL SERVIcES
Industrial Services delivered solid
comparable revenue growth of 20.2%
(of which 9.5% organic) to CHF 899 million,
supported by five acquisitions in the year.
Market conditions in Europe remain very
challenging with projects being delayed
and austerity measures impacting public
spending. Despite this, strong organic
revenue growth was achieved thanks
primarily to positive momentum in Asia,
Australia and Africa, as well as a recovery
in the Middle East. Materials Testing,
Non Destructive Testing (NDT), Project
Monitoring and Supply Chain services were
the main growth drivers, supported by
recent acquisitions which expanded these
capabilities into a much wider geography
and capital investments made in the
laboratory network. Statutory inspection
activities also delivered growth in the year
and remain an important segment despite
the volume decline in Spain.
The adjusted operating income margin for
the year increased to 11.2% from 10.7%
in prior year (constant currency basis).
ENVIRONMENTAL SERVIcES
Environmental Services delivered
comparable revenue growth of 13.2%
(of which 6.6% organic) to CHF 323 million
for the year, sustained by solid growth in
emerging markets and seven acquisitions
over the last two years.
South America, Africa as well as China
and Australasia continued to drive organic
revenue growth, leveraging the Group’s
client base in the natural resources sector
where legislation surrounding minerals and
oil & gas extraction continues to tighten.
This was sufficient to offset the impact of
challenging market conditions in Europe
and North America where restructuring
plans have been initiated to move the
organisation away from declining segments
of the industry and address profitability
issues. This applied particularly to France,
Spain and Italy, while Germany, Belgium
and the UK succeeded in maintaining
profitable growth through the deployment
of integrated services combining field,
laboratory and data interpretation.
Accretive margins from acquisitions and
higher profitability in Asia, North America
and the Middle East offset difficult market
conditions in Europe, which required
significant restructuring to be undertaken,
particularly in Spain and Italy.
During the second semester, the
business completed three additional
acquisitions, enhancing its global
footprint. In Canada, the Group
acquired Ludwig, a leading material and
metallurgical testing laboratory based
in Calgary and Edmonton. In Australia,
the Group acquired Gladstone, a well
established construction material testing
business in Queensland, focused on
road construction and the commercial
and residential building sectors. The
Group also acquired Sentinel, a company
based in Johannesburg, South Africa,
providing NDT services and consulting
to the power, oil, railway, mining and
manufacturing industries.
(CHF million)
REVENUE
Change in %
2012
RESULTS
898.6
ADjUSTED OPERATING INcOME 1
100.3
Change in %
MARGIN % 1
11.2
2011
PRO-FORMA 2
2011
PUBLISHED
747.8
20.2
80.1
25.2
10.7
747.0
20.3
80.0
25.4
10.7
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
The adjusted operating income margin for
the year increased to 10.6% from 9.4% in
prior year (constant currency basis), driven
by operational efficiency gains in Australia
and North America as well as significant
growth in newly established activities in
South America and Africa, capitalising
on investments made in manpower and
laboratory infrastructure. Combined with
accretive margins from acquisitions,
this was sufficient to offset a weak
performance in Southern Europe.
During the year the business acquired
three companies. In the USA, the Group
acquired Analytical Perspectives in North
Carolina, specialised in ultra-trace analysis
of various persistent organic pollutants.
In Brazil, the Group acquired Environ, the
leading occupational health and industrial
hygiene laboratory in the country. In
Australia, the Group acquired Australian
Radiation Services (ARS) in Melbourne, an
international provider of radiation calibration,
monitoring, testing and consulting services.
(CHF million)
REVENUE
Change in %
ADjUSTED OPERATING INcOME 1
Change in %
MARGIN % 1
2012
RESULTS
322.7
34.3
10.6
2011
PRO-FORMA 2
2011
PUBLISHED
285.0
13.2
26.9
27.5
9.4
283.8
13.7
26.8
28.0
9.4
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
AUTOMOTIVE SERVIcES
Automotive Services delivered
comparable revenue growth of 6.4%
(of which 4.6% organic) to CHF 287 million
for the year, supported by solid statutory
inspection results in all regions and the
prior year acquisition of ETC, an engine
and vehicle testing business in the USA,
now fully integrated within the Group.
Revenues from statutory inspection
activities remained solid throughout the
year, with European operations in France,
Spain and the UK benefiting from higher
vehicle inspection volumes while in
Africa, revenues in Ivory Coast increased
following the opening of a new station
and the network in Morocco expanded as
a result of stricter enforcement and higher
compliance rates. In South America,
revenues from the first testing centre in
Peru, which opened in 2011, increased
progressively throughout the year while
volumes in Chile remained stable.
The adjusted operating margin for the
year increased to 22.1% from 21.7%
in prior year (constant currency basis),
benefiting from the strong statutory
inspection results in Europe, the USA and
Africa as well as inspection fee increases
in Argentina and Uruguay granted by
government in view of high inflation in
both countries. This was sufficient to
offset weaker results in North America
where, as anticipated, significantly lower
volumes impacted the profitability of
commercial activities despite proactive
restructuring measures.
During the year, the Group continued to
invest in vehicle inspection centres in
France, Ivory Coast and Argentina, as well
as maintaining and upgrading centres in
Spain which were acquired in 2010 as
part of the ITV network.
(CHF million)
REVENUE
Change in %
ADjUSTED OPERATING INcOME 1
Change in %
MARGIN % 1
2012
RESULTS
286.9
63.4
22.1
2011
PRO-FORMA 2
2011
PUBLISHED
269.7
6.4
58.5
8.4
21.7
270.2
6.2
59.3
6.9
21.9
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
GOVERNMENTS & INSTITUTIONS SERVIcES
Governments & Institutions Services
delivered excellent organic revenue
growth for the year of 17.3% to
CHF 256 million, driven primarily by
increasing volumes on Local Solution
contracts, the introduction of new
services and stable trade volumes in the
Pre-Shipment Inspection (PSI) programmes.
Local Solution services, now representing
69% of total revenues for the division,
delivered organic revenue growth of
24.0% over prior year. This was achieved
through the continued expansion of
Product Conformity Assessment (PCA)
programmes with new contracts signed
in Tanzania, Uganda, Kuwait and Northern
Iraq as well as the renewal of the Kenya
programme. TradeNet services also
performed well as a result of high trade
volumes in Ghana and Madagascar and
the start-up of operations in Mozambique.
Revenues from Global Solution activities
remained solid throughout the year,
with volumes on the long-established
PSI programmes in Cameroon and Haiti
remaining stable.
Overall, the adjusted operating margin for
the year was strong at 21.5% supported by
an established network for the execution
of PCA-related inspections and the growth
of new services. The margin was slightly
behind prior year which had benefited from
higher volumes on all PSI contracts.
During the year, the Group continued to
invest in the deployment of new contracts,
including the completion of the TradeNet
platform for Mozambique, the finalisation
of the e-Government platform for the
Ghana Revenue Authority and scanning
equipment for Madagascar. The Group
also implemented the first Forestry
monitoring program involving scanners
in the Democratic Republic of
Congo (DRC) and has run successful
telecommunications monitoring
programmes in Haiti, Rwanda and Uganda.
(CHF million)
REVENUE
Change in %
ADjUSTED OPERATING INcOME 1
Change in %
MARGIN % 1
2012
RESULTS
256.0
55.1
21.5
2011
PRO-FORMA 2
2011
PUBLISHED
218.3
17.3
50.0
10.2
22.9
221.7
15.5
51.8
6.4
23.4
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs.
2. Constant currency basis.
18
19
SGS INTEcH
WE kNOW VALUE,
AND cAN PROVE IT
cHAD SIMONTON
NAM OGC Upstream Technical
Services Manager, SGS InTech
Which is why SGS Innovative Technical Services (InTech) offers specialised technical consulting services to the oil and
gas industry. At SGS InTech we deliver best-value services in measurement assessments, hydrocarbon allocation, project
management, and process improvement within the Upstream sector. Combining our technical capabilities with SGS Upstream
Analytical and Field Services allows us to tailor customer specific solutions that increase accuracy, improve reliability, and
maintain continuous improvement in measurement and allocation processes. Our proven quality assurance and validation
techniques, combined with our surveillance procedures, ensure reliability in results from initial measurement to product
allocation. We help our customers demonstrate accurate, unbiased, and defendable allocation of produced hydrocarbons to stay
in compliance with commercial and regulatory requirements. Which is why we know value, and can reliably prove it for others.
cORPORATE GOVERNANcE
SHAREHOLDERS
1 GROUP STRUcTURE AND
1.1 Group Structure
2 cAPITAL STRUcTURE
2.1 Issued Share Capital
3 BOARD OF DIREcTORS
3.1 Members of the Board of Directors
1.2 Significant Shareholders
2.2 Authorised and Conditional
3.2 Cross Involvement
1.3 Cross-shareholdings
4 OPERATIONS cOUNcIL
4.1 Members of the
Operations Council
4.2 Other Activities and Functions
4.3 Management Contracts
DEFENcE MEASURES
7 cHANGE OF cONTROL AND
7.1 Duty to Make an Offer
7.2 Clauses on Change of Control
Share Capital
2.3 Changes in Capital
2.4 Shares and Participation Certificates
2.5 Profit Sharing Certificates
2.6 Limitations on Transferability
and Admissibility of Nominee
Registrations
2.7 Convertible Bonds and
Warrants/Options
3.3 Elections and Terms of Office
3.4 Internal Organisational Structure
3.4.1 Allocation of Board Member Tasks
3.4.2 Committees
3.4.3 Board Meetings
3.5 Definition of Areas of
Responsibility
3.6 Information and Control
Instruments Vis-à-vis
the Management
AND LOANS
5 cOMPENSATION, SHAREHOLDINGS
5.1 Company’s Remuneration Policies
PARTIcIPATION RIGHTS
6 SHAREHOLDERS'
6.1 Voting Rights and
5.2 Compensation for Members
of Governing Bodies
5.2.1 Board of Directors
5.2.2 Compensation Paid to the
Operations Council, Senior
Management and Chief
Executive Officer
5.2.3 Company's Performance
Representation Restrictions
6.2 Statutory Quorums
6.3 Convocation of General Meetings
of Shareholders
6.4 Agenda
6.5 Registration in the Share Register
9 INFORMATION POLIcY
8 AUDITORS
8.1 Duration of the Mandate and
Term of Office
8.2 Auditing Fees
8.3 Additional Fees
8.4 Supervisory and Control
Instruments vis-à-vis the Auditors
This Corporate Governance Report informs
shareholders, prospective investors and the
public at large on SGS policies in matters of
corporate governance such as the structure of
the Group, shareholders' rights, roles and duties
of the Board of Directors and its Committees and
Management, internal controls and audits as well
as directors and executive compensation. This
report has been prepared in compliance with the
Swiss Exchange (SIX) Directive on Information
Relating to Corporate Governance of October 29,
2008 as amended and related commentary
issued by SIX.
This report includes the SGS Compensation
Report for 2012 (section 5), which is subject to
an advisory vote at the Annual General Meeting
of Shareholders, following the recommendations
of the Swiss Code of Best Practice for Corporate
Governance in this matter.
The SGS Corporate Governance's framework
aims to achieve an efficient allocation and
management of resources, clear mechanisms
for setting strategies and targets in order to
maximise and protect shareholder value.
SGS strives to attain this goal by defining
clear and efficient decision-making processes,
fostering a climate of performance and
accountability among managers and employees
alike and aligning employees’ remuneration
with the long-term interests of shareholders.
22
23
1.2. SIGNIFIcANT SHAREHOLDERS
As at 31 December 2012, Exor held
15.00% (2011: 15.00%), Mr. August
von Finck and members of his family
acting in concert held 14.97%
(2011: 14.97%), the Bank of New York
Mellon Corporation held 3.26%
(2011: 3.30%), of the share capital
and voting rights of the Company.
SGS SA, together with certain of its
subsidiaries, held 2.43% (2011: 3.31%)
of the share capital of the company.
During 2012, the Company has
published regularly on the electronic
platform of the Disclosure Office of the
SIX Swiss Exchange Ltd all disclosure
notifications received from shareholders
of transactions subject to the disclosure
obligations of Article 20 SESTA. Such
disclosure notifications can be accessed
at http://www.six-swiss-exchange.com/
shares/companies/.
1.3. cROSS-SHAREHOLDINGS
Neither SGS SA nor its direct and
indirect subsidiaries has any
cross-shareholding in any other entity,
whether publicly traded or privately held.
cORPORATE GOVERNANcE
1
GROUP STRUcTURE
AND SHAREHOLDERS
1.1. GROUP STRUcTURE
SGS SA, registered in Geneva (CH),
also referred to as the “Company”,
controls directly or indirectly all entities
worldwide belonging to the SGS Group,
which provides independent inspection,
verification, testing, certification and
quality assurance services.
The shares of SGS SA are listed on
the SIX Swiss Exchange and are traded
on SIX Europe (Swiss Security
Number: 249745; ISIN: CH0002497458).
On 31 December 2012, the market
capitalisation of SGS SA was
CHF 15 848 million.
None of the companies under the direct
or indirect control of SGS SA has listed
its shares or other securities on any
stock exchange.
The principal legal entities consolidated
within the Group are listed on pages 124
to 127 of the Annual Report, with details
of the share capital, the percentage of
shares controlled directly or indirectly
by SGS SA and the registered office or
principal place of business.
Details of material acquisitions made by
the SGS Group during 2012 are provided
in note 3 to consolidated financial
statements included in the section
SGS Group Results (pages 59 to 60)
of this Annual Report.
The operations of the Group are divided
into 10 regions, each led by a Chief
Operating Officer who is responsible for
the SGS businesses in that region and
for the local implementation of Group
policies and strategies.
At 31 December 2012, geographic
operations were organised as follows:
Europe, Africa, Middle East
• Western Europe
• Central & North West Europe
• South East Europe
• Eastern Europe & Middle East
• Africa
Americas
• North America
• South America
Asia Pacific
• East Asia
• China & Hong Kong
• South East Asia & Pacific
The Group is also structured into
10 lines of business. Each business
line is responsible for the global
development of Group activities within
its own sphere of specialisation and
for the execution of strategies with the
support of the Chief Operating Officers.
At 31 December 2012, the business
lines were organised as follows:
• Agricultural
• Minerals
• Oil, Gas & Chemicals
• Life Science
• Consumer Testing
• Systems & Services Certification
• Industrial
• Environmental
• Automotive
• Governments & Institutions
Each line of business is led by an
Executive Vice President.
Chief Operating Officers and Executive
Vice Presidents are members of the
Operations Council, the Group's most
senior management body.
2
cAPITAL STRUcTURE
2.1. ISSUED SHARE cAPITAL
The share capital of SGS SA is
CHF 7 822 436 and comprises
7 822 436 fully paid-in, registered
shares of a par value of CHF 1.
On 31 December 2012, SGS SA held,
directly or indirectly, 190 394 treasury
shares (2011: 258 576).
In 2012, 74 859 treasury shares were
sold or released to cover option rights.
These shares were sold at an average
price of CHF 1 173. During the year,
6 677 treasury shares were purchased
for an average price of CHF 1 691
in application of a CHF 250 million
Share Buy-Back programme valid from
12 March 2012 to 31 December 2014.
2.2. AUTHORISED AND cONDITIONAL
SHARE cAPITAL
The Board of Directors has the authority
to increase the share capital of the
Company by a maximum of 500 000
registered shares with a par value of
CHF 1 each, corresponding to a
maximum increase of CHF 500 000 in
share capital. The Board is authorised
to issue the new shares at the market
conditions prevailing at the time of
issue. In the event that the new shares
are issued for the purposes of an
acquisition, the Board is authorised to
waive the shareholders’ preferential
right of subscription or to allocate such
subscription rights to third parties. The
authority delegated by the shareholders
to the Board of Directors to increase the
share capital is valid until 15 March 2013.
The shareholders have conditionally
approved an increase of share capital
by an amount of CHF 1 100 000 divided
into 1 100 000 registered shares
with a par value of CHF 1 each. This
conditional share capital increase is
intended to obtain the shares necessary
to meet the Company’s obligations
with respect to employee share option
plans and option or conversion rights
of convertible bonds or similar equity-
linked instruments that the Board
is authorised to issue. The right to
subscribe to such conditional capital is
reserved to beneficiaries of employee
share option plans and holders of
convertible bonds or similar debt
instruments and therefore excludes
shareholders’ preferential rights of
subscription. The Board is authorised
to determine the timing and conditions
of such issues, provided that they
reflect prevailing market conditions.
The term of exercise of the options or
conversion rights may not exceed 10
years from the date of issuance of the
equity-linked instruments.
2.3. cHANGES IN cAPITAL
There have been no changes to the
Company’s share capital in the last
six years.
2.4. SHARES AND
PARTIcIPATION cERTIFIcATES
All shares, other than treasury shares
held directly or indirectly by SGS SA,
have equal rights to the dividends
declared by the Company and have
equal voting rights.
The Company has not issued any
participation certificates (bons de
participation/Partizipationsscheine).
2.5. PROFIT SHARING cERTIFIcATES
The Company has not issued any profit
sharing certificates.
2.6. LIMITATIONS ON
TRANSFERABILITY AND ADMISSIBILITY
OF NOMINEE REGISTRATIONS
SGS SA does not limit the transferability
of its shares. The registration of shares
held by nominees is not permitted by
the Company’s Articles of Association,
except by special resolution of the Board
of Directors. By decision of the Board,
made public in a note issued by SAG
(then SEGA) on 4 October 2001, the
Company’s shares can be registered
in the name of a nominee acting in a
fiduciary capacity for an undisclosed
principal. Such shares do not carry
voting rights except with the approval
of the Board of Directors. On 23 March
2005, the Board of Directors decided to
approve the registration of such shares
with voting rights of up to 5% of the
aggregate share capital of the Company.
This decision was communicated to SAG.
The Company has a single class of
shares and no preferential rights,
statutory or otherwise, have been
granted to any shareholder.
2.7. cONVERTIBLE BONDS AND
WARRANTS/OPTIONS
No convertible bonds have been issued
by the Company or by any entity under its
direct or indirect control. Options granted
to senior managers and Directors of the
Group are detailed in section 5. Details
of all options outstanding are provided
in note 31 to the consolidated financial
statements of the Group. No other
options or similar instruments have been
issued by the Company nor by any of
the Group’s subsidiaries.
24
25
SERGIO MARCHIONNE (1952)
TIBERTO RUY
JOHN ELKANN (1976)
AUGUST VON FINCK (1930)
CORNELIUS GRUPP (1947)
cORPORATE GOVERNANcE
3
BOARD OF DIREcTORS
The Board of Directors is the highest
governing body within the Group.
It is the ultimate decision-making
authority except for those decisions
reserved by law to the General Meeting
of Shareholders.
Canadian/Italian
Function in SGS
Chairman:
• Board of Directors
• Audit Committee
• Nomination and
Remuneration Committee
• Professional Conduct Committee
3.1. MEMBERS OF THE BOARD
Initial appointment to the Board
OF DIREcTORS
May 2001
This section presents the Members
of the Board of Directors of the
Company, with their functions in the
Group, their professional background
and all their material positions in
governing and supervisory boards,
management positions and consultancy
functions, official tenures and political
commitments, both in Switzerland
and abroad, as at 31 December 2012
(an * denotes a listed company).
Olivier Merkt, General Counsel & Chief
Compliance Officer of the Group, acts
as the Company Secretary; he is not a
Member of the Board of Directors.
Professional Background
CEO:
• *Fiat S.p.A., Turin (IT), since 2004
• Chrysler Group LLC., Auburn Hill,
Michigan, USA, since 2009 and
Chairman since 2011
Other Activities and Functions
*Fiat S.p.A., Turin (IT), Member of
the Board since 2003
*Fiat Industrial S.p.A., Turin (IT),
Chairman since 2011
*CNH Global N.V., Amsterdam (NL),
Member of the Board since 2004,
Chairman since 2006
*Philip Morris International SA,
Lausanne (CH), Member of the Board
since 2008
*Exor S.p.A., Turin (IT), Member of
the Board since 2010
European Automobile Manufacturers’
Association (ACEA), Brussels (BE),
Member of the Board since 2004
BRANDOLINI D’ADDA (1948)
Italian
German
Austrian
Italian
Function in SGS
Member:
• Board of Directors
• Audit Committee
Initial appointment to the Board
March 2005
Professional Background
*Sequana SA, Paris (FR), Chairman
since 2005
Other Activities and Functions
Exor Investissements SA, Luxembourg
(LU), Chairman of the Board since 2007
*Exor S.p.A., Turin (IT), Vice-Chairman
since 2009
Giovanni Agnelli e C., Turin (IT), Member
of the Board since 2004
*Fiat S.p.A., Turin (IT), Member of the
Board since 2004
Yafa S.p.A., Turin (IT), Member of the
Board since 2011
Function in SGS
Member:
• Board of Directors
Initial appointment to the Board
March 2011
Professional Background
Owner/General Manager:
• Tubex Holding GmbH,
Rangendingen (DE)
• CAG Holding GmbH, Marktl (AT)
Other Activities and Functions
Schoellerbank AG, Vienna (AT),
Member of the Board since 1999
Stölzle Oberglas, Koeflach (AT),
Member of the Board since 1989
Honorary Consul of Austria to the
Land of Baden-Württemberg
Function in SGS
Member:
• Board of Directors
• Nomination and
Function in SGS
Member:
• Board of Directors
• Nomination and
Remuneration Committee
Remuneration Committee
Initial appointment to the Board
Initial appointment to the Board
March 2011
October 1998
Professional Background
Professional Background
Chairman:
Industrialist
• *Fiat S.p.A., Turin (IT), since 2010
(member of the Board since 1997)
• *Exor S.p.A., Turin (IT), since 2009
• Giovanni Agnelli e C., Turin (IT),
since 2010 (member of the Board
and partner since 2004)
Other Activities and Functions
Generali Holding Vienna AG, Vienna
(AT), Member of the Board since 1974
AUGUST FRANÇOIS VON FINCK (1968)
Other Activities and Functions
Swiss
*Fiat Industrial S.p.A., Turin (IT),
Member of the Board since 2010
The Economist Group, London (UK),
Member of the Board since 2009
Banca Leonardo, Milan (IT), Member of
the Board since 2006
Italy-China Foundation, Milan (IT),
Member of the Board since 2005
(Vice Chairman from 2005 to 2010)
Italian Aspen Institute, Rome (IT),
Vice-Chairman since 2004
Giovanni Agnelli Foundation, Turin (IT),
Member of the Board since 2004
Function in SGS
Member:
• Board of Directors
• Audit Committee
Initial appointment to the Board
May 2002
Professional Background
Industrialist
Other Activities and Functions
*Custodia Holding, Munich (DE),
Member of the Board since 1999
Carlton Holding, Allschwil (CH), Member
of the Board since 2001
*Staatl. Mineralbrunnen AG, Bad
Brückenau (DE), Member of the Board
since 2001
Bank von Roll, Zürich (CH),
Vice-President of the Board since 2009
*Von Roll Holding AG, Breitenbach (CH),
Member of the Board since 2010
26
27
cORPORATE GOVERNANcE
PETER KALANTZIS (1945)
SHELBY R. DU PASQUIER (1960)
Swiss/Greek
Function in SGS
Member:
• Board of Directors
• Audit Committee
Swiss
Function in SGS
Member:
• Board of Directors
• Professional Conduct Committee
Initial appointment to the Board
Initial appointment to the Board
March 2009
March 2006
Professional Background
Professional Background
Economist, Consultant
Other Activities and Functions
Mövenpick/Holding AG, Baar (CH),
Chairman of the Board since 2001
Clair AG, Cham (CH), Chairman of
the Board since 2004
*CNH Global NV, Amsterdam (NL),
Member of the Board since 2006
Degussa Sonne/Mond Goldhandel AG,
Cham (CH), Chairman of the Board
since 2012
*Lamda Development Ltd, Athens (GR),
Chairman of the Board since 2010,
Member since 2004
Paneuropean Oil and Industrial
Holdings SA, Luxembourg (LU),
Member of the Board since 2002
*Von Roll Holding AG, Breitenbach
(CH), Chairman of the Board since 2010,
Member of the Board since 2007
Transbalkan Pipeline BV, Amsterdam
(NL), Member of the Supervisory Board
since 2008
Hardstone Services SA, Geneva (CH),
Member of the Board since 2009
Attorney at law, Partner Lenz &
Staehelin law firm, Geneva
Other Activities and Functions
*Swiss National Bank, Member of
the Board since 2012
Stonehage Trust Holdings (Jersey)
Limited, Member of the Board since 2012
Additional biographical information on
the Members of the Board of Directors
may be viewed on the Group website,
http://www.sgs.com/en/Our-Company/
About-SGS/Board-and-Executive-
Management/Board-and-Committees.aspx,
which is updated regularly.
The Directors bring a wide range of
experience and skills to the Board.
They participate fully in decisions on
key issues facing the Group. Their
combined expertise in the areas of
finance, commercial law, strategy, and
their respective position of leadership in
various industrial sectors are important
contributing factors to the successful
governance of an organisation of the
size and complexity of SGS. The Board
undertakes a periodic review of the
Directors’ interests in which all potential
or perceived conflicts of interests and
issues relevant to their independence
are considered. Based on this review,
the Board has concluded that all the
non-executive Directors (including
the Chairman) are independent from
management and free of any relationship
that could materially interfere with the
exercise of their independent judgement.
With the exception of Sergio Marchionne,
who was Chief Executive Officer of the
Group between February 2002 and June
2004, none of the Directors or their close
relatives has or had any management
responsibility within the SGS Group.
None of the Members of the Board of
Directors or their close relatives has or
had any material business connections
with the Company or its affiliated
companies. The remuneration of the
Members of the Board of Directors is
detailed in section 5.2.1.
The Chairman of the Board, jointly with
members of the Board of Directors,
reviews periodically the performance of
the Board as a whole, of its Committees
and of each of its individual members.
On the basis of this periodic assessment,
changes to the composition of the Board
membership are regularly proposed
to the Company's Annual General
Meeting of Shareholders. This periodic
performance evaluation is designed
to ensure that the Board is always in a
position to provide an effective oversight
and leadership role to the Group.
3.2. cROSS INVOLVEMENT
No member of the Board of Directors
or of the Operations Council is also a
member of the executive bodies of
entities or organisations with which
the Group has material business or
commercial relations.
3.3. ELEcTIONS AND TERMS OF OFFIcE
The Articles of Association of SGS
SA provide that the Members of the
Board of Directors are elected by the
shareholders for a maximum term of
four years. Each Member of the Board
is individually elected at the Annual
Meeting of Shareholders. There is no
limit to the number of terms a Director
may serve. The term of office of all the
current Board Members will expire at
the 2014 Annual General Meeting of
Shareholders, at which time all Board
positions will be subject to election by
the shareholders. There is no provision
for partial, rotating or staggered renewal
of the Board of Directors. By-elections
may be held before the end of the term
of office in the event of vacancies.
The initial date of appointment of each
Board Member is indicated in section 3.1.
3.4. INTERNAL
ORGANISATIONAL STRUcTURE
The duties of the Board of Directors
and its Committees are defined in the
Company’s internal regulations which
are reviewed periodically. They set out all
matters for which a decision by the Board
of Directors is required. In addition to the
decisions required by Swiss company
law, the Board of Directors approves
the Group’s strategies and key business
policies, investments, acquisitions,
disposals and commitments in excess of
delegated limits.
The Members of the Board of Directors
are briefed in advance of Board
meetings on matters to be addressed
at the meeting and each Board member
receives monthly reports on the Group’s
operational results and financial position.
They are regularly updated on key
aspects of the Group’s business and
other material issues. The Board of
Directors meets with all members of
the Operations Council at least twice a
year. The Chief Executive Officer, Chief
Financial Officer and General Counsel
& Chief Compliance Officer (hereafter
“Senior Management”) attend all of the
Board of Directors meetings, while other
Operations Council members attend from
time to time to discuss matters under
their direct responsibility. The Board of
Directors held five meetings in 2012.
3.4.1. Allocation of Board Member tasks
The Board of Directors elects its
Chairman, currently Sergio Marchionne
(see section 3.1.) and the members of
its committees at the beginning of each
term, at its first meeting after the Annual
General Meeting of shareholders.
3.4.2. Committees
The Board has established the
following committees:
• Nomination and Remuneration
• Audit
• Professional Conduct
Each committee acts within terms of
reference established by the Board of
Directors and set out in the internal
regulations of the Company. The minutes
of their meetings are available to all
Directors. The Chairman of the Board also
chairs each of the Board Committees.
Section 3.1. indicates the membership of
each Board Committee.
Nomination and
Remuneration Committee
Section 5.1. of this report describes
the terms of reference and activities
during 2012 of the Nomination and
Remuneration Committee. In 2012,
the Committee held one meeting and
passed one resolution in writing.
Audit Committee
The Audit Committee supports the
Board of Directors in discharging its
duties in relation to financial reporting
and control. Such duties include
consideration of the appropriateness
of accounting policies, the adequacy of
internal controls and risk management
and regulatory compliance. It is also
responsible for the supervision of the
internal and external auditors of the
Group, each of which provides regular
reports to the committee on findings
arising from their work. The committee
reports regularly to the Board of
Directors on its findings. In 2012, the
Audit Committee held three meetings.
Professional Conduct Committee
The Professional Conduct Committee
assists the Board of Directors and
Management in establishing policies
relating to professional conduct
and oversees their implementation.
The Group’s professional conduct
policies are embodied in the Code of
Integrity which sets out the principles
governing business conduct, which are
applied across the whole SGS Group.
These principles reflect the Business
Principles for Countering Bribery issued
by Transparency International and
Social Accountability International and
incorporate the rules adopted by the
International Federation of Inspection
Agencies (IFIA), the professional
association for the inspection industry.
The Committee met twice in 2012 and
passed several resolutions in writing.
In addition to the Board Members
indicated in the section 3.1., the
Professional Conduct Committee
also comprises the Chief Executive
Officer and the General Counsel &
Chief Compliance Officer (General
Counsel). The head of Internal Audit
attends all meetings of the Professional
Conduct Committee.
3.4.3. Board Meetings
The Board of Directors convenes
regularly scheduled meetings with
additional meetings held as and
when required, in person or by phone
conference. It may pass resolutions by
written consent.
The Chairman plans and defines the
agenda of the meetings of the Board
and its Committees. Each Board
Member has the right to request that
a meeting be held or that an item for
discussion and decision be included
in the agenda of a meeting. Board
and Committee members receive
supporting documentation in advance
of the meetings and are entitled to
request further information from the
Management in order to assist them to
prepare for the meetings.
To be adopted, resolutions need a
majority vote of the members of the
Board or Committee, with the Chairman
having a casting vote.
3.5. DEFINITION OF AREAS
OF RESPONSIBILITY
The Board of Directors is responsible
for the ultimate direction of the Group.
The Board discharges all duties and
responsibilities which are attributed to it
by law. In particular, the Board:
• Leads and oversees the conduct,
management and supervision of
the Group
• Determines the organisation of
the Group
• Assesses risks facing the business
and reviews risk management and
mitigation policies
• Appoints and removes the Group’s
Chief Executive Officer and other
members of Management
• Defines the Group’s accounting and
control principles
• Decides on major acquisitions,
investments and disposals
• Discusses and approves the Group’s
strategy, financial statements and
annual budgets
• Prepares the General Meetings of
Shareholders and implements the
shareholders’ resolutions
• Notifies the judicial authorities in the
event of insolvency of the Company,
as required by Swiss law
28
29
cORPORATE GOVERNANcE
In accordance with the Company’s
internal regulations, operational
management of the Group, a function
which the Board of Directors has
delegated, is the responsibility of the
Operations Council. The Operations
Council has the authority and
responsibility to decide on all issues
which are not attributed to the Board
of Directors. In the event of uncertainty
on a particular issue regarding the
separation of responsibility between
the Board of Directors and the
Management, the final decision is taken
by the Chairman of the Board.
The Chairman is regularly informed of
the activities of the Operations Council
by the Chief Executive Officer, Chief
Financial Officer and General Counsel.
The Operations Council is chaired by
the Chief Executive Officer and consists
of those individuals entrusted with the
operational management of the Group’s
activities, as follows:
• The Chief Operating Officers (COOs)
are responsible for operations in the
Group’s 10 regions (see section 1.1.)
• The Executive Vice Presidents (EVPs)
are entrusted with the management
and development of the Group’s 10
business lines (see section 1.1.)
