SGS S.A. Annual Report 2016

FY2016 Annual Report · SGS S.A.

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ANNUAL REPORT

SGS IS THE WORLD’S LEADING INSPECTION,
VERIFICATION, TESTING AND CERTIFICATION
COMPANY. BY WORKING WITH OUR CUSTOMERS
AT EVERY STAGE OF THE SUPPLY CHAIN, WE HELP
ENSURE THAT CONSUMERS ENJOY PRODUCTS
AND SERVICES THAT ARE SAFE, COMPLIANT AND
OF THE HIGHEST QUALITY.

Our influence is all around you; from checking where the food on your

plate is sourced, to ensuring the paint on your children’s toys is non-toxic.

Our scope is enormous too: from bridges, buildings and engines to shoes,

e-commerce and pharmaceuticals – we work quietly behind the scenes

to ensure that everything is as it should be.

We pioneer cutting-edge technology and develop innovative new services

to help our customers stay one step ahead of the competition. We create

customised solutions to drive efficiency, optimise processes and enhance

value propositions so that our customers and their clients benefit from

the best expertise on the market.

Thanks to our work, the world we live in gets just a little bit better, safer

and more sustainable every day.

SGS SERVICE

CONSUMER BENEFIT

> Footwear and Leather

Product Testing

> Knowing that your
shoes are really as
good as they look

CONTENTS

2016 has been a productive year for
SGS. The Group has successfully
undertaken a major realignment of its
business lines and regional structure, as
anticipated in last year’s Annual Report.

The Group has also successfully begun
to rebalance its portfolio, diversifying
away from energy-related markets
and substantially growing its revenues
from non-energy-related services.

The digitalisation of SGS’ service
offering continued to gather steam, with
initiatives under the TIC 4.0 umbrella
(e.g. e-commerce and data analytics)
progressing well.

Even with these exciting changes,
the fundamentals of SGS’ business
model, which is firmly rooted in the
Testing Inspection and Certification (TIC)
industry, remain the same. What has
been perceived however, in continually
evolving market circumstances,
is the opportunity for SGS to leverage
its existing network in new and
exciting ways.

Finally, you will notice that the Group’s
journey towards a fully integrated
report continues. Having integrated
the Business Review and Corporate
Sustainability Performance into last
year’s Annual Report, the development
of SGS’ Business Materiality Matrix
brings the goal of integrated reporting
a step closer this year (see page 101).

The complete Corporate
Sustainability Report will be
available online from 21 March 2017
at www.sgs.com/cs-report2016.

INNOVATION

EXPERTISE

INVESTMENT

OPERATIONAL EXCELLENCE

PROFESSIONAL EXCELLENCE

Compliance and Integrity

SGS Human Rights Policy

Procurement

Customer Relationship Management 73

PEOPLE

Talent Acquisition

Employee Retention

Diversity and Equal Opportunities

Operational Integrity

ENVIRONMENT

Emissions and Climate Change

Water and Waste Management

Energy Efficiency

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

82
83

5. MARKET RISKS

Risk Management
and Material Topics

Business Materiality Matrix

Risk Management Overview

100

101

102

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

Remuneration Awarded
to the CEO, Senior Management
and Other Members of
the Operations Council

108

109

110

117

121

122

123

126

127

128

131

138

139

8. SGS GROUP RESULTS

146

9. SGS SA RESULTS

10. DATA

11. SHAREHOLDER
INFORMATION

202

214

224

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

Sustainability Ambitions 2020

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. BUSINESS LEADERSHIP

Group Outlook

SGS BUSINESS MODEL

Strategic Focus

BRAND

GROWTH

Agriculture, Food and Life

Minerals

Oil, Gas and Chemicals

Consumer and Retail

Certification and
Business Enhancement

Industrial

Environment, Health and Safety

Transportation

Governments and Institutions

Acquisitions

Strategic Partnerships

2016 Acquisitions
and Strategic Partnerships

SGS SERVICE

CONSUMER BENEFIT

> Supplier Quality

> Products at the quality

Engineering

you expect

AT THE CUTTING EDGE OF QUALITY

New products always face challenges. Even when the design and

performance of the prototypes is perfect, a lack of oversight in the

manufacturing process can easily result in inconsistent quality in

the end product. That can leave customers frustrated and companies

with their reputations in tatters.

Our Supplier Quality Engineering (SQE) Solution for electrical and

electronic products helps global brands and retailers minimise quality

risks. At every stage, from the initial R&D and product development,

to mass manufacturing, continuous improvement and the after-sales

market, our engineers, auditors and inspectors identify and correct

quality defects using advanced production monitoring techniques.

Moving deeper into the supply chain with cutting-edge technology,

we can monitor the performance of our customers’ own suppliers.

This allows us to lead improvements where necessary to ensure that

these suppliers are consistently meeting our customers’ quality and

production requirements.

This preventive upstream action can save significant costs later on.

Meanwhile, for the consumer, it means they get the kind of quality

they deserve and expect.

1. CHAIRMAN’S AND
CEO’S LETTER TO
SHAREHOLDERS

Dear Shareholders,

OVERVIEW

The SGS Group performed solidly
in 2016. Total revenues reached
CHF 6.0 billion, and SGS is on track to
deliver the revenue growth projected
in the 2020 strategic plan. The Group
realised a revenue growth of 6.0% on a
constant currency basis, of which 2.5%
was organic and 3.5% was contributed
by recent acquisitions. On a historical
reported basis, Group revenue increased
by 4.8%.

A new business structure was
successfully implemented at the
beginning of 2016, with the newly
created Agriculture, Food and Life
and Transportation business lines
performing above expectations.

Representing 72% of the Group’s
earnings, the non-energy businesses
achieved strong organic revenue growth
of 6.2%, driving Group performance.
Environment, Health and Safety, with
a revenue growth of 23.6% (of which
6.9% organic), enjoyed rapid growth in
the hospitality segment. Transportation
also performed strongly with double-
digit growth at 12.9% (of which
7.9% organic), broadening its scope
in the mobility sector through new
programmes and the acquisition of new
expertise. Governments and Institutions
showed a notable performance with
organic revenue growth of 10.0% on
the back of solid Product Conformity
Assessment performance. Certification

and Business Enhancement grew at
9.1% (entirely organic) while continuing
to diversify its service portfolio with
strong growth in training. Agriculture,
Food and Life delivered solid revenue
growth of 6.1% (of which 4.5% organic),
significantly increasing its market share
to become one of the world’s largest
service providers through the creation
of a complete supply chain solution.
Consumer and Retail benefited from
growth in the Chinese domestic market
and e-commerce services.

However, energy-related markets
remained challenging. Low oil prices,
ongoing difficulties in the global gas
markets and soft demand for minerals
continued to impact demand, creating
pricing pressure on services for
Minerals, Industrial and Oil, Gas and
Chemicals. In light of this, the Group
undertook a number of restructuring
measures, resulting in one-off expenses,
including asset impairments, amounting
to CHF 48.8 million (CHF 39.8 million
net of taxes).

Adjusted EBITDA increased by 2.5%
to reach CHF 1 198 million versus prior
year on a constant currency basis.
Adjusted operating income reached
CHF 919 million versus CHF 898 million
in prior year, an increase of 2.4%
(constant currency basis). The adjusted
operating income margin declined
compared to prior year level (15.4%

versus 15.9% at constant currency).
This was primarily attributable to
pressure on energy-related business
and the impact of investments in IT
systems for laboratory operations and
human resource management, as well
as the development of new shared
services infrastructure. Whilst initially
dilutive to margins, these undertakings
are expected to significantly improve
the Group’s operating efficiency, and
are an integral part of the transformation
initiatives, which are at the heart of
the 2016-2020 plan. The Group also
achieved procurement savings in line
with the strategic plan. In addition, the
acquisitions of Accutest and Bateman
generated lower short-term profitability,
but will become margin accretive in
the mid term.

Net financial expenses increased to
CHF 45 million. The overall effective
tax rate for the period was 24.0%.

Net income reached CHF 586 million,
an increase of 4.5% (constant
currency basis).

Profit attributable to equity holders
reached CHF 543 million for the period,
an increase of 3.0% over prior year
(constant currency basis) and a
decrease of 1.1% compared with the
CHF 549 million disclosed in 2015
(historical reported basis).

The Group generated solid operating
cash flow at CHF 1 014 million,

1. CHAIRMAN’S AND

CEO’S LETTER TO

SHAREHOLDERS

supported by strong Net Working Capital
performance. Net Working Capital is
at a historical low despite a shift to
more capital intensive project-related
work. Net investments in fixed assets
were CHF 276 million and the Group
completed 19 acquisitions during the
period for a total cash consideration
payable of CHF 193 million. In 2016, the
Group paid a dividend of CHF 517 million
and financed a share buyback for a net
amount of CHF 161 million.

At 31 December 2016, the Group’s
net debt position amounted to
CHF 736 million, compared with
a net debt position of CHF 482 million
at 31 December 2015.

ACQUISITIONS AND
STRATEGIC PARTNERSHIPS

The Group completed 19 acquisitions
and made two strategic investments in
2016. Business and services expansion
continued worldwide with a particular
focus on growing operations in China
and North America to align with
strategic growth objectives. These
acquisitions span several business
lines, including: Agriculture, Food and
Life; Transportation; Industrial; Oil, Gas
and Chemicals; Minerals; Environment,
Health and Safety; and Consumer
and Retail. When combined, these
acquisitions added CHF 135 million to
the Group’s revenue and CHF 10 million
to the operating income in 2016.

Acquisitions completed in 2016
include: Accutest Laboratories in
the USA, the fifth largest full service
environmental testing company in
the United States; Bateman Projects
in Africa, specialists in process plant
design and site engineering services;
Compliance Certification Services Inc.,
one of China’s leading Electro Magnetic
Compatibility (EMC) testing laboratories,
with operations across Taiwan and
China; CyberMetrix Inc. in the USA,
providing test cells, equipment, and
services to meet the complex testing
requirements of engine and power
systems; and Laboratorios Contecon
Urbar in Colombia and Panama, an
independent materials testing business
focusing on quality control for the
construction industry.

The Group continued to pursue smaller
equity stakes in certain strategic
technology companies as illustrated
by the recent partnerships with
Transparency-One, which provides a
platform for supply chain visibility and
business risk management, and AgFlow
SA, which operates an innovative trade
intelligence platform, aggregating over-
the-counter (OTC) market data on global
grains, oilseeds/proteins and edible oils.

SIGNIFICANT MILESTONES

During the year, the Group made
significant strides in the assessment

of its business portfolio to bring greater
transparency on new growth projects
and to identify non-performing business
segments. The development of a
strategic dashboard to assess business
segments based on growth, margin,
cash flow and strategic significance
allows the Group to identify strengths
and weaknesses more effectively.

SGS continued to develop its integrated
reporting in support of its sustainability
efforts with the creation of an enhanced
materiality matrix, incorporating the
assessment and findings of the annual
risk review. The members of the
Operations Council played an important
role in this process by assessing the
relative impacts of the materiality and
business risks.

To benefit from economies of scale,
a transformation of the support
functions was launched in 2016.
A governance model was established
as a standard for future replication,
the major financial back-office streams
were identified and related processes
redesigned to align with the new
financial standard processes.

The year also witnessed the
strengthening of the Group’s Business
Principles and the evolution of policies
that address a continually changing
market and regulatory environment.
An example is the anticipated
introduction of the new SGS Human

1. CHAIRMAN’S AND CEO’S LETTER TO SHAREHOLDERS

Rights Statement and Code of Conduct
for Suppliers. The new guidance will
ensure that human rights are respected
across all operations and at every step
of the supply chain.

SUBSEQUENT EVENTS

The following acquisitions and strategic
investments were completed after
31 December 2016: BF Machinery PTY
LTD and CBF Engineering PTY LTD,
providing testing, repair, engineering
and maintenance services for pumps,
valves, hydraulics and plastics systems
in Australia; and Laboratoire LCA,
offering analytical services, including soil
fertility testing, to the agricultural sector
in Morocco.

In support of the Testing, Inspection
and Certification (TIC) 4.0 strategic
initiative on digitalisation and data, the
Group granted a loan of CHF 3 million
to Sensima Inspection in Switzerland.
The business provides testing services
and equipment using a proprietary core
technology based on electromagnetic
response measurements (eddy currents)
for non-destructive testing applications.

MANAGEMENT

Dominique Ben Dhaou, Senior Vice
President of Human Resources,
has decided to leave the Group after
15 years. Her replacement will be
announced in due course.

SIGNIFICANT SHAREHOLDERS

As at 31 December 2016, Groupe
Bruxelles Lambert acting through Serena
SARL held 16.20% (2015: 15.00%).
Mr. August von Finck and members of
his family acting in concert held 15.03%
(2015: 15.03%), the Bank of New York
Mellon Corporation held 3.35%
(2015: 3.35%), BlackRock, Inc. held
3.03% (2015: 3.03%) and MFS
Investment Management held 3.01%
(2015: 3.01%) of the share capital and
voting rights of the Company.

At the same date, the SGS Group
held 3.63% of the share capital of
the Company (2015: 2.77%).

DISTRIBUTION TO SHAREHOLDERS

The SGS Board of Directors will
recommend to the Annual General
Meeting, to be held on 21 March 2017,
the approval of a dividend of CHF 70
per share.

NEW SHARE BUYBACK PROGRAMME

The SGS Board of Directors has
authorised a new share buyback
programme of up to CHF 250 million.
Details will be announced in due time.

SUSTAINABILITY

Sustainable development is undergoing
a pivotal change. The success of the
Paris Agreement, the United Nation’s
17 Sustainable Development Goals and
the UK’s Modern Slavery Act 2015,

provides a clear pathway for future
global development, and the corporate
sector is uniquely placed to help lead
this process.

In 2016, significant improvements in the
Group’s global safety performance, its
CO2 emissions and investment in local
communities served to highlight the major
strides made towards its Sustainability
Ambitions 2020. In addition, the Group
maintained its status as a carbon neutral
company, and began working towards its
goal of having at least 30% of women in
leadership positions.

For the third consecutive year, SGS
was named the leading company
in its industry by the Dow Jones
Sustainability Indices (DJSI World
and DJSI Europe). The Group has
consolidated its position in financial
sustainability indices and was also
recognised as a global leader in
responding to climate change, with
a position on CDP’s Climate A List.
CDP also named SGS as Industrials
Sector Leader and Country Leader
in the DACH (Germany, Austria and
Switzerland) region.

The Leadership team continued to
be actively engaged in the Group’s
sustainability performance and
participated extensively in key policy
issues. For instance, the new Vehicle
Emissions Policy will engage managers
across the Group in helping to minimise
CO2 emissions through their choice
of fleet car.

It is only by leading by example through
actions such as these that SGS can
help the corporate sector build a more
sustainable economy.

• To accelerate Mergers and

Acquisitions activities with acquired
revenue in the range of CHF 1 billion
over the period.

GUIDANCE 2017

The Group expects to deliver solid
organic revenue growth and higher
adjusted operating income on a constant
currency basis, and generate robust
cash flow.

OUTLOOK 2020

The Group remains committed to
the aims of its 2020 plan, which are:

• To average mid single-digit organic
growth, with improvement over
the period underpinned by the new
structure and new strategic initiatives.

• To achieve an adjusted operating

income margin of at least 18% by
the end of the period bolstered by the
new structure, efficiency improvement
initiatives and improved pricing.

• To ensure strong cash conversion.

• To see solid returns on invested capital.

• To offer solid dividend distributions,
in line with the improvement in
net earnings.

23 January 2017

Sergio Marchionne
Chairman of the Board

Frankie Ng
Chief Executive Officer

SGS SERVICE

CONSUMER BENEFIT

> Productivity

> Lower prices

Management Services

at the checkout

FINE-TUNING CLASSIC RECIPES

Sometimes products that look easy to produce, like simple food

oils, can actually be surprisingly complex to manufacture. Often the

technology behind the delivery of these goods is so complicated and

nuanced that even experts need a second opinion in order to optimise

the process.

It is this kind of assistance that SGS supplies. SGS experts have

worked at hundreds of plants, and this gives them broad industry

exposure, putting them in a unique position to deliver solutions.

For example, at one European oilseed crushing plant, our experts

provided guidance to local employees on how to optimise their

existing technology to maximise productivity. The changes unearthed

by our team increased the plant’s efficiency and significantly reduced

waste, which lowered the costs of production.

Seemingly small changes, such as adjustments to temperature

settings at various stages of the process, resulted in annual

savings that went into six figures, all without compromising quality.

By performing these services, consumers benefit too, not just

from more consistent quality products, but often also from more

competitive pricing in the supermarket.

2. HIGHLIGHTS

FINANCIAL
HIGHLIGHTS

CHF 6.0BN

CHF 919MIO

+6.0%1

6.0

5.6

+2.4%1

919

898

REVENUE

2016

2015

2016

2015

ADJUSTED
OPERATING INCOME2

15.4%

CHF 586MIO

15.4

15.91

+4.5%1

586

561

ADJUSTED
OPERATING MARGIN2

2016

2015

2016

2015

PROFIT FOR THE PERIOD

CHF 71.54

CHF 70

+3.4%1

71.54

69.17

2016

2015

2016

2015

BASIC EARNINGS
PER SHARE

19.3%

PROPOSED DIVIDEND

CHF 1.0BN

19.3

19.7

+5.7%

1 014

959

RETURN ON
INVESTED CAPITAL 3

2016

2015

CASH FLOW FROM
OPERATING ACTIVITIES

2016

2015

ACQUISITIONS
COMPLETED IN 2016

2016

2015

1. Constant currency basis.

2. Before amortisation of acquisition intangibles,

restructuring and other non-recurring items.

3. Profit for the period / (Non-current assets + Net

Working Capital).

2. HIGHLIGHTS

REVENUE AND
ADJUSTED
OPERATING INCOME
BY BUSINESS

REVENUE

4.6%
GIS

8.2%
TRP

7.8%
EHS

14.9%
IND

5.4%
CBE

ADJUSTED OPERATING INCOME1

7.2%
GIS

8.5%
TRP

6.0%
EHS

9.1%
IND

6.3%
CBE

15.6%
AFL

10.6%
MIN

18.3%
OGC

14.6%
CRS

16.0%
AFL

9.9%
MIN

12.7%
OGC

24.3%
CRS

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items.

REVENUE
BY REGION

30.0%
Asia / Pacific

25.6%
Americas

44.4%
Europe / Africa / Middle East

2. HIGHLIGHTS

GROUP
ACHIEVEMENTS

NEW STRUCTURE

SECOND
CONSECUTIVE
REDUCTION

SUCCESSFULLY IMPLEMENTED
IN 2016

IN NET WORKING CAPITAL IN 2016

DIGITALISATION
OF SERVICES

STRENGTHENED CUTTING-EDGE
CAPABILITIES THROUGH
THE ACQUISITION OF
5 INNOVATIVE COMPANIES

DIGITALISATION
OF THE
WORKPLACE

FOSTERING PERFORMANCE
AND COLLABORATION THROUGH
DIGITALISATION

19 ACQUISITIONS

3 SHARED
SERVICE CENTRES

COMPLETED IN 2016
(see Acquisitions section page 58)

UNDER DEVELOPMENT ACROSS
THE WORLD TO IMPROVE
BACK-OFFICE EFFICIENCY

BUSINESS
HIGHLIGHTS

AGRICULTURE FOOD AND LIFE

Double-digit growth in life
laboratory activities

MINERALS

Five new coal contracts in
South Africa extended
SGS’ presence in the country

OIL GAS AND CHEMICALS

Contract awarded to provide
services to Shell’s Prelude floating
liquefied natural gas (LNG) project

CONSUMER AND RETAIL

The rapidly developing
e-commerce business
recorded triple-digit growth

CERTIFICATION AND
BUSINESS ENHANCEMENT

The business line saw 9.1%
organic growth

INDUSTRIAL

Two strategic acquisitions
in the quality control testing
sector increased our footprint
in Latin America

ENVIRONMENT HEALTH AND SAFETY

Strong revenue growth of 23.6%

TRANSPORTATION

Awarded contract to deliver
all driving theory examinations
in France

GOVERNMENT AND INSTITUTIONS

SGS D-TECT®, a revolutionary 100%
border scanning solution, launched
in Cameroon

SUSTAINABILITY
HIGHLIGHTS

SUSTAINABILITY
AMBITIONS 2020

SGS RECEIVED THE ROBECOSAM
2017 INDUSTRY MOVER
SUSTAINABILITY AWARD
FOR EXCELLENT PERFORMANCE
IN THE DOW JONES
SUSTAINABILITY INDEX

SGS RECEIVED THE ROBECOSAM
INDUSTRY LEADER GOLD CLASS
SUSTAINABILITY AWARD FOR
THE THIRD CONSECUTIVE YEAR

SGS ACHIEVED A LEADING POSITION
IN ITS REGION AND WAS INCLUDED
IN THE “A-LIST” AND NEW
“SUPPLIER A-LIST” BY THE CARBON
DISCLOSURE PROJECT

SGS RECEIVED A GOLD RATING
FOR THE SECOND CONSECUTIVE
YEAR FROM ECOVADIS FOR ITS
SUSTAINABILITY PERFORMANCE

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%*, with a focus
on volunteering

SGS DEVELOPED A HUMAN RIGHTS
POLICY AND LAUNCHED A CODE
OF CONDUCT FOR SUPPLIERS

EQUAL OPPORTUNITIES RATIO
INCREASED OVER THE LAST
5 YEARS BY 15%

* Against 2014 baseline.

TOTAL RECORDABLE INCIDENT
RATE (TRIR) AND LOST TIME
INJURY RATE (LTIR) DECREASED
BY MORE THAN 18% AND 29%
RESPECTIVELY IN 2016

SGS MAINTAINED ITS STATUS
AS A CARBON NEUTRAL COMPANY

BUILDING THE PERFECT HOLIDAY

In today’s fast-growing, increasingly regulated global travel industry,

among other issues, tour operators need to ensure that no stone

is left unturned when it comes to consumer health and safety.

Even with hundreds of thousands of customers a year, a single

incident could permanently damage a travel brand’s reputation.

SGS is helping the world’s leading tour operators to rise to this

challenge. Using our expertise and global footprint, we have created

a cutting-edge, industry-specific health and safety compliance audit

system, with innovative SGS mobile technology at its heart.

Our local auditors use a bespoke audit app on their smartphones

and tablets to review hotels, waterparks, excursions and overland

transportation operations for our customers. The results are

automatically uploaded to a central database. From this online hub,

our customers can access detailed reports on the performance

of thousands of resorts at the click of a button.

By helping tour operators to efficiently assess compliance and

manage risk – in 2016 alone, we physically audited over 5 000 resorts

worldwide – SGS is improving environmental health and safety

standards in the hospitality sector, and making resorts safer places

for visitors.

SGS SERVICE

CONSUMER BENEFIT

> Health and Safety
Compliance Audits

> Holiday destinations

that are as safe as they
are beautiful

3. SGS AT A GLANCE

90 000

2 000

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.

3. SGS AT A GLANCE

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
90 000 EMPLOYEES,
SGS OPERATES A NETWORK
OF OVER 2 000 OFFICES
AND LABORATORIES AROUND
THE WORLD.

3. SGS AT A GLANCE

OUR POSITION IN
THE VALUE CHAIN

TRANSPORTATION
Enhancing safety, quality,
reliability and trust

We provide services at all stages

of the value chain, from extraction

and primary production to

manufacturing, transportation

and retail.

CONSUMER GOODS AND RETAIL
Generating trust throughout
the supply chain

MINING
Improving speed to market,
optimising recoveries

ENERGY
Powering processes from
renewables to conventional energy

AGRICULTURE AND FOOD
Ensuring safe, sustainable
and high-quality products

INDUSTRIAL MANUFACTURING
Making manufacturing more
productive and profitable

CONSTRUCTION
Ensuring safety and performance where we live

LIFE SCIENCES
Protecting quality, safety and
costs in product development

PUBLIC SECTOR
Facilitating international trade
and sustainable development

CHEMICAL
Innovation, safety and efficiency in
everything from perfumes to paints

OIL AND GAS
Enriching quality and value in
exploration, extraction and distribution

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 they need
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.

through chemical intermediates and
into finished products. Our consultancy
services offer our partners laboratory
design, commissioning and operations
assistance, including procurement and
optimisation of equipment. We support
customer operations using established
benchmarks and techniques to improve
productivity and efficiency through
training, our asset integrity management
services, optimisation programmes and
project lifecycle services.

CONSTRUCTION

Ensuring safety and performance in the
environment where we work and live.

Safe, efficient and trusted processes
are essential when constructing
buildings or infrastructure. Our
construction industry experience
means our customers can maximise
energy efficiency and public safety. We
support our customers in implementing
effective scheduling, budgeting, site
safety and logistics by utilising modern
asset virtualisation tools. We conduct
studies in construction feasibility and
risk assessment and management. Our
services ensure quality in global supply
chains by performing chemical and
physical testing of materials. Our asset
management systems are increasingly
based on real-time sensor technology,
which tracks machines and equipment,
while our inspection services provide
facility, waste and energy audits.

CONSUMER GOODS AND RETAIL

Generating trust throughout
the supply chain.

Our services enable manufacturers,
importers, exporters and retailers to gain
a competitive edge. We ensure trusted,
ethical and environmentally conscious
goods, such as electronics, textiles, toys,
footwear, housewares and cosmetics,
reach consumers. Our laboratories
conduct material, chemical and
performance testing to verify and certify
that products are safe and 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.

SGS BY
INDUSTRY

SGS offers services across

11 major industries through our

nine business lines. Each business

line develops and maintains

world-class expertise to support

the evolving needs of our

customers. Thanks to our

capabilities we are able to provide

solutions to the challenges they

face across the globe. SGS’

industries are outlined below.

AGRICULTURE AND FOOD

Ensuring safe, sustainable and
high-quality products.

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
consumption, we assist with legislation
compliance, correct storage, shipping,
packing and distribution as well as
import and export product inspection.

CHEMICAL

Innovation, optimisation and efficiency
in everything from feedstocks to
finished products.

Industrial chemical companies utilise our
services to optimise their production,
reduce risk and control potential health
hazards. We work with our partners
to establish and maintain quality,
safety and compliance throughout
the custody chain, from feedstocks,

ENERGY

Powering processes from renewables
to conventional energy.

As the energy sector evolves to meet
emerging regulations, we offer a
portfolio of services to our partners
focused on efficiency, optimisation and
asset integrity. We provide support
across the entire energy sector with a
comprehensive range of independent
inspections, audits and business
enhancement services. Whatever the
industry – petroleum, gas, electrical
power, coal or renewable energy –
we offer solutions to our partners.
We enable each customer to better
assess and manage risk in all
operations. In renewables, we consult
on sustainability across hydroelectric,
geothermal, wind and solar power.
Our solutions help the energy sector
innovate to find tomorrow’s energy today.

INDUSTRIAL MANUFACTURING

Making manufacturing more
productive and profitable.

Our expertise allows manufacturers
to improve productivity, follow best
practices and streamline operational
processes and logistics. Industrial
manufacturers in sectors ranging from
pharmaceuticals to farm machinery and
from aerospace to automotive trust in
our independent testing and conformity
services. Our advice on the fabrication
of components, using digital information
from real-time sensor-based technology,
along with our finished product
assessments, enable our customers
to achieve high performance standards
throughout manufacturing. We support
manufacturers in complying with all
national and international quality, health
and safety legislation, at the same
time as providing advice on minimising
environmental impact.

LIFE SCIENCES

Safeguarding the quality and efficacy
of medicines.

In the pharmaceutical, biopharmaceutical
and medical device 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 a wholly-owned network of
contract analytical laboratories and
state-of-the-art clinical trials facilities
around the world, our customers trust in
our expert knowledge to support them
with reliable results.

MINING

Delivering effective services to improve
speed to market, manage risks and
maximise returns.

Mining is an industry driven by the
need to optimise recovery without
compromising on safety, environmental
sustainability and integrity. We are a
strategic partner in the mining industry
providing testing, process engineering,
technology and trade support, as well
as production optimisation services.
We deliver sustainable solutions across
exploration, production, industrial
applications, decommissioning and
closure. We help to enhance asset value
and optimise recoveries in industrial
minerals and precious and base metals
extraction. We offer technical expertise
in steel manufacturing processes
and fertiliser, coal and coke trading.
Our expansive global footprint allows
our customers to take full advantage
of our network to service their project
needs across the globe.

OIL AND GAS

Innovative solutions that add up along
the value chain.

The oil and gas industry constantly
seeks improved efficiency. We
offer a portfolio of services across
the entire value chain in the oil and
gas industry. We give our partners
access to independent expertise in
both the upstream and downstream
sectors, providing tailored solutions
for exploring, extracting, refining,
transporting and marketing oil, gas
and other hydrocarbons. Our values,
with an emphasis on health and
safety, excellence and transparency,
are known and trusted. In a market
undergoing radical change, we are
driven by data. Our specialist advice
and knowledge support 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 optimised
processes and global trade inspection.

PUBLIC SECTOR

Facilitating international trade
and sustainable development.

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.

TRANSPORTATION

Driving a safer, cleaner and more
efficient industry.

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.

3. SGS AT A GLANCE

THE BUSINESS
BENEFITS
WE DELIVER

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 with 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’ 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.

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 the 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 their 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 the 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 input
and analysis. We manage streams
of big data, using it to provide
our customers with innovative
insights and ideas. We also create
cutting-edge predictive operations
tools, increasing transparency and
efficiency across all the industries
we operate in.

A LIGHT BULB MOMENT FOR REE RECOVERY

From flat-screen TVs and smartphones, to wind turbines, electric

vehicles and lasers, Rare Earth Elements (REEs) have become a

critical part of modern technology. Take energy saving light bulbs for

example. To function properly the bulb normally requires five different

REEs: cerium, europium, lanthanum, terbium and yttrium.

Although the demand for REEs will continue to grow, the problem is

that they are extremely difficult to recover and purify after they are

mined, leading to global concerns about assuring an adequate supply.

Firstly, there are issues around the complexity of deposits. For instance,

cerium is believed to be as abundant as copper but it is rarely found

in deposits that can be economically mined. Secondly, more than 90%

of global REE production occurs in a single country: China.

There are only a handful of operating REE mines in the rest of the

world, which has meant that technical development has been limited

and efficiency impaired.

SGS offers a suite of specialised metallurgical research and testing

services, focused on improving the recovery of these vital but

complex metals. Our work means that REEs remain available and

affordable to consumers so that they can continue to enjoy all

the technological advantages that REEs bring.

SGS SERVICE

> High Definition
Mineralogy

CONSUMER BENEFIT

> Increasingly available

and affordable modern
technology

4. 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.

SGS BUSINESS
MODEL

PAGE 30

HOW WE BUILD
OUR BUSINESS
DYNAMICALLY
AND SUSTAINABLY

It comes from our uncompromising

approach to sustainability and

SGS BUSINESS
PRINCIPLES

health and safety.

PAGE 92

HOW WE MAINTAIN
OUR POSITION AS A
WORLD LEADER AND
MAKE SGS A GREAT
PLACE TO WORK

Our business leadership comes

from our unique global network, our

expertise and our attitude towards

innovation and development.

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 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 ADDED
VALUE

PAGE 94

HOW WE ENSURE
THE SUCCESS OF
OUR STAKEHOLDERS

4. BUSINESS LEADERSHIP

S G S A DDED VALUE

O U R I N

R I E

S
LE A

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
E N C E
OPE R A
EXC E L L

BRA

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O
W
T
H

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N
D
S
A
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S

PROFESSIO

OUR IN

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R
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N
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R
A
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U
O

Y
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M
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EXPERTIS

RESPEC

NITIE

OUR COM

INNOV

ION

ISM

4. BUSINESS LEADERSHIP

GROUP
OUTLOOK

MARKET

SGS expects market conditions to
remain challenging in the short term,
but nonetheless expects to deliver solid
organic revenue growth and higher
adjusted operating income on a constant
currency basis, and generate robust
cash flow.

In the energy markets, the Organization
of the Petroleum Exporting Countries
(OPEC) announced in December 2016
that it will cut production for the first
time in eight years. This will see
1.2 million less barrels per day on the
market for the first six months of 2017.
This announcement came in tandem
with simultaneous cuts announced in
Russian production. The anticipated
subsequent increase in global oil prices
during 2017 will nonetheless still take
some time to work through before
we see an increased demand for
energy-related services. Consequently,
while continuing to invest in our
energy-related activities, we will
predominantly focus on growing
our non-energy business in 2017.
A particular emphasis will be placed on
enhancing our presence in key markets,
such as North America and China.

Over the longer term (2017-2020),
SGS anticipates mid-single digit

organic growth on average, which will
be supported by the new structure
implemented in 2016 and several
strategic initiatives. We also expect an
acceleration in merger and acquisition
activities, CHF 1 bn 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

Following the successful
implementation of structural changes
in 2016 (as previously reported), further
changes to our regional organisation
will be made in 2017.

In order to continue to drive efficiencies,
adjustments will be made to our
geographical organisation with the
number of our regions being reduced
from nine to eight. As part of this, the
Eastern Asia region will be incorporated
into our China and Hong Kong region.

Once completed, our regional structure
will therefore be as follows: Western
Europe; Northern Central and Southern
Europe; Eastern Europe and Middle
East; Africa, North America; South and
Central America; North East Asia;
and Southern Eastern Asia and Pacific.

193

ACQUISITION CASH CONSIDERATION
(CHF MIO: # OF TRANSACTIONS)

DIVIDEND PER SHARE (CHF) AND PAYOUT RATIO1 (%)

302

176

104

103

108

103

193

Jan. 14: new dividend
policy setting CHF 65 as a
dividend floor for 2013 – 16

68 68

94.5%

97.8%

82.9%

79.5%

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

2016

2012 2

2013

2014

2015

2016

DELIVER BOLT-ON ACQUISITIONS
WITH ATTRACTIVE
BUSINESS SYNERGIES

DELIVER A SOLID RETURN
ON INVESTMENT

FINANCE

As a key objective for the year ahead,
the Group will continue to focus on both
organic and inorganic growth, along with
solid cash flow and stable profitability.

SGS will also continue to place a strong
emphasis on structural improvements
to its Net Working Capital as a priority
during 2017. This will include the
standardisation and optimisation of Net
Working Capital for each activity within
our portfolio.

Our Procurement function will continue
to add value to the organisation through
optimising strategic sourcing and
enhancing supply chain management,
while the Real Estate function will
optimise 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
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 the phasing
in of four Shared Service Centres.

In Poland and the Philippines, the
implementation of the European and
Asian Shared Service Centres that

began in 2016 will continue into next
year as the centres are optimised.
In Costa Rica meanwhile, the
implementation of the Americas Shared
Service Centre is due to begin in 2017.
An additional centre exclusively focused
on the growing Chinese market is also
expected to be identified in 2017, with
its implementation anticipated later in
the year and into 2018.

STRATEGIC INITIATIVES

We will continue to drive innovation
through our dedicated department
and by encouraging and recognising
individual employee achievements.
This initiative will further cement the
culture of innovation within SGS as we
continually push ourselves to remain
ahead of the curve with regard to
our services, processes, technology
and thinking.

Our TIC 4.0 initiative, which focuses
on the increasing digitalisation of our
services, will continue to develop
as a key driver of potential future growth.

With this digitalisation will come a
significant inflow of data, particularly
given the scale of SGS’ global footprint.
Big data analytics will therefore
increasingly become a key aspect of
SGS’ service offering (see page 223 for

an example). This data can be used to
study historical trends, to provide a deep
understanding of current operations and
even to form predictive modelling to
support future strategic direction.

In other instances, we will continue
to leverage our understanding of
disruptive technology, such as sensors,
to provide additional added value to our
customers. In addition to the analysis
mentioned above, SGS can install and
maintain sensors, and most importantly
verify the veracity of the data that they
are producing.

In e-commerce, we will continue to
move towards a Business to Business to
Consumer (B2B2C) model (see page 36),
particularly in Asia, where SGS certified
products are already available on major
commercial websites.

In the case of each Strategic Initiative,
our traditional core skills can be used
to offer offline-to-online services that
ensure our customers are confident
in the products that they are offering.
The scale of our physical footprint will be
a key differentiator for SGS across these
initiatives, representing a high barrier
to entry to potential competitors in these
high margin activities.

750

SHARE BUYBACK PROGRAMME
(CHF MIO)

288

CAPEX
(CHF MIO, % OF SALES)

CHF 250 million for employee
equity participation plans
and/or utilisable as underlying
securities for debt-like issuance

750

CHF 500 million for shares cancellation

250

386

357

345

261

305

301

288

500

JAN 15
TO DEC 16

7.2% 6.9%

5.5%

6.1%

5.2% 5.3%

4.8%

2010

2011

2012

2013

2014

2015

2016

MAINTAIN AN ATTRACTIVE
SHAREHOLDER RETURN POLICY

INVEST IN ORGANIC GROWTH
PROJECTS AND TECHNOLOGY-
DRIVEN PARTNERSHIPS

4. BUSINESS LEADERSHIP

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.

Profitable 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
unrivalled physical footprint is a key
competitive advantage, both to our
business and to our shareholders.

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, improving
margins and performance, and
through utilising the best possible
sustainable business practices.

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 BECAUSE OF OUR FOCUS ON CONTINUALLY IMPROVING
THESE FUNDAMENTALS THAT WE ARE LEADERS IN OUR FIELD.

