SGS S.A. Annual Report 2017

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FY2017 Annual Report · SGS S.A.

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ANNUAL REPORT 2017

OUR VALUE TO SOCIETY

OUR BUSINESSES

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

THE UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS

SGS IS THE WORLD’S
LEADING INSPECTION,
VERIFICATION, TESTING AND
CERTIFICATION COMPANY.

In a global business place, we deliver speed to market, reduced risk,
efficiency, productivity, sustainability, trust, quality and safety. We have a
positive impact on what companies and consumers around the world do,
every minute of every day.

Societal welfare is at the heart of our culture. You will see throughout this
report that we have highlighted how our performance across our operations
reflects against the United Nations Sustainable Development Goals.

As stated by the United Nations Sustainable Development Goals,
if we are going to make our planet a better place to live, private sector
companies, such as SGS, need to do their part, alongside governments
and civil society. This is why we have introduced a method of calculating
our economic value to society in this report. We hope that this will not
only prove useful to our own sustainability initiatives, but will also add
momentum to the rapidly developing field of impact evaluation.

SGS has been showing leadership in building a better, safer world
since 1878 and we will continue to do so into the future.

CONTENTS

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

2. HIGHLIGHTS

3. SGS AT A GLANCE

PAGE 3

PAGE 7

PAGE 13

Financial Highlights

Revenue and Adjusted
Operating Income by Business

Revenue by Region

Group Achievements

Business Highlights

Sustainability Highlights

Sustainability Ambitions 2020

4. INTEGRATED
LEADERSHIP

PAGE 21

AN INTEGRATED
APPROACH TO LEADERSHIP

Environment, Health and Safety

Transportation

The Sustainable Development Goals 27

Governments and Institutions

MARKET OPPORTUNITY
MEGATRENDS

RISK MANAGEMENT AND
MATERIAL TOPICS IDENTIFICATION

Business Materiality Matrix

Business Materiality Overview

STRATEGIC FOCUS

BUSINESS PRINCIPLES

OPERATING CAPITALS
WHY WE MEASURE
VALUE TO SOCIETY

CAPITALS

CAPITAL INDICATORS

BUSINESS MODEL
BRAND

GROWTH

Agriculture, Food and Life

Minerals

Oil, Gas and Chemicals

Consumer and Retail

Certification and
Business Enhancement

Industrial

31
33

51
53

Acquisitions

2017 Acquisitions

INNOVATION

EXPERTISE

INVESTMENT

OPERATIONAL EXCELLENCE

PROFESSIONAL EXCELLENCE

Compliance and Integrity

Procurement and
Supply Chain Management

Customer Relationship
Management, Data Security
and Business Continuity

PEOPLE

Talent Attraction and Retention

Human Capital Development
and Labour Practices

Operational Integrity

SGS Seven Operational
Integrity Pillars

ENVIRONMENT

Energy

Carbon Offsetting

COMMUNITY

Community Programmes

100

103

105

106

The World Leader

Our Vision

Our Values

Our Position in the Value Chain

SGS by Industry

OPERATING OUTCOMES
How We Measure
our Value to Society

MEASURING OUR
DIRECT OPERATIONS

MEASURING OUR SUPPLY CHAIN
AND SERVICES

BUSINESS SUCCESS
WHAT MAKES US STAND OUT

Market Positioning

The TIC Industry Unmasked

THE BUSINESS BENEFITS
WE DELIVER

THE EXPERT SERVICES WE OFFER

NETWORK

VALUE TO SOCIETY
Adding Value to Society

Making a Difference

VALUE FOR EMPLOYEES
AND SUPPLIERS

VALUE FOR INVESTORS

VALUE FOR CUSTOMERS

VALUE FOR GOVERNMENTS
AND INDUSTRIES

VALUE FOR CONSUMERS

VALUE FOR COMMUNITIES
AND THE PLANET

109

112

113

114

115
117

117

119

120

121

123
125

127

129

131

132

133

134

136

5. GOVERNANCE

6. REMUNERATION
REPORT

7. SGS GROUP
RESULTS

PAGE 137

PAGE 153

PAGE 175

Group Structure and Shareholders 140

Capital Structure

Board of Directors

Operations Council

Compensation, Shareholdings
and Loans

140

141

148

150

Shareholders’ Participation Rights 151

Change of Control and
Defence Measures

Auditors

Information Policy

151

152

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

156

157

160

169

170

8. SGS SA RESULTS

9. DATA

10. SHAREHOLDER
INFORMATION

PAGE 229

PAGE 243

PAGE 253

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

WASTE WATER
PURIFICATION STUDIES

SGS’ services ensure
that waste water can
be safely disposed of or
recycled for reuse.

ENVIRONMENT,
HEALTH AND
SAFETY

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

Dear Shareholders,

2017 was another solid year for SGS, with our total revenues reaching CHF 6.3 billion. We are pleased to confirm that we are
on track to deliver the revenue growth projected in our 2020 strategic plan.

Our Consumer and Retail, Agriculture, Food and Life, and Transportation businesses were key growth drivers in 2017.
A strengthening of the mineral markets was also an important factor. As a result, the Group posted revenue growth of 5.4%
(on a constant currency basis), with organic growth at 4.2% and recent acquisitions contributing growth of 1.2%.

More positives were taken from the wider market where we saw continued regulatory expansion and enforcement across
the industries we are present in. Some notable examples include new connectivity standards for electronic devices, new food
safety standards in the USA and preparations of the arrival of the EU General Data Protection Regulation in early 2018. This trend
is helping to create a positive shift in the demand for our services.

Ever-evolving customer requirements in mature markets (particularly in the environment, health and safety space) are also expected
to be an ongoing business driver for us. In emerging markets, SGS’ newly created North East Asia region performed excellently
in its inaugural year. The new region, which was formed by the merger of our former East Asia and China and Hong Kong regions,
achieved near double-digit growth. This was fuelled by opportunities from across the region and, notably, the continued opening
of China’s domestic market. When combined with our innovation, operational excellence and financial transformation initiatives,
the favourable market conditions provided the backdrop for improved performance in our Minerals and our Oil, Gas and Chemicals
business lines.

Traditional services, such as our Food and Automotive Testing services, continue to progress well and expanded their footprint in
the USA market. Our Telecommunications Certification activity benefited from very strong growth in North America, where we
were first accredited as a Telecommunications Certification Body in 2016. Our Industrial and Government and Institutions business
lines continue to evolve our service offering, creating remote inspection capabilities, which provide real-time, secure interactions
with remote inspectors. These services have been successfully rolled out at border checkpoints and in industrial inspections
where they have improved margins and productivity. For our customers, this means more efficient workflows, reduced costs and
access to our services wherever they are needed in the world. Bringing innovative services like this to market is part of our DNA.
Our objective is to meet the customers’ expectations, and it is their continued satisfaction that drives us forward. Our digitalisation
efforts continue apace, with new digital products and services expected to add CHF 300 million to top-line growth in the next three
years alone. Naturally, as the use and regulation of technologies such as robotics, drones, autonomous vehicles and 3D printing
continue to grow, so does the need for our services. As strategic decisions become increasingly based on the insights provided
by big data, the accuracy of that data needs to be more scrupulously examined. SGS is well equipped to empower our customers’
decision-making through adding this analytical veracity.

The digital (r)evolution (one of our megatrends – see page 33) – will continue to influence the way we live and work, and
digitalisation will further disrupt the TIC industry over time. In anticipation of this, we have embraced innovation and developed
strategic partnerships with technology companies. A good example of this is Transparency-One, in which we took a 20% stake
in 2016. Transparency-One is a cloud-based interface platform that allows retailers, food and textile companies to track the sourcing
of every ingredient or material in their products to the farm or to the raw material. Global manufacturer Mars is currently using the
service to realise its 2020 ambition of sustainably sourcing its UNCLE BEN’S® rice. In this way, we are in a position to help leading
businesses to achieve their sustainability goals.

In fact, enabling other businesses to add value to society is a common feature across many of our services. It reflects evolving
market requirements and our own belief that we should continue to positively contribute to the world we live in. In 2017, we took
a major step towards quantifying our value to society, and we are disclosing these calculations for the first time in this report.
This also represents significant progress in our move towards integrated reporting.

This determination to add value to society is also apparent in our operations: SGS has a highly developed sustainability culture.
This year, we remained a carbon neutral company. We have also been recognised, for the first time, by the FTSE4Good index
for ethical investment. In addition, we retained our status as a Dow Jones Sustainability index leader, were awarded an EcoVadis
Gold award, launched a new sustainable supply chain strategy and updated our Business Materiality Matrix.

It is for these reasons that we – and by extension, our customers – are able to build trust, create consumer confidence and add
value to our shareholders and society.

13 February 2018

Sergio Marchionne

Chairman of the Board

Frankie Ng

Chief Executive Officer

SIGNIFICANT MILESTONES

MANAGEMENT

Jean-Luc de Buman, SVP of Corporate
Communications and Investor Relations,
sadly passed away during the year.
His commitment and dedication
throughout his 19 years with the Group
will be truly missed.

GUIDANCE 2018

The Group expects to deliver solid
organic revenue growth and higher
adjusted operating income margin
on a constant currency basis, and
a continuation of its robust cash
flow generation. 2018 is expected
to be a significant step towards the
accomplishment of the 2020 plan.

OUTLOOK 2020

The Group confirms its 2020 outlook
and remains committed to its aims:

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

• To accelerate Mergers and

Acquisitions activities with acquired
revenue in the range of CHF 1 billion
over the 2016–2020 period.

• 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 dividend distributions in line

with the improvement in net earnings.

In pursuit of innovative avenues for
growth and increased productivity,
SGS has implemented an enhanced
digital structure across the organisation.
The Group launched the SGS Digicomply
platform, a regulatory intelligence
network that offers access to global
data on food regulations and early
warning notifications.

During the year, the Group carried out its
second full strategic dashboard review
with the aim of optimising the business
portfolio by disposing or closing
businesses not meeting a defined
threshold of growth and profitability.

SGS continued its push towards
integrated reporting in support of its
sustainability efforts by developing a
new risk intelligence tool, and refining
its Materiality Matrix to include
emerging risks, such as those relating
to cyberattacks, new technologies,
geopolitical shifts and compliance with
new laws and regulations, as well as
ethical culture.

SUBSEQUENT EVENTS

The following acquisitions and strategic
investments were completed after
31 December 2017:

• Vanguard Sciences (AFL) in the USA,
leading provider of food safety testing
services in the areas of product
testing, research and development;

• Laboratoire de Contrôle et d’Analyse
(AFL) in Belgium, providing chemical
and microbiological testing and
consultancy services to national and
international pharmaceutical companies;

• TraitGenetics, based in Germany,
providing services across a wide
variety of crops to international client
in the plant breeding industry and
for academic research;

• SIT Skin Investigation and Technology
Hamburg GmbH, based in Germany,
providing applied dermatological
research and studies for the cosmetics
and personal care industries.

2. HIGHLIGHTS

SOLAR ENERGY
TECHNOLOGY

Our services for solar
technology systems
support renewable energy.

CONSUMER
AND RETAIL

2. HIGHLIGHTS

FINANCIAL
HIGHLIGHTS

CHF 6.3 BN
+5.4%1

6.3

6.0

2017

2016

CHF 969 MIO
+5.4%1

969

ADJUSTED
OPERATING INCOME2

2017

2016

919

586

15.3

15.3 1

CHF 664
+13.3%

MIO

664

REVENUE

15.3%

ADJUSTED
OPERATING MARGIN2

2017

2016

2017

2016

PROFIT FOR THE PERIOD

CHF 82.41
+15.2%

82.41

CHF 75

71.54

BASIC EARNINGS
PER SHARE

PROPOSED DIVIDEND

2017

2016

2017

2016

21.3%

CHF 987 MIO
-2.7%

987

1 014

21.3

19.3

RETURN ON
INVESTED CAPITAL 3

2017

2016

CASH FLOW FROM
OPERATING ACTIVITIES

2017

2016

2017

2016

ACQUISITIONS
COMPLETED IN 2017

1. Constant currency basis.

2. Before amortisation of acquired intangibles

and non-recurring items.

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

Net Working Capital).

REVENUE AND
ADJUSTED
OPERATING INCOME
BY BUSINESS

REVENUE

4.2%
GIS

8.6%
TRP

7.6%
EHS

14.3%
IND

5.4%
CBE

ADJUSTED OPERATING INCOME1

6.1%
GIS

9.3%
TRP

5.0%
EHS

7.6%
IND

6.6%
CBE

16.0%
AFL

10.8%
MIN

17.9%
OGC

15.2%
CRS

16.8%
AFL

10.8%
MIN

12.3%
OGC

25.5%
CRS

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

REVENUE
BY REGION 2

30.3%
Asia Pacific

25.7%
Americas

2. As a percentage of total revenue.

44.0%
Europe / Africa / Middle East

2. HIGHLIGHTS

GROUP
ACHIEVEMENTS

NEW REGION

CHF

61 MIO

NORTH EAST ASIA REGION
CREATED FROM MERGER
OF THE CHINA AND HONG KONG
AND THE EAST ASIA REGIONS

NEW FUNCTION

FOR DIGITAL AND
INNOVATION LAUNCHED

PROCUREMENT SAVINGS

SGS ENABLE
TRANSFORMATION
PROGRAMME

DELIVERING SIGNIFICANT
PRODUCTIVITY IMPROVEMENTS TO
CUSTOMERS THROUGH ENHANCED
ANALYTICS AND AUTOMATION

12 ACQUISITIONS

NEW SHARED
SERVICE CENTRE

COMPLETED
(see Acquisitions section page 76)

LAUNCHED IN CHINA TO IMPROVE
BACK-OFFICE EFFICIENCY

BUSINESS
HIGHLIGHTS

AGRICULTURE FOOD AND LIFE

Double-digit growth in Life,
driven by Laboratories

MINERALS

Strong growth in Trade services
with volume increases in major
bulk commodities

OIL GAS AND CHEMICALS

Contract awarded to provide
services to BP’s Rumaila oil field
in Iraq over a period of five years

CONSUMER AND RETAIL

Outstanding performance in
Cosmetics, Personal Care and
Household, and in Electrical
and Electronics

CERTIFICATION AND
BUSINESS ENHANCEMENT

A five-year certification programme
backed by the Australian government
and aimed at the recruitment
industry was signed in 2017

INDUSTRIAL

Two strategic agreements
signed with technology providers:
one to deploy disruptive smart
solutions for pipeline inspections,
another to deploy 3D business
intelligence solutions

ENVIRONMENT,
HEALTH AND SAFETY

Dynamic laboratory growth in
China and Taiwan driven by focus
on dioxins and new regulations

TRANSPORTATION

SGS’ fastest growing business line
in 2017 with 11.6% growth

GOVERNMENT AND INSTITUTIONS

High double-digit growth in
TransitNet services through
geographical expansion

SUSTAINABILITY
HIGHLIGHTS

SUSTAINABILITY
AMBITIONS 2020

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

* Against 2014 baseline.

SGS RECEIVED THE
ROBECOSAM GOLD CLASS
AWARD FOR ITS EXCELLENT
SUSTAINABILITY PERFORMANCE

SGS WAS NAMED FOR THE
FOURTH CONSECUTIVE YEAR
INDUSTRY LEADER BY THE DOW
JONES SUSTAINABILITY INDEX

SGS WAS INCLUDED
IN THE FTSE4GOOD INDEX
FOR THE FIRST TIME

SGS RECEIVED A GOLD RATING
FROM ECOVADIS FOR THE THIRD
CONSECUTIVE YEAR AND
WAS PLACED IN THE TOP 1%
OF THE EVALUATED COMPANIES

CHF 1.27 MILLION INVESTED
AND 17 086 HOURS GIVEN TO
COMMUNITY ON VOLUNTEERING

SGS DELIVERED MEASURABLE
VALUE 2 SOCIETY FOR THE
FIRST YEAR

TOTAL RECORDABLE INCIDENT
RATE (TRIR) AND LOST TIME
INJURY RATE (LTIR) DECREASED
BY MORE THAN 24.8% AND
14.5% RESPECTIVELY

SGS MAINTAINED ITS STATUS
AS A CARBON NEUTRAL COMPANY

3. SGS AT A GLANCE

LAND MANAGEMENT
SERVICES

SGS’ services drive
economic development
through land tenure security.

GOVERNMENTS
AND INSTITUTIONS

3. SGS AT A GLANCE

> 95 000

> 2 400

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 impact our business has
on society.

We aim to be the most competitive and
the most productive service organisation
in the world. Our core competencies
in inspection, verification, testing and
certification are being continuously
improved to be best in class. They are
at the heart of what we are. Our chosen
markets are and will be determined by
our ability to be the most competitive
and to consistently deliver unequalled
service to our customers.

We seek to be characterised by our
passion, integrity, entrepreneurialism
and our innovative spirit, as we
continually strive to fulfil our vision.
These values guide us in all that we
do and are the bedrock upon which
our organisation is built.

SGS IS THE WORLD’S
LEADING INSPECTION,
VERIFICATION, TESTING
AND CERTIFICATION
COMPANY. SGS IS
RECOGNISED AS THE
GLOBAL BENCHMARK
FOR QUALITY AND
INTEGRITY. WITH MORE
THAN 95 000 EMPLOYEES,
SGS OPERATES A NETWORK
OF OVER 2 400 OFFICES
AND LABORATORIES
AROUND THE WORLD.

3. SGS AT A GLANCE

OUR POSITION
IN THE VALUE CHAIN

We provide services at all stages
of the value chain, from extraction
and primary production to
manufacturing, transportation
and retail.

AGRICULTURE AND FOOD

Ensuring safe, sustainable
and high-quality products.

LIFE SCIENCES

Safeguarding the quality
and efficacy of medicines.

CONSTRUCTION

ENERGY

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

Powering processes from
renewables to conventional energy.

MINING

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

INDUSTRIAL MANUFACTURING

Making manufacturing more productive and profitable.

TRANSPORTATION

Driving a safer, cleaner and
more efficient industry.

OIL AND GAS

Providing innovative solutions
that add up along the value chain

PUBLIC SECTOR

Facilitating international trade
and sustainable development.

CONSUMER GOODS
AND RETAIL

Generating trust
throughout the
supply chain.

CHEMICAL

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

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 to perform
inspections that reduce risk and control
quality and quantity. We also conduct
testing of raw materials, components
and products in our global network
of facilities. Our industry experts also
deliver world-class training, specifically
designed for the precise needs of our
customers, providing the right skills
and knowledge to maximise efficiency
and improve productivity.

Through our unique global network,
we deliver independent results tailored
to the precise needs of the industry
or sector. Our customers trust our
expertise, experience and resources to
support them. We help our customers
achieve outstanding performance in
everything they do.

SGS BY
INDUSTRY

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 traditional and
new digital services for agrochemicals,
seeds, biofuels, fertilisers, food and
forestry, adding value in all sectors by
using the latest technology to increase
efficiency and help clients to work
smarter. From primary production to
consumption, we assist with legislation
compliance, correct storage, shipping,
packing and distribution as well as
import and export product inspection.
Our expertise protects the integrity of
our customers’ brands by assessing
quality, adding value and securing safe
and sustainable global supply chains.

CHEMICAL

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

Industrial chemical companies use 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 through chemical
intermediates and into finished products.
Our consultancy services provide
laboratory design, commissioning and

operations assistance. We operate using
established benchmarks, international
standards and techniques to improve
productivity and efficiency through
training, optimisation services and
project lifecycle programmes.

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. We support our
customers in implementing effective
scheduling, budgeting, site safety
and logistics by using modern asset
virtualisation tools. We conduct risk
assessment, construction supervision
and project management across all
types of construction. We ensure quality
throughout the global supply chain by
performing chemical and physical testing
of materials services, and providing
facility, waste and energy audits.
Our asset management systems are
increasingly based on real-time sensor
technology, which monitors structures’
defects and behaviours.

CONSUMER GOODS AND RETAIL

Generating trust throughout
the supply chain.

Our services enable manufacturers,
exporters, importers and retailers to gain
a competitive edge. We ensure trusted,
ethical and environmentally conscious
goods, such as electronics, textiles,
footwear, toys, furniture, housewares,
fashion jewellery 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.

ENERGY

Powering processes from renewables
to conventional energy.

As the energy sector evolves to meet
emerging needs, regulations and
expectations, we offer a portfolio
of services focused on efficiency,
optimisation, asset integrity and
innovation. We provide support
across the entire energy sector with
a comprehensive range of independent
inspections, audits and business

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.

Improving performance and reducing
risk is essential to our customers.
For products and services across the
transportation industry, from automotive,
rail and marine to aerospace, we lead
quality improvements and verify that
efficiency is maximised. We support
our clients in achieving shorter delivery
times at reduced costs and higher value
for their customers. Our experts help to
minimise the environmental impact of
our customers’ products and services
through conformity and compliance to
standards and regulations. Through the
use of our global network, laboratories
and testing centres, we offer a truly
unique and independent service.

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 aerospace to automotive trust in
our independent testing and conformity
services. Our advice on the fabrication
of components along with our finished
product assessments, enable our
customers to achieve 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
the 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 time. 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, 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 is constantly
seeking innovation and efficiency.
We offer a comprehensive portfolio
of services across the entire value
chain in the oil and gas industry, giving
our partners access to independent
expertise in both the upstream and
downstream sectors. We deliver tailored
solutions in exploration, extraction,
refining, logistics and the retail of oil,
gas and other hydrocarbons. Our core
convictions, including excellence with
regard to health and safety, innovation
and trust, are well established. In an
industry undergoing radical change, we
are optimising the use of data analytics.
Our specialist advice and knowledge
support upstream activities, such as
subsurface consultancy, metering and
well-testing solutions. Our downstream
services support trade logistics, retail
as well as innovative fuels through
the delivery of optimised processes
for global trade.

PUBLIC SECTOR

Facilitating trade and sustainable
development, protecting society against
fraud and economic crime.

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 visibility,
efficiency and accountability in the aid
and development sector. Our customers

4. INTEGRATED LEADERSHIP

TRAINING SERVICES

Our training solutions help
organisations and individuals
improve their skills to stay
ahead of the curve.

CERTIFICATION
AND BUSINESS
ENHANCEMENT

4. INTEGRATED LEADERSHIP

ESTABLISHING AN INTEGRATED
APPROACH TO LEADERSHIP
Integration is more than just a reporting
process. It is a thought process. As
the notion of creating value to society
becomes more central to the way we do
business, so our strategic thinking and
decision-making need to be increasingly
connected to encompass our broader
aims. That is why we have embraced
the integrated leadership model.

EXTERNAL
LEADERSHIP

COMPETITIVE
LEADERSHIP

SUSTAINABLE
LEADERSHIP

BUSINESS
LEADERSHIP

As is fitting for a TIC
industry company, we are
structured and thoughtful
when it comes to our
sustainability efforts.

Our overarching aim is to
add value to society. We
also have a Materiality Matrix
that determines which areas
are the most important for us
to focus on (see page 35).
We are developing a
cutting-edge method of
measuring our performance
and whether our inputs
and outputs are balanced
(see page 112). Finally, we
have a number of global
and local programmes and
initiatives that are derived
from the strategic insight
this approach brings.

Driven from the very top
of the organisation, our
sustainability strategy guides
our initiatives, not the other
way around.

At SGS, we come to work
every day to make the
world a safer place through
our services. This means
we need to lead by example,
ensuring our own operations
also add value to society.

We are doing this by
transforming our traditional
B2B brand model into
something more far reaching
(see page 53), by driving
innovation (see page 77)
and by attracting and
retaining the best people
(see page 92). Business
leadership also means
making smart investments
(see page 81) and operating
to the highest possible
standards (see page 85).

It is often said that you should
strive to be the change you
hope to see in the world.
We completely agree.

The TIC industry is very
competitive (see page 117)
and some of our
competitors are highly
capable. What sets us
apart and makes us the
market leader is the
innovative nature of
our services and our focus
on remaining ahead of
the curve technologically
(see page 77). It is also
the way we do business
that gives us an edge.

Our approach matters.
It gives us a distinctive
competitive advantage.
For example, we have
very rigorous business
principles (see page 43)
that define the way we
operate. We also know
where we can offer the
most value because we
understand our unique
position in the market
(see page 117) and the
specific benefits we offer
(see page 119). The scale
of our global network
gives us an edge over our
competitors in the eyes
of many of our customers
(see page 121).

SGS does not operate in
isolation but forms part
of the greater economy.
We are impacted by world
events, just as we have
an impact on society.
We cannot always control
external events, but we
can ensure we are well
positioned to deal with
them, whether they present
risks or opportunities.

For this reason, we must
be aware of the megatrends
that are impacting the
industries we serve and
the countries we operate
in (see page 33). Once we
have this broader contextual
understanding, we are in a
position to identify potential
gaps in the market and the
risks we face (see page 34).
This enables us to identify
our main priority areas and
create a mid- to long-term
strategic focus (see page 39).
Currently, this focus is built
around our Ambitions 2020.

We also have an impact on
society through our supply
chain, operations, products
and services. It is important
that this impact is positive.
There are business and
legal reasons for this, but
ultimately, our desire to add
value to society is intrinsic –
it is part of who we are.

Collectively, mastering these
elements is how we show
external leadership.

MARKET
OPPORTUNITY

VALUE
TO SOCIETY

123

BUSINESS
PRINCIPLES

BUSINESS
SUCCESS

115

OPERATING
CAPITALS

OPERATING
OUTCOMES

109

BUSINESS
MODEL

4. INTEGRATED LEADERSHIP

OUR INTEGRATED
LEADERSHIP MODEL

The value that SGS creates
for society is the result of
our integrated approach
to leadership.

EXTERNAL
LEADERSHIP

COMPETETIVE
LEADERSHIP

SUSTAINABLE
LEADERSHIP

MARKET
OPPORTUNITY

BUSINESS
PRINCIPLES

OPERATING
CAPITALS

MEGATRENDS

INTEGRITY

RISK
MANAGEMENT
AND MATERIAL
TOPICS
IDENTIFICATION

HEALTH
AND SAFETY

QUALITY AND
PROFESSIONALISM

STRATEGIC FOCUS

RESPECT

WHY WE
MEASURE VALUE
TO SOCIETY

CAPITALS

CAPITAL
INDICATORS

SUSTAINABILITY

LEADERSHIP

BUSINESS
LEADERSHIP

BUSINESS
MODEL

OPERATING
OUTCOMES

BUSINESS
SUCCESS

VALUE TO
SOCIETY

BRAND

GROWTH

INNOVATION

EXPERTISE

INVESTMENT

OPERATIONAL
EXCELLENCE

MEASURING
OUR DIRECT
OPERATIONS

MEASURING
OUR SUPPLY CHAIN
AND SERVICES

WHAT MAKES US
STAND OUT

THE BUSINESS
BENEFITS
WE DELIVER

THE EXPERT
SERVICES
WE OFFER

NETWORK

VALUE FOR
EMPLOYEES
AND SUPPLIERS

VALUE FOR
INVESTORS

VALUE FOR
CUSTOMERS

VALUE FOR
GOVERNMENTS
AND INDUSTRIES

VALUE FOR
CONSUMERS

VALUE FOR
COMMUNITIES
AND THE PLANET

4. INTEGRATED LEADERSHIP

THE SUSTAINABLE
DEVELOPMENT
GOALS

Our integrated leadership model
allows us to add value to society.
However, in order to achieve
this, it is important that we are
clear about exactly what value to
society means. The United Nations
Sustainable Development Goals
provide a comprehensive and
universally recognised framework.
These set out a series of societal
objectives that companies can
contribute to.

Adopted in 2015, the United Nations
Sustainable Development Goals (SDGs)
aim to eliminate poverty, protect the
planet and ensure prosperity for all. Each
of the 17 goals has specific targets that
define global priorities and aspirations
for 2030. Our Sustainability Ambitions
2020 are closely linked to the SDGs,
and all our services support them.

In a further step, we have mapped all
of our direct operations, supply chain
and services against the 17 goals (this
can be seen on the following pages).
By using this mapping to visualise the
contributions we are making towards the
SDGs, we can develop strategic plans
that can be integrated into management
and reporting processes at the affiliate
level. By taking this approach, we
can maximise the value we create
for society.

SDG 4:
QUALITY EDUCATION

An example of how we contribute
to the Sustainable Development
Goals is by equipping young people
and adults with the technical and
vocational skills necessary for
entrepreneurship and meaningful
employment. Our affiliates work
with stakeholders to identify
people who have the aptitude and
educational background to benefit
from training but cannot afford the
investment. SGS then provides
these candidates with scholarships
that promote quality education.

SDG 1:
ENDING POVERTY EVERYWHERE

SGS works towards this goal
through numerous actions.
These include staff volunteering
efforts that support microcredit
programmes and other initiatives
in the communities we operate in.
Our policy of employing and training
local people, and purchasing from
local suppliers wherever practical,
helps reinforce this impact.

Connecting SGS’ internal initiatives
with the United Nations Sustainable
Development Goals allows us to allocate
resources efficiently and create a
well-balanced approach that addresses
social needs, climate change and
the environment.

OUTLOOK

SGS is developing a three-stage SDG
Strategy that will be fully implemented
by 2020.

STAGE ONE is in progress and involves
understanding our SDG priorities by
country, focusing on those countries
with the most significant revenues first.
The output from this stage will be a
country-based SDG priority matrix that
is enriched with relevant case studies
that explain how SGS is qualitatively
contributing to the SDGs.

STAGE TWO will quantify the
contributions SGS makes to the
countries’ SDG achievements and
involves establishing tasks and
measuring the performance along
country-specific and target-specific
attainment pathways.

STAGE THREE will seek to identify
the ideal investments that SGS can
make to help a country fulfil its SDG
commitments while continuing to build
our own organisational resilience.

For more information on the SDGs,
see our Sustainability Report 2017
(www.sgs.com/cs-report2017).

The following table shows how SGS’ direct operations, supply chains and business lines support
the United Nations 17 Sustainable Development Goals.

SUSTAINABLE
DEVELOPMENT
GOALS

DEFINITION

DIRECT OPERATIONS

SUPPLY CHAIN

End poverty in all its
forms everywhere.

End hunger, achieve food
security and improved
nutrition and promote
sustainable agriculture.

SGS Community
Programme*

Business Continuity
Programme

SGS Community
Programme*

Ensure healthy lives and
promote well-being for all
at all ages.

SGS Community
Programme*

Global Corporate Challenge

Industrial Hygiene
Programme

Stop Work Authority
Programme

Rules for Life

Ensure inclusive and
equitable quality education
and promote lifelong
learning opportunities for all.

SGS Community
Programme*

SGS Academy

Achieve gender equality
and empower all women
and girls.

Women in
Leadership target*

Human Rights Policy

Code of Integrity

SERVICES

GIS

AFL

CRS

CBE

EHS

GIS

AFL

CRS

EHS

GIS

CBE

GIS

CBE

GIS

Ensure availability and
sustainable management of
water and sanitation for all.

Water Pledge Programme

Human Rights Policy

CBE

IND

EHS

SGS Supplier Code of Conduct

Ensure access to affordable,
reliable, sustainable and
modern energy for all.

Energy Efficiency in
Buildings Programme

Renewable Energy
Certificates Purchase

RE100

Do More With Lëss
Campaign –
Spot the Orange Dot

GIS

OGC

CRS

CBE

IND

EHS

GIS

* Sustainability Ambitions 2020

4. INTEGRATED LEADERSHIP

SUSTAINABLE
DEVELOPMENT
GOALS

DEFINITION

DIRECT OPERATIONS

SUPPLY CHAIN

SERVICES

Promote sustained, inclusive
and sustainable economic
growth, full and productive
employment and decent
work for all.

Human Rights Policy

CBE

IND

EHS

Code of Integrity

SGS Supplier Code of Conduct

Employee
Engagement Survey

Sustainability Supply Chain
Risk Assessment

GIS

Operational
Integrity targets*

Rules for Life

Safety Month

Customer Relationship
Management

Customer Satisfaction

Industrial Hygiene
Programme

Stop Work Authority
Programme

Gross Value Added

Build resilient infrastructure,
promote inclusive and
sustainable industrialisation
and foster innovation.

InnoLAB

Suppliers Innovation Club

CBE

IND

TRP

SGS R&D Programme

Green IT Programme

GIS

Human Rights Policy

CBE

GIS

SGS Supplier Code of Conduct

Sustainability Supply Chain
Risk Assessment

AFL

CRS

CBE

EHS

TRP

GIS

Reduce inequality within
and among countries.

Women in
Leadership target*

Human Rights Policy

Code of Integrity

SGS Community
Programme*

Energy Efficiency in
Buildings Programme

Renewable Energy
Certificates Acquisition

RE100

Green IT Programme

Make cities and human
settlements inclusive, safe,
resilient and sustainable.

Ensure sustainable
consumption and
production patterns.

EquipNet Programme

Human Rights Policy

AFL

MIN

OGC

Energy Efficiency in
Buildings Programme

Waste and Water
Management Programme

Green Cars Programme

Open Source of
Intellectual Property

Green IT Programme

SGS Supplier Code of Conduct

Suppliers Innovation Club

Sustainability Supply Chain
Risk Assessment

E-invoicing strategy

CRS

CBE

IND

EHS

TRP

GIS

* Sustainability Ambitions 2020

SUSTAINABLE
DEVELOPMENT
GOALS

DEFINITION

DIRECT OPERATIONS

SUPPLY CHAIN

SERVICES

Take urgent action to
combat climate change
and its impacts.

Energy Efficiency in
Buildings Programme

CO2 Emissions
Reduction target*

Carbon Neutrality Strategy

RE100 Membership

Do More With Lëss
Campaign –
Spot the Orange Dot

Green IT Programme

Conserve and sustainably
use the oceans, seas
and marine resources for
sustainable development.

Protect, restore and promote
sustainable use of terrestrial
ecosystems, sustainably
manage forests, combat
desertification, and halt and
reverse land degradation
and halt biodiversity loss.

Promote peaceful and
inclusive societies for
sustainable development,
provide access to justice
for all and build effective
accountable and inclusive
institutions at all levels.

Strengthen the means of
implementation and revitalise
the global partnership for
sustainable development.

WBCSD Membership

RE100 Membership

SGS Community Programme*

AFL

CBE

EHS

Gross Value Added

Human Rights Policy

Code of Integrity

SGS Supplier Code of Conduct

Human Rights Policy

AFL

MIN

OGC

CRS

CBE

IND

EHS

TRP

GIS

AFL

CBE

IND

EHS

TRP

GIS

* Sustainability Ambitions 2020

MARKET OPPORTUNITY

PRE-SHIPMENT
INSPECTIONS

We smooth international
trade by ensuring compliance
with international customs
agreements.

GOVERNMENTS
AND INSTITUTIONS

4. INTEGRATED LEADERSHIP

MEGATRENDS

SGS has outlined five megatrends
that are influencing the way we
live and do business.

These trends are interconnected, and
while the pace and impact of changes
may vary, our responsibility is to
anticipate them. We design our strategy
using this long-term thinking, while
at the same time remaining agile and
adjusting our operations and services
to new developments.

URBANISATION AND SMART CITIES

Currently, most of global GDP is
generated in cities, and more than
half of the world’s population lives
in metropolitan areas – a trend that
will intensify. Urbanisation provides
opportunities to increase productivity
and attract talent, but the need for
resources and space impacts the
economy, the environment and quality
of life. Governments and businesses
are using technologies and data to
build smart cities, towns and villages to
advance economic growth and improve
infrastructure and community services.

EXAMPLE OPPORTUNITY:
VEHICLE SAFETY SYSTEMS

With car-to-car communication and
driverless cars closer to being a
commercial reality, services like SGS’
Active Safety Systems will become
increasingly required, as drivers,
governments and the automotive
industry seek to ensure the functionality
of vehicle safety features.

CLIMATE CHANGE

Global climate risks – like extreme
temperatures, pollution, flooding and
wildfires – threaten people’s health
and safety while causing instability and
migration. The projection over the next
decade is that our limited resources
will have to provide 40% more water,
35% more food and 50% more
energy than today to support an ever-
growing population1. This accelerated
resource depletion will increase the
impact of climate change. Businesses,

governments and communities have
to work together to align their
objectives to protect vulnerable areas,
prevent irreversible damage and create
a sustainable future.

EXAMPLE OPPORTUNITY:
HELPING OTHERS REDUCE CO2
As a carbon neutral company, we
are well placed to help others reduce
their emissions. Services such as our
Biogenic CO2 and Greenhouse Gas
Accounting and Verification services help
organisations reduce their emissions.

ECONOMIC GROWTH

The economy’s primary challenge is
to balance our desire for economic
growth and prosperity with finite natural
resources. An uneven distribution
of economic power and inequality in
the workplace further affects global
advancement. On the consumer side, the
production and disposal of items with a
short lifespan can cause environmental
damage and impact people’s health,
while the progress of emerging
economies increasingly influences the
global consumption pattern. To support
economic growth, businesses have to
invest in sustainability and promote fair
access to the workplace, technology
and markets.

EXAMPLE OPPORTUNITY: E-COMMERCE

SGS supports the growing e-commerce
market by providing real-time digital
platforms that eliminate concerns
around security and trust, include
background information and provide
updates on delivery status.

POPULATION AND SOCIAL TRENDS

The world’s population is projected
to reach over 8 billion by 2030.
Urbanisation and mass migration can
contribute to social and economic
imbalance as sudden population growth
puts a strain on resources, infrastructure
and employment. People live longer
and have fewer children, which means
we face an ageing population that
challenges economic, political and
social decisions. As a result, businesses
and communities need strategies that
support the new demographic structure.

EXAMPLE OPPORTUNITY:
EDUCATION AND EMPOWERMENT

SGS offers its employees career
development opportunities and works
with local communities to tackle
economic and social change through
empowerment and education projects.

TECHNOLOGY AND DIGITISATION

The digital (r)evolution will continue to
influence the way we live and work:
by 2020, there will be close to seven
times more connected devices than
people, and the data production will
be 44 times greater than in 2009.
Consumers now rely on digital platforms
to make decisions and interact. This
provides an opportunity for businesses
to interact directly with the consumer
while gathering vast amounts of data
about their behaviour. Businesses need
to find ways to use the collected data
securely and also to look at how to
seize the potential of technology such
as the internet of things, blockchain and
artificial intelligence.

EXAMPLE OPPORTUNITY:
PRECISION AGRICULTURE

SGS’ digital precision-farming platform
uses real-time, geo-referenced,
cloud-based data and provides remote
inspection services to improve yields
and reduce environmental risks.

1. National Intelligence Council – Global

Trends 2030 – USA.

OUTLOOK

In 2018, SGS is launching a new
platform to manage governance, risk
and control. With the goal of achieving
synergies in relation to these areas, the
platform will enable the Group to:

• Roll out risk assessments through an

integrated workflow and survey engine

• Develop response strategies to

address identified risks

• Manage incidents and their impact on

SGS businesses

The platform will also:

• Help execute business strategies
while managing enterprise and
operational risks

• Have Group-wide risk coverage

• Establish a clear link between risks

and performance objectives

• Facilitate communication between
Management and lines of business

Regarding our Business Materiality
Matrix, with 2016 as our year zero, we
are committed to conducting a high-level
materiality review every year and an
external stakeholder survey on a biennial
basis. The next external shareholder
survey will therefore take place in 2018.

The purpose of the robust exercise we
conducted in 2016 and the move to
a risk intelligence approach in 2017 is
to continually assess our material and
business issues and to ensure that our
business objectives and our Sustainability
Ambitions 2020 remain focused on
the most important issues for our
stakeholders and for the business.

RISK
MANAGEMENT
AND MATERIAL
TOPICS
IDENTIFICATION

SGS RISK MANAGEMENT

The SGS Board of Directors and
Executive Management are responsible
for the integration of risk management
into key business planning processes.
Every year, the SGS Board of Directors
assesses the risks faced by the Group.
To facilitate and optimise this process,
the Group employs a comprehensive
approach to identifying risk that involves
the active participation of various
management levels throughout the
company. This risk assessment process
is supported by our Enterprise Risk
Management Framework.