• The Senior Vice Presidents (SVPs)
represent the principal Group support
functions (Finance, Human Resources,
IT, Communications & Investor
Relations, Corporate Development,
Legal & Compliance and Strategic
Transformation).
The composition, role and organisation
of the Operations Council are detailed in
section 4.
3.6. INFORMATION AND cONTROL
INSTRUMENTS VIS-À-VIS
THE MANAGEMENT
A. Responsibility of the Board
The Board of Directors has ultimate
responsibility for the system of internal
controls established and maintained
by the Group and for periodically
reviewing its effectiveness. Internal
controls are intended to provide
reasonable assurance against financial
misstatement and/or loss, and include
the safeguarding of assets, the
maintenance of proper accounting
records, the reliability of financial
information and the compliance with
relevant legislation, regulation and
industry practice.
B. Governance framework
The Group has an established
governance framework which is
designed to oversee its operations
and assist the Company in achieving
its objectives. The main principles of
this framework include the definition
of the role of the Board and its
Committees, an organisational structure
with documented delegated authority
from the Board to Management and
procedures for the approval of major
investments, acquisitions and other
capital allocations.
As a rule, the Chief Executive Officer
participates in the meetings of the Board
of Directors and of the Committees; the
Chief Financial Officer participates in
the meetings of the Board of Directors
and of the Audit Committee; the
Group Controller and the Head of the
Internal Audit Function participate in the
meetings of the Audit Committee; the
Head of Human Resources participates
in the meetings of the Nomination and
Remuneration Committee and the
General Counsel & Chief Compliance
Officer attends all meetings of the Board
of Directors and its Committees. The
other members of the Operations Council
and other members of management only
participate in the Board and Committee
meetings by invitation.
C. Information to the Board
The Board of Directors receives
monthly reports on the financial
results and other reports on business
and operations at each meeting. The
Group has a dedicated Internal Audit
function, reporting to the Chairman of
the Board and the Audit Committee,
which assesses the effectiveness
and appropriateness of the Group’s
risk management, internal controls
and governance processes as well as
the reliability of internal financial and
operational information and ensures
that the standards and policies of
the Group are respected. Internal
Audit reviews and identifies areas of
potential risk associated with the key
business activities performed by a
30
particular office, highlights opportunities
for improvement and proposes
constructive control solutions to reduce
any exposures. All key observations
are communicated to the Operations
Council and the Chairman of the Board
through formal and informal reports.
The Audit Committee is regularly
informed about audits performed
and important findings, as well as
the progress on implementing the
agreed actions by management.
Formal procedures are in place for
both internal and external auditors
to report their findings and
recommendations independently
to the Board’s Audit Committee.
D. General Counsel & Chief
Compliance Officer
Furthermore, the Group has a
compliance function, headed by the
General Counsel & Chief Compliance
Officer, who is a member of the
Professional Conduct Committee and
has direct access to the Chairman of
the Board. The compliance function
supports the implementation of a
compliance programme based on the
SGS Code of Integrity, available in 30
languages. The goal of the programme is
to ensure that the highest standards of
integrity are applied to all of the Group’s
activities worldwide in accordance with
international best practices.
E. Other
In addition, the main business lines
have specialised technical governance
units, which ensure compliance with
internally set quality standards and
industry best practices.
F. Risk Assessment
The Board conducts on a yearly basis
an assessment of the risks facing the
Group. This process is conducted with
the active participation and input by
the Management. Once identified,
risks are assessed according to their
likelihood, severity and mitigation.
The Board deliberates on the adequacy
of measures in place to mitigate and
manage risks and assigns responsibility
to designated managers for
implementation of such measures.
4
OPERATIONS cOUNcIL
The Operations Council (as defined in
section 3.5.) meets on a regular basis,
in principle at least six times a year.
Between meetings, it holds regular phone
conferences and may make decisions on
such calls or by electronic voting.
4.1. MEMBERS OF
THE OPERATIONS cOUNcIL
The members of the Operations Council
at 31 December 2012 were as follows:
OLIVIER MERKT (1962)
MICHAEL BELTON (1960)
Swiss
British
General Counsel &
Chief Compliance Officer
Doctorate in Law, admitted to the bar
in Switzerland
EVP, Minerals Services
BSc Chemistry
Joined SGS in 2002
Joined SGS in 2001
Previous responsibilities
Previous responsibilities
2005 – 2007: Managing Director,
Minerals Services, North America
2006 – 2008: VP, Corporate Development
2001 – 2006: Senior Counsel
2002 – 2005: VP, Global Non-Ferrous
Minerals Services
Other work experience
Other work experience
1993 – 2001: Senior Manager Legal,
Ernst & Young, Geneva
1995 – 2002: EVP, Alfred H. Knight
North America Ltd
TEYMUR ABASOV (1972)
DOMINIQUE BEN DHAOU (1965)
Azeri
Swiss
COO, Eastern Europe & Middle East
SVP, Human Resources
Degree in Electrical Engineering
Degree in Hotel Industry Management
Joined SGS in 1994
Joined SGS in 2001
Previous responsibilities
Previous responsibilities
2006 – 2007: Managing Director,
Kazakhstan & Caspian Sub-Region
2004 – 2006: Managing Director,
Azerbaijan and Georgia
2003 – 2004: Managing Director, Georgia
2001 – 2003: Operations Manager, Oil
Gas & Chemicals Services, Azerbaijan
2008 – 2010: VP, Human Resources
2003 – 2005: additional role as Africa
Regional Resources Manager
2003 – 2008: Assistant Vice President
Human Resources
2001 – 2003: International
Compensation & Benefits and
HQ HR Manager
Other work experience
International Human Resources positions:
2000 – 2001: Firmenich
1999 – 2000: Novartis Consumer Health
1991 – 1998: Levi Strauss
CHRISTOPHER KIRK (1956)
British
Chief Executive Officer & IT,
COO South East Europe, ad interim
Bachelor of Science
Joined SGS in 1981
Previous responsibilities
2003 – 2006: EVP, Minerals and
Environmental Services
2002 – 2003: COO, South East Asia
& Pacific
2000 – 2002: Managing Director and
Sub-regional Manager, Singapore
1998 – 1999: Managing Director, Thailand
GERALDINE MATCHETT (1972)
Swiss/British/French
Chief Financial Officer
Master in Sustainable Development
Chartered Accountant
Joined SGS in 2004
Previous responsibilities
2004 – 2010: Group Financial Controller
Other work experience
2001 – 2004: Deloitte, Geneva
1997 – 2001: KPMG, London
31
cORPORATE GOVERNANcE
JEAN-LUC DE BUMAN (1953)
ALEJANDRO
DIRK HELLEMANS (1958)
FRANCOIS MARTI (1968)
FRANKIE NG (1966)
DENNIS YANG (1949)
Swiss
GOMEZ DE LA TORRE (1959)
Belgian
Swiss
Swiss/Chinese
SVP, Corporate Communications, Investor
Relations & Corporate Development
Peruvian
COO, South America
Legal studies
Joined SGS in 1998
Other work experience
1978 – 1998: Country Head Switzerland,
Sales Fixed Income, UBS
HELMUT CHIK (1966)
Chinese
Degree in Business Administration,
Postgraduate Specialisation in
International Commerce
Joined SGS in 1986
Previous responsibilities
1996 – 2001: National Chief Executive,
Peru and Manager Central Sub-Region,
Latin America (1998 – 2001)
COO, China & Hong Kong
ANTHONY HALL (1963)
Master in Business Administration
Australian
COO, Central & North West Europe
Degree in Chemical Engineering and
Master in Business Administration
Joined SGS in 1988
Previous responsibilities
2002 – 2004: COO, North West Europe
1997 – 2002: Managing Director, Belgium
FRÉDÉRIC HERREN (1955)
Swiss
EVP, Governments & Institutions Services
COO, Africa
Joined SGS in 1991
COO, South East Asia & Pacific
Master in Economics
Previous responsibilities
Chemist, laboratory technician
2003: Managing Director, Hong Kong
Joined SGS in 2001
2002: Global Business Manager,
Softline, Consumer Testing Services
2000 – 2001: Director Greater China,
SBU Softline, Consumer Testing Services
1999: Director, Hong Kong, Consumer
Testing Services
Previous responsibilities
2007 – 2009: Managing Director, Australia
2005 – 2006: National Business
Manager Australia, OGC, Industrial
and Automotive
PAULINE EARL (1961)
British
COO, Western Europe
BSc in Food Science
Joined SGS in 1995
Previous responsibilities
2007 – 2010: Managing Director,
United Kingdom
2004 – 2007: SSC Business Manager,
United Kingdom
ANNE HAYS (1959)
French
EVP, Life Science Services
PhD in Pharmacy
Joined SGS in 1984
Previous responsibilities
2008 – 2010: VP Business Development
R&D QC, Life Science Services
2001 – 2007: Global Sales QC,
Life Science Services
1992 – 2000: General Manager,
Laboratory Simon, France
Initially joined SGS in 1986, rejoined
in 1999
Previous responsibilities
2003 – 2006: EVP, Automotive Services
1999 – 2003: Head of Global Marketing,
Trade Assurance Services (now
Governments & Institutions Services)
Other work experience
1995 – 1998: CEO, Unilabs International
THOMAS KLUKAS (1965)
German
EVP, Automotive Services
PhD Engineering Science
Joined SGS in 2005
Previous responsibilities
2008 – 2010: VP Automotive Services
2005 – 2008: Automotive Services
Regional Manager, North America
Other work experience
Manager DEKRA AG Stuttgart and Atlanta
EVP Systems & Services Certification
(since March 2012)
EVP, Industrial Services
(since January 2012)
SVP, Strategic Transformation
Degree in International Relations
Initially joined SGS in 2003, rejoined
in 2011
Previous responsibilities
2003 – 2005: VP Continuous Improvement
Other work experience
2005 – 2011: CEO Fiat Services
Senior Manager PWC and IBM
JEFFREY MCDONALD (1964)
Australian
COO, North America
Postgraduate Diploma in Education
Joined SGS in 1995
Previous responsibilities
2004 – 2007: EVP, Systems &
Services Certification
2003: Global Project Manager,
Systems & Services Certification
1995 – 2003: Systems & Services
Certification, South East Asia & Pacific,
Regional Manager (Bangkok)
JEFFREY NEWELL (1950)
British
EVP, Agricultural Services
BA in Chemistry & Biology
Joined SGS in 1969
Previous responsibilities
2004 – 2007: SVP, Global Sales,
Oil, Gas & Chemicals Services
1998 – 2003: Global Business Manager,
Oil, Gas & Chemicals Services
BA in Economics and
Electronics Engineering
Joined SGS in 1994
Previous responsibilities
2005 - 2011 EVP Consumer
Testing Services
2002 – 2004: Managing Director,
US Testing
2000 – 2002: Director, Consumer Testing
Services, China and Global Hardlines
1997 – 2000: Operations Manager,
Consumer Testing Services, China
MALCOLM REID (1963)
British
EVP, Consumer Testing Services
(since January 2012)
BSc Chemistry
Joined SGS in 1987
Previous responsibilities
2008 - 2011: EVP Systems &
Services Certification
2005 – 2007: Managing Director, Australia
2000 – 2005: Managing Director, Thailand
1997 – 2000: Managing Director,
Philippines
ALIM SAIDOV (1964)
Azeri
EVP, Oil, Gas & Chemicals Services and
Environmental Services
PhD in Science
Joined SGS in 1993
Previous responsibilities
2005 – 2007: COO, Eastern Europe &
Middle East
2004: COO, North America and
Managing Director, Canada
2001 – 2004: Managing Director,
Kazakhstan & Manager Caspian Region
32
33
Taiwanese
COO, East Asia
Master in Business Administration
Joined SGS in 1975
Previous responsibilities
2000 – 2002: Managing Director, Taiwan
1992 – 2000: Assistant General
Manager, Taiwan
In January 2013, the Nomination and
Remuneration Committee approved the
appointment of Olivier Coppey to the
position of EVP Agricultural Services,
to replace Jeffrey Newell who retires in
2013. Peter Possemiers is appointed to
the role of EVP Environmental Services,
taking over from Alim Saidov and
Ladislav Papik is appointed to the role of
COO South East Europe. Dirk Hellemans
COO Central & North West Europe,
takes the extended responsibility of
Poland, Austria and Italy (previously
reported under South East Europe).
All above appointments take effect from
1 February 2013.
Additional information, including
biographical details can be found on
the Company’s website:
http://www.sgs.com/en/Our-Company/
About-SGS/Board-and-Executive-
Management/Operations-Council.aspx
cORPORATE GOVERNANcE
4.2. OTHER AcTIVITIES AND FUNcTIONS
JEAN-LUC DE BUMAN
FRANÇOIS MARTI
The following list presents all material
activities in governing and supervisory
boards, management positions and
consultancy functions, official tenures
and political positions held by each
member of the Operations Council
outside the Group, both in Switzerland
and abroad.
CHRISTOPHER KIRK
Compass Limited, Hamilton, Bermuda,
Member of the Board since 2011
Geneva Trading & Shipping Association
(GTSA), Member of the Executive Board
since 2006
Association pour le Développement des
Compétences Bancaires, Geneva (CH),
Member of the Board since 1999
Member of the Board of IIOC
(Independent International Organisational
for Certification) since 2012
JEFFREY NEWELL
Council Member of GAFTA and
Member of International Contracts
Policy Committee of GAFTA since 2010
4.3. MANAGEMENT cONTRAcTS
The Company is not party to any
management contract delegating
management tasks to companies or
individuals outside the Group.
Hyposwiss Private Bank Genève SA,
Geneva (CH), Member of the Board
since 2006
SwissHoldings, Federation of Industrial
and Service Groups in Switzerland, Bern
(CH), Member of the Board since 2011
Federal Accreditation Commission,
Bern (CH), Member since 2012
ALEJANDRO GOMEZ DE LA TORRE
Swiss-Peruvian Chamber of Commerce,
Lima (Peru), Director
THOMAS KLUKAS
CITA, International Motor Vehicle
Inspection Committee, Brussels (BE),
Member of the Bureau Permanent
since 2011
5
cOMPENSATION,
SHAREHOLDINGS
AND LOANS
This section of the Corporate
Governance Report serves as the
Company’s remuneration report.
In accordance with the recommendations
of the Swiss Code of Best Practice for
Corporate Governance in this matter, this
section of the Report will be subject to
a consultative vote at the next Annual
General Meeting of Shareholders.
5.1. cOMPANY’S
REMUNERATION POLIcIES
The Group’s overriding compensation
policies are defined by the Board of
Directors. The objectives of these
policies are twofold: a) to attract
and retain the best talent available in
the industry; and b) to motivate
employees and managers to create
and protect value for shareholders
by generating long-term sustainable
financial achievements.
The Board of Directors is responsible
for determining the remuneration
of the Chairman and the directors.
It also decides on the remuneration
and terms of employment of the Chief
Executive Officer, based upon the
recommendations of the Nomination
and Remuneration Committee.
It additionally determines the financial
targets upon which the variable
element of the remuneration of the
Operations Council and other Group
senior executives is based, and defines
the conditions of all share option plans
(including Long Term Incentive (LTI)
plans) as well as the allocation of such
options and the conditions of their
granting, vesting and exercise. All
general executive remuneration policies,
including the criteria and weighting
of financial targets relevant to the
assessment of the variable element of
executive remuneration, are approved by
the Board of Directors.
The Board of Directors is assisted in its
work by a Nomination and Remuneration
Committee (the Committee), which
consists of independent non-executive
Directors. The Committee acts in part in
an advisory capacity to the Board, and
in part as a decision-making body on
matters that the Board has delegated
to the Committee. The Committee
reviews regularly, at least once a year,
the compensation of each member of
the Operations Council (other than the
Chief Executive Officer), and decides on
all matters relating to the remuneration
of these executives.
Neither the Chairman of the Board nor
the Chief Executive Officer is allowed to
participate in discussions and decisions
on their own compensation. General
executive remuneration policies,
including the implementation of
long term incentive plans, are decided
by the Board, on the recommendation
of the Committee.
The following Directors served on
the Nomination and Remuneration
Committee in 2012:
• Sergio Marchionne (Chairman)
• August von Finck
• John Elkann
The Chief Executive Officer attends all
meetings of the Committee, except when
his own remuneration is being discussed.
This chart summarises the authorisation
levels for the main decisions relating to
compensation of Board and Operations
Council Members.
SUBjEcT MATTER
REcOMMENDATION
DEcISION
Compensation of Board Members
Compensation of Chairman
Remuneration of CEO
Remuneration of other Operations Council Members
Issuance of Long Term Incentive Plans
Setting of annual financial targets for variable remuneration
of Operations Council Members
Issuance of Annual Share Options Plans
1. Nomination and Remuneration Committee.
Committee 1
Committee 1
Committee 1
CEO
Committee 1
CEO
CEO
Board of Directors
Board of Directors
Board of Directors
Committee 1
Board of Directors
Board of Directors
Committee 1
When reviewing and deciding on
executive remuneration policies, the
Committee and the Board have access
to the Group Human Resources staff
and may use third party consultants
specialising in compensation matters.
In 2012, neither the Committee nor the
Board had recourse to such external
advisors. In discharging their duties
in relation to compensation, they have
relied on advice from the Group Human
Resources department and on publicly
available information on director and
executive management remuneration
paid by the companies against which the
Group performs periodic benchmarks.
Elements of executive remuneration
benchmarked include long- and
short-term incentive compensation,
annual base salary, benefits and
allowances. Companies against
which the Group performs periodic
benchmarks are SMI listed companies,
large companies that are internationally
34
35
Employment Contracts
Base salary
Annual bonus
cORPORATE GOVERNANcE
active including our competitors in the
industries in which we operate.
In assessing the adequacy of executive
remuneration for executives who
are based outside Switzerland, the
Group relies on relevant local market
intelligence published by external
benchmarking consulting firms.
Compensation Principles
a) Board of Directors
The members of the Board of Directors
are entitled to a fixed annual Board
Membership fee, and additional
annual fees for participation in Board
Committees. Board members do not
receive additional compensation for
attending meetings. With the exception
of the Chairman, Board members do
not receive any variable remuneration,
options or shares.
The Chairman receives a fixed annual
fee and additional fixed fees for chairing
the Board Committees. He also
receives share options issued by the
Company under its annual and long
term incentive plans. The conditions of
grant, vesting and exercise of options
awarded to the Chairman are the same
as those applicable to the members
of the Operations Council. In principle,
the Chairman receives 25% of the
options granted to the Chief Executive
Officer. The Board has the discretion to
grant more options to the Chairman to
recognise personal performance. The
Chairman does not receive any variable
cash remuneration.
b) Operations Council
The remuneration earned by the Chief
Executive Officer and by members
of the Operations Council comprises:
(i) a fixed base salary including benefits;
(ii) an annual performance bonus, settled
in part in cash and in part by way of
options with deferred vesting, granted
under annual share options plan; and (iii)
long term incentive plan(s). The Company
considers that payment of variable
remuneration in the form of equity linked
instruments whose vesting and exercise
is deferred is a key mechanism to align
management’s incentives to the interests
of shareholders.
Directors do not hold service contracts
and are not entitled to any termination
or severance payments. They do not
participate in the Company’s share
option plans (except for the Chairman)
or other benefit schemes and the
Company does not make any pension
contributions on their behalf.
Employment contracts of Operations
Council members have no fixed term
and can be terminated at any time by
either party, provided a standard notice
period (six months) is respected. The
Chief Executive Officer’s employment
contract provides for a severance
payment equivalent to two years total
remuneration payable in the event that
the employment contract is terminated
or constructively terminated (including
in the event of a change of control) by
the Company, other than for cause.
No severance payment is due if the
employment relationship is terminated
in any other circumstance. No other
executive contract provides for any
material change of control protection.
The table below summarises the various components of the compensation of Operations Council members, including the
Chief Executive Officer:
cOMPENSATION ELEMENT
cOMPENSATION VEHIcLE
DRIVERS
PERFORMANcE MEASURES
PURPOSE
Base Salary
Monthly cash salary
Annual Bonus
50% cash / 50%
allocation of stock
options, with
deferred vesting and
blocking periods
Discretionary Bonus
Cash
Long Term Incentives
Stock options award,
with vesting conditional
upon achieving the
Group objectives
Attract and retain
key executives
Pay for performance
Position and
experience,
market practice
Achievement of
annual business and
financial objectives
Market practice,
executive benchmark of
international companies
in relevant markets
Financial targets: (i) Group
Net Profit After Tax and
Adjusted Operating Income
for the Group as a whole, for
regional or business units;
(ii) measures of Economic
Value Added; and (iii)
Earnings Per Share (EPS)
Rewarding individual
achievements
or exceptional
performance
Achievement of long-
term strategic plans
stated by the Group
Discretionary allocations
do not exceed 10% of
OC overall remuneration
Attract and retain key
executives, recognise
individual performance
Earnings per Share targets
Align executive
compensation
with interests of
shareholders
36
The base salary of the Chief Executive
Officer and each Operations Council
members is reviewed annually, on the
basis of market data for similar positions
at the companies against which the
Group benchmarks itself. It takes into
account the individual’s performance,
scope and complexity of the position.
Additional employment benefits are
paid depending on standard practice
in the location of employment. Such
employment benefits include a car
allowance and, for expatriate personnel,
a housing allowance and tuition fees
allowance for children.
Geneva based Operations Council
members participate, on the same basis
as other Swiss employees of the Group,
in the Company’s pension schemes,
being one defined benefit scheme
established in accordance with the
Swiss LPP regulations up to an insured
amount of CHF 100 thousand and
one defined contribution scheme for
pensionable remuneration in excess of
CHF 100 thousand up to a maximum
of CHF 821 thousand per year.
Employees contribute 8% of their base
salary and the Company contributes an
amount equal to one and a half times
the contributions paid by all employees
to the scheme.
In addition to the base salary, members
of the Operations Council (including the
Chief Executive Officer) are entitled to
a performance-related annual bonus.
For this purpose, the Company defines
annual targets at the beginning of the
year for the Chief Executive Officer and
for each Operations Council member.
Relevant targets for the calculation of
the Annual Bonus of the CEO are based
on the Group Earnings per Shares (EPS).
For the heads of corporate functions
(SVPs) targets are based 100% on the
Group Net Profit After Tax. For EVPs,
the relevant targets relate for 50% to
the Adjusted Operating Income of their
respective business and for 50% to the
Group Net Profit After Tax. For COOs,
the relevant targets are for 62.5% their
respective region's Adjusted Operating
Income and Economic Value Added and
for 37.5% the Group Net Profit After Tax.
Bonuses are assessed and awarded to
the Operations Council members on the
basis of the actual performance against
the predefined targets.
If targets are achieved they trigger
the entitlement to an annual incentive
bonus. Once the amount of a bonus
is determined, it is settled 50% in
cash and 50% in options. The cash
component of the bonus is payable
immediately. The economic value of the
options which is used to convert a bonus
entitlement into a number of options is
fixed by the Company on the basis of a
calculation of the value of the options
at grant, taking into account a discount
for the three years blocking period
during which the options cannot be
traded or exercised. The share options
are granted immediately, but they vest
rateably in three equal instalments over
a period of three years and are only
exercisable in the fourth and fifth year
after grant. Unvested options are subject
to forfeiture if the beneficiary leaves the
Group for reasons other than retirement,
disability or death.
For this purpose, the Company issues
Annual Share Option plans, in the
form of traded warrants which are
listed on the Swiss Stock Exchange.
These warrants incorporate a right
to buy shares in the Company at a
predetermined fixed price through the
grant of traded options. The strike price
is determined for each plan on the
basis of the average trading price of
the Company’s shares in the last three
months prior to the year of grant.
These Annual Share Option plans serve
(i) to pay part of the annual performance
bonuses to Members of the Operations
Council; (ii) to allocate options to the
Chairman; and (iii) to be awarded as an
incentive to other selected employees
of the Group. All beneficiaries receive
these options under the same conditions
of vesting and exercise.
The table below summarises the components of the annual performance targets and how these components are weighted,
depending on the function of the respective Operations Council member:
Annual bonus formula
CEO
SVPs (heads of corporate functions)
EVPs
COOs
EARNINGS
PER SHARE
(EPS)
100%
-
-
-
PERFORMANcE
OF THE GROUP
(Net Profit After Tax)
BUSINESS PERFORMANcE
(Adjusted Operating Income
of the relevant business)
REGIONAL PERFORMANcE
(Adjusted Operating Income
and Economic Value Added
of the relevant region)
-
-
50%
-
-
-
-
62.5%
-
100%
50%
37.5%
37
cORPORATE GOVERNANcE
Discretionary bonus
Long Term Incentive Plans
The Board of Directors and Committee
may also grant discretionary cash
bonuses to individual Operations
Council members to reward outstanding
personal achievements. For 2012,
an amount of CHF 1 245 thousand
(2011: CHF 1 035 thousand) of
discretionary bonuses was awarded to
Operations Council members (including
the Chief Executive Officer). These
discretionary cash bonuses are granted
at the same time as the Annual Bonus.
They are given on an exceptional basis
as recognition of personal achievements
in the year. In proportion to the overall
remuneration, these discretionary
bonuses do not exceed 10% of the
Operations Council's overall remuneration.
In addition to the annual bonus, the
Group periodically sets Long Term
Incentive (LTI) Plans. Such plans are
designed to motivate the leadership
team to achieve the long-term stated
objectives of the Group. They consist of
options granted to a selected number
of senior executives of the Group, the
vesting of which is conditional upon:
(1) the Group achieving or exceeding
stated earnings per share targets; and
(2) the beneficiary being employed by
the Group on the vesting date.
In 2011, the Company introduced a
long term incentive plan (the 2011 LTI
Plan) for which vesting is conditional
upon the Group achieving or exceeding
in 2014 EPS targets ranging from
CHF 115 (minimum performance allowing
a partial vesting of 50% of options granted
under the Plan) to CHF 140 (full vesting of
options granted under the Plan).
The 2011 LTI Plan involves the granting of
options to acquire shares of the Company
at a strike price of CHF 1 617. Such
options are in the form of traded warrants,
with 100 warrants required to purchase
one share. The Group has set aside
9 000 000 such warrants for this incentive
plan. This plan is designed to motivate the
leadership team to achieve the long-term
stated objective by 2014.
Full details of this long term incentive
plan are provided in note 31 to the
Group consolidated financial statements
(pages 93 to 94 of the Annual Report).
In 2012, no new Long Term Incentive
Plan was introduced by the Group and
no additional options were granted to
members of the Operations Council in
2012 under the existing 2011 LTI Plan.
20 000 options of the long term incentive
plan LTI were granted to other employees
in 2012.
The following table shows the strike price, the vesting period and the exercisable period of the options ¹ granted to the Chairman of
the Board and to the members of the Operations Council under each plan. It includes options granted in January 2013 with respect
to performance and financial results in 2012:
I Annual Share Option Plans
TYPE OF OPTIONS
(Year of issue)
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
STRIkE PRIcE (cHF) 2
VESTING DATE
1/3 OF OPTIONS
GRANTED
VESTING DATE
1/3 OF OPTIONS
GRANTED
VESTING DATE
1/3 OF OPTIONS
GRANTED
1 064
1 339
1 617
1 497
2 013
01.2009
01.2010
01.2011
01.2012
01.2013
07.2010
07.2011
07.2012
07.2013
07.2014
01.2012
01.2013
01.2014
01.2015
01.2016
PERIOD OF EXERcISE
01.2012 - 01.2014
01.2013 - 01.2015
01.2014 - 01.2016
01.2015 - 01.2017
01.2016 - 01.2018
II Long Term Incentive Plan
SGSMF-2011 LTI (2011)
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Granted in 2013 in settlement of 2012 annual variable remuneration.
4. Vesting conditional on minimum EPS target reached in 2014.
01.2015 4
01.2015 - 01.2016
RELATIONSHIP BETWEEN ANNUAL VARIABLE cOMPENSATION AND BASE SALARY
The portion of fixed and variable remuneration, as a percentage of the total remuneration in any given year, depends on the extent
to which pre-defined targets and objectives have been achieved. Assuming achievement of targets, the annual variable component
of the Operations Council members' remuneration (annual bonus including cash and options award), expressed as a percentage of
their respective annual remuneration ranges between 32% and 48% of their total annual compensation.
If targets are exceeded, annual bonuses are increased on a multiplier basis with a maximum payout which could correspond to a
range between 54% and 70% of their respective total annual compensation.
In the event of underperformance against targets, the bonus is rateably reduced on a multiplier basis, so that no bonus is paid in
the event that a pre-established minimum target is not achieved.
TOTAL cOMPENSATION (EXcLUDING LONG TERM INcENTIVE PLANS) FOR THE cHIEF EXEcUTIVE OFFIcER
Below Minimum Target Performance
On Target Performance
Maximum Performance
100%
52%
24%
24%
30%
35%
35%
Base Salary
Variable cash compensation
Variable Annual Option allocation (value at grant date)
In 2012, the variable cash element of the Chief Executive Officer’s compensation represented 32% of the total compensation
(2011: 30%) and the allocation of options represented 7% of the total compensation (2011: 24%).
For the Operations Council as a whole, the variable cash element of the compensation in 2012 amounted to 25% of the total
compensation (2011: 26%) and the allocation of options represented 18% of the total compensation (2011: 20%).
Total compensation includes the guaranteed part (base salary) and the variable part of the compensation. It excludes fringe and
social benefits.
5.2. cOMPENSATION FOR MEMBERS OF GOVERNING BODIES
The bonus settled in options is disclosed as part of the compensation for the year to which it relates (and not for the year
it was approved).
5.2.1. Board of Directors
In 2012, the annual board membership fee was CHF 150 thousand for all board members, unchanged from the prior year. Members of
the Board serving on a Committee were entitled to an additional fee of CHF 30 thousand per committee, unchanged from last year.
The annual fee payable to the Chairman was CHF 300 thousand, unchanged from the prior year.
The Chairman was awarded, by decision of the Board of Directors 40 000 options under the 2013 Annual Share Options Plan
in consideration of the 2012 annual performance (2011: 50 000 SGSKF options under the 2012 Annual Share Options Plan).
The conditions of vesting and exercise of these options are the same as those granted to the management under these plans.
38
39
cORPORATE GOVERNANcE
The following chart details the fees, other cash benefits and share options granted to each of the Directors for their tenure
in 2012 and 2011:
(CHF thousand)
BOARD FEE
cOMMITTEE
FEE
OTHER
BENEFITS
TOTAL cASH
cOMPENSATION
2012
SHARE
OPTIONS
TOTAL 2012
cOMPENSATION
(INcLUDING
OPTIONS)
TOTAL 2011
cOMPENSATION
(INcLUDING
OPTIONS)
5.2.2. Compensation to the Operations Council, Senior Management and Chief Executive Officer
This section sets out the global remuneration which was paid to the Operations Council as a whole, to the three Operations
Council members who make up Senior Management and to the Chief Executive Officer during 2012. All amounts disclosed in
this section include cash bonuses payable and options granted in January 2013 with respect to performance in 2012 and the related
financial results.
S. Marchionne
T.R. Brandolini d'Adda 3
J. Elkann 3
A. von Finck
A.F. von Finck
C. Grupp
P. Kalantzis
S.R. du Pasquier
C. Barel di Sant’Albano 3
T. Limberger
TOTAL
300
150
150
150
150
150
150
150
-
-
90
30
30
30
30
-
30
30
-
-
1 350
270
25
-
-
-
-
-
-
-
-
-
25
415
180
180
180
180
150
180
180
-
-
1 645
89 1
-
-
-
-
-
-
-
-
-
89
504
180
180
180
180
150
180
180
-
-
1 118 2
180
142 4
180
180
119 4
180
180
38 4
31 4
5.2.2.1. Cash compensation
(CHF thousand)
2012
2011
To the Operations Council (including Senior Management)
To Senior Management (including Chief Executive Officer)
To the Chief Executive Officer
CHF 12 140
CHF 2 509
CHF 1 545
CHF 12 367
CHF 2 573
CHF 1 627
The total cash compensation paid to the Operations Council excludes severance payments (see section 5.2.2.5.). Post employment
benefits of CHF 1 567 thousand are not included (2011: CHF 1 406 thousand).
1 734
2 348
5.2.2.2. Share options
Annual Share Options Plans
1. 40 000 SGSWS granted in January 2013 in relation to the 2012 financial results.
