ANNUAL REPORT 2014
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 80 000
EMPLOYEES, SGS
OPERATES A NETWORK
OF OVER 1 650 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.
>80 000
employees
>1 650
ONE
offices and laboratories
global network
DATA
SGS Group – Five Year
Statistical Data Consolidated
Income Statements
SGS Group – Five Year
Statistical Data Consolidated
Balance Sheets
SGS Group – Five Year
Statistical Share Data
SGS Group
Share Information
SGS Group Principal
Operating Companies
and Ultimate Parent
SHAREHOLDER
INFORMATION
PAGE 148
page 148
page 149
page 150
page 150
page 152
PAGE 158
FINANCIAL HIGHLIGHTS
FROM 2014
SGS GROUP
RESULTS
LETTER FROM THE
CHAIRMAN & CEO
PAGE 4
PAGE 6
Consolidated
Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
SGS AT A GLANCE
PAGE 10
Consolidated Statement
of Cash Flows
BUSINESS
REVIEW
CORPORATE
GOVERNANCE
SGS
REMUNERATION
REPORT
Statement of Changes
in Consolidated Equity
PAGE 12
Notes to the Consolidated
Financial Statements
Report of the Statutory Auditor
to the General Meeting
of SGS SA
page 119
PAGE 22
SGS SA
RESULTS
Income Statement
PAGE 42
Balance Sheet
Report of the Statutory Auditor
to the General Meeting
of SGS SA
page 59
Notes to the
Financial Statements
PAGE 62
page 62
page 62
page 63
page 64
page 65
page 66
PAGE 122
page 122
page 123
page 124
Proposal of the Board of Directors
for the Appropriation of Available
Retained Earnings
page 144
Report of the Statutory Auditor
to the General Meeting
of SGS SA
page 145
FINANCIAL HIGHLIGHTS FROM 2014 AND
LETTER FROM THE CHAIRMAN & CEO
FINANCIAL HIGHLIGHTS FROM 2014 AND
LETTER FROM THE CHAIRMAN & CEO
FINANCIAL HIGHLIGHTS FROM 2014
4.0organic revenue growth in % 1
16.1
adjusted operating income
margin in %
5.9total revenue in CHF billion
629
net profit for the year in CHF million
81.99
basic earnings per share in CHF
108
total cash consideration in CHF million
for the acquisitions
912
cash flow from operating activities
in CHF million
68proposed dividend per share in CHF
5.4total revenue up in % 1
10acquisitions
1. Constant currency basis.
4 5
LETTER FROM THE CHAIRMAN & CEO
DEAR SHAREHOLDERS,
The SGS Group finished 2014 strongly
delivering revenue growth of 5.4%
over prior year (constant currency
basis) to CHF 5.9 billion, supported by
solid organic revenue growth of 4.0%
and an additional 1.4% contributed by
recently acquired companies. Due to
the continued appreciation of the Swiss
Franc against most currencies in
which SGS operates around the world,
Group revenue for the year increased
0.9% on a reported basis.
Organic revenue growth exhibited
resilience during the year with Oil,
Gas & Chemicals Services, Agricultural
Services, Consumer Testing Services,
and Systems & Services Certification
Services producing high single-digit
growth. The downturn in the global
mining industry continued to impact
Minerals Services and to a lesser
extent, Environmental Services.
Organic growth was achieved across
all regions, despite the difficult market
conditions experienced in Europe.
Acquisitions added 1.4% to Group
revenue in 2014 including three new
companies acquired in Automotive
Services, three in Environmental
Services, three in Consumer Testing
Services and one in Industrial Services.
The Group reported an adjusted
EBITDA of CHF 1,226 million, up 3.4%
(constant currency basis) over prior
year and an adjusted operating income
of CHF 947 million, up 2.6% (constant
currency basis) over prior year and
resulting in a solid margin of 16.1%.
This margin is slightly below prior
year mainly due to the slowdown in
Minerals Services. In response to the
prolonged downturn in the mining sector
worldwide, restructuring measures were
taken resulting in one-off expenses
of CHF 11 million, while restructuring
carried out in 2013 produced a positive
effect, mainly in Industrial Services.
EBIT reached CHF 941 million and
represented an operating income
margin of 16.0% versus 15.4% last year
(constant currency basis).
SGS and the Republic of Paraguay have
amicably settled a long standing dispute
associated with unpaid inspection
services provided in the late nineties.
As a consequence of this settlement, SGS
received a payment which contributed
a net amount of CHF 32 million (0.5% to
the operating income margin).
Net financial expenses for the year
remained stable at CHF 41 million. The
overall effective tax rate for the period
was 26.0%, slightly below prior year.
Profit attributable to equity holders
reached CHF 629 million for the period,
up 11.1% over prior year on a constant
currency basis.
Operating cash flows remained very
strong at CHF 912 million for the year,
below the CHF 948 million in prior year,
and corresponding to 15.5% of Group
revenue versus 16.3% in prior year.
This inflow was used primarily to fund
net investments in fixed assets of
CHF 292 million. The decrease in
operating cash flow mainly relates to
increased working capital requirements
resulting from project related activities.
Free cash flows amounting to
CHF 607 million improved by 2.7%
compared to prior year.
The Group paid a total cash consideration
of CHF 108 million for acquisitions
completed during the year, in addition to
a dividend of CHF 499 million leading to a
Group net debt position at 31 December
2014 of CHF 340 million compared
to CHF 334 million in December 2013.
MANAGEMENT UPDATES
The Board would like to take this
opportunity to thank Géraldine Matchett,
outgoing CFO, for her leadership and
hard work since 2010, and welcome
our new incoming Group CFO, Carla
De Geyseleer. Mrs. De Geyseleer has
previously worked at Vodafone Libertel
B.V. in the Netherlands, Ernst & Young
in Belgium, and spent 15 years with
DHL Express holding finance positions
in different countries.
ACQUISITIONS
During the year the Group completed
ten acquisitions, adding CHF 36 million
to revenue and CHF 7 million to the
Operating Income. On an annualised
basis, these acquisitions amount
to CHF 79 million in revenue and
CHF 15 million in operating income.
The Group continued to focus on
small to medium size companies
to expand into new markets and create
a more diverse service offering.
In North America, the Group acquired
three companies, two in Automotive
Services and one in Environmental
Services. In Europe, six companies were
acquired across Industrial Services,
Environmental Services, Consumer
Testing Services and Automotive
Services and finally, one new company
in Japan for Consumer Testing Services.
6
DEAR SHAREHOLDERS,
SYNERGIES AND BUSINESS BENEFITS
Within the Group, we continue to look
for synergies in terms of maximising
cross-business and cross-industry
offerings. By proactively listening
to our customers and the market,
we ensure our ability to leverage
multiple business benefits into each
business line portfolio.
During 2014, we again focused close
attention across the Group towards
our benchmark ‘Goal Zero’ thinking on
health and safety. Operational integrity
(OI) is at the heart of SGS’ commitment
to developing our people, processes
and performance and to become a
globally recognised ‘zero accident’
benchmark for the testing, inspection
and certification (TIC) industry. Respect,
awareness and action are the three OI
Values we have adopted to ensure the
safety of our colleagues, our customers,
and ourselves. CATALYST – our
ongoing SGS’ employee engagement
programme – demonstrates our hard
work in keeping people safe is proving
effective, with 84% of our employees
agreeing that SGS is committed to
employee safety.
Addressing sustainability has also been
a key focus in 2014. We have been
named Sector Leader in the Dow Jones
Sustainability Indices (DJSI) World and
Europe, scoring 73/100 (against DJSI
average of 46/100), and elsewhere
in this report there is a brief highlight
of the hard work and efforts of our
sustainability team. More can be read
by downloading our Sustainability
Performance Review 2014.
INNOVATION FOR GROWTH
Only through innovation can we ensure
that SGS remains the leader in the
highly competitive testing, inspection
and certification marketplace. Strategic
planning and acquisition consolidates
our leadership position around the
globe, while diversifying our business to
protect against unexpected downturns.
As the rise in emerging economies
offers more avenues for trade, and
globalisation brings more complex and
diverse supply chains, our success
depends on anticipating where the
services of tomorrow are needed today.
Sergio Marchionne
Chairman of the Board
Christopher Kirk
Chief Executive Officer
7
SGS AT A GLANCE AND
BUSINESS REVIEW
SGS AT A GLANCE AND
BUSINESS REVIEW
SGS AT A GLANCE
OUR VISION
We aim to be the most competitive and the most productive service
OUR VALUES
We seek to be epitomised by our
organisation in the world. Our core competencies in inspection,
passion, integrity, entrepreneurship
verification, testing and certification are being continuously improved
and our innovative spirit, as we
to be best-in-class. They are at the heart of what we are. Our chosen
continually strive to fulfil our vision.
markets will be solely determined by our ability to be the most
These values guide us in all that
competitive and to consistently deliver unequalled service to our
we do and are the bedrock upon
customers all over the world.
which our organisation is built.
SGS is the best-in-class provider of innovative solutions for inspection,
verification, testing and certification services. Our unrivalled ability to
leverage a truly global network drives operational excellence and increases
profitability in organisations around the world.
We deliver sustainable business advantage through our unique understanding
of how to overcome the complex challenges faced by industries today.
Our customers rely on our expertise, experience and proven track record
of delivering tailored and independent services that exceed expectations.
Every day, SGS delivers business benefits which improve quality,
safety, efficiency, productivity and speed to market in our customers'
operations, while reducing risk and building trust in the sustainability
of their long-term performance.
10
OUR MANAGEMENT
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.
SENIOR MANAGEMENT*
EXECUTIVE VICE PRESIDENTS
SENIOR VICE PRESIDENTS
Christopher Kirk
Chief Executive Officer & IT
Life Science Services
Carla De Geyseleer
Chief Financial Officer
Olivier Merkt
General Counsel &
Chief Compliance Officer
CHIEF OPERATING OFFICERS
Teymur Abasov
Eastern Europe and Middle East
Helmut Chik
China and Hong Kong
Pauline Earl
Western Europe
Alejandro Gomez de la Torre
South America
Anthony Hall
South Eastern Asia and Pacific
Dirk Hellemans
Northern and Central Europe
Frédéric Herren
Africa
Jeffrey McDonald
North America
Ladislav Papik
Southern Central Europe
Dennis Yang
Eastern Asia
Dominique Ben Dhaou
Human Resources
Jean-Luc de Buman
Corporate Development,
Corporate Communications
& Investor Relations
François Marti
Strategic Transformation
Michael Belton
Minerals Services
Olivier Coppey
Agricultural Services
Roger Kamgaing
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
* Denotes members of the Operations Council
directly supervised by the Board of Directors
(Senior Management).
11
BUSINESS REVIEW
REVENUE AND ADJUSTED OPERATING INCOME
BY BUSINESS
REVENUE
GIS 4.2 %
AUTO 5.2 %
ENVI 5.8 %
IND 16.6 %
SSC 7.1 %
ADJUSTED OPERATING INCOME 1
GIS 6.2 %
AUTO 6.5 %
ENVI 3.6 %
IND 12.9 %
SSC 7.8 %
AGRI 6.6 %
MIN 11.9 %
OGC 20.4 %
LIFE 3.6 %
CTS 18.6 %
AGRI 6.7 %
MIN 10.4 %
OGC 15.3 %
LIFE 2.1 %
CTS 28.5 %
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
REVENUE BY REGION
Europe / Africa /
Middle East 46.0 %
Asia Pacific 29.6 %
Americas 24.4 %
12
AGRICULTURAL
SERVICES
Agricultural Services delivered solid
comparable organic revenue growth
of 6.6% to CHF 387 million in revenue
for the year. Strong commodity trading
and solid growth from fumigation and
laboratory services played a principal
role in supporting organic growth,
while partially offsetting a temporary
suspension of collateral management
activities. Excluding the latter, organic
growth would have reached 9.5%.
Trade activities remained strong
throughout the year with operations in
Canada continuing to benefit from the
inland grain market deregulation along
with healthy growth in trade activities in
the Black Sea region despite the political
turmoil. Strong trade volumes in South
America in the first half of the year were
tempered by a relative decline in the
second half as a result of the fishing
ban in Peru impacting both fish
discharge control and fishmeal export
monitoring activities.
Double-digit growth was achieved in
Seed & Crop services in Europe and
the South American Mercosur region
following the expansion of field and
laboratory capabilities. Precision Farming
in Africa continued on its strong growth
path supported by service innovation
using Unmanned Aerial Vehicles
(Drones). High activity in seed testing
in North America compensated for
a slow-down in crop research.
The adjusted operating margin declined
slightly from 17.0% in prior year
(constant currency basis) to 16.5%,
due to a change in the business mix
and the temporary reduction of collateral
management activities.
During the year, investments continued
with the extension of laboratory
capabilities in Europe and Latin America,
along with investment in expansion
of the scope for the Seed and Crop
portfolio, such as quarantine testing and
fertigation monitoring services in Latin
America and the Mediterranean region.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
Change in %
MARGIN % 1
2014
RESULTS
387.1
63.8
16.5
2013
PRO-FORMA 2
2013
RESULTS
363.3
6.6
61.8
3.2
17.0
381.3
1.5
65.3
(2.3)
17.1
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
MINERALS SERVICES
The global Mining sector remains under
pressure with all sectors further curtailing
exploration and development spend
as well as capital expenditure. Pricing
for major commodities continued on
a downward trend with significant price
reductions seen in gold, iron ore, copper
and thermal coal. In these difficult market
conditions Minerals Services delivered
full year revenue of CHF 703 million,
a 3.5% reduction to prior year (constant
currency basis). Despite this decline, the
business continued to grow its on-site
laboratories business and its trade related
services. The rate of revenue reduction
slowed significantly in the second half
of the year.
Performance in Eastern Europe and
across Asia was solid as service scope
expansion was delivered in these
growing markets. The business also
continued to deliver on its plans to
grow the percentage of its revenue
coming from operational sites and
contracts. However, continued
reduction in exploration spending,
predominantly impacting Geochemistry
and Metallurgy, was felt throughout
our major commercial testing facilities.
2013 acquisitions of SGS Time Mining
and SGS KD Engineering are now fully
integrated into the strategic business
unit of Mine and Plant Services.
Strong pricing pressure from clients
continued across all aspects of
the service portfolio. This pressure
combined with an altered service mix
resulted in a decline in the adjusted
operating margin for the year from
15.4% in prior year (constant currency
basis) to 14.1%. Additional alignment
of the network infrastructure was
undertaken to reflect the reduction
in activity, in addition to continued
headcount reductions and focus
on network operational efficiencies.
The market will remain difficult until
commodity prices and demand stabilize.
These factors should bring about
a recovery in both exploration spending
and capital expenditure.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
Change in %
MARGIN % 1
2014
RESULTS
702.7
98.8
14.1
2013
PRO-FORMA 2
2013
RESULTS
728.5
(3.5)
112.3
(12.0)
15.4
791.9
(11.3)
123.4
(19.9)
15.6
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
13
BUSINESS REVIEW
OIL, GAS &
CHEMICALS SERVICES
Oil, Gas & Chemicals services
delivered good results with organic
revenue growth of 8.6% (constant
currency basis) to CHF 1 201 million,
generated by all business segments,
including Trade Related which showed
accelerated growth in the second half.
Laboratory Outsourcing Services
experienced high double-digit growth
from new contracts generated
in the United Kingdom, USA and
India, in addition to new laboratory
commissioning projects in Spain,
Australia and the Middle East. Plant
& Terminal Operations (PTO) also
contributed significant growth driven
primarily by excellent safety and
operating performance in North America
supported by its expansion into
new crude-by-rail terminal operations.
With a new significant contract
in China, PTO continues to increase
its geographical footprint.
LIFE SCIENCE SERVICES
Life Sciences Services delivered
sustained organic revenue growth of
5.5% (constant currency basis) to
CHF 213 million for the period with
good performance in Germany, Canada,
the United States and in France.
Facilities in China and India delivered
double digit growth with improved
margins supported by global key account
management. However, laboratory
results fell below expectations at SGS
M-Scan in the United Kingdom due
to temporary executional issues.
These challenges along with price
competition in Clinical Research
impacted performance.
Oil Condition Monitoring Services had
a very good year, with new contracts
in Asia and South America. A pilot Fuel
Integrity Programme was successfully
implemented in the Kingdom of Saudi
Arabia, offering significant opportunities
for this segment in the region. Upstream
Services continued to deliver strong
growth despite the precipitous drop in oil
price which had an immediate impact in
certain geographies in the second half.
The adjusted operating margin declined
from 13.3% in prior year (constant
currency basis) to 12.0%, reflecting
further change in business mix ratios
as well as the aforementioned drop in oil
price. Specifically in Europe, the services
built around the refining industry
experienced margin pressure.
Investment in innovation continued
throughout the year resulting in new
products and services being developed.
SGS Applied Technology and Innovation
Center was awarded the prestigious
2014 Innovation Prize by the Energy
Institute for the development of
the AutoGOR™ - the world’s first fully
automated onsite fluid analyzer.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
144.5
Change in %
MARGIN % 1
12.0
2014
RESULTS
2013
PRO-FORMA 2
2013
RESULTS
1 201.0
1 105.6
1 139.9
8.6
146.8
(1.6)
13.3
5.4
154.0
(6.2)
13.5
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
The adjusted operating margin
decreased from 13.1% in prior year
(constant currency basis) to 9.4%,
impacted by price pressure from
overcapacity and delays in the start-up
of Biosimilars testing.
Operational excellence initiatives and
quality focus will remain key priorities
going into 2015 to drive margin
improvement and business growth.
Laboratories are expected to continue
improving due to strategic investments
and global key account management
activities while Clinical Research is
forecasted to grow with improved
margin levels.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
Change in %
MARGIN % 1
2014
RESULTS
212.7
19.9
9.4
2013
PRO-FORMA 2
2013
RESULTS
201.7
5.5
26.4
(24.6)
13.1
205.0
3.8
27.1
(26.6)
13.2
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
14
CONSUMER TESTING
SERVICES
Consumer Testing Services (CTS)
delivered comparable revenue growth
of 7.5% (of which 6.9% organic) to
CHF 1 093 million for the year. Despite
the rather difficult market conditions
which continued to persist globally, CTS
was able to grow in all business lines.
Eastern Asia, Eastern Europe,
the Middle East and South America
all generated strong results, with
all segments performing well.
High double-digit growth was achieved
in Electrical & Electronics, as well
as Automotive Parts testing and
Cosmetics, Personal Care & Household
mainly in Asia and North America.
In Asia, the development of services
in footwear testing was successfully
rolled out. Food testing activity
continued to perform strongly driven
by Asian and European markets.
SYSTEMS & SERVICES
CERTIFICATION
Systems & Services Certification
delivered comparable revenue growth
of 7.0% (of which 5.9% organic) to
CHF 415 million for the year, due in part
to performance assessment and training
activities which continued to play a
major role in offsetting lower growth
in Europe.
Overall performance continued to be
impacted in Europe where Management
and Environmental Systems certification
is mature and market conditions remain
difficult. The business was however able
to compensate with strong double-digit
growth in Eastern Europe, the Middle
East, Africa and the Asia Pacific region.
The adjusted operating margin remained
stable at 24.7% compared to prior
year (constant currency basis), despite
softer growth experienced in the retail
sector due to the challenging economic
environment. Toy testing volumes
also marginally contracted due to
a flat toys market.
Electronics and expanded its global
footprint in this segment with the
acquisition of Nemko OY in Finland
and RFT Ltd in Japan. In addition,
the acquisition of Courtray in the CPCH
(Cosmetics, Personal Care & Household)
segment was completed, helping
enhance its portfolio of services.
CTS continued to make strategic
investments to maintain market
leadership especially in Electrical &
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
269.7
Change in %
MARGIN % 1
24.7
2014
RESULTS
2013
PRO-FORMA 2
2013
RESULTS
1 093.1
1 016.7
1 041.9
7.5
251.8
7.1
24.8
4.9
258.3
4.4
24.8
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
The adjusted operating margin slightly
decreased from 18.1% in prior year
(constant currency basis) to 17.8%,
impacted primarily by flat revenues
experienced in Western Europe, long
winter conditions in North America and
additional auditor training costs.
Large contracts signed in both the
Automotive and Hospitality industries
are expected to bring additional growth
to the Group in 2015 along with the
introduction of new added value
services in areas such as allergens
and food security.
The business rolled out a new Oracle-
based Learning Management System
in twelve countries in 2014 and will
continue the rollout throughout 2015.
A new centralised back office structure
introduced in Europe has exceeded
expectations with the United Kingdom
and France back office operations
already transferred to Poland.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
Change in %
MARGIN % 1
2014
RESULTS
414.6
73.9
17.8
2013
PRO-FORMA 2
2013
RESULTS
387.3
7.0
70.2
5.3
18.1
401.6
3.2
73.3
0.8
18.3
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
15
BUSINESS REVIEW
INDUSTRIAL SERVICES
Industrial Services delivered comparable
revenue growth of 5.6% (of which
2.4% organic) to CHF 977 million
for the year, despite difficult market
conditions in the refining sector in
Europe and a market slowdown which
affected several countries and created
some pricing pressure.
In Europe, restructuring undertaken
in 2013 in Germany began to have a
positive impact on margin and Spain
posted improved organic growth.
These positive signs give the Group
a more optimistic outlook in this region
going into 2015 despite margins
remaining under pressure and a few
important contracts that ended or were
delayed in Western Europe.
ENVIRONMENTAL
SERVICES
Environmental Services delivered
comparable revenue growth of
9.2% (of which 0.3% organic)
to CHF 342 million for the year,
coming principally from Europe which
experienced strong growth and
improved margins due to restructuring
carried out in 2013 in Finland,
the Netherlands, Italy and France.
In Europe, laboratory network
optimisation and successful integration
of recent acquisitions in Germany,
United Kingdom and the Netherlands
contributed to the Region’s success.
In the USA, the Group accelerated
its development and activities in the
Shale Gas and growing Marine services
markets, along with strengthening its
portfolio through the acquisition of
Galson in the industrial hygiene sector.
South America registered strong results
due to the developing market, the rapid
growth of Industrial Hygiene services
in Brazil and Air monitoring activities
in Chile and Peru.
The adjusted operating margin improved
to 12.5% from 11.1% in prior year
(constant currency basis), partly driven
by improved margin growth following
major restructuring in Germany.
Implementation of strategic geographic
and business unit diversification
continued to drive double digit organic
growth in Asia and South America.
The improvement in overall margin
outside Europe reflects this switch
of business mix and geography.
Operational adjustments will continue
throughout the network to align
organisational structures to market
demand to further optimise costs
and margin.
During the year the Group completed
the acquisition of Röntgen Technische
Dienst NV in Belgium, specialised in
non-destructive testing services,
and focussed efforts on integrating
the six acquisitions that were made
in 2013 which are now fully operational
within the Group.
(CHF million)
REVENUE
Change in %
2014
RESULTS
977.0
ADJUSTED OPERATING INCOME 1
122.6
Change in %
MARGIN % 1
12.5
2013
PRO-FORMA 2
2013
RESULTS
925.6
5.6
102.7
19.4
11.1
960.3
1.7
107.3
14.3
11.2
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
The adjusted operating margin remained
comparable to prior year at 10.0%
(constant currency basis), due to the
slowdown in the Mining sector which
impacted operations in Australia, Canada
and Africa, the ending of carbon CDM
business mostly affecting India and
China and pricing pressure across most
major economies including Australia,
Belgium, Canada, Germany and Spain.
During the year, global contracts in
Consulting, Health & Safety and Energy
continued to be awarded to the Group
due to its enhanced global presence
which helped to maintain growth
and increase service diversification.
The Group acquired three companies
including Search Group, a specialist in
asbestos testing in the Netherlands,
Galson Laboratories Inc., a global
leader in industrial hygiene analysis
and monitoring solutions in the USA
and Labtox, a leader in asbestos,
polychlorobiphenyl and formaldehyde
testing services in Switzerland.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
Change in %
MARGIN % 1
2014
RESULTS
342.4
34.3
10.0
2013
PRO-FORMA 2
2013
RESULTS
313.6
9.2
31.3
9.6
10.0
328.0
4.4
33.8
1.5
10.3
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
16
AUTOMOTIVE SERVICES
Automotive Services delivered
comparable revenue growth of
5.6% (of which 3.5% organic) to
CHF 303 million for the year, spurred
by statutory and commercial activities
which continued to provide solid
revenue growth for the business.
The statutory inspection business
strengthened across most regions
including Western Europe where
the large networks in France achieved
revenue growth while maintaining
margin. Spain maintained revenues
despite adverse economic conditions
along with the market liberalisation
in Madrid and the Canary Islands.
Vehicle inspection services launched
in Ecuador Guayaquil in July will help
South America offset the expected end
of a concession in Chile in December
2014. Africa continues to remain in line
with Group expectations despite the
challenging environment.
GOVERNMENT &
INSTITUTIONS
SERVICES
Governments & Institutions Services
(GIS) organic growth decreased slightly
by 0.4% (constant currency basis) to
CHF 250 million for the year, attributed
to a positive swing in Local Solutions
in Europe, the Middle East, Africa and
Asia, compensating the anticipated
decrease in Global Solutions revenue.
Local Solutions continued to perform
solidly, growing across all categories
during the year thanks to new inspection
programmes, successful diversification
strategy and substantial growth in
Product Conformity Assessment (PCA)
volumes. Furthermore GIS signed three
new contracts in Burundi, Rwanda and
Ghana, the first two being implemented
during the year. This growth helped
to mitigate the consequences of a
contractual termination in Mauritania
The USA saw improvement in
commercial activities within a
competitive environment. Engine and
vehicle testing services continued
to develop additional services.
The adjusted operating margin
decreased from 21.8% in prior year
(constant currency basis) to 20.5%,
impacted by the end of emission
programmes in the USA, specifically
in New York and Virginia and increased
competition in Spain following the
liberalisation of statutory inspection
business in some regions.
During the year, the Group acquired two
companies in the USA, Commercial
Aging Services, a specialist in catalyst
aging testing and Advanced Testing
& Engineering, a leading independent
fatigue durability testing laboratory.
In Spain the Group acquired Gonzalo
de Miguel Redondo S.L.U. (GMR),
specialized in technical support
services to the automotive industry
for homologation and approval of new
vehicles, vehicle modifications and
automotive parts.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
Change in %
MARGIN % 1
2014
RESULTS
302.8
62.0
20.5
2013
PRO-FORMA 2
2013
RESULTS
286.8
5.6
62.4
(0.6)
21.8
305.1
(0.8)
65.8
(5.8)
21.6
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
and the end of a Forestry contract in
the Democratic Republic of Congo.
New inspection programmes were
launched for cosmetics, wheat flour
and alloy steel imports into Indonesia
as well as irrigation pumps in Ethiopia.
TradeNet continued to perform well
from established operations in Africa
and Transitnet successfully expanded
activities in Eastern Europe.
The adjusted operating margin improved
to 23.2% from 23.0% in prior year
(constant currency basis), spurred by the
new service mix and economies of scale.
During the year, the Group continued to
diversify its portfolio, including
SGS Layer4 for Telecom activities and
SGS Omnis tracking services in Africa.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
Change in %
MARGIN % 1
2014
RESULTS
249.5
57.9
23.2
2013
PRO-FORMA 2
2013
RESULTS
250.4
(0.4)
57.7
0.3
23.0
274.7
(9.2)
68.2
(15.1)
24.8
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
2. Constant currency basis.
17
BUSINESS REVIEW
18
CHAIRMAN’S STATEMENT ON SUSTAINABILITY
In sustainability terms, the business
has matured significantly in the last
four years, with an integrated approach
and demonstrable progress on several
fronts. As well as enhancing our
portfolio of sustainability services,
we have embedded our sustainability
management system while aligning
colleagues at every level of the company
behind our sustainability vision and
goals. We are pleased that our efforts
to date are being recognised, with
SGS being named Commercial and
Professional Services Sector Leader
in the 2014 Dow Jones Sustainability
Indices (DJSI) World and Europe.
We were also awarded a position
on ‘The A List’ in the CDP Climate
Performance Leadership Index, a global
ranking of 187 listed companies on their
approach to climate change mitigation.