Our risk categorisation is structured
as follows:

• Strategy and planning risks – these
arise when strategy selection and
execution are inadequate and when
there are external factors that can
affect performance.

• Governance and integrity risks – these
arise when the corporate governance
structure and controls are inadequate
and when the ethical culture and
procedures are weak.

• Global support risks – these arise

when core functions do not operate
effectively and do not support
business performance.

• Operations risks – these arise when
business processes do not achieve
the objectives required as part of the
business model.

The identification and assessment
of financial risks are also part of this
framework. This specific process is
comprehensive and complex, which is
why the mechanisms we use to identify,
assess and mitigate financial risks are
described in detail in the Finance section
(see pages 201–205).

SGS BUSINESS MATERIALITY MATRIX

In 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 with around
850 stakeholders in 52 countries. These
included customers, senior managers,
employees, suppliers, NGOs, ratings
agencies, sustainability professionals
and academics. 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 results of our materiality assessment
by stakeholder type, we 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 (covering business
continuity, economic performance,
reputation and legal compliance)
according to its relative impact on the
business and assessing the controls in
place to manage that impact.

The outcome of the processes
described above was the development
of our first Business Materiality Matrix.
During 2017, we carried out a high-level
review of the material topics identified,
adapting the Materiality Matrix to
new trends. The review included the
integration of updated information from
sustainability ratings, financial analysts,
media and investors and new business
risks raised as a result of our three-level
risk identification process.

SGS RISK ASSESSMENT 2017

In 2017, our risk assessment revealed an
increasing dependency on IT operations
and talent management. The review
also highlighted emerging risks, such
as those relating to cyberattacks,
new technologies, geopolitical shifts
and compliance with new laws and
regulations, as well as ethical culture.

In addition, it was decided to develop
a new risk intelligence tool that our
Board of Directors is rolling out across
the company (see Outlook for more
information). As part of this transition,
we re-evaluated our risk management
model. This was carried out on three
levels: process, systems and oversight.
We also integrated the guidelines of
the new Committee of Sponsoring
Organizations of the Treadway
Commission, which was established
in June 2017, into the revised model.

4. INTEGRATED LEADERSHIP

BUSINESS
MATERIALITY
MATRIX

H
G

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

Energy and Climate Change

Finance and Economic Performance

Market Presence

Ethical Culture

Operational
Integrity

Talent Acquisition
and Retention

Compliance with Local
Laws and Regulations

Investment Strategy/Mergers and Acquisitions

Sustainable Procurement
and Supply Chain

Corporate Governance

Diversity and Equal Opportunities

Investment in
Local Communities

Pricing

IT Security/
IT Operations

Tax Strategy

Innovation

Water and
Waste Management

Policy Influence

Employee
Engagement

Respect for Human Rights

CRM / Customer Satisfaction

Brand and Brand Protection

Data Privacy
and Protection

Talent
Development and Recognition

Risk and Crisis Management

Fair and Equal Remuneration

Materials Consumed

Economic Conditions

Indigenous Rights Protection

Protection of Biodiversity

W
O
L

LOW

IMPACT ON SGS

Architecture
and Technologies

Approach on Security
of Company Assets

HIGH

Strategy and Planning

Governance and Integrity

Global Support

Operations

BUSINESS
MATERIALITY
OVERVIEW

TOPIC

DESCRIPTION

MANAGEMENT APPROACH

STRATEGY AND PLANNING

INVESTMENT
STRATEGY/
MERGERS AND
ACQUISITIONS

ECONOMIC
CONDITIONS,
MARKET
PRESENCE

PRICING

TAX STRATEGY

Investment in the appropriate areas is
required for SGS to remain responsive to
advances in technology and the market.

• Solid individual business strategies and development plans

• Specific policy on mergers and acquisitions (key organisational

criteria and financial metrics)

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

The Group operates in volatile
markets and needs to sustain and/or
develop market share with innovation
and technical developments to avoid
the risk of being disrupted.

SGS needs to ensure that pricing strategies
remain competitive in market sectors and
geographies. Failure to do so could see its
market share diminish.

SGS provides services across the globe
and manages the taxation risk resulting to
governance and reputation. The tax strategy
is aligned with our broader business risk
management and compliance framework.

• Operations Council review/approval of projects against

admissibility criteria

• Integration guidelines and platform to monitor integration status

• Market intelligence

• Innovation team

• Sales strategy and sales organisation

• Organic growth initiatives by individual business

• Benchmarking of services and pricing tariffs

• Customer engagement and formal reviews

• SGS’ processes, policies and governance procedures operate
to ensure we are compliant with all relevant taxation laws and
regulations in the territories in which we operate and are designed
to identify and mitigate tax risks, where possible.

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 SGS to manage
its overall risk.

• 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.

ETHICAL
CULTURE

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)

4. INTEGRATED LEADERSHIP

TOPIC

DESCRIPTION

MANAGEMENT APPROACH

BRAND, BRAND
PROTECTION
AND CRISIS
MANAGEMENT

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.

COMPLIANCE
WITH LOCAL
LAWS AND
REGULATIONS

The SGS Group is subject to a wide variety
of laws, regulations and government
policies. If SGS is exposed to litigation,
it 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 SECURITY/
IT OPERATIONS
AND DATA
PRIVACY AND
PROTECTION

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.

FINANCIAL
AND ECONOMIC
PERFORMANCE

SGS relies on achieving strategic objectives
linked to growth and margin. A failure to hit
those targets could have a negative impact.
The Group could also suffer from failing to
present reliable financial statements and
from exposure to risks relating to fraud.

• Information Technology Service Delivery Model

• Security systems and applications

• Identification and prioritisation of strategic projects through

the IT Committee

• Security operations centre development

• Penetration testing and vulnerability management processes

• State-of-the-art security software

• Mandatory employee training on cyber security and risks

• Business Continuity Plan

• SGS Enable programme to move all physical servers to the cloud

• Continuous evaluation of assets and businesses

• Review of annual and half-year results by independent

external auditors

• Financial and management controls

• Strengthening of the control framework through the expansion

of SGS Internal Control

• Revisiting and updating various policies, such as the Group Tax

Policy and the Group Treasury Policy

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.

• 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

RESPECT FOR
HUMAN RIGHTS

Failure to conduct business in a manner
that respects the rights and dignity of
everyone affected by our business
activities could have legal and financial
repercussions and potentially result in
long-term reputational damage.

SUSTAINABLE
PROCUREMENT
AND SUPPLY
CHAIN

As a major purchaser, SGS must ensure
a sustainable supply of goods and services.
It must also respect human rights across
its supply chain to mitigate reputational and
non-compliance risks.

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.

• 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

• 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

TOPIC

DESCRIPTION

MANAGEMENT APPROACH

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 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

OPERATIONAL
INTEGRITY (OI)

Businesses that do not prioritise employee
health and safety, along with environmental
protection, put themselves at risk of
reputational damage, elimination as a
supplier or potential supplier and high
employee turnover.

• Operational Integrity Management System aligned to internationally

recognised standards

• Safety Month and Rules for Life

• Industrial Hygiene Programme

• Specific Risk Assessment Process for Operational Integrity risks

• Safety Culture Index

• Regular and specific face-to-face and online safety training

TALENT
DEVELOPMENT
AND
RECOGNITION
AND EMPLOYEE
ENGAGEMENT

FAIR AND
EQUAL
REMUNERATION

INVESTMENT
IN LOCAL
COMMUNITIES

OPERATIONS

INNOVATION

Without a well-structured workforce with
the right skills, motivation and ambition
to succeed, the strength of a business can
be compromised and with that, the ability
to achieve defined targets decreases.

• Established onboarding covering values, culture and business processes

• Employee survey investigates how engaged and enabled

employees feel

• Local affiliates provide targeted well-being initiatives

A failure to provide all employees with fair
and equal remuneration may be regarded as
discriminatory and could undermine efforts to
attract, motivate and retaining talent at SGS.

Businesses that do not strive to reduce
their impact and fail to respect the rights
and dignity of individuals and communities
affected by their business activities,
may face legal, business and reputational
repercussions.

• Remuneration framework based on performance, competencies

and experience

• Variable long-term and short-term profit-sharing compensation plans

• Group-wide job architecture

• SGS Community Policy and Guidelines

• SGS sponsorship and investment in community programmes

• Annual community survey monitoring performance in local

community projects around the world

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

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

of variable costs

• Diversified service offering to a wide range of industries

CRM/
CUSTOMER
SATISFACTION

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

and geographies

• Increasing digitalisation of services

• Employee-led INNO programme encouraging employees to drive

internal innovation

• Key account management structure and dedicated sales people

• Tracking on-time delivery

• Customer satisfaction surveys

• CRM system – Sales Pipeline

• SGS Enable – IT transformation programme

ARCHITECTURE
AND
TECHNOLOGIES

New IT technologies can introduce
additional security risks.

• Strong global coordination of all IT resources

• Support from robust IT business partnering

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.

• Increased governance through roll out of IT strategy

• Launch of dedicated IT Security Operations Centre

• Sustainability management system and external verification

of sustainability data

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

• Employee awareness campaigns

• Fleet Vehicle Emissions Policy

4. INTEGRATED LEADERSHIP

STRATEGIC
FOCUS

SGS has identified a number of
key goals as part of its Mission
2020. These are outlined below
within the framework of the six
elements of SGS’ business model.

BRAND

THEMES

SELECTED ACHIEVEMENTS IN 2017

MISSION 2020

CUSTOMER SATISFACTION

• Launch of Visual Trust Initiative with

• High customer retention

Carrefour in China

• Cummins US, New Product

Development Award

• Global Grain Awards, Quality Control Award

and satisfaction

INTEGRITY

• 100% of employees signing the

• No major integrity or human

Code of Integrity

rights breaches

• Inclusion of a Human Rights Module

in the Annual Integrity Training

MARKET LEADERSHIP

• Diversification of SGS’ reach

• Leading position in strategic markets

and expertise

and geographies

• Forbes Lists: Global 2000 and
Top Multinational Performers

• Strengthening of digital presence, brand
positioning and audience engagement on
social media

• Continued expansion in China

SUSTAINABILITY

• Dow Jones Sustainability Indices Leader

• Industry sustainability leadership

• Carbon neutral company

• Deliver measurable sustainable

• Member of the FTSE4Good Index

• Introduction of Value to Society model

Value to Society

• Increase visibility of our value

to society

GROWTH

THEMES

SELECTED ACHIEVEMENTS IN 2017

MISSION 2020

ACQUISITIONS AND
STRATEGIC PARTNERSHIPS

• 12 acquisitions

• Inorganic growth of 1.2%

• Build scale

• Buy capabilities

• Fill geographic gaps

• Enhance financial metrics

• Maintain strategic significance

BALANCED PORTFOLIO

• Successful Dashboard Review

• Diversify portfolio of services

• Revenue growth across eight business lines

ORGANIC GROWTH

REGIONAL FOCUS

• Organic growth of 4.2%

• Mid single-digit average organic growth

• Creation of North East Asia region

• Enhance presence in key markets

INNOVATION

THEMES

DIGITAL

SELECTED ACHIEVEMENTS IN 2017

MISSION 2020

• Acquisition of Digicomply content

• Enhance business through

management platform

digital services

• SGS Cyber Security Lab Operation Centre

opened in Madrid

• Significant number of new digital

services announced

E-COMMERCE

• Enhanced position of SGS brand on major

• Expand B2B2C presence

e-commerce sites

OTHER INITIATIVES

• First B2C product launched

• Listed in Forbes top 100 Most

Innovative Companies

• Develop B2C presence

• Strengthen and invigorate the culture

of innovation at SGS

4. INTEGRATED LEADERSHIP

EXPERTISE

THEMES

PEOPLE

QUALITY AND PROFESSIONALISM

SELECTED ACHIEVEMENTS IN 2017

MISSION 2020

• 2 688 981 hours of training

• Almost 20 000 employees integrated

with our onboarding programme

• Natural turnover rate of 13.04%

• 26.16% of senior management positions

held by women

• Peru Premio ABE Award for
performance management

• 51jobs Excellence in Human Resource

Management Award in China

• 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

• Be the leading brand for accuracy,

quality and professionalism

INVESTMENT

THEMES

CAPEX

SELECTED ACHIEVEMENTS IN 2017

MISSION 2020

• Launch of SGS Enable 2020 IT
Transformation Programme

• Expansion 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 1.27 million in communities

• Increase investment in communities

around the world

around the world by 30%*

INVESTOR RELATIONS

• An attractive shareholder return policy

• Be a best-in-class

investment opportunity

OPERATIONAL EXCELLENCE

THEMES

SELECTED ACHIEVEMENTS IN 2017

MISSION 2020

ENVIRONMENT

• Reduced CO2 emissions (per FTE)

• Reduce our annual CO2 emissions

by 9.8%

(per FTE) by 20%*

• Reduced CO2 emissions (by revenue)

• Reduce our annual CO2 emissions

HEALTH AND SAFETY

by 10.7%

• Maintained status as a carbon

neutral company

• Total Recordable Incident Rate (TRIR) and
Lost Time Injury Rate (LTIR) reduced by
24.8% and 14.5% respectively

(by revenue) by 20%*

• Reduce TRIR and LTIR by 50%*

NET WORKING CAPITAL INITIATIVE

• Stable Net Working Capital

• Ensure efficient use of capital

OPERATIONAL EFFICIENCY

• Shared Service Centre opened in China

• Maximise internal efficiencies

• Procurement savings of CHF 61 million

• Implementation of productivity
enhancement LIM Systems

* Against a 2014 baseline.

BUSINESS PRINCIPLES

SGS’ Business Principles are the cornerstone on which all of our activity rests. They are held to be
fundamental, overarching beliefs and behaviours that guide our decisions and allow us to embody
the SGS brand in everything we do.

INTEGRITY
MAKING SURE WE BUILD TRUST

We act with integrity and behave
responsibly. We abide by the
rules, laws and regulations of the
countries we are operating in.
We speak up: we are confident
enough to raise concerns and
smart enough to consider any
that are brought to us.

HEALTH
AND SAFETY
MAKING SURE WE ESTABLISH
SAFE AND HEALTHY
WORKPLACES

We fully protect all SGS
employees, contractors, visitors,
stakeholders, physical assets
and the environment from any
work-related incident, exposure
and any kind of damage.

QUALITY AND
PROFESSIONALISM
MAKING SURE WE ACT AND
COMMUNICATE RESPONSIBLY

We embody the SGS brand and
its independence in our everyday
behaviour and attitude. We are
customer-focused and committed
to excellence. We are always
clear, concise and accurate.
We strive to continually improve
quality and promote transparency.
We respect client confidentiality
and individual privacy.

RESPECT
MAKING SURE WE TREAT
ALL PEOPLE FAIRLY

We respect human rights.
We all take responsibility for
creating a working environment
that is grounded in dignity,
equal opportunities and mutual
respect. We promote diversity in
our workforce and do not tolerate
discrimination of any kind.

SUSTAINABILITY
MAKING SURE WE ADD
LONG-TERM VALUE TO SOCIETY

We use our scale and expertise
to enable a more sustainable
future. We ensure that we
minimise our impact on the
environment throughout the
value chain. We are good
corporate citizens and invest
in the communities in which
we operate.

LEADERSHIP
MAKING SURE WE WORK
TOGETHER AND THINK AHEAD

We are passionate
entrepreneurial people with
a relentless desire to learn
and innovate. We work in
an open culture where
smart work is recognised
and rewarded. We foster
teamwork and commitment.

PRODUCT
PERFORMANCE TESTING

SGS tests sunscreen
products to verify if they are
efficient, safe and compliant.

CONSUMER
AND RETAIL

OPERATING CAPITALS

BUILDING INSPECTION
AND CERTIFICATION

Our services reduce the
risk of construction errors
and ensure that buildings
comply with regulations.

INDUSTRIAL

4. INTEGRATED LEADERSHIP

WHY WE
MEASURE
VALUE
TO SOCIETY

As we strive to become a more
sustainable company, we have
formally included the notion
of adding value to society into our
leadership model (as can be seen
on page 51). We have also adopted
a process of measuring the value
we create for society.

QUANTIFYING VALUE TO SOCIETY

Following several years of development,
2017 is the first year we are showing
an estimated quantitative valuation of
our value to society. Our method for
calculating these numbers, which is
covered more fully on pages 49–50 and
pages 109–114, uses slightly different
approaches for measuring the impact of
our direct operations and those of our
impact on our suppliers and customers
through our services.

Beginning with our operations, our
approach quantifies the impact
throughout our value chain, both
positively and negatively, across six
types of capital stock: financial, natural,
human, intellectual, manufactured and
social. As is shown in our business
model, these capitals can be viewed
both as resources we use (operational
capitals) or shape (operational
outcomes). Therefore, it is crucial that
we understand how our activities impact
these capitals if we are to truly measure
and comprehend our value to society in
a robust way.

We are working on a new approach to
integrated leadership to ensure that our
impact on society is considered in our
strategic decision-making – alongside
our operational, legal, tactical and
financial concerns. To function optimally,
this leadership model requires a fair
basis of comparison across all areas,
which is why we have begun to measure
the environmental and social value we
create in financial terms. This process,
known as impact valuation, will help us
to better understand our material
issues, set our sustainability priorities
and track our progress towards the
ambitions laid out in our Strategic
Focus (see pages 39–42). It also marks
another important step towards fully
integrated reporting.

WHAT IS IMPACT VALUATION?

Impact valuation seeks to place
an economic value on the effect
that organisations have on society.
The first academic work on impact
valuation began in 2016 with
the launch of the Natural Capital
Protocol. 2016 also saw the first
steps in the development of a Social
Capital Protocol. Although both
approaches are in their infancy, SGS
is making significant strides in being
able to assign an economic valuation
to the impact we create for society
beyond a pure financial return.

CAPITALS

HUMAN CAPITAL

NATURAL CAPITAL

Relates to the physical and
psychological capacity of
individuals (e.g. motivation,
safety or well-being) to undertake
market-based employment and
to pursue wider aspirations.

Comprises the renewable and
non-renewable natural
resources and processes SGS
needs to operate. Natural inputs
include air, water, land and
ecosystem health.

SOCIAL AND
RELATIONSHIP CAPITAL

Covers SGS’ relationships and
interactions with communities,
stakeholders, organisations
and networks. They include notions
like trust, loyalty and other values.

N A T U R AL CAPITAL

N CAPIT A

A
M
U
H

REL

T
I

C
I

N U FACTUR
C A PITAL

N
D

C
A
P
I
T
A
L

A L

FINAN C I
CAPI T A L

I
N

TELLECTUAL C A P I T

A L

MANUFACTURED CAPITAL

INTELLECTUAL CAPITAL

FINANCIAL CAPITAL

Relates to the inventory of property,
plant, equipment and other
manufactured goods that house
SGS business activities and enable
SGS to successfully compete in the
global marketplace.

Consists of intangible and
knowledge-based assets.
Intellectual inputs include the brand,
patents and copyrights as well as
employees’ knowledge of protocols
and procedures.

Relates to the store of cash and
cash equivalents that can be used in
exchange for other stock functions
(e.g. human capital) that enable
SGS to successfully compete in
the global marketplace.

4. INTEGRATED LEADERSHIP

CAPITAL
INDICATORS

The business environment is
complex and interlinked. Our
impact on our capitals is evaluated
through highly varied indicators
that interact and affect one another
in very nuanced ways.

Our indicators have been defined to
analyse flows within our capitals.
They have been selected based on
materiality principles and the available
research literature and data.

Using our model to chart the indicators
allows us to understand the subtle
interlinkages between the capitals.
This is in line with the objectives of
the Integrated Reporting Framework.
More information about the indicators
used to model our impact in each
capital and our valuation techniques is
provided in our Sustainability Report
(www.sgs.com/cs-report2017).

Note that these indicators are only
used to map our direct operations.
Our supply chain and services are
treated separately.

HUMAN CAPITAL

EMPLOYEE HEALTH
AND WELL-BEING

The impact in monetary terms of
our well-being programmes and
non-mandatory health care benefits
(the latter being only evaluated in
Switzerland at present).

EMPLOYEE SALARY
SCHEMES AND BENEFITS

The measurement of several
non-mandatory benefits to employees.

SICKNESS
ABSENCE

The economic cost of days spent
absent as a result of sickness, in terms
of reduced quality of life. Even though
we cannot fully control all factors
affecting our employees’ health, it is
our duty to create a healthy working
environment to ensure our contribution
is positive.

OVERTIME

The impact on employees’ health of
working overtime hours as well as
the impact of lowering productivity.

EMPLOYEE
ENGAGEMENT

Employee engagement in terms of
productivity resulting from increased
job satisfaction.

EMPLOYEE
VOLUNTEERING

The social (mental and physical)
benefits for employees involved
in volunteering.

DIVERSITY AND
EQUAL OPPORTUNITIES

Gender-related opportunities at
SGS measured in economic terms
(e.g. the cost of reduced employee
productivity resulting from lack
of progression opportunities for
female employees).

OCCUPATIONAL
SAFETY

The human and societal costs (e.g. cost
of treatment) of injuries and fatalities
resulting from workplace incidents.

FOR MORE INFORMATION ON
OUR HUMAN IMPUTS SEE OUR
PEOPLE SECTION.

NATURAL CAPITAL

SOCIAL AND RELATIONSHIP CAPITAL

INTELLECTUAL CAPITAL

CO2
EMISSIONS

REGULATORY
COMPLIANCE

EMPLOYEE
TRAINING

The social cost of the CO2 released
into the atmosphere as a result of
our activities.

The cost of impaired relationships
resulting from non-compliance
with regulations.

The benefits of enhancing
capabilities through training and
development programmes.

CARBON
OFFSETTING

SUPPLIER RELATIONSHIP
MANAGEMENT (SRM)

KNOWLEDGE
DECAY

The associated economic benefit of our
carbon neutrality approach. Any carbon
that we cannot eliminate from our
operations is offset through investment
in clean energy projects that deliver both
social and environmental benefits in
communities where SGS operates.

WATER
MANAGEMENT

The opportunity cost for wider
society and the environment of
our water consumption.

WASTE
MANAGEMENT

The environmental cost, in monetary
terms, resulting from the final disposal
methods of waste flows.

ENVIRONMENTAL
INCIDENTS

The economic cost of damage to
the environment due to site incidents
(e.g. oil spills).

FOR MORE INFORMATION ON OUR
NATURAL INPUTS, SEE OUR
ENVIRONMENT SECTION.

The impact of investing resources in
SRM IT infrastructure and systems.

SUPPLIER
STRESS

The cost of declining or impaired
relationships with suppliers resulting
from late payment of invoices.

CUSTOMER RELATIONSHIP
MANAGEMENT (CRM)
AND DATA SECURITY

The positive impact in relationships
with customers arising from investment
in CRM infrastructure and systems,
including investment in data security.
In the future, this indicator will also
evaluate the impact of our online
communications activities.

SUBSTANDARD
SERVICES

The damage to relationships with
customers due to poor service delivery.

Economic cost of technological
knowledge obsolescence, for example,
the declining productivity of existing
know-how.

KNOWLEDGE
DEVELOPMENT

The measurement of social impact,
in monetary terms, of intellectual
property, knowledge and skills
developed while employees are at SGS
and the benefits of this knowledge
beyond SGS. In particular, it evaluates
the benefits of white papers, webinars
and SafeGuardS technical bulletins.

USE OF PUBLIC
INFORMATION

In the same way that we contribute to
disseminate knowledge through our
publications, we consume information
goods and services for free. This
indicator estimates the economic cost
of producing these goods.

LOCAL COMMUNITY
INVESTMENT

EMPLOYEE
TURNOVER

The social benefit of investing time and
money in local community projects.

The impact of suboptimal turnover
rates and talent flows.

RESEARCH AND
DEVELOPMENT

The social benefit of enhancing
know-how through R&D activities.

MANUFACTURED CAPITAL

FINANCIAL CAPITAL

ASSET
MAINTENANCE

The damage, wear and tear and
maintenance work on SGS’ physical
assets, including buildings, equipment
and vehicles.

USE OF PUBLIC
INFRASTRUCTURE

The societal cost of a reduction
in quality and provision of public
infrastructure that results from greater
usage than investment.

MARKET
MOVEMENTS

The economic costs and benefits of
property market movements, both
upwards and downwards.

PROFITABILITY

We measure profitability through
operating profit. Profit (or loss) is
the sum of income minus expenditure.

EMPLOYMENT COSTS

We measure costs relating to SGS
employees, recruitment, wages and
benefits, restructuring and redundancies.

TAXES

SGS contributes economically to
society by paying all taxes due as part
of our responsibilities to the countries
in which we operate.

BUSINESS MODEL

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.

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. 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.

DURABILITY AND
STABILITY TESTING

SGS verifies the quality,
performance and safety
of bicycles and bicycle
accessories.

CONSUMER
AND RETAIL

4. INTEGRATED LEADERSHIP

BRAND

THE ROLE THE SGS
BRAND PLAYS
IN CREATING
CONSUMER
CONFIDENCE AND
TRUST CONTINUES
TO GROW.

The SGS brand carries a
responsibility to build trust
and add value to society.

Transparency sells. Consumers’
increasing demand on companies
to operate responsibly impacts both
society and business. In today’s lightly
regulated digital marketplace, those
brands that instil the most confidence
with the consumer have a competitive
advantage. Our ability to institute
veracity at all levels of decision-
making, including the customers’
point-of-purchase and beyond, is a
brand differentiator that helps us to
consistently exceed our customers’
expectations and contribute to their
continued success.

The independence associated with
SGS’ brand, traditionally known to
our business customers, is now
becoming synonymous with trust,
quality and safety for consumers
and society. In 2017, we formed
more direct relationships with
consumers, supporting our Mission

2020, expanding our commercial
possibilities and underlining the power
of our brand. For example, the SGS
brand has been promoted directly to
consumers in China, with a pollution
sampler kit sold to consumers on
e-commerce portals.

As the world leader in our core
services of inspection, verification,
testing and certification, the SGS
brand carries a responsibility to
build trust and add value to society.
Drawing on the expertise of our teams
and our strong heritage, we constantly
innovate and evolve to meet the
needs of fast-moving businesses,
complex markets and societal
challenges. We have been recognised
as such by Forbes, being ranked as
a Top Multinational Performer and
listed as one of The World’s Most
Innovative Companies in 2017.

By recognising what our customers
and society need, and adapting to
how these needs change, SGS is
pioneering the development of the
TIC industry.

TRADE MONITORING
SERVICES

SGS’ monitoring services
provide advanced trade
information to facilitate
international commerce.

GOVERNMENTS
AND INSTITUTIONS

4. INTEGRATED LEADERSHIP

GROWTH

WHETHER
THROUGH
ACQUISITIONS,
STRATEGIC
PARTNERSHIPS
OR ORGANIC
EXPANSION,
THE CONTINUED
GROWTH OF
OUR GLOBAL
NETWORK AND
ITS UNRIVALED
PHYSICAL
FOOTPRINT IS A
KEY COMPETITIVE
ADVANTAGE.

The way in which we grow is as
important as the growth itself.

China wields extraordinary influence
on the global market and it is a
country that continues to draw
our focus. Despite a slowdown
in economic growth, the market
remains very inviting. We have been
present in China for over a quarter
of a century and, with a carefully
curated domestic profile, we are
well positioned to benefit from the
opportunities presented by local
market liberalisation, an uptick in
regional influence and a hunger for
foreign expansion.

This considered approach to
development and an ability to
successfully apply our expertise
has allowed us to establish a unique
position for the Group. Our family in
China currently comprises more than
160 labs and offices across the country.

The launch of the SGS Verified
Supplier Mark in China in 2017 is
anchored in the recognition and value
that the SGS brand commands on the

domestic market. A local initiative with
global potential, our Mark is a sign of
quality control and a symbol of trust
for millions of people.

The opening of a dedicated Shared
Service Centre in China, the only
SGS facility of its type with a
single-market focus, is another
indicator of the status that the country
holds in the Group.

How we move forward is framed
by an acute understanding of local
business structures, practices and
ethics. This knowledge underpins an
acquisition strategy that is focused on
companies that have the necessary
regulatory permissions, licences and
accreditations to expand our footprint
in the country. It also informs our
organic growth as a company.

Our continued solid growth, especially
the expansion of our e-commerce
business in a market that is not
without its risks for multinationals,
is a testament to our strength and
capabilities – not just in this country
but all over the world.

STANDARD
FERTILISER TESTS

SGS provides fertiliser testing
to ensure healthy soil for
the sustainable production
of high-quality food.

AGRICULTURE,
FOOD AND LIFE

4. INTEGRATED LEADERSHIP

OUR VALUE TO SOCIETY ENABLED BY AGRICULTURE, FOOD AND LIFE

AGRICULTURE,
FOOD AND LIFE

1 016.3

7.7 %

2016

2017

GROWTH
IN 2017

ACQUISITIONS

During the year, the Group acquired
Laboratoire LCA in Morocco, offering
analytical services, including soil fertility
testing; ILC Micro-Chem, Inc. in Canada,
an independent laboratory providing
microbiology and food chemistry
testing services; Central Illinois
Grain Inspection, Inc. in the USA,
a USDA-licensed agency inspecting
grains and by-products for export
and domestic quality settlements for
growers; and BioVision Seed Research
Limited in Canada, a leading seed, grain
and soil testing laboratory servicing
Western Canada.

REVENUE
IN CHF MILLION

Trade and Logistics remained robust
despite high stock levels, low volatility
and downward pressure on commodity
prices impacting global trade customers
throughout the year.

Life activities continued the strong
performance from the first semester.
The laboratory network revenue grew
by double digits with particularly good
performance in Asia and Europe.
Clinical Research also realised double-
digit growth. The early development
clinical unit benefited from service
diversification into viral disease testing.
The biometrics activity maintained
growth momentum by securing several
new contracts.

ADJUSTED OPERATING MARGIN

The adjusted operating margin improved
from 15.8% in prior year (constant
currency basis) to 16.0%, with strong
incremental margins from both Food and
Life, partially offset by investments in
digital initiatives.

SGS has recently completed the
acquisition of Vanguard Sciences
in the USA, as part of its overall
strategy to expand food testing
capacity and capabilities in this
key geography.

GROWTH AND REVENUE

Agriculture, Food and Life achieved
solid revenue growth of 7.7% (of which
6.7% organic) to CHF 1 016 million for
the year, driven primarily by Food and
Life activities.

Food activities achieved double-digit
growth supported by recent investments
in laboratory capacity and capabilities as
well as the continued development of
food certification services.

Seed and Crop performed well
notwithstanding ongoing challenges in
the input supplier market hampering
contract research, as recent investments
into precision agriculture enabled
diversification of the portfolio.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2017

1 016.3

162.5

16.0

2016
PRO-FORMA2

943.8

7.7

149.0

9.1

15.8

2016

934.9

8.7

147.2

10.4

15.7

1. Before amortisation of acquired intangibles and non-recurring items (see Note 4 in section 7).
2. Constant currency basis.

4. INTEGRATED LEADERSHIP

OUR VALUE TO SOCIETY
ENABLED BY MINERALS

MINERALS

683.6

5.6 %

REVENUE
IN CHF MILLION

GROWTH
IN 2017

2016

2017

ADJUSTED OPERATING MARGIN

The adjusted operating margin increased
from 14.4% in prior year (constant
currency basis) to 15.3%, as utilisation
of the global network capacity increased
and the results of restructuring yielded
benefits. In addition, the ongoing
synergies across the network and
the Minerals sub-business units also
contributed to margin improvement.

Strategic Precious Metals
Processing awarded SGS a
five-year onsite laboratory
project at its new antimony
smelter in Oman.

GROWTH AND REVENUE

Minerals delivered revenue growth
of 5.6% (of which 5.2% organic) to
CHF 684 million for the year, as market
conditions continue to stabilise across
most regions.

Energy Minerals achieved double-digit
growth during the year, with exceptional
performance in Indonesia, South Africa,
Colombia and Russia. The Energy
Minerals business has continued to
dominate the global market in terms of
onsite laboratory contracts as well as in
the ongoing superintendence services
at the main ports. This growth helped
to offset evolving market conditions
in China.

Trade Services delivered robust
performance. Continued momentum
from the first half of the year drove
strong growth, supported by increased
volumes in major bulk commodities
across the network.

Sample volumes increased during the
year for commercial Geochemistry
laboratories in West and South Africa,
Canada and Australia. In addition, SGS
was awarded six onsite Geochemistry
laboratory contracts, contributing to
overall growth and further entrenching
its leading position. In addition,
improved market conditions led to a
higher number of projects moving into
production phase.

Process Engineering experienced a
challenging start to the year due to
project delays but showed improvement
in the second semester following the
start of several new contracts.

Metallurgical Testing continued to
recover during the year, delivering solid
growth, particularly in Canada and
Australia, with higher demand for pilot
plant testing and traditional metallurgical
test work.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2017

683.6

104.6

15.3

2016
PRO-FORMA2

647.1

5.6

93.3

12.1

14.4

2016

635.0

7.7

90.9

15.1

14.3

1. Before amortisation of acquired intangibles and non-recurring items (see Note 4 in section 7).

2. Constant currency basis.

4. INTEGRATED LEADERSHIP

OUR VALUE TO SOCIETY ENABLED BY
OIL, GAS AND CHEMICALS

OIL, GAS AND
CHEMICALS

1 138.8

3.2 %

REVENUE
IN CHF MILLION

GROWTH
IN 2017

2016

2017

ADJUSTED OPERATING MARGIN

The adjusted operating margin decreased
from 10.6% in prior year (constant
currency basis) to 10.5%, mainly
impacted by a change in business mix
from growth in the Plant and Terminal
Operations segment and lack of volatility
in the market in Trade-related services.

SGS was awarded a five-year
contract to provide BP with
calibration and measurement
support at its Rumaila oil field in
Iraq, ensuring the measurement
systems are of the highest
integrity and accuracy.

GROWTH AND REVENUE

Oil, Gas and Chemicals reported an
increase in revenue of 3.2% (entirely
organic) to CHF 1 139 million for the
year. Despite challenges that remain in
the oil and gas industry, the business
delivered solid growth across a large
part of its portfolio, offsetting a decline
in Trade-related services.

Plant and Terminal Operations delivered
double-digit growth driven by contract
wins mainly in the USA. These good
results were partially offset by contract
losses in Western Europe.

Trade-related services declined in
low single digits due to a reduction
in volume driven by the lack of trade
volatility, a mild winter in Europe, and
customer-driven volume redistribution in
the USA. The decline was partially offset
by growth in Asia.

Upstream services delivered solid
growth driven by contract wins in
the production segment. These wins
demonstrate tight cohesion with the
Upstream services strategy to achieve a
better balance between exploration and
production segment activities.

Non-Inspection-Related Testing
activities reported single-digit growth in
most geographies, with the outsourcing
and the samples segments achieving
growth. The laboratory commissioning
projects opportunities did not materialise
in full volume this year.

The Oil Condition Monitoring segment
continued to deliver solid single-digit
growth supporting the business strategy
to expand into all geographies.

Cargo Treatment activities grew in
double digits, driven by new services in
the portfolio. This growth was partially
offset by the discontinuation of Fuel
Integrity Programs in Saudi Arabia and
Namibia; however, the project pipeline
for the business continues to expand.

The Sample Management segment
delivered high single-digit growth from
contract wins mainly in Europe and the
Middle East, and Measurements and
Instrumentation operations continued to
grow in single digits in most regions.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

119.7

10.5

2017

2016
PRO-FORMA2

2016

1 138.8

1 103.8

1 098.4

3.2

117.3

2.0

10.6

3.7

116.4

2.8

10.6

1. Before amortisation of acquired intangibles and non-recurring items (see Note 4 in section 7).

2. Constant currency basis.

4. INTEGRATED LEADERSHIP

OUR VALUE TO SOCIETY ENABLED BY CONSUMER AND RETAIL

10.4 %

GROWTH
IN 2017

ACQUISITIONS

2016

2017

During the year, the Group acquired
Harrison Research Laboratories, Inc.
in the USA, providing services to the
cosmetic and personal care industry;
Govmark Testing Services, Inc. in
the USA, providing fire resistance
and reaction to fire testing; and SGS
Leicester Ltd. in the UK, a textile testing
laboratory accredited by the United
Kingdom Accreditation Service operating
in cooperation with SGS since 2008.

CONSUMER
AND RETAIL

963.2

REVENUE
IN CHF MILLION

Since being accredited as a
Telecommunication Certification
Body in 2016, SGS has achieved
significant growth in the
telecommunication certification
market of Radio Frequency
equipment in the USA.

GROWTH AND REVENUE

Consumer and Retail delivered revenue
growth of 10.4% (of which 7.6%
organic) to CHF 963 million for the year,
driven by North East Asia, Northern
and Central Europe, Eastern Europe
and the Middle East, and Africa.

Electrical and Electronics achieved
double-digit growth attributed to the
recovery in wireless activity. Electrical
Magnetic Compatibility activities
contributed robust growth thanks to
the new Radio Equipment Directive
and recent investments in Electrical
safety capabilities.

Cosmetic, Personal Care and
Household delivered excellent growth
throughout the year, particularly in Asia
and North America.

Softlines delivered robust growth due
to successful capacity expansion in
the new sourcing markets, increased
market share in footwear testing, higher
demand for chemical testing and the
expansion of its global customer base.
Softlines also continued to grow its
footprint in the textile sustainability
segment, especially related to Detox
and Zero Discharge of Hazardous
Chemicals initiatives.

Despite difficult market conditions in
the Toys testing segment, Hardlines
delivered strong growth driven by
expansion of customers’ supply chains
in the new sourcing markets; strong
organic growth in China, India and
Vietnam; and by further development
of services in the e-commerce sector.

ADJUSTED OPERATING MARGIN

The adjusted operating margin increased
from 25.4% in prior year (constant
currency basis) to 25.6%, driven by
improved performance from all Electrical
and Electronics activities and an increased
contribution from the Cosmetic, Personal
Care and Household activities.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2017

963.2

246.9

25.6

2016
PRO-FORMA2

872.2

10.4

221.7

11.4

25.4

2016

872.8

10.4

223.6

10.4

25.6

1. Before amortisation of acquired intangibles and non-recurring items (see Note 4 in section 7).

2. Constant currency basis.

4. INTEGRATED LEADERSHIP

OUR VALUE TO SOCIETY ENABLED BY CERTIFICATION AND BUSINESS ENHANCEMENT

CERTIFICATION
AND BUSINESS
ENHANCEMENT

340.3

4.9 %

REVENUE
IN CHF MILLION

GROWTH
IN 2017

2016

2017

The SGS back-office operations transfer
continued. Sixteen countries relocated
their back-offices to one of the three
Global Business Centres to decrease
overall cost of operations while
improving quality of services.

ACQUISITIONS

During the year, the Group acquired
Win Services Pty Ltd and Leadership
Directions Pty Ltd, both based in
Brisbane, Australia with additional
training facilities in Melbourne and
Sydney. This transaction provides
a foothold for SGS Academy in the
Eastern Australian market, in addition
to resources and expertise to offer new
material globally.

A five-year certification
programme was signed in
the recruitment industry in
Australia and New Zealand.
The programme, created by
SGS in partnership with the
Recruitment Consulting Services
Association (RCSA), is supported
by the Australian government,
major retailers and industry.
The programme will be open
to RCSA members and 5 000
non-member companies.

GROWTH AND REVENUE

Certification and Business Enhancement
delivered solid revenue growth of
4.9% (of which 4.7% organic) to
CHF 340 million for the year, with
all activities performing well with
Performance Assessment and Training
reporting double-digit growth.

Management System Certification
achieved solid growth due to the
transition to the new ISO 9001/14001
2015 standard with 40% of customers
transitioned in 2017. Medical device
certification (ISO 13458) and Information
Security Management (ISO 27000)
remained strong.

Performance Assessment grew double
digits driven by the extension of existing
contracts and new contracts, particularly
in the Hospitality Excellence Programme.
Increased demand for supply chain
audits in relation to Corporate Social
Responsibility and Human Rights fuelled
strong performance.

