OUR VALUE
TO SOCIETY
2018 INTEGRATED ANNUAL REPORT
SGS tested the fire-resistance
of Sophie’s sleeping bag
so that she can sleep soundly
on her camping trip.
LETTER TO
SHAREHOLDERS
FINANCIAL AND
SUSTAINABILITY
HIGHLIGHTS
SGS AT A GLANCE
04
07
16
OUR VALUE TO SOCIETY 21
GOVERNANCE
REMUNERATION
REPORT
75
91
SGS GROUP RESULTS
116
SGS SA RESULTS
DATA
SHAREHOLDER
INFORMATION
169
181
190
OUR INTEGRATED
REPORTING APPROACH
This is the third year in which
SGS has presented financial,
operational and sustainability information
in a single report, in line with the
fundamental ideals of the Integrated
Reporting Framework.
In addition to the information
presented in this report, more detailed
sustainability information is provided
in our 2018 Sustainability Report
http://www.sgs.com/cs-report-2018
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We add more than just financial value to society.
Through our integrated leadership approach, we strive
to become an ever more sustainable company
and maximize the positive impact we can have.
Our stakeholders (employees and suppliers, investors,
customers, governments and industries, consumers,
and communities and the planet) are the ultimate
beneficiaries of this effort. In order to measure our
success, we are developing an innovative impact
evaluation model to quantify our value to society.
OUR VALUE TO SOCIETY
GLOBAL DRIVERS
2018 ACHIEVEMENTS
MEASURING OUR IMPACT
21
27
34
65
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
LETTER TO SHAREHOLDERS
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DEAR SHAREHOLDERS,
In 2018 our total revenue increased to CHF 6.7 billion and the majority
of business lines performed well, in line with our expectations.
We also reached a new milestone in the SGS Group history as we
surpassed CHF 1 billion in adjusted operating income. Consistent
with our guidance, the Group delivered solid organic growth, higher
adjusted operating income margin, robust cash flow and best-in-class
return on invested capital. These results underline our Mission 2020
objectives and support the creation of long-term value for our
customers, shareholders and for society.
< BACK TO CONTENTS
REACHING THE MID-POINT OF MISSION 2020
The strength of our portfolio was
confirmed again in 2018 with
significant growth in Minerals
(11.4%) and high-single-digit growth
in Governments and Institutions
(7.5%), Oil, Gas and Chemicals
(7.2%) and Certification and
Business Enhancement (7.0%).
(See page 11)
Since the start of the Mission 2020, mergers and acquisitions have been an important
part of our strategy and we have acquired CHF 300 million of annualized revenue.
As we approach 2020, we will continue to focus on accelerating acquisitions that
add strategic value to our business portfolio. Over the course of 2018, we made
eight acquisitions, which contributed 0.7% to acquisitive growth (see page 15).
The dashboard review process, which was first implemented in 2015, continued
throughout 2018.
To further optimize our processes, we have assessed a number of laboratories to
evaluate how we can roll out our World Class Services program across our global
network. This takes a structured approach to reducing organizational waste and
losses, as well as bringing long-term improvements to our workplace efficiency,
quality and logistics. In 2019, we will continue to implement and refine the World
Class Services concept across the Group.
An internal investigation, realized in July 2018 in Brazil, confirmed the overstatement of revenues relating to prior years. An amount
of CHF 47 million was provided in June 2018. The financial impact has been recorded as a non-recurring item in the current period
Group Income Statement, consistent with the half-year disclosure.
As a result, we made a number of management changes and continued to strengthen our risk control processes.
Our digital evolution continued in 2018. In November, we took the first steps to offer services directly to consumers through
our new customer portal, SGS online. This year we also adopted the SGS Data Privacy Policy to demonstrate the commitments
we uphold across the SGS Group. We believe that SGS can play an important role in shaping trust in cyberspace and ensuring
a safer digital world. As such, we joined several industry-leading companies in co-signing a Charter of Trust on Cybersecurity,
which outlines 10 principles to protect data, prevent damages and establish trust.
In July, we were deeply saddened to learn that Sergio Marchionne had passed away. It was a privilege to have him as a Chairman
and colleague. He not only made an immense contribution to the success of SGS, which he transformed into the leading
TIC company, but he also touched the lives of many, both personally and professionally, with his charismatic personality.
Sergio Marchionne held the positions of CEO (2002-2004) and Chairman of the Board (2006-2018). He will be greatly missed.
DELIVERING VALUE AND LEADING SUSTAINABILITY
At SGS, we are committed to creating net positive value to society (see page 21). By aligning the SGS 2020 Sustainability
Ambitions with the Sustainable Development Goals, we are leading the broader corporate sector to build a more sustainable
economy, environment and society.
Our commitment to sustainability and creating value to society continues to receive recognition. For the fifth consecutive year,
we were named the leading company in the industry by the Dow Jones Sustainability Indices. For the second time, SGS has been
included in the FTSE4Good Index. We also received a gold rating from EcoVadis for the fourth consecutive year and were placed
in the top 1% of the evaluated companies in our industry.
In 2018, we proudly maintained our status as a carbon neutral company and continued to drive down incident rates. Our sustainable
supply chain strategy evolved to guarantee the respect of human rights beyond the organization, especially in high-risk countries
and a new human rights online training for SGS employees was introduced to reinforce our commitment.
Sustainability leadership is fundamental to our culture and inherently present in many of our services. This focus allows us to be
better aligned with the expectations of new generations of customers, employees and investors.
MAINTAINING THE MOMENTUM
2018 marked 140 years for SGS. In the face of changing market conditions, the essence of what we do remains the same, and
the passion and dedication of our people have led to our continued success and leadership. Our core activities are based on
delivering trust and confidence to provide our customers with independent services that give them the expert reassurance
they need to do business. This holds true whether we are talking about inspecting grain, where we started so many years ago,
or investments in 5G network services, an area that we expect to develop and expand over the years to come.
This momentum directly contributes to solid growth returns and supports the creation of value to customers, shareholders and
society. We’d like to thank our people for their energy, talent and hard work in achieving these results in 2018. Their commitment,
passion and innovative spirit makes SGS a unique place to work.
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07 February 2019
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PETER KALANTZIS
Acting Chairman of the Board
FRANKIE NG
Chief Executive Officer
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
SUBSEQUENT EVENTS
The following acquisitions were
completed after 31 December 2018:
• LeanSis Productividad in
Spain, providing consulting and
training services in business
process improvement
• Floriaan B.V. in the Netherlands,
providing integral fire safety services
to industrial and real-estate
companies across the Netherlands
MANAGEMENT
FRANÇOIS MARTI, formerly Executive
Vice President Industrial, has been
appointed Chief Operating Officer
North America. LUIS FELIPE ELIAS,
formerly Managing Director for
Peru & Ecuador, has been appointed
Chief Operating Officer South &
Central America. WIM VAN LOON,
formerly Managing Director for
Benelux, has been appointed
Executive Vice President Industrial.
CHARLES LY WA HOI, formerly Vice
President, Retail Solutions & Europe
Business Development for Consumer
& Retail, has been appointed Executive
Vice President Consumer & Retail.
TOBY REEKS joined SGS as Senior Vice
President Investor Relations and
has been appointed to the Operations
Council. DOMINIK DE DANIEL joins
SGS as Chief Financial Officer as of
15 February 2019.
Kimmo Fuller (formerly Chief Operating
Officer North America), Alejandro
Gomez de la Torre (formerly Chief
Operating Officer South & Central
America), Richard Shentu (formerly
Executive Vice President Consumer
& Retail) and Carla De Geyseleer
(formerly Chief Financial Officer)
as of 15 February 2019, have all left
the Group.
CHAIRMAN OF THE BOARD
Following the announcement of
the passing of Sergio Marchionne,
the Board of Directors has elected
Peter Kalantzis as Acting Chairman.
SIGNIFICANT SHAREHOLDERS
As at 31 December 2018, Groupe
Bruxelles Lambert acting through
Serena SARL and URDAC held 16.60%
(2017: 16.60%). Mr. August von Finck
and members of his family acting in
concert held 15.52% (2017: 15.52%),
BlackRock, Inc. held 4.0% (2017: 4.0%)
and MFS Investment Management
held 3.02% (2017: 3.02%) of the
share capital and voting rights of
the company.
At the same date, the SGS Group
held 1.09% of the share capital
of the company (2017: 1.08%).
DISTRIBUTION TO SHAREHOLDERS
The SGS Board of Directors will
recommend to the Annual General
Meeting, to be held on 22 March 2019,
the approval of a dividend of CHF 78
per share.
SHARE BUYBACK PROGRAMS
The Group completed its share
buyback program that started on
15 May 2017, repurchasing a total
amount of CHF 249.9 million.
A new share buyback program of up
to CHF 250 million has been authorized
by the SGS Board of Directors.
GUIDANCE 2019
The Group expects to deliver solid
organic revenue growth and higher
adjusted operating income on a
constant currency basis and robust
cash flow generation.
OUTLOOK 2020
The Group remains committed:
• To mid single-digit organic growth
• To targeting accelerating
mergers and acquisitions and
remaining disciplined on returns
• To achieving an adjusted
operating income of above
17% by end of period
• To ensuring strong
cash conversion
• To maintaining best in class
return on invested capital
• To at least maintaining the
dividend or grow it in line with
the improvement in net earnings
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
FINANCIAL RESULTS
08
BUSINESS PERFORMANCE 11
2018 ACQUISITIONS
15
Consumers know that David’s
tomatoes are good to eat because
SGS has tested them to ensure they
meet quality and safety regulations.
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FINANCIAL AND SUSTAINABILITY
HIGHLIGHTS
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
FINANCIAL RESULTS
Group revenue growth in 2018 was 6.0%1, of which 5.3%1 was organic and 0.7%1 was from mergers
and acquisitions. Our successful strategic positioning delivered solid organic growth across the SGS business
portfolio, in line with our goal of mid single-digit organic growth. While most of the SGS businesses are
on target to deliver on our expectations, some businesses have been affected by a changing business mix
and market conditions. With these in mind, we are now targeting margins of above 17% for 2020.
CHF 6.7 BN
6.7
6.3
2018
2017
CHF 1050 MIO
1 050
969
2018
2017
REVENUE +6.0%1 (+5.3% ORGANIC)
ADJUSTED OPERATING INCOME2 +8.4%1
15.7 %
15.7
15.3
2018
2017
CHF 690 MIO
690
664
2018
2017
ADJUSTED OPERATING MARGIN2
PROFIT FOR THE PERIOD +3.9%
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CHF 84.54
84.54
82.41
2018
2017
CHF 78
BASIC EARNINGS PER SHARE 2.6%
PROPOSED DIVIDEND
78
75
2018
2017
CHF 796MIO
FREE CASH FLOW3 +12.7%
796
2018
2017
706 24.2 %
24.2
21.3
2018
2017
RETURN ON INVESTED CAPITAL4
8
ACQUISITIONS COMPLETED IN 2018
< BACK TO CONTENTS
12
1. Constant currency basis.
8
2018
2017
2. Before amortization of acquired intangibles and non-recurring items.
3. Cash flow from operating activities net of capital expenditure.
4. Profit for the period / (Non-current assets + Net Working Capital).
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT REVENUE
BY REGION
44.0 %
EUROPE / AFRICA /
MIDDLE EAST
25.2 %
AMERICAS
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ASIA PACIFIC
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CHARTER
OF TRUST
WORLD CLASS
SERVICES
SGS ONLINE
SGS co-signed the Charter of Trust
with the aim to make the digital world
more secure
Initial evaluation of SGS laboratories
took place to identify ways to reduce
organizational waste and losses
Services offered online to customers
and consumers
CHF 75 MIO
Gross procurement savings
< BACK TO CONTENTS
SGSWORLD
New intranet collaboration
platform launched
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT 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 15%*
30% of leadership positions
will be held by women
Reduce our TRIR and
LTIR by 50%**
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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
SUSTAINABILITY
ACHIEVEMENTS
SUPPLIER
ENGAGEMENT
LEADER
2019
SGS was named Industry Leader
by the Dow Jones Sustainability Index
for the fifth year
SGS was named Carbon
Disclosure Project (CDP) Supplier
Engagement Leader
Sustainability Award
Gold Class 2019
SGS received the Robecosam
Gold Class Award for its excellent
sustainability performance
SGS was included in the FTSE4Good
Index for the second year
CHF 1.55 MIO
CHF 1.55 million invested in
communities and 18 544 hours of
community volunteering performed
by SGS employees
63 %
Total Recordable Incident Rate (TRIR)
and Lost Time Incident Rate (LTIR)
reduced by 63% and 58%,
respectively, since 2014
SGS received a gold rating
from EcoVadis for the fourth year
VALUE
TO SOCIETY
For the second year running,
SGS is a net positive company
CARBON
NEUTRAL
SGS maintained its status as a carbon
neutral company
< BACK TO CONTENTS
Find out more about Sustainability
at SGS http://www.sgs.com/en/
our-company/corporate-sustainability/
sustainability-at-sgs
* Adjusted from 10% to 15%
to provide a more realistic target for
our industry, based on market studies
and external ratings benchmarks.
** Against 2014 baseline.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT BUSINESS
PERFORMANCE
REVENUE BY BUSINESS
(CHF million)
2018
PRO-FORMA 2
2017
Change
%
2017
Change
%
AGRICULTURE, FOOD AND LIFE
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TRP
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EHS
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IND
5.5%
CBE
REVENUE
ADJUSTED OPERATING INCOME¹
MARGIN¹
MINERALS
REVENUE
ADJUSTED OPERATING INCOME¹
MARGIN¹
OIL, GAS AND CHEMICALS
REVENUE
ADJUSTED OPERATING INCOME¹
MARGIN¹
CONSUMER AND RETAIL
REVENUE
ADJUSTED OPERATING INCOME¹
MARGIN¹
15.8%
AFL
11.2%
MIN
18.2%
OGC
15.3%
CRS
1 062.6
170.5
1 018.0
162.5
4.4
4.9
16.0%
16.0%
4.6
4.9
1 016.3
162.5
16.0%
750.1
121.1
16.1%
673.5 11.4
102.0 18.7
15.1%
683.6
9.7
104.6 15.8
15.3%
1 220.2
116.1
9.5%
1 137.8
7.2
120.4 (3.6)
10.6%
1 138.8
7.1
119.7 (3.0)
10.5%
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ADJUSTED OPERATING
INCOME1 BY BUSINESS
7.8%
GIS
7.9%
TRP
5.5%
EHS
8.0%
IND
6.6%
CBE
CERTIFICATION AND BUSINESS ENHANCEMENT
965.8
1 025.4
247.6
266.9
26.0% 25.6%
366.0
69.6
342.1
64.7
19.0% 18.9%
6.2
7.8
7.0
7.6
6.5
8.1
7.6
8.2
963.2
246.9
25.6%
340.3
64.3
18.9%
940.2
84.2
9.0%
897.3
4.8
73.7 14.2
8.2%
906.5
3.7
73.4 14.7
8.1%
REVENUE
ADJUSTED OPERATING INCOME¹
MARGIN¹
INDUSTRIAL
REVENUE
ADJUSTED OPERATING INCOME¹
MARGIN¹
16.2%
AFL
ENVIRONMENT, HEALTH AND SAFETY
REVENUE
ADJUSTED OPERATING INCOME¹
11.5%
MIN
MARGIN¹
517.2
57.4
11.1%
489.2
5.7
49.2 16.7
485.8
6.5
48.6 18.1
10.1%
10.0%
TRANSPORTATION
REVENUE
ADJUSTED OPERATING INCOME¹
MARGIN¹
540.5
82.8
541.4 (0.2)
91.7
(9.7)
15.3% 16.9%
546.5
89.9
16.5%
(1.1)
(7.9)
GOVERNMENTS AND INSTITUTIONS
REVENUE
ADJUSTED OPERATING INCOME¹
MARGIN¹
283.6
81.3
28.7%
263.9
7.5
56.7 43.4
268.1
5.8
58.7 38.5
21.5%
21.9%
11.1%
OGC
25.4%
CRS
1. Before amortization of acquired intangibles and other non-recurring items.
2. Constant currency basis.
< BACK TO CONTENTS
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT MINERALS
750.1
REVENUE IN CHF MILLION
11.4%
GROWTH IN 20181
OIL, GAS AND
CHEMICALS
OVERVIEW
• Strong double-digit growth
in Plant and Terminal Operations
(PTO), mainly in the USA
• Overall low single-digit growth
in Trade-related activities,
with strong growth in Asia
2017
2018
• Low single-digit growth in
Upstream, mainly from new
contracts in the Middle East
and North Africa
• Small decline in Non-Inspection-
related Testing activities caused
by the delay in laboratory
commissioning projects in
the second semester
OUTLOOK
• Trade momentum to continue,
but market conditions to
remain competitive
• PTO to continue growth reflecting
industry cycle, specifically in
Polymers and Plastics sector
• Upstream to strengthen in
production and maximize its
utilization of assets
• Non-Inspection-related Testing
activities to benefit from
new laboratory
outsourcing projects
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OVERVIEW
• Robust revenue growth across all
activities throughout the year
• Trade inspection volumes remained
strong for bulk commodities
AGRICULTURE,
FOOD AND LIFE
OVERVIEW
• Strong growth trends for Food and
Life continued in second half
• Agriculture remained challenging,
intensified by weather events
• Continued investment in biopharma
capacity expansion and Agri-Food
digital initiatives
• Strategic partnerships to expand reach
in food fraud
OUTLOOK
• Recent investments in Food and Life
to continue to drive growth
• Trade to remain challenging for the tail
end of the 2018/19 crop season
• Seed and Crop to benefit from demand
for precision agriculture services
• Growing adoption and recognition
of digital solutions for Agri-Food
• Strong pipeline of acquisition targets,
particularly in the Food and Life sectors
• Strong growth in geochemistry
1 062.6
REVENUE IN CHF MILLION
4.4 %
GROWTH IN 20181
< BACK TO CONTENTS
and laboratory outsourcing
• Excellent growth in Metallurgy services
OUTLOOK
• Market fundamentals to remain strong
subject to a stable macro environment
• Sustained growth in the
laboratory network
• Continued focus on niche services
and new market segments
2017
2018
• Margin improvement from automation
and operational efficiency projects
1 220.2
REVENUE IN CHF MILLION
7.2 %
GROWTH IN 20181
2017
2018
1. Constant currency basis.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT CONSUMER
AND RETAIL
OVERVIEW
• Double-digit growth in South East Asia
Pacific, Eastern Europe and Middle East
• New restricted substances and
strong level of Safety testing boosted
E&E activities
• Excellent growth in Cosmetic,
Personal Care and Household (CPCH)
in Germany, China and North America
• Softlines gained market share from
new sustainability solutions and
footwear testing
OUTLOOK
• USA/China trade war represents a risk,
especially for technology products
• Expand capacity in South East Asia
to meet buyer shift out of China;
continued investments in
digitalization and automation to drive
margin improvements
• Investment in 5G and Internet of
Things for wireless activity
• Further expand CPCH and Hardlines
through acquisitions
1 025.4
REVENUE IN CHF MILLION
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GROWTH IN 20181
INDUSTRIAL
OVERVIEW
• Growth in Oil and Gas market driven
by large supervision contracts and
refinery shutdown inspections
across all regions
• Solid developments in Infrastructure
market in South America and Asia
• Manufacturing growth in Laboratory
Testing activities, specifically in
Calibration services
• Margin improvement offset
Brazil situation
OUTLOOK
• Leverage positive growth perspectives
in the Infrastructure market
• Preserve our position in the
Oil and Gas market in a low
CAPEX environment
• Continue our diversification into
Laboratory Testing through acquisitions
• Implement development programs
and continue portfolio management
CERTIFICATION
AND
BUSINESS
ENHANCEMENT
366.0
REVENUE IN CHF MILLION
7.0%
GROWTH IN 20181
2017
2018
940.2
REVENUE IN CHF MILLION
4.8 %
GROWTH IN 20181
2017
2018
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2018
OVERVIEW
• Solid organic growth driven by
Management System certification and
transition to the new 2015 standards
• Improved margin from increased
Certification activity and
efficiency gains
• Rollout of Performance Assessments'
global cloud-based solution
and introduction of Business
Enhancement Engine
OUTLOOK
• Slowdown expected in organic
growth due to end of transition
in Certification
• Double-digit growth in Business
Enhancement with new training
services and increased value
generation from data-driven services
• Continue to protect high margin
levels with further efficiency gains
in operations
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1. Constant currency basis.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT ENVIRONMENT,
HEALTH
AND SAFETY
TRANSPORTATION
OVERVIEW
• Double-digit growth in Testing
services reflecting the return
of past investments
• Slight revenue decrease for Regulated
services following end of programs
in Uruguay and the USA
• Strong demand for certification
services linked to new International
Automotive Task Force standard
• Reduced revenue from end of Field
Service contracts in the USA and
slower than expected start of new
contracts in Europe
OUTLOOK
• Margin expected to stabilize following
restructuring in the USA and anticipated
volume uptake for Regulated Services
in Chile and Uganda
• Focus on further diversification in
the strong growing Aviation and Rail
Industry, broadening the geographical
service portfolio
517.2
REVENUE IN CHF MILLION
5.7 %
GROWTH IN 20181
2017
2018
OVERVIEW
• Strong performance from all
business segments
• Improved contribution from Laboratory
and Health & Safety services
• Signing of Ballast Water convention
and upcoming International Maritime
Organization 2020 open new market
opportunities for Marine services
• Focus on central data management
provided further efficiencies
OUTLOOK
• Overall portfolio to remain robust
• Continued demand driven by
legislation and development projects
• Regular dashboard review to improve
margins and enhance optimization
• Global launch of “real-time
monitoring” solutions with focus
on air quality
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540.5
REVENUE IN CHF MILLION
(0.2)%
GROWTH IN 20181
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283.6
REVENUE IN CHF MILLION
7.5%
GROWTH IN 20181
2017
2018
OVERVIEW
• Solid double-digit growth delivered
in Single window from strong
trade volume
• New marketing strategy for TransitNet
translated into increased market share
in key countries
• Improved margin from better
collection, economies of scale and
efficiency initiatives
• SGS onTrack implemented for Tobacco
industry to ensure compliance with EU
tobacco regulations and as a monitoring
program in Georgia and Russia
OUTLOOK
• Trade compliance and cross-border
complexity underpinning sustainable
growth
• Strengthening governments’
digital solutions
• Focus on innovation and unique
technologies (D-TECT, E-Valuator
and LegalTrace) and propose
more SaaS/PaaS
2017
2018
• Renovo e-waste monitoring program
launched in Ghana and the Ivory Coast
expected to ramp up
1. Constant currency basis.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT VANGUARD SCIENCES INC.
USA
LABORATOIRE DE CONTRÔLE
ET D’ANALYSE (LCA)
BELGIUM
Vanguard Sciences is a leading provider
of food safety testing services in
the areas of product testing, research
and development, and food safety
consultation, using a robust information
technology platform. The company’s
core capabilities include microbiological,
chemical and physical testing.
LCA provides chemical and
microbiological testing and consultancy
services to national and international
pharmaceutical companies, for
compliance with Belgian and European
procedures. The lab is Good
Manufacturing Practice (GMP – human
and veterinary) and ISO 17025 certified.
2018
ACQUISITIONS
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TRAITGENETICS GMBH
GERMANY
SIT SKIN INVESTIGATION AND
TECHNOLOGY HAMBURG GMBH (SIT)
GERMANY
OLEOTEST NV
BELGIUM
Headquartered in Gatersleben near Berlin,
TraitGenetics utilizes state-of-the-art
technologies for the development and
analysis of molecular markers for plant
breeding research. The company provides
services across a wide variety of crops to
international clients in the plant breeding
industry and for academic research.
SIT is one of the leading independent
contract research companies in Germany,
providing applied dermatological research
and studies for the cosmetics and
personal care industries. The company
offers a broad range of skin-tolerance
and proof-of-efficacy testing.
Oleotest is a provider of chemical
testing services in food, feed and
agricultural commodities. The laboratory
is ISO 17025 certified.
POLYMER SOLUTIONS INCORPORATED
(PSI)
USA
ADVANCED METROLOGY SOLUTIONS S.L.
(AMS)
SPAIN
INTER-BASIC RESOURCES INC. (IBR)
USA AND UK
PSI is a highly respected independent
materials testing laboratory specializing
in polymer science. It serves numerous
mainstream industries, including medical
devices, pharmaceuticals, consumer
products, aerospace, specialty
packaging and industrial manufacturing
of polymeric materials.
AMS specializes in 3D metrology
precision services and highly technical
inspection measurement processes.
Its main customers are major aircraft
manufacturers and their Tier 1 and 2
suppliers. Headquartered in Getafe,
Spain, AMS operates four additional
sites across Spain and Portugal.
IBR is a leading provider of state-of-the-
art testing and verification for air and fluid
filtration performance across multiple
industries. It offers comprehensive
testing services throughout the entire
spectrum of filtration services, with
laboratories in the United States and
the United Kingdom.
< BACK TO CONTENTS
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT SGS AT
A GLANCE
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Walker regularly attends internal
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give him the opportunity to build
his knowledge and grow his career.
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SGS, A LEADING
TIC INDUSTRY PLAYER
SGS is the world’s leading inspection, verification, testing and certification company. SGS is recognized
as the global benchmark for quality and integrity. With more than 97 000 employees,
SGS operates a network of over 2 600 offices and laboratories around the world.
OUR VISION
OUR VALUE TO SOCIETY
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We aim to be the most competitive and
the most productive service organization
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 unequaled
service to our customers.
OUR VALUES
We seek to be characterized by
our passion, integrity, entrepreneurialism
and our innovative spirit, as we
continually strive to fulfill our vision.
These values guide us in all that we do
and are the bedrock upon which
our organization is built.
+97 000
EMPLOYEES
+2 600
OFFICES AND LABORATORIES
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GLOBAL
EXPERTISE
AND
ASSURANCE
HANANE TAIDI
Director General of the TIC Council
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The testing, inspection and
certification (TIC) sector is an ally
to governments, a facilitator of
trade and a partner to industries.
Active in virtually all areas of the
economy, TIC suppliers provide
conformity assessment services
that create trust in relationships
between companies and their
customers. These services help
reduce risk and drive safety and
quality to the highest levels
while ensuring all members of
supply chains perform optimally.
Our industry employs highly skilled
experts to carry out independent
evaluations, audits and inspections
according to a variety of international
and national standards and
regulations. By doing so, we provide
confidence that a product, a process,
a system or a person meets specific
requirements, and we bring an extra
level of trust to trade transactions.
* Source: TIC outlook 2018, Barclays.
Today’s digitalized world of connected
devices presents both opportunities
and challenges. At a time defined
by fast-growing new markets and
increasingly complex value chains
and fast-paced innovation, the TIC
industry helps authorities meet
requirements for supervision and
market monitoring. It also assists
businesses in navigating the global
regulatory landscape and ensuring
that consumers buy products and use
services that are safe and compliant.
The global TIC market is valued at
around EUR 200 billion* and is
growing. We are witnessing the
increasing harmonization of standards,
the growing consumption of goods in
emerging markets and the
enforcement of rigorous regulations
and standards across various sectors.
At the same time, counterfeiting and
piracy are increasing globally. These
factors underline the critical role of
the TIC industry in providing unbiased
safety verification, quality assurance
and compliance certification.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
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.
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
recognized and rewarded. We foster
teamwork and commitment.
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SGS’ Business Principles are the
cornerstone on which all of our
activity rests. They are held to be
fundamental, overarching beliefs
and behaviors that guide our
decisions and allow us to embody
the SGS brand in everything we do.
www.sgs.com/principles
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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 minimize our impact
on the environment throughout the value
chain. We are good corporate citizens
and invest in the communities
in which we operate.
QUALITY AND
PROFESSIONALISM
MAKING SURE
WE ACT AND COMMUNICATE
RESPONSIBLY
We embody the SGS brand and its
independence in our everyday
behavior 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.
< BACK TO CONTENTS
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
OUR POSITION IN THE
VALUE CHAIN
SGS is active in virtually all sectors of the economy.
We provide a wide range of inspection, verification, testing and
certification services across all stages of the value chain.
AGRICULTURE AND FOOD
Innovativ e safety, quality
and sustainability solutions
for your supply chain.
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.
CHEMICAL
Innovation, optimization and
efficiency in everything from
feedstocks to finished products.
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LIFE SCIENCES
Safeguarding the quality
and efficacy of medicines.
MINING
Delivering expert
services to improve
speed to market,
manage risks and
maximize returns.
TRANSPORTATION
Driving a safer, cleaner and
more efficient industry.
INDUSTRIAL
MANUFACTURING
Making manufacturing more
productive and profitable.
CONSUMER GOODS
AND RETAIL
Generating trust throughout the
supply chain. Our services
enable manufacturers, exporters,
importers and retailers to gain
a competitive edge.
ENERGY
Powering processes
from renewables to
conventional energy.
PUBLIC SECTOR
Facilitating trade and
sustainable development,
protecting society against
fraud and economic crime.
OIL AND GAS
Innovative solutions
that add up along
the value chain.
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OUR GLOBAL NETWORK
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 across our customers’ supply chains.
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GLOBAL DRIVERS
2018 ACHIEVEMENTS
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MEASURING OUR IMPACT 65
ASSURANCE STATEMENT 73
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Our operations and services respond to global drivers and add
significant value to our stakeholders. We measure value creation
with the aim to empower smarter decision-making.
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OUR VALUE TO SOCIETY
Our business activity is designed to create value for and through our six main
stakeholders: investors, customers, governments and industries, consumers,
employees and suppliers, and communities and the planet.
5
OUR VALUE TO SOCIETY IS:
MEASURING OUR
GLOBAL IMPACT
We benchmark and analyze
our performance, using pioneering
impact valuation techniques.
OUR VALUE TO SOCIETY IS:
PURPOSE
BEYOND PROFIT
We closely monitor and respond
to market and societal needs while
also directly contributing to efforts
to tackle some of the world’s most
pressing problems.
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INTEGRATED
LEADERSHIP
Financial and non-financial
performance embedded in SGS.
Value enabled through
our stakeholders.
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OUR VALUE TO SOCIETY IS:
ENABLING
BUSINESS
We enable our customers
to be more efficient, productive
and sustainable through
our world-class services.
This multiplies our positive impact.
< BACK TO CONTENTS
OUR VALUE TO SOCIETY IS:
LONG-TERM
SUSTAINABLE
GROWTH
We ensure SGS’ long-term
stability and add direct value to
society through the continual pursuit
of excellence across all areas
of our business.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
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LEADERSHIP
EMPOWERS SGS TO DELIVER VALUE TO SOCIETY
Integrated leadership forms a critical part
of our approach to creating value to society.
It ensures that we prioritize strategic
decision-making that looks beyond
the bottom line.
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GLOBAL DRIVERS
MEGATRENDS
SGS has outlined five megatrends
that are influencing the way we live
and do business.
THE SUSTAINABLE
DEVELOPMENT GOALS
Our activities contribute positively to
all 17 Sustainable Development Goals.
URBANIZATION, MOBILITY AND SMART CITIES
CLIMATE CHANGE
ECONOMIC GROWTH
POPULATION AND SOCIAL TRENDS
DIGITALIZATION AND CYBERSECURITY
(See page 28)
(See page 30)
RISK INTELLIGENCE
Understanding the risks we face
is a critical part of our integrated
leadership approach.
(See page 31)
BUSINESS MATERIAL TOPICS
Recognizing and prioritizing our material
issues allows us to allocate resources
in the most efficient way possible.
(See page 32)
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OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT
OUR BUSINESS MODEL
BRAND
GROWTH
INNOVATION
The continued growth of our global
network and its unrivaled physical
footprint is a key competitive
advantage, both to our business
and to our shareholders.
SGS will continuously stretch the
boundaries of the TIC industry in order
to retain our position as market leaders.
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 leader.
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.
MISSION 2020
High customer retention
and satisfaction
No major integrity or human
rights breaches
Leading position in strategic
markets and geographies
MISSION 2020
Build scale
Buy capabilities
Fill geographic gaps
Enhance financial metrics
Maintain strategic significance
Industry sustainability leadership
Diversify portfolio of services
Deliver measurable sustainable
value to society
Increase visibility of our value
to society
Mid single-digit average
organic growth
Enhance presence in key markets
MISSION 2020
Enhance business through
digital services
Expand B2B2C presence
Develop B2C presence
Strengthen and invigorate
the culture of innovation at SGS
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.
Investment in research, innovation,
talent and technology has to be at
the core of our business model.
OPERATIONAL EXCELLENCE
Applying continuous improvements
across our business operations,
improving performance and utilizing
the best possible sustainable
business practices provide our
competitive edge.
MISSION 2020
MISSION 2020
MISSION 2020
Enhance our reputation as
an employer of choice
Employ the industry’s leading experts
Maintain natural staff turnover rate
at no more than 15%
30% of senior management
positions to be held by women
Be the leading brand for accuracy,
quality and professionalism
Invest in cutting-edge technology
and optimize existing technology
performance and usage
Increase investment in communities
around the world by 30%*
Maintain best-in-class returns
on invested capital
Reduce our annual CO2 emissions
(per FTE) by 20%*
Reduce our annual CO2 emissions
(by revenue) by 20%*
Reduce TRIR and LTIR by 50%*
Ensure efficient use of capital
Maximize internal efficiencies
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* Against a 2014 baseline.
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Our services bring a
tremendous amount of value
to society by helping our
customers to be more efficient
and productive while
improving safety and achieving
their sustainability objectives.
Our customers therefore
create a multiplier effect of
our value to society (see Toy
Testing case study opposite).
OUR SERVICES
OUR BENEFITS
INSPECTION
TESTING
QUALITY
SAFETY
VERIFICATION
REDUCED RISK
CERTIFICATION
EFFICIENCY
TRAINING
PRODUCTIVITY
CONSULTANCY
OUTSOURCING
ANALYTICS
SPEED TO
MARKET
TRUST
SUSTAINABILITY
EXAMPLE MULTIPLIER EFFECT OF OUR SERVICES
P R E V E N T I N G U SE
O F R E S T R I C T E D
S U B S T A N C E S
POTENTIALLY
LIFE SAVING
PEA
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POTENTIALLY
LIFE SAVING
P R E V E N T I N G U S E
O F R E S T R I C T E D
S U B S T A N C E S
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OUR STAKEHOLDERS
We create value to society for
INVESTORS
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.
< BACK TO CONTENTS
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.
CUSTOMERS
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 endeavors
are recognized as being among the very
best – both regionally and in the TIC
industry. Through our services and
operations, we attempt to protect our
planet and its limited resources.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
IMPACT VALUATION
FRAMEWORK
We have developed a
pioneering impact valuation
model that allows us to
measure our value to society
in quantitative terms. We are
among the first companies
to attempt to do this, and
we believe that in the future,
such calculations could have
the potential to influence
the way businesses’ value
is perceived. We are also
embracing the Integrated
Reporting Framework’s
strategy of understanding
how our material factors
generate value over time.
(See page 67)
MEASURING OUR VALUE TO SOCIETY
Financial
capital
Natural
capital
Human
capital
Intellectual
capital
Manufactured
capital
Social and
relationship
capital
Value
to society
Our Impact Valuation model measures a series of carefully selected indicators
across six capital stocks. The flows of these capitals are calculated across
our supply chain and operations to measure our value to society. In the future,
we will evaluate these capital flows across our services as well.
(See page 70)
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OUR DOUBLE-POSITIVE DECISION MATRIX
HIGH VALUE TO SGS
HIGH VALUE TO SOCIETY
VALUE TO SGS
HIGH
HIGH
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All of our actions have an impact on both SGS and on society. In the future,
our informed integrated leadership will enable SGS to focus in those activities that add
a high double-positive impact, maximizing the value we add to SGS and to society.
(See page 71)
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
The world is rapidly changing.
Through our understanding
of global megatrends, we build
our risk intelligence and evolve
the way we do business.
SGS Rail Inspection experts
conduct reviews of trains to ensure
George gets to university safely.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
SGS has outlined five megatrends that are influencing the way we live and do business.
MEGATRENDS
URBANIZATION,
MOBILITY AND
SMART CITIES
Currently, most of the global GDP is
generated in cities, and more than half of
the world’s population lives in metropolitan
areas – a trend that will intensify.
Urbanization provides opportunities to
increase productivity and attract talent, but
the need for resources and space impacts
the economy, environment and quality
of life. Governments and businesses are
using technologies and data to build smart
cities, towns and villages as well as to
deliver smart mobility, advance economic
growth and improve infrastructure and
community services.
OUR VALUE TO SOCIETY
CLIMATE CHANGE
Extreme weather conditions and climate
change can cause droughts and flooding
that affect natural resources – such as
water, energy, minerals/metals and food.
This is especially true for some
developing countries, where population
growth trends further accelerate the
demand for natural resources.
Governments are responding by
developing new regulations, meaning
businesses and communities will need
to develop actionable strategies that
reduce the impact on climate change
while supporting new demographic
structures and securing the supply
of resources.
ECONOMIC GROWTH
The global economy has grown twenty
times over the last two centuries and is
estimated to increase six-fold by 2050.
The economy’s primary challenge is to
balance our desire for economic growth
and prosperity with finite natural
resources. 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 must
invest in sustainability, human capital
and promote fair access to the
workplace, technology and markets.
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SGS INVESTS
IN 5G TECHNOLOGY
ENSURING SAFE, SUSTAINABLE
ENERGY AROUND THE WORLD
SGS PIONEERS UNIQUE END-TO-
END SOLUTION FOR E-WASTE
ERIC LEE
SGS Global CRS and Wireless Manager
CHARLIE ZHANG
SGS Wind Energy Product Manager
ALEXANDRE LUSENTI
SGS Product Manager for Renovo™
Smart-city services will rely on network
providers’ abilities to relay vast amounts
of data in almost real time. With its high
speeds and low latencies, fifth-
generation wireless, or 5G, is poised to
be an ideal solution. To provide the
compliance, security and reliability of
this next generation network, SGS has
invested in a 5G call simulator in Taiwan,
Korea, China and the USA, worth
CHF 600 000. These simulators enable
us to test, verify and troubleshoot the
performance of the system as well as
ensure security and reliability for
devices. In 2019, SGS will continue its
investment in 5G compliance testing
to support customers across all stages
of product development.
SGS tests, inspects and certifies
renewable energy initiatives, such as
wind, solar and hydro, for businesses
and consumers around the world. SGS
evaluates the technical feasibility of
renewable power plant projects,
manages the supply chain, ensures
installations avoid risk and provides
customized consultancy services for the
entire development. We ensure the
generation and distribution of power is
safe, efficient and sustainable for the
future. As China is the leader in
renewable energy investments,
accounting for 45% of the global total,
SGS has invested in a state-of-the-art
Wind Energy Technology Center (WETC)
in Tianjin, which provides a complete set
of full-scale testing capabilities.
To help nations successfully and
sustainably dispose of their waste, SGS
created Renovo™, a self-funding,
full-scale waste management system. In
2018, SGS implemented Renovo™ in
the Ivory Coast and Ghana. The
Governments of both countries
designated SGS as the official external
service provider to identify the products
imported, determine their condition and
prevent the importation of waste, thus
reinforcing the Basel Convention on
transportation of waste and hazardous
goods. This identification is critical to
size the facility correctly and to start the
traceability process. SGS is also
responsible for collecting an advance
eco levy on all electrical and electronic
equipment and tires exported to support
the countries’ efforts to protect their
people and environment.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
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.
DIGITALIZATION AND
CYBERSECURITY
The billions of devices that are
connected to the internet, interacting
and sharing data back and forth on an
entirely new scale, present huge
potential to save time and money.