S B U S I NESS M
S G
T I O N A L
E N C E
OPE R A
EXC E L L

BRA

T
N
E
M
T
S
E

R
O
W
T
H

EXPERTIS

INNOV

ION

SGS ADDED VALUESGS BUSINESS PRINCIPLESPROFESSIONALISMHEALTH AND SAFETYINTEGRITYOUR INVESTORSOUR CUSTOMERSLEADERSHIPSUSTAINABILITYRESPECTOUR INDUSTRIESOUR PARTNERSOUR COMMUNITIESOUR EMPLOYEES4. BUSINESS LEADERSHIP

STRATEGIC
FOCUS

SGS IS THE MARKET LEADER IN THE TESTING
INSPECTION AND CERTIFICATION INDUSTRY.
THE GROUP HAS IDENTIFIED A NUMBER OF KEY
GOALS MOVING FORWARD AS PART OF ITS
AMBITION 2020. THE STRATEGIC FOCUS
INFORMATION PRESENTED BELOW PROVIDES
GUIDANCE ON THESE GOALS, WHICH ARE
EXPLAINED IN THE CONTEXT OF THE SIX
ELEMENTS OF THE SGS BUSINESS MODEL.
THIS SECTION ALSO REPORTS ON SELECTED
ACHIEVEMENTS ATTAINED TOWARDS AMBITION
2020 GOALS DURING 2016.

BRAND

THEMES

SELECTED ACHIEVEMENTS IN 2016

AMBITION 2020

CUSTOMER SATISFACTION

• Bosch Supplier Award: North America

• High customer retention

• Industry Appreciation Award: Canadian

Special Crops Association

and satisfaction

INTEGRITY AND HUMAN RIGHTS

• Creation of Human Rights Policy

• Rollout of Code of Conduct

MARKET LEADERSHIP

• Diversification of SGS' reach

and expertise

• Strengthened digital presence

• Social media: strong brand positioning

and audience engagement

• No major integrity or
human rights breaches

• Leading position in strategic
markets and geographies

SUSTAINABILITY

• Dow Jones sustainability Indices

• Industry sustainability leadership

Leading Position

• Link Management Incentive Plan

• Carbon neutral company

to sustainability

• Member of the “A-List” and
“Supply Chain A-List” by
the Carbon Disclosure Project

• Deliver measurable sustainable

value to society

GROWTH

THEMES

SELECTED ACHIEVEMENTS IN 2016

AMBITION 2020

ACQUISITIONS AND
STRATEGIC PARTNERSHIPS

• 19 acquisitions

• 2 strategic partnerships

• Build scale

• Buy capabilities

• Inorganic growth of 3.5%

• Fill geographic gaps

BALANCED PORTFOLIO

• Successful implementation

of Dashboard Review

• Non-energy related organic revenue

growth of 6.2%

• Enhance financial metrics

• Maintain strategic significance

• Diversify non-energy-related

portfolio of services

ORGANIC GROWTH

• Organic growth of 2.5%

• Mid-single digit average

organic growth

REGIONAL FOCUS

• Strategic regional realignment in progress

• Enhance presence in key markets

INNOVATION

THEMES

E-COMMERCE

TIC 4.0

OTHER INITIATIVES

SELECTED ACHIEVEMENTS IN 2016

AMBITION 2020

• Positioning of SGS brand on major

• Expand to B2B2C

e-commerce sites

• Triple-digit growth of e-commerce

business in China

• Information, system and
platform development

• New Cyber Security service

• Development of INNO programme:
encouraging employees to drive
internal innovation

• Digitalisation of services

• Strengthen and invigorate the
culture of innovation at SGS

4. BUSINESS LEADERSHIP

EXPERTISE

THEMES

PEOPLE

SELECTED ACHIEVEMENTS IN 2016

AMBITION 2020

• 2 546 043 hours of training

• Over 20 500 employees integrated
through our onboarding programme

• Natural turnover rate of 12.10%

• 26.31% of senior management positions

held by women

• Enhance our reputation as
an employer of choice

• Employ the industry’s

leading experts

• Maintain natural staff turnover
rate at no more than 10%*

• 30% of senior management

positions to be held by women

QUALITY AND PROFESSIONALISM

• First in the industry to receive Investor

• Be the leading brand for accuracy,

in People Gold Award: Philippines

quality and professionalism

INVESTMENT

THEMES

CAPEX

SELECTED ACHIEVEMENTS IN 2016

AMBITION 2020

• Implementation of new IT platform

• Development of EquipNet

(internal equipment marketplace)

• Investment in technology-driven

partnerships

• Invest in cutting-edge technology
and optimise existing technology
performance and usage

COMMUNITY INVOLVEMENT

• Invested CHF 1 177 000 in communities

• Increase investment in

around the world

communities around the world
by 30%*

INVESTOR RELATIONS

• An attractive shareholder return policy

• Be a best-in-class

of CHF 34

investment opportunity

• Awarded a solid investment grade

OPERATIONAL EXCELLENCE

THEMES

ENVIRONMENT

SELECTED ACHIEVEMENTS IN 2016

AMBITION 2020

• New Vehicle Emissions Policy

• Reduced CO2 emissions (per FTE)

by 2.08%*

• Reduced CO2 emissions (by revenue)

by 31.22%*

• Reduce our annual CO2 emissions

(per FTE) by 20%*

• Reduce our annual CO2 emissions

(by revenue) by 20%*

HEALTH AND SAFETY

• Total Recordable Incident Rate (TRIR)

• Reduce TRIR and LTIR by 50%*

and Lost Time Injury Rate (LTIR)
reduced by 18% and 29% respectively*

NET WORKING CAPITAL INITIATIVE

• Decreased Net Working Capital

• Ensure efficient use of capital

by CHF 75 million

OPERATIONAL EFFICIENCY

• Shared Service Centres launched

• Maximise internal efficiencies

• Procurement savings
of CHF 57 million

* Against a 2014 baseline.

4. BUSINESS LEADERSHIP

BRAND

COMMUNICATING
SGS BRAND VALUES
WILL ONLY BECOME
MORE IMPORTANT
IN THE FUTURE.

It is an exciting time for SGS

as a brand. As the TIC industry
evolves through programmes
like our TIC 4.0 initiative, we are

increasingly finding ourselves

presenting our brand to a new

kind of audience.

Traditionally, we could comfortably
describe ourselves as a B2B business,
but over recent years we have
increasingly seen a partial migration
of some services up the supply chain,
which puts us squarely in front of the
end consumer. In that sense, we are
now – at least partially – operating in
a B2B2C environment.

Take e-commerce for example,
when customers buy from online
retailers they need to be confident
in the products they are purchasing.
Consequently, SGS now provides
services for major e-commerce sites
where we verify the quality of products
being sold by vendors on the site.

The result is that products ranging from
colouring books to 25 ton galvanised

steel coils are now being sold with the
SGS brand clearly displayed. In some
markets and notably in Asia, SGS is
rapidly becoming a go-to solution
to reassure online consumers about
issues ranging from sustainability
to product quality.

This means that SGS’ brand equity is
now openly being used as a product
differentiator. Vendors using the
SGS logo in this way are implicitly
aligning their products to some or all
of the benefits that SGS’ services
bring: speed to market, reduced risk,
efficiency, productivity, sustainability,
trust, quality and safety.

This marks a real evolution, not just for
SGS, but for the entire TIC industry.
Previously operating behind the
scenes, the important role the TIC
industry plays in ensuring product
quality and safety is gradually easing
its way into the public consciousness.

As it does so, communicating clearly
on what the SGS brand stands for and
continuing to deliver on the promise
that it represents, will only become
more important.

SGS SERVICE

> E-Commerce Quality

Control Service

CONSUMER BENEFIT

> Trusting that purchases
made online are up
to scratch

4. BUSINESS LEADERSHIP

GROWTH

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.

There is an obvious temptation

for companies to rush towards

becoming larger, stronger and

more influential. Yet pushing a

company to grow as an aim unto

itself is not necessarily a smart

move. Growth shouldn’t drive

strategy. The opposite is true:

strategy should drive growth.

At SGS, our strategy is pushing
us towards growth in two key
geographies: North America and China.

In North America, both economic and
regulatory drivers are incentivising
a rebalancing of our portfolio.
Consequently, we are putting less
emphasis on the energy-related
business space. This shift is entirely
in-line with changes across the
wider US economy. For the first time
in the US, energy has decoupled
from economic growth: over the
last decade, while the country has
witnessed economic growth of 10%,
energy consumption has dropped by
2.4%. At the same time, there have
been significant increases in budgets in
areas such as biopharmaceutical R&D,
and for both the US Food and Drug
Administration and The Environmental
Protection Agency.

These drivers have led us to acquire
six new companies in the continent
in 2016 (with 700+ new service
professionals and 20 additional
facilities). The outcome has been
clear: we are seeing a sustainable
6% organic growth rate in the North

American region. Transportation
delivered 11% organic growth in the
US in 2016, while Minerals achieved
58% top-line growth in Mexico.

In China, we believe that despite the
widely discussed slowdown of the
economy, the increasing liberalisation
of the Chinese domestic market
offers opportunities that can more
than offset it. With a TIC market size
of RMB 180 bn (approx. CHF 26 bn)
and an anticipated compound annual
growth rate of 13%, it is an inviting
market; more so, because of its high
level of fragmentation. With over
31 000 players (90% of which are
SMEs), there is certainly space for
market consolidation.

In addition to fostering organic
growth, our strategy in China has
therefore been to acquire companies
or partner with state-owned interests
with the necessary regulatory
permissions and licences to allow us
to leverage our national and global
network to the maximum, giving us
an early-mover advantage.

The results of this strategy can already
be clearly seen: we have achieved
close to double-digit growth in the
country and our rapidly expanding
e-commerce business enjoyed
triple-digit growth in 2016.

Therefore, it is strategy that drives
growth at SGS, not the reverse.
Whether through acquisitions,
strategic partnerships or by organic
expansion, the continued growth of
our global network in key markets
represents a competitive advantage
that SGS is highly focused on.

SGS SERVICE

CONSUMER BENEFIT

> Polymer Testing

> More responsive

carbon fibre products

4. BUSINESS LEADERSHIP

SGS SERVICE

CONSUMER BENEFIT

> Laboratory

Fleece Testing

> Woollen products that
are as comfy as they
are supposed to be

AGRICULTURE,
FOOD AND LIFE

934.9

6.1%

REVENUE
IN CHF MILLION

GROWTH
IN 2016

2015

2016

The business placed a strong

emphasis on Laboratory

expansion and strategic

investments to support the TIC

4.0 initiatives in supply chain

management, food regulatory

compliance and market data.

GROWTH AND REVENUE

Agriculture, Food and Life achieved
solid revenue growth of 6.1% (of which
4.5% organic) to CHF 935 million for
the year, with strong performance from
Life, Food and Trade activities tempered
by a slowdown in the agricultural input
market which affected the demand for
contract research activities. Recent
acquisitions in the UK, Canada and
Brazil made favourable contributions
to overall growth.

Food activities delivered solid growth
driven by strong testing services across
Asia and high demand for certification
activities, particularly in North America.
Strong growth in commodity services
in the first half of 2016 slowed as crop
quality and weather-related events in
Europe affected export volumes during

the traditional peak period. Recent efforts
to clean the portfolio and exit non-core
logistics operations resulted in reduced
revenues but will improve margins.
Seed and Crop activities continued to be
impacted by the slow input market and
drought in Southern Africa.

Life laboratory activities maintained
double-digit growth in 2016. Key drivers
were strong growth in Asia and the
USA, and acquisitive growth from
Quality Compliance Laboratories Inc. in
Canada. Clinical Research experienced a
slowdown in the second half of the year
due to the postponement of projects in
the Clinical Pharmacology Unit.

ADJUSTED OPERATING MARGIN

Adjusted operating margin declined from
16.3% to 15.7% in prior year (constant
currency basis) reflecting the challenges
in the agricultural input market as
well as the recent investments made
to enhance the laboratory network.

ACQUISITIONS AND
STRATEGIC PARTNERSHIPS

During the year, the Group acquired
a 75% share in Unigeo Agricultura de
Precisâo in Brazil, a leader in precision
farming services; and also acquired the
assets and license of John R. McCrea

Agency, Inc. (McCrea), an official
designated inspection agency active
in the USA. In addition, the Group
acquired two companies providing
analytical services: Biopremier,
a leader in next-generation sequencing
technologies in Portugal, and Laagrima,
specialising in consultations and
analytical services to the food and
hospitality market in Morocco.

In support of its TIC 4.0 strategic
initiative, the Group acquired minority
stakes in Transparency One in the USA,
a platform for supply chain visibility
and risk management, and AgFlow
SA in Switzerland, which operates an
innovative trade intelligence platform
aggregating OTC market data on global
grains, oilseeds/proteins and edible oils.
Under the same initiative, the Group
also acquired a controlling interest in
C-Labs, a start-up based in Switzerland,
developing solutions for transforming
food regulatory compliance.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2016

934.9

147.2

15.7

2015
PRO-FORMA2, 3

880.9

6.1

144.0

2.2

16.3

20153

892.4

4.8

146.8

0.3

16.5

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items. – 2. Constant

currency basis. – 3. Restated figures due to the change in business structure.

4. BUSINESS LEADERSHIP

SGS SERVICE

CONSUMER BENEFIT

> Diamond Classification

and Evaluation

> Knowing your diamond
is ethically sourced

MINERALS

635.0

2.6%

REVENUE
IN CHF MILLION

GROWTH
IN 2016

2015

2016

ADJUSTED OPERATING MARGIN

The adjusted operating margin for the
period increased to 14.3% from 14.0%
in prior year (constant currency basis),
as a result of gains achieved from
efficiency and optimisation initiatives
across the global network.

ACQUISITIONS

During the first quarter, the Group
concluded the acquisition of Bateman
Projects in Africa, which specialises
in process plant design and site
engineering services. The acquisition
has further strengthened the Group’s
position as the leading one-stop-shop
service provider.

The outlook for Energy Minerals

in South Africa remains strong.

The new world-class sampling

and laboratory facility at the

Richards Bay Coal Terminal

started a seven-year contract,

and has won five new onsite

coal laboratory contracts.

GROWTH AND REVENUE

Minerals delivered revenue growth
of 2.6% (of which -0.2% organic) to
CHF 635 million for the year, performing
above expectations, in a market that
continues to experience reduced
exploration expenditures.

Geochemistry laboratories delivered
strong growth with global sample
volumes increasing 11% over prior year
as a result of improved efficiencies and
integrated service packages.

Demand for laboratory outsourcing
continued to grow, with five new
contracts starting during the year.
A further six new contracts are expected
to begin in 2017.

Energy Minerals delivered exceptional
growth in South Africa, Russia,
Colombia and Vietnam and a more
stable performance in Australia and
the USA despite market contraction.

The commencement of a seven-year
contract in the new world-class
sampling and laboratory facility at the
Richards Bay Coal Terminal in 2016,
along with the award of five onsite coal
contracts, has provided the base
for a strong energy minerals outlook
in South Africa for 2017.

Trade services achieved solid
performance in steel and raw materials
and fertiliser trading activities, with
Russia, Mexico and China driving
growth. However, these results were
partially offset by flat performance
in non-ferrous activities.

The business added mine and plant
services to its portfolio in 2016.
This expansion has led to the securing
of plant optimisation contracts in
Russia and Mexico, with a solid pipeline
of opportunities for 2017.

Metallurgy continued to be impacted
by reduced exploration expenditure
in 2016, although performance
showed improvement in the second
half of the year.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2016

635.0

90.9

14.3

2015
PRO-FORMA2

618.9

2.6

86.6

5.0

14.0

2015

632.8

0.3

89.6

1.5

14.2

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items. – 2. Constant

Currency basis.

4. BUSINESS LEADERSHIP

SGS SERVICE

CONSUMER BENEFIT

> Statutory and Voluntary
Inspection Services

> A safe gas supply

to your home

OIL, GAS AND
CHEMICALS

1 098.4

-2.1%

REVENUE
IN CHF MILLION

GROWTH
IN 2016

2015

2016

SGS will provide offshore

inspectors and third-party

laboratory services for Shell’s

Prelude floating liquefied

natural gas (LNG) project,

ensuring expert support in

independent quantity and quality

measurements for one of the

most significant projects of its

kind ever undertaken.

GROWTH AND REVENUE

Oil, Gas and Chemicals reported a
decline in revenue of -2.1% (of which
-2.5% organic) to CHF 1 098 million for
the year. Performance was affected
by continued low oil prices and further
market deterioration.

Trade-related services remained
flat. Despite some customer-driven
procurement activities leading to
volume splits and a reduced number
of physical transactions, the business
remained resilient to industry-wide price
adjustment pressure and increased its
market share in most regions.

Plant and Terminal Operations remained
stable compared to the prior year.
North America, the strongest region,
delivered low single-digit growth, while
performance in Europe was impacted
by procurement-driven volume splits
and the loss of important contracts as
a result of pricing.

Upstream Services experienced a
decline, mainly in the exploration
sector in Australia and the Sub-Surface
Consultancy segment. The deterioration
of the security situation in some
regions also resulted in the withdrawal
of teams. This decline was marginally
offset by several contract wins in
the Production segment.

Oil Condition Monitoring delivered
single-digit growth driven by strong
performance across the laboratory
network from international and local
customers. The Non-Inspection Related
Testing business declined slightly,
impacted by industry in-sourcing trends
and reduced investment in laboratories.

Cargo Treatment Services and Fuel
Integrity Programmes (FIP) were
impacted by the cessation of FIPs in
Saudi Arabia and Ghana. The rest of
the business remained flat.

The Sample Management segment
delivered high double-digit growth.
Measurements and Instrumentation
operations posted high single-digit
growth in all regions, with performance
driven by an improved execution
platform and stable statutory
calibration requirements.

ADJUSTED OPERATING MARGIN

The adjusted operating margin
decreased from 11.3% in prior year
(constant currency basis) to 10.6%.
The decrease can be attributed to
revenue decline, which was partially
offset by strict cost-control measures
and an improvement in revenue
quality as a result of strong contract
performance reviews.

ACQUISITIONS

During the year, the Group acquired
Cargo Compliance Company in
the Netherlands, active in packing,
storage, consulting, classification and
professional training for the handling of
dangerous goods. This has established
SGS as the Dutch market leader in this
growing segment.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

116.4

10.6

2016

2015
PRO-FORMA2, 3

20153

1 098.4

1 122.2

1 126.4

(2.1)

126.5

(8.0)

11.3

(2.5)

128.6

(9.5)

11.4

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items. – 2. Constant

currency basis. - 3. Restated figures due to the change in business structure.

4. BUSINESS LEADERSHIP

SGS SERVICE

CONSUMER BENEFIT

> REACH Testing

Services

> Chemicals present
in your accessories
limited to safe levels

6.3%

GROWTH
IN 2016

ACQUISITIONS

2015

2016

During 2016, the Group acquired
Integrated Paper Services Inc. (IPS
Testing) in the USA, an independent
testing laboratory offering physical
and analytical testing in both the
consumer and supplier environments,
and Compliance Certification Services
Inc., one of the China’s leading
Electro Magnetic Compatibility testing
laboratories with operations throughout
Taiwan and China.

CONSUMER
AND RETAIL

During 2016, the business

successfully launched a new

Supplier Quality Engineering

Service, a turnkey solution to

support global Electrical and

Electronics clients with activities

ranging from supplier selection

and research and development

to regulatory compliance and

onsite production monitoring.

This high-value service is

already proving to be a success,

especially for clients launching

products in multiple markets.

GROWTH AND REVENUE

Consumer and Retail delivered
revenue growth of 6.3% (of which
4.7% organic) to CHF 873 million for
the year. High single-digit growth
was achieved in Northern Central and
Southern Europe, Eastern Europe
and Middle East, Africa, China and
Hong Kong and South East Asia.

Softlines reported robust growth over
the year. This was attributable to the
acquisition of new global accounts,

872.8

REVENUE
IN CHF MILLION

improved market share in Footwear
Testing and Consulting, as well as the
expansion of its footprint in emerging
markets. Softlines also benefited from
increased activity related to Detox and
zero discharge of hazardous chemicals
(ZDHC) campaigns.

Despite difficult market conditions for
Wireless testing due to the reduction in
the number of mobile phone models,
Electrical and Electronics achieved solid
growth and benefited from high volume
in Restrictive Substance Testing as well
as in Electrical Magnetic Compatibility,
Safety and Reliability testing activities.

Cosmetics, Personal Care and
Household delivered high growth
throughout the year, especially in China,
Germany and North America.

High single-digit growth in Hardlines was
driven by the acquisition of new global
customers in both the toys and juvenile
products segment and the hardgoods
segment, as well as an increased level
of activity in the e-market sector.

ADJUSTED OPERATING MARGIN

The adjusted operating margin for the
period decreased from 25.8% in prior
year (constant currency basis) to 25.6%
as a result of difficult market conditions
in Wireless.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2016

872.8

223.6

25.6

2015
PRO-FORMA2, 3

821.2

6.3

212.0

5.5

25.8

20153

826.1

5.7

215.7

3.7

26.1

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items. – 2. Constant

currency basis. - 3. Restated figures due to the change in business structure.

4. BUSINESS LEADERSHIP

SGS SERVICE

CONSUMER BENEFIT

> BS 8555 Certification

> Your favourite coffee

being environmentally
friendly

CERTIFICATION
AND BUSINESS
ENHANCEMENT

324.1

9.1%

REVENUE
IN CHF MILLION

GROWTH
IN 2016

2015

2016

Performance Management delivered
double-digit growth as a result of
a combination of factors, including
significant contract wins from Spanish
and British tour operators in hospitality
excellence services along with the
development of local initiatives to meet
the increasing demand from customers
to create customised programmes.

ADJUSTED OPERATING MARGIN

The adjusted operating margin for the
year increased to 17.7% from 16.2%
in prior year (constant currency basis).
Growth was driven by improved
efficiency along with the recent opening
of a second global business centre in
Asia. In addition, restructuring completed
at the end of 2015 helped Germany
to return to growth and profitability.

With the aim of building its

profile as a leading solution

provider, the business won a

contract to develop e-learning

courses for a leading brewing

company in Peru. The contract

win has given the business a

foothold in the solution provision

market in Peru.

GROWTH AND REVENUE

Certification and Business Enhancement
delivered solid revenue growth of 9.1%
(entirely organic) to CHF 324 million
for the year. Training activities focused
on the adoption of new standards and
regulations were a key driver.

The business experienced strong client
demand for the new ISO 9001:2015 and
ISO 14001 standards driving double-digit
growth in Training Services. In addition,
the development of technical training
dedicated to specific industries in
China and the gradual rollout of new
online courses around the network also
contributed significantly to growth.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2016

324.1

57.5

17.7

2015
PRO-FORMA2, 3

297.0

9.1

48.2

19.3

16.2

20153

298.6

8.5

48.7

18.1

16.3

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items. – 2. Constant

currency basis. - 3. Restated figures due to the change in business structure.

4. BUSINESS LEADERSHIP

SGS SERVICE

CONSUMER BENEFIT

> Feasibility Study

> Efficient and

appropriate use of
taxpayers’ money

INDUSTRIAL

890.9

5.5%

REVENUE
IN CHF MILLION

GROWTH
IN 2016

2015

2016

These South American acquisitions
focus on quality control testing in the
construction industries. The Group also
acquired Roos+Bijl in the Netherlands,
which provides engineering and
consulting, project management, asset
management and legal services for all
types of underground infrastructure.

The recently acquired business

in South Africa has developed a

solid relationship with the South

Africa National Roads Agency

Ltd (SANRAL) through its onsite

laboratories. The network,

currently consisting of 50 onsite

laboratories and generating a

significant portion of revenues,

boasts a solid growth pipeline.

GROWTH AND REVENUE

Industrial delivered revenue growth
of 5.5% (of which -2.6% organic)
to CHF 891 million for the year,
despite an organic decline in the
Energy and Construction markets
impacting the TIC sector.

The slowdown in the Energy market
was primarily related to depressed oil
and gas activities. A reduction in capital
investment and spending continued
to put pressure on volumes and prices
in North America, South Eastern Asia
Pacific and Africa. The pressure was
partially offset by solid downstream
activity in the Middle East and organic

growth in the energy market in
China and the nuclear market in
Western Europe.

Infrastructure and Construction activities
were affected by reduced public
investment in some South American
countries and Europe. However, this
decline was mitigated by the growth in
construction testing activities in Africa
and in project supervision in Chile.

The Group continued to extend its
laboratory testing network, adding
new capabilities in construction and
calibration testing, which delivered
double-digit growth.

ADJUSTED OPERATING MARGIN

The adjusted operating margin for the
period declined from 11.1% in prior year
(constant currency basis) to 9.4%.
The performance was impacted by
difficult market conditions in oil and gas,
in addition to overall price pressure.

ACQUISITIONS

During the year, the Group acquired
Matrolab Group in South Africa,
Laboratorios Contecon Urbar in
Panama and Colombia, and Laboratorio
de Control Técnico de Calidad de
Construcción Eecolab Limitada in Chile.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2016

890.9

83.6

9.4

2015
PRO-FORMA2, 3

844.2

5.5

93.9

(11.0)

11.1

20153

852.4

4.5

95.5

(12.5)

11.2

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items. – 2. Constant

currency basis. - 3. Restated figures due to the change in business structure.

4. BUSINESS LEADERSHIP

SGS SERVICE

CONSUMER BENEFIT

> Ballast Water Sampling

> The long-term

protection of our oceans

ENVIRONMENT,
HEALTH AND SAFETY

464.3

23.6%

REVENUE
IN CHF MILLION

GROWTH
IN 2016

2015

2016

and the early development stages of the
fast-growing metabolomics business.
These acquisitions enhanced the
geographical footprint and boosted its
service portfolio in North America.

The adoption of the International

Maritime Organization

Ballast Water Management

Convention and new vessel

emission standards are

expected to accelerate

Marine services revenue.

GROWTH AND REVENUE

Environment, Health and Safety
delivered strong revenue growth of
23.6% (of which 6.9% organic) to
CHF 464 million for the year. Growth
was driven by the expansion of
environment testing services in North
America, increased volumes from global
health and safety contracts (mainly in
Europe), and strong trends in the dioxins
market in Brazil, China and Taiwan.

Europe delivered strong results from
high-volume and high-margin laboratory
contracts, particularly in Germany, Italy
and the Benelux countries. Health and
safety contract wins in the hospitality
and real estate sectors were also a
factor. North America benefited from
the acquisition of Accutest Laboratories
and AXYS Analytical Services Ltd.,

expanding the footprint and service
portfolio. China and Taiwan delivered
significant growth from high demand
for testing services due to increased
enforcement and environmental
regulations. In South America, high
single-digit growth came from a rapidly
developing dioxins market in Brazil and
2015 acquisitions that performed in line
with expectations. In Australia, slower
economic activities in the oil and mining
sectors continued to hamper growth.

ADJUSTED OPERATING MARGIN

The adjusted operating margin for
the year decreased from 12.8% in
prior year (constant currency basis)
to 11.8%. The decline can be attributed
to a temporary margin dilutive effect
from the integration of the Accutest
acquisition which was partially offset
by the completion of several large
projects in Europe.

ACQUISITIONS

During the year, the Group acquired the
assets of Accutest Laboratories, the
fifth largest full-service environmental
testing company in the United States,
and AXYS Analytical Services Ltd., the
North American leader in ultra trace
analysis of Persistent Organic Pollutants,
Contaminants of Emerging Concerns

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2016

464.3

54.9

11.8

2015
PRO-FORMA2, 3

375.7

23.6

48.0

14.4

12.8

20153

375.6

23.6

48.0

14.4

12.8

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items. – 2. Constant

currency basis. - 3. Restated figures due to the change in business structure.

4. BUSINESS LEADERSHIP

SGS SERVICE

CONSUMER BENEFIT

> Aviation Fuel Testing

> Peace of mind
when flying

TRANSPORTATION

489.8

12.9%

REVENUE
IN CHF MILLION

GROWTH
IN 2016

2015

2016

Services delivered by recently acquired
companies have been replicated
successfully in new regions.

ADJUSTED OPERATING MARGIN

The adjusted operating margin for the
period declined from 18.5% in prior
year to 16.0% (constant currency basis).
The decrease can be attributed to
investments in the development
of testing activities and start-up costs
for the new contracts signed in the
Americas and Africa.

ACQUISITIONS

The Group acquired CyberMetrix
Inc. in the USA, providing high
horsepower engine testing services to
meet the complex emission standard
requirements on engines.

SGS opened a state-of-the-art

facility in Michigan capable of

performing servo-hydraulic,

shock and vibration testing.

This facility provides an increase

in capacity in close proximity

to many of our automotive

customers, and expands our

capabilities to cover a wider

transportation market.

GROWTH AND REVENUE

Transportation delivered strong revenue
growth of 12.9% (of which 7.9%
organic) to CHF 490 million for the year.
Growth was driven by all activities
of the business.

Regulated services strengthened its
position in the Americas, Europe and
Africa, with solid growth in Vehicle
Inspection Services along with a new
contract awarded and successfully
deployed in France to administer driving
theory tests. This contract generated
strong results in the second half of the
year. In Mauritius, the Group started
inspections in the fourth quarter
following the award of a contract for the

management of a test station in 2013.
In Uganda, inspections started at the
end of the second half of the year and
implementation is on schedule.
In Argentina, the first inspections
relating to a new contract were
performed in the fourth quarter at two
new stations in Buenos Aires.

In the USA, a contract extension,
including increased scope, was signed
with the State of California to run the
next generation electronic transmission
data management service for the
California Smog Check programme.
In addition, Field Inspection activities
delivered solid results, supported by
increased inspection volumes from
existing clients in Europe and the USA.

Testing Services for materials,
components and vehicles and engines
continued to grow with solid contributions
from operations in China, France, India
and the USA. The business also expanded
its services to include lightweight
materials testing for aerospace and
automotive applications in France.

Field Services’ supply chain operations
began to focus on the new quality
standard IATF 16949 for the automotive
industry, which will come into effect in
2018 and will oblige clients to adapt their
quality management systems.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2016

489.8

78.5

16.0

2015
PRO-FORMA2, 3

433.7

12.9

80.4

(2.4)

18.5

20153

447.6

9.4

82.1

(4.4)

18.3

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items. – 2. Constant

currency basis. - 3. Restated figures due to the change in business structure.

4. BUSINESS LEADERSHIP

SGS SERVICE

CONSUMER BENEFIT

> Forest Management

> Forests for our

Certification

grandchildren to enjoy

GOVERNMENTS
AND INSTITUTIONS

274.7

10.0%

REVENUE
IN CHF MILLION

GROWTH
IN 2016

2015

2016

Single Window solutions growth was
driven by strong performance in Ghana
and Madagascar, where increased
import volumes had a significant impact.

The new valuation solution, SGS
E-Valuator™, was successfully launched
in Haiti and fully implemented in
Cameroon. The solution corresponds with
the Group’s strategy of implementing
World Trade Organization and World
Customs Organization recommendations
to discontinue pre-shipment inspections.

ADJUSTED OPERATING MARGIN

The adjusted operating margin for
the year significantly increased
to 24.2% from 23.2% in prior year
(constant currency basis), driven by
strong trade volume from PCA and
Single Window solutions.

During the year, the Group

launched SGS Renovo,

a unique, trademarked e-waste

management solution, with

four contracts secured around

the world.

GROWTH AND REVENUE

Governments and Institutions delivered
solid growth of 10.0% (entirely organic)
to CHF 275 million for the year, with a
continued trend of solid performance from
Product Conformity Assessments (PCA).

The PCA market share strengthened
remarkably during the period. In
addition, two new programmes were
implemented in Cameroon and Gabon,
with the contract in Cameroon coming
online in the second half of 2016.

The Business delivered exceptional
organic growth with the completion of
the e-Gov programme (Inland Revenue
Management platform) deployment
in Ghana and a new 100% scanning
programme which was launched using
SGS D-TECT®, a revolutionary remote
inspection solution in Cameroon in 2016.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2016

274.7

66.6

24.2

2015
PRO-FORMA2

249.8

10.0

58.0

14.8

23.2

2015

260.0

5.7

62.3

6.9

24.0

1. Before amortisation of acquisition intangibles, restructuring and other non-recurring items. – 2. Constant

Currency basis.

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 where by joining
forces, we can benefit from economies
of scale and technical synergies.

Careful thought is given to every
acquisition. For example, Accutest, a
leading environmental testing company
in the United States, with seven
strategically located laboratories and
over 600 employees, presented a
unique opportunity to us. The move
immediately allowed us to position
SGS as one of the top environmental
laboratory players in the country.

This is particularly significant as
the US still represents the world’s
largest environmental testing market.
Moreover, it provides us with access to
a significant and diverse customer base,
offering an additional potential upside
for our global network.

In China meanwhile, our 51% stake
in Suzhou Safety-Tech Valve Testing
Co., Ltd., an independent safety valve
testing laboratory, gives us an early-
mover advantage in a growing market.
Although the laboratory only operates
locally, it has a number of nationwide
accreditations, allowing us to fully
leverage the SGS national network
across China.

STRATEGIC
PARTNERSHIPS

In addition to our traditional acquisition
strategy, which saw us focusing
on outright purchases to complete
networks or supply chains, we have also
begun to create strategic partnerships.
We define these as the purchase of
minority stakes (5-25%) in businesses
that operate in areas in which we are
not generally active.

We take these positions particularly
in the technology sector where they
allow us 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 AgFlow,
the innovative Swiss-based trade
intelligence platform in which we own
a 15% stake.

Located in the global commodities
trading hub of Geneva, AgFlow
aggregates Over-The-Counter (OTC)
market data on global grains, oilseeds,
proteins and edible oils from market
participants worldwide. SGS’ existing
research studies will enrich the AgFlow
market intelligence platform, while
AgFlow will broaden its technological
expertise in data analytics to transform
its raw data into actionable information
for SGS’ customers in the agricultural
supply chain.

This partnership is an excellent example
of how we leverage our strategic
partnerships to drive innovation and
improve our service offering.

These examples provide 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 acquire companies that
allow us to realise synergies across the
Group while building scale, enhancing our
capabilities, filling geographic gaps, and
improving our financial metrics, whilst
always maintaining strategic significance.

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 138 years.

2016 ACQUISITIONS
AND STRATEGIC
PARTNERSHIPS

SUZHOU SAFETY-TECH VALVE
TESTING CO., LTD. *
(51% stake)
China

ACCUTEST LABORATORIES
(Assets)
USA

CARGO COMPLIANCE COMPANY
Netherlands

THE LAB (ASIA) LTD.
(51% stake)
Hong Kong

MATROLAB GROUP *
South Africa

CYBERMETRIX INC.
USA

SHENZHEN FIRSTRANK
INDUSTRIAL DEVELOPMENT
CO. LTD. *
(75% stake)
China

BATEMAN PROJECTS *
(Assets)
South Africa

TRANSPARENCY-ONE
(20% stake)
USA

INTEGRATED PAPER SERVICES
INC. (IPS TESTING)
USA

LABORATORIOS
CONTECON URBAR
Colombia and Panama

SPECHUB
Panama

AGFLOW
(15% stake)
Switzerland

EECOLAB LTDA.
Chile

UNIGEO AGRICULTURA
DE PRECISÃO
(75% stake)
Brazil

COMPLIANCE CERTIFICATION
SERVICES INC.
Taiwan

ROOS+BIJL
Netherlands

AXYS ANALYTICAL
SERVICES LTD.
Canada

BIOPREMIER
(70% stake)
Portugal

C-LABS SA
Switzerland

LAAGRIMA
Morocco

Acquisition

Asset

Strategic partnership

* Transaction secured in 2015 and closed in 2016

4. BUSINESS LEADERSHIP

INNOVATION

THE WORLD
CHANGES. PEOPLE
MOVE ON. MARKETS
EVOLVE. AND
WORLD-CLASS
BUSINESSES LIKE
SGS NEED TO STAY
AHEAD OF THE CURVE
IN ORDER TO RETAIN
THEIR POSITIONS AS
MARKET LEADERS
INTO THE FUTURE.

Having been founded in 1878,

SGS has a long track record of

providing outstanding service

to its customers. We are proud

of this history and the hard

work that has gone into making

SGS the leading brand in the

TIC industry. Yet we know that

market leaders do not hold

onto the top spot by clinging

to past glories. That’s why we

are evoking the same spirit that

helped us pioneer the industry,

to enable us to move it forward.

For us the key to this is innovation.
Often the best innovation is driven
by market demand. Our customers
are operating in highly competitive
environments, where marginal gains
make all the difference. Moreover,
as circumstances change and new
segments appear, they need to
remain agile enough to exploit the
opportunities these present.

This means they are looking for
innovative tools and services that
can help them gain an edge. It is our

job to make that happen. Customer-
driven innovation comes from a deep
understanding of processes, pain
points, markets, technology and
fundamental business strategy.

But that is not our only source of
inspiration. We are a company with
a great belief in our own people. They
are the ones who are working on the
proverbial coalface and who are often
closest to the problem. Our internal
innovation initiative currently has
over 300 approved suggestions from
employees in the pipeline for further
research. This constantly reminds us
that sometimes the answers you need
can be found on your own doorstep.

On other occasions, strategic
partnerships or acquisitions provide
the insight we need. That is why
ensuring full knowledge sharing is
so important during the integration
process, as is allowing acquired
companies to retain their freedom
and entrepreneurial spirit.

The world changes. People move
on. Markets evolve. And world-class
businesses like SGS need to innovate,
to adapt and realign in order to retain
their positions as market leaders into
the future.

SGS SERVICE

CONSUMER BENEFIT

> Persistent Organic
Pollutant Testing

> Living in a world with

fewer toxins

4. BUSINESS LEADERSHIP

EXPERTISE

OUR ABILITY TO
OFFER WORLD-
CLASS EXPERTISE
IS DIRECTLY LINKED
TO THE QUALITY
OF OUR PEOPLE.

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 our 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 the best

people is not only a benefit for

SGS, it is essential.

