ANNUAL REPORT
2
3
CONTENTS
2015 has been a transitional year
for SGS, with an evolution in our
structure and service offering being
announced to investors in October 2015.
The market is changing in fundamental
ways and SGS is aligning itself
to take full advantage of the
opportunities that this presents.
Without changing the nature of
the core business, which is firmly
rooted in the Testing, Inspection and
Certification (TIC) industry, SGS is
looking to leverage its existing network
in new and exciting ways.
As a result of these changes we have
designed this year’s Annual Report
to provide stakeholders not only with
a retrospective view of our performance
in 2015, but also with a clarification
of the company’s outlook and
structure going forward. More detailed
information on these changes
is also available from the SGS website:
www.sgs.com/management
Finally, you may note a difference
in the format of this year’s Annual
Report as we make our first steps
towards integrated reporting.
This year’s Business Review and
Corporate Sustainability performance
and highlights have been fully
incorporated into this document.
The complete Corporate
Sustainability Report will be
available online from 14 March 2016:
www.sgs.com/cs-report2015
We hope that you find this year’s
Annual Report useful, stimulating
and informative.
INNOVATION
EXPERTISE
INVESTMENT
OPERATIONAL EXCELLENCE
PROFESSIONAL EXCELLENCE
Compliance and Integrity
Procurement
PEOPLE
Talent Acquisition
Employee Retention
Equal Opportunities
Operational Integrity
ENVIRONMENT
Emissions / Climate Change
Energy Efficiency
Waste Management
Water Management
COMMUNITY
Community Programmes
SGS BUSINESS PRINCIPLES
SGS ADDED VALUE
Our Stakeholders
What Makes Us Stand Out?
Market Positioning
The TIC Industry Unmasked
Our Value to Society
5. MARKET RISKS
Risk Management
Sustainability Materiality Matrix
58
60
62
64
65
66
67
68
69
70
71
72
74
75
77
78
79
80
82
84
86
87
88
88
88
89
90
92
94
6. GOVERNANCE
Group Structure and Shareholders
Capital Structure
Board of Directors
Operations Council
Compensation, Shareholdings
and Loans
Shareholders’ Participation Rights
Change of Control and
Defence Measures
Auditors
Information Policy
7. REMUNERATION
REPORT
Introduction by the Nomination
and Remuneration Committee
Company’s Remuneration Policy
and Governance
Remuneration Model
Remuneration Awarded to the
Board of Directors
96
99
100
100
107
111
112
112
112
113
114
117
118
121
127
Remuneration Awarded to the CEO,
Senior Management and Other
Members of the Operations Council 128
8. SGS GROUP RESULTS
132
9. SGS SA RESULTS
10. DATA
11. SHAREHOLDER
INFORMATION
184
194
204
1. CHAIRMAN’S AND
CEO’S LETTER TO
SHAREHOLDERS
2. HIGHLIGHTS
Financial Highlights
Revenue and Adjusted Operating
Income by Business
Revenue by Region
Group Achievements
Business Highlights
Sustainability Highlights
2020 Sustainability Ambitions
3. SGS AT A GLANCE
The World Leader
Our Vision
Our Values
Our Position in the Value Chain
SGS by Industry
The Business Benefits We Deliver
The Expert Services We Offer
4. SGS BUSINESS
LEADERSHIP
Group Outlook
CASE STUDIES
Mind the Gap
The Sense of Sensors
Transportation and the Dawn
of the Smart City
Online-to-Offline: Where We Can
Add Value
SGS BUSINESS MODEL
BRAND
GROWTH
Agricultural Services
Minerals Services
Oil, Gas and Chemicals Services
Life Science Services
Consumer Testing Services
Systems and Services Certification
Industrial Services
Environmental Services
Automotive Services
2
4
6
7
7
8
8
9
9
10
11
11
11
12
14
16
17
18
20
22
22
24
26
28
30
32
34
36
38
40
42
44
46
48
50
52
Governments and Institutions Services 54
Acquisitions
Strategic Partnerships
56
57
1. CHAIRMAN’S AND CEO’S LETTER TO SHAREHOLDERS
DEAR
SHAREHOLDERS,
The SGS Group performed well in
2015 with total revenues reaching
CHF 5.7 billion.
This represents revenue growth
of 3.6% (constant currency basis),
of which 2.0% was organic and 1.6%
was contributed by recent acquisitions.
Trading conditions remained difficult
during the year with the fall in
commodity prices, primarily impacting
Oil, Gas and Chemicals, Minerals and
Industrial Services. Group revenue
declined 2.9% in comparison with the
reported figures for December 2014 due
to the strengthening of the Swiss Franc
against the majority of other currencies.
Achieving growth during this challenging
year underlines the strength of the
Group’s strategy and the depth and
balance of its portfolio.
Organic revenue growth was most
apparent in Governments and
Institutions Services (12.0%), with
Product Conformity Assessments
experiencing impressive double-digit
growth. Automotive Services saw
8.5% organic growth resulting from
the expansion of Vehicle Inspection
Services. Systems and Services
Certification delivered 7.2% organic
growth from high adoption of new 2015
standards and good performance in
food activities. Solid results were also
seen in Life Science Services at 6.4%,
Environmental Services at 5.2%
and Consumer Testing Services at
4.9% organic growth.
The restructuring programme that the
Group announced in the first semester
to align operations with current market
conditions is proceeding as planned.
This measure resulted in one-off
expenses amounting to CHF 64 million
(CHF 47 million net of taxes).
Adjusted EBITDA reached CHF 1 191
million, up 3.4% at constant currency
versus the prior year. Adjusted operating
income was CHF 917 million resulting
in a stable margin versus the prior year
at 16.1%.
Net financial expenses for the year
increased to CHF 43 million. The overall
effective tax rate for the period was
25%, slightly below the prior year.
Profit for the period reached CHF 584
million, down 6.7% at constant currency
versus the prior year, mainly due to
the one-off effect of the restructuring
expenses of CHF 64 million in 2015 and
the one-off benefit in 2014 resulting
from the settlement of a long-standing
dispute with the Republic of Paraguay
amounting to CHF 32 million.
Operating cash flow improved
significantly over the year. For the
first time in the history of SGS, the
core operating cash flow exceeded
CHF 1 billion.
The Group invested in acquisitions
during the year for a total cash
consideration of CHF 103 million.
It also paid a dividend of CHF 522 million,
leading to a Group net debt position
as at 31 December 2015 of CHF 482
million compared to CHF 340 million
in December 2014.
ACQUISITIONS
The Group initiated 14 acquisitions in
2015 of which 10 were completed.
These acquisitions further expand the
Group’s footprint into new markets and
create a more diverse service offering.
Combined, these companies add
CHF 45 million to the Group’s revenue
and CHF 9 million to the operating
income in 2015.
Examples of this year’s acquisitions
include: SVA Ltd., a UK-based leading
independent provider of extensive
advisory services in the food testing
space, the Chile-based SIGA Ingeniería
y Consultoría SA, a leading project
management, technical inspection
and engineering consulting company,
and Quality Compliance Laboratories
Inc. in Canada, a provider of analytical
testing to the pharmaceutical, nutrition
and cosmetic industries.
The Group has also begun to
complement its traditional approach
to acquisitions by finding opportunities
to take smaller equity stakes in certain
strategic technology companies to
form partnerships. An example of this
is the recent partnership with SAVI,
the US-based sensor technology
company in which SGS now holds
a 17.65% stake.
DISTRIBUTION TO SHAREHOLDERS
The SGS Board of Directors will
recommend to the Annual General
Meeting, to be held on 14 March 2016,
the approval of a dividend of CHF 68 per
share, unchanged from the prior year.
MANAGEMENT
The Board would like to take this
opportunity to thank former CEO
Christopher Kirk for his commitment
and leadership during his time at SGS.
2
Mr. Kirk, who left his position as CEO in
March 2015 after ten successful years
at the helm of the Group, was replaced
by Frankie Ng who has been with the
Group since 1994 and most recently led
the Industrial Services and Consumer
Testing businesses.
In the course of 2015, Michael Belton,
EVP Minerals Services, resigned from
his position. Ladislav Papik, COO South
East Europe left the Operations Council
to assume a regional role within the
Group. Anthony Hall, COO South East
Asia Pacific stepped down from the
Operations Council to take the global
leadership of the Innovation initiative
for the Group.
The Nomination and Remuneration
Committee approved the internal
promotion and appointment at the
Operations Council of Derick Govender
as EVP Minerals Services, Richard
Shentu as EVP Consumer Testing
Services and Kimmo Fuller as COO
North America.
SIGNIFICANT SHAREHOLDERS
As at 31 December 2015, Mr. August
von Finck and members of his family
acting in concert held 15.03%, Groupe
Bruxelles Lambert acting through
Serena SARL held 15.00%, the Bank
of New York Mellon Corporation held
3.35%, BlackRock Inc. held 3.03% and
MFS Investment Management held
3.01% of the share capital and voting
rights of the Company.
At the same date, SGS Group
held 2.77% of the share capital of
the Company.
SUSTAINABILITY
2015 delivered another year of solid
sustainability performance. For the
second consecutive year, SGS was
named Industry Leader in the Dow
Jones Sustainability Indices (DJSI)
for both Europe and World regions.
The Carbon Disclosure Project (CDP)
also named SGS as Industrials Sector
Leader and Country Leader in the DACH
(Germany, Austria and Switzerland)
region for our high level of transparency
on the measures we have taken to
combat and adapt to climate change.
We maintained our status as a carbon
neutral company and also improved our
diversity and equal opportunities ratio.
Sustainability is core to what we do and
is integral to our strategy and long-term
commercial success. Our sustainability
approach focuses on delivering
programmes linked to the most material
issues for our business: upholding high
standards of ethical conduct, supporting
economic performance, ensuring health
and safety, acquiring and developing
talent, managing energy and climate
change impacts, protecting human rights
and delivering sustainability services
to our clients. It is through these
programmes that SGS generates value
to society, both directly and through our
customers. We employ pioneering tools,
such as our Green Book and our Value
to Society Estimation Model, to estimate
the impact of our actions on the natural
environment, employees, customers,
stakeholder networks and wider society.
Actions on climate change mitigation
remained the focus of our efforts in
2015, culminating in SGS actively
participating in the United Nations
Climate Change Conference, COP21,
in Paris. SGS convened with participants
across multiple business sectors to
exchange thinking on how companies
can work together to drive business
innovation and bring scale to the
emerging green economy. Decisive
action such as this underscores our
vision for SGS to be the trusted partner
in building a more sustainable economy.
OUTLOOK
In response to a constantly changing
global marketplace and new demand
patterns from our existing customer
base, SGS is evolving both structurally
and technically.
The organisational realignment that was
announced last Autumn will not only
underpin our ability to service clients
following the emergence of new product
categories (such as pharma-nutritional
products), but it will also help us to
broaden our services, pool expertise
and create synergies across business
lines to drive innovation.
Another important development in
the Group will be the work we are
beginning to do in the exciting and
rapidly changing fields of e-commerce
and data analytics. In decisively
embracing the increasing digitalisation
of global supply chains with our strategic
Testing Inspection and Certification (TIC)
4.0 initiative, we can take advantage of a
number of new business opportunities.
GUIDANCE 2016
The Group expects to deliver an
organic revenue growth in the range
of 2.5% to 3.5%, with stable margins
compared to the prior year and solid
cash flow generation.
20 January 2016
Sergio Marchionne
Chairman of the Board
Frankie Ng
Chief Executive Officer
3
2. HIGHLIGHTS
4
4
55
2. HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
CHF 5.7BN
+3.6% 1
5.5
5.7
CHF 917MIO
+3.2% 1
889
917
REVENUE
ADJUSTED OPERATING INCOME
2014
2015
2014
2015
16.1%
16.11
16.1
CHF 584MIO
-6.7% 1
626
584
ADJUSTED OPERATING MARGIN
PROFIT FOR THE PERIOD
2014
2015
2014
2015
CHF 81.95
-0.9%
82.69
81.95
CHF 68
68
68
ADJUSTED BASIC
EARNINGS PER SHARE
2014
2015
2014
2015
19.7%
20.4
19.7
PROPOSED DIVIDEND
CHF 1.1BN
+150 MIO
912
1 062
RETURN ON INVESTED CAPITAL 2
CORE OPERATING CASH FLOW
2014
2015
2014
2015
10
10
10
ACQUISITIONS
COMPLETED IN 2015
2014
2015
1. At constant currency.
2. Net Income / (Non-current assets + Net Working Capital).
6
6
REVENUE AND
ADJUSTED
OPERATING INCOME
BY BUSINESS
REVENUE
4.6%
GIS
5.6%
AUTO
6.4%
ENVI
15.5%
IND
7.3%
SSC
ADJUSTED OPERATING INCOME 1
6.8%
GIS
6.7%
AUTO
5.1%
ENVI
10.9%
IND
7.7%
SSC
6.4%
AGRI
11.1%
MIN
19.6%
OGC
3.7%
LIFE
19.8%
CTS
7.0%
AGRI
9.8%
MIN
14.1%
OGC
2.5%
LIFE
29.4%
CTS
REVENUE
BY REGION
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs
and other non-recurring items.
44.7%
Europe / Africa /
Middle East
30.2%
Asia / Pacific
25.1%
Americas
77
2. HIGHLIGHTS
GROUP
ACHIEVEMENTS
NEW STRATEGIC
PLAN
FIRST REDUCTION
IN A DECADE
INITIATED TO MEET EVOLVING
MARKET DEMANDS
OF NET WORKING CAPITAL
CHF 550MIO
FIRST TIC
COMPANY
BONDS ISSUED AT HISTORICALLY
LOW INTEREST RATE
WITH A LONG-TERM CREDIT RATING
10 ACQUISITIONS
FURTHER ALIGNED
INTERESTS
COMPLETED IN 2015
(see Acquisitions section page 56)
BETWEEN SHAREHOLDERS
AND MANAGEMENT WITH
REMUNERATION MODEL
ADJUSTMENTS
8
BUSINESS
HIGHLIGHTS
AGRICULTURAL SERVICES
SGS created the first ever
non-governmental seed quarantine
facility in Brazil
MINERAL SERVICES
Strategic alliance with Corescan
Services expanded in Canada
with mobile unit
OIL AND GAS SERVICES
Innovation award from
the Energy Institute (UK)
LIFE SCIENCE SERVICES
Double-digit growth in China
and India
CONSUMER TESTING SERVICES
Geographical expansion
and increased work with
e-commerce sites
SYSTEMS AND SERVICES
Centralised back offices for
Europe in Poland
INDUSTRIAL SERVICES
Double-digit growth in China
ENVIRONMENTAL SERVICES
Growth in Health and Safety
and Industrial Hygiene Services
AUTOMOTIVE SERVICES
Exclusive ten-year inspection
concession signed with
Ugandan Government
GOVERNMENTS AND
INSTITUTIONS SERVICES
New E-Valuator border services
product successfully launched
2020
SUSTAINABILITY
AMBITIONS
PROFESSIONAL EXCELLENCE
• Link management incentive
plan to sustainability
• Deliver measurable sustainable
value to society
PEOPLE
• Maintain a natural turnover rate
of no more than 10%
• 30% of leadership positions will
be held by women
• Reduce our TRIR and
LTIR by 50%*
ENVIRONMENT
• Reduce our annual CO2
emissions (per FTE) by 20%*
• Reduce our annual CO2
emissions (by revenue) by 20%*
COMMUNITY
• Increase our investment in
communities around the world
by 30%*. Focus on volunteering
* Against 2014 baseline
SUSTAINABILITY
HIGHLIGHTS
SGS
SAFETY
MONTH
SGS SA RECEIVED INDUSTRY
LEADER, GOLD CLASS
SUSTAINABILITY AWARD 2016 FOR
ITS EXCELLENT SUSTAINABILITY
PERFORMANCE AND QUALIFIED
FOR INCLUSION IN ROBECOSAM’S
2016 SUSTAINABILITY YEARBOOK.
TOTAL RECORDABLE INCIDENT
RATE (TRIR) DECREASED BY MORE
THAN 40%.
DIVERSITY AND EQUAL
EMPLOYMENT OPPORTUNITIES
RATIO INCREASED OVER
THE LAST 4 YEARS BY 14%.
SGS NAMED INDUSTRIALS SECTOR
LEADER AND COUNTRY LEADER
IN THE GERMAN, AUSTRIAN
AND SWISS region by the Carbon
Disclosure Project for our high
level of transparency on climate
change mitigation.
SGS REDUCED ITS NATURAL
TURNOVER BY 6.5%.
SGS ACHIEVED A GOLD RATING
IN 2015 FROM ECOVADIS FOR ITS
SUSTAINABILITY PERFORMANCE.
77% OF EMPLOYEES ARE
AWARE OF THE ROLE THAT
SUSTAINABILITY PLAYS IN
SUPPORTING BUSINESS GROWTH.
SGS MAINTAINED ITS STATUS
AS A CARBON NEUTRAL COMPANY.
99
3. SGS AT A GLANCE
10
85 000
1 800
1
EMPLOYEES
OFFICES AND LABORATORIES
GLOBAL NETWORK
THE WORLD LEADER
OUR VISION
OUR VALUES
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.
At SGS, our sustainability approach is
about more than just reducing carbon
emissions. We maintain the highest
professional standards and ensure our
employees are able to lead fulfilling
working lives. We also seek to maximise
the positive impacts our business has
on society.
We aim to be the most competitive and
the most productive service organisation
in the world. Our core competencies
in inspection, verification, testing and
certification are being continuously
improved to be best in class. They are
at the heart of what we are. Our chosen
markets are and will be determined by
our ability to be the most competitive
and to consistently deliver unequalled
service to our customers.
We seek to be characterised by our
passion, integrity, entrepreneurialism and
our innovative spirit, as we continually
strive to fulfil our vision. These values
guide us in all that we do and are the
bedrock upon which our organisation
is built.
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 85 000 EMPLOYEES, SGS
OPERATES A NETWORK OF OVER 1 800 OFFICES
AND LABORATORIES AROUND THE WORLD.
11
3. SGS AT A GLANCE
OUR POSITION
IN THE VALUE CHAIN
We provide services throughout
all stages in the value chain, from
extraction and primary production to
manufacturing, transportation and retail.
MINING
Improving speed-to-market, optimising recoveries
LIFE SCIENCES
Protecting safety and costs in
product development
INDUSTRIAL MANUFACTURING
Making manufacturing more productive and profitable
CONSTRUCTION
Ensuring safety and performance where we live
CHEMICAL
Innovation, safety and efficiency in
everything from perfumes to paints
12
12
PUBLIC SECTOR
Facilitating international trade and
sustainable development
TRANSPORTATION
Enhancing safety, quality,
reliability and trust
ENERGY
Powering processes from renewables
to conventional energy
CONSUMER GOODS AND RETAIL
Generating trust throughout the supply chain
AGRICULTURE AND FOOD
Ensuring safe, sustainable and high-quality products
OIL AND GAS
Enriching quality and value in
exploration, extraction and distribution
13
13
3. SGS AT A GLANCE
OUR SPECIALIST
TEAMS DELIVER
TRUSTED RESULTS
IN WORLD-LEADING
SERVICES, COVERING
VIRTUALLY ALL
INDUSTRIES.
We audit across the entire value chain,
providing benefits to all business
sectors. We ensure our customers’
projects, products, processes and
operations meet and exceed regulations
and standards, and we provide the
verification and certification needed
to trade in target markets around the
world. Our consultancy services inform
organisations on market demands,
while our outsourcing solutions
provide the expertise, experience
and resources that enable our
customers to meet their goals.
We use state-of-the-art examination
methodologies with unsurpassed
accuracy to perform inspections that
reduce risk and control quality and
quantity. At the same time we conduct
testing of raw materials, components
and products in our global network
of facilities. Our industry experts also
deliver world-class training, specifically
designed for the precise needs of our
customers, providing the right skills
and knowledge to maximise efficiency
and improve productivity.
Through our unique global network
we deliver independent results tailored
to the precise needs of the industry
or sector. Our customers trust our
expertise, experience and resources to
support them. We help our customers
achieve outstanding performance in
everything they do.
SGS BY
INDUSTRY
AGRICULTURE AND FOOD
Consumers want assurance of safety
and quality at every stage of the food
production process. Our services build
trust, reduce risk and maintain efficiency
across diverse agriculture and food
supply chains. We offer solutions for
agrochemicals, seed, biofuels, fertilisers,
food and forestry. Our services protect
the integrity of our customers’ brands
by assessing quality, adding value and
securing safe and sustainable global
supply chains. From primary production
to the point of processing or custody
transfer, we assist with legislation
compliance, correct storage, shipping,
packing and distribution as well as
import and export product inspection.
CHEMICAL
The chemicals industry converts
raw materials into literally tens of
thousands of consumer products every
day. Industrial chemicals companies
trust our services to reduce risk and
eliminate potential health hazards. We
ensure quality in chemical components
and the safety and compliance of
finished products. Our consultancy
services deliver turnkey laboratory
design, commissioning and operations
assistance in dealing with intricate
equipment or logistics. We support our
customers in improving productivity
and efficiency through our asset
integrity management services,
optimisation programmes and project
lifecycle services.
14
CONSTRUCTION
Safe, efficient and trusted processes are
essential when constructing buildings or
infrastructure. Our construction industry
experience means our customers can
minimise environmental impact and
public inconvenience. We support our
customers in implementing effective
scheduling, budgeting, site safety and
logistics, plus assist in sourcing quality
materials and personnel. We conduct
studies in construction feasibility, risk
assessment and management. Our
services ensure quality in global supply
chains by performing chemical and
physical testing of materials. Our asset
management system tracks machines
and equipment, while our inspection
services provide facility, waste and
energy audits.
CONSUMER GOODS AND RETAIL
Our services enable manufacturers,
importers, exporters and retailers to gain
a competitive edge. We ensure trusted,
ethical and environmentally conscious
goods such as food, electronics, textiles,
toys, footwear and housewares, reach
consumers. Our laboratories conduct
material and functionality testing to verify
and certify that products perform as our
customers claim. We inspect processes
at every stage of production and
undertake retail store audits to ensure
our customers’ brands are represented
correctly. We help our customers develop
products, processes and supply chains
that consumers trust every day.
ENERGY
Across all operations, the energy sector
has to meet regulations, consider
safety and limit environmental impact.
We support the energy sector with a
comprehensive range of independent
inspections and audits across the
petroleum, gas, electrical power,
coal and renewable energy industries.
We reduce risk in all operations from
exploration to decommissioning for
the oil, gas and coal industries. In
renewables, we consult on sustainability
across hydroelectric, wind and solar
power. Our expertise maximises
productivity and increases efficiency
in sales and distribution processes.
Our solutions help the energy sector
innovate to find tomorrow's energy today.
INDUSTRIAL MANUFACTURING
OIL AND GAS
TRANSPORTATION
For governments, manufacturers
and financial institutions, improving
performance and reducing risk in the
transportation industry is essential.
From the automotive industry, through
rail and shipping to the aerospace
industry, we guide quality improvements
and verify that efficiency is maximised.
We support our customers in achieving
shorter delivery times, safer products
and reduced costs. Our experts help our
customers minimise the environmental
impact of their products and ensure their
conformity and compliance to standards
and regulations. We also ensure that
brand guidelines are met throughout
aftermarket and distribution operations.
Our global network of offices,
laboratories and testing centres offers
a truly unique and independent service.
Our expertise allows manufacturers
to improve productivity, follow best
practices and streamline operational
processes or logistics. Industrial
manufacturers, from pharmaceuticals
to farm machinery and aerospace to
automotive, trust in our independent
testing and conformity services.
Our advice on the fabrication of
components along with our finished
product assessments enable our
customers to achieve performance
standards throughout manufacturing.
We support manufacturers in meeting
all national and international quality,
health and safety legislation, at the same
time as providing advice on minimising
environmental impact.
LIFE SCIENCES
In the pharmaceuticals,
biopharmaceuticals and medical devices
industries, products must conform to
all national and international regulations,
as well as industry best practices.
Our services enable high-quality,
safe and compliant products to reach
the market in the shortest possible
timescales. We provide vital support
and expertise for medicines and medical
devices throughout every stage of
development, testing, production and
distribution. With the largest network
of contract analytical laboratories in
the world and state-of-the-art clinical
trials facilities, our customers trust
in our expert knowledge to support
them with reliable results.
MINING
We act as a strategic partner in
the mining industry, providing testing,
technology and trade solutions.
Our services promote growth and
deliver efficiencies across exploration,
production, industrial applications,
decommissioning and closure. We offer
technical advice in steel manufacturing
processes and act as a strategic partner
in coal and coke trading. We also
help to maximise profits in precious
or base metal mining and extraction.
Our consultancy services deliver
transparent and unbiased support
in new technologies and accurate data
to track the progress of projects.
Access to independent expertise in
both the upstream and downstream
sectors is key to maximising the value
chain in this sector. Our customers
in the oil and gas industry trust our
dedication to quality and safety. We
provide tailored solutions for exploring,
extracting, refining, transporting and
marketing oil, oil sands, gas and other
hydrocarbons. Our specialist advice
and knowledge supports upstream
activities such as applied mineralogy,
metering, measuring and hydrocarbons
allocation. Our downstream services
support distribution and retail as well as
the design and execution of optimisation
processes and global trade inspection.
PUBLIC SECTOR
Public sector organisations require
solutions designed to work in harmony
with the processes and policies they
already have in place. Our unrivalled
border control services for scanner
installation, transit monitoring and
risk profiling support the public
sector in reducing risk worldwide.
Our e-government solutions enhance
international trade and revenue
processing. We improve public
infrastructure through independent
road safety services that increase the
efficiency of transportation systems.
Our customers trust our knowledge of
quality, health, safety and environmental
issues to comply with complex
regulations. We improve quality
and maximise productivity across
the public sector.
15
3. SGS AT A GLANCE
THE BUSINESS
BENEFITS WE
DELIVER
WE DELIVER
BUSINESS
BENEFITS ACROSS
THE 11 DIFFERENT
INDUSTRIES
WE SERVICE
QUALITY
SAFETY
Our customers rely on our
independent third party inspection,
testing and auditing solutions to
ensure products, services and
processes comply with the latest
quality standards. Our global
network of state-of-the-art facilities
provides information to certify
and verify quality worldwide.
We help organisations develop
effective health and safety systems
to protect employees, generate
consumer confidence and enhance
trust in business operations.
We support our customers in
adhering to best practices and
complying with local, national
and international regulations.
REDUCED RISK
EFFICIENCY
We provide our customers with
independent and impartial services
that enable them to identify, manage
and reduce risk. Our experts deliver
risk management solutions, drawing
on our testing and inspection
capabilities, to verify risk prevention
measures are in place. We assist
with compliance to international
risk management standards across
a wide range of industries.
Our tailored business solutions
help our customers implement
processes and systems that make
business operations faster, simpler
and more efficient. We deliver
unrivalled efficiency results from
our local experts, who draw on
the global experience of the entire
SGS network.
PRODUCTIVITY
SPEED TO MARKET
Our training and outsourcing
solutions ensure productivity keeps
pace with developments in our
customers’ organisations. In the
short-term, we offer the knowledge
of our world-class productivity
experts. In the long-term, we
deliver focused training to develop
specialist skills in our customers’
existing personnel.
Compliance with the requirements
of target markets is key to
increasing speed to market.
Our consultancy, testing and
certification services help our
customers overcome the complex
challenges of understanding
and meeting market demands
anywhere in the world, whatever
the industry or sector.
TRUST
SUSTAINABILITY
Our global reputation for
independence and integrity
enables us to build trust wherever
needed. We provide transparent
and unbiased inspection, testing,
verification and certification
solutions so our customers can
give assurance in their products,
processes, systems and services.
We help our customers take
ownership of building a more
responsible and sustainable future.
We encourage environmental
responsibility and reduce the risk
of corruption in our customers’
projects. Our services assist in
developing sustainable facilities
and production, as well as better
working and social environments.
16
THE EXPERT
SERVICES
WE OFFER
INSPECTION
TESTING
All organisations need trusted
independent inspection to ensure
that legal obligations and high
standards are met at every stage.
Our comprehensive range of
world-leading inspection services
helps to reduce risk, control quality
and quantity, and meet all relevant
regulatory requirements across
different regions and markets.
We provide the broadest range
of product testing to customers
around the world. Our global
network of testing facilities, staffed
by knowledgeable and experienced
personnel, helps reduce risks,
shorten time to market and
demonstrate the quality and safety
of raw materials, components
and products.
VERIFICATION
CERTIFICATION
Whatever industry, compliance
with the latest regulations and
standards is mandatory. We can
help ensure that products, services
and processes follow the latest
national and international standards
– wherever our customers are
in the world.
We enable our customers
to demonstrate that products,
processes, systems and services
are compliant with national
and international regulations
and standards.
TRAINING
CONSULTANCY
Providing a workforce with
skills and knowledge enhances
organisational agility, maximises
efficiency, motivates employees,
improves productivity and
boosts the bottom line. We offer
world-class training and courses
from industry experts that address
the precise needs of organisations
and industry.
To ensure full market access, goods
must comply with the requirements
of target markets. Identifying those
requirements and meeting them is a
complex challenge. Our consultancy
services help our customers to
understand and meet market
demands anywhere in the world,
whatever industry or sector.
OUTSOURCING
ANALYTICS
We offer unrivalled expertise,
experience, resources and a unique
global network. As a result, we can
provide the specialised skills our
customers need to achieve their
goals, for any industry, anywhere
in the world.
Our data analytics services ensure
the quality of automated data inputs
and its subsequent analysis.
In managing streams of big data,
we are able to subsequently
propose innovations to our
customers, including the creation
of cutting-edge predictive
operations tools across all
the industries we operate in.
17
4. SGS BUSINESS LEADERSHIP
Our business leadership comes
from our unique global network, our
expertise and our attitude towards
SGS BUSINESS
MODEL
innovation and development.
PAGE 30
HOW WE BUILD
OUR BUSINESS
DYNAMICALLY
AND SUSTAINABLY
It comes from our financial strength
and our ability to invest wisely.
It comes from our agility and
creativity, and our integrity as
an independent third party.
It comes from our uncompromising
approach to sustainability and health
and safety.
It comes from our ability to provide
our customers with a competitive
advantage and offer our investors
a strong return on investment.
That is what we mean when we
talk about business leadership.
SGS BUSINESS
PRINCIPLES
PAGE 84
HOW WE MAINTAIN OUR
POSITION AS A WORLD
LEADER AND MAKE SGS
A GREAT PLACE TO WORK
SGS ADDED
VALUE
PAGE 86
HOW WE ENSURE
THE SUCCESS OF
OUR STAKEHOLDERS
18
4. SGS BUSINESS LEADERSHIP
THE FOLLOWING SECTION ON SGS BUSINESS
LEADERSHIP REPORTS ON EACH COMPONENT OF
OUR BUSINESS MODEL, HIGHLIGHTS OUR BUSINESS
PRINCIPLES AND EXPLAINS HOW WE ADD VALUE
TO ALL OF OUR STAKEHOLDERS.
S G S A DDED VALUE
O U R I N
Y
E
E
S
R I E
T
S
U
D
G
S
LE A
D
S
S
H I P
OUR EMPLO
S B U S I N ESS PRINCIPLE
INTEGRIT
S B U S I NESS M
S G
T I O N A L
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OPE R A
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EXC E L L
BRA
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INNOV
A
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PROFESSIO
V
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S
T
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S
OUR IN
19
4. BUSINESS LEADERSHIP
GROUP
OUTLOOK
MARKET
SGS expects market conditions
to remain constrained in 2016 but
nonetheless anticipates organic growth
in the range of 2.5% to 3.5%, along
with solid cash flow generation and
stable margins compared to 2015.
Over the longer term (2016 – 2020),
SGS anticipates mid-single digit organic
growth on average, which will be
supported by the new structure and
strategic initiatives. We also expect
accelerating merger and acquisition
activities, CHF 1bn of revenues over
the period, an adjusted operating income
margin of at least 18% by the end
of the period, strong cash conversion
and solid returns on capital.
STRUCTURE
SGS’ core skills and organisational
structure are evolving to adapt to
new market conditions and customer
demands. The consolidation of our
business lines from 2016 (which will
be reduced in number from ten to
nine) will result in more organisational
efficiency, improved customer service
and greater agility.
The restructuring will include the
incorporation of aspects of Life Science
Services as well as Food Testing into
Agricultural Services to generate
additional synergies to new product
categories. As a result of its expanded
scope, the business line will become
Agriculture, Food and Life.
Automotive Services will expand
its remit to become Transportation.
Environmental Services will likewise
expand to become Environment,
Health and Safety. Systems and
Services Certification will also broaden
its horizons to become Certification
and Business Enhancement. Consumer
Testing Services meanwhile will become
Consumer and Retail.
Our geographical organisation will also
change, with the number of our Regions
being consolidated from ten to nine.
As part of this process, Southern
Central Europe will be incorporated into
Northern and Central Europe and Central
America will be incorporated into a new
South and Central America Region.