Moreover, advanced technology – such
as robotics, artificial intelligence and big
data – is revolutionizing our personal and
professional lives. As much as these
advances are improving societies and
economies, the security risks are
significant. Personal data has become
a valuable asset and attacks on security
gaps can cause considerable damage.
Adequate cybersecurity is one of the
basic requirements for a digital society:
people need to be able to trust that
their digital devices are secure and
that their data is private and safe.
Any company that works with data
needs to provide the infrastructure and
security measurements to avoid data
breaches and maintain uninterrupted
business operations.
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POPULATION
AND SOCIAL TRENDS
The world’s population is projected to
rise by more than 1 billion by the year
2030, bringing the total to over 8 billion,
and 97% of this growth will come from
emerging or developing countries.
This pace of change poses significant
challenges for governments and
businesses and empowering the next
generation of workers – millennials
(born in the 80s, 90s and early 2000s)
– is critical to meeting these social
challenges. Businesses and
communities need strategies that can
support the new demographic structure.
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HIRING IN THE AGE
OF MILLENNIALS
SGS AT THE FOREFRONT
OF CYBERSECURITY
JAMES ALLIBON
SGS Global Recruitment Manager
When recruiting, we put the candidate
first by using recruitment tools designed
with our audiences’ habits and needs in
mind. In the case of millennials, we are
investigating a tracking application
system that is mobile, quick, easy and
fully transparent. Millennials are
searching for a job that enhances their
personal brand while enabling them to
make a difference in the world.
Attracting millennials will depend on
SGS’ ability to illustrate our positive
impact on society. One of the pillars for
SGS’ human resources strategy is talent
development and internal mobility, to
provide our employees with the right
opportunities to learn and grow. The
success of this strategy will have a
positive impact on the attraction and
retention of our millennial talents.
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SERGIO LOMBAN
SGS Digital Trust Services, Vice President
To shape the future of the digital world,
SGS joined forces with Siemens and
eight other leading businesses to
present a Charter of Trust in February
2018. The Charter contains 10 principles
that aim to make the digital world more
secure and also sets three important
goals: Protect the data of individuals and
companies; prevent damage to people,
companies and infrastructures; and
create a reliable foundation for instilling
trust in a networked, digitally
connected world. As an industry leader,
we are committed to pushing for the
Charter’s adoption globally and will
continue to develop, promote and
implement its principles.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT
THE
SUSTAINABLE
DEVELOPMENT
GOALS
Adopted in 2015, the 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.
SERVICES
SUSTAINABLE DEVELOPMENT GOALS
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
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RISK INTELLIGENCE
EXTERNAL RISKS
These include economic and market risks, geopolitical risks, climate change
risks, legal and regulatory risks, natural disaster risks and public relations risks
among several others.
External Risks are mitigated in various ways including but not limited to:
• Insurance policies
• Business Continuity Planning
• Sustainable Supply Chain initiative
• Legal and Compliance team
• Economic and geopolitical risk analysis
INTERNAL RISKS
STRATEGIC RISKS
These risks include business model, intellectual property, advertising, structural,
product life cycle, resource allocations and social responsibility among others.
Strategic Risks are mitigated in various ways including but not limited to:
• Solid business and development plans
• Mergers and Acquisitions Policy
• Legal and Compliance team
• Investor Relations
• Communications and Sustainability team
PROCESS RISKS
These risks include business interruption, environmental, compliance, health and
safety, knowledge loss, contractual, taxation, talent acquisition and retention,
employee and third-party fraud, and data integrity among others.
Process Risks are mitigated in various ways including but not limited to:
• Business Continuity Plan
• Operational Integrity team, policies and training
• Sustainability team, internal communications and community investment
• Legal and Compliance team
• IT committee, policies, training and architecture
• Employee branding, global HR strategy
FINANCIAL RISKS
These risks include counterparty, credit, equity, foreign exchange, interest rate,
liquidity, commodities and opportunity cost among others.
The specific process for Financial Risk management is described in detail in
the Finance section (see pages 116-180).
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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 enable better decision-making
responding to risks, the Group employs
a comprehensive, integrated approach
to identifying and articulating the risks
to the business. This involves the active
participation of various management
levels throughout the company.
This risk assessment process is
supported by our Enterprise Risk
Management (ERM) model. Our risk
categorization is structured into
“External” and “Internal” risks (see left).
2018 RISK ASSESSMENT
The 2018 Risk Assessment showed
that SGS continues to have a moderate
risk profile. Competition for talent
(affecting both hiring and staff retention),
succession planning, correct pricing and
global economic conditions are our main
residual risks after mitigation.
Other areas of note include political risk,
which has been exacerbated in 2018
by a significant shift in how the United
States exercises its global leadership
role and continued uncertainty over
Brexit. Despite robust mitigation efforts
in recent years, cybersecurity remains
a risk priority for the Group, owing to the
rapidly evolving technological landscape.
2018 STRATEGIC
SYSTEM INITIATIVE
2018 was a transitional year for SGS’
Risk Management function, with the
rollout of an enhanced management
structure, a new global Governance Risk
and Compliance (GRC) platform and
updated Risk Management processes.
RISK OVERSIGHT
A new Risk Management Oversight
Committee (RMOC), which is chaired
by the CEO, has been established.
This includes senior representatives from
various key departments such as the
CFO, CIO and the Senior Vice President,
Human Resources. The Committee is
expected to meet twice a year and on
an ad-hoc basis as necessary.
The RMOC’s role is to manage the ERM
framework. It reports directly to the Board.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
The revised risk model now also
integrates a broader array of risk
categories, such as sustainability risks
(e.g. climate change, human rights risks),
directly into the management process,
where they were previously a separate
administrative task. This is expected
to result in an even more robust and
comprehensive approach to risk
management in SGS, to better balance
value preservation with value creation.
An enhanced integrated Risk
Management Framework and
governance process uses a matrix
approach to analyze risk through the
company verticals (business lines
and functions) and across geographic
(country level) entities. Mapping is
then conducted across all areas.
Where significant discrepancies arise
between Group-level priorities and local
perceptions of risk, EVPs are required
to visit the country in question to
examine the details. The new
methodology therefore encourages
more detailed risk management dialog
between global business and function
heads and their respective country-level
managers. This allows for better
localization of risk management and
a clearer understanding of Group-level
concerns at a country level. The new
framework also places responsibility
and accountability for managing risk
much closer to our operations with
“Risk Champions” now owning a
particular risk in their jurisdiction.
NEW RISK MANAGEMENT TOOL
To support the new Framework,
a customized Governance Risk and
Compliance platform (named ANTARES)
is also being deployed across the
business. This enables a more detailed
analysis of both gross and residual risk
(i.e. risk remaining after mitigation
efforts have been taken into account)
and standardizes risk management
evaluation and reporting procedures
across the business.
In 2018, the new tool was deployed
through the company verticals. As part
of this, more than 100 workshops
were held with senior management –
including heads of all business lines and
every business function. This allowed
us to obtain a comprehensive overview
of their risk and mitigation activities.
Successful country-level pilots of the
new platform and framework were held
in Morocco, South Africa and Australia.
ACHIEVEMENTS
108 risk workshops held
First risk Management Oversight
Committee meeting held
OUTLOOK 2019
In 2019, the new Governance Risk and
Compliance platform will be deployed on
a country level, following its successful
pilot in 2018. 43 countries will be covered
over the course of the year, with the
priority being the largest countries by
operation and certain smaller countries
with a high-risk profile. Follow-up
monitoring for actions identified during
the platform’s deployment across the
verticals and pilot countries in 2018 will
also be initiated.
Additionally, a Group-wide risk appetite
profile will be formally established,
aligned with our Business Principles,
Vision and Core Values. This will be
determined by the OC and will form
a third risk assessment parameter to
accompany “likelihood” and “impact”
by which we can assess all mitigation
activities. In this sense, it will help guide
not just risk management policy but also
the Group’s broader decision-making
across a number of actions.
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BUSINESS MATERIAL TOPICS
In 2016, SGS carried out its first
materiality assessment process.
This involved 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. We then conducted
a weighted analysis of the results
by stakeholder type.
This process allowed us to identify
our material topics. We subsequently
merged these with the outputs of
our business risk assessment process.
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The result was a consolidated list
of the most salient environmental,
social and governance topics for SGS.
Next, we conducted an impact
assessment, which involved over 80%
of Operations Council members, to rank
each topic according to its relative
impact on the business and assess the
controls in place to mitigate that impact.
The outcome of this process was
the development of our first Business
Materiality Matrix.
During 2018, we carried out our annual
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 risk identification process.
OUTLOOK 2019
Ordinarily, an external stakeholder
survey is conducted every two years;
however, the 2018 survey was
postponed until early 2019. This is to
allow time for the full integration of our
sustainability risks into the global risk
management system.
In addition to the survey, another
high-level materiality review will be
completed in 2019. Together, these two
activities will be pivotal in providing
the insights we need to finalize our
2025 business and sustainability goals.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
BUSINESS
MATERIALITY MATRIX
Our Materiality Matrix maps our identified material topics against their importance
for stakeholders and their impact on SGS, providing us with a powerful analytical tool.
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Strategy and Planning
Governance and Integrity
Global Support
Operations
INDIGENOUS RIGHTS PROTECTION
BUSINESS CONTINUITY
ROLE IN PUBLIC POLICY
DEVELOPMENTS
PROTECTION OF BIODIVERSITY
TAX STRATEGY
CYBERSECURITY
MATERIALS CONSUMED
WATER AND WASTE
MANAGEMENT,
AIR POLLUTION
IT PREPAREDNESS
AND DIGITALIZATION
FAIR AND EQUAL REMUNERATION
PRICING
INVESTMENT IN
LOCAL COMMUNITIES
TALENT DEVELOPMENT
AND RECOGNITION
EMPLOYEE ENGAGEMENT
INNOVATION
RISK AND CRISIS MANAGEMENT
ECONOMIC CONDITIONS
RESPECT FOR HUMAN RIGHTS
1A
1F
2B
2B
2C
2D
3C
3D
3D
3E
3I
4B
4E
4F
5E
5E
6D
6F
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9
8
7
6
5
4
3
2
1
S
R
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H
E
K
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I
A
B
C
D
E
F
G
H
I
IMPACT ON SGS
6F
6F
6G
7C
7D
7E
7E
8C
BRAND AND REPUTATION
CRM AND CUSTOMER
SATISFACTION
CUSTOMER PRIVACY AND
DATA PROTECTION
SUSTAINABLE PROCUREMENT
AND SUPPLY CHAIN
DIVERSITY AND
EQUAL OPPORTUNITIES
CORPORATE GOVERNANCE
INVESTMENT STRATEGY
ENERGY AND CLIMATE CHANGE
8E
8F
9E
9F
9G
9H
COMPLIANCE WITH LOCAL LAWS
AND REGULATIONS
MARKET PRESENCE
ECONOMIC PERFORMANCE
TALENT ACQUISITION
AND RETENTION
OPERATIONAL INTEGRITY
PROFESSIONAL INTEGRITY
To learn more about our materiality
assessment and material topics,
please see our Sustainability Report
http://www.sgs.com/cs-report-2018.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT
MARKET LEADERSHIP
35
CUSTOMER SATISFACTION 36
SUSTAINABILITY
INTEGRITY
38
40
ACQUISITIONS AND
STRATEGIC PARTNERSHIPS 42
ORGANIC GROWTH
BALANCED PORTFOLIO
REGIONAL FOCUS
INFRASTRUCTURE
AND SERVICES
DIGITAL
INNOVATIVE
ONLINE SERVICES
INVESTOR RELATIONS
42
43
43
44
45
46
48
OPERATIONAL EXCELLENCE 49
PROCUREMENT
AND SUPPLY CHAIN
MANAGEMENT
OPERATIONAL INTEGRITY
CLIMATE CHANGE
PEOPLE
TALENT ACQUISITION
AND RETENTION
HUMAN CAPITAL
AND LABOR PRACTICES
QUALITY AND
PROFESSIONALISM
COMMUNITY
INVOLVEMENT
50
52
54
57
58
60
60
61
COMMUNITY PROGRAMS 61
DATA SECURITY
AND PRIVACY
63
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ACHIEVEMENTS
Caroline improves her company's
environmental performance
by getting ISO 14001 certified.
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MARKET
LEADERSHIP
OUR VALUE TO SOCIETY
LEADING THE WAY FOR
Evolving with customer needs
and adapting to megatrends
(see page 28) are essential to the
Group’s success. Our leadership
position is driven by our ability
to invest, develop and strengthen
our expertise in strategic markets
and geographies. This expertise
is enhanced by the depth and
variety of talent that we have in
the company. Introducing different
perspectives and world views
enables SGS to be a better,
smarter, more creative and more
innovative company.
ACHIEVEMENTS
SGS surpassed one million
followers worldwide on SGS
social media channels
Reach and expertise of SGS
services expanded across regions
and industries
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SAFER
LOGISTICS
SHIGETO ICCHO
SGS Sales, Sustainability Service, Certification
and Business Enhancement Japan
The globalization of logistics has
created new opportunities for
unlawful behavior. For many of our
customers, both logistics service
providers and manufacturers of
high-value products, securing freight
in transit is a critical business risk.
SGS is pioneering services in facility
security to ensure safer value chains.
As part of diversifying our reach and
expertise at SGS, we researched
logistics safety with global security
company SECOM Co., Ltd. The
results show that many organizations
are looking for ways to gauge the level
of protection in the logistics facilities
in their supply chains, whether they
own the facilities or are using those
of a third party. To meet this demand,
we filled the gap in the market by
launching the SGS Facility Security
Evaluation Service (FSES). By assessing
everything from surveillance cameras
to sensors and personnel, while also
investigating vehicle access
controls, we are giving companies
the opportunity to either evidence
their security levels or, if they are
providing a service, to demonstrate
they have the right safety and security
measures in place at their facilities.
By limiting the ease with which
criminals can act, SGS is taking a
pioneering role in helping to prevent
organized crime from becoming more
established in global supply chains.
“We are proud to be the first
in the world to be awarded
the SGS Facility Security
Evaluation Certificate for our
Tsukuba Archive Center. We
believe that we can globally
demonstrate the security
of our logistic facilities to
our clients through our
compliance with the criteria.”
TOSHIMASA NUMAJIRI
President, Numajiri Sangyo Co.
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CUSTOMER RELATIONSHIP
MANAGEMENT SYSTEMS
The quality of the relationship SGS is
able to maintain with its customers
relies on the IT infrastructure in place
to support it. To increase the level of
service SGS is able to deliver, the SGS
Enable IT transformation program
was launched in 2017.
In 2018, we launched the first pilot
version of the new customer portal,
which is a customer engagement
initiative within the SGS Enable
program (see page 46 for more details).
The customer portal has been designed
to be the new CRM system for the
Group. Globally, customers using the
portal will have one single point of
contact and a 360 degree view of their
purchases and preferences, while
internally, SGS will be able to increase
customer satisfaction by offering more
tailored services.
This year, SGS’ Standardized Inspection
Reporting (SIR) system for field
inspections was further rolled out to
provide digital inspection execution for
the Agriculture; Minerals; and Oil, Gas
and Chemicals trade businesses.
Through a global digital platform,
consistent back-office capabilities and
customer-facing reports, the inspection-
to-client service has been taken forward.
ACHIEVEMENTS
SGS online, our customer store and
customer portal, was launched in 2018
with four service lines available for
direct purchase
80 countries (over 270 affiliates) are
now using Standardized Inspection
Reporting (SIR) for at least one
business line
SGS’ new remote inspection system,
QiiQ, rolled out across further
business lines
9 500 “Voice of the customer”
responses analyzed in 2018
88% satisfaction score across all
“Voice of the customer” surveys*
150 key accounts surveyed for
customer satisfaction across two
business lines
SGS received the Quality Control
Award from the Global Grain Awards
* Results for 2018 surveys analyzed the
complete year of experiences in 2017.
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“Customer research
is an essential part of
our brand management.
By understanding
the numerous different
journeys and experiences
they have with us,
we are working to continuously
build our knowledge
about how best to achieve
customer satisfaction.”
LAETITIA SAINT-PIERRE
SGS Customer Engagement
and Loyalty Manager
CUSTOMER
SATISFACTION
It is important to us that our customers
recognize the value of our services
and have positive experiences that
bring them back to us time and time
again. To achieve this, we ensure all
our employees have the skills and
knowledge required to deliver our
services to exacting standards.
At the same time, we are continuously
enhancing the systems and processes
we have in place to anticipate and
respond to customer needs as
they arise.
CUSTOMER
RELATIONSHIP
MANAGEMENT (CRM)
SGS takes a decentralized approach
to customer relationship management,
with each business line managing
relationships through customer-care
departments. These act as the direct
point of contact for customers and
connect them with the parts of SGS
that deliver services. We achieve this
through a combination of face-to-face
customer meetings, follow-up
emails/phone calls, hard-copy and
online feedback questionnaires.
These are constantly monitored and
periodically reviewed as part of our
Management Review processes.
We also support our daily customer
interactions with seminars and
workshops, along with social media
communications and responses
to web enquiries.
Understanding how our customers feel
about their experience, and their specific
interests, suggestions and expectations,
is also important to SGS. We assess this
through “Voice of the Customer”
surveys. A great example is our lab
excellence program survey that was
carried out in all regions and had 9 500
respondents, which covered 42%
of the Group’s revenue. Results were
published in May 2018. The surveys
typically cover quality of service,
technical capabilities, turnaround time,
administration team, reporting format,
satisfaction in queries being dealt with,
courtesy and value for money. We also
survey SGS brand awareness separately.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
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Customer satisfaction is ingrained in
the SGS culture. It is integral to how
we operate, how we innovate and
how we grow. When we work with
customers, we provide a level of service
that gives them confidence in the
processes we take and the results we
generate. This trust forges long-lasting
relationships and creates brand
advocates, fueling their growth and
ours. Our aim is to provide solutions
that achieve our customers goals
while contributing to a safer, more
productive and sustainable society. But
how do we know we are achieving this?
Our customers tell us.
SAMUEL CORK
SGS Global Brand & Content Manager
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“We have worked with
SGS for more than
20 years. In our experience,
SGS has provided us with
a team of experienced,
committed personnel who
know their field of work,
and SGS responds
to our enquiries
in a timely manner.”
SANDRA SEOW
Fuel Oil Operations Manager, Vitol
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT
SUSTAINABILITY
Adding direct value
to society through
our operations.
Sustainability is at the core of our brand
offering. It is embedded into the
decision-making process of all company
functions as part of our integrated
leadership model.
That is why sustainability at SGS is
driven from the very top, with the CEO
actively leading our sustainability vision.
It is also enshrined in our Business
Principles (see page 18).
Sustainability at SGS is managed by
a dedicated team, which oversees
activities across four pillars: People,
Operational Excellence, Environment
and Community.
The weight of our internal sustainability
activities is guided by the results of
our Materiality Matrix (see page 33)
and our effectiveness is measured both
against published Key Performance
Indicators and our Sustainability
Ambitions 2020 (see page 10).
Our efforts are also aligned to the
Sustainable Development Goals.
In 2017, we became one of the first
companies in the world to publish
a quantitative valuation of our value
to society. This is an exercise we
repeated in 2018 (see page 65).
More detailed information on our
sustainability efforts is available in
our Sustainability Report
http://www.sgs.com/cs-report-2018.
Our best-in-class sustainability
performance is valued by our
customers, appealing to the job
market and highly attractive to
the rising numbers of sustainable
investors active in the global
financial markets.
ACHIEVEMENTS
Dow Jones Sustainability Indices
Leader for the fifth consecutive year
FTSE4Good Index includes SGS
for the second consecutive year
Gold Award by EcoVadis Rating
Carbon Disclosure Project (CDP)
Supplier Engagement Leader
SGS continues to be a carbon
neutral company
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
OUR VALUE TO SOCIETY
PAULA ORDOÑEZ
SGS Global Head of
Corporate Sustainability
SGS RETAINS
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LEADERSHIP
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1ST
2014
2015
2016
2017
2018
INDUSTRY LEADER
DOW JONES SUSTAINABILITY INDICES
For the fifth consecutive year,
SGS was named industry leader
in the Dow Jones Sustainability
Indices (DJSI) World and Europe.
Created by RobecoSAM and S&P
Dow Jones Indices, the DJSI is
the longest-running global
sustainability benchmark system
and is based on an in-depth
analysis of the economic, social
and environmental performance
of more than 2 000 companies
across 59 sectors.
With an overall score of 79/100, against
an industry average of 39/100, SGS led
the professional-services sector on a range
of criteria, including code of business
conduct, policy influence, human rights,
talent attraction and retention, and
occupational health and safety.
For the second consecutive year, SGS was also
included in the FTSE4Good Index Series, which
selects companies based on their ability to meet
globally recognized standards across social,
environmental and governance disciplines.
While we are extremely proud to be recognized
for our sustainability leadership, we particularly
value the vital role that these indices play
in helping institutional investors integrate
sustainability considerations into their portfolios
while engaging with companies to advance
economic, social and environmental
development on a global scale.
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OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT
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INTEGRITY
Integrity is at the heart of the SGS
brand, and 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. As an industry
leader, we believe our behavior inspires
other businesses to create a better
working environment for all.
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. This Code applies
to all SGS employees as well as affiliated
companies, contractors, subcontractors,
joint venture partners and agents.
SGS’ Supplier Code of Conduct sets out
our standards for suppliers on respecting
human rights in our and our customers’
supply chains. Our shared values on
individual and organizational professional
conduct keep us from seeking business
advantage by means that threaten our
assets, brand, people or intellectual
property. Both employees and suppliers
receive clear guidance on grievance
mechanisms. Any suspected violations
can be reported using confidential
integrity helplines or by contacting local
or corporate-level Compliance teams.
SGS conducts a mandatory Annual
Integrity Training, based on the Code of
Integrity, for all employees. Additionally,
all new hires must complete an
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
SGS Annual Integrity Training was
made available in both classroom
and e-learning formats
74 countries participated in quarterly
Integrity Talks
22 integrity-related questions were
added to Stellar, our self-assessment
audit tool
The Human Rights Committee
reviewed the Human Rights Policy
and strengthened the advancement
of human rights knowledge
throughout SGS
SGS Academy launched human rights
training for customers and adapted
the content for employees
SGS CODE OF INTEGRITY RESPONSIBILITIES
BODY
RESPONSIBLE FOR
INCLUDES
PROFESSIONAL
CONDUCT
COMMITTEE
• Ensuring implementation
of the Code of Integrity
• Chairman of the Board
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 behavior
and conducting investigations
of 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
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PERFORMANCE
100%
% OF EMPLOYEES SIGNING THE CODE OF INTEGRITY
100
100
100
100
100
2014
2015
2016
2017
2018
EMPLOYEES SIGNING
THE CODE OF INTEGRITY
28
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.
42
31
22
22
28
2014
2015
2016
2017
2018
CODE OF INTEGRITY
NON-COMPLIANCES
39
TOTAL NUMBER OF REPORTS INVESTIGATED CONCLUDING
IN NO BREACHES AND CLOSED DUE TO LACK OF SUBSTANCE
169
155
109
34
39
2014
2015
2016
2017
2018
CODE OF INTEGRITY
INVESTIGATIONS
237 1
TOTAL NUMBER OF INTEGRITY ISSUES REPORTED THROUGH
CORPORATE INTEGRITY HELPLINES
“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.
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245
207
227
237
2014
2015
2016
2017
2018
CODE OF INTEGRITY REPORTS
1. At the time of reporting, 30 pending cases
were still open and under review.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
OUR VALUE TO SOCIETY
NURTURING A
CULTURE OF
INTEGRITY
SOPHIE BESNARD
SGS Senior Global Legal Counsel
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Doing the right thing sounds simple enough, but in a diverse
company with more than 97 000 employees, many circumstances
can challenge the ability to act according to the company’s core
mission and values. To complement our established mandatory
Annual Integrity Training and e-learning, we have introduced
new initiatives to bring integrity to life. With a goal to
transition the SGS Code of Integrity – from being a
compliance tool to becoming an integral part of the
processes and culture within the Group – we have
redesigned our integrity e-learning modules and
introduced a series of manager-led Integrity Talks.
The e-learning modules use real-life scenarios to help
employees relate integrity issues to their everyday
work. Inspired by our Safety Talks, we also
collaborated with our Operational Integrity team
to design and implement regular meetings
that promote the dialogue between line
managers and employees on the
standards of conduct expected
of them in the workplace.
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OUR VALUE TO SOCIETY
ACQUISITIONS
AND STRATEGIC
PARTNERSHIPS
ASBESTOS
SERVICES
GROWTH
STRATEGY
SGS has long benefited from making
strategic acquisitions that help us
achieve our growth goals. This is
particularly true for geographical areas
with service gaps or where we need to
build skills and technological capacities.
In some instances, we acquire
businesses offering similar services
so that we can benefit from economies
of scale and technical synergies.
SGS has achieved CHF 300 million
of acquired revenue growth since the
start of the 2020 Mission. We are
targeting the acceleration of our mergers
and acquisitions activity.
ACHIEVEMENTS
Eight acquisitions completed
0.7% inorganic growth
UDO WALTMAN
SGS Search Director, Environment,
Health and Safety
As society becomes increasingly concerned by the impact of asbestos,
we have taken the decision to strengthen our portfolio by expanding our
services related to asbestos detection and testing. Subsequently, asbestos
services now make up 10% of the Environment, Health and Safety global
portfolio, up from 3% five years ago.
This growth has been achieved through an acquisition and investment strategy.
For instance, in the acquiring of MIS Environmental, LabTox and Search Group,
SGS has strengthened its portfolio and footprint in key markets, giving us
a leading position in asbestos research and management.
SGS’ extensive network and local knowledge mean that we are one of the few
players in this field that can take a genuinely global approach to supporting
customers. As the asbestos market is expected to grow over the next two
decades, SGS will continue to develop its services through acquisitions and
greenfield startups around the world.
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TACKLING ILLEGAL FUEL TRADE
IN THE PHILIPPINES
MOSTAFA NASRI
SGS Global Manager,
Fuel Integrity Programs
Fuel smuggling is an issue for several
countries around the world. This can
be in the form of outright stealing,
where fuel is snuck into the country
by ships docking in smaller ports or by
transferring fuel products on the high
seas. Another smuggling practice is
misdeclaration, in which the fuel is
declared at a lower value (e.g. a lower
fuel grade) or volume, so the importers
pay less tax than they should.
The Philippines suffers significantly
from illegal fuel trade and the resulting
unpaid taxes. In late 2018, SGS won
a tender to provide the Philippines
with a Fuel Integrity Program, starting
in 2019, constituting in an integrated
array of services, coordinated and
controlled by SGS experts.
The solution includes actions such
as adding a marker to taxed fuels
to enable traceability and monitor
integrity as they move through the
supply chain. SGS will also visit depots
and retail sites to collect samples
and check the integrity of fuel sales.
Additionally, SGS will produce test
reports, analyze data and provide
intelligence and risk management
information about illegal activity.
SGS operates similar programs in
several other countries, such as Serbia,
Senegal, Ivory Coast and Kenya.
The service is of benefit to legitimate,
legal, oil marketing companies, as it
helps protect their brand integrity, but
it also benefits consumers, who
receive the quality of fuel promised.
For governments and broader society,
the increase in tax revenue collection
can make a significant difference.
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ORGANIC
GROWTH
SGS continues to increase revenue and
shareholder value from existing affiliates
at a level that is well above the TIC
sector average. Despite the recent
commodities downturn, we have made
solid progress in repositioning divisions,
strengthening our core business through
new services and making management
changes, all of which have driven solid
organic growth across the majority
of our services.
These adjustments complement our
innovation and efficiency initiatives,
through which we are continuously
improving productivity in order to
provide enhanced customer service.
ACHIEVEMENTS
5.3% organic growth1
1. Constant currency basis.
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REGIONAL
FOCUS
Our operations are divided into
three regions – Europe, Africa
and the Middle East; the Americas;
and Asia Pacific – which
cover eight sub-regions that
implement Group policies and
strategies locally.
EUROPE, AFRICA
AND THE MIDDLE EAST
AMERICAS
ASIA PACIFIC
SGS’ progress within a region is
affected by global megatrends and
local factors such as market maturity,
political developments and the level
of infrastructure.
Our geographic segmentation helps us
achieve stable and balanced growth.
It allows us to counteract any local
challenges and take advantage of
opportunities through specific, regional
action plans that focus on key markets
and help us accomplish our objectives.
ACHIEVEMENTS
4.1% growth in Europe, Africa and
the Middle East – in part because
of an openness to new technologies
leading to high growth in Africa and
the Middle East
7.5% growth in the Americas –
because of regional diversification
away from an over-reliance on the oil
and gas sector
7.4% growth in Asia Pacific – as the
market opens up in China, SGS is
taking advantage of opportunities
arising from increased domestic
consumption
BALANCED
PORTFOLIO
The SGS portfolio covers nine business
lines that service multiple global
industries, each with a large and
diversified customer base. This
fragmented structure allows us to
balance our short-term growth and
long-term objectives to maximize returns
while reducing our vulnerability to market
fluctuations, increasing our flexibility
to react to market developments,
and minimizing our exposure to risk.
Our portfolio management does not
focus only on growth and margins but
also on return on invested capital (ROIC)
as a key driver of value for shareholders.
We use a dashboard process to analyze
and actively manage the criteria for
business performance and ensure
all changes to the portfolio are guided
by our objectives to advance
sustainability, accelerate growth and
increase productivity.
ACHIEVEMENTS
Dashboard for asset review
successfully deployed
Revenue growth across 8 business lines
“When we are preparing
to enter a market, the local SGS
team brings expert engineers
from that country to meet at our
factory here in China. Access to
this global service is enabling
CRRC to expand into many
markets around the world.”
LIAO HONGTAO
Vice General Manager, China Railway
Rolling Stock Corporation (CRRC), Zhuzhou
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OUR VALUE TO SOCIETY
OUR RAIL
JOURNEY
IN CHINA
JOFFREY LAUTHIER
SGS Global Head of Rail
We have been building a portfolio of
rail services globally, with a specific
focus on the Chinese market, for
a number of years. Rail is an
important sector, as it is considered
to be a more sustainable means
of transport than road (atmospheric
emissions and energy consumption)
or air travel. Initially, we launched
in China with safety testing services
through our extensive laboratories
network, which is spread broadly
across the country. Our local team
rapidly developed strong
relationships with customers,
which gave us the opportunity to
expand into the certification market.
Rail is a highly regulated sector, so
companies supplying the industry
have to deliver products that meet
local environmental, safety and
interoperability requirements
and must be certified to prove
that they do. Today, our main
Chinese rail customer is the
China Railway Rolling Stock
Corporation (CRRC). The CRRC
exports rolling stock and
equipment to 104 countries
around the world. Entering each
of these markets requires
expert knowledge, product
engineering and evidencing that
specifications have been met.
Through our international
network, we are able to provide
country-specific rail experts
who can offer CRRC
consultancy on market entry.
We overcome language and
cultural challenges by creating
integrated teams that bring together
the experts needed with the local
Chinese team.
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INFRASTRUCTURE
AND SERVICES
Capital expenditures (CAPEX) and
operational expenses (OPEX) constitute
the costs that we incur while creating
our services. By optimizing activities
and streamlining processes to achieve
operational excellence (see page 49),
we continuously improve our CAPEX
and OPEX. With this in mind, our
investments are focused on the strong
areas of the business and those with
the best growth record or long-term
growth potential. We continue to
invest in projects that promote organic
growth and that are technology driven.
One such development in 2018 has
been lab optimization. Because
laboratory operations comprise
labor-intensive activities, increasing the
level of standardization and automation
to enhance our capacity and productivity
remains a focus. Some of these
optimization measures aim to reduce
the manual activities and reworks
through physical automation, such as
robotics, robust laboratory operation,
and process automation through
equipment and instrument integration.
Furthermore, our disciplined approval
process and a solid compliance review
process results in the majority of CAPEX
investments being accretive to the
bottom line.
ACHIEVEMENTS
Reduction of overall CAPEX intensity,
enabled by more attractive pricing and
asset redeployment
27 countries implemented the Oracle
E-Business Suite
25% of SGS servers have been
migrated to Microsoft Azure Cloud,
in-line with our cloud-first strategy
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SEAFOOD
DEVELOPMENT
PROGRAM
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CORMAC O’SULLIVAN
SGS Seafood and Aquaculture Audit
and Certification Manager
To address growing demands in the seafood and aquaculture sector, SGS has
enacted a two-year development plan to increase awareness of its services
in this dynamic environment.
Driving safety, sustainability and quality in key areas of seafood and aquaculture
production since 2016, SGS has invested and expanded its global laboratory
testing, auditing and certification capabilities. Through this additional investment,
including talent acquisition, the company accelerated portfolio development
to include Aquaculture Stewardship Council (ASC) certification and broadened
the scope of the Best Agriculture Practices (BAP) certification scheme to include
all farm standards.
In support of the portfolio expansion, SGS held a number of events around the
world inviting thought leaders and experts from industry and other interest groups
to discuss challenges and opportunities facing the sector. Having established itself
as market leader, SGS experts were invited to many seminars and conferences as
guest speakers. In the latter part of 2018, SGS formed a partnership with
Monterey Bay Aquarium’s Seafood Watch (SFW), Asian Seafood Improvement
Collaborative (ASIC), and Minh Phu to work on a major new initiative that aims
to help small-scale farmers to verify sustainable production. This partnership was
announced and is supported by John Kerry, former US Secretary of State through
the Carnegie Endowment for International Peace working on improving governance
and advancing comprehensive approaches for sustainable development.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
OUR VALUE TO SOCIETY
TRANSFORMING
COMMODITY
TRADE
FINANCE
DIGITAL
FRED HERREN
SGS Senior Vice President
Digital and Innovation
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Our digitalization strategy aims to
position SGS as a global leader in
developing safe, effective and profitable
digital solutions for all sectors we
operate in. By continuing to provide
best-in-class services that transform the
TIC industry, while enhancing everything
we do with digital services, we build on
our ability to add value for our customers
and improve our internal efficiencies
for the benefit of our employees.
Our focus to date has been on
facilitating digital innovation and
strengthening our digital team structure,
along with delivering on a number of key
project launches. Our approach to digital
innovation is to invest in the right
projects that deliver on our efficiency
goals, provide our customers with
solutions and create services that bridge
digital and traditional methodologies.
This means that we are prepared to
reject innovations, in the early stages
of development, if they do not meet
certain criteria.
ACHIEVEMENTS
GDPRONLINE launched as SGS’
online subscription-based platform
for GDPR compliance
Partnered with komgo® to simplify
the commodity supply chain
Co-signed Charter of Trust
on Cybersecurity
Vulnerability Management platform
assessing customers’ exposure
to security threats and conducting
penetration testing was launched
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In September 2018, 15 of the world’s
largest institutions, including SGS,
launched komgo®, a new blockchain-
based platform aimed at transforming
commodity trading.
The innovative technology delivered
by komgo® offers a depth of resources
that reduces the time needed to
process documents and data, which,
in turn, speeds up the transaction
process. The platform also provides
digital ledgers aimed to limit
operational risks relating to fraud,
counterfeiting or human error.
Blockchain technology is a defining
feature of our new digital age.
As a co-investor and the exclusive
representative from the TIC industry,
the investment in komgo® is
illustrative of SGS’ commitment to
improving how business is conducted.
Through innovative solutions and
expanding our experience in pioneering
technologies, we can deliver advanced
services to our customers.
“komgo® is a leap forward
in commodity trade finance.
It is digitalizing processes
through new blockchain-
based technology set to
increase efficiency and
reduce risks and costs.
SGS is a key partner.”
SOULEÏMA BADDI
Chief Executive Officer of komgo®
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INNOVATIVE
ONLINE
SERVICES
Expanding our business-to-business-to-
consumer presence online is an SGS
2020 objective that we aim to achieve
through the launch of our new
e-commerce platform. Business
customers are now able to purchase
SGS services directly through our
customer portal, also known as SGS
online. The new portal also launches
direct sales of SGS services to
consumers (B2C). Two services are
initially available, including pesticide
residue analysis of fruits and vegetables,
which can give consumers reassurance
about the produce they are purchasing.
Expanding our commercial transactions
through digital tools gives us the
opportunity to find innovative ways to
increase brand awareness and develop
the SGS customer experience.
ACHIEVEMENTS
Launched SGS online, SGS’ digital
customer portal
Two direct-to-customer services
available via SGS online: Oil Condition
Monitoring and Pesticides Residual
Analysis, with new services coming
in 2019
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SERVICING
CUSTOMERS
THROUGH
SGS ONLINE
GUILLAUME PAHUD
SGS Customer Portal Program Director
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Developing innovative ways to
manage our customer relationships
is a core strategy at SGS. One of
the ways in which we are doing
this is through the SGS customer
portal: SGS online. This platform
provides knowledge management
and support services.
Through SGS online, customers
can track discussions, search for
information, request services and
receive direct support.
“We are rethinking our
business to better suit the
mechanisms and practices
of the digital marketplace.
Through SGS online, we are
able to better automate what
we do, provide greater self-
service and gain greater
efficiency for processes.”
FERNANDO PARRA FORCEN
SGS Customer Engagement
Project Manager
At the same time, they can access,
check and upload key documentation
relating to their business and
operations, including certification,
audits, inspection and testing results,
and invoices.
By providing our customers with
a single, consolidated view of their
interactions with SGS and a dashboard
functionality that allows them to
access and share key information,
we are helping them to operate more
efficiently and save time. For SGS,
the portal is an innovative tool that is
giving us the opportunity to further
improve our customer relationships
and target new growth.
The development of the portal
demonstrates our drive to meet the
needs and expectations of the new
digital world, in which new technology
is transforming the ways we operate
and consumers behave. We are
continuing to expand the capability
of the portal, adding services that
customers need to improve the
online experience and creating
customized frameworks for different
business lines.
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“The way the ecosystem for
innovation works in SGS is very
different from our approach,
so there was some great
knowledge-sharing in both
directions. One of my favorites is
SGS’ fast “Kiss or Kill” analysis
of the value of innovations: If an
idea is not implemented within
six months, it’s considered
too weak to survive and isn’t
progressed any further.”
GRAHAM MARSHALL
Organisation Development Manager,
SHELL
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INNOVATIVE
THINKING
MIKE MEDIOUNI
SGS Global Innovation Community Manager
At SGS, we have a culture that values
innovation. We have a process in
place that rewards creative ideas, and
we encourage our more than 97 000
employees to put them forward.
When we find ideas that are novel
or propose enhancing existing
practices while leveraging advanced
technologies, we work with the
employees who put the ideas forward
to develop their concept into business
propositions. We communicate ideas
that progress, and we celebrate
the innovations that help make a
difference to our success.
When SHELL, a global customer of
both our Oil, Gas and Chemicals and
our Industrial businesses, asked us
to host an Innovation Workshop for
10 of its top executives, we embraced
the opportunity. We prepared an
energetic schedule that brought
together SGS experts from around
the world for a series of presentations
sparking discussions on innovation
processes and best practices.
The event was highly motivating
for all SGS participants. Added to this,
there was also a sense that, by
inspiring SHELL to think differently
about innovation, we were enabling
the future development of sustainable
solutions while, at the same time,
further nurturing our partnership.
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INVESTOR RELATIONS
ACHIEVEMENTS
Successful Investor Days
Increased investor meetings and
conference attendance
Investor Relations is critical to support
the financial community in making
informed decisions. By formally
communicating to our shareholders,
analysts and investors, we foster
transparency, trust and accountability.
In addition, our annual Investor Days
provides a significant level of access
to our Senior Management and the
Operations Council.