2. 50 000 SGSKF granted in January 2012 in relation to the 2011 financial results and 200 000 SGSMF options granted under the 2011 Long Term Incentive plan.
3. Board and committees fees for T.R. Brandolini d'Adda, J. Elkann and C. Barel di Sant'Albano have been paid to Exor Investissements SA, Luxembourg.
4. 2011 fees paid prorata temporis.
The following table shows the details of the options¹ granted to the Chairman of the Board under each Annual Share Option Plans and
Long Term Incentive Plans:
TYPE OF OPTIONS
(YEAR OF ISSUE) (cHF)
STRIkE PRIcE 2
(cHF)
TOTAL NUMBER OF OPTIONS
GRANTED UNDER EAcH PLAN
MARkET VALUE AT GRANT
(THOUSAND)
NUMBER VESTED
ON DEcEMBER 31, 2012
SGSMO (2008)
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
SGSMF-2011 LTI (2011) 4
1 349
1 064
1 339
1 617
1 497
2 013
1 617
81 354
96 619
50 000
50 000
50 000
40 000
200 000
192
238
155
142
133
89
570
81 354
96 619
33 332
33 332
16 666
-
-
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Granted in 2013 on the basis of 2012 financial results.
4. Vesting conditional on minimum EPS target reached in 2014.
In settlement of 2012 annual bonus entitlements, a total of 1 057 102 SGSWS options (2011: 1 044 793 SGSKF options granted in
January 2012) were granted to the Operations Council (including Senior Management) in January 2013 on the basis of 2012 results.
Such SGS options grant the right to acquire shares of SGS at a strike price of CHF 2 013 (100 options give the right to acquire one share).
They vest in tranches of one-third in 2013, 2014 and 2016 and are subject to a blocking period ending in January 2016. All options granted
to the Operations Council on the basis of the 2012 results had a fair value at grant of CHF 2 357 338 (2011: CHF 2 779 149).
The Senior Management was awarded a total of 163 223 SGSWS options granted in January 2013 (2011: 282 863 SGSKF options
granted in January 2012). This number includes 48 577 SGSWS options (2011: 180 225 SGSKF options granted in January 2012)
awarded to the Chief Executive Officer.
Long-Term Options Plan
Under the 2011 LTI Plan, a total of 4 910 000 SGSMF-2011 LTI options were granted to the Operations Council (including Senior
Management) in 2011. The vesting of such options in January 2015 is conditional upon the Group achieving or exceeding EPS
targets ranging between CHF 115 (minimum performance allowing a partial vesting under the Plan) and CHF 140 (full vesting of
options granted under the Plan) in 2014. If targets defined by the plan are not reached, they will be forfeited.
The Senior Management was awarded a total of 1 120 000 SGSMF-2011 LTI options under the 2011 LTI Plan. This number includes
800 000 options awarded to the Chief Executive Officer.
The following table presents details of the share options awarded to members of the Operations Council, Senior Management
and the CEO, and shows those options which have been granted, vested and/or became exercisable in 2012. It includes options
granted in January 2013 with respect to performance and financial results in 2012.
In 2012, no new Long Term Incentive Plan was introduced by the Group and no additional options were granted to members of
the Operations Council in 2012 under the existing 2011 LTI Plan.
40
41
cORPORATE GOVERNANcE
This table relates to the individuals who were members of the Operations Council as at 31 December 2012:
5.2.2.4. Highest total compensation
TYPE OF OPTIONS 1
(YEAR OF ISSUE)
STRIkE PRIcE (cHF) 2
TOTAL NUMBER OF OPTIONS
GRANTED UNDER EAcH PLAN
MARkET VALUE AT GRANT
(THOUSAND)
NUMBER VESTED ON
DEcEMBER 31, 2012
OPERATIONS cOUNcIL (INcLUDING SENIOR MANAGEMENT AND cHIEF EXEcUTIVE OFFIcER)
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
SGSMF-2011 LTI 4
1 064
1 339
1 617
1 497
2 013
1 617
1 395 062
608 029
866 833
1 004 319
1 026 799
4 430 000
SENIOR MANAGEMENT (INcLUDING cHIEF EXEcUTIVE OFFIcER)
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
SGSMF-2011 LTI 4
cHIEF EXEcUTIVE OFFIcER
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
SGSMF-2011 LTI 4
1 064
1 339
1 617
1 497
2 013
1 617
1 064
1 339
1 617
1 497
2 013
1 617
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Granted in 2013 in settlement of 2012 bonus entitlements.
4. Vesting conditional on minimum EPS target reached in 2014.
442 177
92 803
246 769
282 863
163 223
1 120 000
386 474
42 647
174 920
180 225
48 577
800 000
3 432
1 885
2 470
2 671
2 290
12 626
1 088
288
703
752
364
3 192
951
132
499
479
108
2 280
1 395 062
405 352
577 888
334 773
-
-
442 177
61 868
164 512
94 288
-
-
386 474
28 431
116 614
60 075
-
-
5.2.2.3. Total compensation to the Operations Council, Senior Management and Chief Executive Officer
The table below presents all components of the remuneration earned in 2012 by the Operations Council, by the Senior Management
and by the Chief Executive Officer. It does not take into account the potential value of options granted in 2011 under the 2011
Long Term Incentive Plan, whose vesting in 2015 is conditional upon the Group achieving minimum EPS targets in 2014.
(CHF thousand)
BASE SALARY
OTHER
EMPLOYMENT
BENEFITS
ANNUAL cASH
BONUS
ANNUAL
GRANT
OF SHARE
OPTIONS
DIScRETIONARY
cASH BONUS
TOTAL 2012
cOMPENSATION
(INcLUDING
OPTIONS)
TOTAL 2011
cOMPENSATION
(INcLUDING
OPTIONS)
To the Operations
Council (including
Senior Management)
To Senior Management
(including Chief
Executive Officer)
To the Chief
Executive Officer
7 593
1 293
2 010
2 357
1 245
14 498
15 147
1 610
123
305
364
470
2 872
3 325
950
103
91
108
400
1 652
2 106
In the year under review, the highest compensation paid by the Group was awarded to the CEO (see 5.2.2.3).
5.2.2.5. Severance payments
In 2012, an amount of CHF 626 thousand was recognised as severance payments to Operations Council members
(2011: CHF 250 thousand).
5.2.2.6. Loans to members of governing bodies
As at 31 December 2012, no loan, credit or outstanding advance was due to the Group from members of its governing bodies
(unchanged from prior year).
5.2.3. Company’s Performance
The following graph compares the TSR (Total Shareholder Return) of the Company with the TSR of the Swiss Market Index (SMI)
for the three year period 2010 to 2012. The company measures its performance against the SMI index because this index tracks
the performance of large companies based in Switzerland, which are also active internationally.
Given the lack of direct industry comparables, the SMI is viewed as being the most relevant benchmark. It is a good indication of
the market performance of other comparable Swiss companies during the period.
Comparison of relative returns between SGS and the SMI index, assuming that SGS dividends are re-invested to purchase additional
equity at the closing price on the date of payment of dividends for the period 1 January 2010 to 31 December 2012 is as follow:
SGS SA
SMI INDEX
250%
240%
230%
220%
210%
200%
190%
180%
170%
160%
150%
140%
130%
120%
110%
100%
90%
80%
70%
60%
50%
40%
)
0
0
1
O
T
D
E
X
E
D
N
I
(
N
R
U
T
E
R
L
A
T
O
T
216%
140%
JAN 2010
MAY 2010
AUG 2010
DEC 2010
MAY 2011
AUG 2011
DEC 2011
MAY 2012
AUG 2012
DEC 2012
42
43
cORPORATE GOVERNANcE
6
SHAREHOLDERS'
PARTIcIPATION RIGHTS
All registered shareholders receive a
copy of the half year and full year results
upon the publication of such results by
the Company. They can request a copy
of the Company’s Annual Report and are
personally invited to attend the Annual
General Meeting of Shareholders.
6.1. VOTING RIGHTS AND
REPRESENTATION RESTRIcTIONS
All registered shareholders can attend
the General Meetings of Shareholders
and exercise their right to vote. The
shareholder may also elect to grant
power of attorney to an independent
proxy appointed by the Company,
to a bank or a regulated financial
intermediary or to any other registered
shareholder. There are no voting
restrictions, subject to the exclusion
of nominee shareholders representing
undisclosed principals, as detailed in
section 2.6.
6.2. STATUTORY QUORUMS
6.3. cONVOcATION OF GENERAL
The General Meeting of Shareholders can
validly deliberate regardless of the number
of shares represented at the meeting.
Resolutions are adopted by the absolute
majority of votes cast. If a second ballot is
necessary, a relative majority is sufficient.
In addition to the specific provisions
of Swiss company law, the following
resolutions require a majority of two thirds
of votes cast (“Special Majority”):
• Increase in share capital
• Election and removal of a member of
the Board of Directors
• Changes in the maximum number of
Members of the Board of Directors
• Amendment of the requirement for a
Special Majority
MEETINGS OF SHAREHOLDERS
The rules regarding the convocation of
General Meetings of Shareholders are in
accordance with Swiss company law.
6.4. AGENDA
The Agenda of the General Meeting of
Shareholders is issued by the Board of
Directors. Shareholders representing
shares with a minimum par value of
CHF 50 thousand may request the
inclusion of an item on the agenda of the
General Meetings, provided that such a
request reaches the Company at least
40 days prior to the General Meeting.
6.5. REGISTRATION
IN THE SHARE REGISTER
The Company does not impose any
deadline for registering shares prior to a
General Meeting. However, a technical
notice of two business days is required
to process the registration.
7
cHANGE OF cONTROL AND
DEFENcE MEASURES
No restriction on changes in control
is included in the Company’s Articles
of Association.
7.1. DUTY TO MAkE AN OFFER
In the absence of any specific rules in
the Company’s Articles of Association,
any investor or group of investors
acquiring more than 33.3% of the
shares and voting rights of the Company
has the duty to make a public offer in
compliance with the applicable Swiss
takeover rules.
7.2. cLAUSES ON cHANGE OF cONTROL
There are no general plans or standard
agreements offering specific protection
to Board Members, Senior Management
or employees of the Group in the event
of a change of control, subject to the
standard rules regarding termination
of employment.
The employment contract of the
Chief Executive Officer includes
specific provisions which may trigger
a severance payment of two years
remuneration and the immediate vesting
of options granted in the event there is
a change of control in the Company. No
other executive contract provides for any
material change of control protection.
8
AUDITORS
8.1. DURATION OF THE MANDATE
AND TERM OF OFFIcE
Following a competitive process in 2000,
Deloitte SA was appointed auditor of the
Company and of the SGS Group by the
Annual General Meeting of Shareholders
upon recommendation of the Board of
Directors. The auditors of the Company
are subject to re-election at the Annual
General Meeting every year.
The current lead auditor, James Baird,
has acted in this capacity since 2012.
He has assumed this position after
agreement by the Company's Audit
Committee.
9
INFORMATION POLIcY
The policy of the Group is to provide
individual and institutional investors,
directly or through financial analysts,
business journalists or investment
consultants (financial community)
and the employees with financial and
business information in a consistent,
broad, timely and transparent manner.
The Group website has a section fully
dedicated to Investor Relations,
http://www.sgs.com/en/Our-Company/
Investor-Relations/At-a-Glance.aspx
where all financial information and
presentations are available. This includes
an updated version of the Articles of
Association, current information on Share
Buy-Back programmes and minutes of
shareholders’ meetings. SGS meets
regularly with institutional investors,
holds results presentations, road shows,
presentations at broker-sponsored
country or industry conferences as well
as one-on-one meetings.
The Group publishes consolidated half
year unaudited and yearly audited results
in print and on-line formats. These
documents are sent to each registered
shareholder and are available in English
(binding version) and in French. The
Annual Report is published in English
(binding version) and in French and is
available upon order or on the Internet.
The current list of publication dates is
available on the Internet.
The Group acknowledges the Directives
on the Independence of Financial
Research issued by the Swiss Bankers
Association, particularly articles 26 and
29-32. In addition, the Group complies
with rules regarding information and
reporting of the Federal Act on Stock
Exchange and Securities Trading, and
the Ordinance on Stock Exchanges and
Securities Trading.
8.2. AUDITING FEES
Total audit fees paid to Deloitte for the
audit of the Company and the Group
financial statements in 2012 amounted to
CHF 5.8 million (2011: CHF 5.5 million).
8.3. ADDITIONAL FEES
An aggregate amount of
CHF 1.1 million (2011 CHF 1.6 million)
was paid to Deloitte for other
professional services, unrelated to
the statutory audit activity. This
amount includes CHF 0.6 million
(2011: CHF 0.6 million) for tax
compliance services and CHF 0.5 million
(2011: CHF 1.0 million) for non-statutory
reporting, advisory and consulting fees.
8.4. SUPERVISORY AND cONTROL
INSTRUMENTS VIS-A-VIS THE AUDITORS
The Audit Committee is responsible
for evaluating the external auditor on
behalf of the Board of Directors, and
conducts assessments of the audit
services provided to the Group during
its regular meetings. It meets with the
auditor at least three times per year,
including private sessions without the
presence of management. The duties of
the committee include consideration of
the audit plan, regular assessment of the
performance of the auditor and approval
of audit fees, on the basis of the amount
of work required in order to perform the
audit. The auditor regularly presents his
findings, both during the deliberations
of the Audit Committee, and in written
reports to the attention of the Board of
Directors which summarise key findings.
The Group strives to safeguard and
support the independence of the auditor
by avoiding conflicts of interests.
In applying this policy, the attribution
of other consultancy assignments is
carefully reviewed to ensure that such
assignments do not endanger the
auditor’s independence.
44
45
SGS EXPRIMO
WE AVOID GUESSING
ABOUT THE FUTURE
ERIc SNOEck, PHD
Managing Director, SGS Exprimo NV
At SGS Exprimo, we increase the speed to market and reduce the cost of drug development for our customers. We do this
not through guesswork, but by accurately predicting and testing the efficacy and safety of new drugs at all stages of their
development. Our customers rely on us to ensure the highest quality and safety standards for their products. We operate
in Belgium, the United Kingdom, Sweden, the Netherlands, France, and Switzerland. Our use of advanced pharmacokinetic/
pharmacodynamic modelling (PK/PD) and drug-disease modelling provides our customers with the right knowledge to make
well-informed decisions on the development of their new drugs. We do this by applying our skills in quantitative model-based
simulations to all stages of pharmaceutical development. This makes the assessment of the future efficacy and safety of
a drug a lot less about guesswork and a lot more about facts.
SGS GROUP RESULTS
cONSOLIDATED INcOME STATEMENT
FOR THE YEARS ENDED 31 DEcEMBER
(CHF million)
REVENUE
Salaries and wages
Subcontractors’ expenses
Depreciation, amortisation and impairment
Other operating expenses
OPERATING INcOME
Analysis of operating income
Adjusted operating income
Restructuring costs
Amortisation of acquisition intangibles
Transaction and integration-related costs
Operating income
Financial income
Financial expenses
PROFIT BEFORE TAXES
Taxes
PROFIT FOR THE YEAR
Profit attributable to:
Equity holders of SGS SA
Non-controlling interests
BASIc EARNINGS PER SHARE (IN cHF)
DILUTED EARNINGS PER SHARE (IN cHF)
DIVIDENDS PER SHARE (IN cHF)
1. As proposed by the Board of Directors.
NOTES
10 & 12
5
6
7
8
9
9
cONSOLIDATED STATEMENT OF cOMPREHENSIVE INcOME
(CHF million)
Actuarial gains/(losses) on defined benefits plans
Income tax on actuarial gains/(losses) taken directly to equity
Exchange differences and other ¹
OTHER cOMPREHENSIVE INcOME FOR THE YEAR
Profit for the year
TOTAL cOMPREHENSIVE INcOME FOR THE YEAR
Attributable to:
Equity holders of SGS SA
Non-controlling interests
2012
5 578
(2 728)
(338)
(281)
(1 388)
843
941
(68)
(18)
(12)
843
17
(52)
808
(218)
590
556
34
72.97
72.51
58.00 1
2012
(53)
15
(48)
(86)
590
504
472
32
2011
4 797
(2 304)
(331)
(225)
(1 147)
790
815
-
(16)
(9)
790
10
(36)
764
(203)
561
534
27
70.52
70.16
65.00
2011
(46)
14
(44)
(76)
561
485
458
27
cONSOLIDATED BALANcE SHEET
AT 31 DEcEMBER (BEFORE APPROPRIATION OF AVAILABLE RETAINED EARNINGS)
(CHF million)
ASSETS
NON-cURRENT ASSETS
Land, buildings and equipment
Goodwill
Other intangible assets
Investments in associated and other companies
Deferred tax assets
Other non-current assets
TOTAL NON-cURRENT ASSETS
cURRENT ASSETS
Unbilled revenues and inventories
Trade accounts and notes receivable
Other receivables and prepayments
Marketable securities
Cash and cash equivalents
TOTAL cURRENT ASSETS
TOTAL ASSETS
EQUITY AND LIABILITIES
cAPITAL AND RESERVES
Share capital
Reserves
Treasury shares
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF SGS SA
Non-controlling interests
TOTAL EQUITY
NON-cURRENT LIABILITIES
Loans and obligations under finance leases
Deferred tax liabilities
Retirement benefit obligations
Provisions
TOTAL NON-cURRENT LIABILITIES
cURRENT LIABILITIES
Loans and obligations under finance leases
Trade and other payables
Provisions
Current tax liabilities
Other creditors and accruals
TOTAL cURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
NOTES
2012
2011
10
11
12
8
13
14
15
16
17
18
22
22
23
8
24
25
23
26
25
27
1 018
959
222
4
224
44
2 471
302
977
255
17
972
2 523
4 994
8
2 228
(176)
2 060
58
2 118
1 306
72
176
97
1 651
17
493
23
104
588
1 225
2 876
4 994
888
830
214
1
201
46
2 180
257
868
244
9
1 202
2 580
4 760
8
2 219
(232)
1 995
50
2 045
1 299
58
169
106
1 632
6
447
20
86
524
1 083
2 715
4 760
1. In 2012, exchange differences included net exchange losses of CHF 8 million on long-term loans treated as net investment in a foreign entity according to International
Accounting Standard (IAS) 21 (2011: losses of CHF 7 million).
48
49
SGS GROUP RESULTS
cONSOLIDATED STATEMENT OF cASH FLOWS
FOR THE YEARS ENDED 31 DEcEMBER
(CHF million)
Profit for the year
Non-cash items
(Increase) in working capital
Taxes paid
cASH FLOW FROM OPERATING AcTIVITIES
NOTES
19
19
Purchase of land, buildings, equipment and other intangible assets
10 & 12
3 & 19
Acquisition of businesses
(Increase) in other non-current assets
(Increase) in marketable securities
Interest and dividends received
Sales of land, buildings and equipment
cASH FLOW FROM INVESTING AcTIVITIES
Dividends paid to equity holders of SGS SA
Dividends paid to non-controlling interests
Acquisition of non-controlling interests
Cash received on treasury shares
Cash paid on treasury shares
Proceeds of corporate bonds
Interest paid
Net flows related to interest rate swaps
(Decrease)/increase in borrowings
cASH FLOW FROM FINANcING AcTIVITIES
Effects of exchange rate changes
(DEcREASE)/INcREASE IN cASH AND cASH EQUIVALENTS
cASH AND cASH EQUIVALENTS AT BEGINNING OF YEAR
(Decrease)/increase in cash and cash equivalents
cASH AND cASH EQUIVALENTS AT END OF YEAR
18
2012
590
493
(73)
(210)
800
(387)
(182)
-
(9)
9
10
(559)
(497)
(24)
-
88
(12)
-
(46)
37
(12)
(466)
(5)
(230)
1 202
(230)
972
2011
561
433
(84)
(220)
690
(345)
(112)
(4)
-
10
8
(443)
(494)
(16)
(2)
18
(68)
714
(21)
-
2
133
16
396
806
396
1 202
STATEMENT OF cHANGES IN cONSOLIDATED EQUITY
(CHF million)
SHARE
cAPITAL
TREASURY
SHARES
cAPITAL
RESERVE
cUMULATIVE
TRANSLATION
ADjUSTMENTS
cUMULATIVE
GAINS/(LOSSES)
ON DEFINED
BENEFIT
PLANS 1
RETAINED
EARNINGS
AND GROUP
RESERVES
ATTRIBUTABLE TO
EQUITY
HOLDERS
OF SGS SA
NON-
cONTROLLING
INTERESTS
(178)
77
(536)
-
(44)
(211)
-
(32)
2 909
534
2 069
534
-
(76)
39
27
-
TOTAL
EQUITY
2 108
561
(76)
BALANcE AT 1 jANUARY 2011
Profit for the year
Other comprehensive income
for the year
Total comprehensive income
for the year
Dividends paid
Share-based payments
Movement in
non-controlling interests
Movement on treasury shares
BALANcE AT 31 DEcEMBER 2011
Profit for the year
Other comprehensive income
for the year
Total comprehensive income
for the year
Dividends paid
Share-based payments
Movement in
non-controlling interests
Movement on treasury shares
BALANcE AT 31 DEcEMBER 2012
1. Net of tax.
8
-
-
-
-
-
-
-
8
-
-
-
-
-
-
-
8
-
-
-
-
-
-
(54)
(232)
-
-
-
-
-
-
56
-
-
-
-
15
-
-
-
-
-
-
14
-
-
(44)
(32)
534
458
27
485
(494) 2
(494)
(16)
(510)
-
-
-
-
-
-
-
-
-
(3)
4
15
(3)
(50)
1 995
92
(580)
(243)
2 950
-
-
556
556
(46)
(38)
-
(84)
-
-
-
50
34
(2)
15
(3)
(50)
2 045
590
(86)
(46)
(38)
556
472
32
504
-
-
-
-
-
-
-
-
(497) 2
(497)
(24)
(521)
-
-
20
14
-
76
-
-
58
14
-
76
2 118
(176)
106
(626)
(281)
3 029
2 060
2. The amounts available for dividends are based on the SGS SA’s statutory standalone shareholders’ equity determined in accordance with the legal provisions
of the Swiss Code of Obligations.
50
51
SGS GROUP RESULTS
NOTES
1
AcTIVITIES OF THE GROUP
SGS SA and its subsidiaries (the “Group”)
operate around the world under the name
SGS. The head office of the Group is
located in Geneva, Switzerland.
SGS is the global leader and innovator
in inspection, verification, testing
and certification services supporting
international trade in agriculture, minerals,
petroleum and consumer products. It also
provides these services to governments,
international institutions and to
customers engaged in the industrial,
environmental and life science sectors.
2
SIGNIFIcANT
AccOUNTING POLIcIES
ADOPTION OF NEW AND REVISED
INTERNATIONAL FINANcIAL
REPORTING STANDARDS
In the current year, the Group has
adopted the following Standards
and Interpretations:
• IAS 12 (amendment) Income taxes –
Recovery of underlying assets
• IFRS 7 (amendment) Disclosures –
Transfer of financial assets
• Improvements to IFRS 2011
These standards and interpretations had
no significant impact on the consolidated
financial statements.
At the date of authorisation of these
financial statements, the following
Standards and Interpretations were
issued, but not yet effective:
• IAS 1 (amendment) Presentation of
financial statements – Presentation of
items of other comprehensive income
• IAS 19 (amendment) Employee benefits
• IAS 27 (revised) Separate
financial statements
• IAS 28 (revised) Investments in
associates and joint ventures
• IAS 32 (amendment) Offsetting
financial assets and financial liabilities
• IFRS 7 (amendment) Offsetting
BASIS OF PREPARATION OF THE
financial assets and financial liabilities
FINANcIAL STATEMENTS
The consolidated financial statements
of the Group are stated in millions of
Swiss Francs. They are prepared from
the financial statements of the individual
companies within the Group with all
significant companies having a year-end
of 31 December 2012. The consolidated
financial statements comply with the
accounting and reporting requirements
of the International Financial Reporting
Standards (IFRS) as issued by the
International Accounting Standards
Board (IASB).
The accounting conventions and
accounting policies are the same as
those applied in the 2011 consolidated
financial statements, except for the
Group’s adoption of new IFRS effective
1 January 2012.
The financial statements are prepared
on an accrual basis and under the
historical cost convention, modified as
required for the revaluation of certain
financial instruments.
• IFRS 9 Financial Instruments
• IFRS 10 Consolidated financial
statements
• IFRS 11 Joint arrangements
• IFRS 12 Disclosures of interests
in other entities
• IFRS 13 Fair value measurement
The Directors anticipate that the
adoption of these new standards
and interpretations will have no
material impact on the consolidated
financial statements.
In 2011, the IASB issued amendments
to IAS 19 Employee Benefits effective
for annual periods beginning on or after
1 January 2013, with earlier application
permitted. Had this standard and the
related consequential amendments
been adopted by the Group in 2012,
it is estimated that operating income
for the full year 2012 would have been
lower by approximately CHF 15 million
(2011, approximately CHF 14 million)
with no material impact on the equity
or the balance sheet. The Directors
anticipate a similar impact for the future.
In addition, IAS 19 revised will introduce
certain changes in the presentation
of the defined benefits costs and will
include more extensive disclosures.
As required by the standard, the Group
will retrospectively adopt this standard
from 1 January 2013.
In 2011, the IASB issued IFRS 10
Consolidated financial statement,
IFRS 11 Joint arrangements and IFRS 12
Disclosures of interests on other entities
and revised IAS 27 Separate financial
statements and IAS 28 Investments in
associates and joint ventures effective
for annual periods beginning on or after
1 January 2013. The Directors anticipate
that adoption of these new standards
and revised standards will have no
material impact on the consolidated
balance sheet or on the consolidated
income statement.
BASIS OF cONSOLIDATION
Subsidiaries
Subsidiaries are enterprises controlled
by the Group. Control exists when
the Group has the power, directly or
indirectly, to govern the financial and
operating policies of an enterprise so
as to obtain benefits from its activities.
The financial statements of subsidiaries
are included in the consolidated financial
statements from the date that control
commences until the date that control
ceases. The equity and profit attributable
to non-controlling shareholders’
interests are shown separately in the
consolidated balance sheet and income
statement, respectively. The principal
operating companies of the Group are
listed on pages 124 to 127.
Associates
Associates are enterprises over which the
Group has significant influence, but no
control or joint control over the financial
and operating policies. The consolidated
financial statements include the Group’s
share of the earnings of associates on an
equity accounting basis, from the date
that significant influence commences until
the date that significant influence ceases.
Jointly controlled entities
Consolidation of foreign companies
LAND, BUILDINGS AND EQUIPMENT
Jointly controlled entities are enterprises
over whose activities the Group has
joint control, established by contractual
agreement. The consolidated financial
statements include the Group’s
proportionate share of the enterprises’
assets, liabilities, revenues and
expenses with items of a similar nature
on a line-by-line basis, from the date that
joint control commences until the date
that joint control ceases.
Investments in companies not
accounted for as subsidiaries,
associates or jointly controlled entities
Investments in companies not accounted
for as subsidiaries, associates or jointly
controlled entities (normally below 20%
shareholding levels) are stated at cost
less any provision for impairment. The
fair value of these investments cannot
be reliably measured. Dividends received
from these investments are included in
financial income.
Transactions eliminated on consolidation
All intra-group balances and transactions,
and any unrealised gains and losses
arising from intra-group transactions, are
eliminated in preparing the consolidated
financial statements. Unrealised gains
and losses arising from transactions with
associates and jointly controlled entities
are eliminated to the extent of the
Group’s interest in those entities.
Foreign currency transactions
Transactions in foreign currencies are
recorded at the foreign exchange rate
prevailing at the date of the transaction.
Monetary assets and liabilities
denominated in foreign currencies at
the balance sheet date are translated at
the foreign exchange rate prevailing at
that date. Exchange differences arising
on the settlement of monetary items
or on reporting monetary items at rates
different from those at which they were
initially recorded during the period or
in previous financial statements, are
recognised in the income statement.
All assets and liabilities of foreign
companies that are consolidated are
translated using the exchange rates
in effect at the balance sheet date.
Income and expenses are translated
at the average exchange rate for the
year. Translation differences resulting
from the application of this method are
classified as equity until the disposal of
the investment.
Average exchange rates are used
to translate the cash flows of
foreign subsidiaries in preparing the
consolidated statement of cash flows.
SEGMENT INFORMATION
The Group reports its operations by
business segment, according to the
nature of the services provided.
The Group operates in ten business
segments. The Chief Operating Decision
Maker evaluates segment performance
and allocates resources based on several
factors, of which revenue, adjusted
operating income and return on capital
are the main criteria.
For the Group, the Chief Operating
Decision Maker is the Senior
Management composed of: the Chief
Executive Officer, the Chief Financial
Officer and the General Counsel.
All segment revenues reported are from
external customers. Segment revenue
and operating income are attributed to
countries based on the location in which
the services are rendered.
Segment assets comprise all assets held
by the Group’s operating affiliates after
elimination of inter-company balances.
Segment liabilities comprise all
liabilities held by the Group’s operating
affiliates after elimination of inter-
company balances.
Capital additions represent the total
cost incurred to acquire land, buildings
and equipment as well as other
intangible assets.
Depreciation and amortisation of
segment assets include depreciation
of buildings and equipment as well as
other intangible assets. Impairment of
segment assets includes impairment
related to land, buildings and equipment,
goodwill and other intangible assets
when incurred.
Land is stated at historical cost and
is not depreciated. Buildings and
equipment are stated at historical
cost less accumulated depreciation.
Subsequent expenditures are capitalised
only if they increase the future economic
benefits embodied in the related item
of property and equipment. All other
expenditures are expensed as incurred.
Depreciation is calculated on a straight-
line basis over the estimated useful life
of the assets as follows:
• Buildings 12 – 40 years
• Machinery and equipment 3 – 10 years
• Other tangible assets 3 – 10 years
LEASES
Assets acquired under finance lease
agreements, which provide the Group
with substantially all the risks and
rewards of ownership, are capitalised
at fair value or, if lower, at amounts
equivalent to the estimated present
value of the underlying minimum
lease payments. The corresponding
liabilities are included in long- and
short-term loans. These leased assets
are depreciated over the lease period or
their estimated useful lives, whichever
is shorter.
Leases where the lessor retains
substantially all the risks and rewards of
ownership of the assets are classified
as operating leases. Operating lease
expenditures are expensed on a
straight-line basis over the lease terms.
GOODWILL
In the case of acquisitions of businesses,
the acquired identifiable assets, liabilities
and contingent liabilities are recorded
at fair value. The difference between
the purchase price and the fair value is
classified as goodwill and recorded in the
balance sheet as an intangible asset.
Goodwill arising from business
combinations is measured at cost less
any accumulated impairment losses.
52
53
SGS GROUP RESULTS
If the initial accounting for a business
combination is incomplete by the end
of the reporting period in which the
combination occurs, the Group reports
provisional amounts for the items for
which the accounting is incomplete.
Those provisional amounts are adjusted
during the measurement period,
or additional assets or liabilities are
recognised, to reflect new information
obtained about facts and circumstances
that existed at the acquisition date that,
if known, would have affected amounts
recognised at that date.
Goodwill arising on the acquisition
of a foreign entity are recorded in
the relevant foreign currency and are
translated using the end of period
exchange rate.
On disposal of part or all of a business
which was previously acquired and
which gave rise to the recording of
acquisition goodwill, the relevant
amount of residual goodwill is included
in the determination of the gain or loss
on disposal.
Goodwill and other intangible assets
with indefinite useful lives acquired
as part of business combinations are
tested for possible impairment annually
and whenever events or changes in
circumstances indicate their value may
not be fully recoverable.
For the purpose of impairment testing,
the Group has adopted a uniform
method for assessing goodwill and
other intangibles recognised under
the acquisition method of accounting.
These assets are allocated to the
cash generating unit (CGU) or group
of CGUs that are expected to benefit
from the business combination. The
recoverable amount of a CGU is
determined through a value-in-use
calculation. The key assumptions for
the value-in-use calculations are those
regarding the discount rates, growth
rates and expected changes to selling
prices or direct costs during the period.
Pre-tax discount rates used are based
on the Group’s weighted average cost
of capital, adjusted for specific risks
associated with the CGU’s cash flow
projections. The growth rates are based
on industry growth forecasts.
Expected changes in selling prices and
direct costs are based on past practices
and expectations of future changes in
the market.
For all CGUs, a value-in-use calculation
is performed using cash flow projections
covering the next 10 years. The
cash flows for the first five years are
based upon budgets approved by
management, which take account of the
most recent financial results, while the
subsequent five years are extrapolated
based on the estimated long-term
growth rate for the relevant activity.