Our unique Green Book translates
our sustainability performance into
financial values, enabling us to focus
management attention on ‘hot spots’,
such as employee natural turnover
and energy consumption. Alongside
our sustainability programmes, we
encourage employees to save energy
and resources through our popular
“Doing more with Lëss” campaign,
which was rolled out to a further
nine countries, resulting in higher
than ever awareness levels and real
evidence of behaviour change in our
offices and laboratories. Of course,
employee engagement underpins
our sustainable business approach,
which is why we were pleased to
see in our 2014 employee survey
that 75% of employees are aware
of how sustainability supports our
business growth. During 2014,
we further reinforced our position in
the sustainability services market with
the acquisition of the Search Group,
a leading engineering and sustainability
advisory firm with a laboratory and
training institute in the Netherlands,
and US-based Galson Laboratories,
a global leader in industrial hygiene
analysis. Through such new services and
our existing portfolio, we believe we are
well positioned to demonstrate our value
to society. In 2015, we plan to examine
this further to better demonstrate the
role that we, individually and collectively,
are playing in contributing to a more
sustainable and economically viable
future for everyone.
For more details on our sustainability
approach, including our 2020
Sustainability Ambitions, we encourage
you to visit our online sustainability
report and to download our Sustainability
Performance Review 2014.
Sergio Marchionne
Chairman of the Board
Christopher Kirk
Chief Executive Officer
19
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
1
GROUP STRUCTURE
AND SHAREHOLDERS
1.1. Group Structure
1.2. Significant Shareholders
1.3. Cross-shareholdings
3
BOARD OF DIRECTORS
3.1. Members of
the Board of Directors
2
CAPITAL STRUCTURE
3.2. Cross Involvement
2.1.
Issued Share Capital
2.2. Authorised and
Conditional Share Capital
2.3. Changes in Capital
2.4. Shares and
Participation Certificates
2.5. Profit Sharing Certificates
3.3. Elections and Terms of Office
3.4. Limits on External Mandates
3.5.
Internal Organisational Structure
3.5.1. Allocation of Tasks within
the Board of Directors
3.5.2. Committees
3.5.3. Working Methods of
the Board and its Committees
2.6. Limitations on
3.6. Definition of
Transferability and Admissibility
of Nominee Registrations
2.7. Convertible Bonds
and Warrants/Options
Areas of Responsibility
3.7.
Information and
Control Instruments
vis-à-vis the Management
4
5
6
OPERATIONS COUNCIL
4.1. Members of
the Operations Council
COMPENSATION,
SHAREHOLDINGS
AND LOANS
4.2. Other Activities and Functions
5.1. Content and Method of
4.3. Limits on External Mandates
4.4. Management Contracts
Determining the Compensation
and the Shareholding Programmes
5.1.1. Rules on Performance Related
Pay, Allocation of Equity
Securities and Options
5.1.2. Rules on Loans, Credit Facilities
SHAREHOLDERS'
PARTICIPATION RIGHTS
6.1. Voting Rights and
Representation Restrictions
6.2. Statutory Quorums
6.3. Convocation of
General Meetings of Shareholders
6.4. Agenda
and Post-Employment Benefits
6.5. Registration in the Share Register
5.1.3. Rules on Vote on Pay
22
7
8
AUDITORS
CHANGE OF CONTROL
AND DEFENCE
MEASURES
7.1. Duty to Make an Offer
8.1. Duration of the Mandate
and Term of Office
8.2. Audit Fees
8.3. Additional Fees
8.4. Supervisory and Control
7.2. Clauses on Change of Control
Instruments vis-à-vis the Auditors
9
INFORMATION POLICY
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,
composition roles and duties of the Board of Directors and its Committees
and Management, internal controls and audits. This report has been
prepared in compliance with the Swiss Exchange (SIX) Directive on
Information Relating to Corporate Governance of 1 September 2014
and with the Swiss Code of Best Practice for Corporate Governance.
The SGS Corporate Governance framework aims to achieve an efficient
allocation 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.
23
1.2. SIGNIFICANT SHAREHOLDERS
As at 31 December 2014, Groupe
Bruxelles Lambert acting through Serena
Sàrl held 15.00% (2013: 15.00%),
Mr. August von Finck and members of
his family acting in concert held 14.97%
(2013: 14.97%), the Bank of New York
Mellon Corporation held 3.43%
(2013: 3.18%) and BlackRock Inc. held
3.00% (2013: nil), of the share capital
and voting rights of the Company.
SGS SA, together with certain of its
subsidiaries, held 1.88% (2013: 2.19%)
of the share capital of the Company.
During 2014, 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 2014, the market
capitalisation of SGS SA was
CHF 15 997 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 152
to 155 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 acquisitions made by the
SGS Group during 2014 are provided
in note 3 to the consolidated financial
statements included in the section SGS
Group Results (pages 74 to 75) 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 2014, geographic
operations were organised as follows:
Europe, Africa, Middle East
• Western Europe
• Northern and Central Europe
• Southern Central Europe
• Eastern Europe & Middle East
• Africa
Americas
• North America
• South America
Asia Pacific
• East Asia
• China & Hong Kong
• South Eastern 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 2014, 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.
24
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 2014, SGS SA
held 146 930 treasury shares
(2013: 171 596).
In 2014, 24 666 treasury shares were
sold or released to cover option rights.
These shares were sold at an average
price of CHF 1 269. During the year,
no treasury shares were purchased
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 purpose 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 19 March 2015.
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
seven years.
2.4. SHARES AND
PARTICIPATION CERTIFICATES
All shares, other than treasury shares
held 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
the SGS Remuneration Report. 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.
25
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.
3.1. MEMBERS OF THE BOARD
OF DIRECTORS
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 2014
(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.
SERGIO MARCHIONNE (1952)
PAUL DESMARAIS, JR (1954)
Canadian/Italian
Function in SGS
Chairman:
• Board of Directors
• Audit Committee
Canadian
Function in SGS
Member:
• Board of Directors
Initial appointment to the Board
• Nomination and Remuneration
Committee (until March 2014)
July 2013
• Professional Conduct Committee
Professional Background
Chairman and Co-Chief Executive
Officer, * Power Corporation of Canada
Paul Desmarais, Jr. has a Bachelor
of Commerce Degree from McGill
University, Montréal and an MBA from
the Institut Européen d'Administration
des Affaires (INSEAD), France. He has
received honorary doctorates from
various Canadian universities.
He joined Power Corporation of Canada
in 1981 and assumed the position of
Vice-President the following year.
In 1984, he led the creation of Power
Financial Corporation to consolidate
Power’s major financial holdings, as well
as Pargesa Holding SA, under a single
corporate entity. Mr. Desmarais served
as Vice-President from 1984 to 1986, as
President and Chief Operating Officer of
Power Financial from 1986 to 1989, as
Executive Vice Chairman from 1989 to
1990, as Executive Chairman from 1990
to 2005, as Chairman of the Executive
Committee from 2006 to 2008 and as
Executive Co Chairman from 2008 until
today. He was named Chairman and
Co-CEO with Power Corporation in 1996.
After Power Financial and the Frère
Group of Belgium took control of
Pargesa in 1990, Mr. Desmarais moved
to Europe from 1990 to 1994, to develop
the partnership with the Frère Group and
to restructure the Pargesa group. From
1982 to 1990, he was a member of the
Management Committee of Pargesa, in
1991, Executive Vice Chairman and then
Executive Chairman of the Committee,
in 2003, he was appointed Co-Chief
Executive Officer and in 2013 named
Chairman of the Board. He is a Director
of many Power group companies in
North America.
Initial appointment to the Board
May 2001
Professional Background
Chief Executive Officer of *Fiat Chrysler
Automobiles N.V., since 2014
Sergio Marchionne holds a BA in
Philosophy from the University of Toronto,
and an LLB degree from Osgoode Hall
Law School, York University, Toronto.
He also has an MBA and B.Com from
the University of Windsor, in Canada.
A barrister, solicitor and chartered
accountant, Mr Marchionne
began his career in Canada in 1983.
In 2004, he became CEO of Fiat S.p.A.,
headquartered in Turin. In addition, in
June 2009, he was appointed CEO of
Chrysler Group LLC and, in September
2011, also assumed the role of
Chairman. In October 2014, he became
Chairman of Ferrari S.p.A. and CEO of
*Fiat Chrysler Automobiles N.V. (FCA),
the company resulting from the merger
of Fiat S.p.A. and Chrysler Group LLC.
He served as Chairman of CNH Global
N.V. from 2006 and Fiat Industrial S.p.A.
from 2011, becoming Chairman of *CNH
Industrial N.V., the company resulting
from the merger of CNH Global N.V.
and Fiat Industrial S.p.A. in 2013.
Other Activities and Functions
*Philip Morris International SA,
Lausanne (CH), Member of the Board
*Exor S.p.A., Turin (IT), Member of
the Board
Peterson Institute for International
Economics, Member of the Board
Council for the United States and Italy,
Chairman
European Automobile Manufacturers’
Association (ACEA), Brussels (BE),
Member of the Board
26
He began his career in 1992 in Spain
as co-founder of a sales company.
From 1995 to 1997, he managed a
consulting firm, specialising in turning
around businesses in France. From 1998
to 2005, he was Manager of the private
equity funds Rhône Capital LLC in
New York and London. In 2005 to 2012,
he founded the private equity funds
Ergon Capital Partners in Brussels and
was Managing Director of such funds
until 2012.
In 2012, he became Managing Director
of *Groupe Bruxelles Lambert of
which he had been a Board Member
since 2009.
Other Activities and Functions
Gruppo Banca Leonardo SpA Milan (IT),
Member of the Board
*Imerys, Paris (F), Member of the Board
and Member of the Strategic Committee,
Member of the Compensation and
Nomination Committee
*Lafarge, Paris (F), Member of the Board,
Member of the Corporate Governance
and Nominations Committee, Member
of the Remuneration Committee
*Pernod Ricard S.A., Paris, (F),
Member of the Board and Member
of the Remuneration Committee
Steel Partners N.V., (BE), Member
of the Board
Erbe S.A. (BE), Member of the Board
Ergon Capital S.A. (BE), Member
of the Board
Ergon Capital II S.à r.l. (LU), Manager
Kartesia GP S.A. (LU), Member
of the Supervisory Board
Other Activities and Functions
AUGUST FRANÇOIS VON FINCK (1968)
*Groupe Bruxelles Lambert,
Brussels (BE), Vice-Chairman
of the Board of Directors
*Great-West Lifeco Inc., Winnipeg (Can),
Member of the Board (including those
of its major subsidiaries)
*IGM Financial Inc., Winnipeg (Can),
Member of the Board (including those of
its major subsidiaries)
*Lafarge SA, Paris (F), Board Member
*Pargesa Holding SA, Geneva (CH),
Board Member since 1992, Chairman
of the Board since 2013
*Total S.A., Paris (F), Board Member
Member of the Advisory Council of
the European Institute of Business
Administration (INSEAD)
Swiss
Function in SGS
Member:
• Board of Directors
• Audit Committee
Initial appointment to the Board
May 2002
Professional Background
François Von Finck holds a Master
of Business Administration from
Georgetown University, Washington
D.C. He has a banking background
and is currently Managing Director
of Carlton Holding in Basel.
Trustee of the Brookings Institution and
a Co-Chair of the Brookings International
Advisory Council (USA)
Other Activities and Functions
*Custodia Holding, Munich (DE),
Member of the Board since 1999
Chairman of the Canadian Council of
Chief Executives (Can)
Carlton Holding, Allschwil (CH), Member
of the Board since 2001
AUGUST VON FINCK (1930)
German
Function in SGS
Member:
• Board of Directors
• Nomination and
*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
Remuneration Committee
IAN GALLIENNE (1971)
Initial appointment to the Board
October 1998
Professional Background
August von Finck is an Industrialist.
He descends from the banking family
von Finck. His grandfather, Wilhelm
von Finck, founded Merck, Finck & Co.
in 1870, the private bank which was
at the origin of companies including
Munich Re, Allianz insurance and the
Löwenbräu breweries, among others.
Based in Munich, the member of the
third generation of the von Finck family
holds interests in a number of German,
Swiss, Austrian companies as well as
in groups from other countries.
In Switzerland, August von Finck's
participations include Mövenpick
Holding A.G. and Von Roll Holding A.G.
French
Function in SGS
Member:
• Board of Directors
• Nomination and
Remuneration Committee
Initial appointment to the Board
July 2013
Professional Background
Managing Director of *Groupe Bruxelles
Lambert, since 2012
Ian Gallienne has a degree in
Management and Administration, with
a specialization in Finance, from Ecole
Supérieure des Dirigeants d'Entreprises
(ESDE) in Paris and an MBA from
INSEAD in Fontainebleau.
27
CORPORATE GOVERNANCE
CORNELIUS GRUPP (1947)
Austrian
Function in SGS
Member:
• Board of Directors
Initial appointment to the Board
March 2011
Professional Background
Dr. Grupp holds a Doctorate in law and
a Master in Business Administration.
He is the owner and general manager
of Tubex Holding GmbH, Stuttgart,
Germany a company active in the
packaging industry and specialised in
the production of aluminum aerosol
cans, aluminum tubes and plastic tubes
and of CAG Holding GmbH, Lilienfeld,
Austria, active in the field of aluminum,
glass and fibers.
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
PETER KALANTZIS (1945)
Swiss/Greek
Function in SGS
Member:
• Board of Directors
• Audit Committee
Initial appointment to the Board
March 2009
Professional Background
Peter Kalantzis holds a Ph.D. in Economics
and Political Sciences from the University
of Basel and engaged in research as
a member of the Institute for Applied
Economics Research at the University of
Basel between 1969 and 1971.
Prior to 2000, Peter Kalantzis was
responsible for Alusuisse-Lonza Group's
corporate development and actively
involved in the de-merger and stock
market launch of Lonza, as well as the
merger process of Alusuisse and Alcan.
Dr. Kalantzis served as head of the
Chemicals Division of Alusuisse-Lonza
Group from 1991 until 1996. In 1991 Dr.
Kalantzis was appointed Executive Vice-
President and Member of the Executive
Committee of the Alusuisse-Lonza Group.
Dr. Kalantzis has worked as an
independent consultant since 2000.
Other Activities and Functions
Mövenpick/Holding AG, Baar (CH),
Chairman of the Board from 2000
to 2014
Clair AG, Cham (CH), Chairman of
the Board since 2004
*CNH International NV, Amsterdam (NL),
Member of the Board since 2013
Degussa Sonne/Mond Goldhandel AG,
Cham (CH), Chairman of the Board
since 2012
Consolidated Lamda Holdings Ltd.,
Luxembourg (LU), Member of the Board
since 2002
*Lamda Development Ltd., Athens (GR),
Chairman of the Board since 2010,
Member since 2004
Elpe-Thraki, Athens (GR), Chairman
of the Board since 2008
Paneuropean Oil and Industrial
Holdings SA, Luxembourg (LU),
Member of the Board since 2001
*Von Roll Holding AG, Breitenbach
(CH), Chairman of the Board since 2010,
Member of the Board since 2007
Hardstone Services SA, Geneva (CH),
Chairman of the Board since 2014,
Member since 2009
Gnosis Foundation, Vaduz (FL), President
of the Foundation Board since 2008
GÉRARD LAMARCHE (1961)
Belgian
Function in SGS
Member:
• Board of Directors
• Audit Committee
Initial appointment to the Board
July 2013
Professional Background
Managing Director of *Groupe Bruxelles
Lambert, since 2012.
Gérard Lamarche graduated from the
University of Louvain-la-Neuve with
a Bachelor’s degree in Economic
Science and a specialisation in Business
Administration and Management.
He also completed the Advanced
Management Program for Suez Group
Executives at the INSEAD Business
School and took part in the 1998-99
Wharton International Forum, Global
Leadership Series.
He began his professional career in
1983 with Deloitte Haskins & Sells in
Belgium, and became M&A Consultant
in the Netherlands in 1987. In 1988,
he joined Société Générale de Belgique
as Investment Manager. He was
promoted to Controller in 1989, and
was appointed in 1992 Advisor to
the Director of Strategic Planning.
He became Secretary of the Suez
Executive Committee (1995-1997);
he was later appointed Senior Vice
President in charge of Planning, Control
and Accounting.
In July 2000, Gérard Lamarche joined
NALCO (US subsidiary of the Suez
Group and world leader in industrial
water treatment) as Director, Senior
Executive Vice President and CFO.
He was appointed CFO of the Suez
Group in 2003.
He has been a Director of *Groupe
Bruxelles Lambert since 2011 and
Managing Director since 2012.
Other Activities and Functions
*Lafarge, Paris (F), Member of
the Board, Member of the Strategic
Committee, Member of the
Audit Committee
*Legrand, Limoges (F), Member of
the Board and Chairman of the Audit
Committee
*Total S.A., Paris (F), Board Member and
Member of the Audit Committee
*GDF SUEZ, Paris (F), Censor
28
SHELBY R. DU PASQUIER (1960)
Swiss
Function in SGS
Member:
• Board of Directors
• Professional Conduct Committee
• Nomination and Remuneration
Committee, Chairman
(since March 2014)
Initial appointment to the Board
March 2006
Professional Background
Attorney at law, Partner Lenz &
Staehelin law firm, Geneva
Shelby R. du Pasquier holds degrees
from Geneva University Business
School and School of Law as well as
from Columbia University School of Law
(LLM). He was admitted to the Geneva
Bar in 1984 and to the New York Bar in
1989. He became a partner of Lenz &
Staehelin in 1994.
Other Activities and Functions
*Swiss National Bank, Member of
the Board since 2012
Stonehage Trust Holdings (Jersey)
Limited, Member of the Board since 2012
Pictet & Cie Group SCA, Chairman of the
Supervisory Board since 2013
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 the Remuneration Report.
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 each Member of the
Board of Directors, and among them
the Chairman of the Board of Directors
and the Members of the Nomination
Remuneration Committee, are elected
each year by the shareholders for
a period ending at the next Annual
General Meeting. Each Member of
the Board is individually elected.
There is no limit to the number of terms
a Director may serve.
The initial date of appointment of each
Board Member is indicated in section 3.1.
29
CORPORATE GOVERNANCE
3.4. LIMITS ON EXTERNAL MANDATES
3.5.2. Committees
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 2014, the following Directors served
on the Audit Committee:
• Sergio Marchionne (Chairman)
• August François von Finck
• Gérard Lamarche
• Peter Kalantzis.
In 2014, the Audit Committee held three
meetings, with an average duration of
one and a half hours. All meetings were
attended by all members.
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.
At the 2015 Annual General Meeting,
the Shareholders will be invited to
modify the Articles of Association
of the Company in compliance with
the Ordinance against Excessive
Compensation at Listed Joint-Stock
Companies (OaEC), for the purpose
of introducing limits on the number
of mandates permissible to
Board members.
3.5. INTERNAL
ORGANISATIONAL STRUCTURE
The duties of the Board of Directors
and its Committees are defined in the
Company’s Articles of Association and
in its 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.
3.5.1. Allocation of Tasks within
the Board of Directors
The Chairman of the Board is elected
by the Annual Meeting of Shareholders.
He plans and chairs the Board meetings,
defines the agenda of the meetings and
conduct the deliberations of the Board
of Directors. All Members of the Board
of Directors participate in deliberations
of the Board and participate equally
in its decisions.
Within the limits permitted by law or by
the Articles of Association, the Board of
Directors can decide to delegate certain
of its tasks to standing or ad-hoc
committees. With the exception
of the members of the Nomination
and Remuneration Committee who
are elected by the Shareholders,
the members of other Committees
are appointed by the Board.
The following Committees have been
established within the Board of Directors:
• 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.
Nomination and
Remuneration Committee
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 advises
the Board of Directors on matters
regarding the remuneration of the
Members of the Board of Directors and
management and on general policies
relating to remuneration applicable
to the Group. The Committee defines
the conditions of stock options plans
or other plans for the allocation of
shares, issued from time to time by
the Company. The Committee reviews
and approves the contractual terms of
the employment of the Chief Executive
Officer and the other members of
the management. The Committee
reviews regularly, at least once a year,
the compensation of each member of
the Operations Council. The Committee
drafts the SGS Remuneration Report.
In 2014, the following Directors
served on the Nomination and
Remuneration Committee:
• Sergio Marchionne (until March 2014)
• August von Finck
• Ian Gallienne
• Shelby du Pasquier (Chairman)
(since March 2014).
In 2014, the Committee held two
meetings and passed two resolutions in
writing. Meetings of the Nomination and
Remuneration Committee were attended
by all members and had an average
duration of 1 hour.
30
In 2014, the following Directors served
on the Professional Conduct Committee:
3.6. DEFINITION OF AREAS
OF RESPONSIBILITY
• Sergio Marchionne (Chairman)
• Shelby du Pasquier.
In addition to the Board Members,
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.
In 2014, the Professional Conduct
Committee held two meetings,
with an average duration of one hour.
All meetings were attended by
all members.
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
3.5.3. Working Methods of
• Defines the Group’s accounting and
the Board and its Committees
control principles
The Board of Directors and each
Committee convene regularly scheduled
meetings with additional meetings held
as and when required, in person or by
phone conference. The Board and the
Committees may pass resolutions by
written consent.
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. The Board
and each of the Committees can
request the attendance of members
of the management of the Group. The
Board and each of the Committees are
authorised to hire external professional
advisors to assist them in matters within
their sphere of responsibility.
To be adopted, resolutions need a
majority vote of the members of the
Board or Committee, with the Chairman
having a casting vote.
The Board of Directors held five physical
meetings in 2014, and one meeting
by phone conference. Meetings of
the Board of Directors had an average
duration of two and half hours.
All members of the Board of Directions
attended every meeting of the Board
in 2014.
• 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
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.
31
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.
3.7. 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.
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. Formal procedures are
in place for both internal and external
auditors to report their findings and
recommendations independently to the
Board’s Audit Committee.
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
of 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.
As part of this process, the ownership
and accountability for identified risks
are approved by the Board. The
implementation of such actions is
audited by Internal Audit. These findings
are communicated to the Board of
Directors so that progress and identified
risks can be monitored objectively and
independently from Management.
The risks identified and monitored by the
Board fall broadly into three categories:
first, environment risk which includes
circumstances outside the Group's
direct sphere of influence, such as
competition and economic or political
landscape, second, process risks which
include risks linked to the operations of
the business, the management of the
Group and the integrity of its reputation
in the market place, and thirdly, risks
associated with information and
decision-making.
CORPORATE GOVERNANCE
The Chief Executive Officer and the
Chief Financial Officer participate 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 is constantly
informed about the operational and
financial results of the Group by way of
detailed monthly management reports
which describe the performance of
the Group and its divisions. During each
Board meeting, the Chief Executive
Officer and the Chief Financial Officer
present a report to the Board of Directors
on the operations and financial results,
with an analysis of deviations from prior
year and from current financial targets.
During Board Meetings, the Board is
updated on important issues facing
the Group. The Chief Executive
Officer, the Chief Financial Officer
and the 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 meets regularly with
the members of the Operations Council.
During Board Meetings or Committee
Meetings, Board members can require
any information concerning the Group.
The Board reviews and monitors regularly
and formally, once a year, all previous
acquisitions and large investments as
well as the implementation of related
Group strategies.
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
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 in implementing the agreed
actions by management.
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. The General Counsel & Chief
Compliance Officer reports violations
of compliance rules every semester to
the Professional Conduct Committee.
The Committee monitors disciplinary
actions taken and monitor
implementation of corrective actions.
32
33
CORPORATE GOVERNANCE
4
OPERATIONS COUNCIL
The Operations Council (as defined in
section 3.6.) 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
1995 – 2007: Various finance positions
DHL Express
1991 – 1995: Senior Auditor,
Ernst & Young, Belgium
Other work experience
1995 – 2002: EVP, Alfred H. Knight
North America Ltd.
OLIVIER MERKT (1962)
Swiss
DOMINIQUE BEN DHAOU (1965)
Swiss
General Counsel &
Chief Compliance Officer
Doctorate in Law, admitted to the bar
in Switzerland
SVP, Human Resources
Degree in Hotel Industry Management
Joined SGS in 2001
Previous responsibilities
2008 – 2010: Vice President,
Human Resources
2003 – 2005: additional role as Africa
Regional Human Resources Manager
2003 – 2008: Assistant Vice President
Human Resources
THE OPERATIONS COUNCIL
Joined SGS in 2001
The members of the Operations Council
at 31 December 2014 were as follows:
Previous responsibilities
2006 – 2008: VP, Corporate Development
2001 – 2006: Senior Counsel
CHRISTOPHER KIRK (1956)
British
Chief Executive Officer & IT,
EVP Life Science, ad interim
Bachelor of Science
Joined SGS in 1981
Previous responsibilities
2003 – 2006: EVP, Minerals and
Environmental Services
2002 – 2003: COO, South Eastern
Asia & Pacific
2000 – 2002: Managing Director and
Sub-regional Manager, Singapore
1998 – 1999: Managing Director, Thailand
Other work experience
1993 – 2001: Senior Manager Legal,
Ernst & Young, Geneva
2001 – 2003: International
Compensation & Benefits and
HQ HR Manager
TEYMUR ABASOV (1972)
International Human Resources positions:
Other work experience
Azerbaijani
COO, Eastern Europe & Middle East
Degree in Electrical Engineering
Joined SGS in 1994
Previous responsibilities
2006 – 2007: Managing Director,
Kazakhstan & Caspian Sub-Region
2004 – 2006: Managing Director,
Azerbaijan and Georgia
2000 – 2001: Firmenich
1999 – 2000: Novartis Consumer Health
1991 – 1998: Levi Strauss
JEAN-LUC DE BUMAN (1953)
Swiss
SVP, Corporate Communications, Investor
Relations & Corporate Development
Legal studies
CARLA DE GEYSELEER (1968)
2003 – 2004: Managing Director, Georgia
Joined SGS in 1998
Belgian
Chief Financial Officer
(since November 2014)
EMBA, Executive Business
Administration IMD, 2005
Master in Economics & Finance, 1991
Joined SGS in 2014
Previous work experience
2012 – 2014: Chief Financial Officer,
Vodafone Libertel, BV, The Netherlands
2010 – 2012: Director Financial
Controlling, Vodafone GmbH, Germany
2007 – 2010: Chief Financial Officer DHL
Express Benelux, The Netherlands
2001 – 2003: Operations Manager, Oil
Gas & Chemicals Services, Azerbaijan
Other work experience
1978 – 1998: Country Head Switzerland,
Sales Fixed Income, UBS
MICHAEL BELTON (1960)
British
EVP, Minerals Services
BSc Chemistry
Joined SGS in 2002
Previous responsibilities
2005 – 2007: Managing Director,
Minerals Services, North America
2002 – 2005: Vice President,
Global Non-Ferrous Minerals Services
34
HELMUT CHIK (1966)
Chinese
COO, China & Hong Kong
Master in Business Administration
Joined SGS in 1991
Previous responsibilities
2003: Managing Director, Hong Kong
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
OLIVIER COPPEY (1972)
Swiss
EVP, Agricultural Services
MSc Economics
Joined SGS in 1994
Previous responsibilities
2009 – 2012: Vice President Seed
& Crop, Agricultural Services
2006 – 2008: Vice President North
America, Agricultural Services, USA
1994 – 2006: Managerial positions,
Agricultural Services, Switzerland/
India/Cameroon
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
ALEJANDRO
GOMEZ DE LA TORRE (1959)
Peruvian
COO, South America
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)
ANTHONY HALL (1963)
ROGER KAMGAING (1966)
Australian
Swiss
COO, South Eastern Asia & Pacific
Chemist, laboratory technician
Joined SGS in 2001
Previous responsibilities
2007 – 2009: Managing Director, Australia
2005 – 2006: National Business
Manager Australia, OGC, Industrial
and Automotive
1997 – 2005: General Manager
Environmental Services, Redback
Drilling Tools, Expertest OGC Services
Australia, Gearhart United Australia
DIRK HELLEMANS (1958)
Belgian
COO, Northern and Central Europe
Degree in Chemical Engineering and
Master in Business Administration
Joined SGS in 1988
Previous responsibilities
2004 – 2012: COO, Central & North
West Europe
2002 – 2004: COO, North West Europe
1997 – 2002: Managing Director, Belgium
FRÉDÉRIC HERREN (1955)
Swiss
COO, Africa
Master in Economics
Initially joined SGS in 1986, rejoined
in 1999
Previous responsibilities
2006 – 2014: EVP, Governments &
Institutions Services
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
35
EVP, Governments & Institutions
Services (since April 2014)
Master in Commercial Law and Tax
Master in Auditing and Consulting
Initially joined SGS in 1997,
rejoined in 2014
Previous responsibilities
2000 – 2012: Governments &
Institutions Services, Global Head
Business Development
1997 – 2000: Governments &
Institutions Services, Sales Manager
Other work experience
2012 – 2014: Kamgaing Associates
(Consulting) and Time
(African Business Incubator)
THOMAS KLUKAS (1965)
German
EVP, Automotive Services
PhD Engineering Science,
Master Business Administration
Joined SGS in 2006
Previous responsibilities
2008 – 2010: VP Automotive Services
2006 – 2008: Automotive Services
Regional Manager, North America
Other work experience
2000 – 2006: Senior Manager DEKRA SE
(Germany and USA)
FRANCOIS MARTI (1968)
Swiss
EVP Systems & Services Certification
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
CORPORATE GOVERNANCE
JEFFREY MCDONALD (1964)
PETER POSSEMIERS (1962)
DENNIS YANG (1949)
Australian
Australian & Belgian
Taiwanese
COO, North America
EVP, Environmental Services
COO, East Asia
Postgraduate Diploma in Education
BSc Chemistry and Microbiology
Master in Business Administration
Joined SGS in 1995
Joined SGS in 1983
Joined SGS in 1975
Previous responsibilities
Previous responsibilities
Previous responsibilities
2007 – 2012: Global Sales, OGC
2000 – 2002: Managing Director, Taiwan
2004 – 2007: EVP, Systems &
Services Certification
2003: Global Project Manager,
Systems & Services Certification
1995 – 2003: Systems & Services
Certification, South Eastern Asia &
Pacific, Regional Manager (Bangkok)
FRANKIE NG (1966)
Swiss/Chinese
EVP, Industrial Services
BA in Economics and
Electronics Engineering
Joined SGS in 1994
Previous responsibilities
2005 – 2011 EVP, Consumer
Testing Services
2005 – 2007: Managing Director, Korea
2003 – 2005: OGC Business
Development Manager Asia Pacific, China
2001 – 2003: OGC Business Development
Manager Asia Pacific, Australia
1998 – 2000: OGC Manager, Singapore
MALCOLM REID (1963)
British
EVP, Consumer Testing Services
BSc Chemistry
Joined SGS in 1987
Previous responsibilities
2008 – 2011: EVP, Systems &
Services Certification
2002 – 2004: Managing Director,
US Testing
2005 – 2007: Managing Director, Australia
2000 – 2005: Managing Director, Thailand
2000 – 2002: Director, Consumer Testing
Services, China and Global Hardlines
1997 – 2000: Managing Director,
Philippines
1997 – 2000: Operations Manager,
Consumer Testing Services, China
LADISLAV PAPIK (1953)
Slovak
COO, Southern Central Europe
Engineering degree in Metallurgy
Joined SGS in 1992
Previous responsibilities
ALIM SAIDOV (1964)
Azerbaijani and Canadian
EVP, Oil, Gas & Chemicals Services
PhD in Science
Joined SGS in 1993
Previous responsibilities
2007 – 2013 EVP, Oil, Gas & Chemicals
Services and Environmental Services
2006 to date: Managing Director, Hungary
1998 to date: Managing Director, Slovakia
2005 – 2007: COO, Eastern Europe
& Middle East
1993 – 1998: Systems & Services
Manager, Slovak Republic
1992: Lead Auditor, Systems &
Services, Czechoslovak Republic
2004: COO, North America and
Managing Director, Canada
2001 – 2004: Managing Director,
Kazakhstan & Manager Caspian Region
36
1992 – 2000: Assistant General
Manager, Taiwan
In the course of 2014, Anne Hays,
EVP Life Sciences and Geraldine
Matchett, CFO resigned from their
respective positions and left the Group.