Training activities delivered double-digit
growth due to high demand for
courses about the transition to the
new standards. The business also
launched a Business Enhancement
Engine to analyse the SGS certification
database and develop training modules
tailored to customer needs. Several
new state-of-the-art Academy facilities
opened, offering an enhanced learning
experience to customers.

ADJUSTED OPERATING MARGIN

The adjusted operating margin
increased to 18.9% from 17.5% in
prior year (constant currency basis).
The UK enjoyed strong incremental
margin growth from solid levels of
activity across all services, Germany
from increased volume and improved
efficiency, and the USA from Forestry
and Medical Devices.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2017

340.3

64.3

18.9

2016
PRO-FORMA2

324.3

4.9

56.8

13.2

17.5

2016

324.1

5.0

57.5

11.8

17.7

1. Before amortisation of acquired intangibles and non-recurring items (see Note 4 in section 7).
2. Constant currency basis.

4. INTEGRATED LEADERSHIP

OUR VALUE TO SOCIETY ENABLED BY INDUSTRIAL

INDUSTRIAL

906.5

0.0 %

REVENUE
IN CHF MILLION

GROWTH
IN 2017

2016

2017

Two key agreements signed
with technology providers: one
with i2i Pipelines in the UK to
deploy disruptive, Smart Pigging
solutions for pipeline inspection;
and one with InoVx Solutions in
the USA to deploy 3D Business
Intelligence solutions for
industrial facilities (digital twins).

GROWTH AND REVENUE

Industrial revenue remained flat
(even with -2.6% organic) delivering
CHF 906 million for the year.

Oil and gas companies continued to
reduce capital investments and also
to delay maintenance and shutdowns.
Price competition and the loss of
contracts caused revenue decline in
North America. Major oil companies
reduced their activities in North Africa
and North East Asia. The Middle East
experienced a reduction in the volume
of inspections mainly in Qatar and Iraq,
with political instability affecting the
latter. The decline was partially offset by
a large oil pipeline inspection contract

in Peru, the continuous development
of maintenance inspection contracts
in Brazil, and the growth in activities
in Saudi Arabia and Russia.

The Power and Utility sector
experienced moderate growth in
Western Europe, South America and
China, which was partially offset by the
reduction in Wind projects and the loss
of a large client in Europe, as well as the
reduction in shutdown programmes in
South Africa.

Infrastructure and Construction
grew moderately driven by Material
and Construction laboratory testing
in developing countries and recent
acquisitions in infrastructure testing.
Results were partially offset by reduced
capital investment programmes in South
America and Western Europe impacting
supervision and consulting services.

The manufacturing market remained
slightly positive with growth in
calibration laboratory activity in Asia and
from Maintenance inspection activities
in South America. SGS consolidated its
presence in the Italian manufacturing
market with the acquisition of CTR
Consulting Testing Research Srl.

ADJUSTED OPERATING MARGIN

The adjusted operating margin declined
from 9.3% in prior year (constant
currency basis) to 8.1%. The slowdown
in oil and gas revenues along with
price reductions led to reduced margin
in the Middle East, North America,
Africa and South Korea. Infrastructure
activity continued to report low margin
in Supervision and Consulting activities
due to intensified competition in South
America. The Manufacturing, and
Power and Utilities markets reported
higher margins due to less competitive
intensity and strong activity in
laboratory testing.

ACQUISITIONS

During the year, the Group acquired BF
Machinery Pty Ltd and CBF Engineering
Pty Ltd in Australia, specialising in
testing, maintenance and repair of
pumps for the water and manufacturing
industries; CTR Consulting Testing
Research Srl in Italy, offering non-
destructive and laboratory testing; and
the assets of Geostrada in South Africa
providing construction material and
geotechnical testing.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2017

906.5

73.4

8.1

2016
PRO-FORMA2

906.5

0.0

84.1

(12.7)

9.3

2016

890.9

1.8

83.6

(12.2)

9.4

1. Before amortisation of acquired intangibles and non-recurring items (see Note 4 in section 7).

2. Constant currency basis.

4. INTEGRATED LEADERSHIP

OUR VALUE TO SOCIETY ENABLED BY ENVIRONMENT, HEALTH AND SAFETY

ENVIRONMENT,
HEALTH AND SAFETY

485.8

3.0 %

REVENUE
IN CHF MILLION

GROWTH
IN 2017

2016

2017

supported this performance.

ADJUSTED OPERATING MARGIN

The adjusted operating margin
decreased from 11.8% in prior year
(constant currency basis) to 10.0%,
impacted by the completion of a large,
non-repeating high-margin project in
2016, weakness in the South American
market and challenging conditions
in Angola.

In North America, Accutest exited
non-profitable contracts and closed
multiple laboratory sites. Although this
created a short-term impact, these
changes – in combination with a large
project win near year-end – will position
the business well moving into 2018.
Axys, which was also acquired in 2016,
demonstrated its efficiency by quickly
aligning with the Group business
strategy. This rapid progression has
helped the business to grow its service
offering through synergies within the
USA, particularly in the perfluorooctyl
sulfonate market.

China and Taiwan experienced strong
growth in laboratories benefiting from
dioxin testing, as well as the continued
enforcement of regulations in the
general market. South East Asia Pacific
was driven by significant performance
improvement in India and Australia
following restructuring measures carried
out in 2016.

Brazil continues to be challenged by
weak market conditions and a gap
created by a reduction in dioxin testing.

A new project for E-DNA and
metabolomics testing was
launched in 2017. The project
will study the impact of potential
hydrocarbon release to assess
the residual impact at an off-
shore oil production platform.

GROWTH AND REVENUE

Environment, Health and Safety
delivered revenue growth of 3.0% (of
which 1.3% organic) to CHF 486 million
for the year. Laboratory services and
Health and Safety services continued
to drive strong growth, particularly
in Europe, North East Asia and Asia
Pacific. A large project completed in
Europe at the end of 2016 offset this
solid performance.

Ongoing network optimisation and
diversification of the customer base
across geographies contributed to solid
results for Laboratory services. Health
and Safety services grew robustly from
the development of an innovative suite
of services aimed at the hospitality, retail
and real estate sectors. Unparalleled
expertise and the reach of the network

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2017

485.8

48.6

10.0

2016
PRO-FORMA2

471.7

3.0

55.8

(12.9)

11.8

2016

464.3

4.6

54.9

(11.5)

11.8

1. Before amortisation of acquired intangibles and non-recurring items (see Note 4 in section 7).

2. Constant currency basis.

4. INTEGRATED LEADERSHIP

OUR VALUE TO SOCIETY ENABLED BY TRANSPORTATION

TRANSPORTATION

546.5

11.6 %

REVENUE
IN CHF MILLION

GROWTH
IN 2017

2016

2017

SGS partnered with several
industrial robot manufacturers
and system integrators to create
“SMART” systems; Systemised
Monitored Automatic Robot
Technology for repetitive and high
precision fatigue testing. SMART
systems improve efficiency,
data integrity and automation
in testing for Automotive and
Aerospace customers.

GROWTH AND REVENUE

Transportation delivered solid revenue
growth of 11.6% (of which 11.4%
organic) to CHF 547 million for the year,
with strong support from all activities
of the business.

Regulated services maintained growth,
particularly in Europe from compliance
services supported by the driver theory
testing centres in France. Safety and
emissions services remained stable in
the mature European market, while the
transition to a new concession model
in Chile and a rate freeze in Argentina
negatively impacted both growth and
margin in South America. In Africa,
the business successfully completed

the deployment of all stations for the
Motor Vehicle Inspection programme
in Uganda. All other activities on the
continent continued to grow in line
with expectations.

Testing services saw solid growth
attributed to increased requirements
from automotive manufacturers for
material and powertrain testing in
North America, Europe and Asia.
Non-destructive testing benefited
from strong demand in the Aerospace
industry in France along with an increase
in demand for battery testing from the
development of new Hybrid and Full
Electric Vehicles.

Field services reported strong growth
driven by increased inspection volumes
for end-of-lease contracts in the USA
and Europe.

ADJUSTED OPERATING MARGIN

The adjusted operating margin increased
from 16.2% in prior year to 16.5%
(constant currency basis). Margin
improved in several regions including
Europe, through increased laboratory
utilisation and in the USA, thanks to a
major commercial inspection contract
completed in 2017.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2017

546.5

89.9

16.5

2016
PRO-FORMA2

489.6

11.6

79.1

13.7

16.2

2016

489.8

11.6

78.5

14.5

16.0

1. Before amortisation of acquired intangibles and non-recurring items (see Note 4 in section 7).

2. Constant currency basis.

4. INTEGRATED LEADERSHIP

OUR VALUE TO SOCIETY ENABLED BY GOVERNMENTS AND INSTITUTIONS

GOVERNMENTS
AND INSTITUTIONS

268.1

0.8 %

REVENUE
IN CHF MILLION

GROWTH
IN 2017

2016

2017

ADJUSTED OPERATING MARGIN

The adjusted operating margin decreased
to 21.9% from 23.3% in prior year
(constant currency basis), with margin
improving in the second half as SGS
collected most of the outstanding
accounts receivable. Digital initiatives
have been implemented to further
improve PCA margin and to control
management costs.

ACQUISITIONS

During the year, the Group acquired Maco
Custom Service in the Netherlands,
offering customs compliance services to
a wide range of clients. This acquisition is
an ideal complement to transit services
and PCA activities.

An innovative solution for remote
inspections, QiiQ, operating on
both iOS and Android has been
successfully deployed in Q3 2017.

GROWTH AND REVENUE

Governments and Institutions reported
revenue growth of 0.8% (of which 0.1%
organic) to CHF 268 million for the year,
with Scanning and TransitNet impacting
the results.

The business successfully managed the
transformation of its largest remaining
Pre-Shipment inspections programme in
Cameroon to a non-intrusive inspection
programme including SGS DTect®, a
universal remote scanning analysis, and
SGS E-Valuator™, a valuation assistance
solution aligning with recommendations
from the World Customs Organisation
and World Trade Organisation. In
the same period, the business was
impacted by the completion of two
large mandates: Product Conformity
Assessments (PCA) in Kurdistan and
a valuation mandate in Benin.

Several scanning contracts were
extended demonstrating a renewed
commitment from existing clients.
Single Window solutions continued t
o grow through improved import
volumes and shipment values along
with the implementation of a paperless
administration strategy for the
Government of Ghana. The contract
for the provision of the inland revenue
management solution was also
extended in Ghana.

TransitNet delivered high double-digit
growth with services expanding into
new territories (Eastern Europe and
Asia) and effectively capturing increased
market share in several countries
of operation.

During the year, Product Conformity
Assessments in Nigeria and Uganda,
as well as newly implemented PCA
mandates in Gabon and Cameroon,
delivered solid results, partially
offsetting the completion of a contract in
Kurdistan in the first quarter.

The new Port Solutions service began
to generate revenue and Consulting
activities successfully saw an increase
in demand, namely from the Asia and
InterAmerica Development Bank and
from Non-Governmental Organisations.

(CHF million)

REVENUE

Change in %

ADJUSTED OPERATING INCOME¹

Change in %

MARGIN %¹

2017

268.1

58.7

21.9

2016
PRO-FORMA2

265.9

0.8

62.0

(5.3)

23.3

2016

274.7

(2.4)

66.6

(11.9)

24.2

1. Before amortisation of acquired intangibles and non-recurring items (see Note 4 in section 7).

2. Constant currency basis.

4. INTEGRATED LEADERSHIP

ACQUISITIONS

In addition to growing organically,
SGS has long benefited from making
strategic acquisitions that 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 and technological
capacities. On other occasions, it also
makes sense for us to focus on 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.

A next step towards diversification
in the Government and Institutions
sector proved the acquisition of
Dutch-Belgian Maco Customs
Service. Maco offers comprehensive
customs compliance services including
consultancy, import, export and transit
declarations, certificates of origin,

SGS’ TARGET IS TO
REACH CHF 1 BILLION
IN ACQUIRED REVENUE
FROM 2016–2020.

fiscal representation and excise.
The company’s strong knowledge of
the European customs environment is
combined with innovative cloud-based
software solutions that address
complex cross-border processes
to continue to advance the Group’s
digitalisation efforts.

An acquisition that will pave the way
for further expansion in the fire testing
industry is Govmark, an independent
laboratory for fire, flammable and
physical testing in the United States.
Its services are recognised around
the world and include transportation,
textiles, public buildings as well as wire
and cable. The acquisition of a leader in
the fire testing industry allows us access
to unparalleled knowledge of federal and
state fire testing and also expands our
global network of laboratories.

Increasing our local and global
competitiveness in the educational
sector was the main factor when
acquiring an Australian education
provider: Win Services Pty Ltd and
Leadership Directions Pty Ltd work
in partnership to provide short-
course, leadership and organisational
development training. This acquisition
provides opportunities for the SGS
Academy to not only grow in Australia
by bringing resources and expertise
to the market but also use the
experience to advance our global
SGS Academy network.

We focus on companies that allow
us to realise synergies while building
scale, enhancing our capabilities, filling
geographic gaps and improving our
financial metrics – whilst maintaining
strategic significance.

41 transactions with Enterprise Value (EV)
between CHF 0.4 million and CHF 62
million made between 2015 and 2017

CHF 1.0 BN

87% of total EV invested in
Transportation, Environmental Health
& Safety, Agriculture Food & Life
and Industrial business lines

SGS invested at an average EBITDA
multiple of 8.4 pre-synergies and a
weighted average EBIT multiple of 12.8

2017 ACQUISITIONS

BIOVISION SEED RESEARCH LIMITED
(BIOVISION)

WIN SERVICES PTY LTD AND
LEADERSHIP DIRECTIONS PTY LTD

THE GOVMARK TESTING
SERVICES, INC.

Canada

Australia

USA

GEOSTRADA

South Africa

CTR CONSULTING TESTING
RESEARCH SRL

Italy

MACO CUSTOMS SERVICE

The Netherlands

CENTRAL ILLINOIS GRAIN
INSPECTION, INC.

USA

SGS LEICESTER LTD.

HARRISON RESEARCH
LABORATORIES, INC.

United Kingdom

USA

ILC MICRO-CHEM, INC.

BF MACHINERY PTY LTD AND
CBF ENGINEERING PTY LTD

LABORATOIRE LCA

Canada

Australia

Morocco

4. INTEGRATED 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 POSITION
AS MARKET
LEADERS.

Innovation is the engine that
drives us forward. In a fiercely
competitive world defined by
tight margins and marginal gains,
it is the difference between
leading the disruption and
being disrupted.

At a time of rapid digitalisation, when
traditional thinking and structures
are being constantly challenged on
both a micro and a macro scale, our
ability to innovate keeps SGS and our
customers ahead of the curve and
the competition.

Our investment in innovation gives us
a platform to increase productivity,
accelerate growth and ensure
sustainability. Our targets in this area
alone include increasing Group margin
and revenue by 0.3% and CHF 300 Mio
by 2020, respectively. Whether we
achieve this internally or externally,
through employee idea generation,
acquisitions, partnerships, technology
providers or suppliers, this capability
benefits SGS, our customers and the
world in which we live.

The advances we are pioneering
in remote inspection are a good
example. Our remote inspection app
is putting experts on site no matter
where our customers are located.
As a result, our technology is
speeding up work processes,
reducing travel costs, lowering carbon
emissions and helping trade move
more quickly.

Our work in natural resources
monitoring is another way in which

we are having a positive impact.
Through the development of
satellite-based monitoring technology,
we are making the inspection and
monitoring of activities such as illegal
logging and land clearance, easier and
more effective.

The acquisition of Digicomply is
part of our strategy to establish
the leading global digital platform
for information relating to the food
industry. Using chat-bot technology
that offers access to data on
standards, regulations and early
warning notifications from every
market, our platform has the power
to make our customers’ to-market
journey much more efficient, which
in turn has the potential to positively
impact retail pricing.

Cybersecurity is a topic that
resonates throughout society, and
our new Cyber Labs are helping
tackle this growing threat. Our
work includes penetration testing
of customers’ digital platforms in
order to strengthen their cyber-
defence systems. This hacking-based
testing and our support in European
Union regulatory development will
improve cybersecurity not only for
our customers but at every office and
home around the world.

Innovation is the lifeblood of SGS.
For our Group and our customers,
it is the difference between leading
from the front and having to settle
for a place in the pack. It gives us the
impetus to evolve and deliver value
to society.

EMC TESTING

SGS’ network of
electromagnetic compatibility
testing facilities verifies
compliance with regulations.

CONSUMER
AND RETAIL

4. INTEGRATED LEADERSHIP

EXPERTISE

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

Expertise is the reason that
SGS is trusted around the
world. Expertise fuels our
operations, innovation and
achievements in every market
and in every industry.

Our experience, knowledge and our
commitment to recognising, retaining
and growing our talent are what sets
us apart for our customers.

From inspectors to scientists, our
people are experts in their fields.
They ensure that we remain a
global market leader. They do this
by increasing efficiency, improving
quality and productivity, reducing risk,
verifying compliance and accelerating
speed to market.

Our customers appreciate the level
of knowledge and service that we
bring to the table. For example,
we received the coveted Cummins US
New Product Development Award in
2017 in recognition of our exemplary
service and support in the area of
developmental chassis dynamometer
capabilities. The award was
presented at the American Fortune
500 company’s annual supplier
conference. In Geneva, we won the

Quality Control Award at the Global
Grain Awards. At the same event,
AgFlow, an SGS strategic investment,
was nominated as a finalist for the
Innovation Award.

Our local HR teams often earn
recognition in their own right. For
example, in Peru, SGS won the
prestigious Premio ABE Award in
2017 for its performance management
programme. In China, SGS was
recognised as a leading employer,
winning the 2017 Excellence in Human
Resource Management Award from
51job, a leading human resources
service provider in the country.

We are who we are because of our
expertise; because our people have
the skills and ability, the passion
and energy and the confidence in
themselves and in our network that
we need to excel. Our people thrive
because they work in an environment
that encourages development,
nurtures ambition and values
their expertise.

As we evolve and strive to achieve
more for ourselves, our customers
and society, it is our experts who are
responsible for pushing us forward,
stimulating development and keeping
us out in front.

QUALITY ASSURANCE
AND QUALITY CONTROL

SGS controls the materials,
structures and systems
used to construct and
operate industrial facilities.

INDUSTRIAL

4. INTEGRATED LEADERSHIP

INVESTMENT

WE MUST
CONSTANTLY
ADAPT TO
CHANGING
CUSTOMER
DEMANDS
AND MARKET
CONDITIONS.

Investment is vital. The right
talent, assets, technology and
development capabilities are
fundamental to the long-term
success and profitability of
any organisation.

This is particularly true for SGS. It is
crucial that we stay ahead of the curve
in the TIC industry and are alert to
how the wide range of industries we
serve are changing in terms of new
markets, technologies and regulations.

This innovation and awareness, and
the dynamism they inject, are critical
to our position as a global market
leader and to our ability to offer our
customers an unparalleled service.

One of the ways in which we are
achieving this goal is by evolving our
IT infrastructure. We are doing this
through the new SGS Enable 2020
IT Transformation Programme. The
initiative has a wide scope and is
designed to facilitate interactions
with our customers, add value to our
employees and support our 2020
Sustainability Ambitions.

Data centre consolidation is an
example of how we are putting
this planning into practice. We are
adopting a cloud-first strategy with the
aim of having 80% of our workflow on
a cloud-based computing framework
by 2020. This migration will create
a more secure and sustainable
operations model and significantly
reduce our costs.

It will also mean that as a business,
we produce 4.5 million fewer
kilograms of CO2 every year, which

is equivalent to cutting almost
2 000 single-person round-trip flights
between Geneva and New York.
As well as reducing the amount of
hardware we need, our efforts to
maximise the equipment we have
continues to yield results. The second
year of our EquipNet (web-based
equipment redeployment tool),
through which SGS teams can save
money by buying equipment from
other areas of the business, has been
a continued success.

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 partnerships
with an emphasis on supporting new
business areas with long-term growth
potential. In addition, we invest in the
communities around the world as part
of our sustainability work (see pages
105–107 for more details). In 2017,
this investment reached CHF 1.27 Mio.

Naturally, despite being in a strong
financial position, SGS will only
invest in areas where we feel we
will see significant returns. Thus,
our investments are focused on the
strongest areas of the business, and
those with the best growth record
or long-term growth potential. Our
capital allocation strategy prioritises
investment in projects that promote
organic growth and are technology
driven, along with bolt-on acquisitions
with attractive business synergies.
We also focus on maintaining a solid
investment grade credit rating and an
attractive shareholder return policy.

FOREST MANAGEMENT
CERTIFICATION

SGS’ forest management
certificate evaluates
social, economic and
environmental standards.

AGRICULTURE,
FOOD AND LIFE

4. INTEGRATED LEADERSHIP

OPERATIONAL EXCELLENCE

HOW DO
BUSINESSES
ENSURE
WORLD-CLASS
PERFORMANCE?
BY ASSURING
GENUINE
OPERATIONAL
EXCELLENCE
AND EVOLVING
STRATEGY
AS MARKET
CONDITIONS
CHANGE. THIS IS
HOW SGS PUSHES
FORWARD. THIS
IS HOW WE LEAD
FROM THE FRONT.

Our commitment to operational
excellence, and maintaining the
best-in-class quality on which
our reputation is based, is why
we are a global market leader.

SGS has developed rapidly over the
last decade amid unique market
conditions, and how we frame
operational excellence has evolved
in line with the changes we have seen
in the landscape.

Changing market conditions mean
we are now focusing on doing what
we do more efficiently so that we can
optimise how we use our resources,
augmenting our ability to do more
added-value and higher-margin work.

One of the ways in which we are
achieving this goal is through a
realignment of our regional business
infrastructure as part of a streamlining
initiative. The introduction of SGS
North East Asia, following a merger
of our East Asia and China and Hong
Kong regions, is allowing us to create
synergies and improve our operating
performance in a fast-growing regional
market. The new region has started
brightly, posting double-digit growth
in its first year.

Shared Service Centres are another
way we are targeting greater
efficiency. A well-established model at
SGS, the way the Centres benefit the

Group continues to evolve, and today,
they are at the forefront of our efforts
to increase productivity. The Centres
are allowing our affiliate employees
to focus on higher-value tasks while
creating hubs of excellence for certain
back-office tasks.

Our increased focus on automation
and robotics is part of a wider drive
to leverage technology to improve
how we do things. From a digital
perspective, we have three main
objectives as we move forward:
ensure sustainability, increase
productivity and accelerate growth.

Health, safety and environmental
standards are also critical to
operational excellence. Although
what we do in this area has obvious
legal and business aspects, our
work is primarily culture driven:
CEOs, including ours, have a
personal obligation to their
employees to ensure a healthy and
safe workplace, and by helping
business leaders fulfil this duty,
we bring value to society.

SGS continues to push forward,
raising the bar in the TIC industry
as we advance, and our operational
excellence ensures that we can make
such progress. By recognising what
our customers and society need, and
adapting to how these needs change,
SGS is leading from the front.

ENVIRONMENTAL
AND SOCIAL IMPACT
ASSESSMENT

SGS’ environmental and
social impact assessments
help businesses protect
biodiversity.

ENVIRONMENT,
HEALTH AND
SAFETY

4. INTEGRATED LEADERSHIP

PROFESSIONAL
EXCELLENCE

Our success is built on the
trust our customers place
in us. To maintain this trust,
we expect our employees
to embody SGS’ values
in everything they do.
Whether it is through
the way they conduct
themselves, the way they
treat those around them
or the way they work with
suppliers and customers,
our employees strive
to exceed expectations
every day. We call this
professional excellence.
As an industry leader,
we believe our behaviour
inspires other businesses
to act in the same way,
creating a better working
environment for all.

ROAD CONSTRUCTION
SERVICES

SGS tests the performance
and durability of materials
and components to ensure
durable roads.

TRANSPORTATION

COMPLIANCE
AND INTEGRITY

SGS does not engage in any form of
bribery or corruption and we adhere to
the legal requirements of every country
we operate in. We hold anyone acting
on behalf of, or representing SGS, to
the highest standards of professional
integrity, at all times – as defined by the
SGS Code of Integrity (the “Code”).
The Code applies to all SGS employees,

as well as affiliated companies,
contractors, subcontractors, joint-
venture partners and agents. Our shared
values on individual and organisational
professional conduct keep us from
seeking business advantage by means
that threaten our assets, brand, people
or intellectual property.

Compliance with Local
Laws and Regulations

BODY

RESPONSIBLE FOR

COMPRISES/INCLUDES

SGS CODE OF INTEGRITY RESPONSIBILITIES

See page 35 for complete matrix.

PROFESSIONAL
CONDUCT
COMMITTEE

• Ensuring implementation of the

• Chairman of the Board

Code of Integrity

of Directors

• Advising Management on all
issues of business ethics

• Two other Board members

• Chief Executive Officer

• Chief Compliance Officer

CHIEF
COMPLIANCE
OFFICER

CORPORATE
SECURITY
TEAM

HUMAN
RIGHTS
COMMITTEE

• Implementing procedures

governing ethical behaviour
and conducting investigations
on alleged staff misconduct

• Ensuring that security

arrangements adequately
protect our people and assets
and respect human rights

• Continuous evaluation

of assets and businesses

• Overseeing implementation

• Chief Executive Officer

of human rights commitments

• Supporting human rights

as defined in the Code and
Business Principles

• Chief Compliance Officer

• Vice President

Corporate Sustainability

PERFORMANCE

100%

% OF EMPLOYEES SIGNING THE CODE OF INTEGRITY

100

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

“Helplines” means channels used by employees and
external parties to report suspected violations of the
Code of Integrity. The reports can be submitted online
or by phone, email, fax or post.

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

EMPLOYEES SIGNING
THE CODE OF INTEGRITY

CODE OF INTEGRITY
NON-COMPLIANCES

4. INTEGRATED LEADERSHIP

TRAINING

OUTLOOK 2018

SGS conducts mandatory Annual
Integrity Training (AIT) for all employees
based on the Code. All new hires must
complete this training and an additional
e-learning module within three months
of joining the Company. This ensures
clarity on SGS’ integrity expectations
and standards, with violations leading to
possible disciplinary action, termination
and/or criminal prosecution.

ACHIEVEMENTS

The SGS Human Rights Policy, which
was developed in 2016, received formal
approval from the Operations Council
at a meeting of the Human Rights
Committee in early 2017.

An additional module on human rights
was incorporated into the AIT in 2017,
which is expected to result in more
visibility and understanding of the matter
within the Company. Recognising an
increasing need for businesses to focus
on compliance and integrity, the CEO
made it a condition in 2017 that human
rights should always be included in
regional management level meetings.

For 2018, our annual integrity training
will evolve from the current PowerPoint
approach to a more structured and
tailored delivery. Generic e-learning will
be given to all employees and will be
supplemented by face-to-face specialist
training on core business aspects for
relevant employees.

CASE STUDY:
INTEGRITY TRAINING IN BANGLADESH

As with all SGS affiliates, SGS
Bangladesh embraces the Annual
Integrity Training, ensuring all employees
are trained on new modules such as
human rights. Throughout the year,
660 employees, both permanent and
contractual, across all five SGS sites
underwent the training. The training
was rolled out from the top. Our country
Managing Director delivered face-to-face
training to his managers, who in turn
passed the learning down to their teams.

PERFORMANCE

227 1

178

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. These reports can be submitted online
or by phone, fax, email or post.

178

169

155

241

245

227

207

200

141

109

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

CODE OF INTEGRITY REPORTS

CODE OF INTEGRITY
INVESTIGATIONS

1. As of 2017, the figure includes pending
cases which are still under review at
the time of reporting.

PROCUREMENT
AND SUPPLY CHAIN
MANAGEMENT

NEW SAVINGS (CHF MILLION)

19%

REDUCTION IN THE NUMBER
OF SUPPLIERS

Sustainable Procurement
and Supply Chain

See page 35 for complete matrix.

(SGS’ web-based equipment
redeployment tool) has grown by
92% compared with 2016 (with 123
assets redeployed or sold externally),
generating CHF 1.9 million savings and
allowing us to optimise the use of assets
across the SGS network.

OUTLOOK 2018

The new Vice President of Global
Procurement is reviewing plans for the
next three years. Our ambition is to
develop a best-in-industry procurement
organisation that will contribute to SGS’
Mission 2020. The procurement strategy
will focus on maximising value in areas
such as supplier innovation, operational
excellence, digitalisation and forging
deeper partnerships with suppliers and
internal stakeholders.

The global operating model will be
further enhanced to drive efficiency
through the standardisation and
automation of our end-to-end Source to
Pay and Demand to Supply processes.

Successful ongoing projects, such as
the global rollout of our e-sourcing tool,
electronic invoicing programme and
EquipNet will be further pursued. Over
the next three years, 60% of all tender
processes are expected to be completed
online, while the electronic invoicing
solution is aiming to automate 40%
of all SGS invoices. The broad use of
these platforms increases transparency,
enforces compliance and drives
operational excellence.

Our Sustainable Supply Chain strategy
will be focused on supply chain risk
assessment. Starting from early 2018,
the SGS Supplier Code of Conduct
will be deployed throughout the global
supply chain, following the conclusion of
the 2017 pilot.

CASE STUDY:
VERIFIED SUPPLIER
CERTIFICATION PROGRAMME

In China, SGS has created its own
supplier certification programme called
Verified Supplier Mark. It targets the
top 350 suppliers in the region. In 2017,
53 SGS suppliers successfully went
through the qualification programme
required to meet SGS standards. The
Verified Supplier Mark represents a
significant competitive advantage for
suppliers in the Chinese market.

The Procurement and Supply Chain
Management strategy at SGS is built
on three pillars: deliver value, optimise
processes and enhance supply chain
management. We deliver these goals
through structured sourcing programmes,
Source to Pay standardisation and
automation, centralised category
management and global processes,
which are implemented by our local
procurement teams.

ACHIEVEMENTS

In 2017, Procurement and Supply Chain
Management reported CHF 61 million in
new savings, successfully delivering the
CHF 160 million target defined for the
2015–2017 savings programme. Ties have
been strengthened with core suppliers,
resulting in a 85% growth in the supplier
incentive programme versus 2016 by
bundling procurement volumes.

In 2017, the number of suppliers
worldwide was reduced by 19%, while
the use of internal purchasing catalogues
increased by 17%. Together, this has
generated higher savings and created
process efficiency.

2017 also heralded the launch of several
key transformation projects. In the US
and Spain, a supplier portal was launched
that supports electronic invoicing. This
will be rolled out globally in early 2018,
creating significant process automation.
In China and France, an e-sourcing tool
was successfully launched. 80% of new
negotiated spend and over 60 online
auctions were sourced through this.

A pilot for the new SGS Transportation
Management tool was also successfully
completed in France, leading to plans for a
further rollout in 2018. The Transportation
Management tool increases distribution
efficiency and decreases transport-related
costs and carbon emissions.

SGS has continued to partner with
leading suppliers as part of the Supplier
Innovation Programme, allowing the
Group to benefit from the innovation
power of our supplier ecosystem.
To optimise the effectiveness of the
programme, it has been fully integrated
into our ‘Inno 2020’ Global Innovation
initiative. The programme is on track to
deliver additional revenue as of 2018.

Procurement has also actively
contributed to SGS’ sustainability
initiatives. The SGS Supplier Code of
Conduct has been issued in seven
countries to date as a pilot, with 22%
of SGS suppliers in these countries
having signed the commitment at
the time of writing. Finally, EquipNet

4. INTEGRATED LEADERSHIP

CUSTOMER
RELATIONSHIP
MANAGEMENT,
DATA SECURITY
AND BUSINESS
CONTINUITY

CRM / Customer Satisfaction

Data
Privacy and
Protection

See page 35 for complete matrix.

Customer relationship management is
integral to the quality of service that
we provide. It is critical that we remain
responsive to customer needs and
expectations for service quality, privacy
and data protection.

CUSTOMER RELATIONSHIP
MANAGEMENT

Strong relationships underpin customer
loyalty and consequently, business
stability. Ultimately, if our customers are
satisfied, the business success of both
parties is more assured.

In 2014, a Customer Relationship
Management System – Sales Pipeline –
was deployed across the Group.
This system gives us better visibility on
customer information, sales, operational
activities and business opportunities.

Informal mechanisms such as surveys,
face-to-face meetings, seminars and
workshops support this system as
important parts of our daily interactions
with our customers, as do direct social
media communications and the efforts
of our dedicated back office team,
dealing with web enquiries.

A new IT transformation initiative called
SGS Enable will also help support direct
online collaboration with our customers
on certain projects, helping to speed up
response times, and facilitate working
processes (see Achievements below for
more details).

DATA SECURITY AND PROTECTION

Security of customer data is integral to
our customer relationship management.
We use state-of-the-art security
software and robust management
processes, including dedicated customer
databases, where appropriate, to ensure
that customer data remain secure at
all times.

We conduct mandatory employee
training on cyber security and risk, which
includes topics on protecting customer
privacy and data security. We have
also introduced penetration testing and
vulnerability management processes
to highlight potential threats to our IT
systems and ensure that appropriate
remediation measures are implemented.

From 25 May 2018, the new EU General
Data Protection Regulation will come
into force. We are actively engaging
with our business lines and functions
in Europe to ensure compliance. The
project includes an assessment of both
the data itself and our data storage and
handling practices to ensure that we are
implementing the necessary enhanced
processes. We will also update our
privacy policies on or before May 2018
and a dedicated e-learning programme
will be provided to employees who
are working with personal data on
a daily basis. A dedicated project
team, supported by privacy officers
and external consultants, has been
established to guide this work.

BUSINESS CONTINUITY

A business continuity plan is a document
that explains exactly what to do in
the case of a major crisis or disaster.
By having a detailed plan in place, any
such event can be responded to as
efficiently as possible – minimising
business disruption.

Whilst it is inherently impossible to plan
for black swan events and every other
feasible sort of business disruption,
SGS has identified four core scenarios
it may be forced to deal with. These
relate to disruption to people, buildings,
IT and suppliers. With ‘people’ this
could include the loss of a key person,
temporary or otherwise, at any level of
the organisation. For ‘buildings’, this
could be when there is an inability to
access an SGS building or facility (e.g.
as a result of a severe weather-related
event). The other areas include times
when IT systems cannot be accessed
and when SGS is unable to receive
services from key suppliers for whatever
reason (e.g. supplier insolvency, supplier
impacted by logistics issues, etc.).

SGS is now implementing a Business
Continuity Management Process, which
is managed with Group support at a
country level. The above-mentioned
scenarios are studied locally in this
context. This includes the creation
of local crisis management teams
and the development of training

CASE STUDY:
IT AND BUSINESS CONTINUITY

SGS’ IT transformation programme,
SGS Enable, will include data centre
consolidation, resulting in around
80% of all workflow being run in the
cloud by 2020. Not only will this result
in an annual reduction of 4.5 million
kilogrammes of CO2 (which is equivalent
to almost 2 000 single-person round-
trip flights from Geneva to New York), it
will also be inherently supportive of our
business continuity efforts. For example,
in the event of an incident, (such as a
fire) destroying or shutting down the
local servers, users will in theory only
lose a maximum of a few hours of work
– depending on when the servers
were last automatically backed up to
the cloud.

exercises to simulate a crisis. In some
countries, such as Australia, where
business continuity planning is a legal
requirement, SGS has long had very
advanced plans in place. This experience
is helping rollout on a broader basis.

ACHIEVEMENTS

In 2017, we deployed SGS Enable,
a strategic and collaborative
initiative managed by our Strategic
Transformation, Group Finance and
Corporate IT functions. The high-level
project enhances the value we offer
our customers by delivering significant
productivity improvements through
enhanced analytics and automation.

Penetration testing and vulnerability
management processes were also
introduced in 2017 to proactively
highlight potential threats to our IT
systems and make sure that appropriate
remediation measures are implemented.

OUTLOOK 2018

Customer relationship management
will remain integral to SGS’ business
strategy in 2018. We will develop a core
set of global indicators to enhance the
visibility of Group-level financial and
non-financial performance, and the SGS
Enable customer portal will be tested in a
pilot phase before becoming available to
customers across different business lines.

Employee training on cyber security
and risk will continue to be deployed
through the onboarding programme and
further targeted training for employees
as required. The ongoing testing of
employee readiness to cyber threats
and simulated attacks will also further
contribute to our data protection and
security initiatives.

The Global Business Continuity Team
will keep on training business continuity
managers for our regions to strengthen
procedural awareness across SGS.

4. INTEGRATED LEADERSHIP

PEOPLE

Our employees are our
most important asset.
We empower them to
succeed in a safe, diverse
and inclusive workplace
that treats everyone
fairly and with respect.
With more than 95 000
people working for SGS
across the world, our
business has a big impact
on the communities
in which it operates,
which is why we seek
to employ local talent
and build individual and
collective capabilities
within our teams.

PRODUCT RISK
ASSESSMENT

SGS identifies product risks
and provides performance
testing for sports and
leisure products.

CONSUMER
AND RETAIL

TALENT ATTRACTION
AND RETENTION

68%1

1. As measured in the 2017 Catalyst survey.

ENGAGEMENT INDEX

70%2

2. As measured in the 2017 Catalyst survey.

ENABLEMENT INDEX

Talent Acquisition
and Retention

See page 35 for complete matrix.

A business with a structured workforce
that has the right skills, motivation
and ambition to succeed is ultimately
in the best position to achieve its goals.
We recognise that our strength lies
in the quality of our people and we
constantly aim to attract and retain
the best talent. Managing employee
turnover in a dynamic and volatile
employment market is a challenge,
which is why we give SGS employees
every opportunity to reach their full
potential, moving between countries,
business lines and functions to enhance
their skills.

With the global workforce becoming
more diverse, our talent-sourcing
strategy focuses on e-recruitment,
competency-based assessments and
efficient onboarding related to our
values, culture and business processes.
Digital tools and social media platforms
contribute to fostering connections with
future employees around the world.

Complementing these programmes, our
employer branding campaign, Be 100%
You, engages millennials while also
supporting our 2020 business plan.
So far, the campaign has been deployed
in the following countries: Australia,
Brazil, Canada, Chile, Colombia, France.
India, Italy, Mexico, Portugal, Romania,
South Africa, South Korea, Switzerland
and the United States.

EMPLOYEE ENGAGEMENT
AND WELL-BEING

SGS has kept a strong focus on
performance management by
collaborating with leaders to develop
and engage employees. Catalyst,
our employee survey, supports
this approach by investigating how
engaged and enabled employees
feel at the company. To encourage
participation in the survey, we ran
an internal communication campaign
featuring employees entitled ‘We are
the CATALYST for improvement’. The
redesigned survey was completed
in September 2017, across all
geographies. It now includes new
topics of interest, such as agility, while
keeping a stable base of questions to
follow year-on-year trends.

Results were released at the end of
October to managers, who then in
turn invited their teams for individual
feedback sessions. Based on the
outcomes, managers and employees
work together to improve performance
by implementing qualitative action
plans. Ambassadors and our Human
Resources function are trained to act as

facilitators, providing support through
the action planning phase and follow-up
on progress.

SGS provides a range of well-being
initiatives tailored to the specific
needs of local affiliates. These range
from flexible working hours to partial
retirement plans. In some instances,
the programmes are outcome-based
health promotions, while in others they
are campaigns to encourage positive
behaviour change (e.g. cycle-to-work
schemes). Where possible, remote
IT connections and teleconferencing
facilities enable employees to work from
home and save them from having to
travel to and from meetings.

REWARD AND INCENTIVES

Reward plays a key role in attracting,
motivating and retaining talent at SGS.
Our remuneration framework rewards
our employees for their performance,
competencies and experience, based
on local competitive conditions, and
encourages profit-sharing through
appropriate variable compensation plans,
both long-term and short-term. We offer
benefits, such as pension and healthcare
plans, in accordance with local market
practices. We regularly benchmark our
compensation packages to confirm they
are competitive in all locations around
the world.

