THE GROUP AT A GLANCE 2016 Key figures
01
2016
2015
2014
2013
2012 1
IFRS
IFRS
IFRS
IFRS
IFRS
Revenue
2,343.2
2,222.0
2,061.4
1,939.0
1,820.6
Personnel expenses
IN € MILLIO N
Business development
1,421.2
1,328.6
1,232.1
1,159.0
1,083.3
Cash flow from operating activities
241.5
221.2
202.3
189.2
158.2
Free cash flow
164.1
140.8
134.3
109.0
86.4
86.6
80.4
68.0
80.2
71.7
198.8
162.4
172.3
160.7
159.2
2
Capital expenditures EBIT 3 Income before taxes
182.6
144.4
146.5
140.3
135.1
Consolidated net income
130.5
114.0
104.4
102.1
102.8
80.9
61.0
66.6
62.1
63.6
EBIT margin
IN %
8.5
7.3
8.4
8.3
8.7
EBIT margin, adjusted
IN %
8.6
8.5
9.1
8.8
9.0
EBT margin
IN %
7.8
6.5
7.1
7.2
7.4
EBT margin, adjusted
IN %
7.9
7.7
8.0
7.6
7.8
1,222.4
1,147.5
1,111.7
992.9
1,001.5
EVA (Economic Value Added) 4
Assets Non-current assets Current assets Balance sheet total Equity ratio
IN %
791.4
722.3
718.6
713.8
620.7
2,013.8
1,869.8
1,830.3
1,706.7
1,622.2
31.9
29.8
21.6
26.6
23.0
21,738
20,228
19,735
18,981
17,227
23,997
22,363
22,003
21,146
18,758
Employees (annual average) Full-time equivalents
Headcount As of December 31 5
1 _ Restatement in accordance with IAS 19 (revised 2011). 2 _ Free cash flow: cash flow from operating activities less cash paid for investments in intangible assets, property, plant and equipment and investment property. 3 _ E BIT: Earnings before interest, before other financial result and before income tax, but after income from participations. 4 _ Adjustment for NOPAT calculation. 5 _ Calculation method changed from 2013.
€
2,343.2
REVENUE
MILLION
€
86.6
MILLION
C A PI TA L E X PENDI T URE S
€
182.6
MILLION
INCOME BE F ORE TA X E S
TÜV SÜD structure
01
DIVISIONS
SEGMENTS
TÜV SÜD
INDUSTRY
MOBILITY
INDUSTRY SERVICE
AUTO SERVICE
C E R T I F I C AT I O N
PRODUCT SERVICE MANAGEMENT SERVICE
R E A L E S T AT E & INFRASTRUCTURE
Headcount
02
Revenue
03
IN € MILLION
23,997
22,363
2,343 22,003
21,146
2,222
2,061
18,758
2016
2015
2014
2013
2012
2016
2015
2014
Revenue by segment
41.0
INDUSTRY
2013
1,821
2012
04
IN %
2016
1,939
30.0
MOBILIT Y
25.0
CER T IF IC AT ION
4.0
OTHER
TÜV SÜD’s claim “Choose certainty. Add value.” is upheld by around 24,000 employees located across the world. For more than 150 years, our experts have been bringing people, technology and the environment together for a sustainable future and in doing so, making the world safer. And they always think one step ahead. As a result, they are indispensable partners for our customers, accompanying technological change with their expert knowledge and thus creating trust in innovations.
MAN AG EME NT A ND SUPE RVISORY BOA RDS 06 10 12 16
Message from the Board of Management On site worldwide Supervisory Board report Corporate Boards
C O MBI N ED M A NAGE M E NT RE PORT 20 30 33 65 73 82
Group information Corporate governance report Economic report Non-financial performance indicators Opportunity and risk repor t Outlook
C O N SO LI DATE D F INA NCIA L STATE M E NTS 90 91 92 93 94 96 141
Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the consolidated financial statements Auditor’s report
142
Notes and future-oriented statements
T H E AN N UAL REP ORT IS AVA IL A BL E IN THE F OL L OWING F ORM ATS: P RINT
MAGAZINE 2016
ONLINE
ANNUAL REPORT 2016
FACTS 2016
www.annualreport. tuv-sud.com
MANAGEMENT AND SUPERVISORY BOARDS
MANAGEMENT AND SUPERVISORY BOARDS
05
MANAGEMENT AND SUPERVISORY BOARDS 06 10 12 16
Message from the Board of Management On site worldwide Supervisory Board report Corporate Boards
06
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
Management and Supervisory Boards
AXEL STEPKEN
KARSTEN XANDER
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
Management and Supervisory Boards
DIRK EILERS M AT T H I A S J . R A P P
07
08
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
Management and Supervisory Boards
LADIES AND GENTLEMEN, 2016 was a very special year for tüv süd because we were able to celebrate a special anniversary: along the lines of “150 years of inspiring trust”, we looked back on the exciting and successful company history at many events with our customers and employees both at home and abroad. At the same time, we took the opportunity to initiate a dialogue about the future of tüv süd – at a time when we are facing fundamental changes, driven above all by the digital transformation of the economy and society. We are addressing these challenges from a position of economic strength, which we once again demonstrated last year. We were able to increase revenue and earnings again – and with the complete takeover of the Spanish technical service provider ATISAE, we concluded the largest acquisition in the history of our company. We want to be present in all the relevant markets worldwide with our services. And we want to be among the leading players in our industry in each of these markets. For many years we have been systematically targeting profitable growth and the internationalization of our company. We want to continue to grow through acquisitions as well as from within the organization. With a 5.5 percent increase in revenue, we have achieved the goal we set ourselves. This positive development has again been supported by all segments and almost all regions. The foreign share of our business has been growing constantly for many years. More than 43 percent of our revenue and around 60 percent of our growth came from outside Germany in 2016, with more than half of our 24,000 employees working in our international regions. The fact that tüv süd is well positioned in the 151st year of its existence is especially due to the dedication of the people who, day in, day out represent what our customers associate with tüv süd: competence, objectivity and integrity, professionalism and reliability. Like our founding fathers in the 19th century, these values gain people’s acceptance, reduce risks, pave the way for technological progress – and at the same time create the basis for the success of tüv süd. We would like to take this opportunity to thank all our employees for their daily commitment and, in particular, for their performance in 2016. In the coming years we want to boldly continue tüv süd’s success story and, in particular, to meet the challenges of ever-accelerating digitization. This calls many things into question, familiar business models no longer work, a diversity of new opportunities arise. We want to take advantage of these opportunities. This is because we have a core competency that cannot be rated highly enough in times of digital transformation: we create trust in technologies, products and processes – and this enables us to create the key prerequisite for technical progress. Only if people know that a new technology is safe will they accept it in the long term.
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
09
Management and Supervisory Boards
Innovations constitute progress only if they are safe. At the time of our founding in 1866, this applied to steam technology, to electrical engineering and the automobile – and it is also especially true of digital transformation and Industry 4.0. Our aim is that the digital transformation will be a success for our customers – not least by accepting and driving change in our own company, and by developing new services and business models in a threefold strategy that addresses cyber security, secure data platforms and advanced analytics. We are also now in a position of fundamental transition – from being the classic provider of testing and certification services to the international solution provider for safety, security and reliability. In doing so, we continue to follow the path we have been successfully pursuing for more than 150 years: adapting consistently to the new framework conditions that technical progress entails. We want to continue in this direction in the future and rise to the challenges of digitization. What is more: we want to use digitization as an opportunity to grow further and to shape our business for a successful future. Here, too, we reached important milestones in 2016, including the establishment of the Digital Service function and the Centers of Excellence in Singapore and Munich. We collect experience in pilot projects with our customers, in the continuous monitoring of lift systems or in the predictive maintenance of power stations. In the development of highly automated vehicles, we are working with various manufacturers on new forms of individual mobility and we are contributing our experience to the development of testing and certification principles. Together with partners from industry and science, we create the conditions for the intelligent production facilities of tomorrow – from collaborating robots to complete smart factories. All this highlights that we want the digital transformation and we intend to shape it successfully. Because as a company we not only look back on a long and successful tradition, but we are also looking forward to a future that is just as successful – you can rely on that!
Munich, March 31, 2017 The Board of Management of tüv süd ag
PROF. DR.-ING. AXEL STEPKEN Chairman of the Board of Management
DIRK EILERS Member of the Board of Management
DR. MATTHIAS J. RAPP Member of the Board of Management
KARSTEN XANDER Member of the Board of Management
10
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
Management and Supervisory Boards
BOSTON
A M E RI C A S EMEA G E R M A N Y CORPORATE HEADQUARTERS: MUNICH W E S T E R N E U R O P E HEADQUARTERS: GLASGOW C E N T R A L & E A S TER N EU R O P E HEADQUARTERS: PRAGUE M I D D L E E A S T / A FR IC A HEADQUARTERS: ABU DHABI
AM E RICA S N O R T H A M E R I C A HEADQUARTERS: BOSTON S O U T H A M E R I C A HEADQUARTERS: SÃO PAULO
ASIA A S E A N HEADQUARTERS: SINGAPORE C H I N A HEADQUARTERS: SHANGHAI J A PA N HEADQUARTERS: TOKYO K O R E A HEADQUARTERS: SEOUL S O U T H A S I A HEADQUARTERS: PUNE
SÃ O PAUL O
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
11
Management and Supervisory Boards
G L A S G OW PRAG U E M U N IC H
ASIA E ME A
SE OUL TO KYO SHA NGHA I
ABU D H ABI
PUNE
SINGA PORE
12
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
Management and Supervisory Boards
P R O F. D R . - I N G . H A N S - J Ö R G B U L L I N G E R
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
Management and Supervisory Boards
SUPERVISORY BOARD REPORT Ladies and Gentlemen, 2016 was a very special year for tüv süd. The company celebrated its 150th anniversary – and demonstrated with its strong business development that even though the current market environment is difficult, it is ideally positioned for a successful future. Revenue increased by 5.5 percent to more than Euro 2.3 billion, EBIT even surpassed the prior year figure by 22.4 percent, reaching almost Euro 200 million. The Spanish companies tüv süd ATISAE and A TICAL, which were included in tüv süd’s consolidated financial statements for the first time after the acquisition in 2016, contributed significantly to this. The positive impetus from Spain shows yet again how successful the strategy of the company is, which for many years has clearly been geared to profitable growth and a consistent drive towards internationalization. However, even without these new companies – and despite negative currency influences and a persistently challenging economic environment – tüv süd has reached the targets set for 2016. This is a very respectable achievement, which clearly highlights: tüv süd is stronger today than ever before in the history of the group. The group is excellently positioned and will continue its success story, supported by the know-how and commitment of the 24,000 employees at 850 locations in more than 50 countries. In the reporting year, the Supervisory Board performed the tasks required of it by law and the articles of incorporation and bylaws. We regularly monitored the Board of Management’s stewardship of the company and offered advice on the strategic development of the tüv süd Group as well as on significant current measures. This applies particularly to the acquisition of the Spanish ATISAE Group and its integration into the tüv süd Group. The Board of Management provided us regularly with, comprehensive and timely written and oral reports on the general situation of the tüv süd Group, current business development, business planning and strategic orientation. We were informed about the risk situation of tüv süd. The flow of information was supplemented by a half-year report. Variances from planning were explained to us in detail. At the four ordinary meetings held in 2016, we discussed topics including the 2015 separate and consolidated financial statements, the Group’s strategy, and planning for 2017. An important focus once more was digital transformation, which has affected almost all sectors. tüv süd is – as a technical service provider – directly affected by this development. The partial disruptive change in business models of individual sectors requires a high degree of adaptability.
13
14
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
Management and Supervisory Boards
At the same time, advancing digitization also offers great opportunities for tüv süd, especially in the fields of cyber security, data analytics and secure data platforms. With the newly founded Digital Services function, as well as the targeted establishment of competence centers in Singapore and Munich, the Board of Management has taken important and rigorous steps in the fiscal year 2016 in order to leverage this potential for the company. We also dealt in detail with the various business combinations, in particular with the acquisition of the Spanish ATISAE group. This takeover, which is the largest to date for tüv süd, is another milestone in our company’s 150-year history – and a clear demonstration of how the Board of Management is consistently implementing the strategy that will continue to focus on growth and internationalization in the future. We were able to hear separate reports on current developments in the areas of “Nuclear Technology” and “Medical & Health” as well as on the promotion of women at tüv süd. The measures of the Board of Management to achieve greater efficiency, reduce complexity and increased profitability in the organization were a further focus of our discussions. In the quarterly reporting, the Supervisory Board was also informed about the development and financial situation of tüv süd Pension Trust regarding the trust funds under management. Personal meetings were also held on a regular basis between the Chairman of the Supervisory Board and the Chairman of the Board of Management. This ensured that the Chairman of the Supervisory Board was always kept informed in detail about the group’s situation and plans. On July 15, 2016, Dr.-Ing. Klaus Draeger was elected to the Supervisory Board by the annual general meeting after Prof. Dr.-Ing. Ulrich Hackenberg left the Supervisory Board in December 2015. As of December 31, 2016, Klemens Schmiederer left the Board of Management of tüv süd ag to take on new tasks outside tüv süd. The Supervisory Board thanks him for his dedicated work for the company and wishes him every success in his new position. The Chairman of the Board of Management, Prof. Dr.-Ing. Axel Stepken, assumed responsibility for the mobility Segment. The audit committee met four times in 2016. The topics it addressed included the interim financial statements as of March 31, and June 30, preparations for the audit, the audit focus areas and the independence of the auditor. In particular, the audit committee examined the current risk situation, as well as tüv süd’s opportunity and risk management. Furthermore, it dealt with the implementation of the requirements of the German Corporate Governance Code, the internal audit findings for 2016, the effectiveness of the internal control system and further internal audit planning. In addition, the audit committee dealt with the tüv süd Pension Trust’s investment and hedging strategy as well as the challenges of the current low interest rate environment.
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
Management and Supervisory Boards
The separate financial statements of tüv süd ag, the consolidated financial statements and the combined management report were audited by KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, who issued an unqualified audit opinion. These documents and the audit reports prepared by the auditors were available to all members of the Supervisory Board. At its meeting on March 17, 2017, the audit committee initially discussed and reviewed these documents. At the Supervisory Board’s closing meeting on March 31, 2017, the chairman of the audit committee presented a report. The auditor attended both meetings, reported on the key findings of the audit and answered questions posed by the audit committee and Supervisory Board members. We conducted an extensive review of the financial statements of tüv süd ag, the consolidated financial statements and the combined management report. The Supervisory Board agreed with the findings of the independent auditor and has no objections following the final result of the review. We approved the separate financial statements of tüv süd ag which are herewith ratified. We approved the consolidated financial statements and the proposal of the Board of Management to the annual general meeting for the appropriation of retained earnings. On behalf of the Supervisory Board, I would like to thank the members of the Board of Management, executives, employees and employee representatives for their successful work and exemplary commitment in the fiscal year 2016.
Munich, March 31, 2017
PROF. DR.-ING. HANS-JÖRG BULLINGER Chairman of the Supervisory Board of tüv süd ag
15
16
TÜV SÜD AG ANNUAL REPORT 2016
06
Message from the Board of Management
12
Supervisory Board report
10
On site worldwide
16
Corporate Boards
Management and Supervisory Boards
CORPORATE BOARDS Supervisory Board
Board of Management
Prof. Dr.-Ing. Hans-Jörg Bullinger Chairman Senator of Fraunhofer-Gesellschaft
Prof. Dr.-Ing. Axel Stepken Chairman of the Board of Management
Franz Holzhammer* Deputy Chairman Representative of the trade unions Josef Bichler* Head of Corporate Controlling of TÜV SÜD AG Dr. Christine Bortenlänger Member of the Executive Board of Deutsches Aktieninstitut e.V. Wolfgang Dehen Former Chairman of the Board of Management of OSRAM Licht AG Dr.-Ing. Klaus Draeger Former Member of the Board of Management of BMW Group, P urchasing and Supplier Network (since July 15, 2016) Thomas Eder* Chairman of the local works council of TÜV SÜD Auto Service GmbH Jörg Frimberger* Chairman of the central works council of TÜV SÜD Auto Service GmbH
* Employee representative.
Harald Gömpel* Chairman of the works council of TÜV Technische Überwachung Hessen GmbH Dr. Jörg Matthias Großmann General Manager/CFO of Freudenberg Chemical Specialities SE & Co. KG Peter Kardel* Chairman of the works council of TÜV SÜD Industrie Service GmbH Wolfram Reiners* Chairman of the works council in Munich of TÜV SÜD Business Services GmbH Angelique Renkhoff-Mücke Chairperson of the Board of Management of WAREMA Renkhoff SE Christine Siemssen General Manager of Milupa Nutricia GmbH Martha Straub* Chairperson at the works council of TÜV SÜD Akademie GmbH Dr. Eberhard Veit General manager of 4.0-Veit GbR Former CEO of Festo AG
Dirk Eilers Member of the Board of Management Dr. Matthias J. Rapp Member of the Board of Management Klemens Schmiederer Member of the Board of Management (until December 31, 2016) Karsten Xander Member of the Board of Management
MAN AGEMEN T REPORT
COMBINED
MANAGEMENT REPORT
19
CO MBI N ED M AN AG EMEN T REPO RT 20 30 33 65 73 82
Group information Corporate governance report Economic report Non-financial performance indicators Opportunity and risk report Outlook
20
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
GROUP INFORMATION Our business model tüv süd has been bringing together people, technology and the environment since its formation 150 years ago – with a long-term perspective, in a sustainable and value adding manner. As a technical services provider, tüv süd operates in the TIC (Testing, Inspection, Certification) market. Our range of services covers certification and testing, inspection, auditing and system certification, knowledge services and training. As dedicated and responsible specialists with wide-ranging industry expertise, we develop made-to-measure solutions – for retail customers as well as for industry, trade and government. As consultants, we optimize technology, systems and know-how, while focusing on the entire value added chain. We have combined our services 05 in the three segments industry, mobility and certification.
TÜV SÜD structure
05
TÜV SÜD SEGMENTS INDUSTRY
MOBILITY
C E R T I F I C AT I O N
International presence and network WORLD MAP SEE PAGES 10 – 11
tüv süd today operates in more than 50 countries around the world. Approximately 24,000 employees at 850 locations on five continents increase safety and add value for our customers. In globally networked competence centers, we make the latest knowledge available to our customers worldwide. We are working systematically on expanding our international presence in order to be close to our customers. At the same time, we are laying the foundation for the continued profitable growth of our Group, enabling us to be not only a reliable partner, but also a strong one.
INDUSTRY-SPECIFIC ENVIRONMENT SEE PAGES 35 – 36
Our future-oriented strategy is aimed at sustainable growth and internationalization with and for our customers. It is derived from technological trends, customer requirements and regulatory framework conditions. The continuous development of our business model reflects these significant influencing factors.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Sustainability as the group’s purpose Sustainable action geared to protecting people and the environment is set out in tüv süd’s goals. This guiding principle has shaped the company since its foundation 150 years ago. From the first environment-related assessments at the end of the 19th century to the countless audits and certifications that we currently offer in areas such as environmental management, energy efficiency, renewable energy or electromobility – when it comes to protecting people and the environment tüv süd is almost always the first port of call. We also apply stringent standards to our own actions. Absolute integrity and strict compliance with laws and standards are absolutely essential for a technical service provider. A comprehensive compliance management within the Group ensures that our employees always meet the high standards that our customers and the public expect from us. EMPLOYEE REPORT SEE PAGES 65 – 72
In order to meet our responsibilities toward our employees, we offer them not only secure and attractive jobs, but also comprehensive opportunities for advanced vocational training, and appealing social benefits. A particular focus is on the reconciliation of career and family as well as providing support in family emergencies, such as caring for family members.
21
22
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Legal structure guarantees independence tüv süd stands for independence and impartiality, which are ensured by the unique corporate structure of our Group. In its capacity as management holding company, the parent company, tüv süd ag with registered offices in Munich, manages its subsidiaries around the world. Management is by means of a matrix structure through the segments, which are subdivided into divisions, as well as through the regions. The beneficial owners of tüv süd shares are tüv süd e.V., Munich, and the tüv süd Foundation, Munich. Both have transferred their shares to the independent tüv süd Gesellschafterausschuss GbR, a shareholder committee with registered offices in Munich. The purpose of this civil law association is to hold and manage this shareholding under stock corporation law. The members of the governing bodies of tüv süd e.V., the tüv süd Foundation and tüv süd Gesellschafterausschuss GbR, are largely independent from those of the supervisory bodies of tüv süd ag. This ensures the independence of the bodies in accordance with the German Corporate Governance Code. The tüv süd Foundation publishes its own report annually.
06
Legal structure
06
74.9%
25.1%
T Ü V S Ü D E . V.
T Ü V S Ü D F O U N D AT I O N
GESELLSCHAFTERAUSSCHUSS GBR
TÜV SÜD
EMEA
AMERICAS
ASIA
GERMANY
NORTH AMERICA
ASEAN
WESTERN EUROPE
SOUTH AMERICA
CENTRAL & EASTERN EUROPE
CHINA J A PA N
MIDDLE EAST/ AFRICA
KOREA SOUTH ASIA SUBSIDIARIES IN THE REGIONS
I N D U S T R Y | M O B I L I T Y | C E R T I F I C AT I O N SEGMENTS
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
23
Strategy 2020 continues to determine the course We want to constantly increase the value of our group. To this end, we are pursuing a clearly defined and time-proven strategy for the period up to 2020. At the heart of the strategy are the two dimensions of action “growth” and “efficiency,” for each of which we have defined several underlying drivers. Through specific measures in the operating units, we are leveraging the 07 potential step by step.
Strategy 2020 – growth and efficiency drivers
07
B U S I N E S S VA L U E
GROW TH
A C C E L E R AT E GROWTH
EFFICIENCY
INCREASE INTERN AT I O N A L I Z AT I O N
FOCUS PORTFOLIO
INCREASE STRENGTH
GROWTH DRIVERS
EFFICIENCY DRIVERS
CUSTOMER FOCUS
PERSONNEL
NEW PRODUCTS
PRODUCTIVITY
PRICING
PRODUCT PORTFOLIO
ACQUISITION
C A P I TA L E F F I C I E N C Y
I N T E R N AT I O N A L E X P A N S I O N
SYNERGIES D I G I T I Z AT I O N
The market for TIC services offers many opportunities to continue to grow and increase our revenue volume organically. In addition, we play an active part in shaping the process of consolidation that has been ongoing in the market for a number of years and are enhancing our portfolio by acquiring companies in the sectors and regions of relevance for us. The most recent example is the full acquisition of the Spanish ATISAE Group, with which we were able to substantially strengthen our position in Western Europe during the fiscal year. Being the largest in our company history, this acquisition underscores our claim to be one of the world's leading providers in the market for technical services. We intend to generate at least 50% of our revenue outside Germany by 2020, as these regions offer attractive growth opportunities. In 2016, we further adjusted the strategic priorities of our segments and adapted them to the current market situation. In the industry Segment, the focus remains on expanding business internationally, with particular emphasis on the Asian markets. At the same time, we also want to continue to grow in our domestic market, Germany.
24
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
In the mobility Segment, the focus is still on the FIT17 program, which is aimed at more efficient workflows and higher service quality, especially in the vehicle roadworthiness test. It is also necessary to successfully integrate the mobility business of the ATISAE Group and to prepare for new challenges, such as those in the area of autonomous driving. The focus of the certification Segment is the continued internationalization of the business with the aim of developing economies of scale and achieving the best possible utilization of our test laboratories all over the world. At the same time, new test and certification services are being developed for smart technologies, including the areas of wearables, digital payment and wireless. By providing greater proximity to the customers across all business segments, we want to evolve from being a certifier to becoming a business partner who will advise its customers in all aspects of safety, quality and risk mitigation in the development phase of new products. The further strengthening of our business with major customers shows that we are on the right path with this solution-oriented approach.
INNOVATIONS REPORT SEE PAGES 28 – 29
Last but not least, we are continuing to expand our portfolio with new, innovative services and business models, especially against the backdrop of ever-increasing digitization. This offers us attractive opportunities, especially if we are able to combine our detailed industry expertise with know-how in the areas of cyber security and data services. In light of this, we already defined our digital strategy in the prior year, linking it closely to our group-wide innovation process. In the fiscal year, we rooted these activities firmly within the company organization and created the “Digital Service” division, headed up by the Chief Digital Officer who reports directly to the Board of Management and is responsible for the digital transformation of tüv süd. At the same time, we are pursuing a specific digital agenda in each business segment in order to exploit the opportunities that arise as quickly and as close to the business as possible. We want to actively promote developments in this phase of technical progress, and to shape them in a way that delivers certainty and adds value for our customers – as we have done since our formation 150 years ago.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Key account management continues to expand its presence We created the Global Customer Operation unit back in 2012 to oversee the international coordinated support for selected key accounts, to leverage cross-selling potential and to significantly expand tüv süd’s market presence. Coordinated centrally and supported regionally – we want to get even closer to our customers, to develop new products together and strengthen our position as a recognized process partner. Our uniform customer relationship management (CRM) system allows us to take a comprehensive look at all our customers and creates the prerequisites for integrated support, which in particular benefits key account management. The corresponding guidelines are defined in a global sales process. Employees in various locations are currently already using the CRM system. In 2016, we continued the rollout and started the implementation in Singapore, Italy, the UK and Spain. At the same time as the rollout, local sales processes are also being optimized on site and synergies and efficiency potential tapped. Above average growth has been achieved with our strategic key accounts in recent years. In addition to improving the customer network, the main drivers for this positive development were above all an increasing share of project business as well as an even more rigorous pursuit of proposals and invitations for tender. The structures and processes created for the existing strategic key accounts in the area of Global Customer Operation will now be transferred step by step to other important customers and are also intended to act as a reference for tüv süd’s global sales organization. In this way, we are promoting strategic and cross-divisional collaboration, increasing customer satisfaction and adding value for our customers.
25
26
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Management system Our management system comprises the integrated controlling system and strategic corporate planning. We use various indicators to gauge our company’s performance and leverage them to manage our company. We have defined revenue growth and earnings before interest and tax, but after income from participations (EBIT) and the EBIT margin, as key financial performance indicators. These indicators are supplemented at group level by the value-based indicator Economic Value Added (EVA®), which has been adapted to the requirements of tüv süd. This measures the value added by the Group and takes into account the cost of capital used to generate the respective earnings. The EVA financial indicator is part of the remuneration system for first- and second-tier management as a component of variable remuneration. As further non-key financial indicators, we use free cash flow at group level and earnings before taxes (EBT). The free cash flow shows the extent to which we generate long-term cash flows 02 from our operating activities. EMPLOYEE REPORT SEE PAGES 65 – 72
As regards our employees, we use various non-financial indicators such as headcount, average age of employees, percentage of female employees and average length of employment with the Group.
Definition of financial performance indicators at TÜV SÜD K EY IN D IC ATO R
D EF IN ITIO N
EBIT
Earnings before interest, before other financial result and before income tax, but after income from participation NOPAT – GROUP’S COST OF CAPITAL Net operating profit after tax (NOPAT) = EBIT – income tax (flat rate of 30%), excluding the at equity result from the flat-rate taxation Capital employed = non-current operating assets + inventories and receivables – selected non-interest-bearing liabilities and provisions1
EVA
Group’s cost of capital = average capital employed × weighted average cost of capital (WACC: 7%)
Free cash flow
Cash flow from operating activities – cash outflow for investments in intangible assets, property, plant and equipment, and investment properties
1 _ Non-interest-bearing liabilities and provisions include current provisions, advance payments received and tax liabilities.
02
TĂœV SĂœD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
27
This value-based management is implemented in our integrated controlling system. It is based on a group-wide management information system, a harmonized global finance function and accounting in accordance with International Financial Reporting Standards (IFRSs). All key indicators are determined as part of our planning and monitoring processes for the respective levels of the Group (segments, regions, divisions and companies) and are made available in standardized format via our internal reporting system. The starting point for our planning and monitoring processes is strategic planning, which is geared to constantly increasing the value of the company. The strategic goals form the basis for the group strategy. This, in turn, is the basis for the strategy of the segments, which is put into practice in the strategy of the respective divisions. The specifications for the divisions flow into the strategic financial planning and are developed in greater detail at regional level. The planning derived in this way for the following year, together with three forecasts in the course of the year and timely preparation of monthly and quarterly financial statements, provides the foundation for our analyses, by means of which we measure the achievement of the 08 strategic goals and identify budget variances.
Strategic and operative planning
08
TA R G E T S
G R O U P S T R AT E G Y
Division strategy
Strategic financial planning
Breakdown at regional/ company level
Linkage between strategic and operational planning
Planning assumptions
BUDGET PLANNING
PERFORMANCE
BUDGET
MEASUREMENT
28
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Innovations report FU N D I N G I N N OVATION A ND DIGITA L TRA NSF ORM ATION Technological change is driving our business like in no other industry. If we stand for the security of technology, then we must be at the forefront of technological change ourselves. At the same time, we also want to use innovation in our own company in order to work more efficiently and to offer our customers a high level of service. We have been encouraging active innovation management for many years and invested € 9.4 million in fiscal year 2016 (prior year: € 6.9 million) in research and development. Promoting innovation quickly and purposefully The process for the promotion of innovation, which was introduced in the prior year, has proven to be successful and enables the rapid and targeted promotion of substantial and clearly market-focused innovation projects. A central role is played by the newly established Corporate Innovation Fund for highly promising innovation projects, which covers part of the project costs incurred by the tüv süd entity. This funding aims to strengthen the role of the divisions and regions in the innovation process. The individual projects are initiated and implemented locally by divisions or regions and supported by central innovation management. The focus is on a flexible implementation of pilot projects with customers and partners. This enables us to respond rapidly and efficiently to new customer needs and to create innovative offers. Digital Service is driving digital transformation forward Technological progress is currently characterized by advancing digitization in almost every industry. The creation of the new Digital Service function during the fiscal year also means that this trend is now reflected in the organization of the company. Thus, within our matrix organization the possibilities of digitization have been implemented in our existing portfolio and extended to include new services and solutions. We reached an important milestone in the internationalization of our Digital Service activities in April 2016, when we opened a first Digital Service Center of Excellence (CoE) in Singapore. tüv süd will invest a double-digit million sum over the next three years in order to build up comprehensive competency for data analysis, cyber security and functional security. Together with industry experts, innovative services will be developed and tested in various pilot projects. The aim is to transfer the expertise gained to other markets in the Asia-Pacific region. A first example of this is cooperation with government agencies of the Republic of Singapore in the definition of simulation and test environments for autonomous driving. Comprehensive digitization strategy Both our group-wide digitization strategy and the specific digital agendas at division level are aimed at the following three fields of action:
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Data analysis Through continuous monitoring, a large amount of data is now available, often in realtime. In order to generate added value from this flood of information, technical know-how and industry knowledge are to be integrated into the evaluation process. tüv süd has decisive potential for differentiation in this respect since no other competitor has similar expertise in technology, machinery, processes or industrial workflows. In addition to ongoing projects – for example, in the area of predictive maintenance of power plants, the focus in 2016 was on lift systems. The goal is to obtain information about their operating state from real-time sensor data, to predict damage by means of appropriate tools, thus avoiding the failure of the system or expensive repairs. In this way, we not only achieve the highest level of security, but at the same time also increase customer satisfaction. Cyber security The increasing cross-company networking of systems also places higher demands on IT security. Integrated protection requires not only sound IT expertise, but also a comprehensive understanding of the respective industry and sector. tüv süd has been active in this area for several years and helps customers to counter threats with suitable protective measures. We inspect industrial plants and processes, analyze weak spots, evaluate the risks and test the system security. With the advance in digitization, there is more and more data with personal or security-related characteristics, whether in the area of mobility, in manufacturing processes or in the health care sector. In light of this, the necessity to create a neutral platform for the storage, exchange and processing of sensitive data has become increasingly relevant. Like no other company, tüv süd’s brand is synonymous with trust and safety. On the basis of this strong positioning, we also want to play a decisive role in the area of the Trusted Data Exchange.