For example, thanks to our experts,
in August 2016 we received the
Industry Appreciation Award from the
Canadian Special Crops Association
for our contribution to the Canadian
pulse crop industry. In the same
month, we also received the Bosch

North America Supplier Award for
our role in the design, build and
ongoing operation of Bosch’s
dedicated state-of-the-art testing
centre in Lapeer, Michigan.

Our position as a top employer
has also been recognised: in 2016
we won an Investors in People (IiP)
Gold Award in the Philippines
(see page 226 for more details).

Such successes can only occur in an
environment where our employees
are given the freedom to exercise
their judgement and make decisions.
Crucially though, they also have
the skills and ability to work in that
way. Brimming with passion and
energy, they are confident in their
own abilities and in the capabilities
of the wider network.

Consequently, we are mindful of
the fact that recruiting and retaining
the best talent is important for us
(see pages 75 and 76). New and
bold thinking is the lifeblood of our
business - it is part of what keeps us
ahead of the competition.

SGS SERVICE

CONSUMER BENEFIT

> Leadership and

> Access to world-class

Management Training

training globally

4. BUSINESS LEADERSHIP

INVESTMENT

INERTIA IS NOT
AN OPTION FOR
BUSINESSES
LIKE SGS. WE MUST
CONSTANTLY
ADAPT TO
CHANGING
CUSTOMER
DEMANDS AND
MARKET
CONDITIONS.

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 in the TIC

industry, but also keep abreast

of the technologies, markets,

regulations and dynamics of

the extremely diverse industries

we service.

Moreover, in order to offer our
customers a first-class service, our
own processes and capabilities must
also be optimal. That’s why in 2016
we invested in the implementation
of a new IT platform. SGS Connect,
as the project is called, includes
a number of features such as
Office365, Skype for Business,
and Yammer that enable our staff
to work collaboratively across the
globe whether they are in the field,
the lab or the office. The overall IT
system upgrade significantly improves
efficiency across the entire Group.

However, investing in technology
doesn’t always mean buying brand

new equipment. Our new EquipNet
programme serves as an internal
marketplace, where SGS teams can
save money by buying equipment
from other areas of the business. This
can result in hundreds of thousands
of Francs in savings across the Group
and significantly reduce waste.

Of course, technology is not our only
area of investment. We invest in our
people, their onboarding and ongoing
learning and development. We also
invest in acquisitions and in innovation
with an emphasis on supporting new
business areas with long-term growth
potential. In 2016, we also invested
CHF 1 177 000 in the communities
we work in around the world as part
of our sustainability work (see pages
89-90 for more details).

Naturally, despite being in a strong
financial position, SGS will only invest
in areas where we feel we will see
significant returns. 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.

SGS SERVICE

CONSUMER BENEFIT

> Project Finance

Services

> More projects meeting
environmental and
social standards

4. BUSINESS LEADERSHIP

OPERATIONAL
EXCELLENCE

HOW DO
BUSINESSES ENSURE
WORLD-CLASS
PERFORMANCE? BY
ASSURING GENUINE
OPERATIONAL
EXCELLENCE ACROSS
BUSINESS AND
FUNCTIONS. THIS
INCLUDES USING
THE BEST POSSIBLE
SUSTAINABLE
BUSINESS PRACTICES.

For SGS, an important aspect of

operational excellence is ensuring

our business is sustainable.

As well as delivering services

that promote sustainable

development, we manage our

sustainability performance

through our global management

system and accompanying

processes, which are aligned

to ISO 26000, ISO 14064

(for emissions inventories and

verification), the Global Reporting

Initiative’s G4 Guidelines and

the AA1000 Principles.

Our four sustainability pillars –
Professional Excellence, People,
Environment and Community – are
supported by Group-wide policies,
global programmes linked to our
Sustainability Ambitions 2020 and
multiple local initiatives.

Strong governance structures
underpin the delivery of our
sustainability strategy. Our
Sustainability Steering Committee,
a sub-group of the Operations
Council (see page 117), oversees
and approves our sustainability
strategy and monitors performance
against our policies and objectives.
Our Corporate Sustainability
team oversees and reviews our
sustainability management and
reporting. Progress is tracked using
more than 90 sustainability indicators,

which are captured at country level as
part of our financial reporting system.
Our sustainability performance and
associated financial impacts are
presented in our Green Book, which
is prepared for senior managers
every six months to pinpoint where
actions are required to mitigate risk
or maximise opportunities across
our affiliates.

After eight years of developing and
deploying our global sustainability
programme, we are transitioning its
focus from delivering transactional
value - achieving operating
efficiencies and cost savings through
programmes that engage employees
in action – to one that has the power
to deliver transformational change on
a global scale. Our aim is to engage
internal and external stakeholders
in actions that deliver value to
society, while our Leadership team
will become increasingly engaged
in championing sustainability and
demonstrating its value to our
business and wider society.

In 2016, we updated our sustainability
policies and guidelines to ensure
that they were aligned with the SGS
Business Principles, the SGS Human
Rights Policy, our Sustainability
Ambitions 2020 and our Business
Materiality Matrix. A detailed account
of our sustainability governance,
management and performance,
together with our sustainability
policies and good practice case
studies can be found in our online
report: www.sgs.com/cs-report2016.

SGS SERVICE

CONSUMER BENEFIT

> ISO 26000 Performance

> More socially

Assessment

responsible businesses

4. BUSINESS LEADERSHIP

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.

SGS SERVICE

CONSUMER BENEFIT

> Supply Chain Security

> Corporations

Management

working against
corruption, bribery and
human trafficking

COMPLIANCE
AND INTEGRITY

PERFORMANCE

100%

% OF EMPLOYEES SIGNING THE CODE OF INTEGRITY

100

2012

2013

2014

2015

2016

EMPLOYEES SIGNING
THE CODE OF INTEGRITY

Business ethics, integrity and respect
for human rights have been identified as
material issues, as defined in our Business
Materiality Matrix (see page 101).

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
the organisation. The Code applies to all
SGS employees, officers and directors,
affiliated companies, contractors,
joint-venture partners, agents,
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 onboarding programme,
and attending annual integrity training.
The content of our annual integrity
training is refreshed each year using
case studies drawn from the business
as well as emerging issues. As of 2017,
the training programme will feature a
mandatory case study on human rights.
Training is typically delivered face to face

and in teams by trained managers using
scenarios adapted to employees’ areas
of work. New employees must sign the
Code of Integrity 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.

A Human Rights Committee, chaired
by the Chief Executive Officer, and
comprising the Chief Compliance
Officer and Vice President Corporate
Sustainability met the first time
in January 2017 to plan activities
associated with the deployment of our
new Human Rights Policy and employee
training on the issue.

OUTLOOK 2017

We will be working on extending
the scope of our reporting in order
to include breaches occurring locally
and pending cases which are still under
review at the time of the reporting.
We expect to report on these figures
in the coming years.

207

155

TOTAL NUMBER OF BREACHES OF THE CODE OF INTEGRITY
IDENTIFIED THROUGH CORPORATE INTEGRITY HELPLINES

TOTAL NUMBER OF INTEGRITY ISSUES REPORTED THROUGH
CORPORATE INTEGRITY HELPLINES

TOTAL NUMBER OF VALID REPORTS INVESTIGATED
CONCLUDING IN NO BREACHES

“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.

241

245

198

200

207

169

155

141

109

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

CODE OF INTEGRITY
NON-COMPLIANCES

CODE OF INTEGRITY REPORTS

CODE OF INTEGRITY
INVESTIGATIONS

4. BUSINESS LEADERSHIP

SGS HUMAN
RIGHTS POLICY

The SGS Human Rights Policy
elaborates on the requirements within
the SGS Code of Integrity, the SGS
Business Principles and associated
policies to treat everyone with whom
we come into contact with fairness,
dignity and respect. It consolidates
our existing commitments and brings
increased clarity on our approach to
respecting human rights across our
global business.

The Sustainability Steering Committee
was involved in reviewing and proposing
modifications to the draft policy, and
employees on the SGS European Works
Council were consulted on it and were
given the opportunity to question the
CEO and Vice President, Corporate
Sustainability on what this Policy
means for SGS and for its employees
worldwide. The Policy will be approved
by the Operations Council in early
2017 and will be deployed across the
business during the year.

OUR HUMAN RIGHTS COMMITMENTS

• We strive to treat everyone with

• We are committed to conducting our
business in a manner that respects
the rights and dignity of everyone
affected by our business activities,
acting with due diligence, and
addressing the adverse impacts of
our global operations.

• We honour the principles and guidance

contained in the United Nations
Guiding Principles on Business and
Human Rights.

• We comply with all applicable laws and
we respect internationally recognised
human rights wherever we operate.
Where national law and international
human rights standards differ, we
follow the higher standard; where they
are in conflict, we adhere to national
law and we seek ways to respect
international human rights to the
greatest extent possible.

• We treat the right of causing or

contributing to gross human rights
abuses as a legal compliance issue.

• In the course of its activities, SGS will
not willingly be complicit of human
rights violations.

• SGS policies and codes are informed
by the International Bill of Human
Rights and the International Labour
Organization’s declaration on
Fundamental Principles and Rights
at Work; the Children’s Rights and
Business Principles; UN Women’s
Empowerment Principles; and the
UN Global Compact.

whom we come into contact fairly
and without discrimination. Our
employees, sub-contractors, business
partners and suppliers are entitled
to work in an environment and under
conditions that respect their rights
and their dignity.

• We respect freedom of association.
Where our employees wish to be
represented by trade unions or
works councils, we will cooperate in
good faith with the bodies that our
employees collectively choose to
represent them within the appropriate
national legal frameworks.

• We respect the rights of people
in communities impacted by our
activities. We will seek to identify
adverse human rights impacts and
take appropriate steps to address
and remedy them.

• Our actions are guided by transparency,
fact-based decision-making and based
on a preventative, precautionary and
integrated approach to environmental
management. This means conforming
to or exceeding the requirements of
national or international regulations
as well as investing in environmental
technologies and engaging in
continuous and informed dialogue with
relevant stakeholders.

• In our business dealings we expect
our partners to adhere to standards
of conduct and business principles
that are consistent with our own.
We are also committed to working
collaboratively with state and non-state
actors to inform our approach, share
experiences and help address shared
challenges and influence systemic
positive change.

SGS FRAMEWORK FOR MANAGING HUMAN RIGHTS

MANAGEMENT COMMITMENT

GOVERNANCE

INTERNAL CONTROLS

COMMUNICATION
AND TRAINING

MONITORING COMPLIANCE

REMEDIATION

TRANSPARENCY

Human rights commitments are embedded in the SGS Code of Integrity, the SGS
Human Rights Policy and the SGS Business Principles and its related policies.
We evaluate and review our approach to ensure that it reflects developments in laws
and societal expectations.

The Operations Council assesses the scope of SGS involvement in particular regions
and evaluates the risks to individuals, communities and SGS assets. The SGS Human
Rights Committee oversees implementation of our human rights commitments across
the Group. Senior managers are expected to demonstrate visible and explicit support
for human rights as defined in the SGS Code of Integrity and the SGS Business
Principles. The Chief Compliance Officer manages compliance with the SGS Code of
Integrity, while the SGS Corporate Security team ensures that security arrangements
adequately protect our people and assets and respect human rights.

Impact and risk assessments, supplier screening, audits of local security arrangements
and other due diligence processes are used to identify, prevent, mitigate and account
for how SGS addresses its human rights impacts. Due diligence is an ongoing process,
requiring particular attention at certain stages in our business activities, such as when
forming new partnerships or when our operating conditions change. We also conduct,
as appropriate, additional due diligence in countries where there are particularly high,
systemic risks of human rights abuses.

All managers and employees receive mandatory training on the SGS Code of Integrity,
which includes human rights aspects. We also provide specific training to relevant
business functions. We recognise the importance of dialogue with our stakeholders
and we pay particular attention to individuals and groups at greater risk of adverse
human rights impacts due to their vulnerability or marginalisation.

The SGS Code of Integrity and the SGS Code of Conduct for Suppliers contain clear
requirements and guidance on grievance mechanisms. Suspected violations are
reported via an Integrity Helpline or directly to the corporate and local Compliance
teams. We encourage employees and other stakeholders to report any concerns
without retribution. Performance against the SGS Code of Integrity is reported to the
Professional Conduct Committee. Internal reports and briefings on global security risks
and human rights impacts are regularly prepared for senior managers.

We cooperate with the relevant authorities to identify, mitigate and remedy adverse
human rights impacts that our business operations cause or contribute to.

We are committed to the transparent reporting of our human rights commitments
and performance through our Annual Report and our online Sustainability Report.

4. BUSINESS LEADERSHIP

PROCUREMENT

MILLION OF NEW SAVINGS

22%

REDUCTION IN THE NUMBER
OF SUPPLIERS

centres and have five ongoing revenue
projects, along with a solid pipeline
of innovative ideas.

Case study

EquipNet is a web-based platform
that enables our procurement and lab
managers to redeploy fixed assets
across the SGS network and sell them
externally. Using the tool, equipment
can be sourced at a 25%–75%
discount, which saves money and
minimises waste through re-use. Since
its implementation in October 2015,
EquipNet has attracted around 840
internal users and in December 2016 had
an inventory of more than 400 pieces
of equipment. During 2016, 318 pieces
of equipment were redeployed in the
business and 40 sold externally.

OUTLOOK 2017

We have reviewed and updated our
three-year savings plan and set up
new targets for the 2017-2019 period.
We will continue to standardise and
automate our Source to Pay processes
by promoting online tendering and
launching an electronic invoicing
programme through a supplier’s portal.
Once the pilot is completed, the global
rollout of the new transportation
management tool will start.

Additionally, we have planned a further
five supplier innovation days and expect
to see project revenue generated in
the first half of the year.

Finally, we will continue deploying our
Code of Conduct for Suppliers and
Self-Assessment Questionnaire,
targeting areas for improvement and
measuring our levels of success. In 2017,
we will launch a supplier performance
scorecard, ranking our suppliers
on six dimensions: quality, service,
responsiveness, competitiveness,
innovation and sustainability.

ACHIEVEMENTS

Procurement’s global efforts in 2016 have
led to a number of major achievements.
Worldwide, the function reported
CHF 57 million in new savings in 2016
as part of a three-year savings
programme for 2015-2017. In 2016, the
function developed a solid methodology
to monitor the impact of procurement
savings in the Profit and Loss Account.
Our supplier incentive programme
experienced significant growth during
2016, further focusing our procurement
volume on strategic suppliers.

We have also reduced the number of
suppliers worldwide by 24%, brought
rationalisation to our invoicing, delivery
and transaction volumes, increased
the use of our internal catalogues
by 20% and created a streamlined
procurement community.

As part of our supply chain strategy,
we have launched a pilot transportation
management tool to optimise efficiency
and ease demand planning. 2016 also
saw the establishment of a Real Estate
team to review our leasing and tenure
arrangements. As part of this initiative, all
our portfolio data have been uploaded into
a centralised management system, giving
us transparency across all countries.

2016 was also a remarkable year for
our sustainability and innovation-based
initiatives. Supply chain sustainability
was identified by SGS stakeholders as
being a material issue for the Company,
as defined in our 2016 Business
Materiality Matrix (see page 101).

We launched the SGS Code of Conduct
for Suppliers, setting out the basis of our
responsible sourcing approach. We also
launched our Supplier Self-Assessment
Questionnaire, designed to align our
suppliers’ management approach to our
defined standards on integrity, human
rights, health and safety, environment
and community.

We further strengthened our supplier
innovation programme with three new
strategic suppliers joining. The supplier
innovation programme is an integral part
of our supplier strategy to drive closer
collaboration and supplier partnerships.
The programme has now been
integrated within our Global Innovation
initiative. To date, we have completed
seven innovation days at supplier R&D

CUSTOMER
RELATIONSHIP
MANAGEMENT

In 2014, a single Customer Relationship
Management System started to be
deployed across the Group. This system
gives us better visibility on customer
information, sales, operational activities
and business opportunities.

Case studies involving customer
relationship management can be found
in our online Sustainability Report:
www.sgs.com/cs-report2016.

Customer relationship management
and customer satisfaction has been
identified as one of our material issues,
as defined in our Business Materiality
Matrix (see page 101).

We are committed to ensuring the
highest levels of service excellence
across our business. It is important
that we have the necessary skills,
competencies and processes in place
to anticipate and adequately respond to
our customers’ particular needs. Each
of our business lines has developed
mechanisms to formally and informally
seek feedback from clients. These could
include surveys (such as our Voice of
the Customer survey, which is used by
various business lines across multiple
geographies), periodic review meetings,
customer seminars and workshops.
In addition, our Compliance team works
with Executive Vice Presidents and
Managing Directors at country level
on specific issues raised by customers
through our hotlines.

4. BUSINESS LEADERSHIP

PEOPLE

Our people are our most

important asset. We must

ensure that our employees

are safe and healthy at work,

are treated fairly and with

respect, and are able to fulfil

their potential.

SGS SERVICE

CONSUMER BENEFIT

> Health, Safety

and Environment
Management

> A safer and more
thoughtful society

TALENT
ACQUISITION

2016 also saw us optimising our Finance
support function through programmes
linked to the assessment and
development of critical competencies,
enhanced analytics and improved
transactional productivity to support our
growing global organisation.

A HIGHLIGHT IN 2016
WAS THE EVOLUTION
OF OUR EMPLOYER
BRAND, WHICH FOCUSES
ON EMPLOYEES
AS INDIVIDUALS,
ATTRACTING THE
RIGHT PEOPLE
TO SUPPORT OUR
BUSINESS GROWTH.
THE BRANDING
‘BE 100% YOU’
LAUNCHES IN 2017.

OUTLOOK 2017

Building on the success of our
e-recruitment strategy, which saw at
least 3 600 new recruits join through
e-recruitment channels in 2016, we will
continue to deploy digital solutions for
talent sourcing. In addition, we plan to
encourage employee referrals through
a programme called ‘Be 100% You’.
We will also focus on optimising our
HR, Finance and IT support functions to
ensure that we have an agile, sustainable
operating model to effectively support
our Sustainability Ambitions 2020.

ACHIEVEMENTS

Talent acquisition and retention have
been identified as material issues,
as defined in our Business Materiality
Matrix (see page 101).

Our strength lies in our people. In a
competitive business environment, our
global footprint, variety of business lines
and approach to sourcing talent locally
wherever possible relies on our ability
to attract, develop and retain 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
in both developed and developing
countries, diffusing knowledge,
boosting innovation and enhancing
career opportunities locally. We are
also acutely aware that the global
workforce is becoming more diversified,
with younger workers – millennials –
predicted to represent at least one-third
of the global workforce by 2020.

Meeting these challenges demands
a dynamic talent sourcing strategy,
the successful integration of
employees from business acquisitions,
and processes that are tailored to
employees' needs. During 2016,
our workforce increased by 5 000
employees, representing a 5.9%
increase on 2015. Our talent sourcing
strategy is characterised by programmes
linked to e-recruitment, employer
branding, competency-based
assessments and the efficient
onboarding of people into our values,
culture and business processes.
Increasingly, these programmes rely on
the innovative use of digital tools and
social media to help keep communities
of employees, candidates and
prospective candidates connected.

4. BUSINESS LEADERSHIP

EMPLOYEE
RETENTION

1 300

ACTION PLANS LAUNCHED IN 2016

enhancing communications. Managing
Directors are responsible for monitoring
progress against these plans and
updating their teams on the actions
that have been taken.

OUTLOOK 2017

We will continue to focus on maintaining
a natural employee turnover of 10%
or less, in line with our Sustainability
Ambitions 2020. To this end, we will
reinforce our talent management
programmes and ensure that
engagement remains at the heart of our
team activities at local and global levels.
We will conduct a revised Catalyst survey
that is aligned to market trends and our
Group vision, and we will ensure that
our employees continue to play a key role
in making SGS a great place to work.

ACHIEVEMENTS

Our aim is to help our people to reach
their full potential by working in various
parts of the organisation and by creating
opportunities for them to work in
different countries and business lines.

This provides them with access to
our global portfolio of customers and
exposure to different cultures and ways
of thinking.

Managing employee turnover in a
dynamic and often volatile employment
market is a challenge for any company.
At SGS, improving retention remains
important. In 2016, we focused our
efforts on performance management,
defining new leadership competencies
and working with leaders to develop
career path planning. In addition, we
redefined our employee engagement
strategy. As part of this, we are
transitioning our employee survey,
Catalyst, to a biennial survey, to allow
teams adequate time to put in place
qualitative action plans and focus efforts
on increasing the visibility of these plans
between surveys.

Since our last survey in 2015, more
than 1 300 action plans have been
launched, with a primary focus on
building up confidence and trust,
increasing growth and development
opportunities for employees, and

PERFORMANCE

12.10%

PEOPLE LEAVING BY THEIR OWN WILL

2.07 %

TRAINING COST (INCLUDING HOURS) AS A PERCENTAGE
OF EMPLOYMENT COST

1. As of 2016, this KPI is calculated based on permanent

(fix-term and open-ended) contracts.

2. On a constant currency basis.

14.20

12.25

12.77

11.93

12.10

2.51

2.35

2.18

2.22

2.07

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

NATURAL TURNOVER1

TRAINING RATIO2

ACHIEVEMENTS

OUTLOOK 2017

We are encouraged to see that our
equal opportunities ratio is improving
year-on-year and we expect the number
of women in leadership positions
(CEO-3) to increase in line with our
Sustainability Ambitions 2020. During
2017, Management’s attention will
be focused on creating the best
opportunities to promote and recruit
women to these roles.

We also plan to raise the profile of
women leaders within SGS and provide
support to women who would like to
take such roles within the Company.
While reviewing our career development
and leadership competency frameworks,
we will ensure that we are supporting
the advancement of women across
our global network, as well as enabling
employees to develop their leadership
skills and behaviours at every level of
the Company.

DIVERSITY
AND EQUAL
OPPORTUNITIES

68%1

1. As measured in the 2015 Catalyst Survey.

ENGAGEMENT INDEX

71%2

2. As measured in the 2015 Catalyst Survey.

PERFORMANCE EXCELLENCE INDEX

26.31%

WOMEN IN LEADERSHIP POSITIONS
(CEO -3)

Diversity and equal opportunities are
among our most important material
issues, as defined in our Business
Materiality Matrix (see page 101).

SGS is a diverse and inclusive business
where ambitious people at every level
are encouraged to realise their potential.
The SGS Business Principles, Code
of Integrity and new Human Rights
Policy all underline our commitment to
diversity and equal opportunities, and
our employees and managers are trained
in the principles of non-discrimination in
our mandatory annual integrity training.
As a part of this, SGS recognises
the significant contributions that
women make to business success.
Our Operations Council now includes
two female members and we have
many women managers across our
business lines, corporate functions
and operations who represent an
intrinsic and essential part of our
leadership capabilities.

During 2016, we interviewed women in
leadership positions across the business
to capture their personal insights on
the qualities needed for those seeking
a leadership role within SGS.

PERFORMANCE

0.88

(FEMALE MANAGERS/FEMALE EMPLOYEES)/(MALE
MANAGERS/MALE EMPLOYEES)

0.87

0.88

0.84

0.76

0.75

2012

2013

2014

2015

2016

EQUAL OPPORTUNITY RATIO

4. BUSINESS LEADERSHIP

OPERATIONAL
INTEGRITY

ACHIEVEMENTS

Operational Integrity is the term we
use to describe our health, safety and
environmental management approach.

With more than 90 000 people working
for us, we are committed to keeping
them safe and healthy, and to supporting
their wellbeing.

Among our six SGS Business Principles,
one focuses specifically on Health, Safety
and Environment (HSE) matters while all
others have the concept of Operational
Integrity ingrained within them.

The Operational Integrity team reports
directly to the CEO and our strategy is
clear: to be best in class in Operational
Integrity. Striving for zero incidents
demands a global safety culture that
is based on an unceasing commitment
to making personal and co-worker
safety an integral part of our everyday
working lives.

PERFORMANCE

0.27

We are building this culture through our
Operational Integrity strategy, which is
based on seven pillars (see page 80-81)
and is underpinned by a Group-wide
Operational Integrity Management
System that is aligned to internationally
recognised standards of health, safety
and environment. We deploy our global
Operational Integrity strategy through a
Top-Page process based on the European
Foundation for Quality Management
Model. This allows us to focus on
specific key programmes, including
incident investigations, training, hazard
identification and correction, leadership
visits and best practices.

During 2016, we published a revised
Health Safety and Environment Policy
Statement, which includes a Stop
Work Authority clause, providing SGS
employees and co-workers with the
responsibility and obligation to stop
work when a perceived unsafe condition
or behaviour might result in an unwanted
event. The Stop Work Authority
programme was deployed throughout
the organisation during September as
part of our designated Safety Month.
During the month, almost 62% of
employees participated in around 100
"think safety" initiatives.

A key focus during the year was on
hazard identification, which involved

more than 40 000 hazards being
recorded in our Operational Integrity
reporting tool, indicating a 84% increase
in people’s ability to identify 'at risk'
conditions compared to 2015.

Leadership visits were another key
feature of our Operational Integrity
activities during the year, with managers
engaging employees in the field on
safety issues – from chemicals handling
to road safety.

All of these activities combine to help
further integrate safety, health and
wellbeing into the DNA of the Company.

A HIGHLIGHT IN 2016
WAS THE INTEGRATION
OF HEALTH AND SAFETY
PERFORMANCE INTO
THE MANAGEMENT
INCENTIVE SCHEME
FOR MANAGING
DIRECTORS AND
EQUIVALENT POSITIONS.

Alongside our focus on safety, our
Global Industrial Hygiene Programme
uses a standardised approach to
managing industrial hygiene, which
is aimed at protecting the health and
wellbeing of our people through disease

0.53

18.21

0.63

0.58 0.60

1.27

1.10 1.11

0.38

0.27

0.65

0.53

7.22

18.21

12.62 12.47

10.72

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

LOST TIME INCIDENT RATE (LTIR)
(200 000 HOURS)

TOTAL RECORDABLE INCIDENT RATE
(TRIR) (200 000 HOURS)

OPERATIONAL INTEGRITY TRAINING
HOURS (PER EMPLOYEE)

OUTLOOK 2017

Our Sustainability Ambitions 2020 for
Operational Integrity are to reduce our
Total Recordable Incident Rate and
our Lost Time Incident Rate by 50%,
based on a 2014 baseline. As such,
we will continue our focus on
embedding a safety culture throughout
the Company using the seven pillars of
our Operational Integrity strategy.

We will further invest in Operational
Integrity training, Industrial Hygiene
programme deployment, hazard
identification and risk assessments.
Also we will extend the deployment
of our Rules for Life e-learning module
across our network and support our
team of 23 Global Operational Integrity
Auditors with their work. Finally, we will
deploy behaviour-based safety pilots
in all regions where safety performance
remains a particular focus.

and fatality prevention, increased
quality of life, improved health and the
promotion of healthy and safe living.

During 2016, we conducted
Environmental, Health and Safety and
Industrial Hygiene pilot schemes in
Australia, China, India and New Zealand
aimed at increasing the visibility of
industrial hygiene and occupational
health issues at SGS sites and ensuring
legislative compliance.

We conducted Industrial Hygiene
surveillance at selected sites in Australia,
Bangladesh, Malaysia and New Zealand,
with the findings informing the launch
of a global rollout in 2017.

We also initiated a global programme to
check the status of personal protective
equipment implementation, covering
the selection, procurement, deployment
and monitoring of personal protective
equipment across our operations.

In conclusion, 2016 was a significant year
for Operational Integrity, with us achieving
our Sustainability Ambitions 2020 to halve
our Lost Time Incident Rate and Total
Recordable Incident Rate figures based
on a 2014 baseline. The fact that
this goal has been achieved four
years early means that we must
maintain, and hopefully further improve,
our Operational Integrity performance
year-on-year.

PERFORMANCE

55 342

16.64

54 963

55 342

50 005

39 381

22.17

18.40 18.77

18.86

16.64

2013

2014

2015

2016

2012

2013

2014

2015

2016

PARTICIPANTS IN THE SAFETY
MONTH INITIATIVE

SEVERITY RATE (LOST DAYS / LOST
TIME DUE TO INCIDENTS)

4. BUSINESS LEADERSHIP

OUR SEVEN
OPERATIONAL
INTEGRITY
PILLARS

LEADERSHIP

COMMUNICATION

TRAINING AND AWARENESS

RESOURCES AND SKILLS

is overseen by an Executive Operational Integrity Steering Committee, which is
chaired by the Chief Executive Officer and composed of Chief Operating Officers
and Senior Vice Presidents. The Committee meets quarterly to review our
Operational Integrity (OI) strategy and performance. It is supported by an extended
OI Steering Committee that brings managers, regional businesses and corporate
functions together to collaborate on OI management across the network. Our Chief
Operating Officers, Managing Directors and site/laboratory managers provide active
leadership on OI across our global network. In 2016, 22 leadership visits were
conducted per one hundred employees compared to 12 leadership visits per 100
employees in the previous year. During the year, a mobile OI app was introduced
to assist managers in making leadership visits, by accessing HSE guidelines and
recording their observations in real time.

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. During 2016, more than
39 500 employees completed our updated Rules for Life e-learning module,
which is available in eight languages.

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 Operational Integrity training days and e-learning for all business and
site managers. In addition, we provide generic and specific training for employees
across all functional operations and corporate sites, which is delivered in a range
of formats, including manager-led toolbox meetings, Safe Talks on key safety
topics and e-learning modules, which are available in local languages. During 2016,
the average number of training hours per employee was 18, which exceeded our
target of 14.

Road safety, driver behaviour and driving habits remain critical risks associated with
the territories and driving cultures in which our employees and subcontractors are
required to work. We continue to run quarterly campaigns on in-vehicle monitoring
with our Eastern Europe and Middle East and South America regions pioneering the
programme. To date, more than 2 400 vehicles have been equipped with In Vehicle
Monitoring Systems, resulting in significant improvements in driver behaviour and
a reduction in our vehicle incident rate, which fell by 16% in 2016.

have been strengthened at the global Operational Integrity team level as well as
at regional and affiliate levels. During 2016, we allocated additional resources
to hazard identification and risk assessments.

are captured via our reporting tool, which provides a standardised, multilingual and
data-driven incident management and reporting interface to expedite regulatory
and client-mandated incident reporting. Following its implementation and the
simplification of the reporting functionality, we have detected a significant increase
in the reporting of hazards. Also, our Safety Data Sheet Management System
provides consolidated and up-to-date information on potential hazards associated
with the chemicals used in our laboratories, and how to manage them.

reviews health risks, environmental and chemical impacts, and safety
risks.The audits are conducted by an internal team of 23 certified Health,
Safety and Environment auditors and the findings are reported to the Executive
Management team.

are conducted annually using a specially designed online tool, which provides a
comprehensive overview of potential risks for each site and the controls in place
for managing them. This tool uses around 400 questions covering 15 categories to
enable the classification of sites as low, medium or high risk. In total, 1 085 sites
completed the self-assessment and were benchmarked globally.

KEY PERFORMANCE INDICATORS

AUDITS AND COMPLIANCE

HEALTH, SAFETY AND
ENVIRONMENTAL (HSE)
SELF-ASSESSMENTS

4. BUSINESS LEADERSHIP

ENVIRONMENT

We are committed to

achieving sustainable growth

while managing our impact

on the environment, through

our Do More With Lëss. We

recognise our role in helping

our customers to improve

their own environmental

performance and to

participating in the global

effort to reduce climate risk

in accordance with the COP21

Paris Agreement. We are also

committed to measuring and

reducing our carbon footprint

through operational

eco-efficiency measures and

to maintaining our status as

a carbon neutral company.

SGS SERVICE

CONSUMER BENEFIT

> Sustainable

Building Certification

> Living and working
in greener cities

EMISSIONS AND
CLIMATE CHANGE

ACHIEVEMENTS

Energy and climate change are among
the most important issues for SGS,
as defined by our 2016 Business
Materiality Matrix (see page 101).

As a global company, we are concerned
about the potential impact 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.

Our Green Book, launched in 2012,
is a six-monthly environmental profit
and loss account prepared for senior
managers, to help 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 Sustainability
Ambitions 2020 and ultimately to reduce
our environmental impact.

We continue to work to reduce our
carbon emissions and have achieved
carbon neutral status through carbon
offsets and Guarantees of Origin
solutions (investments in renewable
energy projects), energy efficiency
measures and renewable electricity
supply in some of our affiliates.

We have over 73 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.

In addition to the renewable energy
and carbon credits purchased above,
SGS invested in three voluntary offset
schemes, in China, South America and
India, which support the development
of local enterprise through power
generation from wind and biomass.
These credit purchases, which have
been verified by the Clean Development
Mechanism, provide important
opportunities to support sustainable
economic growth, provide clean energy
to regions and local communities, and
protect the environment by reducing
the reliance on fossil fuels for energy.

Since December 2014, when SGS
became one of the first companies in
the world 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 the Carbon Disclosure
Project, RE100 is collaborating with the
International Renewable Energy Agency

INVESTMENT IN RENEWABLE ENERGY INITIATIVES (TO MITIGATE OUR 2015 CO2 EMISSIONS)

NORTH AMERICA

62.0 GWH

US-RECs

MEXICO

1.3 GWH

I-RECs from Solar
PV in Honduras

EUROPE

74.5 GWH

guarantees of origin

TURKEY

7.0 GWH

I-RECs from Turkish
Hydropower

CHINA AND
HONG KONG

65.5 GWH

from chinese
I-RECs

TAIWAN

33.0 GWH

from Taiwanese
I-RECs

VIETNAM, INDONESIA,
MALAYSIA, THAILAND

12.0 GWH

from Vietnamese
and Malaysian I-RECs

I-RECs: International Renewable Energy Certificates.

4. BUSINESS LEADERSHIP

and others to get 100 of the world’s
largest companies to commit 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 the
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

PERFORMANCE

187

that our customers’ fertiliser usage
resulted in the emission of 4.5 million
tonnes of CO2. As a result of our
precision farming services, in 2016
we helped our customers to reduce
their CO2 emissions by 2.3%.

BUSINESS LEADERSHIP

For the third year running, SGS was
recognised in the Carbon Disclosure
Project 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
that support the global economy and
the global climate agenda.

We are particularly pleased to have
enhanced our environmental capabilities
in 2016, with the acquisition of Accutest
Laboratories, the fifth largest full-service
environmental testing company in
the United States. This acquisition
will enable us to further our focus on
helping customers to enhance their
environmental reputation, manage risk
and increase business efficiency.

OUTLOOK 2017

In line with our Sustainability Ambitions
2020, we plan to reduce 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,
web conferencing and the ongoing
deployment 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 efforts against 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.

31.22

2.08

Historical data restated due to changes in renewable energy accounting.

291

278

214

203

187

1. On a constant currency basis.

56.40 55.98

39.20

36.02

31.22

3.61 3.61

2.57

2.36

2.08

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

TOTAL GHG EMISSIONS
(THOUSAND TONNES CO2e)

CARBON INTENSITY BY REVENUE1
(TONNES CO2e/ MILLION CHF)

CARBON INTENSITY BY EMPLOYEE
(TONNES CO2e / FTE)

WATER AND WASTE
MANAGEMENT

A detailed account of water and
waste management and performance,
and good practice case studies, can
be found in our online report:
www.sgs.com/cs-report2016.

OUTLOOK 2017

We will continue to monitor our water
performance using our new building
rating tool, as well as other specific
projects managed at affiliate level, and
we will report new data relating to water
and waste from 2017.

ACHIEVEMENTS

Water and waste management were
not among the most material issues
identified by stakeholders in our 2016
materiality assessment. However,
we recognise that these issues are
increasingly important in a wider
sustainability context, as the potential
impacts of climate change and other
factors on water supplies and waste
streams become more apparent.

Protecting our water resources and
managing waste are both important to
the long-term health and wellbeing of
our employees and the communities
where SGS operates. Our commitment
is to manage finite natural resources
more effectively, and develop innovative
ways to reuse, recycle and prevent
waste. As a service company, our
water consumption is relatively low.
We use water in our laboratories and for
drinking, food preparation, cleaning and
sanitation. We also produce relatively
small quantities of hazardous and
non-hazardous (e.g. mixed paper,
mixed plastics and mixed organic)
waste. A standard operating procedure
for water and waste management and
minimisation is established as part of the
SGS Operational Integrity Management
System. Audits are conducted regularly
by the Operational Integrity team, which
assesses conformity to the procedure to
ensure best practices are applied.

PERFORMANCE

42.9

1.8

49.2

42.6

43.5 43.2

42.9

1.8

2.0

1.9

1.8

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

TOTAL WASTE GENERATED
(THOUSAND TONNES)

TOTAL WATER PURCHASED
(MILLION M3)

4. BUSINESS LEADERSHIP

ENERGY
EFFICIENCY

ACHIEVEMENTS

SGS is not an energy intensive
company. However, with over 90 000
employees working in more than 2 000
offices and laboratories with a 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 energy used in our buildings
accounts for almost 60% of our global
energy consumption.

SGS is a signatory to the World
Business Council for Sustainable
Development (WBCSD) Energy
Efficiency in Buildings 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 Energy Efficiency
in Buildings 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 47 energy audits and
self-assessments in our Energy
Efficiency in Buildings Programme in
2016. During the year, the Austrian
SGS head office in Vienna, relocated

to a German Sustainable Building
Council Gold certified building,
offering improved energy efficiency,
high-level indoor quality standards
and enhanced transport connections
for our employees.

Case study

In August 2016, SGS hosted the launch
of the new Swiss Sustainable Building
Standard (SNBS) in Bern, which was
attended by more than 400 participants.
The SNBS 2.0 is a new building
certification product for the Swiss
market, to which SGS has contributed
as part of its role in the Network for
Sustainable Construction in Switzerland.
The first SNBS certificate was awarded
the Credit Suisse Real Estate Fund
Green Property for its “Twist Again”
project in Bern.