"SGS’ core skills and structure are
evolving to adapt to new market
conditions and customer demands".
FINANCE
The Group will continue to focus on both
organic and inorganic growth as a key
objective for the year ahead, along with
solid cash flow and stable profitability.
SGS will also continue to place strong
emphasis on structural improvements
to its Net Working Capital (NWC) as
a priority during 2016. This will include
the standardisation and optimisation
of NWC for each activity within the
SGS portfolio.
Our Procurement function will continue
to add value to the organisation through
optimising strategic sourcing, enhancing
supply chain management and
optimising our real estate portfolio.
Another important aspect going forward
will be the deployment of our Global
Business Services Strategy. This will
seek to simplify, streamline and optimise
the organisation, processes and systems
REALIGNMENT IN 2016
SGS SA, registered in Geneva,
controls all companies worldwide
belonging to the SGS Group.
Our operations are divided into
ten regions, each led by a Chief
Operating Officer who is a
member of the Operations Council
and is responsible for the SGS
businesses in that region and for
the local implementation of Group
policies and strategies.
From 2016 there will be a
realignment of regions and
business lines.
SGS REGIONS 2015
WESTERN EUROPE
NORTHERN AND CENTRAL EUROPE
SOUTHERN AND CENTRAL EUROPE
EASTERN EUROPE AND MIDDLE EAST
AFRICA
NORTH AMERICA
SOUTH AMERICA
CHINA AND HONG KONG
EASTERN ASIA
SOUTH EASTERN ASIA AND PACIFIC
SGS REGIONS 2016
WESTERN EUROPE
NORTHERN, CENTRAL
AND SOUTHERN EUROPE
EASTERN EUROPE AND MIDDLE EAST
AFRICA
NORTH AMERICA
SOUTH AND CENTRAL AMERICA
CHINA AND HONG KONG
EASTERN ASIA
SOUTH EASTERN ASIA AND PACIFIC
SGS LINES OF BUSINESS 2015
SGS LINES OF BUSINESS 2016
AGRICULTURAL SERVICES
LIFE SCIENCES SERVICES
AUTOMOTIVE SERVICES
CONSUMER TESTING SERVICES
ENVIRONMENTAL SERVICES
GOVERNMENTS AND INSTITUTIONS SERVICES
SYSTEMS AND SERVICES CERTIFICATION
INDUSTRIAL SERVICES
MINERAL SERVICES
OIL, GAS AND CHEMICALS SERVICES
AGRICULTURE, FOOD AND LIFE
TRANSPORTATION
CONSUMER AND RETAIL
ENVIRONMENT, HEALTH AND SAFETY
GOVERNMENTS AND INSTITUTIONS
CERTIFICATION AND BUSINESS ENHANCEMENT
INDUSTRIAL
MINERALS
OIL, GAS AND CHEMICALS
20
of our back office functions as well as
leveraging best practices across our
internal business services. One of
the main aspects of this will be to
create three major Shared Service
Centres to handle the back office
processes that are currently managed
in 35 different countries.
STRATEGIC INITIATIVES
SGS will be moving assertively
further into the digital space with
our TIC 4.0 initiative which will see
us focusing on two key areas for
potential future growth.
Firstly, as is outlined in more depth
in the case study on page 25, we
are exploring ways in which we can
leverage our unparalleled global footprint
to move into offering analytics services.
Secondly (as per the case study on
page 29), we are finding that customers
increasingly value our services in the
world of e-commerce.
In both these areas our traditional
core skills can be used to offer
offline-to-online services that ensure
our customers can be confident in
the products that they are offering.
OVER THE LONGER
TERM (2016 – 2020), SGS
ANTICIPATES MID-SINGLE
DIGIT ORGANIC GROWTH
ON AVERAGE, WHICH WILL
BE SUPPORTED BY THE
NEW STRUCTURE AND
STRATEGIC INITIATIVES.
301
CAPEX
(CHF MIO, % OF SALES)
386
357
345
305
301
261
7.2% 6.9%
5.5%
6.1%
5.2%
5.3%
2010
2011
2012
2013
2014
2015
INVEST IN ORGANIC GROWTH
PROJECTS AND TECHNOLOGY-
DRIVEN PARTNERSHIPS
THINKING FORWARD:
FORWARD THINKING
The following case studies
outline some of the new sectors
in which SGS is leading the way.
FOOD AND PHARMA
ANALYTICS
TRANSPORTATION
E-COMMERCE
103
ACQUISITION CASH CONSIDERATION
(CHF MIO: # OF TRANSACTIONS)
68
750
DIVIDEND PER SHARE (CHF) AND PAYOUT RATIO 1 (%)
SHARE BUY-BACK PROGRAM (CHF MIO)
22
302
18
10
176
12
10
10
104
103
108
103
CHF 250 Mio for employee
equity participation plans
and / or utilisable as underlying
securities for debt-like issuance
CHF 500 Mio
for shares cancellation
Jan. 14: new dividend policy setting
CHF 65 as a dividend floor for 2013 – 16
68 68
94.5%
65
82.9%
82.9%
79.5%
58
1. Payout ratio:
Dividend per share /
Basic earnings per share
2. Dividend per share
including ordinary
and special dividends
2010
2011
2012
2013
2014
2015
2012 2
2013
2014
2015
750
250
500
JAN 15
TO DEC 16
DELIVER BOLT-ON ACQUISITIONS
WITH ATTRACTIVE BUSINESS
SYNERGIES
DELIVER A SOLID RETURN
ON INVESTMENT
MAINTAIN AN ATTRACTIVE
SHAREHOLDER RETURN POLICY
21
4. BUSINESS LEADERSHIP
22
MIND
THE GAP
“Let food be thy medicine and medicine
be thy food,” said the father of Western
medicine, Hippocrates around the 4th
century B.C. and seemingly, Western
medicine is now embracing this
philosophy with renewed vigour.
A new genre of medical products
is emerging in what is being called
the pharma-nutritional field. These
quasi-medicinal products acknowledge
the fact that many modern ailments
stem from dietary problems.
For instance, a remarkably large number
of people suffer from micronutrient
deficiencies, with the World Health
Organisation (WHO) stating that
over 30% of the world’s population
are anaemic, due to iron deficiency 1.
This, as the WHO explains, is a public
health issue of epidemic proportions.
Micronutrient deficiencies in this and
other areas (e.g. vitamin A or zinc
deficiency), not only damage public
health but can also reduce the economic
productivity of entire populations.
This is one of the instances where
pharma-nutritional products can
potentially help. Unlike pure drugs,
which are chemical structures with
a single target, medical-nutritional
products may be a mixture of many
different ingredients with multiple
objectives. They more closely resemble
ordinary food and thus patients may be
more likely to comply with their doctor’s
recommended dosage.
Despite being an exciting development
for patients and medical practitioners
alike, on many levels these products
have sat awkwardly in the space
between nutritional and pharmaceutical
products.
23
A new genre of
medical product is
emerging in what
is being called the
pharma-nutritional field.
For instance, on occasion it is not
clear when a product first comes to
market whether it should be regulated
under medical or nutritional rules.
This becomes yet more complicated as
different countries are adopting different
approaches to the problem, resulting in a
complex global regulatory environment.
Such ambiguity filters into advertising
regulations, requirements around clinical
trials and even product labelling. Yet
the patient benefits and relative speed
to market of these products compared
to traditional drugs still make them
attractive to the industry irrespective
of whether they are viewed as a food
product or a medical one.
SGS has always been agile enough
to ensure that products like this have
not slipped into the cracks between
business lines. By combining the
expertise we have in multiple areas,
we have been able to offer a single
customer-facing team to our clients.
Yet it is partly in response to the rapid
growth of this kind of product that SGS
will now be permanently merging its
Life Science, Food Testing and
Agricultural Services, to form a new
Agricultural, Food and Life business
line. Whilst we have been working with
this kind of product for a while, creating
greater internal synergies will only
improve the quality of service we can
offer to our customers. And by having
a comprehensive service offering,
we can ensure there are no gaps in
our service offering.
1. www.who.int/nutrition/topics/ida/en/
4. BUSINESS LEADERSHIP
THE
SENSE OF
SENSORS
24
What we have found at SGS is that
by using this technology, farmers
often discover that they start to use
significantly less fertiliser than they were
previously, which saves them money in
addition to any environmental benefits
that this may bring.
This kind of development isn’t just
limited to precision farming. Working
with our strategic partner SAVI, we are
able to provide companies with supply
chain visibility and logistics support,
such as real-time route data (traffic jams,
floods, etc.) and route optimisation.
Elsewhere, we are working on the
calibration of automatic sensors for oil
refineries. The huge amount of data we
are generating and managing is allowing
us to move from a preventative use of
these sensors, to a predictive one. As
a result we are now able to significantly
reduce the risks associated with entire
systems and pinpoint areas that will need
maintenance before it becomes urgent.
However, in all of these cases someone
still needs to physically test the quality
of the data at the initial input stage.
Otherwise the entire subsequent
set of data generated could be next
to meaningless. Decisions based on
inaccurate data could lead to less
than optimal results, and in some
circumstances could be outright
dangerous. This means that companies
will need businesses with SGS’
capabilities more than ever – and there
is no one else in the industry with the
kind of physical global presence that
SGS has. As this technology becomes
more widespread our unparalleled global
footprint will be both a unique sales
point and a key competitive advantage
for us.
That is why we are excited by
the opportunities created by big
data analytics.
The market is evolving.
Some of the manual
measurements that
companies like SGS
used to carry out for
our clients are now
being performed
by increasingly
sophisticated
automatic sensors.
These can often generate a continual
flow of data – far outstripping the
coverage that could be achieved by
hand. To an industry outsider this might
appear to be an infringement upon some
of SGS traditional verification activities,
but that is not how we view these
developments. In fact we see them
as a major opportunity.
Imagine a sensor buried in a farmer's
soil. Such a sensor could provide a
farmer with various data, such as soil
PH levels, salinity, acidity, fertiliser levels
and current water retention. Moreover,
it can do this whilst drawing on the
latest weather forecasts, relative to its
exact location (using GPS technology),
to advise the farmer as to whether he
needs to apply more water or fertiliser
to his or her crops.
At a first glance, it may appear as
though this sensor is replacing an
SGS agricultural expert, who would
traditionally take these samples by hand
(the sensor can provide a continual
flow of data rather than a periodic one).
However, someone still needs to install
the sensor, to verify the quality of its
data output and to handle the analysis
of the data that the sensor provides to
advise the farmer on how to strategically
use, ration and purchase both water
and fertilisers.
25
4. BUSINESS LEADERSHIP
26
TRANSPORTATION
AND THE DAWN OF
THE SMART CITY
In the future new data
systems will mean
a more integrated
transport network
in the world’s
major cities.
These developments are taking place
worldwide, spanning both developed
and emerging markets and cities that
are home to major transport frameworks
and travel hubs. Each city will have
different demands of these new
capabilities. The technology will have
to meet each set of requirements for
improving mobility and assuring safety
on road and rail networks.
Such changes in the way we move will
inevitably create new areas of public
and private concern, particularly in
the cyber security space. That includes
not only the privacy expectations that
come with having a detailed digital
footprint of an individual’s transportation
behaviour across various service
providers, but also the need for
trusted and secure data exchange
and systems’ management.
Therefore, as interaction between
vehicles increases and this technology
becomes better established, there
will be a greater need for integrated
independent oversight. SGS plans to
be at the heart of it. That’s why from
2016 we will be offering our customers
a single point of contact to deal with all
their transportation needs.
The way we move is changing. In the
era of the internet of things, objects of
all descriptions are already able to send
and receive specific data to and from
each other. For example, your weighing
scales can automatically send your
morning weigh-in results to your mobile
phone fitness app to track changes
over time. Your alarm clock can tell
your coffee machine to start brewing
five minutes after you wake up. When
scaled up to a city level, the advances
in technology are the stuff of the best
science fiction writing.
For example, car-to-car communication
technology already exists and is on
the way to becoming commercially
viable. Cars will be able to build a
picture of what’s happening around
them – position, speed and other data
– anticipating risks that even the best
drivers couldn’t and improving safety.
In addition, car-to-building
communication and smarter navigation
systems will soon allow drivers not
only to pick the fastest route but the
greenest, or the cheapest. City traffic
management systems will be able
to detect temporary increases in air
pollution along certain routes and
redirect the traffic flow. Intelligent
transport management solutions will
also improve the fluidity of use and
interface between trains, trams and
buses. Driverless cars on demand may
begin to take care of the last mile.
27
4. BUSINESS LEADERSHIP
28
ONLINE-TO-OFFLINE:
WHERE WE CAN ADD VALUE
The rapidly growing e-commerce model is entirely built around trust.
Consumers need to know that the products they are buying online are
legitimate, safe, correctly sourced and compliant with the law.
SGS can provide e-commerce sites
with audited reports of manufacturers,
which can be placed alongside the
products they sell on these sites.
This information functions in a similar
way to a traditional peer review rating,
a well-established global format whose
role in the consumer decision-making
process is pivotal. Yet our reports have
the additional benefit of coming from a
globally recognised independent auditor.
These reports can provide consumers
and retailers with information about a
product’s source, a factory's production
capacity and other pertinent details.
This helps to assure site operators
that their supplier's products meet
local regulations. With e-commerce
sites increasingly operating on an
international scale this is critical.
The reports therefore help improve
supplier transparency and assure
consumers of product quality.
This assurance-focused progress in the
e-commerce model will see consumers
making use of SGS data to inform their
online purchases. This marks not only
a key moment in the development of
this industry, but also in the evolution
of SGS. By adapting in this way, our
business is moving into another space
and connecting with the B2C realm.
1. www.markmonitor.com/pressreleases/2014/pr141119
E-commerce is a trillion dollar industry
and is growing fast, led by a shift in
consumer buying habits in the UK,
the US, Germany and China. Online
shopping is accounting for a larger and
larger slice of the overall retail market
pie. At present, the e-commerce model
is entirely built around trust.
Consumers need to know that the
products they are buying online are
legitimate, safe, correctly sourced and
compliant with the law. However, a
December 2014 MarkMonitor1 survey
suggested that up to one in every six
online bargain hunters were duped by
sites selling counterfeit goods. This type
of adverse retail experience damages
the brand integrity of e-commerce sites.
In response, major e-commerce sites
are determined to assure the quality
of the products on their sites in order
to protect both their customers and
their brand reputation. In a marketplace
where competition is becoming
increasingly fierce and adverse reports
are increasingly visible and permanent,
this reach for assurance is a critical
phase in the evolution of the global
e-commerce market and one that is
worth trillions of dollars to retailers
and manufacturers.
Working with a major player in the
fast-growing multi-billion-dollar Chinese
e-commerce market, SGS has designed
systems for checking the quality
of products posted on the site by
manufacturers. We carry out physical
product tests, verify the legitimacy
(and in some cases existence) of the
manufacturers themselves and assure
the integrity of the e-supply chain.
29
4. BUSINESS LEADERSHIP
S B U S I NESS M
S G
T I O N A L
N C E
OPE R A
E
EXC E L L
BRA
N
D
O
D
E
L
T
N
E
M
T
S
E
V
N
I
G
R
O
W
T
H
E
X
PERTISE
A TION
V
I N N O
THE SGS BUSINESS
MODEL IS BUILT ON
THE SIX CORE PILLARS
OF BRAND, GROWTH,
INNOVATION, EXPERTISE,
INVESTMENT AND
OPERATIONAL
EXCELLENCE.
THESE ARE THE
BASIC INGREDIENTS
FOR OUR BUSINESS
SUCCESS AND IT IS
THROUGH OUR FOCUS
ON CONTINUALLY
IMPROVING THESE
FUNDAMENTALS
THAT WE ARE
LEADERS IN
OUR FIELD.
30
BRAND
GROWTH
INNOVATION
A brand not only differentiates a
company, it unites it. The SGS brand
offers our customers the peace of
mind that comes from knowing they
are working with the market leaders.
It means our employees are rallying
behind the same cause and pulling
in the same direction. Finally, it
means that we are bound by a shared
commitment to provide the highest
quality services.
Growth is a fundamental aspect
in the success of any business
and SGS is no exception. For us
however, the continued growth
of our global network and its
unrivaled physical footprint is a key
competitive advantage.
The world changes. Markets move.
People move on. A world-class
business like SGS needs to stay
ahead of these changes and
to continuously stretch the
boundaries of the TIC industry,
in order to retain our position
as market leaders.
EXPERTISE
INVESTMENT
A business’ ability to attract
and retain the best talent is
a cornerstone of its success.
At SGS we believe in our people
and we are serious in supporting
their long-term development.
Inertia is not an option for a
market leader like SGS. We need
to anticipate changes in market
conditions and customer demand in
order to seize opportunities as they
arise. This means that investment
in research, innovation, talent and
technology has to be at the core
of our business model.
OPERATIONAL
EXCELLENCE
How do businesses ensure
world-class performance?
Through assuring genuine
operational excellence across
business functions and through
utilising the best possible
sustainable business practices.
31
4. BUSINESS LEADERSHIP
BRAND
The fact that we have
international reach and a global
network with world-class
facilities and expert personnel
in key locations across the
world, is something that has
become increasingly valued
by our customers.
This is particularly the case as global
supply chains become ever more
complex. Expanding our global
footprint has become a major driver
of our growth, which has in turn
made strategic acquisitions a core
component of our success.
Finding and making the right
acquisitions is a challenging strategic
task and integrating acquisitions
is important to strengthening our
brand equity.
Integrating competencies, expertise,
systems and solutions are an obvious
but pivotal part of this. However,
for integration to fully occur, thought
must be given to ensuring that
SGS’ values, vision, business
principles and culture are adopted
by the acquired company.
The above is part of a formalised
methodology and integration process
applied to each acquisition.
New acquisitions need to be given
access to and educated about the
international capabilities of the Group
whilst retaining their local expertise.
Knowledge needs to flow seamlessly
between acquired businesses and
the Group (in both directions) to
ensure the expertise of all parties
are at the very cutting edge of
the industry in question.
This integration process takes place
at multiple levels and across multiple
departments and functions.
Over time, SGS has developed unique
guidelines and methodology to drive
a smooth and complete integration
process across all activities.
Integration managers are coached
and benefit from a unique platform
to drive and monitor this process.
Migrating and leveraging acquired
brand equity is a key area of focus
as ultimately the acquired capabilities
help strengthen the SGS brand.
Meanwhile, the acquisitions
themselves benefit from having
access to the full service portfolio
of the SGS network. But the unifying
factor across all these elements is
the strength of the SGS brand.
The SGS brand strengthens the
acquired businesses and acquired
capabilities strengthen the SGS brand.
32
ONE
GLOBAL NETWORK
GLOBAL BRAND
A BRAND NOT ONLY
DIFFERENTIATES
A COMPANY,
IT UNITES IT.
33
4. BUSINESS LEADERSHIP
GROWTH
34
WHETHER THROUGH
ACQUISITIONS,
STRATEGIC
PARTNERSHIPS
OR BY ORGANIC
EXPANSION, THE
CONTINUED GROWTH
OF OUR GLOBAL
NETWORK AND ITS
UNRIVALED PHYSICAL
FOOTPRINT IS A
KEY COMPETITIVE
ADVANTAGE.
35
4. BUSINESS LEADERSHIP
36
AGRICULTURAL
SERVICES
367.6
4.0%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
The adjusted operating margin improved
to 17.3% from 16.2% in the prior year
(constant currency basis) driven by
the high trade volumes in Europe
and profit improvement initiatives in
North America launched in late 2014,
which are already delivering results.
Seed & Crop investments in the
southern hemisphere came on-line in
the second semester and are expected
to gain traction in 2016. Considerable
efforts have also been made to realign
the business organisation with the
recently announced Group strategy.
Agricultural Services maintained
organic revenue growth of 4.0% to
CHF 368 million for the year, despite
the fishing ban in Peru and the full-year
impact of the curtailment in collateral
management activities, without which
organic growth would have been 6.6%.
Both Seed & Crop and Laboratory
services delivered strong growth,
supported by recent investments
across the network. Trade and
related activities delivered moderate
growth. In the second half of the
year, growth increased in line
with traditional seasonality of the
business in greater Europe and the
Americas, while operations in South
East Asia Pacific were hampered by
low agricultural export volumes.
(CHF million)
REVENUE
Change in %
2015
367.6
ADJUSTED OPERATING INCOME 1
63.7
Change in %
MARGIN % 1
17.3
2014
PRO-FORMA 2
353.6
4.0
57.3
11.2
16.2
2014
387.1
(5.0)
63.8
(0.2)
16.5
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
37
4. BUSINESS LEADERSHIP
38
MINERALS
SERVICES
632.8
-1.8%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
Minerals Services delivered revenue of
CHF 633 million, down 1.8% versus the
prior year. This was mainly attributable
to reduced exploration funding in the
mining sector, which resulted in flat
sample volumes at commercial facilities
in most regions and also impacted
metallurgical testing programmes.
The onsite laboratories continued
to perform solidly with four new
sites commencing operation in 2015
and four new contract wins that will
come into operation during 2016.
Energy Minerals performed well,
mainly in Russia, South Africa and
China, but this was partially offset
by the market contraction in the
USA, Australia and Indonesia.
Trade services for fertiliser and
non-ferrous activities continued
to perform well, while steel and raw
materials volumes were impacted
by a reduction in demand for iron
ore and associated steel products.
Despite the downturn in the market,
Minerals business in Chile was
successful in securing key contracts
from the major global copper producers,
which will drive performance in 2016.
The Minerals service portfolio in
2015 included the new hyperspectral
scanning services which have already
experienced some success in the
North American market. There are
opportunities to further grow this
using the SGS global footprint.
The adjusted operating margin for the
period increased to 14.2% from 13.8%
in the prior year (constant currency
basis). Efforts to improve cost alignment
and efficiency initiatives, including
further network consolidation in the USA
and Australia, helped to offset strong
pricing pressure.
During the year, the Group initiated
the acquisition of Bateman Projects,
specialists in process plant design
and site engineering services. This is
expected to be concluded in early 2016
and will be integrated into the SGS site
services portfolio, further strengthening
the Group’s position as the leading
one-stop-shop service provider.
(CHF million)
REVENUE
Change in %
2015
632.8
ADJUSTED OPERATING INCOME 1
89.6
Change in %
MARGIN % 1
14.2
2014
PRO-FORMA 2
644.2
(1.8)
88.6
1.1
13.8
2014
702.7
(9.9)
98.8
(9.3)
14.1
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
39
4. BUSINESS LEADERSHIP
40
OIL, GAS AND
CHEMICALS SERVICES
1 119.5
-2.2%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
Oil, Gas and Chemicals Services organic
revenue declined by 2.2% to CHF 1 119
million for the period, primarily impacted
by the double-digit decline in Upstream
services. This was partially offset
by growth in Trade-related services
and Plant and Terminal Operations.
Falling oil prices continued to cripple
exploration affecting Well-side
services and Subsurface Consultancy.
To minimise the impact, efforts were
made to re-allocate resources towards
the more resilient Production segment
which achieved solid wins in Eastern
Europe, Middle East and North Africa.
During the first three quarters of the
year, Trade-related services experienced
strong growth in Russia and the
Middle East due to high volatility in
the market. However, activity slowed
down in the last quarter, particularly
in the Americas and in some parts of
Asia due to a deficit in storage capacity
compounded by flat demand in Europe.
Plant and Terminal Operations started
the year with low double-digit growth
but slowed to flat growth by the
end of the year, particularly in North
America. The Oil Condition Monitoring
segment continued to see mid double-
digit growth with operating margin
improvement due to better utilisation
of the laboratories.
The Non-Inspection Related Testing/
Laboratory Outsourcing segment
grew in high single-digits over the
year improving margin in the testing
business, while experiencing a drop
in laboratory commissioning projects.
The adjusted operating margin for the
period declined from 11.6% in the prior
year to 11.5% (constant currency basis),
mainly due to the contraction in
high-margin Upstream services.
Oil, Gas and Chemicals continues to
reconfigure its business mix to align
with evolving market conditions.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
129.2
Change in %
MARGIN % 1
11.5
2015
2014
PRO-FORMA 2
1 119.5
1 144.3
2014
1 201.0
(6.8)
144.5
(10.6)
12.0
(2.2)
132.7
(2.6)
11.6
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
41
4. BUSINESS LEADERSHIP
42
LIFE SCIENCE
SERVICES
211.2
6.8%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
Life Science Services delivered
revenue growth of 6.8% (of which
6.4% was organic) to CHF 211 million
for the period, with strong performance
in Laboratory services. Laboratory
services delivered double-digit growth
driven by strong performance in
North America, Asia and Europe.
Clinical Research in Antwerp
experienced a slow start to the year
due to projects postponed by clients.
This impact was partially offset
by strong performance in Biometry.
In addition, new initiatives have been
implemented to increase presence
in North America and Europe.
The adjusted operating margin for the
period increased to 10.8% from 9.1% in
the prior year (constant currency basis),
driven by strong results in laboratory
testing which were partially offset
by the slow start in Clinical Research.
The business continued its drive towards
operational excellence with a strong
focus on quality and cost efficiency.
During the year, the Group completed
the acquisition of Quality Compliance
Laboratories Inc. in Canada, a provider of
analytical testing to the pharmaceutical,
nutrition and cosmetic industries.
Several investments were also initiated
including a new quality control laboratory
in France and significant expansion
of capabilities in India. The business
continues to optimise the laboratory
network which is expected to improve
performance in 2016 with a focus
on the UK and the USA. Operational
excellence, quality improvement and
customer focus remain the Group’s key
objectives to drive business growth.
(CHF million)
REVENUE
Change in %
2015
211.2
ADJUSTED OPERATING INCOME 1
22.8
Change in %
MARGIN % 1
10.8
2014
PRO-FORMA 2
197.8
6.8
18.0
26.7
9.1
2014
212.7
(0.7)
19.9
14.6
9.4
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
43
4. BUSINESS LEADERSHIP
44
CONSUMER
TESTING SERVICES
1 132.9
6.3%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
Consumer Testing Services delivered
revenue growth of 6.3% (of which
4.9% organic) to CHF 1 133 million
for the period with strong growth in
Western Europe, the Americas, Eastern
Europe & Middle East and East Asia.
Food Testing activities achieved double-
digit growth fuelled by increased food
safety concerns in Asia and the recent
acquisition of SVA Ltd. in the UK.
Automotive Parts testing continued
to exceed expectations with a
strong contribution from operations
in Germany, China and India.
Electrical and Electronics experienced
stable growth, benefiting from solid
results in Restricted Substances Testing
and Electromagnetic Compatibility
and Safety Testing, despite delays
in some Wireless and Mobile Testing
projects. The Cosmetics, Personal
Care & Household segment remained
strong throughout the year, especially
in Germany and China.
Despite strong growth in new sourcing
countries, Softlines faced difficult
market conditions as retail industry and
brand owners continue to consolidate
their supply chains. The performance
of Hardlines remained stable thanks
to new inspection and testing
programmes with e-retailers.
The adjusted operating margin for
the period decreased from 25.2% in
the prior year (constant currency basis)
to 23.8% as a result of difficult market
conditions for Softlines and Toys testing,
as well as a change in the portfolio mix.
During 2015, the Group acquired SVA
Ltd., a leading UK-based independent
provider of advisory, testing and
IT services to retailers and food
manufacturers. This acquisition adds
new testing capabilities and expands
the Group’s geographical footprint.
(CHF million)
REVENUE
Change in %
ADJUSTED OPERATING INCOME 1
269.9
Change in %
MARGIN % 1
23.8
2015
2014
PRO-FORMA 2
2014
1 132.9
1 066.0
1 093.1
6.3
268.7
0.4
25.2
3.6
269.7
0.1
24.7
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
45
4. BUSINESS LEADERSHIP
46
SYSTEMS AND
SERVICES
CERTIFICATION
419.0
7.2%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
Systems and Services Certification
delivered solid organic revenue growth
of 7.2% to CHF 419 million for the period
with all regions reporting growth.
Management System Certification
delivered strong growth driven by high
adoption of the new 2015 standards
and good performance in food
activities. Training activities achieved
double-digit growth boosted by solid
demand from our clients for the new
ISO 9001:2015 standard training.
The adjusted operating margin for
the period decreased from 18.1%
in the prior year (constant currency
basis) to 16.9%, mainly impacted
by margin erosion in some regions.
In particular, China continues to be
impacted by high labour costs, East
Asia by strong competition and Western
Europe by additional personnel cost
mainly related to strengthening of
the medical device team in the UK.
Going forward, growth is expected
to remain healthy driven by Training,
as well as recent contract wins in
Hospitality, Automotive and Hart
Aviation and further transition to
the new ISO 9001:2015 standard.
New product launches in industry
sectors will start to feed the product
mix supporting future growth.
(CHF million)
REVENUE
Change in %
2015
419.0
ADJUSTED OPERATING INCOME 1
71.0
Change in %
MARGIN % 1
16.9
2014
PRO-FORMA 2
390.9
7.2
70.7
0.4
18.1
2014
414.6
1.1
73.9
(3.9)
17.8
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
47
4. BUSINESS LEADERSHIP
48
INDUSTRIAL
SERVICES
884.3
-0.6%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
Industrial Services reported a decline
in revenue of 0.6%, with an organic
decline of 3.0%, largely offset by
acquisitive growth of 2.4%, to CHF 884
million for the year. Organic growth
was heavily impacted by declining oil
and gas prices on activities in North
America, South East Asia Pacific
and to a lesser extent in Africa.
North America reported reduced
supply chain inspections and asset
integrity services in the USA and lower
volumes in geotechnical services in
the Canadian Oil Sands. Australia,
Singapore and Malaysia were impacted
by lower volumes and pricing due to
reduced investments in the Mining and
Energy sector. Despite difficult market
conditions in Brazil and Colombia, South
America posted stable revenue through
the development of new activities in
Argentina and expanding its reach into
new markets such as maintenance-
related activities. China reported
double-digit growth driven by the
continued increase in volume in testing
activities. Globally, the implementation
of key account management helped the
business to secure new accounts which
are expected to drive revenue growth.
The adjusted operating income margin
for the year decreased from 12.8%
in the prior year (constant currency
basis) to 11.3%, impacted by margin
erosion related to the difficult market
conditions in North America, South East
Asia Pacific and Africa. Other regions
performed in-line with the prior year.
During the year, the Group acquired
Le Brigand in France, specialised in
non-destructive testing for the aviation
industry. The Group also acquired
a majority stake in SIGA in Chile,
an engineering consulting company;
initiated a majority stake in FirstRank,
specialised in quality and safety
assurance and Safety-Tech, specialised
in valve maintenance, repair and
overhaul services, both in China.
The acquisition of Matrolab Group in
South Africa, specialising in engineering
and construction materials testing, is
being concluded. A minority stake was
acquired in SAVI Technology, Inc. in the
USA, a leader in sensor-based solutions.
(CHF million)
REVENUE
Change in %
2015
884.3
ADJUSTED OPERATING INCOME 1
100.0
Change in %
MARGIN % 1
11.3
2014
PRO-FORMA 2
889.7
(0.6)
113.8
(12.1)
12.8
2014
977.0
(9.5)
122.6
(18.4)
12.5
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
49
4. BUSINESS LEADERSHIP
50
ENVIRONMENTAL
SERVICES
367.1
16.9%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
Environmental Services delivered robust
revenue growth of 16.9% (of which
5.2% organic) to CHF 367 million for
the year, by increasing market share.
Industrial Hygiene services continued
to expand globally, supported by
a strengthened international sales and
key account management structure.
Strong performance in Europe was
driven by the optimisation of the
laboratory network and cost control
measures. In South America, the
business successfully developed
a strong market position through
increased field and testing services,
with the exception of Brazil which is
experiencing an economic slowdown,
partially offset by the synergies from
acquisitions made in the first semester.
China delivered top and bottom line
improvements due to the development
of key product lines in addition to
restructuring in the first half of the year.
The market in Australia continues
to face strong pricing pressure in
the mining sector.
The adjusted operating margin for the
period increased to 12.8% from 10.0%
in the prior year (constant currency
basis), benefiting from an efficiency
drive across the entire network and
successful cost control measures.
During the year, the Group acquired
Western Radiation Services Pty Ltd.
and Radiation Safety Services Pty Ltd.
in Australia; and AirServices Estudos
e Avaliaçôes Ambientais Ltda. and
Cronolab Referência em Análises
Químicas e Ambientais Ltda. in Brazil.
(CHF million)
REVENUE
Change in %
2015
367.1
ADJUSTED OPERATING INCOME 1
46.9
Change in %
MARGIN % 1
12.8
2014
PRO-FORMA 2
314.1
16.9
31.3
49.8
10.0
2014
342.4
7.2
34.3
36.7
10.0
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
51
4. BUSINESS LEADERSHIP
52
AUTOMOTIVE
SERVICES
317.5
13.8%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
Automotive Services delivered strong
growth of 13.8% (of which 8.5%
organic) to CHF 318 million for the period
with solid results from all activities.