Functional safety of digital systems Mutual trust in the competence and reliability of process partners is the key success factor for the Industry 4.0 concept. The more comprehensive the networking, the more likely a failure or a mistake by a process partner could jeopardize the entire supply chain. The risk of one party becomes a threat to all parties involved. Cyber security, i.e., protection against attacks, and the safe operation of plants and systems are mutually dependent. Standards and certifications as well as unbiased advice on issues such as interoperability, reliability or functional security can help to create this trust. With our comprehensive sector and industry experience, we provide our customers with the most important know-how to make digitization successful in their industry.
Last but not least, we want to use digital transformation to further increase the efficiency of our own processes and offer new and improved services to our customers. For example, we are working on using augmented reality to optimize our processes and are optimizing the deployment of drones in inspections wherever the regulatory framework permits.
29
30
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
CORPORATE GOVERNANCE REPORT Corporate governance characterized by responsibility and transparency enhances the trust of our customers and the public in our work and allows us to meet the steadily increasing information requirements of national and international stakeholders. This is an essential component of our success also set out in clearly defined policies and rules that apply throughout the group. We regularly review these principles and adapt them in line with new findings, changed legal provisions, and national and international standards. In this connection, we are guided by the requirements placed on publicly traded companies by the German Corporate Governance Code.
Composition of the Supervisory Board The Supervisory Board of tüv süd ag comprises 16 members. In accordance with German law, half of the members are employee representatives and half are representatives of business and the public. In order to meet statutory requirements regarding equal representation of women and men in management positions in the private and public sectors, three women have been appointed to the Supervisory Board for the employer side and one woman for the employee side. The audit committee consists of four members and deals primarily with monitoring the financial reporting process, the effectiveness of the internal control system, the risk management system and the internal auditing system. In addition, it addresses the annual audit of the financial statements and specifically the independence of the auditor, the additional services rendered by the auditor, the award of the audit engagement as well as the definition of the audit focus and the fee arrangement. The personnel committee comprises four members. Its main tasks include preparing appointments and removal of members of the Board of Management, preparing recommendations on remuneration of the individual members of the Board of Management and designing and regularly reviewing the remuneration system. The Supervisory Board as a whole is regularly informed by the respective committee chairman of the activities of the respective committees.
Composition of the Board of Management The Board of Management of tüv süd ag comprises four members. It is responsible for running the company and manages its business. It is bound to act in the interest of the company and to increase the long-term value of the company. It discharges its management duties as a collegial body with joint responsibility for managing the company.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
31
Cooperation between the Board of Management and the Supervisory Board The Board of Management and Supervisory Board of tüv süd ag cooperate closely on the tüv süd Group’s strategic orientation. The boards jointly discuss the status of strategy implementation at regular intervals. The Supervisory Board is informed by the Board of Management regularly, comprehensively and without delay about all relevant questions regarding business development, planning and the situation of the company, including the risk position and risk management, as well as compliance, in written and oral reports.
CORPORATE BOARDS SEE PAGE 16
Further information on collaboration between the Board of Management and Supervisory Board of tüv süd ag can be found in the supervisory board report in this annual report. The members of the Board of Management and Supervisory Board are listed on page 16.
Declaration on the equal representation of women and men in management positions tüv süd ag specified the following targets and deadlines:
Supervisory Board
EMPLOYEE REPORT SEE PAGES 65 – 72
09
Target percentage
Share already achieved
Implementation deadline
19%
25%
June 30, 2017
Board of Management
0%
0%
June 30, 2017
First-tier management
15%
11%
June 30, 2017
Second-tier management
33%
38%
June 30, 2017
Targets were also defined for the four German group companies affected by the legislation. The target percentages mainly match the shares already achieved. The implementation deadline was also set as June 30, 2017.
32
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Compliance Compliance with international rules and dealing fairly with our business partners and competitors are among our company’s most important principles. tüv süd has always felt bound by legal and internal requirements. In addition, ethical principles entered into voluntarily are an integral part of our corporate culture.
tüv süd takes a preventive approach to compliance and endeavors to achieve a corporate culture that proactively excludes potential breaches by raising employee awareness and educating the workforce. Necessary measures are regularly monitored by the internal audit function. This involves systematically reviewing compliance and performing controls based on random samples, as well as investigating the facts in the event of concrete suspicions. The Chief Compliance Officer is supported in his work by the Global Compliance Officer, the Local and Regional Compliance Officers, and the Corporate Compliance Officers. SEE WWW.TUV-SUD.COM/ABOUT-TUEVSUED/CODE-OF-ETHICS
We have informed all companies of the rules of conduct (tüv süd Code of Ethics) and firmly established these as an essential element of the corporate culture. The tüv süd Code of Ethics comprises a total of ten compliance rules. Its guiding principles are independence, integrity and law-abiding behavior. Through comprehensive training, including an e-learning program tailored to the company’s specific requirements, we ensure that our corporate compliance requirements are put into practice within the company. Employees can contact the Chief Compliance Officer or Global Compliance Officer at any time by letter, email or phone; the Local Compliance Officer is also available as a direct contact on site. In addition, the internet-based EthicsPoint platform is available for communication in selected countries. Employees and business partners can also report indications of breaches and suspected violations to an external system of ombudsmen, who are sworn to secrecy and anonymity. All breaches of laws or internal guidelines are subject to appropriate measures and can have consequences under labor law, including dismissal.
Risk management system OPPORTUNITY AND RISK REPORT SEE PAGES 73 – 81
In our day-to-day work, we attach high importance to careful handling of potential risks for the company. Our risk management system is designed to identify risks, evaluate existing risk positions and optimize risks entered into. We continually adapt this system to the changing business environment.
TĂœV SĂœD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
33
ECONOMIC REPORT Macroeconomic environment The global economy saw growth of 3.1% in 2016. This means that the expansion of the global economy is close to the prior-year level and remains at its lowest level since the crisis year 2009. Low growth rates in the USA at the beginning of the year as well as subdued economic development in the European Union and in China shaped this trend. Low commodity prices and the persistent economic problems of some emerging economies continued to have a nega10 tive impact. Economic growth in key markets worldwide
10
IN %
7.6 6.6
3.1 3.2 1.7
2.0
6.7
6.9 6.3
2.6 1.7 1.5
1.6 0.9
GLOBAL1
2016
EUROZONE1
6.7
GERMANY1
USA1
2015
1 _ Source: IMF world economic outlook (prior-year forecast updated with actual figures).
INDIA1
CHINA1
1.2
J A PA N 1
ASIA (WITHOUT J A PA N ) 1
34
TĂœV SĂœD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Positive development in most European economies Most countries in the European Union experienced moderate economic growth in 2016 which accelerated particularly towards the end of the year. There was an increase in real GDP of 1.7% in the euro zone (prior year: 2.0%). In most countries, this development was again driven by private consumption. In Germany, the situation in 2016 was marked by solid and consistent economic growth. The average annual GDP in 2016 was up 1.7% on the prior year. Despite decreasing momentum, the main driver of economic growth remained private consumption, supported by high employment and a marked increase in real disposable income. Britain's surprise decision to leave the European Union had no direct effect on economic growth there in 2016. The UK economy grew over the year as a whole by 2.0% (prior year: 2.2%). With average GDP growth for the year of 0.9% (prior year: 0.7%), the Italian economy continues to show no real momentum. In Spain, on the other hand, the dynamic upswing of the prior year continued, and at 3.2% economic growth was on the prior-year level (prior year: 3.2%). In the other countries of the euro zone, economic growth generally changed little in comparison to the prior year. Only Greece and Finland experienced continued economic decline. USA: strong consumption buoys economic development After a very weak start to the year 2016, growth rates in the USA picked up markedly in the second half of the year, albeit not as strongly as in the prior year. On an annual average, gross domestic product in the USA grew by 1.6% (prior year: 2.6%). The trend was also driven by private consumption, supported by persistently positive trends in the labor market, low energy prices and rising exports. However, many companies remain reluctant to invest, above all in the petrochemical industry, which struggled with the effects of the low oil price in 2016. The performance of the Asian emerging market was varied The development in China is still characterized by the state-controlled structural transformation from industry to the service sector. At 6.7%, economic growth in China was again weaker than in the prior year, although there was a significant gain in economic momentum in the second half of 2016. Despite these negative effects, China remains one of the drivers of global economic development. The Indian economy continued the significant expansion of the prior year in 2016, growing by 6.6% (prior year: 7.6%). However, the cash reform introduced in November is likely to have had a tangible negative influence on the economic activity in the country.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Euro / US dollar: on the road toward parity? The euro continued to depreciate against the US dollar over the course of 2016. By the end of the year, the single European currency reached its lowest level in years, with rates of about US 1.04 dollar, so many experts thought that currency parity was imminent. At the beginning of the year, the exchange rate was still US 1.08 dollars per euro, during the course of the year up to US 1.15 dollars was being paid for one euro.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CURRENCY TRANSLATION SEE PAGE 99
Over the year, the euro also depreciated in value against the Japanese yen and other important currencies for tüv süd. The euro continued to appreciate only against the Turkish lira over the course of 2016. The development of the reference currencies is shown in the notes to the consolidated financial statements in note 4.
Industry-specific environment The market for technical services is highly segmented. We focus our services on selected areas in which we have grown historically and where we are also expecting momentum for future growth. The business environments in the individual markets are extremely disparate and are shaped both by regional developments and global trends. The total global market for technical services shows annual growth rates of around 5%. At the moment, the revenue volume is around € 70 billion, with over half of this figure attributable to the emea region and just under a quarter to the asia and americas regions respectively. Through the focus markets, we align our core business with market volumes and growth expectations. As a result, our commitment is concentrated mainly on highly industrialized and export-dependent countries in Europe and Asia, but also in the Americas. In addition, we system11 atically develop our sales markets in selected emerging economies.
35
36
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Influencing factors and selected activities in the fiscal year
11
NE W TECHNOLOGIES A ND DIGI TA L T R A NSF ORM AT ION
CONSOL IDAT ION OF THE MARKET
01
02
05
TÜV SÜD
03 REGUL AT ION A ND S TA NDA RDI Z AT ION
SUS TA IN A BL E DEVELOPMENT
04 GLOBAL NET WORKING
01 New technologies and digital transformation Changes in digital transformation go far beyond mere technological progress, calling entire business models into question. TÜV SÜD supports its customers as a partner in digital transformation and also uses the opportunities, arising from digitization and networking, in the company. Innovations can only mean progress when they are secure. TÜV SÜD has stood for this security for over 150 years. Technological change shapes us like no other company. Development of test standards for autonomous driving in the Pegasus research project. Numerous pilot projects focusing on advanced data analytics, cyber security and safety, of which five projects such as the recreational drone program are financed by the Corporate Innovation Fund. Innovation prize for small and midsized companies awarded. INNOVATIONS REPORT SEE PAGES 28 – 29
02 Consolidation of the market The market for technical services is characterized by continuous change and by consolidation, which has been ongoing for a number of years. It is highly segmented and is served by a few large international companies as well as a large number of small specialists. TÜV SÜD is actively shaping this development and is exploiting opportunities for further growth through targeted acquisitions. Acquisition of ATISAE Group Acquisition of Global EMC Inc. Realizing synergies and efficiency potential by merging group companies to form powerful business units BUSINESS AND ECONOMIC ENVIRONMENT SEE PAGES 37 – 39
03 Regulation and standardization Norms and standards create the foundation for transparency and trust. TÜV SÜD stands as an independent third party for compliance with these standards and thus fulfills its societal mission. Medical Devices Regulation (MDR) was adopted by the EU Commission Data Protection Basic Regulation EU-DSGVO published; will enter into force in May 2018 Draft of the first international standard on occupational health and safety management systems (ISO 45001) published
04 Global networking Business relationships and supply chains often extend beyond national borders and across continents. Internationally recognized standards create the foundation for collaboration based on trust by ensuring compliance with defined safety and quality criteria. At the same time, TÜV SÜD’s business is also becoming increasingly international. Test laboratories in Wuxi obtain China Compulsory Certification (CCC) accreditation for electrical tools The International Accreditation Service (IAS) issues accreditation DIN EN ISO/ IEC 17025 to a food analysis laboratory in India TÜV SÜD provides customers with single-source-certification programs access to international markets 05 Sustainable development Responsibility for protecting people and the environment is growing in importance worldwide. Companies are measured not only by their level of real net output but also by their contribution to the public interest. Development of a technical standard for decentralized water treatment; the project is supported by the Bill & Melinda Gates Foundation. Green energy/eco-electricity for all German TÜV SÜD locations. Energy audit according to DIN EN 16247 has been completed at all German TÜV SÜD locations and some corrective measures, such as the replacement of light bulbs and tubes, have been implemented to reduce energy consumption. TÜV SÜD offers certification of sustainable real estate
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Business and economic environment With the acquisition of the Spanish ATISAE Group in February 2016, we have made the largest acquisition in the history of tüv süd so far. The ATISAE Group is one of the leading testing services providers in the industry and mobility Segments on the Iberian Peninsula. In accordance with the size and significance of this acquisition, the 2016 fiscal year was shaped in particular by the transaction and the integration of the new units into our Group. In addition, we are investing in selected core countries in the industry and certification Segments. We also successfully continued streamlining our corporate structure by merging and transferring companies in Europe, South Africa and Asia. Demand for our services is increasing constantly. However, it was negatively impacted in individual countries by unfavorable conditions such as the low price of oil or political uncertainty. In Europe, we benefited from moderate economic growth; at the same time revenue growth was boosted by the acquisition of the Spanish ATISAE Group. Our business development depends only to a small degree on economic development. The economic momentum in the USA had a positive impact on the business performance there, but the continuing low oil price impacted the demand for services in the petrochemical industry. In Brazil, the sluggish economy continued with the result that we again had to contend with a fall in demand. Our growth in Asia is steady despite slowing economic growth in emerging economies. Here, we benefit indirectly from the economic development in the advanced economies since some of our services, especially in the certification Segment, are required for export to the European Union, Japan and many other countries.
I N D U ST RY The ATISAE Group offers testing, certification and advisory services for industry and infrastructure. As legally required this includes technical tests for lift, construction technology as well as lift and lifting facilities, and also the certification of occupational safety measures and explosion protection. Also on offer are products relating to quality assurance and technical consulting, in particular on environmental protection and renewable energies. The ATISAE Group holds a strong market position as a result of its technical expertise and long-standing presence on the Spanish market. We added more targeted acquisitions to our performance portfolio in the industry Segment. Thus, Rüdiger ITM, an engineering consultancy company with registered offices in Dresden, has been a member of the tüv süd Group since April 2016. With its services in the field of energy technology, the engineering consultancy company completes our range of rail services in the Real Estate & Infrastructure Division. In September 2016, tüv süd also acquired Deutsche Private Institut für nachhaltige Immobilienwirtschaft (DIFNI), Frankfurt am Main. The company is an exclusive license partner of BRE Global for sustainable real estate certification according to the BREEAM standard (Building Research Establishment Environmental Assessment Method) in Germany, Austria and Switzerland. With the acquisition, we are continuing the expansion of real estate management services in the Real Estate & Infrastructure Division. The division’s performance portfolio is also supplemented by the new acoustics laboratory in Olching, near Munich. Here, the noise levels of air-conditioning systems, vehicles as well as household appliances such as dishwashers and toys can be measured and tested.
37
38
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Thanks to our competence and experience in the field of non-destructive material testing for the aerospace industry, we have been awarded a multi-year quality assurance project for aircraft engines in Italy. At the new satellite terminal of Munich Airport, we tested the passenger-side bridges alongside safety-relevant systems and equipment such as fire detection and sprinkler systems during the construction phase. The testing and certification of airport-specific appliances is subject to high quality standards which we can comprehensively ensure with our know-how and our industry knowledge. In this way, we were able to extend the existing framework agreement with Munich Airport to 2018. As a result of the acquisition of US based Global Risk Consultants Corp. (GRC Group), Wilmington, in 2010, there are still several small companies in our portfolio. In 2016, we continued to integrate them into existing national companies. Changes in local conditions in individual markets were taken into account by means of impairment losses in 2016. The downturn in demand attributable to structural factors for petrochemical services in the USA led to the recognition of impairment losses on selected assets of PetroChem Inspection Services Inc., Pasadena. The company offers material and safety technology inspections in plants and environmental checks. In Brazil, the decrease in public infrastructure measures and general construction activities continued. After cost-cutting measures introduced in the prior year insufficiently compensated for the slump in demand, we recognized an impairment loss on selected intangible assets from the acquisition of Bureau de Projectos e Consultoria Ltda., São Paulo, in 2013. Other impairment losses have been recognized on intangible assets related to wind farm business in the UK, to material testing in Singapore, and to our companies working in the field of building management in South Africa. Goodwill was also impaired in this regard.
MO BI LI T Y With the acquisition of the ATISAE Group, we have made an important step towards the internationalization of our core business: the vehicle roadworthiness test. The ATISAE Group carries out the vehicle roadworthiness test required by law in 34 technical service stations in Spain. In addition, the Group provides comprehensive consulting and training services for the automotive sector. The customer portfolio ideally complements our customer base. At the same time, its market presence in South America offers us favorable market entry conditions. In July 2016, the first tüv süd Blue Box was launched in Berlin. The modular service station is ready for use within one day. Mobile and close to the customer, the Blue Box enables an efficient vehicle roadworthiness test and exhaust gas analysis in an innovative manner. Experts’ evaluations and opinions can also be provided here. The Blue Box fulfills the requirements of an agile service society through its fast and flexible deployment.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
In November 2016, work started at the new Dynamic Component Testing Laboratory (DYCOT) in the Czech Republic. With a dynamic test method for automotive components, the laboratory offers a cost-efficient alternative to expensive crash tests. The service portfolio also includes the testing of exhaust gas and airbags. By investing in the Czech Republic, we are positioning ourselves as a competent and innovative process partner in the automotive industry in Central and Eastern Europe. Automotive manufacturers increasingly use their test equipment for internal development processes and contract out type tests and COP (Conformity of Production) measurements to external service providers. At the same time, following the manipulation of engine and exhaust gas values in the prior year, the pressure on car manufacturers to have their own vehicle measurement values verified by independent third parties has grown. This has a positive effect on the utilization of our test equipment for emission and consumption measurements, as well as engine and roller testing rigs. A reversal of impairment losses was necessary at selected test facilities. Lower sales opportunities led to impairment losses on a fleet software solution, which had been recognized as part of the expansion of our service spectrum for independent fleet services.
C ERT I FI CAT I O N Since January 2016, we have been certifying in our Asian textile laboratories the entire collection of shoes for a European brand manufacturer. We are thus one of the leading suppliers of test services for leather products and shoes. With the acquisition of Canadian Global EMC Inc., Toronto, in March 2016, we expanded our global network of EMC laboratories to meet the growing demand for electromagnetic compatibility testing. In China, our testing laboratory received the China Compulsory Certification (CCC) accreditation for electrical tools, and the Indian food testing laboratory was awarded the accreditation DIN EN ISO/IEC 17025 for food by the International Accreditation Service (IAS). These accreditations supplement our range of services for industrial, medical and household goods. We can offer our customers certifications for safe entry into all economically strong and interesting markets in Asia, America and the European Union from a single source. In 2016, we completed the worldwide rollout of the LabExcellence program: a project for the economic analysis and process optimization of our international network of laboratories worldwide. The program also promotes best practice sharing and the exchange of innovative testing procedures. In June 2016, we bundled our range of services for information and communication technology into a new unit for cyber security. We are thus taking account of the growing importance of digital transformation for us and our customers. Within the context of the strategic refocus of our portfolio, we sold non-core activities to competent partners in Germany and Japan during the fiscal year. We also recognized impairment losses on intangible assets to reflect structural weaknesses in individual markets, such as Brazil and Italy.
39
40
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Business development on target Although our economic environment was impacted by the sluggish global economy and the continuing low oil price in some markets, we were able to achieve healthy growth, supported by our 03 broad range of innovative services and our global presence on site near our customers. The largest acquisition to date in the company history of tüv süd also had a positive effect on our business performance, so that the financial performance indicators defined in the planning 2016 were exceeded. From the Spanish ATISAE Group, tüv süd ATISAE, S.A.U. (tüv süd ATISAE), Madrid, and ATISAE de Castilla y León, S.A.U. (ATICAL), Miranda de Ebro, are now included as fully consolidated companies; ITV de Levante, S.A. (ITV Levante), Valencia, has been accounted for as a joint venture.
Targets and results
03
2015
2016 outlook
2016
Revenue Development compared to prior period
€ 2,222.0 million 7.8%
Up to € 2.3 billion 3% – 5%
€ 2,343.2 million 5.5%
EBIT Development compared to prior period
€ 162.4 million – 5.7%
€ 185 to € 190 million
€ 198.8 million 22.4%
EBIT margin EVA Employees Development compared to prior period
7.3%
High single-percentage range 7% – 9%
8.5%
€ 61.0 million
€ 65 to € 70 million
€ 80.9 million
2.5%
approximately 4%
7.5%
Our expectations regarding business development are derived from our existing services business. They are defined as organic growth. All segments saw positive revenue development. The industry Segment fell short of the forecast growth rate for revenue, EBIT and EBIT margin. As a result of the contribution of the new Spanish companies, the mobility Segment outperformed targets with the exception of the EBIT margin which fell slightly short of target. Excluding the value added of tüv süd ATISAE and ATICAL, the mobility Segment's revenue growth was within the expected range; the target figures EBIT and EBIT margin could not be fully achieved. The certification Segment met all expectations.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
At € 198.8 million (up 22.4%), earnings before interest, before other financial result and before income tax, but after income from participations (EBIT), exceeded our expectations. At 8.5%, the EBIT margin was within the expected range, and higher than the prior-year EBIT margin (7.3%). Even without the first-time consolidation of the Spanish companies, we reached our forecast EBIT margin of 7.9%. However, at € 180.7 million, EBIT was outside the expected corridor. The EBIT development was influenced by revenue growth and higher personnel expenses. Both factors reflected the organic growth and external growth (portfolio changes). 3.0% of the rise in r evenue (external growth) and 3.2% of the change in personnel expenses are attributable to tüv süd ATISAE and ATICAL respectively. Non-recurring impairments of goodwill, intangible assets and items of property, plant and equipment were again necessary, but remained significantly below the prior-year level. Adjusted EBIT, which is better suited for a multi-year comparison with other companies in the industry, at € 201.8 million is 6.3% above the prior-year figure (€ 189.9 million). At 8.6%, the adjusted EBIT margin is in the expected forecast range and is 0.1 percentage points above the prior-year figure. Consolidated earnings before taxes (EBT) rose by 26.5% compared to the prior year. We thereby significantly exceeded our expectations. The higher EBIT starting point was positively impacted by the recognition through profit or loss of the prior year’s write-up through other comprehensive income of the existing stake held in tüv süd ATISAE (formerly: Asistencia Técnica Industrial S.A.E. (ATISAE)) by about € 11 million. Adjusted EBT also attained the expected figure. The adjusted EBT margin saw an increase to 7.9% (prior year: 7.7%). The consolidated result after taxes reached a record € 130.5 million (prior year: € 114.0 million). At € 80.9 million, EVA for the tüv süd Group is above the range we expected. This key indicator is calculated from the net operating profit after tax (NOPAT) of € 144.2 million less the Group’s cost of capital, yielded by the product of average capital employed (€ 904.3 million) and WACC of 7.0%. NOPAT was positively influenced by the development of business from the mobility and certification Segments. In addition, the write-ups recognized through profit or loss on the existing stake held in tüv süd ATISAE had a positive effect on income/loss from participations. Starting from a prior-year level that was already high, the average capital employed increased again, resulting in higher capital costs. A key factor here was the first-time consolidation of tüv süd ATISAE and ATICAL with regard to investment assets and working capital. The average increase in the number of employees (full-time equivalents) from 20,228 to 21,738 is above the expected range, mainly due to the addition of employees as a result of the acquisition in Spain. Planning and management of the tüv süd Group is based on IFRS. The key financial performance indicators defined for the tüv süd Group are not relevant for tüv süd ag in its function as a management holding company and are therefore not reliable.
41
42
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Situation of the company RESU LT S O F O PERATIONS In the fiscal year 2016, tüv süd generated revenue of € 2,343.2 million, equivalent to an increase of € 121.2 million or 5.5% compared to the prior year. In the existing services business, we achieved an increase in revenue of € 75.6 million or 3.4%. Despite negative exchange rate effects of € 21.5 million (– 0.9%) in the 2016 fiscal year, we achieved our forecast – revenue growth in the range of 3% to 5%. The first-time consolidation of the Spanish tüv süd ATISAE and ATICAL resulted in a 3% revenue increase driven by external growth in the fiscal year. 12 / 13
Revenue growth comparable
12
IN %
7.8
5.5 4.1 3.4
2016
2015
ACTUAL 1 _ Adjusted for exchange rate and portfolio effects.
2016
2015
C O M PA R A B L E 1
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
43
Revenue growth 2016
13
IN %
3.4
– 0.9
ORGANIC GROWTH
E X C H A N G E R AT E EFFECTS
3.0
5.5
PORTFOLIO CHANGES
T O TA L R E V E N U E GROWTH
We achieved 59.7% (prior year: 73.9%) of the revenue increase – € 72.4 million – abroad. Germany contributed € 48.8 million or 40.3% (prior year: 26.1%) to the increase in revenue. Not taking our acquisition in Spain into account, our German companies generated most of the increase in revenue. As a result of the acquisition of the Spanish companies tüv süd ATISAE and ATICAL as well as capacity expansion, particularly in Asia, we were able to increase the portion of total revenue generated abroad to 43.2% (prior year: 42.3%). As a result, we achieved our goal of realizing 14 over 40% of our revenue outside Germany in 2016.
Revenue by geographic segment 2015 / 2016 according to customer location IN %
2016
2015
EMEA
76.3
14.5
9.2
75.1
15.0
9.9
ASIA
AMERICAS
14
44
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
With a rise of 2.1% purchased service cost developed at a lower rate compared to revenue. The increase resulted from the successful expansion of our offerings for vehicle management and reconditioning services as well as our academy business in Germany. At 12.5% (prior year: 12.9%) the ratio of purchased service cost to revenue remains at a comparable level year on year. In the fiscal year, personnel expenses increased in proportion to revenue growth by 7.0% to € 1,421.2 million. The ratio of personnel expenses to total operating performance increased slightly, from 68.5% in the prior year to 69.2% in the fiscal year. The expenses for wages and salaries including social security contributions rose by 7.9% compared to the prior year. Collective wage increases in Germany, the increase in headcount due to new hires in Germany and abroad, and the first-time consolidation of the Spanish tüv süd ATISAE companies and a higher bonus plan for employees in Germany contributed significantly to the increase in wages and salaries. Social security contributions are also significantly influenced by the acquisition in Spain. Retirement benefit costs decreased by 1.9% to € 96.0 million (prior year: € 97.8 million). Due to the lower number of active employees entitled to benefits, the current service cost decreased by € 1.8 million. In the fiscal year, amortization, depreciation and impairment losses of intangible assets, property, plant and equipment, and investment property of € 79.1 million were made, a decrease of 3.9% on the prior year. Amortization, depreciation and impairment losses comprise one-off impairment losses on intangible assets as a result of the purchase price allocation, in addition to depreciation of property, plant and equipment. The adjustments had become necessary due to the unsatisfactory development of business at certain subsidiaries in the USA and Brazil as well as in the UK, Singapore and Italy. In addition, a software solution was written down in the mobility Segment. Scheduled amortization and depreciation are € 5.0 million (7.4%) higher than in the prior year; of these amounts, € 3.4 million relates to the Spanish companies tüv süd ATISAE and ATICAL. Other expenses increased by 0.9% to € 434.4 million in the fiscal year 2016, thus growing significantly less than revenue. The prior year was marked by the donation of € 5.0 million for social projects. As a result of the first-time consolidation and integration of the new Spanish companies, expenses for rented properties and travel expenses increased. In Japan, by focusing on our core activities we had to recognize losses from the disposal of assets. In addition, risk discount on receivables from current, not yet billed contracts had become necessary, particularly in Germany. In 2016, we were able to achieve savings mainly for external administrative services, such as the use of temporary staff or for consulting and audit costs.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Other income increased by 6.6% from € 53.2 million in the prior year to € 56.7 million. Improved capacity utilization and the good order situation allowed a reversal of impairment losses for a test facility in the mobility Segment. In addition, we realized profits from the sale of real estate from tüv Technische Überwachung Hessen GmbH (tüv Hessen), Darmstadt. The strategic realignment of our business activities in South Africa led to impairment of goodwill of € 1.5 million (prior year: € 0 million). The financial result improved by € 13.2 million to € 7.5 million (prior year: € –5.7 million) in the fiscal year 2016, primarily attributable to a one-time effect on the remaining income from participations. The income from investments accounted for using the equity method remained at the prior-year level of € 11.6 million (prior year: € 11.5 million). The first-time inclusion of ITV Levante, compensated for the slight decline in earnings contributions from the joint venture companies in Turkey and a French associated company. The Turkish contribution reflects the local economic situation as well as the currency relationship between the euro and the Turkish lira. While exchange rate effects from the translation of the US dollar and the Turkish lira had impacted the financial result in the prior year at € –1.3 million, there was a gain of € 0.1 million in the fiscal year. In addition to amortization, depreciation and write-downs, proceeds from the disposal of a participation and dividend income, other income/loss from participations in 2016 includes the write-up of the existing investment at tüv süd ATISAE of € 11.3 million. In the prior year, a revaluation of the existing investment had been recognized in other comprehensive income. This was recycled through profit or loss in the first-time consolidation. The interest result is again negative in 2016, but at € –16.3 million just above the prior-year level (€ –16.9 million). The € 2.5 million decrease in net interest expenses from the pension provisions (unwinding of the discount for pension provisions less interest income on plan assets) is mainly due to the increase in plan assets in Germany; the corresponding interest income rose by € 2.3 million to € 23.1 million. This is offset by € 1.1 million lower interest income and € 0.8 million higher interest expenses (mainly due to an increase on amounts from unwinding the discount on provisions for long-service bonuses and medical benefits in Germany). The exchange rate effects from loans and hedges as well as gains and losses from the special fund are part of the other financial result.
45
46
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Income before taxes comes to € 182.6 million in the fiscal year 2016. This constitutes an increase of 26.5% on the prior year. The income tax expense rose at a higher rate than this by € 21.7 million or 71.4% to € 52.1 million. The effective tax rate of 28.5% is therefore higher than the prior-year rate of 21.1%, which had, however, been influenced by the tax-free components of plan assets, tax income for prior years and the reassessment of recoverability of loss carryforwards. In 2016, the tax-free write-up of the existing stake held in the tüv süd ATISAE Group reduced the effective tax rate. Other effects that largely cancel each other out are the impairment and reversal of impairment on deferred tax assets on loss carryforwards, taxes for previous years, foreign tax rates, non-deductible expenses and other tax-free income. The development of earnings before taxes is influenced in the fiscal year by overall negative one04 off effects. The one-off effects totaled € –3.0 million (prior year: € –27.5 million).