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CULTIVATING
TRANSPARENCY
SGS INVESTOR DAYS
“I have been coming to the
SGS Investor Days since
2010, and one of the biggest
benefits is the access I get
to Senior Management. The
ability to engage directly
with regional and divisional
leaders provides a unique
insight into the markets and
operations.”
CAROLINE PRICE
Fargo Management Canada Ltd.
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TOBY REEKS
SGS Senior Vice President Investor Relations
The Investor Days are one of the many tools the Investor Relations team uses
to help investors and industry analysts understand SGS. The annual event gives
detailed Group strategy, regional and business updates and perspectives,
directly from an important operational location – such as a major site, laboratory
or focus area. Detailed presentations that cover themes that drive Group
performance, the opportunity to see SGS "in the field" and access to
management provide investors and analysts with the knowledge they need
to make informed decisions regarding SGS.
The Group strategy and finance updates by our CEO and CFO are streamed
live and are available as a recording after the event. This is followed by thematic
regional and divisional presentations from members of our Senior Management
team. These presentations cover our growth drivers, how business lines are
adapting to meet industry needs, and in what way SGS is evolving to helping
its customers to sustainably face any challenges, including from the global
megatrends, along their supply chains.
The site visits give analysts and investors a chance to meet local management
and get practical examples of how SGS delivers world-class services for its
customers globally. The Investor Days give us
an opportunity to update our progress against
our strategic focus in a transparent way, which
is important for the process of creating value
for our shareholders over the long term.
CHF 78
PROPOSED DIVIDEND
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78
75
2018
2017
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OPERATIONAL
EXCELLENCE
Developing our Global Business Services
as an internal service-delivery model,
based on Shared Service Centers,
implementing World Class Services
and advancing our Net Working Capital
(NWC) are some of the ways in which we
drive operational excellence and improve
productivity and capacity through
innovation, automation and digitalization,
and continuous improvement.
Our three Shared Service Centers help us
achieve greater efficiency by harmonizing
the Group’s support functions to increase
productivity (see right).
SGS’ World Class Services (WCS),
an adaptation of the World Class
Manufacturing concept, is a structured
approach that reduces organizational
waste and losses to bring long-term
improvements to our safety, workplace
organization, quality, maintenance and
logistics. In 2018, we took the first steps
to set up the basis for WCS standards
and methods through assessing a
number of laboratories. By ensuring that
our lab network provides reliable results
efficiently, we not only contribute to
achieving operational excellence but also
build the foundation for implementing
the WCS approach.
Several other Operational Excellence
projects have been completed
successfully through discipline,
methodology and technical expertise.
Examples of such key initiatives are
for our AFL Food and CRS laboratories,
where we focus on productivity
improvements to directly impact
the throughput, quality and overall
performance while also contributing
to capacity enhancements
to sustain growth.
We further aim to improve our
performance through automation,
including the use of new technologies
and equipment for physical testing
as well as software automation, such
as robotics process automation (RPA),
which helps enhance productivity and
agility by using software robots that take
over routine administrative processes.
These robots can work 24 hours a day,
365 days a year, and they drastically
reduce human errors and improve the
quality of the services delivered to our
customers. RPA can be deployed in
different ranges of business activities
without a complicated integration into
existing IT systems. Examples of such
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ACHIEVEMENTS
1 200 full-time employees
support the entire Global Business
Services (GBS) network in three
Shared Service Centers
10 labs assessed on World Class
Manufacturing methodology
22% Global Business Services growth
CHF 20 million-25 million annual net
savings as a result of GBS and other
back-office improvement initiatives
First CCLAS 6 (G6) LIMS went
live in USA GeoChem laboratory,
providing improved efficiency and
standardized processes
implementations include processing
products and conformity assessment
certification in Governments and
Institutions, improving current
productivity rates or the automation
of customer master data management
and maintenance in China.
ADVANCING OUR NET
WORKING CAPITAL
Net Working Capital (NWC) is key
to ensuring that cash is available for
upcoming opportunities and day-to-day
business operations. Prioritizing NWC
allows us to fund strategic investments,
which, in turn, drive operational
efficiencies and reduce overheads.
Our Net Working Capital Initiative,
which has been in place since 2015,
improves our cash position to ensure
on-time collection of money owed,
adequate management of inventory
and the correct timing and processes for
goods purchased. By focusing on this
initiative, we are now the TIC industry
leader and demonstrate best-in-class
performance for NWC optimization.
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GLOBAL BUSINESS
SERVICES
FILIPPO ROTA
SGS Vice President of Strategic Transformation
Shared Service Centers continue to transform our support functions and businesses
by helping us to achieve operational excellence. By consolidating transactional and
standardized activities in the Centers, back-office processes become more efficient,
and our affiliate employees can focus on higher-value tasks.
These hubs of excellence for administrative and supportive duties not only help us
achieve greater compliance, consistency and productivity but they also improve
our cash-inflow management and support our Net Working Capital
Initiative. Since 2015, as part of a global rollout of best practices
to standardize order-to-cash (OTC) and supply chain models,
we have developed our Global Business Services model through
three Shared Service Centers – in Poland, the Philippines and
China. The Centers are set up to leverage skill and scale and
to manage supplier payments more efficiently, speed up
the invoicing process and reduce defaults.
For our Certification and Business Enhancement (CBE)
services, for example, invoicing has historically been
prepared in multiple countries, with each office running
differently. These processes were inefficient and
prolonged the order-to-cash (OTC) process. By moving
our invoicing to the Shared Service Centers, we have
shortened the OTC cycle and saved on personnel costs.
Our customers also benefit from this process because
the review is completed faster and consumers see
certificates issued more quickly.
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PROCUREMENT
AND SUPPLY CHAIN
MANAGEMENT
In 2018, we launched the 2020
Procurement and Supply Chain strategy
with the aim of delivering profit-and-loss
impacting savings, efficiency
improvements and innovations that
support profitable growth. Working
together with stakeholders and suppliers
as a partner of choice, the strategy
is built on four pillars: cost and cash flow
leadership, global sourcing solutions,
sustainable procurement and the
Inspection and Laboratory of the
Future project.
These strategic pillars are enabled by
an Operating Model consisting of
state-of-the-art Source-to-Pay and
Demand-to-Supply processes as well
as effective supplier relationship
management, high-performing teams
and effective business partnerships.
COST AND CASH FLOW LEADERSHIP
Procurement and Supply Chain
Management is on track to reach
the targeted CHF 180 million total
incremental savings in 2020.
By optimizing payment terms and
conditions with key suppliers, positive
contributions are also being made
to SGS’ Net Working Capital.
GLOBAL SOURCING SOLUTIONS
Through global category strategies
across the SGS network, we are driving
cost reduction, standardization and
efficiency improvements. Supported
by the Procurement Excellence team
in Prague, Czech Republic, Category
and Sourcing Managers worldwide
are applying more structured and
effective programs.
Our commitment is to deliver the best
global, regional and local solutions,
taking a total cost of ownership and
user-centric approach. The recently
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concluded global fleet agreement is a
good example: Besides the significant
savings achieved, SGS and its partner
are studying sustainable car mobility in
the Netherlands. This project evaluates
social, environmental and business
needs while identifying market
opportunities and anticipating policies.
EquipNet, our web-based equipment
redeployment tool, is progessing well,
meaning SGS can optimize asset use
across its network.
As part of the Supplier Innovation
Program, SGS has further deepened
partnerships with leading suppliers,
allowing the Group to benefit from the
capabilities of its supplier ecosystem.
INSPECTION AND LABORATORY
OF THE FUTURE PROGRAM
Testing and inspection are SGS’ core
activities, representing a large portion
of costs. Driving efficiency in our
laboratories worldwide is a key priority
that is addressed by the World Class
Services program. Procurement and
Supply Chain Management activities
significantly contribute to efficiency
improvements in the labs as well as
in inspection. The “Inspection and
Laboratories of the Future” program
brings together initiatives such as
inventory management, asset
management and automation. The
Advanced Technology Group has also
been set-up as a cross-functional team
of SGS experts who aim to devise
next-generation technical and digital
inspection and laboratory solutions in
partnership with strategic suppliers.
TARGET OPERATING MODEL
2018 witnessed the development
of several key global Source-to-Pay
transformation projects. The global
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rollout of our supplier portal – supporting
electronic invoicing – reached 43%
of the total targeted 2020 scope for
the USA and Spain. The use of SGS'
e-sourcing tool reached 23% of online
negotiated spend in 9 countries,
facilitating savings and simplifying the
sharing of management best practices.
SUSTAINABLE
PROCUREMENT INITIATIVES
The SGS Supplier Code of Conduct
and Self-Assessment Questionnaire
have been successfully deployed in
12 high-risk countries in 2018 as a key
part of the SGS sustainability initiatives.
ACHIEVEMENTS
CHF 75 million in new savings, on target
to reach the CHF 180 million defined
for the 2018-2020 savings program
Internal purchasing catalog usage
reached 40%
Usage of the SGS e-sourcing tool has
increased by 50% and is now applied
in 9 countries
EquipNet, SGS' web-based equipment
redeployment tool, generated
CHF 3.1 million savings and contributed
to increased asset redeployment
across the global network
Rollout of SGS Supplier portal
continued, reaching 30 438
electronic invoices
Advanced Technology Group
established to create innovative
solutions with strategic
supplier ecosystem
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FOSTERING A
COLLABORATIVE
SUPPLIER PARTNERSHIP
ROBERT TRAPP
SGS Global Laboratory Category Manager
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Establishing strong, mutually beneficial and long-term
relationships with strategic suppliers is a critical step in
improving supply chain performance. Benefits include
generating greater cost efficiency and enabling business
growth and development. SGS has selected 10 suppliers
to cultivate long-term partnerships with: this includes Agilent,
a leader in life sciences, diagnostics and applied chemical
markets, that provides SGS’ laboratories with instruments,
services, consumables, expertise and applications.
The collaboration started in 2016, with the introduction
of a Key Account Manager – a first for the company.
At that time, a governance structure was established
to transform what was previously a more transactional
relationship into a united partnership. The first
deliverable was in the form of a global pricing
agreement for equipment and consumables,
accompanied by a punch-out catalog that is now
used in all major SGS countries.
To strengthen the relationship further, both companies
agreed on a number of strategic initiatives, including
the Advanced Technology Group, created to
collaborate on new technologies. By working in
partnership with Agilent’s R&D team, SGS can shape
not only the development of the technology that
customers and their clients will require in the labs
of the future but also the creation of additional
revenue-generating services.
“Partnering with Agilent
demonstrates SGS’
commitment to cultivating
cooperative partnerships
with our top suppliers.
Beyond improved efficiency
and cost saving, the entire
supply chain will be better
equipped to meet customer
and market demands.”
JUERGEN NELIS
SGS Vice President
Group Procurement
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OPERATIONAL
INTEGRITY
PERFORMANCE
0.25
0.60
0.38
TARGET 0.30
0.27
0.23
0.25
2014
2015
2016
2017
2018
LOST TIME INCIDENT RATE (LTIR)
(200 000 HOURS)
0.41
1.11
TARGET 0.55
0.65
0.53
The strategy to accomplish our goal of
"zero harm" is defined by the Operational
Integrity (OI) function and is based
on seven pillars: Leadership;
Communication; Training and
Awareness; Resources and Skills;
Key Performance Indicators; Audits
and Compliance; and Health, Safety
and Environmental (HSE) Self-
Assessments. The strategic approach
for each pillar is based on an OI
management system aligned with
internationally recognized standards.
LEADERSHIP
Our OI strategy and performance
are reviewed quarterly by the VP,
Operational Integrity, and Business
Continuity Process and Integrity
Programs, with the CEO invited as
a permanent guest. Each year, global
strategic input is gathered, and annual
OI objectives are set, which clarify
the OI vision for the following 12 months
and ensure the visibility of results.
The OI team reports directly to the
CEO and deploys its strategy and
objectives through a Top-Page process.
This structure allows SGS to focus
on key programs, including incident
investigations, risk assessments,
leadership visits and best practices.
0.40
0.41
SGS RULES FOR LIFE
2014
2015
2016
2017
2018
TOTAL RECORDABLE INCIDENT RATE
(TRIR) (200 000 HOURS)
While we are able to look back at yet another
year of injury rates well below target, it is with
deep regret that we report the loss of three
lives in our operations in 2018. Any fatality is
unacceptable, and we will continue to work
toward achieving our goal of “zero harm.”
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A Group-wide initiative that helps
maintain and create awareness of
the importance of safety is SGS’ Rules
for Life. These apply to all employees,
contractors and others working on
behalf of SGS and are available in
14 languages. The Rules are incorporated
into all our safety-related campaigns,
and employees receive training through
e-learning and face-to-face sessions.
COMMUNICATION, RESOURCES
AND TRAINING
We continuously work on increasing
the number of Operational Integrity
professionals across the Group.
Chief Operating Officers and
Executive Vice Presidents are briefed
for leadership visits in their affiliates,
while leaders and managers receive
specific OI training. Regular Safety Talks
and Integrity Talks, as well as webinars
and mobile apps on OI management
systems and procedures, are provided
for all employees. These resources
are accompanied by communication
campaigns that raise awareness
and promote safe behavior.
The annual Safety Month further
enforces the Rules for Life, and the
outcomes of both initiatives are
systematically tracked. We also drive
behavioral change across the
organization through two programs:
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The OI Culture Index measures the
development of the safety culture across
the company through 14 key indicators
of operational integrity, and our
Behavioral-Based Safety peer-to-peer
observation program uses positive
reinforcement to promote safe behavior
(see page 53).
AUDITS, KPIS AND SELF-ASSESSMENTS
SGS laboratories, offices and facilities
are audited for health and safety risks
as well as environmental and chemical
impacts. Regular self-assessments
of SGS sites provide an overview
of potential risks and control, and all
incidents and hazards are captured
through Crystal, a multilingual interface
that delivers regulatory and client-
mandated reports.
THE OPERATIONAL INTEGRITY
GLOBAL MISSION
• Protect SGS employees and
stakeholders, our physical assets,
the environment and the 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, programs and tools
• Support full compliance with legal,
regulatory, customer and Group
HSE requirements
INDUSTRIAL HYGIENE AND
OCCUPATIONAL HEALTH
We launched ProcessMAP, a software
tool to manage Industrial Hygiene (IH)
and Occupational Health (OH) data,
to volunteering pilot countries during
the fourth quarter. The platform provides
a detailed overview of IH and OH
performance across the Group, is
compliant with data privacy laws and
is available in 12 languages.
Together with Procurement, IH and OH
continue to standardize the Personal
Protective Equipment that is used across
all locations. This cross-functional
initiative – built around a five-stage plan
– is now in its fourth stage, which
focuses on communication and getting
requests for proposals in place. SGS also
continues to manage safety data sheets
and chemical risk assessments with
the Chemwatch management system.
BUSINESS CONTINUITY
Having a business continuity plan
in place helps us understand critical
business processes, allows us to
efficiently and effectively respond to any
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disruption and minimizes the impact
on our operations. SGS’ Business
Continuity Management Process is
managed with Group support at a
country level. As of 2018, Business
Continuity is overseen by SGS
Operational Integrity and has been
integrated into operational integrity
management processes. While it is
inherently impossible to plan for black
swan events and every other feasible
sort of business disruption, SGS
considers four core topics for its
business continuity plan: people,
buildings, IT and suppliers. These topics
are studied locally, which includes
the creation of local crisis management
teams and the development of training
exercises to simulate a crisis.
In 2018, we appointed 291 Business
Continuity Process (BCP) Managers/
Officers and trained them in 38
dedicated workshops, with the aim
of strengthening procedural awareness
across the SGS Group. This allowed
us to welcome 50 new BCP Managers/
Officers at country level and 180 at
the site level.
ACHIEVEMENTS
Total Recordable Incident Rate
(TRIR) and Lost Time Incident Rate
(LTIR) reduced by 63% and 58%,
respectively, since 2014
Released Hazard Risk, SGS’ first
OI mobile application
100 Behavior-Based Safety Master
Trainers were trained to deploy
BBS across the network in 2019
Ergonomics in the field and offices
was the topic of the global employee
quarterly campaign in Q1
Included an OI due diligence element in
our mergers and acquisitions platform
Added a Compliance and Integrity
section to Crystal, the OI
management tool
66 161 employees participated in
SGS’ Annual Safety Month, with the
theme of “The Line of Fire – Don’t Be a
Target,” which was held in September
128 000 employees have completed
the Rules for Life e-learning since
its launch in 2015
Completed user acceptance testing
for the IH/OH ProcessMAP software
in October and launched a pilot in
12 languages to 11 pilot countries
291 BCP Managers/Officers have
been appointed
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TYLER NOLAN
SGS Director, Operational Integrity,
SGS Canada
BEHAVIOR-BASED SAFETY:
SEEING THE
UNSEEN
Behavior-Based Safety (BBS) is a process
designed to influence employee actions
toward safer outcomes by preventing an
accident or injury before it occurs. In our
quest for operational excellence, we are
deploying a Group-wide BBS program
that uses positive reinforcement to
change risky behaviors and improve
the safety performance across SGS.
Inspired by the success of the BBS
program in SGS Canada, the global
program complements our existing
operational integrity management
system and involves employees
identifying safe and “at-risk”
behaviors in the workplace, using
“no name, no blame” peer-to-peer
observations. Regional teams
of Master Trainers have been
appointed to train local safety
personnel on the BBS
procedure, while local BBS
Committees will oversee
the process and monitor
progress. During 2019,
all affiliates will schedule
observations in key
locations and survey
employees in advance
to determine current
attitudes and beliefs
linked to safety. We will also
continue to reassess the safety culture
across our affiliates and communicate
progress on BBS as part of our
commitment to ensuring that working
safely becomes an intrinsic value for
all employees.
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CLIMATE
CHANGE
SGS minimizes the impact of its
processes and operations on the
environment. This is achieved by following
a carbon neutrality strategy, seeking to
use resources efficiently and working
to deliver sustainable value for society.
CARBON NEUTRALITY
Since 2014, we have been aiming to
reduce CO2 emissions at source through
our sustainability programs and
offsetting any remaining or unavoidable
emissions. This carbon neutral strategy
bridges the gap between the current
reality and a more sustainable future.
ELECTRICITY AND
NON-TRANSPORT FUELS
The energy used in our more than
2 600 offices and laboratories worldwide
accounts for about 61% of our global
consumption. The SGS Energy Efficiency
in Buildings (EEB) program evaluates and
improves the energy efficiency of
buildings that we own or lease. There are
two parts to the approach: (i) the
development of an energy-efficiency
action plan for existing SGS premises
following a review, and (ii) an
environmental assessment applied to the
design, construction and refurbishment
of SGS buildings. To increase the
efficiency of the EEB program, results
from the action plan are being
extrapolated to cover other buildings in
each affiliate country. At the same time,
the SGS Green Building Guidelines
provide a rating tool to assess new
buildings through key performance
indicators that cover energy, waste and
water, and define the minimum
requirements in areas such as lighting-
system energy performance and water
consumption. In 2018, we have invested
in 407.3 GWh of renewable energy
mechanisms (Guarantees of Origin and
International Renewable Energy
Certificates [I-RECs]) to mitigate our CO2
emissions. Through the ongoing Spot the
Orange Dot campaign, employees are
also encouraged to exhibit environment-
friendly behaviors. 40 500 employees
have been reached by this campaign
since it began in 2013.
VEHICLE FUELS
2016-2020 period for our car fleet.
The policy promotes that all newly
purchased individual vehicles and leased
cars emit fewer average grams of CO2 per
km annually than in the previous year.
By 2020, average CO2 emissions per km
for our worldwide fleet shall not exceed
95 grams per km. This policy promotes
the use of low CO2-emitting vehicles
that achieve maximum fuel efficiency.
While continuing to deliver against the
Vehicle Emissions Policy, we are also
collaborating with Group Procurement to
develop a wider SGS Sustainable Mobility
Strategy. This will include the reduction
of vehicle emissions, driving efficiency
training, rationalization of the vehicle fleet,
inclusion of more sustainable vehicles
in the catalog and study of alternative
transportation methods.
REDUCING CO2 EMISSIONS
Climate change has widespread
economic, political and social
consequences that can affect the way
SGS does business. As a global company,
we are 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 this involves
reducing our energy consumption and
purchasing energy from renewable
sources whenever possible. The main
sources of SGS’ emissions are electricity
(10% of total emissions), transport fuels
(74% of total emissions) and non-
transport fuel (16% of total emissions).
ACHIEVEMENTS
+100 new buildings in EEB program,
which now covers 500 buildings
26 representatives appointed and trained
to help implement the SGS Green
Building Guidelines across affiliates
3 countries received customized
energy-efficiency action plans
5 facilities across Taiwan, the USA
and Canada optimized lighting systems
15% energy efficiency savings by
SGS India’s Chennai facility through
improved refrigeration system
SGS strives to continuously reduce
company car fleet emissions. Our Vehicle
Emissions Policy sets a diminishing
annual CO2 emission limit for the
SGS' Sydney building received the
highest rating from the National Australian
Built Environment Rating System after
completing the EEB program
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PERFORMANCE
577
RENEWABLE ENERGY
478
493
526
544
577
2014
2015
2016
2017
2018
ELECTRICITY AND
NON-TRANSPORT FUELS (GWH)
368
332
354
360
357
368
2014
2015
2016
2017
2018
VEHICLES FUELS (GWH)
1.7
2.6
2.4
TARGET 2.08
2.1
1.9
1.7
2014
2015
2016
2017
2018
CARBON INTENSITY BY EMPLOYEE
(METRIC TONNES CO2e / FTE)**
25.0
On a constant currency basis.
38.8
35.8
TARGET 31.1
31.1
27.8
25.0
2014
2015
2016
2017
2018
CARBON INTENSITY BY REVENUE
(METRIC TONNES CO2e / MILLION CHF)**
* Against a 2014 baseline.
** Market-based figures. Excludes district
heating and refrigerant gases emissions
due to unavailability of data. Scope 3
emissions only include Category 3:
business travel.
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PERFORMANCE
944
RENEWABLE ENERGY
810
847
886
902
944
2014
2015
2016
2017
2018
TOTAL ENERGY (GWH)
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OHSAS 18001 certifications in 2018.
ISO 50001 will strengthen our
competitiveness in the country by
increasing energy efficiency and
reducing vulnerability with respect to
energy price fluctuation. By setting
energy reduction objectives of 3%
in the short term and 5% in the long
term, the affiliate demonstrates
leadership in the Asia Pacific region
and should see its energy
consumption progressively decouple
from business growth. Energy
efficiency in Asia Pacific is particularly
relevant: The region comprises 60%
of the worldwide population,
generates 32% of the global GDP
and consumes more than half of
the world’s energy supply. Given that
much of Asia Pacific is on the cusp of
economic expansion, meeting future
energy needs will need to be carefully
planned to ensure a secure, affordable
and sustainable supply.
With ISO 50001 requiring new energy
initiatives annually, this continual drive
for improvement should prove one of
the most significant business benefits
to SGS affiliates seeking certification.
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SGS Energy Efficiency Manager
2014
2015
2016
2017
2018
RENEWABLE ENERGY (GWH)
In line with our Energy Efficiency in
Buildings (EEB) program, some SGS
affiliates are seeking ISO 50001
(Energy Management) certification.
This provides a systematic approach
to achieving continuous improvement
in energy performance – including
efficiency and security – and it
enables organizations to identify
potential cost savings.
"Our recent certification to
ISO 50001, ISO 14001 and
OHSAS 18001 enhances our
ISO 9001 management system,
which is enabling us to improve
efficiency, save costs, provide
a safe working environment
and improve brand image."
ARIEL A. MIRANDA
SGS Managing Director
SGS Philippines and Guam
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In Chile, SGS SIGA became ISO
50001 certified in 2017. It uses the
certification to drive sustained
improvement in energy efficiency and
has already achieved its objective of a
5% annual reduction of electric energy
consumption. In parallel, SGS Chile
also started the assessment to include
the fleet in the certification in 2018.
SGS Philippines has strengthened
its commitment to improving energy,
environmental, safety performance
and compliance through recently
achieved ISO 50001, ISO 14001 and
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CARBON-OFFSETTING PROJECTS
We offset any carbon emissions left
after reducing our carbon footprint.
This is achieved by assigning a clear cost
to carbon and ensuring that each affiliate
takes responsibility for their emissions
by paying for their carbon offsetting.
We also look for Clean Development
Mechanism approved carbon-offsetting
projects that directly benefit
communities where we have an impact.
This process supports our community
investment strategy and allows us to
bring benefits to local communities
around the world. At the same time,
we are able to promote sustainable
economic growth, supply clean
energy at a local level and protect
the environment by reducing reliance
on fossil fuels.
ACHIEVEMENTS
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CARBON OFFSETTING
ENVIRONMENTAL
AND SOCIAL BENEFITS
IN ZIMBABWE
5 voluntary carbon-offsetting
schemes supported
MARÍA MONASOR
SGS Sustainability Reporting Manager
407.3 GWh of renewable energy
mechanisms were invested to mitigate
our CO2 emissions
PERFORMANCE
168.0
214.1
203.3
186.9
175.9
168.0
2014
2014
2015
2015
2016
2016
2017
2017
2018
TOTAL GHG EMISSIONS
(THOUSAND METRIC TONNES CO2e)*
* Market-based figures. Excludes district
heating and refrigerant gases emissions
due to unavailability of data. Scope 3
emissions only include Category 3:
business travel.
To mitigate our CO2 emissions, we
invest in voluntary offset schemes.
These credit purchases are verified by
the Clean Development Mechanism
and help promote sustainable
economic growth, provide clean
energy to regions and local
communities, and protect the
environment by reducing reliance
on fossil fuels for energy.
Since 2014, we have been supporting
Kariba REDD+ (Reduced Emissions
from Deforestation and Degradation),
a forest protection initiative in
Zimbabwe that is verified according to
the Verified Carbon Standard and the
Climate, Community & Biodiversity
Alliance’s Standard.
To restrain the deforestation, Kariba
REDD+ ensures the protection of
almost 800 000 hectares of forest and
wildlife on the southern shores of Lake
Kariba, an area that serves as a giant
biodiversity corridor and includes an
expansive rainforest and numerous
vulnerable and endangered species.
Besides the environmental benefits,
the project supports the independence
and well-being of local communities:
people benefit from improved clinic
amenities, infrastructural
developments – such as new roads
and boreholes – or school subsidies
for the poorest population. Kariba
REDD+ also fosters job creation and
sustainable livelihoods by promoting
activities such as conservation
agriculture, fire management,
beekeeping training and ecotourism.
Across the entirety of the project,
85 000 people are benefiting from its
activities and are enjoying better health
and improved economic opportunities.
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PEOPLE
Our commitment to
attracting, retaining and
developing our people is
the basis of our long-term
competitive advantage.
We empower them to
succeed in a safe, diverse
and inclusive workplace that
treats everyone fairly and
with respect. We seek to
employ and develop local
talent and offer our
employees flexibility, mobility
and opportunities within
the SGS Group.
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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 organizations.
This year, the Short-Term Incentive Plan
has been adjusted. While the annual
incentive is based on the achievements
against collective and individual financial
targets, individual qualitative goals and
behaviors are now part of a broader
Talent Development focus and are
incentivized through career development
paths and mid- to long-term evolution
of the compensation packages.
The Long-Term Incentive Plan has been
reviewed to simplify and better align
the reward of the senior management
with the long-term objectives of the
Group and the shareholders’ interests.
ACHIEVEMENTS
91% response rate to 2018 Catalyst
employee engagement survey
(across 26 countries and 2 global teams)
67% of employees feel engaged
and 70% of employees feel enabled*
SGS Peru won the Asociación de
Buenos Empleadores 2018 Social
Responsibility award in the Employee
Wellness category
* Due to the difference in scope between
2017 and 2018, the results for the two
years are aggregated. The 2017 survey
was completed among 39 countries and
3 global teams, with 34 551 respondents.
While the 2018 survey was completed
among 26 countries and 2 global teams,
with 6 286 respondents.
PERFORMANCE
14.6%
PEOPLE LEAVING BY THEIR OWN WILL
As of 2016, this KPI is calculated based on permanent
(fix-term and open-ended) contracts.
TARGET 15%
12.8
11.9
12.1
13.0
14.6
2014
2015
2016
2017
2018
NATURAL TURNOVER
TALENT
ACQUISITION
AND RETENTION
We began to put into effect SGS’ global
Human Resources (HR) strategy in 2018
and will continue the implementation
over the course of 2019 and beyond.
The strategy is based on five pillars:
aligning the HR structure to better
meet global and regional business
prerogatives; implementing a
competitive and transparent talent
acquisition strategy; fostering an
integrated talent management mindset
– based on consistent succession
planning practices; strengthening our
leadership and employee capabilities
with tools and guidelines; and lastly,
leveraging our footprint to promote
career development opportunities
across the Group.
Implementing this strategy will make
SGS more flexible and transparent in the
way it acquires and develops talent and
increase the visibility of career and
growth opportunities within the Group.
A critical part of our global HR strategy
relies on developing the knowledge of
the HR community and providing it with
simple and efficient tools to add value
to the SGS business.
Essential to the success of the strategy
is HR communication, at both the global
and local level, delivering key messages
and raising awareness on the vision
and direction. This is being achieved
in close collaboration with SGS
communications teams.
This year, our Sustainability Ambition
2020 on natural turnover, which had
been set at 10%, has been revised
upwards to 15%, aiming to establish
a more realistic and appropriate target
for our organization. This change has
been approved by the Sustainability
Steering Committee in March 2018,
and the adjustment has been made
after a period of intensive study across
the industry and using external ratings
benchmarks that indicate that a healthy
aggregated natural turnover rate for
the industry should vary between
15% and 18%. As always, our focus
continues to be on retention. To remain
the industry leader, it is imperative
that we continue to attract and
retain high-caliber experts across
the SGS Group.
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EMPLOYEE ENGAGEMENT
AND WELL-BEING
SGS continues to focus on performance
management through leaders to develop
and engage employees. To better
understand our employees’ experience of
working with SGS, every year, we invite
them to complete a survey (see page 59).
Additionally, SGS provides various
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 programs are outcome-
based health promotions, while in others,
they are campaigns to encourage positive
behavior 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.
Thirteen teams from SGS Nigeria were among
the more than 1 000 SGS employees that
participated in the Virgin Global challenge,
promoting teamwork and collaboration.
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 it
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.” 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 organization,
based on different factors, such as
management responsibility, knowledge
required and impact on financial results.
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TIME TO
LISTEN
AND ACT
ANA BIDAUD
SGS Global Employee Engagement Manager
In our Catalyst employee engagement survey, conducted in September 2018,
6 286 employees from 26 countries and two global teams gave feedback on their
experience working at SGS – this is a remarkable response rate of 91%.
Catalyst gives us insight into how engaged, enabled and motivated our employees
feel. The feedback will help us grow, remain agile and allow us to adapt and be
ready to take on new challenges; the results will also feed our 2019 improvement
actions at global, country and team levels.
More than three-quarters of participants report high levels of understanding of
SGS’ strategic priorities and goals. Meanwhile, 70% of participants believe their
managers are supportive, are involved in their growth and development, provide
feedback and recognition, and translate SGS’ objectives into more tangible terms.
Outperforming the global norm,* 67% of employees agree that decisions in their
units are made in a timely manner, and over three-quarters of employees have
access to information to do their jobs well.
The survey participants also highlight ways to improve motivation and enable
them to perform to their full potential. These included conveying SGS’ long-term
strategic direction, managing recognition and diversity, encouraging employee
involvement in the sustainability agenda and promoting a work environment that
fosters open communication.
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68%
74%
82%
Employees intend to stay with
SGS for at least five years
Employees have trust and
confidence in their managers
Employees believe their
managers give them the
freedom to do their jobs well
* The SGS Catalyst survey uses indicators based on Korn Ferry data collected from
over 6.8 million employees in 350 organizations globally.
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HUMAN
CAPITAL
AND LABOR
PRACTICES
SGS is a diverse and inclusive
organization that supports all employees
in realizing 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. SGS employees,
subcontractors, business partners
and suppliers are entitled to work in
an environment and under conditions
that respect their rights and dignity.
We respect freedom of association
and cooperate with the 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.
DIVERSITY AND EQUAL OPPORTUNITIES
Our employees span nationalities,
cultures, religions, generations and
genders, and we recognize their
contribution 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." The SGS Business
Principles, Code of Integrity and
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.
LEARNING AND DEVELOPMENT
Each affiliate manages its own training
programs locally, based on the precise
needs of the SGS business, employees
and community in that specific location.
The programs 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 programs help keep employees
at the top of their fields. Our HR strategy
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also envisages providing an unlocked,
open-access learning portal that will be
available to all employees. This will allow
them to learn about any area of interest
within SGS.
ACHIEVEMENTS
67% males and 33% females in
the global workforce
16 nationalities represented across
the Operations Council
4.4 million hours in staff training
PERFORMANCE
26.4%
TARGET 30%
25.6
26.3
26.2
26.4
2015
2016
2017
2018
WOMEN IN LEADERSHIP POSITIONS
(CEO -3)
QUALITY AND
PROFESSIONALISM
Quality and Professionalism is one of
our Business Principles, and our stated
2020 Ambition in this area is “to be
the leading brand for accuracy, quality
and professionalism.”
SGS distinguishes itself through the
quality of its service offering. In an
increasingly data-driven society, our
reputation for accuracy, thoroughness
and agility sets us apart from the
competition. This is in no small part
thanks to the caliber of people we are
able to attract and retain at the company.
ACHIEVEMENTS
247 516 hours on leadership
development skills programs
1.3 million hours on technical
and sales training
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INVESTING
IN LOCAL TALENT
RUSS CALOW
SGS Vice President Global Geochemistry
SGS operates close to 100 remote
onsite or near-site mine and smelter
laboratories in some of the most
isolated locations in the world.
SGS’ onsite laboratories provide
their customers with expedited
turnaround so that mining and
operational decisions can be made
quickly and accurately. SGS staffs
these operations with a broad and
diverse range of local talent. In
addition to providing employment
opportunities, SGS also benefits
globally from the skills, knowledge
and cultural diversity that these team
members bring to the organization.
For example, at TMAC Resources
Inc. Hope Bay mine, near the Arctic
Circle, SGS has blended a team of
local Inuit staff and regionally
sourced chemists and managers.
In Africa, the SGS onsite laboratory
at Randgold Resources’ Loulo gold
mine in Mali is managed by senior
SGS staff from Ghana and Tanzania,
but all other staff are from a nearby
local village, meaning that in 2018,
87% of the workforce consisted of
local employees who receive SGS
laboratory training.
PERFORMANCE
3.3%
TRAINING COST (INCLUDING HOURS) AS A PERCENTAGE
OF EMPLOYMENT COST
On a constant currency basis.
2.5
2.5
2.3
2.4
3.3
2014
2015
2016
2017
2018
TRAINING RATIO*
* Improvement in the ratio is due to a
remarkable increase of e-learnings during
2018 across the organization as well as
a better quality of the data reporting and
gathering process.
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COMMUNITY INVOLVEMENT
We want to create a positive, measurable and lasting impact on the local
communities where we operate. We welcome local talent and engender
a company culture of giving back through projects that are aligned with
the Sustainable Development Goals and focused on three pillars: education,
empowerment and environmental sustainability. We encourage our employees
to volunteer, while SGS, as a company, invests in local community needs.
PERFORMANCE
1 545
Including cost of volunteering hours
(on a constant currency basis).
462
462
TARGET 1 007
1 091
1 152
1 222
217
222
775
1 545
356
305
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
INVESTMENT IN COMMUNITY*
(THOUSAND CHF)
COMMUNITY PROJECTS*
* Improvement in “Investment in Community” and the number of “Community Projects”
is due to new affiliates joining community programs in 2018 as well as the improved
quality of the data-reporting and data-gathering process.
SGS COMMUNITY PILLARS: BREAKDOWN OF INVESTMENT
COMMUNITY
PROGRAMS
Increasing our investment in
communities around the world by 30%*
(against a 2014 baseline) 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 programs are selected
and managed, in line with the Group
Community Policy and Guidelines,
at a global and local level.
The majority of the initiatives are led by
our affiliates through collaborations with
local organizations. To evaluate the
effectiveness of our programs, we use
our Group Community Survey, which is
aligned with the London Benchmarking
Group criteria. This survey serves as our
impact measurement tool and captures
information in relation to various key
performance indicators 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.
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Our empowerment programs support
physical, emotional, intellectual and
economic empowerment by providing
access to healthcare, counseling,
microcredit and enterprise schemes.
EDUCATION
Our education projects improve
access to all levels of schooling and
promote informal learning in the form
of employment training schemes and
skills workshops.
ENVIRONMENTAL SUSTAINABILITY
Our environmental initiatives focus on
the protection of endangered species
and restoration of natural habitats.
ACHIEVEMENTS
Our total community investment
was CHF 1 545 000
18 544 hours in volunteering
to local communities
31%
education
16%
environmental sustainability
52%
empowerment
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SGS FRANCE
CHANGES
COLOR
FOR PINK
OCTOBER SOPHIE BUET
SGS Marketing and Communication Manager,
Sécuritest & Auto Sécurité, SGS France
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We wanted to use this focus on
prevention for vehicle safety and apply it
to another important topic for women’s
health: breast cancer prevention.
By partnering with the national charity
"Le Cancer du Sein, Parlons-en!" [Breast
Cancer, Let’s Talk About It!], SGS France
supported the fight against breast
cancer with an initiative across all
vehicle testing centers.
Throughout October, which is
international breast cancer awareness
month, we held a major awareness
and fundraising campaign. With the
message that nine in ten women can
recover from breast cancer if detected
early enough, the campaign focused on
the importance of preventative cancer
screenings. With posters, website and
email banners, and social media posts,
we informed customers and suppliers
and appealed for donations in all testing
centers. Some employees participated
in a charity run to raise funds, all our
4 100 vehicle technicians showed
solidarity by wearing the synonymous
pink ribbon, and the SGS Group supported
the initiative with a CHF 57 000
donation for "Le Cancer du Sein,
Parlons-en!" to finance cancer research.
SGS France is the market leader in
automotive technical control, with nearly
8 million customers visiting our 2 000
testing centers every year. Half of the
people who visit the vehicle inspection
centers are women, who – in our
experience – are more receptive to
prevention messages, which are a
critical aspect of helping to avoid issues
and accidents.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
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AND PRIVACY
As a company that holds itself to the
highest standards of professional
behavior, protecting personal data and
compliance with associated privacy laws
are essential commitments for SGS.
Our Data Protection strategy is focused on
the management, prevention, detection
and response to security issues or risks
identified. It encompasses enhancing IT
systems, putting policies and procedures
in place to streamline processes, and
developing capabilities so that SGS is
operating in a controlled-risk environment.
DATA SECURITY
SGS has a framework and team in place
to protect intellectual property, business
services and customer data by
governing and managing cybersecurity.
It is their responsibility to manage SGS
IT Security and Anomaly Detection
Systems, deploying new tools where
needed while identifying vulnerabilities,
threats and potential incidents. The team
also forecasts trends in the security
landscape, determining the threats the
organization faces, orchestrating a
security program to prevent, detect and
control risks and developing effective
responses. SGS implements the best
security controls based on international
standards and best practices.
SGS utilizes several detection systems
that monitor the network, system
infrastructure and applications. The most
critical of these detection systems are
monitored on a continuous basis,
whereas the rest keep audit information
for analysis in case of enquiries or
suspicion of fraudulent activity.
Response times to potential incidents
are monitored with specific timeframe
requirements depending on the severity
of the threat and its criticality. Any major
security issues are investigated by the IT
Security Department. Once the root
cause has been identified, the impact of
any proposed mitigation is evaluated and
communicated.