The statutory inspection business
strengthened in the Americas, Europe
and Africa, with particularly solid
growth in Homologation and Vehicle
Inspection services. Commercial
inspection activities and Testing
services also delivered solid results,
supported by growth from recent
acquisitions and increased inspection
volumes in the USA and Europe.
Several long-term contracts were
awarded to SGS during the year.
In Africa, an exclusive motor vehicle
inspection programme was secured
with the Ministry of Works & Transport
in Uganda and an existing motor vehicle
inspection concession was extended in
Ivory Coast. In the USA, an amendment
was signed with the State of California
to extend the next generation electronic
transmission data management service
contract for the California Smog Check
programme. In Argentina, SGS was
awarded a contract for the design,
build and management of vehicle
inspection stations in Buenos Aires.
The adjusted operating margin for
the period decreased from 20.0% in
the prior year (constant currency basis)
to 19.5%, impacted by the liberalisation
of the statutory inspection market in
Spain, investments in the development
of testing activities and start-up costs for
the motor vehicle programme in Uganda.
During the period, the Group acquired
two operations: Testing Services
Group LLC, a leading provider of fuel
testing systems in North America
and DLH-VIS, a specialist in vehicle
inspection services in Lyon, France.
These acquisitions enable the Group to
diversify and expand its global footprint.
(CHF million)
REVENUE
Change in %
2015
317.5
ADJUSTED OPERATING INCOME 1
61.8
Change in %
MARGIN % 1
19.5
2014
PRO-FORMA 2
279.1
13.8
55.9
10.6
20.0
2014
302.8
4.9
62.0
(0.3)
20.5
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
53
4. BUSINESS LEADERSHIP
54
GOVERNMENTS
AND INSTITUTIONS
SERVICES
260.0
12.0%
REVENUE
IN CHF MILLION
GROWTH
IN 2015
2014
2015
Governments and Institutions Services
delivered solid organic growth of
12.0% to CHF 260 million for the
year, led by strong contract volumes
in Product Conformity Assessments
(PCA) and Single Window solutions.
PCA achieved double-digit growth in
Asia, Europe and the Middle East, along
with three new mandates signed in
Africa. Single Window solutions delivered
excellent performance in Ghana and
Mozambique thanks to high import
volumes, as well as the successful launch
of new consulting services in Nepal. The
new valuation solution, SGS E-Valuator™,
was also launched, replacing the
traditional Pre-Shipment Inspection
in Benin and thus complying with the
recent recommendations of the World
Customs Organisation and World Trade
Organisation. A new national Timber
Legality and Traceability solution was
deployed in the Republic of Congo and
TransitNet gained new markets in Europe.
The adjusted operating margin for the
period increased to 24.0% from 22.3%
in the prior year (constant currency
basis), as a result of the new service
mix and economies of scale, despite
higher royalties incurred on renewed
PCA programmes.
During the year, improved cost control
measures allowed the business to
invest more in innovation. The continued
introduction of new solutions is
opening into new markets supporting
the business diversification strategy.
(CHF million)
REVENUE
Change in %
2015
260.0
ADJUSTED OPERATING INCOME 1
62.3
Change in %
MARGIN % 1
24.0
2014
PRO-FORMA 2
232.1
12.0
51.8
20.3
22.3
2014
249.5
4.2
57.9
7.6
23.2
1. Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs, and other
non-recurring items.
2. Constant currency basis.
55
4. BUSINESS LEADERSHIP
ACQUISITIONS
In addition to growing organically, SGS
has long benefited from making strategic
acquisitions to help us achieve our goals.
This is particularly true for geographical
areas where we have service gaps, or
where we want to acquire leading skills,
capabilities and technological capacities.
On other occasions it also makes sense
for us to acquire targets that offer similar
services to SGS and by joining forces,
we can benefit from economies of scale
and technical synergies.
Careful thought is given to every
acquisition. For example, our purchase
of AirServices Estudos e Avaliaçôes
Ambientais Ltda. in Sao Paulo, Brazil,
built upon our existing industrial
hygiene capabilities in the country.
The subsequent acquisition of Cronolab
Referência em Análises Químicas e
Ambientais Ltda., a soil and air testing
lab in Rio de Janeiro, added specialised
dioxin and furan testing capabilities to
our Brazilian footprint.
When taken together the two
acquisitions have added significant
depth to our environmental service
offering in the country – allowing us to
work with a much wider customer base.
The above example also provides
a good overview of our acquisition
strategy. We do not see much value in
acquiring isolated businesses that are
disconnected from the activities of the
remainder of the Group, irrespective of
the price point. We prefer to strategically
enter a market only after having
considered the matter deeply.
Ultimately, the decision of whether or
not to make an acquisition comes down
to experience. And our experience in
the field of acquisitions is one of the
main reasons behind our successful
growth over the last 137 years.
ACQUISITIONS
AND STRATEGIC
PARTNERSHIPS
SECURED IN 2015
QUALITY COMPLIANCE
LABORATORIES
Canada
MATROLAB GROUP
South Africa
SAVI TECHNOLOGY
(17.65% Stake)
USA
SAFETY-TECH
(51% Stake)
China
ASSETS OF BATEMAN
PROJECTS
South Africa
LE BRIGAND NDT
France
SIGA
(70% Stake)
Chile
FIRSTRANK
(75% Stake)
China
DLH-VIS CENTERS
France
SVA LTD.
United Kingdom
TESTING SERVICES GROUP LLC
USA
WESTERN RADIATION
SERVICES PTY LTD.
Australia
RADIATION SAFETY SERVICES
Australia
CRONOLAB
Brazil
AIRSERVICES
Brazil
56
STRATEGIC
PARTNERSHIPS
We are enriching our acquisitions
strategy as we adapt to new market
conditions and customer demands.
We are complementing our existing
acquisition strategy, which traditionally
saw us focusing our efforts on an
outright purchase of another company
to complete networks or supply chains.
Adding to this existing strategy is
what we call strategic partnerships.
These are the purchase of minority
stakes (5 – 25%) in businesses that
operate in areas in which we are not
generally active.
Particularly, we are looking to increase
our footprint in the technology sector
as we act to secure and enhance our
position in the face of the disruption of
the traditional service-based industry
marketplace. An example of this is our
strategic partnership with SAVI, the
US-based sensor technology company
in which we own a 17.65% stake.
In this case, the partnership enabled us
to develop a groundbreaking, integrated
logistics and tracking service that
offers real-time asset-tracking and
comprehensive journey monitoring.
As our partnership with the company
continues we expect that we will be
able to replicate that success through
other services thanks to SAVI’s
technological capabilities.
This is how we leverage our strategic
partnerships to drive innovation and
improve our service offering.
57
4. BUSINESS LEADERSHIP
INNOVATION
58
58
THE WORLD
CHANGES. PEOPLE
MOVE ON. MARKETS
MOVE. AND WORLD-
CLASS BUSINESSES
LIKE SGS NEED TO
STAY AHEAD OF
THESE CHANGES IN
ORDER TO RETAIN
THEIR POSITIONS
AS MARKET LEADERS
INTO THE FUTURE.
For us, innovation is the platform on
which tomorrow is built. Tomorrow is
everything to a company and its the
innovation process that underpins our
future. We adapt, realign and evolve to
continue to succeed and to keep taking
the next step up.
Creativity is said to be at the heart
of innovation. But creativity without
a structure for implementation is of
no use to anyone. That’s why we have
a formalised process for managing
innovation which is headed by our CEO.
This process brings together internal and
external communities to share ideas.
It is needed because as markets change
SGS must remain agile enough to adapt
to new circumstances. It means that
with our ingrained entrepreneurial spirit
we are quick to spot and offer relevant
new services and solutions to meet our
customers’ emerging needs.
Technology of course plays a natural
role in innovation, but that is not the
only place we look for improvements.
By being smarter in the way that we
conduct our business (for example
through optimisation and searching
for ways to increase individual
and collective productivity), we can
find other methods to stay ahead
of the curve.
Another important part of achieving
leadership in tomorrow’s world is
involving tomorrow’s workforce,
tomorrow’s thinkers and tomorrow’s
decision makers. We are talking about
creating links with universities and other
places of learning and engaging the
brightest minds and raising awareness
of what can be achieved.
Sources of serious innovation can be
found in unexpected places. One of the
best examples of this in action within
SGS is the fact that we are successfully
driving innovation through our
procurement function. We are doing this
through our Supplier Innovation Club,
which features some of the world’s
biggest companies, who are helping us
become more efficient and effective by
maximising the use of their resources.
And to the question of funding?
Innovation generates its own return
on investment. Internal and external
incentives, carried out with the right
structure and focus, produce the
results and innovation that drive
performance and swell the bottom line.
This is how we work today to ensure
we are leaders tomorrow.
59
59
4. BUSINESS LEADERSHIP
EXPERTISE
Trusted all over the world, SGS is
a market leader because we put
passion and pride into everything
we do. Our business touches
nearly every part of the world and
reaches across a huge range
of industries.
Our international experts help customers
operate in more efficient and sustainable
ways by streamlining processes,
improving quality and productivity,
reducing risk, verifying compliance and
increasing speed to market.
Therefore, having specialists with
access to state-of-the-art technology
and infrastructure is not only a benefit
for SGS – it is essential.
For example, thanks to our experts, we
were nominated for prizes of excellence
in 2015 (winning two Gulf Coast Safety
Council awards) and our customers also
won awards of their own.
The fact that we ensure our customers
get first-rate, top-quality advice is one of
the reasons that our business continues
to grow. But such successes can only
happen in an environment where our
employees are given the freedom to
exercise their judgment and make
decisions. Crucially though, they also
have the skills and ability to work in that
way. Brimming with passion and energy,
they know what we do is important
and that our work has a real impact
on people's lives.
Consequently, we are mindful of the
fact that recruiting and retaining the best
talent is important for us (see pages
69 and 70) because new and bold
thinking is the lifeblood of our business.
It is part of what keeps us ahead of
the competition.
60
THE ABILITY TO
ATTRACT AND RETAIN
THE BEST TALENT
IS A CORNERSTONE
OF ANY SUCCESSFUL
BUSINESS MODEL.
61
4. BUSINESS LEADERSHIP
INVESTMENT
INERTIA IS NOT
AN OPTION FOR
BUSINESSES LIKE
SGS THAT MUST
CONSTANTLY ADAPT
TO CHANGING
CUSTOMER
DEMANDS
AND MARKET
CONDITIONS.
THIS MEANS
THAT INVESTMENT
HAS TO BE AT
THE HEART OF OUR
BUSINESS MODEL.
62
62
Investment is vital. Having the
right talent, assets, technology
and R&D in place are fundamental
to the long-term success and
profitability of any organisation.
This is particularly true for SGS,
which must not only stay ahead
of developments within the TIC
industry, but must also keep
abreast of the technologies,
markets, regulations and dynamics
of the extremely diverse industries
we service.
Thus, as discussed on page 69,
investing in our people and their
on-boarding, retention and continual
development is important. So too is
investment in high-quality IT platforms,
laboratory capabilities and best-in-class
technological capacity. Our growth
has in many places been driven by
acquisitions or by buying equity in key
technology providers to allow us to form
strategic partnerships. As discussed on
page 59, investment in innovation is also
a company priority, with an emphasis
on supporting new business areas with
long-term growth potential.
Naturally, despite being in a strong
financial position, SGS will only invest
in areas where we feel we will see
significant returns on that investment.
Thus, capital expenditure (capex)
investments are focused on the
strongest areas of the business,
and those with the best growth record
or long-term growth potential.
Standing still is not an option for
a business that intends to retain its
status as an industry leader, and SGS
has no intention of doing so.
63
63
4. BUSINESS LEADERSHIP
OPERATIONAL
EXCELLENCE
HOW DO BUSINESSES
ENSURE WORLD-CLASS
PERFORMANCE?
BY ASSURING
GENUINE OPERATIONAL
EXCELLENCE ACROSS
BUSINESS FUNCTIONS
AND THROUGH
UTILISING THE BEST
POSSIBLE SUSTAINABLE
BUSINESS PRACTICES.
64
PROFESSIONAL
EXCELLENCE
Trust lies at the heart of
the value we deliver to our
customers and society.
We have a responsibility
to maintain the highest levels
of professional integrity.
65
4. BUSINESS LEADERSHIP
COMPLIANCE
AND INTEGRITY
PERFORMANCE
100%
% OF EMPLOYEES SIGNING THE CODE OF INTEGRITY
1. Implementation of new Code of Integrity in 2012.
100 100
100
100
2011 1
2012
2013
2014
2015
EMPLOYEES SIGNING
THE CODE OF INTEGRITY
The SGS Code of Integrity defines the
main principles of professional integrity
for the SGS Group and is an expression
of the values that are shared throughout
our organisation, our businesses and our
affiliates. The Code applies to all of our
employees, officers and directors, our
affiliated companies, our contractors,
our joint-venture partners, our agents,
our subcontractors and anyone acting
on behalf of or representing SGS.
It addresses issues such as conflicts
of interest, bribery and corruption,
facilitation payments and the use
of intermediaries and consultants.
Violations of the Code result in
disciplinary action, including termination
of employment and criminal
prosecution for serious violations.
TRAINING FORMS PART
OF A CONTINUOUS
PROCESS OF LEARNING
AND REINFORCEMENT,
WHICH INCLUDES
EMPLOYEES SIGNING
THE CODE, COMPLETING
INTEGRITY E-LEARNING
AS PART OF THEIR ON-
BOARDING PROGRAMME,
AND ATTENDING
ANNUAL INTEGRITY
TRAINING.
The content of our Annual Integrity
Training is updated each year using
real-life case studies drawn from the
business. Training is typically conducted
face to face and in teams by trained
managers using scenarios adapted
to employees’ areas of work. New
employees must sign the Code at the
start of their employment with SGS and
are expected to complete an integrity
e-learning module within three months
of joining.
A Professional Conduct Committee
ensures implementation of the Code
within our organisation and advises
management on all issues of business
ethics. The Committee consists of five
members: the Chairman of the Board
of Directors, two other Board members,
the Chief Executive Officer and the
Chief Compliance Officer.
31
245
169
TOTAL NUMBER OF BREACHES OF THE CODE OF INTEGRITY
IDENTIFIED THROUGH CORPORATE INTEGRITY HELPLINES 1
TOTAL NUMBER OF INTEGRITY ISSUES REPORTED THROUGH
CORPORATE INTEGRITY HELPLINES 1
TOTAL NUMBER OF VALID REPORTS INVESTIGATED
CONCLUDING IN NO BREACHES
1. “Helplines” means channels used by employees and external parties
to report suspected violations of the Code of integrity and submitted
online, by phone call, sent via fax, email or post.
1. “Helplines” means channels used by employees and external parties
to report suspected violations of the Code of integrity and submitted
online, by phone call, sent via fax, email or post.
46
42
36
31
22
241
245
198
200
168
169
141
109
91
52
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
CODE OF INTEGRITY
NON-COMPLIANCES
CODE OF INTEGRITY REPORTS
CODE OF INTEGRITY
INVESTIGATIONS
66
PROCUREMENT
SGS’ Procurement operations can point
to a number of major achievements
in 2015. The function reported
CHF 40 million in savings for the year
as part of a 3-years savings programme
for 2015-2017.
The year was also marked by the
ongoing success of our supplier
incentive programme, which we
developed to focus our procurement
volume on strategic partners. We are
also targeting further savings through
greater transactional efficiency. In
2015, we reduced our number of
suppliers significantly worldwide,
brought rationalisation to our invoicing,
delivery and transaction volumes,
increased the use of our internal
catalogues and created a streamlined
procurement community. In 2016, we
will begin a shift to electronic invoicing
and payment systems. In addition,
we have negotiated better payment
terms, reduced our inventory levels
and contributed to the significant
improvement of the company’s Net
Working Capital.
Sustainability and innovation-based
initiatives remain an integral part of
our strategic development. We are
implementing a code of conduct for
our suppliers, relating to responsible
sourcing. We are also discussing issues
such as CO2 emissions and energy
efficiency with them. We continue to set
an example through initiatives relating
to supply chain management and
resources use.
We have consolidated the SGS
Innovation Club initiative, a community
made up of strategic suppliers with
the goal of improving our operations
and driving innovation that will
generate notable efficiencies and
competitive advantages.
67
4. BUSINESS LEADERSHIP
PEOPLE
Our people are our most
important asset. We must
ensure that our employees
are safe and healthy at work,
treated fairly and with
respect and are able to fulfil
their potential.
68
TALENT
ACQUISITION
ACHIEVEMENTS
Our strength lies in our people. In a
competitive business environment,
our global reach and breadth of activities
offer many possibilities for talented
individuals to pursue a career at SGS.
Our ability to acquire, manage, develop
and retain talent is essential, as we
need highly skilled employees to deliver
outstanding services to our customers.
Our global spread, variety of business
lines and approach to sourcing talent
locally wherever possible means we
need to attract exceptional people
from diverse backgrounds, cultures
and geographies.
Competition for talent is growing,
with companies, industry sectors and
markets seeking to attract the same
pool of highly skilled people. A feature
of this is the increased mobility of highly
skilled workers, particularly in science
and technology-based industries.
The migration of talent plays an
important role in shaping skilled labour
forces throughout developing countries,
diffusing knowledge, boosting
innovation and enhancing career
opportunities locally.
Meeting these challenges demands a
dynamic recruitment strategy, as well as
the successful integration of employees
from business acquisitions. During
2015, more than 16 000 positions were
filled either by internal candidates or
external people joining SGS. More
than half of these positions are newly
created positions. Our approach to talent
acquisition is characterised through
programmes linked to e-recruitment,
employer branding, internally and
externally benchmarking our talent
acquisition against peers and world
class companies, establishing networks
with selected universities, and efficient
on-boarding.
A HIGHLIGHT IN 2015
WAS OUR ONGOING
PARTNERSHIP WITH
LINKEDIN, WHERE WE
SAW SIGNIFICANT
INCREASE IN THE
NUMBER OF FOLLOWERS
ON OUR COMPANY PAGE
(FROM 14 000 IN 2012
TO MORE THAN 220 000
IN 2015).
On this page, potential recruits can
learn about career opportunities and
find out about life at SGS. Our industry
stakeholders can also stay up to date
with company news and the latest
thought leadership from their industries.
OUTLOOK 2016
Building on the success of our
e-recruitment strategy, we will
continue to deploy our digital and
mobile responsive solutions for talent
acquisition. We also plan to optimise
our HR, Finance and IT support
functions to ensure we have an agile,
sustainable operating model that can
effectively support our growing global
organisation through enhanced analytics
and reporting, talent growth and
leveraged technology aimed at improving
transactional productivity and enabling
efficient access to information.
69
survey indicated, once again, a high level
of engagement from employees with
our sustainability agenda, with 77%
of respondents being aware of the role
that sustainability plays in supporting
business growth.
OUTLOOK 2016
Our efforts will be focused on working
towards the achievement of our 2020
Ambition to maintain employee natural
turnover at 10% or less. To this end,
we will reinforce talent management
programmes across the Group.
Engagement will continue to be at the
heart of our team activities, at local
and global level, to ensure that our
employees have a voice in making SGS
an even better place to work. We will
also deploy our new annual incentive
plan which formally links business and
team performance to reward.
4. BUSINESS LEADERSHIP
EMPLOYEE
RETENTION
68%
ENGAGEMENT INDEX
71%
PERFORMANCE EXCELLENCE INDEX
ACHIEVEMENTS
The continuous improvement of our
business depends on our employees.
We strive to give our people varied
and stimulating experiences that come
from changing roles, working across
different businesses and geographies
and, where possible, gaining client
exposure. With our lean organisational
structure, employees enjoy visibility
and recognition. Our aim is to help
our people to reach their full potential,
through working in different parts of
the organisation and through creating
opportunities to work abroad, gaining
access to our global portfolio of
customers, and being exposed to
different cultures and thinking.
In a dynamic employment market,
employee turnover is a challenge
and managing it remains a priority at
SGS. In this respect, we have a targeted
approach to improve retention.
Highlights in 2015 centred on the
roll-out of our performance management
initiative and related training in 34
countries; and expanding our employee
engagement programme, CATALYST,
which is now active in 31 countries and
directly targets our employee natural
turnover and the underlying issues
affecting people’s motivation to pursue
careers within SGS. Feedback from
employees through our annual employee
PERFORMANCE
11.93%
PEOPLE LEAVING BY THEIR OWN WILL
2.22%
TRAINING COST INCLUDING HOURS/EMPLOYMENT COST
14.20
12.39 12.25
12.77
11.93
2.52
2.38
2.22
2.21
2.08
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
NATURAL TURNOVER
TRAINING RATIO
70
We will do more to create opportunities
for women to succeed. To be effective
in addressing it, we will need to consider
a range of approaches.
OUTLOOK 2016
In support of our 2020 Ambition to
have women represent 30% of our
senior management team, we will
be specifically reinforcing women's
leadership development, which will
fast track the career development and
advancement of women across our
global network.
EQUAL
OPPORTUNITIES
26%
WOMEN IN LEADERSHIP POSITIONS
ACHIEVEMENTS
Around the world, talented, ambitious
women are held back from achieving
their potential at the top of organisations
by a range of cultural, social, educational
and emotional barriers. This, in turn,
hampers progress in organisations’
abilities to innovate and solve complex
problems, and adequately respond to
the needs of their customers through
a lack of insight and empathy for the
female population who make up half
of the customer base. Progressive
governments and organisations have
introduced well-meaning policies, but
change is occurring at a slow speed.
SGS is a diverse and inclusive business
where ambitious people at every
level have the opportunity to realise
their true potential. The SGS Code of
Integrity and our Employment Policy
underline our commitment to diversity
and equal opportunity, and all of our
employees and managers are trained
in the principles of non-discrimination
as part of our mandatory annual
integrity training. As a part of this, SGS
recognises the significant contributions
that women make to business success.
In November 2014, we appointed Carla
De Geyseleer as Chief Financial Officer.
Our Operations Council now includes
three female members.
PERFORMANCE
0.87
(FEMALE MANAGERS/FEMALE EMPLOYEES)/(MALE
MANAGERS/MALE EMPLOYEES)
0.76 0.76
0.75
0.84 0.87
2011
2012
2013
2014
2015
EQUAL OPPORTUNITY RATIO
71
4. BUSINESS LEADERSHIP
OPERATIONAL
INTEGRITY
ACHIEVEMENTS
Operational Integrity (OI) is the term we
use to describe our health, safety and
environmental management approach.
With more than 85 000 people working
for us, we are committed to keeping
them safe and healthy, and to supporting
their wellbeing.
The OI team reports directly to the CEO
and our strategy is clear; to be best in
class on safety. Striving for zero incidents
demands a global safety culture that
is based on a continuous commitment
to making personal and co-worker
safety an integral part of everyday
working lives. We are building this
culture through a redefined OI strategy
based on seven pillars (see page 73)
and underpinned by a Group-wide
Operational Integrity Management
System (OIMS) which is aligned to
internationally recognised standards
of health, safety and environment1.
Another key component of our OI is
the Top-Page cascading and deployment
process, as per the EFQM model,
which allows our global OI objectives to
be shared throughout the organisation,
regions and countries (before a deeper
deployment to cities in 2016). This process
also allows us to put focus on specific
key programmes, such as incident
investigations, training, hazard
identification and correction, leadership
visits and best practices.
Alongside the focus on safety, we need
to manage the impacts of working
in industrial environments, which can
present potential hazards, such as the
exposure to carcinogens or damage
to hearing. Our global industrial hygiene
(IH) programme uses a standardised
approach to managing IH aimed at
protecting the health and wellbeing of
our people through disease and fatality
prevention, increased quality of life,
improved health and promoting healthy
and safe living. The Global OI Industrial
Hygiene and Occupational Health
Function provides active management
of emerging health issues, which
focuses especially on communicable
diseases, such as cholera and Middle
East Respiratory Syndrome Corona Virus
(MERS-CoV). We added this element
following an outbreak of cholera in
Kenya in May 2015 and of MERS-CoV in
South Korea in June 2015. As a signatory
to the WASH Pledge, we are working to
ensure appropriate access to safe water,
sanitation and hygiene for all employees
in all premises under company control.
We are sad to report that there were
two fatalities (one employee and one
subcontractor) in 2015. These resulted
in investigations being conducted and
awareness about the SGS Rules for Life
being reinforced across our network
through field-based examples.
OUTLOOK 2016
Our 2020 Ambition for OI is to reduce
our Total Recordable Incident Rate
(TRIR) and our Lost Time Incident
Rate (LTIR) by 50%, based on a 2014
baseline. As such, we will continue
our focus on integrating safety culture
through the company using the seven
pillars of our OI strategy. Alongside
this, we will further develop our IH
management system and continue
to implement our waste management
system to ensure appropriate and
coordinated controls are in place to
minimise and manage our impacts and
provide more detailed performance
reporting via our sustainability report.
1. Standards include: Quality (ISO 9001), Health
and Safety (OHSAS 18001), Environmental (ISO
14001), Inspection Management (ISO/IEC 17020),
Testing and Calibration Laboratory (ISO/IEC
17025), and Sustainability (ISO 26000).
PERFORMANCE
0.38
0.65
0.71
0.63
0.58 0.60
1.43
1.27
1.10
1.11
0.38
0.65
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
LOST TIME INCIDENT RATE (LTIR)
(200 000 HOURS)
TOTAL RECORDABLE INCIDENT
RATE (TRIR) (200 000 HOURS)
72
OUR SEVEN
OI PILLARS
LEADERSHIP
COMMUNICATION
TRAINING AND
AWARENESS
RESOURCES
AND SKILLS
KEY PERFORMANCE
INDICATORS
AUDITS AND
COMPLIANCE
HEALTH, SAFETY AND
ENVIRONMENTAL (HSE)
SELF-ASSESSMENTS
is overseen by a quarterly Executive OI Steering Committee, which includes 50% of
Operations Council members. Furthermore, our extended OI Steering Committee brings
managers, regional businesses and corporate functions together bi-annually to collaborate
on managing OI across the network. Our Chief Operating Officers, Managing Directors and
site and laboratory managers provide active leadership on OI across our global network.
In 2015, more than 12 leadership visits were conducted per hundred employees compared
to nine in the previous year.
is managed via a Top-Page initiative which ensures that information is consistently
cascaded through the network and actions are systematically tracked. We raise awareness
of safety issues in a variety of ways, such as through our Rules for Life which are
15 non-negotiable rules that help save lives. These include new rules on the dangers
of engulfment and suffocation, the control of work around mobile equipment, and getting
out of the line of fire. The SGS Rules for Life apply to all employees, contractors and others
working on behalf of SGS and are incorporated in all our safety-related communication.
is targeted at all levels of the organisation and includes briefings for Chief Operating
Officers and Executive Vice Presidents on leadership site visits, as well as dedicated
safety seminars for MDs in addition to generic and specific training of employees across
all functional operations and corporate sites. Road safety remains a critical risk associated
with the territories and driving cultures in which our employees and subcontractors are
required to work, as well as driver behaviour and driving habits. Over the past two years,
we have run numerous campaigns focused on in-vehicle monitoring. These have resulted
in a reduction in our vehicle incident rate of 11% in 2015.
have been strengthened at the global OI team level as well as at regional and affiliate
levels. These included the appointment of an OI communications manager in our global
headquarters and the establishment of an industrial hygiene (IH) team which operates
globally and comprises experts in clinical health and hygiene.
are captured via our reporting tool, Crystal, which provides a standardised, multilingual
and data-driven incident management and reporting interface to expedite regulatory and
client-mandated incident reporting. Crystal ensures that all data collected meets our high
standards, while encouraging greater use of data analysis to identify trends. Following
its implementation and the simplification of the reporting functionality, we have detected
a significant increase in the reporting of near misses and hazards. Alongside Crystal,
our Safety Data Sheet Management System, ChemWatch, provides consolidated and
up-to-date information on potential hazards associated with the chemicals used in our
laboratories, and how to manage these.
reviews cover health risks, environmental and chemical impacts, and safety risks.
The audits are conducted by an internal team of 19 certified HSE auditors and the findings
are reported to the executive management team.
will be conducted annually using a specially designed online tool which provides a
comprehensive overview of potential risks per site and the controls in place for managing
them. This tool was piloted in 44 sites during 2015 and will be rolled-out across
our sites during 2016. Performance will be benchmarked across SGS sites globally.
73
4. BUSINESS LEADERSHIP
ENVIRONMENT
We are committed to achieving
sustainable growth while
managing our impact on the
environment, under our aim to
“Do More With Less”. We also
recognise our role in helping
our customers to improve
their own environmental
performance. We also commit
to measuring and reducing
our carbon footprint.
74
EMISSIONS/
CLIMATE CHANGE
ACHIEVEMENTS
As a global company, we are concerned
about the potential impacts of climate
change on the regions and communities in
which we operate. Although our industry
is not a major emitter of greenhouse
gases, our employees, customers and
other stakeholders expect SGS to show
leadership on climate change, both in
terms of our own energy consumption
and by helping our customers and
suppliers to reduce their emissions.
In 2012, we issued The Green Book,
a bi-annual environmental Profit & Loss
account intended for senior managers,
which helps to assess and monitor
the financial impact of our sustainability
performance, including our carbon
footprint. This innovative model helps
us to understand how sustainability can
detect operational efficiencies in order to
achieve our 2020 Ambitions and ultimately
to reduce our environmental impact.
We are on a journey to reduce our
carbon emissions and, since 2014,
we have achieved carbon neutral status
PERFORMANCE
200
through offsets and Guarantees of Origin
solutions (investments in renewable
energy projects), energy efficient
measures and green electricity supply
in some of our affiliates. We have over
90 projects and investigations underway
worldwide to optimise operational
efficiency in our laboratories and offices.
Since 2014, we have offset our CO2
emissions through projects located in
the regions SGS operates in, thus making
a positive contribution in areas where
we have impact. We annually offset
any residual CO2 emissions associated
with our operations in major countries.
To mitigate our 2014 emissions, this year
we purchased 56 GWh of guaranteed
origin renewable energy certificates
from Norwegian company, ECOHZ. We
also purchased 88 GWh of International
Renewable Energy Certificates (I-RECs)
in China, Hong Kong and Taiwan, and we
purchased 58 GWh of Renewable Energy
Certificates in North America. Since
December 2014, when SGS became one
of the first companies globally to sign the
RE100 initiative, we have pledged to use
100% power from renewable sources
by 2020. Led by The Climate Group and
in partnership with Carbon Disclosure
Project, RE100 is collaborating with the
International Renewable Energy Agency
(IRENA) and others to get 100 of the
world’s largest companies committing
to 100% renewable power by 2020.
Alongside these initiatives, we realise
that SGS can make a greater
contribution by helping our customers
to respond to climate change challenges
through our services linked to energy
efficiency and alternative energy.
These include energy management
services and multiple services related to
energy efficiency of buildings, including
renewable energy, feasibility studies,
energy audits, energy performance
certificates and ISO 50001 certification.
We also offer a range of specialist
advisory services and engineering
expertise on sustainable buildings
through SGS Search, based in the
Netherlands. These services include
cradle-to-cradle product certifications
for companies committed to the
development of a circular economy.
Over the past two years, we have
conducted a study to examine our role
in helping our customers to reduce their
carbon intensity. We began by estimating
the CO2 emissions of our customers in
our Industrial and Agriculture business
lines and considered how much our
customers had reduced their emissions.
We then calculated the extent to which
our services had contributed to these
reductions in CO2. The study estimated
that the activities of our customers on
fertilisers usage and fuel distribution
through pipelines emit 3.7 million tonnes
of CO2. With our Pipeline Integrity and
Precision Farming services in 2015 we
helped our customers to reduce their CO2
emissions by 17%.
34.95
2.32
Historical data restated. Introduction of renewable energy accounting.
Historical data restated. Introduction of renewable energy accounting.
Historical data restated. Introduction of renewable energy accounting.
287
266
255
58.70
53.73 54.94
3.78
3.46 3.57
211
200
38.36
34.95
2.53
2.32
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
TOTAL GHG EMISSIONS
(THOUSAND TONNES CO2e)
CARBON INTENSITY BY REVENUE
(TONNES CO2e / MILLION CHF)
CARBON INTENSITY BY EMPLOYEE
(TONNES CO2e / FTE)
75
4. BUSINESS LEADERSHIP
For the second year running, SGS
was recognised in the CDP Climate
Performance Leadership Index, a global
ranking of listed companies on their
approach to climate change mitigation.
We are committed to being part of
the solution, using our scale and our
expertise to enable a more responsible,
balanced and sustainable future. We
recognise that ambitious action on
climate change is necessary and that
companies must play an active role in
bringing solutions to the table which
support the global economy and the
global climate agenda. As part of our
commitment to climate action, SGS
was involved in several key collaborative
processes as part of the United Nations
Conference on Climate Change2 that
was held in Paris in December 2015 and
was aimed at helping to inform progress
toward a universal, ambitious and
balanced climate agreement.