In April 2014, the Nomination and
Remuneration Committee approved
the appointment of Roger Kamgaing,
taking over from Fédéric Herren.
Carla De Geyseleer was appointed CFO,
a position she assumes since
November 2014.
In January 2015, Chris Kirk announced its
retirement from management effective
as from the 2015 Annual General
Meeting. The Board has announced the
nomination of Frankie Ng as the future
CEO, with effect as from March 2015.
4.2. OTHER ACTIVITIES AND FUNCTIONS
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.
CARLA DE GEYSELEER
Macintosh Retail Group (NL), Member
of the Supervisory Board and Chair
of the Audit Committee
JEAN-LUC DE BUMAN
Association pour le Développement des
Compétences Bancaires, Geneva (CH),
Member of the Board since 1999
Hyposwiss Private Bank Genève SA,
Geneva (CH), Member of the Board
since 2006
Federal Accreditation Commission,
Bern (CH), Member since 2012
ALEJANDRO GOMEZ DE LA TORRE
FRANÇOIS MARTI
Swiss-Peruvian Chamber of Commerce,
Lima (Peru), Director
Member of the Board of IIOC
(Independent International Organisation
for Certification) since 2012
the Ordinance against Excessive
Compensation at Listed Joint-Stock
Companies (OaEC), for the purpose of
introducing limits on the number
of mandates permissible to members
of the Operations Council.
THOMAS KLUKAS
CITA, International Motor Vehicle
Inspection Committee, Brussels (BE),
Member of the Bureau Permanent
since 2011
4.3. LIMITS ON EXTERNAL MANDATES
At the 2015 Annual General Meeting,
the Shareholders will be invited to
modify the Articles of Association
of the Company, in compliance with
4.4. MANAGEMENT CONTRACTS
The Company is not party to any
management contract delegating
management tasks to companies
or individuals outside the Group.
5
COMPENSATION,
SHAREHOLDINGS
AND LOANS
5.1. CONTENT AND METHOD OF
DETERMINING THE COMPENSATION
AND THE SHAREHOLDING PROGRAMMES
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. In line with these
principles, Board members are entitled
to a fixed fee which takes into account
their level of responsibility.
Until the 2015 Annual General Meeting,
the ultimate responsibility for defining
remuneration policies and deciding
on all matters relating to remuneration
rests with the Board of Directors.
The Board of Directors is assisted in its
work by a Nomination and Remuneration
Committee (for a description of the
Committee's role and composition,
see paragraph 3.5.2). A specific report
on remuneration issued by the Company
describes in details the components
and amounts of the compensation paid
by the Company and will be subject to
an advisory vote at the 2015 Annual
General Meeting.
At the 2015 Annual General Meeting,
amended Articles of Association will
be deliberated and approved in keeping
with the requirements of the Ordinance
against Excessive Compensation
at Listed Joint-Stock Companies (OaEC).
Until such time, and including decisions
relating to the 2014 financial year,
the authorisations level for the main
decisions relating to compensation of
Board and Operations Council Members
is summarised in the chart below.
The levels of approval which will be
implemented after the change of
the Company's Articles of Association
in March 2015 are described in the
SGS Remuneration Report (page 45).
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
Fixation 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.
5.1.1. Rules on Performance
Related Pay, Allocation of Equity
Securities and Options
At the 2015 Annual General Meeting,
the principles of the variable
remuneration and the allocation of
shares or equity linked instruments to
the members of the Operations Council
will be introduced in the Company's
Articles of Association. At the same
time, the Articles of Association will
be amended to allow the Board of
Directors to use an additional amount in
excess of the approval granted by the
shareholders, in situations where new
members join the Operations Council
after the approval of the remuneration
by the Annual General Meeting.
37
CORPORATE GOVERNANCE
5.1.2. Rules on Loans, Credit Facilities
5.1.3. Rules on Vote on Pay
and Post-Employment Benefits
At the 2015 Annual General Meeting, the
Company's Articles of Association will
be amended to introduce limits on loans,
credit facilities and post-employment
benefits to Board Members and to
Members of the Operations Council.
The procedure on the vote by the
Shareholders on the proposed fixed
and variable remuneration of the
Operations Council and compensation
to the Board of Directors will be defined
in an amendment to the Articles of
Association to be introduced at the 2015
Annual General Meeting. The Board will
recommend to the AGM the introduction
in the Articles of Association of rules
mandating separate votes on (i) the
board remuneration for the period until
the next Annual General Meeting (ii)
the fixed remuneration of the Operations
Council for the next calendar year (iii)
a retrospective vote on executive
variable compensation at the AGM and
(iv) prospective approval by the AGM
of any long term incentive plans.
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.
A shareholder may also elect to grant
power of attorney to an independent
proxy appointed by the Company 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.
Shareholders have the opportunity
to give general or specific voting
instructions to the independent proxy.
The voting of resolutions by electronic
votes is authorized by the Articles of
Association, within the modalities
defined by the Board of Directors.
6.2. STATUTORY QUORUMS
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,
unless Swiss company law mandates a
special majority.
6.3. CONVOCATION OF GENERAL
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
7.2. CLAUSES ON CHANGE OF CONTROL
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.
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.
38
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 assumed this position after
agreement by the Company's
Audit Committee.
8.2. AUDIT FEES
Total audit fees paid to Deloitte for the
audit of the Company and the Group
financial statements in 2014 amounted to
CHF 6.0 million (2013: CHF 6.1 million).
8.3. ADDITIONAL FEES
An aggregate amount of
CHF 1.3 million (2013 CHF 1.1 million)
was paid to Deloitte for other
professional services, unrelated to
the statutory audit activity. This
amount includes CHF 0.7 million
(2013: CHF 0.6 million) for tax
compliance services and CHF 0.6 million
(2013: CHF 0.5 million) for non-statutory
reporting and assurance services.
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.
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.
39
SGS REMUNERATION REPORT
40
SGS REMUNERATION REPORT
41
SGS REMUNERATION REPORT
2
3
REMUNERATION MODEL
COMPANY’S
REMUNERATION POLICY
AND GOVERNANCE
3.1. Structure of Remuneration
of the Board of Directors
3.2. Structure of Remuneration
of the Operations Council
2.1. Remuneration Policy
and Principles
3.2.1. Base Salary
3.2.2. Annual Bonus
2.2. Remuneration Governance
3.2.3. Discretionary Bonus
2.2.1. Nomination and
Remuneration Committee
2.2.2. Rules on Vote on Pay
2.2.3. Method of Determination of
3.2.4. Long Term Incentive Plans
3.2.5. Benefits
3.2.6. Employment Contracts
Compensation - Benchmarking
3.2.7. Timeline of Remuneration
1
INTRODUCTION
BY THE NOMINATION
AND REMUNERATION
COMMITTEE
42
5
REMUNERATION
AWARDED TO THE CEO,
SENIOR MANAGEMENT
AND OTHER MEMBERS
OF THE OPERATIONS
COUNCIL
5.1. Cash Compensation
5.2. Share Options
5.2.1. Annual Share Option Plans
5.2.2. Long Term Incentive Plan
5.3. Total Compensation to
the Operations Council,
Senior Management and
Chief Executive Officer
5.4. Other Compensation
5.4.1. Severance Payments
5.4.2. Loans to Members
of Governing Bodies
4
REMUNERATION
AWARDED TO THE
BOARD OF DIRECTORS
6
CHANGES TO THE
REMUNERATION MODEL
FOR 2015
The SGS Remuneration Report provides an overview of the SGS
remuneration model, its principles and programs and the related
governance framework. The report also includes details on the
remuneration of the Board of Directors and of the Operations Council
related to the 2014 business year.
The SGS Remuneration Report has been prepared in compliance with
the Ordinance against Excessive Compensation in Stock Exchange
listed Companies ("the Ordinance"), the Swiss Exchange (SIX) Directive
on Information relating to Corporate Governance of 1 September 2014
and the principles of the Swiss Code of Best Practice for Corporate
Governance of economiesuisse.
43
SGS REMUNERATION REPORT
1
INTRODUCTION BY
THE NOMINATION
AND REMUNERATION
COMMITTEE
The Nomination and Remuneration
Committee is pleased to present its
2014 Remuneration Report to you.
Furthermore, following the provisions
of the Ordinance issued by the Swiss
Federal Council, we will solicit a
consultative vote on the Remuneration
Report and for the first time we will
seek Shareholders approval in binding
vote on:
• The remuneration of the Board
of Directors until the next Annual
General Meeting;
• The 2014 variable remuneration
of the Operations Council members;
In 2014, the Committee welcomed
Shelby du Pasquier as a new member
of the Committee.
• The fixed remuneration of the
Operations Council members
for 2016.
The Articles of Association of SGS have
been revised accordingly and outline
the remuneration framework as well
as the structure of the binding vote
on remuneration. The revised Articles
of Association will be submitted to
the upcoming Annual General Meeting
for approval.
On the following pages, you will
find detailed information about our
remuneration model, its principles and
programs, the remuneration awarded
to the Board of Directors and to the
Operations Council in respect of
2014 and the changes which will be
implemented in 2015.
We hope that you find this report
informative and are confident that our
approach to executive pay is fully aligned
with the strategy and the performance
of the Company and with the interests
of our shareholders.
Shelby du Pasquier
Chairman
Mr. Shelby du Pasquier was thereafter
nominated Chairman of the Committee,
taking over from Mr. Sergio Marchionne.
During the year, the Committee
has undertaken a full review of the
remuneration model in order to
assess its alignment to the business
strategy and to the expectations of
our shareholders. The Committee has
considered these various perspectives
and, as a result, has decided on a
number of changes, effective from 2015:
• Discontinuation of:
Any stock options program;
Discretionary bonus; and
Incentive scheme for
the Chairman of the Board
of Directors.
• Introduction of:
Share grants for both short term
and long term incentive plans
tied to both annual performance
and multi-year comparative
performance measured against
peer class; and
Share ownership guideline.
More information will be provided in
section 6 of this report.
2
COMPANY’S
REMUNERATION POLICY
AND GOVERNANCE
2.1. REMUNERATION POLICY
AND PRINCIPLES
The Company's remuneration policy is
defined by the Board of Directors with
two main objectives: to attract and
retain the best talents available in the
industry, and to motivate employees and
managers to create and protect value
for our shareholders by driving long-term
sustainable financial success.
The remuneration policy is built on
core principles that are aligned to
the Company’s business strategy of
profitable growth and that aim to drive
and support the Company’s core values
of passion, integrity, entrepreneurship
and innovative spirit:
REMUNERATION PRINCIPLES
PAY FOR PERFORMANCE
A substantial portion of remuneration is
directly linked to business performance.
LONG-TERM VALUE CREATION
AND ALIGNMENT TO
SHAREHOLDERS’ INTERESTS
Part of the remuneration is delivered in
the form of equity compensation subject
to a multi-year vesting period.
MARKET COMPETITIVENESS
Remuneration levels are in line with
competitive market practice in order
to be able to attract, retain and develop
the best talent.
INTERNAL EQUITY
Remuneration programs are
straightforward and fair, they
link remuneration to the level of
responsibilities and to the skill-set
required to perform the role.
44
2.2. REMUNERATION GOVERNANCE
2.2.1. Nomination and
Remuneration Committee
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-based plans
(including Long Term Incentive plans)
as well as the allocation of share-based
awards and the conditions of their
granting, vesting and exercise.
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.
General executive remuneration
policies, including the implementation
of long term incentive plans and the
determination of financial targets
relevant to any incentive plan, are
decided by the Board based on the
recommendation of the Committee.
The following charts summarise
the authorisation levels for the main
decisions relating to the compensation
of the Board and the Operations Council
members. When reviewing and deciding
on executive remuneration policies,
the Committee and the Board have
access to Group Human Resources staff
and may use third party consultants
specialising in compensation matters.
In 2014, neither the Committee nor
the Board had recourse to such
external advisors.
Current authorisation levels:
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
Fixation of annual financial targets for variable remuneration
of Operations Council Members
Annual Share Options Plans grants
Committee 1
Committee 1
Committee 1
CEO
Committee 1
CEO
CEO
1. Nomination and Remuneration Committee.
Authorisation levels from 2015 Annual General Meeting of shareholders (AGM):
Board of Directors
Board of Directors
Board of Directors
Committee 1
Board of Directors
Board of Directors
Committee 1
SUBJECT MATTER
RECOMMENDATION
APPROVAL
Aggregate remuneration amount of the Board of Directors
Board of Directors
Individual remuneration of the Chairman of the Board of Directors
Committee 1
Individual remuneration of the members of the Board of Directors
Committee 1
Aggregate remuneration amount of the Operations Council
Board of Directors
Individual remuneration of the CEO
Committee 1
Individual remuneration of the Operations Council Members
CEO
AGM (binding vote)
Board of Directors
Board of Directors
AGM (binding vote)
Board of Directors
Committee 1
Establishment of Long-Term Incentive plans
Board of Directors
AGM (binding vote)
Setting of annual financial targets for variable remuneration
of Operations Council Member
CEO
Board of Directors
Remuneration report
Board of Directors
AGM (consultative vote)
1. Nomination and Remuneration Committee.
45
SGS REMUNERATION REPORT
The following Directors served on
the Nomination and Remuneration
Committee in 2014:
• Sergio Marchionne
(Chairman until March)
• Ian Gallienne
• August von Finck
• Shelby du Pasquier
(Chairman from March)
In 2014, the Committee met two times
and settled two resolutions during
the year. The Chairman of the
Nomination and Remuneration
Committee reports to the Board
of Directors after each meeting on
the activities of the Committee.
The minutes of the Committee meetings
are available to the members of the
Board of Directors.
As a general rule, the Chairman of the
Board of Directors attends the meetings
of the Committee, except when matters
pertaining to his own compensation are
being discussed. Selected members
of the Operations Council, the CEO and
the Senior VP for HR, may be asked
to attend the meetings in an advisory
capacity. They do not attend the
meeting when their own compensation
and/or performance are being discussed.
2.2.2. Rules on Vote on Pay
Starting at the Annual General Meeting
in 2015, and as required by the Ordinance,
the total amount of the remuneration
to be paid to members of the Board
of Directors for the coming year, the
variable remuneration of the Operation
Council members for 2014 and the fixed
remuneration of the Operation Council
members for 2016 will be subject to
the approval of the shareholders in the
form of binding votes on remuneration.
The procedure on the vote by the
Shareholders on the proposed fixed
and variable remuneration of the
Operations Council and compensation
to the Board of Directors will be defined
in an amendment to the Articles of
Association to be introduced at the 2015
Annual General Meeting. The Board will
recommend to the AGM the introduction
in the Articles of Association of rules
mandating separate votes on (i) the
Board remuneration for the period until
the next Annual General Meeting (ii)
the fixed remuneration of the Operations
Council for the next calendar year (iii)
a retrospective vote on executive
variable compensation and (iv)
prospective approval of any long term
incentive plans.
2.2.3. Method of Determination
of Compensation - Benchmarking
As a global business in a broad range
of sectors, SGS’ business success
is driven by the commitment and
engagement of its employees.
Our remuneration policy must take
account of both global and local
practices, whilst allowing for individual
variations. We therefore compare our
practices with those of other similar
organisations. The Group performs
periodic benchmarks against companies
which satisfy the following criteria:
• Competitors in the testing, inspection
and certification industry, such as
Bureau Veritas, Intertek, DNV and TÜV.
• All SMI listed companies
• Internationally active companies
within and outside Switzerland
which operate in one or more of the
industry sectors in which SGS is
active, including the energy, mining,
industrial, chemical, medical goods,
pharmaceutical, durable and
non-durable goods, and food sectors,
such as Alstom, Glencore-Xstrata,
Siemens, DuPont, Baxter, Actelion,
Schindler and Amcor.
The elements of executive remuneration
benchmarked include annual base salary,
allowances, short-term and long-term
incentive compensation and benefits.
To ensure proper benchmarking we use
a proprietary job sizing methodology.
Since more than one-third of our
Operations Council members are
based outside Switzerland, we utilize
information published by reputable
data providers, including Mercer and
Towers Watson, who are able to
supply information on both a local
and a global basis.
46
3
REMUNERATION MODEL
3.1. STRUCTURE OF REMUNERATION OF THE BOARD OF DIRECTORS
The members of the Board of Directors are entitled to a fixed annual Board Membership fee and additional annual fees for
the participation in Board Committees. Board members do not receive additional compensation for attending meetings and
do not receive any variable remuneration, options or shares.
The Chairman receives a fixed annual fee and additional fixed fees for chairing the Audit Committee and the Professional
Conduct Committee.
REMUNERATION OF THE BOARD OF DIRECTORS
FIXED ANNUAL FEE
COMMITTEE FEE
(PER COMMITTEE)
300'000
150'000
+
30'000
30'000
Chairman
Board members
Directors receive an annual fixed fee
of CHF 150 000 whilst the Chairman
receives CHF 300 000. In addition
members of a Board Committee receive
CHF 30 000 for each Committee.
They do not hold service contracts
and are not entitled to any termination
or severance payments. They do not
participate in the Company’s benefit
schemes and the Company does
not make any pension contributions
on their behalf.
In addition, social charges are applied
to the above amounts.
3.2. STRUCTURE OF REMUNERATION
OF THE OPERATIONS COUNCIL
The remuneration earned by the Chief
Executive Officer and by members
of the Operations Council comprises:
(i) a fixed base salary, (ii) an annual
performance bonus, settled partly in
cash and partly in options with deferred
vesting, (iii) a long term incentive, and
(iv) other benefits such as retirement,
insurances and perquisites.
The Group’s strategic plan drives all the
activities in the business. The plan is
reflected in to the remuneration strategy
that will assist the Group in achieving
its financial and other business goals.
The long-term incentive is the vehicle
used to drive sustained performance
aligned with the Group’s long-term
strategic plans. Each year, an annual
business plan is prepared which sets
the objectives to be achieved during
the year. The annual performance
bonus is used to provide incentive
and reward to the annual components
of the business plan. Further, the
Company considers that the payment
of variable remuneration in the form of
equity linked instruments with deferred
vesting is a key mechanism to align
the management’s incentives to the
interests of shareholders.
47
SGS REMUNERATION REPORT
The table below summarises the various components of the compensation of Operations Council members, including
the Chief Executive Officer until 2014:
REMUNERATION
ELEMENT
REMUNERATION
VEHICLE
Base Salary
Monthly
cash salary
Annual Bonus
50% cash
50% allocation
of stock options,
with deferred
vesting and
blocking periods
DRIVERS
PERFORMANCE MEASURES
PURPOSE
PLAN PERIOD
Position and
experience,
market practice
(benchmarking)
Annual business and
financial performance
n/a
Attract and retain
key executives
Continuous
Pay for
performance
1 year
performance
period
3 years deferral
period
Financial targets: (i)
Adjusted 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)
Discretionary
Bonus
Cash
Exceptional individual
performance
n/a
Long Term
Incentives
Stock options
Long-term strategic
performance
Normalised
Earnings Per Share
Benefits
Retirement
benefits and
insurances,
perquisites
Market practice
n/a
1 year
performance
period
4 years
performance
period
Continuous
Retain key
executives,
recognise
exceptional
individual
performance
Align executive
compensation with
the interests of
shareholders and
reward long-term
performance
Protect executives
and employees
against risks,
attract and retain
This table will be revised in 2015 to incorporate the changes in the remuneration model, described in section 6.
3.2.1. Base Salary
3.2.2. Annual Bonus
The base salaries of the Chief Executive
Officer and of each Operations Council
member are reviewed annually on the
basis of market data for similar positions
in those companies and geographies
against which the Group benchmarks
itself. In addition to individual
performance and contribution, business
performance and results, the deciding
body takes into account the scope and
complexity of the areas of responsibility
of the position, skill sets and experience
required to perform the role, and
relevant market practice in the industry.
Members of the Operations Council
(including the Chief Executive Officer)
are entitled to a performance-related
annual bonus (the “Annual Bonus”).
The Annual Bonus is a short-term
variable incentive designed to
reward these Executives for
position-specific contribution to
the Company’s performance.
The target incentive is expressed as
a percentage of the annual base salary
and varies depending on the role.
For the CEO, the on-target incentive
amounts to 70% of annual base salary,
while on-target incentive is between
35% and 60% for the other members
of the Operations Council.
At the beginning of the year, the
Board of Directors, on the advice of
the Nomination and Remuneration
Committee, define the annual
performance objectives for the
Chief Executive Officer and for each
Operations Council member.
• For the CEO, the performance
objective is the Group Earnings per
Share (EPS). This measure was
chosen because it provides a good
indicator of the shareholder value
derived from earnings growth.
48
• For the heads of corporate functions
(SVPs), the Annual Bonus is based
100% on the Adjusted Group Net
Profit after Tax (NPAT). This measure
was chosen because it is focused on
driving profit at Group level.
• For the EVPs, it is based 50%
• For the COOs, their respective
on the Adjusted Operating Income
of their respective business and
50% on the Adjusted Group Net
Profit after Tax, focusing their effort
on driving profit at their respective
business and at the Group level.
region's Adjusted Operating Income
and Economic Value Added account
for 62.5% of the bonus, while the
Adjusted Group Net Profit after Tax
accounts for 37.5%.
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
BUSINESS PERFORMANCE
(Adjusted Net Profit
After Tax)
(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%
For each objective, a target (expected
level of performance), a threshold
(minimum level of performance to trigger
a payout) and a payout curve formed
of a decelerator for performance under
target and an accelerator for performance
over target are pre-defined. At the end
of the performance period, the results
are assessed against the pre-defined
targets and the payout curve. For every
percentage point that actual performance
is below target, the base calculation
amount of the bonus will be reduced
by 5%; for every percentage point above
target, this amount will be increased
by 3%, to a maximum of 250%.
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 the valuation 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 economic
value is calculated using a 90 days
average market value prior to issuance.
In view of exceptional change of the
CHF exchange rate against EUR on 15
January 2015 and its consequences on
the Swiss Stock Exchange, the options
will be granted in February 2015.
The economic value calculation will
be done using an average value of 30
working days from 15 January 2015
(included). The share options are granted
immediately, but they vest rateably in
three equal instalments over a period of
three years: one-third at grant, one-third
18 months after the grant and one-third
36 months after the grant. The vested
options 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 Bonus 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.
49
3.2.3. Discretionary Bonus
In addition to the Annual Bonus, which
rewards the achievement of financial
performance targets, in exceptional
circumstances the Board of Directors
and Nomination and Remuneration
Committee may also grant individual
Operations Council members a
discretionary bonus, based on their
exceptional individual performance.
If awarded, exceptional discretionary
bonuses are granted at the same time
as the Annual Bonus to recognize
outstanding personal achievement.
The total of discretionary bonuses
awarded will not exceed 10%
of the Operations Council's overall
remuneration costs. As a recognition
for the recovery of net CHF 32 million
in Paraguay, an exceptional reward of
CHF 75 000 has been granted to Senior
Management. No additional discretionary
bonus was awarded in 2014.
3.2.4. Long Term Incentive Plans
In addition to the Annual Bonus, the
Board of Directors periodically sets Long
Term Incentive (LTI) Plans, designed to
motivate the leadership team to realise
the long-term 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
SGS REMUNERATION REPORT
or exceeding its stated Earnings Per
Share targets, and (2) the participant
being employed by the Group on
the vesting date.
In 2011, the Company introduced
a long term incentive plan (the “2011
LTI Plan”). The vesting is conditional
upon the Group achieving or exceeding
its 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) by
2014. In 2013, the Board of Directors
reviewed these EPS targets and decided
to introduce a normalisation in order
to exclude material distortions caused
by foreign exchange fluctuations, the
issuance of corporate bonds and the
adoption of new accounting standards
since the inception of the LTI plan.
In 2014, in the light of the normalised
EPS, the vesting scale was amended
by the Board of Directors to allow 50%
vesting in January 2015 to participants
employed at the end of January 2015.
This is a recognition of the achievements
and contribution to the growth of
the Company and will drive motivation
and engagement for the years ahead.
The 2011 LTI Plan involved the granting
of options to acquire shares of the
Company at a strike price of CHF 1 617.
Such options are delivered in the form
of traded warrants, with 100 warrants
required to purchase one share.
The Group originally set aside
9 000 000 such warrants for this
incentive plan. This plan was designed to
motivate the leadership team to achieve
the objectives of the 2014 Strategic Plan.
Full details of this long term incentive
plan are provided in note 31 to the Group
consolidated financial statements
(pages 115 to 116 of the Annual Report).
In 2014, no new Long Term Incentive
Plan was introduced by the Group and
no additional options were granted to
members of the Operations Council
under the existing 2011 LTI Plan.