To promote high levels of cybersecurity,
technical standards ensuring a sound
security baseline have been developed.
We also run a continuous security
awareness program and, as part of this,
conduct IT security training several times
a year for all employees. Cybersecurity is
also an area that is taken seriously when
integrating the IT systems of acquisitions
and partners into those of the SGS Group.
DATA PRIVACY COMMITMENTS
Confidentiality and Privacy are key
principles of the SGS Code of Integrity,
which all SGS employees are required
to uphold.
In March 2018, the SGS Operations
Council further demonstrated the scale
of such commitment across the
company by adopting the SGS Global
Privacy Policy. The SGS Data Privacy
Policy governs how we collect, use and
manage the personal data of customers,
employees and third parties. We strive
to be transparent and open about the
data we collect, respecting individual
rights and choices and securing the data
we hold from the risks of unauthorized
use or disclosure.
EUROPEAN GENERAL DATA
PROTECTION REGULATION (GDPR)
COMPLIANCE
In 2018, measures and mechanisms
were put in place to ensure SGS
complies with the GDPR. These are
detailed in the SGS GDPR Compliance
Statement, which describes the steps
SGS is taking to update and expand data
security and protection across the Group.
It also outlines the dedicated internal
team in place to develop and implement
the GDPR roadmap – assessing gaps and
implementing enhanced and new policies
and procedures.
TRAINING
Global awareness training on data
protection and privacy principles was
rolled out as an e-learning module in
2018. It is relevant to all employees –
whether they collect and process
personal data or not – as SGS as an
organization has collected and manages
their personal data. The aim is to reach
the more than 97 000 SGS employees,
with the completion rate currently at
93% in Europe and 95% worldwide.
ACHIEVEMENTS
The SGS Global Data Privacy Policy
was launched
GDPR Compliance Statement
released to publicly disclose the
measures SGS has in place to ensure
GDPR compliance
Data Protection and Privacy e-learning
rolled out to all SGS employees
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GENERAL DATA PROTECTION REGULATION ROLES AND RESPONSIBILITIES
DATA PRIVACY GLOBAL
PROJECT LEADER
• Defines and supervises the implementation of the GDPR data privacy compliance
framework throughout SGS in the EU and in all non-EU parts of the SGS Group
to which the GDPR may also apply
• Provides operational and privacy legal support to local Data Privacy Officers,
Privacy Leaders and anyone within SGS responsible for data privacy
• Develops, plans and implements SGS data privacy training and awareness programs
EU NETWORK OF DATA PRIVACY
OFFICERS/PRIVACY CONTACTS
• Implement the GDPR data privacy compliance framework at local level
• Inform and advise local teams about their legal obligations and check compliance
of data processing activities
• Ensure the maintenance of readily available information regarding the structure and
functioning of all systems and processes that process personal data (e.g. inventory
of systems and processes, privacy impact assessments and data breaches)
• Cooperate with local Data Protection Authorities in case of an enquiry
• Serve as a contact regarding local access requests and complaints
CHIEF INFORMATION OFFICER
• Overall responsibility for security of IT systems
• Overall responsibility for IT security incidents
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OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT
OUR VALUE TO SOCIETY
A COMPLETE DATA
PRIVACY OFFERING
FOR CUSTOMERS
PIERRE WESTPHAL
SGS GDPR Program Director
When the General Data Protection Regulation (GDPR)
was enforced in Europe in 2018, SGS launched a
compliance management subscription for organizations
with fewer than 250 employees that need help
understanding and complying with the new regulation.
The service, called GDPRONLINE, enables businesses
to take the necessary steps to comply with legal
requirements relating to data collection and storage.
One year on, the service is still evolving.
GDPRONLINE is part of a complete offering of
onsite and online GDPR-related services for both
small and medium-sized enterprises and larger
corporations. GDPRONLINE provides a platform
to communicate digitally with our customers,
giving us the opportunity to propose
customized, complementary
services such as audits, email
management and onsite
training. The service offering is
a collaboration between SGS’
Global Digital and Innovation team
and local affiliates, which ensures
market needs and regulations
drive our approach.
GDPRONLINE is one example
of the data security and privacy
services that SGS offers customers;
others include our Data Protection
Officer Certification, Cloud Service
Certification, Payment Card Industry
Data Security Standard and
Enterprise Governance Risk
and Compliance.
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“Protection of personal data
is important to every part
of our business. It is at the heart
of our promise to our clients,
our values, our principles,
our conduct and our success,
and it is essential to
maintaining trust.”
FRANKIE NG
SGS Chief Executive Officer
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Regular Safety Talks
and the SGS Rules for Life
ensure that Didier returns home
safely every night.
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MEASURING
OUR IMPACT
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
S • I N
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MEASURING
OUR VALUE
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We seek to maximize the positive impact that our
business has on society. If we are determined to do this
in a non-abstract, concrete and systematic way,
then Value to Society as a concept must be made
tangible. Only in this way can our integrated leadership
model fulfill its potential to perform a meaningful, holistic,
cost-benefit analysis at a strategic level.
Consequently, we need a method of calculating
and benchmarking our performance in this area.
As introduced in the 2017 Annual Report, we have
adopted the principles of impact valuation to achieve this.
SGS’ impact across the entire value chain is explored
through an analytical process that spans three pillars:
our operations, our supply chain and our services.
At present, our analysis only comprehensively covers
the first two pillars, with ongoing advanced technical
work on developing accounting procedures for the value
created through our services. Once integrated however,
we can expect to see a significant increase in our
Value to Society figure.
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OUR
IMPACT VALUATION FRAMEWORK
WE MEASURE
OUR VALUE
TO SOCIETY ACROSS:
OUR VALUE CHAIN
SUPPLY CHAIN
OPERATIONS
SERVICES (method in development)
6 CAPITALS
FINANCIAL
NATURAL
MANUFACTURED
HUMAN
INTELLECTUAL
SOCIAL AND RELATIONSHIP
31 INDICATORS
THAT ARE TIED TO
OUR STRATEGIC KPIS
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OUR METHODOLOGY
In traditional economics, a company’s
impact is captured by gross value
added (GVA). This metric is generated
through traditional financial calculations
such as the payment of wages and
salaries, profits generated, and taxes
paid by the company. In 2017,1
SGS added up to CHF 4 045 million
to society, notably through salaries
and taxes for our 95 000 employees
worldwide, according to this
traditional metric.
Our Value to Society model seeks
to move beyond these traditional
approaches to take a more holistic
view of the value we add. Currently,
through the methods outlined below
and detailed more fully in our 2018
Sustainability Report (http://www.sgs.
com/cs-report-2018), we are able to
calculate the value we add to society
through our supply chain and direct
operations. For instance, we calculated
that our direct operations and supply
chain activities created CHF 2 131 million
of additional positive impact, which
was distributed to society through our
stakeholders, for a total value to society
of CHF 6 176 million.
To date, we have unveiled significant
societal benefits arising from training
and development programs, while our
main negative societal impacts have
been caused by the environmental
footprint of our supply chain.
However, we also add significant
value to society through our services.
Therefore, the development of a
methodology to calculate the total
net impact that we enable through
our services will provide a much more
rounded picture of our true value to
society. Once this method has proven
to be satisfactorily robust and this
third pillar has been included in the
calculations alongside our supply chain
and operations data, we can expect a
significant increase in our quantitative
Value to Society figure. This is because
many of our services help other
businesses and governments obtain
their own efficiency, productivity
and sustainability targets.
While our model cannot yet incorporate
calculations estimating the value of
our entire service portfolio to society,
we have explored the value of a few
case studies.
HUMAN CAPITAL CASE STUDY:
SOCIAL
RESPONSIBILITY
AUDITS
Social Responsibility Audits
detect and assess the controls
in place to prevent issues such
as forced labor, 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 analyzed the socio-economic
benefits of reducing the
prevalence of forced labor,
exploitation, discrimination and
sexual harassment. The avoided
social costs equate to a Value
to Society of CHF 333 million.
NATURAL CAPITAL CASE STUDY:
ENERGY
MANAGEMENT
CERTIFICATION
The ISO 50001 Energy
Management certification helps
organizations save money
and conserve resources while
tackling climate change through
energy efficiency and the
development of an energy
management system. SGS has
helped around 1 000 companies
achieve ISO 50001 certification,
resulting in an estimated
reduction in CO2 emissions that
equates to an estimated Value
to Society of CHF 219 million.*
1. Value to Society is calculated
on 2017 figures.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
OUR CAPITALS
Across our operations and supply
chain, six types of capital stock are
analyzed: financial, manufactured,
human, natural, intellectual, and social
and relationship. These capitals are
the Integrated Reporting Framework’s
guidelines. The sum of the collective
positive or negative impacts of these
six capitals provides us with a figure
that represents our value to society
in quantitative terms (see page 70).
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, organizations and
networks. They include notions like
trust, loyalty and other values.
N A T U R AL CAPITAL
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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 ompete
in the global marketplace.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
OUR INDICATORS
For each capital, a set of indicators
has been identified. These relate to
specific actions at the corporate level.
To measure their impact, an economic
value has been assigned to each
indicator, which, in turn, contributes
to the positive or negative flow of
each capital. This approach allows us
to understand the subtle interlinkages
between the capitals, in line with
the objectives of the Integrated
Reporting Framework.
Please refer to our 2018 Sustainability
Report (http://www.sgs.com/
cs-report-2018) to learn more about
how we calculate our value to society.
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EMPLOYEE HEALTH
AND WELL-BEING
CO2 EMISSIONS
EMPLOYEE
SALARY SCHEMES
AND BENEFITS
CARBON
OFFSETTING
SICKNESS
ABSENCE
WATER
MANAGEMENT
OVERTIME
WASTE
MANAGEMENT
EMPLOYEE
ENGAGEMENT
ENVIRONMENTAL
INCIDENTS
EMPLOYEE
VOLUNTEERING
EMPLOYEE
TRAINING
AIR
POLLUTION
DIVERSITY AND EQUAL
OPPORTUNITIES
KNOWLEDGE
DEVELOPMENT
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SUPPLIER
RELATIONSHIP
MANAGEMENT (SRM)
SUPPLIER
STRESS
CUSTOMER
RELATIONSHIP
MANAGEMENT (CRM)
AND DATA SECURITY
RESOURCE
DEPLETION
OCCUPATIONAL
SAFETY
EMPLOYEE
TURNOVER
ASSET
MAINTENANCE
SUBSTANDARD
SERVICES
LAND
USE CHANGE
HUMAN RIGHTS
COMPLIANCE
RESEARCH AND
DEVELOPMENT
MARKET
MOVEMENTS
LOCAL COMMUNITY
INVESTMENT
Natural
capital
Human
capital
Intellectual
capital
Manufactured
capital
Social and
relationship capital
PROFITABILITY
EMPLOYMENT
COST
TAXES
Financial
capital
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OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT
THE MEASURE OF OUR
VALUE TO SOCIETY
Our calculations* demonstrated that SGS generated +CHF 7 149 million of positive societal benefit,
primarily created through profit generation, the paying of taxes and wages, and training and development
programs. We also generated CHF 975 million of negative societal impacts, which were primarily driven
by SGS’ supply chain environmental footprint, in particular by water consumption and Greenhouse Gas
emissions. SGS’ positive impacts were primarily driven by the Company’s own operations,
which accounted for 68% of the total positive impacts.
+ 1 832 MIO
- 4 MIO
- 60 MIO
+ 6 176 MIO
+ 424 MIO
- 242 MIO
- 295 MIO
+ 133 MIO
- 172 MIO
+ 515 MIO
4 045 MIO
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CHF 6 176MIO
The total Value to Society of
SGS direct operations and supply
chain activities
CHF 4 387MIO
Estimated total Value to Society
of our direct operations
Financial
capital
Natural
capital
Human
capital
Intellectual
capital
Manufactured
capital
Social and
relationship
capital
Value
to society
Positive direct operations
Positive supply chain
Negative direct operations
Negative supply chain
* Value to Society is calculated on 2017 figures.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
DOUBLE-POSITIVE DECISION MATRIX
DRIVING VALUE FOR SGS AND SOCIETY
HIGH
Collectively, our efforts aim to result
in a double positive: driving benefit
to SGS and to society.
This decision matrix will help us
prioritize decisions, adding value
to SGS and society, and demonstrate
our integrated leadership.
HIGH VALUE TO SGS
HIGH VALUE TO SOCIETY
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BUSINESS MODEL
Our commitment to training our
people ensures that our employees
are onboarded faster and continually
enhance their skills. This helps SGS
retain the leading experts in the
market. Our people can carry this
training with them when they leave
the office, potentially benefiting
society with the skills that they
have learned.
SERVICES
When we develop industry-leading
capabilities in services such as
air-quality testing, SGS benefits from
increased business and potentially
improved recruitment of highly
qualified talent in the field. Society
benefits from more accurately
monitored and, ultimately, cleaner air.
INTEGRATED NON-FINANCIAL
PERFORMANCE
Over the past five years, we have
used our impact evaluation framework
to produce our “Green Book” on
a biannual basis. This provides
management in our largest 60 countries
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VALUE TO SGS
HIGH
(by revenue) with data to make better,
more integrated decisions. This is also
a remarkable tool to track our progress
towards our company ambitions.
As time goes on, and the model is
further refined, it has the potential
to support a deeper culture of more
informed, holistic decision-making.
Externally, other businesses and
academics can benefit from the work
that we are doing to help more
companies begin to integrate impact
valuation into their reporting. This has
the potential to cause a shift in the way
our company’s value is perceived.
OUTLOOK
While the model is not intended to be
a financial accounting tool, it is robust
enough to help us better understand
and benchmark our year-on-year
performance in creating value to
society. Since the model is aligned
to our KPIs, it also allows us to
embrace the International Integrated
Reporting Framework’s strategy of
generating a comprehensive view
on how our material factors generate
value over time.
We expect the model to be further
refined as new research in the rapidly
evolving field of impact evaluation is
published and new technology
enables us to observe a broader array
of indicators.
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OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT
OUR SUSTAINABILITY
BASIS OF REPORTING
SGS is committed to providing stakeholders with accurate and timely updates on our sustainability activities
and our performance, and we strive to produce a report that is fair, transparent, balanced and meets the needs
of our stakeholders.
1.1 SCOPE AND BOUNDARIES
The scope of the Sustainability Information contained in this Annual Report1 covers all regions and business lines of the SGS Group
for the 2018 calendar year. A full list of SGS’ affiliates can be found on pages 186-189 of this report. Unless stated otherwise, our
reported data scope covers the Group business and targets for the period 1 January to 31 December 2018.
We have identified and prioritized our most material impacts to the business and to stakeholders across our value chain, and this
Annual Report includes performance data for our direct operations and information on how we are managing the most material
issues. For more information on how we define our material issues, please see pages 32-33 of this report.
Our past and present performance is disclosed in this report over a five-year period. Sometimes, historical data may differ from
previous reports due to the availability of more accurate data or improved data gathering and/or reporting. In such cases, variations
in data of less than 5% are generally considered immaterial: significant changes on prior year data are disclosed where they first
appear in the report
1.2 EXTERNAL STANDARDS
For the past ten years, SGS has published a Sustainability Report, and since 2015, we have integrated sustainability content into
our Annual Report as we move towards a fully integrated reporting structure in line with the Integrated Reporting Framework.
SGS supports the principle of integrated reporting, and we are committed to continuing to work towards that goal. Indeed, we
took another step towards integrated reporting this year with the further development of our integrated leadership model, which is
detailed in this Annual Report.
The sustainability content in this Annual Report is drawn from our Sustainability Report, to be published in March 2019. Since 2013,
our Sustainability Report has been developed using the guidelines for the AA1000 Accountability Principles Standard and the Global
Reporting Initiative’s Standards. Our Sustainability Report explains further our reporting approach.
1.3 ASSURANCE AND BASIS OF PREPARATION
External assurance of sustainability performance indicators is an important part of our approach, and our sustainability reporting has
been independently assured since 2011.
In 2018 we appointed Deloitte LLP to provide independent assurance of our Sustainability performance. Deloitte’s Assurance
Report describes the work undertaken and their conclusion for the reporting period to 31 December 2018. Documents relating
to independent external assurance in the years prior to 2017 are available in our Reports, Policies and Multimedia
(https://www.sgs.com/en/our-company/corporate-sustainability/sustainability-at-sgs/reports-policies-and-multimedia)
section on our website.
Please see Independent assurance for further information about our assurance process on pages 73-74 of this Annual Report.
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2018 Annual Report Assurance Statement
Independent assurance statement by Deloitte SA to SGS SA on selected sustainability information presented
in the 2018 SGS Annual Report
What we looked at: scope of our work
SGS SA (“SGS”) has engaged us to perform limited assurance on selected sustainability information (“the Subject Matter”)
presented in the SGS Annual Report for the year ended 31 December 2018 (“the Report”). The selected sustainability
information which comprises the Subject Matter appears on pages [5, 10, 30, 32-33, 36-41, 50, 52-64, 72-74] of the Report.
The assured sustainability information will also appear in the SGS Sustainability Report, to be published later this year.
What standards we used: basis of our work and level of assurance
We used the International Standard for Assurance Engagement (ISAE) 3000 (Revised), issued by the International Auditing
and Assurance Standards Board to carry out our limited assurance engagement on the Subject Matter. To achieve limited
assurance, ISAE 3000 requires that we review the processes and systems used to compile the areas on which we provide
limited assurance. This standard requires that we comply with the independence and ethical requirements and to plan and
perform our assurance engagement to obtain sufficient appropriate evidence on which to base our limited assurance
conclusion. It does not include detailed testing of source data or the operating effectiveness of processes and internal
controls. This is designed to give a similar level of assurance to that obtained in the review of interim financial information.
This provides less assurance and is substantially less in scope than a reasonable assurance engagement.
Inherent limitations
The process an organization adopts to define, gather and report data on its non-financial performance is not subject to the
formal processes adopted for financial reporting. Therefore, data of this nature can be subject to variations in definitions,
collection and reporting methodology with no consistent, accepted standard. This may result in non-comparable
information between organizations and from year to year within an organization as methodologies develop. To support
clarity in this process, SGS prepares sustainability information in accordance with the principles of the Global Reporting
Initiative (GRI) Standards. The SGS Sustainability Report further describes SGS’s approach to reporting sustainability
information, including the scope and standards selected (“the Reporting Criteria”). We have carried out our assurance
against this criteria and it should be read together with this report.
What we did: key assurance procedures
To form our conclusions, we undertook the following procedures:
• Interviewed management at SGS and those with operational responsibility for sustainability performance to critically
evaluate the reporting process, criteria and key controls;
• Interviewed management at SGS to understand the design of controls and functionality of the group sustainability
information management and reporting databases used to manage sustainability data at a corporate level (‘Solaris’ and
‘Crystal’), and performed selected systems integrity tests to assess the accuracy of information generated by the systems;
• Determined material quantitative and qualitative sustainability key performance indicators and disclosures from the
2017 SGS Sustainability Report, by considering criteria such as the outputs of the company’s materiality process; peer
reporting; susceptibility of misstatement due to error or fraud; whether a misstatement or control deficiency was noted
in the prior-year; indicators or disclosures related to estimates and estimation methods; changes in calculation methods
from prior-year;
• For the determined sustainability key performance indicators (as presented in Table 1) and a sample of related
disclosures we undertook the following procedures:
o Undertook management interviews and documentation checks to understand and test the reporting boundary and
group consolidation and validation checks for complete, accurate and appropriate presentation of the information;
o reviewed the design and implementation of SGS’s half year and full year data validation controls, and tested the
operating effectiveness of key data validation review and sign-off controls;
o conducted trends analysis on full year data to identify and query anomalies in reported data;
o conducted sample-based substantive testing of Operational Integrity and Ethics and Compliance indicators, to
assess the accuracy of data classification, in line with the group reporting criteria; and
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SGS SA
2018 Annual Report
Assurance Statement
o checked the quantitative and qualitative disclosures in the Report related to the selected sustainability key
performance indicators against our understanding of the sustainability governance and management structures
and performance over the year
• Where necessary, we made recommendations to SGS management based on findings identified during the assurance
that required improvement.
Table 1: Selected sustainability key performance indicators
• Total number of integrity issues reported through corporate helplines (absolute number)
• Natural turnover (%)
• Women in leadership positions (CEO-3) (%)
• Total recordable incident rate
• Lost time incident frequency rate
• Total number of fatalities (absolute number)
• Total greenhouse gas emissions (Scope 1, 2, and 3) (thousand tonnes CO2e)
• Total energy consumption by source (GWH)
What we found: our assurance conclusion
Based on our procedures described in this report, nothing has come to our attention that causes us to believe that the
Subject Matter in the SGS Annual Report for the year ended 31 December 2018 has not been prepared, in all material
respects, in accordance with the Reporting Criteria.
Our independence and competence in providing assurance to SGS
We complied with Deloitte’s independence policies, which address and, in certain cases, exceed the requirements of the
International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants in their role as
independent auditors, and in particular preclude us from taking financial, commercial, governance and ownership positions
which might affect, or be perceived to affect, our independence and impartiality, and from any involvement in the
preparation of the report. We have confirmed to SGS that we have maintained our independence and objectivity
throughout the year and in particular that there were no events or prohibited services provided which could impair our
independence and objectivity. We have applied the International Standard on Quality Control 1 and accordingly maintain a
comprehensive system of quality control including documented policies and procedures regarding compliance with ethical
requirements, professional standards and applicable legal and regulatory requirements. Our team consisted of a
combination of Auditors with professional assurance qualifications and professionals with a combination of sustainability
reporting and subject matter experts including many years’ experience in providing sustainability report assurance.
Roles and responsibilities
The Directors are responsible for the preparation of the information and statements contained within the Report. They are
responsible for determining the goals and establishing and maintaining appropriate performance management and internal
control systems from which the reported information is derived.
Our responsibility is to independently express conclusions on the subject matters as defined within the scope of work
above to SGS in accordance with our letter of engagement. Our work has been undertaken so that we might state to SGS
those matters we are required to state to them in this statement and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than SGS for our work, for this report, or for the
conclusions we have formed.
Deloitte SA
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Joëlle Herbette
Partner
Matthew Sheerin
Partner
Geneva, 15 February 2019
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GOVERNANCE
Sandra benefits from improved air
quality because SGS experts help
local companies reduce pollution.
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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 maximize 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
4. OPERATIONS COUNCIL
7. CHANGE OF CONTROL
AND DEFENSE MEASURES
1.1. Group structure
1.2. Significant shareholders
1.3. Cross-shareholdings
2. CAPITAL STRUCTURE
2.1. Issued share capital
2.2. Authorized 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
4.1. Members of the Operations Council
4.2. Other activities and functions
7.1. Duty to make an offer
4.3. Changes in the Operations Council
7.2. Clauses on change of control
4.4. Limits on external mandates
4.5. Management contracts
5. COMPENSATION,
SHAREHOLDINGS
AND LOANS
8. AUDITORS
8.1. Duration of the mandate and
term of office
8.2. Audit fees
8.3. Additional fees
5.1. Content and method of
8.4. Supervisory and control instruments
vis-à-vis the auditors
9. INFORMATION POLICY
determining the compensation
and the shareholding programs
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
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3.4. Limits on external mandates
6.1. Voting rights and
3.5. Internal organizational structure
3.5.1. Allocation of tasks within
representation restrictions
6.2. Statutory quorums
the Board of Directors
6.3. Convocation of General Meetings
3.5.2. Committees
3.5.3. Working methods of the
of Shareholders
6.4. Agenda
Board and its Committees
6.5. Registration in the share register
3.6. Definition of areas of responsibility
3.7. Information and control instruments
vis-à-vis the Management
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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 2018, market capitalization
was approximately CHF 16 871 million
(2017: CHF 19 397 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 186-189 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 2018
are provided in note 3 of the
consolidated financial statements
included in the section SGS Group
Results (pages 128-129) 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 2018, geographic
operations were organized as follows:
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AMERICAS
• North America
EUROPE, AFRICA, MIDDLE EAST
ASIA PACIFIC
• Western Europe
• North East Asia
• South and Central America
• North and Central Europe
• South East Asia Pacific
• Eastern Europe and Middle East
• Africa
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lines of business. Each business line is
responsible for the global development
of Group activities within its own sphere
of specialization and the execution
of strategies with the support of the
Chief Operating Officers.
At 31 December 2018, the business
lines are organized 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 2018, Groupe
Bruxelles Lambert (acting through
Serena SARL and URDAC) held 16.60%
(2017: 16.60%). Mr. August von Finck
and members of his family acting in
concert held 15.52% (2017: 15.52%),
BlackRock, Inc. held 4.0% (2017: 4.0%)
and MFS Investment Management held
3.02% (2017: 3.02%) of the share capital
and voting rights of the company.
At the same date, the SGS Group
held 1.09% of the share capital of
the company (2017: 1.08%)
During 2018, 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.
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2. CAPITAL STRUCTURE
2.1. ISSUED SHARE CAPITAL
The share capital of SGS SA is
7 633 732 as of 31 December 2018
and comprises 7 633 732 fully, paid-in,
registered shares of a par value of CHF 1.
On 31 December 2018, SGS SA held
83 025 treasury shares (2017: 82 234).
The shares related to the shares
buyback program are directly held by
SGS SA, the shares to cover the equity
compensation plan are held by
a subsidiary company.
In 2018, 87 099 treasury shares were
sold to cover the equity compensation
plans and 19 800 were purchased for
an average price of CHF 2 403.59.
In 2017, the Group initiated a two-year
share buyback program for a total
of up to CHF 250 million. The program
was completed on 19 December
2018. Under the program, SGS
SA repurchased a total of 105 895
registered shares for a total amount of
approximately CHF 249.9 million, at an
average purchase price of CHF 2 359.67
per share, as follows:
• 37 895 registered shares on the
ordinary trading line, for a total amount
of CHF 92.3 million
• 68 000 registered shares on the
second trading line, for a total amount
of CHF 157.6 million
SGS SA intends to request shareholders
to approve the cancellation of the
68 000 registered shares purchased
on the second trading line at its 2019
Annual General Meeting. The balance
of registered shares repurchased via
the ordinary trading line are to be used
for SGS’s employee participation plans.
2.2. AUTHORIZED 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 authorized 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 authorized
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 authorized to issue.
The right to subscribe to such
conditional capital is reserved to
beneficiaries of employee share option
plans and holders of convertible bonds
or similar debt instruments and therefore
excludes shareholders’ preferential
rights of subscription. The Board is
authorized 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 program. Consequently,
the share capital of the Company was
reduced from CHF 7 822 436 to
CHF 7 633 732 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
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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 29 of the consolidated
financial statements of the Group.
No other options or similar instruments
have been issued by the Company or
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.
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.
In July 2018, the Company was
informed of the sudden incapacity of
Mr. Sergio Marchionne to fulfill his
duties as Chairman and member of the
Board of Directors, and subsequently
of his untimely demise. The Board has
appointed Mr. Peter Kalantzis, member
of the Board and Chairman of the Audit
Committee, as interim Chairman of the
Board of Directors for a period ending at
the 2019 Annual Meeting of Shareholders.
The members of the Board of Directors
at 31 December 2018 were as follows:
PETER KALANTZIS (1945)
PAUL DESMARAIS, JR (1954)
Swiss/Greek
FUNCTION IN SGS
Member:
Canadian
FUNCTION IN SGS
Member:
• Board of Directors, (Acting Chairman
• Board of Directors
since July 2018)
Chairman:
INITIAL APPOINTMENT TO THE BOARD
• Audit Committee and Professional
Conduct Committee (since July 2018)
July 2013
INITIAL APPOINTMENT TO THE BOARD
March 2009
PROFESSIONAL BACKGROUND
Peter Kalantzis holds a Ph.D. in
Economics and Political Sciences from
the University of Basel and engaged in
research as a member of the Institute
for Applied Economics Research at the
University of Basel between 1969 and
1971. Prior to 2000, Peter Kalantzis was
responsible for Alusuisse-Lonza Group’s
corporate development and actively
involved in the de-merger and stock
market launch of Lonza, as well as the
merger process of Alusuisse and Alcan.
Dr. Kalantzis served as head of the
Chemicals Division of Alusuisse-Lonza
Group from 1991 until 1996. In 1991,
Dr. Kalantzis was appointed Executive
Vice President and Member of the
Executive Committee of the Alusuisse-
Lonza Group. Dr. Kalantzis has worked
as an independent consultant since 2000.
OTHER ACTIVITIES AND FUNCTIONS
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
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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)
* Listed company.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS *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 comes 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 Degussa Gold
and Silver Companies, Mövenpick
and Von Roll.
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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 an MBA
from INSEAD in Fontainebleau. 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, 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
Compagnie Nationale à Portefeuille SA
(BE), Member of the Board
Société Civile du Château Cheval Blanc
(France), 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
CHRISTOPHER KIRK (1956)
British
FUNCTION IN SGS
Member
• Board of Directors
INITIAL APPOINTMENT TO THE BOARD
March 2015
PROFESSIONAL BACKGROUND
Chris Kirk holds a BSc (Hons) degree in
Zoology. He began his career at SGS in
1981 in New Zealand. From From 1981
to 1987, he undertook a range of
* Listed company.
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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 at 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.
Gérard Lamarche is a graduate in
Economic Sciences from the University
of Louvain-la-Neuve (Belgium) 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 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
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.
respective positions of leadership in
various industrial sectors are important
contributing factors to the successful
governance of an organization 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.
OTHER ACTIVITIES AND FUNCTIONS
*LafargeHolcim, Zurich (CH), Member of
the Board, Member 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 & 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
Based on this review, the Board has
concluded that, apart from Christopher
Kirk, who was Group CEO between
November 2006 and March 2015
before his nomination to the Board,
all non-executive Directors are
independent from Management and
free of any relationship that could
materially interfere with the exercise
of their independent judgement.
The Board has reached the conclusion that
each of its members, with the exception
of Christopher Kirk, is independent, on the
basis of different criteria, including: the
absence of any employment relationship
in an executive capacity or otherwise
by each Board member or their close
relatives, now and in previous years; the
absence of any payment by the company
to the Board members or their close
relatives other than disclosed board
remuneration and dividends; the absence
of affiliation of the Board members with a
customer, supplier or business partner of
the company; the absence of affiliation as
partner or employee with the company’s
auditors; the absence of personal services
contracts with the company or any of
the members of its management; and,
generally, the absence of any other form
of conflict of interest.
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 the Operations Council is also a
member of the executive bodies of
entities or organizations with which
the Group has material business or
commercial relations.
* Listed company.
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OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS 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 2018, the following Directors
served on the Nomination and
Remuneration Committee:
• August von Finck
• Ian Gallienne
• Shelby du Pasquier (Chairman)
In 2018, the Committee held three
meetings. Meetings of the Nomination
and Remuneration Committee were
attended by all members and had an
average duration of two hours.
3.3. ELECTIONS AND TERMS OF OFFICE
The Articles of Association of SGS
SA provide that each Member of the
Board of Directors, and among them
the Chairman of the Board of Directors
and the Members of the Nomination
Remuneration Committee, is elected
each year by the shareholders for a
period ending at the next Annual General
Meeting. Each Member of the Board
is individually elected. There is no limit
to the number of terms a Director may
serve. The initial date of appointment
of each Board Member is indicated in
section 3.1.
3.4. LIMITS ON EXTERNAL MANDATES
In compliance with the Ordinance
against Excessive Compensation at
Listed Joint-Stock Companies (OaEC),
the Company’s Articles of Association
limit the number of mandates
permissible to Board members. These
rules limit the number of mandates
that board members can accept to no
more than ten board memberships in
entities outside the Group, out of which
a maximum of five memberships in
board of companies whose shares are
traded on a stock exchange. Mandates
assumed at the request of a controlling
entity do not count towards the maxima
defined in the Articles of Association.
In addition, the Articles of Association
limit to ten, the permissible
participations in boards of associations
and other non-profit organizations.
All Board members have confirmed
that they comply with these rules.
3.5. INTERNAL ORGANIZATIONAL
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.
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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 2018, the following Directors served
on the Audit Committee:
• Peter Kalantzis (Acting Chairman)
• August François von Finck
• Gérard Lamarche
• Sergio Marchionne (until July 2018)
In 2018, the Audit Committee held five
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 2018, the following Directors served
on the Professional Conduct Committee:
• Sergio Marchionne (Chairman)
(until July 2018)
• Shelby du Pasquier
• Cornelius Grupp
• Peter Kalantzis (Chairman)
(since July 2018)
In addition to the Board Members,
the Professional Conduct Committee
comprises the Chief Executive
Officer, the General Counsel and Chief
Compliance Officer (General Counsel).
The head of Internal Audit attends all
meetings of the Professional Conduct
Committee. The Committee met twice
in 2018 for a one-hour meeting and
passed several resolutions in writing. The
meeting was attended by all members.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS 3.5.3. WORKING METHODS OF
THE BOARD AND ITS COMMITTEES
The Board of Directors and each
Committee convene regularly scheduled
meetings with additional meetings held
as and when required, in person or
by phone conference. The Board and
the Committees may pass resolutions
by written consent. Each Board
Member has the right to request that
a meeting be held or that an item for
discussion and decision be included
in the agenda of a meeting. Board
and Committee members receive
supporting documentation in advance
of the meetings and are entitled to
request further information from the
Management in order to assist them
to prepare for the meetings. The Board
and each of the Committees can
request the attendance of members
of the Management of the Group. The
Board and each of the Committees are
authorized 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 and one meeting
by phone conference in 2018. 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 2018, with the
exception of two Board members being
excused each for one meeting.
ATTENDANCE TO BOARD AND
COMMITTEE MEETINGS
The chart below summarizes the
attendance by each Board Member in
2018 at the meetings (including meetings
by phone conference) of the Board and
the respective standing Committees.
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MEMBER
Sergio Marchionne1
Paul Desmarais
August von Finck
August Francois von Finck
Ian Gallienne
Cornelius Grupp
Peter Kalantzis2
Chris Kirk
Gérard Lamarche
Shelby du Pasquier
1. Until July 2018.
2. Since July 2018.
BOARD
MEETINGS
NOMINATION AND
REMUNERATION
AUDIT
PROFESSIONAL
CONDUCT COMMITTEE
3/5
5/6
5/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
N/A
N/A
2/3
N/A
3/3
N/A
N/A
N/A
N/A
3/3
3/4
N/A
N/A
5/5
N/A
N/A
5/5
N/A
5/5
N/A
1/1
N/A
N/A
N/A
N/A
2/2
1/1
N/A
N/A
2/2
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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 organization of
the Group
• Assesses risks facing the business
and reviews risk management and
mitigation policies
• Appoints and removes the Group’s
Chief Executive Officer and other
members of management
• Defines the Group’s accounting and
control principles
• Decides on major acquisitions,
investments and disposals
• Discusses and approves the Group’s
strategy, financial statements and
annual budgets
• Prepares the General Meetings
of Shareholders and implements
shareholders’ resolutions
• Notifies the judicial authorities in the
event of insolvency of the Company,
as required by Swiss law
In accordance with the Company’s
internal regulations, operational
management of the Group, a function
which the Board of Directors has
delegated, is the responsibility of the
Operations Council. The Operations
Council has the authority and
responsibility to decide on all issues
that are not attributed to the Board of
Directors. In the event of uncertainty
on a particular issue regarding the
separation of responsibility between the
Board of Directors and the Management,
the final decision is taken by the
Chairman of the Board. The Chairman
is regularly informed of the activities
of the Operations Council by the Chief
Executive Officer, the Chief Financial
Officer and the General Counsel.
The Operations Council is chaired by
the Chief Executive Officer and consists
of those individuals entrusted with the
operational management of the Group’s
activities, as follows:
• The Chief Operating Officers (COOs)
are responsible for operations in the
Group’s 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 organization
of the Operations Council are detailed
in section 4.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS The Committee monitors disciplinary
actions taken and the implementation
of corrective actions.
E. OTHER
In addition, the main business lines have
specialized 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 that 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 third, risks associated with
information and decision making.
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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 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 organizational 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
the Audit Committee.
The Group Controller and the Head of
the Internal Audit Function participate
in the meetings of the Audit Committee.
The Head of Human Resources
participates in the meetings of the
Nomination and Remuneration
Committee, and the General Counsel
and Chief Compliance Officer attends all
meetings of the Board of Directors and
its Committees.
The other members of the Operations
Council and other members of
Management only participate in the Board
and Committee meetings by invitation.
C. INFORMATION TO THE BOARD
The Board of Directors is constantly
informed about the operational and
financial results of the Group by way of
detailed monthly management reports,
which describe the performance of the
Group and its divisions.
During each Board meeting, the
Chief Executive Officer and the Chief
Financial Officer present a report to the
Board of Directors on the operations
and financial results, with an analysis
of deviations from prior year and from
current financial targets.
During Board Meetings, the Board is
updated on important issues facing the
Group. The Chief Executive Officer,
the Chief Financial Officer and
the General Counsel and Chief
Compliance Officer (hereafter “Senior
Management”) attend all of the Board
of Directors meetings, while other
Operations 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 program based on the
SGS Code of Integrity, available in
30 languages. The goal of the program 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.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS 4. OPERATIONS COUNCIL
The Operations Council (as defined
in section 1.1.) meets on a regular
basis, in principle at least five times
a year. Between meetings, it holds
regular phone conferences and may
make decisions on such calls or by
electronic voting.
4.1. MEMBERS OF
THE OPERATIONS COUNCIL
Members of the Operations Council
bring to the Group years of experience
and expertise in their respective fields.