If the recoverable amount of the CGU
is less than the carrying amount of the
unit, the impairment loss is allocated
first to reduce the carrying amount of
any goodwill allocated to the unit and
then to the other assets of the unit. An
impairment loss recognised for goodwill
is not reversed in a subsequent period.
Even if the initial accounting for an
intangible asset acquired in the reporting
period is only provisional, this asset is
tested for impairment.
OTHER INTANGIBLE ASSETS
Intangible assets, including software,
licences, trademarks and customer
relationships are capitalised and
amortised on a straight-line basis over
their estimated useful lives, normally
not exceeding 20 years. Indefinite life
intangible assets are not amortised but
are subject to an annual impairment test.
The following useful lives are used in the
calculation of amortisation:
• Trademarks 5 – 20 years
• Customer relationships 5 – 20 years
• Computer software 1 – 4 years
Other intangible assets acquired as
part of an acquisition of a business are
capitalised separately from goodwill if
their fair value can be measured reliably.
Internally generated intangible assets
are recognised if the asset created can
be identified, it is probable that future
economic benefits will be generated
from it, the related development costs
can be measured reliably and sufficient
financial resources are available to
complete the development. These
assets are amortised on a straight-line
basis over their useful lives, which
usually do not exceed four years. All
other development costs are expensed
as incurred.
IMPAIRMENT OF ASSETS
EXcLUDING GOODWILL
At each balance sheet date or whenever
there is an indication that an asset may
be impaired, the Group reviews the
carrying amounts of its tangible and
intangible assets to determine whether
they have suffered an impairment loss.
If indications of impairment are present,
the assets are tested for impairment.
If impaired, the carrying value of the
asset is reduced to its recoverable
value. Where it is not possible to
estimate the recoverable amount of an
individual asset, the Group estimates the
recoverable amount of the CGU to which
the asset belongs.
The recoverable amount of an asset is
the greater of the net realisable value
and its value-in-use. In assessing its
value-in-use, the pre-tax 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.
REVERSAL OF IMPAIRMENT LOSSES
Where an impairment loss on assets
other than goodwill subsequently
reverses, the carrying amount of the
asset or CGU is increased to the revised
estimate of its recoverable amount, but
not in excess of the carrying amount
that would have been recorded had
no impairment loss been recognised.
A reversal of an impairment loss is
recognised as income immediately.
UNBILLED REVENUES AND INVENTORIES
DERIVATIVE FINANcIAL INSTRUMENTS
Completed but unbilled services are
recorded at net selling prices.
Work-in-progress is measured at the
lower of the costs incurred in providing
the service and its ultimate invoice price
less costs to complete.
Inventories are recorded at the lower
of cost and net realisable value. Cost is
determined using the first-in, first-out
(FIFO) method. Net realisable value
represents the estimated selling price less
all estimated costs to complete and costs
to be incurred in selling and distribution.
REcEIVABLES
Trade receivables are recognised and
carried at original invoice amount less an
allowance for any uncollectible amounts.
An allowance for doubtful debts is made
when collection of the full amount is no
longer probable. Bad debts are written
off when identified.
MARkETABLE SEcURITIES
Marketable securities are recorded in the
balance sheet at fair value. Movements
in the fair value of marketable securities
held for trading are reported in the
income statement as financial income/
expenses. For marketable securities
designated as being available for sale,
the movements in fair value are recorded
as a component of shareholders’ equity
and recognised in the income statement
at the time of disposal. Marketable
securities designated as available for
sale are those that are not classified as
at fair value through profit and loss.
cASH AND cASH EQUIVALENTS
Cash and cash equivalents comprise
cash, deposits held with banks
and investments in money market
instruments with an original maturity of
three months or less. Bank overdrafts
are included within current loans.
AND HEDGING
The Group uses derivative financial
instruments to hedge its exposure to
foreign exchange and interest rate risks
arising from operational, financing and
investment activities. In accordance
with its treasury policy, the Group does
not hold or issue derivative financial
instruments for trading purposes.
Derivatives are accounted for on a
mark-to-market basis.
Derivative financial instruments are
initially recognised at fair value and
subsequently re-measured at fair value
at each balance sheet date. The gains
and losses resulting from the fair value
re-measurement are recognised in the
income statement.
The fair value of forward exchange
contracts is determined with reference to
market prices at the balance sheet date.
The Group designates and documents
certain derivatives as hedging
instruments against changes in fair
value of recognised liabilities. The
effectiveness of such hedges is assessed
at inception and verified at regular
intervals, at least each semester, using
prospective and retrospective testing.
cORPORATE BONDS
The corporate bonds issued by the
Group are measured at amortised cost
using the effective interest method,
with interest expense recognised on an
effective yield basis.
The effective interest method is a
method of calculating the amortised cost
of a financial liability and of allocating
interest expense over the relevant period.
The effective interest rate is the rate that
exactly discounts estimated future cash
payments through the expected life of
the financial liability to the net carrying
amount on initial recognition.
The Group uses fair value hedges to
mitigate interest rate risks relating to its
corporate bonds. The changes in fair value
of hedging instruments are recognised in
the income statement.
54
55
Post-employment plans other
REVENUE REcOGNITION
cAPITAL MANAGEMENT
SGS GROUP RESULTS
EMPLOYEE BENEFITS
Pension plans
The Group maintains several defined
benefit and defined contribution pension
plans in accordance with local conditions
and practices in the countries in which it
operates. Defined benefit pension plans
are based on an employee’s years of
service and remuneration earned during
a pre-determined period. Contributions
to these plans are normally paid into
funds which are managed independently
of the Group, except in rare cases where
there is no legal obligation to fund. In
such cases, the liability is recorded in
the Group’s consolidated balance sheet.
The Group’s obligations towards
defined benefit pension plans and the
annual cost recognised in the income
statement is determined by independent
actuaries using the projected unit
credit method. Actuarial gains and
losses are immediately recognised in
the consolidated balance sheet with
the corresponding movement being
recorded in the consolidated statement
of comprehensive income.
Past service costs are recognised as
an expense over the average period
remaining until the benefits become
vested. To the extent that the benefits
are already vested immediately following
the introduction of, or change to, a
defined benefit plan, the expense is
recognised immediately. Payments
to defined contribution plans are
recognised as an expense in the income
statement as incurred.
The retirement benefit obligation
recognised in the balance sheet
represents the present value of the
defined benefit obligation as adjusted
for unrecognised past service cost,
and as reduced by the fair value of plan
assets. Any asset resulting from this
calculation is limited to the present value
of available refunds and reductions in
future contributions to the plan.
than pensions
The Group operates some post-
employment defined benefit schemes,
mainly healthcare plans. The method
of accounting and the frequency of
valuations are similar to those used for
defined benefit pension plans.
Equity compensation plans
The Group provides additional benefits to
certain senior executives and employees
through equity compensation plans (see
note 31). An expense is recognised in
the income statement for shares and
options granted to senior executives and
employees under these plans.
TRADE PAYABLES
Trade payables are recognised at
nominal value that approximates the
fair value.
PROVISIONS
The Group records provisions when:
it has an obligation, legal or constructive,
to satisfy a claim; it is probable that
an outflow of Group resources will be
required to satisfy the obligation; and
a reliable estimate of the amount can
be made.
In the case of litigation and claims
relating to services rendered, the
amount that is ultimately recorded
is the result of a complex process of
assessment of a number of variables,
and relies on management’s informed
judgement about the circumstances
surrounding the past provision of
services. It also relies on expert legal
advice and actuarial assessments.
Changes in estimates are reflected in
the income statement in the period in
which the change occurs.
Revenue is recognised to the extent that
it is probable that the economic benefits
will flow to the Group and the revenue
can be reliably measured.
Revenues represent fees for services
rendered to third parties after the
deduction of discounts and are
recognised when the service has been
completed. In certain circumstances,
revenue is recognised in proportion
to the stage of completion, normally
determined by reference to costs
incurred to date in comparison with the
total estimated costs of the transaction
at the balance sheet date. No margin
is recognised on work-in-progress.
Completed, but unbilled, services are
recorded at net selling prices.
BORROWING cOSTS
Borrowing costs directly attributable
to the acquisition, construction or
production of qualifying assets, which
are assets that necessarily take a
substantial period of time to get ready
for their intended use or sale, are added
to the cost of those assets, until such
time as the assets are substantially
ready for their intended use or sale.
Investment income earned on the
temporary investment of specific
borrowings pending their expenditure on
qualifying assets is deducted from the
borrowing costs eligible for capitalisation.
All other borrowing costs are recognised
in the income statement in the period in
which they are incurred.
RESTRUcTURING cOSTS
The Group recognises costs of
restructuring against operating income
in the period in which management has
committed to a formal plan, the costs
of which can be reliably estimated,
and has raised a valid expectation
in those affected that the plan will
be implemented and the related
costs incurred. Where appropriate,
restructuring costs include impairment
charges arising from implementation of
the formal plan.
Capital comprises equity attributable
to equity holders, loans and obligations
under finance leases and cash and
cash equivalents.
The Board of Directors’ policy is to
maintain a strong capital base in order
to maintain investor, creditor and market
confidence and to sustain the future
development of the business. The
Board also recommends the level of
dividends to be distributed to ordinary
shareholders on an annual basis.
The Group maintains sufficient liquidity
at the Group and subsidiary level to
meet its working capital requirements,
fund capital purchases and small and
medium-sized acquisitions.
Cash and cash equivalents as well as
loans and obligations under finance
leases are disclosed in notes 18 and 23.
In 2012, the Group initiated a new Share
Buy-Back programme for a total of
CHF 250 million, valid from 12 March
2012 to 31 December 2014.
Treasury shares are intended primarily to
be used to cover the Group’s employee
share option programmes and/or
convertible bonds that may be issued.
Decisions to buy or sell are made
on an individual transaction basis
by management.
There were no changes in the Group’s
approach to capital management during
the year.
The Group is not subject to any externally
income and withholding taxes that could
arise on the remittance of subsidiary
retained earnings are only made where
there is a current intention to remit
such earnings. Other taxes not based
on income, such as property taxes
and capital taxes, are included within
operating expenses.
Deferred taxes are provided using the
full liability method. They are calculated
on all temporary differences that arise
between the tax base of an asset or
liability and the carrying values in the
consolidated financial statements except
for non tax-deductible goodwill and for
those differences related to investments
in subsidiaries where their reversal will
not take place in the foreseeable future.
Deferred income tax assets relating to
the carry-forward of unused tax losses
and tax credits are recognised to the
extent that it is probable that future
profits be available against which they
can be utilised.
Current income tax assets and liabilities
are offset when the income taxes are
levied by the same taxing authority and
where there is a legally enforceable
right of offset. Deferred tax assets
and liabilities are determined based
on enacted or substantively enacted
tax rates in the respective jurisdictions
in which the Group operates that are
expected to apply to taxable income
in the years in which those temporary
differences are expected to be
recovered or settled.
imposed capital requirements.
EARNINGS PER SHARE
Basic earnings per share are calculated
by dividing the Group’s profit by the
weighted average number of shares
outstanding during the year, excluding
treasury shares. For diluted earnings per
share, the weighted average number of
shares outstanding is adjusted assuming
conversion of all potential dilutive shares.
Group profit is also adjusted to reflect the
after-tax impact of conversion.
TAXES
Income taxes include all taxes based
upon the taxable profits of the Group
including withholding taxes payable
on the transfer of income from Group
companies and tax adjustments from
prior years. Taxes on income are
recognised in the income statement
except to the extent that they relate to
items directly charged or credited to
equity or other comprehensive income,
in which case the related income tax
effect is recognised in equity or other
comprehensive income. Provisions of
DIVIDENDS
Dividends are reported as a movement
in equity in the period in which they are
approved by the shareholders.
TREASURY SHARES
Treasury shares are reported as a
deduction to equity. The original cost
of treasury shares and the proceeds of
any subsequent sale are recorded as
movements in equity.
SIGNIFIcANT AccOUNTING
jUDGEMENTS AND ESTIMATES
Judgements
In the process of applying the entity’s
accounting policies described above,
management has made the following
judgements that have a significant
effect on the amounts recognised in
the financial statements.
Legal and warranty claims
on services rendered
The Group is subject to litigation and other
claims as described in note 25.
Management bases its judgements on the
circumstances relating to each specific
event, internal and external legal advice,
knowledge of the industries and markets,
prevailing commercial terms and legal
precedent. The Group’s legal and warranty
claims are reviewed, at a minimum, on
a quarterly basis by a cross-functional
representation of management.
Use of estimates
The key assumptions concerning
the future, and other key sources of
estimation at the balance sheet date
that have a risk of causing a material
adjustment to the carrying amount of
assets and liabilities within the next
financial year, are discussed below.
56
57
SGS GROUP RESULTS
Recoverability of trade accounts
Estimations of employee post-
Income taxes
and notes receivable
employment benefits obligations
The Group maintains several defined
benefit pension plans in accordance
with local conditions and practices
in the countries in which it operates.
The related obligations recognised
in the balance sheet represent the
present value of the defined benefit
obligations calculated annually by
independent actuaries. These actuarial
valuations include assumptions such
as discount rates, return on assets,
salary progression rates and mortality
rates. These actuarial assumptions
vary according to the local prevailing
economic and social conditions. Details
of the assumptions used are provided
in note 24.
Trade accounts and notes receivable are
reflected net of an estimated allowance
for doubtful accounts (see note 15). These
allowances for potential uncollectible
amounts are estimated based primarily
on the Group’s ageing policy guidelines,
individual client analysis and an analysis
of the underlying risk profile of each
major revenue stream by business and
geography.
Impairment of Goodwill
The Group determines whether goodwill
is impaired at minimum on an annual
basis. This requires an estimation of
the value-in-use of the CGUs to which
the goodwill is allocated. Estimating
the value-in-use requires the Group to
make an estimate of the expected future
cash flows from the CGU that holds the
goodwill at a determined discount rate
in order to calculate the present value of
those cash flows.
The Group is subject to income taxes
in numerous jurisdictions. Significant
judgement is required in determining
the worldwide provision for income
taxes. There are many transactions and
calculations for which the ultimate tax
determination is uncertain. The group
recognises liabilities for anticipated
tax audit issues based on estimates
of whether additional taxes will be
due, including estimated interest and
penalties where appropriate. Where the
final tax outcome of these matters is
different from the amounts that were
initially recorded, such differences will
impact the current and deferred income
tax assets and liabilities in the period in
which such determination is made.
RISk ASSESSMENT
Disclosures on the Group’s risk
assessment process as required by
Swiss law are presented in the notes to
the accounts of SGS SA on page 102 of
this report.
The most significant currencies for the Group were translated at the following exchange rates into Swiss Francs:
Australia
Brazil
Canada
China
Eurozone
AUD
BRL
CAD
CNY
EUR
United Kindgom GBP
Hong Kong
India
Taiwan
USA
HKD
INR
TWD
USD
100
100
100
100
100
100
100
100
100
100
YEAR-END RATES
ANNUAL AVERAGE RATES
2012
94.79
44.65
91.74
14.64
120.90
147.10
11.77
1.67
3.14
91.24
2011
95.47
50.40
92.16
14.93
121.68
145.14
12.10
1.76
3.11
94.03
2012
97.12
48.19
93.84
14.87
120.55
148.63
12.09
1.76
3.17
93.80
2011
91.44
53.06
89.68
13.72
123.34
142.10
11.39
1.91
3.02
88.68
3
BUSINESS cOMBINATIONS
AND OTHER SIGNIFIcANT
TRANSAcTIONS
The following business combinations
and other significant transactions
occurred during 2012 and 2011:
• 100% of Analytical Perspectives of
North Carolina, LCC, a laboratory
specialised in the ultra-trace analysis
of various persistent organic pollutants
(POPs) based in Wilmington, USA
(effective 1 April 2012);
• 100% of E&S Engineering Solutions
Inc. a company specialised in the
development of mineral processing
facilities for the mining industry
based in Tucson, Arizona, USA
(effective 31 December 2012);
• 100% of Vitrology Limited, an
organisation specialising in biosafety
testing for the pharmaceutical
industry, based in Glasgow, UK
(effective 18 May 2012);
• 100% of Herguth Laboratories,
Inc. a state-of-the-art petroleum
and lubricant testing laboratory
in Vallejo, California, USA
(effective 31 December 2012).
AcQUISITIONS 2012
In 2012, the Group completed
18 acquisitions for a total purchase price
of CHF 203 million (note 20).
• 75% of Gravena Pesquisa, Conultoria
e Treinamento Agricola Ltda (Gravena),
a leading field trial contract research
service provider in Brazil, based in
Sao Paolo, Brazil (effective 1 July 2012);
These companies were acquired for
a purchase price of CHF 166 million
and the total goodwill generated on
these transactions amounted to
CHF 120 million (note 20).
CIMM Tecnologías y Servicios S.A.
(CIMM T&S)
Effective 6 January 2012, SGS acquired,
for a purchase price of CHF 37 million,
100% of CIMM Tecnologías y Servicios
S.A. (CIMM T&S), a leading provider of
technical services to the mining industry
in Chile. The accounting for the business
combination is completed and the values
of the identifiable assets and liabilities
reflect the final amounts. Goodwill on
acquisition amounted to CHF 19 million.
Other
In 2012, other acquisitions included:
• 100% of Roplex Engineering Ltd,
a UK-based company specialising in
engineering support and test services
for vapour recovery systems
(effective 1 February 2012);
• 100% of Estudios Técnicos SA,
(ETSA), a leading engineering project
supervision and management
company based in Bogota, Colombia
(effective 15 March 2012);
• 100% of Metlab (Pty) Ltd., an
independent metallurgical testing
in laboratory based in Boksburg,
South Africa, (effective 1 April 2012);
• 100% of Environ Cientifica Ltda,
a leading Occupational Health and
Industrial Hygiene (OIH) laboratory
based in Sao Paulo, Brazil
(effective 1 April 2012);
• 100% of Exprimo NV, a Belgium-
based life science consultancy
company, based in Mechelen,
Belgium (effective 1 July 2012);
• 100% of Sercovam, a test laboratories
group based in Etupes and Cestas,
France (effective 1 July 2012);
• 100% of Gladstone Testing Lab,
a well established construction
material testing business based in
Gladstone (Queensland), Australia
(effective 1 August 2012);
• 100% of the Ludwig Group,
a material and metallurgical testing
laboratory, based in Calgary and
Edmonton (Alberta), Canada
(effective 1 September 2012);
• 100% of Australian Radiation Services
Pty. Ltd. (ARS), a provider of radiation
calibration, monitoring, testing and
consulting, based in Melbourne,
Australia (effective 1 October 2012);
• 100% of Sentinel Services (Proprietary)
Limited, a provider of Non-Destructive
Testing (NDT) services and consulting,
based in Johannesburg, South Africa
(effective 1 October 2012);
• 100% of EMICS Ltd., an independent
UKAS (United Kingdom Accreditation
Service) calibration laboratory,
based in Nottingham, UK
(effective 1 November 2012);
• 100% of Ware Care Group, a provider
of Integrated Pest Management
services (IPM) and fumigation services,
based in Beuningen, The Netherlands
(effective 1 November 2012);
Total
All the above acquisitions contributed
in total CHF 151 million in revenues
and CHF 18 million in operating income
during the year for the Group. Had all
acquisitions been effective 1 January
2012, the Group revenues for the period
would have been increased by
CHF 61 million and the Group operating
income for the period would have been
increased by CHF 11 million. None of
the goodwill arising on acquisitions is
expected to be tax deductible.
DIVESTMENTS 2012
There were no significant disposals
in 2012.
AcQUISITIONS 2011
In 2011, the Group completed twenty-
two acquisitions for a total purchase
price of CHF 136 million.
PfiNDE Inc.
Effective 1 December 2011,
SGS acquired, for an equivalent of
CHF 36 million, 100% of PfiNDE Inc., a
company specialised in non-destructive
examination, testing and pipeline
integrity based in Connecticut, USA.
This transaction has been accounted
by using the acquisition method of by
accounting. The values of the identifiable
assets and liabilities reflect the best
estimate at the end of the year and are
subject to final closing adjustments
which are not expected to be material.
Goodwill on acquisition amounted to
CHF 19 million.
58
59
Total
All the above acquisitions contributed in
total CHF 30 million in revenues and
CHF 5 million in operating income
during the year for the Group. Had all
acquisitions been effective 1 January
2011, the Group revenues for the period
would have been increased by
CHF 50 million and the Group operating
income for the period would have been
increased by CHF 11 million. None of
the goodwill arising on acquisitions is
expected to be tax deductible.
AcQUISITIONS OF NON-cONTROLLING
INTERESTS 2011
In 2011, SGS acquired non-controlling
interests of an existing subsidiary for an
equivalent of CHF 2 million. The non-
controlling interests‘ share of goodwill is
directly recognised in equity.
DIVESTMENTS 2011
There were no significant disposals
in 2011.
SGS GROUP RESULTS
Other
In 2011, other acquisitions included:
• 100% of International Electrical
Certification Center, Ltd. (IECC),
an independent laboratory providing
third-party testing in Hong Kong,
China (effective 1 January 2011);
• 100% of Tianjin Tianbao Construction
Material Testing Co, Ltd. (Tianbao)
based in Tianjin (China), a leading
construction materials testing laboratory
in the Tianjin Binhai Development Zone
(effective 1 January 2011);
• A characterisation business formerly
run by LGC Group based in Ellesmore
Port (UK) (effective 1 January 2011);
• 80% of NviroCrop, a South African
precision agriculture services company
based in Potchefstroom (South Africa)
(effective 1 January 2011);
• 100% of Lippens Geotechniek, a
geotechnical engineering company
based in Zulte, Belgium (effective
1 January 2011);
• 100% of Auto Contrôle Evaluation
Service (ACE), a specialist in off-lease
and non-statutory vehicle inspections
based in Bonneuil-sur-Marne, close to
Paris, France (effective 1 February 2011);
• 100% of Agri-Food Laboratories Inc.,
an independent agriculture testing
laboratory based in Ontario, Canada
(effective 1 March 2011);
• 100% of Sertec S.r.l., a health &
safety (H&S) service provider based in
Livorno, Italy (effective 1 April 2011);
• 100% of AG Research Associates
LLC (ARA), a contract research
organisation in Georgia, USA (effective
1 May 2011);
• 100% of Correl Rail Limited, an
independent certification body based
in Birmingham, United Kingdom
(effective 1 July 2011);
• The laboratory arm of Simmonds
& Bristow, specialised in chemistry
and microbiology analyses based
in Brisbane, Australia (effective
1 August 2011);
• 100% of Acumax (Proprietary)
Limited, specialised in Non-
Destructive Testing (NDT) based in
Gauteng, South Africa (effective 1
August 2011);
• 100% of Environmental Testing
Corporation (ETC) based in Aurora,
USA, a complete vehicle and engine
emission testing laboratory (effective
1 August 2011);
• 90% of four food laboratories, namely
Özel MSM Gıda Kontrol Laboratuarı ve
Danı manlık Hizmetleri Ticaret A. . Ş
(“MSM”), 100% of MRL Merkez
Kalıntı Ara tırma Laboratuarı A. .
(“MRL”), 100% of Sanilab Gıda
Kontrol Laboratuarı ve Danı manlık
Hizmetleri Tic. ve San. Ltd. ti.
(“Sanilab”) and 100% of Özel Hatay
Gıda Kontrol Laboratuarı ve Danı manlık
Hizmetleri Tic. Ltd. ti. (“Özel Hatay”),
based in Mersin, Hatay and Antalya
(effective 1 December 2011);
• 100% of Consolidated Laboratory
(M) SDN BHD and Labservice (M)
SDN BHD, collectively referred to as
“Conserve”, specialised in food and
environmental testing as well as in
renal dialysis water testing, based in
Kuala Lumpur, Malaysia (effective
1 December 2011);
• 100% of Leeder Consulting, a
company specialised in environmental
analytical services based in Melbourne,
Australia (effective 1 December 2011);
• 100% of Baseefa Limited, a
company specialised in certification
of equipment used in hazardous
environments based in Buxton, United
Kingdom (effective 1 December 2011);
• 100% of Innovative Technical Services
LLC (InTech), a company specialised in
production allocation modelling to the
oil and gas industries based in New
Orleans and Houston (USA) (effective
1 December 2011).
These companies were acquired for
an equivalent of CHF 100 million and
the total goodwill generated on these
transactions amounted to CHF 56 million
(note 20).
4
INFORMATION BY BUSINESS AND GEOGRAPHIcAL SEGMENT
(CHF million)
2012
Agricultural Services
Minerals Services
Oil, Gas & Chemicals Services
Life Science Services
Consumer Testing Services
Systems & Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments & Institutions Services
TOTAL
(CHF million)
2011
Agricultural Services
Minerals Services
Oil, Gas & Chemicals Services
Life Science Services
Consumer Testing Services
Systems & Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments & Institutions Services
TOTAL
REVENUE
ADjUSTED
OPERATING INcOME
AMORTISATION
OF AcQUISITION
INTANGIBLES
OPERATING INcOME
BY BUSINESS
369
868
1 046
199
936
395
899
323
287
256
5 578
61
164
139
17
233
74
100
34
64
55
941
-
(1)
(2)
(2)
(1)
-
(4)
(1)
(7)
-
(18)
Unallocated costs
GROUP OPERATING INcOME
61
163
137
15
232
74
96
33
57
55
923
(80)
843
REVENUE
ADjUSTED
OPERATING INcOME
AMORTISATION
OF AcQUISITION
INTANGIBLES
OPERATING INcOME
BY BUSINESS
327
678
912
192
802
364
747
284
270
221
4 797
51
131
123
21
203
68
80
27
59
52
815
-
(1)
(2)
(2)
(1)
-
(2)
-
(8)
-
(16)
Unallocated costs
GROUP OPERATING INcOME
51
130
121
19
202
68
78
27
51
52
799
(9)
790
The revenues reported represent revenue generated from external customers.
Revenue in Switzerland from external customers for 2012 amounted to CHF 264 million (2011: CHF 229 million). No country
represented more than 15% of revenues from external customers in 2012 or 2011.
60
61
SGS GROUP RESULTS
UNALLOcATED cOSTS 2012
In 2012, the Group incurred a pre-tax restructuring charge of CHF 68 million, including a provision of CHF 21 million (net of tax) in
view of the intended closure of the Paris clinic. These pre-tax restructuring costs are largely a result of personnel reorganisation due
to the decline in market conditions in certain businesses and geographies (CHF 43 million) as well as fixed asset impairment and
other charges (CHF 25 million). At the same time, the Group incurred CHF 12 million of integration-related costs and transaction-
related costs that have been expensed in accordance with IFRS 3 (revised).
UNALLOcATED cOSTS 2011
In 2011, the Group incurred CHF 9 million of transaction-related costs that have been expensed in accordance with IFRS 3.
(CHF million)
2012
%
2011
%
REVENUE FROM EXTERNAL cUSTOMERS BY GEOGRAPHIcAL SEGMENT
Europe/Africa/Middle East
Americas
Asia Pacific
TOTAL
2 628
1 359
1 591
5 578
47.1
24.4
28.5
100.0
2 418
1 026
1 353
4 797
50.4
21.4
28.2
100.0
MAjOR cUSTOMER INFORMATION
In 2012 and in 2011, no external customer represented 10% or more of the Group’s total revenue.
SPEcIFIc NON-cURRENT ASSETS BY MATERIAL cOUNTRIES
Specific non-current assets by material countries:
(CHF million)
Switzerland
Spain
Other countries
TOTAL
2012
95
317
1 834
2 246
%
4.2
14.1
81.7
100.0
2011
106
325
1 547
1 978
No other country represented more than 15% of the specific non-current assets in 2012 or 2011.
REcONcILIATION WITH TOTAL NON-cURRENT ASSETS
(CHF million)
Specific non-current assets as above
Deferred tax assets
Non-current loans to third parties
TOTAL
2012
2 246
224
1
2 471
%
5.4
16.4
78.2
100
2011
1 978
201
1
2 180
(CHF million)
OPERATING ASSETS BY BUSINESS SEGMENT
Agricultural Services
Minerals Services
Oil, Gas & Chemicals Services
Life Science Services
Consumer Testing Services
System & Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments & Institutions Services
TOTAL
2012
255
690
779
291
656
176
582
311
386
222
4 348
%
2011
%
(CHF million)
2012
%
2011
%
5.9
15.8
17.9
6.7
15.1
4.0
13.4
7.2
8.9
5.1
100.0
208
543
709
268
608
148
611
268
430
200
3 993
5.2
13.6
17.8
6.7
15.2
3.7
15.3
6.7
10.8
5.0
100.0
OPERATING LIABILITIES BY BUSINESS SEGMENT
Agricultural Services
Minerals Services
Oil, Gas & Chemicals Services
Life Science Services
Consumer Testing Services
System & Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments & Institutions Services
TOTAL
127
297
358
68
321
135
308
111
98
88
1 911
6.6
15.5
18.7
3.6
16.9
7.1
16.1
5.8
5.1
4.6
100.0
119
247
332
70
293
133
272
104
99
81
1 750
6.8
14.1
19.0
4.0
16.8
7.6
15.5
5.9
5.7
4.6
100.0
(CHF million)
2012
2011
(CHF million)
2012
2011
REcONcILIATION OF OPERATING ASSETS BY BUSINESS SEGMENT TO THE BALANcE SHEET
REcONcILIATION OF OPERATING LIABILITIES BY BUSINESS SEGMENT TO THE BALANcE SHEET
Assets by business segment as above
Non-operating assets
TOTAL ASSETS PER BALANcE SHEET
4 348
646
4 994
3 993
767
4 760
Liabilities by business segment as above
Non-operating liabilities
TOTAL LIABILITIES PER BALANcE SHEET
1 911
965
2 876
1 750
965
2 715
Assets by business segment comprise all assets held by the Group’s operating affiliates after elimination of inter-company balances.