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 that will be granted in February 2015
with respect to performance and financial results in 2014:
I Annual Share Option Plans
TYPE OF OPTIONS
(Year of issue)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSBB (2015) 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
PERIOD OF
EXERCISE
1 617
1 497
2 013
2 059
-
01.2011
01.2012
01.2013
01.2014
01.2015
07.2012
07.2013
07.2014
07.2015
07.2016
01.2014
01.2015
01.2016
01.2017
01.2018
01.2014 – 01.2016
01.2015 – 01.2017
01.2016 – 01.2018
01.2017 – 01.2019
01.2018 – 01.2020
II Long Term Incentive Plan
SGSMF-2011 LTI (2011)
1 617
-
-
01.2015
01.2015 – 01.2016
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Specifically for SGSBB: granted in 2015 as settlement of 2014 annual variable remuneration. Strike price to be confirmed in February 2015, in view of the exceptional
change of the CHF exchange rate against EUR on 15 January 2015 and its consequences on the Swiss Stock Exchange.
3.2.5. Benefits
Additional employment benefits
such as allowances or memberships
may be awarded in accordance with
prevailing practice in the locations of
employment of individual Operations
Council members. They also include
the employer's contributions to social
benefits as per the applicable legislation
in the country of employment.
Retirement benefits are set out on
page 56 in this Report. Geneva -
based Operations Council members
participate, on the same basis as
other Swiss employees of the Group,
in the Company’s pension scheme.
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. Employees have the
possibility to voluntarily increase their
contribution rate by 2% above the
standard rate. More flexibility has also
been granted to employees who wish
to fund a potential retirement before the
normal age, or for those who wish to
continue working after the age of 65.
50
3.2.6. Employment Contracts
3.2.7. Timeline of Remuneration
• The options granted under the
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 of six months is respected.
As of 2015, the executive contracts do
not provide for any severance payments,
and are subject to applicable legislation
in the country of employment.
More than one-third of the Operations
Council members are not employed
in Switzerland.
The following outlines the timeline of
payment of each remuneration element
that has been earned in 2014:
• The Annual Base Salary is paid
during 2014
• The cash portion of the Annual
Bonus is paid shortly after the
end of 2014
• The share option portion of the Annual
Bonus vest one-third in February 2015,
one-third in July 2016 and one-third
in January 2018
Long-Term Incentive in 2011 and
earned over the performance
period from 2011 to 2014 will vest
in January 2015. In 2014, in the light
of the normalised EPS, the vesting
scale was amended by the Board
of Directors to allow 50% vesting
in January 2015 to participants
employed at the end of January 2015.
4
REMUNERATION AWARDED TO THE BOARD OF DIRECTORS
In 2014, 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 following chart details the fees and other cash benefits granted to each of the Directors for their tenure in 2014:
(CHF thousand)
S. Marchionne
P. Desmarais
A. von Finck
A.F. von Finck
I. Gallienne
C. Grupp
P. Kalantzis
G. Lamarche
S.R. du Pasquier
TOTAL
BOARD
FEE
COMMITTEE
FEE
OTHER
BENEFITS
TOTAL CASH
COMPENSATION
2014
SHARE
OPTIONS
TOTAL 2014
COMPENSATION
(INCLUDING
OPTIONS)
422
163
194
196
196
161
194
196
221
1 943
-
-
-
-
-
-
-
-
-
-
422
163
194
196
196
161
194
196
221
1 943
300
150
150
150
150
150
150
150
150
1 500
68
-
30
30
30
-
30
30
53
271
54
13
14
16
16
11
14
16
18
172
51
SGS REMUNERATION REPORT
The following chart details the fees, other cash benefits and share options granted to each of the Directors for their tenure in 2013:
(CHF thousand)
S. Marchionne
T.R. Brandolini D'Adda
P. Desmarais
J. Elkann
A. von Finck
A.F. von Finck
I. Gallienne
C. Grupp
P. Kalantzis
G. Lamarche
S.R. du Pasquier
TOTAL
BOARD
FEE
COMMITTEE
FEE
OTHER
BENEFITS
TOTAL CASH
COMPENSATION
2013
300
75
75
75
150
150
75
150
150
75
150
1 425
90
15
-
15
30
30
15
-
30
15
30
270
55
-
6
-
13
15
7
11
13
7
15
142
445
90
81
90
193
195
97
161
193
97
195
1 837
SHARE
OPTIONS
189
-
-
-
-
-
-
-
-
-
-
189
TOTAL 2013
COMPENSATION
(INCLUDING
OPTIONS)
634
90
81
90
193
195
97
161
193
97
195
2 026
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)
STRIKE PRICE 2
(CHF)
TOTAL NUMBER OF
OPTIONS GRANTED
UNDER EACH PLAN
MARKET VALUE
AT GRANT
(CHF THOUSAND)
NUMBER VESTED
ON 31 DECEMBER 2014
NUMBER VESTED
ON 31 DECEMBER 2013
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI (2011)
1 617
1 497
2 013
2 059
1 617
50 000
50 000
40 000
75 000
200 000
142
133
89
189
570
50 000
33 333
26 667
25 000
-
33 333
33 333
13 334
-
-
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
52
53
SGS REMUNERATION REPORT
5
REMUNERATION AWARDED TO THE CEO, SENIOR MANAGEMENT
AND OTHER MEMBERS OF THE OPERATIONS COUNCIL
This section sets out the 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 for 2014. All amounts disclosed in this section
include cash bonuses and options that will be granted in February 2015 with respect to performance in 2014 (disclosure according
to the accrual principle).
5.1. CASH COMPENSATION
(CHF thousand)
To the Operations Council (including Senior Management)
To Senior Management (including Chief Executive Officer)
To the Chief Executive Officer
2014
11 607
2 559
1 649
2013
12 245
2 582
1 672
The total cash compensation paid to the Operations Council includes the annual base salaries, the cash portion of the Annual
Bonus, the Discretionary Bonus if any, and any other cash allowances, including allowances paid to individual members in respect
of vehicle, housing and schooling. Post-employment benefits of CHF 1 046 thousand are not included (2013: CHF 1 298 thousand).
Employer's contributions to social benefits are excluded as well.
The overall lower cash compensation is explained by the fact that several members of the Operations Council joined or
left during 2014.
The achievement of financial targets in the businesses and in the regions ranges from 77.2% to 107.7%. Consequently,
the overall payout ranges from 42.6% to 148% for the members of the Operations Council (excluding CEO) and amounts
to 123.6% for the CEO.
In 2014, the bonus calculated was based on the Adjusted Operating Income incorporating the positive impact of the Paraguay settlement.
5.2. SHARE OPTIONS
5.2.1. Annual Share Option Plans
In settlement of 2014 Annual Bonus entitlements, SGSBB options will be granted to the Operations Council (including Senior
Management) in February 2015 on the basis of 2014 results (2013: 926 061 SGSPF options were granted in January 2014).
Such SGS options grant the right to acquire shares of SGS at a strike price which will be confirmed in February 2015 (100 options
give the right to acquire one share). They vest in tranches of one-third in 2015, 2016 and 2018 and are subject to a blocking period
ending in January 2018.
In view of the exceptional change of the CHF exchange rate against EUR on 15 January 2015 and its consequences on the Swiss
Stock Exchange, the options will be granted in February 2015. The economic value calculation will be done using an average value
of 30 working days from 15 January 2015 (included).
54
5.2.2. Long Term Incentive Plan
Under the 2011 LTI Plan, a total of 4 350 000 SGSMF-2011 LTI options were granted to the Operations Council members
(including Senior Management) in 2011. 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 vesting of such options in January 2015 was conditional on 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) by 2014. In 2013, the Board of Directors reviewed these EPS targets and decided to introduce a normalisation in order
to exclude material distortions caused by foreign exchange fluctuations, the issuance of corporate bonds and the adoption
of new accounting standards since the inception of the LTI plan. In 2014, in the light of the normalised EPS, the vesting scale was
amended by the Board of Directors to allow 50% vesting in January 2015 to participants employed at the end of January 2015.
This is a recognition of the achievements and contribution to the growth of the Company and will drive motivation and engagement
for the years ahead.
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 2014. It includes options that
will be granted in February 2015 with respect to performance and financial results in 2014.
TYPE OF OPTIONS 1
(YEAR OF ISSUE)
STRIKE PRICE
(CHF) 2
TOTAL NUMBER OF
OPTIONS GRANTED
UNDER EACH PLAN
MARKET VALUE
AT GRANT
(CHF THOUSAND)
NUMBER VESTED ON
31 DECEMBER 2014
NUMBER VESTED ON
31 DECEMBER 2013
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT AND CHIEF EXECUTIVE OFFICER)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI
SGSBB (2015) 3
1 617
1 497
2 013
2 059
1 617
-
877 389
986 587
1 036 765
986 061
4 350 000
-
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI
SGSBB (2015) 3
CHIEF EXECUTIVE OFFICER
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI
SGSBB (2015) 3
1 617
1 497
2 013
2 059
1 617
-
1 617
1 497
2 013
2 059
1 617
-
246 769
282 863
163 223
394 021
1 120 000
-
174 920
180 225
48 577
282 818
800 000
-
2 501
2 624
2 312
2 485
12 398
2 908
703
752
364
893
3 192
826
499
479
108
713
2 280
687
877 389
657 725
691 177
328 687
-
-
246 769
188 575
108 815
131 340
-
-
174 920
120 150
32 385
94 273
-
-
584 926
657 725
345 588
-
-
-
164 513
188 575
54 408
-
-
-
116 613
120 150
16 192
-
-
-
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Options to be granted in 2015 as settlement of the 2014 bonus. Estimated market value of options that will be allocated in February 2015.
55
SGS REMUNERATION REPORT
5.3. TOTAL COMPENSATION TO THE OPERATIONS COUNCIL, SENIOR MANAGEMENT AND CHIEF EXECUTIVE OFFICER
The tables below present all components of the remuneration earned in 2013 and 2014 by the Operations Council, by the Senior
Management and by the Chief Executive Officer.
Total compensation in 2014:
(CHF thousand)
To the Operations Council
(including Senior Management) 2
To Senior Management
(including Chief Executive Officer) 3
To the Chief Executive Officer
BASE
SALARY
CONTRIBUTION
TO PENSION
BENEFITS
OTHER
EMPLOYMENT
BENEFITS
ANNUAL
CASH
BONUS
ANNUAL
GRANT
OF SHARE
OPTIONS 1
DISCRETIONARY
CASH BONUS
TOTAL 2014
COMPENSATION
(INCLUDING
OPTIONS)
7 680
1 046
2 198
2 603
2 908
1 576
1 000
271
172
344
216
814
577
826
687
75
75
-
16 510
3 906
2 652
1. Estimated market value of options that will be allocated in February 2015.
2. 24 FTE (Full Time Equivalent).
3. 3 FTE.
Total compensation in 2013:
(CHF thousand)
To the Operations Council
(including Senior Management) 1
To Senior Management
(including Chief Executive Officer) 2
To the Chief Executive Officer
1. 24 FTE (Full Time Equivalent).
2. 3 FTE.
BASE
SALARY
CONTRIBUTION
TO PENSION
BENEFITS
OTHER
EMPLOYMENT
BENEFITS
ANNUAL
CASH
BONUS
ANNUAL
GRANT
OF SHARE
OPTIONS
DISCRETIONARY
CASH BONUS
TOTAL 2013
COMPENSATION
(INCLUDING
OPTIONS)
7 737
1 298
2 240
2 007
2 335
1 210
16 827
1 679
1 000
332
178
343
216
751
600
893
713
60
-
4 058
2 707
In the year under review, the highest compensation paid by the Group was awarded to the Chief Executive Officer.
The following chart illustrates the ratio between fixed and variable remuneration for the CEO and for the other members of
the Operations Council on average (without CEO). The ratio depends on the extent to which pre-defined objectives have been
achieved and is being shown at target (assuming performance at the required level), at minimum (no payout under the Annual
Bonus due to underperformance), at maximum (maximum payout under the Annual Bonus due to over performance) and at actual
levels achieved in 2014.
CEO REMUNERATION MIX
OPERATION COUNCIL (EXCLUDING CEO)
REMUNERATION MIX (ON AVERAGE)
(CHF thousand)
(CHF thousand)
4 000
3 500
3 000
2 500
2 000
1 500
1 000
500
0
800
700
600
500
400
300
200
100
0
Target
Minimum
Maximum
Actuals
2014
Target
Minimum
Maximum
Actuals
2014
Annual Base Salary Annual Bonus (cash) Annual Bonus (options)
Annual Base Salary Annual Bonus (cash) Annual Bonus (options)
56
In 2014, the variable remuneration of the Chief Executive Officer represented 56% of the total compensation (2013: 57%),
split in cash (26%) and options (30%). For the Operations Council, including Senior Management, the variable remuneration amounted
to 42% of the total compensation on average (2013: 42%), split in cash (20%) and options (22%). Total compensation includes
the guaranteed part (base salary) and the variable part (Annual Bonus in cash and options). It excludes fringe and social benefits.
5.4. OTHER COMPENSATION
5.4.1. Severance Payments
In 2014, no severance payment was made to Operations Council members (2013: CHF 150 000).
5.4.2. Loans to Members of Governing Bodies
As at 31 December 2014, no loan, credit or outstanding advance was due to the Group from members of its governing bodies
(unchanged from prior year).
6
CHANGES TO THE REMUNERATION MODEL FOR 2015
The Board of Directors felt that 2014 was an appropriate time to review the current remuneration policy and programs,
with the objective of ensuring that they are still aligned to the company’s business strategy and to the long-term interests
of our shareholders. This review led to a number of changes to be implemented for the business year 2015, taking account
of feedback received from our shareholders and their representatives and in compliance with legislative requirements.
ANNUAL BONUS
The performance measurement for the purpose of the Annual Bonus will be based 50% on the performance of the Group and
50% on the role specific performance of the individual. The performance of the Group will be measured by the Adjusted Net Profit
After Tax in order to ensure a strong alignment within the leadership team to focus on driving growth and increased profitability
at Group level.
The role specific performance will be based on the financial performance of the unit under responsibility of the individual concerned
and it will include top-line achievement, bottom-line results and/or value added measurement appropriate to the position.
The combination of both Group and role specific financial performance will lead to an overall financial performance factor,
which will be multiplied by a performance factor reflecting the leadership behaviours of the individual in line with the competency
model of the Company. This combination of performance measures has been chosen in order to balance between financial
performance (at Group and at unit level) and wider leadership behaviours.
The above description indicates only the broad highlights of the new incentive plan. Full details will be provided in the 2015
Remuneration Report.
The programme is presented in diagrammatic formats below:
ILLUSTRATION OF CALCULATION OF ANNUAL BONUS
TARGET AMOUNT
FINANCIAL PERFORMANCE
(Group performance +
role specific performance)
X
X
LEADERSHIP
PERFORMANCE
ACTUAL PAYOUT
=
100'000
120%
110%
132'000
The overall award of the Annual Bonus will continue at an overall payout level of between 0% if threshold targets are not met
and up to 250% if targets are overachieved. The bonus will be delivered 50% in cash and 50% in restricted equity instruments,
subject to a 3-year blocking period.
Since role specific performance is to be considered in the Annual Bonus, discretionary bonus payments will be discontinued.
57
SGS REMUNERATION REPORT
LONG-TERM INCENTIVE (LTI)
The Long-Term Incentive plan will be fully based on Group financial performance over a three-year performance period. However,
in order to balance with the Annual Bonus which is based on absolute financial performance, a relative performance measurement
will be introduced in the LTI plan, combining absolute and relative performance compared to a peer group of companies.
The absolute performance measure will be Free Cash Flow with 20% weighting.
In addition, the Company’s performance will be compared in relation to that of a peer group, on the basis of three different measures:
• Organic sales growth compared to previous year (top-line performance), with 20% weighting;
• Net Profit After Tax (NPAT) improvement compared to previous year (bottom-line performance), with 20% weighting;
• Total Shareholder Return (TSR, value delivered to shareholders), with 40% weighting.
The peer group consists of a set of pre-selected companies which operate in the same space as SGS and which are subject
to the same economic cycles. The comparator companies will be disclosed in due course.
The delivery mechanism for the LTI will be Performance Share Units (PSU), with the award settled in shares at the end of
the blocking and vesting period. They will be subject to Share Ownership Guidelines. An allotment of shares to be dedicated
to this plan will be submitted for approval at the March 2015 Annual General Meeting.
SHARE OWNERSHIP GUIDELINE
A Share Ownership Guideline will be introduced, requiring the members of the Operations Council to own at least a certain
multiple of their annual base salary in SGS shares. In the event of a substantial drop in the share price, the Board of Directors
may modify at its discretion the Share Ownership Guideline.
SUMMARY
The chart below highlights the main features and the timelines of the new remuneration model:
TIMELINE (PERFORMANCE PERIOD, TIME PAYMENT)
PERFORMANCE OBJECTIVES
Free Cash Flow (20%)
VESTING
OF LTI 2015
(SHARES)
Relative revenue growth (20%)
Relative NPAT growth (20%)
50%
IN SHARES
Relative TSR (40%)
Group NPAT (50%)
Role Specific P&L (50%)
50%
IN CASH
Multiplied by leadership performance factor
Fixed remuneration
LONG-TERM
INCENTIVE
2015
ANNUAL
BONUS
ANNUAL
BASE
SALARY
AND
BENEFITS
2015
2016
2017
2018
2019
SHARE OWNERSHIP GUIDELINE
58
REPORT OF THE STATUTORY AUDITOR
To the General Meeting of
SGS SA, GENEVA
REPORT OF THE STATUTORY AUDITOR IN RELATION TO SECTIONS 4 AND 5 OF THE REMUNERATION REPORT IN ACCORDANCE
WITH THE ORDINANCE AGAINST EXCESSIVE COMPENSATION IN STOCK EXCHANGE LISTED COMPANIES (ORDINANCE)
We have audited sections 4 and 5 of the Remuneration Report of SGS SA for the year ended 31 December 2014, presented
on pages 51 to 57.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance
with Swiss law and the Ordinance against Excessive compensation in Stock Exchange Listed Companies (Ordinance). The Board
of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Remuneration Report. We conducted our audit in accordance with Swiss
Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the Remuneration Report comply with Swiss law and articles 14 – 16 of the Ordinance.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the Remuneration Report with regard
to compensation, loans and credits in accordance with articles 14 – 16 of the Ordinance. The procedures selected depend
on the auditor’s judgment, including the assessment of the risks of material misstatements in the Remuneration Report, whether
due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of
remuneration, as well as assessing the overall presentation of the Remuneration Report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, sections 4 and 5 of the Remuneration Report of SGS SA for the year ended 31 December 2014 comply with Swiss
law and articles 14 – 16 of the Ordinance.
DELOITTE SA
James Baird
Licensed Audit Expert
Auditor in Charge
Geneva, 6 February 2015
Fabien Bryois
Licensed Audit Expert
59
SGS GROUP RESULTS
SGS GROUP RESULTS
SGS GROUP RESULTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
NOTES
2014
REVENUE
Salaries and wages
Subcontractors' expenses
Depreciation, amortisation and impairment
Other operating expenses
OPERATING INCOME (EBIT)
Analysis of operating income
Adjusted operating income
Restructuring costs
Amortisation of acquisition intangibles
Transaction and integration-related costs
Other non-recurring items
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)
DIVIDEND PER SHARE (IN CHF)
1. As proposed by the Board of Directors.
10 & 12
5
6
7
8
9
9
5 883
(2 891)
(361)
(304)
(1 386)
941
947
(11)
(20)
(7)
32
941
17
(58)
900
(234)
666
629
37
81.99
81.65
68.00 1
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
Actuarial gains/(losses) on defined benefits plans
Income tax on actuarial gains/(losses) taken directly to equity
Items that will not be subsequently reclassified to income statement
Exchange differences and other 1
Items that may be subsequently reclassified to income statement
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
2014
(100)
26
(74)
82
82
8
666
674
643
31
2013
5 830
(2 871)
(357)
(298)
(1 392)
912
977
(33)
(20)
(12)
-
912
18
(56)
874
(236)
638
600
38
78.43
77.84
65.00
2013
71
(23)
48
(132)
(132)
(84)
638
554
516
38
1. In 2014, exchange differences included net exchange gain of CHF 14 million on long-term loans treated as net investment in a foreign entity according to International
Accounting Standard (IAS) 21 (2013: losses of CHF 32 million).
62
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
2014
2013
1 043
1 105
232
24
195
49
2 648
330
1 068
371
9
1 341
3 119
5 767
8
2 473
(154)
2 327
76
2 403
1 672
74
176
97
2 019
18
511
19
175
622
1 345
3 364
5 767
1 029
1 009
207
18
173
42
2 478
330
952
306
9
964
2 561
5 039
8
2 314
(179)
2 143
69
2 212
1 293
66
94
96
1 549
15
502
18
142
601
1 278
2 827
5 039
10
11
12
8
13
14
15
16
17
18
22
22
23
8
24
25
23
26
25
27
63
SGS GROUP RESULTS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
Profit for the year
Other non-cash items
(Increase)/decrease 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
Proceeds from sale of investments
(Increase)/decrease in other non-current assets
(Increase)/decrease 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
Transaction with non-controlling interests
Cash received on treasury shares
Cash (paid) on treasury shares
Proceeds of corporate bonds
Interest paid
Net cash flows related to Interest Rate Swaps
Increase/(decrease) in borrowings
CASH FLOW FROM FINANCING ACTIVITIES
Currency translations
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
Increase/(decrease) in cash and cash equivalents
CASH AND CASH EQUIVALENTS AT END OF YEAR
18
2014
666
559
(109)
(204)
912
(305)
(114)
-
(4)
1
9
13
(400)
(499)
(24)
1
31
-
362
(43)
2
2
(168)
33
377
964
377
1 341
2013
638
552
(29)
(213)
948
(357)
(108)
-
(4)
8
12
24
(425)
(444)
(27)
-
42
(38)
-
(46)
2
(5)
(516)
(13)
(6)
970
(6)
964
64
STATEMENT OF CHANGES IN CONSOLIDATED EQUITY
SHARE
CAPITAL
TREASURY
SHARES
CAPITAL
RESERVE
CUMULATIVE
TRANSLATION
ADJUSTMENTS
CUMULATIVE
GAINS/(LOSSES) ON
DEFINED BENEFIT
PLANS 1
RETAINED
EARNINGS
AND GROUP
RESERVES
EQUITY
HOLDERS
OF SGS SA
NON-
CONTROLLING
INTERESTS
TOTAL
EQUITY
ATTRIBUTABLE TO
(176)
106
(626)
(181)
2 929
2 060
-
(132)
-
48
600
600
-
(84)
58
38
-
2 118
638
(84)
(132)
48
600
516
38
554
-
-
-
-
-
-
-
-
(444) 2
(444)
(27)
(471)
-
2
7
5
2
4
-
-
-
5
2
4
(179)
111
(758)
(133)
3 094
2 143
69
2 212
8
-
-
-
-
-
-
-
8
-
-
-
-
-
-
(3)
-
-
-
-
5
-
-
8
(179)
111
(758)
(133)
3 094
2 143
-
629
629
69
37
2 212
666
-
-
-
-
-
-
-
-
-
-
-
-
-
25
-
-
-
-
10
-
-
-
88
88
-
-
-
-
(74)
-
14
(6)
8
(74)
629
643
31
674
-
-
-
-
(499) 2
(499)
(24)
(523)
-
(1)
6
10
(1)
31
-
-
-
10
(1)
31
8
(154)
121
(670)
(207)
3 229
2 327
76
2 403
(CHF million)
BALANCE AT
1 JANUARY 2013
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 2013
BALANCE AT
1 JANUARY 2014
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 2014
1. Net of tax.
2. The amounts available for dividends are based on SGS SA’s statutory standalone shareholders’ equity determined in accordance with the legal provisions of
the Swiss Code of Obligations.
65
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
BASIS OF PREPARATION OF
THE 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 2014. 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 2013 consolidated
financial statements, except for the
Group’s adoption of new IFRS effective
1 January 2014.
• Amendments to IFRS 10 and IAS 28:
Sales or Contribution of Assets
between an Investor and its Associate
or Joint Venture
• Amendments to IFRS 11:
Accounting for Acquisitions of
Interests in Joint Operations
• Amendments to IAS 27:
Equity Method in Separate
Financial Statements
• IFRS 14 Regulatory Deferral Accounts
The directors are assessing the future
impacts resulting of the adoption of
these new Standards, Improvements,
Amendments and Interpretations on
the consolidated financial statements.
BASIS OF CONSOLIDATION
Subsidiaries
The consolidated financial statements
incorporate the financial statements of
the Company and the entities controlled
by the Group. Control is achieved when
the Group:
• has power over the investee;
• is exposed, or has right, to variable
return from its involvement with
the investee; and
• has the ability to use its power
to affect its return.
The Company reassesses whether or
not the Group controls an investee if
facts and circumstances indicate that
there are changes to one or more of the
three elements of control listed above.
Consolidation of a subsidiary begins
when the Group obtains control over
the subsidiary and ceases when the
Group loses control of the subsidiary.
The principal operating companies of the
Group are listed on pages 152 to 155.
Associates
Associates are entities 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.
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.
ADOPTION OF NEW AND REVISED
INTERNATIONAL FINANCIAL
REPORTING STANDARDS
In the current year, the Group has
adopted the following Amendments,
Improvements and Interpretations:
• Amendments to IAS 32:
Financial Instruments Presentation –
Offsetting Financial Assets and
Financial Liabilities
• Amendments to IFRS 10, IFRS 12
and IAS 27: Investment Entities
• Amendments to IAS 36:
Impairment – Recoverable Amount
Disclosures for Non-Financial Assets
• Amendments to IAS 39:
Financial Instruments – Novation
of Derivatives and Continuation of
Hedge Accounting
• Annual Improvements to IFRSs
• IFRIC 21 Levies
These amendments, improvements
and interpretations had no material
impact on the Group consolidated
financial statements.
At the date of authorisation of these
financial statements, the following
Standards, Improvements, Amendments
and Interpretations were issued but not
yet effective:
• IFRS 9 Financial Instruments
(as revised in 2014)
• IFRS 15 Revenue from Contracts
with Customers
• Annual Improvements to IFRSs
• Amendments to IAS 16 and IAS 38:
Clarification of Acceptable Methods of
Depreciation and Amortisation
• Amendments to IAS 16 and IAS 41:
Agriculture: Bearer Plants
• Amendment to IAS 19 Employee
Benefits: Defined Benefit Plans –
Employee Contributions
66
Joint Ventures
A joint venture is a jointly controlled
entity or operation where the parties
have joint rights to the net assets.
The consolidated financial statements
include the Group’s share of the
earnings and net assets on an equity
accounting basis of joint ventures
that it does not control, effective from
the date that joint control commences
until the date that joint control ceases.
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.
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.
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 and liabilities comprise
all assets and 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.
Joint Operations
Foreign Currency Transactions
A joint operation is an arrangement
whereby the parties that have joint
control have separable specific rights
to the assets and the liabilities within
the arrangement. When a Group entity
undertakes its activities under joint
operations, the Group as a joint operator
recognises in relation to its interest in
a joint operation:
• its assets, including its share of any
assets held jointly;
• its liabilities, including its share of any
liabilities incurred jointly;
• its revenue from the sale of its
share of the output arising from
the joint operation;
• its share of the revenue from the sale
of the output by the joint operation; and
• its expenses, including its share
of any expenses incurred jointly.
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 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.
Consolidation of Foreign Companies
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.
REVENUE RECOGNITION
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
67
SGS GROUP RESULTS
LAND, BUILDINGS AND EQUIPMENT
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.
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 is recorded in the relevant
foreign currency and is 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 take into
account the most recent financial
results and outlook approved by
management, 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
68
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
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.
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.
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.
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.
DERIVATIVE FINANCIAL
INSTRUMENTS 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.
69
SGS GROUP RESULTS
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
are determined by independent
actuaries using the projected unit credit
method. Remeasurement 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 immediately
recognised as an expense. Net interest
expense is calculated by applying
the discount rate at the beginning
of the period to the net defined benefit
liability or asset.
The retirement benefit obligation
recognised in the balance sheet
represents the present value of the
defined benefit obligation 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.
Payments to defined contribution plans
are recognised as an expense in
the income statement as incurred.
Post-employment Plans Other
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
RESTRUCTURING COSTS
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.
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.
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 MANAGEMENT
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 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
imposed capital requirements.
70
TAXES
EARNINGS PER SHARE
Use of Estimates
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
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
taxable profits will 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.