OUTLOOK 2016
By 2020, we plan to have reduced our
annual CO2 emissions (by revenue and
by headcount) by 20%, against our
2014 baseline. We aim to achieve this
through improved energy efficiency and
by switching to low-carbon options,
including renewable energy sources
and the introduction of mandatory
low-emission fleet cars. In addition,
we will continue to work across our
business lines and functions to show
the tangible value of our services and
our people in contributing to society
and its impacts on climate change. In
particular, we will continue to maximise
our contribution by ensuring the integrity
and safety of existing energy supply
and storage systems, and ensuring
that our customers have accurate and
reliable data to manage their reduction
strategies. In addition, new lower-carbon
technologies will challenge us to think
about how we combine our skills and
competencies and test our technologies
and services to generate new ideas and
insights that will enable us to actively
contribute to a lower-carbon future.
2. United Nations Framework Convention on Climate
Change, 21st Conference of the Parties (or COP21).
76
Across our network, we increasingly use
video, audio and web conferencing to
reduce travel costs, cut CO2 emissions,
and improve work-life balance. During
2015, we placed 85 191 conference calls
and 19 956 video calls that helped us
save more than 5 200 flights.
OUTLOOK 2016
In addition to our 2020 Ambition to
reduce annual CO2 emissions by 20% on
a 2014 baseline, we also plan to reduce
CO2 emissions from all company-owned
offices and laboratories above 2 000
square metres by 20% within the same
timeframe. We plan to achieve this
through our EEB programme and Spot
the Orange Dot campaign. We also plan
to hold a Lower Carbon Day in 2016
to focus employee efforts on energy
reduction linked to lowering our carbon
impact. We will report on progress
against these initiatives through our
online sustainability report.
ENERGY EFFICIENCY
ACHIEVEMENTS
SGS is not an energy intensive company.
However, with over 85 000 employees
working in more than 1 800 offices and
laboratories and with a building floor
area of approximately 2 million square
metres, targeting energy consumption
at our offices and laboratories is the
most direct and effective way we can
contribute to tackling climate change.
The electricity used in our buildings
accounts for almost 55% of our global
carbon emissions.
SGS is a signatory to the World Business
Council for Sustainable Development
(WBCSD) Energy Efficiency in Buildings
(EEB) Manifesto. Under this manifesto,
we have committed to a 20% reduction
in CO2 emissions for all offices and
laboratories we own that are larger
than 2 000 m2 by 2020, against a
2010 baseline.
Progress against our EEB targets is
tracked via the SGS Energy Rating
Tool for Offices and Laboratories, and
reported to the WBCSD. As part of
our target to reduce CO2 emissions
intensity by 20%, we conducted 58
energy audits and self-assessments on
buildings as part of our EEB Programme
in 2015 and we have around 30 projects
ongoing across our affiliates. Extending
our commitment to energy efficiency in
buildings, SGS is leading the WBCSD
EEB 2.0 project in India which aims
to unlock financially viable energy
efficiency investments that are currently
not being realised because of financial,
regulatory or organisational barriers.
Recognising that energy efficiency
is driven by behaviour as much as by
technological intervention, our Spot the
Orange Dot behaviour change campaign
uses strategically positioned orange
stickers to remind employees to take
concerted action to improve energy
and resource efficiency. To date, at
least 34 000 employees in 21 affiliates
across our network have participated
in the campaign, resulting in tangible
improvements in their energy efficiency
and waste management impacts.
Examples of case studies linked to EEB
and Spot the Orange Dot can be found in
our Corporate Sustainability Report which
will be available online from 14 March
2016: www.sgs.com/cs-report2015
PERFORMANCE
846
RENEWABLE ENERGY
354
492
RENEWABLE ENERGY
795 809
772
846
683
335 332
354
316
288
456
460
477 492
394
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
TOTAL ENERGY (GWH)
VEHICLES FUELS (GWH)
ELECTRICITY AND
NON-TRANSPORT FUELS (GWH)
77
4. BUSINESS LEADERSHIP
WASTE
MANAGEMENT
ACHIEVEMENTS
As with the rest of the services industry,
SGS is responsible for generating
relatively small quantities of hazardous
and non-hazardous (e.g. mixed paper
mixed plastics, mixed organic) waste.
A standard operating procedure for
waste management and minimisation
is established as part of the SGS
Operational Integrity Management
System (OIMS). Audits are conducted
regularly by the Operational Integrity
team, which assesses conformity to
the procedure to ensure best practices
are applied. In 2015, the generation of
hazardous waste from our operations
increased by approximately 13% and
non-hazardous waste decreased by 5%
against a 2014 baseline.
PERFORMANCE
43.2
49.2
42.6
43.5 43.2
27.3
2011
2012
2013
2014
2015
TOTAL WASTE GENERATED
(THOUSAND TONNES)
We provide certification as proof that
waste has been processed in a manner
compliant with the regulations for
each specific industry. For materials
that are not reusable, we investigate
options for environmentally sound
intermediate storage or waste disposal.
Our technicians are licensed to
collect, transport and treat hazardous
waste. Understanding that profitable
landfill management involves many
environmental considerations and
maintaining a safe site can be complex
and constant work, SGS also provides
integrated landfill management solutions.
OUTLOOK 2016
We will continue to develop services
linked to waste reduction, treatment,
storage and reconditioning and
responsible disposal in response to
our customers changing needs around
complying with increased legislation,
and finding innovative solutions
linked to the introduction of new
products, materials, technologies
and manufacturing methods.
OUR MOST SIGNIFICANT
IMPACT ON WASTE
MANAGEMENT IS ACHIEVED
THROUGH OUR SERVICES.
OUR WASTE MANAGEMENT
SERVICES HELP OUR
CUSTOMERS TO RECYCLE,
TREAT AND DISPOSE OF
WASTE IN A COST-EFFECTIVE
AND EFFICIENT MANNER.
TO REDUCE WASTE DISPOSAL,
WE ARE CONSTANTLY
INVESTIGATING WAYS
TO RECYCLE AND REUSE
MATERIALS TO AVOID
CONTRIBUTING TO LANDFILL.
Our comprehensive waste services
include the pre-treatment, intermediate
storage and reconditioning of dangerous
industrial waste products, while our
audit services benchmark public
standards such as the Recycling
Industry Operating Standard (RIOS) and
the Responsible Recycling© Standard
(R2) as well as customers’ own criteria.
We investigate ways to reduce the
volume of waste, treatments to make
waste more stable and suitable for
packaging, and long-term storage
if needed. Processing is carried out
at our licensed treatment plants by our
accredited technicians. All our work
complies with the latest national and
international environmental principles.
78
WATER
MANAGEMENT
ACHIEVEMENTS
As a service company, our water
consumption is relatively low. We
use water in our laboratories, and for
drinking, food preparation, cleaning and
sanitation. While water may not be a
material issue for us, we recognise that
it is increasingly important in a wider
sustainability context, as the potential
impacts of climate change and other
factors on water supplies become
more apparent. As a global business,
we are also concerned that some of
our operations are in water-stressed
regions. Water efficiency is managed
through the SGS Energy Efficiency in
Buildings programme (EEB). Our Green
Building Checklist, which is deployed for
new buildings and major renovations,
sets out our standards on water usage,
reduction, monitoring and re-use.
Notable examples of EEB projects
in recent years that have resulted in
significant reductions in water usage
include the use of waste water that has
been processed in an effluent treatment
plant at our textile testing laboratories
in Tirupur and Chennai, which have
more than halved the volume of water
purchased; the collection and processing
of condensation from air conditioning
units that is recycled as laboratory
grade water; and a collaboration with
the Port of Antwerp in the Netherlands
to re-use water from the nearby
dock in our cooling system. Beyond
managing our water consumption, we
are also concerned about water quality.
In December 2014, SGS signed the
WASH Pledge which commits signatory
companies to ensuring appropriate
access to safe water, sanitation and
hygiene for all employees in all premises
under company control within three
years of signing the pledge.
Alongside our operational programmes,
SGS provides a diverse range of services
linked to water, from comprehensive
field sampling and laboratory analyses
to data management services that
enable us to monitor and interpret our
customers’ water impacts. Some of our
specialist water services include:
• Ballast water services aimed at
helping customers to stop the spread
of invasive species through ballast
water on ships;
• Groundwater and hydrogeological
studies aimed at preserving and
managing water resources efficiently
and in a cost-effective way, as well as
in changing environments;
• Precision farming and precision
irrigation services which provide
farmers, agronomists and agricultural
investors with full support on
water management;
• Hydrogeological studies where our
team of hydrogeologists provide
expert guidance to customers on
anticipating groundwater challenges
and develop solutions that suit
particular industries.
In addition, SGS provides Water Benefit
Certificates which give confidence
to donors and investors that real
water benefits are being delivered to
communities who need them most.
These services help our customers to
preserve and manage water resources
efficiently and in a cost-effective way
and in changing environments.
OUTLOOK 2016
During 2016, we will continue to
manage our water impacts through
our EEB programme (which includes
monitoring our water performance using
our new building rating tool, Stellar),
as well as other specific projects
managed at affiliate level. In addition,
we will continue to evolve our services
linked to water, as more companies
come under scrutiny to disclose details
of their water management approach
and their commitments to protecting
valuable water supplies.
PERFORMANCE
1.9
2.0
1.9
1.8
1.8
1.6
2011
2012
2013
2014
2015
TOTAL WATER PURCHASED
(MILLION M3)
79
4. BUSINESS LEADERSHIP
80
COMMUNITY
We welcome local talent and
knowledge to our business.
We want to give back to
the communities in which
we operate and live.
81
4. BUSINESS LEADERSHIP
COMMUNITY
PROGRAMMES
PROGRAMMES
Our community programme is led by
our affiliates through collaborations with
local community organisations. Across
our global network, we support around
200 community initiatives that are
initiated by employees and leadership
teams in our affiliates in response to
local challenges. Many of the projects
are aligned with the United Nations
Millennium Development Goals (MDGs).
CAUSES SUPPORTED BY SGS COMMUNITY PROJECTS
DISASTER
RELIEF
ECONOMIC
DEVELOPMENT
MDG 1:
POVERTY
MDG 2:
UNIVERSAL
EDUCATION
MDG 4:
REDUCED CHILD
MORTALITY
MDG 5:
MATERNAL
HEALTH
MDG 7:
ENVIRONMENTAL
SUSTAINABILITY
COMBAT MAJOR
DISEASES/OTHER
HEALTH ISSUES
PERFORMANCE
842
0
10
20
30
222
809 818
842
688
532
360
352
303
217
222
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
INVESTMENT IN COMMUNITY
(THOUSAND CHF)
COMMUNITY PROJECTS
82
ACHIEVEMENTS
SGS is committed to supporting projects
that have the potential to change lives
in communities where SGS employees
live and work.
THE SGS GLOBAL
COMMUNITY
PROGRAMME
IS ORGANISED
AROUND THREE CORE
THEMES: EDUCATION,
EMPOWERMENT,
AND ENVIRONMENTAL
SUSTAINABILITY.
Education projects are aimed at
improving access to elementary,
primary, secondary, higher and further
education, as well as informal education
in the form of employment training
schemes and skills workshops.
Empowerment projects are aimed at
promoting the physical, emotional,
intellectual and economic empowerment
of women and men through access
to healthcare, counselling, mentoring,
enterprise schemes and micro credit.
Environmental sustainability projects
are aimed at reducing or eliminating
the reliance on non-renewable or scarce
resources such as fossil fuels and water.
SGS offers support to communities
through cash donations, community-led
sponsorship, employee volunteering,
pro bono services and in-kind support.
We also provide immediate support to
communities in the aftermath of major
disasters. The majority of community
programmes are identified and managed
locally in line with the Group Community
Policy and Guidelines.
OUTLOOK 2016
In line with our 2020 Ambition to
increase community investment by
30% using a 2014 baseline, we will
focus effort on encouraging more
active involvement of employees
through community volunteering.
We will implement guidelines on
employee volunteering to our affiliates,
which includes sections on measuring
the social outcomes from volunteering,
and we will report on our progress
against our 2020 Ambition in our annual
sustainability report, available online.
83
S B U S I N ESS PRINCIPLE
INTEGRIT
H I P
S
R
S
Y
E
4. BUSINESS LEADERSHIP
G
S
LE A
D
Y
T
I
L
I
B
A
N
I
A
T
S
U
S
R
ESPECT
N ALISM
S I O
S
E
P R O F
84
H
E
A
L
T
H
A
N
D
S
A
F
E
T
Y
SGS’ BUSINESS
PRINCIPLES ARE THE
CORNERSTONE ON
WHICH ALL OF OUR
ACTIVITY RESTS.
THEY ARE HELD TO
BE FUNDAMENTAL,
OVERARCHING BELIEFS
AND BEHAVIOURS THAT
GUIDE OUR DECISIONS
AND ALLOW US TO
EMBODY THE SGS BRAND
IN EVERYTHING WE DO.
INTEGRITY
MAKING SURE WE BUILD TRUST
We act with integrity and behave
responsibly. We abide by the rules,
laws and regulations of the countries
we are operating in. We speak up:
we are confident enough to raise
concerns and smart enough to
consider any that are brought to us.
HEALTH AND SAFETY
MAKING SURE WE ESTABLISH
SAFE AND HEALTHY WORKPLACES
We fully protect all SGS employees,
contractors, visitors, stakeholders,
physical assets and the environment
from any work-related incident,
exposure, and any kind of damage.
QUALITY AND
PROFESSIONALISM
MAKING SURE WE ACT AND
COMMUNICATE RESPONSIBLY
We embody the SGS brand and
its independence in our everyday
behaviour and attitude. We are
customer-focused and committed
to excellence. We are always
clear, concise and accurate.
We strive to continually improve
quality and promote transparency.
We respect client confidentiality
and individual privacy.
RESPECT
MAKING SURE WE TREAT
ALL PEOPLE FAIRLY
We respect human rights. We
all take responsibility for creating
a working environment that
is grounded in dignity, equal
opportunities and mutual respect.
We promote diversity in our
workforce and do not tolerate
discrimination of any kind.
SUSTAINABILITY
MAKING SURE WE ADD
LONG-TERM VALUE TO SOCIETY
We use our scale and expertise
to enable a more sustainable future.
We ensure that we minimise
our impact on the environment
throughout the value chain.
We are good corporate citizens
and invest in the communities
in which we operate.
LEADERSHIP
MAKING SURE WE WORK
TOGETHER AND THINK AHEAD
We are passionate entrepreneurial
people with a relentless desire
to learn and innovate. We work in
an open culture, where smart work
is recognised and rewarded. We
foster teamwork and commitment.
85
4. BUSINESS LEADERSHIP
S G S A DDED VALUE
S
R I E
T
S
U
D
O U R I N
S
R
E
N
T
R
A
P
R
U
O
O
U
R C
O
M
MUNITY
OUR EMPLO
Y
E
E
S
O
U
R
C
U
S
T
O
M
E
R
S
E S T O R S
V
R I N
U
O
THROUGH OUR
EMPLOYEES,
CUSTOMERS, INVESTORS,
COMMUNITY AND
INDUSTRIES, WE ADD A
TREMENDOUS AMOUNT
OF VALUE TO SOCIETY.
PERHAPS MORE
IMPORTANTLY, THANKS
TO THE SERVICES WE
PROVIDE, WE EMPOWER
AND INSPIRE OTHERS
TO DO SO TOO.
86
OUR STAKEHOLDERS
OUR EMPLOYEES
We add value to our employees by
offering them training, nurturing their
potential and encouraging them to
work across multiple functions and
geographies during their careers.
We offer flexible working conditions
and equal opportunities to all.
Existing
Potential
Sub contractors
OUR CUSTOMERS
We add value to our customers
by providing them with leading
services, which helps make their
businesses more efficient, profitable
and sustainable. This value is
passed on to society in the form
of job security for employees,
higher quality products and better
environmental management.
Existing
Potential
OUR INVESTORS
We add value to our investors
by being a robust, sustainable
business with a 137-year track
record. Our transparency, strong
leadership and commitment
to long-term sustainability make
us a sound investment.
Shareholders
Financial community
Socially responsible investors
OUR COMMUNITY
We currently support around 200
community initiatives in response
to local challenges. Many of these
are aligned the United Nations’
Millennium Development Goals.
We also support disaster relief and
environmental sustainability by
sharing our expertise and network
with non-profit organisations.
People
Environment
Community programmes
Special interest groups
NGOs and academics
OUR PARTNERS
We provide value to our partners by
sharing our expertise and support
and by helping them to refine their
product offerings. In this way we
help them develop their businesses.
Suppliers
Business partners
Consultants
87
OUR INDUSTRIES
We help advance the industries
we operate in through the services
we offer. We help our customers
improve the safety and quality of
global supply chains and to drive
innovation. This in turn establishes
new industry benchmarks for
efficiency, sustainability and
operational best practices.
Industry peers, trade bodies
and associations
Authorities, governments
and regulators
Unions and work councils
The market has two main driving
mechanisms. The first is the ever
more demanding regulatory and legal
environment faced by many firms,
who not only need to understand
and conform to their respective
market regulations but also need to
demonstrate to their customers and the
relevant authorities that the necessary
steps have been taken to ensure
compliance. Moreover, the increasingly
complex nature of global supply chains
have made it even harder for firms
to ensure conformity (or even quality)
for all the component parts in any
given product.
This can have quite serious consequences
if left unchecked. For example, there
have been instances where firms have
inadvertently breached international
sanctions because they failed to
consider the place of manufacture
of a particular component part. As a
result of this, companies (and indeed
governments) have often found it
preferable to outsource these services
to an expert and independent third party
firm in the TIC industry; indeed firms
are often required to do so. In reality,
pressure is often passed down the
supply chain by larger companies,
who need to gain greater control over
the actions of their own suppliers.
The second market mechanism is often
simply financial, with firms finding
that specialist companies such as
SGS are able to offer more efficient
and effective services than they are
capable of reproducing in-house. This
is because businesses like SGS benefit
from having a global network, a deep
pool of expertise, and the necessary
technological capabilities to draw upon.
Our services thus become a cornerstone
of innovation and operational excellence
for our clients, as well as giving them
greater control over their risk.
4. BUSINESS LEADERSHIP
WHAT MAKES US
STAND OUT?
THE TIC INDUSTRY
UNMASKED
BY GROUP REVENUE AND MARKET
SHARE, SGS IS THE LARGEST
INSPECTION, VERIFICATION, TESTING
AND CERTIFICATION COMPANY
IN THE WORLD.
The Testing, Inspection and Certification
(TIC) Industry is not widely understood
by the general public, yet our activities as
members of that industry interweave with
almost everything that a consumer touches.
The breadth and reach of the industry
is perhaps unrivalled. Look around you.
The furniture that you are using, the
clothes that you are wearing, even the
paper you are holding have most likely
all been touched at some stage by
the TIC industry.
From verifying that the olive oil in your
cupboards is unadulterated extra virgin
to ensuring that the paint on a toy will
not be harmful to your children’s health,
the TIC industry is involved in assuring
safety, quality and sustainability in a way
most people have never considered.
But individuals are far from being
the only entities that rely on the
TIC industry to provide assurance
services. Governments and businesses
need companies like SGS to provide
assurance services for everything
from precision farming to offshore
oil rig management.
As an independent service provider,
we offer our customers an impartial
view through service offerings that
span all industries and encompass full
supply chains. Our services enable
our customers to operate in a more
sustainable manner, by reducing their
impact on the environment, ensuring
product safety, safeguarding trade
and helping to bring new technologies
to market.
MARKET
POSITIONING
Our market position is:
THE WORLD’S LEADING INSPECTION,
VERIFICATION, TESTING AND
CERTIFICATION COMPANY
THE LEADING PROVIDER OF
COMPETITIVE ADVANTAGE,
DRIVING SUSTAINABILITY
AND DELIVERING TRUST
THE GLOBALLY RECOGNISED
BENCHMARK FOR QUALITY
AND INTEGRITY
At SGS, we are continually pushing
ourselves to deliver innovative services
and solutions that help our customers
move their businesses forward.
88
OUR VALUE
TO SOCIETY
SGS has started a process to understand
our value to society. Value to society is
based on the premise that all business
activities take place within a field
of social capital, which is contained
within the natural environment.
Social capital allows the development
of interpersonal relationships that in
turn enable the combination of human
capital, natural capital and intellectual
capital to produce goods and services
(i.e. manufactured capital). A key
component of the value to society
framework is determining the economic
values for respective capital stocks
and flows. This process of economic
evaluation, often termed monetisation,
is necessary to enable integration of the
full factors of production (i.e. the natural
capital, human capital, manufactured
capital, etc.) into a core financial-based
business decision-making system.
The first stage in the process has
involved the quantification and economic
valuation of the various capital stocks
and flows that comprehensively
represent the necessary inputs and
outputs of our business activities.
First, we identified the entire asset
base that underpins SGS’ operations.
Conceptually supported by the
International Integrated Reporting
Council’s [IRRC] guidelines, operations
require (directly and indirectly)
a complement of:
FINANCIAL CAPITAL
The medium for exchange, a store of
economic value and as a unit of account.
NATURAL CAPITAL
The economic functions
of the natural environment.
HUMAN CAPITAL
The economic functions
of the labour force.
INTELLECTUAL CAPITAL
The economic functions of knowledge.
SOCIAL CAPITAL
The economic functions of trust within
stakeholder networks.
MANUFACTURED (OR BUILT) CAPITAL
The economic functions of property,
plant, equipment, inventory and
intermediate inputs.
In future, we will start reporting around
the six capitals. A significant amount
of work has already been completed,
which indicates that the business
activities of SGS are net positive (which
means that we contribute more value
than we derive). There is further work
to be done to adapt the concept to our
business model using auditable data, but
we expect to be in a position to report
on this in detail in 2016. We are also
focusing on aligning our future reporting
to the IRRC framework. As such,
2016 will be a decisive year involving
high-level stakeholder dialogue and
consultation on our evolved reporting
approach. More details on how we
are measuring our value to society
can be found on our website:
www.sgs.com/cs-report2015
89
90
5. MARKET RISKS
RISKS AND UNCERTAINTIES
On a yearly basis the SGS Board
conducts 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 four categories:
• Governance and Integrity Risks – arise
when corporate governance structure
and controls are inadequate and when
ethical culture and procedures are weak.
• Strategy and Planning Risks – arise
when the company’s strategy selection
and execution is inadequate and when
there are external factors that can
affect the company’s performance.
• Global Support Risks – arise when core
functions of the company do not operate
effectively and do not support the
business performance.
• Operations Risks – arise when
business processes do not achieve
the objectives they were designed to
achieve in supporting the company’s
business model.
91
5. MARKET RISKS
RISK MANAGEMENT
RISK AREA
RISK DESCRIPTION
MEASURES IN PLACE
STRATEGY AND PLANNING
EXTERNAL FACTORS /
COMPETITION
The SGS Group operates in volatile
markets and needs to sustain and/or
develop market share through innovation
and technical developments.
• Customer insights
• Competitor intelligence (periodic reviews of
activities of major competitors in the TIC industry)
• Innovation team
• Organic growth initiatives
MERGER AND ACQUISITIONS Part of the SGS Group’s strategy relies
• Specific policy ruling mergers and acquisitions
on acquisitions of new companies
allowing access to new markets.
Inefficient integration of new companies
may lead to sub-optimal synergies.
is in place
• Operations Council reviews/approves projects
meeting admissible criteria
• Integration guidelines and system to report upon
adequate integration of acquisitions
POLITICAL ACTIVITIES
Political instability is a risk in some of
the countries in which SGS operates.
• Collaboration with experts to maintain knowledge
and alignment with local, legal and fiscal changes
• Diversification of activities and countries to
compensate higher risks in some geographical areas
GOVERNANCE AND INTEGRITY
LOSS OF REPUTATION
ETHICS
LEGAL CLAIMS
Loss of reputation through poor
or inconsistent delivery and poor
client relationship management or
inappropriate health and safety practice.
SGS operates in countries recognised to
have higher bribery and corruption risks.
The SGS Group is exposed to litigation
proceedings in connection with
services provided. Litigations could
lead to payment of damages and affect
the reputation of the Group.
• Health and safety standards and performance
• Client relationship management
• Business operating procedures
• SGS Code of Integrity
• Integrity rules (from integrity of services
to compliance with laws)
• Training course for all employees
• Claim reporting system
• Insurance coverage and policies
92
RISK AREA
RISK DESCRIPTION
MEASURES IN PLACE
GLOBAL SUPPORT
IT SYSTEMS
Information systems and the technology
infrastructure are key to supporting SGS’
strategy and growth. The IT architecture
and the new technologies chosen could
expose SGS to new threats.
• Information Technology Service Delivery Model
• Security systems and applications
• Identification and prioritisation of strategic projects
through IT Committee
• Internal and external audit testing
FINANCE
The SGS Group could suffer from failing
to present reliable financial statements.
• Independent external audit of the Group’s annual
financial statements
• Financial and management controls are in place
to ensure Group’s assets are safeguarded from
major financial risks
TALENT MANAGEMENT /
RECRUITMENT
The SGS group relies on key personnel
from operations to executive level. Skilled
employees may not be attracted and
know-how and information of value for
SGS may be lost.
• Succession planning to ensure effective
continuation of leadership and expertise
• Geographic mobility to ensure continuity
• Employer branding initiative to attract talent
OPERATIONS
CYCLICAL DOWNTURN
The cyclical nature of certain businesses
may lead to over-capacity and surplus
resources in certain geographies.
• Monitoring of operational KPIs to allow rapid
up/down-scaling of variable costs
• Diversified service offering to a wide range
of industries and geographies
CUSTOMER SERVICES
A lack of focus on customer needs
may lead to customer dissatisfaction
and customer loss.
• Customer satisfaction survey
• Key account management structure and dedicated
sales people
• Tracking on-time delivery through laboratory excellence
• Customer care shared services
As a step towards adopting a fully integrated reporting structure in the future, for the first time we have also included
our sustainability risks in this section of the report.
CORPORATE SUSTAINABILITY
SGS is concerned about the potential
impacts of climate change and resource
depletion. Energy consumption and
greenhouse gas emissions, as well as
water consumption and waste, if not
adequately managed, could lead to
increased costs, interrupted supply and
regulatory fines. The resulting impact
could cause disruption to services
as well as risks to people and assets.
• Sustainability Management System and external
parties’ verification of sustainability data
• Energy Efficiency in Building Programme
• Carbon Neutral Strategy
• Green Procurement Strategies
• Employees Awareness Campaigns
• Signature of the WASH Pledge and World Business
Council for Sustainable Development’s Manifesto
for Energy Efficiency in Buildings
93
5. MARKET RISKS
SUSTAINABILITY
MATERIALITY
MATRIX
As an industry leader, we are committed
to upholding the highest standards
to ensure our business operates in
a sustainable way.
Our Materiality Matrix sets out the
issues that are deemed most important
to our stakeholders and our business.
We have identified the material aspects
for SGS and our stakeholders and
in the coming years we will merge
both processes.
Our online sustainability report
describes the processes we use to
identify our most important issues in
detail (see Materiality Process), and
it explains how we manage each of
these important issues through our
sustainability management system.
I
H
G
H
Y
R
E
V
N
R
E
C
N
O
C
R
E
D
L
O
H
E
K
A
T
S
ETHICAL CONDUCT
ECONOMIC PERFORMANCE
HEALTH AND SAFETY
TALENT ACQUISITION
AND DEVELOPMENT
ENERGY AND CLIMATE CHANGE
SUSTAINABILITY SERVICES
HUMAN RIGHTS
DIVERSITY AND EQUAL
OPPORTUNITIES
LOCAL COMMUNITIES
RESPONSIBLE SUPPLY CHAIN
EFFLUENTS
AND WASTE
WATER
MANAGEMENT
H
G
H
I
HIGH
IMPORTANCE TO SGS
VERY HIGH
94
ASSURANCE STATEMENT
REPORT ON THE INTERNAL ASSURANCE OF THE SUSTAINABILITY CONTENT
IN THE 2015 SGS ANNUAL REPORT
NATURE AND SCOPE OF THE ASSURANCE
The scope of this assurance was performance data, report text supporting performance data and a review of the management
of this data.
This Sustainability Content in the 2015 SGS Annual Report has been assured using SGS’ own protocols to ensure consistency with
the service offered to customers. The assurance comprised a combination of documentation review and face-to-face interviews
with relevant employees at the Head Office in Geneva and at affiliate level. Audit reviews of data samples and management were
also carried out in selected sites.
For the period 2011 to 2014, the assurance procedures on the sustainability performance had been carried out on SGS trend
countries, which represent three-quarters of revenue and two-thirds of headcount. For the year 2015, the sustainability
performance assurance procedures covered the full SGS Group.
Financial data drawn directly from independently audited financial accounts has not been checked back to source as part of this
assurance process.
The assurance team was assembled based on their knowledge, experience and qualifications for this assignment, and comprised
auditors with the following qualifications: Lead Quality, Health and Safety, Environmental and SA8000 Auditor and assurance practitioner.
The responsibility of the assurance team is to express an opinion on the text, data, graphs and statements within the scope
of verification, with the intention to inform all SGS stakeholders and to inform improvements in the process for future reporting.
This report has been assured at a moderate level of scrutiny using our protocols for:
• Evaluation of veracity of the reported text, graphs and statements and performance data (including data on the web) with a focus
on text, graphs and statements and performance data related to the identified material issues
ASSURANCE OPINION
On the basis of the methodology described and the verification work performed, we are satisfied that the information and
data contained within the Sustainability Content in the 2015 SGS Annual Report is reliable and provides a fair and balanced
representation of SGS activities in 2015 within the limitations of the stated reporting scope.
The apparent discrepancies in the previous years CO2 emission statistics have been noted by the assurors who are satisfied that
they actually reflect the extension of the CO2 emission scope to the full SGS Group and the change of methodology to calculate
the Scope 2 CO2 emissions with the integration of renewable energy accounting.
RECOMMENDATIONS
Further opportunities were identified during the assurance for consideration to ensure continual improvement, including the following:
• Currently the reported environmental data is based on financial evidence. When such evidence is not available, the data is not
systematically estimated. Although estimated as non-material and thus not biasing the stakeholders’ opinion, it is recommended
that a methodology is implemented to estimate such data based on the location surface area or/and the number of employees.
A report has been prepared for SGS management which includes a detailed set of recommendations to help identify areas for
future improvement.
Rita Godfrey
Lead SRA Assuror
Michel Mooser
SRA Assuror
Geneva, 8 February 2016
95
6. GOVERNANCE
6. GOVERNANCE
This Corporate Governance Report
informs shareholders, prospective
investors and the public at large
1. GROUP STRUCTURE
AND SHAREHOLDERS
on SGS policies in matters of
1.1. Group Structure
5. COMPENSATION,
SHAREHOLDINGS
AND LOANS
1.2. Significant Shareholders
5.1. Content and Method 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
1.3. Cross-Shareholdings
2. CAPITAL STRUCTURE
2.1. Issued Share Capital
2.2. Authorised and Conditional
prepared in compliance with the
Share Capital
Swiss Exchange (SIX) Directive on
2.3. Changes in Capital
Information Relating to Corporate
Governance of 1 September 2014
and with the Swiss Code of Best
Practice for Corporate Governance.
2.4. Shares and Participation Certificates
2.5. Profit Sharing Certificates
2.6. Limitations on Transferability and
Admissibility of Nominee Registrations
2.7. Convertible Bonds and
Warrants/Options
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,
3.2. Cross Involvement
3.3. Elections and Terms of Office
3.4. Limits on External Mandates
fostering a climate of performance
3.5. Internal Organisational Structure
and accountability among
managers and employees alike
and aligning employees’
remuneration with the long-term
interests of shareholders.
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
Determining the Compensation
and the Shareholding Programmes
5.1.1. Rules on Performance-Related
Pay and Allocation of
Equity-Linked Instruments
5.1.2. Rules on Loans, Credit
Facilities and
Post-Employment Benefits
5.1.3. Rules on Vote on Pay
6. SHAREHOLDERS’
PARTICIPATION RIGHTS
6.1. Voting Rights and
Representation Restrictions
6.2. Statutory Quorums
6.5. Registration in the Share Register
7. CHANGE OF CONTROL
AND DEFENCE
MEASURES
7.1. Duty to Make an Offer
7.2. Clauses on Change of Control
3. BOARD OF DIRECTORS
6.3. Convocation of General Meetings
of Shareholders
3.1. Members of the Board of Directors
6.4. Agenda
3.6. Definition of Areas of Responsibility
3.7. Information and Control Instruments
vis-à-vis the Management
8. AUDITORS
8.1. Duration of the Mandate
and Term of Office
4. OPERATIONS COUNCIL
8.2. Audit Fees
4.1. Members of the Operations Council
4.2. Other Activities and Functions
4.3. Limits on External Mandates
4.4. Management Contracts
8.3. Additional Fees
8.4. Supervisory and Control
Instruments vis-à-vis
the Auditors
9. INFORMATION POLICY
98
1.2. SIGNIFICANT SHAREHOLDERS
As at 31 December 2015, Mr. August
von Finck and members of his family
acting in concert held 15.03% (2014:
14.97%), Groupe Bruxelles Lambert
acting through Serena SARL held
15.00% (2014: 15.00%), the Bank of
New York Mellon Corporation held
3.35% (2014: 3.43%), BlackRock Inc.
held 3.03% (2014: 3.00%) and MFS
Investment Management held 3.01%
(2014: 0.00%) of the share capital and
voting rights of the Company.