Group-wide job architecture classifies
positions using ‘generic jobs’ and ‘job
grades’. The generic jobs (around 120)
contained in the SGS Job Catalogue are
organised into 23 job families across
five categories. Each captures the basic
nature of the job performed and the
typical skills and competencies needed.
A job grade represents the relative
weight of a job within the organisation.
This is determined using a standard and
globally recognised external methodology
(the Willis Towers Watson Global
Grading), which calculates the grade of
a job based on different factors, such as
management responsibility, knowledge
required and impact on financial
results. Classifying positions facilitates
a common language that allows us to
benchmark our compensation practices
against the external market in different
geographies, and internally between
different organisations.

ACHIEVEMENTS

The 2017 Catalyst survey achieved
an 84% response rate across 39
countries and three global teams. The
results show that 68% of participating
employees feel engaged – the same

exemplary customer survey results.
The programme has resulted in
273 inspectors being rewarded for
their achievements and has led to
external recognition for SGS in the
form of an American Chamber of
Commerce award.

OUTLOOK 2018

Our strategies moving forward will
be defined by the newly appointed
Senior Vice President of Human
Resources. This process is underway,
and includes a complete review of all
Human Resources key performance
indicators. A new global strategy will be
presented in the first semester of 2018
and will be disseminated throughout the
Human Resources function, with more
detailed strategies and plans being
defined for each area. Key programmes,
such as developing management
feedback processes and implementing
employee engagement actions based
on the 2017 Catalyst survey, will
continue, complemented by regional
and local activities.

4. INTEGRATED LEADERSHIP

level as in our previous survey in 2015.
The survey also reveals that 70% feel
enabled, which has not been measured
before as a variable in SGS. Using a
new online reporting tool, managers
can access easy-to-understand
analytics that support them in planning
and implementing changes based
on these outcomes. All participating
employees can also access individual
reports that provide specific actions,
based on their results, to improve their
work experience.

CASE STUDY:
CHINA – COOPERATION WITH
VOCATIONAL SCHOOL

SGS took a new approach to attracting
qualified talent in China and initiated
a SGS diploma programme at the
Changzhou Vocational Institute
of Engineering. The three-year
programme combines classes with
a year-long internship at an SGS site.
Currently, there are about 160 students
enrolled in the programme and the first
students will graduate in June 2018.

Throughout the year, the SGS
enterprise social network rollout
continued, encouraging employees to
learn, collaborate and innovate with
each other in real time. Employees
from around the world discussed
various topics, shared expertise and
participated in multiple campaigns,
such as how to reflect on their own
leadership styles.

To drive a culture of ongoing
performance feedback in SGS, five
certified SGS coaches delivered
90-minute training sessions to 200
employees and managers on giving
and receiving feedback. This
programme will be expanded in 2018.

Several countries have launched
or continued talent attraction and
employee development programmes.
For example, SGS Philippines started
a mentoring programme to fast track
the development of new leaders.
Beginning with a three-month pilot,
senior business leaders, including
the country Managing Director, were
partnered with mentees to exchange
ideas and share insights. Meanwhile,
the Caspian region offered sales and
business development training to 19
high-potential employees. The two-
day course, delivered by an external
provider, included modules on sales,
negotiation and client attraction.

In South Africa, SGS has developed
and launched a number of programmes
designed to make a tangible difference
to the local community while bringing
talent into the SGS business. One such
programme that started in 2017 offers
unemployed young people the chance
to work in SGS and gain a national
education certificate. Of the initial intake
of 53 young people, 72% completed
the course. Of this total, 98% were
offered contracts at SGS. In terms of
gender, 64% of the young people that
passed the course were female, giving
these women the opportunity to enter
a currently male-dominated industry.

Finally, SGS was named among the
leading employers in China in the 2017
Employer Excellence Awards and won
the 2017 Excellence in Human Resource
Management Award. Both prizes
are sponsored by 51jobs, a leading
integrated human resources provider
in China.

CASE STUDY:
BEST PERFORMANCE MANAGEMENT
PROGRAMME AWARD

Inspectors make up almost 50% of
our workforce in Peru. Setting them
specific goals is an important part of
ensuring engagement, reducing
turnover and maintaining a high level
of customer satisfaction. SGS Peru
developed a programme to recognise
performance excellence according to
five key indicators, with a bonus for

PERFORMANCE

13.04%

PEOPLE LEAVING BY THEIR OWN WILL

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

(fix-term and open-ended) contracts.

14.20

12.77

11.93

12.10

13.04

2013

2014

2015

2016

2017

NATURAL TURNOVER1

HUMAN CAPITAL
DEVELOPMENT AND
LABOUR PRACTICES

26.16%

WOMEN IN LEADERSHIP POSITIONS
(CEO -3)

Talent Development
and Recognition

SGS is a diverse and inclusive
organisation that supports all employees
in realising their potential. We strive
to treat everyone fairly and without
discrimination, while providing employees
with career development training
that enables them to meet customer
requirements and our own standards.

The SGS Business Principles, Code of
Integrity and new Human Rights Policy
all underline our commitment to diversity,
inclusion and equal opportunities, and
our employees and managers are
trained annually in the principles of
non-discrimination.

SGS employees, subcontractors, business
partners and suppliers are entitled to
work in an environment and under
conditions that respect their rights and
dignity. We also respect freedom of
association and we cooperate in good
faith with trade unions and work councils
that our employees collectively choose
to represent them within the appropriate
national legal frameworks.

All SGS policies and codes are informed
by the International Bill of Human Rights,
the International Labour Organization’s
Declaration on Fundamental Principles
and Rights at Work, the Children’s
Rights and Business Principles, the
United Nations Women’s Empowerment
Principles and the United Nations
Global Compact.

See page 35 for complete matrix.

PERFORMANCE

0.89

1.97%

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

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

2. On a constant currency basis.

0.87

0.88

0.89

0.84

0.75

2.24

2.22

2.09

1.97

1.88

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

EQUAL OPPORTUNITY RATIO

TRAINING RATIO2

DIVERSITY AND EQUAL OPPORTUNITIES

As a global business, with more than
95 000 employees worldwide, SGS is a
business with a diverse workforce. Our
employees span nationalities, cultures,
religions, generations and genders,
and we recognise the contribution that
diversity brings to our business success.
Our approach to diversity is grounded in
our Business Principles where respect is
defined as ‘making sure we treat all people
fairly’ (see page 43 for more details).

LEARNING & DEVELOPMENT

Each affiliate manages its own training
programmes locally, based on the precise
needs to the SGS business, employees
and community in that specific location.
The programmes range from initiatives
designed to give high-performing
employees the opportunity to develop
into management roles to health and
safety and technical skills training.
These programmes help keep employees
at the top of their fields.

ACHIEVEMENTS

In 2017, SGS had a 67% males and
33% females in the global workforce,
displaying a stable year-on-year equal
opportunity ratio of 0.89. The number
of women in leadership roles, which is
categorised as all positions up to three
levels below the CEO (CEO -3), was
316, representing 26.16% of all CEO -3
management positions occupied.
SGS also has a broad range of
nationalities in senior leadership roles.
Across the SGS Management Board
and Operations Council there are 16
nationalities represented.

SGS‘ training hours have increased
5.6% in 2017; however, our training
ratio has decreased in 2017 from 2.09
to 1.97. These results are mainly due to
the increase in training given through
e-learning resulting in a cost reduction, and
by hence a reduction in the training ratio.

OUTLOOK 2018

A new global human resources strategy
is expected to be agreed in the first
semester of 2018. Following this, specific
area strategies and action plans will be
defined in more detail.

In 2018, SGS will focus on creating
the best opportunities to promote and
recruit a wide and diverse range of
employees into the available roles across
the SGS Group.

4. INTEGRATED LEADERSHIP

OPERATIONAL
INTEGRITY

Operational
Integrity

See page 35 for complete matrix.

Operating safely is synonymous with
business success. At SGS, we consider
safety as critical across all our activities.
With more than 95 000 people working
in the SGS Group, we promote a ‘no
harm’ approach towards our employees
and the environment, the strategy for
which is defined by SGS’ Operational
Integrity (OI) function. By creating a
working environment that is as safe and
healthy as possible we add value to the
communities in which we operate.

OPERATIONAL INTEGRITY STRATEGY

SGS promotes a global company
culture that prioritises employee health
and safety, along with environmental
protection. Our goal is to be best in
class in Operational Integrity, with
zero incidents. To achieve this, our
OI strategy is based on seven pillars
(see pages 97–98) and is underpinned
by an OI management system aligned
to internationally recognised standards.
Each year, global strategic input is
gathered and annual OI objectives are
set, which clarify the OI vision for the
following 12 months, while ensuring
the visibility of results.

The OI team reports directly to the
CEO and deploys its strategy and
objectives through a Top-Page process,
based on the European Foundation
for Quality Management Model. This
structure allows SGS to focus on
key programmes, including incident
investigations, risk assessments,
leadership visits and best practices.

THE OPERATIONAL INTEGRITY
GLOBAL MISSION

Protect SGS employees and
stakeholders, our physical assets,
the environment and communities
in which we work and live

Accelerate our cultural change and
journey towards HSE excellence

Leverage HSE ownership, leadership
and stakeholder involvement

Improve SGS performance by
providing HSE expertise and
guidance through the deployment of
OI strategies, programmes and tools

Support full compliance with legal,
regulatory, customer and Group
HSE requirements

Leaders and managers receive specific
OI training, and regular webinars on
OI management systems and
procedures are provided for all
employees. Indicator targets and our
Behavioural-Based Safety (BBS)
peer-to-peer observation programme are
also driving behavioural change across
the organisation.

INDUSTRIAL HYGIENE AND
OCCUPATIONAL HEALTH

With a newly defined vision for SGS
employees to achieve ‘goal zero’,
whereby every employee strives to have
zero health, safety or environmental
issues, and our global OI mission, SGS

PERFORMANCE

0.23

0.40

0.58 0.60

1.10 1.11

0.38

0.27

0.23

0.65

0.53

0.40

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

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

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

Industrial Hygiene (IH) and Occupational
Health (OH) is focused on implementing
a comprehensive scope of work to
ensure these are successful.

To facilitate compliance, improve IH and
OH data management and provide the
OI team with a detailed overview of IH
and OH performance across the Group,
a process map is being introduced.
This new software solution, accessible
in 12 languages, facilitates IH and OH
data storage and privacy related to
employee monitoring samples. SGS also
continues to standardise the Personal
Protective Equipment (PPE) that is used
across all locations. This programme
collaborates with local procurement to
acquire equipment that is aligned with
global purchasing requirements and
local regulations.

ACHIEVEMENTS

By 2016, SGS had already achieved its
Sustainability Ambition 2020 to have
Lost Time Incident Rate (LTIR) and Total
Recordable Incident Rate (TRIR) figures,
against a 2014 baseline. In 2017, we
have reduced them by 14.5% and by
24.8% respectively against 2016.

Operational Integrity objectives, which
are incentivised down to one level below
Managing Directors, are becoming part
of everyday processes and are often
being extended to include two levels
below Managing Directors.

Another achievement in 2017 was the
development of Incident Compliance
Scores for all incidents reported across
the SGS Group. These scores help us

identify countries where OI resources
need to be improved. Once identified,
improvements are made by training
Root Cause Analysis (RCA) Experts to
conduct both incident and health and
safety investigations. Additionally, our
risk assessment process continues to
be enhanced through the adoption of
learnings from our assessment of our
standard operating procedures. In 2017,
these covered the top operational risks
for each of our main line of business.
Likewise, our OI management system
processes are extended and updated
regularly. During the year, 20–30
procedural documents were reviewed,
and new procedures for internal audits
and Behavioural-Based Safety (BBS)
schemes were launched.

OUTLOOK 2018

In 2018, our programme of leadership
visits across all SGS sites will continue.
This will be complemented by the
revised app, OI Lead Adviser, that
provides information allowing leaders
to review OI performance. These
results will be enhanced through the
deployment of the new SGS OI Culture
Index that measures the development
of the safety culture across the
company. Version 2.0 of Stellar, our
self-assessment audit tool, will also be
rolled out, with better alignment to our
latest OI processes, procedures and
management requirements.

SGS will continue to push OI objectives
through the incentive plans to more
managers and increase the number

of global OI employees to develop
our OI skills and resources. SGS also
aims to train a total of 40 auditors across
the network to improve the volume
and quality of our internal audits. The
ongoing deployment of BBS processes
across the network will complement
these audits. Incident investigations
and risk assessments will continue
to be developed, with the further
improvements being used to update our
standard operating procedures.

CASE STUDY: APPLYING OI SAFETY
TRAINING IN REAL LIFE

The value of conducting regular OI
training has perhaps never been more
clearly demonstrated than by our
OI team in Mexico City. On 19
September 2017, within an hour of
SGS completing its annual earthquake
evacuation drill, Mexico City was hit by
an earthquake with a magnitude of 7.1.
on the Richter Scale. SGS immediately
put the training into practice, safely
evacuating all employees, who were
then sent home to check on their
families. With all families thankfully
accounted for, our employees then
began to regroup at the office,
before leaving en masse to support
communities in areas that were
harder hit, applying their safety
knowledge, an first aid and PPE skills
in the rescue efforts.

19.57

67 153

17.22

19.57

18.21

54 963 55 342

50 005

12.62 12.47

10.72

39 381

67 153

1. Total number of lost workdays per number of lost

workday cases.

22.04

18.93

19.20

16.64 17.22

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

OPERATIONAL INTEGRITY
TRAINING HOURS (PER EMPLOYEE)

PARTICIPANTS IN THE SAFETY
MONTH INITIATIVE

SEVERITY RATE1

4. INTEGRATED LEADERSHIP

SGS SEVEN
OPERATIONAL
INTEGRITY PILLARS

PILLARS

APPROACH

2017 ACHIEVEMENTS

LEADERSHIP

• Operational Integrity (OI) strategy and

• 21 leadership visits were conducted per

performance is reviewed quarterly by the
Executive Operational Steering Committee,
chaired by the Chief Executive Officer

• OI management across the network is
guided by the Extended OI Steering
Committee, composed of OI, business
and regional managers

100 employees

• Leaders visited on average 7 sites each,

spread over the year

• OI Lead Adviser app (launched in 2016
to guide leaders through visits) was
made available across the business
and synchronised with the SGS Crystal
management tool

COMMUNICATION

• Employee awareness is raised through a

• The 15 Rules for Life are now available

number of initiatives: the Global Operational
Integrity campaign; 15 Rules for Life; quarterly
campaigns on specific OI topics; and an annual
themed ‘Safety Month’

• Outcomes for the 15 Rules of Life and Safety
Month initiatives are systematically tracked

in 14 languages

• A global behaviour-change campaign

was rolled out with a suite of emotional
motivational messages

• New quarterly campaigns were launched,

starting with the topic of fire safety

• ‘Your behaviour keeps you safe’ was the
theme for Safety Month in September

TRAINING AND
AWARENESS

• Chief Operating Officers and Executive Vice
Presidents are briefed for leadership visits

• 21 was the average training hours per

employee, in line with our target of 15 hours

• 15 Rules for Life training is delivered

• More than 80 000 employees completed

as e-learning and face-to-face sessions

• OI awareness training for managers comprises

the Rules for Life e-learning since its launch
in 2015

12 modules of e-learning

• Since Q4 2016, around 2 500 managers

• Safety talks communicate best practices
on specific topics across businesses
and operations

• The operational, safety and efficiency benefits
of In-vehicle Monitoring Systems (IVMS) are
shared with the regions to encourage installation

completed the e-learning awareness training
for managers, with a further 1 400 working
through the modules

• 3 500 SGS fleet cars are now equipped

with IVMS

• The number of kilometres driven by company
vehicles are being measured to identify and
prioritise high-risk countries for IVMS installations

PILLARS

APPROACH

2017 ACHIEVEMENTS

RESOURCES
AND SKILLS

• Company-wide, the number of Operational
Integrity professionals is being increased

• The skillset of OI professionals is under
review and a competency framework is
being developed

• The Root Cause Analysis (RCA) Experts

network was extended in 2017 to include
23 countries and 72 experts

KEY PERFORMANCE
INDICATORS

• All incidents and hazards are captured through

• Our Lost Time Incident Rate (LTIR) and Total

a data-driven, multilingual interface that delivers
regulatory and client-mandated reports

Recordable Incident Rate (TRIR) both dropped
to 14.5% and 24.8% respectively

• A Safety Data Sheet Management System

• 42 283 new Safety Data Sheets were

provides up-to-date information on chemical
hazards in laboratories

produced in 2017

AUDITS
AND COMPLIANCE

• SGS laboratories, offices and facilities are

• 38 internally certified Health, Safety and

audited for health and safety risks as well as
environmental and chemical impacts

Environment auditors carried out 44 audits

HEALTH, SAFETY AND
ENVIRONMENTAL
SELF-ASSESSMENTS

• Regular self-assessments of SGS

• 590 sites completed or updated the

sites provide an overview of potential risks
and controls

• Sites work through 400 questions, broken
down into 15 categories and as a result are
classified as low, medium or high risk

self-assessment

• Feedback from sites has been collated to
develop a clearer, more consistent set of
questions and online inputting tool that will
be launched in 2018

4. INTEGRATED LEADERSHIP

ENVIRONMENT

To protect our planet for
future generations, it is
essential that businesses
reduce their environmental
impact. SGS does this
by following a carbon-
neutrality strategy, seeking
to use resources efficiently
and continually working to
deliver sustainable value
for society.

ISO 14064 – GREENHOUSE
GAS ACCOUNTING
AND VERIFICATION

Our climate change
programme helps with
the verification, reporting
and trading of greenhouse
gas emissions.

ENVIRONMENT,
HEALTH AND
SAFETY

ENERGY

Energy and
Climate Change

See page 35 for complete matrix.

Climate change has widespread
economic, political, and social
consequences that affect not only
individual communities but also the way
SGS does business. In 2017, we saw
a number of tropical cyclones hit the
Caribbean, as well as North and Central
America. While weather patterns such
as these are not uncommon in this
region, the intensity of the storms is
believed to be connected with climate
change. As is the extent of the 2017
flooding in South East Asia.

As a global company, SGS is concerned
about the potential impact of climate
change and conscious of our role in
contributing to international mitigation
efforts by reducing our carbon emissions
and guiding other businesses in doing
the same. Our target of reducing our
CO2 emissions (per full-time employee
and by revenue) by 20%*, as part of
our Sustainability Ambitions 2020,
demonstrates our proactive approach
in this area.

Our strategy for achieving our targeted
CO2 reductions begins with reducing
our energy consumption at the source.
The main sources of SGS’ emissions
are electricity (19% of total emissions),
transport fuels (67% of total emissions)
and non-transport fuel (14% of total
emissions). Any energy that we still
consume after the reductions is then
compensated by our offsetting strategy.

ELECTRICITY AND
NON-TRANSPORT FUELS

The energy used in the over 2 400 SGS
offices and laboratories worldwide
accounts for about 60% of our global
consumption. The SGS Energy
Efficiency in Buildings (EEB) programme
defines the process through which
we evaluate and improve the energy
efficiency of buildings that are owned
or leased by SGS. There are two parts
to the approach: (i) the review and
development of an energy-efficiency
action plan for existing SGS premises,
and (ii) an environmental assessment
applied to the design, construction
and/or refurbishment of SGS buildings.

The SGS Green Building Guidelines,
developed by SGS, provides a rating tool
to assess new or existing buildings. The
Guidelines have an expanded range of
KPIs covering energy, waste and water
and define the minimum requirements
in areas such as lighting-system energy
performance and water consumption.

Through the on-going Spot the Orange
Dot campaign, employees are also
encouraged to exhibit environment-
friendly behaviours. Since the campaign
began in 2013, around 40 500 employees
have improved their energy efficiency
and waste management impact.

*Against a 2014 baseline.

PERFORMANCE

902

544

RENEWABLE ENERGY

886

902

795

809

846

526

544

477

492

460

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

TOTAL ENERGY (GWH)

ELECTRICITY AND
NON-TRANSPORT FUELS (GWH)

100

4. INTEGRATED LEADERSHIP

Limiting our IT energy consumption
is the third focus area in our efforts to
reduce our electricity consumption. By
rationalising the number of data centres
we have in the SGS Group, we are
reducing the CO2 emissions associated
with our electricity consumption by
approximately 2%. The Group currently
operates 180 data centres, which house
3 500 servers. By 2019, 80% will be
moved to the cloud.

VEHICLE FUELS

SGS strives to continually reduce
company car fleet emissions.
Our Vehicle Emissions Policy, which set
a diminishing annual CO2 emission limit
for the 2016–2020 period for our car
fleet, Ensures that all newly purchased or
leased cars emit fewer average grammes
of CO2 per km annually than in the prior
year. By 2020, average CO2 emissions
per km for our worldwide fleet shall
not exceed 95 grammes. This policy
promotes the use of vehicles that qualify
as low CO2-emitting and that achieve
maximum fuel efficiency.

ACHIEVEMENTS

The SGS Energy Efficiency in Buildings
(EEB) programme, which was redefined
in 2017, is now focused on the top 50
SGS countries for buildings of more than
1 000m2. This equates to almost 400
buildings in total. From this, a pilot group

of 100 buildings across 30 countries, each
larger than 3 000 m2, was identified and
assessed in terms of energy consumption.
Further energy audits are being performed
on 46 of them.

This year, we are going to invest
353.6 GWh of renewable energy
mechanisms (Guarantees of Origin
and International Renewable
Energy Certificates).

As a result, SGS has implemented
energy conservation measures in
buildings around the world. For example,
in Madrid, Spain, reflective films have
been installed on windows, aiming
to reduce the cooling consumption.
In India, SGS is working on improving
heating, ventilation and air conditioning
energy efficiency, while in Chile, we
are investigating an increase in the use
of renewable energy options. In China,
we continued to improve our electricity
usage by switching to LED bulbs, while
a Green Building Certification for existing
buildings in emerging countries (EDGE
certificate) is currently being piloted in
Accra, Ghana.

Similarly, new buildings in Indonesia and
South Korea were assessed against the
SGS Green Building Guidelines and were
then designed accordingly to meet our
energy efficiency requirements.

The US and Canada were two of
the three new countries that rolled out
the Spot the Orange Dot behaviour
change campaign in 2017, with
employees across five sites embracing
the initiative in their actions both at
work and at home.

Additionally, our data centre
rationalisation project was successfully
piloted in Thailand, Benelux and Chile in
2017, with all servers in these locations
being moved to the cloud.

OUTLOOK 2018

SGS is continually improving its energy
efficiency by switching to renewable
energy sources, deploying low-emission
fleet cars and making sure both
new and existing buildings meet the
high standards outlined in the Green
Building Guidelines.

The scope of our EEB programme will
be widened further, with an increased
number of energy audits performed to
support building analyses. Once the pilot
phase is complete, the programme will
be extended over the coming years to
all the 400 focus buildings. The Spot the
Orange Dot campaign will be rolled out
to a further three to five countries, with
quarterly technical notes completing
the suite of activities designed to drive
the energy-efficiency culture across
the network. All of these measures
are steps towards SGS’ environmental
Sustainability Ambitions 2020. As a
signatory of the RE100 initiative,

PERFORMANCE

357

363

354

360

357

335

332

363

333

266

219

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

VEHICLES FUELS (GWH)

RENEWABLE ENERGY (GWH)

101

SGS is also committed to using
100% renewable electricity in all
facilities by 2020.

From an IT point of view, it is estimated
that the data centres and servers that
will be moved to the cloud over the next
two years will cut almost 4 500 tonnes
of CO2 emissions.

CASE STUDY:
IMPROVING ENERGY CONSUMPTION
IN NORTH AMERICA

The SGS Energy Efficiency in Buildings
programme helped six SGS North
America locations to improve their
energy consumption. After on-site
assessments, recommendations were
made for easy-to-implement actions.
For example, four sites are now
evaluating options for new energy
efficient lighting systems. Encouraged
by the positive feedback from
employees and site managers, further
buildings will be assessed in 2018.

102

4. INTEGRATED LEADERSHIP

CARBON
OFFSETTING

Energy and
Climate Change

See page 35 for complete matrix.

Since 2014, SGS has been aiming to
reduce CO2 emissions at source with
its Energy Efficient Buildings (EEB)
programme and offsetting any remaining
or unavoidable emissions. This carbon
neutral strategy bridges the gap
between the current reality and a more
sustainable future.

CARBON-OFFSETTING PROJECTS

Pursuing carbon neutrality allows
us to assign a clear cost to carbon
and ensures that each affiliate takes
responsibility for their emissions,
by requiring them to pay for their
carbon offsetting. We look for Clean
Development Mechanism (CDM)
approved carbon-offsetting projects
that directly benefit communities where
we have an impact. This also supports
our community investment strategy,
allowing us to bring positive benefits
to local communities around the world.
At the same time, we are able to
support sustainable economic growth,
supply clean energy at a local level and
protect the environment by reducing
reliance on fossil fuels.

ACHIEVEMENTS

Investment in renewable energy
projects, energy efficiency measures
and green electricity supply continued
in 2017. In addition to the renewable
energy and carbon credits purchased in
2017, SGS also invested in five voluntary
offset schemes – in China, India
and Zimbabwe – and purchased a

total of 187 000 credits. In China,
50 000 credits were gained supporting
a group of hydroelectric power plants
in the Chongqing, Yunnan, Sichuan
and Guizhou provinces. The project
contributes to mitigating greenhouse
gas emissions by supplying clean energy
across rural south-western China.
42 000 credits were obtained through
an investment in the Nueva Aldea
Biomass Power Plant in Chile and a
further 5 000 credits were purchased
through the Danjiang River Solar
Cookers. The latter project has
far-reaching benefits, improving the
indoor air quality and living conditions
of 100 000 rural Chinese households.
In China as well, SGS invested
89 000 credits by supporting a
Biomass Cogeneration Project in
Hubei Province, while in Zimbabwe
1 000 credits were purchased through
the Kariba REDD+ Project.

OUTLOOK 2018

SGS will continue its carbon offsetting
programme to neutralise any remaining
emissions. Besides the credit purchases,
we encourage our affiliates to continue
reducing their carbon footprint associated
with business travel by choosing
teleconferences and video calls whenever
possible. Working with suppliers to
ensure all procurement activities are
conducted in an environmentally and
socially responsible manner is another
activity that will further contribute to our
ongoing commitment to carbon neutrality.

PERFORMANCE

176

27.70

1. On a constant currency basis.

291

214

203

187

176

55.53

38.88

35.78

31.01

27.70

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

TOTAL GHG EMISSIONS
(THOUSAND TONNES CO2e)

CARBON INTENSITY BY REVENUE1
(TONNES CO2e / MILLION CHF)

103

CASE STUDY:
GUIDING CUSTOMERS IN REDUCING CARBON INTENSITY

In a two-year study of our Agricultural and Industrial customers, we assessed what proportion of their reductions in CO2 emissions
had been a direct result of our services. SGS Precision Farming Services provided one specific example, while SGS Pipeline
Integrity Services was monitored in the Industrial sector, saving 1 098 514 and 125 585 tonnes of CO2 equivalent respectively in
2017. SGS also provides ISO 50001 Energy Management Certification, helping customers to put the right management system in
place to improve their energy efficiency, contributing to saving estimations of around 7 850 000 tonnes of CO2 equivalent in 2017.

INVESTMENT IN RENEWABLE ENERGY INITIATIVES (TO MITIGATE OUR 2016 CO2 EMISSIONS)

NORTH AMERICA

80.60 GWH

US I-RECs

BRAZIL

3.30 GWH

I-RECS from
Brazilian Hydro

MEXICO AND
COSTA RICA

1.70 GWH

I-RECs from
solar PV in
Honduras

1.88

3.61

2.57

2.36

2.08

1.88

2013

2014

2015

2016

2017

CARBON INTENSITY BY EMPLOYEE
(TONNES CO2e / FTE)

EUROPE

75.00 GWH

Guarantees
of Origin
certificates

CHINA AND
HONG KONG

73.80 GWH

Chinese
I-RECs

TAIWAN

34.30 GWH

Taiwanese
I-RECs

TURKEY

5.80 GWH

I-RECs from
Turkish
hydropower

ARGENTINA
AND CHILE

13.60 GWH

I-RECS from
Chile Biomass

INDIA AND
BANGLADESH

18.00 GWH

I-RECS from
Indian Hydro

VIETNAM,
THAILAND AND
CAMBODIA

9.40 GWH

from Vietnamese
and Malaysian
I-RECs

MALAYSIA AND
SINGAPORE

7.50 GWH

I-RECs from
Malaysia Hydro

I-RECs: International Renewable Energy Certificates.

104

4. INTEGRATED LEADERSHIP

COMMUNITY

Creating a positive,
measurable and lasting
impact on the local
communities where you
operate is synonymous
with good business
practice. SGS achieves
this by welcoming local
talent and engendering
a company culture of
giving back. Through
projects that are aligned
with the United Nations
Sustainable Development
Goals and focused on
education, empowerment
and environmental
sustainability, we
encourage our employees
to volunteer and act in
ways that support the
growth of society.

E-GOVERNMENT
PLATFORMS

SGS develops e-Gov
platforms that promote
access to and transfer
of information.

GOVERNMENTS
AND INSTITUTIONS

105

COMMUNITY
PROGRAMMES

17 086

COMMUNITY HOURS

Investment in
Local Communities

See page 35 for complete matrix.

Increasing our investment in
communities around the world by 30%*
is one of our Sustainability Ambitions
2020. In working towards this goal, we
are facilitating responsible business
operations and helping to address
development challenges.

SGS’ community programmes
are divided into three core pillars:
empowerment, education and
environmental sustainability. They are
selected and managed in line with the
Group Community Policy and Guidelines
and are managed at a global and local
level. The majority are led by our
affiliates through collaborations with
local organisations.

To evaluate the effectiveness of our
programmes, we use our Group
Community Survey, which aligns with
the London Benchmarking Group
criteria. This survey serves as our impact
measurement tool and includes KPIs
that measure the type of philanthropic
activities covered as well as the
project duration, hours of volunteering,
type of beneficiaries and number of
people impacted by the projects, among
other items.

ACHIEVEMENTS

In early 2017, the Community Policy and
Guidelines were revised to align with the
SGS Business Principles, Human Rights
Policy and our Sustainability Ambitions
2020. During the year, there were more
than 305 SGS community projects in 45
countries. Of these, 28 involved working
with customers and 4 involved suppliers.

Employee volunteering is an important
part of SGS community programmes.
Every employee can take one volunteer
day per annum. As a result, in 2017,
many employees engaged in social
projects in the communities or sites
where they worked and volunteered for
more than 17 000 hours.

For example, a targeted programme at
our head office in Geneva introduced
monthly charity lunches focused on
stopping child trafficking and exploitation
in Cambodia. Contributing employees
paid a little extra for their lunch to
support 19 children between the ages of
7 and 18 through school, offering them
a way out of poverty and exploitation.
In Portugal, SGS ran a programme to
help empower vulnerable girls by
setting up a reading space at an
emergency shelter, while in Mexico,
SGS delivered social responsibility
programmes in schools.

*Against a 2014 baseline.

PERFORMANCE

1 270

1. Including cost of volunteering hours

(on a constant currency basis).

305

1 270

1 186

1 046

846

759

352

356

305

217

222

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

INVESTMENT IN COMMUNITY1
(THOUSAND CHF)

COMMUNITY PROJECTS

106

4. INTEGRATED LEADERSHIP

113

EMPOWERMENT PROJECTS

EDUCATION PROJECTS

ENVIRONMENTAL
SUSTAINABILITY PROJECTS

OUTLOOK 2018

SGS will continue advancing the
Sustainable Development Goals
by promoting projects that support
education, empowerment and
environmental sustainability. A further
SGS community goal for 2018 is to
encourage more local volunteering.
Community managers around the world
will continue to promote activities,
events and initiatives through the SGS
internal social network. An internal
campaign will also help raise awareness
about existing volunteering programmes
across the SGS global network.

Broader programmes, covering a range
of activities, took place in Chile, where
an initial sustainability workshop kicked
off a series of volunteering efforts
alongside NGOs such as supporting
in environmental emergencies and
promoting education for at-risk youths.
In South Africa, employees volunteered
at least 67 minutes of their time on
Mandela Day – one minute for each year
of Nelson Mandela’s public service.

CASE STUDY:
SUPPORTING HOUSTON

In the aftermath of Hurricane Harvey,
SGS North America helped employees
in Houston, Texas clean up and
rebuild. The efforts on the ground
were accompanied by fundraising in
partnership with the Giving Circles Fund,
a non-profit organisation focused on
disaster relief. With the money raised, a
volunteer base of SGS employees spent
two weeks supporting their Houston-
based colleagues and their communities.

EMPOWERMENT

EDUCATION

Our empowerment programmes
support physical, emotional, intellectual
and economic empowerment by
providing access to healthcare,
counselling, mentoring, microcredit
and enterprise schemes.

Our education projects improve
access to all levels of schooling and
promote informal learning in the form
of employment training schemes and
skills workshops.

CASE STUDY:
MICROCREDIT IN INDIA

An example of our empowerment
programmes this year included
participating in the Terre des Hommes’
Solidarcomm campaign, at our head
office in Geneva. During this campaign,
190 used mobile phones were
collected, refurbished and sold, with
the proceeds going to a microcredit
programme in India that SGS has
supported since 2014.

CASE STUDY:
SGS ACADEMY TRAINING FOR
UNEMPLOYED YOUNG PEOPLE

In South Africa, we initiated a
programme to train unemployed young
people. The students started by taking a
two-day SGS Academy training course:
the SGS RISKSTAR qualification in
safety, health and environment. They
then entered an assessment phase and
finally the trainees were offered a three-
month work experience placement at
the Eskom Grootvlei power plant.
24 trainees were identified and
enrolled in the programme, with
20 being offered the final internship,
following successful completion of
the SGS Academy course.

107

ENVIRONMENTAL SUSTAINABILITY

Our environmental initiatives help
reduce or eliminate reliance on
non-renewable and scarce resources,
such as fossil fuels and water.

CASE STUDY:
ENVIRONMENTAL MONITORING

In Turkey, working together with
the Protection and Promotion of the
Environment and Cultural Heritage
Foundation, 25 SGS volunteers
learnt how to train others in nature
awareness and natural heritage.
Using these skills, the volunteers
visited schools and ran four workshops
attended by a total of 100 children.
The volunteers showed the children
how they could find different colours
and textures in nature, discover plants
and trees, and locate animals using
animal footprints and other methods.

MATERIAL TESTING

SGS tests the chemical,
mechanical and physical
properties of sport and
leisure products.

CONSUMER
AND RETAIL

108

OPERATING OUTCOMES

109

SOIL FERTILITY TESTING

SGS tests soil for nutrients,
pH or salinity to increase yield
and protect the environment.

AGRICULTURE,
FOOD AND LIFE

4. INTEGRATED LEADERSHIP

Having moved through
the transformative phase
of our business activities,
our impact on our capitals
can now be measured as
outputs and outcomes.
We measure the value of our
supply chain, direct operations
and services to society.

111

HOW WE
MEASURE OUR
VALUE TO SOCIETY

Our direct operations are assessed
by the flow of our capital stocks.
These are identified and described
on pages 48–50. Each stock is
conceived as a store of economic
benefits. Throughout the year, the
capitals (and their store of benefits)
undergo change, according to
levels of use and investment
flows. This determines whether
a capital stock appreciates or
depreciates. For example, if
employees (human capital) work
excessive hours (use), fatigue
(depreciation) sets in, which
eventually leads to reduced
labour productivity. Separate
methodologies are used to
measure the value we create for
society through our supply chain
and services.

Since each capital flow can be distilled
into measurable indicators, we can
theoretically assign an economic
valuation to our capitals to consistently
translate indicator performance into
financial terms. Negative flows
(i.e. depreciation) can then be translated
into costs and positive flows
(i.e. investment and appreciation)
translated into benefits.

The sum of all investments and the
appreciation of the indicator values
minus all the depreciation results in
our Value to Society (V2S) figure.
More detailed technical information on
how the calculations are performed is
supplied in our Sustainability Report
(www.sgs.com/cs-report2017).

The translation of indicator performance
into financial terms allows for comparison,
aggregation and integration with
conventional management methods and,
potentially, with financial accounting
systems. We believe this will prove
extremely supportive of our integrated
leadership approach and consequently,
our strategic decision-making in
future years.

At present the model is not intended to
be a financial accounting tool. Instead, it
will help us understand and monitor our
path towards achieving our ambitions
in a comprehensive way. With this new
approach, we are also embracing the
strategy encouraged by the International
Integrated Reporting Framework to
create a cohesive and comprehensive
view on how our material factors
generate value over time.

112

4. INTEGRATED LEADERSHIP

MEASURING
OUR DIRECT
OPERATIONS

SGS’ sustainability efforts have long been based on strategic KPIs, which were
developed following a study of our material topics (see pages 49–50).

These KPIs allow us to measure our success over time, and we have used them
to develop the relevant value to society indicators for our direct operations.
Subsequently, by using methods such as value transfer, replacement costs, social ROI
and social cost of carbon, we have been able to develop a mechanism that apportions
a monetary value to them.

While our long-term aim is to offer a holistic picture of the flows of all capitals, for now,
we have focused on those material topics with the available data and research literature
to develop the monetisation model. Our materiality principles will guide the inclusion
of new indicators in the future.

OUR VALUE TO SOCIETY FROM DIRECT OPERATIONS*

+ 458 MIO

+ 4 026 MIO

- 29 MIO

+ 3 77O MIO

- 9 MIO

- 16 MIO

- 148 MIO

Financial
capital

Natural
capital

Human
capital

Intellectual
capital

Manu-
factured
capital

Social and
relationship
capital

Value
to society

* Based on 2016 figures.

113

MEASURING
OUR SUPPLY
CHAIN AND
SERVICES

1 068

ESTIMATED ECONOMIC VALUE TO
SOCIETY OF OUR SUPPLY CHAIN
(CHF MILLION)*

352

ESTIMATED VALUE TO SOCIETY
OF OUR SOCIAL RESPONSIBILITY
AUDITS (CHF MILLION)*

248

ESTIMATED VALUE TO SOCIETY
OF OUR ENERGY MANAGEMENT
CERTIFICATION (CHF MILLION)*

SGS’ value to society extends beyond our direct operations. We also have an impact
through our supply chain and services. We call this our ‘enabled value to society’.

Through our procurement of products
and services, we indirectly contribute
to our suppliers’ positive and negative
impact, for example, their payments of
taxes and release of greenhouse gas
emissions. To quantify these indirect
impacts and their associated economic
costs and benefits, we employ extended
input-output analysis. This extended
model enables us to calculate additional
parameters such as the risk of modern
slavery and child labour within the
global supply chain. More information
about the indicators used to model
our impact in each capital and our
valuation techniques is provided
in our Sustainability Report
(www.sgs.com/cs-report2017).

Another important value to society
comes from the services we deliver.
Consequently, we are working on the
development of a methodology that
can capture the total net impact that
SGS enables through its services.
We are already estimating some of
our services with the intention of
calculating the value generated from
our goods and services.

Mirroring the economic attribution
method used with suppliers, the
proposal is that SGS will take credit for
a customer’s contribution equivalent
to the economic value of the service it
provides (relative to the economic value
of all other customer inputs). We have
commissioned several case studies to
develop our approach to these figures
(see right) but we cannot yet provide full
results across all services.

HUMAN CAPITAL CASE STUDY:
SOCIAL RESPONSIBILITY AUDITS

Social Responsibility Audits detect
and assess the controls in place to
prevent issues such as forced labour,
discrimination and sexual harassment
in the workplace. They include audits
against third-party standards and
corporate codes of conduct, corrective
action monitoring and other tailored
audits. SGS analysed the socio-
economic benefits of reducing the
prevalence of forced labour, exploitation,
discrimination and sexual harassment.
The avoided social costs equate to a
value to society of CHF 352 million*.

NATURAL CAPITAL CASE STUDY:
ENERGY MANAGEMENT CERTIFICATION

ISO 50001 Energy Management
certification helps organisations save
money and conserve resources while
tackling climate change through energy
efficiency and the development of an
energy management system. SGS has
helped around a thousand companies
achieve ISO 50001 certification, resulting
in an estimated reduction in CO2
emissions that equates to an estimated
value to society of CHF 248 million*.