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.
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 and evaluation of the insurance
cover where appropriate. The Group’s
legal and warranty claims are reviewed,
at a minimum, on a quarterly basis
by a cross-functional representation
of management.
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.
Recoverability of Trade Accounts
and Notes Receivable
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 a 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.
Estimations of Employee Post-
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, 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.
71
SGS GROUP RESULTS
Income Taxes
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 124
of this report.
The most significant currencies for the Group were translated at the following exchange rates into Swiss Francs:
Australia
Brazil
Canada
Chile
China
Eurozone
AUD
BRL
CAD
CLP
CNY
EUR
United Kindgom GBP
Hong Kong
India
Taiwan
USA
HKD
INR
TWD
USD
100
100
100
100
100
100
100
100
100
100
100
YEAR-END RATES
ANNUAL AVERAGE RATES
2014
80.59
36.54
84.92
0.16
15.92
120.22
153.47
12.73
1.55
3.11
98.76
2013
79.57
37.85
83.98
0.17
14.70
122.76
146.93
11.50
1.44
2.98
89.20
2014
82.49
38.96
82.86
0.16
14.85
121.47
150.69
11.80
1.50
3.02
91.48
2013
89.85
43.20
90.09
0.19
15.08
123.09
145.01
11.95
1.59
3.12
92.72
72
73
SGS GROUP RESULTS
3
BUSINESS
COMBINATIONS AND
OTHER SIGNIFICANT
TRANSACTIONS
The following business combinations
and other significant transactions
occurred during 2014 and 2013:
ACQUISITIONS 2014
In 2014, the Group completed 10
acquisitions for a total purchase price
of CHF 119 million (note 20).
Search Group
Effective 1 July 2014, SGS acquired for
a purchase price of CHF 45 million,
100% of Search Group, a leading
engineering and sustainability advisory
group, laboratory and training institute,
based in the Netherlands.
Other
In 2014, other acquisitions included:
• 100% of Nemko Oy, the company
provides testing, calibration and
expert services to the domestic
and international communication,
electronical and electronics
industry, based in Finland (effective
1 January 2014);
• 100% of RF Technologies Ltd.,
a certification body authorised
by the Ministry of Internal Affairs
and Communications (MIC) of
Japan, based in Yokohama, Japan
(effective 1 February 2014);
• 100% of Advanced Testing &
Engineering Inc., a company
specialised in fatigue durability testing
laboratory, based in Michigan, USA
(effective 1 June 2014);
• 100% of Commercial Aging Services
LLC, a company specialised in catalyst
aging testing, based in Michigan, USA
(effective 1 June 2014);
• 100% of Courtray Consulting Sarl,
a leading provider of performance
testing, validation and expertise
services in the global hygiene
disposable industry, based in France
(effective 1 July 2014);
• 100% of Galson Laboratories Inc.,
a global leader in industrial hygiene
analysis and monitoring solutions,
based in Syracuse, USA (effective
1 August 2014);
• 100% of Röntgen Technische Dienst
NV, a global leader in non-destructive
testing services based in Belgium
(effective 1 October 2014);
• 100% of Gonzalo de Miguel
Redondo S.L.U (GMR), specialised
in technical support services to the
automotive industry for homologation
and approval of new vehicles and
automotive part, based in Spain
(effective 1 November 2014);
• 100% of Labtox, a leader in asbestos,
polychlorobipheryl and formaldehyde
testing services, based in Switzerland
(effective 11 December 2014).
These companies were acquired for
an equivalent of CHF 74 million and
the total goodwill generated on
these transactions amounted to
CHF 48 million (note 20).
Total
All the above transactions contributed
in total CHF 36 million in revenues and
CHF 7 million in operating income.
Had all acquisitions been effective
1 January 2014, the revenues for
the period would have increased by
CHF 43 million and the Group operating
income for the period would have been
increased by CHF 8 million. None of the
goodwill arising on these acquisitions is
expected to be tax deductible.
DIVESTMENTS 2014
There were no significant disposals
in 2014.
ACQUISITIONS 2013
In 2013, the Group completed
12 acquisitions for a total purchase
price of CHF 118 million (note 20).
74
Enger Engenharia SA.
Effective 1 May 2013, SGS acquired,
for a purchase price of CHF 32 million,
100% of Enger Engerharia SA,
headquarted in Sao Paulo, Brazil.
The consulting engineering company
serves the infrastructure & building
market, performing project
supervision and management as well
as technical consultancy.
Other
In 2013, other acquisitions included:
• 100% of RDFI Group, which operates
vehicle inspection test stations,
France (effective 1 February 2013);
• 100% of Umweltanalytik RUK GmbH,
a provider of biogas, stack and fugitive
emission testing services, Germany
(effective 1 February 2013);
• 100% of Grupo Labmat, Grupo
Labmat serves many markets in
providing materials testing, welding
and engineering services as well
as metallurgy project inspections,
based in Sao Paulo state, Brazil,
(effective 1 March 2013);
• 100% of Time Mining Group,
a supplier of process plant design,
project management, but also
commissioning and optimization
services for minerals processing,
South Africa plants (effective
1 April 2013);
• 100% of MSi Testing & Engineering
Inc., a laboratory in the fields of
Metallurgical Testing and Failure
Analysis, USA (effective 1 April 2013);
• 100% of Civil Quality Assurance Pty.
Ltd., a geotechnical and environmental
consultancy and testing business,
Australia (effective 1 June 2013);
• 100% of Qingdao Yuanshun
Automotive Services Ltd., a vehicle
inspection company of the Shandong
province, based in Qingdao, China
(effective 1 June 2013);
• 100% of MIS Environmental Ltd., a
laboratory offering a vast spectrum of
experience in asbestos, environmental
and health and safety testing and
consultancy services, based in
Consett, United Kingdom (effective
1 September 2013);
These companies were acquired for
a purchase price of CHF 86 million and
the total goodwill generated on these
transactions amounted to CHF 57 million
(note 20).
period would have been increased by
CHF 42 million and the Group operating
income for the period would have been
increased by CHF 7 million. None of the
goodwill arising on these acquisitions is
expected to be tax deductible.
Total
All the above acquisitions contributed
in total CHF 65 million in revenues and
CHF 11 million in operating income
during the year for the Group. Had all
acquisitions been effective 1 January
2013, the Group revenues for the
DIVESTMENTS 2013
There were no significant disposals
in 2013.
• 100% of MIS Testing Ltd,
a mechanical and material testing
laboratory, based in Consett,
United Kingdom (effective
1 September 2013);
• 100% of Industrial Valve Engineering
limited, a industrial valve testing
& certification provider, based in
Tokoroa, New Zealand (effective
1 November 2013);
• The business of Hart Aviation,
a provider of aviation audit and
advisory services to specifically
mitigate aviation risks, based in
Melbourne, Australia (effective
1 November 2013).
4
INFORMATION BY BUSINESS AND GEOGRAPHICAL SEGMENT
(CHF million)
2014
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
OTHER 1
NON-RECURRING
ITEMS
OPERATING
INCOME
BY BUSINESS
387
703
1 201
213
1 093
414
977
342
303
250
5 883
64
99
144
20
270
74
122
34
62
58
947
-
(1)
(3)
(2)
(1)
-
(5)
(2)
(6)
-
(20)
Unallocated costs
GROUP OPERATING INCOME
-
-
-
-
-
-
-
-
-
32
32
64
98
141
18
269
74
117
32
56
90
959
(18)
941
1. This amount represents the amical settlement between SGS and the Republic of Paraguay of a long standing dispute associated with unpaid inspection services.
75
SGS GROUP RESULTS
(CHF million)
2013
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
OTHER
NON-RECURRING
ITEMS
OPERATING
INCOME
BY BUSINESS
381
792
1 140
205
1 042
402
960
328
305
275
5 830
65
124
154
27
258
73
108
34
66
68
977
-
(1)
(3)
(2)
(1)
-
(5)
(1)
(7)
-
(20)
Unallocated costs
GROUP OPERATING INCOME
-
-
-
-
-
-
-
-
-
-
-
65
123
151
25
257
73
103
33
59
68
957
(45)
912
The revenues reported represent revenue generated from external customers.
UNALLOCATED COSTS 2014
In 2014, the Group incurred CHF 7 million of integration-related costs and transaction-related costs that have been expensed in
accordance with IFRS 3 (revised). At the same time, the Group incurred a pre-tax restructuring charge of CHF 11 million, largely as
a result of personnel reorganisation due to the decline in market conditions in certain businesses and geographies (CHF 3 million)
as well as fixed impairment and other charges (CHF 8 million).
UNALLOCATED COSTS 2013
In 2013, the Group incurred CHF 12 million of integration-related costs and transaction-related costs that have been expensed in
accordance with IFRS 3 (revised). At the same time, the Group incurred a pre-tax restructuring charge of CHF 33 million, largely as
a result of personnel reorganisation due to the decline in market conditions in certain businesses and geographies (CHF 28 million)
as well as fixed impairment and other charges (CHF 5 million).
(CHF million)
2104
%
2013
%
REVENUE FROM EXTERNAL CUSTOMERS BY GEOGRAPHICAL SEGMENT
Europe/Africa/Middle East
Americas
Asia Pacific
TOTAL
2 709
1 433
1 741
5 883
46.0
24.4
29.6
100.0
2 694
1 448
1 688
5 830
46.2
24.8
29.0
100.0
Revenue in Switzerland from external customers for 2014 amounted to CHF 232 million (2013: CHF 267 million). No country
represented more than 15% of revenues from external customers in 2014 or 2013.
76
MAJOR CUSTOMER INFORMATION
In 2014 and in 2013, no external customer represented 10% or more of the Group’s total revenue.
(CHF million)
OPERATING ASSETS BY BUSINESS SEGMENT
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
2014
242
626
951
264
714
199
805
356
422
219
4 798
%
5.0
13.1
19.8
5.5
14.9
4.1
16.8
7.4
8.8
4.6
100.0
2013
244
683
898
241
672
179
676
262
404
157
4 416
%
5.5
15.5
20.3
5.5
15.2
4.1
15.3
5.9
9.1
3.6
100.0
(CHF million)
2014
2013
RECONCILIATION OF OPERATING ASSETS BY BUSINESS SEGMENT TO THE BALANCE SHEET
Assets by business segment as above
Non-operating assets
TOTAL ASSETS PER BALANCE SHEET
4 798
969
5 767
4 416
623
5 039
Assets by business segment comprise all assets held by the Group’s operating affiliates after elimination of inter-company balances.
SPECIFIC NON-CURRENT ASSETS BY MATERIAL COUNTRIES
Specific non-current assets by material countries:
(CHF million)
Switzerland
Other countries
TOTAL SPECIFIC NON-CURRENT ASSETS
2014
114
2 337
2 451
%
4.6
95.4
100.0
2013
81
2 224
2 305
%
3.5
96.5
100.0
No country represented more than 15% of the specific non-current assets in 2014 or 2013.
77
SGS GROUP RESULTS
RECONCILIATION WITH TOTAL NON-CURRENT ASSETS
(CHF million)
Specific non-current assets as above
Deferred tax assets
Non-current loans to third parties
TOTAL
(CHF million)
OPERATING LIABILITIES BY BUSINESS SEGMENT
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
2014
134
243
415
74
378
143
338
118
105
86
2 034
2014
2 451
195
2
2 648
2013
121
250
360
65
329
127
303
104
96
87
1 842
2013
2 305
173
-
2 478
%
6.6
13.6
19.6
3.5
17.9
6.9
16.4
5.6
5.2
4.7
100.0
%
6.6
12.0
20.4
3.6
18.6
7.0
16.6
5.8
5.2
4.2
100.0
(CHF million)
2014
2013
RECONCILIATION OF OPERATING LIABILITIES BY BUSINESS SEGMENT TO THE BALANCE SHEET
Liabilities by business segment as above
Non-operating liabilities
TOTAL LIABILITIES PER BALANCE SHEET
2 034
1 330
3 364
1 842
985
2 827
(CHF million)
2014
%
2013
%
CAPITAL ADDITIONS BY BUSINESS SEGMENT
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
17
32
75
16
91
5
30
19
16
11
312
15
60
68
16
91
5
32
22
25
23
357
4.2
16.8
19.0
4.5
25.5
1.4
9.0
6.2
7.0
6.4
100.0
5.5
10.3
24.0
5.1
29.2
1.6
9.6
6.1
5.1
3.5
100.0
78
(CHF million)
2014
%
2013
%
DEPRECIATION AND AMORTISATION BY BUSINESS SEGMENT
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
13
43
56
14
74
5
36
22
22
13
298
4.4
14.4
18.8
4.7
24.8
1.7
12.1
7.4
7.4
4.3
100.0
13
46
52
17
68
5
36
20
23
12
292
4.4
15.7
17.7
5.8
23.3
1.7
12.3
7.2
7.8
4.1
100.0
(CHF million)
2014
%
2013
%
IMPAIRMENT BY BUSINESS SEGMENT
Minerals Services
Consumer Testing Services
Systems & Services Certification
Industrial Services
TOTAL
5
1
-
-
6
83.3
16.7
-
-
100.0
1
-
2
3
6
16.7
-
33.3
50.0
100.0
AVERAGE NUMBER OF EMPLOYEES BY GEOGRAPHICAL SEGMENT
Europe/Africa/Middle East
Americas
Asia Pacific
TOTAL
Number of employees at year end
2014
2013
33 542
19 191
30 782
83 515
84 246
32 485
18 754
29 271
80 510
81 948
79
SGS GROUP RESULTS
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
Net financial expenses on defined benefit plans
TOTAL
1. In a designated fair value hedge accounting relationship.
80
2014
287
400
103
377
219
1 386
2014
16
0
1
17
2014
40
14
(20)
20
2
2
58
2013
282
379
107
372
252
1 392
2013
16
1
1
18
2013
37
11
10
(10)
3
5
56
8
TAXES
(CHF million)
MAJOR COMPONENTS OF TAX EXPENSE
Current taxes
Deferred tax (credit)/expense relating to the origination and reversal
of temporary differences
TOTAL
2014
223
11
234
2013
223
13
236
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
(Usage of)/tax charge from unrecognised tax losses
Non-creditable foreign withholding taxes
Other
TAX CHARGE
2014
900
173
8
2
31
20
234
2013
874
181
5
12
32
6
236
(CHF million)
ASSETS
LIABILITIES
ASSETS
LIABILITIES
2014
2013
COMPONENTS OF DEFERRED INCOME TAX BALANCES
Fixed assets
Inventories and receivables
Retirement benefit obligations
Provisions and other
Intangible assets
Tax losses carried forward
DEFERRED INCOME TAXES
30
17
36
66
8
38
195
12
27
-
17
18
-
74
22
10
41
50
7
43
173
10
14
-
19
23
-
66
81
SGS GROUP RESULTS
Net change in deferred tax assets/(liabilities):
(CHF million)
NET DEFERRED INCOME TAX ASSET (LIABILITY) AT 1 JANUARY
(Charged)/credited to the income statement
(Charged)/credited to the shareholders' equity 1
Exchange differences and other
NET DEFERRED INCOME TAX ASSET (LIABILITY) AT 31 DECEMBER
1. Relate to remeasurement gains and losses on pensions.
(CHF million)
REFLECTED IN THE BALANCE SHEET AS FOLLOWS:
Deferred tax assets
Deferred tax liabilities
TOTAL
2014
107
(11)
26
(1)
121
2014
195
(74)
121
2013
152
(13)
(23)
(9)
107
2013
173
(66)
107
The Group has unrecognised tax losses carried forward amounting to CHF 49 million (2013: CHF 50 million) of which none will
expire within the next five years. No tax losses carried forward expired in 2014.
At 31 December 2014, consolidated retained earnings include approximately CHF 3 912 million (2013: CHF 3 729 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.
82
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)
2014
629
2013
600
7 670 752
7 649 642
81.99
78.43
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)
2014
629
2013
600
7 702 444
7 708 047
81.65
77.84
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)
Other non-recurring items 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)
2014
629
20
8
5
(28)
634
82.69
82.35
2013
600
20
23
9
-
652
85.27
84.63
83
LAND & BUILDINGS
MACHINERY &
EQUIPMENT
OTHER TANGIBLE
ASSETS
TOTAL
643
109
4
-
(25)
(71)
660
372
60
2
3
-
(22)
5
420
240
1
-
1
2 641
273
14
-
(74)
33
2 887
1 612
247
6
12
-
(63)
30
1 844
1 043
5
3
2
SGS GROUP RESULTS
10
LAND, BUILDINGS AND EQUIPMENT
(CHF million)
2014
COST
At 1 January
Additions
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences/other
At 31 December
ACCUMULATED DEPRECIATION AND IMPAIRMENTS
At 1 January
Depreciation
Impairment
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences/other
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2014
453
10
(2)
-
(2)
18
477
214
17
2
-
-
(2)
(2)
229
248
1 545
154
12
-
(47)
86
1 750
1 026
170
2
9
-
(39)
27
1 195
555
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 2014
-
-
-
4
3
1
84
LAND & BUILDINGS
MACHINERY &
EQUIPMENT
OTHER TANGIBLE
ASSETS
TOTAL
(CHF million)
2013
COST
At 1 January
Additions
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences/other
At 31 December
ACCUMULATED DEPRECIATION AND IMPAIRMENTS
At 1 January
Depreciation
Impairment
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences/other
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2013
453
19
1
-
(7)
(13)
453
204
17
-
-
-
(3)
(4)
214
239
1 460
206
15
-
(66)
(70)
1 545
947
168
4
9
-
(59)
(43)
1 026
519
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 2013
-
-
-
5
4
1
608
102
5
-
(41)
(31)
643
355
59
2
2
-
(33)
(13)
372
271
1
1
-
2 521
327
21
-
(114)
(114)
2 641
1 506
244
6
11
-
(95)
(60)
1 612
1 029
6
5
1
At 31 December 2014, the Group had commitments of CHF 9 million (2013: CHF 9 million) for the acquisition of land,
buildings and equipment.
Included in the other tangible assets are construction-in-progress assets amounting to CHF 12 million (2013: CHF 46 million).
The values of buildings and equipment for fire insurance purposes are as follows:
(CHF million)
Buildings
Machinery, equipment and other tangible assets
2014
635
2 294
2013
541
2 047
85
SGS GROUP RESULTS
11
GOODWILL
(CHF million)
COST
At 1 January
Additions
Exchange differences
AT 31 DECEMBER
Goodwill impairment reviews have
been conducted for goodwill balances
allocated to more than 57 cash
generating units (CGU). The goodwill
balances tested account for 96.4%
of the total goodwill net book value
reported as at 31 December 2014.
No goodwill impairment exposure was
identified and therefore no impairment
charge was recorded (2013: nil).
Detailed results of the impairment tests
are presented below for larger goodwill
balances (representing 45.6% of all
goodwill items tested). These tests have
all been performed in accordance with
the Group's uniform method described
on page 69.
AUTOMOTIVE SPAIN AND ARGENTINA
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 Automotive Services Spain and
Argentina CGU for impairment testing
purposes. The carrying amount of
the goodwill allocated to the CGU is
expressed in EUR for an equivalent of
CHF 142 million as at 31 December 2014
(2013: CHF 143 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 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 2.0% would not result in
the carrying amount exceeding the
recoverable amount. Reducing the
operating margin by 0.25% would not
result in the carrying amount exceeding
the recoverable amount.
An increase of 1.0% in the discount
rate assumption would not change
the conclusions of the impairment test.
LIFE SCIENCE SERVICES, EUROPE
Goodwill recognised on the following
main acquisitions has been allocated
to the Life Science Services, Europe
CGU for impairment testing purposes:
Medisearch International (2003), Cibest
(2004), Aster Cephac (2006), M-Scan
Group (2010), Exprimo (2011) and
Vitrology (2012). The carrying amounts of
the goodwill items allocated to this CGU
are expressed in EUR for an equivalent of
CHF 104 million as at 31 December 2014
(2013: CHF 105 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
86
2014
2013
1 009
84
12
1 105
959
83
(33)
1 009
used in this calculation, discounted at
a pre-tax rate of 6.9%. 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 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 2.0% would not result in
the carrying amount exceeding the
recoverable amount. Reducing the
operating margin by 0.25% would not
result in the carrying amount exceeding
the recoverable amount.
An increase of 1.0% in the discount
rate assumption would not change
the conclusions of the impairment test.
INDUSTRIAL SERVICES, NORTH AMERICA
Goodwill mainly recognised on the
following main acquisition of Pfinde
(2011), FTS US (2007) and MSI (2013)
has been allocated to the Industrial
Services North America CGU for
impairment testing purposes.
The carrying amount of the goodwill
allocated to this CGU is expressed in
USD and CAD for an equivalent of
CHF 73 million as at 31 December 2014
(2013: CHF 67 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 7.0%. 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 Industrial 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 2.0% would not result in
the carrying amount exceeding the
recoverable amount. Reducing the
operating margin by 0.25% would not
result in the carrying amount exceeding
the recoverable amount.
An increase of 1.0% in the discount
rate assumption would not change
the conclusions of the impairment test.
MINERALS SERVICES, NORTH AMERICA
Goodwill recognised on the following
main acquisitions has been allocated to
the Minerals Services North America
CGU for impairment testing purposes:
Lakefield group (2002) and Minnovex
group (2005), SMPN-CEMI (2008) and
E&S Engineering (2012). The carrying
amounts of the goodwill items allocated
to this CGU are expressed in various
currencies for an equivalent of
CHF 65 million as at 31 December 2014
(2013: CHF 64 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 7.5%. 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 Minerals 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 2.0% would not result in
the carrying amount exceeding the
recoverable amount. Reducing the
operating margin by 0.25% would not
result in the carrying amount exceeding
the recoverable amount.
An increase of 1.0% in the discount
rate assumption would not change
the conclusions of the impairment test.
MULTIBUSINESS SERVICES, GERMANY
Goodwill mainly recognised on
the following main acquisition of Institut
Fresenius AG (2004) and Merlot
Nokia Siemens network (2008),
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 64 million as at 31 December 2014
(2013: CHF 65 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 6.9%. 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
in Multibusiness Services in Germany.
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 2.0% would not result in
the carrying amount exceeding the
recoverable amount. Reducing the
operating margin by 0.25% would not
result in the carrying amount exceeding
the recoverable amount.
An increase of 1.0% in the discount
rate assumption would not change
the conclusions of the impairment test.
OIL, GAS & CHEMICALS SERVICES,
NETHERLANDS AND MALAYSIA
Goodwill recognised on the following
main acquisitions of Horizon Energy
Partners (2008) and AKZO (2008)
has been allocated to the Oil, Gas &
Chemicals Services, Netherlands and
Malaysia CGU for impairment testing
purposes. The carrying amount of
the goodwill allocated to the CGU is
expressed in EUR for an equivalent of
CHF 57 million as at 31 December 2014
(2013: CHF 58 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 7.9%. 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 Oil, Gas & Chemicals Services,
Netherlands and Malaysia 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 2.0% would not result in
the carrying amount exceeding the
recoverable amount. Reducing the
operating margin by 0.25% would not
result in the carrying amount exceeding
the recoverable amount.
An increase of 1.0% in the discount
rate assumption would not change
the conclusions of the impairment test.
87
SGS GROUP RESULTS
12
OTHER INTANGIBLE ASSETS
(CHF million)
2014
COST
At 1 January
Additions
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences/other
At 31 December
82
-
-
-
-
(1)
81
ACCUMULATED AMORTISATION AND IMPAIRMENT
At 1 January
Amortisation
Impairment
Acquisition of subsidiaries
Sale of subsidiaries
Disposals
Exchange differences/other
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2014
37
7
-
-
-
-
-
44
37
TRADEMARKS
AND OTHER
CUSTOMER
RELATIONSHIPS
INTERNALLY
GENERATED
PURCHASED
TOTAL
COMPUTER SOFTWARE
AND OTHER ASSETS
78
7
-
-
-
-
85
67
5
-
-
-
-
-
72
13
240
32
1
-
(8)
18
283
193
26
-
1
-
(8)
2
214
69
553
39
21
-
(8)
20
625
346
51
-
1
-
(8)
3
393
232
153
-
20
-
-
3
176
49
13
-
-
-
-
1
63
113
88
TRADEMARKS
AND OTHER
CUSTOMER
RELATIONSHIPS
INTERNALLY
GENERATED
PURCHASED
TOTAL
COMPUTER SOFTWARE
AND OTHER ASSETS
138
-
20
-
(5)
153
38
12
-
-
-
(1)
49
104
73
5
-
-
-
78
62
5
-
-
-
-
67
11
225
25
1
(6)
(5)
240
177
23
-
1
(5)
(3)
193
47
520
30
21
(6)
(12)
553
307
48
-
1
(5)
(5)
346
207
(CHF million)
2013
COST
At 1 January
Additions
Acquisition of subsidiaries
Disposals
Exchange differences
At 31 December
84
-
-
-
(2)
82
ACCUMULATED AMORTISATION AND IMPAIRMENT
At 1 January
Amortisation
Impairment
Acquisition of subsidiaries
Disposals
Exchange differences
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2013
SIGNIFICANT INTANGIBLE ASSETS
30
8
-
-
-
(1)
37
45
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 5 million (2013: CHF 6 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
2014
1
48
49
2013
1
41
42
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%.
Other non-current assets consist mainly of deposits for guarantees and include CHF 27 million (2013: CHF 13 million) of restricted
cash. Typical examples of restricted cash are cash deposits for performance bonds, rentals and other operating obligations.
At 31 December 2014 and 2013, the fair value of the Group's other non-current assets approximates the carrying value.
89
SGS GROUP RESULTS
14
UNBILLED REVENUES AND INVENTORIES
(CHF million)
Work-in-progress
Unbilled revenues
Inventories
TOTAL
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 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
2014
60
212
58
330
2014
1 178
(110)
1 068
446
401
102
49
70
-
1 068
2013
43
232
55
330
2013
1 111
(159)
952
365
413
86
47
41
-
952
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
2014
(159)
(1)
(15)
66
(1)
(110)
2013
(159)
(1)
(17)
14
4
(159)
90
Receivables aged less than 360 days are provided when the creditworthiness 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 counterparties 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 2014 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.
16
OTHER RECEIVABLES AND PREPAYMENTS
(CHF million)
Prepayments
Derivative assets
Interest Rate Swap designated in a fair value hedge accounting relationship
Other receivables
TOTAL
2014
76
22
15
258
371
2013
68
8
0
230
306
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties.
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
2014
9
9
2013
9
9
Unrealised gains or losses on marketable securities designated as available for sale and which are recorded in equity amounted
to nil for 2014 (2013: nil).
91
SGS GROUP RESULTS
18
CASH AND CASH EQUIVALENTS
(CHF million)
Cash and short-term deposits
Short-term loans
TOTAL
2014
1 340
1
1 341
2013
964
-
964
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. OTHER NON-CASH ITEMS
(CHF million)
Depreciation of buildings and equipment
NOTES
10
Impairment of land, buildings and equipment and other intangible assets
10 & 12
12
Amortisation of intangible assets
Net financial expenses
(Decrease) in provisions and employee benefits
Share-based payment expenses
(Gain) on disposals of businesses
(Gain) on disposals of land, buildings and equipment
Share of results from associates and other entities
Taxes
OTHER NON-CASH ITEMS
19.2 INCREASE IN WORKING CAPITAL
(CHF million)
(Increase) in unbilled revenues and inventories
(Increase)/decrease in trade accounts and notes receivable
(Increase) in other receivables and prepayments
Increase/(decrease) in trade and other payables
Increase in other creditors and accruals
(Decrease)/increase in other provisions
(INCREASE)/DECREASE IN WORKING CAPITAL
2014
247
6
51
41
(28)
10
-
-
(2)
234
559
2014
(2)
(90)
(25)
(4)
29
(17)
(109)
2013
244
6
48
38
(16)
5
-
(5)
(4)
236
552
2013
(42)
(6)
(31)
23
33
(6)
(29)
92
19.3. CASH FLOWS ARISING FROM ACQUISITIONS AND DIVESTMENTS OF BUSINESSES
(CHF million)
2014
ACQUISITIONS
2014
DIVESTMENTS
2013
ACQUISITIONS
2013
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/(divested) cash and cash equivalents
SUBTOTAL
Goodwill
Divestments gain
Consideration payable
Payments on prior year aquisitions
NET CASH FLOWS
(6)
(20)
(21)
(6)
11
7
(35)
6
(29)
(84)
-
5
(6)
(114)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(11)
(20)
(19)
(14)
18
11
(35)
14
(21)
(83)
-
1
(5)
(108)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Note 3 provides further information regarding acquisitions and divestments of businesses. All acquisitions were settled in cash.