Across our network, we increasingly use
video, audio and web conferencing to
reduce travel costs, cut CO2 emissions
and improve work-life balance. In 2016,
we implemented Skype for Business as
our primary web conferencing platform.
During the year we placed more than
158 000 conference and video calls that
helped us save more than 7 900 flights.

PERFORMANCE

886

RENEWABLE ENERGY

360

886

846

772 795 809

354

360

335 332

316

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

TOTAL ENERGY (GWH)

VEHICLES FUELS (GWH)

Recognising that energy efficiency
is driven by behaviour as much as
by technological intervention, our
Do More With Lëss - 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. Since 2013,
around 40 000 employees in 22 affiliates
across our network have participated
in the campaign, resulting, over
the years, in tangible improvements
in their energy efficiency and waste
management impacts.

Case study

The SGS Energy Challenge was a picture
contest that was launched across our
global network in November 2016 to
encourage employees to upload images
of themselves engaged in actions that
address climate change and other
sustainability issues in the workplace.
The images were then uploaded onto
the Corporate Sustainability Yammer
group. At the end of November, nine
images were selected based on the
number of ‘likes’ they received, and
the employees were awarded with
sustainable apparel. A special prize was
awarded to the participant with the most
creative and sustainable picture.

PERFORMANCE

526

RENEWABLE ENERGY

456

460

477 492

526

Examples of case studies linked
to Energy Efficiency in Buildings
Programme and Do More With Lëss
campaigns can be found in our 2016
Corporate Sustainability Report:
www.sgs.com/cs-report2016.

OUTLOOK 2017

As part of our Sustainability
Ambitions 2020, we are aiming
to reduce our annual CO2 emissions
by 20% against a 2014 baseline.
We also plan to reduce CO2 emissions
at all company-owned offices and
laboratories of 2 000 square metres
or more by 20% within the same time
period. We plan to achieve this through
our Energy Efficiency in Buildings
programme and Do More With Lëss
campaign. We will report on our
progress in our online Sustainability
Report, which is available at
www.sgs.com/cs-report2016.

333

266

219

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

ELECTRICITY AND
NON-TRANSPORT FUELS (GWH)

RENEWABLE ENERGY (GWH)

4. BUSINESS LEADERSHIP

COMMUNITY

We welcome local talent and

knowledge to our business.

We want to give back to

our communities through

employee volunteering and

investment in projects linked

to education, empowerment

and the environment. We

monitor the impact of our

community investment using

qualitative and quantitative

indicators based on the

London Benchmarking Group

measurement framework and

an annual community survey.

SGS SERVICE

CONSUMER BENEFIT

> SGS Community

> A better and more

Projects

empowered community

COMMUNITY
PROGRAMMES

During 2016, we revised our Community
Policy and Guidelines to bring them in
line with the SGS Business Principles,
the SGS Human Rights Policy and
our Sustainability Ambitions 2020.
The new policy and guidelines, which
were approved by the Sustainability
Steering Committee, will be deployed
globally in early 2017.

We have also revised our annual
community survey to provide us with
qualitative and quantitative indicators
of the impact of our community
investment. The survey, which is aligned
to our refreshed Community Policy and
Guidelines as well as to the London
Benchmarking Group, will enable us to
evaluate our community contributions
through cash donations and
sponsorships, employee volunteering
time, pro bono services and in-kind
support. In addition, this survey helps
us to evaluate the projects’ impacts
in our communities and environment.
The results of the survey are presented
in our online Sustainability Report:
www.sgs.com/cs-report2016.

ACHIEVEMENTS

In line with our Sustainability
Ambitions 2020, we aim to increase
our investment in local communities
by 30% (against a 2014 baseline).
All affiliates are encouraged to engage
employees in volunteering and to
invest in local community projects.
In addition, selected countries (based
on revenue and historical community
investment levels) have been assigned
specific investment objectives until
2020 to invest in projects that support
the United Nations' Sustainable
Development Goals. A particular feature
of these investments is the provision
of scholarships to people with limited
economic resources and restricted
access to education.

Case study

In August 2016, our Chief Executive
Officer and four members of the
Operations Council engaged in a
programme of tree planting in India at
SGS sites in Manesar, Navi (Mumbai),
Chennai and Pune.

PROGRAMMES

Investment in local communities
was identified as an important
issue by stakeholders in our 2016
materiality assessment.

In all of SGS' operations we continually
strive to conduct our business in a
manner that reduces our impact while
conducting our business in a way
that respects the rights and dignity of
individuals and communities affected
by our business activities. Beyond this,
we want to apply our skills and
innovation to help address the most
pressing sustainable development
challenges around the world.

Our Community Programme is led by
our affiliates who encourage employees
to engage in local volunteering and
fundraising activities. Across our global
network, we support around 360
community initiatives that are initiated
by employees and leadership teams
in our affiliates in response to local
challenges. Our community actions
are focused around three community
pillars: 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

focus on promoting physical,
emotional, intellectual and economic
empowerment 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.

During 2017, we will focus our effort on
promoting local economic development
by providing scholarships to low-income
youths. These scholarships will
enable local people to access
vocational skills training and acquire
qualifications aimed at improving their
employment prospects. Qualifications
will be offered across a number of
professional disciplines, ranging from
lead auditor certification for specified
ISO standards, certificates in good
agricultural practices, health and safety
audit qualifications, and certificates
in environmental management. All
training will be provided through the
SGS Academy network, our professional
training support structure.

4. BUSINESS LEADERSHIP

The United Nations' Sustainable
Development Goals define global
sustainable development priorities
and aspirations for 2030 and seek
to mobilise global efforts around a
common set of goals and targets.
They call for worldwide action among
governments, businesses and civil
society to end poverty and create a life
of dignity and opportunity for all. SGS
will work with an advisory company to
map our existing community activities
against the Sustainable Development
Goals and to develop action plans
focused on integrating them into our
management and reporting processes
at affiliate level.

OUTLOOK 2017

We will deploy our revised
Community Policy and Guidelines
globally, and work with our affiliates
to support employee volunteering
projects linked to our community pillars.
We will also work with the affiliates
to develop local action plans to ensure
that community actions are aligned,
where possible, to the United Nations'
Sustainable Development Goals and
volunteering activities.

PERFORMANCE

1 177

1. Including cost of volunteering hours.

356

1 177

1 037

956

844

753

352

356

303

217 222

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

INVESTMENT IN COMMUNITY1
(THOUSAND CHF)

COMMUNITY PROJECTS

SGS SERVICE

CONSUMER BENEFIT

> SGS Scholarships

> Career development
through education

4. BUSINESS LEADERSHIP

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.

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.

S B U S I N ESS PRINCIPLE
INTEGRIT

H I P

S
LE A

Y
T
I
L
I
B
A
N

A
T

T
H

A
N
D
S
A
F
E
T
Y

RESPEC

PROFESSIO

ISM

SGS ADDED VALUESGS BUSINESS MODELINNOVATIONGROWTHBRANDOUR INVESTORSOUR CUSTOMERSINVESTMENTEXPERTISEOPERATIONALEXCELLENCEOUR INDUSTRIESOUR PARTNERSOUR COMMUNITIESOUR EMPLOYEES

4. BUSINESS LEADERSHIP

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.

STAKEHOLDERS

Existing employees

Potential employees

Subcontractors

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.

STAKEHOLDERS

Existing customers

Potential customers

OUR INVESTORS
We add value to our investors
by being a robust, sustainable
business with a 138-year track
record. Our transparency, strong
leadership and commitment to
long-term sustainability make us
a sound investment.

STAKEHOLDERS

Shareholders

Financial community

Socially responsible investors

OUR COMMUNITIES
We currently support close to 360
community initiatives in response
to local challenges. Many of these
are aligned the United Nations’
Sustainable Development Goals.
We also support disaster relief and
environmental sustainability by
sharing our expertise and network
with non-profit organisations.

STAKEHOLDERS

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.

STAKEHOLDERS

Suppliers

Business partners

Consultants

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.

STAKEHOLDERS

Industry peers, trade bodies
and associations

Authorities, governments
and regulators

Unions and work councils

THROUGH OUR EMPLOYEES, CUSTOMERS, INVESTORS, COMMUNITIES 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.

S G S A DDED VALUE

R I E

O U R I N

S
R
E
N
T
R
A
P

R
U
O

NITIE

OUR COM

OUR EMPLO

U
R

C
U
S
T
O
M
E
R
S

OUR IN

SGS BUSINESS PRINCIPLESSGS BUSINESS MODELINNOVATIONGROWTHBRANDPROFESSIONALISMHEALTH AND SAFETYINTEGRITYINVESTMENTEXPERTISEOPERATIONALEXCELLENCELEADERSHIPSUSTAINABILITYRESPECT

4. BUSINESS LEADERSHIP

WHAT MAKES US
STAND OUT?

THE TIC INDUSTRY
UNMASKED

THE TIC INDUSTRY IS AN ESTIMATED
USD 200 BILLION MARKET. 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 this 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 it is not just individuals 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.

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 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,
that 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.
Thus our services become a cornerstone
of innovation and operational excellence
for our clients, as well as giving them
greater control over their risk.

determine capital stock enhancement or
deterioration. For example, if employees
work excessive hours (use), fatigue
(depreciation) sets in, which eventually
leads to reduced labour productivity.

Each capital flow can be distilled
into measurable indicators and
when relevant, further subjected
to economic valuation.

Economic valuation translates indicator
performance into financial terms.
Negative flows (i.e. depreciation) are
translated into costs and positive flows
(i.e. investment and appreciation) are
translated into benefits. Both the costs
and the benefits are comprised of
company, individual and governmental
components. For example, one human
capital (depreciation) indicator is
employee workplace injury. The potential
costs of an employee workplace
injury to SGS include administration,
compensation and finding replacement
staff. The potential costs to the injured
employee include reduced wellbeing and
associated medical costs. The potential
costs to government include medical
costs and lost tax revenues.

OUR VALUE
TO SOCIETY

Value2Society (V2S) is the mechanism
that we use to demonstrate the value
that SGS creates beyond financial return.

It quantifies the impact of our business
activities, positive and negative, direct
and indirect, across six types of capital
stock: natural, human, intellectual,
social, built and financial. Each capital
stock is conceived as a store of
economic benefits. For example, human
capital is the store of labour / work
within SGS employees. Throughout
the year, each capital stock (and its
store of benefits) undergoes change,
quantitatively and qualitatively, according
to levels of use and subsequent
investment, depreciation and
appreciation. It is the inter-relationship
of these four capital flows that

VALUE TO SOCIETY FRAMEWORK

Translation of indicator performance
into financial terms allows for indicator
comparison, indicator aggregation and
indicator integration with conventional
management, and in the future with
financial accounting systems. The
subtraction of all depreciation indicator
values, plus the sum of all investment
and appreciation indicators yields the
V2S figure. Therefore, V2S reveals a
broader, richer view on the contribution
SGS makes to the global economy.

CAPITAL FLOWS - INTEGRATED
REPORTING FRAMEWORK

N A T U R A L CAPITAL

M A N

N CA PIT

A
M
U
H

U F ACTU
A PITA

T
A
L

F
I

NAN C I AL
CAPI T A L
ELLECTUA L C A

P I T A L

Positive
flows

Negative
flows

Positive
flows

Negative
flows

Positive
flows

Negative
flows

Positive
flows

Negative
flows

Positive
flows

Negative
flows

GVA

Natural capital

Human capital

Intellectual capital

Manufactured capital

Social and
relationship capital

Value
to society

PROCUREMENT

DIRECT OPERATIONS

PRODUCT IN USE

VALUE TO SOCIETY

OPPORTUNITIES THAT HOLD WATER

Sustainability is one of today’s hottest topics. In the face of massive

media coverage and huge public interest, finding ways to operate

in a responsible manner has never been so important.

For decades, SGS has been providing sustainability solutions

and services for companies and organisations around the world.

At the same time, we’ve been leading by example.

Community is one of our four sustainability pillars. Supporting projects

that have the potential to change lives in communities where SGS

employees live and work is an integral part of our sustainability

commitment. In 2016, SGS donated a water tower and solar panels

to the Présence-Madagascar association. As a result, its Fanantenana

Centre, which helps abandoned children by offering them education

and training, now has water and electricity for a workshop.

Also during the year, in South Africa, the SGS Black Economic

Empowerment initiative helped Baitsanape Lab Supplies to develop

its presence in our national supply chain. The local company supplies

high-quality consumables and equipment, and provides employment

for nearby communities.

By investing in the communities that we work in, we aim to make a

positive impact on society and achieve greater economic sustainability.

SGS SERVICE

CONSUMER BENEFIT

> Ground Water
wells Analysis

> Cleaner, fresher water

5. MARKET RISKS

RISK MANAGEMENT
AND MATERIAL
TOPICS

Every year the SGS Board of Directors
assesses the risks that the Group
faces. 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 of Directors deliberates on
the adequacy of measures in place to
mitigate and manage risks, and assigns
responsibility to designated managers
for implementing these measures.

As part of this process, ownership and
accountability for identified risks are
approved by the Board of Directors.
The implementation of these actions is
audited by Internal Audit. The 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:

• 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.

• Governance and Integrity Risks –

arise when the corporate governance
structure and controls are inadequate
and when the ethical culture and
procedures are weak.

• 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.

During 2016, we reached a significant
milestone in our journey towards
integrated reporting by merging
the outputs of our materiality and
business risk assessment processes.
The journey began with an extensive
materiality assessment process,
involving a consultation of around
850 stakeholders, including customers,
senior managers, employees, suppliers,
NGOs, ratings agencies, sustainability
professionals and academics, in
52 countries. Alongside the survey, we
conducted a detailed benchmark review
of globally relevant and sector-specific
sustainability issues and trends.

Having conducted a weighted analysis
of the outputs of our materiality
assessment by stakeholder type,
we then integrated the business risks
identified in our annual Board
of Directors risk review to provide
a more complete picture of the most
salient issues for SGS. This resulted
in a consolidated list of environmental,
social and governance topics. Next
we conducted an impact assessment,
which involved over 80% of Operations
Council members participating in
an online survey to rank each topic
according to its relative impact on the
business (covering business continuity,
economic performance, reputation
and legal compliance) as well as their
assessment of the controls in place
to manage the impacts.

The outcome of the processes
described above was the development
of our first Business Materiality Matrix.

Having conducted such a robust exercise
to assess our material and business
issues, we are reassured to find that our
business objectives and our Sustainability
Ambitions 2020 remain focused on
the most important issues for our
stakeholders and for the business.

We plan to conduct a high-level
materiality review every year, and to
conduct a comprehensive assessment
of our materiality and business risks
every three years.

100

5. MARKET RISKS

BUSINESS
MATERIALITY
MATRIX

H
G
H

S
R
E
D
L
O
H
E
K
A
T
S
O
T
E
C
N
A
T
R
O
P
M

W
O
L

LOW

Business and
economic performance

Market presence

Business ethics
and integrity

Investment strategy / M&A

Energy and climate change

Regulatory compliance

Operational
Integrity

Talent acquisition and retention

Services development
and innovation

Pricing

Diversity and equal opportunities

Respect for human rights

Corporate governance

IT operations

CRM / Customer satisfaction

Brand and brand protection

Talent development and recognition

Risk and crisis management

Investment in
local communities

Sustainability of supply chain

Water and
waste management

Employee engagement

Customer privacy
and data protection

Role in public policy
developments

Business
standardisation

Fair and equal remuneration

Technical developments

Indigenous rights protection

Materials consumed

Tax strategy

Protection
of biodiversity

Security of Company assets

IMPACT ON SGS

HIGH

Professional excellence

People

Environment

Community

101

5. MARKET RISKS

RISK
MANAGEMENT
OVERVIEW

RISK AREA

RISK DESCRIPTION

MEASURES IN PLACE

STRATEGY AND PLANNING

INVESTMENT

Investment is required for SGS
to remain responsive to market and
technological advances.

• Solid individual business strategies and development plans

EXTERNAL
FACTORS /
COMPETITION

The SGS Group operates in volatile
markets and needs to sustain and/or
develop market share with innovation
and technical developments.

• Market intelligence (TIC industry trends)

• Innovation team

• Organic growth initiatives by individual business

BUSINESS
PERFORMANCE

The success of the SGS Group relies on
achieving our strategic objectives linked
to growth and margin.

• Continuous evaluation of assets and businesses

MERGERS AND
ACQUISITIONS

Inorganic growth has a significant impact on
achieving the Groups strategic objectives.
Inefficient integration of new companies
may lead to suboptimal synergies.

• Specific policy on mergers and acquisitions (key organisational

criteria and financial metrics)

• Operations Council review/approval of projects against

admissibility criteria

• Integration guidelines and platform to monitor integration status

PRICING

Pricing strategies to ensure that the
SGS Group remains competitive in market
sectors and geographies.

• Benchmarking of services and pricing tariffs

• Customer engagement and formal reviews

POLITICAL
ACTIVITIES

Political instability is a risk in some of
the countries where SGS Group operates.

• Collaboration with experts to maintain local legal, political

and fiscal knowledge

• Diversification of activities and countries to limit geopolitical risk

GOVERNANCE AND INTEGRITY

CORPORATE
GOVERNANCE

The quality of governance affects the
management of risk and the value of
a corporation. Effective, strong corporate
governance is essential for the efficient
functioning of markets.

• The SGS Board of Directors has overall responsibility for key

business policies, operational management and strategic oversight
of the Group's business activities. It is also responsible for ensuring
regulatory compliance, effective internal controls and standards
of professional conduct

BUSINESS
ETHICS

SGS operates in countries that are
recognised as having higher bribery and
corruption risks. Non-compliance with
related laws, such as anti-bribery or
fair competition legislation, could lead
to litigation or loss of accreditations.

• The SGS Board is assisted by the Audit Committee, Professional

Conduct Committee and Operations Council to ensure appropriate
quality of governance

• The SGS Code of Integrity and Code of Conduct for Suppliers

• Integrity rules (from integrity of services to compliance

with legislation)

• Training for all employees

• Whistle-blowing process

• SGS Human Rights Policy (as of 2017)

102

RISK AREA

RISK DESCRIPTION

MEASURES IN PLACE

REPUTATION

REGULATORY
COMPLIANCE

SGS relies on its reputation for integrity and
independence. In the event of poor service
delivery or a health and safety-related
incident, crisis management may not be
sufficient to mitigate any resulting brand
and reputational damage.

The SGS Group is subject to a wide variety
of laws, regulations and government
policies. SGS is exposed to litigation,
which could lead to payment of damages
and affect the reputation of the Group.

• Business operating procedures

• Health and safety standards

• SGS Code of Integrity and whistle-blowing process

• Risk (annual risk assessment) and control framework

• Business Continuity Plan

• Claim reporting system

• Insurance coverage and policies

• Continued government scrutiny

GLOBAL SUPPORT

IT INTEGRITY
AND DATA
SECURITY

Information systems and technology
infrastructure are key to supporting SGS'
strategy and growth. The IT architecture
and the new technologies chosen could
expose SGS Group to new threats.

FINANCE

The SGS Group could suffer from failing
to present reliable financial statements.
SGS Group is also exposed to risks
of fraud or financial misstatements.

SECURITY OF
COMPANY
ASSETS

SGS businesses and assets (covering
our people, physical assets, equipment,
intellectual property and funds) can be
exposed to a range of security risks.

RESPECT FOR
HUMAN RIGHTS

Business should be conducted in
a manner that respects the rights and
dignity of everyone affected by our
business activities.

SUSTAINABLE
PROCUREMENT

As a major purchaser, SGS must ensure a
sustainable supply of goods and services.

• Information Technology Service Delivery Model

• Security systems and applications

• Identification and prioritisation of strategic projects through

the IT Committee

• IT security strategy

• Security operations centre development

• Customer privacy and data protection controls

• Review of annual and half-year results by independent

external auditors

• Financial and management controls

• The Internal Control organisation at SGS expanded in 2016,

strengthening the control framework.

• Various policies are being revisited and updated, such as

the Group Tax Policy and the Group Treasury Policy

• SGS Corporate Security team

• SGS Global Security Standard and Security Guidelines

• Security Intelligence Hub collates internal and external data

on threats and controls in place

• SGS Business Principles, Code of Integrity and

SGS Human Rights Policy

• SGS Code of Conduct for Suppliers and Supplier

Self-Assessment Questionnaire

• SGS Human Rights Committee

• SGS Professional Conduct Committee

• Whistle-blowing process

• Rationalisation of supply base and efficiency savings

• SGS Code of Conduct for Suppliers

• SGS Supplier Self-Assessment Questionnaire

103

5. MARKET RISKS

RISK AREA

RISK DESCRIPTION

MEASURES IN PLACE

TALENT
ACQUISITION
AND RETENTION

The SGS Group relies on key personnel,
from operations to executive level. SGS
needs to retain employees with relevant
experience. Skilled employees may leave
to join competitors. Loss of key personnel
may impact quality, reputation and
customer confidence.

• Succession planning to ensure effective continuation

of leadership and expertise

• Geographic mobility to ensure continuity

• Employer branding initiative to attract talent

• New HR strategy focusing on talent management and recruitment

• Employee engagement via CATALYST survey and employee

representation and collective bargaining systems

DIVERSITY
AND EQUAL
OPPORTUNITIES

All workers must be treated equally and
be given the same set of opportunities
regardless of their race, age, gender,
sexuality, disability, culture or anything
else that might be discriminated against.

• The SGS Business Principles, Code of Integrity, Employment Policy

and the SGS Human Rights Policy underline our commitment
to diversity and equal opportunities

• Employees and managers are trained in the principles of

non-discrimination as part of our mandatory annual integrity training

INVESTMENT
IN LOCAL
COMMUNITIES

Businesses are expected to reduce their
impact and respect the rights and dignity
of individuals and communities affected
by business activities.

• Revised SGS Community Policy and Guidelines from early 2017

• SGS sponsorship and investment in community programmes

• Annual community survey monitors performance in local

community projects around the world

OPERATIONS

INNOVATION
CAPABILITY

Failure to innovate new services and ways
of delivering them could prevent SGS from
maximising revenue.

• Monitoring of operational KPIs to allow rapid up/down- scaling

of variable costs

• Diversified service offering to a wide range of industries

and geographies

• Increasing digitalisation of services

CUSTOMER
RELATIONSHIP
MANAGEMENT

A lack of focus on customer needs may
lead to customer dissatisfaction and
customer loss.

• Key account management structure and dedicated sales people

• Tracking on-time delivery

• Customer satisfaction surveys

ENERGY
AND CLIMATE
CHANGE

Mismanaged energy consumption and
greenhouse gas emissions could lead
to increased costs, interrupted supply,
safety risks, business disruption and
regulatory fines.

• Sustainability management system and external verification

of sustainability data

• Carbon neutral strategy, Energy Efficiency in Building programme
and commitment to RE100 to purchase 100% renewable energy

• Employee awareness campaigns

• Fleet Vehicle Emissions Policy

104

ASSURANCE STATEMENT

REPORT ON THE INTERNAL ASSURANCE OF THE SUSTAINABILITY CONTENT
IN THE 2016 SGS ANNUAL REPORT

NATURE AND SCOPE OF THE ASSURANCE

The scope of this assurance included examining the performance data and its supporting text, and reviewing the management
of this data.

The Sustainability content in the 2016 SGS Annual Report has been assured using SGS’ own protocols to ensure consistency with
the service offered to customers. The assurance comprised reviewing all relevant documentation and conducting 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 onsite and through conference calls.

Financial data drawn directly from independently audited financial accounts has not been checked back to source as part of this
assurance process, including the financial data related to procurement on page 72 (paragraph 1 to 3 included). As it was not related
to sustainability reporting, page 96 (in its entirety) was not included in the scope of the assurance process. Case studies in the
report were also not included in the assurance process. Assurance of claims by SGS that are statements of commitments or
forward looking in nature was not provided. In SGS, the materiality evaluation forms part of the risk evaluation and management
process. Consequently, the Business Materiality Matrix lay beyond the scope 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 form the basis of 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

In 2015, SGS extended its CO2 emission scope to the full SGS Group. In 2016, part of the focus of the CO2 data collation was
to improve capture of the CO2 emissions related to district heating, which were however not included in the 2016 Total GHG
emissions. This was noted by the assurors, who are satisfied that the underestimation stays within a range (4% to 6%), which will
not bias the stakeholders’ 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 2016 SGS Annual Report is reliable and provides a fair and balanced
representation of SGS activities in 2016 within the limitations of the stated reporting scope. However, in our opinion,
the measurement of purchased water consumption could be improved.

RECOMMENDATIONS

It is recommended in future reporting that SGS use the materiality evaluation to identify case studies which highlight activities around
high priority issues.

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, 9 February 2017

105

SGS SERVICE

CONSUMER BENEFIT

> Strategic Thinking

> Better senior

and Planning Training

managers leading
better companies

UNLOCKING NEW SKILLS

Talent Management is crucial for SGS given the emphasis we place

on the high calibre of our people. This manifests itself across our

entire business. For example, led by our CFO, the transformation of

our Finance function is well underway and is set to deliver world-class

efficiency and effectiveness whilst bringing further added-value to the

business. Yet, this strategic change also needs to be considered from

a talent management perspective.

Our senior Finance leaders, together with Human Resources,

are taking a very active role in helping employees transition smoothly

as the financial transformation initiative takes place. Doing this

effectively will ensure the optimisation of operations in our three

global service centres and allow us to develop closer business

partnerships with our local Finance teams, who will provide guidance

and ensure compliance.

In 2016, numerous activities have led to a strengthening of open

communication, employee engagement and talent management.

People development plans and learning solutions are being aligned

to the core competencies, which are at the heart of this

transformation. Career-pathing, development tools and tips are being

shared by Finance leaders with all employees to encourage further

professional growth.

6. GOVERNANCE

This Corporate Governance

Report informs shareholders,

prospective investors and the

1. GROUP STRUCTURE

AND SHAREHOLDERS

public at large on SGS policies in

1.1. Group Structure

5. COMPENSATION,
SHAREHOLDINGS
AND LOANS

matters of corporate governance,

1.2. Significant Shareholders

5.1. Content and Method of

such as the structure of the Group

1.3. Cross-Shareholdings

shareholders' rights, composition

roles and duties of the Board of

Directors and its Committees and

Management and internal controls

and audits. This report has been

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 January 2016

and with the Swiss Code of Best

Practice for Corporate Governance.

2.4. Shares and Participation Certificates

2.5. Dividend-right Certificates

2.6. Limitations on Transferability and

Admissibility of Nominee Registrations

2.7. Convertible Bonds and
Warrants/Options

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

3. BOARD OF DIRECTORS

6.2. Statutory Quorums

6.3. Convocation of General Meetings

3.1. Members of the Board of Directors

3.2. Cross Involvement

of Shareholders

6.4. Agenda

to attain this goal by defining clear

3.3. Elections and Terms of Office

and efficient decision-making

3.4. Limits on External Mandates

processes, fostering a climate of

3.5. Internal Organisational Structure

performance and accountability

among managers and employees

3.5.1. Allocation of Tasks within
the Board of Directors

alike, and aligning employees’

3.5.2. Committees

6.5. Registration in the Share Register

7. CHANGE OF CONTROL

AND DEFENCE
MEASURES

remuneration with the long-term

interests of shareholders.

3.5.3. Working Methods of the
Board and its Committees

7.1. Duty to Make an Offer

7.2. Clauses on Change of Control

3.6. Definition of Areas of Responsibility

3.7. Information and Control Instruments

vis-à-vis the Management

8. AUDITORS

4. OPERATIONS COUNCIL

4.1. Members of the Operations Council

4.2. Other Activities and Functions

8.1. Duration of the Mandate and

Term of Office

8.2. Audit Fees

8.3. Additional Fees

8.4. Supervisory and Control Instruments

4.3. Limits on External Mandates

vis-à-vis the Auditors

4.4. Management Contracts

9. INFORMATION POLICY

108

The SGS Corporate Governance

framework aims to achieve an

efficient allocation of resources

and clear mechanisms for

setting strategies and targets,

in order to maximise and protect

shareholder value. SGS strives

6. GOVERNANCE

1.2. SIGNIFICANT SHAREHOLDERS

As at 31 December 2016, Groupe
Bruxelles Lambert acting through
Serena SARL held 16.20% (2015:
15.00%). Mr. August von Finck and
members of his family acting in concert
held 15.03% (2015: 15.03%), the Bank
of New York Mellon Corporation held
3.35% (2015: 3.35%), BlackRock, Inc.
held 3.03% (2015: 3.03%) and MFS
Investment Management held 3.01%
(2015: 3.01%) of the share capital and
voting rights of the Company.

At the same date, SGS Group held
3.63% of the share capital of the
Company (2015: 2.77%).

During 2016, the Company has published
regularly on the electronic platform of
the Disclosure Office of the SIX Swiss
Exchange Ltd. all disclosure notifications
received from shareholders of transactions
subject to the disclosure obligations
of Article 20 SESTA. Such disclosure
notifications can be accessed at:
www.six-swiss-exchange.com/
shares/companies.

1.3. CROSS-SHAREHOLDINGS

Neither SGS SA nor its direct and indirect
subsidiaries have any cross-shareholding
in any other entity, whether publicly
traded or privately held.

1. GROUP STRUCTURE

AND SHAREHOLDERS

At 31 December 2016, 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).

On 31 December 2016, market
capitalisation was approximately
CHF 16 208 million (2015: CHF 14 949
million). Shares are quoted on the
SIX Swiss Exchange.

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
218 to 221 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 2016 are provided
in note 3 of the consolidated financial
statements included in the section
SGS Group Results (pages 156 to 157)
of this Annual Report.

The operations of the Group are divided
into nine 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.

Europe, Africa, Middle East

• Western Europe

• Northern, Central and Southern Europe

• Eastern Europe and Middle East

• Africa

Americas

• North America

• South and Central America

Asia Pacific

• East Asia

• China and Hong Kong

• South Eastern Asia and Pacific

The Group is also structured into nine
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 2016, the business
lines were organised as follows:

• Agriculture, Food and Life

• Minerals

• Oil, Gas and Chemicals

• Consumer and Retail

• Certification and

Business Enhancement

• Industrial

• Environmental, Health and Safety

• Transportation

• 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.

109

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 2016, SGS SA
held 283 929 treasury shares
(2015: 216 976). The shares related
to the shares buyback programme
are directly held by SGS SA, the shares
to cover the equity compensation plan
are held by a subsidiary company.

In 2016, 49 162 treasury shares were
sold to cover the equity compensation
plans and 6 315 were purchased for
an average price of CHF 2 127. As part
of the shares buyback programme,
109 800 shares were purchased in
2016 for an average price of CHF 1 961.
In 2015, the Group Initiated a share
buyback 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
programme started on 20 January 2015
and ended on 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
ten 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
nine 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. DIVIDEND-RIGHT CERTIFICATES

The Company has not issued any
dividend-right 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

110

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.

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 outstanding are
provided in note 31 of 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
backgrounds and all their material
positions held outside the Group in
governing and supervisory boards,
management positions and consultancy
functions, official tenures and political
commitments, both in Switzerland
and abroad, as at 31 December 2016
(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 for
the Group and meeting long-term value
creation objectives.

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.

Other Activities and Functions

*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), Member of the Board

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)

Past Chairman and a Member of

the Business Council of Canada (Can).

SERGIO MARCHIONNE (1952)

Other Activities and Functions

Canadian/Italian

Function in SGS

Chairman:

• Board of Directors

• Audit Committee

• Professional Conduct Committee

Initial appointment to the Board

May 2001

Professional Background

Chief Executive Officer of *Fiat Chrysler
Automobiles N.V.

*Philip Morris International SA,
Lausanne (CH), Member of the Board

*Exor N.V., Amsterdam (NL), Member
of the Board

Peterson Institute for International
Economics, Member of the Board

Council for the United States
and Italy, Chairman

European Automobile Manufacturers’
Association (ACEA), Brussels (BE),
Member of the Board

J.P. Morgan International Council, Member

Chairman of *CNH Industrial N.V.

PAUL DESMARAIS, JR (1954)

Chairman and CEO of *Ferrari N.V.

Canadian

Sergio Marchionne holds a BA in
Philosophy from the University of
Toronto, and an LLB degree from
Osgoode Hall Law School, York
University, in 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. As
of September 2013, he is also Chairman
of *CNH Industrial N.V., the company
resulting from the mergers of CNH
Global N.V. and Fiat Industrial S.p.A. 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.

Function in SGS

Member:

• Board of Directors

Initial appointment to the Board

July 2013

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

111

6. GOVERNANCE

AUGUST VON FINCK (1930)

Other Activities and Functions

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 and 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, this third generation
member 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.

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.

*Custodia Holding, Munich (DE),
Member of the Board since 1999

*adidas (D), Member of the
Supervisory Board

Carlton Holding, Allschwil (CH),
Member of the Board since 2001

*Staatl. Mineralbrunnen AG, Bad
Brückenau (DE), Member of the Board
since 2001

Bank von Roll, Zürich (CH), Vice-President
of the Board since 2009

*Von Roll Holding AG, Breitenbach (CH),
Member of the Board since 2010

*Imerys, Paris (F), Member of
the Board and Chairman of the
Strategic Committee, Member of
the Compensation Committee, Member
of the Appointments Committee

*Pernod Ricard SA, Paris (F), Member
of the Board, Member of the Strategic
Committee and Member of the
Remuneration Committee

* Umicore NV, (BE), Member of the Board

Erbe SA (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

Co-CEO 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. He began his
career in 1992 in Spain as co-founder
of a commercial company. From 1995
to 1997, he managed a consulting
firm specialised in the reorganisation
of ailing companies in France. From
1998 to 2005, he was Director at the
private equity funds Rhône Capital LLC
in New York and London. In 2005, he
founded the private equity fund Ergon
Capital Partners in Brussels and was
its Managing Director until 2012. In
2012, he became Co-CEO of *Groupe
Bruxelles Lambert of which he had been
a Board Member since 2009.

CORNELIUS GRUPP (1947)

Austrian

Function in SGS

Member:

• Board of Directors

• Professional Conduct Committee

Initial appointment to the Board

March 2011

Professional Background

Dr. Grupp holds a Doctorate in Law and
a Master in Business Administration.

He is the Owner and General Manager
of Tubex Holding GmbH, Stuttgart,
Germany, a company active in the
packaging industry and of CAG Holding
GmbH, Lilienfeld, Austria which is active
in the field of aluminum, glass and fibres.

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 General Consul of Austria
to the Land of Baden-Württemberg

112

GÉRARD LAMARCHE (1961)

Belgian

Function in SGS

Member:

• Board of Directors

• Audit Committee

Initial appointment to the Board

July 2013

Professional Background

Co-CEO of *Groupe Bruxelles Lambert,
since 2012.

Gérard Lamarche is a graduate
in Economic Sciences from the
University of Louvain-la-Neuve and the
INSEAD Business School (Advanced
Management Program for Suez Group
Executives). He also trained at the
Wharton International Forum in 1998-99
(Global Leadership Series).

He began his professional career with
Deloitte Haskins and Sells in Belgium
in 1983, and was appointed as an M&A
Consultant in the Netherlands in 1987.
In 1988, he joined Société Générale
de Belgique as an Investment Manager.
He was promoted to Controller in 1989
before becoming an Advisor to the
Strategy and Planning Department from
1992 to 1995.

He joined Compagnie Financière de
Suez as Special Advisor to the Chairman
and Secretary to 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 (the US subsidiary of the Suez
Group and world leader in industrial
water treatment) as General Managing
Director. He was appointed CFO of
the Suez Group in 2003.

He has been a Director of *Groupe
Bruxelles Lambert since 2011 and
Co-CEO since 2012.

PETER KALANTZIS (1945)

Swiss/Greek

Function in SGS

Member:

• Board of Directors

• Audit Committee

Initial appointment to the Board

March 2009

Professional Background

Peter Kalantzis holds a Ph.D. in
Economics and Political Sciences from
the University of Basel and engaged in
research as a member of the Institute
for Applied Economics Research at
the University of Basel between 1969
and 1971.

Prior to 2000, Peter Kalantzis was
responsible for Alusuisse-Lonza Group's
corporate development and actively
involved in the de-merger and stock
market launch of Lonza, as well as the
merger process of Alusuisse and Alcan.
Dr. Kalantzis served as head of the
Chemicals Division of Alusuisse-Lonza
Group from 1991 until 1996. In 1991,
Dr. Kalantzis was appointed Executive
Vice-President and Member of
the Executive Committee of the
Alusuisse-Lonza Group.

Dr. Kalantzis has worked as an
independent consultant since 2000.

Other Activities and Functions

Mövenpick/Holding AG, Baar (CH),
Chairman of the Board from 2000
to 2014, 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)

British

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 Zealand. 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,
Chairman since 2016, Member of the
Board since 2011

113

6. GOVERNANCE

Other Activities and Functions

*LafargeHolcim, Zurich (CH),
Member of the Board, Member
of the Strategy and Sustainability
Committee, Chairman of the Finance
and Audit Committee

*Total SA, Paris (F), Member of
the Board, Member of the Audit
Committee and Chairman of
the Remuneration Committee

SHELBY R. DU PASQUIER (1960)

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 and
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
and 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 and Cie Group SCA, Chairman
of the Supervisory Board since 2013

The Directors bring a wide range of
experience and skills to the Board.
They participate fully in decisions on key
issues facing the Group. Their combined
expertise in the areas of finance,
commercial law and 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 the non-executive
Directors (including the Chairman) are
independent from Management and free
of any relationship that could materially
interfere with the exercise of their
independent judgement.

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.