More case studies are available
in our Sustainability Report
(www.sgs.com/cs-report2017).

* Based on 2016 figures.

114

BUSINESS SUCCESS

115

PRECISION FARMING

SGS’ precision farming
services equip farm
managers with information
to maximise productivity.

AGRICULTURE,
FOOD AND LIFE

4. INTEGRATED LEADERSHIP

WHAT MAKES
US STAND OUT?

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

THE TIC
INDUSTRY
UNMASKED

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.

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 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.

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.

117

THE TIC MARKET IS
WORTH AN ESTIMATED
USD 200 BILLION.
BY GROUP REVENUE
AND MARKET SHARE,
SGS IS THE LARGEST
INSPECTION, VERIFICATION,
TESTING AND CERTIFICATION
COMPANY IN THE WORLD.

118

4. INTEGRATED LEADERSHIP

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’ workforce.

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.

119

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 to reduce risks,
speed up time to market and to
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.

120

The scale of our global footprint is a critical competitive advantage for
SGS. We have expertise everywhere our customers need it. We use
our business and industry knowledge, combined with our local country
insights, to present a single global network to our customers.

NORTH AMERICA

4. INTEGRATED LEADERSHIP

NETWORK

NORTH EAST ASIA

SOUTH AND
CENTRAL AMERICA

WESTERN EUROPE

NORTH AND
CENTRAL EUROPE

SOUTH EAST
ASIA PACIFIC

EASTERN EUROPE
AND MIDDLE EAST

AFRICA

VALUE TO SOCIETY

The value we create for society through our integrated leadership model is a major source of our
success. What do we mean by society? Specifically, it is the value created both for and through
our stakeholders.

EMPLOYEES
AND SUPPLIERS

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 our suppliers financial
strength that adds stability
to their businesses and brings
indirect benefits to society.

INVESTORS

CUSTOMERS

We create value for our investors
by being a robust, sustainable
business with a 140-year track
record. Our transparency, strong
leadership and commitment to
long-term sustainability make us
a sound investment.

We provide our customers
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.

GOVERNMENTS
AND INDUSTRIES

We add value to the industries
we operate in by driving supply
chain innovation. We provide
governments with tax revenues,
create employment and train
local people. We also provide
services that directly support
governments around the world.

CONSUMERS

Consumers benefit from
the services we provide our
customers because they are
able to trust the products and
services they buy. From a
product’s quality and safety
to its authenticity, our services
help protect consumers.

COMMUNITIES
AND THE PLANET

We help nurture the communities
we operate in and strongly
support disaster relief efforts.
Our sustainability endeavours
are recognised as being among
the very best – both regionally
and in the TIC industry.

123

GOOD SPA PRACTICES

SGS’ sampling and
analysis can help to reduce
the risk of contamination
with dangerous
waterborne bacteria.

ENVIRONMENT,
HEALTH AND
SAFETY

4. INTEGRATED LEADERSHIP

ADDING VALUE
TO SOCIETY

Traditionally, acts such as creating
employment, paying taxes, serving
customers and making returns to
investors were perceived to be at
the heart of a company’s interaction
with society. Increasingly, businesses
have begun to acknowledge that their
engagement with society is now much
broader and includes issues such as
their impact on local communities and
the natural environment.

SGS takes a very proactive approach
to this point. Rather than working to
minimally acceptable standards, we
actively seek to have a positive impact
through our activities. Value to Society
is how SGS describes the value that
it creates beyond its financial return.
It is a notion which will increasingly
become part of our daily approach
to doing business.

HOW SGS ADDS VALUE

SGS can add value to society in three
principal ways. It can create direct
value through its own operations and
‘enabled’ value through both its supply
chain and services.

Our own operations can benefit society
in a number of ways, for example by
creating employment and training, by
being carbon neutral, by giving staff
time off to volunteer for community
projects and by providing solid returns
to investors. On occasions in 2017, we
have undoubtedly created value, simply
by being a good neighbour in times of
difficulty (see Mexico City and Houston
case studies on pages 96 and 107).

SGS also adds value through its supply
chain, for instance by creating indirect
employment, prioritising ‘green’ or local
suppliers, or ensuring suppliers match our
own standards of integrity through our
Supplier Code of Conduct. Our greatest
impact almost certainly comes through
the multiplier effect that is generated by
our services to our customers.

SGS’ VALUE TO SOCIETY
MULTIPLIER EFFECT

Being a TIC industry firm, most of our
services inherently benefit society. For
example, we often help customers
verify that their products and services
are at the expected quality levels. This
means that end consumers can safely
enjoy these products, knowing that they
are fit for purpose. Testing the paint on
children’s toys to check that it is not
toxic and potentially harmful to children’s
health is a perfect example of this in
practice (see consumer case study on
page 126).

Considering that this service could
be performed for some of the largest
toy manufacturers in the world, with
products being shipped across the
entire planet, you can see how our
services can substantially amplify the
value we create for society, going far
beyond the benefits created by our own
operations. Technically we refer to this
difference as our ‘direct’ (operational)
and ‘enabled’ (supply chain and
services) value to society.

CASE STUDY:
UNCLE BEN’S® RICE – THE MULTIPLIER
EFFECT IN ACTION

UNCLE BEN’S® Rice, produced by Mars
Inc., is the world’s largest global rice
brand. UNCLE BEN’S® have committed
to an ambitious goal of sourcing
100% of their rice sustainably by 2020
(working to Sustainable Rice Platform
standards). While the brand is working
closely with World Wildlife Fund (WWF)
and UN Environment to make this
possible on the ground, they are also
working with SGS and our strategic
technology partner Transparency-One
(in whom we hold a 20% stake), to
ensure product transparency throughout
their supply chain. Ultimately, we are
helping the brand ensure that the
processes they are setting up are
optimal and working properly. As a
result, we can reasonably say that
we are enabling them to achieve their
2020 ambitions and that they are giving
us the chance to massively amplify our
own value to society.

125

VALUE TO SOCIETY MULTIPLIER EFFECT

R E
FIR E H

P R E V E N T I N G U SE
O F R E S T R I C T ED
S U B S T A N C E S

POTENTIALLY
LIFE SAVING

E
Z

C
A

E R

CUSTO M

CE OF MIND
R PARENTS

A
E
FO
P

Y
L
L
A
I
T
N
E
T
O
P

G
N
I
V
A
S
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F
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L

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A

F M
I
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N

F
I

T
A
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C
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S

C
T
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D

N
G

U
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O
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R
E
S

P
R
E
V
E
N
T

S
U
B
S

T
A

R P

E O
A

F MIN
E
NTS

SGS SERVICE
TOY TESTING

Y
L
L
A
I
T
N
E
T
O
P

G
N
I
V
A
S
E
F
I
L

U S TO MER

D S

C E D
Z
A

U
D
E H

R
F I R

POTENTIALLY
LIFE SAVING

PR E V E N T I N G U S E
OF R E S T R I C T E D
SU B S T A N C E S

S
T

PEACE OF MIN
FOR PAREN

CASE STUDY:
TOY TESTING

Parents need to be confident that the toys they buy for their children are safe. The idea of a child being poisoned by toxic paint
or choking on a faulty part can be a genuine concern. Someone has to check that toys are safe and meet national and regional
regulatory standards, particularly when they are produced in other countries. SGS fulfils this need: we test toys for electrical safety
to prevent shocks and burns. We check for the use of hazardous substances, as these can be dangerous for children to swallow
or suck. We cover major safety issues, such as the risk of choking, strangling, entrapment, cuts by sharp parts or injury by
projectiles. We also conduct flammability testing on fabrics so that if a toy does catch fire, a child has time to either drop it or climb
out of it before serious injury occurs.

126

EMPLOYEES AND SUPPLIERS

We develop our workforce and
strengthen suppliers.

4. INTEGRATED LEADERSHIP

MAKING A
DIFFERENCE

SGS creates value to society
through its key stakeholders: its
employees, investors, customers,
governments and industry,
end-consumers and the planet.
This is outlined in more detail
on the following pages.

CONSUMERS

Our services help protect
consumers of all ages.

COMMUNITIES AND THE PLANET

We support local communities
and the environment.

INVESTORS

Our investor relations are
solid and transparent.

GOVERNMENTS AND INDUSTRY

Our services support governments
and industries around the world.

CUSTOMERS

We increase business’
efficiency and profitability.

4. INTEGRATED LEADERSHIP

VALUE FOR
EMPLOYEES
AND SUPPLIERS

SGS benefits its employees by ensuring a stable work environment, where their
contributions are welcomed, their effort is recognised and their talent is nurtured. As
a global company, we offer opportunities for our employees to advance their careers
internally, while giving them the chance to work in other countries or industries.

For our suppliers and providers, we offer fair terms of payment and act as a reliable
partner. Our financial strength adds stability to their businesses. We encourage
them to innovate and help them to develop services we need, which they may then
potentially use elsewhere. Our Supplier Code of Conduct creates positive downward
pressure through our supply chain to make sure our suppliers’ employees are
fairly treated and that the companies themselves are behaving responsibly. Having
developed our Sustainable Supply Chain Strategy in 2017, we can expect our ability to
add value to society through our supply chain to increase moving forward.

CASE STUDY:

I studied industrial chemical engineering
at university, and I went on to get a
research-based master’s degree. After
a year of work experience, I joined SGS
as an Oil and Gas Laboratory Manager in
2008, so I’m coming up on ten years in
the company now.

In 2010, SGS promoted me, giving me
responsibility for running the multi-
laboratories in Tunisia. The position
also meant that I directly ran a team
of about 35 people, which was a
great opportunity for me to grow as a
manager. I was given a lot of support
by the company and attended training
courses in places like South Africa,
Belgium and Turkey. In a professional
capacity, I’ve had the chance to work
in Morocco and Italy, which was also
very rewarding.

At the end of 2017, I was given the
chance to change direction and I became
a Business Manager for our Environment,
Health and Safety business line. It’s an
interesting change for me. On a personal
level, I’ve always worked in a lab before,
so this is allowing me to learn new skills
and meet people from different walks of
life. It’s also a different kind of challenge
professionally. EHS is a relatively new
presence here in Tunisia, I have a smaller
team of direct reports (six people), and
our job is really to grow the EHS business
here – which I’m finding very exciting.

I appreciate the fact that I am able to make
this kind of change within the company
because I enjoy working here. I like the
consideration and recognition I get from
my managers and the value they put on
my work. Life at SGS is very diverse. Every
day is enriching and helps me to develop
as a professional and as an individual.

“The time we
spend at work is
obviously a large
part of our lives.
At SGS I feel
at home.”

MOUNA OUEJHANI, SGS BUSINESS
MANAGER, ENVIRONMENT, HEALTH
AND SAFETY (EHS), TUNISIA

129

“Working with SGS has been interesting for us. By helping
us understand their requirements, and working with us to
customise certain aspects, they have helped us see even more
potential for our technology.”

KERRY THACHER, CEO, LIBRESTREAM, CANADA

CASE STUDY:

As part of our suite of tools, we have
developed a collaborative mobile app
called Onsight that we branded for SGS
as QiiQ. Put very simply, this tool allows
a remote user to access the screen
and camera on someone else’s phone
or tablet (with the owner’s consent).
This means that they can remotely
see whatever the camera is pointed
at. Unlike a simple video conferencing
system, our programme allows the
remote user to take a certain degree
of control of the phone, so they can
take pictures or record video from their
remote location. They can also send
images or written instructions to the
phone’s owner. Both people can draw
elements like arrows or circles directly
onto the screen to highlight certain
things that they are looking at.

SGS saw the potential usefulness of
this very quickly. Let’s say they need
to conduct an urgent or unplanned

inspection on a highly technical piece
of equipment or infrastructure and the
engineer in place feels he needs support
from someone more senior. Rather than
having to come back another day, or to
try to describe the situation over the
phone, the engineer can bring the senior
person into play immediately. The senior
engineer can then assess the problem
remotely by guiding his colleague
through the necessary steps.

This remote collaboration was one
of the primary purposes behind the
development of our product and it
was immediately of interest to SGS.
The SGS approach to this technology
was innovative. They began to look
at some unexpected applications –
things we hadn’t imagined ourselves
before. For example, they ran a pilot
at an international border point in
Africa where a third-party inspector is
supposed to watch as particular checks
are made to certain shipments coming
across the border. The inspector is not

allowed to physically intervene, just
observe. SGS realised that they could
conduct that kind of inspection remotely.
This brought several benefits. Firstly, it
significantly sped up processing times
as the border guards didn’t need to
wait until the SGS auditor arrived.
This improvement began to speed up
the flow of international trade through
that border point and reduced queues
for everyone. It also reduced SGS’ fuel
bill and lowered their carbon emissions
as their inspectors didn’t need to
constantly drive back and forth to
what was a fairly remote location.
By extension, it increased their
productivity and margins too.

We are now working with SGS to try
and look at other applications like this,
which is really a very interesting
process for us. It is highlighting other
potential market segments that we can
consider exploring beyond our traditional
client base.

130

4. INTEGRATED LEADERSHIP

VALUE FOR
INVESTORS

SGS provides a solid return to investors and does so responsibly. For instance, in 2017,
we issued a CHF 375 million bond at historically low interest rates. The Group was
also assigned an A3-long-term issuer rating by Moody’s. SGS also has a solid record
of providing attractive shareholder dividends and enjoys excellent investor relations.

Our transparent and robust financial reporting (full and half year) go well beyond
minimum financial reporting requirements and provide a detailed insight into the
internal workings of the company. In addition, our annual Investor Days, held in the
third quarter, provide market analysts and investors access to senior Management,
helping them understand our objectives. Transparent presentations on Group
performance and strategic direction are also provided. All this allows the market to
make informed and appropriate decisions in relation to SGS stock.

Our inclusion for the first time on the FTSE4Good Index and our continued listing on
the Dow Jones Sustainability Indices demonstrate to investors that SGS is not just
a financially sound investment, but an ethically sound one as well. This supports the
rise of ethical investment strategies.

“The event was
very useful at
repositioning
some of my ideas
about what the
longer-term metrics
may be around
this sector.”

TIC INDUSTRY ANALYST, UK

CASE STUDY:

The level of access provided at the
annual Investor Days was incredible.
The event was professionally organised
and they covered a lot over the course
of the two days. The access to the
different senior managers was really
the biggest value add of the event and
people came away with a very strong
sense of a confident company with
a healthy management culture, which
retains and nurtures talented managers.

This is the most access to Management
given by any of the TIC companies and
it is an excellent opportunity to see
the global nature of the business as
well as to engage with regional and
divisional leaders. I also think it is good
for the culture of the business in terms
of encouraging openness and investor
engagement across the Group.

SGS provides very good transparency,
especially on services and prices. They
‘dig deep’ on how they deal with clients
and on their pricing strategy. Overall,
SGS is in a good position, providing
good top-line growth.

131

VALUE FOR
CUSTOMERS

SGS builds trust in our customers' products and services, creating consumer
confidence and helping them achieve their sustainability objectives. By working with
us, our customers are also much better able to manage their supply chain risks.

Our services help our customers make more informed strategic decisions through
better quality data. We can increase their speed to market, boost their productivity,
drive their health and safety, and be an integral part of their risk management process.

This, in turn, makes them safer employers and improves the quality of their products.
Through the multiplier effect (described on page 125), our work for our customers
means that we end up touching millions of people’s lives, in a positive way.

CASE STUDY:

A mine’s life can vary from 10 years to
more than 20 years. Once the resources
are exhausted or the mine ceases to be
economically viable, the operation has to
shut down. Mine operators are usually
required to have planned schedules
and financial provisions in place, so that
the accepted mine closure process is
correctly conducted. We assist them
with their specific requirements to
ensure the appropriate process and
activities are executed and their projects
are safe, effective and sustainable.

Mine closure is an extensive process
that can require a significant amount of
time. Even after the main processes are
complete, wastewater and treatments

need to be monitored, tested and
analysed on a periodic basis to ensure
the health and safety of communities
and the environment. We support our
customers with efficient long-term
services that include all stages of the
closing process to minimise risks and
contribute to a sustainable future. By
ensuring the proper closing down of
mines, restored sites can be reclaimed
as wildlife habitats or forests and
promote biodiversity. Closed mines
can also be repurposed, whereby
the existing infrastructure is turned
into museums, education centres
or recreational areas, which can
boost community engagement and
the local economy.

“In supporting the various phases of
a mine’s operational shutdown, SGS
plays a vital role in assisting mining
companies to ensure the health and
safety of the communities and the
environment around it.”

DERICK GOVENDER, SGS EXECUTIVE VICE PRESIDENT, MINERALS (MIN), SWITZERLAND

132

4. INTEGRATED LEADERSHIP

VALUE FOR
GOVERNMENTS
AND
INDUSTRIES

SGS offers value to governments that goes a long way beyond simply creating
employment and paying taxes. SGS has an entire business line dedicated to
governments and institutions. It supports governments by improving the flow of people
and trade at borders and airports, improving road safety and tax collection, and helping
to protect the environment. Our Environment, Health and Safety business line is also
helping governments and industries deal with pollution and toxicity issues such as
persistent organic pollutants, asbestos removal and CO2 emissions.
SGS also helps companies conform to international and national regulations. Our
services help reduce the burden on the state to enforce conformity. These services also
help facilitate international trade, support economic growth and help industries innovate.
In addition, SGS helps governmental bodies develop regulation and best practices,
such is the case with our participation in the European Commission’s Public-Private
Partnership, with the newly created European Cyber Security Organization.

By adding value to governments and industries, we ultimately create value for citizens
and consumers.

“SGS’ innovative use of technology is
allowing governments to prevent illegal
logging in real time.”

ROGER KAMGAING, SGS EXECUTIVE VICE PRESIDENT, GOVERNMENTS AND
INSTITUTIONS (GIS), SWITZERLAND

CASE STUDY:

Illegal logging is a major problem in many countries, including Cambodia. In May 2017,
a report from the London and Washington DC-based Environmental Investigation
Agency showed that enormous amounts of illegally logged timber from protected
Cambodian National Parks were being smuggled into Vietnam, where it was
laundered into global supply chains. Approximately 300 000m3 of logs were reported
to have been smuggled out of the country on this basis.

SGS can help governments to prevent illegal logging by using state-of-the-art satellite
technology. Because forests are static, SGS’ system can detect the slightest changes
in the size, shape and density of protected forest areas. Any single tree that is cut
down can be rapidly detected by the satellite from space. The satellites are also able
to monitor the establishment and increasing size of illegal log yards. This allows us to
build a very solid case against illegal logging and alert the government within a few
days of any suspicious activity in a protected area. Using this service, we can help
protect forests for the benefit of future generations.

133

VALUE FOR
CONSUMERS

Whether it is safer roads in France, where SGS runs the driving test theory
examinations, or a fair deal at the petrol pump, where SGS provides calibration
services, we work hard behind the scenes to add value to consumers all over the
world. We check that the leather in your shoes won’t crack, that your television isn’t a
fire hazard, that the balcony in your hotel won’t collapse and that your car is meeting
its stated emissions standards.

In 2017, we went a step further and began to offer our first B2C products to
consumers in China. Our Formaldehyde Household SafeGuard kits, launched in China
this year measure the level of pollutants in the air inside consumers households –
bringing world-class lab analysis to the average person’s home.

Services like these, which are carried out for several customers in multiple countries,
can touch the lives of millions of people, meaning that SGS’ positive impact on
society is massively increased.

“SGS is literally
ensuring that when
people cross this
bridge, they will
make it to the
other side.”

TERRY TAMUTUS, DIRECTOR ASSET
HEALTH MONITORING, USA

CASE STUDY:

Here in Little Falls, New York, we have
a bridge that is pretty important locally.
It carries an important freeway over the
Mohawk River but unfortunately, it has
fallen into a state of disrepair recently.
Little Falls' population is in decline. It
stood at around 13 000 people in 1920,
but we have just under 5 000 people
now. This means of course, that public
finances are stretched pretty thin, and
we have to be careful with our budgets.

A couple of years back, the New York
Department of Transportation (DoT)
discovered a number of fairly significant
cracks in the bridge’s steel structure
during a routine inspection. At first, the
cracks were more frequently inspected,
and then repaired. Upon meeting
the DoT, we offered to monitor the
repaired cracks with advanced sensor
technology, which would provide data
in real time, meaning that in effect, the
bridge was under 24-hour inspection,
seven days a week. This has been a real
benefit to the DoT because it means
they will be able to carry out repairs to
the bridge only when it is absolutely
necessary. At the same time, they
know they are not taking any risks with
people’s safety.

Most people just take for granted that
these things are being taken care of.
They don’t realise how much work
companies like SGS are doing in the
background to keep everyone safe and
save taxpayers’ money. I would say that
people are really benefitting from SGS’
services, even if at times they don’t
even know it.

134

4. INTEGRATED LEADERSHIP

VALUE FOR
COMMUNITIES
AND THE
PLANET

Since we produced our first sustainability report nearly ten years ago, SGS has
been increasingly recognised for its operational efforts on the environmental front.
From successful energy reduction initiatives to effective waste management, we
strive to minimise our environmental footprint.

The direct value we add in this regard is explained in detail on pages 99–104.
However, we also add substantial value to the planet through many of our
services, particularly those from our Environment, Health and Safety business line.
Our offering in this space is vast and continually expanding. For example, we provide
services that ensure soil is clean and free from contamination, that wastewater
meets environmental quality standards, that international shipping does not damage
local marine life, and that air pollution is minimised.

We also help companies manage their emissions, tackle climate change and deal
with industrial hygiene issues, such as mercury detection and radiation safety.
Many of our other business lines contribute services that benefit the planet as well,
such as Transportation’s vehicle emissions testing services.

Our services and operations also benefit the communities in which we operate.
We create local jobs, use local suppliers whenever possible and train local people.
Additionally, all SGS staff are entitled to take one day a year to volunteer for approved
local community projects. SGS also directly supports numerous local community
projects around the world (see page 105–107).

Together, our services and operations are adding value to society, empowering
the corporate sector to make a major contribution to addressing environmental
challenges and providing a successful example for others to follow.

CASE STUDY:

Volatile Organic Compounds (VOCs) are
organic compounds that have high vapour
pressures and evaporate easily into
the atmosphere. They are a significant
contributing factor to air pollution in urban
areas, with known links to human health
problems. For example, benzene and
formaldehyde (two better known VOCs)
are listed as human carcinogens. VOCs
are also the main ingredients of smog.
The air pollution caused by VOCs doesn’t
just impact human health – it has also
been shown to have a serious effect on
the environment.

At industrial plants, flares are often
used in an attempt to burn off VOCs,
yet their efficiency in doing so has

not previously been truly measurable.
We’ve developed a pioneering new
technology that allows us to fly drones
right up to the flare stacks to accurately
measure the exact content that is being
emitted. Previously, people simply had
to rely on modelling and mathematics
to estimate what was being produced
by a flare stack. Now with our heat-
resistant drone air-testing equipment, we
really know what’s there. This means
if VOCs are detected, something can
be done about it immediately. This is
of huge benefit to the environment as
well as people’s health. VOCs are an
enormous environmental problem and
this technology is an important step in
reducing their impact.

“It’s only when contamination has been
detected that something can be done
about it.”

DR. VLADIMIRO BONAMIN, VICE PRESIDENT, SGS GLOBAL BUSINESS DEVELOPMENT
MANAGER, ENVIRONMENT, HEALTH AND SAFETY (EHS), SWITZERLAND

135

ASSURANCE STATEMENT

REPORT ON THE ASSURANCE OF THE SUSTAINABILITY CONTENT IN THE 2017
SGS ANNUAL REPORT

NATURE AND SCOPE OF THE ASSURANCE

Gestion de l’Environnement, Sion, Switzerland and Rita Godfrey Unlimited, Arundel, United Kingdom were commissioned by SGS
to conduct an independent assurance of the Sustainability Content in the 2017 SGS Annual Report. The scope of the assurance
was performance data, report text supporting performance data and a review of the management of this data.

This Sustainability Content in the 2017 SGS Annual Report has been assured as follows :

• Evaluation of the accuracy of the data at the Head Office in Geneva and at a sample of SGS affiliates, conducted through a

Computer Assisted Auditing Technique and through review of the data that supports performance statements both with the text
and/or as separate data graphics;

• Evaluation of the veracity of all the texts and data through review of evidences provided by the individual contributors to support

the statements.

This protocol was in line with the SGS Sustainability Report Assurance (SRA) methodology to ensure consistency with the
SGS service offered to customers.

In SGS Annual Report, the assurance scope covers the Sustainability content described from pages 31–38 and 83–107.
Financial data drawn directly from independently audited financial accounts has not been checked back to source as part of
this assurance process. Assurance of claims by SGS that are statements of commitments or forward looking in nature was
not provided. The Materiality evaluation has been integrated in the SGS risk evaluation and management and an opinion on
the adequacy of the SGS risk evaluation and management was out of the scope of this assurance process.

The responsibility of the assurance team is to express an opinion on the text, data, graphs and statements within the scope of
verification, with the intention to inform all SGS stakeholders and to inform improvements in the process for future reporting.

This report has been assured at a moderate level of scrutiny for evaluation of content veracity.

This statement covers the Sustainability Content in the 2017 SGS Annual Report. A more extended statement is provided on
the full Sustainability Report which is published on the website. An ISO 14064 statement covers also the independent verification
of the SGS CO2 emissions.
The assurance team are independent assessors who conduct audits and assessments against different verification schemes
on behalf of SGS. The team was assembled based on their knowledge, experience and qualifications for this assignment, and
comprised auditors with the following qualifications: 20 years’ experience as Lead Auditor in the areas of Quality, Health and
Safety, Environment and Social Responsibility, more than 10 years’ experience as assurance practitioners with experience in
the verification service industry.

ASSURANCE OPINION

On the basis of the methodology described and the verification work performed, we are satisfied that the information and
data contained within the Sustainability Content in the 2017 SGS Annual Report is reliable and provides a fair and balanced
representation of SGS activities in 2017 within the limitations of the stated reporting scope.

RECOMMENDATIONS

Future reports need to provide a follow-up on the commitments taken in the previous reports, including the challenges encountered
preventing the fulfilment of commitments.

A report has been prepared for SGS management which includes a detailed set of recommendations to help identify areas for
future improvement.

Rita Godfrey

Michel Mooser

Rita Godfrey Unlimited, Arundel, United Kingdom
Lead SRA Assuror

Gestion de l’Environnement, Sion, Switzerland
SRA Assuror

Geneva, 12 February 2018

5. GOVERNANCE

MINING

We offer on-site expertise
to make sure every stage of
the mining process is safe,
efficient and profitable.

MINERALS

5. GOVERNANCE

This Corporate Governance Report
informs shareholders, prospective
investors and the public at large
on SGS policies in matters of
corporate governance, such
as the structure of the Group,
shareholders' rights, composition
roles and duties of the Board of
Directors and its Committees and
Management and internal controls
and audits. This report has been
prepared in compliance with the
Swiss Exchange (SIX) Directive on
Information Relating to Corporate
Governance of 1 January 2016
and with the Swiss Code of Best
Practice for Corporate Governance.

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 to
attain this goal by defining clear
and efficient decision-making
processes, fostering a climate of
performance and accountability
among managers and employees
alike, and aligning employees’
remuneration with the long-term
interests of shareholders.

1. GROUP STRUCTURE

AND SHAREHOLDERS

1.1. Group Structure

1.2. Significant Shareholders

1.3. Cross-Shareholdings

2. CAPITAL STRUCTURE

2.1. Issued Share Capital

2.2. Authorised and Conditional

Share Capital

2.3. Changes in Capital

2.4. Shares and Participation Certificates

2.5. Dividend-Right Certificates

2.6. Limitations on Transferability and

Admissibility of Nominee Registrations

2.7. Convertible Bonds and
Warrants/Options

3. BOARD OF DIRECTORS

3.1. Members of the Board of Directors

3.2. Cross Involvement

3.3. Elections and Terms of Office

3.4. Limits on External Mandates

3.5. Internal Organisational Structure

3.5.1. Allocation of Tasks within
the Board of Directors

3.5.2. Committees

3.5.3. Working Methods of the
Board and its Committees

3.6. Definition of Areas of Responsibility

3.7. Information and Control Instruments

vis-à-vis the Management

4. OPERATIONS COUNCIL

4.1. Members of the Operations Council

4.2. Other Activities and Functions

4.3. Changes in the Operations Council

4.4. Limits on External Mandates

4.5. Management Contracts

5. COMPENSATION,
SHAREHOLDINGS
AND LOANS

5.1. Content and Method of

Determining the Compensation
and the Shareholding Programmes

5.1.1. Rules on Performance-Related
Pay and Allocation of
Equity-Linked Instruments

5.1.2. Rules on Loans,

Credit Facilities and
Post-Employment Benefits

5.1.3. Rules on Vote on Pay

6. SHAREHOLDERS’
PARTICIPATION
RIGHTS

6.1. Voting Rights and

Representation Restrictions

6.2. Statutory Quorums

6.3. Convocation of General Meetings

of Shareholders

6.4. Agenda

6.5. Registration in the Share Register

7. CHANGE OF CONTROL

AND DEFENCE
MEASURES

7.1. Duty to Make an Offer

7.2. Clauses on Change of Control

8. AUDITORS

8.1. Duration of the Mandate and

Term of Office

8.2. Audit Fees

8.3. Additional Fees

8.4. Supervisory and Control Instruments

vis-à-vis the Auditors

9. INFORMATION POLICY

139

1. GROUP STRUCTURE
AND SHAREHOLDERS

1.1. GROUP STRUCTURE

SGS SA, registered in Geneva (CH),
also referred to as the “Company”,
controls directly or indirectly all entities
worldwide belonging to the SGS Group,
which provides independent inspection,
verification, testing, certification and
quality assurance services. The shares
of SGS SA are listed on the SIX Swiss
Exchange and are traded on SIX Europe
(Swiss Security Number: 249745;
ISIN: CH0002497458).

On 31 December 2017, market capitalisation
was approximately CHF 19 397 million
(2016: CHF 16 208 million).

None of the companies under the
direct or indirect control of SGS SA have
listed shares or other securities on any
stock exchange.

The principal legal entities consolidated
within the Group are listed on pages
249–252 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 2017 are provided
in note 3 of the consolidated financial
statements included in the section
SGS Group Results (pages 186–187)
of this Annual Report.

The operations of the Group are divided
into eight regions, each led by a Chief
Operating Officer who is responsible for
the SGS businesses in that region and
for the local implementation of Group
policies and strategies.

At 31 December 2017, geographic
operations were organised as follows:

EUROPE, AFRICA, MIDDLE EAST

• Western Europe

• North and Central Europe

• Eastern Europe and Middle East

• Africa

AMERICAS

• North America

• South and Central America

ASIA PACIFIC

• North East Asia

• South East Asia 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 2017, 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.

1.2. SIGNIFICANT SHAREHOLDERS

As at 31 December 2017, Groupe
Bruxelles Lambert (acting through Serena
SARL and URDAC) held 16.60%
(2016: 16.20%). Mr. August von Finck
and members of his family acting in
concert held 15.52% (2016: 15.03%),
BlackRock, Inc. held 4% (2016: 3.03%)
and MFS Investment Management held
3.02% (2016: 3.01%) of the share capital
and voting rights of the company. At the
same date, the SGS Group held 1.08%
of the share capital of the company
(2016: 3.63%).

During 2017, 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.

140

2. CAPITAL STRUCTURE

2.1. ISSUED SHARE CAPITAL

The share capital of SGS SA is
CHF 7 633 732.- and comprises
7 633 732 as of 31 December 2017 fully,
paid-in, registered shares of a par value
of CHF 1. On 31 December 2017,
SGS SA held 82 234 treasury shares
(2016: 283 929). 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 2017, 30 133 treasury shares were
sold to cover the equity compensation
plans and 17 232 were purchased for
an average price of CHF 2 484. In 2017,
the Group initiated a share buyback
programme for a total of up to CHF 250
million. Approximately CHF 200 million
is expected to be bought back via a
second trading line on the SIX Swiss
Exchange for the purpose of share
capital reduction. Approximately
CHF 50 million is expected to be
bought back via the ordinary trading
line on the SIX Swiss Exchange for
employee equity participation plans.
The programme started in May 2017
and will end on 31 December 2019.

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 21 March 2019.
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.

5. GOVERNANCE

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

At the Company’s Annual General
Meeting in 2017, the Shareholders
approved a reduction of the share
capital, by cancellation of 188 704
shares which were purchased as part
of a previous share buyback programme.
Consequently, the share capital of
the Company was reduced from
CHF 7 822 436 to CHF 7 633 32 in 2017.
No other changes in the share capital of
the Company were made in the course
of the last three 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
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 2017
(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.

141

SERGIO MARCHIONNE (1952)

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
ChryslerAutomobiles N.V.

Chairman of *CNH Industrial N.V.

Chairman and CEO of *Ferrari N.V.

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.
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. 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.

OTHER ACTIVITIES AND FUNCTIONS

*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

* Listed company.

PAUL DESMARAIS, JR (1954)

Canadian

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 of Power Financial
from 1984 to 1986, as President and
Chief Operating Officer from 1986 to
1989, as Executive Vice Chairman from
1989 to 1990, as Executive Chairman
from 1990 to 2005, as Chairman of the
Executive Committee from 2006 to 2008
and as Executive Co Chairman from 2008
until today. He was named Chairman
and Co-CEO with Power Corporation
in 1996. After Power Financial and the
Frère Group of Belgium took control of
Pargesa in 1990, Mr. Desmarais moved
to Europe from 1990 to 1994, to develop
the partnership with the Frère Group and
to restructure the Pargesa group.

From 1982 to 1990, he was a member
of the Management Committee of
Pargesa, in 1991, Executive Vice
Chairman and then Executive Chairman
of the Committee; in 2003, he was
appointed Co-Chief Executive Officer
and in 2013 named Chairman of the
Board. He is a Director of many Power
Group companies in North America.

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)

*Pargesa Holding SA, Geneva (CH),
Board Member since 1992, Chairman
of the Board since 2013

*LafargeHolcim Ltd, Zurich (CH),
Member of the Board since 2015

Member of the Advisory Council
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)

AUGUST VON FINCK (1930)

German

FUNCTION IN SGS

Member:

• Board of Directors

• Nomination and

Remuneration Committee

INITIAL APPOINTMENT TO THE BOARD

October 1998

PROFESSIONAL BACKGROUND

August von Finck is an Industrialist.
He descends from the banking family
von Finck. His grandfather, Wilhelm von
Finck, founded Merck, Finck 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.

142

AUGUST FRANÇOIS VON FINCK (1968)

Swiss

FUNCTION IN SGS

Member:

• Board of Directors

• Audit Committee

INITIAL APPOINTMENT TO THE BOARD

May 2002

PROFESSIONAL BACKGROUND

François Von Finck holds a Master
of Business Administration from
Georgetown University, Washington D.C.
He has a banking background and is
currently Managing Director of Carlton
Holding in Basel.

OTHER ACTIVITIES AND FUNCTIONS

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

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

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

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

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

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

* Listed company.

5. GOVERNANCE

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.

OTHER ACTIVITIES AND FUNCTIONS

*adidas (D), Member of the Supervisory
Board and of the Audit Committee

*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

Frère-Bourgeois SA (BE), Member of
the Board

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 aluminium, glass
and biomass.

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

PETER KALANTZIS (1945)

CHRISTOPHER KIRK (1956)

Swiss/Greek

British

FUNCTION IN SGS

Member:

• Board of Directors

• Audit Committee

FUNCTION IN SGS

Member

• Board of Directors

INITIAL APPOINTMENT TO THE BOARD

March 2015

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

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

143

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

*Bata India Limited, Kolkata, India,
Member of the Board since 2017

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.

* Listed company.

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.

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

*Umicore, Brussels (B), Member of
the Board

SHELBY R. DU PASQUIER (1960)

Swiss

FUNCTION IN SGS

Member:

• Board of Directors

• Professional Conduct Committee

• Nomination and

Remuneration Committee

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 Fleming Family & Partners
(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
of the SGS Group.

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

144

companies. The remuneration of the
Members of the Board of Directors is
detailed in the Remuneration Report.

The Chairman of the Board, jointly with
members of the Board of Directors,
reviews periodically the performance of
the Board as a whole, of its Committees
and of each of its individual members.

On the basis of this periodic
assessment, changes to the
composition of the Board membership
are regularly proposed to the
Company’s Annual General Meeting
of Shareholders.

This periodic performance evaluation
is designed to ensure that the Board
is always in a position to provide an
effective oversight and leadership role
to the Group.

3.2. CROSS INVOLVEMENT

No member of the Board of Directors
or of the Operations Council is also
a member of the executive bodies
of entities or organisations with
which the Group has material business
or commercial relations.

3.3. ELECTIONS AND TERMS OF OFFICE

The Articles of Association of SGS
SA provide that each Member of the
Board of Directors, and among them
the Chairman of the Board of Directors
and the Members of the Nomination
Remuneration Committee, is elected
each year by the shareholders for a
period ending at the next Annual General
Meeting. Each Member of the Board
is individually elected. There is no limit
to the number of terms a Director may
serve. The initial date of appointment
of each Board Member is indicated
in section 3.1.

3.4. LIMITS ON EXTERNAL MANDATES

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.

* Listed company.

5. GOVERNANCE

In addition, the Articles of Association
limit to ten, the permissible 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 or she 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 2017, the following Directors
served on the Nomination and
Remuneration Committee:

• August von Finck

• Ian Gallienne

• Shelby du Pasquier (Chairman)

In 2017, the Committee held two
meetings. Meetings of the Nomination
and Remuneration Committee were
attended by all members and had an
average 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 2017, the following Directors served
on the Audit Committee:

• Sergio Marchionne (Chairman)

• August François von Finck

• Gérard Lamarche

• Peter Kalantzis

In 2017, the Audit Committee held three
meetings, with an average duration
of two hours. Meetings were attended
by all members.

PROFESSIONAL CONDUCT COMMITTEE

The Professional Conduct Committee
assists the Board of Directors and
Management in establishing policies
relating to professional conduct and
oversees their implementation. The
Group’s professional conduct policies
are embodied in the Code of Integrity,
which sets out the principles governing
business conduct, which are applied
across the whole SGS Group. These
principles reflect the Business Principles
for Countering Bribery issued by
Transparency International and Social
Accountability International, and
incorporate the rules adopted by the
International Federation of Inspection
Agencies (IFIA), the professional
association for the inspection industry.

In 2017, 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 once in
2017 for a one-hour meeting and passed
several resolutions in writing. The
meeting was 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

145

Member has the right to request that
a meeting be held or that an item for
discussion and decision be included
in the agenda of a meeting. Board
and Committee members receive
supporting documentation in advance
of the meetings and are entitled to
request further information from the
Management in order to assist them
to prepare for the meetings. The Board

and each of the Committees can
request the attendance of members
of the Management of the Group. The
Board and each of the Committees are
authorised to hire external professional
advisors to assist them in matters within
their sphere of responsibility. To be
adopted, resolutions need a majority
vote of the members of the Board or
Committee, with the Chairman having a

casting vote. The Board of Directors held
five physical meetings in 2017. 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 2017, with the
exception of two Board members being
excused each for one meeting.

ATTENDANCE TO BOARD AND COMMITTEE MEETINGS

The chart below summarises the attendance by each Board Member in 2017 at the meetings of the Board and the respective
standing Committees.

MEMBER

Sergio Marchionne

Paul Desmarais

August von Finck

August Francois von Finck

Ian Gallienne

Cornelius Grupp

Peter Kalantzis

Chris Kirk

Gérard Lamarche

Shelby du Pasquier

BOARD
MEETINGS

NOMINATION AND
REMUNERATION

AUDIT

PROFESSIONAL
CONDUCT

5/5

4/5

5/5

4/5

5/5

2/2

3/3

1/1

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

the activities of the Operations Council
by the Chief Executive Officer, Chief
Financial Officer and General Counsel.

• 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 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 eight 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.