One-off effects IN € M IL L IO N
Personnel matters
04
2016
2015
0.0
1.4
PPA amortization and impairment losses
14.5
22.0
One-off effects, provisions and reversals of impairments
– 1.8
5.0
1.5
0.0
– 0.1
– 0.9
Impairment of goodwill Exchange rate effects from financial transactions at companies accounted for using the equity method One-off effects in income/loss from participations
– 11.1
0.0
With EBIT effect
3.0
27.5
With EBT effect
3.0
27.5
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
47
In the prior year, in addition to the remeasurement of the provision for German phased retirement provisions pursuant to IAS 19 revised (€ 0.3 million), we also adjusted payments in connection with laboratory restructuring performed during the year in Germany in personnel expenses. Amortization of intangible assets which we identified in the purchase price allocation (PPA amortization) was adjusted by € 8.3 million. In addition, one-off impairment losses of € 6.2 million on software, technical equipment and machinery as well as on capitalized customer bases in Belgium, Brazil, the UK, Italy, Japan, Singapore and the USA are recorded here. In the prior year, one-off impairment losses totaled € 14.1 million. The reversal of impairment losses on a test facility (€ 2.0 million) has been eliminated through other income. Other expenses include a loss from the spin-off of non-core activities in Japan. In the prior year we eliminated a donation to social projects. The impairment of goodwill mainly concerns activities in South Africa. In addition to the exchange rate effects (€ 0.1 million; prior year: € 0.9 million) from the fluctuations between the US dollar and Turkish lira, the recycling of the prior-year’s write-up through other comprehensive income of the existing stake in tüv süd ATISAE impacted on the results. 15
EBIT 2016
15
IN € M IL L IO N
198.8
0
EBIT unadjusted
Personnel matters
14.5
– 1.8
1.5
– 0.1
– 11.1
PPA amortization and impairment losses
One-off effects, provisions and reversals of impairments
Impairment of goodwill
Development of exchange rates
One-off effects in income/ loss from participations
201.8
EBIT adjusted
48
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
At € 198.8 million, EBIT in the 2016 fiscal year was 22.4% above the prior-year figure of € 162.4 million. The EBIT margin increased compared to the prior year by 1.2 percentage points to 8.5%. Adjusted EBIT came to € 201.8 million (prior year: € 189.9 million). This is equivalent to an increase of 6.3%, while an increase of 1.7% was seen in the prior year. The adjusted EBIT margin comes to 8.6% (prior year: 8.5%). The one-off effects have a total effect of € 3.0 million in EBIT and led to only a variance between the adjusted and unadjusted EBIT margin compared to prior years. At € 144.2 million, NOPAT exceeded the prior-year figure of € 122.3 million by 17.9%. Only the disproportionately high increase in personnel expenses reduced the operating result. Other factors contributing to higher NOPAT included lower impairment losses on intangible assets and property, plant and equipment as well as the almost balanced ratio in the increase in other expenses and other income. Average capital employed increased from € 875.7 million to € 904.3 million, mainly due to the first-time consolidation of the Spanish tüv süd ATISAE and ATICAL and the related effects on intangible assets and property, plant and equipment as well as on trade receivables. Good business development in the certification Segment also contributed to a further increase in trade receivables. This was offset by higher tax liabilities and higher non-interest bearing current liabilities. These include, in particular, payments outstanding during the acquisition of the ATISAE Group and expenses for a software license. EVA for the tüv süd Group reached € 80.9 million and is therefore € 19.9 million higher than the prior-year figure of € 61.0 million. Earnings before taxes amounted to € 182.6 million, up on the prior year (prior year: € 144.4 million). The adjusted earnings before taxes rose by € 13.7 million to € 185.6 million (prior year: € 171.9 million). The return on revenue, calculated using earnings before taxes (EBT), stood at 7.8% in the fiscal year (prior year: 6.5%). This reflects the higher operating result and the positive financial result. The adjusted EBT margin, which is more suited for assessing earnings over time, stood at 7.9% (prior year: 7.7%). The reported consolidated net income increased to € 130.5 million in fiscal year 2016 and is therefore € 16.5 million or 14.5% higher than the prior-year figure of € 114.0 million. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, SEE PAGES 104 – 109, 132 – 134
For further analyses of significant items of the consolidated income statement, we refer to notes 6 through 11 and 32 of the notes to the consolidated financial statements.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
FI N AN C I AL PO SI TION Principles of finance management and financial strategy With our financing activities, we aim always to maintain a sound financial profile while ensuring tüv süd has sufficient liquidity reserves to meet its payment obligations at all times. Further objectives of our corporate treasury function include managing the foreign exchange risk effectively and optimizing interest rates on an ongoing basis. Due to the significant volume of assets set aside to cover pension obligations, the investment and risk management of these positions is of very great importance for us. Capital structure tüv süd is financed by cash inflows from the operating business. The available cash and cash equivalents are supplemented by a syndicated credit line of € 200 million, with a term until the end of 2019, to give us the financial flexibility necessary to reach our growth targets. The contract provides for an option to prolongate by one year in the third and fourth year of the term, respectively. With this credit facility, the available cash and the annual free cash flow, tüv süd has sufficient liquidity to finance its planned organic and external growth.
tüv süd strives to ensure its credit rating remains firmly in the investment grade. Capital expenditures The volume of capital expenditures excluding business combinations and excluding financial assets and securities came to € 86.6 million in the fiscal year (prior year: € 80.4 million). In our home market of Germany, we invested € 51.8 million in new software solutions, in the expansion of the IT application software ASPro, and in the equipment of a refrigeration technology laboratory. In the Western Europe region, we spent a total of € 6.3 million, including the construction of new technical service centers in Spain. In Central & Eastern Europe investments were mainly made in the Dynamic Component Testing Laboratory in the Czech Republic. A total of € 5.0 million was spent in this region. In the asia geographic segment, investments amounted to € 15.0 million, mainly due to technical plants in the Real Estate & Infrastructure Division and a software project from the Product Service Division. The volume of capital expenditures in the americas geographic segment came to € 7.8 million. We invested € 40.5 million (prior year: € 13.0 million) in 2016 for the acquisition of shares of consolidated and non-consolidated affiliated companies. As of the reporting date, there were no material investment obligations.
49
50
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONSOLIDATED STATEMENT OF CASH FLOWS SEE PAGE 93
Liquidity Cash and cash equivalents increased by € 22.2 million to € 245.4 million in fiscal year 2016. This is equivalent to 12.2% of total assets (prior year: 11.9%). The development of cash and cash equiva16 lents in the fiscal year is presented in detail in the consolidated statement of cash flows.
Liquidity of the TÜV SÜD Group 2016
16
IN € M IL L IO N
241.5
– 204.8
223.2
Cash and cash equivalents at the beginning of the period
Cash flow from operating activities
Cash flow from investing activities
– 15.2
0.7
245.4
Cash flow from financing activities
Effect of currency translation differences and change in scope of consolidation
Cash and cash equivalents at the end of the period
The starting point for the statement of cash flows is the consolidated net income for the year. In 2016, this came to € 130.5 million, which is € 16.5 million above the prior-year figure (€ 114.0 million). The non-cash items: amortization, depreciation, impairment losses and reversals of impairments come to € 78.4 million and therefore are € 4.3 million lower than the prior-year figure. In addition to the current amortization and depreciation, impairment of goodwill, intangible assets such as order backlog and customer relationships as well as property, plant and equipment were again recognized during the year, albeit to a much lesser extent than in the prior year. A reversal of an impairment loss on property, plant and equipment had the opposite effect. The change in deferred tax assets and liabilities results from temporary differences with an effect on income. The other non-cash income and expenses include in this year in particular the remeasurement of the existing stake held in the Spanish tüv süd ATISAE; in addition, the equity method and income from the Group-wide currency hedging are also recorded here. The changes in working capital and the other assets and other liabilities resulted in a lower cash inflow compared to the prior year. The capital employed in current assets resulted from the general increase in revenue. The main share of this was accounted for by the certification Segment. On the liabilities side, the current provisions, trade payables and tax provisions had a favorable effect on the capital employed. Advance payments received from customers increased the cash inflow. Cash flow from operating activities increased by € 20.3 million or 9.2% from € 221.2 million to € 241.5 million.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
The cash outflow from investing activities decreased by € 11.8 million to € 204.8 million in 2016. Excluding cash acquired, business acquisitions resulted in a cash outflow of € 40.5 million (prior year: € 13.0 million). Cash paid for investments in intangible assets, and property, plant and equipment decreased by € 3.0 million to € 77.4 million (prior year: € 80.4 million). Investments were made mainly in software, technical service centers and test laboratories as well as in leasehold improvements. Cash received from the disposal of assets primarily relate to sales of real estate by tüv Hessen. Financial assets show a net cash paid, which resulted from the acquisition of the remaining shares in the not consolidated ATISAE Automotive, S.L.U., Madrid, as well as the sale of a share of a policy reserve from the employer’s pension liability insurance and an non-consolidated participation in Switzerland. The redemption of securities with final maturity and the reinvestment in the special fund resulted in net cash received of € 4.5 million (prior year: net cash paid of € 2.0 million). The contribution to pension plans came to € 101.3 million and was thus € 19.4 million higher than the prior-year level of € 120.7 million. In addition to the recontribution of refund benefit payments, one-off additions were made to the tüv süd Pension Trust e.V. (€ 30.0 million) and to the Alters- und Hinterbliebenen-Versicherungen der Technischen Überwachungs-Vereine -VvaG- [“AHV”, an old-age and surviving dependents pensions fund for technical inspection associations] (€ 10.0 million). The free cash flow – defined as cash flow from operating activities less cash paid for investments in intangible assets, property plant and equipment and investment property – was € 164.1 million in fiscal year 2016 (prior year: € 140.8 million). This constitutes an increase of the free cash flow of 16.5% on the prior year. This is attributable to the higher cash flow from operating activities and investments in intangible assets and property, plant and equipment. At 1.26, the cash conversion rate, which is calculated from the ratio of free cash flow to consolidated net income, is higher than the prior-year figure of 1.24. The cash outflow from financing activities rose by € 5.0 million to € 15.2 million. The dividend distribution to tüv süd Gesellschafterausschuss GbR remained unchanged. Dividends paid to non-controlling interests are at the level of the prior year as a still outstanding dividend to non-controlling interests in the Middle East from 2015 was made up and at the same time a partial payment was brought forward to the next year. The cash outflow was mainly due to the repayment of two bank loans from the acquisition in Spain. Acquisition of the remaining shares in an already fully consolidated company were recorded in other cash payments and receipts recorded by exercising an existing option. In the prior year the optimization of the participation structure in South Africa in accordance with the rulings of the Broad-Based Black Economic Empowerment legislation had been recorded here. Cash and cash equivalents of € 245.4 million – consisting of checks, cash in hand, bank balances and securities with an original term of less than three months – were higher than the prior-year level (down € 22.2 million). With the securities disclosed in other financial assets which can be liquidated at all times, there are cash and cash equivalents totaling € 290.0 million (prior year: € 271.3 million). Additional financing flexibility is provided by various credit lines (€ 11.1 million) and the existing syndicated loan agreement of € 200.0 million.
51
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
N ET ASSET S Composition of the statement of financial position of the TÜV SÜD Group: Assets/Equity and liabilities IN %
60.7
61.4
NON-CURRENT ASSETS thereof
32.1
28.9
I N TA N G I B L E A S S E T S
38.4
38.3
P R O P E R T Y, P L A N T A N D E Q U I P M E N T ASSETS
21.1
20.7
D E F E R R E D TA X A S S E T S
39.3
38.6
CURRENT ASSETS thereof
58.5
58.9
T R A D E R E C E I VA B L E S
31.0
30.9
C A S H A N D C A S H E Q U I VA L E N T S
2016 T O TA L A S S E T S : € 2, 013. 8 M ILLIO N
31.9
2015 TO TA L A S S ETS : € 1, 869. 8 M ILLIO N
29.8
EQUITY
41.5
45.3
NON-CURRENT LIABILITIES EQUITY AND LIABILITIES
52
thereof
89.6
91.3
P R O V I S I O N S F O R P E N S I O N S A N D S I M I L A R O B L I G AT I O N S
26.6
24.9
CURRENT LIABILITIES thereof
25.1
25.9
CURRENT PROVISIONS
50.1 OTHER CURRENT LIABILITIES
50.1
17
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Assets, equity and liabilities Total assets increased in the fiscal year by € 144.0 million or 7.7% to € 2,013.8 million (prior year: € 1,869.8 million). Non-current assets rose by € 74.9 million to € 1,222.4 million. Current liabilities increased by € 69.1 million to € 791.4 million. Intangible assets increased by € 61.4 million or 18.5% to € 392.7 million. The change in goodwill as well as intangible assets, which were identified as part of a purchase price allocation, essentially resulted from the acquisition of tüv süd ATISAE. The acquisition of software in Germany also contributed significantly to this rise. Impairment losses of intangible assets, in particular of order backlogs and customer relationships, which were identified as a result of the purchase price allocation, came to € 3.4 million. First-time consolidation of the Spanish companies, investments in expanding existing laboratory capacities as well as in modernizing technical service centers characterize the property, plant and equipment. There were also considerable investments in furniture and fixtures. Unplanned impairment losses (€ 3.4 million) had the opposite effect. Other financial assets decreased by € 37.9 million to € 65.4 million, mainly due to the first-time consolidation of tüv süd ATISAE. The company was still included as a participation with a book value of € 33.0 million in the prior year. Other factors included the redemption of longterm securities as well as the transfer of a share of policy reserve from the employer’s pension liability insurance. Deferred tax assets increased by € 20.1 million to € 257.5 million. The main reasons for this are the deferred taxes recognized in other comprehensive income on the balance of actuarial losses from the valuation of the pension obligations (€ 84.0 million) and profits from plan assets (€ 35.8 million). Trade receivables increased by € 37.7 million or 8.9% in 2016 to € 463.2 million. This means they increased disproportionate to revenue (5.5%). The level of trade receivables – without receivables from the measurement of unbilled work in process – rose by € 45.1 million or 15.1%. The change is due to the first-time consolidation of the tüv süd ATISAE companies (€ 17.9 million) and our good order situation in the certification Segment in Germany, the USA and China. On the other hand, receivables from the measurement of current, unbilled work in progress were reduced, particularly in Germany, resulting in a decrease from € 126.5 million by € 7.4 million (5.8%) to € 119.1 million. Days sales outstanding (DSO) increased on average throughout the Group and stands at 56 days (prior year: 51 days). Cash and cash equivalents rose by € 22.2 million to € 245.4 million. This is equivalent to 12.2% of total assets (prior year: 11.9%). As a result of the higher cash flow from operating activities, we were able to completely offset the cash outflows. This affects both the outflows from the business acquisitions during the year and also the one-off contributions to plan assets.
53
54
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Equity increased by € 85.4 million (15.3%) in the fiscal year, and stood at € 642.4 million as of the reporting date. The increase is mainly due to the consolidated net income of € 130.5 million (prior year: € 114.0 million). In contrast, actuarial losses after deferred taxes reduced equity. Due to the first-time consolidation of tüv süd ATISAE, the prior year’s write-up on the existing shares was reversed through profit and loss. The equity ratio increased by 2.1 percentage points 18 to 31.9%.
Sound capital basis
18
IN € M IL L IO N
IN %
642.0
700
557.0
600 500
373.6
453.4
400
100 90 80 70
395.1
60 50
300
40 30
200
20
100
10 0
0 2012
2013
2014
2015
253.6
264.9
266.3
2016
0
100
200
223.0 300 Debt ratio
Equity ratio
Equity
283.7
Net financial assets
Non-current liabilities fell by € 10.6 million to € 836.2 million. The main change here was from the provisions for pensions and similar obligations (down € 23.4 million). This effect is partially offset by an increase in deferred tax liabilities as well as by an increase in other non-current liabilities. The provisions for pensions and similar obligations decreased by 3.0% from € 772.8 million to € 749.4 million. The group-wide defined benefit obligation reported at € 2,089.6 million is € 63.3 million higher than the prior-year figure (€ 2,026.3 million). In Germany, there was an increase of € 47.2 million, mainly due to the 30 basis points decline in the interest rate. The increase of € 16.1 million abroad is also attributable to the lower interest rate level, although these effects were partly offset by exchange rate gains. In order to extend the external financing of pension obligations in Germany, tüv süd has transferred operating assets to tüv süd Pension Trust e.V., Munich, and tüv Hessen Trust e.V., Darmstadt, under a contractual trust agreement. The funds are administered by these two
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
associations in a fiduciary capacity, and serve solely to finance pension obligations. Pursuant to IAS 19, the transferred trust funds are to be treated as plan assets, and are therefore offset against pension obligations. As of the reporting date, the plan assets totaled € 1,340.2 million. Of this figure, € 1,172.9 million was attributable to the trust assets of tüv süd Pension Trust e.V., and € 28.1 million to tüv Hessen Trust e.V. There were additional plan assets totaling € 139.2 million, essentially from covering capital funds as a result of employer's pension liability insurance and assets for pension plans in other countries. There was a group-wide increase in plan assets of € 86.7 million to € 1,340.2 million (prior year: € 1,253.5 million). The increase is attributable in particular to the actual return on plan assets in Germany and abroad of € 61.9 million as well as one-off additions in Germany of € 40.0 million; the exchange rate losses (mainly in the UK) are still countervailing. The refunded benefit payments of € 56.4 million (prior year: € 54.8 million) were recontributed and thus strengthen the plan assets. Due to the increase in the plan assets, which was higher than the increase in defined benefit obligation, the percentage of pension obligations funded by plan assets improved overall from 61.9% in the prior year to 64.1% as of the reporting date. In Germany, coverage stood at 63.8% (prior year: 60.8%). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, PENSION PROVISIONS SEE PAGES 117 – 124
For a detailed presentation of the development of pension obligations and plan assets, please refer to note 21 in the notes to the consolidated financial statements. Other non-current liabilities include obligations arising from the acquisition of a software license and an earn-out obligation from previously concluded business combinations. Deferred tax liabilities increased by € 6.8 million to € 35.6 million. These derive above all from intangible assets that were recognized in the course of purchase price allocations. The change largely results from the acquisition of the ATISAE Group. Current liabilities increased by € 69.2 million to € 535.2 million, particularly as a result of higher obligations to employees in other current liabilities and current provisions. Current provisions mainly include bonus obligations to employees and severance payments. The provision for demolition and restoration expenses for the Ridlerstrasse property in Munich has been utilized to a large extent. The increase in income tax liabilities is mainly attributable to increases in operating earnings for tax group subsidiaries and lower capital gains tax prepayments. Trade payables increased for billing-related reasons, among other things caused by tüv süd ATISAE and the good business development in China. Other current liabilities rose by € 34.4 million to € 268.0 million. They mainly include obligations to employees for additional working hours and vacation, which are slightly higher than the prior-year level. In addition to increased other tax liabilities and higher advance payments received, the outstanding purchase price installment for the acquisition of the ATISAE Group contributed to this change.
55
56
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
SU MMARY REV I EW OF THE SITUATION In fiscal year 2016, revenue growth was driven in almost equal parts by the organic growth of our existing companies and the acquisition of the Spanish tüv süd ATISAE and ATICAL. We therefore achieved the projected revenue target of up to € 2.3 billion, despite negative currency effects. Our global presence, expertise in our core areas as well as our comprehensive and innovative service portfolio guarantee stable growth. All segments again made a positive contribution to consolidated revenue growth. With the exception of the americas, the geographic segments, including our core market of Germany, saw positive revenue development. Both EBIT and adjusted EBIT developed positively. The EBIT margin increased to 8.5% (prior year: 7.3%). The adjusted EBIT margin is marginally higher at 8.6% (prior year: 8.5%), since the one-off effects eliminated in 2016 were on a smaller scale than the prior year. The purchased service cost, which had risen at a lower rate compared to revenue, and compensating effects from the change in other expenses and other income impacted the EBIT development positively. Personnel expenses grew significantly more strongly than revenue, also due to the acquisition in Spain, and thus dampened an even more favorable EBIT development. Adjusted earnings before taxes (EBT) developed positively, as did the adjusted EBT margin, which increased by 0.2 percentage points to 7.9% (prior year: 7.7%). The acquisition of the Spanish ATISAE Group as well as the one-off additions to the pension assets were financed by cash flow from operating activities. tüv süd has comfortable liquidity, which is secured for the long term thanks to our good credit ratings and the existing syndicated credit line. With a balanced product portfolio, we offer high-quality, innovative and sophisticated services worldwide across industries and national borders while maintaining impartiality and objectivity. To be able to respond to changes in market expectations, this objective is regularly reviewed and updated as and when necessary. In this way, we want to ensure the positive business development of tüv süd now and in the future. Business development largely met our expectations. In the anniversary year we achieved the largest acquisition so far and we generated the highest consolidated net income of our 150-year company history.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
57
TÜV SÜD AG tüv süd ag is the management holding company of tüv süd Group. In the fiscal year 2016, the Group comprised a total of 55 (prior year: 56) companies in Germany and 146 (prior year: 154) abroad. In addition to providing support to the participations, tüv süd ag provides central services, in particular in the areas of legal, HR, finance and controlling, innovation, organization, as well as sales and marketing. Via an agency agreement with tüv süd Business Services GmbH, Munich, the real estate owned by the company is leased at arm’s length, primarily to subsidiaries within the tüv süd Group. Thus, the success of tüv süd ag largely depends on dividend distributions and profit and loss transfer agreements of the participations, income from the leased real estate, income from investments, income from charges relating to trademarks, offsetting between divisions and regions, charges of company-specific holding services, as well as management and other services. The following summary of the results of operations, net assets, and financial position is based on the German GAAP financial statements.
RESU LT S O F O PERATIONS Income statement of TÜV SÜD AG
05
IN € M IL L IO N
2016
2015
Revenue
84.7
52.8
Total operating performance
84.7
52.8
7.4
44.2
Other operating income Cost of materials
– 23.8
0.0
Personnel expenses
– 30.4
– 32.4
– 9.0
– 9.7
Other operating expenses
– 52.0
– 76.6
Operating result
– 23.1
– 21.7
Financial result
139.3
– 20.1
Income taxes
– 21.2
– 14.5
Amortization and depreciation
Earnings after taxes = Net income for the year (prior year: net loss for the year)
95.0
– 56.3
Profit carried forward
6.3
49.7
Withdrawals from other revenue reserves
0.0
15.0
101.3
8.4
Retained earnings
Total operating performance of tüv süd ag increased by € 31.9 million to € 84.7 million in the fiscal year 2016. Income realized from the management services charged to subsidiaries rose due to the increase in cost allocations in Germany and abroad, as well as the favorable development of revenue at individual subsidiaries. Due to the redefinition of revenue in Section 277 (1) HGB [“Handelsgesetzbuch”: German Commercial Code], divisional and regional allocations as well as company-related holding services are recognized for the first time in revenue. If BilRUG [“Bilanzrichtlinie-Umsetzungsgesetz”: German Act to Implement the EU Accounting Directive] had been applied, revenue for the prior year would have amounted to € 81.2 million.
58
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
As a result of the new regulations of BilRUG, cost of purchased services, which are part of the upfront payments due to the redefinition of the revenue, are recognized for the first time in the cost of materials. To date, these expenses have been recognized under other operating expenses. Personnel expenses decreased by € 2.0 million to € 30.4 million, mainly due to lower retirement benefit costs. Amortization and depreciation stood at € 9.0 million, € 0.7 million under the prior-year level. Other operating expenses decreased by € 24.6 million to € 52.0 million. The decrease is mainly due to the changed disclosure according to BilRUG. Cost of purchased services so far included in other operating expenses are now partially disclosed in the cost of materials. In the prior year, donations for social projects totaling € 5.0 million as well as preparations for the anniversary year 2016, with various publications, also drove up expenses. The financial result increased by € 159.4 million to € 139.3 million, primarily due to positive income from participations. In the fiscal year, higher income from profit and loss transfer agreements and the disposal of participations and lower expenses from profit and loss transfer agreements are offset by minor write-downs on the shares in subsidiaries. In the prior year, the investment result was heavily impacted by losses absorbed from affiliated companies and the write-down of financial assets. The increase in income from profit and loss transfer agreements resulted in particular from a change in legislation during the year: pension provisions are discounted using the average market interest rate of the past ten years instead of seven years as previously used. The higher interest rate led to lower additions to the pension provisions compared to the prior year. The effect was reinforced by the gains from a disposal within the Group in Spain and dividend distributions from individual subsidiaries. Our Turkish joint ventures provided an additional positive contribution (€ 9.7 million, prior year: € 8.4 million). Income and expenses related to the contractual trust agreement (CTA) are presented net in the interest result. The atypical silent partnership in ARMAT Südwest GmbH & Co. KG, Pullach i. Isartal, saw an increase in value of € 7.9 million (prior year: € 38.0 million). The Oktagon fund reported a gain of € 37.1 million (prior year: € 24.2 million). Income was recognized from interest rate and currency hedging (prior year: loss). At € –23.1 million, operating profit was slightly down on the prior-year level (€ –21.7 million). Income taxes show a € 6.7 million higher tax expense of € 21.2 million (prior year: € 14.5 million). The increase is mainly attributable to the increase in earnings of the operating companies in the consolidated tax group. At € 95.0 million, the net income for the year was € 151.3 million above the recorded prior-year’s net loss of € 56.3 million.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
59
The tüv süd Group is managed using performance indicators based on IFRS figures which are not reliable for the separate financial statements of tüv süd ag as the Group’s parent.
tüv süd ag’s net income for the year in accordance with German GAAP is primarily influenced by the financial result and its dependence on the interest rate as well as on the profit distributions from subsidiaries.
N ET ASSET S Statement of financial position of TÜV SÜD AG IN € M IL L IO N
06
Dec. 31, 2016
Dec. 31, 2015
Assets Intangible assets Property, plant and equipment Financial assets
11.4
3.5
110.9
114.6
912.1
822.2
1,034.4
940.3
Receivables and other assets
23.2
26.6
Cash and cash equivalents
71.8
74.3
Current assets
95.0
100.9
Fixed assets
Prepaid expenses Excess of covering assets over pension and similar obligations Total assets
2.0
1.7
244.9
193.1
1,376.3
1,236.0
Equity and liabilities Capital subscribed
26.0
26.0
Capital reserve
124.4
124.4
Revenue reserves
405.1
405.1
Retained earnings
101.3
8.4
Equity
656.8
563.9
Tax provisions Other provisions
9.4
1.1
16.0
20.1
Provisions
25.4
21.2
Liabilities
694.1
650.9
1,376.3
1,236.0
Total equity and liabilities
Within fixed assets, intangible assets increased primarily as a result of the closing of a software licensing agreement. Current depreciation decreased the items of property, plant and equipment. Financial assets increased in particular with the acquisition of the Spanish ATISAE Group and a special fund. Receivables and other assets decreased in particular through the reclassification of an intercompany loan by € 3.4 million to € 23.2 million.
60
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
The excess of covering assets over pension and similar obligations rose by € 51.8 million to € 244.9 million, in particular due to the increase in value of the Oktagon fund as well as the atypical silent partnership in ARMAT Südwest GmbH & Co. KG, Pullach i. Isartal. Reduced prepayments as well as the increase in earnings of the operating subsidiaries within the tax group led to an increase in tax provisions by € 8.3 million to € 9.4 million. Miscellaneous provisions decreased by € 4.1 million to € 16.0 million, in particular due to the utilization of the provision for future demolition and restoration expenses for the Ridlerstrasse property in Munich. Compared to the prior year, the € 43.2 million higher liabilities (€ 694.1 million) result mainly from higher obligations due to affiliated companies from the cash pool, the final purchase price installment from the acquisition of the ATISAE Group, and obligations from the acquisition of a software license.
FI N AN C I AL PO SI TION, E QUITY A ND L IA BIL ITIE S The key goals of our financial management are to maintain solvency at all times and continuously optimize liquidity. Cash and cash equivalents fell by € 2.5 million to € 71.8 million. Payments by the subsidiaries from operating activities, which flowed to tüv süd ag via the cash pool, were a key factor. Investments in participations, primarily the acquisition of the ATISAE Group, and the transfer of € 30.0 million to the CTA had the opposite effect. Equity increased by € 92.9 million to € 656.8 million. This corresponds to the net income for the year of € 95.0 million less the dividend payment of € 2.1 million to tüv süd Gesellschafterausschuss GbR, Munich. Together with the profit carried forward from the prior year, retained earnings come to € 101.3 million. Total assets increased by € 140.3 million to € 1,376.3 million. The equity ratio increased from 45.6% to 47.7%.
OV ERALL STAT EME NT ON TÜV SÜD AG’S SITUATION The fiscal year 2016 was largely in line with the expectations of the Board of Management. Revenue and liquidity developed in line with our forecasts. Due to the change in law on the calculation of the average interest rate from seven to ten years in the valuation of pension obligations for the German GAAP financial statements, tüv süd ag achieved a financial result that exceeded expectations. This positive effect also impacted on the result of the separate financial statements. Going forward, tüv süd ag will continue to depend on the business development of its subsidiaries. The discount rate for the pension obligations and the covering assets influence earnings as external factors. The Board of Management of tüv süd ag expects the net assets and financial position to remain stable in the future. The dividend distribution is ensured for the coming years.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
61
Segment report The three segments, industry, mobility and certification, continued their growth 19 trajectory in the fiscal year 2016.
Revenue by segment 2015 / 2016
19
IN %
2016
2015
INDUSTRY
41.0
30.0
25.0
4.0
42.5
28.7
25.1
3.7
MOBILIT Y
CER T IF IC AT ION
OTHER
I N D U ST RY In the industry Segment, 8,134 employees (on average) generated revenue of € 961.1 million. This is equivalent to 41.0% of consolidated revenue. Although revenue in the segment rose by € 15.7 million, or 1.7%, year on year, growth fell short of our expectations. The Industry Service Division recorded a slight decline in revenue in the fiscal year, but remained the division with the highest volume of revenue within the segment, accounting for 61.9% of revenue. Large-scale projects in South Korea that are coming to an end, and the difficult market conditions in the traditional mass business in Germany weighed on demand. In addition, the persistently low oil price and slowed growth in the Chinese economy as well as political uncertainties in Turkey and the UK have had a negative impact on most areas of our business. The Real Estate & Infrastructure Division generated 38.1% of segment revenue. In the reporting year, building and transport technology benefited in Germany from the amendment of the German Ordinance on Industrial Safety and Health [“Betriebssicherheitsverordnung” (BetrSichV)] as well as in Spain by the strong market position of tüv süd ATISAE. Demand for our inspection and homologation services in the field of rail transport is steadily rising, as we can offer onestop management of large-scale projects across national borders. In Brazil, where the economic situation has still not improved, Bureau de Projetos e Consultoria Ltda., São Paulo, again saw a decrease in orders. At € 77.9 million, EBIT in the industry Segment was 3.3% below the prior-year figure of € 80.6 million, and thus also fell short of our forecast. EBIT development was impacted by higher personnel expenses, which saw higher percentage growth than our revenue. In addition, we recognized impairment losses at subsidiaries in the US and Brazil, South Africa and the UK, in order to reflect the unfavorable development of local business in these countries. At 8.1%, the EBIT margin was within the expected forecast range; the expected margin improvements, however, could not be achieved.
62
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
The increase in segment assets by € 18.3 million to € 533.5 million (prior year: € 515.2 million) was characterized by working capital, particularly due to trade receivables. In fixed assets, capital expenditures and depreciation and amortization virtually equaled each other out. A significant portion of investments (€ 18.9 million) has been spent for a refrigeration technology laboratory and into the acquisition of technical equipment for performing material tests in Singapore and Italy. By contrast, impairment losses on intangible assets identified as a result of the pur20 chase price allocation led to a decrease in fixed assets.
Revenue by region – INDUSTRY
20
2016
EMEA
ASIA
AMERICAS
of which Germany
MO BI LI T Y The 5,305 employees (on average) of the mobility Segment generated revenue of € 703.9 million. This is equivalent to 30.0% of consolidated revenue. Revenue growth of € 65.1 million or 10.2% clearly exceeded the expected growth rate. Excluding the new Spanish companies, the segment posted growth in the medium single-digit range, which is in line with our expectations. Roadworthiness tests and exhaust gas analyses, the core business of the segment, saw a significant increase in revenue – mainly due to the new activities in Spain. In Germany, the number of vehicle inspections carried out remained at the prior-year level. On the other hand, business with driver’s license tests grew significantly. Positive effects also resulted from price adjustments. Growth impetus was also provided by our investment in Turkey and by new services relating to vehicle preparation and damage assessment reports. In addition, the demand for emissions testing increased significantly, especially in Germany, with a positive effect on the utilization of our test facilities. Homologation likewise saw good revenue development, with order intake stagnating only in China. The business model in the mobility Segment is partially geared to subcontracting services. Accordingly, the ratio of purchased service cost to revenue is 14.9%, which is above the groupwide ratio of purchased service cost to revenue of 12.5%. In addition, increased personnel expenses as a result of collective wage increases and higher depreciation and amortization negatively impacted EBIT. At € 55.2 million, EBIT met our expectations. However, at 7.8% the EBIT margin was just below the projected target value. As of the reporting date, segment assets came to € 351.7 million (prior year: € 273.8 million). A total of € 23.2 million was invested in 2016, including in the ASPro IT application system. The Dynamic Component Testing laboratory in the Czech Republic was also equipped. In Germany
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
63
and Spain, the modernization and expansion of the technical service centers were driven forward. However, the significant increase in segment assets is due to the first-time consolidation of tüv süd ATISAE and ATICAL. Intangible assets identified in the purchase price allocation 21 were capitalized in addition to purchased property, plant and equipment.