At the same date, SGS Group held
2.77% of the share capital of the
Company (2014: 1.88%).
During 2015, the Company 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
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.
1. GROUP STRUCTURE
AND SHAREHOLDERS
At 31 December 2015, geographic
operations were organised as follows:
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).
Europe, Africa, Middle East
• Western Europe
• Northern and Central Europe
• Southern Central Europe
• Eastern Europe and Middle East
• Africa
Americas
• North America
• South America
On 31 December 2015, the market
capitalisation of SGS SA was
CHF 14 949 million.
Asia Pacific
• East Asia
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 200
to 203 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 2015 are provided
in note 3 to the consolidated financial
statements included in the section
SGS Group Results (pages 144 to 145)
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.
• China and Hong Kong
• South Eastern Asia and 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 2015, the business
lines were organised as follows:
• Agriculture
• Minerals
• Oil, Gas and Chemicals
• Life Science
• Consumer Testing
• Systems and Services Certification
• Industrial
• Environmental
• Automotive
• Governments and 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.
With effect as from 1 January 2016,
the geographic operations and
business lines are realigned, with the
consequence that, from 2016 onwards,
the Group is structured into 9 lines
of business and 9 regions.
99
6. GOVERNANCE
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 2015, SGS SA held
216 976 treasury shares (2014: 146 930).
In 2015, 54 636 treasury shares were
sold or released to cover option rights.
These shares were sold at an average
price of CHF 1 483. During the year,
45 778 treasury shares were purchased
for cancellation and 78 904 treasury
shares were purchased to support
future share incentive programmes in
application of a CHF 750 million Share
Buy-Back programme valid from
29 January 2015 to 31 December 2016.
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 12 March 2017.
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
eight 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,
the Company’s shares can be registered
in the name of a nominee acting in a
fiduciary capacity for an undisclosed
principal, provided however that shares
registered in the names of nominees or
fiduciaries may not exercise voting rights
above a limit of 5% of the aggregate
share capital of the Company. This rule
was made public on 23 March 2005.
The Company has a single class of
shares and no preferential rights,
statutory or otherwise, have been
granted to any shareholder.
100
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 and other share-based
remuneration granted to senior
managers of the Group are detailed in
the SGS Remuneration Report. Details
of all options and shares 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.
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 2015
(an * denotes a listed company).
Each Board member brings particular
skills, leadership and experience,
acquired through their respective careers
spanning many industries. Together they
enable the Board to provide leadership,
strategic overview and guidance, which
contribute to setting ambitious targets
to the Group and meeting long-term
value-creation objectives.
SERGIO MARCHIONNE (1952)
PAUL DESMARAIS, JR (1954)
Other Activities and Functions
Canadian/Italian
Function in SGS
Chairman:
• Board of Directors
• Audit Committee
Canadian
Function in SGS
Member:
• Board of Directors
Initial appointment to the Board
• Professional Conduct Committee
July 2013
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, and 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
BoardCouncil for the United States
and Italy, Chairman
European Automobile Manufacturers’
Association (ACEA), Brussels (BE),
Member of the Board
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.
101
*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)
*LafargeHolcim, Zürich (CH),
Board Member
*Pargesa Holding SA, Geneva (CH),
Board Member since 1992, Chairman
of the Board since 2013
*Total SA, Paris (F), Board Member
Member of the Advisory Council of
the European Institute of Business
Administration (INSEAD)
Trustee of the Brookings Institution and
a Co-Chair of the Brookings International
Advisory Council (USA)
Chairman of the Canadian Council
of Chief Executives (Can)
AUGUST VON FINCK (1930)
German
Function in SGS
Member:
• Board of Directors
• Nomination and
Remuneration Committee
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 and 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.
6. GOVERNANCE
AUGUST FRANÇOIS VON FINCK (1968)
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.
Other Activities and Functions
*Custodia Holding, Munich (DE),
Member of the Board since 1999
Carlton Holding, Allschwil (CH), Member
of the Board since 2001
*Staatl. Mineralbrunnen AG, Bad
Brückenau (DE), Member of the Board
since 2001
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.
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
Other Activities and Functions
PETER KALANTZIS (1945)
*Imerys, Paris (F), Member of the Board
and Chairman of the Strategic Committee,
Member of the Compensation and
Nomination Committee
Swiss/Greek
Function in SGS
Member:
Lafarge, Paris (F), Member of the Board
*Pernod Ricard SA, Paris (F), Member
of the Board, Member of the Strategic
Committee and Member of the
Remuneration Committee
Erbe SA (BE), Member of the Board
• Board of Directors
• Audit Committee
Initial appointment to the Board
March 2009
Bank von Roll, Zürich (CH), Vice-President
of the Board since 2009
Ergon Capital SA (BE), Member of
the Board
*Von Roll Holding AG, Breitenbach (CH),
Member of the Board since 2010
Ergon Capital II SARL (LU), Manager
* Umicore NV, (BE), Member of
the Board
IAN GALLIENNE (1971)
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 specialisation
in Finance; from Ecole Supérieure
des Dirigeants d'Entreprises (ESDE)
in Paris and an MBA from INSEAD
in Fontainebleau.
CORNELIUS GRUPP (1947)
Austrian
Function in SGS
Member:
• Board of Directors
• Professional Conduct Committee
(since March 2015)
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
102
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, Member since 2014
Clair AG, Cham (CH), Chairman of
the Board since 2004
*CNH Industrial 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
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
John S. Latsis Public Benefit Foundation,
Vaduz (FL), President of the Executive
Board since 2015
CHRISTOPHER KIRK (1956)
English
Function in SGS
Member
• Board of Directors
Initial appointment to the Board
March 2015
Professional Background
Chris Kirk holds a BSc (Hons) degree
in Zoology. He began his career at
SGS in 1981 in New Zeeland. From
1981 to 1987 he undertook a range
of different roles in the company,
including Operations Manager, Business
Development Manager and General
Manager for SGS New Zealand.
Between 1987 and 1999, Chris held a
number of senior positions in Thailand,
Ghana, Singapore and Australia. He
was appointed as Chief Operating
Officer of the South East Asia/Pacific
region in 2002 and was then appointed
Vice President for Minerals and
Environmental Services, a role he held
for three years.
Chris was Chief Executive Officer for
SGS between 2006 and 2015 before
being elected to the Board of Directors
at the 2015 Annual Shareholders
Meeting. He brings to the Board his
unparalleled experience in the industry
and in-depth knowledge of the Group.
Other Activities and Functions
Compass Limited, Hamilton, Bermuda,
Member of the Board since 2011
GÉRARD LAMARCHE (1961)
Belgian
Function in SGS
Member:
• Board of Directors
• Audit Committee
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
*LafargeHolcim, Zurich (CH),
Member of the Board, Member
of the Strategy and Sustainability
Committee, Member of the Finance
and Audit Committee
Lafarge, Paris (F), Member of the Board
*Legrand, Limoges (F), Member
of the Board and Member of the
Audit Committee
*Total SA, Paris (F), Member of
the Board, Member of the Audit
Committee and Chairman of
the Remuneration Committee
Initial appointment to the Board
July 2013
SHELBY R. DU PASQUIER (1960)
Professional Background
Managing Director of *Groupe Bruxelles
Lambert, since 2012.
Gérard Lamarche holds a bachelor
of Economics from the University of
Louvain-la-Neuve with a specialisation
in Business Administration and
Management. He also completed the
Advanced Management Program for
Suez Group Executives at 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 a 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 2000, Gérard Lamarche joined
NALCO (US subsidiary of the Suez
Group and world leader in industrial
water treatment) as Member of the
Board, Senior Executive Vice President
103
Swiss
Function in SGS
Member:
• Board of Directors
• Professional Conduct Committee
• Nomination and Remuneration
Committee, Chairman
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
6. GOVERNANCE
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 positions 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, with the exception of Christopher
Kirk who was Group CEO immediately
before his nomination to the Board, all
Directors (including the Chairman) are
independent from management and free
of any relationship that could materially
interfere with the exercise of their
independent judgement.
Other than Sergio Marchionne
(Group Chief Executive Officer between
February 2002 and June 2004) and
Christopher Kirk (Group Chief Executive
Officer between November 2006
and March 2015), 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, is 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.
3.4. LIMITS ON EXTERNAL MANDATES
At the 2015 Annual General Meeting,
the Shareholders modified 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. The new rules limit
the number of mandates which board
members can accept to no more than
ten board memberships in entities
outside the Group, out of which a
maximum of five memberships in
board of companies whose shares are
traded on a stock exchange. Mandates
assumed at the request of a controlling
entity do not count towards the maxima
defined in the Articles of Association.
In addition, the Articles of Association
set similar limits to participations in
board of associations and other non for
profit organisations. All Board members
have confirmed that they comply with
these rules.
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
104
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
conducts 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.
3.5.2. Committees
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 share-based remuneration
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 2015, the following Directors
served on the Nomination and
Remuneration Committee:
• Shelby du Pasquier (Chairman)
• August von Finck
• Ian Gallienne
In 2015, the Committee held three
meetings and passed three resolutions
in writing. Meetings of the Nomination
and Remuneration Committee were
attended by all members and had an
average duration of 1 hour.
Audit Committee
The Audit Committee supports the
Board of Directors in discharging its
duties in relation to financial reporting
and internal 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 2015, the following Directors served
on the Audit Committee:
• Sergio Marchionne (Chairman)
• August François von Finck
• Gérard Lamarche
• Peter Kalantzis.
In 2015, the Audit Committee held four
meetings, with an average duration of
one and a half hours. Meetings were
attended by all members, with one
member being excused for one meeting.
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.
In 2015, the following Directors served
on the Professional Conduct Committee:
• Sergio Marchionne (Chairman)
• Shelby du Pasquier
• Cornelius Grupp (since March 2015)
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. The Committee met
three times in 2015, with an average
duration of one hour and passed several
resolutions in writing. All meetings were
attended by all members.
3.5.3. Working Methods of
the Board and its Committees
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
105
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 2015 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
2015, with the exception of one board
member being excused for one meeting.
3.6. DEFINITION OF AREAS
OF RESPONSIBILITY
The Board of Directors is responsible
for the ultimate direction of the Group.
The Board discharges all duties and
responsibilities which are attributed
to it by law. In particular, the Board:
• Leads and oversees the conduct,
management and supervision
of the Group
• Determines the organisation
of the Group
• Assesses risks facing the business
and reviews risk management and
mitigation policies
• Appoints and removes the Group’s
Chief Executive Officer and other
members of Management
• Defines the Group’s accounting
and control principles
• Decides on major acquisitions,
investments and disposals
• Discusses and approves the Group’s
strategy, financial statements and
annual budgets
• Prepares the General Meetings
of Shareholders and implements
the shareholders’ resolutions
• Notifies the judicial authorities in the
event of insolvency of the Company,
as required by Swiss law
In accordance with the Company’s
internal regulations, operational
management of the Group, a function
which the Board of Directors has
6. GOVERNANCE
delegated, is the responsibility
of the Operations Council. The
Operations Council has the authority
and responsibility to decide on all
issues which are not attributed to
the Board of Directors. In the event
of uncertainty on a particular issue
regarding the separation of responsibility
between the Board of Directors and
the Management, the final decision is
taken by the Chairman of the Board.
The Chairman is regularly informed of
the activities of the Operations Council
by the Chief Executive Officer, Chief
Financial Officer and General Counsel.
The Operations Council is chaired by
the Chief Executive Officer and consists
of those individuals entrusted with the
operational management of the Group’s
activities, as follows:
• The Chief Operating Officers (COOs)
are responsible for operations in the
Group’s 10 regions (see section 1.1.)
• The Executive Vice Presidents (EVPs)
are entrusted with the management
and development of the Group’s
10 business lines (see section 1.1.)
• The Senior Vice Presidents (SVPs)
represent the principal Group support
functions (Finance, Human Resources,
IT, Communications & Investor
Relations, Corporate Development,
Legal & Compliance and Strategic
Transformation).
The composition, role and organisation
of the Operations Council are detailed
in section 4.1.
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.
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 the 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
106
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 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 and
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 monitors
implementation of corrective actions.
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.
4. OPERATIONS COUNCIL
CARLA DE GEYSELEER (1968)
The Operations Council (as defined
in section 1.1.) meets on a regular
basis, in principle at least six times
a year. Between meetings, it holds
regular phone conferences and may
make decisions on such calls or by
electronic voting.
4.1. MEMBERS OF
THE OPERATIONS COUNCIL
Members of the Operations Council
bring to the Group years of experience
in their respective field and area of
expertise. They come from a diversity
of backgrounds which reflects the
multiple aspects of the Group. The
Group strives to promote talents
internally and encourages women to
assume senior leadership positions.
The members of the Operations
Council at 31 December 2015 were
as follows:
FRANKIE NG (1966)
Swiss/Chinese
Chief Executive Officer
(since March 2015)
Belgian
Chief Financial Officer
EMBA, Executive Master in
Administration IMD, 2005
Master in Economics and 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
1995 – 2007: Various finance positions
DHL Express
1991 – 1995: Senior Auditor, Ernst &
Young, Belgium
OLIVIER MERKT (1962)
Swiss
General Counsel and
Chief Compliance Officer
Doctorate in Law, admitted to the bar
in Switzerland
EVP Life Science, ad interim
Joined SGS in 2001
Previous responsibilities
2006 – 2008: VP, Corporate Development
2001 – 2006: Senior Counsel
Other work experience
1993 – 2001: Senior Manager Legal,
Ernst & Young, Geneva
BA in Economics and Electronics
Engineering
Joined SGS in 1994
Previous responsibilities
2011 – 2015: EVP, Industrial Services
2005 – 2011: EVP, Consumer Testing
Services
2002 – 2004: Managing Director,
US Testing
2000 – 2002: Director, Consumer
Testing Services, China and Global
Hardlines
1997 – 2000: Operations Manager,
Consumer Testing Services, China
107
6. GOVERNANCE
TEYMUR ABASOV (1972)
JEAN-LUC DE BUMAN (1953)
PAULINE EARL (1961)
Azerbaijani
Swiss
British
COO, Eastern Europe and 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
2003 – 2004: Managing Director,
Georgia
2001 – 2003: Operations Manager, Oil
Gas and Chemicals Services, Azerbaijan
DOMINIQUE BEN DHAOU (1965)
Swiss
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
2001 – 2003: International Compensation
and Benefits and HQ HR Manager
SVP, Corporate Communications,
Investor Relations and Corporate
Development
Legal studies
Joined SGS in 1998
Other work experience
COO, Western Europe
BSc in Food Science
Joined SGS in 1995
Previous responsibilities
2007 – 2010: Managing Director,
United Kingdom
1978 – 1998: Country Head Switzerland,
Sales Fixed Income, UBS
2004 – 2007: SSC Business Manager,
United Kingdom
HELMUT CHIK (1966)
Chinese
ALEJANDRO
GOMEZ DE LA TORRE (1959)
COO, China and Hong Kong
Peruvian
Master in Business Administration
COO, South America
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
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)
OLIVIER COPPEY (1972)
South African
DERICK GOVENDER (1970)
EVP, Minerals Services
(since October 2015)
Diploma in Analytical Chemistry
Post graduate in Business Management
Joined SGS in 2002
Previous responsibilities
2014 – 2015: Minerals Manager, Chile
2010 – 2014: VP Minerals Africa
2007 – 2010: Regional Minerals
Manager SGS Southern Africa
Swiss
EVP, Agricultural Services
Other work experience
MSc Economics
International Human Resources positions:
Joined SGS in 1994
2000 – 2001: Firmenich
1999 – 2000: Novartis Consumer Health
1991 – 1998: Levi Strauss
Previous responsibilities
2009 – 2013: Vice President Seed &
Crop, Agricultural Services
2006 – 2008: Vice President North
America, Agricultural Services, USA
1994 – 2006: Managerial positions,
Agricultural Services, Switzerland/
India/Cameroon
108
KIMMO FULLER (1967)
American
COO, North America
(since October 2015)
Bachelor of Science degree in Civil
Engineering; Masters in Business
Administration
Joined SGS in 2014
Previous responsibilities
2014 – 2015: Managing Director, USA
Other work experience
2013 – 2014: Regional Director,
Rolls Royce Plc
2011 – 2013: Regional Director,
Elliott Group
2007 – 2011: Business Unit Director,
Wood Group
1999 – 2007: General Manager,
General Electric.
DIRK HELLEMANS (1958)
Belgian
COO, Northern and Central Europe /
Southern Central Europe ad interim
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 and
Institutions Services
2003 – 2006: EVP, Automotive Services
1999 – 2003: Head of Global Marketing,
Trade Assurance Services (now
Governments and Institutions Services)
FRANCOIS MARTI (1968)
Swiss
EVP, Industrial Services
(since October 2015)
Degree in International Relations
Initially joined SGS in 2003, rejoined
in 2011
Previous responsibilities
2012 – 2015: EVP Systems and
Services Certification
2011 – 2015: SVP, Strategic Transformation
2003 – 2005: VP Continuous Improvement
Other work experience
2005 – 2011: CEO Fiat Services
Senior Manager PWC and IBM
JEFFREY MCDONALD (1964)
Australian
EVP, Systems and Services Certification
(since October 2015)
Postgraduate Diploma in Education
Joined SGS in 1995
Previous responsibilities
2007 – 2015: COO, North America
2004 – 2007: EVP, Systems and
Services Certification
2003: Global Project Manager,
Systems and Services Certification
1995 – 2003: Systems and Services
Certification, South Eastern Asia and
Pacific, Regional Manager (Bangkok)
Other work experience
1995 – 1998: CEO, Unilabs International
ROGER KAMGAING (1966)
Swiss
EVP, Governments and
Institutions Services
Master in Commercial Law and Tax
Master in Auditing and Consulting
Initially joined SGS in 1997, rejoined
in 2014
Previous responsibilities
2000 – 2012: Governments and
Institutions Services, Global Head
Business Development
1997 – 2000: Governments and
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)
109
6. GOVERNANCE
PETER POSSEMIERS (1962)
Australian and Belgian
EVP, Environmental Services
BSc Chemistry and Microbiology
Joined SGS in 1983
Previous responsibilities
2007 – 2012: Global Sales, OGC
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
COO South East Asia and Pacific
(since October 2015)
BSc Chemistry
Joined SGS in 1987
Previous responsibilities
2012 – 2015: EVP, Consumer
Testing Services
2008 – 2011: EVP, Systems and
Services Certification
2005 – 2007: Managing Director, Australia
2000 – 2005: Managing Director, Thailand
1997 – 2000: Managing Director,
Philippines
ALIM SAIDOV (1964)
Azerbaijani and Canadian
EVP, Oil, Gas and Chemicals Services
PhD in Science
Joined SGS in 1993
Previous responsibilities
2007 – 2013: EVP, Oil, Gas and Chemicals
Services and Environmental Services
2005 – 2007: COO, Eastern Europe &
Middle East
2004: COO, North America and
Managing Director, Canada
2001 – 2004: Managing Director,
Kazakhstan & Manager Caspian Region
respectively EVP Minerals Services
and EVP Consumer Testing Services,
and in October 2015, the appointment
of Kimmo Fuller as COO North America.
RICHARD SHENTU (1968)
Chinese
EVP Consumer Testing Services
(since September 2015)
Textile Engineer, Masters in
Business Administration,
PhD in Management Science
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.
Joined SGS in 1990
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
OLIVIER COPPEY
Swiss Trading and Shipping Association,
Geneva (CH), Member of the Executive
Board (since 2015)
ALEJANDRO GOMEZ DE LA TORRE
Swiss-Peruvian Chamber of Commerce,
Lima (Peru), Director
THOMAS KLUKAS
CITA, International Motor Vehicle
Inspection Committee, Brussels (BE),
Member of the Bureau Permanent
since 2011
FRANÇOIS MARTI
Swiss Philanthropy Foundation,
Member of the Board since 2013
Previous responsibilities
2010 – 2015: Managing Director, China
2005 – 2011: Vice President CTS, CTS
Director and Executive Director China
2012 – 2015: Vice President
Industrial Services
2002 – 2004: CTS Hardline SBU director
China and Hong Kong
DENNIS YANG (1949)
Taiwanese
COO, East Asia
Master in Business Administration
Joined SGS in 1975
Previous responsibilities
2000 – 2002: Managing Director, Taiwan
1992 – 2000: Assistant General
Manager, Taiwan
In the course of 2015, Michael Belton,
EVP Minerals Services resigned from
his position and left the Group. Ladislav
Papik, COO South East Europe left the
Operations Council to assume a regional
role within the Group. Anthony Hall, COO
South East Asia & Pacific stepped down
from the Operations Council to assume
other responsibilities in the Group.
The Nomination and Remuneration
Committee approved in July 2015 the
internal promotion and appointment of
Derick Govender and Richard Shentu,
110
4.3. LIMITS ON EXTERNAL MANDATES
At the 2015 Annual General Meeting,
the Shareholders modified 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 members of the Operations Council.
The new rules limit the number of
mandates which members of the
Operations Council can accept, with
the prior consent of the Board of
Directors, to no more than four board
memberships in entities outside the
Group, out of which a maximum of one
membership in board of companies
whose shares are traded on a stock
exchange. Mandates assumed at the
request of a controlling entity do not
count towards the maxima defined in
the Articles of Association. In addition,
the Articles of Association set limits to
participations in board of associations
and other non-profit organisations to
no more than ten such memberships.
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. Members of the
Operations Council receive a fixed
remuneration and are entitled to a
performance-related annual bonus
and Long-Term Incentive plans.
In compliance with the requirements
of the Ordinance against Excessive
Compensation at Listed Joint-Stock
Companies (OaEC), the Annual General
Meeting approves the compensation
payable to the Board and to the
Operations Council. The rules on vote
on pay applicable in the Group are
explained below.
The ultimate responsibility for
defining remuneration policies and
deciding on all matters relating to
remuneration rests with the Board of
Directors, subject to decisions which
require binding resolutions of the
Annual General Meeting. The Board
of Directors is assisted in its work
by a Nomination and Remuneration
Committee, which is elected by
the Annual General Meeting.
5.1.1. Rules on Performance-Related
Pay and Allocation of Equity-Linked
Instruments
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
were introduced in the Company's
Articles of Association (please refer
to the Remuneration Report for a
description of the Company’s rules
in the matter).
5.1.2. Rules on Loans, Credit Facilities
and Post-Employment Benefits
Loans granted to members of the
governing bodies of the Company may
not exceed one year of remuneration
and must be granted at market
conditions. As of 31 December 2015,
no such loan or credit facility had been
granted to any member of the Board
or management.
5.1.3. Rules on Vote on Pay
The Annual General meeting approves
the following matters related to
the compensation of the Board and
Operations Council:
• It approves the fixed fees payable to
the Board of Directors until the next
Annual General meeting;
• It approves in advance the fixed
remuneration payable to the
Operations Council during the next
financial year;
• It approves the total aggregate
amount payable to the Operations
Council for the performance-related
annual bonus related to the prior year;
• It approves the maximum amount
payable under Long-Term Incentive
plans to be introduced by the Company.
Resolutions of such matters are binding
on the Board of Directors. In addition,
the Annual General Meeting is invited
to cast a non-binding vote on the
Remuneration Report which describes
the Company’s remunerations policies.
111
6. GOVERNANCE
6. SHAREHOLDERS’
PARTICIPATION
RIGHTS
All registered shareholders receive a
copy of the half-year and full-year results
upon the publication of such results by
the Company. They can request a copy
of the Company’s Annual Report and are
personally invited to attend the Annual
General Meeting of Shareholders.
6.1. VOTING RIGHTS AND
REPRESENTATION RESTRICTIONS
All registered shareholders can
attend the General Meetings of
Shareholders and exercise their right
to vote. 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 authorised 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
In the absence of any specific rules in
the Company’s Articles of Association,
any investor or group of investors
acquiring more than 33.3% of the
shares and voting rights of the Company
has the duty to make a public offer in
compliance with the applicable Swiss
takeover rules.
7.2. CLAUSES ON CHANGE OF CONTROL
There are no general plans or standard
agreements offering specific protection
to Board Members, Senior Management
or employees of the Group in the event
of a change of control, subject to the
standard rules regarding termination
of employment.
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 2015 amounted to
CHF 5.3 million (2014: CHF 6.0 million).
8.3. ADDITIONAL FEES
An aggregate amount of CHF 1.3 million
(2014 CHF 1.3 million) was paid to
Deloitte for other professional services,
unrelated to the statutory audit
activity. This amount includes CHF 0.7
million (2014: CHF 0.7 million) for tax
compliance services and CHF 0.6 million
(2014: CHF 0.6 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 (four times
in 2015), 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.
112
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,
www.sgs.com/ir 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, roadshows,
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.
The annual report is published in English
and is available upon order 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.
113
7. SGS REMUNERATION REPORT
7. SGS REMUNERATION REPORT
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 2015
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.
1. INTRODUCTION
BY THE NOMINATION
AND REMUNERATION
COMMITTEE
4. REMUNERATION
AWARDED TO THE
BOARD OF DIRECTORS
5. REMUNERATION
AWARDED TO
THE CEO, SENIOR
MANAGEMENT
AND OTHER MEMBERS
OF THE OPERATIONS
COUNCIL
5.1. Performance in 2015
5.2. Cash Compensation
5.3. Share-Based Compensation
5.3.1. Restricted Shares
5.3.2. Long-Term Incentive Plan
5.3.3. Discontinued Share
Option Plans
5.4. Total Compensation to
the Operations Council,
Senior Management and
Chief Executive Officer
5.5. Other Compensation
5.5.1. Severance Payments
5.5.2. Loans to Members
of Governing Bodies
2. COMPANY’S
REMUNERATION
POLICY AND
GOVERNANCE
2.1. Remuneration Policy
and Principles
2.2. Remuneration Governance
2.2.1. Nomination and
Remuneration Committee
2.2.2. Shareholders' Engagement
2.2.3. Method of Determination
of Compensation –
Benchmarking
3. REMUNERATION
MODEL
3.1. Structure of Remuneration
of the Board of Directors
3.2. Structure of Remuneration
of the Operations Council
3.2.1. Base Salary
3.2.2. Short-Term Incentive
3.2.3. Long-Term Incentive
3.2.4. Shareholding Ownership
Guideline
3.2.5. Benefits
3.2.6. Employment Contracts
3.2.7. Timeline of Remuneration
116
1. INTRODUCTION
BY THE NOMINATION
AND REMUNERATION
COMMITTEE
The Nomination and Remuneration
Committee is pleased to present its
2015 Remuneration Report to you.
During the year, the Committee
has concentrated its efforts on
the implementation of the new
remuneration system developed as a
result of a thorough review conducted
in 2014. The new remuneration model
is strongly aligned to the business
strategy of profitable growth and to
the expectations of our shareholders.
The following changes are effective
from 2015 onwards:
• Introduction of:
Grant of shares for both
Short-Term and Long-Term
Incentive plans;
Balanced mix of performance
conditions in the Short-Term
and Long-Term Incentive
plans, including revenue goals,
profitability objectives, cash flow
and share price performance;
Relative performance
measurement against peer
companies in the Long-Term
Incentive plan;
Share ownership guideline
for the members of the
Operations Council.
• Discontinuation of:
Any stock options program;
Discretionary bonus;
Incentive scheme for the Chairman
of the Board of Directors.
More detailed information on the
remuneration model is provided in
section 3 of this report.
Furthermore, following the provisions
of the Ordinance issued by the Swiss
Federal Council, we have implemented
the binding vote on compensation
amounts at the Annual General Meeting
in 2015. At the forthcoming Annual
General Meeting, we will continue with
the same "say-on-pay" vote structure:
• Consultative vote on the
Remuneration Report;
• Binding vote on the prospective
remuneration amount of the Board
of Directors until the next Annual
General Meeting;
• Binding vote on the retrospective
variable remuneration of the
Operations Council members
of the previous business year;
• Binding vote on the prospective
fixed remuneration amount of the
Operations Council members for 2017.
The Articles of Association of SGS have
been revised accordingly and outline
the remuneration framework as well
as the structure of the binding votes
on remuneration. The revised Articles
of Association were approved at the
Annual General Meeting in 2015.
On the following pages, you will find
detailed information about our new
remuneration model, its principles and
programs and the remuneration awarded
to the Board of Directors and to the
Operations Council related to business
year 2015. We hope that you find this
report informative and are confident
that our approach to executive pay is
fully aligned with the strategy, the wider
competitive market benchmarks, the
performance of the Company and with
the interests of our shareholders.
Shelby du Pasquier
Chairman
117
7. SGS REMUNERATION REPORT
2. COMPANY’S
REMUNERATION
POLICY AND
GOVERNANCE
2.1. REMUNERATION POLICY
AND PRINCIPLES
Remuneration of the Board
of Directors
In order to guarantee their independence
in exercising their supervisory duties
towards the executive management,
the members of the Board of Directors
receive a fixed remuneration only.
Remuneration of the
Executive Management
The Company's remuneration policy
applicable to the executive management
(Operations Council) 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 them 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.
Our remuneration system operates
according to four principles
described below.
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118
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. In
addition, the Board of Directors defines
general executive remuneration policies,
including the implementation and terms
and conditions of Long-Term Incentive
plans, as well as the financial targets
relevant to any incentive plan.
all matters relating to the remuneration
of these executives.
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 (including the
Chief Executive Officer), and decides on
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 2015, neither the Committee
nor the Board had recourse to such
external advisors.
Authorisation levels:
SUBJECT MATTER
RECOMMENDATION
APPROVAL
Aggregate remuneration amount of the Board of Directors
Board of Directors
AGM (binding vote)
Individual remuneration of the members of the Board of Directors
including the Chairman of the Board
Remuneration Committee
Board of Directors
Aggregate fixed remuneration amount of the Operations Council
Board of Directors
AGM (binding vote)
Individual remuneration of the CEO
Remuneration Committee
Board of Directors
Individual remuneration of the Operations Council members
CEO
Remuneration Committee
Establishment of Long-Term Incentive plans
Remuneration Committee
Board of Directors
Aggregate value of the grants awarded under the Long-Term
Incentive plan for Operations Council members
Setting of annual financial targets for variable remuneration
of Operations Council members
Board of Directors
AGM (binding vote)
CEO
Board of Directors
Remuneration report
Board of Directors
AGM (consultative vote)
The following Directors served on
the Committee in 2015:
• Shelby du Pasquier (Chairman)
• Ian Gallienne
• August von Finck
In 2015, the Committee met three
times and settled two resolutions by
teleconference during the year. All
members attended all meetings and
teleconference calls. 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. Shareholders’ Engagement
In the last two years, based on the
feedback received from our shareholders
and their representatives, we have
made significant efforts to improve the
disclosure of remuneration in terms of
transparency and level of detail provided
about the remuneration principles
and programs. The positive outcome
of the consultative vote on the 2014
Remuneration Report indicates that
shareholders welcome the progresses
made. We will continue to submit the
Remuneration Report to a consultative
shareholders’ vote at the Annual General
Meeting, so that shareholders have an
119
opportunity to express their opinion
about our remuneration model.
In addition, as required by the
Ordinance, the aggregate amounts of
the remuneration to be paid to members
of the Board of Directors and to the
Operations Council are subject to the
approval of the shareholders in form
of a binding vote on remuneration.
The procedure on the vote is defined
in the Articles of Association that
were approved at the 2015 Annual
General Meeting and foresees 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) the variable compensation
awarded to the Operations Council in
respect to the previous calendar year
and (iv) any award to be granted to the
Operations Council under the Long-Term
Incentive plan.
7. SGS REMUNERATION REPORT
SHAREHOLDER VOTE
AT THE 2016 AGM
2015
2016
2017
Consultative vote on 2015
Remuneration Report
Remuneration policy
and principles
Binding vote on remuneration
of Board
Binding vote on fixed
remuneration of OC
Binding vote on variable
remuneration of OC
Vote at AGM 2016
Variable remuneration
Remuneration
Fixed remuneration
The binding votes on the aggregate
compensation amounts combined with
a consultative vote on the remuneration
report reflect our true commitment
to provide our shareholders with
a far-reaching “say-on-pay”.
As required by the Ordinance, the
Articles of Association of SGS have
been revised and approved by the
shareholders at the Annual General
Meeting in 2015. The Articles of
Association include the following
provisions on remuneration (details
available on www.sgs.com/governance:
• Principles of remuneration: The
members of the Board of Directors
receive a fixed remuneration. The
amount of the remuneration depends
on the tasks performed within the
Board of Directors and in particular
the participation in the committees
of the Board of Directors. The
remuneration may be paid in cash
or in shares of the Company.
• The members of the Operations
Council may receive a fixed and
a variable remuneration. The fixed
remuneration includes the annual
base salary, submitted for approval
to shareholder vote as per table
above, the employer’s contributions
to pension fund and/or health and
life insurance, benefits in kind
and seniority bonuses, as required
by law and company policies.