114

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

In compliance with the Ordinance against
Excessive Compensation at Listed
Joint-Stock Companies (OaEC), the
Company’s Articles of Association limit
the number of mandates permissible
to Board members. These rules limit
the number of mandates that 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 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 2016, the following Directors
served on the Nomination
and Remuneration Committee:

• August von Finck

• Ian Gallienne

• Shelby du Pasquier (Chairman)

In 2016, the Committee held one
meeting. Meetings of the Nomination
and Remuneration Committee were
attended by all members and had a
duration of two hours.

Audit Committee

The Audit Committee supports the
Board of Directors in discharging its
duties in relation to financial reporting
and internal controls. Such duties include
consideration of the appropriateness
of accounting policies, the adequacy
of internal controls, 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 2016, the following Directors served
on the Audit Committee:

• Sergio Marchionne (Chairman)

• August François von Finck

• Gérard Lamarche

• Peter Kalantzis

In 2016, the Audit Committee held four
meetings, with an average duration of
one and a half hours. Meetings were
attended by all members.

115

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 2016, the following Directors served
on the Professional Conduct Committee:

• Sergio Marchionne (Chairman)

• Shelby du Pasquier

• Cornelius Grupp

In addition to the Board Members, the
Professional Conduct Committee also
comprises the Chief Executive Officer
and the General Counsel and Chief
Compliance Officer (General Counsel).
The head of Internal Audit attends all
meetings of the Professional Conduct
Committee. The Committee met twice
in 2016, 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

6. GOVERNANCE

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 2016. Meetings
of the Board of Directors had an average
duration of three hours. All members of
the Board of Directors attended every
meeting of the Board in 2016, 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 that 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
shareholders’ resolutions

• Notifies the judicial authorities in the
event of insolvency of the Company,
as required by Swiss law

In accordance with the Company’s
internal regulations, operational
management of the Group, a function
which the Board of Directors has
delegated, is the responsibility of the
Operations Council. The Operations

Council has the authority and
responsibility to decide on all issues
that 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 nine regions (see section 1.1.)

• The Executive Vice Presidents (EVPs)
are entrusted with the management
and development of the Group’s
nine business lines (see section 1.1.)

• The Senior Vice Presidents (SVPs)

represent the principal Group support
functions (Finance, Human Resources,
IT, Communications and Investor
Relations, Corporate Development,
Legal and Compliance, and Strategic
Transformation).

The composition, role and organisation
of the Operations Council are detailed
in section 4.

3.7. INFORMATION AND CONTROL

INSTRUMENTS VIS-À-VIS

THE MANAGEMENT

A. Responsibility of the Board

The Board of Directors has ultimate
responsibility for the system
of internal controls established
and maintained by the Group
and for periodically reviewing its
effectiveness. Internal controls
are intended to provide reasonable
assurance against financial
misstatement and/or loss, and include
the safeguarding of assets, the
maintenance of proper accounting
records, the reliability of financial
information and the compliance with
relevant legislation, regulation and
industry practice.

116

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
and Chief Compliance Officer attends
all meetings of the Board of Directors
and its Committees.

The other members of the Operations
Council and other members of
Management only participate in
the Board and Committee meetings
by invitation.

C. Information to the Board

The Board of Directors is constantly
informed about the operational and
financial results of the Group by way of
detailed monthly management reports,
which describe the performance of the
Group and its divisions.

During each Board meeting, the
Chief Executive Officer and the Chief
Financial Officer present a report to the
Board of Directors on the operations
and financial results, with an analysis
of deviations from prior year and from
current financial targets.

During Board Meetings, the Board is
updated on important issues facing the
Group. The Chief Executive Officer, the
Chief Financial Officer and the General
Counsel and Chief Compliance Officer
(hereafter “Senior Management”)
attend all of the Board of Directors
meetings, while other Operations

4. OPERATIONS COUNCIL

The Operations Council (as defined
in section 1.1 meets on a regular
basis, in principle at least five 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
and expertise in their respective fields.
They come from a wide range of
backgrounds that reflects the multiple
aspects of the Group. The Group
strives to promote talent internally
and encourages women to assume
senior leadership positions. The
members of the Operations Council at
31 December 2016 were as follows:

FRANKIE NG (1966)

Swiss/Chinese

Chief Executive Officer

SVP Human Resources, ad interim

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

Council members attend from time
to time to discuss matters under
their direct responsibility. The Board
of Directors meets regularly with the
members of the Operations Council.

During Board Meetings or Committee
Meetings, Board members can
require any information concerning
the Group. The Board reviews and
monitors regularly and formally 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 and 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 and Chief Compliance Officer
reports violations of compliance rules
every semester to the Professional
Conduct Committee.

The Committee monitors disciplinary
actions taken and the 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
of 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.

117

6. GOVERNANCE

CARLA DE GEYSELEER (1968)

TEYMUR ABASOV (1972)

OLIVIER COPPEY (1972)

Belgian

Azerbaijani

Swiss

Chief Financial Officer

COO, Eastern Europe and Middle East

EVP, Agriculture, Food and Life

EMBA, Executive Master in Business
Administration IMD, 2005

Master in Economics and Finance, 1991

Joined SGS in 2014

Previous work experience

Degree in Electrical Engineering

MSc Economics

Joined SGS in 1994

Previous responsibilities

2006 – 2007: Managing Director,
Kazakhstan and Caspian Sub-Region

2009 – 2013: Vice President Seed
and Crop, Agricultural Services

2012 – 2014: Chief Financial Officer,
Vodafone Libertel, BV, The Netherlands

2004 – 2006: Managing Director,
Azerbaijan and Georgia

2006 – 2008: Vice President North
America, Agricultural Services, USA

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 and
Young, Belgium

Swiss

OLIVIER MERKT (1962)

Swiss

General Counsel and
Chief Compliance Officer

Doctorate in Law, admitted to the bar
in Switzerland

Joined SGS in 2001

Previous responsibilities

2006 – 2008: VP, Corporate Development

2001 – 2006: Senior Counsel

2003 – 2004: Managing Director, Georgia

2001 – 2003: Operations Manager, Oil
Gas and Chemicals Services, Azerbaijan

1994 – 2006: Managerial positions,
Agricultural Services, Switzerland/
India/Cameroon

JEAN-LUC DE BUMAN (1953)

SVP, Corporate Communications, Investor
Relations and Corporate Development

Legal studies

Joined SGS in 1998

Other work experience

1978 – 1998: Country Head Switzerland,
Sales Fixed Income, UBS

PAULINE EARL (1961)

British

COO, Western Europe

BSc in Food Science

Joined SGS in 1995

Previous responsibilities

2007 – 2010: Managing Director,
United Kingdom

2004 – 2007: SSC Business Manager,
United Kingdom

HELMUT CHIK (1966)

Chinese

ALEJANDRO

GOMEZ DE LA TORRE (1959)

COO, China and Hong Kong

Master in Business Administration

Peruvian

COO, South and Central America

Degree in Business Administration,
Postgraduate Specialisation in
International Commerce

Joined SGS in 1986

Previous responsibilities

1996 – 2001: National Chief Executive,
Peru and Manager Central Sub-Region,
Latin America (1998 – 2001)

Other work experience

1993 – 2001: Senior Manager Legal,
Ernst and Young, Geneva

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

118

DERICK GOVENDER (1970)

FRÉDÉRIC HERREN (1955)

THOMAS KLUKAS (1965)

South African

Swiss

German

EVP, Minerals (since October 2015)

COO, Africa

EVP, Transportation

Diploma in Analytical Chemistry

Master in Economics

Initially joined SGS in 1986, rejoined
in 1999

PhD Engineering Science,
Master Business Administration

Joined SGS in 2006

KIMMO FULLER (1967)

Other work experience

American

COO, North America

1995 – 1998: CEO, Unilabs International

Bachelor of Science degree in Civil
Engineering; Masters in Business
Administration

ROGER KAMGAING (1966)

Swiss

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

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, Central and
Southern Europe

Degree in Chemical Engineering and
Master in Business Administration

Joined SGS in 1988

Previous responsibilities

2004 – 2012: COO, Central and
North West Europe

2002 – 2004: COO, North West Europe

1997 – 2002: Managing Director, Belgium

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)

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)

FRANÇOIS MARTI (1968)

Swiss

EVP, Industrial (since October 2015)

Degree in International Relations

Initially joined SGS in 2003, rejoined
in 2011

Previous responsibilities

2012 – 2015: EVP Systems and
Services Certification

EVP, Governments and Institutions

Master in Commercial Law and Tax

Master in Auditing and Consulting

Initially joined SGS in 1997, rejoined
in 2014

Previous responsibilities

2011 – 2015: SVP, Strategic Transformation

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)

2003 – 2005: VP Continuous Improvement

Other work experience

2005 – 2011: CEO Fiat Services
1994 – 2003: Senior Manager PWC
and IBM

119

6. GOVERNANCE

JEFFREY MCDONALD (1964)

ALIM SAIDOV (1964)

4.2. OTHER ACTIVITIES AND FUNCTIONS

Australian

Azerbaijani and Canadian

EVP, Systems and Services Certification
(since October 2015)

Postgraduate Diploma in Education

Joined SGS in 1995

Previous responsibilities

2007 – 2015: COO, North America

EVP, Oil, Gas and Chemicals

PhD in Science

Joined SGS in 1993

Previous responsibilities

2007 – 2013: EVP, Oil, Gas and Chemicals
Services and Environmental Services

2004 – 2007: EVP, Systems and
Services Certification

2005 – 2007: COO, Eastern Europe and
Middle East

2003: Global Project Manager,
Systems and Services Certification

2004: COO, North America and
Managing Director, Canada

1995 – 2003: Systems and Services
Certification, South Eastern Asia and
Pacific, Regional Manager (Bangkok)

2001 – 2004: Managing Director,
Kazakhstan and Manager Caspian Region

PETER POSSEMIERS (1962)

Australian and Belgian

EVP, Environmental, Health and Safety

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

RICHARD SHENTU (1968)

Chinese

EVP, Consumer and Retail

Textile Engineer, Masters in
Business Administration,
PhD in Management Science

Joined SGS in 1990

Previous responsibilities

2010 – 2015: Managing Director, China

2005 – 2011: Vice President CTS, CTS
Director and Executive Director China

2012 – 2015: Vice President
Industrial Services

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.

JEAN-LUC DE BUMAN

Association pour le Développement des
Compétences Bancaires, Geneva (CH),
Member of the Board since 1999

Hyposwiss Private Bank Genève SA,
Geneva (CH), Member of the Board
since 2006

Federal Accreditation Commission,
Bern (CH), Member since 2012

ALEJANDRO GOMEZ DE LA TORRE

Swiss-Peruvian Chamber of Commerce,
Lima (Peru), Director

DERICK GOVENDER

Member of IMPI (International Precious
Metals Institute)

THOMAS KLUKAS

CITA, International Motor Vehicle
Inspection Committee, Brussels (BE),
Member of the Bureau Permanent
since 2011

FRANÇOIS MARTI

2002 – 2004: CTS Hardline SBU director
China and Hong Kong

Swiss Philanthropy Foundation,
Member of the Board since 2013

MALCOLM REID (1963)

British

COO South East Asia and Pacific

BSc Chemistry

Joined SGS in 1987

Previous responsibilities

2012 – 2015: EVP, Consumer
Testing Services

2008 – 2011: EVP, Systems and
Services Certification

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

2005 – 2007: Managing Director, Australia

2000 – 2005: Managing Director, Thailand

1997 – 2000: Managing Director,
Philippines

In 2016, Dominique Ben-Dhaou, SVP
Human Resources resigned from her
position and left the Group.

120

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 that 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 for 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.

5.1.2. 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 at 31 December 2016,
two members of the Operations
Council have received loans for a
combined amount equivalent to
CHF 28 365 (no loan, credit or
outstanding advance was due to the
Group from members or former members
of its governing bodies the prior year).

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 that describes
the Company’s remunerations policies.

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
a Long-Term Incentive plan.

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 the
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 that 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

The Company's Articles of Association
define the principles of the variable
remuneration and the allocation of
shares or equity-linked instruments to
the members of the Operations Council
(please refer to the Remuneration
Report for a description of the
Company’s rules in the matter).

121

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 50 000 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

122

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 2016 amounted to
CHF 5.8 million (2015: CHF 5.3 million).

8.3. ADDITIONAL FEES

An aggregate amount of CHF 1.0 million
(2015: CHF 1.3 million) was paid to
Deloitte for other professional services,
unrelated to the statutory audit activity.
This amount includes CHF 0.6 million
(2015: CHF 0.7 million) for tax
compliance services and CHF 0.4 million
(2015: CHF 0.6 million) for non-statutory
and other 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
2016), including private sessions without
the presence of Management.

The duties of the Committee include
consideration of the audit plan, regular
assessment of the performance of the
auditor and approval of audit fees on the
basis of the amount of work required in
order to perform the audit.

The Audit Committee reviews with
the Group auditors the significant
financial statement risk areas arising
from the audit, including the key audit
matters referred to in the statutory
auditor’s report.

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
that 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 buyback
programmes and minutes of
shareholders’ meetings. SGS meets
regularly with institutional investors,
holds results presentations, road shows,
presentations at broker-sponsored
country or industry conferences as well
as one-on-one meetings.

The Group publishes consolidated
half-year unaudited and yearly audited
results in print and online formats.
The Annual Report is published in
English and is available upon order
from the Group's website. The current
list of publication dates is available
on the Group's website.

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.

123

SGS SERVICE

CONSUMER BENEFIT

> Portable Emissions

Measurement System
(PEMS) Testing

> Fairer and more
accurate vehicle
emissions information

THE ROAD TO REAL WORLD DATA

In August 2016, SGS introduced Portable Emissions Measurement

System (PEMS) testing to its comprehensive portfolio of

transportation testing services in the US.

PEMS testing is used to assess emissions for vehicles and other

engine operated machines in real-world conditions. This is

important because on-road vehicle emissions are often higher than

what is shown in a laboratory setting, and fuel efficiency can be

significantly lower. Being able to see real-world emissions data

will allow the transportation industry to work towards measurable

emissions reductions while also providing an avenue of accountability

to manufacturers.

Attaching to a vehicle’s exhaust pipe, the PEMS system sends

information in real-time to a monitoring device. This allows testers

to focus on driving the vehicle naturally around a given terrain

(e.g. driving at altitude, on a motorway, or even off-road), while

the PEMS system automatically logs emissions data.

PEMS technology is lightweight and flexible in its use, meaning it can

be taken anywhere it is needed and used on a variety of vehicles and

equipment. This makes it an efficient and flexible solution for engine

manufacturers that want to provide real-world data to their customers.

7. REMUNERATION REPORT

The SGS Remuneration Report

provides an overview of the SGS

remuneration model, its principles

and programmes 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 2016

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

2. COMPANY’S

REMUNERATION
POLICY AND
GOVERNANCE

2.1. Remuneration Policy and Principles

2.2. Remuneration Governance

5. REMUNERATION
AWARDED TO
THE CEO, SENIOR
MANAGEMENT
AND OTHER
MEMBERS OF THE
OPERATIONS COUNCIL

2.2.1. Nomination and

5.1. Performance in 2016

Remuneration Committee

5.2. Cash Compensation

2.2.2. Shareholders' Engagement

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. Other Compensation to

Members or Former Members
of Governing Bodies

5.5.3. Loans to Members or Former
Members of Governing Bodies

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

126

7. REMUNERATION REPORT

On the following pages, you will
find detailed information about our
remuneration model, its principles and
programmes and the remuneration
awarded to the Board of Directors and
to the Operations Council related to the
business year 2016.

We hope that you find this report
informative and are confident that our
approach to executive pay is fully aligned
with the strategy, wider competitive
market benchmarks, the performance
of the Company and with the interests
of our shareholders.

Shelby du Pasquier
Chairman

1. INTRODUCTION

BY THE NOMINATION
AND REMUNERATION
COMMITTEE

The Nomination and Remuneration
Committee is pleased to present its
2016 Remuneration Report.

During the year, the Committee focused
its attention on the monitoring and
assessment of the implementation of
the remuneration system introduced in
2015, and its alignment to the business
strategy of profitable growth and to the
expectations of the shareholders.

Following the provisions of the
Ordinance issued by the Swiss Federal
Council, we have implemented the
consultative vote on the Remuneration
Report and the binding vote on
compensation amounts at the Annual
General Meeting as of 2015.

The Committee has received significant
support in its activities and direction
through positive votes at the Annual
General Meeting 2016, and will continue
with the same "say-on-pay" vote
structure at the forthcoming Annual
General Meeting 2017:

• 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 amount of
the Operations Council members
of the previous business year;

• Binding vote on the prospective

fixed remuneration amount of the
Operations Council members for 2018.

127

7. 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
talent 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 with
the Company’s business strategy of
profitable growth and the aim to drive
and support the Company’s core values
of passion, integrity, entrepreneurialism
and innovative spirit.

Our remuneration system operates
according to the four principles
described below.

L Y
E
R M A N C
R I B
N
O

N I S D I R
O
F
L C

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A L P

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F
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U
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I
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TIO

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O PERFORM THE ROLE

• PART OF REM

U
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SUBJECT T

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LONG-TER
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C
I
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•

128

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
of the Board. It also decides on the
remuneration and terms of employment
of the Chief Executive Officer. 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.

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
of Directors, and in part as a decision-
making body on matters that the Board
of Directors 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 all
matters relating to the remuneration
of these executives.

The following charts summarise
the authorisation levels for the main
decisions relating to the compensation
of the Board of Directors and the
Operations Council members. When
reviewing and deciding on executive
remuneration policies, the Committee
and the Board of Directors have access
to Group Human Resources staff
and may use third-party consultants
specialised in compensation matters.
In 2016, neither the Committee nor the
Board of Directors had recourse to such
external advisors.

Authorisation levels:

SUBJECT MATTER

CEO

NOMINATION AND
REMUNERATION
COMMITTEE

BOARD
OF DIRECTORS

AGM

Aggregate remuneration amount
of the Board of Directors

Individual remuneration of the members
of the Board of Directors including
the Chairman of the Board of Directors

Aggregate fixed remuneration
amount of the Operations Council

Aggregate variable remuneration
amount of the Operations Council

Individual remuneration of the CEO

Individual remuneration of
the Operations Council members

Establishment of Long-Term
Incentive plans

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

Remuneration report

Recommendation

Binding vote

Recommendation

Approval

Recommendation

Binding vote

Recommendation

Binding vote

Recommendation

Approval

Recommendation

Approval

Recommendation

Approval

Recommendation

Binding vote

Recommendation

Approval

Recommendation

Consultative vote

The following Directors served
on the Committee in 2016:

• Shelby du Pasquier (Chairman)

• Ian Gallienne

• August von Finck

In 2016, the Committee met in one
meeting, attended by all members and
handled several matters pertaining to
nominations and remunerations outside
scheduled meetings. 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 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 recent years, based on the feedback
received from our shareholders and
their representatives, we have made

129

7. REMUNERATION REPORT

significant efforts to improve the
disclosure of remuneration in terms of
transparency and level of detail provided
about the remuneration principles and
programmes. The positive outcome of
the consultative vote on the 2014 and
2015 Remuneration Reports indicates
that shareholders welcome the progress
made. We will continue to submit the
Remuneration Report to a consultative
shareholders’ vote at the Annual General
Meeting, so that shareholders have an

opportunity to express their opinion
about our remuneration model.

In addition, as required by the Ordinance,
the aggregate amounts of 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 remuneration of the Board
of Directors 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.

SHAREHOLDER VOTE
AT THE 2017 AGM

2016

2017

2018

Consultative vote on 2016
Remuneration report

Remuneration Policy
and Principles

Binding vote on remuneration
of the Board of Directors

Remuneration

Binding vote on fixed
remuneration of the
Operations Council

Binding vote on variable
remuneration of the
Operations Council

Variable remuneration

Fixed remuneration

AGM 2017

AGM 2018

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
provisions on principles of remuneration
for the Board of Directors (Art. 28) and
for the members of the Operations
Council. These include principles
on fixed remuneration, variable
remuneration, long-term incentives

and allocation of equity instruments
(Art. 29); on additional amount for
payments to members of the Operations
Council appointed after the vote on
remuneration at the Annual General
Meeting (Art. 31); on loans, credit
facilities and post-employment benefits
for members of the Board of Directors
and of the Operations Council (Art. 32);
and on the votes on pay at the Annual
General Meeting (Art. 31).

Details are available on the SGS’ website:
www.sgs.com/en/our-company/
investor-relations/corporate-governance.

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 into account both global and
local practices. We therefore compare
our practices with those of other similar
global organisations. The Group performs
periodic benchmarks against companies
that 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;

130

• Internationally active companies

within and outside Switzerland that
operate in the business-to-business
services sector, such as Adecco
and Sodexo;

• Internationally active companies within
and outside Switzerland that 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 evaluation
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 Willis Towers Watson, which are
able to supply information on both
a local and global basis.

The compensation elements of the
Governing Bodies of the Company are
benchmarked normally every three
years, with the support of one of the
services providers quoted above.
The most recent analysis has been
performed in 2015, with the support
of Mercer.

As a reference point, SGS targets
the median compensation level of
the peer group.

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, paid in cash. 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 of the Board 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

Chairman

Board members

Directors of the Board receive an annual
fixed fee of CHF 150 000 whilst the
Chairman of the Board 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.

131

7. REMUNERATION REPORT

The table below summarises the various components of the compensation of Operations Council members, including
the Chief Executive Officer.

PERFORMANCE
MEASURES

n/a

PURPOSE

PLAN PERIOD

Attract and retain
key executives

Continuous

Pay for
performance

Reward for long-
term performance,
align compensation
with the interests
of the shareholders

1-year
performance
period

3-year
deferral period

3-year
performance
period

Protect executive
against risks,
attract and retain

Continuous

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).

REMUNERATION
ELEMENT

REMUNERATION
VEHICLE

DRIVERS

Base Salary

Monthly
cash salary

Short-Term
Incentive

50% cash

50% restricted
shares

Position and
experience,
market practice
(benchmarking)

Annual financial
performance,
individual performance
against leadership
behavioural model

Long-Term
Incentive

Performance
Share Units (PSU)

Long-term financial
performance

Group revenue, Group
NPAT, Group ROIC1,
regional and business-
line profit, regional
NWC2, leadership
multiplier

Relative organic
revenue growth,
relative NPAT
improvement, relative
TSR3, absolute free
cash flow

Benefits

Retirement
benefits and
insurances,
perquisites

Market practice

n/a

1. NPAT: Net Profit After Tax, ROIC: Return On Invested Capital.

2. NWC: Net Working Capital.

3. TSR: Total Shareholder Return.

3.2.1. Base Salary

The base salaries of the Chief Executive
Officer and 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.

Financial Performance

The key performance indicators
used to measure the annual financial
performance of the Group and its
businesses 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 in a balanced manner.
Those financial metrics are cascaded

132

GROUP'S FINANCIAL PERFORMANCE

ROLE-SPECIFIC FINANCIAL PERFORMANCE

CEO

SVPs

EVPs

COOs

PROFITABILITY
(BOTTOM-LINE)

Group NPAT
25%

Group NPAT
65%

Group NPAT
25%

GROWTH
(TOP-LINE)

EFFICIENT USE
OF CAPITAL

PROFITABILITY
(BOTTOM-LINE)

EFFICIENT USE
OF CAPITAL

Group Revenue
25%

Group ROIC
50%

Group ROIC
10%

Business-line profit
40%

Group ROIC
10%

Regional profit
40%

Regional NWC
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 payout factor between the threshold,
the target and the maximum is calculated by linear interpolation.

200%

150%

100%

50%

%
T
U
O
Y
A
P

THRESHOLD

TARGET

CAP

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%. Therefore a performance above 133.3% achievement level (cap) provides a 200% payout factor.

• 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%

133

7. REMUNERATION REPORT

Leadership Multiplier

To determine the final incentive 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%

Below is an example of the calculation of a final incentive actual payout.

TARGET INCENTIVE

FINANCIAL
PERFORMANCE
PAYOUT FACTOR

LEADERSHIP
MULTIPLIER

ACTUAL PAYOUT

100 000

120%

125%

150 000

Short-Term Incentive Calculation

The calculations and the corresponding Short-Term Incentive amounts 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. Their aggregate amount is
subject to a binding vote at the Annual General Meeting.

Specific Short-Term Incentive Rules for the 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 is adjusted: for the threshold level of performance,
the payout starts at 25% (instead of 0%); there is no accelerator for performance above target; and a cap at 250% payout apply.

CAP

250%

200%

150%

100%

50%

25%

%
T
U
O
Y
A
P

TARGET

THRESHOLD

80%

100%

150%

200%

250%

300%

ACHIEVEMENT %

• Strong governance practices and the retrospective binding vote of the AGM on the aggregate variable compensation of the

Operations Council (including CEO), combined with the practice to set challenging targets, make sure that the incentive payout
level of the CEO falls in an acceptable range and is strongly aligned to the annual financial performance of the Group. The table
below summarises the CEO’s historical annual incentive payout against target for the past five years.

134

CEO ANNUAL INCENTIVE PAYOUT

2016

2015

2014

2013

2012

20.5%

78.0%

107.1%

123.6%

128.5%

Target 100%

Settlement of the Short-Term Incentive

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.

Clawback provisions

value of any variable incentives paid,
in cash or in shares, in the following
cases: i) any fraud, negligence or
intentional misconduct was a significant
contributing factor to the Company
having to restate all or a portion of
its financial statements; ii) a serious
violation of the SGS internal regulations
and/or Code of Integrity; iii) any violation
of law within the scope of employment
at the Company.

A clawback policy applies to any variable
remuneration awarded to the members
of the Operations Council. Under this
policy, the Company may reclaim the

The table below summarises the
Annual Incentive opportunity for
the CEO and for the members of
the Operations Council.

SHORT-TERM INCENTIVE

Incentive frequency

Payout vehicle

CEO

Annual

50% cash

OTHER OPERATIONS
COUNCIL MEMBERS

Annual

50% cash

50% restricted shares

Minimum incentive opportunity

as % of base salary

as % of target incentive opportunity

Target incentive opportunity

as % of base salary

Maximum incentive opportunity

as % of target incentive opportunity

as % of base salary

100%

250%

55% – 65%

250%

137.5% – 162.5%

3.2.3. Long-Term Incentive

In 2015, the Board of Directors
implemented a 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 PSUs 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).

• Relative total shareholder return

(TSR, value delivered to shareholders),
40% weight

In order to balance the Short-Term
Incentive plan, which is based on
absolute financial performance and
on leadership behaviours, relative
performance measures have been
introduced in the Long-Term Incentive
plan, which includes both relative
performance compared to a peer group
of companies, and absolute performance
against budget:

135

• 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

7. REMUNERATION REPORT

The relative performance on revenue
growth, NPAT and TSR are measured
by an independent consulting company,
Obermatt. Obermatt compares and
ranks SGS against the performance of
a selected peer group of companies
that 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 achievement below
the target, the vesting level is reduced by 5%; for every percentage point of achievement above target, the vesting level is
increased by 3%, to a maximum of 150%.

VESTING LEVEL
RELATIVE OBJECTIVES

VESTING LEVEL
FREE CASH FLOW

150%

100%

50%

150%

100%

50%

MEDIAN

80% 100% 116.7%

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

Overall vesting level (0-150%)

In case of termination of employment, all unvested PSUs are immediately forfeited without value and without any compensation,
except in the following cases:

• 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.

• 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.

136

The table below summarises the vesting rules in case of termination of employment.

TERMINATION REASON

VESTING RULE

VESTING TIME AND
SHARES ALLOCATION

VESTING LEVEL

Retirement or disability

Vesting on a pro rata basis

At regular vesting date

Based on actual performance

Death

Vesting on a pro rata basis

Immediate

Corporate transaction
or liquidation

Full vesting

Immediate

Based on an estimation of performance
by the Board of Directors

Based on an estimate of performance
by the Board of Directors

Other reasons

Forfeiture

Malus and clawback provisions

A malus and clawback policy applies to
any Long-Term Incentive grant awarded
to the members of the Operations
Council. Under this policy, the Company
may forfeit any unvested equity
compensation and/or reclaim the value
of any vested equity compensation
granted under a Long-Term Incentive
plan, in the following cases: i) any fraud,
negligence or intentional misconduct
was a significant contributing factor to
the Company having to restate all or
a portion of its financial statements; ii)
a serious violation of the SGS internal
regulations and/or Code of Integrity; iii)
any violation of law within the scope of
employment at the Company.

The grants awarded under the Long-Term
Incentive plan take place every three
years (no annual grants).

In 2016, no Long-Term Incentive plan
was implemented by the Group, and
no additional PSUs were granted to
members of the Operations Council
under the existing 2015-2017 plan.

The Group does not issue new shares
to grant employees for the equity-based
compensation plans, but uses treasury
shares instead, acquired through
share buyback programmes. Detailed
information on the overhang and burn
rate are disclosed in note 31.

3.2.4. Shareholding

Ownership Guideline

A Shareholding Ownership Guideline
(SOG) was 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:

• 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”).

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 141 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

137

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. 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 was earned in 2016:

• The annual base salary is paid

during 2016

• The cash portion of the Short-Term

Incentive is paid in March 2017, shortly
after the Annual General Meeting

• The share portion of the Short-Term
Incentive is allocated in April 2017
and will be unblocked in April 2020

• 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.

7. REMUNERATION REPORT

TIMELINE (PERFORMANCE PERIOD, TIME OF PAYMENT)

PERFORMANCE OBJECTIVES

LONG-TERM
INCENTIVE 2015
GRANT

7
1
0
2
.
2
1
.
1
3
g
n
i
t
s
e
V

n
o
i
t
a
c
o

l
l

s
e
r
a
h
S

%
0
5

d
e
t
c

i
r
t
s
e
r

s
e
r
a
h
s

%
0
5

h
s
a
c

SHORT-TERM
INCENTIVE

ANNUAL BASE
SALARY AND
BENEFITS

-
n
U

g
n
k
c
o
b

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

2020

SHAREHOLDING OWNERSHIP GUIDELINE

4. REMUNERATION AWARDED TO THE BOARD OF DIRECTORS

In 2016, the annual board membership fee was CHF 150 000 for all Board of Directors members, unchanged from the prior year.
Members of the Board of Directors serving on a committee were entitled to an additional fee of CHF 30 000 per committee,
unchanged from last year. The annual fee payable to the Chairman of the Board was CHF 300 000, 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 2016:

(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

TOTAL
COMPENSATION

300

150

1 650

300

173

416

163

188

196

189

188

196

228

163

416

163

188

196

189

188

196

228

163

2 123

138

The following chart details the fees and other cash benefits and share options 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

TOTAL
COMPENSATION

300

150

113

1 613

293

185

416

163

194

196

186

194

196

228

122

416

163

194

196

186

194

196

228

122

2 091

The overall compensation paid to the Board of Directors in 2016 increased compared to 2015. This was due to one member,
Chris Kirk, not serving a full year in 2015, as he was appointed on 13 March 2015.

The following table shows the details of the options 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 of the Board since
2014 year end.

TYPE OF OPTIONS1
(YEAR OF ISSUE)

SGSKF (2012)

SGSWS (2013)

SGSPF (2014)

STRIKE PRICE2
(CHF)

TOTAL NUMBER OF
OPTIONS GRANTED
UNDER EACH PLAN

MARKET VALUE
AT GRANT
(CHF THOUSAND)

NUMBER VESTED ON
31 DECEMBER 2016

NUMBER VESTED ON
31 DECEMBER 2015

1 497

2 013

2 059

50 000

40 000

75 000

133

189

50 000

40 000

50 000

26 667

50 000

1. One hundred options give the right to acquire one share.

2. Before Adjustment for capital reductions and special dividends.

5. REMUNERATION AWARDED TO THE CEO, SENIOR MANAGEMENT

AND OTHER MEMBERS OF THE OPERATIONS COUNCIL

This section sets out the remuneration that 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 2016. All amounts disclosed in this section
include the Short-Term Incentive cash amount and restricted shares that will be granted in April 2017 with respect to performance
in 2016 (disclosure according to the accrual principle).

139

7. REMUNERATION REPORT

5.1. PERFORMANCE IN 2016

The chart below summarises the 2016 performance achievements against targets for the financial objectives (revenue, profitability,
capital efficiency) used in the Short-Term Incentive:

Threshold

Target

Maximum

PERFORMANCE LEVEL

GROUP REVENUE

GROUP NPAT

GROUP ROIC

REGIONAL AND BUSINESS LINE PROFIT

REGIONAL NWC

Achievement Median achievement Performance range

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, Mr. Chris Kirk (pro rata)

Current Incumbent, Mr. Frankie Ng (pro rata)

2016

11 259

2 304

1 263

2015

13 305

3 143

1 943

852

1 091

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 1 072 thousand are not included (2015: CHF 1 081 thousand). Employer's
contributions to social benefits are excluded as well. The total cash compensation in 2016 was lower than in 2015 because there
was no overlap of former and current CEO, and because the Short-Term Incentive payout was lower.

The achievement of financial targets at Group level, in the businesses and in the regions ranges from 73.8% to 110.8% (2015: 79.3% to
138.2%). The overall Short-Term Incentive payout amounts to 78.0% of the target incentive opportunity for the CEO (2015: 107.1%) and
ranges from 26.6% to 124.1% of the target incentive opportunity for the members of the Operations Council (2015: 53.9% to 158.9%).
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 2016 Short-Term Incentive, SGS restricted shares will be allocated to the Operations Council (including Senior
Management) in April 2017 (2015: 1 315 restricted shares were granted in April 2016). 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

In 2016, the Group did not implement any Long-Term Incentive plan, and the Operations Council members did not receive any
Long-Term Incentive grant.

Under the 2015 Long-Term Incentive plan, a total of 14 570 PSUs were granted to the Operations Council members (including
Senior Management). Senior Management was awarded a total of 3 772 PSUs, which included 2 346 PSUs awarded to the Chief
Executive Officer. The vesting date of such PSUs 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) relating to 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 did not exceed the maximum amount of CHF 30 million
approved at the Annual General Meeting 2015.

140

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 2016, and shows those options that have been granted, vested and/or became exercisable in 2016.

TYPE OF OPTIONS1
(YEAR OF ISSUE)

STRIKE PRICE2
(CHF)

TOTAL NUMBER OF
OPTIONS GRANTED
UNDER EACH PLAN

MARKET VALUE
AT GRANT
(CHF THOUSAND)

NUMBER VESTED ON
31 DECEMBER 2016

NUMBER VESTED ON
31 DECEMBER 2015

OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT AND CHIEF EXECUTIVE OFFICER)

SGSKF (2012)

SGSWS (2013)

SGSPF (2014)

SGSBB (2015)

1 497

2 013

2 059

1 798

628 862

776 970

589 746

878 993

SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)

SGSKF (2012)

SGSWS (2013)

SGSPF (2014)

SGSBB (2015)

CHIEF EXECUTIVE OFFICER

SGSKF (2012)

SGSWS (2013)

SGSPF (2014)

SGSBB (2015)

1 497

2 013

2 059

1 798

1 497

2 013

2 059

1 798

102 676

89 895

89 928

145 545

61 621

46 632

23 464

82 727

1. One hundred options give the right to acquire one share.

2. Before adjustment for capital reductions and special dividends.

1 673

1 733

1 486

1 951

273

200

227

323

164

104

184

628 862

776 970

393 164

585 995

102 676

89 895

59 952

97 030

61 621

46 632

15 643

55 151

628 862

517 980

393 164

292 998

102 676

59 930

59 952

48 515

61 621

31 088

15 643

27 576

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 2016 and 2015 by the Operations Council, by the Senior
Management and by the Chief Executive Officer.

BASE
SALARY

CONTRIBUTION
TO PENSION
BENEFITS

OTHER
EMPLOYMENT
BENEFITS

ANNUAL
CASH
INCENTIVE

ANNUAL
GRANT OF
RESTRICTED
SHARES1

LONG TERM
INCENTIVE
PSUS GRANT

TOTAL 2016
COMPENSATION
(INCLUDING
RESTRICTED SHARES)

Total compensation for 2016:

(CHF thousand)

To the Operations Council
(including Senior Management)2

7 768

1 072

2 731

1 839

To Senior Management
(including Chief Executive Officer)3

1 610

To the Chief Executive Officer

800

225

100

539

303

458

312

458

312

1. Restricted Shares that will be granted in April 2017.

2. 23 FTE (Full Time Equivalent).

3. 3 FTE.

141

15 249

3 290

1 827

7. REMUNERATION REPORT

Total compensation for 2015:

(CHF thousand)

To the Operations Council
(including Senior Management)2

To Senior Management
(including Chief Executive Officer)3

To the Chief Executive Officer

Former Incumbent, Mr. Chris Kirk (pro rata)

Current Incumbent, Mr. Frankie Ng (pro rata)

BASE
SALARY

CONTRIBUTION
TO PENSION
BENEFITS

OTHER
EMPLOYMENT
BENEFITS

ANNUAL
CASH
INCENTIVE

ANNUAL
GRANT OF
RESTRICTED
SHARES

LONG TERM
INCENTIVE
PSUS GRANT1

TOTAL 2015
COMPENSATION
(INCLUDING
RESTRICTED
SHARES AND LTI)

8 205

1 081

3 508

2 944

2 680

13 468

31 886

1 950

1 140

496

644

260

148

841

614

404

210

731

438

345

731

438

345

3 487

2 169

8 000

4 947

1 136

3 811

1. 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).

2. 24 FTE (Full Time Equivalent).

3. 3 FTE.

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 2016. The charts exclude Long-Term Incentive grants.