Revenue by region – MOBILITY
21
2016
EMEA
ASIA
AMERICAS
of which Germany
C ERT I FI CAT I O N The certification Segment represents a quarter of consolidated revenue generated (€ 586.7 million). The average headcount here was 5,902 in 2016. With an increase in revenue of € 30.0 million or 5.4%, the segment achieved the expected growth rate in the medium single-digit percentage range. The Product Service Division generated approximately three quarters of segment revenue and accounted for the largest share of the revenue increase in the segment, with revenue growth of 6.2%. The industrial goods sector showed weaker growth compared to the prior year in Japan, the UK and Germany. However, this was partially compensated by a good utilization of our battery test labs in North America. Revenue generated by consumer goods audits and certifications have also increased worldwide; China showed the strongest growth with export goods for the European and the US market. In fiscal year 2016, our services for medical products in Europe, and especially in Germany, were increasingly in demand. The good order situation in Germany, China, India and Mexico also led to a positive revenue development in the Management Services Division (3.0%, prior year: 9.3%). Revenue drivers remain our portfolio of services relating to quality, environment and energy management systems, in particular in the automotive industry. However, newer services such as cyber security and FSC certifications also contributed to revenue growth. Purchased services increased to a lesser extent than revenue, with the result that the ratio of purchased service cost to revenue decreased to 14.3% (prior year: 14.9%). Personnel expenses developed disproportionately higher than revenue, with the major share of the increase being attributable to collective wage increases in Germany. EBIT in the certification Segment amounted to € 58.8 million, and the EBIT margin of 10.0% was within the range we expected.
64
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
In the certification Segment, segment assets increased to € 321.3 million. This is equivalent to an increase of € 39.0 million or 13.8% compared to the prior year. A total of € 21.5 million was invested in the segment. The investment focus was on the expansion of the laboratory network for electromagnetic compatibility testing as well as on the development of software for process control. The good business performance and the associated increased billing additionally 22 increased segment assets.
Revenue by region – CERTIFICATION
22
2016
EMEA
ASIA
AMERICAS
of which Germany
OT H ER We have pooled our Life Service and Academy business along with the corporate functions under other. Together they generated revenue of € 125.7 million in 2016. The increased demand for open seminars in the Academy business provided the greatest contribution. EBIT in other amounted to € 6.7 million. The value improved by € 24.2 million compared to the prior year in particular, mainly due to the write-up of the existing stake in tüv süd ATISAE recognized in profit or loss at tüv süd ATISAE. The good level of order backlog in the Academy business and cost reduction measures at the group headquarters also had a positive effect. Segment assets decreased by € 14.9 million from € 282.8 million to € 267.9 million. During the fiscal year, the company mainly invested in software, IT hardware and canteen equipment at the Munich location. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, SEGMENT REPORTING SEE PAGES 132 – 134
For an overview of the development of revenue in the segments, including other, and in the regions, please refer to segment reporting (note 32) in the notes to the consolidated financial statements.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
65
NON-FINANCIAL PERFORMANCE INDICATORS Employee report H EAD C O U N T C O N TINUE S TO GROW As of the end of 2016, tüv süd had approximately 24,000 employees. That corresponds to a total of 23,280 employees (full-time equivalents) and thus an increase of 14.0% compared to the prior year, in which 20,446 employees (full-time equivalents) were employed as of the reporting date.
tüv süd created 2,834 new jobs at the existing companies in the fiscal year: 287 in Germany and 2,547 in other countries. Headcount increased by 1,266 as a result of acquisitions. The disposal of non-core activities in Japan reduced headcount by 9 employees (full-time equivalents). In the prior year, the disposal of an eastern European company reduced the headcount by 16 (full-time equivalents).
Development of employees
23
A N N U A L AV ER A G E H EA D C O U N T
21,738
20,228
19,735
18,981 17,227
2016
2015
2014
2013
2012
The average number of full-time equivalents (FTEs) for the year 2016 was 21,738, which is 7.5% up on the prior year. Nearly 90% of new employees work outside Germany, where the average 23 number of FTEs rose by 12.4%.
66
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
As a technical services provider, we mainly recruit in the area of natural sciences, where men still significantly outnumber women, particularly in Germany. The share of female employees in Germany remained unchanged at nearly 29%, in other countries, the share continues to be higher than in Germany at 32.3%, and also above the prior-year figure (31.4%). The percentage of female employees in the Group totaled 30.6%. In March 2016, the Gender Balance Group initiative was adopted by the Board of Management. The aim of this initiative is to significantly increase the share of women occupying specialist and management positions. Globally, the share of women in the top management level (excluding the Board of Management) is 6.3% and the next level down is 11.3%. Through strategic development programs along the entire employee life cycle as well as the expansion of the program for reconciling work and private life, the share is to grow in the coming years. Our employees are on average around 42 years of age, with a marked age gap between Germany and other countries. Employees in Germany tend to be older. They stay with the company for an average of twelve years, which is longer than their colleagues abroad, who tend to leave tüv süd after five years. Staff turnover throughout the Group stands at 6.4%, slightly above the prior-year figure of 5.9%. At 2.3% (prior year: 2.5%), the turnover rate in Germany is at a low level. By contrast, a slight increase from 9.3% in the prior year to 9.8% in the fiscal year was seen in other countries.
C H AN G ES I N H EADCOUNT IN THE SE GM E NTS A ND RE GIONS Headcount was increased in all three operating segments. The industry Segment continues to account for the largest number of employees. The mobility Segment grew most strongly in relative terms compared to the prior year. The rise in personnel in both segments is mainly due
Changes in headcount 2015 / 2016 by segment
24
A S O F 31 D EC EM B ER
+16.4%
8,817 7,572 +26.0%
5,963
+1.0%
5,931 5,874 4,731
2016
2015
INDUSTRY
2016
2015
MOBILITY
2016
2015
C E R T I F I C AT I O N
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
67
to the acquisition of the Spanish ATISAE Group with 1,249 employees. Headcount in the certification Segment grew marginally. Here, we are continuing the expansion of the Product Service business so that we can offer our customers our entire range of services, in particular at the test laboratories. More than half of the total tüv süd workforce was employed outside Germany in 2016. New jobs were created in the emea and asia Regions. In americas, headcount was approximately at the prior year level. Additions were offset by capacity adjustments to take account of the continuing unfavorable economic situation in the oil and gas business as well as in Brazil. 24 / 25
Changes in headcount 2015 / 2016 by region
25
A S O F 31 D EC EM B ER
+21.4%
16,173 13,322
+0.2%
5,557
5,545
2016
2015
– 1.8%
1,550 1,579 2016
2015 EMEA
2016
2015
AMERICAS
ASIA
68
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
N EW H R REO RG ANIZATION PROVIDE S RE L IE F F ROM ROUTINE TA SKS To enhance the efficiency and quality of HR work, we have gradually been introducing a new form of HR organization since 2014, in which administrative activities are pooled in shared services areas. At the same time, we are optimizing the existing HR processes and standardizing the HR IT systems for recruitment and performance appraisal. In the meantime, the transformation of the HR organizations has continued in Germany and the UK, in the focus countries of the americas Region as well as in the asia Region. With the reorganization, the HR business partners are relieved of routine tasks and are given more freedom to provide comprehensive advice on the personnel policy of the experts and management for whom they are responsible. In order to support the HR business partners in their new role, we have conducted numerous workshops and training sessions this year.
U N I FO RM STAN DA RDS F OR PE RF ORM A NCE A SSE SSM E NT We aim to assess the performance of our employees as objectively as possible and on the basis of uniform criteria. To achieve this, we have developed an IT system that enables supervisors and employees to check achievement against goals online and at any time. The system has been used in Asia since 2010. In 2016, we expanded the user circle to the USA, so that now more than 7,000 employees are registered online. We want to introduce the system in other countries in 2017.
D EV ELO PMEN T O F E XPE RTS A ND M A NAGE M E NT – F OR THE F UTURE tüv süd has been growing steadily for many years, and the number of employees has been growing with it. By 2020, more than 27,000 people are likely to be employed by tüv süd. At the same time, the demands we place on our employees will also change. Digital transformation in particular requires a high degree of agility in order to take account of the associated change in our business. This is why we have been working intensively for several years to recruit skilled employees for tüv süd in all our markets, retain them and create an environment for them in which they can continuously develop. To this end, we offer our employees extensive training measures, as their abilities are the basis for the future viability of our company. This is particularly required for managers and experts at tüv süd. We want to foster and continuously enhance their talent and knowledge. With the Leadership & Expert Development (LED) project, we have therefore put systematic and continuous development of experts and management at the very heart of tüv süd’s international HR work. A lot has happened since the project launch in 2013: after the introduction of a program for upper management level, we launched the global program for high potentials. From 2014 onwards, middle management was included in the program and in 2015 we launched systematic expert development, preparing them to take on more demanding tasks. With the global Expert Development Program (EDP), we want to reach experienced senior experts in order to further develop them in core competences such as innovation management, product development, customer orientation or knowledge transfer. In this way, we aim to prepare these experts for new
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
69
tasks and, at the same time, to increase employee retention and prevent the loss of knowledge through fluctuation. After two successful rounds with a total of 30 participating experts in the fiscal year, two runs of the program with up to 20 participants from all divisions and regions are 26 planned every year until 2020.
Ideal development opportunities for everyone
26
TÜV SÜD LEADERSHIP AND EXPERT DEVELOPMENT
GUIDLINES FOR EXECUTIVES AND EMPLOYEES
CORPOR AT E & COMPA N Y S T R AT EGIE S
COMPLIANCE
COMPETENCY MODEL
L E A D E R S H I P, H I G H - P O T E N T I A L A N D EXPERT DEVELOPMENT Individual measures for Technology Leaders
Executive Programs High-Potential Program JUMP!
Global Expert Development Program
Advanced Leadership Program High-Potential Program CHAMP Emerging Leaders’ Program
Regional Expert Development Programs or Individual measures for Experts
TÜV SÜD BUSINESS AND LEADERSHIP SCHOOL KNOWLEDGE TRANSFER TÜV SÜD EMPLOYEE ACADEMY
TÜV SÜD WEB ACADEMY
JU MP! PRO G RAM F OR HIGH POTE NTIA L E M PL OYE E S E NTE RS THE F OURTH ROUN D We have been promoting special talents for many years with the Jump! program, which entered the fourth round in 2016, and prepares employees with potential for divisional and cross-regional management tasks. Accompanied by mentors, 17 high potential employees from different countries are currently working on specific tasks and projects. Four further training modules serve to develop the personality as well as the development of leadership skills in an inter national context. Since the start of the program in 2009, 64.5% of the participants went on to successfully take over a new function in the company. Some now also hold higher management positions.
VO CAT I O N AL T RAINING – A N INTE GRA L PA RT OF THE TÜV SÜD HR POL ICY In 2016, 137 trainees prepared for their careers at tüv süd in Germany (prior year: 127). Many of them combine theory and practice by participating in dual track courses in collaboration with universities of cooperative education for vehicle engineering and services marketing.
70
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
EMPLOY EE SU RV E Y DE L IVE RS CONCRE TE RE SULTS After conducting the second employee survey in 2015, we evaluated the results in the fiscal year and defined corresponding follow-up measures. In addition to numerous activities at team and department level, more than 80 region- or company-specific follow-up measures were initiated. The focus was on the areas of workload and organization, work-life balance, communication, leadership, strategy as well as collaboration throughout the company.
EMPLOY ER AT T RACTIVE NE SS SE CURE S THE F UTURE Consistently good results in surveys and employer rankings confirm time and time again: tüv süd is a highly attractive employer, particularly for engineers and technical specialists. Students and graduates in technical subjects rate our company highly as a potential employer. This year, we further consolidated our good position in comparison with competitors. Our activities are increasingly recognized in international comparison. In the “Excellence Employer of China 2016” competition, tüv süd in China was acknowledged as one of the 100 companies with outstanding HR management and received the prize for the best HR strategy. In the UK, tüv süd Wallace Whittle was honored as “Employer of the Year” in the category of medium-sized companies for its promotion of young talent.
tüv süd remains active at institutions of higher education in order to reach potential applicants at an early stage and in a targeted manner. We regularly use graduate job fairs, specialist presentations and dedicated in-house events in our recruiting and cooperate closely with student initiatives. We give students in a wide variety of disciplines the opportunity to write their bachelor’s and master’s theses on practical topics at tüv süd. Last but not least, we support a total of 25 students at Munich University of Applied Sciences, TU Kaiserslautern as well as Friedrich-Alexander-Universität Nürnberg-Erlangen, with grants through the “Deutschlandstipendium” initiative.
H O RI Z O N S – LAUNCH OF THE INTE RNATIONA L E XCHA NGE PROGRA M FO R C H I LD REN O F E M PL OYE E S As part of our 150th anniversary, we launched the Horizons program in 2016 to initiate an international youth exchange for our employees’ children between the ages of 14 and 18. We want to encourage personal relationships among our employees and their families around the world, beyond national and company boundaries. After the application phase in 2016, the first participants will arrive at their host families in the summer of 2017 and will spend two weeks at one of tüv süd’s global locations. The company bears a large part of the costs.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
71
CAREER AN D FAMILY – COM PRE HE NSIVE OF F E RS F OR E M PL OYE E S Reconciling the demands of career and family is a key element of our corporate social responsibility. A large number of programs and offerings are available to our employees, ranging from searches for child care facilities through to support with care for family members. The utilization of the service confirms the attractiveness of this service for our employees. A current cost-benefit analysis also confirmed the effectiveness of our programs in 2016. To continuously optimize our commitment, we have regularly participated in the “berufundfamilie” audit since 2009. In 2015, we successfully passed this for the third time. In the fiscal year, we began intensifying the communication of our diverse range of services and, 07 in particular, integrating tüv süd’s executives even more closely into the programs.
Reconciling the demands of career and family
07
2016
2015
532
467
Percentage of employees in part-time employment during parental leave
20.3%
17.8%
Total percentage of employees in part-time employment
17.0%
20.3%
4.2 months
5.8 months
14.5 months
16.1 months
1.4 months
1.4 months
Employees on parental leave
Average duration of parental leave Thereof women Thereof men Only Germany without Hesse.
SYST EMAT I C H EA LTHCA RE M A NAGE M E NT In line with the increasing internationalization of our company, we are also pursuing an international approach to establishing corporate healthcare management. A Global Health Policy will be adopted shortly which will promote, among other things, the global organization of health protection as well as minimum standards and key figures, as well as first aid and emergency management, risk assessment and industrial hygiene. It supplements the works agreement developed together with the group works council in 2014. We developed and introduced a health index in the fiscal year based on data from the global employee survey. In addition to the locally collected key figures and indices, including accident and sickness levels or the rates of participation in healthcare promotion actions, the health index will be the benchmark for our company’s healthcare management, as we want to measure the success of our activities even more closely. This year, we also reorganized our first aid and emergency management. Central coordination enables efficient control of the designation and training of first aiders as well as secured processes in the rescue chain. tüv süd is committed to even more effective emergency management beyond the legal framework and provides AED devices (Automated External Defibrillators) at various sites throughout Germany.
72
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Cooperation with International SOS, a service provider specializing in worldwide medical and safety-relevant support services for employees of large companies, has enabled all tüv süd employees on business trips to use a comprehensive network of assistance centers since the beginning of 2017 in order to provide fast and competent assistance in an emergency. Experts are available around the clock in more than 70 countries and in over 90 languages. We want to support our employees’ own initiatives concerning healthcare with company-wide healthcare campaigns. After the successful premiere of the “Mental fitness” campaign in 2015, we focused this year on the topic of a healthy back, under the motto “Boost your back health”. We reached a large number of our employees both at home and abroad, by means of numerous workshops, webinars in German and English as well as back exercises available online. We have rounded off our commitment for many years with proven offerings such as flu vaccinations and colorectal cancer screenings as well as healthcare activities at individual locations. Again, we see the attractiveness of our offer confirmed by continuously increasing numbers of participants.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
OPPORTUNITY AND RISK REPORT One of the prerequisites for tüv süd’s success is a responsible approach to risks and opportunities. We use an internal control system and a comprehensive risk management system within the tüv süd Group to identify risks and opportunities arising from our business activities at an early stage and manage them with foresight.
I N T EG RAT ED I N T ERNA L CONTROL A ND RISK M A NAGE M E NT SYSTE M FO R T H E FI N AN C I A L RE PORTING PROCE SS The financial reporting internal control and risk management system plays a decisive role in the financial statements of tüv süd ag and the tüv süd Group. It comprises measures designed to ensure complete, correct and timely provision of the information necessary to prepare the separate financial statements of tüv süd ag and the consolidated financial statements and combined group management report. These measures are intended to minimize the risk of material misstatement in the books and records and external reporting. The tüv süd Group has a decentralized accounting organization. Consolidated companies handle accounting tasks independently and at their sole responsibility or transfer them within the Group’s central shared service centers. The tüv süd IFRS accounting guideline ensures uniform recognition and measurement and the exercise of options on the basis of the rules applicable to the parent company. These include in particular specific instructions on applying statutory provisions and dealing with industry- specific matters. The components of the reporting packages which the group companies have to prepare are also described in detail, as are provisions for presenting and handling intercompany transactions and the reconciliation of balances based on these. Control activities at group level comprise analyzing and, if necessary, adjusting the financial reporting in the reporting packages submitted by the subsidiaries. This takes into account the reports presented by the independent auditor and the results of the closing discussions with representatives of the individual affiliated companies. During the meetings, the plausibility of the separate financial statements and critical individual matters at the subsidiaries are discussed. In addition to plausibility checks, other control mechanisms used during the preparation of the separate and consolidated financial statements of tüv süd ag include the clearly defined segregation of responsibilities and the four-eyes principle. Moreover, the financial reporting internal control system is also independently audited by the Group’s internal audit function in Germany and abroad and assessed by the group’s independent auditor.
73
74
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
I N T EG RAT ED C O N SOL IDATION A ND PL A NNING SYSTE M We can consolidate and analyze historical accounting data and future-oriented controlling data via the tüv süd Business Portal. The system offers central master data maintenance, standardized reporting and outstanding flexibility with regard to changes in the legal framework. This provides us with a future-proof technological platform that benefits the Group’s accounting and controlling functions alike. The data consistency of the tüv süd Business Portal is ensured by a multi-level validation system.
EARLY WARN I N G SYSTE M F OR DE TE CTING RISK The risk situation of the company is continuously recorded, evaluated and documented. As an operational component of the business processes, risk management serves to identify risks at an early stage, assess their extent, promptly initiate necessary countermeasures and report them to the Board of Management in line with internal regulations. The independent auditor annually verifies the procedures and processes implemented for this purpose as well as the appropriateness of the documentation. We identify risks on the basis of current standards using risk categorization specific to tüv süd. We use standardized criteria to evaluate risks throughout the Group in terms of potential loss and likelihood of occurrence. Reporting on identified risks and implemented countermeasures is an integral component of our standardized corporate planning and monitoring processes. It is incorporated in tüv süd’s information and communication system. Risk and opportunity reports are submitted to the Board of Management, the audit committee and Supervisory Board on a quarterly basis. Over and above these standardized reporting processes, significant issues are communicated in internal ad hoc reports. Risk management is firmly rooted in the Group’s management process. A risk committee is deployed for each of the three segments. In addition, there is a corporate risk committee which handles group-wide issues. These four committees meet every quarter to analyze and evaluate the risk and opportunities situation, and discuss appropriate measures. Implementation of the 27 measures is monitored by the committees.
Organizational structure of the risk management process
27
BOARD OF MANAGEMENT
AUDIT COMMITTEE
Overall responsibility for the risk management system and the internal control system
Monitors the effectiveness of the risk management system and the internal control system
GLOBAL RISK MANAGER/GROUP RISK MANAGEMENT INDUSTRY
MOBILITY
C E R T I F I C AT I O N EMEA ASIA AMERICAS
C O R P O R AT E
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
The procedural rules, guidelines, instructions and descriptions are set out systematically and are largely available online. Compliance with these regulations is ensured by internal controls. In addition, user training is carried out at regular intervals.
G OALS AN D MEC HA NISM S OF RISK M A NAGE M E NT The Group’s risk management aims to identify potential risks so that suitable countermeasures can be taken to avert the threat of loss to the company and rule out any risks that may jeopardize its ability to continue as a going concern at an early stage. We are prepared to enter into manageable risks which are reasonable in relation to the expected benefit from operating activities. Events that could give rise to a risk are identified and assessed locally in the divisions as well as in the subsidiaries. Suitable countermeasures are initiated without delay, and their effects are assessed over time. The results of risk management are factored into budgeting and controlling. Targets agreed in the planning meetings are subject to ongoing review during the revolving revisions to planning. At the same time, the results of the measures already implemented to counter the risks are promptly included into the forecasts for further business development. In this way, the Board of Management also receives an overall picture of the current risk situation during the year via the documented reporting channels.
C O N T I N U O U S MO NITORING A ND F URTHE R DE VE L OPM E NT As part of our ongoing monitoring and improvement process, the internal control and risk management system is continually optimized. In this way, we take into account internal and external requirements alike. The aim of the monitoring and improvement process is to ensure the effectiveness of the internal control and risk management system. The results form part of the periodic and ad hoc reports to the Board of Management, the audit committee and the Supervisory Board of tüv süd ag.
75
76
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Risk report The ten most significant risks are presented as Top 10 risks in the internal reporting to the Board of Management, the audit committee and the Supervisory Board. This year, we have reported here only on the material risks with an effect on earnings that tüv süd is exposed to in its business operations. The effects of a change in the discount rate on benefit obligations, such as pensions and medical benefits, are now reported outside the Top 10 risks. This takes account of the predominantly equity character of this risk and the limited extent to which it can be controlled. The weighted net risk resulting from the further reduction in the discount rate as of the reporting date amounted to € 74.3 million (prior year: € 55.4 million). The greatest risks with a resulting significant effect on income stem in the mobility Segment from two Top 10 risks with a weighted net risk of € 7.3 million, and in the industry Segment from two Top 10 risks of € 5.1 million weighted net risk. In the Group there is the risk of a possible retrospective earn-out payment (€ 2.2 million weighted net risk). In the mobility Segment, the most significant Top 10 risk of € 5.0 million is from a defective licensing process for technical service centers for vehicle roadworthiness tests and exhaust gas analysis. The second risk in this segment results from unbudgeted additional costs for an unplanned project. The increasing digitization can have negative effects on our business. These are estimated in the industry Segment with a weighted net risk of € 3.1 million. In addition, the loss resulting from the possible sale and deconsolidation of a US subsidiary is also listed here. The other Top 10 risks are all below a loss amount, weighted in terms of likelihood of occurrence, of € 1.5 million and are therefore not quantified on grounds of materiality.
I N D U ST RY AN D SYSTE M IC RISKS tüv süd is primarily exposed to industry and systemic risks that could negatively impact revenue and earnings, in particular in its core European market. These mainly relate to sales risks arising from the liberalization and deregulation of the European market. We successfully mitigate these risks by continuously optimizing our business processes, developing and implementing sales and marketing concepts and diversifying the portfolio of products and services. Changes to the legal framework also have an effect on the development of business at tüv süd’s segments. We therefore monitor our markets closely and take an active role in the public debate on relevant topics. In this way, we seek to identify risks at an early stage and offset their effects. This also enables us to leverage the opportunities arising as a result of changes in the business environment for our company.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
We identify the following industry and systemic risks among the Top 10 risks: Due to the advancing digitization of almost all sectors of the industry, we expect negative effects from changes in the German Ordinance on Industrial Safety and Health [Betriebssicherheitsverordnung (BetrSichV)]. In order to participate in potential future business, we have invested in development projects. However, the prospects for success here are still open. The low oil price can potentially lead to a sale of an American subsidiary in the absence of longterm earnings prospects in the petrochemical consulting business; this would lead to deconsolidation losses. In addition, the decline in oil prices can generally have an adverse effect on our service portfolio for the oil processing industry. Customers are increasingly requesting price reductions, and in individual cases, ongoing projects are being terminated by customers or planned projects are being postponed. In the absence of long-term earnings prospects, there is also a risk that a business unit in the UK may have to be closed.
O PERAT I N G RI SK S The commitment, motivation and skills of its employees are key success factors for tüv süd. We see our employees’ training and international orientation as well as their ability to translate innovations into customer benefits as personnel-related opportunities. However, risks arise if we are unable to recruit suitable staff or retain high performers. We have implemented a large number of measures to ensure the appeal of tüv süd as an employer and support the long-term retention of employees within the Group. Information processing plays a key role in the fulfillment of our responsibilities. All major strategic and operational functions and processes are supported to a large extent by information technology (IT) at tüv süd. The IT security measures implemented serve to protect the systems against risks and threats, as well as to avoid damage and reduce risks to an acceptable level. Even in an intact IT environment, it is not possible to preclude risks entirely. Our internal IT security policies are based on national and international standards. We monitor the regulations and compliance on an ongoing basis in order to guarantee the target level of security. The central IT systems are monitored in such a way as to enable us to respond quickly to any disruption. Our corporate data are protected by adequate measures according to the level of protection required for the respective data. To protect our IT system against viruses and other harmful codes, we deploy security software, which we keep up to date at all times. Extensive contingency measures are in place to ensure that we remain operative in the event of extensive damage to our IT infrastructure – for example, through fire, environmental influences or by force majeure. Comprehensive backups of the central systems also ensure that we can resume operations within an acceptable time frame for the respective applications. The Top 10 risks include operating risks from an earn-out agreement and in the mobility Segment from possible additional costs of an unknown amount which may be incurred for the IT application software ASPro for driving license testing.
77
78
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
FI N AN C I AL RI SK S tüv süd ag handles the financing of tüv süd and its operating companies centrally. It is responsible for keeping sufficient reserves of liquidity for short- and medium-term financing requirements.
C U RREN C Y RI SK S F ROM TRA NSACTIONS Transaction risks can arise from every existing or forecast receivable or liability denominated in foreign currency. The value of such receivables or liabilities fluctuates in line with changes in the respective exchange rate. An internal policy requires all affiliated companies to monitor their own foreign exchange risks and hedge them if they reach a certain volume. Hedging is carried out primarily by means of forward exchange transactions. The corporate treasury department largely enters into these transactions centrally for the group companies.
C U RREN C Y RI SK S F ROM TRA NSL ATION Translation risks arise from the carrying amounts of participations denominated in foreign currency and the related net income or loss for the year. tüv süd prepares the consolidated financial statements in euro. For the consolidated financial statements, the statements of financial position and the items of the income statements of the affiliated companies located outside of the euro zone must be translated to the euro. The effects of fluctuation in the exchange rates are disclosed in the appropriate items within equity in the consolidated financial statements. As the participations are generally of a long-term nature, we monitor this risk, but do not hedge the net assets position. The fact that the current and foreseeable effects on the consolidated statement of financial position are immaterial is decisive here. When borrowing to finance business combinations, we generally ensure the loan is taken out in matched currencies in order to eliminate risk from fluctuations in exchange rates as far as possible.
I N T EREST RAT E AND PRICE RISKS Interest rate risks arise from interest-bearing items and items that are directly linked to interest rates. For securities, transaction risks arise from the market prices of the various interest-bearing investment instruments. In principle, a distinction is made between the risk from the pensions portfolio and the operations of the tüv süd Group. With regard to operating activities, we use financial derivatives exclusively to hedge underlying transactions. Forward exchange transactions are the main currency hedging instrument. The risk strategy in the pensions portfolio is designed to limit some of the market risk from pension obligations by means of structured, dedicated financial assets. Another objective is to compensate for the interest cost of the hedged pension obligations by means of a corresponding asset allocation wherever possible and to increase coverage over time. This is to be achieved by means of a return on assets, additional new additions or recontributions with the trustors waiving their pension reimbursements.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
More than half of the pension obligations are covered by financial assets, the majority of which are segregated from operating assets as a result of the contractual trust agreement (CTA) in order to reduce risks associated with pension liabilities and allow an investment policy that reflects the obligations. A very high percentage of the German segregated pension assets is managed in trust by tüv süd Pension Trust e.V. They are invested by external investment companies in accordance with specific investment principles. Interest rate risks, currency risks and price risks relating to special non-current capital investment funds are partly hedged by derivative financial instruments. The portfolio’s market value is subject to fluctuations resulting from changes in interest, currency and credit spread levels as well as share prices. A further reduction in the discount rate used to determine pension provisions could have a significant effect on the equity position of the Group. In addition, a change in the discount rate has an effect on income in connection with the measurement of the long-service bonus and medical benefits obligations. Another negative effect on equity capital could arise from a potential reduction in the return on plan assets compared to planning. In 2016, tüv süd Pension Trust e.V. continued to pursue the strategy of sustainably managing investments. The aim of the sustainability strategy, which is rooted in the relevant tüv süd guidelines, is primarily to minimize risk.
C O MPLI AN C E AN D OTHE R RISKS As of the end of the reporting period, several legal proceedings were still pending in connection with services rendered by tüv süd. Due to the existing global insurance cover, there were no material financial risks. Sufficient provisions were recognized to cover any remaining risk. Due to a defective licensing process, there is a Top 10 risk that some technical service centers may not be allowed to operate. The accreditation for carrying out these inspections has been retained.
OV ERALL STAT EME NT ON THE RISKS FACE D BY THE GROUP From a Group perspective, we are giving particularly close attention not only to the discount rate risk from the measurement of the pension obligations and the provisions for long-service bonus and medical benefits, but also to the industry and systemic risks. With regard to the next two years, the risk management system that is in place does not currently indicate any risks that could seriously impact tüv süd’s results of operations, net assets and financial position. All organizational preconditions necessary to recognize developing risks at an early stage have been met.
79
80
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
Opportunity report We have identified significant opportunities for the further business development of tüv süd. These opportunities result from our strategic planning, the business outlook and the individual opportunities of the divisions and segments. Thanks to our global presence, any global economic growth in all segments provides positive impetus for our business. In the following, the main opportunities are presented in accordance with the risk categories mentioned above.
I N D U ST RY AN D SYSTE M IC OPPORTUNITIE S Our comprehensive service portfolio for all aspects of energy technology enables us to meet all the requirements of our customers in the industry Segment and win follow-up orders. The international construction of new nuclear power plants, especially the nuclear new build initiative in the UK, and the decommissioning of nuclear installations are future growth markets. We offer stress and safety tests for this purpose in accordance with European standards worldwide. We quantify this opportunity with almost € 2 million approximately. We see additional market opportunities in international project business with our portfolio for energy providers, the petrochemical industry as well as services along the value chain as for example, the aerospace industry. We will leverage cross-selling potential and synergies in the UK and the Middle East by pooling consulting services for lift and building systems. Further synergies are also being realized in Germany through the merger of the German building advisory services companies. In the Middle East, we expect additional positive economic developments due to the construction activities for Expo 2020 and the 2022 FIFA World Cup. In the mobility Segment, we see growth opportunities from increased demand for emission tests following the introduction of the new emission legislation as well as from a government increase in fees for roadworthiness tests and exhaust gas analyses. In these opportunities, we see a potential of more than € 8 million in additional revenue. New guidelines and standards such as the Medical Devices Regulation (MDR) or the quality management standard IATF 16949:2016 for the automotive industry give us the opportunity to expand our service portfolio in the certification Segment and expand our customer base worldwide. At the same time, digitization opens up additional product opportunities for our global laboratory network, where we offer electromagnetic compatibility tests and high-frequency measurements.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
O PERAT I N G O PPORTUNITIE S One of our focus points in the industry Segment is the UK market. This is the result of the expansion of conventional energy in the UK and, in particular, the planned new construction of conventional power stations. Also in the UK, there is the possibility to transfer an ongoing rental agreement for a property with a system for testing wind turbines to a business partner. In the mobility Segment, we will continue to drive the internationalization of our business: we are participating in the tender for an international automotive manufacturer for the Japanese market. As a result of our increased market presence in Spain, we will be expanding our services for second-hand vehicles and will also be able to provide those customers we are already serving in other European countries with high quality standards in the Spanish market. We will use our international competence in the certification Segment to drive the expansion of our global key accounts in the textile sector. Tailor-made offers will serve the growing demand for customer-specific services. At the same time, we are using supplier audits to achieve higher market penetration.