20
ACQUISITIONS
ASSETS AND LIABILITIES ARISING FROM THE 2014 ACQUISITIONS
(CHF million)
FAIR VALUE ON ACQUISITION
FAIR VALUE ON ACQUISITION
FAIR VALUE ON ACQUISITION
SEARCH
OTHER
TOTAL
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
Further consideration payable
NET CASH OUTFLOW ON ACQUISITIONS
1
6
9
-
-
(5)
(2)
9
36
45
-
-
45
5
14
11
6
1
(6)
(5)
26
48
74
(6)
(5)
63
6
20
20
6
1
(11)
(7)
35
84
119
(6)
(5)
108
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 (2013: CHF 5 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.
93
SGS GROUP RESULTS
21
FINANCIAL RISK MANAGEMENT
RISK MANAGEMENT POLICIES AND OBJECTIVES
The Group’s activities expose it primarily to market, credit and liquidity risk. Market risk includes foreign exchange, interest rate
and equity price risks.
The risk management policies and objectives are governed by the Group’s policies approved by the Board of Directors.
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)
2014
2013
2014
2013
2014
2013
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)
Colombian Peso (COP)
Czech Koruna (CZK)
Euro (EUR)
British Pound Sterling (GBP)
Hong Kong Dollar (HKD)
Japanese Yen (JPY)
Kenyan Shilling (KES)
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
(45)
(40)
(14)
(26)
20
(10)
(2)
(409)
31
267
(4)
-
3
-
(8)
(6)
(3)
(16)
(117)
(37)
(2)
(418)
(1)
(1)
-
1
-
(1)
-
6
-
-
-
-
-
-
-
-
1
-
(1)
-
-
4
(30)
(25)
(19)
(21)
21
(14)
(4)
(126)
(10)
235
1
(3)
-
(1)
(7)
(7)
(9)
(17)
(72)
(40)
-
(148)
94
-
-
1
-
-
-
-
(1)
-
-
-
-
-
-
-
-
-
-
(1)
1
-
-
(1)
(1)
-
1
-
(1)
-
6
-
-
-
-
-
-
-
-
1
-
(1)
-
-
4
-
-
1
-
-
-
-
(1)
-
-
-
-
-
-
-
-
-
-
(1)
1
-
-
FAIR VALUE MEASUREMENT RECOGNISED IN THE BALANCE SHEET
Marketable securities and derivative assets and liabilities are the only financial instruments measured at fair value subsequent
to their initial recognition.
Marketable securities (2014: CHF 9 million; 2013: CHF 9 million) qualify as Level 1 fair value measurement category. Derivative
assets (2014: CHF 37 million; 2013: CHF 8 million) and liabilities (2014: CHF 8 million; 2013: CHF 10 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.
The fair values of financial assets and financial liabilities included in the level 2 above have been determined in accordance with
generally accepted pricing models.
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 2014 is the carrying amount of financial
assets including derivatives.
Analysis of financial assets by class and category at 31 December 2014:
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 cash-equivalents
1 341
1 341
Trade receivables
Other receivables 1
Unbilled revenues
Loans to 3rd parties - non-current
Marketable securities
Derivatives 2
1 068
1 068
140
212
1
-
-
140
212
1
-
-
TOTAL FINANCIAL ASSETS
2 762
2 762
-
-
-
-
-
9
-
9
-
-
-
-
-
9
-
9
-
-
-
-
-
-
37
37
-
-
-
-
-
-
37
37
1 341
1 341
1 068
1 068
140
212
1
9
37
140
212
1
9
37
2 808
2 808
1. Excluding VAT and other tax related items.
2. Including an Interest Rate Swap designated in a fair value hedge accounting relationship of CHF 15 million.
In the fair value hierarchy, marketable securities qualify as level 1 and the remaining financial assets qualify as level 2.
95
SGS GROUP RESULTS
Analysis of financial assets by class and category at 31 December 2013:
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 cash-equivalents
Trade receivables
Other receivables 1
Unbilled revenues
Loans to 3rd parties - current
Loans to 3rd parties - non-current
Marketable securities
Derivatives
964
952
130
232
-
1
-
-
964
952
130
232
-
1
-
-
TOTAL FINANCIAL ASSETS
2 279
2 279
-
-
-
-
-
-
9
-
9
-
-
-
-
-
-
9
-
9
-
-
-
-
-
-
-
8
8
-
-
-
-
-
-
-
8
8
964
952
130
232
-
1
9
8
964
952
130
232
-
1
9
8
2 296
2 296
1. Excluding VAT and other tax related items.
In the fair value hierarchy, marketable securities qualify as level 1 and the remaining financial assets qualify as level 2.
LIQUIDITY RISK MANAGEMENT
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 2014:
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
-
-
-
-
8
-
8
-
-
-
-
8
-
8
192
159
41
192
159
41
1 686
1 686
8
4
8
4
2 090
2 090
(CHF million)
Trade payables
Other payables and financial liabilities 1
Advances from clients
192
159
41
192
159
41
Loans and obligations under finance leases
1 686
1 686
Derivatives
Bank overdrafts
-
4
-
4
TOTAL FINANCIAL LIABILITIES
2 082
2 082
1. Excluding VAT and other tax related items.
In the fair value hierarchy, all financial liabilities qualify as level 2.
96
Analysis of financial liabilities by class and category at 31 December 2013:
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
198
152
36
198
152
36
Loans and obligations under finance leases
1 307
1 307
Derivatives 2
Bank overdrafts
-
1
-
1
TOTAL FINANCIAL LIABILITIES
1 694
1 694
-
-
-
-
10
-
10
-
-
-
-
10
-
10
198
152
36
198
152
36
1 307
1 307
10
1
10
1
1 704
1 704
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.
In the fair value hierarchy, all financial liabilities qualify as level 2.
Contractual maturities of financial liabilities including interest payments at 31 December 2014:
(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
46
524
26
24
397
852
12
1 130
(1 119)
332
4
1
-
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
-
-
-
TOTAL
402
528
27
24
397
853
The Group hedges its foreign exchange exposures on a net basis. The net gross settled derivative financial instruments of
CHF 11 million (2013: nil) represents the net nominal value expressed in CHF of the Group’s foreign currency contracts outstanding
at 31 December 2014.
Contractual maturities of financial liabilities including interest payments at 31 December 2013:
(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
44
29
651
17
17
696
8
4
2
-
-
1
1 134
(1 134)
330
-
-
-
-
-
-
3
-
-
-
-
-
-
-
-
97
1
1
-
-
-
-
TOTAL
383
34
656
17
17
697
SGS GROUP RESULTS
SENSITIVITY ANALYSES
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 2014 and 2013, with all other variables remaining constant.
Sensitivity analysis at 31 December 2014 and 2013:
(CHF million)
US Dollar (USD)
Euro (EUR)
CFA Franc BEAC (XAF)
New Cedi (GHS)
Kwanza Angolais (AOA)
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)
2014
2013
INCOME STATEMENT
IMPACT INCOME/(EXPENSE)
EQUITY IMPACT
INCREASE/(DECREASE)
INCOME STATEMENT
IMPACT INCOME/(EXPENSE)
EQUITY IMPACT
INCREASE/(DECREASE)
(1)
(2)
1
(1)
1
-
-
-
-
-
-
-
-
8
-
-
-
-
2
2
5
-
2
1
1
2
-
(2)
(1)
-
-
-
-
-
-
-
-
-
-
5
-
-
-
-
2
2
5
1
2
1
1
2
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.
In February 2014 the company issued a ten year CHF 250 million straight bond with a coupon of 1.75%. At the same time bond
holders of CHF 133 millions accepted to exchange their existing 2016 bonds into new bonds with a term of 8 years amounting
to CHF 138 million and maturing in 2022 with a coupon of 1.375%.
Finally the Company re-opened the bond maturing in 2022 and increased the amount by CHF 112 million to a total of CHF 250 million.
If interest rates were 50 basis points higher/lower, the profit for the year ended 31 December 2014 would increase/decrease by
CHF nil (2013: nil).
98
99
SGS GROUP RESULTS
22
SHARE CAPITAL AND TREASURY SHARES
SHARES IN CIRCULATION
TREASURY SHARES
TOTAL SHARES ISSUED
TOTAL SHARE CAPITAL
(CHF million)
BALANCE AT 1 JANUARY 2013
Treasury shares released into circulation
Treasury shares purchased
BALANCE AT 31 DECEMBER 2013
Treasury shares released into circulation
Treasury shares purchased
BALANCE AT 31 DECEMBER 2014
7 632 042
37 201
(18 403)
7 650 840
24 666
-
7 675 506
190 394
(37 201)
18 403
171 596
(24 666)
-
146 930
7 822 436
-
-
7 822 436
-
-
7 822 436
8
-
-
8
-
-
8
ISSUED SHARE CAPITAL
SGS SA has a share capital of CHF 7 822 436 (2013: CHF 7 822 436) fully paid in and divided into 7 822 436 (2013: 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 2014, SGS SA held 146 930 treasury shares.
In 2014, no treasury shares were purchased to cover option rights. During the year, 24 666 treasury shares were sold to cover
option rights for an average price CHF 1 269.
In 2012, the Group initiated a 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 19 March 2015.
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.
100
23
LOANS AND OBLIGATIONS UNDER LEASES
(CHF million)
Bank loans
Bank overdrafts
Corporate bonds
Finance lease obligations
TOTAL
Current
Non-current
2014
16
4
1 668
2
1 690
18
1 672
2013
17
1
1 288
2
1 308
15
1 293
Depending on the nature of the loan, currency and date of maturity, interest rates on long-term loans from third parties range
between 1.4% and 13.8% and on short-term loans from third parties range between 0% and 14.5%.
The loans from third parties exposed to fair value interest rate risk amount to CHF 1 361 million (2013: CHF 1 007 million) and
the loans from third parties exposed to cash flow interest rate risk amount to CHF 328 million (2013: CHF 298 million).
At 31 December 2014, 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 1 456 million (2013: CHF 1 056 million).
SGS SA issued the following corporate bonds listed on the SIX Swiss Exchange:
DATE OF ISSUE
19.08.2010
08.03.2011
27.05.2011 ¹
27.05.2011 ²
27.02.2014
27.02.2014
25.04.2014
FACE VALUE IN
CHF MILLION
COUPON IN %
YEAR OF
MATURITY
417
375
275
75
138
250
112
1.875
2.625
3.000
1.875
1.375
1.750
1.375
2016
2019
2021
2016
2022
2024
2022
ISSUE
PRICE IN %
100.346
100.832
100.480
99.591
100.517
101.019
101.533
REDEMPTION
PRICE IN %
100.000
100.000
100.000
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.
In February 2014, the Company issued a 10 year CHF 250 million straight bond with a coupon of 1.75%. At the same time, bond
holders of CHF 133 million accepted to exchange their existing 2016 bonds into new bonds with a term of 8 years amounting
to CHF 138 million and maturing in 2022 with a coupon of 1.375%.
Finally, the Company re-opened the bond maturing in 2022 and increased the amount by CHF 112 million to a total of CHF 250 million.
The Group has listed all the bonds on the SIX Swiss Exchange.
101
SGS GROUP RESULTS
Loans and finance lease obligations mature as follows:
BANK LOANS, OVERDRAFTS
AND CORPORATE BONDS
(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
2014
16
75
2
-
373
1 222
1 688
2013
14
4
622
-
-
666
1 306
The currency composition of loans and finance lease obligations is as follows:
(CHF million)
Swiss Franc (CHF)
Euro (EUR)
US Dollar (USD)
Indian Rupee (INR)
Colombian Peso (COP)
Malagasy Ariary (MGA)
Brazilian Real (BRL)
Other
TOTAL
BANK LOANS, OVERDRAFTS
AND CORPORATE BONDS
2014
1 673
-
1
4
-
2
7
1
2013
1 295
1
1
-
1
2
3
3
1 688
1 306
LEASE OBLIGATIONS
2014
2013
2
-
-
-
-
-
2
1
1
-
-
-
-
2
LEASE OBLIGATIONS
2014
2013
-
-
-
-
-
-
-
2
2
-
1
-
-
-
-
-
1
2
102
24
RETIREMENT BENEFIT OBLIGATIONS
The Group mainly operates defined benefit pension plans in Switzerland, the United States of America, the United Kingdom,
the Netherlands, Germany, Italy, France, Korea 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 United States of America and
in Switzerland. They represent a defined benefit obligation at 31 December 2014 of CHF 14 million (2013: 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.
In 2014, a pension plan previously qualified as defined benefit was amended and now qualified as defined contribution and has
been taken out of the scope (2013: nil).
The Group's material defined benefit plans are in Switzerland, the United States of America and the United Kingdom.
SWITZERLAND
The Group jointly operates with the employees a retirement foundation in Switzerland. The assets and liabilities of the retirement
foundation are held separately from the Group. The foundation board is equally composed of representatives of the employee
and representatives of the employer. This foundation covers all the employees in Switzerland and provides benefits on a defined
contribution basis.
Each employee has a retirement account to which the employee and the Group contribute at a rate set out in the foundation rules
based on a percentage of salary. Every year, the foundation decides the level of interest, if any, to apply to retirement accounts based
on the agreed policy. At retirement, employees can elect to withdraw all or part of their balances of their retirement account, failing
which the retirement account is converted into annuities at pre-defined convertion rates.
Because the foundation board is expected to eventually pay out all of the foundation’s assets as benefits to employees and former
employees, no surplus is deemed to be recoverable by the Group. Similarly, unless the assets are insufficient to cover minimum
benefits, the Group does not expect to make any deficit contribution to the foundation.
According to IFRS, the foundation has to be classified as a defined benefit plan due to underlying benefit guarantees and
has to be accounted for on this basis.
The weighted average duration of the expected benefit payment is approximately 15 years.
The Group expects to contribute CHF 7 million to this plan in 2015.
UNITED STATES OF AMERICA
The Group operates a non-contributory defined benefit plan which is subject to the provisions of the Employee Retirement
Income Security Act (ERISA).
The assets of the plan are held separately from the Group by the trustee-custodian, and the plan’s third party pension administrator
who disburses payments directly to retirees or beneficiaries under the plan. Both the trustee-custodian and the administrator
ensure adherence to ERISA rules.
Funding valuations are calculated on an actuarial basis and contributions are made as necessary. The funding target is to provide
the plan with sufficient assets to meet future plan obligations.
Effective 16 March 2004, non-exempt participants ceased accruing any additional benefits; only exempt employees of certain
SGS business units in the United States of America are eligible for annual benefit accrual. In addition, the pension benefit was
changed and is defined as percentage of the current year’s pensionable compensation; the cost of additional benefit accrual
is evaluated annually. The Group reserves the right to make future changes to the benefit accrual structure of the plan.
Eligible employees become participants in the plan after the completion of one year of service and after reaching the age of 21.
Participants become fully vested in the plan after five years of service.
The weighted average of duration of the expected benefit payment is approximately 13 years.
The Group expects to contribute CHF 42 million to this plan in 2015.
103
SGS GROUP RESULTS
UNITED KINGDOM
The Group operates two defined benefit plans through a trust. The assets of the plans are held separately from the Group and have
trustees who ensure the plan’s rules are strictly adhered to. One plan has been closed to new entrants since 2002. Since then
new employees have been offered membership of defined contributions plans which have been operated by the Group. The other
plan has no active members. Under the defined benefit plans, each member’s pension at retirement is related to their pensionable
service and final salary.
Funding valuations of the defined benefit plans are carried out and agreed between the Group and the plan trustees at least once
every three years. The funding target is for the plans to hold assets equal in value of the accrued benefits based on projected
salaries. As part of the valuation process, if there is a shortfall against this target, then the Group and trustees will agree on deficit
contributions to meet this deficit over a specified period.
There is a risk to the Group that adverse experience could lead to a requirement for the Group to make additional contributions
to recover any deficit that arises.
The weighted average of duration of the expected benefit payments from the combined plans is approximately 20 years.
The Group expects to contribute CHF 7 million to this plan in 2015.
OTHER COUNTRIES
The Group sponsors defined retirement benefits plans in other countries where the Group operates. No individual countries other
than those described above are considered material and need to be separately disclosed.
The Group expects to contribute CHF 7 million to those plans in 2015.
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)
2014
Fair value of plan assets
Present value of funded defined benefit obligation
(UNFUNDED)/FUNDED STATUS
Present value of unfunded defined benefit obligation
Limit on pension asset
NET ASSET/(LIABILITY) AT 31 DECEMBER
(CHF million)
2013
Fair value of plan assets
Present value of funded defined benefit obligation
(UNFUNDED)/FUNDED STATUS
Present value of unfunded defined benefit obligation
Limit on pension asset
NET ASSET/(LIABILITY) AT 31 DECEMBER
CH
UK
USA
OTHER
TOTAL
332
(370)
(38)
(9)
-
(47)
235
(218)
17
-
-
17
235
(284)
(49)
(9)
-
(58)
86
(116)
(30)
(58)
-
(88)
888
(988)
(100)
(76)
-
(176)
CH
UK
USA
OTHER
TOTAL
316
(300)
16
(7)
(16)
(7)
207
(179)
28
-
-
28
203
(228)
(25)
(8)
-
(33)
68
(99)
(31)
(51)
-
(82)
794
(806)
(12)
(66)
(16)
(94)
104
Amounts recognised in the income statement:
(CHF million)
2014
Service cost expense
Net interest/(income) expense on defined benefit plan
Administrative expenses
TOTAL EXPENSE DUE TO DEFINED BENEFIT OBLIGATION AT 31 DECEMBER
Expense charged in:
Salaries and wages
Financial expense/(income)
TOTAL EXPENSE DUE TO DEFINED BENEFIT OBLIGATION AT 31 DECEMBER
(CHF million)
2013
Service cost expense
Net interest/(income) expense on defined benefit plan
Administrative expenses
TOTAL EXPENSE DUE TO DEFINED BENEFIT OBLIGATION AT 31 DECEMBER
Expense charged in:
Salaries and wages
Financial expense/(income)
TOTAL EXPENSE DUE TO DEFINED BENEFIT OBLIGATION AT 31 DECEMBER
CH
5
-
-
5
5
-
5
CH
7
-
-
7
7
-
7
UK
USA
OTHER
TOTAL
1
(1)
1
1
2
(1)
1
2
1
1
4
3
1
4
-
2
-
2
-
2
2
8
2
2
12
10
2
12
UK
USA
OTHER
TOTAL
2
(1)
-
1
2
(1)
1
1
3
1
5
2
3
5
11
3
-
14
11
3
14
21
5
1
27
22
5
27
Amounts recognised in the statement of other comprehensive income:
(CHF million)
2014
Remeasurement on net defined benefit liability
Change in demographic assumptions
Change in financial assumptions
Experience adjustments
Actual return on plan assets excluding net interest expense
Change in limit on pension asset
TOTAL RECOGNISED IN THE STATEMENT OF OTHER COMPREHENSIVE
INCOME AT 31 DECEMBER
CH
UK
USA
OTHER
TOTAL
8
54
7
(12)
(16)
41
-
34
(7)
(8)
-
19
-
28
1
(1)
-
28
1
20
1
(10)
-
12
9
136
2
(31)
(16)
100
105
SGS GROUP RESULTS
(CHF million)
2013
Remeasurement on net defined benefit liability
Change in demographic assumptions
Change in financial assumptions
Experience adjustments
Actual return on plan assets excluding net interest expense
Change limit on pension asset
TOTAL RECOGNISED IN THE STATEMENT OF OTHER COMPREHENSIVE
INCOME AT 31 DECEMBER
CH
UK
USA
OTHER
TOTAL
7
(12)
(2)
(21)
16
(12)
-
9
1
(14)
-
(4)
-
(32)
-
(22)
-
(54)
(1)
(2)
2
-
-
(1)
6
(37)
1
(57)
16
(71)
Movements in the net asset/(liability) during the period:
(CHF million)
2014
CH
UK
USA
OTHER
TOTAL
NET ASSET/(LIABILITY) AT 1 JANUARY
Expense recognised in the income statement
Remeasurements recognised in other comprehensive income
Contributions paid by the Group
Exchange differences
NET ASSET/(LIABILITY) AT 31 DECEMBER
(7)
(5)
(41)
7
(1)
(47)
28
(1)
(19)
8
1
17
(33)
(4)
(28)
13
(6)
(58)
(82)
(2)
(12)
8
-
(94)
(12)
(100)
36
(6)
(88)
(176)
(CHF million)
2013
CH
UK
USA
OTHER
TOTAL
NET ASSET/(LIABILITY) AT 1 JANUARY
Expense recognised in the income statement
Remeasurements recognised in other comprehensive income
Contributions paid by the Group
Exchange differences
NET ASSET/(LIABILITY) AT 31 DECEMBER
(17)
(7)
12
7
(2)
(7)
17
(1)
4
8
-
28
(92)
(5)
54
10
-
(33)
(84)
(14)
1
14
1
(82)
(176)
(27)
71
39
(1)
(94)
106
Change in the defined benefit obligation is as follows:
(CHF million)
CH
UK
USA
OTHER
TOTAL
2014
Opening present value of the defined benefit obligation
307
179
236
150
872
Current service cost
Interest cost
Plan participants' contributions
Past service cost
Settlements
Change in scope
Net benefit payments
(Gains)/losses due to changes in demographic assumptions
(Gains)/losses due to changes in financial assumptions
Experience (gains)/losses
Exchange rate (gains)/losses
DEFINED BENEFIT OBLIGATION AT 31 DECEMBER
5
7
5
-
-
-
(14)
8
54
7
-
379
1
8
-
-
-
-
(6)
-
34
(7)
9
218
2
12
1
-
-
-
(14)
-
28
1
27
293
4
5
-
(4)
-
4
(7)
1
20
1
-
174
12
32
6
(4)
-
4
(41)
9
136
2
36
1 064
(CHF million)
CH
UK
USA
OTHER
TOTAL
2013
Opening present value of the defined benefit obligation
309
166
279
Current service cost
Interest cost
Plan participants' contributions
Past service cost
Settlements
Net benefit payments
(Gains)/losses due to changes in demographic assumptions
(Gains)/losses due to changes in financial assumptions
Experience (gains)/losses
Exchange rate (gains)/losses
DEFINED BENEFIT OBLIGATION AT 31 DECEMBER
5
6
4
2
-
(13)
7
(12)
(2)
1
307
2
8
1
-
-
(7)
-
9
1
(1)
179
1
11
1
-
(8)
(14)
-
(32)
-
(2)
236
147
11
5
-
-
-
(12)
(1)
(2)
2
-
150
901
19
29
6
2
(8)
(46)
6
(37)
1
(1)
872
Change in fair value of plan assets is as follows:
(CHF million)
CH
UK
USA
OTHER
TOTAL
2014
Opening fair value of plan assets
Interest income on plan assets
Return on plan assets excluding amounts included in net
interest expense
Employer contributions
Plan participants' contributions
Net benefit payments
Administrative expenses paid
Settlements
Change in scope
Exchange differences
FAIR VALUE OF PLAN ASSETS AT 31 DECEMBER
316
8
12
7
5
(14)
-
-
-
(2)
332
207
10
8
8
-
(6)
(1)
-
-
9
235
203
10
1
13
1
(14)
(1)
-
-
22
235
68
2
10
8
-
(7)
-
-
4
1
86
794
30
31
36
6
(41)
(2)
-
4
30
888
107
SGS GROUP RESULTS
(CHF million)
2013
Opening fair value of plan assets
Interest income on plan assets
Return on plan assets excluding amounts included in net
interest expense
Employer contributions
Plan participants' contributions
Net benefit payments
Administrative expenses paid
Settlements
Exchange differences
FAIR VALUE OF PLAN ASSETS AT 31 DECEMBER
CH
UK
USA
OTHER
TOTAL
292
6
21
7
4
(13)
-
-
(1)
316
183
9
14
8
1
(7)
-
-
(1)
207
187
7
22
10
1
(14)
(1)
(8)
(1)
203
63
2
-
14
-
725
24
57
39
6
(12)
(46)
-
-
1
68
(1)
(8)
(2)
794
There are no reimbursement rights included in plan assets. The actual return on plan assets was a gain of CHF 61 million
(2013: gain of CHF 81 million).
Changes in the amount not recognised due to the asset limit are as follows:
(CHF million)
2014
ASSET LIMIT AT 1 JANUARY
Other changes in unrecognised asset due to the asset ceiling
Exchange differences
ASSET LIMIT AT 31 DECEMBER
CH
UK
USA
OTHER
TOTAL
16
(16)
-
-
-
-
-
-
-
-
-
-
16
(16)
-
-
(CHF million)
2013
ASSET LIMIT AT 1 JANUARY
Other changes in unrecognised asset due to the asset ceiling
Exchange differences
ASSET LIMIT AT 31 DECEMBER
CH
UK
USA
OTHER
TOTAL
-
16
-
16
-
-
-
-
-
-
-
-
-
-
-
-
-
16
-
16
108
The major categories of plan assets at the balance sheet date are as follows:
(CHF million)
2014
Cash and cash equivalent
Equity securities
Debt securities
Insurance policies
Property
Investment funds
Other
TOTAL PLAN ASSETS AT 31 DECEMBER
(CHF million)
2013
Cash and cash equivalent
Equity securities
Debt securities
Insurance policies
Property
Investment funds
Other
TOTAL PLAN ASSETS AT 31 DECEMBER
CH
UK
USA
OTHER
TOTAL
47
84
60
-
116
25
-
332
23
56
94
-
-
61
-
234
1
137
97
-
-
-
-
235
11
2
1
72
-
-
1
87
82
279
252
72
116
86
1
888
CH
UK
USA
OTHER
TOTAL
27
83
71
-
116
19
-
316
1
122
84
-
-
-
-
1
136
65
-
-
-
-
207
203
10
3
1
55
-
-
-
68
39
344
221
55
116
19
-
794
The “Other” assets consist mainly of assets related to insurance contracts.
SGS occupies property that is included in the Plan assets with a fair value of less than CHF 6 million (2013: CHF 6 million).
The property is rented at fair market rental rates. There are no SGS SA shares or any other financial securities used by
the Group included in plan assets.
The plan assets are primarily held within instruments with quoted market prices in an active market, with the exception of
the property and insurance policy holdings.
The investment strategy in Switzerland is to invest, within the statutory and legal requirements, in a diversified portfolio which
provides a long-term return strategy which will enable the board of the foundation to provide increases to the accounts of
the members of the pension fund, whilst taking on the lowest possible risk in order to do so.
In the United States of America, the Pension Plan Target Policy is determined by both quantitatively and qualitatively assessing
the risk tolerance level and return requirements of the Plan as determined by the Investment Committee. The investment portfolio
asset allocation and structure are developed based on the results of this process.
In the United Kingdom, the Trustees review the investment strategy of the Scheme and the Plan on a regular basis in order
to ensure that they remain appropriate. The last review for both the Scheme and Plan has recently been undertaken and
is in the process of being implemented.
109
SGS GROUP RESULTS
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 2014 and 2013 are as follows:
(Weighted average %)
2014
Discount rate
Mortality assumption
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
CH
1.3
LPP 2010 Gen
2.0
0.5
-
-
-
UK
USA
OTHER
3.6
S1NA
3.6
3.1/2.1
-
-
-
4.0
IRS 2015
3.3
-
7.2
5.0
2022
2.6
-
2.5
0.5
-
-
-
(Weighted average %)
CH
UK
USA
OTHER
2013
Discount rate
Mortality assumption
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
2.4
LPP 2012
2.0
0.5
4.0
4.0
-
4.6
S1NA
3.8
2.3
-
-
-
4.9
IRS 2014
3.2
-
7.5
5.0
2022
3.3
-
2.3
0.5
-
-
-
The weighted average rate for each assumption used to measure the benefits obligation is also shown. The assumptions used
to determine end-of-year benefits obligation are also used to calculate the following year’s cost.
In Switzerland, a decrease in the discount rate of 0.5% per annum would, all other things being equal, increase the obligation
by CHF 30 million; a 0.5% increase in assumed salary increases would increase the obligation by CHF 2 million and a one-year
increase in members’ life expectancy would increase the obligation by approximately CHF 12 million.