CEO REMUNERATION MIX

OPERATION COUNCIL (EXCLUDING CEO)
REMUNERATION MIX (ON AVERAGE)

(CHF thousand)

4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

900
800
700
600
500
400
300
200
100
0

Target

Minimum

Maximum

Actuals
2016

Target

Minimum

Maximum

Actuals
2016

Annual base salary Annual incentive (cash) Annual incentive (shares)

In 2016, the variable actual remuneration of the Chief Executive Officer represented 44% of the total actual compensation
(2015: 44%), split in cash (22%) and restricted shares (22%). For the Operations Council, including Senior Management, the
variable remuneration amounted to 31% of the total compensation on average (2015: 41%), split in cash (15%) and options (15%).
Total compensation includes the fixed remuneration (base salary) and the variable remuneration paid out for 2016 (Short-Term
Incentive in cash and restricted shares). It excludes fringe and social benefits and Long-Term Incentive grants.

5.5. OTHER COMPENSATION

5.5.1. Severance Payments

No severance payment has been paid in 2016 for members of the Operations Council (2015: CHF 350 000 to one member).

5.5.2. Other compensation to members or former members of governing bodies

No additional compensation or fees were paid to any member or former member of the governing bodies (unchanged from prior year).

5.5.3. Loans to members or former members of governing bodies

As at 31 December 2016, two members of the Operations Council have received loans for a combined amount equivalent to CHF 28 365
(no loan, credit or outstanding advance was due to the Group from members or former members of its governing bodies the prior year).

142

STATUTORY AUDITOR’S REPORT

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 2016, presented on pages
138 to 142.

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 2016 comply with Swiss law and
articles 14 – 16 of the Ordinance.

DELOITTE SA

James Baird

Licensed Audit Expert
Auditor in Charge

Geneva, 9 February 2017

Joëlle Herbette

Licensed Audit Expert

143

INTEGRATED THINKING INCLUDED

More and more consumers are opting against purchasing genetically

engineered (GE) foodstuffs and major food companies are responding

to this trend. How though, with the globalisation of supply chains and

the corresponding multitude of producers, can multinational companies

ensure that all of their suppliers are conforming to No–GE regulations?

One multinational company found that SGS’ global footprint can

ensure a consistent quality of No–GE auditing internationally. This

helps ensure compliance. Moreover, the depth of service available

from SGS means that we can draw on the experience of multiple

business lines to drive improvements through the supply chain.

In this instance, our experts from Agriculture, Food and Life provided

technical insight to our auditors in Certification and Business

Enhancement, while our training department began educating our

customer’s teams around the world on No–GE standard requirements.

Meanwhile, communications channels were established with an

integrated, fully dedicated SGS team at country and corporate levels

to ensure the highest possible level of customer service.

It is this ability to offer a range of complementary services from

across our business lines, and to deliver them in such an integrated

fashion, that is increasingly drawing customers to SGS.

SGS SERVICE

CONSUMER BENEFIT

> Non-GMO Certification

> Accurate labelling

for non-genetically
modified (GMO) foods

8. SGS GROUP RESULTS

CONSOLIDATED INCOME STATEMENT
FOR THE YEARS ENDED 31 DECEMBER

(CHF million)

REVENUE

Salaries and wages

Subcontractors’ expenses

NOTES

Depreciation, amortisation and impairment

10 to 12

Other operating expenses

OPERATING INCOME (EBIT)¹

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)

1. Refer to note 4 for analysis of non-recurring items.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED 31 DECEMBER

(CHF million)

Actuarial losses on defined benefit plans

Income tax on actuarial losses taken directly to equity

Items that will not be subsequently reclassified to income statement

Exchange differences and other¹

Items that may be subsequently reclassified to income statement

OTHER COMPREHENSIVE INCOME FOR THE YEAR

Profit for the year

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

Attributable to:

Equity holders of SGS SA

Non-controlling interests

2016

5 985

(3 009)

(368)

(336)

(1 456)

816

(53)

771

(185)

586

543

71.54

71.47

2016

(3)

(29)

586

557

519

2015

5 712

(2 849)

(345)

(322)

(1 374)

822

(56)

779

(195)

584

549

71.99

71.95

2015

(40)

(31)

(254)

(285)

584

299

266

1. In 2016, exchange differences and other include net exchange loss of CHF 23 million on long-term loans treated as net investment in a foreign entity according to IAS 21

(2015: gain of CHF 40 million).

146

8. SGS GROUP RESULTS

CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER

(CHF million)

ASSETS

NON-CURRENT ASSETS

Land, buildings and equipment

Goodwill

Other intangible assets

Investments in joint-ventures, associates 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

Current tax assets

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

Defined 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

1. Restated figures (notes 2 and 23).

147

NOTES

2016

2015¹

972

1 195

246

165

122

2 738

290

997

252

975

2 611

5 349

2 243

(478)

1 773

1 853

1 719

154

2 008

641

166

661

1 488

3 496

5 349

964

1 088

218

173

142

2 617

288

917

272

244

1 490

3 277

5 894

2 222

(324)

1 906

1 981

1 723

181

2 061

494

526

159

654

1 852

3 913

5 894

2016

586

560

(207)

1 014

(289)

(172)

236

(201)

(517)

(39)

(4)

(231)

(491)

(58)

(3)

(1 273)

(55)

(515)

1 490

(515)

975

2015

584

541

160

(223)

(103)

959

(301)

(104)

(248)

(625)

(522)

(34)

(2)

(228)

549

(55)

(15)

(210)

149

1 341

149

1 490

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 in working capital

Taxes paid

Pension funds special contribution1

CASH FLOW FROM OPERATING ACTIVITIES

NOTES

19.1

19.2

Purchase of land, buildings, equipment and other intangible assets

10 and 12

Acquisition of businesses

Decrease in other non-current assets

Decrease/(increase) in marketable securities and other

3 and 19.3

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

(Reimbursements)/proceeds of corporate bonds

Interest paid

Net cash flows related to interest rate swaps

Decrease in borrowings

CASH FLOW FROM FINANCING ACTIVITIES

Currency translation

(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

(Decrease)/increase in cash and cash equivalents

CASH AND CASH EQUIVALENTS AT END OF YEAR

1. See note 24.

148

STATEMENT OF CHANGES IN CONSOLIDATED EQUITY

(CHF million)

SHARE
CAPITAL

TREASURY
SHARES

CAPITAL
RESERVE

CUMULATIVE
TRANSLATION
ADJUSTMENTS

ATTRIBUTABLE TO

CUMULATIVE
GAINS/LOSSES
ON DEFINED
BENEFIT
PLANS1

RETAINED
EARNINGS
AND
GROUP
RESERVES

EQUITY
HOLDERS
OF SGS SA

NON-
CONTROLLING
INTERESTS

TOTAL
EQUITY

BALANCE AT 1 JANUARY 2015

(154)

121

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 special
pension fund contribution

Movement on treasury shares

BALANCE AS AT
31 DECEMBER 2015

BALANCE AT 1 JANUARY 2016

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 AS AT
31 DECEMBER 2016

1. Net of tax.

(170)

(670)

(252)

(207)

(31)

3 229

549

2 327

549

2 403

584

(283)

(2)

(285)

(252)

(31)

549

266

299

(522)

(34)

(556)

(1)

(24)

(149)

(1)

(24)

(149)

(324)

130

(922)

(238)

3 252

1 906

1 981

(324)

130

(154)

(1)

(922)

(24)

(238)

3 252

543

1 906

543

1 981

586

(24)

(5)

(29)

543

519

557

(517)

(39)

(556)

(1)

(156)

(478)

145

(946)

(238)

3 282

1 773

1 853

149

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 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 2016. 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 2015 consolidated
financial statements, except for the
Group’s adoption of new IFRSs effective
1 January 2016.

The financial statements are prepared
on an accruals basis and under the
historical cost convention, modified
as required for the revaluation of certain
financial instruments.

ADOPTION OF NEW AND REVISED

INTERNATIONAL FINANCIAL

REPORTING STANDARDS

The adoption of new or amended
standards and interpretations, which
are effective for the financial year
beginning on 1 January 2016, did not
have a material impact on the Group’s
consolidated financial statements.

Based on an internal analysis, the
following new, but not yet applicable,
IFRS standards will be of significance
to the Group but have not been
early adopted:

• IFRS 9 Financial Instruments will

substantially change the classification
and measurement of financial
instruments, will require impairments
to be based on a forward-looking
model and will change the approach
to hedging financial exposures and
related documentation as well as
the recognition of certain fair value
changes. The Group does not expect
IFRS 9 to have a significant impact on
its consolidated financial statements
and will implement the new standard
on 1 January 2018;

• IFRS 15 Revenue from Contracts
with Customers amends revenue
recognition requirements and
establishes principles for reporting
information about the nature, amount,
timing and uncertainty of revenue
and cash flows arising from contracts
with customers. The standard
replaces IAS 18 Revenue and IAS 11
Construction Contracts and related
interpretations. A working group is
in place to review and analyse the
impact of the application of IFRS15
on the different businesses. While
the timing in the recognition of the
revenue and the related costs for
specific activities might be affected,
the impact will depend on the mix
of activities but is not expected
to be significant on the consolidated
financial statements. The Group will
implement the new standard on
1 January 2018;

• IFRS 16 Leases may impact the
Group’s consolidated financial
statements the financial statements
as the majority of leases and
corresponding right of use, will
become on-balance sheet liabilities

150

and assets respectively. The standard
replaces IAS 17 Leases and is
effective on 1 January 2019.
A working group is in place and is
currently assessing the future impact
of this new standard.

There are no other IFRS standards
or interpretations, which are not yet
effective and which would be expected
to have a material impact on the Group.

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 the 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 218 to 221.

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.

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.

Joint Operations

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 Eliminated

on Consolidation

All intra-group balances and transactions,
and any unrealised gains and losses
arising from intra-group transactions, are
eliminated in preparing the consolidated
financial statements. Unrealised gains
and losses arising from transactions with
associates and jointly controlled entities
are eliminated to the extent of the
Group’s interest in those entities.

Foreign Currency Transactions

RESTATEMENT

Two bonds with a face value of
CHF 492 million indicated in note 23
of the 2015 Annual Report were
incorrectly disclosed as “Non-current”
instead of “Current” Loans & obligations
under finance leases. As a result, the
Non-current versus the Current part of
the Loans & obligations under finance
leases were respectively over and
understated by CHF 491 million as at
31 December 2015. The restated 2015
balance sheet figures take into account
these adjustments.

There is no impact on previously
reported net debt, total liabilities or profit
for the period.

SEGMENT INFORMATION

The Group reports its operations
by business segment, according to
the nature of the services provided.

The Group operates in nine 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, which is 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.

Capital additions represent the total
cost incurred to acquire land, buildings
and equipment as well as other
intangible assets.

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
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.

151

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 term.

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.

For all CGUs, a value-in-use calculation
is performed using cash flow projections
covering the next five years. These cash
flows projections 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's net operating assets, the
impairment loss is allocated first to
reduce the carrying amount of any
goodwill allocated to the unit and then
to the other assets of the unit. An
impairment loss recognised for goodwill
is not reversed in a subsequent period.

Even if the initial accounting for an
intangible asset acquired in the reporting
period is only provisional, this asset is
tested for impairment.

OTHER INTANGIBLE ASSETS

Intangible assets, including software,
licences, trademarks and customer
relationships are capitalised and
amortised on a straight-line basis over
their estimated useful lives, normally
not exceeding 20 years. Indefinite life
intangible assets are not amortised but
are subject to an annual impairment test.
The following useful lives are used in
the calculation of amortisation:

• Trademarks 5 – 20 years

• Customer relationships 5 – 20 years

• Computer software 1 – 4 years

Other intangible assets acquired as
part of an acquisition of a business are
capitalised separately from goodwill if
their fair value can be measured reliably.
Internally generated intangible assets
are recognised if the asset created can
be identified, it is probable that future
economic benefits will be generated
from it, the related development costs
can be measured reliably and sufficient
financial resources are available to
complete the development. These
assets are amortised on a straight-line
basis over their useful lives, which
usually do not exceed four years. All
other development costs are expensed
as incurred.

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
that 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) which is
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.

152

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

CORPORATE BONDS

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 include
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.

153

The corporate bonds issued by the
Group are measured at amortised cost
using the effective interest method,
with interest expense recognised on
an effective yield basis.

The effective interest method is a
method of calculating the amortised cost
of a financial liability and of allocating
interest expense over the relevant period.
The effective interest rate is the rate that
exactly discounts estimated future cash
payments through the expected life of
the financial liability to the net carrying
amount on initial recognition.

The Group uses fair value hedges to
mitigate interest rate risks relating to its
corporate bonds. The changes in fair value
of hedging instruments are recognised in
the income statement.

EMPLOYEE BENEFITS

Pension Plans

The Group maintains several defined
benefit and defined contribution pension
plans in accordance with local conditions
and practices in the countries in which
it operates. Defined benefit pension
plans are based on an employee’s
years of service and remuneration
earned during a pre-determined
period. Contributions to these plans
are normally paid into funds, which are
managed independently of the Group,
except in rare cases where there is no
legal obligation to fund.

In such cases, the liability is recorded in
the Group’s consolidated balance sheet.

The Group’s obligations towards defined
benefit pension plans and the annual
cost recognised in the income statement
are determined by independent
actuaries using the projected unit credit
method. Remeasurement gains and
losses are immediately recognised
in the consolidated balance sheet with
the corresponding movement being
recorded in the consolidated statement
of comprehensive income.

Past service costs are immediately
recognised as an expense. Net interest
expense is calculated by applying
the discount rate at the beginning
of the period to the net defined benefit
liability or asset.

Changes in estimates are reflected in
the income statement in the period in
which the change occurs.

Cash and cash equivalents as well as
loans and obligations under finance
leases are disclosed in notes 18 and 23.

8. SGS GROUP RESULTS

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.

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.

Equity Compensation Plans

RESTRUCTURING COSTS

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

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.

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 the implementation
of the formal plan.

CAPITAL MANAGEMENT

Capital comprises equity attributable
to equity holders, loans and obligations
under finance leases and cash and
cash equivalents.

The Board of Directors’ policy is to
maintain a strong capital base in order
to maintain investor, creditor and market
confidence, and to sustain the future
development of the business. The
Board also recommends the level of
dividends to be distributed to ordinary
shareholders on an annual basis.

The Group maintains sufficient liquidity
at the Group and subsidiary level to
meet its working capital requirements,
fund capital purchases and small and
medium-sized acquisitions.

154

In 2017, the Board of Directors of SGS
SA has authorised a new share buyback
programme of up to CHF 250 million.

Treasury shares are intended to be used
to cover the Group’s employee equity
participation plan, convertible bonds
and/or cancellation of shares. Decisions
to buy or sell are made on an individual
transaction basis by the 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.

TAXES

Income taxes include all taxes based
upon the taxable profits of the Group,
including withholding taxes payable
on the transfer of income from Group
companies and tax adjustments from
prior years. Taxes on income are
recognised in the income statement
except to the extent that they relate to
items directly charged or credited to
equity or other comprehensive income,
in which case the related income tax
effect is recognised in equity or other
comprehensive income. Provisions of
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.

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.

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.

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.

EARNINGS PER SHARE

Basic earnings per share are calculated
by dividing the Group’s profit by the
weighted average number of shares
outstanding during the year, excluding
treasury shares. For diluted earnings per
share, the weighted average number of
shares outstanding is adjusted assuming
conversion of all potential dilutive shares.
Group profit is also adjusted to reflect
the after-tax impact of conversion.

DIVIDENDS

Dividends are reported as a movement
in equity in the period in which they are
approved by the shareholders.

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.

Use of Estimates

The key assumptions concerning
the future, and other key sources of
estimation at the balance sheet date
that have a risk of causing a material
adjustment to the carrying amount
of assets and liabilities within the next
financial year, are discussed below.

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.

TREASURY SHARES

Impairment of Goodwill

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,

Details of the assumptions used are
provided in note 11.

The Group determines whether goodwill
is impaired at a minimum on an annual
basis. This requires identification of
CGUs and 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

155

8. SGS GROUP RESULTS

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 Kingdom GBP

Hong Kong

Taiwan

USA

HKD

TWD

USD

100

3. BUSINESS

COMBINATIONS

The following business combinations
occurred during 2016 and 2015:

BUSINESS COMBINATIONS 2016

In 2016, the Group completed 19 business
combinations for a total purchase price of
CHF 193 million (note 20).

Accutest Laboratories

Effective 4 January 2016, SGS acquired,
for a purchase price of CHF 38 million,
100% of the businesses and related
assets of Accutest Laboratories, the fifth
largest full services environment testing
company in the United States of America.

Cybermetrix Inc. (CMX)

Effective 12 February 2016, SGS acquired,
for a purchase price of CHF 32 million,
100% of Cybermetrix Inc., a provider
of test cells, equipment and services to
meet the complex testing requirements of
engine and power systems, based in the
United States of America.

Compliance Certification Services Inc.

Effective 5 September 2016, SGS
acquired, for a purchase price of
CHF 29 million, 100% of Compliance
Services Inc., one of China's leading
Electro Magnetic Compatibility (EMC)
testing laboratories, with operations
throughout Taiwan and China.

YEAR-END RATES

ANNUAL AVERAGE RATES

2016

74.00

31.23

75.88

0.15

14.75

107.12

125.75

13.23

3.18

102.57

2015

72.24

25.64

71.54

0.14

15.28

108.42

146.91

12.79

3.01

99.15

2016

73.27

28.38

74.36

0.15

14.83

109.01

133.60

12.69

3.05

98.49

2015

72.44

29.37

75.45

0.15

15.32

106.91

147.19

12.42

3.03

96.26

Other

• Businesses and related assets of
Bateman projects from Tenova, a
provider of mining engineering and
project management operations, based
in South Africa (effective 5 April 2016);

• 100% of Cargo Compliance Company

(Cargo CC), active in packing,
storage, consulting, classification and
professional training for the handling of
dangerous goods, headquartered in the
Netherlands (effective 4 January 2016);

• 100% of Integrated Paper Services,
Inc. (IPS Testing), an independent
testing laboratory, offering physical
and analytical testing for paper, pulp,
non-woven fabrics, medical supplies
and packaging in both the consumer
and supplier environments and is
headquartered in the United States
of America (effective 8 June 2016);

• 100% of Matrolab Group (Pty)Ltd.,

a leading engineering and
construction materials testing
company, based in South Africa
(effective 1 February 2016);

• 75% of Shenzhen Firstrank Industrial
Development Co. Ltd. (Firstrank),
a provider of professional technical
services to the offshore energy
industry in the areas of quality
and safety assurance based in
China, covering both in-service and
under-construction facilities
(effective 1 January 2016);

156

• 51% of The Lab (Asia) Ltd., a fully
independent materials testing,
inspection and consulting company,
serving the construction, civil
engineering, highways, airports and
associated industries, based in Hong
Kong (effective 1 February 2016);

• 51% of Suzhou Safety-Tech Valve

Testing Co., Ltd., offering specialised
valve maintenance, repair and overhaul
(MRO) services, principally to the
energy, metallurgy and papermaking
industries based in China (effective
1 January 2016);

• 100% of Laboratorios Contecon

Urbar, an independent material testing
business focusing on quality control
in the construction industry with
operations in Colombia and Panama
(effective 1 July 2016);

• 100% of SpecHub Inc., offering an

extensive array of accredited inspection
and testing services for the maritime
and energy industry, based in Panama
(effective 8 July 2016);

• 100% of Laboratorio de Control Técnico
de Calidad de Construcción Eecolab
Limitada (Eecolab), offering quality
control testing of construction materials
as well as soil mechanic studies and
geophysical surveys in both the public
and private sectors based in Chile
(effective 2 August 2016);

• 75% of Unigeo Agricultura de

Precisâo (Unigeo), the market leader
in precision farming services in
Brazil, providing services such as soil

• 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);

• 100% of DLH, a provider of vehicle

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.

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.

sampling and mapping, satellite and
drone imagery, interpretation of crop
information and online software for
farm monitoring and management
(effective 1 September 2016);

• 100% of AXYS Analytical Services
Ltd. (AXYS), a North American
leader in ultra-trace analysis of
persistent organic pollutants (POPs),
contaminants of emerging
concerns (CECs) and the early
development stages of the fast-growing
metabolomics business (effective
1 October 2016);

• 100% of Roos+Bijl, providing

engineering & consulting, project
management, asset management
and legal services for all types
of underground infrastructure
in the Netherlands (effective
29 September 2016);

• 70% of Biopremier-Inovacao e

Servicios em Biotechnologia S.A.
specialised in molecular biology and
DNA sequencing services in the food
sector, based in Portugal (effective
7 December 2016);

• 41.9% ownership and a 54.5%
controlling stake of C-Labs SA,
an Industry 4.0 startup,
developing solutions for transforming
food regulatory compliance,
based in Switzerland (effective
19 December 2016);

• 100% of Laagrima, providing

testing analysis for the food and
hospitality markets in Morocco
(effective 20 December 2016).

These companies were acquired for an
equivalent of CHF 94 million and the total
goodwill generated on these transactions
amounted to CHF 67 million (note 20).

Total

All the above transactions contributed
in total CHF 135 million in revenues
and CHF 10 million in operating income.
Had all acquisitions been effective
1 January 2016, the revenues for
the period would have increased by
CHF 57 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
except Accutest Laboratories and
Cybermetrix Inc.(CMX) is expected
to be tax deductible.

DIVESTMENTS 2016

There were no significant disposals
in 2016.

BUSINESS COMBINATIONS 2015

In 2015, the Group completed
10 business combinations for a total

purchase price of CHF 128 million.

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 the United Kingdom.

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);

• 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
based in Perth, Australia (effective
1 March 2015);

157

8. SGS GROUP RESULTS

4. INFORMATION BY BUSINESS AND GEOGRAPHICAL SEGMENT

As indicated in the 2015 Annual Report, the SGS core skills and organisational structures are evolving to adapt to new market
conditions and customer demands. The realignment of the Group's business lines, effective as of 1 January 2016, has resulted
in greater organisational efficiency, improved customer service and greater agility.

The realignment included the incorporation of Life Science Services and Food Testing into Agricultural Services to generate
additional synergies to new product categories. As a result of its expanded scope, the business line has become Agriculture,
Food and Life. Automotive Services expanded its reach to become Transportation. Environmental Services expanded to become
Environment, Health and Safety. Systems and Services Certification broadened its horizons to become Certification and Business
Enhancement. Consumer Testing Services meanwhile became Consumer and Retail. The previously reported 2015 segment
disclosures have been restated to reflect this change in organisational structure.

The information presented is disclosed by business line and focuses on revenue, operating income, capital expenditures and
employee numbers because these are the performance measures used by the Chief Operating Decision Maker to assess segment
performance and decide on the allocation of resources.

(CHF million)

Adjusted operating income

Restructuring costs

Amortisation of acquisition intangibles

Other non-recurring items

OPERATING INCOME

(CHF million)

2016

Agriculture,Food and Life

Mineral Services

Oil, Gas and Chemicals Services

Consumer and Retail Services

Certification and Business Enhancement

Industrial Services

Environment, Health
and Safety Services

Transportation Services

Governments and Institutions Services

TOTAL

2016

919

(49)

(26)

(28)

816

2015

917

(64)

(21)

(10)

822

REVENUE

ADJUSTED
OPERATING
INCOME

AMORTISATION
OF ACQUISITION
INTANGIBLES

RESTRUCTURING
COSTS

OTHER
NON-
RECURRING
ITEMS

OPERATING
INCOME
BY BUSINESS

(3)

(1)

(2)

(7)

(4)

(7)

(26)

(7)

(3)

(29)

(1)

(3)

(1)

(5)

(49)

(2)

(1)

(12)

(2)

(7)

(2)

(1)

(28)

135

220

816

935

635

1 098

873

324

891

464

490

275

5 985

147

116

224

919

158

(CHF million)

2015 RESTATED

Agriculture,Food and Life

Mineral Services

Oil, Gas and Chemicals Services

Consumer and Retail Services

Certification and Business Enhancement

Industrial Services

Environment, Health
and Safety Services

Transportation Services

Governments and Institutions Services

TOTAL

REVENUE

ADJUSTED
OPERATING
INCOME

AMORTISATION
OF ACQUISITION
INTANGIBLES

RESTRUCTURING
COSTS

OTHER
NON-
RECURRING
ITEMS

OPERATING
INCOME
BY BUSINESS

891

633

1 126

826

299

852

376

449

260

5 712

146

129

217

917

(3)

(1)

(3)

(5)

(3)

(6)

(21)

(7)

(24)

(8)

(5)

(6)

(9)

(1)

(3)

(1)

(64)

(2)

(4)

(3)

(1)

(10)

136

118

210

822

(CHF million)

2015 PREVIOUSLY PUBLISHED

Agriculture 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

Unallocated costs

TOTAL

REVENUE

ADJUSTED
OPERATING
INCOME

AMORTISATION
OF ACQUISITION
INTANGIBLES

RESTRUCTURING
COSTS

OPERATING
INCOME
BY BUSINESS

OTHER

368

633

1 119

211

1 133

419

884

367

318

260

5 712

129

270

100

917

(1)

(3)

(2)

(5)

(2)

(6)

(21)

(5)

(24)

(8)

(1)

(7)

(6)

(9)

(1)

(2)

(1)

(64)

(10)

118

261

(10)

822

The revenues reported represent revenue generated from external customers.

159

8. SGS GROUP RESULTS

RESTRUCTURING COSTS

The Group incurred a pre-tax restructuring charge of CHF 49 million (2015: CHF 64 million), largely as a result of the decline in
market conditions in certain businesses and geographies. This comprised personnel reorganisation (CHF 18 million) as well as fixed
asset impairment and other charges (CHF 31 million).

(CHF million)

2016

2015

REVENUE FROM EXTERNAL CUSTOMERS BY GEOGRAPHICAL SEGMENT

Europe/Africa/Middle East

Americas

Asia Pacific

TOTAL

2 660

1 531

1 794

5 985

44.4

25.6

30.0

100.0

2 553

1 432

1 727

5 712

Revenue in Switzerland from external customers for 2016 amounted to CHF 212 million (2015: CHF 227 million). No country
represented more than 15% of revenues from external customers in 2016 or 2015.

MAJOR CUSTOMER INFORMATION

In 2016 and 2015, no external customer represented 10% or more of the Group’s total revenue.

SPECIFIC NON-CURRENT ASSETS BY MATERIAL COUNTRIES

Specific non-current assets by material countries:

(CHF million)

Europe/Africa/Middle East

Americas

Asia Pacific

TOTAL SPECIFIC NON-CURRENT ASSETS

2016

1 199

782

518

2 499

48.0

31.3

20.7

100.0

2015

1 224

639

486

2 349

44.7

25.1

30.2

100.0

52.1

27.2

20.7

100.0

Non-current assets in Switzerland for 2016 amounted to CHF 145 million (2015: CHF 206 million).

(CHF million)

2016

2015

RECONCILIATION WITH TOTAL NON-CURRENT ASSETS

Specific non-current assets as above

Deferred tax assets

Retirement benefit assets

Non-current loans to third parties

TOTAL

2 499

165

2 738

2 349

173

2 617

160

(CHF million)

CAPITAL ADDITIONS BY BUSINESS SEGMENT

Agriculture,Food and Life

Mineral Services

Oil, Gas and Chemicals Services

Consumer and Retail Services

Certification and Business Enhancement

Industrial Services

Environment,Health and Safety Services

Transportation Services

Governments and Institutions Services

TOTAL

2016

288

17.3

7.4

17.0

19.0

1.3

12.2

6.8

15.0

4.0

100.0

AVERAGE NUMBER OF EMPLOYEES BY GEOGRAPHICAL SEGMENT

Europe/Africa/Middle East

Americas

Asia Pacific

TOTAL

Number of employees at year end

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

2015

307

17.3

9.4

20.8

1.4

9.1

7.4

8.6

5.2

100.0

2016

2015

36 818

21 432

31 376

89 626

92 269

2016

294

395

100

360

307

1 456

34 721

19 873

31 309

85 903

87 962

2015

279

375

357

265

1 374

The share of net profit of associates and joint-ventures accounted for using the equity method amounts to CHF nil (2015: CHF 1 million)
and is included in the miscellaneous operating income and expenses.

6. FINANCIAL INCOME

(CHF million)

Interest income

Foreign exchange (losses)/gains

Other financial income

TOTAL

2016

(3)

2015

161

8. SGS GROUP RESULTS

7. FINANCIAL EXPENSES

(CHF million)

Interest expense

Loss on derivatives at fair value

Loss/(gain) arising on an Interest Rate Swap1

(Gain)/loss arising on adjustment for hedged item1

Other financial expenses

Net financial expenses on defined benefit plans

TOTAL

1. In a designated fair value hedge accounting relationship.

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

2016

196

(11)

185

2015

(15)

2015

214

(19)

195

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

(CHF million)

DEFERRED TAX AFTER NETTING

Deferred tax assets

Deferred tax liabilities

TOTAL

2016

771

135

185

2016

165

(42)

123

2015

779

140

195

2015

173

(60)

113

162

(CHF million)

ASSETS

LIABILITIES

ASSETS

LIABILITIES

2016

2015

COMPONENTS OF DEFERRED INCOME TAX BALANCES

Fixed assets

Inventories and receivables

Defined benefit obligation

Provisions and other

Intangible assets

Tax losses carried forward

DEFERRED INCOME TAXES

179

173

Net change in deferred tax assets/(liabilities):

(CHF million)

NET DEFERRED INCOME TAX ASSET (LIABILITY) AT 1 JANUARY 2015

(Charged)/credited to the income statement

(Charged)/credited to other comprehensive income¹

Exchange differences and other

NET DEFERRED INCOME TAX ASSET (LIABILITY) AT 31 DECEMBER 2015

(Charged)/credited to the income statement

(Charged)/credited to other comprehensive income¹

Exchange differences and other

NET DEFERRED INCOME TAX ASSET (LIABILITY) AT 31 DECEMBER 2016

TOTAL

121

(15)

(12)

113

(4)

123

1 Related to measurement gains and losses on pensions CHF 3 million (2015: CHF 9 million) and special pension fund contribution 2016: nil [2015: CHF (24) million].

The Group has unrecognised tax losses carried forward amounting to CHF 59 million (2015: CHF 46 million), of which none will
expire within the next five years. No tax losses carried forward expired in 2016.

At 31 December 2016, the retained earnings of subsidiaries and foreign incorporated joint ventures consolidated by the Group include
approximately CHF 3 790 million (2015: CHF 4 125 million) of undistributed earnings that may be subject to tax if remitted to the
parent company. As set out in note 21, the nature of the Group's business requires keeping a significant part of the cash reserves
in the operating units. As a Group policy, no deferred tax is recognised in respect of undistributed earnings until the point at which
the distributable earnings are determined and foreign statutory requirements, allowing the distribution, are fulfilled. Until that time,
the Group takes the view that 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 (in ‘000)

BASIC EARNINGS PER SHARE (CHF)

2016

543

7 583

71.54

2015

549

7 626

71.99

163

8. SGS GROUP RESULTS

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 (in ‘000)

DILUTED EARNINGS PER SHARE (CHF)

Adjusted earnings per share are calculated as follows:

Profit attributable to equity holders of SGS SA (CHF million)

Amortisation of acquisition intangibles (CHF million)

Restructuring costs net of tax (CHF million)

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)

10. LAND, BUILDINGS AND EQUIPMENT

2016

543

7 591

71.47

2016

543

629

83.00

82.91

2015

549

7 630

71.95

2015

549

625

81.95

81.91

(CHF million)

2016

COST

At 1 January

Additions

Acquisition of subsidiaries

Disposals

Exchange differences and other

At 31 December

ACCUMULATED DEPRECIATION AND IMPAIRMENT

At 1 January

Depreciation

Impairment

Disposals

Exchange differences and other

At 31 December

NET BOOK VALUE AT 31 DECEMBER 2016

LAND &
BUILDINGS

MACHINERY
& EQUIPMENT

OTHER TANGIBLE
ASSETS

TOTAL

444

(27)

448

230

(25)

251

197

1 763

132

(68)

1 891

1 243

175

(63)

1 361

530

643

103

(40)

(28)

684

413

(37)

439

245

2 850

258

(135)

3 023

1 886

253

(125)

2 051

972

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 2016

164

(CHF million)

2015

COST

At 1 January

Additions

Acquisition of subsidiaries

Disposals

Exchange differences and other

At 31 December

ACCUMULATED DEPRECIATION AND IMPAIRMENT

At 1 January

Depreciation

Impairment

Acquisition of subsidiaries

Disposals

Exchange differences and other

At 31 December

NET BOOK VALUE AT 31 DECEMBER 2015

LAND &
BUILDINGS

MACHINERY
& EQUIPMENT

OTHER TANGIBLE
ASSETS

TOTAL

477

(12)

(29)

444

229

(8)

(20)

230

214

1 750

165

(40)

(122)

1 763

1 195

173

(37)

(98)

1 243

520

660

102

(41)

(82)

643

420

(38)

(30)

413

230

2 887

275

(93)

(233)

2 850

1 844

245

(83)

(148)

1 886

964

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

At 31 December 2016, the Group had commitments of CHF 4 million (2015: CHF 4 million) for the acquisition of land, buildings
and equipment.

Included in the other tangible assets are construction-in-progress assets amounting to CHF 27 million (2015: CHF 24 million).

11. GOODWILL

(CHF million)

COST

At 1 January

Additions

Impairment

Exchange differences

AT 31 DECEMBER

NOTE

2016

2015

1 088

(1)

1 195

1 105

(102)

1 088

Goodwill recognised by the Group is allocated to CGUs for impairment testing purposes and is annually tested for impairment
at the end of each reporting period.

In response to a constantly changing global marketplace and new demand patterns from the existing customer base, the Group
announced an organisational realignment during Autumn 2015, which became effective from 1 January 2016. As a result, most
of the Group business lines were reorganised.

This reorganisation, together with a thorough operational review of the Group's business lines and a more seamless approach for
business targeting and integration, led the Group to adjust its management of goodwill and to reassess its CGUs to better reflect
the operational structure of its business lines and the levels at which cash inflows are generated.

165

8. SGS GROUP RESULTS

• In the case of the following four business lines, the CGU covers the entire worldwide operations since customer activities

executed by the local entities, the clients and customers that they serve and the drivers of cash inflows are largely
interdependent on a worldwide basis across each business line:

·Consumer and Retails
·Oil, Gas and Chemicals
·Environment, Health and Safety
·Minerals

• The Industrial business line continues to be driven primarily by regional and local customer activities and therefore to have cash
inflows, which are largely independent from each other. Consequently, a CGU organisation by region or by country has been
maintained and goodwill has been allocated to seven CGUs.

• The Transportation business has been split into two CGUs since the customer activities in this business (especially in testing and
engineering activities) are globally interdependent, except for Spain where regulated activities and related cash inflows represent
almost entirely the whole business and therefore are assessed as a distinct CGU.

• The Agriculture, Food and Life business has been split into three worldwide CGUs to reflect the global nature of customer

activities and drivers of cash inflows in each of Agriculture and Food, Clinical Research and Life Science Laboratories.

• No goodwill has been allocated to the Certification and Business Enhancement or to the Governments and Institutions

business lines.

ALLOCATION OF GOODWILL TO CGUS OR GROUP OF CGUS

Goodwill allocated to the main CGUs or groups of CGUs as of 31 December broken down as follows:

(CHF million)

Oil, Gas and Chemicals

Transportation

Agriculture, Food and Life

Environment, Health and Safety

Industrial

Minerals

Consumer and Retail

TOTAL

2016

137

230

220

143

257

123

1 195

2015

137

222

209

122

212

110

1 088

Goodwill impairment reviews have been conducted for all goodwill balances allocated to the CGUs as described above.
An impairment charge of CHF 1 million in relation to the restructuring was recorded (2015: nil).

The recoverable amount of each of the CGUs, 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 depending on the business activities
and geographic profile of each of the respective CGUs.

PRE-TAX RATE USED IN 2016 FOR THE MAIN CGUS OR GROUP OF CGUS IMPAIRMENT TESTING

Oil, Gas and Chemicals

Transportation

Agriculture, Food and Life

Environment, Health and Safety

Industrial

Minerals

Consumer and Retail

2016

7.4%

6.4% – 6.6%

5.3% – 6.9%

6.1%

5.6% – 9.9%

8.3%

6.7%

The cash flow projections 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
calculations are consistent with the expected average growth rates of the segments served by the Group.

166

(CHF million)

2016

COST

At 1 January

Additions

(CHF million)

2015

COST

At 1 January

Additions

The key sensitivity for each impairment test is the growth in revenue and operating margin. Reducing the expected annual revenue
growth rates for the first five years by 2.0% would not result in any of the carrying amounts exceeding the recoverable amount.
Reducing the operating margin by 0.25% would not result in any of the carrying amounts exceeding the recoverable amount.

An increase of 1.0% in the discount rate assumption would not change the conclusions of the impairment tests.

12. OTHER INTANGIBLE ASSETS

TRADEMARKS
AND OTHER

CUSTOMER
RELATIONSHIPS

INTERNALLY
GENERATED

PURCHASED

TOTAL

COMPUTER SOFTWARE
AND OTHER ASSETS

Acquisition of subsidiaries

Disposals

Exchange differences and other

At 31 December

ACCUMULATED AMORTISATION AND IMPAIRMENT

At 1 January

Amortisation

Disposals

Exchange differences and other

At 31 December

NET BOOK VALUE AT 31 DECEMBER 2016

(2)

188

243

150

106

283

(2)

(8)

294

225

(2)

242

643

(2)

(4)

720

425

(2)

(1)

474

246

Acquisition of subsidiaries

Disposals

Exchange differences and other

At 31 December

ACCUMULATED AMORTISATION AND IMPAIRMENT

At 1 January

Amortisation

Impairment

Disposals

Exchange differences and other

At 31 December

NET BOOK VALUE AT 31 DECEMBER 2015

TRADEMARKS
AND OTHER

CUSTOMER
RELATIONSHIPS

INTERNALLY
GENERATED

PURCHASED

TOTAL

COMPUTER SOFTWARE
AND OTHER ASSETS

283

(5)

(19)

283

214

(6)

(10)

225

625

(5)

(39)

643

393

(6)

(19)

425

218

(8)

(4)

176

(15)

188

(5)

114

167

8. SGS GROUP RESULTS

SIGNIFICANT INTANGIBLE ASSETS

The Group is improving its global management information systems, focusing on contract management, finance and sales order
processing. Additions relating to the Group's ERP system amount to CHF 5 million (2015: CHF 6 million) and are being amortised
over a period of four years.