FI N AN C I AL O PPO RTUNITIE S An increase in the discount rate used to determine pension provisions as well as for provisions for long-service bonuses and medical benefits could have a significant positive effect on the position of the Group’s equity or income. Positive development of the key risk factors of nominal interest and credit spread results in a decrease of the pension obligation, thereby reducing the shortfall in cover. After taxes, this change in the shortfall would have a positive effect on equity.
Risk report of TÜV SÜD AG tüv süd ag is an investment and management holding company. As such, its risk situation is primarily determined by the economic situation of its participations. In addition, there are financial risks in the form of interest rate risks, currency risks and price risks. Interest rate risks arise in conjunction with liquidity management and refinancing. To hedge these risks, derivative financial instruments in the form of interest rate swaps are also used, if required. Foreign currency risks can arise from any existing or forecast receivable or liability denominated in foreign currency. They are mainly hedged using forward exchange contracts. Price risks arise from changes in the market price of various securities. Industry and systemic risks arising from changes in the market conditions in the segments and regions are recorded using market and competitive analyses and are discussed in strategy meetings.
81
82
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
OUTLOOK Future development of the TÜV SÜD Group Please note that actual events in the course of the coming fiscal years could differ from our expectations presented below. The following statements on the outlook for the development of tüv süd in the coming fiscal year are based on the planning for 2017. This was prepared by the Board of Management and approved by the Supervisory Board on December 7, 2016. As part of our strategic planning, which comprises the years up to 2020, we regularly use scenario analyses to examine the effects of economic development of our segments. The resulting findings and targets are also taken into account in the 2017 outlook.
Development of the global economy: outlook for 2017
Global
Moderate development
Germany
Slight improvement
Euro zone
Slight improvement
USA
Moderate improvement
Emerging markets
Moderate improvement
08
We assume that the global economy will continue to see moderate growth of around 3.4% in 08 2017. The Kiel-based Institut für Weltwirtschaft (ifw) expects growth of 3.6% for 2018. In Germany, the economy is expected to continue to grow in 2017. The positive situation on the labor market and stable financing conditions are beneficial. The upswing sustained by private consumption will weaken somewhat. Rising energy costs and the persistently low interest rate are reducing the purchasing power of private households. The increase in government spending will also slow down as the immigration of refugees is expected to wane. Commercial investment in Germany, in particular in construction, will in the future support the economic development. Corporate investment in the international environment could be delayed by political uncertainties, such as the Brexit vote and policy change in the USA. In general, these political factors should not have any significant short-term effect on the German economy. For this reason, we expect higher economic activity for 2018, which is borne by the domestic economy. We expect continued economic recovery for the euro zone with large regional differences. Unresolved structural problems in some countries continue to negatively impact local economic development. In Italy, economic prospects remain subdued following the rejection of constitutional reform. In addition, there are uncertainties about the future orientation of economic policy after parliamentary elections are held in the five largest member countries. In the UK, economic growth should slow down noticeably after the Brexit vote. The US economy is expected to grow moderately in 2017, subject to existing uncertainties about the impact of the economic policy of the newly elected government.
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
83
Economic growth in the major emerging economies will be moderate. Significant influencing factors here are rising prices for raw materials, a lower rate of expansion in China and an increase in corporate debt as a result of the appreciation of the US dollar. The Indian economy should see robust development, while the prevailing recession in Brazil will continue.
Revenue growth: outlook 2017
09
Group
3% – 4% up to € 2.4 billion
INDUSTRY Segment
Mid-single-digit growth
MOBILITY Segment
Mid-single-digit growth
CERTIFICATION Segment
High-single-digit growth
For 2017, we expect organic revenue growth of approximately 3% to 4%. Consolidated revenues generated with the existing affiliated companies will therefore be between € 2,390 million and € 2,440 million, with over 40% being generated outside Germany. The non-German affiliated companies will continue to increase their share of consolidated revenue in the next two years. 09 We are concentrating our activities on attractive technologies and industries with long-term growth prospects. The regional focus is mainly on those markets characterized by high economic growth and a reliable business environment. We intend to establish ourselves as one of the top three service providers in our markets by 2020. We intend to generate growth in the industry Segment in the mid-single-digit percentage range in 2017. We currently generate around 45% of consolidated revenue in this segment outside Germany and we expect the share of revenue generated outside Germany to remain at this level in the future. Our core business steam and pressure will become the main growth driver in the industry Segment. We want to expand the market share in the USA and Asia with our services for inspection and testing according to the ASME standard (American Society of Mechanical Engineers). Products such as IT-assisted preventive prediction models for plant maintenance are also to be brought into focus as part of our digitization strategy. After the stabilization of the oil price and structural measures introduced during the year, we also expect moderate growth as regards services for the chemical and petrochemical industry in the US market. The demand for conventional energy and renewable forms of energy is expected to remain low: in Germany, as a result of the gradual decommissioning of conventional power plants and in the UK, as a result of the collapse of the market for wind energy. International project business in the areas of technical construction supervision and quality management is developing heterogeneously. In Europe, the project business is intensified by offers from the Spanish tüv süd ATISAE Group, whereas we see a decline in Asia as current projects come to an end. We want to further enhance our global leadership in independent technical risk calculation and analysis. We intend to continue our growth trajectory in the forecast period with our consulting, testing and certification services for buildings, transport technology and infrastructure, including rail transport. We want to defend our market leadership position in safety-related services for lifts in Germany. We will defend our market share in the international environment, in particular in Spain and also in the United Arab Emirates. In South America, we intend to expand the existing range of services to provide water supply and treatment services, as well as reconstruction and
84
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
environmental assessments, especially for landfill sites. We expect favorable market entry conditions and growth impulses from close cooperation with local tüv süd ATISAE Group companies. Our comprehensive service portfolio in the area of rail transport continues to set us apart from our competitors. We are focusing in particular on the acquisition of large-scale projects and the expansion of our market presence in Asia. In the infrastructure sector, on the other hand, we expect revenue to decrease again as the political and economic turbulence in Brazil continues. The mobility Segment will see growth in the mid-single-digit percentage range in the forecast period. Foreign business should generate more than 10% of revenue in 2017. Our core business is our offering of roadworthiness tests and exhaust gas analyses for private and business customers in Germany, Turkey and Spain. With substantial investments in the visual and technical modernization of the technical service center network and further development of the IT applications used there, we will offer our customers better service with a high level of technical quality. As a result, we assume an upward trend in development of revenue. The homologation services and emissions testing will continue its growth trajectory with its international orientation. We are meeting the challenges of autonomous and assisted driving with a comprehensive innovation agenda that includes existing and new business models. Through the targeted acquisition of major customers, we intend to further increase revenue with a new service portfolio for manufacturers, retailers and workshops. We are continuing to push forward with internationalization in the fleet business and intend to generate additional growth through professional key account management. We plan revenue growth in the upper-single-digit percentage range for the certification Segment in 2017. Significant international growth areas include our services for consumer and industrial goods as well as food, cosmetics and healthcare products. The focus on selected key clients and international orientation will result in consumer goods growth in the upper single-digit range. We also expect positive impetus from innovative services for wearable technology, smart cities and drones. Our offering in the field of industrial goods benefits in particular from technological innovations such as smart testing and the growing importance of wireless components in almost all products. We will also offer our customers extensive value-creating services for electro mobility, autonomous driving and renewable energies. The high utilization of our network of state-of-the-art test laboratories enables us to offer new products, such as risk-based chemical tests. At the same time, we are striving for further efficiency improvements in our laboratories through standardized lab management systems. In the area of healthcare and medical products, we will expand our leading position on the world market with new services for in vitro and reusable medical devices. We expect further growth impetus here as a result of legal changes in unannounced audits and the new Medical Products Regulation (MDR) for high-risk products. Our services for standard certification are pooled in the Management Services Division. The core products, such as ISO 9001, will be supplemented out by innovative certification services in the areas of energy, data security and corporate social responsibility. We want to extend our claim to market leadership by systematically growing our customer base in Germany and China. At the same time, we will leverage our global presence to offer our international customers one-stop
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
85
certification for global and integrated management systems. In the forecast year, Asia remains the growth region for certification services. We expect further growth from the conversion of the automotive standard IATF 16949:2016 in all relevant markets around the world. The newly created cyber security unit will in the future provide international key accounts with support in improving their IT security. The service portfolio is offered in Germany, and also in the USA, Italy, India and Singapore.
FO C U S O N SU STAINA BL E DE VE L OPM E NT OF E A RNINGS In the development of our business activities, we focus on markets where sustainable profitable growth with target returns between eight and twelve percent can be expected. The development of our earnings depends crucially on our ability to exactly meet our customers’ needs with our services and innovations. Through our international presence, efficient cost and process structures and flexible working models, we offer our customers made-to-measure services from a single source, which are every bit as profitable as they are flexible. External factors, such as the development of the US dollar, the Singapore dollar and also the Turkish lira exchange rate against the euro, impact directly on the earnings of our subsidiaries. At the same time, these exchange rate fluctuations also influence the financial result in particular. We aim to continually increase earnings and profits in a sustainable way. This is why we are continually analyzing our business processes, implementing measures to improve efficiency and optimizing our structures accordingly. For the forecast year 2017, we anticipate a mid-singledigit increase in EBT.
EBIT development: forecast 2017
10
Group
Increase up to € 210 million
INDUSTRY Segment
Slight increase
MOBILITY Segment
Slight increase
CERTIFICATION Segment
Slight increase
EBIT will develop similarly to EBT. Here, too, we are forecasting growth in the mid-single-digit percentage range for 2017. As expected, the EBIT margin will therefore remain in the high 10 single-digit percentage range. Our own demand for high quality provides the foundation for sustainable growth, together with the offer of technically sophisticated services and collaboration based on trust as process partners for our customers. We will also positively influence earnings development in the coming fiscal year with new innovative services for digitization and new technologies, as well as intensive cooperation with key international customers. We therefore expect EBIT to develop positively in all segments in 2017.
86
TÜV SÜD AG ANNUAL REPORT 2016
20
Group information
65
Non-financial performance indicators
30
Corporate governance report
73
Opportunity and risk report
Combined Management Report
33
Economic report
82 Outlook
In the industry Segment, we expect a higher EBIT increase just in the double-digit range. The mobility Segment should show a result in the high single-digit range. We expect growth stimulus from Spain, but also positive effects from the FIT17 project, which continued in fiscal year 2016. We see EBIT growth of a similar level for the certification Segment in 2017. The EBIT margin should be in the high single-digit range for each of the three segments. We do not expect any significant one-off effects on earnings before taxes in the forecast period. Various factors, which are largely independent of each other, influence the development of tüv süd’s earnings. The economic development of our markets and the political uncertainty in some countries will set the underlying trend for 2017. Our global presence close to our customers and our expertise in innovative technical services are of far greater economic significance. A corporate innovation fund in a double-digit million euro range is provided to finance pioneering innovation projects. The allocation of this funding cannot be planned and is therefore not included in these statements on the outlook. Consequently, EBIT could be below the expected figure of € 200 million to € 210 million if the innovation budget were to be used in full in the forecast year 2017. We will streamline our corporate structure systematically in order to achieve a higher level of efficiency and cost savings, and increase our power through lean structures. Enhancing our internal processes is a key element in achieving our Group’s goals. The focus is on the phased introduction of shared service organizations in individual countries and regions as well as implementation of harmonized software-based commercial processes. In this way, we are creating the requirements for efficiency increases in the commercial and administrative area. Economic Value Added (EVA) is a key indicator for measuring the company’s success. On the basis of the positive EBIT development described above and increasing average capital employed in line with revenue, we expect EVA of around € 75 million to € 85 million for the forecast year 2017. It is only thanks to our highly skilled and motivated employees that we are able to implement our growth strategy. In the coming fiscal years, we intend to further increase our headcount by around four percent. We will do this through the targeted recruitment of well-trained and dedicated women and men. For more than three years, more than half of our employees have been employed abroad. As internationalization gains ground, this percentage will increase continuously in the coming years. We do not expect to see any significant change in the other non-financial indicators compared to the prior year.
CONSOLIDATED CON SOL IDATED F IN AN CIAL STATEMEN TS
FINANCIAL STATEMENTS
89
CO N SO LI DAT ED F IN AN C I AL S TAT EMEN T S 90 91 92 93 94 96 141
Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the consolidated financial statements Auditor’s report
90
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
CONSOLIDATED INCOME STATEMENT Consolidated income statement for the period from January 1 to December 31, 2016
11
IN € MILLIO N
Note
2016
2015
Revenue
(32)
2,343.2
2,222.0
Own work capitalized Purchased services Operating performance
4.3
3.2
– 292.9
– 286.8
2,054.6
1,938.4
– 1,421.2
– 1,328.6
Personnel expenses
(6)
Amortization, depreciation and impairment losses
(7)
– 79.1
– 82.3
Other expenses
(8)
– 434.4
– 430.6
Other income
(9)
56.7
53.2
Impairment of goodwill
(13)
Operating result
– 1.5
0.0
175.1
150.1
Income from investments accounted for using the equity method
(10)
11.6
11.5
Other income/loss from participations
(10)
12.1
0.8
Interest income
(10)
1.7
2.8
Interest expenses
(10)
– 18.0
– 19.7
Other financial result
(10)
0.1
– 1.1
Financial result Income before taxes Income taxes
(11)
Consolidated net income
7.5
– 5.7
182.6
144.4
– 52.1
– 30.4
130.5
114.0
117.3
100.6
13.2
13.4
Attributable to: Owners of TÜV SÜD AG Non-controlling interests
(12)
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
91
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Consolidated statement of comprehensive income for the period from January 1 to December 31, 2016 IN € MILLIO N
Note
Consolidated net income
12
2016
2015
130.5
114.0
Items that will not be reclassified to the income statement: Remeasurements of defined benefit pension plans
(21)
Tax effect Total amount of items in other comprehensive income that will not be reclassified to the income statement
– 48.2
44.5
20.8
– 4.3
– 27.4
40.2
Items that will be reclassified to the income statement in future periods: Available-for-sale financial assets Changes from unrealized gains and losses Changes from realized gains and losses
1.2
10.1
– 11.3
– 0.1
– 10.1
10.0
4.7
7.4
4.7
7.4
– 2.1
– 3.5
0.0
0.4
– 2.1
– 3.1
Currency translation differences Changes from unrealized gains and losses 1
Investments accounted for using the equity method Changes from unrealized gains and losses 1 Tax effect
Total amount of the items of other comprehensive income that will be reclassified to the income statement in future periods
– 7.5
14.3
– 34.9
54.5
95.6
168.5
Owners of TÜV SÜD AG
84.9
152.7
Non-controlling interests
10.7
15.8
Other comprehensive income Total comprehensive income
(11)
Attributable to:
1 _ Prior-year figure restated; see note 5.
92
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
CONSOLIDATED STATEMENT OF FINANCIAL POSITION Consolidated statement of financial position as of December 31, 2016
13
Note
Dec. 31, 2016
Dec. 31, 2015
Intangible assets
(13)
392.7
331.3
Property, plant and equipment
(14)
469.1
439.4
Investment property
(15)
3.7
3.6
Investments accounted for using the equity method
(16)
28.1
25.2
Other financial assets
(17)
65.4
103.3
5.9
7.3
(11)
257.5
237.4
1,222.4
1,147.5
IN € MILLIO N
Assets
Other non-current assets Deferred tax assets Non-current assets Inventories Trade receivables
(18)
Income tax receivables
4.0
4.0
463.2
425.5
11.2
11.4
Other receivables and other current assets
(19)
67.6
58.2
Cash and cash equivalents
(31)
245.4
223.2
Current assets Total assets
791.4
722.3
2,013.8
1,869.8
Equity and liabilities Capital subscribed
(20)
26.0
26.0
Capital reserve
(20)
124.4
124.4
Revenue reserves
(20)
435.9
346.4
Other reserves
(20)
Equity attributable to the owners of TÜV SÜD AG Non-controlling interests
(12)
Equity
6.7
13.6
593.0
510.4
49.4
46.6
642.4
557.0
Provisions for pensions and similar obligations
(21)
749.4
772.8
Other non-current provisions
(22)
37.1
36.8
Non-current financial debt
(23)
1.5
1.0
Other non-current liabilities
(25)
12.6
7.4
Deferred tax liabilities
(11)
35.6
28.8
836.2
846.8
134.1
120.5
23.3
15.7
Non-current liabilities Current provisions
(22)
Income tax liabilities Current financial debt
(23)
5.2
4.1
Trade payables
(24)
104.6
92.1
Other current liabilities
(25)
268.0
233.6
Current liabilities Total equity and liabilities
535.2
466.0
2,013.8
1,869.8
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
93
CONSOLIDATED STATEMENT OF CASH FLOWS Consolidated statement of cash flows for the period from January 1 to December 31, 2016 IN € MILLIO N
14
Note
Consolidated net income Amortization, depreciation, impairment losses and reversals of impairment losses of intangible assets, property, plant and equipment and investment property Impairment of goodwill Impairment losses and reversals of impairment losses of financial assets Change in deferred tax assets and liabilities recognized in the income statement
(11)
Gain/loss on disposal of intangible assets, property, plant and equipment and financial assets Gain/loss on sale of shares in fully consolidated entities and business units Other non-cash income/expenses Change in inventories, receivables and other assets
2016
2015
130.5
114.0
76.7
81.9
1.5
0.0
0.2
0.8
– 0.6
– 8.6
– 1.5
– 0.9
0.0
– 0.3
– 7.1
– 9.2
– 22.5
– 7.7
Change in liabilities and provisions
64.3
51.2
Cash flow from operating activities
241.5
221.2
– 77.4
– 80.4
Cash paid for investments in intangible assets, property, plant and equipment and investment property financial assets
– 3.9
– 3.9
securities
– 0.5
– 22.1
– 40.5
– 13.0
intangible assets and property, plant and equipment
5.3
2.2
financial assets
8.5
0.6
securities
5.0
20.1
business combinations (net of cash acquired)
(3)
Cash received from disposals of
shares in fully consolidated entities and business units (net of cash disposed of)
0.0
0.6
– 101.3
– 120.7
– 204.8
– 216.6
Dividends paid to owners of TÜV SÜD AG
– 2.1
– 2.1
Dividends paid to non-controlling interests
– 7.6
– 7.6
Repayments of loans including currency translation differences
– 6.3
– 0.7
Proceeds from loans including currency translation differences
2.4
0.0
– 1.6
0.2
– 15.2
– 10.2
21.5
– 5.6
Contribution to pension plans
(31)
Cash flow from investing activities
Other cash received or paid Cash flow from financing activities Net change in cash and cash equivalents Effect of currency translation differences and change in scope of consolidation on cash and cash equivalents
0.7
4.5
223.2
224.3
245.4
223.2
Interest paid
0.8
0.9
Interest received
1.4
6.7
Income taxes paid
49.5
46.4
4.5
14.1
11.7
10.3
Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period
(31)
Additional information on cash flows included in cash flow from operating activities:
Income taxes refunded Dividends received
94
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Consolidated statement of changes in equity for the period from January 1 to December 31, 2016 Revenue reserves
IN € MILLIO N
As of January 1, 2015
Capital subscribed
Capital reserve
Remeasurements of defined benefit pension plans
26.0
124.4
– 369.2
576.3
39.3
100.6
Total comprehensive income Dividends paid
Other revenue reserves
– 2.1
Other transactions with owners
1.5
As of December 31, 2015
26.0
124.4
– 329.9
676.3
As of January 1, 2016
26.0
124.4
– 329.9
676.3
– 25.5
117.3
Total comprehensive income Dividends paid
– 2.1
Other changes As of December 31, 2016 1 _ Prior-year figure restated; see note 5.
– 0.2 26.0
124.4
– 355.4
791.3
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
15
Other reserves Currency translation differences 1
Availablefor-sale financial assets
Investments accounted for using the equity method 1
Equity a ttributable to the owners of TÜV SÜD AG
Non-controlling interests
Total equity
12.6
0.2
– 12.0
358.3
36.8
395.1
5.9
10.0
– 3.1
152.7
15.8
168.5
– 2.1
– 5.9
– 8.0
1.5
– 0.1
1.4
10.2
– 15.1
510.4
46.6
557.0
18.5
10.2
– 15.1
510.4
46.6
557.0
5.3
– 10.1
– 2.1
84.9
10.7
95.6
– 2.1
– 8.5
– 10.6
– 0.2
0.6
0.4
593.0
49.4
642.4
18.5
23.8
0.1
– 17.2
95
96
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of preparation 1 / G E N E RA L IN FO RMAT I O N
2 / SCOPE OF CONSOL IDATION
tüv süd is a global technical services provider operating in the industry, mobility and certification Segments. The range of services covers testing, inspection, certification and training. tüv süd has a presence in the regions emea, asia and americas.
All material entities and structured entities over which the Group has control as defined by IFRS 10 are included in the consolidated financial statements as of December 31, 2016. The separate financial statements of the subsidiaries included in consolidation and prepared in accordance with uniform accounting policies serve as a basis.
tüv süd Aktiengesellschaft, with registered offices in Munich, Germany, is entered in the commercial register of Munich District Court under the number HRB 109326, as the parent company of the Group. tüv süd ag prepared its consolidated financial statements as of December 31, 2016 in accordance with the International Financial Reporting Standards (IFRSs) by exercising the option under Section 315a (3) HGB [“Handelsgesetzbuch”: German Commercial Code]. All IFRSs that are binding for the fiscal year 2016 and the pronouncements issued by the International Financial Reporting Standards Interpretations Committee (IFRS IC) have been applied to the extent that these have been adopted by the European Union. On March 13, 2017, tüv süd ag’s Board of Management approved the 2016 consolidated financial statements for submission to the Supervisory Board.
Associated companies and joint ventures are accounted for in the consolidated financial statements using the equity method. The shares are capitalized at acquisition cost at the time a significant influence is acquired and in subsequent years are increased or reduced by the proportionate net income, distributed dividends and other changes in equity. Joint operations are consolidated proportionately with their assets and liabilities as well as expenses and income. With tüv süd ag as parent company, the scope of consolida16 tion comprises the companies listed in the table below.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Scope of consolidation NU MBE R O F ENTITIES
Fully consolidated entities Entities accounted for using the equity method
97
16
Dec. 31, 2016
Dec. 31, 2015
120
123
4
3
thereof joint ventures
3
2
thereof associated companies
1
1
124
126
Total number of consolidated entities
The scope of consolidation was extended in 2016 to include six entities. Additions relate to two fully consolidated entities as well as a joint venture accounted for using the equity method from the acquisition of the ATISAE Group, two other business combinations as well as a newly founded company. Eight entities were removed from the scope of consolidation due to intragroup mergers.
Consolidation decisions based on contractual arrangements The tüv süd Group holds 50% of the shares in tüv süd Car Registration & Services GmbH, Munich (CRS). This entity is fully consolidated in the Group, as the tüv süd Group is responsible for economic control of CRS on the basis of the cooperation agreement and can thus make decisions regarding the relevant activities of the entity.
The affiliated companies, associated companies and joint ventures included in the consolidated financial statements are listed in note 36 “Consolidated entities” along with the con solidation method applied. The list of the Group’s entire shareholdings is published in the German Electronic Federal Gazette (Elektronischer Bundesanzeiger) as an integral part of the notes to the financial statements.
Risks from structured entities In its capacity as a limited partner of the structured entities ARMAT GmbH & Co. KG, Pullach, and ARMAT Südwest GmbH & Co. KG, Pullach, tüv süd ag has issued liquidity commitments for the aforementioned entities. These commitments serve to cover the current obligations of the structured entities. tüv süd ag can therefore be required to pay if the entities are unable to settle their commitments themselves. The risk of such a claim is considered low. There are risks typical of ownership resulting from the special fund MI-Fonds F60. No liquidity commitments or guarantees were issued in this connection.
98
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
3 / BU S IN E S S CO MBI N AT I O N S The acquisition of subsidiaries and businesses is accounted for using the acquisition method. For highly complex business combinations, external appraisers are obtained to carry out the purchase price allocation and to determine the fair values. In the fiscal year 2016, tüv süd acquired the remaining outstanding shares (54.8%) in the ATISAE Group, Madrid, Spain, which now belongs entirely to the tüv süd Group. The ATISAE Group is one of the leading providers of testing services on the Iberian peninsula and operates in the segments
industrial testing, vehicle inspections and automotive consulting. This acquisition serves to strengthen the Spanish business and the position of tüv süd in Western Europe. Included in the consolidated financial statements are the companies tüv süd ATISAE, S.A.U., Madrid, Spain (tüv süd ATISAE, formerly ATISAE) and ATISAE de Castilla y León, S.A.U., Miranda de Ebro, Spain (ATICAL). Furthermore, tüv süd performed three business combinations (including assets deals) which were immaterial individually. Overall, the business combinations had the following effect on the consolidated financial statements based on the amounts as of the respective acquisition dates:
Net assets acquired, goodwill and purchase prices of business combinations in fiscal year 2016
17
TÜV SÜD ATISAE and ATICAL IN € MILLIO N
Carrying amount before revaluation
OTHERS
Fair value as of Carrying amount acquisition date before revaluation
Fair value as of acquisition date
Intangible assets and property, plant and equipment
37.3
61.7
0.3
3.1
Other assets (net of cash)
31.9
31.9
2.6
0.8
Cash and cash equivalents
12.1
12.1
0.9
0.3
Current liabilities
18.3
18.3
2.0
0.2
5.3
13.9
0.1
1.0
57.7
73.5
1.7
3.0
Non-current liabilities Total net assets acquired Interest in net assets acquired
73.5
3.0
Goodwill arising on acquisition
14.4
6.6
Purchase prices of the business combinations (cash consideration)
87.9
9.6
Less fair value of contingent consideration
– 2.6
– 0.8
Less adjustments from the remeasurement of previously held equity interests
– 11.3
0.0
Less cash acquired
– 12.1
– 0.3
Less purchase price payments made in prior years
– 20.9
0.0
Less purchase price payments not yet made
– 9.0
0.0
Net cash paid for business combinations 2016
32.0
8.5
Hidden reserves totaling € 37.2 million were identified in accreditations, concessions, customer relationships and software with useful lives of between two and 14 years. The weighted average useful life of assets with a finite useful life is 9.6 years. Intangible assets with an indefinite u seful life were recognized with a fair value of € 20.9 million. Furthermore, hidden liabilities in land and buildings of € 10.0 million were taken into account.
The goodwill arising on these acquisitions includes value drivers that cannot be reported separately, in particular location advantages, the value of the acquired workforce and expected synergy effects. Earn-out agreements were concluded with a term of eleven months or two years, respectively. The assets acquired through the ATISAE business combination include trade receivables with a fair value of € 16.9 million as of the acquisition date. The gross volume of the contractual receivables amounted to € 21.2 million.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Acquisition-related costs of € 1.3 million (prior year: € 0.2 million) were incurred and were recognized in other expenses in the income statement in the reporting year and in the prior year. The ATISAE companies contributed € 67.7 million (business combinations prior year: € 4.6 million) to revenue and € 7.0 million (business combinations prior year: € 0.4 million) to the operating result of tüv süd in the past fiscal year. The operating result does not contain any synergies stemming from business combinations at existing legal entities of the tüv süd Group. If the acquisition of the ATISAE companies had taken place as of January 1, 2016, the entities acquired would have contributed € 73.2 million (business combinations prior year: € 8.8 million) to consolidated revenue and € 6.7 million (business combinations prior year: € 1.1 million) to the Group’s operating result for the twelve months ended December 31, 2016. The acquisitions described above are expected to result in goodwill of € 2.6 million that will be tax deductible.
99
4 / CURRE NCY TRA NSL ATION All financial statements of consolidated entities that have been prepared in foreign currency are translated into euro using the functional currency concept. As the foreign subsidiaries are independently operating entities, the functional currency is considered to be the currency of the respective country in which they are situated. Items of the statement of financial position are therefore translated using the mean rate at the end of the reporting date. This does not include equity, which is translated using historical rates. Expense and income items are stated using annual average exchange rates. Exchange rate differences are treated as other comprehensive income and recognized under other reserves within equity. In the subsidiaries’ separate financial statements, monetary items in foreign currency are translated using the closing rate as of the reporting date, while non-monetary items continue to be measured using the historical exchange rate as of the date of the transaction. Differences resulting from such translations are generally recognized in the income statement. The exchange rates used to translate the most important currencies developed as follows:
Selected exchange rates
18
Closing rate
Annual average rate
Dec. 31, 2016
Dec. 31, 2015
2016
2015
US dollar (USD)
1.0541
1.0887
1.1066
1.1097
Pound sterling (GBP)
0.8562
0.7340
0.8189
0.7260
Singapore dollar (SGD)
1.5234
1.5394
1.5277
1.5254
Turkish lira (TRY)
3.7072
3.1765
3.3425
3.0220
Chinese renminbi (CNY)
7.3202
7.0608
7.3496
6.9732
100
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
5 / ACCOUNTING POLICIES The key accounting and valuation methods for tüv süd are presented below; the mere repetition of standard requirements has been largely avoided. The exercise of options is explained in the respective specific note. Revenue mainly consists of income from services and is recorded as soon as the services have been provided. Revenue from longer-term contracts is recognized pursuant to IAS 18.20 using the percentage-of-completion method. This involves recognizing costs and revenue in line with the degree to which the contract has been completed. The percentage of completion per contract to be recognized is calculated as the ratio of the actual costs incurred to overall anticipated costs of the project (cost-to-cost method). If the result of a service contract cannot be determined reliably, revenue is only recognized at the amount of the contract costs incurred (zero profit method). Contract costs are expensed in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is immediately expensed. Goodwill is not subject to amortization but is tested for impairment at least once a year or whenever there is any indication of impairment, and written down if appropriate (impairment only approach). This impairment test is based on cash generating units (CGUs) and compares the recoverable amount with the carrying amount. The cash generating units correspond to the Group’s divisions, which are managed on a worldwide basis. The recoverable amount is the higher of fair value less costs to sell and value in use derived from management’s approved three-year plan, with the aid of the discounted cash flow method. The key assumptions made in determining fair value are the growth rates of the cash flows in the planning period, the CGU-specific cost of capital and the forecast sustainable growth rate after the end of the planning period. The planned cash flows are based mainly on estimates by the management of tüv süd of the current and future market environment. Cost of capital is based on the weighted average cost of capital (WACC) of the tüv süd Group adjusted for the specific risk profile inherent in the cash flows budgeted for the cash generating unit in question. The sustainable growth rate used is the forecast long-term rate of the cash generating unit’s market growth.
Other intangible assets acquired for a consideration are measured at acquisition cost, internally generated intangible assets at production cost. Production cost comprises the costs directly and indirectly allocable to the development process. At each reporting date, the Group assesses whether there is any indication that the carrying amounts of intangible assets, property, plant and equipment and investment property may be subject to impairment. If any such indication exists, an impairment test is performed. Such a test is conducted annually for intangible assets with an indefinite useful life. Deferred tax assets and liabilities are recognized for temporary differences between the carrying amounts in the IFRS statement of financial position and the tax basis of the assets and liabilities, as well as for consolidation measures with an effect on income. In addition, taxes are deferred for tax loss carryforwards provided the realization of such carryforwards is sufficiently certain. The taxable income considered likely on the basis of the respective entity’s planning for the subsequent years is taken as the basis for the assessment. Deferred taxes are calculated on the basis of the anticipated tax rates at the time of realization. For convenience, tüv süd ag’s tax rate is used to calculate deferred taxes on consolidation entries with effect on net income. Deferred tax assets and liabilities on temporary differences are netted out for each entity and/or tax group. Trade receivables from unbilled service contracts are accounted for using the percentage-of-completion method in accordance with IAS 18.20. Anticipated losses from ongoing contracts are taken into account if they can be reliably estimated, and are directly deducted from the corresponding receivables. If this results in a negative balance, this is posted to current liabilities according to the percentage-of-completion method. Advance payments received for customer orders are stated without offsetting in current liabilities. Provisions for pensions and similar obligations are measured using the actuarial projected unit credit method for defined benefit pension plans. The amount shown on the statement of financial position represents the current value of the pension obligation after offsetting the fair value of plan assets as of the reporting date. The calculation of pension obligations is based on actuarial reports considering biometric assumptions. Remeasurements, comprising actuarial gains and losses and the return on plan assets (excluding interest on the net liability), are recognized in full in the fiscal year in which they
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
occur. They are charged directly against revenue reserves, taking deferred taxes into account, and reported outside of the income statement as a component of other comprehensive income. The net interest expense is obtained by multiplying the discount rate for the respective fiscal year by the net liability (pension obligation less plan assets) as of the reporting date for the prior fiscal year. It is reported in the financial result. Other provisions are recorded if the obligation to a third party results from a past event which is expected to lead to an outflow of economic benefits and their value can be determined reliably. They are measured using the best estimate of the settlement value, and cannot be offset against reimbursement claims. Provisions due in more than one year are discounted where the effect of the time value of money is material. The effect from unwinding the discount is reported in the financial result. Provisions for restructuring measures are recognized to the extent that a detailed formal restructuring plan has been prepared and communicated to the parties concerned. A financial instrument is a contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and liabilities are initially recognized on the trade date at their fair value taking into account any transaction costs. Subsequent measurement depends on the category to which they are allocated. By definition, derivative financial instruments for which no hedge accounting is applied are classified as “financial assets and liabilities at fair value through profit or loss”. The fair value is calculated using the mark-to-market method. Market valuations provided by banks are additionally checked for plausibility on the basis of internal calculations. All changes in the market value are recognized through profit or loss. Derivative financial instruments are mainly used to hedge interest and exchange rate risks and held without intention to trade. The range of instruments used comprises forward exchange transactions, forward contracts, combined interest rate and currency swaps as well as interest rate swaps. The “loans and receivables” and“financial liabilities measured at amortized cost” categories include loans, trade receivables and trade payables, financial debt as well as portions of other receivables and liabilities. They are stated at amortized cost. In the case of receivables, specific and port folio-based allowances are generally recognized in proportion to the anticipated default risk. Financial debt and loans are measured at amortized cost using the effective interest method.