62
63
SGS GROUP RESULTS
(CHF million)
2012
%
2011
%
cAPITAL ADDITIONS BY BUSINESS SEGMENT
Agricultural Services
Minerals Services
Oil, Gas & Chemicals Services
Life Science Services
Consumer Testing Services
System & Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments & Institutions Services
TOTAL
23
90
76
19
82
5
32
21
10
29
387
5.9
23.2
19.6
4.9
21.2
1.4
8.3
5.4
2.6
7.5
100.0
17
61
63
12
84
5
35
28
17
23
345
4.9
17.7
18.3
3.5
24.3
1.5
10.1
8.1
4.9
6.7
100.0
(CHF million)
2012
%
2011
%
DEPREcIATION AND AMORTISATION BY BUSINESS SEGMENT
Agricultural Services
Minerals Services
Oil, Gas & Chemicals Services
Life Science Services
Consumer Testing Services
System & Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments & Institutions Services
TOTAL
12
43
46
13
59
5
33
20
24
13
268
4.5
15.8
17.2
4.9
22.0
1.9
12.3
7.5
9.0
4.9
100.0
10
33
40
12
49
5
27
18
22
9
225
(CHF million)
2012
%
2011
IMPAIRMENT BY BUSINESS SEGMENT
Minerals
Consumer Testing Services
Life Science Services
System & Services Certification
Environmental Services
Automotive Services
TOTAL
(3)
(1)
(8)
(1)
-
-
(13)
23.1%
7.7%
61.5%
7.7%
0%
0%
100.0%
-
-
-
-
-
-
-
4.4
14.7
17.8
5.3
21.8
2.2
12.0
8.0
9.8
4.0
100.0
%
-
-
-
-
-
-
-
AVERAGE NUMBER OF EMPLOYEES BY GEOGRAPHIcAL SEGMENT
Europe/Africa/Middle East
Americas
Asia Pacific
TOTAL
Number of employees at year end
2012
2011
32 008
18 045
26 967
77 020
79 268
29 247
13 840
24 546
67 633
71 220
5
OTHER OPERATING EXPENSES
(CHF million)
Rental expense, insurance, utilities and sundry supplies
Consumables, repairs and maintenance
Communication costs
Travel costs
Miscellaneous operating income and expenses
TOTAL
6
FINANcIAL INcOME
(CHF million)
Interest income
Foreign exchange gains
Other financial income
TOTAL
7
FINANcIAL EXPENSES
(CHF million)
Interest expense
Loss on derivatives at fair value
(Gain)/loss arising on an Interest Rate Swap 1
Loss/(gain) arising on adjustment for hedged item 1
Other financial expenses
TOTAL
1. In a designated fair value hedge accounting relationship.
2012
266
374
107
363
278
1 388
2012
14
3
-
17
2012
38
10
(5)
5
4
52
2011
222
315
97
315
198
1 147
2011
6
3
1
10
2011
25
7
(30)
30
4
36
64
65
SGS GROUP RESULTS
8
TAXES
(CHF million)
MAjOR cOMPONENTS OF TAX EXPENSE
Current taxes
Deferred tax expense/(credit) relating to the origination and
reversal of temporary differences
TOTAL
2012
209
9
218
2011
206
(3)
203
The Group has operations in various countries that have differing tax laws and rates. Consequently, the effective tax rate on
consolidated income varies from year to year. A reconciliation between the reported income tax expense and the amount that
would arise using the weighted average statutory tax rate of the Group is as follows:
(CHF million)
REcONcILIATION OF TAX EXPENSE
Profit before taxes
Tax at the domestic rates applicable to the profits earned
in the country concerned
Tax effect of non-deductible or non-taxable items
Tax charge from/(usage of) unrecognised tax losses
Non-creditable foreign withholding taxes
Other
TAX cHARGE
2012
808
156
11
17
30
4
218
2012
2011
764
170
6
(2)
34
(5)
203
2011
(CHF million)
ASSETS
LIABILITIES
ASSETS
LIABILITIES
cOMPONENTS OF DEFERRED INcOME TAX BALANcES
Fixed assets
Inventories and receivables
Actuarial gains and losses on pensions
Provisions and other
Intangible assets
Tax loss carry-forwards
DEFERRED INcOME TAXES
26
10
105
49
6
28
224
19
17
-
28
8
-
72
17
7
91
42
7
37
201
17
10
-
31
-
-
58
Net change in deferred tax assets/(liabilities):
(CHF million)
FIXED
ASSETS
INVENTORIES
& TRADE
REcEIVABLES
OPERATING
PROVISIONS
& OTHER
AcTUARIAL
GAINS &
LOSSES ON
PENSIONS
INTANGIBLE
ASSETS
TAX LOSSES
cARRY
FORWARDS
TOTAL
NET DEFERRED INcOME TAX ASSET (LIABILITY)
AT 1 jANUARY 2011
(Charged)/credited to the income statement
(Charged)/credited to the shareholders’ equity
Exchange differences and other
NET DEFERRED INcOME TAX ASSET (LIABILITY)
AT 31 DEcEMBER 2011
(Charged)/credited to the income statement
(Charged)/credited to the shareholders’ equity
Exchange differences and other
NET DEFERRED INcOME TAX ASSET (LIABILITY)
AT 31 DEcEMBER 2012
6
(5)
-
(1)
-
9
-
(2)
7
1
(5)
-
1
(3)
(4)
-
-
(7)
(3)
7
-
7
11
8
-
2
81
-
14
(4)
91
2
15
(3)
21
105
8
(1)
-
-
7
(1)
-
(8)
(2)
37
130
-
-
-
37
(5)
-
(4)
28
(4)
14
3
143
9
15
(15)
152
The Group has unrecognised tax losses carried forward amounting to CHF 67 million (2011: CHF 24 million) of which CHF 5 million
(2011: CHF 15 million) expire within the next five years. No tax losses carried forward expired in 2012.
(CHF million)
2012
2011
REFLEcTED IN THE BALANcE SHEET AS FOLLOWS:
Deferred tax assets
Deferred tax liabilities
TOTAL
224
(72)
152
201
(58)
143
At 31 December 2012, consolidated retained earnings include approximately CHF 3 725 million (2011: CHF 3 468 million) of
undistributed earnings associated with investments in subsidiaries and foreign incorporated joint ventures that may be subject to
tax if remitted to the parent company. As a Group policy, no deferred tax is recognised in respect of these amounts until the point
at which the distributable earnings are determined and foreign statutory requirements, allowing the distribution, are fulfilled.
Until that time, the Group is able to control the reversal of the temporary differences and it is probable that they will not reverse
in the foreseeable future.
66
67
SGS GROUP RESULTS
9
EARNINGS PER SHARE
Basic earnings per share are calculated as follows:
Profit attributable to equity holders of SGS SA (CHF million)
Weighted average number of shares
BASIc EARNINGS PER SHARE (cHF)
2012
556
2011
534
7 622 043
7 577 630
72.97
70.52
Diluted earnings per share are calculated as basic earnings per share except that the weighted average number of shares includes
the dilutive effect of the Group’s share option plans (see note 31):
Profit attributable to equity holders of SGS SA (CHF million)
Diluted weighted average number of shares
DILUTED EARNINGS PER SHARE (cHF)
Adjusted earnings per share are calculated as follows:
Profit attributable to equity holders of SGS SA (CHF million)
Amortisation of acquisition intangibles (CHF million)
Restructuring costs net of tax (CHF million)
Transaction and integration-related costs net of tax (CHF million)
Adjusted profit attributable to equity holders of SGS SA (CHF million)
ADjUSTED BASIc EARNINGS PER SHARE (cHF)
ADjUSTED DILUTED EARNINGS PER SHARE (cHF)
2012
556
7 670 714
72.51
2011
534
7 616 847
70.16
2012
556
18
47
9
630
82.65
82.12
2011
534
16
-
7
557
73.53
73.15
68
LAND & BUILDINGS
MAcHINERY &
EQUIPMENT
OTHER TANGIBLE
ASSETS
TOTAL
1 270
252
25
-
(69)
(17)
1 461
852
153
1
16
-
(64)
(11)
947
514
7
5
2
566
73
16
-
(32)
(13)
610
334
52
-
4
-
(30)
(4)
356
254
1
1
-
2 260
353
52
-
(105)
(33)
2 527
1 372
222
4
25
-
(96)
(18)
1 509
1 018
8
6
2
10
LAND, BUILDINGS AND EQUIPMENT
(CHF million)
2012
cOST
At 1 January
Additions
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences
At 31 December
AccUMULATED DEPREcIATION AND IMPAIRMENT
At 1 January
Depreciation
Impairment
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences
At 31 December
NET BOOk VALUE AT 31 DEcEMBER 2012
424
28
11
-
(4)
(3)
456
186
17
3
5
-
(2)
(3)
206
250
INcLUDED IN LAND, BUILDINGS AND EQUIPMENT ARE LEASED ASSETS AS FOLLOWS
Purchase cost of leased tangible assets
Accumulated depreciation
NET BOOk VALUE AT 31 DEcEMBER 2012
-
-
-
69
SGS GROUP RESULTS
(CHF million)
2011
cOST
At 1 January
Additions
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences
At 31 December
AccUMULATED DEPREcIATION AND IMPAIRMENT
At 1 January
Depreciation
Impairment
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences
At 31 December
NET BOOk VALUE AT 31 DEcEMBER 2011
LAND & BUILDINGS
MAcHINERY &
EQUIPMENT
OTHER TANGIBLE
ASSETS
TOTAL
417
18
3
-
(3)
(11)
424
178
15
-
-
-
(2)
(5)
186
238
1 108
197
27
-
(45)
(17)
1 270
761
128
-
15
-
(40)
(12)
852
418
4
3
1
486
107
4
-
(20)
(11)
566
316
42
-
2
-
(18)
(8)
334
232
1
-
1
2 011
322
34
-
(68)
(39)
2 260
1 255
185
-
17
-
(60)
(25)
1 372
888
5
3
2
INcLUDED IN LAND, BUILDINGS AND EQUIPMENT ARE LEASED ASSETS AS FOLLOWS
Purchase cost of leased tangible assets
Accumulated depreciation
NET BOOk VALUE AT 31 DEcEMBER 2011
-
-
-
At 31 December 2012, the Group had commitments of CHF 12 million (2011: CHF 10 million) for the acquisition of land, buildings
and equipment.
Included in the other tangible assets are construction-in-progress assets amounting to CHF 30 million (2011: CHF 45 million).
The values of buildings and equipment for fire insurance purposes are as follows:
(CHF million)
Buildings
Machinery, equipment and other tangible assets
2012
523
1 916
2011
484
1 713
11
GOODWILL
(CHF million)
cOST
At 1 January
Additions
Exchange differences
AT 31 DEcEMBER
2012
830
139
(10)
959
2011
772
75
(17)
830
Goodwill impairment reviews have
been conducted for goodwill balances
allocated to specific cash generating
units (CGU). The goodwill balances
tested account for 99.1% of the total
goodwill net book value reported as
at 31 December 2012. No goodwill
impairment exposure was identified
and therefore no impairment charge
was recorded (2011: nil).
Detailed results of the impairment tests
are presented below for larger goodwill
balances (representing 46.4% of all
goodwill items tested). These tests have
all been performed in accordance with
the Group's accounting policy described
on page 53.
GENERAL DE SERVIcIOS ITV,
EUROPE AND SOUTH AMERIcA
Goodwill recognised on the acquisition
of the vehicle inspection businesses of
General de Servicios ITV (Inspección
Técnica de Vehículos) SA in Spain and
Argentina (2010) has been allocated
to the General de Servicios ITV CGU
for impairment testing purposes. The
carrying amount of the goodwill allocated
to the CGU is expressed in EUR for an
equivalent of CHF 141 million as at 31
December 2012 (2011: CHF 142 million).
The recoverable amount of the CGU,
determined based upon a value-in-use
calculation, is higher than its carrying
amount. Cash flow projections were
used in this calculation, discounted at
a pre-tax rate of 8.9%. The cash flows
for the first five years were based
upon financial plans approved by Group
Management while the subsequent
years assume a long-term growth rate
of 1.0% and stable operating margins.
The overall assumptions used in the
calculation are consistent with the
expected average growth rate of the
vehicle inspection business served in
Europe and South America.
The key sensitivity for the impairment
test is the growth in sales and operating
margin. Reducing the expected annual
revenue growth rates for the first five
years by 200 basis points would not
result in the carrying amount exceeding
the recoverable amount. Reducing the
operating margin by 25 basis points
would not result in the carrying amount
exceeding the recoverable amount.
An increase of 1% in the discount rate
assumption would not change the
conclusions of the impairment test.
LIFE ScIENcE SERVIcES, EUROPE
Goodwill recognised on the following
acquisitions has been allocated to the
Life Science Services, Europe CGU for
impairment testing purposes: Medisearch
International (2003); Cibest (2004); Aster
Cephac (2006); and M-Scan Group (2010).
The carrying amounts of the goodwill
items allocated to this CGU are
expressed in EUR for an equivalent of
CHF 113 million as at 31 December 2012
(2011: CHF 101 million).
The recoverable amount of the CGU,
determined based upon a value-in-use
calculation, is higher than its carrying
amount. Cash flow projections were
used in this calculation, discounted at
a pre-tax rate of 7.7%. The cash flows
for the first five years were based
upon financial plans approved by Group
Management while the subsequent
years assume a conservative long-term
growth rate of 1.0% and stable operating
margins. The overall assumptions used
in the calculation are consistent with the
expected average growth rate of the Life
Science Services business in Europe.
The key sensitivity for the impairment
test is the growth in sales and operating
margin. Reducing the expected annual
revenue growth rates for the first five
years by 200 basis points would not
result in the carrying amount exceeding
the recoverable amount. Reducing the
operating margin by 25 basis points
would not result in the carrying amount
exceeding the recoverable amount.
An increase of 1% in the discount rate
assumption would not change the
conclusions of the impairment test.
FRESENIUS SERVIcES, EUROPE
Goodwill recognised on the acquisition
of Institut Fresenius AG (2004) has been
allocated to a specific cross-business
CGU for impairment testing purposes.
The carrying amount of the goodwill
allocated to this CGU is expressed in EUR
for an equivalent of CHF 52 million as at
31 December 2012 (2011: CHF 55 million).
70
71
OIL, GAS & cHEMIcALS SERVIcES,
NORTH AMERIcA
Goodwill recognised on the acquisition
of Petroleum Services Corporation Inc.
(2005) has been allocated to the Oil, Gas
& Chemicals Services, North America
CGU for impairment testing purposes.
The carrying amount of the goodwill
allocated to this CGU is expressed in
USD for an equivalent of CHF 30 million
as at 31 December 2012 (2011:
CHF 30 million).
The recoverable amount of the CGU,
determined based upon a value-in-use
calculation, is higher than its carrying
amount. Cash flow projections were
used in this calculation, discounted at
a pre-tax rate of 7.4%. The cash flows
for the first five years were based
upon financial plans approved by Group
Management while the subsequent
years assume a conservative long-
term growth rate of 1.0% and stable
operating margins. The overall
assumptions used in the calculation are
consistent with the expected average
growth rate of the Oil, Gas & Chemicals
Services business in North America.
The key sensitivity for the impairment
test is the growth in sales and operating
margin. Reducing the expected annual
revenue growth rates for the first five
years by 200 basis points would not
result in the carrying amount exceeding
the recoverable amount. Reducing the
operating margin by 25 basis points
would not result in the carrying amount
exceeding the recoverable amount.
An increase of 1% in the discount rate
assumption would not change the
conclusions of the impairment test.
SGS GROUP RESULTS
The recoverable amount of the CGU,
determined based upon a value-in-use
calculation, is higher than its carrying
amount. Cash flow projections were
used in this calculation, discounted at
a pre-tax rate of 8.1%. The cash flows
for the first five years were based upon
financial plans approved by Group
Management while the subsequent
years assume a conservative long-term
growth rate of 1.0% and stable operating
margins. The overall assumptions used
in the calculation are consistent with the
expected average growth rate of the
Fresenius businesses in Europe.
The key sensitivity for the impairment
test is the growth in sales and operating
margin. Reducing the expected annual
revenue growth rates for the first five
years by 200 basis points would not
result in the carrying amount exceeding
the recoverable amount. Reducing the
operating margin by 25 basis points
would not result in the carrying amount
exceeding the recoverable amount.
An increase of 1% in the discount rate
assumption would not change the
conclusions of the impairment test.
OIL, GAS & cHEMIcALS SERVIcES,
EUROPE (UPSTREAM)
Goodwill recognised on the acquisition
of Horizon Energy Partners (2008)
has been allocated to the Oil, Gas &
Chemicals Services, Europe (Upstream)
CGU for impairment testing purposes.
The carrying amount of the goodwill
allocated to the CGU is expressed
in EUR for an equivalent of
CHF 53 million as at 31 December
2012 (2011: CHF 53 million).
The recoverable amount of the CGU,
determined based upon a value-in-use
calculation, is higher than its carrying
amount. Cash flow projections were
used in this calculation, discounted at
a pre-tax rate of 8.9%. The cash flows
for the first five years were based
upon financial plans approved by Group
Management while the subsequent
years assume a conservative long-
term growth rate of 2.0% and stable
operating margins. The overall
assumptions used in the calculation are
consistent with the expected average
growth rate of the Oil, Gas & Chemicals
Services, Europe (Upstream) segment
served by the Group.
The key sensitivity for the impairment
test is the growth in sales and operating
margin. Reducing the expected annual
revenue growth rates for the first five
years by 200 basis points would not
result in the carrying amount exceeding
the recoverable amount. Reducing the
operating margin by 25 basis points
would not result in the carrying amount
exceeding the recoverable amount.
An increase of 1% in the discount rate
assumption would not change the
conclusions of the impairment test.
MINERALS SERVIcES, NORTH AMERIcA
Goodwill recognised on the following
acquisitions has been allocated to the
Minerals Services, Americas CGU for
impairment testing purposes: Lakefield
group (2002) and Minnovex group
(2005). The carrying amounts of the
goodwill items allocated to this CGU
are expressed in various currencies for
an equivalent of CHF 54 million as at 31
December 2012 (2011: CHF 56 million).
The recoverable amount of the CGU,
determined based upon a value-in-use
calculation, is higher than its carrying
amount. Cash flow projections were
used in this calculation, discounted at
a pre-tax rate of 8.6%. The cash flows
for the first five years were based
upon financial plans approved by Group
Management while the subsequent
years assume a conservative long-
term growth rate of 1.0% and stable
operating margins. The overall
assumptions used in the calculation are
consistent with the expected average
growth rate of the Minerals Services
business in the Americas.
The key sensitivity for the impairment
test is the growth in sales and operating
margin. Reducing the expected annual
revenue growth rates for the first five
years by 200 basis points would not
result in the carrying amount exceeding
the recoverable amount. Reducing the
operating margin by 25 basis points
would not result in the carrying amount
exceeding the recoverable amount.
An increase of 1% in the discount rate
assumption would not change the
conclusions of the impairment test.
72
12
OTHER INTANGIBLE ASSETS
(CHF million)
2012
cOST
At 1 January
Additions
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences
At 31 December
AccUMULATED AMORTISATION AND IMPAIRMENT
At 1 January
Amortisation
Impairment
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences
At 31 December
NET BOOk VALUE AT 31 DEcEMBER 2012
16
8
8
-
-
-
-
32
64
(CHF million)
2011
cOST
At 1 January
Additions
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences
At 31 December
AccUMULATED AMORTISATION AND IMPAIRMENT
At 1 January
Amortisation
Impairment
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences
At 31 December
NET BOOk VALUE AT 31 DEcEMBER 2011
7
9
-
-
-
-
-
16
81
97
-
-
-
-
(1)
96
99
-
1
-
-
(3)
97
TRADEMARkS
AND OTHER
cUSTOMER
RELATIONSHIPS
INTERNALLY
GENERATED
PURcHASED
TOTAL
cOMPUTER SOFTWARE
AND OTHER ASSETS
TRADEMARkS
AND OTHER
cUSTOMER
RELATIONSHIPS
INTERNALLY
GENERATED
PURcHASED
TOTAL
cOMPUTER SOFTWARE
AND OTHER ASSETS
105
-
35
-
-
(2)
138
29
10
-
-
-
-
(1)
38
100
69
5
-
-
-
(1)
73
56
5
1
-
-
-
1
63
10
202
29
1
-
(3)
(4)
225
158
23
-
-
-
(3)
(1)
177
48
473
34
36
-
(3)
(8)
532
259
46
9
-
-
(3)
(1)
310
222
64
5
-
-
-
-
69
51
5
-
-
-
-
-
56
13
190
18
-
-
(3)
(3)
202
146
19
-
-
-
(3)
(4)
158
44
436
23
24
-
(3)
(7)
473
226
40
-
-
-
(3)
(4)
259
214
83
-
23
-
-
(1)
105
22
7
-
-
-
-
-
29
76
73
SGS GROUP RESULTS
SIGNIFIcANT INTANGIBLE ASSETS
The Group is implementing global management information systems focusing on contract management, finance and sales order
processing. In particular, additions relating to the Group's ERP system amount to CHF 4 million (2011: CHF 4 million) and are being
amortised over a period of four years.
Incremental costs relating to internally generated assets are capitalised when incurred and amortised over a period of four years
from the time of occurrence. Purchased intangible assets mainly consist of purchased computer software and consultancy services
required for implementations.
13
OTHER NON-cURRENT ASSETS
(CHF million)
Non-current loans to third parties
Other non-current assets
TOTAL
2012
1
43
44
2011
1
45
46
Depending on the nature of the loan, currency and date of maturity, interest rates on long-term loans to third parties range between
0% and 15.0%.
Other non-current assets consist mainly of deposits for guarantees and include CHF 14 million (2011: CHF 14 million) of restricted
cash. Typical examples of restricted cash are cash deposits for performance bonds, rentals and other operating obligations.
At 31 December 2012 and 2011, the fair value of the Group's other non-current assets approximates the carrying value.
14
UNBILLED REVENUES AND INVENTORIES
(CHF million)
Work-in-progress
Unbilled revenues
Inventories
TOTAL
2012
40
207
55
302
2011
33
183
41
257
15
TRADE AccOUNTS AND NOTES REcEIVABLE
(CHF million)
Trade accounts and notes receivable
Allowance for doubtful accounts
TOTAL
Ageing of trade accounts and notes receivables not impaired:
Not overdue
Past due not more than two months
Past due more than two months but not more than four months
Past due more than four months but not more than six months
Past due more than six months but not more than one year
Past due more than one year
TOTAL
2012
1 136
(159)
977
406
389
91
48
43
-
977
2011
1 013
(145)
868
384
326
92
39
27
-
868
The nominal value, less impairment provisions, of trade accounts and notes receivable is considered to approximate their fair value.
The movement of allowance for doubtful accounts is analysed as follows:
(CHF million)
Balance at beginning of the year
Acquisition of subsidiaries
Increase in allowance recognised in the income statement
Utilisations
Exchange differences
TOTAL
2012
(145)
(2)
(26)
12
2
(159)
2011
(175)
-
(7)
35
2
(145)
Receivables aged less than 360 days are provided when the credit worthiness review indicates that the amounts may have
become unrecoverable.
The Group provides fully for all receivables over 360 days as historical experience shows that receivables aged more than 360 days
are generally not recoverable.
The Group has no significant concentration of credit risk, with exposure spread over a large number of counter-parties and
customers. Accordingly, management believes that there is no further credit provision required in excess of the allowance for
doubtful debts.
Credit risks arise mainly from the possibility that customers may not be able to settle their obligations as agreed. The Group
periodically assesses the creditworthiness of customers.
The Group’s credit risk is diversified due to the large number of entities that make up the Group’s customer base and the
diversification across many different industries and geographic regions.
The maximum credit risk to which the Group is theoretically exposed at 31 December 2012 is represented by the carrying amounts
of receivables in the balance sheet.
No customer accounts for 5% or more of the Group’s total receivables at balance sheet date.
74
75
SGS GROUP RESULTS
16
OTHER REcEIVABLES AND PREPAYMENTS
(CHF million)
Prepayments
Derivative assets
Interest Rate Swap designated in a fair value hedge accounting relationship
Other receivables
TOTAL
2012
77
6
5
167
255
2011
80
6
30
128
244
The Group has no significant concentration of credit risk, with exposure spread over a large number of counter-parties.
Other receivables consist mainly of sales and other taxes recoverable as well as advances to suppliers and prepaid income tax.
17
MARkETABLE SEcURITIES
(CHF million)
Available for sale
TOTAL
2012
17
17
2011
9
9
Unrealised gains or losses on marketable securities designated as available for sale and which are recorded in equity amounted to
nil for 2012 (2011: nil).
18
cASH AND cASH EQUIVALENTS
(CHF million)
Cash and short-term deposits
Short-term loans
TOTAL
2012
971
1
972
2011
1 196
6
1 202
Cash and cash equivalents do not include restricted cash, which is reported within other non-current assets (note 13).
19
cASH FLOW STATEMENT
19.1. NON-cASH ITEMS
(CHF million)
Depreciation of buildings and equipment
Impairment of land, buildings and equipment and other intangible assets
Amortisation of intangible assets
Net financial expenses
(Decrease) in provisions and employee benefits
Share-based payment expenses
(Gain) on disposals of land, buildings and equipment
Taxes
NON-cASH ITEMS
NOTES
10
10 & 12
12
19.2 INcREASE IN WORkING cAPITAL
(CHF million)
(Increase) in unbilled revenues and inventories
(Increase) in trade accounts and notes receivable
(Increase) in other receivables and prepayments
Increase in trade and other payables
Increase in other creditors and accruals
Increase in other provisions
(INcREASE) IN WORkING cAPITAL
2012
222
13
46
35
(54)
14
(1)
218
493
2012
(43)
(91)
(22)
27
20
36
(73)
2011
185
-
40
26
(36)
15
-
203
433
2011
(43)
(101)
(15)
40
35
-
(84)
19.3. cASH FLOWS ARISING FROM AcQUISITIONS AND DIVESTMENTS OF BUSINESSES
(CHF million)
2012 AcQUISITIONS
2012 DIVESTMENTS
2011 AcQUISITIONS
2011 DIVESTMENTS
Tangible and other long-term assets
Intangible assets
Current assets excluding cash and cash equivalents
Cash and cash equivalents
Current liabilities
Non-current liabilities
NET IDENTIFIABLE ASSETS AcQUIRED OR DIVESTED
Acquired cash and cash equivalents
SUBTOTAL
Goodwill
Consideration payable
Payments on prior year aquisitions
NET cASH FLOWS
(32)
(36)
(58)
(19)
59
22
(64)
19
(45)
(139)
8
(6)
(182)
-
-
-
-
-
-
-
-
-
-
-
-
-
(20)
(24)
(20)
(13)
13
3
(61)
13
(48)
(75)
19
(8)
(112)
-
-
-
-
-
-
-
-
-
-
-
-
-
Note 3 provides further information regarding acquisitions and divestments of businesses. All acquisitions were settled in cash.
76
77
SGS GROUP RESULTS
20
AcQUISITIONS
21
FINANcIAL RISk MANAGEMENT
ASSETS AND LIABILITIES ARISING FROM THE 2012 AcQUISITIONS
RISk MANAGEMENT POLIcIES AND OBjEcTIVES
(CHF million)
FAIR VALUE ON AcQUISITION
FAIR VALUE ON AcQUISITION
FAIR VALUE ON AcQUISITION
The risk management policies and objectives are governed by the Group’s policies approved by the Board of Directors.
cIMM.
OTHER
TOTAL
The Group’s activities expose it primarily to market, credit and liquidity risk. Market risk includes foreign exchange, interest rate
and equity price risks.
Tangible and other long-term assets
Intangible assets
Trade accounts and notes receivable
Cash and cash equivalents
Other current assets
Current liabilities
Non-current liabilities
NET ASSETS AcQUIRED
Goodwill
TOTAL PURcHASE PRIcE
Acquired cash and cash equivalents
Consideration payable
NET cASH OUTFLOW ON AcQUISITIONS
23
7
16
8
5
(30)
(11)
18
19
37
(8)
-
29
9
29
20
11
17
(29)
(11)
46
120
166
(11)
(8)
147
32
36
36
19
22
(59)
(22)
64
139
203
(19)
(8)
176
The goodwill arising on these acquisitions relates mainly to the value of expected synergies and the value of the qualified workforce
that do not meet the criteria for recognition as separable intangible assets.
Consideration payable relates mainly to environmental and commercial warranty clauses.
The Group incurred transaction-related costs of CHF 5 million (2011: CHF 6 million) related to external legal fees, due diligence
expenses as well as the costs of maintaining an internal acquisition department. These expenses are reported within Other
Operating Expenses in the consolidated income statement.
78
The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls
and to monitor the risk and limits continually by means of reliable and up-to-date administrative and information systems.
The Audit Committee oversees how management monitors compliance with the Group’s risk management policies. The Audit
Committee is assisted in its oversight role by Internal Audit.
RISk MANAGEMENT AcTIVITIES
The Group uses foreign exchange contracts to manage the Group’s exposure to fluctuations in foreign currency exchange rates.
These activities are carried out in accordance with the Group’s risk management policies and objectives in areas such as
counter-party exposure and hedging practices. Counter-parties to these agreements are major international financial institutions
with high credit ratings and positions are monitored using market value and sensitivity analyses. The associated credit risk is
therefore limited. These agreements generally include the exchange of one currency for a second currency at a future date.
The following table summarises foreign exchange contracts outstanding at year-end. The notional amount of derivatives
summarised below represents the gross amount of the contracts and includes transactions which have not yet matured. Therefore
the figures do not reflect the Group’s net exposure at year-end. The market value approximates the costs to settle the outstanding
contracts. These market values should not be viewed in isolation but in relation to the market values of the underlying hedged
transactions and the overall reduction in the Group’s exposure to adverse fluctuations in foreign exchange rates.
Currently, the Group has limited exposure to interest risk and no exposure to equity price risks.
(CHF million)
2012
2011
2012
2011
2012
2011
NOTIONAL AMOUNT
BOOk VALUE
MARkET VALUE
FOREIGN EXcHANGE FORWARD cONTRAcTS
Currency:
Australian Dollar (AUD)
Brazilian Real (BRL)
Canadian Dollar (CAD)
Chilean Peso (CLP)
Chinese Renminbi (CNY)
Euro (EUR)
British Pound Sterling (GBP)
Hong Kong Dollar (HKD)
Japanese Yen (JPY)
Korean Won (KRW)
New Zealand Dollar (NZD)
Philippines Peso (PHP)
Polish Zloty (PLN)
Russian Rubble (RUB)
Turkish New Lira (TRY)
US Dollar (USD)
South African Rand (ZAR)
Other
TOTAL
(2)
(1)
(2)
(1)
-
-
-
-
-
-
-
-
-
-
-
-
(1)
-
(1)
-
1
(3)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1)
-
-
-
-
-
-
-
-
-
-
-
-
(1)
-
(1)
-
1
(3)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1)
(49)
-
(15)
1
15
(33)
(5)
-
34
(5)
(230)
(166)
(1)
145
(1)
(12)
(3)
(7)
(8)
(14)
(20)
(66)
(8)
(8)
(281)
9
139
-
(13)
-
-
-
-
(19)
(112)
-
(17)
(188)
79
SGS GROUP RESULTS
FAIR VALUE MEASUREMENT REcOGNISED IN THE BALANcE SHEET
Analysis of financial assets by class and category at 31 December 2011:
Marketable securities and derivative assets and liabilities are the only financial instruments measured at fair value subsequent to
their initial recognition.
Marketable securities (2012: CHF 17 million; 2011: CHF 9 million) qualify as Level 1 fair value measurement category. Derivative
assets (2012: CHF 11 million; 2011: CHF 36 million) and liabilities (2012: CHF 9 million; 2011: CHF 7 million) qualify as Level 2 fair
value measurement category in accordance with the fair value hierarchy.
Level 1 fair value measurements are those derived from the quoted price in active markets. Level 2 fair value measurements are
those derived from inputs other than quoted prices that are observable for the asset and liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Derivative assets and liabilities consist of foreign currency forward contracts that are measured using quoted forward exchange
rates and yield curves derived from quoted interest rates matching maturities of the contract. In addition, the Interest Rate Swap is
measured using quoted interest rates and yield curves derived from quoted interest rates matching maturities of the contract.
cREDIT RISk MANAGEMENT
Credit risk arises from the possibility that customers may not be able to settle their obligations as agreed. It arises principally from
the Group’s commercial activities. The Group has dedicated standards, policies and procedures to control and monitor such risks.
As part of financial management activities the Group enters into various types of transactions with international banks, usually with
a credit rating of at least A. Exposure to these risks is closely monitored and kept within predetermined parameters. The Group
does not expect any non-performance by these counter-parties.
The maximum credit risk to which the Group is theoretically exposed at 31 December 2012 is the carrying amount of financial
assets including derivatives.
AMORTISED
cOST LOANS AND
REcEIVABLES
FAIR VALUE
AVAILABLE FOR SALE
AT FAIR VALUE THROUGH P&L
TOTAL
(CHF million)
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
Cash and short-term deposits
1 196
1 196
Trade receivables
Other receivables ¹
Unbilled revenues
Loans to 3rd parties - current
Loans to 3rd parties - non-current
Marketable securities
Derivatives 2
868
95
183
6
1
-
-
868
95
183
6
1
-
-
TOTAL FINANcIAL ASSETS
2 349
2 349
-
-
-
-
-
-
9
-
9
-
-
-
-
-
-
9
-
9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36
36
36
36
1 196
1 196
868
95
183
6
1
9
36
2 394
868
95
183
6
1
9
36
2 394
1. Excluding VAT and other tax related items.
2. Including an Interest Rate Swap designated in a fair value hedge accounting relationship of CHF 30 million.
Analysis of financial assets by class and category at 31 December 2012:
LIQUIDITY RISk MANAGEMENT
AMORTISED
cOST LOANS AND
REcEIVABLES
FAIR VALUE
AVAILABLE FOR SALE
AT FAIR VALUE THROUGH P&L
TOTAL
(CHF million)
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
Cash and short-term deposits
Trade receivables
Other receivables ¹
Unbilled revenues
Loans to 3rd parties - current
Loans to 3rd parties - non-current
Marketable securities
Derivatives 2
971
977
109
207
1
1
-
-
971
977
109
207
1
1
-
-
TOTAL FINANcIAL ASSETS
2 266
2 266
-
-
-
-
-
-
17
-
17
-
-
-
-
-
-
17
-
17
-
-
-
-
-
-
-
11
11
-
-
-
-
-
-
-
11
11
971
977
109
207
1
1
17
11
971
977
109
207
1
1
17
11
2 294
2 294
1. Excluding VAT and other tax related items.
2. Including an Interest Rate Swap designated in a fair value hedge accounting relationship of CHF 5 million.
The objective of the Group liquidity and funding management is to ensure that all its foreseeable financial commitments can be
met when due. Liquidity and funding is primarily managed by Group Treasury in accordance with practices and limits set in the risk
management policies and objectives approved by the Board of Directors.