The variable remuneration is linked
to the achievement of financial or
non-financial performance objectives
set by the Board of Directors. Variable
compensation may be paid in cash
or in shares or conversion rights or
other equity instruments, at conditions
determined by the Board of Directors.
In addition, the Board of Directors
may implement Long-Term Incentive
plans in order to motivate executives
to reach strategic objectives for a
period which exceeds one year. Such
plans may provide for the allotment
of shares or conversion rights or
other equity instruments, which are
contingent upon the objectives set by
the Board of Directors being reached.
Terms and conditions of such plans are
determined by the Board of Directors.
• Additional amount for payments
to members of the Operations
Council appointed after the vote on
remuneration at the Annual General
Meeting: for the remuneration
of members of the Operations
Council who have been appointed
after the approval of the aggregate
remuneration amount by the Annual
General Meeting, an amount of up
to 25% of the maximum aggregate
remuneration amount approved for
the Operations Council is available
without further approval of the Annual
General Meeting.
• Loans, credit facilities and post-
employment benefits for members
of the Board of Directors and of the
Operations Council: loans and credits
to a member of the Board of Directors
or executive management may only be
granted at market conditions and may
not, when they are granted, exceed the
most recent total annual remuneration
of the member in question.
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. We therefore compare
our practices with those of other similar
global 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-GL
and TÜVs.
• 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 utilise
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.
120
3. REMUNERATION MODEL
3.1. STRUCTURE OF REMUNERATION OF THE BOARD OF DIRECTORS
In order to guarantee their independence in exercising their supervisory duties towards the executive management, the members
of the Board of Directors receive a fixed remuneration only. They are entitled to a fixed annual board membership fee and additional
annual fees for the participation in board committees. They 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.
The remuneration is paid in cash in two
instalments, in June and in December
for the calendar year. Social charges
are applied to the above amounts.
Members of the Board of Directors 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.
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
Short-Term Incentive, settled partly
in cash and partly in restricted shares,
(iii) a Long-Term Incentive, and (iv) other
benefits such as retirement, insurances
and perquisites.
The Group’s long-term strategic plan
drives all the activities in the business
and is reflected in the remuneration
strategy that will assist the Group in
achieving its financial and other business
goals. Each year, an annual business
plan is derived from the long-term
strategic plan and sets the business
objectives to be achieved during the
year. The annual Short-Term Incentive is
used to reward the annual achievements
against the business plan while the
Long-Term Incentive is used to drive
sustained performance aligned with
the Group’s long-term strategic plan.
The Company considers that the
payment of variable remuneration in the
form of shares subject to restriction and/
or vesting period is a key mechanism to
align the management’s incentives to
the long-term interests of shareholders.
121
7. SGS REMUNERATION REPORT
The table below summarises the various components of the compensation of Operations Council members, including
the Chief Executive Officer:
REMUNERATION
ELEMENT
REMUNERATION
VEHICLE
DRIVERS
Base Salary
Monthly
cash salary
Position and
experience,
market practice
(benchmarking)
PERFORMANCE
MEASURES
n/a
PURPOSE
PLAN PERIOD
Attract and retain
key executives
Continuous
Short-Term
Incentive
50% cash
50% restricted
shares
Annual financial
performance,
individual performance
against leadership
behavioural model
Group Revenue, Group
NPAT, Group ROIC1,
business profit, Regional
CertiVVa2, Leadership
multiplier
Pay for
performance
Long-Term
Incentive
Performance
Share Units (PSU)
Long-term financial
performance
Relative organic
revenue growth,
relative NPAT
improvement, relative
TSR3, absolute free
cash flow
Reward for long-
term performance,
align compensation
with the interests
of the shareholders
1 year
performance
period
3-years
deferral period
3-year
performance
period
Benefits
Retirement
benefits and
insurances,
perquisites
Market practice
n/a
Protect executive
against risks,
attract and retain
Continuous
1. NPAT : Net Profit After Tax, ROIC : Return On Invested Capital.
2. SGS Internal Economic Value Added.
3. TSR: Total Shareholder Return.
3.2.1. Base Salary
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.
3.2.2. Short-Term Incentive
Members of the Operations Council
including the Chief Executive Officer are
entitled to a performance-related annual
incentive (the “Short-Term Incentive”).
The Short-Term Incentive is designed
to reward the executives for the annual
financial performance of the Group
and its businesses, as well as for the
demonstration of leadership behaviours
in line with the SGS competency model.
The target incentive is expressed as a
percentage of the annual base salary
and varies depending on the role. For
the CEO, the target incentive amounts
to 100% of annual base salary, while the
target incentive for the other members of
the Operations Council varies between
55% and 65% of annual base salary.
in a balanced manner. Those financial
metrics are cascaded consistently
throughout the organisation in order to
ensure collective alignment. The CEO
and the heads of corporate functions
(SVPs) are measured on the financial
performance of the Group, while the
other members of the Operations Council
are measured 50% on the financial
performance of the Group and 50% on
the financial performance of their own
business line (EVPs) or region (COOs).
Financial Performance
The key performance indicators
used to measure the annual financial
performance of the Group and its
businesses have been amended in 2015
in order to be fully aligned with the
business strategy of profitable growth.
They include a measurement of growth
(top-line contribution), profitability
(bottom-line contribution) and efficient
use of capital and thus reflect the
financial performance of the Company
122
GROUP'S FINANCIAL PERFORMANCE
ROLE SPECIFIC FINANCIAL PERFORMANCE
CEO
SVPs
EVPs
COOs
PROFITABILITY
(BOTTOM-LINE)
Group NPAT
25%
Group NPAT
65%
Group NPAT
25%
Group NPAT
25%
GROWTH
(TOP-LINE)
EFFICIENT USE
OF CAPITAL
PROFITABILITY
(BOTTOM-LINE)
EFFICIENT USE
OF CAPITAL
Group Revenue
25%
Group Revenue
25%
Group Revenue
25%
Group Revenue
25%
Group ROIC
50%
Group ROIC
10%
-
-
-
-
-
-
Business-line profit
40%
Group ROIC
10%
Regional profit
40%
Regional CertiVVa
10%
At the beginning of the performance year, the objective for each financial metric is set by the Board of Directors on the basis
of a recommendation by the CEO and in line with the annual budget. For each financial metric, the payout curve is predetermined
as follows: a target (expected level of performance), a threshold (minimum level of performance to trigger a payout) and a cap
(maximum level of performance above which the payout factor is capped at 200%). The Financial Performance Payout factor
between the threshold, the target and the maximum is calculated by linear interpolation.
200%
100%
%
T
U
O
Y
A
P
0%
CAP
TARGET
THRESHOLD
80%
100%
133.3%
ACHIEVEMENT %
The payout curve is structured on a leverage of one to three for over-achievement and one to five for under-achievement:
• Every percentage achievement above 100% of the objective (budget) increases the payout factor by 3%. The payout factor is
capped at 200%.
• Every percentage achievement below 100% of the objective (budget) reduces the payout factor by 5%. Therefore a performance
below 80% achievement level (threshold) provides a 0% payout factor.
At the end of the performance period, the results for each objective are assessed against the pre-defined targets and the payout
curve to determine a payout factor. The weighted average of the payout factors of each objective corresponds to the overall
Financial Performance Payout factor. Below you will find an example of calculation for an Executive Vice President
GROUP
REVENUE
WEIGHT 25%
GROUP
NPAT
WEIGHT 25%
BUSINESS
PROFIT
WEIGHT 40%
GROUP
ROIC
WEIGHT 10%
FINANCIAL
PERFORMANCE
PAYOUT
100%
x 0.25
+
80%
x 0.25
+
150%
x 0.40
+
150%
x 0.10
=
120%
123
7. SGS REMUNERATION REPORT
Leadership Multiplier
To determine the final bonus amount to be paid, the financial performance payout factor is multiplied by a leadership multiplier.
This combination of financial objectives and leadership multiplier has been chosen in order to balance between rewarding
the financial performance of the Group and its businesses and rewarding wider leadership behaviours of the executives.
The leadership multiplier is determined for each executive on the basis of an assessment of their behaviours against sixteen
pre-defined dimensions of the competency model of SGS in the areas of change management and people management.
The assessment of the members of the Operations Council is conducted at year end by the CEO. The assessment leads
to an overall leadership performance rating that is directly linked to the leadership multiplier as follows:
• “Needs improvement” rating corresponds to a leadership multiplier of 70%
• “Meets expectations” rating corresponds to a leadership multiplier of 100%
• “Exceeds expectations” rating corresponds to a leadership multiplier of 125%
TARGET INCENTIVE
FINANCIAL
PERFORMANCE
PAYOUT FACTOR
X
X
LEADERSHIP
MULTIPLIER
=
ACTUAL PAYOUT
100 000
120%
125%
150 000
Short-Term Incentive Calculation
Settlement of the Short-Term Incentive
3.2.3. Long-Term Incentive
The final payout and the corresponding
Short-Term Incentive amount for the CEO
and the other members of the Operations
Council are confirmed by the Nomination
and Remuneration Committee and
approved by the Board of Directors.
They are subject to a binding vote at
the Annual General Meeting.
Specific Short-Term Incentive Rules
for the CEO
While determining the compensation
package of the new CEO, the Board
of Directors decided to adapt the rules
of the Short-Term Incentive plan to the
specific position of CEO, as follows:
• The CEO performance assessment
is purely based on the financial
performance of the company and
the leadership multiplier does not
apply to the CEO;
• Because of the absence of leadership
multiplier, the payout curve for the
CEO was adjusted: for the threshold
level of performance, the payout
starts at 25% (instead of 0%) and
the 200% payout cap for financial
performance does not apply.
Furthermore there is no accelerator
for performance above target.
Once the Short-Term Incentive amount
is determined, it is settled 50% in cash
and 50% in restricted shares, in order
to strengthen the link between the
compensation of the executives and the
future company share price performance.
The cash component and the shares
are paid out after the shareholders’
approval at the Annual General Meeting
of the following year. The shares are
allocated at the value defined as the
average closing share price during the
20-day period following the payment
of the dividends after the Annual
General Meeting. They are restricted
for a period of three years during which
they may not be sold, transferred
or pledged. In case of change of
control or liquidation or termination
of employment following retirement,
death or disability, the restriction period
of the shares lapses. The shares remain
blocked in all other instances.
The shares are subject to forfeiture
in cases where the executives act
in violation of the law or the internal
regulations of the SGS Group, such as
the code of integrity, or are in breach
of their obligations to the SGS Group.
In 2015, the Board of Directors
implemented a new Long-Term
Incentive plan designed to motivate
the leadership team to realise the
long-term objectives of the Group.
The plan consists of Performance Share
Units (PSUs) granted in Q4 2015 to a
selected number of senior executives
of the Group, including the members
of the Operations Council. The PSU
vest after a performance period of
three years (2015-2017) conditionally
upon the achievement of pre-defined
performance objectives and the
executive being employed by the Group
at the vesting date (31 December 2017).
In order to balance with the Short-Term
Incentive which is based on absolute
financial performance and on Leadership
behaviours, a relative performance
measurement has been introduced in the
PSU plan, combining absolute performance
of the SGS Group and relative performance
compared to a peer group of companies:
• Relative total shareholder return
(TSR, value delivered to shareholders),
40% weight
• Relative organic revenue growth
(top-line performance), 20% weight
• Relative NPAT improvement
(bottom-line performance), 20% weight
• Free cash flow (absolute measure
against SGS annual budget),
20% weight.
124
The relative performance on revenue growth, NPAT and TSR is measured by an independent consulting company, Obermatt.
Obermatt compares and ranks SGS amongst the performance of a selected peer group of companies which have been approved
by the Board of Directors because they have a comparable range of services, technology, customers, suppliers or investors and
thus, are exposed to similar market cycles. The intention of indexing performance against a peer group of companies is to reward
the relative performance of the company, where market factors that are outside the control of the executives are neutralised.
For each relative objective, the target is to reach at least the median performance of the peer group, which corresponds to 100%
vesting level. There is no vesting for a performance below the median of the peer group and the vesting level is capped at 150%
for performance at the upper quartile of the peer group. Any vesting level in between is interpolated linearly.
PEER GROUP
Adecco
Exova
SAI Global
ALS
Intertek
Securitas
Applus+
ISS
Sodexo
Bureau Veritas
Mistras
Team
Eurofins
Rentokil
For the free cash flow objective, the vesting level is predetermined as follows: for every percentage point of underachievement
below the target, the vesting level is reduced by 5%; for every percentage point of overachievement above target, the vesting level
is increased by 3%, to a maximum of 150%.
The overall vesting level of the PSUs granted will be calculated as a weighted average of each of the respective vesting levels for
relative TSR (40%), relative NPAT improvement (20%), relative organic revenue growth (20%) and free cash flow against budget
(20%) and ranges between 0% and 150%.
Number of Shares Allocated
at vesting
=
Number of PSUs originally granted
to the Participant
X
Overall vesting level (0-150%)
• CEO: three times the annual
base salary
• Other members of the Operations
Council: two times the annual
base salary
In the event of a substantial drop in
the share price, the Board of Directors
has the discretion to modify the SOG.
The determination of equity amounts
against the SOG is defined to include
vested shares allocated under the
Short-Term and Long-Term Incentive
plans, shares underlying vested and
unvested warrants granted under the
discontinued warrants plans and other
shares that are owned by the Operations
Council member directly or indirectly
(by “closely related persons”).
In case of termination of employment,
all unvested PSUs are immediately
forfeited without value and without
any compensation, except in the
following cases:
• In the event of a corporate transaction
or liquidation, unvested PSUs vest
immediately. The vesting level is based
on an estimation of performance by
the Board of Directors.
• In case of termination of employment
as a result of disability or retirement,
unvested PSUs vest on a pro rata
basis, based on the number of full
months of the performance period
that have expired until the termination
date. The shares are allocated after
the regular vesting date and the
vesting level is determined based on
the performance during the entire
regular performance period. There is
no early allocation of the shares.
• Upon termination of employment as
a result of death, unvested PSUs will
vest immediately on a pro rata basis,
based on the number of full months
of the performance period that have
expired until the termination date.
The vesting level is based on an
estimation of performance by the
Board of Directors.
The PSUs are subject to forfeiture
in cases where the executives act
in violation of the law or the internal
regulations of the SGS Group, such as
the code of integrity, or are in breach of
their obligations to the SGS Group.
The grants awarded under the
Long-Term Incentive plan take place
every three years (no annual grants).
3.2.4. Shareholding Ownership
Guideline
A shareholding ownership guideline
(SOG) has been introduced in 2015,
requiring the members of the
Operations Council to own at least
a certain multiple of their annual base
salary in SGS shares as follows:
125
7. SGS REMUNERATION REPORT
The Nomination and Remuneration
Committee reviews compliance with
the SOG on an annual basis. Until the
minimum requirement is met, 25%
of the shares allocated under the
Short-Term Incentive plan and all shares
allocated upon vesting of the PSUs
under the Long-Term Incentive plan
will be blocked.
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 129 in this Report. Swiss-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.
3.2.6. Employment Contracts
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. For
the Chief Executive Officer the notice
period is twelve months. 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.
3.2.7. Timeline of Remuneration
The following outlines the timeline of
payment of each remuneration element
that has been earned in 2015:
• The annual base salary is paid
during 2015
• The cash portion of the Short-Term
Incentive is paid in March 2016, shortly
after the Annual General Meeting
• The share portion of the Short-Term
Incentive is allocated in April 2016 and
will be unblocked in April 2019
• The PSUs granted under the Long-Term
Incentive in 2015 will be earned over
the performance period from 2015
to 2017 and will vest on 31 December
2017. Until that date, there is
no vesting under the Long-Term
Incentive plan.
TIMELINE (PERFORMANCE PERIOD, TIME OF PAYMENT
PERFORMANCE OBJECTIVES
7
1
0
2
.
2
1
.
1
3
g
n
i
t
s
e
V
n
o
i
t
a
c
o
l
l
a
s
e
r
a
h
S
-
n
U
LONG-TERM
INCENTIVE 2015
GRANT
SHORT-TERM
INCENTIVE
ANNUAL BASE
SALARY AND
BENEFITS
n
i
%
0
5
s
e
r
a
h
s
n
i
%
0
5
h
s
a
c
i
g
n
k
c
o
b
l
Relative organic revenue growth (20%)
Relative NPAT improvement (20%)
Relative TSR (40%)
Absolute free cash flow (20%)
Group revenue (25%)
Group NPAT (25%)
Role specific P&L (50%)
Multiplied by leadership multiplier
Fixed remuneration
2015
2016
2017
2018
2019
SHARE OWNERSHIP GUIDELINE
126
4. REMUNERATION AWARDED TO THE BOARD OF DIRECTORS
In 2015, the annual Board membership fee was CHF 150 thousand for all Board members, unchanged from the prior year.
Members of the Board of Directors 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 remuneration is disclosed on a fiscal year basis and the actual amounts paid correspond to pre-approved amounts
at the last Annual General Meeting.
The following chart details the fees and other cash benefits granted to each of the Directors for their tenure in 2015:
(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
C. Kirk
TOTAL
BOARD
FEE
COMMITTEE
FEE
OTHER
BENEFITS
TOTAL CASH
COMPENSATION 2015
TOTAL 2015
COMPENSATION
300
150
150
150
150
150
150
150
150
113
1 613
60
-
30
30
30
23
30
30
60
-
293
56
13
14
16
16
13
14
16
18
9
185
416
163
194
196
196
186
194
196
228
122
2 091
416
163
194
196
196
186
194
196
228
122
2 091
The following chart details the fees, other cash benefits and share options 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
TOTAL 2014
COMPENSATION
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
The overall compensation paid to the Board of Directors in 2015 increased compared to 2014 because of the appointment of a new
member, the former CEO Chris Kirk, on 13 March 2015.
The following table shows the details of the options ¹ granted to the Chairman of the Board under the discontinued Annual Share
Option Plans and Long-Term Incentive plans. Note: options have no longer been granted to the Chairman since 2014 year-end.
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 2015
NUMBER VESTED
ON 31 DECEMBER 2014
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
50 000
26 667
50 000
100 000
50 000
33 333
26 667
25 000
-
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
127
7. 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 2015. All amounts disclosed in this section
include the Short-Term Incentive cash amount and restricted shares that will be granted in April 2016 with respect to performance
in 2015 (disclosure according to the accrual principle).
5.1. PERFORMANCE IN 2015
The table below summarises the financial performance of SGS Group and its businesses in 2015 on the financial objectives
(revenue, profitability, capital efficiency):
GROUP REVENUE
GROUP NPAT
GROUP ROIC
REGION AND BUSINESS LINE PROFIT
REGIONAL CERTIVVA
5.2. CASH COMPENSATION
(CHF thousand)
To the Operations Council (including Senior Management)
To Senior Management (including Chief Executive Officer)
To the Chief Executive Officer
Former Incumbent (pro rata)
Current Incumbent (pro rata)
PERFORMANCE ASSESSMENT
achieved
achieved
outperformed
achieved
outperformed
2015
13 305
3 143
1 943
852
1 091
2014
11 607
2 559
1 649
1 649
-
The total cash compensation paid to the Operations Council includes the annual base salaries, the cash portion of the
Short-Term Incentive, and any other cash allowances, including allowances paid to individual members in respect of vehicle,
housing and schooling. Post-employment benefits of CHF 1 081 thousand are not included (2014: CHF 1 046 thousand).
Employer's contributions to social benefits are excluded as well. The overall higher cash compensation is explained by the overlap
of incumbents on the CEO position and one EVP position.
The achievement of financial targets at Group level, in the businesses and in the regions ranges from 79.3% to 138.2% (2014: 77.2%
to 107.7%). The overall Short-Term Incentive payout amounts to 107.1% for the CEO (2014: 123.6%) and ranges from 53.9% to
158.9% for the members of the Operations Council (2014: 42.6% to 148%). For the purpose of the Short-Term Incentive, targets
and performance achievement are measured at constant currency exchange rates.
5.3. SHARE-BASED COMPENSATION
5.3.1. Restricted Shares
In settlement of 2015 Short-Term Incentive, SGS restricted shares will be allocated to the Operations Council (including Senior
Management) in April 2016 (2014: 1 319 249 SGSPF share options were granted in February 2015). The shares are allocated
at their fair market value, being defined as the average closing price of the share during a 20-day period following the payment
of the dividends after the Annual General Meeting, and are restricted for a period of three-years.
5.3.2. Long-Term Incentive Plan
Under the 2015 LTI Plan, a total of 14 570 PSUs were granted to the Operations Council members (including Senior Management)
in 2015. The Senior Management was awarded a total of 3 772 PSUs, which includes 2 346 PSUs awarded to the Chief Executive
Officer. The vesting date of such PSU is 31 December 2017. The vesting is conditional upon the Group achieving or exceeding
its financial targets over the three-year performance period (2015-2017) of relative organic revenue growth, relative NPAT
improvement, relative TSR and absolute free cash flow.
The value of the PSUs granted in 2015 measured at the grant date fair value does not exceed the maximum amount of CHF 30 million
approved at the Annual General Meeting 2015.
128
5.3.3. Discontinued Share Option Plans
The following table presents details of the share options awarded to members of the Operations Council, Senior Management and
the CEO, active at 31 December 2015, and shows those options which have been granted, vested and/or became exercisable in 2015.
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 2015
NUMBER VESTED ON
31 DECEMBER 2014
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT AND CHIEF EXECUTIVE OFFICER)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI
SGSBB (2015)
1 617
1 497
2 013
2 059
1 617
1 798
573 909
651 925
807 068
612 341
2 840 000
921 319
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI
SGSBB (2015)
CHIEF EXECUTIVE OFFICER
SGSMF (2011)
SGSKF (2012)
SGSWS (2013)
SGSPF (2014)
SGSMF-2011 LTI
SGSBB (2015)
1 617
1 497
2 013
2 059
1 617
1 798
1 617
1 497
2 013
2 059
1 617
1 798
80 149
102 676
89 895
89 928
320 000
145 545
46 227
61 621
46 632
23 464
200 000
82 727
1. One hundred options give the right to acquire one share.
2. Before adjustment for capital reductions and special dividends.
1 636
1 734
1 800
1 543
8 094
2 045
228
273
200
227
912
323
132
164
104
59
570
184
572 241
651 925
538 045
408 227
1 405 000
307 106
80 149
102 676
59 930
59 952
160 000
48 515
46 227
61 621
31 088
15 643
100 000
27 576
572 241
434 617
538 045
204 114
-
-
80 149
68 451
59 930
29 976
-
-
46 227
41 081
31 088
7 821
-
-
5.4. TOTAL COMPENSATION TO THE OPERATIONS COUNCIL, SENIOR MANAGEMENT AND CHIEF EXECUTIVE OFFICER
The tables below present all components of the remuneration earned in 2014 and 2015 by the Operations Council, by the Senior
Management and by the Chief Executive Officer.
Total compensation for 2015:
(CHF thousand)
To the Operations Council
(including Senior Management) 3
To Senior Management
(including Chief Executive Officer) 4
To the Chief Executive Officer
Former Incumbent (pro rata)
Current Incumbent (pro rata)
BASE
SALARY
CONTRIBUTION
TO PENSION
BENEFITS
OTHER
EMPLOYMENT
BENEFITS
ANNUAL
CASH
BONUS
ANNUAL GRANT
OF RESTRICTED
SHARES 1
LONG-TERM
INCENTIVE
PSUs GRANT 2
TOTAL 2015 COMPENSATION
(INCLUDING RESTRICTED
SHARES AND PSU)
8 205
1 081
3 508
2 944
2 680
13 468
31 886
1 950
1 140
496
644
260
148
50
98
841
614
404
210
731
438
93
345
731
438
93
345
3 487
2 169
-
2 169
8 000
4 947
1 136
3 811
1. Restricted Shares that will be granted in April 2016.
2. Valuation of the Performance Share Units (PSUs) granted under the 2015-2017 Long-Term Incentive plan (LTI) according to IFRS2. PSUs vesting is subject to company
performance conditions. As per Swiss law requirements, the total valuation of the 3-year period has to be disclosed when PSUs are granted contrary to IFRS
(valuation disclosed over the LTIP 3-year period).
3. 24 FTE (Full Time Equivalent).
4. 3 FTE.
129
7. SGS REMUNERATION REPORT
Total compensation for 2014:
(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 2014
COMPENSATION
(INCLUDING
OPTIONS)
7 680
1 046
2 198
2 603
2 929
1 576
1 000
271
172
344
216
814
577
828
689
75
75
-
16 531
3 908
2 654
In the year under review, the highest compensation paid by the Group was awarded to the Chief Executive Officer.
The following charts illustrate 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 Short-Term
Incentive due to underperformance), at maximum (maximum payout under the Short-Term Incentive plan) and at actual levels
achieved in 2015. The charts exclude Long-Term Incentive grants.
CEO REMUNERATION MIX
OPERATION COUNCIL (EXCLUDING CEO)
REMUNERATION MIX (ON AVERAGE)
(CHF thousand)
(CHF thousand)
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
2015
Target
Minimum
Maximum
Actuals
2015
Annual Base Salary Annual Bonus (cash) Annual Bonus (shares)
Annual Base Salary Annual Bonus (cash) Annual Bonus (shares)
In 2015, the variable actual remuneration of the Chief Executive Officer represented 44% of the total actual compensation (2014:
56%), split in cash (22%) and restricted shares (22%). For the Operations Council, including Senior Management, the variable
remuneration amounted to 41% of the total compensation on average (2014: 42%), split in cash (21%) and options (20%). Total
compensation includes the fixed remuneration (base salary) and the variable remuneration paid out for 2015 (Short-Term Incentive
in cash and restricted shares). It excludes fringe and social benefits.
5.5. OTHER COMPENSATION
5.5.1. Severance Payments
All employment contracts for current Operations Council members have been amended in 2015, aligning with the timing and
requirements under the Minder Ordinance. There was an exception for one member of the Operations Council, who stepped
down on 30 September 2015 according to the terms of his pre-existing contractual arrangements. His compensation reflected
in the separation agreement for the financial year amounts to CHF 350 000 (2014: CHF 0).
5.5.2. Loans to Members of Governing Bodies
As at 31 December 2015, no loan, credit or outstanding advance was due to the Group from members of its governing bodies
(unchanged from prior year).
130
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 2015, presented
on pages 127 to 130.
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 sections 4 and 5 of 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 2015 comply with Swiss
law and articles 14 – 16 of the Ordinance.
DELOITTE SA
James Baird
Licensed Audit Expert
Auditor in Charge
Geneva, 8 February 2016
Fabien Bryois
Licensed Audit Expert
131
8. SGS GROUP RESULTS
8. SGS GROUP RESULTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
NOTES
2015
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 and 12
5
6
7
8
9
9
5 712
(2 849)
(345)
(322)
(1 374)
822
917
(64)
(21)
(10)
-
822
13
(56)
779
(195)
584
549
35
71.99
71.95
68.00 1
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
Actuarial (losses)/gains on defined benefits plans
Income tax on actuarial (losses)/gains 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/(LOSS) FOR THE YEAR
Profit for the year
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Attributable to:
Equity holders of SGS SA
Non-controlling interests
2015
(40)
9
(31)
(254)
(254)
(285)
584
299
266
33
2014
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
2014
(100)
26
(74)
82
82
8
666
674
643
31
1. In 2015, exchange differences included net exchange gain of CHF 40 million on long-term loans treated as net investment in a foreign entity according to International
Accounting Standard (IAS) 21 (2014: gain of CHF 14 million).
In 2015, this amount included less than CHF 1 million of adjustments due to the marketable securities recognised as financial instrument available for sale (2014: nil).
134
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
2015
2014
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
964
1 088
218
32
173
142
2 617
288
917
338
244
1 490
3 277
5 894
8
2 222
(324)
1 906
75
1 981
2 214
60
181
97
2 552
3
526
19
159
654
1 361
3 913
5 894
10
11
12
8
13 and 24
14
15
16
17
18
22
22
23
8
24
25
23
26
25
27
135
8. SGS GROUP RESULTS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
Profit for the year
Other non-cash items
Decrease/(Increase) in working capital
Taxes paid
Core operating cash flow
Pension funds special contribution 1
CASH FLOW FROM OPERATING ACTIVITIES
NOTES
19
19
Purchase of land, buildings, equipment and other intangible assets
10 and 12
Net (acquisition) of businesses
3 and 19
(Increase)/decrease in other non-current assets
(Increase)/decrease in marketable securities and other
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 flows related to Interest Rate Swaps
(Decrease)/Increase 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
1. See note 24.
2015
584
541
160
(223)
1 062
(103)
959
(301)
(104)
-
(248)
13
15
(625)
(522)
(34)
(2)
81
(228)
549
(55)
16
(15)
(210)
25
149
1 341
149
1 490
2014
666
559
(109)
(204)
912
-
912
(305)
(114)
(4)
1
9
13
(400)
(499)
(24)
1
31
-
362
(43)
2
2
(168)
33
377
964
377
1 341
136
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
(179)
111
(758)
(133)
3 094
2 143
-
629
629
69
37
2 212
666
8
-
-
-
-
-
-
-
8
-
-
-
-
-
-
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
(154)
121
(670)
(207)
3 229
2 327
76
2 403
8
(154)
121
(670)
(207)
3 229
2 327
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(170)
-
-
-
-
9
-
-
-
-
-
549
549
(252)
(31)
-
(283)
(252)
(31)
549
266
-
-
-
-
-
-
-
-
-
-
-
(1)
9
(1)
(24)
(24)
21
149
8
(324)
130
(922)
(238)
3 252
1 906
76
35
(2)
33
2 403
584
(285)
299
-
-
-
-
75
9
(1)
(24)
(149)
1 981
(522) 2
(522)
(34)
(556)
(CHF million)
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
BALANCE AT
1 JANUARY 2015
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
Deferred tax on pension
funds special contribution
Movement on treasury shares
BALANCE AT
31 DECEMBER 2015
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.
137
8. 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 AND
EXCHANGE RATES
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 2015. 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 2014 consolidated
financial statements, except for the
Group’s adoption of new IFRS effective
1 January 2015.
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 IN-
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 200 to 203.
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.
TERNATIONAL FINANCIAL REPORTING
STANDARDS
In the current year, the Group has
adopted the following Amendments,
Improvements and Interpretations:
Current year adoption
• Amendments to IAS 19: Defined
Benefit Plans - Employee
Contributions
• Annual Improvements to IFRSs
Issued but not yet effective
• IFRS 9 Financial Instruments
(as revised in 2014)
• IFRS 15 Revenue from Contracts
with Customers
• IFRS 16 Leases
• 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
• Amendments to IFRS 10 and IAS 28:
Sale 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
• Amendments to IAS 1:
Disclosure Initiative
• Amendments to IFRS 10, IFRS 12
and IAS 28: Investment Entities:
Applying the Consolidation Exception
The directors are assessing the future
impacts resulting of the adoption of
these new Standards, Improvements,
Amendments and Interpretations on
the consolidated financial statements.
138
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
139
8. 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, operating
margins 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
140
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.
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 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.
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 assets and 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. Hedge accounting
was discontinued in 2015 with the
termination of Interest Rate Swap.
EMPLOYEE BENEFITS
Pension Plans
The Group maintains several defined
benefit and defined contribution pension
plans in accordance with local conditions
and practices in the countries in which it
operates. Defined benefit pension plans
are based on an employee’s years of
service and remuneration earned during
a pre-determined period. Contributions
to these plans are normally paid into
funds which are managed independently
of the Group, except in rare cases where
there is no legal obligation to fund.
In such cases, the liability is recorded in
the Group’s consolidated balance sheet.
141
8. SGS GROUP RESULTS
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 non-pension
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 equity-linked instruments granted
to senior executives and employees
under these plans.
TRADE PAYABLES
Trade payables are recognised at nominal
value that approximates the fair value.
PROVISIONS
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 2015, the Board of Directors of SGS
SA authorised a new share buyback
program of up to CHF 750 million. Up to
CHF 500 million is designated for capital
reduction through cancellation of the
repurchased shares and up to CHF 250
million for employee equity participation
plans and/or utilisable as underlying
securities for potential issuances of
convertible bonds. The program started
on 29 January 2015 and will close on
30 December 2016 at the latest.
Treasury shares are intended primarily
to be used to cover the Group’s
employee equity participation plan
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.
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.
RESTRUCTURING COSTS
The Group recognises costs of
restructuring against operating income
in the period in which management has
committed to a formal plan, the costs
of which can be reliably estimated,
and has raised a valid expectation
in those affected that the plan will
be implemented and the related
costs incurred. Where appropriate,
restructuring costs include impairment
charges arising from implementation
of the formal plan.
142
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 applicable
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.
143
8. SGS GROUP RESULTS
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.
EXCHANGE RATES
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
Korea
India
Taiwan
USA
KRW
INR
TWD
USD
100
100
100
100
100
100
100
100
100
100
100
3. BUSINESS
COMBINATIONS
The following business combinations
and occurred during 2015 and 2014:
ACQUISITIONS 2015
In 2015, the Group completed 10
acquisitions for a total purchase price
of CHF 128 million (note 20).