The “available-for-sale financial assets” category includes shares in non-consolidated affiliated companies, participations and non-current and current securities. They are measured at fair value. The unrealized gains and losses resulting from measurement are posted directly to other reserves within equity, taking deferred taxes into account. The reserve is released to income, either upon disposal or when there is a prolonged decline in the fair value below cost. The fair value of traded securities corresponds to their market value. In the absence of a market value for shares in affiliated companies and participations, they are measured at amortized cost. Assumptions, estimation uncertainties and judgments The preparation of the consolidated financial statements requires that assumptions or estimates be made for some items which have an effect on the values stated in the statement of financial position, the disclosure of contingent liabilities and the recognition of income and expenses. This particularly relates to revenue recognition using the percentage-of- completion method, goodwill, deferred tax assets recognized on tax loss carryforwards, the measurement parameters for pension obligations and other provisions, and the calculation of fair values. Actual amounts may differ from the estimates. Key estimate parameters as part of testing goodwill for impairment include the sustainable long-term growth rates as well as the cash flows allocable to cash generating units and the risk adjustment per cash generating unit of the tüv süd Group’s weighted average cost of capital. A 10% reduction in the cash flows used to calculate the cash generating unit’s fair value less costs to sell or the value in use would not result in an impairment loss. The same applies for an increase in the weighted average cost of capital by one percentage point or a decrease in the sustainable growth rate by one percentage point. The defined benefit obligations and the pension expenses for the subsequent year are calculated using the actuarial parameters given in note 21. As in the prior year, the discount rate in Germany is calculated in accordance with the “GlobalRate: Link” – methodology developed by the Group’s actuary Willis Towers Watson Deutschland GmbH, Wiesbaden, to determine the discount rate for the measurement of pension obligations. However, a change in parameters would not have an impact on the consolidated net income for the reporting year, as remeasurements are recognized in equity.
101
102
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
In the case of other items of the statement of financial position, a change to the original basis for estimation results in a change to the respective item, with an effect on income, which is immaterial for the consolidated financial statements. Restatement of prior-year figures In line with the clarification in IAS 1.82A (b), currency translation differences relating to joint ventures and associated companies accounted for using the equity method are recognized in the consolidated statement of comprehensive income and in the statement of changes in equity under the item “investments accounted for using the equity method”. In the prior year, they were still recognized under the item “currency translation differences” as well as “thereof” items. There was a reclassification of € 1.6 million.
Accounting standards adopted for the first time The amendments to IAS 1 “Disclosure initiative” were taken into account in these financial statements, i.e., information qualified as immaterial was removed from the financial statements to an even greater extent than in the prior year. New accounting standards that are not yet mandatory The following amendments of standards generally relevant for tüv süd were issued by the IASB and adopted by the EU prior to the preparation of tüv süd’s consolidated financial statements, but have not yet been applied in the consolidated financial statements as of December 31, 2016. The amendments are mandatory for fiscal years beginning on or after their respective effective dates. tüv süd decided not to early adopt such standards on a voluntary basis.
New accounting standards endorsed by the EU that are not yet mandatory
19
Effective date pursuant to EU endorsement
Anticipated impact on TÜV SÜD AG’s consolidated financial statements
IFRS 9 “Financial Instruments”
January 1, 2018
The effects are currently under review.
IFRS 15 “Revenue from Contracts with Customers”
January 1, 2018
The effects are currently under review.
STA NDARD
IFRS 9 “Financial Instruments”, which was issued in July 2014, replaces the existing guidelines of IAS 39 “Financial Instruments: Recognition and Measurement”. In the future, financial assets will be classified and measured on the basis of the business model underlying the portfolio and the type of cash flows of the financial instrument. The rules for financial liabilities were more or less taken from IAS 39 without change. In addition, IFRS 9 contains the new rules regarding impairment of financial instruments, which are now based on expected credit losses, and regarding hedge accounting. In the fiscal year 2016, the financial instruments of the tüv süd Group were inventoried, allocated to the business models and thus categorized in accordance with IFRS 9. Compared to IAS 39, the classification of financial instruments does not result in any significant changes in measurement. In order to implement the new impairment requirements, the corresponding processes were amended. Furthermore, suitable models were developed to determine the default rates of trade receivables. The effects cannot at present be reliably quantified yet.
IFRS 15 “Revenue from Contracts with Customers” specifies a comprehensive framework for determining whether, in what amount and when revenue is recognized. It replaces the existing guidelines on revenue recognition, including IAS 18 “Revenue”, IAS 11 “Construction Contracts” and IFRIC 13 “Customer Loyalty Programmes”. tüv süd renders technical services. They have up to now been recognized using the percentage-of-completion method in accordance with IAS 18.20. The analyses performed to date show that the requirements for recognizing revenue over time in accordance with IFRS 15.35 have been met for the majority of contracts. The first-time application of IFRS 15 is therefore not expected to have a significant impact on tüv süd’s net assets, financial position and results of operations. However, additional quantitative and qualitative disclosures will be necessary. tüv süd has not yet decided which of the transition methods and simplifications available should be used.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
103
The table below shows those standards and amendments to existing standards issued by the IASB which could be relevant for tüv süd but which have not yet been adopted by the EU and which are therefore not yet applicable for IFRS financial statements prepared pursuant to Section 315a HGB.
New accounting standards and interpretations not yet endorsed by the EU that are not yet mandatory
20
Effective date
Anticipated impact on TÜV SÜD AG’s consolidated financial statements
Amendments to IAS 7 “Statement of Cash Flows”
January 1, 2017
The amendments will affect the disclosures in the notes.
Amendments to IAS 12 “Income Taxes – Recognition of Deferred Tax Assets for Unrealised Losses”
January 1, 2017
No consequences are expected for the consolidated financial statements.
Amendments to IAS 40 “Transfers of Investment Property”
January 1, 2018
These amendments are currently not relevant for TÜV SÜD.
Pending
These amendments are currently not relevant for TÜV SÜD.
STA NDARD / INT ERPRETAT ION
Amendments to IFRS 10 and IAS 28 “Disposal or Contribution of Assets in Associates or Joint Ventures” Amendments to IFRS 15 “Clarifications of IFRS 15”
January 1, 2018
See comments on IFRS 15
IFRS 16 “Leases”
January 1, 2019
The effects are currently under review.
“Improvements to IFRSs” issued as a result of the annual improvements project 2014 – 2016
January 1, 2017 / January 1, 2018
No significant consequences are expected for the consolidated financial statements.
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”
January 1, 2018
No significant consequences are expected for the consolidated financial statements.
The final version of IFRS 16 “Leases” was published on January 13, 2016. The main changes as a result of IFRS 16 relate to the accounting treatment at the lessee. In the future, the lessee must recognize right-of-use assets for the obtained rights to use an asset and liabilities for the payment obligations entered into for all leases. Exceptions are granted for leases of low-value assets and for short-term leases. The effects on the
consolidated financial statements are currently being assessed. tüv süd assumes that the application of IFRS 16 will cause total assets to increase considerably and the equity ratio to decrease accordingly. EBIT (earnings before interest, other financial result and before income tax, but after income from participations) and the cash flow from operating activities will improve. There are no plans to early adopt the standard.
104
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Notes to the consolidated income statement 7 / A M ORTIZATION, DE PRE CIATION A ND IM PA IRM E NT L OSSE S
6 / PE RS O N N E L EX PEN SES Personnel expenses IN € MILLIO N
Wages and salaries Social security contributions and other benefit costs
21
2016
2015
1,145.0
1,064.7
Amortization, depreciation and impairment losses
22
2016
2015
of intangible assets
19.2
18.5
of property, plant and equipment
53.0
48.7
0.1
0.1
6.8
15.0
79.1
82.3
IN € MILLION
Amortization and depreciation 155.3
139.9
Retirement benefit costs
96.0
97.8
Incidental personnel costs
24.9
26.2
1,421.2
1,328.6
The rise in wages and salaries and in social security contributions and other benefit costs is a result of the expansion of the workforce in Germany and other countries, due among other things to the acquisition of the ATISAE companies, and also of collective wage increases which became effective in the reporting period. For the Chinese companies, the exchange rate change has a favorable effect on personnel expenses. Retirement benefit costs also include employer contributions to state pensions. Due to the lower number of active employees, the current service cost decreased by € 1.8 million. The tüv süd Group had an average headcount (full-time equivalents) of 21,738 employees in the reporting year (prior year: 20,228 employees). The majority of employees are salaried employees.
of investment property Impairment losses
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
105
8 / OTH E R E X PE NSES Other expenses IN € MILLIO N
Rental and maintenance expenses
23
2016
2015
101.0
96.0
Travel expenses
90.3
88.4
Cost of purchased administrative services
40.3
43.2
IT costs
37.3
36.0
Fees, contributions, consulting and audit costs
21.9
23.5
Telecommunication costs
21.2
20.1
Marketing costs
14.7
13.8
8.4
8.1
Currency translation losses
7.6
11.8
Other taxes
4.8
4.1
86.9
85.6
434.4
430.6
Impairment losses on trade receivables (including amounts derecognized)
Miscellaneous other expenses
9 / OTH E R IN C O ME Other income
24
2016
2015
Currency translation gains
9.4
12.3
Income from the reversal of provisions
7.4
6.2
IN € MILLIO N
Gain on the disposal of non-current assets
3.5
1.7
Income from other transactions not typical for the company
5.4
5.1
Income from the reversal of impairment losses on fixed assets
2.4
0.3
28.6
27.6
56.7
53.2
Miscellaneous other income
106
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
1 0 / F IN A N C IA L RESU LT Financial result IN € MILLIO N
25
2016
Income from investments accounted for using the equity method
2015
11.6
11.5
Income/loss from participations Financial income from participations
12.3
Finance costs from participations
– 0.2
12.1
– 0.1
1.3 1.2
0.0
0.0
– 0.4
– 0.4
Result from loans Finance costs from loans
Other income/loss from participations
12.1
0.8
Interest income from securities
0.0
0.2
Interest income from loans
0.3
0.0
Other interest and similar income
1.4
2.6
Interest income
1.7
2.8
– 14.8
– 17.3
– 0.1
– 0.1
Net finance costs for pension provisions Interest cost from finance leases Other interest and similar expenses Interest expenses
– 3.1
– 2.3
– 18.0
– 19.7
Currency gains/losses from financing measures Currency translation gains Currency translation losses
20.4 – 21.2
21.1 – 0.8
– 22.2
– 1.1
Sundry financial result Sundry financial income Sundry finance costs
Other financial result
The income from investments accounted for using the equity method of € 11.6 million (prior year: € 11.5 million) contains a figure of € 10.0 million (prior year: € 10.6 million) from the proportionate net income generated by the Turkish joint venture companies. The income/loss from participations contains € 11.3 million (prior year: € 0.0 million) from the write-up of the existing stake in tüv süd ATISAE to fair value as of January 31, 2016.
1.7 – 0.8
1.1 0.9
– 1.1
0.0
0.1
– 1.1
7.5
– 5.7
The total interest income from assets not measured at fair value through profit or loss amounts to € 1.7 million in the fiscal year 2016 (prior year: € 2.8 million). The total interest expense (without net finance costs for pension provisions) amounts to € 3.2 million (prior year: € 2.4 million). The increase in other interest and similar expenses is attributable in particular to the increased effect of the unwinding of the discount on provisions for long-service bonuses and medical benefits of € 1.7 million (prior year: € 0.7 million).
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
107
1 1 / IN CO ME TA X ES Income taxes
26
2016
IN € MILLIO N
Current taxes
2015
52.7
39.0
Deferred taxes on temporary differences
– 7.0
on tax loss carryforwards
6.4
– 2.2 – 0.6
– 6.4
52.1
Current taxes for the fiscal year 2016 include income of € 1.8 million (prior year: € 1.3 million) for current taxes from prior periods.
– 8.6
30.4
The following reconciliation for the tüv süd Group presents a summary of the individual entity-specific reconciliations prepared using the respective local tax rates taking consolidation entries into account. The expected income tax expenses are based on the nominal tax rate of the tax group of tüv süd ag:
Tax reconciliation
27
IN € MILLIO N
Income before taxes Expected tax rate
2016
2015
182.6
144.4
30.6%
30.6%
Expected income tax expenses
55.9
44.2
Tax rate differences
– 4.5
– 5.1
Tax reductions due to tax-free income
– 7.0
– 8.2
6.7
5.8
Tax increases due to non-deductible expenses Tax increases due to non-deductible income taxes and withholding taxes
4.0
2.8
– 3.6
– 3.3
Tax increases on account of non-deductible impairment of goodwill
0.4
0.0
Current and deferred taxes for prior years
0.7
– 2.5
Changes in valuation allowances on deferred tax assets and unrecognized deferred tax assets on tax loss carryforwards
0.5
– 2.7
Effect of changes in tax rates
– 0.4
– 0.9
Other differences
– 0.6
0.3
Reported income tax expenses
52.1
30.4
28.5%
21.1%
Tax effect on accounting for associated companies and joint ventures using the equity method
Effective tax rate
The effect of tax loss carryforwards contains deferred tax income of € 3.5 million (prior year: € 5.4 million) from the reassessment of recoverability of losses that were not recognized in the prior year. By contrast, there were deferred tax
expenses of € 3.3 million (prior year: € 2.3 million) from the valuation allowances recognized on deferred taxes on current year losses and on losses recognized in the prior year.
108
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Deferred tax assets and liabilities result from the following items of the statement of financial position and tax loss carryforwards:
Deferred taxes by item of the statement of financial position
28
Deferred tax assets IN € MILLIO N
Deferred tax liabilities
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2015
13.1
9.4
73.0
63.9
1.7
2.5
11.6
11.4
263.5
239.2
0.6
0.8
6.3
5.8
0.7
1.5
Non-current assets Current assets Non-current liabilities Pension provisions Other non-current liabilities Current liabilities
20.1
18.8
7.3
6.2
304.7
275.7
93.2
83.8
Offsetting
– 57.6
– 55.0
– 57.6
– 55.0
Deferred taxes on temporary differences
247.1
220.7
35.6
28.8
Deferred taxes on tax loss carryforwards
10.4
16.7
257.5
237.4
35.6
28.8
In Germany, no deferred taxes were recognized on corporate income tax loss carryforwards of € 9.2 million (prior year: € 5.3 million) and trade tax loss carryforwards of € 9.5 million (prior year: € 5.5 million), because it is not likely at present that the tax benefits will be realized. These tax loss carryforwards can be carried forward for an indefinite period. Outside of Germany, no deferred taxes were recognized on tax loss carryforwards of € 36.7 million (prior year: € 41.1 million). Of these tax loss carryforwards, € 34.0 million (prior year: € 34.4 million) can be used indefinitely and € 1.6 million (prior year: € 4.8 million) will expire within the next five years.
Differences on investments in subsidiaries totaling € 14.2 million (prior year: € 7.3 million) did not give rise to deferred tax liabilities because the differences are not expected to reverse in the foreseeable future by way of realization (distribution or sale of the entity). The net balance of deferred tax assets and deferred tax liabilities changed as follows in the reporting year:
Development of the net balance of deferred tax assets and deferred tax liabilities
29
2016
2015
As of January 1
208.6
205.0
Currency translation differences
– 0.9
0.2
Change in scope of consolidation
– 7.2
– 1.3
0.6
8.6
IN € MILLIO N
Income (+) / expense (–) in the income statement Deferred taxes recognized in other comprehensive income As of December 31
20.8
– 3.9
221.9
208.6
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
109
The deferred taxes recognized in other comprehensive income stem from the following:
Income taxes recognized directly in other comprehensive income
30
2016
2015
Before tax
Deferred tax expense/income
Remeasurements of defined benefit pension plans
– 48.2
20.8
Available-for-sale financial assets
– 10.1
0.0
IN € MILLIO N
Currency translation of foreign subsidiaries 1
Before tax
Deferred tax expense/income
– 27.4
44.5
– 4.3
40.2
– 10.1
10.0
0.0
10.0
After tax
After tax
4.7
0.0
4.7
7.4
0.0
7.4
Investments accounted for using the equity method 1
– 2.1
0.0
– 2.1
– 3.5
0.4
– 3.1
Other comprehensive income
– 55.7
20.8
– 34.9
58.4
– 3.9
54.5
1 _ Prior-year figure restated; see note 5.
1 2 / N O N -C O N TRO LLI N G I N T EREST S Companies with significant non-controlling interests
31
TÜV Technische Überwachung Hessen GmbH, Germany
TUV SUD Certification and Testing (China) Co., Ltd., China
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2015
45.0%
45.0%
49.0%
49.0%
Non-current assets
82.5
81.8
24.3
26.0
Current assets
26.2
22.9
74.9
62.9
Non-current liabilities
52.0
52.5
0.0
0.0
Current liabilities
17.3
17.6
50.9
42.5
Net assets
39.4
34.6
48.3
46.4
Carrying amount of non-controlling interests
17.8
15.6
23.7
22.8
Non-controlling interest IN € MILLIO N
2016
2015
2016
2015
128.8
123.1
159.3
152.1
Net income for the year
10.5
6.8
12.5
12.5
Other comprehensive income
– 4.2
1.9
– 1.6
2.3
Total comprehensive income
6.3
8.7
10.9
14.8
Revenue
Net income attributable to non-controlling interests
4.8
3.0
6.1
6.1
– 1.9
0.9
– 0.8
1.1
0.7
1.0
4.4
3.9
Cash flow from operating activities
13.7
13.7
23.2
15.7
Cash flow from investing activities
– 9.7
– 30.0
– 10.5
– 6.5
Cash flow from financing activities
– 1.5
– 0.3
– 9.0
– 9.7
2.5
– 16.6
3.7
– 0.5
Other comprehensive income attributable to non-controlling interests Dividends paid to non-controlling interests
Net change in cash and cash equivalents
110
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Notes to the consolidated statement of financial position 1 3 / IN TA N G IBL E ASSET S Development of intangible assets
IN € MILLIO N
Gross carrying amount as of January 1, 2016 Currency translation differences Acquisitions of subsidiaries
32
Goodwill
Licenses and similar rights and customer r elationships
Internally generated intangible assets
Other intangible assets
Intangible assets under development
Total
260.2
144.0
25.3
82.3
3.4
515.2
3.7
– 0.3
0.0
0.0
0.0
3.4
21.0
44.9
0.0
1.0
0.0
66.9
Additions
0.0
0.0
2.2
12.3
6.8
21.3
Disposals
0.0
– 1.6
– 1.0
– 15.4
– 0.2
– 18.2
Reclassifications
0.0
0.0
1.9
– 0.3
– 1.3
0.3
Gross carrying amount as of December 31, 2016
284.9
187.0
28.4
79.9
8.7
588.9
Accumulated amortization and impairment losses
– 35.4
– 85.4
– 10.1
– 65.3
0.0
– 196.2
Carrying amount as of December 31, 2016
249.5
101.6
18.3
14.6
8.7
392.7
Amortization and impairment losses in the fiscal year 2016
– 1.5
– 12.6
– 2.9
– 6.9
0.0
– 23.9
Gross carrying amount as of January 1, 2015
483.8
245.1
138.0
7.6
78.3
14.8
Currency translation differences
8.2
0.7
0.0
0.4
0.0
9.3
Acquisitions of subsidiaries
6.9
5.3
0.0
0.0
0.0
12.2
Additions
0.0
0.0
3.6
3.4
3.1
10.1
Disposals
0.0
0.0
0.0
– 0.3
– 0.1
– 0.4
0.0
0.0
14.1
0.5
– 14.4
0.2
Gross carrying amount as of December 31, 2015
Reclassifications
260.2
144.0
25.3
82.3
3.4
515.2
Accumulated amortization and impairment losses
– 32.7
– 70.5
– 7.6
– 73.1
0.0
– 183.9
Carrying amount as of December 31, 2015
227.5
73.5
17.7
9.2
3.4
331.3
0.0
– 21.3
– 2.7
– 6.6
0.0
– 30.6
Amortization and impairment losses in the fiscal year 2015
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
111
The carrying amounts of goodwill are principally allocated to the following groups of cash generating units (CGUs):
Goodwill IN € MILLIO N
Industry Service
33
Dec. 31, 2016
Dec. 31, 2015
108.8
107.2
Real Estate & Infrastructure
51.2
49.1
Auto Service
44.8
32.2
Product Service
39.6
33.9
5.1
5.1
249.5
227.5
Other
Intangible assets acquired for a consideration primarily contain software and accreditations as well as values identified in the course of purchase price allocations, such as customer relationships, trademark rights, software and concessions. Internally generated intangible assets primarily comprise software and development costs. Intangible assets with finite useful lives are amortized using the straight-line method over a period of two to 20 years. The item “licenses and similar rights and customer relationships” includes expenses for the license for regular vehicle inspections by tüv süd Bursa, Osmangazi-Bursa, Turkey, of € 7.9 million (prior year: € 10.0 million). The operator’s license is amortized over its term until August 2027 using the straightline method. As of the reporting date, the carrying amount of concessions, accreditations and trademark rights with indefinite useful lives comes to € 31.1 million (prior year: € 9.5 million), of which € 20.9 million (prior year: € 0.0 million) relates to the Auto Service CGU, € 9.7 million (prior year: € 9.1 million) to the Industry Service CGU and € 0.5 million (prior year: € 0.4 million) to the Product Service CGU.
Impairment losses of € 3.1 million (prior year: € 11.1 million) were recognized on customer relationships and order backlog, of € 0.3 million on software (prior year: € 0.0 million) and of € 0.0 million (prior year: € 1.0 million) on licenses and accreditations as part of the annual impairment test of intangible assets. Of these amounts, € 1.6 million (prior year: € 11.6 million) is attributable to the industry Segment, € 0.5 million (prior year: € 0.0 million) to the mobility Segment and € 1.3 million (prior year: € 0.5 million) to the certification Segment. For goodwill, impairment losses of € 1.5 million (prior year: € 0.0 million) were recorded primarily resulting from the strategic realignment of a business in the industry Segment. The calculation of fair value less costs to sell per CGU was based on a discount rate of between 6.0% and 7.1% taking income taxes into account (prior year: between 6.5% and 7.7%). As in the prior year, the sustainable growth rate remained unchanged at 1.0% for all CGUs. The calculation of the fair values for the CGUs falls under level 3 of the fair value hierarchy. Research and development expenses totaling € 9.4 million were recognized in the income statement in the reporting year (prior year: € 6.9 million).
112
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
1 4 / PRO PE RT Y, PLAN T AN D EQ U I PMEN T Development of property, plant and equipment
IN € MILLIO N
34
Land and buildings
Technical equipment and machinery
Other equipment, furniture and fixtures
Assets under construction
Total
Gross carrying amount as of January 1, 2016
497.5
197.2
267.9
9.7
972.3
Currency translation differences
– 0.6
– 1.2
0.0
0.1
– 1.7
Acquisitions of subsidiaries
19.4
6.6
2.3
0.0
28.3
Additions
7.9
15.6
26.1
15.6
65.2
Disposals
– 4.3
– 4.9
– 30.4
– 0.5
– 40.1
Reclassifications to “held for sale”
– 0.4
0.0
0.0
0.0
– 0.4
Reclassifications Gross carrying amount as of December 31, 2016 Accumulated depreciation and impairment losses
0.7
4.4
1.7
– 7.1
– 0.3
520.2
217.7
267.6
17.8
1,023.3 – 554.2
– 229.4
– 143.3
– 181.0
– 0.5
Carrying amount as of December 31, 2016
290.8
74.4
86.6
17.3
469.1
Depreciation and impairment losses in the fiscal year 2016
– 14.5
– 15.7
– 25.9
– 0.5
– 56.6
Gross carrying amount as of January 1, 2015
477.2
172.2
244.4
14.2
908.0
3.1
7.6
1.6
0.3
12.6
Currency translation differences
0.0
0.0
0.6
0.0
0.6
Additions
Acquisitions of subsidiaries
12.8
16.6
29.5
11.4
70.3
Disposals
– 2.6
– 3.8
– 12.6
0.0
– 19.0
7.0
4.6
4.4
– 16.2
– 0.2
497.5
197.2
267.9
9.7
972.3
Reclassifications Gross carrying amount as of December 31, 2015
– 220.0
– 130.1
– 182.8
0.0
– 532.9
Carrying amount as of December 31, 2015
Accumulated depreciation and impairment losses
277.5
67.1
85.1
9.7
439.4
Depreciation and impairment losses in the fiscal year 2015
– 15.0
– 13.5
– 23.1
0.0
– 51.6
Depreciation of property, plant and equipment is generally charged using the straight-line method. Buildings and parts of buildings are depreciated over a maximum period of 40 years, technical equipment over a period of between five and 15 years, and furniture and fixtures over a period of between three and 23 years. Impairment losses to the lower fair value of € 3.4 million (prior year: € 2.9 million) were recognized. Of these, € 2.5 million (prior year: € 1.5 million) relates to technical equipment and machinery, € 0.5 million (prior year: € 0.0 million) to assets under construction, € 0.4 million (prior year: € 0.0 million) to other equipment, furniture and fixtures and € 0.0 million (prior year: € 1.4 million) to land and buildings.
In the fiscal year 2016, reversals of impairment losses of € 1.3 million (prior year: € 0.0 million) were recognized for technical equipment and machinery and of € 1.1 million (prior year: € 0.2 million) for land and buildings.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
1 5 / I N V E S T ME NT PRO PERT Y
16 / I NVE STM E NTS ACCOUNTE D F OR USING THE E QUITY M E THOD
Development of investment property IN € MILLIO N
Gross carrying amount as of January 1
35
Investments accounted for using the equity method 2016
2015
5.1
10.5
Acquisitions of subsidiaries
0.2
0.0
Disposals
0.0
– 5.4
Gross carrying amount as of December 31
5.3
5.1
– 1.6
– 1.5
Carrying amount as of December 31
3.7
3.6
Depreciation and impairment losses in the fiscal year
– 0.1
– 0.1
Accumulated depreciation
113
Investment properties are measured at amortized cost. As of December 31, 2016, they had a market value of € 7.4 million (prior year: € 7.3 million). Measurement at fair value of the investment property is classified as level 3 in the fair value hierarchy. If current market data is not available, the fair value is calculated on the basis of a capitalized earnings method pursuant to the ImmoWertV [“Immobilienwertermittlungsverordnung”: German Ordinance on the Valuation of Property] and derived from the standard land values as well as the expected rental income. Essential input factors in the valuation that are not directly observable on the market include property yield, which is significantly influenced by property location and type. The property yield used in the valuation was 4.50% (prior year: 4.75%).
IN € MILLION
Investments in joint ventures Investment in an associated company
36
Dec. 31, 2016
Dec. 31, 2015
24.8
21.9
3.3
3.3
28.1
25.2
Joint ventures tüv süd holds 33.3% of the shares in each of the two Turkish companies TÜVTURK Güney Tasit Muayene Istasyonlari Yapim ve Isletim A.S. (TÜVTURK Güney), Istanbul, and TÜVTURK Kuzey Tasit Muayene Istasyonlari Yapim ve Isletim A.S. (TÜVTURK Kuzey), Istanbul. The other venturers of the companies are the Dogus Group, Istanbul, Turkey, and Test A.S., Istanbul, Turkey, a company in the Bridgepoint Group, London, UK, which also each hold one third of the shares. The joint arrangements are structured as separate vehicles. tüv süd has a right to the net assets of the companies. As a result, the joint arrangements are classified as joint ventures and accounted for using the equity method. There are no quoted prices for these companies. In 2007, the TÜVTURK companies concluded a concession agreement with the Turkish government, governing the implementation of regular vehicle inspections throughout Turkey. Using different contractual partners, the joint venture is the exclusive provider of vehicle inspections in Turkey for the 20-year term of the contract. In 2016, 8.2 million (prior year: 8.1 million) vehicle inspections were performed, generating revenue of TRY 1,452.2 million or € 434.5 million (prior year: TRY 1,326.5 million or € 438.9 million). With the acquisition of the Spanish ATISAE Group, tüv süd holds a 50.0% interest in ITV de Levante, S.A., Valencia, Spain (ITV Levante). The other owner is Tenedora de Acciones de ITV de Levante, S.L., Valencia, Spain, which also holds 50.0%. The joint venture ITV Levante is accounted for using the equity method. No quoted market price is available for this company. ITV Levante was founded in 1998 and owns the concessions for three vehicle service stations in the Valencia region, which expire in 2022. A total of 0.3 million vehicle inspections were performed in 2016, generating revenue of € 10.0 million.
114
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
The following table summarizes the financial information for the joint ventures. The information presented for TÜVTURK’s reporting year corresponds to the amounts in the preliminary consolidated financial statements, which were prepared in
accordance with IFRSs. The information on ITV Levante represents the amounts in the company’s preliminary separate financial statements.
Financial data of the joint ventures (100%)
37
ITV de Levante, S.A., Spain
Consolidated financial statements TÜVTURK, Turkey
Dec. 31, 2016
Dec. 31, 2016
Dec. 31, 2015
50.00%
33.33%
33.33%
Non-current assets
3.5
217.3
256.8
Current assets
1.5
54.0
82.0
Percentage share of joint venture IN € MILLIO N
thereof cash and cash equivalents
1.3
30.8
48.6
0.0
161.1
211.7
0.0
24.4
42.6
1.7
64.5
76.0
0.0
47.2
53.2
3.3
45.7
51.1
2016
2016
2015
Revenue
10.0
434.5
438.9
Amortization and depreciation
– 0.9
– 3.6
– 4.4
Non-current liabilities thereof financial liabilities Current liabilities thereof financial liabilities Net assets
Interest income
0.0
4.3
5.5
Interest expenses
0.0
– 6.5
– 10.3
– 0.5
– 7.1
– 7.8
Net income for the year
1.6
30.1
31.7
Other comprehensive income
0.0
0.0
– 5.5
Total comprehensive income
1.6
30.1
26.2
Dividends received
0.8
9.7
8.4
Income taxes
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
115
In the following table, the financial information is reconciled to the carrying amount of the interest in the joint ventures:
Reconciliation to the carrying amount of TÜV SÜD’s interest in the joint ventures
38
ITV de Levante, S.A., Spain
IN € MILLIO N
Net assets (100%) as of January 1 Total comprehensive income
Consolidated financial statements TÜVTURK, Turkey
2016
2016
2015
3.8
51.1
55.0
1.6
30.1
26.2
– 2.1
– 29.2
– 25.3
Currency translation differences
0.0
– 6.3
– 4.8
Net assets (100%) as of December 31
3.3
45.7
51.1
Attributable to the TÜV SÜD Group
1.7
15.2
17.0
Capital gain on disposal of TÜVTURK Istanbul
0.0
– 8.7
– 8.7
Dilution of shares due to acquisition of shares in TÜVTURK Istanbul in 2010 and 2011
0.0
– 6.4
– 6.4
Consolidation effect on acquisition of TÜVTURK Istanbul at TÜV SÜD
0.0
20.0
20.0
Group adjustments ITV Levante
3.0
0.0
0.0
Carrying amount as of December 31
4.7
20.1
21.9
Dividends paid
1 7 / OTH E R F IN A N C I AL ASSET S
18 / T RA DE RE CE IVA BL E S
Other financial assets IN € MILLIO N
Investments in affiliated companies
39
Dec. 31, 2016
Dec. 31, 2015
13.9
7.0
2.4
37.8
45.5
49.9
Share of policy reserve from employer’s pension liability insurance
0.2
5.5
Other loans
3.4
3.1
65.4
103.3
Other participations Non-current securities
An amount of € 0.9 million (prior year: € 1.8 million) of the non-current securities is pledged under a trust agreement concluded to secure the value of the settlement claims for employees in the block model of the phased retirement scheme (Altersteilzeit).