The nature of the Group’s business requires keeping a significant part of the cash reserves in the operating units.
Due to the significant cash position liquidity risk is limited. The Group has various committed and uncommitted bilateral credit
facilities with its banks.
Analysis of financial liabilities by class and category at 31 December 2012:
AMORTISED cOST AND
OTHER LIABILITIES
FAIR VALUE
AT FAIR VALUE THROUGH P&L
TOTAL
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
(CHF million)
Trade payables
Other payables and financial liabilities ¹
Advances from clients
202
152
30
202
152
30
Loans and obligations under finance leases
1 320
1 320
Derivatives
Bank overdrafts
-
3
-
3
TOTAL FINANcIAL LIABILITIES
1 707
1 707
1. Excluding VAT and other tax related items.
-
-
-
-
9
-
9
-
-
-
-
9
-
9
202
152
30
202
152
30
1 320
1 320
9
3
9
3
1 716
1 716
80
81
SGS GROUP RESULTS
Analysis of financial liabilities by class and category at 31 December 2011:
SENSITIVITY ANALYSES
AMORTISED cOST AND
OTHER LIABILITIES
FAIR VALUE
AT FAIR VALUE THROUGH P&L
TOTAL
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
cARRYING
AMOUNT
FAIR VALUE
(CHF million)
Trade payables
Other payables and financial liabilities ¹
Advances from clients
195
135
45
195
135
45
Loans and obligations under finance leases
1 301
1 301
Derivatives
Bank overdrafts
-
4
-
4
TOTAL FINANcIAL LIABILITIES
1 680
1 680
1. Excluding VAT and other tax related items.
-
-
-
-
7
-
7
-
-
-
-
7
-
7
195
135
45
195
135
45
1 301
1 301
7
4
7
4
1 687
1 687
Contractual maturities of financial liabilities including interest payments at 31 December 2012:
(CHF million)
On demand or within one year
Within the second year
Within the third year
Within the fourth year
Within the fifth year
After five years
BORROWINGS
3RD PARTY LT
AND ST
BANk
OVERDRAFTS
AND OTHER
LIABILITIES
GROSS SETTLED
DERIVATIVE
FINANcIAL
INSTRUMENTS
OUTFLOWS
GROSS SETTLED
DERIVATIVE
FINANcIAL
INSTRUMENTS
INFLOWS
TRADE
PAYABLES
AND OTHERS
FINANcE
LEASES
TOTAL
42
31
28
648
16
732
11
564
(569)
324
5
4
3
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
-
-
2
1
-
-
-
-
374
38
32
651
16
732
The Group hedges its foreign exchange exposures on a net basis. The net gross settled derivative financial instruments of minus
CHF 5 million (2011: CHF 3 million) represents the net nominal value expressed in CHF of the Group’s foreign contracts outstanding
at 31 December 2012.
Contractual maturities of financial liabilities including interest payments at 31 December 2011:
(CHF million)
On demand or within one year
Within the second year
Within the third year
Within the fourth year
Within the fifth year
After five years
BORROWINGS
3RD PARTY LT
AND ST
BANk
OVERDRAFTS
AND OTHER
LIABILITIES
GROSS SETTLED
DERIVATIVE
FINANcIAL
INSTRUMENTS
OUTFLOWS
GROSS SETTLED
DERIVATIVE
FINANcIAL
INSTRUMENTS
INFLOWS
TRADE
PAYABLES
AND OTHERS
FINANcE
LEASES
26
26
24
22
647
681
24
512
(515)
310
1
5
1
-
1
-
-
-
-
-
-
-
-
-
-
-
2
1
-
-
1
-
-
-
-
-
TOTAL
358
33
26
22
648
682
The estimated changes in the value of net foreign currency positions are based on an instantaneous 5% weakening of the Swiss Franc
against all other currencies from the level applicable at 31 December 2012 and 2011, with all other variables remaining constant.
Sensitivity analysis at 31 December 2012 and 2011:
(CHF million)
US Dollar (USD)
Euro (EUR)
CFA Franc BEAC (XAF)
British Pound Sterling (GBP)
Australian Dollar (AUD)
Canadian Dollar (CAD)
New Metical (MZN)
Brazilian Real (BRL)
Colombian Peso (COP)
Korean Won (KRW)
Chilean Peso (CLP)
2012
2011
INcOME STATEMENT
IMPAcT INcOME/(EXPENSE)
EQUITY IMPAcT INcREASE/
(DEcREASE)
INcOME STATEMENT
IMPAcT INcOME/(EXPENSE)
EQUITY IMPAcT INcREASE/
(DEcREASE)
(1)
(2)
2
-
-
-
-
-
-
-
-
6
-
-
2
2
5
1
1
1
-
2
-
(1)
1
-
-
-
-
-
-
-
-
6
(1)
-
2
2
4
-
-
-
1
3
INTEREST RATE RISk MANAGEMENT
The Group is exposed to fair value interest rate risk because the Group borrows funds at fixed interest rates. The risk is managed
by the Group by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views
and defined risk appetite, ensuring the most cost-effective hedging strategies are applied.
On 27 May 2011, the Group entered into an interest rate swap agreement, which hedges the 10 year CHF 275 million corporate
bond with a coupon of 3.0% issued at the same date. In this case, the Group designated and documented the interest rate swap
exchanging fixed rate interest for floating interest as a hedging instrument against changes in fair value of recognised liability
(fair value hedge).
On 18 July 2012, the Group received a cash amount of CHF 33 million in relation with the re-setting of the Interest Rate Swap
agreement to market rates.
These cash proceeds were recognised against the carrying amount of the corporate bond and will be amortised within interest
expense over the remaining life of the corporate bond by adjusting the effective interest rate under the effective interest method.
At the same date, the Group has also re-designated the hedge accounting relationship in compliance with fair value hedge
accounting requirements.
If interest rates were 50 basis points higher/lower, the profit for the year ended 31 December 2012 would increase/decrease
by nil (2011: nil), excluding the interest rate swap.
82
83
SGS GROUP RESULTS
22
SHARE cAPITAL AND TREASURY SHARES
23
LOANS AND OBLIGATIONS UNDER LEASES
SHARES IN cIRcULATION
TREASURY SHARES
TOTAL SHARE ISSUED
TOTAL SHARE cAPITAL
(CHF million)
BALANcE AT 1 jANUARY 2011
Treasury shares released into circulation
Treasury shares purchased
BALANcE AT 31 DEcEMBER 2011
Treasury shares released into circulation
Treasury shares purchased
BALANcE AT 31 DEcEMBER 2012
7 589 784
17 664
(43 588)
7 563 860
74 859
(6 677)
7 632 042
232 652
(17 664)
43 588
258 576
(74 859)
6 677
190 394
7 822 436
-
-
7 822 436
-
-
7 822 436
8
-
-
8
-
-
8
(CHF million)
Bank loans
Bank overdrafts
Corporate bonds
Finance lease obligations
TOTAL
Current
Non-current
2012
17
3
1 299
4
1 323
17
1 306
2011
9
4
1 290
2
1 305
6
1 299
ISSUED SHARE cAPITAL
SGS SA has a share capital of CHF 7 822 436 (2011: CHF 7 822 436) fully paid in and divided into 7 822 436 (2011: 7 822 436)
registered shares of a par value of CHF 1. All shares, other than own shares, participate equally in the dividends declared by
the Company and have equal voting rights.
TREASURY SHARES
Depending on the nature of the loan, currency and date of maturity, interest rates on long-term loans from third parties range
between 0% and 9.8% and on short-term loans from third parties range between 0% and 37.5%.
The loans from third parties exposed to fair value interest rate risk amount to CHF 1 003 million (2011: CHF 1 000 million) and the
loans from third parties exposed to cash flow interest rate risk amount to CHF 319 million (2011: CHF 303 million).
At 31 December 2012, the fair value of the hedged bond issued 27 May 2011 approximated the carrying value. The fair value of
the other corporate bonds was CHF 1 076 million (2011: CHF 1 045).
On 31 December 2012, SGS SA held, directly or indirectly, 190 394 treasury shares.
SGS SA issued the following corporate bonds listed on the SIX Swiss Exchange:
In 2012, 74 859 treasury shares were sold or released to cover option rights. During the year, 6 677 treasury shares were
purchased for an average price CHF 1 691.
In 2012, the Group initiated a new Share Buy-Back programme for a total of CHF 250 million, valid from 12 March 2012 to
31 December 2014.
AUTHORISED AND cONDITIONAL ISSUE OF SHARE cAPITAL
The Board has the authority to increase the share capital of SGS SA by a maximum of 500 000 registered shares of a par value
of CHF 1 each, corresponding to a maximum increase of CHF 500 000 in share capital. The Board is mandated to issue the new
shares at the market conditions at the time of issue. In the event that the new shares are issued for an acquisition, the Board is
authorised to waive the shareholders’ preferential right of subscription or to allocate such subscription right to third parties. The
authority delegated by the shareholders to the Board of Directors to increase the share capital is valid until 15 March 2013.
The shareholders have conditionally approved an increase of share capital in the amount of CHF 1 100 000, divided into
1 100 000 registered shares of a par value of CHF 1 each. This conditional share capital increase is intended to procure the
necessary shares to satisfy employee share option plans and option or conversion rights to be incorporated in convertible bonds
or similar equity-linked instruments that the Board is authorised to issue. The right to subscribe to such conditional capital is
reserved for beneficiaries of employee share option plans and holders of convertible bonds or similar debt instruments and
therefore excludes shareholders’ preferential rights of subscription. The Board is authorised to determine the timing and conditions
of such issues, provided that they reflect prevailing market conditions. The term of exercise of the options or conversion rights may
not exceed 10 years from the date of issuance of the equity-linked instruments.
84
DATE OF ISSUE
19.08.2010
08.03.2011
27.05.2011 1
27.05.2011 3
FAcE VALUE
IN cHF MILLION
cOUPON IN %
EFFEcTIVE
INTEREST RATE
YEAR OF MATURITY
ISSUE PRIcE IN %
REDEMPTION
PRIcE IN %
550
375
275
75
1.875
2.625
3.000
1.875
2.091
2.799
1.751 2
2.232
2016
2019
2021
2016
100.346
100.832
100.480
99.591
100.000
100.000
100.000
100.000
1. SGS SA entered into an Interest Rate Swap (IRS) agreement related to this bond.
2. Change in the effective interest rate due to the re-setting of the Interest Rate Swap (IRS).
3. Re-opening of the six-year bond issued on 19 August 2010.
Loans and finance lease obligations mature as follows:
BANk LOANS, OVERDRAFTS
AND cORPORATE BONDS
LEASE OBLIGATIONS
(CHF million)
On demand or within one year
Within the second year
Within the third year
Within the fourth year
Within the fifth year
After five years
TOTAL
2012
16
3
-
620
-
680
1 319
2012
2
2
-
-
-
-
4
2011
2
-
-
-
-
-
2
2011
4
5
2
-
619
673
1 303
85
SGS GROUP RESULTS
The currency composition of loans and finance lease obligations is as follows:
Amounts recorded in the income statement:
(CHF million)
Swiss Franc (CHF)
Euro (EUR)
US Dollar (USD)
Indian Rupee (INR)
Colombian Peso (COP)
Malagasy Ariary (MGA)
Malaysian Ringgit (MYR)
Brazilian Real (BRL)
Moroccan Dirham (MAD)
Polish Zloty (PLN)
Other
TOTAL
BANk LOANS, OVERDRAFTS
AND cORPORATE BONDS
2012
1 299
2011
1 290
3
1
1
4
3
-
6
-
-
2
3
-
3
-
3
-
1
-
-
3
1 319
1 303
LEASE OBLIGATIONS
2012
2011
-
1
-
-
-
-
-
-
-
-
3
4
-
-
-
-
-
-
-
-
-
-
2
2
24
RETIREMENT BENEFIT OBLIGATIONS
The main defined benefit pension plans within the Group are in Switzerland, the USA, the UK, the Netherlands, Germany, Italy,
France and Taiwan. Contributions to most plans are paid to pension funds that are legally separate entities.
The Group also operates post-employment benefit plans, principally healthcare plans in the USA and in Switzerland. They represent
a defined benefit obligation at 31 December 2012 of CHF 13 million (2011: CHF 12 million). The method of accounting and the
frequency of valuation are similar to those used for defined benefit pension plans. Healthcare cost trend assumptions do not have a
significant effect on the amounts recognised in the income statement.
The assets and liabilities recognised in the balance sheet at 31 December for defined benefit obligations and for
post-employment benefit plans are as follows:
(CHF million)
Present value of funded obligations
Fair value of plan assets
UNFUNDED STATUS
Present value of unfunded obligations
Past service cost not yet recognised
Limit on pension assets
NET LIABILITY
2012
834
(726)
108
68
-
-
176
2011
763
(662)
101
66
-
2
169
(CHF million)
Current service cost
Interest cost
Expected return on plan assets
Gains due to settlements/curtailments
Past service (credit)/cost
TOTAL INcLUDED IN SALARIES AND WAGES
2012
19
33
(40)
(2)
-
10
2011
18
34
(41)
-
(6)
5
In 2011, IAS 19 revised on Employee Benefits was issued for adoption by 1 January 2013. If this standard and the related
consequential amendments had been adopted by the Group in 2011, it is estimated that the operating income for the full year 2011
and 2012 would have been lower by approximately CHF 14 million and by CHF 15 million, respectively with no material impact on
the equity or the balance sheet. The Directors anticipate similar impact for the future. As required by the standard, the Group will
retrospectively adopt this standard on 1 January 2013.
Amounts recorded in the statement of comprehensive income:
(CHF million)
cUMULATIVE AMOUNT AT 1 jANUARY
Net actuarial losses/(gains) recognised in the year
Limit on pension asset
Exchange differences
cUMULATIVE AMOUNT AT 31 DEcEMBER
2012
283
57
(4)
7
343
2011
265
56
(10)
(28)
283
The cumulative amount of gains and losses recognised in the statement of comprehensive income amounted to CHF 333 million at
the end of the period (2011: CHF 280 million).
Movements in the net liability during the period:
(CHF million)
NET LIABILITY AT 1 jANUARY
Change in scope
Exchange differences
Expense/(income) recognised in the income statement
Contributions paid by the Group
Net (assets)/liabilities assumed in a business combination
Limit on pension asset
Net actuarial losses/(gains) recognised in the year
NET LIABILITY AT 31 DEcEMBER
2012
169
-
(2)
10
(54)
-
(4)
57
176
2011
154
-
1
5
(37)
-
(10)
56
169
86
87
SGS GROUP RESULTS
Change in the defined benefit obligation is as follows:
(CHF million)
Opening present value of the defined benefit obligation
Change in scope
Current service cost
Interest cost
Plan participants' contributions
Actuarial losses
Past service (credit)/cost
Settlements and curtailments
Liabilities assumed in a business combination
Exchange differences
Benefits paid
DEFINED BENEFIT OBLIGATION AT 31 DEcEMBER
Change in fair value of plan assets is as follows:
(CHF million)
Opening fair value of plan assets
Change in scope
Expected return on plan assets
Actuarial gains/(losses)
Plan participants' contributions
Employer contributions
Settlements and curtailments
Exchange differences on foreign plans
Benefits paid
FAIR VALUE OF PLAN ASSETS AT 31 DEcEMBER
2012
829
-
19
33
6
92
-
(18)
-
(7)
(52)
902
2012
662
-
40
35
6
54
(16)
(3)
(52)
726
2011
814
-
18
34
7
9
(6)
-
-
(5)
(42)
829
2011
672
-
41
(47)
7
37
-
(6)
(42)
662
There are no reimbursement rights included in plan assets. The actual return on plan assets was a gain of CHF 75 million
(2011: loss of CHF 6 million). The Group expects to contribute approximately CHF 35 million to its defined benefit plans in 2013.
The major categories of plan assets as a percentage of total plan assets are as follows:
(Weighted average %)
Equity securities
Debt securities
Property
Other
TOTAL
2012
41.7
28.8
14.6
14.9
100.0
2011
41.7
28.8
16.0
13.5
100.0
The “Other” assets consist mainly of cash and cash equivalents and assets related to insurance contracts.
SGS occupies property that is included in the plan assets with a fair value of CHF 5 million (2011: CHF 5 million). The property is
rented at fair market rental rates. There are no SGS SA shares included in plan assets.
The expected return on plan assets assumption is determined on a uniform basis, considering long-term historical returns, asset
allocation and portfolio weighting, and future estimates of long-term investment returns.
Actuarial assumptions vary according to local prevailing economic and social conditions. The principal weighted average actuarial
assumptions used in determining the cost of benefits for both 2012 and 2011 are as follows:
(Weighted average %)
Discount rate
Return on assets
Salary progression rate
Future pension increases
Healthcare cost trend assumed for the next year
Ultimate trend rate
Year that the rate reaches the ultimate trend rate
2012
3.3
5.9
2.8
0.8
8.0
5.0
2019
2011
4.0
6.0
2.8
0.9
8.5
5.0
2019
Funded status of the retirement benefit obligations for the current and previous periods are as follows:
(CHF million)
2012
2011
2010
2009
2008
Defined benefit obligation
Plan assets
Deficit
Experience losses/(gains) on plan liabilities
Experience gains/(losses) on plan assets
902
(726)
176
4
35
829
(662)
167
8
(47)
814
(672)
142
(6)
(14)
792
(657)
135
(15)
(36)
705
(545)
160
5
165
The amount recognised as an expense in respect of defined contribution plans during 2012 was CHF 46 million (2011: CHF 45 million).
88
89
SGS GROUP RESULTS
25
PROVISIONS
(CHF million)
AT 1 jANUARY 2012
Acquisitions of subsidiaries
Charge to income statement
Release to income statement
Payments
Exchange differences
AT 31 DEcEMBER 2012
Analysed as:
Current liabilities
Non current liabilities
TOTAL
LEGAL AND WARRANTY
cLAIMS ON SERVIcES
RENDERED
DEMOBILISATION AND
REORGANISATION
OTHER PROVISIONS
TOTAL
53
-
18
(18)
(7)
(1)
45
32
7
13
(1)
(12)
(1)
38
41
1
7
(8)
(3)
(1)
37
2012
23
97
120
126
8
38
(27)
(22)
(3)
120
2011
20
106
126
A number of Group companies are subject to litigation and other claims arising out of the normal conduct of their business that
can be best viewed as claims on services rendered. The claim provision represents the sum of estimates of amounts payable on
identified claims and of losses incurred but not yet reported. They therefore reflect estimates of the future payments required to
settle both reported and unreported claims.
The process of estimation is complex, dealing with uncertainty, requiring the use of informed estimates, actuarial assessment,
and the judgement of management. Any changes in these estimates are reflected in the income statement in the period in which
the estimates change.
The timing of cash outflows from pending litigation and claims is uncertain since it depends, in the majority of cases, on the
outcome of administrative and legal proceedings. The Group does not discount its provisions, as the timing of the cash outflows
cannot be reasonably and reliably determined.
In the opinion of management, based on all currently available information, the provisions adequately reflect exposure to legal and
warranty claims on services rendered. The ultimate outcome of these matters is not expected to materially affect the Group’s
financial position, results of operations or cash flows.
For specific long-term contracts, typically with two to five years’ duration, the Group is required to dismantle infrastructure and
terminate the services of personnel upon completion of the contract. These demobilisation costs are provided for during the life
of the contract. Experience has shown that these contracts may be either extended or terminated earlier than expected. The timing
of these demobilisation outflows is difficult to assess. The amounts are therefore not discounted.
Other provisions relate to various present legal or constructive obligations of the Group toward third parties, such as termination
payment to employees upon leaving the Group, which in some jurisdictions are a legal obligation.
26
TRADE AND OTHER PAYABLES
(CHF million)
Trade payables
Other payables
Other financial liabilities
TOTAL
2012
202
114
177
493
2011
195
91
161
447
Trade accounts and other payables principally comprise amounts outstanding for trade purchases and ongoing operating costs.
At 31 December 2012 and 2011, the fair value of the Group’s trade accounts and other payables approximates the carrying value.
27
OTHER cREDITORS AND AccRUALS
(CHF million)
Accrued expenses
Advance billings
Advances from clients
Derivative liabilities
TOTAL
2012
490
59
30
9
588
2011
422
50
45
7
524
At 31 December 2012 and 2011, the fair value of the Group’s other creditors and accruals approximates the carrying value.
28
cONTINGENT LIABILITIES
In the normal course of business, the Group and its subsidiaries are parties to various lawsuits and claims. Management does not
expect that the outcome of any of these legal proceedings will have a material adverse effect on the Group’s financial position,
results of operations or cash flows.
90
91
SGS GROUP RESULTS
29
GUARANTEES
(CHF million)
Guarantees
Performance bonds
TOTAL
2012 ISSUED
2011 ISSUED
113
99
212
108
81
189
The Group has issued unconditional guarantees to certain financial institutions that have provided credit facilities (loans and guarantee
bonds) to its subsidiaries. In addition, it has issued performance bonds and bid bonds to commercial customers on behalf of its
subsidiaries. Management believes the likelihood that a material payment will be required under these guarantees is remote.
30
OPERATING LEASES
Operating lease rentals are payable as follows:
(CHF million)
Less than one year
Between one and five years
More than five years
TOTAL
2012
108
247
67
422
2011
100
204
41
345
31
EQUITY cOMPENSATION PLANS
Selected directors and employees of the SGS Group are entitled to participate each year in a share option plan. The benefits consist
of the right to buy SGS SA shares (accounted for as equity-settled share-based payment transactions) at a predetermined fixed
price through a traded option plan.
i) Grants to Directors and members of the Operations Council
A total of 1 098 514 options granting the right to acquire shares of SGS SA at a strike price of CHF 1 497, [100 options give the right
to acquire one share and each option expires in January 2017 (these options hereinafter referred to as SGSKF)] were granted to the
members of the Operations Council and the Board of Directors in 2012. One-third of these options vest or have vested in each of
the years 2012, 2013 and 2015 and can be exercised or sold between January 2015 and January 2017. At the date of grant, these
options had an aggregated value (calculated on the basis required for Swiss tax reporting purposes) of CHF 1 614 815. The estimated
fair value at the time of grant of the options granted was CHF 2 922 046.
ii) Grants to other employees
In 2012, an additional 2 153 857 SGSKF options were granted to employees, other than members of the Operations Council and the
Board of Directors. One-third of these options vest or have vested in each of the years 2012, 2013 and 2015 and can be exercised
or sold between January 2015 and January 2017. At the date of grant, these options had an aggregate value (calculated on the basis
required for Swiss tax reporting purposes) of CHF 3 166 170. The estimated fair value at the time of grant of the options granted
was CHF 5 729 260.
iii) Long Term Incentive Plans (LTI)
In 2012, no additional grant of options of the discretionary long term incentive plan (SGSMF-2011 LTI) has been made in addition
of options granted in 2011 for the same plan to members of the Operations Council and Directors. At the date of grant in 2011, these
options had an aggregated value (calculated on the basis required for Swiss tax reporting purposes) of CHF 7 920 500. The estimated
fair value of those options granted is CHF 14 563 500. Additional information is disclosed under the Director’s report on Corporate
Governance in this report (pages 35 to 43).
In 2012, 20 000 options of the long term incentive plan (SGSMF-2011 LTI) were granted to other employees. The estimated fair
value of those options granted is CHF 57 000.
DEScRIPTION
EXERcISE PERIOD
FROM
TO
STRIkE
PRIcE 1
OPTIONS
OUTSTANDING AT
31 DEcEMBER 2011
GRANTED
cANcELLED
EXERcISED
OR ADjUSTED
OPTIONS
OUTSTANDING AT
31 DEcEMBER 2012
SGSFS-ordinarily issued
Jan.10
Jan.12
1 218.00
305 184
SGSMO-ordinarily issued
Jan.11
Jan.13
1 239.50
1 885 299
-
-
(305 184)
-
(1 778 636)
106 663
SGSMO-2008 LTI
Jan.12
Jan.13
1 239.50
5 115 500
(5 115 500) 2
-
Jan.12
Jan.14
985.16
3 835 881
(5 000)
(2 895 468)
935 413
Jan.13
Jan.15
1 255.48
2 810 138
Jan.14
Jan.16
1 546.99
3 029 440
(52 284)
(37 011)
SGSMF-2011 LTI
Jan.15
Jan.16
1 546.99
8 470 000
20 000
(240 000)
Jan.15
Jan.17
1 466.11
3 252 371
2 757 854
2 992 429
8 250 000
3 252 371
SGSGU-2009
SGSOP-2010
SGSMF-2011
SGSKF-2012
TOTAL
Of which exercisable
25 451 442
3 272 371
(5 449 795)
(4 979 288)
18 294 730
2 190 483
1 042 076
1. The strike price of the options has been adjusted in accordance with market practice for capital reductions and special dividends.
2. The EPS target set in the 2008 LTI Plan was not met at year end 2011, consequently, the options granted under the 2008 LTI Plan did not vest.
The Group leases the majority of its office and laboratory space, as well as vehicles and equipment. During the year ended
31 December 2012, CHF 100 million was recognised as an expense in the income statement in respect of operating leases
(2011: CHF 128 million).
92
93
SGS GROUP RESULTS
The fair value of share options granted during the year is based on their market value at grant date. All options are publicly traded.
The exercise dates are not known to the Group. Correspondingly, the weighted average share price at the date of exercise cannot
be calculated.
The Group recognised during the year a total expense of CHF 14 million (2011: CHF 15 million) in relation with equity-settled
share-based payments.
32
RELATED PARTY TRANSAcTIONS
Shares available for future option plans:
AT 1 jANUARY 2011
Repurchased shares
Options granted (SGSMF Plan and adjustments)
Options cancelled
AT 31 DEcEMBER 2011
Repurchased shares
Options granted (SGSKF Plan and adjustments)
Options cancelled
AT 31 DEcEMBER 2012
TOTAL
31 219
43 588
(134 015)
2 665
(56 543)
6 677
(41 619)
67 033
(24 452)
At 31 December 2012, the Group had the following shares available to satisfy the option and share purchase plan programmes:
(CHF million)
2012 TOTAL
2011 TOTAL
Number of shares held
Shares allocated to 2007 option plans
Shares allocated to 2008 option plans
Shares allocated to 2009 option plans
Shares allocated to 2010 option plans
Shares allocated to 2011 option plans
Shares allocated to 2012 option plans
SHARES (REQUIRED) FOR FUTURE OPTION PLANS AT 31 DEcEMBER
1. 53 891 shares SGS SA became available for future option plans as the options SGSMO-LTI did not vest.
190 394
-
(9 858)
(20 280)
(29 414)
(117 514)
(37 780)
(24 452) 1
258 576
(29 843)
(88 540)
(40 077)
(29 353)
(127 306)
-
(56 543)
The Group has entered into agreements with various banks, whereby the Group has an obligation to offer to sell to the banks the
shares underlying the option programme at the relevant strike price whenever these shares become unblocked. The banks are not
obliged to purchase these shares.
Transactions between the Company and its subsidiaries, which are related parties of the Group, have been eliminated on
consolidation and are not disclosed in the note.
cOMPENSATION TO DIREcTORS AND MEMBERS OF THE OPERATIONS cOUNcIL
The remuneration of Directors and members of the Operations Council during the year was as follows:
(CHF million)
Short-term benefits
Post-employment benefits
Share-based payments 1
Severance payments
TOTAL
1. Market value at grant date.
2012
14
1
2
1
18
2011
14
1
17
-
32
The remuneration of Directors and members of the Operations Council is determined by the Nomination and Remuneration
Committee. Additional information is disclosed under the Directors’ report on Corporate Governance in this report (pages 35 to 43).
During 2012 and 2011, no member of the Board of Directors or of the Operations Council had a personal interest in any business
transactions of the Group.
The Chairman of the Board and the Operations Council (including Senior Management) participate in the share option plans as
disclosed in note 31.
In 2012, Directors’ fees were CHF 1 645 000 (2011: CHF 1 645 000). In addition, the Chairman of the Board received options
for a total value of CHF 89 200 (2011: CHF 703 000 including long term incentive options granted).
The total compensation (cash and options, excluding severance payments) received by the Operations Council (including Senior
Management) amounted to CHF 14 498 000 (2011: CHF 29 140 026 including long term incentive options granted).
Disclosure of compensation paid to the Board of Directors and Senior Management, as required by Swiss law is presented in
the notes to the accounts of SGS SA on pages 106 to 116 of this report.
LOANS TO MEMBERS OF GOVERNING BODIES
As at 31 December 2012, no loan, credit or outstanding advance was due to the Company from members of its governing bodies
(unchanged from prior year).
TRANSAcTIONS WITH OTHER RELATED PARTIES
During the year, the Group performed inspection, verification, testing and certification services for other related parties on normal
commercial terms generating total revenues of CHF 13.6 million (2011: CHF 16.1 million). Related trade receivable balances unpaid
as at 31 December 2012 amounted to CHF 5.2 million (2011: CHF 5.7 million). These trade receivable balances are to be settled
in cash when due and are linked to no specific performance bonds or guarantees. No expense was incurred in 2012 and in 2011
in respect of any bad or doubtful debts due from these related parties.
94
95
SGS GROUP RESULTS
33
SIGNIFIcANT SHAREHOLDERS
As at 31 December 2012, Exor held 15.00% (2011: 15.00%), Mr. August von Finck and members of his family acting in concert held
14.97% (2011: 14.97%), the Bank of New York Mellon Corporation held 3.26% (2011: 3.30%) of the share capital and voting rights
of the Company.
At the same date, SGS Group held 2.43% of the share capital of the Company (2011: 3.31%).
34
APPROVAL OF FINANcIAL STATEMENTS AND SUBSEQUENT EVENTS
The Board of Directors is responsible for the preparation and presentation of the financial statements. These financial statements
were authorised for issue by the Board of Directors on 29 January 2013, and will be submitted for approval by the Annual General
Meeting of Shareholders’ to be held on 19 March 2013.
REPORT OF THE STATUTORY AUDITOR
To the General Meeting of
SGS SA, GENEVA
REPORT ON THE cONSOLIDATED FINANcIAL STATEMENTS
As statutory auditor, we have audited the consolidated financial statements of the SGS Group presented on pages 48 to 96,
which comprise the income statement, statement of comprehensive income, balance sheet, statement of cash flows, statement
of changes in equity and notes for the year ended 31 December 2012.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility includes designing,
implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for
selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in
accordance with Swiss law, Swiss Auditing Standards and International Standards on Auditing (ISA). Those standards require that we plan
and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the
accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements for the year ended 31 December 2012 give a true and fair view of the financial
position, the results of operations and the cash flows in accordance with IFRS and comply with Swiss law.
REPORT ON OTHER LEGAL REQUIREMENTS
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence
(article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control
system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of
the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
DELOITTE SA
James Baird
Licensed Audit Expert
Auditor in Charge
Geneva, 29 January 2013
Fabien Bryois
Licensed Audit Expert
96
97
SGS AUSTRALIAN
RADIATION SERVIcES
WE cONTAIN
THE EXPERTISE
THAT kEEPS
PEOPLE SAFE
DR. jOSEPH G YOUNG
Managing Director and Principal
Consultant Health Physicist,
SGS Australian Radiation Services
Every day at SGS Australian
Radiation Services (ARS) we
strive to continually achieve our
motto: ‘Keeping people safe’.
When it comes to the harmful
effects of ionising radiation in the
workplace, there can be no doubt
about safety. We provide services
to major resource companies,
universities, leading hospitals,
health networks, and government
departments and agencies.
We create confidence and trust
in feeling safe around radioactive
sources. As the leading provider
of radiation protection services
across Australasia, with NATA
accreditation for the calibration of
protection level radiation monitors
(NATA accreditation No. 16789),
our customers rely on us for
innovative, practical and cost
effective solutions for personal
and environmental radiation
monitoring, calibrations and
repairs, radio-analytical services,
and consultancy services.
We deliver state-of-the-art test
reports from our purpose-built
facilities that include a fully
accredited calibration laboratory,
radiochemistry laboratories,
a counting laboratory with
high-resolution gamma ray
spectrometry, alpha/beta
and gross alpha/beta/gamma
radioactivity measurement
systems, and liquid scintillation
counters. At SGS ARS, keeping
people and the environment safe
from ionising radiation is still our
number one objective.