In the United States of America a decrease in the discount rate of 0.5% per annum would, all other things being equal, increase
the obligation by CHF 19 million; a 0.5% increase in assumed salary increases would increase the obligation by less than
CHF 0 million and a one-year increase in members’ life expectancy would increase the obligation by approximately CHF 14 million.
In the United Kingdom, a decrease in the discount rate of 0.5% per annum would, all other things being equal, increase the
obligation by CHF 23 million; a 0.5% increase in assumed salary increases would increase the obligation by CHF 3 million and
a one-year increase in members’ life expectancy would increase the obligation by approximately CHF 7 million.
These sensitivities have been calculated to show the movement in the defined benefit obligation in isolation, and assuming no
other changes in market conditions at the accounting date. This is unlikely in practice; for example, a change in discount rate is
unlikely to occur without any movement in the value of the assets held by the plans.
The amount recognised as an expense in respect of defined contribution plans during 2014 was CHF 74 million (2013: CHF 61 million).
110
111
SGS GROUP RESULTS
25
PROVISIONS
(CHF million)
AT 1 JANUARY 2014
Acquisitions of subsidiaries
Charge to income statement
Release to income statement
Payments
Exchange differences
AT 31 DECEMBER 2014
Analysed as:
Current liabilities
Non current liabilities
TOTAL
LEGAL AND WARRANTY
CLAIMS ON SERVICES
RENDERED
DEMOBILISATION AND
REORGANISATION
OTHER PROVISIONS
TOTAL
45
-
20
(13)
(7)
3
48
37
-
13
(4)
(9)
1
38
32
-
11
(4)
(9)
0
30
2014
19
97
116
114
-
44
(21)
(25)
4
116
2013
18
96
114
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,
evaluation of the insurance cover where appropriate 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.
112
26
TRADE AND OTHER PAYABLES
(CHF million)
Trade payables
Other payables
Other financial liabilities
TOTAL
2014
192
121
198
511
2013
198
120
184
502
Trade accounts and other payables principally comprise amounts outstanding for trade purchases and ongoing operating costs.
At 31 December 2014 and 2013, 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
Interest Rate Swap designated in a fair value hedge accounting relationship
Derivative liabilities
TOTAL
2014
523
50
41
0
8
622
2013
506
49
36
5
5
601
At 31 December 2014 and 2013, 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.
113
SGS GROUP RESULTS
29
GUARANTEES
(CHF million)
Guarantees
Performance bonds
TOTAL
2014 ISSUED
2013 ISSUED
109
159
268
144
228
372
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
2014
130
250
82
462
2013
127
237
69
432
The Group leases the majority of its office and laboratory space, as well as vehicles and equipment. During the year ended
31 December 2014, CHF 154 million was recognised as an expense in the income statement in respect of operating leases
(2013: CHF 154 million).
114
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 1 061 061 options granting the right to acquire shares of SGS SA at a strike price of CHF 2 059, 100 options give the right
to acquire one share and each option expires in January 2017 (these options hereinafter referred to as SGSPF) were granted to
the members of the Operations Council and the Board of Directors in 2014. One-third of these options vest or have vested in each
of the years 2014, 2015 and 2017 and can be exercised or sold between January 2017 and January 2019. The estimated fair value
at the time of grant of the options granted was CHF 2 673 874.
ii) Grants to Other Employees
In 2014, an additional 2 038 552 SGSPF 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 2014, 2015 and 2017 and can
be exercised or sold between January 2017 and January 2019. The estimated fair value at the time of grant of the options granted
was CHF 5 137 151.
iii) Long Term Incentive Plans (LTI)
In 2014, 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 the grant,
the estimated fair value of those options granted is CHF 12 967 500. Additional information is disclosed in the SGS Remuneration
Report (pages 42 to 58).
EXERCISE PERIOD
FROM
TO
STRIKE
PRICE 1
OPTIONS
OUTSTANDING AT
31 DECEMBER 2013
GRANTED
CANCELLED
EXERCISED
OR ADJUSTED
OPTIONS
OUTSTANDING AT
31 DECEMBER 2014
SGSMF-2011 LTI
Jan.15
Jan.16
1 528.78
8 110 000
Jan.12
Jan.14
973.57
113 161
Jan.13
Jan.15
1 240.70
936 618
Jan.14
Jan.16
1 528.78
2 959 060
Jan.15
Jan.17
1 448.85
3 201 292
Jan.16
Jan.18
1 989.31
3 183 130
DESCRIPTION
SGSGU-2009
SGSOP-2010
SGSMF-2011
SGSKF-2012
SGSWS-2013
SGSPF-2014
TOTAL
-
-
-
-
-
-
-
(113 161)
-
(159 296)
(584 357)
192 965
(3 668)
(1 466 398)
1 488 994
(510 000)
(57 724)
(73 310)
-
7 600 000
(3 500)
3 140 068
-
-
3 109 820
3 027 347
Jan.17
Jan.19
2 059.00
-
3 099 613
(72 266)
18 503 261
3 099 613
(876 264)
(2 167 416)
18 559 194
Of which exercisable
897 483
1 562 115
1. The strike price of the options has been adjusted in accordance with market practice for capital reductions and special dividends.
115
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 total expense of CHF 10 million (2013: CHF 5 million) in relation with equity-settled
share-based payments.
Shares available for future option plans:
AT 1 JANUARY 2013
Repurchased shares
Options granted (SGSWS Plan and adjustments)
Options cancelled
AT 31 DECEMBER 2013
Repurchased shares
Options granted (SGSPF Plan and adjustments)
Options cancelled
AT 31 DECEMBER 2014
TOTAL
(24 452)
18 403
(37 537)
10 397
(33 189)
-
(35 000)
47 554
(20 635)
At 31 December, the Group had the following shares available to satisfy the option and share purchase plan programmes:
(CHF million)
2014 TOTAL
2013 TOTAL
Number of shares held
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 allocated to 2013 option plans
Shares allocated to 2014 option plans
SHARES (REQUIRED)/AVAILABLE FOR FUTURE OPTION PLANS AT 31 DECEMBER
146 930
-
(6 513)
(62 743)
(32 525)
(31 480)
(34 304)
(20 635)
171 596
(6 636)
(15 713)
(117 114)
(33 112)
(32 211)
-
(33 189)
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.
116
32
RELATED PARTY TRANSACTIONS
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
2014
15
1
3
-
19
2013
14
1
3
-
18
1. Estimated market value of options that will be allocated in February 2015.
The remuneration of Directors and members of the Operations Council is determined by the Nomination and Remuneration
Committee. Additional information is disclosed in the SGS Remuneration Report (pages 42 to 58).
During 2014 and 2013, 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 2014, Directors’ fees were CHF 1 943 000 (2013: CHF 1 837 000). The Chairman of the Board did not receive options
for 2014 (2013: CHF 189 000).
The total compensation (cash and options) received by the Operations Council (including Senior Management) amounted
to CHF 16 510 000 (2013: CHF 16 827 000).
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 129 to 143 of this report.
LOANS TO MEMBERS OF GOVERNING BODIES
As at 31 December 2014, 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 0 (2013: CHF 9.0 million). Related trade receivable balances unpaid
as at 31 December 2014 amounted to CHF 0 (2013: CHF 0 million). No expense was incurred in 2014 and in 2013 in respect
of any bad or doubtful debts due from these related parties.
117
SGS GROUP RESULTS
33
SIGNIFICANT SHAREHOLDERS
As at 31 December 2014, Groupe Bruxelles Lambert acting through Serena SàRL held 15.00% (2013: 15.00%), Mr. August von
Finck and members of his family acting in concert held 14.97% (2013: 14.97%), the Bank of New York Mellon Corporation held
3.43% (2013: 3.18%) and BlackRock Inc. held 3.00% (2013: nil) of the share capital and voting rights of the Company.
At the same date, SGS Group held 1.88% of the share capital of the Company (2013: 2.19%).
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 6 February 2015, and will be submitted for approval by the Annual General
Meeting of Shareholders’ to be held on 12 March 2015.
On 15 January 2015, the Swiss National Bank removed the currency ceiling against the Euro (EUR). This resulted in a significant
strengthening of the Swiss Franc (CHF) against all major currencies in which the Group operates.
The Group has assessed the impact, particularly on counter-party risk, currency exposures and intangible assets, including goodwill.
The event described has no impact on the accounting policies applied, including on the valuation principles followed or on
management estimates, in the preparation of the consolidated financial statements for the year ended 31 December 2014.
The Board of Directors of SGS SA has authorised a new Share Buy-Back programme of up to CHF 750 million. Up to CHF 500 million
are designated for cancellation and the remainder for employee equity participation plans and/or utilisable as underlying securities
for potential issuances of convertible bonds. The programme is expected to start early February 2015 and close 31 December 2016
at the latest.
On 30 January 2015, Mr. August von Finck and members of his family acting in concert increased their stake from 14.97% to 15.03%.
118
REPORT OF THE STATUTORY AUDITOR
To the General Meeting of
SGS SA, GENEVA
REPORT OF THE STATUTORY AUDITOR ON THE CONSOLIDATED FINANCIAL STATEMENTS
As statutory auditor, we have audited the consolidated financial statements of SGS Group presented on pages 62 to 118,
which comprise the consolidated balance sheet as at 31 December 2014, and the consolidated income statement, consolidated
statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and notes
to the consolidated financial statements for the year then ended.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation 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 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. 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 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 2014 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 Code of Obligations (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, 6 February 2015
Fabien Bryois
Licensed Audit Expert
119
SGS SA RESULTS
SGS SA RESULTS
SGS SA RESULTS
INCOME STATEMENT
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
INCOME
Dividends from subsidiaries
Financial income
Other income
Exchange gain, net
Liquidation of subsidiaries, net
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
2013
744
36
1
-
-
781
(4)
0
0
(37)
(3)
(11)
(55)
726
(9)
717
NOTES
2014
375
54
1
0
3
433
(4)
-
0
(47)
0
-
(51)
382
(4)
378
5
5
122
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
Other long term liabilities
Corporate bonds
Current liabilities
Provisions
Amounts due to subsidiaries
Other liabilities and accruals
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
NOTES
2014
2013
3
1 131
1 156
1
2 291
354
16
268
638
2 929
8
34
204
839
1 085
-
1 275
36
514
19
1 844
2 929
3
1 116
1 295
1
2 415
299
19
790
1 108
3 523
8
34
172
750
964
15
1 642
37
841
24
2 559
3 523
2 & 3
2
2
2
4
123
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.
NOTES
BONDS
Bonds are recorded at nominal value.
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 rotational 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
17 October 2014.
1
SIGNIFICANT
ACCOUNTING POLICIES
The financial statements are prepared
in accordance with the accounting
principles required by Swiss law.
They are prepared under the historical
cost convention and on the accrual
basis. During the year, there were no
changes to the 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. Unrealised gains and losses arising
on foreign exchange transactions are
included in the determination of the
net profit, except long-term unrealised
gains on long-term loans and related
instuments which are deferred.
DIVIDENDS FROM SUBSIDIARIES
In accordance with Swiss law, dividends
are treated as an appropriation of profit in
the year in which they are ratified at the
Annual General Meeting and subsequently
paid, rather than as an appropriation of
profit in the year to which they relate or
for which they are proposed by the Board
of Directors. As a result, dividends are
recognised in income in the year in which
they are received, on a cash basis.
124
2
TOTAL EQUITY
(CHF million)
SHARE
CAPITAL
GENERAL
RESERVE
RESERVE FOR
OWN SHARES
RETAINED
EARNINGS
BALANCE AT 1 JANUARY 2013
Dividends paid
Decrease in the reserve for own shares
Profit for the year
BALANCE AT 31 DECEMBER 2013
Dividends paid
Decrease in the reserve for own shares
Profit for the year
BALANCE AT 31 DECEMBER 2014
8
-
-
-
8
-
-
-
8
34
-
-
-
34
-
-
-
34
208
-
(4)
-
204
-
(32)
-
172
562
(444)
4
717
839
(499)
32
378
750
TOTAL
812
(444)
-
717
1 085
(499)
-
378
964
125
SGS SA RESULTS
3
SHARE CAPITAL
BALANCE AT 1 JANUARY 2013
Treasury shares released into circulation
Treasury shares purchased, net
BALANCE AT 31 DECEMBER 2013
Treasury shares released into circulation
BALANCE AT 31 DECEMBER 2014
SHARES IN
CIRCULATION
7 632 042
37 201
(18 403)
7 650 840
24 666
7 675 506
TREASURY SHARES
TOTAL SHARES ISSUED
TOTAL SHARE CAPITAL
CHF (MILLION)
190 394
(37 201)
18 403
171 596
(24 666)
146 930
7 822 436
-
-
7 822 436
-
7 822 436
8
-
-
8
-
8
Issued Share Capital
Authorised and Conditional Issue
SGS SA has a share capital of
CHF 7 822 436 (2013: CHF 7 822 436)
fully paid-in and divided into
CHF 7 822 436 (2013: 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 2014, SGS SA held
146 930 of its own shares for which
SGS SA has recorded a “reserve for
own shares”.
In 2014, 24 666 treasury shares were sold
to cover option rights. 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
19 March 2015.
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
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.
126
4
CORPORATE BONDS
SGS SA made the following bond issuances:
DATE OF ISSUE
19.08.2010
08.03.2011
27.05.2011 ¹
27.05.2011 ²
27.02.2014
27.02.2014
25.04.2014
FACE VALUE IN
CHF MILLION
COUPON IN %
YEAR OF
MATURITY
417
375
275
75
138
250
112
1.875
2.625
3.000
1.875
1.375
1.750
1.375
2016
2019
2021
2016
2022
2024
2022
ISSUE
PRICE IN %
100.346
100.832
100.480
99.591
100.517
101.019
101.533
REDEMPTION
PRICE IN %
100.000
100.000
100.000
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.
In February 2014, the Company issued a 10 year CHF 250 million straight bond with a coupon of 1.75%. At the same time, bond
holders of CHF 133 million accepted to exchange their existing 2016 bonds into new bonds with a term of 8 years amounting to
CHF 138 million and maturing in 2022 with a coupon of 1.375%.
Finally, the Company re-opened the bond maturing in 2022 and increased the amount by CHF 112 million to a total of CHF 250 million.
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
2014
1
53
54
(37)
(3)
(7)
(47)
2013
0
36
36
(28)
(2)
(7)
(37)
127
SGS SA RESULTS
6
GUARANTEES AND COMFORT LETTERS
(CHF million)
Guarantees
Performance bonds
TOTAL
2014 ISSUED
2014 UTILISED
2013 ISSUED
2013 UTILISED
212
23
235
159
23
182
184
22
206
92
22
114
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
The list of principal Group subsidiaries appears in the Annual Report on pages 152 to 155.
2014
15
2013
15
128
9
REMUNERATION
9.1. COMPANY'S REMUNERATION
POLICY AND GOVERNANCE
9.1.1. Remuneration Policy
and Principles
The Company's remuneration policy is
defined by the Board of Directors with
two main objectives: to attract and
retain the best talents available in the
industry, and to motivate employees and
managers to create and protect value for
our shareholders by driving long-term
sustainable financial success.
The remuneration policy is built on
core principles that are aligned to
the Company’s business strategy of
profitable growth and that aim to drive
and support the Company’s core values
of passion, integrity, entrepreneurship
and innovative spirit:
REMUNERATION PRINCIPLES
PAY FOR PERFORMANCE
A substantial portion of remuneration is
directly linked to business performance.
LONG-TERM VALUE CREATION
AND ALIGNMENT TO
SHAREHOLDERS’ INTERESTS
Part of the remuneration is delivered in
the form of equity compensation subject
to a multi-year vesting period.
MARKET COMPETITIVENESS
Remuneration levels are in line with
competitive market practice in order
to be able to attract, retain and develop
the best talent.
INTERNAL EQUITY
Remuneration programs are
straightforward and fair, they
link remuneration to the level of
responsibilities and to the skill-set
required to perform the role.
129
9.1.2. Remuneration Governance
9.1.2.1. Nomination and
Remuneration Committee
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-based plans
(including Long Term Incentive plans)
as well as the allocation of share-based
awards and the conditions of their
granting, vesting and exercise.
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.
General executive remuneration
policies, including the implementation
of long term incentive plans and the
determination of financial targets
relevant to any incentive plan, are
decided by the Board based on the
recommendation of the Committee.
The following charts summarise
the authorisation levels for the main
decisions relating to the compensation
of the Board and the Operations Council
members. When reviewing and deciding
on executive remuneration policies,
the Committee and the Board have
access to Group Human Resources staff
and may use third party consultants
specialising in compensation matters.
In 2014, neither the Committee
nor the Board had recourse to such
external advisors.
SGS SA RESULTS
Current authorisation levels:
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
Fixation of annual financial targets for variable remuneration
of Operations Council Members
Annual Share Options Plans grants
Committee 1
Committee 1
Committee 1
CEO
Committee 1
CEO
CEO
1. Nomination and Remuneration Committee.
Authorisation levels from 2015 Annual General Meeting of shareholders (AGM):
Board of Directors
Board of Directors
Board of Directors
Committee 1
Board of Directors
Board of Directors
Committee 1
SUBJECT MATTER
RECOMMENDATION
APPROVAL
Aggregate remuneration amount of the Board of Directors
Board of Directors
Individual remuneration of the Chairman of the Board of Directors
Committee 1
Individual remuneration of the members of the Board of Directors
Committee 1
Aggregate remuneration amount of the Operations Council
Board of Directors
Individual remuneration of the CEO
Committee 1
Individual remuneration of the Operations Council Members
CEO
AGM (binding vote)
Board of Directors
Board of Directors
AGM (binding vote)
Board of Directors
Committee 1
Establishment of Long-Term Incentive plans
Board of Directors
AGM (binding vote)
Setting of annual financial targets for variable remuneration
of Operations Council Member
CEO
Board of Directors
Remuneration report
Board of Directors
AGM (consultative vote)
1. Nomination and Remuneration Committee.
The following Directors served on
the Nomination and Remuneration
Committee in 2014:
• Sergio Marchionne
(Chairman until March)
• Ian Gallienne
• August von Finck
• Shelby du Pasquier
(Chairman from March)
In 2014, the Committee met two times
and settled two resolutions during the
year. The Chairman of the Nomination
and Remuneration Committee
reports to the Board of Directors after
each meeting on the activities of
the Committee. The minutes of the
Committee meetings are available to
the members of the Board of Directors.
As a general rule, the Chairman of the
Board of Directors attends the meetings
of the Committee, except when matters
pertaining to his own compensation
are being discussed. Selected members
of the Operations Council, the CEO
and the Senior VP for HR, may be asked
to attend the meetings in an advisory
capacity. They do not attend the
meeting when their own compensation
and/or performance are being discussed.
9.1.2.2. Rules on Vote on Pay
Starting at the Annual General Meeting
in 2015, and as required by the Ordinance,
the total amount of the remuneration
to be paid to members of the Board
of Directors for the coming year, the
variable remuneration of the Operation
Council members for 2014 and the fixed
remuneration of the Operation Council
members for 2016 will be subject to
the approval of the shareholders in the
form of binding votes on remuneration.
The procedure on the vote by the
Shareholders on the proposed fixed
and variable remuneration of the
Operations Council and compensation
to the Board of Directors will be defined
in an amendment to the Articles of
Association to be introduced at the 2015
Annual General Meeting. The Board will
recommend to the AGM the introduction
in the Articles of Association of rules
mandating separate votes on (i) the Board
remuneration for the period until
the next Annual General Meeting (ii)
the fixed remuneration of the Operations
Council for the next calendar year (iii)
a retrospective vote on executive variable
compensation and (iv) prospective
approval of any long term incentive plans.
130
9.1.2.3. Method of Determination
of Compensation - Benchmarking
As a global business in a broad range
of sectors, SGS’ business success
is driven by the commitment and
engagement of its employees.
Our remuneration policy must take
account of both global and local
practices, whilst allowing for individual
variations. We therefore compare our
practices with those of other similar
organisations. The Group performs
periodic benchmarks against companies
which satisfy the following criteria:
• Competitors in the testing, inspection
and certification industry, such as
Bureau Veritas, Intertek, DNV and TÜV.
• All SMI listed companies
• Internationally active companies within
and outside Switzerland which operate
in one or more of the industry sectors
in which SGS is active, including the
energy, mining, industrial, chemical,
medical goods, pharmaceutical,
durable and non-durable goods,
and food sectors, such as Alstom,
Glencore-Xstrata, Siemens, DuPont,
Baxter, Actelion, Schindler, Amcor.
The elements of executive remuneration
benchmarked include annual base salary,
allowances, short-term and long-term
incentive compensation and benefits.
To ensure proper benchmarking we use
a proprietary job sizing methodology.
Since more than one-third of our
Operations Council members are based
outside Switzerland, we utilize information
published by reputable data providers,
including Mercer and Towers Watson,
who are able to supply information
on both a local and a global basis.
9.2. REMUNERATION MODEL
9.2.1. Structure of Remuneration
of the Board of Directors
The members of the Board of Directors
are entitled to a fixed annual Board
Membership fee and additional annual
fees for the participation in Board
Committees. Board members do not
receive additional compensation
for attending meetings and do not
receive any variable remuneration,
options or shares.
The Chairman receives a fixed annual
fee and additional fixed fees for chairing
the Audit Committee and the
Professional Conduct Committee.
REMUNERATION OF THE BOARD OF DIRECTORS
FIXED ANNUAL FEE
300'000
150'000
+
COMMITTEE FEE
(PER COMMITTEE)
30'000
30'000
Chairman
Board members
Directors receive an annual fixed fee
of CHF 150 000 whilst the Chairman
receives CHF 300 000. In addition
members of a Board Committee receive
CHF 30 000 for each Committee.
They do not hold service contracts
and are not entitled to any termination
or severance payments. They do not
participate in the Company’s benefit
schemes and the Company does
not make any pension contributions
on their behalf.
In addition, social charges are applied
to the above amounts.
9.2.2. Structure of Remuneration
of the Operations Council
The remuneration earned by the Chief
Executive Officer and by members
of the Operations Council comprises:
(i) a fixed base salary, (ii) an annual
performance bonus, settled partly in
cash and partly in options with deferred
vesting, (iii) a long term incentive, and
(iv) other benefits such as retirement,
insurances and perquisites.
The Group’s strategic plan drives all the
activities in the business. The plan is
reflected in to the remuneration strategy
that will assist the Group in achieving
its financial and other business goals.
The long-term incentive is the vehicle
used to drive sustained performance
aligned with the Group’s long-term
strategic plans. Each year, an annual
business plan is prepared which sets
the objectives to be achieved during
the year. The annual performance
bonus is used to provide incentive
and reward to the annual components
of the business plan. Further, the
Company considers that the payment
of variable remuneration in the form of
equity linked instruments with deferred
vesting is a key mechanism to align
the management’s incentives to the
interests of shareholders.
131
SGS SA RESULTS
The table below summarises the various components of the compensation of Operations Council members, including
the Chief Executive Officer until 2014:
REMUNERATION
ELEMENT
REMUNERATION
VEHICLE
Base Salary
Monthly
cash salary
Annual Bonus
50% cash
50% allocation
of stock options,
with deferred
vesting and
blocking periods
DRIVERS
PERFORMANCE MEASURES
PURPOSE
PLAN PERIOD
Position and
experience,
market practice
(benchmarking)
Annual business and
financial performance
n/a
Attract and retain
key executives
Continuous
Pay for
performance
1 year
performance
period
3 years deferral
period
Financial targets: (i)
Adjusted 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)
Discretionary
Bonus
Cash
Exceptional individual
performance
n/a
Long Term
Incentives
Stock options
Long-term strategic
performance
Normalised
Earnings Per Share
Benefits
Retirement
benefits and
insurances,
perquisites
Market practice
n/a
1 year
performance
period
4 years
performance
period
Continuous
Retain key
executives,
recognise
exceptional
individual
performance
Align executive
compensation with
the interests of
shareholders and
reward long-term
performance
Protect executives
and employees
against risks,
attract and retain
This table will be revised in 2015 to incorporate the changes in the remuneration model, described in page 130.
9.2.2.1. Base Salary
9.2.2.2. Annual Bonus
The base salaries of the Chief Executive
Officer and of each Operations Council
member are reviewed annually on the
basis of market data for similar positions
in those companies and geographies
against which the Group benchmarks
itself. In addition to individual
performance and contribution, business
performance and results, the deciding
body takes into account the scope and
complexity of the areas of responsibility
of the position, skill sets and experience
required to perform the role, and
relevant market practice in the industry.
Members of the Operations Council
(including the Chief Executive Officer)
are entitled to a performance-related
annual bonus (the “Annual Bonus”).
The Annual Bonus is a short-term
variable incentive designed to
reward these Executives for
position-specific contribution to
the Company’s performance.
The target incentive is expressed as
a percentage of the annual base salary
and varies depending on the role.
For the CEO, the on-target incentive
amounts to 70% of annual base salary,
while on-target incentive is between
35% and 60% for the other members
of the Operations Council.
At the beginning of the year, the
Board of Directors, on the advice of
the Nomination and Remuneration
Committee, define the annual
performance objectives for the
Chief Executive Officer and for each
Operations Council member.
• For the CEO, the performance
objective is the Group Earnings per
Share (EPS). This measure was
chosen because it provides a good
indicator of the shareholder value
derived from earnings growth.
132
• For the heads of corporate functions
(SVPs), the Annual Bonus is based
100% on the Adjusted Group Net
Profit after Tax (NPAT). This measure
was chosen because it is focused
on driving profit at Group level.
• For the EVPs, it is based 50%
• For the COOs, their respective
on the Adjusted Operating Income
of their respective business and
50% on the Adjusted Group Net
Profit after Tax, focusing their effort
on driving profit at their respective
business and at the Group level.
region's Adjusted Operating Income
and Economic Value Added account
for 62.5% of the bonus, while the
Adjusted Group Net Profit after Tax
accounts for 37.5%.
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
BUSINESS PERFORMANCE
(Adjusted Net Profit
After Tax)
(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%
For each objective, a target (expected
level of performance), a threshold
(minimum level of performance to trigger
a payout) and a payout curve formed
of a decelerator for performance under
target and an accelerator for performance
over target are pre-defined. At the end
of the performance period, the results
are assessed against the pre-defined
targets and the payout curve. For every
percentage point that actual performance
is below target, the base calculation
amount of the bonus will be reduced
by 5%; for every percentage point above
target, this amount will be increased
by 3%, to a maximum of 250%.
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 the valuation 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 economic
value is calculated using a 90 days
average market value prior to issuance.
In view of exceptional change of the
CHF exchange rate against EUR on 15
January 2015 and its consequences on
the Swiss Stock Exchange, the options
will be granted in February 2015.
The economic value calculation will
be done using an average value of 30
working days from 15 January 2015
(included). The share options are granted
immediately, but they vest rateably in
three equal instalments over a period of
three years: one-third at grant, one-third
18 months after the grant and one-third
36 months after the grant. The vested
options 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 Bonus 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.
133
9.2.2.3. Discretionary Bonus
In addition to the Annual Bonus, which
rewards the achievement of financial
performance targets, in exceptional
circumstances the Board of Directors
and Nomination and Remuneration
Committee may also grant individual
Operations Council members a
discretionary bonus, based on their
exceptional individual performance.
If awarded, exceptional discretionary
bonuses are granted at the same time
as the Annual Bonus to recognize
outstanding personal achievement.
The total of discretionary bonuses
awarded will not exceed 10%
of the Operations Council's overall
remuneration costs. As a recognition
for the recovery of net CHF 32 million
in Paraguay, an exceptional reward of
CHF 75 000 has been granted to Senior
Management. No additional discretionary
bonus was awarded in 2014.
9.2.2.4. Long Term Incentive Plans
In addition to the Annual Bonus, the
Board of Directors periodically sets Long
Term Incentive (LTI) Plans, designed to
motivate the leadership team to realise
the long-term 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
SGS SA RESULTS
or exceeding its stated Earnings Per
Share targets, and (2) the participant
being employed by the Group on
the vesting date.
In 2011, the Company introduced
a long term incentive plan (the “2011
LTI Plan”). The vesting is conditional
upon the Group achieving or exceeding
its 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) by
2014. In 2013, the Board of Directors
reviewed these EPS targets and decided
to introduce a normalisation in order
to exclude material distortions caused
by foreign exchange fluctuations, the
issuance of corporate bonds and the
adoption of new accounting standards
since the inception of the LTI plan.