Trade receivables
40
Dec. 31, 2016
Dec. 31, 2015
Receivables according to the percentage-of-completion method
119.1
126.5
Other trade receivables
344.1
299.0
463.2
425.5
IN € MILLION
Valuation allowances on trade receivables amount to € 20.8 million (prior year: € 14.9 million) as of the reporting date.
116
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
The maturity profile of other trade receivables is as follows:
Maturity structure
41
Dec. 31, 2016
Dec. 31, 2015
Other trade receivables
344.1
299.0
thereof neither impaired nor past due
218.8
185.8
up to 30 days
72.2
69.0
31 to 60 days
20.5
17.4
61 to 90 days
10.1
7.0
91 to 180 days
12.0
10.2
181 to 360 days
4.7
4.5
more than 360 days
2.6
3.3
3.2
1.8
IN € MILLIO N
thereof not impaired but past due by:
thereof impaired as of the reporting date
There is no indication that customers might not be able to settle their obligations regarding receivables that are neither impaired nor past due.
1 9 / O TH E R RE CEI VABLES AN D OT H ER C U RRENT A SSE TS Other receivables and other current assets
42
Dec. 31, 2016
Dec. 31, 2015
Receivables from affiliated companies
3.5
0.8
Receivables from other participations
0.6
0.8
Fair values of derivative financial instruments
1.5
0.5
IN € MILLIO N
Miscellaneous financial assets
39.6
31.3
Other receivables and other current financial assets
45.2
33.4
8.6
10.8
Refund claims against insurance companies Miscellaneous non-financial assets
13.8
14.0
Other current non-financial assets
22.4
24.8
67.6
58.2
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
2 0 / E Q U IT Y The capital subscribed of tüv süd ag is divided into 26,000,000 no-par value registered shares with restricted transferability with an imputed value of € 1.00 for each registered share.
21 / P ROVISIONS F OR PE NSIONS A ND SIM IL A R OBL IGATIONS Provisions for pensions and similar obligations (net liability)
Revenue reserves contain the undistributed profits generated in the fiscal year and in the past by the entities included in the consolidated financial statements. Moreover, the revenue reserves record the offsetting of debit and credit differences resulting from capital consolidation for acquisitions prior to December 31, 2005, as well as the net amount of the adjustments recognized in other comprehensive income in connection with the first-time application of IFRSs. Furthermore, remeasurements of defined benefit pension plans recognized in other comprehensive income were allocated directly to revenue reserves, taking into account the related deferred taxes. This reflects the fact that these amounts will not be reclassified to the income statement in future periods. Other reserves record the differences arising from the currency translation of foreign subsidiaries’ separate financial statements without effect on income, effects from the measurement of securities without effect on income and the income and expenses recognized without effect on income arising from investments accounted for using the equity method, in each case less the corresponding deferred taxes. In addition to ensuring the continued existence of the company as a going concern, tüv süd’s capital management aims to achieve an adequate return in excess of the cost of capital in order to increase the value of the company in the long term.
43
Dec. 31, 2016
Dec. 31, 2015
704.8
743.9
Provisions for pensions in other countries
36.1
21.2
Provisions for similar obligations in other countries
8.5
7.7
749.4
772.8
IN € MILLION
The capital reserve mainly includes the premium for various capital increases carried out since 1996.
117
Provisions for pensions in Germany
The Group’s post-employment benefits include both defined contribution and defined benefit plans. Defined contribution plans In the case of defined contribution plans, the company pays contributions to state or private pension funds on a legal, contractual or voluntary basis. Ongoing premium payments (including contributions to state pension insurance) are stated as pension expenses for the respective year; in the fiscal year 2016, they totaled € 66.9 million (prior year: € 63.6 million). In Germany, all new pension commitments entered into are only defined contribution plans. Defined benefit plans Defined benefit plans comprise commitments for retirement, invalidity and surviving dependants’ pensions. The Group’s obligations vary according to legal, fiscal and economic framework conditions of the country concerned and are usually based on the length of employee service and level of remuneration. The pension commitments in Germany are integrated schemes similar to those for civil servants, against which the state pension is offset. When the statutory pension rises, this relieves the burden on tüv süd. When pension values fall, however, the obligation of tüv süd increases. These integrated schemes were closed for new hires in 1981 and 1992. Furthermore, pension obligations were granted temporarily in Germany in accorance with the “dual pension formula”. The amount of the pension benefit is based on the qualifying length of service and the pensionable income; different percentage rates are applied to determine the benefit amount depending on whether the income is above or below the income threshold. These defined benefit plans were likewise closed in 1996.
118
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
There is a defined benefit pension plan in the UK based, among other things, on salary and on length of service. Eligible employees have to pay additional contributions which are agreed between the plan actuary, the trustee and the tüv süd member employer. This pension plan has been closed for new hires. In other countries there are defined benefit obligations for annuity and termination benefits, based partly on statutory requirements. The resulting obligations are reported under provisions for similar obligations. Funding the pension plans In Germany, new pension commitments are financed as defined contribution plans via the pension funds of Allianz and Alters- und Hinterbliebenen-Unterstützungskasse der Technischen Überwachungs-Vereine e.V., which are both subject to the BaFin [“Bundesanstalt für Finanzdienstleistungsaufsicht”: German Federal Financial Supervisory Authority] regulations. In order to secure the pension entitlements from the defined benefit plans, there are legally separate funds in Germany and the UK that are structured as contractual trust agreements (CTAs). The transferred funds, which are managed in trust and used only for a specific purpose, are plan assets within the meaning of IAS 19 which are offset against pension obligations. The funds of the association tüv süd Pension Trust e.V. founded in 2006 serve solely to finance pension obligations of individual domestic group companies. The Board of Management of tüv süd Pension Trust e.V. comprises three people, and there is also an investment committee with three members (one of whom is also a member of the Board of Management). Both the board and the investment committee are contractually obliged to administer and use the funds for their designated purpose and to make decisions regarding the investment policy. Most of the trust assets are invested in the Oktagon fund. In addition, within the contractual trust agreement there are investments in Alters- und Hinterbliebenen-Versicherung der Technischen Überwachungs-Vereine -VvaG- (“AHV”, an old-age and surviving dependents pensions fund for technical inspection associations), an investment fund structured as a stock corporation under Luxembourg law for investments in infrastructure or private debt funds as well as an atypical silent partnership in a German property company and a real estate operating company. In addition to cash and cash equivalents, a small portion of investments are also made in a retail fund, which is secured by a capital value maintenance concept.
tüv süd Pension Trust e.V. is funded such that the pension payments reimbursed by tüv süd Pension Trust e.V. are contributed back into the CTA by the relevant domestic companies and additional funds are made available by the Board of Management of tüv süd ag as part of a new allocation. The actual contribution is determined each year by resolution of the Board of Management. tüv Hessen Trust e.V. was founded in 2015 and, based on the trust agreement concluded with tüv Technische Überwachung Hessen GmbH (tüv Hessen), acts as trustee within a dual trust (administrative and security trust) to secure pension entitlements for former and active employees of tüv Hessen. The trust assets consist of cash and cash equivalents, which are intended to be issued in stages as loans to finance the construction of a new administrative building. In the case of domestic group companies that are not part of the contractual trust agreements, the pension obligations are funded from generated cash flows. To fully fund the obligations, in the UK there is a company- based pension plan according to which the fund assets can only be used to settle the pension obligations. If, calculated in accordance with actuarial principles, there is a deficit in these pension plans, the member employer tüv süd (UK) Ltd., Fareham Hants, UK, and the trustee must agree on a restructuring plan that is renewed every three years and has to be presented to The Pension Regulator (TPR) in the UK for approval. To finance the deficit of around GBP 11.8 million determined at the end of 2013, the member employer agreed to make an annual contribution of GBP 1.7 million over a period of eight years in addition to the regular employer’s contribution. The next actuarial review set after three years is currently being prepared. As soon as the findings are known, an additional restructuring plan will be submitted to TPR. Because of the defined benefit plans, the tüv süd Group is subject to duration risks, foreign currency risks, interest and credit spread risks, share price risks, liquidity risks, investment risks for infrastructure projects and property market risks. In the fiscal year 2017, the Group intends to make a contribution to plan assets of € 63.7 million in order to further reduce the existing deficit (the planned figure for 2016 was € 64.4 million, the end-of-year figure, including one-off additions of € 40.0 million, amounted to € 101.3 million).
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
119
The funded status of defined benefit obligations as well as a reconciliation to the amounts recognized in the statement of financial position are shown in the table below:
Funded status of the defined benefit obligation
44
Germany IN € MILLIO N
2016
Other countries 2015
Total
2016
2015
2016
2015
Defined benefit obligation
1,945.0
1,897.8
144.6
128.5
2,089.6
2,026.3
Fair value of plan assets
1,240.2
1,153.9
100.0
99.6
1,340.2
1,253.5
704.8
743.9
44.6
28.9
749.4
772.8
Net defined benefit liability = carrying amount as of December 31
The development compared with prior fiscal years is shown below:
Development of funded status
45
2016
2015
2014
2013
2012
Defined benefit obligation
2,089.6
2,026.3
2,021.2
1,680.6
1,662.4
Plan assets
1,340.2
1,253.5
1,123.2
998.7
945.4
749.4
772.8
898.0
681.9
717.0
IN € MILLIO N
Funded status as of December 31
120
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Change in net defined benefit liability Development of defined benefit obligation
46
2016 IN € MILLIO N
Defined benefit obligation as of January 1
2015
Germany
Other countries
Total
Germany
Other countries
Total
1,897.8
128.5
2,026.3
1,903.5
117.7
2,021.2
Service cost
25.3
4.2
29.5
27.0
4.3
31.3
Interest cost
37.2
3.7
40.9
37.4
3.9
41.3
Benefits paid
– 69.8
– 5.3
– 75.1
– 68.3
– 5.9
– 74.2
Contributions by the beneficiaries
0.0
0.6
0.6
0.0
0.7
0.7
Plan curtailments and settlements
0.0
– 0.8
– 0.8
0.0
0.0
0.0
Actuarial gains and losses from demographic assumptions
0.0
1.8
1.8
0.0
0.1
0.1
Actuarial gains and losses from financial assumptions
85.9
26.1
112.0
– 0.6
– 1.2
– 1.8
Actuarial gains and losses from experience adjustments
– 31.4
1.6
– 29.8
– 1.2
0.7
– 0.5
0.0
– 0.3
– 0.3
0.0
0.6
0.6
0.0
– 15.5
– 15.5
0.0
7.6
7.6
1,945.0
144.6
2,089.6
1,897.8
128.5
2,026.3
Gains (–) and losses (+) from remeasurements
Past service cost Currency translation differences and other Defined benefit obligation as of December 31 thereof unfunded thereof partially funded
255.1
7.4
262.5
244.7
6.7
251.4
1,689.9
137.2
1,827.1
1,653.1
121.8
1,774.9
Around 53% (prior year: 54%) of the defined benefit obligation is allocable to pensioners, and 47% (prior year: 46%) to active employees and vested beneficiaries. The weighted average duration of the obligations is 15.9 years (prior year: 15.6 years). The main factor influencing the development of the defined benefit obligation is the underlying discount rate. For Germany,
this stands at 1.7% as of December 31, 2016 (prior year: 2.0%). In the UK, a discount rate of 2.5% was used (prior year: 3.6%) due to the development of the capital markets. Pension payments of € 77.9 million are expected for the fiscal year 2017.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Development of plan assets
47
2016 IN € MILLIO N
Fair value of plan assets as of January 1 Interest income
121
2015
Germany
Other countries
Total
Germany
Other countries
Total
1,153.9
99.6
1,253.5
1,032.0
91.2
1,123.2
23.1
3.0
26.1
20.8
3.2
24.0
26.2
9.6
35.8
44.0
– 1.7
42.3
96.7
4.6
101.3
115.3
5.4
120.7
0.0
0.6
0.6
0.0
0.7
0.7
Gains (+) and losses (–) from remeasurements Return on plan assets excluding interest income Contributions by the employer Contributions by the beneficiaries Benefits paid
– 59.7
– 4.5
– 64.2
– 58.2
– 5.1
– 63.3
Plan curtailments and settlements
0.0
– 0.6
– 0.6
0.0
0.0
0.0
Currency translation differences and other
0.0
– 12.3
– 12.3
0.0
5.9
5.9
1,240.2
100.0
1,340.2
1,153.9
99.6
1,253.5
49.3
12.6
61.9
64.8
1.5
66.3
Fair value of plan assets as of December 31 Actual return on plan assets
The net defined benefit liability thus changed as follows:
Development of the net defined benefit liability
48
2016 IN € MILLIO N
As of January 1 Service cost Net interest cost
2015
Germany
Other countries
Total
Germany
Other countries
Total
743.9
28.9
772.8
871.5
26.5
898.0
25.3
4.2
29.5
27.0
4.3
31.3
14.1
0.7
14.8
16.6
0.7
17.3
Contributions by the employer
– 96.7
– 4.6
– 101.3
– 115.3
– 5.4
– 120.7
Benefits paid
– 10.1
– 0.8
– 10.9
– 10.1
– 0.8
– 10.9
0.0
– 0.2
– 0.2
0.0
0.0
0.0
Actuarial gains and losses from demographic assumptions
0.0
1.8
1.8
0.0
0.1
0.1
Actuarial gains and losses from financial assumptions
85.9
26.1
112.0
– 0.6
– 1.2
– 1.8
Plan curtailments and settlements Gains (–) and losses (+) from remeasurements
Actuarial gains and losses from experience adjustments
– 31.4
1.6
– 29.8
– 1.2
0.7
– 0.5
Return on plan assets excluding interest income
– 26.2
– 9.6
– 35.8
– 44.0
1.7
– 42.3
0.0
– 0.3
– 0.3
0.0
0.6
0.6
0.0
– 3.2
– 3.2
0.0
1.7
1.7
704.8
44.6
749.4
743.9
28.9
772.8
Past service cost Currency translation differences and other As of December 31
122
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Plan assets Composition of plan assets
49
Dec. 31, 2016
Dec. 31, 2015
Shares (prior to hedging)
353.3
336.3
Fixed-interest securities
664.9
635.3
74.1
44.3
IN € MILLIO N
Share in investment company for infrastructure projects and private debt funds (SICAV) Real estate and similar assets – used by the TÜV SÜD Group Real estate and similar assets – used by third parties, vacant or under construction Other (including cash and cash equivalents)
All shares and fixed-interest securities are traded at the prices quoted on active markets. The investment strategy for the plan assets is geared to covering the deficit between plan assets and pension obligations on a long-term basis. This is based on the increase in the obligations adjusted for current service cost and pension payments. The investment strategy also includes a controlled downside risk (low probability of a sharp fall in the coverage ratio) and is determined at regular intervals in asset liability management (ALM) studies. The resulting target allocation includes an optimized risk return profile, taking into account the interdependency of plan assets and obligations. The risks for plan assets stem chiefly from the investments in the Oktagon fund. Among others, these include interest and credit spread risks which, however, run counter to changes in the pension obligations. Further risks stem from fluctuations in share prices. Interest and share price risks can be hedged as needed by means of publicly traded futures in a dedicated control segment. Most of the foreign currency risks relating to investments in fixed-interest securities are hedged in full. The investment in AHV also entails interest, credit spread and share price risks. In the case of infrastructure investments, risks include illiquidity and regulatory intervention by individual countries. Investments in real estate involve technical risks (maintenance) and economic risks (rental price changes for new lets, level of occupancy).
0.0
3.7
142.7
124.8
105.2
109.1
1,340.2
1,253.5
Risk management takes a holistic approach, taking into account the development of plan assets and pension obligations. The main risk relates to a deterioration in the funded status (coverage shortfall) on account of negative developments of the pension obligations and/or plan assets. Risk management is based on the risk budget for pension risks, which breaks down into a budget for non-controllable risks (e.g., the portion of pension obligations not covered by plan assets) and for controllable risks. The controllable risks relate first and foremost to the risks in the CTA. The risk budget requirement and exploitation are determined using value-at-risk methods and monitored periodically. Implementation of the results of the latest ALM study 2014 resulted in broader diversification by changing an existing mandate to a global orientation as well as through new asset classes such as convertible bonds and multi-asset funds. A new ALM study was commissioned at the end of 2016.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
123
Defined benefit obligation Actuarial assumptions for determining the defined benefit obligation
50
Dec. 31, 2016
Dec. 31, 2015
Germany
Other countries
Germany
Other countries
Discount rate
1.70
2.28
2.00
3.18
Future salary increases
2.25
3.01
2.25
2.98
Future pension increases
1.80
3.20
1.80
3.10
IN %
The actuarial assumptions were continuously derived in accordance with uniform principles compared to the prior year and set out for each country depending on the respective economic circumstances. The discount rate is based on the return on fixed-interest corporate bonds with the same term and in the same currency that rating agencies have awarded an AA rating. Adjustment for forecast long-term inflation is taken into account in the development of future salary and pension increase. The respective inflation rate does not exceed the interest rate observable on the market.
A change in the aforementioned assumptions used to determine the defined benefit obligation in Germany as of December 31, 2016 would lead to a corresponding change in this figure. An analysis of historical changes in parameters from this perspective showed that if there was a change in the discount rate of up to 100 base points, a change of up to 75 base points for the development of future salary and pension increase as well as an increase of up to 5.3% for life expectancy up to the next measurement date can be regarded as realistic. The change in the underlying assumptions regarding life expectancy translates into a one-year increase in life expectancy for a currently 65-year-old man. The respective effects from such a change in measurement are presented on the assumption that all other parameters remain constant.
As far as life expectancy is concerned, the mortality tables 2005 G from HEUBECK-RICHTTAFELN-GmbH were still applied in Germany. Outside Germany, the customary mortality tables for the respective country were used.
Sensitivity analyses
51
DBO Germany as of Dec. 31, 2016
DBO Germany as of Dec. 31, 2015
IN € MILLIO N
Increase
Decrease
Increase
Discount rate (1% variation)
– 289.8
368.5
– 275.8
349.7
267.0
– 220.4
257.9
– 211.0
86.3
–
81.8
–
Future salary / pension increase (0.75% variation) Life expectancy (5.3% increase for all persons)
Net pension expense The assumptions made to calculate the defined benefit obligation as of the respective measurement date (December 31) apply to both the calculation of the interest cost and the current service cost as well as to the interest income on plan assets
Decrease
in the following fiscal year. The assumptions used in the calculation of the pension expenses for the fiscal year 2016 were therefore already defined as of the reporting date December 31, 2015.
124
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
The key assumptions in calculating pension expenses are presented in the following overview:
Actuarial assumptions for determining pension expenses
52
2016
2015
Germany
Other countries
Germany
Other countries
Discount rate
2.00
3.18
2.00
3.19
Future salary increases
2.25
2.98
2.25
3.07
Future pension increases
1.80
3.10
1.80
3.20
IN %
The expense recognized for defined benefit pension plans in total comprehensive income for the fiscal years 2016 and 2015 breaks down as follows:
Expenses (+)/income (–) recognized for defined benefit plans in total comprehensive income
53
2016 IN € MILLIO N
Germany
2015
Other countries
Total
Germany
Other countries
Total
Service cost
25.3
4.2
29.5
27.0
4.3
31.3
Net interest cost
14.1
0.7
14.8
16.6
0.7
17.3
Past service cost
0.0
– 0.3
– 0.3
0.0
0.6
0.6
Gains (–) and losses (+) from plan curtailments and settlements
0.0
– 0.2
– 0.2
0.0
0.0
0.0
Expenses for defined benefit plans recognized in the consolidated income statement
39.4
4.4
43.8
43.6
5.6
49.2
– 26.2
– 9.6
– 35.8
– 44.0
1.7
– 42.3
Gains (–) and losses (+) from remeasurements of the defined benefit obligation
54.5
29.5
84.0
– 1.8
– 0.4
– 2.2
Remeasurements of defined benefit plans recognized in other comprehensive income
28.3
19.9
48.2
– 45.8
1.3
– 44.5
Expenses recognized for defined benefit plans in total comprehensive income
67.7
24.3
92.0
– 2.2
6.9
4.7
Return on plan assets excluding interest income
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
125
2 2 / O TH E R PROV I SI O N S Development of other provisions
54
IN € MILLIO N
As of January 1, 2016 thereof non-current
Personnel provisions
Litigation, warranty and similar obligations
Restructuring p rovisions
Miscellaneous provisions
Other provisions
105.8
14.2
11.5
25.8
157.3 36.8
28.4
0.0
0.1
8.3
0.9
0.5
0.0
0.9
2.3
Additions
98.1
3.4
1.1
7.6
110.2
Utilization
– 73.1
– 1.1
– 1.3
– 12.2
– 87.7
Reversals
– 5.1
– 4.6
– 0.2
– 2.7
– 12.6
Change in scope of consolidation
1.7
0.0
0.0
0.0
1.7
As of December 31, 2016
Unwinding of the discount
128.3
12.4
11.1
19.4
171.2
thereof non-current
28.4
0.0
0.0
8.7
37.1
The personnel provisions mainly pertain to variable remuneration for staff and management including associated social security contributions, obligations arising from the agreements under the German phased retirement scheme, medical benefits and long-service bonuses.
The restructuring provisions relate to adopted and announced restructuring measures in the industry Segment.
The provisions for litigation costs, warranty and similar obligations are counterbalanced by refund claims from insurance companies totaling € 8.6 million (prior year: € 10.8 million) that have been recognized as current assets.
2 3 / F IN A N C IA L D EBT Financial debt
55
Non-current IN € MILLIO N
Dec. 31, 2016
Current Dec. 31, 2015
Dec. 31, 2016
Total Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2015
Liabilities to banks
0.4
0.1
2.8
2.7
3.2
2.8
Finance lease liabilities
1.1
0.9
0.1
0.2
1.2
1.1
Cash pool liabilities to affiliated companies
0.0
0.0
1.1
0.2
1.1
0.2
Cash pool liabilities to other related parties
0.0
0.0
1.2
1.0
1.2
1.0
1.5
1.0
5.2
4.1
6.7
5.1
All the liabilities to banks are due in less than five years.
126
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
2 4 / T RA D E PAYA BLES Trade payables
56
IN € MILLIO N
Liabilities according to the percentage-of-completion method Other trade payables
Dec. 31, 2016
Dec. 31, 2015
32.8
25.8
71.8
66.3
104.6
92.1
2 5 / OTH E R L IA B I LI T I ES Other liabilities
57
Non-current IN € MILLIO N
Liabilities to affiliated companies
Current
Total
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2015
0.0
0.0
11.9
6.5
11.9
6.5
Liabilities to other participations
0.0
0.0
0.7
0.6
0.7
0.6
Fair values of derivative financial instruments
0.0
0.0
1.5
3.8
1.5
3.8
Outstanding invoices
0.0
0.0
44.3
42.4
44.3
42.4
12.6
7.4
35.7
22.2
48.3
29.6
12.6 1
7.4 1
94.1
75.5
106.7
82.9
Miscellaneous financial liabilities Other financial liabilities Advance payments received
0.0
0.0
52.1
49.0
52.1
49.0
Vacation claims, flexitime and overtime credits
0.0
0.0
50.4
46.2
50.4
46.2
Other taxes
0.0
0.0
44.6
38.0
44.6
38.0
Liabilities relating to social security
0.0
0.0
5.8
4.4
5.8
4.4
Miscellaneous non-financial liabilities
0.0
0.0
21.0
20.5
21.0
20.5
Other non-financial liabilities
0.0
0.0
173.9
158.1
173.9
158.1
12.6
7.4
268.0
233.6
280.6
241.0
1 _ Thereof due in more than five years: € 2.7 million (prior year: € 3.4 million).
In the reporting year, miscellaneous financial liabilities contain the purchase price payment for the acquisition of the ATISAE Group not yet paid as well as liabilities from upfront payments in the vehicle fleet business and dividends not yet paid to external shareholders.
Miscellaneous non-financial liabilities include in particular accrued expenses and deferred income.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
2 6 / CO N TIN G E NT LI ABI LI T I ES The table below presents the contingent liabilities for which the main debtor is not a consolidated entity:
Contingent liabilities
58
Dec. 31, 2016
Dec. 31, 2015
45.0
42.5
Contingent liabilities arising from litigation risks
1.5
1.1
Miscellaneous contingent liabilities
0.5
0.9
47.0
44.5
IN € MILLIO N
Guarantee obligations
127
Protection Fund, Surrey, UK, which the UK companies participating in T.P.S. Benefits Scheme Limited, Fareham, UK, would otherwise have to pay on an annual basis. The obligations were entered into for current business transactions where no utilization is to be expected based on the assessment of the current business situation. Apart from the contingent liabilities reported, tüv süd has assumed joint and several liability in relation to interests in civil law associations, other partnerships and joint ventures.
27 / L E GA L PROCE E DINGS tüv süd ag and its subsidiaries are not involved in any litiga-
The guarantee obligations stem chiefly from a guarantee issued for T.P.S. Benefits Scheme Limited, Fareham, UK. The guarantee reduces the insurance fees charged by the Pension
tion which could have a material impact on the economic or financial situation of the individual entities or the Group as a whole.
2 8 / OTH E R F IN A N C I AL O BLI G AT I O N S Future obligations from rental and lease agreements as of December 31, 2016
IN € MILLIO N
Future obligations from rental and lease agreements for real estate Future obligations from other operating leases
59
Due in less than 1 year
49.3
Due in 1 to 5 years
121.6
Due in more than 5 years
51.2
Future obligations from rental and lease agreements for real estate Future obligations from other operating leases
Rental and lease expenses for the fiscal year 2016 amount to € 70.0 million (prior year: € 65.2 million).
222.1
9.1
9.5
0.0
18.6
58.4
131.1
51.2
240.7
Future obligations from rental and lease agreements as of December 31, 2015
IN € MILLIO N
Dec. 31, 2016 Total
60
Due in less than 1 year
Due in 1 to 5 years
Due in more than 5 years
Dec. 31, 2015 Total
50.7
119.2
56.2
226.1
8.0
10.1
0.0
18.1
58.7
129.3
56.2
244.2
128
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Other notes 2 9 / A D D ITIO N AL I N FO RMAT I O N O N F IN A N CIA L I N ST RU MEN T S Carrying amounts by measurement category in accordance with IAS 39
61
IN € MILLIO N
Financial assets at fair value through profit or loss thereof held for trading Loans and receivables Available-for-sale financial assets Total assets Financial liabilities at fair value through profit or loss thereof held for trading
Dec. 31, 2016
Dec. 31, 2015
14.0
7.8
14.0
7.8
746.8
681.5
64.1
96.6
824.9
785.9
8.3
8.3
8.3
8.3
Financial liabilities measured at amortized cost
208.5
170.7
Total equity and liabilities
216.8
179.0
The following tables show the carrying amounts of financial instruments and, where they are measured at fair value, the respective classification in the fair value hierarchy:
Carrying amounts and fair values of financial instruments as of December 31, 2016
62
Fair value hierarchy Carrying amounts
Fair value
65.2
45.5
45.5
0.0
0.0
5.9
0.0
0.0
0.0
0.0
Non-current assets
71.1
45.5
45.5
0.0
0.0
Trade receivables 2
463.2
0.0
0.0
0.0
0.0
45.2
3.8
0.2
3.6
0.0
IN € MILLIO N
Other financial assets
1, 2, 3
Other non-current assets 2, 3
Other receivables and other current assets 2, 3
thereof level 1
thereof level 2
thereof level 3
Cash and cash equivalents 2
245.4
12.4
12.4
0.0
0.0
Current assets
753.8
16.2
12.6
3.6
0.0
Total assets
824.9
61.7
58.1
3.6
0.0
1.5
1.1
0.0
1.1
0.0
Other non-current liabilities 2, 3
12.6
6.3
0.0
0.0
6.3
Non-current liabilities
14.1
7.4
0.0
1.1
6.3
Current financial debt 2
5.2
0.1
0.0
0.1
0.0
Non-current financial debt 2
104.6
0.0
0.0
0.0
0.0
94.1
2.0
0.0
1.5
0.5
Current liabilities
203.9
2.1
0.0
1.6
0.5
Total equity and liabilities
218.0
9.5
0.0
2.7
6.8
Trade payables
2
Other current liabilities 2, 3
1 _ Includes investments in equity instruments for which no quoted prices on an active market are available. 2 _ Includes financial assets or liabilities whose carrying amount approximates fair value. 3 _ Includes financial assets or liabilities that are not included in the scope of IFRS 7.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Carrying amounts and fair values of financial instruments as of December 31, 2015
129
63
Fair value hierarchy IN € MILLIO N
Carrying amounts
Fair value
thereof level 1
thereof level 2
thereof level 3
97.8
82.9
49.9
0.0
33.0
Other financial assets 1, 2, 3 Other non-current assets
2, 3
Non-current assets Trade receivables 2
6.0
0.2
0.0
0.2
0.0
103.8
83.1
49.9
0.2
33.0
425.5
0.0
0.0
0.0
0.0
33.4
2.4
0.3
2.1
0.0
Cash and cash equivalents 2
223.2
7.1
7.1
0.0
0.0
Current assets
682.1
9.5
7.4
2.1
0.0
Total assets
785.9
92.6
57.3
2.3
33.0
1.0
0.9
0.0
0.9
0.0
7.4
4.4
0.0
0.0
4.4
8.4
5.3
0.0
0.9
4.4
Other receivables and other current assets
2, 3
Non-current financial debt 2 Other non-current liabilities
2, 3
Non-current liabilities
4.1
0.2
0.0
0.2
0.0
Trade payables 2
92.1
0.0
0.0
0.0
0.0
Other current liabilities 2, 3
75.5
3.9
0.0
3.8
0.1
Current liabilities
171.7
4.1
0.0
4.0
0.1
Total equity and liabilities
180.1
9.4
0.0
4.9
4.5
Current financial debt
2
1 _ Includes investments in equity instruments for which no quoted prices on an active market are available. 2 _ Includes financial assets or liabilities whose carrying amount approximates fair value. 3 _ Includes financial assets or liabilities that are not included in the scope of IFRS 7.
There were no reclassifications out of or into another level of the fair value hierarchy in the current fiscal year. The financial instruments allocated to level 2 are derivatives, securities and liabilities from finance leases. At level 3, mainly liabilities from contingent purchase price elements and purchase price liabilities from put options are recognized. The calculation of the fair values of forward exchange transactions and currency swaps is based on FX forward swap market data used to interpolate the current forward points (FX forward swaps) on a straight-line basis from the information available from Reuters and add them to the spot rate. This makes it possible to calculate the current price at which the hedge can be closed out.
The fair value of interest derivatives is calculated using discounted cash flow methods. To this end, the total value of an interest derivative is broken down into its individual cash flows, each of which is measured individually. Forward interest rates and valuations are recognized at the mean of the buying and the selling rate. The interpolation and any simulations are based on nominal interest, which is used to determine the zero interest rates in order to derive the discount factors. For interest derivatives in foreign currency, the present value is translated to euro at the mean of the buying and the selling rate.