146

5. GOVERNANCE

3.7. INFORMATION AND CONTROL
INSTRUMENTS VIS-À-VIS
THE MANAGEMENT

A. RESPONSIBILITY OF THE BOARD

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

B. GOVERNANCE FRAMEWORK

The Group has an established
governance framework, which is
designed to oversee its operations
and assist the Company in achieving
its objectives. The main principles of
this framework include the definition
of the role of the Board and its
Committees, an organisational structure
with documented delegated authority
from the Board to Management and
procedures for the approval of major
investments, acquisitions and other
capital allocations.

The Chief Executive Officer and the
Chief Financial Officer participate in
the meetings of the Board of Directors
and of the Audit Committee.

The Group Controller and the Head of
the Internal Audit Function participate
in the meetings of the Audit Committee.

The Head of Human Resources
participates in the meetings of the
Nomination and Remuneration
Committee and the General Counsel
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

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.

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 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

147

4. OPERATIONS COUNCIL

OLIVIER MERKT (1962)

PAULINE EARL (1961)

Swiss

British

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 2017 were as follows:

FRANKIE NG (1966)

Swiss/Chinese

Chief Compliance Officer

COO, Western Europe

Doctorate in Law, admitted to the bar
in Switzerland

BSc in Food Science

Joined SGS in 1995

Joined SGS in 2001

PREVIOUS RESPONSIBILITIES

2006 – 2008: VP, Corporate Development

2001 – 2006: Senior Counsel

TEYMUR ABASOV (1972)

Azerbaijani

COO, Eastern Europe and Middle East

Degree in Electrical Engineering

Joined SGS in 1994

PREVIOUS RESPONSIBILITIES

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

2004 – 2006: Managing Director,
Azerbaijan and Georgia

PREVIOUS RESPONSIBILITIES

2007 – 2010: Managing Director,
United Kingdom

2004 – 2007: SSC Business Manager,
United Kingdom

FABRICE EGLOFF (1969)

French

COO, Africa (since March 2017)

MBA in International Business Affairs

Joined SGS in 1995

PREVIOUS RESPONSIBILITIES

2009 – 2017: Managing Director, France

2004 – 2008: Managing Director,
Hong Kong

Chief Executive Officer

2003 – 2004: Managing Director, Georgia

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

CARLA DE GEYSELEER (1968)

Belgian

Chief Financial Officer

EMBA, Executive Master in Business
Administration IMD, 2005

Master in Economics and Finance, 1991

HELMUT CHIK (1966)

Chinese

COO, China and Hong Kong

Master in Business Administration

KIMMO FULLER (1967)

American

COO, North America

Bachelor of Science degree
in Civil Engineering;

Joined SGS in 1991

Masters in Business Administration

PREVIOUS RESPONSIBILITIES

Joined SGS in 2014

2004 – 2017: COO, China and Hong Kong

PREVIOUS RESPONSIBILITIES

2003: Managing Director, Hong Kong

2014 – 2015: Managing Director, USA

2002: Global Business Manager,
Softline, Consumer Testing Services

OLIVIER COPPEY (1972)

Swiss

OTHER WORK EXPERIENCE

2013 – 2014: Regional Director, Rolls
Royce Plc

2011 – 2013: Regional Director,
Elliott Group

2007 – 2011: Business Unit Director,
Wood Group

Joined SGS in 2014

EVP, Agriculture, Food and Life

PREVIOUS WORK EXPERIENCE

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

2010 – 2012: Director Financial
Controlling, Vodafone GmbH, Germany

2007 – 2010: Chief Financial Officer DHL
Express Benelux, The Netherlands

MSc Economics

Joined SGS in 1994

PREVIOUS RESPONSIBILITIES

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

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

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

148

5. GOVERNANCE

ALEJANDRO GOMEZ DE LA TORRE (1959)

FRÉDÉRIC HERREN (1955)

FRANÇOIS MARTI (1968)

Swiss

EVP, Industrial

Degree in International Relations

Initially joined SGS in 2003, rejoined
in 2011

PREVIOUS RESPONSIBILITIES

2012 – 2015: EVP Systems and
Services Certification

2011 – 2015: SVP, Strategic Transformation

2003 – 2005: VP Continuous Improvement

OTHER WORK EXPERIENCE

2005 – 2011: CEO, Fiat Services

JEFFREY MCDONALD (1964)

Australian

EVP, Certification and
Business Enhancement

Postgraduate Diploma in Education

Joined SGS in 1995

PREVIOUS RESPONSIBILITIES

2007 – 2015: COO, North America

2004 – 2007: EVP, Systems and
Services Certification

2003: Global Project Manager,
Systems and Services Certification

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

Peruvian

Swiss

COO, South and Central America

Degree in Business Administration,
Postgraduate Specialisation in
International Commerce

Joined SGS in 1986

SVP, Digital and Innovation
(Since April 2017)

Master in Economics

Initially joined SGS in 1986, rejoined
in 1999

PREVIOUS RESPONSIBILITIES

1996 – 2001: National Chief
Executive, Peru

1998 – 2001: Manager Central
Sub-Region, Latin America

PREVIOUS RESPONSIBILITIES

2010 – 2017: COO, Africa

2006 – 2014: EVP, Governments and
Institutions Services

2003 – 2010: EVP, Automotive Services

DERICK GOVENDER (1970)

South African

EVP, Minerals)

Diploma in Analytical Chemistry

Post graduate in Business Management

Joined SGS in 2002

PREVIOUS RESPONSIBILITIES

2014 – 2015: Minerals Manager, Chile

2010 – 2014: VP Minerals Africa

2007 – 2010: Regional Minerals
Manager SGS Southern Africa

DIRK HELLEMANS (1958)

Belgian

COO, Northern, Central and
Southern Europe

Degree in Chemical Engineering and
Master in Business Administration

Joined SGS in 1988

ROGER KAMGAING (1966)

Swiss

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

2000 – 2012: Governments and
Institutions Services, Global Head
Business Development

1997 – 2000: Governments and
Institutions Services, Sales Manager

OTHER WORK EXPERIENCE

2012 – 2014: Kamgaing Associates
(Consulting) and Time (African
Business Incubator)

THOMAS KLUKAS (1965)

PREVIOUS RESPONSIBILITIES

German

2004 – 2012: COO, Central and
North Western Europe

2002 – 2004: COO, North West Europe

1997 – 2002: Managing Director, Belgium

JOSE MARIA HERNANDEZ (1961)

Spanish

SVP, Human Resources (since July 2017)

Bachelor in Law

Master in Business Administration

EVP, Transportation

PhD in Engineering Science,

Masters in Business Administration
and Engineering Science

Joined SGS in 2006

PREVIOUS RESPONSIBILITIES

2008 – 2010: VP Automotive Services

2006 – 2008: Automotive Services
Regional Manager, North America

Joined SGS in 1996

OTHER WORK EXPERIENCE

PREVIOUS RESPONSIBILITIES

2010 – 2017: Managing Director, Spain,

2001 – 2010: HR Manager,
Western Europe

1996 – 2010: HR Manager, Spain

2000 – 2006: Senior Executive at
DEKRA SE

149

MALCOLM REID (1963)

4.2. OTHER ACTIVITIES AND FUNCTIONS

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

2005 – 2007: Managing Director, Australia

ALIM SAIDOV (1964)

Azerbaijani/Canadian

EVP, Oil, Gas and Chemicals

PhD in Science

Joined SGS in 1993

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.

DERICK GOVENDER

Member of IMPI (International Precious
Metal Institute)

THOMAS KLUKAS

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

FRANÇOIS MARTI

Swiss Philanthropy Foundation, Member
of the Board since 2013

PREVIOUS RESPONSIBILITIES

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

2005 – 2007: COO, Eastern Europe
and Middle East

2004: COO, North America and Managing
Director, Canada

4.3. CHANGES IN THE
OPERATIONS COUNCIL

During 2017, Dennis Yang, COO for
Eastern Asia, retired from the Group
and left the Operations Council.
Jean-Luc de Buman, SVP, Corporate
Communications, Investor Relations and
Corporate Development passed away.

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

4.4. LIMITS ON EXTERNAL MANDATES

The Articles of Association of
the Company in compliance with
the Ordinance against Excessive
Compensation at Listed Joint-Stock
Companies (OaEC), limit the number
of mandates permissible to members
of the Operations Council, to no more
than four board memberships in entities
outside the Group, out of which a
maximum of one membership in the
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.

4.5. MANAGEMENT CONTRACTS

The Company is not party to any
management contract delegating
management tasks to companies or
individuals outside the Group.

150

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).

5. GOVERNANCE

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 2017,
one member of the Operations
Council has an outstanding loan for
an amount equivalent to CHF 66 496
(2016: a combined amount equivalent to
CHF 28 365 was owed by two members
of the Operations Council for loan
facilities granted by the Group).

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;

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.

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.

6.3. CONVOCATION OF GENERAL
MEETINGS OF SHAREHOLDERS

8. AUDITORS

• It approves the maximum amount

payable under Long-Term Incentive
plans to be introduced by the Company.

The rules regarding the convocation of
General Meetings of Shareholders are
in accordance with Swiss company law.

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.

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.

6.4. AGENDA

The Agenda of the General Meeting of
the 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.

8.1. DURATION OF THE MANDATE
AND TERM OF OFFICE

Following a competitive process in
2000, Deloitte SA was appointed auditor
of the Company and of the SGS Group
by the Annual General Meeting of
Shareholders upon recommendation
of the Board of Directors. The auditors
of the Company are subject to
re-election at the annual General
Meeting every year. The current
lead auditor, Matthew Sheerin, was
appointed in 2017, 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 2017 amounted to
CHF 6.5 million (2016: CHF 5.8 million).

8.3. ADDITIONAL FEES

An aggregate amount of CHF 1.0 million
(2016: CHF 1.0 million) was paid to
Deloitte for other professional services,
unrelated to the statutory audit activity,
mainly composed of tax compliance
services, non-statutory and other
assurance services.

151

8.4. SUPERVISORY AND CONTROL
INSTRUMENTS VIS-A-VIS THE AUDITORS

The Audit Committee is responsible for
evaluating the external auditor on behalf
of the Board of Directors, and conducts
assessments of the audit services
provided to the Group during its regular
meetings. It meets with the auditor at
least three times per year, including
private sessions without the presence
of Management.

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

The 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 its
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.

152

6. REMUNERATION REPORT

SEED SERVICES

SGS provides the expertise
and resources to assess,
optimise and improve the
quality of seed products.

AGRICULTURE,
FOOD AND LIFE

6. 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 2017
business year.

The SGS Remuneration Report
has been prepared in compliance
with the Ordinance against
Excessive Compensation in Stock
Exchange listed Companies (“the
Ordinance”), the Swiss Exchange
(SIX) Directive on Information
relating to Corporate Governance
of 1 September 2014 and the
principles of the Swiss Code
of Best Practice for Corporate
Governance of economiesuisse.

1. INTRODUCTION

BY THE NOMINATION
AND REMUNERATION
COMMITTEE

4. REMUNERATION

AWARDED TO THE
BOARD OF DIRECTORS

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

5.1. Performance in 2017

5.2. Cash Compensation

5.3. Share-Based Compensation

5.3.1. Restricted Shares

5.3.2. Long-Term Incentive Plan

5.3.3. Discontinued Share
Option Plans

5.4. Total Compensation to the Operations
Council, Senior Management and
Chief Executive Officer

5.5. Other Compensation

5.5.1. Severance Payments

5.5.2. Other Compensation to

Members or Former Members
of Governing Bodies

5.5.3. Loans to Members or Former
Members of Governing Bodies

2. COMPANY’S

REMUNERATION
POLICY AND
GOVERNANCE

2.1. Remuneration Policy and Principles

2.2. Remuneration Governance

2.2.1. Nomination and

Remuneration Committee

2.2.2. Shareholders' Engagement

2.2.3. Method of Determination
of Compensation –
Benchmarking

3. REMUNERATION

MODEL

3.1. Structure of Remuneration
of the Board of Directors

3.2. Structure of Remuneration
of the Operations Council

3.2.1. Base Salary

3.2.2. Short-Term Incentive

3.2.3. Long-Term Incentive

3.2.4. Principles of the Long-Term

Incentive for the Performance
Period 2018–2020

3.2.5. Shareholding

Ownership Guideline

3.2.6. Benefits

3.2.7. Employment Contracts

3.2.8. Timeline of Remuneration

155

The Committee has received significant
support in its activities and direction
through your positive votes at the
Annual General Meeting 2017, and will
continue with the same “say-on-pay”
vote structure at the forthcoming Annual
General Meeting 2018:

• 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 2019;

• Binding vote on the value of the

grants awarded under the Long-Term
Incentive plan to the Operations
Council members in the current year.

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 2017.

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
2017 Remuneration Report.

2017 was the last performance year
of the three-year Long-Term Incentive
plan 2015–2017.

The Remuneration Committee worked
on a review of the Long-Term Incentive
plan for the next performance period
2018–2020; the main principles of the
review are disclosed in this report in
section 3.2.4.

The Board of Directors will seek
authority at the 2018 Annual General
Meeting to issue a new Long-Term
Incentive plan for the period 2018–
2020. If approved by a binding vote
of the shareholders, the plan will be
implemented along the principles
described in section 3.2.4. Grants
awarded under this new Long-Term
Incentive plan will be disclosed in the
2018 Remuneration report.

Details on the vesting of the 2015–2017
plan and the number of shares delivered
to the CEO and the other Operations
Committee members are disclosed in
this report in section 5.3.2.

During 2017, the Committee continued
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;
no significant change to the system
has been planned beyond the review
of the Long-Term Incentive plan.

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.

156

6. REMUNERATION REPORT

2. COMPANY’S

REMUNERATION
POLICY AND
GOVERNANCE

2.1. REMUNERATION POLICY
AND PRINCIPLES

REMUNERATION OF THE
BOARD OF DIRECTORS

In order to guarantee their independence
in exercising their supervisory duties
towards the Executive Management,
the members of the Board of Directors
receive a fixed remuneration only.

REMUNERATION OF THE
EXECUTIVE MANAGEMENT

The Company’s remuneration policy
applicable to the Executive Management
(Operations Council) is defined by
the Board of Directors with two main
objectives: to attract and retain the
best talents available in the industry,
and to motivate them to create and
protect value for our shareholders by
driving long-term sustainable financial
success. The remuneration policy is
built on core principles that are aligned
to the Company’s business strategy of
profitable growth and 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

TI O
A L P

U N E R

I O N S

NTIAL PORTION OF RE M
USINESS A N D IN DIVID
TIATION IS BASED O N IN DIVID
Y FOR PERF O

N
E
R
E
F
DIF

O B
TA
D T
S
B
U
E
A S
K
IN
•
L

A
P

•

L E

UITY

I
L

L
I

K R

T R

E
D T

TIO

N TO THE LEVEL OF
O PERFORM THE ROLE

• PART OF REM

U
NER

SUBJECT T

TIO
O A M

N IS D

LONG-TER
ALIG

SHAREH

I-

’ I

E
C
I
T
C
A
R
T P
E
K
R
A

S
S
E
N

M PETITIVE
R E IN LIN E WITH COMPETITIVE M

S A

E L

T C

M A R

N L

R E M U N E R A T I O

•

157

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 2017, 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

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

Approval

Consultative vote

The following Directors served
on the Committee in 2017:

• Shelby du Pasquier (Chairman)

• Ian Gallienne

• August von Finck

In 2017, the Committee met in two
meetings, 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.

158

6. REMUNERATION REPORT

2.2.2. SHAREHOLDERS’ ENGAGEMENT

In recent years, based on the feedback
received from our shareholders and
their representatives, we have made
significant efforts to improve the
disclosure of remuneration in terms of
transparency and level of detail provided
about the remuneration principles and
programmes. The positive outcome
of the consultative vote on the 2014,
2015 and 2016 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
the remuneration to be paid to members
of the Board of Directors and to the
Operations Council are subject to the
approval of the shareholders in form of
a binding vote on remuneration. The

procedure on the vote is defined in
the Articles of Association that were
approved at the 2015 Annual General
Meeting and foresees separate votes
on (i) the 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 2018 AGM

2017

2018

2019

Consultative vote on 2017
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

Binding vote on value of the
grants awarded under the plan
to the Operations Council

Variable remuneration

Fixed remuneration

Long-Term Incentive grant

AGM 2018

AGM 2019

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).

159

The most recent analysis has been
performed in 2015, with the support
of Mercer. No such benchmark was
made in 2017.

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

2.2.3. METHOD OF DETERMINATION
OF COMPENSATION – BENCHMARKING

As a global business in a broad range of
sectors, SGS’ business success is driven
by the commitment and engagement of
its employees. Our remuneration policy
must take account of both global and
local practices. We therefore compare
our practices with those of other similar
global organisations. The Group performs
periodic benchmarks against companies
that satisfy the following criteria:

• Competitors in the Testing, Inspection

and Certification industry;

• All SMI-listed companies;

• Internationally active companies

within and outside Switzerland that
operate in the business-to-business
services sector;

• 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.

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 use
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.

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 of 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.

160

6. REMUNERATION REPORT

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.

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

Group revenue, Group
NPAT 1, Group ROIC2,
regional and business-
line profit, regional
NWC 3, leadership
multiplier

Relative organic
revenue growth,
relative NPAT 1
improvement, relative
TSR 4, absolute free
cash flow

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

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

Market practice

n/a

Benefits

Retirement
benefits and
insurances,
perquisites

1. NPAT: Net Profit After Tax.

2. ROIC: Return On Invested Capital.

3. NWC: Net Working Capital.

4. TSR: Total Shareholder Return.

3.2.1. BASE SALARY

The base salaries of the Chief Executive Officer and of each Operations Council member are reviewed annually on the basis of
market data for similar positions in those companies and geographies against which the Group benchmarks itself. In addition to
individual performance and contribution, business performance and results, the deciding body takes into account the scope and
complexity of the areas of responsibility of the position, skill sets and experience required to perform the role, and relevant market
practice in the industry.

3.2.2. SHORT-TERM INCENTIVE

Members of the Operations Council, including the Chief Executive Officer, are entitled to a performance-related annual incentive
(the “Short-Term Incentive”). The Short-Term Incentive is designed to reward the executives for the annual financial performance
of the Group and its businesses, as well as for the demonstration of leadership behaviours in line with the SGS competency model.

The target incentive is expressed as a percentage of the annual base salary and varies depending on the role. For the CEO, the
target incentive amounts to 100% of annual base salary, while the target incentive for the other members of the Operations Council
varies between 55% and 65% of annual base salary.

161

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 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).

GROUP'S FINANCIAL PERFORMANCE

ROLE-SPECIFIC FINANCIAL PERFORMANCE

PROFITABILITY
(BOTTOM-LINE)

GROWTH
(TOP-LINE)

EFFICIENT USE
OF CAPITAL

PROFITABILITY
(BOTTOM-LINE)

EFFICIENT USE
OF CAPITAL

CEO

SVPs

EVPs

COOs

Group NPAT
25%

Group NPAT
65%

Group NPAT
25%

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 Financial Performance 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.

For the efficient use of capital KPIs (Group ROIC, Regional NWC), expressed as percentage, the threshold and the cap are set at
the beginning of the performance year together with the objective for each financial metric.

162

6. REMUNERATION REPORT

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%

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 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.

163

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.
The same payout curve applies to all the KPIs.

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 in place 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 CEO’s historical annual incentive payout against target for the past five years.

CEO ANNUAL INCENTIVE PAYOUT

2017

2016

2015

2014

2013

96.5%

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.

164

6. REMUNERATION REPORT

CLAWBACK PROVISIONS

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

The table below summarises the Annual Incentive opportunity for the CEO and 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 end of the performance
period (31 December 2017).

In order to balance with 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:

• Relative total shareholder return

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

• Relative organic revenue growth

(top-line performance), 20% weight

• Relative NPAT improvement (bottom-

line performance), 20% weight

• Free cash flow (absolute measure

against SGS annual budget),
20% weight.

The relative performance on revenue
growth, NPAT and TSR is 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

Exova¹

SAI2

ALS

Intertek

Securitas

Applus+

ISS

Sodexo

Bureau Veritas

Mistras

Team

Eurofins

Rentokil

1. Exova was acquired by Element Materials Technology Group on 29 June 2017; it is not part of the peer group for the performance year 2017.

2. SAI Global was acquired by Baring Asia Private Equity Fund VI on 22 December 2016; it is not part of the peer group for the performance year 2017.

165

For the free cash flow objective, the vesting level is predetermined as follows: for every percentage point of underachievement
below the target, the vesting level is reduced by 5%; for every percentage point of overachievement above target, the vesting level
is increased by 3%, to a maximum of 150%.

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.

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

166

6. REMUNERATION REPORT

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 2017, 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. PRINCIPLES OF THE LONG-TERM
INCENTIVE FOR THE PERFORMANCE
PERIOD 2018–2020

The Remuneration Committee worked
on a review of the Long-Term Incentive
plan for the next performance period
2018–2020. The following features have
been assessed:

i/ the vehicle and the vesting period:
The Remuneration Committee strongly
believes that the Long-Term Incentive
for the CEO and the Operations
Committee has to be subject to long-
term performance conditions, and that
it has to be settled in shares; this to
ensure a close alignment between the
long-term interests of the shareholders
and the remuneration of the CEO and the
Operations Council, in line also with the
Share Ownership Guidelines introduced
for the Operations Council members
since 2015. The Performance Share
Units are confirmed as the best vehicle
to serve the above purpose; the vesting,
subject to employment duration and long-
term performance conditions, is set over
a period of three years (cliff vesting).

ii/ the performance conditions: The
Remuneration Committee worked on
the simplification of the performance
conditions, with the objective to have
a sharper focus on the key elements
of the long-term value creation of the
Company, and to give a streamlined
long-term performance direction to the
CEO and the Operations Council.

The plan will be based on two financial
metrics, equally weighted at 50%: Total
Shareholder Return (TSR) (relative SGS
performance compared to the peer
group) and Adjusted Operating Income
Margin (absolute SGS performance
against an internal target). The vesting
levels, more ambitious compared to the
2015–2017 plan, will be as follows:

TSR: 150% vesting if SGS is ranked first
among the thirteen companies (including
SGS) composing the peer group, 100%
vesting if SGS is ranked fifth, and
zero vesting if SGS is ranked eight or
worse; in between, a linear interpolation
applies. In the 2015–2017 plan, 150%
vesting level was reached at upper
quartile or above, and 100% vesting was
reached at median.

Adjusted Operating Income Margin:
a threshold is set at 90% of target,
and the vesting is zero at or below
threshold; the vesting is 110% at target,
and reaches 150% at 110% of target or
above. The 2015–2017 plan did not have
Adjusted Operating Income Margin as
a performance measure.

The total vesting opportunity will
range from zero to 150% of the initial
grant (unchanged compared to the
2015–2017 plan).

iii/ the peer group: although two
companies initially part of the peer
group for the performance period
2015–2017 (Exova and SAI Global)
have been excluded as a result of their
delisting, the Remuneration Committee
believes that the remaining 12 companies
are still the most appropriate benchmark
for the Company in the next 2018–2020
performance period.

The aggregate value of the grant to
the Operations Committee (including
the CEO) under the Long-Term
Incentive 2018–2020 will be submitted
to the binding vote of the Annual
General Meeting of shareholders; the
individual grants will follow the approval
of the AGM. More details on the
grants and the Long-Term Incentive plan
for the performance period 2018–2020
will be disclosed in the 2018
Remuneration report.

167

3.2.5. SHAREHOLDING
OWNERSHIP GUIDELINE

A shareholding ownership guideline
(SOG) has been introduced in
2015, requiring the members of the
Operations Council to own at least
a certain multiple of their annual base
salary in SGS shares as follows:

• 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.

3.2.6. 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 172 in this
Report. Swiss-based Operations Council
members participate, on the same basis
as other Swiss employees of the Group,
in the Company’s pension scheme.
Employees contribute 8% of their base
salary and the Company contributes an
amount equal to one and a half times the
contributions paid by all employees to the
scheme. Employees have the possibility
to voluntarily increase their contribution
rate by 2% above the standard rate.
More flexibility has also been granted to
employees who wish to fund a potential
retirement before the normal age, or for
those who wish to continue working after
the age of 65.

3.2.7. 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.

• The cash portion of the Short-Term

Incentive is paid in March 2018, shortly
after the Annual General Meeting

3.2.8. TIMELINE OF REMUNERATION

The following outlines the timeline of
payment of each remuneration element
that was earned in 2017:

• The annual base salary is paid

during 2017

• The share portion of the Short-Term

Incentive is allocated in April 2018 and
will be unblocked in April 2021

• The PSUs granted under the Long-Term
Incentive in 2015 were earned over
the performance period from 2015
to 2017 and vested after the end of
the performance period.

TIMELINE (PERFORMANCE PERIOD, TIME OF PAYMENT)

PERFORMANCE OBJECTIVES

LONG-TERM
INCENTIVE
2015 GRANT

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

2021

SHAREHOLDING OWNERSHIP GUIDELINE

168

6. REMUNERATION REPORT

4. REMUNERATION AWARDED TO THE BOARD OF DIRECTORS

In 2017, 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 2017:

(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

184

413

163

193

196

193

196

228

163

413

163

193

196

193

196

228

163

2 134

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

The overall compensation paid to the Board of Directors in 2017 increased compared to 2016 and is CHF 9 000 higher than the
total amount approved by the 2017 AGM (CHF 2 125 000). This is because the employer social charges (reported under “other
benefits”) increased compared to last year for some of the Directors.

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)

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 2017

NUMBER
VESTED ON
31 DECEMBER 2016

2 013

2 059

40 000

75 000

189

40 000

75 000

40 000

50 000

1. One hundred options give the right to acquire one share.
2. Before Adjustment for capital reductions and special dividends.

169

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 2017. All amounts disclosed in this section
include the Short-Term Incentive cash amount and restricted shares that will be granted in April 2018 with respect to performance
in 2017 (disclosure according to the accrual principle).

5.1. PERFORMANCE IN 2017

The chart below summarises the 2017 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

2017

12 015

2 587

1 501

2016

11 259

2 304

1 263

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 1 010 000 are not included (2016: CHF 1 072 000). Employer’s contributions to social
benefits are excluded as well. The total cash compensation in 2017 was higher than in 2016 because the Short-Term Incentive
payout was higher.

The achievement of financial targets at Group level, in the businesses and in the regions ranges from 67.1% to 110.0%
(2016: 73.8% to 110.8%). The overall Short-Term Incentive payout amounts to 96.5% of the target incentive opportunity for the
CEO (2016: 78.0%) and ranges from 34.1% to 134.5% of the target incentive opportunity for the members of the Operations
Council (2016: 26.6% to 124.1%). 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 the 2017 Short-Term Incentive, SGS restricted shares will be allocated to the Operations Council (including Senior
Management) in April 2018 (2016: 863 restricted shares were granted in April 2017). 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 2017, 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 Performance Share Units (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 of such PSUs is after the conclusion of the performance

170

6. REMUNERATION REPORT

period 2015–2017. 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.

The table below details the vesting of the LTI 2015–2017 for the CEO, the Senior Management and the Operations Council:

NUMBER OF
PSUS GRANTED
IN 2015

FAIR MARKET
VALUE AT GRANT
(CHF THOUSAND)1

NUMBER OF PSUS
OUTSTANDING
AT VESTING

NUMBER
OF SHARES
ALLOCATED

FAIR MARKET
AT VESTING
(CHF THOUSAND)2

Operations Council
(including Senior Management)

Senior Management (including CEO)

CEO

14 570

24 906

13 350

14 867

37 777

3 772

2 346

6 448

4 010

3 772

2 346

4 199

2 611

10 670

6 635

1. Based on the average share price of the 20 trading days preceding the grant date.
2. Based on the share price at vesting.

The chart below summarises the performance achievements against targets over the three-year performance period 2015–2017:

Threshold

Target

Maximum

PERFORMANCE LEVEL

RELATIVE TSR

RELATIVE ORGANIC REVENUE GROWTH

RELATIVE NPAT IMPROVEMENT

FREE CASH FLOW

Achievement

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 2017, and shows those options which have been granted, vested and/or became exercisable in 2017.

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 2017

NUMBER VESTED ON
31 DECEMBER 2016

OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT AND CHIEF EXECUTIVE OFFICER)

SGSWS (2013)

SGSPF (2014)

SGSBB (2015)

2 013

2 059

1 798

729 500

586 061

803 959

SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)

SGSWS (2013)

SGSPF (2014)

SGSBB (2015)

CHIEF EXECUTIVE OFFICER

SGSWS (2013)

SGSPF (2014)

SGSBB (2015)

2 013

2 059

1 798

2 013

2 059

1 798

89 895

89 928

145 545

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.

171

1 627

1 477

1 785

200

227

323

104

184

729 500

586 061

535 973

89 895

89 928

97 030

46 632

23 464

55 151

729 500

390 707

535 973

89 895

59 952

97 030

46 632

15 643

55 151

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 2017 and 2016 by the Operations Council, by the Senior
Management and by the Chief Executive Officer.

Total compensation for 2017:

(CHF thousand)

To the Operations Council
(including Senior Management)2

BASE
SALARY

CONTRIBUTION
TO PENSION
BENEFITS

OTHER
EMPLOYMENT
BENEFITS

ANNUAL
CASH
INCENTIVE

ANNUAL
GRANT OF
RESTRICTED
SHARES1

LONG-TERM
INCENTIVE
PSUS GRANT

TOTAL 2017
COMPENSATION
(INCLUDING RESTRICTED
SHARES)

7 847

1 010

2 923

2 443

2 287

To Senior Management
(including Chief Executive Officer)3

1 710

To the Chief Executive Officer

900

207

100

531

318

618

434

618

434

1. Restricted Shares that will be granted in April 2018.

2. 22 FTE (Full Time Equivalent).

3. 3 FTE.

16 510

3 684

2 186

Total compensation for 2016:

(CHF thousand)

To the Operations Council
(including Senior Management)1

BASE
SALARY

CONTRIBUTION
TO PENSION
BENEFITS

OTHER
EMPLOYMENT
BENEFITS

ANNUAL
CASH
INCENTIVE

ANNUAL
GRANT OF
RESTRICTED
SHARES

LONG-TERM
INCENTIVE
PSUS GRANT

TOTAL 2017
COMPENSATION
(INCLUDING RESTRICTED
SHARES)

7 768

1 072

2 731

1 839

To Senior Management
(including Chief Executive Officer)2

1 610

To the Chief Executive Officer

800

225

100

539

458

303

312

458

312

1. 23 FTE (Full Time Equivalent).

2. 3 FTE.

15 249

3 290

1 827

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
2017. The charts exclude Long-Term Incentive grants.

CEO REMUNERATION MIX

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

(CHF thousand)

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
2017

Target

Minimum

Maximum

Actuals
2017

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

172

6. REMUNERATION REPORT

In 2017, the variable actual remuneration of the Chief Executive Officer represented 49% of the total actual compensation
(2016: 44%), split in cash (24.5%) and restricted shares (24.5%). For the Operations Council, including Senior Management,
the variable remuneration amounted to 36% of the total compensation on average (2016: 31%), split in cash (19%) and options
(17%). Total compensation includes the fixed remuneration (base salary) and the variable remuneration paid out for 2017
(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 was paid in 2017 for members of the Operations Council (unchanged from prior year).

5.5.2. OTHER COMPENSATION TO MEMBERS OR FORMER MEMBERS OF GOVERNING BODIES

No additional compensation or fees were paid to any 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 2017, one member of the Operations Council has an outstanding loan for an amount equivalent to CHF 66 496
(as at 31 December 2016, loans for a combined amount equivalent to CHF 28 365 was due to the Group from two members of
the Operations Council).

173

Deloitte SA
Rue du Pré-de-la-Bichette 1
1202 Geneva
Switzerland

Phone: +41 (0)58 279 8000
Fax: +41 (0)58 279 8800
www.deloitte.ch

Report of the statutory auditor

To the General Meeting of
SGS SA, Geneva

Report of the Statutory Auditor in relation to sections 4 and 5 of the remuneration
report in accordance with the Ordinance against Excessive compensation in Stock
Exchange Listed Companies (Ordinance)

We have audited sections 4 and 5 of the Remuneration Report of SGS SA for the year ended
31 December 2017, presented on pages 169 to 173.

Responsibility of the Board of Directors
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 2017 comply with Swiss law and articles 14 – 16 of the Ordinance.

Deloitte SA

Matthew Sheerin
Licensed Audit Expert
Auditor in Charge

Joëlle Herbette
Licensed Audit Expert

Geneva, 12 February 2018

174

7. SGS GROUP RESULTS

STORAGE TANK INSPECTION,
AUDIT AND CALIBRATION

SGS’ inspection, audit and
calibration of storage tanks
prevent disasters and provide
safety and compliance.

OIL, GAS AND
CHEMICALS

7. SGS GROUP RESULTS

CONSOLIDATED INCOME STATEMENT
FOR THE YEARS ENDED 31 DECEMBER

(CHF million)

REVENUE

Salaries and wages

Subcontractors’ expenses

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.

NOTES

2017

6 349

(3 193)

(394)

(338)

(1 530)

894

(57)

851

(187)

664

621

82.41

82.27

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED 31 DECEMBER

(CHF million)

Actuarial gains/(losses) on defined benefit plans

Income tax on actuarial gains/(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

NOTES

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

2017

(30)

(8)

664

687

644

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

1. In 2017, exchange differences and other include net exchange loss of CHF 2 million on long-term loans treated as net investment in a foreign entity

according to IAS 21 (2016: loss of CHF 23 million).

177

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

NOTES

2017

2016

1 002

1 238

222

168

137

2 803

339

1 068

236

104

1 383

3 140

5 943

2 036

(125)

1 919

2 005

2 090

143

2 357

677

152

734

1 581

3 938

5 943

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

178

7. SGS GROUP RESULTS

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED 31 DECEMBER

NOTES

19.1

19.2

(CHF million)

Profit for the year

Non-cash and non-operating items

(Increase)/Decrease in working capital

Taxes paid

CASH FLOW FROM OPERATING ACTIVITIES

Purchase of land, buildings, equipment and other intangible assets

Acquisition of businesses

(Increase)/Decrease in other non-current assets

Decrease in marketable securities and other

Interest and dividends received

Sales of land, buildings and equipment

CASH FLOW USED BY INVESTING ACTIVITIES

Dividends paid to equity holders of SGS SA

Dividends paid to non-controlling interests

Transaction with non-controlling interests

Cash received on treasury shares

Cash paid on treasury shares

Proceeds/(Reimbursements) of corporate bonds

Interest paid

Decrease in borrowings

CASH FLOW USED BY FINANCING ACTIVITIES

Currency translation

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

Increase/(Decrease) in cash and cash equivalents

CASH AND CASH EQUIVALENTS AT END OF YEAR

2017

664

565

(1)

(241)

987

(298)

(35)

(10)

(311)

(528)

(40)

(45)

374

(56)

(3)

(239)

(29)

408

975

408

1 383

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

179

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 2016

(324)

130

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

BALANCE AT 1 JANUARY 2017

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 2017

1. Net of tax.

(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

(478)

145

353

(1)

(946)

(238)

(8)

3 282

621

1 773

621

1 853

664

621

644

687

(528)

(40)

(568)

(2)

(337)

(2)

(125)

161

(915)

(246)

3 036

1 919

2 005

180

7. 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 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 2017. 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) and Swiss law.

The accounting conventions and
accounting policies are the same as
those applied in the 2016 consolidated
financial statements, except for the
Group’s adoption of new IFRSs effective
1 January 2017.

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 2017, 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
substantially changes the
classification and measurement
of financial instruments, requires
impairments to be based on a
forward-looking model and changes
the approach to hedging financial
exposures and related documentation
as well as the recognition of certain
fair value changes. IFRS 9 has been
implemented on 1 January 2018.
Based on its assessment, the Group
estimates the impacts would be
in a range from CHF 60 to 100 million
net of tax, representing a decrease
in the Group’s retained earnings.
In accordance with IFRS 9 transition
requirements, SGS has applied IFRS 9
retrospectively from 1 January 2018.
Any adjustment to the carrying value
of the financial assets will be reflected
as an adjustment to opening equity
and prior periods will not be restated.

• 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. The Group
implemented the new standard on
1 January 2018. The impact is not
significant, representing less than
0.5% of the consolidated revenues.

• IFRS 16 Leases will 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
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.

181

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 249–252.

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

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
recognised in other comprehensive
income and reclassified to profit or loss
on disposal.

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, 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 when
the outcome of the transaction can’t
be estimated reliably. Completed, but
unbilled, services are recorded at net
selling prices.

SEGMENT INFORMATION

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

The Group operates in 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.

LAND, BUILDINGS AND EQUIPMENT

Land is stated at historical cost and
is not depreciated. Buildings and
equipment are stated at historical

182

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.

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.

7. SGS GROUP RESULTS

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.

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.

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

183

asset or CGU is increased to the revised
estimate of its recoverable amount,
but not in excess of the carrying amount
that would have been recorded had
no impairment loss been recognised.
A reversal of an impairment loss is
recognised as income immediately.

UNBILLED REVENUES
AND INVENTORIES

Completed but unbilled services are
recorded at net selling prices.

Work in progress is measured at the
lower of the costs incurred in providing
the service and its ultimate invoice price
less costs to complete.

RECEIVABLES

Trade receivables are recognised and
carried at original invoice amount less an
allowance for any uncollectible amounts.
An allowance for doubtful debts is made
when collection of the full amount is no
longer probable. Bad debts are written
off when identified.

MARKETABLE SECURITIES

Marketable securities are recorded
in the balance sheet at fair value.
Movements in the fair value of
marketable securities are reported in the
income statement as financial income/
expenses. For marketable securities
designated as being available for sale,
the movements in fair value are recorded
as a component of shareholders’ equity
and recognised in the income statement
at the time of disposal. Marketable
securities designated as available for
sale are those that are not classified
as at fair value through profit and loss.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents 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.

CORPORATE BONDS

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

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

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

EMPLOYEE BENEFITS

PENSION PLANS

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

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

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

Past service costs are immediately
recognised as an expense. Net interest
expense is calculated by applying
the discount rate at the beginning
of the period to the net defined benefit
liability or asset. The retirement benefit
obligation recognised in the balance
sheet represents the present value of
the defined benefit obligation reduced
by the fair value of plan assets. Any
asset resulting from this calculation is
limited to the present value of available
refunds and reductions in future
contributions to the plan.

Payments to defined contribution plans
are recognised as an expense in
the income statement as incurred.

POST-EMPLOYMENT PLANS OTHER
THAN PENSIONS

The Group operates some non-pension
post-employment defined benefit
schemes, mainly healthcare plans.
The method of accounting and
the frequency of valuations are similar
to those used for defined benefit
pension plans.

EQUITY COMPENSATION PLANS

The Group provides additional benefits to
certain senior executives and employees
through equity compensation plans
(see note 31). An expense is recognised
in the income statement for shares
and equity-linked instruments granted
to senior executives and employees
under these plans.

TRADE PAYABLES

Trade payables are recognised at nominal
value that approximates the fair value.

PROVISIONS

The Group records provisions when:
it has an obligation, legal or constructive,
to satisfy a claim; it is probable that
an outflow of Group resources will be
required to satisfy the obligation;
and a reliable estimate of the amount
can be made.

In the case of litigation and claims
relating to services rendered, the
amount that is ultimately recorded
is the result of a complex process of
assessment of a number of variables,
and relies on Management’s informed
judgement about the circumstances
surrounding the past provision of
services. It also relies on expert legal
advice and actuarial assessments.

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

184

BORROWING COSTS

Borrowing costs directly attributable
to the acquisition, construction or
production of qualifying assets, which
are assets that necessarily take a
substantial period of time to get ready
for their intended use or sale, are added
to the cost of those assets, until such
time as the assets are substantially
ready for their intended use or sale.

Investment income earned on the
temporary investment of specific
borrowings pending their expenditure on
qualifying assets is deducted from the
borrowing costs eligible for capitalisation.