Incremental costs relating to internally generated assets are capitalised when incurred and amortised over a period of four years
from the time of occurrence. Purchased intangible assets mainly consist of purchased computer software and consultancy services
required for implementation.

13. OTHER NON-CURRENT ASSETS

(CHF million)

Non-current loans or amounts receivable from third parties

Retirement benefit asset

Other non-current assets

TOTAL

NOTE

2016

122

2015

142

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 12%.

In 2016, other non-current assets included deposits for guarantees and CHF 29 million (2015: CHF 28 million) of restricted cash.
Typical examples of restricted cash are cash deposits for performance bonds, rentals and other operating obligations.

At 31 December 2016 and 2015, the fair value of the Group's other non-current assets approximates to the carrying value.

14. UNBILLED REVENUES AND INVENTORIES

(CHF million)

Work-in-progress

Unbilled revenues

Inventories

TOTAL

2016

187

290

2015

187

288

168

15. TRADE ACCOUNTS AND NOTES RECEIVABLE

(CHF million)

Trade accounts and notes receivable

Allowance for doubtful accounts

TOTAL

Ageing of trade accounts and notes receivables not impaired:

Not overdue

Past due not more than two months

Past due more than two months but not more than four months

Past due more than four months but not more than six months

Past due more than six months but not more than one year

Past due more than one year

TOTAL

2016

1 111

(114)

997

406

409

997

2015

1 015

(98)

917

361

372

917

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

2016

(98)

(2)

(25)

(1)

(114)

2015

(110)

(1)

(18)

(98)

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 2016 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.

169

8. SGS GROUP RESULTS

16. OTHER RECEIVABLES AND PREPAYMENTS

(CHF million)

Accrued income, prepayments

Derivative assets

Other receivables

TOTAL

2016

181

252

The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties.
Other receivables consist mainly of sales taxes and other taxes recoverable as well as advances to suppliers.

17. MARKETABLE SECURITIES

(CHF million)

Available for sale

TOTAL

2016

2015

181

272

2015

244

Unrealised gains or losses on marketable securities designated as available for sale and which are recorded in other comprehensive
income amounted to less than CHF 1 million for 2016 (2015: CHF 1 million).

The reduction in marketable securities corresponds to the sale Exchange Traded Funds (ETF) investments made in 2015.

18. CASH AND CASH EQUIVALENTS

(CHF million)

Cash and short-term deposits

Deposits on demand

Short-term loans

TOTAL

2016

954

975

2015

955

535

1 490

170

NOTES

10 and 12

19. CASH FLOW STATEMENT

19.1. OTHER NON-CASH ITEMS

(CHF million)

Depreciation of buildings and equipment

Impairment of land, buildings and equipment and other
intangible assets

Amortisation of intangible assets

Impairment of goodwill

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. DECREASE IN WORKING CAPITAL

(CHF million)

Decrease/(Increase) in unbilled revenues and inventories

(Increase)/decrease in trade accounts and notes receivable

Decrease/(increase) in other receivables and prepayments

Increase/(decrease) in trade and other payables

Increase/(decrease) in other creditors and accruals

(Decrease)/increase in other provisions

DECREASE IN WORKING CAPITAL

19.3. CASH FLOWS ARISING FROM ACQUISITIONS OF BUSINESSES

(CHF million)

Non-current 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

2016

253

(20)

(2)

185

560

2016

(30)

(7)

2015

245

(22)

(5)

(1)

195

541

2015

(12)

160

2016 ACQUISITIONS

2015 ACQUISITIONS

(89)

(55)

(15)

(98)

(83)

(95)

(8)

(172)

(38)

(6)

(43)

(37)

(85)

(1)

(3)

(104)

Note 3 provides further information regarding acquisitions of businesses. All acquisitions were settled in cash.

171

8. SGS GROUP RESULTS

20. ACQUISITIONS

ASSETS AND LIABILITIES ARISING FROM THE 2016 ACQUISITIONS

(CHF million)

Tangible assets

Intangible assets

Other long-term assets

Trade accounts
and notes receivable

Other current assets

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
receivable/(payable)

Payment on prior
year acquisitions

Prepayment
on acquisitions

NET CASH OUTFLOW
ON ACQUISITIONS

ACCUTEST

CYBERMETRIX

CCS

OTHER

TOTAL

FAIR VALUE ON
ACQUISITION

(9)

(1)

(2)

(5)

(9)

(1)

(5)

(4)

(29)

(6)

(4)

(10)

(8)

(1)

(49)

(8)

(4)

193

(15)

(13)

(1)

172

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 the fair value of contingent future
earn-out payments.

The Group incurred transaction-related costs of CHF 6 million (2015: CHF 4 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.

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.

172

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
counterparty exposure and hedging practices. Counterparties 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)

2016

2015

2016

2015

2016

2015

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)

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

(10)

(63)

(24)

(34)

(8)

(243)

(4)

(3)

(5)

(4)

(5)

(13)

(351)

(42)

(8)

(764)

(54)

(27)

(19)

(23)

(10)

(318)

(4)

(7)

(2)

(4)

(7)

(5)

(14)

(417)

(23)

(2)

(823)

(6)

(1)

(5)

(1)

(2)

(1)

(6)

(1)

(5)

(1)

FAIR VALUE MEASUREMENT RECOGNISED IN THE BALANCE SHEET

Marketable securities and derivative assets and liabilities are the only financial instruments measured at fair value subsequent
to their initial recognition. 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).

Of marketable securities, CHF 9 million (2015: CHF 244 million) qualify as Level 1, fair value measurement category.

Derivative assets (2016: CHF 3 million; 2015: CHF 22 million) and liabilities (2016: CHF 12 million; 2015: CHF 20 million) qualify
as Level 2 fair value measurement category in accordance with the fair value hierarchy.

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.

The fair values of financial assets and financial liabilities included in Level 2 above have been determined in accordance with
generally accepted pricing models.

173

8. SGS GROUP RESULTS

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 counterparties.

The maximum credit risk to which the Group is theoretically exposed at 31 December 2016 is the carrying amount of financial
assets including derivatives.

Analysis of financial assets by class and category at 31 December 2016:

AMORTISED
COST LOANS AND
RECEIVABLES

FAIR VALUE

AVAILABLE
FOR SALE

AT FAIR VALUE
THROUGH P&L

TOTAL

(CHF million)

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

Cash and cash equivalents

Trade receivables

Other receivables¹

Unbilled revenues

Non-current loans or amounts
receivable from 3rd parties

Marketable securities

Derivatives

975

997

154

187

975

997

154

187

TOTAL FINANCIAL ASSETS

2 327

975

997

154

187

975

997

154

187

2 339

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.

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

Trade receivables

Other receivables¹

Unbilled revenues

Non-current loans or amounts
receivable from 3rd parties

Marketable securities

Derivatives

917

140

187

917

140

187

TOTAL FINANCIAL ASSETS

2 742

244

1 490

917

140

187

244

3 008

917

140

187

244

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.

174

LIQUIDITY RISK MANAGEMENT

The objective of the Group's liquidity and funding management is to ensure that all its foreseeable financial commitments can be
met when due. Liquidity and funding are 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 2016:

AMORTISED COST
OTHER LIABILITIES

FAIR VALUE

AT FAIR VALUE THROUGH P&L

TOTAL

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

300

189

300

189

1 719

1 811

2 252

2 344

(CHF million)

Trade payables

Other payables and financial liabilities¹

Advances from clients

300

189

300

189

Loans and obligations under finance leases

1 719

1 811

Derivatives

Bank overdrafts

TOTAL FINANCIAL LIABILITIES

2 240

2 332

1. Excluding VAT and other tax related items.

In the fair value hierarchy, all financial liabilities qualify as Level 2.

Analysis of financial liabilities by class and category at 31 December 2015:

AMORTISED COST
OTHER LIABILITIES

FAIR VALUE

AT FAIR VALUE THROUGH P&L

TOTAL

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

226

162

226

162

2 217

2 685

(CHF million)

Trade payables

Other payables and financial liabilities¹

Advances from clients

226

162

226

162

Loans and obligations under finance leases

2 217

Derivatives

Bank overdrafts

TOTAL FINANCIAL LIABILITIES

2 665

1. Excluding VAT and other tax related items.

In the fair value hierarchy, all financial liabilities qualify as Level 2.

175

8. SGS GROUP RESULTS

Contractual maturities of financial liabilities including interest payments at 31 December 2016:

(CHF million)

On demand or within one year

Within the second year

Within the third year

Within the fourth year

Within the fifth year

After five years

BORROWINGS
3RD PARTY
LT AND ST

BANK
OVERDRAFTS
AND OTHER
LIABILITIES

GROSS SETTLED
DERIVATIVE
FINANCIAL
INSTRUMENTS
OUTFLOWS

GROSS SETTLED
DERIVATIVE
FINANCIAL
INSTRUMENTS
INFLOWS

TRADE
PAYABLES
AND OTHERS

FINANCE
LEASES

TOTAL

403

316

1 082

1 116

(1 126)

446

475

406

316

1 082

The Group hedges its foreign exchange exposure on a net basis. The net gross settled derivative financial instruments of
CHF 10 million (2015: CHF 1 million) represents the net nominal value expressed in CHF of the Group's foreign currency contracts
outstanding at 31 December 2016.

Contractual maturities of financial liabilities including interest payments at 31 December 2015:

BORROWINGS
3RD PARTY
LT AND ST

BANK
OVERDRAFTS
AND OTHER
LIABILITIES

GROSS SETTLED
DERIVATIVE
FINANCIAL
INSTRUMENTS
OUTFLOWS

GROSS SETTLED
DERIVATIVE
FINANCIAL
INSTRUMENTS
INFLOWS

TRADE
PAYABLES
AND OTHERS

FINANCE
LEASES

TOTAL

531

402

1 403

1 472

(1 472)

374

915

403

1 403

(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

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 2016 and 2015, with all other variables remaining constant.

Sensitivity analysis at 31 December 2016 and 2015:

(CHF million)

US Dollar (USD)

Euro (EUR)

CFA Franc BEAC (XAF)

New Cedi (GHS)

Kwanza Angolais (AOA)

Taiwanese Dollar (TWD)

Australian Dollar (AUD)

Canadian dollar (CAD)

Brazilian Real (BRL)

Colombian Peso (COP)

Chilean Peso (CLP)

2016

2015

INCOME STATEMENT
IMPACT INCOME/(EXPENSE)

EQUITY IMPACT
INCREASE/(DECREASE)

INCOME STATEMENT
IMPACT INCOME/(EXPENSE)

EQUITY IMPACT
INCREASE/(DECREASE)

(2)

(3)

(1)

176

INTEREST RATE RISK MANAGEMENT

The Group is exposed to fair value interest rate risk because the Group borrows funds at fixed interest rates. Where appropriate,
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.

If interest rates were 50 basis points higher/lower, the profit for the year ended 31 December 2016 would increase/decrease
by CHF nil (2015: nil).

22. SHARE CAPITAL AND TREASURY SHARES

SHARES IN CIRCULATION

TREASURY SHARES

TOTAL SHARES ISSUED

TOTAL SHARE CAPITAL
(CHF MILLION)

BALANCE AT 1 JANUARY 2015

Treasury shares released into circulation

Treasury shares purchased
for equity compensation plans

Treasury shares purchased
for cancellation

BALANCE AT 31 DECEMBER 2015

Treasury shares released into circulation

Treasury shares purchased
for equity compensation plans

Treasury shares purchased
for cancellation

7 675 506

54 636

(45 778)

(78 904)

7 605 460

49 162

(6 315)

146 930

(54 636)

45 778

78 904

216 976

(49 162)

6 315

(109 800)

109 800

7 822 436

BALANCE AT 31 DECEMBER 2016

7 538 507

283 929

7 822 436

ISSUED SHARE CAPITAL

SGS SA has a share capital of CHF 7 822 436 (2015: CHF 7 822 436) fully paid in and divided into 7 822 436 (2015: 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 2016, SGS SA held 283 929 treasury shares. The shares purchased for cancellation are directly held by SGS SA,
while the shares to cover the equity compensation plans are held by a subsidiary company.

In 2016, 49 162 treasury shares were sold to cover the equity compensation plans and 6 315 were purchased for an average price
of CHF 2 127.

In 2015, the Group initiated a share buyback 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 programme started on 20 January 2015 and closed on 31 December 2016. As part of the share
purchased for cancellation, 109 800 shares were purchased in 2016 for an average price of CHF 1 961.

177

8. SGS GROUP RESULTS

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 ten years from the date of issuance of the equity-linked instruments.

23. LOANS AND OBLIGATIONS UNDER FINANCE LEASES

RESTATEMENT OF PRIOR YEAR COMPARATIVES

Two bonds with a face value of CHF 492 million indicated in note 23 of the 2015 Annual Report were incorrectly disclosed as
"Non-current" instead of "Current" loans and obligations under finance leases. As a result, the Non-current and Current part of
loans & obligations under finance leases were respectively over and understated by CHF 491 million as at 31 December 2015.
The restated 2015 balance sheet figures take into account these adjustments.

There is no impact on previously reported net debt, total liabilities or profit for the period.

CURRENT YEAR INFORMATION

(CHF million)

Bank loans

Bank overdrafts

Corporate bonds

Finance lease obligations

TOTAL

Current

Non-current

2016

2015 RESTATED

1 716

1 720

1 719

2 211

2 217

494

1 723

Depending on the nature of the loan, currency and date of maturity, interest rates on long-term loans from third parties range
between 0.875% and 5.75% and on short-term loans from third parties range between 0% and 8.75%.

The loans from third parties exposed to fair value interest rate risk amounted to CHF 1 718 million (2015: CHF 2 215 million) and
the loans from third parties exposed to cash flow interest rate risk amounted to CHF 1 million (2015: CHF 0.5 million).

The fair value of corporate bonds was CHF 1 808 million (2015: CHF 2 312 million). In 2016, a corporate bond of CHF 492 million
was reimbursed.

178

SGS SA issued the following corporate bonds listed on the SIX Swiss Exchange:

DATE OF ISSUE

08.03.2011

27.05.2011

27.02.2014

25.04.2014

08.05.2015

FACE VALUE IN
CHF MILLION

COUPON IN %

YEAR OF
MATURITY

ISSUE
PRICE IN %

REDEMPTION
PRICE IN %

375

275

138

250

112

325

225

2.625

3.000

1.375

1.750

1.375

0.250

0.875

2019

2021

2022

2024

2022

2023

2030

100.832

100.480

100.517

101.019

101.533

100.079

100.245

100.000

Loans and finance lease obligations mature as follows:

BANK LOANS, OVERDRAFTS
AND CORPORATE BONDS

FINANCE LEASE OBLIGATIONS

(CHF million)

On demand or within one year

Within the second year

Within the third year

Within the fourth year

Within the fifth year

After five years

TOTAL

2016

375

297

1 046

1 719

2015

494

373

1 348

2 216

2016

2015

The currency composition of loans and finance lease obligations is as follows:

(CHF million)

Swiss Franc (CHF)

Euro (EUR)

US Dollar (USD)

Malagasy Ariary (MGA)

Other

TOTAL

BANK LOANS, OVERDRAFTS
AND CORPORATE BONDS

2016

1 716

2015

2 212

1 719

2 216

FINANCE LEASE OBLIGATIONS

2016

2015

179

8. SGS GROUP RESULTS

24. DEFINED 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
Switzerland. They represent a defined benefit obligation at 31 December 2016 of CHF 14 million (2015: 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 employees
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 either to withdraw all or part of the balance of their retirement
account or to convert it 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 2017.

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 a 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 9 million to this plan in 2017.

180

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 22 years.

The Group expects to contribute CHF 1 million to this plan in 2017.

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 8 million to those plans in 2017.

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)

2016

Fair value of plan assets

Present value of funded defined benefit obligation

FUNDED/(UNFUNDED) STATUS

Present value of unfunded defined benefit obligation

NET ASSET/(LIABILITY) AT 31 DECEMBER

USA

OTHER

TOTAL

384

(374)

(10)

232

(215)

231

(254)

(23)

(8)

(31)

(66)

(27)

(53)

(80)

886

(909)

(23)

(71)

(94)

(CHF million)

2015

Fair value of plan assets

Present value of funded defined benefit obligation

FUNDED/(UNFUNDED) STATUS

Present value of unfunded defined benefit obligation

NET ASSET/(LIABILITY) AT 31 DECEMBER

USA

OTHER

TOTAL

373

(390)

(17)

(10)

(27)

241

(198)

214

(242)

(28)

(8)

(36)

(109)

(25)

(49)

(74)

912

(939)

(27)

(67)

(94)

The net liability of CHF 94 million (2015: CHF 94 million) includes CHF 60 million (2015: CHF 87 million) of pension fund assets
recognised in the item Other Non-Current Assets in note 13 and CHF 154 million (2015: CHF 181 million) of pension fund liability
recognised in the item Defined Benefit Obligation in the balance sheet.

181

8. SGS GROUP RESULTS

Amounts recognised in the income statement:

(CHF million)

2016

Service cost expense

Net interest 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

TOTAL EXPENSE DUE TO DEFINED BENEFIT OBLIGATION
AT 31 DECEMBER

(CHF million)

2015

Service cost expense

Net interest 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

TOTAL EXPENSE DUE TO DEFINED BENEFIT OBLIGATION
AT 31 DECEMBER

USA

OTHER

TOTAL

(2)

USA

OTHER

TOTAL

(1)

(2)

(1)

Amounts recognised in the statement of other comprehensive income:

(CHF million)

2016

USA

OTHER

TOTAL

Remeasurement on net defined benefit liability

Change in demographic assumptions

Change in financial assumptions

Experience adjustments on benefit obligations

Actual return on plan assets excluding net interest expense

TOTAL RECOGNISED IN THE STATEMENT OF OTHER COMPREHENSIVE
INCOME AT 31 DECEMBER

(11)

(1)

(4)

(13)

(29)

(25)

(4)

(7)

(15)

(44)

182

(CHF million)

2015

USA

OTHER

TOTAL

Remeasurement on net defined benefit liability

Change in demographic assumptions

Change in financial assumptions

Experience adjustments on benefit obligations

Actual return on plan assets excluding net interest expense

TOTAL RECOGNISED IN THE STATEMENT OF OTHER COMPREHENSIVE
INCOME AT 31 DECEMBER

(13)

(4)

(7)

(4)

(9)

Movements in the net asset/(liability) during the period:

(CHF million)

2016

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

Employer benefit payments

Exchange differences

NET ASSET/(LIABILITY) AT 31 DECEMBER

(27)

(9)

(23)

(4)

(36)

(4)

(1)

(31)

(74)

(7)

(8)

(2)

(80)

(94)

(20)

(3)

(7)

(94)

(CHF million)

2015

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

Special pension fund contribution

Exchange differences

NET ASSET/(LIABILITY) AT 31 DECEMBER

(47)

(8)

(22)

(27)

(2)

(1)

(58)

(21)

(36)

(88)

(6)

(1)

(74)

(176)

(16)

(40)

103

(94)

183

8. SGS GROUP RESULTS

Change in the defined benefit obligation is as follows:

(CHF million)

2016

USA

OTHER

TOTAL

Opening present value of the defined benefit obligation

400

198

250

158

1 006

Current service cost

Interest cost

Plan participants’ contributions

Settlements

Net increase/(decrease) in DBO from acquisitions/disposals

Actual net benefit payments

(Gains)/losses due to changes in demographic assumptions

(Gains)/losses due to changes in financial assumptions

Experience differences

Exchange rate (gains)/losses

DEFINED BENEFIT OBLIGATION AT 31 DECEMBER

(18)

(11)

(1)

(4)

384

(7)

(31)

215

(2)

(16)

(4)

(54)

(6)

262

119

(56)

(47)

(15)

(17)

980

(CHF million)

2015

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

Settlements

Actual net benefit payments

(Gains)/losses due to changes in demographic assumptions

(Gains)/losses due to changes in financial assumptions

Experience differences

Exchange rate (gains)/losses

DEFINED BENEFIT OBLIGATION AT 31 DECEMBER

(14)

400

(8)

(13)

(9)

198

(47)

(15)

(7)

(4)

250

(1)

(6)

(17)

158

(48)

(43)

(9)

(26)

1 006

184

Change in fair value of plan assets is as follows:

(CHF million)

2016

Opening fair value of plan assets

Interest income on plan assets

Return on plan assets excluding amounts included in net
interest expense

Actual employer contributions

Actual plan participants’ contributions

Actual net benefit payments

Actual admin expenses paid

Settlements

Net increase/(decrease) in assets from acquisitions

Exchange differences

FAIR VALUE OF PLAN ASSETS AT 31 DECEMBER

(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

Actual employer contributions

Pension funds special contribution

Actual plan participants’ contributions

Actual net benefit payments

Actual admin expenses paid

Settlements

Exchange differences

FAIR VALUE OF PLAN ASSETS AT 31 DECEMBER

USA

OTHER

TOTAL

373

(18)

384

241

(7)

(1)

(35)

232

214

(16)

(1)

(2)

231

(1)

(6)

(54)

912

(47)

(2)

(56)

(24)

886

USA

OTHER

TOTAL

332

(5)

(14)

373

235

(9)

(8)

(1)

(10)

241

235

(17)

(15)

(1)

(42)

214

(1)

(6)

(1)

(7)

888

(31)

103

(43)

(2)

(43)

(17)

912

There are no reimbursement rights included in plan assets. The actual return on plan assets was a gain of CHF 66 million
(2015: loss of CHF 6 million).

185

8. SGS GROUP RESULTS

The major categories of plan assets at the balance sheet date are as follows:

(CHF million)

2016

Cash and cash equivalents

Equity securities

Debt securities

Assets held by insurance company

Property

Investment funds

Other

TOTAL PLAN ASSETS AT 31 DECEMBER

(CHF million)

2015

Cash and cash equivalents

Equity securities

Debt securities

Assets held by insurance company

Property

Investment funds

Other

TOTAL PLAN ASSETS AT 31 DECEMBER

USA

OTHER

TOTAL

105

121

384

232

157

231

228

298

121

106

886

USA

OTHER

TOTAL

116

373

241

142

214

104

211

292

116

101

912

In 2016 and 2015, the Group did not occupy any property that was included in the plan assets.

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 with
the aim of generating long-term returns, which will enable the Board of the foundation to grow 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.

186

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 2016 and 2015 are as follows:

(Weighted average %)

2016

Discount rate

Mortality assumption

Salary progression rate

Future increase for pension in payments

Healthcare cost trend assumed for the next year

Ultimate trend rate

Year that the rate reaches the ultimate trend rate

USA

OTHER

0.7

2.9

4.0

LPP 2015
Proposed CMI

SNA02 CMI
2015 Scale

RP 2014
SSA MP 2016

1.5

0.2

3.0

3.8

3.5

3.3

6.6

5.0

2022

2.0

2.8

0.6

(Weighted average %)

2015

Discount rate

Mortality assumption

Salary progression rate

Future increase for pension in payments

Healthcare cost trend assumed for the next year

Ultimate trend rate

Year that the rate reaches the ultimate trend rate

USA

OTHER

0.9

3.9

LPP 2010
Generational

SNA02 CMI
2015 Scale

2.0

0.3

3.0

3.5

3.2

2.0

4.3

RP 2014
SSA

3.3

6.9

5.0

2022

2.5

2.4

0.4

The weighted average rate for each assumption used to measure the benefits obligation is also shown. The assumptions used
to determine end-of-year benefits obligation are also used to calculate the following year’s cost.

In Switzerland, a decrease in the discount rate of 0.5% per annum would, all other things being equal, increase the obligation
by CHF 30 million; a 0.5% increase in assumed salary increases would increase the obligation by CHF 2 million; and a one-year
increase in members’ life expectancy would increase the obligation by approximately CHF 12 million.

In the United States of America, a decrease in the discount rate of 0.5% per annum would, all other things being equal, increase
the obligation by CHF 17 million; a 0.5% increase in assumed salary increases would not impact the obligation and a one-year
increase in members’ life expectancy would increase the obligation by approximately CHF 10 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 24 million; a 0.5% increase in assumed salary increases would increase the obligation; by CHF 3 million;
and a one-year increase in members’ life expectancy would increase the obligation by approximately CHF 7 million.

These sensitivities have been calculated to show the movement in the defined benefit obligation in isolation and assume 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 2016 was CHF 67 million (2015: CHF 69 million).

187

8. SGS GROUP RESULTS

25. PROVISIONS

(CHF million)

AT 1 JANUARY 2016

Acquisitions of subsidiaries

Charge to income statement

Release to income statement

Payments

Exchange differences

AT 31 DECEMBER 2016

Analysed as:

Current liabilities

Non-current liabilities

TOTAL

LEGAL AND WARRANTY
CLAIMS ON SERVICES
RENDERED

DEMOBILISATION AND
REORGANISATION

OTHER PROVISIONS

TOTAL

(19)

(4)

(65)

(8)

(7)

2 016

112

116

(31)

(76)

112

2 015

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 the Group's 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
payments to employees upon leaving the Group, which in some jurisdictions are a legal obligation.

188

26. TRADE AND OTHER PAYABLES

(CHF million)

Trade payables

Other payables

Other financial liabilities

TOTAL

2016

300

319

641

2015

226

275

526

Trade accounts and other payables principally comprise amounts outstanding for trade purchases and ongoing operating costs.
At 31 December 2016 and 2015, the fair value of the Group’s trade accounts and other payables approximates the carrying value.

27. OTHER CREDITORS AND ACCRUALS

(CHF million)

Accrued expenses

Advance billings

Advances from clients

Derivative liabilities

TOTAL

2016

562

661

2015

521

654

At 31 December 2016 and 2015, 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

2016 ISSUED

2015 ISSUED

217

316

130

204

334

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.

189

8. SGS GROUP RESULTS

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

2016

124

266

462

2015

124

254

450

The Group leases the majority of its office and laboratory space and vehicles. During the year ended 31 December 2016,
CHF 134 million was recognised as an expense in the income statement in respect of operating leases (2015: CHF 149 million).

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

In 2016, a total of 1 315 Restricted Shares were granted to the members of the Operations Council, in settlement of 50% of the
annual incentive related to the 2015 performance. The Restricted Shares fully vest at grant date and are blocked for a period of
three years from the grant date, until April 2019. The fair market value at grant date of the Restricted Shares granted, being defined
as the average closing price of the share during a 20-day period following the payment of the dividends after the 2016 Annual
General Meeting, was CHF 2 703 180.

50% of the annual incentive related to the 2016 performance will be settled in Restricted Shares. The grant of the Restricted
Shares will be done after the 2017 Annual General Meeting; The total number of Restricted Shares to be granted will be calculated
based on the average closing price of the share during a 20-day period following the payment of the dividends after the 2017
Annual General Meeting. The Restricted Shares will fully vest at grant date and will be blocked for a period of three years from
the grant date, until April 2020. Shareholding guidelines apply to the Restricted Share Plans.

ii) Grants to Other Employees

In 2016, a total of 2 473 Restricted Share Units were granted to selected key employees under the framework of the Restricted
Share Units Plan 2016. The Restricted Share Units vest in three stages: one-third at grant; one-third 18 months after the grant
date, and one-third 36 months after the grant date. The fair market value at grant date of the Restricted Share Units granted, being
defined as the average closing price of the share during a 20-day period preceding the grant date, was CHF 4 968 504.

iii) Long-Term Incentive Plans (LTI)

In 2016, a total of 149 Performance Share Units of the 2015 Long-Term Incentive Plan were granted to selected employees (not
members of the Operations Council). Additional information is disclosed in the SGS Remuneration Report (pages 126 to 142).

190

OPTION PLAN

EXERCISE PERIOD

DESCRIPTION

FROM

STRIKE
PRICE1

OPTIONS
OUTSTANDING AT
31 DECEMBER 2015

GRANTED

CANCELLED

EXERCISED
OR ADJUSTED

OPTIONS
OUTSTANDING AT
31 DECEMBER 2016

SGSMF-2011

Jan.14

Jan.16

1 528.78

206 662

SGSMF-2011 LTI

Jan.15

Jan.16

1 528.78

66 000

SGSKF-2012

SGSWS-2013

SGSPF-2014

SGSBB-2015

TOTAL

Jan.15

Jan.17

1 448.85

1 444 280

Jan.16

Jan.18

1 989.31

3 061 736

Jan.17

Jan.19

2 059.00

2 990 399

Jan.18 Jan.20

1 798.00

1 482 124

9 251 201

1 606 201

Of which exercisable at 31 December

(40 996)

(165 666)

(66 000)

(122 741)

(1 176 218)

145 321

(1 706 690)

1 355 046

(39 996)

(35 176)

2 950 403

1 446 948

(304 909)

(3 048 574)

5 897 718

1 500 367

1. The strike price of the options has been adjusted in accordance with market practice for capital reductions and special dividends.

PERFORMANCE SHARE UNIT (PSU) AND RESTRICTED SHARE UNIT (RSU) PLANS

DESCRIPTION

SGS-PSU-15

SGS-RSU-16

TOTAL

EXERCISE
PERIOD
FROM

SHARES
OUTSTANDING AT
31 DECEMBER 2015

GRANTED

CANCELLED

VESTED OR
ADJUSTED

SHARES
OUTSTANDING AT
31 DECEMBER 2016

Jan.18

Jan.19

39 186

149

(1 338)

39 186

2 473

2 622

(50)

(1 388)

(815)

37 997

1 608

39 605

The Group does not issue new shares to grant to employees in relation to the equity-based compensation plans but uses treasury
shares, acquired through share buyback programmes.

In total as of 31 December 2016, the equity overhang, defined as the total number of share units, restricted shares and shares
underlying options outstanding divided by the total number of outstanding shares (7 822 436 shares) amounted to 98 792 units,
representing 1.26%.

The Company’s burn rate, defined as the number of equities (restricted shares and share units) granted in 2016 (3 937 units) divided
by the total number of outstanding shares, was 0.05%.

The Group recognised during the year total expense of CHF 16 million (2015: CHF 9 million) in relation to equity compensation plans.

Shares available for future plans:

AT 1 JANUARY 2015

Repurchased shares

Options granted (SGSBB Plan and adjustments)

Options cancelled

SGS-PSU-15 plan

AT 31 DECEMBER 2015

Purchased shares

Granted SGS-PSU-15 plan

Granted SGS-RSU-16 plan

Options cancelled

PSU cancelled

RSU cancelled

AT 31 DECEMBER 2016

191

TOTAL

(20 635)

45 778

(16 000)

6 120

(39 186)

(23 923)

5 029

(149)

(2 473)

752

1 338

(19 376)

8. SGS GROUP RESULTS

At 31 December, the Group had the following shares available to satisfy various programmes:

Number of shares held

Shares allocated to 2011 option plans

Shares allocated to 2012 option plans

Shares allocated to 2013 option plans

Shares allocated to 2014 option plans

Shares allocated to 2015 option plans

Shares allocated for 2015 PSU plans

Shares allocated for 2016 RSU plans

SHARES (REQUIRED)/AVAILABLE FOR FUTURE OPTION PLANS AT 31 DECEMBER 2016

2016 TOTAL

2015 TOTAL

95 225

(31 004)

(29 523)

(14 469)

(37 997)

(1 608)

(19 376)

138 072

(21 392)

(25 669)

(31 004)

(29 923)

(14 821)

(39 186)

(23 923)

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.

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.

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 payments1

TOTAL

2016

2015

1. 2016 represents the market value of Restricted Shares granted in 2016 while 2015 represents the market value of SGSBB options and PSUs 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 126 to 142).

During 2016 and 2015, 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 2016, Directors’ fees were CHF 2 123 000 (2015: CHF 2 091 000).

The total compensation (cash and shares/options) received by the Operations Council (including Senior Management) amounted
to CHF 15 249 000 (2015: CHF 31 886 000).

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 207 to 208 of this report.

192

LOANS TO MEMBERS OF GOVERNING BODIES

As at 31 December 2016, two members of the Operations Council have received loans for a combined amount equivalent to
CHF 28 365 (no loan, credit or outstanding advance was due to the Company from members of its governing bodies in the prior year).

TRANSACTIONS WITH OTHER RELATED PARTIES

In 2016 and 2015, 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 expenses in respect of any bad or doubtful debts due from these related
parties were recognised.

33. SIGNIFICANT SHAREHOLDERS

As at 31 December 2016, Groupe Bruxelles Lambert acting through Serena SARL held 16.20% (2015: 15.00%). Mr. August von
Finck and members of his family acting in concert held 15.03% (2015: 15.03%), the Bank of New York Mellon Corporation held
3.35% (2015: 3.35%), BlackRock, Inc. held 3.03% (2015: 3.03%) and MFS Investment Management held 3.01% (2015: 3.01%)
of the share capital and voting rights of the Company.

At the same date, SGS Group held 3.63% of the share capital of the Company (2015: 2.77%).

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 9 February 2017, and will be submitted for approval by the Annual General
Meeting of Shareholders to be held on 21 March 2017.

On 3 January 2017, the Group announced the acquisition of 100% of Laboratoire LCA, offering analytical services, including soil
fertility testing, to the agricultural sector in Morocco.

On 5 January 2017, the Group announced the acquisition of 100% of BF Machinery Pty Ltd and CBF Engineering Pty Ltd, providing
testing, repair, engineering and maintenance services for pumps, valves, hydraulics and plastics systems in Australia.

On 30 January 2017, the Group announced the issuance of nine-year CHF 375 million straight bond with a coupon of 0.55 percent.

193

STATUTORY AUDITOR’S REPORT

To the General Meeting of

SGS SA, GENEVA

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Opinion

We have audited the consolidated financial statements of SGS SA and its subsidiaries (the Group), which comprise the consolidated
balance sheet as at 31 December 2016, and the consolidated income statement, consolidated statement of comprehensive income,
consolidated statement of cash flows, consolidated statement of changes in equity and notes to the consolidated financial statements
for the year then ended.

In our opinion the consolidated financial statements (presented on pages 146 to 193) give a true and fair view of the consolidated financial
position of the Group as at 31 December 2016, its consolidated financial performance and its consolidated cash flows for the year then
ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law.

Basis for Opinion

We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards.
Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the provisions of Swiss
law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

A Summary of our Audit Approach

AUDIT SCOPE

• We scoped our audit of component operations based on the significance of account balances and significant risks

• We gained sufficient and appropriate coverage across the Group

• Coverage details are provided on page 198

GROUP MATERIALITY

CHF 56 MILLION

7% OF PROFIT BEFORE TAX

(ADJUSTED FOR CERTAIN

NON-RECURRING ITEMS)

Key Audit Matters

KEY AUDIT MATTERS

• Revenue recognition in respect of unbilled revenue and work-in-progress

• Goodwill and associated impairment testing

• Current and deferred income tax balances

• Retirement benefit obligations

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial
statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

194

STATUTORY AUDITOR’S REPORT CONTINUED

KEY AUDIT MATTER

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER

REVENUE RECOGNITION IN RESPECT OF UNBILLED REVENUE AND WORK-IN-PROGRESS

The Group recognises revenue on fees for services rendered to
third parties when the services have been completed. However,
in certain circumstances, including where services are not billed at
the end of each financial period, revenue is recognised in proportion
to the stage of completion, normally by reference to costs incurred
to the balance sheet date in comparison with the total estimated
costs of the contracted services to completion. Where services
are completed, but unbilled, revenue is recorded at net selling price
with a margin on cost incurred. Where services are incomplete,
no margin is recognised and the costs incurred are included in
work-in-progress.

Our audit during the year included the following procedures
on work-in-progress and unbilled revenues:

• In all component locations we discussed with Management
the adequate implementation of Group policies and controls
regarding revenue recognition and the approval of unbilled
revenue balances;

• We tested a sample of unbilled revenue balances recorded
at the prior year-end to subsequent invoices and recoveries
from third-party clients in order to identify any locations that
had over-estimated historic revenues.

At 31 December 2016, the Group balance sheet included unbilled
revenues of CHF 187 million or 3.12% of total Group revenues
of CHF 5 985 million. In addition work-in-progress amounted to
CHF 62 million.

Significant judgement is required by Management at operational
level in certain cases to estimate the value of revenue and profit
that should be recognised prior to the year-end, which is highly
dependent on the nature and complexity of the services being
provided and the contractual terms with customers. The incremental
revenue and profit recognised at period-end is also included in
the determination of management incentives, increasing the
risk of inappropriate estimation. Accordingly the estimation of
work-in-progress and unbilled revenues is considered to be an
area of focus for the Audit Committee (see page 122) and a key
audit matter.

Refer to the accounting policy in note 2 and additionally note 14.

At year end, our audit work consisted of:

• We used audit analytics to identify businesses and

geographies across the Group, which had recorded significant
work-in-progress and unbilled balances at the year-end
compared to recurring monthly revenue levels and prior
year-end balances, and challenged local management by tracing
to contract and status reports to verify significant variances;

• We tested a sample of work-in-progress and unbilled balances
to the related customer contracts and appropriate operational
evidence to confirm that the services had been completed prior
to the year-end; and

• We also considered the adequacy of the disclosures in

the consolidated financial statements.

Based on the procedures performed, we consider Management’s
estimates and disclosures regarding work-in-progress and unbilled
revenue balances to be appropriate.