They come from a wide range of
backgrounds that reflects the multiple
aspects of the Group. The Group
strives to promote talent internally and
encourages women to assume senior
leadership positions. The members of
the Operations Council at 31 December
2018 were as follows:
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Swiss/Chinese
Chief Executive Officer
BA in Economics and
Electronics Engineering
Joined SGS in 1994
PREVIOUS RESPONSIBILITIES
CARLA DE GEYSELEER (1968)
Belgian
Chief Financial Officer
EMBA, Executive Master in Business
Administration IMD, 2005
Master in Economics and Finance, 1991
Joined SGS in 2014
2011-2015: EVP, Industrial Services
PREVIOUS WORK EXPERIENCE
2005-2011: EVP, Consumer
Testing Services
2002-2004: Managing Director,
US Testing
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
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OLIVIER MERKT (1962)
Swiss
TEYMUR ABASOV (1972)
Azerbaijani
HELMUT CHIK (1966)
Chinese
Chief Compliance Officer
COO, Eastern Europe and Middle East
COO, North East Asia
Doctorate in Law, admitted to the bar
in Switzerland
Joined SGS in 2001
PREVIOUS RESPONSIBILITIES
2006-2008: VP, Corporate Development
2001-2006: Senior Counsel
Degree in Electrical Engineering
Master in Business Administration
Joined SGS in 1994
Joined SGS in 1991
PREVIOUS RESPONSIBILITIES
PREVIOUS RESPONSIBILITIES
2006-2007: Managing Director,
Kazakhstan and Caspian Sub-Region
2004-2006: Managing Director,
Azerbaijan and Georgia
2003-2004: Managing Director, Georgia
2004-2017: COO, China and Hong Kong
2003: Managing Director, Hong Kong
2002: Vice President Softline Global,
Consumer Testing Services
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS OLIVIER COPPEY (1972)
Swiss
PAULINE EARL (1961)
British
FABRICE EGLOFF (1969)
French
EVP, Agriculture, Food and Life
COO, Western Europe
COO, Africa
MSc Economics
Joined SGS in 1994
BSc in Food Science
Joined SGS in 1995
MBA in International Business Affairs
Joined SGS in 1995
PREVIOUS RESPONSIBILITIES
PREVIOUS RESPONSIBILITIES
PREVIOUS RESPONSIBILITIES
2009-2013: Vice President Seed
and Crop, Agricultural Services
2007-2010: Managing Director,
United Kingdom
2006-2008: Vice President North
America, Agricultural Services, USA
2004-2007: SSC Business Manager,
United Kingdom
2009-2017: Managing Director, France
2004-2008: Managing Director,
Hong Kong
1994-2006: Managerial positions,
Agricultural Services, Switzerland/
India/Cameroon
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LUIS FELIPE ELIAS (1959)
Peruvian
DERICK GOVENDER (1970)
South African
DIRK HELLEMANS (1958)
Belgian
COO, South and Central America
(Since May 2018)
EVP, Minerals
Diploma in Analytical Chemistry
Industrial Engineering Degree and MBA
Post graduate in Business Management
Joined SGS in 2004
Joined SGS in 2002
COO, North and Central Europe
Degree in Chemical Engineering and
Master in Business Administration
Joined SGS in 1988
PREVIOUS RESPONSIBILITIES
2012-2018: Managing Director,
Ecuador and Peru
2004-2012: Deputy Managing
Director, Peru
PREVIOUS RESPONSIBILITIES
2014-2015: Minerals Manager, Chile
2010-2014: VP Minerals, Africa
2007-2010: Regional Minerals Manager,
SGS Southern Africa
PREVIOUS RESPONSIBILITIES
2012-2015 : COO, Northern, Central and
Southern Europe
2004-2012: COO, Central and North
Western Europe
2002-2004: COO, North West Europe
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS JOSÉ MARÍA HERNÁNDEZ-SAMPELAYO (1961)
Spanish
FRÉDÉRIC HERREN (1955)
Swiss
ROGER KAMGAING (1966)
Swiss
SVP, Human Resources
Bachelor in Law
Master in Economics
SVP, Digital and Innovation
EVP, Governments and Institutions
Master in Business Administration
Joined SGS in 1996
Initially joined SGS in 1986, rejoined
in 1999
PREVIOUS RESPONSIBILITIES
PREVIOUS RESPONSIBILITIES
2010-2017: Managing Director, Spain
2010-2017: COO, Africa
2001-2010: HR Manager, Western Europe
1996-2010: HR Manager, Spain
2006-2014: EVP, Governments and
Institutions Services
2003-2010: EVP, Automotive Services
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Master in Commercial Law and Tax
Master in Auditing and Consulting
Initially joined SGS in 1996, 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)
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THOMAS KLUKAS (1965)
German
CHARLES LY WA HOY (1966)
French
FRANÇOIS MARTI (1968)
Swiss
EVP, Transportation
EVP, Consumer and Retail
COO, North America (since 2018)
PhD in Engineering Science,
Engineer in Electronics
Degree in International Relations
Masters in Business Administration
and Engineering Science
Initially joined SGS in 1992, rejoined
in 2008
Initially joined SGS in 2003, rejoined
in 2011
Joined SGS in 2006
PREVIOUS RESPONSIBILITIES
PREVIOUS RESPONSIBILITIES
PREVIOUS RESPONSIBILITIES
2008-2010: Global VP Automotive Services
2006-2008: SVP Automotive Services,
North America
OTHER WORK EXPERIENCE
2000-2006: Senior Executive at DEKRA SE
2016-2018: Vice President of Retail
Solutions and European Business
Development, Consumer and Retail
2013-2016: Global Head of Materials
and Manufacturing, Industrial Services
2009-2013: Vice President of
Strategic Global Accounts,
Consumer Testing Services
2015-2018: EVP Industrial Services
2012-2015: EVP Systems and
Services Certification
2011-2015: SVP, Strategic Transformation
OTHER WORK EXPERIENCE
2005-2011: CEO, Fiat Services
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS JEFFREY MCDONALD (1964)
Australian/American
EVP, Certification and
Business Enhancement
PETER POSSEMIERS (1962)
Australian/Belgian
TOBY REEKS (1976)
British
EVP, Environmental, Health and Safety
SVP, Investor Relations (joined in 2018)
BSc Chemistry and Microbiology
BA in Economics
Postgraduate Diploma in Education
Joined SGS in 1983
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
PREVIOUS RESPONSIBILITIES
2007-2012: Global Sales, OGC
2005-2007: Managing Director, Korea
2003-2005: OGC Business Development
Manager Asia Pacific, China
OTHER WORK EXPERIENCE
2013-2018: Executive Director,
Morgan Stanley
2011-2013: Director, Merrill Lynch
2005-2011: Vice President, Merrill Lynch
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MALCOLM REID (1963)
British
ALIM SAIDOV (1964)
Azerbaijani/Canadian
WIM VAN LOON (1966)
Belgian
COO, South East Asia and Pacific
EVP, Oil, Gas and Chemicals
BSc Chemistry
Joined SGS in 1987
PhD in Science
Joined SGS in 1993
EVP, Industrial Services (since May 2018)
Engineering degree in Industrial Electro
Mechanic and Master’s degree in
Business Management
PREVIOUS RESPONSIBILITIES
PREVIOUS RESPONSIBILITIES
Joined SGS in 1989
2012-2015: EVP, Consumer
Testing Services
2007-2011: EVP, Systems and
Services Certification
2005-2007: Managing Director, Australia
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
PREVIOUS RESPONSIBILITIES
2015-2018: Managing Director, Benelux
2011-2015: Executive Director,
Industrial Services, Benelux
2003-2015: Business Manager for
Industrial, Minerals and Consumer
Testing Services, Benelux
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4.2. OTHER ACTIVITIES AND FUNCTIONS
The following list presents all material
activities in governing and supervisory
boards, management positions and
consultancy functions, official tenures
and political positions held by each
member of the Operations Council
outside the Group, both in Switzerland
and abroad.
DERICK GOVENDER
Member of IPMI (International Precious
Metal Institute)
THOMAS KLUKAS
CITA, International Motor Vehicle
Inspection Committee, Brussels (BE),
Member of the Bureau Permanent
since 2011
FRED HERREN
Member of the Board of Delen SA,
Geneva since 2018
Member of the Council, Geneva
Chamber of Commerce and Industry
4.3. CHANGES IN THE
OPERATIONS COUNCIL
During 2018, Alejandro Gomez De
La Torre, COO for South and Central
America; Richard Shentu, EVP CRS;
and Kimmo Fuller, COO for North
America left the Group.
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 boards of
associations and other not-for-profit
organizations 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.
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5. COMPENSATION,
SHAREHOLDINGS
AND LOANS
5.1. CONTENT AND METHOD OF
DETERMINING THE COMPENSATION
AND THE SHAREHOLDING PROGRAMS
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 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).
5.1.2. 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 2018, no
loan or advance is granted by the Group
to members of the Operations Council
(2017: CHF 66 496 was owed by one
member of the Operations Council for
a loan 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 a prospective
maximum fixed remuneration to the
Operations Council during the next
financial year
• It approves the total aggregate
amount payable to the Operations
Council for the performance-related
annual bonus related to the prior year
• It approves the maximum amount
payable under Long-Term Incentive
plans to be introduced by the Company
Resolutions of such matters are binding
to 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.
6.1. VOTING RIGHTS AND
REPRESENTATION RESTRICTIONS
All registered shareholders can attend
the General Meetings of Shareholders
and exercise their right to vote. A
shareholder may also elect to grant
power of attorney to an independent
proxy appointed by the Company or
to any other registered shareholder.
There are no voting restrictions,
subject to the exclusion of nominee
shareholders representing undisclosed
principals, as detailed in section 2.6.
Shareholders have the opportunity
to give general or specific voting
instructions to the independent proxy.
The voting of resolutions by electronic
votes is authorized by the Articles of
Association, within the modalities
defined by the Board of Directors.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS 6.2. STATUTORY QUORUMS
The General Meeting of Shareholders
can validly deliberate regardless of
the number of shares represented at
the meeting. Resolutions are adopted
by the absolute majority of votes cast.
If a second ballot is necessary,
a relative majority is sufficient,
unless Swiss company law mandates
a special majority.
6.3. CONVOCATION OF GENERAL
MEETINGS OF SHAREHOLDERS
The rules regarding the convocation of
General Meetings of Shareholders are
in accordance with Swiss company law.
6.4. AGENDA
The Agenda of the General Meeting of
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.
7. CHANGE OF
CONTROL AND
DEFENSE MEASURES
No restriction on changes in control
is included in the Company’s Articles
of Association.
7.1. DUTY TO MAKE AN OFFER
In the absence of any specific rules in
the Company’s Articles of Association,
any investor or group of investors
acquiring more than 33.3% of the
shares and voting rights of the Company
has the duty to make a public offer in
compliance with the applicable Swiss
takeover rules.
7.2. CLAUSES ON CHANGE OF CONTROL
There are no general plans or standard
agreements offering specific protection
to Board Members, Senior Management
or employees of the Group in the event
of a change of control, subject to the
standard rules regarding termination
of employment.
8. AUDITORS
9. INFORMATION POLICY
The policy of the Group is to provide
individual and institutional investors,
directly or through financial analysts,
business journalists, investment
consultants (financial community) and
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
programs and minutes of shareholders’
meetings. SGS meets regularly with
institutional investors, holds results
presentations, road shows and
presentations at broker-sponsored
country or industry conferences,
and attends 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.
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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 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 2018 amounted
to CHF 6.8 million (2017: CHF 6.5 million).
8.3. ADDITIONAL FEES
An aggregate amount of CHF 0.9 million
(2017: 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.
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 summarize 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.
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REPORT
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The SGS carbon neutrality strategy
contributes to minimizing the
impact of business processes and
operations on the environment.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT
The SGS Remuneration Report provides an overview of the SGS remuneration model, its principles and
programs and the related governance framework. The report also includes details on the remuneration
of the Board of Directors and of the Operations Council related to the 2018 business year.
The SGS Remuneration Report has been prepared in compliance with the Ordinance against Excessive
Remuneration in Listed Companies Limited by Shares, in effect as of 1 January 2014, the Swiss Code of Best
Practice for Corporate Governance of economiesuisse, approved on 28 August 2014, and the Swiss Exchange
(SIX) Directive on Information relating to Corporate Governance, revised on 13 December 2016, and according
to the Articles of Association of SGS SA, as approved by the shareholders at the Annual General Meeting in 2015.
1. INTRODUCTION
BY THE NOMINATION
AND REMUNERATION
COMMITTEE
2. REMUNERATION
POLICY AND PRINCIPLES
2.1. Remuneration general principles
2.2. Remuneration policy for
the Executive Management
2.3. Remuneration governance
2.3.1. Nomination and
Remuneration Committee
2.3.2. Shareholders’ engagement
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. Fixed remuneration:
annual base salary
3.2.2. Fixed remuneration:
benefits
3.2.3. Short-term variable
remuneration
3.2.4. Long-term variable
remuneration
3.2.5. Remuneration mix
3.2.6. Shareholding
ownership guidelines
3.2.7. Employment contracts
3.2.8. Timeline of remuneration
4. REMUNERATION
AWARDED TO THE
BOARD OF DIRECTORS
5. REMUNERATION
AWARDED TO
THE OPERATIONS
COUNCIL MEMBERS
5.1. Fixed remuneration
5.2. Short-term variable remuneration
5.3. Long-term variable remuneration
5.4. Total remuneration
5.5. Remuneration mix
5.6. Other compensation elements
5.6.1. Severance payments
5.6.2. Other compensation to
members or former members
of governing bodies
5.6.3. Loans to members or former
members of governing bodies
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1. INTRODUCTION BY THE NOMINATION AND REMUNERATION COMMITTEE
The Nomination and Remuneration Committee is pleased to present its 2018 Remuneration Report.
During 2018, beyond its statutory duties, the Committee has been working on three main topics: the changes in the composition
of the Board of Directors, the management of the changes in the composition of the Operations Council and the related nomination
and remuneration matters, and a review of the structure of the Remuneration Report with the objective to provide more clarity and
transparency on the executive remuneration practices of the Group.
As disclosed in Governance (page 75), three members of the Operations Council left the Group and one Operations Council
position has been vacant since Q4 2017. The Board of Directors appointed four new members of the Operations Council and
approved their contractual terms and conditions, including their remuneration, based on the recommendations of the Committee.
We are proud to observe that three of the four new nominees are coming from inside the Group. This confirms that the Group
can count on a rich and diverse pool of talents for its current and future leadership needs.
The structure of the remuneration report has been revised. We believe that this new structure provides greater clarity on the different
remuneration elements and their settlement vehicles, and makes easier the comparison between the remuneration levels of this year
versus the previous year, considering that our current Long-Term Incentive plan is designed to have a grant every three years.
Following the provisions of the Ordinance issued by the Swiss Federal Council, we have implemented the consultative vote on
the Remuneration Report and the binding vote on compensation amounts at the Annual General Meeting as of 2015.
The Committee has received significant support in its activities and direction through your positive votes at the Annual General
Meeting 2018, and will continue with the same “say-on-pay” vote structure at the forthcoming Annual General Meeting 2019:
• Consultative vote on the Remuneration Report;
• Binding vote on the prospective maximum remuneration amount of the Board of Directors until the next Annual General Meeting;
• Binding vote on the retrospective short-term variable remuneration amount of the Operations Council members for the business
year 2018;
• Binding vote on the prospective maximum fixed remuneration amount of the Operations Council members for 2020;
• Binding vote on the value of the grants awarded under the Long-Term Incentive plan to the Operations Council members in
the current year (when relevant).
On the following pages, you will find detailed information about our remuneration model, its principles and programs, and the
remuneration awarded to the Board of Directors and the Operations Council related to the business year 2018.
We hope that you find this report informative. We are confident that our approach to executive pay is fully aligned with the strategy,
wider competitive market benchmarks, the performance of the Company and the interests of our shareholders.
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Shelby du Pasquier
Chairman of the Nomination and Remuneration Committee
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2. REMUNERATION POLICY AND PRINCIPLES
2.1. REMUNERATION GENERAL PRINCIPLES
The general principles of remuneration of the members of the Board of Directors and the members of the Operations Council
are defined in the Articles of Association (Art. 28 and 29).
The remuneration of the members of the Board of Directors is defined with two main objectives: (i) to compensate their activities
and responsibilities as the highest governing body of the Group and their participation in the Committees established within
the Board of Directors, and (ii) to guarantee their independence in exercising their supervisory duties towards the Executive
Management.
The remuneration of the members of the Operations Council is defined with two main objectives: (i) to attract and retain the best
talents available in the industry, and (ii) to motivate them to create and protect value for our shareholders by driving long-term
sustainable financial success.
The members of the Board of Directors receive a fixed remuneration only.
The members of the Operations Council receive a fixed remuneration and a variable remuneration linked to short-term and
long-term results.
REMUNERATION COMPONENT
BOARD OF DIRECTORS (NON-EXECUTIVE)
OPERATIONS COUNCIL (EXECUTIVE)
Fixed remuneration
Short-term variable remuneration
Long-term variable remuneration
2.2. REMUNERATION POLICY FOR THE EXECUTIVE MANAGEMENT
The Company’s remuneration policy applicable to the executive management (Operations Council members) is defined by
the Board of Directors in line with the Company’s business strategy of profitable growth and with the aim to drive and support
the Company’s core values of passion, integrity, entrepreneurialism and innovative spirit.
The remuneration system for the Operations Council members operates according to four main principles:
• Market competitiveness
– Remuneration levels are in line with competitive market practices
• Internal equity
– Remuneration programs link remuneration to the level of responsibility and the skill-set required to perform the role
• Pay for performance
– A substantial portion of remuneration is directly linked to business and individual performance
– Differentiation is based on individual contributions
• Long-term value creation and alignment to shareholders’ interests
– Part of remuneration is delivered in equity subject to a multi-year vesting period
METHOD OF DETERMINATION OF REMUNERATION LEVELS – BENCHMARKING
SGS is a global company, operating in a broad range of sectors; the determination of the remuneration levels of the Operations
Council members must take into account both global and local practices. We periodically compare our compensation practices
with those of other similar global organizations:
• 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, other fixed remuneration elements, short-term
and long-term incentives, 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, related to both the Swiss market and the other markets where the
Operations Council members are based.
As a reference point, SGS targets the median compensation level of the peer group.
The most recent executive compensation benchmark has been performed in 2015, with the support of Mercer. No such benchmark
was made in 2018.
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2.3. REMUNERATION GOVERNANCE
The Board of Directors is responsible for determining the remuneration of the Chairman and the Directors of the Board, within
the limit of the aggregate amount approved by the Annual General Meeting of Shareholders. 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.
2.3.1. NOMINATION AND REMUNERATION COMMITTEE
The Board of Directors is assisted in its work by a Nomination and Remuneration Committee (“the Committee”), which consists
of 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 chart summarizes the authorization 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 that specialize
in compensation matters. In 2018, neither the Committee nor the Board of Directors had recourse to such external advisors.
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 short-term variable
remuneration amount of
the Operations Council
Setting of annual financial targets for
short-term variable remuneration of
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
Recommendation
Binding vote
Recommendation
Approval
Recommendation
Binding vote
Recommendation
Binding vote
Recommendation
Approval
Recommendation
Approval
Recommendation
Binding vote
Individual remuneration of the CEO
Recommendation
Approval
Individual remuneration of
the Operations Council
Remuneration report
Recommendation
Approval
Recommendation
Approval
Consultative vote
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The following Directors served on the Committee in 2018:
• Shelby du Pasquier (Chairman)
• Ian Gallienne
• August von Finck
In 2018, the Committee met in three meetings, two of them attended by all members and one attended by two 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. Generally, 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.
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2.3.2. SHAREHOLDERS’ ENGAGEMENT
As has been the case since the Annual General Meeting of 2015, we will continue to submit the Remuneration Report to a
consultative shareholders’ vote at the Annual General Meeting, so that shareholders have an opportunity to express their opinion
about our remuneration model.
In addition, as required by the Ordinance, the aggregate amounts of remuneration to be paid to members of the Board of Directors
and 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 and foresees separate votes on (i) the maximum remuneration of the Board of
Directors for the period until the next Annual General Meeting, (ii) the maximum fixed remuneration of the Operations Council for the
next calendar year, (iii) the variable remuneration awarded to the Operations Council in respect to the previous calendar year, and (iv)
the maximum amount to be granted to the Operations Council under any Long-Term Incentive plan during the current calendar year.
A summary of the shareholders’ votes on remuneration is described in the chart below:
SHAREHOLDERS’ VOTE
AT THE 2019 AGM
2018
2019
2020
Consultative vote on 2018
Remuneration report
Remuneration report
Binding vote on remuneration
of the Board of Directors
Binding vote on maximum
fixed remuneration of the
Operations Council
Binding vote on variable
remuneration of the
Operations Council
Binding vote on maximum
value of the grants awarded
under any Long-Term Incentive
plan to the Operations Council
(none in 2019)
Variable remuneration
Remuneration
Fixed remuneration
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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”.
AGM 2019
AGM 2020
3. REMUNERATION MODEL
3.1. STRUCTURE OF REMUNERATION OF THE BOARD OF DIRECTORS
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 (annual board retainer) and additional annual fees for the participation in board committees (committee
fees). The Chairman of the Board also receives representation fees. They do not receive additional compensation for attending
meetings and do not receive any variable remuneration, options or shares.
The amounts of the remuneration elements for the Chairman and the other Board members are defined by the Board of
Directors every year. The maximum total amount is subject to the binding vote of the Annual General Meeting of Shareholders.
In determining the amounts of the compensation elements, the Board of Directors considers the prevailing practices of the
Swiss SMI-listed companies.
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The table below summarizes the remuneration elements of the members of the Board of Directors.
ANNUAL BOARD RETAINER
COMMITTEE FEES (PER COMMITTEE)
REPRESENTATION FEES
Chairman
Board Members
The remuneration to the members of the Board of Directors is subject to employer social charges according to Swiss legislation.
The remuneration is paid in cash in two instalments, in June and December of the calendar year.
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 contributions to any pension
scheme on their behalf.
3.2. STRUCTURE OF REMUNERATION OF THE OPERATIONS COUNCIL
The members of the Operations Council receive a fixed remuneration and a variable remuneration linked to short-term and
long-term results.
The fixed remuneration includes an annual base salary and benefits, in the form of employer’s contributions into pension funds,
health insurances, life and disability insurances, other contributions and allowances according to local practices in their country
of employment, and in the form of benefits in kind.
The variable remuneration consists of a short-term incentive, settled partly in cash and partly in equity, and a long-term incentive,
settled in equity.
The table below summarizes the various components of the remuneration of the Operations Council members.
REMUNERATION
ELEMENT
REMUNERATION
VEHICLE
DRIVERS
PERFORMANCE
MEASURES
PURPOSE
PLAN PERIOD
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FIXED REMUNERATION
Annual Base Salary
Cash
Benefits
Contributions to
pension plans and
insurances, other
contributions,
allowances,
benefits in kind
VARIABLE REMUNERATION
Short-Term Incentive
50% cash
50% restricted
shares
Position and
experience,
market practice
(benchmarking)
n/a
Market practice
n/a
Attract and retain
key executives
Continuous
Protect executive
against risks, attract
and retain
Continuous
Annual financial
performance,
individual
performance
against leadership
behavioral model
Group revenue,
Group NPAT 1,
Group ROIC2,
regional and
business line profit,
regional NWC 3,
leadership multiplier
Pay for performance
1-year
performance
period
3-year deferral
period
Reward for long-term
performance, align
compensation with
the interests of the
shareholders
3-year
performance
period
Long-Term Incentive
Performance
Share Units
(PSUs)
Long-term
financial
performance
Relative TSR 4,
adjusted operating
income margin
1. NPAT: Net Profit After Tax.
2. ROIC: Return On Invested Capital.
3. NWC: Net Working Capital.
4. TSR: Total Shareholder Return.
The remuneration of the members of the Operations Council is subject to employer social charges, according to the legislation
in force in their country of employment.
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3.2.1. FIXED REMUNERATION: ANNUAL BASE SALARY
The base salaries of the Chief Executive Officer and each Operations Council member are reviewed annually based on market data for
similar positions in those companies and geographies against which the Group benchmarks itself. In addition to individual performance
and contribution and business performance and results, the deciding body considers the scope and complexity of the areas of
responsibility of the position, skill sets, experience required to perform the role, and relevant market practice in the industry.
3.2.2. FIXED REMUNERATION: BENEFITS
Benefits include the employer’s contributions to pension plans, the employer’s contributions to insurances for health, life, disability
and other risks, other cash contributions and allowances, and benefits in kind. They are awarded in accordance with prevailing
practices in the country of employment of the members of the Operations Council.
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.
3.2.3. SHORT-TERM VARIABLE REMUNERATION
The Chief Executive Officer and the other members of the Operations Council are eligible to a performance-related annual incentive
(the “Short-Term Incentive”). The Short-Term Incentive is designed to reward the CEO and the other members of the Operations
Council for the annual financial performance of the Group and its businesses, and the other members of the Operations Council
for the demonstration of leadership behaviors in line with the SGS competency model.
The table below summarizes the Short-Term Incentive components for the CEO and the other members of the Operations Council.
SHORT-TERM INCENTIVE COMPONENT
CEO
OTHER OC MEMBERS
Annual financial performance
Leadership behavior
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.
The table below summarizes the Annual Incentive opportunity for the CEO and the other members of the Operations Council.
Incentive frequency
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
CEO
Annual
0%
0%
100%
250%
250%
OTHER OPERATIONS
COUNCIL MEMBERS
Annual
0%
0%
55%-65%
250%
137.5%-162.5%
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ANNUAL FINANCIAL PERFORMANCE
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 key performance indicators used in the Short-Term Incentive to measure the annual financial performance of the Group and
its businesses include measurements 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 organization 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 on
the financial performance of the Group and on the financial performance of their own business line (EVPs) or region (COOs).
At the beginning of each year, based on a recommendation by the CEO, the Board of Directors sets the target values of the key
performance indicators used in the Short-Term Incentive, in line with the annual business objectives.
The table below summarizes the key performance indicators applicable to the CEO and the other members of the Operations Council.
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Group Results
Business Lines
Results
Regions Results
Profitability
(bottom-line)
Growth
(top-line)
Efficient use
of capital
Profitability
(bottom-line)
Profitability
(bottom-line)
Efficient use
of capital
CEO
HEADS OF CORPORATE
FUNCTIONS (SVPs)
HEADS OF BUSINESS
LINES (EVPs)
HEADS OF REGIONS
(COOs)
Group NPAT
25%
Group NPAT
65%
Group NPAT
25%
Group NPAT
25%
Group Revenues
25%
Group Revenues
25%
Group Revenue
25%
Group Revenue
25%
Group ROIC
50%
Group ROIC
10%
Group ROIC
10%
-
-
-
-
-
-
Business-line Profit
40%
-
-
-
-
Regional Profit
40%
Regional NWC
10%
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For each key performance indicator, a pay-out curve is defined according to the following principles:
• A threshold (minimum level of performance to trigger a pay-out, and below which the pay-out is zero), a target (expected level
of performance that triggers a pay-out equivalent to the target incentive), and a maximum (level of performance that triggers
the highest pay-out, and above which the pay-out is capped) are defined;
• The lowest pay-out (triggered by the threshold performance) and the highest pay-out (triggered by the maximum performance)
are defined;
• The pay-out for performances between threshold and target and between target and maximum are calculated by linear
interpolation.
• The pay-out curves are differentiated between the CEO and the other members of the Operations Council because the CEO
is rewarded only on financial key performance indicators, while the other members of the Operations Council are also rewarded
on their leadership behaviors.
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The chart below shows the pay-out curves for the Group NPAT, Group Revenue, Group ROIC for the CEO and the Group NPAT,
Business-line Profit, Regional Profit and Group Revenue for the other OC members.
%
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275%
250%
225%
200%
175%
150%
125%
100%
75%
50%
25%
0%
CEO
OTHER
OC MEMBERS
50%
80%
100%
133.3%
150%
200%
250%
PERFORMANCE %
The payout curves for Group ROIC and Regional NWC for the OC members are defined by the CEO at the beginning of
the performance year together with the objectives for each performance metric.
At the end of the performance period, the results for each key performance indicator are assessed against the pre-defined
target and the pay-out curve to determine a pay-out factor. The weighted average of the pay-out factors of each key performance
indicator corresponds to the overall financial performance pay-out factor.
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An example of the calculation of the financial performance pay-out factor for an Executive Vice President is described in the chart below.
GROUP NPAT
WEIGHT 25%
GROUP REVENUE
WEIGHT 25%
GROUP ROIC
WEIGHT 10%
BUSINESS-LINE
PROFIT
WEIGHT 40%
FINANCIAL
PERFORMANCE
PAY-OUT FACTOR
80%
x 0.25
+
160%
x 0.25
+
100%
x 0.1
+
130%
x 0.4
=
122%
LEADERSHIP MULTIPLIER
While the CEO is rewarded only for the annual financial performance of the Group, the other members of the Operations Council
are also rewarded for the demonstration of leadership behaviors in line with the SGS competency model. Their final incentive
amount is calculated by multiplying the financial performance pay-out factor by a leadership multiplier.
The leadership multiplier is determined for each executive based on an assessment of their behaviors against the leadership
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%
An example of the calculation of the final incentive amount for an OC member is described in the chart below.
TARGET INCENTIVE
FINANCIAL
PERFORMANCE
PAY-OUT FACTOR
BEHAVIORAL
MULTIPLIER
FINAL
INCENTIVE AMOUNT
100 000
X
122%
X
125%
=
152 500
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SETTLEMENT OF THE SHORT-TERM INCENTIVE
Once the final incentive amount is determined, it is settled 50% in cash and 50% in restricted shares, to strengthen the link
between the compensation of executives and the interests of the shareholders.
The cash component is paid and the restricted shares are allocated after the shareholders’ approval at the Annual General Meeting
of the following year.
The number of restricted shares to be allocated is determined by dividing 50% of the final incentive amount by the average closing
share price during the 20-day period following the payment of the dividends after the Annual General Meeting, and the result is
rounded up to the nearest integer. 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 restricted in all other instances.
The Group does not issue new shares to be allocated to employees for equity-based compensation plans, but uses treasury shares
instead, acquired through share buyback programs. Detailed information on the overhang and burn rate are disclosed in note 29.
TERMINATION OF EMPLOYMENT
In case of termination of employment for any reason except for cause, if the last day of employment is on or after 31 December
of the respective business year, the executive is eligible to the full annual incentive payment.
In case of termination for cause before the date of payment, irrespective of whether the last day of employment is before or
after 31 December of the respective business year, the executive has no entitlement to receive any annual incentive payment.
In case of resignation, and if the last day of employment is before 31 December of the respective business year, the Participant
has no entitlement to receive any annual incentive payment.
In case of termination not for cause before 31 December of the respective business year, the annual incentive payment is calculated
pro-rata (calendar days) based on the Board of Directors’ best estimate of the performance on the last day of employment.
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The table below summarizes the rules in case of termination of employment.
TERMINATION REASON
LAST DAY OF EMPLOYMENT
INCENTIVE OPPORTUNITY
(TARGET INCENTIVE)
INCENTIVE LEVEL
Cause
Resignation
Other reasons
Before the incentive
payment date
Before 31 December
of the business year
On or after 31 December
of the business year
Before 31 December
of the business year
Zero
Zero
Full
Prorated on calendar days
On or after 31 December
of the business year
Full
Zero
Zero
Based on actual performance
Based on performance
estimated by the Board
of Directors
Based on actual performance
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 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.
CHANGES IN THE SHORT-TERM VARIABLE REMUNERATION OF THE CEO FOR 2019
The Remuneration Committee worked on a review of the Short-term variable remuneration of the CEO for 2019, with the objective
to have a better alignment between the plans in place for the CEO and the other Operations Council members. The payout curves
of the two plans will be harmonized and a leadership multiplier will be introduced for the CEO.
More details on the updated Short-term variable remuneration plan for the CEO and the Operations Council members will be
disclosed in the 2019 Remuneration Report.
3.2.4. LONG-TERM VARIABLE REMUNERATION
The Chief Executive Officer and the other members of the Operations Council are eligible to a performance-related long-term
incentive (the “Long-Term Incentive”). The Long-Term Incentive is designed to motivate the leadership team to achieve the
long-term objectives of the Group and to align their remuneration with the interests of the shareholders.
The Long-Term Incentive consists of a grant of Performance Share Units (PSUs), done once every three years. The last grant under
the Long-Term Incentive was done in 2018; the previous one was done in 2015.
The value of the grants, defined as the number of PSUs granted multiplied by the average share price of the 20 trading days
preceding the grant date, covering a three-year period, is expressed as a percentage of the annual base salary and varies depending
on the role. For the CEO, the value of the grant is 500% of the annual base salary; for the other members of the Operations Council
it is 300% of the annual base salary.
The table below summarizes the value of the incentive opportunity over a three-year period and annualized for the CEO and
the other Operations Council members.
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Incentive frequency
Minimum incentive
opportunity value
Target incentive
opportunity value
Maximum incentive
opportunity value
CEO
OTHER OPERATIONS
COUNCIL MEMBERS
Once every three years
Once every three years
Three-year
period
Annualized
Three-year
period
Annualized
as % of base salary
as % of target incentive opportunity
as % of base salary
as % of target incentive opportunity
as % of base salary
0%
0%
500%
150%
750%
0%
0%
167%
150%
250%
0%
0%
300%
150%
450%
0%
0%
100%
150%
150%
The PSUs granted under the Long-Term Incentive vest after a performance period of three years (for the grant of 2018,
the performance period is 2018-2020), conditionally upon the achievement of pre-defined performance objectives and subject
to continuity of employment of the beneficiaries during the vesting period.
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PERFORMANCE CONDITIONS
The performance conditions of the Long-Term Incentive consist of two financial key performance indicators, equally weighted at 50%:
• Total Shareholder Return (TSR1) (relative SGS performance compared with the peer group)
• Adjusted Operating Income Margin (AOIM) (absolute SGS performance against an internal target)
The TSR of the Group will be compared to the TSR of a group of twelve peer companies, selected 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 neutralized.
The list of the peer group companies is illustrated in the table below.
Adecco
ISS
ALS
Mistras
Applus+
Rentokil
Bureau Veritas
Securitas
Eurofins
Sodexo
Intertek
Team
The vesting levels for the TSR are defined as follows: 150% vesting if SGS is ranked first among the thirteen companies 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.
The AOIM will be assessed against a pre-defined internal target.
The vesting levels for the AOIM are defined as follows: a threshold performance is set at 90% of target, and a maximum
performance is set at 110% of target; if the AOIM performance is at or below threshold, the vesting is zero; if the AOIM is at target,
the vesting is 110%; if the AOIM is at or above maximum, the vesting is 150%; in between, a linear interpolation applies.
The graphics below summarize the key performance indicators of the Long-Term Incentive and their vesting levels.
TOTAL SHAREHOLDER RETURN (TSR)
Relative ranking against peer companies
WEIGHT 50%
200%
150%
100%
50%
0%
13TH
12TH
11TH
10 TH
9 TH
8TH
7TH
6TH
5 TH
4TH
3RD
2ND
1ST
PERFORMANCE
110%
ADJUSTED OPERATING INCOME MARGIN (AOIM)
Performance against internal target
WEIGHT 50%
200%
150%
100%
50%
0%
%
G
N
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T
S
E
V
%
G
N
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T
S
E
V
THRESHOLD
TARGET
PERFORMANCE
MAXIMUM
The overall vesting level of the PSUs granted will be calculated as a weighted average of each of the respective vesting levels for
TSR (50%) and AOIM (50%), and ranges between 0% and 150%.
1. Total shareholder return: (Ending stock price - Beginning stock price) + Sum of all dividends received during the measurement period.
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SETTLEMENT OF THE LONG-TERM INCENTIVE
At the end of the vesting period, the PSUs vest, subject to the performance conditions and the continuity of employment condition,
and shares are allocated to the participants based on the overall vesting level.
The number of shares to be allocated at vesting is calculated by multiplying the number of PSUs granted by the overall vesting
level, the result being rounded up to the nearest integer.
Number of PSUs granted
=
Overall vesting level (0-150%)
X Number of shares allocated at vesting
The Group does not issue new shares to be allocated to employees for equity-based compensation plans, but uses treasury shares
instead, acquired through share buyback programs. Detailed information on the overhang and burn rate are disclosed in note 29.
TERMINATION OF EMPLOYMENT
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 summarizes 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
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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.
3.2.5. REMUNERATION MIX
The part of remuneration at risk (Short-Term Incentive and Long-Term Incentive) for the CEO represents, at target, 73% of the total
remuneration. The part of remuneration settled in equity instruments (Restricted Shares and PSUs) represents, at target, 59% of
the total remuneration.
For the other members of the Operations Council, the part or remuneration at risk represents, on average, 62% of the total
remuneration. The part of remuneration settled in equity instruments represents, on average, 50% of the total remuneration.
The Long-Term Incentive is considered at its annualized value.
The part of the fixed remuneration linked to benefits and employer social charges is not considered in this analysis.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
The charts below show the remuneration mix for the CEO and the other members of the Operations Council in three cases:
at minimum (both Short-Term and Long-Term Incentives at zero pay-out), at target (both Short-Term and Long-Term Incentives
at 100% pay-out) and at maximum (both Short-Term and Long-Term Incentives at maximum pay-out).
CEO
OTHER OC MEMBERS
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Minimum
Target
Maximum
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Minimum
Target
Maximum
Long-Term Incentive (PSUs) Short-Term Incentive (Restricted Shares)
Short-Term Incentive (Cash) Base Salary (Cash)
Long-Term Incentive (PSUs) Short-Term Incentive (Restricted Shares)
Short-Term Incentive (Cash) Base Salary (Cash)
3.2.6. SHAREHOLDING OWNERSHIP GUIDELINES
A shareholding ownership guideline (SOG) is in force since 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.
3.2.7. EMPLOYMENT CONTRACTS
Employment contracts of the Operations Council members have no fixed term and can be terminated at any time by either party,
provided a notice period of six months is respected. For the Chief Executive Officer, the notice period is 12 months. The executive
contracts do not provide for any severance payments (beyond the minimum legally required in the country of employment) and are
subject to applicable legislation in the country of employment.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
3.2.8. TIMELINE OF REMUNERATION
The following outlines the timeline of payment of each remuneration element that was earned in 2018:
• The annual base salary is paid during 2018
• The cash portion of the Short-Term Incentive is paid in March 2019, shortly after the Annual General Meeting
• The share portion of the Short-Term Incentive is allocated in April 2019 and will be unblocked in April 2022
• The PSUs granted under the Long-Term Incentive in 2018 will be earned over the performance period from 2018 to 2020 and
will vest, subject to performance conditions and continuity of employment, in February 2021
TIMELINE (PERFORMANCE PERIOD, TIME OF PAYMENT)
PERFORMANCE KPIs
g
n
i
t
s
e
V
n
o
i
t
a
c
o
l
l
a
s
e
r
a
h
S
-
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U
LONG-TERM
INCENTIVE
2018 GRANT
SHORT-TERM
INCENTIVE
n
i
%
0
5
d
e
t
c
i
r
t
s
e
r
s
e
r
a
h
s
n
i
%
0
5
h
s
a
c
ANNUAL
BASE
SALARY
AND
BENEFITS
T
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A
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i
g
n
k
c
o
b
l
2018
2019
2020
2021
2022
SHAREHOLDING OWNERSHIP GUIDELINE
Relative TSR (50%)
Adjusted operating income margin (50%)
Group revenue (25%)
Group NPAT (25%)
Role specific profit, efficient use of capital (50%)
Multiplied by leadership multiplier (excluding CEO)
Fixed remuneration
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4. REMUNERATION AWARDED TO THE BOARD OF DIRECTORS
In 2018, the annual board retainer was CHF 300 000 for the Chairman of the Board and CHF 150 000 for the other 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 the prior year. The Chairman of the Board was entitled to annual
representation fees of CHF 25 000, unchanged from the prior year. All the remuneration elements of the Board of Directors are
settled in cash.
BOARD RETAINER
COMMITTEE FEE
(PER COMMITTEE)
300 000
150 000
+
+
30 000
30 000
CHAIRMAN
BOARD MEMBERS
The remuneration of the Board of Directors is subject to employer social charges according to Swiss legislation.
The remuneration is disclosed on a fiscal year basis.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
The following table details the remuneration elements granted to each of the Directors for their tenure in 2018.
(CHF thousand)
S. Marchionne 1
P. Desmarais
A. von Finck
A.F. von Finck
I. Gallienne
C. Grupp
P. Kalantzis 2
G. Lamarche
S.R. du Pasquier
C. Kirk
TOTAL
BOARD
RETAINER
COMMITTEE
FEES
REPRESENTATION
FEES
TOTAL
REMUNERATION
EMPLOYER
SOCIAL CHARGES
168
150
150
150
150
150
216
150
150
150
1 584
34
-
30
30
30
30
43
30
60
-
287
14
-
-
-
-
-
-
-
-
-
216
150
180
180
180
180
259
180
210
150
14
1 885
15
11
13
16
16
13
19
16
18
13
150
1. Mr. Marchionne was the Chairman of the Board and member of two committees until 21 July 2018.
2. Mr. Kalantzis was appointed Acting Chairman of the Board and member of the Professional Conduct Committee effective 22 July 2018.
The total remuneration of the members of the Board of Directors did not exceed the maximum amount approved by the Annual
General Meeting of Shareholders in 2018 (CHF 2 134 000; the amount included employer social charges). As of 2019, employer
social charges will be excluded from the aggregate total remuneration that is submitted to the Annual General Meeting of
Shareholders for approval.
The following table details the remuneration elements granted to each of the Directors for their tenure in 2017.