SVA Ltd.
Effective 15 May 2015, SGS acquired for
a purchase price of CHF 39 million, 100%
of SVA Ltd., an independent provider of
advisory, testing and regulatory services
for the food and consumer products
industry, based in United Kingdom.
YEAR-END RATES
ANNUAL AVERAGE RATES
2015
72.24
25.64
71.54
0.14
15.28
108.42
146.91
0.08
1.49
3.01
99.15
2014
80.59
36.54
84.92
0.16
15.92
120.22
153.47
0.09
1.55
3.11
98.76
2015
72.44
29.37
75.45
0.15
15.32
106.91
147.19
0.09
1.50
3.03
96.26
2014
82.49
38.96
82.86
0.16
14.85
121.47
150.69
0.09
1.50
3.02
91.48
SIGA
Effective 1 October 2015, SGS acquired
for a purchase price of CHF 43 million,
70% of SIGA Ingeniera Consultoria SA,
a leading project management, technical
inspection and engineering consulting
company in Chile.
Other
In 2015, other acquisitions included:
• 100% of AirServices Estudos
e Avaliaçôes Ambientais Ltda.,
performing air emission monitoring
and testing, as well as environmental
studies, based in Sao Paulo, Brazil
(effective 1 February 2015);
• 100% of Cronolab Referência em
Análises Químicas e Ambientais
Ltda., providing water, soil and
air testing, with a special focus on
dioxins and furans, based in
Rio de Janeiro, Brazil (effective
1 February 2015);
144
144
• 100% of Radiation Safety Services
Pty Ltd. (RSS), providing transport
and disposal of radioactive sources,
compliance, calibration, audit and
survey, radiation officer training and
other training and consulting services
related to radiation, headquartered
in Mackay, Australia (effective
1 March 2015);
• 100% of Western Radiation Services
Pty Ltd. (WRS), specialising in the
analysis of water, soils, sediment
and food for radioactive materials
operating out of Perth, Australia
(effective 1 March 2015);
• 100% of Testing Services Group LLC
(TSG), a provider of fuel systems
testing for global customers in the
automotive, small engine, marine,
portable fuel container and US
government markets, based in
Michigan, USA (effective 1 May 2015);
These companies were acquired for
an equivalent of CHF 74 million and
the total goodwill generated on
these transactions amounted to
CHF 48 million.
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.
• 100% of DLH, a provider of vehicle
Other
inspections services, headquartered in
Lyon, France (effective 1 June 2015);
• 100% of Le Brigand NDT, a provider
of non-destructive testing services on
composite and metallic structures for
the aviation industry, based in Nantes,
France (effective 2 October 2015);
• 100% of Quality Compliance
Laboratories Inc (QCL), a GMP
compliant laboratory providing
analytical testing to the pharmaceutical,
nutraceutical and cosmeceutical
industries, based in Toronto, Canada
(effective 8 December 2015).
These companies were acquired for
an equivalent of CHF 46 million and
the total goodwill generated on these
transactions amounted to CHF 35 million
(note 20).
Total
All the above transactions contributed
in total CHF 45 million in revenues and
CHF 9 million in operating income. Had
all acquisitions been effective 1 January
2015, the revenues for the period would
have increased by CHF 110 million and
the Group operating income for the
period would have been increased by
CHF 16 million. None of the goodwill
arising on these acquisitions is expected
to be tax deductible.
DIVESTMENTS 2015
There were no significant disposals
in 2015.
ACQUISITIONS 2014
In 2014, the Group completed 10
acquisitions for a total purchase price
of CHF 119 million.
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.
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 and
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).
145145
8. SGS GROUP RESULTS
4. INFORMATION BY BUSINESS AND GEOGRAPHICAL SEGMENT
(CHF million)
2015
Agricultural Services
Minerals Services
Oil, Gas and Chemicals Services
Life Science Services
Consumer Testing Services
Systems and Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments and Institutions Services
TOTAL
REVENUE
ADJUSTED
OPERATING
INCOME
AMORTISATION
OF ACQUISITION
INTANGIBLES
RESTRUCTURING
COSTS
OTHER
NON-
RECURRING
ITEMS
OPERATING
INCOME
BY BUSINESS
368
633
1 119
211
1 133
419
884
367
318
260
5 712
64
89
129
23
270
71
100
47
62
62
917
-
(1)
(3)
(2)
(2)
-
(5)
(2)
(6)
-
(21)
Unallocated costs
GROUP OPERATING INCOME
(5)
(24)
(8)
(1)
(7)
(6)
(9)
(1)
(2)
(1)
(64)
-
-
-
-
-
-
-
-
-
-
-
59
64
118
20
261
65
86
44
54
61
832
(10)
822
(CHF million)
2014
Agricultural Services
Minerals Services
Oil, Gas and Chemicals Services
Life Science Services
Consumer Testing Services
Systems and Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments and Institutions Services
TOTAL
REVENUE
ADJUSTED
OPERATING
INCOME
AMORTISATION
OF ACQUISITION
INTANGIBLES
RESTRUCTURING
COSTS
OTHER
NON-
RECURRING
ITEMS 1
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
-
(10)
-
-
-
-
-
(1)
-
-
(11)
-
-
-
-
-
-
-
-
-
32
32
64
88
141
18
269
74
117
31
56
90
948
(7)
941
1. This amount represents the amicable settlement between SGS and the Republic of Paraguay of a long standing dispute associated with unpaid inspection services.
146
The revenues reported represent revenue generated from external customers.
UNALLOCATED COSTS 2015
In 2015, the Group incurred CHF 10 million of integration-related costs and transaction-related costs that have been expensed
in accordance with IFRS 3 (revised).
RESTRUCTURING COSTS 2015
At the same time, the Group incurred a pre-tax restructuring charge of CHF 64 million, largely as a result of personnel
reorganisation due to the decline in market conditions in certain businesses and geographies (CHF 30 million) as well as fixed asset
impairment and other charges (CHF 34 million).
UNALLOCATED COSTS 2014
In 2014, the Group incurred CHF 7 million of integration-related costs and transaction-related costs that were expensed in
accordance with IFRS 3 (revised).
RESTRUCTURING COSTS 2014
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 asset impairment and
other charges (CHF 8 million).
(CHF million)
2015
%
2014
REVENUE FROM EXTERNAL CUSTOMERS BY GEOGRAPHICAL SEGMENT
Europe/Africa/Middle East
Americas
Asia Pacific
TOTAL
2 553
1 432
1 727
5 712
44.7
25.1
30.2
100.0
2 709
1 433
1 741
5 883
%
46.0
24.4
29.6
100.0
Revenue in Switzerland from external customers for 2015 amounted to CHF 227 million (2014: CHF 232 million). No country
represented more than 15% of revenues from external customers in 2015 or 2014.
MAJOR CUSTOMER INFORMATION
In 2015 and in 2014, 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 and Chemicals Services
Life Science Services
Consumer Testing Services
Systems and Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments and Institutions Services
TOTAL
2015
246
549
912
239
735
243
699
350
415
209
4 597
%
5.4
11.9
19.8
5.2
16.0
5.3
15.2
7.6
9.0
4.6
100.0
147
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
8. SGS GROUP RESULTS
(CHF million)
2015
2014
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
4 597
1 297
5 894
4 798
969
5 767
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
2015
206
2 230
2 436
%
8.5
91.5
100.0
2014
114
2 337
2 451
%
4.6
95.4
100.0
No country represented more than 15% of the specific non-current assets in 2015 or 2014.
(CHF million)
2015
2014
RECONCILIATION WITH TOTAL NON-CURRENT ASSETS
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 and Chemicals Services
Life Science Services
Consumer Testing Services
Systems and Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments and Institutions Services
TOTAL
(CHF million)
2015
129
221
392
74
396
147
309
128
111
91
1 998
%
6.4
11.1
19.6
3.7
19.8
7.3
15.5
6.4
5.6
4.6
100.0
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
148
2 436
173
8
2 617
2014
134
243
415
74
378
143
338
118
105
86
2 034
2 451
195
2
2 648
%
6.6
12.0
20.4
3.6
18.6
7.0
16.6
5.8
5.2
4.2
100.0
2015
2014
1 998
1 915
3 913
2 034
1 330
3 364
(CHF million)
CAPITAL ADDITIONS BY BUSINESS SEGMENT
Agricultural Services
Minerals Services
Oil, Gas and Chemicals Services
Life Science Services
Consumer Testing Services
Systems and Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments and Institutions Services
TOTAL
(CHF million)
2015
15
29
64
15
93
5
30
22
18
16
307
2015
DEPRECIATION AND AMORTISATION BY BUSINESS SEGMENT
Agricultural Services
Minerals Services
Oil, Gas and Chemicals Services
Life Science Services
Consumer Testing Services
Systems and Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments and Institutions Services
TOTAL
12
37
57
14
80
5
34
22
21
13
295
%
2014
%
4.9
9.4
20.8
4.9
30.3
1.6
9.8
7.2
5.9
5.2
100.0
17
32
75
16
91
5
30
19
16
11
312
5.5
10.3
24.0
5.1
29.2
1.6
9.6
6.1
5.1
3.5
100.0
%
2014
%
4.0
12.5
19.2
4.7
26.9
1.7
11.4
7.8
7.1
4.7
100.0
13
43
56
14
74
5
36
22
22
13
298
(CHF million)
2015
%
2014
IMPAIRMENT BY BUSINESS SEGMENT
Agricultural Services
Minerals Services
Oil, Gas and Chemicals Services
Life Science Services
Consumer Testing Services
Systems and Services Certification
Industrial Services
Environmental Services
Automotive Services
Governments and Institutions Services
TOTAL
3
16
-
-
1
5
2
-
-
-
27
-
5
-
-
1
-
-
-
-
-
6
11.1
59.3
-
-
3.7
18.5
7.4
-
-
-
100.0
149
4.4
14.4
18.8
4.7
24.8
1.7
12.1
7.4
7.4
4.3
100.0
%
0.0
83.3
0.0
0.0
16.7
0.0
0.0
0.0
0.0
0.0
100.0
8. SGS GROUP RESULTS
AVERAGE NUMBER OF EMPLOYEES BY GEOGRAPHICAL SEGMENT
Europe/Africa/Middle East
Americas
Asia Pacific
TOTAL
Number of employees at year-end
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
Loss/(gain) arising on an Interest Rate Swap 1
(Gain)/loss 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.
150
2015
2014
34 721
19 873
31 309
85 903
87 962
33 542
19 191
30 782
83 515
84 246
2015
279
375
98
357
265
1 374
2015
11
1
1
13
2015
36
13
15
(15)
5
2
56
2014
287
400
103
377
219
1 386
2014
16
0
1
17
2014
40
14
(20)
20
2
2
58
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
2015
214
(19)
195
2014
223
11
234
The Group has operations in various countries that have differing tax laws and rates. Consequently, the effective tax rate on
consolidated income varies from year to year. A reconciliation between the reported income tax expense and the amount that would
arise using the weighted average statutory tax rate of the Group is as follows:
(CHF million)
RECONCILIATION OF TAX EXPENSE
Profit before taxes
Tax at the domestic rates applicable to the profits earned
in the country concerned
Tax effect of non-deductible or non-taxable items
Tax charge from/(usage of) unrecognised tax losses
Non-creditable foreign withholding taxes
Other
TAX CHARGE
2015
779
140
10
1
34
10
195
2014
900
173
8
2
31
20
234
(CHF million)
ASSETS
LIABILITIES
ASSETS
LIABILITIES
2015
2014
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
33
8
21
36
8
67
173
9
18
-
17
16
-
60
30
17
36
66
8
38
195
12
27
-
17
18
-
74
151
8. SGS GROUP RESULTS
Net change in deferred tax assets/(liabilities):
(CHF million)
NET DEFERRED INCOME TAX ASSET (LIABILITY) AT 1 JANUARY 2014
(Charged)/credited to the income statement
Credited/(charged) to the shareholders' equity 1
Exchange differences and other
NET DEFERRED INCOME TAX ASSET (LIABILITY) AT 31 DECEMBER 2014
Credited/(charged) to the income statement
(Charged)/credited to the shareholders' equity 1
Exchange differences and other
NET DEFERRED INCOME TAX ASSET (LIABILITY) AT 31 DECEMBER 2015
TOTAL
107
(11)
26
(1)
121
19
(15)
(12)
113
1. Relate to remeasurement gains and losses on pensions. (2015: CHF 9 million, 2014: CHF 26 million) and pension funds special contribution [2015: CHF (24) million,
2014: CHF 0 million].
(CHF million)
REFLECTED IN THE BALANCE SHEET AS FOLLOWS:
Deferred tax assets
Deferred tax liabilities
TOTAL
2015
173
(60)
113
2014
195
(74)
121
The Group has unrecognised tax losses carried forward amounting to CHF 46 million (2014: CHF 49 million) of which none will
expire within the next five years. No tax losses carried forward expired in 2015.
At 31 December 2015, the retained earnings of subsidiaries and foreign incorporated joint ventures consolidated by the Group include
approximately CHF 4 125 million (2014: CHF 3 912 million) of undistributed earnings 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.
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)
2015
549
2014
629
7 626 002
7 670 752
71.99
81.99
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)
2015
549
2014
629
7 630 172
7 702 444
71.95
81.65
152
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)
2015
549
21
47
8
-
625
81.95
81.91
2014
629
20
8
5
(28)
634
82.69
82.35
10. LAND, BUILDINGS AND EQUIPMENT
LAND AND
BUILDINGS
MACHINERY
AND EQUIPMENT
OTHER TANGIBLE
ASSETS
TOTAL
(CHF million)
2015
COST
At 1 January
Additions
Acquisition of subsidiaries
Disposals
Exchange differences/other
At 31 December
ACCUMULATED DEPRECIATION AND IMPAIRMENTS
At 1 January
Depreciation
Impairment
Acquisition of subsidiaries
Disposals
Exchange differences/other
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2015
477
8
-
(12)
(29)
444
229
16
13
-
(8)
(20)
230
214
1 750
165
10
(40)
(122)
1 763
1 195
173
4
6
(37)
(98)
1 243
520
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 2015
2
2
-
-
-
-
153
660
102
4
(41)
(82)
643
420
56
3
2
(38)
(30)
413
230
-
-
-
2 887
275
14
(93)
(233)
2 850
1 844
245
20
8
(83)
(148)
1 886
964
2
2
-
8. SGS GROUP RESULTS
(CHF million)
2014
COST
At 1 January
Additions
Acquisition of subsidiaries
Disposals
Exchange differences/other
At 31 December
ACCUMULATED DEPRECIATION AND IMPAIRMENTS
At 1 January
Depreciation
Impairment
Acquisition of subsidiaries
Disposals
Exchange differences/other
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2014
LAND AND
BUILDINGS
MACHINERY
AND EQUIPMENT
OTHER TANGIBLE
ASSETS
TOTAL
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
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
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
At 31 December 2015, the Group had commitments of CHF 4 million (2014: 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 24 million (2014: CHF 12 million).
11. GOODWILL
(CHF million)
COST
At 1 January
Additions
Exchange differences
AT 31 DECEMBER
2015
2014
1 105
85
(102)
1 088
1 009
84
12
1 105
Goodwill impairment reviews have been conducted for goodwill balances allocated to more than 60 cash generating units (CGU).
The goodwill balances tested account for 99.4% of the total goodwill net book value reported as at 31 December 2015.
No goodwill impairment was identified and therefore no impairment charge was recorded (2014: nil).
Detailed results of the impairment tests are presented below for larger goodwill balances (representing 42.4% of all goodwill items
tested). These tests have all been performed in accordance with the Group's uniform method described on page 140.
154
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 128 million as at 31 December 2015
(2014: CHF 142 million).
The recoverable amount of the CGU,
determined based upon a value-in-use
calculation, is higher than its carrying
amount. Cash flow projections were
used in this calculation, discounted at
a pre-tax rate of 8.9%. The cash flows
for the first five years were based
upon financial plans approved by Group
Management while the subsequent
years assume a long-term growth rate
of 1.0% and stable operating margins.
The overall assumptions used in the
calculation are consistent with the
expected average growth rate of the
vehicle inspection business served in
Europe and South America.
The key sensitivity for the impairment
test is the growth in sales and operating
margin. Reducing the expected annual
revenue growth rates for the first five years
by 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 95 million as at 31
December 2015 (2014: CHF 104 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 6.0%. 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 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 71 million as at 31 December 2015
(2014: CHF 73 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 6.7%. 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.
155
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 56 million as at 31 December 2015
(2014: 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 7.3%. 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.
8. SGS GROUP RESULTS
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 57 million as at 31 December 2015
(2014: 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 6.0%. 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
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 AND 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 and
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 52 million as at 31 December 2015
(2014: CHF 57 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 Oil, Gas and 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.
12. OTHER INTANGIBLE ASSETS
TRADEMARKS
AND OTHER
CUSTOMER
RELATIONSHIPS
INTERNALLY
GENERATED
PURCHASED
TOTAL
COMPUTER SOFTWARE
AND OTHER ASSETS
(CHF million)
2015
COST
At 1 January
Additions
Acquisition of subsidiaries
Disposals
Exchange differences/other
At 31 December
81
-
3
-
(8)
76
ACCUMULATED AMORTISATION AND IMPAIRMENT
At 1 January
Amortisation
Impairment
Acquisition of subsidiaries
Disposals
Exchange differences/other
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2015
44
7
-
-
-
(4)
47
29
85
8
-
-
3
96
72
6
1
-
-
-
79
17
283
24
-
(5)
(19)
283
214
22
5
-
(6)
(10)
225
58
625
32
30
(5)
(39)
643
393
50
7
-
(6)
(19)
425
218
176
-
27
-
(15)
188
63
15
1
-
-
(5)
74
114
156
TRADEMARKS
AND OTHER
CUSTOMER
RELATIONSHIPS
INTERNALLY
GENERATED
PURCHASED
TOTAL
COMPUTER SOFTWARE
AND OTHER ASSETS
(CHF million)
2014
COST
At 1 January
Additions
Acquisition of subsidiaries
Disposals
Exchange differences/other
At 31 December
82
-
-
-
(1)
81
ACCUMULATED AMORTISATION AND IMPAIRMENT
At 1 January
Amortisation
Acquisition of subsidiaries
Disposals
Exchange differences/other
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2014
37
7
-
-
-
44
37
153
-
20
-
3
176
49
13
-
-
1
63
113
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
SIGNIFICANT INTANGIBLE ASSETS
The Group is improving 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 6 million (2014: CHF 5 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 or amounts receivable from third parties
Retirement benefit assets
Other non-current assets
TOTAL
2015
8
87
47
142
2014
1
-
48
49
Depending on the nature of the balances, currency and date of maturity, interest rates on long-term balances or loans to third
parties range between 0% and 16.8%.
In 2015, other non-current assets includes deposits for guarantees and include CHF 28 million (2014: CHF 27 million) of restricted
cash. Typical examples of restricted cash are cash deposits for performance bonds, rentals and other operating obligations.
At 31 December 2015 and 2014, the fair value of the Group's other non-current assets approximates the carrying value.
157
8. 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
2015
61
187
40
288
2015
1 015
(98)
917
361
372
79
40
65
0
917
2014
60
212
58
330
2014
1 178
(110)
1 068
446
401
102
49
70
0
1 068
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
2015
(110)
(1)
(18)
22
9
(98)
2014
(159)
(1)
(15)
66
(1)
(110)
158
Receivables aged less than 360 days are provided when the creditworthiness review indicates that the amounts may
become unrecoverable.
The Group provides fully for all trade accounts and notes receivable 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 2015 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
2015
69
22
-
247
338
2014
76
22
15
258
371
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
2015
244
244
2014
9
9
This amount of CHF 244 million includes CHF 235 million of various investments in Exchange Traded Funds (ETF), denominated in USD.
Unrealised gains or losses on marketable securities designated as available for sale and which are recorded in equity amounted
to less than CHF 1 million for 2015 (2014: nil).
159
8. SGS GROUP RESULTS
18. CASH AND CASH EQUIVALENTS
(CHF million)
Cash and short-term deposits
Deposits on demand
Short-term loans
TOTAL
2015
955
535
-
1 490
2014
803
537
1
1 341
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 and 12
12
Amortisation of intangible assets
Net financial expenses
(Decrease)/increase in provisions and employee benefits
Share-based payment expenses
(Gain)/loss 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)
Decrease/(increase) in unbilled revenues and inventories
Decrease/(increase) in trade accounts and notes receivable
(Increase)/decrease in other receivables and prepayments
Increase/(decrease) in trade and other payables
Increase/(decrease) in other creditors and accruals
Increase/(decrease) in other provisions
DECREASE/(INCREASE)IN WORKING CAPITAL
2015
245
27
50
43
(22)
9
(5)
(1)
195
541
2015
10
64
(12)
36
50
12
160
2014
247
6
51
41
(28)
10
-
(2)
234
559
2014
(2)
(90)
(25)
(4)
29
(17)
(109)
160
19.3. CASH FLOWS ARISING FROM ACQUISITIONS OF BUSINESSES
(CHF million)
Tangible and other long-term assets
Intangible assets
Current assets excluding cash and cash equivalents
Cash and cash equivalents
Current liabilities
Non-current liabilities
Non-controlling interests
NET IDENTIFIABLE ASSETS ACQUIRED OR DIVESTED
Acquired/(divested) cash and cash equivalents
SUBTOTAL
Goodwill
Consideration payable
Payments on prior year acquisitions
Prepayment on acquisitions
NET CASH FLOWS
2015
ACQUISITIONS
2014
ACQUISITIONS
(8)
(30)
(38)
(6)
21
12
6
(43)
6
(37)
(85)
22
(1)
(3)
(104)
(6)
(20)
(21)
(6)
11
7
-
(35)
6
(29)
(84)
5
(6)
-
(114)
Note 3 provides further information regarding acquisitions of businesses. All acquisitions were settled in cash.
20. ACQUISITIONS
ASSETS AND LIABILITIES ARISING FROM THE 2015 ACQUISITIONS
(CHF million)
Tangible and other long-term assets
Intangible assets
Trade accounts and notes receivable
Cash and cash equivalents
Current liabilities
Non-current liabilities
Non-controlling interests
NET ASSETS ACQUIRED
Goodwill
TOTAL PURCHASE PRICE
Acquired cash and cash equivalents
Consideration payable
Prepayment on acquisitions
NET CASH OUTFLOW ON ACQUISITIONS
SVA
FAIR VALUE ON
ACQUISITION
SIGA
FAIR VALUE ON
ACQUISITION
OTHER
FAIR VALUE ON
ACQUISITION
TOTAL
FAIR VALUE ON
ACQUISITION
3
11
3
3
(3)
(2)
-
15
24
39
(3)
(9)
-
27
2
14
21
2
(9)
(7)
(6)
17
26
43
(2)
(7)
-
34
3
5
14
1
(9)
(3)
-
11
35
46
(1)
(6)
3
42
8
30
38
6
(21)
(12)
(6)
43
85
128
(6)
(22)
3
103
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 and future earn-out payments.
The Group incurred transaction-related costs of CHF 4 million (2014: 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.
161
8. 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 certain exposure to interest and credit risks and no exposure to equity price risk.
(CHF million)
2015
2014
2015
2014
2015
2014
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)
Indian Rupee (INR)
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
(54)
(27)
(19)
(23)
19
(10)
-
(318)
72
15
(4)
(7)
(2)
4
(4)
(7)
(5)
3
(14)
(417)
(23)
(2)
(823)
(1)
1
1
(1)
1
-
-
-
(2)
-
-
-
-
-
-
-
-
-
-
4
2
(1)
5
(1)
(1)
-
1
-
(1)
-
6
-
-
-
-
-
-
-
-
-
1
-
(1)
-
-
4
(1)
1
1
(1)
1
-
-
-
(2)
-
-
-
-
-
-
-
-
-
-
4
2
(1)
5
(1)
(1)
-
1
-
(1)
-
6
-
-
-
-
-
-
-
-
-
1
-
(1)
-
-
4
(45)
(40)
(14)
(26)
20
(10)
(2)
(409)
31
267
-
(4)
-
3
-
(8)
(6)
(3)
(16)
(117)
(37)
(2)
(418)
162
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.
Of marketable securities, CHF 244 million (2014: CHF 9 million) qualify as Level 1, fair value measurement category.
Derivative assets (2015: CHF 22 million; 2014: CHF 37 million) and liabilities (2015: CHF 20 million; 2014: CHF 8 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
was measured using quoted interest rates and yield curves derived from quoted interest rates matching maturities of the contract.
The Interest Rate Swap was terminated during the year.
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 2015 is the carrying amount of financial
assets including derivatives.
Analysis of financial assets by class and category at 31 December 2015:
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
1 490
1 490
Trade receivables
Other receivables 1
Unbilled revenues
Receivables from 3rd parties
- non-current
Marketable securities
Derivatives
917
140
187
8
-
-
917
140
187
8
-
-
-
-
-
-
-
244
-
TOTAL FINANCIAL ASSETS
2 742
2 742
244
-
-
-
-
-
244
-
244
-
-
-
-
-
-
-
-
-
-
-
-
22
22
22
22
1 490
1 490
917
140
187
8
244
22
3 008
917
140
187
8
244
22
3 008
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.
163
8. SGS GROUP RESULTS
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
Receivables from 3rd parties -
non-current
Marketable securities
Derivatives 2
1 068
1 068
140
212
140
212
1
-
-
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
140
212
1
9
37
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.
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 2015:
AMORTISED
COST LOANS AND
RECEIVABLES
FAIR VALUE
AT FAIR VALUE THROUGH P&L
TOTAL
CARRYING
AMOUNT
FAIR VALUE
CARRYING
AMOUNT
FAIR VALUE
CARRYING
AMOUNT
FAIR VALUE
-
-
-
-
20
-
20
-
-
-
-
20
-
20
226
162
59
226
162
59
2 217
2 217
20
1
20
1
2 685
2 685
(CHF million)
Trade payables
Other payables and financial liabilities 1
Advances from clients
226
162
59
226
162
59
Loans and obligations under finance leases
2 217
2 217
Derivatives
Bank overdrafts
-
1
-
1
TOTAL FINANCIAL LIABILITIES
2 665
2 665
1. Excluding VAT and other tax related items.
In the fair value hierarchy, all financial liabilities qualify as level 2.
164
Analysis of financial liabilities by class and category at 31 December 2014:
AMORTISED
COST LOANS AND
RECEIVABLES
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.
Contractual maturities of financial liabilities including interest payments at 31 December 2015:
(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
531
29
30
402
19
1 403
10
1 472
(1 472)
374
6
6
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
1
-
-
-
-
-
-
-
-
TOTAL
915
36
36
403
19
1 403
The Group hedges its foreign exchange exposures on a net basis. The net gross settled derivative financial instruments of less than
1 million (2014: 11 million) represents the net nominal value expressed in CHF of the Group’s foreign currency contracts outstanding
at 31 December 2015.
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
165
8. SGS GROUP RESULTS
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 2015 and 2014, with all other variables remaining constant.
Sensitivity analysis at 31 December 2015 and 2014:
(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)
2015
2014
INCOME STATEMENT
IMPACT INCOME/(EXPENSE)
EQUITY IMPACT
INCREASE/(DECREASE)
INCOME STATEMENT
IMPACT INCOME/(EXPENSE)
EQUITY IMPACT
INCREASE/(DECREASE)
-
(2)
2
-
1
-
-
-
-
-
-
-
-
9
-
-
-
-
-
2
4
-
2
-
-
3
(1)
(2)
1
(1)
1
-
-
-
-
-
-
-
-
8
-
-
-
-
2
2
5
-
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 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, in 2014 the Company re-opened the bond maturing in
2022 and increased the amount by CHF 112 million to a total of CHF 250 million.
On 12 January 2015, the Group received a cash amount of CHF 15 million in relation with the termination of the Interest Rate
Swap agreement to market rates. At the same date, the Group terminated the hedge accounting in compliance with fair value
accounting principles.
In May 2015, the Company issued a 15-year CHF 225 million straight bond with a coupon of 0.875% and a 8-year CHF 325 million
straight bond with a coupon of 0.25%.
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.
If interest rates were 50 basis points higher/lower, the profit for the year ended 31 December 2015 would increase/decrease
by CHF nil (2014: nil).
166
166
22. SHARE CAPITAL AND TREASURY SHARES
SHARES IN CIRCULATION
TREASURY SHARES
TOTAL SHARES ISSUED
TOTAL SHARE CAPITAL
(CHF million)
BALANCE AT 1 JANUARY 2014
Treasury shares released into circulation
Treasury shares purchased
BALANCE AT 31 DECEMBER 2014
Treasury shares released into circulation
Treasury shares purchased for future
equity compensation plans
Treasury shares purchased for buyback
BALANCE AT 31 DECEMBER 2015
7 650 840
24 666
-
7 675 506
54 636
(45 778)
(78 904)
7 605 460
171 596
(24 666)
-
146 930
(54 636)
45 778
78 904
216 976
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 (2014: CHF 7 822 436) fully paid in and divided into 7 822 436 (2014: 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 2015, SGS SA held 216 976 treasury shares. The shares related to the share buyback are directly held by SGS SA,
while the shares to cover the option rights issued in previous periods are held by a subsidiary company.
In 2015, 54 636 treasury shares were sold to cover option rights and 45 778 were purchased for an average price of CHF 1 842.
As part of the share buyback programme, 78 904 shares were purchased this year for an average price of CHF 1 842.
In 2015, the Group Initiated a Share Buy-Back programme for a total of up to CHF 750 million. Up to CHF 500 million is designated
for cancellation and the remainder for employee equity participation plans and/or for utilisation as underlying securities for potential
issuances of convertible bonds. The program started on 20 January 2015 and will close 31 December 2016 at the latest.
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 12 March 2017.
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 equity participation 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 equity participation 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.
167167
8. SGS GROUP RESULTS
23. LOANS AND OBLIGATIONS UNDER LEASES
(CHF million)
Bank loans
Bank overdrafts
Corporate bonds
Finance lease obligations
TOTAL
Current
Non-current
2015
4
1
2 211
1
2 217
3
2 214
2014
16
4
1 668
2
1 690
18
1 672
Depending on the nature of the loan, currency and date of maturity, interest rates on long-term loans from third parties range
between 0.25% and 15.8% and on short-term loans from third parties range between 0% and 10.9%.
The loans from third parties exposed to fair value interest rate risk amount to CHF 2 215 million (2014: CHF 1 361 million) and
the loans from third parties exposed to cash flow interest rate risk amount to CHF 0.5 million (2014: CHF 328 million).
The fair value of the other corporate bonds was CHF 2 312 million (2014: CHF 1 456 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
27.05.2011 1
27.02.2014
27.02.2014
25.04.2014
08.05.2015
08.05.2015
FACE VALUE IN
CHF MILLION
COUPON IN %
YEAR OF
MATURITY
417
375
275
75
138
250
112
325
225
1.875
2.625
3.000
1.875
1.375
1.750
1.375
0.25
0.875
2016
2019
2021
2016
2022
2024
2022
2023
2030
ISSUE
PRICE IN %
100.346
100.832
100.480
99.591
100.517
101.019
101.533
100.079
100.245
REDEMPTION
PRICE IN %
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
1. 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%.
The Company re-opened the bond maturing in 2022 and increased the amount by CHF 112 million to a total of CHF 250 million.
168
In May 2015, the Company issued a 15-year CHF 225 million straight bond with a coupon of 0.875% and a 8-year CHF 325 million
straight bond with a coupon of 0.25%. The Group has listed all the bonds on the SIX Swiss Exchange.
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
2015
494
1
1
373
-
1 348
2 216
2014
16
75
2
-
373
1 222
1 688
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
2015
2 212
1
1
-
-
1
-
1
2014
1 673
-
1
4
-
2
7
1
2 216
1 688
LEASE OBLIGATIONS
2015
2014
1
-
-
-
-
-
1
2
-
-
-
-
-
2
LEASE OBLIGATIONS
2015
2014
-
-
-
-
-
-
-
1
1
-
-
-
-
-
-
-
2
2
169
8. SGS GROUP RESULTS
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 2015 of CHF 14 million (2014: CHF 14 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 2015, following changes in its status, an entity previously recognised as a subsidiary was qualified as a defined benefit plan
(employer fund) in Switzerland. Before the change in status, the Group decided to transfer funds in order to improve the structure
of the assets in the United States of America and the United Kingdom.
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 conversion rates.
As 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 Group also operates an employer fund. The assets are held separately from the Group. This foundation has unilateral power
to provide benefits and consequently has no obligations. Therefore, this foundation has no pension liabilities.
The weighted average duration of the expected benefit payment is approximately 16 years.
The Group expects to contribute CHF 7 million to this plan in 2016.
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 8 million to this plan in 2016.
170
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 to 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 2 million to this plan in 2016.
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 29 million to those plans in 2016.