SGS SA RESULTS
INcOME STATEMENT
FOR THE YEARS ENDED 31 DEcEMBER
(CHF million)
INcOME
Dividends from subsidiaries
Financial income
Other income
TOTAL INcOME
EXPENSES
Administrative expenses
Liquidation of subsidiaries, net
Depreciation
Financial expenses
Other expenses
Exchange loss, net
TOTAL EXPENSES
PROFIT
Profit before taxes
Taxes
PROFIT FOR THE YEAR
NOTES
5
5
2012
341
61
2
404
(4)
-
-
(35)
(4)
(8)
(51)
353
(9)
344
2011
699
27
1
727
(4)
-
(1)
(41)
2
(1)
(45)
682
(2)
680
BALANcE SHEET AT 31 DEcEMBER
(BEFORE APPROPRIATION OF AVAILABLE RETAINED EARNINGS)
(CHF million)
ASSETS
NON-cURRENT ASSETS
Land and buildings
Financial assets
Investments in subsidiaries
Loans to subsidiaries
Other financial assets
TOTAL NON-cURRENT ASSETS
cURRENT ASSETS
Amounts due from subsidiaries
Other current assets
Cash and cash equivalents
TOTAL cURRENT ASSETS
TOTAL ASSETS
EQUITY AND LIABILITIES
cAPITAL AND RESERVES
Share capital
General reserve
Reserve for own shares
Retained earnings
TOTAL EQUITY
LIABILITIES
Non-current liabilities
Corporate bonds
Current liabilities
Provisions
Amounts due to subsidiaries
Other liabilities and accruals
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
NOTES
2012
2011
3
1 117
597
1
1 718
801
9
297
1 107
2 825
8
34
208
562
812
1 275
36
681
21
2 013
2 825
2 & 3
3
3
3
4
3
925
518
-
1 446
462
9
754
1 225
2 671
8
34
239
683
964
1 275
34
378
20
1 707
2 671
100
101
SGS SA RESULTS
SGS SA (“the Company”) is the ultimate parent company of the SGS Group
which owns and finances, either directly or indirectly, its subsidiaries and
joint ventures throughout the world. The financial statements are prepared in
accordance with the accounting principles required by Swiss law. During the
year, there were no changes to the accounting policies.
NOTES
1
SIGNIFIcANT
AccOUNTING POLIcIES
INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are valued
at acquisition cost less an adjustment
for impairment where appropriate.
FOREIGN cURRENcIES
Balance sheet items denominated in
foreign currencies are converted at year
end exchange rates with the exception
of investments in subsidiaries which are
valued at the historical exchange rate.
All unrealised gains and losses arising
on foreign exchange transactions are
included in the determination of the net
profit except long-term unrealised gains
which are deferred.
RISk ASSESSMENT
Risks potentially threatening the Group’s
ability to meet its strategic objectives
are monitored on an ongoing basis
by the Board of Directors through the
approval of all major investments,
transactions and changes by the
Operations Council. In addition, in
conjunction with the Operations Council,
an annual risk assessment process
is conducted to ensure the Group is
responding effectively to changes in
economic conditions, market dynamics
and internal developments.
The annual risk assessment process is
conducted in three stages. Individual
members of the Operations Council,
on a rotation basis, are requested to
identify the key risks for their areas of
responsibility that could prevent the
Group from delivering its strategy and
achieving its business objectives. All
such risks are then ranked according to
their potential significance, their likelihood
and how effectively management is able
to manage the exposure. By applying
this framework, the key business risks
profile of the Group across geographies
and business segments is identified and
tracked from one year to the next.
On behalf of the full Board of Directors,
the Audit Committee reviews and
discusses with management, and in the
presence of the external auditors, the
outcome of the above risk assessment
process. Special focus is placed on
ensuring that the risk profile covers all
areas of concern identified by the Board
and that the Operations Council has
put in place internal controls to monitor
the evolution of such risks and mitigate
their likely impact at an early stage.
The outcome of the above process was
approved by the Board of Directors on
19 October 2012.
2
TOTAL EQUITY
(CHF million)
SHARE
cAPITAL
GENERAL
RESERVE
RESERVE FOR
OWN SHARES
RETAINED
EARNINGS
BALANcE AT 1 jANUARY 2011
Dividends paid
Increase in the reserve for own shares
Profit for the year
BALANcE AT 31 DEcEMBER 2011
Dividends paid
Decrease in the reserve for own shares
Profit for the year
BALANcE AT 31 DEcEMBER 2012
8
-
-
-
8
-
-
-
8
181
-
58
-
239
-
(31)
-
208
558
(497)
(58)
680
683
(496)
31
344
562
34
-
-
-
34
-
-
-
34
102
TOTAL
781
(497)
-
680
964
(496)
-
344
812
3
SHARE cAPITAL
BALANcE AT 1 jANUARY 2011
Treasury shares released into circulation
Treasury shares purchased, net
BALANcE AT 31 DEcEMBER 2011
Treasury shares released into circulation
Treasury shares purchased, net
BALANcE AT 31 DEcEMBER 2012
SHARES IN
cIRcULATION
7 589 784
16 190
(42 114)
7 563 860
74 859
(6 677)
7 632 042
TREASURY SHARES
TOTAL SHARES ISSUED
TOTAL SHARE cAPITAL
cHF (MILLION)
232 652
(16 190)
42 114
258 576
(74 859)
6 677
190 394
7 822 436
-
-
7 822 436
-
-
7 822 436
8
-
-
8
-
-
8
incorporated in convertible bonds or
similar equity-linked instruments that
the Board is authorised to issue. The
right to subscribe to such conditional
capital is reserved to beneficiaries
of employee share option plans and
holders of convertible bonds or similar
debt instruments and therefore excludes
shareholders’ preferential rights of
subscription. The Board is authorised
to determine the timing and conditions
of such issues, provided that they
reflect prevailing market conditions.
The term of exercise of the options
or conversion rights may not exceed
10 years from the date of issuance of
the equity-linked instruments.
Issued share capital
Authorised and conditional issue
SGS SA has a share capital of
CHF 7 822 436 (2011: CHF 7 822 436)
fully paid-in and divided into 7 822 436
(2011: 7 822 436) registered shares of a
par value of CHF 1. All shares, other than
own shares, participate equally in the
dividends declared by the Company and
have equal voting rights.
Treasury shares
On 31 December 2012, SGS SA,
indirectly, held 190 394 of its own
shares for which SGS SA has recorded
a “reserve for own shares”.
In 2012, 74 859 treasury shares, of
which 29 703 held by the Foundation
(fondation pour l'intéressement du
personnel), were sold or released to
cover option rights and 3 308 were
transferred by the Foundation to
a subsidiary.
During the year, 6 677 treasury shares
have been purchased by a subsidiary
for an average price of CHF 1 691.
A corresponding movement in the reserve
for own shares has been recorded.
of share capital
The Board of Directors has the authority
to increase the share capital of the
Company by a maximum of 500 000
registered shares of a par value of
CHF 1 each, corresponding to a
maximum increase of CHF 500 000 in
share capital. The Board is authorised
to issue the new shares at the market
conditions prevailing at the time of
issue. In the event that the new shares
are issued for an acquisition, the Board
is authorised to waive the shareholders’
preferential right of subscription, or to
allocate such subscription rights to third
parties. The authority delegated by the
shareholders to the Board of Directors
to increase the share capital is valid until
15 March 2013.
The shareholders have conditionally
approved an increase of share capital in
the amount of CHF 1 100 000 divided
into 1 100 000 registered shares of a par
value of CHF 1 each. This conditional
share capital increase is intended
to obtain the necessary shares to
satisfy employee share option plans
and option or conversion rights to be
103
SGS SA RESULTS
4
cORPORATE BONDS
Bonds are recorded at nominal value. SGS SA issued the following bonds:
DATE OF ISSUE
19.08.2010
08.03.2011
27.05.2011 ¹
27.05.2011 ²
FAcE VALUE IN
cHF MILLION
cOUPON IN %
YEAR OF
MATURITY
550
375
275
75
1.875
2.625
3.000
1.875
2016
2019
2021
2016
ISSUE
PRIcE IN %
100.346
100.832
100.480
99.591
REDEMPTION
PRIcE IN %
100.000
100.000
100.000
100.000
1. SGS SA entered into an Interest Rate Swap (IRS) agreement for the duration of this bond.
2. Re-opening of the six-year bond issued on 19 August 2010.
The Group has listed all the bonds on the SIX Swiss Exchange.
5
FINANcIAL INcOME AND FINANcIAL EXPENSES
(CHF million)
FINANcIAL INcOME
Interest income 3rd party
Interest income Group
TOTAL FINANcIAL INcOME
FINANcIAL EXPENSES
Interest expenses 3rd party
Interest expenses Group
Other financial expenses
TOTAL FINANcIAL EXPENSES
2012
34
27
61
(27)
(3)
(5)
(35)
2011
4
23
27
(21)
(4)
(16)
(41)
In 2011, other financial expenses mainly include transaction costs net of agio on issuance of the bonds.
On 18 July 2012, the Group received a cash amount of CHF 33 million in relation with the re-setting of the Interest Rate Swap
agreement to market rates. These cash proceeds were recognised as interest income in the income statement.
6
GUARANTEES AND cOMFORT LETTERS
(CHF million)
Guarantees
Performance bonds
TOTAL
2012 ISSUED
2012 UTILISED
2011 ISSUED
2011 UTILISED
154
14
168
87
14
101
122
13
135
63
13
76
The Company has unconditionally guaranteed or provided comfort to financial institutions providing credit facilities (loans and guarantee
bonds) to its subsidiaries. In addition, it has issued performance bonds to commercial customers on behalf of its subsidiaries.
The Company is part of a VAT Group comprising itself and other Group companies in Switzerland.
7
FIRE INSURANcE VALUE OF FIXED ASSETS
(CHF million)
Buildings
8
SUBSIDIARIES
2012
15
2011
15
The list of principal group subsidiaries appears in the Annual Report on pages 124 to 127.
104
105
SGS SA RESULTS
The Board of Directors is assisted in its
work by a Nomination and Remuneration
Committee (the Committee), which
consists of independent non-executive
Directors. The Committee acts in part
in an advisory capacity to the Board and
in part as a decision-making body on
matters that the Board has delegated
to the Committee. The Committee
reviews regularly, at least once a year,
the compensation of each member of
the Operations Council (other than the
Chief Executive Officer), and decides on
all matters relating to the remuneration
of these executives.
Neither the Chairman of the Board nor
the Chief Executive Officer is allowed
to participate in discussions and
decisions on their own compensation.
General executive remuneration
policies, including the implementation
of long term incentive plans, are decided
by the Board, on the recommendation
of the Committee.
The following Directors served on
the Nomination and Remuneration
Committee in 2012:
• Sergio Marchionne (Chairman)
• August von Finck
• John Elkann
The Chief Executive Officer attends all
meetings of the Committee, except when
his own remuneration is being discussed.
9
cOMPENSATION,
SHAREHOLDINGS
AND LOANS
This section of the Corporate
Governance Report serves as the
Company’s remuneration report.
In accordance with the recommendations
of the Swiss Code of Best Practice for
Corporate Governance in this matter,
this section of the Report will be subject
to a consultative vote at the next
Annual General Meeting of Shareholders.
9.1. cOMPANY’S
REMUNERATION POLIcIES
The Group’s overriding compensation
policies are defined by the Board of
Directors. The objectives of these
policies are twofold: a) to attract
and retain the best talent available
in the industry; and b) to motivate
employees and managers to create
and protect value for shareholders
by generating long-term sustainable
financial achievements.
The Board of Directors is responsible
for determining the remuneration
of the Chairman and the directors.
It also decides on the remuneration
and terms of employment of the Chief
Executive Officer, based upon the
recommendations of the Nomination
and Remuneration Committee.
It additionally determines the financial
targets upon which the variable
element of the remuneration of the
Operations Council and other Group
senior executives is based, and defines
the conditions of all share option plans
(including Long Term Incentive (LTI)
plans) as well as the allocation of
such options and the conditions of
their granting, vesting and exercise.
All general executive remuneration
policies, including the criteria and
weighting of financial targets relevant
to the assessment of the variable
element of executive remuneration,
are approved by the Board of Directors.
This chart summarises the authorisation levels for the main decisions relating to compensation of Board and Operations
Council Members.
SUBjEcT MATTER
REcOMMENDATION
DEcISION
Compensation of Board Members
Compensation of Chairman
Remuneration of CEO
Remuneration of other Operations Council Members
Issuance of Long Term Incentive Plans
Setting of annual financial targets for variable remuneration
of Operations Council Members
Issuance of Annual Share Options Plans
Committee 1
Committee 1
Committee 1
CEO
Committee 1
CEO
CEO
Board of Directors
Board of Directors
Board of Directors
Committee 1
Board of Directors
Board of Directors
Committee 1
1. Nomination and Remuneration Committee.
When reviewing and deciding on
executive remuneration policies, the
Committee and the Board have access
to the Group Human Resources staff
and may use third party consultants
specialising in compensation matters.
In 2012, neither the Committee nor the
Board had recourse to such external
advisors. In discharging their duties
in relation to compensation, they have
relied on advice from the Group Human
Resources department and on publicly
available information on director and
executive management remuneration
paid by the companies against which the
Group performs periodic benchmarks.
Elements of executive remuneration
benchmarked include long and short
term incentive compensation, annual
base salary, benefits and allowances.
Companies against which the Group
performs periodic benchmarks are SMI
listed companies, large companies that
are internationally active including our
competitors in the industries in which
we operate.
In assessing the adequacy of executive
remuneration for executives who
are based outside Switzerland, the
Group relies, on relevant local market
intelligence provided by external
benchmarking consulting firms.
Compensation Principles
a) Board of Directors
The members of the Board of Directors
are entitled to a fixed annual Board
Membership fee, and additional
annual fees for participation in Board
Committees. Board members do not
receive additional compensation for
attending meetings. With the exception
of the Chairman, Board members do
not receive any variable remuneration,
options or shares.
The Chairman receives a fixed
annual fee and additional fixed fees
for chairing the Board Committees.
He also receives share options issued by
the Company under its annual and long
term incentive plans. The conditions of
grant, vesting and exercise of options
awarded to the Chairman are the same
as those applicable to the members
of the Operations Council. In principle,
the Chairman receives 25% of the
options granted to the Chief Executive
Officer. The Board has the discretion
to grant more options to the Chairman
to recognise personal performance.
The Chairman does not receive any
variable cash remuneration.
b) Operations Council
The remuneration earned by the Chief
Executive Officer and by members
of the Operations Council comprises:
(i) a fixed base salary including benefits;
(ii) an annual performance bonus, settled
in part in cash and in part by way of
options with deferred vesting, granted
under annual share options plan; and (iii)
long term incentive plan(s). The Company
considers that payment of variable
remuneration in the form of equity linked
instruments whose vesting and exercise
is deferred is a key mechanism to align
management’s incentives to the interests
of shareholders.
Employment Contracts
Directors do not hold service contracts
and are not entitled to any termination
or severance payments. They do not
participate in the Company’s share
option plans (except for the Chairman)
or other benefit schemes and the
Company does not make any pension
contributions on their behalf.
Employment contracts of Operations
Council members have no fixed term
and can be terminated at any time by
either party, provided a standard notice
period (six months) is respected. The
Chief Executive Officer’s employment
contract provides for a severance
payment equivalent to two years total
remuneration payable in the event that
the employment contract is terminated
or constructively terminated (including
in the event of a change of control) by
the Company, other than for cause.
No severance payment is due if the
employment relationship is terminated
in any other circumstance. No other
executive contract provides for any
material change of control protection.
106
107
SGS SA RESULTS
The table below summarises the various components of the compensation of Operations Council members, including
the Chief Executive Officer:
cOMPENSATION ELEMENT
cOMPENSATION VEHIcLE
DRIVERS
PERFORMANcE MEASURES
PURPOSE
Base Salary
Monthly cash salary
Annual Bonus
50% cash / 50%
allocation of stock
options, with
deferred vesting and
blocking periods
Discretionary Bonus
Cash
Long Term Incentives
Stock options award,
with vesting conditional
upon achieving the
Group objectives
Attract and retain
key executives
Pay for performance
Position and
experience,
market practice
Achievement of
annual business and
financial objectives
Market practice,
executive benchmark of
international companies
in relevant markets
Financial targets: (i) Group
Net Profit After Tax and
Adjusted Operating Income
for the Group as a whole, for
regional or business units,
(ii) measures of Economic
Value Added and (iii)
Earnings Per Share (EPS)
Rewarding individual
achievements
or exceptional
performance
Achievement of long-
term strategic plans
stated by the Group
Discretionary allocations
do not exceed 10% of
OC overall remuneration
Attract and retain key
executives, recognise
individual performance
Earnings per Share targets
Align executive
compensation
with interests of
shareholders
Base salary
The base salary of the Chief Executive
Officer and each Operations Council
members is reviewed annually, on the
basis of market data for similar positions
at the companies against which the
Group benchmarks itself. It takes into
account the individual’s performance,
scope and complexity of the position.
Additional employment benefits are
paid depending on standard practice
in the location of employment. Such
employment benefits include a car
allowance and, for expatriate personnel,
a housing allowance and tuition fees
allowance for children.
Geneva based Operations Council
members participate, on the same
basis as other Swiss employees of
the Group, in the Company’s pension
schemes, being one defined benefit
scheme established in accordance with
the Swiss LPP regulations up to an
insured amount of CHF 100 thousand
and one defined contribution scheme for
pensionable remuneration in excess of
CHF 100 thousand up to a maximum of
CHF 821 thousand per year.
Employees contribute 8% of their base
salary and the Company contributes an
amount equal to one and a half times
the contributions paid by all employees
to the scheme.
Annual bonus
In addition to the base salary, members
of the Operations Council (including the
Chief Executive Officer) are entitled to
a performance-related annual bonus.
For this purpose, the Company defines
annual targets at the beginning of the
year for the Chief Executive Officer and
for each Operations Council member.
Relevant targets for the calculation of
the Annual Bonus of the CEO are based
on the Group Earnings per Shares (EPS).
For the heads of corporate functions
(SVPs) targets are based 100% on the
Group Net Profit After Tax. For EVPs,
the relevant targets relate for 50% to
the Adjusted Operating Income of their
respective business and for 50% to the
Group Net Profit After Tax. For COOs,
the relevant targets are for 62.5% their
respective region's Adjusted Operating
Income and Economic Value Added and
for 37.5% the Group Net Profit After Tax.
Bonuses are assessed and awarded to
the Operations Council members on the
basis of the actual performance against
the predefined targets.
If targets are achieved they trigger
the entitlement to an annual incentive
bonus. Once the amount of a bonus is
determined, it is settled 50% in cash
and 50% in options. The cash component
of the bonus is payable immediately.
The economic value of the options which
is used to convert a bonus entitlement
into a number of options is fixed by the
Company on the basis of a calculation
of the value of the options at grant,
taking into account a discount for the
three years blocking period during
which the options cannot be traded or
exercised. The share options are granted
immediately, but they vest rateably in
three equal instalments over a period
of three years and are only exercisable
in the fourth and fifth year after grant.
Unvested options are subject to
forfeiture if the beneficiary leaves the
Group for reasons other than retirement,
disability or death.
For this purpose, the Company issues
Annual Share Option plans, in the form of
traded warrants which are listed on the
Swiss Stock Exchange. These warrants
incorporate a right to buy shares in the
Company at a predetermined fixed price
through the grant of traded options.
The strike price is determined for each
plan on the basis of the average trading
price of the Company’s shares in the last
three months prior to the year of grant.
These Annual Share Option plan serve
(i) to pay part of the annual performance
bonuses to Members of the Operations
Council (ii) to allocate options to the
Chairman and (iii) to be awarded as an
incentive to other selected employees of
the Group. All beneficiaries receive these
options under the same conditions of
vesting and exercise.
The table below summarises the components of the annual performance targets and how these components are weighted,
depending on the function of the respective Operations Council member:
Annual bonus formula
CEO
SVPs (heads of corporate functions)
EVPs
COOs
EARNINGS
PER SHARE
(EPS)
100%
-
-
-
PERFORMANcE
OF THE GROUP
(Net Profit After Tax)
BUSINESS PERFORMANcE
(Adjusted Operating Income
of the relevant business)
REGIONAL PERFORMANcE
(Adjusted Operating Income
and Economic Value Added
of the relevant region)
-
100%
50%
37.5%
-
-
50%
-
-
-
-
62.5%
Discretionary bonus
Long Term Incentive Plans
The Board of Directors and Committee
may also grant discretionary cash
bonuses to individual Operations
Council member to reward outstanding
personal achievements. For 2012,
an amount of CHF 1 245 thousand
(2011: CHF 1 035 thousand) of
discretionary bonuses was awarded
to Operations Council members
(including the Chief Executive Officer).
These discretionary cash bonuses are
granted at the same time as the Annual
Bonus. They are given on an exceptional
basis as recognition of personal
achievements in the year. In proportion
to the overall remuneration, these
discretionary bonuses do not exceed
10% of the Operations Council's
overall remuneration.
In addition to the annual bonus, the
Group periodically sets Long Term
Incentive (LTI) Plans. Such plans are
designed to motivate the leadership
team to achieve the long-term stated
objectives of the Group. They consist of
options granted to a selected number
of senior executives of the Group, the
vesting of which is conditional upon:
(1) the Group achieving or exceeding
stated earnings per share targets; and
(2) the beneficiary being employed by
the Group on the vesting date.
In 2011, the Company introduced a
long term incentive plan (the 2011
LTI Plan) for which vesting is conditional
upon the Group achieving or exceeding
in 2014 EPS targets ranging from
CHF 115 (minimum performance
allowing a partial vesting of 50% of
options granted under the Plan) to
CHF 140 (full vesting of options granted
under the Plan).
The 2011 LTI Plan involves the granting
of options to acquire shares of the
Company at a strike price of CHF 1 617.
Such options are in the form of traded
warrants, with 100 warrants required to
purchase one share. The Group has set
aside 9 000 000 such warrants for this
incentive plan. This plan is designed to
motivate the leadership team to achieve
the long-term stated objective by 2014.
Full details of this long term incentive
plan are provided in note 31 to the
Group consolidated financial statements
(pages 93 to 94 of the Annual Report).
In 2012, no new Long Term Incentive
Plan was introduced by the Group and
no additional options were granted to
members of the Operations Council in
2012 under the existing 2011 LTI Plan.
20 000 options of the Long Term
Incentive plan LTI were granted to other
employees in 2012.
108
109
SGS SA RESULTS
The following table shows the strike price, the vesting period and the exercisable period of the options¹ granted to the Chairman of
the Board and to the members of the Operations Council under each plan. It includes options granted in January 2013 with respect
to performance and financial results in 2012:
9.2. cOMPENSATION FOR MEMBERS OF GOVERNING BODIES
The bonus settled in options is disclosed as part of the compensation for the year to which it relates (and not for the year
it was approved).
I Annual Share Option Plans
TYPE OF OPTIONS
(Year of issue)
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
STRIkE PRIcE (cHF) 2
VESTING DATE
1/3 OF OPTIONS
GRANTED
VESTING DATE
1/3 OF OPTIONS
GRANTED
VESTING DATE
1/3 OF OPTIONS
GRANTED
1 064
1 339
1 617
1 497
2 013
01.2009
01.2010
01.2011
01.2012
01.2013
07.2010
07.2011
07.2012
07.2013
07.2014
01.2012
01.2013
01.2014
01.2015
01.2016
PERIOD OF EXERcISE
01.2012 - 01.2014
01.2013 - 01.2015
01.2014 - 01.2016
01.2015 - 01.2017
01.2016 - 01.2018
9.2.1. Board of Directors
In 2012, the annual board membership fee was CHF 150 thousand for all board members, unchanged from the prior year.
Members of the Board serving on a Committee were entitled to an additional fee of CHF 30 thousand per committee,
unchanged from last year.
The annual fee payable to the Chairman was CHF 300 thousand, unchanged from the prior year.
The Chairman was awarded, by decision of the Board of Directors 40 000 options under the 2013 Annual Share Options Plan
in consideration of the 2012 annual performance (2011: 50 000 SGSKF options under the 2012 Annual Share Options Plan).
The conditions of vesting and exercise of these options are the same as those granted to the management under these plans.
The following chart details the fees, other cash benefits and share options granted to each of the Directors for their tenure during 2012:
01.2015 4
01.2015 - 01.2016
(CHF thousand)
DATE OF
APPOINTMENT
BOARD FEE
cOMMITTEE
FEE
OTHER
BENEFITS
TOTAL cASH
cOMPENSATION
2012
SHARE OPTIONS
TOTAL 2012
cOMPENSATION
(INcLUDING
OPTIONS)
S. Marchionne
May 01
T.R. Brandolini d'Adda 2
May 05
J. Elkann 2
A. von Finck
A.F. von Finck
C. Grupp
P. Kalantzis
S.R. du Pasquier
TOTAL
Mar 11
Oct 98
May 02
Mar 11
Mar 09
Mar 06
300
150
150
150
150
150
150
150
1 350
90
30
30
30
30
-
30
30
270
25
-
-
-
-
-
-
-
415
180
180
180
180
150
180
180
89 ¹
-
-
-
-
-
-
-
25
1 645
89
504
180
180
180
180
150
180
180
1 734
1. 40 000 SGSWS granted in January 2013 in relation to the 2012 financial results
2. Board and committees fees for T.R. Brandolini d'Adda,and J. Elkann have been paid to Exor Investissements SA, Luxembourg.
II Long Term Incentive Plan
SGSMF-2011 LTI (2011)
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Granted in 2013 in settlement of 2012 annual variable remuneration.
4. Vesting conditional on minimum EPS target reached in 2014.
RELATIONSHIP BETWEEN ANNUAL VARIABLE cOMPENSATION AND BASE SALARY
The portion of fixed and variable remuneration, as a percentage of the total remuneration in any given year, depends on the extent
to which pre-defined targets and objectives have been achieved. Assuming achievement of targets, the annual variable component
of the Operations Council members' remuneration (annual bonus including cash and options award), expressed as a percentage of
their respective annual remuneration ranges between 32% and 48% of their total annual compensation.
If targets are exceeded, annual bonuses are increased on a multiplier basis with a maximum payout which could correspond to
a range between 54% and 70% of their respective total annual compensation.
In the event of underperformance against targets, the bonus is rateably reduced on a multiplier basis, so that no bonus is paid
in the event that a pre-established minimum target is not achieved.
TOTAL cOMPENSATION (EXcLUDING LONG TERM INcENTIVE PLANS) FOR THE cHIEF EXEcUTIVE OFFIcER
BELOW MINIMUM TARGET
PERFORMANcE
ON TARGET PERFORMANcE
MAXIMUM PERFORMANcE
Base salary
Variable cash compensation
Variable Annual Option allocation
(value at grant date)
100%
0%
0%
52%
24%
24%
30%
35%
35%
In 2012, the variable cash element of the Chief Executive Officer’s compensation represented 32% of the total compensation
(2011: 30%) and the allocation of options represented 7% of the total compensation (2011: 24%).
For the Operations Council as a whole, the variable cash element of the compensation in 2012 amounted to 25% of the total
compensation (2011: 26%) and the allocation of options represented 18% of the total compensation (2011: 20%).
Total compensation includes the guaranteed part (base salary) and the variable part of the compensation. It excludes fringe
and social benefits.
110
111
SGS SA RESULTS
The following chart details the fees, other cash benefits and share options granted to each of the Directors for their tenure during 2011:
9.2.2.1. Cash compensation
(CHF thousand)
2012
2011
To the Operations Council (including Senior Management)
To Senior Management (including Chief Executive Officer)
To the Chief Executive Officer
CHF 12 140
CHF 2 509
CHF 1 545
CHF 12 367
CHF 2 573
CHF 1 627
The total cash compensation paid to the Operations Council excludes severance payments (see section 9.2.2.5.). Post employment
benefits of CHF 1 567 thousand are not included (2011: CHF 1 406 thousand).
9.2.2.2. Share options
Annual Share Options Plans
In settlement of 2012 annual bonus
entitlements, a total of 1 057 102 SGSWS
options (2011: 1 044 793 SGSKF options
granted in January 2012) were granted to
the Operations Council (including Senior
Management) in January 2013 on the
basis of 2012 results.
Such SGS options grant the right to
acquire shares of SGS at a strike price of
CHF 2 013 (100 options give the right to
acquire one share). They vest in tranches
of one-third in 2013, 2014 and 2016 and
are subject to a blocking period ending in
January 2016. All options granted to the
Operations Council on the basis of the
2012 results had a fair value at grant of
CHF 2 357 338 (2011: CHF 2 779 149).
The Senior Management was awarded a
total of 163 223 SGSWS options granted
in January 2013 (2011: 282 863 SGSKF
options granted in January 2012).
This number includes 48 577 SGSWS
options (2011: 180 225 SGSKF options
granted in January 2012) awarded to
the Chief Executive Officer.
Long-Term Options Plan
Under the 2011 LTI Plan, a total of
4 910 000 SGSMF-2011 LTI options
were granted to the Operations Council
(including Senior Management) in 2011.
The vesting of such options in January
2015 is conditional upon the Group
achieving or exceeding EPS targets
ranging between CHF 115 (minimum
performance allowing a partial vesting
under the Plan) and CHF 140 (full vesting
of options granted under the Plan) in
2014. If targets defined by the plan are
not reached, they will be forfeited.
The Senior Management was awarded
a total of 1 120 000 SGSMF-2011 LTI
options under the 2011 LTI Plan.
This number includes 800 000 options
awarded to the Chief Executive Officer.
The following table presents details
of the share options awarded to
members of the Operations Council,
Senior Management and the CEO,
and shows those options which have
been granted, vested and/or became
exercisable in 2012. It includes options
granted in January 2013 with respect to
performance and financial results in 2012.
In 2012, no new Long Term Incentive
Plan was introduced by the Group and
no additional options were granted to
members of the Operations Council in
2012 under the existing 2011 LTI Plan.
(CHF thousand)
DATE OF
APPOINTMENT
BOARD FEE
cOMMITTEE FEE
S. Marchionne
May 01
T.R. Brandolini d'Adda 4
May 05
J. Elkann 4
A. von Finck
A.F. von Finck
C. Grupp
P. Kalantzis
T. Limberger
S.R. du Pasquier
Mar 11
Oct 98
May 02
Mar 11
Mar 09
Mar 08
Mar 06
C.Barel di Sant’Albano 4 Mar 09
300
150
119
150
150
119
150
31
150
31
90
30
23
30
30
-
30
-
30
7
OTHER
BENEFITS
25
-
-
-
-
-
-
-
-
-
TOTAL cASH
cOMPENSATION
2011
SHARE OPTIONS
TOTAL 2011
cOMPENSATION
(INcLUDING
OPTIONS)
415
180
142
180
180
119
180
31
180
38
703 1,2
-
-
-
-
-
-
-
-
-
1 118
180
142 3
180
180
119 3
180
31 3
180
38 3
TOTAL
1 350
270
25
1 645
703
2 348
1. 50 000 SGSKF granted in January 2012 in relation to the 2011 financial results.
2. 200 000 SGSMF options granted in 2011 under the 2011 Long Term Incentive Plan, whose vesting is conditional on the achievement of the Group targets in 2014.
3. 2011 fees paid prorata temporis.
4. Board and committees fees for T.R. Brandolini d'Adda, J. Elkann and C. Barel di Sant'Albano have been paid to Exor Investissements SA, Luxembourg.
The following table shows the details of the options ¹ granted to the Chairman of the Board under each Annual Share Option Plans
and Long Term Incentive Plans:
TYPE OF OPTIONS
(YEAR OF ISSUE) (cHF)
STRIkE PRIcE 2
(cHF)
TOTAL NUMBER OF OPTIONS
GRANTED UNDER EAcH PLAN
MARkET VALUE AT GRANT
(THOUSAND)
NUMBER VESTED
ON DEcEMBER 31, 2012
SGSMO (2008)
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
SGSMF-2011 LTI (2011) 4
1 349
1 064
1 339
1 617
1 497
2 013
1 617
81 354
96 619
50 000
50 000
50 000
40 000
200 000
192
238
155
142
133
89
570
81 354
96 619
33 332
33 332
16 666
-
-
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Granted in 2013 on the basis of 2012 financial results.