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106
(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
RETAINER
COMMITTEE
FEES
REPRESENTATION
FEES
TOTAL
REMUNERATION
EMPLOYER
SOCIAL CHARGES
300
150
150
150
150
150
150
150
150
150
1 650
60
-
30
30
30
30
30
30
60
-
300
25
-
-
-
-
-
-
-
-
-
25
385
150
180
180
180
180
180
180
210
150
1 975
28
13
13
16
16
13
13
16
18
13
159
The overall remuneration paid to the Board of Directors in 2018 is slightly lower than the overall remuneration paid in 2017, due to
the change in the composition of the Board.
The Chairman of the Board was entitled to a Share Option grant until 2014; as of 2015, the remuneration of the Chairman of the Board
is settled only in cash.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
5. REMUNERATION AWARDED TO THE OPERATIONS COUNCIL MEMBERS
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 in 2018. All amounts disclosed in this section
include the Short-Term Incentive cash amount and restricted shares that will be granted in April 2019 with respect to performance
in 2018 (disclosure according to the accrual principle).
5.1. FIXED REMUNERATION
The table below summarizes the fixed remuneration paid to the Operations Council, Senior Management and the Chief Executive
Officer in 2018.
(CHF thousand)
BASE SALARY
OTHER CASH
ALLOWANCES
CONTRIBUTIONS
TO PENSION PLANS
OTHER CONTRIBUTIONS
AND BENEFITS IN KIND
TOTAL FIXED
REMUNERATION
T
R
O
P
E
R
N
O
I
T
A
R
E
N
U
M
E
R
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT)
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
8 314
2 859
-
-
8 314
-
-
2 859
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
CHIEF EXECUTIVE OFFICER
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
1 717
-
-
1 717
900
-
-
900
503
-
-
503
392
-
-
392
-
1 168
-
1 168
-
212
-
212
-
100
-
100
-
525
-
525
-
67
-
67
-
45
-
45
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E
R
N
O
I
T
A
R
E
N
U
M
E
R
107
11 173
1 693
-
12 866
2 220
279
-
2 499
1 292
145
-
1 437
The aggregate base salary of the members of the Operations Council did not exceed the maximum amount approved by the Annual
General Meeting of shareholders in 2017 (CHF 9 300 000). For 2019, the 2018 Annual General Meeting of shareholders already
approved a maximum aggregated base salary for the members of the Operations Council (CHF 9 400 000). As of 2019, it is the
maximum aggregate total fixed remuneration of the following year (including other cash allowances, contributions to pension plans
and other contributions and benefits in kind) that will be submitted to the Annual General Meeting of Shareholders for approval.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
The table below summarizes the fixed remuneration paid to the Operations Council, Senior Management and the Chief Executive
Officer in 2017.
(CHF thousand)
BASE SALARY
OTHER CASH
ALLOWANCES
CONTRIBUTIONS TO
PENSION PLANS
OTHER CONTRIBUTIONS
AND BENEFITS IN KIND
TOTAL FIXED
REMUNERATION
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT)
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
7 847
1 228
-
-
7 847
-
-
1 228
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
CHIEF EXECUTIVE OFFICER
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
1 710
-
-
1 710
900
-
-
900
166
-
-
166
92
-
-
92
-
1 010
-
1 010
-
207
-
207
-
100
-
100
-
608
-
608
-
111
-
111
-
79
-
79
9 075
1 618
-
10 693
1 876
318
-
2 194
992
179
-
1 171
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108
The increase in fixed remuneration compared with 2017 reflects the change in the composition of the Operations Council, and
the annual remuneration review decided by the Board of Directors.
5.2. SHORT-TERM VARIABLE REMUNERATION
The short-term variable remuneration of the members of the Operations Council is determined by the achievement of financial
targets and, with the exclusion of the CEO, by their leadership behaviors.
In 2018, the achievement of financial targets at Group level, in the businesses and in the regions ranges from 49.5% to 133.9%
(2017: 67.1% to 110.0%).
The chart below summarizes the 2018 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
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
The overall Short-Term Incentive pay-out amounts to 98.3% of the target incentive opportunity for the CEO (2017: 96.5%) and
ranges from 56.3% to 159.3% of the target incentive opportunity for the other members of the Operations Council (2017: 34.1%
to 134.5%). For the purpose of the Short-Term Incentive, targets and performance achievement are measured at constant currency
exchange rates.
In settlement of the equity portion of the Short-Term Incentive 2018, SGS restricted shares will be allocated to the members of
the Operations Council in April 2019, after the approval of the total Short-Term Incentive amount by the Annual General Meeting
of Shareholders (in April 2018, 977 restricted shares were granted in settlement of the equity portion of the Short-Term Incentive
2017). The number of restricted shares to be allocated is calculated by dividing the equity portion of the Short-Term Incentive by the
average closing price of the share during a 20-trading day period following the payment of the dividends after the Annual General
Meeting of Shareholders, rounded up to the nearest integer, and are restricted for a period of three years.
The table below summarizes the short-term variable remuneration awarded to the Operations Council, Senior Management and
the Chief Executive Officer for the performance year 2018, and its comparison with the incentive opportunity.
(CHF thousand)
MINIMUM
INCENTIVE OPPORTUNITY
TARGET
INCENTIVE OPPORTUNITY
MAXIMUM
INCENTIVE OPPORTUNITY
ACTUAL SHORT-TERM
VARIABLE REMUNERATION
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT)
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R
O
P
E
R
N
O
I
T
A
R
E
N
U
M
E
R
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
-
-
-
-
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)
Cash
(including allowances)
Contribution and benefits
in kind
Equity
TOTAL
CHIEF EXECUTIVE OFFICER
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
-
-
-
-
-
-
-
-
2 641
-
2 641
5 282
707
-
707
1 414
450
-
450
900
6 602
-
6 602
13 204
1 767
-
1 767
3 534
1 125
-
1 125
2 250
2 613
-
2 613
5 226
681
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O
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E
R
N
O
I
T
A
R
E
N
U
M
E
R
-
109
681
1 362
442
-
442
884
The total short-term remuneration amount will be submitted for approval to the Annual General Meeting of Shareholders of 2019,
and the settlement for both the cash and the equity part will be implemented shortly after.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
The table below summarizes the short-term variable remuneration awarded to the Operations Council, Senior Management and
the Chief Executive Officer for the performance year 2017, and its comparison with the incentive opportunity.
(CHF thousand)
MINIMUM
INCENTIVE OPPORTUNITY
TARGET
INCENTIVE OPPORTUNITY
MAXIMUM
INCENTIVE OPPORTUNITY
ACTUAL SHORT-TERM
VARIABLE REMUNERATION
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT)
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
-
-
-
-
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)
Cash
(including allowances)
Contribution and benefits
in kind
Equity
TOTAL
CHIEF EXECUTIVE OFFICER
Cash
(including allowances)
Contribution and
benefits in kind
Equity
TOTAL
-
-
-
-
-
-
-
-
2 629
-
2 629
5 258
697
-
697
1 394
450
-
450
900
6 573
-
6 573
13 146
1 743
-
1 743
3 486
1 125
-
1 125
2 250
2 443
-
2 287
4 730
618
-
618
1 236
434
-
434
868
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O
I
T
A
R
E
N
U
M
E
R
110
The total 2017 short-term remuneration amount was approved by the Annual General Meeting of Shareholders of 2018, and
the settlement for both the cash and the equity part were implemented shortly after.
The increase in short-term variable remuneration compared to 2017 reflects the change in the composition of the Operations
Council, and the higher achievement in financial targets.
5.3. LONG-TERM VARIABLE REMUNERATION
In 2018, the Group implemented a Long-Term Incentive plan for the performance period 2018-2020. Under the Long-Term
Incentive 2018-2020, a total of 10 617 Performance Share Units (PSUs) were awarded to the members of the Operations Council.
This includes 2 905 PSUs awarded to Senior Management, of which 1 881 awarded to the Chief Executive Officer.
The PSUs awarded under the Long-Term Incentive 2018-2020 vest after the three-year performance period 2018-2020, in early
2021, subject to the performance conditions (relative Total Shareholder Return and Adjusted Operating Income Margin, equally
weighted at 50%) and to continuity of employment of the beneficiaries during the vesting period.
The number of PSUs awarded is calculated dividing the value of the grant, as explained in 3.2.4, by the average closing price
of the share during a 20-trading day period preceding the grant date, rounded up to the nearest integer.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
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The table below summarizes the long-term variable remuneration awarded to the Operations Council, Senior Management and
the Chief Executive Officer in 2018, with both the total 2018-2020 value and the 2018 annualized value.
NUMBER OF
PSUs GRANTED1
TOTAL VALUE
OF THE GRANT
(CHF THOUSAND)2
ANNUALIZED VALUE
OF THE GRANT
(CHF THOUSAND)3
2017 ANNUALIZED VALUE
OF THE GRANT
(CHF THOUSAND)4
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT)
Cash (including allowances)
Contribution and benefits in kind
Equity
TOTAL
-
-
10 617
10 617
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)
Cash (including allowances)
Contribution and benefits in kind
Equity
TOTAL
CHIEF EXECUTIVE OFFICER
Cash (including allowances)
Contribution and benefits in kind
Equity
TOTAL
-
-
2 905
2 905
-
-
1 881
1 881
-
-
25 406
25 406
-
-
6 952
6 952
-
-
4 501
4 501
-
-
8 469
8 469
-
-
2 317
2 317
-
-
1 500
1 500
-
-
8 302
8 302
-
-
2 149
2 149
-
-
1 337
1 337
1. The grant made in 2018 is for the performance period 2018-2020; the next PSUs grant is planned for 2021.
2. The total value of the grant is the number of PSUs granted multiplied by the average share price of the 20 trading days preceding the grant date
and based on 100% achievement of performance targets.
3. The annualized value of the grant for the year 2018 is one third of the total value of the grant.
4. The annualized value of the grant for the year 2017 is one third of the total value of the 2015 grant at grant date.
The maximum potential award, assuming the performance conditions overachieved, maximum vesting at 150% and all the
participants employed during the entire vesting period, and assuming the share value considered for the grant, is CHF 38 109 000,
within the limit approved by the Annual General Meeting of Shareholders in 2018 (CHF 40 000 000).
The values in the table above differ in some respect from the compensation expense prepared in accordance with International
Financial Reporting Standards (IFRS) and presented in the note 29 of the 2018 Consolidated Financial Statements of SGS S.A.
In 2017, the Group did not implement any Long-Term Incentive, and the Operations Council members did not receive any
Long-Term Incentive award.
DISCONTINUED SHARE OPTION PLANS
The members of the Operations Council were entitled to a Share Option grant until 2014. As of the performance year 2015,
the Share Option plans have been discontinued and replaced by Restricted Shares for the settlement of the equity part of
the Short-Term Incentive and by Performance Share Units for the Long-Term Incentive.
The following table presents details of the options awarded to members of the Operations Council, Senior Management and the
CEO, active at 31 December 2018, and shows those options which have been granted, vested and became exercisable in 2018.
TYPE OF OPTIONS1
(YEAR OF ISSUE)
STRIKE PRICE
(CHF)
TOTAL NUMBER OF
OPTIONS GRANTED
UNDER EACH PLAN
MARKET VALUE
AT GRANT
(CHF THOUSAND)
NUMBER VESTED ON
31 DECEMBER 2018
NUMBER VESTED ON
31 DECEMBER 2017
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT AND CHIEF EXECUTIVE OFFICER)
SGSPF (2014)
SGSBB (2015)
2 059
1 798
565 906
770 899
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)
SGSPF (2014)
SGSBB (2015)
CHIEF EXECUTIVE OFFICER
SGSPF (2014)
SGSBB (2015)
2 059
1 798
2 059
1 798
89 928
145 545
23 464
82 727
1. One hundred options give the right to acquire one share.
1 426
1 711
227
323
59
184
565 906
770 899
89 928
145 545
23 464
82 727
565 906
513 933
89 928
97 030
23 464
55 151
T
R
O
P
E
R
N
O
I
T
A
R
E
N
U
M
E
R
111
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
5.4. TOTAL REMUNERATION
The tables below present all components of the remuneration earned in 2018 and 2017 by the Operations Council, Senior Management
and the Chief Executive Officer. The employer social charges are reported separately in the last column of the table.
TOTAL AND ANNUALIZED REMUNERATION 2018
(CHF thousand)
TOTAL FIXED
REMUNERATION
TOTAL SHORT-
TERM VARIABLE
REMUNERATION
TOTAL 2018
REMUNERATION
BEFORE LTI
TOTAL
LONGTERM
VARIABLE
REMUNERATION
ANNUALIZED
LONG-TERM
VARIABLE
REMUNERATION
TOTAL 2018
REMUNERATION
2018
ANNUALIZED
REMUNERATION
EMPLOYER
SOCIAL
CHARGES
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT)1
11 172
2 613
13 785
-
1 693
-
-
-
-
13 785
13 785
-
1 693
1 693
3 683
2 613
5 226
2 613
18 091
25 406
25 406
8 469
8 469
28 019
43 497
11 082
26 560
-
3 683
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)2
2 220
681
2 901
-
279
-
-
-
-
2 901
2 901
-
279
279
1 187
681
1 362
681
3 861
6 952
6 952
2 317
2 317
7 633
10 813
2 998
6 178
-
1 187
T
R
O
P
E
R
N
O
I
T
A
R
E
N
U
M
E
R
112
1 292
442
1 734
1 734
1 734
-
-
-
-
-
-
145
145
145
442
884
442
2 321
4 501
4 501
1 500
1 500
4 943
6 822
1 942
3 821
739
-
739
Cash
(including
allowances)
Contribution
and benefits
in kind
Equity
TOTAL
Cash
(including
allowances)
Contribution
and benefits
in kind
Equity
TOTAL
Cash
(including
allowances)
Contribution
and benefits
in kind
Equity
TOTAL
CHIEF EXECUTIVE OFFICER
1. 23 FTE (Full Time Equivalent).
2. 3 FTE.
1 693
-
12 865
279
-
2 499
145
-
1 437
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TOTAL AND ANNUALIZED REMUNERATION 2017
(CHF thousand)
TOTAL FIXED
REMUNERATION
TOTAL SHORT-
TERM VARIABLE
REMUNERATION
TOTAL 2017
REMUNERATION
BEFORE LTI
TOTAL LONG-
TERM VARIABLE
REMUNERATION1
ANNUALIZED
LONG-TERM
VARIABLE
REMUNERATION2
TOTAL 2017
REMUNERATION
2017
ANNUALIZED
REMUNERATION
EMPLOYER
SOCIAL
CHARGES
OPERATIONS COUNCIL (INCLUDING SENIOR MANAGEMENT)3
Cash
(including
allowances)
Contribution
and benefits
in kind
Equity
TOTAL
9 075
2 443
11 518
1 618
-
10 693
-
1 618
2 287
4 730
2 287
15 423
SENIOR MANAGEMENT (INCLUDING CHIEF EXECUTIVE OFFICER)4
Cash
(including
allowances)
Contribution
and benefits
in kind
Equity
TOTAL
1 876
618
2 494
318
-
2 194
-
618
1 236
318
618
3 430
CHIEF EXECUTIVE OFFICER
Cash
(including
allowances)
Contribution
and benefits
in kind
Equity
TOTAL
992
434
1 426
179
-
1 171
-
434
868
179
434
2 039
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11 518
11 518
-
1 618
1 618
1 087
8 302
8 302
2 287
15 423
10 589
23 725
-
1 087
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113
-
-
2 149
2 149
-
-
1 337
1 337
2 494
2 494
-
318
618
3 430
318
2 767
5 579
254
-
254
1 426
1 426
-
179
434
2 039
179
1 771
3 376
147
-
147
1. In 2017, the Group did not implement any Long-Term Incentive and the Operations Council members did not receive any Long-Term Incentive award.
2. The annualized value of the grant for the year 2017 is one third of the value of the 2015 grant at grant date.
3. 22 FTE (Full Time Equivalent).
4. 3 FTE.
RECONCILIATION WITH THE COMPENSATION TABLES OF THE REMUNERATION REPORT 2017
A change has been made in this Report in the presentation of the remuneration of the Operations Council members as compared
with the Remuneration Report 2017. The above table sets out the various components of the 2017 remuneration in the format used
for the 2018 remuneration.
5.5. REMUNERATION MIX
In 2018, the part of remuneration at risk (Short-Term Incentive and Long-Term Incentive) for the CEO represents 73% of the total
remuneration (2017: 71%); the part of remuneration settled in equity instruments (Restricted Shares and PSUs) represents 59%
of the total remuneration (2017: 57%). For the other members of the Operations Council, the part or remuneration at risk
represents, on average, 60% of the total remuneration (2017: 61%); the part of remuneration settled in equity instruments
represents, on average, 49% of the total remuneration (2017: 50%).
The Long-Term Incentive is considered at his annualized value. For 2017, the annualized value at grant of the Long-Term Incentive
2015-2017 has been considered.
The part of the fixed remuneration linked to benefits and employer social charges is not considered in this analysis.
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The charts below show the remuneration mix for the CEO and for the other members of the Operations Council in 2018 and 2017.
CEO
OTHER OC MEMBERS (ON AVERAGE)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2017
2018
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2017
2018
Long-Term Incentive (PSUs) Short-Term Incentive (Restricted Shares)
Short-Term Incentive (Cash) Base Salary (Cash)
Long-Term Incentive (PSUs) Short-Term Incentive (Restricted Shares)
Short-Term Incentive (Cash) Base Salary (Cash)
5.6. OTHER COMPENSATION ELEMENTS
5.6.1. SEVERANCE PAYMENTS
Severance payments for a total amount of CHF 263 078 were made in 2018 to members of the Operations Council who left the Group
in 2018, according to the legislation in force in their country of employment (2017: no severance payments).
5.6.2. OTHER COMPENSATION TO MEMBERS OR FORMER MEMBERS OF THE GOVERNING BODIES
No additional compensation or fees were paid to any member of the governing bodies (unchanged from prior year).
5.6.3. LOANS TO MEMBERS OR FORMER MEMBERS OF THE GOVERNING BODIES
As at 31 December 2018, no loan, credit or outstanding advance was due to the Group from members or former members of
its governing bodies (as at 31 December 2017, one member of the Operations Council had an outstanding loan for an amount
equivalent to CHF 66 496).
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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 2018, presented on pages 105 to 114.
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.
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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.
115
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 2018 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, 07 February 2019
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SGS GROUP
RESULTS
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1
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2
Ben works with SGS
through the global supplier portal,
which facilitates knowledge-sharing
and -exchange across the SGS
supplier base.
< BACK TO CONTENTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
REVENUE
Salaries and wages
Subcontractors’ expenses
NOTES
4
Depreciation, amortization and impairment
11 to 13
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.
6
7
8
9
10
10
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
Actuarial gains 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
23
9
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
2018
6 706
(3 422)
(387)
(317)
(1 634)
946
20
(58)
908
(218)
690
643
47
84.54
84.32
2018
6
1
7
(153)
(153)
(146)
690
544
501
43
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2017
6 349
(3 193)
(394)
(338)
(1 530)
894
14
(57)
851
(187)
664
621
43
82.41
82.27
2017
22
(30)
(8)
31
31
23
664
687
644
43
1. In 2018, exchange differences and other include net exchange loss of CHF 20 million on long-term loans treated as net investment in a foreign
entity according to IAS 21 (2017: loss of CHF 2 million).
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CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER
(CHF million)
ASSETS
NON-CURRENT ASSETS
Property, plant 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
Inventories
Unbilled revenues and work in progress
Trade receivables
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
Contract liabilities
Other creditors and accruals
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
NOTES
2018
2017
11
12
13
9
14
5
15
16
17
21
21
22
9
23
24
22
25
24
5
26
969
1 224
202
36
203
133
2 767
46
226
969
214
94
9
1 743
3 301
6 068
8
1 851
(191)
1 668
75
1 743
2 112
30
119
89
2 350
378
709
21
127
112
628
1 975
4 325
6 068
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1 002
1 238
222
36
168
137
2 803
46
293
1 068
236
104
10
1 383
3 140
5 943
8
2 036
(125)
1 919
86
2 005
2 090
45
143
79
2 357
1
677
17
152
97
637
1 581
3 938
5 943
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NOTES
18.1
18.2
19
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
Profit for the year
Non-cash and non-operating items
Decrease/(increase) in working capital
Taxes paid
CASH FLOW FROM OPERATING ACTIVITIES
Purchase of land, buildings, equipment and other intangible assets
Acquisition of businesses
Increase 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 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 in cash and cash equivalents
CASH AND CASH EQUIVALENTS AT END OF YEAR
17
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690
554
95
(265)
1 074
(304)
(45)
(9)
-
18
26
(314)
(573)
(43)
(2)
90
(183)
401
(60)
-
(370)
(30)
360
1 383
360
1 743
2017
664
565
(1)
(241)
987
(298)
(35)
(10)
2
13
17
(311)
(528)
(40)
1
58
(45)
374
(56)
(3)
(239)
(29)
408
975
408
1 383
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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
PLANS 1
RETAINED
EARNINGS
AND
GROUP
RESERVES
EQUITY
HOLDERS
OF SGS SA
NON-
CONTROLLING
INTERESTS
TOTAL
EQUITY
BALANCE AT 1 JANUARY 2017
8
(478)
145
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
BALANCE AT 1 JANUARY 2018
IFRS 9 adjustments
BALANCE AT
1 JANUARY 2018 RESTATED
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 2018
1. Net of tax.
-
-
-
-
-
-
353
(125)
-
-
-
-
17
-
(1)
161
(946)
-
31
31
-
-
-
-
(238)
-
(8)
(8)
-
-
-
-
3 282
621
1 773
621
80
43
1 853
664
-
23
-
23
621
644
43
687
(528)
(528)
(40)
(568)
-
(2)
(337)
17
(2)
15
-
3
-
17
1
15
(915)
(246)
3 036
1 919
86
2 005
(125)
161
(915)
(246)
3 036
(87)
1 919
(87)
86
(4)
2 005
(91)
(125)
161
(915)
(246)
2 949
1 832
82
1 914
-
-
-
-
13
-
-
-
-
-
-
(66)
(45)
-
(149)
(149)
-
-
-
-
-
7
7
-
-
-
-
643
643
47
690
-
(142)
(4)
(146)
643
501
43
544
(573)
(573)
(43)
(616)
-
8
13
8
-
(7)
13
1
(2)
(113)
-
(113)
-
-
-
-
-
-
-
8
8
8
-
-
-
-
-
-
-
8
(191)
129
(1 064)
(239)
3 025
1 668
75
1 743
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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.
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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 2018.
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 2017 consolidated financial statements,
except for the Group’s adoption of new IFRSs effective 1 January 2018.
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 following standards have been adopted as of 1 January 2018.
• IFRS 9 Financial Instruments substantially changes the classification and measurement of financial instruments and changes
the approach to hedging financial exposures and related documentation as well as the recognition of certain fair value changes.
The impact is not significant for the Group. IFRS 9 also requires impairments to be based on a forward-looking model. As a result,
the Group has adopted a new impairment model to measure its financial assets. The new impairment model is an expected
credit loss model which may result in the earlier recognition of credit losses than the incurred loss impairment model used in
accordance with IAS 39. The Group has applied IFRS 9 retrospectively from 1 January 2018. The adjustment to the carrying value
of the financial assets net of tax have been reflected as an adjustment to the opening equity.
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(CHF million)
Deferred tax assets
Unbilled revenues and work in progress
Trade receivables
TOTAL ASSETS
Equity Holders of SGS SA
Non-controlling Interests
TOTAL EQUITY
ADJUSTMENTS
30
(29)
(92)
(91)
(87)
(4)
(91)
• IFRS 15 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 Group has adopted IFRS 15 as of
1 January 2018 through the full retrospective approach. The impact is not significant.
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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 16 Leases will impact the Group’s consolidated financial statements. IFRS 16 sets out the principles for the recognition,
measurement and disclosures of leases and requires lessees to account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under the previous standard IAS 17. IFRS 16 Leases is effective on 1 January 2019.
The Group will adopt IFRS 16 retrospectively with the cumulative effect of initially applying the standard as an adjustment to
the opening balance of retained earnings at the date of initial application. In 2018, the Group performed an assessment resulting
in an estimated impact on the financial position in range of CHF 650 million to CHF 710 million. Impact on Operating Income and
Net profit is not significant.
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 186-189.
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
recognizes in relation to its interest in a joint operation:
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• 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 fair value through profit and loss. Dividends received from these investments are included in financial income.
TRANSACTIONS ELIMINATED ON CONSOLIDATION
All intra-Group balances and transactions, and any unrealized gains and losses arising from intra-Group transactions, are eliminated
in preparing the consolidated financial statements. Unrealized 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 recognized in the income statement.
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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 recognized 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
IFRS 15 Revenue from Contracts with Customers supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related
Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other
standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under
IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring services to a customer. The standard requires entities to exercise judgement, taking into consideration all of the relevant
facts and circumstances when applying each step of the model to contracts with their customers.
The Group recognizes revenue based on two main models: services transferred at a point in time and services transferred over time.
• The majority of SGS’ revenue is transferred at a point in time and recognized upon completion of performance obligations and
measured according to the transaction price agreed in the contract. Once services are rendered, e.g. a report issued, the client
is invoiced and payment is due.
• Services transferred over time mainly concern long-term contracts, where revenue is recognized based on the measure of
progress. When the Group has a right to consideration from a customer at the amount corresponding directly to the customer’s
value of the performance completed to date, the Group recognizes revenue in the amount to which it has a right to invoice.
In all other situations, the measure of progress is either based on observable output methods (usually the number of tests
or inspection performed) or based on input methods such as the time incurred to date relative to the total expected hours
to the satisfaction of the performance obligation. These contracts invoices are usually issued per contractually agreed
instalments and prices. Payments are due upon invoicing.
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.
PROPERTY, PLANT AND EQUIPMENT
Land is stated at historical cost and is not depreciated. Buildings and equipment are stated at historical cost less accumulated
depreciation. Subsequent expenditures are capitalized 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:
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• 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 capitalized 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.
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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 recognized, to reflect new information obtained about
facts and circumstances that existed at the acquisition date that, if known, would have affected amounts recognized at that date.
Goodwill arising on the acquisition of a foreign entity is recorded in the relevant foreign currency and is translated using the end
of period exchange rate.
On disposal of part or all of a business that was previously acquired and which gave rise to the recording of acquisition goodwill,
the relevant amount of residual goodwill is included in the determination of the gain or loss on disposal.
Goodwill and other intangible assets with indefinite useful lives acquired as part of business combinations are tested for possible
impairment annually and whenever events or changes in circumstances indicate their value may not be fully recoverable.
For the purpose of impairment testing, the Group has adopted a uniform method for assessing goodwill and other intangibles
recognized 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. Post-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 recognized 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 capitalized and amortized on a straight-line
basis over their estimated useful lives, normally not exceeding 20 years. Indefinite life intangible assets are not amortized but are
subject to an annual impairment test. The following useful lives are used in the calculation of amortization:
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• 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 capitalized separately from goodwill if their fair value can
be measured reliably. Internally generated intangible assets are recognized 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 amortized 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 realizable value and its value-in-use. In assessing its value-in-use,
the post-tax estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current
market assessments of the time-value of money and the risks specific to the asset.
REVERSAL OF IMPAIRMENT LOSSES
Where an impairment loss on assets other than goodwill subsequently reverses, the carrying amount of the asset or CGU is
increased to the revised estimate of its recoverable amount, but not in excess of the carrying amount that would have been
recorded had no impairment loss been recognized. A reversal of an impairment loss is recognized as income immediately.
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RECEIVABLES
Trade receivables are recognized and carried at original invoice amount less an allowance for any non-collectible amounts.
An allowance for doubtful debts is made in compliance with the simplified approach using a provision matrix (expected credit loss
model). This provision matrix has been developed to reflect the country risk, the credit risk profile, as well as available historical
data. In addition, an allowance for doubtful debts is made when collection of the amount is no longer probable. Bad debts are
written off when identified.
UNBILLED REVENUES AND WORK IN PROGRESS
Unbilled revenues are recognized for services completed but not yet invoiced and are valued at net selling price.
Work in progress is recognized for the partially finished performance obligations under a contract. The measure of progress is
either based on observable output methods or based on input methods. A margin is recognized based on actual costs incurred,
provided that the project is expected to be profitable once completed. Similarly to receivables, an allowance for unbilled revenues
and work in progress is made in compliance with the simplified approach using a provision matrix (expected credit loss model).
MARKETABLE SECURITIES
Marketable securities are recorded in the balance sheet at fair value through the statement of comprehensive income and
recognized in the income statement at the time of disposal.
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 recognized 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 recognized 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 recognized assets
and liabilities.
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CORPORATE BONDS
The corporate bonds issued by the Group are measured at amortized cost using the effective interest method, with interest
expense recognized on an effective yield basis.
The effective interest method is a method of calculating the amortized cost of a financial liability and 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 financial instruments to economically hedge interest rate risks relating to its corporate bonds. The changes in fair
value of finance instruments are recognized 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 recognized in the income statement are
determined by independent actuaries using the projected unit credit method. Remeasurement gains and losses are immediately
recognized in the consolidated balance sheet with the corresponding movement being recorded in the consolidated statement
of comprehensive income.
Past service costs are immediately recognized 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 recognized 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 recognized 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.
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EQUITY COMPENSATION PLANS
The Group provides additional benefits to certain senior executives and employees through equity compensation plans (see note 29).
An expense is recognized in the income statement for shares and equity-linked instruments granted to senior executives and
employees under these plans.
TRADE PAYABLES
Trade payables are recognized 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 provisions are reflected in the income statement in the period in which the change occurs.
CONTRACT LIABILITIES
Contract liabilities arise upon advance payments from clients and issuance of upfront invoices.
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 capitalization.
All other borrowing costs are recognized in the income statement in the period in which they are incurred.
RESTRUCTURING COSTS
The Group recognizes 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.
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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 17 and 22.
In 2017, the Board of Directors of SGS SA authorized a new share buyback program of up to CHF 250 million. The program was
completed on 19 December 2018.
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 Management.
There were no changes in the Group’s approach to capital management during the year.
The Group is not subject to any externally imposed capital requirements.
TAXES
Income taxes include all taxes based upon the taxable profits of the Group, including withholding taxes payable on the transfer
of income from Group companies and tax adjustments from prior years. Taxes on income are recognized 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 recognized 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 recognized 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.
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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 recognized in the financial statements.
LEGAL AND WARRANTY CLAIMS ON SERVICES RENDERED
The Group is subject to litigation and other claims as described in note 24.
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.
VALUATION OF TRADE RECEIVABLES, UNBILLED REVENUE AND WORK IN PROGRESS
The balances are presented net of an estimated allowance for doubtful debts. These allowances for potential uncollected
amounts are estimated in compliance with the simplified approach using a provision matrix (expected credit loss model), which
has been developed to reflect the country risk, the credit risk profile, as well as availlable historical data. In addition, an allowance
is estimated based on individual client analysis when the collection is no longer probable.
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IMPAIRMENT OF GOODWILL
Details of the assumptions used are provided in note 12.
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 recognized 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 23.
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 recognizes 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.
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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
Russia
Taiwan
USA
RUB
TWD
USD
100
100
100
100
100
100
100
100
100
100
BALANCE SHEET
YEAR-END RATES
INCOME STATEMENT
ANNUAL AVERAGE RATES
2018
69.51
25.44
72.41
0.14
14.35
112.91
124.67
1.42
3.22
98.55
2017
76.19
29.46
77.84
0.16
14.99
116.80
131.81
1.70
3.29
97.59
2018
73.14
26.94
75.53
0.15
14.81
115.54
130.61
1.57
3.25
97.84
2017
75.45
30.85
75.89
0.15
14.57
111.15
126.83
1.69
3.24
98.49
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3. BUSINESS COMBINATIONS
The following business combinations occurred during 2018 and 2017:
BUSINESS COMBINATIONS 2018
In 2018, the Group completed 8 business combinations for a total purchase price of CHF 61 million (note 19).
• 100% of Vanguard Science Inc., a leading provider of food safety testing services in the areas of product testing, research
and development and food safety consultation, based in the USA (effective 9 January 2018).
• 100% of Laboratoire de Contrôle et d’Analyse, offering chemical and microbiological testing and consultancy services
to pharmaceutical companies, based in Belgium (effective 11 January 2018).
• 100% of TraitGenetics GmbH, providing services across a wide variety of crops to international clients in the plant breeding
industry and for academic research, based in Germany (effective 2 February 2018).
• 100% of SIT Skin Investigation and Technology Hamburg GmbH, based in Germany, providing applied dermatological research
and studies for the cosmetics and personal care industries (effective 12 February 2018).
• 100% of Oleotest NV a Belgium based company, providing chemical testing services in food, feed and agricultural commodities
(effective 5 April 2018).
• 100% of Polymer Solutions Inc., an independent materials testing laboratory specializing in polymer science, based in the USA
(effective 5 June 2018).
• 60% of Advanced Metrology Solutions S.L., a Spain-based company specializing in 3D metrology precision services and highly
technical inspection measurement processes (effective 11 June 2018).
• 100% of Inter-Basic Resources, Inc.a leading provider of testing and verification of air and fluid filtration performance based
in the USA and the UK (effective 18 October 2018).
These companies were acquired for an equivalent of CHF 61 million and the total goodwill generated on these transactions amounted
to CHF 38 million (note 19).
TOTAL
All the above transactions contributed in total CHF 27 million in revenues and CHF 4 million in operating income. Had all acquisitions
been effective 1 January 2018, the revenues for the period would have increased by CHF 8 million and the Group operating income
for the period would have been increased by CHF 1 million. None of the goodwill arising on these acquisitions is expected to be
tax deductible.
DIVESTMENTS 2018
There were no significant disposals in 2018.
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BUSINESS COMBINATIONS 2017
In 2017, the Group completed 12 business combinations for a total purchase price of CHF 40 million.
• 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., specialized 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).
• 100% of SGS Leicester Ltd., a UKAS-accredited textile testing laboratory performing physical, chemical and flammability testing
services for the garment industry, based in the UK (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 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 USA. 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).
• 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 organizational
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
to the agricultural market (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 19).
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 increased by CHF 3 million. None of the goodwill arising on these acquisitions is expected to be tax deductible.
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DIVESTMENTS 2017
There were no significant disposals in 2017.
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
Amortization and impairment of acquired intangibles
Restructuring costs
Goodwill impairment
Other non-recurring items1
OPERATING INCOME
2018
1 050
(30)
(19)
-
(55)
946
2017
969
(29)
(7)
(30)
(9)
894
1. 2018 includes CHF 47 million for cumulative overstated revenues reported in prior periods in Brazil and associated costs. The amounts are
not deemed material to prior periods financial statements and have been recorded in the current period.
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ANALYSIS OF REVENUE AND OPERATING INCOME
(CHF million)
2018
AFL
MIN
OGC
CRS
CBE
IND
EHS
TRP
GIS
TOTAL
(CHF million)
2017
AFL
MIN
OGC
CRS
CBE
IND
EHS
TRP
GIS
TOTAL
ADJUSTED
OPERATING
INCOME
AMORTIZATION
OF ACQUISITION
INTANGIBLES
REVENUE
RESTRUCTURING
COSTS
GOODWILL
IMPAIRMENT
OTHER
NON-RECURRING
ITEMS
OPERATING
INCOME
BY BUSINESS
1 063
750
1 220
1 025
366
940
517
541
284
171
121
116
267
70
84
57
83
81
(4)
(1)
(2)
(3)
-
(8)
(4)
(7)
(1)
6 706
1 050
(30)
(2)
(2)
(3)
(1)
(1)
(8)
(1)
(1)
-
(19)
-
-
-
-
-
-
-
-
-
-
(3)
-
-
(2)
-
(46)
(2)
(2)
-
(55)
162
118
111
261
69
22
50
73
80
946
ADJUSTED
OPERATING
INCOME
AMORTIZATION
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
64
73
49
90
59
969
(2)
(2)
(2)
(3)
-
(8)
(5)
(7)
-
(29)
(2)
-
(1)
(1)
(1)
(1)
(1)
-
-
(7)
-
-
-
-
-
(30)
-
-
-
(30)
(3)
-
-
(1)
-
(2)
(1)
(1)
(1)
(9)
155
103
117
242
63
32
42
82
58
894
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
130
RESTRUCTURING COSTS
The Group incurred a pre-tax restructuring charge of CHF 19 million (2017: CHF 7 million). This comprised personnel reorganization
of CHF 15 million (2017: CHF 5 million) as well as fixed asset impairment and other charges of CHF 4 million (2017: CHF 2 million).
REVENUE FROM EXTERNAL CUSTOMERS BY GEOGRAPHICAL SEGMENT
(CHF million)
Europe/Africa/Middle East
Americas
Asia Pacific
TOTAL
2018
2 949
1 692
2 065
6 706
%
44.0
25.2
30.8
100.0
2017
2 791
1 632
1 926
6 349
%
44.0
25.7
30.3
100.0
Revenue in Switzerland from external customers for 2018 amounted to CHF 189 million (2017: CHF 181 million). No country
represented more than 15% of revenues from external customers in 2018 or 2017.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
MAJOR CUSTOMER INFORMATION
In 2018 and 2017, 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 property, land and equipment, goodwill
and other intangible assets:
(CHF million)
Europe/Africa/Middle East
Americas
Asia Pacific
TOTAL SPECIFIC NON-CURRENT ASSETS
2018
1 259
754
470
2 483
%
50.7
30.4
18.9
100.0
2017
1 286
770
497
2 553
Non-current assets in Switzerland for 2018 amounted to CHF 140 million (2017: CHF 144 million).
RECONCILIATION WITH TOTAL NON-CURRENT ASSETS
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
(CHF million)
Specific non-current assets as above
Deferred tax assets
Retirement benefit assets
Non-current loans to third parties
TOTAL
CAPITAL ADDITIONS BY BUSINESS SEGMENT
(CHF million)
AFL
MIN
OGC
CRS
CBE
IND
EHS
TRP
GIS
TOTAL
2018
49
39
49
59
5
30
22
37
14
304
%
16.0
12.9
16.0
19.6
1.6
10.0
7.3
12.2
4.4
100.0
AVERAGE NUMBER OF EMPLOYEES BY GEOGRAPHICAL SEGMENT
(Avergage number of employees)
Europe/Africa/Middle East
Americas
Asia Pacific
TOTAL
Number of employees at year end
2018
2 483
203
62
19
2 767
2017
54
28
51
58
4
30
22
42
13
302
2018
39 334
24 003
33 155
96 492
97 368
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
131
%
50.4
30.2
19.4
100.0
2017
2 553
168
73
9
2 803
%
18.0
9.3
17.0
18.9
1.4
10.1
7.1
14.0
4.2
100.0
2017
38 848
22 527
32 181
93 556
95 745
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
5. REVENUES FROM CONTRACTS WITH CUSTOMERS
TIMING OF REVENUE RECOGNITION
(CHF million)
SERVICES
TRANSFERRED AT
A POINT IN TIME
SERVICES
TRANSFERRED
OVER TIME
SERVICES
TRANSFERRED AT
A POINT IN TIME
SERVICES
TRANSFERRED
OVER TIME
2018
2017
AFL
MIN
OGC
CRS
CBE
IND
EHS
TRP
GIS
TOTAL
85%
65%
62%
86%
96%
55%
77%
81%
89%
74%
15%
35%
38%
14%
4%
45%
23%
19%
11%
26%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
85%
66%
62%
87%
97%
55%
75%
84%
87%
75%
15%
34%
38%
13%
3%
45%
25%
16%
13%
25%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
ASSETS AND LIABILITIES RELATED TO CONTRACTS WITH CUSTOMERS
(CHF million)
Unbilled revenue and work in progress
Trade receivables
Contract liabilities
2018
226
969
112
DEC 2017
JAN 2017
293
1 068
97
249
997
87
Revenue evolution, timing and project maturity are the main factors impacting assets and liabilities related to contracts with
customers. The implementation of IFRS 9 had an additional impact on these balance sheet positions in 2018 as detailed in Note 2.