GOODWILL AND ASSOCIATED IMPAIRMENT TESTING

The Group’s balance sheet includes CHF 1 195 million of goodwill,
representing 22.3% of total Group assets. In accordance with IFRS,
these balances are allocated to Cash Generating Units (CGUs) which
are tested annually for impairment using discounted cash-flow
models of each CGU’s recoverable value compared to net operating
assets. A deficit in recoverable value would result in impairment.

In the current year, the Group has re-defined its CGUs to align
more closely with the Group’s international operations and the
levels at which independent cash inflows are generated. This led
to a reduction from 63 to 16 CGUs, reflecting the increasingly
regionalised and global basis of customer operations.

The inputs to the impairment testing model which have the most
significant impact on CGU recoverable value include:

• Projected revenue growth, operating margins and operating

cash-flows in the years 1-5;

• Stable long-term growth rates in years 6-10 and in perpetuity; and

• Country and business specific discount rates (pre-tax).

The impairment test model includes sensitivity testing of key
assumptions, including revenue growth, operating margin and
discount rate.

We considered the appropriateness of the methodology applied
and the controls implemented by Management in testing for
impairment and the judgements in determining the CGUs to
which goodwill is allocated.

We evaluated the appropriateness of the re-definition of CGUs
during the current year by discussions with Senior Operational
Management, confirmation of the reporting levels at which Group
Management monitors independent cash inflows and trading
performance and our knowledge of the Group’s operations.

We assessed the impairment testing models and calculations by:

• Checking the mechanical accuracy of the impairment models

and the extraction of inputs from source documents;

• Assessing the discount rates applied in the impairment

reviews with support from our valuation specialists, developing
independent expectations for key macroeconomic assumptions,
in particular discount rates, and comparing those independent
expectations to those used by Management; and

• Comparing forecast long-term growth rates to economic data.

195

STATUTORY AUDITOR’S REPORT CONTINUED

KEY AUDIT MATTER

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER

The annual impairment testing is considered to be a risk area for
the Audit Committee (refer to page 122), a significant accounting
judgement and estimate (note 2) and a key audit matter because the
assumptions on which the tests are based are highly judgmental and
are affected by future market and economic conditions which are
inherently uncertain, and because of the materiality of the balances
to the financial statements as a whole.

Refer to the accounting policy in note 2 and additionally note 11
for details of the goodwill balances and impairment testing inputs.

Using audit analytic techniques and our knowledge of the Group’s
businesses, we identified CGUs with significant goodwill balances,
declining trading performance compared with prior year, specific
risk factors (such as the impact of commodity price trends on
CGUs in the Oil Gas and Chemicals, Minerals and Industrials
businesses, macro-economic factors in certain geographies
including South and Central America and emerging markets,
recent acquisitions or new service innovations) or lower headroom
in recoverable value compared to net book value.

For these selected CGUs, we assessed the appropriateness of
cash-flow assumptions by analysing projected revenue growth
rates, margins and cash-flow levels against current and historic
trading and relevant market data where available, and by meeting
with Senior Operational and Commercial Management in key
businesses and geographies to consider the evidence available
to support projected future performance. We also developed
our own independent expectations of recoverable value headroom
by performing additional sensitivity testing of key assumptions.

We assessed the adequacy of the related disclosures in the
consolidated financial statements.

Based on the audit procedures performed, we consider the judgements
applied in the determination of CGUs and the assumptions included in
the impairment testing models, together with the disclosures set out in
the consolidated financial statements, to be appropriate. No impairment
was identified from the work above.

CURRENT AND DEFERRED INCOME TAX BALANCES

The Group operates in a large number of different jurisdictions and
is therefore subject to many tax regimes with differing rules and
regulations. Significant judgement is required in determining the
calculation of income taxes, both current and deferred, as well as
the assessment of provisions for uncertain tax positions including
estimates of interest and penalties where appropriate.

The Group’s balance sheet includes current tax assets of
CHF 88 million, current tax liabilities of CHF 166 million together
with deferred tax assets of CHF 165 million and deferred tax
liabilities of CHF 42 million. The tax expense of CHF 185 million
represents 24% of Group profit before taxes.

Due to their significance to the financial statements as a whole,
combined with the judgement and estimation required to determine
their values, the evaluation of current and deferred tax balances
is considered to be an area of focus for the Audit Committee
(see page 122) and a key audit matter.

Refer to the accounting policy in note 2 and additionally note 8.

Our audit included the following procedures on current and
deferred tax balances:

• We discussed with Management the adequate implementation
of Group policies and controls regarding current and deferred
tax, as well as the reporting of uncertain tax positions;

• We examined the procedures in place for the current and

deferred tax calculations for completeness and valuation and
audited the related tax computations and estimates in the light
of our knowledge of the tax circumstances. Our work was
conducted with our tax specialists in key locations and centrally;

• We verified the consolidation and analysis of tax balances at

Group level based on the information reported by Group affiliates;

• We considered Management’s assessment of the validity and

adequacy of provisions for uncertain tax positons, evaluating the
basis of assessment and reviewing relevant correspondence and
legal advice where available including any information regarding
similar cases with the relevant tax authorities;

196

STATUTORY AUDITOR’S REPORT CONTINUED

KEY AUDIT MATTER

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER

• In respect of deferred tax assets and liabilities, we assessed the
appropriateness of Management’s assumptions and estimates,
including the likelihood of generating sufficient future taxable
income to support deferred tax assets for tax losses carried
forward as disclosed in note 8 of CHF 68 million, considering
the time limits applied for the set-off of losses and comparing
the assumptions used to the Group’s forecasts for revenue and
profits in relevant countries; and.

• We also assessed the adequacy of the related disclosures in

the consolidated financial statements.

Based on the audit procedures performed, we consider Management’s
estimates and disclosures regarding current and deferred tax balances
to be appropriate.

We evaluated the Group’s assessment of the assumptions used
in the valuation of defined benefit liabilities and the information
contained within the actuarial valuation reports for each plan.
We also assessed the design and implementation of controls in
respect of the valuation process for the retirement benefit plans.

We tested the membership and salary data used in the valuation
of the retirement benefit plans by reconciliation to payroll records
on a sample basis. We also verified retirement benefit assets to
third-party confirmations.

Working with our pension specialists both at central and local
level, we considered the process applied by the Group’s actuaries
and the scope of the valuations performed and we evaluated
their expertise and independence. This included assessed the
benchmarking of the key assumptions applied, including discount
rates, inflation and mortality rates, against external data, where
available, and forming our own independent expectations based
on our knowledge of local market practices.

We also assessed the adequacy and completeness of the
related retirement benefit disclosures in the consolidated
financial statements.

Based on the procedures performed, we consider Management’s
estimates and disclosures regarding retirement benefit obligation
balances to be appropriate.

RETIREMENT BENEFIT OBLIGATIONS

The Group maintains a number of defined benefit pension plans.
The material defined benefit plans are in Switzerland, USA and UK.

At 31 December 2016, the Group recorded a net retirement
benefit liability of CHF 94 million, being the net of pension
fund assets of CHF 60 million, included in Other Non-Current
Assets and CHF 154 million pension fund liabilities, included
in Non-Current Liabilities.

The retirement benefit obligations recognised in the balance sheet
represent the present value of defined benefit obligations calculated
annually by independent actuaries. These actuarial valuations are
sensitive to key assumptions such as discount rates, inflation rates
and mortality rates. Changes in any of these assumptions can lead
to a material movement in the net retirement benefit liability.

Given the judgement required by Management in setting these
assumptions, the volatility in retirement benefit balances that can
result from changes in assumptions, and the significance of the
balances to the consolidated financial statements as a whole, the
estimation of retirement benefit obligations is an area of focus for
the Audit Committee (see page 122) and a key audit matter.

Refer to the accounting policy in note 2 and additionally notes
24 and 13.

197

STATUTORY AUDITOR’S REPORT CONTINUED

Materiality

We define materiality as the magnitude of misstatement in the consolidated financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.

Based on our professional judgment we determined materiality for the Group as a whole to be CHF56 million, based on a calculation of 7%
of profit before tax adjusted for certain non-recurring items. We selected profit before tax as the basis of materiality because, in our view,
it is the measure against which the performance of the Group is most commonly assessed.

The materiality applied by the component auditors ranged from CHF14 million to CHF28 million depending on the scale of the component’s
operations, the component’s contribution to Group profit before tax and our assessment of risks specific to each location.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of CHF1 million as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also reported to the Audit Committee on
disclosure matters that we identified when assessing the overall presentation of the financial statements.

Scope

We designed our audit by obtaining an understanding of the Group and its environment, including Group-wide controls, determining
materiality and assessing the risks of material misstatement in the consolidated financial statements.

Based on our scope assessment, we performed full scope component audits at 21 key locations in 2016: Australia; Belgium; Bermuda;
Brazil; Chile; China; Colombia; France; Germany; Ghana; Hong Kong; India; Italy; Korea; Netherlands; Russia; South Africa; Spain;
Switzerland; USA and UK. In aggregate, these components represented scope coverage of 71% of Group revenue, 86% of net assets
and 89% of net income for the year (see table below).

In addition we performed analytical review and other specified procedures (“rotation scope”) in Canada and Taiwan. In aggregate, Canada
and Taiwan related procedures represented scope coverage of 6% of Group revenue, 3% of net assets and 3% of net income for the year
(see table below).

GROUP AUDIT COVERAGE IN %

Revenue

Net assets

Net income

2016

2015

FULL
SCOPE

ROTATION
SCOPE

FULL
SCOPE

ROTATION
SCOPE

At the parent entity level we tested the consolidation process and carried out analytical procedures to confirm our conclusion that there
were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject
to a full scope audit.

Other Information in the Annual Report

The Board of Directors is responsible for the other information in the Annual Report. The other information comprises all information
included in the Annual Report, but does not include the consolidated financial statements, the stand-alone financial statements of
the Company upon which we issue a separate Statutory Auditor’s report, sections 4 and 5 of the Remuneration Report and our auditor’s
reports thereon.

Our opinion on the consolidated financial statements does not cover the other information in the Annual Report and we do not express any
form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information in the Annual
Report and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

198

STATUTORY AUDITOR’S REPORT CONTINUED

Responsibility of the Board of Directors for the Consolidated Financial Statements

The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in
accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated
financial statements.

A further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse:
http://expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our auditor’s report.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with article 728a paragraph 1 item 3 CO and the 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, 9 February 2017

Joëlle Herbette

Licensed Audit Expert

199

SGS SERVICE

CONSUMER BENEFIT

> Digital Services

> A more secure internet

EARNING THE TRUST OF BILLIONS

In the last 12 months, just three IT security lapses or cyber attacks

have resulted in more than a billion records on private individuals

being stolen or exposed. This includes the details of all the

191 million people registered to vote in the United States.

These were not just isolated incidents. Cyber criminality is on the

rise, with a 29% increase in total costs to businesses reported since

2013. Moreover, it isn’t just large companies that are at risk, with an

increasing number of SMEs being attacked.

The biggest single cost to businesses of a security breach is not

the loss of data itself – it’s the loss of customer trust and long-term

business. For consumers, they need to know that every possible

step is being taken to protect their data when they submit it to

companies. In a groundbreaking new service, SGS helps ensure this

is the case. Testing companies’ architecture, evaluating their network

security, running penetration tests and developing incident response

approaches are part of the services we provide to ensure that both

our customers, and in turn the general public, are protected.

9. SGS SA RESULTS

INCOME STATEMENT
FOR THE YEARS ENDED 31 DECEMBER

(CHF million)

OPERATING INCOME

Dividends from subsidiaries

Other income

TOTAL OPERATING INCOME

OPERATING EXPENSES

Other operating & administrative expenses

Depreciation of fixed assets

Other expenses

TOTAL OPERATING EXPENSES

OPERATING RESULT

FINANCIAL INCOME

Financial income

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

NOTES

2016

461

462

(5)

(3)

459

(48)

(23)

(71)

(13)

446

(1)

(9)

436

2015

1 055

1 056

(4)

(3)

(7)

1 049

(51)

(4)

(55)

1 062

(5)

(9)

1 048

202

9. SGS SA RESULTS

BALANCE SHEET AT 31 DECEMBER
(BEFORE APPROPRIATION OF AVAILABLE RETAINED EARNINGS)

(CHF million)

ASSETS

CURRENT ASSETS

Cash & cash equivalents

Other financial assets

Amounts due from subsidiaries

Accrued income & 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

SHAREHOLDERS’ 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 - subsidiaries

Corporate bonds

TOTAL LONG-TERM LIABILITIES / NON-CURRENT LIABILITIES

CAPITAL AND RESERVES

Share capital

Statutory capital reserve

Statutory retained earnings

Own shares for share buyback

Reserve for own shares held by a subsidiary

TOTAL CAPITAL AND RESERVE

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES

NOTES

2016

2015

312

337

677

1 503

1 404

2 909

3 586

182

655

1 700

2 355

1 253

(361)

115

1 049

3 586

529

195

301

1 026

1 635

1 289

2 928

3 954

142

275

2 192

2 467

1 273

(145)

175

1 345

3 954

5 and 6

203

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 headquarters are 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 accounting principles required by Swiss law.

INVESTMENTS IN SUBSIDIARIES

Investments in subsidiaries are valued individually at acquisition cost less an adjustment for impairment where appropriate.

FOREIGN CURRENCIES

Balance sheet items denominated in foreign currencies are converted at year-end exchange rates with the exception of
investments in subsidiaries that 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 a cash basis.

BONDS

Bonds are recorded at nominal value.

2. SUBSIDIARIES

The list of principal Group subsidiaries appears in the Annual Report on pages 218 to 221.

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.

204

4. CORPORATE BONDS

SGS SA made the following bond issuances:

DATE OF ISSUE

08.03.2011

27.05.2011

27.02.2014

25.04.2014

08.05.2015

FACE VALUE IN
CHF MILLION

COUPON IN %

YEAR OF
MATURITY

ISSUE
PRICE IN %

REDEMPTION
PRICE IN %

375

275

138

250

112

325

225

2.625

3.000

1.375

1.750

1.375

0.250

0.875

2019

2021

2022

2024

2022

2023

2030

100.832

100.480

100.517

101.019

101.533

100.079

100.245

100.000

In 2016, a CHF 492 million corporate bond was reimbursed.

The Group has listed all the bonds on the SIX Swiss Exchange.

5. TOTAL EQUITY

(CHF million)

BALANCE AT 1 JANUARY 2015

Dividends paid

Increase in the reserve for own shares

Purchase of shares for buyback

Profit for the year

BALANCE AT 31 DECEMBER 2015

Dividends paid

Decrease in the reserve for own shares

Purchase of shares for buyback

Profit for the year

BALANCE AT 31 DECEMBER 2016

SHARE
CAPITAL

STATUTORY
CAPITAL
RESERVE

RESERVE FOR
OWN SHARES
HELD BY A
SUBSIDIARY

OWN SHARES
FOR SHARE
BUYBACK

STATUTORY
RETAINED
EARNINGS

172

175

(60)

115

(145)

(216)

(361)

750

(522)

(3)

1 048

1 273

(516)

436

1 253

TOTAL

964

(522)

(145)

1 048

1 345

(516)

(216)

436

1 049

205

9. SGS SA RESULTS

6. SHARE CAPITAL

BALANCE AT 1 JANUARY 2015

Own shares released into circulation

Own shares purchased for future equity
compensation plans

Own shares purchased for buyback

BALANCE AT 31 DECEMBER 2015

Own shares released into circulation

Own shares purchased for future equity
compensation plans

Own shares purchased for buyback

BALANCE AT 31 DECEMBER 2016

Issued Share Capital

SHARES IN
CIRCULATION

OWN
SHARES

TOTAL SHARES
ISSUED

TOTAL SHARE CAPITAL
(CHF MILLION)

7 675 506

54 636

(45 778)

(78 904)

7 605 460

49 162

(6 315)

(109 800)

7 538 507

146 930

(54 636)

45 778

78 904

216 976

(49 162)

6 315

109 800

283 929

7 822 436

SGS SA has a share capital of CHF 7 822 436 (2015: CHF 7 822 436) fully paid-in and divided into 7 822 436 (2015: 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 2016, SGS SA held directly and indirectly 283 929 of its own shares. The shares purchased for cancellation are
directly held by SGS SA, while the shares to cover the equity compensation plans are held by a subsidiary company.

In 2016, 49 162 own shares were sold to cover the equity compensation plans and 6 315 were purchased for an average price
of CHF 2 127.

In 2015, the Group initiated a share buyback 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 programme started on 20 January 2015 and ended on 31 December 2016. As part of the share
buyback programme, 109 800 shares were purchased in 2016 for an average price of CHF 1 961.

7. FINANCIAL INCOME AND FINANCIAL EXPENSES

(CHF million)

FINANCIAL INCOME

Interest income 3rd party

Interest income Group

FINANCIAL INCOME

FINANCIAL EXPENSES

Interest expenses 3rd party

Interest expenses Group

Other financial expenses

FINANCIAL EXPENSES

2016

(35)

(2)

(11)

(48)

2015

(42)

(3)

(6)

(51)

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.

206

8. GUARANTEES AND COMFORT LETTERS

(CHF million)

Guarantees

Performance bonds

TOTAL

2016 ISSUED

2016 UTILISED

2015 ISSUED

2015 UTILISED

284

322

237

275

243

287

179

223

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 paragraph 2 in the Annual Report on pages 128 to 131.

9.2. REMUNERATION MODEL

This section appears in the SGS Remuneration Report paragraph 3 in the Annual Report on pages 131 to 138.

9.3. REMUNERATION AWARDED TO THE BOARD OF DIRECTORS

This section appears in the SGS Remuneration Report paragraph 4 in the Annual Report on pages 138 to 139.

9.4. REMUNERATION AWARDED TO THE CEO, SENIOR MANAGEMENT AND OTHER MEMBERS OF THE OPERATION COUNCIL

This section appears in the SGS Remuneration Report paragraph 5 in the Annual Report on pages 139 to 142.

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 2016:

NAME

S. Marchionne

A. von Finck

A. F. von Finck

C. Grupp

P. Kalantzis

S.R. du Pasquier

P. Desmarais

I. Galienne

G. Lamarche

C. Kirk

SGSWS
(2013)

SGSPF
(2014)

SGSBB
(2015)

RESTRICTED
SHARES

40 000

50 000

1 150

19 670

786 255

48 576

188 546

206 806

1 119

207

9. SGS SA RESULTS

The following table shows the shares and vested options held by Members of the Board of Directors as at 31 December 2015:

NAME

S. Marchionne

A. von Finck

A. F. von Finck

C. Grupp

P. Kalantzis

S.R. du Pasquier

P. Desmarais

I. Galienne

G. Lamarche

C. Kirk

SGSKF
(2012)

SGSWS
(2013)

26 667

SGSPF
(2014)

50 000

SGSBB
(2015)

1 150

19 670

439 515

150

180 225

32 384

188 546

103 403

1 119

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 2016:

NAME

F. Ng

CORPORATE RESPONSIBILITY

Chief Executive Officer

C. De Geyseleer

Chief Financial Officer

O. Merkt

General Counsel and
Chef Compliance Officer

SGSWS
(2013)

46 632

SGSPF
(2014)

15 642

26 667

55 152

8 831

17 643

33 048

SGSBB
(2015)

RESTRICTED
SHARES

180

The following table shows the shares and vested options held by Senior Management as at 31 December 2015:

NAME

F. Ng

CORPORATE RESPONSIBILITY

SGSKF
(2012)

SGSWS
(2013)

Chief Executive Officer

61 621

31 088

C. De Geyseleer

Chief Financial Officer

SGSPF
(2014)

15 642

26 667

O. Merkt

General Counsel and
Chief Compliance Officer

21 055

28 842

17 643

SGSBB
(2015)

27 576

4 416

16 524

Details of the various plans are explained in the remuneration report.

208

11. SIGNIFICANT SHAREHOLDERS

As at 31 December 2016, Groupe Bruxelles Lambert acting through Serena SARL held 16.20% (2015: 15.00%). Mr. August von
Finck and members of his family acting in concert held 15.03% (2015: 15.03%), the Bank of New York Mellon Corporation held
3.35% (2015: 3.35%), BlackRock, Inc. held 3.03% (2015: 3.03%) and MFS Investment Management held 3.01% (2015: 3.01%)
of the share capital and voting rights of the Company.

At the same date, SGS Group held 3.63% of the share capital of the Company (2015: 2.77%).

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 not paid on own shares bought in 2015
prior the Annual General Meeting on 12 March 2015

Dividend paid on own shares released into circulation in 2016
prior the Annual General Meeting on 14 March 2016

Share buyback programme

Reversal from/(Transfer to) the reserve for own shares

TOTAL RETAINED EARNINGS AVAILABLE FOR APPROPRIATION

Proposal of the Board of Directors:

Dividends¹

BALANCE CARRIED FORWARD

Ordinary gross dividend per registered share

1. No dividend is paid on own shares held directly or indirectly by SGS SA.

2016

2015

436 216 325

1 048 128 990

610 633 820

227 785 349

384 676

(39 772)

(215 274 875)

(145 362 298)

60 989 472

892 524 970

(3 131 617)

1 127 805 100

(527 695 490)

(517 171 280)

364 829 480

70.00

610 633 820

68.00

12. APPROVAL OF FINANCIAL STATEMENTS AND SUBSEQUENT EVENTS

209

STATUTORY AUDITOR’S REPORT

To the General Meeting of

SGS SA, GENEVA

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Opinion

We have audited the financial statements of SGS SA, presented on pages 202 to 209 which comprise the balance sheet as at
31 December 2016 and the income statement and notes for the year then ended, including the summary of significant accounting policies.

In our opinion the accompanying financial statements as at 31 December 2016 comply with Swiss law and the company’s articles
of incorporation.

Basis for Opinion

We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are
independent of the entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have
fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements
of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.

KEY AUDIT MATTER

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER

VALUATION OF INVESTMENTS IN SUBSIDIARIES AND RELATED LOANS TO SUBSIDIARIES

As described in note 2 to the financial statements, the company
holds investments in subsidiaries with a carrying value of
CHF 1 503 million as of 31 December 2016, representing 41.9%
of total assets. The list of principal Group subsidiaries can be found
in the Annual Report on pages 218 to 221. The valuation of these
assets is dependent on the ability of these companies to generate
positive cash flows in the future. It also has loans to subsidiaries
amounting to CHF 1 404 million.

In accordance with Article 960 CO, these investment balances
are valued by individual investment and the values must be tested
annually for impairment. An impairment would need to be recorded
if any of the recoverable values of investments were lower than
the associated carrying values, or if loan balances were no longer
considered recoverable from the associated entities.

The company uses the “income approach” for its impairment tests of
investments, and prepares a discounted cash flow forecast for each
significant balance. The inputs to the impairment testing model which
have the most significant impact on the recoverable value include:

• Projected revenue growth, operating margins and operating

cash-flows in the years 1-5;

• Stable long-term growth rates in years 6-10 and in perpetuity; and

• Country and business specific discount rates (pre-tax).

The annual impairment testing is considered to be a risk area
for the Board of Directors and a key audit matter because the
assumptions on which the tests are based are highly judgmental
and are affected by future market and economic conditions
which are inherently uncertain, and because of the materiality
of the balances to the statutory financial statements as a whole.

We discussed with Management the adequate implementation
of accounting policies and controls regarding the valuation
of investments in subsidiaries and related loans.

We tested the design and implementation of controls to determine
whether appropriate controls are in place.

We challenged the impairment testing conducted by the company.
We tested the valuations and amounts outstanding on a sample
basis by critically assessing the methodology applied and the
reasonableness of the underlying assumptions and judgements.
Involving our valuation specialists, we assessed the impairment
testing models and calculations by:

• checking the mechanical accuracy of the impairment models

and the extraction of inputs from source documents;

• challenging the significant inputs and assumptions used in the
impairment testing for investments in SGS Group companies,
such as the weighted average cost of capital and the five year
projected revenues and margins.

We challenged the recoverability of loans to subsidiaries and
tested balances on a sample basis to evidence of the financial
position of the entities concerned.

We validated the appropriateness and completeness of the related
disclosures in the financial statements.

Based on the audit procedures performed above, we consider
Management’s estimates in the assessment of the recoverable value
of investments in, and loans to, subsidiaries, to be appropriate.

210

STATUTORY AUDITOR’S REPORT CONTINUED

Responsibility of the Board of Directors for the Financial Statements

The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and
the company’s articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Board of Directors is responsible for assessing the entity’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors
either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

REPORT ON OTHER LEGAL REQUIREMENTS

In accordance with article 728a paragraph 1 item 3 CO and the 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, 9 February 2017

Joëlle Herbette

Licensed Audit Expert

211

DELIVERING SECURITY WITHOUT BARRIERS

At borders, authorities face a constant balancing act between

implementing controls (regulating immigration, collecting excise tax,

preventing smuggling and illicit products entering our markets etc.)

and ensuring that the flow of traffic, trade and people moves at

a reasonable pace.

In 2015, SGS launched SGS D-TECT®, the first universal image
analysis solution for container x-ray scanners. As the first ever
server-based solution, SGS D-TECT® allows image analysis to be
undertaken remotely, improving inspection speed and efficiency.

In 2016, SGS D-TECT® has taken a further step, making the
deployment of a 100% scanning scheme in seaports possible by

resolving the logistic constraints behind mass volume inspection.
With new automated functionalities, SGS D-TECT® highlights
non-conformities, assisting border control authorities to allocate

resources on higher risk profiles while speeding the process for

the majority of lower-risk cases.

All this means that security is becoming ever tighter at ports and

borders, while at the same time, waiting times are being reduced.

Society as a whole benefits from smoother trade flows and the fact
that thanks to SGS D-TECT® we are all that little bit safer.

SGS SERVICE

CONSUMER BENEFIT

> SGS D-TECT®

> Safer borders with

reduced waiting times

10. DATA

SGS GROUP – FIVE-YEAR STATISTICAL DATA CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER

(CHF million)

REVENUE

Salaries and wages

Subcontractors’ expenses

Depreciation, amortisation and impairment

Other operating expenses

OPERATING INCOME (EBIT)

Financial income/(expense)

PROFIT BEFORE TAXES

Taxes

PROFIT FOR THE YEAR

Profit attributable to:

Equity holders of SGS SA

Non-controlling interests

2016

2015

2014

2013

2012

5 985

(3 009)

(368)

(336)

(1 456)

816

(45)

771

(185)

586

543

5 712

(2 849)

(345)

(322)

(1 374)

822

(43)

779

(195)

584

549

5 883

(2 891)

(361)

(304)

5 830

(2 871)

(357)

(298)

5 569

(2 733)

(338)

(280)

(1 386)

(1 392)

(1 384)

941

(41)

900

(234)

666

629

912

(38)

874

(236)

638

600

834

(41)

793

(214)

579

545

OPERATING INCOME MARGINS IN %

AVERAGE NUMBER OF EMPLOYEES

13.6

89 626

14.4

85 903

16.0

83 515

15.6

80 510

15.0

76 790

214

10. DATA

SGS GROUP – FIVE-YEAR STATISTICAL DATA CONSOLIDATED BALANCE SHEETS
AT 31 DECEMBER

(CHF million)

2016

2015¹

2014

2013

2012

964

1 306

315

2 617

288

917

272

1 734

3 277

5 894

1 898

1 906

1 981

1 723

278

2 061

494

526

159

673

1 852

3 913

5 894

1 043

1 337

244

2 648

330

1 068

298

1 350

3 119

5 767

2 319

2 327

2 403

1 672

273

2 019

511

175

641

1 345

3 364

5 767

1 029

1 216

215

2 478

330

952

247

973

2 561

5 039

2 135

2 143

2 212

1 293

190

1 549

502

142

619

1 278

2 827

5 039

1 015

1 172

266

2 470

302

977

226

987

2 521

4 991

2 052

2 060

2 118

1 305

273

1 650

492

103

611

1 223

2 873

4 991

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

Current tax assets

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

1. Restated figures (notes 2 and 23).

972

1 441

287

2 738

290

997

252

984

2 611

5 349

1 765

1 773

1 853

1 719

247

2 008

641

166

680

1 488

3 496

5 349

215

10. DATA

SGS GROUP – FIVE-YEAR STATISTICAL SHARE DATA

(CHF unless indicated otherwise)

2016

2015

2014

2013

2012

SHARE INFORMATION

REGISTERED SHARES

Number of shares issued

Number of shares with dividend rights

PRICE

High

Low

Year-end

Par value

KEY FIGURES BY SHARES

Equity attributable to equity holders of SGS SA
per share in circulation at 31 December

Basic earnings per share1

Dividend per share ordinary

Dividend per share special

Total dividend per share

DIVIDENDS (CHF MILLION)

Ordinary2

Special

Total

7 822 436

7 538 507

7 822 436

7 605 460

7 822 436

7 675 506

7 650 840

7 822 436

7 632 042

2 317

1 734

2 072

2 049

1 577

1 911

2 260

1 802

2 045

2 450

1 952

2 052

2 156

1 559

2 026

235.22

250.56

303.13

280.08

269.95

71.54

70.00

71.99

68.00

81.99

68.00

78.43

65.00

70.00

68.00

65.00

528

517

522

497

71.52

30.00

28.00

58.00

229

214

443

1. Calculation of the basic earnings per share (weighted average for the year) is disclosed in note 9, page 163.

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 2016, market capitalisation was approximately CHF 16 208 million (2015: CHF 14 949 million). Shares are quoted
on the SIX Swiss Exchange.

216

SGS SA

CLOSING PRICES FOR SGS AND THE SMI 2015 – 2016

2 400

2 300

2 200

2 100

2 000

1 900

1 800

1 700

1 600

1 500

1 400

1 300

1 200

1 100

1 000

900

800

J F M A M J J A S O N D J F M A M J J A S O N D

2015

HIGH PRICE

LOW PRICE

SGS SA

2016

SWISS MARKET INDEX (MONTHLY CLOSE)

217

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

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

Algeria

Angola

Argentina

Australia

Austria

Azerbaijan

Bahamas

Bangladesh

Belarus

Belgium

Benin

Bolivia

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

SGS Bangladesh Limited, Dhaka

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

SGS do Brasil Ltda., São Paulo

SGS Enger Engenharia Ltda., Barueri-SP

Unigeo Geoprocessamento e Consultoria Ltda,
Nova Mutum

Bulgaria

SGS Bulgaria Ltd., Sofia

Burkina Faso

SGS Burkina SA, Ouagadougou

Cambodia

Cameroon

Canada

Chile

China

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

SIGA Ingeneria y Consultoria S.A.
Santiago de Chile

SGS-CSTC Standards Technical
Services Co. Ltd., Beijing

SGS Colombia SAS, Bogota

Estudios Técnicos SAS, (ETSA), Bogota

Laboratorios Contecon Urbar SAS, 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 Minerals RDC SARL, Lubumbashi

218

ALL

DZD

AOA

ARS

AUD

EUR

USD

BSD

BDT

USD

EUR

XOF

BOB

BAM

BWP

BRL

BGN

XOF

KHR

XAF

CAD

CLP

15 100 000

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

170 166 827

3 000 000

4 870 257

5 010 000

601 080 000

4 000 000 000

10 000 000

20 900 000

22 061 741 237

7 570 000 000

CLP

3 382 313 364

USD

COP

XAF

HRK

CZK

DKK

USD

3 966 667

59 054 167 360

6 021 642 700

2 489 200

1 510 000 000

1 300 000

7 707 000

700 000

50 000

100

98.9

100

COUNTRY

NAME AND DOMICILE

ISSUED CAPITAL
CURRENCY

ISSUED CAPITAL
AMOUNT

% HELD BY
GROUP

DIRECT /
INDIRECT

Ecuador

Egypt

Estonia

Ethiopia

Finland

France

Georgia

Germany

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

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

Lao (People's
Democratic Republic)

SGS (Lao) Sole Co., Ltd., Vientiane

Latvia

SGS Latvija Limited, Riga

USD

EGP

EUR

ETB

EUR

USD

EUR

GHS

GBP

EUR

USD

GTQ

GNF

XAF

HKD

HUF

INR

USD

IRR

EUR

XOF

JPY

JOD

KZT

KES

KRW

KWD

LAK

EUR

147 680

1 500 000

42 174

15 000

102 000

260 000

2 320 000

200 000

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

2 444 700 000

118 382

100

74.9

100

219

10. DATA

COUNTRY

NAME AND DOMICILE

ISSUED CAPITAL
CURRENCY

ISSUED CAPITAL
AMOUNT

% HELD BY
GROUP

DIRECT /
INDIRECT

Lebanon

Liberia

Lithuania

Luxembourg

Madagascar

Malawi

Malaysia

Mali

Mauritius

Mexico

Moldova

Mongolia

Morocco

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

SGS Inspection Services Namibia
(Proprietary) 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

Qatar

Romania

Russia

Saudi Arabia

Senegal

Serbia

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 Qatar LLC,Doha

SGS Romania SA, Bucharest

SGS Vostok Limited, Moscow

SGS Inspection Services
Saudi Arabia Ltd., Jeddah

SGS Sénégal SA, Dakar

SGS Beograd d.o.o., Beograd

LBP

LRD

EUR

MGA

MWK

MYR

XOF

MUR

MXN

MDL

USD

MAD

MZN

MMK

NAD

EUR

NZD

NGN

NOK

PKR

USD

PGK

PYG

PEN

PHP

PLN

EUR

QAR

RON

RUB

SAR

XAF

EUR

30 000 000

99.99

100

11 584

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

73 479 883

300 000

100

250 000

45 000

10 522 190

200 000

804 000

2 300 000

850 000

1 962 000 000

43 081 182

24 620 000

10 144 200

500 000

200 000

100 002

18 000 000

1 000 000

35 000 000

66 161

100

220

COUNTRY

NAME AND DOMICILE

Sierra Leone

SGS (SL) Ltd., Freetown

Singapore

Slovakia

Slovenia

South Africa

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

South Africa

SGS Bateman (Pty) Ltd,Bryanston

Spain

Sri Lanka

Sweden

Switzerland

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

Compliance Certification Services Inc.
New Taipei City

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

Uruguay

Uzbekistan

Venezuela

Vietnam

Zambia

SGS North America Inc., Wilmington

SGS Accutest Inc., Wilmington

SGS CyberMetrix Inc., Wilmington

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

ISSUED CAPITAL
CURRENCY

ISSUED CAPITAL
AMOUNT

% HELD BY
GROUP

DIRECT /
INDIRECT

SLL

SGD

EUR

ZAR

EUR

LKR

SEK

CHF

TWD

TZS

THB

XOF

TND

TRY

USD

UGX

USD

UYU

USD

VEF

USD

ZMK

ZWD

200 000 000

100 000

19 917

10 432

452 000 500

100

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

353 330 780

250 000

100

20 000 000

99.99

10 000 000

49 500

6 550 000

50 000

5 000 000

400 000

73 701 996

241 111

1 500

24 000

50 000

162 980

288 000

5 000 000

5 000

100

Ultimate
parent
company

221

SGS SERVICE

CONSUMER BENEFIT

> Building Quality Index

> Compare the quality

of your build to
the index average

IMAGINE BEING YOUR OWN FOREMAN

Unless you are an expert, it’s hard to tell if construction companies are

doing a good job when they are building or renovating your property.

That’s why SGS has long provided services to provide reassurance

that such work is hitting the required quality standards.

Now, as technology advances, we are creating tools that are

driving quality improvements across the industry. For example,

these days SGS auditors use tablet devices and imagery from

portable video cameras to provide immediate and highly visual reports

to customers.

Using these digital methods our auditors gather an enormous amount

of data, which can be subsequently analysed. For example, in Taipei,

SGS auditors have begun to use our cloud management system

to automatically feed inspection data from around the city into an

automated programme that generates a risk management based

Building Quality Index.

This means that customers can see exactly how their building

performs against the index average. If contractors are performing

significantly below average, customers can act quickly to ensure

their building is brought up to scratch. Of course, over time this will

create an upward pressure on average building quality to the benefit

of everyone in the city.

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

AND INVESTOR RELATIONS SGS SA

Françoise Rein

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

Tuesday, 21 March 2017
Geneva, Switzerland

2017 HALF YEAR RESULTS

Monday, 17 July 2017

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 2017

Reuters: Registered Share: SGSN.VX

INVESTOR DAYS (IN ASIA)

Telekurs: Registered Share: SGSN

ISIN: Registered Share: CH0002497458

Thursday and Friday,
26 and 27 October 2017

Swiss security number: 249745

DIVIDEND PAYMENT DATE

Ex-date: 23 March 2017
Record date: 24 March 2017
Payment date: 27 March 2017

224

11. SHAREHOLDER

INFORMATION

225

THE PEOPLE BEHIND THE AWARDS

SGS prides itself on being an employer of choice and our efforts

in this area were recognised in the Philippines in 2016, when we

received the Investor in People (IiP) Gold Award.

IiP is an international standard for people management. It defines what

it takes to lead, support and manage people for sustained success.

The main motivation for us to work towards this accreditation

was the recognition that our people are our most important asset.

This focus on our people is particularly important in view of an

anticipated increase in business in the Philippines that could see

a doubling of revenue in the country by 2020.

In order to support this expected growth, the local SGS team opted

to accelerate the process of obtaining the Gold Award – ultimately

achieving it over 12 months sooner than initially envisaged.

Although the award marks us out as one of the most attractive

employers in the country, the process of honestly identifying our

weaknesses and addressing them was even more important.

By nurturing a purpose-driven culture at SGS and by embracing best

practices in areas such as empowering people and learning and

development, we have maintained a staff attrition rate of just 11%

in the Philippines since we started to work with IiP in 2012.

SGS SERVICE

> Management

Development Training

CONSUMER BENEFIT

> Opportunities

to advance your
leadership skills

WWW.SGS.COM

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