130
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
The table below shows the development of the financial instruments recorded in level 3:
Reconciliation of financial instruments in level 3
64
Assets
Equity and liabilities
IN € MILLIO N
2016
2015
2016
2015
As of January 1
33.0
0.0
4.5
5.4
Currency translation differences
0.0
0.0
0.0
0.1
Additions
0.0
22.8
3.4
2.4
Changes with an effect on other comprehensive income
1.1
10.2
0.0
0.0
– 11.3
0.0
0.9
– 0.1
0.0
0.0
– 2.0
– 2.4
– 22.8
0.0
0.0
– 0.9
0.0
33.0
6.8
4.5
Changes recognized with an effect on net income Changes with an effect on cash and cash equivalents Disposals As of December 31
The disposals and changes with an effect on other comprehensive income from the reporting year result from the first-time consolidation of tüv süd ATISAE and ATICAL, two companies of the ATISAE Group. In the reporting year, the shares were written up by € 1.1 million based on the final purchase price adjustment. The overall amount of € 11.3 million recognized in other comprehensive income was then reclassified to the income statement. The additions to equity and liabilities primarily relate to contingent purchase price liabilities for the acquisition of the ATISAE Group. The disposals with an effect on cash and cash equivalents of € 2.0 million result from exercising an existing combined put-call option, for which a corresponding purchase price liability was recognized in prior years.
The net gains and losses on the financial instruments recognized in the income statement, by measurement category, are as follows:
Net gains and losses by measurement category
65
IN € MILLION
2016
2015
Financial assets / liabilities at fair value through profit or loss
– 3.5
– 5.0
Loans and receivables
– 4.1
– 3.8
Available-for-sale financial assets
12.2
1.5
2.6
0.8
7.2
– 6.5
Liabilities measured at amortized cost
The net gains and losses were mainly attributable to effects from impairment losses, currency hedging and currency translation as well as the result from the transfer of the write-up of the shares in tüv süd ATISAE from other comprehensive income to the income statement.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
131
The development of the valuation allowances on financial assets as well as the impairment losses recognized in the income statement in the fiscal year are as follows:
Development of valuation allowances on financial assets
66
Other financial assets
Other non-current assets
Trade receivables
Other receivables and other current assets
Total
20.1
0.1
13.2
11.9
45.3
Currency translation differences
0.4
0.0
0.3
0.1
0.8
Change in scope of consolidation
0.6
0.0
0.0
0.0
0.6
Additions
0.8
0.0
6.8
0.1
7.7
Utilization
– 0.2
– 0.1
– 4.0
– 1.1
– 5.4
Reversals
– 10.3
0.0
– 1.4
0.0
– 11.7 37.3
IN € MILLIO N
Valuation allowances as of January 1, 2015
Valuation allowances as of December 31, 2015 / January 1, 2016
11.4
0.0
14.9
11.0
Currency translation differences
0.1
0.0
0.0
0.0
0.1
Change in scope of consolidation
7.6
0.0
4.3
1.6
13.5
Additions
0.1
0.0
7.3
0.6
8.0
Utilization
– 5.8
0.0
– 3.5
– 9.4
– 18.7
Reversals
0.0
0.0
– 2.2
0.0
– 2.2
13.4
0.0
20.8
3.8
38.0
Impairment losses 2016
0.2
0.0
8.4
0.0
8.6
Impairment losses 2015
0.3
0.0
8.1
0.1
8.5
Valuation allowances as of December 31, 2016
3 0 / F IN A N C IA L RI SK S The tüv süd Group faces financial risks in the form of credit risks, liquidity risks and market risks. The principles of risk management are defined by tüv süd’s internal finance policy as well as numerous binding strategies and guidelines and are discussed in more detail in the management report. Credit risks (default risks) exist with regard to the operating business as well as to available-for-sale financial assets and derivative financial instruments. Depending on the nature and extent of the respective transaction, risk-mitigating measures must be taken for all transactions relating to the operating business. These include obtaining collateral, credit ratings or track records of prior business relations, particularly payment behavior. Recognizable risks are taken into account through appropriate valuation allowances on receivables that are based on objective indications in individual cases, or the maturity profile and actual default history.
The maximum credit risk for trade receivables, percentage-of-completion receivables and loans is their carrying amount as of December 31, 2016. Trade receivables that are past due are listed in note 18 “Trade receivables”. The maximum credit risk of available-for-sale financial assets and derivative financial instruments corresponds to their market value as of December 31, 2016. The risk of default on securities is minimized by a high degree of diversity in the investment strategy. Only securities with an investment grade credit rating are purchased. The tüv süd Group did not record any default on securities in the reporting year. Derivative financial instruments are only concluded with partners that have an investment grade rating and where a breach of contractual obligations is thus not expected.
132
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
According to internal trading policies, derivative financial transactions may only be concluded in close consultation with the corporate finance department and in connection with an underlying transaction. To limit risks, subsidiaries in Germany and other countries are prohibited from purchasing securities without approval from the corporate finance department. In order to manage liquidity risks, the tüv süd Group always has up-to-date liquidity planning and sufficient liquidity reserves in the form of cash and credit lines. Bank balances are held solely at banks with excellent credit ratings. In addition, maximum investment limits are set for investment funds at various banks based on their credit rating in order to avoid cluster risks. Risks relating to current securities are also minimized by widely diversifying issuers. In addition to cash and securities, the liquidity reserve comprises a syndicated credit line for € 200 million. The syndicated line has a term until December 2019, with an option of extending the term twice by one year each time. As of the reporting date, payments due within one year of € 203.9 million (prior year: € 171.7 million) and payments due in more than one year of € 14.1 million (prior year: € 8.4 million) are covered by cash and cash equivalents of € 245.4 million (prior year: € 223.2 million) as well as undrawn credit lines of € 211.1 million (prior year: € 212.1 million). The main market risks resulting from financial instruments are currency and interest rate risks. The scope for action with regard to currency management is defined by tüv süd’s internal policies. Currency risks in connection with the operating business are hedged using derivative financial instruments. Forward exchange transactions and cross-currency swaps are used to hedge intra-group loans in foreign currencies. With regard to trade receivables and payables, a 10% increase or decrease in the value of the euro against all other currencies as of December 31, 2016 would only have an immaterial effect on consolidated net income for the year. In the event of a 10% decrease in value of the euro, the market value of forward exchange transactions would fall by € 5.8 million (prior year: € 7.5 million). The market value of cross-currency swaps would increase by € 0.5 million (prior year: € 0.5 million) accordingly. In the event of a 10% increase in value of the euro against all other currencies, the market value of forward exchange transactions would rise by € 5.4 million (prior year: € 6.1 million). The market value of cross-currency swaps would decrease by € 0.4 million (prior year: € 0.4 million) accordingly.
Interest rate risks may arise for investments in fixed-interest securities. A 1% increase or decrease in interest rates would result only in insignificant changes in the market value. Financial debt may also be exposed to an interest rate risk. Derivative financial instruments are used on a case-by-case basis to hedge against this interest rate risk.
31 / NOTE S TO THE STATE M E NT OF CA SH F L OWS The cash and cash equivalents presented in the statement of cash flows contain all highly liquid items shown in the statement of financial position, i.e., cash in hand, checks and bank balances as well as current securities that are available within three months. An amount of € 0.1 million (prior year: € 0.1 million) of the cash is pledged. The contribution to pension plans consists of contributions equivalent to the pension payments made by the trustors to tüv süd Pension Trust e.V. of € 56.4 million (prior year: € 54.8 million). Together with one-off additions of € 30.0 million (prior year: € 29.9 million) to tüv süd Pension Trust e.V., € 10.0 million (prior year: € 0.0 million) to AHV and € 0.0 million (prior year: € 28.0 million) to tüv Hessen Trust e.V. as well as further additions to other plan assets of € 4.9 million (prior year: € 8.0 million), these payments are recognized as part of the cash flow from investing activities.
32 / SE GM E NT RE PORTING Segment information by division Based on the organizational structure and existing reporting structures, tüv süd has the three reportable segments i ndustry, mobility and certification, as defined by the Board of Management. These cover the technical services in the TIC (testing, inspection, certification) market. As the highest management level, the entire Board of Management regularly receives comprehensive information in order to assess the profitability of the segments described below and make decisions regarding the allocation of resources.
industry The Industry Service and Real Estate & Infrastructure Divisions support customers in operating industrial plants, infrastructure facilities, refineries, power plants and buildings safely and economically, as well as ensuring the functionality and safety of rail vehicles, signaling technology and rail infrastructures.
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
m obility This segment comprises all services for automobiles, which are offered by the Auto Service Division. These include services for homologation, used car valuations, management of vehicle fleets and product and process enhancement services for the automotive industry. For retail customers, roadworthiness tests and exhaust gas analyses as well as driver’s license tests in particular are offered.
c ertification The activities of the Product Service and Management Service Divisions are bundled in this segment. The Product Service Division offers services for the testing, inspection and certification of consumer goods as well as industrial and medical products. The Management Service Division supports companies in the auditing, appraisal, val-
133
idation and certification of management systems, in particular quality, environmental, energy and safety management systems. The activities not allocated to any segment are reported under
other. This includes basic and advanced vocational training at the Group’s own academies as well as driving suitability tests for road users and support with regaining and retaining their drivers’ licenses as well as holding activities. Individual assets of subsidiaries that cannot be allocated to actual business operations of the operational segments are also reported here. Consolidations of business relationships between the segments are recorded in the reconciliation column.
Segment information by division from January 1 to December 31, 2016 and as of December 31, 2016 IN € MILLIO N
External revenue
67
INDUSTRY
MOBILITY
CERTIFICATION
OTHER
953.7
702.6
583.9
7.4
1.3
2.8
Intersegment revenue
Reconciliation
Group
103.0
0.0
2,343.2
22.7
– 34.2
0.0
Total revenue
961.1
703.9
586.7
125.7
– 34.2
2,343.2
Amortization, depreciation and impairment losses
– 21.3
– 16.8
– 20.1
– 20.9
0.0
– 79.1
0.0
11.6
0.0
0.0
0.0
11.6
Income from investments accounted for using the equity method
77.9
55.2
58.8
6.7
0.2
198.8
Capital expenditures
EBIT
– 18.9
– 23.2
– 21.5
– 23.0
0.0
– 86.6
Segment assets as of December 31, 2016
533.5
351.7
321.3
267.9
– 14.8
1,459.6
EBIT of the area other contains the write-up of the existing stake in tüv süd ATISAE of € 11.3 million.
Segment information by division from January 1 to December 31, 2015 and as of December 31, 2015 IN € MILLIO N
External revenue Intersegment revenue
INDUSTRY
MOBILITY
CERTIFICATION
937.3
638.0
553.2
8.1
0.8
3.5
68
OTHER
Reconciliation
Group
93.5
0.0
2,222.0
26.0
– 38.4
0.0
Total revenue
945.4
638.8
556.7
119.5
– 38.4
2,222.0
Amortization, depreciation and impairment losses
– 29.5
– 12.8
– 17.6
– 22.4
0.0
– 82.3
Income from investments accounted for using the equity method
0.0
11.5
0.0
0.0
0.0
11.5
80.6
47.5
51.3
– 17.5
0.5
162.4
Capital expenditures
EBIT
– 18.7
– 18.3
– 22.8
– 20.6
0.0
– 80.4
Segment assets as of December 31, 2015
515.2
273.8
282.3
282.8
– 6.2
1,347.9
134
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
The same accounting policies are used as for the consolidated financial statements.
Information on geographic segments – external revenue
Transfer prices for revenue with other segments are determined using a market-based approach (at arm’s length).
IN € MILLION
EMEA thereof Germany
Segment performance is evaluated based on EBIT.
ASIA
The EBIT from the segment reporting is reconciled to income before taxes in accordance with the consolidated income statement as follows:
Reconciliation of EBIT to income before taxes IN € MILLIO N
EBIT according to segment reporting Interest income Interest expenses Other financial result Income before taxes according to consolidated income statement
69
2016
2015
198.8
162.4
1.7
2.8
– 18.0
– 19.7
0.1
– 1.1
182.6
144.4
Information on geographic segments The main geographic segments in which tüv süd operates are:
emea comprises the home market of Germany as well as Western Europe, Central & Eastern Europe and Middle East/Africa.
AMERICAS Total external revenue
a mericas covers both American continents, from Canada to the southern tip of South America.
2016
2015
1,787.7
1,671.6
1,416.1
1,361.5
348.8
339.7
206.7
210.7
2,343.2
2,222.0
Information on geographic segments – segment assets IN € MILLION
EMEA thereof Germany ASIA
71
Dec. 31, 2016
Dec. 31, 2015
1,070.6
995.8
776.3
782.3
273.0
258.7
AMERICAS
201.1
182.2
Reconciliation
– 85.1
– 88.8
1,459.6
1,347.9
Total segment assets
Assets are allocated according to their geographic location.
Reconciliation of segment assets to group assets IN € MILLION
a sia combines all the countries of the Asia/Pacific and south Asian area.
70
Segment assets Interest-bearing financial assets
72
Dec. 31, 2016
Dec. 31, 2015
1,459.6
1,347.9
49.1
58.5
Deferred tax assets
257.5
237.4
Cash and cash equivalents
245.4
223.2
2.2
2.8
2,013.8
1,869.8
Other interest-bearing current assets Group assets
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
3 3 / R E L ATE D PART I ES Related companies The ultimate parent companies of the tüv süd Group are tüv süd e.V., Munich, and tüv süd Stiftung, Munich (“tüv süd Foundation”). Both tüv süd e.V. and the tüv süd Foundation have transferred their shares in tüv süd ag to the independent shareholder committee, tüv süd Gesellschafterausschuss GbR. Internally, tüv süd e.V. and the tüv süd Foundation hold 74.9% and 25.1% stakes in the assets of tüv süd Gesellschafterausschuss GbR. Within the framework of an agency contract, the activities under the accreditation to operate the road vehicle technical inspectorate and the official inspection body in Baden-Württemberg are carried out by a company of the tüv süd Group for tüv süd e.V., as principal and recognized contractor. Business is conducted on behalf of, by order and for account of tüv süd e.V. All transactions and business processes are carried out in the tüv süd Group. tüv süd Auto Service GmbH maintains personnel and material in the scope necessary for the activities and operation. From the cost center accounting, the revenue allocable to tüv süd e.V. is calculated and transferred. 98.5% of revenue from the business officially mandated is invoiced by the operating entity as a lump-sum payment for agency services. In the fiscal year 2016, a total volume of
135
€ 139.2 million (prior year: € 137.5 million) was charged to tüv süd e.V. tüv süd e.V. recorded revenue of € 141.3 million (prior year: € 139.6 million) from this source. Cash pool liabilities of € 0.2 million (prior year: € 0.1 million) to tüv süd e.V. and of € 0.3 million (prior year: € 0.1 million) to subsidiaries of tüv süd e.V. are recorded as of the reporting date. At the end of 2015, the tüv süd Group entered into a commitment to support social projects of € 5.0 million in connection with the anniversary year 2016. Of this amount, € 3.5 million is to be donated for charitable causes; the remaining amount relates to the “Horizons” employee program and the tüv süd innovation prize. The first charitable projects have started and are being coordinated by the tüv süd Foundation. This obligation continues to be recognized under other liabilities. In the fiscal years 2016 and 2015, the tüv süd Group had business relationships with non-consolidated subsidiaries, associated companies and joint ventures that qualify as related parties. In the course of ordinary operations, all service transactions with these entities were carried out at arm’s length conditions. In 2016, transactions were carried out with material related parties that led to the following items in the consolidated financial statements:
Items of the statement of financial position from transactions with non-consolidated subsidiaries, associated companies and joint ventures Non-consolidated subsidiaries
73
Associated companies
Joint ventures
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2016
Receivables
3.5
0.8
0.0
0.0
0.0
0.0
Financial debt
1.1
0.2
0.0
0.0
0.0
0.0
11.9
6.5
0.0
0.0
0.1
0.1
IN € MILLIO N
Liabilities
Dec. 31, 2015
136
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Receivables from non-consolidated subsidiaries include valuation allowances amounting to € 3.8 million (prior year: € 11.0 million). Financial debt to non-consolidated subsidiaries stems from the central borrowing or investment of cash at tüv süd ag (cash pooling). There is also a cash pool liability of € 0.7 million (prior year: € 0.7 million) due to the welfare association of tüv Bayern e.V., Munich. The business relationships with joint ventures are based primarily on a license agreement between TÜVTURK Kuzey and TÜVTURK Güney (both licensors) and tüv süd Bursa (licensee). In 2016, dividend distributions of these companies amounted to € 9.7 million (prior year: € 8.4 million). Furthermore, there was a distribution of € 0.8 million of the joint venture ITV Levante acquired in 2016. Dividend distributions of € 0.9 million (prior year: € 1.1 million) were received from associated companies. As in the prior year, tüv süd ag issued a letter of comfort for one related company. It is assumed that the company can pay its current obligations itself. Claims are therefore not expected.
tüv süd ATISAE issued letters of comfort for two subsidiaries, ATISAE Trauxia ITV, S. L., Madrid, Spain, and Servicios Técnicos y Consultoria ITV, S. L., Torrelodones, Spain. For the expected utilization, a provision of € 0.9 million has been recognized in the consolidated financial statements. Remuneration of active members of the Board of Management and Supervisory Board The total remuneration of active members of the Board of Management amounted to € 4.9 million in the fiscal year 2016 (prior year: € 4.6 million). This includes variable, EVA-based salary components totaling € 2.2 million (prior year: € 1.9 million) that have generally not yet been paid out as of December 31. The additional service cost incurred for pension obligations amounted to € 0.3 million (prior year: € 0.3 million). The present value of the defined benefit obligation calculated in accordance with IFRSs amounted to € 6.0 million as of the reporting date (prior year: € 4.8 million). The active members of the Supervisory Board received total remuneration of € 1.0 million in the fiscal year 2016 (prior year: € 1.0 million).
Remuneration of former members of the Board of Management and Supervisory Board The total remuneration of former members of the Board of Management and their surviving dependents including pension payments and other payments (advisory services) amounted to € 1.1 million (prior year: € 1.1 million). Pension obligations (DBOs) amounting to € 16.2 million (prior year: € 15.8 million) are in place with regard to former members of the Board of Management and their surviving dependents.
34 / P ROPOSA L F OR THE A PPROPRIATION OF PR OF I T The Board of Management and Supervisory Board will propose to the annual general meeting to distribute € 2.1 million from the retained earnings under German GAAP of tüv süd ag totaling € 101.3 million, equivalent to € 0.08 per share. The remaining amount of € 99.2 million is to be carried forward to new account.
35 / A UDITOR’S F E E S Fees of the auditor KPMG AG Wirtschaftsprüfungsgesellschaft
74
2016
2015
Audit of the financial statements
0.8
0.8
Tax advisory services
0.5
0.8
Other services
0.1
0.1
1.4
1.7
IN € MILLION
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
137
3 6 / C O N S O L IDAT ED EN T I T I ES Consolidated entities
75
Share in capital in %
NA ME A ND RE G ISTE RE D OFF IC ES O F TH E EN TITY F ULLY CONSOLIDATE D AFFILI ATED C O M PA N IES – G ER M A N Y
APZ Auto-Pflege-Zentrum GmbH, Darmstadt
100
ARMAT GmbH & Co. KG, Pullach i. Isartal
*)
100
ARMAT Südwest GmbH & Co. KG, Pullach i. Isartal
*)
100
Elektro-Beratung Bayern GmbH, Landwirtschaftlicher Prüfdienst, Munich FleetCompany GmbH, Oberhaching
100 *)
100
MI-Fonds F60, Munich
100
PIMA-MPU GmbH, Munich
100
SIGNON Deutschland GmbH, Berlin
100
TÜV Hanse GmbH TÜV SÜD Gruppe, Hamburg TÜV Hessen Immobilien Service GmbH & Co. KG, Gräfelfing
90 F
TÜV SÜD Advimo GmbH, Munich TÜV SÜD Akademie GmbH, Munich TÜV SÜD Auto Partner GmbH, Hamburg
100 *)
TÜV SÜD Auto Plus GmbH, Leinfelden-Echterdingen TÜV SÜD Auto Service GmbH, Stuttgart
*)
100
*)
100
*)
100
70
TÜV SÜD Car Registration & Services GmbH, Munich TÜV SÜD Chemie Service GmbH, Leverkusen
50
TÜV SÜD Ecoplan Deutschland GmbH, Munich
100
TÜV SÜD ELAB GmbH, Siegen TÜV SÜD Energietechnik GmbH Baden-Württemberg, Filderstadt
100 100
TÜV SÜD Battery Testing GmbH, Garching TÜV SÜD Business Services GmbH, Munich
55 100
100 *)
TÜV SÜD Food Safety Institute GmbH, Neu-Isenburg
100 100
TÜV SÜD ImmoWert GmbH, Munich
*)
100
TÜV SÜD Industrie Service GmbH, Munich
*)
100
TÜV SÜD Life Service GmbH, Munich
*)
100
TÜV SÜD Management Service GmbH, Munich
*)
100
TÜV SÜD Pluspunkt GmbH, Munich
*)
100
TÜV SÜD Product Service GmbH, Munich
100
TÜV SÜD Rail GmbH, Munich
100
TÜV SÜD Sec-IT GmbH, Munich
100
TÜV SÜD Umwelt GmbH, Munich
100
TÜV SÜD Umwelt Messtechnik GmbH, Munich
100
TÜV Technische Überwachung Hessen GmbH, Darmstadt F = First-time consolidation *) The domestic subsidiary meets the requirements of Section 264 (3) HGB or Section 264b HGB, and takes advantage of the corresponding exemption regulations.
55
138
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Share in capital in %
NAME AND REGIST ERED O FFIC ES O F TH E EN TITY F ULLY CO NSO LID AT ED A FFILIATED C O M PA N IES – O TH ER C O U N TR IES
ARISE (Canada) Inc., Saint John, New Brunswick, Canada
100
ARISE Boiler Inspection and Insurance Company Risk Retention Group, Louisville, USA
100
ARISE Inc., Wilmington, USA ATISAE de Castilla y León, S.A.U., Miranda de Ebro, Spain
100 F
100
Bureau de Projetos e Consultoria Ltda., São Paulo, Brazil
100
Bytest S.r.l., Volpiano, Italy
100
Dunbar & Boardman Partnership Ltd., Fareham Hants, UK
100
ÉMI-TÜV SÜD Minöségügvi és Biztonságtechnikai Korlátolt Felelösségü Társaság, Szentendre, Hungary
62.13
Fleet Logistics Finland Oy, Helsinki, Finland
100
Fleet Logistics France S.A.S, Boulogne-Billancourt, France
100
Fleet Logistics International N.V., Vilvoorde, Belgium
100
Fleet Logistics Italia S.r.l., Milan, Italy
100
Fleet Logistics Nordic AB, Malmö, Sweden
100
Fleet Logistics UK Ltd., Birmingham, UK
100
FLTL, Logistics Portugal, unipessoal Lda., Lisbon, Portugal
100
Global Risk Consultants (Australia) Pty Ltd., Melbourne, Australia
100
Global Risk Consultants (Guangzhou) Co. Ltd., Guangzhou, China
100
Global Risk Consultants Corp., Wilmington, USA
100
Global Risk Consultants Ltd., West Byfleet, UK
100
Global Risk Consultores (Brasil) Ltda., São Paulo, Brazil
100
GRC Merlin Holdings, Inc., Wilmington, USA
100
Magyar TÜV SÜD Müszaki Szakértoi Korlátolt Felelösségü Társaság, Szentendre, Hungary
100
National Association of Boiler and Pressure Vessel Owners and Operators, Inc., Louisville, USA
100
Nuclear Technologies plc., Gloucester, UK
100
P.H. S.r.l., Tavarnelle Val di Pesa, Italy
100
PetroChem Inspection Services Inc., Pasadena, USA
100
PT. TUV SUD Indonesia, Jakarta Pusat, Indonesia
99
RCI Consultants, Inc., Houston, USA
100
SIGNON Österreich GmbH, Vienna, Austria
51
Superfresh Ltd., Fareham Hants, UK
100
TCOPlus B.V.B.A., Vilvoorde, Belgium
100
TÜV Italia S.r.l., Milan, Italy
100
TUV SUD (Malaysia) Sdn. Bhd., Kuala Lumpur, Malaysia
100
TUV SUD (Thailand) Ltd., Bangkok, Thailand
100
TÜV SÜD (UK) Ltd., Fareham Hants, UK
100
TUV SUD AL Technologies Pte. Ltd., Singapore
100
TÜV SÜD América de México S.A. de C.V., Monterrey N.L., Mexico
100
TÜV SÜD America Inc., Danvers, USA
100
TUV SUD Asia Ltd., Shatin, Hong Kong
100
TUV SUD Asia Pacific Pte. Ltd., Singapore
100
TÜV SÜD ATISAE, S. A. U., Madrid, Spain TUV SUD BABT Unltd., Fareham Hants, UK
F
100 100
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
NA ME A ND RE G ISTE RE D OFF IC ES O F TH E EN TITY
139
Share in capital in %
TUV SUD Bangladesh (Pvt.) Ltd., Dhaka, Bangladesh
100
TÜV SÜD Benelux B.V.B.A., Boortmeerbeek, Belgium
100
TÜV SÜD Benelux VZW, Boortmeerbeek, Belgium
100
TÜV SÜD Bursa Tasit Muayene Istasyonlari Isletim A.S., Osmangazi-Bursa, Turkey
100
TÜV SÜD Canada Inc., Newmarket, Canada
100
TÜV SÜD Central Eastern Europe s.r.o., Prague, Czech Republic
100
TUV SUD Certification and Testing (China) Co., Ltd., Wuxi, China
51
TUV SUD China Holding Ltd., Shatin, Hong Kong
100
TÜV SÜD Czech s.r.o., Prague, Czech Republic
100
TÜV SÜD Danmark ApS, Hellerup, Denmark
100
TÜV SÜD France S.A.S., Ecully, France
100
TUV SUD Global Inspection Ltd, Shatin, Hong Kong
100
TUV SUD Hong Kong Ltd, Shatin, Hong Kong
100
TÜV SÜD Iberia, S.A.U., Barcelona, Spain
100
TUV SUD Inspection Authority (Pty) Ltd., Cape Town, South Africa
74
TUV SUD Invest Inc., Dover, USA
100
TÜV SÜD Japan Ltd., Tokyo, Japan
100
TÜV SÜD KOCEN Ltd., Seongnam-si, South Korea
100
TUV SUD Korea Ltd., Seoul, South Korea
100
TÜV SÜD Landesgesellschaft Österreich GmbH, Jenbach, Austria
100
TUV SUD Ltd., Glasgow, UK
100
TUV SUD Management Consulting (Shanghai) Co. Ltd., Shanghai, China
100
TUV SUD Middle East Co. LLC, Muscat, Oman
51
TUV SUD Middle East LLC (Qatar), Doha, Qatar
51
TUV SUD Middle East LLC, Abu Dhabi, United Arab Emirates
51
TÜV SÜD Nederland B.V., Ede, Netherlands
100
TÜV SÜD Polska Sp. z.o.o., Warsaw, Poland
100
TÜV SÜD Products Testing (Shanghai) Co., Ltd., Shanghai, China TÜV SÜD PSB Philippines Inc., Pasig City, Philippines
100 99.99
TUV SUD PSB Pte. Ltd., Singapore
100
TÜV SÜD Romania S.R.L., Bucharest, Romania
100
TÜV SÜD Sava d.o.o., Ljubljana, Slovenia
100
TÜV SÜD Schweiz AG, Zurich, Switzerland
100
TUV SUD Services (UK) Ltd., Fareham Hants, UK
100
TÜV SÜD SFDK Laboratório de Análise de Produtos Ltda., São Paulo, Brazil
100
TÜV SÜD Slovakia s.r.o., Bratislava, Slovakia
100
TUV SUD South Africa (Pty) Ltd., Cape Town, South Africa TUV SUD South Africa Pro-Tec (Pty) Ltd., Middelburg, South Africa TUV SUD South Africa Real Estate Services (Pty) Ltd., Cape Town, South Africa
74 74 55.13
TUV SUD South Asia Pte. Ltd., Mumbai, India
100
TÜV SÜD Teknik Güvenlik ve Kalite Denetim Ticaret Ltd. Sirketi (TGK), Istanbul, Turkey
100
TUV SUD Vietnam Co. Ltd., Ho Chi Minh City, Vietnam
100
TÜV SÜD Zacta Ltd., Tokyo, Japan
99.4
F = First-time consolidation
140
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
Share in capital in %
NA ME A ND RE G ISTE RE D OFF IC ES O F TH E EN TITY CON SOLIDATE D ASSOCIATE D C O M PA N IES – O TH ER C O U N TR IES
SECTA Société Européenne de Contrôle Technique Automobile S.A., Courbevoie, France
38.22
CON SOLIDATE D J O INT VE NT U R ES - O TH ER C O U N TR IES
ITV de Levante, S.A., Valencia, Spain
F
50
TÜVTURK Güney Tasit Muayene Istasyonlari Yapim ve Isletim A. S., Istanbul, Turkey
33.33
TÜVTURK Kuzey Tasit Muayene Istasyonlari Yapim ve Isletim A. S., Istanbul, Turkey
33.33
F = First-time consolidation
Munich, March 13, 2017
tüv süd ag The Board of Management Prof. Dr.-Ing. Axel Stepken
Dirk Eilers
Dr. Matthias J. Rapp
Karsten Xander
TÜV SÜD AG ANNUAL REPORT 2016
90
Consolidated income statement
94
Consolidated statement of changes in equity
91
Consolidated statement of comprehensive income
96
Notes to the consolidated financial statements
Consolidated financial statements
92
Consolidated statement of financial position
141
Auditor’s report
93
Consolidated statement of cash flows
AUDITOR’S REPORT “We have audited the consolidated financial statements prepared by tüv süd ag, Munich, comprising the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity and the notes to the consolidated financial statements, together with the combined management report of the tüv süd Group and tüv süd ag for the business year from January 1 to December 31, 2016. The preparation of the consolidated financial statements and the group management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315a (1) HGB [“Handelsgesetzbuch”: German Commercial Code] are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with Section 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the management report are
examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant to Section 315a (1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements, complies with the German statutory requirements, and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.”
Munich, March 13, 2017
KPMG AG Wirtschaftsprüfungsgesellschaft Feege Hachmann Wirtschaftsprüfer Wirtschaftsprüfer [German Public Auditor] [German Public Auditor]
141
142
TÜV SÜD AG ANNUAL REPORT 2016
Notes and future-oriented statements In this annual report, tüv süd makes statements relating to the future development of business and future financial and non-financial performance indicators. These statements can be recognized by wording such as “expect”, “intend”, “anticipate”, “plan” and similar terms. These statements are based on current expectations and certain assumptions on the part of the company management, many of which are beyond the control of tüv süd. They are subject to a large number of risks, uncertainties and factors, including but not limited to those described in the annual report. If one or more of these risks or uncertainties should occur, or if it should prove to be the case that the underlying expectations do not materialize or that assumptions were incorrect, the actual events, performance and profits of tüv süd can deviate significantly from the events explicitly or implicitly referred to in the outlook.
Due to rounding, it is possible that individual figures in this annual report do not add up to exactly the given total, and that percentages presented do not reflect exactly the absolute figures to which they refer. In the event of differences between the English translation and the German version of this annual report, the German version is authoritative and has precedence over the English. For technical reasons, there may be differences between the accounting documents in this annual report and those published due to statutory requirements.
Imprint Published by TÜV SÜD AG Westendstraße 199 80686 Munich Germany Phone +49 89 5791-0 Fax +49 89 5791-1551 info@tuev-sued.de www.tuv-sud.com © TÜV SÜD AG, Munich. All rights reserved.
Corporate Communications Matthias Andreesen Viegas, Jörg Riedle (project manager) Corporate Accounting and Taxes Stefan Lembert, Katharina Höfner, Heike Lenhardt Photography Frank Bauer, Claus Uhlendorf Design and layout MPM Corporate Communication Solutions, Mainz www.mpm.de Printed by G. Peschke Druckerei GmbH, Parsdorf Published on April 6, 2017
T Ü V S Ü D AG Westendstraße 199 80686 Munich Germany PHONE + 49 89 5791- 0 FAX + 49 89 5791-1551 EMAIL info@tuev-sued.de WEB www.tuv-sud.com