In 2018, SGS has recognized revenue of CHF 80 million related to contract liabilities at 1 January 2018. in 2017, the revenue
recognized from contract liabilities at 1 January 2017 amounted to CHF 75 million. Revenue recognized from performance
obligations satisfied in previous periods were immaterial in 2018 and 2017.
The remaining performance obligations (unsatisfied or partially satisfied) expected to be recognized in more than a year is of
CHF 578 million at 31 December 2018 of which CHF 312 million are expected to be recognized in revenue within one year.
SGS is applying the practical expedient IFRS 15.121 and does not disclose unsatisfied or partially unsatisfied performance
obligations from contracts with an original duration of one year or less or where SGS may recognize revenue from the satisfaction
of the performance obligation in accordance with IFRS 15.B16. This paragraph permits as a practical expedient to exclude contracts
where SGS has a right to payment for performance completed to date.
Assets recognized from costs to fulfill a contract in 2018 were not significant, while amortization and impairment losses were nil.
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
132
6. 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
2018
308
496
105
414
311
1 634
2017
298
460
100
386
286
1 530
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
7. FINANCIAL INCOME
(CHF million)
Interest income
Foreign exchange gains
Other financial income
TOTAL
8. FINANCIAL EXPENSES
(CHF million)
Interest expense
Loss on derivatives at fair value
Other financial expenses
Net financial expenses on defined benefit plans
TOTAL
9. TAXES
MAJOR COMPONENTS OF TAX EXPENSE
(CHF million)
Current taxes
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
Deferred tax (credit)/expense relating to the origination and reversal
of temporary differences
TOTAL
2018
16
3
1
20
2018
28
27
2
1
58
2018
251
(33)
218
2017
9
4
1
14
2017
29
24
2
2
57
2017
221
(34)
187
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
133
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) unrecognized tax losses
Non-creditable foreign withholding taxes
Other
TAX CHARGE
2018
908
154
19
2
34
9
218
2017
851
147
21
(4)
30
(7)
187
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
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 2017
(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
IFRS 9 adjustement
(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 2018
2018
203
(30)
173
2017
168
(45)
123
2018
2017
ASSETS
LIABILITIES
ASSETS
LIABILITIES
43
37
12
25
9
77
203
7
9
-
-
14
-
30
41
13
11
35
9
64
173
7
10
-
15
18
-
50
TOTAL
123
34
(30)
(4)
123
30
33
1
(14)
173
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
134
1. Related to measurement gains and losses on pensions CHF 1 million (2017: CHF 30 million inclusive of a tax loss related to the enactment
of the US tax reform of CHF 26 million).
The Group has unrecognized tax losses carried forward amounting to CHF 38 million (2017: CHF 34 million), of which none will
expire within the next five years. No tax losses carried forward expired in 2018.
At 31 December 2018, the retained earnings of subsidiaries and foreign incorporated joint ventures consolidated by the Group
include approximately CHF 2 712 million (2017: CHF 2 623 million) of undistributed earnings that may be subject to tax if remitted
to the parent company. As set out in note 20, 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 recognized 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.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
10. 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 ('000)
BASIC EARNINGS PER SHARE (CHF)
2018
643
7 607
84.54
2017
621
7 541
82.41
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 29):
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
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
Amortization 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)
2018
643
7 626
84.32
2018
643
30
14
-
37
724
95.17
94.92
2017
621
7 553
82.27
2017
621
29
5
30
7
692
91.74
91.59
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
135
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
11. PROPERTY, PLANT AND EQUIPMENT
LAND AND
BUILDINGS
MACHINERY
AND EQUIPMENT
OTHER TANGIBLE
ASSETS
TOTAL
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 2018
1
-
1
LAND AND
BUILDINGS
MACHINERY
AND EQUIPMENT
OTHER TANGIBLE
ASSETS
TOTAL
(CHF million)
2018
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 2018
(CHF million)
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
492
6
1
(11)
(6)
482
245
17
-
-
(9)
(7)
246
236
448
18
2
(11)
35
492
222
16
1
1
(4)
9
245
247
2 059
164
10
(59)
(58)
2 116
1 549
177
-
6
(55)
(64)
1 613
503
3
2
1
736
103
3
(28)
(75)
739
491
64
1
1
(25)
(23)
509
230
-
-
-
3 287
273
14
(98)
(139)
3 337
2 285
258
1
7
(89)
(94)
2 368
969
4
2
2
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
136
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
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
-
At 31 December 2018, the Group had commitments of CHF 8 million (2017: CHF 3 million) for the acquisition of land, buildings
and equipment.
Included in the other tangible assets are construction-in-progress assets amounting to CHF 18 million (2017: CHF 28 million).
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
12. GOODWILL
(CHF million)
COST
At 1 January
Additions
Consideration on prior years’ acquisitions
Impairment
Exchange differences
AT 31 DECEMBER
2018
2017
1 238
38
-
-
(52)
1 224
1 195
30
3
(30)
40
1 238
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
Goodwill recognized 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 Retail
– 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 organization 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 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, is broken down as follows:
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
137
(CHF million)
TRP
AFL
IND
EHS
OGC
MIN
CRS
CBE
GIS
TOTAL
2018
247
243
218
151
140
113
107
3
2
1 224
2017
245
233
229
157
143
122
102
4
3
1 238
Goodwill impairment reviews have been conducted for all goodwill balances allocated to the CGUs as described above.
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 post- tax rate depending on the business activities
and geographic profile of each of the respective CGUs.
In 2017, the oil and gas sector in which the Industrial USA and Canada CGU operates 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 therefore reduced the CGU value to its recoverable amount. This resulted in
an impairment charge CHF 30 million in relation to the restructuring.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
POST-TAX DISCOUNT RATE USED IN 2018 FOR THE MAIN CGUS OR GROUP OF CGUS IMPAIRMENT TESTING
TRP
AFL
IND
EHS
OGC
MIN
CRS
2018
5.1%-15.5%
6.2%-7.0%
5.7%-10.3%
6.9%
8.1%
8.5%
7.8%
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, changing the key assumptions retained in the scenario using the sensitivity analyses described above
would not result in any of the carrying amounts exceeding the recoverable amount.
13. OTHER INTANGIBLE ASSETS
TRADEMARKS
AND OTHER
CUSTOMER
RELATIONSHIPS
INTERNALLY
GENERATED
PURCHASED
TOTAL
COMPUTER SOFTWARE
AND OTHER ASSETS
(CHF million)
2018
COST
At 1 January
Additions
Acquisition of subsidiaries
Disposals
Exchange differences and other
At 31 December
ACCUMULATED AMORTIZATION AND IMPAIRMENT
At 1 January
Amortization
Disposals
Exchange differences and other
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2018
81
-
-
-
(4)
77
62
6
-
(3)
65
12
246
-
14
-
(9)
251
117
24
-
(5)
136
115
117
13
-
-
7
137
97
12
-
-
109
28
313
18
-
(6)
(12)
313
259
16
(5)
(4)
266
47
757
31
14
(6)
(18)
778
535
58
(5)
(12)
576
202
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
138
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
(CHF million)
2017
COST
At 1 January
Additions
Acquisition of subsidiaries
Disposals
Exchange differences and other
At 31 December
ACCUMULATED AMORTIZATION AND IMPAIRMENT
At 1 January
Amortization
Impairment
Acquisition of subsidiaries
Disposals
Exchange differences and other
At 31 December
NET BOOK VALUE AT 31 DECEMBER 2017
SIGNIFICANT INTANGIBLE ASSETS
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
TRADEMARKS
AND OTHER
CUSTOMER
RELATIONSHIPS
INTERNALLY
GENERATED
PURCHASED
TOTAL
COMPUTER SOFTWARE
AND OTHER ASSETS
77
243
-
-
-
4
81
52
7
-
-
-
3
62
19
-
3
-
-
246
93
21
1
-
-
2
117
129
106
9
-
-
2
117
87
9
-
-
-
1
97
20
294
18
2
(3)
2
313
242
15
-
1
(2)
3
259
54
720
27
5
(3)
8
757
474
52
1
1
(2)
9
535
222
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 (2017: CHF 5 million) and are being amortized
over a period of four years.
Incremental costs relating to internally generated assets are capitalized when incurred and amortized 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.
14. OTHER NON-CURRENT ASSETS
(CHF million)
Non-current loans or amounts receivable from third parties
Retirement benefit asset
Other non-current assets
TOTAL
NOTE
23
2018
19
62
52
133
2017
9
73
55
137
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 2018, other non-current assets included deposits for guarantees and CHF 36 million (2017: CHF 39 million) of restricted cash.
Typical examples of restricted cash are cash deposits for performance bonds, rentals and other operating obligations.
At 31 December 2018 and 2017, the fair value of the Group's other non-current assets approximates their carrying value.
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
139
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
15. TRADE RECEIVABLES
(CHF million)
Trade receivables
Allowance for doubtful accounts
TOTAL
Ageing of trade receivables:
0-60 days
61-90 days
91-120 days
121-180 days
181-240 days
241-300 days
301-360 days
> 360 days
TOTAL
2018
1 165
(196)
969
787
114
47
52
27
15
12
111
1 165
The nominal value, less impairment provisions, of trade receivables is considered to approximate their fair value.
The movement of allowance for doubtful accounts is analyzed as follows:
(CHF million)
At 1 January
Acquisition of subsidiaries
Increase in allowance recognized in the income statement
Utilizations
Exchange differences
AT 31 DECEMBER 2018
2018
(205)
-
(11)
10
10
(196)
2017
1 181
(113)
1 068
777
114
64
54
32
18
14
108
1 181
2017
(114)
(1)
(24)
24
2
(113)
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140
The Group has applied IFRS 9 retrospectively from 1 January 2018. The adjustment to the carrying value of receivables has been
reflected as an adjustment to the opening equity as detailed in note 2.
Receivables are recognized and carried at original invoice amount less an allowance for any non-collectible amounts.
An allowance for doubtful debts is made in compliance with the simplified approach using a provision matrix (expected credit loss
model). This provision matrix has been developed to reflect the country risk, the credit risk profile and available historical data.
In addition, an allowance for doubtful debts is made when collection of the amount is no longer probable. Bad debts are written off
when identified.
If IAS 39 were still applicable, receivables allowance for doubtfull debts would have been at least equal to receivables aged more
than 360 days.
16. OTHER RECEIVABLES AND PREPAYMENTS
(CHF million)
Accrued income, prepayments
Derivative assets
Other receivables
TOTAL
2018
68
17
129
214
2017
71
16
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.
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17. CASH AND CASH EQUIVALENTS
(CHF million)
Cash and short-term deposits
Deposits on demand
Short-term loans
TOTAL
18. CASH FLOW STATEMENT
18.1. NON-CASH AND NON-OPERATING ITEMS
(CHF million)
Depreciation of buildings and equipment
Impairment of land, buildings and equipment and
other intangible assets
Amortization 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
18.2. (INCREASE)/DECREASE IN WORKING CAPITAL
(CHF million)
(Increase)/decrease in unbilled revenues and inventories
Increase in trade receivables
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
NOTES
11
11 and 13
13
12
7 and 8
9
2018
1 702
40
1
1 743
2017
1 342
40
1
1 383
2018
258
1
58
-
38
(17)
13
(15)
218
554
2018
19
(35)
13
41
60
(3)
95
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O
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G
S
G
S
141
2017
257
(1)
52
30
43
(18)
17
(2)
187
565
2017
(45)
(45)
14
22
59
(6)
(1)
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19. ACQUISITIONS
ASSETS AND LIABILITIES ARISING FROM ACQUISITIONS
(CHF million)
Tangible assets
Intangible assets
Other long-term assets
Trade receivables
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
NET CASH OUTFLOW ON ACQUISITIONS
TOTAL FAIR VALUE
ON ACQUISITION 2018
TOTAL FAIR VALUE
ON ACQUISITION 2017
7
14
-
5
2
4
(4)
(5)
-
23
38
61
(4)
(14)
2
45
4
4
1
9
1
6
(11)
(3)
(1)
10
30
40
(6)
(3)
5
35
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 5 million (2017: CHF 6 million) related to external legal fees, due diligence
expenses and the costs of maintaining an internal acquisition department. These expenses are reported within Other Operating
Expenses in the consolidated income statement.
20. 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 analyze 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 economic 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.
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The following table summarizes foreign exchange contracts outstanding at year end. The notional amount of derivatives
summarized 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)
2018
2017
2018
2017
2018
2017
NOTIONAL AMOUNT
BOOK VALUE
MARKET VALUE
FOREIGN EXCHANGE FORWARD CONTRACTS
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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
(14)
(42)
1
(48)
-
(7)
(200)
42
(98)
-
(2)
(4)
3
(3)
(7)
(8)
2
1
(642)
(27)
(18)
(1 071)
(7)
(9)
1
(39)
2
(7)
(197)
49
24
(2)
(1)
(3)
(2)
(5)
(5)
(4)
(1)
(12)
(570)
(25)
(8)
(821)
-
(1)
-
(2)
-
-
1
-
1
-
-
-
-
-
-
-
-
-
4
1
-
4
-
-
-
1
-
-
(1)
-
-
-
-
-
-
-
-
-
-
-
7
(2)
-
5
-
(1)
-
(2)
-
-
1
-
1
-
-
-
-
-
-
-
-
-
4
1
-
4
-
-
-
1
-
-
(1)
-
-
-
-
-
-
-
-
-
-
-
7
(2)
-
5
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FAIR VALUE MEASUREMENT RECOGNIZED IN THE BALANCE SHEET
Marketable securities and derivative assets and liabilities are the only financial instruments measured at fair value subsequent
to their initial recognition. Level 1 fair value measurements are those derived from the quoted price in active markets. Level 2
fair value measurements are those derived from inputs other than quoted prices that are observable for the asset and liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Of marketable securities, CHF 9 million (2017: CHF 10 million) qualify as Level 1, fair value measurement category.
Derivative assets (2018: CHF 17 million; 2017: CHF 16 million) and liabilities (2018: CHF 10 million; 2017: CHF 13 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.
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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 2018 is the carrying amount of financial
assets including derivatives.
Analysis of financial assets by class and category at 31 December 2018:
AMORTIZED
COST LOANS
AND RECEIVABLES
FAIR VALUE
AT FAIR VALUE
THROUGH EQUITY
AT FAIR VALUE
THROUGH P&L
TOTAL
(CHF million)
CARRYING
AMOUNT
FAIR
VALUE
CARRYING
AMOUNT
FAIR
VALUE
CARRYING
AMOUNT
FAIR
VALUE
CARRYING
AMOUNT
FAIR
VALUE
Cash and cash-equivalents
1 743
1 743
Trade receivables
Other receivables¹
Unbilled revenues and
work in progress
Loans to third parties – non-current
Marketable securities
Derivatives
969
132
226
19
-
-
969
132
226
19
-
-
TOTAL FINANCIAL ASSETS
3 089
3 089
-
-
-
-
-
9
-
9
-
-
-
-
-
9
-
9
-
-
-
-
-
-
-
-
-
-
-
-
17
17
17
17
1 743
1 743
969
132
226
19
9
17
969
132
226
19
9
17
3 115
3 115
1. Excluding VAT and other tax related items.
In the fair value hierarchy, marketable securities qualify as Level 1 and the remaining financial assets qualify as Level 2.
Analysis of financial assets by class and category at 31 December 2017:
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AMORTIZED
COST LOANS
AND RECEIVABLES
FAIR VALUE
AT FAIR VALUE
THROUGH EQUITY
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 third parties – non-current
Marketable securities
Derivatives
1 383
1 068
143
1 383
1 068
143
293
293
9
-
-
9
-
-
TOTAL FINANCIAL ASSETS
2 896
2 896
1. Excluding VAT and other tax related items.
-
-
-
-
-
10
-
10
-
-
-
-
-
10
-
10
-
-
-
-
-
-
-
-
-
-
-
-
16
16
16
16
1 383
1 068
143
1 383
1 068
143
293
293
9
10
16
9
10
16
2 922
2 922
In the fair value hierarchy, marketable securities qualify as Level 1 and the remaining financial assets qualify as Level 2.
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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 2018:
AMORTIZED COST
OTHER LIABILITIES
FAIR VALUE
AT FAIR VALUE
THROUGH P&L
TOTAL
CARRYING
AMOUNT
FAIR
VALUE
CARRYING
AMOUNT
FAIR
VALUE
CARRYING
AMOUNT
(CHF million)
Trade payables
Other payables and financial liabilities¹
Contract liabilities
362
173
112
362
173
112
Loans and obligations under finance leases
2 490
2 552
Derivatives
TOTAL FINANCIAL LIABILITIES
-
3 054
-
3 116
1. Excluding VAT and other tax related items.
-
-
-
-
10
10
-
-
-
-
10
10
362
173
29
2 490
10
3 064
In the fair value hierarchy, Bonds qualify as Level 1 and the remaining financial liabilities qualify as Level 2.
Analysis of financial liabilities by class and category at 31 December 2017:
AMORTIZED COST
OTHER LIABILITIES
FAIR VALUE
AT FAIR VALUE
THROUGH P&L
TOTAL
CARRYING
AMOUNT
FAIR
VALUE
CARRYING
AMOUNT
FAIR
VALUE
CARRYING
AMOUNT
(CHF million)
Trade payables
Other payables and financial liabilities¹
Contract liabilities
344
171
97
344
171
97
Loans and obligations under finance leases
2 091
2 181
Derivatives
TOTAL FINANCIAL LIABILITIES
-
2 639
-
2 729
1. Excluding VAT and other tax related items.
-
-
-
-
13
13
-
-
-
-
13
13
344
171
33
2 091
13
2 652
In the fair value hierarchy, Bonds qualify as Level 1 and the remaining financial liabilities qualify as Level 2.
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145
FAIR
VALUE
362
173
29
2 552
10
3 126
FAIR
VALUE
344
171
33
2 181
13
2 742
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Contractual maturities of financial liabilities including interest payments at 31 December 2018:
(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
THIRD 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
413
25
312
265
338
1 289
7
3
8
1
1
-
1 480
(1 476)
-
-
-
-
-
-
-
-
-
-
489
1
-
-
-
-
-
1
1
-
-
-
913
30
321
266
339
1 289
The Group hedges its foreign exchange exposure on a net basis. The net position of the gross settled derivative financial
instruments of CHF 4 million (2017: CHF nil million) represents the net nominal value expressed in CHF of the Group’s foreign
currency contracts outstanding at 31 December 2018.
Contractual maturities of financial liabilities including interest payments at 31 December 2017:
BORROWINGS
THIRD 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
32
406
21
314
260
1 206
4
2
1
1
1
1
1 178
(1 178)
481
-
-
-
-
-
-
-
-
-
-
1
1
-
-
-
-
-
1
-
-
-
517
409
24
315
261
1 207
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O
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G
S
G
S
146
(CHF million)
On demand or within one year
Within the second year
Within the third year
Within the fourth year
Within the fifth year
After five years
SENSITIVITY ANALYSES
The estimated changes in the value of net foreign currency positions are based on an instantaneous 5% weakening of the Swiss
Franc against all other currencies from the level applicable at 31 December 2018 and 2017, with all other variables remaining constant.
Sensitivity analysis based on net hedged positions at 31 December 2018 and 2017:
(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)
2018
2017
INCOME STATEMENT
IMPACT INCOME/(EXPENSE)
EQUITY IMPACT
INCREASE/(DECREASE)
INCOME STATEMENT
IMPACT INCOME/(EXPENSE)
EQUITY IMPACT
INCREASE/(DECREASE)
2
(3)
3
-
-
-
-
-
-
-
8
-
-
-
1
2
3
2
1
2
3
(3)
3
(1)
-
-
-
-
-
-
(8)
-
-
-
(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 using 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 2018 would increase/decrease
by CHF nil (2017: nil).
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21. SHARE CAPITAL AND TREASURY SHARES
SHARES IN CIRCULATION
TREASURY SHARES
TOTAL SHARES ISSUED
TOTAL SHARE CAPITAL
(CHF MILLION)
BALANCE AT 1 JANUARY 2017
Treasury shares released into circulation
Treasury shares purchased for equity
compensation plans
Treasury shares cancelled
BALANCE AT 31 DECEMBER 2017
Treasury shares released into circulation
Treasury shares purchased for equity
compensation plans
Treasury shares purchased for
cancellation
BALANCE AT 31 DECEMBER 2018
7 538 507
30 996
(18 095)
-
7 551 408
87 099
(19 800)
(68 000)
7 550 707
283 929
(30 996)
18 095
(188 704)
82 324
(87 099)
19 800
68 000
83 025
7 822 436
-
-
(188 704)
7 633 732
-
-
-
7 633 732
8
-
-
-
8
-
-
-
8
ISSUED SHARE CAPITAL
SGS SA has a share capital of CHF 7 633 732 (2017: CHF 7 633 732) fully paid in and divided into 7 633 732 (2017: 7 633 732)
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 2018, SGS SA held 83 025 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 2018, 87 099 treasury shares were sold or given in relation with the equity compensation plans and 19 800 were purchased for
an average price of CHF 2 406.
In 2018, the Group completed the share buyback program initiated in 2017 for a total of CHF 250 million.
AUTHORIZED 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
authorized 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 authorized 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 authorized 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.
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22. LOANS AND OBLIGATIONS UNDER FINANCE LEASES
CURRENT YEAR INFORMATION
(CHF million)
Bank loans
Corporate bonds
Finance lease obligations
TOTAL
Current
Non-current
2018
4
2 484
2
2 490
378
2 112
2017
2
2 088
1
2 091
1
2 090
Depending on the nature of the loan, currency and date of maturity, interest rates on long-term loans from third parties range
between 0.25% and 4.96% and on short-term loans from third parties range between 0% and 6.40%.
The loans from third parties exposed to fair value interest rate risk amounted to CHF 2 488 million (2017: CHF 2 088 million) and
the loans from third parties exposed to cash flow interest rate risk amounted to CHF nil million (2017: CHF 2 million).
The fair value of corporate bonds was CHF 2 547 million (2017: CHF 2 178 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
27.02.2014
25.04.2014
08.05.2015
08.05.2015
03.03.2017
29.10.2018
29.10.2018
FACE VALUE IN
CHF MILLION
COUPON IN %
YEAR OF
MATURITY
ISSUE
PRICE IN %
REDEMPTION
PRICE IN %
375
275
138
250
112
325
225
375
225
175
2.625
3.000
1.375
1.750
1.375
0.250
0.875
0.550
0.750
1.250
2019
2021
2022
2024
2022
2023
2030
2026
2025
2028
100.832
100.480
100.517
101.019
101.533
100.079
100.245
100.153
100.068
101.157
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
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U
S
E
R
P
U
O
R
G
S
G
S
148
Loans and finance lease obligations mature as follows:
BANK LOANS AND CORPORATE BOND
FINANCE LEASE OBLIGATIONS
(CHF million)
On demand or within one year
Within the second year
Within the third year
Within the fourth year
Within the fifth year
After five years
TOTAL
2018
378
-
287
248
325
1 250
2 488
2017
1
375
-
293
247
1 174
2 090
2018
2017
-
1
1
-
-
-
2
-
-
1
-
-
-
1
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
The currency composition of loans and finance lease obligations is as follows:
(CHF million)
Swiss Franc (CHF)
Euro (EUR)
Brazilian Real (BRL)
Other
TOTAL
BANK LOANS AND CORPORATE BOND
FINANCE LEASE OBLIGATIONS
2018
2 485
1
2
-
2 488
2017
2 088
2
-
-
2 090
2018
2017
-
-
-
2
2
-
1
-
-
1
23. DEFINED BENEFIT OBLIGATIONS
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U
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E
R
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U
O
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S
G
S
149
The Group mainly operates defined benefit pension plans in Switzerland, the USA, the UK, 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 USA and Switzerland. They represent
a defined benefit obligation at 31 December 2018 of CHF 13 million (2017: 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 recognized in the income statement.
The Group’s material defined benefit plans are in Switzerland, the USA and the UK.
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 weighted average duration of the expected benefit payment is approximately 15 years.
The Group expects to contribute CHF 7 million to this plan in 2019.
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.
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 USA 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 2019.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
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 2 million to this plan in 2019.
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 9 million to those plans in 2019.
The assets and liabilities recognized in the balance sheet at 31 December for defined benefit obligations and for post-employment
benefit plans are as follows:
(CHF million)
2018
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)
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
CH
UK
USA
OTHER
TOTAL
414
(379)
35
(10)
25
206
(186)
20
-
20
172
(186)
(14)
(7)
(21)
41
(63)
(22)
(59)
(81)
833
(814)
19
(76)
(57)
CH
UK
USA
OTHER
TOTAL
409
(392)
17
(10)
7
238
(208)
30
-
30
209
(226)
(17)
(7)
(24)
43
(64)
(21)
(62)
(83)
899
(890)
9
(79)
(70)
S
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L
U
S
E
R
P
U
O
R
G
S
G
S
150
The net liability of CHF 57 million (2017: CHF 70 million) includes CHF 62 million (2017: CHF 73 million) of pension fund assets
recognized in the item Other Non-Current Assets in note 14 and CHF 119 million (2017: CHF 143 million) of pension fund liability
recognized in the item Defined Benefit Obligation in the balance sheet.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
Amounts recognized in the income statement:
(CHF million)
2018
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)
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
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
CH
UK
USA
OTHER
TOTAL
9
-
-
9
9
-
9
2
(1)
-
1
2
(1)
1
2
1
1
4
3
1
4
7
1
-
8
7
1
8
20
1
1
22
21
1
22
CH
UK
USA
OTHER
TOTAL
8
-
-
8
8
-
8
1
-
-
1
1
-
1
3
1
-
4
3
1
4
7
1
-
8
7
1
8
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
151
19
2
-
21
19
2
21
Amounts recognized in the statement of other comprehensive income:
(CHF million)
2018
CH
UK
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 RECOGNIZED IN THE STATEMENT OF OTHER COMPREHENSIVE
INCOME AT 31 DECEMBER
-
(17)
(1)
(2)
(20)
-
(11)
3
16
8
(1)
(17)
4
16
2
-
1
3
-
4
(1)
(44)
9
30
(6)
(CHF million)
2017
CH
UK
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 RECOGNIZED IN THE STATEMENT OF OTHER COMPREHENSIVE
INCOME AT 31 DECEMBER
6
-
9
(23)
(8)
(5)
4
(1)
(10)
(12)
(2)
10
2
(11)
(1)
-
(1)
-
-
(1)
(1)
13
10
(44)
(22)
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
Movements in the net asset/(liability) during the period:
(CHF million)
2018
NET ASSET/(LIABILITY) AT 1 JANUARY
Expense recognized in the income statement
Remeasurements recognized in other comprehensive income
Contributions paid by the Group
Employer benefit payments
Exchange differences
NET ASSET/(LIABILITY) AT 31 DECEMBER
(CHF million)
2017
NET ASSET/(LIABILITY) AT 1 JANUARY
Expense recognized in the income statement
Remeasurements recognized in other comprehensive income
Contributions paid by the Group
Special pension fund contribution
Exchange differences
NET ASSET/(LIABILITY) AT 31 DECEMBER
Change in the defined benefit obligation is as follows:
(CHF million)
2018
CH
UK
USA
OTHER
TOTAL
7
(9)
20
7
-
-
25
30
(1)
(8)
1
-
(2)
20
(24)
(4)
(2)
9
-
-
(83)
(8)
(4)
9
1
4
(21)
(81)
(70)
(22)
6
26
1
2
(57)
CH
UK
USA
OTHER
TOTAL
-
(8)
8
7
-
-
7
17
(1)
12
1
-
1
30
(31)
(4)
1
9
-
1
(24)
(80)
(8)
1
8
2
(6)
(83)
(94)
(21)
22
25
2
(4)
(70)
CH
UK
USA
OTHER
TOTAL
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
152
Opening present value of the defined benefit obligation
402
208
233
126
969
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
(CHF million)
2017
9
3
5
-
(12)
-
(17)
(1)
-
389
2
5
-
-
(11)
-
(11)
3
(10)
186
2
8
1
(27)
(13)
(1)
(17)
4
3
193
7
2
-
(3)
(8)
-
1
3
(6)
122
20
18
6
(30)
(44)
(1)
(44)
9
(13)
890
CH
UK
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
8
3
5
-
(13)
6
-
9
-
402
1
7
-
(17)
(6)
(5)
4
(1)
10
208
3
10
1
(24)
(16)
(2)
10
2
(13)
233
7
2
-
(3)
(7)
-
(1)
-
9
126
19
22
6
(44)
(42)
(1)
13
10
6
969
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
Change in fair value of plan assets is as follows:
(CHF million)
2018
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
(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
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
CH
UK
USA
OTHER
TOTAL
409
3
2
7
5
238
6
(16)
1
-
(12)
(11)
-
-
-
414
-
-
(12)
206
209
7
(16)
9
1
(13)
(1)
(27)
3
172
43
1
-
10
-
(8)
-
(3)
(2)
41
899
17
(30)
27
6
(44)
(1)
(30)
(11)
833
CH
UK
USA
OTHER
TOTAL
384
3
23
7
5
(13)
-
-
-
409
232
7
10
1
-
(6)
-
(17)
11
238
231
9
11
9
1
(16)
-
(24)
(12)
209
39
1
-
10
-
(7)
-
(3)
3
43
886
20
44
27
6
(42)
-
(44)
2
899
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
153
There are no reimbursement rights included in plan assets. The actual return on plan assets was a loss of CHF 13 million
(2017: gain of CHF 64 million).
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
The major categories of plan assets at the balance sheet date are as follows:
(CHF million)
2018
Cash and cash equivalents
Equity securities
Debt securities
Assets held by insurance company
Properties
Investment funds
Other
TOTAL PLAN ASSETS AT 31 DECEMBER
(CHF million)
2017
Cash and cash equivalents
Equity securities
Debt securities
Assets held by insurance company
Properties
Investment funds
Other
TOTAL PLAN ASSETS AT 31 DECEMBER
CH
UK
USA
OTHER
TOTAL
47
118
60
-
155
32
2
414
4
64
138
-
-
-
-
206
2
24
143
-
-
-
3
172
17
-
-
24
-
-
-
41
70
206
341
24
155
32
5
833
CH
UK
USA
OTHER
TOTAL
75
113
61
-
124
33
3
409
2
51
92
-
-
93
-
238
1
49
159
-
-
-
-
209
18
-
-
21
-
-
4
43
96
213
312
21
124
126
7
899
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
154
In 2018 and 2017, the Group did not occupy any property that was included in the plan assets.
Properties are rented at fair market rental rates. There are no SGS SA shares or any other financial securities used by the Group
included in plan assets.
The plan assets are primarily held within instruments with quoted market prices in an active market, with the exception of
the property and insurance policy holdings.
The investment strategy in Switzerland is to invest, within the statutory and legal requirements, in a diversified portfolio with
the aim of generating long-term returns, which will enable the Board of the foundation to grow the accounts of the members
of the pension fund, whilst taking on the lowest possible risk in order to do so.
In the USA, 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 UK, 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 was
recently 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 2018 and 2017 are as follows:
(Weighted average %)
2018
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
CH
UK
USA
OTHER
1.0
2.9
4.3
LPP 2015 CMI
2016
SPA02F/M CMI
2016
RP2014 MP
2018
1.5
0.2
3.0
3.0
3.5
3.2
-
-
3.3
-
7.5
4.5
2 025
1.9
-
2.8
0.4
-
-
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
(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
CH
UK
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
3.0
3.6
3.1
-
-
3.3
-
8.0
4.5
2 025
2.2
-
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 30 million; a 0.5% increase in assumed salary increases would increase the obligation by CHF 2 million; and a one-year
increase in members’ life expectancy would increase the obligation by approximately CHF 12 million.
In the USA, a decrease in the discount rate of 0.5% per annum would, all other things being equal, increase the obligation by
CHF 12 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 6 million.
In the UK, a decrease in the discount rate of 0.5% per annum would, all other things being equal, increase the obligation by
CHF 19 million; a 0.5% increase in assumed salary increases would increase the obligation by CHF 3 million; and a one-year
increase in members’ life expectancy would increase the obligation by approximately CHF 7 million.
These sensitivities have been calculated to show the movement in the defined benefit obligation in isolation and assume no other
changes in market conditions at the accounting date. This is unlikely in practice; for example, a change in discount rate is unlikely
to occur without any movement in the value of the assets held by the plans.
The amount recognized as an expense in respect of defined contribution plans during 2018 was CHF 78 million (2017: CHF 71 million).
S
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U
S
E
R
P
U
O
R
G
S
G
S
155
S
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U
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E
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24. PROVISIONS
(CHF million)
AT 1 JANUARY 2018
Charge to income statement
Release to income statement
Payments
Exchange differences
AT 31 DECEMBER 2018
Analysed as:
Current liabilities
Non-current liabilities
TOTAL
LEGAL AND WARRANTY
CLAIMS ON SERVICES
RENDERED
DEMOBILIZATION AND
REORGANIZATION
OTHER PROVISIONS
TOTAL
35
11
(4)
(5)
37
31
26
(1)
(11)
(1)
44
30
18
(8)
(10)
(1)
29
2018
21
89
110
96
55
(13)
(26)
(2)
110
2017
17
79
96
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.
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
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 demobilization 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 demobilization 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.
25. TRADE AND OTHER PAYABLES
(CHF million)
Trade payables
Other payables
Other financial liabilities
TOTAL
2018
362
323
24
709
2017
344
310
23
677
Trade accounts and other payables principally comprise amounts outstanding for trade purchases and ongoing operating costs.
At 31 December 2018 and 2017, the fair value of the Group’s trade accounts and other payables approximates the carrying value.
26. OTHER CREDITORS AND ACCRUALS
(CHF million)
Accrued expenses
Derivative liabilities
TOTAL
2018
618
10
628
2017
624
13
637
At 31 December 2018 and 2017, the fair value of the Group’s other creditors and accruals approximates the carrying value.
S
T
L
U
S
E
R
P
U
O
R
G
S
G
S
156
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
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27. 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.
GUARANTESS AND PERFORMANCE BONDS
(CHF million)
Guarantees
Performance bonds
TOTAL
2018
635
204
839
2017
520
227
747
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.
Comparatives have been adjusted to dislose total issued amounts rather than utilized amounts.
28. 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
2018
173
298
102
573
2017
163
360
99
622
The Group leases the majority of its office and laboratory space and vehicles. During the year ended 31 December 2018,
CHF 208 million was recognized as an expense in the income statement in respect of operating leases (2017: CHF 202 million).
29. 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 2018, a total of 977 Restricted Shares were granted to members of the Operations Council, in settlement of 50% of the annual
incentive related to the 2017 performance. The Restricted Shares fully vest at grant date and are blocked for a period of three years
from the grant date, until April 2021. The 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 2018 Annual General Meeting, was
CHF 2 315 246.
50% of the annual incentive related to the 2018 performance will be settled in Restricted Shares. The grant of the Restricted
Shares will be done after the 2019 Annual General Meeting. The total number of Restricted Shares to be granted will be calculated
by dividing 50% of the annual incentive amount by the average closing price of the share during a 20-day period following the
payment of the dividends after the 2019 Annual General Meeting, rounded up to the nearest integer. 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 2022. The Shareholding
Ownership Guideline apply to the Restricted Share Plans.
More information on the Short-Term Incentive for the members of the Operations Council is disclosed in the SGS Remuneration
Report (pages 97-101).
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In 2018, a total of 10 617 Performance Share Units (PSUs) under the Long-Term Incentive 2018-2020 were granted to members
of the Operations Council. The PSUs vest after a three-year performance period 2018-2020, in early 2021, subject to performance
conditions and continuity of employment of the beneficiaries during the vesting period. The value at grant date of the PSUs granted,
being defined as the average closing price of the share during a 20-day period preceding the grant date, was CHF 25 405 950.
More information on the Long-Term Incentive for the members of the Operations Council is disclosed in the SGS Remuneration
Report (pages 101-103).
II) GRANTS TO OTHER EMPLOYEES
In 2018, a total of 2 197 Restricted Share Units (RSUs) were granted to selected key employees under the Restricted Share Units
Plan 2018. The RSUs vest three years after the grant date. The value at grant date of the RSUs granted, being defined as the
average closing price of the share during a 20-day period preceding the grant date, was CHF 5 257 311.
In 2018, a total of 17 870 Performance Share Units (PSUs) under the Long-Term Incentive 2018-2020 were granted to selected
senior managers of the Group. The PSUs vest after a three-year performance period 2018-2020, in early 2021, subject to
performance conditions and continuity of employment of the beneficiaries during the vesting period. The value at grant date
of the PSUs granted, being defined as the average closing price of the share during a 20-day period preceding the grant date,
was CHF 42 762 017.
III) DISCONTINUED SHARE OPTION PLANS
Share options were granted to the members of the Operations Council, selected senior managers and key employees of the Group
until 2015 and have been discontinued since.
OPTION PLAN
EXERCISE PERIOD
DESCRIPTION
FROM
TO
STRIKE
PRICE 1
OPTIONS
OUTSTANDING AT
31 DECEMBER 2017
CANCELLED
EXERCISED
OR ADJUSTED
OPTIONS
OUTSTANDING AT
31 DECEMBER 2018
SGSWS-2013
SGSPF-2014
SGSBB-2015
TOTAL
Jan.16
Jan.17
Jan.18
Jan.18
Jan.19
Jan.20
1 989.31
2 059.00
1 798.00
Of which exercisable at 31 December
163 466
809 015
1 440 117
2 412 598
2 404 641
-
-
-
-
(163 466)
(571 939)
(722 640)
(1 458 045)
-
237 076
717 477
954 553
954 553
1. The strike price of the options has been adjusted in accordance with market practice for capital reductions and special dividends.
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PERFORMANCE SHARE UNIT (PSU) AND RESTRICTED SHARE UNIT (RSU) PLANS
DESCRIPTION
SGS-PSU-15
SGS-RSU-16
SGS-RSU-17
SGS-PSU-18
SGS-RSU-18
TOTAL
EXERCISE
PERIOD
FROM
UNITS
OUTSTANDING AT
31 DECEMBER 2017
GRANTED
CANCELLED
VESTED OR
ADJUSTED
UNITS
OUTSTANDING AT
31 DECEMBER 2018
Jan.18
Jan.19
Jan.20
Feb.21
Apr.21
35 877
4 728
656
2 422
-
-
38 955
-
-
28 487
2 197
35 412
(70)
(92)
(240)
(143)
(24)
(569)
(40 535)
(2)
-
-
(4)
(40 541)
-
562
2 182
28 344
2 169
33 257
The Group does not issue new shares to grant employees in relation to equity-based compensation plans but uses treasury shares,
acquired through share buyback programs.
In total, as of 31 December 2018, the equity overhang, defined as the total number of share units, restricted shares and shares
underlying options outstanding (42 803 units) divided by the total number of outstanding shares (7 633 732 shares), amounted
to 0.56%.
The Group’s burn rate, defined as the number of equities (restricted shares and share units) granted in 2018 (31 661 units) divided
by the total number of outstanding shares, was 0.41%
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The Group recognized during the year total expense of CHF 13 million (2017: CHF 17 million) in relation to equity compensation
plans. This expense has been determined using valuation models incorporating several assumptions such as employees attrition
rate, expected volatility and expected dividend yield. Additionally, a payout ratio of 83.6% has been considered for the 2018
Performance Share Units plan valuation as of December 31, 2018.