All other borrowing costs are recognised
in the income statement in the period in
which they are incurred.

RESTRUCTURING COSTS

The Group recognises costs of
restructuring against operating income
in the period in which Management has
committed to a formal plan, the costs
of which can be reliably estimated,
and has raised a valid expectation
in those affected that the plan will
be implemented and the related
costs incurred. Where appropriate,
restructuring costs include impairment
charges arising from 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.

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

In 2017, the Board of Directors of SGS
SA 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.

7. SGS GROUP RESULTS

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 used.

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.

TREASURY SHARES

Treasury shares are reported as a
deduction to equity. The original cost
of treasury shares and the proceeds of
any subsequent sale are recorded as
movements in equity.

SIGNIFICANT ACCOUNTING
JUDGEMENTS AND ESTIMATES

JUDGEMENTS

In the process of applying the entity’s
accounting policies described above,
Management has made the following
judgements that have a significant
effect on the amounts recognised
in the financial statements.

LEGAL AND WARRANTY CLAIMS
ON SERVICES RENDERED

The Group is subject to litigation and other
claims as described in note 25.

Management bases its judgements on
the circumstances relating to each specific
event, internal and external legal advice,
knowledge of the industries and markets,
prevailing commercial terms and legal
precedent, and evaluation of applicable
insurance cover where appropriate.
The Group’s legal and warranty claims
are reviewed, at a minimum, on a quarterly
basis by a cross-functional representation
of Management.

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.

185

IMPAIRMENT OF GOODWILL

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
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.

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 2017 and 2016:

BUSINESS COMBINATIONS 2017

In 2017, the Group completed 12 business
combinations for a total purchase price of
CHF 40 million (note 20).

• 100% of Laboratoire LCA, offering
analytical services, including soil
fertility testing, to the agricultural
sector, based in Morocco (effective
3 January 2017).

• 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, based in Australia (effective
10 January 2017).

• 100% of ILC Micro-Chem, Inc.,

specialised in the analysis of raw food
materials, finished food products and
environmental swabs for the food
manufacturing industry, based in
Canada (effective 9 March 2017).

• 100% of Harrison Research

Laboratories, Inc., providing services
to the cosmetic and personal care
industry. Services include sunscreen
and dermal patch testing as well
as safety, efficacy and claims
substantiation support testing, based
in the USA (effective 20 June 2017).

BALANCE SHEET
YEAR-END RATES

INCOME STATEMENT
ANNUAL AVERAGE RATES

2017

76.19

29.46

77.84

0.16

14.99

116.80

131.81

12.49

3.29

97.59

2016

74.00

31.23

75.88

0.15

14.75

107.12

125.75

13.23

3.18

102.57

2017

75.45

30.85

75.89

0.15

14.57

111.15

126.83

12.64

3.24

98.49

2016

73.27

28.38

74.36

0.15

14.83

109.01

133.60

12.69

3.05

98.49

• Acquisition of the assets and business
of Geostrada, based in South Africa.
Geostrada provides construction
material and geotechnical testing
services (effective 5 September 2017).

• 100% of Win Services Pty Ltd and

Leadership Directions Pty Ltd based
in Australia, providing leadership, and
organisational development training
services (effective 4 October 2017).

• 100% of BioVision Seed Research Ltd.
(BioVision), headquartered in Canada.
BioVision offers seed, grain and
soil testing services catering to
the agricultural markets (effective
3 November 2017).

These companies were acquired for an
equivalent of CHF 40 million and the total
goodwill generated on these transactions
amounted to CHF 30 million (note 20).

TOTAL

All the above transactions contributed
in total CHF 19 million in revenues
and CHF 3 million in operating income.
Had all acquisitions been effective
1 January 2017, the revenues for
the period would have increased by
CHF 18 million and the Group operating
income for the period would have been
increased by CHF 3 million. None of the
goodwill arising on these acquisitions is
expected to be tax deductible.

• 100% of SGS Leicester Ltd., a UKAS-
accredited textile testing laboratory
performing physical, chemical and
flammability testing services for
garment industry, based in the United
Kingdom (effective 7 July 2017).

• 100% of Central Illinois Grain

Inspection, Inc., a USDA licensed
agency inspecting grains and
by-products for export and domestic
quality settlements with growers, based
in the USA (effective 10 July 2017).

• 100% of CTR Consulting Testing

Research Srl (CTR), based in Italy,
CTR provides conventional and
advanced non-destructive testing
services, as well as destructive and
chemical testing and heat treatment
services catering to the requirements
of manufacturers, power generation
clients and the oil and gas sector
(effective 2 August 2017).

• 100% of Maco Customs Service

(Maco), based in the Netherlands.
Maco offers customs compliance
services including consultancy,
import, export and transit declarations,
certificates of origin, fiscal
representation and excise (effective
2 August 2017).

• 100% of Govmark Testing Services,
Inc. based in the Unites States of
America. Govmark is an independent
laboratory providing fire resistance
and reaction to fire testing services.
Testing products such as furniture and
furnishings, wire and cable, building
materials and fire safe materials for
the transportation industry (effective
6 September 2017).

186

7. SGS GROUP RESULTS

DIVESTMENTS 2017

• 100% of Matrolab Group (Pty)Ltd.,

There were no significant disposals
in 2017.

BUSINESS COMBINATIONS 2016

In 2016, the Group completed
19 business combinations for a total

purchase price of CHF 193 million.

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.

OTHER

In 2016 other acquisitions included:

• 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);

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);

• 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);

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 and 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 Laboratorios Contecon Urbar,

• 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.

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.

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
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

187

4. INFORMATION BY BUSINESS AND GEOGRAPHICAL SEGMENT

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.

ANALYSIS OF OPERATING INCOME

(CHF million)

ADJUSTED OPERATING INCOME

Amortisation and impairment of acquired intangibles

Restructuring costs

Goodwill Impairment

Other non-recurring items

Amortisation and impairment of acquired intangibles and non-recurring items

OPERATING INCOME

ANALYSIS OF REVENUE AND OPERATING INCOME

2017

969

(29)

(7)

(30)

(9)

(75)

894

2016

919

(26)

(49)

(28)

(103)

816

(CHF million)

2017

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

TOTAL

(CHF million)

2016

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

TOTAL

ADJUSTED
OPERATING
INCOME

AMORTISATION
OF ACQUISITION
INTANGIBLES

REVENUE

RESTRUCTURING
COSTS

GOODWILL
IMPAIRMENT

OTHER NON-
RECURRING
ITEMS

OPERATING
INCOME
BY BUSINESS

1 016

684

1 139

963

340

906

486

547

268

6 349

162

105

120

247

969

(2)

(3)

(8)

(5)

(7)

(29)

(2)

(1)

(7)

(30)

(3)

(1)

(2)

(1)

(9)

155

103

117

242

894

REVENUE

ADJUSTED
OPERATING
INCOME

AMORTISATION
OF ACQUISITION
INTANGIBLES

RESTRUCTURING
COSTS

OTHER NON-
RECURRING
ITEMS

OPERATING
INCOME
BY BUSINESS

935

635

1 098

873

324

891

464

490

275

5 985

147

116

224

919

188

(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

7. SGS GROUP RESULTS

RESTRUCTURING COSTS

The Group incurred a pre-tax restructuring charge of CHF 7 million (2016: CHF 49 million). This comprised personnel reorganisation
of CHF 5 million (2016: CHF 18 million) as well as fixed asset impairment and other charges of CHF 2 million (2016: CHF 31 million).

REVENUE FROM EXTERNAL CUSTOMERS BY GEOGRAPHICAL SEGMENT

(CHF million)

Europe/Africa/Middle East

Americas

Asia Pacific

TOTAL

2017

2 791

1 632

1 926

6 349

44.0

25.7

30.3

100.0

2016

2 660

1 531

1 794

5 985

44.4

25.6

30.0

100.0

Revenue in Switzerland from external customers for 2017 amounted to CHF 181 million (2016: CHF 212 million). No country
represented more than 15% of revenues from external customers in 2017 or 2016.

MAJOR CUSTOMER INFORMATION

In 2017 and 2016, no external customer represented 10% or more of the Group’s total revenue.

SPECIFIC NON-CURRENT ASSETS BY GEOGRAPHICAL SEGMENT

Specific non-current assets directly attributable to geographical segment mainly include Land, building and equipment, Goodwill
and other intangible assets:

(CHF million)

Europe/Africa/Middle East

Americas

Asia Pacific

TOTAL

2017

1 286

770

497

2 553

50.4

30.2

19.4

100.0

2016

1 199

782

518

2 499

48.0

31.3

20.7

100.0

Non-current assets in Switzerland for 2017 amounted to CHF 144 million (2016: CHF 145 million).

(CHF million)

2017

2016

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

2 553

168

2 803

2 499

165

2 738

189

CAPITAL ADDITIONS BY BUSINESS SEGMENT

(CHF million)

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

2017

302

18.0

9.3

17.0

18.9

1.4

10.1

7.1

14.0

4.2

100.0

AVERAGE NUMBER OF EMPLOYEES BY GEOGRAPHICAL SEGMENT

(Average number of employees)

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

2016

288

2017

38 848

22 527

32 181

93 556

95 745

2017

298

460

100

386

286

1 530

17.3

7.4

17.0

19.0

1.3

12.2

6.8

15.0

4.0

100.0

2016

36 818

21 432

31 376

89 626

92 269

2016

294

395

100

360

307

1 456

The share of net profit of associates and joint-ventures accounted for using the equity method amounts to CHF nil (2016: CHF nil)
and is included in the miscellaneous operating income and expenses.

190

7. SGS GROUP RESULTS

6. FINANCIAL INCOME

(CHF million)

Interest income

Foreign exchange gains/(losses)

Other financial income

TOTAL

7. FINANCIAL EXPENSES

(CHF million)

Interest expense

Loss on derivatives at fair value

Other financial expenses

Net financial expenses on defined benefit plans

TOTAL

8. TAXES

MAJOR COMPONENTS OF TAX EXPENSE

(CHF million)

Current taxes

Deferred tax (credit)/expense relating to the origination and reversal
of temporary differences

TOTAL

2017

221

(34)

187

2016

(3)

2016

196

(11)

185

The Group has operations in various countries that have different 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:

RECONCILIATION OF TAX EXPENSE

(CHF million)

Profit before taxes

Tax at statutory 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

2017

851

147

(4)

(7)

187

2016

771

135

185

191

DEFERRED TAX AFTER NETTING

(CHF million)

Deferred tax assets

Deferred tax liabilities

TOTAL

COMPONENTS OF DEFERRED INCOME TAX BALANCES

(CHF million)

Fixed assets

Inventories and receivables

Defined benefit obligation

Provisions and other

Intangible assets

Tax losses carried forward

DEFERRED INCOME TAXES

Net change in deferred tax assets/(liabilities):

(CHF million)

NET DEFERRED INCOME TAX ASSET (LIABILITY) AT 1 JANUARY 2016

(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

(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 2017

2017

168

(45)

123

2016

165

(42)

123

2017

2016

ASSETS

LIABILITIES

ASSETS

LIABILITIES

173

179

TOTAL

113

(4)

123

(30)

(4)

123

1. Related to measurement gains and losses on pensions CHF (30) million (2016: CHF 3 million) inclusive of a tax loss related to the enactment

of the US tax reform of CHF (26) million.

The Group has unrecognised tax losses carried forward amounting to CHF 34 million (2016: CHF 59 million), of which none will
expire within the next five years. No tax losses carried forward expired in 2017.

At 31 December 2017, the retained earnings of subsidiaries and foreign incorporated joint ventures consolidated by the Group
include approximately CHF 2 623 million (2016: CHF 2 387 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.

192

7. SGS GROUP RESULTS

9. EARNINGS PER SHARE

Basic earnings per share are calculated as follows:

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

Weighted average number of shares

BASIC EARNINGS PER SHARE (CHF)

2017

621

7 541

82.41

2016

543

7 583

71.54

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 equity compensation plans (see note 31):

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

Diluted weighted average number of shares ('000)

DILUTED EARNINGS PER SHARE (CHF)

Adjusted earnings per share are calculated as follows:

(CHF million)

Profit attributable to equity holders of SGS SA

Amortisation and impairment of acquired intangibles

Restructuring costs net of tax

Goodwill impairment

Other non-recurring items net of tax

ADJUSTED PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF SGS SA

ADJUSTED BASIC EARNINGS PER SHARE (CHF)

ADJUSTED DILUTED EARNINGS PER SHARE (CHF)

2017

621

7 553

82.27

2017

621

692

91.74

91.59

2016

543

7 591

71.47

2016

543

629

83.00

82.91

193

10. LAND, BUILDINGS AND EQUIPMENT

(CHF million)

LAND &
BUILDINGS

MACHINERY
& EQUIPMENT

OTHER
TANGIBLE ASSETS

TOTAL

2017
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 2017

448
18
2
(11)
35
492

222
16
1
1
(4)
9
245
247

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 2017

1
1
-

1 891
150
5
(59)
72
2 059

1 390
174
(3)
4
(56)
40
1 549
510

3
2
1

684
107
3
(30)
(28)
736

439
67
-
1
(27)
11
491
245

-
-
-

3 023
275
10
(100)
79
3 287

2 051
257
(2)
6
(87)
60
2 285
1 002

4
3
1

(CHF million)

LAND &
BUILDINGS

MACHINERY
& EQUIPMENT

OTHER
TANGIBLE ASSETS

TOTAL

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

444
23
2
(27)
6
448

230
17
-
(25)
-
222
226

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

-
-
-

1 763
132
25
(68)
39
1 891

1 243
175
29
(63)
6
1 390
501

2
2
-

643
103
6
(40)
(28)
684

413
61
1
(37)
1
439
245

-
-
-

2 850
258
33
(135)
17
3 023

1 886
253
30
(125)
7
2 051
972

2
2
-

At 31 December 2017, the Group had commitments of CHF 3 million (2016: 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 28 million (2016: CHF 27 million).

194

7. SGS GROUP RESULTS

11. GOODWILL

(CHF million)

NOTE

2017

2016

COST
At 1 January
Additions
Consideration on prior years’ acquisitions
Impairment
Exchange differences
AT 31 DECEMBER

1 195
30
3
(30)
40
1 238

1 088
95
-
(1)
13
1 195

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

• For 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 is 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 is 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.

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
Certification and Business Enhancement
Government and Institutions
TOTAL

2017

143
245
233
157
229
122
102
4
3
1 238

2016

137
230
220
143
257
123
85
-
-
1 195

Goodwill impairment reviews have been conducted for all goodwill balances allocated to the CGUs as described above.

In 2017, the oil and gas sector in which the Industrial USA and Canada CGU operates has experienced a significant downturn
with a material reduction in capital and operating expenditure by its main customers. As a result, the Group revised its cash flow
forecasts considering multiple scenarios and has therefore reduced the CGU value to its recoverable amount. This has resulted in
an impairment charge of CHF 30 million (2016: CHF 1 million in relation to the restructuring).

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.

195

PRE-TAX DISCOUNT RATE USED IN 2017 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

2017

6.7%

5.4% – 6.2%

6.5% – 7.0%

5.9%

4.4% – 9.6%

8.6%

7.2%

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.

For all impairment tests the key assumptions used in the sensitivity analyses were the following:

• Reducing the expected annual revenue growth rates for the first five years by 2.0%

• Reducing the operating margin by 0.25%

• Increasing the discount rate assumption by 1.0%

For all impairment tests other than the Industrial USA and Canada CGU, changing the key assumptions retained in the scenario
using sensitivity analyses described above would not result in any of the carrying amounts exceeding the recoverable amount.

For the Industrial USA and Canada CGU, it would not result in an impairment significantly higher than the impairment recorded.
In addition, further sensitivity analyses have been performed and did not significantly change the conclusions of the tests.

12. OTHER INTANGIBLE ASSETS

TRADEMARKS
AND OTHER

CUSTOMER
RELATIONSHIPS

INTERNALLY
GENERATED

PURCHASED

TOTAL

COMPUTER SOFTWARE
AND OTHER ASSETS

(CHF million)

2017

COST

At 1 January

Additions

Acquisition of subsidiaries

Disposals

Exchange differences and other

At 31 December

ACCUMULATED AMORTISATION AND IMPAIRMENT

At 1 January

Amortisation

Impairment

Acquisition of subsidiaries

Disposals

Exchange differences and other

At 31 December

NET BOOK VALUE AT 31 DECEMBER 2017

106

117

294

(3)

313

242

(2)

259

720

(3)

757

474

(2)

535

222

243

246

117

129

196

7. SGS GROUP RESULTS

(CHF million)

2016

COST

At 1 January

Additions

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

SIGNIFICANT INTANGIBLE ASSETS

TRADEMARKS
AND OTHER

CUSTOMER
RELATIONSHIPS

INTERNALLY
GENERATED

PURCHASED

TOTAL

COMPUTER SOFTWARE
AND OTHER ASSETS

(2)

188

243

150

106

283

(2)

(8)

294

225

(2)

242

643

(2)

(4)

720

425

(2)

(1)

474

246

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 (2016: CHF 5 million) and are being amortised
over a period of four years.

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

2017

137

2016

122

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 5%.

In 2017, other non-current assets included deposits for guarantees and CHF 39 million (2016: CHF 29 million) of restricted cash.
Typical examples of restricted cash are cash deposits for performance bonds, rentals and other operating obligations.

At 31 December 2017 and 2016, the fair value of the Group's other non-current assets approximates their carrying value.

197

14. UNBILLED REVENUES AND INVENTORIES

(CHF million)

Work in progress

Unbilled revenues

Inventories

TOTAL

15. TRADE ACCOUNTS AND NOTES RECEIVABLE

(CHF million)

Trade accounts and notes receivable

Allowance for doubtful accounts

TOTAL

Ageing of trade accounts and notes receivable:

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

2017

106

187

339

2017

1 181

(113)

1 068

397

454

113

101

1 181

2016

187

290

2016

1 111

(114)

997

411

413

100

1 111

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

2017

(114)

(1)

(24)

(113)

2016

(98)

(2)

(25)

(1)

(114)

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 2017 is represented by the carrying amounts
of receivables in the balance sheet.

198

7. SGS GROUP RESULTS

16. OTHER RECEIVABLES AND PREPAYMENTS

(CHF million)

Accrued income, prepayments

Derivative assets

Other receivables

TOTAL

2017

149

236

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

2017

2016

181

252

2016

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 2017 (2016: CHF 1 million).

18. CASH AND CASH EQUIVALENTS

(CHF million)

Cash and short-term deposits

Deposits on demand

Short-term loans

TOTAL

19. CASH FLOW STATEMENT

19.1. NON-CASH AND NON-OPERATING 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 in provisions and employee benefits

Share-based payment expenses

Gain on disposals of land, buildings and equipment

Taxes

NON-CASH AND NON-OPERATING ITEMS

NOTES

10 and 12

6 and 7

199

2017

1 342

1 383

2017

257

(1)

(18)

(2)

187

565

2016

954

975

2016

253

(20)

(2)

185

560

19.2. (INCREASE)/DECREASE IN WORKING CAPITAL

(CHF million)

(Increase)/decrease in unbilled revenues and inventories

Increase in trade accounts and notes receivable

Decrease in other receivables and prepayments

Increase in trade and other payables

Increase in other creditors and accruals

Decrease in other provisions

(INCREASE)/DECREASE IN WORKING CAPITAL

20. ACQUISITIONS

ASSETS AND LIABILITIES ARISING FROM 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 payable

Payment on prior year acquisitions

Prepayment on acquisitions

NET CASH OUTFLOW ON ACQUISITIONS

2017

(45)

(6)

(1)

2016

(30)

(7)

TOTAL

FAIR VALUE ON
ACQUISITION
2017

FAIR VALUE ON
ACQUISITION
2016

(11)

(3)

(1)

(6)

(3)

(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 (2016: CHF 6 million) related to external legal fees, due diligence
expenses as well as the costs of maintaining an internal acquisition department. These expenses are reported within Other
Operating Expenses in the consolidated income statement.

200

7. SGS GROUP RESULTS

21. FINANCIAL RISK MANAGEMENT

RISK MANAGEMENT POLICIES AND OBJECTIVES

The Group’s activities expose it primarily to market, credit and liquidity risk. Market risk includes foreign exchange, interest rate
and equity price risks.

The risk management policies and objectives are governed by the Group’s policies approved by the Board of Directors.

The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls
and to monitor the risk and limits continually by means of reliable and up-to-date administrative and information systems.

The Audit Committee oversees how Management monitors compliance with the Group’s risk management policies. The Audit
Committee is assisted in its oversight role by Internal Audit.

RISK MANAGEMENT ACTIVITIES

The Group uses foreign exchange contracts to manage the Group’s exposure to fluctuations in foreign currency exchange rates.
These activities are carried out in accordance with the Group’s risk management policies and objectives in areas such as
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)

2017

2016

2017

2016

2017

2016

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

(1)

(2)

(6)

(1)

(5)

(1)

(2)

(6)

(1)

(5)

(7)

(9)

(39)

(7)

(10)

(63)

(24)

(34)

(8)

(197)

(243)

(2)

(1)

(3)

(2)

(5)

(4)

(1)

(12)

(570)

(25)

(8)

(821)

(4)

(3)

(5)

(4)

(5)

(13)

(351)

(42)

(8)

(764)

201

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 10 million (2016: CHF 9 million) qualify as Level 1, fair value measurement category.

Derivative assets (2017: CHF 16 million; 2016: CHF 3 million) and liabilities (2017: CHF 13 million; 2016: CHF 12 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.

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 2017 is the carrying amount of financial
assets including derivatives.

Analysis of financial assets by class and category at 31 December 2017:

AMORTISED
COST LOANS AND
RECEIVABLES

FAIR VALUE

AVAILABLE
FOR SALE

AT FAIR VALUE
THROUGH P&L

TOTAL

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

(CHF million)

Cash and cash-equivalents

Trade receivables

Other receivables¹

Unbilled revenues and
Work in progress

Loans to 3rd parties – non-current

Marketable securities

Derivatives

1 383

1 068

143

1 383

1 068

143

293

TOTAL FINANCIAL ASSETS

2 896

1. Excluding VAT and other tax related items.

1 383

1 068

143

1 383

1 068

143

293

2 922

In the fair value hierarchy, marketable securities qualify as Level 1 and the remaining financial assets qualify as Level 2.

202

7. SGS GROUP RESULTS

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

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

CARRYING
AMOUNT

FAIR VALUE

(CHF million)

Cash and cash-equivalents

Trade receivables

Other receivables¹

Unbilled revenues and
Work in progress

Loans to 3rd parties – non-current

Marketable securities

Derivatives

975

997

154

249

975

997

154

249

TOTAL FINANCIAL ASSETS

2 389

1. Excluding VAT and other tax related items.

975

997

154

249

975

997

154

249

2 401

In the fair value hierarchy, marketable securities qualify as Level 1 and the remaining financial assets qualify as Level 2.

LIQUIDITY RISK MANAGEMENT

The objective of the Group'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 2017:

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

344

171

344

171

2 091

2 181

2 652

2 742

(CHF million)

Trade payables

Other payables and financial liabilities¹

Advances from clients

344

171

344

171

Loans and obligations under finance leases

2 091

2 181

Derivatives

Bank overdrafts

TOTAL FINANCIAL LIABILITIES

2 639

2 729

1. Excluding VAT and other tax related items.

In the fair value hierarchy, all financial liabilities qualify as Level 2.

203

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.

Contractual maturities of financial liabilities including interest payments at 31 December 2017:

(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

406

314

260

1 206

1 178

(1 178)

481

517

409

315

261

1 207

The Group hedges its foreign exchange exposure on a net basis. The net gross settled derivative financial instruments of less than
CHF 1 million (2016: CHF 10 million) represents the net nominal value expressed in CHF of the Group’s foreign currency contracts
outstanding at 31 December 2017.

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

204

7. SGS GROUP RESULTS

SENSITIVITY ANALYSES

The estimated changes in the value of net foreign currency positions are based on an instantaneous 5% weakening of the Swiss
Franc against all other currencies from the level applicable at 31 December 2017 and 2016, with all other variables remaining constant.

Sensitivity analysis at 31 December 2017 and 2016:

(CHF million)

US Dollar (USD)
Euro (EUR)
CFA Franc BEAC (XAF)
New Cedi (GHS)
Taiwanese Dollar (TWD)
Australian Dollar (AUD)
Canadian dollar (CAD)
Brazilian Real (BRL)
Colombian Peso (COP)
Chilean Peso (CLP)

2017

2016

INCOME STATEMENT
IMPACT INCOME/(EXPENSE)

EQUITY IMPACT
INCREASE/(DECREASE)

INCOME STATEMENT
IMPACT INCOME/(EXPENSE)

EQUITY IMPACT
INCREASE/(DECREASE)

3
(3)
3
(1)
-
-
-
-
-
-

(8)
-
-
-
(1)
(2)
(4)
(2)
(1)
(3)

3
(3)
2
(1)
-
-
-
-
-
-

9
-
-
-
1
2
4
2
1
3

INTEREST RATE RISK MANAGEMENT

The Group is exposed to fair value interest rate risk because the Group borrows funds at fixed interest rates. 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 2017 would increase/decrease
by CHF nil (2016: nil).

22. SHARE CAPITAL AND TREASURY SHARES

BALANCE AT 1 JANUARY 2016
Treasury shares released into circulation
Treasury shares purchased
for equity compensation plans
Treasury shares purchased for cancellation
BALANCE AT 31 DECEMBER 2016
Treasury shares released into circulation
Treasury shares purchased
for equity compensation plans
Treasury shares cancelled
BALANCE AT 31 DECEMBER 2017

ISSUED SHARE CAPITAL

SHARES IN
CIRCULATION

TREASURY
SHARES

TOTAL
SHARES ISSUED

TOTAL SHARE CAPITAL
(CHF million)

7 605 460
49 162

(6 315)

(109 800)
7 538 507
30 133

(17 232)

-
7 551 408

216 976
(49 162)

6 315

109 800
283 929
(30 133)

17 232

(188 704)
82 324

7 822 436
-

-
7 822 436
-

(188 704)
7 633 732

8
-

-
8
-

-
8

SGS SA has a share capital of CHF 7 633 732 (2016: CHF 7 822 436) fully paid in and divided into 7 633 732 (2016: 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 2017, SGS SA held 82 324 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 2017, 30 133 treasury shares were sold to cover the equity compensation plans and 17 232 were purchased for an average
price of CHF 2 484.

In 2017, the Group initiated a share buyback programme for a total of up to CHF 250 million.

205

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 21 March 2019.

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

CURRENT YEAR INFORMATION

(CHF million)

Bank loans

Bank overdrafts

Corporate bond

Finance lease obligations

TOTAL

Current

Non-current

2017

2 088

2 091

2 090

2016

1 716

1 720

1 719

Depending on the nature of the loan, currency and date of maturity, interest rates on long-term loans from third parties range
between 0% and 5.75% and on short-term loans from third parties range between 0% and 7.57%.

The loans from third parties exposed to fair value interest rate risk amounted to CHF 2 088 million (2016: CHF 1 718 million) and
the loans from third parties exposed to cash flow interest rate risk amounted to CHF 2 million (2016: CHF 1 million).

The fair value of corporate bonds was CHF 2 178 million (2016: CHF 1 808 million).

The only non-cash items are the finance lease obligations.

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

03.03.2017

FACE VALUE IN
CHF MILLION

COUPON IN %

YEAR OF
MATURITY

ISSUE
PRICE IN %

REDEMPTION
PRICE IN %

2019

2021

2022

2024

2022

2023

2030

2026

100.832

100.480

100.517

101.019

101.533

100.079

100.245

100.153

100.000

375

275

138

250

112

325

225

375

2.625

3.000

1.375

1.750

1.375

0.250

0.875

0.550

206

7. SGS GROUP RESULTS

Loans and finance lease obligations mature as follows:

(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

BANK LOANS, OVERDRAFTS
AND CORPORATE BOND

2017

375

293

247

1 174

2 090

2016

375

297

1 046

1 719

The currency composition of loans and finance lease obligations is as follows:

(CHF million)

Swiss Franc (CHF)

Euro (EUR)

Malagasy Ariary (MGA)

Other

TOTAL

BANK LOANS, OVERDRAFTS
AND CORPORATE BOND

2017

2 088

2 090

2016

1 716

1 719

FINANCE LEASE
OBLIGATIONS

2017

2016

FINANCE LEASE
OBLIGATIONS

2017

2016

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, South 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 2017 of CHF 13 million (2016: 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.

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 15 years.

The Group expects to contribute CHF 7 million to this plan in 2018.

207

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 8 million to this plan in 2018.

UNITED KINGDOM

The Group operates two defined benefit plans through trusts. 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 and was bought out in 2017. 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 2018.

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 11 million to those plans in 2018.

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)

2017

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

(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

409

(392)

(10)

238

(208)

209

(226)

(17)

(7)

(24)

(64)

(21)

(62)

(83)

899

(890)

(79)

(70)

USA

OTHER

TOTAL

384

(374)

(10)

232

(215)

231

(254)

(23)

(8)

(31)

(66)

(27)

(53)

(80)

886

(909)

(23)

(71)

(94)

208

7. SGS GROUP RESULTS

The net liability of CHF 70 million (2016: CHF 94 million) includes CHF 73 million (2016: CHF 60 million) of pension fund assets
recognised in the item Other Non-Current Assets in note 13 and CHF 143 million (2016: CHF 154 million) of pension fund liability
recognised in the item Defined Benefit Obligation in the balance sheet.

Amounts recognised in the income statement:

(CHF million)

2017

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)

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

USA

OTHER

TOTAL

USA

OTHER

TOTAL

(2)

Amounts recognised in the statement of other comprehensive income:

(CHF million)

2017

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

(23)

(8)

(5)

(1)

(10)

(12)

(2)

(11)

(1)

(44)

(22)

209

(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)

Movements in the net asset/(liability) during the period:

(CHF million)

2017

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

(8)

(1)

(31)

(4)

(24)

(80)

(8)

(6)

(83)

(94)

(21)

(4)

(70)

(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

Special pension fund contribution

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)

210

7. SGS GROUP RESULTS

Change in the defined benefit obligation is as follows:

(CHF million)

2017

USA

OTHER

TOTAL

Opening present value of the defined benefit obligation

384

215

262

119

980

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

(13)

402

(17)

(6)

(5)

(1)

208

(24)

(16)

(2)

(13)

233

(3)

(7)

(1)

126

(44)

(42)

(1)

969

(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 in DBO from acquisitions

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

Change in fair value of plan assets is as follows:

(CHF million)

2017

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

Exchange differences

FAIR VALUE OF PLAN ASSETS AT 31 DECEMBER

USA

OTHER

TOTAL

384

(13)

409

232

(6)

(17)

238

231

(16)

(24)

(12)

209

(7)

(3)

886

(42)

(44)

899

211

(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

Pension funds special contribution

Actual plan participants’ contributions

Actual net benefit payments

Actual admin expenses paid

Settlements

Net increase in assets from acquisitions

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)

885

There are no reimbursement rights included in plan assets. The actual return on plan assets was a gain of CHF 64 million
(2016: loss of CHF 66 million).

The major categories of plan assets at the balance sheet date are as follows:

(CHF million)

2017

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)

2016

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

113

124

409

238

159

209

213

312

124

126

899

USA

OTHER

TOTAL

105

121

384

232

157

231

228

298

121

106

886

In 2017 and 2016, 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.

212

7. SGS GROUP RESULTS

In the United States of America, the Pension Plan Target Policy is determined by both quantitatively and qualitatively assessing
the risk tolerance level and return requirements of the Plan as determined by the Investment Committee. The investment portfolio
asset allocation and structure are developed based on the results of this process. In the United Kingdom, the Trustees review the
investment strategy of the Scheme and the Plan on a regular basis in order to ensure that they remain appropriate. The last review
for both the Scheme and Plan has recently been undertaken and is in the process of being implemented.

Actuarial assumptions vary according to local prevailing economic and social conditions. The principal weighted average actuarial
assumptions used in determining the cost of benefits for both 2017 and 2016 are as follows:

(Weighted average %)

2017

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

LPP 2015
CMI 2016

2.6

3.6

SNA02 CMI
2016

RP 2014 SSA
MP 2017

1.5

0.2

3.0

3.6

3.1

3.3

8.0

4.5

2 025

2.2

2.8

0.6

(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
2016

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

2 022

2.0

2.8

0.6

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 32 million; a 0.5% increase in assumed salary increases would increase the obligation by CHF 2 million; and a one-year
increase in members’ life expectancy would increase the obligation by approximately CHF 13 million.

In the United States of America, a decrease in the discount rate of 0.5% per annum would, all other things being equal, increase
the obligation by CHF 15 million; a 0.5% increase in assumed salary increases would not impact the obligation and a one-year
increase in members’ life expectancy would increase the obligation by approximately CHF 9 million.

In the United Kingdom, a decrease in the discount rate of 0.5% per annum would, all other things being equal, increase
the obligation by CHF 22 million; a 0.5% increase in assumed salary increases would increase the obligation; by CHF 3 million;
and a one-year increase in members’ life expectancy would increase the obligation by approximately CHF 8 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 2017 was CHF 71 million (2016: CHF 67 million).

213

25. PROVISIONS

(CHF million)

AT 1 JANUARY 2017

Charge to income statement

Release to income statement

Payments

Exchange differences

AT 31 DECEMBER 2017

ANALYSED AS:

Current liabilities

Non-current liabilities

TOTAL

LEGAL AND WARRANTY
CLAIMS ON SERVICES
RENDERED

DEMOBILISATION AND
REORGANISATION

OTHER PROVISIONS

TOTAL

(10)

(4)

(3)

(28)

(2)

(4)

(11)

(2)

2 017

112

(17)

(43)

(4)

2 016

112

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.

214

7. SGS GROUP RESULTS

26. TRADE AND OTHER PAYABLES

(CHF million)

Trade payables

Other payables

Other financial liabilities

TOTAL

2017

344

310

677

2016

300

319

641

Trade accounts and other payables principally comprise amounts outstanding for trade purchases and ongoing operating costs.
At 31 December 2017 and 2016, 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

2017

624

734

2016

562

661

At 31 December 2017 and 2016, 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

2017 ISSUED

2016 ISSUED

234

227

461

217

316

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.

215

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

2017

163

360

622

2016

157

341

584

The Group leases the majority of its office and laboratory space and vehicles. During the year ended 31 December 2017,
CHF 202 million was recognised as an expense in the income statement in respect of operating leases (2016: CHF 183 million).

Comparatives have been adjusted to reflect additional commitments identified during the analysis conducted in relation to the
future implementation of IFRS 16.

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 2017, a total of 863 Restricted Shares were granted to the members of the Operations Council, in settlement of 50% of the
annual incentive related to the 2016 performance. The Restricted Shares fully vest at grant date, and are blocked for a period of
three years from the grant date, until April 2020. 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 2017 Annual
general Meeting, was CHF 1 863 994.

50% of the Annual Incentive related to the 2017 performance will be settled in Restricted Shares. The grant of the Restricted
Shares will be done after the 2018 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 2018
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 2021. Shareholding guidelines apply to the Restricted Share Plans.

II) GRANTS TO OTHER EMPLOYEES

In 2017, a total of 2 469 Restricted Share Units were granted to selected key employees under the framework of the Restricted
Share Units Plan 2017. The Restricted Share Units vest 3 years 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 5 251 933.

III) LONG-TERM INCENTIVE PLANS

In 2017, no Performance Share Units of the 2015 Long-Term Incentive plan were granted to employees. Additional information
is disclosed in the SGS Remuneration Report (pages 153–173).

216

7. SGS GROUP RESULTS

OPTION PLAN

EXERCISE PERIOD

DESCRIPTION

FROM

STRIKE
PRICE1

OPTIONS
OUTSTANDING AT
31 DECEMBER 2016

CANCELLED

EXERCISED
OR ADJUSTED

OPTIONS
OUTSTANDING AT
31 DECEMBER 2017

SGSKF-2012

SGSWS-2013

SGSPF-2014

SGSBB-2015

TOTAL

Jan.15

Jan.16

Jan.17

Jan.18

Jan.17

1 448.85

145 321

(51 992)

(93 329)

Jan.18

1 989.31

1 355 046

(99 657)

(1 091 923)

Jan.19

2 059.00

2 950 403

(135 970)

(2 005 418)

163 466

809 015

Jan.20

1 798.00

1 446 948

(6 831)

1 440 117

Of which exercisable at 31 December

1 500 367

1. The strike price of the options has been adjusted in accordance with market practice for capital reductions and special dividends.

5 897 718

(294 450)

(3 190 670)

2 412 598

2 404 641

PERFORMANCE SHARE UNIT (PSU) AND RESTRICTED SHARE UNIT (RSU) PLANS

DESCRIPTION

SGS-PSU-15

SGS-RSU-16

SGS-RSU-17

TOTAL

EXERCISE
PERIOD
FROM

UNITS
OUTSTANDING AT
31 DECEMBER 2016

GRANTED

CANCELLED

VESTED OR
ADJUSTED

UNITS
OUTSTANDING AT
31 DECEMBER 2017

Jan.18

Jan.19

Jan.20

37 997

1 608

39 605

2 469

(1 562)

(87)

(47)

(558)

(865)

(1 696)

(1 423)

35 877

656

2 422

38 955

The Group does not issue new shares to grant employees in relation to the equity-based compensation plans but uses treasury
shares, acquired through share buyback programmes.

In total, as of 31 December 2017, 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 (7 633 732 shares) amounted to 66 933 units,
representing 0.88%.

The company’s burn rate, defined as the number of equities (restricted shares and share units) granted in 2017 (3 332 units) divided
by the total number of outstanding shares, was 0.04%.

The Group recognised during the year total expense of CHF 17 million (2016: CHF 16 million) in relation with equity compensation plans.

Shares available for future plans excluding Restricted Shares annual incentive:

AT 1 JANUARY 2016

Repurchased shares

Granted SGS-PSU-15 plan

Granted SGS-RSU-16 plan

Options cancelled and adjusted

Shares for PSU cancelled and adjusted

Shares for RSU cancelled and adjusted

AT 31 DECEMBER 2016

Repurchased shares

Granted SGS-RSU-17 plan

Options cancelled and adjusted

Shares for PSU cancelled and adjusted

Shares for RSU cancelled and adjusted

AT 31 DECEMBER 2017

217

TOTAL

(23 923)

5 029

(149)

(2 473)

752

1 338

(19 376)

17 232

(2 469)

(38)

(1 980)

134

(6 497)

At 31 December, the Group had the following shares available to satisfy various programmes:

Number of shares held

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 allocated for 2017 RSU plans

SHARES REQUIRED FOR FUTURE EQUITY COMPENSATION PLANS AT 31 DECEMBER

2017 TOTAL

2016 TOTAL

82 324

(1 878)

(29 487)

(14 401)

(39 977)

(656)

(2 422)

(6 497)

95 225

(31 004)

(29 523)

(14 469)

(37 997)

(1 608)

(19 376)

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

2017

2016

1. 2017 represents the market value of Restricted Shares granted in 2017 while 2016 represents the market value of SGSBB options and PSUs

granted in 2016.

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 153–173).

During 2017 and 2016, 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 2017, Directors’ fees were CHF 2 134 000 (2016: CHF 2 123 000).

The total compensation (cash and shares/options) received by the Operations Council (including Senior Management) amounted
to CHF 16 510 000 (2016: CHF 15 249 000).

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 236–237 of this report.

LOANS TO MEMBERS OF GOVERNING BODIES

As at 31 December 2017, one member of the Operations Council has an outstanding loan for an amount equivalent to CHF 66 496
(2016: two members of the Operations Council had outstanding loans for a combined amount equivalent to CHF 28 365).

TRANSACTIONS WITH OTHER RELATED PARTIES

In 2017 and 2016, the Group did not perform any activity generating revenue for the other related parties. During the same period,
neither related trade receivable balances unpaid nor expense in respect of any bad or doubtful debts due from these related parties
were recognised.