In 2014, in the light of the normalised
EPS, the vesting scale was amended
by the Board of Directors to allow 50%
vesting in January 2015 to participants
employed at the end of January 2015.
This is a recognition of the achievements
and contribution to the growth of
the Company and will drive motivation
and engagement for the years ahead.
The 2011 LTI Plan involved the granting
of options to acquire shares of the
Company at a strike price of CHF 1 617.
Such options are delivered in the form
of traded warrants, with 100 warrants
required to purchase one share.
The Group originally set aside
9 000 000 such warrants for this
incentive plan. This plan was designed to
motivate the leadership team to achieve
the objectives of the 2014 Strategic Plan.
Full details of this long term incentive
plan are provided in note 31 to the Group
consolidated financial statements
(pages 115 to 116 of the Annual Report).
In 2014, no new Long Term Incentive
Plan was introduced by the Group and
no additional options were granted to
members of the Operations Council
under the existing 2011 LTI Plan.
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 that will be granted in February 2015
with respect to performance and financial results in 2014:
I Annual Share Option Plans
TYPE OF OPTIONS
(Year of issue)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSBB (2015) 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
PERIOD OF
EXERCISE
1 617
1 497
2 013
2 059
-
01.2011
01.2012
01.2013
01.2014
01.2015
07.2012
07.2013
07.2014
07.2015
07.2016
01.2014
01.2015
01.2016
01.2017
01.2018
01.2014 – 01.2016
01.2015 – 01.2017
01.2016 – 01.2018
01.2017 – 01.2019
01.2018 – 01.2020
II Long Term Incentive Plan
SGSMF-2011 LTI (2011)
1 617
-
-
01.2015
01.2015 – 01.2016
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Specifically for SGSBB: granted in 2015 as settlement of 2014 annual variable remuneration. Strike price to be confirmed in February 2015, in view of the exceptional
change of the CHF exchange rate against EUR on 15 January 2015 and its consequences on the Swiss Stock Exchange.
9.2.2.5. Benefits
Additional employment benefits
such as allowances or memberships
may be awarded in accordance with
prevailing practice in the locations of
employment of individual Operations
Council members. They also include
the employer's contributions to social
benefits as per the applicable legislation
in the country of employment.
Retirement benefits are set out on
page 140 in this Report. Geneva -
based Operations Council members
participate, on the same basis as
other Swiss employees of the Group,
in the Company’s pension scheme.
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. Employees have the
possibility to voluntarily increase their
contribution rate by 2% above the
standard rate. More flexibility has also
been granted to employees who wish
to fund a potential retirement before
the normal age, or for those who wish
to continue working after the age of 65.
134
9.2.2.6. Employment Contracts
9.2.2.7. Timeline of Remuneration
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 of six months is respected.
As of 2015, the executive contracts do
not provide for any severance payments,
and are subject to applicable legislation
in the country of employment.
More than one-third of the Operations
Council members are not employed
in Switzerland.
The following outlines the timeline of
payment of each remuneration element
that has been earned in 2014:
• The Annual Base Salary is paid
during 2014
• The cash portion of the Annual
Bonus is paid shortly after the
end of 2014
• The share option portion of the Annual
Bonus vest one-third in February 2015,
one-third in July 2016 and one-third
in January 2018
• The options granted under the
Long-Term Incentive in 2011 and
earned over the performance
period from 2011 to 2014 will vest
in January 2015. In 2014, in the light
of the normalised EPS, the vesting
scale was amended by the Board
of Directors to allow 50% vesting
in January 2015 to participants
employed at the end of January 2015.
9.3. REMUNERATION AWARDED
TO THE BOARD OF DIRECTORS
In 2014, 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 following chart details the fees and other cash benefits granted to each of the Directors for their tenure in 2014:
(CHF thousand)
S. Marchionne
P. Desmarais
A. von Finck
A.F. von Finck
I. Gallienne
C. Grupp
P. Kalantzis
G. Lamarche
S.R. du Pasquier
TOTAL
BOARD
FEE
COMMITTEE
FEE
OTHER
BENEFITS
TOTAL CASH
COMPENSATION
2014
SHARE
OPTIONS
TOTAL 2014
COMPENSATION
(INCLUDING
OPTIONS)
300
150
150
150
150
150
150
150
150
1 500
68
-
30
30
30
-
30
30
53
271
54
13
14
16
16
11
14
16
18
172
422
163
194
196
196
161
194
196
221
1 943
-
-
-
-
-
-
-
-
-
-
422
163
194
196
196
161
194
196
221
1 943
135
SGS SA RESULTS
The following chart details the fees, other cash benefits and share options granted to each of the Directors for their tenure in 2013:
(CHF thousand)
S. Marchionne
T.R. Brandolini D'Adda
P. Desmarais
J. Elkann
A. von Finck
A.F. von Finck
I. Gallienne
C. Grupp
P. Kalantzis
G. Lamarche
S.R. du Pasquier
TOTAL
BOARD
FEE
COMMITTEE
FEE
OTHER
BENEFITS
TOTAL CASH
COMPENSATION
2013
300
75
75
75
150
150
75
150
150
75
150
1 425
90
15
-
15
30
30
15
-
30
15
30
270
55
-
6
-
13
15
7
11
13
7
15
142
445
90
81
90
193
195
97
161
193
97
195
1 837
SHARE
OPTIONS
189
-
-
-
-
-
-
-
-
-
-
189
TOTAL 2013
COMPENSATION
(INCLUDING
OPTIONS)
634
90
81
90
193
195
97
161
193
97
195
2 026
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)
STRIKE PRICE 2
(CHF)
TOTAL NUMBER OF
OPTIONS GRANTED
UNDER EACH PLAN
MARKET VALUE
AT GRANT
(CHF THOUSAND)
NUMBER VESTED
ON 31 DECEMBER 2014
NUMBER VESTED
ON 31 DECEMBER 2013
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI (2011)
1 617
1 497
2 013
2 059
1 617
50 000
50 000
40 000
75 000
200 000
142
133
89
189
570
50 000
33 333
26 667
25 000
-
33 333
33 333
13 334
-
-
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
136
137
SGS SA RESULTS
9.4. REMUNERATION AWARDED TO THE CEO, SENIOR MANAGEMENT AND OTHER MEMBERS OF THE OPERATION COUNCIL
This section sets out the 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 for 2014. All amounts disclosed in this section
include cash bonuses and options that will be granted in February 2015 with respect to performance in 2014 (disclosure according
to the accrual principle).
9.4.1. Cash Compensation
(CHF thousand)
To the Operations Council (including Senior Management)
To Senior Management (including Chief Executive Officer)
To the Chief Executive Officer
2014
11 607
2 559
1 649
2013
12 245
2 582
1 672
The total cash compensation paid to the Operations Council includes the annual base salaries, the cash portion of the Annual
Bonus, the Discretionary Bonus if any, and any other cash allowances, including allowances paid to individual members in respect
of vehicle, housing and schooling. Post-employment benefits of CHF 1 046 thousand are not included (2013: CHF 1 298 thousand).
Employer's contributions to social benefits are excluded as well.
The overall lower cash compensation is explained by the fact that several members of the Operations Council joined or
left during 2014.
The achievement of financial targets in the businesses and in the regions ranges from 77.2% to 107.7%. Consequently,
the overall payout ranges from 42.6% to 148% for the members of the Operations Council (excluding CEO) and amounts
to 123.6% for the CEO.
In 2014, the bonus calculated was based on the Adjusted Operating Income incorporating the positive impact of the Paraguay settlement.
9.4.2. Share Options
9.4.2.1. Annual Share Option Plans
In settlement of 2014 Annual Bonus entitlements, SGSBB options will be granted to the Operations Council (including Senior
Management) in February 2015 on the basis of 2014 results (2013: 926 061 SGSPF options were granted in January 2014).
Such SGS options grant the right to acquire shares of SGS at a strike price which will be confirmed in February 2015 (100 options
give the right to acquire one share). They vest in tranches of one-third in 2015, 2016 and 2018 and are subject to a blocking period
ending in January 2018.
In view of the exceptional change of the CHF exchange rate against EUR on 15 January 2015 and its consequences on the Swiss
Stock Exchange, the options will be granted in February 2015. The economic value calculation will be done using an average value
of 30 working days from 15 January 2015 (included).
138
9.4.2.2. Long Term Incentive Plan
Under the 2011 LTI Plan, a total of 4 350 000 SGSMF-2011 LTI options were granted to the Operations Council members
(including Senior Management) in 2011. 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 vesting of such options in January 2015 was conditional on 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) by 2014. In 2013, the Board of Directors reviewed these EPS targets and decided to introduce a normalisation in order
to exclude material distortions caused by foreign exchange fluctuations, the issuance of corporate bonds and the adoption
of new accounting standards since the inception of the LTI plan. In 2014, in the light of the normalised EPS, the vesting scale was
amended by the Board of Directors to allow 50% vesting in January 2015 to participants employed at the end of January 2015.
This is a recognition of the achievements and contribution to the growth of the Company and will drive motivation and engagement
for the years ahead.
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 2014. It includes options that
will be granted in February 2015 with respect to performance and financial results in 2014.
TYPE OF OPTIONS 1
(YEAR OF ISSUE)
STRIKE PRICE
(CHF) 2
TOTAL NUMBER OF
OPTIONS GRANTED
UNDER EACH PLAN
MARKET VALUE
AT GRANT
(CHF THOUSAND)
NUMBER VESTED ON
31 DECEMBER 2014
NUMBER VESTED ON
31 DECEMBER 2013
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT AND CHIEF EXECUTIVE OFFICER)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI
SGSBB (2015) 3
1 617
1 497
2 013
2 059
1 617
-
877 389
986 587
1 036 765
986 061
4 350 000
-
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI
SGSBB (2015) 3
CHIEF EXECUTIVE OFFICER
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI
SGSBB (2015) 3
1 617
1 497
2 013
2 059
1 617
-
1 617
1 497
2 013
2 059
1 617
-
246 769
282 863
163 223
394 021
1 120 000
-
174 920
180 225
48 577
282 818
800 000
-
2 501
2 624
2 312
2 485
12 398
2 908
703
752
364
893
3 192
826
499
479
108
713
2 280
687
877 389
657 725
691 177
328 687
-
-
246 769
188 575
108 815
131 340
-
-
174 920
120 150
32 385
94 273
-
-
584 926
657 725
345 588
-
-
-
164 513
188 575
54 408
-
-
-
116 613
120 150
16 192
-
-
-
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
3. Options to be granted in 2015 as settlement of the 2014 bonus. Estimated market value of options that will be allocated in February 2015.
139
SGS SA RESULTS
9.4.3. Total Compensation to the Operations Council, Senior Management and Chief Executive Officer
The tables below present all components of the remuneration earned in 2013 and 2014 by the Operations Council, by the Senior
Management and by the Chief Executive Officer.
Total compensation in 2014:
(CHF thousand)
To the Operations Council
(including Senior Management) 2
To Senior Management
(including Chief Executive Officer) 3
To the Chief Executive Officer
BASE
SALARY
CONTRIBUTION
TO PENSION
BENEFITS
OTHER
EMPLOYMENT
BENEFITS
ANNUAL
CASH
BONUS
ANNUAL
GRANT
OF SHARE
OPTIONS 1
DISCRETIONARY
CASH BONUS
TOTAL 2014
COMPENSATION
(INCLUDING
OPTIONS)
7 680
1 046
2 198
2 603
2 908
1 576
1 000
271
172
344
216
889
577
826
687
75
75
-
16 510
3 906
2 652
1. Estimated market value of options that will be allocated in February 2015.
2. 24 FTE (Full Time Equivalent).
3. 3 FTE.
Total compensation in 2013:
(CHF thousand)
To the Operations Council
(including Senior Management) 1
To Senior Management
(including Chief Executive Officer) 2
To the Chief Executive Officer
1. 24 FTE (Full Time Equivalent).
2. 3 FTE.
BASE
SALARY
CONTRIBUTION
TO PENSION
BENEFITS
OTHER
EMPLOYMENT
BENEFITS
ANNUAL
CASH
BONUS
ANNUAL
GRANT
OF SHARE
OPTIONS
DISCRETIONARY
CASH BONUS
TOTAL 2013
COMPENSATION
(INCLUDING
OPTIONS)
7 737
1 298
2 240
2 007
2 335
1 210
16 827
1 679
1 000
332
178
343
216
751
600
893
713
60
-
4 058
2 707
In the year under review, the highest compensation paid by the Group was awarded to the Chief Executive Officer.
The following chart illustrates the ratio between fixed and variable remuneration for the CEO and for the other members of
the Operations Council on average (without CEO). The ratio depends on the extent to which pre-defined objectives have been
achieved and is being shown at target (assuming performance at the required level), at minimum (no payout under the Annual
Bonus due to underperformance), at maximum (maximum payout under the Annual Bonus due to over performance) and at actual
levels achieved in 2014.
CEO REMUNERATION MIX
OPERATION COUNCIL (EXCLUDING CEO)
REMUNERATION MIX (ON AVERAGE)
(CHF thousand)
(CHF thousand)
4 000
3 500
3 000
2 500
2 000
1 500
1 000
500
0
800
700
600
500
400
300
200
100
0
Target
Minimum
Maximum
Actuals
2014
Target
Minimum
Maximum
Actuals
2014
Annual Base Salary Annual Bonus (cash) Annual Bonus (options)
Annual Base Salary Annual Bonus (cash) Annual Bonus (options)
140
In 2014, the variable remuneration of the Chief Executive Officer represented 56% of the total compensation (2013: 57%),
split in cash (26%) and options (30%). For the Operations Council, including Senior Management, the variable remuneration amounted
to 42% of the total compensation on average (2013: 42%), split in cash (20%) and options (22%). Total compensation includes
the guaranteed part (base salary) and the variable part (Annual Bonus in cash and options). It excludes fringe and social benefits.
9.4.4. Other Compensation
9.4.4.1. Severance Payments
In 2014, no severance payment was made to Operations Council members (2013: CHF 150 000).
9.4.4.2. Loans to Members of Governing Bodies
As at 31 December 2014, no loan, credit or outstanding advance was due to the Group from members of its governing bodies
(unchanged from prior year).
10
SHARES AND OPTIONS HELD BY MEMBERS OF GOVERNING BODIES
10.1. 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 2014:
NAME
S. Marchionne
A. von Finck
A.F. von Finck
C. Grupp
P. Kalantzis
S.R. du Pasquier
P, Desmarais
I. Gallienne
G. Lamarche
SGSMF
50 000
SGSKF
33 333
SGSWS
26 667
SGSPF
25 000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
SHARES
700
19 670
439 515
1
150
10
10
1
25
The following table shows the shares and vested options held by Members of the Board of Directors as at 31 December 2013:
NAME
S. Marchionne
A. von Finck
A.F. von Finck
C. Grupp
P. Kalantzis
S.R. du Pasquier
P, Desmarais
I. Gallienne
G. Lamarche
SGSOP
50 000
SGSMF
33 332
SGSKF
33 333
SGSWS
13 334
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
141
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
SHARES
700
19 670
439 515
1
20
10
10
1
25
SGS SA RESULTS
10.2. SHARES AND OPTIONS HELD BY SENIOR MANAGEMENT
The following table shows the shares and vested options held by Senior Management as at 31 December 2014:
NAME
C. Kirk
CORPORATE RESPONSIBILITY
SGSMF
SGSKF
SGSWS
SGSPF
SHARES
Chief Executive Officer
174 920
120 150
32 384
C. De Geyseleer
Chief Financial Officer
-
-
-
O. Merkt
General Counsel &
Chief Compliance Officer
10 000
27 370
28 842
8 821
The following table shows the shares and vested options held by Senior Management as at 31 December 2013:
94 273
40 000
1 199
-
45
CORPORATE RESPONSIBILITY
SGSOP
SGSMF
SGSKF
SGSWS
SHARES
NAME
C. Kirk
Chief Executive Officer
G. Matchett
Chief Financial Officer
O. Merkt
General Counsel &
Chief Compliance Officer
42 647
-
116 612
25 284
120 150
41 055
16 192
23 794
11 000
22 614
27 370
14 421
1 199
-
45
142
143
SGS SA RESULTS
11
SIGNIFICANT SHAREHOLDERS
As at 31 December 2014, Groupe Bruxelles Lambert acting through Serena Sàrl held 15.00% (2013: 15.00%), Mr. August von Finck
and members of his family acting in concert held 14.97% (2013: 14.97%), the Bank of New York Mellon Corporation held 3.43%
(2013: 3.18%) and Blackrock Inc held 3.0% of the share capital and voting rights of the Company.
At the same date, SGS Group held 1.88% of the share capital of the Company (2013: 2.19%).
PROPOSAL OF THE BOARD OF DIRECTORS FOR THE APPROPRIATION OF AVAILABLE
RETAINED EARINGS
(CHF)
Profit for the year
Balance brought forward from previous year
Dividend paid on own shares released into circulation in 2013 prior
the Annual General Meeting on 19 March 2013
Dividend paid on own shares released into circulation in 2014 prior
the Annual General Meeting on 13 March 2014
Reversal from the reserve for own shares
TOTAL RETAINED EARNINGS AVAILABLE FOR APPROPRIATION
Proposal of the Board of Directors:
Dividends ¹
BALANCE CARRIED FORWARD
2014
2013
378 165 415
341 877 870
716 901 451
119 625 639
-
(1 650 158)
(1 645 215)
31 321 687
749 719 757
-
4 305 538
839 182 470
(521 934 408)
(497 304 600)
227 785 349
341 877 870
Ordinary gross dividend per registered share
68.00
65.00
1. No dividend is paid on own shares held by SGS SA.
144
REPORT OF THE STATUTORY AUDITOR
To the General Meeting of
SGS SA, GENEVA
REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS
As statutory auditor, we have audited the financial statements of SGS SA presented on pages 122 to 144, which comprise
the balance sheet as at 31 December 2014, and the income statement and notes for the year then ended.
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 2014 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 Code of Obligations (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.
DELOITTE SA
James Baird
Licensed Audit Expert
Auditor in Charge
Geneva, 6 February 2015
Fabien Bryois
Licensed Audit Expert
145
DATA
DATA
DATA
SGS GROUP – FIVE YEAR STATISTICAL DATA CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED 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
Restructuring costs
Amortisation of acquisition intangibles
Transaction and integration-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 MARGIN IN %
2014
2013
2012
5 883
(2 891)
(361)
(304)
5 830
(2 871)
(357)
(298)
5 569
(2 733)
(338)
(280)
2011
4 797
2010
4 757
(2 304)
(2 228)
(331)
(225)
(313)
(225)
(1 386)
(1 392)
(1 384)
(1 147)
(1 155)
941
912
834
790
836
947
(11)
(20)
(7)
32
941
(41)
900
(234)
666
629
37
16.1
977
(33)
(20)
(12)
-
912
(38)
874
(236)
638
600
38
16.8
930
(68)
(16)
(12)
-
834
(41)
793
(214)
579
545
34
16.7
815
-
(16)
(9)
-
790
(26)
764
(203)
561
534
27
17.0
848
-
(8)
(4)
-
836
(7)
829
(215)
614
588
26
17.8
AVERAGE NUMBER OF EMPLOYEES
83 515
80 510
76 790
67 633
60 321
148
SGS GROUP – FIVE YEAR STATISTICAL DATA CONSOLIDATED BALANCE SHEETS
AT 31 DECEMBER
(CHF million)
2014
2013
2012
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
1 043
1 337
24
244
2 648
330
1 068
371
1 350
3 119
5 767
8
2 319
2 327
76
2 403
1 672
74
273
2 019
18
511
175
641
1 345
3 364
5 767
1 029
1 216
18
215
2 478
330
952
306
973
2 561
5 039
8
2 135
2 143
69
2 212
1 293
66
190
1 549
15
502
142
619
1 278
2 827
5 039
1 015
1 172
17
266
2 470
302
977
255
987
2 521
4 991
8
2 052
2 060
58
2 118
1 305
72
273
1 650
17
492
103
611
1 223
2 873
4 991
2011
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
Land, buildings and equipment
305
357
386
345
261
149
DATA
SGS GROUP – FIVE YEAR STATISTICAL SHARE DATA
(CHF unless indicated otherwise)
2014
2013
2012
2011
2010
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
7 675 506
7 650 840
7 632 042
7 596 871
7 629 482
PRICE
High
Low
Year-end
Par value
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
Total dividend per share
DIVIDENDS (CHF MILLIONS)
Ordinary
Special
Total
2 260
1 802
2 045
1
2 450
1 952
2 052
1
2 156
1 559
2 026
1
1 724
1 255
1 555
1
1 704
1 332
1 569
1
303.13
280.08
269.95
263.75
272.53
81.99
68.00 2
-
68.00
522 2
-
522
78.43
65.00
-
65.00
497
-
497
71.52
30.00
28.00
58.00
229
214
443
70.52
30.00
35.00
65.00
228
266
494
77.64
30.00
35.00
65.00
229
267
496
1. Calculation of the basic earnings per share (weighted average for the year) is disclosed in note 9, page 83.
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 2014, market capitalisation was approximately CHF 15 997 million (2013: CHF 16 052 million). Shares are quoted
on the SIX Swiss Exchange.
150
SGS SA
2 500
2 400
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
CLOSING PRICES FOR SGS AND THE SMI 2013 – 2014
SMI
11 000
10 750
10 500
10 250
10 000
9 750
9 500
9 250
9 000
8 750
8 500
8 250
8 000
7 750
7 500
7 250
7 000
J F M A M J J A S O N D J F M A M J J A S O N D
2013
HIGH PRICE
CLOSE
LOW PRICE
SGS SA
2014
SWISS MARKET INDEX (MONTHLY CLOSE)
151
DATA
SGS GROUP PRINCIPAL OPERATING COMPANIES AND ULTIMATE PARENT
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
SGS 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
Société Générale de Surveillance Azeri, 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
Brazil
Bulgaria
SGS do Brasil Ltda., São Paulo
SGS Enger Engenharia Ltda, Barueri-SP
SGS Bulgaria Ltd., Sofia
Burkina Faso
SGS Burkina S.A., Ouagadougou
Cambodge
Cameroon
Canada
Chile
Chile
China
Colombia
Colombia
Congo
Croatia
SGS (Cambodia) Ltd., Phnom Penh
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 Técnicos S.A., (ETSA), Bogota
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 Hvidovre
Democratic
Republic of Congo
SGS RDC SPRL, Kinshasa
Dubai
(see United Arab Emirates)
ALL
ALL
DZD
DZD
AOA
ARS
ARS
AUD
AUD
EUR
USD
BSD
BDT
USD
EUR
XOF
BOB
BAM
BWP
BRL
BRL
BGN
XOF
KHR
XAF
CAD
CLP
CLP
USD
COP
COP
XAF
HRK
CZK
DKK
USD
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
2 151
1 000
68 009 486
3 000 000
10 000
10 000 000
400 000 000
10 000 000
20 900 000
9 394 781 237
6 715 706 117
3 966 667
29 084 965 360
265 739 000
10 000 000
1 300 000
7 707 000
700 000
50 000
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
100
100
85
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
I
D
D
D
D
D
D
I
I
D
I
D
I
I
I
D
152
COUNTRY
NAME AND DOMICILE
ISSUED CAPITAL
CURRENCY
ISSUED CAPITAL
AMOUNT
% HELD BY
GROUP
DIRECT /
INDIRECT
Ecuador
Egypt
Estonia
Ethiopia
Finland
Finland
France
France
France
Georgia
Germany
Germany
Germany
Ghana
Ghana
SGS del Ecuador S.A., Guayaquil
SGS Egypt Ltd., Cairo
SGS Estonia Ltd., Tallinn
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 Georgia Ltd., Batumi
SGS Germany GmbH, Hamburg
SGS Institut Fresenius GmbH, Taunusstein
SGS-TÜV Saar 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
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
Ivory Coast
SGS Côte d’Ivoire S.A., Abidjan
Ivory Coast
Japan
Jordan
Société Ivoirienne de Contrôles Techniques
Automobiles et Industriels S.A., Abidjan
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
SGS Kuwait W.L.L., Kuwait
USD
EGP
EUR
ETB
EUR
EUR
EUR
EUR
EUR
USD
EUR
EUR
EUR
GHS
GHS
GBP
GBP
EUR
USD
GTQ
GNF
XAF
HKD
HUF
INR
USD
IRR
EUR
EUR
XOF
XOF
JPY
JOD
KZT
KES
KRW
KWD
147 680
1 500 000
42 174
15 000
102 000
260 000
2 320 000
200 000
100
100
100
100
100
100
100
100
2 745 000
92.14
80 000
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
518 000 000
800 000
200 000
50 000 000
62 500
2 500 000
300 000 000
200 000 000
100 000 000
100 000
146 527
2 000 000
15 617 540 000
50 000
100
100
100
74.9
100
60
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
95
100
50
100
100
100
49
D
D
I
D
I
I
I
I
I
D
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
153
DATA
COUNTRY
NAME AND DOMICILE
ISSUED CAPITAL
CURRENCY
ISSUED CAPITAL
AMOUNT
% HELD BY
GROUP
DIRECT /
INDIRECT
Latvia
Lebanon
Liberia
Lithuania
Luxembourg
Madagascar
Madagascar
Malawi
Malaysia
Malaysia
Mali
SGS Latvija Limited, Riga
SGS (Liban) S.A.L., Beirut
SGS Liberia Inc, Monrovia
SGS Klaipeda Ltd., Klaipeda
SGS Luxembourg S.A., Windhof
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
SGS Mali Sàrlu, Kayes
Mauritania
SGS Mauritanie Sàrlau, Nouakchott
Mauritius
Mexico
Moldova
Mongolia
Morocco
Morocco
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
SGS (Myanmar) Limited, Yangon
Namibia
Netherlands
Netherlands
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, Austrheim
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
Philippines
Poland
Portugal
Romania
Russia
SGS Paraguay S.A., Asunción
SGS del Perú S.A.C., Lima
SGS Philippines, Inc., Manila
SGS Polska Sp.z o.o., Warsaw
SGS Portugal - Sociedade Geral de
Superintendência SA, Lisboa
SGS Romania S.A., Bucharest
SGS Vostok Limited, Moscow
LVL
LBP
LRD
LTL
EUR
MGA
MGA
MWK
MYR
MYR
XOF
MRO
MUR
MXN
MDL
USD
MAD
MAD
MZM
MMK
NAD
EUR
EUR
NZD
NGN
NOK
-
PKR
USD
PGK
PYG
PEN
PHP
PLN
EUR
RON
RUB
118 382
30 000 000
100
99.99
100
40 000
38 000
20 000 000
10 000 000
30 000
500 000
60 000
2 500 000
1 000 000
100 000
7 065 828
488 050
10 000
12 000 000
33 000 000
100 000
300 000
100
250 000
45 000
10 522 190
200 000
804 000
-
2 300 000
850 000
2
1 962 000 000
13 081 182
24 620 000
10 144 200
500 000
100 002
8 000 000
100
100
100
100
70
100
70
100
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
I
D
D
I
I
I
D
D
D
I
D
D
D
D
D
D
D
D
D
D
I
I
I
D
D
I
-
D
D
I
D
D
D
I
I
I
D
154
COUNTRY
NAME AND DOMICILE
ISSUED CAPITAL
CURRENCY
ISSUED CAPITAL
AMOUNT
% HELD BY
GROUP
DIRECT /
INDIRECT
Saudi Arabia
Senegal
Serbia
SGS Inspection Services Saudi Arabia Ltd.,
Jeddah
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
SAR
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
1 000 000
35 000 000
66 161
200 000 000
100 000
19 917
10 432
5 990 006
240 000
92 072 034
4 559 657
9 000 000
1 500 000
10 000 000
7 822 436
100 000
62 000 000
250 000
75
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
D
I
D
D
I
I
D
I
I
I
D
I
I
Ultimate
parent
company
I
I
D
D
D
D
I
D
D
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–
I
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155
SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
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 12 March 2015 in Geneva.
CONCEPT, DESIGN, PHOTOGRAPHY,
REALISATION AND PRODUCTION
Group Charlescannon Sàrl
Geneva, Switzerland
PRINTED BY
Hertig Print SA
Lyss, Switzerland
The 2014 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 2015.
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
158
159
WWW.SGS.COM
.
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