Shares available for future plans, excluding Restricted Shares granted as settlement of the Short-Term Incentive:
AT 1 JANUARY 2017
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
Repurchased shares
Granted SGS-PSU-18-plan
Granted SGS-RSU-18 plan
Options cancelled and adjusted
Shares for PSU cancelled and adjusted
Shares for RSU cancelled and adjusted
AT 31 DECEMBER 2018
TOTAL
(19 376)
17 232
(2 469)
(38)
(1 980)
134
(6 497)
18 823
(28 487)
(2 197)
90
(416)
362
(18 322)
At 31 December, the Group had the following shares available to satisfy various programs:
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 allocated for 2018 PSU plans
Shares allocated for 2018 RSU plan
SHARES REQUIRED FOR FUTURE EQUITY COMPENSATION PLANS AT 31 DECEMBER
2018 TOTAL
2017 TOTAL
15 025
-
(90)
-
-
(562)
(2 182)
(28 344)
(2 169)
(18 322)
82 324
(1 878)
(29 487)
(14 401)
(39 977)
(656)
(2 422)
-
-
(6 497)
For 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 program at the relevant strike price whenever these shares become
unblocked. In 2018, the banks have exercised all their outstanding rights and the Group has sold 44 442 shares, which led to an
inflow of net proceeds of CHF 87.6 million. Therefore, whilst as at 31 December 2018 the number of outstanding (not exercised)
options amounts to 954 553 options, the underlying economic exposure for the Group in respect of all outstanding option plans is
reduced to 90 shares, which will have to be sold whenever those options in scope will be exercised.
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30. 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
2018
20
1
28
49
2017
15
1
2
18
1. 2018 represents the value of Restricted Shares and Performance Share Units granted in 2018 while 2017 represents the value of Restricted
Shares granted in 2017. The value is calculated multiplying the number of PSUs and RSs granted by the average share price of the 20 trading days
preceding the grant date.
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 91-114).
During 2018 and 2017, 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 29.
The total compensation, including social charges, received by the Board of Directors amounted to CHF 2 035 000 (2017: CHF 2 134 000).
The total compensation (cash and shares/options), including social charges, received by the Operations Council (including Senior
Management) amounted to CHF 47 182 000 (2017: CHF 16 510 000).
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 page 175 of this report.
LOANS TO MEMBERS OF GOVERNING BODIES
As at 31 December 2018, no loan, credit or outstanding advance was due to the Group from members or former members of its
governing bodies (as at 31 December 2017, one member of the Operations Council had an outstanding loan for an amount equivalent
to CHF 66 496).
TRANSACTIONS WITH OTHER RELATED PARTIES
In 2018, the Group sold a building to the “Fondation de prévoyance SGS” for an amount of CHF 18.5 million, based on an external and
independent valuation. The “Fondation de prévoyance SGS” is a foundation with the object to protect the employer’s staff against the
economic consequences of retirement, death and disability, by insuring defined benefits. The President of this foundation is the SGS
Chief Compliance and Legal Officer and as such has full authority to represent the ‘Fondation de prévoyance SGS’ in all transactions.
In 2017, the Group did not perform any activity generating revenue for other related parties.
During 2017 and 2018, neither related trade receivable balances unpaid nor expense in respect of any bad or doubtful debts due
from these related parties were recognized.
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31. SIGNIFICANT SHAREHOLDERS
As at 31 December 2018, Groupe Bruxelles Lambert (acting through Serena SARL and URDAC) held 16.60% (2017: 16.60%).
Mr. August von Finck and members of his family acting in concert held 15.52% (2017: 15.52%), BlackRock, Inc. held 4%
(2017: 4%) and MFS Investment Management held 3.02% (2017: 3.02%) of the share capital and voting rights of the company.
At the same date, the SGS Group held 1.09% of the share capital of the company (2017: 1.08%).
32. 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 authorized for issue by the Board of Directors on 07 February 2019, and will be submitted for approval by the Annual General
Meeting of Shareholders to be held on 22 March 2019.
On 21 January 2019 the Group announced the acquisition of 60% of LeanSis Productividad, a company based in Spain, which
provides operational and manufacturing training as well as capacity building services.
On 5 February 2019, the Group announced the acquisition of 100% of FLORIAAN B.V., a company based in Netherlands, which
provides integral fire safety services to industrial and real estate companies across the Netherlands.
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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
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Statutory Auditor’s Report
To the General Meeting of
SGS SA, Geneva
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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 2018, and
the consolidated income statement, consolidated statement of comprehensive income,
consolidated statement of cash flows, consolidated statement of changes in equity for the
year then ended and notes to the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion the consolidated financial statements (presented on pages 117 to 160) give a
true and fair view of the consolidated financial position of the Group as at 31 December
2018, 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.
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SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2018
Our Audit Approach
Summary
Key audit matters
Materiality
Scoping
Based on our audit scoping, we identified the following key
audit matters:
•
•
•
Revenue recognition in respect of unbilled revenue
and work in progress
Goodwill and associated impairment testing
Retirement benefit obligations
Based on our professional judgment we determined
materiality for the Group as a whole to be CHF60 million,
6.3% of Profit before tax (adjusted for non-recurring items).
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 166.
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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.
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Statutory Auditor’s Report
for the year ended
31 December 2018
Page 3
Revenue recognition in respect of unbilled revenue and work-in-progress
Key audit matter
The Group recognizes revenue on fees for services
rendered to third parties when the services have been
completed. However, in certain circumstances,
including where services are not billed at the end of
each financial period, revenue is recognized 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
recognized 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.
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.
At December 31, 2018, the Group balance sheet
included work-in-progress of CHF54 million (0.8% of
total Group revenues) and unbilled revenues of
CHF172 million (2.6% of total Group revenues).
In 2018, following an internal review, SGS identified
an overstatement of revenue in current and prior
periods, which was corrected in the current period
(please refer to note 4 to the consolidated financial
statements).
SGS implemented IFRS 15 – Revenue from contract
with customers as at January 1, 2018 for the first
time, in accordance with IFRS requirements. As a
consequence, SGS reviewed and amended aspects of
its revenue recognition accounting policy.
Significant judgement is required by management at
the operational level in certain cases to estimate the
value of revenue and profit that should be recognized
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 recognized 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 31) and a key audit matter.
Refer to the accounting policy in note 2 and
additionally notes 5 and 14.
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:
• We tested the implementation of Group policies,
including reviewing the impact of the first year of
implementation of IFRS 15 – Revenue from Contract
with Customers, and key controls regarding revenue
recognition and the approval of unbilled revenue
balances;
• We tested a sample of unbilled revenue balances
recorded at the prior year-end to subsequent invoices
and recoveries from third party clients in order to
perform our risk assessment; and
• We audited samples of credit notes and reversals of
unbilled revenue and work in progress throughout the
year to ensure that these adjustments were
appropriate and not related to deliberate
overstatement of revenue.
Our audit work at the year-end consisted of the following:
• We used analytical procedures to identify businesses
and geographies across the Group which had
recorded significant work-in-progress and unbilled
balances at the year-end, and challenged local
management by tracing to contract and status reports
to verify significant variances for a sample of
contracts;
• 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;
• Where work had not yet been subsequently invoiced
•
and cash had not yet been received, we requested
third party confirmation of the work being performed
and obtained alternate audit evidence where direct
confirmations were not received;
In relation to the loss resulting from the overstated
revenue in Brazil, we reviewed the methodology
followed by the external investigation teams and their
findings. We also audited the adjustment to revenue
resulting from the cumulative overstatement of prior
periods’ revenue. We adapted our audit procedures
across the group in relation to the identified fraud
risk; and
• We also considered the adequacy of the disclosures in
the consolidated financial statements.
Based on the procedures performed, we consider
management’s estimates and disclosures regarding
work-in-progress and unbilled revenue balances to
be appropriate.
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Goodwill and associated impairment testing
SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2018
Page 4
Key audit matter
The Group’s balance sheet includes CHF1’224 million
of goodwill (20.2% of total Group assets). In
accordance with IFRS, these balances are allocated to
Cash Generating Units (CGUs) which are tested
annually for impairment using discounted cash-flow
models of each CGU’s recoverable value compared to
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:
•
•
•
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
(post-tax).
The impairment test model includes sensitivity testing
of key assumptions, including revenue growth,
operating margin and discount rate.
The annual impairment testing is considered to be a
risk area for the Board of Directors (refer to page 31),
a significant accounting judgement and estimate
(note 2) and a key audit matter because the
assumptions on which the tests are based are highly
judgmental and are affected by future market and
economic conditions which are inherently uncertain,
and because of the materiality of the balances to the
financial statements as a whole.
Refer to the accounting policy in note 2 and
additionally note 12 for details of the goodwill balances
and impairment testing inputs.
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How the scope of our audit responded to
the key audit matter
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.
We evaluated the appropriateness of the definition of
CGUs through discussions with senior operational
management, confirmation of the reporting levels at which
Group management monitors independent cash inflows
and trading performance and our knowledge of the
Group’s operations.
We assessed the impairment testing models and
calculations by:
•
•
•
Checking the mathematical accuracy of the
impairment models and the extraction of inputs from
source documents;
Challenging the discount rates applied in the
impairment reviews with support from our valuation
specialists, developing independent expectations for
key macroeconomic assumptions, in particular
discount rates, and comparing those independent
expectations to those used by management; and
Comparing forecast long-term growth rates to
economic data.
Based on our knowledge of the Group’s businesses and
considering the performance of the different CGUs, we
identified CGUs with significant goodwill balances,
declining trading performance compared with prior year,
specific risk factors (such as the impact the impact of prior
period overstatement of profitability in the South and
Central America Industrial CGU, the impact of commodity
price volatility on CGUs in the Oil Gas and Industrial
businesses and macro-economic factors in certain
geographies) or lower headroom in recoverable value
compared to net book value.
For these selected CGUs, we assessed the appropriateness
of cash-flow assumptions by analyzing 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.
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Statutory Auditor’s Report
for the year ended
31 December 2018
Page 5
Retirement benefit obligations
Key audit matter
The Group maintains a number of defined benefit
pension plans. The material defined benefit plans are
in Switzerland, USA and UK.
At December 31, 2018 the Group recorded a net
retirement benefit liability of CHF57 million, being the
net of pension fund assets of CHF833 million (included
in Other Non-Current Assets) and CHF890 million
pension fund liabilities (included in Non-Current
Liabilities).
The retirement benefit obligations recognized in the
balance sheet represent the present value of defined
benefit obligations calculated annually by independent
actuaries. These actuarial valuations are sensitive to
key assumptions such as discount rates, inflation rates
and mortality rates. Changes in any of these
assumptions, or amendments to the pension plans can
lead to a material movement in the net retirement
benefit liability.
Given the judgement required by management in
setting these assumptions, the volatility in retirement
benefit balances that can result from changes in
assumptions, and the significance of the balances to
the consolidated financial statements as a whole, the
estimation of retirement benefit obligations is an area
of focus for the Board of Directors (page 31) and a key
audit matter.
Refer to the accounting policy in note 2 and
additionally notes 23 and 14.
How the scope of our audit responded to
the key audit matter
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.
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.
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
their compliance with IAS 19 requirements and challenged
key assumptions applied, including discount rates,
inflation and mortality rates, benchmarking them against
external data, where available, and forming our own
independent expectations based on our knowledge of local
market practices.
We also assessed the adequacy and completeness of the
related retirement benefit disclosures in the consolidated
financial statements.
Based on the procedures performed, we consider
management’s estimates and disclosures regarding
retirement benefit obligation balances to be
appropriate.
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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 CHF60 million, based on a calculation of 6.3% 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 CHF12 million to
CHF36 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 CHF3 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.
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SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2018
Page 6
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.
Based on our scope assessment, we performed full scope component audits at 19 key
locations in 2018. In addition, we have requested 8 components to perform an audit on
specific account balances (Revenue, Accounts Receivable, Work-In-Progress and Unbilled
Revenues). In aggregate, these components represented the scope coverage below:
Group audit coverage
2018
Group revenue
Total assets
71%
74%
Net income for the year
70%
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
affiliates of Deloitte SA at the majority of the Group’s subsidiaries, although these are
predominantly completed subsequent to our audit report on the consolidated financial
statements.
At the parent entity level we tested the consolidation process and carried out analytical
procedures to confirm our conclusion that there were no significant risks of material
misstatement of the aggregated financial information of the remaining components not
subject to a full scope audit.
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.
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SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2018
Page 7
In connection with our audit of the consolidated financial statements, our responsibility is to
read the other information in the annual report and, in doing so, consider whether the other
information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this
regard.
Responsibility of the Board of Directors for the Consolidated Financial Statements
The Board of Directors is responsible for the preparation of the consolidated financial
statements that give a true and fair view in accordance with IFRS and the provisions of
Swiss law, and for such internal control as the Board of Directors determines is necessary to
enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is responsible for
assessing the Group’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless the
Board of Directors either intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss
law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the consolidated financial
statements is located at the website of EXPERTsuisse:
http://expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our
auditor’s report.
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SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2018
Page 8
Report on Other Legal and Regulatory Requirements
In accordance with article 728a paragraph 1 item 3 CO and the Swiss Auditing Standard
890, we confirm that an internal control system exists, which has been designed for the
preparation of consolidated financial statements according to the instructions of the Board
of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
Deloitte SA
Matthew Sheerin
Licensed Audit Expert
Auditor in Charge
Joelle Herbette
Licensed Audit Expert
Geneva, 7 February 2019
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With fuel inspection and marking,
Alexsander’s customers can be
confident about the quality
of fuel for distribution.
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RESULTS
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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
TOTAL FINANCIAL INCOME
FINANCIAL EXPENSES
Financial expenses
Liquidation of subsidiaries, net
TOTAL FINANCIAL EXPENSES
FINANCIAL RESULT
PROFIT BEFORE TAXES
Taxes
Withholding taxes
PROFIT FOR THE YEAR
NOTES
2018
2017
480
17
497
(6)
-
(24)
(30)
467
66
4
70
(54)
(4)
(58)
12
479
(7)
(7)
465
606
1
607
(6)
-
(7)
(13)
594
57
16
73
(47)
-
(47)
26
620
(2)
(9)
609
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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
Fixed assets
Tangible fixed assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
SHAREHOLDERS’ EQUITY AND LIABILITIES
SHORT TERM LIABILITIES
Other creditors
Amounts due to subsidiaries
Corporate bonds (less than one year)
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
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NOTES
2018
2017
901
52
359
2
1 314
1 636
1 236
-
2 872
4 186
23
65
375
53
38
554
666
2 100
2 766
8
34
947
(158)
35
866
4 186
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607
46
285
-
938
1 651
1 266
2
2 919
3 857
1
60
-
58
33
152
499
2 075
2 574
8
34
992
-
97
1 131
3 857
2
3
4
4
5 to 6
5 to 6
5 to 6
5 to 6
5 to 6
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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 head office is located
in Geneva, Switzerland.
The average number of employees during the year was less than ten.
NOTES
1. SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in accordance with the 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. Unrealized gains and losses arising on foreign
exchange transactions are included in the determination of the net profit, except long-term unrealized 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 recognized in income in the year in which they are received, on a cash basis.
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BONDS
Bonds are recorded at nominal value.
2. SUBSIDIARIES
The list of principal Group subsidiaries appears in the Annual Report on pages 186-189.
3. TANGIBLE FIXED ASSETS
Last year the tangible fixed asset was a building located at 15, rue des Alpes in Geneva and was recorded at historical cost less
accumulated depreciation. In 2018, SGS SA sold the building to the “Fondation de prévoyance SGS” for an amount of CHF 18.5 million,
based on an external and independent valuation. The “Fondation de prévoyance SGS” is a foundation whose mission is
to protect the employer’s staff against the economic consequences of retirement, death and disability, by insuring defined benefits.
The President of this foundation has full authority to represent the ‘Fondation de prévoyance SGS’ in all transactions.
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4. CORPORATE BONDS
SGS SA made the following bond issuances:
FACE VALUE IN
CHF MILLION
COUPON
IN %
YEAR OF
MATURITY
ISSUE PRICE
IN %
REDEMPTION
PRICE IN %
DATE OF ISSUE
08.03.2011
27.05.2011
27.02.2014
27.02.2014
25.04.2014
08.05.2015
08.05.2015
03.03.2017
29.10.2018
29.10.2018
375
275
138
250
112
325
225
375
225
175
2.625
3.000
1.375
1.750
1.375
0.250
0.875
0.550
0.750
1.250
2019
2021
2022
2024
2022
2023
2030
2026
2025
2028
100.832
100.480
100.517
101.019
101.533
100.079
100.245
100.153
100.068
101.157
The Group has listed all the bonds on the SIX Swiss Exchange.
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5. TOTAL EQUITY
(CHF million)
BALANCE AT 1 JANUARY 2017
Dividends paid
Decrease in the reserve for own shares
Cancellation of treasury shares
Profit for the year
BALANCE AT 31 DECEMBER 2017
Dividends paid
Decrease in the reserve for own shares
Purchase of shares for cancellation
Profit for the year
BALANCE AT 31 DECEMBER 2018
6. SHARE CAPITAL
SHARE
CAPITAL
STATUTORY
CAPITAL
RESERVE
RESERVE FOR
OWN SHARES
HELD BY A
SUBSIDIARY
OWN SHARES
FOR SHARE
BUYBACK
STATUTORY
RETAINED
EARNINGS
8
-
-
-
-
8
-
-
-
-
8
34
-
-
-
-
34
-
-
-
-
34
115
-
(18)
-
-
97
-
(62)
-
-
35
(361)
-
-
361
-
(0)
-
-
(158)
-
(158)
1 254
(528)
18
(361)
609
992
(572)
62
-
465
947
SHARES IN
CIRCULATION
OWN
SHARES
TOTAL SHARES
ISSUED
TOTAL SHARE CAPITAL
(CHF MILLION)
BALANCE AT 1 JANUARY 2017
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
Own shares released into circulation
Own shares purchased for future equity
compensation plans
Treasury shares purchased for cancellation
BALANCE AT 31 DECEMBER 2018
7 538 507
30 996
(18 095)
-
7 551 408
87 099
(19 800)
(68 000)
7 550 707
283 929
(30 996)
18 095
(188 704)
82 324
(87 099)
19 800
68 000
83 025
7 822 436
-
-
(188 704)
7 633 732
-
-
-
7 633 732
8
-
-
-
8
-
-
-
8
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
TOTAL
1 049
(528)
-
-
609
1 131
(572)
-
(158)
465
866
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ISSUED SHARE CAPITAL
SGS SA has a share capital of CHF 7 633 732 (2017: CHF 7 633 732) fully paid-in and divided into 7 633 732 (2017: 7 633 732)
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 2018, SGS SA held indirectly 83 025 of its own shares. In 2017, SGS SA proceed 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 2018, 87 099 own shares were sold to cover the equity compensation plans and 19 800 were purchased for an average price of
CHF 2 403.59.
In 2017, the Group initiated a share buyback program for a total of up to CHF 250 million. The program was completed on
19 December 2018. In total, 105 895 registered shares have been bought back for a total amount of approximately CHF 249.9 million,
at an average purchase price of CHF 2 359.67 per share
7. FINANCIAL INCOME AND FINANCIAL EXPENSES
(CHF million)
FINANCIAL INCOME:
Interest income third party
Interest income Group
FINANCIAL INCOME
FINANCIAL EXPENSES:
Interest expenses third party
Interest expenses Group
Other financial expenses
FINANCIAL EXPENSES
2018
4
62
66
(30)
(5)
(19)
(54)
2017
1
56
57
(31)
(3)
(13)
(47)
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8. GUARANTEES AND COMFORT LETTERS
(CHF million)
Guarantees
Performance bonds
TOTAL
2018 ISSUED
2018 UTILIZED
2017 ISSUED
2017 UTILIZED
579
51
630
373
51
424
460
44
504
286
44
330
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.
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9. REMUNERATION
9.1. REMUNERATION POLICY AND PRINCIPLES
This section appears in the SGS Remuneration Report paragraph 2 in the Annual Report on pages 94-96.
9.2. REMUNERATION MODEL
This section appears in the SGS Remuneration Report paragraph 3 in the Annual Report on pages 95-105.
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 105-106.
9.4. REMUNERATION AWARDED TO THE OPERATIONS COUNCIL MEMBER
This section appears in the SGS Remuneration Report paragraph 5 in the Annual Report on pages 107-114.
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 2018:
NAME
A. von Finck
A. F. von Finck
C. Grupp
P. Kalantzis
S.R. du Pasquier
P. Desmarais
I. Galienne
G. Lamarche
C. Kirk
SGSBB
(2015)
RESTRICTED
SHARES
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
SHARES
19 670
786 255
-
150
10
10
1
25
310 208
49
1 199
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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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
SHARES
1 335
19 670
786 255
-
85
10
-
-
-
222 818
206 806
46
1 199
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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 2018:
NAME
F. NG
CORPORATE RESPONSABILITY
Chief Executive Officer
C. De Geyseleer
Chief Financial Officer
O. Merkt
General Counsel and Chief Compliance Officer
SGSBB
(2015)
RESTRICTED
SHARES
70 000
-
49 572
509
177
114
SHARES
1 950
461
210
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
SGSBB
(2015)
RESTRICTED
SHARES
SHARES
55 152
8 831
33 048
325
134
78
-
-
45
Details of the various plans are explained in the Remuneration Report.
11. SIGNIFICANT SHAREHOLDERS
As at 31 December 2018, Group Bruxelles Lambert acting through Serena Sàrl and URDAC held 16.60% (2017: 16.60%),
Mr. August von Finck and members of his family acting in concert held 15.52% (2017: 15.52%), Blackrock Inc held 4%
(2017: 4.00%) and MFS Investment Management held 3.02% (2017: 3.02%) of the share capital and voting rights of the Company.
At the same date, SGS Group held 1.09% of the share capital of the Company (2017: 1.08%)
PROPOSAL OF THE BOARD OF DIRECTORS FOR THE APPROPRIATION OF AVAILABLE RETAINED EARNINGS
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(CHF)
Profit for the year
Balance brought forward from previous year
Dividend paid on own shares released into circulation in 2018 prior
to the Annual General Meeting on 19 March 2018
Dividend paid on own shares released into circulation in 2017 prior
to the Annual General Meeting on 21 March 2017
Capital reduction by cancellation of shares
Share buyback program
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.
2018
2017
465 580 866
425 363 022
(6 164 250)
-
-
(157 616 100)
62 238 166
789 401 704
609 792 420
364 829 480
-
(351 442)
188 704
-
17 259 460
991 718 622
(588 955 146)
(566 355 600)
200 446 558
78.00
425 363 022
75.00
12. APPROVAL OF FINANCIAL STATEMENTS AND SUBSEQUENT EVENTS
The Board of Directors is responsible for the preparation and presentation of the financial statements. These financial statements
were authorized for issue by the Board of Directors on 07 February 2019, and will be submitted for approval by the Annual General
Meeting of Shareholders to be held on 22 March 2019.
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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
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We have audited the financial statements of SGS SA, which comprise the balance sheet as
at 31 December 2018 and the income statement and notes for the year then ended,
including the summary of significant accounting policies.
In our opinion the accompanying financial statements as at 31 December 2018, presented
on pages 170 to 176, 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.
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SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2018
Valuation of Investments in subsidiaries and related loans to subsidiaries
Key audit matter
The company holds investments in subsidiaries
with a carrying value of CHF1’636 million as of
31 December 2018 (39.1% of total assets). The
list of principal Group subsidiaries can be found
in the Annual Report on pages 186 to 189. 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 CHF1’236
million.
In accordance with Article 960 CO, these
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
individual investments were lower than the
associated carrying values, or if loan balances
were no longer considered recoverable from the
associated entities.
How the scope of our audit responded
to the key audit matter
We tested the adequate implementation of
accounting policies and the design and
implementation of key controls regarding the
valuation of investments in subsidiaries and
related loans.
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
performed the following procedures:
•
checking the mathematical accuracy of
the impairment models and the accuracy
of extraction of inputs from source
documents;
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:
•
challenging the significant inputs and
assumptions used in the impairment
testing models for investments,
specifically the discount rates and the
five year projected revenues and
•
Projected revenue growth, operating
margins and operating cash-flows in the
years 1-5;
• Stable long term growth rates in
years 6-10 and in perpetuity; and
• Country and business specific discount
rates (pre-tax).
The annual impairment testing is considered to
be a risk area for the Board of Directors and a
key audit matter because the assumptions on
which the tests are based are highly judgmental
and are affected by future market and economic
conditions which are inherently uncertain, and
because of the materiality of the balances to the
statutory financial statements as a whole.
Refer to note 2 to the financial statements.
margins.
We challenged the recoverability of loans to
subsidiaries and tested balances on a sample
basis with reference to the financial position of
the subsidiaries.
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.
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SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2018
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Responsibility of the Board of Directors for the Financial Statements
The Board of Directors is responsible for the preparation of the financial statements in
accordance with the provisions of Swiss law and the company’s articles of incorporation, and
for such internal control as the Board of Directors determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the Board of Directors is responsible for assessing the
entity’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the Board of Directors
either intends to liquidate the entity or to cease operations, or has no realistic alternative
but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and
Swiss Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the 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.
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SGS SA
Statutory Auditor’s Report
for the year ended
31 December 2018
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.
We further confirm that the proposed appropriation of available earnings complies with
Swiss law and the company’s articles of incorporation. We recommend that the financial
statements submitted to you be approved.
Deloitte SA
Matthew Sheerin
Licensed Audit Expert
Auditor in Charge
Joëlle Herbette
Licensed Audit Expert
Geneva, 7 February 2019
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DATA
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Fatma has increased her fitness
while building stronger relationships
with her colleagues since
participating in SGS initiatives
for a healthy workplace.
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
SGS GROUP – FIVE-YEAR STATISTICAL DATA CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER
(CHF million)
REVENUE
Salaries and wages
Subcontractors’ expenses
Depreciation, amortization 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
2018
2017
2016
2015
2014
6 706
(3 422)
(387)
(317)
6 349
(3 193)
(394)
(338)
5 985
(3 009)
(368)
(336)
(1 634)
(1 530)
(1 456)
946
(38)
908
(218)
690
643
47
14.1
894
(43)
851
(187)
664
621
43
14.1
816
(45)
771
(185)
586
543
43
13.6
5 712
(2 849)
(345)
(322)
(1 374)
822
(43)
779
(195)
584
549
35
14.4
5 883
(2 891)
(361)
(304)
(1 386)
941
(41)
900
(234)
666
629
37
16.0
96 492
93 556
89 626
85 903
83 515
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SGS GROUP – FIVE-YEAR STATISTICAL DATA CONSOLIDATED BALANCE SHEETS
AT 31 DECEMBER
(CHF million)
2018
2017
2016
2015
2014
Property, plant 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 receivables
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
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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, contract liabilities and accruals
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
969
1 426
36
336
2 767
272
969
214
94
1 752
3 301
6 068
8
1 660
1 668
75
1 743
2 112
30
208
2 350
378
709
127
761
1 975
4 325
6 068
1 002
1 460
36
305
2 803
339
1 068
236
104
1 393
3 140
5 943
8
1 911
1 919
86
2 005
2 090
45
222
2 357
1
677
152
751
1 581
3 938
5 943
972
1 441
38
287
2 738
290
997
252
88
984
2 611
5 349
8
1 765
1 773
80
1 853
1 719
42
247
2 008
1
641
166
680
1 488
3 496
5 349
964
1 306
32
315
2 617
288
917
272
66
1 734
3 277
5 894
8
1 898
1 906
75
1 981
1 723
60
278
2 061
494
526
159
673
1 852
3 913
5 894
1 043
1 337
24
244
2 648
330
1 068
298
73
1 350
3 119
5 767
8
2 319
2 327
76
2 403
1 672
74
273
2 019
18
511
175
641
1 345
3 364
5 767
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(CHF unless indicated otherwise)
2018
2017
2016
2015
2014
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)
Ordinary2
Total
7 633 732
7 550 707
7 633 732
7 551 408
7 822 436
7 538 507
7 822 436
7 605 460
7 822 436
7 675 506
2 683
2 170
2 210
1
2 541
2 051
2 541
1
2 317
1 734
2 072
1
2 049
1 577
1 911
1
2 260
1 802
2 045
1
220.86
254.16
235.22
250.56
303.13
84.54
78.00
78.00
82.41
75.00
75.00
71.54
70.00
70.00
71.99
68.00
68.00
81.99
68.00
68.00
589
589
566
566
528
528
517
517
522
522
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1. Calculation of the basic earnings per share (weighted average for the year) is disclosed in note 10 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 authorization has been granted by the Board of Directors.
MARKET CAPITALISATION
At the end of 2018, market capitalization was approximately CHF 16 871 million (2017: CHF 19 397 million). Shares are quoted
on the SIX Swiss Exchange.
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS CLOSING PRICES FOR SGS AND THE SMI 2017-2018
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2 900
2 800
2 700
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
J F M A M J J A S O N D J F M A M J J A S O N D
2017
HIGH PRICE
CLOSE
LOW PRICE
SGS SA
2018
SWISS MARKET INDEX (MONTHLY CLOSE)
SMI
11 750
11 500
11 250
11 000
10 750
10 500
10 250
10 000
9 750
9 500
9 250
9 000
8 750
8 500
8 250
8 000
7 750
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COUNTRY
NAME AND DOMICILE
ISSUED CAPITAL
CURRENCY
ISSUED CAPITAL
AMOUNT
% HELD BY
GROUP
DIRECT/
INDIRECT
Albania
Albania
Algeria
Algeria
Angola
Argentina
Argentina
Australia
Australia
Austria
Azerbaijan
Bangladesh
Belarus
Belgium
Benin
Bolivia
SGS Albania Ltd., Tirana
SGS Automotive Albania sh.p.k., Tirana
SGS Qualitest Algérie SpA, Alger
Société de Contrôle Technique Automobile
SA, Rouiba-Alger
SGS Angola Limitada, Luanda
SGS Argentina SA, Buenos Aires
ITV SA, Buenos Aires
SGS Australia Pty. Ltd., Perth
Gearhart Australia Limited, Perth
SGS Austria Controll-Co. Ges.m.b.H., Vienna
Société Générale de Surveillance Azeri Ltd., Baku
SGS Bangladesh Limited, Dhaka
SGS Minsk Ltd., Minsk
SGS Belgium N.V., Antwerpen
SGS Bénin SA, Cotonou
SGS Bolivia SA, La Paz
Bosnia-Herzegovina
SGS Bosna i Hercegovina (d.o.o.) Ltd., Sarajevo
Botswana
SGS Botswana (Proprietary) Limited, Gaborone
Brazil
Brazil
Bulgaria
SGS do Brasil Ltda., São Paulo
SGS Enger Engenharia Ltda., Barueri-SP
SGS Bulgaria Ltd., Sofia
Burkina Faso
SGS Burkina SA, Ouagadougou
Cambodia
Cameroon
Canada
Chile
Chile
Chile
China
Colombia
Colombia
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
ALL
DZD
DZD
AOA
ARS
ARS
AUD
AUD
EUR
USD
BDT
USD
EUR
XOF
BOB
BAM
BWP
BRL
BRL
BGN
XOF
KHR
XAF
CAD
CLP
CLP
CLP
USD
COP
COP
COP
XAF
HRK
CZK
DKK
USD
15 100 000
190 000 100
50 000 000
173 600 000
8 000 000
111 371 536
1 500 000
200 000
5 609 210
185 000
100 000
10 000 000
20 000
35 995 380
10 000 000
41 900
2 151
1 000
381 447 768
26 837 404
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
100
100
77
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
98.9
100
100
99.9
70
85
100
100
100
100
100
100
100
100
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COUNTRY
NAME AND DOMICILE
ISSUED CAPITAL
CURRENCY
ISSUED CAPITAL
AMOUNT
% HELD BY
GROUP
DIRECT/
INDIRECT
Ecuador
Egypt
Estonia
Ethiopia
Finland
France
France
Georgia
Germany
Germany
Germany
Ghana
Ghana
SGS del Ecuador SA, Guayaquil
SGS Egypt Ltd., Cairo
SGS Estonia Ltd., Tallinn
SGS Ethiopia Private Limited, Addis Abeba
SGS 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
SGS United Kingdom Limited, Ellesmere Port
Greece
Guam
SGS Greece SA, Peristeri
SGS Guam Inc., Guam
Guatemala
SGS Central America SA, Guatemala-City
Guinea-Conakry
SGS Guinée Conakry SA, Conakry
Guinea-Equatorial
Compañia de Inspecciones y
Servicios G.E., Malabo
Hong Kong
SGS Hong Kong Limited, Hong Kong
Hungary
India
Indonesia
Iran
Ireland
Italy
SGS Hungária Kft., Budapest
SGS India Private Ltd., Mumbai
P.T. SGS Indonesia, Jakarta
SGS Iran (Private Joint Stock) Limited, Tehran
SGS Ireland (Holdings) Limited, Dublin
SGS Italia S.p.A., Milan
Ivory Coast
SGS Côte d’Ivoire SA, Abidjan
Ivory Coast
Japan
Jordan
Société Ivoirienne de Contrôles Techniques
Automobiles et Industriels SA, Abidjan
SGS Japan Inc., Yokohama
SGS (Jordan) Private Shareholding
Company, Amman
Kazakhstan
SGS Kazakhstan Limited, Almaty
Kenya
SGS Kenya Limited, Mombasa
Korea (Republic of)
SGS Korea Co., Ltd., Seoul
Kuwait
SGS Kuwait W.L.L., Kuwait
Lao (People's
Democratic Republic)
SGS (Lao) Sole Co., Ltd., Vientiane
Latvia
SGS Latvija Limited, Riga
USD
EGP
EUR
ETB
EUR
EUR
EUR
USD
EUR
EUR
EUR
GHS
GHS
GBP
EUR
USD
GTQ
GNF
XAF
HKD
HUF
INR
USD
IRR
EUR
EUR
XOF
XOF
JPY
JOD
KZT
KES
KRW
KWD
LAK
EUR
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
301 731
25 000
4 250 000
50 000 000
10 000 000
200 000
518 000 000
960 000
200 000
100
100
100
100
100
100
92.31
100
100
100
74.9
100
52
100
100
100
100
100
51
100
100
100
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
100
100
95
100
50
100
100
100
49
100
100
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NAME AND DOMICILE
ISSUED CAPITAL
CURRENCY
ISSUED CAPITAL
AMOUNT
% HELD BY
GROUP
DIRECT/
INDIRECT
Lebanon
Liberia
Lithuania
Luxembourg
Madagascar
Madagascar
Malawi
Malaysia
Malaysia
Mali
Mauritius
Mexico
Moldova
Mongolia
Morocco
Morocco
SGS (Liban) S.A.L., Beirut
SGS Liberia Inc, Monrovia
SGS Klaipeda Ltd., Klaipeda
SGS Luxembourg SA, Windhof
SGS Madagascar SARL, Antananarivo
Malagasy Community Network
Services SA, Antananarivo
SGS Malawi Limited, Blantyre
Petrotechnical Inspection (Malaysia) Sdn. Bhd.,
Kuala Lumpur
SGS (Malaysia) Sdn. Bhd., Kuala Lumpur
SGS Mali Sàrlu, Kayes
SGS (Mauritius) LTD, Phoenix
SGS de Mexico, SA de C.V., Mexico
SGS (Moldova) SA, Chisinau
SGS Mongolia LLC, Ulaanbaatar
SGS Maroc SA, Casablanca
SGS Maroc Automotive SA, Casablanca
Mozambique
SGS Mozambique, Limitada, Matola
Myanmar
SGS (Myanmar) Limited, Yangon
Namibia
SGS Inspection Services Namibia
(Proprietary) Limited, Windhoek
Netherlands
SGS Nederland B.V., Spijkenisse
New Zealand
SGS New Zealand Limited,
Auckland-Onehunga
Nigeria
Norway
Oman
Oman
Pakistan
Panama
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
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
AO SGS Vostok Limited, Moscow
Saudi Arabia
SGS Inspection Services Saudi Arabia Ltd., Jeddah
Senegal
SGS Sénégal SA, Dakar
LBP
LRD
EUR
EUR
MGA
MGA
MWK
MYR
MYR
XOF
MUR
MXN
MDL
USD
MAD
MAD
MZN
MMK
NAD
EUR
NZD
NGN
NOK
OMR
-
PKR
USD
PGK
PYG
PEN
PHP
PLN
EUR
QAR
RON
RUB
SAR
XAF
30 000 000
99.97
100
711 576
38 000
20 000 000
10 000 000
30 000
750 000
500 000
300 000 000
100 000
7 068 828
488 050
10 000
17 982 000
4 086 000
73 479 883
300 000
100
250 000
10 522 190
200 000
804 000
500 000
-
2 300 000
18 850 000
2
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
100
100
100
100
70
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
49
100
100
-
100
100
100
100
100
100
100
100
49
100
100
75
100
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OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS COUNTRY
NAME AND DOMICILE
ISSUED CAPITAL
CURRENCY
ISSUED CAPITAL
AMOUNT
% HELD BY
GROUP
DIRECT/
INDIRECT
Serbia
SGS Beograd d.o.o., Beograd
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, Ljubljana
SGS South Africa (Proprietary) Limited,
Johannesburg
South Africa
SGS Bateman (Pty) Ltd,Bryanston
Spain
Spain
Spain
Sri Lanka
Sweden
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
Switzerland
SGS Société Générale de Surveillance SA, Geneva
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SGS SA, Geneva
Switzerland
SGS Group Management SA, Geneva
Taiwan
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
SGS North America Inc., Wilmington
Uruguay
Uruguay
Uzbekistan
Venezuela
Vietnam
Zambia
SGS Uruguay Limitada, Montevideo
Sociedad Uruguaya de Control Técnico de
Automotores Sociedad Anónima, Montevideo
SGS Tashkent Ltd., Tashkent
SGS Venezuela SA, Caracas
SGS Vietnam Ltd., Ho Chi Minh City
SGS Inspections Services Ltd., Lusaka
EUR
SLL
SGD
EUR
EUR
ZAR
ZAR
EUR
EUR
EUR
LKR
SEK
CHF
CHF
CHF
TWD
TWD
TZS
THB
XOF
TND
TRY
USD
UGX
USD
-
USD
UYU
UYU
USD
VEF
USD
ZMK
66 161
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
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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20 000 000
99.99
10 000 000
49 500
6 550 000
50 000
5 000 000
400 000
-
73 701 996
1 500
24 000
50 000
162 980
288 000
10 000
100
50
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100
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189
OUR VALUE TO SOCIETYOUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS SHAREHOLDER
INFORMATION
SGS regularly communicates
its business performance and
strategies to shareholders
to foster transparency, trust
and accountability.
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191
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
Toby Reeks
SGS SA
1 place des Alpes
P.O. Box 2152
CH – 1211 Geneva 1
t +41 (0)22 739 99 87
m +41 (0)79 641 83 02
www.sgs.com
ANNUAL GENERAL MEETING
OF SHAREHOLDERS
Friday, 22 March 2019
Geneva, Switzerland
2019 HALF-YEAR RESULTS
Thursday, 18 July 2019
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
m +41 (0)78 656 94 59
www.sgs.com
PROJECT MANAGEMENT
John Coolican
CONCEPT, DESIGN, PHOTOGRAPHY,
REALIZATION 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
7 and 8 November 2019
Swiss security number: 249745
DIVIDEND PAYMENT DATE
Ex-date:
26 March 2019
Record date: 27 March 2019
Payment date: 28 March 2019
Druckcenter am Rigi
Küssnacht, Switzerland
Printed on 100% recycled BalancePure
offset paper, February 2019
OUR VALUE TO SOCIETY2018 INTEGRATED ANNUAL REPORT< BACK TO CONTENTS
WWW.SGS.COM
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