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)
2015
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
373
(390)
(17)
(10)
-
(27)
241
(198)
43
-
-
43
214
(242)
(28)
(8)
-
(36)
84
(109)
(25)
(49)
-
(74)
912
(939)
(27)
(67)
-
(94)
The net liability of CHF 94 million includes CHF 87 million of pension fund assets recognised in the item Other Non-Current Assets
in Note 13 and CHF 181 million of pension fund liability recognised in the item Retirement Benefit Obligation in the balance sheet.
(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
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)
171
8. SGS GROUP RESULTS
Amounts recognised in the income statement:
(CHF million)
2015
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)
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
CH
8
-
-
8
8
-
8
CH
5
-
-
5
5
-
5
UK
USA
OTHER
TOTAL
2
(1)
1
2
3
(1)
2
(2)
1
1
-
(1)
1
-
4
2
-
6
4
2
6
12
2
2
16
14
2
16
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
Amounts recognised in the statement of other comprehensive income:
(CHF million)
2015
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
-
11
6
5
-
22
-
(13)
-
9
-
(4)
15
(7)
(4)
17
-
21
1
-
-
-
-
1
16
(9)
2
31
-
40
172
(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
Movements in the net asset/(liability) during the period:
(CHF million)
2015
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
Pension funds special contribution
Exchange differences
NET ASSET/(LIABILITY) AT 31 DECEMBER
(47)
(8)
(22)
7
43
-
(27)
17
(2)
4
5
20
(1)
43
(58)
-
(21)
3
40
-
(36)
(88)
(6)
(1)
11
-
10
(74)
(176)
(16)
(40)
26
103
9
(94)
(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)
173
8. SGS GROUP RESULTS
Change in the defined benefit obligation is as follows:
(CHF million)
2015
CH
UK
USA
OTHER
TOTAL
Opening present value of the defined benefit obligation
379
218
293
174
1 064
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
8
5
5
-
-
(14)
-
11
6
-
400
2
7
1
-
-
(8)
-
(13)
-
(9)
198
3
11
1
-
(47)
(15)
15
(7)
(4)
-
250
4
4
(1)
-
(1)
(6)
1
-
-
(17)
158
17
27
6
-
(48)
(43)
16
(9)
2
(26)
1 006
(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
Change in fair value of plan assets is as follows:
(CHF million)
2015
Opening fair value of plan assets
Interest income on plan assets
Return on plan assets excluding amounts included in net
interest expense
Employer contributions
Pension funds special contribution
Plan participants' contributions
Net benefit payments
Administrative expenses paid
Settlements
Exchange differences
FAIR VALUE OF PLAN ASSETS 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
CH
UK
USA
OTHER
TOTAL
332
5
(5)
7
43
5
(14)
-
-
-
373
235
8
(9)
5
20
1
(8)
(1)
-
(10)
241
235
10
(17)
3
40
1
(15)
(1)
(42)
-
214
86
2
-
11
-
(1)
(6)
-
(1)
(7)
84
888
25
(31)
26
103
6
(43)
(2)
(43)
(17)
912
174
(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
There are no reimbursement rights included in plan assets. The actual return on plan assets was a loss of CHF 6 million
(2014: gain of CHF 61 million).
Changes in the amount not recognised due to the asset limit are as follows:
(CHF million)
2015
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(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)
-
-
175
8. SGS GROUP RESULTS
The major categories of plan assets at the balance sheet date are as follows:
(CHF million)
2015
Cash and cash equivalent
Equity securities
Debt securities
Insurance policies
Property
Investment funds
Other
TOTAL PLAN ASSETS AT 31 DECEMBER
(CHF million)
2014
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
88
91
58
-
116
20
-
373
4
47
91
17
-
81
1
241
1
71
142
-
-
-
-
214
11
2
1
70
-
-
-
84
104
211
292
87
116
101
1
912
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
In 2015, SGS did not occupy any property that was included in the plan assets. In 2014, SGS occupied property that was included
in the plan assets with a fair value of 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.
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 2015 and 2014 are as follows:
176
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 2015 and 2014 are as follows:
(Weighted average %)
CH
UK
USA
OTHER
2015
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
(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
0.9
3.9
LPP 2010
Generational
SNA02 CMI
2015 Scale
2.0
0.3
3.0
3.0
-
CH
1.3
LPP 2010 Gen
2.0
0.5
-
-
-
3.5
3.2
2.0
-
-
UK
3.6
S1NA
3.6
3.1/2.1
-
-
-
4.3
RP 2014
SSA
3.3
-
6.9
5.0
2 022
USA
4.0
IRS 2015
3.3
-
7.2
5.0
2022
2.5
-
2.4
0.4
-
-
-
OTHER
2.6
-
2.5
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 33 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 13 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 15 million; a 0.5% increase in assumed salary increases would increase the obligation by less than
CHF 1 million and a one-year increase in members’ life expectancy would increase the obligation by approximately CHF 8 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 22 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 6 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 2015 was CHF 69 million (2014: CHF 74 million).
177
8. SGS GROUP RESULTS
25. PROVISIONS
(CHF million)
AT 1 JANUARY 2015
Acquisitions of subsidiaries
Charge to income statement
Release to income statement
Payments
Exchange differences
AT 31 DECEMBER 2015
Analysed as:
Current liabilities
Non-current liabilities
TOTAL
LEGAL AND WARRANTY
CLAIMS ON SERVICES
RENDERED
DEMOBILISATION AND
REORGANISATION
OTHER PROVISIONS
TOTAL
48
-
21
(21)
(5)
(1)
42
38
-
44
(9)
(38)
(1)
34
30
1
24
(4)
(9)
(2)
40
2015
19
97
116
116
1
89
(34)
(52)
(4)
116
2014
19
97
116
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.
26. TRADE AND OTHER PAYABLES
(CHF million)
Trade payables
Other payables
Other financial liabilities
TOTAL
2015
226
115
185
526
2014
192
121
198
511
Trade accounts and other payables principally comprise amounts outstanding for trade purchases and ongoing operating costs.
At 31 December 2015 and 2014, the fair value of the Group’s trade accounts and other payables approximates the carrying value.
178
27. OTHER CREDITORS AND ACCRUALS
(CHF million)
Accrued expenses
Advance billings
Advances from clients
Derivative liabilities
TOTAL
2015
521
54
59
20
654
2014
523
50
41
8
622
At 31 December 2015 and 2014, 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.
29. GUARANTEES
(CHF million)
Guarantees
Performance bonds
TOTAL
2015 ISSUED
2014 ISSUED
130
204
334
109
159
268
The Group has issued unconditional guarantees to certain financial institutions that have provided credit facilities (loans and guaranteed
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
2015
124
254
72
450
2014
130
250
82
462
The Group leases the majority of its office and laboratory space, as well as vehicles and equipment. During the year ended
31 December 2015, CHF 149 million was recognised as an expense in the income statement in respect of operating leases
(2014: CHF 154 million).
179
8. SGS GROUP RESULTS
31. EQUITY
COMPENSATION
PLANS
Selected employees of the SGS Group
are eligible to participate in equity
compensation plans.
i) Grants to Members of
the Operations Council
A total of 1 319 249 options granting the
right to acquire shares of SGS SA at a
strike price of CHF 1 798, 100 options
giving the right to acquire one share and
each option expiring in January 2020
(these options hereinafter referred to as
SGSBB), were granted to the members
of the Operations Council in 2015.
These options vest or have vested in
three stages (one third in 2015, one third
in 2016 and one third in 2018), and can be
exercised or sold between January 2018
and January 2020. The estimated fair
value at grant of the options granted was
CHF 2 928 733.
The share option plan has been
discontinued after the 2015 grant and
replaced by a Restricted Share Plan for
the Operations Council members.
50% of the Annual Incentive related to
the 2015 performance will be settled
in Restricted Shares. The grant of the
Restricted Shares will be done after
the 2016 Annual General Meeting;
the total number of Restricted Shares
to be granted will be calculated based
on the Average closing share price of
the 20 days period following the payment
of the dividends. The Restricted Shares
are restricted for a period of three years
from the time of grant, i.e. until March
2019. They fully vest at the time of the
grant in 2016. Shareholding guidelines
apply to the Restricted Share Plan.
ii) Grants to Other Employees
A total of 189 511 options granting the
right to acquire shares of SGS SA at a
strike price of CHF 1 798, 100 options
giving the right to acquire one share
and each option expiring in January
2020 (these options hereinafter referred
to as SGSBB), were granted to other
employees in 2015. These options vest
or have vested in three stages (one third
in 2015, one third in 2016 and one third
in 2018), and can be exercised or sold
between January 2018 and January
2020. The estimated fair value at grant of
the options granted was CHF 420 714.
The annual share option plan for other
employees has been discontinued after
the 2015 grant. A Restricted Share Unit
Plan may be introduced in 2016 for
selected key employees, at the discretion
of the Board of Directors.
iii) Long-Term Incentive Plans (LTI)
A new Long-Term Incentive plan (LTI)
has been introduced in 2015, under the
form of a Performance Share Unit Plan,
as described in the SGS Remuneration
Report (pages 124 to 125). A number of
39 186 Performance Share Units have
been granted in 2015 to members of
the Operations Council and selected
employees. Additional information is
disclosed in the SGS Remuneration
Report (pages 116 to 130).
OPTION PLAN
DESCRIPTION
SGSOP-2010
SGSMF-2011
SGSKF-2012
SGSWS-2013
SGSPF-2014
SGSBB-2015
TOTAL
EXERCISE PERIOD
FROM
TO
STRIKE
PRICE 1
OPTIONS
OUTSTANDING AT
31 DECEMBER 2014
GRANTED
CANCELLED
EXERCISED
OR ADJUSTED
OPTIONS
OUTSTANDING AT
31 DECEMBER 2015
SGSMF-2011 LTI
Jan.15
Jan.16
1 528.78
7 600 000
Jan.13
Jan.15
1 240.70
187 965
Jan.14
Jan.16
1 528.78
1 488 994
Jan.15
Jan.17
1 448.85
3 140 068
Jan.16
Jan.18
1 989.31
3 109 820
Jan.17
Jan.19
2 059.00
3 027 347
-
-
-
-
-
-
-
(187 965)
-
(131 237)
(1 151 095)
206 662
(3 865 000)
(3 669 000)
66 000
(5 336)
(1 690 452)
1 444 280
(46 084)
(36 948)
(2 000)
3 061 736
-
-
2 990 399
1 482 124
Jan.18
Jan.20
1 798.00
-
1 508 760
(26 636)
18 554 194
1 508 760
(4 111 241)
(6 700 512)
9 251 201
Of which exercisable at 31 December
1 562 115
1 606 201
1. The strike price of the options has been adjusted in accordance with market practice for capital reductions and special dividends.
180
PERFORMANCE SHARE UNIT (PSU) PLAN
DESCRIPTION
SGS-PSU-15
EXERCISE PERIOD
FROM
SHARES
OUTSTANDING AT
31 DECEMBER 2014
GRANTED
CANCELLED
SHARES
OUTSTANDING AT
31 DECEMBER 2015
Jan.18
-
39 186
-
39 186
The fair value of equity compensation plans granted during the year are 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 9 million (2014: CHF 10 million) in relation with equity compensation plans.
Shares available for future plans:
AT 1 JANUARY 2014
Repurchased shares
Options granted (SGSPF Plan and adjustments)
Options cancelled
AT 31 DECEMBER 2014
Repurchased shares
Options granted (SGSBB Plan and adjustments)
Options cancelled
SGS-PSU-15 plan
AT 31 DECEMBER 2015
TOTAL
(33 189)
-
(35 000)
47 554
(20 635)
45 778
(16 000)
6 120
(39 186)
(23 923)
At 31 December, the Group had the following shares available to satisfy various programs:
(CHF million)
2015 TOTAL
2014 TOTAL
Number of unallocated shares held
Shares held for 2010 option plans
Shares held for 2011 option plans
Shares held for 2012 option plans
Shares held for 2013 option plans
Shares held for 2014 option plans
Shares allocated to 2015 option plans
Shares allocated for 2015 PSU plans
SHARES AVAILABLE FOR FUTURE EQUITY COMPENSATION PLANS AT 31 DECEMBER
138 072
-
(21 392)
(25 669)
(31 004)
(29 923)
(14 821)
(39 186)
(23 923)
146 930
(6 513)
(62 743)
(32 525)
(31 480)
(34 304)
-
-
(20 635)
For the equity compensation plans, 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.
181
8. SGS GROUP RESULTS
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
1. Market value of SGSBB options and market value of PSU granted in 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 116 to 130).
During 2015 and 2014, no member
of the Board of Directors or of the
Operations Council had a personal
interest in any business transactions
of the Group.
The Operations Council (including Senior
Management) participate in the equity
compensation plans as disclosed in
note 31.
In 2015, Directors’ fees were
CHF 2 091 000 (2014: CHF 1 943 000).
The total compensation (cash and shares/
options) received by the Operations
Council (including Senior Management)
amounted to CHF 31 886 000
(2014: CHF 16 531 000).
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 190 to 192 of
this report.
LOANS TO MEMBERS OF
GOVERNING BODIES
As at 31 December 2015, 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
In 2015 and 2014, the Group did not
perform any activity generating revenue
for the other related parties. During
the same period, neither related trade
receivable balances unpaid nor expense
in respect of any bad or doubtful
debts due from these related parties
were recognised.
33. SIGNIFICANT
SHAREHOLDERS
As at 31 December 2015, Mr. August
von Finck and members of his family
acting in concert held 15.03% (2014:
14.97%), Groupe Bruxelles Lambert
acting through Serena SARL held
15.00% (2014: 15.00%), the Bank of
New York Mellon Corporation held
3.35% (2014: 3.43%), BlackRock Inc.
held 3.03% (2014: 3.00%) and MFS
Investment Management held 3.01%
(2014: 0.00%) of the share capital and
voting rights of the Company.
At the same date, SGS Group held
2.77% of the share capital of
the Company (2014: 1.88%).
182
2015
17
1
16
0
34
2014
15
1
3
-
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
8 February 2016, and will be submitted
for approval by the Annual General
Meeting of Shareholders’ to be held
on 14 March 2016.
On 4 January 2016, the Group
announced the acquisition of the assets
and operations of Acutest Laboratories,
the fifth largest full service environmental
testing company in the United States
(effective 1 January 2016).
On 5 January 2016, the Group
announced the acquisition of 100% of
Cargo Compliance Company (CargoCC),
based in the Netherlands (effective
1 January 2016).
On 2 February 2016, the Group
announced the acquisition of 51% of
The Lab (Asia) Ltd., based in Hong Kong
(effective 1 February 2016).
On 4 February 2016, the Group
announced the completion of the
acquisition of Matrolabs Group (Pty)
Ltd., based in South Africa (effective
1 February 2016).
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 134 to 182,
which comprise the consolidated balance sheet as at 31 December 2015, 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 as to 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 2015 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, 8 February 2016
Fabien Bryois
Licensed Audit Expert
183
9. SGS SA RESULTS
9. SGS SA RESULTS
INCOME STATEMENT
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
NOTES
2015
OPERATING INCOME
Dividends from subsidiaries
Other income
TOTAL OPERATING INCOME
OPERATING EXPENSES
Other operating and administrative expenses
Depreciation of fixed assets
Other expenses
TOTAL OPERATING EXPENSES
OPERATING RESULT
FINANCIAL INCOME
Financial income
Exchange gain, net
Liquidation of subsidiaries, net
TOTAL FINANCIAL INCOME
FINANCIAL EXPENSES
Financial expenses
Exchange loss, net
TOTAL FINANCIAL EXPENSES
FINANCIAL RESULT
PROFIT BEFORE TAXES
Taxes
Withholding taxes
PROFIT FOR THE YEAR
1 055
1
1 056
(4)
0
(3)
(7)
1 049
68
-
-
68
(51)
(4)
(55)
13
1 062
(5)
(9)
1 048
7
7
186
2014
375
1
376
(4)
0
0
(4)
372
54
0
3
57
(47)
-
(47)
10
382
2
(6)
378
BALANCE SHEET AT 31 DECEMBER
(BEFORE APPROPRIATION OF AVAILABLE RETAINED EARNINGS)
(CHF million)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Other financial assets
Amounts due from subsidiaries
Accrued income and prepaid expenses
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Financial assets
Investments in subsidiaries
Loans to subsidiaries
Other financial assets
Fixed assets
Tangible fixed assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
SHAREHOLDER'S EQUITY AND LIABILITIES
SHORT-TERM LIABILITIES
Other creditors
Amounts due to subsidiaries
Deferred income and accrued expenses
Provisions
TOTAL SHORT-TERM LIABILITIES
LONG-TERM LIABILITIES / NON-CURRENT LIABILITIES
Long-Term Liabilities – third party
Long-Term Liabilities – subsidiaries
Corporate bonds
TOTAL LONG-TERM LIABILITIES /
NON-CURRENT LIABILITIES
CAPITAL AND RESERVE
Share capital
Statutory capital reserve
Statutory retained earnings
Own shares for shares buyback
Reserve for own shares held by
a subsidiary
TOTAL CAPITAL AND RESERVE
TOTAL SHAREHOLDER'S EQUITY AND LIABILITIES
NOTES
2015
2014
790
-
299
19
1 108
1 107
1 304
1
3
2 415
3 523
0
28
39
37
104
0
813
1 642
2 455
8
34
750
-
172
964
3 523
529
195
301
1
1 026
1 635
1 289
1
3
2 928
3 954
2
50
56
34
142
0
275
2 192
2 467
8
34
1 273
(145)
175
1 345
3 954
2
3
4
5 and 6
5 and 6
5 and 6
5 and 6
5 and 6
187
9. SGS SA RESULTS
SGS SA (“the Company”) is the ultimate parent company of the SGS Group which owns and finances, either directly or indirectly,
its subsidiaries and joint ventures throughout the world. The Headquarter is located in Geneva, Switzerland.
The average number of employees during the year was less than ten.
NOTES
1. SIGNIFICANT
ACCOUNTING
POLICIES
The financial statements are prepared
in accordance with the new accounting
principles required by Swiss law.
The previous year’s figures have
been restated in accordance with the
new requirements of the Swiss Code
of Obligations, in order to achieve
a consistent representation and
breakdown of the figures.
INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are
valued individually at acquisition cost
less an adjustment for impairment
where appropriate.
4. CORPORATE BONDS
SGS SA made the following bond issuances:
FOREIGN CURRENCIES
BONDS
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
instruments which are deferred.
DIVIDENDS FROM SUBSIDIARIES
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 cash basis.
Bonds are recorded at nominal value.
2. SUBSIDIARIES
The list of principal Group subsidiaries
appears in the Annual Report on pages
200 to 203.
3. TANGIBLE
FIXED ASSETS
The tangible fixed asset is a building
located at 15, rue des Alpes in Geneva
and is stated at historical cost less
accumulated depreciation.
DATE OF ISSUE
19.08.2010
08.03.2011
27.05.2011
27.05.2011 1
27.02.2014
27.02.2014
25.04.2014
08.05.2015
08.05.2015
FACE VALUE IN
CHF MILLION
COUPON IN %
YEAR OF
MATURITY
417
375
275
75
138
250
112
325
225
1.875
2.625
3.000
1.875
1.375
1.750
1.375
0.250
0.875
2016
2019
2021
2016
2022
2024
2022
2023
2030
ISSUE
PRICE IN %
100.346
100.832
100.480
99.591
100.517
101.019
101.533
100.079
100.245
REDEMPTION
PRICE IN %
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
1. Re-opening of the six-year bond issued on 19 August 2010.
In May 2015 the Company issued two bonds, one for a period of 8 years, amounting to CHF 325 million with a coupon of 0.25%
and a second one for a period of 15 years, amounting to CHF 225 million with a coupon of 0.875%.
The Group has listed all the bonds on the SIX Swiss Exchange.
188
5. TOTAL EQUITY
(CHF million)
BALANCE AT 1 JANUARY 2014
Dividends paid
Decrease in the reserve for own shares
Profit for the year
BALANCE AT 31 DECEMBER 2014
Dividends paid
Increase in the reserve for own shares
Purchase of shares for buyback
Profit for the year
BALANCE AT 31 DECEMBER 2015
6. SHARE CAPITAL
BALANCE AT 1 JANUARY 2014
Own shares released into circulation
Own shares purchased, net
BALANCE AT 31 DECEMBER 2014
Own shares released into circulation
Own shares purchased for future equity
compensation plans
Own shares purchased for buyback
BALANCE AT 31 DECEMBER 2015
Issued Share Capital
SHARE
CAPITAL
STATUTORY
CAPITAL
RESERVE
RESERVE FOR
OWN SHARES
HELD BY A
SUBSIDIARY
OWN SHARES
FOR SHARES
BUYBACK
STATUTORY
RETAINED
EARNINGS
8
-
-
-
8
-
-
-
-
8
34
-
-
-
34
-
-
-
-
34
204
-
(32)
-
172
-
3
-
-
175
-
-
-
-
-
-
-
(145)
-
(145)
839
(499)
32
378
750
(522)
(3)
-
1 048
1 273
TOTAL
1 085
(499)
-
378
964
(522)
-
(145)
1 048
1 345
SHARES IN
CIRCULATION
7 650 840
24 666
-
7 675 506
54 636
(45 778)
(78 904)
7 605 460
OWN
SHARES
171 596
(24 666)
-
146 930
(54 636)
45 778
78 904
216 976
TOTAL SHARES
ISSUED
TOTAL SHARE CAPITAL
CHF (MILLION)
7 822 436
-
-
7 822 436
-
-
-
7 822 436
8
-
-
8
-
-
-
8
SGS SA has a share capital of CHF 7 822 436 (2014: CHF 7 822 436) fully paid-in and divided into 7 822 436 (2014: 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.
Own shares
On 31 December 2015, SGS SA held directly and indirectly 216 976 of its own shares. The shares related to the shares buyback
program are directly held by SGS SA, the shares to cover the option rights are held by a subsidiary company.
In 2015, 54 636 own shares were sold to cover option rights and 45 778 were purchased for an average price of CHF 1 840. As part
of the shares buyback program, 78 904 shares were purchased this year for an average price of CHF 1 842.
189
9. SGS SA RESULTS
7. 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
2015
16
52
68
(42)
(3)
(6)
(51)
2014
1
53
54
(37)
(3)
(7)
(47)
On 12 January 2015, the Group received a cash amount of CHF 15 million in relation to the termination of the Interest Rate Swap
agreement to market rates. These cash proceeds were recognised as interest income in the income statement.
8. GUARANTEES AND COMFORT LETTERS
(CHF million)
Guarantees
Performance bonds
TOTAL
2015 ISSUED
2015 UTILISED
2014 ISSUED
2014 UTILISED
243
44
287
179
44
223
212
23
235
159
23
182
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.
9. REMUNERATION
9.1. COMPANY’S REMUNERATION POLICY AND GOVERNANCE
This section appears in the SGS Remuneration Report para 2 in the Annual Report on pages 118 to 120.
9.2. REMUNERATION MODEL
This section appears in the SGS Remuneration Report para 3 in the Annual Report on pages 121 to 126.
9.3. REMUNERATION AWARDED TO THE BOARD OF DIRECTORS
This section appears in the SGS Remuneration Report para 4 in the Annual Report on page 127.
9.4. REMUNERATION AWARDED TO THE CEO, SENIOR MANAGEMENT AND OTHER MEMBERS OF THE OPERATION COUNCIL
This section appears in the SGS Remuneration Report para 5 in the Annual Report on pages 128 to 130.
190
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 2015:
NAME
SGSKF
S. Marchionne
A. von Finck
A.F. von Finck
C. Grupp
P. Kalantzis
S.R. du Pasquier
P. Desmarais
I. Gallienne
G. Lamarche
C. Kirk
SGSWS
26 667
SGSPF
50 000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
SGSBB
SHARES
-
-
-
-
-
-
-
-
-
1 150
19 670
439 515
1
150
10
10
1
25
180 225
32 384
188 546
103 403
1 119
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
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 2015:
CORPORATE RESPONSIBILITY
SGSKF
SGSWS
SGSPF
SGSBB
SHARES
NAME
F. NG
Chief Executive Officer
61 621
31 088
C. De Geyseleer
Chief Financial Officer
-
-
15 642
26 667
27 576
4 416
O. Merkt
General Counsel and
Chief Compliance Officer
21 055
28 842
17 643
16 524
191
-
70
45
9. SGS SA RESULTS
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
C. De Geyseleer
Chief Financial Officer
-
-
-
Chief Executive Officer
174 920
120 150
32 384
O. Merkt
General Counsel and
Chief Compliance Officer
10 000
27 370
28 842
8 821
94 273
40 000
1 199
-
45
11. SIGNIFICANT SHAREHOLDERS
As at 31 December 2015, Mr. August von Finck and members of his family acting in concert held 15.03% (2014: 14.97%),
Groupe Bruxelles Lambert acting through Serena SARL held 15.00% (2014: 15.00%), the Bank of New York Mellon Corporation
held 3.35% (2014: 3.43%), BlackRock Inc. held 3.03% (2014: 3.00%) and MFS Investment Management held 3.01% (2014: 0.00%)
of the share capital and voting rights of the Company.
At the same date, SGS Group held 2.77% of the share capital of the Company (2014: 1.88%).
PROPOSAL OF THE BOARD OF DIRECTORS FOR THE APPROPRIATION OF AVAILABLE RETAINED EARNINGS
(CHF)
Profit for the year
Balance brought forward from previous year
Dividend paid on own shares released into circulation in 2014
prior the Annual General Meeting on 13 March 2014
Dividend not paid on own shares bought in 2015
prior the Annual General Meeting on 12 March 2015
Shares buyback program
(Transfer to) / reversal from the reserve for own shares
TOTAL RETAINED EARNINGS AVAILABLE FOR APPROPRIATION
Proposal of the Board of Directors:
Dividends ¹
BALANCE CARRIED FORWARD
Ordinary gross dividend per registered share
1. No dividend is paid on own shares held directly or indirectly by SGS SA.
2015
2014
1 048 128 990
227 785 349
378 165 415
341 877 870
-
(1 645 215)
384 676
(145 362 298)
(3 131 617)
1 127 805 100
-
-
31 321 687
749 719 757
(517 171 280)
(521 934 408)
610 633 820
68.00
227 785 349
68.00
12. 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 8 February 2016, and will be submitted for approval by the Annual General
Meeting of Shareholders’ to be held on 14 March 2016.
192
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 186 to 192, which comprise
the balance sheet as at 31 December 2015, 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 as to 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 2015 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, 8 February 2016
Fabien Bryois
Licensed Audit Expert
193
10. DATA
10. 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 %
2015
2014
2013
2012
2011
5 712
(2 849)
(345)
(322)
5 883
(2 891)
(361)
(304)
5 830
(2 871)
(357)
(298)
5 569
(2 733)
(338)
(280)
4 797
(2 304)
(331)
(225)
(1 374)
(1 386)
(1 392)
(1 384)
(1 147)
822
941
912
834
790
917
(64)
(21)
(10)
-
822
(43)
779
(195)
584
549
35
16.1
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
AVERAGE NUMBER OF EMPLOYEES
85 903
83 515
80 510
76 790
67 633
196
SGS GROUP – FIVE YEAR STATISTICAL DATA CONSOLIDATED BALANCE SHEETS
AT 31 DECEMBER
(CHF million)
2015
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
964
1 306
32
315
2 617
288
917
338
1 734
3 277
5 894
8
1 898
1 906
75
1 981
2 214
60
278
2 552
3
526
159
673
1 361
3 913
5 894
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
Land, buildings and equipment
301
305
357
386
345
197
10. DATA
SGS GROUP – FIVE YEAR STATISTICAL SHARE DATA
(CHF unless indicated otherwise)
2015
2014
2013
2012
2011
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
7 605 460
7 675 506
7 650 840
7 632 042
7 596 871
PRICE
High
Low
Year-end
Par value
2 049
1 577
1 911
1
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
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 MILLION)
Ordinary
Special
Total
250.56
303.13
280.08
269.95
263.75
71.99
68.00 2
-
68.00
517 2
-
517
81.99
68.00
-
68.00
522
-
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
1. Calculation of the basic earnings per share (weighted average for the year) is disclosed in note 9, pages 152 to 153.
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 2015, market capitalisation was approximately CHF 14 949 million (2014: CHF 15 997 million). Shares are quoted
on the SIX Swiss Exchange.
198
SGS SA
2 300
2 200
2 100
2 000
1 900
1 800
1 700
1 600
1 500
1 400
1 300
1 200
1 100
1 000
900
800
700
CLOSING PRICES FOR SGS AND THE SMI 2014 – 2015
SMI
11 500
11 250
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
J F M A M J J A S O N D J F M A M J J A S O N D
2014
HIGH PRICE
CLOSE
LOW PRICE
SGS SA
2015
SWISS MARKET INDEX (MONTHLY CLOSE)
199
10. 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 SA,
Rouiba-Alger
SGS Angola Limitada, Luanda
SGS Argentina SA, 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 Ltd., Baku
SGS Bahamas Ltd., Freeport
Bangladesh
SGS Bangladesh Limited, Dhaka
Belarus
Belgium
Benin
Bolivia
SGS Minsk Ltd., Minsk
SGS Belgium N.V., Antwerpen
SGS Bénin SA, Cotonou
SGS Bolivia SA, 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 SA, Ouagadougou
Cambodge
Cameroon
Canada
Chile
Chile
China
Colombia
Colombia
Congo
Croatia
SGS (Cambodia) Ltd., Phnom Penh
SGS Cameroun SA, Douala
SGS Canada Inc., Missisauga
SGS Chile Limitada, Santiago de Chile
CIMM Tecnologias y Servicios SA,
Santiago de Chile
SGS-CSTC Standards Technical
Services Ltd., Beijing
SGS Colombia SA, Bogota
Estudios Técnicos SA, (ETSA), Bogota
SGS Congo SA, 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
170 166 436
3 000 000
10 000
10 000 000
400 000 000
10 000 000
20 900 000
9 394 781 237
7 570 000 000
3 966 667
59 054 167 360
265 739 000
1 510 000 000
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
200
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 SA, 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 and Chemicals, SAS, Arcueil
SGS Qualitest Industrie SAS, Orsay
Securitest SA, 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 Inc., Guam
Guatemala
SGS Central America SA, Guatemala-City
Guinea-Conakry
SGS Guinée Conakry SA, 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 SA, Abidjan
Ivory Coast
Japan
Jordan
Société Ivoirienne de Contrôles Techniques
Automobiles et Industriels SA, 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
92.31
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
960 000
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
201
10. 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
Mauritius
Mexico
Moldova
Mongolia
Morocco
Morocco
SGS Latvija Limited, Riga
SGS (Liban) S.A.L., Beirut
SGS Liberia Inc, Monrovia
SGS Klaipeda Ltd., Klaipeda
SGS Luxembourg SA, Windhof
SGS Madagascar SARL, Antananarivo
Malagasy Community Network Services SA,
Antananarivo
SGS Malawi Limited, Blantyre
Petrotechnical Inspection (Malaysia) Sdn. Bhd.,
Kuala Lumpur
SGS (Malaysia) Sdn. Bhd., Kuala Lumpur
SGS Mali Sàrlu, Kayes
SGS (Mauritius) LTD, Phoenix
SGS de Mexico, SA de C.V., Mexico
SGS (Moldova) SA, Chisinau
SGS Mongolia LLC, Ulaanbaatar
SGS Maroc SA, 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 SA, 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 SA, Bucharest
SGS Vostok Limited, Moscow
LVL
LBP
LRD
LTL
EUR
MGA
MGA
MWK
MYR
MYR
XOF
MUR
MXN
MDL
USD
MAD
MAD
MZM
MMK
NAD
EUR
EUR
NZD
NGN
NOK
-
PKR
USD
PGK
PYG
PEN
PHP
PLN
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
300 000 000
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
18 000 000
100
100
100
100
70
100
70
100
100
100
100
100
100
100
75
100
100
100
100
100
100
50
100
-
100
100
100
100
100
100
100
100
100
100
I
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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 SA, 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 and 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 SA, Madrid
SGS Tecnos, SA, Sociedad Unipersonal, Madrid
General de Servicios ITV, SA, 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 SA, Lomé
SGS Tunisie SA, 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 SA, 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
452 000 500
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
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Ultimate
parent
company
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203
11. SHAREHOLDER INFORMATION
11. SHAREHOLDER INFORMATION
SGS SA CORPORATE OFFICE
CORPORATE COMMUNICATIONS
PROJECT MANAGEMENT
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
AND INVESTOR RELATIONS SGS SA
Françoise Rein
CONCEPT, DESIGN, PHOTOGRAPHY,
REALISATION AND PRODUCTION
Group Charlescannon SARL
Geneva, Switzerland
PRINTED BY
Hertig Print SA
Lyss, Switzerland
Printed on 100% recycled BalancePure
offset paper, February 2016
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
Monday, 14 March 2016
Geneva, Switzerland
2016 HALF YEAR RESULTS
Monday, 18 July 2016
INVESTOR DAYS (IN EUROPE)
Thursday – Friday
27 – 28 October 2016
DIVIDEND PAYMENT DATE
Ex-Date: 16 March 2016
Record data: 17 March 2016
Payment date: 18 March 2016
206
207
WWW.SGS.COM
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