218

7. SGS GROUP RESULTS

33. SIGNIFICANT SHAREHOLDERS

As at 31 December 2017, Groupe Bruxelles Lambert (acting through Serena SARL and URDAC) held 16.60% (2016: 16.20%).
Mr. August von Finck and members of his family acting in concert held 15.52% (2016: 15.03%), BlackRock, Inc. held 4%
(2016: 3.03%) and MFS Investment Management held 3.02% (2016: 3.01%) of the share capital and voting rights of the company.

At the same date, the SGS Group held 1.08% of the share capital of the company (2016: 3.63%).

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 12 February 2018, and will be submitted for approval by the Annual General
Meeting of Shareholders to be held on 19 March 2018.

On 9 January 2018, the Group announced the acquisition of 100% of Vanguard Sciences, a leading provider of food safety
testing services in the areas of product testing, research and development in the United States of America for a purchase price
of CHF 21 million and a goodwill of CHF 19 million.

On 11 January 2018, the Group announced the acquisition of 100% of Laboratoire de Contrôle et d’Analyse, offering chemical
and microbiological testing and consultancy services to national and international pharmaceutical companies in Belgium.

On 2 February 2018, the Group announced the acquisition of 100% of TraitGenetics, based in Germany, providing services across
a wide variety of crops to international client in the plant breeding industry and for academic research.

On 12 February 2018, the Group announced the acquisition of 100% SIT Skin Investigation and Technology Hamburg GmbH, based in
Germany, providing applied dermatological research and studies for the cosmetics and personal care industries.

219

Deloitte SA
Rue du Pré-de-la-Bichette 1
1202 Geneva
Switzerland

Phone: +41 (0)58 279 8000
Fax: +41 (0)58 279 8800
www.deloitte.ch

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 2017, 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 177 to 219) give a
true and fair view of the consolidated financial position of the Group as
at 31 December 2017, 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.

220

SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2017

Our Audit Approach

Summary

Key audit matters
Our Audit Approach

Based on our audit scoping, we identified the following key
audit matters:

Summary

•

Key audit matters

Revenue recognition in respect of unbilled revenue
and work in progress

Based on our audit scoping, we identified the following key
audit matters:
•
Goodwill and associated impairment testing

•
•

Scoping

Materiality

Scoping
Materiality

Retirement benefit obligations

Revenue recognition in respect of unbilled revenue
Current and deferred income tax balances
and work in progress
Retirement benefit obligations
Goodwill and associated impairment testing

Current and deferred income tax balances

•
•
Based on our professional judgment we determined
•
materiality for the Group as a whole to be CHF58 million,
7% of Profit before tax (adjusted for non-recurring items).
•
Based on our understanding of SGS’s operations, we scoped
Based on our professional judgment we determined
our audit of component operations based on the significance
materiality for the Group as a whole to be CHF58 million,
of account balances and significant risks. We gained sufficient
7% of Profit before tax (adjusted for non-recurring items).
and appropriate coverage across the Group. Coverage details
are provided on page 226.
Based on our understanding of SGS’s operations, 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
Key Audit Matters
are provided on page 226.
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
Key Audit Matters
statements as a whole, and in forming our opinion thereon, and we do not provide a
Key audit matters are those matters that, in our professional judgment, were of most
separate opinion on these matters.
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.

221

SGS SA

Statutory Auditor’s Report

for the year ended

SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2017
31 December 2017

Page 3

Revenue recognition in respect of unbilled revenue and work-in-progress

Key audit matter

How the scope of our audit responded to
the key audit matter

Our audit work during the year included the following
procedures on work-in-progress and unbilled revenues:

•

Our Audit Approach
The Group recognises revenue on fees for services
rendered to third parties when the services have been
Summary
completed. However, in certain circumstances,
Key audit matters
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. A margin is
recognised based on cost incurred, providing it is
expected that the project will be profitable once
completed. Where services are completed, but
unbilled, revenue is recorded at net selling price.
Materiality
Where services have been rendered but the project is
still incomplete, revenue is recorded including a
margin based on cost incurred and expected margin at
the completion of the project.
Scoping
At December 31, 2017, the Group balance sheet
included work-in-progress of CHF106 million or 1.7%
of total Group revenues of CHF6’349 million and
unbilled revenues of CHF187 million or 2.9%.

•

Based on our audit scoping, we identified the following key
audit matters:

• We tested the adequate implementation of Group
policies and key controls regarding revenue
recognition and the approval of unbilled revenue
Revenue recognition in respect of unbilled revenue
balances; and
and work in progress
• We tested a sample of unbilled revenue balances

Goodwill and associated impairment testing

recorded at the prior year-end to subsequent invoices
and recoveries from third party clients in order to
perform our risk assessment.

Current and deferred income tax balances

Retirement benefit obligations

Our audit work at the year-end consisted of the following:

• We used analytical procedures to identify businesses

Based on our professional judgment we determined
and geographies across the Group which had
materiality for the Group as a whole to be CHF58 million,
recorded significant work-in-progress and unbilled
7% of Profit before tax (adjusted for non-recurring items).
balances at the year-end compared to recurring
Based on our understanding of SGS’s operations, we scoped
monthly revenue levels and prior year-end balances,
our audit of component operations based on the significance
and challenged local management by tracing to
of account balances and significant risks. We gained sufficient
contract and status reports to verify significant
and appropriate coverage across the Group. Coverage details
variances for a sample of contracts;
are provided on page 226.
• 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

Key Audit Matters
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.

Based on the procedures performed, we consider
management’s estimates and disclosures regarding
work-in-progress and unbilled revenue balances to
be appropriate.

Significant judgement is required by management at
the 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 Board of Directors
(page 34) and a key audit matter.

• We also considered the adequacy of the disclosures in

the consolidated financial statements.

Refer to the accounting policy in note 2 and
additionally note 14.

222

SGS SA
SGS SA
Statutory Auditor’s Report
Statutory Auditor’s Report
for the year ended
for the year ended
31 December 2017
31 December 2017

Goodwill and associated impairment testing

Key audit matter

How the scope of our audit responded to
the key audit matter

The Group’s balance sheet includes CHF1’238 million
Our Audit Approach
of goodwill, representing 20.8% of total Group assets.
Summary
In accordance with IFRS, these balances are allocated
to Cash Generating Units (CGUs) which are tested
Key audit matters
annually for impairment using discounted cash-flow
models of each CGU’s recoverable value compared to
the carrying value of the assets. A deficit between the
recoverable value and the CGU’s net assets would
result in impairment.

•

The inputs to the impairment testing model which
have the most significant impact on CGU recoverable
value include:

•

We considered the appropriateness of the methodology
applied and the key internal controls implemented by
management in testing for impairment and the
judgements in determining the CGUs to which goodwill is
allocated.

Based on our audit scoping, we identified the following key
audit matters:

We evaluated the appropriateness of the definition of
Revenue recognition in respect of unbilled revenue
CGUs through discussions with senior operational
and work in progress
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.

Goodwill and associated impairment testing

Current and deferred income tax balances

•

•
Materiality

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).

Scoping
•

The impairment test model includes sensitivity testing
of key assumptions, including revenue growth,
operating margin and discount rate.

Retirement benefit obligations

•

We assessed the impairment testing models and
calculations by:

Based on our professional judgment we determined
materiality for the Group as a whole to be CHF58 million,
7% of Profit before tax (adjusted for non-recurring items).

Checking the mathematical accuracy of the
impairment models and the extraction of inputs from
Based on our understanding of SGS’s operations, we scoped
source documents;
our audit of component operations based on the significance
Assessing the discount rates applied in the
of account balances and significant risks. We gained sufficient
impairment reviews with support from our valuation
and appropriate coverage across the Group. Coverage details
specialists, developing independent expectations for
are provided on page 226.
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.

•

In 2017, SGS recorded a CHF30 million impairment in
relation to the Industrial USA and Canada CGU, where
the oil and gas sector has suffered a significant
downturn with a material reduction in capital and
operating expenditure by its main customers.

Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
Based on our knowledge of the Group’s businesses and
significance in our audit of the consolidated financial statements of the current period.
considering the performance of the different CGUs, we
These matters were addressed in the context of our audit of the consolidated financial
identified CGUs with significant goodwill balances,
The annual impairment testing is considered to be a
declining trading performance compared with prior year,
statements as a whole, and in forming our opinion thereon, and we do not provide a
risk area for the Board of Directors (refer to page 34),
specific risk factors (such as the impact of commodity
a significant accounting judgement and estimate
separate opinion on these matters.
price trends on CGUs in the Oil Gas and Industrials
(note 2) and a key audit matter because the
businesses and macro-economic factors in certain
assumptions on which the tests are based are highly
geographies) or lower headroom in recoverable value
judgmental and are affected by future market and
compared to net book value.
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.

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.

223

SGS SA

Statutory Auditor’s Report

for the year ended

SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2017
31 December 2017

Page 5

Current and deferred income tax balances

Key audit matter

How the scope of our audit responded to
the key audit matter

Our Audit Approach
The Group operates in a large number of different
jurisdictions and is therefore subject to many tax
Summary
regimes with differing rules and regulations.
• We tested the adequate implementation of Group
Based on our audit scoping, we identified the following key
Key audit matters
Significant judgement is required in determining the
policies and key controls regarding current and
audit matters:
calculation of income taxes, both current and deferred,
deferred tax, as well as the reporting of uncertain tax
Revenue recognition in respect of unbilled revenue
as well as the assessment of provisions for uncertain
positions;
and work in progress
tax positions including estimates of interest and
penalties where appropriate.

Our audit included the following procedures on current
and deferred tax balances:

• We examined the procedures in place for the current

•

The Group’s balance sheet includes current tax
assets of CHF104 million, current tax liabilities of
CHF152 million, together with deferred tax assets
of CHF168 million and deferred tax liabilities of
CHF45 million. The tax expense of CHF187 million
Materiality
represents 22% of Group profit before taxes.

•

Retirement benefit obligations

Current and deferred income tax balances

Goodwill and associated impairment testing

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;
Based on our professional judgment we determined
• We verified the consolidation and analysis of tax
materiality for the Group as a whole to be CHF58 million,
balances at Group level based on the information
7% of Profit before tax (adjusted for non-recurring items).
reported by Group affiliates, including the impact of
the US Tax reform;

• We considered management’s assessment of the

Refer to the accounting policy in note 2 and
additionally note 8.

Due to their significance to the financial statements as
a whole, combined with the judgement and estimation
Scoping
required to determine their values, the evaluation of
current and deferred tax balances is considered to be
an area of focus for the Board of Directors (page 34)
and a key audit matter.

Based on our understanding of SGS’s operations, we scoped
our audit of component operations based on the significance
validity and adequacy of provisions for uncertain tax
of account balances and significant risks. We gained sufficient
positions, evaluating the basis of assessment and
and appropriate coverage across the Group. Coverage details
reviewing relevant correspondence and legal advice
are provided on page 226.
where available including any information regarding
similar cases with the relevant tax authorities;
In respect of deferred tax assets and liabilities, we
assessed the appropriateness of management’s
Key Audit Matters
assumptions and estimates, including the likelihood of
Key audit matters are those matters that, in our professional judgment, were of most
generating sufficient future taxable income to support
significance in our audit of the consolidated financial statements of the current period.
deferred tax assets for tax losses carried forward as
These matters were addressed in the context of our audit of the consolidated financial
disclosed in note 8 of CHF64 million, considering
whether time limits applied for the set-off of losses
statements as a whole, and in forming our opinion thereon, and we do not provide a
and comparing the assumptions used to the Group’s
separate opinion on these matters.
forecasts for revenue and profits in relevant countries;

•

• 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.

224

SGS SA
SGS SA
Statutory Auditor’s Report
Statutory Auditor’s Report
for the year ended
for the year ended
31 December 2017
31 December 2017

Retirement benefit obligations

Key audit matter

How the scope of our audit responded to
the key audit matter

Our Audit Approach
The Group maintains a number of defined benefit
pension plans. The material defined benefit plans are
Summary
in Switzerland, USA and UK.
Key audit matters
At December 31, 2017 the Group recorded a net
retirement benefit liability of CHF70 million, being
the net of pension fund assets of CHF899 million and
pension fund liabilities of CHF969 million.

Based on our audit scoping, we identified the following key
audit matters:

We evaluated the Group’s assessment of the assumptions
used in the valuation of defined benefit liabilities, and
evaluated the information contained within the actuarial
valuation reports for the main plans. We also assessed the
design and implementation of controls in respect of the
valuation process for the retirement benefit plans.

Revenue recognition in respect of unbilled revenue
and work in progress

•

Goodwill and associated impairment testing

We tested 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.

Current and deferred income tax balances

•

Retirement benefit obligations

Based on our professional judgment we determined
materiality for the Group as a whole to be CHF58 million,
7% of Profit before tax (adjusted for non-recurring items).

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. We reviewed plan amendments to confirm
Based on our understanding of SGS’s operations, we scoped
their compliance with IAS 19 requirements and challenged
our audit of component operations based on the significance
key assumptions applied, including discount rates,
of account balances and significant risks. We gained sufficient
inflation and mortality rates, benchmarking them against
and appropriate coverage across the Group. Coverage details
external data, where available, and forming our own
are provided on page 226.
independent expectations based on our knowledge of local
market practices.

•

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
Materiality
and mortality rates. Changes in any of these
assumptions, or amendments to the pension plans can
lead to a material movement in the net retirement
benefit liability.
Scoping
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 Board of Directors (page 34) and a
key audit matter.

Refer to the accounting policy in note 2 and
additionally note 24.

Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
Based on the procedures performed, we consider
significance in our audit of the consolidated financial statements of the current period.
management’s estimates and disclosures regarding
These matters were addressed in the context of our audit of the consolidated financial
retirement benefit obligation balances to be
statements as a whole, and in forming our opinion thereon, and we do not provide a
appropriate.
separate opinion on these matters.

We also assessed the adequacy and completeness of the
related retirement benefit disclosures in the consolidated
financial statements.

Our application of 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 CHF58 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 CHF17.4 million to
CHF34.8 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 CHF2.9 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.

225

SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2017

An overview of the scope of our audit
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.
Our Audit Approach

Summary
Based on our scope assessment, we performed full scope component audits at 23 key
Key audit matters
locations in 2017. In aggregate, these components represented scope coverage of
74% of Group revenue, 77% of total assets and 71% of net income for the year (see table
below):

Based on our audit scoping, we identified the following key
audit matters:

Revenue recognition in respect of unbilled revenue
and work in progress

•

Group audit coverage

Group revenue
Materiality

Total assets
Scoping

Net income for the year

•

Goodwill and associated impairment testing

2017

Current and deferred income tax balances

Retirement benefit obligations

74%

Based on our professional judgment we determined
materiality for the Group as a whole to be CHF58 million,
7% of Profit before tax (adjusted for non-recurring items).

77%

Based on our understanding of SGS’s operations, 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 226.

71%

All other wholly owned and joint venture businesses were subject to analytical review
procedures for the purpose of the Group audit. Annual statutory audits are conducted by
Key Audit Matters
affiliates of Deloitte SA at the majority of the Group’s subsidiaries, although these are
Key audit matters are those matters that, in our professional judgment, were of most
predominantly completed subsequent to our audit report on the consolidated financial
significance in our audit of the consolidated financial statements of the current period.
statements.
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
At the parent entity level we tested the consolidation process and carried out analytical
separate opinion on these matters.
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.

The group audit team continued to follow a program of planned visits that has been
designed so that the Senior Statutory Auditor visits most of the in-scope locations on a
rotational basis. The program for the visits is established based on the significance of the
components and the results of our risk assessment.

For all components in scope for group reporting, we have included the component audit
partner in our team briefing, discussed their risk assessment, and reviewed documentation
of the findings from their work.

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.

226

SGS SA
SGS SA
Statutory Auditor’s Report
Statutory Auditor’s Report
for the year ended
for the year ended
31 December 2017
31 December 2017

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
Our Audit Approach
on the work we have performed, we conclude that there is a material misstatement of this
Summary
other information, we are required to report that fact. We have nothing to report in this
Based on our audit scoping, we identified the following key
regard.
Key audit matters
audit matters:

•

Current and deferred income tax balances

Goodwill and associated impairment testing

Revenue recognition in respect of unbilled revenue
Responsibility of the Board of Directors for the Consolidated Financial Statements
and work in progress
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.
Based on our professional judgment we determined
Materiality
In preparing the consolidated financial statements, the Board of Directors is responsible for
materiality for the Group as a whole to be CHF58 million,
7% of Profit before tax (adjusted for non-recurring items).
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
Based on our understanding of SGS’s operations, we scoped
Scoping
our audit of component operations based on the significance
Board of Directors either intends to liquidate the Group or to cease operations, or has no
of account balances and significant risks. We gained sufficient
realistic alternative but to do so.
and appropriate coverage across the Group. Coverage details
are provided on page 226.

Retirement benefit obligations

•

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,
Key Audit Matters
and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
Key audit matters are those matters that, in our professional judgment, were of most
level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss
significance in our audit of the consolidated financial statements of the current period.
law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it
These matters were addressed in the context of our audit of the consolidated financial
exists. Misstatements can arise from fraud or error and are considered material if,
statements as a whole, and in forming our opinion thereon, and we do not provide a
individually or in the aggregate, they could reasonably be expected to influence the
separate opinion on these matters.
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.

227

SGS SA
SGS SA
Statutory Auditor’s Report
Statutory Auditor’s Report
for the year ended
for the year ended
31 December 2017
31 December 2017

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
Our Audit Approach
preparation of consolidated financial statements according to the instructions of the Board
of Directors.
Summary

Key audit matters
We recommend that the consolidated financial statements submitted to you be approved.

Based on our audit scoping, we identified the following key
audit matters:

Deloitte SA

Materiality
Matthew Sheerin
Licensed Audit Expert
Auditor in Charge
Scoping

Geneva, 12 February 2018

•

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

Based on our professional judgment we determined
materiality for the Group as a whole to be CHF58 million,
7% of Profit before tax (adjusted for non-recurring items).

Joelle Herbette
Licensed Audit Expert

228

8. SGS SA RESULTS

GREENHOUSE
ANALYTICAL SERVICES

Our analytical services
include water and tissue
testing to make greenhouses
more productive.

AGRICULTURE,
FOOD AND LIFE

8. 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 and administrative expenses

Depreciation of fixed assets

Other expenses

TOTAL OPERATING EXPENSES

OPERATING RESULT

FINANCIAL INCOME

Financial income

Exchange gain, net

Liquidation of subsidiaries, net

TOTAL FINANCIAL INCOME

FINANCIAL EXPENSES

Financial expenses

Exchange loss, net

TOTAL FINANCIAL EXPENSES

FINANCIAL RESULT

PROFIT BEFORE TAXES

Taxes

Withholding taxes

PROFIT FOR THE YEAR

NOTES

2017

606

607

(6)

(7)

(13)

594

(47)

620

(2)

(9)

609

2016

461

462

(5)

(3)

459

(48)

(23)

(71)

(13)

446

(1)

(9)

436

231

BALANCE SHEET AT 31 DECEMBER
(BEFORE APPROPRIATION OF AVAILABLE RETAINED EARNINGS)

(CHF million)

ASSETS

CURRENT ASSETS

Cash and cash equivalents

Other financial assets

Amounts due from subsidiaries

Accrued income and prepaid expenses

TOTAL CURRENT ASSETS

NON-CURRENT ASSETS

Financial assets

Investments in subsidiaries

Loans to subsidiaries

Other financial assets

Fixed assets

Tangible fixed assets

TOTAL NON-CURRENT ASSETS

TOTAL ASSETS

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 RESERVE

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

2017

2016

607

285

938

1 651

1 266

2 919

3 857

152

499

2 075

2 574

992

1 131

3 857

5 & 6

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

232

8. 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 which are valued at the historical exchange rate. Unrealised gains and losses arising on foreign
exchange transactions are included in the determination of the net profit, except long-term unrealised gains on long-term loans
and related instruments, which are deferred.

DIVIDENDS FROM SUBSIDIARIES

Dividends are treated as an appropriation of profit in the year in which they are ratified at the Annual General Meeting and
subsequently paid, rather than as an appropriation of profit in the year to which they relate or for which they are proposed
by the Board of Directors.

As a result, dividends are recognised in income in the year in which they are received, on 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 249–252.

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.

233

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

03.03.2017

FACE VALUE IN
CHF MILLION

COUPON IN %

YEAR OF
MATURITY

ISSUE
PRICE IN %

REDEMPTION
PRICE IN %

375

275

138

250

112

325

225

375

2.625

3.000

1.375

1.750

1.375

0.250

0.875

0.550

2019

2021

2022

2024

2022

2023

2030

2026

100.832

100.480

100.517

101.019

101.533

100.079

100.245

100.153

100.000

The Group has listed all the bonds on the SIX Swiss Exchange.

5. TOTAL EQUITY

(CHF million)

BALANCE AT 1 JANUARY 2016

Dividends paid

Decrease in the reserve for own shares

Purchase of shares for buyback

Profit for the year

BALANCE AT 31 DECEMBER 2016

Dividends paid

Decrease in the reserve for own shares

Purchase of shares for buyback

Profit for the year

BALANCE AT 31 DECEMBER 2017

SHARE
CAPITAL

STATUTORY
CAPITAL
RESERVE

RESERVE FOR
OWN SHARES
HELD BY A
SUBSIDIARY

OWN SHARES
FOR SHARE
BUYBACK

STATUTORY
RETAINED
EARNINGS

175

(60)

115

(18)

(145)

(216)

(361)

361

1 273

(516)

436

1 254

(528)

(361)

609

992

TOTAL

1 345

(516)

(216)

436

1 049

(528)

609

1 131

234

8. SGS SA RESULTS

6. SHARE CAPITAL

BALANCE AT 1 JANUARY 2016

Own shares released into circulation

Own shares purchased for future equity
compensation plans

Own shares purchased for buyback

BALANCE AT 31 DECEMBER 2016

Own shares released into circulation

Own shares purchased for future equity
compensation plans

Capital reduction by cancellation
of own shares

BALANCE AT 31 DECEMBER 2017

ISSUED SHARE CAPITAL

SHARES IN
CIRCULATION

OWN
SHARES

TOTAL SHARES
ISSUED

TOTAL SHARE CAPITAL
(CHF MILLION)

7 605 460

49 162

(6 315)

(109 800)

7 538 507

30 133

(17 232)

216 976

(49 162)

6 315

109 800

283 929

(30 133)

17 232

7 822 436

(188 704)

7 551 408

82 324

7 633 732

SGS SA has a share capital of CHF 7 633 732 (2016: CHF 7 822 436) fully paid-in and divided into 7 633 732 (2016: 7 822 436)
registered shares of a par value of CHF 1. In 2017, SGS SA proceed to a capital reduction of 188 704 shares. 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 2017, SGS SA held indirectly 82 324 of its own shares. In 2017, SGS SA proceeded to the cancellation of
188 704 of its own shares directly held by SGS SA while the shares to cover the equity compensation plans are held by
a subsidiary company.

In 2017, 30 133 own shares were sold to cover the equity compensation plans and 17 232 were purchased for an average price
of CHF 2 484.

In 2017, the Group initiated a share buyback programme for a total of up to CHF 250 million. Approximately CHF 200 million
is expected to be bought back via a second trading line on the SIX Swiss Exchange for the purpose of share capital reduction.
Approximately CHF 50 million is expected to be bought back via the ordinary trading line on the SIX Swiss Exchange for employee
equity participation plans. The share buyback programme started on 15 May 2017 and will end on 31 December 2018

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

2017

(31)

(3)

(13)

(47)

2016

(35)

(2)

(11)

(48)

235

8. GUARANTEES AND COMFORT LETTERS

(CHF million)

Guarantees

Performance bonds

TOTAL

2017 ISSUED

2017 UTILISED

2016 ISSUED

2016 UTILISED

460

504

286

330

284

322

237

275

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 157–160.

9.2. REMUNERATION MODEL

This section appears in the SGS Remuneration Report paragraph 3 in the Annual Report on pages 160–168.

9.3. REMUNERATION AWARDED TO THE BOARD OF DIRECTORS

This section appears in the SGS Remuneration Report paragraph 4 in the Annual Report on page 169.

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 170–173.

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 2017:

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

SGSPF
(2014)

SGSBB
(2015)

RESTRICTED
SHARES

1 335

19 670

786 255

222 818

206 806

1 199

236

8. SGS SA RESULTS

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

1 199

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 2017:

NAME

F. NG

CORPORATE
RESPONSABILITY

Chief Executive Officer

C. De Geyseleer

Chief Financial Officer

O. Merkt

General Counsel and
Chief Compliance Officer

SGSPF
(2014)

SGSBB
(2015)

RESTRICTED
SHARES

55 152

8 831

33 048

325

134

The following table shows the shares and vested options held by Senior Management as at 31 December 2016:

SGSPF
(2014)

15 642

26 667

55 152

8 831

17 643

33 048

SGSBB
(2015)

RESTRICTED
SHARES

180

NAME

F. NG

CORPORATE
RESPONSABILITY

Chief Executive Officer

C. De Geyseleer

Chief Financial Officer

O. Merkt

General Counsel and
Chief Compliance Officer

SGSWS
(2013)

46 632

Details of the various plans are explained in the Remuneration Report.

237

11. SIGNIFICANT SHAREHOLDERS

As at 31 December 2017, Groupe Bruxelles Lambert (acting through Serena SARL and URDAC) held 16.60% (2016: 16.20%).
Mr. August von Finck and members of his family acting in concert held 15.52% (2016: 15.03%), BlackRock, Inc. held 4%
(2016: 3.03%) and MFS Investment Management held 3.02% (2016: 3.01%) of the share capital and voting rights of the company.

At the same date, the SGS Group held 1.08% of the share capital of the company (2016: 3.63%).

PROPOSAL OF THE BOARD OF DIRECTORS FOR THE APPROPRIATION OF AVAILABLE RETAINED EARNINGS

(CHF)

Profit for the year

Balance brought forward from previous year

Dividend paid on own shares released into circulation in 2016
prior the Annual General Meeting on 14 March 2016

Dividend paid on own shares released into circulation in 2017
prior the Annual General Meeting on 21 March 2017

Capital reduction by cancellation of own shares

Share buyback programme

Reversal from 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.

2017

2016

609 792 420

364 829 480

436 216 325

610 633 820

(39 772)

(351 442)

188 704

(215 274 875)

17 259 460

991 718 622

60 989 472

892 524 970

(566 355 600)

(527 695 490)

425 363 022

75.00

364 829 480

70.00

12. APPROVAL OF FINANCIAL STATEMENTS AND SUBSEQUENT EVENTS

238

Deloitte SA
Rue du Pré-de-la-Bichette 1
1202 Geneva
Switzerland

Phone: +41 (0)58 279 8000
Fax: +41 (0)58 279 8800
www.deloitte.ch

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, which comprise the balance sheet as
at December 31, 2017 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 December 31, 2017, presented
on pages 231 to 238, 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.

239

SGS SA
Statutory Auditor’s Report
for the year ended
SGS SA
31 December 2017
Statutory Auditor’s Report
for the year ended
31 December 2017

Valuation of Investments in subsidiaries and related loans to subsidiaries

Key audit matter

How the scope of our audit responded
to the key audit matter

Our Audit Approach
As described in Note 2 to the financial
We tested the adequate implementation of
Summary
statements, the company holds investments in
accounting policies and the design and
subsidiaries with a carrying value of CHF1’651
implementation of key controls regarding the
Based on our audit scoping, we identified the following key
Key audit matters
million as of December 31, 2017, representing
valuation of investments in subsidiaries and
audit matters:
42.8% of total assets. The list of principal Group
related loans.
subsidiaries can be found in the Annual Report
on pages 249 to 252. The valuation of these
assets is dependent on the ability of these
subsidiaries to generate positive cash flows in
the future. The company also has loans to
subsidiaries amounting to CHF1’266 million.

We challenged the impairment testing conducted
by the company. We tested the valuations and
amounts of investments on a sample basis by
critically assessing the methodology applied and
assessing the reasonableness of the underlying
assumptions and judgements.
Together with our valuation specialists, we
Based on our professional judgment we determined
performed the following procedures:
materiality for the Group as a whole to be CHF58 million,
7% of Profit before tax (adjusted for non-recurring items).

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

•

In accordance with Article 960 CO, these
Materiality
investment balances are valued by individual
investment and the values are therefore tested
annually for impairment. An impairment would
need to be recorded if the recoverable values of
Scoping
individual investments were lower than the
associated carrying values, or if loan balances
were no longer considered recoverable from the
associated entities.

•

checking the operational accuracy of the
Based on our understanding of SGS’s operations, we scoped
impairment models and the accuracy of
our audit of component operations based on the significance
of account balances and significant risks. We gained sufficient
documents;
and appropriate coverage across the Group. Coverage details
are provided on page 226.

extraction of inputs from source

•

challenging the significant inputs and

assumptions used in the impairment

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:

margins and operating cash-flows in the

specifically the discount rates and the

Projected revenue growth, operating

five year projected revenues and

testing models for investments,

years 1-5;

margins.

•

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 evaluated 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 along with related
financial statement disclosures to be
appropriate.

240

SGS SA
Statutory Auditor’s Report
for the year ended
SGS SA
31 December 2017
Statutory Auditor’s Report
for the year ended
31 December 2017

Responsibility of the Board of Directors for the Financial Statements

Our Audit Approach

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.

Based on our audit scoping, we identified the following key
audit matters:

Key audit matters

Summary

In preparing the financial statements, the Board of Directors is responsible for assessing the
Revenue recognition in respect of unbilled revenue
entity’s ability to continue as a going concern, disclosing, as applicable, matters related to
and work in progress
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.

Goodwill and associated impairment testing

Current and deferred income tax balances

•

Retirement benefit obligations

Materiality

Auditor’s Responsibilities for the Audit of the Financial Statements

Based on our professional judgment we determined
materiality for the Group as a whole to be CHF58 million,
7% of Profit before tax (adjusted for non-recurring items).

Scoping

Our objectives are to obtain reasonable assurance about whether the financial statements
Based on our understanding of SGS’s operations, we scoped
our audit of component operations based on the significance
as a whole are free from material misstatement, whether due to fraud or error, and to issue
of account balances and significant risks. We gained sufficient
an auditor’s report that includes our opinion. Reasonable assurance is a high level of
and appropriate coverage across the Group. Coverage details
assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and
are provided on page 226.
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
Key Audit Matters
users taken on the basis of these financial statements.
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.
A further description of our responsibilities for the audit of the consolidated financial
These matters were addressed in the context of our audit of the consolidated financial
statements is located at the website of EXPERTsuisse:
statements as a whole, and in forming our opinion thereon, and we do not provide a
http://expertsuisse.ch/en/audit-report-for-public-companies.
separate opinion on these matters.
This description forms part of our auditor’s report.

241

SGS SA
Statutory Auditor’s Report
for the year ended
SGS SA
31 December 2017
Statutory Auditor’s Report
for the year ended
31 December 2017

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 financial statements according to the instructions of the Board of Directors.

Our Audit Approach

Summary

Key audit matters

We further confirm that the proposed appropriation of available earnings complies with
Based on our audit scoping, we identified the following key
Swiss law and the company’s articles of incorporation. We recommend that the financial
audit matters:
statements submitted to you be approved.

•

Revenue recognition in respect of unbilled revenue
and work in progress

Deloitte SA

•

Goodwill and associated impairment testing

Current and deferred income tax balances

Retirement benefit obligations

Materiality

Matthew Sheerin
Licensed Audit Expert
Auditor in Charge

Scoping

Geneva, 12 February 2018

Based on our professional judgment we determined
materiality for the Group as a whole to be CHF58 million,
7% of Profit before tax (adjusted for non-recurring items).

Joëlle Herbette
Licensed Audit Expert

242

9. DATA

MANAGEMENT
DEVELOPMENT TRAINING

SGS provides a range of
training services that support
women in their careers.

CERTIFICATION
AND BUSINESS
ENHANCEMENT

9. 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

OPERATING INCOME MARGINS IN %

AVERAGE NUMBER OF EMPLOYEES

2017

2016

2015

2014

2013

6 349

(3 193)

(394)

(338)

5 985

(3 009)

(368)

(336)

(1 530)

(1 456)

894

(43)

851

(187)

664

621

15.3

816

(45)

771

(185)

586

543

13.6

5 712

(2 849)

(345)

(322)

(1 374)

822

(43)

779

(195)

584

549

14.4

5 883

(2 891)

(361)

(304)

5 830

(2 871)

(357)

(298)

(1 386)

(1 392)

941

(41)

900

(234)

666

629

16.0

912

(38)

874

(236)

638

600

15.6

93 556

89 626

85 903

83 515

80 510

245

SGS GROUP – FIVE-YEAR STATISTICAL DATA CONSOLIDATED BALANCE SHEETS
AT 31 DECEMBER

(CHF million)

2017

2016

2015

2014

2013

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

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

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

1 002

1 460

305

2 803

339

1 068

236

104

1 393

3 140

5 943

1 911

1 919

2 005

2 090

222

2 357

677

152

751

1 581

3 938

5 943

246

9. DATA

SGS GROUP – FIVE-YEAR STATISTICAL SHARE DATA

(CHF unless indicated otherwise)

2017

2016

2015

2014

2013

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

Total dividend per share

DIVIDENDS (CHF MILLION)

Ordinary 2

Total

7 633 732

7 551 408

7 822 436

7 538 507

7 822 436

7 605 460

7 675 506

7 650 840

2 541

2 051

2 541

2 317

1 734

2 072

2 049

1 577

1 911

2 260

1 802

2 045

2 450

1 952

2 052

254.16

235.22

250.56

303.13

280.08

82.41

75.00

71.54

70.00

71.99

68.00

81.99

68.00

78.43

65.00

566

528

517

522

497

1. Calculation of the basic earnings per share (weighted average for the year) is disclosed in note 9 of SGS Group Results.
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 2017, market capitalisation was approximately CHF 19 397 million (2016: CHF 16 208 million). Shares are quoted
on the SIX Swiss Exchange.

247

SGS SA

CLOSING PRICES FOR SGS AND THE SMI 2016 – 2017

2 600

2 500

2 400

2 300

2 200

2 100

2 000

1 900

1 800

1 700

1 600

1 500

1 400

1 300

1 200

1 100

1 000

J F M A M J J A S O N D J F M A M J J A S O N D

2016

HIGH PRICE

LOW PRICE

SGS SA

2017

SWISS MARKET INDEX (MONTHLY CLOSE)

248

SMI

11 000

10 750

10 500

10 250

10 000

9 750

9 500

9 250

9 000

8 750

8 500

8 250

8 000

7 750

7 500

7 250

7 000

9. 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

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

Bangladesh

SGS Bangladesh Limited, Dhaka

Belarus

Belgium

Benin

Bolivia

SGS Minsk Ltd., Minsk

SGS Belgium N.V., Antwerpen

SGS Bénin SA, Cotonou

SGS Bolivia SA, La Paz

Bosnia-Herzegovina

SGS Bosna i Hercegovina (d.o.o.) Ltd., Sarajevo

Botswana

SGS Botswana (Proprietary) Limited, Gaborone

Brazil

SGS do Brasil Ltda., São Paulo

SGS Enger Engenharia Ltda., Barueri-SP

SGS 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

SGS Minerals S.A., 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

ALL

DZD

AOA

ARS

AUD

EUR

USD

BDT

USD

EUR

XOF

BOB

BAM

BWP

BRL

BGN

XOF

KHR

XAF

CAD

CLP

USD

COP

XAF

HRK

CZK

DKK

USD

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

10 000 000

20 000

2 178 200

10 000 000

41 900

2 151

1 000

351 447 768

21 152 379

4 870 257

5 010 000

601 080 000

4 000 000 000

10 000 000

20 900 000

27 022 991 237

17 435 309 703

3 382 313 364

3 966 667

91 355 222 605

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

99.9

100

249

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 Finland Oy, Helsingfors

SGS France SAS, Arcueil

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

Lebanon

SGS Latvija Limited, Riga

SGS (Liban) S.A.L., Beirut

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

LBP

147 680

1 500 000

42 174

15 000

102 000

3 172 613

2 745 000

80 000

1 210 000

7 490 000

750 000

4 005 202

1 978 604

8 000 000

139

301 731

25 000

4 250 000

50 000 000

10 000 000

200 000

518 000 000

960 000

200 000

100

92.31

100

74.9

100

50 000 000

99.99

62 500

2 500 000

300 000 000

200 000 000

100 000 000

100 000

228 146 527

2 000 000

15 617 540 000

50 000

2 444 700 000

118 382

100

30 000 000

99.97

250

9. DATA

COUNTRY

NAME AND DOMICILE

ISSUED CAPITAL
CURRENCY

ISSUED CAPITAL
AMOUNT

% HELD BY
GROUP

DIRECT /
INDIRECT

Liberia

Lithuania

Luxembourg

Madagascar

Malawi

Malaysia

Mali

Mauritius

Mexico

Moldova

Mongolia

Morocco

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, Matola

Myanmar

SGS (Myanmar) Limited, Yangon

Namibia

Netherlands

New Zealand

Nigeria

Norway

Oman

Pakistan

Panama

SGS Inspection Services Namibia
(Proprietary) Limited, Windhoek

SGS Nederland B.V., Spijkenisse

SGS New Zealand Limited, Auckland-Onehunga

SGS Inspection Services Nigeria Limited, Lagos

SGS Norge A / S, Austrheim

SGS Oman (FZC) LLC, Sohar

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

LRD

EUR

MGA

MWK

MYR

XOF

MUR

MXN

MDL

USD

MAD

MZN

MMK

NAD

EUR

NZD

NGN

NOK

OMR

PKR

USD

PGK

PYG

PEN

PHP

PLN

EUR

QAR

RON

RUB

SAR

XAF

EUR

100

711 576

38 000

20 000 000

10 000 000

30 000

750 000

60 000

300 000 000

100 000

7 068 528

488 050

10 000

12 000 000

33 000 000

73 479 883

300 000

100

250 000

10 522 190

200 000

804 000

500 000

2 300 000

18 850 000

1 962 000 000

43 081 182

24 620 000

27 167 800

500 000

200 000

100 002

18 000 000

1 000 000

35 000 000

66 161

100

251

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 CyberMetrix Inc., Colombus

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

7 633 732

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

10 000

5 000

100

Ultimate
parent
company

252

10. SHAREHOLDER INFORMATION

FOREST PRODUCT
CHAIN-OF-CUSTODY
CERTIFICATION

SGS’ certifications
demonstrate that traded
and used wood comes
from controlled sources
and well-managed forests.

AGRICULTURE,
FOOD AND LIFE

10. SHAREHOLDER INFORMATION

SGS SA CORPORATE OFFICE

INVESTOR RELATIONS SGS SA

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

Julie Engelen
SGS SA
1 place des Alpes
P.O. Box 2152
CH – 1211 Geneva 1

t +41 (0)22 739 92 78

f +41 (0)22 739 92 00

www.sgs.com

ANNUAL GENERAL MEETING
OF SHAREHOLDERS

Monday, 19 March 2018
Geneva, Switzerland

2018 HALF YEAR RESULTS

Wednesday, 18 July 2018

MEDIA RELATIONS

Daniel Rufenacht
SGS SA
1 place des Alpes
P.O. Box 2152
CH – 1211 Geneva 1

t +41 (0)22 739 94 01

f +41 (0)22 739 92 00

www.sgs.com

PROJECT MANAGEMENT

John Coolican

CONCEPT, DESIGN, PHOTOGRAPHY,
REALISATION AND PRODUCTION

Group Charlescannon SARL
Geneva, Switzerland

Reuters: Registered Share: SGSN.VX

INVESTOR DAYS – EUROPE

PRINTED BY

Telekurs: Registered Share: SGSN

ISIN: Registered Share: CH0002497458

Thursday and Friday
8 and 9 November 2018

Swiss security number: 249745

DIVIDEND PAYMENT DATE

Ex-date: 21 March 2018
Record date: 22 March 2018
Payment date: 26 March 2018

Druckcenter am Rigi
Küssnacht, Switzerland

Printed on 100% recycled BalancePure
offset paper, February 2018

255

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