4. Vesting conditional on minimum EPS target reached in 2014.
9.2.2. Compensation to the Operations Council, Senior Management and Chief Executive Officer
This section sets out the global remuneration which was paid to the Operations Council as a whole, to the three Operations Council
members who make up Senior Management and to the Chief Executive Officer during 2012. All amounts disclosed in this section
include cash bonuses payable and options granted in January 2013 with respect to performance in 2012 and the related financial results.
112
113
SGS SA RESULTS
This table relates to individuals who were members of the Operations Council as at 31 December 2012:
9.2.2.4. Highest total compensation
TYPE OF OPTIONS 1
(YEAR OF ISSUE)
STRIkE PRIcE (cHF) 2
TOTAL NUMBER OF OPTIONS
GRANTED UNDER EAcH PLAN
MARkET VALUE AT GRANT
(THOUSAND)
NUMBER VESTED ON
DEcEMBER 31, 2012
OPERATIONS cOUNcIL (INcLUDING SENIOR MANAGEMENT AND cHIEF EXEcUTIVE OFFIcER)
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
SGSMF-2011 LTI 4
1 064
1 339
1 617
1 497
2 013
1 617
1 395 062
608 029
866 833
1 004 319
1 026 799
4 430 000
SENIOR MANAGEMENT (INcLUDING cHIEF EXEcUTIVE OFFIcER)
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
SGSMF-2011 LTI 4
cHIEF EXEcUTIVE OFFIcER
SGSGU (2009)
SGSOP (2010)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013) 3
SGSMF-2011 LTI 4
1 064
1 339
1 617
1 497
2 013
1 617
1 064
1 339
1 617
1 497
2 013
1 617
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Granted in 2013 in settlement of 2012 bonus entitlements.
4. Vesting conditional on minimum EPS target reached in 2014.
442 177
92 803
246 769
282 863
163 223
1 120 000
386 474
42 647
174 920
180 225
48 577
800 000
3 432
1 885
2 470
2 671
2 290
12 626
1 088
288
703
752
364
3 192
951
132
499
479
108
2 280
1 395 062
405 352
577 888
334 773
-
-
442 177
61 868
164 512
94 288
-
-
386 474
28 431
116 614
60 075
-
-
9.2.2.3. Total compensation to the Operations Council, Senior Management and Chief Executive Officer
The table below presents all components of the remuneration earned in 2012 by the Operations Council, by the Senior
Management and by the Chief Executive Officer. It does not take into account the potential value of options granted in 2011 under
the 2011 Long Term Incentive Plan, whose vesting in 2015 is conditional upon the Group achieving minimum EPS targets in 2014.
(CHF thousand)
BASE SALARY
OTHER
EMPLOYMENT
BENEFITS
ANNUAL cASH
BONUS
ANNUAL
GRANT
OF SHARE
OPTIONS
DIScRETIONARY
cASH BONUS
TOTAL 2012
cOMPENSATION
(INcLUDING
OPTIONS)
TOTAL 2011
cOMPENSATION
(INcLUDING
OPTIONS)
To the Operations
Council (including
Senior Management)
To Senior Management
(including Chief
Executive Officer)
To the Chief
Executive Officer
7 593
1 293
2 010
2 357
1 245
14 498
15 147
1 610
123
305
364
470
2 872
3 325
950
103
91
108
400
1 652
2 106
In the year under review, the highest compensation paid by the Group was awarded to the CEO (see 9.2.2.3).
9.2.2.5. Severance payments
In 2012, an amount of CHF 626 thousand was recognised as severance payments to Operations Council members
(2011: CHF 250 thousand).
9.2.2.6. Loans to members of governing bodies
As at 31 December 2012, no loan, credit or outstanding advance was due to the Group from members of its governing bodies
(unchanged from prior year).
9.3. SHARES AND OPTIONS HELD BY MEMBERS OF GOVERNING BODIES
9.3.1. Shares and options held by Members of the Board of Directors
The following table shows the shares and vested options held by Members of the Board of Directors as at 31 December 2012:
NAME
SGSGU
S. Marchionne
T.R. Brandolini d’Adda
J. Elkann
A. von Finck
A.F. von Finck
C. Grupp
P. Kalantzis
S.R. du Pasquier
-
-
-
-
-
-
-
-
SGSOP
33 332
SGSMF
33 332
SGSkF
16 666
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
SHARES
700
1
1
19 670
439 515
1
20
10
The following table shows the shares and vested options held by Members of the Board of Directors as at 31 December 2011:
NAME
S. Marchionne
T.R. Brandolini d’Adda
J. Elkann
A. von Finck
A.F. von Finck
C. Grupp
P. Kalantzis
S.R. du Pasquier
SGSMO
81 354
SGSGU
64 413
SGSOP
33 332
SGSMF
16 666
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
SHARES
700
1
1
19 670
439 515
1
20
10
114
115
SGS SA RESULTS
9.3.2. Shares and options held by Senior Management
The following table shows the shares and vested options held by Senior Management as at 31 December 2012:
REPORT OF THE STATUTORY AUDITOR
To the General Meeting of
SGS SA, GENEVA
REPORT ON THE FINANcIAL STATEMENTS
As statutory auditor, we have audited the financial statements of SGS SA presented on pages 100 to 116, which comprise the
income statement, balance sheet and notes for the year ended 31 December 2012.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss
law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal
control system relevant to the preparation of financial statements that are free from material misstatement, whether due to
fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making
accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance
with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control
system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An
audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates
made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements for the year ended 31 December 2012 comply with Swiss law and the company’s articles
of incorporation.
REPORT ON OTHER LEGAL REQUIREMENTS
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence
(article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control
system exists, which has been designed for the preparation of financial statements according to the instructions of the
Board of Directors.
We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of
incorporation. We recommend that the financial statements submitted to you be approved.
NAME
cORPORATE RESPONSIBILITY
SGSGU
SGSOP
SGSMF
SGSkF
SHARES
C. Kirk
Chief Executive Officer
380 000
28 430
116 612
G. Matchett
Chief Financial Officer
O. Merkt
General Counsel & Chief Compliance Officer
-
-
15 747
17 690
25 284
22 614
60 075
20 528
13 685
1 199
-
45
The following table shows the shares and vested options held by Senior Management as at 31 December 2011:
NAME
cORPORATE RESPONSIBILITY
SGSMO
SGSGU
SGSOP
SGSMF
SHARES
C. Kirk
Chief Executive Officer
G. Matchett
Chief Financial Officer
O. Merkt
General Counsel & Chief Compliance Officer
272 627
257 648
13 028
10 000
23 080
14 054
28 430
15 747
17 690
58 306
12 642
11 307
1 199
-
45
10
SIGNIFIcANT SHAREHOLDERS
As at 31 December 2012, Exor held 15.00% (2011: 15.00%), Mr. August von Finck and members of his family acting in concert held
14.97% (2011: 14.97%), the Bank of New York Mellon Corporation held 3.26% (2011: 3.30%) of the share capital and voting rights
of the Company.
At the same date, SGS Group held 2.43% of the share capital of the Company (2011: 3.31%).
PROPOSAL OF THE BOARD OF DIREcTORS FOR THE APPROPRIATION OF AVAILABLE
RETAINED EARINGS
2012
2011
344 300 612
189 002 408
-
679 599 680
62 138 182
(219 829)
(CHF)
Profit for the year
Balance brought forward from previous year
Dividend paid on own shares released into circulation in 2011 prior
to the Annual General Meeting on 19 March 2011
Dividend paid on own shares released into circulation in 2012 prior
to the Annual General Meeting on 12 March 2012
Reversal from/(transfer to) the reserve for own shares
TOTAL RETAINED EARNINGS AVAILABLE FOR APPROPRIATION
Proposal of the Board of Directors:
Dividends ¹
BALANcE cARRIED FORWARD
Ordinary gross dividend per registered share
Additional gross dividend per registered share
1. No dividend is paid on own shares held directly or indirectly by SGS SA.
(2 935 140)
-
DELOITTE SA
31 916 195
562 284 075
(58 719 010)
682 799 023
(442 658 436)
(493 796 615)
119 625 639
189 002 408
30.00
28.00
30.00
35.00
James Baird
Licensed Audit Expert
Auditor in Charge
Geneva, 16 January 2013
Fabien Bryois
Licensed Audit Expert
116
117
SGS PFINDE
WE SEE WHAT MIGHT
OTHERWISE GO UNNOTIcED
RIck PFANNENSTIEL
VP Operations, SGS PfiNDE, Inc.
Our business makes the difference between a timely repair and a disaster. We developed and patented the ultrasonic
technology, Flaw Analysis and Sizing Technique™ (FAST) to see the cracks others can’t. For organisations in the USA
and Canada, SGS PfiNDE Inc. is reducing risk and uncertainty in the characterisation of serious pipeline defects. We are
100% committed and focused on providing our customers with ways to protect and maintain their pipeline integrity.
Our proven industry technique FAST™ UT for the ultrasonic inspection of a wide variety of thin walled components remains
an industry leading technology. Our continued innovation of new applications for FAST™ UT and the development of a
unique collaborative software inspection solution keep us at the cutting edge of pipeline integrity and Non-Destructive
Testing (NDT). At SGS PfiNDE, faster and more reliable results get us, and your cracks, noticed.
DATA
SGS GROUP – FIVE YEAR STATISTIcAL DATA cONSOLIDATED INcOME STATEMENTS
FOR THE YEARS ENDED 31 DEcEMBER
SGS GROUP – FIVE YEAR STATISTIcAL DATA cONSOLIDATED BALANcE SHEETS
AT 31 DEcEMBER
(CHF million)
REVENUES
Salaries and wages
Subcontractors’ expenses
Depreciation, amortisation and impairment
Other operating expenses
OPERATING INcOME (EBIT)
Analysis of operating income
Adjusted operating income
Amortisation of acquisition intangibles
Restructuring costs
Transaction-related costs
Other non-recurring items
Operating income
Financial income/(expense)
PROFIT BEFORE TAXES
Taxes
PROFIT FOR THE YEAR
Profit attributable to:
Equity holders of SGS SA
Non-controlling interests
ADjUSTED OPERATING INcOME MARGINS IN %
2012
2011
2010
5 578
(2 728)
(338)
(281)
(1 388)
843
941
(18)
(68)
(12)
-
843
(35)
808
(218)
590
556
34
16.9
4 797
(2 304)
(331)
(225)
(1 147)
790
815
(16)
-
(9)
-
790
(26)
764
(203)
561
534
27
17.0
4 757
(2 228)
(313)
(225)
(1 155)
836
848
(8)
-
(4)
-
836
(7)
829
(215)
614
588
26
17.8
2009
4 712
2008
4 818
(2 229)
(2 243)
(319)
(228)
(331)
(214)
(1 142)
(1 093)
794
937
822
(8)
(20)
-
-
794
(3)
791
(200)
591
566
25
17.4
817
(7)
-
-
127
937
(4)
933
(219)
714
692
22
17.0
AVERAGE NUMBER OF EMPLOYEES
77 020
67 633
60 321
57 153
55 026
(CHF million)
2012
2011
Land, buildings and equipment
Goodwill and other intangible assets
Investments in associated and other companies
Deferred tax and other non-current assets
TOTAL NON-cURRENT ASSETS
Unbilled revenues and inventories
Trade accounts and notes receivable
Other receivables and prepayments
Cash and marketable securities
TOTAL cURRENT ASSETS
TOTAL ASSETS
Share capital
Reserves
«Equity attributable to equity holders of SGS SA»
Non-controlling interests
TOTAL EQUITY
Loans and obligations under finance leases
Deferred tax liabilities
Provisions and retirement benefit obligations
TOTAL NON-cURRENT LIABILITIES
Loans and obligations under finance leases
Trade and other payables
Current tax liabilities
Provisions, other creditors and accruals
TOTAL cURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
cAPITAL EXPENDITURE
1 018
1 181
4
268
2 471
302
977
255
989
2 523
4 994
8
2 052
2 060
58
2 118
1 306
72
273
1 651
17
493
104
611
1 225
2 876
4 994
888
1 044
1
247
2 180
257
868
244
1 211
2 580
4 760
8
1 987
1 995
50
2 045
1 299
58
275
1 632
6
447
86
544
1 083
2 715
4 760
2010
756
982
2
235
1 975
217
772
202
815
2 006
3 981
8
2 061
2 069
39
2 108
553
63
254
870
3
401
91
508
1 003
1 873
3 981
2009
751
777
1
228
1 757
201
812
174
792
1 979
3 736
8
2 065
2 073
37
2 110
8
77
249
334
308
388
72
524
1 292
1 626
3 736
2008
721
759
2
219
1 701
184
919
194
583
1 880
3 581
8
1 817
1 825
37
1 862
10
65
267
342
325
403
107
542
1 377
1 719
3 581
Land, buildings and equipment
387
345
261
221
290
120
121
DATA
SGS GROUP – FIVE YEAR STATISTIcAL SHARE DATA
cLOSING PRIcES FOR SGS AND THE SMI 2011 – 2012
(CHF unless indicated otherwise)
2012
2011
2010
2009
2008
SGS SA
SHARE INFORMATION
REGISTERED SHARES
Number of shares issued
7 822 436
7 822 436
7 822 436
7 822 436
7 822 436
Number of shares with dividend rights
7 632 042
7 596 871
7 629 482
7 568 664
7 542 214
PRIcE
High
Low
Year-end
Par value
2 156
1 559
2 026
1
1 724
1 255
1 555
1
1 704
1 332
1 569
1
1 400
1 036
1 351
1
1 596
904
1 100
1
kEY FIGURES BY SHARES
Equity attributable to equity holders of SGS
SA per share in circulation at 31 December
Basic earnings per share ¹
Dividend per share ordinary
Dividend per share special
DIVIDENDS (cHF MILLIONS)
Ordinary
Special
269.89
263.75
272.53
276.36
244.07
72.97
30.00 ²
28.00 ²
70.52
30.00 ²
35.00 ²
77.64
30.00 ²
35.00 ²
229 ²
214 ²
228 ²
266 ²
229
267
75.48
30.00
30.00
227
227
91.08
35.00
15.00
264
113
1. Calculation of the basic earnings per share (weighted average for the year) is disclosed in note 9 to the Group consolidated financial statements (page 68).
2. As proposed by the Board of Directors.
SGS GROUP SHARE INFORMATION
SHARE TRANSFER
SGS SA has no restrictions as to share ownership, except that registered shares acquired in a fiduciary capacity by third parties may
not be registered in the shareholders’ register, unless a special authorisation has been granted by the Board of Directors.
MARkET cAPITALISATION
At the end of 2012, market capitalisation was approximately CHF 15 848 million (2011: CHF 12 164 million). Shares are quoted
on the SIX Swiss Exchange.
2 300
2 200
2 100
2 000
1 900
1 800
1 700
1 600
1 500
1 400
1 300
1 200
1 100
1 000
900
800
700
SMI
9 250
9 000
8 750
8 500
8 250
8 000
7 750
7 500
7 250
7 000
6 750
6 500
6 250
6 000
5 750
5 500
5 250
122
123
J F M A M J J A S O N D J F M A M J J A S O N D
2011
HIGH PRICE
CLOSE
LOW PRICE
SGS SA
2012
SWISS MARKET INDEX (MONTHLY CLOSE)
DATA
SGS GROUP PRINcIPAL OPERATING cOMPANIES AND ULTIMATE PARENT
cOUNTRY
NAME AND DOMIcILE
ISSUED cAPITAL
cURRENcY
ISSUED cAPITAL
AMOUNT
% HELD BY
GROUP
DIREcT /
INDIREcT
cOUNTRY
NAME AND DOMIcILE
ISSUED cAPITAL
cURRENcY
ISSUED cAPITAL
AMOUNT
% HELD BY
GROUP
DIREcT /
INDIREcT
Albania
Albania
Algeria
Algeria
Angola
Argentina
Argentina
Australia
Australia
Austria
Azerbaijan
Bahamas
SGS Albania Ltd., Tirana
SGS Automotive Albania sh.p.k., Tirana
Qualitest Algérie SPA, Alger
Société de Contrôle Technique Automobile S.A.,
Rouiba-Alger
SGS Angola Limitada, Luanda
SGS Argentina S.A., Buenos Aires
ITV SA, Buenos Aires
SGS Australia Pty. Ltd., Perth
Gearhart Australia Limited, Perth
SGS Austria Controll-Co. Ges.m.b.H., Vienna
SGS Azeri Ltd., Baku
SGS Bahamas Ltd., Freeport
Bangladesh
SGS Bangladesh Limited, Dhaka
Belarus
Belgium
Benin
Bolivia
SGS Minsk Ltd., Minsk
SGS Belgium N.V., Antwerpen
SGS Bénin S.A., Cotonou
SGS Bolivia S.A., La Paz
Bosnia-Herzegovina
SGS Bosna i Hercegovina (d.o.o.) Ltd., Sarajevo
Botswana
SGS Botswana (Proprietary) Limited, Gaborone
Brazil
Bulgaria
SGS do Brasil Ltda., São Paulo
SGS Bulgaria Ltd., Sofia
Burkina Faso
SGS Burkina S.A., Ouagadougou
Cameroon
Canada
Chile
Chile
China
Colombia
Colombia
Congo
Croatia
SGS Cameroun S.A., Douala
SGS Canada Inc., Missisauga
SGS Chile Limitada, Santiago de Chile
Cimm Tecnologias y Servicios S.A.,
Santiago de Chile
SGS-CSTC Standards Technical
Services Ltd., Beijing
SGS Colombia S.A., Bogota
Estudios Technicos S.A., (Etsa)
SGS Congo S.A., Pointe-Noire
SGS Adriatica, w.l.l., Zagreb
Czech Republic
SGS Czech Republic s.r.o., Praha
Denmark
SGS Danmark A / S, Glostrup
Democratic
Republic of Congo
SGS RDC SPRL, Kinshasa
Dubai
Ecuador
Egypt
Estonia
(see United Arab Emirates)
SGS del Ecuador S.A., Guayaquil
SGS Egypt Ltd., Cairo
SGS Estonia Ltd., Tallinn
ALL
ALL
DZD
DZD
AOA
ARS
ARS
AUD
AUD
EUR
USD
BSD
BDT
USD
EUR
XOF
BOB
BAM
BWP
BRL
BGN
XOF
XAF
CAD
CLP
CLP
USD
COP
COP
XAF
HRK
CZK
DKK
USD
USD
EGP
EUR
100 000
190 000 100
50 000 000
173 600 000
8 000 000
4 171 536
1 500 000
200 000
5 609 210
185 000
100 000
5 000
10 000 000
20 000
2 178 200
10 000 000
41 900
2 000
1 000
53 009 486
10 000
10 000 000
10 000 000
20 900 000
9 394 781 237
530 859 038
3 966 667
29 084 965 360
265 739 000
10 000 000
1 300 000
7 707 000
700 000
50 000
147 680
1 500 000
42 174
100
100
100
77
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
85
100
100
100
100
100
100
100
100
100
100
D
I
D
D
D
D
I
I
I
D
D
D
D
D
I
D
D
I
D
D
D
D
D
D
D
I
I
D
I
D
I
I
I
D
D
D
I
Ethiopia
Finland
Finland
France
France
France
France
Georgia
Germany
Germany
Germany
Germany
Ghana
Ghana
SGS Ethiopia Private Limited, Addis Abeba
SGS Inspection Services Oy, Helsingfors
SGS Fimko Oy, Helsingfors
SGS Oil, Gas & Chemicals, SAS, Arcueil
SGS Qualitest Industrie SAS, Orsay
Securitest S.A., Paris
SGS Aster SA, Paris
SGS Georgia Ltd., Batumi
SGS Gottfeld NDT Services GmbH, Herne
SGS Germany GmbH, Hamburg
SGS Institut Fresenius GmbH, Taunusstein
SGS Tüv GmbH, Sulzbach
SGS Ghana Limited, Accra
Ghana Community Network
Services Limited, Accra
Great Britain
Great Britain
Greece
Guam
SGS United Kingdom Limited, Ellesmere Port
SGS M-Scan Limited, Ellesmere Port
SGS Greece SA, Peristeri
SGS Guam, Guam
Guatemala
SGS Cenral America S.A., Guatemala-City
Guinea-Conakry
SGS Guinée Conakry S.A., Conakry
Guinea-Equatorial
Compañia de Inspecciones y
Servicios G.E., Malabo
Hong Kong
SGS Hong Kong Limited, Hong Kong
Hungary
India
Indonesia
Iran
Ireland
Italy
Ivory Coast
Ivory Coast
Jamaica
Japan
Jordan
SGS Hungária Kft., Budapest
SGS India Private Ltd., Mumbai
P.T. SGS Indonesia, Jakarta
SGS Iran (Private Joint Stock) Limited, Tehran
SGS Ireland (Holdings) Limited, Dublin
SGS Italia S.p.A., Milan
SGS Côte d’Ivoire S.A., Abidjan
Société Ivoirienne de Contrôles Techniques
Automobiles et Industriels S.A., Abidjan
SGS Supervise Jamaica Limited, Kingston
SGS Japan Inc., Yokohama
SGS (Jordan) Private Shareholding Company,
Amman
Kazakhstan
SGS Kazakhstan Limited, Almaty
Kenya
SGS Kenya Limited, Mombasa
Korea (Republic of)
SGS Korea Co., Ltd., Seoul
Kuwait
Latvia
SGS Kuwait W.L.L., Kuwait
SGS Latvija Limited, Riga
ETB
EUR
EUR
EUR
EUR
EUR
EUR
USD
EUR
EUR
EUR
EUR
GHS
GHS
GBP
GBP
EUR
USD
GTQ
GNF
XAF
HKD
HUF
INR
USD
IRR
EUR
EUR
XOF
XOF
JMD
JPY
JOD
KZT
KES
KRW
KWD
LVL
15 000
102 000
260 000
2 320 000
200 000
100
100
100
100
100
2 745 000
92.14
11 216 390
80 000
750 000
1 210 000
7 490 000
750 000
4 005 202
1 978 604
8 000 000
139
301 731
25 000
1 068 000
50 000 000
10 000 000
200 000
18 000 000
800 000
200 000
50 000 000
62 500
2 500 000
300 000 000
200 000 000
1 569 520
100 000 000
100 000
146 527
2 000 000
9 617 540 000
50 000
83 200
100
100
100
100
100
74.9
100
60
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
95
100
100
50
100
100
100
49
100
D
I
I
I
I
I
I
D
I
I
I
I
D
D
I
I
D
D
D
D
D
D
I
D
D
D
I
I
D
D
D
D
D
D
D
D
D
I
124
125
DATA
cOUNTRY
NAME AND DOMIcILE
ISSUED cAPITAL
cURRENcY
ISSUED cAPITAL
AMOUNT
% HELD BY
GROUP
DIREcT /
INDIREcT
cOUNTRY
NAME AND DOMIcILE
ISSUED cAPITAL
cURRENcY
ISSUED cAPITAL
AMOUNT
% HELD BY
GROUP
DIREcT /
INDIREcT
Lebanon
Liberia
Lithuania
SGS (Liban) S.A.L., Beirut
SGS Liberia Inc, Monrovia
SGS Klaipeda Ltd., Klaipeda
Luxembourg
SGS Luxembourg S.A., Mamer
Madagascar
Madagascar
Malawi
Malaysia
Malaysia
Mali
Mauritius
Mexico
Moldova
Mongolia
Morocco
Morocco
SGS Madagascar SARL, Antananarivo
Malagasy Community Network Services S.A.,
Antananarivo
SGS Malawi Limited, Blantyre
Petrotechnical Inspection (Malaysia) Sdn. Bhd.,
Kuala Lumpur
SGS (Malaysia) Sdn. Bhd., Kuala Lumpur
Analabs Mali SARL, Kayes
SGS (Mauritius) LTD, Phoenix
SGS de Mexico, S.A. de C.V., Mexico
SGS (Moldova) S.A., Chisinau
SGS Mongolia LLC, Ulaanbaatar
SGS Maroc S.A., Casablanca
SGS Maroc Automotive SA, Casablanca
Mozambique
SGS Mozambique, Limitada, Maputo
Myanmar
Namibia
Netherlands
Netherlands
SGS (Myanmar) Limited, Yangon
SGS Inspection Services Namibia
(Propietary) Limited, Windhoek
SGS Nederland B.V., Spijkenisse
SGS Horizon B.V., Gravenhage
New Zealand
SGS New Zealand Limited, Auckland-Onehunga
Nigeria
Norway
Oman
Pakistan
Panama
SGS Inspection Services Nigeria Limited, Lagos
SGS Norge A / S, Bergen
SGS Gulf Upstream, Oman (Branch office)
SGS Pakistan (Private) Limited, Karachi
SGS Panama Control Services Inc., Panama
Papua-New-Guinea
SGS PNG Pty. Limited, Port Moresby
Paraguay
Peru
SGS Paraguay S.A., Asunción
SGS del Perú S.A.C., Lima
Philippines
SGS Philippines, Inc., Manila
Poland
Poland
Portugal
Romania
Russia
Saudi Arabia
SGS Polska Sp.z o.o., Warsaw
SGS EKO-PROJEKT Sp. z.o.o., Pszczyna
SGS Portugal - Sociedade Geral de
Superintendência SA, Lisboa
SGS Romania S.A., Bucharest
SGS Vostok Limited, Moscow
SGS Inspection Services Saudi Arabia Ltd.,
Jeddah
LBP
LRD
LTL
EUR
MGA
MGA
MWK
MYR
MYR
XOF
MUR
MXN
MDL
USD
MAD
MAD
MZM
MMK
NAD
EUR
EUR
NZD
NGN
NOK
-
PKR
USD
PGK
PYG
PEN
PHP
PLN
PLN
EUR
RON
RUB
SAR
30 000 000
99.99
100
40 000
38 000
20 000 000
10 000 000
30 000
500 000
60 000
2 500 000
100 000
7 065 828
488 050
10 000
12 000 000
33 000 000
100 000
300 000
100
250 000
45 000
4 522 190
200 000
803 000
-
2 300 000
850 000
2
1 962 000 000
11 738 890
24 620 000
6 179 800
2 559 000
500 000
100 002
8 000 000
1 000 000
100
100
100
100
70
100
70
100
100
100
100
100
100
100
75
100
100
100
100
100
100
50
100
-
100
100
100
100
100
100
100
100
100
100
100
75
D
D
I
I
I
D
D
D
I
D
D
D
D
D
D
D
D
D
I
I
I
D
D
I
-
D
D
I
D
D
D
I
I
I
I
D
D
Senegal
Serbia
SGS Sénégal S.A., Dakar
SGS Beograd d.o.o., Beograd
Sierra Leone
SGS (SL) Ltd., Freetown
Singapore
Slovakia
Slovenia
South Africa
Spain
Spain
Spain
Sri Lanka
Sweden
Switzerland
SGS Testing & Control Services
Singapore Pte Ltd., Singapore
SGS Slovakia spol.s.r.o., Kosice
SGS Slovenija d.o.o. - Podjetje za
kontrol blaga, Koper
SGS South Africa (Proprietary) Limited,
Johannesburg
SGS Española de Control S.A., Madrid
SGS Tecnos, S.A., Sociedad Unipersonal, Madrid
General de Servicios ITV, S.A., Madrid
SGS Lanka (Private) Limited, Colombo
SGS Sweden AB, Göteborg
SGS Société Générale de Surveillance SA,
Geneva
Switzerland
SGS SA, Geneva
Switzerland
SGS Group Management SA, Geneva
Taiwan
Tanzania
Thailand
Togo
Tunisia
Turkey
SGS Taiwan Limited, Taipei
SGS Tanzania Superintendence Co. Limited,
Dar-es-Salaam
SGS (Thailand) Limited, Bangkok
SGS Togo S.A., Lomé
SGS Tunisie S.A., Tunis
SGS Supervise Gözetme Etud Kontrol
Servisleri Anonim Sirketi, Istanbul
Turkmenistan
SGS Turkmen Ltd., Ashgabat
Uganda
Ukraine
SGS Uganda Limited, Kampala
SGS Ukraine, Foreign Enterprise, Odessa
United Arab Emirates SGS Gulf Limited, Abu Dhabi, (Branch office)
United States
SGS North America Inc., Wilmington
Uruguay
Uruguay
Uzbekistan
Venezuela
Vietnam
Zambia
SGS Uruguay Limitada, Montevideo
Sociedad Uruguaya de Control Técnico de
Automotores Sociedad Anónima, Montevideo
SGS Tashkent Ltd., Tashkent
SGS Venezuela S.A., Caracas
SGS Vietnam Ltd., Ho Chi Minh City
SGS Inspections Services Ltd, Lusaka
Zimbabwe
SGS Zimbabwe (Private) Limited, Harare
XAF
EUR
SLL
SGD
EUR
EUR
ZAR
EUR
EUR
EUR
LKR
SEK
CHF
CHF
CHF
TWD
TZS
THB
XOF
TND
TRY
USD
UGX
USD
–
USD
UYU
UYU
USD
VEF
USD
ZMK
ZWD
35 000 000
66 161
200 000 000
100 000
19 917
10 432
5 100 006
240 000
57 072 035
4 559 657
9 000 000
1 500 000
10 000 000
7 822 436
100 000
62 000 000
250 000
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
20 000 000
99.99
10 000 000
49 500
6 550 000
50 000
5 000 000
400 000
–
73 701 996
1 500
24 000
50 000
162 980
288 000
5 000 000
5 000
100
50
100
100
100
100
–
100
100
100
100
100
100
100
100
D
I
D
D
I
I
D
I
I
I
D
I
I
Ultimate
parent
company
D
I
D
D
D
D
I
D
D
I
–
I
D
I
D
D
D
I
D
126
127
SGS LEEDER cONSULTING
THERE IS NOTHING
ROUTINE ABOUT US
BRETT cOLEMAN
Business Manager,
SGS Leeder Consulting
At SGS Leeder Consulting, we deliver non-routine environmental analytical services. Our expert team has extensive industry
experience, which gives us a unique insight into the needs of our customers. Our knowledge ensures we stay ahead of
the competition and at the cutting edge of non-routine environmental analytical testing. We supply a wide range of industries
with ISO and NATA accredited laboratory testing and analysis of soil, water, air, petroleum, organometallic, and metal
speciation. We focus on doing what other laboratories cannot do, either through our fieldwork or by innovating new methods
to meet our customers’ specific testing criteria. Even when we are faced with the most challenging environmental analysis
problem, we deliver a solution.
SHAREHOLDER INFORMATION
SGS SA cORPORATE OFFIcE
cORPORATE cOMMUNIcATIONS &
PROjEcT MANAGEMENT
INVESTOR RELATIONS SGS SA
Carole Streng
Jean-Luc de Buman
1 place des Alpes
P.O. Box 2152
CH – 1211 Geneva 1
t +41 (0)22 739 93 31
f +41 (0)22 739 92 00
www.sgs.com
ANNUAL GENERAL MEETING
OF SHAREHOLDERS
The Annual General Meeting
of Shareholders will be held
on 19 March 2013 in Geneva.
cONcEPT, DESIGN, PHOTOGRAPHY,
REALISATION AND PRODUcTION
Group Charlescannon Sàrl
Geneva, Switzerland
PRINTED BY
Hertig Print SA
Lyss, Switzerland
The 2012 results and financial
statements are also pu blished in French.
The English version is binding.
Printed on woodfree offset paper made
from eucalyptus globulus fibre, whitened
using PCC (Precipitated Calcium
Carbonate), February 2013.
1 place des Alpes
P.O. Box 2152
CH – 1211 Geneva 1
t +41 (0)22 739 91 11
f +41 (0)22 739 98 86
e sgs.investor.relations@sgs.com
www.sgs.com
STOck EXcHANGE LISTING
SIX Swiss Exchange, SGSN
STOck EXcHANGE TRADING
SIX Swiss Exchange
cOMMON STOck SYMBOLS
Bloomberg: Registered Share: SGSN.VX
Reuters: Registered Share: SGSN.VX
Telekurs: Registered Share: SGSN
ISIN: Registered Share: CH0002497458
Swiss security number: 249745
130
WWW.SGS.cOM
A
S
t
n
e
m
e
g
a
n
a
M
p
u
o
r
G
S
G
S
f
o
k
r
a
m
e
d
a
r
t
d
e
r
e
t
s
g
e
r
i
a
s
i
S
G
S
-
d
e
v
r
e
s
e
r
s
t
h
g
i
r
l
l
A
–
3
1
0
2
–
A
S
t
n
e
m
e
g
a
n
a
M
p
u
o
r
G
S
G
S
©